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AdaptHealth Corp. (NASDAQ:AHCO)
Q2 2020 Earnings Call
Aug 04, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to AdaptHealth Corp. second-quarter 2020 financial results conference call. [Operator instructions] I would now like to turn the conference over to your host, Mr. Chris Joyce, general counsel.

Thank you. You may begin.

Chris Joyce -- General Counsel

Thank you Laura. I'd like to welcome everyone to AdaptHealth Corp.'s earnings conference call for the quarter ended June 30, 2020. Everyone should have received a copy of our earnings release earlier this morning, if not, I'd like to highlight that the earnings release as well as a supplemental slide presentation regarding Q2 2020 results is posted on our investor relations page. In a moment, we'll have some prepared comments from Luke McGee, chief executive officer; Josh Parnes, president; and Gregg Holst, our retiring chief financial officer.

We'll then open the call for questions. Before we start, I'd like to remind everyone that statements included in this conference call and in our earnings release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2020 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties which are discussed in our annual and quarterly SEC filings.

AdaptHealth Corp. will have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, we'll reference certain financial measures, such as EBITDA and adjusted EBITDA which are non-GAAP financial measures. A table providing supplemental information on EBITDA and adjusted EBITDA is included in today's first quarter earnings release.

This morning's call is being recorded, and a replay of the call will be available later today. I'm now pleased to introduce our six executive officer, Luke McGee.

Luke McGee -- Chief Executive Officer

Thanks Chris, and thanks everyone for joining the call this morning. Before I get to my remarks on Q2, I would like to acknowledge the tremendous efforts of AdaptHealth's frontline brand staff, clinical teams and delivery drivers, who've played such an important role in AdaptHealth's continued service of our patients' health needs during these extraordinary times. Throughout the last 5 months, our priorities have been and will continue to be the health and well-being of our workforce and our patients. I am incredibly proud of the entire AdaptHealth team and how each and every team member has stepped up to help those in need throughout the COVID-19 crisis.

We had an extraordinarily busy and productive second quarter. Our core business performed well, and we were active in identifying attractive acquisition candidates to help further our strategic long-term goals. As previously announced, we closed two strategically important acquisitions on July 1, 2020, Solara Medical Supplies and ActivStyle Inc. Solara is a leading independent distributor of continuous glucose monitors in the U.S.

This is a transformative transaction that will establish AdaptHealth as a leader in the fast-growing diabetes management business. CGM technology continues to be rapidly adopted by the diabetic community as it offers more real-time feedback on blood glucose levels compared to traditional test strips and blood glucose meters. Additionally, the recurring provision of CGM sensors and transmitters fits in well with our core competency around resupply to patients with chronic conditions. ActiveStyle is a distributor of incontinence products and related home medical supplies.

It adds needed critical mass and the potential to capture synergies to our AdaptHealth patient care solutions business that we bought from McKesson Corporation on January 2, 2020. On AdaptHealth's core business, I'm proud to state that we continue to run ahead of the plan we established at the beginning of the year. For the quarter, we generated $232 million in net revenue, $42.6 million of adjusted EBITDA and most importantly, $30.6 million of adjusted EBITDA less patient equipment capex, our standard for measuring financial success. Excluding the results of our patient care solutions acquisition which we previously communicated would require investments in the first year, we earned $46.2 million and $34.2 million of adjusted EBITDA and adjusted EBITDA less patient equipment capex, respectively which are record quarterly results for the company, and validate our strategy of growing organically and integrating accretive acquisitions onto our technology platform.

Our traditional direct-to-patient HME and supplies business performed well for the quarter, considering the challenges presented by the COVID-19 pandemic. The strength of our resupply business largely offset softness in product lines adversely impacted by stay-at-home orders, such as CPAP equipment new starts orthotics, walkers, commodes and other products closely linked to discharges from emergency rooms and similar facilities following elective procedures. While the downward pressure on PAP new starts and other lines of business linked to hospital and long-term care discharges has subsided since the end of Q2. We do not expect volumes in these areas will return to pre-pandemic levels in 2020.

To offset adverse financial impacts of the COVID-19 pandemic on our Q2 results, we expanded our sales efforts and focused on providing a wide range of respiratory and other equipment to our referral partners. We were able to generate approximately $28 million of B2B revenue for equipment sales and rentals of products like ventilators, bi PAP machines, oxygen concentrators, thermometers, blood pressure cuffs and pulse oximeters. Although not a traditional distribution channel for AdaptHealth, we've been able to utilize our supply chain to provide much-needed equipment to municipalities, NGOs and hospital systems. We expect this channel to generate $7 million in revenue for the next few quarters based on continued COVID-19-related needs.

Now, I'd like to turn the call over to Josh Parnes, our president, to discuss our integration activities.

Josh Parnes -- Chief Financial Officer

Thanks Luke. Our PCS, patient care solutions, business has been an important point to focus for our team since its acquisition in January 2020. As we previously disclosed, PCS is a turnaround situation, and as part of our investment, we expect $50 million in onetime restructuring and operational losses in 2020. We are pleased with our progress in addressing and curing various issues at PCS in the first half of the year.

Adding PCS to our resupply platform has yielded important benefits, and the business's revenue outperformed our expectations in Q1 and Q2. We continue to believe PCS will be profitable in the fourth quarter of 2020 as a result of better cash collections and improvements in vendor pricing and product formulary improvements. I'll be very focused on the integration of ActivStyle and Solara over the next few months. Our strategy is to integrate ActivStyle and PCS in order to add needed scale and product diversity to our medical supplies business.

ActivStyle has resupply processes that we expect will improve resupply rates on the PCS business. We also expect the integration of these businesses will drive efficiencies in operating expenses and corporate services. Solara will be the platform for the AdaptHealth diabetes business, and we'll be transitioning the CGM business of PCS to Solara. Solara has an excellent management team, led by Steve Foreman, and the previous owners made investments in infrastructure including a web and mobile-enabled patient portal that we believe will allow us to accelerate growth after the integration phase.

Diabetes is among the most costly chronic diseases in the U.S., and there's an opportunity to drive down healthcare costs associated with diabetes with better technology and disease management. CGM technology is a leap forward in giving patients the information they need to manage their condition. This is largely a resupply business that generates recurring revenue and is very well suited to our core competencies in resupply, billing and referral relationships. In addition to the integration work, we will be focused on continuing to invest in technology and business processes throughout the balance of 2020.

With investment, we believe we can drive down operational costs while offering a better patient experience for our more than 1.7 million patients that we service annually. At this point, I'll turn the call back over to Luke.

Luke McGee -- Chief Executive Officer

Thanks, Josh. Before Gregg provides comments on the financial results for the quarter in more detail, I want to comment on recent capital raising activity. In early July, we issued 9.2 million shares in an underwritten all primary share public offering raising approximately $134 million in net proceeds. The equity offering followed a pipe issuance of $225 million to One Equity Partners and Deerfield in connection with the Solara and ActivStyle transactions.

We also issued $350 million and 6.125% unsecured senior notes with a final maturity in 2028. Lastly, we refinanced our senior secured bank facility with $250 million drawn at closing and a $200 million undrawn revolver. The result of these activities enhances our ability to grow and invest to achieve our longer-term vision. Today, we have in excess of $300 million of cash on the balance sheet, $200 million of undrawn revolver capacity, and our net leverage is well under our stated goal of three times EBITDA.

We are appreciative of the support of Deerfield and One Equity Partners and certainly humbled by the response we've received in the public markets and are committed to delivering results. I also want to welcome two new board members to AdaptHealth, Brad Coppens and David Williams. Brian Coppens is a managing director of One Equity Partners. He was a great resource for us as we were doing the Solara transaction, and I look forward to working with him on our board.

David Williams is a serial entrepreneur and co-founder and current CEO of Care3, Inc. We expect to benefit from his experience in healthcare technology and patient connections. Additionally, I would like to welcome our new six financial officer, Jason Clemens. Jason joined AdaptHealth in mid-July and has formally replaced Gregg in a CFO role this week.

Jason comes to us from MEDNAX, where he was the company's operations CFO. Jason has great public company experience which will be immensely valuable to Josh and I as the leaders of the new public company. He also has a strong operational mindset that will be very important as we press our advantage with all the opportunities ahead of us. Lastly, before I turn it over to Gregg, I'd like to express my sincere appreciation for all the work Gregg as done over the past six years.

Gregg has been a critical part of the success of AdaptHealth. I'm grateful to have worked with him growing and maturing our business. I wish him the best of luck in his retirement. Gregg, turning it over to you.

Gregg Holst -- Retiring Chief Financial Officer

Thanks Luke. I also want to welcome Jason to AdaptHealth. His background is an excellent fit for AdaptHealth, and I'm fully confident he will be a great partner to Luke, Josh and the rest of the AdaptHealth team. Our second quarter was the strongest in our history in terms of revenue and profitability.

We generated net revenue of $232.1 million, an 87% increase from the second quarter of 2019, 21% higher than the first quarter of 2020. Included in that amount, PCS generated net revenue of $33 million. Adjusted EBITDA less patient equipment capex was $30.6 million compared to $18.1 million in the second quarter of 2019. Excluding PCS which incurred a quarterly loss of $3.6 million, adjusted EBITDA less patient equipment capex was $34.2 million, an 89% increase compared to the second quarter of 2019.

Adjusted EBITDA was $42.6 million compared to $29.5 million in the second quarter of 2019. Excluding PCS, adjusted EBITDA was $46.2 million, a 50% increase compared to the second quarter of 2019. Net income attributable to the AdaptHealth's Corp. was $4 million.

This compares to a net loss of $2.1 million in the second quarter of 2019. I want to emphasize our results do not include any of the $17 million we received in April as CARES Act stimulus. These funds are intended to cover lost revenue and additional expenses related to COVID-19. Based on actual expenses occurred and lost revenue from CPAP new starts and declines in other products, as previously discussed, we believe we will be entitled to keep these stimulus funds.

We continue to monitor regulatory guidance, and we'll make the appropriate certifications when more definitive guidelines are finalized. In regards to the balance sheet, we ended the quarter with $111 million of cash. Currently, taking into account, the closing of our equities financing, successful bond offering and refinancing of senior secured facility, we have in excess of $300 million of cash on the balance sheet and $200 million of undrawn capacity on our revolver. With that, I'll turn it back to Luke.

Luke McGee -- Chief Executive Officer

Thanks Gregg. Before we open it up for questions, I want to restate our strategic vision and increase our 2020 guidance. With recent acquisitions, we have built a company that is a leading provider of home medical equipment, diabetes management and medical supplies to the home. These are recurring, nondiscretionary products that help our patients manage their chronic conditions in the home.

We're a leader in sleep and diabetes, two fast-growing product categories, but we are also well diversified in other important categories in the home. Over time, we believe there is an opportunity to utilize our patient connections, referral relationships and payer contracts to offer a connected health solution. With 1.7 million patients under our care annually, we believe we can become a value-added partner to payers, providers and patients. In terms of guidance, we cannot predict the duration of the COVID-19 crisis or the full impact on our business but based on our current trends, we are increasing our financial guidance for 2020 net revenue to between $935 million and $983 million, adjusted EBITDA of $169 million to $178 million and adjusted EBITDA less patient equipment capex of $120 million to $127 million.

This outlook includes anticipated adjusted EBITDA losses for PCS. Please note, our previous guidance excluded expected PCS losses of approximately $7 million. In conclusion, I'd like to reiterate my thanks and appreciation for all the AdaptHealth employees. They have stepped up and delivered record financial results, will continue to serve our patients and referral partners with courage and professionalism.

I remain more confident than ever about our strategy and prospects. Operator, can you open the line up for questions?

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Pito Chickering with Deutsche Bank. You may proceed with your question.

Pito Chickering -- Deutsche Bank -- Analyst

Good morning guys. Thanks for taking my question. A couple of questions here. The first one is on guidance.

There's definitely a lot of moving parts within guidance. But if I take 2Q EBITDA less capex of $30.5 million and take the pro forma accretion from Solara and ActivStyle excluding the synergies, it's about $12 million a quarter. That get to pro forma run rate of about $42.5 million a quarter. Looking at the revised guidance, it looks though the back half EBITDA less capex is $75.5 million.

So can you help us sort of bridge what the pro forma 2Q EBITDA minus capex is into the back half of the year?

Luke McGee -- Chief Executive Officer

Yeah. No, it's a great question, Pito. And I think sort of taking $30.5 million, that includes a significant pickup from the B2B business that although we expect to get some continued traction in the back half of the year, it won't be anywhere close to the $28 million that we had in Q2. I think you should assume sort of the margins on that business was sort of mid- to high-20s contribution margin.

And so when you back that out of the quarter, also, you should add back the PCS losses. I think a clean quarter absent both of those would have looked like something in line with our previous guidance in the $24 million to $26 million range. You'll multiply that by four and you add on the number you suggested for the acquisitions. And I think you'd find you're in line with our guidance.

Pito Chickering -- Deutsche Bank -- Analyst

OK. Got it. Perfect. And then in the press release you guys talked about how you focused on the resupply business during 2Q.

What was the CPAP reorder rate this quarter versus other quarters? And do you think this is a new level, if it's better, then it's sustainable going forward?

Luke McGee -- Chief Executive Officer

I mean it's hard to say whether it's going to be even better. I can tell you that the CPAP supply business, whether you look at it sort of with acquisitions or on a same-store basis, we were up low double digits for the quarter. There is definitely some impact of that which is related to people in April at the height of the pandemic ordering. At the same time, even as we look in July, we're still up single digits on a same-store basis on a resupply.

So I do think that we've probably captured patients that would have otherwise treated and fallen off therapy as they've stated at home and focused on the respiratory hygiene. So I think we're cautiously optimistic that, yes, we've seen sort of a permanent shift up in sort of resupply rates. We're certainly focused on making sure we do everything we can to make that a permanent trend, getting in touch with those patients. And as Josh mentioned, we view the second half is, yes, integration, integration, integration and also just investing in better business processes and technologies including patient reorder experience to make that -- doubly make sure it's a permanent shift.

Pito Chickering -- Deutsche Bank -- Analyst

OK. And then last quick question for you here on PCS. So sort of $2.6 million loss in 2Q. How much of that loss is sort of due to COVID and kind of what would the loss have been in 2Q if we didn't have COVID? Thanks so much.

Luke McGee -- Chief Executive Officer

Yeah. Because it's such a resupply business, I actually -- I don't think there's been much of a COVID impact on PCS. Now we've seen revenue largely track ahead of plan. Expense -- operating expenses tracked at plan as well.

But unfortunately, our acquisition cost of products, we've run behind plan. If you add all this together, PCS is actually almost directly in line with our original plan. So I don't think of any part of the business that's probably been the least impacted by COVID, you've seen respiratory, oxygen and PAP supply go up. You've seen PAP new starts orthotics and some of the other bent metal go down, but PCS has been pretty steady.

And so I wouldn't attribute too much COVID weakness to that business.

Pito Chickering -- Deutsche Bank -- Analyst

Great. Thanks so much guys. Nice quarter.

Operator

Our next question comes from the line of Stephen Tanal with SVB Leerink. You may proceed with your question.

Stephen Tanal -- SVB Leerink -- Analyst

Good morning guys. Appreciate all the color on COVID. It sort of sounds like you're framing the gross revenue impact at around $28 million in the B2B number. But I wonder if you've estimated the amount you lost because of the pandemic and by extension may be a net sort of revenue contribution.

I also appreciate, like a few other details, perhaps like the direct spending in G&A that you don't think will recur next year and maybe an estimate of the net effect on EBITDA if you guys have taken it to that level?

Luke McGee -- Chief Executive Officer

Yeah. At this time, Steve, we're not going to provide sort of all of that detail. What I can tell you is the direct sort of spending in the first half related to COVID so far is in the mid-single digit of sort of G&A and labor impact. In terms of -- we can certainly think about quantifying for you guys on the next call exactly what the revenue impact has been.

But you're right on the B2B, it's $28 million in Q2. And as I said, I think we expect that to be a couple of million per quarter throughout the rest of the year.

Stephen Tanal -- SVB Leerink -- Analyst

That's helpful. OK. And so then I guess to the extent you expect weakness in certain traditional lines of business to extend past year-end, I wonder if you can give us a sense for how that impacts the outlook and where you think pro forma run rate revenue for the business you've built today, like kind of in its current state, would be in a more normal environment?

Luke McGee -- Chief Executive Officer

Yeah. And so I think if you look at -- and just to go into a little bit more detail on sort of start trends, so you guys -- so everyone has an understanding. The two big business lines that were impacted the most severely where PAP new starts. And so for the quarter, on a same-store basis, you looked at sort of down approximately 30%.

You've seen that mitigate here in July. It's not down quite as much in July. We actually had the best week we've had since March in terms of new scripts coming in on PAP new starts in the last week of July. And so certainly, we think even with obviously the COVID pandemic still sort of hitting parts of the country very severely still, we've seen the rebound in that PAP new starts.

And then if you look at orthotics, that would have been the next largest business line that's impacted. There, it's interesting because if you look at just on the same-account basis, we were down about 30% in Q2. Again, that's mitigating a little bit here in July. But because we've been expanding that business line, sort of -- it's really organic growth because we've just taken that competency to other markets.

Really, it was only off about 12% when you include kind of those new de novo markets that we've started. And what you've then seen is in Q2, you saw walkers, commodes and wheelchairs be down. Those are coming back a lot faster than the sleep business. So you saw walkers and commodes basically flat in July year over year.

You've wheelchairs actually be about flat. Beds are up pretty significantly. And so if we look at sort of the impact for the rest of the year, really, the area of sort of the most severe weakness for us will be those CPAP new starts. I'm very cautious about, even as the country opens back up, people going back in and going into sleep lounge and taking tests overnight, I think it's going to be slow.

There's a backlog of availability even as those doctors open back up. We've challenged our teams to do more on the home sleep side because we do think that that was a trend that was occurring pre-COVID and is only accelerating post-COVID of people who are eligible and can take a home sleep test, are going to do that more. And so we've certainly challenged our teams to do more on that. In terms of revenue, I think if you sort of back out the first half from the guidance we've provided, that's a pretty good run rate of where we think the business should come into.

There's not going to be a lot of one time, as I said, it's a couple million dollars of B2B, and that guidance includes what we think is the impact of the slowdown in new starts on the PAP business.

Stephen Tanal -- SVB Leerink -- Analyst

All right. That's super helpful. And I guess, shifting gears for a minute to Solara and ActivStyle, it sounds like the integrations are progressing pretty well there, just the month in. But I was wondering if maybe at a high level, you can give us a sense for like what's been done to integrate the platforms and kind of what's left to do? And then maybe your thoughts on how long it will take to get back in a position to execute sizable transactions after these deals?

Luke McGee -- Chief Executive Officer

We'll split that. I'm going to answer the second part first. I'm going to turn it over to Josh to get some details. I mean I would caution it is early.

We've only owned these businesses for a month. I think we are excited as if not more excited about the acquisitions today than we were when we signed the deals in May. Both businesses are exhibiting strong organic new start trends. The CGM business, if you look at it on a combined basis with the existing CGM business that we bought from McKesson and Rodney Carson has helped grow for us.

You add that to Solara, and you saw just an absolutely strong Q2 even in light of COVID. And frankly, July was the best new start month that we've ever had in combining the businesses. So we're excited about sort of the business prospects. Josh can talk more about the integrations.

It is going to take every bit of the rest of the year to get these things exactly where we want them for a strong 2021. In terms of the acquisition side, and I think we're focused on continuing to execute on our strategy of identifying sort of accretive probably smaller than -- not probably, but smaller than ActivStyle and Solara. We will continue to execute on those transactions throughout the rest of the year, making sure that we don't distract the integration of Solara and ActivStyle. But Josh?

Josh Parnes -- Chief Financial Officer

Yeah. So on the integration of PCS and Solara, so really, our marching orders on PCS are really to increase the resupply, amount of turns and dollars per order and integrate some of the technology solutions that we have to drive a better result. Like I mentioned on the call, that's the core competency of ours, and we're going to be leveraging both our management know-how and our systems to drive a better result on the revenue side. As mentioned also, we're going to drive a better kind of gross margin with better formulary and better pricing out of the gate going into the second half of the year.

So really, that's kind of the strategy on the PCS side. On the Solara side, the Solara stand-alone business for CGM and diabetes, and they do a great job. There's a lot of kind of growth opportunity there. There's some integration that has to be done with our PCS business and the CGM starts that were happening there to move over to the Solara business and the management team led by Steve Foreman.

So all these are -- they're not crazy long journeys to take, but it's going to take a couple of months really to get these things in place and kind of get that squared away. So that's kind of the marching orders from the operational side of the business.

Stephen Tanal -- SVB Leerink -- Analyst

Great. And then maybe if I could just slip in one more on competitive bidding. Just wanted to get a sense for your latest expectations for the impact on '21 as much as you could provide revenue, adjusted EBITDA, margins, that kind of thing. And then maybe an update on when you expect CMS to produce new rates, and that will be the last for me.

Thank you guys so much.

Luke McGee -- Chief Executive Officer

Yeah. I don't think anything's changed in terms of our previous commentary on likely -- our operating case is sort of a high single-digit EBITDA less capex -- high single-digit dollar EBITDA less capex impact based on really softness in likely PAP new supply rates. But we are hearing whispers that we could find out pretty soon about what the new rates are. But I don't think that you can take that to the bank.

There's just so many moving pieces. Obviously, you saw CMS release some sort of rule-making last week into other parts of post-acute healthcare and so maybe we hear this week, there continues to be a push. I know that there was a congressional sign on letter with more than 100 signatories about delaying the competitive bid program for a year. And so there's a lot of moving pieces.

But again, our base case is the program will continue, we will find out rates in Q3. Once we have the rate, we will provide updated guidance on what the impact is. But nothing's changed on our outlook based on what we know today.

Stephen Tanal -- SVB Leerink -- Analyst

Great. Thanks so much.

Operator

Our next question comes from the line of Brian Tanquilut with Jefferies. You may proceed with your question.

Brian Tanquilut -- Jefferies -- Analyst

Hey. Good morning guys. Congrats on a solid quarter, and the guidance looks really good. I guess my first question for you, so as I think about the cash that's sitting in your balance sheet, I mean, that's a pretty sizable cash balance.

I mean how should I be thinking about your view on what minimum cash should be and what you're seeing out there that you want to sit on this much right now for capital deployment?

Luke McGee -- Chief Executive Officer

Yeah. So I think that our current sort of cash balance is as reflective of -- we wanted to be opportunistic and put the right long-term capital structure in place with the bond and relationships with our senior lenders and so we certainly -- we have more liquidity than would be ideal right now. I think that that was again reflective of making sure that we're able to put the right long-term capital structure in place. We do -- as I said, we have an active M&A pipeline, but they tend to be smaller deals.

So I think that we're going to run with excess cash on the balance sheet probably for the next several quarters. I would think of absolute minimum cash in the kind of $50 million to $75 million range. And so obviously, there's significant excess right now. We won't be shy about deploying that if we see accretive acquisitions at the same time, if we run negative carry on cash for some period of time, just to have the optionality, certainly, myself and the board thinks that that's a wise decision.

Brian Tanquilut -- Jefferies -- Analyst

Gotcha. And then I guess to follow-up on Steve's question from earlier. So as we think about competitive bidding, you said negative high single digits is what you're thinking. How are you thinking about your ability to pass on the comp bid cuts back to the manufacturer for some of those products?

Luke McGee -- Chief Executive Officer

We continue to have very, very productive conversations with the manufacturers. In some respects, actually delaying contract renewals and extending current contract terms until if there's more clarity. I think for both sides, renegotiating new contracts until that's known, is somewhat of an awkward time. And so what I'd say is the manufacturer has been very constructive.

We continue to hit for the last contract year, our volume targets, even in light of COVID and so I am optimistic that there will be an equitable sharing of any payment that would come. In a perfect world, there's not a lot of pain to share, and we can continue to drive price concession through additional volume, both organic and acquired. It's certainly a nice time to be an aggregator of purchase volume. It certainly gives us a better seat at the table with those manufacturers.

Brian Tanquilut -- Jefferies -- Analyst

That makes sense. I guess one question for Gregg. I'm looking at patient capex as a percentage of rental revenue or overall revenue, it looks like it was down a decent amount. Any explanation for that?

Gregg Holst -- Retiring Chief Financial Officer

Yes. Of course, that's -- so that's directly related to the slowdown in CPAP new starts. So -- I mean, that's the biggest component of our patient equipment capex. That is a short depreciable life only 13 months.

But with the decline in CPAP new starts that accounts for all of that decrease.

Brian Tanquilut -- Jefferies -- Analyst

OK. And then, Gregg, as I look at free cash obviously very strong this quarter. Any one-timers that you would call out in that $70 million number or $71 million?

Gregg Holst -- Retiring Chief Financial Officer

Yeah. Well, it includes the CARES Act stimulus. And apparently, there's an accounting requirement to count that as operating which wouldn't have been -- which is not what I would have expected, but that's definitely a big call out.

Brian Tanquilut -- Jefferies -- Analyst

So that's the only kind of like one-timer in there, in other words?

Gregg Holst -- Retiring Chief Financial Officer

Yeah. And then -- well, and then we had the advanced payment on the CMS payment.

Brian Tanquilut -- Jefferies -- Analyst

OK. Gotcha. Luke, last question for me. You talked about connected health in your prepared remarks.

How should we be thinking about the investments that you're making there? Is that already you're running through the P&L as you try -- as you develop that product, that offering or is that something that we should be thinking about?

Luke McGee -- Chief Executive Officer

Yeah. It has currently been expensed. Some investment in there is included in the guidance. But I think that if there's one area where we continue to be excited about, it won't drive 2021 results per se, but we do think it's a good strategic investment.

I wouldn't be surprised that if we come out and sort of decide that we're going to make a mid-single-digit million dollar investment in accelerating that. All of the sort of research we're doing and also the trend we're seeing in our continued business is that there's demand out there for it. and that we're uniquely well positioned. Obviously, there are a lot of people can -- sort of chasing connected health, particularly in a COVID environment, whether it be from the device side and offering more connected devices.

Or from the sort of chronic care management and really leaning in with technology and sort of apps and software. And we think we're uniquely positioned. Obviously, we're behind on the software side. So we need to invest in that but Andy Palan, who we hired in March has really helped us do some thinking on that.

And so I think that -- again, it's included in the guidance for the rest of the year. As we come into 2021, we may want to bump the investment in there. Likely, we'll run through P&L won't be capitalized, and that may be reflective. And when we do release 2021 guidance, we'll include that in there.

Brian Tanquilut -- Jefferies -- Analyst

All right. Sounds good. Congrats. Thank you guys.

Luke McGee -- Chief Executive Officer

Thanks Brian.

Operator

Our next question comes from the line of Mathew Blackman with Stifel. You may proceed with your question.

Mathew Blackman -- Stifel Financial Corp. -- Analyst

Good morning everyone. Thanks for taking the question. Maybe, Gregg, just to start, what was organic growth in the quarter? And what's roughly implied in the updated full-year guidance for organic revenue growth?

Gregg Holst -- Retiring Chief Financial Officer

Yeah. Well, so for the quarter organic growth was extraordinary because of the B2B revenue, so it was in excess of 25%. If you exclude, B2B with the weakness and some of the -- related to COVID, the organic growth was a couple of percent, 2%. So -- and then for -- going forward, we've essentially projected the kind of the same, a very steady amount of new businesses and kind of a lower level because of COVID.

Luke McGee -- Chief Executive Officer

And so Mat, just to add a little bit more context around that. I mean so even for the first half, you're going to see organic growth year over year, well within the guidance, that 6% to 8%, we've included obviously Q2, given COVID to have any even positive organic growth. We're actually very proud of that B2B and then for the rest of the year again if you look at where we are in July, and obviously, it's just one month does not make a quarter, but we're seeing very nice sort of growth in the respiratory categories in most of the bent metal, and the weakness really is isolated to just PAP new starts and the orthotic business. So I think we're confident that we can be back on that 6% to 8% in Q3.

Mathew Blackman -- Stifel Financial Corp. -- Analyst

Got it. Appreciate that. And then, Luke, maybe could you talk about future B2B business opportunities? You mentioned a couple of million dollars for the next couple of quarters. How should we think about the magnitude of future opportunities from this channel?

Luke McGee -- Chief Executive Officer

Yes. I think -- frankly, I've been surprised by the persistence of the B2B. We knew in March and April that when it was pretty chaotic, and we're able to help. And I give a lot of credit to our team of making lemonade out of lemons as we saw the sort of slowdown in our core business.

We challenged our operators to find other ways and to generate $28 million on a business line that we never did before, I mean, I think that highlights the attitude of the entire team at AdaptHealth to make it work. We certainly think that there's -- as we've sort of said, a couple of million dollars per quarter in the next couple of quarters, can it persist? I'm cautiously optimistic. Certainly, what we've seen is we've had some hospital systems continue to call us, and say, hey, listen, we know we didn't buy this from you before, and maybe your price isn't even the best, but we know you can deliver. That's been particularly true in the Northeast.

And so cautiously optimistic that that can spill into 2021. But again, I think we need to be also cogent isn't our core competency of just shipping product, B2B and being paid for it. And we've been able to utilize our supply chain and certainly won't be shy about doing it in the future if we can. At the same time, if that goes away, and all we've gotten out of it is a stronger relationship with some blue-chip referral sources, then that's great too.

Mathew Blackman -- Stifel Financial Corp. -- Analyst

Got it. And last question for Josh. Thanks for the color on Solara priorities. And I apologize if you touched on this, but you've talked about synergies on the cost side and opportunities on the revenue side.

Are the expense synergies day one savings or do they play out over time? And again, understanding there are longer-term revenue synergies, but do we need to be sensitive to any upfront dyssynergy risk or is it truly just sort of plug and play, so to speak? Thhanks

Luke McGee -- Chief Executive Officer

Yeah. I appreciate the question. So yes, this is more kind of integration synergies. So as we level our systems and get kind of cost synergies out of both the product and the actual business.

It's more gradual. We're not anticipating any kind of drastic things out of the gate, but kind of on our standard course of our M&A integration. Obviously, these are more sizable acquisitions for us. So they're bigger businesses.

May lead to a little bit longer time to get the synergies out of the businesses. But generally, it's a more gradual process.

Operator

[Operator instructions] Our next question comes from the line of Anton Hie with RBC Capital Markets. You may proceed with your question.

Anton Hie -- RBC Capital Markets -- Analyst

Thanks. Must have had a queue issue there.Congrats on the quarter guys. Just a couple of follow-ups here on the -- can you remind us kind of the time line for -- as new CPAP start to ramp back up, kind of how the resupply time line is affected by that?

Luke McGee -- Chief Executive Officer

Yeah. And so again, what you've seen is sort of -- as I said, we were up low double digits in Q1 in the resupply and in July are still tracking mid-single digits. That's in light of the decline in new starts. And so if you -- the new start business had been the same.

Obviously, those numbers would have been better. The general cadence for a new CPAP patient would be to get set up. We will provide initial order supply and then it should be on a quarterly basis. They're on sort of on the cycle.

On average, we're getting -- even a patient location may be eligible quarterly, we do need to make sure that that patient has exhausted all their supplies and sort of needs new ones. And so we got about 2.8 orders out of that patient per year. It's eligible four times. And so basically, new start ramps up and then the next quarter, they'd be eligible for resupply.

Anton Hie -- RBC Capital Markets -- Analyst

OK. Great. And then I'm surprised that you're continuing to see the same strength or the strength that you are in CGM and the diabetes resupply. Just given the slowdown in physician office visits and things that affected the CPAP starts, can you kind of explain why that may be different or is it just that it's that strong that it's kind of masking maybe a slowdown the experienced in April? Again on CGM and diabetes.

Luke McGee -- Chief Executive Officer

Obviously, the market growth in CGM is beyond that even of CPAP. And particularly the switch from fingersticks to CGM which is you not only have sort of a new diagnosing trend, but you also have a switch to the new therapy. Obviously, I do think Solara was well positioned to take business in Q2 or some smaller suppliers probably weren't as enabled to take that business. We've also seen -- I mean, on the payer side, it's been Medicare patients that we've seen sort of the biggest sort of uptick from.

There was a relaxation in guidance on who was eligible for CGM. And so that's certainly driving some of the strength in the business.But I was very, very pleasantly surprised to see the performance in Q2 and it wasn't just at Solara. Again, the PCS, CGM business also continues to have record month after record month, and we think that that obviously are looking forward to it continuing as we merge the businesses together, but I think it's a combination of us taking share, a combination of the Medicare relaxations opening up the number of eligible patients.

Anton Hie -- RBC Capital Markets -- Analyst

OK. Great. And then one last one. In the press release, you mentioned that the language here is around new channels and customers.

Can you just elaborate on that a little bit? Just -- I'm not sure if that has to do with the B2B stuff, but just maybe elaborate on the new channels and new customers.

Luke McGee -- Chief Executive Officer

Yes. And so I think that in Q2, the new challenge new customers really were that B2B, that wholesale business that we just have not done a lot of historically. And certainly, just to reiterate and go back to a previous question though the new channel, hopefully, over time, is one of connected health, where we can deliver more comprehensive solutions across chronic disease states. Again, won't hit 2020 and may not hit 2021, but it's something that we're very, very excited about sort of our opportunity to be a value-added part of that solution.

Anton Hie -- RBC Capital Markets -- Analyst

OK, great. Thanks very much. Congrats.

Operator

Our next question comes from the line of Richard Close with Canaccord Genuity. You may proceed with your question.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thank you. Congratulations on the operating results and the financing and acquisitions. Just maybe dive deeper into some of the previous questions.

I'm just curious, you mentioned driving faster growth at Solara. And I was wondering what specifically you would be taking from your existing operations to drive that growth? And then also on ActivStyle, you said on the resupply processes I guess from ActivStyle that will benefit PCS going forward. So I was wondering if you could just give a little bit more details on both those items.

Luke McGee -- Chief Executive Officer

Sure. I'll take the first one, and I'll turn it over to Josh for the second one. So in terms of -- one of the key strategies for us at Solara is to increase their field selling force. It's about -- it was about 35 pre-acquisition.

We've got -- already got it over 40, and we'd certainly like to take it to 60 over the next two quarters. The ability for a field sales rep to have sort of a productive sort of day in the field is largely dependent on the amount of payers that we can take in that territory. So one of the big advantages of putting our business together with Solara and PCS is just bigger contracted coverage. And so the metric that we use is if there's more than 70% of covered lives that we're contracted for, we know that that rep should be able to be productive in that market.

And so if you looked at a map, there's a lot more territories that we would kind of shade green now because we have that 70% contracted coverage for CGM. And so that's the biggest it's the contract coverage which allows us to drive the addition of field sales reps that should allow us to continue to benefit from the CGM wave and take hopefully more than our fair share. Even as the pharmacy benefit becomes more widely accepted. On the ActivStyle side, I'll turn it over to Josh to talk about the recent processes.

Josh Parnes -- Chief Financial Officer

Sure. Yes. On the active style PCS, kind of integration, so some of our thesis initially going into this was medical supplies, such as urology, wound care and incontinence, kind of leverages into our core competency on resupply. And calling the recurring nature of the revenue quarterly or monthly shipments and kind of the patient experience.

So what we're doing is leveraging our experience with that on the CPAP resupply and diabetes resupply to really focus that on the medical supply side, such as those categories, urology, wound care and incontinence. So I think what we'd like to do is as we integrate that, really focus on the amount of turns we get, the patient experience, getting the patient engaged in kind of the recurring nature of the resupply. So that's what we're talking about when we refer to kind of leveraging our core competencies in that to the PCS ActivStyle business.

Richard Close -- Canaccord Genuity -- Analyst

OK. So there was nothing necessarily ActivStyle was doing better than PCS necessary -- or what you guys were doing previously that you were integrating into the entire business there?

Josh Parnes -- Chief Financial Officer

So I think for us, ActivStyle was doing a really good job on the resupply of the medical supply side of the business. PCS historically did not do that well. And that's why when we acquired PCS in January, one of our thesis is there was a big revenue opportunity or upside to what their base business was doing at the time if we leverage kind of that resupply experience. And in ActiveStyle, we got a management team and technology that really is pretty robust on the supply side of the business.

So when we leverage the PCS business into that, we're hoping and driving to that increased revenue and turns.

Richard Close -- Canaccord Genuity -- Analyst

OK. And then Luke, maybe to dive a little bit deeper on the M&A. You answered some questions on that earlier. Obviously, digesting these two here right now and saying maybe transactions in the back half of the year would be smaller.

But I'm curious what the priorities are on M&A, maybe near-term and then longer term, with respect to -- is it geographic expansion or getting scale in existing markets or even maybe new product areas. I think a couple quarters ago, you sort of foreshadowed the diabetes as a target area. So any thoughts regarding that would be helpful.

Luke McGee -- Chief Executive Officer

Yeah. And so I think, first and foremost, we try not to get sort of too hung up. We don't want to say we want to be in a particular geography. And then feel like we have to overpay to be in that market.

We need to be disciplined with our capital allocation and are there markets where we look and say we're underpenetrated, for sure. Are there markets also that we did acquisitions in earlier this year, the Southeast and Southwest, where we'd like to add additional density. We've seen really, really nice sort of returns. From doing an acquisition that can serve as a platform and then adding on from there, yes.

And so in a perfect world, would we like to do more in the Southeast and Southwest and potentially the upper Midwest, that would be perfect. But at the same time, like if price is an inhibitor or we don't find the right target, we're not going to force ourselves into that box. I also think that the CGM market is one where we will look to continue to acquire. We like Solara more than sort of other opportunities on the larger side in CGM because we thought it could be an engine for future acquisition growth.

And so really, we're breaking our M&A lens right now into two pieces. It's the core HME and then it's the CGM, and we've got separate folks sort of tasked with each of those. And frankly, they put different stresses in our organization. So doing one doesn't actually inhibit us from doing another.

In terms of product, and I think we put out there long term, you could think about other product categories into the home. But I want to be pretty cautious that no one should read into foreshadowing. Like we know we bit off quite a bit with ActivStyle and Solara product expansions. And so I think what you're going to see is us focus on additional density and additional investment in those categories and making sure that we can become excellent before we hop off into the next one when the next one, whether it be home infusion or more pharmacy eventually home dialysis.

But those are really I think we're pretty happy with -- if you look across the spectrum in post-acute equipment and supplies, we think we already have, by far, the most diverse sort of product offering, really comparable in some respects. And so if we can take that product offering and then drive things like connected health, I think we'd like to try to do that before we add an additional product to the next.

Richard Close -- Canaccord Genuity -- Analyst

OK. Helpful. And my final question is on the connected health strategy and and as you think about that, is that a separate operating unit within the company or is that embedded in the existing businesses? How are you thinking about that in terms of whether that's somewhat stand-alone or how you go-to-market with that?

Luke McGee -- Chief Executive Officer

Well, I think it's an interesting question. Obviously, we're going to pull from different parts of the organization, sort of best-in-class sort of competencies and also higher from the outside. Over time, I think that the selling and the relationship with the managed care plan which is likely your call point because they're the ones who are going to pay you for driving the results, that is separate. But it has to be integrated with the operation.

We're going out there, and we're setting up patients, and we're calling on patients today. And so I think it's a little bit of a hybrid. Certainly again when we think about connected health, it's about leveraging all those patient relationships. Remember, we're in the patient's home supplying them.

And so I think a lot of other people who are doing connected health actually struggle to get in touch with the patient and get engagement. Our differentiated sort of approach is we're already engaging the patient because they're relying on us to get their resupply. And can we use that relationship, either partner, acquire, develop sort of technology solutions to help with the coaching and adherence therapies and then over time, demonstrate that because we're in the patient's home because we believe we can offer of the technology solutions, is that an approach that resonates where we can drive cost out if you can't drive cost out, we're all wasting our time. We have to be able to deliver a solution to the patients that deliver a better health outcome into the payer that delivers a better cost outcome.

And again, we're excited that we think we can do that.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thank you and congratulations.

Luke McGee -- Chief Executive Officer

Thank you. Operator, are there any more questions?

Operator

We do not have any more questions. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn this call back over to Mr. Luke McGee for closing remarks.

Luke McGee -- Chief Executive Officer

Again, I want to reiterate my thanks to the entire AdaptHealth team for helping us deliver the quarter. Sincere appreciation for Gregg Holst retiring CFO. He's just been an amazing partner to Josh and I, as we've built this business. We will miss him.

And at the same time, we're excited to welcome Jason Clemens in as our new CFO. He's going to do great things for us. So with that, thank you everybody and we look forward to talking to you next quarter.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Chris Joyce -- General Counsel

Luke McGee -- Chief Executive Officer

Josh Parnes -- Chief Financial Officer

Gregg Holst -- Retiring Chief Financial Officer

Pito Chickering -- Deutsche Bank -- Analyst

Stephen Tanal -- SVB Leerink -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Mathew Blackman -- Stifel Financial Corp. -- Analyst

Anton Hie -- RBC Capital Markets -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

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