Apria Healthcare Group Inc. (APR) Q3 2021 Earnings Call Transcript

Apria Healthcare Group Inc. (APR)
Q3 2021 Earnings Call
Nov 04, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Apria's third quarter 2021 earnings conference call and webcast. [Operator instructions] Please note this event is being recorded. Leading today's call are Dan Starck, chief executive officer; and Debbie Morris, chief financial officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act.

These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement that reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements can be found in the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2020, as supplemented by Apria's quarterly reports on Form 10-Q for the periods ended June 30, 2021, and September 30, 2021, the latter of which is expected to be filed later today. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance.

Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the Investor session of the company's website at www.apria.com. With that, I'd like to turn the call over to Apria's CEO, Dan Starck. Please go ahead.

Dan Starck -- Chief Executive Officer

Thank you, operator. Welcome, and thank you all for joining us this afternoon to discuss our third quarter 2021 earnings results. I'm joined today by Debbie Morris, our chief financial officer. I'll begin my remarks with some high-level comments on our results from the quarter, discuss some underlying trends and other activities in our business as well as provide some thoughts on an industrywide initiative that could have a meaningful impact on our business and the DME industry over the long term.

Then Debbie will provide a more detailed review of the financials and our guidance later on the call. Building on the momentum from the first half of the year and despite external headwinds, we delivered another solid quarter with revenue that was in line with our expectations, while adjusted EBITDA and adjusted EBITDA less PSE capex were at the high end or better than our guidance range. Our quarterly performance is reflective of our continued execution and operational improvements, coupled with the continued recovery in new patient volumes despite significant industry disruption related to the Philips product recall and supply chain issues impacting other manufacturers. Third quarter revenue grew to $287.2 million, a 3.8% increase over Q3 2020.

Adjusted EBITDA was $61 million, a 6% decrease from Q3 2020. And adjusted EBITDA less patient equipment capex grew to $38.9 million, a slight increase over Q3 2020. The surge from the delta variant provided a meaningful boost in our new oxygen patient volume in the third quarter. The spike was so pronounced that new patient starts for oxygen per day in August was higher than any month during the peak of the COVID pandemic last winter.

Now keeping in line with the prevalence of the delta variant, we have started to see new oxygen patient volumes decrease, but they are still at elevated levels compared to historical run rates. I'm proud of the entire organization for their perseverance in the face of difficult challenges. The Apria team continues to execute at a high level and continues to deliver on our mission of improving the quality of life for our patients at home. While other potential issues could arise in the future, I have great confidence that our team will be able to navigate any challenge, and we'll continue to operate at a high level.

Now on to the business. First, I'd like to discuss the Philips Respironics recall and other supply chain issues impacting our results. As a reminder, in June, Philips announced a voluntary recall for continuous and non-continuous ventilators, certain BiPAP, CPAP, bi-level positive airway pressure, and ventilator devices, all related to the polyurethane foam used in those devices. The recall notice instructed CPAP and BiPAP patients to discontinue use of their device and consult with their physician to determine the benefits of continuing therapy and potential risks.

Ventilation patients were instructed to continue using their device and to consult with their physician to determine the appropriate next steps. To date, we have not experienced a significant number of patients stopping their therapy. In early September, Philips began the remediation process for CPAP and BiPAP units and the process of repairing and/or replacing those units is now underway. However, as of today, there has not been an approved remediation process for ventilators.

We expect the CPAP remediation to continue into 2022, and we are hopeful that the ventilation remediation process will begin sometime this quarter. The supply chain disruption has also impacted our primary source of sleep equipment. Consistent with the rest of the industry, in the third quarter, we were on an allocation process based on historic purchases. Our allocation increased throughout Q3, but was below historic levels, thus impacting equipment availability for new patient starts.

At the end of the quarter, we did identify another source for sleep equipment, and we started receiving units in mid-October. During the third quarter, we experienced a surge in incoming new patient volumes, which we believe bodes well for us as we increase our product inventory. Moving on to our operational performance. Our team continues to execute at a high level.

And as patient volumes and revenue have grown nicely throughout the year, we have been able to drive operating efficiencies. We have a very different situation in Q3 of 2021 than we had in Q3 of 2020. In Q3 2020, our incoming volumes were largely down other than oxygen, which allowed us to flex down our variable costs. In Q3 2021, we have large incoming volume increases, which require processing and preparation for delivery, which don't allow us to flex down our variable costs, but the equipment availability challenges are delaying our revenue recognition.

We expect that to work its way through as we increase our supply. From an M&A perspective, last quarter, we announced the acquisition of Airway Breathing Company, which enhanced our presence in key markets in Virginia. I'm pleased to announce that the ABC acquisition closed in September and is performing in line with our expectations. Our M&A pipeline remains active and robust.

We look at deals of all sizes, but take a measured approach and follow a rigorous evaluation process. We're looking to acquire strong local businesses that are financially attractive and are the right cultural fit for Apria. One other item I'd like to discuss is a new industry initiative to help drive widespread adoption of e-prescribing. As some of you saw in September, DMEscripts announced a strategic partnership with the 4 national DME providers, Lincare, Apria, AdaptHealth, and Rotech as well as two industry trade associations, the American Association for Homecare and VGM to help drive greater use and adoption of e-Prescribe.

We believe this is an important step in our industry and a significant step toward increasing widespread adoption of e-Prescribe in DME. For too long, our industry has existed on a fax and paper-based legacy process for new referrals, which is fraught with multiple handoffs and friction points in the referral process. Currently, only a small amount of orders are transacted electronically. And while there's no forcing mechanism or mandate to get prescribers to switch to electronic ordering, we believe that a united industry message of moving to e-Prescribe will accelerate the move to a future state.

Our view is that this is a matter of when, not if, and that e-Prescribe is the future for the industry. Widespread adoption of e-Prescribe will help all constituents involved in the process; patients, referrals and suppliers by removing friction points and streamlining the referral process. Patients will receive equipment faster, while prescribers and suppliers will have less back and forth for needed documentation, which reduces the administrative burden for both. I suspect there will be questions about the financial impact.

And what I can say is we are in the very early stages of this industrywide initiative. Our aspiration is to see rapid and widespread adoption for e-Prescribe. But realistically, we know this isn't something that will happen overnight. Rather, it will take some time to significantly increase adoption, and the benefits will increasingly grow over that time period, yet we believe this will help drive meaningful efficiencies and cost savings throughout the entire industry and for Apria.

Before I turn the call over to Debbie, I'd like to provide a quick update and reminder regarding the current regulatory environment. First, the public health emergency has been extended for another 90 days until mid-January. As discussed before, the PHE provides an interim price increase for Medicare patients in the non-bid non-rural areas of the country and keeps intact the 50-50 blended rate in the rural areas of the country. While the PHE extension was largely expected, the extension still needs to go through the mandatory process, and this is done in 90-day increments.

In September, Medicare finalized a national coverage determination for oxygen that will expand home oxygen coverage and potentially reduce some of the administrative burden. Overall, the NCD is a positive for Medicare beneficiaries and the DME industry. And as a reminder, the suspension of sequestration was extended through year end, and CMS permanently removed the budget neutrality rate adjustment for oxygen equipment that has resulted in a reimbursement rate increase for some oxygen systems. Both of these factors are tailwinds for Apria, and we had already factored them into our guidance.

To sum things up, we reported another solid quarter. And we are confident that we'll be able to finish the year on a high note. Our industry is coming together to drive greater use of e-Prescribe, which will help drive operating efficiencies over the long run as adoption increases. Our team continues to execute at a high level.

And while there have been some challenges such as the Philips recall and other supply chain issues, we have been able to drive operational improvements and other efficiencies. I'd like to thank the entire Apria team for their dedication and hard work helping to drive these results. They are the heartbeat of Apria, and they are the individuals that deliver our mission every day and improving the quality of life for our patients at home. I'll now turn the call over to Debbie to review our financial performance in more detail and provide our outlook for 2021.

Debbie Morris -- Chief Financial Officer

Thank you, Dan, and thank you to everyone who joined the call today. We delivered another solid quarter with third quarter revenue that was in line with our expectations and adjusted EBITDA and adjusted EBITDA less patient capex, which was at or above the high end of our prior guidance. Our strong performance was driven by solid operational performance despite the surge in delta variant and despite significant industry disruption related to the Philips product recall and supply chain issues impacting other manufacturers. Net revenue of $287.2 million was slightly higher than the midpoint of our guidance range.

Adjusted EBITDA of $61 million was at the high end of our guidance range. An adjusted EBITDA less patient equipment capex of $38.9 million was modestly ahead of our guidance range for the third quarter. We experienced strong oxygen volume due to the delta variant and closed the ABC acquisition during the quarter, both of which contributed to exceeding the midpoint of our revenue guidance. In addition, our team has done a nice job of managing through the Philips recall and supply chain charges.

And despite wage and cost pressures, adjusted EBITDA as a percent of net revenue was slightly higher than projected. Reviewing our third quarter results on a year-over-year basis, net revenue of $287.2 million increased 3.8% over Q3 2020. Excluding the Airway Breathing Company acquisition, which closed in September, net revenue increased 3.5% year over year. The increase in net revenue was driven by growth in home respiratory therapy and OSA treatment.

Home respiratory therapy was up 4.2% over prior year due to increased volume of patients requiring home oxygen therapy due to the delta variant and higher reimbursement levels, offset partially by lower ventilation therapy revenues due to COVID and the Phillips recall. OSA treatment was up 5.6% due to the increased volume of patients over prior year and increases in sleep supply despite the reduction in new patients in the quarter as a result of the equipment shortages stemming from the recall and other supply chain challenges. Overall, net revenue growth was in line with our expectations provided last quarter, but lower on a sequential basis, largely due to the Philips recall and supply chain challenges, which impacted sleep and noninvasive ventilation growth in Q3 of this year. Adjusted EBITDA in the quarter of $61 million was down 6.2% from $65 million in the third quarter of last year.

As Dan mentioned, we had a very different situation in Q3 of 2021 than we had in Q3 2020. In Q3 of last year, our incoming volume was largely down other than oxygen, which allowed us to flex down our variable costs. In Q3 of this year, we had larger incoming oxygen and sleep volume, which require incurring certain variable costs to process orders, qualify the patients and prepare the orders for delivery, while the Philips recall and supply chain challenges are delaying the setup of patients and related revenue recognition. In addition, other costs, including distribution expenses, health insurance, health costs, and costs of being public are up on a year-over-year basis.

Adjusted EBITDA less patient equipment capex of $38.9 million was roughly in line with the third quarter 2020 of $38.6 million. While adjusted EBITDA was down year over year, patient capex was also down year over year given the recall and supply chain challenges and related shortage of equipment. Looking at the balance sheet. As of September 30, we had $216 million in cash and total debt of $382 million.

Turning to our updated outlook for 2021. We have performed better-than-expected throughout the first three quarters of the year despite some recent headwinds. We've continued to drive operating cost leverage, which has been better than projected throughout the year. The public health emergency has been extended through mid-January of next year.

The suspension of sequestration was extended through year-end and CMS permanently removed the budget neutrality rate adjustment for oxygen equipment that resulted in a reimbursement rate increase for some oxygen systems. We continued to spend extra time and resources to support our patient needs as it relates to the Philips Respironics recall. The labor issues facing healthcare in much of the country are impacting our business, and we're seeing some cost inflation in other parts of the business, including the supply chain and for certain DME equipment. We've been able to navigate and manage through these headwinds the last several months, and we've secured additional equipment in Q4 from another manufacturer.

So we expect to see an increase in volume of sleep patients starting therapy. Looking ahead for the fourth quarter and full year '21, we've taken all these factors I just mentioned into consideration. For the fourth quarter of 2021, we expect net revenues of $282 million to $298 million. Adjusted EBITDA of $64 million to $68 million, and adjusted EBITDA less patient equipment capex of $27 million to $31 million.

For the full year 2021, we are increasing revenue and adjusted EBITDA guidance while narrowing the adjusted EBITDA less patient equipment capex guidance range, and we're now projecting the following financial results. Net revenue of $1.13 billion to $1.15 billion, up from $1.12 billion to $1.15 billion. Adjusted EBITDA of $228 million to $234 million, up from $221 million to $231 million. Adjusted EBITDA less patient equipment capex of $135 million to $139 million from $132 million to $142 million.

To sum things up, I'm pleased with our performance again this quarter and year-to-date. The Apria team has and continues to perform well in the face of challenges. I too want to thank our entire team for their commitment to Apria and to our patients and for delivering on our mission of improving the quality of life for our patients at home. Operator, we'll now open it up for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Jamie Perse with Goldman Sachs. Your line is now open.

Jamie Perse -- Goldman Sachs -- Analyst

Hey. Thank you. Maybe just to start with the respiratory business. It sounds like that was benefited by just the demands related to the delta variant.

Can you size that for us a little bit better? What percent of your respiratory census is related to COVID at this point? And just how to think about the unwind of that and rebuild of more traditional respiratory patients over the next few months and quarters?

Debbie Morris -- Chief Financial Officer

Yes, Jamie. Let me take a shot at and answering the question. So if we look really on a year-over-year basis for the quarter, the two factors as I attempted to summarize, one being the oxygen favorability. On a year-over-year basis because the -- sorry, I should say, COVID, including oxygen and sleep NIV.

On a year-over-year basis, I say we're up about $4 million due to COVID because of the -- obviously, the census build, along with the increase in patients throughout the quarter. So that's kind of on a year-over-year basis. If you look on a just in quarter, so stand-alone of Q3, the volume, and we have O2 favorability from oxygen, but it's offset by NIV. It's really offset by all the other products.

NIV, sleep negative pressure, and other equipment. So in the quarter, net volume from COVID is about $1 million. So it's on a net revenue basis.

Jamie Perse -- Goldman Sachs -- Analyst

OK. And then just on the sleep business. I wanted to get a little bit more color on 2 components here. Just first, the new patient request, it sounds like you're getting a lot of requests.

Can you just describe that a little bit more detail when that started? Is it because you guys have access to supply because of your relationship with ResMed and others do not? And then separately, do you have the ability to meet that demand given the new relationship with this other manufacturer?

Dan Starck -- Chief Executive Officer

Hello, Jamie. It's Dan. Good question. So we saw a pretty pronounced increase in incoming volume, really early July, as soon as kind of the Philips recall hit, and there really weren't any units available that weren't ResMed or another manufacturer.

And so we saw a fairly sustained -- well, not fairly, a sustained increase in incoming volume throughout the quarter, and we continue to see it through October and early November. We have access to equipment, but we could -- if we had more equipment, we would have much more growth in the quarter. And in the fourth quarter, from a sleep equipment and sleep supply standpoint, we're really gated by how much volume we can get from a product supply standpoint. So obviously that's a big reason we went out and made sure we had another supplier.

And we expect to start working that through. So we have a little bit longer delay right now when a patient starts or we receive a referral. We do get patients set up, but we could have more if we can get our hands on more. So I think that's probably one of the variables when we think about Q4 around sleep revenues and how it actually translates into PSE capex.

It's probably one of the wild cards as we think about the end of the year.

Jamie Perse -- Goldman Sachs -- Analyst

OK. Great. And last one for me. Just last quarter, you talked about a $30 million potential impact in guidance related to the Philips recall.

Just wondering how you're thinking about that number now if that's been somewhat derisked. Just given we're three months later, you've got another manufacturer that you can source from. Just any updated thoughts on that $30 million number?

Debbie Morris -- Chief Financial Officer

Yes, Jamie. I would say for Q3, it was pretty close to what we had anticipated between sleep and noninvasive ventilation. For Q4, we think it is somewhat derisked. So that number for Q4 is, I'd say, $10 million to $15 million range and largely dependent on when the equipment arrives.

So we have a schedule, we scheduled of when it's coming in, and then obviously gearing up capacity. We have -- our team does an amazing job at getting out units as the equipment comes in. So it's largely dependent on it coming in early, that the difference and the impact for the year. And for ventilation as, I think, Dan said on his opening remarks, we're hoping that there's some FDA approval and remediation starting in Q4 or decided in Q4, but we're not anticipating it starting until the beginning of the year.

So if that was to happen, that could also impact the quarter, if it happened earlier.

Jamie Perse -- Goldman Sachs -- Analyst

OK. Great. Thanks for the color.

Dan Starck -- Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Kevin Caliendo with UBS. Your line is now open.

Kevin Caliendo -- UBS -- Analyst

Thanks, and thanks for taking my call. I wanted to understand a little bit about the impact inflation is having on capex and how to think about it going forward. Just in terms of, is it meaningful? Is it changing anything for you? Should we think about this as a potential headwind to your capex spend in 2022?

Debbie Morris -- Chief Financial Officer

Yes, Kevin. Good afternoon. I think currently, it's a headwind as it relates, obviously, to a new manufacturer coming into the market because of the demand for the product. I think the question will be when we get into '22 when Philips is back to producing units at a normal pace, the other manufacturers producing normal to units as another -- at a regular pace, what will we see? So I think we're anticipating now we will see some -- we expect some level of inflation on the capex next year.

To what degree, I think, largely depends on the supply chain and how available the products are.

Kevin Caliendo -- UBS -- Analyst

OK. That's helpful. Can you maybe talk a little bit about the DME POS, the size, which businesses were impacted in 2021? And what could happen for 2022? Like how should we think about the potential impact one way or the other with those rates? We're just trying to size it and understand sort of what it could mean.

Dan Starck -- Chief Executive Officer

I was just trying to -- Kevin, I am just trying to clarify, do you mean the rate -- the CMS potential rate increase?

Kevin Caliendo -- UBS -- Analyst

Yes. Exactly.

Dan Starck -- Chief Executive Officer

OK.

Debbie Morris -- Chief Financial Officer

Yes. So there's a few components, as you know. So sequestration, which is currently scheduled to go back into effect on 1/1, and that's roughly $1 million, $1.25 million a quarter, so $5 million a year. That's one thing that there's lots of discussion on currently.

So that may or may not happen. We're assuming it will at this point. The second is the PHE ending, as we mentioned, it's extended now through January. It goes in 90-day increments.

So to the extent that stops, it's a $2 million impact a quarter. So we have headwinds, depending on what happens in timing. Those are things we thought would happen this year. They were delayed into next year.

So it depends on when they happen next year. And then, of course, we have budget neutrality, which is positive, right? That the rate increase, and that's roughly $1 million a quarter, and that is nothing to do, that's here to stay. And lastly, from a pure government perspective, there's the CMS rate adjustment. And the rate was published as of June 30, that was 5.4%.

Effective 1/1/22, is subject to an adjustment of productivity factor. So we don't know firmly what that is, but that would offset some of that downside. So there are few puts and takes, and we're not providing guidance yet given the rate -- clarity on the rates, coupled with the volume. And on the volume side, I think we have some tailwinds as well that we can hit on.

But I think from a pure rate, does that answer your question, Kevin?

Kevin Caliendo -- UBS -- Analyst

Yes. That's helpful. And if I can ask just the last follow-up because it was a perfect segue. What are some of the -- besides that, what are some of the other headwinds and tailwinds we should be thinking about for '22?

Debbie Morris -- Chief Financial Officer

Well, I think from a volume, first, obviously, as the delta variance slows down, we'll have some oxygen volume headwinds. We anticipate volume coming down. On the flip side of the other products, which is pretty much across the board, but particularly sleep and noninvasive ventilation, given the recall and the supply chain challenges that exist today, there is potential; one, for volume tailwinds because, as Dan mentioned, the volume is here. It's at rates we haven't seen.

It's just the matter of when there's enough equipment to process those orders. And then how sticky that is and how long we maintain a higher percent of fleet share.

Kevin Caliendo -- UBS -- Analyst

Great. All right. Thank you so much.

Dan Starck -- Chief Executive Officer

Thanks, Kevin.

Operator

Our next question comes from the line of Ralph Giacobbe with Citi. Your line is now open.

Ralph Giacobbe -- Citi -- Analyst

Great. Thanks. I guess, first on the inflation commentary. Is there any opportunity for you all to sort of pass that through depending on sort of magnitude? Or it's just something you can have them manage through in terms of efficiencies?

Dan Starck -- Chief Executive Officer

Yes, Ralph. This is Dan. We don't have -- the way most of our agreements are structured, it's a risk we absorb normally. There may be some small opportunities to do that.

Now obviously from our Medicare book of business, that's somewhat -- that inflation is somewhat offset through the CMS increase. But most of our other agreements are our line item agreements that are over longer term. So I would reiterate what Debbie said just maybe -- and we -- in our prepared comments, was just the team has done a phenomenal job of managing through this thus far. And whether it's making it up through productivity and increases there.

That's largely the way it's happened so far. So it's been -- it hasn't significantly impacted us yet, and we're doing everything we can, obviously, to make sure that we're implementing technology, driving efficiencies and driving improved productivity to make sure that we can overcome some of the inflation issues that are facing us.

Ralph Giacobbe -- Citi -- Analyst

OK. That makes sense. And then I want to go to your commentary on e-prescribing and even in the release, you talked about sort of game changer-type comments there. Is there any way to frame or help us to quantify or time frame? Just any quantification around what that could be because it sounds like it's obviously important.

But I guess it's hard for me to frame or think about numbers around what that could mean for efficiencies.

Dan Starck -- Chief Executive Officer

Well, I'll let Debbie take a little bit from the -- maybe -- I don't know if we can even quantify it at this point. But I think there's -- I think the best analogy is the Surescripts' move in the pharmacy business. And that's basically the playbook we're trying to replicate within our industry. And we're not -- from an industry perspective, we want e-Prescribe to be successful and to be widely adopted, not just the DME scripts platform, the whole benefit -- the whole industry benefits from less administrative burden.

And so we expect DME scripts to be slow out of the gate and grow over time. I think it was a number of years for Surescripts to really get up and going and really driving the volume. We hope to cut the corner on that a little bit. But it's going to take an industry effort.

And again, there are multiple e-Prescribe platforms out there. And our goal at the industry level is to make sure that we drive e-Prescribe in general. But also, obviously, with our new company that we're invested in, in DME scripts, we'd like to make sure that that's successful. But really overall, e-Prescribe just will take tremendous amount of administrative burden out of the process.

Ralph Giacobbe -- Citi -- Analyst

Yes. OK. Makes sense. And just the last one.

I mean, I know it gets asked a lot. Just in terms of M&A and pipeline, you've started to -- and we've seen some smaller deals. Just give us a sense at this point as time has gone on, where there are sort of the disruption in supply chain issues and the like, are you seeing incremental opportunities? Is that not really relevant to sort of the M&A discussion? Just any general comments around sort of the pipeline there.

Debbie Morris -- Chief Financial Officer

Yes, Ralph. We continue to see opportunity. We continue to advance and to have an active pipeline. We engage deeply, but we do continue to be selective.

And obviously, we don't share details of what we do and not do. But we are looking at buying business that are solid and accretive, and that integrate well into our culture, as Dan mentioned. So not all of them meet that criteria when we get into the coverage. So we -- definitely there's activity.

And sometimes I wish we could put that in front of everybody, but we can't. But there is activity. We continue to be diligently looking at it and believe that there is opportunity there that we're going to continue to pursue.

Ralph Giacobbe -- Citi -- Analyst

Got it. Fair enough. Thank you.

Dan Starck -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is now open.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Thank you. This is actually Joanna Gajuk filling in for Kevin. So thanks for taking the question. First, I guess, a clarification on the Q4 guidance, when we compare to the prior guidance that was implied by Q3 guidance.

So the revenues are higher. And is it largely because of the acquisition that you completed? And can you remind us the status of annualized revenues for that deal?

Debbie Morris -- Chief Financial Officer

Yes, Joanna. It's roughly $20 million a year. So yes, you're right. So we've increased for ABC and then the acquisition as well as we've made some adjustments to the Philips assumptions in there.

And that's why you see the bottom of that range that we're applying before to get a little higher in the top, get a little lower, so it's a little tighter. On the adjusted EBITDA, you see the range go up, and that's primarily because of the operating efficiencies and how we've been able to continue to run the business. And the adjusted EBITDA less capex, you see we are -- took that down slightly, mainly because of the opportunity to buy equipment. So we could have chosen not to buy equipment, but we really think we have the opportunity to buy the equipment and process the volume of fleet that we have, is a prudent thing to do.

So that's really what drove that EBITDA less capex number coming down a bit.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Thanks, because actually that was my second clarification. So on the higher capex because it's, I guess, similar in terms of the -- when I compare the Q4 guidance versus what was implied. So now this guidance for capex was raised by, I want to say like $5 million or so was the midpoint. So how should I think about next year investment set? Is that a good run rate? It sounds like there's some maybe accelerated purchasing you're doing, but I guess then you're not purchasing from other suppliers.

So how should we think about the next year capex? I know there's a lot of variability and uncertainty. But any way you can kind of help us frame how we should think about that next year?

Debbie Morris -- Chief Financial Officer

Yes. Without providing guidance for next year, we're projected to run, if you look at that midpoint, about 8.2% from a capex, which still is lower than normally we would run, right? I think I said before, 8% to 9%, 8.5% being our current product mix. So what you're seeing in Q4 is that opportunity for incremental sleep equipment. But that will -- so that will differ from 2022 or depending, actually, I should say, if the volume continues to be, the incoming volume, and there's ample supply, then we would invest more capex next year as well.

But when it comes to some of the other ventilation, that we wouldn't anticipate having significant capex or any because of the decline in the census that's occurred because of the recall. So too early to give. I think, generally speaking, being in that 8% to 9% would still be a reasonable assumption going forward.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. And I guess on the recall, I appreciate the comment, you implied that, I guess, Q4, maybe tracking better in terms of the headwind. And so how do you think about next year's headwind from that? How much of spillover you expect in the first half of next year?

Debbie Morris -- Chief Financial Officer

How much spillover from what? I'm sorry.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

For the recall impact, the headwind from the recall?

Debbie Morris -- Chief Financial Officer

Well, when we listen to others, some of the headwinds could go into the second half of next year. But we do believe, given another manufacturer in the market and accessibility to product that, hopefully, if it continues to be manufactured at a steady pace and no disruptions in the supply chain. I think we'll see things in the first half of next year. Again, a little too early to say that for sure, but we'd expect in the first half to start to get back to normal.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

OK. That's all I had. Thank you so much.

Dan Starck -- Chief Executive Officer

Thank you.

Operator

There are no further questions. I will now turn the call back to Dan Starck for closing remarks.

Dan Starck -- Chief Executive Officer

Thank you. I just want to say thank you again to both the Apria team for the -- just their consistent, solid work and the perseverance through a lot of difficult challenges. And I want to thank everyone as well for joining us today. We know that time is a precious commodity.

And we certainly appreciate you spending time with us and learning more about the Apria story. And we look forward to keeping you updated on it. So thank you, and everyone, take care. We'll talk soon.

Take care. Bye-bye.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Dan Starck -- Chief Executive Officer

Debbie Morris -- Chief Financial Officer

Jamie Perse -- Goldman Sachs -- Analyst

Kevin Caliendo -- UBS -- Analyst

Ralph Giacobbe -- Citi -- Analyst

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

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