AdaptHealth Corp. (NASDAQ:AHCO) is a leading national provider of patient-centered, healthcare-at-home solutions, including home medical equipment (HME), medical supplies, and related services. The company's focus is on delivering high-quality care and improving patient outcomes across a diverse range of healthcare services, with a particular emphasis on sleep therapy, diabetes management, and respiratory care.

Financials

In the latest fiscal year, AdaptHealth reported annual revenue of $3.20 billion, a testament to the company's scale and market presence. Despite the challenges posed by the pandemic, AdaptHealth demonstrated its resilience, generating annual operating cash flow of $480.7 million and free cash flow of $143.2 million. However, the company reported an annual net loss of $678.9 million, primarily due to non-cash charges related to the change in fair value of its warrant liability.

During the first quarter of 2024, AdaptHealth continued to build on its momentum, reporting net revenue of $792.5 million, a 6.4% increase compared to the same period in the prior year. This growth was driven by a 4.0% increase in the company's sleep business, a 2.0% increase in its diabetes business, and the addition of $32.0 million in revenue from its capitated revenue arrangements.

The company's profitability also improved, with adjusted EBITDA reaching $158.5 million, representing a 20.0% adjusted EBITDA margin, a 200-basis point improvement over the first quarter of 2023. This was driven by a combination of improved cost of products and supplies, as well as better management of salaries, labor, and benefits.

However, AdaptHealth's first-quarter cash flow was impacted by a temporary disruption in its revenue cycle management process due to a cybersecurity incident at one of its third-party software providers. This resulted in a delay in the collection of certain accounts receivable, leading the company to draw $75.0 million on its revolving credit facility. Since the end of the quarter, the company has been able to resolve the majority of these issues, and the revolving credit facility balance has been repaid.

Outlook

Looking ahead, AdaptHealth is maintaining its full-year guidance, expecting revenue to be in the range of $3.25 billion to $3.35 billion, adjusted EBITDA to be between $650 million and $710 million, and free cash flow to be in the range of $150 million to $180 million. The company is also reiterating its expectation to reduce its leverage ratio to below 3.0x by the end of 2024.

Business Segments

One of the key drivers of AdaptHealth's growth has been its sleep therapy business, which accounts for approximately 39% of the company's total revenue. The sleep business has continued to perform well, with sleep sales revenue increasing by 5.6% in the first quarter, driven by a record resupply patient census of 1.58 million. The company remains vigilant in monitoring the potential impact of GLP-1 medications on CPAP compliance, but so far, it has not seen any material changes in patient behavior.

AdaptHealth's diabetes business, which represents approximately 19% of total revenue, has also shown signs of improvement. While the company continues to navigate the shift in the market towards tubeless insulin pumps, it has been able to offset some of the revenue pressure by increasing its focus on the continuous glucose monitoring (CGM) segment, where it has seen significant growth in patient census.

In addition to its core product lines, AdaptHealth has been successful in expanding its capitated revenue arrangements, which now account for 4% of total revenue. The company's Humana contract, which was a key focus area in 2023, has now been substantially transitioned, and AdaptHealth is actively pursuing additional capitated opportunities with other payers.

Liquidity

AdaptHealth's liquidity position remains strong, with $79.6 million in cash as of March 31, 2024. The company has been proactive in managing its debt, reducing its term loan balance by $25.0 million during the first quarter and an additional $15.0 million subsequent to the quarter-end. AdaptHealth remains committed to its goal of reducing its leverage ratio to below 3.0x by the end of 2024.

Risks and Challenges

One of the key risks facing AdaptHealth is the potential impact of changes in the reimbursement environment, particularly with regards to government payers such as Medicare and Medicaid. The company has demonstrated its ability to navigate these challenges, but continued vigilance and adaptability will be crucial going forward.

Another area of focus for the company is its ongoing efforts to improve operational efficiency and cost management. AdaptHealth has made significant progress in this regard, as evidenced by the improvements in its cost of products and supplies, as well as its salaries, labor, and benefits as a percentage of revenue.

Conclusion

AdaptHealth has delivered a strong performance in the first quarter of 2024, demonstrating its ability to drive consistent growth and improve profitability. The company's diversified product portfolio, focus on patient-centric care, and commitment to operational excellence position it well for continued success in the years ahead. With a solid financial foundation, a clear strategic vision, and a talented management team, AdaptHealth is poised to capitalize on the significant opportunities in the healthcare-at-home market.