PART I FINANCIAL INFORMATION [Item 1. Consolidated Interim Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Interim%20Financial%20Statements%20%28Unaudited%29) Presents AdaptHealth Corp.'s unaudited consolidated financial statements for Q2 2021, including balance sheets, income statements, and cash flows with explanatory notes [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (as of June 30, 2021 vs. Dec 31, 2020) | Account | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$4,687,665** | **$1,813,472** | | Cash and cash equivalents | $178,189 | $99,962 | | Goodwill | $3,231,200 | $998,810 | | **Total Liabilities** | **$2,793,622** | **$1,532,627** | | Long-term debt, less current portion | $1,776,326 | $776,568 | | **Total Stockholders' Equity** | **$1,894,043** | **$280,845** | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (Three and Six Months Ended June 30) | Metric (in thousands, except EPS) | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $617,017 | $232,116 | $1,099,136 | $423,555 | | Operating income | $65,407 | $15,570 | $80,816 | $23,790 | | Net income attributable to AdaptHealth Corp. | $79,107 | $4,470 | $75,141 | $(30,081) | | Diluted net income (loss) per share | $0.12 | $0.08 | $0.06 | $(0.70) | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $147,624 | $111,008 | | Net cash used in investing activities | $(1,372,027) | $(117,332) | | Net cash provided by financing activities | $1,302,630 | $40,033 | | **Net increase in cash** | **$78,227** | **$33,709** | [Notes to Consolidated Interim Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Interim%20Financial%20Statements) Net Revenue by Core Service Line (Three Months Ended June 30) | Service Line (in thousands) | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Sleep | $229,666 | $107,065 | | Diabetes | $126,530 | $6,372 | | Respiratory | $124,682 | $48,970 | | Supplies to the home | $42,675 | $27,868 | | HME | $54,791 | $25,989 | | Other | $38,673 | $15,852 | | **Total Net Revenue** | **$617,017** | **$232,116** | - On February 1, 2021, the Company acquired AeroCare Holdings, Inc. for total consideration consisting of approximately **$1.1 billion** in cash, 14.0 million shares of Class A Common Stock, and 130,475 shares of Series C Preferred Stock[65](index=65&type=chunk) - Goodwill increased from **$998.8 million** at December 31, 2020, to **$3.23 billion** at June 30, 2021, primarily due to acquisitions, with **$2.25 billion** added from acquisitions in H1 2021[89](index=89&type=chunk) - In January 2021, the company refinanced its debt, entering a new credit agreement for an **$800 million** term loan and a **$450 million** revolver It also issued **$500 million** in 4.625% senior unsecured notes due 2029[120](index=120&type=chunk)[127](index=127&type=chunk) - A shareholder class action complaint was filed on July 29, 2021, alleging the company made false and misleading statements regarding its organic growth trajectory between November 11, 2019, and July 16, 2021[189](index=189&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance, highlighting revenue and operating income growth driven by acquisitions, COVID-19 impacts, and liquidity [Results of Operations](index=78&type=section&id=Results%20of%20Operations) Comparison of Q2 2021 vs. Q2 2020 | Metric (in thousands) | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $617,017 | $232,116 | 165.8% | | Cost of Net Revenue | $490,720 | $198,418 | 147.3% | | Operating Income | $65,407 | $15,570 | 320.1% | | Net Income (to AdaptHealth) | $79,107 | $4,470 | 1,669.7% | - The increase in net revenue for Q2 2021 was primarily driven by acquisitions completed after April 1, 2020, which contributed **$405.3 million** to the increase[224](index=224&type=chunk) - General and administrative expenses increased by **151.3%** to **$42.9 million** in Q2 2021, primarily due to higher transaction costs from acquisitions, professional fees for Sarbanes-Oxley compliance, increased headcount, and higher equity-based compensation[229](index=229&type=chunk) [EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex](index=88&type=section&id=EBITDA%2C%20Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20less%20Patient%20Equipment%20Capex) Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to AdaptHealth Corp. | $79,107 | $4,470 | $75,141 | $(30,081) | | EBITDA | $179,328 | $35,540 | $243,382 | $9,124 | | **Adjusted EBITDA** | **$147,391** | **$42,634** | **$251,566** | **$73,094** | | **Adjusted EBITDA less Patient Equipment Capex** | **$98,866** | **$30,566** | **$160,783** | **$48,059** | [Liquidity and Capital Resources](index=92&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2021, the company had **$178.2 million** in cash and cash equivalents Management believes existing cash, operating cash flows, and available credit will be sufficient to fund operations for at least the next twelve months[271](index=271&type=chunk)[270](index=270&type=chunk) - The company received **$45.8 million** in recoupable advance payments from CMS under the CARES Act Recoupment began in April 2021, with **$15.9 million** recouped in Q2 2021, leaving a deferred balance of **$33.6 million**[271](index=271&type=chunk)[272](index=272&type=chunk) - Net cash used in investing activities for H1 2021 was **$1.37 billion**, primarily consisting of **$1.29 billion** for business acquisitions, most notably the AeroCare acquisition[286](index=286&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=102&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - The company states this item is not applicable to smaller reporting companies[299](index=299&type=chunk) [Item 4. Controls and Procedures](index=102&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective due to material weaknesses in non-routine transaction review and accounts payable processes - Management identified two material weaknesses in internal control over financial reporting: one related to the timeliness of review controls over non-routine transactions, and another related to the accounts payable process[300](index=300&type=chunk) - Remediation efforts include hiring experienced accounting and finance professionals, implementing a new ERP system, and engaging third-party consultants for internal audit and accounts payable functions[302](index=302&type=chunk)[305](index=305&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=104&type=section&id=Item%201.%20Legal%20Proceedings) This section discloses ongoing legal matters Key proceedings include a subpoena from the U.S. Attorney's Office (EDPA) regarding ventilator billing practices, a civil investigative demand (CID) into AeroCare's oxygen billing, and a recent shareholder class action lawsuit alleging misleading statements about organic growth - On July 29, 2021, a shareholder class action lawsuit was filed against the company and certain officers, alleging violations of federal securities laws by making false and misleading statements regarding the company's organic growth trajectory[313](index=313&type=chunk) - The company is responding to a subpoena from the U.S. Attorney's Office for the Eastern District of Pennsylvania regarding ventilator billing practices[308](index=308&type=chunk) - AeroCare, an acquired subsidiary, is under investigation by the U.S. Attorney for the Western District of Kentucky regarding allegations of improper billing for oxygen tank contents prior to its acquisition by AdaptHealth[309](index=309&type=chunk)[312](index=312&type=chunk) [Item 1A. Risk Factors](index=106&type=section&id=Item%201A.%20Risk%20Factors) Updates significant risks, including the Philips Respironics recall, supply chain issues, regulatory challenges, and acquisition integration complexities - A key supplier, Philips Respironics, initiated a voluntary recall on June 14, 2021, for certain ventilator, BiPAP, and CPAP devices due to potential health risks from sound abatement foam This could lead to supply shortages, litigation, and affect the company's ability to service patients[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) - The company's business is highly dependent on sleep therapy equipment and supplies, which generated approximately **37%** of net revenue in Q2 2021[331](index=331&type=chunk) - The company will no longer qualify as an "emerging growth company" as of December 31, 2021, which will increase compliance costs and require its independent auditor to attest to the effectiveness of internal controls over financial reporting[459](index=459&type=chunk)[481](index=481&type=chunk) - The company is required to make payments under a Tax Receivable Agreement (TRA) equal to **85%** of realized tax savings from certain basis step-ups and other tax attributes, which could be significant[471](index=471&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=158&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2021, the company issued 441,420 shares of Class A Common Stock as partial consideration for certain acquisitions These securities were issued in private transactions exempt from registration under the Securities Act - In Q2 2021, the company issued **441,420 shares** of Class A Common Stock to former equity holders of acquired companies, pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act[489](index=489&type=chunk)

Financial Performance - For the three months ended March 31, 2021, net revenue was $482.1 million, an increase of $290.7 million or 151.8% compared to $191.4 million for the same period in 2020[205]. - The company reported an increase in net revenue due to heightened demand for respiratory products and a suspension of Medicare sequestration, resulting in an approximate 2% increase in Medicare payments[183]. - Acquisitions completed during the three months ended March 31, 2021 contributed net revenue of $142.6 million[205]. - Cost of net revenue for the three months ended March 31, 2021 was $396.7 million, an increase of $229.1 million or 136.7% compared to $167.6 million for the same period in 2020[209]. - Adjusted EBITDA for Q1 2021 was $104.2 million, significantly up from $30.5 million in Q1 2020[224]. - Adjusted EBITDA less Patient Equipment Capex for Q1 2021 was $61.9 million, compared to $17.5 million in Q1 2020[224]. Cash and Liquidity - The company increased cash liquidity by seeking recoupable advance payments of $45.8 million under the CARES Act, received in April 2020[178]. - As of March 31, 2021, AdaptHealth had approximately $132.1 million in cash and cash equivalents, with additional deferred liabilities related to CMS recoupable advance payments totaling $49.5 million[231]. - Net cash provided by operating activities for the three months ended March 31, 2021 was $18.4 million, a decrease of $6.0 million compared to $24.4 million for the same period in 2020[245]. - Net cash used in investing activities for the three months ended March 31, 2021 was $1,213.8 million, primarily due to $1,178.2 million for business acquisitions, mainly from the AeroCare acquisition[246]. - Net cash provided by financing activities for the three months ended March 31, 2021 was $1,227.6 million, significantly higher than $58.2 million for the same period in 2020[247]. - The company had a working capital deficit of $9.6 million as of March 31, 2021, an improvement from $55.8 million as of December 31, 2020[242]. Expenses and Costs - Salaries, labor, and benefits increased by $64.0 million primarily due to acquisition growth and increased headcount[209]. - General and administrative expenses increased by $42.3 million, representing a 294.7% increase compared to the same period in 2020[205]. - General and administrative expenses as a percentage of net revenue increased to 11.7% in Q1 2021 from 7.5% in Q1 2020[211]. - Interest expense for Q1 2021 was $22.2 million, compared to $7.9 million in Q1 2020, reflecting higher long-term debt borrowings used for acquisitions[213]. - Depreciation and amortization, excluding patient equipment depreciation, rose to $13.4 million in Q1 2021 from $1.2 million in Q1 2020, driven by $10.3 million in amortization expense for identifiable intangible assets[213]. Acquisitions and Growth - AdaptHealth completed several acquisitions, including Healthline Medical Equipment and AeroCare, which impacted its operating results for the three months ended March 31, 2021[191]. - The company's CPAP resupply and other supplies business remains healthy, with increased demand for respiratory equipment including ventilators and oxygen concentrators[205]. - The increase in net revenue was partially due to the impact of reduced demand for certain products related to elective medical services during the 2020 period due to the coronavirus pandemic[205]. Debt and Financing - The 2021 Credit Agreement includes a $800 million term loan and $450 million in revolving credit loans, with maturities in January 2026[192]. - AdaptHealth issued $500 million in 4.625% senior unsecured notes due 2029, with interest payable starting August 1, 2021[195]. - The company experienced a net decrease of $39.2 million in cash due to changes in operating assets and liabilities, primarily from accounts payable and accrued expenses[245]. - The 2021 Credit Agreement includes a Consolidated Total Leverage Ratio and a Consolidated Interest Coverage Ratio, with AdaptHealth in compliance with all debt covenants as of March 31, 2021[236]. Legal and Accounting Matters - The Company is subject to loss contingencies from legal proceedings and claims, but management believes any resulting liability will not materially affect its financial conditions or results of operations[255]. - The Company records accruals for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated[255]. - The Company's critical accounting policies include revenue recognition, accounts receivable, business combinations, and valuation of goodwill and long-lived assets[252]. - There have been no material changes in the Company's critical accounting policies compared to those described in the Annual Report for the year ended December 31, 2020[252]. - The assessment of potential liabilities from legal proceedings may change based on new information and developments[255].

AdaptHealth Corp. (NASDAQ:AHCO) Q1 2021 Earnings Conference Call May 6, 2021 8:30 AM ET Company Participants Chris Joyce - General Counsel Steve Griggs - Co-Chief Executive Officer Josh Parnes - President Jason Clemens - Chief Financial Officer Conference Call Participants Brian Tanquilut - Jefferies Anton Hie - RBC Capital Markets Mathew Blackman - Stifel Pito Chickering - Deutsche Bank Richard Close - Canaccord Genuity Kevin Fischbeck - Bank of America Eric Coldwell - Baird Operator Greetings and welcome ...

Acquisition and Growth - The company serviced approximately 3.0 million patients annually across 46 states following the acquisition of AeroCare, up from 1.9 million patients prior to the acquisition[14]. - The total consideration for the AeroCare acquisition was approximately $1.1 billion in cash, along with the issuance of shares and options[16]. - AdaptHealth completed acquisitions involving 22 companies for an aggregate consideration of approximately $914 million in 2020, compared to 18 companies for approximately $67 million in 2019[47]. - Following the acquisition of AeroCare in February 2021, AdaptHealth now services over 3.0 million patients annually and performs approximately 29,000 deliveries daily through a network of over 500 locations across 46 states[49]. - AdaptHealth had approximately 4,700 employees as of December 31, 2020, which increased to around 8,700 employees post-AeroCare acquisition[50]. Market Opportunities - The home medical equipment (HME) industry is projected to grow at a 6.1% CAGR over the next nine years, with the company's total addressable market exceeding $25 billion[19]. - The population of adults aged 65 and older in the U.S. is expected to grow at a 2.5% CAGR through 2030, increasing the market opportunity for the company[19]. - The continuous glucose monitoring (CGM) market is expected to grow by 18% to $3.4 billion by 2022, positioning the company favorably in the diabetes segment[20]. - The insulin pump market is projected to grow by 12% to $2.2 billion by 2022, further expanding the company's market reach[20]. - Obstructive sleep apnea affects 20 million people in the U.S., with 15 million undiagnosed, indicating a significant market potential for the company's sleep therapy products[20]. - AdaptHealth's home medical supplies segment is estimated to represent a $10 billion market opportunity[22]. Financial Performance - Net revenue for the year ended December 31, 2020, was $1,056,389, compared to $529,644 for the year ended December 31, 2019, representing a 99.5% increase[329]. - Operating income for 2020 was $71,346, up from $29,378 in 2019, indicating a significant improvement in operational efficiency[329]. - The net loss attributable to AdaptHealth Corp. for 2020 was $(64,481), compared to a net loss of $(17,062) in 2019, reflecting increased costs associated with growth initiatives[329]. - The company reported total costs and expenses of $999,320 for 2020, up from $500,266 in 2019, primarily driven by increased cost of net revenue[329]. - The weighted average common shares outstanding for 2020 were 52,488, compared to 22,557 in 2019, indicating a dilution effect due to increased share issuance[329]. Revenue Composition - Approximately 28% of AdaptHealth's net revenue for the year ended December 31, 2020, came from fixed monthly payments for certain HME products[36]. - The remaining 72% of net revenue was generated from resupply and one-time sale products, including consumables[37]. - Revenue composition by payer type in 2020 included $657,033 thousand from insurance, $295,657 thousand from government, and $103,699 thousand from patient pay, showing substantial increases across all categories compared to 2019[376]. - The core service line revenue for Sleep increased to $312,860 thousand in 2020 from $224,542 thousand in 2019, while Diabetes revenue was $159,490 thousand, marking a new revenue stream[380]. - The total net revenue from fixed monthly equipment reimbursements was $297,092 thousand in 2020, compared to $213,193 thousand in 2019, reflecting a growth of approximately 39.3%[380]. Regulatory and Competitive Environment - The company faces risks related to competition, regulatory changes, and the integration of AeroCare's operations into its business[9]. - The HME market is highly competitive, with AdaptHealth competing against large national providers, regional providers, and over 6,000 local organizations[51]. - AdaptHealth's operations are subject to extensive government regulations, which could impact its financial condition and results of operations[60]. - Legislative changes, such as those related to the ACA, could potentially reduce AdaptHealth's revenues by affecting Medicaid and Medicare reimbursement rates[68]. - The competitive bidding process for Medicare contracts may adversely affect the company's financial condition and results of operations in the future[425]. Cash Flow and Assets - Cash flows from operating activities provided $195.634 million, while cash used in investing activities was $815.703 million, indicating significant investment activity[341]. - The company reported a significant increase in accounts payable and accrued expenses, which rose to $136.628 million[341]. - The company's cash and cash equivalents rose to $99.96 million in 2020 from $76.88 million in 2019, an increase of about 30%[326]. - Total assets increased to $1.81 billion as of December 31, 2020, compared to $546.54 million in 2019, reflecting a growth of approximately 230%[326]. - The company has a total carrying value of long-term debt arrangements amounting to $784,381 thousand, with a fair value of $826,731 thousand as of December 31, 2020[397]. Operational Efficiency - The integrated technology platform developed by AdaptHealth automates complex processes, improving operational efficiency and patient service[32]. - The company recorded unbilled revenue of $20.2 million as of December 31, 2020, up from $8.6 million in 2019, indicating improved billing efficiency[384]. - Salaries, labor, and benefits costs rose to $257,898,000 in 2020 from $153,173,000 in 2019, marking a 68% increase[417]. - The company incurred interest expense of $41,430 in 2020, slightly up from $39,304 in 2019, indicating stable financing costs despite increased debt levels[329]. - The company expects to adopt ASU 2016-02 regarding leases during the year ended December 31, 2021, which will have a material effect on its consolidated financial statements[439].

Financial Data and Key Metrics Changes - AdaptHealth generated net revenue of $348.4 million for Q4 2020, an increase of 133% from Q4 2019 [19] - Adjusted EBITDA was $79.4 million, up 136% from the same quarter last year [19] - Adjusted EBITDA less patient equipment CapEx reached $58.5 million, reflecting a 168% increase year-over-year [19] - For the full year, organic growth was reported at 8.6%, including COVID B2B business, and 5.6% excluding it [22] Business Line Data and Key Metrics Changes - The company provided home medical equipment to over 43,000 patients with a COVID diagnosis, highlighting the growth in home health needs [8] - The diabetes supply business is rapidly growing, with unit growth exceeding 50% year-over-year across all diabetes businesses [38] - The oxygen business saw significant increases, particularly in the latter half of Q4 2020 and into 2021, with expectations to remain above pre-pandemic levels [22] Market Data and Key Metrics Changes - The company closed 22 acquisitions in 2020, enhancing its geographic footprint and product portfolio, particularly in high-growth HME markets [20] - The acquisition of AeroCare is expected to deliver $130 million to $150 million of incremental revenue in 2021 [12] - The company anticipates organic growth prospects between 8% and 10% for 2021, driven by recovery in new starts and market expansion [22] Company Strategy and Development Direction - AdaptHealth is focused on integrating AeroCare and pursuing additional value-creating acquisitions in both HME and diabetes sectors [25] - The company plans to invest in technology to improve internal processes and enhance patient experience [25] - Management emphasized the importance of maintaining a disciplined approach to acquisitions, ensuring they are financially accretive and value-creating [81] Management's Comments on Operating Environment and Future Outlook - Management noted that they have not seen increased mortality among their patient base despite COVID-19, and there has been a significant influx of oxygen prescribing related to the pandemic [31] - The company remains optimistic about growth in 2021, expecting to exceed pre-pandemic levels for most key products by the end of Q1 [33] - Management expressed confidence in the diabetes business, projecting a conservative growth contribution of 10% to 15% to the overall growth target for 2021 [39] Other Important Information - The company has been active in capital markets, successfully raising $500 million in unsecured notes and $279 million in equity in January 2021 [12] - Management highlighted the importance of e-Prescribing, with 20% of new starts now being e-Prescribed, which enhances patient experience and operational efficiency [18] Q&A Session Summary Question: Concerns about COVID's impact on volumes and oxygen demand - Management clarified that they have not seen increased mortality among their patients and noted a significant rise in oxygen prescribing due to COVID-related issues [31][32] Question: Strategy behind entering the diabetes market - The strategy was to add a product category that aligns with their existing patient base, leveraging similar technology and processes [35] Question: Impact of competitive bidding rates released by CMS - Management indicated that the rates suggest a potential increase in pricing due to reduced provider numbers, validating their belief that rates are at a bottom [44] Question: Guidance for 2021 and organic growth contributions - The guidance increase is primarily driven by acquisitions, with organic growth expected to be between 8% and 10% [23][48] Question: Realization of AeroCare revenue synergies - Management expects to see contributions from AeroCare revenue synergies in the second half of 2021 [70] Question: Supply challenges in the oxygen market - Management acknowledged supply challenges but noted that they have sufficient inventory to meet demand and have been able to assist other health systems [64]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-38399 AdaptHealth Corp. (Exact name of registrant as specified in its charter) Delaware 82-3677704 (State of Other Jurisdiction of incorporation or Or ...

Financial Data and Key Metrics Changes - AdaptHealth generated net revenue of $284 million, an increase of 108% from Q3 2019 [18] - Adjusted EBITDA was $53 million, an increase of 68% from Q3 2019 [18] - Adjusted EBITDA less patient equipment CapEx was $36 million, an increase of 92% from Q3 2019 [18] - Operating cash flow for the nine months ended September 30, 2020, was $145 million, including approximately $46 million of CMS advanced payments and $17 million in CARES Act Provider Relief Funds [21] Business Line Data and Key Metrics Changes - New sleep starts rebounded to above 90% of pre-COVID levels by the end of Q3, recovering from a 30% decline in Q2 [20] - The diabetes supply management business is expected to add $85 million to $90 million in revenue in 2021 due to recent acquisitions [10] - The company continues to see strong growth in diabetes and supplies products, with expectations for organic growth to return to high-single digits [20][23] Market Data and Key Metrics Changes - The company noted a positive regulatory update from CMS regarding the Medicare competitive bid program, which is expected to provide rate stability for the next three years [12][13] - The competitive bid program's delay or cancellation is viewed positively, as it may lead to more stable pricing in the market [36][38] Company Strategy and Development Direction - AdaptHealth aims to evolve from a provider of equipment and supplies to a more complete connected healthcare solutions provider [11] - The company has an active M&A pipeline and plans to continue selectively pursuing acquisitions that align with its strategic goals [11] - The focus remains on expanding relationships with payers and formulating value-based reimbursement models [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve its guidance for 2020 and 2021, despite uncertainties related to COVID-19 [73] - The company anticipates organic growth will return to normalized levels by the first half of 2021, with diabetes expected to grow at a mid-teens rate [23][43] - Management highlighted the importance of maintaining operational stability and adapting to ongoing challenges presented by the pandemic [15] Other Important Information - The company is focusing on technology and business process improvements, including increasing e-Prescribing penetration [17][49] - Management emphasized the importance of patient engagement and data collection through technology to enhance service delivery [69] Q&A Session Summary Question: Can you help us bridge the new 2020 guide? - Management indicated that the core business is performing slightly above plan, with most of the guidance increase related to acquisition activity [28] Question: What was the organic growth number in the quarter? - Organic growth for Q3 was a little over 1%, which management found pleasing given the circumstances [30] Question: How did Solara perform relative to expectations? - Revenue from Solara was slightly weaker than modeled due to the impact of TRICARE rate cuts, but new start trends are ahead of budget [32] Question: How does competitive bidding impact purchasing power? - Management noted that the uncertainty around competitive bidding had delayed discussions with suppliers, but they expect to establish purchasing targets moving forward [61] Question: What are the biggest risks for achieving guidance? - The primary risk for 2021 is the ongoing impact of COVID-19, which remains unpredictable [73] Question: How will the M&A strategy be affected by the election? - Management believes that the M&A pipeline remains active and that the election results will not significantly impact existing negotiations [75]

Financial Performance - Total net revenue for the three months ended September 30, 2020 was $284405 thousand, compared to $136451 thousand for the three months ended September 30, 2019[8] - Total net revenue for the nine months ended September 30, 2020 reached $707960 thousand, a significant increase from $380103 thousand in the same period of 2019[8] - Adjusted EBITDA for the three months ended September 30, 2020 was $53160 thousand, compared to $31656 thousand for the three months ended September 30, 2019[8] - Adjusted EBITDA for the nine months ended September 30, 2020 was $126254 thousand, up from $89352 thousand for the nine months ended September 30, 2019[8] - Adjusted EBITDA less Patient Equipment Capex for the three months ended September 30, 2020 was $35912 thousand, representing 126% of revenue, compared to $18715 thousand, representing 137% of revenue for the three months ended September 30, 2019[8] - Adjusted EBITDA less Patient Equipment Capex for the nine months ended September 30, 2020 was $83971 thousand, representing 119% of revenue, compared to $53763 thousand, representing 141% of revenue for the nine months ended September 30, 2019[8] Revenue Streams - More than 87% of revenue comes from recurring sales or rentals[12] - Net sales revenue for the three months ended September 30, 2020 was $207140 thousand, accounting for 728% of total net revenue[14] - Net revenue from fixed monthly equipment reimbursements for the three months ended September 30, 2020 was $77265 thousand, representing 272% of total net revenue[14] Share Count - Number of shares outstanding at September 30, 2020 was 81037 thousand[17]

Financial Data and Key Metrics Changes - AdaptHealth Corp. generated net revenue of $232.1 million in Q2 2020, an 87% increase from Q2 2019 and 21% higher than Q1 2020 [18] - Adjusted EBITDA was $42.6 million, compared to $29.5 million in Q2 2019, while adjusted EBITDA less patient equipment CapEx was $30.6 million, up from $18.1 million in Q2 2019 [19] - Net income attributable to AdaptHealth was $4 million, compared to a net loss of $2.1 million in Q2 2019 [19] Business Line Data and Key Metrics Changes - The Patient Care Solutions (PCS) segment generated net revenue of $33 million, but incurred a quarterly loss of $3.6 million [18][19] - The traditional direct-to-patient HME and supplies business performed well, with a low double-digit increase in CPAP supply business [10][28] - B2B revenue for equipment sales and rentals reached approximately $28 million in Q2, with expectations of generating $70 million in revenue over the next few quarters [11] Market Data and Key Metrics Changes - The company noted a significant impact from COVID-19 on certain product lines, particularly CPAP new starts, which were down approximately 30% in Q2 [38] - Despite challenges, the CGM (Continuous Glucose Monitoring) business showed strong performance, benefiting from increased adoption and Medicare relaxations [78] Company Strategy and Development Direction - AdaptHealth aims to integrate recent acquisitions (Solara and ActivStyle) to enhance its diabetes management and medical supplies business, focusing on resupply processes and operational efficiencies [8][13] - The company is committed to investing in technology and business processes to improve patient experience and operational costs [14] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the recovery of CPAP new starts and the overall business environment, emphasizing the importance of integration and investment in technology [39][62] - The company increased its 2020 financial guidance, projecting net revenue between $935 million and $983 million, and adjusted EBITDA of $169 million to $178 million [22] Other Important Information - The company raised approximately $134 million through a public offering and secured additional financing, enhancing its liquidity position with over $300 million in cash [15][20] - New board members were welcomed, including Brad Coppens and David Williams, to strengthen the company's strategic direction [16] Q&A Session Summary Question: Guidance clarification regarding EBITDA less CapEx - Management explained the adjustments in guidance, noting that the B2B business would not maintain the same revenue levels in the second half of the year [26] Question: CPAP reorder rates and sustainability - Management reported low double-digit growth in CPAP supply business and expressed cautious optimism about maintaining improved resupply rates [28] Question: PCS losses and COVID impact - Management indicated that PCS's performance was largely in line with expectations and not significantly impacted by COVID [32] Question: Future B2B business opportunities - Management expressed cautious optimism about the persistence of B2B revenue, estimating a couple of million dollars per quarter in the near future [70] Question: Integration of Solara and ActivStyle - Management confirmed that integration efforts are ongoing and will take time, with a focus on leveraging existing competencies to drive growth [84]

[PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Consolidated Interim Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Consolidated%20Interim%20Financial%20Statements%20%28Unaudited%29) This section presents AdaptHealth Corp.'s unaudited consolidated financial statements, detailing financial position, operations, and cash flows, along with explanatory notes [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $739.3 million and liabilities to $746.1 million by June 30, 2020, while stockholders' deficit improved Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$739,309** | **$546,121** | | Cash and cash equivalents | $110,587 | $76,878 | | Accounts receivable | $119,243 | $78,619 | | Goodwill | $342,851 | $266,791 | | **Total Liabilities** | **$746,103** | **$575,370** | | Long-term debt, less current portion | $443,248 | $395,112 | | **Total Stockholders' Deficit** | **($6,794)** | **($29,249)** | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Net revenue grew significantly in Q2 2020 to $232.1 million, resulting in net income of $4.0 million, a substantial improvement year-over-year Key Operating Results (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $232,116 | $124,154 | $423,555 | $243,652 | | Operating income | $16,470 | $14,911 | $25,781 | $20,258 | | Net income (loss) attributable to AdaptHealth Corp. | $4,033 | ($2,083) | $3,875 | ($7,884) | | Diluted EPS | $0.08 | ($0.10) | $0.08 | ($0.44) | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased to $111.0 million in H1 2020, while investing activities used $117.3 million, primarily for acquisitions Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $111,008 | $26,036 | | Net cash used in investing activities | ($117,332) | ($38,710) | | Net cash provided by (used in) financing activities | $40,033 | ($10,353) | | **Net increase (decrease) in cash** | **$33,709** | **($23,027)** | [Notes to Consolidated Interim Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Interim%20Financial%20Statements) These notes detail accounting policies, revenue recognition, significant acquisitions, debt structure, equity compensation, and major subsequent financing and acquisition events - The company is a **leading provider** of home healthcare equipment and medical supplies, focusing on **sleep therapy, HME, oxygen**, and other supplies for chronically ill patients[33](index=33&type=chunk) Net Revenue by Core Service Line (Q2 2020 vs Q2 2019, in thousands) | Service Line | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Sleep | $107,065 | $69,377 | | Supplies to the home | $34,240 | $1,915 | | HME | $25,989 | $20,438 | | Respiratory | $48,970 | $21,454 | | Other | $15,852 | $10,970 | | **Total Net Revenue** | **$232,116** | **$124,154** | - In H1 2020, the company completed several acquisitions for a total consideration of **$114.5 million**, adding **$76.1 million** to goodwill, including **Patient Care Solutions (PCS)** and **Advanced Home Care, Inc. (Advanced)**[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - Subsequent to the quarter end, on July 1, 2020, the company acquired Solara Medical Supplies for **$380.7 million** in cash and **3.9 million shares**, and ActivStyle, Inc. for **$65.5 million** in cash[131](index=131&type=chunk)[132](index=132&type=chunk) - In July 2020, the company completed several major financing transactions, including a **$190 million** private placement, a **$134 million** public offering, and a **$350 million** senior unsecured notes offering, and refinanced its credit facility into a new **$250 million term loan** and **$200 million revolver**[129](index=129&type=chunk)[130](index=130&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, revenue growth from acquisitions and organic expansion, COVID-19 impact, operating results, non-GAAP measures, liquidity, and subsequent financing activities [Overview and Trends](index=34&type=section&id=Overview%20and%20Trends) AdaptHealth, a leading HME provider, benefits from an aging population, rising chronic conditions, and a shift to cost-effective in-home care, with an addressable market exceeding $25 billion - Key market drivers include an **aging U.S. population**, increasing prevalence of chronic conditions, and a **shift towards in-home treatment**, which is more cost-effective than institutional care[146](index=146&type=chunk) - The Home Medical Equipment (HME) market is projected to grow at a **6.1% CAGR** over the next nine years, with AdaptHealth's addressable market now exceeding **$25 billion** following recent acquisitions[146](index=146&type=chunk) [Impact of the COVID-19 Pandemic](index=36&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) COVID-19 led to declines in elective procedures but increased demand for respiratory products, with the company receiving CARES Act funds and implementing a 6% workforce reduction - The company received approximately **$47 million** in recoupable advance payments and **$17 million** in provider relief funds under the **CARES Act** to enhance liquidity[149](index=149&type=chunk) - Revenue from elective services like new CPAP starts **declined**, but this was offset by **increased demand for respiratory products** (oxygen, ventilators) and **strong performance in the resupply business**[150](index=150&type=chunk)[152](index=152&type=chunk) - In April 2020, the company reduced its workforce by approximately **6%**, incurring a one-time severance charge of **$1.6 million**[150](index=150&type=chunk)[151](index=151&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Q2 2020 net revenue increased 87.0% to $232.1 million, driven by acquisitions and COVID-related demand, while costs and G&A expenses also rose Q2 2020 vs Q2 2019 Results (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $232,116 | $124,154 | +87.0% | | Cost of Net Revenue | $197,517 | $102,150 | +93.4% | | Operating Income | $16,470 | $14,911 | +10.5% | | Net Income (loss) attributable to AdaptHealth Corp. | $4,033 | ($2,083) | -293.6% | - The Q2 2020 revenue increase of **$108.0 million** was primarily driven by acquisitions (**$77.0 million**), organic growth, and **$28.4 million** from sales of ventilation and oxygen equipment for COVID-19 patients[164](index=164&type=chunk) - Interest expense for Q2 2020 decreased to **$7.5 million** from **$14.6 million** in Q2 2019, primarily due to a **$6.7 million** non-cash charge in the prior period for interest rate swaps now accounted for through other comprehensive income[169](index=169&type=chunk)[171](index=171&type=chunk) [EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex](index=47&type=section&id=EBITDA%2C%20Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20less%20Patient%20Equipment%20Capex) Adjusted EBITDA for Q2 2020 increased to $42.6 million, and Adjusted EBITDA less Patient Equipment Capex rose to $30.6 million, reflecting improved operational performance Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to AdaptHealth Corp. | $4,033 | ($2,083) | $3,875 | ($7,884) | | **EBITDA** | **$34,844** | **$28,145** | **$60,895** | **$46,343** | | **Adjusted EBITDA** | **$42,634** | **$29,480** | **$73,094** | **$57,696** | | Less: Patient equipment capex | ($12,068) | ($11,405) | ($25,035) | ($22,648) | | **Adjusted EBITDA less Patient Equipment Capex** | **$30,566** | **$18,075** | **$48,059** | **$35,048** | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company held $110.6 million in cash as of June 30, 2020, with liquidity bolstered by CARES Act funds and significant subsequent capital raises and debt refinancing - As of June 30, 2020, the company had **$110.6 million** in cash and cash equivalents[198](index=198&type=chunk) - In July 2020, the company raised significant capital through a **$134.0 million** public offering and a **$350.0 million** senior unsecured notes offering[200](index=200&type=chunk)[201](index=201&type=chunk) - On July 29, 2020, the company refinanced its debt, entering into a new credit agreement with a **$250 million term loan** and a **$200 million revolver**, maturing in July 2025[202](index=202&type=chunk) Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $111,008 | $26,036 | | Net cash used in investing activities | ($117,332) | ($38,710) | | Net cash provided by (used in) financing activities | $40,033 | ($10,353) | [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - This section is not applicable because AdaptHealth is a smaller reporting company[215](index=215&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of June 30, 2020, due to material weaknesses in non-routine transaction review and IT general controls, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of June 30, 2020[216](index=216&type=chunk) - **Two material weaknesses** were identified: (1) **untimely review controls** over non-routine transactions, and (2) deficiencies in **IT general controls**, particularly **user access and segregation of duties**[216](index=216&type=chunk)[219](index=219&type=chunk) - **Remediation efforts are underway**, including hiring experienced technical resources and modifying system access rights to strengthen controls[218](index=218&type=chunk)[219](index=219&type=chunk) [PART II OTHER INFORMATION](index=55&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, including an ongoing U.S. Attorney's Office investigation into ventilator billing practices, which are not expected to be material - The company is subject to various investigations and lawsuits arising in the ordinary course of business, which are **not expected to be material**[222](index=222&type=chunk) - The company is **cooperating with an ongoing investigation** by the **U.S. Attorney's Office for the Eastern District of Pennsylvania** concerning **ventilator billing practices** for a specific payor, having responded to a subpoena and civil investigative demand[223](index=223&type=chunk) [Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks, including COVID-19 impacts, supply chain reliance, Medicare/Medicaid policy changes, healthcare fraud laws, acquisition integration, and Tax Receivable Agreement obligations [Risks Related to Our Business and Industry](index=55&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Key business risks include COVID-19 impacts, supplier reliance, Medicare/Medicaid reimbursement changes, private payor pressure, complex billing, and compliance with extensive healthcare fraud and abuse laws - The COVID-19 pandemic poses significant risks, including **operational disruption** from remote work, potential **supply chain constraints**, and **uncertain demand** for services[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - The company relies on a **small number of suppliers** for most of its equipment, creating risk from **price increases or supply disruptions**, which could be exacerbated by events like the COVID-19 pandemic[231](index=231&type=chunk) - A significant portion of revenue (**26% for Q2 2020**) is derived from Medicare and Medicaid, making the business **vulnerable to statutory and regulatory changes that could reduce reimbursement rates**[232](index=232&type=chunk) - The business is subject to **extensive federal and state healthcare fraud and abuse laws**, such as the **Anti-Kickback Statute** and the **Stark Law**, where violations can lead to **substantial penalties**, including **exclusion from federal healthcare programs**[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) [Risks Related to Our Securities](index=80&type=section&id=Risks%20Related%20to%20Our%20Securities) Securities risks include stock price volatility, dependence on AdaptHealth Holdings for distributions, significant Tax Receivable Agreement obligations, and influence from principal stockholders - The company's **only significant asset** is its ownership interest in **AdaptHealth Holdings**, and its ability to pay obligations or dividends **depends on distributions** from this subsidiary[311](index=311&type=chunk) - The company is required to make potentially **significant payments** under the **Tax Receivable Agreement (TRA)**, which are based on **85%** of the tax savings it realizes from certain tax attributes and basis step-ups[325](index=325&type=chunk) - Payments under the TRA could be **accelerated** in a change of control or early termination scenario, potentially **exceeding the actual tax benefits realized**[326](index=326&type=chunk) - **Principal stockholders**, including **Everest Trust** and **OEP Purchaser**, hold **significant voting power** and can influence corporate actions[317](index=317&type=chunk) [Risks Related to the Acquisitions](index=89&type=section&id=Risks%20Related%20to%20the%20Acquisitions) Acquisition risks for Solara and ActivStyle include challenges in integration, potential loss of key employees, business disruption, and failure to achieve anticipated synergies and revenue growth - The success of the Solara and ActivStyle acquisitions depends on the ability to **efficiently integrate their operations**, which carries risks of **business disruption**, **loss of key employees**, and **inconsistencies in systems and policies**[344](index=344&type=chunk) - The company may **not achieve the anticipated revenue growth, cost synergies, and other benefits** from the acquisitions, which could **adversely affect financial performance**[344](index=344&type=chunk)[345](index=345&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued 3.6 million Class A Common Stock shares in exchange for AdaptHealth Units and Class B Common Stock, and granted over 500,000 restricted shares to officers and directors - As of June 30, 2020, the company issued **3,605,049 shares of Class A Common Stock** in exchange for AdaptHealth Units and Class B Common Stock under the Exchange Agreement[347](index=347&type=chunk) - The company granted **504,186 restricted shares of Class A Common Stock** to certain officers and directors[348](index=348&type=chunk) [Defaults upon Senior Securities](index=89&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported for the period[349](index=349&type=chunk) [Mine Safety Disclosures](index=90&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - This section is not applicable to the company[350](index=350&type=chunk) [Other Information](index=90&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - No other information was reported for the period[351](index=351&type=chunk) [Exhibits](index=90&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or furnished as part of the quarterly report, including various agreements and certifications