[PART I FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents AdaptHealth Corp.'s unaudited interim consolidated financial statements and management's analysis [Item 1. Interim Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Interim%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents AdaptHealth Corp.'s unaudited interim consolidated financial statements and detailed notes for the reported periods [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | | Total Assets | $4,725,248 | $5,219,587 | | Total Liabilities | $2,985,476 | $3,061,829 | | Total Stockholders' Equity | $1,739,772 | $2,157,758 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, including revenue, expenses, and net income or loss | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net revenue | $804,031 | $756,495 | $2,341,943 | $2,190,312 | | Operating (loss) income | $(461,036) | $52,949 | $(380,597) | $163,679 | | Net (loss) income | $(452,921) | $17,227 | $(421,205) | $74,704 | | Net (loss) income attributable to AdaptHealth Corp. | $(454,076) | $16,122 | $(424,392) | $71,904 | | Basic net (loss) income per share | $(3.37) | $0.11 | $(3.15) | $0.49 | | Diluted net (loss) income per share | $(3.43) | $0.11 | $(3.37) | $0.35 | - The company recognized a non-cash goodwill impairment charge of **$511.9 million** during the three and nine months ended September 30, 2023, significantly impacting operating and net income[19](index=19&type=chunk)[40](index=40&type=chunk)[86](index=86&type=chunk) [Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) This section presents the company's comprehensive income or loss, including net income and other comprehensive income items | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net (loss) income | $(452,921) | $17,227 | $(421,205) | $74,704 | | Gain (loss) on interest rate swap agreements, net of tax | $66 | $7,757 | $(285) | $15,348 | | Comprehensive (loss) income | $(452,855) | $24,984 | $(421,490) | $90,052 | | Comprehensive (loss) income attributable to AdaptHealth Corp. | $(454,010) | $23,879 | $(424,677) | $87,252 | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines changes in the company's equity accounts, including net income, share repurchases, and other equity transactions - Total stockholders' equity attributable to AdaptHealth Corp. decreased from **$2,151,158 thousand** at December 31, 2022, to **$1,732,485 thousand** at September 30, 2023, primarily due to a net loss of **$(454,076) thousand** for the three months ended September 30, 2023[17](index=17&type=chunk)[24](index=24&type=chunk) - The company repurchased **631,953 shares** of Common Stock for **$9.2 million** during the nine months ended September 30, 2023, under its Share Repurchase Program[24](index=24&type=chunk)[120](index=120&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $325,400 | $276,947 | | Net cash used in investing activities | $(266,861) | $(265,376) | | Net cash used in financing activities | $(48,668) | $(50,460) | | Net increase (decrease) in cash | $9,871 | $(38,889) | | Cash at end of period | $56,143 | $110,738 | - Net cash provided by operating activities increased by **$48.5 million** YoY for the nine months ended September 30, 2023, primarily due to a net increase in non-cash charges, including a goodwill impairment charge[27](index=27&type=chunk)[245](index=245&type=chunk) [Notes to Interim Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Interim%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the interim consolidated financial statements [Note 1. General Information](index=11&type=section&id=Note%201%20General%20Information) This note provides an overview of AdaptHealth Corp.'s business, operations, and significant accounting policy adoptions - AdaptHealth Corp. is a national leader in providing patient-centered, healthcare-at-home solutions, including sleep therapy, diabetes medical devices, HME, oxygen, and other medical supplies, serving approximately **4.0 million patients** annually across **47 states**[30](index=30&type=chunk)[179](index=179&type=chunk) - Stephen Griggs resigned as CEO effective June 30, 2023, with Richard Barasch serving as Interim CEO[31](index=31&type=chunk) - The Company adopted ASU No. 2020-04, Reference Rate Reform, during the nine months ended September 30, 2023, which did not materially impact its financial statements[55](index=55&type=chunk) [Note 2. Revenue Recognition and Accounts Receivable](index=15&type=section&id=Note%202%20Revenue%20Recognition%20and%20Accounts%20Receivable) This note details the company's revenue recognition policies and provides a breakdown of net revenue by payor type and product line - Net revenue increased by **6.3%** to **$804.0 million** for the three months ended September 30, 2023, and by **6.9%** to **$2,341.9 million** for the nine months ended September 30, 2023, compared to the prior year periods[196](index=196&type=chunk)[210](index=210&type=chunk) Net Revenue by Payor Type (in thousands) | Payor Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Insurance | $486,136 | $465,625 | $1,397,748 | $1,322,694 | | Government | $220,351 | $198,841 | $618,860 | $576,829 | | Patient pay | $97,544 | $92,029 | $325,335 | $290,789 | | **Total** | **$804,031** | **$756,495** | **$2,341,943** | **$2,190,312** | Total Net Revenue by Core Product Line (in thousands) | Product Line | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Sleep | $315,392 | $270,629 | $912,403 | $781,256 | | Diabetes | $159,937 | $173,286 | $475,219 | $494,884 | | Respiratory | $151,083 | $140,352 | $447,815 | $417,833 | | HME | $52,182 | $54,945 | $154,297 | $166,582 | | Supplies to the home | $48,349 | $47,793 | $143,227 | $131,539 | | Other | $77,088 | $69,490 | $208,982 | $198,218 | | **Total** | **$804,031** | **$756,495** | **$2,341,943** | **$2,190,312** | [Note 3. Acquisitions](index=18&type=section&id=Note%203%20Acquisitions) This note outlines the company's acquisition activities, including cash consideration, goodwill generated, and revenue contributions - During the nine months ended September 30, 2023, AdaptHealth completed three HME provider equity acquisitions and two asset acquisitions for a total cash consideration of **$18.173 million**[78](index=78&type=chunk) - Goodwill generated from 2023 acquisitions was **$7.297 million**, attributable to expected growth and cost synergies[78](index=78&type=chunk) - Acquisitions contributed **$10.0 million** to net revenue for the nine months ended September 30, 2023[210](index=210&type=chunk) [Note 4. Equipment and Other Fixed Assets](index=19&type=section&id=Note%204%20Equipment%20and%20Other%20Fixed%20Assets) This note provides a breakdown of the company's equipment and other fixed assets, along with related depreciation expenses Equipment and Other Fixed Assets, Net (in thousands) | Asset Category | September 30, 2023 | December 31, 2022 | | :--------------- | :----------------- | :---------------- | | Patient medical equipment | $776,366 | $747,985 | | Computers and Software | $92,208 | $70,897 | | Delivery vehicles | $43,078 | $35,326 | | Other | $21,159 | $16,059 | | **Gross carrying value** | **$932,811** | **$870,267** | | Less accumulated depreciation | $(442,758) | $(383,188) | | **Net** | **$490,053** | **$487,079** | - Depreciation expense for the nine months ended September 30, 2023, was **$263.4 million**, an increase from **$218.9 million** in the prior year period[84](index=84&type=chunk) [Note 5. Goodwill and Identifiable Intangible Assets](index=21&type=section&id=Note%205%20Goodwill%20and%20Identifiable%20Intangible%20Assets) This note details the company's goodwill and identifiable intangible assets, including impairment charges and amortization expenses - AdaptHealth recognized a non-cash goodwill impairment charge of **$511.9 million** during the three and nine months ended September 30, 2023, due to a decline in market capitalization and revised financial projections[86](index=86&type=chunk)[203](index=203&type=chunk)[217](index=217&type=chunk) Identifiable Intangible Assets, Net (in thousands) | Asset Category | September 30, 2023 | December 31, 2022 | | :--------------- | :----------------- | :---------------- | | Tradenames, net | $77,689 | $87,302 | | Payor contracts, net | $55,834 | $61,984 | | Developed technology, net | $2,205 | $3,150 | | Contractual rental agreements, net | — | $10,337 | | **Total** | **$135,728** | **$162,773** | - Amortization expense for identifiable intangible assets was **$27.0 million** for the nine months ended September 30, 2023, down from **$30.0 million** in the prior year period[89](index=89&type=chunk) [Note 6. Fair Value of Assets and Liabilities](index=22&type=section&id=Note%206%20Fair%20Value%20of%20Assets%20and%20Liabilities) This note presents the fair value measurements for certain financial assets and liabilities, including derivative instruments Financial Assets and Liabilities Measured at Fair Value (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | Interest rate swap agreements (assets) | $10,487 | $9,476 | | Acquisition-related contingent consideration (liabilities) | $7,850 | $7,500 | | Warrant liability (liabilities) | $6,617 | $38,503 | - The warrant liability decreased significantly from **$38.503 million** at December 31, 2022, to **$6.617 million** at September 30, 2023, reflecting a non-cash gain from the change in fair value[94](index=94&type=chunk)[123](index=123&type=chunk) [Note 7. Derivative Instruments and Hedging Activities](index=25&type=section&id=Note%207%20Derivative%20Instruments%20and%20Hedging%20Activities) This note describes the company's use of derivative instruments for hedging interest rate risk and related accounting impacts - AdaptHealth uses interest rate swap agreements to manage interest rate risk, converting variable rate borrowings to a fixed rate. The notional amount outstanding as of September 30, 2023, was **$250 million**[103](index=103&type=chunk)[106](index=106&type=chunk) - The Company amended its interest rate swap agreements during the nine months ended September 30, 2023, to change the benchmark rate from LIBOR to Term SOFR, with no impact on accounting for these derivatives[103](index=103&type=chunk)[106](index=106&type=chunk) - A gain of **$1.1 million** (net of tax) was recognized in other comprehensive income for the nine months ended September 30, 2023, from cash flow hedge accounting[107](index=107&type=chunk) [Note 8. Accounts Payable and Accrued Expenses](index=27&type=section&id=Note%208%20Accounts%20Payable%20and%20Accrued%20Expenses) This note provides a detailed breakdown of the company's accounts payable and various accrued expenses Accounts Payable and Accrued Expenses (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :---------------- | | Accounts payable | $205,098 | $222,505 | | Employee-related accruals | $53,273 | $41,872 | | Accrued interest | $10,051 | $28,877 | | Other | $46,030 | $44,244 | | **Total** | **$314,452** | **$337,498** | [Note 9. Debt](index=28&type=section&id=Note%209%20Debt) This note details the company's long-term debt obligations, including secured term loans and senior unsecured notes Long-Term Debt (in thousands) | Debt Type | September 30, 2023 | December 31, 2022 | | :-------------------------- | :----------------- | :---------------- | | Secured term loans | $740,000 | $765,000 | | Senior unsecured notes | $1,450,000 | $1,450,000 | | Unamortized deferred financing fees | $(23,197) | $(26,733) | | Current portion | $(40,000) | $(35,000) | | **Long-term portion** | **$2,126,803** | **$2,153,267** | - The 2021 Term Loan had **$740 million** outstanding at September 30, 2023, with an interest rate of **7.43%**. Quarterly principal repayments increased to **$10 million** starting June 30, 2023[112](index=112&type=chunk) - The Company was in compliance with all debt covenants as of September 30, 2023. Maximum borrowings available under the 2021 Revolver were **$144.3 million**[111](index=111&type=chunk)[115](index=115&type=chunk) [Note 10. Stockholders' Equity](index=29&type=section&id=Note%2010%20Stockholders'%20Equity) This note provides information on the company's stockholders' equity, including share repurchase programs and equity-based compensation - The Share Repurchase Program authorized up to **$200.0 million** of Common Stock through December 31, 2023. As of September 30, 2023, **$176.8 million** remained available[120](index=120&type=chunk) - The warrant liability decreased by **$31.886 million** during the nine months ended September 30, 2023, due to changes in fair value. No warrants were exercised in this period[123](index=123&type=chunk) - Equity-based compensation expense for the nine months ended September 30, 2023, was **$17.3 million**, with **$25.2 million** of unrecognized expense remaining[131](index=131&type=chunk) [Note 11. Earnings Per Share](index=33&type=section&id=Note%2011%20Earnings%20Per%20Share) This note presents the basic and diluted net income or loss per share, reflecting the impact of the goodwill impairment charge Basic and Diluted Net (Loss) Income Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Basic net (loss) income per share | $(3.37) | $0.11 | $(3.15) | $0.49 | | Diluted net (loss) income per share | $(3.43) | $0.11 | $(3.37) | $0.35 | - The Company reported a basic net loss per share of **$(3.37)** for the three months ended September 30, 2023, compared to a basic net income per share of **$0.11** in the prior year, largely due to the goodwill impairment charge[136](index=136&type=chunk)[19](index=19&type=chunk) [Note 12. Leases](index=35&type=section&id=Note%2012%20Leases) This note provides details on the company's right-of-use assets, lease liabilities, and associated lease costs Right-of-Use (ROU) Assets and Lease Liabilities (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------- | :----------------- | :---------------- | | Total ROU assets | $131,535 | $135,032 | | Total operating lease liabilities | $114,436 | $134,395 | | Total finance lease liabilities | $21,528 | $6,161 | - Operating lease costs for the nine months ended September 30, 2023, were **$32.186 million**, an increase from **$28.547 million** in the prior year[147](index=147&type=chunk) - The weighted average remaining lease term for operating leases is **5.7 years**, and for finance leases is **3.6 years** as of September 30, 2023[148](index=148&type=chunk) [Note 13. Income Taxes](index=37&type=section&id=Note%2013%20Income%20Taxes) This note discusses the company's income tax provisions, including tax benefits and the Tax Receivable Agreement liability - The Company recorded an income tax benefit of **$34.6 million** for the three months ended September 30, 2023, and **$30.9 million** for the nine months ended September 30, 2023, primarily due to a **$39.9 million** discrete income tax benefit related to the goodwill impairment charge[151](index=151&type=chunk)[207](index=207&type=chunk)[223](index=223&type=chunk) - The liability relating to the Tax Receivable Agreement (TRA) was **$294.2 million** at September 30, 2023[156](index=156&type=chunk) [Note 14. Commitments and Contingencies](index=38&type=section&id=Note%2014%20Commitments%20and%20Contingencies) This note outlines the company's legal proceedings, investigations, and other commitments and contingent liabilities - AdaptHealth settled an investigation by the U.S. Attorney's Office (EDPA) regarding ventilator billing for **$5.3 million** in April 2023, with no determination of liability[158](index=158&type=chunk)[255](index=255&type=chunk) - A class action complaint (Consolidated Class Action) alleging false and misleading statements regarding organic growth and a former Co-CEO's tax fraud is currently stayed pending private mediation[162](index=162&type=chunk)[164](index=164&type=chunk)[259](index=259&type=chunk) - A new class action complaint (Allegheny County Complaint) was filed on October 24, 2023, alleging violations of federal securities laws related to organic growth in the diabetes segment[170](index=170&type=chunk)[263](index=263&type=chunk) [Note 15. Related Party Transactions](index=40&type=section&id=Note%2015%20Related%20Party%20Transactions) This note discloses transactions with related parties, including expenses for services and purchases from affiliated vendors - Expenses related to a vendor providing automated order intake software, in which an executive officer holds an equity interest, were **$8.0 million** for the nine months ended September 30, 2023[172](index=172&type=chunk) - Purchases from a medical equipment and supplies vendor, where a beneficial owner of the Company is a minority shareholder, decreased from **$49.8 million** in 2022 to **$24.1 million** in 2023 for the nine-month period[174](index=174&type=chunk) [Note 16. Subsequent Events](index=40&type=section&id=Note%2016%20Subsequent%20Events) This note reports significant events that occurred after the reporting period, such as additional share repurchases - Subsequent to September 30, 2023, the Company purchased an additional **2,464,507 shares** of its Common Stock for **$19.4 million** under the Share Repurchase Program[176](index=176&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of AdaptHealth's financial condition, operating results, key metrics, and critical accounting policies [AdaptHealth Corp. Overview](index=41&type=section&id=AdaptHealth%20Corp.%20Overview) This section provides a general overview of AdaptHealth's business, its market position, and the services it offers - AdaptHealth is a national leader in healthcare-at-home solutions, serving approximately **4.0 million patients** annually across all **50 states** through a network of about **690 locations** in **47 states**[179](index=179&type=chunk) - The company's primary services include sleep therapy, diabetes medical devices, general HME, oxygen and chronic therapy, and other medical supplies for chronically ill patients[179](index=179&type=chunk) [Impact of Inflation](index=41&type=section&id=Impact%20of%20Inflation) This section discusses the effects of inflationary pressures on the company's costs, demand, and margins, and mitigation efforts - AdaptHealth continues to experience inflationary pressure and higher costs for materials, labor, and transportation, which may impact demand, costs, and margins[180](index=180&type=chunk) - A cost management program, substantially complete by September 30, 2023, is expected to deliver **$25 million** in Adjusted EBITDA improvement in 2023 and **$40 million** annually in future years, through real estate rationalization, contract renegotiations, workforce reductions, and technology use[180](index=180&type=chunk) [Key Components of Operating Results](index=41&type=section&id=Key%20Components%20of%20Operating%20Results) This section explains the primary drivers of the company's operating results, including revenue recognition and cost structures - Net revenue is recognized from sales of supplies and disposables (point-in-time), equipment rental (over service period), and at-risk capitation arrangements (monthly fee)[181](index=181&type=chunk)[182](index=182&type=chunk) - Cost of net revenue includes non-capitalized medical equipment, distribution expenses, labor, facilities/vehicle rental, revenue cycle management, and patient equipment depreciation[183](index=183&type=chunk) - Goodwill is assessed for impairment annually and upon triggering events like declines in market capitalization or revised financial projections[186](index=186&type=chunk) [Factors Affecting AdaptHealth's Operating Results](index=42&type=section&id=Factors%20Affecting%20AdaptHealth's%20Operating%20Results) This section identifies key external and internal factors influencing the company's financial performance, such as seasonality and impairment charges - The business experiences seasonality, with lower net revenue and cash flow in the early part of the year due to patient deductibles and insurance changes, and higher diabetes revenue in Q4[188](index=188&type=chunk) - A non-cash goodwill impairment charge of **$511.9 million** was recognized for the three and nine months ended September 30, 2023, due to a sustained decrease in stock price and revised financial projections[189](index=189&type=chunk) [Key Business Metrics](index=44&type=section&id=Key%20Business%20Metrics) This section highlights the primary financial and operational metrics used by management to assess the company's performance - AdaptHealth focuses on Net revenue, EBITDA, Adjusted EBITDA, and Free Cash Flow to review performance[191](index=191&type=chunk) Total Net Revenue by Product Line (3 Months Ended Sep 30) | Product Line | 2023 Revenue (in thousands) | 2023 Percentage | 2022 Revenue (in thousands) | 2022 Percentage | | :------------- | :-------------------------- | :-------------- | :-------------------------- | :-------------- | | Sleep | $315,392 | 39.2% | $270,629 | 35.8% | | Diabetes | $159,937 | 19.9% | $173,286 | 22.9% | | Respiratory | $151,083 | 18.8% | $140,352 | 18.6% | | HME | $52,182 | 6.5% | $54,945 | 7.3% | | Supplies to the home | $48,349 | 6.0% | $47,793 | 6.3% | | Other | $77,088 | 9.6% | $69,490 | 9.1% | | **Total** | **$804,031** | **100.0%** | **$756,495** | **100.0%** | Total Net Revenue by Product Line (9 Months Ended Sep 30) | Product Line | 2023 Revenue (in thousands) | 2023 Percentage | 2022 Revenue (in thousands) | 2022 Percentage | | :------------- | :-------------------------- | :-------------- | :-------------------------- | :-------------- | | Sleep | $912,403 | 38.9% | $781,256 | 35.6% | | Diabetes | $475,219 | 20.4% | $494,884 | 22.6% | | Respiratory | $447,815 | 19.1% | $417,833 | 19.1% | | HME | $154,297 | 6.5% | $166,582 | 7.6% | | Supplies to the home | $143,227 | 6.1% | $131,539 | 6.0% | | Other | $208,982 | 9.0% | $198,218 | 9.1% | | **Total** | **$2,341,943** | **100.0%** | **$2,190,312** | **100.0%** | [Results of Operations](index=46&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, including revenue, cost, and expense trends - Net revenue for the three months ended September 30, 2023, increased by **$47.5 million (6.3%)** to **$804.0 million**, driven by **$45.1 million** in non-acquired growth and **$2.5 million** from acquisitions[196](index=196&type=chunk) - Sleep business net revenue increased by **16.5% ($44.8 million)** for the three months ended September 30, 2023, due to strong patient demand, while diabetes business net revenue decreased by **7.7% ($13.3 million)** due to shifts to pharmacy channels and manufacturers bringing distribution in-house[196](index=196&type=chunk)[198](index=198&type=chunk) - Cost of net revenue increased by **7.2%** to **$693.5 million** for the three months ended September 30, 2023, primarily due to increased product costs and patient equipment depreciation[200](index=200&type=chunk) - General and administrative expenses increased by **11.1%** to **$45.2 million** for the three months ended September 30, 2023, mainly due to higher professional fees, partially offset by lower transaction costs and equity-based compensation[201](index=201&type=chunk) - Net revenue for the nine months ended September 30, 2023, increased by **$151.6 million (6.9%)** to **$2,341.9 million**, with non-acquired growth contributing **$141.6 million**[210](index=210&type=chunk) - For the nine months ended September 30, 2023, sleep business net revenue grew by **16.8% ($131.1 million)**, and respiratory business net revenue grew by **7.2% ($30.0 million)**. Diabetes net revenue decreased by **4.0% ($19.7 million)** due to payor shifts and changes in insulin pump distribution[210](index=210&type=chunk)[212](index=212&type=chunk) - Cost of net revenue for the nine months ended September 30, 2023, increased by **9.1%** to **$2,022.3 million**, driven by higher product costs, salaries, and patient equipment depreciation[214](index=214&type=chunk) - General and administrative expenses for the nine months ended September 30, 2023, rose by **14.5%** to **$142.8 million**, primarily due to higher professional fees and equity-based compensation, including **$4.0 million** related to the former CEO's separation[215](index=215&type=chunk)[132](index=132&type=chunk) [EBITDA and Adjusted EBITDA](index=54&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) This section reconciles net income to EBITDA and Adjusted EBITDA, providing non-GAAP measures of operational performance - EBITDA for the nine months ended September 30, 2023, was **$(64.866) million**, a significant decrease from **$422.480 million** in the prior year, primarily due to the goodwill impairment charge[229](index=229&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net (loss) income attributable to AdaptHealth Corp. | $(454,076) | $16,122 | $(424,392) | $71,904 | | EBITDA | $(357,883) | $143,659 | $(64,866) | $422,480 | | Equity-based compensation expense | $4,521 | $5,562 | $17,284 | $16,784 | | Transaction costs | $337 | $519 | $621 | $5,832 | | Change in fair value of warrant liability | $(9,160) | $1,364 | $(31,886) | $(17,145) | | Goodwill impairment | $511,866 | — | $511,866 | — | | Other non-recurring expenses, net | $11,486 | $9,059 | $33,157 | $19,863 | | **Adjusted EBITDA** | **$161,167** | **$160,163** | **$466,176** | **$447,814** | - Adjusted EBITDA increased to **$466.176 million** for the nine months ended September 30, 2023, from **$447.814 million** in the prior year, representing a **19.9%** margin of net revenue[229](index=229&type=chunk) [Free Cash Flow](index=55&type=section&id=Free%20Cash%20Flow) This section reconciles net cash from operating activities to Free Cash Flow, indicating cash available for discretionary use Free Cash Flow Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $98,833 | $107,023 | $325,400 | $276,947 | | Purchases of equipment and other fixed assets | $(77,086) | $(94,171) | $(248,816) | $(248,511) | | **Free cash flow** | **$21,747** | **$12,852** | **$76,584** | **$28,436** | - Free cash flow increased to **$76.6 million** for the nine months ended September 30, 2023, from **$28.4 million** in the prior year, primarily due to higher net cash provided by operating activities and a decrease in cash used from operating assets and liabilities[250](index=250&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources and uses of liquidity, capital structure, and ability to fund operations and growth - AdaptHealth's primary liquidity sources are operating cash flows, credit agreements, and equity issuances, used for capital expenditures, operating costs, acquisitions, and debt service[234](index=234&type=chunk) - As of September 30, 2023, the Company had **$56.1 million** in cash and **$144.3 million** available under its 2021 Revolver credit facility[237](index=237&type=chunk)[238](index=238&type=chunk) - The Company believes its current liquidity sources are sufficient to fund operations and growth strategies for at least the next twelve months[235](index=235&type=chunk) [Critical Accounting Policies and Critical Estimates](index=60&type=section&id=Critical%20Accounting%20Policies%20and%20Critical%20Estimates) This section outlines the accounting policies and estimates that require significant judgment and can materially impact financial results - Critical accounting policies include revenue recognition, valuation of accounts receivable (implicit price concession), and valuation of goodwill and long-lived assets[252](index=252&type=chunk) - No material changes occurred in critical accounting policies or estimates compared to the 2022 Annual Report on Form 10-K[252](index=252&type=chunk) [Commitments and Contingencies](index=60&type=section&id=Commitments%20and%20Contingencies) This section details the company's legal proceedings, claims, and other contingent liabilities, including government investigations - The Company is subject to various legal proceedings and claims, including a class action and derivative complaints, and an ongoing civil investigative demand from the U.S. Attorney's Office for the Southern District of New York regarding ventilator billing[253](index=253&type=chunk)[257](index=257&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk) - Management believes any liability from these contingencies will not have a material adverse effect on financial conditions or results of operations, but acknowledges inherent uncertainties[254](index=254&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses AdaptHealth's market risk exposure, primarily from interest rate fluctuations on its variable-rate debt - The Company's market risk exposure is primarily from variable interest rates on its 2021 Credit Agreement, which is tied to the Secured Overnight Financing Rate (Term SOFR)[265](index=265&type=chunk) - As of September 30, 2023, **$740.0 million** was outstanding under the 2021 Term Loan, with **$144.3 million** available under the 2021 Revolver[265](index=265&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of AdaptHealth's disclosure controls and internal control over financial reporting, noting material weaknesses and ongoing remediation - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting[266](index=266&type=chunk) - Material weaknesses relate to an insufficient complement of resources for risk assessment, leading to ineffective process-level controls and general IT controls[267](index=267&type=chunk) - Remediation efforts include implementing a system for control remediation visibility, expanding expertise, completing an entity-wide risk assessment, identifying responsive controls, and continuing ERP system implementation[269](index=269&type=chunk) [PART II OTHER INFORMATION](index=64&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides additional information not included in the financial statements, covering legal, equity, and other disclosures [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) This item refers to the detailed discussion of legal proceedings and claims within Management's Discussion and Analysis - Refer to Item 2 for details on legal proceedings, including class action lawsuits and government investigations[271](index=271&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) This item refers to the comprehensive list of risk factors detailed in the Company's 2022 Annual Report on Form 10-K - Factors that could materially affect results are outlined in the 'Risk Factors' section of the 2022 Annual Report on Form 10-K[272](index=272&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered equity sales or common stock purchases by the company during the three months ended September 30, 2023 - No unregistered sales of equity securities were made during the period that were not previously reported[273](index=273&type=chunk) - No purchases of Common Stock were made by the Company or its affiliated purchasers during the three months ended September 30, 2023[273](index=273&type=chunk) [Item 3. Defaults upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This item states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[274](index=274&type=chunk) [Item 4. Mine Safety Disclosure](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item indicates that mine safety disclosures are not applicable to the Company - Mine Safety Disclosure is not applicable to the Company[275](index=275&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) This section reports no adoption, termination, or modification of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[276](index=276&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This item provides a list of exhibits filed or furnished with the Form 10-Q, including organizational documents, agreements, and certifications - The exhibit index includes the Third Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and various employment agreements[280](index=280&type=chunk) - Certifications from the CEO, CFO, and Chief Accounting Officer pursuant to the Sarbanes-Oxley Act are filed or furnished[280](index=280&type=chunk) - XBRL (eXtensible Business Reporting Language) information is furnished but not filed for certain purposes[281](index=281&type=chunk) [Signatures](index=66&type=section&id=Signatures) This section contains the required certifications from the company's executive officers for the filed report [Signatures](index=66&type=section&id=Signatures) This section contains the required signatures of AdaptHealth Corp.'s executive officers, certifying the filing of the report - The report is signed by Richard Barasch (Interim Chief Executive Officer and Chairman of the Board), Jason Clemens (Chief Financial Officer), and Christine Archbold (Chief Accounting Officer) on November 7, 2023[285](index=285&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $793.3 million, an increase of 9.0% year-over-year, with non-acquired revenue up 8.7% [18] - Adjusted EBITDA for the quarter was $171 million, reflecting a 14% increase year-over-year and an adjusted EBITDA margin of 21.6% [20] - Cash flow from operations was $86.3 million, with free cash flow for the first half of the year at $54.8 million [21] Business Line Data and Key Metrics Changes - Sleep revenue reached $303 million, a 16% increase year-over-year, driven by a 41% growth in PAP equipment patient census and an 11% increase in resupply orders [19] - Respiratory revenue was $154 million, up 13% year-over-year, marking the strongest patient acquisition quarter since Q4 2021 [19] - Diabetes revenue increased by 2% year-over-year, with a 13% rise in CGM patient census offsetting declines in pump orders [20] Market Data and Key Metrics Changes - Government-sponsored payers now account for 77% of the CGM census, an increase of 900 basis points year-over-year [12] - The company is seeing stabilization in the length of time patients are on oxygen and vents, which had decreased during the pandemic [9] Company Strategy and Development Direction - The company is focusing on enhancing its diabetes business, particularly in the government sector, where CGM and pump markets are expanding [11] - A new relationship with Humana aims to provide home medical equipment to Medicare Advantage members, which is expected to enhance patient care and operational metrics [14] - The company is committed to achieving $25 million in cost savings through operational improvements and technology investments [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate inflationary pressures through technology and process improvements [15] - The outlook for Q3 anticipates revenue growth of just over 5% year-over-year, with adjusted EBITDA margins expected to remain consistent with Q2 [22] - Management is optimistic about the operational improvements and the impact of the Humana agreement in the second half of the year [23] Other Important Information - The company is undergoing a transition in leadership with Crispin Teufel set to join as the new CEO [6] - The company has implemented a full warehouse management system to improve efficiency and reduce costs [39] Q&A Session Summary Question: What are the normalized growth rates for the diabetes business? - Management expects mid to upper single-digit growth for the diabetes product line by 2025, with modest low-single-digit growth anticipated for the remainder of 2023 [26] Question: How will Philips' return to the market affect margins and growth? - Management believes Philips' reentry will be beneficial for the market, but does not expect significant changes to their current supply chain or pricing dynamics [29] Question: What is the expected benefit of the Humana contract? - The Humana contract is expected to contribute to sequential growth in sleep, respiratory, and HME categories, although specific revenue expectations are not yet available [32] Question: What is the outlook for equipment buy-ins related to the Humana contract? - Management is confident that the revenue from the Humana contract will align with existing CapEx projections and will not require significant additional investment [35] Question: What is the status of the warehouse system upgrades? - The company has successfully integrated a new warehouse management system, which is expected to enhance efficiency and reduce costs moving forward [37] Question: What is the outlook for Medicare rates and competitive bidding? - Management believes competitive bidding will not disappear and expects future announcements regarding the program, but timing remains uncertain [60]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR o 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 Organization) (I.R.S. Emp ...

Financial Data and Key Metrics Changes - AdaptHealth reported net revenue of $744.6 million for Q1 2023, a 5.4% increase from $706.2 million in Q1 2022 [20] - Adjusted EBITDA for the quarter was $134 million, a decline of 2.7% year-over-year, with an adjusted EBITDA margin of 18%, down 150 basis points from the previous year [22] - Cash flow from operations was $140.2 million, with free cash flow of $51.1 million [23] Business Line Data and Key Metrics Changes - The sleep equipment business experienced 18% growth in net revenues, with PAP setups more than 50% higher than prior to the Philips recall [10][11] - The diabetes and CGM product lines saw an 8.3% increase in patient census, but revenue for pumps and supplies was down $9 million year-over-year [21][22] - The respiratory business is expected to see sequential quarterly growth as it stabilizes after the pandemic [12] Market Data and Key Metrics Changes - The diabetes product line faced headwinds due to a shift of patients to pharmacy channels, impacting revenue negatively [21] - The company reported a 53% increase in sleep patient rental census from the lows during the PAP shortage [21] Company Strategy and Development Direction - AdaptHealth is transitioning to a value-based care model, with new contracts expected to enhance patient outcomes and streamline billing [13][14] - The company is focused on expanding its technology platform, including the launch of the Adapt myApp for diabetes management, which has seen strong adoption [17][18] - Management is implementing cost management programs aimed at generating annualized savings of approximately $40 million [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on future opportunities despite current challenges in the diabetes segment [28] - The company anticipates sequential improvement in the diabetes business and expects to maintain revenue trends experienced in Q1 2023 [25][32] Other Important Information - The company completed $9.2 million in share repurchases during the quarter, with approximately $177 million remaining under authorization [24] - Management is optimistic about the potential of new value-based contracts to drive growth and improve margins [39][60] Q&A Session Summary Question: What gives confidence in the revenue guidance amidst changes in the diabetes segment? - Management acknowledged the significant market changes affecting diabetes but expressed confidence in sequential improvement in the coming quarters [32][34] Question: How will the new value-based contracts impact growth? - Management indicated that these contracts are expected to be accretive to EBITDA and will provide advantages in marketing other products [38][60] Question: What is the plan for cash flow utilization? - Management clarified that while M&A activity will be modest, the majority of free cash flow will be returned to shareholders or used for debt reduction [41] Question: Can you elaborate on the cost savings initiatives? - Management detailed that $20 million in annualized savings have already been achieved, with an additional $10 million targeted for the current year [66] Question: How does the company view the long-range plan in light of recent challenges? - Management remains confident in the long-range plan, particularly in the growth of the government business and the sleep segment [45][46]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 OR FORM 10-Q o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 Commission file number: 001-38399 AdaptHealth Corp. (Exact name of registrant as specified in its charter) (State of Other Jurisdiction of incorporation or Organization) (I.R.S. Employer Identificatio ...

Adapthealth Corp (NASDAQ:AHCO) Q4 2022 Earnings Conference Call February 28, 2023 8:30 AM ET Company Participants Christopher Joyce - General Counsel & Secretary Stephen Griggs - CEO & Director Joshua Parnes - President & Director Jason Clemens - CFO & Principal Accounting Officer Conference Call Participants Philip Chickering - Deutsche Bank Joanna Gajuk - Bank of America Merrill Lynch Mathew Blackman - Stifel, Nicolaus & Company Operator Ladies and gentlemen, thank you for joining us this morning for the ...

PART I [Business](index=6&type=section&id=Item%201.%20Business) AdaptHealth provides national healthcare-at-home solutions, including HME and medical supplies, serving **3.9 million patients** annually with revenue from rentals and sales - AdaptHealth is a national leader in healthcare-at-home solutions, including HME and medical supplies, focusing on sleep therapy, diabetes, and oxygen services. As of year-end 2022, the company served approximately **3.9 million patients** annually through a network of about **725 locations** in **47 states**[22](index=22&type=chunk) FY 2022 Revenue Breakdown by Type | Revenue Type | Percentage of Net Revenue | | :--- | :--- | | Resupply & One-Time Sales | ~68% | | Fixed Monthly Equipment Rentals | ~32% | - A key element of AdaptHealth's growth strategy is accretive acquisitions. In 2022, the company completed acquisitions of **eight companies** for approximately **$17.6 million**, a significant decrease from 2021 when it acquired **23 companies** for about **$2.9 billion**, primarily due to the AeroCare acquisition[33](index=33&type=chunk)[34](index=34&type=chunk) - The company's operations were materially impacted by the **June 2021 Philips Respironics recall** of certain ventilator, BiPAP, and CPAP devices, which led to supply chain shortages and affected the company's ability to meet patient demand throughout 2022[35](index=35&type=chunk) - AdaptHealth is subject to extensive government regulation, including federal and state laws governing reimbursement, fraud and abuse (such as HIPAA and the HITECH Act), and Medicare's Competitive Bidding Program. The company maintains a compliance program to adhere to these complex regulations[45](index=45&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) AdaptHealth faces risks from supplier reliance, supply chain, inflation, cybersecurity, payor pricing, regulatory changes, goodwill impairment, and internal control weaknesses - The company relies on a small number of suppliers for its equipment. The **June 2021 Philips recall** of sleep and respiratory care devices created significant supply shortages that materially impacted the business in 2021 and 2022[69](index=69&type=chunk)[71](index=71&type=chunk)[74](index=74&type=chunk) - AdaptHealth is exposed to macroeconomic risks, including supply chain disruptions, economy-wide labor shortages, and inflationary pressures that increase the cost of materials, labor, and transportation[75](index=75&type=chunk)[78](index=78&type=chunk) - A significant portion of revenue comes from specific sources, creating concentration risk: - **Private Payors:** Approximately **61%** of net revenue for FY2022 was from private third-party payors, who are increasingly seeking to control costs. - **Sleep Therapy:** Approximately **36%** of net revenue for FY2022 was from sleep therapy equipment and supplies. - **Government Payors:** Approximately **26%** of net revenue for FY2022 was from Medicare and Medicaid programs, which are subject to policy and reimbursement changes[84](index=84&type=chunk)[90](index=90&type=chunk)[118](index=118&type=chunk) - The company is subject to various governmental audits and investigations related to healthcare fraud and abuse laws, including ongoing inquiries by the U.S. Attorney's Offices for the Eastern District of Pennsylvania and the Western District of Kentucky regarding ventilator and oxygen billing practices[134](index=134&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) - As of December 31, 2022, the company had **$3.5 billion** of goodwill on its balance sheet. A significant drop in market capitalization or other triggering events could lead to a material impairment charge[165](index=165&type=chunk) - The company has identified **material weaknesses** in its internal control over financial reporting, which could subject it to adverse regulatory consequences and harm investor confidence[174](index=174&type=chunk)[175](index=175&type=chunk) [Unresolved Staff Comments](index=37&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the Securities and Exchange Commission - None[190](index=190&type=chunk) [Properties](index=37&type=section&id=Item%202.%20Properties) AdaptHealth leases all its corporate headquarters and operating facilities, which are considered adequate for current business needs - The company leases all of its offices and facilities. Its corporate headquarters is located at 220 West Germantown Pike, Suite 250, Plymouth Meeting, Pennsylvania 19462[191](index=191&type=chunk) [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from the Commitments and Contingencies section within Item 7 - This section refers to the Commitments and Contingencies section within Item 7 for details on legal proceedings[192](index=192&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[192](index=192&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20Price%20of%20and%20Dividends%20on%20Registrant%27s%20Common%20Equity%20and%20Related%20Stockholder%20Matters%3B%20Issuer%20Purchases%20of%20Equity%20Securities) AdaptHealth's common stock trades on Nasdaq under "**AHCO**," with no cash dividends paid or planned, and no equity security repurchases in Q4 2022 - The company's common stock is listed on the Nasdaq Stock Market under the trading symbol "**AHCO**"[195](index=195&type=chunk) - AdaptHealth has not paid any cash dividends on its common stock and has no current plans to do so in the foreseeable future[196](index=196&type=chunk) - There were no issuer purchases of equity securities during the quarter ended December 31, 2022[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2022, net revenue grew **21.0%** to **$2.97 billion**, while net income decreased **55.6%** to **$69.3 million**, and Adjusted EBITDA increased to **$593.8 million** [Results of Operations](index=46&type=section&id=Results%20of%20Operations) In 2022, net revenue grew **21.0%** to **$2.97 billion**, operating income decreased **15.6%**, and net income declined **55.6%** to **$69.3 million** Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net Revenue** | **$2,970.6M** | **$2,454.5M** | **$516.1M** | **21.0%** | | Cost of Net Revenue | $2,553.2M | $2,008.9M | $544.2M | 27.1% | | Operating Income | $190.4M | $225.6M | ($35.2M) | (15.6)% | | Interest Expense, net | $109.4M | $95.2M | $14.2M | 14.9% | | **Net Income (to AHCO)** | **$69.3M** | **$156.2M** | **($86.9M)** | **(55.6)%** | Revenue Change Drivers (2022 vs. 2021) | Driver | Change ($) | Change (%) | | :--- | :--- | :--- | | Increase from acquisitions | $439.8M | 17.9% | | Increase from non-acquired growth | $86.4M | 3.5% | | Decrease in business to business revenue | ($10.1M) | (0.4)% | | **Total change in net revenue** | **$516.1M** | **21.0%** | - Cost of net revenue increased **27.1%** to **$2.55 billion** in 2022, driven by acquisition growth, increased product costs, higher wages due to inflation, and a **$2.6 million** increase in fuel costs[233](index=233&type=chunk) - General and administrative expenses decreased by **3.2%** to **$162.1 million** in 2022, primarily due to lower transaction costs from reduced M&A activity, offset by higher professional fees for systems implementation and legal matters[234](index=234&type=chunk) Consolidated Results of Operations (2021 vs. 2020) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net Revenue** | **$2,454.5M** | **$1,056.4M** | **$1,398.1M** | **132.4%** | | Operating Income | $225.6M | $71.3M | $154.3M | 216.2% | | **Net Income (Loss) (to AHCO)** | **$156.2M** | **($161.6M)** | **$317.8M** | **(196.6)%** | [Key Business Metrics](index=42&type=section&id=Key%20Business%20Metrics) Net revenue is disaggregated by service line, with Sleep (**35.9%**) and Diabetes (**23.1%**) being the largest contributors to the **$2.97 billion** total in 2022 Net Revenue by Service Line (FY 2022) | Service Line | Net Revenue (in millions) | % of Total | | :--- | :--- | :--- | | Sleep | $1,066.7 | 35.9% | | Diabetes | $687.1 | 23.1% | | Respiratory | $555.0 | 18.7% | | HME | $220.8 | 7.4% | | Supplies to the home | $179.3 | 6.0% | | Other | $261.6 | 8.9% | | **Total Net Revenue** | **$2,970.6** | **100%** | Net Revenue by Service Line (FY 2021) | Service Line | Net Revenue (in millions) | % of Total | | :--- | :--- | :--- | | Sleep | $891.4 | 36.3% | | Diabetes | $541.2 | 22.0% | | Respiratory | $458.3 | 18.7% | | HME | $209.7 | 8.5% | | Supplies to the home | $167.8 | 6.8% | | Other | $186.1 | 7.7% | | **Total Net Revenue** | **$2,454.5** | **100%** | [EBITDA and Adjusted EBITDA](index=52&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) Adjusted EBITDA increased to **$593.8 million** in 2022 from **$565.9 million** in 2021, reflecting specific adjustments from net income Reconciliation of Net Income to Adjusted EBITDA | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Net income (loss) attributable to AdaptHealth Corp.** | **$69,316** | **$156,175** | **($161,632)** | | Income (loss) attributable to noncontrolling interests | $3,817 | $1,978 | ($32,454) | | Interest expense | $109,414 | $95,195 | $41,430 | | Income tax expense (benefit) | $24,769 | $32,806 | ($11,955) | | Depreciation and amortization | $351,178 | $258,053 | $82,445 | | **EBITDA** | **$558,494** | **$544,207** | **($82,166)** | | Adjustments | $35,276 | $21,711 | $287,785 | | **Adjusted EBITDA** | **$593,770** | **$565,918** | **$205,619** | [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) AdaptHealth's liquidity is from operations and debt, with **$46.3 million** cash, **$2.15 billion** long-term debt, and negative free cash flow of **$17.6 million** in 2022 Cash Flow Summary | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $373,867 | $275,679 | $195,634 | | Net cash used in investing activities | ($411,171) | ($1,824,753) | ($815,703) | | Net cash (used in) provided by financing activities | ($66,051) | $1,598,739 | $643,153 | | **Net (decrease) increase in cash** | **($103,355)** | **$49,665** | **$23,084** | Free Cash Flow Calculation | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $373,867 | $275,679 | $195,634 | | Purchases of equipment and other fixed assets | ($391,423) | ($203,308) | ($39,755) | | **Free cash flow** | **($17,556)** | **$72,371** | **$155,879** | - As of December 31, 2022, the company had **$765.0 million** outstanding under its term loan and **$432.6 million** available under its revolving credit facility[274](index=274&type=chunk)[318](index=318&type=chunk) [Commitments and Contingencies](index=59&type=section&id=Commitments%20and%20Contingencies) The company faces ongoing government investigations into billing practices and shareholder lawsuits, though a **Corporate Integrity Agreement** expired in April 2022 - A five-year **Corporate Integrity Agreement (CIA)** assumed from the PPS acquisition expired in **April 2022**, and the OIG confirmed all obligations were satisfied as of **January 2023**[308](index=308&type=chunk)[579](index=579&type=chunk) - The company is subject to several ongoing government investigations: - U.S. Attorney's Office (EDPA) investigation into ventilator billing practices from **2017**. - U.S. Attorney's Office (WDKY) investigation into pre-acquisition billing for oxygen tank contents by AeroCare. - U.S. Attorney's Office (SDNY) civil investigative demand regarding potential **False Claims Act** violations related to ventilator billing from **2015** to present[309](index=309&type=chunk)[310](index=310&type=chunk)[317](index=317&type=chunk) - AdaptHealth is defending against a **shareholder class action complaint** alleging false and misleading statements regarding organic growth and a **shareholder derivative complaint** alleging breaches of fiduciary duty[312](index=312&type=chunk)[315](index=315&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable-rate debt, with **$765.0 million** outstanding under the **2021 Term Loan** as of December 31, 2022 - The company's main market risk is from interest rate fluctuations on its variable-rate borrowings. As of December 31, 2022, there was **$765.0 million** outstanding under the **2021 Term Loan**, which is tied to the Adjusted LIBOR Rate[318](index=318&type=chunk) [Financial Statements and Supplementary Data](index=62&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, with KPMG LLP issuing an **unqualified opinion** on financials but an **adverse opinion** on internal controls as of December 31, 2022 [Consolidated Financial Statements](index=68&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of **$5.22 billion** and liabilities of **$3.06 billion** at year-end 2022, with **$2.97 billion** net revenue and **$69.3 million** net income Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Total Current Assets** | **$585,308** | **$670,058** | | Goodwill | $3,545,297 | $3,512,567 | | **Total Assets** | **$5,219,587** | **$5,250,484** | | Total Current Liabilities | $456,214 | $499,812 | | Long-term debt, less current portion | $2,153,267 | $2,183,552 | | **Total Liabilities** | **$3,061,829** | **$3,183,795** | | **Total Stockholders' Equity** | **$2,157,758** | **$2,066,689** | Consolidated Statement of Operations Data (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net revenue | $2,970,595 | $2,454,535 | $1,056,389 | | Operating income | $190,411 | $225,605 | $71,346 | | **Net income (loss) to AHCO** | **$69,316** | **$156,175** | **($161,632)** | | **Diluted EPS** | **$0.33** | **$0.67** | **($3.08)** | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $373,867 | $275,679 | $195,634 | | Net cash used in investing activities | ($411,171) | ($1,824,753) | ($815,703) | | Net cash (used in) provided by financing activities | ($66,051) | $1,598,739 | $643,153 | - The independent auditor, KPMG LLP, issued an **unqualified opinion** on the consolidated financial statements but an **adverse opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[324](index=324&type=chunk)[332](index=332&type=chunk) - The auditor identified the evaluation of the implicit price concession estimate as a **critical audit matter**, requiring complex and subjective judgment to evaluate the historical reimbursement experience used in the estimate[329](index=329&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=130&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[618](index=618&type=chunk) [Controls and Procedures](index=130&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were **not effective** as of December 31, 2022, due to **material weaknesses** in internal control over financial reporting, also noted by KPMG LLP - Management concluded that disclosure controls and procedures were **not effective** as of December 31, 2022, due to **material weaknesses** in internal control over financial reporting[619](index=619&type=chunk) - The **material weaknesses** relate to an insufficient complement of resources to complete a risk assessment, resulting in ineffective process-level controls and general information technology controls[620](index=620&type=chunk)[624](index=624&type=chunk) - The independent registered public accounting firm, KPMG LLP, issued an **adverse report** on the operating effectiveness of the Company's internal control over financial reporting as of December 31, 2022[626](index=626&type=chunk) - Remediation efforts undertaken in 2022 include establishing an executive steering committee, expanding resources, completing a risk assessment, and implementing an ERP system. However, the **material weaknesses** are not yet considered fully remediated[627](index=627&type=chunk) [Other Information](index=131&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[629](index=629&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=131&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[630](index=630&type=chunk) PART III [Directors, Executive Officers, and Corporate Governance](index=131&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference to the Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[632](index=632&type=chunk) [Executive Compensation](index=131&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference to the Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[633](index=633&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=131&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference to the Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[634](index=634&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=132&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference to the Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[635](index=635&type=chunk) [Principal Accountant's Fees and Services](index=132&type=section&id=Item%2014.%20Principal%20Accountant%27s%20Fees%20and%20Services) Principal accountant's fees and services information is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference to the Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[636](index=636&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=133&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists consolidated financial statements and provides an index of all exhibits filed with the Annual Report on Form 10-K - This item lists the consolidated financial statements and exhibits filed with the report[638](index=638&type=chunk)[639](index=639&type=chunk) [Form 10-K Summary](index=133&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company did not provide a summary for Form 10-K - None[640](index=640&type=chunk)

AdaptHealth Corp. (NASDAQ:AHCO) Q3 2022 Earnings Conference Call November 8, 2022 8:30 AM ET Company Participants Christopher Joyce - General Counsel Stephen Griggs - CEO Joshua Parnes - President Jason Clemens - CFO Conference Call Participants Taji Phillips - Jefferies Pito Chickering - Deutsche Bank Kevin Caliendo - UBS Richard Close - Canaccord Genuity Joanna Gajuk - Bank of America Eric Coldwell - Robert W. Baird Whit Mayo - SVB Securities Operator Greetings, and welcome to AdaptHealth's Third Quarter ...