AdaptHealth(AHCO) - 2019 Q4 - Annual Report

Market Growth and Opportunities - The HME industry has grown from $40 billion in 2010 to $56 billion in 2018, representing a 4.3% CAGR, with a projected growth rate of 6.1% CAGR over the next nine years[20]. - AdaptHealth's total addressable market has more than doubled to over $25 billion following the acquisition of PCS, expanding its market opportunity significantly[21]. - The U.S. population aged 65 and older is expected to grow at a 2.5% CAGR through 2030, increasing the demand for home healthcare services[21]. - The increasing prevalence of chronic conditions is driving demand for home medical equipment, which is necessary for treating significant health issues affecting millions of Americans[208]. Financial Performance - Total net revenue for the year ended December 31, 2019, was approximately $529.6 million, representing a 53.2% increase from $345.3 million in 2018[200]. - Operating income for 2019 was $29.7 million, compared to $31.1 million in 2018, indicating a slight decrease[200]. - Net loss attributable to AdaptHealth Corp. for 2019 was $15.0 million, a decline from a net income of $23.3 million in 2018[200]. - Adjusted EBITDA for 2019 was $123.0 million, a significant increase from $84.4 million in 2018[200]. - Adjusted EBITDA less Patient Equipment Capex for 2019 was $75.6 million, compared to $45.1 million in 2018[200]. Acquisitions and Growth Strategy - For the year ended December 31, 2019, AdaptHealth completed 18 acquisitions for an aggregate consideration of $67 million, expected to add annual net revenues of approximately $116 million[23]. - AdaptHealth's strategic growth plan involves significant growth through acquisitions and geographic expansion, which may require additional capital and resources[130]. - The company plans to continue expanding its business through acquisitions and organic growth, which may impact its status as an emerging growth company before December 31, 2023[179]. Revenue Sources and Dependence - Approximately 40% of AdaptHealth's revenue for the year ended December 31, 2019, came from fixed monthly payments for certain HME products designated by CMS or commercial payors[27]. - AdaptHealth derived approximately 32% of its revenue for the year ended December 31, 2019, from Medicare and various state-based Medicaid programs[75]. - The company generated approximately 57% of its revenue for the year ended December 31, 2019, from third-party private payors[78]. - Approximately 58% of AdaptHealth's revenue for the year ended December 31, 2019, was generated from sleep therapy equipment and supplies[80]. Operational Efficiency and Technology - AdaptHealth's integrated technology platform has been deployed in 39 acquisitions, improving logistics performance and operational efficiency[23]. - The company performs over 10,000 equipment and supply deliveries daily, enhancing its operational scale and efficiency[25]. - AdaptHealth's technology platform provides a competitive advantage through automated, compliant, and integrated workflows for patient care delivery[31]. Regulatory and Compliance Risks - The company is subject to extensive regulatory requirements for its medical gas facilities, and failure to maintain compliance could result in significant penalties and operational disruptions[113]. - AdaptHealth's operations are significantly impacted by the need to design and implement technology-based process changes to enhance productivity and ensure compliance, with potential adverse effects on financial condition if these initiatives fail[102]. - The company is exposed to cybersecurity risks that could disrupt operations and lead to significant financial and reputational damage if successful attacks occur[106]. Competition and Market Challenges - The HME market is fragmented and highly competitive, with AdaptHealth competing against both large national providers and over 6,000 local organizations[44]. - AdaptHealth faces intense competition in the home respiratory and mobility equipment markets, with competitors potentially having greater financial resources and more effective marketing strategies[107]. - The competitive bidding process has historically pressured AdaptHealth's reimbursement rates in the markets it operates[68]. Employee and Management Structure - As of December 31, 2019, AdaptHealth had approximately 2,590 employees, which increased to approximately 3,060 employees post-acquisition of PCS[43]. - AdaptHealth's management team emphasizes a localized operating structure to respond effectively to local market demands[30]. - The company may face challenges in meeting Nasdaq's continued listing standards, which could lead to reduced liquidity and market quotations for its Class A Common Stock[169]. Financial Obligations and Risks - Total long-term debt, including the current portion, increased to $396.8 million in 2019 from $134.2 million in 2018[200]. - Payments under the Tax Receivable Agreement could be significant, potentially impacting liquidity and financial flexibility[150]. - The company may not be able to obtain additional capital on acceptable terms, which could limit its growth and operational capabilities[139].