AdaptHealth(AHCO) - 2020 Q1 - Quarterly Report

Financial Information Consolidated Financial Statements (Unaudited) AdaptHealth reported $191.4 million net revenue in Q1 2020, a 60.2% increase, shifting to net income, with total assets growing to $661.8 million | | March 31, 2020 (in USD) | December 31, 2019 (in USD) | | :--- | :--- | :--- | | Total Assets | $661,838,598 | $546,121,693 | | Total Liabilities | $691,285,324 | $575,369,900 | | Total Stockholders' Deficit | $(29,446,726) | $(29,248,207) | | | Three Months Ended March 31, 2020 (in USD) | Three Months Ended March 31, 2019 (in USD) | | :--- | :--- | :--- | | Net Revenue | $191,439,034 | $119,498,274 | | Operating Income | $9,310,588 | $5,348,045 | | Net Income (Loss) | $265,623 | $(5,452,178) | | Net Loss per Share | $0.00 | $(0.42) | | | Three Months Ended March 31, 2020 (in USD) | Three Months Ended March 31, 2019 (in USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,380,254 | $16,232,116 | | Net cash used in investing activities | $(111,329,662) | $(26,179,283) | | Net cash provided by (used in) financing activities | $58,234,975 | $(368,761) | Business Overview and Basis of Presentation AdaptHealth is a U.S. home healthcare equipment provider, operating as a single segment, with financials reflecting a 2019 reverse recapitalization - The company is a leading provider of home healthcare equipment, medical supplies, and related services in the United States, focusing on sleep therapy, HME, and oxygen services[26] - The November 2019 business combination was accounted for as a reverse recapitalization, with AdaptHealth Holdings as the accounting acquirer[32] - The company operates as a single reportable segment, with key decisions on resource allocation and performance assessment made on an aggregate basis by the CEO and President[37] Revenue Net revenue grew 60.2% to $191.4 million in Q1 2020, primarily from insurance payors and sleep-related products | Payor Type | Q1 2020 Revenue (in USD) | Q1 2019 Revenue (in USD) | | :--- | :--- | :--- | | Insurance | $114,450,697 | $67,717,162 | | Government | $51,244,994 | $38,100,765 | | Patient pay | $25,743,343 | $13,680,347 | | Total | $191,439,034 | $119,498,274 | | Core Service Line | Q1 2020 Revenue (in USD) | Q1 2019 Revenue (in USD) | | :--- | :--- | :--- | | Sleep | $91,562,523 | $65,184,027 | | Supplies to the home | $33,338,901 | $2,028,936 | | HME | $23,756,404 | $20,731,645 | | Respiratory | $27,775,378 | $21,708,264 | | Other | $15,005,828 | $9,845,402 | | Total | $191,439,034 | $119,498,274 | - Unbilled accounts receivable increased significantly to $18.1 million as of March 31, 2020, compared to $8.6 million at the end of 2019[49] Acquisitions In Q1 2020, the company completed $112.4 million in acquisitions, adding $74.0 million goodwill, contributing $40.7 million revenue but an operating loss - In Q1 2020, the company acquired the Patient Care Solutions (PCS) business and the durable medical equipment business of Advanced Home Care, Inc. (Advanced)[51] | Consideration Type | Amount (in USD) | | :--- | :--- | | Cash consideration | $106,178,017 | | Equity consideration | $6,248,015 | | Deferred payments | $14,250 | | Total | $112,440,282 | - The acquisitions in Q1 2020 contributed $40.7 million in net revenue and an operating loss of $5.6 million, primarily due to operating losses related to PCS[60] - Goodwill increased by $74.0 million during the quarter due to acquisitions, bringing the total balance to $340.8 million[65] Debt Total long-term debt reached $466.2 million as of March 31, 2020, with $70 million in new borrowings for acquisitions | Debt Component | March 31, 2020 (in USD) | December 31, 2019 (in USD) | | :--- | :--- | :--- | | Secured term loans | $295,937,500 | $246,250,000 | | Revolving credit facility | $32,000,000 | $12,000,000 | | Note payable | $143,500,000 | $143,500,000 | | Total Debt (net of fees) | $466,168,601 | $396,832,695 | - In Q1 2020, the company borrowed $50 million under the Delayed Draw Term Loan and $20 million under the New Revolver[78][79] - The New Promissory Note of $143.5 million bears 12% annual interest (6% cash, 6% PIK) until the seventh anniversary and is due in 2029[80] Subsequent Events and COVID-19 Impact Post-Q1 2020, the company enhanced liquidity with $64 million in COVID-19 related funds and repaid $20 million of revolving credit - In April 2020, the company received approximately $47 million in recoupable advance payments from CMS and $17 million in provider relief funds under the CARES Act[109] - The company repaid $20 million of borrowings under its New Revolver in April 2020[111] - The company elected to defer certain employer-paid FICA taxes, with payments due in two installments in late 2021 and 2022[110] Management's Discussion and Analysis (MD&A) Management attributes 60.2% revenue growth to acquisitions, noting mixed COVID-19 impacts, significant CARES Act liquidity, and $30.5 million Adjusted EBITDA Impact of the COVID-19 Pandemic COVID-19 caused mixed impacts, reducing elective procedure revenue but boosting respiratory product demand, leading to CARES Act funding and a 6% workforce reduction - The company experienced revenue declines in services associated with elective medical procedures but saw increased demand for respiratory products (oxygen, ventilators) and resupply businesses[121][122] - To bolster liquidity, the company received approximately $47 million in CMS advance payments and $17 million in CARES Act provider relief funds in April 2020[120] - A workforce reduction of approximately 6% was implemented in April 2020, expected to result in a one-time severance charge of about $1.6 million[121] Results of Operations Net revenue increased 60.2% to $191.4 million in Q1 2020, primarily due to acquisitions, while operating income rose to $9.3 million | Metric | Q1 2020 (in millions USD) | Q1 2019 (in millions USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $191.4M | $119.5M | +60.2% | | Cost of Net Revenue | $166.5M | $100.2M | +66.2% | | Operating Income | $9.3M | $5.3M | +74.1% | | Net Income (Loss) | $0.27M | $(5.45)M | -104.9% | - The $71.9 million increase in net revenue was primarily driven by acquisitions ($57.9 million, including $33.9 million from PCS) and organic growth from stronger CPAP resupply sales[138] - Cost of net revenue as a percentage of net revenue for the newly acquired PCS business was 115.4%, attributed to restructuring and operating losses during integration[143] - Interest expense increased to $7.9 million from $6.3 million due to higher debt obligations from acquisitions and the 2019 Recapitalization[145] Non-GAAP Financial Measures Adjusted EBITDA for Q1 2020 was $30.5 million, slightly up from Q1 2019, with Adjusted EBITDA less Patient Equipment Capex at $17.5 million | Metric | Q1 2020 (in thousands USD) | Q1 2019 (in thousands USD) | | :--- | :--- | :--- | | Net loss attributable to AdaptHealth Corp. | $ (158) | $ (5,800) | | EBITDA | $ 26,051 | $ 18,198 | | Adjusted EBITDA | $ 30,460 | $ 28,216 | | Less: Patient equipment capex | $ (12,967) | $ (11,243) | | Adjusted EBITDA less Patient Equipment Capex | $ 17,493 | $ 16,973 | - For Q1 2020, the PCS acquisition contributed an Adjusted EBITDA loss of $4.5 million. Excluding PCS, Adjusted EBITDA was $35.0 million[149] - Adjustments to EBITDA include equity-based compensation ($2.2 million), transaction costs ($2.9 million), and severance ($0.4 million)[156] Liquidity and Capital Resources As of March 31, 2020, the company had $48.2 million cash and $90.5 million credit availability, with $24.4 million cash from operations - As of March 31, 2020, the company had $48.2 million of cash and cash equivalents and $90.5 million available under its credit facility[158] | Cash Flow Activity | Q1 2020 (in thousands USD) | Q1 2019 (in thousands USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 24,380 | $ 16,232 | | Net cash used in investing activities | $ (111,329) | $ (26,179) | | Net cash provided by (used in) financing activities | $ 58,235 | $ (369) | - The company was in compliance with all debt covenants as of March 31, 2020[163] Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2020, due to a material weakness in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of March 31, 2020[175] - The ineffectiveness is due to a material weakness in internal control over financial reporting related to the timeliness of review controls over non-routine transactions[175] - Remediation efforts are ongoing and include hiring dedicated technical resources and engaging a third-party consultant to strengthen corporate oversight[177] Other Information Legal Proceedings The company is involved in ordinary legal proceedings, notably a 2017 subpoena from the EDPA regarding ventilator billing - The company was served a subpoena by the U.S. Attorney's Office for the EDPA regarding ventilator billing practices[180] - The company has cooperated with investigators, submitted requested information, and remitted payment to reconcile the account in question. A follow-up civil investigative demand was received and responded to in October 2019[180] Risk Factors The company updated risk factors, highlighting significant COVID-19 impacts, supply chain reliance, and dependence on Medicare/Medicaid reimbursement - The COVID-19 pandemic poses significant risks to the business, including operational disruption, ability to access capital markets, execute acquisitions, and potential for goodwill impairment[183][184][186] - The company relies on a relatively small number of suppliers, creating a risk of supply chain disruption, which has been heightened by the COVID-19 pandemic's impact on global manufacturing[189][190] - A significant portion of revenue (27% in Q1 2020) comes from Medicare and Medicaid, making the company vulnerable to statutory and regulatory changes. The CARES Act provides temporary positive adjustments, but the long-term reimbursement landscape remains a risk[191][193][194]