AdaptHealth(US:AHCO)2022-05-09 16:00PART I - FINANCIAL INFORMATION Item 1. Interim Consolidated Financial Statements This section presents AdaptHealth Corp.'s unaudited consolidated financial statements for Q1 2022, including balance sheets, income statements, and cash flows, with explanatory notes Consolidated Financial Statements (Unaudited) Unaudited statements show a significant turnaround in Q1 2022 profitability, with net revenue growth leading to a net income of $42.2 million versus a net loss in Q1 2021 Financial Metric | Financial Metric | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Net Revenue | $706.2 Million | $482.1 Million | | Operating Income | $51.6 Million | $15.4 Million | | Net Income (Loss) | $42.2 Million | $(3.6) Million | | Diluted EPS | $0.08 | $(0.08) | Balance Sheet Item | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,204.3 Million | $5,250.5 Million | | Total Liabilities | $3,083.7 Million | $3,183.8 Million | | Total Stockholders' Equity | $2,120.6 Million | $2,066.7 Million | Cash Flow Item (Q1) | Cash Flow Item (Q1) | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operations | $66.5 Million | $18.4 Million | | Net Cash from Investing | $(80.1) Million | $(1,213.8) Million | | Net Cash from Financing | $(16.6) Million | $1,227.6 Million | Notes to Interim Consolidated Financial Statements The notes detail accounting policies, revenue breakdowns, acquisitions, goodwill valuation, debt structure, and a subsequent $200 million share repurchase program - The company's business focuses on providing home medical equipment (HME) and related services for conditions like sleep apnea, diabetes, and other chronic illnesses, serving patients covered by Medicare, Medicaid, and commercial insurance29 Net Revenue by Payor (Q1 2022) | Net Revenue by Payor (Q1 2022) | Amount (in thousands) | | :--- | :--- | | Insurance | $420,890 | | Government | $181,650 | | Patient pay | $103,663 | | Total Net Revenue | $706,203 | Net Revenue by Service Line (Q1 2022) | Net Revenue by Service Line (Q1 2022) | Amount (in thousands) | | :--- | :--- | | Sleep | $250,273 | | Diabetes | $155,305 | | Respiratory | $140,725 | | HME | $56,576 | | Other | $103,324 | | Total Net Revenue | $706,203 | - In Q1 2022, the company completed minor acquisitions for $2.8 million, contrasting with Q1 2021 which included the major acquisition of AeroCare for a total consideration of $2.4 billion697075 - A decline in the company's stock price and market capitalization triggered a goodwill impairment assessment as of March 31, 2022, but no impairment charge was recorded as fair value exceeded carrying value85 - Subsequent to quarter-end, on May 9, 2022, the Board of Directors authorized a share repurchase program for up to $200 million of the company's Common Stock through December 31, 2022191 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial performance, highlighting a 46.5% increase in net revenue to $706.2 million driven by acquisitions, and an increase in Adjusted EBITDA to $137.6 million Results of Operations This section details Q1 2022 operating results, showing net revenue increased by $224.1 million (46.5%) due to acquisitions, and operating income surged 234.6% to $51.6 million - Net revenue growth was primarily driven by acquisitions completed after December 31, 2020, which contributed $212.6 million to revenue, including the significant AeroCare acquisition223 - Revenue in Q1 2022 was negatively impacted by the Philips Respironics recall of certain CPAP, BiPAP, and ventilator devices, which created supply chain shortages and limited the company's ability to meet patient demand223 - General and administrative expenses decreased by 26.8% to $41.4 million, mainly due to lower transaction costs ($2.8 million in Q1 2022 vs $31.4 million in Q1 2021)228230 Reconciliation to Adjusted EBITDA (in thousands) | Reconciliation to Adjusted EBITDA (in thousands) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income (loss) attributable to AdaptHealth Corp. | $41,750 | $(3,966) | | Income attributable to noncontrolling interest | $480 | $324 | | Interest expense, net | $24,776 | $22,185 | | Income tax expense (benefit) | $5,603 | $(1,695) | | Depreciation and amortization | $77,030 | $47,206 | | EBITDA | $149,639 | $64,054 | | Adjustments (Transaction costs, Equity-based comp, etc.) | $(11,995) | $40,121 | | Adjusted EBITDA | $137,644 | $104,175 | Liquidity and Capital Resources The company's liquidity sources are cash from operations and debt financing, with $119.4 million in cash and $171.4 million in working capital as of March 31, 2022, and total debt including a $780.0 million term loan and $1.45 billion in senior unsecured notes - As of March 31, 2022, the company had $119.4 million in cash and cash equivalents and believes its operating cash flows and available credit are sufficient to fund operations for at least the next twelve months247246 - Total debt as of March 31, 2022, included $780.0 million outstanding under the 2021 Term Loan and $1.45 billion in aggregate principal from three series of senior unsecured notes252254257258 - Net cash provided by operating activities increased to $66.5 million in Q1 2022 from $18.4 million in Q1 2021, primarily due to a $45.9 million improvement in net income and changes in working capital260 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its variable-rate debt, with $780.0 million outstanding under the 2021 Term Loan as of March 31, 2022 - The company's main market risk is from interest rate changes on its variable-rate debt, which is tied to the Adjusted LIBOR Rate, with $780.0 million outstanding under the 2021 Term Loan subject to this risk as of March 31, 2022281 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to previously disclosed material weaknesses in internal control over financial reporting, for which remediation plans are underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to ongoing material weaknesses in internal control over financial reporting282 - The identified material weaknesses relate to an insufficient complement of resources leading to an ineffective risk assessment, deficiencies in the review of non-routine transactions, and issues in the accounts payable process283284287 - Remediation efforts are underway, including establishing an executive steering committee, hiring additional professionals, process mapping, and implementing a new enterprise resource planning (ERP) system which went live in Q1 2022288 PART II - OTHER INFORMATION Legal Proceedings and Risk Factors This section refers to other parts of the report and previous filings for details on legal proceedings, including government investigations and shareholder lawsuits, and a comprehensive discussion of risk factors - For details on legal proceedings, the report refers to the 'Commitments and Contingencies' section (Note 14), which discusses ongoing government investigations and shareholder lawsuits290174 - The company directs investors to its Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive discussion of risk factors291 Other Information (Items 2-6) This section covers standard SEC filing requirements, reporting no unregistered sales of equity securities, no defaults upon senior securities, and no other material information to disclose for the period, and includes the exhibit index - The company reported no unregistered sales of equity securities, defaults on senior securities, or other material information during the quarter292293