Q1 2026 AdaptHealth Corp Earnings Call

May 5, 2026

Speaker #2: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help you.

Speaker #2: Please stand by. Your meeting is about to begin. Good day, everyone. And welcome to today's AdaptHealth First Quarter 2026 Earnings Release. Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth, and Jason Clemens, Chief Financial Officer of AdaptHealth.

Operator: Good day, everyone, and welcome to today's AdaptHealth Corp. Q1 2026 earnings release. Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth Corp., and Jason Clemens, Chief Financial Officer of AdaptHealth Corp. Before we begin, I would like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995.

Speaker #2: Before we begin, I would like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of private securities litigation reform act.

Speaker #2: These statements include but are not limited to comments regarding financial results for 2026 and beyond. Actual results could differ materially from those projected in forward-looking statements.

Operator 3: These statements include, but are not limited to, comments regarding financial results for 2026 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, organic growth, and free cash flow, all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in the presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today.

Operator: These statements include, but are not limited to, comments regarding financial results for 2026 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, organic growth, and free cash flow, all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in the presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today.

Speaker #2: Because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events.

Speaker #2: Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, organic growth, and free cash flow, all of which are non-GAAP financial measures.

Speaker #2: You can find more information about these non-GAAP measures in the presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today.

Speaker #2: I am now pleased to introduce the Chief Executive Officer of AdaptHealth, Suzanne Foster. Good morning, everyone. Thank you for joining us today. The opening months of 2026 have set the stage for what will be a defining year for AdaptHealth.

Operator 3: I am now pleased to introduce the Chief Executive Officer of AdaptHealth Corp., Suzanne Foster.

Operator: I am now pleased to introduce the Chief Executive Officer of AdaptHealth Corp., Suzanne Foster.

Suzanne Foster: Good morning, everyone. Thank you for joining us today. The opening months of 2026 have set the stage for what will be a defining year for AdaptHealth Corp.. We made significant progress in three areas this past quarter. First, we successfully completed the transition of hundreds of thousands of active patients to our platform under our new capitated agreement. The second highlight of the quarter was the progress we are making on infrastructure investments as our AI-enabled initiatives and patient-facing digital platform reached meaningful milestones. We are beginning to drive improvements in our operating metrics. Third, in April, we refinanced our credit facility with improved terms, further strengthening our balance sheet and providing financial and strategic flexibility. Starting with our new capitated agreement, we navigated through one of the most ambitious operational undertakings by completing the largest patient transition in the history of home medical equipment.

Speaker #2: We made significant progress in three areas this past quarter. First, we successfully completed the transition of hundreds of thousands of active patients to our platform under our new capitated agreement.

Speaker #2: The second highlight of the quarter was the progress we are making on infrastructure investments. As our AI-enabled initiatives and patient-facing digital platform reached meaningful milestones, and we are beginning to drive improvement in our operating metrics, and third, in April, we refinanced our credit facility with improved terms.

Speaker #2: Further strengthening our balance sheet and providing financial and strategic flexibility. Starting with our new capitated agreement, we navigated through one of the most ambitious operational undertakings by completing the largest patient transition in the history of home medical equipment.

Speaker #2: No HME company had ever taken on a capitated contract of this scale from an incumbent. Over the past couple of months, we established 35 de novo locations and are now the exclusive HME provider for more than 10 million new members.

Suzanne Foster: No HME company had ever taken on a capitated contract of this scale from an incumbent. Over the past couple of months, we established 35 de novo locations and are now the exclusive HME provider for more than 10 million new members. We had planned to work through this transition over the H1 of this year. As a result of completing this transition on a more aggressive timeline and delivering strong performance across our legacy business, we delivered revenue significantly ahead of our guidance, with solid organic growth across all four segments. Regarding the contract, covered membership count, revenue per member, utilization, and product costs are all meeting our expectations. However, we maintained heavier than planned labor costs to ensure a responsible transition.

Speaker #2: We have planned to work through this transition over the first half of this year. As a result of completing this transition on a more aggressive timeline, and delivering strong performance across our legacy business, we delivered revenue significantly ahead of our guidance, with solid organic growth across all four segments.

Speaker #2: Regarding the contract, covered membership count, revenue per member, utilization, and product costs are all meeting our expectations. However, we maintained heavier-than-planned labor costs to ensure a responsible transition.

Speaker #2: In the first quarter, that amounted to $12 million of elevated labor expense, of which $8 million was variable labor to accelerate the transition, and that should normalize by the end of the second quarter.

Suzanne Foster: In Q1, that amounted to $12 million of elevated labor expense, of which $8 million was variable labor to accelerate the transition, and that should normalize by the end of Q2. The $4 million of elevated wages and benefits that will decline as we rightsize to the operating model and to meet the service requirements. Given that this is a 5-year contract with a potentially longer horizon, the extra implementation spend was the right decision for the relationship and the patients. As for Q1 financial results, Q1 revenue of $819.8 million grew 5.4% versus the prior year quarter and exceeded the midpoint of our guidance range by approximately $22 million. On an organic basis, adjusting for the impact of acquisitions and dispositions, we delivered 9.1% year-over-year growth.

Speaker #2: The $4 million of elevated wages and benefits that will decline as we right-size in operating right-size to the operating model and to meet the service requirements.

Speaker #2: Given that this is a five-year contract with a potentially longer horizon, the extra implementation spend was the right decision for the relationship and the patients.

Speaker #2: As for Q1 financial results, first quarter revenue of $819.8 million grew 5.4% quarter, and exceeded the midpoint of our guidance range by approximately 22 million.

Speaker #2: On an organic basis, adjusting for the impact of acquisitions and dispositions, we delivered $9.1% year-over-year growth. Of that, about $500 basis points came from the new capitated contract, the other $400 basis points came from the base business, with each of our four segments delivering positive organic growth in the quarter.

Suzanne Foster: Of that, about 500 basis points came from the new capitated contract. The other 400 basis points came from the base business, with each of our four segments delivering positive organic growth in the quarter. Sleep Health net revenue of $358.5 million grew 13.3% versus the prior year, and PAP new starts set another new record. We anticipate that as accumulating evidence highlights the significance of sleep in overall health, there will be corresponding increase in demand for therapies aimed at improving sleep quality. Currently, up to 80% of individuals with obstructive sleep apnea are undiagnosed. However, patient awareness is rising, driven by expanded access to home sleep studies, the development of wearable devices for early detection of obstructive sleep apnea, and the integration of dual therapies.

Speaker #2: Sleep health net revenue of $358.5 million grew 13.3% versus the prior year, and PAP new starts set another new record. We anticipate that as accumulating evidence highlights the significance of sleep in overall health, there will be corresponding increase in demand for therapies aimed at improving sleep quality.

Speaker #2: Currently, up to 80% of individuals with obstructive sleep apnea are undiagnosed. However, patient awareness is rising driven by expanded access to home sleep studies, the development of wearable devices for early detection of obstructive sleep apnea, and the integration of dual therapies.

Speaker #2: As more patients experience the advantages of sleep therapy, our commitment remains on focusing remains focused on delivering high-quality care and supporting treatment adherence to fully capture the health benefits.

Suzanne Foster: As more patients experience the advantages of sleep therapy, our commitment remains focused on delivering high-quality care and supporting treatment adherence to fully capture the health benefits. Despite a very mild flu season, Respiratory Health net revenue of $178.1 million grew 7.6% versus the prior year, and oxygen new starts grew 12.8%. Diabetes Health net revenue of $142.2 million grew 2.4% versus the prior year. Our investments in talent, process improvement, and technology, over the past year have taken hold. We had particularly strong results from resupply, further demonstrating that our centralized resupply team is performing well and providing quality and timely care to these patients.

Speaker #2: Despite a very mild flu season, respiratory health net revenue of $178.1 million grew 7.6% versus the prior year, and oxygen new starts grew 12.8%.

Speaker #2: Diabetes health net revenue of $142.2 million grew 2.4% versus the prior year. Our investments in talent, process improvement, and technology over the past year have taken hold.

Speaker #2: We had particularly strong results from resupply, further demonstrating that our centralized resupply team is performing well and providing quality and timely care to these patients.

Speaker #2: Wellness at home net revenue of $141 million declined 10.3% on a reported basis, reflecting 35.8 million of disposed revenue from non-core assets exited during 2025.

Suzanne Foster: Wellness at Home net revenue of $141 million declined 10.3% on a reported basis, reflecting $35.8 million of disposed revenue from non-core assets exited during 2025. Over the past 2 years, we have carefully pruned our portfolio to product categories that support growth in our Sleep Health and Respiratory Health segments. After adjusting for these dispositions, Wellness at Home delivered 11% organic growth. In Q1, capitated net revenue made up 9.2% of the total consolidated net revenue. Capitated membership increased 7 times year over year to about 15 million. Adjusted EBITDA of $121.2 million fell short of guidance, driven by the previously mentioned labor and benefit costs. While labor costs will keep decreasing post-transition, we started a cost containment initiative to stay on track.

Speaker #2: Over the past two years, we have carefully pruned our portfolio to product categories that support growth in our sleep and respiratory health segments. After adjusting for these dispositions, wellness at home delivered $11% organic growth.

Speaker #2: In Q1, capitated net revenue made up $9.2% of the total consolidated net revenue. Capitated membership increased seven times year-over-year to about $15 million. Adjusted EBITDA of $121.2 million fell short of guidance, driven by the previously mentioned labor and benefit costs.

Speaker #2: While labor costs will keep decreasing post-transition, we started a cost containment initiative to stay on track. As a result, we are comfortable raising our full-year net revenue projections and maintaining our full-year 2026 guidance for adjusted EBITDA and free cash flow.

Suzanne Foster: As a result, we are comfortable raising our full-year net revenue projections and maintaining our full-year 2026 guidance for adjusted EBITDA and free cash flow. Stepping back from Q1, I want to spend a few minutes on the playbook we are following because the industry dynamics at work right now are among the most favorable we have seen for a company of our scale. The business we have built over the past several years is well aligned to these dynamics, which leaves us well positioned to grow in the coming years. Interest in capitated arrangements among payers is increasing as a way to align incentives and lower healthcare costs, a trend we anticipate will persist. Securing and implementing these agreements is complex, demanding nationwide coverage, strong clinical practices, robust technology, and operational expertise. We possess these strengths, which the market acknowledges.

Speaker #2: Stepping back from the quarter, I want to spend a few minutes on the playbook we are following. Because the industry dynamics at work right now are among the most favorable, we have seen for a company of our scale.

Speaker #2: The business we have built over the past several years is well aligned to these dynamics, which leaves us well positioned to grow in the coming years.

Speaker #2: Interest in capitated arrangements among payers is increasing as a way to align incentives and lower healthcare costs. A trend we anticipate will persist. Securing and implementing these agreements is complex, demanding nationwide coverage, strong clinical practices, robust technology, and operational expertise.

Speaker #2: We possess these strengths. Which the market acknowledges. Our discussions regarding new capitated deals remain active and promising, and we are optimistic about announcing additional partnerships soon.

Suzanne Foster: Our discussions regarding new capitated deals remain active and promising, and we are optimistic about announcing additional partnerships soon. The regulatory environment is evolving in ways that benefit scaled, compliant operators. The government is actively working to root out fraud and abuse in home medical equipment, and we think that effort is long overdue and unambiguously what is needed for patients, for the Medicare program, and for the broader healthcare ecosystem. The many legitimate, hardworking home medical equipment companies that serve millions of patients managing chronic conditions at home deserve to operate in an industry with a reputation befitting this critical mission. We applaud the government's efforts, and we see an opportunity and, frankly, a responsibility to be a constructive partner as it pursues these aims. The direction of travel here is clear.

Speaker #2: The regulatory environment is evolving in ways that benefit scaled compliant operators. The government is actively working to root out fraud and abuse in home medical equipment, and we think that effort is long overdue and unambiguously what is needed for patients, for the Medicare program, and for the broader healthcare ecosystem.

Speaker #2: The many legitimate hardworking home medical equipment companies that serve millions of patients managing chronic conditions at home deserve to operate in an industry with a reputation befitting this critical mission.

Speaker #2: So we applaud the government's efforts, and we see an opportunity and, frankly, a responsibility to be a constructive partner as it pursues these aims.

Speaker #2: The direction of travel here is clear. Greater scrutiny and clearer standards will, over time, separate operators who have made those investments in the systems, process, and clinical infrastructure that proper compliance requires.

Suzanne Foster: Greater scrutiny and clearer standards will, over time, separate operators who have made those investments in the systems, process, and clinical infrastructure that proper compliance requires. We have made these investments, and we are committed to helping lead the industry toward that standard. Our balance sheet, following the refinancing of our credit facility, gives us the flexibility to pursue tuck-in acquisitions from a position of strength where it makes sense in attractive geographies for assets that expand our access to patients focused on our core Sleep Health and Respiratory Health segments. These must be at returns that soundly meet or exceed our thresholds. The last 2 years reflect that discipline. We have deployed capital selectively, and we have terminated as many deal processes and due diligence as we have closed. Technology is creating a real separation.

Speaker #2: We have made these investments, and we are committed to helping lead the industry toward that standard. Our balance sheet following the refinancing of our credit facility gives us the flexibility to pursue tuck-in acquisitions from a position of strength.

Speaker #2: Where it makes sense, in attractive geographies, for assets that expand our access to patients, focused on our core sleep and respiratory health segments. These must be at returns that soundly meet or exceed our thresholds.

Speaker #2: The last two years reflect that discipline. We have deployed capital selectively, and we have terminated as many deal processes and due diligence as we have closed.

Speaker #2: Technology is creating a real separation. We have invested in our patient-facing and operational platforms, and those investments are improving the patient experience and time to therapy.

Suzanne Foster: We have invested in our patient-facing and operational platforms, and those investments are improving the patient experience and time to therapy. Our conversational AI platform has moved beyond pilot and in Q1 is handling live calls across sleep scheduling, our contact center, and resupply use cases. Scheduling that was entirely manual a year ago is now 25% touchless. Order conversion times have shortened materially, a meaningful improvement in the experience for referring providers and patients alike. Our patient portal, myAPP, crossed 412,000 users in Q1. These capabilities matter more as volume scales. In summary, our focus for the rest of 2026 is to manage patient growth and control costs. We aim for sustainable, profitable organic growth while maintaining excellent service for over 4.5 million patients. With that, let me turn it over to Jason to review the financials.

Speaker #2: Our conversational AI platform has moved beyond pilot and in Q1 is handling live calls across sleep scheduling, our contact center, and resupply use cases.

Speaker #2: Scheduling that was entirely manual a year ago is now 25% touchless. Order conversion times have shortened materially, a meaningful improvement in the experience for referring providers and patients alike.

Speaker #2: Our patient portal, my app, crossed 412,000 users in Q1. These capabilities matter more as volume scales. In summary, our focus for the rest of 2026 is to manage patient growth and control costs.

Speaker #2: We aim for sustainable, profitable organic growth while maintaining excellent service for over 4.5 million patients. With that, let me turn it over to Jason to review the financials.

Speaker #1: Thank you, Suzanne. And thanks to everyone for joining our call today. I'll cover our first quarter 2026 financial results, followed by our balance sheet, capital allocation, and outlook.

Jason Clemens: Thank you, Suzanne, and thanks to everyone for joining our call today. I'll cover our Q1 2026 financial results, followed by our balance sheet, capital allocation, and outlook. For Q1 2026, net revenue of $819.8 million increased 5.4% versus the prior year quarter. Organic growth was 9.1% for that same period, with broad-based growth across all four segments. Capitated revenue of $74.9 million outperformed our expectations as we met go-live dates for a new agreement faster than we originally anticipated. Covered membership count, revenue per member, utilization, and product costs were all in line with our expectations. Q1 adjusted EBITDA was $121.2 million, representing an adjusted EBITDA margin of 14.8% and coming in about $7 million lower than guidance.

Speaker #1: For Q1 2026, net revenue of $819.8 million increased 5.4% versus the prior year quarter. Organic growth was 9.1% for that same period, with broad-based growth across all four segments.

Speaker #1: Capitated revenue of $74.9 million outperformed our expectations as we met go-live dates for a new agreement faster than we originally anticipated. Covered membership count, revenue per member, utilization, and product costs were all in line with our expectations.

Speaker #1: First quarter adjusted EBITDA was $121.2 million. Representing an adjusted EBITDA margin of 14.8%. And coming in about $7 million lower than guidance. Although it required additional labor to start the capitated contract sooner, the elevated labor cost is already declining and we expect to return to baseline in the next few months.

Jason Clemens: It required additional labor to start the capitated contract sooner, the elevated labor cost is already declining, and we expect to return to baseline in the next few months. Q1 cash flow from operations of $93.7 million was essentially flat versus the prior year quarter. Q1 free cash flow of -$27.5 million was in line with our expectations and driven by capital expenditures of $121.2 million, reflecting patient equipment startup purchases to stock inventory in support of the new capitated contract. We move into steady state operations with the capitated arrangement, we expect CapEx to normalize and free cash flow to improve in H2. Turning to the balance sheet, we ended the quarter with unrestricted cash of approximately $48 million.

Speaker #1: First quarter cash flow from operations of $93.7 million was essentially flat versus the prior year quarter. First quarter free cash flow of negative $27.5 million was in line with our expectations and driven by capital expenditures of $121.2 million reflecting patient equipment startup purchases to stock inventory and support of the new capitated contract.

Speaker #1: As we move into steady-state operations with the capitated arrangement, we expect CapEx to normalize and free cash flow to improve in the back half of the year.

Speaker #1: Turning to the balance sheet, we ended the quarter with unrestricted cash of approximately $48 million. Net debt stood at approximately $1.84 billion, and our consolidated net leverage ratio was 3.0 times from 2.75 times in the fourth quarter of 2025.

Jason Clemens: Net debt stood at approximately $1.84 billion, and our consolidated net leverage ratio was 3.0x from 2.75x in Q4 2025. The increase reflects the $100 million we drew in our revolving credit facility to acquire certain assets from a provider of home medical equipment to support our new capitated arrangement for a total consideration of $84.7 million. We intend to pay down the balance on our revolver in the coming quarters and remain committed to achieving our target of 2.5x net leverage.

Speaker #1: The increase reflects the $100 million we drew in our revolving credit facility to acquire certain assets from a provider of home medical equipment to support our new capitated arrangement for a total consideration of $84.7 million.

Speaker #1: We intend to pay down the balance on our revolver in the coming quarters and remain committed to achieving our target of $2.5 times net leverage.

Speaker #1: In April, we completed a $1.1 billion refinancing of our senior secured credit facility. Consisting of a $325 million term loan A, a $325 million delayed draw term loan, and a $450 million revolving credit facility.

Jason Clemens: In April, we completed a $1.1 billion refinancing of our senior secured credit facility, consisting of a $325 million Term Loan A, a $325 million delayed draw term loan, and a $450 million revolving credit facility, all maturing in April 2031. The new facility extends our term loan maturity, lowers our weighted average cost of debt, and provides incremental operating flexibility with expanded capacity on the revolving credit facility. It also provides committed capital through the delayed draw facility that we intend to use to redeem our 2028 notes following the call premium expiration in August 2026. The favorable pricing reflects the recent credit upgrades we received from both S&P and Moody's, as well as our commitment to further delevering.

Speaker #1: All maturing in April 2031. The new facility extends our term loan maturity, lowers our weighted average cost of debt, and provides incremental operating flexibility with expanded capacity on the revolving credit facility.

Speaker #1: It also provides committed capital through the delayed draw facility. That we intend to use to redeem our 2028 notes following the call premium expiration in August 2026.

Speaker #1: The favorable pricing reflects the recent credit upgrades we received from both S&P and Moody's, as well as our commitment to further delivering. Our capital allocation priorities remain unchanged.

Jason Clemens: Our capital allocation priorities remain unchanged: investing to accelerate organic growth, reducing leverage, and pursuing disciplined tuck-in acquisitions. Subsequent to the end of the quarter, we completed the disposition of our remaining custom rehab assets, a small but consistent step in concentrating our portfolio around sleep, respiratory, and the related product categories that support growth in our core. Turning to guidance, we are raising our full year net revenue projection by $10 million to $3.45 to $3.52 billion. This reflects the Q1 revenue outperformance offset by the revenue of the custom rehab disposition. Given the steps we are taking to moderate labor costs related to the capitated arrangement, we are maintaining our full year guidance for adjusted EBITDA of $680 to $730 million and free cash flow of $175 to $225 million.

Speaker #1: Investing to accelerate organic growth, reducing leverage, and pursuing disciplined tuck-in acquisitions. Subsequent to the end of the quarter, we completed the disposition of our remaining custom rehab assets: a small but consistent step in concentrating our portfolio around sleep, respiratory, and the related product categories that support growth in our core.

Speaker #1: Turning to guidance, we are raising our full-year net revenue projection by $10 million to $3.45 to $3.52 billion. This reflects the first quarter revenue outperformance offset by the revenue of the custom rehab disposition.

Speaker #1: Given the steps we are taking to moderate labor costs related to the capitated arrangement, we are maintaining our full-year guidance for adjusted EBITDA of $680 to $730 million and free cash flow of $175 to $225 million.

Speaker #1: For the second quarter of 2026, we expect net revenue of $840 to $860 million and an adjusted EBITDA margin of approximately 19%. We expect free cash flow to be modest, as we incur elevated CapEx to support the new contract.

Jason Clemens: For Q2 2026, we expect net revenue of $840 to 860 million and an adjusted EBITDA margin of approximately 19%. We expect free cash flow to be modest as we incur elevated CapEx to support the new contract. With that, I'd like to pass the call back to Suzanne for closing remarks.

Speaker #1: With that, I'd like to pass the call back to Suzanne for closing remarks.

Speaker #2: Thank you. This really has been a monumental quarter for us. Our team went to extraordinary lengths to complete the largest patient transition in the history of this industry, and over an incredibly short period of time.

Suzanne Foster: Thank you. This really has been a monumental quarter for us. Our team went to extraordinary lengths to complete the largest patient transition in the history of this industry and over an incredibly short period of time. I wanna close by saying thank you to all the adapters that worked nights, weekends, overtime, whatever they needed to do to stand up our new capitated partnership. A special thank you to all the adapters who ensured that our base business continued to perform. This was truly a team effort. The progress we made this quarter is just another proof point that this team has what it takes to achieve our aspiration of becoming the most trusted and reliable partner in home healthcare, the one patients depend on and physicians choose first. That brings me to the end of our prepared remarks. Operator, please open the call for questions.

Speaker #2: So I want to close by saying thank you to all the adapters that worked nights, weekends, overtime, whatever they needed to do to stand up our new capitated partnership.

Speaker #2: And a special thank you to all the adapters who ensured that our base business continued to perform. This was truly a team effort. The progress we made this quarter is just another proof point that this team has what it takes to achieve our aspiration of becoming the most trusted and reliable partner in home healthcare.

Speaker #2: The one patients depend on, and physicians choose first. That brings me to the end of our prepared remarks. Operator, please open the call for questions.

Speaker #3: Thank you. And if you would like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two.

Operator 3: Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. In the interest of time, we ask you please limit yourself to one question and one follow-up. We will take our first question from Pito Chickering with Deutsche Bank. Please go ahead. Your line is open.

Operator: Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. In the interest of time, we ask you please limit yourself to one question and one follow-up. We will take our first question from Pito Chickering with Deutsche Bank. Please go ahead. Your line is open.

Speaker #3: Once again, that is star and one to ask a question. In the interest of time, we ask you to please limit yourself to one question and one follow-up.

Speaker #3: We'll take our first question from Peter O'Teagering with Deutsche Bank. Please go ahead, your line is open.

Speaker #4: Hey, good morning, guys. On the organic revenue side, are you realizing all the revenues from the capitated arrangements, the $9.1%, or should we assume acceleration into queue from those levels?

Pito Chickering: Hey, good morning, guys. On the organic revenue side, are you realizing all the revenues from capitated arrangements to 9.1%, or should we assume acceleration into Q from those levels? Also, like any color on what organic revenue growth would be excluding the capitated arrangements, just trying to figure out sort of what core growth is after all the capitated arrangements are fully realized.

Speaker #4: And also, are there any color on what organic revenue growth would be excluding the capitated arrangements? Just trying to figure out sort of what core growth is after all the capitated arrangements are fully realized.

Speaker #5: Sure, Peter. This is Jason. So on the organic split, a little over 4% growth in the core business, X capitation, X the new contract, and to your question on Q2, we do expect acceleration specifically of capitated revenue.

Jason Clemens: Sure, Pito. This is Jason. On the organic split, a little over 4% growth in the core business, ex capitation, ex the new contract. To your question on Q2, we do expect acceleration, specifically of capitated revenue. That is where we are providing the raise of net revenue for the full year. We do expect as we'll be assuming an entire quarter of capitated revenue growth from this new contract in the Q2 that we will accelerate organic growth.

Speaker #5: That is where we are providing the raise of net revenue for the full year. And so we do expect as we're we'll be assuming an entire quarter of capitated revenue growth in this new contract in the second quarter that we will accelerate organic growth.

Speaker #4: Okay. And then talked about the $8 million of variable labor from the acceleration of $4 million of right sizing. There's just a lot more sort of moving parts and it's been a little sort of challenging for Q1, Q2 to sort of model EBITDA.

Pito Chickering: Okay. Like you talked about the $8 million of variable labor from acceleration and $4 million of right sizing. There's a lot more sort of moving parts. It's been a little challenging, you know, Q4, Q1 to sort of model EBITDA. Can you give some color on how EBITDA should ramp Q2 and then ramp into Q3 and Q4 just because of all these moving parts around these costs? Thank you so much.

Speaker #4: So can you give us some color on how EBITDA should ramp to Q and then ramp into 3Q and 4Q just because of all these moving parts around these costs?

Speaker #4: Thank you so much.

Speaker #5: Sure thing, Peter. So in our Q2 guidance, we are projecting $840 to $860 million of revenue, at an adjusted EBITDA margin of approximately 19%.

Jason Clemens: Sure thing, Pito. In our Q2 guidance, we're projecting $840 to 860 million of revenue at an adjusted EBITDA margin of approximately 19%. That translates to a little over $160 million of EBITDA for the Q2. The reason for the big ramp is really twofold. Firstly, we will have an entire quarter of revenue from the new capitated arrangement. Very different from Q1, where we had portions of that revenue as the staggered start dates rolled out. That revenue is gonna come in at a very high margin as the fixed costs are already in the P&L as we enter Q2. The second component is really around putting controls around the labor spend.

Speaker #5: So that translates to a little over $160 million of EBITDA for the second quarter. The reason for the big ramp is really twofold. Firstly, we will have an entire quarter of revenue from the new capitated arrangement.

Speaker #5: Very different from Q1, where we had portions of that revenue as the staggered start dates rolled out. And so that revenue is going to come in at a very high margin as the fixed costs are already in the P&L.

Speaker #5: As we enter Q2. The second component is really around putting controls around the labor spend. Certainly, as we were exiting March we had a surge in variable pay.

Jason Clemens: Certainly as we were exiting March, you know, we had a surge in variable pay. Incentive pay, bonuses, contract labor, and the such to support the transition. That came with a lot of call volume, as patients were moving from the incumbent provider over to Adapt, and a lot of questions about how to continue to access their care and how to work with AdaptHealth Corp. going forward. As that volume settles down, as we're moving into Q2, we do expect to get some of this cost out that we referenced in Q1, and we expect to get all of it out at the time of Q3.

Speaker #5: So incentive pay, bonuses, contract labor, and the such to support the transition. That came with a lot of call volume as patients were moving from the incumbent provider over to Adapt.

Speaker #5: And a lot of questions about how to continue to access their care and how to work with Adapt Health going forward. So as that volume settles down as we're moving into Q2, we do expect to get some of this cost out that we're re referencing Q1.

Speaker #5: And we expect to get all of it out at the time of Q3.

Speaker #4: Great. Thanks so much.

Pito Chickering: Great. Thanks so much.

Speaker #3: Thank you. Our next question comes from Kevin Caliendo with UBS. Please go ahead, your line is open.

Operator 3: Thank you. Our next question comes from Kevin Caliendo with UBS. Please go ahead, your line is open.

Operator: Thank you. Our next question comes from Kevin Caliendo with UBS. Please go ahead, your line is open.

Speaker #6: Thanks. Thanks for taking my question. I just want to make sure so I understand. So you said you missed Q1 EBITDA by roughly $7 million, but you also said that labor expenses are moderating.

Kevin Caliendo: Thanks. Thanks for taking my question. I just want to make sure I understand. You said you missed Q1 EBITDA by roughly $7 million, but you also said that labor expenses are moderating. Is there anything else improving in the underlying EBITDA outlook, ex contract onboarding? Meaning whether it's mix, you cited some AI initiatives. Just trying to understand if those are helping the underlying trends as we see the ramp over the course of the year, or if it's just simply the onboarding stuff.

Speaker #6: Is there anything else improving in the underlying EBITDA outlook ex-contract onboarding, meaning whether it's mix, you cited some AI initiatives? Just trying to understand if those are helping the underlying trends as we see the ramp over the course of the year or if it's just simply the onboarding stuff.

Speaker #5: Well, certainly the onboarding Kevin. Secondly, as we get into Q2, we typically see a little over a point of improved collections and therefore lower reserves on our revenue.

Jason Clemens: Well, it's certainly the onboarding, Kevin. You know, secondly, as we get into Q2, we typically see a little over a point of improved collections and therefore lower reserves on our revenue. That number alone is about $10 million, and that all drops to the bottom line as it's pure collections and rate on the revenue side of things. You know, the AI that we referenced this morning, Suzanne may expand on a little more. It's important to see that we're moving out of pilot phase and first starting go lives as we were exiting Q1. That's gonna take some time to scale over the course of the year and into 2027. Maybe Suzanne wants to add some color on the specifics.

Speaker #5: So that number alone is about $10 million. And that all drops to the bottom line as its pure collections and rate on the revenue side of things.

Speaker #5: The AI that we referenced this morning, Suzanne may expand on a little more. It's important to see that we're moving out of pilot phase and first starting go-lives.

Speaker #5: As we were exiting the first quarter. So that's going to take some time to scale over the course of the year and into '27.

Speaker #5: But maybe Suzanne wants to add some color on the specifics.

Suzanne Foster: The technology that we're deploying, the goal has been to improve the patient experience and time to therapy. Now, obviously, referencing things like going, scheduling, 25% touchless does come with some benefit. We have been reinvesting that back into the business where we had gaps. I've been, you know, out there saying that any financial benefit from implementation of technology will be H2, but really more of a 2027 story because we've needed to make some investments in the rest of the business as we right-size places that we're underinvested in.

Speaker #7: The technology that we're deploying has been the goal has been to improve the patient experience and time to therapy. Now, obviously, referencing things like going scheduling 25% touchless does come with some benefit.

Speaker #7: We have been reinvesting that back into the business where we had gaps. And so I've been out there saying that any benefit from financial benefit from implementation of technology will be back half of the year, but really more of a 2027 story because we've needed to make some investments in the rest of the business as we right-size places that were underinvested in.

Kevin Caliendo: That's helpful. Can I ask a quick follow-up? Have you seen any changes to sleep apnea coverage amongst payers? Did anything hit in Q1 that was different?

Speaker #6: That's helpful. Can I ask you a quick follow-up? Have you seen any changes to sleep apnea coverage amongst payers? Did anything hit in one Q that was different?

Kevin Caliendo: That's helpful. Can I ask a quick follow-up? Have you seen any changes to sleep apnea coverage amongst payers? Did anything hit in Q1 that was different?

Speaker #7: Nope, that's all consistent. Sleep apnea has enjoyed a stable quarter. Nothing on the horizon that we see in terms of changes at this point.

Suzanne Foster: Nope. That's all consistent. Sleep apnea has enjoyed a stable quarter. Nothing on the horizon that we see in terms of changes at this point.

Speaker #6: Great. That's super helpful. Thank you.

Kevin Caliendo: Great. That's super helpful. Thank you.

Speaker #7: Got it.

Suzanne Foster: Got it.

Speaker #3: Thank you. We will take our next question from Ben Hendricks with RBC Capital Markets. Please go ahead, your line is open.

Operator 3: Thank you. We will take our next question from Ben Hendrix with RBC Capital Markets. Please go ahead. Your line is open.

Operator: Thank you. We will take our next question from Ben Hendrix with RBC Capital Markets. Please go ahead. Your line is open.

Speaker #8: Hi, this is Michael Murrion for Ben. Thanks for taking my question. With the capitated contract, you're expected to reach 20% EBITDA margin at full ramp.

Michael Murray: Hi, this is Michael Murray on for Ben. Thanks for taking my question. With the capitated contract expected to reach 20% EBITDA margin at full ramp and the base business continuing to improve, what's the right way to think about Adapt's steady-state EBITDA margin over the next two to three years? Is there a path to low 20% on a sustained basis?

Speaker #8: And the base business continuing to improve, what's the right way to think about Adapt steady-state EBITDA margin over the next two to three years?

Speaker #8: Is there a path to low 20% on a sustained basis?

Speaker #5: Yeah, sure. This is Jason. I guess I'd start with our expectations for 2026. At the midpoint of our guidance, we're showing just a touch over 20% for our adjusted EBITDA margin.

Jason Clemens: Yeah, sure. This is Jason. I guess I'd start with our expectations for 2026. You know, at the midpoint of our guidance, we're showing just a touch over 20% for our adjusted EBITDA margin. As we get into 2027, a couple of key items to note. Firstly, in the Q1, of course, we'll have a full quarter of capitated revenue versus the Q1 of 2026. The variable labor that we discussed and some of the fixed costs that we saw in the Q1, we expect at that point that we'll have pulled that back out of the P&L, thus increasing margin profile as we get into 2027 and beyond.

Speaker #5: And as we get into 2027, a couple of key items to note. Firstly, in the first quarter, of course, we'll have a full quarter of capitated revenue.

Speaker #5: Versus the first quarter of 2026. And the variable labor that we discussed and some of the fixed costs that we saw in the first quarter, we expect at that point that we'll have pulled that back out of the P&L.

Speaker #5: Thus, increasing margin profile as we get into '27 and beyond.

Speaker #7: And I think just adding on to that, how we think about it is assuming a fairly stable fee-for-service reimbursement landscape, coupled with increased capitated revenue over the next couple of years driving additional census.

Suzanne Foster: I think just adding on to that, you know, how we think about it, assuming a fairly stable fee for service reimbursement landscape coupled with increased capitated revenue over the next couple of years, driving additional census and underlying operational improvements, including some, you know, the technology I referenced. Those things over the next 12 months, really into 2027, will allow us to hold that EBITDA and slightly improve it as we move forward.

Speaker #7: And the underlying operational improvements including the technology I referenced, those things over the next 12 months really into 2027 will allow us to hold that EBITDA in slightly improve it as we move forward.

Speaker #8: That's helpful, thank you. And then, do you have any update on the pipeline or timing of potential new capitated arrangements? Are you seeing any acceleration in inbound interest?

Michael Murray: That's helpful. Thank you. Do you have any update on the pipeline or timing of potential new capitated arrangements? Are you seeing any acceleration in inbound interest? Thank you.

Speaker #8: Thank you.

Speaker #7: Yeah, sure. Well, like I said, we're very positive about the movement of our pipeline. It's moving through, and you should expect that we'll be coming out with an announcement soon on that.

Suzanne Foster: Sure. Well, like I said, we're very positive about the movement of our pipeline. You know, it's moving through and you should expect that we'll be coming out with an announcement, you know, soon on that.

Speaker #8: All right. Thank you.

Michael Murray: All right. Thank you.

Speaker #7: Got it.

Suzanne Foster: Got it.

Speaker #3: Thank you. We will move next with Brian Tranquillot with Jefferies. Please go ahead, your line is open.

Operator 3: Thank you. We will move next with Brian Tanquilut with Jefferies. Please go ahead.

Operator: Thank you. We will move next with Brian Tanquilut with Jefferies. Please go ahead.

Speaker #5: Hey, good morning, guys. Maybe I'll ask for some of the de novo. I think you mentioned that expansion with the de novos as well ahead of guidance.

Brian Tanquilut: Hey, good morning, guys.

Brian Tanquilut: Maybe I'll ask first into de novo. I think you mentioned that expansion with the de novos was well ahead of guidance. Just curious what you can share with us in terms of what operational milestones kinda like allow this acceleration during the quarter.

Speaker #5: So just curious what you can share with us in terms of what operational milestones, kind of like allow this acceleration during the quarter?

Speaker #4: Yeah, you're talking top line, right, Brian?

Jason Clemens: Yeah. You're talking top line, right, Brian?

Speaker #5: Yes. Yeah, yeah, yeah.

Brian Tanquilut: Yes. Yeah, yeah.

Speaker #4: Yeah, yeah. So this capitated arrangement came in multiple stages, or phases. As we stand here today, all phases are complete, but they were staggered.

Jason Clemens: Yeah, yeah. You know, this capitated arrangement came in multiple stages or phases. As we stand here today, all phases are complete, but they were staggered. They were back half weighted to the Q1. That's really why we're seeing the raise of revenue, particularly in the Q2 as we'll experience, you know, the entire quarter with that full revenue flowing. At this point, the contract is fully operational across all 8 states. As Suzanne said, 35 new locations in support of that business. We're very pleased to report the successful delivery and we're looking forward to moving forward.

Speaker #4: And so they were back half-weighted. To the first quarter. That's really why we're seeing the raise of revenue, particularly in the second quarter, as we'll experience the entire quarter with that full revenue flowing.

Speaker #4: So at this point, the contract is fully operational across all eight states. And as Suzanne said, 35 new locations and support of that business.

Speaker #4: And so we're very pleased to report the successful delivery and we're looking forward to moving forward.

Speaker #7: And the milestones that we focused on. Remember, this was a three-way transition. And so all three parties had to be ready. And given that the other two parties were ready, we had to step up and make sure that we accelerated our go-lives.

Suzanne Foster: The milestones that we, you know, focused on, remember, this was a three-way transition, all three parties had to be ready. Given that the other two parties were ready, we had to step up and make sure that we accelerated our go live. Getting all the new employees in place, a lot of the labor that was in one region or allocated to one phase of go live, we had to repeat very quickly. We couldn't use You know, they were not done onboarding the first phase, and we couldn't use them for the second phase, so we had duplication in onboarding based on the region. That's why we say we're confident that will be coming out because there's not only a lot of labor, but there's duplication.

Speaker #7: And so getting those new getting all the new employees in place. A lot of the labor that was in one region, or allocated to one phase of go-live, we had to repeat very quickly.

Speaker #7: So we couldn't use they were not done onboarding the first phase. And we couldn't use them for the second phase. So we had duplication in onboarding based on the region.

Speaker #7: That's why we say we're confident that will be coming out because there's not only is there a lot of labor, but there's duplication.

Speaker #5: Okay. That makes sense. And then maybe Jason, just thinking of free cash flow here, I think you said in a prepared remarks, it's in line with expectations, but also you mentioned some of the asset purchases slipped into Q1.

Brian Tanquilut: Okay. That makes sense. Maybe Jason, just thinking of free cash flow here, I think you said in the prepared remarks it's in line with expectations. You mentioned some of the asset purchases slipped into Q1. Just curious how we should be thinking about the makeup of free cash flow for the quarter and how we should be thinking about the cadence of it for the rest of the year.

Speaker #5: So just curious how we should be thinking about the makeup of free cash flow for the quarter and how we should be thinking about the cadence of it for the rest of the year.

Speaker #4: Sure, Brian. So for the first quarter, we came right in line. We had guided negative 20 to negative 40. And so at negative 27.5, we were pleased with the cash flow performance.

Jason Clemens: Sure, Brian. For Q1, we came right in line. We had guided USD -20 to -40, and so at USD -27.5, we were pleased with the cash flow performance, despite the additional cost on the P&L. I'd say as we get into Q2, we are signaling a step up in CapEx for Q2 versus where we were 90 days ago. Again, that's to support the capitated arrangement and just ensuring that we've got all inventory locations stocked and fully ready for all new patient volumes that are coming in. That's going to steer Q2 down from what we were originally thinking. We still think we'll be positive for Q2, but it'll likely be modest.

Speaker #4: Despite the additional cost on the P&L. I'd say as we get into Q2, we are signaling a step up in CapEx for the second quarter versus where we were 90 days ago.

Speaker #4: Again, that's to support the capitated arrangement and just ensuring that we've got all inventory location stocked and fully ready for all new patient volumes that are coming in.

Speaker #4: So that's going to steer the second quarter down from what we were originally thinking. We still think we'll be positive for the second quarter, but it'll likely be modest.

Speaker #4: As we get through that normalization of CapEx, we're very confident that the third and fourth quarter will both be very strong. In the neighborhood of $100 million in each.

Jason Clemens: As we get through that normalization of CapEx, we're very confident that Q3 and Q4 will both be very strong, in the neighborhood of $100 million in each.

Speaker #5: Thank you.

Brian Tanquilut: Thank you.

Speaker #3: Thank you. We will move next with Richard Close with Canaccord Generity. Please go ahead, your line is open.

Operator 3: Thank you. We will move next with Richard Close with Canaccord Genuity. Please go ahead.

Operator: Thank you. We will move next with Richard Close with Canaccord Genuity. Please go ahead.

Speaker #6: Yeah, thanks for the question. Congratulations. Just maybe hitting on potential new capitated business going forward. Obviously, a large portion of this most recent agreement was relatively new territory for you.

Richard Close: Yeah, thanks for the question. Congratulations. Just maybe hitting on potential new capitated business going forward. Obviously, a large portion of this most recent agreement was, you know, relatively new territory for you. As you think about, you know, potential announcements of new business, you know, this year, next year, how are you thinking about the level of investment that that's gonna require, you know, for any potential new wins?

Speaker #6: So as you think about potential announcements of new business, this year, next year, how are you thinking about the level of investment that that's going to require for any potential new wins?

Suzanne Foster: I'll begin.

Speaker #7: I would be in.

Jason Clemens: Yeah, you know, Richard, on the, on the investment side, we do see elevated CapEx, particularly as we're starting up the arrangement. The reason for that is if that business is taken or won from an incumbent provider, of course, there's patients that are still in service. You know, there's a CapEx requirement typically to start up the arrangement. There's an ongoing CapEx commitment that is priced right in line with our standard CapEx. Call it 11% to 12% of revenue is what to expect for ongoing operations for those businesses. It does require some startup CapEx to get into the new market.

Speaker #5: Richard, on the investment side, we do see elevated CapEx, particularly as we're starting up the arrangement. is if that business is taken or won from an incumbent provider, of course, there's patients that are still in service.

Speaker #5: So there's a CapEx requirement typically to start up the arrangement. And then there's an ongoing CapEx commitment that is priced right in line with our standard CapEx, so call it 11 to 12 percent of revenue, is what to expect for ongoing operations for those businesses.

Speaker #5: But it does require some startup CapEx to get into the new market.

Speaker #7: And let me address the part about how and where we're looking at this. So this the one we referred to today that our new agreement was primarily in a geography new to us.

Suzanne Foster: Let me address the part about how and where we're looking at this. You know, this, the one we referred to today, our new agreement, was primarily in a geography new to us, which we knew we had to make investment to set up the fixed costs, the locations, et cetera. Obviously, long term, right now, those new locations are only servicing our new strategic partner. Over time, as we stabilize, it'll give us a footprint to expand upon, of course. With the pipeline that we have in place, and now with this new footprint, there's very little area where we don't already have existing locations with teams that know how to do this business.

Speaker #7: Which we knew we had to make investment to set up the fixed costs, the locations, etc. And obviously, long-term, right now, those new locations are only servicing our new strategic partner.

Speaker #7: And over time, as we stabilize, it'll give us a footprint to expand upon, of course. With the pipeline that we have in place, and now with this new footprint, there's very little area where we don't already have existing locations with teams that know how to do this business.

Speaker #7: For example, when we took on the first phase of this new capitated agreement, it was on the East Coast where we had a dense grouping of locations.

Suzanne Foster: For example, when we took on the first phase of this new capitated agreement was on the East Coast where we have a dense grouping of locations. Really, without a blip, we were able to onboard that effectively. So as we consider new capitated agreements, we are looking at where do we have locations or can we buy locations to pick up operations. We expect that it will be a much different and obviously a much smoother than opening up 35 de novo locations to service hundreds of thousands of patients on day one.

Speaker #7: And really, without a blip, we were able to onboard that effectively. And so, as we consider new capitated agreements, we're looking at where we have locations, or can we buy locations to pick up operations?

Speaker #7: And we expect that it will be much different, and obviously much smoother, than opening up 35 de novo locations to service hundreds of thousands of patients on day one.

Speaker #6: Okay. That's helpful. And then just on diabetes, obviously, progress there. Can you talk how you're thinking about diabetes business as we progress through the rest of the year?

Richard Close: Okay, that's helpful. Then just on diabetes, obviously progress there. Can you talk, you know, how you're thinking about diabetes business as we progress through the rest of the year? Any, you know, any updates would be helpful.

Speaker #6: Any updates would be helpful.

Speaker #7: Sure. So we're super happy with the team, positive growth. As I mentioned, I can't applaud them enough for digging in all of the improvement has been on execution.

Suzanne Foster: Sure. We're super, you know, happy with the team, positive growth, as I mentioned. I can't applaud them enough for digging in. All of the improvement has been on execution. We're not seeing anything different in the marketplace. You know, it's pretty much the same in terms of pharmacy and med benefit, referral patterns, all of that. The improvement that the team has made over the last year has been the internal focus on us doing the best job possible. You know, I have said that Diabetes Health, in the past, I've said, first, we gotta fix it, which, check the mark. Two, we're always looking at what in our portfolio is strategically fitting for AdaptHealth Corp.? We'll continue to, you know, review Diabetes Health for strategic fit as we do all our portfolio.

Speaker #7: We're not seeing anything different in the marketplace. It's pretty much the same in terms of pharmacy and med benefit referral patterns, all of that.

Speaker #7: So the improvement that the team has made over the last year has been the internal focus on us doing the best job possible. I have said that diabetes is in the past, I've said first, we got to fix it, which to check the mark.

Speaker #7: And two, we're always looking at do these what in our portfolio is strategically fitting for adapt health. And we'll continue to review diabetes for strategic fit as we do all our portfolio.

Speaker #6: Okay. Thank you.

Richard Close: Okay, thank you.

Operator 3: Thank you. This concludes our Q&A session as well as our conference call. We appreciate your time and participation. You may now disconnect.

Operator: Thank you. This concludes our Q&A session as well as our conference call. We appreciate your time and participation. You may now disconnect.