AdaptHealth Corp. — FY2021 Form 10-K Summary
Business context and reporting period
AdaptHealth provides healthcare-at-home solutions, including sleep therapy, diabetes devices and supplies, respiratory equipment, home medical equipment, oxygen therapy, and other medical supplies. The filing covers the fiscal year ended December 31, 2021, with quarterly information including the fourth quarter. The company served approximately 3.8 million patients annually through 757 locations in 47 states and employed approximately 10,700 people.
Revenue mix was approximately 67% point-in-time sales and 33% fixed monthly equipment reimbursements. Private insurers generated approximately 61% of revenue, while Medicare and Medicaid generated approximately 28%.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $2.455 billion | $1.056 billion | +132.4% |
| Grant income | $10.6 million | $14.3 million | Decrease |
| Operating income | $225.6 million | $71.3 million | +216.2% |
| Operating margin | 8.8% | 5.3% | +350 basis points |
| Net income attributable to AdaptHealth | $156.2 million | $(161.6) million | Improved by $317.8 million |
| Basic diluted earnings per share | $1.12 / $0.67 | $(3.08) / $(3.08) | Returned to profitability |
| Adjusted EBITDA | $565.9 million | $205.6 million | +175.2% |
| Adjusted EBITDA less patient equipment capex | $366.9 million | $142.5 million | +157.5% |
| Net cash provided by operating activities | $275.7 million | $195.6 million | +41.0% |
Cost of net revenue was $2.009 billion, or 81.8% of revenue, compared with 85.1% in 2020. The improvement primarily reflected scale and lower vendor pricing. General and administrative expense was $167.5 million, or 6.8% of revenue, compared with 8.5% in 2020; it included $47.9 million of transaction costs, $18.0 million of equity-based compensation, and $2.4 million of severance. Reported results also included $95.2 million of net interest expense, $20.2 million of debt-extinguishment losses, and non-cash gains of $29.4 million and $53.2 million from changes in the fair values of contingent consideration shares and warrants, respectively.
Fourth-quarter net revenue was $702.1 million, compared with $348.4 million in the fourth quarter of 2020. The filing does not provide a clear fourth-quarter net income value in the supplied text.
Material changes versus the prior comparable period
- AdaptHealth acquired AeroCare on February 1, 2021 and completed acquisitions involving 23 companies for aggregate consideration of approximately $2.9 billion, compared with approximately $914 million for 22 companies in 2020. AeroCare contributed approximately $1.005 billion of post-acquisition 2021 revenue and was the principal driver of reported growth.
- Goodwill increased to $3.513 billion from $998.8 million, largely due to acquisitions. Identifiable intangible assets increased to $202.2 million from $116.1 million.
- Cash used in investing activities increased to $1.825 billion, including $1.620 billion for acquisitions and $203.3 million for equipment and fixed assets.
- Patient equipment capex increased to $199.0 million from $63.1 million, reflecting the larger operating base and higher fixed-monthly reimbursement mix.
- Operating cash flow increased, but cash receipts were affected by CMS recoupment of $36.7 million of prior advance payments during 2021.
- The company completed a tax restructuring effective January 2, 2021, causing AdaptHealth Holdings to become taxable as a corporation and increasing reported income tax expense.
- The company adopted ASC 842 lease accounting, recording $91.5 million of operating lease obligations at adoption and ending 2021 with $151.6 million of operating lease liabilities.
Debt, liquidity and capital resources
- Cash and cash equivalents were $149.6 million at December 31, 2021, compared with $100.0 million at December 31, 2020.
- Working capital was $170.2 million, compared with a $58.8 million deficit in 2020.
- Debt principal totaled approximately $2.235 billion before deferred financing fees, consisting of $785.0 million under the term loan and $1.450 billion of senior unsecured notes. Carrying debt, net of deferred financing fees, was $2.204 billion.
- The company issued $500.0 million of 4.625% notes due 2029 and $600.0 million of 5.125% notes due 2030. It also repaid the $143.5 million New Promissory Note, which carried a 12% interest rate, incurring $16.2 million of prepayment penalties.
- The $450 million revolving facility had no borrowings outstanding at year-end; availability, net of $14.9 million of letters of credit, was $435.1 million.
- Management stated that expected operating cash flows, existing cash, and available credit were sufficient to fund operations and growth for at least the next twelve months. The company was in compliance with debt covenants at December 31, 2021.
- Debt maturities include $20.0 million in 2022, $35.0 million in 2023, $40.0 million in 2024, $40.0 million in 2025, $650.0 million in 2026, and $1.450 billion thereafter.
Outlook, risks, contingencies and unusual items
- No specific quantitative revenue, earnings, or margin guidance is provided in the filing. Management expects continued growth through acquisitions, market expansion, technology integration, and operating efficiencies.
- The Philips Respironics recall materially constrained ventilator, BiPAP, and CPAP supply. Management estimated that the recall reduced 2021 revenue by approximately $40 million to $45 million, primarily in the fourth quarter, and warned of potential litigation, regulatory costs, replacement obligations, and continuing shortages.
- COVID-19 continued to affect elective procedures, labor availability, supply chains, demand, reimbursement policies, and cybersecurity. CARES Act provider relief income was $10.6 million in 2021 and remains subject to HHS reporting, audit, and possible recoupment.
- CMS recoupable advance payments remaining deferred at year-end totaled $12.8 million. Deferred employer FICA taxes totaled $8.6 million, of which $4.3 million was paid in January 2022 and $4.3 million remained payable after December 31, 2022.
- Key reimbursement risks include private-payor pricing pressure and contract termination, Medicare and Medicaid reimbursement changes, documentation and medical-necessity audits, prior authorization requirements, and future competitive bidding.
- Goodwill was $3.513 billion, and the company warned that a sustained decline in market capitalization could trigger an interim impairment assessment and potentially a material non-cash charge. No goodwill impairment was recorded for 2021.
- KPMG issued an unqualified opinion on the consolidated financial statements but an adverse opinion on internal control over financial reporting. Management identified material weaknesses involving insufficient accounting and control resources, ineffective risk assessment, process-level controls, and information-technology general controls. Acquired AeroCare, Spiro, and Community Surgical Supply, representing $342.8 million of assets and $718.0 million of revenue, were excluded from the year-end control assessment.
- Pending matters include an ongoing federal ventilator-billing investigation, an AeroCare oxygen-billing investigation involving alleged False Claims Act violations, a securities class action, and a shareholder derivative action. Management believes these matters will not have a material adverse effect, but states that outcomes are uncertain. A $5.1 million Solara data-breach settlement liability was recorded with a corresponding indemnification asset.
- The company had a $300.3 million Tax Receivable Agreement liability at year-end. Payments generally equal 85% of realized or deemed realized tax benefits and could accelerate or exceed actual cash tax savings in certain circumstances.
Most important facts for investors to verify
- Whether post-AeroCare organic growth, revenue retention, and profitability support the reported 2021 growth once acquired revenue is separated.
- The sustainability of the 2021 margin improvement after excluding CARES Act grant income, non-cash fair-value gains, acquisition effects, and other unusual items.
- Current Philips recall exposure, product availability, patient replacement obligations, litigation, and any revenue or cost effects beyond the $40 million to $45 million 2021 estimate.
- Debt leverage, interest-rate exposure under LIBOR-linked borrowings, refinancing needs beginning in 2026, and compliance with financial covenants.
- Collection trends, implicit price concessions, accounts receivable quality, and the effect of CMS and private-payor audits or recoupments.
- Progress and independent validation of remediation of the material weaknesses in internal control, including controls over acquired businesses and the new enterprise resource planning system.
- Goodwill impairment sensitivity, particularly given the disclosed post-year-end decline in market capitalization.
- Potential cash payments under the Tax Receivable Agreement and whether future distributions from subsidiaries will be sufficient to fund those obligations.