AdaptHealth Corp. Form 10-K Summary
Business context and reporting period
AdaptHealth provides healthcare-at-home solutions, including sleep therapy, diabetes devices and supplies, respiratory therapy, home medical equipment, and other medical supplies. The filing covers the fiscal year ended December 31, 2023; quarterly data included in the filing provides a fourth-quarter comparison with 2022.
- Serviced approximately 4.1 million patients annually across all 50 states through approximately 680 locations in 47 states.
- Approximately 67% of 2023 revenue came from point-in-time sales and 33% from fixed monthly equipment reimbursements.
- Private payors represented approximately 60% of 2023 revenue; Medicare and Medicaid represented approximately 27%.
Financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net revenue | $3,200.2 million | $2,970.6 million | +7.7% |
| Operating income (loss) | $(598.4) million | $190.4 million | Declined |
| Net income (loss) attributable to AdaptHealth | $(678.9) million | $69.3 million | Declined |
| Basic EPS | $(5.06) | $0.47 | Declined |
| Adjusted EBITDA | $670.8 million | $593.8 million | +13.0% |
| Adjusted EBITDA margin | 21.0% | 20.0% | +100 bps |
| Net cash provided by operating activities | $480.7 million | $373.9 million | +$106.8 million |
| Free cash flow | $143.2 million | $(17.6) million | Improved |
Revenue growth was driven primarily by $217.3 million of non-acquired growth and $12.3 million from acquisitions. Sleep revenue increased 16.4% to $1,241.2 million, and respiratory revenue increased 7.9% to $598.8 million. Diabetes revenue declined 3.9% to $660.0 million because certain payors shifted patients and insulin-pump distribution toward pharmacy channels.
Cost of net revenue was $2,720.6 million, or 85.0% of revenue, compared with 85.9% in 2022. General and administrative expense increased to $190.1 million, or 5.9% of revenue, from $162.1 million, or 5.5%. The resulting operating loss includes an $830.8 million non-cash goodwill impairment charge.
Fourth-quarter 2023 revenue was $858.2 million versus $780.3 million in the fourth quarter of 2022, an increase of approximately 10.0%. The filing text does not provide a clear fourth-quarter net income or operating-income value.
Liquidity, debt and capital resources
- Cash at December 31, 2023 was $77.1 million; working capital was $112.0 million.
- Total debt, net of deferred financing fees, was $2.148 billion, comprising $720.0 million under the term loan and $1.450 billion of senior unsecured notes.
- No revolver borrowings were outstanding; covenant-based revolver availability was approximately $226.2 million, subject to applicable conditions.
- The term loan and revolver mature in January 2026. Senior notes mature in 2028, 2029, and 2030.
- The Company was in compliance with debt covenants at year-end but must make a $13.4 million mandatory excess-cash-flow prepayment, expected by the end of March 2024.
- Interest expense increased to $130.3 million from $109.4 million because of higher interest rates. Management estimates that a 100-basis-point rate change would affect annual pretax income by approximately $5.5 million.
- Capital expenditures were $337.5 million in 2023, and cash paid for interest was $126.2 million.
- The Company believes operating cash flow, existing cash, and available credit will fund operations and growth for at least the next twelve months, although additional financing may be needed for acquisitions or accelerated growth.
Material changes versus the prior comparable period
- Revenue increased 7.7%, while Adjusted EBITDA increased 13.0% and Adjusted EBITDA margin improved to 21.0%.
- Reported profitability reversed from income to a substantial loss primarily because of the $830.8 million goodwill impairment charge, including $318.9 million in the fourth quarter.
- Interest expense increased 19.1% because of higher variable rates, partly offset by lower average borrowings and interest-rate swap benefits.
- Operating cash flow improved 28.6%, and free cash flow moved from negative $17.6 million to positive $143.2 million, principally due to stronger operating cash generation and lower equipment purchases.
- Goodwill declined to $2.725 billion from $3.545 billion after the impairment charge; the Company continues to have substantial goodwill exposure.
- The Company completed acquisitions for approximately $20.1 million of consideration, versus approximately $17.6 million in 2022.
- The Company’s $200 million share-repurchase authorization expired December 31, 2023. Aggregate repurchases under the program totaled $43.3 million, including $29.3 million in 2023.
Guidance, outlook, commentary, risks and unusual items
- The April 2023 cost-management program was substantially complete by year-end. It produced approximately $25 million of 2023 Adjusted EBITDA improvement and is expected to generate approximately $40 million of annualized future improvement. The program cost approximately $14.3 million in 2023.
- No formal revenue, earnings, or cash-flow guidance is provided in the filing.
- CMS reimbursement changes are important: temporary blended Medicare rates in noncompetitive, non-rural areas expired after December 31, 2023, with rates reverting to 100% of the Medicare fee schedule adjusted for inflation. A temporary competitive-bidding gap period began January 1, 2024.
- Key operating risks include payor pricing pressure, reimbursement reductions, audits and documentation requirements, reliance on sleep therapy revenue and a limited supplier base, supply-chain and labor costs, inflation, interest rates, cybersecurity, and integration of acquisitions.
- In February 2024, the Company reported that a third-party provider interfacing with Change Healthcare experienced a cybersecurity incident that disrupted claims processing. The full effect had not been determined as of the filing.
- The Company recorded a $25.1 million pretax expense related to a proposed securities class-action settlement. The proposed settlement includes $17.8 million of Company cash, $32.2 million from insurers, and one million shares; court approval and other conditions remain outstanding.
- A False Claims Act investigation concerning ventilator billing remains ongoing, and the Company stated that its potential effect cannot currently be determined.
- Richard Barasch continued as Interim Chief Executive Officer following the June 2023 resignation of Stephen Griggs; the timing of a permanent CEO appointment was not assured.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2023. Material weaknesses relate to revenue data controls, procurement three-way matching, and inventory valuation. KPMG issued an adverse opinion on internal control effectiveness, although it issued an unqualified opinion on the consolidated financial statements.
Most important facts for investors to verify
- Whether revenue growth, particularly in sleep and respiratory, offsets continuing diabetes-channel migration and payor pricing pressure.
- Progress and measurable savings from the cost-management program, including whether the expected $40 million annualized Adjusted EBITDA benefit is realized.
- Liquidity and refinancing plans for the January 2026 term-loan maturity, including the effect of variable interest rates.
- Remediation of the three material weaknesses and whether future filings receive an unqualified internal-control opinion.
- Potential cash, equity, insurance, and governance effects of the proposed securities settlement and derivative litigation settlement.
- Exposure to additional goodwill impairment given the $2.725 billion goodwill balance and prior market-capitalization decline.
- Financial and operational effects of the Change Healthcare cybersecurity disruption and any related claims-processing delays.
- Outcomes of the False Claims Act investigation, payor audits, Medicare reimbursement changes, and future competitive-bidding rules.