AdaptHealth Corp. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2021, compared with the same periods in 2020. AdaptHealth provides healthcare-at-home solutions, including sleep therapy, diabetes devices, respiratory services, home medical equipment and related supplies to Medicare, Medicaid and commercial-payor beneficiaries. As of June 30, 2021, it served approximately 3.3 million patients annually through 678 locations in 47 states.
The February 1, 2021 acquisition of AeroCare and other acquisitions materially expanded the consolidated business and limit direct comparability with 2020.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $617.0 million | $232.1 million | $1,099.1 million | $423.6 million |
| Operating income | $65.4 million | $15.6 million | $80.8 million | $23.8 million |
| Operating margin | 10.6% | 6.7% | 7.4% | 5.6% |
| Net income attributable to AdaptHealth | $79.1 million | $4.5 million | $75.1 million | $(30.1) million |
| Basic EPS | $0.56 | $0.10 | $0.56 | $(0.70) |
| Diluted EPS | $0.12 | $0.08 | $0.06 | $(0.70) |
| Net cash from operations | Not separately provided | Not separately provided | $147.6 million | $111.0 million |
Q2 revenue increased 165.8% and six-month revenue increased 159.5%, primarily from acquisitions. Six-month revenue included $717.9 million of point-in-time sales and $381.3 million of fixed monthly equipment reimbursements. The six-month cost of net revenue declined to 80.7% of revenue from 86.4%, while general and administrative expense increased to 9.1% of revenue from 7.4%, reflecting transaction, professional, labor, technology and equity-compensation costs.
- Q2 Adjusted EBITDA was $147.4 million versus $42.6 million; six-month Adjusted EBITDA was $251.6 million versus $73.1 million.
- Q2 Adjusted EBITDA less patient equipment capital expenditures was $98.9 million versus $30.6 million; the six-month figure was $160.8 million versus $48.1 million.
- Six-month investing cash use was $1.372 billion, including $1.293 billion for acquisitions and $79.4 million for equipment and fixed assets.
- Six-month financing cash inflow was $1.303 billion, supported by new debt and equity issuance. Cash increased to $178.2 million from $100.0 million at December 31, 2020.
- Working capital was negative $15.0 million at June 30, 2021, although management stated that expected operating cash flow, cash on hand and available credit were sufficient for at least the next twelve months.
Debt, balance sheet and material changes
- Total debt, net of deferred financing fees, was $1.873 billion at June 30, 2021, compared with $784.7 million at December 31, 2020. Current debt was $96.8 million and long-term debt was $1.776 billion.
- The January 2021 refinancing established an $800 million term loan and a $450 million revolving facility, both maturing in January 2026. Revolver availability was approximately $260.1 million after letters of credit at June 30, 2021; management reported $215.0 million outstanding as of the filing date.
- The company issued $500 million of 4.625% senior unsecured notes due 2029 and had $350 million of 6.125% senior unsecured notes due 2028.
- AdaptHealth prepaid $71.8 million of a 12% promissory note in June and was required to repay the remaining $71.8 million plus a $7.2 million prepayment penalty by September 30, 2021, using cash and/or revolver borrowings.
- AeroCare and other 2021 acquisitions required total consideration of $2.563 billion, including $1.325 billion in cash and $1.236 billion in equity. Goodwill increased to $3.231 billion from $998.8 million.
- The company completed a tax restructuring effective January 2, 2021 and recorded a Tax Receivable Agreement liability of $300.1 million, up from $152.0 million.
Guidance, outlook, commentary and unusual items
The filing does not provide quantitative full-year revenue, earnings or cash-flow guidance. Management’s stated outlook emphasizes continued acquisition-led growth, integration of AeroCare and other acquisitions, and sufficient liquidity to fund operations and growth.
- Results included significant non-cash gains from changes in the fair value of the warrant liability and contingent consideration common-share liability: $37.5 million and $22.1 million, respectively, in Q2 2021, and $40.6 million and $24.0 million for the six-month period.
- Six-month results included $11.9 million of loss on debt extinguishment, including financing-cost write-offs and prepayment penalties.
- COVID-19-related CMS advance-payment recoupment began in April 2021; CMS recouped $15.9 million during Q2, with $33.6 million deferred at June 30. Provider-relief-fund liabilities totaled $10.6 million and may require repayment if reporting or use requirements are not met.
- The Philips Respironics recall of certain ventilator, BiPAP and CPAP devices could create patient, supply-chain, litigation and reimbursement risks; the financial impact was not determinable at filing.
- The former Co-CEO resigned effective June 11, 2021 following a board investigation into alleged personal conduct. The company stated the investigation found no company involvement; related accelerated equity vesting and other costs were recorded.
- Management disclosed two unresolved material weaknesses in internal control over financial reporting involving review controls for non-routine transactions and accounts payable processes. Remediation was underway but not complete.
- A purported shareholder class action filed July 29, 2021 alleges misleading disclosures regarding organic growth and seeks unspecified damages. The filing also describes ongoing government inquiries concerning ventilator billing and AeroCare oxygen-tank billing.
Most important facts for investors to verify
- Whether post-AeroCare organic growth, patient volumes and margins support the reported acquisition-driven revenue growth.
- Integration execution, synergies, valuation assumptions and potential impairment risk associated with $3.231 billion of goodwill.
- Liquidity after the required September 2021 promissory-note repayment, associated $7.2 million penalty and ongoing acquisition spending.
- Compliance with debt covenants and exposure to variable-rate borrowing, LIBOR transition and refinancing risk.
- CMS advance-payment recoupments, provider-relief-fund reporting requirements and potential repayment obligations.
- Status and financial exposure from the Philips Respironics recall, government billing investigations, payment suspensions and shareholder litigation.
- Remediation of the two material weaknesses before the company becomes subject to auditor attestation requirements.
- The degree to which reported earnings depend on non-cash fair-value gains, transaction adjustments and other non-GAAP exclusions.