AdaptHealth Corp Q1 2026 Earnings Call - Largest HME Patient Transition Delivers Revenue Beat, EBITDA Misses on Labor Costs

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

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: 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. 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.

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

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. 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, first quarter 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.

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. 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. 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 two 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 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.

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. 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. 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. 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. 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 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. 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. 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.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: 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. 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. 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. first quarter cash flow from operations of $93.7 million was essentially flat versus the prior year quarter. first quarter 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. 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. 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. The increase reflects the $100 million we drew on 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 2.5 times net leverage.

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, expanding 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.

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 billion-$3.52 billion. This reflects the first quarter 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 million-$730 million and free cash flow of $175 million-$225 million. For the second quarter of 2026, we expect net revenue of $840 million-$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. I’d like to pass the call back to Suzanne for closing remarks.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: 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 Adaptors that worked nights, weekends, overtime, whatever they needed to do to stand up our new capitated partnership. A special thank you to all the Adaptors 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.

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’ll take our first question from Philip Chickering with Deutsche Bank. Please go ahead. Your line is open.

Philip Chickering, Analyst, Deutsche Bank: 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.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: Sure, Philip. This is Jason Clemens. 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’re, we’ll be assuming an entire quarter of capitated revenue growth from this new contract in the second quarter that we will accelerate organic growth.

Philip Chickering, Analyst, Deutsche Bank: Okay. Like you talked about the $8 million of variable labor from the acceleration and $4 million in the right sizing. There’s just a lot more sort of moving parts, and it’s been a little challenging, you know, for Q1 Q to sort of model EBITDA. Can you give us some color on how EBITDA should ramp 2Q and then ramp into 3Q and 4Q just because of all these moving parts around these costs? Thank you so much.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: Sure thing, Philip. In our Q2 guidance, we’re projecting $840 million-$860 million of revenue at an adjusted EBITDA margin of approximately 19%. 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. 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. Certainly as we were exiting March, you know, we had a surge in variable pay, 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, and a lot of questions about how to continue to access their care and how to work with AdaptHealth 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.

Philip Chickering, Analyst, Deutsche Bank: Great. Thanks so much.

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

Kevin Caliendo, Analyst, UBS: Thanks. Thanks for taking my question. I just want to make sure, so 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.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: 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 the first quarter. 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.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: The technology that we’re deploying has been, the goal has been to improve the patient experience and time to therapy. 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 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 we’re underinvested in.

Kevin Caliendo, Analyst, UBS: 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 1Q that was different?

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: 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.

Kevin Caliendo, Analyst, UBS: Great. That’s super helpful. Thank you.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: Got it.

Operator: Thank you. We will take our next question from Ben Hendricks with RBC Capital Markets. Please go ahead.

Michael Murray, Analyst, RBC Capital Markets: 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 AdaptHealth steady-state EBITDA margin over the next 2 to 3 years? Is there a path to low 20% on a sustained basis?

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: 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, 2 key items to note. Firstly, in the 1st quarter, of course, we’ll have a full quarter of capitated revenue versus the 1st quarter of 2026. The variable labor that we discussed and some of the fixed costs that we saw in the 1st quarter, 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 27 and beyond.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: I think just adding on to that, you know, 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 and the 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.

Michael Murray, Analyst, RBC Capital Markets: 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.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: Yeah, 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.

Michael Murray, Analyst, RBC Capital Markets: All right. Thank you.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: Got it.

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

Brian Tanquilut, Analyst, Jefferies: Hey, good morning, guys. Maybe I’ll ask first into the 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?

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: Yeah. You’re talking top line, right, Brian?

Brian Tanquilut, Analyst, Jefferies: Yes. Yeah, yeah.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: 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 first quarter. That’s really why we’re seeing the raise of revenue, particularly in the second quarter, as we’ll experience, you know, the entire quarter with that full revenue flowing. At this point, the contract is fully operational across all eight 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.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: The milestones that we, you know, focused on, remember this was a 3-way transition. All 3 parties had to be ready. Given that the other 2 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 1 region or allocated to 1 phase of go-live, we had to repeat very quickly. We couldn’t use. You know, they were not done onboarding the 1st phase, and we couldn’t use them for the 2nd 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 is there a lot of labor, but there’s duplication.

Brian Tanquilut, Analyst, Jefferies: 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, but also 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.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: Sure, Brian. For the first quarter, we came right in line. We had guided negative $20 to negative $40, and at negative $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 the second quarter 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 gonna 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.

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.

Brian Tanquilut, Analyst, Jefferies: Thank you.

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

Richard Close, Analyst, Canaccord Genuity: 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 in a 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?

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: I would begin.

Jason Clemens, Chief Financial Officer, AdaptHealth Corp: Yeah. You know, Richard Close, 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%-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.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: Let me address the part about how and where we’re looking at this. You know, 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.

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. Really, without a blip, we were able to onboard that effectively. As we consider new capitated agreements, we’re 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 1.

Richard Close, Analyst, Canaccord Genuity: Okay. That’s helpful. 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.

Suzanne Foster, Chief Executive Officer, AdaptHealth Corp: 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, so check the mark. Two, we’re always looking at what in our portfolio is strategically fitting for AdaptHealth? We’ll continue to, you know, review Diabetes Health for strategic fit as we do all our portfolio.

Richard Close, Analyst, Canaccord Genuity: Okay. Thank you.

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