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AdaptHealth Corp (AHCO) Q1 2024 Earnings Call Transcript Highlights: Strong Revenue and EBITDA ...

GuruFocus Research
·4-min read

  • Revenue Growth: 6.4% increase to $792.5 million in Q1 2024 compared to Q1 2023.

  • Adjusted EBITDA: Increased by 18% year-over-year; $158.5 million in Q1 2024, reflecting a margin of 20.0%.

  • Net Revenue: $792.5 million, up 6.4% from Q1 2023.

  • Sleep Revenue: $306.2 million, up 4.0% year-over-year.

  • Diabetes Revenue: $149.3 million, up 2.0% from Q1 2023.

  • Free Cash Flow Guidance: Reiterated at $150 million to $180 million for full year 2024.

  • Leverage Ratio: Target to reduce below three times by end of 2024; Q1 2024 leverage at 3.12 times.

  • Cash Flow from Operations: $49.0 million in Q1 2024, impacted by Change Healthcare issues.

  • Capital Expenditures: $87.9 million, representing 11.1% of revenue.

  • Debt Reduction: Paid $25 million towards term loan balance, reducing to $695 million by end of Q1 2024.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • AdaptHealth Corp reported a 6.2% non-acquired revenue growth and an 18% increase in adjusted EBITDA over the previous year's first quarter.

  • The company successfully reduced its leverage ratios and absolute level of debt, aligning with its financial strategy to de-lever.

  • AdaptHealth Corp's sleep and respiratory product lines continue to deliver strong results, contributing positively to the company's overall performance.

  • The transition of Humana patients is substantially complete, which has started to perform both operationally and financially as initially projected.

  • AdaptHealth Corp has appointed a new CEO, Suzanne Foster, who brings over 25 years of healthcare experience, potentially strengthening the company's leadership and strategic direction.

Negative Points

  • AdaptHealth Corp faced challenges with the Change Healthcare issues, impacting cash flow and necessitating a draw of $75 million on their revolver.

  • The company's diabetes business, despite improvements, still faces challenges and requires further development to fully realize its growth potential.

  • There are ongoing supply chain slowdowns in sleep resupply, which could impact growth and operational efficiency in the short term.

  • AdaptHealth Corp's pump and pump supply categories experienced revenue pressure due to market shifts towards tubeless pumps.

  • The company incurred additional costs due to manual processing required by the Change Healthcare situation, which could affect short-term financial performance.

Q & A Highlights

Q: What's driving the improvement in cost of products by category? A: Jason Clemens, CFO of AdaptHealth, explained that the improvement in cost of products and supplies is significantly better than the previous year due to specific supplier negotiations and product mix changes. The company has completed the 2024 contracting cycle, which is expected to continue delivering improved costs throughout the year.

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Q: Can you provide details on the capitated revenue from the Humana contract? A: Jason Clemens noted that starting in the second half of the previous year, Humana per-member-per-month revenue was reported in a separate category. In Q1, they reported $32 million from Humana, along with revenue from other capitated arrangements. Comparisons to Q1 of the previous year are challenging due to the new reporting category.

Q: What is the expected impact of the Change Healthcare situation on Q2? A: Jason Clemens acknowledged that while the revenue cycle team has mitigated the impact effectively, the back-end costs of processing payments manually due to the Change Healthcare issue are high. These costs are expected to affect Q2 but should dissipate in the coming months.

Q: How does the transition from fee-for-service to capitated arrangements affect organic growth calculations? A: Jason Clemens clarified that capitated arrangements are considered 100% organic or non-acquired, as the company has anniversaried the years of those acquisitions.

Q: What are the expectations for the diabetes segment, particularly with the shift to pharmacy channels? A: Jason Clemens discussed that while the CGM segment performed better than expected, the overall diabetes revenue was in line with expectations. The company is making progress in ramping up its sales force and deploying new technology in resupply operations.

Q: What are the plans for addressing the term loan maturity in January 2026? A: Jason Clemens indicated that the company is actively working with its bank group to consider options for addressing the term loan that will come due in January 2026. They plan to take action this year while continuing to pay down the debt.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.