AdaptHealth Q1 Earnings Call Highlights

Key Points

• AdaptHealth completed the largest patient transition under a new capitated agreement, boosting capitated membership roughly 7x to about 15 million and producing $74.9 million of capitated revenue, but the accelerated onboarding drove $12 million of elevated labor costs and left adjusted EBITDA about $7 million below guidance.
• The company reported $819.8 million of Q1 net revenue (+5.4% y/y) and 9.1% organic growth — led by Sleep Health (+13.3%) — with capitated revenue representing about 9.2% of consolidated sales.
• AdaptHealth refinanced with a $1.1 billion credit package that lowered borrowing costs and expanded revolver capacity, ended the quarter with net leverage of 3.0x (target 2.5x), and raised full‑year revenue guidance by $10 million while maintaining adjusted EBITDA and free cash flow targets, expecting capitated revenue and cash flow to strengthen later in the year.

AdaptHealth NASDAQ: AHCO executives highlighted a major patient transition tied to a new capitated agreement, early milestones in technology initiatives, and a recently completed debt refinancing as key developments during the company’s first quarter 2026 earnings call.

Capitated agreement drives revenue outperformance, but pressured margins

Chief Executive Officer Suzanne Foster said the company completed “the largest patient transition in the history of home medical equipment,” moving “hundreds of thousands of active patients” onto AdaptHealth’s platform under a new capitated agreement. She said the company established 35 de novo locations and is now the exclusive home medical equipment provider for “more than 10 million new members,” with capitated membership increasing “seven times year-over-year to about 15 million.”

Foster said the accelerated timeline contributed to revenue landing ahead of internal expectations, but also came with higher operating costs. She said AdaptHealth maintained “heavier-than-planned labor costs to ensure a responsible transition,” totaling $12 million of elevated labor expense in the quarter, including $8 million of variable labor used to accelerate the transition and $4 million of higher wages and benefits that the company expects to decline as it rightsizes.

Chief Financial Officer Jason Clemens said capitated revenue totaled $74.9 million in the quarter and “outperformed our expectations as we met go-live dates for a new agreement faster than we originally anticipated.” Both Foster and Clemens said key contract metrics—covered membership count, revenue per member, utilization, and product costs—were in line with expectations.

First quarter results: organic growth led by Sleep Health and the new contract

AdaptHealth reported first quarter net revenue of $819.8 million, up 5.4% from the prior-year quarter. Foster said revenue exceeded the midpoint of guidance by roughly $22 million. On an organic basis, the company delivered 9.1% year-over-year growth; Foster said about 500 basis points came from the new capitated contract and roughly 400 basis points from the base business, with positive organic growth across all four segments.

By segment, Foster reported:

• Sleep Health: Net revenue of $358.5 million, up 13.3% year-over-year, with PAP new starts reaching “another new record.”
• Respiratory Health: Net revenue of $178.1 million, up 7.6%, with oxygen new starts up 12.8%, despite what Foster described as a “very mild flu season.”
• Diabetes Health: Net revenue of $142.2 million, up 2.4%, with Foster citing strength in resupply and improvements tied to talent, process, and technology investments.
• Wellness at Home: Net revenue of $141.0 million, down 10.3% reported due to $35.8 million of disposed revenue from non-core asset exits during 2025. After adjusting for dispositions, Foster said the segment delivered 11% organic growth.

Capitated net revenue represented 9.2% of consolidated revenue in the quarter, according to Foster.

Adjusted EBITDA was $121.2 million, which Clemens said was about $7 million below guidance, with an adjusted EBITDA margin of 14.8%. Management attributed the shortfall primarily to the elevated labor and benefit costs tied to the accelerated patient onboarding.

During the Q&A, Clemens said the company’s core business growth excluding the new capitated contract was “a little over 4%.” He also said the company expects capitated revenue to accelerate in the second quarter because Q2 will include “an entire quarter of capitated revenue growth from this new contract.”

Technology milestones, with financial benefits expected later

Foster said AdaptHealth’s AI-enabled and patient-facing digital initiatives reached “meaningful milestones” during the quarter and are beginning to improve operating metrics.

She said the company’s conversational AI platform moved beyond pilot mode and in Q1 handled live calls across “sleep scheduling, our contact center, and resupply use cases.” Foster added that scheduling that was entirely manual a year ago is now “25% touchless,” and that order conversion times have “shortened materially.” She also said the company’s patient portal, myAPP, crossed 412,000 users in Q1.

However, management indicated the profit contribution from technology is not expected to be immediate. Foster said the “financial benefit from implementation of technology will be back half of the year, but really more of a 2027 story,” noting the company has been reinvesting benefits into areas where it had been underinvested.

Cash flow, capital spending, and balance sheet updates

Cash flow from operations was $93.7 million, essentially flat year-over-year, Clemens said. Free cash flow was negative $27.5 million, which management said was in line with expectations, driven by $121.2 million of capital expenditures tied to equipment and inventory purchases supporting the new capitated agreement.

Clemens said AdaptHealth expects capital expenditures to normalize as the capitated arrangement moves to steady-state operations, with free cash flow improving in the back half of the year. In the Q&A, he said the company expects a step-up in CapEx in Q2 versus prior expectations to ensure inventory is stocked across locations, which could keep Q2 free cash flow “modest,” but he said the third and fourth quarters should be “very strong,” around $100 million in each.

On the balance sheet, Clemens said the company ended the quarter with about $48 million of unrestricted cash and net debt of approximately $1.84 billion. Consolidated net leverage rose to 3.0x from 2.75x in Q4 2025, reflecting a $100 million revolver draw tied to acquiring certain assets from a home medical equipment provider for total consideration of $84.7 million to support the new capitated arrangement. Clemens said AdaptHealth intends to pay down the revolver and remains committed to its 2.5x net leverage target.

In April, the company refinanced its senior secured credit facility with a $1.1 billion package 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. Clemens said the refinancing lowered the weighted average cost of debt and expanded revolving capacity. He said the delayed draw facility is intended to be used to redeem the company’s 2028 notes after the call premium expiration in August 2026.

Clemens also said that after quarter-end, AdaptHealth disposed of its remaining custom rehab assets as part of its continued portfolio focus on sleep, respiratory, and related categories.

Guidance raised on revenue; profitability and cash flow outlook maintained

Management raised full-year 2026 net revenue guidance by $10 million to a range of $3.45 billion to $3.52 billion, reflecting first-quarter outperformance partially offset by revenue from the custom rehab disposition. The company maintained full-year guidance for adjusted EBITDA of $680 million to $730 million and free cash flow of $175 million to $225 million, citing efforts to moderate labor costs related to the capitated arrangement.

For the second quarter, AdaptHealth forecast net revenue of $840 million to $860 million and an adjusted EBITDA margin of approximately 19%. Clemens said that implies “a little over $160 million of EBITDA” for Q2, driven by a full quarter of capitated revenue and the expected decline in transition-related labor costs.

On payer dynamics, Foster said sleep apnea coverage remained stable in the quarter and that she did not see changes on the horizon. Foster also said the company’s pipeline for additional capitated agreements remains active and “promising,” adding that investors “should expect that we’ll be coming out with an announcement … soon.”

About AdaptHealth NASDAQ: AHCO

AdaptHealth, Inc operates as a leading provider of home medical equipment (HME) and related services in the United States. The company focuses on delivering respiratory care, mobility solutions and bathroom safety products to patients with chronic and acute medical needs. Through its comprehensive service offerings, AdaptHealth aims to enhance quality of life and clinical outcomes for patients who require long-term support outside of a hospital setting.

The company's respiratory portfolio includes products such as continuous positive airway pressure (CPAP) devices, oxygen concentrators, ventilators, and associated supplies for patients with sleep apnea, COPD and other pulmonary conditions.

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