AdaptHealth Corp.

AdaptHealth Corp. (Nasdaq: AHCO) supplies home medical equipment, medical supplies and related services across the United States. Its continuing businesses are Sleep Health, Respiratory Health and Wellness at Home, including sleep-apnea equipment, oxygen and ventilation services, and other equipment used at home.

Revenue comes from supplies, equipment reimbursements and capitated arrangements. Under the latter, AdaptHealth receives a monthly fee for each covered member and bears the cost of the contracted services. That model makes equipment needs, patient utilization and labor costs important to profitability.

Growth with pressure on profit

The continuing loss included a $184.8 million noncash goodwill impairment. Adjusted EBITDA excludes that charge, interest, taxes, depreciation, amortization and selected other items. Revenue and adjusted EBITDA comparisons exclude Diabetes Health in both periods.

Revenue rose 10.9%. AdaptHealth's 12.8% organic growth measure includes newly awarded capitated-contract revenue even when assets were bought from previous providers to serve those patients.

The West Coast partnership's second full quarter brought sequential profitability improvement through lower labor costs and utilization below peak levels. Management says it contributed positively to adjusted EBITDA. Group adjusted EBITDA improved from $132 million in the second quarter but remained below the year-earlier quarter.

Equipment funding and completed transitions

Nine-month operating cash flow fell to $395.6 million from $418.6 million. Cash equipment and fixed-asset purchases rose to $393 million from $278.5 million, leaving free cash flow of $2.6 million versus $140.1 million. Quarterly free cash flow recovered from a $20.9 million second-quarter outflow to positive $51.1 million.

During the first nine months, AdaptHealth completed four transactions with two previous providers to transition patients under newly awarded at-risk contracts. These were accounted for as business combinations, with $127.3 million of cash consideration, including $67.9 million allocated to equipment and $56.9 million to goodwill. The cash-flow statement's separate $127.4 million acquisition payment is outside free cash flow.

Changed forecasts and a pending sale

November's 2026 adjusted EBITDA forecast rose to $510 million–$525 million from August's $490 million–$520 million. Free cash flow fell to $50 million–$75 million from $80 million–$120 million. Both cash forecasts include Diabetes; both profit forecasts exclude it.

August had already lowered the earnings outlook for the Diabetes reporting change, contract transition costs, a manufacturer price increase and other portfolio actions. November's improvement follows that reset. August also identified $60 million of corporate overhead remaining after the Diabetes reporting change, with roughly half expected to be eliminated within 12 months.

The Diabetes sale agreement, signed July 19, calls for $235 million cash, subject to adjustments, from a Cardinal Health subsidiary. Closing is expected in the first quarter of 2027. The antitrust waiting period has expired, but other approvals and closing conditions remain. The business is reported as discontinued operations.

Cash, debt and the next tests

September cash was $80.7 million, versus $106.1 million at year-end. Balance-sheet debt was $1.884 billion, excluding finance leases, versus $1.736 billion. The company was covenant-compliant, with $268.7 million of additional revolving borrowing capacity after existing borrowings and letters of credit.

The next tests are sustaining the contract's profit improvement, converting it into cash after equipment purchases, completing the Diabetes sale and delivering the planned overhead savings.