Analysis AHCO
The equipment bill behind AdaptHealth's lower cash forecast
AdaptHealth's improving contract profit comes with a large equipment bill. We compare the cash and earnings forecasts, the investment behind them and the quarterly recovery.
AdaptHealth raised its adjusted profit forecast while cutting the cash it expects to generate after equipment spending. Its West Coast fixed-fee healthcare partnership is becoming more profitable. Such contracts have also required a much larger investment in patient equipment.
The home medical equipment provider now expects $50 million to $75 million of free cash flow in 2026, down from $80 million to $120 million in August. Its adjusted EBITDA forecast moved higher.
| Measure | August | November |
|---|---|---|
| Adjusted EBITDA | $490–$520 | $510–$525 |
| Free cash flow | $80–$120 | $50–$75 |
Both cash forecasts include the Diabetes Health business awaiting sale. Both adjusted EBITDA forecasts exclude it. Adjusted EBITDA removes interest, taxes, depreciation, amortization and selected other items; free cash flow deducts cash purchases of equipment and other fixed assets from operating cash flow.
Where the cash went
Research by Ticker Byline shows that increased equipment purchases account for about 83% of the $137.5 million year-over-year decline in nine-month free cash flow. Cash purchases of equipment and other fixed assets rose by $114.5 million, while operating cash flow fell by $23 million. Together, those changes reduced free cash flow to $2.6 million from $140.1 million.
AdaptHealth attributes the weaker cash result mainly to patient equipment supporting capitated arrangements. Under these capitated contracts, it receives a monthly fee for each covered member and takes responsibility for the contracted services and their costs. Cash equipment purchases reduce free cash flow immediately, while adjusted EBITDA excludes depreciation.
The company also spent $127.4 million on acquisitions in the first nine months, principally to transfer patients from previous providers under newly awarded contracts. Those acquisition payments sit outside the free-cash-flow calculation.
The third quarter brought a recovery
Quarterly free cash flow rebounded to $51.1 million from a $20.9 million outflow in the second quarter as equipment spending eased. Adjusted EBITDA rose sequentially to $141.9 million from $132 million, though it remained below the year-earlier $146.1 million.
Management says the West Coast capitated partnership contributed positively to adjusted EBITDA, helped by lower labor costs and utilization below peak levels. AdaptHealth was compliant with its debt covenants and had $268.7 million of available revolving borrowing capacity at September 30.
The $235 million Diabetes sale, agreed in July, is still expected to close in the first quarter of 2027, subject to remaining approvals and closing conditions. The immediate test is whether the contract's improving profitability also produces stronger cash after equipment spending. Our AdaptHealth company profile tracks the contract investments, pending sale and debt.