Good day, everyone, and welcome to today's AdaptHealth First Quarter 2025 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 the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding financial results for 2025 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, and adjusted EBITDA margin, 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.

Good morning everyone, and welcome to our call. Amid elevated uncertainty in the external environment, we at AdaptHealth have stayed the course with a relentless focus on improving our business and providing exceptional service to the 4.2 million patients that depend on us. Reflecting that focus in Q1 2025, we delivered another quarter of solid results, and we continue to make progress on several areas of focus. Starting with our results. First quarter revenue exceeded the midpoint of our guidance range by $13.1 million, despite declining 1.8% from the prior year quarter. This was driven by stronger than anticipated revenues in our Respiratory Health segment, as well as in our Diabetes Health segment, which while still contracting, continued to demonstrate signs of improvement. First quarter adjusted EBITDA was in the upper half of our guidance range, despite declining 19.3% from the prior year quarter, while our adjusted EBITDA margin was in line with our expectations at 16.4%. Free cash flow was negative $0.1 million in the first quarter, compared to negative $38.9 million in the prior year quarter. Importantly, we remain on track to achieve our free cash flow guidance for the full year. Over the last several months, we have been reviewing and refining our long range growth plan. This work confirms that we have a tremendous opportunity to deliver consistent, sustainable, organic growth by simply staying on course with our current strategy. Our plan has been and will continue to be, to remain focused on our four core segments, and to combine our geographic reach and operational scale, with industry-leading patient service excellence to capture market share. The addressable markets within our four segments are large, and we believe are growing in aggregate by mid-single digits, driven by meaningful tailwinds. These include an aging U.S. population, increasing prevalence and diagnosis of the chronic conditions our services and products help treat, and the ongoing shift to home healthcare, which is expected to outstrip the growth of overall healthcare spending by roughly 200 basis points over the next decade. Even as the industry leader in our markets, we still have a significant untapped opportunity for organic growth. We are addressing this opportunity from a position of competitive strength. We have the broadest geographic footprint in the industry, with over 660 locations, serving 4.2 million patients across all 50 states. Our expansive geographic reach and operational scale uniquely position us to lead the transformation of the home health industry. This is most clearly demonstrated in the opportunities we are addressing in managed care and with large health systems. We believe payers and providers will increasingly turn to AdaptHealth to leverage our scale and industry-leading adherence programs as part of their efforts to better predict and manage healthcare costs and drive better health outcomes for patients. These dynamics are fueling our growing pipeline of active discussions around new capitated arrangements, especially as payers look to AdaptHealth for help managing utilization inside their expanding Medicare Advantage businesses. Despite our competitive advantages, we haven't yet realized our full organic growth potential, but that is well within our grasp. We have brought together a group of exceptional leaders; we have scrutinized our workflows to pinpoint our most meaningful organic growth levers, and we are enabling the organization to activate these levers through the discipline of our Adapt Operating System, and a set of targeted initiatives. The common thread running through these initiatives is a commitment to patient service excellence, which means delivering superior quality with speed at a competitive cost to serve. One example is the process improvement we are introducing to improve CPAP order conversion. Our operations team has been working hard to automate intake, streamline referral documentation, optimize scheduling capacity to reduce setup delays, and enhance patient communications. These initiatives will help us convert more referrals to orders. They will also meaningfully improve the patient experience by expediting their access to the critical therapies they need, and ultimately, a better patient experience will help us drive increased census and revenue growth. Delivering patient service excellence at scale is how we will win. Our industry remains highly fragmented, with service levels that vary widely and often fall short of expectations. We have an immense opportunity to take market share. Capturing that opportunity doesn't require major incremental investments. It also doesn't require capital-intensive M&A. It simply requires being the best operator in the markets we already serve. Which brings me to our Diabetes Health segment. We cannot deliver enterprise-level organic growth that meets or exceeds market growth if our Diabetes Health segment is underperforming. I'm pleased to say the Diabetes Health team has continued to execute on its plan to enhance our processes, and we continue to see positive signs that the steps they've taken are yielding results. Notably, we had a second consecutive quarter of sequential improvement in new starts, and our resupply attrition rate was the best we had experienced in two years amid a period of significant supply chain disruption. I would like to take a moment to commend the entire Diabetes team for ensuring that our patients continue to receive their diabetes supplies during this disruption, and for exceeding our internal forecast. It's still early, but the dedication of our Diabetes Health team, and the progress they've made are increasing our confidence that the segment will return to growth, removing a key obstacle to delivering accelerated, consistent, and sustainable organic growth across our overall business. Moving on to another core focus, we continue to strengthen our financial position. During Q1, we reduced our debt balance by another $25 million, bringing total debt repayment to $195 million over the last five quarters. Further, we continue to exit non-core product lines, generating additional proceeds that are earmarked for debt reduction while enabling us to sharpen our strategic focus. Specifically in May, we completed a transaction to sell certain incontinence assets to a third-party, and we signed a definitive agreement to sell certain infusion assets to a third-party. Before I close, let me take a moment to address the concerns surrounding the potential impact of international trade policy on operators in the healthcare industry, including AdaptHealth. Clearly, the situation is fluid, but based on what we know today, we believe our exposure to tariffs is contained, and the impact on our business is likely to be very manageable. We have consulted with each of our major manufacturing partners to verify their production locations and to gather their perspectives on the potential impact of tariffs. There have been no indications from these discussions that tariffs are likely to pose a significant issue, and several of our large partners have referenced tariff exemptions in their public remarks. To date, we have not experienced any tariff surcharges, nor have we initiated any contract renegotiations because of tariffs. Given our current inventory levels, we do not anticipate any potential impact from tariffs to materialize before the second half of the year at the earliest. Given these considerations and our current assessment of the risks, we do not currently believe it is necessary to adjust our 2025 guidance for any potential impact of tariffs. In summary, the team delivered another quarter of solid results. We continue to improve our financial position by paying off our debt. The organization is laser-focused on driving service excellence at scale to deliver consistent, sustainable, organic growth. And our Diabetes business demonstrated further signs of improvement. While we are monitoring the risks of government policy, we believe these risks will be manageable, and moreover, we won't let them distract us from the critical work we are doing to organize, execute, and improve day after day and quarter after quarter. With that, I will turn it over to Jason.

Thank you Suzanne, and thank you everyone for joining our call. Today, I'm going to cover our first quarter 2025 results. I'll follow that with a review of our balance sheet and our plans for capital allocation, before finishing with guidance for 2025. For first quarter 2025, net revenue of $777.9 million, declined 1.8% versus the prior year quarter, which had one additional business day. Net revenue was $13.1 million above the midpoint of our Q1 guidance range, driven by the combination of strong volumes in our Respiratory Health segment, and stronger than anticipated Diabetes Health segment revenues, more than offsetting Sleep Health segment revenues that fell modestly shy of our expectations. First quarter, Sleep Health segment net revenue decreased 2.8% versus the prior year quarter to $316.4 million. We previously referenced a $30 million full year headwind related to the non-cash impact of changes in the mix of purchase revenue versus rental revenue. As anticipated, approximately half of that impact came in the first quarter. Sleep Health new setups, which are typically seasonally lower in the first quarter of the year, were approximately $113,000, slightly behind our expectations. Despite the later new setups, our Sleep Health census grew to 1.68 million patients, up another 19,000 sequentially. Our Q1 2025 CPAP survey indicates that the percentage of respondents using GLP-1s to manage diabetes or weight loss was up slightly to 15.7% in Q1 2025 from 15.3% in Q4 2024. Our survey continues to show an immaterial difference in adherence and resupply ordering patterns between GLP-1 patients and non-GLP-1 patients. First quarter Respiratory Health segment net revenue increased 3.3% versus the prior year quarter to $165.5 million. We saw stronger than anticipated oxygen new setups, fueled by stronger field sales during an especially severe flu season. Our oxygen census of 325,000 patients was a new first quarter record. First quarter Diabetes Health segment net revenue declined 8.0% versus the prior year quarter, to $138.8 million. While revenue contracted, as Suzanne mentioned, we continue to see signs the segment is recovering. New starts improved sequentially for the second consecutive quarter, and our first quarter attrition rate was the lowest we experienced in two years. For the Wellness at Home segment, which includes all other product categories, first quarter net revenue increased 0.7% over the prior year quarter to $157.2 million as growth in volumes offset revenue disposed with the sale of certain custom rehab assets in the third quarter of 2024. Turning to profitability. First quarter 2025 adjusted EBITDA was $127.9 million, slightly above the midpoint of our Q1 guidance range. Adjusted EBITDA margin of 16.4% declined from 20.0% in Q1 2024, but was within our Q1 guidance range. This reflected the combination of lower revenue and gross margins in our Diabetes Health segment, and the anticipated impact of changes in the mix of purchase revenue versus rental revenue in our Sleep Health segment, all of which fell to the bottom line. Moving to cash flow, balance sheet, and capital allocation. For Q1 2025, cash flow from operations was $95.5 million. CapEx of $95.6 million was 12.3% of revenue, in line with our expectations. Free cash flow was negative $0.1 million as certain cash collections anticipated in the first quarter were pushed into the second quarter. Unrestricted cash stood at $53.7 million at the end of the quarter. As of quarter end 2025, first quarter, net debt stood at $1.96 billion, and our net leverage ratio was 2.98 times, up from 2.79 times at the end of the last quarter as a result of lower adjusted EBITDA. We've been using free cash to reduce debt, and we reduced our TLA balance by $25 million in Q1 2025. As Suzanne mentioned, in early May, we completed a transaction to sell certain incontinence assets to a third party, and we signed a definitive agreement to sell certain infusion assets to a third party. Between these sales, which will generate further proceeds for debt reduction and our expectations for free cash flow generation in 2025, we are steadily tracking toward achieving our target of 2.5 times net leverage. Our capital allocation priorities remain unchanged. Our highest priorities are investing to accelerate organic growth and reducing our debt to further strengthen our financial position, followed by strategic acquisitions of home medical equipment providers to round out our geographic footprint and increase patient access. Turning to guidance. We are reducing our full year revenue expectations by $40 million, and our full year adjusted EBITDA expectations by $5 million to reflect the disposition of certain incontinence assets in early May. There are no other changes to our guidance. As Suzanne discussed earlier, given our current understanding of tariff policy, and based on the indications provided by our manufacturers, we expect that any impact of tariffs on our 2025 results is likely to be manageable, and we do not currently believe it is necessary to adjust our full year guidance for tariffs. For full year 2025, we now expect revenue of $3.18 billion to $3.32 billion, and adjusted EBITDA of $665 million to $705 million. Our revised revenue and adjusted EBITDA guidance implies an adjusted EBITDA margin of approximately 21%, in line with our prior expectations. Our free cash flow guidance range remains unchanged at $180 million to $220 million. For Q2 2025, we expect revenue to be largely flat versus Q2 2024 revenue of $806 million. Notably, the prior year quarter included approximately $22 million of revenue from certain disposed assets, as well as approximately $8 million from the non-cash impact of the revenue mix shift from purchases to rental in our Sleep Health segment. We expect an adjusted EBITDA margin of 18.3% to 19.3%, down from 20.5% in Q2 2024, reflecting the flow-through to the bottom line of the items just discussed, and lower revenues in Diabetes Health. We continue to expect to generate approximately a third of our full year free cash flow in the first half. In summary, we are on track to achieve our revenue, adjusted EBITDA, and free cash flow guidance for 2025, and we're making good progress on our balance sheet. As we enhance operational effectiveness and advance key initiatives, we are confident that we are building momentum in the business. That brings me to the end of my remarks. Operator, would you kindly open up the call for questions?

Thank you very much. We'll take our first question from Brian Tanquilut with Jefferies. Please go ahead.

Good morning. This is Meghan Holtz on for Brian. Thank you for taking my question. Can you guys just provide some additional color in terms of improvement that you're seeing in the Diabetes business? You mentioned you were going to potentially see modest growth in the pumps. Did that come through? And then some signs of improvement in CGM? And then just a quick follow-up to your comments on guidance. Is the change in guidance only for the incontinence asset sale and not the infusion asset sale?

Hey, Meghan. This is Jason. Good morning. I'll take the second one first. Yes. The guidance change is exclusively for the disposal of certain incontinence assets. Although, we expect to close the infusion deal in the second quarter, we're going to withhold any comments on that until the deal is closed, similar to our previous policy on all M&A and dispositions. Regarding diabetes, you asked about pumps, we did see positive movement in our pump business. So that was great news, showing some growth over the first quarter of 2024. And in addition, within CGMs, we spoke of a second sequential growth quarter in new starts, which is very good news, as we start stringing those together and as we manage our retention rates at record levels, we're confident that the turnaround in diabetes is happening.

Thank you.

We'll go next to Pito Chickering with Deutsche Bank. Please go ahead.

Hey. Thank you, guys. So first question here is looking at the new starts to Sleep, I guess, can you sort of dig in more into sort of what you're seeing there? Is this a market issue or is it market share issue? Are you guys losing share? And if so, is there anything you can do to pivot in order to fix those issues?

Sure, Peter. Good morning. So firstly, we had a decrease of a couple of thousand starts, which isn't a significant figure. However, we felt it was important to mention since it's our largest business. This isn't due to an external factor; we are confident about this based on various data. In some regions, we are underperforming. We need to improve our speed and effectiveness in those areas. Our Commercial and operations teams have set detailed plans to address this gap. We remain confident in our full-year guidance provided last quarter. Overall, things are progressing according to plan. In our portfolio, some assets are slightly up while others are a bit down, but we feel positive about the full year.

Okay. Great. And then, the follow-up is just on the 2Q guidance, just to make sure that I heard that right, you're talking about flat revenue year-over-year, margins of 18.3% to 19.3%. So that would get to sort of 18.8% at the midpoint, which is about $150 million plus of EBITDA, I think, for 2Q. I guess, is that what I heard right? And if so, as you think about sort of the back half ramp on the new implied guidance, just sort of how do we sort of transition from 1Q, 2Q? And how do we get into sort of the back half of the year ramp? Thank you.

Sure, Pito. So I guess I'd say, firstly, that keep in mind that Q2 of last year included almost $30 million of revenue that was either disposed or was not impacted by the shift of purchase to rental revenue. And so, I think the underlying growth rate of 3% to 4% is really an important factor to keep in mind. Now that said, the $8 million that we called out of the change from purchase to rental revenue, I mean, that's all bottom line impact. And so that's pushing a point of adjusted EBITDA compression year-over-year. And then secondly, we're going to continue to see lower diabetes revenue. And so that's impacting us there to the tune of a couple of million dollars as well, although we're feeling pretty hopeful about the future diabetes in the short-term. As we think about the rest of the year, there is an implied ramp in our guidance. Now a lot of that ramp is the $30 million of top and bottom line impact in our Sleep business that we had talked about, the change of purchase to rental revenue, and all of that is bottom line impact. We said that about half of that we experienced in Q1, and then that would compress in Q2 to the tune of about $8 million in Q3, it'll come down quite a bit further and run out in Q4. So that is something that is just unusual in the year, but it is contributing to a second half ramp.

All right. And then the last quick one here. Can you just refresh us on the Nairobi Protocols, price you could sell that don't fit within the Nairobi Protocols from a tariff perspective? Thank you.

Yeah. Sure. So it gets pretty nuanced, the Nairobi Protocol and the definition of products intended to treat the chronically disabled. And so many products, I mean, you've heard from some of our public manufacturers, whether it be CPAPs or sleep devices as well as oxygen and ventilation as well as DME. I mean many of these products are part of the Nairobi Protocol and are excluded from tariffs. As it relates to our diabetes products, again, the nuances in the treatment of diseases as opposed to being more diagnostic in nature. And so, when a CGM is used with a pump, as an example, that's really part of that full delivery system to treat diabetes for CGMs that are not used with pumps. I mean, our understanding is that that's more of a diagnostic or therapeutic device that is not accounted for in the Nairobi Protocol. However, both of our public CGM manufacturers have reported here over the last two weeks or so. And both have talked about significant manufacturing onshore here in the United States and very manageable tariff expectations on their end. We've had open dialogue with all these manufacturers, and we're feeling very comfortable with no tariff impact in our guidance for '25.

Great. Thanks so much.

Thank you. And next, we'll go to Eric Coldwell with Baird. Please go ahead.

Thanks. I have a couple, and I'll just start with following on that last line of the Q&A. At a conference in March, you highlighted the $10 million potential AOY impact in fiscal '26 for tariffs. And then, of course, Liberation Day hit and that might have changed the outlook. There's been a lot of moving pieces. But I'm curious, if you have any updated thoughts on what you think your exposure may be in fiscal '26? And then I'll follow up with one or two others. Thanks.

Yeah, Eric. I don't think we're able to change that number today. If anything, we could potentially lower it, based on new information about Nairobi and who's covered. Several manufacturers received letters from Homeland Security and Customs that clarified their classification regarding Nairobi, and many of these notifications came in early April, after we made our comments in March. So, at this point, I can't say much about '26, except that we're feeling somewhat more optimistic than we were when we made those earlier comments.

That sounds great. Happy to hear it. On the next question is, did I hear you say that this quarter's revenue also faced a year-over-year headwind from selling days?

Yes, correct. And we had that pegged at about $8 million. The rental revenue we earn as well as the PMPM for capitated revenue isn't really going to be impacted by the number of days in the month. It's the sales revenue. So if you take roughly $0.5 billion of sales revenue in the first quarter, that full day impact is about $8 million.

Perfect. And are there any other selling day comps to be aware of, in the fiscal year, the next three quarters?

Not from a day perspective. There's a little in and out in terms of when weekends fall and when holidays fall, but nothing that we call out for it.

Thank you. Next, we'll go to Kevin Caliendo with UBS. Please go ahead.

Good morning. Thanks for taking my question. There was a bit of a step-up in CapEx in the quarter. Is that in any way related to tariffs or was that you buying machines expected to ramp in demand?

It's respiratory, Kevin. So we've had outperformance in Respiratory on account of increased sales during a heavy flu season. And then, we've got those patients that will continue on census, that they've been diagnosed with underlying COPD or other advanced respiratory conditions. So it's really a function of profile.

Okay. That's helpful to know. On the Sleep side, the numbers were disappointing. I hear your comments about it. Is there any change in the competitive dynamics there? Do you think you lost market share or anything like that? Like, what's happening in the Sleep market right now broadly? And how are you positioned within it relative to how you were six months ago or a year ago?

Yeah. I'd say in a handful of states, we need to do a little better job. I mean it's really as simple as that. It's nothing big picture that's happening. It's really within a handful of states. Our competitors are getting an edge on us. We need to be faster. We need to sell a little more and pull a little more through on conversion, and we got detailed plans to address that.

Fantastic. Thanks guys.

Next, we'll go to Ben Hendrix with RBC Capital Markets. Please go ahead.

Thank you very much. I wanted to follow up on the Sleep question. Are there opportunities in some of the struggling markets to invest in and acquire competitors to potentially mitigate some of the challenges and competitive pressures? Thanks.

Yeah, Ben. I guess we qualify that as an astute question. We do have some M&A under LOI. Again, if we're able to close those deals, we'll talk about it when we execute on that. And if we close those deals, we'll update guidance accordingly. But certainly, in the markets where we're falling a little short on Sleep as well as all other markets. I mean there's plenty of opportunity out there. But as we said, there's no change to our capital allocation priorities. We're going to stay focused on some modest tuck-in activity. So you'll expect to continue to see that throughout the course of the year.

Great. Thanks for that. And just a quick follow-up also on the tariff commentary in your conversations with some of your suppliers, I guess, are you or are they doing anything pre-emptively in order to kind of pull forward any kind of inventory to kind of pre-emptively manage any expected headwinds or is it just kind of business as usual from a supply perspective? Thanks.

Business as usual.

Next, we'll go to Mathew Blackman with Stifel. Please go ahead.

Hey, guys. You had a really strong quarter in Diabetes. I was just wondering where exactly the strength is coming from. You guys talked to a bit of pump growth, but curious on the CGM side, if you did see any uptick in basal adoption. And going forward, what your expectations are for the supply environment in that business, given we heard some of Dexcom's comments earlier this earnings season. Thanks.

Sure. Pumps, I mean, recall, that's a pretty small part of our Diabetes business, but we did see some growth there. So that helped it to the tune of a couple of million dollars within the quarter. Regarding your basal question, we're not seeing any big bend in the trend for basal, either setups or utilization. In terms of kind of what we've focused on, and where we're pressing our energy, I mean, Suzanne may weigh in with a few comments there.

Yeah. In terms of the Diabetes team, I mean, it just goes back to good old-fashioned leadership and execution. I think we have a really good team in place that has dug in, understood the business, and have gotten things organized, and they're executing much better than they were a few quarters ago. We're also appropriately leveraging technology where it matters. We still have human in the loop, but we're definitely deploying technology that's helping. And then in terms of our Commercial team, they have just been out there and doing a much better job with better focus, not only as a diabetes sales team, but they're leveraging our entire HME sales force. So it's just more people out there talking about One Adapt in our approach to patient service.

Got you. Thank you.

Thank you. And next, we'll go to Whit Mayo with Leerink Partners. Please go ahead.

Hey, thanks. Good morning. Suzanne, just on that topic of One Health or One Adapt and just the various initiatives you have, any new elements of that strategy you'd care to share as you think about 2025 and any improvement we may see in operations as a result of that focus?

Thank you, Whit. Regarding One Adapt, for those unfamiliar with our journey, this organization was formed through numerous acquisitions. Clearly, our strategy of scaling has been effective over the past few years. The entire leadership team is now committed to achieving further scale. This begins with the fundamental aspects, such as our brand identity; we want to present ourselves as AdaptHealth rather than using multiple names. We have substantial legal and tax work ahead to simplify our entity structure, which will decrease operational costs. There's significant internal organization happening. Looking ahead to 2025 and 2026, we're evaluating how to reach the maximum number of patients. Our commercial team is collaborating effectively, engaging with major accounts, including managed care and large health systems, showcasing our full range of products and capabilities. This effort is gaining traction, and we anticipate it will contribute to additional growth in the latter half of the year and particularly into 2026.

No, that's helpful. And maybe just spend a second on Humana and just sort of how that's tracking versus your assumptions. And I felt like you were referencing maybe an increased level of confidence on expanding some new payer relationships. So just wanted to unpack that a little bit more.

Sure. So our Humana relationship, in the performance is as expected, continues to be a bright spot for us. We're very, very happy with that relationship and our performance under that contract. And yes, we are – like, I said last quarter and this quarter, our pipeline of additional opportunities is growing, and not only growing but moving down the pipeline. So, we are optimistic that we're going to continue to move in that direction. We think it's the right thing for patient service and for overall healthcare economics. So we're making great progress, and we expect to have continued good news on that front.

And our last question comes from John Pinney with Canaccord Genuity. Please go ahead.

Hi. Yeah. John Pinney on for Richard Close. Thanks for the question. I guess one quick one from me. So I get the incontinence assets sold, that's the only thing that's factored into guidance as far as changes from the divestitures. Can you just give us a sense of, you called out $100 million annualized revenue last quarter for things to be divested. So I guess what percentage of that is the incontinence assets? And is there anything still left to be considered or to be divested this year or is it really just the incontinence assets and the infusion? Thanks.

Hey, John. This is Jason. So, if you annualize the guide down for the incontinence sale, you get to about $60 million. So, I think that answers your question on the approximate revenues. Again, if we get to the point that we're able to sell certain home infusion assets, we'll update the full guide accordingly. In terms of, are there other assets we're working on, the answer is no. I mean, certainly, we'll continue to manage the portfolio, as you'd expect, investing to grow margins everywhere we can and investing to grow top line everywhere we can. But for now, we feel after we get through these dispositions that we've got a great total addressable market in each of the four segments that we operate in, and a lot of opportunity in front of us, both organically and inorganically.

Great. Thank you.

And that concludes our question-and-answer session, and concludes today's program. We thank you for your participation. You may disconnect at any time.