Good day, everyone, and welcome to today's AdaptHealth Second 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'd 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, 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. Please go ahead, ma'am.

Thank you, and good morning, everyone. Thank you for joining our call. Starting with our Q2 2025 results, I'm pleased to report that we delivered another solid quarter. Our second quarter revenue was $800.4 million. Adjusting for revenue disposed through our recent divestitures, revenue was as expected, in line with the second quarter of the prior year. Second quarter adjusted EBITDA was $155.5 million. Our adjusted EBITDA margin was 19.4% at the high end of our guidance range. Free cash flow was $73.3 million in the second quarter ahead of our expectations, and we are on track to meet our free cash flow guidance for FY 2025. Over the past year, we've detailed our efforts to strengthen our foundation and position the company for long-term success. What began as a series of tactical moves that were necessary to stabilize operations has matured into a cohesive plan focused on three levers that drive value: one, accelerating non-acquired revenue growth; two, enhancing profitability; and three, strengthening our balance sheet. And step-by-step and without compromising on our commitment to deliver the best possible patient experience, we are executing to unlock the full value of our enterprise. We are gaining momentum as our progress over this past quarter demonstrates. Starting with non-acquired growth. We are leveraging our organizational strengths to address payer preference and build a pipeline of new capitated arrangements. I'm pleased to announce that we have signed a definitive agreement to become the exclusive provider of home medical equipment and supplies for a major national health care system and across the system's broad network of hospitals and medical offices. The arrangement features a capitation payment model that will cover the system's more than 10 million members across multiple states. The contract is for a five-year term, totaling more than $1 billion of revenue over the term of the contract with adjusted EBITDA margins projected to be in line with our enterprise margins. Also, once ramped, this new arrangement will elevate capitated revenue to at least 10% of our total revenue, increasing our mix of recurring revenue. This new partnership is a clear endorsement of our ability to deliver patient service excellence at scale from a leading managed care organization. Through the RFP process, we were able to demonstrate how our combination of talent, expertise and tech-enabled patient experience aligns with the health care system's innovative approach to serving its membership. Securing this agreement strengthens our conviction that we have a tremendous opportunity to consolidate the market by becoming the most reliable operator in our core market segments. That conviction is rooted in our ability to flex and configure our resources to accommodate whichever payment models a payer prefers for managing their spend, capitated or fee-for-service. Continuing with non-acquired growth, our Respiratory Health segment revenue continued to accelerate, as a result of the sales incentive-based compensation changes introduced earlier in the year, and a streamlined order intake process that reduces the administrative burden on our referring providers. Meanwhile, our Diabetes Health segment delivered a third consecutive quarter of sequential improvement in new starts and a resupply retention rate that once again outperformed the comparable quarters of the past two years. This momentum in underlying business trends, if sustained, would allow us to resume growth in diabetes health revenues, possibly as early as the second half of this year, using what has been a hindrance to enterprise growth. Staying with non-acquired growth, our recent efforts in our Sleep Health segment to standardize scheduling practices and order intake are producing quicker setup times, which have already improved by one-third from the prior quarter. We've given patients greater flexibility to choose the timing and format that best fits their setup needs by offering expanded appointment availability, same-day scheduling and offering in-person as well as virtual setups. As a result, Sleep Health new setups accelerated in Q2 as these efforts eclipse the dynamics that drove lighter new starts in Q1. In fact, Q2 new setups were the highest since the recall recovery in Q2 2023, with this strength continuing through July. Looking forward, the rollout of our standard operating model and the automation of intake, both of which are currently underway, will reduce order cycle time and further accelerate setup times with the goal of becoming the most reliable and convenient in the industry. This brings us to our second topic: enhancing profitability. We are prioritizing initiatives that will drive labor productivity, increase the capacity of our operating assets, expand our adjusted EBITDA margin and amplify returns on our invested capital. We are well into rolling out a standard field operating model across our regions, which will establish a uniform approach for operating our business and delivering care. This model features standardized spans, layers and roles, regional centralization of patient order intake, qualification and scheduling functions and technology solutions that support capacity planning, productivity and patient service consistency. Building on the foundation of our standard operating model, we are advancing a series of initiatives on our three-year road map. We are leveraging technology, including automation and AI to streamline inbound and outbound call handling. These initiatives have the promise of significantly increasing agent productivity. Second, as noted earlier, we are leveraging AI to automate order intake to increase intake efficiency, improve order accuracy and reduce order cycle time. And third, we are scaling myAPP, our self-service mobile-based app that includes a growing list of features, including bill pay, scheduling, order status and live agent assist. In addition to significantly improving patient experience, these three initiatives will substantially reduce manual administrative burden, lessen our dependence on lower-skilled contract labor and create capacity to reinvest in upskilling our workforce for higher-value roles. Importantly, we expect these initiatives to slow the rate of new hiring that would otherwise be required to support the growth of our business. Moving to our third topic: our balance sheet. We continue to make rapid progress. In the second quarter, we reduced our debt balance by another $150 million funded in part with proceeds from divesting certain incontinence assets in May and certain infusion assets in June. In total, we have reduced debt by $175 million year-to-date, and by $345 million over the last six quarters. With our net leverage target of 2.5 times in sight, we will continue to use our substantial free cash flow generation to further delever, driven by the conviction that a more balanced capital structure will reduce financial risk, lower our cost of capital and enhance the long-term value of our equity. I'd like to take a few moments to share our perspective on some of the key developments that are shaping the broader landscape. First, as anticipated in early July, CMS released a proposed rule on home health and DME, detailing new policies for the next round of competitive bidding. CMS has not yet announced the specific time frame for the next bidding round. Based on historical precedent, we believe it is likely that CMS will release the final rule in the third or fourth quarter of this year and that bidding windows could open as early as the first half of 2026 with implementation beginning in 2027. CMS has also yet to release which specific product categories will be included in the bidding program. However, as anticipated, the proposed rule specifically references CGMs and medical supplies, including ostomy and urology, as potential new additions. Additionally, the proposed bidding process appears nuanced and includes some notable methodological changes from prior rounds with CMS soliciting feedback during the 60-day public comment period. With many details still unfolding, the situation remains fluid, and it remains too early to quantify any potential impact. At a high level, the proposed rule seems to prioritize containing costs, which could potentially cause some economic pressure on industry operators. At the same time, the proposed rule also cites an intent to reduce the number of contracts awarded, suggesting that the winning suppliers have an opportunity to capture a greater portion of volume. We believe our scale better equips us to navigate both these dynamics. In the meantime, we're deeply engaged in policy advocacy, working closely with our industry partners, and we are sharply focused on internal preparations. These efforts include a thorough evaluation of proposed rule implications across our four core segments, along with profitability and balance sheet enhancement initiatives I just outlined, which will strengthen our organization regardless of the outcome of the bidding program. Turning to the tax bill signed into law on July 1, known as the OBBBA, we believe this law has several positive implications for our cash tax profile. Among the more impactful aspects, the law indefinitely reinstates a less restrictive interest limitation calculation, which we estimate will increase deductible current year interest expense and accelerate the absorption of pre-2025 interest expense carryovers into tax years 2025 and 2026, all else equal. Additionally, the law allows immediate expensing of fixed assets placed in service. We continue to evaluate the implications of these changes in the tax law, but our preliminary analysis shows a significant reduction in our cash taxes over the next few years and a related benefit to our free cash flow. Finally, we see that deal flow in our industry is picking up. As a leading strategic player, we have seen a notable increase in inbound opportunities over the past few months, and we have completed two small transactions year-to-date. We recognize that mounting external pressures on smaller operators is accelerating conditions for another wave of consolidation. Our approach to M&A continues to be grounded in extreme discipline. Our highly capable corporate development team operates under a clear mandate: every potential acquisition must meet rigorous financial standards, support the targeted expansion of our geographic footprint, and align with our strength in Sleep and Respiratory with meaningful synergies. Should the right opportunity emerge, we will rigorously evaluate it. That said, with our strong free cash flow, industry-leading platform and meaningful opportunity to unlock value by simply maintaining our internal focus, we are operating from a position of strength. We are under no pressure to pursue acquisitions, and we can remain selective and patient. I want to close by thanking the Adapt team for their commitment to serving over 4.2 million patients while preparing to serve millions more as a result of our new partnership. Although this new partnership is the largest in the company's history, we know what to do, and we are committed to executing on our commitments. As today's discussion reflects, we've made meaningful progress and our momentum continues to build. With that, I will turn it over to Jason.

Thank you, Suzanne, and thanks to everyone for joining our call today. After covering our second quarter 2025 results, I'll provide an overview of our new capitated agreement. I'll follow that with the usual review of the balance sheet and our plans for capital allocation and finish up with updates to our guidance for 2025. For second quarter 2025, net revenue of $800.4 million declined 0.7% compared with $806.0 million in the prior year quarter. Excluding revenues associated with certain infusion assets that were sold in June, revenue was largely flat versus the prior year quarter meeting our expectations. In our Sleep Health segment, the current year quarter included approximately $8 million of impact from the previously disclosed changes in the mix of purchase revenue versus rental revenue. In our Wellness at Home segment, as previously announced, we sold certain incontinence, infusion and custom rehab assets that would have otherwise generated an estimated $20 million in the second quarter. Second quarter, Sleep Health segment net revenue increased 0.9% versus the prior year quarter to $334.7 million, which included the noncash impact I just mentioned. Sleep Health starts were approximately 128,000, our highest quarter in two years, and our Sleep Health census was 1.7 million patients, up from 1.68 million in the prior quarter. Second quarter, Respiratory Health segment net revenue increased 5.6% from the prior year quarter to $170.5 million. We continue to see strong oxygen starts and our oxygen census of 329,000 patients was a new second-quarter record. Second quarter Diabetes Health segment net revenue declined 4.1% versus the prior year quarter to $145.0 million. As Suzanne noted, we continue to see signs that the segment is recovering driven by improvement in starts and resupply retention. Although volume growth was offset by payer mix shift, it is important to note that CGM census grew over the prior year quarter for the second consecutive quarter. For the Wellness at Home segment, which includes all of the product categories, second quarter net revenue declined 7.2% from the prior year quarter to $150.3 million, including the previously mentioned impact of the dispositions of certain non-core assets. Turning to profitability, second quarter 2025 adjusted EBITDA was $155.5 million. Adjusted EBITDA margin of 19.4% declined from 20.5% in Q2 2024 but was slightly above the high end of our Q2 guidance range. The year-over-year trend 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 Q2 2025, cash flow from operations was $162 million. CapEx of $88.7 million was 11.1% of revenue, up slightly to support growing momentum in patient starts, particularly in our Sleep Health and Respiratory Health segments. Free cash flow was $73.3 million, ahead of our expectations. Unrestricted cash stood at $68.6 million at the end of the quarter. As of quarter end 2025, net debt stood at $1.8 billion, down from $1.96 billion at the end of the first quarter. And our net leverage ratio stood at 2.81 times, down from 2.98 times at the end of the first quarter and tracking steadily toward our target of 2.5 times. We reduced our TLA balance by $150 million in Q2 2025 and funded primarily with proceeds from the dispositions discussed earlier. Our capital allocation priorities remain unchanged. We continue to prioritize investing to accelerate non-acquired growth and debt reduction to strengthen our financial position. These priorities are followed by strategic acquisitions of home medical equipment providers to round out our geographic footprint and increase patient access. To that end, we acquired two tuck-in HME businesses on June 1. Both were previously owned by health systems that we are very pleased to be partnering with in support of their communities and our new patients. Turning to expectations for our new capitated partnership. This agreement fundamentally strengthens our competitive position by accelerating our expansion into new geographies and providing an opportunity to scale our sales force, amplifying the impact of this historic and transformational development. Once fully ramped, we expect the agreement to generate at least $200 million in new annual revenue and an adjusted EBITDA margin in line with our enterprise margin and to be accretive to our return on invested capital. We expect revenues to ramp throughout 2026. In advance of that ramp, we need to install considerable infrastructure to support a contract of this magnitude. This includes new locations that need to be outfitted and stocked. Hundreds of vehicles must be procured, registered and customized, and over 1,000 new employees must be recruited, trained and ready to go in advance of go-live dates. The contract was signed very recently, so the detailed planning is now underway. Although we have good estimates for the investments required to support the contract, the specific timing of those investments will get nailed down over the next few months. The infrastructure will ramp between now and the end of the first quarter of 2026, and the revenue will start two to three months after. We also expect a material investment in patient equipment CapEx, potentially before the end of 2025. However, we expect to at least offset this with lower cash taxes as a result of the OBBBA. Moving to guidance for full year 2025, we are maintaining the midpoint of our revenue guidance with a narrower range at $3.18 billion to $3.26 billion. We are reducing our adjusted EBITDA guidance to a range of $642 million to $682 million. In anticipation of supporting the forthcoming capitated arrangement, we feel it is prudent to maintain infrastructure expenses that we were originally planning to reduce. Additionally, certain payer rate negotiations, which are still ongoing, are expected to push into 2026. Despite the revised adjusted EBITDA guidance range, we are maintaining our free cash flow guidance at a range of $170 million to $190 million. For Q3 2025, we expect revenue to be approximately $800 million, largely flat versus Q3 2024. Keep in mind, the prior year quarter included approximately $30 million of revenue from certain disposed assets as well as approximately $6 million from the noncash impact of the revenue mix shift from purchases to rentals in our Sleep Health segments. We expect an adjusted EBITDA margin of approximately 20% to 21%. That brings me to the end of my remarks. Operator, would you kindly open up the call for questions?

There was a lot to take in regarding the capitated deal, so I wanted to clarify the $200 million, which is the minimum annual revenue. Is this expected to grow over time? Is it calculated simply based on the number of patients in that health system over time? Are there any inflation adjustments? Additional details on how this revenue might increase and when it will reach full productivity and revenue capture on a monthly basis would be very helpful. I may also have a couple of follow-up questions.

Understood. We will collaborate on this. Yes, your understanding is correct. We plan to initiate our first patient in Q1, and the process will gradually increase. There are multiple regions and states we will be addressing in a systematic manner. You can expect this growth to serve over 10 million patients throughout 2026, with a full operational service expected by 2027. This is why 2026 will serve as a year for ramping up. The subsequent four years will see more stable operations based on the membership we cater to. I will have Jason explain further details on how to project this.

Yes, Eric, you are correctly thinking about the core agreement. It is generally a per member per month type of agreement, similar to our contract with Humana and other capitated arrangements that we manage at Adapt. I understand you inquired about potential growth. We are not projecting at least $200 million in revenue or expecting growth in these figures. However, we recognize that there is a positive impact associated with these capitated arrangements. Our public competitors have mentioned the challenges posed by our Humana award and other business activities. It makes sense to believe that as we deploy sales staff into these currently underserved areas, we are building the necessary infrastructure to support what we consider a significant contract, which will enable us to handle even more. Therefore, it is reasonable to expect that the numbers could increase over time. That said, we want to provide what we believe is a very clear and conservative estimate with this award.

And then if I could, just a couple of quick follow-ups. So to be clear, with the contract ramping and starting in '26, through '26, are you anticipating at least $200 million in '26 or was that more of a 5-year average?

Yes. Think of it as our exit of '26. We're quite confident we'll be at least $200 million. The first patient shows up at the beginning of the year, and that will ramp over the first half into early third quarter. By Q4, we should be exiting at least $200 million of revenue.

So, if we have a minimum of $200 million a year and at least 10 million patients, that would suggest a capitated rate of about $1.67 a month, based on my quick calculations. If there are more patients, that could reduce the monthly figure to around $1.50. Is that the correct way to think about the per patient per month revenue stream?

Yes. And that is a different structure than, for example, our Humana contract, which was Medicare Advantage HMO only. Different patients and different cohorts like commercial, as an example, they have very, very different utilization history and patterns, and that's been factored in.

We go next now to Pito Chickering of Deutsche Bank.

Just one question on the EBITDA guidance or change of down $20 million for the year. Can you break out the impact from the divestitures versus investing in the new capitated deal versus anything else on the core side?

Yes, Pito, this is Jason. Sure. So I mean, it's really two factors that are driving the $20 million change to adjusted EBITDA. It's not related to the disposition of assets. I mean, we accounted for that last piece when we announced about two months ago, I guess, 1.5 months ago, when we announced the last deal, and we adjusted guidance accordingly for that. So it's unrelated to dispositions. So the two factors are a little more than half of that is the timing of certain payer rate negotiations. We have literally dozens of payer rate negotiations going on at any time in the company. We got a couple of larger ones that we are working very hard at, but that timing is slipping. We expect, however, to pick that up in '26. So you can think of it as kind of an easier comp in '25 and more to come in '26. The rest of that is infrastructure. We talked about people, technology, locations, vehicles, we were working through, as you'd expect, this time of the year, we work through ways of tightening up the middle of the P&L. We decided that given the magnitude of this win we're going to stay put. I mean we think we need everything we've got plus some. So that's accounting for the rest of that. So again, kind of timing impacted. I mean if you just think of the magnitude of this win, and what it's going to take to stand it up. Although we are lowering our expectations for '25, I mean '26 obviously just went up in a big way.

Okay, fair enough. And then for the follow-up, looking at ResMed sales in the U.S. this quarter as a comp, there's nothing difference between what you guys did this quarter versus what they did. So we talk about new scheduling and order intake and new starts accelerating, can you help us bridge sort of what the market growth was, I think, in the U.S. this quarter and where your share went and when the new starts that are increasing begin flowing through into growing at market growth rates?

Well, I think it depends on how you define market growth rate. I mean if you're anchoring to ResMed's U.S. device number, I believe they were around 7%. And of course, that includes volume as well as rate on their side of the equation. I'd say for us, if you look at our starts, 128,000 that we talked about, that's up 3% over the prior year. And so we were very pleased with that. We think there's more to get as our time to set up is decreasing and our access and ability for patients to have their preference and how they get set up continues to improve; we're feeling pretty good in the second half about continuing the strength of momentum in Sleep starts.

And we'll start to see a full quarter as we move into Q3 of the changes that we've implemented really taking hold. So like we talked about in the Q1 report out, those things were just kind of being identified and then they were ramped into Q2. Now we'll have the benefit going forward of starting to see that full quarter execution of those changes we made.

We'll go next now to Brian Tanquilut of Jefferies.

Maybe, Suzanne, I have a question about competitive bidding. As we consider the proposal from CMS and the changes to the diabetes reimbursement structure, I'm curious about your thoughts on this and how you're strategizing regarding pricing dynamics and discussions with suppliers. Do you think you can pass on some of those potential adjustments to the suppliers, and what are those discussions like?

Yes, sure. I think in terms of just stepping back, I mean, it's hard to speculate. We don't have a ton of information yet. But like I said, the intent of driving down costs while also consolidating providers, I think, is a unique opportunity for scale players like Adapt. I mean, we already are the kind of best cost option, if you will, given our scale. And the work that we're doing in the middle of the P&L, particularly in Diabetes to remove the people administrative burdens. We're implementing technologies and kind of streamlining that business, I think, will prepare us for a future where we have to perhaps potentially sacrifice some rate but be able to keep the profitability of that business. So we are confident that with additional volume and the work that we're doing that we should weather the storm very well on that front. In terms of our work with these manufacturers, yes, there are conversations going on, of course, about how we partner in this new world. And so those conversations, I mean, I'm not going to go into much detail, but there is a partnership mentality about how do we make sure that the HME channel for these technologies stays alive and profitable. And so there will be a partnership approach to entering into the new world of competitive bid if CGM goes in that direction.

I appreciate that. And then maybe, Jason, just to follow up on maybe some of Pito's question. As I think about some of the comments you made last quarter about some challenges and share losses you were seeing at local market levels in the Sleep business. Just curious if you can share with us any updates on what you're seeing in those markets? And broadly speaking, if you're seeing improvement or incremental degradation in share.

Yes, we are definitely seeing improvements, Brian. It's mainly related to the speed of setup. We've reduced the lag time significantly from the moment a patient is diagnosed to when they receive their CPAP. There’s still more progress to be made, but we are confident we can continue to reduce this setup time and enhance our conversion rates. When we provided our outlook for Q1, it was based on the understanding that we had solid plans and expected to recover any shortfalls. However, we wanted to ensure we were prepared just in case we did not see the expected outcomes later in the year. It's clear now that Q1 was an anomaly, and we are experiencing strong growth again, which we anticipate will continue.

We'll go next now to Ben Hendrix of RBC Capital Markets.

This is Michael Murray on for Ben. I was hoping you could expand on the M&A environment. Where are you seeing the opportunities? Any specific business lines? What do valuations look like? And what leverage level would you be comfortable going to for the right acquisition?

Yes. I'll start with just saying that what we're seeing is really across the board of all sizes of players out there. We've had some inbounds around small regionals and some indications that there are some larger assets coming to the market. What I can say is, like I said earlier, is what we're particularly interested in is staying within our core competencies of Sleep and Respiratory, which a lot of these assets are focused on; that would be the type of assets that we're reviewing and looking at to see if it strategically fits for some reason, for example, gives us pockets of the geography where we may be light or something else that it brings to us that we would benefit from. So we're being extremely disciplined. And we think the broader market dynamic, like we talked about with competitive bid on the horizon and the shrinking of potential number of providers in addition to even just additional capitated type arrangements coming our way, does put pressure on the industry. And so we would welcome assets that add to the strength and strategic position of Adapt. I'll turn it over to Jason for comments on valuation and how we think of that.

Yes. I think the industry is well aware of our trading multiple and that of our competitors. Therefore, it's reasonable to expect that any acquisitions we consider would be at a lower multiple than what we've seen, allowing for synergies. Regarding your question about leverage and the extent to which we would pursue an acquisition, I believe that at this moment, we would not. We are confident that if we identify more acquisition opportunities than initially planned, we can fund those entirely through free cash flow. In fact, during the first year of ownership, we would aim to reduce our leverage.

Okay. That's really helpful. Just a follow-on. So I appreciate the color on the Diabetes. The performance, I think, was better than expected in the quarter. How should we think about Diabetes revenue in the back half of the year, and should we expect year-over-year declines to turn positive by year-end?

Yes. Like we stated, there is real momentum going on there. Not only are they adding new patients; that's translating into better retention rates in our resupply business. So I couldn't be prouder of the team and how quickly they've turned this business around. So we, like I said, if the momentum continues and the execution continues as we're seeing, we do expect that business to, as I say, remove the parenthesis around the growth number and turn positive in the back half of this year. So it's on the right path forward, and it really does come down to our execution, which, as I said, the team is currently delivering very well on.

We'll go next to John Penny with Canaccord Genuity. John, your line is open. It seems we lost John. Ms. Foster, it looks like we have no further questions this morning, so I’d like to turn the conference back to you for any closing comments.

Well, again, I want to thank everyone for joining us today. It's been an exciting quarter as hopefully you can see. I mean, we continue to just one brick at a time, I think, turn the business into something that is really starting to show how the size and scale of what we've put together matters. This is a historic contract that we're announcing today that will basically transform our business, provide a future of a lot of growth and a lot of patients that we have to go after to serve. And all of the hard work that the team has done over the last year towards improving the middle of the P&L will begin to really start to show those sprouts are sprouting. So I appreciate everyone of support over this past year, and I look forward to delivering next quarter and the quarter after our progress on how we're preparing for a big 2026. Thank you again.

Thank you very much, Ms. Foster. And again, thank you, everyone, for joining us today for AdaptHealth's Second Quarter 2025 Earnings Release. That does conclude today's conference call. We ask you all to disconnect at this time, and have a wonderful day. Goodbye.