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    Adapthealth Corp (AHCO)

    Q2 2024 Earnings Summary

    Reported on Feb 19, 2025 (Before Market Open)
    Pre-Earnings Price$10.97Last close (Aug 5, 2024)
    Post-Earnings Price$10.85Open (Aug 6, 2024)
    Price Change
    $-0.12(-1.09%)

    What went well

    • Strong Performance in Sleep Business Without Supply Constraints: AdaptHealth expects no supply constraints impacting their Sleep business for the rest of the year and confirms having the necessary products to meet patient demand. This indicates confidence in continued growth and strong performance in this segment.
    • Outperformance and Market Leadership in Respiratory Segment: Respiratory revenue continues to outperform expectations, driven by new sales and the impact of the Humana contract. The company now holds the highest market share in respiratory equipment, overtaking competitors and showing robust growth in this key segment.
    • Confidence in Diabetes Segment with Anticipated Q4 Growth: Despite shifts in reimbursement channels and market dynamics, AdaptHealth maintains a solid relationship with key partners like Dexcom and feels confident about its full-year guidance. The company anticipates a significant sequential revenue increase in the Diabetes segment from Q3 to Q4, similar to prior years, indicating strong expected performance.

    What went wrong

    • Declining Diabetes Revenue: Diabetes revenue declined by $17.7 million in Q2 2024 compared to the prior year, with first-half revenue down $13.2 million, worse than expected due to patients delaying new pump starts and reimbursement shifts to pharmacy channels.
    • Challenges with Reimbursement Shifts: The shift of some payers to 100% pharmacy reimbursement for diabetes products is causing operational challenges, requiring AdaptHealth to adapt its infrastructure and obtain additional pharmacy licensing, potentially impacting revenues and margins.
    • Potential Impact of GLP-1 Therapies: While currently no notable difference is observed, the increasing prescription of GLP-1 therapies (up to 12% of surveyed patients) could potentially reduce adherence and resupply demand for sleep apnea products in the future, posing a risk to revenue growth.

    Q&A Summary

    1. Non-Core Asset Sales
      Q: What are your plans regarding non-core assets?
      A: Suzanne Foster stated they are evaluating the portfolio to focus on sleep disorders, respiratory, and diabetes, potentially divesting assets not supporting these areas. Jason Clemens added they are considering selling "no growth to low growth" products and may discuss details next quarter.

    2. Diabetes Revenue Guidance
      Q: How do you view the trajectory for pumps and CGMs in the second half?
      A: Jason Clemens noted pump revenue lagged due to CGM compatibility timing but expects recovery in Q3. They anticipate a top-line compression of $15 million to $20 million, likely closer to $20 million. For CGMs, they are on track with expectations and feel "pretty good" about the second half.

    3. EBITDA Guidance
      Q: How do heightened investments affect EBITDA guidance?
      A: Despite key investments of a couple of million in compensation and technology in Q3, Jason Clemens said they feel "very good about delivering on the full year numbers". The sale of a business reduces revenue by $15 million for the rest of the year with about zero EBIT impact.

    4. Respiratory Market Share
      Q: What's driving growth in the respiratory segment?
      A: Jason Clemens reported being "thrilled with respiratory," attributing growth to new sales and the Humana contract. Market share data shows they've "overcome everybody in market share for respiratory," including oxygen and non-invasive ventilation.

    5. Sleep Supply Constraints
      Q: Are sleep product supply constraints resolved?
      A: Jason Clemens confirmed supply issues from May have improved. "We do look good on supply across all products as we stand here today," and they have the products needed to meet patient demand.

    6. Capitated Revenue Growth
      Q: Should we expect more capitated contracts like Humana?
      A: Jason Clemens stated they have a pipeline of incremental cap deals and intend to grow their share of cap deals. They have dedicated sales staff focused on cap deals and will announce new agreements when secured.

    7. Sales Force Alignment
      Q: Are there changes planned for the sales teams?
      A: Suzanne Foster is considering aligning the commercial organization more holistically to capture referrals for patients with comorbidities like diabetes and sleep disorders. She believes they can "do more with our current sales organization".

    8. Pharmacy Channel Expansion
      Q: How are you handling the shift to the pharmacy channel in diabetes?
      A: Jason Clemens explained they are expanding pharmacy operations, citing Louisiana Medicaid switching to 100% pharmacy reimbursement. They've established licensing and are actively selling to state Medicaid and MCOs.

    9. Equipment Rental Outlook
      Q: Any changes to your equipment rental outlook?
      A: Jason Clemens mentioned their rental census "bottomed in February" and has been increasing since. They're feeling "very solid on the rental line for sleep" with a "modest improvement in outlook".

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