Executive Summary

Q2 2025 delivered stable topline and improved profitability vs Q1: revenue $800.4M (–0.7% YoY), Adjusted EBITDA $155.5M with 19.4% margin, slightly above the high end of Q2 guidance; free cash flow was $73.3M, ahead of internal expectations .
Announced a transformative 5‑year, $1B+ capitation partnership as the exclusive HME provider to a major national health system (10M+ members); once ramped, at least $200M annual revenue at enterprise margins; ramp begins 2026 with exit-2026 annualized run-rate ≥$200M, full service by 2027; a key stock catalyst .
FY25 guidance: revenue maintained at midpoint (narrowed to $3.18–$3.26B), Adjusted EBITDA lowered to $642–$682M on timing of payer rate negotiations and maintaining infrastructure for the new contract; FCF guided to $170–$190M; Q3 revenue ~ $800M and margin 20–21% .
Operational momentum: Sleep new setups highest since Q2’23 recall recovery; Respiratory strength (oxygen census record for a second quarter); Diabetes showed a second consecutive quarter of improving trends, positioning for potential growth in H2 2025 .
Balance sheet de-risking continues: reduced debt by $150M in Q2 and $175M YTD; net leverage down to 2.81x with 2.5x target in sight; OBBA tax law expected to significantly reduce cash taxes, supporting capex for 2026 ramp .

What Went Well and What Went Wrong

What Went Well

Signed a 5‑year exclusive capitation deal (10M+ members), expected to add ≥$200M revenue at enterprise margins once ramped; management: “historic and transformational development” with halo growth potential beyond the core contract .
Execution improved across segments: Sleep new setups reached highest level since recall recovery; Respiratory oxygen census hit a second-quarter record; Diabetes showed improving starts and resupply retention for a third straight quarter, potentially turning positive in H2 .
Profitability and cash flow: Adjusted EBITDA margin of 19.4% came in slightly above the high end of guidance; free cash flow of $73.3M exceeded expectations, with deleveraging progress and net leverage reduced to 2.81x .

What Went Wrong

Revenue declined 0.7% YoY; Adjusted EBITDA and margin contracted YoY (20.5% → 19.4%), driven by Diabetes mix/price pressure and Sleep purchase-to-rental mix shift falling to the bottom line .
FY25 Adjusted EBITDA guidance was cut by $20M due to timing of payer rate negotiations slipping to 2026 and the decision to maintain infrastructure ahead of the capitation ramp; near-term margins pressured .
Policy overhang: CMS proposed adding CGMs and supplies to competitive bidding and reducing the number of contracts; management expects industry cost pressure but believes scale can capture share in a more consolidated landscape .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$856.6	$777.9	$800.4
Diluted EPS ($)	$0.34	$(0.05)	$0.10
Adjusted EBITDA ($USD Millions)	$200.6	$127.9	$155.5
Adjusted EBITDA Margin (%)	23.4%	16.4%	19.4%

Segment revenue (Q2 2025):

Sleep Health: $334.7M (+0.9% YoY)
Respiratory Health: $170.5M (+5.6% YoY)
Diabetes Health: $145.0M (–4.1% YoY)
Wellness at Home: $150.3M (–7.2% YoY)

KPI	Q4 2024	Q1 2025	Q2 2025
Sleep new setups (units)	>120,000 (context)	~113,000	128,000
Sleep census (patients)	1.66M	1.68M	1.70M
Oxygen census (patients)	>330,000	325,000	329,000
Cash from Operations ($M)	$150.4	$95.5	$162.0
Capex ($M)	$77.3	$95.6	$88.7 (11.1% of rev)
Free Cash Flow ($M)	$73.1	$(0.06)	$73.3
Net Debt ($B)	$1.93	$1.96	$1.80
Net Leverage (x)	2.79x	2.98x	2.81x

Note on estimates: S&P Global consensus for Q2 2025 (EPS/Revenue/EBITDA) was unavailable at the time of this analysis. Management reported Adjusted EBITDA margin slightly above guidance (19.4% vs 18.3–19.3% guided for Q2) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($B)	FY 2025	$3.18–$3.32	$3.18–$3.26	Maintained midpoint; narrowed range
Adjusted EBITDA ($M)	FY 2025	$665–$705	$642–$682	Lowered (–$20M midpoint), reflecting payer rate timing and infrastructure ahead of capitation
Free Cash Flow ($M)	FY 2025	$180–$220	$170–$190	Lowered vs Q1 guidance; management characterized as maintained vs most recent internal view
Revenue ($B)	Q3 2025	N/A	~ $0.80	New quarterly guide
Adj. EBITDA Margin (%)	Q3 2025	N/A	~20–21%	New quarterly guide

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024, Q1 2025)	Current Period (Q2 2025)	Trend
AI/Automation & MyApp	Launched MyApp features (self-pay, CPAP self-scheduling); focus on automation/AI to streamline ops .	Scaling MyApp (bill pay, scheduling, status, live assist); using AI to automate intake and calls; drive productivity/capacity .	Expanding deployment and scope .
Capitation Strategy	Extended Humana; added smaller capitation wins; robust pipeline .	Signed 5‑year exclusive deal with national system (10M+ members), ≥$200M/year at enterprise margins once ramped .	Accelerating; step‑change in scale .
Sleep Execution	Some Q1 softness; speed-to-setup plans; share pockets under pressure .	New setups highest since Q2’23; standardized scheduling; fastest setup times; momentum continuing into July .	Improved execution and share recapture .
Diabetes Trajectory	Sequential improvement in starts; best attrition in 2 years; cautious on 2025 growth .	Third straight quarter of improvement; potential to resume growth in H2 2025 .	Turning positive if execution sustains .
Regulatory (CMS/DME)	Stable reimbursement outlook; limited tariff exposure (Nairobi Protocol); some Medicaid CGM channel shifts .	CMS proposed next DME competitive bidding (potentially incl. CGMs/supplies); fewer awardees; industry cost pressure but scale share opportunity .	Policy watch; likely consolidation favors scaled operators .
Taxes/Cash	FCF strong in FY24; leverage to 2.79x; payment-term tailwinds in 2024 unlikely to repeat in 2025 .	OBBA tax law to materially reduce cash taxes (interest limitation relief, immediate expensing), offsetting higher pre-ramp capex .	Structural tailwind to FCF in 2025–26 .

Management Commentary

“We have signed a definitive agreement to become the exclusive provider of home medical equipment and supplies for [a] major national healthcare system… five year term totaling more than $1,000,000,000 of revenue… at adjusted EBITDA margins… in line with our enterprise margins.”
“Q2 new setups were the highest since the recall recovery in Q2 2023, with this strength continuing through July.”
“We reduced our debt balance by another $150,000,000… $175,000,000 year to date… With our net leverage target of 2.5 times in sight…”
“OBBBA… will increase deductible… interest expense… [and] allow immediate expensing… preliminary analysis shows a significant reduction in our cash taxes over the next few years and a related benefit to our free cash flow.”
CFO on contract ramp: “Once fully ramped, we expect the agreement to generate at least $200,000,000 in new annual revenue… revenues to ramp throughout 2026… exit [2026] at least $200,000,000 revenue.”

Q&A Highlights

Capitated contract economics and ramp: Per‑member‑per‑month structure across Medicare Advantage, Medicaid Managed Care, and commercial; exit‑2026 ≥$200M run‑rate; halo effect likely as sales presence expands into new geographies .
Guidance bridge: ~$20M FY25 Adjusted EBITDA reduction driven by timing of select payer rate negotiations slipping to 2026 and maintaining infrastructure ahead of capitation; not related to dispositions (already reflected) .
Competitive bidding implications: Management expects cost pressure but fewer awardees may concentrate volume; scale and operational efficiency (automation, AI, intake) expected to preserve profitability .
Sleep market dynamics: Execution improvements (faster setup, standardized intake) driving new setups and conversion; Q1 softness viewed as one-off with recovery underway .
Diabetes inflection: Starts and resupply retention improving; target to remove “parentheses” (negative) and turn positive in H2 2025 if execution sustains .

Estimates Context

Wall Street consensus from S&P Global for Q2 2025 EPS/Revenue/EBITDA was unavailable at the time of analysis. Management’s Q2 Adjusted EBITDA margin (19.4%) came in slightly above the company’s Q2 guidance range (18.3–19.3%) and Q3 revenue is guided to ~ $800M with 20–21% margin .
Implication: Absent published consensus, investors should anchor to company guidance and trajectory—Q2 profitability modestly ahead of plan; Q3 outlook flattish revenue YoY with margin uplift as Sleep mix impact fades and operational improvements continue .

Key Takeaways for Investors

The new national health system capitation deal is a multi‑year growth engine; exit‑2026 ≥$200M run‑rate with enterprise margins and potential halo wins as AHCO builds out presence—material medium‑term re‑rating catalyst .
Near‑term margin dilution is a deliberate investment choice to pre‑build infrastructure; FY25 EBITDA cut reflects timing and pre‑ramp spend, not underlying demand—watch for 2026 operating leverage .
Sleep momentum and faster setup times suggest share stabilization/improvement; watch conversion and setup cycle time KPIs through 2H .
Diabetes improvement is the swing factor—sustained starts/retention could flip segment to growth in H2, easing the enterprise growth drag .
Balance sheet de‑risking continues (net leverage 2.81x), supported by strong FCF and OBBA-driven cash tax relief—capacity to self‑fund tuck‑ins and ramp capex without levering up .
Policy backdrop (competitive bidding proposal, potential CGM inclusion) may compress industry economics but favors scaled operators; AHCO’s capitation and efficiency initiatives are strategic offsets .
Trading setup: Near‑term overhang from FY25 EBITDA cut may be overshadowed by the magnitude and visibility of the capitation contract; updates on ramp milestones, payer rate wins, and Diabetes inflection are likely stock movers .

Appendix: Additional Quantitative Detail

Segment detail (Q2 2025):

Sleep Health: $334.7M (+0.9% YoY); Sleep setups 128k; Sleep census 1.70M .
Respiratory Health: $170.5M (+5.6% YoY); Oxygen census 329k (second‑quarter record) .
Diabetes Health: $145.0M (–4.1% YoY); improving starts and resupply retention; CGM census up YoY .
Wellness at Home: $150.3M (–7.2% YoY); includes impact from disposal of certain assets .

Sources: Q2 2025 earnings call transcript , Q2 2025 press release and 8‑K (with financials) , Q1 2025 press release and call , Q4 2024 press release and call , partnership press release .

AdaptHealth Corp. (AHCO)·Q2 2025 Earnings Summary