AdaptHealth Corp. (AHCO)·Q3 2025 Earnings Summary

Executive Summary

• Q3 revenue was $820.3M and adjusted EBITDA was $170.1M, with adjusted EBITDA margin at 20.7%; organic revenue growth was 5.1%, the highest since Q1 2024 .
• Management maintained FY25 guidance (revenue $3.18–$3.26B; adjusted EBITDA $642–$682M; FCF $170–$190M), but expects EBITDA at the low end due to prudent upfront investments to stand up a large capitated contract .
• Balance sheet strengthening continued: $50M debt reduction in Q3, $225M YTD; net leverage improved to 2.68x vs 2.81x in Q2, approaching the 2.5x target .
• Strategic catalysts: (1) new exclusive capitated agreement with a payer (170k lives) and (2) major national healthcare system capitation announced in Q2; the latter expected to contribute ≥$200M annual revenue when fully ramped and elevate capitated revenue mix to ≥10% over time .

What Went Well and What Went Wrong

What Went Well

• Organic revenue growth of 5.1% across all four segments; CEO called Q3 a “milestone quarter” with “strong financial results that exceeded our expectations” .
• Sleep new starts ~130k (highest in two years); sleep census reached a record 1.72M; respiratory oxygen census reached 330k (3Q record) .
• Rapid deleveraging: net leverage fell to 2.68x; $225M YTD debt reduction; operating cash flow robust at $161.1M for the quarter; FCF $66.8M .
• Digital traction: myApp registered users grew to 271k vs 118k in Q3 2024; early AI/automation benefits (e.g., ~5% reduction in offshore labor reliance in revenue cycle) .

Quoted management remarks:

• “Q3 was a milestone quarter for AdaptHealth… The quarter demonstrated both the progress we've made and the significant opportunity ahead.” — CEO Suzanne Foster .
• “Adjusted EBITDA margin was 20.7%… up 30 bps YoY… even as we made forward investments in talent, technology, and infrastructure.” — CFO Jason Clemens .

What Went Wrong

• Wellness at Home revenue fell 16.0% YoY due to prior dispositions of non-core assets; segment mix still normalizing .
• Diabetes: CGM starts were softer than expected; while segment returned to YoY growth (+6.4%), payer mix and execution remain in focus to sustain momentum .
• Sleep: oxygen new starts were lower than anticipated; execution in certain geographies remains a focus, albeit census and starts metrics improved overall .
• FY25 adjusted EBITDA likely at the low end of guidance due to accelerated investments for the large capitated arrangement and timing slippage in certain payer rate negotiations; potential cash collection delay into Q1 2026 from government shutdown .

Financial Results

Comparison to prior year (Q3 2024 actuals for reference):

• Q3 2024 revenue $805.9M; adjusted EBITDA $164.3M; adjusted EBITDA margin 20.4%; diluted EPS $0.15 .

Estimates vs actuals:

• S&P Global consensus (EPS, revenue, EBITDA, target price, recommendation) was unavailable for Q1–Q3 2025 and FY25/FY26 at the time of retrieval; therefore, Street comparison cannot be shown in tables. Values retrieved from S&P Global were unavailable.

Segment Breakdown

KPIs

Guidance Changes

Drivers:

• EBITDA guide lower due to accelerated investments to stand up capitated infrastructure and timing slippage in certain payer rate negotiations; FCF maintained, with potential cash collection timing impact from government shutdown .

Earnings Call Themes & Trends

Management Commentary

• CEO (prepared): “We delivered strong financial results that exceeded our expectations… continued building foundational capabilities to drive sustainable growth.”
• CEO (strategy): “We continue to believe that there is significant potential to deploy AI and automation… already beginning to see the early benefits.”
• CFO (capitation infrastructure): “~1,200 people… ~3 dozen locations… hundreds of vehicles… we expect to carry additional expense into Q1 and mid-Q2; day one PMPM revenue supports ~20% EBITDA margin for the contract.”
• CFO (deleveraging): “Net debt stood at $1.73B… net leverage 2.68x… year-to-date interest expense down >$15M vs 2024.”
• Industry positioning: “Where others may see risk, we see opportunity… competitive bidding may consolidate market share; our cost structure enables advantaged participation.”

Note: CEO described Q3 adjusted EBITDA as “above the high end of our guidance range,” while the CFO characterized it as “slightly above the midpoint”; both affirmed margin expansion YoY to 20.7% .

Q&A Highlights

• Capitation ramp timing and competitive context: Management guiding conservatively vs incumbent expectations; distinguishes exclusive capitated vs preferred provider agreements (Optum context) and sees no impact on current trends .
• Diabetes trajectory: Improvements led by better retention and pump sales; pharmacy channel optionality being built; expectation to stabilize and grow through 2026 .
• Sleep execution: Speed-to-setup and conversion improvements driving starts; Q1 shortfalls characterized as transient and geography-specific .
• Guidance bridge: FY25 EBITDA lower due to payer rate timing and infrastructure investment; 2026 growth 6–8% with ~50 bps margin expansion vs 2025 .
• Regulatory cadence: RAC audits steady; competitive bidding likely to favor scaled operators; partnership approach with suppliers envisaged under new pricing regimes .

Estimates Context

• S&P Global Wall Street consensus for EPS, revenue, and EBITDA for Q3 2025 and the prior two quarters, as well as FY25/FY26, was unavailable at the time of retrieval; therefore, a quantitative comparison vs Street cannot be provided. Values retrieved from S&P Global were unavailable.
• Implications: Absent consensus, the benchmark is company guidance and YoY/seq trends; actuals showed YoY revenue and margin expansion, with management maintaining revenue and FCF guidance and signaling EBITDA at the low end due to upfront strategic investments .

Key Takeaways for Investors

• Near-term: Solid Q3 execution with broad segment momentum and margin expansion; expect modest EBITDA pressure into Q4/Q1 due to standing up the large capitated contract; cash collection timing risk from government shutdown is manageable given YTD FCF and OBBBA cash tax benefits .
• Medium-term: 2026 outlook for 6–8% revenue growth and ~50 bps margin expansion; large capitation ramps in H2’26 with ≥$200M annualized revenue thereafter; capitation mix trending toward ≥10% of total revenue over time .
• Structural advantage: Scale, operating discipline, and technology/AI investments position AHCO favorably for CMS competitive bidding and industry consolidation; deleveraging continues toward 2.5x net leverage .
• Execution focus: Sleep/geography execution tightening (speed-to-setup), diabetes retention improvements, respiratory growth durability; wellness headwinds tied to disposals should normalize through mix .
• Capital allocation: Priority on organic growth and debt reduction; tuck-ins focused in sleep/respiratory to strengthen footprint; discipline on M&A and ROI .
• Stock reaction catalysts: Evidence of capitation ramp milestones, continued margin expansion, and demonstrable AI/automation efficiencies; clarity on competitive bidding final rule and payer rate negotiations timing could unlock sentiment re-rating .