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AC

AdaptHealth Corp. (AHCO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue of $856.6M, diluted EPS $0.34, and adjusted EBITDA $200.6M; management said all three exceeded the high end of internal Q4 guidance ranges, with revenue beating the midpoint by ~3% .
  • Segment mix: Sleep and Respiratory grew YoY, while Diabetes (-7.3% YoY) and Wellness at Home (-0.8% YoY) dragged; free cash flow was strong at $73.1M, above guidance .
  • FY 2025 outlook: revenue $3.22–$3.36B, adjusted EBITDA $670–$710M, FCF $180–$220M; Q1 2025 guide calls for revenue down 3–4% YoY and adjusted EBITDA margin 16–17% as purchase-to-rental mix shifts create a non‑cash timing headwind (≈90 bps full-year impact) .
  • Balance sheet de‑risking continues: year-end cash $109.7M, net debt ~$1.93B, net leverage 2.79x with a target of 2.5x; $50M debt reduction in Q4; capitated Humana contract extended multi‑year, with additional small contracts starting early 2025 .

What Went Well and What Went Wrong

What Went Well

  • Sleep Health momentum: Q4 Sleep revenue rose 3.4% YoY to $356.5M; sleep new starts topped 120k for the third straight quarter; sleep census reached 1.66M (+23k seq.), with GLP‑1 users at 15.3% and no material resupply pattern differences .
  • Respiratory strength: Q4 Respiratory revenue grew 1% YoY to $165.3M; oxygen census set another record at >330k patients, aided by myAPP tools that reduce reorder friction .
  • Free cash flow and de‑leveraging: Q4 FCF $73.1M and FY FCF $235.8M; $170M TLA reduction in 2024 and net leverage to 2.79x (target 2.5x); DSOs improved as AR normalized post Change Healthcare outage .
  • Strategic wins: Multi‑year extension of Humana capitated contract and additional smaller capitated arrangements signed, reinforcing payer confidence in outcomes and cost management .

What Went Wrong

  • Diabetes Health underperformance: Q4 Diabetes revenue fell 7.3% YoY to $171.3M, reflecting payer reimbursement shifts and operational missteps; though sequential revenue rebounded by $30.2M, management remains cautious on growth commitments .
  • Margin compression: Q4 adjusted EBITDA margin narrowed to 23.4% (vs 23.8% YoY), primarily from increased labor costs amid leadership and process investments .
  • 2025 transition headwinds: Non‑cash purchase-to-rental revenue mix timing defers top‑line (~$25–$30M impact in Q1) and ~90 bps drops to the bottom line; FY 2025 FCF midpoint is ~$35M below 2024 due to non‑repeatable payable term improvements .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$806.0 $805.9 $856.6
Diluted EPS ($USD)$0.13 $0.15 $0.34
Adjusted EBITDA ($USD Millions)$165.3 $164.3 $200.6
Adjusted EBITDA Margin (%)20.5% 20.4% 23.4%
Cash from Operations ($USD Millions)$197.98 $144.41 $150.42
Free Cash Flow ($USD Millions)$116.71 $84.85 $73.08

Segment breakdown (Q4 2024):

SegmentQ4 2024 Revenue ($USD Millions)YoY Change
Sleep Health$356.5 +3.4%
Respiratory Health$165.3 +1.0%
Diabetes Health$171.3 -7.3%
Wellness at Home$163.5 -0.8%

KPIs:

KPIQ4 2024Notes
Sleep new starts (count)≥120,000 Third consecutive quarter ≥120k
Sleep census (patients)1.66M +23k sequential
Oxygen census (patients)>330,000 Record level
DSOs (days)43.8 Down sequentially; AR normalizing
Net debt ($USD Billions)~$1.93B Net leverage 2.79x
CapEx (% revenue)9.0% Q4 run rate
GLP‑1 usage in CPAP survey (%)15.3% No material resupply pattern difference

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Revenue ($B)FY 2025N/A$3.22–$3.36 New
Adjusted EBITDA ($M)FY 2025N/A$670–$710 New
Free Cash Flow ($M)FY 2025N/A$180–$220 New
Revenue YoY (%)Q1 2025N/A-3% to -4% vs Q1’24 New
Adjusted EBITDA Margin (%)Q1 2025N/A16%–17% New
Free Cash FlowQ1 2025N/AModest New
Net Revenue ($B)FY 2024$3.255–$3.315 $3.220–$3.260 Lowered
Adjusted EBITDA ($M)FY 2024$660–$700 $655–$675 Lowered
Free Cash Flow ($M)FY 2024$160–$180 $175–$195 Raised

Additional guidance context:

  • FY 2025: ~40 bps drag from disposed custom rehab assets; ~90 bps non‑cash impact from purchase-to-rental revenue mix flowing to margins; quarterly shape similar to 2024 .
  • Q4 exceeded internal guidance ranges for revenue, adjusted EBITDA and FCF (management commentary) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
One Adapt operations/leadershipCEO emphasized One Adapt and consistent execution; asset disposition planned Continued progress across five focus areas; segment GMs instituted; talent additions with margin discipline Strengthening
AI/automation & myAPPInitiative referenced last quarter Launched myAPP self‑pay (Oct) and CPAP self‑scheduling (Dec) to streamline patient experience Accelerating
Capitated arrangementsN/A in releasesHumana multi‑year extension; additional smaller capitated contracts signed; modest incremental 2025 revenue Expanding
Supply chain/revenue cycleN/ADSO normalization and revenue cycle improvements; inventory and CapEx management under new COO Improving
Diabetes segmentQ3 highlighted weakness; 2024 guidance cut Leadership overhaul; resupply outreach remodeled; lowest attrition in 2 years; sequential revenue up $30.2M; cautious on CGM growth Cautiously improving
Purchase vs rental mixN/A~$25–$30M revenue timing impact in Q1; ~90 bps flows to margins; primarily Sleep Transitional headwind
Reimbursement/macroN/A2024 75/25 blended rate removal ≈$25M impact; 2025 environment stable with fee schedule increase Stabilizing
GLP‑1 impact (sleep)N/A15.3% CPAP respondents on GLP‑1; modest adherence increase; immaterial resupply differences Neutral

Management Commentary

  • “We are pleased that revenue, adjusted EBITDA and free cash flow each exceeded the high end of our guidance ranges for the fourth quarter of 2024… Sleep Health and Respiratory Health… offsetting contraction in our Diabetes Health segment.” — CEO Suzanne Foster .
  • “We introduced a self‑pay feature in myAPP… launched a CPAP self‑scheduling feature… eliminating the need for patients to interact with a customer service representative.” — CEO Suzanne Foster .
  • “In the fourth quarter, we realigned our sales organization… implemented sales quotas for the first time in many years… inject the proper incentives needed for driving sales effectiveness.” — CEO Suzanne Foster .
  • “Our fourth quarter results exceeded our expectations… We expect 2025 to be another strong year for free cash flow generation… 2025 somewhat of a transition year for growth… path to accelerated growth in 2026 and beyond.” — CFO Jason Clemens .

Q&A Highlights

  • Capitated contracts: Humana multi‑year extension; additional small capitated wins; payer feedback favorable on outcomes and cost management; 2025 incremental revenue expected to be modest .
  • Working capital and FCF: DSOs normalizing post Change outage; payable term extensions in 2024 are non‑repeatable; 2025 FCF midpoint lower but interest expense expected to decline; continued focus on inventory and CapEx efficiency .
  • Diabetes outlook: Pumps stabilized; modest growth expected; CGM improvement underway but no growth commitment until proven; segment remains a drag near term .
  • Purchase vs rental timing: ~$25–$30M Q1 top‑line deferral concentrated in Sleep; impact wanes through the year as assets amortize over ~13 months; ~90 bps flows to margin .
  • Reimbursement: 2024 impact from 75/25 removal ≈30% concentrated in Q4; 2025 reimbursement environment viewed as stable with fee schedule increase effective January .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q4 2024 EPS and revenue was unavailable due to data access limits at time of request; as a result, explicit vs‑consensus comparisons cannot be provided (S&P Global data unavailable). Management indicated Q4 results were above the high end of internal guidance ranges .

Key Takeaways for Investors

  • Q4 quality: Revenue, adjusted EBITDA, and FCF exceeded internal guidance; Sleep/Respiratory strength offset Diabetes drag; adjusted EBITDA margin held at 23.4% despite labor investments .
  • 2025 setup: Guide implies flat margins (~21%) and lower FCF midpoint vs 2024 due to non‑repeatable working capital benefits; expect Q1 pressure from rental mix timing but normalization thereafter; use any Q1 dip as a setup for H2 .
  • Segment positioning: Sleep pipeline remains robust (≥120k starts; 1.66M census); Respiratory oxygen census continues to set records; Diabetes showing early operational improvements with remodeled outreach and leadership overhaul .
  • Structural catalysts: Humana contract extension and additional capitated arrangements support recurring revenue visibility and potential margin accretion over time; myAPP automation reduces friction and supports adherence .
  • Balance sheet: Net leverage improved to 2.79x with a path to 2.5x via ongoing FCF and asset divestitures; interest expense trending sub‑$30M quarterly, supporting FCF durability .
  • Risk monitor: Diabetes reimbursement shifts (pharmacy channel) appear muted vs 2024 but remain an overhang; purchase‑to‑rental accounting timing can distort near‑term optics; watch Q1 execution vs guide .
  • Actionable: Near‑term traders should watch for confirmation of Q1 timing headwinds and any incremental capitated wins; medium‑term holders can lean into de‑leveraging, operational execution (One Adapt/AOS), and the 2026 acceleration narrative if Diabetes continues to stabilize .