Good day, everyone, and welcome to today's AdaptHealth First 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 would 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, and 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.

Good morning everyone, and welcome to our call. Amid elevated uncertainty in the external environment, we at AdaptHealth have stayed the course with a relentless focus on improving our business and providing exceptional service to the 4.2 million patients that depend on us. Reflecting that focus in Q1 2025, we delivered another quarter of solid results, and we continue to make progress on several areas of focus. Starting with our results. First quarter revenue exceeded midpoint of our guidance range by $13.1 million, despite declining 1.8% from the prior year quarter. This was driven by stronger than anticipated revenues in our Respiratory Health segment, as well as in our Diabetes Health segment, which while still contracting, continued to demonstrate signs of improvement. First quarter adjusted EBITDA was in the upper half of our guidance range, despite declining 19.3% from the prior year quarter, while our adjusted EBITDA margin was in line with our expectations at 16.4%. Free cash flow was negative $0.1 million in the first quarter, compared to negative $38.9 million in the prior year quarter. Importantly, we remain on track to achieve our free cash flow guidance for the full year. Over the last several months, we have been reviewing and refining our long range growth plan. This work confirms that we have a tremendous opportunity to deliver consistent, sustainable, organic growth by simply staying on course with our current strategy. Our plan has been and will continue to be, to remain focused on our four core segments, and to combine our geographic reach and operational scale, with industry leading patient service excellence to capture market share. The addressable markets within our four segments are large, and we believe are growing in aggregate by mid-single digits, driven by meaningful tailwinds. These include an aging U.S. population, increasing prevalence…

Thank you Suzanne, and thank you everyone for joining our call. Today, I'm going to cover our first quarter 2025 results. I'll follow that with a review of our balance sheet and our plans for capital allocation, before finishing with guidance for 2025. For first quarter 2025, net revenue of $777.9 million, declined 1.8% versus the prior year quarter, which had one additional business day. Net revenue was $13.1 million above the midpoint of our Q1 guidance range, driven by the combination of strong volumes in our Respiratory Health segment, and stronger than anticipated Diabetes Health segment revenues, more than offsetting Sleep Health segment revenues that fell modestly shy of our expectations. First quarter, Sleep Health segment net revenue decreased 2.8% versus the prior year quarter to $316.4 million. We previously referenced a $30 million full year headwind, related to the non-cash impact of changes in the mix of purchase revenue versus rental revenue. As anticipated, approximately half of that impact came in the first quarter. Sleep Health new setups, which are typically seasonally lower in the first quarter of the year, were approximately $113,000, slightly behind our expectations. Despite the later new setups, our Sleep Health census grew to 1.68 million patients, up another 19,000 sequentially. Our Q1 2025 CPAP survey indicates that the percentage of respondents using GLP-1s to manage diabetes or weight loss was up slightly to 15.7% in Q1 2025 from 15.3% in Q4 2024. Our survey continues to show an immaterial difference in adherence and resupply ordering patterns between GLP-1 patients and non- GLP-1 patients. First quarter Respiratory Health segment, net revenue increased 3.3% versus the prior year quarter to $165.5 million. We saw stronger than anticipated oxygen new setups, fueled by stronger field sales during an especially severe flu season. Our oxygen census of…

Thank you very much. [Operator Instructions] We'll take our first question from Brian Tanquilut with Jefferies. Please go ahead.

Good morning. This is Meghan Holtz on for Brian. Thank you for taking my question. Can you guys just provide some additional color in terms of improvement that you're seeing in the Diabetes business? You mentioned you were going to potentially see modest growth in the pumps. Did that come through? And then some signs of improvement in CGM? And then just a quick follow-up to your comments on guidance. Is the change in guidance only for the incontinence asset sale and not the infusion asset sale?

Hey, Meghan. This is Jason. Good morning. I'll take the second one first. Yes. The guidance change is exclusively for the disposal of certain incontinence assets. Although, we expect to close the infusion deal in the second quarter, we're going to withhold any comments on that until the deal is closed, similar to our previous policy on all M&A and dispositions. Regarding diabetes, you asked about pumps, we did see positive movement in our pump business. So that was great news, showing some growth over the first quarter of 2024. And in addition, within CGMs, we spoke of a second sequential growth quarter in new starts, which is very good news, as we start stringing those together and as we manage our retention rates at record levels, we're confident that the turnaround in diabetes is happening.

Thank you.

We'll go next to Pito Chickering with Deutsche Bank. Please go ahead.

Hey. Thank you, guys. So first question here is looking at the new starts to Sleep, I guess, can you sort of dig in more into sort of what you're seeing there? Is this a market issue or is it market share issue? Are you guys losing share? And if so, is there anything you can do to pivot in order to fix those issues?

Sure, Peter. Good morning. So firstly, I mean, starts were off a couple of thousand. So we're not talking huge numbers. However, we thought it was appropriate to call out being -- it's our biggest business, obviously. This is not some kind of exogenous factor. We're quite confident in that via various data points. We are in certain geographies losing. We need to set up faster. We need to be better in these certain geographies. We've got detailed plans in our Commercial team as well as our ops team to close that gap. And we're still very confident in the full year guidance that we put out last quarter. So generally going according to plan. I think in a portfolio, some assets are up a little, some are down a little, but we feel very good about the full year.

Okay. Great. And then, the follow-up is just on the 2Q guidance, just to make sure that I heard that right, you're talking about flat revenue year-over-year, margins of 18.3% to 19.3%. So that would get to sort of 18.8% at the midpoint, which is about $150 million plus of EBITDA, I think, for 2Q. I guess, is that what I heard right? And if so, as you think about sort of the back half ramp on the new implied guidance, just sort of how do we sort of transition from 1Q, 2Q? And how do we get into sort of the back half of the year ramp? Thank you.

Sure, Pito. So I guess I'd say, firstly, that keep in mind that Q2 of last year included almost $30 million of revenue that was either disposed or was not impacted by the shift of purchase to rental revenue. And so, I think the underlying growth rate of 3% to 4% is really an important factor to keep in mind. Now that said, the $8 million that we called out of the change from purchase to rental revenue, I mean, that's all bottom line impact. And so that's pushing a point of adjusted EBITDA compression year-over-year. And then secondly, we're going to continue to see lower diabetes revenue. And so that's impacting us there to the tune of a couple of million dollars as well, although we're feeling pretty hopeful about the future diabetes in the short-term. As we think about the rest of the year, there is an implied ramp in our guidance. Now a lot of that ramp is the $30 million of top and bottom line impact in our Sleep business that we had talked about, the change of purchase to rental revenue, and all of that is bottom line impact. We said that about half of that we experienced in Q1, and then that would compress in Q2 to the tune of about $8 million in Q3, it'll come down quite a bit further and run out in Q4. So that is something that is just unusual in the year, but it is contributing to a second half ramp.

All right. And then the last quick one here. Can you just refresh us on the Nairobi Protocols, price you could sell (ph) that don't fit within the Nairobi Protocols from a tariff perspective? Thank you.

Yeah. Sure. So it gets pretty nuanced, the Nairobi Protocol and the definition of products intended to treat the chronically disabled. And so many products, I mean, you've heard from some of our public manufacturers, whether it be CPAPs or sleep devices as well as oxygen and ventilation as well as DME. I mean many of these products are part of The Nairobi Protocol and are excluded from tariffs. As it relates to our diabetes products, again, the nuances in the treatment of diseases as opposed to being more diagnostic in nature. And so, when a CGM is used with a pump, as an example, that's really part of that full delivery system to treat diabetes for CGMs that are not used with pumps. I mean, our understanding is that that's more of a diagnostic or therapeutic device that is not accounted for in the Nairobi Protocol. However, both of our public CGM manufacturers have reported here over the last two weeks or so. And both have talked about significant manufacturing onshore here in the United States and very manageable tariff expectations on their end. We've had open dialogue with all these manufacturers, and we're feeling very comfortable with no tariff impact in our guidance for '25.

Great. Thanks so much.

Thank you. And next, we'll go to Eric Coldwell with Baird. Please go ahead.

Thanks. I have a couple, and I'll just start with following on that last line of the Q&A. At a conference in March, you highlighted the $10 million potential AOY impact in fiscal '26 for tariffs. And then, of course, Liberation Day hit and that might have changed the outlook. There's been a lot of moving pieces. But I'm curious, if you have any updated thoughts on what you think your exposure may be in fiscal '26? And then I'll follow up with one or two others. Thanks.

Yeah, Eric. I don't know that we're in a position to change that number today. I mean, if anything, it's -- we could probably take it down, based on clarification of Nairobi and who's covered. There were many manufacturers that received letters from Homeland Security and Customs that clarified their Nairobi classification. A lot of those hit in early April, which is after we made the comments in March. So again, I don't know that we'd say much about '26 at this point, other than we're feeling a little better than we did back when we made those comments.

That sounds great. Happy to hear it. On the next question is, did I hear you say that this quarter's revenue also faced a year-over-year headwind from selling days?

Yes, correct. And we had that pegged at about $8 million. The rental revenue we earn as well as the PMPM for capitated revenue isn't really going to be impacted by number of days in the month. It's the sales revenue. So if you take roughly $0.5 billion of sales revenue in the first quarter, that full day impact is about $8 million.

Perfect. And are there any other selling day comps to be aware of, in the fiscal year, the next three quarters?

Not from a day perspective. There's a little in and out in terms of when weekends fall and when holidays fall, but nothing that we call out for it.

Perfect. Thanks so much. I’ll jump back and if needed.

Thank you. Next will go to Kevin Caliendo with UBS. Please go ahead.

Good morning. Thanks for taking my question. There was a bit of a step-up in CapEx in the quarter. Is that in any way related to tariffs or was that you buying machines expected to ramp in demand?

It's respiratory, Kevin. So we've had outperformance in Respiratory on account of increased sales during a heavy flu season. And then, we've got those patients that will continue on census, that they've been diagnosed with underlying COPD or other advanced respiratory conditions. So it's really a function of profile.

Okay. That's helpful to know. On the Sleep side, the numbers were disappointing. I hear your comments about it. Is there any change in the competitive dynamics there? Do you think you lost market share or anything like that? Like, what's happening in the Sleep market right now broadly? And how are you positioned within it relative to how you were six months ago or a year ago?

Yeah. I'd say in a handful of states, we need to do a little better job. I mean it's really as simple as that. It's nothing big picture that's happening. It's really within a handful of states. Our competitors are getting an edge on us. We need to be faster. We need to sell a little more and pull a little more through on conversion, and we got detailed plans to address that.

Fantastic. Thanks guys.

Next, we'll go to Ben Hendrix with RBC Capital Markets. Please go ahead.

Yes. Thank you very much. Just a follow up on the Sleep question. Are there opportunities in some of those troubled markets to deploy capital and acquire competitors, to maybe kind of head off some of that -- some of those headwinds, and those competitive pressures? Thanks.

Yeah, Ben. I guess we qualify that as an astute question. We do have some M&A under LOI. Again, if we're able to close those deals, we'll talk about it when we execute on that. And if we close those deals, we'll update guidance accordingly. But certainly, in the markets where we're falling a little short on Sleep as well as all other markets. I mean there's plenty of opportunity out there. But as we said, there's no change to our capital allocation priorities. We're going to stay focused on some modest tuck-in activity. So you'll expect to continue to see that throughout the course of the year.

Great. Thanks for that. And just a quick follow-up also on the tariff commentary in your conversations with some of your suppliers, I guess, are you or are they doing anything pre-emptively in order to kind of pull forward any kind of any inventory to kind of pre-emptively manage any expected headwinds or is it just kind of business as usual from a supply perspective? Thanks.

Business as usual.

Thank you.

Next, we'll go to Mathew Blackman with Stifel. Please go ahead.

Hey, guys. You had a really strong quarter in Diabetes. I was just wondering where exactly the strength is coming from. You guys talked to a bit of pump growth, but curious on the CGM side, if you did see any uptick in basal adoption. And going forward, what your expectations are for the supply environment in that business, given we heard some of Dexcom's comments earlier this earnings season. Thanks.

Sure. Pumps, I mean, recall, that's a pretty small part of our Diabetes business, but we did see some growth there. So that helped it to the tune of a couple of million dollars within the quarter. Regarding your basal question, we're not seeing any big bend in the trend for basal, either setups or utilization. In terms of kind of what we've focused on, and where we're pressing our energy, I mean, Suzanne may weigh in with a few comments there.

Yeah. In terms of the Diabetes team, I mean, it just goes back to good old fashioned leadership and execution. I think we have a really good team in place that has dug in, understood the business, and have gotten things organized, and they're executing much better than they were a few quarters ago. We're also appropriately leveraging technology where it matters. We still have human in the loop, but we're definitely deploying technology that's helping. And then in terms of our Commercial team, they have just been out there and doing a much better job with better focus, not only as a diabetes sales team, but they're leveraging our entire HME sales force. So it's just more people out there talking about One Adapt in our approach to patient service.

Got you. Thank you.

Thank you. And next, we'll go to Whit Mayo with Leerink Partners. Please go ahead.

Hey, thanks. Good morning. Suzanne, just on that topic of One Health or One Adapt and just the various initiatives you have, any new elements of that strategy you'd care to share as you think about 2025 and any improvement we may see in operations as a result of that focus?

Yeah. Thanks, Whit. So in terms of One Adapt, the high level here for anyone new to the story is that this organization came together as a result of hundreds of acquisitions. And so we -- clearly, the strategy of driving size really was successful over the last couple of years. And the entire leadership team now is focused on delivering scale. And so that starts with the most obvious stuff of brand and in terms of who we are. So getting out there as AdaptHealth and not 100 different names, we have a lot of legal and tax work to make sure that our entity structure is simplified. That will obviously reduce cost in operating the business. So there's a lot of internal organization. But in terms of going forward into 2025 and 2026, we're looking at the business about how do we reach the most amount of patients. And so our commercial team really leveraging each other, going to our big accounts, including managed care and big health systems, showing our full portfolio and capabilities, that is getting traction. And so we believe that will deliver additional growth in the back half, and especially going into 2026.

No, that's helpful. And maybe just spend a second on Humana and just sort of how that's tracking versus your assumptions. And I felt like you were referencing maybe an increased level of confidence on expanding some new payer relationships. So just wanted to unpack that a little bit more.

Sure. So our Humana relationship, in the performance is as expected, continues to be a bright spot for us. We're very, very happy with that relationship and our performance under that contract. And yes, we are – like, I said last quarter and this quarter, our pipeline of additional opportunities is growing, and not only growing but moving down the pipeline. So, we are optimistic that we're going to continue to move in that direction. We think it's the right thing for patient service and for overall healthcare economics. So we're making great progress, and we expect to have continued good news on that front.

Thanks.

And our last question comes from John Pinney with Canaccord Genuity. Please go ahead.

Hi. Yeah. John Pinney on for Richard Close. Thanks for the question. I guess one quick one from me. So I get the incontinence assets sold, that's the only thing that's factored into guidance as far as changes from the divestitures. Can you just give us a sense of, you called out $100 million annualized revenue last quarter for things to be divested. So I guess what percentage of that is the incontinence assets? And is there anything still left to be considered or to be divested this year or is it really just the incontinence assets and the infusion? Thanks.

Hey, John. This is Jason. So, if you annualize the guide down for the incontinence sale, you get to about $60 million. So, I think that answers your question on the approximate revenues. Again, if we get to the point that we're able to sell certain home infusion assets, we'll update the full guide accordingly. In terms of, are there other assets we're working on, the answer is no. I mean, certainly, we'll continue to manage the portfolio, as you'd expect, investing to grow margins everywhere we can and investing to grow top line everywhere we can. But for now, we feel after we get through these dispositions that we've got a great TAM in each of the four segments that we operate in, and a lot of opportunity in front of us, both organically and inorganically.

Great. Thank you.

And that concludes our question-and-answer session, and concludes today's program. We thank you for your participation. You may disconnect at any time.