Adapthealth ((AHCO)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call from AdaptHealth presented a mixed bag of positive developments and challenges. On the one hand, the announcement of a major new contract and improvements in key segments were significant positives. However, these were tempered by revenue declines, a reduction in EBITDA guidance, and potential future challenges from CMS rule changes.
New Capitated Agreement
AdaptHealth has signed a definitive agreement to become the exclusive provider of home medical equipment for a major national healthcare system. This deal is expected to generate over $1 billion in revenue over five years, elevating capitated revenue to at least 10% of total revenue. This strategic move is poised to significantly bolster the company’s financial standing.
Improvement in Sleep and Respiratory Segments
The company reported a 0.9% increase in net revenue for its Sleep Health segment, reaching $334.7 million, and a 5.6% increase in its Respiratory Health segment, totaling $170.5 million. Notably, Sleep Health starts were the highest in two years, and Respiratory Health set a new second quarter record with an oxygen census of 329,000 patients.
Debt Reduction and Financial Health
AdaptHealth has made significant strides in reducing its debt, cutting it by $150 million in Q2 2025 and by $345 million over the last six quarters. The company’s net leverage ratio now stands at 2.81x, moving closer to its target of 2.5x, indicating a strengthening financial position.
Technological Advancements
The company is leveraging AI and technology to enhance efficiency in order intake, call handling, and patient self-service. These technological advancements are expected to improve productivity and reduce administrative burdens, contributing to overall operational efficiency.
Revenue Decline
Despite the positive developments, AdaptHealth experienced a 0.7% decline in net revenue for Q2 2025, totaling $800.4 million compared to the prior year quarter. The Diabetes Health segment was particularly affected, with a 4.1% decline in net revenue to $145.0 million.
Adjusted EBITDA Guidance Reduction
The company has reduced its adjusted EBITDA guidance for 2025 to a range of $642 million to $682 million. This adjustment is attributed to the timing of payer rate negotiations and necessary infrastructure expenses for the new capitated agreement.
Potential Competitive Bidding Impact
The proposed CMS rule on home health and DME could introduce economic pressure. The potential inclusion of CGMs in the competitive bidding process could impact pricing dynamics, presenting a challenge for the company moving forward.
Forward-Looking Guidance
In the second quarter of 2025, AdaptHealth reported revenue of $800.4 million, with an adjusted EBITDA of $155.5 million and an adjusted EBITDA margin of 19.4%. The company achieved a free cash flow of $73.3 million, exceeding expectations and aligning with its full-year guidance. AdaptHealth highlighted a new five-year contract worth over $1 billion, expected to contribute at least $200 million in annual revenue once fully ramped. Despite updating its 2025 adjusted EBITDA guidance, it maintained its free cash flow guidance between $170 million and $190 million.
In summary, AdaptHealth’s earnings call reflected a blend of optimism and caution. While the company is making strategic moves to enhance its market position and financial health, challenges such as revenue declines and potential regulatory impacts loom. Investors will be keenly watching how these dynamics play out in the coming quarters.