AdaptHealth Corp. (NASDAQ: AHCO; AHCOW) (the “Company”),
the third largest provider of home medical equipment (“HME”) in the
United States, today announced financial results for its
subsidiary, AdaptHealth Holdings LLC (“AdaptHealth Holdings”), for
the three and nine months ended September 30, 2019.
AdaptHealth Corp. reported the results of AdaptHealth Holdings
without giving effect to the impact of the consummation of the
Company’s acquisition of AdaptHealth Holdings on November 8, 2019
(the “Business Combination”), although results for the 2019 periods
include certain expenses related to the transaction.
AdaptHealth Holdings’ Third Quarter
2019 Financial Highlights Compared to Three Months Ended September
30, 2018
- Net revenue less provision for doubtful accounts increased
33.6% to $136.5 million:
- net sales revenue grew 44.5% to $83.1 million.
- net revenue from fixed monthly equipment reimbursements rose
19.5% to $53.4 million
- Net loss equaled $3.1 million compared to net income of $12.7
million in the prior year period. Net loss for the three months
ended September 30, 2019 included $8.2 million of costs and
non-cash charges consisting of:
- $5.3 million of transaction costs related to acquisitions and
the Business Combination; and
- a $2.9 million non-cash charge to interest expense representing
the change in fair value of AdaptHealth Holdings’ interest rate
swaps. During the third quarter of 2019, AdaptHealth Holdings
designated its interest rate swaps as effective cash flow hedges,
and accordingly, changes in the fair value of the swaps in future
periods will be recorded as a component of Accumulated Other
Comprehensive Income within Equity rather than as Interest
Expense.
- Net income for the three months ended September 30, 2018
included a non-cash income tax benefit of $5.0 million related to
the reversal of a valuation allowance on AdaptHealth Holdings’
deferred income tax assets.
- Adjusted EBITDA increased 25.3% to $31.7 million.
- Adjusted EBITDA Less Patient Equipment Capex grew 26.3% to
$18.7 million. As a percentage of revenue, EBITDA Less Patient
Equipment Capex was 13.7 % compared to 14.5% in the prior year
period. Acquisition activity tends to reduce AdaptHealth Holdings’
margin and cash flow in the short term as it purchases inventory
and fixed assets for newly acquired businesses while transitioning
them to its platform.
Acquisitions Update
During the three months ended September 30, 2019, AdaptHealth
Holdings consummated three HME acquisitions, and has consummated an
additional three HME transactions since October 1, 2019. In the
aggregate, AdaptHealth Holdings expects the completed HME
transactions to generate annual net revenues of approximately $58
million.
CEO Commentary
Luke McGee, the Company’s Chief Executive Officer, commented,
“We are very pleased with AdaptHealth Holdings’ year-to-date 2019
financial results, which included significant increases in revenue
and Adjusted EBITDA that demonstrate the successful execution of
our strategy to grow organically and through accretive
acquisitions. The third quarter of 2019 represented the best
quarter in our history in terms of Net revenues, Adjusted EBITDA
and Adjusted EBITDA Less Patient Equipment Capex.
“Our team has been heavily focused on acquisition integration
and I am confident these efforts will be fruitful in Q4’19 and
2020. We are affirming the Company’s previously reported
expectation that Adjusted EBITDA and Adjusted EBITDA Less Patient
Equipment Capex for the twelve months ended December 31, 2019 will
approximate $75 million and $123 million, respectively. Our
potential acquisition pipeline is more robust than it has been at
any point in the last three years, and we are truly excited about
executing on these opportunities.”
About AdaptHealth Corp.
AdaptHealth Corp. (formerly known as DFB Healthcare Acquisitions
Corp.) acquired AdapthHealth Holdings LLC on November 8, 2019.
AdaptHealth Holdings commenced operations in 2012 and is
headquartered in Plymouth Meeting, PA. AdaptHealth Corp. offers a
full suite of medical products for both rental and sale, with a
focus on respiratory and/or mobility equipment, including CPAP
sleep equipment, oxygen equipment, wheelchairs, walkers, and
hospital beds. AdaptHealth Corp. has created a scalable,
purpose-built, and centralized operating platform that optimizes
client service and delivery, improves compliance, drives
operational and financial efficiencies, and increases
enterprise-wide profitability. AdaptHealth Corp. utilizes an
extensive and highly diversified network of referral sources,
including acute care hospitals, sleep labs, pulmonologists, skilled
nursing facilities, and clinics; many of these referral
relationships average 10+ years. AdaptHealth Corp. maintains an
attractive payor mix, primarily comprised of commercial insurers,
Medicare and Medicaid.
For more information about AdaptHealth Corp.’s products and
services, please visit www.adapthealth.com.
Forward-Looking
Statements
This press release includes certain statements that are not
historical facts but are forward-looking statements for purposes of
the safe harbor provisions under the United States Private
Securities Litigation Reform Act of 1995. Forward-looking
statements generally are accompanied by words such as “believe,”
“may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”
“expect,” “should,” “would,” “plan,” “predict,” “potential,”
“seem,” “seek,” “future,” “outlook,” and similar expressions that
predict or indicate future events or trends or that are not
statements of historical matters. These forward-looking statements
include, but are not limited to, statements regarding projections,
estimates and forecasts of revenue and other financial and
performance metrics and projections of market opportunity and
expectations. These statements are based on various assumptions and
on the current expectations of AdaptHealth Corp. management and are
not predictions of actual performance. These forward-looking
statements are provided for illustrative purposes only and are not
intended to serve as, and must not be relied on, by any investor
as, a guarantee, an assurance, a prediction or a definitive
statement of fact or probability. Actual events and circumstances
are difficult or impossible to predict and will differ from
assumptions. Many actual events and circumstances are beyond the
control of AdaptHealth Corp. These forward-looking statements are
subject to a number of risks and uncertainties, including the
outcome of judicial and administrative proceedings to which
AdaptHealth Corp. may become a party or governmental investigations
to which AdaptHealth Corp. may become subject that could interrupt
or limit AdaptHealth Corp.’s operations, result in adverse
judgments, settlements or fines and create negative publicity;
changes in AdaptHealth Corp.’s clients’ preferences, prospects and
the competitive conditions prevailing in the healthcare sector, If
the risks materialize or assumptions prove incorrect, actual
results could differ materially from the results implied by these
forward-looking statements. There may be additional risks that
AdaptHealth Corp. presently knows or that AdaptHealth Corp.
currently believes is immaterial that could also cause actual
results to differ from those contained in the forward-looking
statements. In addition, forward-looking statements reflect
AdaptHealth Corp.’s expectations, plans or forecasts of future
events and views as of the date of this press release. AdaptHealth
anticipates that subsequent events and developments will cause
AdaptHealth Corp.’s assessments to change. However, while
AdaptHealth Corp. may elect to update these forward-looking
statements at some point in the future, AdaptHealth Corp.
specifically disclaims any obligation to do so. These
forward-looking statements should not be relied upon as
representing AdaptHealth Corp.’s assessments as of any date
subsequent to the date of this press release. Accordingly, undue
reliance should not be placed upon the forward-looking
statements.
ADAPTHEALTH HOLDINGS LLC AND
SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in
thousands)
Assets
September 30, 2019
December 31, 2018
Current assets: Cash and cash equivalents
$
8,823
$
25,186
Accounts receivable, net
73,670
53,017
Inventory
14,234
7,673
Prepaid and other current assets
6,350
4,915
Total current assets
103,077
90,791
Equipment and other fixed assets, net
66,706
61,601
Goodwill
245,346
202,436
Other assets
5,893
5,050
Deferred tax asset
6,965
9,079
Total assets
$
427,987
$
368,957
Liabilities and Members’ Equity (Deficit) Current
liabilities: Accounts payable and accrued expenses
$
90,456
$
85,558
Current portion of capital lease obligations
21,656
20,814
Current portion of long-term debt
8,894
7,090
Deferred revenue
9,097
7,508
Other liabilities
8,609
14,708
Total current liabilities
138,712
135,678
Long-term debt, less current portion
410,538
127,095
Capital lease obligations, less current portion
236
172
Other long-term liabilities
15,199
3,244
Total liabilities
564,685
266,189
Commitments and contingencies Members’ equity (deficit) Membership
units
136,131
113,274
Controlling interest members’ deficit
(276,542
)
(13,371
)
Accumulated other comprehensive income
850
— Total equity (deficit) attributable to AdaptHealth Holdings LLC
(139,561
)
99,903
Noncontrolling interest in subsidiaries
2,863
2,865
Total members' equity (deficit)
(136,698
)
102,768
Total liabilities and members’ equity (deficit)
$
427,987
$
368,957
ADAPTHEALTH HOLDINGS LLC AND
SUBSIDIARIES
Consolidated Statements of
Income (Loss) (Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(in thousands)
2019
2018
2019
2018
Revenue: Revenue, net of contractual allowances and discounts
$
143,081
$
107,048
$
400,958
$
246,092
Provision for doubtful accounts
(6,630)
(4,892)
(20,855)
(9,467)
Net revenue less provision for doubtful accounts
136,451
102,156
380,103
236,625
Costs and expenses: Cost of net revenue
114,797
86,315
317,174
199,586
General and administrative expenses
12,090
4,825
31,508
12,229
Depreciation, excluding patient equipment depreciation
840
1,038
2,439
2,293
Total costs and expenses
127,727
92,178
351,121
214,108
Operating income
8,724
9,978
28,982
22,517
Interest expense (includes loss of $2,922, gain of $363, loss of
$12,359 and gain of $281, representing the change in fair value of
interest rate swaps, respectively)
10,756
2,108
31,651
5,200
Loss on extinguishment of debt, net — —
2,121
1,399
(Loss) income before income taxes
(2,032)
7,870
(4,790)
15,918
Income tax expense (benefit)
1,027
(4,822)
5,444
(4,519)
Net (loss) income
(3,059)
12,692
(10,234)
20,437
Net income attributable to noncontrolling interests
627
296
1,336
681
Net (loss) income attributable to AdaptHealth Holdings LLC
$
(3,686)
$
12,396
$
(11,570)
$
19,756
AdaptHealth Holdings operates as a single
segment focused on the followingcore service lines.
Net sales revenue: Sleep
$
59,117
$
41,226
$
156,677
$
79,191
Respiratory
1,397
1,267
4,121
3,529
Home Medical Equipment
11,963
8,938
33,971
27,296
Other
10,587
6,062
30,247
17,577
Total Net sales revenue
$
83,064
$
57,493
$
225,016
$
127,593
Net revenue from fixed monthly equipment reimbursements:
Sleep
$
20,761
$
16,102
$
57,762
$
35,345
Respiratory
19,646
19,246
60,085
47,040
Home Medical Equipment
11,103
9,180
31,767
26,304
Other
1,877
135
5,473
343
Total Net revenue from fixed monthly equipment reimbursements
$
53,387
$
44,663
$
155,087
$
109,032
Total Net revenue Sleep
$
79,878
$
57,328
$
214,439
$
114,536
Respiratory
21,043
20,513
64,206
50,569
Home Medical Equipment
23,066
18,118
65,738
53,600
Other
12,464
6,197
35,720
17,920
Total Net revenue
$
136,451
$
102,156
$
380,103
$
236,625
ADAPTHEALTH HOLDINGS LLC AND
SUBSIDIARIES
Consolidated Statements of
Cash Flows (Unaudited)
Nine Months Ended September
30,
(in thousands)
2019
2018
Cash flows from operating activities: Net (loss) income
$
(10,234
)
$
20,437
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: Depreciation
45,076
33,011
Equity-based compensation
5,806
570
Deferred income tax
2,115
(5,045
)
Change in fair value of interest rate swaps, net of
reclassification adjustment
12,141
(281
)
Provision for doubtful accounts
20,855
9,467
Amortization of deferred financing costs
830
341
Write-off of deferred financing costs
2,121
1,219
Gain on debt extinguishment —
(800
)
Changes in operating assets and liabilities, net of effects from
acquisitions: — — Accounts receivable
(38,105
)
(11,290
)
Due from affiliates and related parties —
701
Inventory
(2,388
)
1,641
Prepaid and other assets
(2,381
)
(4,866
)
Accounts payable and accrued expenses
7,338
(1,958
)
Net cash provided by operating activities
43,174
43,147
Cash flows from investing activities: Purchases of equipment and
other fixed assets
(14,453
)
(7,885
)
Payments for business acquisitions, net of cash acquired
(47,946
)
(78,163
)
Net cash used in investing activities
(62,399
)
(86,048
)
Cash flows from financing activities: Proceeds from borrowings on
long-term debt
317,000
140,000
Payments on long-term debt
(156,062
)
(23,114
)
Proceeds from issuance of promissory note payable
100,000
— Proceeds from issuance of Common Units
20,000
— Payments for equity issuance costs
(837
)
— Payments of deferred financing costs
(9,028
)
(2,716
)
Payments on capital leases
(28,659
)
(18,894
)
Borrowings on lines of credit
28,500
24,750
Payments on lines of credit —
(59,218
)
Distributions to members
(250,000
)
— Payments for redemption of Preferred Units
(3,714
)
— Payment of contingent consideration
(13,000
)
— Payments for debt prepayment penalties —
(980
)
Distributions to noncontrolling interest
(1,338
)
(300
)
Net cash provided by financing activities
2,862
59,528
Net (decrease) increase in cash and cash equivalents
(16,363
)
16,627
Cash and cash equivalents at beginning of period
25,186
4,274
Cash and cash equivalents at end of period
$
8,823
$
20,901
Supplemental disclosures: Cash paid for interest
$
15,769
$
4,369
Cash paid for income taxes
$
492
$
405
Noncash investing and financing activities: — — Equipment acquired
under capital lease obligations
$
29,565
$
19,001
Unpaid equipment and other fixed asset purchases at end of period
$
8,483
$
10,107
Seller note issued in connection with acquisition of Gould's
Discount Medical, LLC
$
2,000
$
— Contingent purchase price in connection with acquisitions
$
6,425
$
15,250
Deferred purchase price in connection with acquisition of American
Ancillaries, Inc.
$
1,500
$
— Convertible debt issued in connection with acquisition of Verus
Healthcare, Inc.
$
—
$
16,846
Non-GAAP Financial Measures
This press release presents AdaptHealth Holdings LLC’s EBITDA,
Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex
for the three and nine months ended September 30, 2019 and 2018.
AdaptHealth Holdings uses EBITDA, Adjusted EBITDA and Adjusted
EBITDA less Patient Equipment Capex, which are financial measures
that are not prepared in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP, to
analyze its financial results and believes that it is useful to
investors, as a supplement to U.S. GAAP measures. Under AdaptHealth
Holdings’ existing credit agreement, its ability to engage in
activities such as incurring additional indebtedness and making
investments is governed, in part, by its ability to satisfy tests
based on EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient
Equipment Capex.
AdaptHealth Holdings defines EBITDA as net income (loss)
attributable to AdaptHealth Holdings LLC, plus net income (loss)
attributable to noncontrolling interest, plus interest expense,
income tax expense (benefit), depreciation and amortization and
loss from discontinued operations, net of tax.
AdaptHealth Holdings defines Adjusted EBITDA as EBITDA (as
defined above), plus loss on extinguishment from debt, equity‑based
compensation, transaction costs, severance, and certain other
non‑recurring expenses.
AdaptHealth Holdings defines Adjusted EBITDA less Patient
Equipment Capex as Adjusted EBITDA (as defined above) less patient
equipment acquired during the period without regard to whether the
equipment was purchased or financed through lease transactions.
AdaptHealth Holdings presents Adjusted EBITDA less Patient
Equipment Capex because it believes this measure is useful to
investors in evaluating AdaptHealth Holdings’ financial
performance. AdaptHealth Holdings’ business requires significant
investment in equipment purchases to maintain its patient equipment
inventory. Some equipment title transfers to patients’ ownership
after a prescribed number of fixed monthly payments. Equipment that
does not transfer wears out or oftentimes is not recovered after a
patient’s use of the equipment terminates.
AdaptHealth Holdings uses the Adjusted EBITDA less Patient
Equipment Capex metric internally in the following ways:
- All incentive compensation plans that have a profitability
component use Adjusted EBITDA less Patient Equipment Capex as the
relevant profitability measure;
- AdaptHealth Holdings evaluates acquisition opportunities using
Adjusted EBITDA less Patient Equipment Capex as the metric and most
contingent consideration arrangements are based on this metric;
and
- AdaptHealth Holdings’ debt agreements contain covenants that
use a variation of Adjusted EBITDA less Patient Equipment Capex for
purposes of determining debt covenant compliance.
For purposes of this metric, patient equipment capital
expenditures are measured as the value of the patient equipment
received during the accounting period without regard to whether the
equipment is purchased or financed through lease transactions.
EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient
Equipment Capex should not be considered as measures of financial
performance under U.S. GAAP, and the items excluded from EBITDA,
Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex
are significant components in understanding and assessing financial
performance. Both key business metrics have limitations as an
analytical tool. Some of these limitations are:
- they do not reflect AdaptHealth Holdings’ cash expenditures,
future requirements for capital expenditures or contractual
commitments;
- they do not reflect changes in, or cash requirements for,
AdaptHealth Holdings’ working capital needs;
- they do not reflect significant interest expense, or the cash
requirements necessary to service interest or principal payments on
AdaptHealth Holdings’ debts; although depreciation and amortization
are non‑cash charges, the assets being depreciated and amortized
will often have to be replaced in the future, and Adjusted EBITDA
does not reflect any cash requirements for such replacements;
- Stock‑based compensation is and will remain a key element of
AdaptHealth Holdings’ overall long‑term incentive compensation
package, although AdaptHealth Holdings excludes it as an expense
when evaluating its ongoing operating performance for a particular
period; and
- they do not reflect the impact of certain cash charges
resulting from matters AdaptHealth Holdings considers not to be
indicative of its ongoing operations; and other companies in
AdaptHealth Holdings’ industry may calculate Adjusted EBITDA
differently than AdaptHealth Holdings does, limiting its usefulness
as a comparative measure.
Because of these limitations, EBITDA, Adjusted EBITDA and
Adjusted EBITDA less Patient Equipment Capex should not be
considered in isolation from, or as a substitute for, financial
information prepared in accordance with U.S. GAAP, and should not
be considered as an alternative to net income or any other
performance measures derived in accordance with U.S. GAAP or as an
alternative to cash flows from operating activities as a measure of
AdaptHealth Holdings’ liquidity.
The following unaudited table presents the reconciliation of net
income (loss) attributable to AdaptHealth Holdings Holdings LLC, to
EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment
Capex for the three and nine months ended September 30, 2019 and
2018:
Three Months Ended September
30,
Nine Months Ended September
30,
(in thousands)
2019
2018
2019
2018
(Unaudited)
Net (loss) income attributable to
AdaptHealth Holdings
LLC................................................................
$
(3,686
)
$
12,396
$
(11,570
)
$
19,756
Income attributable to noncontrolling
interest.............
627
296
1,336
681
Interest expense excluding change in fair
value of interest rate
swaps.........................................................
7,834
2,471
19,292
5,481
Interest expense (income) representing
change in fair value of interest rate
swaps.........................................
2,922
(363
)
12,359
(281
)
Income tax expense
(benefit)..........................................
1,027
(4,822
)
5,444
(4,519
)
Depreciation.......................................................................
16,871
13,500
45,077
33,012
EBITDA.............................................................................
25,595
23,478
71,938
54,130
Loss on extinguishment of debt,
net(a).........................
-
-
2,121
1,399
Equity‑based compensation
expense(b)........................
400
313
5,806
571
Transaction
costs(c)..........................................................
5,282
486
8,232
1,342
Severance(d).......................................................................
33
907
721
1,198
Non‑recurring
expenses(e)..............................................
346
77
534
94
Adjusted
EBITDA...........................................................
31,656
25,261
89,352
58,734
Less: Patient equipment
capex(f)...................................
(12,941
)
(10,443
)
(35,589
)
(27,906
)
Adjusted EBITDA less Patient Equipment
Capex...........................................................
$
18,715
$
14,818
$
53,763
$
30,828
(a)
Represents write off of deferred financing
costs and prepayment penalty expense related to refinancing of debt
offset by gain on debt extinguishment.
(b)
Represents amortization of equity‑based
compensation to employees and expense resulting from accelerated
vesting and modification of certain profit interests.
(c)
Represents transaction costs primarily
related to acquisition growth, the 2019 Recapitalization, and costs
related to the DFB merger.
(d)
Represents severance costs related to
acquisition integration and internal AdaptHealth Holdings
restructuring and workforce reduction activities.
(e)
Represents one‑time legal and consulting
expenses, in addition to certain other non‑recurring expenses.
(f)
Represents patient equipment acquired
during the respective period without regard to the manner in which
the equipment was financed.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191113005929/en/
AdaptHealth Corp. Gregg Holst Chief Financial Officer
(484) 301-6599 gholst@adapthealth.com
Brittany Lett Vice President, Marketing (909) 915-4983
blett@adapthealth.com
The Equity Group Inc. Devin Sullivan Senior Vice
President (212) 836-9608 dsullivan@equityny.com
Kalle Ahl, CFA Vice President (212) 836-9614
kahl@equityny.com
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