AdaptHealth Corp. [AHCO] Filings

10-Q 1 ahco-20230930.htm 10-Q ahco-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38399

AdaptHealth Corp.

(Exact name of registrant as specified in its charter)


Delaware			82-3677704
(State of Other Jurisdiction of incorporation or Organization)			(I.R.S. Employer Identification No.)

220 West Germantown Pike Suite 250, Plymouth Meeting, Pennsylvania			19462
(Address of principal executive offices)			(Zip code)

Registrant’s telephone number, including area code: (610) 424-4515

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name Of Each Exchange
On Which Registered

Common Stock, par value $0.0001 per share

AHCO

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 3, 2023, there were 136,389,655 shares of the Registrant’s Common Stock issued and outstanding.

ADAPTHEALTH CORP.

FORM 10-Q

TABLE OF CONTENTS


			Page Number
PART I FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			3

Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022			4

Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022			5

Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022			6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			8

Notes to Interim Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3. Quantitative and Qualitative Disclosures About Market Risk			53

Item 4. Controls and Procedures			53


PART II OTHER INFORMATION			54

Item 1. Legal Proceedings			54

Item 1A. Risk Factors			54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54

Item 3. Defaults upon Senior Securities			54

Item 4. Mine Safety Disclosure			54

Item 5. Other Information			54

Item 6. Exhibits			54

Signatures			56

Table of Contents

CAUTIONARY STATEMENT

In this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I Item 2, and the documents incorporated by reference herein, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “will likely result,” “should,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or similar expressions.

These forward-looking statements are based on information available to us as of the date they were made, and involve a number of risks and uncertainties which may cause them to turn out to be wrong. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

•competition and the ability of our business to grow and manage growth profitably;

•fluctuations in the U.S. and/or global stock markets;

•the possibility that we may be adversely affected by other economic, business, and/or competitive factors;

•changes in applicable laws or regulations; and

•other risks and uncertainties set forth in this Form 10-Q.

Investors should carefully consider the foregoing factors and the other risks and uncertainties that may affect our business including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash	$	56,143	$	46,272
Accounts receivable	370,740		359,146
Inventory	116,332		127,754
Prepaid and other current assets	41,852		52,136
Total current assets	585,067		585,308
Equipment and other fixed assets, net	490,053		487,079
Operating lease right-of-use assets	110,007		129,506
Finance lease right-of-use assets	21,528		5,423
Goodwill	3,041,446		3,545,297
Identifiable intangible assets, net	135,728		162,773
Other assets	22,504		22,415
Deferred tax assets	318,915		281,786
Total Assets	$	4,725,248	$	5,219,587
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	314,452	$	337,498
Current portion of long-term debt	40,000		35,000
Current portion of operating lease obligations	28,736		30,001
Current portion of finance lease obligations	5,947		2,211
Contract liabilities	47,981		31,641
Other liabilities	11,069		19,863
Total current liabilities	448,185		456,214
Long-term debt, less current portion	2,126,803		2,153,267
Operating lease obligations, less current portion	85,700		104,394
Finance lease obligations, less current portion	15,581		3,950
Other long-term liabilities	302,590		305,501
Warrant liability	6,617		38,503
Total Liabilities	2,985,476		3,061,829
Commitments and contingencies (note 14)
Stockholders' Equity:
Common Stock, par value of $0.0001 per share, 300,000,000 shares authorized; 134,991,451 and 134,435,119 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	13		13
Preferred Stock, par value of $0.0001 per share, 5,000,000 shares authorized; 124,060 shares issued and outstanding as of September 30, 2023 and December 31, 2022	1		1
Treasury stock, at cost (1,382,788 and 750,835 shares at September 30, 2023 and December 31, 2022, respectively)	(23,216)		(13,992)
Additional paid-in capital	2,145,376		2,130,148
(Accumulated deficit) Retained earnings	(398,097)		26,295
Accumulated other comprehensive income	8,408		8,693
Total stockholders' equity attributable to AdaptHealth Corp.	1,732,485		2,151,158
Noncontrolling interest in subsidiary	7,287		6,600
Total Stockholders' Equity	1,739,772		2,157,758
Total Liabilities and Stockholders' Equity	$	4,725,248	$	5,219,587

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenue	$	804,031	$	756,495	$	2,341,943	$	2,190,312
Costs and expenses:
Cost of net revenue	693,488		646,714		2,022,281		1,853,847
General and administrative expenses	45,198		40,681		142,797		124,673
Depreciation and amortization, excluding patient equipment depreciation	14,515		16,151		45,596		48,113
Goodwill impairment (note 5)	511,866		—		511,866		—
Total costs and expenses	1,265,067		703,546		2,722,540		2,026,633
Operating (loss) income	(461,036)		52,949		(380,597)		163,679
Interest expense, net	32,306		28,521		96,813		78,905
Change in fair value of warrant liability (note 10)	(9,160)		1,364		(31,886)		(17,145)
Other loss, net	3,317		257		6,574		7,179
(Loss) income before income taxes	(487,499)		22,807		(452,098)		94,740
Income tax (benefit) expense	(34,578)		5,580		(30,893)		20,036
Net (loss) income	(452,921)		17,227		(421,205)		74,704
Income attributable to noncontrolling interest	1,155		1,105		3,187		2,800
Net (loss) income attributable to AdaptHealth Corp.	$	(454,076)	$	16,122	$	(424,392)	$	71,904

Weighted average common shares outstanding - basic	134,825		134,227		134,549		134,186
Weighted average common shares outstanding - diluted	134,982		137,583		135,202		138,599

Basic net (loss) income per share (note 11)	$	(3.37)	$	0.11	$	(3.15)	$	0.49
Diluted net (loss) income per share (note 11)	$	(3.43)	$	0.11	$	(3.37)	$	0.35

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(452,921)	$	17,227	$	(421,205)	$	74,704
Other comprehensive income (loss):
Gain (loss) on interest rate swap agreements, inclusive of reclassification adjustment, net of tax	66		7,757		(285)		15,348
Comprehensive (loss) income	(452,855)		24,984		(421,490)		90,052

Income attributable to noncontrolling interest	1,155		1,105		3,187		2,800
Comprehensive (loss) income attributable to AdaptHealth Corp.	$	(454,010)	$	23,879	$	(424,677)	$	87,252

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

(UNAUDITED)


	Common Stock			Preferred Stock			Treasury Stock			Additional paid-in capital		Retained earnings (Accumulated deficit)		Accumulated other comprehensive income (loss)		Noncontrolling interest in subsidiary		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2022	134,435	$	13	124	$	1	751	$	(13,992)	$	2,130,148	$	26,295	$	8,693	$	6,600	$	2,157,758
Equity-based compensation	292	—		—	—		—	—		5,916		—		—		—		5,916
Payments for tax withholdings from restricted stock vesting	—	—		—	—		—	—		(1,883)		—		—		—		(1,883)
Common Stock issued in connection with employee stock purchase plan	53	—		—	—		—	—		1,021		—		—		—		1,021
Shares purchased under share repurchase program	(632)	—		—	—		632	(9,224)		—		—		—		—		(9,224)
Net income	—	—		—	—		—	—		—		15,707		—		968		16,675
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		(2,805)		—		(2,805)
Balance, March 31, 2023	134,148	$	13	124	$	1	1,383	$	(23,216)	$	2,135,202	$	42,002	$	5,888	$	7,568	$	2,167,458
Equity-based compensation	156	—		—	—		—	—		6,847		—		—		—		6,847
Exercise of stock options	214	—		—	—		—	—		—		—		—		—		—
Payments for tax withholdings from restricted stock vesting and stock option exercises	—	—		—	—		—	—		(2,229)		—		—		—		(2,229)
Distribution to non-controlling interest	—	—		—	—		—	—		—		—		—		(2,500)		(2,500)
Net income	—	—		—	—		—	—		—		13,977		—		1,064		15,041
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		2,454		—		2,454
Balance, June 30, 2023	134,518	$	13	124	$	1	1,383	$	(23,216)	$	2,139,820	$	55,979	$	8,342	$	6,132	$	2,187,071
Equity-based compensation	176	—		—	—		—	—		4,521		—		—		—		4,521
Exercise of stock options	215	—		—	—		—	—		538		—		—		—		538
Payments for tax withholdings from restricted stock vesting and stock option exercises	—	—		—	—		—	—		(513)		—		—		—		(513)
Common Stock issued in connection with employee stock purchase plan	82	—		—	—		—	—		1,010		—		—		—		1,010
Net income	—	—		—	—		—	—		—		(454,076)		—		1,155		(452,921)
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		66		—		66
Balance, September 30, 2023	134,991	$	13	124	$	1	1,383	$	(23,216)	$	2,145,376	$	(398,097)	$	8,408	$	7,287	$	1,739,772

Table of Contents


	Common Stock			Preferred Stock			Treasury Stock			Additional paid-in capital		(Accumulated deficit) Retained earnings		Accumulated other comprehensive income (loss)		Noncontrolling interest in subsidiary		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2021	133,844	$	13	124	$	1	—	$	—	$	2,107,267	$	(43,021)	$	(2,354)	$	4,783	$	2,066,689
Equity-based compensation	187	—		—	—		—	—		5,502		—		—		—		5,502
Exercise of stock options	184	—		—	—		—	—		723		—		—		—		723
Payments for tax withholdings from restricted stock vesting and stock option exercises	—	—		—	—		—	—		(1,269)		—		—		—		(1,269)
Common Stock issued in connection with employee stock purchase plan	31	—		—	—		—	—		753		—		—		—		753
Net income	—	—		—	—		—	—		—		41,750		—		480		42,230
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		5,998		—		5,998
Balance, March 31, 2022	134,246	$	13	124	$	1	—	$	—	$	2,112,976	$	(1,271)	$	3,644	$	5,263	$	2,120,626
Equity-based compensation	117	—		—	—		—	—		5,720		—		—		—		5,720
Exercise of stock options	43	—		—	—		—	—		—		—		—		—		—
Payments for tax withholdings from restricted stock vesting and stock option exercises	—	—		—	—		—	—		(613)		—		—		—		(613)
Shares purchased under share repurchase program	—	—		—	—		199	(3,375)		—		—		—		—		(3,375)
Reclassification of warrant liability to equity for exercised warrants	19	—		—	—		—	—		495		—		—		—		495
Distribution to non-controlling interest	—	—		—	—		—	—		—		—		—		(2,000)		(2,000)
Net income	—	—		—	—		—	—		—		14,032		—		1,215		15,247
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		1,593		—		1,593
Balance, June 30, 2022	134,425	$	13	124	$	1	199	$	(3,375)	$	2,118,578	$	12,761	$	5,237	$	4,478	$	2,137,693
Equity-based compensation	83	—		—	—		—	—		5,562		—		—		—		5,562
Exercise of stock options	99	—		—	—		—	—		665		—		—		—		665
Payments for tax withholdings from restricted stock vesting and stock option exercises	—	—		—	—		—	—		(808)		—		—		—		(808)
Shares purchased under share repurchase program	—	—		—	—		552	(10,617)		—		—		—		—		(10,617)
Common Stock issued in connection with employee stock purchase plan	47	—		—	—		—	—		863		—		—		—		863
Reclassification of warrant liability to equity for exercised warrants	69	—		—	—		—	—		1,608		—		—		—		1,608
Net income	—	—		—	—		—	—		—		16,122		—		1,105		17,227
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		7,757		—		7,757
Balance, September 30, 2022	134,723	$	13	124	$	1	751	$	(13,992)	$	2,126,468	$	28,883	$	12,994	$	5,583	$	2,159,950

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(421,205)	$	74,704
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including patient equipment depreciation	290,419		248,835
Goodwill impairment	511,866		—
Equity-based compensation	17,284		16,784
Change in fair value of warrant liability	(31,886)		(17,145)
Reduction in the carrying amount of operating lease right-of-use assets	26,309		16,924
Reduction in the carrying amount of finance lease right-of-use assets	3,821		—
Deferred income tax (benefit) expense	(37,033)		18,058
Change in fair value of interest rate swaps, net of reclassification adjustment	(1,394)		(2,202)
Amortization of deferred financing costs	3,926		3,926
Other	350		(2,023)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(10,043)		2,357
Inventory	12,769		(3,992)
Prepaid and other assets	10,956		4,211
Operating lease obligations	(26,959)		(16,794)
Operating liabilities	(23,780)		(66,696)
Net cash provided by operating activities	325,400		276,947
Cash flows from investing activities:
Purchases of equipment and other fixed assets	(248,816)		(248,511)
Payments for business acquisitions, net of cash acquired	(17,917)		(16,134)
Payments for cost method investments	(128)		(731)
Net cash used in investing activities	(266,861)		(265,376)
Cash flows from financing activities:
Proceeds from borrowings on long-term debt	50,000		—
Repayments on long-term debt	(75,000)		(15,000)
Repayments of finance lease liabilities	(4,558)		(14,219)
Payments for shares purchased under share repurchase program	(9,224)		(13,992)
Proceeds from the exercise of stock options	538		1,388
Proceeds received in connection with employee stock purchase plan	2,031		1,616
Payments relating to the Tax Receivable Agreement	(3,202)		—
Distributions to noncontrolling interest	(2,500)		(2,000)
Payments for tax withholdings from restricted stock vesting and stock option exercises	(5,253)		(2,690)
Payments of contingent consideration and deferred purchase price from acquisitions	(1,500)		(5,563)
Net cash used in financing activities	(48,668)		(50,460)
Net increase (decrease) in cash	9,871		(38,889)
Cash at beginning of period	46,272		149,627
Cash at end of period	$	56,143	$	110,738
Supplemental disclosures:
Cash paid for interest	$	113,083	$	97,389
Cash paid for income taxes	5,727		10,490
Noncash investing and financing activities:
Equipment acquired under finance lease obligations	$	—	$	1,335
Unpaid equipment and other fixed asset purchases at end of period	32,481		50,864
Assets subject to operating lease obligations	8,179		5,411
Operating lease obligations	(8,179)		(5,411)
Assets subject to finance lease obligations	19,726		—
Finance lease obligations	(19,726)		—
Deferred purchase price in connection with acquisitions	50		422

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited)

(1) General Information

AdaptHealth Corp. and subsidiaries ("AdaptHealth" or the "Company"), is a national leader in providing patient-centered, healthcare-at-home solutions including home medical equipment ("HME"), medical supplies, and related services. AdaptHealth focuses primarily on providing (i) sleep therapy equipment, supplies and related services (including CPAP and bi PAP services) to individuals suffering from obstructive sleep apnea ("OSA"), (ii) medical devices and supplies to patients for the treatment of diabetes (including continuous glucose monitors ("CGM") and insulin pumps), (iii) home medical equipment to patients discharged from acute care and other facilities, (iv) oxygen and related chronic therapy services in the home, and (v) other HME devices and supplies on behalf of chronically ill patients with wound care, urological, incontinence, ostomy and nutritional supply needs. AdaptHealth services beneficiaries of Medicare, Medicaid and commercial insurance payors.

As previously disclosed, by mutual agreement with the Company, effective June 30, 2023, Stephen Griggs resigned as Chief Executive Officer and did not stand for reelection as a member of the Company’s Board of Directors (the “Board”) at the Company’s annual meeting. As previously disclosed, Richard Barasch, Chairman of the Board of the Company and Interim Chief Executive Officer will continue to serve as Interim Chief Executive Officer until a successor chief executive officer is appointed.

The interim consolidated financial statements are unaudited, but reflect all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Interim results are not necessarily indicative of the results for a full year.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

(a) Basis of Presentation

The interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, the interim consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

(b) Basis of Consolidation

The accompanying interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

(d) Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition and the valuation of accounts

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

receivable (implicit price concession), income taxes and the tax receivable agreement, equity-based compensation, warrant liability, long-lived assets, including goodwill and identifiable intangible assets, and contingencies. Actual results could differ from those estimates.

(e) Valuation of Goodwill

The Company has a significant amount of goodwill on its balance sheet that resulted from the business acquisitions the Company has made. Goodwill is not amortized, rather, it is assessed for impairment annually and upon the occurrence of a triggering event or change in circumstances indicating a possible impairment. Such triggering events potentially warranting an annual or interim goodwill impairment assessment include, among other factors, declines in historical or projected revenue, operating income or cash flows, and sustained decreases in the Company’s stock price or market capitalization. Such changes in circumstance can include, among others, changes in the legal environment, reimbursement environment, operating performance, and/or future prospects. The Company performs its annual impairment assessment of goodwill during the fourth quarter of each year. The impairment assessment can be performed on either a quantitative or qualitative basis. The Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment analysis. If determined necessary, the Company applies the quantitative impairment test to identify and measure the amount of impairment, if any. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors, such as estimates of a reporting unit's fair value and judgment about impairment triggering events. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual or interim goodwill impairment test will prove to be accurate predictions of the future. During the quarters ended March 31, 2023 and June 30, 2023, the Company experienced a decline in its market capitalization as a result of a sustained decrease in the Company’s stock price. The Company considered such sustained decreases to represent a triggering event and performed goodwill impairment tests as of March 31, 2023 and June 30, 2023. During the three months ended September 30, 2023, the Company experienced a further decline in its market capitalization as a result of a sustained decrease in the Company’s stock price and also revised its financial projections. The Company considered these items to represent a triggering event and performed a goodwill impairment test as of September 30, 2023. The Company did not recognize any impairment charges of goodwill during the six months ended June 30, 2023 and the nine months ended September 30, 2022. The Company recognized a non-cash goodwill impairment charge of $511.9 million during the three and nine months ended September 30, 2023. Refer to Note 5, Goodwill and Identifiable Intangible Assets, for additional details.

(f) Long-Lived Assets

The Company’s long-lived assets, such as equipment and other fixed assets, operating lease right-of-use assets, finance lease right-of-use assets and definite-lived identifiable intangible assets, are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Definite-lived identifiable intangible assets consist of tradenames, payor contracts, contractual rental agreements and developed technology. These assets are amortized using the straight-line method over their estimated useful lives, which reflects the pattern in which the economic benefits of the assets are expected to be consumed. In addition to consideration of impairment upon the events or changes in circumstances described above, management regularly evaluates the remaining useful lives of its long-lived assets. The following table summarizes the useful lives of the Company’s identifiable intangible assets:


Tradenames			5 to 10 years
Payor contracts			10 years
Contractual rental agreements			2 years
Developed technology			5 years

The Company did not recognize any impairment charges on long-lived assets for the three and nine months ended September 30, 2023 and 2022.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

(g) Equity-based Compensation

The Company accounts for its equity-based compensation in accordance with FASB ASC Topic 718, Compensation Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Equity-based compensation expense related to these grants is included within general and administrative expenses and cost of net revenue in the accompanying consolidated statements of operations. The Company measures and recognizes equity-based compensation expense for such awards based on their estimated fair values on the date of grant. For share-based awards with service only or service and performance conditions, the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated financial statements. For share-based awards with only a service condition, equity-based compensation expense is recognized on a straight-line basis over the requisite service period. For awards with performance conditions, equity-based compensation expense is recognized straight-line on a tranche-by-tranche basis over the employees’ requisite service period subject to management’s estimation of the probability of vesting of such awards. If management determines that the performance conditions are no longer probable of achievement, the Company will reverse the previously recognized equity-based compensation expense in the period of determination. For awards with market conditions, the grant-date fair value is estimated using a monte-carlo simulation analysis, which is recognized straight-line on a tranche-by-tranche basis over the employees’ requisite service period regardless of whether or the extent to which the awards ultimately vest. Refer to Note 10, Stockholders’ Equity, for additional information regarding the Company’s equity-based compensation expense.

(h) Business Segment

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) for the purposes of allocating resources and evaluating financial performance. The Company’s CODM is its Interim Chief Executive Officer, who reviews financial information on a consolidated level for purposes of allocating resources and evaluating financial performance, and as such, the Company’s operations constitute one operating segment and one reportable segment.

(i) Accounting for Leases

The Company accounts for its leases in accordance with FASB Accounting Standards Codification Topic 842, Leases (ASC 842). ASC 842 requires the Company to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use ("ROU") asset on its consolidated balance sheet for most leases, and disclose key information about leasing arrangements. ASC 842 applies to a number of arrangements to which the Company is a party.

Whenever the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement is or contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and obtain substantially all the economic benefits from the use of the underlying asset.

If a lease exists, the Company must then determine the separate lease and non-lease components of the arrangement. Each right to use an underlying asset conveyed by a lease arrangement should generally be considered a separate lease component if it both: (i) can benefit the Company without depending on other resources not readily available to the Company and (ii) does not significantly affect and is not significantly affected by other rights of use conveyed by the lease. Aspects of a lease arrangement that transfer other goods or services to the Company but do not meet the definition of lease components are considered non-lease components. The consideration owed by the Company pursuant to a lease arrangement is generally allocated to each lease and non-lease component for accounting purposes. However, the Company has elected, for all of its leases, to not separate lease and non-lease components. Each lease component is accounted for separately from other lease components, but together with the associated non-lease components.

For each lease, the Company must then determine the lease term, the present value of lease payments and the classification of the lease as either an operating or finance lease.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

The lease term is the period of the lease not cancellable by the Company, together with periods covered by: (i) renewal options the Company is reasonably certain to exercise, (ii) termination options the Company is reasonably certain not to exercise, and (iii) renewal or termination options that are controlled by the lessor.

The present value of lease payments is calculated based on:

•Lease payments – lease payments include fixed and certain variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. Lease payments exclude consideration that is not related to the transfer of goods and services of the Company.

•Discount rate – the discount rate must be determined based on information available to the Company upon the commencement of the lease. Lessees are required to use the rate implicit in the lease whenever such rate is readily available; however, as the implicit rate in the Company’s leases is generally not readily determinable, the Company generally uses the hypothetical incremental borrowing rate it would have to pay to borrow an amount equal to the lease payments, on a collateralized basis, over a timeframe similar to the lease term.

In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors, including the lessee’s and lessor’s rights, obligations, and economic incentives over the term of the lease.

Generally, upon the commencement of a lease, the Company will record a lease liability and a ROU asset. However, the Company has elected, for all underlying leases with initial terms of twelve months or less (known as short-term leases), to not recognize a lease liability or ROU asset. Lease liabilities are initially recorded at lease commencement as the present value of future lease payments. ROU assets are initially recorded at lease commencement as the initial amount of the lease liability, together with the following, if applicable: (i) initial direct costs incurred by the lessee and (ii) lease payments made to the lessor net of lease incentives received, prior to lease commencement.

Over the lease term, the Company generally increases its lease liabilities using the effective interest method and decreases its lease liabilities for lease payments made. For finance leases, amortization and interest expense are recognized separately in the consolidated statements of operations, with amortization expense generally recorded on a straight-line basis over the lease term and interest expense recorded using the effective interest method. For operating leases, a single lease cost is generally recognized in the consolidated statements of operations on a straight-line basis over the lease term unless an impairment has been recorded with respect to a leased asset. Lease costs for short-term leases not recognized in the consolidated balance sheets are recognized in the consolidated statements of operations on a straight-line basis over the lease term. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred. ROU assets are assessed for impairment, similar to other long-lived assets. Refer to Note 12, Leases, for additional information.

(j) Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform ("Topic 848"), which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under U.S. GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to be adopted any time through December 31, 2024, with early adoption permitted, and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company adopted this standard during the nine months ended September 30, 2023, which did not have a material impact on its consolidated financial statements and related disclosures.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

(2) Revenue Recognition and Accounts Receivable

Revenue Recognition

The Company generates revenues for services and related products that the Company provides to patients for home medical equipment, related supplies, and other items. The Company’s revenues are recognized in the period in which services and related products are provided to customers and are recorded either at a point in time for the sale of supplies and disposables, over the fixed monthly service period for equipment, or in the month in which eligible members are entitled to receive healthcare services in connection with at-risk capitation arrangements.

Revenues are recognized when control of the promised good or service is transferred to customers, in an amount that reflects the consideration to which the Company expects to receive from patients or under reimbursement arrangements with Medicare, Medicaid and third-party payors, in exchange for those goods and services.

The Company determines the transaction price based on contractually agreed-upon amounts or rates, adjusted for estimates of variable consideration, such as implicit price concessions. The Company utilizes the expected value method to determine the amount of variable consideration that should be included to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. The Company applies constraint to the transaction price, such that net revenue is recorded only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in the future. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net revenue in the period such adjustments become known.

Sales revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenues for the sale of sleep therapy equipment supplies (including CPAP resupply products), home medical equipment and related supplies (including wheelchairs, hospital beds and infusion pumps), diabetic medical devices and supplies (including continuous glucose monitors ("CGM") and insulin pumps), and other HME products and supplies are recognized when control of the promised good or service is transferred to customers, which is generally upon shipment for direct to consumer medical devices and supplies and upon delivery to the home for home medical equipment.

The Company provides certain equipment to patients which is reimbursed periodically in fixed monthly payments for as long as the patient is using the equipment and medical necessity continues (in certain cases, the fixed monthly payments are capped at a certain amount). The equipment provided to the patient is based upon medical necessity as documented by prescriptions and other documentation received from the patient’s physician. The patient generally does not negotiate or select the manufacturer or model of the equipment prescribed by their physician and delivered by the Company. Once initial delivery of this equipment is made to the patient for initial setup, a monthly billing process is established based on the initial setup service date. The Company recognizes the fixed monthly revenue ratably over the service period as earned, less estimated adjustments, and defers revenue for the portion of the monthly bill that is unearned. No separate revenue is earned from the initial setup process. Included in fixed monthly revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not yet billed to the payor. The estimate of net unbilled fixed monthly revenue recognized is based on historical trends and estimates of future collectability.

The Company receives a per member per month (“PMPM”) fee under certain at-risk capitation arrangements, which refers to a model in which the Company receives a PMPM fee from the third-party payor, and is responsible for managing a range of healthcare services and associated costs of its members. In at-risk capitation arrangements, the Company is responsible for the cost of contracted healthcare services required by those members in accordance with the terms of each agreement. Capitated revenue contracts with payors are generally multi-year arrangements and have a single monthly stand ready performance obligation to provide all aspects of necessary medical care to members for the contracted period in accordance with the scope of the agreements. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare services during the contract term. The Company’s revenue recognized under its capitation arrangements is included in the “other” product category in net sales revenue in the table below.

The Company’s billing system contains payor-specific price tables that reflect the fee schedule amounts in effect or contractually agreed upon by various government and commercial insurance payors for each item of equipment or supply provided to a customer. Revenues are recorded based on the applicable fee schedule. The Company has established a

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

contractual allowance to account for adjustments that result from differences between the payment amount received and the expected realizable amount. If the payment amount received differs from the net realizable amount, an adjustment is recorded to revenues in the period that these payment differences are determined. The Company reports revenues in its consolidated financial statements net of such adjustments.

The Company recognizes revenue in the consolidated statements of operations and contract assets on the consolidated balance sheets only when services have been provided. Since the Company has performed its obligation under the contract, it has unconditional rights to the consideration recorded as contract assets and therefore classifies those billed and unbilled contract assets as accounts receivable.

Fixed monthly payments that the Company receives from customers in advance of providing services represent contract liabilities. Such payments primarily relate to patients who are billed monthly in advance and are recognized over the period as earned.

The Company disaggregates net revenue from contracts with customers by payor type and by core product lines. The Company believes that disaggregation of net revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The payment terms and conditions within the Company’s revenue-generating contracts vary by payor type and payor source.

The composition of net revenue by payor type for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Insurance	$	486,136	$	465,625	$	1,397,748	$	1,322,694
Government	220,351		198,841		618,860		576,829
Patient pay	97,544		92,029		325,335		290,789
Net revenue	$	804,031	$	756,495	$	2,341,943	$	2,190,312

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

The composition of net revenue by core product lines for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net sales revenue:
Sleep	$	227,005	$	198,206	$	656,311	$	585,234
Diabetes	157,328		169,075		464,893		482,693
Supplies to the home	48,349		47,793		143,227		131,539
Respiratory	8,164		9,734		24,284		25,770
HME	27,095		29,463		82,895		89,828
Other	64,184		58,252		174,403		166,068
Total net sales revenue	$	532,125	$	512,523	$	1,546,013	$	1,481,132

Net revenue from fixed monthly equipment reimbursements:
Sleep	$	88,387	$	72,423	$	256,092	$	196,022
Diabetes	2,609		4,211		10,326		12,191
Respiratory	142,919		130,618		423,531		392,063
HME	25,087		25,482		71,402		76,754
Other	12,904		11,238		34,579		32,150
Total net revenue from fixed monthly equipment reimbursements	$	271,906	$	243,972	$	795,930	$	709,180

Total net revenue:
Sleep	$	315,392	$	270,629	$	912,403	$	781,256
Diabetes	159,937		173,286		475,219		494,884
Supplies to the home	48,349		47,793		143,227		131,539
Respiratory	151,083		140,352		447,815		417,833
HME	52,182		54,945		154,297		166,582
Other	77,088		69,490		208,982		198,218
Total net revenue	$	804,031	$	756,495	$	2,341,943	$	2,190,312

Accounts Receivable

Due to the continuing changes in the healthcare industry and third-party reimbursement environment, certain estimates are required to record accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. The complexity of third-party billing arrangements and laws and regulations governing Medicare and Medicaid may result in adjustments to amounts originally recorded.

The Company performs a periodic analysis to review the valuation of accounts receivable and collectability of outstanding balances. Management’s evaluation takes into consideration such factors as historical cash collections experience, business and economic conditions, trends in healthcare coverage, other collection indicators and information about specific receivables. The Company’s evaluation also considers the age and composition of the outstanding amounts in determining their estimated net realizable value.

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

Receivables are considered past due when not collected by established due dates. Specific patient balances are written off after collection efforts have been followed and the account has been determined to be uncollectible. Revisions in receivable estimates are recognized as an adjustment to net revenue in the period of revision.

Included in accounts receivable are earned but unbilled accounts receivables. Billing delays, ranging from several days to several weeks, can occur due to the Company’s policy of compiling required payor specific documentation prior to billing for its services rendered. As of September 30, 2023 and December 31, 2022, the Company’s unbilled accounts receivable was $44.7 million and $38.6 million, respectively.

(3) Acquisitions

During the nine months ended September 30, 2023 and 2022, the Company completed certain acquisitions to strengthen its current market share in existing markets. Each of the Company’s acquisitions was accounted for using the acquisition method pursuant to the requirements of FASB ASC Topic 805, Business Combinations, and are included in the Company’s consolidated financial statements since the respective acquisition date. The goodwill generated from these acquisitions is attributable to expected growth and cost synergies and the expected contribution of each acquisition to the Company’s overall strategy. The goodwill recorded during the nine months ended September 30, 2023 is expected to be deductible for tax purposes. The estimated fair values of the net assets of acquired businesses as described below are subject to change resulting from such items as final analysis of valuations and working capital adjustments post-acquisition. As a result, the acquisition accounting for certain acquired businesses could change in subsequent periods resulting in adjustments to goodwill once finalized.

Nine Months Ended September 30, 2023

During the nine months ended September 30, 2023, the Company acquired 100% of the equity interests of three providers of home medical equipment ("HME") and acquired certain assets from two providers of home medical equipment. The following table summarizes the consideration paid at closing for all acquisitions during the nine months ended September 30, 2023 (in thousands):


Cash	$	18,173
Deferred payments	50
Total	$	18,223

The Company allocated the consideration paid to the net assets acquired based on their estimated acquisition date fair values. Based upon management’s evaluation, which is preliminary and subject to completion of working capital and other adjustments, the consideration paid for all acquisitions during the nine months ended September 30, 2023 was allocated as follows during the period (in thousands):


Cash	$	256
Accounts receivable	1,798
Inventory	1,413
Prepaid and other current assets	10
Equipment and other fixed assets	9,008
Operating lease right-of-use assets	5,506
Finance lease right-of-use assets	200
Goodwill	7,297
Accounts payable and accrued expenses	(713)
Other current liabilities	(846)
Operating lease liabilities	(5,506)
Finance lease liabilities	(200)
Net assets acquired	$	18,223

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

Nine Months Ended September 30, 2022

During the nine months ended September 30, 2022, the Company acquired 100% of the equity interests of two providers of HME and acquired certain assets from five providers of home medical equipment.

The following table summarizes the consideration paid at closing for all acquisitions during the nine months ended September 30, 2022 (in thousands):


Cash	$	16,477
Deferred payments	422
Total	$	16,899

The Company allocated the consideration paid to the net assets acquired based on their estimated acquisition date fair values. Based upon management’s evaluation, which was preliminary and subject to completion of working capital and other adjustments, the consideration paid for all acquisitions during the nine months ended September 30, 2022 was allocated as follows during that period (in thousands):


Cash	$	155
Accounts receivable	2,206
Inventory	686
Prepaid and other current assets	16
Equipment and other fixed assets	4,502
Goodwill	11,788
Identifiable intangible assets	500
Accounts payable and accrued expenses	(2,820)
Contract liabilities	(134)
Net assets acquired	$	16,899

During the nine months ended September 30, 2022, the Company received net cash of $0.2 million relating to working capital and other adjustments associated with businesses that were acquired during 2021, which was recorded as a decrease to goodwill within the respective measurement period.

Net revenue and operating income in the period of acquisition since the respective acquisition dates for the acquisitions described above were immaterial for the three and nine months ended September 30, 2023 and 2022.

(4) Equipment and Other Fixed Assets

Equipment and other fixed assets as of September 30, 2023 and December 31, 2022 are as follows (in thousands):


	September 30, 2023		December 31, 2022
Patient medical equipment	$	776,366	$	747,985
Computers and Software	92,208		70,897
Delivery vehicles	43,078		35,326
Other	21,159		16,059
Gross carrying value	932,811		870,267
Less accumulated depreciation	(442,758)		(383,188)
Equipment and other fixed assets, net	$	490,053	$	487,079

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

For the three months ended September 30, 2023 and 2022, the Company recorded depreciation expense of $90.3 million and $82.4 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded depreciation expense of $263.4 million and $218.9 million, respectively.

(5) Goodwill and Identifiable Intangible Assets

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The change in the carrying amount of goodwill for the nine months ended September 30, 2023 was as follows (in thousands):


	Gross carrying amount
Balance at December 31, 2022	$	3,545,297
Goodwill from acquisitions	7,297
Net increase relating to measurement period adjustments	718
Impairment charge	(511,866)
Balance at September 30, 2023	$	3,041,446

Management is required to perform an assessment of the recoverability of goodwill on an annual basis and upon the identification of a triggering event. Triggering events potentially warranting an interim goodwill impairment assessment include, among other factors, declines in historical or projected revenue, operating results or cash flows, and sustained decreases in the Company’s stock price or market capitalization. While management cannot predict if or when future goodwill impairments may occur, a non-cash goodwill impairment charge could have a material adverse effect on the Company’s operating results, net assets and the Company’s cost of, or access to, capital.

During the quarters ended March 31, 2023 and June 30, 2023, the Company experienced a decline in its market capitalization as a result of a sustained decrease in the Company’s stock price. The Company considered such sustained decreases to represent a triggering event and performed goodwill impairment tests as of March 31, 2023 and June 30, 2023. Based on the results of the tests performed as of those dates, it was concluded that the estimated fair value of the Company’s reporting unit was greater than its carrying value, as such, the Company did not recognize a goodwill impairment charge during the periods ended March 31, 2023 and June 30, 2023. During the three months ended September 30, 2023, the Company experienced a further decline in its market capitalization as a result of a sustained decrease in the Company’s stock price and also revised its financial projections. The Company considered these items to represent a triggering event and performed a goodwill impairment test as of September 30, 2023. Based on the results of the test performed as of that date, it was concluded that the estimated fair value of the Company’s reporting unit was less than its carrying value, as such, the Company recognized a non-cash goodwill impairment charge of $511.9 million during the three and nine months ended September 30, 2023. If in future periods the Company were to experience a further decline in its market capitalization or expected results for a sustained period of time, the Company may be required to perform an additional goodwill impairment test at an interim or annual period and could be required to recognize a non-cash goodwill impairment charge at that time, which could be material.

Identifiable intangible assets that are separable and have determinable useful lives are valued separately and amortized over the period which reflects the pattern in which the economic benefits of the assets are expected to be

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

consumed. Identifiable intangible assets consisted of the following at September 30, 2023 and December 31, 2022 (dollars in thousands):


	September 30, 2023
			Weighted-Average Remaining Life (Years)
Tradenames, net of accumulated amortization of $35,111	$	77,689	6.8
Payor contracts, net of accumulated amortization of $26,166	55,834		6.8
Developed technology, net of accumulated amortization of $4,095	2,205		1.8
Identifiable intangible assets, net	$	135,728


	December 31, 2022
			Weighted-Average Remaining Life (Years)
Tradenames, net of accumulated amortization of $25,498	$	87,302	7.5
Payor contracts, net of accumulated amortization of $20,016	61,984		7.6
Contractual rental agreements, net of accumulated amortization of $43,863	10,337		0.8
Developed technology, net of accumulated amortization of $3,150	3,150		2.5
Identifiable intangible assets, net	$	162,773

Amortization expense related to identifiable intangible assets, which is included in depreciation and amortization, excluding patient equipment depreciation, in the accompanying statements of operations was $7.0 million and $27.0 million for the three and nine months ended September 30, 2023, respectively, and was $10.0 million and $30.0 million for the three and nine months ended September 30, 2022, respectively.

Future amortization expense related to identifiable intangible assets is estimated to be as follows (in thousands):


Twelve months ending September 30,
2024	$	22,276
2025	21,828
2026	19,617
2027	18,190
2028	17,936
Thereafter	35,881
Total	$	135,728

The Company did not recognize any impairment charges related to identifiable intangible assets during the nine months ended September 30, 2023 and 2022.

(6) Fair Value of Assets and Liabilities

FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

measurements. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows:


Level input						Input Definition
Level 1						Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2						Inputs, other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3						Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table presents the valuation of the Company’s financial assets and liabilities as of September 30, 2023 and December 31, 2022 measured at fair value on a recurring basis. The fair value estimates presented herein are based on information available to management as of September 30, 2023 and December 31, 2022. These estimates are not necessarily indicative of the amounts the Company could ultimately realize.


(in thousands)	Level 1		Level 2		Level 3
September 30, 2023
Assets
Interest rate swap agreements-short term	$	—	$	6,340	$	—
Interest rate swap agreements-long term	—		4,147		—
Total assets measured at fair value	$	—	$	10,487	$	—

Liabilities
Acquisition-related contingent consideration-short term	$	—	$	—	$	7,850
Warrant liability	—		—		6,617
Total liabilities measured at fair value	$	—	$	—	$	14,467


(in thousands)	Level 1		Level 2		Level 3
December 31, 2022
Assets
Interest rate swap agreements-short term	$	—	$	5,748	$	—
Interest rate swap agreements-long term	—		3,728		—
Total assets measured at fair value	$	—	$	9,476	$	—

Liabilities
Acquisition-related contingent consideration-short term	$	—	$	—	$	7,500
Warrant liability	—		—		38,503
Total liabilities measured at fair value	$	—	$	—	$	46,003

Interest Rate Swaps

The Company uses interest rate swap agreements to manage interest rate risk by converting a portion of its variable rate borrowings to a fixed rate and recognizes these derivative instruments as either assets or liabilities in the accompanying consolidated balance sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value of the Company’s interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

variable cash payments receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of FASB ASC Topic 820, Fair Value Measurement, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and the respective counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of September 30, 2023 and December 31, 2022 were classified as Level 2 of the fair value hierarchy. Refer to Note 7, Derivative Instruments and Hedging Activities, for additional information regarding the Company’s derivative instruments.

Acquisition-Related Contingent Consideration

The Company estimates the fair value of acquisition-related contingent consideration liabilities by applying the income approach using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. Each period, the Company evaluates the fair value of acquisition-related contingent consideration obligations and records any changes in the fair value of such liabilities in other income in the Company’s consolidated statements of operations. At September 30, 2023 and December 31, 2022, contingent consideration liabilities of $7.9 million and $7.5 million were included in other current liabilities, respectively, in the accompanying consolidated balance sheets. A reconciliation of the Company’s contingent consideration liabilities related to acquisitions for the nine months ended September 30, 2023 and 2022 is as follows (in thousands):


Nine Months Ended September 30, 2023	Beginning Balance		Payments		Change in Fair Value		Ending Balance
Contingent consideration - Level 3 liabilities	$	7,500	$	—	$	350	$	7,850
Nine Months Ended September 30, 2022
Contingent consideration - Level 3 liabilities	$	20,300	$	(6,250)	$	477	$	14,527

Warrant Liability

The warrant liability represents the estimated fair value of the Company’s outstanding private warrants. The fair value of the private warrants was estimated using the Black-Scholes option pricing model. Refer to Note 10, Stockholders' Equity, for additional discussion of the warrant liability and the material assumptions leveraged for the pricing model.

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

During the nine months ended September 30, 2023 and 2022, other than the non-cash goodwill impairment charge discussed in Note 5, Goodwill and Identifiable Intangible Assets, there were no fair value measurements on a non-recurring basis for the Company’s non-financial assets.

(7) Derivative Instruments and Hedging Activities

The Company records all derivatives on its consolidated balance sheet at fair value. As of September 30, 2023, the Company had outstanding interest rate derivatives with third parties in which the Company pays a fixed interest rate and receives a rate equal to the one-month Secured Overnight Financing Rate ("Term SOFR"). As of December 31, 2022, the Company had outstanding interest rate derivatives with third parties in which the Company paid a fixed interest rate and received a rate equal to the one-month LIBOR. During the nine months ended September 30, 2023, the Company amended its interest rate swap agreements to change the benchmark rate under the agreements from LIBOR to Term SOFR. As discussed

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements (Unaudited) (Continued)

in Note 1(j), General Information - Recently Adopted Accounting Pronouncements, during the nine months ended September 30, 2023, the Company adopted ASU No. 2020-04, Reference Rate Reform ("Topic 848"). As a result of the adoption of this standard, the amendments to the Company's interest rate swap agreements did not have an impact on the accounting for such derivative instruments. The

AdaptHealth Corp. [AHCO] Filings
10-Q	[2023-11-07]
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-02-28]
10-Q	[2022-11-08]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-06]
10-Q	[2021-05-10]
10-K	[2021-03-16]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
S-1	[2020-07-21]
S-1	[2020-06-29]
10-Q	[2020-05-08]
10-K	[2020-03-06]
10-Q	[2019-11-05]
10-Q	[2019-07-31]
10-Q	[2019-05-14]
10-K	[2019-03-29]
10-Q	[2018-11-08]
10-Q	[2018-08-08]
10-Q	[2018-05-15]
S-1	[2017-12-29]