AdaptHealth Corp. [AHCO] Filings

10-Q 1 ahco-20240630.htm 10-Q ahco-20240630

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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 June 30, 2024

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 August 2, 2024, there were 134,469,847 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 June 30, 2024 and December 31, 2023			3

Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023			4

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023			5

Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023			6

Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023			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			54

Item 4. Controls and Procedures			55


PART II OTHER INFORMATION			57

Item 1. Legal Proceedings			57

Item 1A. Risk Factors			57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57

Item 3. Defaults upon Senior Securities			57

Item 4. Mine Safety Disclosure			57

Item 5. Other Information			57

Item 6. Exhibits			57

Signatures			59

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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 profitable growth;

•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.

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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)


	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash	$	69,832	$	77,132
Accounts receivable	437,077		388,910
Inventory	123,896		113,642
Prepaid and other current assets	55,623		69,338
Total current assets	686,428		649,022
Equipment and other fixed assets, net	496,136		495,101
Operating lease right-of-use assets	106,816		110,465
Finance lease right-of-use assets	37,660		31,962
Goodwill	2,711,880		2,724,958
Identifiable intangible assets, net	119,021		130,160
Other assets	19,418		21,128
Deferred tax assets	333,553		345,854
Total Assets	$	4,510,912	$	4,508,650
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	446,560	$	391,994
Current portion of long-term debt	40,000		53,368
Current portion of operating lease obligations	30,785		29,270
Current portion of finance lease obligations	11,587		9,122
Contract liabilities	36,245		38,570
Warrant liability	4,464		4,021
Other liabilities	26,383		10,654
Total current liabilities	596,024		536,999
Long-term debt, less current portion	2,040,451		2,094,614
Operating lease obligations, less current portion	80,249		85,529
Finance lease obligations, less current portion	25,933		22,746
Other long-term liabilities	275,602		302,093
Total Liabilities	3,018,259		3,041,981
Commitments and contingencies (note 14)
Stockholders' Equity:
Common Stock, par value of $0.0001 per share, 300,000,000 shares authorized; 133,376,523 and 132,634,850 shares issued and outstanding as of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023	1		1
Treasury stock, at cost (3,935,035 shares at June 30, 2024 and December 31, 2023)	(43,267)		(43,267)
Additional paid-in capital	2,159,521		2,149,951
Accumulated deficit	(635,299)		(652,600)
Accumulated other comprehensive income	4,848		4,356
Total stockholders' equity attributable to AdaptHealth Corp.	1,485,817		1,458,454
Noncontrolling interest in subsidiary	6,836		8,215
Total Stockholders' Equity	1,492,653		1,466,669
Total Liabilities and Stockholders' Equity	$	4,510,912	$	4,508,650

See accompanying notes to unaudited interim consolidated financial statements.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net revenue	$	805,975	$	793,286	$	1,598,472	$	1,537,912
Costs and expenses:
Cost of net revenue	678,973		673,397		1,354,666		1,328,793
General and administrative expenses	57,012		50,078		105,390		97,599
Depreciation and amortization, excluding patient equipment depreciation	11,395		15,549		22,760		31,081
Goodwill impairment (note 5)	6,548		—		13,078		—
Total costs and expenses	753,928		739,024		1,495,894		1,457,473
Operating income	52,047		54,262		102,578		80,439
Interest expense, net	33,038		32,552		65,510		64,507
Change in fair value of warrant liability (note 10)	(7,010)		(812)		443		(22,726)
Other (income) loss, net	(1,760)		2,082		3,345		3,257
Income before income taxes	27,779		20,440		33,280		35,401
Income tax expense	7,248		5,399		13,858		3,685
Net income	20,531		15,041		19,422		31,716
Income attributable to noncontrolling interest	1,096		1,064		2,121		2,032
Net income attributable to AdaptHealth Corp.	$	19,435	$	13,977	$	17,301	$	29,684

Weighted average common shares outstanding - basic	133,218		134,295		133,066		134,409
Weighted average common shares outstanding - diluted	136,029		136,233		135,698		138,000

Basic net income per share (note 11)	$	0.13	$	0.10	$	0.12	$	0.20
Diluted net income per share (note 11)	$	0.13	$	0.09	$	0.12	$	0.03

See accompanying notes to unaudited interim consolidated financial statements.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	20,531	$	15,041	$	19,422	$	31,716
Other comprehensive income (loss):
Gain (loss) on interest rate swap agreements, inclusive of reclassification adjustment, net of tax	(364)		2,454		492		(351)
Comprehensive income	20,167		17,495		19,914		31,365

Income attributable to noncontrolling interest	1,096		1,064		2,121		2,032
Comprehensive income attributable to AdaptHealth Corp.	$	19,071	$	16,431	$	17,793	$	29,333

See accompanying notes to unaudited interim consolidated financial statements.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

(UNAUDITED)


	Common Stock			Preferred Stock			Treasury Stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income		Noncontrolling interest in subsidiary		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2023	132,635	$	13	124	$	1	3,935	$	(43,267)	$	2,149,951	$	(652,600)	$	4,356	$	8,215	$	1,466,669
Equity-based compensation	300	—		—	—		—	—		4,533		—		—		—		4,533
Exercise of stock options	177	—		—	—		—	—		545		—		—		—		545
Payments for tax withholdings from restricted stock vesting	—	—		—	—		—	—		(1,072)		—		—		—		(1,072)
Common Stock issued in connection with employee stock purchase plan	83	—		—	—		—	—		607		—		—		—		607
Net (loss) income	—	—		—	—		—	—		—		(2,134)		—		1,025		(1,109)
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		856		—		856
Balance, March 31, 2024	133,195	$	13	124	$	1	3,935	$	(43,267)	$	2,154,564	$	(654,734)	$	5,212	$	9,240	$	1,471,029
Equity-based compensation	182	—		—	—		—	—		5,218		—		—		—		5,218
Payments for tax withholdings from restricted stock vesting	—	—		—	—		—	—		(261)		—		—		—		(261)
Distribution to non-controlling interest	—	—		—	—		—	—		—		—		—		(3,500)		(3,500)
Net income	—	—		—	—		—	—		—		19,435		—		1,096		20,531
Change in fair value of interest rate swaps, inclusive of reclassification adjustment	—	—		—	—		—	—		—		—		(364)		—		(364)
Balance, June 30, 2024	133,377	$	13	124	$	1	3,935	$	(43,267)	$	2,159,521	$	(635,299)	$	4,848	$	6,836	$	1,492,653

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	Common Stock			Preferred Stock			Treasury Stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		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
June 30, 2023	134,518	$	13	124	$	1	1,383	$	(23,216)	$	2,139,820	$	55,979	$	8,342	$	6,132	$	2,187,071

See accompanying notes to unaudited interim consolidated financial statements.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS) (UNAUDITED)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	19,422	$	31,716
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including patient equipment depreciation	184,038		193,109
Goodwill impairment	13,078		—
Equity-based compensation	9,751		12,763
Change in fair value of warrant liability	443		(22,726)
Reduction in the carrying amount of operating lease right-of-use assets	17,770		16,794
Reduction in the carrying amount of finance lease right-of-use assets	4,793		3,007
Deferred income tax expense	12,103		1,413
Change in fair value of interest rate swaps, net of reclassification adjustment	(367)		(987)
Amortization of deferred financing costs	2,729		2,617
Payment of contingent consideration from an acquisition	(1,850)		—
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(48,166)		(5,011)
Inventory	(10,254)		13,808
Prepaid and other assets	16,225		10,199
Operating lease obligations	(17,887)		(16,662)
Operating liabilities	45,191		(13,473)
Net cash provided by operating activities	247,019		226,567
Cash flows from investing activities:
Purchases of equipment and other fixed assets	(169,163)		(171,730)
Payments for business acquisitions, net of cash acquired	—		(17,905)
Payments for cost method investments	—		(128)
Net cash used in investing activities	(169,163)		(189,763)
Cash flows from financing activities:
Proceeds from borrowings on lines of credit	75,000		50,000
Repayments on long-term debt and lines of credit	(145,000)		(65,000)
Repayments of finance lease obligations	(4,890)		(3,679)
Payments for shares purchased under share repurchase program	—		(9,224)
Proceeds from the exercise of stock options	545		—
Proceeds received in connection with employee stock purchase plan	607		1,021
Payments relating to the Tax Receivable Agreement	(1,432)		(3,202)
Distributions to noncontrolling interest	(3,500)		(2,500)
Payments for tax withholdings from restricted stock vesting and stock option exercises	(1,399)		(4,366)
Payments of contingent consideration and deferred purchase price from acquisitions	(5,087)		(1,000)
Net cash used in financing activities	(85,156)		(37,950)
Net decrease in cash	(7,300)		(1,146)
Cash at beginning of period	77,132		46,272
Cash at end of period	$	69,832	$	45,126
Supplemental disclosures:
Cash paid for interest	$	63,276	$	62,782
Cash paid for income taxes, net of refunds	12,098		5,567
Noncash investing and financing activities:
Unpaid equipment and other fixed asset purchases at end of period	40,639		32,942
Assets subject to operating lease obligations	15,967		5,112
Operating lease obligations	(15,967)		(5,112)
Write-off of assets subject to operating lease obligations	(1,845)		—
Write-off of operating lease obligations	1,845		—
Assets subject to finance lease obligations	10,895		12,203
Finance lease obligations	(10,895)		(12,203)
Deferred purchase price in connection with acquisitions	—		50

See accompanying notes to unaudited interim consolidated financial statements.

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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.

Richard Barasch, former Chair of the Board of Directors of AdaptHealth, served as the Company's Interim Chief Executive Officer from June 30, 2023 through May 19, 2024. Effective May 20, 2024, Suzanne Foster was hired as Chief Executive Officer and appointed as a member of the board of directors of the Company. On April 10, 2024, the Company entered into an employment agreement with Ms. Foster (the “CEO Employment Agreement”) that governs the terms of her employment as the Chief Executive Officer of the Company. Effective June 30, 2024, Mr. Barasch resigned as a director of the Company. For the period from May 20, 2024 through June 30, 2024, in his role as Chair of the Board of Directors, Mr. Barasch actively assisted with the transition of his duties and responsibilities as the Interim CEO to Ms. Foster. On July 2, 2024, the Company announced the appointment of Dale Wolf as Chair of the Board effective July 1, 2024.

On July 2, 2024, the Company announced that Joshua Parnes, President and a member of the board of directors of the Company, will resign from all positions that he holds with the Company effective August 31, 2024, and will continue to serve as a non-executive member of the board of directors until December 31, 2024.

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, 2023. 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, 2023.

(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.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

(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 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 also 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, including the revenue growth rates, discount rate, and control premium used to estimate the 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.

(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
Developed technology			5 years

The Company did not recognize any impairment charges on long-lived assets for the six months ended June 30, 2024 and 2023.

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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 Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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. The Company does not estimate forfeitures in connection with its accounting for equity-based compensation, and instead accounts for forfeitures as they occur. See 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 Chief Executive Officer, who currently 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 ASC 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.

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.

See Note 12, Leases, for additional information.

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(j) Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2024, the FASB issued Accounting Standards update "ASU" No. 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements, which removes various references to concepts statements from the FASB Accounting Standards Codification. This ASU is effective for the Company beginning in the first quarter of fiscal year 2026, with early adoption permitted. The Company does not expect that the new guidance will have a material impact on its consolidated financial statements, and intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2026.

In March 2024, the FASB issued ASU No. 2024-01, Compensation-Stock Compensation ("Topic 718"), which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of ASC 718. ASU 2024-01 is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes ("Topic 740"). This ASU improves the transparency of income tax disclosures by requiring public business entities to disclose specific categories in the annual rate reconciliation as well as disclose income tax expense (or benefit) and the amount of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective on a prospective basis for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting ("Topic 280"), which requires disclosure of incremental segment information, including significant segment expenses that are regularly provided to the chief operating decision maker and to disclose how reported measures of segment profit or loss are used in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures.

In August 2023, the FASB issued ASU No. 2023-05, Business Combinations-Joint Venture Formations ("Topic 805-60"), which requires that all entities that qualifies as either a joint venture or a corporate joint venture are required to apply a new basis of accounting. Specifically, the ASU provides that a joint venture or a corporate joint venture must initially measure its assets and liabilities at fair value on the formation date. ASU 2023-05 is effective for all joint ventures that are formed on or after January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures.

In March 2024, the SEC issued its final climate disclosure rule, which requires registrants to provide climate-related disclosures in their annual reports and registration statements. The new disclosure requirements will be effective for the Company beginning with its annual report for the year ending December 31, 2025. In April 2024, the SEC stayed its final climate rule to allow for a judicial review of pending legal challenges. The Company is currently evaluating the impact these rules will have on its consolidated financial statements and related disclosures and will monitor the litigation progress relating to these rules for possible impacts on the disclosure requirements under the rules.

(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.

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The Company determines the transaction price based on contractually agreed-upon amounts or rates, referred to as explicit price concessions, adjusted for estimates of variable consideration, such as implicit price concessions, based on historical reimbursement experience. The Company utilizes the expected value method to determine the amount of variable consideration, including implicit and explicit price concessions, that should be included to arrive at the transaction price, using contractual agreements and historical reimbursement experience. 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 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 by core product line for the three and six months ended June 30, 2024 is included in the table below. The Company’s revenue recognized under its capitation arrangements for the three and six months ended June 30, 2023 is included in net sales revenue and net revenue from fixed monthly equipment reimbursements by core product line in the table below, which was immaterial for those periods.

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 contractual allowance, referred to as an explicit price concession, 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.

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

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 six months ended June 30, 2024 and 2023 are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Insurance	$	487,787	$	474,828	$	971,152	$	911,612
Government	210,946		209,662		409,344		398,509
Patient pay	107,242		108,796		217,976		227,791
Net revenue	$	805,975	$	793,286	$	1,598,472	$	1,537,912

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

The composition of net revenue by core product lines for the three and six months ended June 30, 2024 and 2023 are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net sales revenue:
Sleep	$	233,361	$	215,849	$	458,887	$	429,306
Diabetes	147,261		165,021		294,240		307,565
Supplies to the home	44,265		48,323		88,913		94,878
Respiratory	7,871		8,191		15,575		16,120
HME	25,963		27,237		51,585		55,800
Other	57,684		57,012		113,345		110,219
Total net sales revenue	$	516,405	$	521,633	$	1,022,545	$	1,013,888

Net revenue from fixed monthly equipment reimbursements:
Sleep	$	82,053	$	86,783	$	162,743	$	167,705
Diabetes	2,382		3,886		4,661		7,717
Respiratory	138,899		145,889		276,131		280,612
HME	23,355		23,974		45,921		46,315
Other	11,637		11,121		23,208		21,675
Total net revenue from fixed monthly equipment reimbursements	$	258,326	$	271,653	$	512,664	$	524,024

Net revenue from capitated revenue arrangements:
Sleep	$	6,976	$	—	$	14,028	$	—
Diabetes	1,546		$	—	3,144		—
Supplies to the home	3,080		$	—	6,290		—
Respiratory	14,456		$	—	29,582		—
HME	3,712		$	—	7,210		—
Other	1,474		$	—	3,009		—
Total net revenue from capitated revenue arrangements	$	31,244	$	—	$	63,263	$	—

Total net revenue:
Sleep	$	322,390	$	302,632	$	635,658	$	597,011
Diabetes	151,189		168,907		302,045		315,282
Supplies to the home	47,345		48,323		95,203		94,878
Respiratory	161,226		154,080		321,288		296,732
HME	53,030		51,211		104,716		102,115
Other	70,795		68,133		139,562		131,894
Total net revenue	$	805,975	$	793,286	$	1,598,472	$	1,537,912

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

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

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.

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 considered implicit price concession adjustments and are recognized as an adjustment to net revenue in the period of revision. The Company does not have any material bad debt expense.

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 June 30, 2024 and December 31, 2023, the Company’s unbilled accounts receivable was $40.2 million and $68.4 million, respectively.

(3) Acquisitions

The Company’s acquisitions are 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 Company did not complete any acquisitions during the six months ended June 30, 2024. During the six months ended June 30, 2023, the Company acquired 100% of the equity interests of three providers of home medical equipment ("HME") and acquired certain assets of the home medical equipment businesses of two providers of HME. The following table summarizes the consideration paid at closing for all acquisitions during the six months ended June 30, 2023 (in thousands):


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

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

The Company allocated the consideration paid to the net assets acquired based on their estimated acquisition date fair values. Based upon management’s evaluation, the consideration paid for all acquisitions during the six months ended June 30, 2023 was allocated as follows during the period (in thousands):


Cash	$	268
Accounts receivable	1,798
Inventory	1,001
Prepaid and other current assets	10
Equipment and other fixed assets	9,863
Operating lease right-of-use assets	5,506
Finance lease right-of-use assets	200
Goodwill	6,796
Accounts payable and accrued expenses	(667)
Other current liabilities	(846)
Operating lease liabilities	(5,506)
Finance lease liabilities	(200)
Net assets acquired	$	18,223

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 six months ended June 30, 2023.

(4) Equipment and Other Fixed Assets

Equipment and other fixed assets as of June 30, 2024 and December 31, 2023 are as follows (in thousands):


	June 30, 2024		December 31, 2023
Patient medical equipment	$	811,940	$	791,349
Computers and software	91,053		85,509
Delivery vehicles	35,062		35,021
Other	22,079		20,203
Gross carrying value	960,134		932,082
Less accumulated depreciation	(463,998)		(436,981)
Equipment and other fixed assets, net	$	496,136	$	495,101

For the three months ended June 30, 2024 and 2023, the Company recorded depreciation expense of $85.6 million and $89.3 million, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded depreciation expense of $172.9 million and $173.1 million, respectively.

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

(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 six months ended June 30, 2024 was as follows (in thousands):


	Gross carrying amount
Balance at December 31, 2023	$	2,724,958
Goodwill impairment	(13,078)
Balance at June 30, 2024	$	2,711,880

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. The Company did not identify any triggering events indicating a possible impairment of goodwill at June 30, 2024.

The non-cash goodwill impairment charge included in the table above relates to a definitive agreement for the disposition of certain immaterial custom rehab technology assets which was signed subsequent to June 30, 2024, and is expected to close in the third quarter of 2024.

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 consumed. Identifiable intangible assets consisted of the following at June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024
			Weighted-Average Remaining Life (Years)
Tradenames, net of accumulated amortization of $44,723	$	68,077	6.2
Payor contracts, net of accumulated amortization of $32,316	49,684		6.1
Developed technology, net of accumulated amortization of $5,040	1,260		1.0
Identifiable intangible assets, net	$	119,021


	December 31, 2023
			Weighted-Average Remaining Life (Years)
Tradenames, net of accumulated amortization of $38,314	$	74,486	6.6
Payor contracts, net of accumulated amortization of $28,216	53,784		6.6
Developed technology, net of accumulated amortization of $4,410	1,890		1.5
Identifiable intangible assets, net	$	130,160

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 $5.6 million and $11.1 million

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

for the three and six months ended June 30, 2024, respectively, and was $10.0 million and $20.0 million for the three and six months ended June 30, 2023, respectively.

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


Twelve months ending June 30,
2025	$	22,217
2026	20,119
2027	18,384
2028	17,936
2029	17,936
Thereafter	22,429
Total	$	119,021

The Company did not recognize any impairment charges related to identifiable intangible assets during the six months ended June 30, 2024 and 2023.

(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 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 June 30, 2024 and December 31, 2023 measured at fair value on a recurring basis. The fair value estimates presented herein are based on information available to management as of June 30, 2024 and December 31, 2023. These estimates are not necessarily indicative of the amounts the Company could ultimately realize.


(in thousands)	Level 1		Level 2		Level 3
June 30, 2024
Assets
Interest rate swap agreements-short term	$	—	$	4,889	$	—
Interest rate swap agreements-long term	—		1,635		—
Total assets measured at fair value	$	—	$	6,524	$	—

Liabilities
Warrant liability	—		—		4,464
Total liabilities measured at fair value	$	—	$	—	$	4,464

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


(in thousands)	Level 1		Level 2		Level 3
December 31, 2023
Assets
Interest rate swap agreements-short term	$	—	$	4,482	$	—
Interest rate swap agreements-long term	—		986		—
Total assets measured at fair value	$	—	$	5,468	$	—

Liabilities
Acquisition-related contingent consideration-short term	$	—	$	—	$	6,850
Warrant liability	—		—		4,021
Total liabilities measured at fair value	$	—	$	—	$	10,871

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 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 June 30, 2024 and December 31, 2023 were classified as Level 2 of the fair value hierarchy. See 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/loss in the Company’s consolidated statements of operations. At December 31, 2023, contingent consideration liabilities of $6.9 million was included in other current liabilities in the accompanying consolidated balance sheets. There were no contingent consideration liabilities as of June 30, 2024. A reconciliation of the Company’s contingent consideration liabilities related to acquisitions for the six months ended June 30, 2024 and 2023 is as follows (in thousands):

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


Six Months Ended June 30, 2024	Beginning Balance		Payments		Ending Balance
Contingent consideration - Level 3 liabilities	$	6,850	$	(6,850)	$	—
Six Months Ended June 30, 2023
Contingent consideration - Level 3 liabilities	$	7,500	$	—	$	7,500

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. See 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 six months ended June 30, 2024 and 2023, 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 June 30, 2024, 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"). The notional amount associated with the Company's interest rate swap agreements that were outstanding as of June 30, 2024 was $250 million and have a maturity date in January 2026. The Company has designated its swaps as effective cash flow hedges of interest rate risk. Accordingly, changes in the fair value of the interest rate swaps are recorded as a component of accumulated other comprehensive income within stockholders’ equity and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

The table below presents the fair value of the Company’s derivatives related to its interest rate swap agreements, which are designated as hedging instruments, as well as their classification in the consolidated balance sheets at June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024		December 31, 2023
Balance Sheet Location	Asset
Prepaid and other current assets	$	4,889	$	4,482
Other assets	1,635		986
Total	$	6,524	$	5,468

During the three months ended June 30, 2024 and 2023, as a result of the effect of cash flow hedge accounting, the Company recognized a loss, net of tax, of $0.3 million, and a gain, net of tax, of $2.8 million, respectively, in other comprehensive income. In addition, during the three months ended June 30, 2023, $0.4 million was reclassified from other comprehensive income and recognized as a reduction to interest expense, net, in the accompanying consolidated statements of operations. There was no such reclassification during the three months ended June 30, 2024. During the six months ended June 30, 2024 and 2023, as a result of the effect of cash flow hedge accounting, the Company recognized a gain, net of tax, of $0.9 million and $0.6 million, respectively, in other comprehensive income. In addition, during the six months ended June 30, 2024 and 2023, $0.4 million and $1.0 million, respectively, was reclassified from other comprehensive income and recognized as a reduction to interest expense, net, in the accompanying consolidated statements of operations.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

(8) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of June 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Accounts payable	$	279,562	$	211,504
Employee-related accruals	38,502		47,462
Accrued interest	29,151		29,327
Litigation settlement	10,685		57,340
Other	88,660		46,361
Total	$	446,560	$	391,994

As previously disclosed, in February 2024, the Company learned that a cyber security threat actor had gained access to some of the information technology systems of Change Healthcare, a subsidiary of UnitedHealth Group, with which one of the Company’s third-party software providers interfaces in connection with the Company’s claims processing activity. UnitedHealth Group isolated the impacted systems upon learning of this threat and Change Healthcare suspended its claims processing activity with the Company’s software provider. During the six months ended June 30, 2024, the Company participated in the Optum Temporary Funding Assistance Program which was designed to provide short-term cash flow relief to providers impacted by the disruption in Change Healthcare’s services. As of June 30, 2024, the Company received $39.6 million under this program which is expected to be repaid by December 31, 2024, and is included in the Other category in the table above. The Company has not incurred any fees, interest or other associated costs for participating in the program.

(9) Debt

The following is a summary of long term-debt as of June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024		December 31, 2023
Secured term loan	$	650,000	$	720,000
Senior unsecured notes	1,450,000		1,450,000
Unamortized deferred financing fees	(19,549)		(22,018)
	2,080,451		2,147,982
Current portion	(40,000)		(53,368)
Long-term portion	$	2,040,451	$	2,094,614

In January 2021, the Company entered into a credit agreement (as amended, the "2021 Credit Agreement"). The 2021 Credit Agreement included borrowings of $800 million under a secured term loan (the "2021 Term Loan"), and $450 million in commitments for revolving credit loans (the "2021 Revolver"). The 2021 Revolver has a $55 million letter of credit sublimit. The 2021 Term Loan and the 2021 Revolver both have maturities in January 2026. At the option of the Company, amounts borrowed under the 2021 Credit Agreement bear interest at variable rates based upon either the Base Rate (as defined), payable quarterly, or Term SOFR (as defined), payable monthly or quarterly. Interest periods for loans based on Term SOFR are available for one or three months at the option of the Company. Borrowings using Base Rate accrue interest at a per annum rate equal to the sum of (a) the Base Rate determined on each day (subject to a zero percent floor), plus an Applicable Margin (as defined) ranging from 0.50% to 2.25% per annum determined based on the Consolidated Senior Secured Leverage Ratio (as defined) of the Company. Borrowings using Term SOFR accrue interest at a per annum rate equal to the sum of (a) Term SOFR for the applicable interest period (subject to a zero percent floor), plus (b) a Term SOFR adjustment of 0.10%, plus (c) an Applicable Margin (as defined) ranging from 1.50% to 3.25% per annum determined based on the Consolidated Senior Secured Leverage Ratio of the Company. The 2021 Revolver carries a commitment fee during the term of the 2021 Credit Agreement ranging from 0.25% to 0.50% per annum of the actual daily undrawn portion of the 2021 Revolver depending upon the Consolidated Senior Secured Leverage Ratio of the Company.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

Under the 2021 Credit Agreement, the Company is subject to a number of restrictive covenants that, among other things, impose operating and financial restrictions on the Company. Financial covenants include a Consolidated Total Leverage Ratio and a Consolidated Interest Coverage Ratio, both as defined in the 2021 Credit Agreement. The 2021 Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder, failure to observe or perform certain covenants, cross-defaults, bankruptcy and insolvency-related events, and non-compliance with healthcare laws. The Company was in compliance with the applicable covenants in the 2021 Credit Agreement as of June 30, 2024.

Any borrowing under the 2021 Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty, other than customary breakage costs, and any amounts repaid under the 2021 Revolver may be reborrowed. Mandatory prepayments are required under the 2021 Revolver when borrowings and letter of credit usage exceed the total commitments for revolving credit loans. Mandatory prepayments are also required in connection with the disposition of assets to the extent proceeds thereof are not reinvested, unpermitted debt transactions, and from annual Excess Cash Flow (as defined) if certain leverage tests are not met.

Secured Term Loan

The outstanding borrowing under the 2021 Term Loan requires quarterly principal repayments of $10.0 million through December 31, 2025, and the unpaid principal balance is due at maturity in January 2026. As a result of the calculation of excess cash flow as of December 31, 2023, the Company was required to make a mandatory prepayment of $13.4 million on the 2021 Term Loan, which was paid in March 2024. In addition, the Company made voluntary repayments on the 2021 Term Loan totaling $36.6 million during the six months ended June 30, 2024. At June 30, 2024 and December 31, 2023, there was $650.0 million and $720.0 million, respectively, outstanding under the 2021 Term Loan. The per annum interest rate under the 2021 Term Loan was 7.43% at June 30, 2024.

Revolving Credit Facility

During the six months ended June 30, 2024, the Company borrowed $75.0 million under the 2021 Revolver which was repaid during that period. At June 30, 2024, there was $21.6 million outstanding under letters of credit. During the six months ended June 30, 2023, the Company borrowed $50.0 million under the 2021 Revolver which was repaid during that period. Borrowings under the 2021 Revolver may be used for working capital and other general corporate purposes, including for capital expenditures and acquisitions permitted under the 2021 Credit Agreement. At June 30, 2024, based on the financial debt covenants under the 2021 Credit Agreement, the maximum amount the Company could borrow under the 2021 Revolver and remain in compliance with the financial debt covenants under the agreement was $346.4 million.

Senior Unsecured Notes

In August 2021, the Company issued $600.0 million aggregate principal amount of 5.125% senior unsecured notes (the “5.125% Senior Notes”). The 5.125% Senior Notes will mature on March 1, 2030. Interest on the 5.125% Senior Notes is payable on March 1st and September 1st of each year. The 5.125% Senior Notes will be redeemable at AdaptHealth’s option, in whole or in part, at any time on or after March 1, 2025, and the redemption price for the 5.125% Senior Notes if redeemed during the 12 months beginning (i) March 1, 2025 is 102.563%, (ii) March 1, 2026 is 101.281%, (iii) March 1, 2027 and thereafter is 100.000%, in each case together with accrued and unpaid interest. AdaptHealth may also redeem some or all of the 5.125% Senior Notes before March 1, 2025 at a redemption price of 100% of the principal amount of the 5.125% Senior Notes, plus a “make-whole” premium, together with accrued and unpaid interest. In addition, AdaptHealth may redeem up to 40% of the original aggregate principal amount of the 5.125% Senior Notes before March 1, 2025 with the proceeds from certain equity offerings at a redemption price equal to 105.125% of the principal amount of the 5.125% Senior Notes, together with accrued and unpaid interest. Furthermore, AdaptHealth may be required to make an offer to purchase the 5.125% Senior Notes upon the sale of certain assets or upon specific kinds of changes of control.

In January 2021, the Company issued $500.0 million aggregate principal amount of 4.625% senior unsecured notes (the “4.625% Senior Notes”). The 4.625% Senior Notes will mature on August 1, 2029. Interest on the 4.625% Senior Notes is payable on February 1st and August 1st of each year. The 4.625% Senior Notes will be redeemable at AdaptHealth’s option, in whole or in part, at any time on or after February 1, 2024, and the redemption price for the 4.625% Senior Notes if redeemed during the 12 months beginning (i) February 1, 2024 is 102.313%, (ii) February 1, 2025 is 101.156%, and (iii) February 1, 2026 and thereafter is 100.000% in each case together with accrued and unpaid interest. AdaptHealth may also

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

redeem some or all of the 4.625% Senior Notes before February 1, 2024 at a redemption price of 100% of the principal amount of the 4.625% Senior Notes, plus a “make-whole” premium, together with accrued and unpaid interest. In addition, AdaptHealth may redeem up to 40% of the original aggregate principal amount of the 4.625% Senior Notes before February 1, 2024 with the proceeds from certain equity offerings at a redemption price equal to 104.625% of the principal amount of the 4.625% Senior Notes, together with accrued and unpaid interest. Furthermore, AdaptHealth may be required to make an offer to purchase the 4.625% Senior Notes upon the sale of certain assets or upon specific kinds of changes of control.

In July 2020, the Company issued $350.0 million aggregate principal amount of 6.125% senior unsecured notes (the “6.125% Senior Notes”). The 6.125% Senior Notes will mature on August 1, 2028. Interest on the 6.125% Senior Notes is payable on February 1st and August 1st of each year. The 6.125% Senior Notes will be redeemable at AdaptHealth’s option, in whole or in part, at any time on or after August 1, 2023, and the redemption price for the 6.125% Senior Notes if redeemed during the 12 months beginning (i) August 1, 2023 is 103.063%, (ii) August 1, 2024 is 102.042%, (iii) August 1, 2025 is 101.021% and (iv) August 1, 2026 and thereafter is 100.000%, in each case together with accrued and unpaid interest. AdaptHealth may also redeem some or all of the 6.125% Senior Notes before August 1, 2023 at a redemption price of 100% of the principal amount of the 6.125% Senior Notes, plus a “make-whole” premium, together with accrued and unpaid interest. In addition, AdaptHealth may redeem up to 40% of the original aggregate principal amount of the 6.125% Senior Notes before August 1, 2023 with the proceeds from certain equity offerings at a redemption price equal to 106.125% of the principal amount of the 6.125% Senior Notes, together with accrued and unpaid interest. Furthermore, AdaptHealth may be required to make an offer to purchase the 6.125% Senior Notes upon the sale of certain assets or upon specific kinds of changes of control.

(10) Stockholders' Equity

Under the Company's Third Amended and Restated Certificate of Incorporation, there are 300,000,000 shares of authorized Common Stock and 5,000,000 shares of authorized Preferred Stock. Holders of Common Stock are entitled to one vote for each share. The shares of Preferred Stock shall be issued with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.

Treasury Stock

In May 2022, the Company’s board of directors authorized a share repurchase program for up to $200.0 million of the Company’s Common Stock, which expired on December 31, 2023 (the "Share Repurchase Program"). The timing and actual number of shares repurchased depended upon market conditions and other factors. Shares of the Company’s Common Stock were repurchased from time to time on the open market through privately negotiated transactions or otherwise. During the six months ended June 30, 2023, the Company purchased 631,953 shares of the Company’s Common Stock for $9.2 million under the Share Repurchase Program, which is reflected in Treasury Stock in the accompanying consolidated statements of stockholders’ equity. Subsequent to June 30, 2024, as discussed in Note 14, Commitments and Contingencies, the Company issued 1 million shares from its Treasury Stock in connection with a litigation settlement.

Warrants

As of June 30, 2024, the Company had 3,871,557 warrants outstanding, which have an expiration date of November 20, 2024. Each warrant is exercisable into one share of Common Stock at a price of $11.50 per share. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for the issuance of Common Stock at a price below its exercise price. There were no warrants exercised during the six months ended June 30, 2024 and 2023.

The Company classifies its warrants as a liability in its consolidated balance sheets because of certain terms included in the corresponding warrant agreement. The estimated fair value of the warrants is recorded as a liability, with such fair value reclassified to stockholders’ equity upon the exercise of such warrants. Prior to exercise, the change in the estimated fair value of such warrants each period is recognized as a non-cash charge or gain in the Company’s consolidated statements of operations.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

A reconciliation of the changes in the warrant liability during the six months ended June 30, 2024 and 2023 was as follows (in thousands):


Estimated fair value of warrant liability at December 31, 2023	$	4,021
Change in estimated fair value of the warrant liability	443
Estimated fair value of warrant liability at June 30, 2024	$	4,464

Estimated fair value of warrant liability at December 31, 2022	$	38,503
Change in estimated fair value of the warrant liability	(22,726)
Estimated fair value of warrant liability at June 30, 2023	$	15,777

The warrant liability is classified as a current liability as of June 30, 2024 and December 31, 2023 in the accompanying consolidated balance sheets since the expiration date of the warrants is less than one year as of such dates.

Equity-based Compensation

In connection with the Company’s 2019 Stock Incentive Plan (the "2019 Plan"), the Company provides equity-based compensation to attract and retain employees while also aligning employees’ interest with the interests of its stockholders. The 2019 Plan permits the grant of various equity-based awards to selected employees and non-employee directors. On June 20, 2024, the stockholders of the Company approved an amendment and restatement of the 2019 Plan to increase the number of shares of Common Stock of the Company reserved under the 2019 Plan by 8,350,000 shares, to permit the grant of up to 18,350,000 shares of Common Stock, subject to certain adjustments and limitations. At June 30, 2024, 6,678,373 shares of the Company’s Common Stock were available for issuance under the 2019 Plan.

Stock Options

There were no stock options granted during the six months ended June 30, 2024 and 2023. The following table provides the activity regarding the Company’s outstanding stock options during the six months ended June 30, 2024 that were granted in connection with the 2019 Plan (in thousands, except per share data):


	Number of Options	Weighted-Average Grant Date Fair Value per Share		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term
Outstanding, December 31, 2023	2,219	$	3.75	$	19.36	5.1 Years
Expired	(735)	$	4.58	$	23.38
Outstanding, June 30, 2024	1,484	$	3.34	$	17.38	4.8 Years

The following table provides the activity for all outstanding stock options during the six months ended June 30, 2024 (in thousands, except per share data):


	Number of Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term
Outstanding, December 31, 2023	3,409	$	14.90	4.9 Years
Exercised	(177)	$	3.08
Expired	(735)	$	23.38
Outstanding, June 30, 2024	2,497	$	13.24	4.7 Years

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ADAPTHEALTH CORP. AND SUBSIDIARIES

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

During the six months ended June 30, 2024, 176,623 stock options were exercised resulting in $0.5 million of cash proceeds received by the Company and the issuance of 176,623 shares of the Company’s Common Stock. During the six months ended June 30, 2023, 559,071 stock options were exercised on a cashless basis resulting in the issuance of 213,852 shares of the Company's Common Stock.

Restricted Stock

During the six months ended June 30, 2024, the Company granted the following shares of restricted stock:

•1,398,395 shares of restricted stock to various employees which vest ratably over the two or three-year periods following the vesting commencement dates, subject to the employees’ continuous employment through the applicable vesting dates. The grant-date fair value of these awards was $11.6 million

•52,326 shares of restricted stock to an employee which primarily vest on the two-month anniversary following the applicable vesting commencement dates. The grant-date fair value of these awards was $0.5 million

•122,663 shares of restricted stock to the Company's non-employee directors which vest approximately one year following the grant date. The grant-date fair value of these awards was $1.2 million.

•1,047,291 shares of performance-vested restricted stock units ("Performance RSUs") to certain employees of the Company which will vest on the three-year period following the vesting commencement dates subject to the achievement of specified goals relative to the Company’s three-year relative total shareholder return ("Relative TSR") performance versus the Company’s defined peer group (the "Peer Group"), which is considered a market condition, and is also subject to the employees’ continuous employment through the vesting dates. The grant-date fair value of these awards, using a Monte-Carlo simulation analysis, was $19.2 million. The payout of shares on the vesting dates are as follows based on the Company’s Relative TSR versus the Peer Group (for performance between the stated goals noted below, straight-line interpolation will be applied):

•Less than 25th Percentile – No payout

•Greater than or equal to 25th Percentile – 50% of Performance RSUs

•Equal to 50th Percentile – 100% of Performance RSUs

•Greater than or equal to 75th Percentile – 200% of Performance RSUs

Activity related to the Company’s non-vested restricted stock grants for the six months ended June 30, 2024 is presented below (in thousands, except per share data):


	Number of Shares of Restricted Stock	Weighted-Average Grant Date Fair Value per Share
Non-vested balance, December 31, 2023	2,068<

AdaptHealth Corp. [AHCO] Filings
10-Q	[2024-08-06]
10-Q	[2024-05-07]
10-K	[2024-02-27]
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]