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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

OR

        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, PA

19462

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (610) 630-6357

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

    

    

Name Of Each Exchange

Title of Each Class

Trading Symbol(s)

On Which Registered

Class A 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 No

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 No

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 ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

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.

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

As of November 4, 2020, there were 63,882,204 shares of the Registrant’s Class A Common Stock issued and outstanding and 25,751,706 shares of the Registrant’s Class B Common Stock issued and outstanding.

ADAPTHEALTH CORP.

FORM 10-Q

TABLE OF CONTENTS

Page Number

PART I FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements (Unaudited)

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

5

Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

6

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019

7

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019

8

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

10

Notes to Consolidated Interim Financial Statements

11

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

36

Item 3. Quantitative and Qualitative Disclosures About Market Risk

52

Item 4. Controls and Procedures

52

PART II OTHER INFORMATION

53

Item 1. Legal Proceedings

53

Item 1A. Risk Factors

53

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

78

Item 3. Defaults upon Senior Securities

79

Item 4. Mine Safety Disclosure

79

Item 5. Other Information

79

Item 6. Exhibits

79

Signatures

82

1

CERTAIN DEFINED TERMS

Throughout this Quarterly Report on Form 10-Q, unless otherwise specified or the context so requires:

A Blocker” means Access Point Medical, Inc., a Delaware corporation;

A Blocker Seller” means Clifton Bay Offshore Investments L.P., a British Virgin Islands limited partnership;

A&R AdaptHealth Holdings LLC Agreement” means the Fifth Amended and Restated Limited Liability Company Agreement of AdaptHealth Holdings, dated as of November 8, 2019;

AdaptHealth Holdings” means AdaptHealth Holdings LLC, a Delaware limited liability company;

AdaptHealth Units” means units of AdaptHealth Holdings;

Blocker Companies” means A Blocker and BM Blocker;

Blocker Sellers” means A Blocker Seller and the BlueMountain Entities;

BlueMountain Entities” means BM AH Holdings, LLC, BlueMountain Summit Opportunities Fund II (US) L.P., BMSP L.P., BlueMountain Foinaven Master Fund L.P. and BlueMountain Fursan Fund L.P., collectively;

BM Blocker” means BM AH Holdings, LLC, a Delaware limited liability company;

BM Notes” means, collectively, the Promissory Notes, dated as of November 8, 2019, and Amended and Restated Promissory Notes, dated as of March 20, 2019, issued by AdaptHealth Holdings in favor of affiliates of BlueMountain Capital Management, LLC, which amended and restated the Promissory Notes, dated as March 20, 2019, issued by AdaptHealth Holdings in favor of affiliates of BlueMountain Capital Management, LLC;

Business Combination” means our business combination with AdaptHealth Holdings, which we completed on November 8, 2019;

Class A Common Stock” means our Class A Common Stock, par value $0.0001 per share, created on the Closing;

Class B Common Stock” means our Class B Common Stock, par value $0.0001 per share, created on the Closing;

Closing” means the closing of the Business Combination;

Common Stock” means our Class A Common Stock and our Class B Common Stock, collectively;

Consideration Unit” means one AdaptHealth Unit together with one share of Class B Common Stock;

Deerfield Private Design Fund IV” means Deerfield Private Design Fund IV, L.P., a Delaware limited partnership;

Deerfield Subscription Agreement” means the Amended and Restated Subscription Agreement, dated as of October 15, 2019, among DFB, Deerfield Private Design Fund IV and RAB Ventures (DFB) LLC;

Exchange Agreement” means the Exchange Agreement, dated as of November 8, 2019, by and among AdaptHealth, AdaptHealth Holdings, and holders of AdaptHealth Units;

2

OEP Purchaser” means OEP AHCO Investment Holdings, LLC, a Delaware limited liability company;

Put/Call Agreement” means the Put/Call Option and Consent Agreement, dated as of May 25, 2020, by and among the Company, AdaptHealth Holdings, BlueMountain Foinaven Master Fund L.P., BMSB L.P., BlueMountain Fursan Fund L.P. and BlueMountain Summit Opportunities Fund II (US) L.P., as amended on October 16, 2020;

Registration Rights Agreement” means the Registration Rights Agreement, dated as of November 8, 2019, by and among AdaptHealth, AdaptHealth Holdings, and certain investors party thereto, as amended on June 24, 2020;

Series A Preferred Stock” means the series of preferred stock of the Company designated as “Series A Convertible Preferred Stock,” par value $0.0001 per share;

Series B-1 Preferred Stock” means the series of preferred stock of the Company designated as “Series B-1 Convertible Preferred Stock,” par value $0.0001 per share;

Series B-2 Preferred Stock” means the series of preferred stock of the Company designated as “Series B-2 Convertible Preferred Stock,” par value $0.0001 per share;

Solara” means Solara Holdings, LLC, a Delaware limited liability company;

Sponsor” means Deerfield/RAB Ventures LLC;

Tax Receivable Agreement” means the Tax Receivable Agreement, dated as of November 8, 2019, by and among AdaptHealth, AdaptHealth Holdings, and holders of AdaptHealth Units; and

“Warrants” means, collectively, the warrants that were issued in our initial public offering (our “IPO”) pursuant to the registration statement declared effective on February 15, 2018 and which were redeemed on September 2, 2020 (the “public warrants”) and the warrants initially issued to our Sponsor in a private placement that occurred simultaneously with our IPO (the “private placement warrants”), which private placement warrants have been distributed from the Sponsor to its members.

3

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:

the ability to maintain the listing of our Class A Common Stock on Nasdaq;
competition and the ability of our business to grow and manage growth profitably;
changes in applicable laws or regulations;
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;
the impact of the coronavirus (COVID-19) pandemic and our response to it; and
other risks and uncertainties set forth in this Form 10-Q, as well as all documents incorporated by reference herein.

4

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

September 30, 

December 31,

2020

2019

Assets

Current assets:

  

  

Cash and cash equivalents

$

272,318

$

76,878

Accounts receivable

 

147,335

 

78,619

Inventory

 

46,477

 

13,239

Prepaid and other current assets

 

18,255

 

12,679

Total current assets

 

484,385

 

181,415

Equipment and other fixed assets, net

 

101,656

 

63,559

Goodwill

 

810,480

 

266,791

Identifiable intangible assets, net

94,725

Other assets

 

6,466

 

6,851

Deferred tax assets

 

51,114

 

27,505

Total Assets

$

1,548,826

$

546,121

Liabilities and Stockholders' Equity (Deficit)

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

192,337

$

102,728

Current portion of capital lease obligations

 

19,699

 

19,750

Current portion of long-term debt

 

8,479

 

1,721

Contract liabilities

 

13,231

 

9,556

Other liabilities

 

81,059

 

17,139

Total current liabilities

 

314,805

 

150,894

Long-term debt, less current portion

 

722,730

 

395,112

Other long-term liabilities

 

71,576

 

29,364

Total Liabilities

 

1,109,111

 

575,370

Commitments and contingencies (note 14)

 

 

Stockholders’ Equity (Deficit)

 

 

Class A Common Stock, par value of $0.0001 per share, 210,000,000 shares authorized; 62,680,967 and 40,816,292 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

6

4

Class B Common Stock, par value of $0.0001 per share, 35,000,000 shares authorized; 25,874,704 and 31,563,799 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

3

3

Preferred Stock, par value of $0.0001 per share, 5,000,000 shares authorized; 183,560 and 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

1

Additional paid-in capital

476,861

11,252

Accumulated deficit

(23,130)

(27,210)

Accumulated other comprehensive (loss) income

 

(5,111)

 

1,431

Total stockholders' equity (deficit) attributable to AdaptHealth Corp.

 

448,630

 

(14,520)

Noncontrolling interests in subsidiaries

 

(8,915)

 

(14,729)

Total stockholders' equity (deficit)

 

439,715

 

(29,249)

Total Liabilities and Stockholders' Equity (Deficit)

$

1,548,826

$

546,121

See accompanying notes to unaudited consolidated interim financial statements.

5

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, 

2020

    

2019

    

2020

    

2019

Net revenue

$

284,405

$

136,451

$

707,960

$

380,103

Costs and expenses:

 

  

 

  

 

 

Cost of net revenue

 

240,720

 

114,797

 

604,777

 

317,174

General and administrative expenses

 

26,306

 

12,090

 

57,745

 

31,508

Depreciation and amortization, excluding patient equipment depreciation

 

4,120

 

840

 

6,398

 

2,439

Total costs and expenses

 

271,146

 

127,727

 

668,920

 

351,121

Operating income

 

13,259

 

8,724

 

39,040

 

28,982

Interest expense, net

 

12,406

 

10,756

 

27,826

 

31,651

Loss on extinguishment of debt

 

5,316

 

 

5,316

 

2,121

Income (loss) before income taxes

 

(4,463)

 

(2,032)

 

5,898

 

(4,790)

Income tax expense (benefit)

 

(636)

 

1,027

 

2,290

 

5,444

Net income (loss)

(3,827)

(3,059)

3,608

(10,234)

Income (loss) attributable to noncontrolling interests

 

(1,338)

 

627

 

2,222

 

1,336

Net income (loss) attributable to AdaptHealth Corp.

$

(2,489)

$

(3,686)

$

1,386

$

(11,570)

Weighted average common shares outstanding - basic

57,372

21,721

47,986

19,130

Weighted average common shares outstanding - diluted

57,372

21,721

50,848

19,130

Basic earnings (loss) per share (1)

$

(0.04)

$

(0.17)

$

0.03

$

(0.60)

Diluted earnings (loss) per share (1)

$

(0.04)

$

(0.17)

$

0.02

$

(0.60)

(1) The Company's preferred stock are considered participating securities and are therefore excluded from the earnings per share calculation under the two-class method (see Note 11 to the unaudited consolidated interim financial statements).

See accompanying notes to unaudited consolidated interim financial statements.

6

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

(UNAUDITED)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

2019

2020

2019

Net income (loss)

$

(3,827)

$

(3,059)

$

3,608

$

(10,234)

Other comprehensive loss:

 

  

 

  

 

 

Interest rate swap agreements, inclusive of reclassification adjustment

 

925

 

850

 

(11,558)

 

850

Comprehensive income (loss)

 

(2,902)

 

(2,209)

 

(7,950)

 

(9,384)

Income (loss) attributable to noncontrolling interests

 

(1,338)

 

627

 

2,222

 

1,336

Comprehensive income (loss) attributable to AdaptHealth Corp.

$

(1,564)

$

(2,836)

$

(10,172)

$

(10,720)

See accompanying notes to unaudited consolidated interim financial statements.

7

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(IN THOUSANDS)

(UNAUDITED)

Controlling

Accumulated

Additional

interest

other

Noncontrolling

Class A Common Stock

Class B Common Stock

Preferred Stock

paid-in

Members'

members'

Accumulated

comprehensive

interests in

  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

capital

  

interest

  

deficit

  

deficit

  

income (loss)

  

subsidiaries

  

Total

Balance, December 31, 2019

40,816

$

4

31,564

$

3

$

$

11,252

$

$

$

(27,210)

$

1,431

$

(14,729)

$

(29,249)

Issuance of Class A Common Stock for an acquisition

387

6,248

6,248

Exchange of Class B Common Stock for Class A Common Stock

1,000

(1,000)

(361)

361

Exercise of warrants

1,092

Equity-based compensation

59

2,223

2,223

Net income (loss)

(158)

424

266

Equity activity resulting from Tax Receivable Agreement

2,482

2,482

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

(6,570)

(4,847)

(11,417)

Balance, March 31, 2020

43,354

$

4

30,564

$

3

$

$

21,844

$

$

$

(27,368)

$

(5,139)

$

(18,791)

$

(29,447)

Exchange of Class B Common Stock for Class A Common Stock

2,055

(2,055)

(1,580)

1,580

Exercise of warrants

1,034

1

11,882

11,883

Equity-based compensation

32

3,244

3,244

Exchange of Class A Common Stock for Series B-1 Preferred Stock

(15,810)

(2)

158

1

1

Distributions to noncontrolling interests

(800)

(800)

Net income

4,033

3,136

7,169

Equity activity resulting from Tax Receivable Agreement

2,223

2,223

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

(656)

(410)

(1,066)

Balance, June 30, 2020

30,665

$

3

28,509

$

3

158

$

1

$

37,614

$

$

$

(23,335)

$

(5,795)

$

(15,285)

$

(6,794)

Issuance of Class A Common Stock for acquisitions

4,344

1

83,280

83,281

Sale of Class A Common Stock and Series A Preferred Stock, net of offering costs of $1,639

10,930

1

75

223,360

223,361

Issuance of Class A Common Stock, net of offering costs of $9,558

9,200

1

133,041

133,042

Exchange of Class B Common Stock for Class A Common Stock

2,634

(2,634)

(7,467)

7,467

Exercise of warrants

1,979

12,612

12,612

Equity-based compensation

35

5,502

5,502

Conversion of Series B-2 Preferred Stock to Series B-1 Preferred Stock

(9)

Conversion of Series A Preferred Stock to Class A Common Stock

2,888

(40)

Class A Common Stock issued in connection with Employee Stock Purchase Plan

6

Net loss

(2,489)

(1,338)

(3,827)

Equity activity resulting from Tax Receivable Agreement

2,236

2,236

Equity activity resulting from the impact of other changes in ownership and deferred taxes

(10,623)

(10,623)

Equity activity resulting from the Put/Call Agreement

(2,694)

2,694

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

684

241

925

Balance, September 30, 2020

62,681

$

6

25,875

$

3

184

$

1

$

476,861

$

$

$

(23,130)

$

(5,111)

$

(8,915)

$

439,715

8

Controlling

Accumulated

Additional

interest

other

Noncontrolling

Class A Common Stock

Class B Common Stock

Preferred Stock

paid-in

Members'

members'

Accumulated

comprehensive

interests in

    

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

capital

  

interest

  

deficit

  

deficit

  

income (loss)

  

subsidiaries

  

Total

Balance, December 31, 2018

$

$

$

$

$

113,274

$

(13,371)

$

$

$

2,865

$

102,768

Issuance of members' interest, net of offering costs of $837

 

19,163

19,163

Redemption of members' interest

 

(2,112)

(1,601)

(3,713)

Equity-based compensation

 

5,223

5,223

Distributions to members

 

(250,000)

(250,000)

Net income (loss)

(5,801)

348

(5,453)

Balance, March 31, 2019

 

$

$

$

$

$

135,548

$

(270,773)

$

$

$

3,213

$

(132,012)

Equity-based compensation

 

183

183

Distributions to noncontrolling interest

 

(1,338)

(1,338)

Net income (loss)

(2,083)

361

(1,722)

Balance, June 30, 2019

$

$

$

$

$

135,731

$

(272,856)

$

$

$

2,236

$

(134,889)

Equity-based compensation

400

400

Net income (loss)

(3,686)

627

(3,059)

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

850

850

Balance, September 30, 2019

 

$

$

$

$

$

136,131

$

(276,542)

$

$

850

$

2,863

$

(136,698)

See accompanying notes to unaudited consolidated interim financial statements.

9

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

Nine Months Ended September 30, 

2020

2019

Cash flows from operating activities:

Net income (loss)

$

3,608

$

(10,234)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Depreciation and amortization, including patient equipment depreciation

 

55,186

 

45,077

Equity-based compensation

 

10,969

 

5,806

Deferred income tax (benefit) expense

 

(564)

 

2,115

Change in fair value of interest rate swaps, net of reclassification adjustment

(2,130)

12,141

Change in fair value of contingent consideration

(2,900)

Payment of contingent consideration in connection with an acquisition

(1,000)

Amortization of intangible assets

2,675

Amortization of deferred financing costs

 

1,189

 

830

Amortization of bond discount

128

Imputed interest expense

46

Write-off of deferred financing costs

 

5,316

 

2,121

Gain on sale of investment

(591)

Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

Accounts receivable

 

(19,251)

 

(17,250)

Inventory

 

(10,166)

 

(2,388)

Prepaid and other assets

 

(1,459)

 

(2,381)

Accounts payable and accrued expenses and other current liabilities

 

104,231

 

7,337

Net cash provided by operating activities

 

145,287

 

43,174

Cash flows from investing activities:

 

 

Payments for business acquisitions, net of cash acquired

 

(605,309)

 

(47,946)

Purchases of equipment and other fixed assets

 

(22,834)

 

(14,453)

Payments for investments in cost method companies

(1,000)

Proceeds from sale of investment

2,046

Net cash used in investing activities

 

(627,097)

 

(62,399)

Cash flows from financing activities:

 

 

Proceeds from borrowings on long-term debt and lines of credit

 

536,275

 

345,500

Repayments on long-term debt and lines of credit

 

(545,584)

 

(156,062)

Proceeds from the sale of Class A Common Stock and Series A Preferred Stock

225,000

Proceeds from the issuance of Class A Common Stock