This article first appeared on GuruFocus .
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Net Revenue:$745.6 million, up 10.9% YoY; organic growth of 12.8%; $15.6 million above guidance midpoint.
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Year-to-Date Revenue Growth:Up 9.7% versus prior year.
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Sleep Health Revenue:$393.9 million, up 11%.
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Respiratory Health Revenue:$190.8 million, up 7.8%.
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Wellness at Home Revenue:$161 million, up 14.5%.
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Capitated Revenue:$110.3 million, ~15% of continuing operations net revenue, more than 3x prior year; largest capitated contract contributed 10.7 pts of the 12.8% organic growth.
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Adjusted EBITDA:$141.9 million vs. $146.1 million prior year; $11.2 million above guidance midpoint; YTD down 4.2%.
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Adjusted EBITDA Margin:19% vs. 21.7% a year ago.
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Largest Capitated Contract Margin:~10% in Q3, up from negative 4% in Q2; ~14% run rate exiting the quarter; targeting 20% by Q4 next year.
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Net Loss (GAAP):$168.2 million attributable to AdaptHealth, driven primarily by $184.8 million non-cash pre-tax goodwill impairment; $12 million pre-tax gain from e-commerce joint venture contribution.
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Free Cash Flow:$51.1 million for the quarter, in line with ~$50 million guidance; YTD $2.6 million.
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Capital Expenditures:$105.5 million, or 14.2% of consolidated net revenue (vs. 18.1% YTD).
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Net Debt:$1.85 billion, down $48 million from June 30; leverage ratio of 3.05x; net leverage target of 2.5x.
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Unrestricted Cash:$80.7 million.
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Headcount:10,995, down 337 from end of June; capitated contract headcount down more than 12% since end of Q2.
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Manufacturer Rebate Benefit:$8 million realized in Q3, recovering a portion of the estimated ~$30 million second-half EBITDA impact.
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Full-Year Revenue Guidance:Raised to $2.88 billion$2.9 billion (~$20 million increase at midpoint).
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Full-Year Adjusted EBITDA Guidance:$510 million$525 million ($12 million increase at midpoint).
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Q4 Guidance:Net revenue of ~$715 million$735 million; adjusted EBITDA of ~$130 million$145 million.
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Full-Year Free Cash Flow Guidance:Lowered to $55 million$80 million; implies Q4 free cash flow of ~$50 million$75 million.
Release Date: November 03, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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AdaptHealth Corp ( NASDAQ:AHCO ) exceeded Q3 2026 guidance with net revenue of $745.6 million, up 10.9% year-over-year and 12.8% organic, and adjusted EBITDA of $141.9 million, $11.2 million above the midpoint.
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The largest capitated contract turned profitable in Q3, contributing a positive margin of approximately 10% (up from -4% in Q2) and tracking at a ~14% run-rate exiting the quarter, with a target of 20% margin by Q4 2027.
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AdaptHealth Corp ( NASDAQ:AHCO ) achieved $8 million in rebate benefits from a manufacturer agreement, partially offsetting the previously estimated $30 million EBITDA impact from a price increase.
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The company signed four preferred provider agreements with large health systems and added two new capitated contracts (72,000 lives, $7-8 million annual revenue), expanding its enterprise sales and capitated portfolio.
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AdaptHealth Corp ( NASDAQ:AHCO ) reduced headcount by 337 sequentially and cut capitated contract labor by over 12%, demonstrating cost discipline and operational improvements.
Negative Points
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AdaptHealth Corp ( NASDAQ:AHCO ) reported a GAAP net loss of $168.2 million, driven by a $184.8 million non-cash goodwill impairment charge due to a decline in equity market capitalization.
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Full-year free cash flow guidance was lowered to $55-$80 million from the prior range, due to pulled-forward vendor payments and working capital adjustments.
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The Medline bed field action creates near-term uncertainty, with potential costs and operational disruption from repairing or replacing beds over multiple quarters, though Medline is expected to cover costs.
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The largest capitated contract still faces elevated utilization and non-standard referring workflows, and pricing adjustments are not yet finalized or included in guidance, leaving margin recovery uncertain.
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AdaptHealth Corp ( NASDAQ:AHCO ) continues to carry approximately $60 million of corporate overhead from the divested Diabetes Health business, with $30 million in true stranded costs that will take years to absorb.
Q & A Highlights
Q: Can you provide an update on the largest capitated contract, including its margin trajectory and the status of pricing negotiations? A: CEO Suzanne Foster said the contract made a positive contribution to adjusted EBITDA in Q3, a swing from a loss in Q2, with margin of approximately 10% versus negative 4% in Q2 and a run rate of about 14% exiting the quarter. Improvement came from lower utilization, reduced capital spending, and a more than 12% cut in dedicated headcount. The company remains confident in achieving a 20% margin by Q4 2027. On negotiations, she said the partner has provided assurances that pricing adjustments are coming, but no change to terms is assumed in guidance. CFO Harriss Currie added that any pricing adjustment would be incremental to the 20% margin target.
Q: How should investors think about the puts and takes for 2027, including the capitated contract, the Diabetes Health divestiture, and the base business? A: CFO Harriss Currie said to expect continued margin improvement on the largest capitated contract, ongoing cost control so costs do not outrun revenue growth, and a modest improvement in margin. He noted base business organic growth was only about 2 percentage points in the current quarter and should rise back to a more normalized level as the company laps 2026 issues such as the PCS wind-down. CEO Suzanne Foster said to use Q4 as a baseline to improve from, with more clarity to come on the February call.
Q: What is the financial exposure from Medline's field action on its home care beds, and who bears the cost? A: CEO Suzanne Foster said AdaptHealth is following Medline's and the FDA's instructions to repair or replace affected beds, and Medline has communicated a refund, replacement, and cost program. The main cost to AdaptHealth is the time and labor of replacing or repairing beds, with costs passed back to Medline. CFO Harriss Currie noted bed revenue is low single digits of total revenue, and near-term exposure is not expected to be significant. The bottom end of the guidance range reflects consideration for unanticipated short-term effects.
Q: What is the status of the manufacturer price increase and the rebate structure that recovers some of the lost economics? A: CEO Suzanne Foster said the company reached an agreement on a rebate structure and realized an $8 million benefit in Q3 from purchases made during the quarter. An arrangement is in place for the 2026 contract year, and the company is back to its normal annual negotiation cycle. CFO Harriss Currie said there are two components: a modest net price increase and volume-based discounts the company can qualify for, but details on the split between the two are not yet available.
Q: Can you size the two new smaller capitated agreements and the four preferred provider agreements with health systems? A: CEO Suzanne Foster said the two regional capitated agreements represent 72,000 lives for which AdaptHealth is now the exclusive provider, generating about $7 million to $8 million of annual revenue. On preferred provider agreements, she said the company stood up a dedicated enterprise sales team two to three quarters ago and signed four meaningful deals with large health systems last quarter, but did not provide a specific 2027 revenue contribution.
Q: Why did free cash flow guidance come down, and how should we think about working capital and cash flow into 2027? A: CFO Harriss Currie said the prior range contained working capital assumptions, including the timing of vendor payments around year-end, that have since been pulled forward to prioritize early payment discounts over short-term cash accumulation. The updated range implies Q4 free cash flow of roughly $50 million to $75 million, about $65 million at the midpoint, up 30% sequentially. He said the Q4 baseline is a reasonable expectation for future quarters, adjusted for the Diabetes Health contribution, though Q1 seasonality could affect free cash flow.
Q: What are the learnings from the Kaiser capitated contract that are being applied to new capitated agreements? A: CEO Suzanne Foster said the new agreements are more like the Humana capitated deals, with members going to multiple hospitals rather than a single IDN, so they come on board stable without de novo openings of new locations or workforces. She described Kaiser as an N of one, spanning eight markets with owned hospitals and specific ways of working that were new to AdaptHealth, coupled with a brand-new workforce of 40 new locations and thousands of people. CFO Harriss Currie added that continuous improvement in policies, procedures, and resource application supports better margins next year.
Q: What is the outlook for capital expenditures as a percentage of revenue? A: CFO Harriss Currie said the target is 13% to 14% of revenue, and investors should model 14% for now, though the company would like to be at the bottom end of that range. Q3 capital expenditures were $105.5 million, or 14.2% of consolidated net revenue, versus 18.1% year-to-date, as elevated spending to equip the capitated contract has subsided.
Q: How is the PCS business winding down, and what is the strategic rationale for exiting certain channels? A: CFO Harriss Currie said PCS revenue declined only modestly from Q2 to Q3, slower than expected, but the reduction will likely accelerate into Q4, which is one reason the Q4 revenue range is lower than Q3. He said PCS is insignificant as a percentage of total revenue, and lapping the wind-down next year should help Wellness at Home return to at least market growth. CEO Suzanne Foster said the company is keeping the strategic parts of the portfolio that support Sleep, Respiratory, capitated arrangements, and enterprise sales, while exiting low-margin channels and eliminating a standalone sales force.
Q: What drove the Q3 revenue and adjusted EBITDA beat versus guidance? A: CFO Harriss Currie said Q3 revenue of $745.6 million was $15.6 million above the midpoint of guidance, driven primarily by growth in referrals and resupply in the Sleep Health segment and a slower-than-anticipated reduction in revenue from ceasing to actively market certain PCS products. Adjusted EBITDA of $141.9 million was $11.2 million favorable versus the guidance midpoint, primarily due to the largest capitated contract, with the balance from stronger-than-anticipated revenue across other verticals and enhanced cost discipline.For the complete transcript of the earnings call, please refer to the full earnings call transcript .
