Suzanne Foster’s mandate for AdaptHealth Corp. (Nasdaq: AHCO) is clear: prioritize the company’s core areas of sleep therapy, respiratory care and diabetes management, driving growth in the process.
Foster – AdaptHealth’s new CEO as of April – steps into her role as the company pivots from a phase of foundational solidification to a strategic focus on growth in core markets.
Top executives from AdaptHealth discussed those goals and ambitions during a recent investor presentation.
“We’re No. 1 in sleep – by far,” AdaptHealth CFO Jason Clemens said during the presentation. “We tend to get bigger. You want to be No. 1 in respiratory, both oxygen and ventilation, as well as Continuous Glucose Monitoring (CGM) markets.”
The CEO transition comes after a period of significant organizational efforts to strengthen AdaptHealth’s core operations while integrating systems.
“It’s only been a week and a half [since Foster officially became CEO], but the theme that is loud and clear is focus on the core,” Clemens said.
The CEO search evolved from looking for someone with industry-specific experience to finding a leader capable of driving growth with an already robust management team. And Foster fits the bill, AdaptHealth President Josh Parnes said, also speaking during the investor presentation.
“This is not an opportunity where a CEO has to come in and bring in a lot of new people,” Parnes said. “Yes, some supplemental roles need to be filled and some changes will happen, but mostly it’s about execution at this point with the existing team. How do we continue growth? I think that’s what we’ve been missing the last two years.”
AdaptHealth, headquartered in Pennsylvania, is a national provider specializing in home medical equipment (HME) and various health-at-home solutions.
Their product lineup includes sleep therapy equipment and related supplies and services. It also includes medical devices and supplies for diabetes patients, and HME for chronically ill individuals requiring wound care, urological, incontinence, ostomy and nutritional supplies.
The company operates 680 locations across 47 states, working with Medicare, Medicaid and commercial insurers.
First-quarter performance
AdaptHealth exceeded financial expectations in the first quarter with a $20 million beat.
Yet for Q2, AdaptHealth adjusted expectations down by $7 million to $8 million due to supply chain constraints.
Additional expenses were incurred to recover from February’s cyberattack on Change Healthcare, which resulted in a disruption that cost AdaptHealth several million dollars in labor for manually processing transactions, Clemens said.
“From a free-cash and cash-inflow perspective, we feel very confident and great that this is moving behind us quickly, and will be resolved by the end of the quarter,” Clemens said. “However, we are incurring several million dollars in labor costs for manually processing [explanations of benefits], things associated with posting the cash that has come in, as some of those electronic interfaces were cut off during the period of Change.”
Sleep resupply saw a 5.6% increase in the first quarter, and the company expects mid- to upper-single-digit growth for the year.
The normalization of supply following the Philips sleep therapy and respiratory devices recall has bolstered confidence in continued revenue growth in the segment, Clemens said.
“As we’re looking towards next year, we would fully expect that rental revenue to catch up as well,” Clemens said. “So, we feel very good about a 5%-plus – kind of mid- to upper-single digit – growth for sleep.”
As far as the diabetes market goes, Parnes said the company was unexpectedly affected by a shift of payers to pharmacies in key markets, which caused a decline.
“We are continually working operationally to build a much more efficient, automated process,” Parnes said. “Without delving into specific metrics, a large portion of our orders now come electronically, including resupply orders and digital patient contact. We’ve essentially overhauled the entire diabetes business, which had evolved through various acquisitions, molding them into one efficient model that continues to get more efficient.”
