AdaptHealth delivered Q1 2026 net revenue of $819.8 million, up 5.4% year-over-year (9.1% organic) and about $22 million above the midpoint of guidance, driven by the completion of the largest patient transition in home-medical-equipment history under a new capitated agreement plus positive organic growth across all four segments. About 500 basis points of organic growth came from the new capitated contract, which now covers roughly 15 million members and made up 9.2% of consolidated net revenue. Adjusted EBITDA of $121.2 million (14.8% margin) came in about $7 million below guidance because management maintained $12 million of elevated labor cost to accelerate a responsible transition. The company refinanced its $1.1 billion credit facility in April on improved terms following S&P and Moody's upgrades, raised full-year revenue guidance by $10 million to $3.45-$3.52 billion, and maintained full-year adjusted EBITDA ($680-$730M) and free cash flow ($175-$225M) guidance.
Good morning, everyone. Thank you for joining us today. The opening months of 2026 have set the stage for what will be a defining year for AdaptHealth. We made significant progress in three areas this past quarter. First, we successfully completed the transition of hundreds of thousands of active patients to our platform under our new capitated agreement. The second highlight of the quarter was the progress we are making on infrastructure investments as our AI-enabled initiatives and patient-facing digital platform reached meaningful milestones, we are beginning to drive improvements in our operating metrics. Third, in April, we refinanced our credit facility with improved terms, further strengthening our balance sheet and providing financial and strategic flexibility. Starting with our new capitated agreement, we navigated through one of the most ambitious operational undertakings by completing the largest patient transition in the history of home medical equipment.
No HME company had ever taken on a capitated contract of this scale from an incumbent. Over the past couple of months, we established 35 de novo locations and are now the exclusive HME provider for more than 10 million new members. We had planned to work through this transition over the first half of this year. As a result of completing this transition on a more aggressive timeline and delivering strong performance across our legacy business, we delivered revenue significantly ahead of our guidance, with solid organic growth across all four segments. Regarding the contract, covered membership count, revenue per member, utilization, and product costs are all meeting our expectations. However, we maintained heavier-than-planned labor costs to ensure a responsible transition.
In the first quarter, that amounted to $12 million of elevated labor expense, of which $8 million was variable labor to accelerate the transition, and that should normalize by the end of the second quarter. The $4 million of elevated wages and benefits, that will decline as we rightsize to the operating model and to meet the service requirements. Given that this is a 5-year contract with a potentially longer horizon, the extra implementation spend was the right decision for the relationship and the patients. As for Q1 financial results, first quarter revenue of $819.8 million grew 5.4% versus the prior year quarter and exceeded the midpoint of our guidance range by approximately $22 million. On an organic basis, adjusting for the impact of acquisitions and dispositions, we delivered 9.1% year-over-year growth.
Of that, about 500 basis points came from the new capitated contract. The other 400 basis points came from the base business, with each of our four segments delivering positive organic growth in the quarter. Sleep Health net revenue of $358.5 million grew 13.3% versus the prior year, and PAP new starts set another new record. We anticipate that as accumulating evidence highlights the significance of sleep in overall health, there will be corresponding increase in demand for therapies aimed at improving sleep quality. Currently, up to 80% of individuals with obstructive sleep apnea are undiagnosed.
However, patient awareness is rising, driven by expanded access to home sleep studies, the development of wearable devices for early detection of obstructive sleep apnea, and the integration of dual therapies. As more patients experience the advantages of sleep therapy, our commitment remains focused on delivering high quality care and supporting treatment adherence to fully capture the health benefits. Despite a very mild flu season, Respiratory Health net revenue of $178.1 million grew 7.6% versus the prior year, and oxygen new starts grew 12.8%. Diabetes Health net revenue of $142.2 million grew 2.4% versus the prior year. Our investments in talent, process improvement, and technology over the past year have taken hold.
We had particularly strong results from resupply, further demonstrating that our centralized resupply team is performing well and providing quality and timely care to these patients. Wellness at Home net revenue of $141 million declined 10.3% on a reported basis, reflecting $35.8 million of disposed revenue from non-core assets exited during 2025. Over the past two years, we have carefully pruned our portfolio to product categories that support growth in our Sleep and Respiratory Health segments. After adjusting for these dispositions, Wellness at Home delivered 11% organic growth. In Q1, capitated net revenue made up 9.2% of the total consolidated net revenue. Capitated membership increased seven times year-over-year to about 15 million. Adjusted EBITDA of $121.2 million fell short of guidance, driven by the previously mentioned labor and benefit costs.
While labor costs will keep decreasing post-transition, we started a cost containment initiative to stay on track. As a result, we are comfortable raising our full year net revenue projections and maintaining our full year 2026 guidance for adjusted EBITDA and free cash flow. Stepping back from the quarter, I want to spend a few minutes on the playbook we are following because the industry dynamics at work right now are among the most favorable we have seen for a company of our scale. The business we have built over the past several years is well aligned to these dynamics, which leaves us well positioned to grow in the coming years. Interest in capitated arrangements among payers is increasing as a way to align incentives and lower healthcare costs, a trend we anticipate will persist.
Securing and implementing these agreements is complex, demanding nationwide coverage, strong clinical practices, robust technology, and operational expertise. We possess these strengths, which the market acknowledges. Our discussions regarding new capitated deals remain active and promising, and we are optimistic about announcing additional partnerships soon. The regulatory environment is evolving in ways that benefit scaled, compliant operators. The government is actively working to root out fraud and abuse in home medical equipment, and we think that effort is long overdue and unambiguously what is needed for patients, for the Medicare program, and for the broader healthcare ecosystem. The many legitimate, hardworking home medical equipment companies that serve millions of patients managing chronic conditions at home deserve to operate in an industry with a reputation befitting this critical mission.
We applaud the government's efforts, and we see an opportunity and, frankly, a responsibility to be a constructive partner as it pursues these aims. The direction of travel here is clear. Greater scrutiny and clearer standards will, over time, separate operators who have made those investments in the systems, process, and clinical infrastructure that proper compliance requires. We have made these investments, and we are committed to helping lead the industry toward that standard. Our balance sheet, following the refinancing of our credit facility, gives us the flexibility to pursue tuck-in acquisitions from a position of strength where it makes sense in attractive geographies for assets that expand our access to patients focused on our core Sleep Health and Respiratory Health segments. These must be at returns that soundly meet or exceed our thresholds. The last two years reflect that discipline.
We have deployed capital selectively, and we have terminated as many deal processes and due diligence as we have closed. Technology is creating a real separation. We have invested in our patient-facing and operational platforms, and those investments are improving the patient experience and time to therapy. Our conversational AI platform has moved beyond pilot and in Q1 is handling live calls across sleep scheduling, our contact center, and resupply use cases. Scheduling that was entirely manual a year ago is now 25% touchless. Order conversion times have shortened materially, a meaningful improvement in the experience for referring providers and patients alike. Our patient portal, myAPP, crossed 412,000 users in Q1. These capabilities matter more as volume scales.
In summary, our focus for the rest of 2026 is to manage patient growth and control costs. We aim for sustainable, profitable organic growth while maintaining excellent service for over 4.5 million patients. With that, let me turn it over to Jason to review the financials.
Thank you, Suzanne, and thanks to everyone for joining our call today. I'll cover our first quarter 2026 financial results, followed by our balance sheet, capital allocation, and outlook. For Q1 2026, net revenue of $819.8 million increased 5.4% versus the prior year quarter. Organic growth was 9.1% for that same period, with broad-based growth across all four segments. Capitated revenue of $74.9 million outperformed our expectations as we met go-live dates for a new agreement faster than we originally anticipated. Covered membership count, revenue per member, utilization, and product costs were all in line with our expectations. First quarter adjusted EBITDA was $121.2 million, representing an adjusted EBITDA margin of 14.8% and coming in about $7 million lower than guidance.
Although it required additional labor to start the capitated contract sooner, the elevated labor cost is already declining, and we expect to return to baseline in the next few months. First quarter cash flow from operations of $93.7 million was essentially flat versus the prior year quarter. First quarter free cash flow of -$27.5 million was in line with our expectations and driven by capital expenditures of $121.2 million, reflecting patient equipment startup purchases to stock inventory in support of the new capitated contract. As we move into steady state operations with the capitated arrangement, we expect CapEx to normalize and free cash flow to improve in the back half of the year. Turning to the balance sheet. We ended the quarter with unrestricted cash of approximately $48 million.
Net debt stood at approximately $1.84 billion, and our consolidated net leverage ratio was 3.0x from 2.75x in the fourth quarter of 2025. The increase reflects the $100 million we drew on our revolving credit facility to acquire certain assets from a provider of home medical equipment to support our new capitated arrangement for a total consideration of $84.7 million. We intend to pay down the balance on our revolver in the coming quarters and remain committed to achieving our target of 2.5 times net leverage.
In April, we completed a $1.1 billion refinancing of our senior secured credit facility, consisting of a $325 million Term Loan A, a $325 million delayed draw term loan, and a $450 million revolving credit facility, all maturing in April 2031. The new facility extends our term loan maturity, lowers our weighted average cost of debt, and provides incremental operating flexibility, expanding capacity on the revolving credit facility. It also provides committed capital through the delayed draw facility that we intend to use to redeem our 2028 notes following the call premium expiration in August 2026. The favorable pricing reflects the recent credit upgrades we received from both S&P and Moody's, as well as our commitment to further delevering.
Our capital allocation priorities remain unchanged: investing to accelerate organic growth, reducing leverage, and pursuing disciplined tuck-in acquisitions. Subsequent to the end of the quarter, we completed the disposition of our remaining custom rehab assets, a small but consistent step in concentrating our portfolio around sleep, respiratory, and the related product categories that support growth in our core. Turning to guidance. We are raising our full year net revenue projection by $10 million to $3.45 billion-$3.52 billion. This reflects the first quarter revenue outperformance offset by the revenue of the custom rehab disposition.
Given the steps we are taking to moderate labor costs related to the capitated arrangement, we are maintaining our full year guidance for adjusted EBITDA of $680 million-$730 million and free cash flow of $175 million-$225 million. For the second quarter of 2026, we expect net revenue of $840 million-$860 million and an adjusted EBITDA margin of approximately 19%. We expect free cash flow to be modest as we incur elevated CapEx to support the new contract. I'd like to pass the call back to Suzanne for closing remarks.
Thank you. This really has been a monumental quarter for us. Our team went to extraordinary lengths to complete the largest patient transition in the history of this industry and over an incredibly short period of time. I wanna close by saying thank you to all the Adaptors that worked nights, weekends, overtime, whatever they needed to do to stand up our new capitated partnership. A special thank you to all the Adaptors who ensured that our base business continued to perform. This was truly a team effort. The progress we made this quarter is just another proof point that this team has what it takes to achieve our aspiration of becoming the most trusted and reliable partner in home healthcare, the one patients depend on and physicians choose first. That brings me to the end of our prepared remarks. Operator, please open the call for questions.