ADMI Corp.

Our outlook on ADMI remains stable. Management has established a track record of steady, top-line growth, stable margins, and adequate cash flows and has executed on its ongoing expansion plans. Our base case projects ADMI sustaining leverage above 5x, and that it will generate modest, sustainable positive cash flows sufficient to fund its aggressive expansion strategy. A downgrade would most likely be prompted by a steep drop in revenues or EBITDA margins, resulting in cash flow deficits, despite the moderation in de novo office openings. This scenario could occur if patient traffic decreases in existing offices, coupled with a longer development time for newer offices. We view an upgrade as unlikely over the outlook period at this time, given our

...Continued rapid revenue growth is driven by ADMI Corp.'s aggressive, yet internally funded, de novo growth strategy. ADMI opened 75 new offices in 2018. While we expect the de novo strategy to continue driving rapid revenue growth, we do not project it will materially increase leverage as the company continues generating sufficient free operating cash flow (FOCF) to internally fund its growth strategy. In addition, we think the strategy generally increases execution risk and may pressure profitability if the new offices do not ramp up as fast as expected. But ADMI's strategy has been tested over several years, and so far it has sustained relatively stable margins. We also believe it has the flexibility to slow de novo expansion if free cash flow generation is constrained. Leverage remains high due to sponsor ownership that prioritizes shareholder returns over permanent debt reduction. We expect ADMI to sustain leverage above 6x for the next 12-24 months. We believe its financial policy...

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