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Please stand by. Your meeting is about to begin. Good day, everyone, and welcome to today's ADAPT Health third quarter 2026 earnings release. Today's speakers will be Suzanne Foster, Chief Executive Officer of ADAPT Health, and Harris Curry, Chief Financial Officer of ADAPT Health. Before we begin, I'd like to remind everyone that statements including in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of private securities litigation reform act. These statements include, but are not limited to, comments regarding financial results for 2026 and beyond. Actual results could differ materially from those projected in forward-looking statements. Because of the number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. Adapt Health Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in the presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today. I am now pleased to introduce the Chief Executive Officer of Adapt Health, Suzanne Foster.

Good morning, everyone, and thank you for joining us today. First order of business is to welcome Harris Currie, who joined AdaptHouse as our Chief Financial Officer in September. Harris will take you through our financial results and outlook after my remarks. The third quarter was a step in the right direction. We delivered strong organic growth, exceeded our guidance for revenue and adjusted EBITDA, and met our free cash flow target, driven in large part by meaningful improvement in the performance of our largest capitated contracts and by a base business that continues to produce consistent performance. This morning, I'll overview our third quarter results, update you on the two issues that weighed on our outlook last quarter, the capitated contract and an unexpected price increase from a large manufacturer, and then give you a brief update on the pending sale of our diabetes health business and on Medline's field action announcement about its bed. Starting with our results, as a reminder, all figures are provided on a continuing operations basis, including prior period comparisons, except for capital expenditures and free cash flow, which will include diabetes health until the sale closes. Third quarter net revenue was $745.6 million, up 10.9% versus the prior year quarter, and up 12.8% on an organic basis. Adjusted EBITDA was $141.9 million, $11.2 million above the midpoint of our implied third quarter guidance range and free cash flow was $51.1 million, slightly ahead of our guidance. Harris will take you through the details in a moment. Behind these results, The biggest driver was the improvement in our largest capitated contract, and specifically the West Coast operations associated with that contract. We have been working to stabilize the operation and align costs to serve with our original assumptions, and that work is now beginning to pay off. The contract made a positive contribution to adjusted EBITDA in the quarter, a swing from a loss in the second quarter, and Better Than Breakeven, we assumed, for the second half when we reset guidance in August. Two dynamics drove the improvement. First, utilization, while still well above our original expectations, has come down from the peak of the early months, particularly in sleep resupply as the backlog of pent-up demand cleared. Capital spending also declined sequentially as we completed the one-time purchase of vehicles and initial buildup of patient equipment. Second, we tightened the labor model. Headcount dedicated to the contract, including temporary staff, couriers, and contract workers, is down more than 12% since the end of the second quarter. As a result, we have lowered our costs even with utilization still elevated and while exceeding our service level requirements and commitments. We are certainly encouraged by the trajectory of the contract's profitability. September's run rate margin contribution was stronger than July's and the progress we are making gives us confidence we will achieve a 20% margin on the contract by the fourth quarter of next year. We also continue to work with our partner on the economics of the contract and are making progress with those discussions. The data supports our premise that utilization was running above our expectations on which the contract was priced. We have been provided assurances that pricing adjustments are coming. While we do not yet know the final impact of our negotiations, we are holding on any unilateral movements under the agreement while we continue to negotiate in good faith as partners. Although we expect the agreement to be modified this quarter, we have not assumed a change to the terms in the revised outlook we are providing today. As I mentioned last quarter, there is also an opportunity to use our newly established footprint to serve patients beyond the capitated membership. The moratorium on enrollment of new suppliers in Medicare that directly affected us was lifted in August, and we are submitting our applications for new PTANs, which are the Medicare billing numbers that allow us to operate more broadly in California. This will ultimately allow us to compete for fee-for-service business in that market. As a reminder, that opportunity is not included in our contract margin target of at least 20%. Next, the manufacturer price increase. As a reminder, we were notified on June 30 that a manufacturer was terminating our contract and imposing an immediate price increase, which we estimated would reduce second-half adjusted EBITDA by approximately $30 million. Since then, we have reached an agreement on a rebate structure that allows us to recover a portion of the lost economics. We realized the benefit of $8 million in the third quarter as a result of purchases made during the quarter. We will carefully weigh further opportunities to capture discounts within this arrangement, as well as across all of our vendors, against our business needs and cash flow management. So, we have an arrangement in place for the 2026 contract year, and we are now back to our normal annual negotiation cycle with the manufacturer. Turning to the portfolio, a brief update. The HSR waiting period has expired for the sale of our diabetes health business to Cardinal Health. Transition activities are progressing as planned, and we expect to close early in 2027, subject to customary closing conditions. As a reminder, following the move of Diabetes Health to discontinue operations, Our continuing operations results carry about 60 million of corporate overhead that was previously allocated to that business. Of the 60 million, about half has been specifically associated with diabetes health activity and is expected to dissipate beginning on day one through 12 months after the close of the transaction. The remaining 30 million of overhead is true stranded cost that we expect to absorb through growth and expense discipline over the next few years. With the portfolio work now largely behind us, we are a focused sleep, respiratory, and wellness at home business where growth and margins are more attractive. The clinical value we add is greater, and our resupply operations keeps us in continuing relationship with patients. Now a word on Medline. You may have seen that Medline has announced it is removing its brand of beds from the market, following earlier safety notices on certain home care beds. We are following Medline's instructions, we are communicating directly with affected patients and caregivers, and we are working to repair or replace affected beds on a reasonable timeline. Medline beds are a meaningful part of our bed fleet, and the replacement will take place over multiple quarters. We expect Medline to stand behind its products and we are working with them to address the full cost of replacement. We will update you as that work progresses. We saw continued evidence this quarter that the underlying business is improving and stable. Our enterprise sales strategy is gaining traction as we sign preferred provider agreements with four large health systems. and we broadened our capitated portfolio with two smaller agreements with regional health plans, one new and one expanded. Our strategy is focused on being the easiest and most reliable supplier for patients and physicians to work with. We continue to gain traction with digital tools that enhance the entire patient journey and connect the patient experience. My app now has more than 615,000 registered users, up about 20% from last quarter and nearly double where we ended last year. And the AI-powered mask-fitting tool we introduced last quarter has now completed more than 12,600 scans, with roughly 94% of those resulting in a completed order. Importantly, leveraging this technology also helps us control our labor and OpEx costs. Let me close with where we go from here. The business is stabilizing after the largest patient transition in the history of the industry, and the third quarter demonstrates that the actions we took in the first half are gaining traction. With the pending sale of our diabetes health business, we are on the verge of completing our multi-year effort to focus our portfolio. Our priorities are to augment the returns on our largest capitated contract and to return to delivering predictable, consistent results. Our base business continues to grow organically, and I'm grateful to our teams who have put patients first through a demanding year and are heading into next year with momentum. With that, let me turn it over to our new CFO, Harris, to review the financials.

Thank you, Suzanne, and good morning, everyone. I'm certainly pleased to be here, and I look forward to meeting many of you in the near future. I'll cover our third quarter results, the balance sheet, cash flow, and our updated outlook. As noted, all figures are provided on a continuing operations basis, including prior period comparisons, except for capital expenditures and free cash flow, which includes diabetes health, until the sale closes. Third quarter net revenue of $745.6 million increased 10.9% versus the prior year quarter, with organic growth of 12.8%. We displayed year-to-date growth in revenue over the prior year of 9.7%. Our third quarter revenue was $15.6 million above the midpoint of our guidance, driven primarily by growth in referrals and resupply in our sleep health segment and a slower than anticipated reduction in revenue related to the decision to cease actively marketing certain products within our PCS business. On a reported basis, sleep health net revenue was 393.9 million, up 11%. Respiratory health net revenue was 190.8 million, up 7.8%. Wellness at home net revenue was 161 million, up 14.5%. Total capitated revenue was $110.3 million, about 15% of our continuing operations net revenue, and more than three times that of the prior year. Our largest capitated contract contributed 10.7 percentage points of the 12.8% organic growth in the core. Base business organic growth contributed the remaining 2.1 percentage points of the 12.8% organic growth. adjusted EBITDA was $141.9 million versus $146.1 million in the prior year quarter, a margin of 19% versus 21.7% a year ago. On a year-to-date basis, adjusted EBITDA declined by 4.2%. The year-over-year and year-to-date declines reflect the ramp of our largest capitated contract, partially offset by labor and operating expense discipline. Total headcount of 10,995 was down 337 from the end of June, the largest components of which were staffing reductions on the capitated contract and overall discipline on labor. Adjusted EBITDA for the Corps was $11.2 million favorable against our guidance midpoint of $130.7 million. As Suzanne mentioned, the primary driver of this result was the largest capitated contract, which delivered a margin of approximately 10% in the quarter, up sequentially from a negative margin of 4% in the second quarter and was tracking at a run rate of approximately 14% as we exited the quarter. The balance of the adjusted EBITDA favorability of the guidance came from stronger than anticipated revenue across our other revenue verticals, as well as enhanced cost discipline. On a gap basis, net loss attributable to ADAPT Health was $168.2 million, resulting primarily from $194.8 million non-cash, pre-tax, goodwill impairment charge, which was triggered by the recent decline in our equity market capitalization. Also as a reminder, in the third quarter, we contributed our e-commerce business into a joint venture in exchange for a minority interest. As a result, we recognized 12 million pre-tax gain. Both items, the bill of impairment and the e-commerce contribution, are excluded from adjusted EBITDA. Turning to the balance sheet, we ended the quarter with net debt of $1.85 billion, down $48 million from June 30th and had a consolidated total leverage ratio of 3.05 times, essentially unchanged from the second quarter. Unrestricted cash was $80.7 million. And during the quarter, we redeemed our 6.25% senior notes due to 2028 with the proceeds of the $325 million delayed draw term loan, eliminating our highest cost tranche of debt and lowering our ongoing debt service obligation by approximately 17 basis points. We remain committed to our net leverage target of 2.5 times, and we intend to direct a significant portion of the diabetes health proceeds towards debt reduction. Free cash flow was $51.1 million for the quarter, in line with our guidance of approximately $50 million. Year-to-date pre-cash flow is $2.6 million, reflecting previous pre-cash flow deficits reported in earlier quarters. Capital expenditures were $105.5 million, or 14.2% of consolidated net revenue, compared to 18.1% year-to-date as the elevated spending to equip the capitated contract has subsided. Our capital allocation priorities remain unchanged, reducing leverage, investing to accelerate organic growth, and pursuing disciplined, smaller tuck-in acquisitions. Turning to guidance, we are raising our full-year net revenue range to $2.88 billion to $2.9 billion, an increase of about $20 million at the midpoint, mostly reflecting our third quarter outperformance relative to our prior guidance. We are also adjusting our adjusted EBITDA range to 510 to 525 million, an increase of 12 million at the midpoint based on our third quarter results and the September run rate on the capitated contract margin. Our guidance also assumes modest sequential improvement on the capitated contract No change to that contract's pricing structure and no further improvement in manufacturer pricing. At the bottom end of the range reflects consideration for any unanticipated short-term effects of the Medline field actions. For the fourth quarter, this implies net revenue of approximately $715 to $735 million and adjusted EBITDA of approximately $130 to $145 million. Now let me spend a moment on free cash flow. We are lowering our full year range to $55 to $80 million. As mentioned before, this range includes cash flows from Diabetes Health until the sale closes. The prior range communicated in August. contain certain 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 range implies fourth quarter free cash flow of roughly $50 to $75 million or about $65 million at the midpoint of 30% sequentially. We believe the current free cash flow guidance represents baseline cash generation as we head into 2027, and we will continue to focus on prudent working capital management. Our commitment is to run a business that can deliver sustainable, predictable, and dependable growth with measurable consistency and to deliver reliably on our guidance. We built this entire outlook with that goal in mind. That brings us to the end of our prepared remarks. Operator, please open the call up for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. To leave the queue at any time, please press star 2. Once again, that is star 1 to ask a question. And our first question comes from Brian Tenquillette with Jefferies. Please go ahead. Your line is now open.

Hey, good morning, guys. Congrats on the quarter. So maybe my first question, Suzanne, as you highlighted these preferred contract wins with health systems and decapitation wins, if you don't mind just giving us some color in how to think about sizing these deals and what these arrangements are in the preferred side and how we should think about the growth contribution from these as they ramp through 2027. Thanks. Okay.

Thanks, Brian. So first off, I'll take the capitated. So we want two small regional players. Think about it as there's 72,000 lives those two agreements represent that we are now the exclusive provider for. So strong pipeline, as I've mentioned before, where we're talking to payers about our capitated arrangement. I'm still of the mind that on the capitated front that when we have accurate data and referral conditions that these are very good for us and for the payers and for patients. It aligns interest and it's predictable on both sides around cost. And so much like we said on Humana and the other ten arrangements or so that we have on the cap model, those are performing really well. And as we talked about earlier today, once we get are West Coast operations supporting Kaiser in the same place, but that will be successful for us overall. So 72,000 patients, about $7 million to $8 million of revenue from those two contracts alone annually. So hopefully that answers your question on the cap deals. on your question around preferred provider agreements. So the strategy there we set out on is we didn't really have an enterprise or national sales team that was dedicated to calling on larger health systems. We had that in our existing sales force, that a regular salesperson could go out and pitch it if they so choose. But I think anyone who's been in the industry knows there's a uniqueness to pitching big national accounts or regional accounts even. So we stood up. When we took down the PCS Salesforce, we exchanged that Salesforce for what we're calling Enterprise Sales Team. And it's been about two or three quarters now that this team has been up and running. We took some of our most mature and high-performing salespeople, put them in this team, and they exclusively call on these health systems. Last quarter, we signed four meaningful deals. This is volume, you know, where we have a preferred arrangement coming out of a large health system. I don't have numbers for you on how to think about that in terms of, you know, 2027. I'm sure we could bake that into our model for 2027 to give you some guidance. But again, the whole idea is it's big, chunky pieces of business. We have one account that we can put a liaison in to help with the discharge planning and the easiness of which those referrals come to us.

Got it. That makes sense. And then when I think of the Medline comments that you made, are there other suppliers? I'm guessing Hill Roam and the others are easy substitutes for those. Is that the right way to think about that?

Yeah, exactly. And we had already, even before the Medline Field Action, you know, been looking at diversifying our supply chain and had approached some of even the smaller ones, fortunately, before this even happened, to talk about how could we get them to ramp manufacturing. So, yeah, we believe that we have our bases covered, but, you know, that assumes that all these different players kind of ramp production to cover the demand.

Thank you.

Thank you for your question. Our next question comes from Kevin Caliendo with UBS. Please go ahead.

Hi, thanks for taking our question. Appreciate it. On the bed issue, how do we think about the risk that you actually bear related to Medline? You talked about the bottom end absorbing short-term effects of the field actions. Do you actually have any liability risk or is this just cost risk of being a favored partner, or like, I'm just trying to understand what actually you're on the hook for here.

We're just, think of it this way, you know, they issued the recall to the whole market, not just us, right? Like, we're just one of the players. We have the relationship with the patient, so we're following their instructions, the FDA and Medline, about how to either repair, replace, at what cadence, what's required. they have indicated They put out word that says that they expect cost from this. They've communicated with us a refund, replacement, a cost type program. And so for us, it's going to be just the time of going out and replacing or repairing those bags from the cost associated, pass back to them line, and making sure that we secure our supply chain secures enough product to make sure that we keep up with not only the repair and replacement, but that's in demand. So as we sit here today, we called it out because it is, I'm sure, out there. And we are one of their largest bed providers. So we wanted to just call it out. And in fairness, as we think about it today, we think that it's under control. But it could be a risk to us if there's something unforeseen.

Got it. And if I can ask a quick follow-up, is there an ability to frame the ResMed rebate opportunity? How much of that is tied to volume or minimum purchase commitments? How should we think about that going forward?

I think all of it is the way our contracts work. There's always volume rebate structure, if I'm following your question. Yeah. Minimum requirements for certain pricing concessions. I'm sorry if I'm not following.

Exactly.

I was just wondering if there's anything special about it, or maybe even if you could talk about the potential magnitude of the opportunity.

So with this, Harris, let me tell you a way to think about this. There's actually two components to the overall potential price increase for that manufacturer. Number one is just A raise in net price or gross price. Number two is the discounts that we can qualify for as we drive volume through that manufacturer. There will be a volume discount structure that's included in the modified agreement, but there also will be a modest price increase there. We haven't gotten the details. You're looking for the puts and takes between how much is going to be the price going up and then how much can we earn back down as we work through the discount structure. We haven't talked about that. And so we'll certainly, as it becomes clearer, I think there will be more clarity around that communication as reality lands, if you will, but we're still working through that. Does that help?

Yep, no, that's helpful. I appreciate it. Thank you.

Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Please go ahead.

Hey, guys. Congrats on the quarter. You've got Ben Shaver on for Pito today. So I understand not guiding to 2027, but... I think it would be helpful if you could give a little bit of a framework on the puts and takes and how we should think about the moving pieces across the capitated deal, losing diabetes, and as well as the rest of the business. Thanks.

I love that, but let's remember my new CFO has been in the seat for 45 days. All I can say on that is, listen, this year has been a transformative year for ADAPT. Like I said, bringing on massive patient volume Pruning our portfolio. The team has been heads down looking at first being effective in the marketplace, and now we spent the second half of this year being efficient and trying to get our cost structure in place. I believe we have a lot of momentum going into 2027. The base business is improving. Our referral volume is up. and our capitated model or our capitated pipeline, we are exploring those deals that make sense for us. So as you think about 2027, think about, you know, market growth across the business. Use Q4 as a good baseline for us to improve on from there because we're continuing to improve and then, you know, will have to come back to you in February with a little more unless Harris wants to weigh in.

I'll give you some snippets that may be useful and potentially useful but not much in your 2027 modeling. We mentioned earlier in our comments that we expect the margins on our largest capitated contract to improve. So you would expect to see that incorporated in the results. You would also expect see a continued focus on cost control so that we don't allow our costs to outrun revenue growth and as a result expect a modest improvement in margin. We're not really prepared to talk about the various revenue verticals and how they might grow, but cost control, capitated margin improvement, and then the The rate of organic growth of the base business growth that we mentioned in the current quarter was only a couple percentage points. As we lap some of the issues that have happened in the current year, for instance, the reduction of focus on some of the PCS verticals and others, you would expect to see that base business growth percentage rise back to a more normalized level. So it's probably not helpful at all, but they're little snippets to think about as you think about 2027. And obviously in the fourth quarter call in February, you'll get a lot more clarity on the thoughts for the full year of 2027. Does that help?

Yeah, for sure. I appreciate some of that color. And then just one more quick one. You mentioned Thank you, guys.

The 20% margin does not include any adjustment. So if there is something to come, it would be an improvement to that or to bring it in sooner.

And obviously, we're a public company. They are. These are confidential negotiations, and we don't want to start talking about the specifics of that until we're done done, as they say.

I appreciate it. Thanks, guys. Congrats on the great quarter.

Thank you. As a reminder, if you would like to ask a question, please press star N1 on your telephone keypad now. We will take our next question from Ben Hendricks with RBC Capital Markets. Please go ahead.

Great, thank you very much. I wanted to follow up on some of the large capitated contracts and the negotiations you're having there. Obviously, you're looking to address the elevated order volumes you're seeing. I think you also, though, called out some non-standard ordering practices that were creating some headwinds and that that would be a longer-term fix. Is there anything you can do or any concessions in those contract negotiations to address that specifically?

Yeah, sure, Ben. I got you. So, you know, let's just take a step back. This arrangement, you know, I believe is very strong. The partnership is strong. I believe our customer is appreciative of the service and the care that we provide to their members and patients. You know, despite all of the pressure, we are exceeding our service level agreements and performing exceptionally well under the conditions. and on the other hand, we're certainly grateful for the trust that they put in us and allowed us to take care of their members in the switch that they made earlier this year. So we're on strong footing and a strong partnership exists with the intention of building a long-term relationship. Notwithstanding that, we do know now the partnership that utilization was hotter than expected starting on day one. We have mutual agreement on that. And very, as you point out, the referring workflows or the cost to serve, we've talked about some of those in the past, that those were not assumed when the contract was priced. And so it's those two things that have put pressure on us. as you mentioned. And so what we're trying to do is look at how do we now midstream, a couple quarters in with full awareness of where the actuals are, look at pricing in terms that reflect our ability to continue to service at those accelerated or those utilization levels plus the service that's required while we work to improve the referring patterns and the workflows, that's going to take a little time. So in the conversations we're having, we're trying to figure that out as partners to get the pricing right so that there's no impact to patients and that ADAPT can have a profitable contract and that our partner can continue to enjoy the service levels that we've been providing.

Thank you. I appreciate that comment. The second is a follow-up for Harris. And Harris, welcome to the call.

We're certainly looking forward to working with you in the future.

I wanted to follow up on one of your comments on the expectations for 4Q cash flow.

I think you definitely noted that there was going to be early paid discounts.

But you also know that that is going to be a kind of a baseline for 2027. I wonder if you kind of reconcile those two comments and kind of give us an idea of how we should think about working capital in the next year.

So I lost you halfway through your question. You cut out for just a little bit. I hate to ask you to start over. Start it over.

Oh, no worries. Just wanted to ask about cash flow, the free cash flow expectation for fourth quarter. I think there was a pull forward with some working capital, but then also that it would be kind of a baseline for 27. Just wanted to know how to get, you know, kind of run rate working capital expectations there.

Thanks. So what we were – there was an opportunity for us to have cash build up at the – End of the year and adjust the timing of payments, obviously, with an AP to drive better balances. And there's also some refinement when I joined of the aggregate forecasting process that all allowed us to get to what I believe is a reasonable number. So as you think about the fourth quarter cash flow, Other than the inclusion of cash flow from the discontinued ops of Diabetes Health that we don't quantify, but it's in there. The current baseline for the fourth quarter would be a reasonable expectation moving forward for future quarters absent The diabetes health contribution that we haven't quantified. So you're going to have to make an assumption there about how much of diabetes is in there because we haven't really talked about it publicly. But we will certainly disclose that and There's a bit of seasonality in the first quarter as well that could affect free cash flow that it has every year. There's a number of balance sheet items, accrued liabilities that have built up over the course of the year and others that get paid in the first quarter. And so is it representative for the first? Maybe not, but representative for the full year times, I don't know, three, three and a half, that's probably a better estimate for where we might go but you need to, again, adjust for diabetes health within that number. Does that help?

That helps. Thank you very much. No, you're better.

Thank you. We will take our next question from John Penny with Canaccord. Please go ahead.

Hi, John Penny. I'm for Richard Close. Thanks for the questions and congrats on the progress. I guess asking about the going back to the capitated contracts. Thanks for the details there but I guess with these two new smaller cap-date contracts just announced this quarter, granted much smaller than the Kaiser contract, but any learnings from the Kaiser contract that you pulled into these newer contracts, how you think about these cap-date contracts going forward, any stipulations in the contracting, or just any learnings or any details you can provide would be great. Thanks.

Yeah. It doesn't quite translate, and the reason for that is when we sign on these new agreements that I just spoke about, they're more like a Humana capitated deal, meaning the members go to multiple hospitals, you know, they're not in IBM, and so They kind of come on board more like and act like our human contracts, which we learned our lessons years ago on that. And so these are pretty, you know, smooth as they go, so to speak. The lessons have been learned, so they come on, they're stable. You know, there's no De Novo-type opening of new locations, acquiring new people. You know, the difference, Kaiser's really an NF1. First of all, it's an IBM. It's in eight different markets. But the difference there is the biggest issue, if you will, that we had to deal with there was their owned hospitals. They have specific ways of working that, you know, were new to us. coupled with a brand-new workforce out there. Remember, we put in 40 new locations, thousands of people to support this, and we were taking that business over from an incumbent. So there were certain ways of working that we didn't have this ability to at the time that we have been learning in the first two quarters. So I wouldn't expect any bump in the road. Those two capitators are up and running and smooth as it goes.

also think about this in a way of this is about continuous improvement and so it's Thank you for joining us. Our margins are expected to be better next year. Our costs will be under better control in the contract. And so we're just managing it better. Why? Because we're older effectively, right? We're growing up and getting a lot better at this.

The strategic value of these, remember these, think of it as exclusive capture of patient populations. I mean, our growth is going to come by increasing the number of patients that we ultimately serve and that we can access. and we've shown time and time again that as we bring these exclusive capitated arrangements in place that we get into a better relationship with that referring provider and get that halo effect around that population. So strategically it still makes a lot of sense that as Harrison in his short time here has realized, you know, we're constantly talking about continuous improvement in our workflows and how to reduce the administrative burden because that's the biggest difference between a fee-for-service and a fixed and a number of others. And I think one of the things that we're trying to do with this model, like a capitated model, is that you can work to reduce the administrative burden that a fee-for-service type model inherently has in it, and you can streamline the referral practices between us and the provider, which takes out a cost, ultimately.

Okay. Thanks for the color. Just want to touch on CapEx, patient CapEx, come down substantially, I think about looking like 14, a little over 14% of revenue. Is this like a decent, like steady state going forward? Or like, are you still expecting like 13 to 14% of revenue about for total CapEx going forward? Just any details there?

Yeah, I mean, 13 to 14 is our target. Obviously, we'd like to be at the bottom end of that range, but if you're going to model it, use 14 for now.

All right, thank you. Goodbye.

Thank you. Our next question is from Jay Lewis with Baird. Please go ahead.

Hi, thanks for the question. I just wanted to ask one more quick one on the Medline situation. Would you be able to quantify how big that, you know, recall replacement and repair is for you in terms of, you know, either how many beds are dollar value? and what you see as the most likely correction course across the field, whether that be that repair or the replacement?

But yeah, let me just give you some perspective here. If you just carve out that revenue out of our total revenue is low single digits of our total revenue. So how exposed are we? Pretty low. However, As Suzanne mentioned earlier, this is not just an adapt issue. This is a market issue because Medline obviously is a large supplier to the entire market. We just happen to be one of their biggest customers. So for us, beds are an important component of our aggregate revenue buildup. But as far as near-term exposure, as a result of Medline's indicated willingness to resolve this problem for everyone in the market. We don't see a significant amount of exposure to the company's financial results in the near term. If anything, it's only near term because Medline's going to get this all worked out. And by the end of next year, we'll be looking back at this and hopefully it'll be a nod of that.

And we know that it's the beds that remain fractured in the last five years. and our share of those. I don't have that exact number, but we're waiting. Unfortunately, we're still waiting for instructions on what can be repaired, what needs to be replaced, and what timing. So it's still a little early to work out those details, but as Harris said, it certainly contains and Medline has been a true partner here in coaching us through this and has ensured us that they're going to stand behind the quality of their product and making sure that we get this right for patients.

Thank you. That's helpful. Just one more quick one on the PCS business. Could you talk about the revenue that you got from that business in this quarter relative to your expectations and any updated outlook for that revenue winding down?

I can't give you the exact revenue, but I can tell you how to think about it. PCS revenue was in the The second to the third quarter, there was only a modest decline. We expected it to come down a little faster in the third quarter. However, that recession, again, as we move into the fourth quarter, will likely accelerate into the fourth quarter, and that's one of the reasons for the fourth quarter range being a little lower than we were in the third quarter. But as a percentage of total revenue, It's insignificant as you think about it. The part that we're keeping will be insignificant to total revenue. I know that's not real specific for you, but the way to think of it is it's a short-term wind down with an immaterial effect on the financial statements of the company nor top line revenue, but it does affect that Thank you for joining us. I should have mentioned that earlier for the earlier question around how to think about 27. I mentioned lapping some of the issues in 26, and PCS is not an issue, but some of the factors in 26, and PCS is certainly one of those.

If I may just take 30 seconds to remind everybody of the strategic reasons why we made that move. PCS was acquired from McKesson years ago, a portfolio of supplies. and we never did much with it in terms of where we sold it and how we sold it and we made a strategic decision that part of that portfolio is very beneficial to us in support of our sleep and respiratory business particularly in our capitated arrangements where they want a broader portfolio and also in our enterprise sales meaning our national health systems don't want just sleep and respiratory but they want us to have a portfolio of A broader portfolio to support those patients. So we looked at the portfolio and said, here's the ones that are very strategic to us. We're going to keep that, but we're going to get out of the low margin channels that we were serving. and we're going to eliminate a standalone sales force and give that to our enterprise and our cap sales teams to be able to sell a portfolio that way. So I just want to make sure as we talk about PCS in the future that you understand the strategic benefit of having that portfolio that we've now made it into a growing and better margins by virtue of how we're selling it and where we're selling it. I think that concludes the questions. Is that right? Well, I want to start again by thanking all of our ADAPT employees out there for continuing a heads-down approach to Q3. I want to thank the investors for sticking with us through a transformative year, and hopefully you can see the hard work beginning to pay off and the momentum as we head into 2027. Thank you.

This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.