AdaptHealth (AHCO) Q4 2025 Earnings Transcript

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DATE

Tuesday, Feb. 24, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Suzanne M. Foster
• Chief Financial Officer — Jason A. Clemens

TAKEAWAYS

• Revenue -- Net revenue of $3,245,000,000 for the full year and $846,300,000 for the quarter, with both exceeding the midpoint of guidance.
• Organic Growth -- Organic revenue growth of 1.7% for both the full year and the quarter, excluding M&A and disposals.
• Segment Performance -- Sleep Health revenue rose 4.4% to $372,300,000; Respiratory Health revenue increased 7.8% to $178,200,000; Diabetes Health revenue declined 7.4% to $158,500,000; Wellness at Home revenue fell 16.1% to $137,300,000, mainly from divesting non-core assets.
• Patient Metrics -- Sleep Health patient census reached 1,730,000, up 4%, and new starts grew about 6%; Oxygen patient census set another record at 335,000; Diabetes CGM patient census remained flat at 153,000 due to offsetting payer mix shift.
• Profitability -- Adjusted EBITDA was $616,700,000 for the year (19% margin) and $163,100,000 for the quarter (19.3% margin), both impacted by a $14,500,000 legal settlement and about $10,000,000 of accelerated onboarding expenses for the new capitated contract.
• Impairment Charge -- GAAP results included a $128,000,000 noncash goodwill impairment charge related to the Diabetes Health segment, excluded from adjusted EBITDA.
• Debt and Cash Flow -- Net debt at year-end was $1,694,000,000 with a net leverage ratio of 2.75x; full-year free cash flow totaled $219,400,000; $250,000,000 in debt reduction completed in 2025.
• Credit Ratings -- Both S&P and Moody’s upgraded the company’s credit ratings in the quarter, citing improved free cash flow and reduced leverage.
• Capitated Contract Execution -- Company launched the largest capitated contract in industry history, with Phase 1 starting in December covering 50,000 members, and plans to ramp coverage to over 10,000,000 patients nationwide.
• Guidance -- Management expects 2026 net revenue of $3,440,000,000 to $3,510,000,000, adjusted EBITDA of $680,000,000 to $730,000,000, and free cash flow of $175,000,000 to $225,000,000, implying total revenue growth of 6%-8%, with organic growth forecast at 7.5%-9.5% and a net 1.5% offset from M&A and divestitures.
• Cash Conversion Cycle -- Days sales outstanding ended at 40.8 days, the lowest since the Change Healthcare outage.
• Operational Initiatives -- Centralized order intake in sleep and vents contributed to reduced referral-to-setup times, with sleep setup at nine days down from 23 a year ago.
• Technology Investments -- AI-driven pilots in sleep order intake and patient scheduling reduced processing and phone times; these programs will expand further in 2026.
• Capital Allocation -- $250,000,000 deployed to debt reduction and $42,000,000 to acquisitions, self-funded through free cash flow and proceeds from disposals; $47,600,000 spent post year-end to acquire a Hawaii-based HME provider.
• CMS Regulatory Outcome -- CMS excluded core sleep and respiratory products from the next competitive bidding round, providing greater long-term business stability.

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RISKS

• Quarterly net revenue and adjusted EBITDA were negatively impacted by a $14,500,000 legal settlement and accelerated $10,000,000 onboarding expenses, which were higher and incurred earlier than expected.
• GAAP net income was affected by a $128,000,000 noncash goodwill impairment charge relating to the Diabetes Health segment’s fair value.
• Management acknowledged, "free cash flow to be negative $20,000,000 to negative $40,000,000 in the first quarter," primarily from front-loaded infrastructure costs in support of the ramping capitated contract.

SUMMARY

AdaptHealth Corp. (NASDAQ:AHCO) reported total 2025 net revenue of $3,245,000,000 and adjusted EBITDA of $616,700,000, both exceeding guidance midpoints but slightly down on a reported basis due to divestitures. The company achieved record patient census levels and significant operational improvements in sleep and respiratory health, while diabetes segment revenue fell amid payer mix shifts and stable census. A $14,500,000 legal settlement and $10,000,000 in accelerated onboarding costs for the new nationwide capitated contract reduced quarterly profitability, but 2025 full-year free cash flow reached $219,400,000—well above guidance. Onboarding for the largest contracted transition in HME industry history progressed on schedule, with management projecting 2026 revenue growth of 6%-8%, driven by the new arrangement and faster ramp than previously anticipated.

• Management increased 2026 revenue growth expectations attributable to the new capitated contract from "3% to 5%" last quarter to "5% to 6% growth over 2025 revenue resulting from a new capitated agreement" in this call.
• Free cash flow guidance anticipates a temporary first-quarter deficit due to contract-related expenses, with performance improving as revenue from the new contract ramps up later in the year.
• Operational metrics such as days sales outstanding, patient setup times, and answer rates at contact centers all reached or neared record performance levels, reflecting process improvements.
• AI technology pilots reduced order intake processing time and patient phone time, with broader deployment planned, though these programs are "not yet material" to near-term financial results.
• The Hawaii acquisition, with a run rate of "a little over $1,000,000 a month," provides new state coverage and supports forthcoming contract transitions on the West Coast.

INDUSTRY GLOSSARY

• Capitated Contract: A reimbursement model where the provider receives a fixed payment per patient to cover specified services, regardless of actual usage, transferring some risk from payer to provider.
• CGM (Continuous Glucose Monitor): A device providing real-time glucose readings, commonly used by diabetes patients.
• MyApp: AdaptHealth Corp.’s digital patient engagement application for self-scheduling and case tracking.
• Vent: Mechanical ventilator therapy provided in the home; a key product line within respiratory health.

Full Conference Call Transcript

Suzanne M. Foster: Thank you. Good morning, everyone, and welcome to the call. The 2025 capped a tremendous year of transition for us. Over the course of 2025, we implemented a new operating model that drove standardization and process maturity across our enterprise. We closed the largest capitated contract in the history of the industry, and we honed our portfolio by disposing of non-core assets, using those proceeds and our strong free cash flow to pay down debt and strengthen our balance sheet.

The work we completed last year not only positions us for accelerated growth and improved financial performance in 2026 and beyond, but is essential to achieving our aspiration to become the most trusted and reliable partner in home medical equipment and services. In the fourth quarter, we continued that momentum with broad-based patient census growth and strong revenue performance, along with meaningful operational improvements and commercial progress. Let me walk you through the details. Starting with the financial results, full-year revenue of $3,245,000,000 and Q4 revenue of $846,300,000 both exceeded the midpoint of our guidance range. Organic revenue growth, which does not include changes in revenue from divestitures or acquisitions, was 1.7% for both the full year and Q4.

Underlying this revenue performance, we set patient census records in sleep health, respiratory health, and wellness at home, and a retention record in diabetes health. In sleep health, new starts were up about 6% year over year and just a few hundred shy of the record set in Q1 2023 during the post-Philips recall demand snapback. Sleep Health patient census grew 4% year over year and set another new record. In respiratory health, oxygen and vent new starts were up about 4% and 5%, respectively, and patient census for both product lines hit new all-time records for the third consecutive quarter.

In wellness at home, new starts for wheelchairs and beds were up about 65% year over year, respectively, with patient census for both hitting all-time records. And in diabetes health, patient retention was better than we have ever experienced, driven by the decision we made last year to integrate Diabetes Resupply and our sleep resupply operations. Diabetes patient census was flat year over year, as the improved retention rate offsets slower new starts. Turning to profitability, adjusted EBITDA was $616,700,000 for the full year, and $163,100,000 for Q4.

Both periods included a $14,500,000 legal settlement and about $10,000,000 of accelerated costs to bring our new capitated arrangement live in December, ahead of schedule and to ensure an on-time go-live for the next phase scheduled for Q1. Excluding these two items, adjusted EBITDA was in line with our full-year 2025 guidance as we continue to demonstrate discipline on labor and operating expenses. The underlying earnings power of our business remains intact, and we are maintaining the 2026 guidance previewed on our Q3 earnings call. We continue to make progress on our balance sheet.

During the quarter, we reduced our debt balance by another $25,000,000, bringing the year-to-date total to $250,000,000, and S&P and Moody’s both upgraded our credit ratings, reflecting our focus on debt reduction, and our strong free cash flow, which was $219,400,000 for the full year. Let me take you behind these financial results to the operational progress that is beginning to show up in our numbers. The patient census growth I highlighted previously reflects our continued focus on rapid service delivery and clinical outcomes that drive physician referrals and patient retention. Central to that focus is the standard operating model implemented in Q3, which realigned our organizational structure and standardized workflows across the company.

As part of that transformation, we centralized order intake in sleep in Q3, and we extended that to vents in Q4. This change is contributing to improved setup times and order conversion rates. In sleep, referral to setup improved to nine days, down from ten days in Q3 and from 23 days a year ago. In respiratory, referral to setup improved by three days year over year for both oxygen and vents. We also operationalized new CMS documentation requirements for vents, requirements we believe could be challenging for smaller competitors and a tailwind for our vent share in 2026. We also continue to produce industry-leading clinical outcomes.

For example, in CPAP adherence, we are approximately 10 percentage points above the industry top quartile. We are deploying technology to further enhance service delivery. An AI pilot for sleep order intake significantly reduced processing time, and our conversational AI for PAP self-scheduling meaningfully reduced patient phone time. Given the success of both pilots, we plan to roll them out to additional regions in 2026. We are also advancing our digital patient engagement capabilities, with the self-scheduling feature we introduced in early 2025 helping to more than double MyApp users to over 327,000 at year-end.

Another element of our operational transformation, the centralized patient services contact center introduced in Q3, proved critical to successfully onboarding the Mid-Atlantic cohort of patients under our new capitated contract, achieving 98% answer rates. That success is early proof of something that will matter enormously over the coming year: our ability to execute complex, large-scale transitions. Our new capitated contract is a massive undertaking, the largest service transition in the HME industry’s history. To put that in context, when fully operational, we will be serving over 10,000,000 patients nationwide with approximately 1,200 dedicated employees across 30 locations. We went live with the three Mid-Atlantic states in December, covering approximately 50,000 members.

This was earlier than planned, and the transition has been remarkably smooth thanks to seven months of preparation by our team and exceptional collaboration with both the incumbent provider and our partner, while maintaining continuity of care as patients transition between providers. It also gives us confidence in our ability to deliver on the contract’s performance requirements—metrics like speed to serve, responsiveness, and patient satisfaction. We know we can meet these requirements because they essentially mirror what we have been delivering under the Humana capitated arrangement, which has demonstrated we can execute this model at scale. Turning to our commercial progress, we continue to strengthen our sales organization in the fourth quarter.

We deepened sales leadership across the organization and standardized daily management routines, giving our teams aligned data, clear structure, and shared accountability. These are the building blocks of sales force maturity. We continue to focus on building our capitated pipeline. Several years of demonstrated performance under our Humana arrangement combined with the scale of the contract we won last year have established us as a proven partner for large capitated arrangements. We believe our operational capacity, technology infrastructure, and focus on service excellence uniquely position us to help payers and integrated delivery networks align incentives and keep patients healthy at the lowest sustainable cost.

On the regulatory front, we received a favorable outcome from CMS on the upcoming round of competitive bidding, with our core sleep and respiratory products excluded from the next round, providing stability and clarity in our longer-term outlook. On the business development front, we closed the acquisition of a Hawaii-based HME provider, expanding our footprint to 48 states. The deal provides the infrastructure needed to support our capitated contract in the state and establishes a beachhead for winning other business there. We also completed one divestiture in the fourth quarter, exiting a small remaining infusion asset in our Wellness at Home segment as part of our ongoing effort to sharpen our strategic focus and redeploy capital into our core businesses.

Our acquisition pipeline remains active and we continue to target home medical equipment providers that expand our footprint and increase patient access. In summary, as we enter 2026, we believe our house is in the best condition it has ever been. Our operational foundation is stronger, our portfolio is more focused, our balance sheet is healthier, our patient census is growing, and our capitated contract is ramping. The work of 2025 was hard but necessary, and we are confident it has positioned us to deliver on our commitments to patients, partners, and shareholders. We look forward to showing you what we can do. I will now turn the call over to Jason A. Clemens to review our financials.

Jason A. Clemens: Thank you, Suzanne. And thanks to everyone for joining our call today. I will cover our full year and fourth quarter 2025 results, then review our balance sheet and capital allocation before finishing with our 2026 guidance. For full year 2025, net revenue of $3,245,000,000 decreased 0.5% versus the prior year on a reported basis. Organic revenue growth was $56,900,000, or 1.7% over prior year. Full year revenue increased by $19,500,000 because of acquisitions and decreased by $92,400,000 because of dispositions. The dispositions were primarily attributable to the three businesses we sold within our Wellness at Home segment during 2025.

For the fourth quarter, net revenue of $846,300,000 decreased 1.2% versus the prior year quarter but increased 1.7% on an organic basis, consistent with our full-year rate, and was impacted by the disposition actions noted a moment ago. Sleep Health net revenue was $372,300,000, up 4.4% versus the prior year. New starts were approximately 130,600, up about 6% year over year and just a few hundred shy of the all-time record set in Q1 2023. Sleep Health patient census grew 4% year over year to a new record of 1,730,000 patients. Respiratory Health net revenue was $178,200,000, up 7.8% versus the prior year.

Oxygen new starts were up about 4% year over year and vent new starts were up about 5%. Oxygen patient census of approximately 335,000 patients set a new all-time record for the third consecutive quarter and vent patient census also hit a new all-time record. Diabetes Health net revenue was $158,500,000, down 7.4% from the prior year quarter. While new CGM starts remain soft, patient retention hit a new all-time record, the direct result of the changes we made to our resupply operations in late 2024. CGM patient census of approximately 153,000 patients was flat versus the prior year, but the shift in payer mix from commercial insurance to government payers resulted in lower CGM reimbursement per patient.

Pumps and related supplies remained on track, growing patient starts and net revenue over the prior year. Overall, we are pleased with the continuing stabilization of the Diabetes Health segment. Wellness at Home net revenue of $137,300,000 declined by 16.1%, driven primarily by the disposition of certain non-core assets completed during 2025. New starts for wheelchairs and beds were up about 65% year over year, respectively, with patient census for both hitting new all-time records. Turning to profitability, full-year adjusted EBITDA was $616,700,000 with an adjusted EBITDA margin of 19%. Fourth quarter adjusted EBITDA was $163,100,000 with an adjusted EBITDA margin of 19.3%.

As Suzanne noted, both periods were impacted by a $14,500,000 legal settlement and over $10,000,000 of accelerated expenses to onboard our new capitated contract faster than we originally anticipated, which together account for the variance to our guidance. Before leaving profitability, I want to note that our Q4 GAAP results include a noncash goodwill impairment charge of $128,000,000 recognized as part of our annual goodwill impairment assessment related to the estimated fair value of the Diabetes Health segment relative to its carrying value. This charge is excluded from adjusted EBITDA and has no impact on our cash flows or operations. Moving to cash flow, fourth quarter cash flow from operations was $183,200,000.

Capital expenditures were $103,900,000, or 12.3% of revenue, reflecting continued investment in patient growth as well as forward investment to support the capitated contract ramp. Free cash flow was $79,300,000 for the quarter, and for the full year, free cash flow was $219,400,000, meaningfully exceeding the top end of our guidance range. Turning to the balance sheet, we ended the year with $106,100,000 in unrestricted cash. Working capital of $16,500,000 was lower than normal due to the aforementioned legal settlement and infrastructure expenses. We continue to compress our cash conversion cycle over the course of 2025, and we ended the year at 40.8 days sales outstanding, the lowest since the Change Healthcare outage in 2024.

Net debt stood at $1,694,000,000 at year-end, with a net leverage ratio of 2.75 times. This is up modestly from 2.68 times at the end of Q3, reflecting the impact of the litigation settlement and pre-revenue contract costs on trailing adjusted EBITDA. We remain focused on our 2.5 times net leverage target and continue to view debt reduction as among our highest capital allocation priorities, as we believe a strong balance sheet is essential to unlocking and sustaining value for shareholders. We decreased interest expense by approximately $21,000,000 versus the prior year, and the recent credit upgrades from both S&P and Moody’s in the fourth quarter reflect the progress we have made as an organization.

On capital allocation, our priorities remain investing to accelerate organic growth, debt reduction, and selective tuck-in acquisitions that expand our geographic footprint and increase patient access. During 2025, we deployed $250,000,000 to debt reduction and approximately $42,000,000 to acquisitions, self-funded entirely through our free cash flow and disposition proceeds, recycling capital from non-core assets into businesses with stronger returns and better strategic fit. This disciplined approach to capital allocation is how we intend to drive improved return on invested capital in 2026 and beyond. Turning to guidance, we expect net revenue of $3,440,000,000 to $3,510,000,000, adjusted EBITDA of $680,000,000 to $730,000,000, and free cash flow of $175,000,000 to $225,000,000.

Our underlying assumptions for revenue represent 6% to 8% growth over 2025. We anticipate that organic growth of 7.5% to 9.5% will be offset by about 1.5% compression net from acquisition and disposition revenue from previously closed deals. We expect 5% to 6% growth over 2025 revenue resulting from a new capitated agreement, and we expect another 2.5% to 3.5% growth from the rest of the business. We believe Sleep Health and Respiratory Health will grow faster than that range, offset by generally flat expectations for Diabetes Health and Wellness at Home. For Q1 2026, we expect revenue growth of 2% to 3% over the prior year quarter.

Over the course of the year, we expect ramping capitated revenue to result in adding a few points of incremental year-over-year growth each quarter, peaking at low double digits by Q4. Our 2026 midpoint for adjusted EBITDA translates to approximately 20.3% adjusted EBITDA margin, a full percentage point better than 2025. For Q1 2026, we expect adjusted EBITDA margin of approximately 16%, as we expect to carry capitated infrastructure expenses in the first part of the quarter prior to revenues ramping in the back half.

We expect improving margin throughout the year as the capitated revenue ramps, particularly in the back half, and similarly, we expect free cash flow to be negative $20,000,000 to negative $40,000,000 in the first quarter, with improvement throughout the year as the capitated revenue ramps and the associated infrastructure costs are absorbed. As usual, we expect to generate approximately one-third of our full-year free cash flow in the first half of the year, with the remainder coming in the back half. I have one last point regarding the infrastructure investments we are making to support our new capitated contract.

As you will note in our forthcoming 10-Ks, subsequent to 12/31/2025, we acquired certain assets of a provider of home medical equipment for total consideration of $47,600,000. To support that acquisition, and potential similar future acquisitions, we drew $100,000,000 from our revolving credit facility. We believe that these equipment acquisitions will support smooth patient transitions, and we expect to pay down the revolver as free cash flow builds throughout the year. That brings me to the end of my remarks. Operator, will you please open up the call for questions?

Operator: Thank you. We will take our first question from Eric White Coldwell with Baird. Please go ahead. Your line is open.

Eric White Coldwell: Thanks very much. Good morning. I just wanted to hit on the legal settlement. I wanted to confirm if this is the civil debt collection class action from North Carolina that was initiated several years ago. And is the $14,500,000 a final settlement or an estimate? Does it cover all similar or potential claims? In other words, can we expect that this is one time and will not repeat? And then finally, obviously, these claims relate to activities that began many years ago under different leadership, but what steps has the company taken to prevent similar complaints or issues in the future? Thanks very much.

Suzanne M. Foster: Appreciate that, Eric. Yes to all of your assumptions above, meaning that this was a claim that was brought against the company in 2022. And to your point, it deals with the technicality in debt collection practices. It is the final amount and settles all claims in that state. And since then, even right after that, those on the technicality, we have fixed anything that would be perceived as a violation of that technicality. Not saying that we thought that we were in violation of it to begin with. However, anything that could be interpreted as such has been fixed. And we decided to settle this rather than pursue this litigation as a means to further de-risk the business.

We have so much to look forward to the next couple of years that we thought getting this legacy lawsuit behind us made a lot more sense at this point.

Jason A. Clemens: Eric, this is Jason. I might add that since 2022, there has been significant maturing in the overall control environment here at AdaptHealth Corp. So much so that you will note in the forthcoming 10-Ks this afternoon that you will see for the first time AdaptHealth Corp. has achieved an opinion from our auditor with a clean bill of health regarding our SOX environment. And so prior-year material weaknesses really at various points along the way have been remediated, which we are very happy about.

Eric White Coldwell: Thanks very much, guys. I appreciate it.

Operator: Thank you. We will move next with Kevin Caliendo with UBS. Please go ahead. Your line is open.

Kevin Caliendo: Thanks for taking my question, guys. I appreciate it. And Jason, thanks for the color on the cadence. I just want to make sure I understand fully how to think through the impact of the investment in Q4 and the guidance, like the margin cadence for fiscal 2026. It sounds like it is going to be different than fiscal 2025 a little bit, right? There is a mix of business in your onboarding. How should we think about it in the context of over the course of the year? I know you made comments around Q1 and free cash flow, but any more specifics there as we just think about modeling it to start?

Jason A. Clemens: Sure. Yes, Kevin. So we started with a Q1 2026 guidance of top line at 2% to 3% revenue growth and adjusted EBITDA margin of approximately 16%. And so particularly as the new capitated arrangement starts ramping, we expect revenue as we get into the second quarter to be up another 3% or so incremental from Q1. We expect Q3 to be up another 3% or so incremental in terms of growth against Q2. Then, as we said in our prepared remarks, we expect in Q4 over the prior year to grow revenue in the low double digits.

To go in line with that revenue growth, again, we are facing that pressure in the first quarter from carrying significant expenses on the P&L prior to really the substantial contract dates really starting here in the first quarter and on throughout the year. We expect margin to be at or near 20% as we get into that second quarter, and then we think we will add about one point in each of the third and then incremental again into the fourth quarter. So again, full year we think that revenue growth will be 7% at the mid. We think the full-year adjusted EBITDA margin will be just over 20%, representing an incremental point over the prior year.

Kevin Caliendo: And just a quick follow-up. You mentioned the two pilots for fiscal 2026. Are they material in any way to your financial performance here? How should we think about that? Is there updates that we get on these over the course of the year?

Jason A. Clemens: Well, Kevin, I would say that they are not yet material, certainly in the Q4 that we just reported nor in the Q1 guidance, the formal guidance we brought forth this morning. We do, however, believe that we will get operating leverage over the course of the year related to these technology investments, and that is embedded in the guidance that we brought forth.

Kevin Caliendo: Thanks, guys, so much.

Operator: Thank you. Our next question comes from Richard Close with Canaccord Genuity.

Richard Close: Yes. Thanks for the questions. I am curious if you guys can talk about the pipeline of capitated agreements. Obviously, a strong start to this large contract and continued execution on the previous Humana. So maybe just a lay of the land on the opportunities that exist going forward on that front?

Suzanne M. Foster: I will start there. We are out there, obviously, responding to some inbound and obviously some outbound requests to discuss how we operate that business, the value to both sides and the patient under these types of arrangements. As I said before, we can service this business, whether it is fee-for-service or capitated, and I think there is market interest in getting to a place where incentives are aligned. So there are many conversations going on that are proceeding forth, but these do take time. If you think about the contract we just won, that was an over-a-year, call it, two-year conversation.

There is infrastructure and IT systems and things that have to happen, especially if it is a new capitated arrangement. So we are going to continue to push forward and have those conversations. But I do see that there is market appetite for these, call it, not fee-for-service arrangements.

Jason A. Clemens: Richard, the last thing I would add there is that we view the capitated pipeline much like we do our M&A pipeline, in that we are continuing to pursue both, but we do not assume any impact inside of our guidance until or unless we close deals.

Richard Close: Okay. That is helpful. And then maybe just really quickly on diabetes. Appreciate the success on the retention and consolidating that with the sleep. I am just curious when you expect that from a new start perspective to, I guess, begin to show growth, or what are your long-term thoughts on the growth of that segment?

Suzanne M. Foster: Sure. I will start there. Yes, thank you for calling out the hard work that our resupply Nashville team has done around really improving substantially how we service our resupply patients, and the retention rates are proof of that. We knew going into the turnaround that we initiated, what, 18 months ago or in 2024, that the confidence in the team down in Nashville would produce a sooner better outlook for diabetes, and that it takes time to build up the sales force, retrain them, and to earn the trust back of the referring providers.

And so that has been the work over the past year to the point that we have also started to see improvements there in pockets of the country. And we have also made the decision to grow our diabetes sales force to improve our CGM, particularly our CGM new starts, in 2026. Notwithstanding that, we are holding the expectation to flat till that proves out.

Jason A. Clemens: Yes, I would say, Richard, if we think about the components of the segments, in CGMs, we have the resupply, as Suzanne referenced. We have got new start activity that we are making key investments in, in an attempt to jump-start the start activity from our field force as well as pharmacy operations, and so we feel pretty good about being able to achieve that as we get later in the year. And then finally, do not forget pumps. I mean, we had a good year with pump revenues. In Q4, both new starts and net revenue for pumps was up low double digits.

Operator: Our next question comes from Brian Gil Tanquilut with Jefferies. Please go ahead. Your line is open.

Meghan Holtz: Good morning. This is Meghan Holtz on for Brian Tanquilut. Thanks for taking our question. I just wanted to begin with, can you provide us any update on the infrastructure readiness for this new national healthcare system partnership this year? Are there any additional investments we need to be thinking about? Or are you in line with your initial outlook?

Jason A. Clemens: Hey, Meghan. I would say that we are right down the fairway with our initial outlook. The investments that we made in Q4 and that we are carrying through Q1, they have shored up a February 1 start date on the West Coast, that we are now taking care of a lot of patients from this new capitated arrangement. We do have subsequent start dates as we get into the back half of Q1 and on throughout the year. We have made key investments there. We talked about the Hawaii acquisition, which is a terrific business on its own, and it will be part of supporting Hawaiian operations for this contract as that start date occurs later in the year.

And then finally, we referenced the $100,000,000 draw on the revolver in reference to an acquisition that is already closed in support of that February start date, and we are pursuing similar acquisitions to support the rest of the West Coast operations. And so we are not celebrating yet. I mean, there is still a lot of work ahead, but overall, we are very pleased with getting the December and February start dates secured, and we feel good about the rest of the year.

Meghan Holtz: Okay. Thanks. And then as a quick follow-up, as we think about free cash flow guidance, CapEx stepped up, obviously, in regards to supporting this contract as well. As we exit Q4, is this the right run rate going forward?

Jason A. Clemens: Yes. We do think that this is just about the right run rate as a percent of revenue. I would point out that through the disposition activity over the last, call it, five quarters or so, we did take out about 5% of top-line revenue. Now none of those businesses sold really had any CapEx at all, and so that alone adds about 50 basis points to CapEx, which is why the run rate we are seeing here in Q4 we feel pretty comfortable with going forward.

Meghan Holtz: Got it. Thank you, guys.

Operator: Thank you. We will move next with Pito Chickering with Deutsche Bank. Please go ahead. Your line is open.

Kieran Ryan: Hi there. This is Kieran Ryan on for Pito Chickering. Thanks for taking the questions. Just wanted to check in on the sleep business first. Just see if there is anything that we should be aware of there on cadence or on year-over-year comps, or if there is anything that you want to highlight around maybe from the price/mix perspective? Or should we generally just expect revenues to be tracking with strong new starts and census you are seeing?

Jason A. Clemens: Kieran, it is Jason. I am glad you are calling this out because there is some noise in the comparable in 2025. You might recall that we had discussed a change in the rental and sales mix within sleep last year related to the accounting of a component of the CPAPs. In the first quarter last year, that was about $15,000,000, just a touch under. That cut in half approximately in the second quarter and again in the third, and then started running out in the fourth quarter. And so that does set up an easier comparable in 2026 over 2025. Otherwise, our start growth, we have been very pleased with.

We are nearing record start activity for sleep, and we are feeling very good about the sleep business in 2026.

Kieran Ryan: Perfect. Thank you. And then just a follow-up once more on diabetes. Just kind of wanted to check in and see what you are seeing on the DME versus pharmacy side there. I know I think you have seen most of that shift already occur on the CGM side, so kind of just wondering if that is stable, and then more so just what you are seeing in pumps as we see more pumps kind of moving into that channel? Thanks a lot.

Jason A. Clemens: Sure, Kieran. So I would say on the CGM side of things, we absolutely saw fewer payer policy changes or notifications starting this year versus what we saw in 2025 or particularly in 2024. So that is a good thing for the business. And then on the pump side of things, we do have full capability within our pharmacy operations to distribute pumps through that channel as well as through the more traditional DME channel, which is part of why we are seeing very good pump growth here in 2025, and we think that will continue in 2026.

Operator: Thank you. We do have a follow-up from Eric White Coldwell with Baird. Please go ahead. Your line is open.

Eric White Coldwell: Yes. Thanks very much. And I just wanted, for posterity, to go back to the capitated contract onboarding expense in the fourth quarter. I think it was just over $10,000,000. Can you remind us how that compared to what was embedded in your guidance previously? Was there any delta on that number? And then I might have a quick follow-up. Thanks.

Jason A. Clemens: Sure, Eric. The delta was just a touch under $10,000,000 at approximately $8,000,000. Now considering that we guided in November, we certainly had a sense that we were going to overrun and overspend on labor and vehicles and general OpEx within the quarter. However, we wanted to be cautious in communicating that without the corresponding revenue ramp that was not going to come with it. So at the end of the day, we spent more than we communicated. However, the initial outlook we provided in 2026 and the revenue that came with that, you will note that we stepped up the contribution from this capitated arrangement pretty meaningfully.

Back in November, we said that we believed it would be 3% to 5% growth that we attribute to that contract in 2026, and today we stepped that up to 5% to 6% growth. So this was timing. Expense came bigger and faster than we said it would. However, the revenue is also coming bigger and faster than we said it would. So feeling pretty good about it.

Eric White Coldwell: And then on the Hawaii acquisition, I may have missed this, but did you size the revenue contribution? I know you gave us a net impact of M&A and dispositions embedded in the outlook for growth, but did you size the Hawaii deal specifically?

Jason A. Clemens: We did not, but we are happy to, Eric. That Hawaii deal, excluding any impact from the upcoming capitated arrangement, the run rate is a little over $1,000,000 a month. Now, we netted that against what we project to be a third and final disposition in our home infusion assets, which was also just over $1,000,000 a month. That deal closed on January 1. So subsequent to the end of the quarter, you will see that in the filing. So they really wash out, which is why we did not mention it.

Eric White Coldwell: Okay. Thanks very much, guys.

Operator: Thank you. And we show no further questions at this time. This will conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time.

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