AdaptHealth Corp. (AHCO) Earnings Call Transcript & Summary

Good day, everyone, and welcome to today's AdaptHealth Second Quarter 2024 Earnings Release. [Operator Instructions] Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth; and Jason Clemens, Chief Financial Officer of AdaptHealth. Before we begin, I'd like to remind everyone that the statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding financial results for 2024 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. should have 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 and free cash flow, which are non-GAAP financial measures. 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 AdaptHealth, Suzanne Foster.

Thank you, and good morning for joining our second quarter earnings call. I'm pleased to report another consistent quarter with second quarter results in line with expectations for revenue, adjusted EBITDA and free cash flow. With this being my first quarter, I'd like to start by briefly sharing why I'm excited to be at AdaptHealth. I joined the team because I believe in our purpose and the vital role we play in improving health care. For too long I have witnessed the increasing desire to extend high-quality and cost-effective care to the comfort of one's home, and I want to be part of solving this problem and accelerating this movement. I'm grateful to the learnings that have come from a 30-year career in health care, that I gained on the front lines as a clinical social worker in a hospital setting, new learnings from obtaining a degree in public health policy focused on ways to bend the health care cost curve, followed my experiences in leading companies focused on medical devices, life sciences and distribution of health care supplies. Most recently, I led business within a large corporation known for operational excellence and high performance through emphasizing standard work, standard metrics and among a set of continuous improvement. I'm bringing my learnings and skill sets to the team in AdaptHealth, which I'm confident will result in improved performance and growth across our business. Over the last 2 months, I spent most of my time traveling to meet our employees and see our operations. Here are a few of my early impressions. Overall, the business is performing well. Our patient adherence programs are best-in-class. Digital orders are increasing, thereby reducing the number of faxes, resupply demand is strong, and our technology infrastructure projects are underway. I am especially impressed with the depth of commitment and knowledge of this team. The team at AdaptHealth formed through many acquisitions brought, together strong and entrepreneurial leaders in the industry with decades of experience. Our team knows the business and in many cases, have grown up in the business. There are, however, some key areas where I see I can -- where we can improve to realize our full potential and grow. We're making several investments now in the areas of talent, strengthening our processes focused on organic growth, simplifying the business, developing a long-term strategy for sustainable growth in technology adoption. Let me take these 5 areas of focus one at a time. First, we are investing in clinical, commercial and operational talent to empty areas of the organization, and we are working to better align our teams provide world clarity and remove duplication. We are investing in training that is focused on process improvement for critical workflows. We are having our first Kaizen event this month with some more scheduled this year. We have implemented standard work and metrics across the leadership team and are working to drive this through the rest of the organization. The alignment of roles and responsibilities and the standardization of how we do the work has become an important initiative for us and one we are excited about. In sum, we are coming together as One Adapt. The team is eager to create and adopt standard work and understands that this work is work we must do ourselves. We have the knowledge and desire to do so. This work will help us drive leverage and position us for growth in the large end markets we serve. Our goal is to continuously improve on how we deliver cost-effective, accurate and timely care to the home. Second, we are working to strengthen the business to deliver organic growth in the 3 markets we serve: sleep, respiratory and diabetes. We are working to align our sales forces. We are expanding our national accounts and payer relations teams. On the operations side, we are taking steps to improve our throughput and conversion rates so that our sales teams have the confidence to deliver on the promise of reliable and accurate service. Third, we are simplifying our processes and our org structure while continuing to strengthen our balance sheet. We are evaluating noncore assets, rationalizing our footprint, and we are paying down debt. All these efforts are focused on increasing our free cash flow yield. Fourth, we are building a strategy for long-term sustainable growth, one that positions ourselves for increased clinical and payer relevance. To that end, we created a new leadership role and welcomed Dr. Philip Parks as our Executive Vice President of Strategy and Healthcare Innovation. As an experienced military and civilian physician, strategist and leader, he is intimately familiar with the clinical, technological and logistical challenges of decentralized care on the battlefield and in the home. We are embracing our role as we are uniquely positioned to enable decentralized health care more broadly, reliably and with higher levels of clinical quality and improved patient experiences. Dr. Parks understands the important roles we play as a provider and facilitator care and support the people living with acute and chronic diseases. I believe the unique line of his background and experiences afford him will be invaluable as we shape our strategy and future of what this company can become. Finally, I have familiarized myself with our IT systems and infrastructure, and I'm happy to report that the team made solid progress in this area over the past couple of years. I do, however, see significant potential for automation, AI and other advanced technologies to improve our operations, increase our capabilities and drive efficiencies. We are currently conducting a few low-cost experiments with AI that are progressing well around customizing clinic documentation. The technology is producing high accurate structured data with predictable results. It is early days, but this is encouraging because we know that our critical functions can run more efficiently and effectively if we remove the work that otherwise slows us down. What is more compelling is that accurately and reliably transporting fax and digitally transmitted documents into structured data at scale can unlock potential to improve patient experiences and allow us to personalize our patient and provider interaction. We are just at the beginning of this journey, but we are confident that we will soon uncover more areas for operational improvement and efficiencies using AI, which will create a better experience for our employees, patients and providers that we support. We have already invested in key hires, initiated projects focused on increasing organic growth and are simplifying the business. We believe these short-term investments will lead to longer-term improved profitability and performance, ultimately fulfilling our mission to shift more care to the home and reduce overall health care costs. I would like to take this opportunity to express my sincere appreciation to the team at AdaptHealth, our partners and shareholders who have helped educate me on the state of the business and the markets we served. I am optimistic about the road ahead and look forward to working as One Adapt, a unified team to simplify and standardize our operations, deliver growth, realize clinical and payer value and most importantly, support our patients in their homes. With that, I will turn it over to Jason.

Thanks, Suzanne, and thanks to all for joining our call today. For the second quarter of 2024, we delivered against our expectations for revenue, adjusted EBITDA and free cash flow. Incremental expense associated with recovering from the Change Healthcare situation came in line with what we projected. And shipping lead times for sleep resupply products improved in June over what we experienced in April and May. Net revenue of $806 million increased 1.6% compared to the second quarter of 2023. Sleep revenue of $322.4 million increased 6.5% over the prior year. New starts were strong, up over 5% sequentially from Q1. Notably, our sleep resupply census reached a new milestone in the quarter and now stands at over 1.6 million patients. Over 30% of new patients responded to our GLP-1 survey in the quarter, which showed that approximately 12% of those patients were prescribed GLP-1 therapy, up a touch from the first quarter. While we continue to closely monitor adherence and resupply ordering patterns in our GLP-1 patient cohort versus patients not currently utilizing GLP-1 therapy, we have not detected any notable difference to date. Diabetes revenue of $151.2 million was down $17.7 million over the prior year. But as previously discussed, we faced a tough prior year CGM comparable this quarter due to timing of system conversions in 2023 to expected year-over-year compression. For the first half of 2024, Diabetes revenue of $302 million was down $13.2 million over the first half of 2023. We expected pump and supplies revenue to decline by about $10 million for the first half, but results were slightly worse as some patients held off on new tubeless pumps pending CGM compatibility that just recently launched. So we believe that starts should pick up in the second half. Also, we started supplying Tandem Mobi during the second quarter, and we expect the product to ramp up over the rest of the year. As expected, CGM revenue growth was flat for the first half as our new sales reps made up were 3 payers that shifted to 100% pharmacy reimbursement earlier in the year. As of today, our pharmacy is now distributing products in each of those markets, and we are working to grow. Since the end of the quarter, we have seen a modest shift in payer reimbursement channels. But in encouragingly, we have seen shifts in both directions. We remain focused on building the capabilities to provide our diabetes products regardless of reimbursement channel, and our sales force is focused on growing our share in a continuously increasing achievable market. Revenue from all other categories was $332.4 million, growing 3.3% over the prior year, led by respiratory. Much of our respiratory growth was driven by the on-boarding the rest of our Humana patients, and we were pleased with those results. Utilization is right in line with our expectations. For the HME and supplies to the home revenue categories, we continue to reevaluate products that do not fit our strategic road map and do not drive ancillary volumes into our core areas of sleep, respiratory and diabetes. To that end, we recently signed a definitive agreement to sell certain custom rehab technology assets to National Seating & Mobility, a well-respected national mobility solutions provider with over 30 years of experience in the CRT category. For AdaptHealth, these products represented a small amount of revenue from individual acquisitions over the years but in aggregate, represent about a point of enterprise revenue. Later, we will discuss our adjustments to full year guidance, and we are looking forward to working closely with NSM to ensure a smooth transition. Turning to profitability. Second quarter adjusted EBITDA of $165.3 million reflects an adjusted EBITDA margin of 20.5%, a slight improvement over the first quarter. Our sequential margin expansion was driven by products and supplies, primarily driven by outsized growth in higher-margin products and compression in diabetes products that are amongst the lowest product margins in our portfolio. Labor and other operating expenses performed as expected. Cash flow from operations was $198 million, driven by cash inflows that were delayed from Q1 due to the Change Healthcare situation. Days sales outstanding for Q2 was 48.9, but the month of June was 44.3, and we expect to be back to normal by the end of the third quarter. CapEx of $81.3 million, representing 10.1% of revenue, was down against 10.4% of revenue the second quarter of 2023. Cash flow, $116.7 million outperformed our target of $94 million. We remain confident in delivering our full year guidance for cash flow. At the end of the second quarter, our TLA balance was $650 million, a result of paying off $45 million since the end of the quarter, including voluntary payments of $35 million. Our net leverage ratio is now just under 3x, ahead of our goal to be under 3x before the end of 2024. We expect to further delever over the remainder of the year. For the third quarter, we expect revenue to be flat sequentially from Q2, accounting for the disposition discussed earlier and in line with the seasonal effect we experienced last year. Adjusted EBITDA margin percent up 20.0%, down slightly from Q2 as we recently made key investments in people and technology that Suzanne discussed earlier. Free cash flow of at least $30 million. For the full year, we are adjusting our revenue midpoint to account for the disposition discussed earlier. However, we are maintaining our midpoint for adjusted EBITDA, and we are increasing our midpoint for free cash flow. Our updated full year guidance is net revenue to be in the range of $3.255 billion to $3.315 billion, adjusted EBITDA to be in the range of $660 million to $700 million, and free cash flow to be in the range of $160 million to $180 million. With that, we'll open the call up for questions. Operator?

[Operator Instructions] And we will take our first question from Brian Tanquilut from Jefferies.

It's Jack Slevin on for Brian. Great work on the quarter to the team, and welcome to Suzanne on the first earnings call here. I guess maybe starting with that. Suzanne, the 1 comment I just wanted to make sure I got clarity on, your point on taking a look at noncore assets. Could you just give us a sense for kind of what you mean in terms of size and scope or boundaries that you might put around that? I just want to make sure I understood that correctly.

Thanks for the warm welcome. I don't know if I checked the size and scope, but let me clarify what I mean by noncore assets. So as I look at our portfolio, one of the benefits, of course, is we have a really a nice broad portfolio that has helped us serve patients with sleep disorders, respiratory and diabetes. But then we have a bunch of other or a few other things that are around that, that came in through the acquisitions that really strategically don't support us moving towards focus on those 3 areas. So as I looked across the portfolio, we challenged ourselves to say which of these is in furtherance of supporting patients with those chronic and acute conditions. And if not and there is no other strategic imperatives there, then should AdaptHealth.

Yes. And I'd round that out Jack by saying that as we qualify of certain products, this is a very just targeted analysis and study that we've been working on for some time. Products that are no growth to low growth with no margin to low margin taking free cash out of the company. I mean, those -- certainly, we are looking very hard at those products. Additionally, if the product does not provide ancillary revenue. An example is some of our businesses that we support our hospital systems. Well, those are not good candidates for disposition because that individual product on its own may not have a high growth profile or a high margin. However, it feeds respiratory. It feeds the HME category that we focus on. It feeds sleep and diabetes. And so that's a little bit of how we're approaching this program. In terms of size or scope or what else to come, I mean, we won't have much to say about that today. In the next quarter, I suspect that we will have something to discuss at that time. But at the end of the day, we're focused on simplifying this business and continuing to delever our balance sheet.

Got it. Really, really helpful. And then, Jason, maybe just as a follow-up on some of the diabetes commentary. I just want to make sure I'm understanding sort of what the expectation is on the trajectory, both on the pump side of things and on the CGM side of things as we look into the second half. So it sort of got that things were ahead of expectation on pumps coming out of 1Q. Now 2Q lagging a little behind what's baked in the guidance. I guess, when we think about jumping to the second half there, what's the -- how do we get confidence that that's turning the corner? Any color there would be helpful. And then just how you're thinking about CGM with the sales force and other moving pieces into the second half?

Yes, sure. I'd say first on pump and pump supplies, I might remind you that at the beginning of the year when we set full year guidance, we had expected somewhere between a $15 million and $20 million top line compression. Much of that driven by the continued shift from tube-based pumps to tubeless pumps, which are primarily distributed through pharmacy operations, and we've been playing a little bit of catch-up, which we've been making progress on as reported last quarter. For this quarter, look, pumps fell a little behind. We believe it's timing related, related to the CGM compatibility. Some of this was just launched in June for Dexcom G7 as well as Libre 3. And so we think we'll call some of that back in the third quarter. So that $15 million to $20 million still holds. If I had to say today, probably closer to the $20 million, but we're still within range to that. For CGMs, as discussed, we came in line with our full year guidance expectation of flat as we knew we had to overcome some payer policy shift earlier in the year. Based on what we're seeing today, we're feeling pretty good with the back half on CGM. We have noted a small handful of shifts in the last month or 2, but encouragingly, as mentioned in our prepared remarks, some of this actually went the other way. There was a state Medicaid plan that had switched to a 100% pharmacy reimbursement a couple of years ago. And effective July 1 of this year, they've reopened the DME benefit. So it's essentially a dual channel reimbursement, which we believe is an indication of the value that DME drives versus a pharmacy. It's that constant touch. It's the adherence, it's the relationship with the patient. It's the access to the data that's getting generated from the CGMs and where we have patient consent, we're monitoring. I mean, after all, a measurement for A1C every 6 months by blood test is a triple weighted stars measure. And look, these things matter to payers. And so we're continuing to do work to help educate the market. It buys on that dynamic. And of course, be agnostic in our diabetes products regarding the -- how we get reimbursed. We want to take care of as many patients as possible because we think we do a great job with it.

Our next question will come from Richard Close with Canaccord Annuity.

Suzanne, welcome. Jason, maybe just diving deeper on the diabetes side. Obviously, Dexcom had some mixed results there. I guess if you could put it in context how you're thinking in terms of how the second quarter performed and the second half, was there anything surprising in their commentary on the market versus what you have baked in to your assumptions?

Richard, thanks for the question. I wouldn't say that there's anything surprising to us from Dexcom's comments. But I'd say that if anything was surprising, it was a reference to relationships with DME operators. But for us, I mean, we've maintained a long-standing and I think very solid open relationship with Dexcom. So that to us just -- it doesn't apply. Regarding their down guide and revenue changes. I mean, again, for us, like operating within this DME reimbursement channel, having very deep visibility now in the pharmacy channel and shifts as they occur, can't say we had that 1 year ago or about 1.5 years ago, but we did invest in a fair amount of detection, kind of forward-looking detection capabilities. And so at this stage, to us, it feels like a slow moving but dynamic channel environment. And so based on the information we have today, we're feeling good with our full year guide.

Okay. I appreciate that. And then maybe, Suzanne, if you could talk a little bit about the sales teams. You made some comments there, I think, in your delivering better organic growth. Can you just provide a little bit more details on any changes to the sales teams and adding to national accounts, that would be helpful.

Sure. Thank you. Sales team is one of my favorite topics. So today, we have several different sales teams, and we go to our customers in several different channels. And again, it's only been a little over 60 days. So I want to preface this with I haven't completely dug in. But I do have a hypothesis that if we further align our commercial organization so that we're looking at it more holistically. And what I mean by that is all of our referral sources, so all the different providers that refer to us, the big national accounts and the payers. If we look at that in a holistic way around what are we trying to accomplish and we align the team under that strategy, then maybe there's more to be had. So for example, we know that a lot of patients have multiple comorbidities. And the hypothesis on the table is do we look at a different way of going to market where we're capturing the referral, both for the diabetic patients and who also may have a sleep disorder. And so that's work to be done in this next quarter, but the going-in hypothesis is that we can do more with our current sales organization.

Our next question will come from Matthew Blackman with Stifel.

This is Colin on for Matt. We saw a couple of dynamics play out this quarter from both the pump and CGM companies that have already reported. We're still trying to fully wrap our head around it, but it sounds like things are okay on the CGM side. I'm curious on the pump side, things are now tracking more in line with your original expectations. Last quarter, you saw the pharmacy mix for Omnipod 5 actually exceed your DME pump mix, your durable pump mix for the first time. Did that continue this quarter? And with the potential backup of patients looking to adopt the new integrations, do you expect that to continue in the second half?

Colin, it's Jason. Good question. We did not see the strength in OP 5 setups in the second quarter that we saw in the first and the fourth quarter of last year. We're very confident that, that is related to just a delay, patients delaying, providers delaying on account of the CGM integrations. Our July numbers are up quite significantly for OP 5. And so hard to say if that will be a trend or make a trend, but we are confident that it's a timing issue.

Great. And then really quickly on the sleep business. You mentioned last quarter the potential for some supply constraints. It really didn't seem to play out in this quarter's results. But I just wanted to confirm that that's not a worry going forward for the rest of the year.

Yes. Good question, Colin. No, we seem good on supply across all products as we stand here today through April and early May. So we reported -- or about the second week of May, we were absolutely experiencing slowdown from some specific sleep resupply products. That did get better over the course of the quarter, and we ended up coming in right in line with what we had expected. That's not a spillover in any way for the rest of the year. And as we stand here today, we've got the products that we need to take care of our patient demand.

Our next question will come from Eric Coldwell with Baird.

I have a few, hopefully, not too long. On the sleep, Jason, that you just responded to, I think the options that were laid out if this previous constraints continued where that you could just wait and then hopefully, the manufacturer of the shipping would clear up, you could shift to alternative suppliers or you could perhaps shift your strategy on getting supply into the market, maybe, I think, at one point, even mentioned the running a plane and flying stuff over. So I'm just curious, what was the final tally? Was it just the manufacturing question got the problem resolved through the shipping lanes cleared? What actually changed in the second half of the quarter?

Yes, good question. We did not have to pull any levers operationally to deliver on the quarter as it's related to that item, the manufacturer supply chain, they came through for us.

Okay. On sleep, I think you said patient sleep starts were up over 5%. And hopefully, that's the right number that I got. If so, that's pretty good...

That's sequential versus prior year.

So Q-over-Q?

Yes.

Yes. Okay. So no change in your overall view on equipment rental run rate this year given working through the prior period supply constraints and then the patient backlog that came back in. A year plus ago, you have a tough comp on equipment rental. What you saw this quarter doesn't change your view on equipment rental for the full year then?

If anything changed, it's a modest improvement in outlook. Our census for rental bottomed in February. And of course, as a reminder, that was related to healthy starts in the first quarter, but record starts a year ago. And as those patients, as we start getting paid for that roundabout [ 13 weeks ] later, right? So it is really phenomenon. But we bought it in February, and we have continued to increase that census since. So we're feeling very solid on the rental line for sleep. If anything, we'll feel a little bit better than we did a quarter ago.

One or 2 more quick ones, if you will. First off, you maintained EBITDA guidance at the midpoint, but you also mentioned heightened investments. I was hoping you could walk through some of the mechanics there, selling the business, some other obvious progression in some of your other lines. Now you have some heightened investments you've called out. How does this all -- what are the pluses and minuses in that analysis? And maybe just how much is the incremental investment that was highlighted?

Yes. Sure thing, Eric. I might start on the disposition. The guidance change implies $15 million of revenue for the rest of the year and about $0 EBITDA impact for the rest of the year. For us, again, these were kind of collections of businesses acquired in those years. We didn't maintain a product leader and a distinct focus on growing it or driving efficiencies in that business. We think that National Seating & Mobility is going to be a terrific owner for our business. We think they're going to take very good care of our patients. We think that they will find, under their management and their focus, improvement in growth, improvement in operating margin. I mean that business will be in good hands, we believe. So that's the first piece. So on these lines, no impact for the full year. Now in terms of the third quarter and Suzanne's remarks, I mean we have made several key investments, some just a week or 2 after Suzanne arrived. And so I frame that as a couple of million in people within the third quarter, a couple of million in technology within the third quarter. In the fourth quarter, we have to counteract some of this to make sure we deliver on our full year guide. We have got various popped out streams that activated 2 weeks ago. And so we'll get a little bit of that back in Q3. But if you know the predominance, we expect to get back in Q4. So think of like Q3 as well as Q4 is recurring expense. So it's left pocket, right pocket. I mean we feel very good about delivering on the full year numbers.

All right. Great. And if I could get one last one. How much diabetes revenue is going through pharmacy now?

We have maintained it at just a touch over 5%. It has grown very slightly against the first quarter. But of course, we are continuing to ramp new markets with new salespeople to sell and distribute in the pharmacy. And so we do expect that number to grow up.

Our next question will come from Pito Chickering with Deutsche Bank.

You've got Kieran Ryan on for Pito. Thinking about 4Q revenue, usually, diabetes is strong due to deductibles being hit and pulled forward from the first quarter. With diabetes pretty much flat year-to-date, do you still assume that seasonality in 4Q? And is there anything that you'd call out that might make that change?

Yes, Kieran. We absolutely expect a big pop sequentially from Q3 to Q4 on a percentage basis, pretty similar to what was the last year.

Got it. And then just a quick follow-up. I was just wondering how we should think on the seasonality of the capitated revenues. I was just a little curious why 2Q was down just a touch versus 1Q?

Yes, sure. You're going to see cap revenue right in that kind of $30 million ballpark touch our. Essentially, the cap payment works as the number, the membership number that's set at the beginning of the year through the payers that we're capped with. And then over the course of the year, certainly, as there's changes to plan design, there could be life events, people change in pullers, things like that. It will bounce around a little bit, but we expect it to be in a very tight band. So up $1 million, down $1 million from 1 quarter to the next is what you should expect going forward.

And our last question will come from Joanna Gajuk with Bank of America.

So I guess respiratory revenue there. I guess it sounds like you've restated some of your numbers here, especially for Q1. So I guess when I look at that number, Q-over-Q revenues up 1%. So what's driving this, I guess, change in the revenue versus how you reported in Q1? And also, how are you thinking about the growth for the year for this service line?

Yes. Joanna, firstly, I would provide a perspective on, I think you said the word restatement. So just to clarify, nothing was restated. We did add disclosure detail in the second quarter to break out the capitated revenue by product line. We thought that made good sense, we heard some feedback from the street that, that would be helpful data. And so we obliged with that. And so you can see now -- you look at the data both ways. You can look at it on a pure cap versus rental and sales. But you can also look across the product category regardless of the nature of that revenue, if it's rental or sales or capitated. And so it's just providing that extra disclosure in the second quarter. Now in terms of growth, I mean, we're thrilled with respiratory. I mean, respiratory continues to outperform. Now some of that is Humana. And we've just taken on more patients in respiratory as a result of that contract. But most of it is really because of new sales. I mean, our market share data this quarter for the first time shows that we've overcome everybody in market share for respiratory. And so we're very confident we're taking share across those product categories that includes oxygen as well as non-invasive ventilation.

Okay. Great. Now this is my follow-up. Okay. So the market share gains and Humana contract is helping you. So I guess on that end, since you mentioned the Humana contract because I know last quarter, there was some discussion on maybe additional capitated contracts. I didn't hear this being, I guess, part of the strategy. So I don't know if this is just kind of there? Or should we expect more or less commentary around additional capitated contracts?

Should we expect additional commentary on capitated? Well, I think that we've offered that Humana certainly is the predominance of that capitated revenue. It's [ 33 beds ]. It's a lot of patients, so it's well over 1 million patients. For a number of years, we've maintained capitated business with other payers. A lot of that's kind of West Coast focused so the [indiscernible]. We do maintain a pipeline of incremental cap deals that we're working, but now that's included in guidance and not really much to discuss until we're unless we secure additional cap deals. Does that answer your question?

Yes. And I was just thinking about like any additional future contracts, whether this is part of the strategy, too, trying to get additional ones. I mean it sounds like you've had some but they were much smaller. So I was wondering whether this is part of the strategy to pursue additional larger capitated contracts?

Yes. To reiterate our strategy, we do have dedicated sales folks that are focused on cap deals exclusively. They're specialists in designing on pricing because we were obviously a big pricing machine cap deals. And so that will continue. We do intend to grow our share of cap deals. And if or when we put deals, we'll be sure to talk about it.

Great. If I may squeeze a very last 1 on the other business, diabetes and the commentary is around the China shift and, I guess, the sales force, but specifically around your ability to participate in the pharmacy channel or that business is going through the pharma channel? Do you need more pharmacies? Are you kind of using third parties? How are you kind of handling that, I guess, revenue stream going through the pharmacy channel?

Yes, sure. So I'd offer maybe an example to help bring the point home. Louisiana Medicaid was the state office that switched to a 100% pharmacy reimbursement earlier in 2024. We have worked to -- that's a brick and mortar safe, so you're part to have but more pharmaceutic, that's true. And so we've stood that up. We've got licensing in place. We're active. We are actively selling and distributing to Louisiana state Medicaid as well as the MTS. And so that's 1 example of the infrastructure that we're continuing to stand up and refine.

So are you saying that there's actually more that you need? Or are you saying that you have the I guess infrastructure in place to service across the country that product through the pharmacy channel?

We expect to continue to grow our pharmacy business.

And with no further questions, I'd like to turn the call back to our presenters for any additional or closing remarks.

Thank you. I just again want to reiterate our appreciation for the support of AdaptHealth. Hopefully, you can see from today's call that we're moving quickly, but methodically through improving the business and our performance, and we're excited about the future. Thank you all again for joining today.

And this will conclude today's conference. Thank you for your participation, and you may now disconnect.