AdaptHealth Corp. (AHCO) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome again. Welcome back to the UBS Healthcare Conference. I'm Kevin Caliendo, Health Care IT and Distribution analyst. We are very happy and proud to have the management team from AdaptHealth. We have Suzanne Foster, Chief Executive Officer; and Jason Clemens, Chief Financial Officer. I know it's been a tough week travel-wise. So thank you so much for making the trip down to Florida. Thanks for coming.

Thanks for having us.

Yes. Thanks.

Why don't we get right down to it. In this quarter, you discussed the success of the Humana contract and the capitated arrangement. Can you discuss a little bit more how that contract has trended through time and sort of how we should think about it going forward from here. There was a big win when you announced it. It just -- we want to understand how to think it about, bigger picture and longer term?

Yes. Want to -- just in general, I'll talk about how it's doing and then Jason can talk about the trend. We're very happy, I think, mutually, Humana and us, if I can speak on their behalf, a great partnership that our service levels continue to increase above and beyond what's expected, and we're continuing to make sure that we're operating within the parameters of what's required of us. And that has led to expansion and renewal for another 5-year term. So we're happy with that. And at this point, we're in 33 states and looking for other opportunities to partner with them and other like payers.

Yes. And I'd say in terms of the revenue line, I mean, we report capitated revenue that includes the Humana book of business that will include additional cap arrangements like we've announced in the last couple of quarters as that revenue starts flowing. That revenue will move very modestly up or down year-over-year, really based on membership. And so we're down just a tick this year on fewer Humana members within the 33 states that we contracted around. Everything we're seeing and reading, probably what you're reading for printing is showing that there's potentially some growth in that membership next year. And so that's how to think about it. It's a slow moving revenue stream. It's highly predictable. The utilization that comes with it is, again, slow moving, highly predictable. So we're very pleased with the economics on the contract.

Does that contract include diabetes?

It does not. It does not.

Is there a chance that it could in the future? Or is it like, it is what it is.

Well, I mean I think we'd like to do as much for Humana as they'd like us to do for them. we don't cap a lot of CGM business today, and it's back to that risk profile of the utilization. CGM can move faster than our other core business lines. So we are -- we did announce in the last quarter a smaller cap agreement that Suzanne might get into more of the details of. But for the first time, we're really kind of experimenting. We're taking some risk on CGMs. And it's -- again, it's small enough that it will be a pilot. We're going to see how it goes. But we're interested in potentially doing more, again, based on the performance.

When we think about a contract like this or the other large capitated contract that you won, how do we think about the margin profile and the cash flow -- and maybe more importantly, as you know, we're a big free cash flow fans here. How do we think about the margin and cash flow component -- the cash flow conversion component, and we think about relative to revenues or however you want to look at, how you guys define it?

Yes. So we expect at or better the enterprise margin. And so that's on really however you look at it, operating income, adjusted EBITDA we would expect it to be just about 20%, a touch higher as well as on a free cash flow margin between 6% and 7% of revenue of revenue.

Yes. That's right. And that's consistent with the rest of your business, in essence.

It is. It is. Now there is some uniqueness in start-up CapEx for capitated business. So in the first couple of quarters, we don't expect to be at that profile because we're loading -- we're front-loading vehicles -- patient equipment or their capital expenditures. But as the contract fully ramps, we fully expect 20% EBITDA in between 6% and 7% free cash flow margin.

And the beauty of that, if you think about it for the customer and for us, as we get to focus on service and reduce that administrative burden that's on Adapt just by nature of the per member per month. So these have mutually beneficial arrangements.

When you started and you came on Suzanne, you talked about the business in a way that the company hadn't talked about it before. Your competitors had never talked about servicing the customer, doing certain things. It sounded consultant-ish a little bit, but it was unique. And now that we're here, how -- it's clearly working, right? You're taking share, you're doing well. Take me through how you feel where you are with that process because when you talked about it, it made a ton of sense in an industry that we don't -- we can't touch every day, but it made sense from the outside world that she came in, she saw this. This was the opportunity that you identified immediately, right? It's like this is what we're not doing. We need to do better. Where are you in that in that journey of...

18 months in, I'm happy with our progress because I think we're further along of a business than what I thought we would be when I first arrived because there was a lot of what I used to say beautiful chaos, that we have worked through this standardization, how it's done in Boston, same as California. And when you start standardizing, you can put in the technology, which is the next phase for us. But we've made rapid progress in the standardization I don't understand why this industry historically hadn't focused on what exactly we are, which is a service provider. And we win and lose against competition and winning the hearts and minds of our referral sources based on how good we are in service. So when I traveled for the first year and got in front of customers and our sales force, our sales force knew it, but somehow it wasn't translating into the rest of the business that when you walk into a referring provider, if the last 5 patients complained about their HME provider, they're going to divert that business away. If they're quiet, that's a win. Wow, I'm not hearing about Adapt, they must be doing a good job. And when -- the really great happens is when the patient comes in is like, I love my home service provider, and they'll start sending more and more. So it's a flywheel. So we focused on, first, operational improvements. So we weren't wasting our money putting salespeople out there just beating against the door, and they're like, you guys are no good. And so our operational improvements have been remarkable this past year. The one example I'll give you is in sleep where we said, okay, why are we getting beat, well, time to set up, what we call cycle time prescription in the door to a patient on therapy. And no one had talked about time to therapy. That's very common in health care. I've been in health care my whole life. And so we got very focused on time to therapy. And today, as we sit here, we -- in a few quarters, we bought it from 23 -- on average, 23 days. Today, we sit on average at 10, and we believe there's remarkable improvement that we can even make on 10 because we're not done standardizing. And so this whole shortening of time to therapy has been a focus of ours. So to your point, I really just took the learnings of 30 years in health care and brought it to an industry that maybe didn't -- if you understand the origins of DME, they didn't come up as a traditional health care players. They came from oxygen and respiratory therapy and all that. And so I'm just taking the learnings from health care and applying it to the service industry called at home care. That's all we're doing.

It sounds simple. I'm guessing it's not because it's a different paradigm for a lot of the people that were -- how are you judging the successes besides winning business? Like is there data that you collect? Like how do you know that it's resonating out there besides...

Customers tell us and you know the inbound increase of people now calling us on 2 fronts, give me hope. One is on the capitated side where they're saying, okay, hold on, this makes sense that we cut out the administrative burden. We share risk, and it -- and we hold you to SLAs. That's good, we're aligning around a patient outcome that we want because the hospitals want better patient outcomes. They want shorter time in hospitals, and we can provide that as a partner, as a handoff. The other thing that's encouraging is inbound from hospital systems saying, why are we running our own DME. This is hard business logistically, why are we doing it? And so we say, well, we're ready to take on that business. That's what proves to me that we have a clinical value out there of making sure that the platform or the ecosystem of health care is seamless from doctor's office or hospital to home. And we're playing that part.

Got it. The capitated contracts have 2 meaningful -- large ones, I'm sure there's -- but the 2 meaningful. Is this a shift in strategy? Or is this a result of the effects of what you've done that's resonating with them? Meaning like are you going after this business because it's out there? Or is this business becoming more attractive because of what you've accomplished operationally, and it makes more sense now to go after that.

Yes, probably both. But I mean Jason was around when Adapt acquired a small company out in the California region that was already doing some capitated. There is quite a bit of capitated business already in California before Humana and before Kaiser. And then Humana came and we started that business, and we had some lessons early on, but we now have shown that, that model works. And then now we're in a large IDN and doing that partnership well where we can prove it out even more. And I trust we are going to prove it out. And now with those 2 reference points, the 2 big ones, and we have some other smaller ones, the pipeline becomes easier because we have proof points. And so that business has come to us, but we're also pushing the story, but it's a longer sales cycle because there's some integration and changes on the way the referrals come in and the 2 companies communicate that it takes time to close that business. But we have a strong pipeline for the next 2 years.

Thinking about that, I know picking on risk is something that's new. Do you want to let that simmer into how that goes first before pushing more or...

I think Jason will tell you, it's not really new.

Yes. Yes. I mean on the CGM side potentially. It's really utilization can move more rapidly. But in our core, I mean, really sleep and respiratory as well as DME, I mean, the bed metal, beds, wheelchairs, other items that we bring into the home. Those utilization curves move very, very slowly. Particularly, if you think of COPD and just the kind of the life cycle of that disease state, I mean, there's no cure it only advances. And so as patients are identified as having COPD they might get on a nebulizer and at some point, oxygen and later into the disease they might need a ventilator and they might need a bed in the home and other DME to help that patient get around the home or outside the home. But if you think through your kind of friends and family and how many in your network are at home right now on an oxygen concentrator, it's probably very few -- hopefully very few maybe 0. A year ago, it was likely very similar. And a year from now, it's likely very similar. So to bring it home, those utilization curves move very, very slowly. Plus when we price them, I mean, we get 2 full years of data from the payer or the IDN that we're pricing for. We also have our data. I mean, we just have reams of data with over 4 million patients service. So we're able to monitor them. We also -- we construct the contract and the framework to give us some flexibility there to make sure that pricing holds to what we expected. And if it doesn't, for some reason, we're able to come back and have that discussion.

Understood. The pipeline, how do we think when you say the pipeline is rich, what is -- it's hard to be rich and you have -- I mean, is it relative to the fact that you have these 2 big capitated contracts? Are they like similar in size? Or are numerous in number is the way to think...

I think numerous in number would be...

Not too many of those, out there.

Right. You know we announced this new one with 170,000 lives. It's a region one, but with a national player. So you get the region right and there's opportunity to expand. And so that's how we're approaching them. It's just little by little, you're getting a couple of hundred thousand lives at a time. And yes, there's not a equivalent to the one we just closed at this point.

Sure. You said you have investment vehicles and other stuff. How much leverage is there from the existing -- from Humana existing? Like can you move stuff over? Or is it all incremental investing? I just don't know how logistically it works. So maybe just walk me through how it works.

Well, for this new IDN, there's just huge contract that we announced, we expect at least $1 billion over the next 5 years. it's predominantly in geographies that we don't operate in today. And so there's some -- the operational side of that is, well, I mean you've got to stand up a lot of infrastructure. I mean we're looking for 1,200 new employees we've already procured 300 new vehicles. And we're not yet up on 36 new site to service, but we're moving through that. I mean we're signing leases kind of as we sit here and speak. And so that's the operational challenge of standing up pre-revenue. So you've got -- you're taking on that expense prior to having revenue and you're taking on that infrastructure. But as the revenue turns on, right, I mean those margins come up to our pricing model literally in overnight. So the upside to all this is all that fixed cost, 1,200 people, they're in vehicles, 36 sites. That's all paid for through the pricing of this contract. And so there's opportunity -- I mean there's opportunity on the patients that show up in these facilities. They might not have this IDN payer insurance plan, they may have United or Aetna or something else. That's opportunity for us. The bigger opportunity even is as this infrastructure stood up, as soon as those customers glowing and happy, we will drop in sales folks, and we will go head to head against the competitors in these local geographies. And so all that fixed cost is already paid for. So the margins on leverage could be very attractive.

Yes. I won't have to add in any more infrastructure.

So a brand-new market where you basically have -- it's a free calling card to go and try to win business, and there's a lot of business in those regions that I would imagine. No doubt about it. It does get to a question that we asked on the earnings call. I just want to clarify and make sure I understand. Is it going to affect the cadence for '26 earnings in terms of you onboarding this, the other contracts maturing a little bit versus a normal cadence and how to think about this contract -- I know you gave us some details around this particular contract and it ramps and the margins ramp. But how should we think about it? I know we're not -- I know it's not time to give '26 guidance. But just thinking about cadence, how it might be different. Anything you can help us with that?

Sure. So we provided an outlook of between 6% and 8% top line growth next year. For discussion purposes, Q1, 2%, 4% in Q2, 6% in Q3, 8% in Q4, something like that. I mean, it will ramp over the course of the year. start a little slower and ramp through the end. So that's how we...

That's the revenue growth.

That's how the revenue growth should right should flow through in 2026. Now EBITDA margin, we think we'll be right about the same level of Q1 and 2 of '25 in terms of adjusted EBITDA margin. And then we do think that we'll expand -- I mean we've we said in our outlook, expect 0.5 point of margin expansion for the full year. A lot of that will be back-half weighted. And again, it's because we're forward investing in all this infrastructure. And as the revenue turns on, that's really where we'll get the pull-through. So the first 2 quarters of the year, the EBITDA margin is flattish. Second half is where you're going to pick up margin. That -- for the full year, you get to -- I don't want to be a stickler, but if I'm doing the math, 2, 4, 6, 8 doesn't get you to 6% to 8% for the full year, right? 3, 6, 9, 12.

So something for that it's some ramp up. I didn't want -- hundreds and thousands of people. I understand that was purely...

Illustrative.

Illustrative. Thank you. Okay. Let's move to diabetes. First quarter -- last quarter was the first quarter of growth, I think, since 1Q '24 something like that. I know on the call, you didn't say this is an inflection point, and we don't want to say we're fixed it. But what happened in the quarter and what -- how to think about it going forward? Because it's important and it does drive -- I mean, from a stock perspective, it drives sentiment a little bit. And it's something that we can all track a little bit and understand maybe more than sleep in some of the other areas. So what happened in the quarter and what can...

Let me -- before we get to the numbers, so in September of '24, when we got our arms around this and said, this is yes, it's an interesting dynamic in the marketplace, but a lot of this is self-inflicted. We made some changes and told everybody, give us 3 or 4 quarters to stabilize. The first thing we have to do is fix it. So there was 2 parts to it. They would fix it before we invest in it. And the fix it came from taking our the resupply business, which is, what, 85%, 90% of the revenue and putting that in our Nashville Center of Excellence. I don't know why we were running it separate, but we did that, and we saw -- that was the quickest to turn around because we have the infrastructure and the know-how. So our resupply, we increased attrition, got customer service better. All of that was good. Then in the meantime, we took a new sales leader and said, okay, we've got to increase our starts that feedback. And that took a little time to get the right sales force in place, get them incented correctly and get them out on the street. So that was part 2. And then coming into this quarter, both of those CGM starts were low down, pumps held their own, but resupply engine was really humming and that's what allowed us to have a good year on a comp basis versus a quarter where we had meltdown. We didn't declare victory because we know there's a second phase that we have to execute to. And that is that we held somewhat flat. We added a few sales headcount, but again, it was fixed before invest. And now we're saying, okay, that the infrastructure is fixed, if you will, or stable, we can now start investing. So looking forward, we're saying we'll put in some strategic headcount in areas that we don't have headcount meaning in sales, I'm sorry, strategically look at geographies where we're not getting business and put and invest in some headcount there. And the other thing is the hypothesis around do you have to take pharmacy and med benefit is seeming to prove out. The providers don't want to have to think. So we -- even though we took it, we weren't doing it efficiently. The example I'll give you is we would take a pharmacy referral, but it would take us 36 minutes in our time study to process that order. That's way too long and inefficient. So we have invested this quarter in the pharmacy SaaS technology that we need to bring that from 36 to 5 minutes. And so now we'll be in different...

36 to 5 minutes.

Yes. Well, when it's implemented this quarter. So those are the 2 Phase II investments that we're thinking about when it comes to diabetes in an otherwise dynamic market, right? Like some will speculate the pharmacy medical benefit channels have stabilized, we'll see. But either way, we got to be prepared that whatever happens there that we can take the referral and the prescription from either channel and how to be profitable for us in both, and that's what we're working on now.

So 36 to 5 minutes, so a person would come in with a prescription that needed -- and would they have to sit there for 36 minutes before they would get it or...

No, no because they're not sitting in front of us, right? That's a drop ship. So meaning our pharmacists and team would get the prescription in order to do all of the appropriate regulations. It would take us 36 minutes to take that one prescription, pull it, document it, do whatever we had to do and get it out the door. That's why it wasn't -- it's not as efficient for a provider like ours without the right technology. And so now our tech team has engaged because that's where we've put a lot of our tech resources because it is our lowest margin business to make sure that we're efficiently running it. And this last -- this quarter, we said, okay, let's put that SaaS technology in place. Now remember, in the big scheme of things, with the new capitated contract coming in, I mean today, that diabetes revenue is 17%, 18% of the total revenue. That's going to -- regardless of growth, it's going to be a very small piece of our business. So we were trying to justify our investment dollars. So we're doing what we need to, to make sure that the service at the end of the day is good, and it's profitable. But we really are focused on the much bigger upside we have in our sleep and respiratory and capitated and hospital arrangements.

Understood. Understood. That's actually super helpful. So this is all about Adapt. It's not your relationship with manufacturers. It's not the pharmacy chain. It's not -- any of that stuff is just kind of noise in the background. This is Adapt. You're solving this issue.

That's the theme of our business that right here.

No. I get it, but it's clear now and to hear it from you, it makes it much more understandable. Does it help with -- when you make this 36 to 5-minute change, does that help with revenue cycle? Does it help with cash flow? Does it help financially? Or is it purely operational, thus efficient, thus you can do it more successfully.

You could argue it helps with top line because when you're trying to cherry pick, you're the doctor and I'm going like just send me this type that's a harder position to be in and say, okay, doctor like send it, we can manage it on the back end. So we're trying not to make it your problem, trying to make it our problem to solve. So it can have -- we can potentially have some upside on revenue, help certainly with our cost, right, because we can bring through volume without -- because we did the analysis, say, well, do you just throw headcount at it? Or do you put in the technology and our study showed that putting technology in based on what we're projecting to come out of that would be the better solution.

There's a lot of analysis going on in Adapt over the last year, so it sounds like.

Yes. there is. We're letting data drive the decisions.

What -- is there more tech investments -- like is there -- let's -- there's a lot more I want to talk about, but all that you've done, what's the next level of efficiency that you want to drive in your business?

Yes. I'd like Jason giving you an example. But before I do, I think of it this way, the first phase is -- out of the gate, I thought we would have more opportunity to deploy tech quicker. What I learned over the last year was that we'll hold on a second. When we tried, it was kind of going more slow than I -- than we thought. And what -- I mean it was obvious. The standard processes were not in place. So whenever you try to automate or put tech right on a spaghetti chart or beautiful cash as I used to call it, it doesn't go well. So we kind of pulled back a bit in the areas where particularly operations and said, okay, let's put our standard processes in place and really our workflows and get all of that. And then we've had some recent examples where we've been able to come on top and even just deploying it in a standard operating model rather than months and days. And so that's kind of Phase II where we're going is we believe in the operations, there's about to be a lot of benefit both from digital automation and AI. So digital is our app, where we now have almost 300,000 users. And every month, they're deploying more and more use cases from where is my order to pay my bill online to self-scheduling CPAP. So we're getting a lot of uptick there. And then in the automation intake, we have -- we used to have a title of people that literally were called fax wranglers. They -- people with fax would come in, they figure out where it goes and put it in the right channel. That will all be automated. So automation and AI is something that I see a future for here with so much administrative work that we do. But Jason running RCM, I think on the -- while we said this on the earnings call where he was ahead of the standard operating model was able to make some meaningful improvement. So I know you don't want to spend too much time on it, but I think it's worth commenting on the progress we've made on...

You don't care about revenue cycle. Yes. And I think to help frame the opportunity set, I mean, as we exited Q2, we had about 4,600 FTEs offshore, predominantly India and Philippines, performing revenue cycle type duties as well as other back office type functions within the operations. As we exited Q3, we were down to 4,500. And so 100 heads came out as part of his myAPP ramp that we're getting more patients to self-pay and to where is my order. And so the call volumes have started to come off, and so we've peeled out some headcount. As we're going into Q4, there's some new RPA or robotics processing automation going into the cash posting. And so today, we got hundreds of people overseas that are getting the ERA or you're in from the payer, matching it to the payment, posting it to the patient accounting just to kind of run that machine. Well, we're installing a fair amount of tech to automate this and replace those people. More of that is coming as we look into '26 and beyond. And so I think in the upcoming earnings calls, you'll continue to hear a storyline about our progress in automation and AI, but again, to frame it, you're talking about a little under $100 million of cost that's attached to those 4,500 heads. So there's a lot of opportunity.

We refer to our R&D -- I mean, our tech team as our R&D team because bring up these new technologies, put this infrastructure in place because we do think it can transform the way we do the business.

Interesting. And that's certainly not priced into the stock. I hate to bring up competitive bidding, but I have to because people ask about it and those of us old enough to remember the last time we went through this with this industry wasn't pretty. Obviously, it was a lot different than what we're talking about now. But it's a worrisome term for investors, right? What about competitive bidding. It's always worse than how do we think about it? Just remind us all a little bit about what's actually on the docket for competitive bidding? How it might affect you guys? What you really know about it currently? And how we should think about it?

Yes. Why don't you take it from the investor side, and then I'll talk about it from a...

Sure. Yes, I'd say that -- I mean, context and history is important for you and those of us old enough to remember all these things. If you look at the products, the whole demi post-fee schedule, back in the last effective round, which was 2017, right? I mean those rates for sleep, oxygen, DME, I mean they came off about 60% overnight. So by definition, there's a lot of meat on that bone, right, of reimbursement pressure back then. But since then, the reimbursement increase, the fee schedules are only up about 2%, 2.5%. CPIU of course, is closer to 3% 3.5%. And so effectively, since then, there's been further compression. And so the result of that has been massive consolidation in the industry. Back in 2016, '17, there are about 10,000 DMEs and today, there's about 5,500. Well, the details of the new rules in the proposed rule are very important. I mean there's 2 key factors that are clearly messaging very overtly consolidation is coming. The first is per MSA throughout the country, there's calculators built into that proposed rule that are suggesting 1/3 of the contracts that exist today, 1/3 will be cut. So the 5,500 is likely to go to closer to about 3,000 or so in terms of operators. On the other end, the minimum number of contracts in an MSA is changing from 5, down to 2. And so that's important because if you have a pretty considerable market share in a specific MSA, it might just be you and a single competitor left, whereas today, you probably have many competitors in that MSA. So the rules as they're written in the proposal are suggesting a pretty significant consolidation coming. The last thing I'd say on kind of the financials and the impact of this is there is a math equation that shows if you're 10% of the sleep market in a particular MSA, you would be willing to drop your rates by X in exchange for Y of more market share because the lifetime value of that -- of those patients, right, it's going to make sense for you to work towards positioning yourself in your best light.

I think when you take competitive bid, the ability like us to capitate large chunks of business and our ability to invest in tech, are three things converging that are setting companies like Adapt up with size and scale for a unique opportunity over the next couple of years because they're all driving consolidation in the marketplace. And so if you go from 5,000 HME, DME providers today, which had been halved over the last 5 years, right, it was more than 10, down to 5. We think it will be 3,000 that volume has to go somewhere on a national basis, which we're one of the very few companies that can take that on. So I love that you bring it up because I think competitive bid could be a real strategic advantage for us, just like I think our ability to continue to cap business. And as we continue to take cost out through technology, it puts us in a really interesting position.

Does that -- when you consolidate down and have this volume available to you, does that mean that, hey, you know what, we don't really need to do any M&A because we're going to see -- we see this opportunity coming in, in the next couple of years. We don't need to buy share. It's going to come to us, and that's a much higher return, presumably on invested capital...

We do not need to do M&A. Now will we do it in -- where it's in our core of sleep and respiratory, and it's in a geography that would be easier for us to buy as opposed to build, West Coast, for example, or something like that in a white space for sure. But we're in a good place where we don't have to because we think the organic growth that's coming our way over the next few years is going to happen regardless. So we'll be very strategic on where we want to build our footprint.

When will the thesis around competitive bidding the advantage to adapt? How can we in the room outside of your headquarters understand that you're actually taking the share? Like how will we know, will show up in organic growth? Will you tell us, hey, we're starting to see this consolidation, we're starting to win. Like how do we know when -- that this thesis is playing out the way you hope it will.

It's on those new starts of patients within each of the segments. And so as an example, in sleep, I mean, in the last quarter, I mean we're at almost record territory of new starts. I mean we were up almost 7% over the prior year in new starts. I mean if you're seeing mid-single-digit start growth, sleep, respiratory, CGMs, that's how you know that it's working.

And when do you think we'll start to -- like when do you start think you'll start to feel it or you'll start to see it.

Well, we're showing you 6% to 8% next year.

No, that's why -- so it's a little bit -- I don't want to say it's baked in, but it's there, part of the 6% to 8% is also something in the new business you've already want.

There's real momentum in particularly sleep and respiratory.

Fair enough. Pricing a little bit. What are your sort of built-in expectations around reimbursement in that 26% number that revenue number? Based on whether it's DME, the different segments. Where are you anticipating?

Very steady. I mean, when we're talking 6% to 8%, you can really translate that to volume on the rate side, I mean, we're very likely the calculators that come out with the demi post-fee schedule increases for next year. They're based on CPIU through June of this year. And so somewhere 2%, 2.25% potentially could be fee schedule increase. However, Medicare Advantage penetration into Medicare, right? That has a tendency to wash some of that out. And so we would expect that to remain the same next year and for net rate to be basically flat.

Got it. On the sleep side, there's been some talk that Philips may come back to the market. You guys have done a really good job of finding alternative sources. How does that -- do you expect them to come back to the market? Does that in any way affect you positively or negatively if you have another player? And how should we -- if that news comes to be, do we as investors care? Is it a positive? Is it negative? Is it any way -- like how do we address that or think about it?

They've begun reaching out not just to us, but to their partners to say, to signal that they expect to get this behind them within the year. We don't know what that means. They can't give us a date, but their intention to come back. And so I think going from a 2 player to a 3-player market is good, of course. And that's all we know at this point.

Is there going to be -- I'm guessing when a company goes through problems, then I come back to -- purely be speculating, but they have to incentivize people to get back in. What do you -- how did you do the math or the analysis around, hey, do I want to go back -- get back in bed, no pun intended, with the company that's caused problems and dislocated the market for a while versus wow, this price is really attractive. Like how do you -- it's a big decision.

Remember, a lot of our scripts come -- they'll be out there. So I'm sure they'll be out selling doctors on their back and their products. So a majority of our scripts will come in branded. And then on the other side, I'm sure our team will be looking at the product and how it compares. But for the most part, we will follow the prescribers.

What's the percentage that are branded versus not? Because I know this was a debate period of time ago for sleep, it's over 50%.

It's over 50%, that's right.

Okay. For diabetes, it's well in the 90s. That I understood, I thought sleep was lower. Okay. Our time is up. Is there anything else that we haven't touched on? Do you think that we should make sure everybody learns and knows.

Just that we are really optimistic about the next couple of years with some of the industry trends. And we think that given our size and kind of the operational improvements we've made will not only help us grow, but this focus on the patient has really proven to put us in alignment with a lot of our customers. So we're pretty optimistic about the couple of years ahead. So we appreciate the opportunity to talk to you about it, any time you want to hang around and come back.

Thank you. Thanks, everybody, and thanks for coming. Thank you.

Thank You.