Good afternoon, everybody. Welcome again, welcome back to the UBS Healthcare Conference. I'm Kevin Caliendo, Healthcare IT and Distribution Analyst. We are very happy and proud to have the management team from AdaptHealth. We have Suzanne Foster, Chief Executive Officer, 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.
Yeah, same.
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? It was a big win when you announced it. We want to understand how to think about it bigger picture and longer term.
Yeah, let's just talk in general 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. That has led to expansion and renewal for another five-year term. 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 payers.
Yeah, 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. 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 or printing, is showing that there's potentially some growth in that membership next year. 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. We're very pleased with the economics on the contract.
Does that contract include diabetes?
It does not.
It does not.
It excludes that.
Is there a chance that it could in the future, or it is what it is?
I mean, I think we'd like to do as much for Humana as they'd like us to do for them. We do not 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. 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 with taking some risk on CGMs. Again, it's small enough that it'll be a pilot. We're going to see how it goes. 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've won, how do we think about the margin profile and the cash flow? Maybe more importantly, as you know, we're 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 it, how you guys define it?
Yep. We expect, at or better, the enterprise margin. That is 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%-7% of revenue.
Of revenue.
Yep, that's right.
That's consistent with the rest of your business in essence.
It is.
7% plus, right?
It is. Now, there is some uniqueness in startup CapEx for capitated business. In the first couple of quarters, we do not expect to be at that profile because we are front-loading vehicles, patient equipment, other capital expenditures. As the contract fully ramps, we fully expect 20% EBITDA and between 6%-7% free cash flow margin.
The beauty of that, if you think about it for the customer and for us, is we get to focus on service and reduce that administrative burden that's on AdaptHealth just by nature of the per member per month. These have mutually beneficial arrangements.
When you started and you came on, Suzanne, you talked about the business in a way that the company had not 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. Now that we are here, it is clearly working, right? You are taking share. You are 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 cannot touch every day. It made sense from the outside world that she came in, she saw this. This was the opportunity that you identified immediately, right? It is like, "This is what we are not doing. We need to do better." Where are you in that journey ?
Eighteen 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. When you start standardizing, you can put in the technology, which is the next phase for us. 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. We win and lose against competition and winning the hearts and minds of our referral sources based on how good we are in service.
When I traveled for the first year and got in front of customers in our sales force, our sales force knew it, but somehow it was not translating into the rest of the business that when you walk into a referring provider, if the last five patients complained about their HME provider, they are going to divert that business away. If they are quiet, that is a win. "Oh, wow, I am not hearing about Adapt. They must be doing a good job." What really happens is when the patient comes in and is like, "I love my home service provider," and they will start sending more and more. It is a flywheel. We focused on first operational improvements.
We were not wasting our money putting salespeople out there just beating against the door, and they are like, "You guys are no good." Our operational improvements have been remarkable this past year. The one example I will give you is in sleep where we said, "Okay, why are we getting beat?" Time to set up what we call cycle time, prescription in the door to patient on therapy. No one had talked about time to therapy. That is very common in healthcare. I have been in healthcare my whole life. We got very focused on time to therapy. Today, as we sit here, in a few quarters, we brought it from 23 on average, 23 days. Today, we sit on average at 10, and we believe there is remarkable improvement that we can even make on 10 because we are not done standardizing.
This whole shortening of time to therapy has been a focus of ours. To your point, I really just took the learnings of 30 years in healthcare and brought it to an industry that maybe did not, if you understand the origins of DME, they did not come up as a traditional healthcare player. They came from oxygen and respiratory therapy and all that. I am just taking the learnings from healthcare and applying it to the service industry called at-home care. That is all we are doing.
It sounds simple.
I'm guessing it's not because it's a different paradigm for a lot of the people that we're—how are you judging the successes besides winning business? Is there data that you collect? How do you know that it's resonating out there besides?
Customers tell us, and the inbound increase of people now calling us on two 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 we hold you to service-level agreemeents(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 Durable Delivery Equipments (DME)? This is hard business.
Logistically, why are we doing it? We say, "We're ready to take on that business." That proves to me that we have a clinical value out there of making sure that the platform or the ecosystem of healthcare is seamless from doctor's office or hospital to home. We're playing that part.
Got it. The capitated contracts, you have two meaningful large ones that I'm sure there's lots of, but the two meaningful ones. 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, 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?
Yeah, probably both. I mean, Jason was around when AdaptHealth 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. Humana came, and we started that business, and we had some lessons early on, but we now have shown that that model works. Now we're in a large Integrated Delivery Network (IDN) and doing that partnership well where we can prove it out even more. I trust we are going to prove it out. Now with those two reference points, the two big ones, and we have some other smaller ones, the pipeline becomes easier because we have proof points. That business has come to us, but we're also pushing the story.
It's a longer sales cycle because there's some integration and changes on the way the referrals come in, and the two companies communicate that it takes time to close that business. We have a strong pipeline for the next two years.
Thinking about that, I know taking on risk is something that's new. Do you want to let that simmer and see how that goes first before pushing more, or?
No, I think Jason will tell you it's not really new.
Yeah, yeah. I mean, on the Continuous Glucose Monitor (CGM) side, potentially.
CGM, yeah.
It's really utilization can move more rapidly. In our core, I mean, really sleep and respiratory, as well as DME, I mean, the bent 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 kind of the life cycle of that disease state. I mean, there's no cure. It only advances. As patients are identified as having COPD, they might get on a nebulizer and at some point need oxygen, and later into the disease state, 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 of the home.
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 zero. A year ago, it was likely very similar, and a year from now, it's likely very similar. To bring it home, those utilization curves move very, very slowly. Plus, when we price them, I mean, we get two 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 on service. We're able to monitor them. We construct the contract and the framework to give us some flexibility there to make sure that pricing holds to what we expected.
If it doesn't, for some reason, we're able to come back and have that discussion.
Got it. Understood. The pipeline, how do we think when you say the pipeline is rich? It's hard to be rich when you have—I mean, is it relative to the fact that you have these two big capitated contracts? Are they similar in size or are you numerous in number is the way to think?
I think numerous in number would be best.
Not that many of those out of the.
Right. We announced this new one with 170,000 lives. It is a Region One, but with a national player. You get the region right, and there is opportunity to expand. That is how we are approaching them. It is just little by little, you are getting a couple hundred thousand lives at a time. Yeah, there is not an equivalent to the one we just closed at this point.
Sure. You said you have to invest in the vehicles and other stuff. How much leverage is there from Humana existing? Do you move stuff over? Is it all incremental investment? I just do not know how logistically it works. Maybe just walk me through how it works.
For this new IDN, this just huge contract that we announced, we expect at least $1 billion over the next five years. It's predominantly in geographies that we do not operate in today. There is some—the operational side of that is, well, gee, I mean, you 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. We're not yet up on 36 new sites of service, but we're moving through that. I mean, we're signing leases kind of as we sit here and speak. That is the operational challenge of standing up pre-revenue. You are taking on that expense prior to having revenue, and you are taking on that infrastructure. As the revenue turns on, right, I mean, those margins come up to our pricing model literally overnight.
The upside to all this is all that fixed cost, 1,200 people, 300 vehicles, 36 sites, that's all paid for through the pricing of this contract. And so there's opportunity.
On the patient level?
Oh, I mean, there's opportunity on the patients that show up at these facilities. They might not have this IDN's payer insurance plan. They may have United, Aetna or something else. That's opportunity for us. The bigger opportunity even is, as this infrastructure stood up, as soon as this customer's glowing and happy, we will drop in sales folks, and we will go head-to-head against the competitors in these local geographies. All that fixed cost is already paid for. The marginal leverage can be very attractive.
We'll have to add in any more infrastructure.
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, 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 2026 earnings in terms of you have onboarding, you're onboarding this, the other contracts maturing a little bit versus a normal cadence? 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 it's not time to give 2026 guidance, but just thinking about cadence, how it might be different. Anything you can help us with there?
Sure. So we provided an outlook of between 6% and 8% top-line growth next year. For discussion purposes, Q1, 2%, Q2, 6%, and Q3, 8%, and 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 flow through in 2026. Now, EBITDA margin, we think will be right about the same level of Q1 and Q2 of 2025 in terms of adjusted EBITDA margin. We do think that we'll expand. I mean, we've said in our outlook, anticipate0.5 percentage point of margin expansion for the full year. A lot of that will be back half-weighted. Again, it's because we're forward investing in all this infrastructure. As the revenue turns on, that's really what will get the pull-through.
The first two quarters of the year, the EBITDA margin's flattish. The second half is where you're going to pick up margin.
We'll start jumping.
Hence, 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 6-8 for the full year, right? So.
Three, six, nine, twelve. Something to that. It's some ramp up.
It's the ramp. I didn't want—
That's all right.
Hundreds and thousands of people.
Oh my God, wait a minute.
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 2024, 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've fixed it. But what happened in the quarter and 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 and some of the other areas. So what happened in the quarter and what can we expect?
Let me—yeah, before we get to the numbers. In September of 2024, when we got our arms around this and said, "This is—yeah, 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 three or four quarters to stabilize. The first thing we have to do is fix it." There were two parts to it. There was fix it before we invest in it. The fix it came from taking the resupply business, which is, what, 85-90% of the revenue, and putting that in our Nashville Center of Excellence. I do not 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. Our resupply, we increased attrition, got customer service better.
All of that was good. In the meantime, we took a new sales leader and said, "Okay, we've got to increase our starts that feed that." That took a little time to get the right sales force in place, get them incented correctly, and get them out on the street. That was part two. Coming into this quarter, both of those CGM starts were a little 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 a meltdown. We didn't declare victory because we know there's a second phase that we have to execute to. That is that we held somewhat flat. We added a few sales headcount, but again, it was fixed before invest.
Now we're saying, "Okay, that the infrastructure's fixed, if you will, or stable, we can now start investing." 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 in and invest in some headcount there. 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. 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.
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 indifferent.
It's 5 minutes now?
Yeah. When it's implemented this quarter, those are the two phase two 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. Either way, we got to be prepared that whatever happens there, we can take the referral and the prescription from either channel and have it be profitable for us in both. That's what we're working on now.
Thirty-six to five minutes. So a person would come in with a prescription that needed this, and they would have to sit there for thirty-six minutes before they would get it?
No, no, because they're not sitting in front of us, right? That's a dropship. Meaning our pharmacist 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's not as efficient for a provider like ours without the right technology. 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.
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. We were trying to justify our investment dollars. We are doing what we need to to make sure that the service at the end of the day is good and it's profitable. 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. This is all about AdaptHealth. It's not your relationship with manufacturers. It's not the pharmacy chain. Any of that stuff is just kind of noise in the background. This is AdaptHealth. You're solving this issue. Okay.
That's the theme of our business for last year.
I get it, but it's clear now 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 does it always 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 in, "Just send me this type." That's a harder position to be in than say, "Okay, doctor, send it. We can manage it on the back end." We are trying not to make it your problem, trying to make it our problem to solve. It can potentially have some upside on revenue, help certainly with our cost, right, because we can bring through volume without.
Or the same level.
Because we did the analysis, say, "Well, do you just throw headcount at it, or do you put in the technology?" 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 AdaptHealth over the last year, so it sounds like.
Yes. There is. There's always.
It's a good thing.
We're letting data drive the decisions.
Is there more tech investments to 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?
Yeah. I'll let Jason give you an example, but before I do, 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, hold on a second. When we tried, it was kind of going more slow than we thought. I mean, it was obvious. The standard processes were not in place. Whenever you try to automate or put tech right on a spaghetti chart or beautiful chaos, as I used to call it, it does not go well.
We kind of pulled back a bit in areas where it was particularly operations and said, "Okay, let's put our standard processes in place and really our workflows and get all of that." We have 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 is days. That is kind of phase two where we're going, as we believe in the operations. There is about to be a lot of benefit both from digital, automation, and AI. 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's my order to paying my bill online to self-scheduling CPAP. We are getting a lot of uptick there.
In the automation intake, we used to have a title of people that literally were called fax wranglers. The people with fax would come in, they'd figure out where it goes and put it in the right channel. That'll all be automated. Automation and AI is something that I see a future for here with so much administrative work that we do. Jason running RCM, I think, we said this on the earnings call where he was ahead of the standard operating model, was able to make some meaningful improvements. 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.
Yeah, we're talking about revenue cycle.
Yeah.
Yeah. 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. 100 heads came out as part of this MyApp ramp that we're getting more patients to self-pay and to where's my order. The call volumes have started to come off, and we've peeled out some headcount. As we're going into Q4, there's some new RPA or robotic process automation going into the cash posting. Today, we have hundreds of people overseas that are getting the ERA or ERN from the payer, matching it to the payment, posting it to the patient accounting just to kind of run that machine.
We're installing a fair amount of tech to automate this and replace those people. More of that is coming as we look into 2026 and beyond. I think in the upcoming earnings calls, you'll continue to hear a storyline about our progress in automation and AI. Again, to frame it, you're talking about a little under $100 million of cost that's attached to those 4,500 heads. We have.
There's opportunity.
There's a lot of opportunity.
We refer to our R&D, I mean, our tech team as our R&D team because they bring us these new technologies, put this infrastructure in place because we do think it can transform the way we do the business.
Interesting. That is certainly not priced into the stock, I think.
No.
I hate to bring up competitive bidding, but I have to because people ask about it. Those of us old enough to remember the last time we went through this with this industry know it was not pretty. Obviously, it's 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.
Yeah. Why don't you take it from the investor side, and then I'll talk about it from a.
Sure. Yeah. I'd say that, I mean, context and history is important for those of us old enough to remember all these things. If you look at the products, the whole DMEPOS 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. By definition, there was a lot of meat on that bone, right, of reimbursement pressure back then. Since then, the reimbursement increase, the fee schedules are only up about 2-2.5%. CPIU, of course, is closer to 3-3.5%. Effectively since then, there's been further compression. The result of that has been massive consolidation in the industry. Back in 2016, 2017, there were about 10,000 DMEs, and today there's about 5,500.
The details of the new rules in the proposed rule are very important. I mean, there's two 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 a third of the contracts that exist today, a third 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 five down to two. That is 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. 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 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 AdaptHealth up with size and scale for a unique opportunity over the next couple of years because they're all driving consolidation in the marketplace. If you go from 5,000 HME, DME providers today, which had been halved over the last five years, right? It was more than 10,000, down to 5,000. We think it'll 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. 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.
As we continue to take cost out through technology, it puts us in a really interesting position.
When you consolidate down and have this volume available to you, does that mean that, hey, you know what? We do not really need to do any M&A because we are going to see this opportunity coming in the next couple of years. We do not need to buy share. It is going to come to us, and that is a much higher return, presumably. Invested capital since we.
We do not need to do M&A. Now, will we do it 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. We are in a good place where we do not have to because we think the organic growth that's coming our way over the next few years is going to happen regardless. We will be very strategic on where we want to build out footprint.
When will this thesis around competitive bidding, the advantage to AdaptHealth, how can we in the room outside of your headquarters understand that you're actually taking the share? How will we know? Will it show up in organic growth? Will you tell us, "Hey, we're starting to see this consolidation. We're starting to win"? How do we know 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. 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.
Okay. When do you think we'll start to, when do you think you'll start to feel it or you'll start to see it?
We're showing you 6-8% next year, Ken.
I know. That's why I'm.
So.
It's a little bit, I don't want to say it's baked in, but it's there. Part of the 6-8 is also some of the new business you've already won there.
There's real momentum in particularly sleep and respiratory.
Okay. 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? What are you anticipating?
Very steady. I mean, when we're talking 6-8%, you can really translate that to volume.
Volume.
On the rate side, I mean, we're very likely the calculators that come out with the DMEPOS fee schedule increases for next year, they're based on CPIU through June of this year. And so somewhere 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.
Okay. 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. 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? How should we, if that news comes to be, do we as investors care? Is it a positive? Is it a negative? Is it any way? 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. I think going from a two-player to a three-player market's good, of course. That's all we know at this point.
Is there going to be, I'm guessing when a company goes through problems and they come back tomorrow, it's purely me speculating, but they have to incentivize people to get back in. How do you do the math or the analysis around, "Hey, do I want to go back and 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." How do you?
Well, remember.
It's a big decision.
Remember, a lot of our scripts come. They'll be out there. I'm sure they'll be out selling doctors on their back and their product. A majority of our scripts will come in branded. On the other side, I'm sure our team will be looking at the product and how it compares. 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 a period of time ago.
For sleep, it's over 50%.
Over 50? Okay.
That's right. For diabetes, it's well in the 90%.
90s. Yeah. That I understood. I thought sleep was lower. Okay. Our time is up. Is there anything else that we haven't touched on that you think that we should make sure everybody learns and knows?
Just that we're really optimistic about the next couple of years with some of the industry trends. 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. We're pretty optimistic about the couple of years ahead. We appreciate the opportunity to talk to you about it. Anytime you want to have us come back.
Thank you. Thanks, everybody. Thanks for coming. Thank you.