Hello. Good day, and thank you for standing by. Welcome to the Accendra Health's Fourth Quarter 2025 Earnings Conference Call. After the speaker's remarks, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Parish, Vice President, Strategy, Corporate Development and Investor Relations.

Thank you, operator. Good afternoon, everyone, and welcome to Accendra Health's Fourth Quarter Earnings Call. Our comments on the call will be focused on the financial results of the fourth quarter of 2025, all of which are included in today's press release. The press release, along with the fourth quarter 2025 supplemental slides, are posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements that reflect the current views of Accendra Health about our business, financial performance, and future events. The matters addressed in these statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied here today. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs, and projections will result or be achieved. Please refer to our SEC filings for a full description of these risks and uncertainties, including the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In our discussion today, we will refer to non-GAAP financial measures and believe they might help investors to better understand our performance or business trends. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today, I am joined by Ed Pesicka, Accendra Health's President and Chief Executive Officer; Jon Leon, the company's Chief Financial Officer; and Perry Bernocchi, the company's Chief Operating Officer. I will now turn the call over to Ed. Ed?

Thank you, Will. Good afternoon, everyone, and thank you for joining us on the call today. I am pleased to welcome all of you to our very first earnings call as Accendra Health. I'd like to begin by giving you my thoughts related to the strengths of Accendra Health and why we are so excited about our future and where we are going. First, it is important to understand the size of the market that we serve or the size of the pie. Our expansive payer relationship gives us access to approximately 300 million Americans, of which the CDC estimates that 3 out of 4 adults are living with some type of chronic condition. Our nationwide footprint makes Accendra Health a premier choice for all constituents involved in the administration of care in the home-based setting. In this expansive market, we have developed high brand recognition and customer support, and reliance on both Byram and Apria, our two primary go-to-market brands. We have established this through leading service, consistency, and reliability. This continues to be validated by Net Promoter Scores that have exceeded the industry average for the last several years. We also have a broad range of growing product offerings and capabilities that provide us the ability to serve patients at home in many of the largest and fastest-growing chronic condition categories. As a result of the foregoing, we are a national leader in home-based care for numerous chronic conditions, which afflict millions of Americans, and our strengths are differentiators compared to the vast majority of the thousands of other participants in the industry. As we look forward, we have a bullish outlook on the long-term demand for our unique offerings. Economic pressures continue to push care to the home-based setting while the country's aging population is afflicted with a rising number of chronic conditions. We are optimistic about the strong long-term demand due to increased awareness of proactive health management among the population; this is still meaningfully underdiagnosed, specifically in the sleep category. Another area of opportunity for us is the anticipated competitive bidding in diabetes, urology, and ostomy, all categories of strength for Accendra Health. As CMS, along with ourselves and other industry leaders, work to drive fraud, waste, and abuse out of the system, we believe that we are well positioned for Medicare's competitive bidding process considering our footprint, our efficient service model, and broad existing referral source recognition. To capitalize on the overall favorable backdrop, we are leveraging technology and automation to ensure that we provide an industry-leading home-based care offering built on: one, being a trusted, reliable, and easy-to-understand partner for our patients and their clinicians; two, an integrated, streamlined, and compliant reimbursement process for our payers while maintaining best-in-class revenue cycle management capabilities; and three, providing a streamlined and cost-efficient channel to market for our manufacturing partners. Just a few examples of the use of technology to improve customer experience while also lowering our cost to serve include the use of technology to automate payer qualifications, enabling faster and more accurate order validation and improving revenue capture. Another example is the expected launch of our new MyApria app in Q2 of this year, which is expected to enhance the customer experience while also increasing operational efficiency and supporting patient therapy adherence. Finally, in a practical application of leveraging technology, enhancing customer experience, and overall focus, we continue to see success in the fourth quarter with our Sleep Journey initiative. I'm happy to highlight continued success in our sale of sleep supplies, which grew in the range of 8% to 9% for both the quarter and full year. Finally, we are pleased to finish the fourth quarter with the completion of the sale of our former Products & Healthcare Services business, Owens & Minor, to Platinum Equity on December 31. I'd like to thank and commend all parties involved for working so diligently to complete the transaction in such a quick time frame. With the transaction now closed and final separation work well underway, Accendra Health is now devoting all of its focus and energy to strengthening our core home-based care businesses to achieve reliable and growing free cash flow, stable growth, and debt reduction. We're entering 2026 as a much leaner and more nimble business with a much higher margin profile post-PNHS divestiture. We have already taken actions to reduce costs and expect to continue taking actions to address the loss of a large commercial payer, as well as stranded costs. Despite never wanting to lose a customer, we maintained our financial discipline during this process. Since that time, our focus has been to ensure a smooth transition of patient care and minimize our cost of transitioning the relationship related to this contract. Finally, now that we have the sales proceeds in hand, we are well positioned to take a thoughtful approach to optimizing our capital structure, taking into consideration all stakeholders. We are committed to deleveraging combined with metered investments as we move forward. This will be a continuation of what we did in Q4 with investments in technology while also paying down debt by $65 million from ordinary free cash flow. Before I turn it over to Jon, let me reiterate my excitement about the strength of Accendra Health, the growing market that we participate in, and where we are going as a business. With that, I will now turn the call over to Jon to discuss our financial performance in the fourth quarter and our outlook for 2026. Jon?

Thanks, Ed, and good afternoon. I want to start by reminding you that despite the closing of the divestiture at the end of 2025, we will continue to report our results on a continuing operations and discontinued operations basis for as long as accounting rules require us to show comparable results. And like the last couple of quarters, unless otherwise stated, my remarks today will focus on the continuing operations. The continuing operations financial statements are what you should expect from Accendra Health. I'm sure we all look forward to much reduced business complexity post-divestiture as we move through 2026. Also, please note that any discussion about the financial results and outlook for the company will cover only non-GAAP financial measures. You can find GAAP to non-GAAP financial reconciliations in the press release filed a short time ago and residing on our website at accendrahealth.com. Fourth quarter results were largely in line with much improved cash flow and lower debt compared to the third quarter. In the fourth quarter, there was decent year-over-year growth in the key categories of sleep therapy, ostomy, and urology, as we have seen in recent quarters. Diabetes grew by almost 2% versus last year, an improvement compared to flat year-over-year results in Q3, and insulin pumps led to quarterly diabetes category growth. The fourth quarter saw the initial impact of a previously discussed contract loss and price impact of a large commercial payer. Overall, this payer's impact on quarterly revenue was approximately 1% of what would have been over 3% growth. This impact on revenue will significantly increase throughout 2026 in aggregate to approximately $300 million in 2026 versus 2025, and approximately an additional $40 million in 2027. We anticipate that we will have completely lapped the impact of this revenue loss by the end of the first quarter of 2027. We are on our way to replacing this lost revenue margin. For all of 2025, revenue was nearly $2.8 billion, up a little more than 3%. Throughout the year, growth in the large sleep category as well as ostomy and urology led the way; a somewhat weaker collection rate compared to a strong 2024 also inhibited top line growth. Fourth quarter adjusted EBITDA was $90 million compared to $102.5 million in last year's fourth quarter. The change was driven by lower payment prices, inflationary product cost increases, higher health benefit costs, and stranded costs that were only partially offset by lower other teammate benefit costs. For the full year, adjusted EBITDA was $375 million, up slightly from 2024. The same factors that impacted the fourth quarter drove the full year results. Adjusted EBITDA results include $12 million of stranded costs in the quarter from the pre-divestiture business and $36.5 million for the full year. Beginning with our Q1 2026 results, we will no longer be specifically breaking out stranded costs because, with the finalization of the divestiture, these costs will now be part of the operating expenses of Accendra Health. Expense reduction, including former stranded costs, is a key component of our 2026 expectations. As I mentioned, we saw much improved cash flow in the fourth quarter and related debt reduction. For the fourth quarter of 2025, operating cash flow was $68 million, which includes $67 million of cash used by the former discontinued Products & Healthcare services business. The continuing operations business generated $135 million of cash from operating activities. For the full year, while the consolidated business of both continuing and discontinued operations had a use of cash from operating activities of over $100 million, the continuing operations generated $154 million in cash from operating activities. As a reminder, the full year cash flow from continuing operations includes $98 million in cash costs to terminate the Rotech acquisition in the summer of 2025. For the continuing operations, free cash flow in the fourth quarter, defined as adjusted EBITDA less patient equipment capital expenditures, net of noncash convert-to-sell write-off expense and after consolidated interest paid, was $18 million in the fourth quarter and for the year was $98 million. This reinforces the strong cash generation profile of Accendra compared to the legacy business. At December 31, net debt was $1.8 billion, down $315 million from September 30 and down $46 million since year-end 2024. Prior to the closing of the divestiture, we had already reduced debt by $65 million from September 30. The net proceeds received from the divestiture of the Products & Healthcare Services business of $342 million are included in the December 31 cash balance. Also, as a result of customary final purchase price adjustments, including a working capital true-up, we expect to receive approximately $12 million to $15 million of additional proceeds in the spring. As the divestiture closed, we used $66 million of proceeds to settle bank debt obligations under the AR securitization program that were entirely related to PNHS. This is all detailed in slides filed via 8-K just after today's market close and residing on our website. In addition to the $282 million of cash on the balance sheet at December 31, we had nearly $220 million of available capacity under our committed revolving credit facility and $16 million available under a newly amended accounts receivable securitization program. The bottom line is that we believe there's ample liquidity available for the business. Also, we ended the year comfortably in compliance with our debt covenants. As we've been saying for months, all net proceeds from the divestiture will be used to reduce our debt balance. We have a long-range leverage target of 3x adjusted EBITDA, which we believe is very achievable, and debt reduction continues to be a top priority for 2026 and beyond. We are also committed to maintaining a capital structure that supports the transformation of the business into a pure-play, cash-generative home-based care company. We are actively evaluating all options to optimize our capital structure while engaging stakeholders to help ensure we come away with the structure that is the most appropriate for the new, higher profit, better cash flow Accendra while protecting the interests of our shareholders. We believe this process will conclude in the near term. Turning now to the 2026 outlook. The slides I referenced earlier also include pages to assist with 2026 guidance and depict the key drivers from our 2025 results and our 2026 full-year guidance. I'll begin by walking through the net revenue slide. We expect annual revenue to be between $2.55 billion and $2.65 billion. As you will see, the greatest impact results from the changes with the single large commercial payer discussed earlier. Of the $300 million-plus impact in 2026 compared to 2025, approximately 15% of the reduction versus the prior year will occur in Q1 and 25% to 30% in each of the second through fourth quarters. This will be partially offset by volume growth and improved collection rates. Looking at the adjusted EBITDA slide, we expect 2026 adjusted EBITDA to be in the range of $335 million to $355 million. Unsurprisingly, the large commercial payer change again has an outsized impact and will be somewhat mitigated by cost reduction directly related to this payer, other expense takeout, and volume growth. The 2026 expense reductions have been identified for some time, and a number of actions have been taken or slated to be taken on a rigid timeframe. Finally, we included a levered free cash flow walk, which again shows the strong cash flow from the Accendra business. At the midpoint, we expect at least $100 million of free cash flow in 2026. Much of the cash flow projected in 2026 is spoken for due to the costs throughout the year to separate Accendra from Owens & Minor and cash outlays related to certain expense reduction activities that I mentioned earlier. This is only a 2026 issue, and future free cash flow is expected to be comparable or better and will help drive further debt reduction. In thinking about quarterly cadence, between cost reduction ramping throughout the year to a full run rate benefit, the replacement of the previously discussed impact of the large commercial payer, the time needed to reduce stranded costs, and effectively separate from Owens & Minor in the business' normal seasonality, we expect about 60% of the adjusted EBITDA to be realized in the second half of the year with the first quarter of the year being the weakest and Q4, the strongest. In conclusion, Accendra Health is a very different company than the pre-divestiture Owens & Minor. The investment thesis is much improved, and we are proud to be among market leaders in a growing and dynamic space, and we look forward to demonstrating consistent earnings and strong cash flow. With that, I'll now turn the call back to the operator for Q&A.

Your first question comes from Michael Cherny of Leerink Partners.

Maybe if I can just dive in on some of the commentary you made on investments. Fully understand, I think we all do the dynamics around debt pay down, but you talked about targeted investments. As you think about the businesses, especially with the Rotech deal being in the background, what do you see target investments looking like for the RemainCo going forward?

Yes. There are a few different perspectives on this. When I mentioned the metered investments, especially for 2026, we are focusing on investing in technology to further reduce our cost to serve and enhance the customer experience. Regarding mergers and acquisitions, there might be a chance for small tuck-in deals, but our main priority for 2026 will be debt reduction. These metered investments will primarily aim at improving customer experience and lowering costs, and we would consider some small tuck-ins if they make sense.

That's helpful. Just one more. You talked about the rebuild of revenue recapture opportunity as you have the large customer rolling off. You signed a preferred agreement with Optum. How is that going so far?

Look, it's still early in the process. We're starting to gain some traction. But as Jon talked even in his prepared remarks, the opportunity for us to fill in the gaps, we know we won't completely fill the gap. So you can see from our walk on revenue, but it does create an opportunity for us to redeploy resources to start to backfill that revenue with other revenue, whether it be a preferred provider agreement or just expansion of existing contracts and relationships that we have.

Your next question comes from Kevin Caliendo with UBS.

One, just a numbers question. Jon, how much was patient CapEx in the fourth quarter? And how should we think about patient CapEx as a percentage of overall CapEx in 2026?

Yes, Kevin. It was $45 million in the quarter, about $189 million for the year. As we've discussed regarding 2026, the customers we are losing had a disproportionately high amount of CapEx compared to the size of their agreements. This is reflected in our guidance numbers, which decreased by approximately $25 million to $30 million. Going forward, patient CapEx is expected to account for roughly 95% of the total.

Okay. That's helpful. Just wondering if there's been talk of a manufacturer coming back to market who had been sort of out of the market for a while. Wondering if you have any update on that? And I was wondering if that could actually maybe provide a little relief on cost if another manufacturer were to come in for CPAP or events or the like.

Yes. Obviously, I can't comment on what other companies are planning on doing, but should another manufacturer come back into the space, I think it would create a different competitive dynamic in the market.

The next question comes from Daniel Grosslight with Citi.

Really appreciate all the detail that you've provided in your presentation. If I could just go to the adjusted EBITDA range for the '26 guide. I'm curious if you can kind of maybe break down for us how much of that volume improvement I guess it will largely come through volume improvement. But how much of that is driven by Optimum and perhaps other contracts that you haven't announced publicly yet? And how much is non-Optimum and noncontracted at the moment?

Yes, Daniel, it's Jon. I would say I would not say there's a lot of preferred agreement built into that volume growth, and it's fairly well spread across all therapy categories. So as Ed mentioned earlier, these contracts are attractive, but it takes a while to ramp them up. So yes, we have some upside built into the volume growth, but it is by no means the bulk of that, and it's pretty well spread across customers and therapy categories.

Got it. Okay. And then on your CapEx guidance, you're no longer guiding to a net CapEx number, and I see a footnote that it's because I guess I don't know. I just said it doesn't include sales, patient CapEx. What are your expectations now on a net basis for CapEx? And is the delta going to be reduced significantly because of that contract rolling off?

So overall, I would still expect about 30% of the growth to be the number that you're going to see in the sales of patient CapEx. Remember, when calculating any cash flow off of that number, that 30% is already in your adjusted EBITDA number. So we wanted to be clear that we're not double counting. So that's why we've presented the way we have today. But when you think about the dollars coming back, it's roughly 30% of the total.

The next question comes from John Stansel with JPMorgan.

I just want to touch on the adjusted EBITDA bridge. The manufacturer cost increases and inflation seems like it's outpacing pricing growth. Is that concentrated in a particular category or area? And how should we think about that as a kind of durable trend?

Yes. I would tell you, John, it's certainly, I wouldn't call it a trend, I'd call it more of an opportunity for us. I would not particularly tell you it's linked to any one supplier. It's a trend. We have seen it for a while, but it's clearly a focal point for us as we enter 2026 and beyond. We view it as an opportunity to really grow the EBITDA from where we are today.

Great. And then you mentioned that you're kind of considering all options to optimize the balance sheet. Can you just spend a little more time talking about your levers around balance sheet optimization? It sounds like there's imminent changes you think you could be making?

Yes. The way we think about this is, obviously, with the sale of the NHS business and the cash on hand on the balance sheet, plus with the improvement in net debt in the fourth quarter beyond that, any time you have a major transaction like this, it creates the opportunity for us to step back and really assess our capital structure. It gives us the opportunity to assess our capital structure holistically. And I think we have to and we will look at it based on the business that we have, what Accendra is. It's a business today that has a much different working capital requirement than what the legacy business was. It's a business that we do have relatively predictable PSC or CapEx on it. And it's a business that has much stronger margins than the legacy business. So I think that's important to understand as the backdrop of the transaction that's closed, and we have the cash on hand. It gives us an opportunity to really step back and reassess.

The only thing I would add as a comment, which I fully agree with, is we obviously have some things we have to address and the maturities that are in '27, so debt coming current later this quarter, which is a half to. But to Ed's point, everything else will be opportunistic in making sure we have a capital structure that fits the new business model.

The next question comes from Eric Coldwell with Baird.

I wanted to revisit the recent question regarding manufacturer cost increases and inflation. I want to clarify this. Are you experiencing widespread cost increases across various manufacturers and categories? Is it reflective of the general market conditions? Are tariffs being passed on? How do you assess the situation? Is it mainly tied to a specific manufacturer or product line? Furthermore, how does this situation compare to the past? Because this is a new chart for us. Thank you for providing it, but we lack historical context. Lastly, Jonathan, you mentioned seeing opportunities for improvement. What aspects are within your control? What opportunities can you leverage to enhance the situation?

Yes, I'll provide some additional details. Eric, our operations are not affected uniformly across all categories. It's primarily in some of the major categories where we experience this normal annual process, and we have various ways to manage it. We can potentially adjust some mid-year contracts, as not all are fixed for the entire year. This situation offers us the chance to collaborate more closely with our manufacturing partners to explore different pricing strategies, growth incentives, and other measures. This is our perspective on the situation and our plans for addressing it. It's important to note that this isn't strictly related to tariffs; rather, it's more about the typical inflation trends we've observed in the past and our capacity to manage this as the year progresses. Jon, I don't want to put words in your mouth, but I believe you meant that this is the current figure, and there is room for us to keep working with our manufacturing partners to lessen and manage some of the impacts.

Yes. That's super helpful. If I could do one follow-up?

Sure.

Yes. The collection rate mentioned in the prepared remarks was a bit of a challenge in '25, affecting growth and significantly influencing EBIT to profit. You are anticipating some improvement in '26. What gives you confidence in this? What are the factors driving this improvement? Can you explain what happened and how you plan to address it?

Yes, Eric, I'm actually very confident in that rebound in '26 because the pullback we saw was largely due to some of the technology investments we made in '24 and '25 that just you make the investments, there's a learning curve, and things have to get worked out. We worked out the kinks. The technology we put in place, we're all very confident will be additive to our collection rate going forward. I will tell you the pullback that you saw is minor. But it does fall through, you're correct about that; but really related to the onboarding or the implementation of new investments to improve in the future. So still really happy with where the rate is overall, but I mean it came off a very strong '24, had some investments we had to work through, and it's going to get better in '26.

What is your bad debt rate? Now that you're a stand-alone pure play, maybe you can talk about that a little bit.

We had not contemplated talking about debt. It's not disclosed, but I'll tell you I put it up against anybody else in the business.

Your next question comes from Allen Lutz with Bank of America Securities.

This is Dave on for Allen. Maybe just to kick it off, just more on the revenue side. Your sleep growth was 89%. It looks to be a slight step up quarter-over-quarter. Just would love to know what's driving that. And then would just also love to get a sense of the underlying health of the market across some of the other categories outside of sleep and diabetes and what's contemplated in guidance here for drivers of growth. I guess, from a volume and pricing perspective, specifically for home respiratory therapy, ostomy, and wound care.

I believe discussing the sleep category is important, as it has been a focus for us over the past year. Our team has dedicated a lot of time to understanding the entire sleep journey, starting from patient acquisition to ensuring that it remains easy for patients to reorder their products and maintain a steady revenue stream. This has significantly contributed to our success. Additionally, it's important to note that the sleep category is growing due to more people being diagnosed with sleep apnea, which opens up further growth opportunities. Regarding diabetes, we observed a slight increase in volume, outpacing our overall growth rate, partly due to the pharmacy DME mix. We anticipate low single-digit growth on average across most categories, with some performing slightly better and others slightly worse, as we look ahead to 2026. Our growth plan includes this along with several other initiatives across various categories to drive further expansion. I hope this provides a clearer picture of what we are currently experiencing.

I have a quick clarification question. You mentioned some benefits from the pharmacy DME mix. Is that now supporting growth in the diabetes sector, or was that the expectation?

Yes, there is no tailwind whatsoever. It's simply a matter of one channel compared to the other.

We're still seeing the shift from DME to pharma.

Got it. Yes, I just want to clarify that. And then, yes, I think there's a lot of, obviously, great color you guys provided on the various drivers of cash flow here. But I just wanted to take a step back. And I would just love to get an understanding of what the biggest swing factors are here for the year on cash flow from your standpoint where you sit, where you have visibility into and maybe ones that are less so. Just what are the biggest swing factors we should think through here?

I think the biggest stand-alone single item there is if you're looking at the slides we've provided is the transaction break fee and the transaction financing fees, that's $98 million. It's probably the biggest one-timer there.

Yes. It's important to realize also, Dave, that Accendra Health compared to legacy Owens & Minor, the working capital business, it's completely different. This is a business that runs with very little working capital consumption. We have opportunities to improve on that as well. So it's cash generative. It's a recurring revenue business with really strong working capital dynamics behind us. We're very, very different than what you guys are used to.

This concludes the question-and-answer session. I'll turn the call to Ed Pesicka for closing remarks.

Thank you, operator, for that. Look, this is an extremely exciting period in the history of Accendra Health. We, myself, personally, we're all extremely excited about what the future holds as a pure-play supplier in the home-based care space. I look forward to continuing to provide updates and share our progress with you as we continue through the year. So thank you.

This concludes today's conference call. Thank you for joining. You may now disconnect.