Good morning and thank you for standing by. Welcome to the Ascendra Health Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference call is being recorded. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one in your telephone keypad. If you'd like to withdraw your question, again press star one. Thank you. I would now like to hand the conference call over to your first speaker today, Will Parrish, Vice President, strategy, corporate development, and investor relations.

Thank you, operator, and good morning, everyone. I'd like to welcome you to Ascindra Health's second quarter earnings call. Our comments on the call will be focused on the financial results of the second quarter of 2026, all of which are included in today's press release. The press release, along with the second quarter of 2026 supplemental slides, which we will refer to throughout the call, are posted in 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 Ascender 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 that 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 meet 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 factor 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 in our earnings press release or in our supplemental slides are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to 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 Fasica, Ascindra Health's President and Chief Executive Officer, John Leon, the company's Chief Financial Officer, and Perry Bernanke, the company's Chief Operating Officer. I will now turn the call over to Ed.

Thank you, Will. Good morning, everyone, and thank you for joining us on the call today. Before I dive into our second quarter results and the outlook for the balance of the year, I'd like to take a moment to address the announcement included in today's press release that I have informed the Board of Directors of my intention to retire by the end of 2026. The decision to retire is never easy. However, after considerations with my family and careful thought, I've decided that now is the right time. It has been an honor and privilege to serve as president and CEO for nearly eight years. During that time, we initially stabilized the company when I joined, enabling us to successfully guide the company through the unprecedented challenges of COVID-19 pandemic, then navigate the company through post-pandemic environments, completed the sale of the PNHS segment, and most recently executed our balance sheet optimization and debt realignment. Together, these milestones have transformed the company into a focused, pure-play, home-based healthcare business with a strong strategic foundation. With these important milestones largely behind us, I believe the company is well positioned for its next chapter. The timing is right to begin a thoughtful leadership transition that allows the next CEO to build on the foundations we've established, capitalize on the opportunities ahead, and create long-term value for our patients, customers, employees, and shareholders. The board has a long-standing succession planning process, and I'm confident that we will have a successful CEO transition. In closing, I would like to personally thank the Board of Directors, the company leadership team, and our 6,000 teammates for all the dedication, hard work, and support over the last eight years. Now let me turn to the business updates. Looking at our second quarter performance, our results did not meet the expectations we set for ourselves. At the same time, the quarter reflected continued progress in several areas that are critical to our long-term transformation. We successfully advanced our separation from Owens and Miner, remained on schedule with the transition away from a large commercial payer earlier this year, and continued to strengthen the operational foundation of the business as Ascendra Health. That said, our results also demonstrate that we have additional work to do to optimize our cost structure and improve execution. As I'll discuss in a moment, we have already implemented a number of these initiatives and have additional actions planned that are designated to streamline our operations, improve efficiencies, and reduce costs. We also experienced several discrete headwinds during the quarter that we believe are temporary in nature and affect our near-term financial performance and cash flow. I'll provide more detail on these shortly. Importantly, the quarter also included several accomplishments that reinforce our confidence in the future. we made meaningful progress in a number of strategic initiatives that we believe have the potential to drive attractive growth beginning in late 2026 and continuing into 2027. turning now to the key drivers of our second quarter performance there were three primary factors that contributed to the variance from our forecast one revenue growth below our expectations two, the timing of planned cost reductions, and three, slower-than-expected recovery of our collection rates. Starting with revenue, while we were pleased to see revenue growth improve sequentially from the first quarter to the second quarter, excluding the impact of the large commercial payer exits, overall growth remained below both our expectations and the level this business is capable of delivering. To accelerate growth, we have made targeted changes within our commercial and operational organizations to improve customer responsiveness, strengthen execution, and reinvigorate our sales force. We are already seeing positive momentum and several important initiatives are either underway or expect to begin contributing over the coming quarters. Starting with the renewal of our largest soft good contract with our largest commercial payer, which we discussed during the last earnings call but was formally executed during the second quarter. This provides greater stability across an important portion of our commercial payer portfolio for years to come. Building on that success, we also signed a new sole source agreement with the regional health system that is expected to launch early 2027. In addition, we executed a broader enterprise-wide fee-for-service agreement with another payer that we believe will drive additional patient volume, improve capacity utilization, and create meaningful value for both organizations. Moving now to cost reductions. Following our separation from Owens and Miner on December 31st and the transition away from the large commercial payer during the first quarter, we identified and eliminated more than $125 million of annualized costs. Soon after completing this takeout, we identified the need to allow the business to settle and stabilize from these changes before introducing additional cost reductions which could have created disruption while we were, one, settling in as a new pure-play home-based health care business, two, completing the exit of the large commercial payer, and three, executing our balance sheet optimization. In addition, while our transition service agreements with Owens and Minor continue to wind down on schedule, those temporary interdependencies have limited our ability to fully optimize our organizational structure during the first half of the year. Although the timing has been somewhat later than originally anticipated, our commitment to improving our cost structure has not changed. Approximately one month into the third quarter, we have already executed the next phase of targeted cost reductions and will continue evaluating additional opportunities in the coming months. Another example of our ongoing efforts to reduce our cost to serve is the pursuit of new arrangements with leading logistics providers for inventory management and fulfillment across select product categories. We expect the arrangements to go live later this year and believe they will both lower our operating costs and reduce inventory, thereby improving cash flow. Looking further ahead, continued investment in technology, automation, and process improvement should enable us to operate even more efficiently while supporting future growth continuing with the theme of operational efficiencies and cost reductions we continue to advance our national rollout of our sleep center of excellence during the second quarter while there is still work to complete we remain optimistic about this program's ability to contribute to both growth and profitability beginning in late 2026 and continuing into 2027. finally moving on to slow payment of collections from payers we continue to see reimbursement collection rates below the historical norm of the business's typical performance. This has negatively impacted our revenue and adjusted EBITDA in the range of nearly $20 million in the first half of the year. The underlying cause is related to several factors, including growing pains associated with recent technology investments and slower payer payments. John will discuss this further in his prepared remarks specifically related to some discrete inefficiencies with specific commercial payer processes that affected collections and increased AR. Importantly, we have already implemented mitigation plans with those payers and are seeing encouraging progress, and we expect this issue to recover towards the end of the year and into next year, but we acknowledge that this is taking longer than we initially anticipated. Looking ahead, as I mentioned earlier, we are excited about the commercial and operation changes, the logistics arrangements, as well as several strategic agreements that we believe can increase throughput with key commercial payers and further strengthen our competitive position. It is also important to recognize the significant work completed this year to strengthen our financial foundation. In June, we successfully completed our balance sheet optimization, significantly reducing debt. In closing, while we are not satisfied with our second quarter financial performance, we are encouraged by the progress we continue to make in transforming the business. The operational actions underway, the commercial opportunities we have secured, and the investments we are making today give us the confidence in our ability to improve execution, accelerate growth, and expand profitability over time.

As I look forward to the remainder of the year and into 2027, I believe Ascender Health is well-positioned and I remain excited about the opportunities ahead for the company let me now turn the call over to john john thanks and good morning there's much to cover this morning and i'll begin by reviewing results of the second quarter then i'll cover a few final details of the successful balance sheet optimization transaction that concluded in june our outlook for the remainder of the year and i'll wrap up with a couple of actions to be taken that will further strengthen our financial profile As is now the norm, unless otherwise stated, my remarks today will focus on the continuing operations. The continuing operations financial statements represent the total Accentra Health. And please also 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 followed a short time ago and residing on our website at AccentraHealth.com. In the second quarter of 2026, we faced headwinds in top-line growth that would lower our expectations and a collection rate waterfall model impact on income that is improving at a slower rate than we had expected. However, during the quarter and since the end of the quarter, much of the activity that we believe will positively impact our results late in the year is in flight and should benefit the top-line, margin, adjusted EBITDA, and cash flow. As I walk through the quarterly results, I'll speak to them excluding the impact of the large commercial payer that rolled off in Q1 so that everyone has a true leg-to-leg comparison. Our reported results, of course, include the impact of this payer in the prior year's second quarter and its absence in the second quarter and first six months of 2026. With that backdrop, working through detail for the quarter beginning on slide 7, you can see that revenue in the second quarter, excluding the aforementioned impact of the commercial payer, grew at 2%. The improvement in growth rate from recent quarters was driven by the large and very important sleep category. On a leg-to-leg basis, we saw good mid-single-digit growth in sleep of about 5.5%, including a marked improvement in sleep equipment and continued strong growth in sleep supplies. Diabetes grew 4%, which was a 500 basis point improvement in the year-over-year growth rate compared to Q1. But like recent quarters, in Q2, we saw very strong year-over-year growth in insulin pumps, partially offset by weakness in CGM. Also, similar to recent quarters, the respiratory and wound categories are yet to recover and we're down year-over-year. On the positive side, ostomy and neurology, which have been growing nicely for some time, once again posted high single-digit year-over-year growth rates. These revenue trends are expected to continue through the third quarter before the impact of our improvement efforts begin to take hold. We are laser focused on improving the underperforming categories, especially the higher margin sleep respiratory categories, and are encouraged by improving sleep growth rates and believe there's still plenty of upside. Looking at slide eight, second quarter adjusted EBITDA was just over 60 million and there was a small margin rate improvement versus the first quarter. Adjusted EBITDA, that's patient service equipment, or PSC CapEx, was 16.3 million and down slightly from the first quarter, as PSE CapEx was higher due largely to an improving outlook for sleep starts in the coming months. However, the lower than expected growth rate and expenses as a percentage of revenue, which continue to run above historic rates, some of which is category mix-related, were a drag on adjusted EBITDA and are a focal point for the second half of the year in 2027. The impact of our collection rate waterfall once again hampered revenue and earnings. The overall adverse impact in Q2 of the change on collections was approximately $10 million and was $20 million for the first six months into June 30th. It is important for everyone to understand that the income statement impact of the collections waterfall is derived from a rolling look-back analysis and not always reflective of current cash collection activity. And as a reminder, the collection waterfall is a revenue cycle tool which creates adjustments to gross revenue which falls straight through to the bottom line. And during the second quarter and carrying into the third quarter, the collection rate income statement impacting and cash receipts have been affected by recent inefficiencies beyond normal audit activity among certain key commercial insurers. Additionally, higher cost of net revenue and delays in cost reduction efforts have limited EBITDA expansion in the first and second quarters. As Ed mentioned, actions are planned and underway to address both cost of net revenue and SG&A. From a working capital perspective, we saw the change in accounts receivable worsen in the second quarter and was largely driven by the state of inefficient audit issues with certain insurers that I just mentioned. While payer audit issues are not uncommon for us and the industry, what we are temporarily dealing with is well outside the norm. Efforts are constructively trending toward resolution in the third quarter, and we believe realized cash flow will improve upon conclusion. Looking back at slide six of the quarterly supplemental slides, which details free cash flow for the second quarter in six months into June 30th, it is worth noting that cash interest paid in the second quarter includes $12 million for the payment of interest that had been accrued for the exchange 2029 and 2030 unsecured notes, which had to be cash settled with the exchange of those notes. Also looking ahead, we will not experience the cash impact of higher interest rates from the balance sheet optimization transaction until December, when we make the first interest payments on the new first lien and second lien notes. Turning to the balance sheet, with the successful completion of our balance sheet optimization transaction, total debt of $1.72 billion was down by almost $400 million since the end of March, and net debt was more than $55 million lower over that period. And recall that we have doubled the weight of the average life of our debt structure to nearly five and a half years and have no maturities until 2029, and the recurring revenue nature of the business backstopped by committed revolving credit facilities will continue to ensure plenty of liquidity. As a reminder of the successful reset of our capital structure, please see pages 9 and 10 of our supplemental slides. Free cash flow, fully levered, as defined on slide 6, is now expected to be break-even to slightly positive for the full year 2026 due to the change in expected annual adjusted EBITDA and the higher cash interest I just described. While cash flow will not be what we expected in 2026. Our confidence in the cash generation strength of the business and a consistent ability to generate around the $100 million annual free cash flow in a less muddied year remains unchanged. Additionally, at the end of July, we closed on the sale of a small non-core asset and expect another small non-core asset sale to close in late Q3 or early Q4 that will provide incremental cash flow. As we think about the remainder of 2026, we have to recognize the second quarter under performance as well as the now later timing of the benefits of revenue growth productivity gain projects and cost savings actions sitting here over one month into the third quarter we're seeing some positive signs particularly around expense reduction and the collections waterfall income statement impact but it's not enough in the remaining five months to catch up with previous guidance as a result and as shown in slide 11 we have revised the 2026 four-year outlook for revenue to be between $2.45 billion and $2.55 billion, and a four-year adjusted EBITDA to be between $300 and $320 million. Unsurprisingly, we expect the fourth quarter to be much stronger than the third quarter, which will provide a kickstart to 2027. In the coming weeks, we expect they'll be launching actions that will better position the company's balance sheet and protect key assets. First, we expect to activate a small at-the-market equity program. We're still finalizing the details of the program, but we expect to have the ATM effective in the near term. We intend to use the proceeds from these sales to reduce outstanding indebtedness, which will allow for a deliberate, continual deleveraging on the balance sheet through the occasional issuance of equity into the market at prevailing prices. Also, the business has significant tax attributes that are often forgotten about. The quantum of net operating loss carry forwards alone going into 2027 will exceed 200 million dollars has meaningful value especially at the currently depressed market capitalization as many companies in similar positions do we want to help ensure protection of that value there are counterintuitive and confusing rules around deemed ownership changes caused by trading activity that could jeopardize often inadvertently those tax attributes so in order to help avoid a very costly footfall by one or more shareholders, we will be putting a Net Operating Loss or NOL rights plan in place. Not only will this help protect shareholders from an inadvertent and adverse impact on the valuable NOLs, these type of plans do not need to limit planned or desired shareholder activity since certain shareholder activity can be exempted from the NOL rights plan and the plan is limited in duration and it can be easily and quickly canceled if and when desired. Following a successful balance sheet optimization transaction, the animal rights plan, and anticipated ATM program are additional steps to further improve and preserve the financial strength of the company. Finally, with the earlier announcement around Edge's intention to retire in the coming month, this could be Edge's last earnings conference call. In the event it is, I want to make sure to take the opportunity, on behalf of all 6,000 Accenture teammates, to thank Edge for his guidance and leadership over the last several years. The company looks very different than when Edge arrived and walked into a bit of a storm, it's been a very active eight years, and it has been the perfect person to guide us through. Personally, I want to thank Ed for his mentoring, partnership, and always reminding me through his example that no matter how hectic things are, to never take yourself too seriously and to stop and laugh. Thanks, Ed. With that, I'll turn the call back to the operator for Q&A. Operator?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Kevin Caliendo from UBS. Your line is open.

Guys, thanks for taking my question. Ed, congratulations on the retirement. I hope it all works out well for you and the company and the like, but congrats. Thanks, Kevin. certainly been um there's a lot to digest here obviously um the payer situation i don't quite understand how that evolves over time but maybe if you can talk a little bit specifics around what happened there and then two are have there been any other like i'm i'm looking at the numbers and looking at the what it's implied in the second half and obviously the fourth quarter is a bigger ramp. Is there anything else affecting what's implied for the second half of the year? One of your competitors talked about their contract being ripped up and having a negative impact with a price increase on supply. Is there anything like that impacting the second half of the year? And then I guess lastly, should we take what's implied for the fourth quarter is any sort of run rate is that a more normalized thing i'm not asking for 27 guidance obviously there's always seasonality in your business but whatever puts and takes or one timers are in there just trying to think about what is the proper way to think because there's so many moving parts here what's the proper way to think about the run rate going forward sure all right well thanks kevin i'll start i'll take this i really i think there's three things you want you're asking us to help you digest.

One is on, you know, the payer, that being the collection area. The second being supplier impacts. And then third is, you know, is Q4 kind of representative of what we would think to go forward would be. Let me start with the suppliers. And then, you know, I'll hand it over to John and to Perry to add some other commentary on this as well as the other two topics. So, you know, when I think about our suppliers, we really do have, you know, good relationships with our with our suppliers you know we have you know those relationships you know we haven't had a supplier come to us and say hey we're tearing up the agreement we're going to move on going a different path um i think what we do really well is we find ways to work together with our suppliers you know ultimately you know they're looking to grow their share um those suppliers are looking to find partners that can help them do that i think as as a company you have to balance that because you have especially in categories where there's a lot of suppliers you have to balance that with what's best for the patient as well as you know finding ways that we can win together you know that may be an overused phrase but you know finding ways that we can help them grow their share you know in the same sense you know make sure we're managing our supplier portfolio so that way it can help us offset some of the costs we have as well as you know the normal pressures you have you know from reimbursement you know I think competition when I think about suppliers and I think about it across categories some categories are deep with suppliers some are much more narrow you know overall you know my perspective is competition within within the categories is actually good for the business when I say the business it's also good for the industry you know and where we're sitting here today is you know we don't see or we don't have any of those suppliers that have come to us and and torn up an agreement i think the other thing we do really well is we know when most of our contracts when that most we know when our contracts expire and making sure we have the right plan long enough in advance to work with those suppliers you know to get to a renewal state that's that works for both parties you know or make different decisions if that's what it takes so you know that's where we are you know i can't talk about where others are and how they manage it but that's how we think about our supplier community um let me maybe turn it over to john to cover a little bit on you know some of the collections and the impact on the waterfall and then we'll we'll come back to the last one here you know the fourth quarter and is that a fair picture of what the run rate or 27 would look

like so john yeah thanks hey good morning kevin so you know the payer audits whether commercial or government are constant in our business. So that's nothing unusual there. But what was unusual is a couple months ago, we started seeing the actual, not number of audits, but the number of items audited actually begin to increase at an exponential rate. And that had a two-fold knock on us. One, it was actually, we weren't getting paid as we were under audit for, and had been under audit for a lot of these issues. And secondly, the volume that we were seeing was causing us to take resources, humans, off other projects like our automation work that we're working on to improve our collections profile and address these audits. So it's a very, very manual process. You know, Jane Doe says X, Jane Doe didn't get delivery, Jane Doe did something they didn't want. We have to go back and actually find all the documentation, prove it to the commercial payer. So as the volume has increased at an unprecedented level, we have been getting paid and we're spending more time and resources to actually solve these audits. So it had a knock-on effect both on our improvement efforts as well as our cash collections during the quarter, and it's running into the third quarter. As I mentioned, and I mentioned in his remarks as well, the good news is we are making significant progress the last couple weeks with these payers. We have a plan forward to resolve the issues, and we're pretty confident we wrapped up in the third quarter, which, one, bring more cash back into the company, and second, allow us to actually go back and focus on those automation issues, which have been going on for several months but are critical to actually improving our collections overall. So what happens from a P&L perspective, as these age out against older aging buckets, AR buckets, they begin to go through that waterfall calculation and the rest of the P&L in addition to collection. So it's unprecedented, unusual, and we're pretty confident just a temporary blip here that we'll solve in the coming weeks.

And then maybe I'll wrap it up on the last one here, that being, you know, the Q4. Yeah, Q4 will be, you know, it's expected to be our best quarter, and Q4 will be the jump-off point really for 2027. Obviously, you're correct. There is seasonality in the business. You know, some of the things that, you know, give us comfort as we look forward on that is, and I talked a little bit in my prepared remarks, we did see, you know, some nice revenue growth sequentially from Q1 to Q2. You know, I talked about some new agreements. We got a new sole source agreement with the regional healthcare system. That'll go into place really in late 26 and will carry into 27. We just signed a nice-sized fee-for-service agreement with a payer. That, again, will go into effect later in the year where they will be narrowing the network, too. So we see some really positive signs and benefits that will happen from a top-line standpoint in late 26, early 27. The other aspect of that is really from a sales execution. We have made a few adjustments within our selling organization to reinvigorate the team, and we'll see that happen later in the year. You know, I think the other thing that impacts us in late 26 and into 27 is we talked a little about some additional expansion of our Sleep Center of Excellence, as well as lastly around cost reductions, and then what John just talked about really on the payer and the collection aspect of it. You know, that has a delayed impact. You get that fixed, and then on the waterfall, it'll help you in the future as you start to look at, as you're looking in the rearview mirror. So those are the things that are really, I'll call it really late in Q4 and 26 that should then translate into 27. Hopefully that takes care of those three questions, you know, points you needed us to cover there. Yeah, thanks so much.

Your next question comes from a line of Michael Czerny from Lear Inc. Partners. Your line is open.

Good morning. Thanks for taking the question. I have two. I'll just throw them both out together. there may be one building on that 4Q dynamic as you think about the moving pieces in the build, pretty sure that you recognize the seasonality, but what do you think you have that's call it within your control versus your customers in the market waiting for you? If you can kind of risk wait, it's make sure that we understand the bridge to 4Q, even though you don't explicitly have quarterly guidance out there. And then the other question is just on the tax agreement, And I heard you, John, on the dynamics behind it, but why now? The net operating loss has been in place for a long period of time. What was the board's rationale for doing this now? Thanks so much.

Great. I'll take the first part of this and let John take the second part of it. So what are some of the levers we can pull now? One, I talked a little bit about some of the cost reductions we have in store. Some of them we've already started to take action on in the first month of this quarter. But I want to reiterate, we took out well north of $125 million of annualized cost as we rolled into this year, and that happened in the first quarter as we completed that. But we did take a pause because we wanted to stabilize the business, and then now we've already started additional cost reductions. I think on the revenue growth standpoint, some of those factors, part of that is also just purely implementation speed. You know, we have working with the customer to get those contracts, you know, once we get the contracts finalized, to start to move the patients towards us. So that becomes, you know, sales execution aspect. And then lastly, you know, we're working with some logistics providers, you know, within the industry that can help us, you know, as we move some of the supply and logistics work to them. That can drive operational savings for us as well as working capital savings. And, again, that is just speed to get those implemented. So, you know, and then I don't want to lose the fact that our commercial organization, from a business development standpoint, is continuing to look for the next thing and the next thing to fill the pipeline. And then lastly, you know, just pure commercial execution. Those are other things that don't need to wait, you know, until we get to 2027 when we start to see the impact of the new sole source agreement or the new fee-for-service agreement. Hopefully that helps, and then let me turn it over to John to talk a little bit about the tax aspect.

Yeah, Mike, there are two real drivers that really answers the question of why now. One, as we were wrapping the balance sheet optimization transaction, we asked ourselves and outside advisors, what else should we be doing at the same time to just clear up the overall financial profile and strength of things? And an NOL rights plan, which I wasn't familiar with, came to our attention. and we're educated about. It's a very convoluted structure and the rules around it are really confusing. Additionally, in the last few months, we have seen some large shareholders come into the stock. And as you know, 13Fs, 13Gs are very delayed. And when we went back and did a very high-level kind of Section 382 study, we saw that we have well over half of – well, let me back up a second. Based on the rules of this transaction through Section 382 rules, we saw that we were halfway to potentially having a problem should the shareholders continue to buy. We have large 5% of shareholders come in, and we don't know about it, obviously, after the fact. So when we saw these couple things happen, and then we talked to outside tax counsel, they brought this to our attention. we brought to the board as a fairly not uncommon way to protect those NOLs and something we weren't aware of before. And obviously public companies don't always go back and run Section 382 studies on a regular basis. So it was just the right time to clean it up. It was brought to our attention, and we looked back at trading history and saw that it was probably a prudent thing to do to protect shareholder interest and the value of those NOLs.

Great. Thank you.

Your next question comes from a line of John Stanzel from JPMorgan. Your line is open.

Great, thanks. Can you just spend a little bit more time talking about what drove the need for a pause in some of the cost outs? As we think about that, I don't want to conflate two separate things, but is it driven by the need for the increased audit support that was more manual? Or anything else, just as we think about the resumption and kind of going full speed ahead into contact since the back of the year, it's 27. Thanks.

Sure. Yeah, I think to simplify it is, you know, I made it in my prepared remarks, I did make a comment that we took out more than $125 million of annualized cost. And, you know, I think it was just, you know, really related to the massive amount of cost that we took out of the business. You know, part of that as, you know, due to the transition of the large commercial payer contract that we had. In addition to that, removal of stranded costs. So there was just a massive amount taken out, as well as we were in the middle of divesting or in the middle of the transition service agreements with the sale of our PNHS segment. Those things combined just made us step back and say, let's let everything settle in. Let's make sure we didn't break anything while we did that and then reset and start to move forward and do it again or look at it again where there's other ways we can attack the cost. It really didn't have to do with the collections issue. The collection issues really, as John described earlier, that was partially we were taking resources and putting resources in that as well as transferring resources from their day job to work through some of these payer audits.

Great. And then just quickly, if I could squeeze in a question, the non-core assets that you're selling, can you just talk about the assessment you did, kind of how you came to the conclusion that there was a better home for them and how we should think about that kind of going forward on the portfolio side?

Yeah, John, a couple of things. One, it was just a couple of these assets. One is a legacy that the one we have not, so we're looking to close in this quarter, early next quarter, is a legacy business that has nothing to do with our current business at this point. We inherited it in the Howard acquisition back in 2018 and something that was not of interest to any party when we went through the PNHS divestiture. So pretty small there. The other one is basically not really in the same realm of what we do today. Very small, something we've never talked about, something we've never disclosed. It was very, very small, and we had an attractive opportunity to actually capitalize on that business. Business runs well, given it's pretty small. But we actually saw an opportunity for a buyer to come in, pay us a nice fair price for it, and at a time when the cash flow is born to us.

Your next question comes from a line of Daniel Grossleit from Citi. Your line is open.

Hi, thanks for taking the question. I want to focus a bit more on free cash flow. Your guidance implies to get you back up to break even around $27 million of free cash flow in the second half of the year. Can you just walk us through the pacing of that free cash flow improvement in Q3 and Q4? And your cash flow is, or your cash balance is now down to around $8 million. I'm wondering if you are anticipating drawing down on the revolver. You obviously are putting into place the ATM, but that's going to be quite dilutive at these share prices. So how are you just thinking about your liquidity in the near return?

Yeah, Daniels, John, I'll start with that. So, obviously, the free cash flow is going to be really the biggest driver is going to be the EBITDA, and as Ed alluded to, that's going to be more, that's going to, a lot more, that's going to come in Q4 than Q3. So, to your point, we don't need a lot of free cash flow to get back to that break even slightly positive, but it's going to be EBITDA driven on the other aspects of it well first of all in the ATM I would just point out ATM programs are this is a small program they take a long time to fully execute typically they're based on parts of the century daily volume so any dilution will occur over a long period of time and I forgot the other part of your question I'm sorry Daniel if you're gonna to have to draw down on your revolver. Right. So all the cash that we had previously on the balance sheet went to the debt reduction. You should expect to see fairly low cash levels going forward as anything that was generally being used to repay debt or being put right back into the business for future investment. The revolver will be drawn occasionally as based on lumpiness and working capital needs. Very much unlike what we saw in the past where it's continuously drawn, you know, certainly we have some, you know, very large payments to a couple key suppliers that we will have to draw on based on the time of a month, the time of the quarter, those invoices get paid.

But for the most part, we will be undrawn many, many days and drawn some occasionally days, but we won't be consistently drawn at any meaningful level the way we were in the past. got it okay and john you mentioned that uh you're confident that this business can generate a hundred million dollars of free cash flow in a normalized year is 2027 going to be a normalized year do you think you'll get up to a hundred million dollars of free cash flow um next year or uh is there still some some costs and some working capital uh improvement that we need to see before you generate that $100 million?

It's a fair question because we're all dying to get back to a normalized year. The only major change, the only thing I always call a now normal that we know about right now, Daniel, is that we'll have our last payment on transaction costs to the new owner of Owens and Miner in Q1 and 27. Other than that, we don't have anything right now that will be at normal and all these activities that Ed mentioned earlier that are bearing fruit late this year will be fully operational in our run rate for 27. Got it. Thank you.

Your next question comes from a line of Alan Lutz from Bank of America. Your line is open.

Good morning, and thanks for taking the questions. First, Ed, congrats on the retirement. It's been great to work with you the past several years. A question either for Ed or Jonathan. And on the sleep business, in the prepared remarks, you talked about a market improvement in sleep equipment and continued strong growth in sleep supplies. As we think about the transition from the first half of the year to the second half of the year, can you just dive into the drivers of the improvement you're seeing in sleep equipment and some of the expectations you have into the second half of the year?

Yeah, I can start. This is that, sorry, excuse me. I'll start and I'll let Perry add additional color on this. So if you think about sleep, you know, one of the nice things we saw is we saw sequential growth in sleep. When I say growth, I'm talking about the year-over-year growth rates. You know, we continue to see really nice performance in sleep supplies. You know, that's really carrying the bulk of the water, and that is the larger part of the category. You know, and then sleep starts, we saw a nice improvement, you know, in growth year-over-year from Q1 to Q2 also in sleep equipment. And then the other aspect of it is, you know, we're continuing to do things to streamline our operations and sleep, you know, focus primarily with our center of excellence. So those are the numbers of what we're seeing and, you know, just the increased focus. With that, maybe let Perry add additional commentary on, you know, this area.

Yeah, thanks, Ed. To piggyback on Ed, the back half of the year is really the acceleration and completion of the Center of Excellence so that our entire organization for sleep is within the Center of Excellence, and our customers can experience that. It both improves the process, creates more efficiencies, and improves the overall adherence rates for our sleep patients.

Thanks, Perry. And then moving on to the payer collections commentary, I assume we're talking about large and sophisticated payers. Is this one of your top three payers? Is it just one payer stakeholder here? And do you think that your peers are also dealing with the same issue?

It's more than one payer. I would call them large. I don't know how sophisticated they are. This process has not demonstrated a lot of sophistication. But I would tell you that I don't know what our peers are seeing, but clearly there's a lot of pressure on payers now to make sure that they're, you know, we're getting wastewater abuse out of healthcare, which we're all very supportive of. And we just need to work with our payer partners to make sure we're going about it in the most efficient way possible. Got it.

And there are no further questions. I will now turn the call back over to Edward for closing remarks.

Thank you. Well, thank you, everyone, for joining today. You know, as I think about the future here, you know, we are into 26 and into 27. We also – we already have multiple operation actions that are already underway. You know, I talked a lot about the commercial opportunities that we've secured already as well as additional opportunities that we're planning, you know, continuing to work towards. You know, also look at the investments that we're making, and it really gives me extreme confidence in our ability to improve the business as we move forward. One of the things we've got to make sure we focus on is actually improved execution. That improved execution will help us accelerate growth and continue to expand profitability over time, and it gives me tremendous, you know, encouragement and excitement about the future. With regarding retirement, you know, there's never an easy time, but now just feels right after conversations with my family. You know, I do want to take the opportunity to let everyone know, as I said in my prepared remarks, you know with the board we've had a long-standing succession planning process you know I am confident and committed that we'll have a successful CEO transition we'll we'll we'll make sure we get the right candidate to carry this forward as the pure play business that we are today and in closing again I want to really thank the board of directors I want to thank the company leadership that's on this call today as well as those that aren't on this call today I want to thank the 6,000 teammates that are part of a center health as well as the 15 000 teammates that were part of pnhs that moved on for all their dedication hard work and support over the last eight years with that thank you everyone and have a great day

this concludes today's conference call thank you for your participation you may now disconnect