First, we delivered 16% organic growth with record volumes gains across the business. Third, I'll speak to two near-term profitability challenges we're navigating: our West Coast capitated contracts and a material price increase from one of our largest manufacturers. Second quarter net revenue from continuing operations was $740.3 million, up 12.7% versus the prior year quarter, and 15.9% on an organic basis. Our West Coast capitated contract contributed 10.7 points of that organic growth, with 5.2 points coming from our base business.
Sleep Health net revenue was $386.5 million, up 15.5% versus the prior year. Total capitated revenue grew to $103.3 million in the quarter and now represents approximately 14% of our continued operations net revenue. This is more than three times the prior year with our West Coast capitated contract driving nearly all of that increase. Second quarter Adjusted EBITDA from continuing operations was $132 million, with an Adjusted EBITDA of 17.8%, driven by elevated West Coast capitated contract costs, which I'll speak to later.
The parts of the portfolio where we have the strongest value proposition and the clearest path to growth. A move that we expect will ultimately improve our growth rate, enhance our margin profile, and allow us to sidestep looming industry risks. We also took a further step in focusing our portfolio on the core by discontinuing proactive sales of certain product categories within our Wellness at Home segment. This action removes non-strategic, low-growth, and low-margin product lines from our portfolio.
| Metric | Period | Current guidance |
|---|---|---|
| Net revenue (continuing ops) | FY2026 | $2.85B-$2.89B (up ~$15M at midpoint; excludes $630M Diabetes revenue moving to discontinued ops) |
| Adjusted EBITDA (continuing ops) | FY2026 | $490M-$520M |
| Free cash flow | FY2026 | $80M-$120M (includes Diabetes Health segment cash flow) |
| Net revenue | Q3 2026 | $720M-$740M |
| Adjusted EBITDA margin | Q3 2026 | ~17.9% |
| Free cash flow | Q3 2026 | ~$50M |
| West Coast capitated contract margin | Long term / 2027 | 20% target reaffirmed; run-rate profitability expected next year with sequential improvement (~$1M/quarter) |
| Net leverage target | Long term | 2.5x (Diabetes proceeds directed to debt reduction) |
| Metric | YoY | Note |
|---|---|---|
| Net revenue (continuing ops) | +12.7% to $740.3M | 15.9% organic growth with record volumes; West Coast capitated contract contributed 10.7 points and the base business 5.2 points. |
| Sleep Health revenue | +15.5% to $386.5M | Core segment strength and resupply volumes, including transition-related pent-up demand on the West Coast. |
| Respiratory Health revenue | +14.1% to $194.4M | Continued core-segment growth. |
| Wellness at Home revenue | +4.9% to $159.4M | Slower growth; the segment is being pruned of non-core, low-margin product lines. |
| Capitated revenue | +3x to $103.3M | Now ~14% of continuing-operations revenue, with the West Coast contract driving nearly all the increase. |
| Adjusted EBITDA (continuing ops) | $132.0M vs $136.4M | 17.8% margin; elevated West Coast capitated ramp costs pressured profitability. |
| Free cash flow | -$20.9M | $166.2M of capex to support the capitated contract, including ~$25M of one-time equipment and vehicle purchases. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Portfolio simplification to core Sleep and Respiratory | Built via 150+ acquisitions with many subscale product lines | Completed the divestiture path (Diabetes, e-commerce JV, Continence, Custom Rehab, Home Infusion, plus non-core Wellness exits), refocusing on Sleep Health, Respiratory Health, and supporting home medical equipment to improve growth and margins. | — |
| West Coast capitated contract execution | Largest patient transition in HME history in H1 | A full quarter revealed higher-than-expected volumes (transitory Sleep resupply plus enteral) and inefficient inherited workflows (urgent orders), a two-thirds volume / one-third labor problem; management is aligning ordering practices, shifting to drop-ship, and right-sizing fleet/labor, targeting a 20% margin and run-rate profitability next year. | — |
| Capitation strategy and halo effect | Capitation to own patient footprint with fee-for-service halo upside | The halo effect (serving the 10-20% non-capitated patients and adjacent sales) is on hold on the West Coast until a government DME moratorium lifts (hoped for August 24) and new PTANs are secured; management still sees a healthy mix of capitated and fee-for-service, now across ~10 contracts. | — |
| Technology and AI in the patient journey | AI potential limited by non-standardized processes | A simplified, focused portfolio now enables faster technology rollout; myAPP connects nearly the entire patient journey (digital front door, AI intake, self-scheduling, AI mask fitting) with 512,000 users, freeing staff for higher-touch work and improving the cost base. | — |
| Supplier price increase | Strong manufacturer partnerships | A large manufacturer terminated its contract and imposed an immediate price increase on July 1, a $30 million second-half impact; management is negotiating for better price and terms while mitigating via supplier mix and product profitability. | — |
| Deleveraging and capital allocation | Net leverage target of 2.5x | Redeemed 2028 Senior Notes with a $325M delayed-draw term loan, will prioritize revolver repayment, and intends to direct a significant portion of the $235M Diabetes proceeds to debt reduction; roughly half of stranded corporate overhead to be removed within 12 months of closing. | — |