AdaptHealth（AHCO）2026年第3四半期決算説明会：カピテーションマージン改善、ガイダンスを引き上げ

主要ポイント

• 2026年第3四半期の純売上高は前年同期比10.9%増の7億4560万ドルとなり、これには12.8%のオーガニック成長が含まれています。最大の定額制契約がオーガニック成長のうち10.7パーセントポイントに寄与し、ベース事業が2.1ポイント寄与しました。
• 調整後EBITDAは1億4190万ドルとなり、前年同期の1億4610万ドルから減少しました。調整後EBITDAマージンは21.7%から19.0%に縮小しました。
• 最大の定額制契約の利益率は約10%となり、第2四半期のマイナス4%から改善し、第3四半期末時点のランレートで約14%に達しました。経営陣は引き続き、2027年第4四半期までに少なくとも20%のマージン達成を目指しています。
• AdaptHealthは2026年の売上高見通しを28億8000万〜29億0000万ドルに、調整後EBITDA見通しを5億1000万〜5億2500万ドルに引き上げました。一方、フリーキャッシュフローの見通しについては、主に仕入先支払のタイミングおよび早期割引の活用を推進したことを理由に、5500万〜8000万ドルへ引き下げました。
• 第3四半期のフリーキャッシュフローは5110万ドルとなり、設備投資額は定額制契約関連の支出が一巡したことから、連結売上高の14.2%に相当する1億550万ドルに減少しました。
• 同社は一般的な完了条件を満たすことを前提として、Cardinal Healthへの糖尿病ヘルスケア事業の売却が2027年初頭に完了すると見込んでおり、売却益の相当部分を債務返済に充てる計画です。

主要財務データ

特に断りのない限り、業績は継続事業ベースで記載されています。設備投資額およびフリーキャッシュフローには、取引完了まで糖尿病ヘルスケア事業が含まれます。

事業および業績の動向

主な業務改善は、AdaptHealthの最大の定額制契約および西海岸での事業展開からもたらされました。サービス利用率は当初の想定を上回る水準にとどまったものの、繰り越し需要の解消に伴い、初期のピークからは低下しました。派遣社員、配送業者、請負業者を含む契約関連の人員数は、第2四半期末から12%以上減少しました。

この契約のマージンは、第2四半期のマイナス4%から第3四半期には約10%へ改善しました。経営陣によると、9月時点のランレートは約14%でした。また、同社はパートナーと価格設定および契約条件の交渉を行っていますが、現在のガイダンスや2027年第4四半期までに契約マージンを少なくとも20%とする目標には、価格改定分は含まれていません。

AdaptHealthは、メーカーの割戻体系から第3四半期に800万ドルの増益効果を得ました。この合意により、6月30日の契約終了およびそれに伴う即時値上げ（下半期の調整後EBITDAを約3000万ドル押し下げると見込まれていた）によって失われた収益の一部を回収することができました。

デジタル技術の導入が一段と進展しました。「MyApp」の登録ユーザー数は61万5000人を超え、前四半期比で約20%増加し、2025年末の基準からほぼ倍増しました。同社のAIを活用したマスクフィッティングツールは1万2600回以上のスキャンを実施し、その約94%が注文完了につながりました。

AdaptHealthはまた、4つの大手ヘルスケアシステムと優先提供者契約を締結しました。より規模の小さな地域定額制契約2件は7万2000人を対象としており、年間で約700万〜800万ドルの売上高を創出すると経営陣は見込んでいます。

経営陣の業績予想（ガイダンス）

この見通しは、最大の定額制契約における前四半期比での緩やかな改善、価格体系の変更なし、およびメーカー価格の更なる改善なしを前提としています。ガイダンス範囲の下限には、Medline社製ベッドの現場是正措置による短期的な影響の可能性も考慮されています。

経営陣は2027年の公式ガイダンスを発表しませんでした。ただし、2026年第4四半期を基準としつつ、定額制契約のマージンのさらなる改善、継続的なコスト抑制、およびベース事業のオーガニック成長の正常化を勘案することができると示唆しました。同社は設備投資額を売上高の13%〜14%に設定することを目標としており、現在のモデル作成目的においては14%を使用することを推奨しています。

リスクと注目点

• Medline社製ベッドの現場是正措置： AdaptHealthは、過去5年間に製造された対象ベッドの修理または交換を進めています。このプロセスは複数四半期にわたると予想されており、どの製品が修理または交換を必要とするかについての最終指示は保留されたままです。経営陣はMedlineが交換関連費用をカバーすると見込んでおり、現時点で短期的に重大な財務的影響が発生するとは予想していません。
• 定額制契約の採算性： サービス利用率およびサービスコストは、最大規模の契約の価格設定時に使用された前提を依然として上回っています。価格交渉は継続中ですが、ガイダンスには改定分は含まれていません。
• メーカーの価格設定： 新しいリベート体系により第3四半期のコスト圧迫の一部は回収されましたが、合意には依然として緩やかな値上げと数量ベースの割引が含まれています。
• フリーキャッシュフローのタイミング： 早期割引を受けるために仕入先への支払いを前倒ししたことから、通期ガイダンスが引き下げられました。また例年、第1四半期には貸借対照表上の未払い項目の季節的な支払いが発生します。
• 糖尿病ヘルスケア事業の分離費用： 継続事業は現在、従来糖尿病ヘルスケア事業に割り当てられていた全社共通経費（オーバーヘッド）約6000万ドルを負担しています。経営陣は、取引完了日から12か月間で約半額が解消し、残りの約3000万ドルは数年かけて成長および経費削減の徹底によって吸収すべき残留コスト（ストランデッドコスト）になると予測しています。

アナリスト質疑応答のハイライト

経営陣は、新しく締結された地域定額制契約2件について、新規拠点の設置や新たな人員確保を必要としない点で、大規模な西海岸での契約とは異なると説明しました。同社は、これまでの定額制プログラムで得た経験を踏まえ、これらの取り組みがよりスムーズに立ち上がると見込んでいます。

糖尿病ヘルスケア事業の売却手続きについて、AdaptHealthは2.5倍という純レバレッジ目標を改めて表明し、売却益の相当部分を債務削減に充てると述べました。四半期末時点における連結総レバレッジ比率は3.05倍でした。

PCSポートフォリオに関して、経営陣は事業の縮小が第3四半期には予想より緩やかだったものの、第4四半期には加速するはずだと述べました。AdaptHealthは戦略的に重要な製品を保持する一方で、低マージンのチャネルから撤退を進めています。経営陣は、2027年にPCSの変更が一巡した後は、ウェルネス・アット・ホーム部門の成長率が少なくとも市場成長率まで回復すると見込んでいます。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, everyone, and welcome to today's AdaptHealth Third Quarter 2026 Earnings Release. Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth and Harriss Currie, Chief Financial Officer of AdaptHealth. Before we begin, I'd like to remind everyone that statements included in this conference call and in the press release issued today, may constitute forward-looking statements within the meaning of Private Securities Litigation Reform Act.

These statements include, but are not limited to, comments regarding financial results for 2026 and beyond. Actual results could differ materially from those projected in forward-looking statements because of the number of risk factors and uncertainties, which are discussed in the company's annual and quarterly SEC filings.

AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin and free cash flow, all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in the presentation materials accompanying today's call which are posted on the company's website, being recorded, and a replay of the call will be available later today. I'm now pleased to introduce the Chief Executive Officer of AdaptHealth, Suzanne Foster.

Suzanne Foster

Good morning, everyone, and thank you for joining us today. First order of business is to welcome Harriss Currie, who joined AdaptHealth as our Chief Financial Officer in September. Harris will take you through our financial results and outlook after my remarks. The third quarter was a step in the right direction. We delivered strong organic growth exceeded our guidance for revenue and adjusted EBITDA and met our free cash flow target, driven in large part by meaningful improvement in the performance of our largest capitated contract and by a base business that continues to produce consistent performance.

This morning, I'll review our third quarter results, update you on the 2 issues that weighed on our outlook last quarter, the capitated contract and an unexpected price increase from a large manufacturer and then give you a brief update on the pending sale of our diabetes health business and our Metron field action announcement about its bed.

Starting with our results. As a reminder, all figures are provided on a continuing operations basis, including prior period comparisons, except for capital expenditures and free cash flow, which will include diabetes health until the sale closes. Third quarter net revenue was $745.6 million, up 10.9% versus the prior year quarter and up 12.8% on an organic basis. Adjusted EBITDA was $141.9 million $11.2 million above the midpoint of our implied third quarter guidance range and free cash flow was $51.1 million, slightly ahead of our guidance.

Harriss will take you through the details in a moment. Behind these results, the biggest driver was the improvement in our largest capacity contract and specifically the West Coast operations associated with that contract. We have been working to stabilize the operations and align costs to serve with our original assumptions, and that work is now beginning to pay off.

The contract made a positive contribution to adjusted EBITDA in the quarter a swing from a loss in the second quarter and better than breakeven as we assumed for the second half when we reset guidance in August. Two dynamics drove the improvement. First, utilization, while still well above our original expectations has come down from the peak of the early months, particularly in [ sleeper supply ] as the backlog of pent-up demand cleared.

Capital spending also declined sequentially as we completed the onetime purchase of vehicles and emission buildup of patient equipment. Second, we tightened the labor model. Headcount dedicated to the contract, including temporary staff, carriers and contract workers is down more than 12% since the end of the second quarter.

As a result, we have lowered our costs even with utilization still elevated and while exceeding our survey level requirements and commitments. We are certainly encouraged by the trajectory of the contract's profitability. September's run rate margin contribution was stronger than July and the progress we are making gives us confidence we will achieve a 20% margin on the contract by the fourth quarter of next year.

We also continue to work with our partner on the economics of the contract and are making progress with those discussions. The data supports our premise that utilization was running above our expectations on which the contract is priced. We have been provided assurances that pricing adjustments are coming. While we do not yet know the final impact of our negotiations, we are holding on any unilateral movements under the agreement, while we continue to negotiate in good faith as partnering although we expect the agreement to be modified this quarter, we have not assumed change to the terms and the revised outlook we are providing today.

As I mentioned last quarter, there is also an opportunity to use our newly established footprint to serve patients beyond the capitated membership. The moratorium on enrollment of new suppliers in Medicare that directly affected us was lifted in August, and we are submitting our applications for new PTM, which are the Medicare billing numbers that allow us to operate more broadly in California. This will ultimately allow us to compete for fee-for-service business in that market.

As a reminder, that opportunity is not included in our contract margin target of at least 20%. Next, the manufacturer price increase. As a reminder, we were notified on June 30 that a manufacturer was terminating our conduct and imposing an immediate price increase which we estimated would reduce second half adjusted EBITDA by approximately $30 million. Since then, we have reached an agreement on a rebate structure that allows us to recover a portion of the lost economics.

We realized the benefit of $8 million in the third quarter as a result of purchases made during the quarter. We will carefully raise further opportunities to capture discounts with business arrangements as well as across all of our vendors against our business needs and cash flow management. So we have an arrangement in place for the 2026 contract year and we are now back to our normal annual negotiation cycle with the manufacturer.

Turning to the portfolio, a brief update. The HSR waiting period has expired for the sale of our diabetes health business to Cardinal Health, [indiscernible] and we expect to close early in 2027, subject to customary closing conditions. As a reminder, following the move of diabetes health to discontinued operations, our continuing operations results carry about $60 million of corporate overhead that was previously allocated to that business. Of the $60 million about half has been specifically associated with diabetes health activity and expect it to dissipate beginning on day 1 through 12 months after the close of the transaction.

The remaining $30 million of overhead is true stranded costs that we expect to absorb through growth and expense discipline over the next few years. With the portfolio work now launched and behind us, we are a focused sleep, respiratory and wellness at home business, where growth and margins are more attractive.

The clinical value we add is greater and our resupply operations keeps us in continuing relationship with patients. Now we are on Medline. You may have seen that Medline has announced it is removing its brand of beds from the market, following earlier notices from certain home care beds. We are following Medline constructions. We are communicating directly with affected patients and their caregivers and we are working to repair or replace affected beds on a reasonable time line.

Medline beds are a meaningful part of our bed fleet and the replacement will take place over multiple quarters. We expect Medline to stand behind these products, and we are working with them to address the full cost of replacement. We will update you as that work progresses.

We saw continued evidence this quarter that the underlying business is improving and stable. Our enterprise sales strategy is gaining traction as we signed preferred provider agreements with 4 large health systems. And broadened our capitated portfolio with 2 smaller agreements with regional house plans, when new and on expanded.

Our strategy is focused on being the easiest and most reliable supplier for patients and physicians to work with. We continue to gain traction with digital tools that enhance the entire patient journey and connect the patient experience. Myapp now has more than 615,000 registered users, up about 20% from last quarter and nearly double where we ended last year.

And the [ AI Howard mask ] fitting tool we introduced last quarter has now completed more than 12,600 scans with roughly 94% of those resulting in a completed order. Importantly, leveraging this technology also helps us control our labor and OpEx costs. Let me close with where we go from here. The business is stabilizing after the largest patient transition in the history of the industry.

And the third quarter demonstrates that the actions we took in the first half are gaining traction. With the pending sale of our diabetes health business, we are on the verge of completing our multiyear effort to focus our portfolio. Our priorities are to augment the returns on our largest capitated contract and to return to delivering predictable, consistent results.

Our base business continues to grow organically, and I'm grateful to our teams who have put patients first through a demanding year and are heading into next year with momentum. With that, let me turn it over to our new CFO, Harriss, to review the financials.

Harriss Currie

Thank you, Suzanne, and good morning, everyone. I'm certainly pleased to be here, and I look forward to meeting many of you in the near future. I'll cover our third quarter results, the balance sheet, cash flow and our updated outlook. As noted, all figures are provided on a continuing operations basis, including prior period comparison cash flow, which includes diabetes health until the sale closes.

Third quarter net revenue of $745.6 million increased 10.9% versus the prior year quarter, with organic growth of 12.8%. We displayed year-to-date growth in revenue over the prior year of 9.7%. Our third quarter revenue was $58.6 million, above the midpoint of our guidance driven primarily by growth in referrals and resupply in our sleep health segment and a slower-than-anticipated reduction in revenue related to the decision to cease actively marketing certain products within our PCS business.

On a reported basis, Sleep Health net revenue was $393.9 million, up 11%. And Respiratory Health net revenue was $190.8 million, up 7.8%. Wellness at home net revenue was $161 million, up 14.5%. Total capitated revenue was $110.3 million, about 15% of our continuing operations net revenue and more than 3x that of the prior year.

Our largest capitated contract contributed 10.7 percentage points of a 12.8% organic growth in the quarter. Base business organic growth contributed the remaining 2.1 percentage points of the 12.8% organic growth. Adjusted EBITDA was $141.9 million versus $146.1 million in the prior year quarter a margin of 19% versus 21.7% a year ago.

On a year-to-date basis, adjusted EBITDA declined by 4.2%. The year-over-year and year-to-date declines reflect the ramp of our largest capitated contract, partially offset by labor and operating expense discipline. Total head count of 10,995 was down 337 from the end of June, the largest components of which were staffing reductions on the capitated contract and overall discipline on labor.

Adjusted EBITDA for the quarter was $11.2 million, favorable against our guidance midpoint of $130.7 million. As Suzanne mentioned, the primary driver of this result was the largest capitated contract, which delivered a margin of approximately 10% in the quarter, up sequentially from a negative margin of 4% in the second quarter and was tracking at a run rate of approximately 14% as we exited the quarter.

The balance of the adjusted EBITDA favorability of the guidance having stronger-than-anticipated revenue across our other revenue verticals as well as enhanced cost discipline. On a GAAP basis, net loss attributable to AdaptHealth was $168.2 million, resulting primarily from $184.8 million noncash pretax goodwill impairment charge, which was triggered by the recent decline in our equity market capitalization.

Also as a reminder, in the third quarter, we contributed our e-commerce business into a joint venture in exchange for a minority interest. As a result, we recognized $12 million pretax gain. Bobot, Domo impairment and the e-commerce contribution are excluded from adjusted EBITDA.

Turning to the balance sheet. We ended the quarter with net debt of $1.85 billion, down $48 million from June 30 and had a consolidated total leverage ratio of 3.05x. Essentially unchanged from the second quarter. Unrestricted cash was $80.7 million. And during the quarter, we redeemed our [indiscernible] senior notes due '28, with the proceeds of the $325 million delayed draw term loan, eliminating our highest cost tranche of debt and lowering our ongoing debt service obligation by approximately 17 basis points.

We remain committed to our net leverage target of 2.5x, and we intend to direct a significant portion of the diabetes health proceeds towards debt reduction. Free cash flow was $51.1 million for the quarter, in line with our guidance of approximately $50 million. Year-to-date free cash flow is $2.6 million, reflecting previous free cash flow deficits reported in earlier quarters.

Capital expenditures were $105.5 million or 14.2% of consolidated net revenue compared to 18.1% year-to-date as the elevated spending to equip the capitated contract has subsided. Our capital allocation priorities remain unchanged reducing leverage investing to accelerate organic growth and pursuing disciplined smaller tuck-in acquisitions.

Turning to guidance. We are raising our full year net revenue range to $2.88 billion to $2.9 billion, an increase of about $20 million at the midpoint, mostly reflecting our third quarter outperformance relative to our prior guidance. We are also adjusting our adjusted EBITDA range to $510 million to $525 million, an increase of $12 million at the midpoint based on our third quarter results, and the September run rate on the capitated contract margin.

Our guidance also assumes modest sequential improvement on the capitated contract, no change to that contract's pricing structure, and no further improvement in manufacturer pricing. At the bottom end of the range reflects consideration for any unanticipated short-term effects of the Medline field actions.

For the fourth quarter, this implies net revenue of approximately $715 million to $735 million and adjusted EBITDA of approximately $130 million to $145 million. Now let me spend a moment on free cash flow. We are lowering our full year range to $55 million to $80 million. As mentioned before, this range includes cash flows from diabetes health until the sale closes.

The prior range communicated in August, contain certain working capital assumptions, including the timing of vendor payments around year-end that have since been pulled forward to prioritize early payment discounts over short-term cash accumulation. The range implies fourth quarter free cash flow of roughly $50 million to $75 million or about $65 million at the midpoint 30% sequentially.

We believe the current free cash flow guidance represents baseline cash generation as we head into 2027, and we will continue to focus on prudent working capital management. Our commitment is to run a business that can deliver sustainable, predictable and dependable growth with measurable consistency and to deliver reliably on our guidance.

We built this entire outlook with that goal in mind. That brings us to the end of our prepared remarks. Operator, please open the call up for questions.

Operator

[Operator Instructions] And our first question comes from Brian Kenkolact with Jefferies.

質疑応答

Brian Tanquilut

Congrats on the quarter. So maybe my first question, Suzanne, as you highlighted these preferred contract wins with health systems and the capitation wins. If you don't mind just giving us some color on how to think about sizing these deals and what these arrangements are on the preferred side? And how we should think about the growth contribution from these as they ramp through 2027? .

Suzanne Foster

Thanks, Brian. So first off, I'll take the capitated. So we won 2 small regional players. Think about it as there's 72,000 lives. Those 2 agreements represent that we are now the exclusive provider for, so strong pipeline, as I've mentioned before, where we're talking to payers about our capitated arrangement. I'm still of the mind that on the capitated front, that when we have accurate data and referral conditions that these are very good for us and for the payers and for patients. It aligns interest and it's predictable on both sides around cost.

And so much like we said on Humana and the other 10 arrangements or so that we have on the cathmodel, those are performing really well. And as we talked about earlier today, once we get our West Coast operation is supporting Kaiser in the same place, but that will be successful for us overall. So 72,000 patients, about $7 million to $8 million of revenue from those 2 contracts alone annually. So hopefully that answers your question on the cap deals.

On your question around preferred provider agreement, so the strategy there we set out on is we didn't really have an enterprise or national sales team that was dedicated to cover on larger health systems. We have had that in our existing sales force that regular salesperson to go out and pitch if they so choose. But I think anyone who's been in the industry knows there's a uniqueness to pitching big national accounts or regional accounts event.

So we stood up -- when we took down the PCS sales force, we exchanged that sales force for what we're calling enterprise sales teams and it's been about 2 or 3 quarters now that this team has been up and running. We took some of our most mature and high-performing salespeople, put them in this team, and they exclusively call on these health systems.

Last quarter, we signed 4 meaningful deals. This is volume where we have a preferred arrangement coming out of a large health system. I don't have numbers for you on how to think about that in terms of in 2027, I'm sure we could bake that into our model for '27 to give you some guidance. But again, the whole idea is big, chunky pieces of business we have 1 income that we can put a liaison in to help with the discharge cleaning and the easiness of which those referrals come to us.

Brian Tanquilut

Got it. That makes sense. And then when I think of the Medline comments that you made, are there other supplies? I mean guessing Hill-Rom and the others are easy substitutes for those? Is that the right way to think about that? .

Suzanne Foster

Yes, exactly. And we had already -- even before the Medline field action have been looking at diversifying our supply chain that had approached some of even the smaller ones, fortunately, before the season happened to talk about how could we get them to ramp manufacturing. So yes, we believe that we have our bases covered, but that assumes that all these different players kind of ramp production to cover the demand.

Operator

Our next question comes from Kevin Caliendo with UBS.

Kevin Caliendo

On the [indiscernible] issue, how do we think about the risk that you actually bear related to Medline. You talked about the bottom end absorbing short-term effects of the field actions. Like do you actually have any like liability risk? Or is this just cost risk of being a favored partner or like I'm just trying to understand what actually you're on the hook for here. .

Suzanne Foster

We're just think of it this way, they issued the recall to the whole market, not just us, right? Like we're just run in the players. We have relationship with the patient so that we're following their instructions, the FDA in Medline either repair, replace at locate what's required. They have indicated they put out word that says that they expect cost from this. They have communicated with us a refund replacement, a cost-type program.

And so for us, it's going to be just the time of going out and replacing or repairing those pads and the costs associated passback to demine and making sure that we secure our supply chain secures enough product to make sure that we keep up with not only the repair and replacement, but that's been demand. As we sit here today, we called it out because it is -- I'm sure out there, and we are 1 of their largest bed providers. So we wanted to just call it out in fairness that as we think about it today, we think that it's under control, but it could be a risk to us if there's something interesting.

Kevin Caliendo

Got it. If I can ask a quick follow-up. Is there an ability to frame the ResMed rebate opportunity, like how much of that is tied to volume or minimum purchase commitments? Like how should we think about that going forward? .

Suzanne Foster

I think all of it is the way our contracts work. There's always volume rebate structure, if I'm following your question -- minimum requirement pricing concessions -- you aside from the...

Kevin Caliendo

I was just wondering if there's anything special about it or -- and maybe even if you can talk about the potential magnitude of the opportunity.

Harriss Currie

So this is Harriss, let me tell you a way to think is, is that there's actually 2 components to the overall potential price increase for that manufacturer. Number one is just a raise in net price, right, at gross price. Number two is the discounts that we can qualify for as we drive volume through that manufacturer. There will be a volume discount structure that's included in the monoline agreement. But there also will be a modest price increase there. We haven't gotten to details as to -- if you're looking for the puts and takes between how much is going to be the price going up and then how much can we earn back down as we work through the discount structure.

We haven't talked about that. And so we'll -- certainly, as it becomes clearer, I think there will be more clarity around that communication as reality lands, if you will, but we're still working through that.

Operator

Our next question comes from Pete Chickering with Deutsche Bank.

Unknown Analyst

Congrats on the core, you've got Ben Shaver on for PO today. So I understand you're not guiding to 2027, but I think it would be helpful if you could give a little bit of a framework on the puts and takes and how we should think about the moving pieces across the capitated deal, losing diabetes and as well as the rest of the business. .

Suzanne Foster

I on the fact, but let's remember my new CFO has been in the seat.

Harriss Currie

Month and half.

Suzanne Foster

45 days, all I can say on that is, listen, we -- this year has been a transformative year for AdaptHealth. Like I said, bringing on massive patient volume pruning our portfolio. The teams have been heads down looking at first being effective in the marketplace. And now we spent the second half of this year being efficient and trying to get our cost structure in place. Here we have -- I believe we have a lot of momentum going into 2027. The base business is improving.

Our referral volume is up and our capitated model or coated pipeline, we are exploring those deals that make sense for us. So as you think about 2027, think about market growth across the business use Q4 as a good baseline for us to improve on from there as we're continuing to improve. And then we'll have to come back to you in February is a little more unless Harris wants to weigh in.

Harriss Currie

Well, I mean, I'll give you some steps that may be useful in potentially useful but not much in your 2027 modeling is that we mentioned earlier in our comments that we expect the margins on the -- our largest cap data contract to improve. So you would expect to see that incorporated in the results.

You would also expect see a continued focus on cost control so that we don't allow our cost to outrun revenue growth and as a result, so you expect a modest improvement in margin. We're not really prepared to talk about the various revenue verticals and how they might grow. But cost control, capitated margin improvement and then the rate of organic growth of the base business growth that we mentioned in the current quarter was only a couple of percentage points as we lap some of the issues that are -- that have happened in the current year, for instance, the reduction of focus on some of the PCS verticals and others.

You would expect to see that base business growth percentage rise back to a more normalized level. So that's probably not helpful at all. But there's a little snippets to think about as you think about 2027 and obviously, in the fourth quarter call in February, you'll get a lot more clarity on the thoughts for the full year 2027. Does that help?

Unknown Analyst

Yes, for sure. I appreciate some of that color. And then just 1 more quick one. You mentioned pricing adjustments on a big tax contracts could be coming, but they're not included in the outlook. I know you can't get into the negotiations and like all the details there. But is there anything you could give us to kind of help us understand the potential magnitude or the structure of that adjustment and whether that would be incremental to the 20% margin target by the end of next year. .

Suzanne Foster

The 20% margin does not include any adjustment. So if there is something to come, it would be an improvement to that or to bring it in sooner.

Harriss Currie

And obviously, we're a public company. They are -- these are confidential negotiations, and we don't want to start talking about the specifics of that until we're done, done, as they say.

Operator

[Operator Instructions] Our next question from Ben Hendricks with RBC Capital Markets. .

Benjamin Hendrix

Great. I wanted to follow up on some of the large capitated contract and the negotiations you're having there. Obviously, you're looking to address the elevated order volumes you're seeing. I think you also though called out some nonstandard ordering practices that were creating some headwinds and that, would be a longer-term fix? Is there anything you can do or any concessions in those contract negotiations to address that specifically? .

Suzanne Foster

Yes. Sure, Ben. I got you. So let's just take a step back. This arrangement, I believe, is very strong. The partnership is strong. I believe our customer is appreciative of the service and the care that we provide to their members and patients despite all of the pressure, we are exceeding our service level agreements and performing exceptionally well under the commissions.

And on the other hand, we're certainly grateful for the trust that they put in us and allowed us to take care of their members in the switch that they made earlier this year. So we're on strong footing and a strong partnership exists with the intention of building a long-term relationship.

Notwithstanding that, we do know now the partnership that utilization was hotter than expected, starting on day one. We have a mutual agreement on that. And very -- as you point now, so referring workflows or the cost to serve. We've talked about some of those in the past that those were not assumed when the contract was priced.

And so it's those 2 things that have put pressure on us, as you mentioned. And so what we're trying to do is look at how do we now midstream, a couple of quarters in with full awareness of where the actuals are look at pricing in terms that reflect our ability to continue to service at those accelerate or those utilization levels plus the service that's required while we work to improve the referring patterns and the workflows that's going to take a little time.

So in the conversations we're having, we're trying to figure that out as partners to get the pricing right so that there's no impact to patients and that Adapt can have a profitable contract and that our partner can continue to enjoy the service levels that we've been providing.

Benjamin Hendrix

Appreciate that comment. A second is a follow-up for Harris and Harris welcome to the call. We're certainly looking forward to working with you in the future. I wanted to follow up on 1 of your comments on the on the expectations for 4Q cash flow, I think you definitely noted that there was going to be early paid debt -- but you also know that, that is going to be a kind of a baseline for 2027. I wonder if you can kind of reconcile those 2 comments and kind of give us an idea of how we should think about working capital in the next...

Harriss Currie

We lost you halfway through your question because you -- you cut out for just a little bit. Could you -- I ask you to start over.

Benjamin Hendrix

No worries. Just wanted to ask about cash flow, the free cash flow expectation for fourth quarter. I think you that there was a pull forward of some working capital, but then also that it would be kind of a baseline for '27 just wondering how to get kind of run rate working capital expectations there? .

Harriss Currie

So what we were -- there was an opportunity for us to have cash build up at the end of the year and defer or not defer, but just the timing of payments, obviously, with an AP to drive better balances. And there's also some refinement when I joined of the aggregate forecasting process that all allowed us to get to what I believe is a reasonable number. So as you think about the fourth quarter cash flow other than the inclusion of cash load from the discontinued ops of diabetes health that we don't quantify, but it's in there.

The current baseline for the fourth quarter would be a reasonable expectation moving forward for future quarters, absent the diabetes health contribution that we haven't quantified. So you're going to have to make an assumption there about how much of diabetes is in there because we haven't really talked about it publicly, but we will certainly disclose that.

And there's a bit of seasonality in the first quarter as well that could affect free cash flow that it has every year, right? There's a number of balance sheet items accrued liabilities that have built up over the course of the year and others that get paid in the first quarter. And so is it represented for first -- maybe not, but representative for the full year time, I don't know, 3, 3.5, that's probably a better estimate for where we might go, but you need to, again, adjust for diabetes health within that number. Does that help?

Operator

We will take our next question from John Penny with Canaccord.

Unknown Analyst

Jumping on for [indiscernible] and congrats on the progress. I guess, asking about the -- going back to the capitated contracts. Thanks for the details there. But I guess, with these new -- these new smaller day contracts just announced this quarter. Granted much smaller than the Kaiser contract, but any learnings from the Kaiser contract that you like pulled into these newer contracts? How do you think about these capitated contracts going forward, like any stipulations in the contracting? Or just any learnings or any details you can provide would be great.

Suzanne Foster

Yes. It doesn't quite translate -- and the reason for that is when we sit on these new agreements that I just spoke about it, they're more like me capitated deal, meaning the members go to multiple hospitals. They're not in IBM. And so they kind of come on board more like an app like our human contacts, which we learned our message years ago on that.

And so these are pretty smooth as they go, so to speak, the lessons have they learned, so they come on, they're stable. There's no de novo-type opening of new locations, acquiring new people. The difference -- Kaiser is really an NF1, first of all, IBN, it's in 8 different markets, but the difference there is the biggest issue, if you will, that we had to deal with there was their own hospitals. They have specific ways of working that were new to us coupled with a brand new workforce out there, remember, we put in 4 new locations as a people to support this, and we were taking that business over from an incumbent. So there were certain ways of working that we didn't have visibility to at the time that we have been learning in the first 2 quarters. So I wouldn't expect any bump in the road, those 2 capitators are up and running and smooth as it goes.

Harriss Currie

Also think about this in a way of -- this is about continuous improvement. And so as we move along from our first capitated contract previously to now the company has revised policies, procedures, the way we apply our resources to these contracts and continues to get better. So it's really subjective and it's not anything that fits in your model but it's something you would expect as we go forward further down this track we get, the better at it we get and being effective at this. That's 1 of the reasons -- our margins are expected to be better next year. Our costs will be under better control on the contract. And so we're just -- we're managing it better. Why? Because we're older effectively, right? We're growing up and getting a lot better.

Suzanne Foster

The strategic value of these, remember, think of it as exclusive capture of patient populations. In our growth basically come by increasing the number of patients that we ultimately serve and that we can access and we've shown time and time again that as we bring these exclusive capitated arrangements in place that we get into a better relationship with that referring provider and get that halo effect around that population.

So Strategically, it still makes a lot of sense in short time here has realized we're constantly talking about continuous improvement in our workflows and how to reduce the administrative burden because that's the biggest difference between a fee-for-service and a fixed model like a capitated model is that you can work to reduce the administrative burden on a fee-for-service type model inherently has in it, and you can streamline the referral practices between us and the provider, which takes out cost ultimately.

Unknown Analyst

Okay. And 1 more, just 1 quick follow-up. Just want to touch on CapEx, patient CapEx come down substantially. I think looking like 14%, a little over 14% of revenue. Is this like a decent like steady state going forward? Or are you still expecting like 13% to 14% of revenue about for total CapEx going forward? Just any details there?

Harriss Currie

Yes. I mean 13% to 14% is our target. Obviously, we'd like to be at the bottom end of that range, but if you're going to model it, use 14% for now. .

Operator

Our next question is from Jay Lewis with Baird.

Unknown Analyst

Just wanted to ask one more quick one on the Medline situation. Would you be able to quantify how big that recall replacement and repair is for you in terms of how many beds are dollar value. And what you see as the most likely correction course across the field, whether that be that repair or the replacement.

Harriss Currie

Yes, let me just give you some perspective here. If you just carve out that revenue out of our total revenue is low single digits. So our total revenue, so how exposed are we pretty low. However, as Suzanne mentioned earlier, this is not just an adapt issue. This is a market issue because [indiscernible] is a large supplier to the entire market. We just happen to be one of their biggest customers. So for us, beds are an important component of our aggregate revenue buildup. But as far as near-term exposure as a result of Medlines, indicated willingness to resolve this problem for everyone in the market, we don't see a significant amount of exposure to the company's financial results. in the near term. If anything, it's only near term because Medline is going to get this all worked out. And by end of next year, we'll be looking back at this and hopefully .

Suzanne Foster

And we know that it's the beds that were manufactured in the last 5 years in our share of those. I don't have an exact number, but we're waiting -- unfortunately, we're still waiting for instructions on what can be repaired, what used to be replaced and what timing. So it's still a little early to work out those details, but as Harris said, it's certainly contained and Medline has been a true partner here and coaching us through this and has ensured us that they're going to stand behind the quality of their product and making sure that we get this right for patients.

Unknown Analyst

That's helpful. Just 1 more question on the PCS business. Could you talk about the revenue that you got from that business in this quarter relative to your expectations? And any updated outlook for that revenue winding down.

Harriss Currie

I can't give you the exact revenue. I want to tell you how to think about it, is that PCS revenue was in the second to the third quarter, there was only a modest decline, and we expected it to come down a little faster in the third quarter. However, that recession, again, as we move into the fourth quarter, will likely accelerate into the fourth quarter, and that's one of the reasons for the fourth quarter range being a little lower than we were in the third quarter.

And -- but as a percentage of total revenue, it's insignificant. As you think about it. But the part that we're keeping it will be insignificant to total revenue. I know that's not real specific for you, but it's the way to think of it is it's a short-term wind down with an immaterial effect on the financial statements of the company nor top line revenue, but it does affect that wellness at home line of revenue growth and has tempered the growth there so that when we lap the PCS wind down next year, you would ultimately expect the wellness at home revenue to move back to at least a market growth rate and therefore, the aggregate growth rate of revenue across the company would tick up again. I should have mentioned that earlier for the earlier question around how to think about '27, I mentioned lapping some of the issues in '26 and PCS is not an issue. But some of the factors in '26, the PCS is certainly 1 of those.

Suzanne Foster

If I may just take [indiscernible] seconds to remind everybody the strategic reasons why we made that move the PCS was a vier from McKesson years ago, a portfolio of supplies and we never did much with it in terms of where we sold it and how we feel we made a strategic decision that part of that portfolio is very beneficial to us in support of our fleet and respiratory business particularly in our capitated arrangements where they want a broader portfolio and also in our enterprise sales, meaning our national health systems don't want just sleep and respiratory, but they want us to have a portfolio of broader portfolio to support those patients.

So we looked at the portfolio and said, here's the ones that are very strategic to us. We're going to achieve that, but we're going to get out of the low-margin channels that we were serving and we're going to eliminate a enterprise in our top sales teams to be able to sell the portfolio that way. So I just want to make sure, as we talk about PCS in the future that you understand the strategic benefit of having that portfolio that we've now needed entry growing in better margins by virtue of how we're selling it and where we're selling it.

I think that concludes the questions. Is that right? Well, I want to start again by taking the all of our about employees out there for continuing a heads-down approach to Q3. I want to thank the investors for sticking with us through a transformative year. And hopefully, you can see the hard work beginning to pay off and the trends and the momentum as we head into 2027.

Operator

Thank you. Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.