Aveanna Healthcare Holdings Inc. (AVAH) Earnings Call Transcript & Summary

Hello, everyone. Thanks so much for joining us. My name is Joanna Gajuk, I cover Health Care Facilities and Managed Care. Thanks so much for joining the conference and the session. So, now we have a very short presentation, but hopefully very punchy from Aveanna Healthcare. So yes, please introduce yourself and go ahead.

Thanks, Joanna.

Very glad to be here. I'm Jeff Shaner, the CEO of Aveanna Healthcare, and I'm here with Matt Buckhalter, our Chief Financial Officer. And thank you for your time today. We're excited to tell about our Aveanna story, and how we're thinking about insights on 2025 and an update on our year 3 of our strategic transformation plans. So really, starting with our transformation of how we think of the value of home care, I think first and foremost, what is key to us is we believe scale and density of services are key in the home care market. We think it helps create value for our payer and government partners, and at Aveanna, we are a leading scale national provider of home care services. So I start there. We're a diversified platform, as you'll see we provide both pediatric, adult and geriatric home care services. So that makes us unique, and we serve over 80,000 patients at any given day and week. Our national footprint is really what is dedicated to driving high quality, cost-effective clinical outcomes and reducing total cost of health care for our payer and our government partners. And I'll end the slide by saying we believe deeply in aligning our interest to those of our payer and government partners. And we believe by doing that, we can improve access to cost-effective, innovative care and the comfort of our patients' home. Just touching on a couple of company highlights and updates. I mentioned, we're a national footprint. You'll see the map here. We have just over 340 locations in 34 states and growing, and I'll talk about that. We just recently announced plans to acquire Thrive Skilled Pediatric Care, and that will further enhance our pediatric footprint. Specifically, we'll add 2 additional states, Medicaid states that will add both New Mexico and Kansas to our current footprint and take us to 36 states as well as it will continue to help densify 5 core states today, Arizona, Georgia, North Carolina, Texas and Virginia. So really excited. We talked last week on our earnings call, we expect to close that transaction here in the next few weeks. Our diversified payer mix helps support our impressive 7.5% revenue CAGR over the last 5 years. And I'll point out that, no single payer contributes more than 10% of our total revenue that happens to be Medicare. It's one of our smaller payer groups. Lastly on this slide, I'll just point to, we recently updated our guidance, both revenue and adjusted EBITDA guidance at our Q1 results. And we now expect 2025 revenue to be greater than $2.15 billion and 2025 adjusted EBITDA to be greater than $207 million. So excited about coming out of the year strong, a strong beat and raise in Q1, and ready to upgrade guidance right out of the year. I'll end this with -- this slide with our business plan is underpinned by thousands of dedicated clinicians and caregivers who provide compassionate care to our nation's most vulnerable patients. That is the Aveanna mission. Just a comment or 2 on the things as we think about year 3 of our strategic transformation, we continue to focus on the things that have helped to rightsize our business over the last 2 years. There are 5 things that are primarily -- 5 strategic initiatives that are primary drivers for 2025. They are: first, to enhance our partnerships with government partners and preferred payers to create additional capacity and growth. That is at the core of our preferred payer and government affairs strategy. Second is to continue identifying cost efficiencies and synergies that allow us to leverage our growth. That's been key to Matt and I's tenure at Aveanna. Third is to modernize our medical solutions. You'll hear the word modernized used quite a bit with Matt, and I in our businesses. We're focused on Medical Solutions this year to achieve our target operating model in our Med Solutions business. Fourth, managing our capital structure and collecting our cash while producing positive free cash flow. It's very important to us. And fifth, and it's probably most important, engaging our leaders and our employees at Aveanna and delivering our mission every day. So those 5 core strategies are what really underpins our business plan for 2025 and how we think about the continued progress of the company. I do think, it's important to note when we talk about our business plans that our business, as Joanna knows, we do -- our industry does not have a demand problem. Demand for our services for home and community-based care continues to be strong with both state and federal governments and managed care organizations looking for solutions that create more capacity while reducing the total cost of care. But I think as you'll hear us talk about, it's really leveraging and leaning into those partners. Talking about our success with our preferred payers and government partners. This slide really highlights the success of the last 3 years. First of all, in all 3 of our business segments, both Private Duty Services, Home Health & Hospice and Medical Solutions, we have a dedicated preferred payer and government affairs strategy for each of our businesses. On the left side of this chart, you'll see this is dedicated to our private duty services preferred payer goal. Our goal for 2025 is to increase the number of preferred payer agreements from 22 to 30. We achieved 2 additional preferred pay agreements in Q1. So we're well under our way of reaching a goal of 30. You'll see over the 3 years, we've gone from 7 initially in our first year to now 22 at the end of '24, so almost 3x growth with an additional 8 focused on 2025. I'll add to that, that our MCO -- our PDS MCO volumes is another key indicator that we report moved from 50% at the end of the year in '24 to 54% at the end of Q1. And Matt and I would tell you, we expect that to reach the high 50% by the end of 2025. So our clinical capacity is aligning with our preferred payers. Accompanying that is the need for value-based agreements. It's important for us to add value-based agreements to our preferred payers. We start with enhanced reimbursement rates to attract nurses and track caregivers through additional wages, but the addition of value-based agreements, which are bonus oriented for achieving specific clinical outcomes and cost targets are important. So continued evolution from originally 3 back in 2022 to 8 at the end of '24 with the goal of reaching 12 at the end of this year. So excited about the continued growth of that. As we move over to our government affairs strategy for 2025, it is twofold. First is to continue to execute on our legislative agenda to improve reimbursement rates in at least 10 states, so at least 10 states, and we had 5 in the first quarter. So a really nice start to the year with 5 state rate increases in our PDS business coming in the beginning of this 2025. So off to a nice start for '25. And then secondly is really to focus on the -- continue to advocate for Medicaid rate integrity on behalf of the children with complex medical conditions. We think it's critically important for us to advocate on behalf of our families, especially in the current Medicaid rate environment. Lastly, I'll touch on Home Health & Hospice. We've put a tremendous amount of focus on this business in the last 2 years. And our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate in that business. In Q1, our episodic mix was 77% and we also currently set up 45 preferred pay agreements for home health. So really nice momentum in our home health business. We are well positioned for growth in 2025 and beyond. And finally, although it's not on here, I talked about our Medical Solutions business. As we have achieved our desired preferred payer model in both private duty services and Home Health & Hospice, we now have embarked on a similar strategy in our Medical Solutions business. To date, we have 17 preferred payers in Medical Solutions, and we do expect that number to grow as we achieve our desired preferred payer model in all 3 of our businesses. Lastly, before I hand it over to Matt, just touch on our growth plan for Aveanna. Our core organic growth at Aveanna target is 5% to 7%, and that is really underpinned by the 2 strategies we just talked about, both the preferred payer and the government affair strategies. By aligning our clinical capacity with those government and payer partners that value our services, we can achieve accelerated growth in our business. Also with the addition of value-based agreements that gives us the potential for both upside to earn bonuses and achieve metrics and cost savings and accelerated growth. Lastly, how do we get from kind of 7% growth annually to 10%, truly tuck-in M&A, deals like Thrive Skilled Pediatrics and other Home Health & Hospice tuck-ins that we could do would allow us to really move from kind of that 7%, 7.5%, 8% growth rate organically that we've achieved the last 5 years and push us beyond the 10% growth rate on an annual basis. So really excited about where Aveanna is positioned right now from a growth standpoint and being underpinned by over 7% growth is organically is a great place to be. Matt will add some color on our capital structure and how we continue to delever as our revenue and EBITDA grows. And I guess the last thing I'll say before I turn it over to Matt really is, I'm incredibly optimistic about our future. We offer a cost-effective patient-preferred and clinically sophisticated solution for our patients and our families, and we are the right solutions for our payers, referral sources and government partners. So with that, let me turn it over to Matt, who's going to touch on our capital structure and liquidity. Matt?

Thanks, Shaner. Now let's get into and talk a couple of numbers here really quickly and start boring everybody on some of that. So just a quick overview of our operating segments. Aveanna has 3 primary operating divisions. Our largest division is PDS for Private Duty Services. This represents approximately 82% of our total company revenue. Historically, this division has grown in a 3% to 5% range in a stable market. However, we are currently experiencing accelerated growth in this division. That's mostly being driven by the government affairs strategy and payer relations strategy that Jeff alluded to earlier. Our Medical Solutions segment, which we're very excited about, has a much higher trajectory and growth trajectory historically. It's an 8% to 10% organic growth business, has been consistently for quite some time. We will expect that to be a little bit muted in 2025 on a volume aspect, not necessarily on a revenue aspect, but on volume as we execute on this modernization strategy that Jeff talked about earlier. Lastly, but surely not least, our Home Health & Hospice segment makes up the remaining 10% of our total revenue. We believe HHH can grow in that 5% to 7% organic range. We are very, very committed, though, to episodic growth, and we believe that is the right outcomes for our patients and our families. It not only produces better financial outcomes for the organization, but much better clinical outcomes for the organization as well. As a whole, really excited about all 3 of these divisions. They continue to operate at a very, very high level. And as Jeff talked about previously, we'll strategically bring in tuck-in acquisitions through M&A when appropriate and when it makes sense to our geography. So let's chat some numbers really quick. So taking a brief view at Q1 financials here. We saw revenues rise 14% year-over-year. That's all organic growth that we saw. We achieved year-over-year revenue growth in all 3 of our operating divisions. PDS services was the leader of the pack there at a 16.5% organic growth that we saw. So that 3% to 5% range that I alluded to earlier, we're seeing quite that enhancement driven by that preferred payers and government affair strategy in this division. Consolidated adjusted EBITDA of $67.4 million was up 93.1% year-over-year. So this was definitely driven by that payer relations and government affair strategy and driving great clinical outcomes for this organization. Our preferred payer strategy is focused on delivering these results continuously and not only enhances once again, those financial outcomes, but also those clinical outcomes, and it really does position ourselves to be a best and leading class home care provider. Quick view at our capital structure just for everybody. We maintain a strong liquidity in excess of $260 million. That's kind of spread between cash, securitization facility and our revolver, which is undrawn at the end of the quarter. Our variable rate debt. We've got about $1.47 billion of variable rate debt, most of all of which is hedged with fixed rate or with caps and swaps. So it leads us any volatility to the rate market out there. We are really proud of our organization and generating free cash flow and continue to generate free cash flow. We did in 2023 and 2024, and we expect to be in 2025 as well on a stand-alone basis. Last but not least, I also want to highlight that we'll continue to delever this organization significantly. We did a full turn in Q1 on a LTM basis, and we're executing the strategy at a very, very high level. And that's driven by exceptional growth, cost management and really, really effective cash collections. So with 15 seconds left, I'll just kind of close this out really quickly. Thanks again for everybody's time. As we outlined and Jeff did a great job of outlining, we're going to continue to execute on a very high level and stay very, very focused on a disciplined strategy built around scale, clinical excellence and strong partnerships in government and payer relations. With a growing national footprint, balanced capital structure and strong momentum in '25, Aveanna is well positioned to deliver long-term value to patients, families and our stakeholders. On behalf of Jeff, rest of the Aveanna management team, thanks for the time, guys, and look forward to updating you after Q2.

Thank you.

Thank you. Appreciate it.