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

Thank you all for joining us here in person. For those who are joining us via webcast, my name is Ben Rossi, and I'm the health care facilities analyst here at JPMorgan. We are excited to welcome Aveanna back to the stage this morning. With us here today are CEO, Jeff Shaner, and CFO, Matt Buckhalter. Thank you both for being here.

Thanks, Ben, and good morning. As Ben said, I'm Jeff Shaner, the CEO of Aveanna Healthcare, and I'm here today with Matt Buckhalter, our Chief Financial Officer. We're going to kick into our presentation and what we'll get [ wrong ]. But we're pleased to share Aveanna story with you today and provide updates on our 2025 trends and also give initial insight into how we're thinking about 2026. I would like to point out, as Ben knows, we filed an 8-K and press release early this morning, and we plan to cover the details during today's presentation. Specifically, we will comment on our updated 2025 guidance, our 2025 bridge to normalize adjusted EBITDA and our initial 2026 guidance. With that, we'll jump in to our investor deck on Slide 3. We believe that scale and density of health care services help support our value proposition. And at Aveanna, we are a leading scaled national provider of health care services. Further, our diversified platform provides pediatric, adult and geriatric services cared for by almost 30,000 caregivers in 30 states -- 38 states, excuse me. Also, our national platform is dedicated to high-quality clinical outcomes and cost-effective health care for our payer and government partners. We believe that by aligning our interest with our payer and government partners, we can improve cost-effective, innovative care in the comfort of the patient's home. Now moving on to our company overview on Slide 5. As I mentioned, Aveanna's national footprint is highlighted here with 366 locations in 38 states. In addition, our recent acquisition of Thrive Skilled Pediatric enhanced our pediatric footprint into additional states, Kansas and New Mexico. As we think about the Thrive integration, we are substantially completed in our integration efforts, and I am pleased with the performance of the Thrive acquisition to date. Thrive will serve as our model for our tuck-in acquisition strategy moving forward. Our diversified payer mix supports our impressive 10.3% revenue CAGR over the last 5 years with no single payer contributing more than 10% of total revenue. Our preferred payer strategy remains the core driver of our growth, with 93 preferred payers agreements in place as of Q3 and we continue to expand across our all 3 business segments. This strategy supports tighter alignment between our caregiver capacity and our payer partner needs. Finally, our business plan is underpinned by thousands of dedicated clinicians and caregivers who provide compassionate care to our nation's most vulnerable patients. Moving on to our strategic drivers. 2025 represented the year 3 of our strategic transformation plan. And as we wrap up this important chapter at Aveanna, we attribute our success to the following key strategies: first, partnerships with government partners and preferred payers that created additional capacity and growth; second, identified cost efficiencies and synergies that allowed us to leverage our growth; third, the modernization of our Medical Solutions business; fourth, the improvement of our capital structure while we produced meaningful free cash flow; and fifth, the engagement of our leaders and employees as we delivered our Aveanna mission. I am proud of the Aveanna management team that delivered on these key strategies in 2025. Now let's move on to our payer relations and government affairs key performance indicators. We have a defined payer and government affairs strategy for each of our 3 businesses. Our Private Duty Services preferred payer goal for 2025 was to increase the number of agreements from 22 to 30. We achieved our goal of 30 preferred payer agreements and expect that number to continue to grow in 2026. Accompanying our Private Duty Services preferred payers is the addition of value-based agreements. These are above and beyond enhanced reimbursement rates and are important for the long-term alignment of our partnerships. We expect to continue to grow our value-based agreements as we partner with our payers. Our government affairs goal for 2025 was to achieve reimbursement rate wins in at least 10 states as well as continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. We achieved this important goal and have shifted our legislative efforts towards our 2026 legislative agenda. As we move on to Home Health & Hospice, our goal for 2025 was to maintain our episodic payer mix above 70%, while returning to a more normalized growth rate. With 45 preferred payer agreements, and our episodic mix well above 70%, we have achieved this goal, and we'll continue to build upon it in 2026. Our Home Health year-over-year episodic growth in Q3 improved to 14.2% and continued to generate outstanding clinical and financial outcomes. Finally, as we have achieved our desired preferred payer model in Private Duty Services and Home Health & Hospice, we have embarked on a similar strategy in our Medical Solutions business. To date, we have 18 preferred payer agreements, and we expect that number to grow as we achieve our desired preferred payer model in Med Solutions. We are wrapping up this important modernization effort in the first half of 2026. These important key performance indicators demonstrate that we have strong momentum entering 2026 that will support our growth story. Speaking of our growth story, let's touch on that on Slide 8. Our long-term organic growth goal of 5% to 7% is underpinned by the preferred payer and government affairs strategy we just discussed. By aligning our clinical capacity with those government and payer partners that value our services, we've achieved the higher end of our organic growth goals. In addition, our value-based agreements give us upside as we earn bonuses for achieving quality measures and overall cost savings. Also, strategic tuck-ins in Private Duty Services and Home Health & Hospice can add an additional 2% to 3% to our annual growth targets. As I think about 2026, I believe our business will remain in our expected organic growth range, mainly driven by volume growth. I also expect us to use our additional liquidity to grow through tuck-in M&A. Now let's touch on our Aveanna business segments on Slide 9. As most of you know, Aveanna operates across 3 primary business segments. Our largest division is our Private Duty Services business, representing approximately 82% of total revenue. Private Duty Services historically has grown organically between 3% and 5% and we believe that outlook is appropriate for 2026. Medical Solutions contributes approximately 8% of total revenue. Med Solutions has traditionally grown organically between 8% and 10%. And we believe it will return to these growth rates in 2026. Finally, Home Health & Hospice represents the remaining 10% of our revenue. We believe Home Health & Hospice will grow organically in the 5% to 7% range, driven by our disciplined approach to episodic growth. We currently are experiencing double-digit growth in our Home Health & Hospice business and expect that to moderate over the course of 2026. In total, we expect Aveanna to grow revenue in the 5% to 7% organic range with additional upside through strategic tuck-in M&A. Speaking of our capital structure, let's transition to capital structure and liquidity on Slide 16. As it relates to our capital structure, as of Q3, we maintained strong liquidity position in excess of $478 million, representing cash on hand of approximately $146 million, a $106 million of availability under our securitization facility and approximately $227 million of availability on our revolver. We have approximately $1.49 billion in variable rate debt, nearly all of which is hedged through caps and swaps, protecting us from further rate volatility. We continue to focus on delevering as an organization and have reduced approximately 3 turns of leverage through the first 3 quarters in 2025. This -- by the way, that's Matt's favorite statistic right there. This impressive performance brings us to approximately 4.6x of leverage at the end of Q3, and we remain focused on a leverage goal of less than 4x in the near term. I am proud of the team's progress in positioning Aveanna as a free cash flow generating company. As of Q3, Aveanna generated free cash flows of $86.2 million and we expect Q4 to contribute additional free cash flow and look forward to continuing this positive momentum into 2026. Also as a reminder, we successfully refinanced our term loan facility and combined our loans into one Term Loan B facility with a new maturity date in 2032. These efforts in Q3 resulted in annual interest savings of approximately $14 million. In summary, we will continue to execute our delevering strategy through exceptional growth, cost management and effective cash collections. Now let's move on to this morning's 8-K and press release related to our 2025 guidance, 2025 normalized EBITDA and initial thoughts on 2026 guidance. With the positive momentum in our Q4 and year-to-date results, we now believe our 2025 guidance for revenue and adjusted EBITDA will be a revenue range of $2.425 billion to $2.445 billion, increased from our previous guidance of greater than $2.375 billion and adjusted EBITDA range of $318 million to $322 million, increased from our previous guidance of greater than $300 million. 2025 was a truly transformational year to Aveanna and represents the third year in a row of material improvements in our operating, clinical and financial results. This work was completed by a dedicated group of Aveanna leaders and employees who believe deeply in serving our mission. These impressive results laid the foundation for what will now become our annual business plan and allow us to return to more normalized growth rates in all 3 business segments. Before I talk about our initial thoughts on 2026 guidance, I'd like to remind everyone of some timing-related items in 2025 that propelled our results. As we think about normalized adjusted EBITDA for 2025, we anchor to a $300 million baseline. This approximate $20 million delta from our 2025 guidance relates to 2 primary items: first, as we detailed in Q1, we benefited from approximately $11 million of retro rate increases and improved collections on previously reserved accounts receivable. Second, in Q2, we detailed approximately $9 million of similar retro rate increases, improved collections on previously reserved accounts receivable and annual true-ups in our value-based payments. On a normalized basis, we do not expect the approximately $20 million in timing-related items to reoccur in 2026. Finally, as we turn to our initial thoughts in guidance for 2026, I am very optimistic about the positive momentum and long-term stability we carry into this new year. Moving into our guidance for 2026, on Slide 19. As we think about 2026, we will continue to align our capacity with our preferred payers and government partners to achieve continued growth in revenue and earnings while providing the highest level of clinical care at home. We believe our long-term organic growth projection with additional tuck-in M&A is the right way to think about 2026 and beyond. Our initial revenue and adjusted EBITDA guidance for 2026 is a revenue range of $2.54 billion to $2.56 billion and an adjusted EBITDA range of $318 million to $322 million. We believe this initial 2026 guidance is prudent and reflects our current views on 2026. As a reminder, our guidance does not include any impact of future mergers or acquisitions. In closing, Aveanna has an impressive 5-year revenue CAGR of 10.3% and an adjusted EBITDA CAGR of 25.5%, representing the commitment our management team has on delivering great results. As we have outlined throughout this presentation, we are executing a focused, disciplined strategy built around scale, clinical excellence and strong partnerships with both payer and government partners. With a growing national footprint, a balanced capital structure and strong momentum entering 2026, Aveanna is well positioned to deliver long-term value for patients, families and shareholders. With that, I'll transition over to Ben for some Q&A with Matt and I. Ben?

Great. Great. I appreciate the background and retrospective here. To start off, as you approach the end of year 3 in your strategic transformation, can you just summarize the key learnings and milestones achieved in 2025? And just walk us through your thoughts on the primary drivers of last year's performance?

Yes. It's a real great question, Ben, and I appreciate you having us here today. So to your point, 2025 was year 3 of our strategic initiatives that we put in place a few years back, and it resulted in another banner year for Aveanna, a really re-baseline year for us and how we think about the company going forward. The execution, not only on those strategic initiatives, but specifically our preferred payer initiatives and our government affairs strategies has really been our ramp-up over the past few years, really valuing those payers who value our resources with such a demand for them at any given time. On the margin side, we obviously benefited from our modernization efforts that we put through in all 3 divisions over the last 3 years. The value-based payments and the programs that we put in place, and we're seeing this continue to grow into 2026. And just that preferred payer strategy that I mentioned previously, it's really allowed us to invest into our caregivers. And that's through direct wages, benefits, stability, stability in their scheduling, kids not going in and out of the hospital. They know they have their shifts next week as well at the same exact time. And that's really helped us on our recruitment efforts, but also our retention efforts of our caregivers at the same time. On the HHH side of it, phenomenal performance, as Jeff mentioned earlier, double-digit revenue growth in that one and really rightsize that business model, getting into the mid-70% episodic mix for our admissions over the past few years. In 2026, I'd expect you to see a lot of the same. We will have a little bit more normalized growth that occurs into there, and we've kind of worked that back into our guidance for 2026, but we'll maintain gross margins slightly on the higher percent of our range as we have some caregiver wage pass-through plan. But overall, continued execution by a team who's truly focused on this.

Okay. And then just teeing this up and thinking about your 2026 outlook. But I'm thinking about some of the bigger moves from last year, particularly with the Thrive deal that you discussed, how have those strategic priorities evolved? And what are your top areas of focus for this year?

That's a great question, Ben. I think 2025, as we said, was a truly transformational year for the company, went from effectively $184 million, $185 million of EBITDA the year prior to normalized $300 million of EBITDA. So great growth. Matt just talked about some of the drivers, Thrive being one of them. But I also think about the first 3 years of our strategic transformation and rebalance the company is really completed. So I think whether it's our capital structure, our growth plans, how we think of cost efficiencies, we've kind of put that chapter of the company to bed, if you will, and are really now focused on the maturing and we'll call it the maturization of our preferred payer and government affairs strategy. And so as we think about '26 and even '27, Matt just said, I agree, we're going to do more of the same, more of the similar. We don't have to change the strategy at this point. It's really continuing to lean in. We're now going on year 3 or year 4 of our preferred payer or government affairs strategy depending on when the payer joined us. And it's really the maturity of that relationship, right? And it's getting -- we've gotten past the get to know you stage. We've effectively grown our census with these payers. But as we say all the time, the demand for our services still far [ exceeds ] the supply. So our payers still have needs that we can't yet meet and continue to lean into. So continuing to lean into the preferred payer and government affairs strategy, as Matt will say over and over again, continue to just be cost-effective, being efficient with our back office, making sure that from an SG&A standpoint that we're being as efficient as we possibly can in collecting our cash. At the end of the day, we want to -- we are a material free cash flow generating company that has helped us delever. We want to continue to do that.

Understood. So with the 8-K this morning, when we think about your margins going forward, clearly, last year benefited from some recovery on that preferred payer strategy. Just when we think about more normalized margin concept for the business, what is a reasonable approach here? And what do you consider to be a starting point within this revised guidance?

Yes. Great point, Ben. That's a reason we wanted to highlight that here and just say, hey, guys, let's think about our business as being a $300 million EBITDA company. We obviously benefited from some of those timing-related items that occurred in there. But we've also been really effective and efficient over the past few years as an organization, taking all 3 of our divisions to those modernization efforts, we were able to take out a lot of cost and put in some technology advancements that has allowed us to scale a little bit more at the same time. So once you normalize out that little bit of piece of it, gross margins come back in line with additional planned wage pass-through and still getting that leverage from our growth on top of it. We still plan on landing that 12% to 13% EBITDA margin after it all shakes out. So a lot of execution to achieve it, but we have a nice line of sight to do so.

Excellent. So just turning into the specific operations now on 2026 Medicaid rates. Regarding that rate development within PDS, could you walk us through how you're thinking about state-by-state pricing for next year? And then is it fair to think of those rates growing in the typical 1% to 2% range next year barring any more sizable state decisions?

I think it's a great question. I think the difference between 2024 going to '25 and '25 going to '26 is really the moderate nature of those rates. So as you think about Medicaid rates over the last 4 years, clearly, it's been a very attractive environment. We've moved effectively every single state that we're in. I think we're in roughly 30 Medicaid states, and we moved 29 of the 30. Now I'll point out the one we haven't moved yet is the one we're sitting in today, California and more to come on that. But we've effectively been able to realign every state and equally important, every MCO that we partner with in those states to a rate that is appropriate for us to hire caregivers. And key in that, you'll hear us talk about wage pass-through key in that strategy is we have to continue to pass through additional wages to those caregivers to continue to meet the needs, both of our MCO partners, but also our state partners. But I think as you laid it out, the answer is yes. As we think about goals for 2026, we're still targeting at least 10 states in Medicaid rate wins, hopefully, California being one of them. But we think outside of California, most of those wins will be COL or cost of living-like type rate wins. And again, it's partnering with those states to meet the needs of like weekends, nights, tough-to-fill shifts. That's where we think those right wins will be on top of just the idea of normal cost of living. So still great momentum in the business and in the Medicaid side of the business. We do think the growth rates in the first part of the year will be a little bit elevated as they have been in the last couple of quarters. But we think that moderates as the year plays on in the PDS segment.

Great. And for California specifically, since we're here, can you provide an update on your advocacy efforts and the outlook for achieving a sustainable rate structure here?

Yes. I'm going to keep this class, yes, so I'll keep this above board. But California still just remains the outlier. I think the best way to think about it is an outlier. I thought about maybe unicorn, but I think outlier is more appropriate, and by that, it means it's the one state that we operate in that has not effectively dealt with home-based nursing rates and, therefore, home-based nursing wages. The sad part is for the state of California, studies show in the state that for each dollar, the state invest in private nursing, they save net 4. So it includes the amount of money they're spending. So it is an overall economic win for the state, for the Medicaid system. And then you tag on the end of that, the families, right? Because at the end of the day, who's really being harmed in California, it is the families. And so it's the idea that we struggle with our families is they can't be a family at home. They're either stuck in a hospital or the parents have had to quit their jobs and care for the child 24 hours a day. And it's just not a win-win scenario for the state, for the parents, for our referral sources. So at the end of the day, we are going on year 4 of direct advocating for material rate increases. And we will continue to fight on behalf of our families. We will not give up. And equally, we're not leaving the state of California. We are most likely the largest provider of PD in the State of California. We're not leaving. We work well with our MCO partners where they are -- where they have density, which I think still more 85% Medicaid, 15-ish percent MCO. So one strategy we thought about is helping move the medically fragile children out to the MCOs that will take a few years in California, but probably the right thing to do. So we got a multifaceted legislative strategy. We -- at the first of every year, we kind of strip everything down and build it back up. We're doing that right now to make sure that we've got the right strategy moving forward. But we will continue to be relevant. We will continue to advocate in these families. And eventually, we will take California off the outlier list in a good way.

Regarding your PDS spread rate, you alluded to that a bit when you're describing California. Last year, you mentioned the expectation of that spread rate within PDS normalizing into, call it, the sub-$11 range or so on an hourly basis. Is there any way to think about where your core spread rate currently sits excluding those items? Just trying to understand the lift that you're getting purely from your previous payer contracting efforts in PDS versus some of these onetime items.

Yes. Let me bridge back more to a gross margin on the PDS segment here a little bit. I think that will be helpful in how we think about it. So obviously, do the $20 million math, everybody can knock that out. But we also had a $6 million legal settlement that was a reversal out that happened in Q2, I believe. Now we adjusted that out of EBITDA. So there's no net impact to that. But it did enhance your gross margin on top of that as well. Once you pull those out and then you take into consideration how our wage pass-through has continued and how we see that continuing into 2026. We expect to normalize out in that 27%, 28% range on gross margin in that segment itself. So that will be on a little bit higher end of our area, but that will happen over time. Q1 obviously has some of our timing-related items. I mean, we're a labor company, so your [indiscernible] are going to be in there. But as it kind of works through, I think, totality of the year, that 27%, 28% is a good range to live off of.

And then on the volume side within PDS. So last quarter, you mentioned expectations of volume trends for this year growing in the 4% to 5% range. Given the 8-K, I know it's still very early, but how are you seeing trends shape up for this year to start the year post holidays?

Yes. I think we would tell you still elevated. But as we think of -- go back to just PDS, as we think of total revenue growth, we see the shift is happening where less rate more volume. So I think the shift you'll see from '24 to '25 and '25 to '26 is we'll be in the upper end, as Matt just mentioned, of that 3% to 5% range. We'll be in the upper end of that range in the first quarter to but it will be driven more by volume than rate. And we think over the course of the year that it moderates into the mid-range of that kind of 4-ish percent. But I would just think of Aveanna in really all of our businesses, Med Solutions may be the exception because we're still going through the preferred payer modernization. But in Home Health & Hospice and in PDS, I would think of us being more of a volume driver in '26 than a rate driver. And we're excited about that. That's a great story for us and one that we're very comfortable with.

I guess switching into HHH, the Home Health & Hospice side. On the rate development, at the end of November, we got the final home health rate for this year. Obviously, disappointing with the headline cut but still coming in better than proposed. How are you thinking about your initial thoughts on rate development within this segment and maybe some of the patient mix expectations that come with it for this year?

Yes. And I'll start with, we were really disappointed with the proposed rule. So the level of disappointment of 10 being the max, we were at 13. So the difference between the proposed rule and the final rule, I do think show that the administration and specifically CMS listened and partnered to the extent that they're able with the industry. So I think most of my peers would agree the movement between proposal and final was phenomenal.

[ Fundamental ].

No, it's still a negative rate. So you still have to balance that with. It's still a slightly negative rate. I think as you think, though, if you look within the other things that transpired in the final rule for the first time in 5 or 6 years, we saw the beginning of certainty in the business, which I think is very important for the industry and it's important for us. It was really within the -- how they thought of the permanent rule in what we would call the clawback provision. So for the first time, we kind of saw a light at the end of the tunnel, that permanent adjustment would have more rational thought process behind it, which really allows us to invest. It allows us to plan both as a company and as an industry. So I think that to us was probably as exciting as the actual -- where the rate landed, the difference between negative 6.4% net and negative maybe 1.5%. I think that the ability to see the clawback being less, less, less likely to occur on a material basis. The last part of it is if you just look at our Home Health business today, we don't do anything to change. But we are running a very, very, very good Home Health, maybe one of, if not the best, in the industry. in that we're driving great clinical outcomes. We're driving an appropriate gross margin. We're growing the business and we're collecting our cash. You can't ask for much more than that, right? That is a -- so I think we are confident with the current landscape of Home Health & Hospice and how we think of '26 and '27 being able to be right down the middle of the fairway.

Just turning to Medical Solutions. Could you walk us through segment performance here, how you're tracking against your goals against recontracting? And any milestones to watch across the segment in 2026?

Yes. I think, one, in our prepared remarks, we want to put to bed the modernization effort that will occur here over the next 3 to 4 months. A team has been heads down now for almost -- well, right at a year, and they have a couple of more months to finish up. We have tinkered with almost everything in the business model, literally everything. And so I think as we think about Medical Solutions in '26, we're excited for them to get back to their growth rate of almost double digits, if not double digits, at 8% to 10%. This business was growing north of 10% 3 years ago. So getting back to that growth indicator is volume driven. We talked about 18 preferred payers. You'll hear us talk more about additional preferred payers in Q1 and Q2. So we're setting up well for that number to continue to grow. And then really, the 2 other pieces that are incredibly important to us, gross margin, like the ability to operate in that 42% to 44% gross margin. We have a clear line of sight to that with our payers. And then lastly, our ability to collect cash in that business is so important. The average reimbursement is about $500 per shipment. So it's a smaller reimbursement model for us. We got to collect -- we have to collect cash really well. And lastly, meet the needs of our payers and our customers' needs. And I think under this model, we're able to do that. We're able to meet the needs of our preferred payers and meet the needs of the other customers.

I'd also add on there. I think if you look back at the history and what we've been able to do the last 3 years, HHH was the first one that we focused on in 2023. When we did look at the growth in 2024 and look at the double digit, 14.2%, I think, was a number Jeff was alluding to earlier, organic growth that we're talking about, private-duty services. We focused on that in 2024 and said, hey, guys, this is one of our initiatives, go tackle it, look at what it was able to produce in '25 and it will continue into '26. Same thing with Medical Solutions. It's small but mighty out there. And as a company, being able to focus on this one, I expect to see us get back to those double-digit growth rates very quickly and a healthy business being run there, too.

Flipping to the cost side of the ledger, just on caregiver recruitment and maybe overall labor management. You mentioned some of the additive volume expectations as the preferred payer strategy is normalized. How are you thinking about wage increases for this year and your ability to recruit and retain caregivers? And what are some of the challenges that you think remain in some of your key markets there?

Yes. We've obviously moved the needle significantly over the last few years. The main piece of that is obviously the rate environment that I won't say that we've benefited from that, we've driven these outcomes through our lobbying efforts, through our preferred payer initiatives out there. And by doing that, we've been able to significantly increase wages or catch up wages to where they need it to be. There was that low period post the hyperinflation, where we didn't have the wages appropriate to staff our caregivers. We've been able to do that meaningfully throughout, and we think we'll be able to continue that into 2026. There will always be a pocket where it's difficult. The state of California is the pocket here, but it's California with the rate environment, Austin, Texas, Nashville, there's little hyperinflation areas, but even our preferred payers recognize that because we have a relationship with them. And so they're working with us on single case agreements on specific case reimbursement rates for us just so that we can get those staffing rates and percentages up for them.

Turning to your M&A pipeline, given some of your broader deleveraging priorities, and some of the policy shifts making their way across your markets. Could you just update us on your approach towards capital deployment and maybe any potential M&A opportunities across either PDS or Home Health?

Yes. I'll start with and Matt will have thoughts on the capital structure. But I think we're in a great position. I mentioned Thrive is our model. So the Thrive acquisition was just a perfect right in the middle of wheelhouse, great acquisition, added geography and densified geography where our MCO partners were asking for more business, which -- so check, check, win-win. There are PDS states that we're not in, that our national preferred payers want us to be in. And we call out Ohio and West Virginia, Tennessee, Kentucky. So those are 4 examples. There's a few others. We want to fill in those states over time. There's no perfect acquisition that does all of that, but we want to continue to chip off those states and add those to our Medicaid repertoire. Again, I think we're in 29 Medicaid states today. We'd like that to be 35, 36 over the next 2 to 3 years. So from a PDS standpoint, it's filling in those holes, continuing to densify in certain states that we could use additional density. On the Home Health & Hospice, it's really Home Health more than Hospice. So we are really focused on the Home Health. And again, I go back to that November final rule. We have the answer we need to continue to invest in Home Health. In that business, we want to densify our business. We're a 14-state Home Health & Hospice company, not a 40 state, but 14 state. We want to densify those geographies in the Midwest, the Southeast and continue to build on our Home Health presence.

Yes. I'd just say on the capital allocation standpoint of it, be selective, be picky, be thoughtful. I mean, I think that's the general tone that you got from this management team. We've done such a great job of deleveraging and producing pretty meaningful free cash flow here. And so as we continue to do so, being able to tuck in M&A through our free cash flow generation while keeping in mind, hey, we want to get sub-4x leverage and we have a nice line of sight to do that, make sure you maintain that goal at all times.

It's a good segue into the next one here on leverage. So with leverage now below 5 turns, you mentioned the sub-4x target. I guess how are you prioritizing debt paydown versus reinvestment in your business or broader M&A?

Balance in there. It's nice to have dry powder at any time. Everybody knows that have dry powder to have the option to pay down debt or do potential M&A. And I think just the thoughtfulness that we'll continue to have been as where we will be, once again, that goal of being sub 4x having a 3 handle in front of our leverage profile is something we have driven to as a management team. And so it's a really important goal for us to be able to keep that ongoing.

And continuing [indiscernible] and continuing to generate meaningful free cash flow. I think when the year's over, investors and people will be very impressed with the amount of work that Matt and Debbie and our team did on collections and really, we have the best collections year we've ever had. And part of that is our preferred payer partners helping us working together to solve. You talked about collections on age, accounts receivable. That's working with our preferred payers, and that's -- so continuing to do that, drive meaningful cash flow, using that cash flow to do the tuck-ins. We're using that to do the tuck-ins. And then Matt said, if we -- there's nothing immediately in front of us using that to potentially pay down debt as well. So it's -- compared to we were 3.5 years ago, this is a great place to be. And again, Matt and I both -- our team has a goal to be mid- to low 3s over the next year or two from a leverage standpoint.

And then just quickly on the cash flow expectations, just given the guidance out there, do you have any initial comments on how you're thinking about cash flow dynamics this year?

Yes. Great year for us, as Jeff just alluded to, $86 million, $87 million through Q3. We talked about incrementally adding to that will be north of $100 million of free cash flow. But then in '26, I should -- I would say you should look very similar to what 2025 is. We've got really clean EBITDA out there. CapEx runs relatively very low. We're just really tight with our dollars once we're able to generate them. And so I think our 2025 free cash flow, '26 will look very similar to it as well.

On the cash collection side, had the recent improvements under that partially the payer strategies within that. In terms of technology, are you seeing a meaningful contribution from these investments in your tech stack and how your collection processes are working and maybe your overall collections efficiency?

Yes, we are. And again, I give -- we've got a very senior leader of our collections process that works with Matt and team. They've done a phenomenal job. But yes, we're using artificial intelligence. We're using other automation type partners to help make the back-end process. And as that gets moved up to the branch, which is not yet, but as we move some of the technology into our front end of our process, it will get even better. But I think blocking and tackling, these guys have done such a good job of blocking and tackling. And then one more point to touch on our operators standardize our business, and I talked about over the last 3 years. And when you standardize your business, the collections do get easier. So more efficient, maybe not easier, more efficient. So again, the team has done an amazing job. But yes, we are working with our partners on both artificial intelligence and automation to help make that process more efficient.

Yes. We've done a really nice job of leveraging. Look at our EBITDA growth over the last -- or our EBITDA growth, but also more importantly, our revenue growth over the last 3 years. We've had little to none on that department itself because we've been able to lean into the technology and some places that we'll continue to do so. So we still think we're at the tip of iceberg and then there's more meat on that bone, but it will be a thoughtful approach to be able to get it all.

Great. And just as we're wrapping up here with the time, we'll have one last one. We typically like to end things on a prospective basis. So one year from now, what will investors appreciate about Aveanna that they don't currently today?

I think it's more of the same. One year from now, I just think investors will continue to see that we're the clear leader in pediatric and adult home care in America and that we have meaningful growth and expansion in our both revenue and earnings, and we continue to do a great job for our payers, our families and our shareholders. So I think it will be more of the same, but I don't -- it won't be a departure from who we are right now. It will be more of the same. And I'll highlight we're 13 quarters in a row of beat and raise. So we're proud of that. But we think 2026 will be more the same.

Excellent. Thanks for that. That's all the time we have here today. Thank you all for joining us.