Aveanna Healthcare Holdings Inc. (AVAH) Earnings

Management highlights

- Overall Q1 2026 Financial Performance * Consolidated revenue of ~$648 million, representing 15.9% year-over-year growth * Consolidated adjusted EBITDA of $84.4 million, a 25.2% year-over-year increase, driven by improved rate/volume environment and ongoing operational efficiencies * Consolidated gross margin was $205.4 million, or 31.7% of total revenue * Q1 operating cash flow was $4.3 million, with free cash flow of negative $3.8 million; Q1 is seasonally the low point for cash flow, with improvement expected for the rest of the year * Ending Q1 liquidity totaled $525 million, consisting of $189 million in cash on hand, $110 million in securitization facility availability, and $226 million in undrawn revolver availability * Substantially all variable rate debt ($1.48 billion total) is hedged to limit interest rate exposure - Payer Strategy Progress * Preferred payer strategy is a core company-wide initiative focused on aligning clinical capacity with payers that offer favorable reimbursement, with growth across all three segments * PDS: 60% of PDS MCO volume was from preferred payers as of Q1 2026, up from 57% at end-2025; 4 new preferred payer agreements signed in Q1, on track to hit 2026 full year target of 8 new agreements (for a total of 38) * Home Health and Hospice: Episocidic payer mix hit 80% in Q1, exceeding the 75% target; 4 new preferred payer agreements signed in Q1, on track to exceed 2026 full year target of 5 new agreements (for a total of 50); episodic volume grew 23.1% year-over-year * Medical Solutions: 2 new preferred payer agreements signed in Q1 2026 (20 total as of Q1), on track to reach 25 by end of 2026; gross margins have stabilized in the company's target range * Government affairs: 2026 goal of mid-single-digit state rate enhancements for PDS; 3 state rate wins achieved as of Q1, on track to hit full year targets; focus has shifted to cost of living and wage adjustments after three years of broad rate increases - Labor and Operational Improvements * Caregiver hiring and retention trends have improved, driven by alignment with higher-reimbursement preferred payers that allow for competitive caregiver wages * AI and automation investments are driving operational efficiencies, particularly in revenue cycle management (RCM), leading to improved DSO and higher collection rates for previously reserved aged accounts receivable * Strong clinical performance across home health and hospice: average 4.5 star Medicare rating, no 3-star agencies, 21 of 22 hospice locations hold 5-star ratings, and new CHAP-approved specialized clinical programs have been launched - Acquisition Update * The pending acquisition of Florida-based Family First Home Care, a pediatric home care provider, is progressing through regulatory approval, with closing expected in late Q2 2026; the acquisition fills geographic density gaps in Florida for Aviana

Guidance

- Management increased full year 2026 guidance based on strong Q1 performance and execution of strategic initiatives * New full year 2026 revenue guidance range is $2.56 to $2.58 billion, up from prior guidance * New full year 2026 adjusted EBITDA guidance range is $328 to $332 million, up from prior guidance * Guidance excludes any contribution from the pending Family First Home Care acquisition, which will be added to guidance after closing - Segment level forward expectations: * PDS: Organic growth expected to remain in the 5% to 7% full year range; gross margin expected to stabilize around 28% with spread per hour holding near $12 * Medical Solutions: Growth expected to remain in the mid-single digits for the next few quarters, returning to double-digit growth by the end of 2026; gross margins are already stabilized around 44.7% and are expected to hold at this level * Home Health and Hospice: Episodic payer mix is expected to sustain in the high 70% to low 80% range for the full year - Capital allocation expectation: Net leverage is expected to continue declining, with a target of reaching at or below 3.0x net leverage; small tuck-in acquisitions are expected post-Family First, with no large transformative acquisitions planned for 2026

Segment performance

1. Private Duty Services (PDS): Q1 2026 revenue was $536 million, a 16.4% year-over-year increase, contributing 82.7% of total consolidated revenue. Volume grew 10.7% to 12.1 million hours of care, while revenue per hour rose 5.7% to $44.43, driven by preferred payer volume growth and updated reimbursement agreements. Gross margin was $149.2 million, or 27.9% of segment revenue. 2. Home Health and Hospice: Q1 2026 revenue was $66.6 million, a 17.4% year-over-year increase, contributing 10.3% of total consolidated revenue. Growth was driven by 11,000 total admissions (13.4% organic year-over-year growth) and 14,900 total episodes (23.1% year-over-year growth), with 80% of admissions being episodic, exceeding the 75% target. Medicare revenue per episode rose 0.5% to $3,167. Gross margin was 53.7% of segment revenue. 3. Medical Solutions: Q1 2026 revenue was $45.7 million, a 7.4% year-over-year increase, contributing 7.0% of total consolidated revenue. The segment served 93,000 unique patients (4.5% organic year-over-year volume growth), with revenue per unique patient up 2.9% year-over-year. Gross margin was approximately $20.4 million, or 44.7% of segment revenue.

Risks & headwinds

- The recently announced 6-month nationwide CMS moratorium on new Medicare home health and hospice licensure was designed to address fraud, waste, and abuse concentrated in specific regions like Los Angeles County; management notes the moratorium could unnecessarily restrict access to home health care in rural markets that need additional providers * Labor market constraints remain an ongoing industry challenge; while hiring and retention have stabilized, the market remains competitive, and growth is tied directly to the ability to pass rate increases through to caregiver wages * Government and regulatory scrutiny of home care billing and reimbursement remains elevated across both Medicare and Medicaid programs, creating ongoing compliance and regulatory uncertainty * Interest rate exposure: While substantially all variable rate debt is currently hedged, changes in market interest rates beyond hedged levels could impact interest expense and net income

Analyst Q&A

• Q: What impact will the new CMS 6-month moratorium on new Medicare home health licensure have on Aviana's business, especially the pending Family First acquisition and future M&A strategy?

  A: The moratorium has zero impact on Aviana's existing business, 2026/2027 business plans, and the pending Family First acquisition. CMS' rule explicitly excludes existing providers and routine licensure transfers for acquisitions, and the 36-month ownership rule that predates the moratorium remains the only relevant requirement. While management agrees the moratorium punishes rural providers that need more capacity, they will work with CMS to target fraud only in problem areas and do not expect the rule to limit future M&A activity for reputable providers like Aviana.

• Q: The Q1 2026 EBITDA beat was stronger than expected, and management raised guidance. Is the upward revision just conservatism, and what is the expected EBITDA contribution timeline for the Family First acquisition after closing?

  A: Q1 2026 included ~$6 million in one-time, timing-related gains from collection of previously reserved aged accounts receivable. Normalizing for this one-time gain, core Q1 EBITDA was in the high $70 millions, which aligns with the new upwardly revised full year guidance, which management calls appropriately aggressive. For Family First, which has ~$120 million in annual revenue and is valued at ~7.5x post-synergy EBITDA, full synergy realization will take approximately six months after closing, as the business is integrated onto Aviana's systems and operating model; existing rate assumptions do not include any pricing arbitrage, as the primary benefit is adding geographic density in Florida.

• Q: With PDS preferred payer penetration already at 60% and growing, what is the long-term outlook for this shift and for annual price increases on existing preferred payer contracts?

  A: Management expects 3% to 5% annual volume shift to preferred payers over the next 3-5 years, reaching the low-to-mid 80% range long-term, with the current process about halfway complete. Almost all preferred payer contracts are annual and evergreen (Aviana has not lost any preferred payer to date), and rate increases are negotiated annually rather than being pre-baked as automatic COLAs, because preferred payers already pay materially higher rates than Medicaid fee-for-service. Value-based agreements typically take 9-18 months to add after a preferred payer contract is signed, creating long-term upside.

• Q: How is caregiver hiring and retention trending, and what is driving recent improvements? Is the labor market getting easier or harder?

  A: Recent improvements in hiring and retention are directly driven by higher reimbursement rates from preferred payer and government rate wins, which allow Aviana to raise caregiver wages. Hiring has not gotten easier over the past six months outside of temporary weather-related disruptions, but it has also not gotten harder. Organic PDS growth is directly tied to this rate-wage pass-through dynamic, with accelerated wages supported by accelerated rate gains.