Aveanna Healthcare Holdings Inc. Q3 FY2025 earnings call

• Third quarter results: Revenue was ~$622 million, a 22.2% increase over prior year; adjusted EBITDA was $80.1 million, a 67.5% increase. Aligned with preferred payers and government partners to drive growth.
• Labor market: Addressed labor challenges by aligning with payers offering enhanced reimbursement rates and value-based agreements, seeing improvement in caregiver hiring and retention.
• Preferred payer initiatives: In Private Duty Services, added 5 preferred payer agreements in Q3, now at 30 total; in Home Health, episodic mix was 77% in Q3 with 14.2% total episodic volume growth; in Medical Solutions, mid-stages of implementing preferred payer strategy with 18 preferred payers to date.
• Thrive Skilled Pediatrics integration: On target to complete integration by end of 2025, accretive to 2025 results.
• Regulatory environment: Focused on supporting Medicaid policy and defending Medicare home health benefit; facing headwinds with state Medicaid directors and governors regarding Medicaid funding, and opposition to proposed home health rule for 2026.
• Strategic plan: Focus on 5 primary initiatives including enhancing partnerships with government and payers, identifying cost efficiencies, modernizing Medical Solutions, managing capital structure, and engaging employees.

Private Duty Services

• Revenue for the quarter was approximately $514 million, a 25.6% increase, driven by ~11.8 million hours of care with a 12.9% volume increase over the prior year. Q3 revenue per hour of $43.51 was up 12.7% primarily due to preferred payer volume growth and rate enhancements. Gross margin was $149.3 million or 29%, with cost of revenue rate of $30.89 in Q3 up $2.27 from the prior year period.

Home Health and Hospice

• Revenue for the quarter was approximately $62.4 million, a 15.3% increase over the prior year. Driven by 9,700 total admissions with ~77% being episodic and 12,900 total episodes of care up 14.2% from the prior year quarter. Medicare revenue per episode was $3,215, up 3.6% from the prior year quarter. Q3 gross margin was 53.3%.

Medical Solutions

• Revenue for the quarter was $45.1 million, essentially flat from the prior year period. Driven by approximately 91,000 unique patients served and revenue per UPS of approximately $495, up 0.6% over the prior year period. Gross margin was approximately $20.3 million or 45% for the quarter.

• 2025 revenue expected to be greater than $2.375 billion and adjusted EBITDA greater than $300 million. Fourth quarter has an additional 53rd week positively impacting revenue and earnings.
• Expect similar performance in Q4 to Q3, with a beat and raise mentality, having raised guidance over 3 quarters by $100 million on a $200 basis.
• Anticipate general headwinds with state Medicaid systems in 2026 regarding rates, but will continue推进 strategic initiatives including potential Thrive-like acquisitions.

• State Medicaid budget uncertainty and potential impact on reimbursement.
• Uncertainty around the proposed Medicare home health rule for 2026 and its potential cuts to home health benefits.

Q: Every year, the fourth quarter EBITDA has been higher than the third quarter. Are there any headwinds that we should think about for the fourth quarter?

A: Q4 should be very similar to Q3 with some seasonality, but fundamentally think of Q4 in the same realm as Q3. We are a conservative group with a beat and raise mentality, having raised guidance over 3 quarters by $100 million on a $200 basis.

Q: In PDS, seen nice strength in hours. How should we think about the path to the 10 to 10.50 spread rate?

A: Q3 PDS gross margin settled in line nicely around 29%, in line with expectations. There is additional wage pass-through to include to caregivers, which will bleed into 2026.

Q: On the value-based care contracting, market appetite and shift in payer views?

A: Preferred payers want more nurses and capacity. Have had productive conversations with national payers, and value-based agreements are upside rewards only with focus on HBR and fill rate targets.

Q: Hours growth and census opportunity?

A: Hours and census are directionally in line. There is high demand within preferred payers and outside, with limited caregiver capacity, but leaning into relationships to drive growth.

Q: Uncertainty around state budgets and reimbursement?

A: More directional in nature, with some states having temporary rate reductions to balance budgets, but generally expecting headwinds in 2026 and 2027 regarding state Medicaid rates.

Q: Sustainability of preferred payer relationships and room to run?

A: We're past the first inning but way before the ninth in the preferred payer strategy. Goal is to add volume metrics in Med Solutions tied to preferred payer accounts, with 56% of PDS MCO volumes aligned with preferred payers currently. Resetting goals for 2026 with potential to increase the number in mid to high 30s.

Q: Intermediate leverage targets and capital structure?

A: Currently at 4.62x net leverage, with line of sight to deleveraging to a 3 handle in the out quarters. Will be thoughtful with dry powder, considering potential M&A or debt repayment based on what makes most sense for the organization.

Q: Impact of home health uncertainty on pipeline and capital deployment?

A: There has been activity in home health M&A, but not ready to pull the trigger on a home health or hospice asset pending the final rule. Expect the rule to be close to neutral to 0, and will leverage the Medicaid book to grow the Medicare side.