Good morning, and welcome to Aveanna Healthcare Holdings Inc. Fourth Quarter 2024 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Debbie Stewart. Aveanna's Chief Accounting Officer. Thank you. You may begin.

Good morning, and welcome to Aveanna Healthcare Holdings Inc.'s Fourth Quarter 2024 Earnings Call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Shaner, our Chief Executive Officer, and Matt Buckhalter, our Chief Financial Officer. During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website aveanna.com, and in our most recent annual report on Form 10-K when filed. With that, I will turn the call over to Aveanna Healthcare Holdings Inc.'s Chief Executive Officer, Jeff Shaner.

Thank you, Debbie. Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q4 and full year 2024 results, and how we are moving Aveanna Healthcare Holdings Inc. forward in 2025. My initial comments will briefly highlight our fourth quarter and full year 2024 results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide insight on how we're thinking about year three of our strategic plan and our initial outlook for 2025 prior to turning the call over to Matt to provide further details into the quarter. Moving to highlights for the fourth quarter and full year 2024. Revenue for the fourth quarter was approximately $520 million, representing an 8.6% increase over the prior year period. Fourth quarter adjusted EBITDA was $55.2 million, representing a 42.6% increase over the prior year period, primarily due to the improved payer rate environment as well as cost reduction efforts taking hold. Full year 2024 revenue was approximately $2.024 billion, representing a 6.8% increase over the prior year, and full year 2024 adjusted EBITDA was $183.5 million, representing a 31.8% increase over the prior year. We continue to execute our strategic transformation strategy focused on preferred payers and obtaining adequate rates from our government partners for the services we provide, which is clearly evidenced in our fourth quarter results. Our Q4 results also benefited from some timing-related items that positively impacted our private duty services division in the quarter. Matt will provide some further details in his prepared remarks. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aveanna Healthcare Holdings…

Thank you, Jeff, and good morning. I'll first talk about our fourth quarter financial results and liquidity before providing additional details on our initial outlook for 2025. Starting with the top line, we saw revenues rise 8.6% over the prior year period to $520 million. We achieved year-over-year revenue growth in all three of our operating divisions, led by our private duty services, medical solutions, and home health and hospice segments, which grew by 10.1%, 4.8%, and 0.6% compared to the prior year quarter. Consolidated gross margin was $171.7 million, or 33%. Consolidated adjusted EBITDA was $55.2 million, a 42.6% increase as compared to the prior year, reflecting the improved payer rating environment as well as cost reduction efforts taking hold. As Jeff mentioned, Q4 benefited from some timing-related rate enhancement in our PDS segment, which had a positive EBITDA impact of approximately $3 million. Additionally, Q4 saw a favorable true-up in our insurance reserves, and this adjustment contributed approximately $3.5 million to EBITDA for the quarter. Now taking a deeper look into each of our segments, starting with private duty services, revenue for the quarter was approximately $422.2 million, a 10.1% increase, and was driven by approximately 10.5 million hours of care, a volume increase of 4% over the prior year. While core volumes have improved over the prior year, we continue to be constrained in our top-line growth due to the shortage of available caregivers. Although we are continuing to see signs of improvement in the labor markets, Q4 revenue per hour of $40.25 was up $2.21, or 6.1%, as compared to the prior year quarter, primarily driven by preferred payer volume growth and the rate enhancement previously discussed. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain…

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. Participants using speaker equipment may be necessary to pick up their handset before pressing the star key. We also ask all participants in the queue to limit themselves to one question and one follow-up. One moment, please, as we poll for questions. And our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Good morning, guys. This is Megan Holton for Brian Tanquilut. Congrats on the quarter, first off. I'd like to start out on the guide. As I look at the top-line growth, it's slightly above 4%, implying flat EBITDA margins year over year. Would you consider this conservative as you've spoken to EBITDA margin expansion in 2025 previously?

Megan. Good morning. Thank you. And thanks for getting us started. I think our thoughts today on guidance is we've gotten very comfortable with the expectations of beating rates. And we like to stay as that team that sets a prudent—we use the word prudent versus conservative. You can use the word conservative if you like, but we use the word prudent, both on our revenue growth and our EBITDA guide. But I think as Matt will talk about, we're very confident as the year 2025 is setting up for us, and we're expecting to have a third very, very significant year of transformation at Aveanna Healthcare Holdings Inc. Matt, you wanna think through? Talk through?

Yeah, Megan. You know, we're really excited to continue executing on our 2025 strategic plan. We had really solid momentum leaving Q4 and 2024, with great rate increases from our government partners, continued preferred payer execution on there. We have really nice line of sight with the final home health and hospice rules in place. So great visibility into 2025. Now, as Jeff mentioned, we believe our guidance for 2025 is prudent, but we believe that we'll continue to capitalize on all the hard work that our teams have put in the past two years, and those results will really flourish into 2025 as well. Will throw a little bit of plug in there and just reiterate, Q1 does have some seasonality in our EBITDA numbers itself, you know, due to higher payroll taxes, getting caregiver engagement kind of back in post-holidays. It kind of settles in Q1, but then you will see a build in Q2 in the back half of 2025.

Okay. Thanks. And just as a quick follow-up, you know, you guys have comments on looking to turn M&A kind of back on. I mean, can you speak to the pipeline, what areas are you focused on, and any specific characteristics you require when looking at assets?

That's a great question. And, you know, we continue to have a prudent view of M&A. We're focused on our home health specific and our private duty services business as it relates to tuck-in M&A. We probably won't be in the medical solutions M&A focused in 2024, 2025, as you heard us talk about. We're excited to be kicking off and fully initiating that target operating model and preferred payer strategy for MedSolutions. So we're gonna stay focused on home health specifically and private duty services, both skilled and unskilled, in that business unit. I will say, plan to stay within our capital structure. Right? So we've got ample liquidity within the current capital structure, but think of us being a tuck-in oriented acquirer in 2025 and 2026. But as we said in 2024, we do expect to be back in the acquisition business in fiscal year 2025. So more to come as the year plays out, but great question, Megan.

Thank you.

Thank you. Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Please proceed with your question.

Hi. This is Michael Murray on for Ben. Congrats on the quarter. Just drilling down into the PDF segment, you previously noted expectations for some pressure in spread rate in the first quarter. How should we think about modeling the cadence of both rate growth and gross margin progression in 2025?

Yeah. I think it's Matt, and by the way, great question. I think as Matt laid out, we've got rate clarity in all of our businesses, but specifically PDFs for 2025. So that's, I think, the really good news is we had a lot of momentum in the second half of 2024 that is carrying through 2025. And our twelve state rate, twelve PDS rate increases plus the two preferred payers plus good insight on home health and hospice rates give us really good certainty throughout the fiscal year 2025. I think as Matt talked about, remember, Q1 is our high payroll tax. We are a labor-driven company, so we expect Q1 to be a little bit of a headwind. There's also some holiday seasonality that plays into the first month of Q1, but I think as we think, Matt, about our guidance, we're very confident about our PDS business and kind of its current growth rates.

I mean, spread per hour. We believe we'll be back in that $10 to $10.50 range. You know, that's a great core area for us. I pointed out those two kind of, you know, how we kind of believe a one-time in nature items in Q4 that enhanced to $11.79 for the quarter, which is a little bit strong. So we just wanted to be upfront and honest about backing that out a little bit. For taking the full year of 2025, though we do have seasonality with Food Asuna in Q1. It kind of picks up in the back half of the year. There's some holiday, you know, payroll differentials, PTO utilization in there in Q4 as well. But for the entire totality for 2025, I would sit between that $10 and $10.50 range.

That's helpful. And just as your cash flow increases, how are you thinking about capital allocation? You know, you touched on M&A. If the right opportunity presented itself, what sort of leverage would you be comfortable going up to?

Yeah. I mean, we're really excited about, you know, amounts of been it's been very impressive as an organization, and we don't plan on slowing that down. As we've alluded to in the past, our goal is to continue to deleverage a turn to a turn in a quarter on an annual basis. We looked at that being a very realistic expectation for us since 2025 as well. We are obviously very pleased with our Q4 and full year 2024 operating and keep free cash flow. This was driven by a lot of rate improvements, great operational efficiencies from our team, cost management, or that we've gained throughout the organization, and we'll expect to be a continued free cash flow business for 2025 as well. We will allude though, we will be a larger federal taxpayer in 2025. So that could create a little bit of a headwind for us. And just I'll throw this plug in there as well. As a reminder, Q1 does experience some seasonality for that cash flow impact as well. Due to TPLCs and it enhances or extends out our collection cycle. And so we'll have a pretty significant negative in Q1 then continue to build in the sequential quarters.

And I think as you think about, you said it, you know, the excess cash that we're generating, we think about as accelerating growth in EBITDA, right, both organically to continue to invest in our preferred payer strategy, our government affairs team, our clinical innovations team that underpins our clinical outcomes data for our preferred payers. And then just accelerating the M&A strategy. I mean, we are well, well, well positioned in home health and hospice and in private duty services to be an acquirer. I think Matt said it well. Don't plan on opening the capital structure this year. We're very comfortable with our caps and swaps, and we will continue to accelerate both revenue and EBITDA growth organically and inorganically. Thank you.

Alright. Thanks so much.

Thank you. Our next question comes from the line of Benjamin Rasi with JPMorgan Chase and Company. Please proceed with your question.

Hey. Hey. Thanks for the question. Just regarding your medical solutions payer strategy, you mentioned the comments on the segment modernization as you expect to process during 2025 and the effective volume drag. Just wanted to drill down here. Could you walk us through your approach to payer negotiations here and how you're sizing your contract conversions and potential rate changes within there?

Yeah. Hey, Ben. Good morning. It's a great question. I think as you look backward, we would say look backward to look forwards, meaning look what we did in 2023 to home health and hospice, to rightsize that business model, both clinically and financially. Look at what we did in the PDN PDS business in 2024 to same thing, to align with our preferred payers, ultimately to improve clinical outcomes and right size margins, both gross and it's the exact same strategy with MedSolutions, which is to make sure that we're aligning our clinical capacity around those payers that not only pay the most, but really are good partners that give us the opportunity to drive great clinical outcomes, appropriate gross margins, Matt highlighted in his comments gross margins in the 43% to 44%. I think you can see that in our Q4 results that you can see that we're already have improved gross margins. And then the cash collections of this business is a and MedSolutions is a tough cash collection. So part of what we are evaluating in our customers is are you gonna pay us in an appropriate amount of time? So making sure that not only our clinical outcomes in line, but financial outcomes in line, but also cash collections. So you know, as we did with home health and hospice, you know, we'll narrow our network, we'll align our capacity with a narrowed network. You'll see in our investor deck that I think we're gonna post tomorrow that we've identified seventeen preferred payers in that business that we're aligning with those seventeen preferred payers first. We will continue as we execute the target operating model this year. We will broaden that preferred payer network. And I think, as Matt said, eighty-nine thousand UPS is probably a good number to anchor to in the near term. Probably Q1 and Q2. But you'll see that number get back to mid-single digit, high single digit growth of the back half of the year as we turn back on the growth curve and MedSolutions met with that.

Yeah. Yeah. Great question, Ben, there. I mean, I'll lead with, we are really excited about implementing our preferred payer strategy and our target operating model in medical solutions. To date, we have identified seventeen preferred payers in this business. And we've actually exited quite a few payer contracts that didn't fit our operating model. We do expect year-over-year volume growth to be relatively muted as we alluded to and as Jeff said so well just moments ago. But we do expect clinical outcomes to get better, margin expansion to happen, as well as cash collections to improve in that division as well. As we see UPS kind of settle and be negative, we will see positive revenue growth still as you can see in Q4 of 2024 as it already started to take hold and go into place. So we'll stay close to it. We'll update you guys as we go on. And throughout 2025, we'll give you an update on it.

Great. Really appreciate the background commentary there. And then just on the to follow-up on the macro, you know, Medicaid regulatory changes, I can certainly appreciate very quickly with a lot of moving pieces, but just with the broader headlines on potential program changes in Medicaid and more details come into the fold. Just curious kinda how you're approaching these policy discussions with your regulatory counterparts and you're finding them to be receptive to some of the changing dynamics on the provider side for Medicaid and CHIP?

Great. Great question, Ben. And, you know, I think it's while it still remains to be seen how this whole government-sponsored programs, you know, may be impacted by pending legislation? And we'll start with if at all. Right? Is it possible that core Medicaid programs are not touched at all? But with that being said, I think to your question, we at Aveanna Healthcare Holdings Inc. are fully aligned with the goals of the federal government, state governments, which is to be cost-efficient to produce high-quality outcomes for every dollar of healthcare spend. And I think if you think about Aveanna Healthcare Holdings Inc., that is exactly what Aveanna Healthcare Holdings Inc. does every day. We produce a cost, we are cost saver to federal and state governments. Have external show studies that show we save between $5,000 and $6,000 per day in our private duty nursing business for every day we keep medically complex pediatric patient at home and not in the NICU, PICU setting. So we're a major, major cost saver for the federal government and state governments. And so I think as this plays out, I think we are incredibly well-positioned. We have a great government affairs team. We continue to have great dialogue with our governors, both sides, Republicans and Democrats. We have great good dialogue with the new administration, with the new CMS team. And I think this is an area where Aveanna Healthcare Holdings Inc. ends up being on the right side of healthcare and being an ultimate winner. So we're excited about the things that are going on. We certainly look for certainty like the rest of the market does, but we're excited that Aveanna Healthcare Holdings Inc. ultimately will be a net winner with this. Thanks, Ben.

Great. Thanks for your time there.

Thank you. Our next question comes from the line of Scott Fidel with Stephens. Please proceed with your question.

Hi. Thanks. Good morning. Actually, gonna try to stick on that topic we're just on, on the Medicaid reform and Jeff, appreciate your sort of high-level observations there. Try to see if we could get you to maybe peel the onion back a little bit more and, you know, just as we think about, you know, some of the, you know, the different specific options that the GOP is considering. Obviously, it sort of changes every day, but, you know, as we think about for cap to caps and changes to test maps and provider tax reform, work requirements, you know, sort of the main options that they've been looking at, you know, that were also proposed by CBO. Could you give us your thoughts on, you know, which of those you would be, you know, sort of most supportive of or which of those you could see as more disruptive to the PDS part of the market?

Hey, Scott. Good morning. You know, one, it's difficult to speculate on the guessing game. And like you, we watch it every single day. You know, our team is in DC this week working with the industry, but so it's hard to speculate on what may or may not. I think at its core, though, the most important thing to remember is we've demonstrated with our preferred payers, with state governments, Georgia is a great example. Massachusetts, Oklahoma last year, Colorado, you can go on and on. That the more you can shift institutional spend to home care spend, the better off that we do, especially with our core PDN patient population because of how expensive the NICU PICU settings are. So the idea that we're able to shift, you know, $5,000 plus per day has really, really played out well for us over the last two years with the states that have leaned into us as well as preferred payers. So being a net cost saver to the system, we ultimately feel like what will be what will carry the day. We're prepared for different models, Scott. You know, there's different models play through. We're excited about the new Medicaid leader for CMS. You know, he comes from the state of Mississippi. Right? They have the highest FMAP percentage in the country. So we're excited to work with him and his team. We're also excited to work with the new CMS leader for Medicare. You know, we think got a great approach to how business should operate for the geriatric portion of America. So without commenting on any specific one potential if, and, but, our core of our company is built around the idea that we take patients out of the hospital and keep them at home. That's good for healthcare. It's good for cost savings. And it's good for patients and clinical outcomes. So again, we're underpinned with just the right mechanics as an organization. We're also nimble enough to be able to execute on opportunities that this administration may put forth, whether that's block grants or things. So we see it as an opportunity, not a risk. We see it as an opportunity to continue to execute on our strategy. Scott, I will say in the meantime, we're gonna control what we can control. So this management team has done a phenomenal job the last two years of just owning what we can control and leaving the noise outside of our business plan. And if you look at our 2025 business plan, the noise will eventually get sorted out. This team is gonna stay focused on executing our business plan that we know how to control. So in the short, we're gonna continue doing what we've done, which is just providing great clinical outcomes and great financial outcomes.

Okay. And then as my follow-up, just I was hoping if we can maybe drill in a bit more on the on sort of how what's implied in the revenue guidance for PDS revenue growth within that and how you're thinking about, you know, how that splits out between rate and volumes. And then even if you wanna get a little more detail on the rate side, you know, how that may break out on yields, how you're thinking about that between the states and then the MCOs as you guys continue to focus on the preferred payers. Thanks.

Yes, Scott. You know, as you look at in Q4, we had a lot of success with 4% volume growth and over 6% rate growth in our PDS segment. We do want to lob out there that we did have some rate enhancements or improvements that we looked at to be a little bit one-time in nature in there. We had a specific payer that was originally supposed to go live on 1/1 of 2025. And they ended up going live on 7/1 of 2024. So it was about a $3 million kind of retro rate increase in there. That dropped down to EBITDA, but really inflated our reimbursement rates as well. We expect this to be, you know, our guidance implies that 3%, 4%, 5% total revenue growth in our PDS segment. As we alluded to earlier, we like to be prudent. You might call it conservative. That's okay. And but we'll continue to update that as the year goes on. We do have really good line of sight from our momentum in 2024 with our rate enhancements that we had and our preferred payers. Jeff talked about it earlier, 50% MCO volume on our preferred payer. That's phenomenal to see. That will continue to grow throughout the year. And that will actually increase our reimbursement rates as well.

And, Scott, we, you know, we as we did last year, we went fourteen to twenty-two in the PDS. Preferred payers. We've set an internal goal to go from twenty-two to thirty. It's aggressive. In this year, but that's our team's goal internally. And as Matt talked about, you know, we've now tipped the 50% volume scale, and we expect that number to keep growing quarter by quarter. You know, I don't know it touches 60% this year, but it will get to the mid to high 50% this year, which is great. And then we haven't said it, but we feel confident on home health and hospice growth too. So you know, we're pleased with where we are in home health and you great clinical outcomes. If you saw our five-star ratings, we're off the charts. Our hospice HCAP scores are off the charts. So you know, we're in a growth-focused area in our home health and hospice team and really, really bullish on our team's ability to get to, you know, a 2%, 3% year-over-year, you know, organic growth rate in home health and would which would be really nice for that team.

Great. So thirty preferred payers by the end of 2025. Jeff, that's the new target?

That is our target. That is if you asked our preferred payer team internally, thirty is our target, and we've not set a specific target on the volume percentage, but I think it's broad to say that it'll be in the mid to fifties, you know, in 2025 and continues to show that we lean and shift our capacity toward those payers.

Okay. Thank you.

Thanks, Scott.

Thank you. Our next question comes from the line of Pito Chickering with Deutsche Bank. Please proceed with your question.

Hi there. You've got, like, Kieran Ryan on for Pito. Thanks for taking the question. I was just looking to go back to margins here. The guide calls for flat EBITDA margins at the midpoint, which I know you characterized as prudent. If we back out kind of the $6.5 million combined from those two one-offs in Q4, I'm getting to about 40 bps of margin expansion for 2025. Would you say that's about the right level on an underlying basis? And then is it fair to think that most of that would come from PDF and HHS just given the initiatives you have underway in MS? Thank you.

Yeah. Great question. And you nailed it kind of on the margin profile. Solutions side, though we might we'll have some more muted growth on there. But on private duty services, once you back out kind of that $6.5 million for the full year, and kind of leaving Triple H flat, we've expect margins to be relatively in line with 2024. Whenever we win rate increases, whenever we sign a new preferred payer, we take those dollars, we pass them down to our caregivers to really drive volume, and that's our goal is to provide more care, drive volume growth there, and then leverage that SG&A. We've talked about it over the past two years. Our teams have been very good at leveraging that, taking cost out, investing where we could need to be able to leverage that SG&A flow. So that 45 bps kind of that you alluded to on that EBITDA margin expansion really comes from SG&A leverage.

Got it. That's helpful. Thank you. And then just on the little bit slower growth in health and hospice in Q4, I was just wondering if you might be able to unpack that a little bit more. Does that have anything to do with how you're kind of ramping up on where you wanna be on the episodic mix already or was it just hiring, or is there any other dynamic we should be thinking about there? Thank you.

Great question, Kieran. No. As those well thought out. You know, a little bit of term, a little bit of noise in terms which that were open. You know, I think you heard of my voice. We're really excited. Obviously, we see the trends of the first two months, and 2025, and we're pleased with where we are today. It's certainly season for us in our Florida business, which is important. Right? We have to be ready to execute during season in Florida. But we're pleased with where that business is today. I'm pleased with the team that's leading that business. They have filled the majority of our open sales positions and are we're already starting to see some of that lift. Seventy-six percent is still a little bit hot for us. I think as, you know, Matt and I both said in our prepared remarks, seventy percent is our goal. Seventy seventy percent episodic is our goal. So, you know, as long as we're above that seventy percent, you know, we're pleased. And I think we could give up a few percentage points there to trade for organic growth. As I mentioned, where we sit today in our operating model, we wanna do tuck-ins. And so I think you'll see us do some tuck-ins this year in the home health business just so we can continue to bring people into our operating model with our clinical outcomes being where they are and our financial outcomes being where they are. It's too good not to expand this business geographically. So we're gonna stay focused on organic growth with our home health and hospice team. Again, I think we'll be in that 1% to 3% organic growth rate in 2025. But I think you'll see us tuck in a few markets and geographically expand our home health and hospice business. Thanks, Kieran.

Thank you. And we have reached the end of the question and answer session. I'd like to turn the floor back to Jeff Shaner for closing remarks.

Awesome. Thank you so much for your interest in our Aveanna Healthcare Holdings Inc. story, and we look forward to updating you on our continued progress at the end of Q1. You and have a great day.

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.