Earnings call transcript: Aveanna Healthcare Q4 2024 exceeds expectations

Aveanna Healthcare Holdings Inc (AVAH), a healthcare services provider with a market capitalization of nearly $980 million, reported stronger-than-expected financial results for the fourth quarter of 2024, with earnings per share (EPS) reaching $0.05, surpassing the forecasted loss of $0.003. Revenue also exceeded expectations, coming in at $519.9 million against a forecast of $499.07 million. Following the announcement, Aveanna’s stock surged by 37.18% in pre-market trading, reflecting investor optimism. According to InvestingPro, the stock has shown significant volatility, with a beta of 2.25, making it more than twice as reactive to market movements as the average stock.

Key Takeaways

• Aveanna’s Q4 2024 EPS of $0.05 beat the forecasted loss of $0.003.
• Revenue for Q4 2024 was $519.9 million, exceeding the forecast of $499.07 million.
• The stock price increased by 37.18% in pre-market trading.
• Private Duty Services saw significant growth of 10.1%.
• The company is focusing on a preferred payer strategy to drive future growth.

Company Performance

Aveanna Healthcare Holdings demonstrated robust performance in Q4 2024, with a revenue increase of 8.6% year-over-year. The company achieved growth across all its operating divisions, with Private Duty Services leading at 10.1%. This performance underscores Aveanna’s strategic focus on enhancing its service offerings and expanding its payer agreements, which are pivotal in its growth trajectory. InvestingPro analysis reveals the company maintains a solid gross profit margin of 30.9%, though it currently operates with a significant debt-to-capital ratio of 0.68.

Financial Highlights

• Revenue: $520 million, up 8.6% year-over-year.
• Full Year 2024 Revenue: $2.024 billion, up 6.8% year-over-year.
• Adjusted EBITDA for Q4: $55.2 million, up 42.6% year-over-year.
• Full Year 2024 Adjusted EBITDA: $183.5 million, up 31.8% year-over-year.

Earnings vs. Forecast

Aveanna’s Q4 2024 EPS of $0.05 significantly outperformed the forecasted loss of $0.003, marking a positive surprise for investors. Revenue also surpassed expectations, coming in at $519.9 million compared to the $499.07 million forecast. This beat reflects the company’s effective operational strategies and its ability to capitalize on market opportunities.

Market Reaction

Following the earnings announcement, Aveanna’s stock price surged by 37.18%, reaching a level significantly higher than its last close of $3.74. This sharp increase reflects strong investor confidence in the company’s future prospects, bolstered by the positive earnings surprise and strategic initiatives. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value after this rally. Subscribers to InvestingPro can access detailed valuation metrics and 5 additional ProTips to make more informed investment decisions.

Outlook & Guidance

Aveanna projects its 2025 revenue to be between $2.100 billion and $2.120 billion, with adjusted EBITDA expected to range from $190 million to $194 million. The company anticipates continued growth in its Private Duty Services segment and plans to expand its preferred payer agreements, aiming for 30 by the end of 2025. Analyst consensus compiled by InvestingPro shows mixed sentiment, with price targets ranging from $3.20 to $7.00 per share. Get access to the comprehensive Pro Research Report, available for AVAH and 1,400+ other US stocks, offering deep-dive analysis and actionable insights for informed investment decisions.

Executive Commentary

CEO Jeff Schaner highlighted the company’s role in cost-saving for government healthcare systems, stating, "We produce a cost we are cost saver to federal and state governments." He also emphasized the focus on improving clinical outcomes and customer service while maintaining margins: "Our goal is to improve clinical outcomes and customer service, while protecting our margins and collecting our cash."

Risks and Challenges

• Potential regulatory changes could impact reimbursement rates.
• The need to maintain high caregiver retention amidst labor market fluctuations.
• Execution risks associated with expanding the preferred payer strategy.
• Economic uncertainties that might affect healthcare spending.

Q&A

During the earnings call, analysts inquired about the potential impacts of Medicaid reform and the company’s margin expansion strategy. Executives also addressed plans for potential tuck-in acquisitions to complement existing growth initiatives.

Aveanna Healthcare’s strong Q4 performance and strategic focus on payer agreements position it well for future growth, as reflected in the positive market response to its earnings report.

Full transcript - Aveanna Healthcare Holdings Inc (AVAH) Q4 2024:

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

Debbie Stewart, Chief Accounting Officer, Aviana Healthcare Holdings: Good morning, and welcome to Aviana’s fourth quarter twenty twenty four earnings call. I am Debbie Stewart, the company’s Chief Accounting Officer. With me today is Jeff Schaner, 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, avianna.com, and in our most recent annual report on Form 10 K when filed. With that, I will turn the call over to Avianna’s Chief Executive Officer, Jeff Schaner.

Jeff?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: 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 Avianna 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 $520,000,000 representing an 8.6% increase over the prior year period. Fourth quarter adjusted EBITDA was 55,200,000 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 $2,024,000,000 representing a 6.8 increase over the prior year and full year 2024 adjusted EBITDA was $183,500,000 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 Avianna resume the growth trajectory that we believed our company could achieve. It is important to note that our industry does not have a demand problem. The demand for home and community based care continues to be strong with both state and federal governments and managed care organizations asking for solutions that can create more capacity while reducing the total cost of care.

Our Q4 and full year 2024 results highlight that we continue to align our objectives with those of our preferred payers and government partners. By focusing our clinical capacity on our preferred payers, we achieved solid year over year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value based agreements. While we continue to operate in a challenging environment, our preferred payer strategy allows us to return to a more normalized growth rate in our business segments. Since our third quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and preferred payers as well as continued signs of improvement in the caregiver labor market.

Specifically, as it relates to our private duty services business, our goal for 2024 was to execute on our legislative strategy to improve reimbursement rates in our various states with a particular emphasis on Georgia, Massachusetts and California. As we previously reported, we secured double digit rate improvements in both Georgia and Massachusetts effective the second half of twenty twenty four. These states demonstrate our government affairs strategy to partner with state legislatures and governors to identify shortfalls in private duty nursing wages and to align reimbursement rates to improve access to care for patients with complex medical conditions. We continue to experience accelerated caregiver hiring trends, patient discharge from the children’s hospitals and improved staffing levels in both Georgia and Massachusetts. In total, we secured 12 private duty services state rate increases for the full year 2024.

Now moving to our preferred payer initiatives in other states. Our goal for 2024 was to increase the number of private duty services preferred pay agreements from 14 to 22. We added eight additional preferred pay agreements in 2024, achieving our goal of ’22 sorry, achieving our goal of 2022. I am proud of our payer relations teams as they continue to develop partnerships with managed care organizations to find solutions for children with complex medical conditions. Avianna’s preferred payer strategy is gaining momentum and allowing us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses to our patients.

Additionally, our Q4 preferred payer agreements account for approximately 50% of our total PDS MCO volumes, up from 47% in Q3. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our PDS preferred payer partners. Moving to our preferred payer progress in home health. Our goal for 2024 was to maintain our episodic payer mix above 70%, while returning to a more normalized growth rate. In Q4, our episodic mix was 76%.

However, our total episodic dining growth was slightly lower as compared to prior year period. We ended 2024 with a total of 38 episodic agreements and are well positioned for growth in 2025. We are committed to growing our home health volumes and I expect us to return to positive year over year growth trends in the first half of twenty twenty five. We will remain focused on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis and focus on improved clinical and financial outcomes. Finally, as we have achieved our desired preferred payer model in both private duty services and home health and hospice, we have embarked on a similar strategy in our Medical Solutions business.

We are in the early stages of implementing our preferred payer strategy in Medical Solutions and believe it will be fully realized by the end of twenty twenty five. As the nation’s leading provider of intra nutrition, it is critical for us to ensure our capacity is aligned with those payers who value our services and partnership. Our goal is to improve clinical outcomes and customer service, while protecting our margins and collecting our cash. We do expect volume growth to be muted throughout 2025 as we achieve the realization of our medical solutions target operating model. Matt will comment further on how we think about margins and volumes in Medical Solutions moving forward.

I look forward to updating you on our progress in coming quarters similarly as we have in our PDS and HHH segments. We are encouraged by our twenty twenty four rate increases, preferred payer agreements and subsequent recruiting results. Our business has demonstrated solid signs of recovery as we achieve our rate goals previously discussed. Home and community care home and community based care will continue to grow and Avianna is a comprehensive platform with a diverse payer base providing a cost effective, high quality alternative to higher cost care settings. And most importantly, we provide this care in the most desirable setting, the comfort of the patient’s home.

Before I turn the call over to Matt, let me comment on our strategic plan and initial outlook for 2025. We will continue to focus our efforts on five primary strategic initiatives in 2025. First, enhancing partnerships with government partners and preferred payers to create additional capacity and growth. Second, identifying cost efficiencies and synergies that allow us to leverage our growth third, modernizing our medical solutions business to achieve our target operating model fourth, managing our capital structure and collecting our cash while producing positive free cash flow and finally, engaging our leaders and employees and delivering our Avianna mission. Based on the strength of our fourth quarter and full year 2024 results and the continued execution of our key strategic initiatives, we anticipate 2025 revenue range of $2,100,000,000 dollars to $2,120,000,000 and adjusted EBITDA range of $190,000,000 to $194,000,000 We believe this initial $2,025,000,000 dollars outlook provides a prudent view considering the challenges we still face with the evolving environment.

In closing, I’m incredibly proud of our Avianna team and their dedication to executing our strategic transformation, while holding our mission at the core of everything we do. We offer a cost effective, patient preferred and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources and government partners. With that, let me turn the call over to Matt to provide further details on the quarter and our 2025 outlook. Matt?

Matt Buckhalter, Chief Financial Officer, Aviana 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 output for 2025. Starting with the top line, we saw revenues rise 8.6% over the prior year period to $520,000,000 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%, four point eight % and zero point six % compared to the prior year quarter. Consolidated gross margin was $171,700,000 or 33%. Consolidated adjusted EBITDA was $55,200,000 a 42.6% increase as compared to the prior year, reflecting the Amparoo payer rating environment as well as cost reduction efforts taking hold.

As Jeff mentioned, Q4 benefited from a timing related rate enhancement in our PDS segment, which had a positive EBITDA impact of approximately $3,000,000 Additionally, Q4 saw a favorable true up in our insurance reserves and this adjustment contributed approximately $3,500,000 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 $422,200,000 a 10.1% increase and was driven by approximately ten point five 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 acceptable reimbursement rates. Turning to our cost of labor and gross margin metrics. We achieved $123,600,000 of gross margin or 29.3%.

The cost of revenue rate of $28.47 in Q4 was down slightly from Q3. Despite ongoing wage pressures in the labor markets, our Q4 spread per hour was $11.79 We expect spread per hour to normalize in the $10 to $10.5 range moving forward. Moving on to our Home Health and Hospice segment. Revenue for the quarter was approximately $54,400,000 a 0.6% increase over the prior year. Revenue was driven by 8,500 total admissions with approximately 76% being episodic and 11,200 total episodes of care down approximately 1% from the prior year quarter.

Medicare revenue per episode for the quarter was $3,128 up 2.1% from the prior year quarter. We continue to focus on rightsizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admission well over seventy percent, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings. We are committed to a disciplined approach to growth, while shifting our capacity to those payers who value our clinical resources.

We’re pleased with our Q4 gross margin of 53.2%, up 2.3% over the prior year period and representing our continued focus on cost initiatives to achieve our targeted margin profile. Our Home Health and Hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now to our Medical Solutions segment results for Q4. During the quarter, we produced revenue of $43,300,000 a 4.8% increase over the prior year. Revenue was driven by approximately 89,000 unique patients served, a 1% decrease over the prior year period and revenue per UPS of approximately $486 up 5.9% over the prior year period.

Gross margins were approximately $19,200,000 or 44.3% for the quarter, up 10.5% over the prior year period. As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model. We are accelerating our preferred payer strategy and medical solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect gross margin to normalize in the 43% to 44% range and UPS to settle around the $89,000 per quarter before returning to a more normalized growth rate. We will continue to update you on our progress as we execute on this initiative.

In summary, we continue to fight through a difficult labor environment, while keeping our patients care at the center of everything we do. It is clear to us that shifting caregiver capacity to those preferred payers who value our partnership is the path forward at Aviano. Our primary challenge continues to be reimbursement rates. With the positive momentum we experienced in 2024, we remain optimistic that such trends will continue into 2025. As we continue to make progress with the rate environment, we’ll pass through wage improvement and other benefits to our caregivers and the ongoing effort to better improve volumes.

Now moving on to our balance sheet and liquidity. At the end of the fourth quarter, we had liquidity of approximately $260,000,000 representing cash on hand of approximately $84,000,000 30 8 million dollars of availability under our securitization facility and approximately $138,000,000 of availability on our revolver, which was undrawn as of the end of the quarter. We had $32,000,000 in outstanding letters of credit at the end of Q4. Our ample liquidity provides room to operate the business and invest in the company to support our continued growth. On the debt service front, we had approximately $1,480,000,000 of variable rate debt at the end of Q4.

Of this amount, $520,000,000 is hedged with fixed rate swaps and $880,000,000 is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable rate debt is hedged. Our interest rate swaps extend through June 2026 and our interest rate caps extend through February 2027. As a reminder, we have no material term loan maturities until July 2028. Lastly, in early Q4, we successfully extended our revolving credit facility ensuring that we have ample access to liquidity to support our continued growth.

Looking at year to date cash flow, cash provided by operating activities was $32,600,000 and free cash flow was approximately $25,700,000 We expect to see continued cash flow benefits as our top line and cost management initiatives come to fruition in 2025. Before I hand the call over to the operator for Q and A, let me take a moment to address our initial outlook for 2025. As Jeff mentioned, we expect full year revenue range of $2,100,000,000 to $2,120,000,000 and adjusted EBITDA range of 190,000,000 to $194,000,000 dollars I’d like to highlight that our guidance includes a fifty third week in Q4, which is expected to contribute additional revenue to our overall results for the year. As a reminder, Q1 generally sees lower performance due to payroll taxes and post holiday seasonality. However, we expect EBITDA to build into Q2 and into the second half of twenty twenty five.

We believe this outlook is prudent and hopefully proves to be conservative as the year progresses. As we reflect on our 2024 results, I’d like to take a moment to express my sincere gratitude to all of our Avianna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I’m excited for the execution of our 2025 strategic plan and look forward to providing you with further updates at the end of Q1. With that, let me turn the call over to the operator.

Conference Operator: Thank And our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Megan Holt, Analyst, Jefferies: Good morning, guys. This is Megan Holt on 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 five previously?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Hey, Megan, good morning. Thank you. And thanks for getting us started. I think our thoughts today on guidance is to continue to stay in the mode that we’ve operated as a management team in the last two years. We’ve gotten very comfortable with the expectations of beaten rate and we like to stay as that team that sets prudent.

We use the word prudent versus conservative. You can use the word conservative if you like, but we 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, Avianna. Matt, you want to think through, talk through?

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes, Meghan. We’re really excited to continue executing on our 2025 strategic plan. We have 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.

I will throw a little bit of plug in there and just reiterate Q1 does have some seasonality in our EBITDA numbers itself 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 it build in Q2 and then the back half of 2025.

Megan Holt, Analyst, Jefferies: Okay, thanks. And just as a quick follow-up, you guys have commented on looking to turn M and 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?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: That’s a great question. And we continue to have a prudent view of M and A. We’re focused on our home health specific and our private duty services business as it relates to tuck in M and A. We probably won’t be in the medical solutions M and A focused in 2024, ’20 ’20 ’5 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 Med Solutions.

So we’re going to stay focused on home health specifically and private duty services, both skilled and unskilled in that business unit. I will say we plan to stay within our capital structure, right? So we’ve ample liquidity within our current capital structure, but think of us being a tuck in oriented acquirer in 2025 and 2026. But we as we said in 2024, we do expect to be back in the acquisition business in fiscal year twenty twenty five. So more to come as the year plays out, but great question, Meghan.

Megan Holt, Analyst, Jefferies: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Ben Hendricks with RBC Capital Markets. Please proceed with your question.

Michael Murray, Analyst, RBC Capital Markets: Hi. This is Michael Murray on for Ben. Congrats on the quarter. Just drilling down into the PDS 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?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Yes, I think as Matt, by the way, great question. I think as Matt laid out, we’ve got great rate clarity in all of our businesses, but specifically PDS for 2025. So that’s I think the really good news is, we had a lot of momentum in the second half of twenty twenty four that is carrying through 2025 and our 12 state rate 12 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 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 season 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.

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes. I mean, spread per hour, we believe we’ll be back in that $10 to $10.5 range. That’s a great core area for us. I pointed out those two kind of 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 FutaSudone in Q1, it kind of picks up in the back half of the year. There’s some holiday payroll differentials, PTO utilization in there and Q4 as well. But for the entire totality for 2025, I would sit between that $10 and $10.5 range.

Michael Murray, Analyst, RBC Capital Markets: That’s helpful. And just as your cash flow increases, how are you thinking about capital allocation? I know you touched on M and A. If the right opportunity presented itself, what sort of leverage would you be comfortable going up to? Thank you.

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes. I mean, we’re really excited about where we’ve been as an organization and deleveraging significantly. If you look at our deleveraging profile over the past twenty four months, 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 look to that being a very realistic expectation for us in 2025 as well.

We are obviously very pleased with our Q4 and full year 2024 operating and free cash flow. This was driven by a lot of rate improvements, great operational efficiencies from our team, cost management 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 tax payer 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 TPL season. It enhances or extends out our collection cycle. And so we’ll have a pretty significant negative in Q1, but then continue to build in the sequential quarters.

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: And I think as you think about you said it, 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 and A strategy, I mean, we are well, well, well positioned in home health and hospice and in private duty services to being acquired. And I think Matt said it well, we 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.

Michael Murray, Analyst, RBC Capital Markets: All right. Thanks so much.

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

Benjamin Rossi, Analyst, JPMorgan Chase and Company: Hey, hey, thanks for the question. Just regarding your medical solutions payer strategy, you mentioned the comments on the segment modernization as you expect this process during 2025 and the expected 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?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Yes. Ben, good morning. It’s a great question. Yes, I think as you look back or we would say look backwards 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, same thing to align with our preferred payers and ultimately to improve clinical outcomes and right size margins both gross and contribution margins.

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% range. I think you can see that in our Q4 results that you can see that we already have improved gross margins. And then the cash collections of this business is a Med Solutions is a tough cash collection. So part of what we are evaluating in our customers is, are you going to 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 collection. So as we did with home health and hospice, 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 going to post tomorrow that we’ve identified 17 preferred payers in that business that we’re aligning with those 17 preferred payers first. And 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, 89,000 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 at the back half of the year as we turn back on the growth curve in MedSolutions. Matt, would that

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes. Great question, Ben, there. I mean, I’ll lead with we are really excited about implementing our preferred payer strategy and our target operating on model medical solutions. To date, we have identified 17 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 twenty twenty four 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.

Benjamin Rossi, Analyst, JPMorgan Chase and Company: Great. Really appreciate the background commentary there. And then just on a follow-up on the macro, 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 kind of how you’re approaching these policy discussions with your regulatory counterparts and are you finding them to be receptive to some of the changing dynamics on the provider side for Medicaid and CHIP?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Great question, Ben. I think while it still remains to be seen how this whole government sponsored programs may be impacted by pending legislation and we’ll start with if at all, right? It’s possible that core Medicaid programs are not touched at all. But with that being said, I think to your question, we at Avianna are fully aligned with the goals of the federal government, state governments, which is to be cost efficient and to produce high quality outcomes for every dollar of healthcare spend. And I think if you think about Avianna, that is exactly what Avianna does every day.

We produce a cost we are cost saver to federal and state governments. We have external studies that show we save between $5,000 and $6,000 per day in our private duty nursing business for every day we keep a medically complex pediatric patient at home and not in a 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 Avianna 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 Avianna ultimately will be a net winner with this.

Thanks, Ben.

Benjamin Rossi, Analyst, JPMorgan Chase and Company: Great. Thanks for your comments there.

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

Scott Fidel, Analyst, Stephens: Hi, thanks. Good morning. Actually going to try to stick on that topic we’re just on the Medicaid reform. And Jeff, appreciate your sort of high level observations there. Going to try to see if we can get you to maybe peel the onion back a little bit more and just as we think about some of the different specific options that the GOP is considering, obviously, it sort of changes every day.

But as we think about for capital caps and changes to TEP maps and provider tax reform, work requirements, sort of the main options that they’ve been looking at that were also proposed by CDO. Can you give us your thoughts on which of those you would be sort of most supportive of or which of those you could see as more disruptive to the PDS part of the market?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Hey, Scott, good morning. One, it’s difficult to speculate on the guessing game. And like you, we watch it every single day. Our team is in D. C.

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 5,000 plus a 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. There’s different models play through. We’re excited about the new Medicaid leader for CMS. 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. We think he’s got a great approach to how business should operate for the geriatric portfoliation in 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 other 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 going to 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 going to stay focused on executing our business plan that we know how to control. So in the short term, we’re going to continue doing what we’ve done, which is just providing great clinical outcomes and great financial outcomes.

Scott Fidel, Analyst, Stephens: 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 how that splits out between rate and vols? And then even if you want to get a little more detail on the rate side, 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.

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes, Scott. 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 oneone of twenty five and they ended up going live on sevenone of twenty four. So it was about a $3,000,000 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 our guidance implies that 3%, four %, five % kind of 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.

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: And Scott, as we did last year, we went 14% to 22% in the PDS preferred payers. We’ve set an internal goal to go from 22% to 30%. It’s aggressive in this year, but that’s our team’s goal internally. And as Matt talked about, we’ve now tipped the 50% volume scale and we expect that number to keep growing quarter by quarter. 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 we’re pleased with where we are in home health and hospice. Gross margins of 53%, great clinical outcomes if you saw our five star ratings were off the charts. Our hospice HCAHPS scores are off the charts. So 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 a 2%, three % year over year organic growth rate in home health and hospice, which would be really nice for that team.

Conference Operator: All right.

Scott Fidel, Analyst, Stephens: So 30 preferred payers by the end of twenty twenty five, Jeff, that’s the new target?

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: That is our target that is if you asked our preferred payer team internally, 30 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 50s in 2025 and continues to show that we lean and shift our capacity towards those payers.

Conference Operator: Okay. Thank you.

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Thanks, Scott.

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

Kieran Ryan, Analyst, Deutsche Bank: Hi, there. You’ve got 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 $6,500,000 combined from those two one offs in 4Q, 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 PDS and HHH just given the initiatives you have underway in MS?

Matt Buckhalter, Chief Financial Officer, Aviana Healthcare Holdings: Yes, great question. And you nailed it kind of on the margin profile itself. We do expect a little bit of increase in margin on the medical solution side that we might we’ll have some more muted growth on there. But on private duty services, once you back out kind of that $6,500,000 for the full year and kind of leaving Triple H flat, we 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 and 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 and A. We’ve talked about it over the past two years. Our teams have been very, very good at leveraging that, taking cost out, investing where we could need to be able to leverage that SG and A flow. So that 45 bps kind of that you alluded to on that EBITDA margin expansion really comes from SG and A leverage.

Kieran Ryan, Analyst, Deutsche Bank: Got it. That’s helpful. Thank you. And then just on the little bit slower growth in home health and hospice in 4Q, 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 standing up on where you want to 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.

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Great question, Kieran. That was well thought out. A little bit of noise and turbulence in Q4 that we had to work through. We had a few sales positions in key markets that were open. I think you heard in my voice, we’re really excited.

Obviously, we see the trends of the first two months in ’twenty five 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. 76% is still a little bit hot for us. I think as Matt and I both said in our prepared remarks, 70% is our goal, 70% episodic is our goal. So as long as we’re above that 70%, 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 want to 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 going to 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.

Conference Operator: Thank you. And we have reached the end of the question and answer session. I’d like to turn the floor back to Jeff Schaner for closing remarks.

Jeff Schaner, Chief Executive Officer, Aviana Healthcare Holdings: Awesome. Thank you so much for your interest in our Avianna story and we look forward to updating you on our continued progress at the end of Q1. Thank you and have a great

Conference Operator: day. And this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

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