Aveanna Healthcare Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: 13 weeks ended April 2, 2022; comparative period ended April 3, 2021. Financial statements are unaudited. Aveanna provides pediatric and adult home healthcare, home health and hospice, and medical products through Private Duty Services (PDS), Home Health & Hospice (HHH), and Medical Solutions (MS).
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $450.5 million | $417.2 million | +8.0% |
| Gross margin | $144.8 million; 32.1% | $131.7 million; 31.6% | +10.0%; +0.5 percentage points |
| Operating income | $13.8 million; 3.1% | $28.3 million; 6.8% | -51.3% |
| Net income | $25.3 million; $0.14 per diluted share | $5.8 million; $0.04 per diluted share | +$19.5 million |
| Adjusted EBITDA | $38.0 million | $43.7 million | -13.2% |
| Cash from operating activities | $(9.5) million | $(32.9) million | $23.4 million less cash used |
Q1 2022 net income included a substantial non-cash benefit from derivative fair-value changes: the company reported $36.5 million of other income, including $38.3 million of derivative valuation gains. Operating income and Adjusted EBITDA declined despite revenue growth.
At April 2, 2022, cash was $17.4 million, versus $30.5 million at January 1, 2022. Total liquidity, as defined by the company, was $209.9 million, including $182.4 million available under the revolving facility and $10.0 million under the securitization facility. Debt principal was approximately $1.411 billion, including $1.271 billion of term loans and $140.0 million of securitization borrowings. The company reported compliance with its debt covenants. Current liabilities were $367.8 million and total liabilities were $1.708 billion.
Material changes and operating trends
- HHH revenue more than doubled to $66.6 million, primarily reflecting the 2021 Doctor’s Choice and Comfort Care acquisitions. HHH gross margin was 48.7%, up from 45.0%.
- PDS revenue was nearly flat at $350.2 million. Care hours fell 3.0%, partly offset by a 2.8% increase in revenue rate; management cited COVID-related workforce pressure and caregiver recruitment and retention challenges.
- MS revenue fell 3.1% to $33.7 million. Revenue rate declined 9.9%, which management attributed to payer rate reductions and product recalls affecting order fulfillment; unique patients served increased 6.8%.
- Consolidated gross margin percentage improved, but field contribution fell 10.0% to $56.1 million and its margin declined to 12.4% from 14.9%. Branch and regional administrative expenses rose 27.9%, faster than revenue, while corporate expenses rose 33.5%.
- Days sales outstanding increased to 46.5 days from 44.9 at January 1, 2022 and 40.2 a year earlier. Patient accounts receivable was $240.9 million, up from $218.9 million at fiscal year-end.
Outlook, risks and unusual items
- Management expects incremental COVID-related costs to continue declining during the rest of fiscal 2022, while cautioning that the evolving pandemic could change that outlook. Q1 incremental COVID-related patient-service costs were $3.3 million, down from $12.6 million in Q4 2021.
- Management stated that operating cash flow, cash on hand, and available facilities should cover cash requirements for the next 12 months. It also expects to repay $25.5 million of deferred payroll taxes by December 2022 and the remaining $2.8 million of acquired Medicare advances during fiscal 2022. These are expectations, not earnings guidance; the filing provides no specific revenue or earnings forecast.
- Interest-rate exposure is significant: a 100-basis-point increase was estimated to raise annual interest expense by approximately $8.5 million after considering swaps. The company also described uncertainty from the transition away from LIBOR.
- Key business risks include caregiver availability and labor costs, reimbursement and payer changes, collections and accounts-receivable delays, acquisition integration, substantial debt, and COVID-19 effects. Management reported that COVID-related workforce pressure affected operations.
- Contingencies include a DOJ Antitrust Division investigation involving nurse wages, reimbursement rates, and hiring in certain markets; management said it could not predict the outcome or any potential loss. The company also described acquisition-related litigation, including a disputed potential $75 million termination fee and a separate case in which it seeks $24 million to $50 million in damages; outcomes and any losses or recoveries remain uncertain.
- Other notable items include $3.1 million of state ARPA funds recognized as revenue and derivative valuation gains that materially boosted reported net income. The filing states that disclosure controls were effective at a reasonable-assurance level and that there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether improved revenue and gross margin translate into stronger field contribution and Adjusted EBITDA as acquisition integration and corporate costs evolve.
- Whether negative operating cash flow, rising DSO, and higher receivables reflect timing or persist as collection and liquidity pressures.
- The durability of payer rate increases and state ARPA support, and the effect of Medicaid, Medicare, and sequestration changes on reimbursement.
- How caregiver recruitment, retention, wage inflation, and COVID-related costs affect service volumes and margins.
- The sensitivity of interest expense and liquidity to higher rates, debt maturities, LIBOR transition, and repayment obligations.
- Developments in the DOJ inquiry and acquisition-related litigation, including any material change in estimated exposure.