Aveanna Healthcare Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 1, 2022 (52 weeks), compared with the 53-week fiscal year ended January 2, 2021. Aveanna provides private duty services (PDS), home health and hospice (HHH), and medical solutions (MS) in 33 states. The company completed its IPO in May 2021.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,678.6 million | $1,495.1 million |
| Gross margin | $542.4 million; 32.3% | $454.5 million; 30.4% |
| Field contribution and margin (non-GAAP) | $245.0 million; 14.6% | $213.6 million; 14.3% |
| Operating loss | $36.1 million | $3.5 million |
| Net loss | $117.0 million; $0.69 per share | $57.1 million; $0.40 per share |
| Adjusted EBITDA (non-GAAP) | $184.2 million | $152.4 million |
| Cash from operating activities | $(11.4) million | $116.6 million |
| Cash and cash equivalents at year-end | $30.5 million | $137.3 million |
Revenue rose 12.3%. By segment, PDS revenue increased 2.1% to $1,358.1 million, HHH increased to $177.3 million from $31.2 million, and MS increased 6.7% to $143.2 million. HHH growth primarily reflected acquisitions and a fuller year of operations. PDS care hours were essentially flat; management attributed weaker organic volume to caregiver shortages, COVID-19 and vaccine mandates, partly offset by acquisitions and higher reimbursement rates. MS patient volume rose 4.1%.
Gross margin percentage improved, but branch and regional administrative expense rose faster than revenue, to 17.7% of revenue from 16.1%. The $117.7 million goodwill impairment charge was a major driver of the larger operating and net losses. Net loss also reflected the absence of the prior-year $50.0 million legal settlement and a $13.7 million debt-extinguishment loss.
Liquidity, debt and cash flow
- Year-end debt and securitization obligations totaled approximately $1,392.9 million, including $857.9 million under the extended first-lien term loan, $415.0 million under a new second-lien term loan, and $120.0 million drawn on the receivables securitization facility.
- Reported total liquidity was $242.9 million: $30.5 million cash, $182.4 million available under the revolving credit facility, and $30.0 million available under the securitization facility. The $200 million revolver was undrawn; letters of credit reduced availability.
- Operating cash flow was negative $11.4 million, while investing cash use was $681.8 million, including $666.9 million of acquisitions. Financing provided $586.3 million, including $477.7 million of net IPO proceeds.
- Patient accounts receivable rose to $218.9 million from $172.9 million. Days sales outstanding increased from 38.3 at FY2020 year-end to 44.9 at FY2021 year-end.
- Variable-rate debt exposure is material. Management estimated a 100-basis-point rate increase would add about $5.7 million in annual interest expense after swaps. A $520 million swap notional hedged part of the exposure; the company subsequently entered into $880 million of interest rate caps, with a 3% cap rate, in February 2022.
Material changes, outlook and risks
- Acquisitions and financing: FY2021 acquisitions included Doctor’s Choice, Accredited Nursing Services and Comfort Care. The company funded growth partly through its IPO and new debt. Acquisition-related integration, billing and collection execution remain relevant risks.
- Goodwill impairment: Aveanna recorded a $117.7 million impairment in four PDS reporting units, citing COVID-related caregiver constraints and pressure on volume growth. Goodwill and intangible assets represented approximately 79% of total assets at year-end.
- Workforce and COVID-19: Management reported recruitment and retention pressures, lower organic PDS volumes, and $15.7 million of incremental COVID-related patient-service costs in FY2021. It expected some pandemic, staffing and compliance costs to continue in FY2022; it provided no quantified FY2022 revenue or earnings guidance in the filing.
- Management liquidity view: The company stated that operating cash flows, cash on hand and available borrowing capacity should meet requirements for the next 12 months. That assessment depends on collections, operating performance, debt service and acquisition needs.
- Reimbursement and regulation: Medicaid and Medicaid managed care together generated 78.2% of FY2021 revenue; Medicare generated 10.7%. Rate changes, payer contracting, documentation and electronic visit verification requirements, audits, and delayed or recouped payments could affect revenue, collections and liquidity.
- Contingencies: Disclosed matters include a DOJ Antitrust Division investigation concerning nurse wages, reimbursement rates and hiring in certain markets; ongoing acquisition-related litigation and disputed tax-refund/escrow matters; and a disputed potential $75 million termination fee related to an abandoned transaction. The company said it could not estimate potential loss for certain matters. A prior data breach also led to a class-action complaint and regulatory inquiries, with outcomes not yet predictable.
- Other risks: High leverage and floating-rate exposure, competition for caregivers, payer concentration, cybersecurity, healthcare regulation and further goodwill impairment are significant risks. The company was in compliance with debt covenants at year-end and reported an unqualified audit opinion. The auditor identified revenue recognition estimates and goodwill impairment as critical audit matters. Management’s internal-control assessment was not included because of the transition period for newly public companies.
Important facts for investors to verify
- Whether PDS staffed hours, caregiver availability and organic patient volumes recover, and whether reimbursement increases keep pace with labor costs.
- Whether higher receivables and DSO convert to cash, and whether operating cash flow improves after acquisition-related spending and deferred payroll tax payments.
- Debt balances, interest expense, refinancing terms and covenant headroom; also verify the effect of rate caps and the transition from LIBOR-based benchmarks.
- Acquisition integration performance, including the acquired businesses’ contribution to margins, cash generation and reported HHH growth.
- Potential additional goodwill impairment and the resolution or financial effect of disclosed litigation, regulatory inquiries and the prior data breach.
- Future Medicare and Medicaid reimbursement changes, including sequestration reductions and home-health payment-model adjustments.