Aveanna Healthcare Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: 13 weeks ended March 30, 2024; comparable period was 13 weeks ended April 1, 2023. Aveanna provides pediatric and adult home-based care through Private Duty Services (PDS), Home Health & Hospice (HHH), and Medical Solutions (MS).
Financial performance
| Metric | Q1 2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $490.7 million | $466.4 million | +5.2% |
| Gross profit / margin | $145.9 million / 29.7% | $144.5 million / 31.0% | Profit +1.0%; margin −1.3 percentage points |
| Operating income / margin | $22.9 million / 4.7% | $17.6 million / 3.8% | +29.6% |
| Net loss | $11.2 million | $32.0 million | Loss narrowed $20.8 million |
| Adjusted EBITDA | $34.9 million | $28.5 million | +22.5% |
| Operating cash flow | $(12.0) million | $7.5 million | Down $19.5 million |
Revenue growth came from PDS (+5.9%) and MS (+9.9%); HHH revenue fell 2.7%. PDS hours grew 4.9%, but its cost-of-revenue rate rose faster than its revenue rate, compressing segment gross margin to 25.4% from 27.9%. HHH gross margin improved to 53.1% from 44.6%, despite lower admissions and revenue. MS revenue grew with higher patient volume and rate.
Branch and regional administrative expenses declined 4.1%, helping lift Field contribution to $57.9 million from $52.8 million and its margin to 11.8% from 11.3%. The company recorded $2.3 million of other operating expense, primarily an impairment of a facility lease asset.
Net loss improvement was substantially affected by derivative-related other income: $18.2 million in Q1 2024 versus $12.2 million of other expense a year earlier. Current-quarter other income included $8.3 million of non-cash derivative valuation gains and $9.6 million of net settlements. Interest expense, net, increased 10.2% to $39.5 million. Income tax expense rose to $12.7 million despite pretax income of $1.5 million; the company cites non-deductible expenses, notably interest, and valuation allowance changes. The reported effective tax rate was 849.8%.
Cash, debt and liquidity
Cash was $42.6 million at March 30, 2024, versus $43.9 million at December 30, 2023. Patient accounts receivable increased to $257.5 million from $236.6 million; DSO was 45.8 days, compared with 44.9 days at year-end. Operating cash use reflected working-capital timing and the prior-year benefit of deferred interest and employee medical-plan payments. Investing cash use was $1.3 million; financing provided $11.9 million.
Total indebtedness, including the securitization facility, was $1.477 billion, up from $1.470 billion at year-end. This included $1.312 billion principal on term loans and no revolving-credit borrowings; the securitization balance was $165 million. The weighted average interest rate was 10.1%. The extended term loan carried a 9.19% rate and the second-lien loan 12.49%. Cash interest paid was $38.5 million. The company reported $168.2 million of revolving-credit borrowing capacity and $10 million available under the securitization facility, and said it was in compliance with its financial covenants. Management believes available cash, operating cash flows and facility capacity will meet cash requirements for at least the next 12 months.
Outlook, risks and notable items
The filing gives no specific revenue, earnings or cash-flow guidance. Management said the April 2024 CMS Medicaid access final rule, including an 80% compensation-and-supervision payment requirement for certain services, is not expected to materially affect results; states have six years to implement that provision.
- Disclosure controls were deemed ineffective because of a previously reported material weakness involving IT general controls for user access and program change management, as well as controls dependent on a replaced PDS revenue system. Remediation is underway; management has not yet concluded that the weakness is remediated. No financial-statement misstatements were identified.
- The company is cooperating with a DOJ Antitrust Division investigation concerning nurse wages, reimbursement rates and hiring, and a separate DOJ/AUSA inquiry concerning hospice claims and referral-related remuneration. Management says a loss is not probable in either matter but cannot predict outcomes or any potential loss.
- Insurance reserves rose to $102.9 million from $91.8 million at year-end. The filing also describes an arbitration award and ongoing routine litigation; management says ultimate resolution of the specified matters is not expected to materially affect the financial statements, while acknowledging litigation uncertainty.
- Other stated risks include payer reimbursement and rate changes, caregiver availability and wage pressure, collections, regulatory compliance, cybersecurity, competition, and substantial variable-rate debt.
Important facts for investors to verify
- Whether revenue growth can be sustained while PDS caregiver-cost inflation and the decline in consolidated gross margin are addressed.
- Whether receivables, DSO and operating cash flow improve, given the quarter’s $12.0 million operating cash outflow.
- Debt service and refinancing capacity under high variable interest rates, including the terms and availability of borrowing facilities and covenant headroom.
- The drivers and cash implications of derivative gains and settlements, and the unusually high quarterly tax expense.
- Progress remediating the material weakness and any developments in the DOJ inquiries, arbitration and other legal matters.