Aveanna Healthcare Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022, compared with the year ended January 1, 2022. The filing’s MD&A describes FY2021 as a 53-week year, while the financial-statement notes say both periods contained 52 weeks; investors should verify the comparable-period length. This is an annual filing, not a standalone fourth-quarter report.
Business context
Aveanna provides home-based care for medically complex patients through Private Duty Services (PDS), Home Health & Hospice (HHH), and Medical Solutions (MS). PDS is primarily Medicaid-funded; HHH is primarily Medicare-funded; MS mainly supplies enteral nutrition and related products. Operations span 33 states.
Financial performance and liquidity
| Metric | FY2022 | Prior comparable year |
|---|---|---|
| Revenue | $1.788 billion | $1.679 billion |
| Gross margin | $553.2 million; 30.9% | $542.4 million; 32.3% |
| Field contribution (non-GAAP) | $196.0 million; 11.0% | $245.0 million; 14.6% |
| Operating loss | $642.3 million | $36.1 million |
| Net loss | $662.0 million; $3.57 per diluted share | $117.0 million; $0.69 per diluted share |
| Net cash used in operating activities | $48.4 million | $11.4 million |
| Cash at year-end | $19.2 million | $30.5 million |
| Principal debt, including securitization | $1.464 billion | $1.393 billion |
- Revenue grew 6.5%. PDS revenue rose 4.2% to $1.415 billion; HHH rose 31.2% to $232.6 million; MS fell 2.3% to $140.0 million.
- Revenue growth did not translate into stronger field performance: cost of revenue grew 8.6%, gross margin percentage fell 1.4 percentage points, and branch/regional administrative expense rose to 20.0% of revenue from 17.7%.
- FY2022 goodwill impairment was $675.3 million, including $470.2 million recorded in the second quarter and $205.1 million in the fourth quarter. The charges were non-cash and drove much of the reported operating loss.
- Interest expense, net, increased to $107.0 million from $68.7 million, reflecting higher rates and borrowings. Other income of $85.5 million included substantial non-cash gains on interest-rate derivatives; it should not be treated as recurring operating earnings.
- Adjusted EBITDA, a company-defined non-GAAP measure, declined to $129.3 million from $184.2 million. The filing reports $102.5 million of cash interest paid.
- At year-end, debt comprised $909.0 million on the extended first-lien term loan, $415.0 million on the second-lien term loan, and $140.0 million under the securitization facility. Weighted-average interest rate was 8.9%, versus 5.0% a year earlier. Revolver borrowing capacity was $180.3 million; additional securitization capacity was reported as $35.0 million.
- Total current assets were $269.8 million versus current liabilities of $326.5 million. Stockholders’ equity moved to a $6.3 million deficit from positive equity of $635.8 million, largely reflecting the net loss and impairment charges.
Material changes, outlook and commentary
- PDS hours increased 1.6%, but labor shortages and wage inflation constrained the ability to staff patient demand. PDS revenue per hour rose 2.6%, while cost per hour rose 4.6%, reducing spread.
- HHH growth reflected a full-year contribution from 2021 acquisitions, partly offset by lower underlying volumes, increased implicit price concessions during systems transitions, and Medicare sequestration. HHH gross margin percentage fell to 43.8% from 47.2%.
- MS unique patients grew 4.6%, but revenue per patient declined 6.9%, attributed mainly to payer rate reductions and product recalls affecting fulfillment.
- Management said it began restructuring branch and regional administrative operations in the third quarter of 2022 to align resources with volumes and would continue those efforts in 2023. It stated that cash, operating cash flows and available facilities were expected to meet requirements for at least 12 months, while cautioning that future needs and financing access remain uncertain.
- The 2023 Medicare home-health rule reduced the 30-day base rate by 1%, while phasing in a 7.85% behavioral adjustment: 3.925% in 2023 and a further 3.925% scheduled for 2024. Management said it could not assure that it would offset the remaining reduction. Expanded Home Health Value-Based Purchasing began nationally in 2023; performance-based payment adjustments start in 2025.
- Key risks include government reimbursement changes and audits, caregiver availability and wage inflation, collections and electronic-visit-verification requirements, acquisition integration, rising variable-rate interest costs, and substantial leverage. The securitization facility matures in November 2024; the company identified extension as important.
Unusual items, contingencies and controls
- In March 2023, $18.4 million was garnished from company accounts in connection with a $19.8 million Texas judgment. Aveanna posted an $18.4 million cash-collateralized appellate bond and said it expected the garnished funds to be returned; the appeal and restricted-cash exposure remained unresolved. A separate $7.9 million arbitration award could require additional cash collateral.
- A March 2023 settlement with sellers of Epic/Freedom resolved related litigation. The company also planned to place approximately $6.8 million in escrow for tax audits under appeal, with resolution expected in the second half of 2023.
- A 2019 email-account incident led to a class-action settlement in October 2022, anticipated to cost less than $500,000, and a Massachusetts regulatory matter resolved in principle for $425,000, with additional remedial costs not yet finalized.
- Management and Ernst & Young identified a material weakness in IT general controls, including user access, change management, and controls over information used in financial reporting. The weakness was not considered remediated at year-end. The auditor issued an adverse opinion on internal control, but an unqualified opinion on the financial statements; no financial-statement misstatement was identified from the weakness.
- The DOJ Antitrust Division investigation concerning nurse wages, reimbursement rates and hiring practices in certain markets remained ongoing; the filing says the company is cooperating and cannot predict the outcome or any loss range.
Most important facts for investors to verify
- Whether staffing, patient volumes, margins and the 2023 restructuring improve sufficiently to reverse the decline in field contribution and Adjusted EBITDA.
- The actual cash and borrowing availability after the March 2023 garnishment, appellate bond, potential arbitration collateral, and planned tax escrow; also the status and outcome of the appeals.
- Debt-service capacity under higher interest rates, covenant headroom, and plans to extend or refinance the November 2024 securitization maturity.
- The effect of the remaining 2024 Medicare home-health behavioral payment reduction and any further payer-rate or audit-related adjustments.
- Progress and independent testing of remediation for the material weakness, and any later disclosures of control failures or reporting changes.
- Future goodwill impairment risk, given the $675.3 million FY2022 charge and significant remaining goodwill.