Aveanna Healthcare Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: 13 weeks ended July 2, 2022; comparisons are to the 13 weeks ended July 3, 2021. Six-month comparisons are for the periods ended on those dates. Aveanna provides pediatric and adult home-based care, home health and hospice, and enteral nutrition products through Private Duty Services (PDS), Home Health & Hospice (HHH), and Medical Solutions (MS).
Financial performance
| Metric | Q2 2022 | Q2 2021 | First six months 2022 | First six months 2021 |
|---|---|---|---|---|
| Revenue | $443.0 million | $436.1 million | $893.5 million | $853.3 million |
| Gross margin | $145.0 million; 32.7% | $146.6 million; 33.6% | $289.9 million; 32.4% | $278.3 million; 32.6% |
| Operating income (loss) | $(456.4) million | $30.3 million | $(442.6) million | $58.6 million |
| Net income (loss) | $(473.9) million | $1.3 million | $(448.6) million | $7.1 million |
| Adjusted EBITDA (non-GAAP) | $37.0 million | $48.8 million | $74.9 million | $92.6 million |
| Cash used in operating activities | Not separately stated for the quarter | $(29.4) million | $(13.6) million |
Q2 revenue grew 1.6%, while gross margin declined 1.1%. Field contribution, a company-defined non-GAAP measure, fell 18.6% to $56.0 million; its margin declined to 12.7% from 15.8%. For the first six months, field contribution fell 14.5% to $112.1 million, and its margin was 12.5% versus 15.4%.
- Segment trends: Q2 PDS revenue decreased 0.5% to $348.0 million as care hours fell 3.2%; HHH revenue increased 22.6% to $61.4 million, largely reflecting acquisitions; MS revenue decreased 7.7% to $33.5 million. HHH revenue rose 56.9% for the first six months, while PDS declined 0.3% and MS declined 5.5%.
- Cash and working capital: Cash was $17.5 million at July 2, down from $30.5 million at January 1. Patient accounts receivable was $246.0 million, up from $218.9 million; reported DSO rose to 50.0 days from 41.6 days a year earlier. Capital expenditures were $6.0 million for the first six months.
- Debt and liquidity: Debt principal totaled approximately $1.434 billion, including $853.6 million on the extended term loan, $415.0 million on the second-lien term loan, $150.0 million under the securitization facility, and $15.0 million drawn on the revolver. The company reported $184.9 million of total liquidity at quarter-end, comprising cash and revolver availability; the securitization facility was fully drawn. The company was in compliance with debt covenants.
Material changes, outlook and risks
- Goodwill impairment: Aveanna recorded a $470.2 million non-cash charge after an interim test found carrying values above fair value at five of six reporting units. Management cited persistent caregiver shortages and wage inflation, and warned that further impairment is possible if performance or valuation assumptions worsen.
- Operating pressures: Management attributed lower PDS volume to labor constraints and COVID-related disruption. Caregiver cost rates rose; Q2 incremental COVID-related patient-service costs were $0.8 million, down from $3.3 million in Q1. HHH growth reflected 2021 acquisitions, alongside softer underlying volumes and Medicare sequestration resuming. MS faced payer rate reductions and product-recall effects on order fulfillment.
- Guidance: The filing says Aveanna publicly updated its fiscal 2022 earnings guidance because of labor-market challenges, but the provided filing text does not give the revised guidance figures. Management expected wage pressures to persist. It stated that cash, operating cash flows, and available credit were expected to cover requirements for the next 12 months, while cautioning that future financing needs could arise.
- Interest-rate exposure: Variable-rate indebtedness was approximately $1.434 billion. Swaps covered $520 million and caps covered $880 million at a 3% LIBOR cap rate. Management estimated a 100-basis-point rate increase would raise annual interest expense by about $9.1 million, and expected rates to increase. LIBOR transition effects remained uncertain.
- Subsequent financing: On August 8, 2022, the securitization facility maximum was increased from $150 million to $175 million, subject to borrowing-base requirements. On August 9, Aveanna borrowed $60 million under its delayed-draw term loan facility; a further $140 million was stated to be available subject to conditions.
- Other obligations and contingencies: The company had $25.5 million of deferred payroll taxes due by December 31, 2022. It disclosed a disputed potential $75 million acquisition termination fee, an acquisition-related lawsuit in which it seeks $24 million to $50 million plus disputed escrow funds, and a DOJ Antitrust Division investigation concerning nurse wages, reimbursement rates, and hiring. The company could not estimate losses or outcomes for the cited disputes and investigation.
- Controls: Management concluded disclosure controls were effective at a reasonable-assurance level as of July 2, 2022; no material change in internal control over financial reporting was reported during the quarter.
Investor verification priorities
- Confirm the revised fiscal 2022 guidance and its assumptions; the figures are not clear in the provided filing text.
- Monitor caregiver availability, wage inflation, patient-service volumes, and whether field margins stabilize.
- Track receivables, DSO, cash generation, and the timing of the $25.5 million payroll-tax payment.
- Assess leverage, variable-rate interest costs, facility availability and borrowing-base conditions, including the post-quarter draws and amendments.
- Review the assumptions underlying the $470.2 million impairment and the potential for additional charges.
- Follow the DOJ inquiry and acquisition-related disputes, for which the company did not provide a clear estimate of potential outcomes.