Good morning, and welcome to Aveanna's third quarter 2025 earnings call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Shaner, our Chief Executive Officer; and Matt Buckhalter, our Chief Financial Officer. During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website, aveanna.com, and in our most recent quarterly report on Form 10-Q when filed. With that, I will turn the call over to Aveanna's Chief Executive Officer, Jeff Shaner. Jeff?

Thank you, Debbie. Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q3 2025 results and how we are moving Aveanna forward in 2025. My initial comments will briefly highlight our third quarter results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide updates on the Thrive Skilled Pediatrics integration, the current regulatory environment, and year 3 of our strategic plan before turning the call over to Matt to provide further details into the quarter. Moving to highlights for the third quarter. Revenue for the third quarter was approximately $622 million, representing a 22.2% increase over the prior year period. Third quarter adjusted EBITDA was $80.1 million, representing a 67.5% increase over the prior year period, primarily due to the improved rate and volume environment and continued cost savings initiatives. We continue to execute our strategic transformation strategy, focusing on obtaining adequate rates from our payer and government partners for the services we provide, which is clearly evidenced in our third quarter results. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believed our company could achieve. It is important to note our industry does not have a demand problem. The demand for home and community-based care continues to be strong, with both state and federal governments and managed care organizations asking for solutions that create more capacity while reducing the total cost of care. Our Q3 results highlight that we continue to align our objectives with those of our preferred payers and government partners. By focusing our clinical capacity on our preferred payers, we achieved solid year-over-year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging environment, our preferred payer strategy supports our ability to achieve normalized growth rates in all three of our business segments. Since our second quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners, as well as continued signs of improvement in the caregiver labor market. Specifically, as it relates to our private duty services business, our government affairs strategy for 2025 is twofold. First, we are advancing our legislative agenda to improve reimbursement rates in at least 10 states. And second, we continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. We have a strong advocacy presence with both federal and state legislatures as well as solid support from our governors across our national footprint. State legislators have continued to recognize how meaningful private duty nursing is to the overall cost savings and improved outcomes of our nation's most vulnerable children. As it relates to private duty services rate updates, we achieved 10 rate enhancements this year, which was in line with our expectations. At this point, our private duty services legislative agenda is primarily wrapped up for this year, and we have transitioned our efforts towards similar legislative goals for 2026. Now moving on to preferred payer initiatives. Our goal for 2025 was to increase the number of private duty services preferred payer agreements from 22 to 30. We added five additional preferred payer agreements in Q3 and are currently positioned at 30 agreements in total. Aveanna's preferred payer strategy continues to gain momentum along with the Thrive SPC acquisition, which broadened our strategy into two new states, Kansas and New Mexico. Additionally, our Q3 preferred payer agreements account for approximately 56% of our total PDS MCO volumes, inclusive of our recent Thrive acquisition. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our private duty services preferred payer partners. Now moving to our preferred payer progress in home health. Our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. I am pleased to report in Q3, our episodic mix was 77%, and our total episodic volume growth was 14.2% compared with the prior year period. The continued investments in clinical outcomes, sales resources, and a focused approach to growth is now paying dividends with Q3 total admissions of 9,700 or 9% growth over the prior year period. We have 45 preferred payer agreements in home health. Our dedicated focus on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis has led to positive year-over-year growth and improvement in our clinical and financial outcomes. Finally, as we have achieved our desired preferred payer model in private duty services and home health and hospice, we are proceeding with a similar strategy in our Medical Solutions business. We're in the mid-stages of implementing our preferred payer strategy in Medical Solutions and believe it will be fully realized by early 2026. To date, we have 18 preferred payers in Medical Solutions, and we expect that number to grow as we achieve our desired preferred payer model. Our gross margins have stabilized in our desired range as we align our clinical capacity with those payers that value our services and pay us in a timely fashion. I am pleased with our Q3 volume of approximately 91,000 unique patients served as we work to achieve our target operating model. While we expect our volume growth to be muted for the remainder of the year, we are experiencing improvement in our clinical outcomes, customer satisfaction, and financial outcomes. Our Medical Solutions business is well on its way to achieving its target operating model, and we look forward to updating you on its continued progress. We are encouraged by our rate increases, preferred payer agreements, and subsequent recruiting results. Our business has demonstrated solid signs of recovery as we achieve our rate goals previously discussed. Home and community-based care will continue to grow, and Aveanna is a comprehensive platform with a diverse payer base, providing a cost-effective, high-quality alternative to higher-cost care settings. And most importantly, we provide this care in the most desirable setting, the comfort of our patients' home. As it relates to our recent acquisition of Thrive Skill Pediatrics, I am very pleased with the integration efforts and the continued focus on superior clinical and customer experiences with our patients and families. We are on target to complete our integration by the end of this year. Our leadership team has done a nice job of staying focused on our mission while achieving the expected synergies in this transaction. The Thrive acquisition is accretive to our 2025 results and a great addition to our Aveanna family. Now turning to the current regulatory environment with Medicaid and Medicare updates. We continue to be quite busy with our advocacy efforts. We have focused our efforts on two fronts: supporting overall Medicaid policy and defending the Medicare home health benefit for American seniors. On the Medicaid front, we continue to believe our patient population fared relatively well in the OBBBA legislation. Pediatric and adult patients with complex medical conditions were not directly targeted in the bill, and our view is that PDM was mostly insulated in the almost $1 trillion cut to Medicaid. With that said, we are experiencing general headwinds with state Medicaid directors and governors as they plan for potentially less overall Medicaid funding and shouldering more of their Medicaid costs in the future. As it relates to the proposed home health rule for calendar year 2026, we continue to voice our disappointment by the significance of these proposed cuts. We are aligned with the National Alliance for Care at Home and our home health peers in our strong opposition to this proposed rule. Since our last call, we've had many productive conversations with legislative leaders, both Republican and Democrat, as well as CMS leadership on the devastating impacts of the proposed home health rule. We submitted our comment letter during the CMS open comment period and have continued to advocate in all 38 Aveanna states for the current administration, CMS, and Congress to halt any cuts to home health. We do expect to receive the final calendar year 2026 rule in the coming days. And although not overly material to Aveanna's 2026 results, this rule is critically important to millions of seniors in America. Before I turn the call over to Matt, let me comment on our strategic plan and enhanced outlook for 2025. We will continue to focus our efforts on five primary strategic initiatives: first, enhancing partnerships with government partners and preferred payers to create additional capacity and growth; second, identifying cost efficiencies and synergies that allow us to leverage our growth; third, modernizing our Medical Solutions business to achieve our target operating model; fourth, managing our capital structure and collecting our cash while producing positive free cash flow; and finally, engaging our leaders and employees in delivering our Aveanna mission. Based on the strength of our third quarter and year-to-date results, we now anticipate 2025 revenue to be greater than $2.375 billion and adjusted EBITDA to be greater than $300 million. We believe this enhanced 2025 outlook provides a prudent view considering the challenges we still face with the evolving regulatory environment. In closing, I am incredibly proud of our Aveanna team and their dedication to executing our strategic transformation while holding our mission at the core of everything we do. We offer a cost-effective, patient-preferred and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources, and government partners. With that, let me turn the call over to Matt to provide further details on the quarter and our 2025 outlook.

Thank you, Jeff, and good morning. I'll first talk about our third quarter financial results and liquidity before providing additional details on our improved outlook for 2025. Starting with the top line, we saw revenues rise 22.2% over the prior year period to $621.9 million. We achieved year-over-year revenue growth in two of our operating divisions, led by our Private Duty Services and Home Health and Hospice division, which grew by 25.6% and 15.3% compared to the prior year quarter. Consolidated gross margin was $202.8 million or 32.6%. Consolidated adjusted EBITDA was $80.1 million, a 67.5% increase as compared to the prior year. This growth reflects an improved rate environment, increased volumes as well as enhanced operational efficiencies. Now taking a deeper look into each of our segments. Starting with Private Duty Services, revenue for the quarter was approximately $514 million, a 25.6% increase and was driven by approximately 11.8 million hours of care, a volume increase of 12.9% over the prior year. Q3 revenue per hour of $43.51 was up 12.7% compared to the prior year quarter, primarily driven by preferred payer volume growth and the rate enhancements previously discussed. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates. Turning to our cost of labor and gross margin metrics, we achieved $149.3 million of gross margin or 29%. The cost of revenue rate of $30.89 in Q3 was up $2.27 or 8.9% from the prior year period. Our Q3 spread per hour was $12.62. We expect spread per hour to normalize as we continue to make ongoing adjustments to caregiver wages to support higher volumes and improve clinical outcomes. Moving on to our Home Health and Hospice segment, revenue for the quarter was approximately $62.4 million, a 15.3% increase over the prior year. Revenue was driven by 9,700 total admissions with approximately 77% being episodic and 12,900 total episodes of care, up 14.2% from the prior year quarter. Medicare revenue per episode was $3,215, up 3.6% from the prior year quarter. We continue to focus on rightsizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 70%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings. We are pleased with our Q3 gross margin of 53.3%, representing our continued focus on cost initiatives to achieve our targeted margin profile. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now to our Medical Solutions segment results for Q3. During the quarter, we produced revenue of $45.1 million, essentially flat from the prior year period. Revenue was driven by approximately 91,000 unique patients served and revenue per UPS of approximately $495, up 0.6% over the prior year period. Gross margin was approximately $20.3 million or 45% for the quarter. As Jeff mentioned, we continue to implement initiatives to be more effective and efficient with our operations to achieve our targeted operating model. We are accelerating our preferred payer strategy at Medical Solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect gross margins to normalize in the 42% to 44% range and UPS to accelerate its growth as we implement our targeted operating model. While I'm pleased with the integration efforts to date, we are entering the final push to complete our efficiency efforts and get back to focusing on growth in Medical Solutions. In summary, we continue to fight through a difficult environment while keeping our patients' care at the center of everything we do. It's clear to us that aligning caregiver capacity to those preferred payers who value our partnership is the path forward at Aveanna. With the positive momentum we experienced in Q3, we remain optimistic that such trends will extend throughout 2025. We will continue to pass through wage improvements and other benefits to our caregivers in the ongoing effort to better improve volumes. Now moving to our balance sheet and liquidity. At the end of the third quarter, we had liquidity of approximately $479 million, representing cash on hand of approximately $146 million, $106 million of availability under our securitization facility, and approximately $227 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $23 million in outstanding letters of credit at the end of Q3. During the quarter, we refinanced our first lien credit facility and increased the revolving credit facility's availability from $170 million to $250 million. The combined $1.325 billion of first lien term loan was also extended and is now set to mature in 2032. These actions enhance our balance sheet strength and liquidity, allowing us to continue executing on our strategic priorities. This progress underscores our strong operating performance and the confidence our financing partners have in Aveanna. On the debt service front, we had approximately $1.49 billion of variable-rate debt at the end of Q3. Of this amount, $520 million is hedged with fixed-rate swaps, and $880 million is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable-rate debt is hedged. Our interest rate swaps extend through June 2026, and our interest rate caps extend through February 2027. Looking at year-to-date cash flow, cash generated by operating activities was $76.1 million, and free cash flow was $86.2 million. We are encouraged by the strong cash collections and expect to generate additional free cash flow throughout the remainder of the year. Before I hand the call over to the operator for Q&A, let me take a moment to address our improved outlook for 2025. As Jeff mentioned, we now expect full-year revenue to be greater than $2.375 billion and adjusted EBITDA to be greater than $300 million. As a reminder, this year's fourth quarter includes an additional 53rd week, which will have a positive impact on both revenue and earnings. The presence of this extra week means the current fiscal year contains an additional week of business activity compared to most years. As we reflect on our Q3 results, I'd like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2025 strategic plan and look forward to providing you with further updates at the end of Q4. With that, let me turn the call over to the operator.

Nice quarter. Every year, the fourth quarter EBITDA has been higher than the third quarter. Are there any headwinds that we should think about for the fourth quarter? Just trying to understand the implied guidance that you have for the fourth quarter after a very strong third quarter? Or is this just a standard conservatism that you've been doing for the past few years?

Thank you for your question, and we appreciate the compliment. Pito, this marks our 11th consecutive quarter of surpassing expectations and raising our targets. We are particularly proud of the clean results in Q3. For Q4, aside from the 53rd week that Matt mentioned, we anticipate results similar to those of Q3. There is some seasonality to consider at the year's end, with holiday effects in the latter part of the quarter. However, we view Q4 in the same light as Q3's performance. We have adopted a careful approach, which some may refer to as conservative, and we are pleased to have increased revenue by at least $75 million and EBITDA by at least $30 million from the previous quarter. At the start of the year, we set a goal to achieve $200 million in EBITDA, and with both organic growth and the integration of Thrive, which has been a beneficial acquisition, we have raised our guidance by $100 million in EBITDA after three quarters, representing a 50% increase in our guidance. We are committed to being cautious, and while we embrace the mindset of beating and raising expectations, achieving a $100 million increase on a base of $200 million is a significant accomplishment in our opinion.

Yes, Jeff, I'll just add to that, that obviously operational performance has been amazing by the team, but also the exceptional care that the team has been delivering as well. I'll get back to it though. There's a lot more work to do, Pito. We're going to get back to work. We're going to continue to chop wood and go do and do what we do best. We're going to continue to focus on providing not only the best patient care, but we're also going to continue to strengthen our balance sheet and deleverage our organization once again, as you saw significant leverage coming down from the beginning of the year to where we ended Q3, and we'll continue to see that in the out quarters as well.

Great. And then sort of a follow-up here. You've scaled up your preferred payer agreements throughout 2025, which makes for some pretty funky sequential growth this year. In the last couple of years, EBITDA has been about 26% of annual EBITDA. So is it fair to take third quarter results and annualize that as you think about launch pad for 2026 earnings? Even that could be conservative, I guess, with the five preferred payers that you signed this quarter?

It's a fair question, Pito. We'll start by emphasizing that we are focused on finishing the year strong. Our current goals are to finish out 2025 on a positive note. There is a lot of momentum in the business, as you've mentioned. Both PDS and our HHH businesses are just beginning to hit their strides effectively. We are still working through challenges in Med Solutions, and I hope our comments reflect the significant efforts we are making in that area. We take pride in our team's work as we speak. However, I want to see progress in the next three to four months to return to our usual growth trajectory. I want to highlight two important points. First, we have experienced considerable wage pass-through as the year has progressed. Matt will keep reminding us that in Q2, we noted $9 million related to timing and wage pass-through, and additional wage pass-through occurred in Q3, continuing into Q4. This impact will carry into the early part of next year. Second, we achieved more than 10 rate wins this year; however, due to a couple of temporary rate decreases, the net effect is lower. We had a strong year concerning rate wins, yet we are aware of the general challenges facing state Medicaid systems. We anticipate a similar story for rate wins next year while navigating these challenges as the OBBBA changes take effect in Medicaid systems. Thus, we want to bring attention to these headwinds as we work through Medicaid rates in North America for 2026. We are excited to be in 29 states and continue our growth, as each Medicaid system has its unique aspects. I also expect us to pursue more Thrive-like acquisitions in 2026 to expand our presence in additional Medicaid states.

Yes, Jeff, I’ll just add to that. Obviously, operational performance has been amazing by the team, but also the exceptional care that the team has been delivering as well. I'll get back to it though. There's a lot more work to do, Pito. I mean, we're going to get back to work. We're going to continue to chop wood and go do and do what we do best. We're going to continue to focus on providing not only the best patient care. We're also going to continue to strengthen our balance sheet and deleverage our organization once again, as you saw significant leverage coming down from the beginning of the year to where we ended Q3, and we'll continue to see that in the out quarters as well.

Congratulations on a strong quarter. Jeff, I wanted to follow up on your earlier comment. In PDS, there has been noticeable strength in hours. As we consider the rate increases you've experienced so far this year, I believe this can lead to improved hours. Is this a good starting point for discussing your capacity as we look ahead to 2026? And for Matt, historically you have mentioned a spread rate of 10 to 10.50 in PDS. How should we view the progression toward that level? Is that still an appropriate target given the ongoing rate increases and the timing factors involved?

I think I'd pick up the Q3 PDS volume of just over 11.8 million hours of care being delivered. That obviously includes the Thrive acquisition. I would tell you that's the full impact of the Thrive acquisition in that Thrive had 13% year-over-year growth, Thrive was about 5% of that 13%. So it still keeps our volume in line with where it was in Q2 at 6% or 7% volume growth. But I think that 11.8 million hours is the right basis to move into Q4. We'll have some seasonality, some normal seasonality as we move into 2026. I think as I mentioned to Pito, a lot of our rate wins were pent-up rate wins from '24 moving into '25. We expect, as we reset our legislative goals for 2026, to still set a goal of being in double-digit rate wins. But as we've said last quarter, we will see those rate winnings to be generally smaller nature, 2%, 3%, very specific like holiday overtime rates. As we work with our government partners, we do expect those PDS rate wins to be generally smaller than they've been over the course of the last 2.5 years. The great part is we're prepared for that. We're well-positioned for that. As it relates to the preferred payers and the five additional rate wins, Thrive helped that. The addition of New Mexico and Kansas as two brand-new MCO states helped us in that execution. But that was the thesis of why we did the Thrive acquisition was to roll that new markets and the current business into our relationships, and it's played out exactly as we would have expected. So I expect us to continue to execute additional preferred payer wins in Q4, and we’ll reset that goal for 2026.

Yes. And Brian, to your point on the spread itself, as expected, Q3 came right back in line with our Q1 expectations. We made sure to discuss Q2 ad nauseam last quarter for people to understand that that was a little bit hot. But gross margin settled in line nicely, right around 29% for our PDS segment. That's in line with our expectations. It’s probably a little bit on the higher end of that 26% to 28% range that we've come to guide to in the long run here. But looking ahead, there's still additional wage pass-through to include to our caregivers. And so we'll do those wages along with some other benefits, but that will bleed into 2026 as well. So not only will that only occur in Q4, but we'll see that in Q1 and Q2 of next year too.

That makes sense. And then, Matt, maybe my follow-up would be just on the balance sheet. So now that you’ve done your refi, your EBITDA base has gone up, so the leverage ratio has gone down. I mean how should we be thinking about your views on cap structure and then maybe capital deployment towards acquisitions?

Awesome question. Yes, really proud of our teams and what they’ve been able to accomplish. These great operating results and clinical results have allowed us to really focus on our cash collections as well. It takes a village to be able to do that on a continuous basis. But $86 million of free cash flow year-to-date, that’s amazing expectations from our team and what we’ve been able to achieve. We’ll add to that in Q4 as well, though Q3 is historically our best quarter for free cash flow generation as well. But looking ahead, we’ll continue to do that. We’ll bring in additional free cash flow in 2026. We’ll use that for potential M&A opportunities. But we’re going to do what makes the most sense at Aveanna, whether that is deploying for M&A or paying down debt, we’ll just be thoughtful on any dollars that we use.

I guess just turning to the value-based care contracting, I guess when thinking about your progress towards your broader goal of signing 10 VBC contracts this year, can you just walk us through the market appetite you're seeing from your payer partners here? And then have you seen any shift in how payers are maybe viewing value-based care contracts for private duty nursing going forward?

Thank you for your question, Ben. Absolutely, the demand is increasing significantly. Referring back to the Thrive acquisition, it's clear why this strategy is essential, and we plan to pursue more acquisitions like Thrive in PDS in the future. Our preferred payers are seeking additional nursing staff and more of our services, but we're currently limited in our nursing capacity. In conversations with our 30 preferred payers, many of whom are leading national Medicaid providers, they're asking for more of our offerings, both in terms of staffing and the relationships we have that are linked to overall care costs and service fulfillment. Recently, as we've engaged with a few national payers, it's important to note that while establishing value-based agreements takes time, we only operate on a bonus system that presents no institutional risk for us. The rewards are purely upside. Most of our payers want to leverage our capabilities to reduce costs, and we've received positive feedback from payers about our ability to deploy more nurses to assist their patients. I anticipate this trend will continue as we align our objectives for 2026, and there's no indication of a slowdown from our managed care organization partners. They are eager for more of what we provide.

Great. Just a follow-up, maybe on the home health hospice front, seeing nice volume growth there, episodic mix picked up nicely. The cost of revenue seems like that maybe ticked up a bit and was a bit of a drag on gross margin. I guess anything going on within that segment from the expense side just with growth out there otherwise outpacing top line?

No, nothing crazy there, Ben. Obviously, thanks for looking at that 15.3% growth in that division is outstanding. Hospice phenomenal growth, episodic growth, amazing, 77% admissions are coming in as episodic as well. Those are also delivering great care afterwards. Those are funneling right into great star ratings for our teams on top of it. 53.3% gross margin, that’s right in line with our expectations, 55% and change last quarter. It was a little bit hot, and we kind of alluded to that one. We’re continuing to invest in some training through some hard ways programs with that team, but really just nothing to be concerned about. It’s right in line with our expectations.

And I think Matt said it well, Ben, it's 3 years' worth of work. Again, it's 3 years' worth of our team staying focused on the preferred payer strategy. As we think of Med Solutions, think of what you're seeing now in home health and hospice as what the future of Med Solutions will be where we drive the majority of our volume aligned with our preferred payers, and that really is what drives our growth. But no, Matt said it well. Really proud of our home health and hospice team. They've done a great job. And they’ve stayed focused on episodic care, which is the right payment model for that business.

Maybe kind of uncovering the hours growth, decently strong. So just maybe trying to get the disclosures on kind of how census or patients served trended relative to the hours per census yield and kind of remaining opportunities that as you kind of think about the spread normalizing and the company being able to hire and retain more nurses to be able to serve more volumes. So maybe just trying to kind of break that out and kind of how much more room is there on the kind of hours per census side? And then kind of what are you kind of seeing from a census opportunity perspective as well?

Yes. I would say they're directionally in line with each other, Raj. Obviously, I would go back to the statement that everybody is always asking for more and they’re needing more, whether that is our current census that we have on there or patients that are waiting in the hospital to be discharged onto our service as well. So with the preferred payer strategy, we have been able to staff more hours and also pay our caregivers more to staff more hours and work more hours at the same time. But correlated effect, there's still high demand within our preferred payers and outside of it. There's just limited capacity with those caregivers, and there will always be, unfortunately. So as we lean into these relationships, we're going to do our best to fill as many shifts as possible on behalf of our patients and really drive that growth that you’re seeing in our volume right now.

Got it. And then maybe on the home health and hospice side, just with the preferred payer strategy, maybe just kind of want to be able to compare kind of overall reimbursement on your episodic rates versus fee-for-service and kind of where that discount kind of stands or even if you're kind of at reaching parity, just maybe any information on that would be helpful as well.

Yes. I wouldn't say we're reaching parity. So it's why we focus at almost 80%. We've said 70% is our target. It wouldn’t shock me if we move that to greater than 75% now that we've been 4 quarters in a row at north of 75% episodic. It's the way of the future in this business. I think our peers have figured it out. We figured it out. Episodic is the right way to think of it. It’s a fair reimbursement for great clinical care and great outcomes. But I wouldn't say there's parity between non-episodic and episodic. And it’s why we do very little of it. It hasn’t hurt us. Our referral sources understand it. Our payer partners understand it. Just like PDS, they want more nursing, more therapy care, and they want a lower total cost of care for geriatric patients. So yes, you'll see us stay focused on this level of care with these payers. I’d expect us to approach if not touch 80% of our business on a go-forward basis. We are that committed to being an episodic provider in home health.

First, just, obviously, you've made a big push and been successful in getting these preferred payers set up in the PDS business. I wonder if you have had enough time to sort of see over time how that relationship has evolved. Do you get annual updates consistent with what you've been getting historically? Have you seen it evolve in any way that's worth calling out?

Thank you for the question. We're currently in year four of our most established relationships and year three with many others. As we look back, we’ve discovered some unexpected aspects, such as nurturing collections and collaborating to assist specific high-need families in returning home and remaining there. There are also additional elements like value-based agreement add-ons. The incremental rate we receive primarily goes towards nursing wages, as we've discussed for the past three years. Over time, we’ve seen benefits from the softer aspects, including improved collections. This year, we've made significant headway in collections, partly due to our payer partners assisting with aged accounts. They’ve been very supportive in this area. Additionally, they reach out to us regarding challenging patients who frequently return to the hospital, asking us to get involved to support those families. We don't request rate increases from our preferred payers every year; we carefully consider the timing for adjustments related to cost of living. This might occur every couple of years. When we revisit these discussions, we find them constructive, focusing on how much we need to raise nurse wages to fulfill their requirements. Importantly, across all 30 preferred payers, whether they've been with us for four years or four months, there's a consistent desire for more of our nursing staff.

Okay. Maybe for my follow-up, just thinking about the organic and inorganic growth in PDS as well as in adult home care. Some of your peers are saying, if we can just get the final rate notice done, that could open the floodgates and give us more clarity on deals and where to look for expansion opportunities. Others are saying that's not enough. We need more clarity on the long-term reimbursement profile. On the PDS side, you're saying you're seeing a little caution in some states. I guess I'm just wondering, is there anywhere where you're thinking about leaning in more to new opportunities, growth, either organic development or acquisitions or where you're being a little more cautious?

I'll go back to who we are to start with. Almost 80% of our company is generated from our PDS segment. That is the underpinning of Aveanna always has been and certainly is. We added two new states with Thrive. So we're now in 29 Medicaid states. I think Matt and I would tell you, we'd like to be in about 38, maybe 40 total Medicaid states. There are a couple of key states that our large national Medicaid partners are in that we're not, like Ohio, West Virginia, and Kentucky. We don’t have any Medicaid presence there today. So over time, we'd like to fill those states in. We want to continue to expand our Medicaid reach, both pediatric and adult. We’re a skilled-focused company, as you know, A.J. So we always lead with skilled services, nursing services, that is our focus. And then, I guess, Matt, pivoting back to home health, we’re in a good position that only today about 10% of our revenue is in home health and hospice. We’re big believers in home health. We believe home health is the right solution for American seniors, and we'd like to see a nice rule settle here. But Matt, how do you think about deployment?

Yes. No, I just would go back to that. We’re always going to continue to advocate on behalf of our patients and our families regardless of the industry, regardless of the division. We’re going to continue to do what we do best. We’re going to deliver that exceptional patient care that people know us for. We’re going to do that in the most cost-efficient setting in that patient's home. Regardless of any policy changes out there, A.J., we’re going to focus on that quality care, operational efficiencies, and those close partnerships with our payers. We think that by maintaining those really high standards and demonstrating really good clinical outcomes, everything will work out in the long run here. I think we’re well-positioned with our size, scale, and density and technology and our clinical outcomes that these partnerships will continue to grow and that we will be on the right side of health care and will be a cost savings to the health care system.

Just a follow-up on the hours growth. Can you spike out the contribution of Thrive in the quarter and how volumes performed on a same-store basis? Because it still looks like a pretty meaningful increase year-over-year. And once Thrive is fully integrated, what's the annualized earnings contribution expected in that?

Yes, Andrew, with the Thrive business, first off, it's a really great business. The team has done a really nice job integrating it into the Aveanna organization. Q3, to your point, reflects that full financial impact of Thrive. It was in there for a very full quarter. If you go back and look at our Q2 on an hours basis, we were mid- to high single digits out there. That's exactly organically what Aveanna was doing as well in Q3. The incremental, what you’re seeing is from Thrive. What we talked about previously, Thrive is coming in at roughly $100 million of revenue and about a 7.5x multiple from the purchase price post-synergies itself. We’re going to be just a little bit north of that, but the team has done a phenomenal job getting after synergies, integrating the organization, and really bringing them to be part of Aveanna.

I think Matt has said that well. We’ve guided people over the next 3 to 5 years that PDS should be in that kind of 4% to 5% organic growth rate. We’ve been a couple of points north of that now for 3 quarters plus. Q3 represented that organically, we were in that same kind of 6.5%, 7% organic and then the nice addition of Thrive. Again, I think as we came out of Q2, we guided people to think of Q2 as $79 million versus $88 million because of the $9 million of timing. As we noted, there are a couple of million dollars or more of wage pass-through. So we thought that the organic business would land kind of in the mid to high 70s, which is where it did. The addition of Thrive comfortably settled us right at that $80 million amount. That’s the full impact. We’re wrapping up integration literally in the month of November, and we have some AR runoff into early and mid-next year as normal as the systems run off, but we’re really putting the integration to bed here in November and excited to go do it again.

Great. I wanted to follow up on some of the comments around the uncertainty around state budgets and the indirect impact that might have on reimbursement. Are those comments more directional in nature? Or are there specific actions that states are taking that are driving that more prudent posture?

It's more directional in nature, but we spent the entire year talking to both governors, state Medicaid budget directors, and the key majority leaders in almost 30 states. It's been a similar conversation in all 29 states, which is a little bit of uncertainty, a little bit of let’s see how this shakes out, a little bit of we want to see how the OBBBA settles in. At this point, most states have kind of figured out what it means to them. Some states, like Wisconsin, were a big winner this year. Wisconsin had a major increase to their Medicaid PDN rate. But we had a couple of states that temporarily put in 2%, 3% reductions just so they could balance their 2026 budget. We’ve seen a little bit of everything in the process. But as we think of 2026 and 2027, we believe there are going to be some headwinds that states have to work through.

Yes. I think the diversity of the 29 states positions us nicely for some states to win and some states to hold while others are going to just be out there for a little bit, but that diversification is a positive for Aveanna.

You went on mute for a minute. So just going back to your payer relationships, you said you offer to bend the cost curve and it's an upside-only deal. What does that mean exactly? And my follow-up is, does having a payer deal in pediatrics grease the skids for a payer deal in home health and hospice and Med Solutions?

That's great. Let me start with the second one because the second one is easier than the first one. I’ll use United or if you just think about United, our answer would be no. It's two totally separate sections of the payer itself. United Community, which is our Medicaid business, is totally different than the United Medicare Advantage. We talk to both sides of United in this example, but the paths never really cross inside of their shop. So in most of our payer partners, if you think of our Medicaid pediatric rate person, that has very little benefit to the Medicare geriatric. Many times, they don’t even know who the peer is in nature. So unfortunately, it doesn’t bleed over. Going back to your first question about our payer contracts: First of all, each of our nine – I think, nine to date value-based agreements are in addition to an enhanced rate. So all 30 of our preferred payers have an enhanced rate, which means enhanced wage for the nurse in those cases. All nine of the value-based agreements are different in nature. Even some of those with the same payer, they’re different. But most of them focus on really two fundamental things: one is fill rate, the amount of hours that we've been authorized to fill. The goal is that we fill as many of those hours as possible. The payer wants us to fill 100%. Most of our targets are between 80% and 90%, where our goals are is to land between 80% and 90% fill rate. And then the second part is really HBR or MLR, however they think of it as some form of a target cost for the actual services that we provide, and really tying to acute care spend, right? So reducing the acute care spend. Most of our nine contracts have something to do with those two factors. There may be a third and fourth like customer satisfaction and other feedback from customers, but most of them are driven by HBR percentage and a fill rate target.

So, given that you have more nurses and athletes available, it seems that one call from them can fill more spots than if someone were to call five of your smaller competitors. I understand that it's likely more complex than that, but would you agree that's a significant factor?

It's scale. They want scale. They want scale of nurses, but also the scale of geography. They want technology. They want our clinical outcomes. They want the best. But yes, they want more nurses. Most of these payers, if you think of their geography, they’re in both Dallas, but they may also be in South Texas. So it’s urban and very rural, and they want both. They want you to cover both those with equal tenacity. But yes, they want our alignment of our nurses and our scale with their scale of their other beneficiaries. You've nailed it.

This is Michael Murray on for Ben. We're getting a lot of questions on the sustainability of growth of the preferred payer relationships. Could you give us an idea of the room to run here? You targeted 30 in 2025. Any idea what the goal would be for 2026? And then what is the potential to increase the number of patients you take within a preferred payer relationship?

I guess I'll start with some people ask us what inning are you in, in the preferred payer strategy. Clearly, we're past the first inning, but we're way before the ninth inning, I’ll put it in that way. We’re somewhere in the middle of the story. We’ve added volume metrics in PDS. Our goal would be at some point in the future to add a volume metric in Med Solutions tied to the number of preferred payer accounts. If you think of our PDS volumes today, we announced this quarter, 56% of our MCO volumes are aligned with the preferred payer. I think that would tell you we’re a little bit more than halfway there. We've said before, we don’t think that we’ll get to 100% of the MCO volumes being with preferred payer, but we should get to the low to mid-80s and maybe one day, the high 80s percentages over the next couple of years. So I think as we reset our goals, we met as a team a few weeks ago and started planning for '26. We’re in our budgets as we speak now. As we reset our goals for '26, clearly, 30 is no longer the goal; we’ll be somewhere in the mid- to high 30s, maybe even approaching 40%. But it's also the value and why we're looking for additional markets. Thrive is a great example. We added two brand-new states, we picked up a couple of preferred payers in those states right out of the gate, and enhanced relationships. There’s just a long runway in front of us. What we're doing in Med Solutions is exactly the same as what we've done in productivity services and Home Health and Hospice: define the preferred payers, define the target operating model, and then align our capacity with those payers. That’s what you’ll hear us talk about in '26 for Med Solutions.

And then I had a follow-up question on capital structure. I wanted to see what your intermediate leverage targets were. Do you anticipate hitting those through EBITDA growth? Or would you use cash flow to pay down debt?

Great question, Michael. I'm really impressed with the team for generating meaningful free cash flow. We had $146 million in cash on hand this quarter, which is excellent work from the team through cash collections and operational efforts. Our current net leverage is about 4.62 times, down almost three turns from last year’s 2.77. We expect to continue reducing leverage in the coming quarters and have set an internal target to achieve a leverage ratio starting with a three. While we may not reach that by the end of this year, we aim to be there by 2026 and 2027. We will be strategic with our available cash for potential opportunities, but if it makes sense for the organization, we're also open to paying down debt. The key takeaway here is our thoughtful approach, and for now, we will wait to see if any opportunities arise.

Guys, just one left. Just kind of curious, wanted to piggyback on A.J.'s question from earlier. Just with regards to home health and some of the uncertainty there. I'm just curious, has that impacted the strength of the pipeline of opportunities there for you guys? And what would you kind of need to see in terms of the final rule to get comfortable starting to potentially more meaningfully deploy capital there, just given some of the reimbursement uncertainty?

Yes, that’s a great question, David. We’ve seen a lot of activity over the past six months in both Medicaid and Medicare, specifically in home health and hospice, particularly from a mergers and acquisitions perspective. We’ve explored several smaller opportunities in both areas. Currently, we are not in a position to acquire any home health or hospice assets until we have clarity on the final rule. We expect the rule to be close to neutral, which might be an optimistic expectation, but we hope for a multi-year pause with no cuts, as the industry is asking. We plan to use 78% of our business to support the growth of the remaining 10%. We have mentioned this before, and we are committed to it. Our strategy is to leverage our Medicaid business to enhance our Medicare side. We are not interested in buying hospice at mid-teens multiples; we prefer to be more disciplined and look for acquisitions in the high single digits or low double digits with a clear path to higher earnings post-synergies. We are anticipating the final rule soon, likely late next week or the week after. What we really need is certainty from this administration that allows us to plan for the future, and once we have that, we’ll be ready to proceed. Thank you, Stacey, and thank you so much for your interest in our Aveanna story. We look forward to updating you on our continued progress right after the first of the year. Thank you, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.