Earnings Call Transcript - AVAH Q1 2021

Operator, Operator

Good morning. And welcome to the Aveanna Healthcare Holdings First Quarter 2021 Earnings Conference Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Shannon Drake, Aveanna's Chief Legal Officer and Corporate Secretary. Thank you. You may begin.

Shannon Drake, Chief Legal Officer

Thank you, Operator.

Rod Windley, CEO

Thank you, Shannon, and welcome to Aveanna's first earnings call. I'd like to take a moment and thank everyone on the call today for your interest and commitment to Aveanna as we move forward as a public company. In addition, I'd like to thank everyone, including our Board of Directors, our accountants, our lawyers, and most of all our employees. Your hard work has culminated in the important milestone that brought Aveanna to the NASDAQ Exchange on April the 29th. We are extremely proud of our results for this quarter and our continued growth through acquisitions. As previously disclosed, our recent acquisition of Doctor’s Choice further expands our footprint in the State of Florida, one of the fastest growing geriatric markets in the country. Our pipeline of acquisitions remains robust, and we plan to continue to accelerate our growth through this process as we move forward. Finally, we are excited to announce that Dr. Erica Schwartz has been appointed to the Board of Directors of Aveanna. Dr. Schwartz brings a wealth of knowledge and experience to the boardroom having previously served as Deputy Surgeon General and Chief of Health Services for the U.S. Coast Guard. We are thrilled to have Dr. Schwartz join our team. And with that, let me turn it over to Tony and the team to discuss our Q1 results. Tony?

Tony Strange, CFO

Thanks, Rod. And good morning, everyone, and thank you for joining Aveanna's first quarter earnings call as well as Aveanna’s first call as a publicly traded company. We're excited to share our results and to have you participate in our Aveanna story. On behalf of Rod and myself and the entire executive team, we'd like to thank all of our shareholders and analysts for your participation in our IPO and we look forward to building shareholder value together. In addition, we'd like to thank all of the employees of Aveanna, especially the caregivers in the home, without you none of these results are possible. As a reminder, Aveanna is a diversified home care company providing services to children, adults and seniors through a scaled platform across 30 states. We deliver these services with a focus on providing the highest quality clinical outcomes and customer satisfaction in a consistent and compassionate manner. Today, the company engages over 42,000 caregivers to provide service to in excess of 60,000 patients. As noted in our mission statement, we do this one patient at a time. As outlined in our S-1, our 10-Q and our press release, we provide these services through three business segments. Our largest segment, Private Duty Services provide hourly based care in the patient's home. While we provide both skilled and unskilled services in this segment, the majority of our hours are skilled nursing care for medically fragile children.

Jeff Shaner, CFO

Thank you, Tony. It brings me great pleasure to share our Q1 2021 operating indicators and key metrics. I will focus my comments on our three operating segments, Private Duty Services, Home Health & Hospice and Medical Solutions. We report each segment as a unique business unit with a full complement of operations, sales, improvement, payer and government relations, clinical support and technology to support the delivery of our care. Each operating segment has a fully dedicated management team, established key indicators and a strong commitment to the Aveanna 5 Cs, core values and commitment to compliance.

David Afshar, CFO

Thank you, Jeff. Tony and Jeff have given us some great color on our quarter and the positive outlook that we have right now. I'll now provide some more details on the results of operations, adjusted EBITDA, liquidity, some recent events in Q2 that we're very proud of and 2021 guidance. With respect to results of operations, revenue was $417.2 million for the first quarter of 2021, as compared to $355.2 million for the first quarter of 2020, an increase of $61.9 million or 17.4%. This increase was driven by growth across our key segments, including a $30.3 million or 9.5% increase in PDS revenue, a $27.0 million or 604% increase in our Home Health & Hospice revenue and a $4.6 million or 15.2% increase in Medical Solutions revenue. Jeff mentioned it, but our PDS segment volume growth was robust at 11.1% with both organic volume growth and new volumes contributed by the numerous acquisitions we completed in 2020. Our Home Health & Hospice segment revenue growth of $27 million resulted from the incremental revenue generated by the two 2020 Home Health & Hospice acquisitions that we closed in the fourth quarter, Five Points and Recover Health. And as I'll elaborate on later, we've continued our Home Health & Hospice M&A in 2021 with the acquisition of Doctor's Choice in April. Our Medical Solutions segment volume growth was 10.6%. On the rate side of things, while our PDS revenue decreased 1.6% overall due to the change in business mix that Jeff mentioned earlier, we view the PDS reimbursement rate environment as a tailwind resulting from both permanent and temporary rate increases issued by various state Medicaid programs, which is positively benefiting our PDS businesses. Revenue rate in our Medical Solutions business increased 4.6% from the year ago quarter. Turning to gross margin, our gross margin was $131.7 million or 31.6% of revenue for the first quarter of 2021, as compared to $107.5 million or 30.3% of revenue for the first quarter of 2020. The 22.4% growth in our gross margin compares favorably to our revenue growth of 17.4%. Our gross margin percentage increased 130 basis points in the current quarter as compared to the year ago quarter. Operating income was $28.3 million for the first quarter of 2021 or 6.8% of revenue, as compared to $17.9 million or 5% of revenue for the first quarter of 2020, an increase of $10.4 million. Operating income for the first quarter of 2021 was positively impacted by an increase of $14.5 million or 30.2% in field contribution as compared to the first quarter of 2020. The $14.5 million increase in field contribution was delivered by a $61.9 million or 17.4% increase in consolidated revenue, combined with a 140 basis point improvement in our field contribution margin to 14.9% for the first quarter of 2021, an increase from 13.5% from the first quarter of 2020. Field contribution and field contribution margin are important metrics to us because they help us assess and make decisions about the operating performance of our core field operations, prior to corporate and other costs not directly related to our field operations. Moving on to net income, net income decreased $31.8 million for the first quarter of 2021 as compared to the first quarter of 2020. And while that looks like a significant decrease in net income, if you exclude the $50 million legal settlement we received in the first quarter of 2020, our net income actually increased by approximately $18.2 million in the current quarter as compared to the year ago quarter, primarily as a result of the $10.4 million increase in operating income and an $8.3 million net decrease in valuation charges associated with our interest rate swaps, and net settlements incurred with swap counterparties. Moving to adjusted EBITDA, adjusted EBITDA was $43.7 million for the first quarter of 2021 as compared to $29.8 million for the first quarter of 2020, an increase of $13.9 million or 46.7%. We're very pleased to see expansion in our adjusted EBITDA margins from 8.4% in the first quarter of 2020 to 10.5% in the first quarter of 2021, as the quality of our adjusted EBITDA has improved, primarily due to the 180 basis point improvement in our operating income as a percentage of revenue. With respect to liquidity, we had strong liquidity at April 3, 2021, with cash on the balance sheet of $67 million and available borrowing capacity under our revolving credit facility of $55 million, resulting in total liquidity of $122 million at the end of the first quarter. And this is after returning in the first quarter $25.1 million of provided relief funds to the federal government and $4.3 million of stimulus funds to the State of Pennsylvania, both of which we received during 2020. With respect to our cash collections and DSO, we're pleased with how our revenue cycle teams continue to perform in a remote work environment. Our focus is integrating the collection operations of the companies we have acquired and normalizing our collections processes for the new electronic visit verification requirements. We're proud of how collaboratively our revenue cycle and operations teams work to drive excellence in cash collections, which is one of our 5 Cs. Our DSO was 40.2 days for the first quarter of 2021 as compared to 40.9 days for the first quarter of 2020. We expect our DSO to increase over time as we grow our Home Health & Hospice business, as those businesses generally have longer collection cycles. Our capital expenditures in the first fiscal quarter of 2021 were 0.6% of revenue, as compared to 1.8% of revenue in the first quarter of 2020. We typically view our CapEx in a range of 1% to 1.2% of revenue. Our CapEx in the first quarter of 2021 was lower than normal due to timing of current year expenditures. I'd like to now cover a couple of recent events in the second quarter of 2021. On April 16, 2021, we closed the acquisition of Doctor's Choice for a purchase price of $115 million as we continue to execute our M&A plans. In a short period of time, we have grown our Home Health & Hospice business to $200 million in annual revenue on a pro forma basis, inclusive of Doctor's Choice based on first quarter results. We financed the Doctor's Choice acquisition in part with a $67 million incremental second lien term loan. This incremental second lien term loan was repaid with proceeds from our IPO, which I'll speak to next. On April 28th, we became a public registrar; and on May 3rd, we closed our initial public offering. What a milestone and a tribute to our caregivers and support staff, without whom this would not have been possible. Including the green shoe that we recently partially exercised by our underwriters, we sold approximately 42 million of our common shares and raised approximately $507 million in gross proceeds from the offering in total. Net of bank fees, we received approximately $478 million. We used those funds primarily to repay debt and accrued interest, but also to pay for offering costs and related items, funding the remainder of the cash to the balance sheet for general corporate purposes and future M&A. Specifically, with respect to debt repayment, we used $307 million of IPO proceeds to fully repay and extinguish our $240 million original second lien credit facility, as well as the $67 million incremental second lien term loans borrowed in the second quarter of 2021 to finance our acquisition of Doctor’s Choice. And we used $100 million to make a principal payment against our first lien credit facility. Pro forma for these principal payments that we made with the IPO proceeds, we had $862 million of total credit facility debt as of the end of Q1 '21. And lastly, we upsized our revolving credit facility in connection with the IPO, which further enhances our liquidity. We've now increased total capacity under the credit facility from $75 million to $200 million. As a result of our initial public offering and repayment of debt, the rating agencies have taken positive actions. On May 3, 2021, S&P upgraded our issuer and issue level credit ratings from B minus to B2 minus from CCC plus, with a positive outlook. On May 4th, Moody's upgraded our corporate family rating to B2 from B3 and affirmed our B2 rating on our senior secured first lien credit facility with a stable outlook. We were pleased with these ratings actions. And turning to our full year 2021 guidance, we anticipate our revenue to be at least $1.745 billion. We anticipate our adjusted EBITDA to be at least $185 million. And for the reasons outlined in the press release, we are not providing guidance at this time on net income. And one other item, we also currently plan to provide guidance on adjusted net income per share in the future as we mature as a public company. In summary, we've entered 2021 from a position of strength with first quarter earnings that exceeded our expectations. Additionally, we're pleased to have returned $29.4 million of provider relief and stimulus funds in aggregate that we received during 2020 to the respective government agencies in the first quarter of '21. The proceeds we received from our IPO and the debt we retired as a result has reduced our leverage and related debt service costs in the second quarter. With our improved capital structure, as well as recent positive rating agency actions, we believe we're in an even better position to capitalize on the market opportunities before us. And with that, operator, we're ready to open up the call for questions.

Operator, Operator

Our first question comes from the line of Steven Valiquette with Barclays.

Steven Valiquette, Analyst

I have a couple of questions. First, regarding the revenue rate in the PDS segment, which was slightly down year-over-year. You noted the shift in the business mix between skilled and unskilled services, and that it should start to normalize in the latter half of the year. As we consider that recovery, how detailed can you get about this? Should we expect the revenue rake to return to the high 30s during this recovery this year, or should we anticipate it remaining more in the mid-$30 range during this phase? Additionally, can you provide any further insights on the environment for collective state rate updates and how it affects your outlook for that metric for the remainder of the year?

Tony Strange, CFO

Well, first of all, Steve, that's a very insightful question, and I think we can provide some details. The change that Jeff mentioned regarding the rate is important to clarify what it isn't. It is not a change in payment rate or payment methodology from a payer or a state. As Jeff explained, it reflects a change in the business mix between skilled and unskilled services. Regarding how we view this for the remainder of the year, Jeff, could you elaborate a bit on the seasonality aspect and how we anticipate that will evolve with the school year?

Jeff Shaner, CFO

Yes. As Tony mentioned, and as we've noted in our comments, the COVID pandemic has led to a slight decline in our school business, primarily due to our nurses staying home with their children and being unable to work. This has affected the skilled business we would typically have. Additionally, we have a significant number of schools and skilled nursing hours where our nurse accompanies our medically fragile child, and there is understandable concern regarding our children and the COVID pandemic. Most of our kids have not attended school in person during the last quarters of last year and now into this year. We observe positive trends with the vaccination process. We’ve spoken with many parents, and they plan to send their kids back to school in the fall, which typically starts to ramp up for us in August. By Labor Day and September, our schools will be fully operational again. Therefore, as we mentioned in our prepared remarks, we anticipate that our skilled nursing business volume and overall rate will normalize, and we feel optimistic about this outlook.

Tony Strange, CFO

So Steve, the second part of your question was about the payer and state environment. Let's go back to the beginning of COVID. Many states implemented rate increases in the first half or middle of 2020, and some of those were temporary. However, many of those states have since made those rate increases permanent. In the latter half of 2020 and the first quarter of 2021, I can say that our overall rate environment has been positive, and we anticipate that trend to continue. I want to give credit to Jeff and his payer relations team. We made an investment in early 2020 in a government and payer relations strategy, and they have done an excellent job in maintaining positive rates and advancing them. We expect to see additional rate relief in 2021, and we believe that rate will remain a positive story in our PDS segment for the foreseeable future.

Operator, Operator

Thank you. Our next question comes from the line of Matt Borsch with BMO Capital Markets. Please proceed with your question.

Matt Borsch, Analyst

Thank you and congratulations on everything you've accomplished in the last two months. I wanted to ask about how you see the timeline to normal trends? How much do you anticipate this is going to look like? What the business looked like prior to COVID versus where do you see sustained impacts from the pandemic as you move through rest of this year?

Tony Strange, CFO

Thank you, Matt, for your kind words; we truly appreciate it as we don't receive many compliments. Regarding the timeline to normal trends, I believe we have already made significant progress. In my view, we are largely back to the state we were in during the first quarter of 2021. This is not necessarily because we have returned to pre-COVID conditions, but rather because the definition of normal has evolved. I think the current state is the foundation from which we will build in the future. We do not expect any sudden changes in June or identified periods; we are operating in what we anticipate to be our new normal. Jeff, do you want to add anything?

Jeff Shaner, CFO

Yes, that's well said, Tony. I think our investments in technology from 2019 and 2020, along with our recruitment infrastructure and government relations, have significantly benefited our business through improved operating leverage. As Dave mentioned, we've seen enhancements in what we refer to as field contribution, which is reflected in our adjusted EBITDA. I believe this improvement is due to the new normal that has emerged post-COVID, and we have discovered ways to operate our business more efficiently. I don't think we plan on reverting to our previous methods.

Tony Strange, CFO

I think, Matt, maybe I read a little bit more into your question. If you think back to prior to COVID, recruiting new caregivers and nurses for us was difficult. Post-COVID recruiting nurses and caregivers is difficult. And I think that's just the world that we're all going to live in and we can't solve that problem. But what we're going to do is make it better for us than anybody else. And so the investments that Jeff talked about into our recruiting structure, I believe is going to pay-off for us in the long run. Now granted our country is struggling with getting people back to work. And while that's above my pay grade, as the unemployment benefit subside and people find a need to go back to work, I think it might make our jobs a little bit easier. But we're not waiting around and hanging our hat on that, we’re operating as if this is the new normal for us.

Operator, Operator

Thank you. Our next question comes from the line of Lisa Gill with JP Morgan.

Lisa Gill, Analyst

I just wanted to follow-up on two things. One, can you just remind us that the size of the pipeline of acquisitions that you have? And then secondly, I heard the comments that you don't have any acquisitions currently and the guidance that you gave us for 2021. But can you just remind us how long it would take to close a transaction? Is there the potential that you'd have that opportunity to close something here before the end of the calendar year?

Tony Strange, CFO

Certainly, Lisa, I will address your question in reverse order. I will start with our guidance, and then I’ll ask Rod to discuss our pipeline. Our guidance does not factor in any future mergers and acquisitions. We closed the Doctor’s acquisition in April of this year, which is the only transaction we completed in 2021. Therefore, the projected revenue of $1.745 billion and the EBITDA of $185 million do not incorporate any acquisitions aside from Doctor’s Choice. That said, we do have a strong pipeline, and Rod has been overseeing it. Rod, could you share a few details about the size of the pipeline and the time it typically takes to complete a transaction?

Rod Windley, CFO

Lisa, our current pipeline today is roughly $300 million that we're working with on a daily basis. Those are acquisitions in the $20 million to $80 million ranges as we have previously disclosed. We normally kind of work on acquisition pipeline of around this much now. We're very disciplined. That doesn't mean that we've got candidates coming on and going off all the time. We don't do every acquisition that comes our way. We look at a fair amount but we don't close a lot. So we're very particular and disciplined with regard to our approach. I think that we have previously disclosed, it takes us about 45 days from the date that we sign a transaction to closing it and we fully integrate every acquisition within 12 months.

Tony Strange, CFO

But I think Lisa the way that I would think about our acquisitions going forward is we don't have control over when some of these assets come up for sale or the timing of that. So it's a little bit hard to predict the timing of close, so that's why we don't include it in our guidance. However, internally, we're going to continue to grow through acquisition and somewhere between $150 million and $200 million a year is a pretty good number for us. And we believe that we'll be able to achieve that not only in '21 but in '22 and the years following that. So we're going to continue to be very assertive as it relates to our growth through acquisition.

Lisa Gill, Analyst

Just given the focus on home health, do you find that the competitive landscape has changed at all over the last 12 months for these assets as we think about acquisitions?

Rod Windley, CFO

No, the competitive landscape really hasn't changed really at all. Other than the fact that it's not so much strategic buyers that are out there in the market, it’s more private equity and that's the only change I've seen.

Tony Strange, CFO

But one of the things that we've been successful at is that, as Rod talks about with the private equity competitors in these deals is that when we identify a transaction that is a good strategic fit for Aveanna, we're going to close that transaction. Our synergies have a lot of value and we can exploit those values in our pricing. And so if it's a good asset and it's a good fit for Aveanna, we're going after and we're going to close that transaction.

Operator, Operator

Our next question comes from the line of A.J. Rice with Credit Suisse.

A.J. Rice, Analyst

Maybe just look at the cost side for a minute. You alluded to labor obviously being a relatively tight supply. Can you give a little more flavor on the Private Duty side as well as the adult home care side? What you're seeing, how much of a constraint that is? I think there was a mention that you've got some people that are at home with kids and other things that you expect to see schools reopening and all opening back up. How much of a constraint is that right now and how much of a swing could that be for the back half of the year? Can you just give us a little more granular discussion around your labor trends?

Jeff Shaner, CFO

I think there are two aspects to consider. On the cost side, we haven't really experienced any margin issues, which is encouraging. As we evaluate our margins and the known rate increases, along with those we're still addressing for the latter half of 2021 and into the 2022 legislative cycle, we feel optimistic about our costs. We have noticed that as we move forward from the latter part of COVID, the challenge lies in getting nurses back into the workforce, often with requests for a small raise of $0.50 or even a dollar an hour. It has been mentioned by Tony and some of our industry peers that the macroeconomic trends regarding unemployment are significant. We are not relying solely on this, but a reduction in unemployment benefits will ultimately benefit our industry. Moreover, a crucial factor for us is the return of kids to school. This is essential for our revenue growth strategy since our pediatric patients are connected to the schools. It's also important for nurses who are single mothers with children. Regardless of wage increases, if they have to care for their kids at home, they cannot work shifts. Thus, the overall return to school and a decrease in federal and state unemployment rates will likely assist us. Despite these factors, we expect our growth rates, as observed in the first quarter, to remain stable throughout 2021. The growth rates we've discussed in our roadshow appear solid for our Private Duty Services segment, as well as our Home Health & Hospice segment. We always need more nurses, and while we’re not overwhelmed with staff, we continue to adapt and push through on a daily basis.

Rod Windley, CFO

A.J., Jeff mentioned a key metric in his comments regarding the spread in private duty services. We intentionally highlighted that metric for everyone to track. In his remarks, he outlined that the spread is expected to fluctuate between 10 and 10.50. The essence of my response to your question is that we anticipate the spread will remain within that 10 to 10.50 range. Looking ahead to the end of 2021, we don't foresee any changes that would alter our perspective on that metric. If I were in your position, I would focus on that aspect of the private duty business.

A.J. Rice, Analyst

And maybe just further on the cost side, it looks like your branch and regional expense as well as your corporate expense in terms of ratios relative to revenue were a little better than we were thinking they were going to be. Can you talk a little bit about the potential for leverage there as you grow the business? And what are the implications for long term margin enhancement opportunities as you get leverage on those lines?

David Afshar, CFO

As we've grown over the past year, we have already leveraged our branch and regional infrastructure as well as our corporate infrastructure, and so we're pleased with the results that we've turned in. And we think we have some leverage to gain in the future as well. So strong cost control as Tony and Jeff mentioned. Our operators have done an exceptional job of growing the business, but at the same time, controlling costs. And so we think we've got leverage both in the field as well as in corporate.

Rod Windley, CFO

And as a reference point, A.J., if you go back a couple of years ago, our corporate expense, Dave, put it in our press release last night. Our adjusted corporate expense numbers down to about 4.7% of revenue. We've picked up 200 basis points in the last couple of years just on corporate overheads. And so as we continue to grow in that mid to high teens year-over-year, we're going to continue to gain leverage against that corporate and regional SG&A. So we think we've got runway left.

Operator, Operator

Our next question comes from a line of Joanna Gajuk with Bank of America.

Joanna Gajuk, Analyst

My first a follow-up, the commentary around organic growth at each of your business lines you expect to continue to outpace the market. So what was the organic growth, I guess, in your home health market, in your home health segment?

Tony Strange, CFO

So we didn't break out organic growth from acquisition growth, primarily in our Q1 numbers there's no new acquisitions in that number. All of the acquisitions that were done that are in our Q1 numbers were done in 2020. And as Jeff alluded to, we get after integration very quickly through our integration management office. And this IMO team begins integration literally before we even close. And so because of that when we have overlapping locations, we consolidate those locations and those just become a part of our organic story. So we've not broken out our growth rates organically versus through acquisition. With that said, our businesses, we have talked publicly, depending on who you read, the home health market is growing 4% to 7% year-over-year in home health and our home health organic growth is outpacing that by a few hundred basis points, and we believe that trend will continue.

Joanna Gajuk, Analyst

And just again your market share when you come into the market when you acquired these assets and you are just going to improve the operations and be able to grow faster than the market rate…

Jeff Shaner, CFO

I don't think we are looking to just rapidly grow Doctor's Choice. We acquired it because we believe its growth potential is very strong. As Tony mentioned, we plan to leverage Doctor's Choice through back-end synergies and integrate it into the Aveanna brand. We are very pleased with Doctor's Choice's organic growth rate, which is outperforming the Florida market and most of its competitors, which is part of the reason for our acquisition. We valued that asset for its ability to create density. We're about 30 days post-acquisition and already in the integration phase, and the team is performing exceptionally well, exceeding our early expectations. It's not just about changing the growth narrative; it's about realizing synergies and incorporating it into our operations. Importantly, as we noted with both Recover Health and Five Points, we are growing during the integration process, and we are very satisfied with how our home health business has progressed this year to date.

Tony Strange, CFO

And Joanna, if it's helpful, I think we have made this comment already publicly. We expect our Home Health & Hospice business to continue to grow in that high single digits approaching low double-digit growth year-over-year, and we don't see that slowing down at all.

Joanna Gajuk, Analyst

And my question was I guess on the home health side of things in terms of your targets for acquisition. So you're talking about growing revenue in mid to high teens going forward, including acquisition. So how should we think about kind of the amount of revenues you expect to acquire and then how will you be financing these transactions going forward?

Tony Strange, CFO

We anticipate acquiring between $150 million and $200 million in revenue each year. However, this is not solely from Home Health & Hospice; we're also looking to grow our Private Duty Services business. When quality acquisition opportunities arise in that sector, we'll pursue them. A range of $150 million to $200 million annually is a reasonable estimate. Regarding our financing strategy, as mentioned, we have strong cash reserves on our balance sheet. We recently executed additional shares, bringing our available funds for mergers and acquisitions to around $90 million to $95 million. We'll utilize leverage sensibly, aiming to reduce our leverage ratio to between 3.5 and 4. Although our IPO was shorter than expected, our leverage currently stands between 4 and 4.5, both gross and net. We're comfortable with that level and can use our balance sheet to support further growth. We also increased our revolver to $200 million, providing additional financial flexibility for growth. Moreover, we have the option to raise capital through a secondary offering and have supportive sponsors for business expansion. Lastly, our stock can serve as a currency for acquisitions, which we haven't specifically addressed yet, but I believe our access to capital won't limit our acquisition growth.

Operator, Operator

Thank you. Our next question comes from the line of Pito Chickering with Deutsche Bank.

Pito Chickering, Analyst

So two clarifications here, your margin this quarter is very strong at 10.5% and also generally in line with your guidance for 2021. You did referenced continued room for gross margin improvements in Home Health & Hospice plus additional SG&A leverage. So I want to see if you can walk us through the margin progression throughout 2021, will it prevent you from getting to the 11 plus range by the fourth quarter?

Tony Strange, CFO

In terms of the outlook for 2021, we can only confirm our guidance of 1.7 billion in revenue and not less than 185 million in EBITDA. I believe there is a solid opportunity for us to enhance our margins. As Jeff mentioned, our current home health margin is in the mid-40s. The new acquisitions are already showing higher gross margins due to their longer experience with PDGM. We anticipate that as we expand this segment, gross margins could rise to the upper 40s or even low 50s. We will keep investing in our business to achieve this. For our Private Duty Services, we expect our margins to remain stable since it's a straightforward business where we charge and pay our caregivers by the hour, resulting in relatively fixed gross margins. As Jeff pointed out earlier, we don't foresee significant downside or upside from wage pressures in the near future, so those margins are likely to stay flat. In the smaller Medical Solutions segment, gross margins will also be in the mid-40s, as it functions similarly to a commodity. However, I believe there is still potential for margin expansion by leveraging our overhead. As Dave mentioned, and in response to questions from A.J. and Lisa, we expect to achieve mid to high teen growth without the need to increase our corporate infrastructure significantly. We have a strong compliance program that doesn't require duplication as we grow through acquisitions, which will allow us to gain more leverage moving forward and create further opportunities for margin expansion.

Pito Chickering, Analyst

And then a follow-up question on the PDS side and the skilled versus unskilled. Any chance you can quantify the split between sort of those two businesses in the first quarter? And as you expect that to rebound in the back half of the year, do you think that you can recruit to select demand? Historically, I believe that recruiting was a limitation of growth in PDS. So I want to make sure I can understand both the demand from kids going back to school and recruiting for nurses in the back half of the year to fit that demand?

Tony Strange, CFO

Jeff and I will tag team that. Let me set the table with we're not going to disclose skilled versus unskilled because then we get into all sorts of other services within Private Duty Services, whether it would be through our pediatric day health centers, or therapy component, or clinical component. The next thing you know, we're trying to parse that out into 17 different pieces. So we're not going to disclose further below our Private Duty Services segment. With that said, though, we'll try to provide you with some color. Jeff, why don't you talk a little bit about the kind of patients at skilled and unskilled, and what causes them to go up and down?

Jeff Shaner, CFO

The consistency and growth we've seen in the unskilled side of the business stems from family members, neighbors, or distant relatives providing that care. Throughout COVID, trust between families and caregivers increased, making it easier to keep these connections. This segment has remained more connected and even expanded during the pandemic. A year ago, our day health centers were closed for about 60 days, with no patients. As states like Florida and Pennsylvania began reopening, we gradually brought children back. That business has largely rebounded, though Pennsylvania is still increasing capacity from 75% to 100% by the end of the month, which will help complete that aspect of our business. Schools play a significant role, particularly since we offer skilled services with RNs or LPNs who accompany medically fragile children on school buses. This makes the recruitment process smoother, as it involves a regular schedule and a favorable environment. Therefore, filling these positions is relatively straightforward. As Tony mentioned, we don't expect a quick surge in these services around August 1st, but we anticipate a gradual ramp-up from August through the end of the year. This would indicate that states are returning to a sense of normalcy after COVID, which bodes well for our business and growth potential.

Operator, Operator

Our next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut, Analyst

So since we're down to just one question, I just want to ask if we can level set post IPO, the right share count for 2022 and then, I guess the right debt levels to be thinking about for end of Q2, just for modeling purposes?

David Afshar, CFO

As far as the share count, today, we've got 184 million of shares outstanding. When you think about the shares that may be outstanding at the end of the year or next year, there's still some mechanics we're working through with respect to the performance component of our options. And so I don't have a number for that for you on that right now, but it's something that we're still working through. And then as far as debt, as Tony said, I think the way to think about it is we see ourselves in the 4 to 4.5 turns of leverage range. Pro forma for the IPO, we were at $862 million in gross debt and we see it as 4 to low to mid-4s in terms of leverage going forward.

Operator, Operator

Our next question comes from the line of Frank Morgan with RBC Capital Markets.

Frank Morgan, Analyst

I actually wanted to ask about the home health care side of the business. I know that across the three units, whether it's 5Points, Recovery Health or Doctor's, where are they in the PDGM process? Do you think you really maximize the rate opportunity there? I know you talked about a margin opportunity in home health. So is it more on the rate side from refining PDGM or is it more on a cost mix side question?

Tony Strange, CFO

So let me start with the idea of getting back into the Medicare home health space. I think we spent the first half of '20 making sure that we understood PDGM and understood how it was going to separate winners from losers and the kind of metrics and systems that you have to have in place to appropriately manage PDGM. I think ultimately, we got extremely comfortable with doing that. I think the companies that we bought 5Points, Recover as well as Doctors' Choice, I think, have done an exceptional job clinically and they provide great care. I'm going to change a wording because I don't think we don't have an initiative to maximize reimbursement. And what we look to do is to deliver the right level of care to each patient under the orders of the physician, the reimbursement will sort itself out. And I think one of the things that we're going to do over time is we're going to bring consistency through each of those businesses that you just described, we're going to bring those into one clinical operating system going forward. And we'll use technology to make sure that our clinicians are documenting appropriately and that we are following physicians’ orders and that we're being compensated accordingly. And I think if we let that be our driving force, I think the outcome will be that we're going to be reimbursed appropriately for the services we're providing.

Operator, Operator

Our next question comes from the line of John Ransom with Raymond James.

John Ransom, Analyst

Just my one question. If we step back and look at what you're building here, the market's not ever seen a pediatric company combined with an adult home care company. Other than just the normal back office compliance and accounting, is there a natural synergy between those two businesses, or should we think about it as this is a great platform, but it gives us just a chance to rebuild a integrate home health company?

Tony Strange, CFO

So I'm going to start with the way you asked the question because I thought it was insightful. In terms of traditional synergy between the two, I think the answer is no. There's not a lot of overlap with staffing. There's not a lot of overlap with referral sources. There's not a lot of overlap with billing, the reimbursement piece. And to your point, there is a significant ability to leverage overhead across a much larger platform. And we’ll continue to benefit from being able to leverage our corporate expense across multiple platforms. However, I do believe that there is a pseudo synergy that exists, because we really diversify the risk profile of our business. And granted, from where we sit today, the horizon looks pretty clear. And so for the foreseeable future, rates look stable to positive, growth looks stable to positive. Our acquisition pipeline looks stable. But somewhere out there, there's a storm on the horizon. And I think that having a diverse business platform that would allow us to take a hit here or there without it being devastating across the entire business, I do believe is a strategic advantage for us going forward. So if the waters were to get choppy in any one of those three business segments, the other two business segments will give us the ability to weather those storms, and we think that is a competitive advantage. So hopefully, somewhere in there, I answered your question.

Operator, Operator

Our next question comes from the line of Scott Fidel with Stephens.

Scott Fidel, Analyst

I just have a follow-up question just on getting the skilled mix back up to more normal in PDS, and it sounds like to school reopenings is a key lever to that. Just interested as you have your conversations with the parents and in terms of getting your kids back into school because, obviously, they do have these more significant medical, complex medical situations. Are you getting any feedback in terms of is there more their parents looking more to get their kids vaccinated because of that, or do you just think that in general, just has the vaccination rates more broadly for teachers and other staff have increased so much, there will just be more comfort for the parents in terms of putting their kids back into the schools?

Jeff Shaner, CFO

I'll tell you from the parents we've talked to, not unlike the parents that we are, they want their kids back in school. So they understand even though that their child's medically fragile and it's a specialized environment, they ultimately want their child back in school. They want them back in a safe manner, which goes to your point on not only their vaccination but the other kids in the schools' vaccinations, the teachers' vaccinations, which I think is the primary driver why they were out the majority of last year and still year-to-date. But now, when we talk to the parents, they know the socialization education that is gained for their kids is absolutely worth it. And they are working with the school systems to build a path back in. These parents are very vocal. They're very motivated. They work hard on their shareholder's behalf and they're excited to get back into the school setting. And most of these parents receive at-home nursing services too. So we're in their home on the off-school hours. So we're there in the evenings and nights and certainly on weekends. But the idea of getting their children back to school is very important to them. So I think they're helping to solve the equation. They're helping the schools to solve the equation. And I think secondary and your question is really the vaccination rates, I think is where we see both the national vaccination rates but also the vaccination rates within our own nursing pool at Aveanna, we feel confident that 2021 is really going to crest the, whether it's the herd immunity or the majority of people getting vaccinated, we feel like, by 2021 is the year where that happens. Tony, anything you'd add?

Tony Strange, CFO

No, I think you said it well.

Operator, Operator

Thank you. Ladies and gentlemen, that's the end of our question-and-answer session. I'll turn the floor back to Mr. Strange for any final comments.

Tony Strange, CFO

Thank you, and we appreciate your help during our call. In closing, I'd like to welcome Dr. Schwartz to our Board on behalf of the entire executive team, we're looking forward to working with you. Buckle up. I'd also like to thank all of our employees again without the work that you guys do every single day, none of these results are possible. And we really appreciate all of the effort. And then lastly, I'd like to thank the folks that took time out of their day to join our call. We appreciate your support. You guys have been great during this process and we look forward to many future calls and being able to share our success with you. Thanks a lot, operator.

Operator, Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.