Conference Transcript - AVAH 2026-06-02

Jared Haase, Analyst — William Blair

I think we can go ahead and get started here. So, hi, everyone. Thanks for joining us for the Aviana Healthcare Session. For those I have not yet met, my name is Jared Haas. I cover healthcare delivery and healthcare IT stocks for William Blair. Two quick housekeeping items before we begin. Just require to report for me that a full list of disclosures is available at our website, williamblair.com. And after we run through the presentation here, we'll have a full breakout session on the second floor in room Jenny B. So with that, it's my great pleasure to introduce the team from Aviana at the far end of the table. We have CEO Jeff Shainer, and next to me we have CFO Matt Buckhalter. Really excited to have the team here. First time for Aviana presenting at our Girl Stock Conference, and I think it's a great opportunity to hear from the company coming off of a really strong 2025, a lot of momentum that we've seen continue year to date. We also had an exciting announcement from the company this morning, closing an acquisition of Family First, so I'm sure we'll get into that in a little bit more detail especially as it relates to the outlook and guidance but in a lot of ways I think that's sort of symbolic of the evolution of the model over the last couple of years and we've now seen the company complete two acquisitions within roughly the last year so sort of a reflection of you know the team kind of executing on a lot of strategic initiatives and operating priorities and getting the model in a place where they can sort of play offense a little bit and you know remain investing for strategic growth which I'm sure is very exciting for the team internally so we'll We'll get into that in a lot more detail here through the presentation. So without further ado, Jeff and Matt, we'll pass it over to you.

Jeff Shaner, CEO

Thanks for introducing us and we're glad to be here today. God, I thought that was a world-class introduction by the way, so congrats and thanks. Just jumping in, we're excited to share our story with you today and look forward to taking questions in the breakout afterwards. As we think of who Aviana is, think of Aviana as the nation's leading provider of home care services to three specific groups, pediatric, adult, and geriatric patients. in America, one of the only companies that focuses on all three specific patient groups. We've diversified home care platform that delivers innovative, cost effective and patient preferred care, all in the comfort of our patients home. And as Jared mentioned, you know, we've had three years of strategic transformation. I'll go into that in a few minutes. But within that, we have focused on providing high quality clinical outcomes and enhanced value to our payer and government partners. and we'll and we'll we'll do a little bit deeper dive on our government and payer partners here in a few slides quickly touching on matt debbie nye and also the management team that stepped in with us we we all stepped into our current roles effectively q1 of 2023 is when we kicked off our strategic transformation as a company to rebuild the organization post-covid there's a large group behind us um you know teens and teens of leaders and also hundreds of employees that that thousands now thousands of employees that have stayed stayed committed on providing cost effective care in the home while rebuilding the company through our preferred payer and government affairs strategy but i will i will note we have as a management team we have hit i believe it's 13 quarters in a row including q1 of beating and raising expectations and sorry 14 i stand corrected and i expect that trend to continue as we think about the rest of 2026. as we go on to slide slide five here just thinking about the overview of the company i'll start the top right probably one of the things that we're most proud of is really over the last six years we've been able to drive almost a 10 percent revenue keg are and the majority of that being organic in nature at the same time he took a reverse reverse chart we would you'd show a de-leveraging from the end of 2022 through q1 of 26 that started just above 11 times leverage and at end of q1 is now under 3.8 and we didn't get the overnight we've been systematically reducing leverage by growing the company and collecting cash in a cost-effective matter over the last three three and a half years so very proud of the revenue growth and matt would remind me de-leveraging at the company at the exact same time the bottom right you see our national footprint you know i'm proud of what where we cover but i'm also i'm also opportunistic on the states that we have yet to fill in many of our medicaid mco payers and medicare advantage mco partners want us to fill in that upper midwest michigan ohio west virginia kentucky tennessee to really fill in some of the key medicaid states that we don't currently serve and the flip side really proud of the density that we have developed in many states like pennsylvania texas florida california massachusetts new jersey and many others as we continue to grow the company As Jared did mention, this morning we announced our closing of the Family First Pediatric PDN transaction. Really excited to welcome the employees of Family First to our company as of yesterday. And this morning we came out with updated guidance. We'll talk through that in just a minute. But Family First really strengthens, just like Jared mentioned, Thrive Pediatrics we did last summer. Actually, I think we did it one day apart, June 2nd last year, Thrive, and June 1st this year. So we've got a theme going there for June, early June acquisitions. But just like Thrive strengthened our presence in the state of Texas primarily, Family First was headquartered in Florida, and about 70% of its revenues were generated out of the state of Florida. So it really strengthens Florida for us, which is a mature pediatric PDS MCO state. So a very important state for us to really be relevant in. Also, Family First fills out states like Illinois, Iowa, North Carolina, Pennsylvania, South Dakota, and Texas. Although some of those are smaller, they're still important as we think of our total PDS story. And overarching, it strengthens our national footprint. Bottom left of the screen is our payer diversification. We're really proud of this. No single payer at Aviana makes up more than 10% of our revenue, and that's Medicare through primarily our home health and hospice division, a little bit of our med solutions. And as you think about our largest segment, Matt's going to talk about the business segments in a few minutes, PDS is our largest business segment. Think about the split being somewhere between 22% and 60% Medicaid and MCOs, so a movement from Medicaid out to MCOs over the last seven years that we think continues, and that's a good thing for Aviana. Let's explain our preferred payer strategy. Top left is our guidance. Before this morning, we had guided up in the end of Q1 to $2.56 billion to $2.58 billion and adjusted even out of $3.28 to $3.32. As of this morning, specifically for the family first revenue in EBITDA expected in 2026, we increased that range. We now believe fiscal year 26 revenue range of $2.63 billion to $2.65 billion or increase of $70 million at the midpoint and adjusted EBITDA range of $338 million to $342 million or an increase of $10 million at the midpoint. So $70 million increase in revenue and a $10 million increase in EBITDA, exclusively driven just from the timing of the close of Family First. Again, we'll talk more about that in Matt's remarks and in Q&A. So, you know, oppressive geographic mix, oppressive payer mix, but really it's underpinned by our preferred payer in our government affairs strategy. We want to spend a little bit of time with you on that, moving to slide six. So our growth strategy is underpinned by two key fundamental points. First, that demand for our services far outpaces the supply of caregivers so that our demand far outseeds our supply. And second, on average, studies show that home care is a 10x cost savings when compared to higher acute care savings like the NICU, PICU, or ICU setting. As an example, our pediatric patient cost on average in a hospital is between $5,000 and $6,000 a day in acute care setting, and on average at home with PDN services, the average cost is between $500 and $600 a day. So one-tenth the cost of an acute care setting. Our MCO partners understand this very, very acutely. For these reasons, we implemented our Preferred Payer and Government Affairs strategy back in late 2022. Our preferred payer strategy primarily aligns our clinical capacity with managed care organizations willing to invest in reimbursement rates, and our government affairs strategy similarly aligns our clinical capacity with federal and state partners willing to invest in reimbursement Both strategies rely on above-market reimbursement rates and above-market caregiver wages to align our caregiver capacity to that of our payers and our government partners. The overall focus of this strategy is to reduce the total cost of care and improve clinical outcomes while residing in a patient's preferred setting in their home. Lastly, our national-scale platform in investments in technology, data, innovation, innovative tools allows us to be the partner of choice for our MCO payers and government partners. Now let's move into some key KPIs as we think about how we manage the preferred payer and government payer strategy. We have a defined strategy, preferred payer strategy, in all three of our business segments. Matt will review those, private duty services, home health and hospice, and medical solutions. Our largest business segment, as you'll hear, is our private duty service segment, so let's focus there. As I mentioned, we implemented our preferred payer strategy back in mid-22 with our first preferred payer. I'm proud to say they're still with us today. And at the end of Q1 of 26, we had 34 private duty services preferred payers with approximately 60% of our total MCO volumes aligned with one of those MCO payers. That's up, to give you a relative point, that's up from seven preferred payers at the end of 2022, and about 15% of our MCO payers at the end of 22 aligned with the volume. even up from q1 we ended sorry we ended 2025 with 30 preferred payers and 57 57 of our volume so continued nice movement matt always says and i'll echo his comment we don't have a single preferred payer who says you've met all my needs every single one of our preferred payers expects more from us and needs more of our services so um we we felt like we have a long tail on this on these relationships and all three in all 34 uh priority services preferred payers we are receiving an above market reimbursement rate and paying an above market wage rate while aligning our critical capacity with these payers we believe that as we think of the next three to five years we can achieve somewhere between 80 and 85 percent of our total mco volumes with a preferred payer in our pds division so currently sitting at about 60 and believe that can get to 80 85. in addition under the second set of graphs here you'll see our value-based agreements and bonus opportunities think about those as upside bonuses only today there's no risk on those value-based agreements and those are really tied to our ability to reduce the total cost of care with our patient base we ended 2025 with 12 value-based agreements and roughly 15 million dollars worth value-based performance bonuses again these are upside only and they're tied directly to our ability to manage our patient population and reduce the total cost of care as you think about med solutions and our home health i'll jump to home health and hospice for a minute again we have we have a defined preferred payer strategy in both of these business segments proud to report at the end of q1 we had 49 preferred payers in our home health business that was up from 45 at the end of 2025, and roughly 81% of our business and volume is with an episodic payer, and we define a preferred payer in home health as an episodic payer. So you see they're growing from mid-60s to the low 70s, and now we've been consistently in the high 70s and pushing 80%. Lastly, in medical solutions, we've just finished our modernization. Matt will talk about that and efficiency efforts, and we have a target to grow 18 preferred payers to 25 this year. Lastly, before I hand it over to Matt, just talking about our long-term growth algorithm, each of our three operating segments have unique organic growth rates, and Matt will discuss those. When you aggregate the three businesses, we underpin Aviana's core organic and value-based growth to a range of 6% to 8% annually. Clearly, we've been outpacing this growth rate from some time now, as we've been in the mid-double-digit growth rate on a year-over-year basis. But we still think it's prudent to guide the organic growth rate to the high single digits over the long term. We believe with our capital structure that our capital structure supports an additional 1% to 2% in M&A growth for a total growth rate over the long term, between 7% and 10% annually. You'll find we are a discipline management team focused on delivering value to our payers, referral sources, government partners, and patients. and even in this current environment our preferred payer and government affairs strategies continues to give us the opportunity to grow both organically and through m a with that let me turn it over to matt and we'll jump into the three business segments matt thanks jeff so aviana

Matt Buckhalter, CFO

operates across three core business segments our first one private duty services that's dedicated to providing in-home care to the most medically fragile and complex children think about these children being high acuity, vent, trach dependence, cerebral palsy, and they probably spend their first six months to two years of their life being in a NICU or PICU setting before the very first time they come home with an Aviana caregiver at their side. Our second division is your home health and hospice. This is your traditional skilled geriatric care that is providing hospice therapy on skilled nursing services to adult in the geriatric population. And our last segment in here is our uh enteral nutrition or medical solution segment which provides enteral nutrition to over 31 000 patients on a monthly basis kind of taking a deep dive here into private duty services for a little bit this is obviously our largest division and it takes up about 82 percent of our total company revenue and in the long term we think this will grow in the three to five percent range think about that being roughly three three and a half percent on a volume and a one to one and a half percent rate, and that being a long-term projection. However, we obviously are experiencing much more accelerated volume and rate growth right now, and it's due to this pent-up demand that we're able to pull out all of these children out of the hospital and really staff the necessary cases to get the best clinical outcomes. We signed four additional preferred payers in Q1, bringing our total to 34. And of these 34, that makes up about 60% of our total MCO volume. So in that first kind of revenue mix, it makes up 60% of our total MCO volume is now being staffed through a preferred payer contract. We expect this to be in the low 60s by year end. And overall, this division is really dedicated to providing quality care at a very cost-efficient area and a patient-preferred setting as well, the home. Our next division, Home Health and Hospice, makes up roughly about 10% of our total company revenue. Right now we're very much a regional player in Home Health and Hospice. That's how we think of ourselves. The Midwest-based is a hub for us and also the Southeast. We believe long term that this division will grow in the five to seven percent range. That's industry, that's where that's growing. Jeff should be quick to remind me that in Q1 we grew 17.4% organically, so we are bucking the trend significantly we will continue to see accelerated growth and it's really from our operating team but also our clinical excellence that we're being able to pull through currently we're at 4.5 stars out of five where the industry is about three stars that's helping our referral sources continue to push to us and our preferred payer agreements where we have 49 signing four more additional episodic agreements in q1 that is being able to push us forward and grow not only our home health, but also our hospice division, which is the reason you're seeing this expedited growth at this time. The last one, our medical solutions segment, contributes roughly 8% of our total revenue. This is where we provide medical or enteral nutrition to roughly 31,000 patients on a monthly basis. Traditionally, much higher growth rate, 8 to 10%. You got to be careful in growing the right business and growing the right business appropriately but we are really seeing the return to growth in this division with 7.4 organic growth that we saw in q1 over q1 last year and that's really because we have put this company or this division through our operating model we call it our modernization efforts where we put the car up on the lift and said hey let's go make ourselves effective and efficient we did the same thing with private duty services the year before and triple h year before that and that's also a major point of why you're seeing that expedited growth in those two divisions I would expect this division to follow in the back half of 26 and into 27 as well. Overall, put all those together, we expect that revenue to grow in that 6% to 8% organic growth range with some significant upside as we bring in, tuck in, or appropriate M&A, similar to the family first acquisition that we announced earlier today. All three businesses, so continuing to deliver that strong year-over-year revenue growth. It was led by Home Health and Hospice, 17.4%, 16.4%, and PDS, and that's 7.4% in the Medical Solutions. This growth also has translated into pretty significant EBITDA growth as well. And so it's allowed us to generate some really meaningful free cash flow and to really strengthen our balance sheet at the same time. As Jeff mentioned, we're going to continue to remain really focused on our leverage profile. On Q1, we announced leverage of 3.8 times down significantly when we came into our positions back in 2022. But going forward, we're going to continue to execute on our deleveraging strategy, while sustaining our growth, having really disciplined cost management, and really strong cash collections. Our ultimate goal is to get to be a sub three times organization by also mixing in the inorganic growth with the organic growth at the same time. Lastly, what would be a finance person without talking about a capital structure? You know, obviously my favorite part. So Q1 liquidity of $525 million is roughly about $189 million cash on hand, $110 million of availability on our securitization facility, and approximately $226 million on a revolver, which remains continuously undrawn. We just use it for some LCs to put for workman's comp claims. We do have approximately $1.48 billion of variable rate debt out there. We've done a very nice job over the last few years with hedges and swaps. Currently, I've replaced our expiring swaps at the end of June with new hedges that go into place. So it really just takes the volatility out of potential interest rate fluctuations that could happen out there. And on top of that, done some really nice free cash flow over the last few years. In 2025, we generated $131 million of free cash flow. We expect to see similar increased results of that in 2026 as well. So lastly, in 2025, we refinanced our term loan. we combined our first and second into one term loan b pushed out the maturity to 2032 and reduced the total cost of capital and they're saving about 14 million dollars of interest expense with that one also last week did a little repricing and along with an upgrade from the rating agencies we were able to reduce our term loans by 75 basis points so taking that so for 375 to so for 300 and another $10 million incremental savings about $24 million in annual interest expense saved over the last year for interest so really proud of what we've been able to accomplish not only our free cash flow generation our D leveraging story but really just securing our capital structure and being in a really nice position going forward but that Jeff will turn over to wrap everything up here for us yeah and I think well said Matt and

Jeff Shaner, CEO

And, you know, I think Q1 is representative of now our fourth year in a row of continuing to transform our revenue growth, our clinical outcomes, and our cost effective care through our financial results. So I have no reason to expect 2026 not to be another banner year. It has certainly started out that way. But I go back and think about, you know, we rebuilt Aviana from the ground up from late 22 when EBITDA was 129 roughly 129 million dollars to the trailing four quarters now you know EBITDA is approximately 340 million dollars so we've built the company back from the ground up matt talked about each business we built it one year at a time rebuilt modernized our businesses took cost out of corporate uh corporate support at the same time investing in key areas of clinical and uh clinical innovations and our oversight and onboarding we are blessed to have a deeply dedicated group of IVAN leaders, employees who believe deeply in our missions. We want to thank them for all that they do. And as we've outlined for this presentation, we continue to execute a focused, disciplined strategy, but they're on scale, clinical excellence, and a strong partnership with both our payers and government partners. We are a growing national footprint with a balanced capital structure, with strong momentum, and Aviana's well positioned to deliver long-term value for our patients, our families, and our shareholders. So with that, we will open it up and see if Jared has any questions for us here with the few minutes we have left.

Jared Haase, Analyst — William Blair

Okay, yeah, we've got a few minutes here, so I can...

Jeff Shaner, CEO

So the question was, we can't hear it is, with our preferred payers, does it really de-risk the risk on reimbursement changes? I'll focus on our PDS division, this answer, but it's a similar answer across our three businesses. One, I went back and I said, the payers' need for our services is so far greater than we will ever be able to meet, both as a company and as an industry. So the demand is what's driving the need for more supply. And because we are cutting contract agreements that are unique with each payer, so each one of the 34 agreements are unique with that payer. And as far as we know, it's just an agreement with Aviana versus the peers in our market. Yes, it really creates a floor for us. Our contracts are normally annual in nature evergreen in nature so they are reviewed each year um but and remember each time the preferred payer signs a contract with us they're committing to an additional spend i mean they're committed to additional dollars and and often it is meaningful in nature so our ability to move that through to wages and to to engage and align more caregivers with them is what the premises is to ultimately save total total cost of care we try to add value-based agreements to this to your question our goal is is from day one with the new agreement is to start introducing the idea of value-based agreements because that that's when the payer and us both can recognize the savings that we are generating through these pediatric pediatric patients and and again the dollars think of the dollars in our value-based agreements for every dollar we're earning the plan has probably saved between nine and ten dollars per dollar so so because they're forwarding fronting us the reimbursement rate which allows us to increase wage rates it also then allows the payer to receive the robust you know amount of the savings and for us to share in those on a 10 to 15 basis so it's kind of a win-win it takes us about a year year and a half to align to value based contracts after we've signed a preferred arrangement but short answer to to the long answer is yes it really underpins the de-risking and i would tell you even in this environment where we have started to moderate our government affairs expectations, our state rate wins, we've seen the preferred payer wins pick up as referenced by, you know, second half of last year

Matt Buckhalter, CFO

and Q1 of this year. Great, great question. Anybody else? I might just add one, kind of

Jared Haase, Analyst — William Blair

building off of that, but I guess, you know, when I think about your response to that question, and then I go back to, I think one of the comments you made on the Q1 earnings call was just the idea that the labor environment is stable right now. You know, is it fair to say then that you're just less dependent on rate increases today than you were a few years ago to achieve your growth

Jeff Shaner, CEO

targets? Yeah, I'll start to jump in. I think we've said consistently, especially if you start four years ago, we had to fix 31 of 31 states four years ago. And you go back to our state rate wins, which was, I can't remember, 12, 15, 11, you know, 10, over 40 years, you know, each year, material in nature. We sit here today, we're the only market we have not yet fixed is the California Medi-Cal market. We're hopeful the Senate and the Assembly are both building a 27 legislative process in California today. But, and I'm going to remind on record, we are disappointed in California for the fact that they have not put forth a rate increase. It is one of the the only investments in California that has a net savings for them on an annual basis. For them to invest about $75 million, they'd save about $330 million on an annual basis. So it is a no-brainer for California to step up and invest in PDN rate increases. I will get off my soapbox, sorry. But yes, over the last four years, Jared, our team and our industry has done a really good job of fixing the state rate wins. And Matt, maybe we'll talk about how we think about state rates over the next few years.

Matt Buckhalter, CFO

Yeah, and it's more of a COLA adjustment now, Jared, is the expectation. And a lot of this was prior to us driving the government affairs or the pay relations strategy, but specifically the government affairs strategy. Nobody was doing it. We do have size. We do have scale. We have density. We have sophistication. But our pay relations and government affairs team used to be a part-time employee, a contractor that we had in there. Now you turn around and there's 25, 30 deep. It's a robust piece of our business, and it's a big piece of our story. we don't want to go for the 10-year hiatus like we're experiencing in california of a 50 rate increase and then waiting 10 years until the next one comes we'd rather go back to the table every couple years every two years hey we need to put three percent in hey four percent will help into this one let us show you what we saved you at this one but really just beating the drum and staying on top of it so there's not wild swings or any feast or famine that would potentially occur we're in a really good spot right now we've played the catch-up post the hyper wage inflation that occurred post-COVID, and now we're just operating the business at a really high level and getting some nice leverage out of our SG&A, too.

Jeff Shaner, CEO

If you take, yes, let's take out the Thrive acquisition last year. So 16.4% comes down to closer to 10%. So why 10% when we guide to 3% to 5%? I think we would tell you it is those three and four years of the pent-up demand that was ultimately there for the need for children to get out of the hospital and be serviced at home. As we continue to build upon these rate wins, both state and preferred payers and the MCOs, you just started to get a compounding impact of both rate and volume. Ultimately, in our 10% PDS, we tell you it's still 6%, 6.5% volume and 3% to 3.5%, maybe 4% rate. So rate is still higher. You heard Matt talk about we guide to 1% to 1.5% rate long term. We think that's prudent. So rate is still accelerated, but really it's the growth. And I would tell you it's the pent-up growth. Matt talks about often when we sign a preferred payer agreement, immediately we go from having not admitted a single case for that payer for months to the next week we're admitting three, four, five patients. And think of our patients on average getting between 60 and maybe 100 hours of service a week. So these are high intense children coming out of the hospital. So there is just such pent up demand when these payers sign agreements with us. and we use a data point like like on average nationally medically fragile children spend 54 extra days in the hospital waiting for home-based nursing services to be established in the home that's 54 days at somewhere between five and seven thousand dollars a day so if you're an mco payer you understand what 250 000 means of just waste in a hospital plus the family's yelling at you that they want to go home so those kind of pent-up demand type decisions i think has been driving our celebrated growth break i mean right on the dot right on that when chicago hit the shot clock thank you so much