Aveanna Healthcare Holdings, Inc 10-Q for FY2024 Q3
Aveanna Healthcare Holdings, Inc. (AVAH)
About this 10-Q
Aveanna Healthcare Holdings, Inc filed this 10-Q on November 7, 2024, covering the quarter ended September 28, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 28, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $509.02M
- up 6.5% from $478.01M a year earlier
- Net loss
- $42.84M
- compared with a net loss of $102.39M a year earlier
- Diluted EPS
- -$0.22
- compared with -$0.54 a year earlier
other a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 1, 2024, the registrant had
Table of Contents
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1 |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of September 28, 2024 (Unaudited) and December 30, 2023 |
2 |
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3 |
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4 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
35 |
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Item 4. |
35 |
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PART II. OTHER INFORMATION |
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Item 1. |
37 |
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Item 1A. |
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Item 2. |
37 |
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Item 3. |
37 |
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Item 4. |
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Item 5. |
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Item 6. |
37 |
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SIGNATURES |
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39 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other similar expressions.
These statements are based on certain assumptions that we have made considering our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual results and could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to risks that may cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to, the following risks:
Additionally, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking statements contained in this Quarterly Report on Form 10-Q might not prove to be accurate and you should not place undue reliance upon them or otherwise rely upon them as predictions of future events. All forward-looking statements made by us in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
1
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEETS |
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(Amounts in thousands, except share and per share data) |
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As of |
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September 28, 2024 |
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December 30, 2023 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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Patient accounts receivable |
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Receivables under insured programs |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right of use assets |
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Goodwill |
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Intangible assets, net |
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Receivables under insured programs |
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Other long-term assets |
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Total assets |
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$ |
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LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable and other accrued liabilities |
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$ |
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Accrued payroll and employee benefits |
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Current portion of insurance reserves - insured programs |
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Current portion of insurance reserves |
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Securitization obligations |
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Current portion of long-term obligations |
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Current portion of operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Revolving credit facility |
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- |
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Long-term obligations, less current portion |
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Long-term insurance reserves - insured programs |
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Long-term insurance reserves |
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Operating lease liabilities, less current portion |
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Deferred income taxes |
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Other long-term liabilities |
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Total liabilities |
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Deferred restricted stock units |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities, deferred restricted stock units, and stockholders’ deficit |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Amounts in thousands, except per share data) |
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(Unaudited) |
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For the three-month periods ended |
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For the nine-month periods ended |
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September 28, 2024 |
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September 30, 2023 |
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September 28, 2024 |
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September 30, 2023 |
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Revenue |
$ |
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$ |
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$ |
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$ |
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Cost of revenue, excluding depreciation and amortization |
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Branch and regional administrative expenses |
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Corporate expenses |
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Goodwill impairment |
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- |
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- |
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Depreciation and amortization |
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Acquisition-related costs |
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Other operating expense (income) |
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Operating income (loss) |
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Interest income |
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Interest expense |
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Other (expense) income |
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Loss before income taxes |
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Income tax expense |
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Net loss |
$ |
( |
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$ |
( |
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$ |
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$ |
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Net loss per share: |
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Net loss per share, basic and diluted |
$ |
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$ |
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$ |
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$ |
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Weighted average shares of common stock outstanding, basic and diluted |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT |
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(Amounts in thousands, except share data) |
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(Unaudited) |
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For the three-month period ended September 28, 2024 |
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Common Stock |
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Additional Paid-in |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance, June 29, 2024 |
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$ |
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$ |
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$ |
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$ |
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Employee stock purchase plan |
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- |
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Non-cash share-based compensation |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
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For the three-month period ended September 30, 2023 |
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Common Stock |
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Additional Paid-in |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance, July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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Issuance of vested restricted shares |
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- |
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Non-cash share-based compensation |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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For the nine-month period ended September 28, 2024 |
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Common Stock |
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Additional Paid-in |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance, December 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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Issuance of vested restricted shares |
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- |
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Employee stock purchase plan |
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- |
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Non-cash share-based compensation |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
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For the nine-month period ended September 30, 2023 |
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Common Stock |
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Additional Paid-in |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Issuance of vested restricted shares |
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$ |
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$ |
( |
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$ |
- |
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$ |
- |
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Employee stock purchase plan |
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- |
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Non-cash share-based compensation |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(Amounts in thousands) |
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(Unaudited) |
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For the nine-month periods ended |
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September 28, 2024 |
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September 30, 2023 |
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Cash Flows From Operating Activities: |
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Net loss |
$ |
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$ |
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Adjustments to reconcile net loss to net cash from operating activities: |
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Depreciation and amortization |
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Amortization of deferred debt issuance costs |
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Amortization and impairment of operating lease right of use assets |
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Non-cash share-based compensation |
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Goodwill impairment |
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Loss on disposal or impairment of licenses, property and equipment, and software |
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Fair value adjustments on interest rate derivatives |
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Deferred income taxes |
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Non-cash gain on acquisition |
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Changes in operating assets and liabilities, net of impact of acquisitions: |
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Patient accounts receivable |
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Prepaid expenses |
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Other current and long-term assets |
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Accounts payable and other accrued liabilities |
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Accrued payroll and employee benefits |
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Insurance reserves |
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Operating lease liabilities |
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Other current and long-term liabilities |
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Net cash provided by operating activities |
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Cash Flows From Investing Activities: |
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Purchase of certificates of need |
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- |
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Purchases of property and equipment, and software |
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Net cash used in investing activities |
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Cash Flows From Financing Activities: |
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Proceeds from employee stock purchase plan |
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Proceeds from securitization obligation |
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Repayment of securitization obligation |
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Proceeds from revolving credit facility |
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Repayments on revolving credit facility |
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- |
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Principal payments on term loans |
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Principal payments on notes payable |
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Principal payments on financing lease obligations |
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( |
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Payment of debt issuance costs |
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Settlements with interest rate swap counterparties |
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Net cash provided by financing activities |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ |
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$ |
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid for interest |
$ |
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$ |
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Cash paid for income taxes, net of refunds received |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
Aveanna Healthcare Holdings Inc. (together with its consolidated subsidiaries, referred to herein as the “Company”) is headquartered in Atlanta, Georgia and has locations in
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying interim unaudited consolidated financial statements include the accounts of Aveanna Healthcare Holdings Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the interim unaudited consolidated financial statements, and business combinations accounted for as purchases have been included in the interim unaudited consolidated financial statements from their respective dates of acquisition.
Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim unaudited consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, these interim unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 28, 2024 and the results of operations for the three and nine-month periods ended September 28, 2024 and September 30, 2023, respectively. The results reported in these interim unaudited consolidated financial statements should not be regarded as indicative of results that may be expected for any future period or the year ending December 28, 2024. These interim unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended December 30, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2024.
Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52 or 53-week fiscal year. The interim unaudited consolidated balance sheets reflect the accounts of the Company as of September 28, 2024 and December 30, 2023. For the three-month periods ended September 28, 2024 and September 30, 2023, the interim unaudited consolidated statements of operations, stockholders' deficit, and cash flows reflect the accounts of the Company from June 30, 2024 through September 28, 2024 and July 2, 2023 through September 30, 2023, respectively. For the nine-month periods ended September 28, 2024 and September 30, 2023, the interim unaudited consolidated statements of operations, stockholders' deficit, and cash flows reflect the accounts of the Company from December 31, 2023, through September 28, 2024 and January 1, 2023 through September 30, 2023, respectively.
Use of Estimates
The Company’s accounting and reporting policies conform with U.S. GAAP. In preparing the interim unaudited consolidated financial statements, the Company is required to make estimates and assumptions that impact the amounts reported in these interim unaudited consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The standard improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit (referred to as the “significant expense principle”). The standard will become effective for the fiscal year 2024 annual financial statements and interim financial statements thereafter and will be applied retrospectively for all prior periods presented in the financial statements,
6
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
with early adoption permitted. The Company plans to adopt the standard when it becomes effective, beginning with the Company's fiscal year 2024 annual financial statements, and is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard enhances income tax disclosure requirements for all entities by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. The standard will be effective for the fiscal year 2025 annual financial statements with early adoption permitted. The Company plans to adopt the standard when it becomes effective beginning with the Company's fiscal year 2025 annual financial statements, and the Company expects the adoption of the standard will impact certain of its income tax disclosures.
3. REVENUE
The Company evaluates the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.
Revenue is primarily derived from (i) pediatric healthcare services provided to patients, including private duty nursing and therapy services; (ii) adult home health and hospice services (collectively “patient revenue”); and (iii) the delivery of enteral nutrition and other products to patients (“product revenue”). The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time; therefore, each service provided is its own stand-alone contract. Incremental costs of obtaining a contract are expensed as incurred due to the short-term nature of the contracts.
Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. For patient revenue, the performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the healthcare services provided. For product revenue, the performance obligation is satisfied at the point in time of delivery of the product to the patient. The Company recognizes patient revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payers are billed within several days of the service being performed, and payments are due based on contract terms.
The Company’s lines of business are generally classified into the following categories: private duty services; home health and hospice; and medical solutions.
Private Duty Services (“PDS”). The PDS business includes a broad range of pediatric and adult healthcare services, including private duty skilled nursing, non-clinical services, which include employer of record support services and personal care services, pediatric therapy services, rehabilitation services, and nursing services in schools and pediatric day healthcare centers.
Home Health & Hospice (“HHH”). The HHH business provides home health, hospice, and personal care services to predominately elderly patients.
Medical Solutions (“MS”). The MS business includes the delivery of enteral nutrition and other products to patients.
For the PDS, HHH, and MS businesses, the Company receives payments from the following sources for services rendered: (i) state governments under their respective Medicaid programs (“Medicaid”); (ii) Managed Care providers of state government Medicaid programs (“Medicaid MCO”); (iii) commercial insurers; (iv) other government programs including Medicare, Tricare and ChampVA (“Medicare”); and (v) individual patients. As the period between the time of service and time of payment is typically
Most contracts contain variable consideration; however, it is unlikely that a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payers and by implicit price concessions which are estimated based on historical collection experience. Management estimates the transaction price on a payer-specific basis given its interpretation of the applicable regulations or contract terms. Updated regulations and contract negotiations occur frequently, necessitating regular review and assessment by management.
7
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There were no material revenue adjustments recognized from performance obligations satisfied or partially satisfied in previous periods for the three and nine-month periods ended September 28, 2024 and September 30, 2023, respectively.
As of September 28, 2024 and December 30, 2023, estimated contractual adjustments and implicit price concessions of $
The following table presents revenue by payer type as a percentage of total revenue for the three and nine-month periods ended September 28, 2024 and September 30, 2023, respectively:
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
|
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Medicaid MCO |
|
% |
|
% |
|
% |
|
% |
||||
Medicaid |
|
% |
|
% |
|
% |
|
% |
||||
Commercial |
|
% |
|
% |
|
% |
|
% |
||||
Medicare |
|
% |
|
% |
|
% |
|
% |
||||
Self-pay |
|
% |
|
% |
|
% |
|
% |
||||
Total revenue |
|
% |
|
% |
|
% |
|
% |
||||
4. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following as of September 28, 2024 and December 30, 2023, respectively (dollar amounts in thousands):
Instrument |
Stated |
Contractual Interest Rate |
Interest Rate |
September 28, 2024 |
|
December 30, 2023 |
|
||
(1) |
$ |
|
$ |
|
|||||
(1) |
|
|
|
|
|||||
(1) |
|
- |
|
|
- |
|
|||
Total principal amount of long-term obligations |
|
|
|
|
|
|
|
||
Less: unamortized debt issuance costs |
|
|
|
|
( |
) |
|
( |
) |
Total amount of long-term obligations, net of unamortized debt issuance costs |
|
|
|
|
|
|
|
||
Less: current portion of long-term obligations |
|
|
|
|
( |
) |
|
( |
) |
Total amount of long-term obligations, net of unamortized debt issuance costs, less current portion |
|
|
|
$ |
|
$ |
|
||
(1) |
|
|
|
|
|
|
|
||
The 2021 Extended Term Loan bears interest, at the Company’s election, at a variable interest rate based on either SOFR (subject to a minimum of
8
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Second Lien Term Loan bears interest at a rate per annum equal to, at the Company’s election, either (1) an applicable margin (equal to
Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. The balance for debt issuance costs related to the term loans as of September 28, 2024 and December 30, 2023 was $
Issued letters of credit as of September 28, 2024 and December 30, 2023 were $
The fair value of the Company's long-term obligations was estimated using market-observable inputs from the Company’s comparable peers with public debt, including quoted prices in active markets, which are considered Level 2 inputs. The aggregate fair value of the Company's long-term obligations was $
The Company was in compliance with all financial covenants and restrictions under the foregoing instruments at September 28, 2024.
See Note 14 - Subsequent Event for disclosure of subsequent amendments to the Revolving Credit Facility.
5. SECURITIZATION FACILITY
On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) (the “special purpose entity”) and a lending institution entered into a Receivables Financing Agreement, which, as amended, has a maturity date of
Pursuant to two separate sale agreements, each of which is among Aveanna Healthcare, LLC, as initial servicer, certain of the Company's subsidiaries and the special purpose entity, the subsidiaries sold substantially all of their existing and future accounts receivable balances to the special purpose entity. The special purpose entity uses the accounts receivable balances to collateralize loans made under the Securitization Facility. The Company retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Securitization Facility and provides a performance guaranty.
The outstanding balance under the Securitization Facility was $
The Securitization Facility is accounted for as a collateralized financing activity, rather than a sale of assets; therefore: (i) accounts receivable balances pledged as collateral are presented as assets and the borrowings are presented as liabilities in the interim unaudited consolidated balance sheets; (ii) the consolidated statements of operations reflect the interest expense associated with the collateralized borrowings; and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within the consolidated statements of cash flows. The Securitization Facility is included within current liabilities on the interim unaudited
9
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
consolidated balance sheets as it is collateralized by current patient accounts receivable and not because payments are due within one year of the balance sheet date.
6. FAIR VALUE MEASUREMENTS
The carrying amounts of cash and cash equivalents, patient accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of the instruments.
The Company’s other assets measured at fair value were as follows (amounts in thousands):
|
Fair Value Measurements at September 28, 2024 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
||||
Interest rate cap agreements |
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
||
Interest rate swap agreements |
|
- |
|
|
|
|
- |
|
|
|
||
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
||||
|
Fair Value Measurements at December 30, 2023 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
||||
Interest rate cap agreements |
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
||
Interest rate swap agreements |
|
- |
|
|
|
|
- |
|
|
|
||
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
|||
The fair values of the interest rate swap and cap agreements are based on the estimated net proceeds or costs to settle the transactions as of the respective balance sheet dates. The valuations are based on commercially reasonable industry and market practices for valuing similar financial instruments. See Note 7 – Derivative Financial Instruments for further details on the Company’s interest rate swap and cap agreements.
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The derivatives the Company currently uses are interest rate swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value on the interim unaudited consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are therefore recorded in earnings throughout the terms of the respective derivatives.
The Company currently has
The Company has interest rate cap agreements with an aggregate notional amount of $
10
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
million at September 28, 2024 and $
The following losses and gains from these derivatives not designated as hedging instruments were recognized in the Company’s consolidated statements of operations for the three and nine-month periods ended September 28, 2024 and September 30, 2023, respectively (amounts in thousands):
|
Statement of Operations |
For the three-month periods ended |
|
||||
|
Classification |
September 28, 2024 |
|
September 30, 2023 |
|
||
Interest rate cap agreements |
$ |
( |
) |
$ |
|
||
Interest rate swap agreements |
$ |
( |
) |
$ |
|
||
|
|
|
|
|
|
||
|
Statement of Operations |
For the nine-month periods ended |
|
||||
|
Classification |
September 28, 2024 |
|
September 30, 2023 |
|
||
Interest rate cap agreements |
$ |
( |
) |
$ |
|
||
Interest rate swap agreements |
$ |
( |
) |
$ |
|
||
The Company does not utilize financial instruments for trading or other speculative purposes.
8. INCOME TAXES
The Company records its provision for income taxes on an interim basis based upon the estimate of the annual effective income tax rate for the full year applied to “ordinary” income or loss, adjusted each quarter for discrete items.
The Company recorded income tax expense of $
The Company’s effective tax rate was negative
9. SHARE-BASED COMPENSATION
Pre-IPO Options and Management Restricted Units
The Company recorded compensation expense, net of forfeitures, of $
Director Restricted Stock Units
In February 2024, the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") approved grants of
11
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
RSUs") under the Company's 2021 Omnibus Stock Incentive Plan. Director RSUs vest over a
Long-Term Incentive Plan ("LTIP")
During the three-month period ended March 30, 2024, the Compensation Committee approved grants of restricted stock units ("RSUs") and performance stock units ("PSUs") under the Company's 2021 Omnibus Stock Incentive Plan. Upon vesting, each RSU and each PSU settles for one share of common stock.
The RSUs are subject to a three-year service-based cliff vesting schedule commencing on the date of grant. Compensation cost for the RSUs is measured based on the grant date fair value of each underlying share of common stock and the number of RSUs granted and is recognized over the applicable vesting period on a straight-line basis. During the three-month period ended March 30, 2024, the Company granted
Total compensation expense, net of forfeitures, for all outstanding awards under the LTIP was $
Senior Management Retention Plan ("SMRP")
In the second quarter of 2023, the Compensation Committee approved SMRP awards to certain members of management to be paid in the form of RSUs under the 2021 Omnibus Stock Incentive Plan. The awards were granted based on a fixed dollar value for each member of senior management included in the plan. The Company recorded compensation expense, net of forfeitures, of $
Employee Stock Purchase Plan
During the three-month period ended September 28, 2024, participants in the Company's Employee Stock Purchase Plan purchased a total of
The Company recorded compensation expense of $
10. COMMITMENTS AND CONTINGENCIES
12
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Insurance Reserves
As is typical in the healthcare industry, the Company is subject to claims that its services have resulted in patient injury or other adverse effects.
The accrued professional liability insurance reserves included in the interim unaudited consolidated balance sheets include estimates of the ultimate costs, including third-party legal defense costs, in the event the Company was unable to receive funds from claims made under commercial insurance policies, for claims that have been reported but not paid and claims that have been incurred but not reported at the balance sheet dates. Although substantially all reported claims are paid directly by the Company’s commercial insurance carriers (after the Company satisfies the applicable policy deductible and/or retention), the Company is ultimately responsible for payment of these claims in the event its insurance carriers become insolvent or otherwise do not honor the contractual obligations under the liability policies. The Company is required under U.S. GAAP to recognize these estimated liabilities in its consolidated financial statements on a gross basis; with a corresponding receivable from the insurance carriers reflecting the contractual indemnity provided by the carriers under the related liability policies.
Since October 1, 2023, the Company has maintained primary commercial insurance coverage on a claims-made basis for professional liability claims with a $
As of September 28, 2024, insurance reserves totaling $
Litigation and Other Current Liabilities
On November 23, 2022, a judgment in the amount of $
On January 18, 2023, an arbitration award in the amount of $
13
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is currently a party to various routine litigation incidental to the business. While management currently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Management has established provisions within other current liabilities in the accompanying consolidated balance sheets, which in the opinion of management represents the best estimate of exposure and adequately provides for such losses that may occur from asserted claims related to the provision of professional services and which may not be covered by the Company’s insurance policies. Management believes that any additional unfavorable provisions would not be material to the Company’s results of operations or financial position; however, if an unfavorable ruling on any asserted or unasserted claim were to occur, there exists the possibility of a material adverse impact on the Company’s net earnings or financial position. The estimate of the potential impact from legal proceedings on the Company’s financial position or overall results of operations could change in the future.
Healthcare Regulatory Matters
Starting on October 30, 2019 the Company has received grand jury subpoenas issued by the U.S. Department of Justice, Antitrust Division (the “Antitrust Division”), requiring the production of documents and information pertaining to nurse wages, reimbursement rates, and hiring activities in a few of its local markets. The Company is fully cooperating with the Antitrust Division with respect to this investigation, and management believes that a loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this matter.
On July 19, 2023, the Company received a Civil Investigation Demand issued by the U.S. Department of Justice, United States Attorney’s Office, Middle District of Alabama (the “AUSA”), requiring the production of documents and information pertaining to Comfort Care Hospice, LLC, an indirect wholly owned subsidiary of the Company, regarding issues of (1) improper submission of claims to Medicare and other federal healthcare programs for service to patients who were ineligible or not properly certified for said healthcare services and (2) improper remuneration to medical directors and skilled nursing facilities for patient referrals in violation of certain federal regulations. The Company is fully cooperating with the AUSA with respect to this investigation, and management believes that a loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this matter.
Laws and regulations governing the government payer programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action. From time to time, governmental regulatory agencies conduct inquiries and audits of the Company’s practices. It is the Company’s practice to cooperate fully with such inquiries. In addition to laws and regulations governing the Medicaid, Medicaid Managed Care, and Tricare programs, there are a number of federal and state laws and regulations governing matters such as the corporate practice of medicine, fee splitting arrangements, anti-kickback statues, physician self-referral laws, false or fraudulent claims filing and patient privacy requirements. Failure to comply with any such laws or regulations could have an adverse impact on the Company’s operations and financial results. The Company believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of wrongdoing.
11. RELATED PARTY TRANSACTIONS
As of September 28, 2024, one of the Company’s majority stockholders owned
12. SEGMENT INFORMATION
The Company’s operating segments have been identified based upon how management has organized the business by services provided to customers and how the CODM manages the business and allocates resources. The Company has
14
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The CODM evaluates performance using gross margin (and gross margin percentage). Gross margin includes revenue less all costs of revenue, excluding depreciation and amortization, but excludes branch and regional administrative expenses, corporate expenses and other non-field expenses. The CODM does not evaluate a measure of assets when assessing performance.
Results shown for the three and nine-month periods ended September 28, 2024 and September 30, 2023 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.
The following tables summarize the Company’s segment information for the three and nine-month periods ended September 28, 2024 and September 30, 2023, respectively (amounts in thousands):
|
For the three-month period ended September 28, 2024 |
|
||||||||||
|
PDS |
|
HHH |
|
MS |
|
Total |
|
||||
Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Cost of revenue, excluding depreciation and amortization |
|
|
|
|
|
|
|
|
||||
Gross margin |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Gross margin percentage |
|
% |
|
% |
|
% |
|
% |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
For the three-month period ended September 30, 2023 |
|
||||||||||
|
PDS |
|
HHH |
|
MS |
|
Total |
|
||||
Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Cost of revenue, excluding depreciation and amortization |
|
|
|
|
$ |
|
|
|
||||
Gross margin |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Gross margin percentage |
|
% |
|
% |
|
% |
|
% |
||||
|
For the nine-month period ended September 28, 2024 |
|
||||||||||
|
PDS |
|
HHH |
|
MS |
|
Total |
|
||||
Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Cost of revenue, excluding depreciation and amortization |
|
|
|
|
|
|
|
|
||||
Gross margin |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Gross margin percentage |
|
% |
|
% |
|
% |
|
% |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
For the nine-month period ended September 30, 2023 |
|
||||||||||
|
PDS |
|
HHH |
|
MS |
|
Total |
|
||||
Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Cost of revenue, excluding depreciation and amortization |
|
|
|
|
$ |
|
|
|
||||
Gross margin |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Gross margin percentage |
|
% |
|
% |
|
% |
|
% |
||||
|
|
|
|
|
|
|
|
|
||||
15
AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
Segment Reconciliation: |
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Total segment gross margin |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Branch and regional administrative expenses |
|
|
|
|
|
|
|
|
||||
Corporate expenses |
|
|
|
|
|
|
|
|
||||
Goodwill impairment |
|
- |
|
|
|
|
- |
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
||||
Acquisition-related costs |
|
|
|
|
|
|
|
|
||||
Other operating expense (income) |
|
|
|
( |
) |
|
|
|
( |
) |
||
Operating income (loss) |
|
|
|
( |
) |
|
|
|
( |
) |
||
Interest income |
|
|
|
|
|
|
|
|
||||
Interest expense |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
Other (expense) income |
|
( |
) |
|
|
|
|
|
|
|||
Loss before income taxes |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
13. NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the diluted weighted average number of shares of common stock outstanding for the period. For purposes of this calculation, outstanding stock options, RSUs and PSUs are considered potential dilutive shares of common stock.
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
|
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
||||
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
||||
Weighted average shares of common stock outstanding (1), basic and diluted |
|
|
|
|
|
|
|
|
||||
Net loss per share, basic and diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||||
Dilutive securities outstanding not included in the computation of diluted net loss per share, as their effect is antidilutive: |
|
|
|
|
|
|
|
|
||||
RSUs |
|
|
|
|
|
|
|
|
||||
PSUs |
|
|
|
|
|
|
|
|
||||
Stock options |
|
|
|
|
|
|
|
|
||||
14. SUBSEQUENT EVENT
On September 30, 2024, the Company entered into a tenth amendment to the First Lien Credit Agreement, amending the Revolving Credit Facility to extend the maturity date from
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented below. This discussion should be read in conjunction with the interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and related notes, our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 filed with the SEC. As discussed in the section above titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below as well as in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Unless otherwise provided, “Aveanna,” “we,” “our” and the “Company” refer to Aveanna Healthcare Holdings Inc. and its consolidated subsidiaries.
Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52-week or 53-week fiscal year. “Fiscal year 2024” refers to the 52-week fiscal year ending on December 28, 2024. “Fiscal year 2023” refers to the 52-week fiscal year ended on December 30, 2023. The “three-month period ended September 28, 2024”, or “third quarter of 2024” refers to the 13-week fiscal quarter ended on September 28, 2024. The “three-month period ended September 30, 2023” or “third quarter of 2023” refers to the 13-week fiscal quarter ended on September 30, 2023. The "nine-month period ended September 28, 2024", or "first nine months of 2024", refers to the period from December 31, 2023 through September 28, 2024. The "nine-month period ended September 30, 2023", or "first nine months of 2023", refers to the period from January 1, 2023 through September 30, 2023.
Overview
We are a leading, diversified home care platform focused on providing care to medically complex, high-cost patient populations. We directly address the most pressing challenges facing the U.S. healthcare system by providing safe, high-quality care in the home, the lower cost care setting preferred by patients. Our patient-centered care delivery platform is designed to improve the quality of care our patients receive, which allows them to remain in their homes and minimizes the overutilization of high-cost care settings such as hospitals. Our clinical model is led by our caregivers, primarily skilled nurses, who provide specialized care to address the complex needs of each patient we serve across the full range of patient populations: newborns, children, adults and seniors. We have invested significantly in our platform to bring together best-in-class talent at all levels of the organization and support such talent with industry leading training, clinical programs, infrastructure and technology-enabled systems, which are increasingly essential in an evolving healthcare industry. We believe our platform creates sustainable competitive advantages that support our ability to continue driving rapid growth, both organically and through acquisitions, and positions us as the partner of choice for the patients we serve.
Segments
We deliver our services to patients through three segments: Private Duty Services (“PDS”); Home Health & Hospice (“HHH”); and Medical Solutions (“MS”).
The following table summarizes the revenues generated by each of our segments for the three-month periods ended September 28, 2024 and September 30, 2023, respectively:
(dollars in thousands) |
Consolidated |
|
PDS |
|
HHH |
|
MS |
|
||||
For the three-month period ended September 28, 2024 |
$ |
509,023 |
|
$ |
409,558 |
|
$ |
54,139 |
|
$ |
45,326 |
|
Percentage of consolidated revenue |
|
|
|
80 |
% |
|
11 |
% |
|
9 |
% |
|
For the three-month period ended September 30, 2023 |
$ |
478,010 |
|
$ |
384,750 |
|
$ |
52,989 |
|
$ |
40,271 |
|
Percentage of consolidated revenue |
|
|
|
81 |
% |
|
11 |
% |
|
8 |
% |
|
The following table summarizes the revenues generated by each of our segments for the nine-month periods ended September 28, 2024 and September 30, 2023, respectively:
(dollars in thousands) |
Consolidated |
|
PDS |
|
HHH |
|
MS |
|
||||
For the nine-month period ended September 28, 2024 |
$ |
1,504,634 |
|
$ |
1,212,418 |
|
$ |
163,382 |
|
$ |
128,834 |
|
Percentage of consolidated revenue |
|
|
|
81 |
% |
|
11 |
% |
|
9 |
% |
|
For the nine-month period ended September 30, 2023 |
$ |
1,416,368 |
|
$ |
1,135,365 |
|
$ |
164,525 |
|
$ |
116,478 |
|
Percentage of consolidated revenue |
|
|
|
80 |
% |
|
12 |
% |
|
8 |
% |
|
17
PDS Segment
Private Duty Services predominantly includes private duty nursing (“PDN”) services, as well as pediatric therapy services. Our PDN patients typically enter our service as children, as our most significant referral sources for new patients are children’s hospitals. It is common for our PDN patients to continue to receive our services into adulthood, as approximately 30% of our PDN patients are over the age of 18.
Our PDN services involve the provision of clinical and non-clinical hourly care to patients in their homes, which is the preferred setting for patient care. PDN services typically last four to 24 hours a day, provided by our registered nurses, licensed practical nurses, home health aides, and other non-clinical caregivers who are focused on providing high-quality short-term and long-term clinical care to medically fragile children and adults with a wide variety of serious illnesses and conditions. Patients who typically qualify for our PDN services include those with the following conditions:
Our PDN services include:
Through our pediatric therapy services, we provide a valuable multidisciplinary approach that we believe serves all of a child’s therapy needs. We provide both in-clinic and home-based therapy services to our patients. Our therapy services include physical, occupational and speech services. We regularly collaborate with physicians and other community healthcare providers, which allows us to provide more comprehensive care.
HHH Segment
Our Home Health and Hospice segment predominantly includes home health services, as well as hospice and specialty program services. Our HHH patients typically enter our service as seniors, and our most significant referral sources for new patients are hospitals, physicians and long-term care facilities.
Our home health services involve the provision of in-home services to our patients by our clinicians which may include nurses, therapists, social workers and home health aides. Our caregivers work with our patients’ physicians to deliver a personalized plan of care to our patients in their homes. Home healthcare can help our patients recover after a hospitalization or surgery and assist patients in managing chronic illnesses. We also help our patients manage their medications. Through our care, we help our patients recover more fully in the comfort of their own homes, while remaining as independent as possible. Our home health services include: in-home skilled nursing services; physical, occupational and speech therapy; medical social services and aide services.
Our hospice services involve a supportive philosophy and concept of care for those nearing the end of life. Our hospice care is a positive, empowering form of care designed to provide comfort and support to our patients and their families when a life-limiting illness no longer responds to cure-oriented treatments. The goal of hospice is to neither prolong life nor hasten death, but to help our patients live as dignified and pain-free as possible. Our hospice care is provided by a team of specially trained professionals in a variety of living situations, including at home, at the hospital, a nursing home, or an assisted living facility.
MS Segment
Through our Medical Solutions segment, we offer a comprehensive line of enteral nutrition supplies and other products to adults and children, delivered on a periodic or as-needed basis. We provide our patients with access to one of the largest selections of enteral formulas, supplies and pumps in our industry, with more than 300 nutritional formulas available. Our registered nurses, registered dietitians and customer service technicians support our patients 24 hours per day, 365 days per year, in-hospital, at-home, or remotely to help ensure that our patients have the best nutrition assessments, change order reviews and formula selection expertise.
Recent Developments
18
CMS Final Rule: “Ensuring Access to Medicaid Services”
On April 22, 2024, the U.S. Department of Health & Human Services through the Centers for Medicare and Medicaid Services ("CMS") released the “Ensuring Access to Medicaid Services” final rule (CMS-2442-F). The final rule has a stated goal of improving access to services for Medicaid beneficiaries. As part of this rule, CMS requires that state Medicaid departments provide assurances that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to and clinical supervision of the direct care workers providing these services. While the effective date of the final rule was July 9, 2024, the states are allowed six years to implement the provisions regarding the 80% minimum payment. The ultimate impact of the final rule is not expected to have a material impact to our results of operations.
Important Operating Metrics
We review the following important metrics on a segment basis and not on a consolidated basis:
PDS and MS Segment Operating Metrics
Volume
Volume represents PDS hours of care provided and MS unique patients served, which is how we measure the amount of our patient services provided. We review the number of hours of PDS care provided on a weekly basis and the number of MS unique patients served on a weekly basis. We believe volume is an important metric because it helps us understand how the Company is growing in each of these segments through strategic planning and acquisitions. We also use this metric to inform strategic decision making in determining opportunities for growth.
Revenue Rate
For our PDS and MS segments, revenue rate is calculated as revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe revenue rate is an important metric because it represents the amount of revenue we receive per PDS hour of patient service or per individual MS patient transaction and helps management assess the amount of fees that we are able to bill for our services. Management uses this metric to assess how effectively we optimize reimbursement rates.
Cost of Revenue Rate
For our PDS and MS segments, cost of revenue rate is calculated as cost of revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe cost of revenue rate is an important metric because it helps us understand the cost per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to understand how effectively we manage labor and product costs.
Spread Rate
For our PDS and MS segments, spread rate represents the difference between the respective revenue rates and cost of revenue rates. Spread rate is an important metric because it helps us better understand the margins being recognized per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to assess how successful we have been in optimizing reimbursement rates, managing labor and product costs, and assessing opportunities for growth.
HHH Segment Operating Metrics
Home Health Total Admissions and Home Health Episodic Admissions
Home health total admissions represents the number of new patients who have begun receiving services. We review the number of home health admissions on a daily basis as we believe it is a leading indicator of our growth. We measure home health admissions by
19
reimbursement structure, separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payor mix of our home health business.
Home Health Total Episodes
Home health total episodes represents the number of episodic admissions and episodic recertifications to capture patients who have either started to receive services or have been recertified for another episode of care. Management reviews home health total episodes on a monthly basis as to understand the volume of patients who were authorized to receive care during the month.
Home Health Revenue Per Completed Episode
Home health revenue per completed episode is calculated by dividing total payments received from completed episodes by the number of completed episodes during the period. Episodic payments are determined by multiple factors including type of referral source, patient diagnoses, and utilization. Management tracks home health revenue per completed episode over time to evaluate both the clinical and financial profile of the business in a single metric.
Results of Operations
Three-Month Period Ended September 28, 2024 Compared to the Three-Month Period Ended September 30, 2023
The following table summarizes our consolidated results of operations, including Field contribution, which is a non-GAAP measure (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:
|
For the three-month periods ended |
|
||||||||||||||||
(dollars in thousands) |
September 28, 2024 |
|
% of Revenue |
|
September 30, 2023 |
|
% of Revenue |
|
Change |
|
% Change |
|
||||||
Revenue |
$ |
509,023 |
|
|
100.0 |
% |
$ |
478,010 |
|
|
100.0 |
% |
$ |
31,013 |
|
|
6.5 |
% |
Cost of revenue, excluding depreciation and amortization |
|
349,324 |
|
|
68.6 |
% |
|
330,746 |
|
|
69.2 |
% |
|
18,578 |
|
|
5.6 |
% |
Gross margin |
$ |
159,699 |
|
|
31.4 |
% |
$ |
147,264 |
|
|
30.8 |
% |
$ |
12,435 |
|
|
8.4 |
% |
Branch and regional administrative expenses |
|
88,184 |
|
|
17.3 |
% |
|
91,004 |
|
|
19.0 |
% |
|
(2,820 |
) |
|
-3.1 |
% |
Field contribution |
$ |
71,515 |
|
|
14.0 |
% |
$ |
56,260 |
|
|
11.8 |
% |
$ |
15,255 |
|
|
27.1 |
% |
Corporate expenses |
|
31,894 |
|
|
6.3 |
% |
|
27,446 |
|
|
5.7 |
% |
|
4,448 |
|
|
16.2 |
% |
Goodwill impairment |
|
- |
|
|
0.0 |
% |
|
105,136 |
|
|
22.0 |
% |
|
(105,136 |
) |
|
-100.0 |
% |
Depreciation and amortization |
|
2,587 |
|
|
0.5 |
% |
|
2,962 |
|
|
0.6 |
% |
|
(375 |
) |
|
-12.7 |
% |
Acquisition-related costs |
|
150 |
|
|
0.0 |
% |
|
428 |
|
|
0.1 |
% |
|
(278 |
) |
|
-65.0 |
% |
Other operating expense (income) |
|
2,860 |
|
|
0.6 |
% |
|
(3,360 |
) |
|
-0.7 |
% |
|
6,220 |
|
|
-185.1 |
% |
Operating income (loss) |
$ |
34,024 |
|
|
6.7 |
% |
$ |
(76,352 |
) |
|
-16.0 |
% |
$ |
110,376 |
|
|
144.6 |
% |
Interest expense, net |
|
(39,145 |
) |
|
|
|
(39,549 |
) |
|
|
|
404 |
|
|
-1.0 |
% |
||
Other (expense) income |
|
(22,211 |
) |
|
|
|
14,143 |
|
|
|
|
(36,354 |
) |
|
-257.0 |
% |
||
Income tax expense |
|
(15,511 |
) |
|
|
|
(631 |
) |
|
|
|
(14,880 |
) |
NM |
|
|||
Net loss |
$ |
(42,843 |
) |
|
|
$ |
(102,389 |
) |
|
|
$ |
59,546 |
|
|
-58.2 |
% |
||
NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.
The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:
20
|
For the three-month periods ended |
|
||||||||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
||||
Revenue |
$ |
509,023 |
|
$ |
478,010 |
|
$ |
31,013 |
|
|
6.5 |
% |
Cost of revenue, excluding depreciation and amortization |
|
349,324 |
|
|
330,746 |
|
|
18,578 |
|
|
5.6 |
% |
Gross margin |
$ |
159,699 |
|
$ |
147,264 |
|
$ |
12,435 |
|
|
8.4 |
% |
Gross margin percentage |
|
31.4 |
% |
|
30.8 |
% |
|
|
|
|
||
Branch and regional administrative expenses |
|
88,184 |
|
|
91,004 |
|
|
(2,820 |
) |
|
-3.1 |
% |
Field contribution |
$ |
71,515 |
|
$ |
56,260 |
|
$ |
15,255 |
|
|
27.1 |
% |
Field contribution margin |
|
14.0 |
% |
|
11.8 |
% |
|
|
|
|
||
Corporate expenses |
$ |
31,894 |
|
$ |
27,446 |
|
$ |
4,448 |
|
|
16.2 |
% |
As a percentage of revenue |
|
6.3 |
% |
|
5.7 |
% |
|
|
|
|
||
Operating income (loss) |
$ |
34,024 |
|
$ |
(76,352 |
) |
$ |
110,376 |
|
|
144.6 |
% |
As a percentage of revenue |
|
6.7 |
% |
|
-16.0 |
% |
|
|
|
|
||
The following tables summarize our key performance measures by segment for the three-month periods indicated:
|
PDS |
|
|
||||||||||
|
For the three-month periods ended |
|
|
||||||||||
(dollars and hours in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
409,558 |
|
$ |
384,750 |
|
$ |
24,808 |
|
|
6.4 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
299,731 |
|
|
280,288 |
|
|
19,443 |
|
|
6.9 |
% |
|
Gross margin |
$ |
109,827 |
|
$ |
104,462 |
|
$ |
5,365 |
|
|
5.1 |
% |
|
Gross margin percentage |
|
26.8 |
% |
|
27.2 |
% |
|
|
|
-0.4 |
% |
(4) |
|
Hours |
|
10,474 |
|
|
10,090 |
|
|
384 |
|
|
3.8 |
% |
|
Revenue rate |
$ |
39.10 |
|
$ |
38.13 |
|
$ |
0.97 |
|
|
2.6 |
% |
(1) |
Cost of revenue rate |
$ |
28.62 |
|
$ |
27.78 |
|
$ |
0.84 |
|
|
3.1 |
% |
(2) |
Spread rate |
$ |
10.48 |
|
$ |
10.35 |
|
$ |
0.13 |
|
|
1.3 |
% |
(3) |
|
|
|
|
|
|
|
|
|
|
||||
|
HHH |
|
|
||||||||||
|
For the three-month periods ended |
|
|
||||||||||
(dollars and admissions/episodes in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
54,139 |
|
$ |
52,989 |
|
$ |
1,150 |
|
|
2.2 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
24,948 |
|
|
27,597 |
|
|
(2,649 |
) |
|
-9.6 |
% |
|
Gross margin |
$ |
29,191 |
|
$ |
25,392 |
|
$ |
3,799 |
|
|
15.0 |
% |
|
Gross margin percentage |
|
53.9 |
% |
|
47.9 |
% |
|
|
|
6.0 |
% |
(4) |
|
Home health total admissions (5) |
|
8.9 |
|
|
9.3 |
|
|
(0.4 |
) |
|
-4.3 |
% |
|
Home health episodic admissions (6) |
|
6.8 |
|
|
7.0 |
|
|
(0.2 |
) |
|
-2.9 |
% |
|
Home health total episodes (7) |
|
11.3 |
|
|
11.2 |
|
|
0.1 |
|
|
0.9 |
% |
|
Home health revenue per completed episode (8) |
$ |
3,104 |
|
$ |
3,046 |
|
$ |
58 |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
||||
|
MS |
|
|
||||||||||
|
For the three-month periods ended |
|
|
||||||||||
(dollars and UPS in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
45,326 |
|
$ |
40,271 |
|
$ |
5,055 |
|
|
12.6 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
24,645 |
|
|
22,861 |
|
|
1,784 |
|
|
7.8 |
% |
|
Gross margin |
$ |
20,681 |
|
$ |
17,410 |
|
$ |
3,271 |
|
|
18.8 |
% |
|
Gross margin percentage |
|
45.6 |
% |
|
43.2 |
% |
|
|
|
2.4 |
% |
(4) |
|
Unique patients served (“UPS”) |
|
92 |
|
|
88 |
|
|
4 |
|
|
4.5 |
% |
|
Revenue rate |
$ |
492.67 |
|
$ |
457.63 |
|
$ |
35.04 |
|
|
8.1 |
% |
(1) |
Cost of revenue rate |
$ |
267.88 |
|
$ |
259.78 |
|
$ |
8.10 |
|
|
3.3 |
% |
(2) |
Spread rate |
$ |
224.79 |
|
$ |
197.84 |
|
$ |
26.94 |
|
|
14.3 |
% |
(3) |
21
The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures, as well as our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Summary Operating Results
Operating Income (Loss)
Operating income was $34.0 million, or 6.7% of revenue, for the three-month period ended September 28, 2024, as compared to operating loss of 76.4 million for the three-month period ended September 30, 2023, an increase of $110.4 million.
Operating income for the third quarter of 2024 was positively impacted by an increase of $15.3 million, or 27.1%, in Field contribution, as compared to the third quarter of 2023. The $15.3 million increase in Field contribution resulted from a $31.0 million, or 6.5%, increase in consolidated revenue and a 2.2% increase in our Field contribution margin to 14.0% for the third quarter of 2024 from 11.8% for the third quarter of 2023. The primary driver of our higher Field contribution margin over the comparable quarter was an increase in gross margin percentage of 0.6%, along with a 1.7% decrease in branch and regional administrative expenses as a percentage of revenue to 17.3% for the third quarter of 2024 from 19.0% for the third quarter of 2023.
The following items primarily contributed to the $110.4 million increase in operating income over the comparable third quarter period:
Net Loss
Net loss for the three-month period ended September 28, 2024 was $42.8 million, as compared to net loss of $102.4 million for the three-month period ended September 30, 2023. The $59.5 million decrease in net loss was primarily driven by the following:
Revenue
Revenue was $509.0 million for the three-month period ended September 28, 2024, as compared to $478.0 million for the three-month period ended September 30, 2023, an increase of $31.0 million, or 6.5%. This increase resulted from the following segment activity:
Our PDS segment revenue growth of $24.8 million, or 6.4%, for the three-month period ended September 28, 2024 was attributable to a 3.8% increase in volume and a 2.6% increase in revenue rate. The 3.8% increase in volume was primarily attributable to growth in demand for non-clinical services.
The 2.6% increase in PDS revenue rate for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers and increases in value-based payments, offset by increases in implicit price concessions.
22
Our HHH segment revenue increase of $1.2 million, or 2.2%, for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023, resulted primarily from an increase in home health total episodes over the comparable period and an increase in home health revenue per completed episode due to improvements in home health episodic mix.
The $5.1 million, or 12.6%, increase in MS segment revenue for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023, was attributable to both an 8.1% increase in revenue rate and volume growth of 4.5% over the comparable period.
Cost of Revenue, Excluding Depreciation and Amortization
Cost of revenue, excluding depreciation and amortization, was $349.3 million for the three-month period ended September 28, 2024, as compared to $330.7 million for the three-month period ended September 30, 2023, an increase of $18.6 million, or 5.6%. This increase resulted from the following segment activity:
The 6.9% increase in PDS cost of revenue for the three-month period ended September 28, 2024 resulted from the previously described 3.8% increase in PDS volume combined with a 3.1% increase in PDS cost of revenue rate. The 3.1% increase in cost of revenue rate primarily resulted from higher caregiver labor costs, including the pass-through of reimbursement rate increases.
The 9.6% decrease in HHH cost of revenue for the three-month period ended September 28, 2024 was driven primarily by a decline in HHH non-episodic volumes and improvements in HHH caregiver utilization.
The 7.8% increase in MS cost of revenue for the three-month period ended September 28, 2024 was driven by the previously described 4.5% growth in MS volumes and a 3.3% increase in cost of revenue rate.
Gross Margin and Gross Margin Percentage
Gross margin was $159.7 million, or 31.4% of revenue, for the three-month period ended September 28, 2024, as compared to $147.3 million, or 30.8% of revenue, for the three-month period ended September 30, 2023. Gross margin increased $12.4 million, or 8.4%, from the comparable prior year quarter. The 0.6% increase in gross margin percentage for the three-month period ended September 28, 2024 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:
Branch and Regional Administrative Expenses
Branch and regional administrative expenses were $88.2 million, or 17.3% of revenue, for the three-month period ended September 28, 2024, as compared to $91.0 million, or 19.0% of revenue, for the three-month period ended September 30, 2023, a decrease of $2.8 million, or 3.1%.
The 3.1% decrease in branch and regional administrative expenses for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023, was primarily due to the positive effects of restructuring portions of our branch and regional operating structure, which resulted in the overall 1.7% decrease in branch and regional administrative expenses as a percentage of revenue for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023.
Field Contribution and Field Contribution Margin
Field contribution was $71.5 million, or 14.0% of revenue, for the three-month period ended September 28, 2024, as compared to $56.3 million, or 11.8% of revenue, for the three-month period ended September 30, 2023. Field contribution increased $15.3 million, or 27.1%, for the three-month period ended September 28, 2024, as compared to the three-month period ended September 30, 2023. The 2.2% increase in Field contribution margin for the three-month period ended September 28, 2024 resulted from the following:
23
Field contribution and Field contribution margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.
Corporate Expenses
Corporate expenses as a percentage of revenue for the three-month periods ended September 28, 2024 and September 30, 2023 were as follows:
|
For the three-month periods ended |
|
||||||||||
|
September 28, 2024 |
|
September 30, 2023 |
|
||||||||
(dollars in thousands) |
Amount |
|
% of Revenue |
|
Amount |
|
% of Revenue |
|
||||
Revenue |
$ |
509,023 |
|
|
|
$ |
478,010 |
|
|
|
||
Corporate expense components: |
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
$ |
16,943 |
|
|
3.3 |
% |
$ |
14,593 |
|
|
3.1 |
% |
Non-cash share-based compensation |
|
3,373 |
|
|
0.7 |
% |
|
2,513 |
|
|
0.5 |
% |
Professional services |
|
5,959 |
|
|
1.2 |
% |
|
4,492 |
|
|
0.9 |
% |
Rent and facilities expense |
|
3,220 |
|
|
0.6 |
% |
|
3,301 |
|
|
0.7 |
% |
Office and administrative |
|
396 |
|
|
0.1 |
% |
|
482 |
|
|
0.1 |
% |
Other |
|
2,003 |
|
|
0.4 |
% |
|
2,065 |
|
|
0.4 |
% |
Total corporate expenses |
$ |
31,894 |
|
|
6.3 |
% |
$ |
27,446 |
|
|
5.7 |
% |
Corporate expenses were $31.9 million, or 6.3% of revenue, for the three-month period ended September 28, 2024, as compared to $27.4 million, or 5.7% of revenue, for the three-month period ended September 30, 2023. The $4.4 million, or 16.2%, increase in corporate expenses resulted primarily from higher compensation and benefits costs, non-cash share-based compensation, and professional services.
Goodwill Impairment
Goodwill impairment was $105.1 million for the three-month period ended September 30, 2023. As a result of anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment, primarily related to continued challenges in the labor markets, we recorded a $105.1 million non-cash goodwill impairment charge during the three months ended September 30, 2023. There was no goodwill impairment charge recorded during the three-month period ended September 28, 2024.
Depreciation and Amortization
Depreciation and amortization was $2.6 million for the three-month period ended September 28, 2024, as compared to $3.0 million for the three-month period ended September 30, 2023, a decrease of $0.4 million, or 12.7%. The $0.4 million decrease primarily resulted from improved capital asset management.
Other Operating Expense (Income)
Other operating expense was $2.9 million for the three-month period ended September 28, 2024, as compared to other operating income of $3.4 million for the three-month period ended September 30, 2023, a decrease in other operating income of $6.2 million. The $6.2 million decrease primarily resulted from a favorable $5.1 million non-cash gain on the acquisition of certain business licenses and other net assets recorded during the third quarter of 2023, and a $1.1 million increase in license impairment charges recorded in the third quarter of 2024.
Interest Expense, net of Interest Income
Interest expense, net of interest income was $39.1 million for the three-month period ended September 28, 2024, as compared to $39.5 million for the three-month period ended September 30, 2023, a decrease of $0.4 million, or 1.0%. The decrease was primarily driven by a lower principal balance on the 2021 Extended Term Loan (as described in Note 4 to our interim unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q (our “Quarterly Financial Statements”)) and the September 2024 U.S.
24
federal funds rate cut, partially offset by higher borrowing under our Securitization Facility (as defined in Note 5 to our Quarterly Financial Statements). See further analysis under Liquidity and Capital Resources below.
Other (Expense) Income
Other expense was $22.2 million for the three-month period ended September 28, 2024, as compared to other income of $14.1 million for the three-month period ended September 30, 2023, a decrease to other income of $36.4 million. The decrease was primarily driven by a $36.3 million decrease in non-cash valuation gains on interest rate derivatives resulting from changes in market expectations of future interest rates as of the comparable quarter-end valuation dates. Details of other (expense) income included the following:
|
For the three-month periods ended |
|
||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
||
Valuation (loss) gain to state interest rate derivatives at fair value |
$ |
(31,999 |
) |
$ |
4,322 |
|
Net settlements received from interest rate derivative counterparties |
|
9,858 |
|
|
9,797 |
|
Other |
|
(70 |
) |
|
24 |
|
Total other (expense) income |
$ |
(22,211 |
) |
$ |
14,143 |
|
Income Taxes
We incurred income tax expense of $15.5 million for the three-month period ended September 28, 2024, as compared to income tax expense of $0.6 million for the three-month period ended September 30, 2023. This increase in tax expense was primarily driven by the changes in federal and state valuation allowances, and changes to federal and state current tax expense due to certain non-deductible expenses, most notably interest expense.
Nine-Month Period Ended September 28, 2024 Compared to the Nine-Month Period Ended September 30, 2023
The following table summarizes our consolidated results of operations, including Field contribution, which is a non-GAAP measure (see “Non-GAAP Financial Measures” below), for the nine-month periods indicated:
|
For the nine-month periods ended |
|
||||||||||||||||
(dollars in thousands) |
September 28, 2024 |
|
% of Revenue |
|
September 30, 2023 |
|
% of Revenue |
|
Change |
|
% Change |
|
||||||
Revenue |
$ |
1,504,634 |
|
|
100.0 |
% |
$ |
1,416,368 |
|
|
100.0 |
% |
$ |
88,266 |
|
|
6.2 |
% |
Cost of revenue, excluding depreciation and amortization |
|
1,040,814 |
|
|
69.2 |
% |
|
969,384 |
|
|
68.4 |
% |
|
71,430 |
|
|
7.4 |
% |
Gross margin |
$ |
463,820 |
|
|
30.8 |
% |
$ |
446,984 |
|
|
31.6 |
% |
$ |
16,836 |
|
|
3.8 |
% |
Branch and regional administrative expenses |
|
264,070 |
|
|
17.6 |
% |
|
273,967 |
|
|
19.3 |
% |
|
(9,897 |
) |
|
-3.6 |
% |
Corporate expenses |
|
91,981 |
|
|
6.1 |
% |
|
84,735 |
|
|
6.0 |
% |
|
7,246 |
|
|
8.6 |
% |
Goodwill impairment |
|
- |
|
|
0.0 |
% |
|
105,136 |
|
|
7.4 |
% |
|
(105,136 |
) |
|
-100.0 |
% |
Depreciation and amortization |
|
8,332 |
|
|
0.6 |
% |
|
10,494 |
|
|
0.7 |
% |
|
(2,162 |
) |
|
-20.6 |
% |
Acquisition-related costs |
|
150 |
|
|
0.0 |
% |
|
466 |
|
|
0.0 |
% |
|
(316 |
) |
|
-67.8 |
% |
Other operating expense (income) |
|
5,271 |
|
|
0.4 |
% |
|
(6,593 |
) |
|
-0.5 |
% |
|
11,864 |
|
|
-179.9 |
% |
Operating income (loss) |
$ |
94,016 |
|
|
6.2 |
% |
$ |
(21,221 |
) |
|
-1.5 |
% |
$ |
115,237 |
|
|
543.0 |
% |
Interest expense, net |
|
(118,208 |
) |
|
|
|
(113,304 |
) |
|
|
|
(4,904 |
) |
|
4.3 |
% |
||
Other income |
|
2,329 |
|
|
|
|
27,124 |
|
|
|
|
(24,795 |
) |
|
-91.4 |
% |
||
Income tax expense |
|
(18,246 |
) |
|
|
|
(1,387 |
) |
|
|
|
(16,859 |
) |
NM |
|
|||
Net loss |
$ |
(40,109 |
) |
|
|
$ |
(108,788 |
) |
|
|
$ |
68,679 |
|
|
-63.1 |
% |
||
The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the nine-month periods indicated:
25
|
For the nine-month periods ended |
|
||||||||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
||||
Revenue |
$ |
1,504,634 |
|
$ |
1,416,368 |
|
$ |
88,266 |
|
|
6.2 |
% |
Cost of revenue, excluding depreciation and amortization |
|
1,040,814 |
|
|
969,384 |
|
|
71,430 |
|
|
7.4 |
% |
Gross margin |
$ |
463,820 |
|
$ |
446,984 |
|
$ |
16,836 |
|
|
3.8 |
% |
Gross margin percentage |
|
30.8 |
% |
|
31.6 |
% |
|
|
|
|
||
Branch and regional administrative expenses |
|
264,070 |
|
|
273,967 |
|
|
(9,897 |
) |
|
-3.6 |
% |
Field contribution |
$ |
199,750 |
|
$ |
173,017 |
|
$ |
26,733 |
|
|
15.5 |
% |
Field contribution margin |
|
13.3 |
% |
|
12.2 |
% |
|
|
|
|
||
Corporate expenses |
$ |
91,981 |
|
$ |
84,735 |
|
$ |
7,246 |
|
|
8.6 |
% |
As a percentage of revenue |
|
6.1 |
% |
|
6.0 |
% |
|
|
|
|
||
Operating income (loss) |
$ |
94,016 |
|
$ |
(21,221 |
) |
$ |
115,237 |
|
|
543.0 |
% |
As a percentage of revenue |
|
6.2 |
% |
|
-1.5 |
% |
|
|
|
|
||
The following tables summarize our key performance measures by segment for the nine-month periods indicated:
|
PDS |
|
|
||||||||||
|
For the nine-month periods ended |
|
|
||||||||||
(dollars and hours in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
1,212,418 |
|
$ |
1,135,365 |
|
$ |
77,053 |
|
|
6.8 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
891,588 |
|
|
815,221 |
|
|
76,367 |
|
|
9.4 |
% |
|
Gross margin |
$ |
320,830 |
|
$ |
320,144 |
|
$ |
686 |
|
|
0.2 |
% |
|
Gross margin percentage |
|
26.5 |
% |
|
28.2 |
% |
|
|
|
-1.7 |
% |
(4) |
|
Hours |
|
31,074 |
|
|
29,738 |
|
|
1,336 |
|
|
4.5 |
% |
|
Revenue rate |
$ |
39.02 |
|
$ |
38.18 |
|
$ |
0.84 |
|
|
2.3 |
% |
(1) |
Cost of revenue rate |
$ |
28.69 |
|
$ |
27.41 |
|
$ |
1.28 |
|
|
4.9 |
% |
(2) |
Spread rate |
$ |
10.33 |
|
$ |
10.77 |
|
$ |
(0.44 |
) |
|
-4.3 |
% |
(3) |
|
|
|
|
|
|
|
|
|
|
||||
|
HHH |
|
|
||||||||||
|
For the nine-month periods ended |
|
|
||||||||||
(dollars and admissions/episodes in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
163,382 |
|
$ |
164,525 |
|
$ |
(1,143 |
) |
|
-0.7 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
75,814 |
|
|
87,189 |
|
|
(11,375 |
) |
|
-13.0 |
% |
|
Gross margin |
$ |
87,568 |
|
$ |
77,336 |
|
$ |
10,232 |
|
|
13.2 |
% |
|
Gross margin percentage |
|
53.6 |
% |
|
47.0 |
% |
|
|
|
6.6 |
% |
(4) |
|
Home health total admissions (5) |
|
28.4 |
|
|
30.9 |
|
|
(2.5 |
) |
|
-8.1 |
% |
|
Home health episodic admissions (6) |
|
21.5 |
|
|
21.8 |
|
|
(0.3 |
) |
|
-1.4 |
% |
|
Home health total episodes (7) |
|
35.0 |
|
|
34.2 |
|
|
0.8 |
|
|
2.3 |
% |
|
Home health revenue per completed episode (8) |
$ |
3,089 |
|
$ |
3,022 |
|
$ |
67 |
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
||||
|
MS |
|
|
||||||||||
|
For the nine-month periods ended |
|
|
||||||||||
(dollars and UPS in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
Change |
|
% Change |
|
|
||||
Revenue |
$ |
128,834 |
|
$ |
116,478 |
|
$ |
12,356 |
|
|
10.6 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
73,412 |
|
|
66,974 |
|
|
6,438 |
|
|
9.6 |
% |
|
Gross margin |
$ |
55,422 |
|
$ |
49,504 |
|
$ |
5,918 |
|
|
12.0 |
% |
|
Gross margin percentage |
|
43.0 |
% |
|
42.5 |
% |
|
|
|
0.5 |
% |
(4) |
|
Unique patients served (“UPS”) |
|
278 |
|
|
258 |
|
|
20 |
|
|
7.8 |
% |
|
Revenue rate |
$ |
463.43 |
|
$ |
451.47 |
|
$ |
11.96 |
|
|
2.8 |
% |
(1) |
Cost of revenue rate |
$ |
264.07 |
|
$ |
259.59 |
|
$ |
4.48 |
|
|
1.8 |
% |
(2) |
Spread rate |
$ |
199.36 |
|
$ |
191.88 |
|
$ |
7.48 |
|
|
4.2 |
% |
(3) |
26
The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures, as well as our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Summary Operating Results
Operating Income (Loss)
Operating income was $94.0 million for the nine-month period ended September 28, 2024, as compared to operating loss of $21.2 million for the nine-month period ended September 30, 2023, an increase of $115.2 million, or 543.0%.
Operating income for the nine-month period of 2024 was positively impacted by an increase of $26.7 million, or 15.5%, in Field contribution as compared to the nine-month period of 2023. The $26.7 million increase in Field contribution resulted from a $88.3 million, or 6.2%, increase in consolidated revenue and a 1.1% increase in our Field contribution margin to 13.3% for the nine-month period of 2024 from 12.2% for the nine-month period of 2023. The primary driver of our higher Field contribution margin year over year was a 1.7% decrease in branch and regional administrative expenses as a percentage of revenue to 17.6% for the nine-month period of 2024 from 19.3% for the nine-month period of 2023 partially offset by a decrease in gross margin percentage of 0.8% over the comparable period.
The overall $115.2 million increase in operating income over the comparable periods primarily consists of:
Net Loss
Net loss for the nine-month period ended September 28, 2024 was $40.1 million, as compared to net loss of $108.8 million for the nine-month period ended September 30, 2023. The $68.7 million decrease in net loss was primarily driven by the following:
Revenue
Revenue was $1,504.6 million for the nine-month period ended September 28, 2024, as compared to $1,416.4 million for the nine-month period ended September 30, 2023, an increase of $88.3 million, or 6.2%. This increase resulted from the following segment activity:
Our PDS segment revenue growth of $77.1 million, or 6.8%, for the nine-month period ended September 28, 2024 was attributable to a 4.5% increase in volume and a 2.3% increase in revenue rate. The 4.5% increase in volume was primarily attributable to growth in demand for non-clinical services.
27
The 2.3% increase in PDS revenue rate for the nine-month period ended September 28, 2024, as compared to the nine-month period ended September 30, 2023, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers and increases in value-based payments, offset by increases in implicit price concessions.
Our HHH segment revenue decrease of $1.1 million, or 0.7%, for the nine-month period ended September 28, 2024 resulted primarily from a decline in non-episodic volumes over the comparable period. While home health total admissions declined 8.1% over the comparable period, total segment revenue declined by a lower rate primarily due to improvements in home health episodic mix.
The $12.4 million, or 10.6%, increase in MS segment revenue for the nine-month period ended September 28, 2024, as compared to the nine-month period ended September 30, 2023, was attributable to volume growth of 7.8% combined with a 2.8% increase in revenue rate over the comparable period.
Cost of Revenue, Excluding Depreciation and Amortization
Cost of revenue, excluding depreciation and amortization, was $1,040.8 million for the nine-month period ended September 28, 2024, as compared to $969.4 million for the nine-month period ended September 30, 2023, an increase of $71.4 million, or 7.4%. This increase resulted from the following segment activity:
The 9.4% increase in PDS cost of revenue for the nine-month period ended September 28, 2024 resulted from the previously described 4.5% increase in PDS volume combined with a 4.9% increase in PDS cost of revenue rate. The 4.9% increase in cost of revenue rate primarily resulted from higher caregiver labor costs, including the pass-through of reimbursement rate increases. The prior year period included $5.0 million lower general and professional liability expense associated with certain accrued legal settlements.
The 13.0% decrease in HHH cost of revenue for the nine-month period ended September 28, 2024 was driven primarily by a decline in HHH non-episodic volumes and improvements in HHH caregiver utilization.
The 9.6% increase in MS cost of revenue for the nine-month period ended September 28, 2024 was driven by the previously described 7.8% growth in MS volumes and a 1.8% increase in cost of revenue rate.
Gross Margin and Gross Margin Percentage
Gross margin was $463.8 million, or 30.8% of revenue, for the nine-month period ended September 28, 2024, as compared to $447.0 million, or 31.6% of revenue, for the nine-month period ended September 30, 2023. Gross margin increased $16.8 million, or 3.8%, from the comparable prior year quarter. The 0.8% decrease in gross margin percentage for the nine-month period ended September 28, 2024 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:
Branch and Regional Administrative Expenses
Branch and regional administrative expenses were $264.1 million, or 17.6% of revenue, for the nine-month period ended September 28, 2024, as compared to $274.0 million, or 19.3% of revenue, for the nine-month period ended September 30, 2023, a decrease of $9.9 million, or 3.6%.
The 3.6% decrease in branch and regional administrative expenses for the nine-month period ended September 28, 2024, as compared to the nine-month period ended September 30, 2023, was primarily due to the positive effects of restructuring portions of our branch and regional operating structure, which resulted in the overall 1.7% decrease in branch and regional administrative expenses as a percentage of revenue for the nine-month period ended September 28, 2024, as compared to the nine-month period ended September 30, 2023.
28
Field Contribution and Field Contribution Margin
Field contribution was $199.8 million, or 13.3% of revenue, for the nine-month period ended September 28, 2024, as compared to $173.0 million, or 12.2% of revenue, for the nine-month period ended September 30, 2023. Field contribution increased $26.7 million, or 15.5%, for the nine-month period ended September 28, 2024, as compared to the nine-month period ended September 30, 2023. The 1.1% increase in Field contribution margin for the nine-month period ended September 28, 2024 resulted from the following:
Field contribution and Field contribution margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.
Corporate Expenses
Corporate expenses as a percentage of revenue for the nine-month periods ended September 28, 2024 and September 30, 2023 were as follows:
|
For the nine-month periods ended |
|
||||||||||
|
September 28, 2024 |
|
September 30, 2023 |
|
||||||||
(dollars in thousands) |
Amount |
|
% of Revenue |
|
Amount |
|
% of Revenue |
|
||||
Revenue |
$ |
1,504,634 |
|
|
|
$ |
1,416,368 |
|
|
|
||
Corporate expense components: |
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
$ |
49,618 |
|
|
3.3 |
% |
$ |
46,642 |
|
|
3.3 |
% |
Non-cash share-based compensation |
|
9,233 |
|
|
0.6 |
% |
|
7,179 |
|
|
0.5 |
% |
Professional services |
|
16,837 |
|
|
1.1 |
% |
|
13,275 |
|
|
0.9 |
% |
Rent and facilities expense |
|
9,436 |
|
|
0.6 |
% |
|
9,282 |
|
|
0.7 |
% |
Office and administrative |
|
1,356 |
|
|
0.1 |
% |
|
1,217 |
|
|
0.1 |
% |
Other |
|
5,501 |
|
|
0.4 |
% |
|
7,140 |
|
|
0.5 |
% |
Total corporate expenses |
$ |
91,981 |
|
|
6.1 |
% |
$ |
84,735 |
|
|
6.0 |
% |
Corporate expenses were $92.0 million, or 6.1% of revenue, for the nine-month period ended September 28, 2024, as compared to $84.7 million, or 6.0% of revenue, for the nine-month period ended September 30, 2023. The $7.2 million, or 8.6%, increase in corporate expenses resulted primarily from higher compensation and benefits, higher non-cash share-based compensation costs, and higher professional services.
Goodwill Impairment
Goodwill impairment was $105.1 million for the nine-month period ended September 30, 2023. As a result of anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment, primarily related to continued challenges in the labor markets, we recorded a $105.1 million non-cash goodwill impairment charge during the nine-month period ended September 30, 2023. There was no goodwill impairment charge recorded during the nine-month period ended September 28, 2024.
Depreciation and Amortization
Depreciation and amortization was $8.3 million for the nine-month period ended September 28, 2024, as compared to $10.5 million for the nine-month period ended September 30, 2023, a decrease of $2.2 million, or 20.6%. The $2.2 million decrease primarily resulted from improved capital asset management.
Other Operating Expense (Income)
Other operating expense was $5.3 million for the nine-month period ended September 28, 2024, as compared to other operating income of $6.6 million for the nine-month period ended September 30, 2023, a decrease in other operating income of $11.9 million. The $11.9 million decrease primarily resulted from impairment of a certain facility lease asset recorded in the current year nine-month period, and both a favorable $3.6 million acquisition-related legal settlement and a favorable $5.1 million non-cash gain on the acquisition of certain business licenses and other net assets recorded in the prior year nine-month period.
29
Interest Expense, net of Interest Income
Interest expense, net of interest income was $118.2 million for the nine-month period ended September 28, 2024, as compared to $113.3 million for the nine-month period ended September 30, 2023, an increase of $4.9 million, or 4.3%. The increase was primarily driven by increased borrowing under our Securitization Facility and a higher U.S. federal funds rate during the nine-month period ended September 28, 2024 compared to the nine-month period ended September 30, 2023. See further analysis under Liquidity and Capital Resources below.
Other Income
Other income was $2.3 million for the nine-month period ended September 28, 2024, as compared to other income of $27.1 million for the nine-month period ended September 30, 2023. We realized a $29.5 million decrease in non-cash valuation gains on interest rate derivatives resulting from changes in market expectations of future interest rates as of the comparable valuation dates, offset by a $4.8 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year period due to higher market interest rates. Details of other income included the following:
|
For the nine-month periods ended |
|
||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
||
Valuation (loss) gain to state interest rate derivatives at fair value |
$ |
(26,869 |
) |
$ |
2,584 |
|
Net settlements received from interest rate derivative counterparties |
|
29,086 |
|
|
24,279 |
|
Other |
|
112 |
|
|
261 |
|
Total other income |
$ |
2,329 |
|
$ |
27,124 |
|
Income Taxes
We incurred income tax expense of $18.2 million for the nine-month period ended September 28, 2024, as compared to income tax expense of $1.4 million for the nine-month period ended September 30, 2023. This increase in tax expense was primarily driven by the changes to federal and state current tax expense and the changes in federal and state valuation allowances due to certain non-deductible expenses, most notably interest expense.
Non-GAAP Financial Measures
In addition to our results of operations prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which we have discussed above, we also evaluate our financial performance using EBITDA, Adjusted EBITDA, Field contribution and Field contribution margin.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as net income or loss. Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net income or loss before interest expense, net; income tax expense; and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain other items that are either non-recurring, infrequent, non-cash, unusual, or items deemed by management to not be indicative of the performance of our core operations, including impairments of goodwill, intangible assets, and other long-lived assets; non-cash, share-based compensation; loss on extinguishment of debt; fees related to debt modifications; the effect of interest rate derivatives; acquisition-related and integration costs; legal costs and settlements associated with acquisition matters; restructuring costs; other legal matters; other system transition costs, professional fees; and other costs including gains and losses on acquisitions and dispositions of certain businesses. As non-GAAP financial measures, our computations of EBITDA and Adjusted EBITDA may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of this measure impracticable.
Management believes our computations of EBITDA and Adjusted EBITDA are helpful in highlighting trends in our core operating performance. In determining which adjustments are made to arrive at EBITDA and Adjusted EBITDA, management considers both (1) certain non-recurring, infrequent, non-cash or unusual items, which can vary significantly from year to year, as well as (2) certain other items that may be recurring, frequent, or settled in cash but which management does not believe are indicative of our core operating performance. We use EBITDA and Adjusted EBITDA to assess operating performance and make business decisions.
We have incurred substantial acquisition-related costs and integration costs. The underlying acquisition activities take place over a defined timeframe, have distinct project timelines and are incremental to activities and costs that arise in the ordinary course of our
30
business. Therefore, we believe it is important to exclude these costs from our Adjusted EBITDA because it provides management a normalized view of our core, ongoing operations after integrating our acquired companies, which is an important measure in assessing our performance.
Given our determination of adjustments in arriving at our computations of EBITDA and Adjusted EBITDA, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.
The following table reconciles net loss to EBITDA and Adjusted EBITDA for the periods indicated:
|
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
(dollars in thousands) |
|
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Net loss |
|
$ |
(42,843 |
) |
$ |
(102,389 |
) |
$ |
(40,109 |
) |
$ |
(108,788 |
) |
Interest expense, net |
|
|
39,145 |
|
|
39,549 |
|
|
118,208 |
|
|
113,304 |
|
Income tax expense |
|
|
15,511 |
|
|
631 |
|
|
18,246 |
|
|
1,387 |
|
Depreciation and amortization |
|
|
2,587 |
|
|
2,962 |
|
|
8,332 |
|
|
10,494 |
|
EBITDA |
|
|
14,400 |
|
|
(59,247 |
) |
|
104,677 |
|
|
16,397 |
|
Goodwill, intangible and other long-lived asset impairment |
|
|
2,904 |
|
|
106,841 |
|
|
5,304 |
|
|
107,222 |
|
Non-cash share-based compensation |
|
|
4,902 |
|
|
5,116 |
|
|
12,483 |
|
|
10,143 |
|
Interest rate derivatives (1) |
|
|
22,141 |
|
|
(14,120 |
) |
|
(2,218 |
) |
|
(26,865 |
) |
Acquisition-related costs (2) |
|
|
150 |
|
|
428 |
|
|
150 |
|
|
465 |
|
Integration costs (3) |
|
|
262 |
|
|
497 |
|
|
949 |
|
|
1,732 |
|
Legal costs and settlements associated with acquisition matters (4) |
|
|
848 |
|
|
346 |
|
|
1,423 |
|
|
(4,796 |
) |
Restructuring (5) |
|
|
1,599 |
|
|
985 |
|
|
4,787 |
|
|
5,733 |
|
Other legal matters (6) |
|
|
214 |
|
|
- |
|
|
1,112 |
|
|
(5,000 |
) |
Other system transition costs, professional fees and other (7) |
|
|
421 |
|
|
(4,655 |
) |
|
(296 |
) |
|
(4,504 |
) |
Total adjustments (8) |
|
$ |
33,441 |
|
$ |
95,438 |
|
$ |
23,694 |
|
$ |
84,130 |
|
Adjusted EBITDA |
|
$ |
47,841 |
|
$ |
36,191 |
|
$ |
128,371 |
|
$ |
100,527 |
|
31
|
|
Impact to Adjusted EBITDA |
|
||||||||||
|
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
(dollars in thousands) |
|
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Cost of revenue, excluding depreciation and amortization |
|
$ |
281 |
|
$ |
166 |
|
$ |
457 |
|
$ |
(4,512 |
) |
Branch and regional administrative expenses |
|
|
2,515 |
|
|
2,765 |
|
|
5,389 |
|
|
6,129 |
|
Corporate expenses |
|
|
5,421 |
|
|
4,445 |
|
|
14,756 |
|
|
10,629 |
|
Goodwill impairment |
|
|
- |
|
|
105,136 |
|
|
- |
|
|
105,136 |
|
Acquisition-related costs |
|
|
150 |
|
|
428 |
|
|
150 |
|
|
465 |
|
Other operating expense (income) |
|
|
(8 |
) |
|
(5,090 |
) |
|
2,112 |
|
|
(8,735 |
) |
Other (expense) income |
|
|
25,082 |
|
|
(12,412 |
) |
|
830 |
|
|
(24,982 |
) |
Total adjustments |
|
$ |
33,441 |
|
$ |
95,438 |
|
$ |
23,694 |
|
$ |
84,130 |
|
Field Contribution and Field Contribution Margin
Field contribution and Field contribution margin are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as gross margin and gross margin percentage. Rather, we present Field contribution and Field contribution margin as supplemental measures of our performance. We define Field contribution as gross margin less branch and regional administrative expenses. Field contribution margin is Field contribution as a percentage of revenue. As non-GAAP financial measures, our computations of Field contribution and Field contribution margin may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of these measures impracticable.
Field contribution and Field contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to gross margin, gross margin percentage, net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.
Management believes Field contribution and Field contribution margin are helpful in highlighting trends in our core operating performance and evaluating trends in our branch and regional results, which can vary from year to year. We use Field contribution and Field contribution margin to make business decisions and assess the operating performance and results delivered by our core field operations, prior to corporate and other costs not directly related to our field operations. These metrics are also important because they guide us in determining whether or not our branch and regional administrative expenses are appropriately sized to support our caregivers
32
and direct patient care operations. Additionally, Field contribution and Field contribution margin determine how effective we are in managing our field supervisory and administrative costs associated with supporting our provision of services and sale of products.
The following table reconciles gross margin to Field contribution and Field contribution margin for the periods indicated:
|
For the three-month periods ended |
|
For the nine-month periods ended |
|
||||||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
September 28, 2024 |
|
September 30, 2023 |
|
||||
Gross margin |
$ |
159,699 |
|
$ |
147,264 |
|
$ |
463,820 |
|
$ |
446,984 |
|
Gross margin percentage |
|
31.4 |
% |
|
30.8 |
% |
|
30.8 |
% |
|
31.6 |
% |
Branch and regional administrative expenses |
|
88,184 |
|
|
91,004 |
|
|
264,070 |
|
|
273,967 |
|
Field contribution |
$ |
71,515 |
|
$ |
56,260 |
|
$ |
199,750 |
|
$ |
173,017 |
|
Field contribution margin |
|
14.0 |
% |
|
11.8 |
% |
|
13.3 |
% |
|
12.2 |
% |
Revenue |
$ |
509,023 |
|
$ |
478,010 |
|
$ |
1,504,634 |
|
$ |
1,416,368 |
|
Liquidity and Capital Resources
Overview
Our principal sources of cash have historically been from cash provided by operating activities. Our principal source of liquidity in addition to cash provided by operating activities, or when we have used net cash in our operating activities, has historically been from proceeds from our credit facilities and issuances of common stock.
Our principal uses of cash and liquidity have historically been for acquisitions, interest and principal payments under our credit facilities, payments under our interest rate derivatives, and financing of working capital. Payment of interest and related fees under our credit facilities is currently the most significant use of our operating cash flow. Our goal is to use cashflow provided by operations primarily as a source of cash to supplement the purchase price for acquisitions.
In September 2023, in response to a $7.9 million arbitration award rendered against us in connection with a civil litigation matter, we promptly obtained a $9.1 million appellate bond with the trial court. The $9.1 million appellate bond was collateralized with letters of credit. While we intend to avail ourselves of all appellate options, the resolution of this matter could reduce the cash available to us for general working capital purposes.
For additional information with respect to the foregoing litigation matters, please see "Litigation and Other Current Liabilities" set forth in Note 10 to our interim unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
At September 28, 2024 we had $78.5 million in cash on hand, $37.9 million available to us under our Securitization Facility and approximately $168.2 million of borrowing capacity under the Revolving Credit Facility (as defined below, and prior to giving effect to the amendment to such facility on September 30, 2024 that, among other things, reduced the maximum borrowing capacity from $200.0 million to $170.3 million). Available borrowing capacity under the Revolving Credit Facility is subject to a maintenance leverage covenant that becomes effective if more than 30% of the total commitment is utilized, subject to a $15.0 million carve-out for letters of credit. We believe that our operating cash flows, available cash on hand, and availability under our Securitization Facility and Revolving Credit Facility will be sufficient to meet our cash requirements for at least the next twelve months. Our future capital requirements will depend on many factors that are difficult to predict, including the size, timing and structure of any future acquisitions, future capital investments and future results of operations. We cannot assure you that cash provided by operating activities or cash and cash equivalents on hand will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.
Cash Flow Activity
The following table sets forth a summary of our cash flows from operating, investing, and financing activities for the nine-month periods presented:
|
For the nine-month periods ended |
|
||||
(dollars in thousands) |
September 28, 2024 |
|
September 30, 2023 |
|
||
Net cash provided by operating activities |
$ |
19,231 |
|
$ |
25,677 |
|
Net cash used in investing activities |
$ |
(4,790 |
) |
$ |
(7,226 |
) |
Net cash provided by financing activities |
$ |
20,079 |
|
$ |
10,626 |
|
33
Operating Activities
The primary sources or uses of our operating cash flow are operating income or operating losses, as well as any other significant non-cash items such as depreciation, amortization and share-based compensation, and cash paid for interest. The timing of collections of accounts receivable and the payment of accounts payable, other accrued liabilities and accrued payroll can also impact and cause fluctuations in our operating cash flow. Cash provided by operating activities decreased by $6.4 million for the nine-month period ended September 28, 2024 compared to the nine-month period ended September 30, 2023, primarily due to:
Days Sales Outstanding (“DSO”)
DSO provides us with a gauge to measure the timing of cash collections against accounts receivable and related revenue. DSO is derived by dividing our average patient accounts receivable for the fiscal period by our average daily revenue for the fiscal period. The collection cycle for our HHH segment is generally longer than that of our PDS segment, primarily due to longer billing cycles for HHH, which is generally billed in thirty day increments. The following table presents our trailing five quarter DSO for the periods presented below:
|
September 30, 2023 |
|
December 30, 2023 |
|
March 30, 2024 |
|
June 29, 2024 |
|
September 28, 2024 |
|
|||||
Days Sales Outstanding |
|
45.0 |
|
|
44.9 |
|
|
45.8 |
|
|
47.8 |
|
|
48.1 |
|
Investing Activities
Net cash used in investing activities was $4.8 million for the nine-month period ended September 28, 2024, as compared to $7.2 million for the nine-month period ended September 30, 2023. The primary driver of the $2.4 million decrease in cash used in the current period was the prior year purchase of certificates of need of $2.7 million.
Financing Activities
Net cash provided by financing activities increased by $9.5 million, from $10.6 million net cash provided for the nine-month period ended September 30, 2023 to $20.1 million for the nine-month period ended September 28, 2024. The $9.5 million increase was primarily attributable to the timing of both payments on term loans and proceeds from the employee stock purchase plan as well as lower notes payable borrowings during the nine-month period ended September 28, 2024.
Indebtedness
We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our Securitization Facility and Revolving Credit Facility from time to time for working capital purposes, as well as to finance acquisitions, as needed. The following table presents our current and long-term obligations under our credit facilities as of September 28, 2024 and December 30, 2023, as well as related interest expense for the nine-month periods ended September 28, 2024 and September 30, 2023, respectively:
|
Current and Long-term |
|
|
Interest Expense |
|
||||||||
(dollars in thousands) |
Obligations |
|
|
For the nine-month periods ended |
|
||||||||
Instrument |
September 28, 2024 |
|
December 30, 2023 |
|
Interest Rate |
September 28, 2024 |
|
September 30, 2023 |
|
||||
2021 Extended Term Loan (1) |
$ |
895,150 |
|
$ |
899,750 |
|
S + 3.75% |
$ |
62,436 |
|
$ |
60,750 |
|
Term Loan - Second Lien Term Loan (1) |
|
415,000 |
|
|
415,000 |
|
S + 7.00% |
|
39,258 |
|
|
38,055 |
|
Revolving Credit Facility (1) |
|
- |
|
|
- |
|
S + 3.75% |
|
638 |
|
|
667 |
|
Securitization Facility (2) |
|
170,000 |
|
|
155,000 |
|
S + 3.15% |
|
11,225 |
|
|
8,909 |
|
Amortization of debt issuance costs |
|
- |
|
|
- |
|
|
|
3,797 |
|
|
3,983 |
|
Other |
|
- |
|
|
- |
|
|
|
1,151 |
|
|
1,178 |
|
Total Indebtedness |
$ |
1,480,150 |
|
$ |
1,469,750 |
|
|
$ |
118,505 |
|
$ |
113,542 |
|
Weighted Average Interest Rate (3) |
|
9.7 |
% |
|
10.1 |
% |
|
|
|
|
|
||
34
We were in compliance with all financial covenants and restrictions related to existing credit facilities at September 28, 2024.
On September 30, 2024, the we amended the terms of our revolving credit facility under the First Lien Credit Agreement (as defined in Note 4 of our Quarterly Financial Statements) to extend the Revolving Credit Facility’s maturity date from April 29, 2026 to the earlier of (i) April 15, 2028 and (ii) May 1, 2026 if by such date the Securitization Facility has not been renewed or replaced or paid-off, in each case, in full, with a maturity date that is April 15, 2028, or later. Additionally, such amendment immediately reduced the maximum borrowing availability under the Revolving Credit Facility from $200.0 million to $170.3 million through April 29, 2026, and then subsequently reduces availability to $148.9 million from April 29, 2026 through the amended maturity date.
On May 31, 2024, we amended our Securitization Facility, which matures on July 31, 2026, to increase the borrowing capacity to $225.0 million, subject to certain borrowing base requirements. Further, this amendment revised the Securitization Facility's applicable margin on the borrowing rate to 3.15%, with all other terms remaining the same.
Contractual Obligations
Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating and financing leases. These contractual obligations impact our short-term and long-term liquidity and capital needs. As of September 28, 2024, there were no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Critical Accounting Estimates
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 for accounting policies and related estimates we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting estimates include patient services and product revenue; business combinations; goodwill; and insurance reserves. There have been no changes to our critical accounting estimates or their application since the date of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer, and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of September 28, 2024, such disclosure controls and procedures were not effective, solely as a result of a previously reported material weakness.
Notwithstanding the foregoing, there were no changes to previously issued financial statements, and management did not identify any misstatements in our financial statements as a result of this material weakness. Our principal executive officer, principal financial officer, and principal accounting officer believe that the interim unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
35
timely basis. Specifically, the material weakness is due to control deficiencies related to the overall information technology general controls ("ITGCs") for both user access and program change management for systems supporting the Company's internal control processes and controls. Our business process controls (automated and manual) were also deemed ineffective because they are adversely impacted by these ineffective ITGCs. Additionally, we did not fully design and implement business process controls (automated and manual) that are dependent on one of the revenue systems in the Private Duty Services segment which has been replaced in fiscal 2024.
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, management is in the process of implementing its remediation plan. Our remediation efforts include: (i) implementation of a new revenue system in Q1 2024; (ii) improvements to our ITGCs in the areas of user access and program change-management for systems supporting the Company’s internal control processes to ensure that internal controls are designed and operating effectively; and (iii) training and educating the control owners on ITGC policies concerning the principles and requirements of each control, with a focus on those related to user access and change-management over IT systems impacting financial reporting. We believe that these actions will remediate the foregoing material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except for the actions intended to remediate the material weakness as described above, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have occurred during the three-month period ended September 28, 2024, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer, principal financial officer, and principal accounting officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this Item is included in “Part I – Item 1 - Note 10 – Commitments and Contingencies” and is incorporated by reference into this Part II, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the quarter ended September 28, 2024, none of the directors or officers of the Company
Item 6. Exhibits
The following exhibits are filed or furnished herewith:
Exhibit Number |
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Description |
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10.1+ |
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Tenth Amendment to First Lien Credit Agreement, dated September 30, 2024, among Aveanna Healthcare LLC, Barclays Bank PLC, as administrative agent, and the other lenders, agents and guarantors party thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2024 and incorporated herein by reference). |
31.1 |
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31.2 |
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31.3 |
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32.1* |
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32.2* |
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32.3* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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+ Pursuant to Item 601(a)(5) of Regulation S-K, schedules and similar attachments to this exhibit have been omitted because they do not contain information material to an investment or voting decision and such information is not otherwise disclosed in such exhibit. The Company will supplementally provide a copy of any omitted schedule or similar attachment to the SEC or its staff upon request.
* Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Aveanna Healthcare Holdings Inc. |
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Date: November 7, 2024 |
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By: |
/s/ Jeff Shaner |
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Jeff Shaner Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 7, 2024 |
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By: |
/s/ Matthew Buckhalter |
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Matthew Buckhalter Chief Financial Officer |
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(Principal Financial Officer) |
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Date: November 7, 2024 |
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By: |
/s/ Deborah Stewart |
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Deborah Stewart |
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Chief Accounting Officer (Principal Accounting Officer) |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Shaner, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2024 |
By: |
/s/ Jeff Shaner |
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Jeff Shaner |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew Buckhalter, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2024 |
By: |
/s/ Matthew Buckhalter |
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Matthew Buckhalter |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 31.3
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Deborah Stewart, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2024 |
By: |
/s/ Deborah Stewart |
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Deborah Stewart |
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Chief Accounting Officer (Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aveanna Healthcare Holdings Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended September 28, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Shaner, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
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By: |
/s/ Jeff Shaner |
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Jeff Shaner |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aveanna Healthcare Holdings Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended September 28, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Buckhalter, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
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By: |
/s/ Matthew Buckhalter |
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Matthew Buckhalter |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aveanna Healthcare Holdings Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended September 28, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deborah Stewart, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
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By: |
/s/ Deborah Stewart |
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Deborah Stewart |
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Chief Accounting Officer (Principal Accounting Officer) |