Aveanna Healthcare Holdings Inc.

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

Thank you, Operator. Good morning, everyone, and thank you for joining Aviana Healthcare's Second Quarter 2021 Earnings Call. Speaking on today's call are Tony Strange, Aviana's Chief Executive Officer and President, David Afshar, our Chief Financial Officer, and Jeff Shaner, Aviana's Chief Operating Officer. We issued our second quarter earnings press release and filed our related Form 8K and Form 10K yesterday with the SEC. These documents are available on the Investor Relations section of our website at www.aviana.com. We encourage you to read them. Also, a replay of this call will be available on our website until August 19, 2021. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, August 12, 2021, and these statements have not been nor will they be updated subsequent to today's call. Also, today's call may contain forward-looking statements which may be identified by words such as may, could, will, expect, intend, plan, and other similar words and expressions. All forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. including those risks disclosed under the risk factor headings of our filings. Except as required by federal securities laws, Aviana does not undertake to publicly update or revise any forward-looking statements subsequent to the date made as a result of new information, future events, changing circumstances, or for any other reason. Also, in addition to our financial results reported in accordance with GAAP, we supplement our GAAP results with certain non-GAAP financial measures. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business and operating results, but they should not be relied upon to the exclusion of our financial results reported in accordance with GAAP. In addition, a reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available in our earnings press release and 10-Q, both of which are available on our website and on the SEC's website at www.scc.gov. Following today's prepared remarks, we will open the call to questions. Please limit your initial comments to one question and one follow-up so that we can accommodate as many callers as possible in the allotted time. With that, I will turn the call over to Aviana's Chief Executive Officer and President, Tony Strange. Tony?

Thanks, Shannon, and good morning, everyone. Thank you for joining Aviana's second quarter earnings call. Before we get started, I'd like to welcome our new investors and say thank you for joining the Aviana story. For our new participants, Aviana is a highly diversified home care platform specializing in providing both skilled and unskilled care to pediatric adults and senior patients in the most cost-effective setting possible, their homes. We operate in 30 states across the U.S. through 263 locations. Our clinical team focuses on providing exceptional physician-directed care to each of the 46,000 patients that we serve. It's been a busy quarter. On the call today, in addition to our operating results, we'd like to provide an overview of the reimbursement environment, an update on our recent financing activities, and finally, the latest developments surrounding our M&A transactions and pipeline. So let's jump right into our results. Q2 marks another successful quarter for Aviana as we continue to build on the momentum that we reported in Q1. Revenues for the quarter were $436 million compared to $352 million in Q2 of 2020, representing a year-over-year increase of 24%, and up sequentially from 417 million in Q1. Our compounded aggregated growth rate over the last three years has been in excess of 17 percent, and we believe, as is supported by our current results, that maintaining growth rates in the mid to high teens continues to be sustainable. Moving on to gross margins, gross margins for the quarter were 33.6 percent compared to 30.3 percent in Q2 of 2020, and up sequentially from 31.6% in Q1 of 21. The improvements have been driven by rate improvements across our PDS segment, the mixed shift driven by the growth in our home health and hospice segment, and a disciplined approach to managing labor expenses. I'm very proud of our operating teams for not only preserving but improving margins during a very difficult environment. EBITDA for the quarter was $49 million compared to $37 million in Q2 of 2020, an increase of 31% year-over-year. Adjusted earnings per diluted share for the quarter was $0.10 compared to $0.08 in Q1. These results on top of very good cash collections give us confidence that we can and will sustain our growth rates while continuing to protect our margin and leveraging our infrastructure, therefore creating significant value for our shareholders, as well as our patients and our employees. Speaking of our employees, I'd like to thank all of our caregivers, administrative staff, and our leadership team for making these results a reality. It is your dedication to our mission that makes Aviana successful. I'd also like to welcome the employees of our most recent acquisition, Doctors' Choice, to the Aviana family. It's great to have you on our team. Moving on to the reimbursement environment, our government and payer relations teams have been working hand in hand with our different state legislators, state administrations, as well as our managed care partners to protect and create new avenues for patients to receive care in the home. The result is that over 50% of the states that we service will increase the reimbursement rate and or expand the covered benefit for the services that we provide. To be specific, we have or will receive rate increases in 16 of our covered states in 2021. Jeff will provide some additional color on these increases during his comments. But the net takeaway is that state Medicaid agencies and managed care plans alike are recognizing the important role that home care can play in reducing our overall health care spend. These investments into the home care benefit will allow providers to make additional investments into caregiver wages, which should accelerate growth for the industry. From a Medicare perspective, CMS has issued a proposed rule for home health and a final rule for hospice. On the home health front, we view the proposed rule as an overall positive for the industry. It appears that providers will experience approximately a 1.7 percent increase to reimbursement, but equally positive for us is the indication that CMS is moving forward with its commitment to evaluate value-based pricing. There are several legislative efforts underway, such as Choose Home, to elevate the impact that home care can play in helping post-acute care patients transition back to their homes and allowing them to age in place. We believe that the investments that we have made and are making into our clinical delivery model, as well as our clinical documentation system, we are well positioned to be on the right side of value-based reimbursement. And while hospice is currently a very small portion of our business, we believe that the final rule, which provides for an approximately 2% increase in reimbursement, is a good indication of the continued value placed on home care services for end-of-life care. Overall, we believe that the reimbursement environment continues to be positive and should create tailwinds for the industry in 2022 and beyond. This brings to mind what we believe is a significant advantage for Aviana. Across all payers, including Medicare, 36 unique state Medicaid systems, and hundreds of managed care plans, Aviana has no single payment source that represents more than approximately 11% of our overall revenues. This dynamic gives us great comfort in any downside scenario. But in the meantime, the horizon is clear and the home care industry appears to be solidifying its relevance in the health care continuum. Turning now to another significant event for the company, in July of this year, we completed the refinancing of our remaining debt of $860 million, which significantly reduces the cost of capital for the company going forward. In addition, we put in place a $200 million revolving credit facility, which remains undrawn. as well as a delayed draw term loan for another $200 million for future M&A. Dave will provide more details related to the refinancing during his comments. In summary, this refinancing has significantly reduced interest expense while providing access to capital to continue our aggressive acquisition strategy. Our Barclays team led the financing along with our full syndicate. We'd like to say a special thank you to all of our lender partners for your continued support. On the topic of M&A, I'd also like to spend a moment updating you on our M&A activity. As a reminder, we closed on the Doctor's Choice acquisition on April the 16th, 2021. As a result, our Q2 numbers reflect approximately 10 weeks of Doctor's Choice activity. Doctor's Choice is a traditional Medicare-certified home health business with 16 locations across the state of Florida. At the time of the acquisition, the company was producing revenues of approximately $70 million on an annualized basis. Doctors Choice has continued its successful growth trajectory since closing, and the integration of the business into our home health platform is tracking ahead of plan. Our integration management office continues to exceed expectations both on the quality of our diligence and transactions, as well as the timeliness of integration. which gives me great confidence in our ability to identify, close, and integrate acquisitions at a pace that is consistent with our model. So, where are we with our M&A pipeline? The deal flow remains robust, and as a result, we have several deals at various stages of our process. Earlier this year, we disclosed that our goal was to acquire between $150 and $200 million of revenue per year moving forward. with a heavier slant toward home health assets. With the closing of Doctors' Choice in April and the robust deal flow and the various deals that we are engaged with currently, we are confident that we will meet and exceed our M&A goals for 21 and beyond. This brings me to my final topic before I turn the call over to Jeff for a deeper dive into some of our operating metrics. Recall that our previous guidance of revenues not less than $1,745,000,000 and adjusted EBITDA of not less than $185,000,000 did not contain any future M&A. While we're highly confident in our guidance and given the likelihood that we'll have additional M&A activity to announce in the second half of 21, we'll hold off on updating our guidance until that time. I'd once again like to thank all of the employees for Aviana and the work that you do each and every day to provide great service and exceptional care to our patients. It's what you do that makes these results possible. With that, Jeff, why don't you provide some additional insight into our segment results?