Aveanna Healthcare Holdings Inc.

Good morning, and welcome to Aviana's Healthcare Holdings fourth 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 us today. Speaking on today's call are Rod Windley, Aviana's executive chairman, Tony Strange, Aviana's Chief Executive Officer and President, David Afshar, Aviana's Chief Financial Officer, and Jeff Shainer, Aviana's Chief Operating Officer. We issued our earnings press release and filed our 10-K yesterday. These documents are available on the Investor Relations section of our website at www.aviana.com, as well as on the SEC's website at www.sec.gov. A replay of this call will be available until April 5, 2022. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, March 29, 2022. Today's call may contain forward-looking statements which may be identified by the use of 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 beliefs and assumptions 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. Except as required by federal securities laws, Aviana will not publicly update or revise any forward-looking statement subsequent to the date made as a result of new information, future events, or changing circumstances. Also, we supplement our financial results reported in accordance with GAAP and certain non-GAAP financial measures. 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 form 10-K, both of which are available on our website and the SEC website at www.sec.gov, or is otherwise available separately on our website. 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, Tony Strange. Tony?

Thank you, Shannon, and good morning, everyone. Thank you for joining Aviana's fourth quarter and 2021 year-end earnings call. On the call today, we will provide some insights into our Q4 results, update you on current operating and reimbursement environments, bring you up to speed on our most recent M&A activity, as well as lay out our expectations for the full year 2022. Before we get into these results and the details, I'd like to take a minute and thank the Aviana team. As you know, this is our first year-end reporting period for Aviana as a public company. Our legal, accounting, and finance teams have done an outstanding job in preparing us for today. We've successfully completed our audit, finalized the 10-K as well as the proxy, all within the required timelines, and have line of sight into accelerating our filings by a few weeks for next year. In addition, I'd like to thank all of our branch personnel and our caregivers for what you do each and every day. By putting our patients and our families first, you create the foundation on which these results are built. Thank you for your dedication and your hard work. Let's jump right into our results. As a reminder, at the end of Q3, we acknowledged that the pandemic was continuing to provide disruption to the labor markets. And as a result, we lowered our revenue expectations to a range of $1.675 billion to $1.680 billion. However, through a disciplined approach to managing gross margins, we felt confident that we could maintain our full year EBITDA guidance of $185 million. I'm pleased to report that for the year ending 12-31-21, We reported revenues of approximately $1.679 billion and adjusted EBITDA of approximately $184.2 million, or 11%. Given the ongoing headwinds of the pandemic, inclusive of the sudden onset of the Omicron variant, we're extremely proud of our year-end results. Congratulations to all of our operators for a job well done in a very difficult environment. In thinking through our year-over-year comparisons, I'd like to remind everyone that Aviana uses a 4-4-5 calendar for accounting purposes. As a result, every five years, the fourth quarter has an extra week, making it a 53-week year. Aviana's 2020 results include this 53rd week, making it a 14-week fourth quarter. Revenue for the quarter was $414 million, down 1.9 percent from Q4 of 2020. However, adjusted for the 53rd week for comparative purposes only, revenue would have been up 5.6 percent. Likewise, EBITDA for the quarter was $45.8 million, up 1.3 percent over Q4 of 2020. Again, adjusting for the 53rd week for comparison purposes, EBITDA would have been up by 9.1%. Jeff will provide further details of our segment results in his prepared comments. We believe that eventually the pandemic will be in our rearview mirror, and having displayed the discipline to protect our gross margins during these difficult times, we will be well positioned to accelerate growth once again. Along with the disciplined approach to managing expenses, we continue to experience rate wins across our diversified payer platform. As I mentioned on our last call, 24 of our 31 states have put through rate increases in the last 12 months. For the first time in my career, we have managed care plans, state Medicaid agencies, and even CMS reaching out and asking what can be done to increase access to home and community-based services. We continue to see benefit expansions in several of our key states and are already discussing further rate improvements in states that recently put through rate increases in 2021. And while growing, Medicare represents only 12 percent of our overall revenue, making it the largest single concentration of any one payment source. We have 31 unique payment systems across as many states. In addition, we have in excess of 250 individual Medicaid managed care contracts. And while Medicare is a very good partner in our home health and hospice business, Medicaid is an excellent payer partner in the states in which we operate. Payers fully understand the impact that COVID-19 has had on access to care and have been not only willing but eager to deploy more resources to manage the care of these individuals in their homes. And by way of example, we're in discussions with a couple of payers that are willing to explore new operating and payment models for private duty services that move away from an hourly fee for service model to a broader care management model, allowing for greater flexibility in staffing requirements. We believe that our payer diversity, along with our desire to drive innovation within the benefit provides us multiple opportunities in the expansion of home and community-based care. Let's turn our attention to our most recent M&A activity. As reported during Q4, both accredited and Comfort Care transactions closed in December. Both transactions are well into integration, and both are tracking at or ahead of schedule. As you may recall, we expect these two transactions to deliver approximately $200 million a year in annualized revenue. I'd like to welcome all of the employees from accredited and from Comfort Care to the Aviana family and to say thank you for all the hard work that's gone into integration thus far. We're excited to have you as part of the Aviana story. We had originally thought that we would pay for these transactions through cash on our balance sheet, with some additional debt while maintaining leverage around four and a half times, and then use equity to fill the gap. However, given that the stock was trading at $6 to $7 range, we decided that it would be in the best interest of our shareholders to fund the entirety of the transactions with cash and debt, taking leverage to the six times range. In doing so, we're able to reduce the overall cost of capital and are quite comfortable with the resulting leverage profile. Given the risk of rising interest rates, we have put in place two different forms of hedges across all of our outstanding debt. While we're comfortable with the current leverage, it's our long-term desire to reduce leverage through accretive acquisitions and or the use of operating cash flow to pay down debt. Dave's going to provide some additional detail on our operating cash flow, debt structure, and the hedges that I just talked about. As I mentioned on the last call, we will focus the first half of 2022 making sure that these businesses are fully integrated and look for further acquired growth in the second half of the year. As a reminder, we have a $200 million delayed draw term loan for which we are already servicing the spread associated with the debt. In addition, we have $182 million of availability under our revolving credit facility should additional financing be needed. We believe that we're well positioned to continue to grow through acquisitions as opportunities present themselves. That brings us to where we are now and how we're thinking about the full year 2022. Like most businesses, the Omicron variant has had a meaningful impact on our business. Through most of the pandemic, we had between 200 and 300 caregivers out or quarantined due to COVID at any one time. Beginning in December, we saw that number begin to climb, and it climbed to almost 3,000 caregivers for most of January and February. By mid-March, we saw that number begin to trend back down, and I'm pleased to say that as of today, we're back down to those pre-Omicron levels. In addition, during the same period, we experienced the great vaccine mandate debate. While the OSHA mandate was ultimately rejected, the CMS mandate has been upheld. While complying with vaccine mandates has been a struggle for most companies, including Aviana, I'm proud to report that 98% of all of our employees have either been vaccinated or have a qualifying exemption on file, and we are in compliance with all local, state, and federal mandates. All of these transitory disruptions have had an impact on our business, not only in Q4, but more specifically in Q1. While the impacts of Omicron have subsided, the labor markets continue to offer challenges in identifying and hiring enough caregivers to meet the demand. We anticipate these challenges to continue through the first half of 2022, with much of them being realized in the first quarter. Keep in mind that Q1 will reflect a full quarter of accredited and comfort care, but partially offset by the disruption of Omicron which could negatively affect revenues in the range of $30 million and EBITDA in the range of $10 to $12 million. As a result, we believe that revenues for the full year 2022 will be in the range of $1.890 billion to $1.920 billion, and adjusted EBITDA will be in the range of $190 to $205 million, or between 10 and 11%. Notwithstanding further disruptions from additional variants and assuming that the labor market stabilized, we would expect the second half of 2022 to return to a run rate of $215 to $225 million in EBITDA on an annualized run rate basis. In summary, Avion is a diversified home care company generating $1.9 billion in revenue with EBITDA margins between 10% and 11%. and we will consistently grow in the low to mid-teens year over year. We have an excellent track record clinically and a strong commitment to compliance. Like Medicare, Medicaid is an excellent payer for home and community-based care. The demand for our service has never been higher, and the sentiment from regulators and payers alike is that home care is a solution, not a problem. We believe that Avianna is positioned to continue its role as a leader in the provision of care and the innovation that will redefine home care as we know it today. With that, I'll turn the call over to Jeff for a little bit deeper dive into our segment results.