Aveanna Healthcare Holdings Inc.

Good morning and welcome to Aviana Healthcare's Holdings First Quarter 2022 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-Q 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 May 19, 2022. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, May 12, 2022. Today's call may contain forward-looking statements, which may be identified by the use of words such as may, could, will, 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 statements 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 with certain non-GAAP financial measures. Reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available in our earnings press release in Form 10-Q, both of which are available on our website and the SEC's website, whereas 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'll 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 first quarter earnings call. This call marks the anniversary of our first full year of reporting as a public company. On our call today, we'll provide you an oversight of our Q1 results. We'll provide a little insight into our M&A activity, pipeline, and integration. And finally, we'll provide some insight into the current trends both from a volume perspective as well as a reimbursement environment. Before we get into the details, I'd like to once again say thank you to all of the Avion employees. In today's environment, you can choose to work wherever you like. However, you continue to put the needs of our patients and their families first, and for that, we're grateful. Let's turn toward our results. Revenues for the quarter were approximately $451 million compared to $417 million a year ago. which is an increase of approximately 8%. The increase was driven by the acquisitions of accredited and comfort care later in the fourth quarter and partially offset by the reduction in volume related to the spike in Omicron. As we outlined on our last call, we saw a spike in the number of employees that were out of work related to COVID that began in mid-December and ran through early March. Prior to December, we were averaging between 200 and 300 employees sidelined on any given day, That number spiked to just under 3,000 in January and February timeframe. We estimate that this interruption cost us approximately $14 to $15 million in lost revenue during the quarter. As of today, this disruption is back down to pre-Omicron levels, and we expect revenues to rebound accordingly, notwithstanding any further disruptions due to additional COVID variants. However, the labor markets for caregivers, specifically for nursing, continue to be disjointed. Demand for services is at an all-time high, while capacity continues to be constrained. I'll provide some more color around some of our plans to mitigate these ongoing labor shortages in just a minute. Moving on to gross margins for the quarter, we're at 32.1%, an increase of 50 basis points from Q1 of 21. Given the increased payroll tax burden of the first quarter each year and the ongoing wage pressures, I'm especially proud of our operating team's discipline around protecting our gross margins. Adjusted EBITDA for the quarter was $38 million compared to $43.7 million a year ago. The impact of the reduced volumes associated with the Omicron variant is approximately $5 million in adjusted EBITDA. Total SG&A increased quarter over quarter was driven by the acquisitions of accredited and comfort care. And once these synergies are realized, our SG&A expenses are right in line with our expectations. While revenues are in line with what we forecasted on our call in March, the softness in volumes had a meaningful impact on Q1 results. And we expect these revenues to normalize in Q2. And while gross margins remain strong and SG&A remains in line with expectations, we anticipate ongoing labor constraints to continue to be a headwind for revenue in the near term. While we're on the topic of accredited and comfort care, the integrations of these two acquisitions are going very well. We're on schedule, and in many instances, we're actually ahead of schedule with all aspects of integration. We expect to be largely complete with the integration and all of the synergies realized by mid-year 2022. Neither business was immune from the impact of Omicron. However, both businesses are performing well and will be highly accretive to the Aviana story. A special thank you to the employees of Accredited and Comfort Care as well as our Integration Management Office team for all the heavy lifting that you've done to complete these integrations. As far as future M&A is concerned, we stated on our last call that we'd spend the first part of 2022 focused on integration, which we've done. Our pipeline remains robust, and there are plenty of transactions to consider. We will continue to remain disciplined in our approach to transactions, focusing only on those deals where price consideration and synergies produce accretion for our shareholders. Our liquidity remains strong. We have access to approximately $400 million between cash on hand, the delayed draw term loan, and available revolver. With very little covenant restrictions, coupled with our various interest rate hedges, we are well protected from the downside risk associated with rising interest rates. We're comfortable at our current leverage ratios. However, it's our desire to reduce leverage through accretive transactions and or the use of free operating cash flow to reduce debt. Dave will provide some additional insight during his remarks. I'd like to spend a few minutes on the overall reimbursement environment and its connectivity to the labor disruption, and eventually, to the creation of additional capacity. Most of you have seen articles in the major news media outlets profiling the lack of capacity, mandating that patients stay in the hospital longer and even in some circumstances indefinitely. Payers across the country recognize this trend and are also looking for solutions to facilitate safe discharge from the hospital into home or community-based care. The state of Arizona recently announced the approval of a program that would allow Aviana to pay family members to provide unskilled care that could be supplemental to other skill needs in an effort to create additional capacity to provide care in the home. We're seeing this willingness to invest additional resources into keeping patients out of higher acuity settings and in the safety of their home environments across our platform. In addition, we continue to have productive discussions with our payer partners around the shortage of caregivers and the impact that inflation is having on our ability to meet the demand of their beneficiaries resulting in continued rate improvements across our business. In addition, there are several states that are in mid-legislative sessions that are pending legislation that would further enhance reimbursement in an effort to increase capacity. The overarching thesis is that home care is a value added in the healthcare equation and additional resources are needed to expand access to care. Before I turn the call over to Jeff for a deeper dive into our operating metrics, I'd like to spend a minute discussing our outlook for the full year 2022. On March the 29th, we provided full year 2022 guidance of revenues between $1,890,000,000 and $1,920,000,000 and adjusted EBITDA between $190,000,000 and $205,000,000. In the roughly 42 days since that guidance, we haven't fully closed an additional month. Other than the updates provided in my remarks, there's really no additional information that we can provide. We believe that the rationale behind our full year guidance remains sound. As you recall, we provided color around our forecast that indicated that the first half of 2022 would be difficult due to the headwinds of Omicron and ongoing labor constraints. We also provided our thoughts around ongoing rate improvements throughout the year that would allow us to continue to invest in wages, which will provide lift in the second half of the year. In summary, our results are in line with our expectations that we laid out in March. The immediate threat and the impact of the Omicron variant has subsided and volumes are returning to pre-Omicron levels. On the other hand, the labor markets are challenging and will continue to present headwinds to our volumes and overall growth for the near term. State Medicaid systems as well as Medicaid MCOs recognize this as an issue and are willing to come to the table in a partnership to address the capacity concern. Given the challenging environment, I'm proud of our results and the tenacity of our team to continue to fight on behalf of our patients and families, fellow employees, and ultimately our shareholders. I'm proud to be a part of the Aviana story. With that, I'm going to hand the call over to Jeff for further insights into our operating metrics. Jeff?