Aveanna Healthcare Holdings Inc.

Good morning and welcome to Aviana's Healthcare Holdings fourth quarter and full year 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 call over to Shannon Drake, Aviana's Chief Legal Officer and Corporate Secretary. Thank you. You may begin.

Thanks, Camila. Good morning and welcome to Aviana's fourth quarter 2022 earnings call. My name is Shannon Drake, the company's chief legal officer and corporate secretary. With me today is Jeff Shainer, our chief executive officer, and Dave Afshar, our chief financial officer. During this call, we will make forward-looking statements, risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results or described in this morning's press release and the reports we filed with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release which is posted on our website, aviana.com, and in our most recent annual report on Form 10-K. With that, I will turn the call over to Aviana's Chief Executive Officer, Jeff Shainer. Jeff?

Thank you, Shannon. Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q4 and full year 2022 results and how we are moving forward at Aviana. My initial comments will briefly highlight our fourth quarter results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and commercial payers to create additional capacity. I will then provide some thoughts regarding our outlook for 2023 prior to turning the call over to Dave to provide further details into the quarter and our outlook, starting with some highlights for the quarter. Revenue was approximately $451 million, representing a 9 percent increase over the prior period. Gross margin was $128.8 million, or 28.5 percent, a 3.5 percent increase over prior year period. And finally, adjusted EBITDA was $29.7 million, representing a 35 percent decrease when compared to the prior year, primarily due to the costs associated with the current labor environment. As we have previously discussed, the labor environment represents the primary challenge that we need to address in 2023 to see Aviana begin to resume the growth trajectory that we believe our company can achieve. It is important to note that our industry does not have a demand problem. The demand for home and community-based care has never been higher. with both state and federal governments and managed care organizations asking for solutions that can create more capacity. To begin to capitalize on this demand and free up labor capacity, we are undertaking several initiatives. First and foremost, our ability to recruit and retain the best talent is a function of a rate. Our business model offers a preferred work setting that is mission driven providing a deep sense of purpose for our teammates. But our caregivers need to be able to provide for themselves and their families in this inflationary environment, and we must offer competitive wages. While we have several initiatives underway to improve the rate we are paid by government and managed care payers for the services we provide, there are three primary areas of focus. We need to execute on our private duty legislative strategy to increase rates by double digit percentages in three of our largest states, California, Texas, and Oklahoma. These three states represent approximately 25 percent of our total PDS revenue, and we have active legislative, media, and lobbying efforts in place to demonstrate the importance of these rate increases and how they support and overall lower healthcare costs, improve patient satisfaction, and quality outcomes. While we continually focus on legislative activities in all of our states, if we can directly impact these three states in 2023, we can accelerate our growth by increasing caregiver capacity and bringing more patients to the comfort of their own home. By passing meaningful wages through to our caregivers, we become a solution for overcrowded children's hospitals and distraught parents who want their children to be cared for in the comfort of their home. Second, we need to double the number of preferred payers in 2023. We define preferred payers as those payers that support value-based care by offering us an above-market reimbursement rate and value-based payments in exchange for proven savings. We began this journey in 2022 with strong success in our Texas and Pennsylvania markets and have ongoing discussions to further expand these relationships in 2023 based on positive results generated for these payers to date. Our PDS preferred payers represent approximately 10 percent of our PDS volumes to date, and we see this expansion accelerating towards 20 percent by year end 2023. Our dedicated payer relations team has a robust managed care payer pipeline and I expect us to add additional preferred payer agreements in the first half of 2023. Finally, we will continue to shift our current labor capacity to those payers that value our services and appropriately reimburse us for the care provided. We have begun a number of initiatives to shift caregiver capacity to our preferred payers to optimize staffing rates while minimizing days in an acute care facility. Our preferred payer relationships are experiencing nurse hires approximately two to three times more than our other payers. We are experiencing staffing rates 15 to 20% greater with preferred payers and significantly higher patient admissions from children's hospitals. The value proposition is straightforward. Preferred payers reimburse us a fair rate, and we pay market competitive nursing wage rates while also earning value-based payments for achieving positive clinical outcomes and improved staff dollars. In addition to improving rates, we are also evaluating how we go to market to recruit and retain new talent. We are getting back to the basics taking a data-driven approach to setting our expectations and proactively monitoring our execution. We are encouraged by our early 2023 recruiting results and believe our business can rebound quickly if we can achieve our rate goals previously discussed. Home and community-based care will continue to grow, and Aviana is a comprehensive platform with a diverse payer base, providing cost-effective, high quality alternative to higher cost care settings. And most importantly, we provide this care in the most desirable setting, the comfort of the patient's home. Before I turn the call over to Dave, let me briefly comment on our initial outlook for 2023. As we start this next chapter, we believe it's important to set expectations that acknowledge the environment we are operating in and the time it will take to transform our company and return to sustainable growth. Accordingly, we currently expect full-year 2023 revenue to be greater than $1.84 billion and adjusted EBITDA of at least $130 million. We believe our outlook provides a prudent view considering the challenges we face with the current inflationary labor environment, and hopefully it proves to be conservative as we execute throughout the year. In closing, I am proud of our Aviana team. We offer a cost-effective, patient preferred, and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources, and government partners. By partnering with preferred payers, we can and will move the rate and wage metrics in meaningful ways that support our growth. This will allow us to hire, retain, and engage more caregivers in providing the mission of Aviana every day. With that, let me turn the call over to Dave to provide further details on the quarter and our 2023 outlook. Dave?