Aveanna Healthcare Holdings Inc.

Greetings. Welcome to the Aviana Healthcare Holdings Inc. second quarter 2023 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Shannon Drake. You may begin.

Thanks, Shamali. Good morning, everyone, and welcome to Aviana's second quarter 2023 earnings call. My name is Shannon Drake. I'm the company's chief legal officer and corporate secretary. With me today is Jeff Shainer, our chief executive officer, Matt Buchhalter, our interim chief financial officer, and Debbie Stewart, our chief accounting officer. During this call, we will make forward-looking statements, risk factors that may impact those statements and can cause actual future results to differ materially from currently projected results, are described in this morning's press release and the reports we file 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 at www.aviana.com, and in our most recent quarterly report on Form 10-Q filed with the SEC. 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 second quarter results and how we are continuing to progress against our near-term and longer-term objectives for 2023 and beyond. My initial comments will briefly highlight our second quarter results along with the progress we are making in addressing the labor markets and our ongoing efforts with government and managed care payers to create additional capacity. I will then provide some thoughts regarding our liquidity and refreshed outlook for 2023 prior to turning the call over to Matt to provide further details into the quarter and full year guidance. Starting with some highlights for the quarter. Revenue was approximately $471.9 million, representing a 6.5 percent increase over the prior year period and a 1.2 percent sequential improvement. Gross margins was $155.3 million, or 32.9 percent, which is essentially flat when compared to the comparable prior year period. a 7.5% sequential improvement. And finally, adjusted EBITDA was $35.8 million, representing a 3.2% decrease when compared to the prior year period, primarily due to the cost associated with the current labor environment. However, a 25.6% sequential improvement, reflecting the improved payer rating environment, as well as cost reduction efforts taking hold. As we have previously discussed, the labor environment remains the primary challenge that we are aggressively addressing in 2023 to see Aviano resume the growth trajectory that we believe our company can achieve. As a reminder, we do not have a demand problem. 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 clinical capacity. As communicated in our previous quarter, our ability to recruit and retain the best talent is a function of rate. Our business model offers a preferred work setting that is mission-driven, providing a deep sense of purpose for our teammates. However, our caregivers need to be able to provide for themselves and their families in this inflationary environment, and we must offer a competitive wage. Since our first quarter earnings call, I am pleased with the progress we have made on several of our rate improvement initiatives with both government and managed care payers. Specifically, as it relates to our private duty services business, our goal for 2023 was to execute a legislative strategy that would increase rates by double-digit percentages across our various states with particular emphasis on California, Texas, and Oklahoma, which represent approximately 25% of our total PDS revenue. Year to date 2023, we obtained double digit PDS rate increases in six key states, including Oklahoma. We have also achieved rate wins in an additional 11 states that were either in line or slightly better than our expectations. These combined 17 states represent approximately 50% of our PDS footprint. And we should continue to see positive progress throughout 2023 and into 2024 as we continue to focus on the remaining states. As a point of reference, the majority of the rate increases are effective in the second half of 2023. so we will get a full year benefit as we head into 2024. Finally, we were successful in expanding the family caregiver benefit in two additional states, which should help ease caregiver capacity constraints. While we're pleased with our PDS legislative messaging as being well received by state legislators, we still have much work to do. As an example of the work ahead, We received a modest increase in Texas effective September 1st and do not anticipate being included in the California budget until mid-2024. While we believe we have made significant strides with both Texas and California legislature demonstrating the importance of rate increases and how they support an overall lower healthcare cost, improved patient satisfaction, and quality outcomes, It is clear that we need to further accelerate our preferred payer strategy and continue to focus on opportunities within our current infrastructure to allow us to pass meaningful wages through to our caregivers. This allows us to 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. Moving on to our progress with preferred payers. Our goal for 2023 was to double our PDS preferred payer volumes from approximately 10 percent to 20 percent by year-end 2023. In the second quarter, we added one additional preferred payer agreement in a key market. Our preferred payer volumes increased to approximately 16 percent of total PDS volumes as compared to 13 percent at the end of Q1. We have since signed an additional preferred pay agreement in early July and are optimistic we will continue to execute this strategic initiative throughout 2023. While we are taking a national approach to our PDS preferred payer strategy, we are placing particular focus on the state of Texas due to the moderate rate increase and intensifying our ability to shift capacity to our preferred payers. As of June 30th, we now have over 50% of our Texas PDN volumes with preferred payers and believe we have an opportunity to further improve this trend to approximately 70% by the end of the year. Finally, we discussed the need to shift our current labor capacity to those payers that value our services and appropriately reimburse us for the care we provide. We continued several initiatives to shift caregiver capacity to our preferred payers to optimize staffing rates while minimizing days in an acute care facility. In the second quarter, our preferred payer relationships benefited from accelerated caregiver hires of two and a half to three times more than our other payers. And we continued to experience staffing rates approximately 20 percent greater with significantly higher patient admissions. The value proposition is straightforward. Preferred payers reimburse us a fair rate and we pay market competitive wage rates while also earning value-based payments for achieving positive clinical outcomes and improved staff hours. We are encouraged by our 2023 rate increases and the subsequent recruiting results and believe our business can rebound quickly as we 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 a 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 Matt, let me briefly comment on our liquidity and refreshed outlook for 2023. We recently renewed and extended our AR securitization facility for an additional three-year term effective July 31st of 2023, maintaining our ability to access up to $175 million in cash proceeds associated with our ongoing reoccurring receivable balances. I am pleased with the work of the entire team in finalizing this agreement and allowing us to maintain our focus on running the business. On the liquidity front more broadly, we continue to make progress on improving our cash flow by focusing on obtaining adequate reimbursement rates and growing our volumes. We have also implemented several initiatives to right-size our corporate cost structure while optimizing our collections. As Matt will discuss further, we have ample liquidity to operate our business while we work with government and payers to improve the reimbursement rates to reflect the inflationary environment. As it relates to our refreshed outlook for the year, based on the strength of our first six months results and the rate increases that will impact the back half of the year, we are comfortable raising our full year revenue guidance to a range of $1.85 billion to $1.86 billion and an adjusted EBITDA guidance range of $132 million to $135 million, respectively. We believe it is important to continue to set expectations that acknowledge the environment that we are operating in and the time it will take to transform our company and return to sustainable growth. We believe our revised 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 remainder of the year. Finally, I am proud of our Aviana team as we continue to execute on our 2023 strategic objectives. The power and efficiency of the home as a healthcare setting remains critical to our patients, families, payers, referral sources, and government partners. The value of our clinical workforce continues to be recognized through various rate increases across the country and through our expanding preferred payer relationships. I look forward to updating you on our results at the end of Q3. With that, let me turn the call over to Matt to provide further details on the quarter and our 2023 outlook.