Aveanna Healthcare Holdings Inc.

Good morning and welcome to Aviana Healthcare's Holdings second quarter 2024 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 Debbie Stewart, Aviana's Chief Accounting Officer. Thank you, you may begin.

Good morning and welcome to Aviana's second quarter 2024 earnings call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Schaener, our Chief Executive Officer and Matt Bokhalter, 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 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, aviana.com and in our most recent quarterly report on form 10Q when filed. With that, I will turn the call over to Aviana's Chief Executive Officer, Jeff Schaener.

Jeff.

Thank you, Debbie. Good morning and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q2 2024 results and how we are moving Aviana forward in 2024 and beyond. My initial comments will briefly highlight our second quarter along with steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide insight on how we are thinking about year two of our strategic transformation and our enhanced outlook for 2024 prior to turning the call over to Matt to provide further details into the quarter and our refreshed outlook. Moving to highlights for the second quarter. Revenue for the second quarter was approximately $505 million representing a 7% increase over the prior year period. Second quarter adjusted EBITDA was $45.6 million representing a .3% increase over the prior year period primarily due to the improved payer rate environment as well as cost reduction efforts taking hold. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aviana resume the growth trajectory that we believed our company could achieve. It is important to note that our industry does not have a demand problem. The demand for home and community-based care continues to be strong with both state and federal governments and managed care organizations asking for solutions that can create more capacity. Our Q2 results highlight that we continue to align our objectives with those of our preferred payers and government partners. By focusing our clinical capacity on our preferred payers, we achieved solid -over-year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts to those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging labor and inflationary environment, our preferred payer strategy allows us to return to a more normalized growth rate in our business segments. Since our first quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and preferred payers as well as continued signs of improvement in the caregiver labor market. Specifically, as it relates to our private duty services business, our goal for 2024 was to execute on our legislative strategy to improve reimbursement rates in various states with particular emphasis on Georgia, Massachusetts, and California, which represent approximately 15% of our PDS revenue. I am pleased to report that we have secured double digit rate improvements in both Georgia and Massachusetts affected the second half of 2024. These states demonstrate our government affairs strategy to partner with state legislatures and governors to identify shortfalls in private duty nursing wages and to align reimbursement rates to improve access to care for patients with complex medical conditions. I applaud the leadership in Georgia and Massachusetts for their partnership in investing in high quality nursing care in the home setting. Year to date, we have secured 12 state rate increases with a few states still finalizing their legislative process. While we are pleased that our PDS legislative messaging has been well received by state legislatures, there is still work to do. As an example of the work ahead, California continues to be a challenging landscape to secure funding for an appropriate PDN rate increase. We've made significant strides with the governor, Medi-Cal department and California legislature demonstrating the importance of PDN rate investment and how it supports an overall lower healthcare cost, improve patient satisfaction and quality outcomes. During the latest legislative session, we were successful in obtaining an increase to the Medi-Cal PDN rates despite the headwinds with the anticipated California budget deficit. This PDN rate investment would be effective January 1st of 2026 and funded under the MCO tax provision similar to numerous other Medi-Cal rate investments. However, our PDN rate investment along with other Medi-Cal rate investments is tied to a voter referendum on the upcoming November 5th election ballot designated as Proposition 35. Regardless of the outcome of Proposition 35, we will continue to advocate for California's children with complex medical conditions. We have a proven track record of expanding our preferred payer programs and will continue to enhance our efforts in California similar to our approach in other states. Now, moving on to our preferred payer initiatives in other states. Our goal for 2024 was to increase the number of private duty services preferred payer agreements from 14 to 22. Year to date, we have added five additional preferred payer agreements increasing our total to 19. I am proud of our payer relations team as they continue to develop partnerships with managed care organizations to find solutions for children with complex medical conditions. Aviana's preferred payer strategy is gaining momentum and allowing us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses for our patients. Additionally, we introduced a new PDS volume indicator in Q1 that demonstrates how we think about our momentum with our preferred payers. We now report our preferred payer volumes against the total MCO opportunity, which we believe is a better way to evaluate our preferred payer volume performance. Our Q2 preferred payer agreements account for approximately 45% of our total PDS MCO volumes up from 40% in Q1. This positive momentum in preferred payer volumes continue to highlight the shift in our caregiver capacity and recruitment efforts towards our private duty services preferred payer partners. Moving to our preferred payer progress in home health. Our goal for 2024 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. In Q2, our episodic mix was 76%. And we achieved positive total episodic growth of .5% over the prior year period. We expect our episodic volume growth to be in the three to 5% range moving forward. We also signed two additional episodic agreements in the quarter for a total of four year to date. I am extremely proud of our home health and hospice leadership teams and their commitment to driving positive clinical outcomes, episodic growth and profitability. We will continue to remain focused on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis and focus on improved clinical and financial outcomes. We are encouraged by our 2024 rate increases, preferred payer agreements and subsequent recruiting results. Our business is demonstrating solid signs of recovery 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 comment on our strategic plan and improved outlook for 2024. As we navigate year two of our strategic transformation, we remain highly focused on those initiatives that created positive momentum in 2023 and continued execution in 2024. We will continue to focus our efforts on four primary strategic initiatives. First, enhancing partnerships with government and preferred payers to create additional caregiver capacity. Second, identifying cost efficiencies and synergies that allow us to leverage our growth. Third, managing our capital structure and collecting our cash while producing positive free cash flow. And fourth, engaging our leaders and employees and delivering our Aviana mission. Based on the strength of our second quarter in -to-date results and the continued execution of our key strategic initiatives, we now expect full year 2024 revenue to be greater than 1.985 billion and adjusted EBITDA to be greater than 158 million. We believe our enhanced outlook provides a prudent view considering the challenges we still face with the evolving labor market. And hopefully, it proves to be conservative as we continue to execute throughout the year. In closing, I am so proud of our Aviana team and their dedication to executing our strategic transformation while holding our mission at the core of everything we do. 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 rate and wage metrics in meaningful ways that support our growth. This strategy allows 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 Matt to provide further details on the quarter and our 2024 outlook. Matt.

Thanks, Jeff,

and good morning.

I'll first talk about our second quarter financial results and liquidity before providing additional details on our refreshed outlook for 2024. Starting with the top line, we saw revenues rise 7% over the prior year period to $505 million. We experienced strong -over-year revenue growth in two of our operating divisions led by our private duty services, medical solution segments, which grew by 8% and .3% respectively compared to the prior year quarter. Consolidated gross margin was $158.3 million or 31.3%. Consolidated adjusted EBITDA was $45.6 million, a .3% increase as compared to the prior year, reflecting the improved pay rating environment as well as cost reduction efforts taking hold. Now, taking a deeper look into each of our segments, starting with private duty services, revenue for the quarter was approximately $408 million, an 8% increase, and was driven by approximately 10.3 million hours of care, a volume increase of .8% over the prior year. While core volumes have improved over the prior year, we continue to be constrained in our top line growth due to the shortage of available caregivers. Although we are continuing to see signs of improvement in the labor markets. Q2 revenue per hour of $39.46 was up $1.18 or .2% as compared to the prior year quarter. This was partially impacted by the timing of revenue reimbursements related to select value-based care arrangements. We expect this to normalize in the second half of 2024. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates. Turning to our cost of labor and gross margin metrics, we achieved $110.9 million of gross margin or 27.2%. The cost of revenue rate of $28.73 in Q2 was essentially flat on a sequential basis. Despite ongoing wage pressures in the labor markets, our Q2 spread per hour improved to $10.73. We expect the spread per hour to normalize in the $10 to $10.50 range in the second half of 2024. Moving on to our home health and hospice segment, revenue for the quarter was approximately $54.6 million, a .4% decrease over the prior year. Revenue was driven by 9,400 total admissions, with approximately 76% being episodic, and 11,600 total episodes of care, up .5% from the prior year quarter. Medicare revenue per episode for the quarter was $3,093, up .4% from the prior year quarter. We continue to focus on right-sizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 70%, we have achieved our goal of right-sizing our margin profile and enhancing our clinical offerings. As we continue to navigate 2024, we believe our episodic volume will normalize in the 3% to 5% growth range. We are committed to a disciplined approach to growth while shifting our capacity to those payers who value our clinical resources. We are pleased with our Q2 gross margins of 53.8%, up .2% over the prior year period, and representing our continued focus on cost initiatives to achieve our targeted margin profile. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery. We are proud to be a part of the community of exceptional patient care. Now, to our medical solution segment results for Q2. During the quarter, we produced revenue of $42.5 million, a .3% increase over the prior year. Revenue was driven by approximately 94,000 unique patients served, a .6% increase over the prior year period, a revenue per UPS of approximately $452. A revenue of approximately $18 million, or .4% for the quarter, up .8% over the prior year period, and in line with our targeted margin profile for medical solutions. We continue to implement initiatives to be more effective and efficient in our operations to leverage our overhead as we continue to grow. We are accelerating our preferred payer strategy in medical solutions by aligning our capacity with those payers that value our services and appropriately reimburse us for the care we provide. In summary, we continue to fight through a difficult labor environment while keeping our patients' care at the center of everything we do. It is clear to us that shifting caregiver capacity to those preferred payers who value our partnership is the path forward at Aviano. As Jeff stated, our primary challenge continues to be reimbursement rates. Positive momentum we experienced in Q2, we remain optimistic that such trends will continue throughout 2024. As we continue to make progress with the rate environment, we'll pass through wage improvements and other benefits to our caregivers in the ongoing effort to better improve volumes. Now, moving to our balance sheet and liquidity. At the end of the second quarter, we had liquidity of $269 million, representing cash on hand of approximately 47.7 million, 53 million of availability under our securitization facility, and approximately 168 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $32 million in outstanding letters of credit at the end of Q2. The overall improvement in liquidity was driven by $50 million upsizing of our securitization facility in late May. Our ample liquidity provides room to operate the business and invest in the company to support our continued growth. On the debt service front, we had approximately $1.48 billion of variable rate debt at the end of Q2. Of this amount, $520 million is hedged with fixed rate swaps, and $880 million is subject to an interest rate cap and its further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable rate debt is hedged. Our interest rate swaps extend through June 2026, and our interest rate caps extend through February 2027. One last item I will mention related to our debt is that we have no material term low maturities until July 2028. Looking at year to date cash flow, cash provided by operating activities was negative $10.2 million, and free cash flow was negative approximately $12.4 million. Q2 cash flow was in line with our expectations, and we continue to expect to be a positive operating cash flow company for full year 2024. We also expect to see continued cash flow benefits as our top line and cost management initiatives come to fruition. Before I hand the call over to the operator for Q&A, let me take a moment to address our revised outlook for 2024. As Jeff mentioned, we currently expect full year revenue to be greater than 1.985 billion, and adjusted EBITDA greater than 158 million. As we have previously discussed, Q3 experiences softness in our core volumes due to summer seasonality, and therefore we believe our adjusted EBITDA will reflect the seasonality before building in the fourth quarter. In closing, I'm proud of all of our Aviana team members and their hard work in achieving our Q2 results. I look forward to the continued execution of our 2024 strategic plan, and update you further at the end of Q3. With that, let me turn the call over to the operator.

Thank you. We'll now be conducting a question and answer session. In the interest of time, we ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for your question. Our first question comes from the line of Ben Hendricks with RBC. Please proceed with your question.

Hey, thank you very much. Congratulations on the quarter. The higher guidance bar appears consistent with a two-queue outperformance. It sounds like you guys are seeing really good rate momentum continue through the second half. Any reason we shouldn't see the same level of outperformance through the balance of the year? Any unusual cost items ahead in two-queue other than the seasonality you mentioned?

Hey Ben, good morning. Thanks. I heard a compliment in there, so thank you. I think as Matt laid out in his prepared remarks, Q3 for us is a soft seasonality in our skill business, primarily just driven by the school, season out of schools being out, as well as the two holidays, both July 4th and Labor Day, falling in Q3. So that's the one thing we point out. It's consistent with the last few years, that Q3s are a little bit soft on our core volumes from our skilled business. With that said, Matt, anything that you'd point out?

No, Jeff, I would probably say the teams really just started 2024 right where they left off in 2023 as well. With the accelerated growth that we're seeing in PDS, as well as in AMS, on top of the great clinical care that the teams are providing, we're really proud of all they've achieved. To your point, there will be experiencing a little bit of softness in seasonality in Q3, which we'll see a step back in our EBITDA, but then I would expect in Q4 to see a ramp from there as well.

Great, just as a quick follow-up, any investments, capital outlays, or other efforts you guys are taking in advocacy of the Prop 35 in California? Thanks.

Great question, Ben. I wouldn't say capital-type expenses, but if you step back, I think we've been in California now since 2018, so we've been in California for six years. We're the largest provider of PDN in the state, so we're meaningful in nature. We've been advocating for a PDN rate increase now for three fiscal years, this is our third fiscal year. I think the thing that we would point out is there's a lot of time between now and January 1st, 26, so we keep our heads down, we just continue to work, advocate, meet with legislatures. We've met with the governor's team numerous times, met with the head of the medical department, we'll continue to do so. Although Prop 35 is a significant day for us on November 5th, it doesn't stop the way we think about California. We are in California for the long term, we're committed to California for the long term, and we will continue to both push our preferred-payer strategy with MCOs, of which we have numerous preferred-payers in California, as well as continue to advocate for meaningful rate lift on the medical side. So I wouldn't say there's any specific spend around the November 5th, I would just tell you, we've been spending a significant amount of money over the last few years, we'll continue to spend a significant amount of money the next few years, because there's still a lot of time between now and 2026. Thanks, Ben.

Thank you, our next question comes from the line of Scott Fidel with Stephen Zink. Please proceed with your question.

Hi, thanks, and good morning. First question, just on some of the updates that you gave us on the rate wins. First, on the 12 states where you've now secured rate wins, do you have what the average rate increase is that that you've gotten to turn in those 12 states, and then I know that you mentioned two states that were key that you secured double-day digit rating improvements in with Georgia, in Massachusetts, you mentioned that those two with California represent 15% of PBS business. Do you have what percent of business just for Georgia and Massachusetts are, so we can sort of isolate out California?

Yes, Scott, great question. I think I'll start with 23 and then roll into 24. We had 19 state rate wins last year. I think we pointed out, Matt, three specific states last year that were double-digit, like Oklahoma and Nature. We knew 19 was probably, it was the highest we'd ever had, and we felt like that was probably a little bit aggressive, our guidance this year was to be over 10, to be 10 or greater. So I think we're gonna see ourselves landing probably just above where we thought for 2024. And remember, some of these rate wins we're winning are effective on one-one to 25, so they really roll full year into 25, a lot of momentum. So the year's still not quite finished. 12 may tick up another one or two or three as we kind of tie out the last few states, but we're pleased overall and is baked into our guidance, the fact that we would have north of 10 state rate wins. So I'd start with that, then go to Georgia, Massachusetts, and California we called out. Georgia and Massachusetts specifically, we were, like California, we were significantly underpaid for the market wage of nurses. And I'm really proud to say in Georgia and Massachusetts, both the state legislatures and the governors, the governors of Georgia and Massachusetts both weighed in in support of what they would call home nursing wage rates and reimbursement rates. So significant rate wins in both, I would say in Georgia and Massachusetts, above our expectations, above what we asked for from both states. And we're not quantifying the exact percentage or number, but meaningful enough for us to move the wage to the market level to hire nurses. And I can tell you, especially in Georgia, the rate went into, in fact, July 1st was the new budget year and we started passing through the wage map back in

May.

So we got ahead of it with the largest provider of PDM state of Georgia and really was able to pass through significant, I'm talking 30, 35, 40% increases in wages to nurses, to attract nurses. And we're seeing fantastic recruiting and retention results in the state of Georgia. Similar will happen in Massachusetts as that rate plays in later this month. So with that said, Scott, I think without quantifying specifically state by state that we try to stay away from, we see the light in California, although it's still 18 months out in the future, the similar outcome will play through in California. When we achieve the rate increase that we have proposed with the legislation, the governor that they've supported, we will meaningfully be able to help the families in California, just like we've done in Georgia, Massachusetts, and just like last year we did in Oklahoma, Minnesota and other states. So nice win for us, nice win for the families in these states. And I think you'll see that momentum as Matt said, we're really pleased right now with the volume in our PDS business and we're above our guidance in volume and I think that's being driven by these nice rate investments from the legislatures as well as payers.

Yeah, I'd just like to add on to that, Jeff as well. Obviously we've seen great revenue growth in our PDS segment, 8% in Q2, 7% year to date. We mentioned that Q2 did benefit from a little bit of value-based care payments that came then, though they were not overly material to our results. This is really because of the efforts of our preferred payer initiatives and because of our government affairs. Those two areas have really been able to push us forward, allowed us to bring kids home from the hospital, allow us to hire caregivers and make that care happen in between them. So hats off to that team and everybody at Aviano for making that. I will kind of temper expectations a little bit. 8% is a little strong in PDS and eventually this will start working its way back down closer to that 5% kind of range that we've guided to historically for those out years. But as you can see with rate, we're able to drive our volume and drive care in the home and we're seeing that in full right now.

Sorry, Scott, that was a long answer to that, but we thought it was an important point.

No, a great call, I appreciate that. And then just a follow up question, just a modeling question just around gross margin. For PDS, it looks like you're sort of in that 27% range exiting out of Q2, which I think is sort of a pretty good spot for you guys, right? So, would you say that 27 to 28% range is a good sort of modeling spot for what's implied in the updated guidance? And then similarly on Triple H, where Matt had talked about having sort of achieved your margin objectives through the preferred contracting, would we, and you had that sort of nice, been running in that 53 to 54% gross margin. Is that a good run rate as well? Do you see sort of holding the line on those types of margins in the back half of the year? Do you see any movement up or down on those? Thanks.

Good question, Scott. I would tell you that on PDS segment, I think the 26 to 28% kind of margin profile is a great area for us to be. And we're right in the middle of it, right around 27. And I think that's where we'll stand at. Obviously we saw significant expansion in our spread per hour from, I think it was 976 in Q1 up to 1073 here in Q2, which gets us to a 1024 year to date, which is right dead center of our $10 to $10.50 range. So, I think that's all kind of worked itself out. That will continue in the back half of this year, even with these rate improvements that Jeff has mentioned. And that's because we're taking these dollars and we're investing them into our caregivers, investing them into our teams. And that's what's really driving our growth perspective in PDS. To your point in Triple H, .8% hats off to the team. They've done a phenomenal job driving that business, right sizing it, and getting back to good core episodic growth that will drive that business and produce great clinical outcomes. We think that will continue to stay in that 50, 51, just north of 50%, gross margin range. 54 might be a little strong at this time, and we're aware of that. But it's because of how well they've executed that these results are reflecting that as well. Thanks, Scott.

Thank you. Our next question comes from the line of AJ Rice with UBS. Please proceed with your question.

Hi, everybody. Just to follow up on these dates where you're getting these above average rate increases. I know the dynamic has been historically, it takes you a quarter or two to be able to get that translated into increased rates for your, to pass through to your underlying nurses. Should we think about that as being something that therefore suggests some boost to the back half the year? And then as you think about these updates as well, how quick can you ramp up the hiring and take advantage of that and start to, and see growth? And do you retain any of that to your own operating income line, or does it all pretty much get passed through to the underlying employees?

Hey, AJ, good morning. Thanks for the question. I'll use Georgia as a great example. We haven't had a meaningful rate increase in Georgia in a long, long time. I mean, pushing a decade, the rates, the home nursing rates in Georgia had fallen way, way, way behind nursing rates in the state of Georgia. So the industry was pretty desperate. I'll go as far as saying most of our competitors left the state of Georgia because it was that bad of an environment, and I understand why. We're headquartered in Atlanta. We're seeing Atlanta right now. We were not gonna leave Georgia. With that said, we've actually gotten ahead of the date. So the effective date of the rate increase in Georgia was July 1st of 24. We started passing the wage through our nurses in May to get ahead of it because it was such a big deal. It was such a meaningful wage rate increase for the industry. So I do think that's a little bit more of the new norm, AJ, is with these meaningful rate increases, you've gotta get out in front of it or be right at the date of the effective increase. Most of the nurses hear the noise in the market. They hear of the date and they hear a swell of there's a rate increase coming. So we have found, and I'll call it post-COVID timeframe, 23, 24, it's better to get out in front of this immediately and immediately move the wages. Now with that said, our spread per hour in Georgia will significantly change to the better moving forward, meaning our spread per hour in Georgia, I don't know the exact number, but it was way, way below $10 an hour. And now we'll see it more in that 10 to $11 range, which is great because that says we can grow the business. We do pass the wage increases through to both our entire current nursing pool and the future nurses. And again, I'm using Georgia as an example. We could have used Oklahoma last year and Minnesota last year. We'll use California in 2026, but you see a meaningful step up in employment. And I think we would tell you from our last three or four years post-COVID, it lasts for about 18 to 24 months before it really starts to subside and you probably need another step increase. So I think we'll see in the Georgia, Massachusetts that these are meaningful step ups in volume, number of cases, number of nurses, revenue, and ultimately margin for all of 24 and most of 25.

Okay, thanks so much. Take care. Thanks AJ.

Thank you. Our next question comes from the line of PEDO Chickering with Deutsche Bank. Please proceed with your question.

Hey, just actually following up on AJ's question here. So just confirming the PBS hourly wait you saw on two queues step up sequentially from one queue. That's all from state increases and no one time payments in there,

right? PEDO, we did have a little bit of value-based care payments in there, but we're talking very low single millions on that one, which is very not overly material to impact the rate itself. So beyond that, that was just normal state rate increases as well as the mix in the business of skilled versus unskilled kind of adjusting a little bit. But that's just kind of our run rate going forward and where we expect our business to be.

I'm sorry, PEDO, we pointed towards Q3. Remember our skilled mix does go down in Q3. Some of our unskilled stays pretty stable. So I think Matt in his prepared remarks was pointing towards the fact that we don't expect to see as strong of a rate slash maybe growth rate in Q3 specifically in our PDS sector. So that's probably the one thing that we're pointing out. Even though these rates are coming to fruition second half of the year, our seasonality will still overplay that. So just be careful in Q3. We'll see a little bit of a step back in Q3 as then we move forward in Q4 and into 25.

Great, so I guess on that, looking at the correlation, I mean, so I guess two questions on that one. The first one is looking at the seasonality in the last two years, definitely not seeing a step back. So I guess why is 24 different? And looking at the correlation between rates and hours, it's a pretty quick correlation here and you're not really changing the guidance for the year except for the beat this quarter, I guess. Is there anything that we should be thinking about why the two-Q step up and then the three-Q step up from Georgia shouldn't lead to sort of increased hours in the back half of the year versus expectations last quarter or is that just pure conservatism?

Well, we use the word prudent conservatism versus pure conservatism, but I don't think you're missing anything except for, remember in the last two years, our unskilled business in the summer stays pretty consistent, meaning it doesn't drop. Our skilled nursing business in the summer does drop and our Medicaid's our business. So that was the only point to your PDS revenue rate by hour. It's a little bit lower revenue per hour business that flows through Q3. I think at the end of the day though, as you think about all we're trying to do is moderate, Q3 will be, we believe Q3 will be a slight step back in EBITDA before we propel forward. And I think we're hopeful that in November, we're talking about another beat and raise and kind of pointing towards 2025. I will say, Pito, you can read into Georgia, Massachusetts, as well as the other 10 state rate increases, the other, the five year to date preferred payer wins. We have a nice robust book of preferred payers that were working for Q3 and Q4. We expect to be in around 22, 23 preferred payers by the end of the year, as well as home health and hospice continuing to execute and they're planning an episodic contract. I think it's too early for us to talk about 25. We have strong momentum going in the second half of the year, we have strong momentum going into 2025. We have a lot of confidence building. And then lastly, we haven't talked about SG&A, but I think you saw in Q1, you see in Q2, you'll see it again, second half of the year. We continue to have nice SG&A leverage. We still have work we're doing. We talked about it in Q1. We still are focusing on our PDS and our AMS businesses, just to make sure that we have really efficient models moving forward and Matt's pointed out in his last two prepared remarks quarters, we're really honed on our medical solutions business and making sure that that model is highly efficient because we wanna scale that business to 100 plus thousand UPS a quarter and to do it, we gotta be a little bit more efficient. So anyways, all that to be said, we've been six quarters in a row now. I think it's fair to say we expect to be beat and raised in the next two quarters. That is our goal and a strong momentum going into 2025.

Okay, two quick follow-up questions. Looking at AMS at the Cowboy Elite in the UPS, how should that be trending on back half a year and the second question is on share count, big step up of share count sequentially, I guess. Why was that and how should we be thinking about that in the back half of the year? Thank you.

Yeah, I'm glad you asked about medical solutions. Matt had prepared in his remarks, talks about realigning our medical solutions business around our preferred payers and I would tell you that we've been in medical solutions business now for over eight years. We're just now, I think, getting the medical solutions business honed into our preferred payer strategy and as we think about 2025, I think we'll be as excited about medical solutions in 2025 as we've been about home health and hospice and PDS in 2024 and by that I mean we're going to start to call our payers in medical solutions business that if you aren't a preferred payer with us, our capacity is gonna be focused on those preferred payers and so I think you'll see us be a little bit more focused on the payers that we're accepting. We've got tons of demand in that business so it's really getting the right payers through that business model and we're thinking that of that as a 2025. You know, we're really honing that in 2025, meaning doing the work in 24 to really execute on that in 25 so I temper a little bit medical solutions UPS, the second half of this year as we really hone those efforts and kind of call some of those payers. I don't recall anything in the share count but.

No, I mean the share counts increased, mainly driven by our employee stock purchase program and then our annual share based comp award.

Great, thanks so much guys and great quarter. Thank you.

Thank you, we have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Schaener for any closing remarks.

Awesome, thank you operator and just wanna thank everyone for joining us on our Q2 call for 2024. We look forward to catching up in early November on our Q3 results. Thank you for your time.

Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

I'll see you next time. Thank you. Good night. . . . . . . . . . . . . . . . . . . . . . . . . . . .

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