Aveanna Healthcare Holdings Inc.

Good morning and welcome to Aviana Healthcare Holdings fourth quarter 2025 earnings call. Today's call is being recorded and we've 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.

Thank you and good morning and welcome to Aviana's fourth quarter 2025 earnings call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Shainer, our Chief Executive Officer, and Matt Buckhalter, 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 at 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 when filed. With that, I will turn the call over to Aviana's Chief Executive Officer, Jeff Shainer. 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 Q4 and full year 2025 results and how we are moving Aviana forward in 2026. My initial comments will briefly highlight our fourth quarter and full year 25 results, along with the 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 updates on the recently announced Family First home care acquisition and how we are thinking about 2026 strategic initiatives and our full year 26 guidance before turning the call over to Matt. Now moving to highlights of the fourth quarter and full year 2025. Revenue for the fourth quarter was approximately $662 million, representing a 27.4% increase over the prior year period. Fourth quarter adjusted EBITDA was $85 million, representing a 54% increase over the prior year period, primarily due to the improved rate and volume environment and continued cost savings initiatives. Revenue for the full year 2025 was approximately $2.433 billion, representing a 20.2% increase over the prior year period. And full year 2025 adjusted EBITDA was $320.8 million, representing a 74.8% increase over the prior year period. As a reminder, Our fourth quarter and full year 2025 results did benefit from the 53rd week due to our accounting calendar. As we sunset 2025, I think it's important to reflect on the three-year strategic transformation that we have successfully navigated. I am proud of the Aviana team of leaders, employees, and caregivers that believe in our mission and helped execute the key strategies that returned Aviana to our current performance. As we look forward, we remain deeply committed to our preferred payer and government affairs strategies that continue to drive our growth in all three operating divisions. 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 create more capacity while reducing the total cost of care. Our Q4 and full-year 2025 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 year-over-year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging environment our preferred payer strategy supports our ability to achieve normalized growth rates in all three of our business segments. Since our third quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners, as well as continued signs of improvement in our caregiver labor market. Specifically, as it relates to our private duty services business, Our government affairs strategy for 2025 was twofold. First, we advanced our legislative agenda to improve reimbursement rates in at least 10 states. And second, we continued to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. Our strong advocacy presence with both federal and state legislatures, as well as solid support from our governors across our national footprint provided significant value in 2025. As it relates to private duty services rate updates, we achieved 10 rate enhancements in 2025, which was in line with our expectations. As we reset our legislative goals for the new year, we expect to achieve high single-digit state rate enhancements for 2026. After three years of meaningful rate movement in our PDS states, We are generally in a good place as we navigate 2026 and focus on cost of living type rate and wage adjustments moving forward. Now moving on to our preferred payer initiatives. Our goal for 2025 was to increase the number of private duty services preferred payer agreements from 22 to 30. We added eight additional preferred payer agreements in 2025, achieving our goal of 30. Aviana's preferred payer strategy continues to gain momentum and allows us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses for our patients. As we reset our preferred payer goals for 2026, we believe there is still ample room to grow in our current geography, as well as new states that we enter through acquisitions. With that in mind, Our goal for 2026 is to add eight additional agreements with a target of 38 preferred payers by the end of 2026. Additionally, our Q4 preferred payer agreements accounted for approximately 57% of our total private duty services MCO volumes. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our preferred payer partners. We believe this important value metric will grow to the low 60% in 2026 as we continue to align our capacity with our payer partners. Moving to our preferred payer progress in home health. Our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. I am extremely pleased to report in Q4 Our episodic mix was 78% and our total episodic volume growth was 25% compared with the prior year period. The continued investment in clinical outcomes, sales resources, and a focused approach to growth is paying dividends with Q4 total admissions of 10,400 or 22.4% growth over the prior year period. We ended 2025 with 45 preferred pay agreements in home health. Our dedicated focus on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis has led to double-digit year-over-year growth in home health total episodes and improvement in our clinical and financial outcomes. As we reset expectations in home health and hospice for 2026, we believe our episodic payer mix will remain above 75% with organic growth rates approaching double digits. We also expect to sign additional preferred payer agreements in home health and are now targeting more than 50 agreements by the end of 2026. Finally, as we have achieved our desired preferred payer model in private duty services and home health and hospice, we are proceeding with a similar strategy in our medical solutions business. We're in the late stages of implementing our preferred payer strategy in MedSolutions and believe it will be fully realized in 2026. At year-end 2025, we have 18 preferred payers, and we expect that number to grow with a target of 25 total agreements in 2026 as we achieve our desired preferred payer model. Our gross margins have stabilized in our desired range as we align our clinical capacity with those payers that value our services and pay us in a timely fashion. I am pleased with our Q4 volume growth of approximately 92,000 unique patients served or positive 3.4% over the prior year period. As we think about medical solutions revenue growth in 2026, I would expect us to remain in the mid single digits growth for the next few quarters and then return to double digit growth by the end of the year. We are encouraged by our rate increases, preferred payer agreements, and subsequent recruiting results. Our business has demonstrated 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 cost-effective, high-quality alternatives to higher-cost care settings. Now, turning to our recently announced transaction to acquire Family First Home Care, a Florida-based company with a great reputation for quality in-home pediatric care. I want to extend a warm welcome to our Family First teammates. I am thrilled to continue our acquisition growth story with great companies like ThriveSkill Pediatrics and Family First Home Care. Both companies continue to build upon the Aviana brand of high-quality, compassionate care in the most cost-effective setting, the comfort of our patient's home. We expect the Family First transaction to close sometime in Q2 with normal regulatory approvals. I look forward to updating you on our progress over the coming quarters. Before I turn the call over to Matt, let me comment on our strategic plan and outlook for 2026. We will focus our efforts on five primary strategic initiatives. First, strengthening our partnerships with government partners and preferred payers to create additional capacity and growth. Second, improving clinical outcomes and customer engagement scores while lowering the total cost of care. Third, implementing high priority artificial intelligence and automation efforts to improve operational efficiency and productivity gains. Fourth, growing through acquisitions while improving net leverage and generating positive free cash flow. And finally, engaging our leaders and employees and delivering our Aviana mission. Based on the strength of our fourth quarter and full year 2025 results and the continued execution of our key strategic initiatives, we anticipate 2026 revenue range of 2.54 to 2.56 billion and adjusted EBITDA range of $318 to $322 million. We believe this 26th outlet provides a prudent view considering the challenges we still face with the evolving environment and does not include the impact of the Family First acquisition. In closing, I'm incredibly proud of our Aviana team and their dedication to executing our strategic plan 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. With that, let me turn the call over to Matt to provide further details on the quarter and our 26 outlook.

Matt.

Thank you, Jeff, and good morning. I'll first talk about our fourth quarter and full year 2025 financial results and liquidity before providing additional details on our outlook for 2026. Starting with the top line, we saw revenues rise 27.4% over the prior year period to $662.5 million. We achieved year-over-year revenue growth in all three of our operating divisions, led by our private duty services, home health and hospice, and medical solutions divisions, which grew by 28.1% 27.3 percent and 21.3 percent compared to the prior quarter. Consolidated gross margin was $213.3 million, or 32.2 percent. Consolidated adjusted EBITDA was $85 million, a 54 percent increase as compared to the prior year. This growth reflects an improved rate environment, increased volumes, as well as enhanced operational efficiencies. As Jeff mentioned, this year's fourth quarter included an additional 53rd week, which had a positive impact on both revenue and earnings. As a result, the current fiscal year reflects an extra week of business activity compared to a typical year. Now, taking a deeper look into each of our segments. Starting with private duty services, Revenue for the quarter was approximately $541 million, a 28.1% increase, and was driven by approximately 12.4 million hours of care, a volume increase of 17.9% over the prior year. Q4 revenue per hour of $43.74 was up 10.2% compared to the prior year quarter, primarily driven by preferred payer volume growth and the rate enhancements previously discussed. 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 $149.9 million of gross margin, or 27.7%. The cost of revenue rate of $31.62 in Q4 was up $3.15 or 13% from the prior year period. Our Q4 spread per hour was $12.12, reflecting continued normalization as we make ongoing adjustments to caregiver wages to support higher volumes and improve clinical outcomes. Moving on to our home health and hospice segment, Revenue for the quarter was approximately $69.3 million, a 27.3% increase over the prior year. Revenue was driven by 10,400 total admissions with approximately 78% being episodic and 14,000 total episodes of care, up 25% from the prior year quarter. Medicare revenue per episode was $3,223 up 3% 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 emissions well over 70%, we have achieved our goal of right-sizing our margin profile and enhancing our clinical offerings. We are pleased with our Q4 gross margin of 53.7%, representing our continued focus on cost initiatives to achieve our targeted operating model. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now, to our medical solutions segment results for Q4. During the quarter, we produced revenue of $52.5 million, up 21.3% over the prior year period. Revenue was driven by approximately 92,000 unique patients served and revenue per UPS of approximately $570, up 17.9% over the prior year period. Gross margin was approximately $26.2 million, or 50% for the quarter. Medical Solutions Q4 revenue, gross margin, and reimbursement rate benefited from a reserve release driven by stronger than expected cash collections on claims we had previously estimated as uncollectible. We expect results to normalize in Q1 with gross margins returning to the 43% to 45% range. As Jeff mentioned, We continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model. We are accelerating our preferred payer strategy and medical solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect margins to normalize and UPS to accelerate its growth as we implement our targeted operating model. While I'm pleased with the integration efforts to date, we're entering the final push to complete our efficiency efforts and return to a sustained year-over-year volume growth in medical solutions. In summary, we continue to fight through a difficult environment while keeping our patients' care at the center of everything we do. It's clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aviana. With the strong momentum from Q4 and throughout 2025, we're optimistic these trends will continue into 2026. We will continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes. Now, moving to our balance sheet and liquidity. At the end of the fourth quarter, we had liquidity of approximately $529 million representing cash on hand of approximately $193 million, $110 million of availability under our securitization facility, and approximately $226 million of availability on a revolver, which was undrawn as of the end of the quarter. We had $24.5 million in outstanding letters of credit at the end of Q4. On the debt service front, we had approximately $1.49 billion of variable rate debt at the end of Q4. Of this amount, $520 million is hedged for fixed rate swaps, and $880 million is subject to an interest rate cap, which limits 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. Looking at cash flow, cash generated by operating activities was $125.9 million, and free cash flow was $131 million. We are encouraged by our strong cash collections and cost efficiency efforts, which drove solid operating and free cash flow in 2025. We expect similar cash flow performance and 2026. As a reminder, the first quarter is typically our seasonal low point for both operating and free cash flow, with improvement expected throughout the rest of the year. Before I hand the call over to the operator for Q&A, let me take a moment to address our outlook for 2026. As Jeff mentioned, we expect full-year 2026 revenue range of $2.54 to 2.56 billion, an adjusted EBITDA range of 318 to 322 million. This guidance does not include any impact from the Family First acquisition, which we expect to close in late Q2. As outlined in our recent 8K, we are paying $175.5 million in consideration, or approximately 7.5 times post-synergy EBITDA. We plan to fund the transaction and related fees with cash on hand and our securitization facility. As we reflect on our Q4 results, I'd like to take a moment to express my sincere gratitude to all of our Aviana teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q1. With that, let me turn the call over to the operator.

Thank you. At this time, we'll be conducting a question and answer session. If you'd 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. As a reminder, we ask that you please limit to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, lovely poll, for questions. Our first question comes from AJ Rice with UBS. Your line is now live.

Hi, everybody. Thanks. Congratulations on the family-first acquisition. Obviously, that's a decent-sized deal for you guys. And I think you've said you're going to fund that with cash and short-term borrowing. How should we think about the impact that's likely to have on leverage? And can you give us any early read on whether there's accretion there or, you know, the trajectory on the margin contribution over time?

Yeah, AJ, we're really excited to welcome the Family First team and to the Aviana family. They have really strong clinical outcomes, really disciplined operation. It makes them a really nice cultural fit and operational fit into our family. We value this transaction, as I said in the script, about seven and a half times post-Synergy EBITDA. You could see that on a very short-term basis having a very, very minimal impact on our leverage profile. But with the generated free cash flow that we will produce in 2026, you should see us slightly flat to slightly down as the year progresses on a pro forma basis with both of those pieces taken into consideration. We still plan on deleveraging in 2026, however slightly, not the large jumps that you've seen the past two years. Jeff, anything else?

Yeah, I think, AJ, as Matt's well said, you know, we've gotten leverage down to just right at four times. As Matt said, you know, we should end 2026 in that range with the Family First edition. And it's just another nice transaction. You know, Thrive was a great transaction for us at It densified our services, allowed us to be better payer partners, thrive mainly in Texas. This is a Florida-focused deal for us. And it's just a nice merger of two great companies. We got clear of some regulatory hurdles over the next month or two and excited to get through those and get on to doing business with the Family First team. But a really nice acquisition for us to start the year.

Okay. Just maybe as a follow-up on the preferred provider arrangements that you're doing, at this point, do you have pretty good geographic coverage across your footprint, or there's still major geographies where you do not yet have it? And is the idea that, you know, the incremental eight that you did last year, the incremental eight this year, is that more density, multiple managed care, Medicaid coverage? programs that you're contracting with in a given geography, or is it still just trying to get the broad coverage?

That's a great question. The eight we won in 25 and the additional eight that we're anticipating for 26 are in the current geographies that we have. I'll say current geographies post the Thrive acquisition because we added New Mexico and Kansas as two additional Medicaid states. So as we think about executing on the 38 goal for this year, it is still densifying our current geographies. I would tell you at this point we've landed most of the major payers in the major markets, so we're rounding out some of our payer partnerships. And then I think the next steps for us, as you think about what's next for Aviana from a Medicaid standpoint, we still want to fill in the states like Ohio, West Virginia, Kentucky, Tennessee. That's still an open area today where we don't have any any Medicaid services. So those four or five states and kind of them call it the heartland. We really want to fill in. That's how we think about additional M&A, the back half of 2026 and going in 27. And the Medicaid side of the business. Thanks, AJ.

All right, thanks.

Our next question is from Brian Tankwillet with Jefferies Group. Your line is now live.

Hey, good morning, guys, and congrats on this acquisition. Maybe, Matt, as I think about the start, when I think of family first, any other color you can share with us in terms of how we should be thinking about revenues? And I guess we come back to the EBITDA contribution, but just any KPIs, any metrics that you can share with us? And then kind of related to that, Jeff, I mean, is this one of those deals where clearly you're identifying in Florida with a deal? Is this one that's been kind of like supported or encouraged by the payers where they've asked you in the past to go into new markets?

Awesome questions, Brian. And Obviously, on 2026 financials themselves, the impact will depend on the timing of closing of this, obviously. That said, we really expect this to be a really smooth and efficient integration, consistent to how the team successfully integrated the Thrive acquisition and brought that team onto the Aviana platform. On a revenue side of it, it's in the ballpark of $120 million of revenue, and then you can run the math for the seven and a half times based upon purchase price. All that depending on a pro forma basis. 2026, we'll see how that really lands just based upon closing timing. Jeff, do you want to add on that?

Yeah. I think Matt hit it. Thrive was right down the middle of the fairway, helped us densify our payer needs in Texas. This one is primarily Florida-focused. Both companies have great reputations in the Florida market today, well-respected by the MCO payers. Florida is an MCO market, so our MCO payers are incredibly important to us. But this acquisition helps us round out the areas in Florida that we were not in geographically. So it does give us a geographic expansion within Florida. It allows us to service effectively every county in the state of Florida. And again, our payer partners are very supportive of our growth. And so I think this one is right down the middle of the fairway, just like Thrive. And again, excited to kind of get through the regulatory approvals here in Q1 and Q2 and get this thing closed up the latter half of Q2.

No, that makes sense. Matt, any chance you can help us bridge the 2026 EBITDA, given I think you have like almost roughly 20 million of one-timers and 25, there's an extra week and then there's Thrive in there. So just try to get that bridge and the guidance from 25 actuals.

Yeah, so on the EBITDA, Brian, you know, take that, you know, roughly $320 million. You know, we came out earlier this year and talked about, hey, bridge that back down to the 300s. based upon the retro rate increases, the cash collections, and that 53rd week itself. So, you know, really kind of your jumping off point should, you know, be around that $300 million going up to that range, about 320, as we currently sit organically without any M&A inclusive in there. On the revenue side of things, the 53rd week and Thrive kind of do a really nice offset to one another, you know, within, you know, 20 basis points themselves. And so we're still going to be in that 5 plus percent organic revenue growth as we currently sit today, but that's back in line with our normal expectations, that 5 to 7 percent range on revenue and that high single digits or medium to high single digits on EBITDA. So back into a normalized idea of obvious.

And Brian, I think I'll add to that is what Will said. The EBITDA growth implied about 7 percent, just under 7 percent. Again, we tried to, in my comments, lay out that We expect our PDS government rate wins to kind of be sub-10 this year. Last year we landed right at 10, and that's a net number from positive and negative increases. So we expect that number to kind of land somewhere between 6 and 8 state rate increases in this year. And we expect them to be more cost-of-living oriented. So I'll call it kind of the 1 to 5% Medicaid rate win. So less number of total wins, less percentage per win, And that's really what we're factoring into our guidance as we start the year. I think as we get to May, close Q1, close Family First, we'll have a much better feel for how the year plays out, especially with our legislative efforts being in session right now in the first half of the year.

Awesome. Thanks, guys.

Thanks, Brian.

Our next question comes from Raj Kumar with Stevens. Your line is now live.

Hi, good morning. Maybe just kind of focusing on the preferred pair arrangements and kind of thinking about the home health and hospice book. I guess maybe kind of, you know, you see an episodic mix trending above 75%, and I think you've previously highlighted you wouldn't be surprised if it got as high as 80%. So maybe just kind of thinking about what's embedded into 2026, and then maybe just any framing around any membership impacts, just given, you know, how volatile the membership was during AEP on the Medicare Advantage side, just any color on that would be helpful.

Yeah, Raj, great question. And I'm going to take that as a compliment to our, what we call our Triple H business. Like you, we're incredibly proud of their results. You know, I think we mentioned it, you know, pushing 25% organic year-over-year admission and episodic growth is, I would tell you, first class, best class results. And they've done it from just blocking and tackling. They've done it from just being really, really, really good at providing great clinical outcomes and the right level of care to the right payers and the right patients. So we're really robust. You know, now that we've got a more clear path from a federal home health rate standpoint, We continue to lean in. This is an area that we want to grow through both organic and inorganic M&A related activities in this year. But, you know, clinical outcomes are, you know, almost four and a half stars on average for our home health locations. I think it's 4.3 stars where we sit today. Gross margins in the 54, 53, 54 percent. Great cash collections. You know, as you said, episodic mix approaching 80 percent and we're growing in the north of 10% year-over-year. Right now, 20%. We're off to a great start to the year in Q1. These guys are having a great start to the year. So I think everything we would say is we're going to continue to lean into both home health and hospice and continue to grow it. And am I concerned with the trends of managed Medicare? No. I think we're doing our playbook in this business, and our team's just kicking butt and taking names right now. So we're really excited about where we are as we end at 25. And equally important as we sit here kind of halfway through Q1, really excited what these guys have done for the business model.

Got it. And then maybe just on the medical solutions business, you know, 2025 was a year of kind of optimization and around preferred payer strategies. As we kind of think about 2026 and, you know, given where the reimbursement dynamics was, any kind of framing around what would be a kind of appropriate run rate when we kind of X out the reserve dynamics favorability in the quarter?

Debbie, yeah, why don't you take us through the reserve impact itself, and then we can lay the bigger picture out here.

Yeah, so Raj, you called it out, but during the quarter, gross margin and the revenue reimbursement rate were elevated, and that was really from a reserve release that we recorded driven by improved cash collections on previously reserved claims. Now, without the inclusion of that reserve release, the medical solutions gross margin was slightly elevated compared to our guide, but we do expect it to normalize in Q1, getting back to that 43% to 45% range.

Yeah, well said, Debbie. And I think, you know, to put the dollars in there themselves, the contribution of that was $2.5 to $3 million that we're talking about. Raj, so of additional revenue and EBITDA in the quarter. So not overly material to earnings, but it shows up in the medical solutions metrics and gross margin just due to its size. On the modernization efforts, though, Raj, we're really excited about what the team has been able to do and what they've been able to accomplish so far. As we move into 26, we expect to see preferred payer numbers really significantly increase. Currently, we're sitting at 18. We expect that to continue to grow as we become better aligned and put our capacity with those who support us. There's a little bit of work to do at the same time, so we plan on wrapping this up in the front half of 2026, and that's when you'll see us return back to a double-digit growth number organically in this business and gross margins, as Debbie pointed out, sustaining in that 43% to 45% range. Thank you, Raj.

Great.

Thank you.

Our next question is from Ben Hendricks with RBC Capital Markets. Your line is now live.

Hi, this is Drew Steridon for Ben Hendrix. You've previously mentioned continued wage pass-through in the 2026. Can you quantify the magnitude and timing of these increases?

Yeah, Drew, I think the way to look at it is that spread rate that we talk about a lot. You know, Q4 was at $12.12, which is coming back down in line. But we've continued to push through wages, as we've talked about the entire year in 2025, that we had some initiatives in place to really drive our volumes, and you see it impacting and really growing our volumes. This really came down, and you can see it in our gross margins. We settled in that 28% range, which was on the higher end range that we give for that business, and in line with our expectations. Looking ahead, though, we'll continue to actively manage spread, as we do every single day, to meet the needs of our preferred payers and our payer partners.

Got it. Thank you. Thank you, Drew.

Our next question comes from Benjamin Rossi with JP Morgan. Your line is live.

Good morning. I appreciate you taking my questions and appreciate the earlier comments regarding your state contracting. I guess the shifting focus to California, which still seems to be the outlier here on home-based nursing rates, do you think is the realistic 2026 2027 scenario for california here between call like no change a cost of living type increase in that one to five percent range or maybe a structural reset and then under each of those scenarios do you have any kind of commentary on impact to your pds spread rate per hour or maybe your broader market share strategy given your stance to not exit california

Yeah, thanks, Ben. You know, we met with the governor of California as early as last week. We are not in the budget. There's no PDN rate increase in the 26, 27 budget for California as it exists today. You know, we're still lobbying and advocating to be in what's called the May revised budget. You know, if I'm scoring that as a handicap, I'd say it's less than 10 or 15% that PDN makes it in any shape, way, or form in the California budget. We're certainly not expecting it. We've not modeled that. And over time, I hate to say it, but over time as our other markets have just grown at the 20, 22, 25% year-over-year growth rate in PDS, California has unfortunately just gotten smaller and smaller from a materiality for the company. So we still care deeply about our California patients. We still care deeply about California operations. We advocate very hard. Like I said, we met with the governor last week, and we continue to meet with his staff and push for it. But today, as it sits today, I'm not expecting any material change. Well, stopgap, you know, cost of living is potential, but I would say is unlikely. So there's nothing baked in our guidance that California has a change in heart in 2026.

Understood. Thanks for the additional comments there. I guess just as a follow-up, we've heard some other healthcare facilities' names regarding a spillover impact from some of the delayed respiratory season changes. and then some of the additive weather-related pressures from some of the winter storms. Just when you think about your 2026 outlook, how are you factoring any of the respiratory or weather-related impacts during 1Q? Thanks.

No, I mean, definitely. That's well said. We didn't put it in our prepared remarks, but we have had to fight through, like all of our peers did, mainly snow and significant snow throughout the entire country. I'd love to say the northeast, but everything from Texas all the way up through Maine. But our teams do a good job fighting that through. We have a no-excuse mentality here at Aviana. We just fight through everything that comes our way. We didn't certainly change our guidance based on weather, but like our peers, we've had to fight through two or three weeks of weather in the first 10 weeks of the year. So again, I won't say it was nothing, but it's just something we handle. We move on, and we're glad weather, for the most part, is behind us at this point in the year and back to business. So I don't think you'll have any material impact. Matt mentioned in his prepared comments, as a reminder, Q1 is our largest payroll tax quarter. So keep in mind, as you think about guidance, Q1 is our seasonally low for our margin, mainly driven by the payroll tax on our labor costs. Thanks, Matt.

Our next question comes from Andrew Muck with Barclays Bank. Your line is now live.

Hi, good morning. Given the recent increase in oil prices, can you remind us how much, how travel is reimbursed for your caregivers and how much fuel represents as a percentage of total revenue and total cost? Thanks.

Hey, Andrew, good morning. You know, great question. You know, 80% of our revenues are driven off of shift care in the home where we don't reimburse any form of mileage or gas or fuel. And it's primarily because our nurse goes from his or her home right to the home of the patient. They're there for 8 or 10 or 12 hours, and they go home. So the vast, vast, vast majority of the business at Aviana has zero tied to gas prices from a reimbursement standpoint. Our med solutions has some impact on a minimal amount from our drivers. And then the business that it does impact is our home health and hospice business, and that's about 12% of our total revenue. So it's not a nothing impact for us, but thankfully with the size and scale that we are and the diversity of our payer mix and our business mix, it's not as meaningful as it would be to some of our large home health and hospice peers.

Maybe just as a follow-up, can you provide a little bit more color on just, you know, the pace of pass-through to caregivers on PDS and how you expect the spread to materialize throughout the year?

Yeah, Andrew, I would go back to the gross margin line item here, 27.7% in Q4, a little bit of PTO utilization, holiday pay, et cetera, that occurs in Q4, so a little bit of extra compression in there. but our range should be in that 27%, 28% gross margin for the private duty services segment. So we're close to it now, but as we continue to drive reimbursement rates, as Jeff mentioned, high single digits on the government affairs side, as we continue to add eight more preferred payers, and as we continue to organically grow our preferred payers, we'll take those rate wins and be able to continue to push them down to our caregivers still aligning to that 27%, 28% gross margin.

Great question, Andrew. We appreciate it. Thank you.

Our next question comes from Peter Chickering with Deutsche Bank. Your line is now live.

Hey, good morning, guys. If I think about the PBS business model, like, you know, the preferred payer strategy makes a ton of sense just due to, you know, there's pretty large savings for managed Medicaid, and it's obviously sort of more of a niche market. But the thing about home health, it's a huge market with a lot of nurses employed. So, Peter, walk us through why you can replicate the preferred payer's strategy in the home health segment.

Yeah, good morning, Peter. You know, I think, one, our discipline around episodic payer mix, you know, I think a year or two ago people questioned whether or not being above 70% was attainable long-term. I would say at this point we've now put that behind us and said being above 75% is our long-term strategy. And, you know, over time, payers have come around. I mean, at first, payers did not like the episodic conversation three, four, five years ago. But when you don't bend your backbone and you keep your clinical capacity focused on the right payer base, meaning episodic payers, eventually we have found that our payers do come back around. Now, clinical outcomes drive the story, right? So great clinical outcomes lead to good financial outcomes. So I think in our home health and hospice business, specifically home health, we've been able to stand behind great clinical outcomes. But, you know, I just think that when you look at, you know, I've got eight quarters in a row here. We've been above 75%, eight quarters in a row, and, you know, we're approaching 80% now on an episodic basis. At this point, this is the business model. We're not moving from it, and our payers have kind of caught up to us. And by the way, I want to give a shout out to our payer team. We've got a world-class payer team, and our home health team And hospice payer leader has done a fantastic job. She's been amazing. So kudos to our payer team. They're out every day continuing to beat the drum, but they will not take fee-for-service low-dollar contracts because of how valuable caregivers and clinicians are in today's world. But thank you for noticing, by the way.

Okay, fair enough. And then one more on family first. How much of the $120 million of revenues are in Florida versus the other six states? And how fast can you roll out the preferred payer strategy in Florida, sort of in those new markets? And as a thing about the opportunity there, I assume it's more of an acceleration of the $120 million of revenues versus sort of around 20% of the market business that the business has today.

Yes, so think of I think of the revenue base being kind of two-thirds Florida, one-third everywhere else. Certainly, Florida is the state that we focused on. They do have meaningful business in other states outside of Florida, but Florida is where we focused on really and what made the most strategic rationale. They have... We believe they have really good relationships in the state of Florida today from a payer standpoint. We have very good relationships as well. You know, I think the feedback we've gotten early from the payers is very supportive and, you know, congratulatory on the standpoint of providing more cost-effective patient-preferred, you know, win-win type scenarios. But at the end of the day, you know, these are two great companies both providing great care. So it's not like... Aviana is superior in its service. Family First does a really, really nice job providing care in their seven states. So, again, we think this is good for patients. We think this is good for employees. This is good for payers. And, you know, it'll take us a little bit of time. As we saw with Thrive, it takes us about a half a year or so to kind of get through the integration-related efforts, systems, back office benefits, to then really get to the expansion, back to the expansion of care. And we think Family First will be similar close. hopefully close some point in mid to late Q2. And by the end of the year, we're wrapping up family first. And I think I just want to head on again. We are committed to growing our home health and hospice business through, you know, a creative M&A. So I think you'll see us get back to the home health focused, both the Novo and Tuck in M&A. Great.

Thanks so much, guys.

Our next question comes from Sean Dodge with BMO Capital Markets. Your line is now live.

Great. Thanks for taking our questions here. It's Chris Charlson on for Sean. You've mentioned greater adoption of value-based add-ons from some of your earlier preferred partners, particularly in private duty. Can you walk us through what a typical timeline looks like from when a when value-based arrangements might start contributing to revenue, and then how much visibility do you have into the incremental growth on the value-based side in 2026?

Great question, Chris. So I think as we ended the year with 30 preferred payers in just over 10 value-based agreements, right? So about a third of our preferred payers in PDS had a value-based agreement attached to it. And think of that being over the course of three years, right? We're now starting year four. So there's definitely a lag. And we think of the lag anywhere between half a year to about 18 months, about six months. From the time we sign a preferred payer, which just means enhanced rates and enhanced wages for the caregiver, it's between a half a year and about 18 months later that we expect to then add a value-based agreement. We certainly want the value-based agreement from day one, but it takes time to work through that with the said payer. So as you think of 30 going to 38 this year, we'll guide to the value-based agreements, but I would think of somewhere from 10 going to 14 or 15 this year. And again, our payer team does a great job of continuing to remind the payer the more we're aligned on outcomes and cost savings, the better we can do as a payer partner. So I'll also point out, remember, Q2 is the quarter where we do our annual true-ups from the previous year. We've called that out in prior years as well. But I think of that nature of we ended the year just over 10, and we'll probably end this year somewhere in the 14 to 15 range.

Okay. That's helpful. And then maybe going back to talking about entering new states in private duty as well, you've been successful in driving great increases across nearly all your PDS states, how have the rates been progressing in other states where you're not currently operating, and how does this maybe impact your approach when you're considering entering new markets over the coming years and in 2026?

Yeah, and let me start with it's not always right, right? So, we look at a market and look at size and scale of the Medicaid population, number of PDM patients, pediatric population in that state. So, So when I say Ohio, there's a difference between Ohio and Wyoming, right? And Wyoming, I'm just picking this randomly, may have a higher PDN rate, but may only have 75 PDN patients in the entire state, where Ohio has 2,000. So again, there's other factors where we're looking at than just rate. We feel confident that as we enter a state or grow in a state, we can work through both our government affairs team, working directly with the governor, and the state legislatures, as well as our preferred payers and our MCO partners, to appropriately address wage and rate. And again, it's not just rate for the sake of rate. It's rate for the sake of the right wage rate for the caregivers to attract caregivers into the home. So again, we think over time in any state, including, I think it was Ben, who brought up California. Eventually, we're going to get California flipped. I mean, you know, that's the one state today we've not been able to get flipped to appropriate wage rate and appropriate reimbursement rate. But eventually, we'll get California. So we think every state, if you look at it over a macro period of five or ten years, every state, any and every payer over time, we think we can get to move to appropriate reimbursement rate, which means an appropriate wage rate. Thanks, Chris.

Our next question comes from Jared Haas with William Blair. Your line is now live.

hey uh good morning thanks for taking the questions um maybe i want to drill back into the 2026 outlook and specifically thinking about the volume growth opportunity for private duty so i think we saw you benefit a little bit from sort of the elevated growth on an organic basis throughout 2025 just given all the rate and preferred payer activity that you were able to achieve last year you know now as we think about you getting more and more caught up on wages i'm wondering I guess if there's any way to sort of contextualize how you're thinking about the runway for volume growth and opportunities to potentially sustain elevated levels of growth over the next handful of quarters.

Yeah, Jared, we're really excited about the momentum heading into 2026, and we really expect a more normalized growth rate as we enter 2026 as well. To your point, we've had those elevated rates that have been able to drive our volume forward But we anticipate kind of that organic in that 5% to 7% range as we've got into with additional M&A add-ons like Family First incorporated or adding on top of that as well. EBITDA growing in that high single digits after you just out that $20 million in normalization that we backed everybody into in January. But overall... great momentum in 2025, and continue that momentum into 2026, though on a more normalized basis.

And I think, Jared, as we called out, you know, we just don't expect to get the 30%, 40%, 50% PDS Medicaid rate increases. We're really thinking these are more in the 2% to 4% or the 3% to 5% range. And, you know, I think we've talked before, we've been in the teens, you know, state rate wins. We think this year is probably... six, seven, eight, maybe nine. If we hit 10 this year, we'd be very pleased on a net basis. So with all that baked in, I think Matt's point of PDS getting back to mid single digit volume and rate year over year is probably where we think the back half of this year lands. And that's what we guide to long term in our investment thesis.

And then Jeff, I think you mentioned in the prepared remarks, you know, some of the, or one of the core initiatives you're focusing on here is just, you know, some of the high priority AI and automation efforts. So we'd love to hear a little bit more about just where you're seeing some of the biggest opportunities leveraging those tools. And then I guess maybe the fine point I put on is how quickly might we start to see those initiatives ramping in terms of impacting either the cost structure or margin profile.

Yeah, I think we certainly started in the back office. So we're a couple years into RCM automation with our RCM partners and want to continue to accelerate that. And I think part of the cash collections and the one-time and timing-related revenue enhancements last year were related to just great collections. And part of that was tied to some of our AI partnerships that helped us collect our cash more effectively and efficiently. So I think think of that being the long pole in the tent, meaning what we've started with and are continuing to drive. And Matt and Debbie and James, who leads our CM, just does a fantastic job with that. We're also pivoting now to the front office. And so we're in the piloting stages of thinking of caregiver engagement, also on shift fulfillment and really how we schedule and think of engaging with our caregiver and using automation and AI-related opportunities there. And there's more. There's more on the AMS business. There's nuances we use for fax automation and some of the back office stuff. It just makes the back office more efficient. So I think of us being back office focused for the last, I'll call it two plus years. That will continue. And then at the end of 25, going 26, we kind of pivoted to more field-facing, front office-facing, tied to how we think of scheduling engagement of our caregivers. Thank you so much, Jared.

Our next question is from John Ransom with Raymond James. Your line is now live.

Hey there. So we think about the core EBIT growth this year being just below 7% on a consolidated basis, you know, 300 more than 320-ish. How does that look by segment? What are the highest growth segments versus the lowest growth segments of your three as we think about modeling in the future?

Yeah, so historically medical solutions and home health and hospice has been our highest organic growth sections over there, John. So we've got medical solutions going through with modernization efforts at this time. And so we talked about still in that low single digits growth in the front half of 2026, but returning to that high single digits to double digits growth in the back half of 2026. And so there's a little bit of mutedness in that happening in H1 compared to H2. I'll tell you, home health and hospice hitting out of the gate strong just as they finish the year strong. So that will continue to be a high single digits to double digits growth. But we think, you know, PDS returned back into the more normalization, you know, 3.5%, 4% volume growth, adding a point to a point and a half of rate growth in there, getting back to your 5% to 7% kind of range itself or 3% to 5% on the upper end of that one. That's how we kind of have it modeled out and how we're thinking about it into 26 and beyond.

And, John, just being cost-effective and efficient in the back office, corporate office, I mean, we're down to 4.5% corporate costs as a percentage of revenue. We think we can make that, you know, get even a little better there. And then you were about to bring this up, so I want to highlight, you know, we're generating a meaningful amount of cash flow. So I appreciate you highlighting that great point that $131 million of free cash the last year was well, well, well beyond our expectations. And really kudos to Matt and Debbie and the team for executing on that. Generating that kind of cash moving forward just gives us optionality to continue to do deals like Family First and to use cash. So we're excited about the opportunity to do that. And thanks for asking.

You're welcome. The other question is just the PDS rate outlook. I mean, you're adding eight preferred payers, but you're only calling for one and a half, one, two percent rate. Is that conservative or are we missing something?

I just think it shows how far along the spectrum we are in this strategy, meaning, you know, when we first started, we were getting 10 percent of volume or 15 percent of volume. Some of these now we're tucking in are smaller in nature. they're still niche-oriented. They're really important. Even a 1% volume mover, if we can move into a preferred payer, matters. But think of us being just further along the maturity spectrum in the preferred payers, which is why we love the idea of additional states because it opens up new markets for us. So as we think of Thrive, the New Mexico and the Kansas was so important because it opened up two brand new MCO markets for us. So But, no, I think just as we think about the preferred payers going from 30 to 38, you know, we're just continuing to round out some of those final tweaks in our current markets and really focus on new expansion.

Last one for me. I know we're a little over time. If we think about the – clearly there's synergy between the nutrition segment and the pediatric segment. But if I think about home care, hospice, and personal care, you know, I think the market is kind of mixed because there's really – that much synergy between the three businesses. And so does it help you with payer? Does it help you with nurse recruiting? What is the synergy? And I guess where I'm going, I mean, with hospice multiples, M&A multiples being in the team, if somebody came to you with a 15X multiple, you know, offer for your hospices, is that something you would consider, or do you really think you want to knit all these pieces together indefinitely?

First of all, it's a very thoughtful question. I'll say this. Yes, obviously the intro nutrition business is incredibly synergistic to the PDM business. They operate as a referral entity, incredibly well together. We have a lot of crossover in the referral source, the payer conversations between those two businesses. The opposite is true between our PDS and our HHH business. There's very little synergies from a from a referral source standpoint, even a payer standpoint, a very different conversation, as you know. I think why we love being in both businesses, one, the diversification. As we see right now, you know, the last three years, Medicaid has been the darling. Right now, it's going back to Medicare being more the darling. We like the idea of being larger in both of these businesses, and we'd like to be larger in the HHH business over time. But, no, I think we think of it as growth rates, you know, that these businesses like Home Health and Hospice can grow in double-digit year-over-year organic growth. We like that from a growth algorithm. So we're committed to all three segments, excited about all three segments, and, again, just want to get back to, you know, blocking and tackling this year and being really good at executing our business plan. Thanks, John.

We have reached the end of the question and answer session. I'd now like to turn the call back over to Jeff Shaner. for closing comments.

Thank you, Operator. And just thank you for your attention and look forward to catching up in mid-May on our Q1 and 2026 results. Thank you and have a wonderful day.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.