Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November~~August 4, ~~2022,~~2023, the registrant had ~~185,918,240~~190,425,098 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this ~~report,~~Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other similar expressions.

These statements are based on certain assumptions that we have made considering our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual results and could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to risks that may cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to, the following risks:

Additionally, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking statements contained in this Quarterly Report on Form 10-Q might not prove to be accurate and you should not place undue reliance upon them or otherwise rely upon them as predictions of future events. All forward-looking statements made by us in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES	AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES						AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS	CONSOLIDATED BALANCE SHEETS						CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)	(Amounts in thousands, except share and per share data)						(Amounts in thousands, except share and per share data)
	As of						As of
	October 1, 2022			January 1, 2022			July 1, 2023			December 31, 2022
	(Unaudited)						(Unaudited)
ASSETS	ASSETS						ASSETS
Current assets:
Cash and cash equivalents	$	63,681		$	30,490		$	28,012		$	19,217
Patient accounts receivable		219,246			218,917			237,432			221,237
Receivables under insured programs		6,789			6,373			6,588			4,395
Prepaid expenses		12,604			14,233			16,245			15,089
Other current assets		9,764			9,202			13,005			9,813
Total current assets		312,084			279,215			301,282			269,751
Property and equipment, net		24,919			31,374			19,840			22,752
Operating lease right of use assets		53,789			51,992			51,857			54,601
Goodwill		1,368,333			1,835,580			1,159,688			1,159,688
Intangible assets, net		97,779			102,851			96,774			95,863
Receivables under insured programs		23,970			25,530			27,461			22,865
Other long-term assets		92,495			7,829			84,500			86,240
Total assets	$	1,973,369		$	2,334,371		$	1,741,402		$	1,711,760

LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ EQUITY

LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ DEFICIT							LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and other accrued liabilities	$	48,960		$	52,624		$	38,435		$	44,624
Accrued payroll and employee benefits		49,996			54,565			60,183			43,836
Current portion of insurance reserves - insured programs		6,789			6,373			6,588			4,395
Current portion of insurance reserves		17,326			13,466			23,298			27,531
Securitization obligations		140,000			120,000			160,000			140,000
Current portion of long-term obligations		9,200			8,600			9,200			9,200
Current portion of operating lease liabilities		12,496			13,534			14,197			13,070
Current portion of deferred payroll taxes		25,523			25,523
Other current liabilities		41,391			50,146			43,714			43,841
Total current liabilities		351,681			344,831			355,615			326,497
Revolving credit facility		-			-			-			-
Long-term obligations, less current portion		1,282,603			1,226,517			1,278,746			1,281,082
Long-term insurance reserves - insured programs		23,970			25,530			27,461			22,865
Long-term insurance reserves		37,146			35,122			36,687			35,470
Operating lease liabilities, less current portion		44,518			44,682			42,840			45,818
Deferred income taxes		2,753			3,046			4,436			3,844
Other long-term liabilities		616			16,692			219			359
Total liabilities		1,743,287			1,696,420			1,746,004			1,715,935
Commitments and contingencies (Note 10)
Deferred restricted stock units		2,135			2,135			2,135			2,135
Stockholders’ equity:
Preferred stock, $0.01 par value as of October 1, 2022 and no par value as of January 1, 2022,
Stockholders’ deficit:
Preferred stock, $0.01 par value as of July 1, 2023 and December 31, 2022
5,000,000 shares authorized; none issued or outstanding		-			-			-			-
Common stock, $0.01 par value, 1,000,000,000 shares authorized;
185,918,240 and 184,732,268 issued and outstanding, respectively		1,859			1,847
190,425,098 and 188,859,165 issued and outstanding, respectively								1,904			1,888
Additional paid-in capital		1,225,019			1,208,645			1,234,468			1,228,512
Accumulated deficit		(998,931	)		(574,676	)		(1,243,109	)		(1,236,710	)
Total stockholders’ equity		227,947			635,816
Total liabilities, deferred restricted stock units, and stockholders’ equity	$	1,973,369		$	2,334,371
Total stockholders’ deficit								(6,737	)		(6,310	)
Total liabilities, deferred restricted stock units, and stockholders’ deficit							$	1,741,402		$	1,711,760

The accompanying notes are an integral part of these unaudited consolidated financial statements.


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES	AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES												AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS	CONSOLIDATED STATEMENTS OF OPERATIONS												CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)												(Amounts in thousands, except per share data)
(Unaudited)	(Unaudited)												(Unaudited)


	For the three-month periods ended						For the nine-month periods ended						For the three-month periods ended						For the six-month periods ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021			July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Revenue	$	443,009		$	411,276		$	1,336,498		$	1,264,548		$	471,945		$	442,955		$	938,358		$	893,489
Cost of revenue, excluding depreciation and amortization		308,426			271,534			912,046			846,534			316,690			297,912			638,638			603,620
Branch and regional administrative expenses		89,542			76,370			267,283			223,462			91,255			88,998			182,963			177,741
Corporate expenses		33,215			37,873			105,984			97,673			26,354			36,202			57,289			72,769
Goodwill impairment		-			-			470,207			-			-			470,207			-			470,207
Depreciation and amortization		4,917			5,145			16,774			15,163			3,491			6,038			7,532			11,857
Acquisition-related costs		-			2,007			69			4,779			(32	)		(22	)		38			69
Other operating expense		2,122			-			1,953			-
Other operating (income) expense														(3,305	)		1			(3,233	)		(169	)
Operating income (loss)		4,787			18,347			(437,818	)		76,937			37,492			(456,381	)		55,131			(442,605	)
Interest income		164			44			369			182			113			143			188			205
Interest expense		(28,462	)		(12,106	)		(73,745	)		(53,793	)		(37,985	)		(22,919	)		(73,943	)		(45,283	)
Loss on debt extinguishment		-			(4,784	)		-			(13,702	)
Other income (expense)		45,140			(511	)		86,523			(1,088	)
Income (Loss) before income taxes		21,629			990			(424,671	)		8,536
Income tax benefit		2,669			1,100			416			612
Other income														25,169			4,926			12,981			41,383
Income (loss) before income taxes														24,789			(474,231	)		(5,643	)		(446,300	)
Income tax benefit (expense)														810			344			(756	)		(2,253	)
Net income (loss)	$	24,298		$	2,090		$	(424,255	)	$	9,148		$	25,599		$	(473,887	)	$	(6,399	)	$	(448,553	)
Net income (loss) per share:
Net income (loss) per share, basic	$	0.13		$	0.01		$	(2.29	)	$	0.06		$	0.14		$	(2.56	)	$	(0.03	)	$	(2.43	)
Weighted average shares of common stock outstanding, basic		186,113			184,554			185,327			165,877			189,071			184,953			189,063			184,940
Net income (loss) per share, diluted	$	0.13		$	0.01		$	(2.29	)	$	0.05		$	0.13		$	(2.56	)	$	(0.03	)	$	(2.43	)
Weighted average shares of common stock outstanding, diluted		186,166			188,246			185,327			170,667			189,739			184,953			189,063			184,940

The accompanying notes are an integral part of these unaudited consolidated financial statements.


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES	AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES												AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY													CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Amounts in thousands, except share data)	(Amounts in thousands, except share data)												(Amounts in thousands, except share data)
(Unaudited)	(Unaudited)												(Unaudited)

	For the three-month period ended October 1, 2022												For the three month period ended July 1, 2023
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’			Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity			Shares		Amount		Capital		Deficit			Deficit
Balance, July 2, 2022		185,918,240	$	1,859	$	1,221,507	$	(1,023,229	)	$	200,137
Balance, April 1, 2023														188,859,165	$	1,888	$	1,230,954	$	(1,268,708	)	$	(35,866	)
Employee stock purchase plan		-		-		-		-			-			1,565,933		16		929		-			945
Non-cash share-based compensation		-		-		3,512		-			3,512			-		-		2,585		-			2,585
Net income		-		-		-		24,298			24,298			-		-		-		25,599			25,599
Balance, October 1, 2022		185,918,240	$	1,859	$	1,225,019	$	(998,931	)	$	227,947
Balance, July 1, 2023														190,425,098	$	1,904	$	1,234,468	$	(1,243,109	)	$	(6,737	)


	For the three-month period ended October 2, 2021												For the three month period ended July 2, 2022
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’			Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity			Shares		Amount		Capital		Deficit			Equity
Balance, July 3, 2021		184,164,184	$	1,841	$	1,196,813	$	(450,574	)	$	748,080
Balance, April 2, 2022														184,732,268	$	1,847	$	1,213,460	$	(549,342	)	$	665,965
Employee stock purchase plan														1,185,972		12		2,266		-			2,278
Non-cash share-based compensation		-		-		4,262		-			4,262			-		-		5,781		-			5,781
Net income		-		-		-		2,090			2,090
Balance, October 2, 2021		184,164,184	$	1,841	$	1,201,075	$	(448,484	)	$	754,432
Net loss														-		-		-		(473,887	)		(473,887	)
Balance, July 2, 2022														185,918,240	$	1,859	$	1,221,507	$	(1,023,229	)	$	200,137

													For the six-month period ended July 1, 2023
													Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
													Shares		Amount		Capital		Deficit			Deficit
Balance, December 31, 2022														188,859,165	$	1,888	$	1,228,512	$	(1,236,710	)	$	(6,310	)
Employee stock purchase plan														1,565,933		16		929		-			945
Non-cash share-based compensation														-		-		5,027		-			5,027
Net loss														-		-		-		(6,399	)		(6,399	)
Balance, July 1, 2023														190,425,098	$	1,904	$	1,234,468	$	(1,243,109	)	$	(6,737	)


	For the nine-month period ended October 1, 2022												For the six-month period ended July 2, 2022
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’			Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity			Shares		Amount		Capital		Deficit			Equity
Balance, January 1, 2022		184,732,268		1,847		1,208,645		(574,676	)	$	635,816			184,732,268	$	1,847	$	1,208,645	$	(574,676	)	$	635,816
Employee stock purchase plan		1,185,972		12		2,266		-			2,278			1,185,972		12		2,266		-			2,278
Non-cash share-based compensation		-		-		14,108		-			14,108			-		-		10,596		-			10,596
Net loss		-		-		-		(424,255	)		(424,255	)		-		-		-		(448,553	)		(448,553	)
Balance, October 1, 2022		185,918,240	$	1,859	$	1,225,019	$	(998,931	)	$	227,947


	For the nine-month period ended October 2, 2021
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance, January 2, 2021		141,928,184	$	1,419	$	721,247	$	(457,632	)	$	265,034
Issuance of common stock, net of underwriters’ discounts and commissions		42,236,000		422		469,686		-			470,108
Non-cash share-based compensation		-		-		10,142		-			10,142
Net income		-		-		-		9,148			9,148
Balance, October 2, 2021		184,164,184	$	1,841	$	1,201,075	$	(448,484	)	$	754,432
Balance, July 2, 2022														185,918,240	$	1,859	$	1,221,507	$	(1,023,229	)	$	200,137

The accompanying notes are an integral part of these unaudited consolidated financial statements.


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES	AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES						AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS						CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)	(Amounts in thousands)						(Amounts in thousands)
(Unaudited)	(Unaudited)						(Unaudited)
	For the nine-month periods ended						For the six-month periods ended
	October 1, 2022			October 2, 2021			July 1, 2023			July 2, 2022
Cash Flows From Operating Activities:
Net (loss) income	$	(424,255	)	$	9,148
Adjustments to reconcile net (loss) income to net cash from operating activities:
Net loss							$	(6,399	)	$	(448,553	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		16,774			15,163			7,532			11,857
Amortization of deferred debt issuance costs		5,221			7,234			2,719			3,526
Amortization and impairment of operating lease right of use assets		12,722			11,081			8,174			8,402
Non-cash share-based compensation		14,108			10,142			5,027			10,596
Goodwill impairment		470,207			-			-			470,207
Loss on disposal of licenses, property and equipment		1,985			109
Loss (gain) on disposal or impairment of licenses, property and equipment, and software								381			(293	)
Fair value adjustments on interest rate derivatives		(89,634	)		(6,246	)		1,738			(44,789	)
Gain on sale of businesses		(170	)		-
Loss on debt extinguishment		-			13,702
Deferred income taxes		(293	)		839			592			(89	)
Changes in operating assets and liabilities, net of impact of acquisitions:
Patient accounts receivable		(921	)		(3,376	)		(16,195	)		(27,701	)
Prepaid expenses		6,825			2,715			1,354			(61	)
Other current and long-term assets		(1,878	)		39			(10,720	)		5,854
Accounts payable and other accrued liabilities		(2,395	)		(15,851	)		(5,790	)		1,232
Accrued payroll and employee benefits		(4,569	)		(3,164	)		16,347			(9,341	)
Insurance reserves		5,884			2,752			(3,016	)		4,804
Operating lease liabilities		(15,845	)		(11,783	)		(7,281	)		(11,348	)
Other current and long-term liabilities		(1,932	)		(10,316	)		2,514			(3,660	)
Net cash (used in) provided by operating activities		(8,166	)		22,188
Net cash used in operating activities								(3,023	)		(29,357	)
Cash Flows From Investing Activities:
Acquisitions of businesses, net of cash acquired		(2,027	)		(103,202	)		-			(1,206	)
Proceeds from sale of businesses		460			-			-			460
Payment for interest rate cap		(11,725	)		-			-			(11,725	)
Purchases of property and equipment		(8,800	)		(10,306	)
Purchase of certificates of need								(2,678	)		-
Purchases of property and equipment, and software								(3,421	)		(5,985	)
Net cash used in investing activities		(22,092	)		(113,508	)		(6,099	)		(18,456	)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock		-			477,688
Proceeds from employee stock purchase plan		2,278			-			945			2,278
Proceeds from securitization obligation		40,000			-			45,000			40,000
Repayment of securitization obligation		(20,000	)		-			(25,000	)		(10,000	)
Proceeds from revolving credit facility		15,000			-			20,000			15,000
Repayments on revolving credit facility		(15,000	)		-			(20,000	)		-
Proceeds from issuance of term loans, net of debt issuance costs		59,700			925,261
Principal payments on term loans		(6,600	)		(1,271,733	)		(4,600	)		(4,300	)
Principal payments on notes payable		(7,564	)		(4,910	)		(5,125	)		(4,070	)
Repayment of government stimulus funds		-			(29,444	)
Principal payments of financing lease obligations		(581	)		(503	)
Payment of offering costs		-			(5,473	)
Payment of debt issuance costs		(218	)		(13,107	)
Settlements with derivative counterparties		(3,566	)		(2,096	)
Principal payments on financing lease obligations								(378	)		(363	)
Settlements with interest rate swap counterparties								7,075			(3,759	)
Net cash provided by financing activities		63,449			75,683			17,917			34,786
Net increase (decrease) in cash and cash equivalents		33,191			(15,637	)
Net change in cash and cash equivalents								8,795			(13,027	)
Cash and cash equivalents at beginning of period		30,490			137,345			19,217			30,490
Cash and cash equivalents at end of period	$	63,681		$	121,708		$	28,012		$	17,463

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1. DESCRIPTION OF BUSINESS

Aveanna Healthcare Holdings Inc. (together with its consolidated subsidiaries, referred to herein as the “Company”) is headquartered in Atlanta, Georgia and has locations in 33 states with concentrations in California, Texas and Pennsylvania, providing a broad range of pediatric and adult healthcare services including nursing, hospice, rehabilitation services, occupational nursing in schools, therapy services, day treatment centers for medically fragile and chronically ill children and adults, as well as delivery of enteral nutrition and other products to patients. The Company also provides case management services in order to assist families and patients by coordinating the provision of services between insurers or other payers, physicians, hospitals, and other healthcare providers. In addition, the Company provides respite healthcare services, which are temporary care provider services provided in relief of the patient’s normal caregiver. The Company’s services are designed to provide a high quality, lower cost alternative to prolonged hospitalization.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying interim unaudited consolidated financial statements include the accounts of Aveanna Healthcare Holdings Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the ~~accompanying~~ interim unaudited consolidated financial statements, and business combinations accounted for as purchases have been included in the ~~accompanying~~ interim unaudited consolidated financial statements from their respective dates of acquisition.

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited and have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim unaudited consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, these interim unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position as of ~~October~~July 1, ~~2022~~2023 and the results of operations for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively. The results reported in these interim unaudited consolidated financial statements should not be regarded as indicative of results that may be expected for any other period or the entire year. These interim unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended ~~January 1,~~December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~28, 2022.~~16, 2023.

Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52 or 53-week fiscal year. The ~~accompanying~~ interim unaudited consolidated balance sheets reflect the accounts of the Company as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022. For the three-month periods ended ~~October~~July 1, 2023 and July 2, 2022, ~~and October 2, 2021,~~ the ~~accompanying~~ interim unaudited consolidated statements of operations, ~~stockholders’~~stockholders' (deficit) equity, and cash flows reflect the accounts of the Company from April 2, 2023 through July 1, 2023 and April 3, 2022 through July 2, 2022, ~~through October 1, 2022 and July 3, 2021 through October 2, 2021,~~ respectively. For the ~~nine-month~~six-month periods ended ~~October~~July 1, 2023 and July 2, 2022, ~~and October 2, 2021,~~ the ~~accompanying~~ interim unaudited consolidated statements of operations, ~~stockholders'~~stockholders’ (deficit) equity and cash flows reflect the accounts of the Company from January 1, 2023 through July 1, 2023 and January 2, 2022 through ~~October 1,~~July 2, 2022, ~~and January 3, 2021 through October 2, 2021,~~ respectively.

Use of Estimates

The Company’s accounting and reporting policies conform with U.S. GAAP. In preparing the interim unaudited consolidated financial statements, the Company is required to make estimates and assumptions that impact the amounts reported in these interim unaudited consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Recently ~~Issued~~Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ~~This~~In January 2021, the FASB issued ASU ~~is effective as~~2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies the scope and application of ~~March 12, 2020 through December 31, 2022. An~~certain optional expedients and exceptions regarding the original

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

entity may adopt this ASU as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the impact of adopting this standard.

guidance. In ~~January 2021,~~December 2022, the FASB issued ASU ~~2021-01,~~2022-06, Reference Rate Reform (Topic 848): ~~Scope~~Deferral of the Sunset Date of Topic 848, which delays the effective date of the guidance issued in ASU 2020-04 to ~~clarify that certain optional expedients~~December 31, 2024. The U.S. Dollar LIBOR panel ceased following June 30, 2023, and ~~exceptions~~the Company adopted the guidance in ~~Topic 848~~ASU 2020-04 for ~~contract modifications~~the second quarter of fiscal year 2023 on a prospective basis, which did not have a material impact on the Company's financial position, results of operations, and hedge accounting apply to derivatives that are affected by the discounting transition. This ASU is effective immediately and should be adopted in conjunction with ASU 2020-04. The Company is currently evaluating the impact of adopting this standard.disclosures.

3. REVENUE

The Company ~~evaluated~~evaluates the nature, amount, timing and uncertainty of revenue and cash flows using the five-step ~~process.~~ process. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.

Revenue is primarily derived from (i) pediatric healthcare services provided to patients including private duty nursing ~~services, unskilled care,~~ and therapy services; (ii) adult home health and hospice services (collectively “patient revenue”); and (iii) from the delivery of enteral nutrition and other products to patients (“product revenue”). The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time, and therefore, each service provided is its own stand-alone contract. Incremental costs of obtaining a contract are expensed as incurred due to the short-term nature of the contracts.

Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. For patient revenue, the performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the healthcare services provided. For product revenue, the performance obligation is satisfied at the point in time of delivery of the product to the patient. The Company recognizes patient revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payers are billed within several days of the service being performed, and payments are due based on contract terms.

The Company’s lines of business are generally classified into the following categories: private duty services; home health and hospice; and medical solutions.

Private Duty Services (“PDS”). The PDS business includes a broad range of pediatric and adult healthcare services including private duty skilled nursing, ~~unskilled~~non-clinical services which include employer of record support services and personal care services, pediatric therapy services, rehabilitation services, and nursing services in schools and pediatric day healthcare centers.

Home Health & Hospice (“HHH”). The HHH business provides home health, hospice, and personal care services to predominately elderly patients.

Medical Solutions (“MS”). The MS business includes the delivery of enteral nutrition and other products to patients.

For the PDS, HHH, and MS businesses, the Company receives payments from the following sources for services rendered: (i) state governments under their respective Medicaid programs (“Medicaid”); (ii) ~~managed care~~Managed Care providers of state government Medicaid programs (“Medicaid MCO”); (iii) commercial insurers; (iv) other government programs including Medicare, ~~and~~ Tricare and ChampVA (“Medicare”); and (v) individual patients. As the period between the time of service and time of payment is typically one year or less, the Company ~~elected the practical expedient under ASC 606-10-32-18 and~~ did not adjust for the effects of a significant financing component.

The Company determines the transaction price based on established billing rates reduced by ~~explicit price concessions (contractual~~contractual adjustments and ~~discounts)~~discounts provided to third-party payers and implicit price concessions. ~~Explicit price concessions~~Contractual adjustments and discounts are based on contractual agreements ~~discount policies~~ and historical experience. Implicit price concessions are based on historical collection experience. As of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, estimated explicit and implicit price concessions of $~~62.2~~52.9 million and $~~55.8~~52.6 million, respectively, were recorded as reductions to patient accounts receivable balances to arrive at the estimated collectible revenue and patient accounts receivable. Most contracts contain variable ~~consideration. However,~~consideration, however, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense which is included as a component of operating expenses in the consolidated statements of operations. The Company did not record any bad debt expense for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, 2023 and July 2, 2022, ~~and October 2, 2021,~~ respectively.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Company derives a significant portion of its revenue from Medicaid, Medicaid MCO, Medicare and other payers that receive discounts from established billing rates. The regulations and various managed care contracts under which these discounts must be estimated are complex and subject to interpretation. Management estimates the transaction price on a payer-specific basis given

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

its interpretation of the applicable regulations or contract terms. Updated regulations and contract negotiations occur frequently, necessitating regular review and assessment of the estimation process by management; however, there were no material revenue adjustments recognized from performance obligations satisfied or partially satisfied in previous periods for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively.

The following table presents revenue by payer type as a percentage of total revenue for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively:


	For the three-month periods ended						For the nine-month periods ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021			For the three-month periods ended						For the six-month periods ended
	Percentage			Percentage			Percentage			Percentage			July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Medicaid MCO		50.9	%		53.3	%		51.6	%		53.9	%		54.2	%		54.3	%		54.4	%		51.9	%
Medicaid		21.6	%		24.6	%		21.8	%		24.4	%		22.6	%		21.7	%		22.3	%		21.9	%
Commercial		8.4	%		9.7	%		9.4	%		11.1	%		10.6	%		9.8	%		10.4	%		9.9	%
Medicare		19.0	%		12.1	%		17.1	%		10.3	%		12.4	%		14.1	%		12.8	%		16.2	%
Self-pay		0.1	%		0.3	%		0.1	%		0.3	%		0.2	%		0.1	%		0.1	%		0.1	%
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

4. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively (dollar amounts in thousands):


Instrument	Stated Maturity Date	Contractual Interest Rate	Interest Rate as of October 1, 2022	October 1, 2022			January 1, 2022			Stated Maturity Date	Contractual Interest Rate	Interest Rate as of July 1, 2023	July 1, 2023			December 31, 2022
2021 Extended Term Loan (1)	07/2028	L + 3.75%	6.89%	$	851,400		$	857,850		07/2028	S + 3.75%	8.89%	$	904,350		$	908,950
Delayed Draw Term Loan (1)	07/2028	L + 3.75%	6.89%		59,850			-
Second Lien Term Loan (1)	12/2029	L + 7.00%	10.14%		415,000			415,000		12/2029	S + 7.00%	12.14%		415,000			415,000
Revolving Credit Facility (1)	04/2026	L + 3.75%	6.89%		-			-
Revolving Credit Facility (2)										04/2026	S + 3.75%	8.89%		-			-
Total principal amount of long-term obligations					1,326,250			1,272,850						1,319,350			1,323,950
Less: unamortized debt issuance costs					(34,447	)		(37,733	)					(31,404	)		(33,668	)
Total amount of long-term obligations, net of unamortized debt issuance costs					1,291,803			1,235,117						1,287,946			1,290,282
Less: current portion of long-term obligations					(9,200	)		(8,600	)					(9,200	)		(9,200	)
Total amount of long-term obligations, net of unamortized debt issuance costs, less current portion				$	1,282,603		$	1,226,517					$	1,278,746		$	1,281,082
(1) L = Greater of 0.50% or one-month LIBOR
(1) S = Greater of 0.50% or one-month SOFR, plus a CSA
(2) S = One-month SOFR, plus a CSA

On March 23, 2023, the Company amended the agreement governing the Revolving Credit Facility to increase the sublimit for letters of credit to $40.0 million from $30.0 million. The other terms of the Revolving Credit Facility remained unchanged.

On June 30, 2023, the Company entered into the Ninth Amendment to the 2021 Extended Term Loan and the First Amendment to the Second Lien Term Loan. The Company entered into these amendments in order to remove and replace the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate ("SOFR").

The 2021 Extended Term Loan ~~Revolving Credit Facility and any Delayed Draw Term Loans bear~~bears interest, at the Company’s election, at a variable interest rate based on either ~~LIBOR~~SOFR (subject to a minimum of 0.50%), or ~~Annual Base Rate ("ABR")~~ABR (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus a credit spread adjustment ("CSA") of 0.10% and an applicable margin of 3.75% for loans accruing interest based on ~~LIBOR~~SOFR, and an applicable margin of 2.75% for loans accruing interest based on ABR. ~~On August 9, 2022,~~The Revolving Credit Facility bears interest, at the ~~Company borrowed $~~Company’s election, at a variable interest rate based on either SOFR or ABR (subject to a minimum of ~~60.0~~2.00 ~~million under~~%) for the ~~Delayed Draw Term Loan,~~interest period relevant to such borrowing, plus a CSA of 0.10% and an applicable margin of 3.75% for loans accruing interest based on

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

SOFR, and an applicable margin of 2.75% for loans accruing interest based on ABR. As of July 1, 2023, the ~~terms of which are similar to those~~principal amount of the 2021 Extended Term ~~Loan. The remaining available borrowing base of $140.0~~ ~~million~~Loan and borrowings under the ~~Delayed Draw Term Loan is available until July 15, 2023, subject to certain terms and conditions.~~Revolving Credit Facility accrued interest at a rate of 8.89%.

The Second Lien Term Loan bears interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin (equal to 6.00%) plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the Prime Rate and (c) the ~~LIBOR~~SOFR rate ~~determined by reference to the cost of funds for U.S. dollar deposits~~ for an interest period of one month ~~adjusted for certain additional costs,~~plus a CSA depending on the interest period plus 1.00%; or (2) an applicable margin (equal to 7.00%) plus ~~LIBOR~~

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~determined by reference to the cost of funds for U.S. dollar deposits for~~SOFR and a CSA depending on the interest ~~period relevant to such borrowing adjusted for certain additional costs;~~period; provided that such rate is not lower than a floor of 0.50%. As of July 1, 2023, the principal amount of the Second Lien Term Loan accrued interest at a rate of 12.14%.

Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. The balance for debt issuance costs related to the term loans as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 was $~~34.4~~31.4 million and $~~37.7~~33.3 million, respectively. Debt issuance costs related to the Revolving Credit Facility ~~and the undrawn portion of the Delayed Draw Term Loan~~ are recorded within other long-term assets. The balance for debt issuance costs related to the Revolving Credit Facility ~~and the undrawn portion of the Delayed Draw Term Loan~~ as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 was $~~1.9~~0.0 million and $~~3.2~~0.2 million, respectively. The Company recognized interest expense related to the amortization of debt issuance costs of $~~1.6~~1.2 million and $~~4.9~~2.5 million during the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022,~~2023, respectively, and $~~1.4~~1.6 million and $~~7.2~~3.3 million during the three and ~~nine-month~~six-month periods ~~ended October~~and July 2, ~~2021,~~2022, respectively.

Issued letters of credit as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 were $~~17.6~~38.0 million and $~~17.6~~19.7 million, respectively. There were no swingline loans outstanding as of ~~October~~July 1, ~~2022~~2023 or ~~January 1,~~December 31, 2022. Borrowing capacity under the Company's Revolving Credit Facility was approximately $~~182.4~~162.0 million as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~$180.3 million as of December 31, 2022. Available borrowing capacity under the Revolving Credit Facility is subject to a maintenance leverage covenant that becomes effective if more than 30% of the total commitment is utilized.

The fair value of the Company's long-term obligations was estimated using market-observable inputs from the Company’s comparable peers with public debt, including quoted prices in active markets, which are considered Level 2 inputs. The aggregate fair value of the Company's long-term obligations was $~~1,326.3~~1,028.4 million at ~~October~~July 1, 2022. Due to the variable rate nature of the 2021 Extended Term Loan, Delayed Draw Term Loan and Second Lien Term Loan, the Company believes that the carrying amount approximates fair value at October 1, 2022.2023.

The Company was in compliance with all financial covenants and restrictions under the foregoing instruments at ~~October~~July 1, ~~2022.~~2023.

5. SECURITIZATION FACILITY

On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) (the “special purpose entity”) and a lending institution entered into a Receivables Financing Agreement (as amended, the “Securitization Facility”) with a ~~lending institution with a~~ termination date of November 12, 2024. ~~On August 9, 2022,~~See Note 14 - Subsequent Events for additional information about the ~~Company amended the Securitization Facility to increase the~~extension amendment entered into on July 31, 2023. The maximum amount available under the Securitization Facility ~~from $150.0~~ ~~million to~~is $175.0 million, subject to certain borrowing base requirements. The Company incurred debt issuance costs of $1.4 million in connection with the Securitization Facility, which were capitalized and included in other long-term assets. The Company recognized interest expense related to the amortization of debt issuance costs of $0.1 million and $~~0.3~~0.2 million ~~during~~for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, 2023, respectively, and $0.1 million and $0.2 million for the three and six-month periods ended July 2, 2022, respectively.

Pursuant to two separate sale agreements dated November 12, 2021, each of which is among Aveanna Healthcare, LLC, as initial servicer, certain of the Company's subsidiaries and the special purpose entity, the subsidiaries sold substantially all of their existing and future accounts receivable balances to the special purpose entity. The special purpose entity uses the accounts receivable balances to collateralize loans made under the Securitization Facility. The Company retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Securitization Facility and provides a performance guaranty.

The outstanding balance under the Securitization Facility was $~~140.0~~160.0 million and $~~120.0~~140.0 million at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively. The balance accrues interest at a rate tied to the Bloomberg Short-term Bank Yield Index (“BSBY”) plus an applicable margin, which can increase or decrease based upon the Company's credit rating. The interest rate under the Securitization Facility was ~~5.09% and~~ ~~2.08~~7.43% at ~~October~~July 1, ~~2022 and January 1, 2022, respectively.~~2023.

The Securitization Facility is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and the borrowings are presented as liabilities in the ~~accompanying~~ interim unaudited consolidated balance sheets; (ii) the ~~accompanying interim unaudited~~ consolidated statements of operations reflect the interest expense associated

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

with the collateralized borrowings; and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within the ~~accompanying interim unaudited~~ consolidated statements of cash flows. The Securitization Facility is included within current liabilities on the ~~accompanying~~ interim unaudited consolidated balance sheets as it is collateralized by current patient accounts receivable and not because payments are due within one year of the balance sheet date.

6. FAIR VALUE MEASUREMENTS

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The carrying amounts of cash and cash equivalents, patient accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of the instruments.

The Company’s other assets ~~and other liabilities~~ measured at fair value ~~are~~were as follows (amounts in thousands):


	Fair Value Measurements at October 1, 2022								Fair Value Measurements at July 1, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Interest rate cap agreements	$	-	$	49,728	$	-	$	49,728	$	-	$	46,248	$	-	$	46,248
Interest rate swap agreements		-		36,288		-		36,288		-		33,764		-		33,764
Total derivative assets	$	-	$	86,016	$	-	$	86,016	$	-	$	80,012	$	-	$	80,012

	Fair Value Measurements at January 1, 2022								Fair Value Measurements at December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Assets:
Interest rate cap agreements									$	-	$	47,459	$	-	$	47,459
Interest rate swap agreements	$	-	$	15,342	$	-	$	15,342		-		34,291		-		34,291
Total derivative liabilities	$	-	$	15,342	$	-	$	15,342
Total derivative assets									$	-	$	81,750	$	-	$	81,750

The fair values of the interest rate swap and cap agreements are based on the estimated net proceeds or costs to settle the transactions as of the respective balance sheet dates. The valuations are based on commercially reasonable industry and market practices for valuing similar financial instruments. See Note 7 – Derivative Financial Instruments for further details on the Company’s interest rate swap and cap agreements.

7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The derivatives the Company currently uses are interest rate swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value on the ~~accompanying~~ interim unaudited consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are therefore recorded in earnings throughout the term of the respective derivatives.

~~In October 2018, the~~The Company ~~entered into~~currently has two interest rate swap agreements intended to limit its exposure to interest rate risk on its variable rate debt. InThese swaps expire on June 30, 2026. Prior to the quarter ended July ~~2021,~~1, 2023, the interest rate swap agreements paid a fixed rate of 2.08% and received the one-month LIBOR rate, subject to a 0.50% floor. During the quarter ended July 1, 2023, the Company amended its interest rate swap agreements to ~~extend~~change the ~~expiration dates to~~ ~~June 30, 2026~~ ~~and reduce the fixed~~benchmark rate ~~paid~~ under the ~~swaps.~~agreements from LIBOR to SOFR. As ~~amended,~~of July 1, 2023, the ~~Company pays~~interest rate swap agreements paid a ~~fixed~~fix rate of ~~2.08~~2.03% and ~~receives~~received the one-month ~~LIBOR~~SOFR rate, subject to a 0.50% floor. The aggregate notional amount of the interest rate swaps remained unchanged at $520.0 million at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively. The fair value of the interest rate swaps was $33.8 million at ~~October~~July 1, 2023 and $34.3 million at December 31, 2022 and ~~January 1, 2022 was a $36.3~~ ~~million asset~~is included in other long-term assets ~~and a $15.3~~ ~~million liability included~~ in ~~other long-term liabilities on~~ the ~~accompanying~~ interim unaudited consolidated balance ~~sheets, respectively.~~sheets. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the ~~accompanying interim unaudited~~ consolidated statements of operations, which ~~is an adjustment to~~are included within cash flows from operating activities in the ~~accompanying interim unaudited~~ consolidated ~~financial statement.~~statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements prior to the amendment were recognized through cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows. Subsequent to the interest rate swap amendment in July 2021, the net settlements are recognized through cash flows from financing activities in the ~~accompanying interim unaudited~~ consolidated statements of cash flows due to an other-than-insignificant financing element on the interest rate ~~swaps resulting from the amendment.~~swaps.

On February 9, 2022, the Company entered into interest rate cap agreements for an aggregate notional amount of $880.0 million and a cap rate of 3.00%. The premium paid for the interest rate cap agreements was $11.7 million. The cap agreements have an ~~expiration date of~~ ~~February 28, 2027, and provide that the counterparty will pay the Company the amount by which LIBOR exceeds~~ ~~3.00% in a given measurement period. The fair value of the interest rate cap agreements at October 1, 2022 was $49.7~~ million and is included in other long-term assets on the accompanying interim unaudited consolidated balance sheets. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying interim unaudited consolidated statements of operations, which is an adjustment to cash flows from operating activities in the accompanying interim unaudited consolidated financial statement.

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

expiration date of February 28, 2027. Prior to the quarter ended July 1, 2023, the cap agreements provided that the counterparty will pay the Company the amount by which LIBOR exceeded 3.00% in a given measurement period. During the quarter ended July 1, 2023, the Company amended its interest rate cap agreements to provide that the counterparty will pay the Company the amount by which SOFR exceeds 2.96%. The fair value of the interest rate cap agreements was $46.2 million at July 1, 2023 and $47.5 million at December 31, 2022 and is included in other long-term assets on the interim unaudited consolidated balance sheets. The Company does not apply hedge accounting to interest rate cap agreements and records all mark-to-market adjustments directly to other income in the consolidated statements of operations, which are included within cash flows from operating activities in the consolidated statement of cash flows. Proceeds from settlements with cap counterparties are included within cash flows from operating activities in the consolidated statement of cash flows. The premium payments on the interest rate caps were recognized through cash flows from investing activities.

The following losses and gains from these derivatives not designated as hedging instruments were recognized in the Company’s ~~accompanying interim unaudited~~ consolidated statements of operations for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively (amounts in thousands):


	Statement of Operations	For the three-month periods ended
	Classification	October 1, 2022		October 2, 2021
Interest rate cap agreement	Other income (expense)	$	24,339	$	(88	)
Interest rate swap agreements	Other income (expense)	$	20,505	$	1,481


	Statement of Operations	For the nine-month periods ended					Statement of Operations	For the three-month periods ended
	Classification	October 1, 2022		October 2, 2021			Classification	July 1, 2023			July 2, 2022
Interest rate cap agreements	Other income (expense)	$	38,003	$	(88	)	Other income	$	6,974		$	1,119
Interest rate swap agreements	Other income (expense)	$	51,631	$	6,334		Other income	$	9,825		$	5,414

							Statement of Operations	For the six-month periods ended
							Classification	July 1, 2023			July 2, 2022
Interest rate cap agreements							Other (expense) income	$	(527	)	$	13,664
Interest rate swap agreements							Other (expense) income	$	(1,211	)	$	31,125

The Company does not utilize financial instruments for trading or other speculative purposes.

8. INCOME TAXES

The Company’s provision for income taxes is recorded on an interim basis based upon the Company’s estimate of the annual effective income tax rate for the full year applied to “ordinary” income or loss, adjusted each quarter for discrete items.

The Company recorded an income tax benefit of $~~2.7~~0.8 million and income tax expense of $~~0.4~~0.8 million for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022,~~2023, respectively, and an income tax benefit of $~~1.1~~0.3 million and income tax expense of $~~0.6~~2.3 million for the three and ~~nine-month~~six-month periods ~~ended October~~and July 2, ~~2021,~~2022, respectively. The Company’s effective tax rate was negative ~~12.3~~3.3% and negative ~~0.1~~13.4% for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022,~~2023, respectively, and ~~negative~~ ~~111.1~~0.1% and negative ~~7.2~~0.5% for the three and ~~nine-month~~six-month periods ~~ended October~~and July 2, ~~2021,~~2022, respectively. The effective tax rates for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, 2023 and July 2, 2022 ~~and October 2, 2021 differ~~differed from the statutory rate of 21% primarily due to the changes in the valuation allowance recorded against certain deferred tax assets, and separate state and local income taxes on taxable subsidiaries.

For the ~~three and nine-month periods~~six-month period ended ~~October~~July 1, ~~2022,~~2023, there were no material changes to the ~~Company recognized a benefit of approximately $2.0~~ ~~million from the reversal of a previously recognized~~Company's uncertain tax ~~position.~~positions. There has been no change to the ~~Company’s~~Company's policy that recognizes potential interest and penalties related to uncertain tax positions ~~within the Company’s operations~~ in income tax expense in the accompanying ~~interim unaudited~~ consolidated statements of operations.

9. SHARE-BASED COMPENSATION

~~Time-Vesting~~Pre-IPO Options and Management Restricted Units

The Company recorded compensation expense, net of forfeitures, of $0.2 million and $~~0.9~~0.8 million for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022,~~2023, respectively, and $~~0.7~~ ~~million and $2.1~~ million for the three and nine-month periods ended October 2, 2021, which is included in corporate and branch and regional administrative expenses in the accompanying interim unaudited consolidated statements of operations. Unrecognized compensation expense as of October 1, 2022 associated with outstanding time-vesting options was $~~2.5~~ ~~million.~~

~~Performance-Vesting Options~~

~~The Company recorded compensation expense, net of forfeitures, for the three and nine-month periods ended October 1, 2022 of $0.5~~ ~~million and $5.2~~ ~~million, respectively, and $3.0~~4.0 million and $7.2 million for the three and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2021,~~2022, respectively, which is included in corporate and branch and regional administrative expenses in the accompanying ~~interim unaudited~~ consolidated statements of operations. ~~There was~~ no ~~unrecognized~~Unrecognized compensation expense as of ~~October~~July 1, ~~2022~~2023 associated with these outstanding ~~performance-vesting options.~~awards was $10.7 million.

Director Restricted Stock Units

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In February 2023, the Compensation Committee of the Company's Board of Directors approved grants of 634,923 restricted stock units, with a grant date per share fair value of $1.26, to certain independent Directors ("Director RSUs"). Director RSUs vest over a one year period. The Company recorded compensation expense ~~for the three and nine-month periods ended October 1, 2022~~ of $~~0.1~~0.4 million and $~~0.4~~0.6 million for the three and six-month periods ended July 1, 2023, respectively, and $0.2 million and $0.3 million for the three and six-month periods ended July 2, 2022, respectively, which is included in corporate expenses in the accompanying ~~interim unaudited~~ consolidated statements of operations. ~~The Company recorded compensation expense of $0.2~~ ~~million for both the three and nine-month periods ended October 2, 2021, which is included in corporate expenses.~~ Unrecognized compensation expense as of ~~October~~July 1, ~~2022~~2023 associated with outstanding director restricted stock units was $0.6 million.

~~Management Restricted Stock Units~~

~~The Company recorded compensation expense for the three and nine-month periods ended October 1, 2022 of $1.0~~ ~~million and $3.0~~ ~~million, which is included in corporate expenses in the accompanying interim unaudited consolidated statements of operations. The Company did~~ not incur or record any such expense in the three and nine-month periods ended October 2, 2021. Unrecognized compensation expense as of October 1, 2022 associated with outstanding management restricted stock units was $~~12.9~~ ~~million.~~

Employee Stock Purchase Plan

~~Eligible participants contributed~~Participants purchased a total of 1,565,933 shares of common stock at a price of $~~1.2~~0.60 ~~million and $3.7~~ ~~million~~per share during the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022, respectively, which is included in accrued payroll~~2023. Participants purchased a total of 1,185,972 shares of common stock at a price of $1.92 per share during the three and ~~employee benefits in the accompanying interim unaudited consolidated balance sheets as of October 1,~~six-month periods ended July 2, 2022. The Company recorded compensation expense of $~~0.5~~0.2 million and $~~1.7~~0.5 million for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, 2023, respectively, and $0.6 million and $1.2 million for the three and six-month periods ended July 2, 2022, respectively, which is included in corporate expenses, branch and regional administrative expenses and cost of revenue, excluding depreciation and amortization in the accompanying ~~interim unaudited~~ consolidated statements of operations. ~~The Company recorded compensation expense of $0.3~~ ~~million associated with the employee stock purchase plan for both the three and nine-month periods ended October 2, 2021.~~

Long-Term Incentive Plan ("LTIP")

InDuring the ~~first quarter of 2022,~~three-month period ended April 1, 2023, the Compensation Committee of the Company's Board of Directors approved ~~LTIP~~ grants of restricted stock units ("RSUs") and performance stock units ("PSUs") under the Company's 2021 Omnibus Incentive Plan.

The RSUs are subject to a three-year service-based cliff vesting schedule commencing on the date of grant. Compensation cost for the RSUs is measured based on the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. ~~The~~During the three-month period ended April 1, 2023, the Company granted ~~2,124,212~~4,073,186 RSUs with a grant date per share fair value of $~~4.93~~1.26. The ~~Company recorded compensation expense, net of forfeitures, of $0.8~~ ~~million and $2.1~~ million during the three and nine-month periods ended October 1, 2022, respectively, which is included in corporate expenses and branch and regional administrative expenses in the accompanying interim unaudited consolidated statements of operations. Unrecognized compensation expense as of October 1, 2022 associated with the remaining RSUs was $~~7.9~~ ~~million.~~

~~The~~ PSUs contain ~~two~~a performance criteria: (i) 50% based on relative total shareholder return ("TSR") over a three-year performance period, which measures the Company's total shareholder return as compared to the total shareholder return of a designated peer group, and (ii) 50%criteria based on an adjusted EBITDA target over a ~~one-year~~three-year performance period. The PSUs are also subject to a three-year service-based cliff vesting schedule commencing on the date of grant. ~~For the~~The PSUs that have a service and a market condition, compensation cost is measured based on the grant date estimated fair value determined using a Monte Carlo simulation model and is recognized over the applicable vesting period on a straight-line basis. The fair value inputs included in the Monte Carlo simulation model were remaining measurement period of ~~2.88~~ ~~years, stock price on date of grant of $4.93, daily average closing stock price for the two calendar months prior to the beginning of the performance period of $7.29, risk free rate of~~ ~~1.77%, and the performance payout per TSR performance percentile. For the PSUs that~~ have a service and a performance condition and compensation cost is initially measured based on the grant date fair value of each share. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. ~~The~~During the three-month period ended April 1, 2023, the Company granted ~~1,389,801~~4,073,108 PSUs with a weighted average grant date per share fair value of $~~5.24~~1.26.

The Company recorded compensation expense, net of forfeitures, of $~~0.3~~1.8 million and $~~0.8~~3.2 million ~~during~~for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, 2023, respectively, and $1.1 million and $1.8 million for the three and six-month periods ended July 2, 2022, respectively, which is included in corporate ~~expenses~~ and branch and regional administrative expenses in the accompanying ~~interim unaudited~~ consolidated statements of operations. Unrecognized compensation expense as of ~~October~~July 1, ~~2022~~2023 associated with ~~the remaining PSUs~~outstanding LTIP awards was $~~3.0~~15.4 million.

10. COMMITMENTS AND CONTINGENCIES

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Insurance Reserves

As is typical in the healthcare industry, the Company is subject to claims that its services have resulted in patient injury or other adverse effects.

The accrued professional malpractice insurance reserves included in the ~~accompanying~~ interim unaudited consolidated balance sheets include estimates of the ultimate costs, including ~~amounts for which~~third-party legal defense costs, in the ~~Company's~~event the Company was unable to receive funds from claims made under commercial insurance ~~carriers are responsible,~~policies, for claims that have been reported but not paid and claims that have been incurred but not reported at the balance sheet dates. Although substantially all reported claims are paid directly by the Company’s commercial insurance carriers (after the Company satisfies the applicable policy deductible and/or retention), the Company is ultimately responsible for payment of these claims in the event its insurance carriers become insolvent or otherwise do not honor the contractual obligations under the ~~related~~malpractice policies. The Company is required under U.S. GAAP to recognize these estimated liabilities in its consolidated financial statements on a gross basis; with a corresponding receivable from the insurance carriers reflecting the contractual indemnity provided by the carriers under the related malpractice policies.

~~Effective~~12

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Since October 1, 2022, the Company ~~maintains~~has maintained primary commercial insurance coverage on a claims-made basis for professional malpractice claims with a $1.5 million per claim deductible and $5.0 million per claim and annual aggregate limits. Prior to October 1, 2022, the Company maintained primary commercial insurance coverage on a claims made basis for professional malpractice claims with varying deductibles by policy year from $0.5 million to $1.0 million on a per claim basis and $5.5 million to $6.0 million per claim and annual aggregate limits. Moreover, the Company maintains excess insurance coverage for professional malpractice claims. In addition, the Company maintains workers’ compensation insurance with a $0.5 million per claim deductible and statutory limits. The Company reimburses insurance carriers for deductible losses under these policies. The Company’s insurance carriers require collateral to secure the Company’s obligation to reimburse insurance carriers for these deductible payments. Collateral as of ~~October~~July 1, 2023 was comprised of $23.0 million of issued letters of credit and $1.9 million in cash collateral. Collateral as of December 31, 2022 was comprised of $~~17.6~~19.7 million of issued letters of credit, $~~2.8~~ ~~million in cash collateral, and $2.9~~ ~~million in surety bonds. Collateral as of January 1, 2022 was comprised of $17.6~~ ~~million of issued letters of credit, $2.9~~1.9 million in cash collateral, and $2.9 million in surety bonds.

As of ~~October~~July 1, ~~2022,~~2023, insurance reserves totaling $~~85.2~~94.0 million were included on the ~~accompanying~~ interim unaudited consolidated balance sheets, representing $~~39.1~~43.9 million and $~~46.1~~50.2 million of reserves for professional malpractice claims and workers’ compensation claims, respectively. At ~~January 1,~~December 31, 2022, insurance reserves totaling $~~80.5~~90.3 million were included on the ~~accompanying~~ consolidated balance sheets, representing $~~38.7~~41.8 million and $~~41.8~~48.5 million of reserves for professional malpractice claims and workers’ compensation claims, respectively.

Litigation and Other Current Liabilities

On December 24, 2018, Aveanna Healthcare LLC, an indirect wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a pediatric home health company (the “Seller”). The agreement contained a provision whereby a $75.0 million transaction termination fee (the “Break-up Fee”) could be payable to the Seller under certain circumstances. On December 20, 2019, Aveanna Healthcare LLC terminated the Agreement, and the Seller demanded payment of the Break-up Fee. The Company believes the Agreement was terminated for cause, ~~and therefore~~ no payment of the Break-up Fee is due to the ~~Seller. The~~ Seller ~~has disputed this assertion. While the Company believes that litigation over this matter is unlikely at the present time, it is possible that the Company~~ and ~~the Seller may in the future pursue~~all potential claims and counterclaims related to the termination of the Agreement and payment of the Break-up ~~Fee. At this~~Fee by either party are time the Company is unable to predict the possible loss or range of loss, if any, associated with the resolution of any such litigation, or any potential related effect on the Company or its business or operations.barred.

On August 6, 2020, the Company sued Epic/Freedom, LLC (“Seller”), Webster Capital Corporation, and Webster Equity Partners (collectively, the “Defendants”) in the Delaware Superior Court. The Company asserted that the Defendants made fraudulent representations and warranties in connection with the Epic ~~acquisition, which closed in March 2017.~~acquisition. The Company ~~is seeking~~sought damages ranging from $24.0 million to $50.0 million. The Company also requested a declaratory judgment holding that the Defendants waived any claim to the Company’s continued possession of $7.1 million in escrow funds (the “Escrow Funds”) that were delivered to the Company in January 2018 by the Epic acquisition escrow agent. In response, the Defendants asserted four counterclaims: (1) specific performance of an alleged right to control a tax audit; (2) advancement of litigation fees and expenses for certain individual Defendants; (3) a declaratory judgment; and (4) breach of contract claim concerning the Escrow Funds. The Company subsequently reached an agreement with the Defendants, which (1) allowed the Defendants to take a principal role in the applicable tax audit, though the Company will continue to communicate with the Internal Revenue Service and retain the ability to make strategic decisions with respect to the audit and (2) dismissed claims against certain individual Defendants mooting Defendants’ claims for advancement of litigation fees and expenses. On March 10, 2023, the parties entered into a confidential settlement agreement releasing all claims related to this matter and ending all related litigation. The settlement did not have a material impact on the consolidated results of operations. On April 4, 2023, as part of the settlement, the Company funded $6.8 million to an escrow account for the purpose of settling certain tax audits with the IRS, which are currently under appeal with the IRS. To the extent that any additional amounts due to the IRS exceed the escrowed funds, we as the taxpayer, will be required to fund such amounts, but we have contractual rights to reimbursement from the Defendants.

On November 23, 2022, a judgment in the amount of $19.8 million was rendered against the Company related to a civil litigation matter in Texas. In March 2023, the plaintiffs attempted to enforce the judgment by seeking a writ of garnishment, and $18.4 million was garnished from the Company’s cash accounts. The Company promptly obtained and recorded an $18.4 million cash collateralized appellate bond with the state trial court, and such court dissolved the writ of garnishment and ordered the return of the previously garnished funds. All previously garnished funds have been returned to the Company. In July ~~29, 2021,~~2023, the Company and the plaintiffs reached a confidential settlement agreement wherein the plaintiffs have agreed to release all claims and extinguish the aforementioned judgment in exchange for a settlement payment. The corresponding appeal of the judgment will be discontinued upon finalization of the settlement and the Company is promptly taking all steps necessary to secure the return of the underlying collateral for the aforementioned appellate bond. The settlement did not have a material impact on the consolidated results of operations.

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Delaware Superior Court denied the Defendants’ motion for judgment on the pleadings with respect to the Company’s claim for fraud against the Defendants, which allows the Company to pursue discovery with respect to the alleged fraud claim. With respect to the Company’s retention of certain tax refunds the Company received on behalf of Defendants, the Court denied the Company’s motion for judgment on the pleadings, pursuant to which the Company sought to retain the tax refunds as matter of law. The Court also ordered Seller to refile its motion for summary judgment on the same subject and abated a ruling pending further discovery and resolution of whether the parties entered into a post-closing agreement, allowing the Company to retain the tax refunds pending the outcome of the related tax audits. Lastly, the Court denied the Company’s motion for judgment on the pleadings as to its continued possession of the Escrow Funds. At this time, the Company cannot predict the ultimate resolution or estimateOn January 18, 2023, an arbitration award in the amount of ~~any loss or recovery, if any,~~$7.9 million was rendered against the Company related to ~~this matter.~~a claim under the Company's Texas non-subscriber benefit plan. The Company intends to avail itself of all appellate options. The ultimate resolution of these litigated matters is not expected to have a material impact on the consolidated financial statements.

The Company is currently a party to various routine litigation incidental to the business. While management currently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Management has established provisions within other current liabilities in the ~~accompanying~~ interim unaudited consolidated balance sheets, which in the opinion of management represents the best estimate of exposure and adequately provides for such losses that may occur from asserted claims related to the provision of professional services and which may not be covered by the Company’s insurance policies. Management believes that any additional unfavorable provisions would not be material to the Company’s results of operations or financial position; however, if an unfavorable ruling on any asserted or unasserted claim were to occur, there exists the possibility of a material adverse impact on the Company’s net earnings or financial position. The estimate of the potential impact from legal proceedings on the Company’s financial position or overall results of operations could change in the future.

Healthcare Regulatory Matters

Starting on October 30, 2019 the Company has received grand jury subpoenas issued by the U.S. Department of Justice, Antitrust Division (the “Antitrust Division”) requiring the production of documents and information pertaining to nurse wages, reimbursement rates, and hiring activities in a few of its local markets. The Company is fully cooperating with the Antitrust Division with respect to this investigation and management believes that ita loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this ~~litigation.~~matter.

On July 19, 2023, the Company received a Civil Investigation Demand issued by the U.S. Department of Justice, United States Attorney’s Office, Middle District of Alabama (the “AUSA”), requiring the production of documents and information pertaining to Comfort Care Hospice, LLC, an indirect wholly owned subsidiary of the Company, regarding allegations of (1) improper submission of claims to Medicare and other federal healthcare programs for service to patients who were ineligible or not properly certified for said healthcare services and (2) improper remuneration to medical directors and skilled nursing facilities for patient referrals in violation of certain federal regulations. The Company is fully cooperating with the AUSA with respect to this investigation, and management believes that a loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this matter.

Laws and regulations governing the government payer programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action. From time to time, governmental regulatory agencies conduct inquiries and audits of the Company’s practices. It is the Company’s practice to cooperate fully with such inquiries. In addition to laws and regulations governing the Medicaid, Medicaid Managed Care, and Tricare programs, there are a number of federal and state laws and regulations governing matters such as the corporate practice of medicine, fee splitting arrangements, anti-kickback statues, physician self-referral laws, false or fraudulent claims filing and patient privacy requirements. Failure to comply with any such laws or regulations could have an adverse impact on the Company’s operations and financial results. The Company believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of wrongdoing.

11. ~~COVID-19~~

In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 outbreak has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains and macroeconomic conditions. After the declaration of a national emergency in the United States on March 13, 2020, in compliance with stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19, the Company altered numerous clinical, operational, and business processes. While each of the states deemed healthcare services an essential business, allowing the Company to continue to deliver healthcare services to patients, the effects of the pandemic have been wide-reaching.

~~In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. The CARES Act has impacted the Company as follows:~~

~~Provider Relief Fund (“PRF”)~~: Beginning in April 2020, funds were distributed to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. In fiscal year 2020, the Company received

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~PRF payments from the U.S. Department of Health and Human Services (“HHS”) totaling $25.1~~ ~~million. On March 5, 2021, the Company repaid these PRF payments in full. In December 2021, the Company also received PRF payments from HHS totaling $2.5~~ ~~million. The Company repaid these PRF payments in full in December 2021.~~

~~State Sponsored Relief Funds: In fiscal year 2020, the Company received $4.8~~ ~~million of stimulus funds from the Commonwealth of Pennsylvania Department of Human Services (“Pennsylvania DHS”). Such funds were not applied for or requested. The Company did~~ no~~t receive stimulus funds from any individual state other than Pennsylvania. The Company previously recognized $0.5~~ ~~million of income related to these funds in fiscal year 2020. On February 4, 2021, the Company repaid the remaining $4.3~~ ~~million of direct stimulus funds to Pennsylvania DHS.~~

~~Deferred payment of the employer portion of social security taxes: The Company was permitted to defer payments of the employer portion of social security taxes in fiscal year 2020, which are payable in~~ 50~~% increments, with the first~~ 50~~% due by December 31, 2021 and the second~~ 50~~% due by December 31, 2022. The Company did not defer any payroll taxes after December 31, 2020. As of October 1, 2022 and January 1, 2022, the Company had remaining deferred payments of $25.5~~ ~~million of social security taxes in total, which is recorded in the current portion of deferred payroll taxes on the accompanying interim unaudited consolidated balance sheets.~~

~~Medicare Advances~~: Certain of the home health and hospice companies the Company has acquired received advance payments from the Centers for Medicare & Medicaid Services (“CMS”) in April 2020, pursuant to the expansion of the Accelerated Payments Program provided for in the CARES Act. These advances became repayable beginning one year from the date on which the accelerated advance was issued. The repayments occur via offsets by CMS to current payments otherwise due from Medicare at a rate of 25~~% for the first eleven months. After the eleven months end, payments will be recouped at a rate of~~ 50~~% for another six months, after which any remaining balance will become due. Gross advances received by acquired companies in April 2020 totaled $15.7~~ million. The Company began repaying the gross amount of the advances, via the offset mechanism described above, during the second quarter of fiscal year 2021, and had repaid all such advances as of July 2, 2022.

~~Temporary Suspension of Medicare Sequestration:~~ The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee-for-service claims with dates of service or dates of discharge on or after April 1, 2013 incur a ~~2.0~~% reduction in Medicare payments. All Medicare rate payments and settlements are subject to this mandatory reduction, which will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic ~~2.0% reduction of Medicare claim reimbursements for the period from May 1, 2020 through December 31, 2021. In December 2021, Congress extended the suspension of the automatic~~ ~~2.0% reduction through March 2022 and reduced the sequestration adjustment to~~ ~~1.0% from April 1, 2022 through June 30, 2022, with the full~~ ~~2.0% reduction for sequestration resuming thereafter.~~

~~American Rescue Plan Act (“ARPA”):~~ ~~On March 11, 2021 President Biden signed ARPA into law. ARPA is a federal stimulus bill designed to aid public health and economic recovery from the COVID-19 pandemic. ARPA includes $350~~ billion in emergency funding for state, local, territorial and tribal governments, known as the Coronavirus State and Local Fiscal Recovery Funds (“ARPA Recovery Funds”). States must obligate the ARPA Recovery Funds by December 31, 2024 and spend such funds by December 31, 2026. Usage of the ARPA Recovery Funds is subject to the requirements specified in the United States Treasury Department’s Final Rule issued on January 6, 2022. The Final Rule provides states with substantial flexibility in utilizing ARPA Relief Funds, including to support public health expenditures such as vaccination programs and testing, and PPE purchases, as well as providing premium pay for essential workers, including those in home-care settings, among many other things. States may not use ARPA Recovery Funds to fund tax cuts, fund budget deficits, or to support public employee pensions. During the three and nine-month periods ended October 1, 2022, the Company received $~~1.0~~ ~~million and $5.5~~ ~~million, respectively, of ARPA Recovery Funds from various states. The Company recognized $1.4~~ ~~million and $5.0~~ million during the three and nine-month periods ended October 1, 2022, respectively, as revenue in our accompanying interim unaudited consolidated statements of operations. The remaining ARPA Recovery Funds are recorded in other current liabilities in the accompanying interim unaudited consolidated balance sheet at October 1, 2022.

~~13.~~12. SEGMENT INFORMATION

The Company’s operating segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker (“CODM”) manages the business and allocates resources. The Company has three operating segments and three reportable segments, Private Duty Services, Home Health & Hospice, and Medical Solutions. The PDS segment predominantly includes private duty skilled nursing services, ~~unskilled~~non-clinical and personal care

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

services, and pediatric therapy services. The HHH segment provides home health and hospice services to predominately elderly patients. Through the MS segment, the Company provides enteral nutrition and other products to adults and children, delivered on a periodic or as-needed basis.

The CODM evaluates performance using gross margin (and gross margin percentage). Gross margin includes revenue less all costs of revenue, excluding depreciation and amortization, but excludes branch and regional administrative expenses, corporate expenses and other non-field expenses. The CODM does not evaluate a measure of assets when assessing performance.

Results shown for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.

The following tables summarize the Company’s segment information for the three and ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively (amounts in thousands):


	For the three-month period ended October 1, 2022												For the three-month period ended July 1, 2023
	PDS			HHH			MS			Total			PDS			HHH			MS			Total
Revenue	$	355,620		$	49,853		$	37,536		$	443,009		$	377,668		$	55,410		$	38,867		$	471,945
Cost of revenue, excluding depreciation and amortization		254,756			32,968			20,702			308,426			266,170			28,497			22,023			316,690
Gross margin	$	100,864		$	16,885		$	16,834		$	134,583		$	111,498		$	26,913		$	16,844		$	155,255
Gross margin percentage		28.4	%		33.9	%		44.8	%		30.4	%		29.5	%		48.6	%		43.3	%		32.9	%


	For the three-month period ended October 2, 2021												For the three-month period ended July 2, 2022
	PDS			HHH			MS			Total			PDS			HHH			MS			Total
Revenue	$	327,133		$	47,000		$	37,143		$	411,276		$	348,025		$	61,382		$	33,548		$	442,955
Cost of revenue, excluding depreciation and amortization		226,540			24,130		$	20,864			271,534			246,636			31,797		$	19,479			297,912
Gross margin	$	100,593		$	22,870		$	16,279		$	139,742		$	101,389		$	29,585		$	14,069		$	145,043
Gross margin percentage		30.7	%		48.7	%		43.8	%		34.0	%		29.1	%		48.2	%		41.9	%		32.7	%


	For the six-month period ended July 1, 2023
	PDS			HHH			MS			Total
Revenue	$	750,615		$	111,536		$	76,207		$	938,358
Cost of revenue, excluding depreciation and amortization		534,933			59,592			44,113			638,638
Gross margin	$	215,682		$	51,944		$	32,094		$	299,720
Gross margin percentage		28.7	%		46.6	%		42.1	%		31.9	%


	For the six-month period ended July 2, 2022
	PDS			HHH			MS			Total
Revenue	$	698,215		$	128,005		$	67,269		$	893,489
Cost of revenue, excluding depreciation and amortization		498,510			65,965		$	39,145			603,620
Gross margin	$	199,705		$	62,040		$	28,124		$	289,869
Gross margin percentage		28.6	%		48.5	%		41.8	%		32.4	%

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the nine-month period ended October 1, 2022

PDS

HHH

MS

Total

Revenue
$
1,053,835

$
177,858

$
104,805

$
1,336,498

Cost of revenue, excluding depreciation and amortization

753,266

98,933

59,847

912,046

Gross margin
$
300,569

$
78,925

$
44,958

$
424,452

Gross margin percentage

28.5
%

44.4
%

42.9
%

31.8
%

For the nine-month period ended October 2, 2021

PDS

HHH

MS

Total

Revenue
$
1,027,640

$
128,589

$
108,319

$
1,264,548

Cost of revenue, excluding depreciation and amortization

719,435

67,224

59,875

846,534

Gross margin
$
308,205

$
61,365

$
48,444

$
418,014

Gross margin percentage

30.0
%

47.7
%

44.7
%

33.1
%


	For the three-month periods ended						For the nine-month periods ended						For the three-month periods ended						For the six-month periods ended
Segment Reconciliation:	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021			July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Total segment gross margin	$	134,583		$	139,742		$	424,452		$	418,014		$	155,255		$	145,043		$	299,720		$	289,869
Branch and regional administrative expenses		89,542			76,370			267,283			223,462			91,255			88,998			182,963			177,741
Corporate expenses		33,215			37,873			105,984			97,673			26,354			36,202			57,289			72,769
Goodwill impairment		-			-			470,207			-			-			470,207			-			470,207
Depreciation and amortization		4,917			5,145			16,774			15,163			3,491			6,038			7,532			11,857
Acquisition-related costs		-			2,007			69			4,779			(32	)		(22	)		38			69
Other operating expense		2,122			-			1,953			-
Other operating (income) expense														(3,305	)		1			(3,233	)		(169	)
Operating income (loss)		4,787			18,347			(437,818	)		76,937			37,492			(456,381	)		55,131			(442,605	)
Interest income		164			44			369			182			113			143			188			205
Interest expense		(28,462	)		(12,106	)		(73,745	)		(53,793	)		(37,985	)		(22,919	)		(73,943	)		(45,283	)
Loss on debt extinguishment		-			(4,784	)		-			(13,702	)
Other income (expense)		45,140			(511	)		86,523			(1,088	)
Income (Loss) before income taxes	$	21,629		$	990		$	(424,671	)	$	8,536
Other income														25,169			4,926			12,981			41,383
Income (loss) before income taxes													$	24,789		$	(474,231	)	$	(5,643	)	$	(446,300	)

~~14.~~13. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the diluted weighted average number of shares of common stock outstanding for the period. For purposes of this calculation, outstanding stock options RSUs and PSUs are considered potential dilutive shares of common stock. The following is a computation of basic and diluted net income (loss) per share (amounts in thousands, except per share amounts):


	For the three-month periods ended					For the six-month periods ended
	July 1, 2023		July 2, 2022			July 1, 2023			July 2, 2022
Numerator:
Net income (loss)	$	25,599	$	(473,887	)	$	(6,399	)	$	(448,553	)
Denominator:
Weighted average shares of common stock outstanding (1), basic		189,071		184,953			189,063			184,940
Net income (loss) per share, basic	$	0.14	$	(2.56	)	$	(0.03	)	$	(2.43	)

Weighted average shares of common stock outstanding (1), diluted		189,739		184,953			189,063			184,940
Net income (loss) per share, diluted	$	0.13	$	(2.56	)	$	(0.03	)	$	(2.43	)
Dilutive securities outstanding not included in the computation of diluted net income (loss) per share as their effect is antidilutive:
RSUs		3,434		4,472			8,401			4,472
PSUs		4,481		1,390			4,481			1,390
Stock options		14,110		14,679			14,110			14,679

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

For the three-month periods ended

For the nine-month periods ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Numerator:

Net income (loss)
$
24,298

$
2,090

$
(424,255
)
$
9,148

Denominator:

Weighted average shares of common stock outstanding (1), basic

186,113

184,554

185,327

165,877

Net income (loss) per share, basic
$
0.13

$
0.01

$
(2.29
)
$
0.06

Weighted average shares of common stock outstanding (1), diluted

186,166

188,246

185,327

170,667

Net income (loss) per share, diluted
$
0.13

$
0.01

$
(2.29
)
$
0.05

Dilutive securities outstanding not included in the computation of diluted net income (loss) per share as their effect is antidilutive:

RSUs

4,684

-

4,722

-

PSUs

1,368

-

1,368

-

Stock options

14,553

6,885

14,553

6,360

(1)

The calculation of weighted average shares of common stock outstanding includes all vested deferred restricted stock units.

14. SUBSEQUENT EVENT

On July 31, 2023, the Company entered into an amendment to the Securitization Facility to extend its maturity date to July 31, 2026 and to effect amendments to certain other terms and conditions. The Securitization Facility will accrue interest at a rate tied to SOFR plus an applicable margin, which can increase or decrease based upon the Company's credit rating. The maximum amount available under the Securitization Facility remains $175.0 million, subject to certain borrowing base requirements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented below. This discussion should be read in conjunction with the interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and related notes, our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022 filed with the SEC. As discussed in the section above titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below as well as in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022.

Unless otherwise provided, ~~“Aveanna”,~~“Aveanna,” “we,” “our” and the “Company” refer to Aveanna Healthcare Holdings Inc. and its consolidated subsidiaries.

Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52-week or 53-week fiscal year. “Fiscal year 2023” refers to the 52-week fiscal year ending on December 30, 2023. “Fiscal year 2022” refers to the 52-week fiscal year ended on December 31, 2022. ~~“Fiscal year 2021” refers to the 52-week fiscal year ended on January 1, 2022.~~ The “three-month period ended ~~October~~July 1, ~~2022”~~2023”, or ~~“third~~“second quarter of 2023” refers to the 13-week fiscal quarter ended on July 1, 2023. The “three-month period ended July 2, 2022” or “second quarter of 2022” refers to the 13-week fiscal quarter ended on ~~October 1,~~July 2, 2022. The ~~“three-month~~"six-month period ended ~~October 2, 2021”~~July 1, 2023", or ~~“third quarter~~"first six months of ~~2021”~~2023", refers to the ~~13-week fiscal quarter ended on October 2, 2021.~~period from January 1, 2023 through July 1, 2023. The ~~"nine-month~~"six-month period ended ~~October 1,~~July 2, 2022", or "first ~~nine~~six months of 2022", refers to the period from January 2, 2022 through ~~October 1,~~July 2, 2022. ~~The "nine-month period ended October 2, 2021", or "first nine months of 2021" refers to the period from January 3, 2021 through October 2, 2021.~~

We are a leading, diversified home care platform focused on providing care to medically complex, high-cost patient populations. We directly address the most pressing challenges facing the U.S. healthcare system by providing safe, high-quality care in the home, the lower cost care setting preferred by patients. Our patient-centered care delivery platform is designed to improve the quality of care our patients receive, which allows them to remain in their homes and minimizes the overutilization of high-cost care settings such as hospitals. Our clinical model is led by our caregivers, primarily skilled nurses, who provide specialized care to address the complex needs of each patient we serve across the full range of patient populations: newborns, children, adults and seniors. We have invested significantly in our platform to bring together best-in-class talent at all levels of the organization and support such talent with industry leading training, clinical programs, infrastructure and technology-enabled systems, which are increasingly essential in an evolving healthcare industry. We believe our platform creates sustainable competitive advantages that support our ability to continue driving rapid growth, both organically and through acquisitions, and positions us as the partner of choice for the patients we serve.

We deliver our services to patients through three segments: Private Duty Services (“PDS”); Home Health & Hospice (“HHH”); and Medical Solutions (“MS”).

The following ~~tables summarize~~table summarizes the revenues generated by each of our segments for the ~~three and nine month~~three-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively:

The following table summarizes the revenues generated by each of our segments for the six-month periods ended July 1, 2023 and July 2, 2022, respectively:

Private Duty Services predominantly includes private duty nursing (“PDN”) services, as well as pediatric therapy services. Our PDN patients typically enter our service as children, as our most significant referral sources for new patients are children’s hospitals. It is common for our PDN patients to ~~stay on~~continue to receive our ~~service~~services into adulthood, as approximately ~~50%~~30% of our PDN patients are over the age of 18.

Our PDN services involve the provision of ~~skilled~~clinical and ~~unskilled~~non-clinical hourly care to patients in their homes, which is the preferred setting for patient care. PDN services typically last four to 24 hours a day, provided by our registered nurses, licensed practical nurses, home health aides, and other ~~unskilled~~non-clinical caregivers who are focused on providing high-quality short-term and long-term clinical care to medically fragile children and adults with a wide variety of serious illnesses and conditions. Patients who typically qualify for our PDN services include those with the following conditions:

Through our pediatric therapy services, we provide a valuable multidisciplinary approach that we believe serves all of a child’s therapy needs. We provide both in-clinic and home-based therapy services to our patients. Our therapy services include physical, occupational and speech services. We regularly collaborate with physicians and other community healthcare providers, which allows us to provide more comprehensive care.

Our Home Health and Hospice segment predominantly includes home health services, as well as hospice and specialty program services. Our HHH patients typically enter our service as seniors, and our most significant referral sources for new patients are hospitals, physicians and long-term care facilities.

Our home health services involve the provision of in-home services to our patients by our clinicians which may include nurses, therapists, social workers and home health aides. Our caregivers work with our patients’ physicians to deliver a personalized plan of care to our patients in their homes. Home healthcare can help our patients recover after a hospitalization or surgery and assist patients in managing chronic illnesses. We also help our patients manage their medications. Through our care, we help our patients recover more fully in the comfort of their own homes, while remaining as independent as possible. Our home health services include: in-home skilled nursing services; physical, occupational and speech therapy; medical social services and aide services.

Our hospice services involve a supportive philosophy and concept of care for those nearing the end of life. Our hospice care is a positive, empowering form of care designed to provide comfort and support to our patients and their families when a life-limiting illness no longer responds to cure-oriented treatments. The goal of hospice is to neither prolong life nor hasten death, but to help our patients live as dignified and pain-free as possible. Our hospice care is provided by a team of specially trained professionals in a variety of living situations, including at home, at the hospital, a nursing home, or an assisted living facility.

Through our Medical Solutions segment, we offer a comprehensive line of enteral nutrition supplies and other products to adults and children, delivered on a periodic or as-needed basis. We provide our patients with access to one of the largest selections of enteral formulas, supplies and pumps in our ~~industry.~~industry, with more than 300 nutritional formulas available. Our registered nurses, registered dietitians and customer service technicians support our patients 24 hours per day, 365 days per year, in-hospital, at-home, or remotely to help ensure that our patients have the best nutrition assessments, change order reviews and formula selection expertise.

~~Acquisitions and other~~ Factors Affecting Results of Operations and Comparability

~~On April 16, 2021, we acquired Doctor’s Choice Holdings, LLC (“Doctor’s Choice”), which provides home health services in the state of Florida.~~ ~~Doctor’s Choice generated revenues in 2021 prior to being acquired by us of $22.9 million and $51.6 million after being acquired by us.~~ On December 10, 2021, we acquired Comfort Care Home Health Services, LLC, including its subsidiaries (“Comfort Care”), which provides home health and hospice services in the states of Alabama and Tennessee. Comfort Care generated revenues in 2021 prior to being acquired by us of $94.4 million and $6.0 million after being acquired by us. Collectively, we refer to the acquisitions of Doctor's Choice and Comfort Care as the “2021 HHH Acquisitions”. We report the results of the 2021 HHH Acquisitions in our HHH segment. We believe we have built a home health and hospice program of significant size and scale, focused on delivering high-quality patient care in attractive geographies.

On November 30, 2021, we acquired Accredited Nursing Services (“Accredited”), a provider of primarily unskilled services in the state of California. Accredited generated revenues in 2021 prior to being acquired by us of $107.1 million and $8.9 million after being acquired by us. We report the results of Accredited in our PDS segment.

In March 2020, the World Health Organization declared COVID-19 a pandemic. We continue to monitor the impact of COVID-19 on our caregivers and support personnel, our patients and their families, and our referral sources. We have adapted our operations as necessary to best protect our people and serve our patients and our communities. We have also invested in technology and equipment that allows support personnel to provide, on a remote basis, seamless functionality and support to our clinicians who care for our patients. The majority of our employees at our corporate support offices in Georgia, Texas and Arizona continue to work remotely.

With the onset of the COVID-19 pandemic in March 2020, we began incurring incremental costs of patient services necessary to maintain our clinical workforce in the COVID-19 environment, including costs for additional PPE, hero and hazard pay, COVID-19 relief pay, incremental overtime, and various incentives to attract and retain caregivers. The nature of the incremental COVID-19 costs we have incurred has changed over time as dictated by the continually evolving COVID-19 environment. Additionally, we recorded an impairment charge in the fourth quarter of fiscal 2021 in four of the reporting units within our PDS segment as a result of the continued impact of COVID-19 on our business. Our operations were particularly impacted in the fourth quarter of 2021 and the first quarter of 2022 due to the Omicron variant and the attendant pressures on our clinical workforce.

While the direct effects of the pandemic have significantly lessened since the first quarter of 2022, the following factors could further impact our results of operations in the future as a result of COVID-19: a resurgence in the number of cases due to new variants; any future shelter-in-place orders; a decrease in the rate of return of confidence in our patients’ families to allow our caregivers into their homes; the return of patient confidence to enter a hospital or a doctor’s office; our ability to attract and retain qualified caregivers as a result of COVID-19 quarantine requirements or due to caregiver non-compliance with vaccination and testing mandates; uncertainty regarding vaccine distribution timing and efficacy; and our ability to readily access referrals from children’s hospitals. Potential negative impacts of COVID-19 on our results include lower revenue or higher salary and wage expenses due to increased market rate expectations of caregivers in order to work in hazardous conditions where COVID-19 is prevalent, increased workers compensation insurance and leave costs, costs to comply with various federal, state and local vaccine or leave mandates, civil monetary penalties from CMS if we are unable to comply with its IFR requiring COVID-19 vaccinations, and any future spikes in PPE supply costs. The impacts to revenue may consist of the following: lower volumes due to interruption of the operations of our referral sources; lower volumes due to lack of availability of caregivers in the workforce; the unwillingness of patients to accept services in their homes; lower reimbursement due to missed home health visits resulting in an increase in low utilization payment adjustments; lower hospice volumes; lower reimbursement rates due to any negative impacts to state Medicaid budgets as a result of the pandemic; the sunset of enhanced ~~Federal matching funds for state Medicaid Programs~~ ~~after the end of the Federal public health emergency; or denial of payments from CMS~~ ~~if we are unable to comply with its IFR requiring COVID-19 vaccinations.~~

~~In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. The CARES Act has impacted us as follows:~~

On March 11, 2021 President Biden signed ARPA into law. ARPA is a federal stimulus bill designed to aid public health and economic recovery from the COVID-19 pandemic. ARPA includes $350 billion in emergency funding for state, local, territorial and tribal governments, known as the Coronavirus State and Local Fiscal Recovery Funds (“ARPA Recovery Funds”). States must obligate the ARPA Recovery Funds by December 31, 2024 and spend such funds by December 31, 2026. Usage of the ARPA Recovery Funds is subject to the requirements specified in the United States Treasury Department’s Final Rule issued on January 6, 2022.

The Final Rule provides states with substantial flexibility in utilizing ARPA Relief Funds, including to support public health expenditures, such as vaccination programs and testing, and PPE purchases, as well as providing premium pay for essential workers, including those in home-care settings, among many other things. States may not use ARPA Recovery Funds to fund tax cuts, fund budget deficits, or to support public employee pensions. ~~During the nine months ended October 1, 2022 we received $5.5 million of~~We recognized ARPA Recovery ~~Funds~~funds from various states ~~$5.0 million of which we recognized as~~in revenue in our consolidated statements of operations of $2.0 million and $4.7 million for the three and six-month periods ended July 1, 2023, respectively, and $0.5 million ~~of which was recognized in other current liabilities on our accompanying interim unaudited consolidated balance sheet at October 1, 2022.~~and $3.6 million for the three and six-month periods ended July 2, 2022, respectively. We may receive additional ARPA Recovery Funds in the ~~future,~~future; however, we cannot estimate the amount or timing of any future receipts. These funds are not subject to repayment, provided we are able to attest to and comply with any terms and conditions of such funding, as applicable. If we are unable to attest to ~~attest~~ or comply with current or future terms and conditions, our ability to retain some or all of the ARPA Recovery Funds received may be ~~impacted,~~impacted.

On April 27, 2023, the U.S. Department of Health & Human Services ("HHS") introduced a proposed rule titled “Assuring Access to Medicaid Services.” The proposed rule has a stated goal of improving access to services for Medicaid beneficiaries. As part of this proposed rule, HHS is proposing that state Medicaid agencies provide assurances that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to direct care workers. The proposed rule would allow states four years to implement changes required by a final rule, with extended time specified for managed care delivery systems. The proposed rule was subject to comment, and HHS specifically requested comments on the 80% threshold, related definitions and the implementation period. The public comment period concluded on July 3, 2023. The ultimate impact of any final rule, which ~~is unknown at this time.~~could be adverse for periods after implementation, but could also benefit our business by improving access to services, depends on the requirements set forth in any final rule.

We review the following important metrics on a segment basis and not on a consolidated basis:

Volume represents PDS hours of care provided and MS unique patients served, which is how we measure the amount of our patient services provided. We review the number of hours of PDS care provided on a weekly basis and the number of MS unique patients served

on a weekly basis. We believe volume is an important metric because it helps us understand how the Company is growing in each of these segments through strategic planning and acquisitions. We also use this metric to inform strategic decision making in determining opportunities for growth.

For our PDS and MS segments, revenue rate is calculated as revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe revenue rate is an important metric because it represents the amount of revenue we receive per

PDS hour of patient service or per individual MS patient transaction and helps management assess the amount of fees that we are able to bill for our services. Management uses this metric to assess how effectively we optimize reimbursement rates.

For our PDS and MS segments, cost of revenue rate is calculated as cost of revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe cost of revenue rate is an important metric because it helps us understand the cost per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to understand how effectively we manage labor and product costs.

For our PDS and MS segments, spread rate represents the difference between the respective revenue rates and cost of revenue rates. Spread rate is an important metric because it helps us better understand the margins being recognized per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to assess how successful we have been in optimizing reimbursement rates, managing labor and product costs, and assessing opportunities for growth.

Home health total admissions represents the number of new patients who have begun receiving services. We review the number of home health admissions on a daily basis as we believe it is a leading indicator of our growth. We measure home health admissions by reimbursement structure, separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payor mix of our home health business.

Home health total episodes represents the number of episodic admissions and episodic recertifications to capture patients who have either started to receive services or have been recertified for another episode of care. Management reviews home health total episodes on a monthly basis as to understand the volume of patients who were authorized to receive care during the month.

Home health revenue per completed episode is calculated by dividing total payments received from completed episodes by the number of completed episodes during the period. Episodic payments are determined by multiple factors including type of referral source, patient

diagnoses, and utilization. Management tracks home health revenue per completed episode over time to evaluate both the clinical and financial profile of the business in a single metric.

~~The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures,~~ ~~as well as our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022~~.

Three-Month Period Ended ~~October~~July 1, ~~2022~~2023 Compared to the Three-Month Period Ended ~~October~~July 2, ~~2021~~2022

The following table summarizes our consolidated results of operations, including Field contribution, which is a non-GAAP measure (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:


	For the three-month periods ended																		For the three-month periods ended
(dollars in thousands)	October 1, 2022			% of Revenue			October 2, 2021			% of Revenue			Change			% Change			July 1, 2023			% of Revenue			July 2, 2022			% of Revenue			Change			% Change
Revenue	$	443,009			100.0	%	$	411,276			100.0	%	$	31,733			7.7	%	$	471,945			100.0	%	$	442,955			100.0	%	$	28,990			6.5	%
Cost of revenue, excluding depreciation and amortization		308,426			69.6	%		271,534			66.0	%		36,892			13.6	%		316,690			67.1	%		297,912			67.3	%		18,778			6.3	%
Gross margin	$	134,583			30.4	%	$	139,742			34.0	%	$	(5,159	)		-3.7	%	$	155,255			32.9	%	$	145,043			32.7	%	$	10,212			7.0	%
Branch and regional administrative expenses		89,542			20.2	%		76,370			18.6	%		13,172			17.2	%		91,255			19.3	%		88,998			20.1	%		2,257			2.5	%
Field contribution	$	45,041			10.2	%	$	63,372			15.4	%	$	(18,331	)		-28.9	%	$	64,000			13.6	%	$	56,045			12.7	%	$	7,955			14.2	%
Corporate expenses		33,215			7.5	%		37,873			9.2	%		(4,658	)		-12.3	%		26,354			5.6	%		36,202			8.2	%		(9,848	)		-27.2	%
Goodwill impairment																				-			0.0	%		470,207			106.2	%		(470,207	)		-100.0	%
Depreciation and amortization		4,917			1.1	%		5,145			1.3	%		(228	)		-4.4	%		3,491			0.7	%		6,038			1.4	%		(2,547	)		-42.2	%
Acquisition-related costs		-			0.0	%		2,007			0.5	%		(2,007	)		-100.0	%		(32	)		0.0	%		(22	)		0.0	%		(10	)		45.5	%
Other operating expense		2,122			0.5	%		-			0.0	%		2,122		-
Operating income	$	4,787			1.1	%	$	18,347			4.5	%	$	(13,560	)		-73.9	%
Other operating (income) expense																				(3,305	)		-0.7	%		1			0.0	%		(3,306	)	NM
Operating income (loss)																			$	37,492			7.9	%	$	(456,381	)		-103.0	%	$	493,873			108.2	%
Interest expense, net		(28,298	)					(12,062	)					(16,236	)		134.6	%		(37,872	)					(22,776	)					(15,096	)		66.3	%
Loss on debt extinguishment		-						(4,784	)					4,784			-100.0	%
Other income (expense)		45,140						(511	)					45,651		NM
Other income																				25,169						4,926						20,243			410.9	%
Income tax benefit		2,669						1,100						1,569			142.6	%		810						344						466			135.5	%
Net income	$	24,298					$	2,090					$	22,208		NM
Net income (loss)																			$	25,599					$	(473,887	)				$	499,486			105.4	%

NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.

The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:


	For the three-month periods ended												For the three-month periods ended
(dollars in thousands)	October 1, 2022			October 2, 2021			Change			% Change			July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	443,009		$	411,276		$	31,733			7.7	%	$	471,945		$	442,955		$	28,990			6.5	%
Cost of revenue, excluding depreciation and amortization		308,426			271,534			36,892			13.6	%		316,690			297,912			18,778			6.3	%
Gross margin	$	134,583		$	139,742		$	(5,159	)		-3.7	%	$	155,255		$	145,043		$	10,212			7.0	%
Gross margin percentage		30.4	%		34.0	%								32.9	%		32.7	%
Branch and regional administrative expenses		89,542			76,370			13,172			17.2	%		91,255			88,998			2,257			2.5	%
Field contribution	$	45,041		$	63,372		$	(18,331	)		-28.9	%	$	64,000		$	56,045		$	7,955			14.2	%
Field contribution margin		10.2	%		15.4	%								13.6	%		12.7	%
Corporate expenses	$	33,215		$	37,873		$	(4,658	)		-12.3	%	$	26,354		$	36,202		$	(9,848	)		-27.2	%
As a percentage of revenue		7.5	%		9.2	%								5.6	%		8.2	%
Operating income	$	4,787		$	18,347		$	(13,560	)		-73.9	%
Operating income (loss)													$	37,492		$	(456,381	)	$	493,873			108.2	%
As a percentage of revenue		1.1	%		4.5	%								7.9	%		-103.0	%

The following tables summarize our key performance measures by segment for the three-month periods indicated:


	PDS													PDS
	For the three-month periods ended													For the three-month periods ended
(dollars and hours in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	355,620		$	327,133		$	28,487			8.7	%		$	377,668		$	348,025		$	29,643			8.5	%
Cost of revenue, excluding depreciation and amortization		254,756			226,540			28,216			12.5	%			266,170			246,636			19,534			7.9	%
Gross margin	$	100,864		$	100,593		$	271			0.3	%		$	111,498		$	101,389		$	10,109			10.0	%
Gross margin percentage		28.4	%		30.7	%					-2.3	%	(4)		29.5	%		29.1	%					0.4	%	(4)
Hours		9,652			8,998			654			7.3	%			9,865			9,604			261			2.7	%
Revenue rate	$	36.84		$	36.36		$	0.48			1.4	%	(1)	$	38.28		$	36.24		$	2.04			5.8	%	(1)
Cost of revenue rate	$	26.39		$	25.18		$	1.21			5.2	%	(2)	$	26.98		$	25.68		$	1.30			5.2	%	(2)
Spread rate	$	10.45		$	11.18		$	(0.73	)		-7.0	%	(3)	$	11.30		$	10.56		$	0.74			7.3	%	(3)

	HHH													HHH
	For the three-month periods ended													For the three-month periods ended
(dollars and admissions/episodes in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	49,853		$	47,000		$	2,853			6.1	%		$	55,410		$	61,382		$	(5,972	)		-9.7	%
Cost of revenue, excluding depreciation and amortization		32,968			24,130			8,838			36.6	%			28,497			31,797			(3,300	)		-10.4	%
Gross margin	$	16,885		$	22,870		$	(5,985	)		-26.2	%		$	26,913		$	29,585		$	(2,672	)		-9.0	%
Gross margin percentage		33.9	%		48.7	%					-14.8	%	(4)		48.6	%		48.2	%					0.4	%	(4)
Home health total admissions (5)		11.3			11.6			(0.3	)		-2.6	%			9.9			12.4			(2.5	)		-20.2	%
Home health episodic admissions (6)		7.0			7.1			(0.1	)		-1.4	%			6.8			7.6			(0.8	)		-10.5	%
Home health total episodes (7)		11.4			10.5			0.9			8.6	%			11.1			12.3			(1.2	)		-9.8	%
Home health revenue per completed episode (8)	$	3,023		$	2,894		$	129			4.5	%		$	3,051		$	3,004		$	47			1.6	%

	MS													MS
	For the three-month periods ended													For the three-month periods ended
(dollars and UPS in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	37,536		$	37,143		$	393			1.1	%		$	38,867		$	33,548		$	5,319			15.9	%
Cost of revenue, excluding depreciation and amortization		20,702			20,864			(162	)		-0.8	%			22,023			19,479			2,544			13.1	%
Gross margin	$	16,834		$	16,279		$	555			3.4	%		$	16,844		$	14,069		$	2,775			19.7	%
Gross margin percentage		44.8	%		43.8	%					1.0	%	(4)		43.3	%		41.9	%					1.4	%	(4)
Unique patients served (“UPS”)		81			78			3			3.8	%			85			78			7			9.0	%
Revenue rate	$	463.41		$	476.19		$	(12.78	)		-2.7	%	(1)	$	457.26		$	430.10		$	27.16			6.9	%	(1)
Cost of revenue rate	$	255.58		$	267.49		$	(11.91	)		-4.6	%	(2)	$	259.09		$	249.73		$	9.36			4.1	%	(2)
Spread rate	$	207.83		$	208.70		$	(0.87	)		-0.4	%	(3)	$	198.16		$	180.37		$	17.80			10.7	%	(3)

The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures, as well as our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Operating income was ~~$4.8~~$37.5 million, or ~~1.1%~~7.9% of revenue, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to an operating ~~income~~loss of ~~$18.3~~$456.4 million, or ~~4.5%~~103.0% of revenue, for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021, a decrease~~2022, an increase of ~~$13.6 million.~~$493.9 million, or 108.2%, primarily driven by the absence of the $470.2 million non-cash charge for goodwill impairment recorded in the second quarter of 2022.

Operating income for the ~~third~~second quarter of ~~2022~~2023 was ~~negatively~~also positively impacted by ~~a decrease~~an increase of ~~$18.3~~$8.0 million, or ~~28.9%~~14.2%, in Field contribution, ~~from~~as compared to the ~~third~~second quarter of ~~2021.~~2022. The ~~$18.3~~$8.0 million ~~decrease~~increase in Field contribution resulted from a ~~$31.7~~$29.0 million, or ~~7.7%~~6.5%, increase in consolidated revenue ~~offset by~~and a ~~5.2% decrease~~0.9% increase in our Field contribution margin to ~~10.2%~~13.6% for the ~~third~~second quarter of ~~2022~~2023 from ~~15.4%~~12.7% for

the ~~third~~second quarter of ~~2021.~~2022. The primary ~~drivers~~driver of our ~~lower~~higher Field contribution margin over the comparable quarter ~~over quarter were~~was a ~~decrease~~0.2% increase in ~~our~~ gross margin percentage ~~from 34.0%~~to 32.9% for the ~~third~~second quarter of ~~2021 to 30.4%~~2023 from 32.7% for the ~~third~~first quarter of ~~2022 and a 1.6%~~2022.

In addition to the $8.0 million increase in ~~branch and regional administrative expenses as a percentage of revenue~~Field contribution, the following additional items primarily contributed to ~~20.2% for~~ the ~~third~~overall $493.9 million increase in operating income over the comparable second quarter ~~of 2022 from 18.6% for the third quarter of 2021.~~periods:

Net income ~~was $24.3 million~~ for the three ~~months~~month period ended ~~October~~July 1, ~~2022~~2023 was $25.6 million, as compared to ~~$2.1~~net loss of $473.9 million for ~~the~~ three ~~months~~month period ended ~~October~~July 2, ~~2021.~~2022. The ~~$22.2~~$499.5 million increase in net income was primarily driven by the following:

Revenue was $471.9 million for the three month period ended July 1, 2023, as compared to $443.0 million for the ~~three-month~~three month period ended ~~October 1,~~July 2, 2022, ~~as compared to $411.3 million for the three-month period ended October 2, 2021,~~ an increase of ~~$31.7~~$29.0 million, or ~~7.7%~~6.5%. This increase resulted from the following segment activity:

~~The $28.5~~Our PDS segment revenue growth of $29.6 million, ~~increase in PDS revenue~~or 8.5%, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 was attributable to ana 2.7% increase in volume ~~of 7.3%~~ and ana 5.8% increase in revenue ~~rate of 1.4%.~~rate. The 2.7% increase in ~~PDS~~ volume ~~was~~is primarily attributable to ~~the following items:~~growth in demand for non-clinical services.

The ~~1.4%~~5.8% increase in PDS revenue rate for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and ~~managed~~Managed Medicaid payers, partially offset by the growth in our unskilled business contributed by the Accredited acquisition in November 2021, which has lower revenue rates per hour than the comparable rates in the balance of our PDS businesses.payers.

Our HHH segment revenue ~~growth~~decline of ~~$2.9~~$6.0 million, or ~~6.1%~~9.7%, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 resulted primarily from ~~incremental volume contributed by the Comfort Care acquisition in December 2021, net of~~ a decline in ~~overall HHH~~ volumes over the comparable quarterly periods. Revenue was also negatively impacted by an increase in implicit price concessions in connection with the transition from and implementation of legacy and new electronic medical record, billing and collection systems, as well as the reinstatement of Medicare sequestration, both of which reduced gross margin and gross margin percentage.period.

The ~~1.1%~~$5.3 million increase in MS segment revenue for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, was attributable to volume growth of 9.0% combined with a ~~3.8%~~6.9% increase ~~in volume, net of a 2.7% decrease in revenue rate. Volume increased through organic growth and expansion into new markets. The decrease~~ in revenue rate ~~was primarily attributable to payer rate decreases that became effective in September 2021~~over the comparable period.

Cost of revenue, excluding depreciation and amortization, was ~~$308.4~~$316.7 million for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$271.5~~$297.9 million for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$36.9~~$18.8 million, or ~~13.6%~~6.3%. This increase resulted from the following segment activity:

The ~~12.5%~~7.9% increase in PDS cost of revenue for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 resulted from the previously described ~~7.3%~~2.7% increase in PDS volume ~~net of~~combined with a 5.2% increase in PDS cost of revenue rate. The 5.2% increase in cost of revenue rate primarily resulted from higher caregiver labor costs, including pass-through of state reimbursement rate increases, ~~received by the Company, partially offset by the previously noted growth~~net of ~~our unskilled business contributed by the Accredited acquisition in November 2021, which has~~$5.0 million lower ~~cost of revenue rates than the comparable rates in the balance of our PDS businesses.~~general and professional liability expense associated with certain accrued legal settlements.

The ~~36.6% increase~~10.4% decrease in HHH cost of revenue for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 was primarily driven by ~~the increased~~a decline in HHH volumes, ~~contributed by the Comfort Care acquisition completed during December 2021, in addition to general wage pressures and higher~~as well as lower overall ~~salaried~~ caregiver ~~labor~~ costs ~~in relation to current volumes.~~as a percentage of revenue.

The ~~0.8% decrease~~13.1% increase in MS cost of revenue for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 was driven by the previously described ~~increase~~9.0% growth in MS volumes ~~offset by~~during the second quarter of 2022 and a ~~4.6% decrease in MS cost of revenue rate. The decrease~~4.1% increase in cost of revenue rate ~~is primarily due to shifts in product mix.~~.

Gross margin was ~~$134.6~~$155.3 million, or ~~30.4%~~32.9% of revenue, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$139.7~~$145.0 million, or ~~34.0%~~32.7% of revenue, for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021.~~2022. Gross margin ~~decreased $5.2~~increased $10.2 million, or ~~3.7%~~7.0%, ~~over~~from the comparable ~~quarterly periods.~~prior year quarter. The ~~3.6% decrease~~0.2% increase in gross margin percentage for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our ~~PDS and MS~~ segments, which we refer to as the change in our spread rate, ~~and the change in gross margin percentage in our HHH segment,~~ as follows:

Branch and regional administrative expenses were ~~$89.5~~$91.3 million, or ~~20.2%~~19.3% of revenue, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$76.4~~$89.0 million, or ~~18.6%~~20.1% of revenue, for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$13.2~~$2.3 million, or ~~17.2%~~2.5%.

The ~~17.2%~~2.5% increase in branch and regional administrative expenses ~~exceeded~~was lower than our 6.5% revenue growth ~~of 7.7%~~ for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~three-month~~three month period ended ~~October~~July 2, ~~2021. The $13.2 million increase~~2022, primarily due to lower integration costs in the current year quarter, as the integration of our acquisitions in the HHH segment effected in 2021 (the "2021 HHH Acquisitions") was completed in the second half of 2022, and the positive effects of restructuring portions of our branch and regional administrative expenses resulted from incremental branch and regional costs to support the Accredited and Comfort Care acquisitions. We also generally have maintained our existing field overhead structure in order to support the growth of our businesses upon improvements in the labor markets and patient volumes. Taken together, theseoperating structure. These factors resulted in the overall ~~1.6% increase~~0.8% decrease in branch and regional administrative expenses as a percentage of revenue during the comparable quarterly periods.

During the three-month period ended October 1, 2022 we began restructuring our branch and regional administrative footprint to appropriately size our resources to current volumes. Branch and regional administrative expenses during the third quarter of 2022 include severance expenses related to headcount reductions and certain facility lease termination costs associated with the closure of certain office locations.

Field contribution was ~~$45.0~~$64.0 million, or ~~10.2%~~13.6% of revenue, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023, as compared to ~~$63.4~~$56.0 million, or ~~15.4%~~12.7% of revenue, for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021.~~2022. Field contribution ~~decreased $18.3~~increased $8.0 million, or ~~28.9%~~14.2%, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~three-month~~three month period ended ~~October~~July 2, ~~2021.~~2022. The ~~5.2% decrease~~0.9% increase in Field contribution margin for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022~~2023 resulted from the following:

Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

Corporate expenses as a percentage of revenue for the three-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 were as follows:

Corporate expenses were ~~$33.2~~$26.4 million, or ~~7.5%~~5.6% of revenue, for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$37.9~~$36.2 million, or ~~9.2%~~8.2% of revenue, for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021.~~2022. The ~~$4.7~~$9.8 million, or ~~12.3%~~27.2%, decrease in corporate expenses resulted primarily from:

There was no goodwill impairment charge recorded for the three month period ended July 1, 2023. For the three month period ended July 2, 2022, we recorded a $470.2 million non-cash, goodwill impairment charge resulting from challenges in labor markets, including both shortages in workforce and inflationary wage pressures.

Depreciation and amortization was ~~$4.9 million for the three-month period ended October 1, 2022, compared to $5.1 million for the three-month period ended October 2, 2021, a decrease of $0.2 million, or 4.4%~~.

We did not incur acquisition-related costs during the three-month period ended October 1, 2022, while we incurred $2.0 million during the three-month period ended October 2, 2021 related to fourth quarter fiscal year 2021 acquisition activity.

~~Other operating expenses were $2.1~~$3.5 million for the three ~~months~~month period ended ~~October~~July 1, 2023, as compared to $6.0 million for the three month period ended July 2, 2022, a decrease of $2.5 million, or 42.2%. The $2.5 million decrease primarily resulted from the absence of amortization charges associated with assets acquired in connection with the acquisition of Comfort Care and Accredited completed in the fourth quarter of 2021 which were amortized over a one year period.

Other operating income was $3.3 million for the three month period ended July 1, 2023, as compared to nominal other operating expense for the three month period ended July 2, 2022, an increase of $3.3 million. The $3.3 million increase primarily resulted from a release of reserve of $3.6 million related to the ~~impairment~~settlement of ~~licenses associated with~~ a ~~legacy billing and collection system. There were no such costs for the quarter ended October 2, 2021.~~legal matter resulting from a 2020 acquisition.

Interest expense, net of interest income was ~~$28.3~~$37.9 million for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$12.1~~$22.8 million for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$16.2~~$15.1 million, or ~~134.6%~~66.3%. ~~Over~~The increase was primarily driven by significant increases in LIBOR, largely because the ~~course~~Federal Reserve Board has significantly increased the U.S. federal funds rate since the beginning of ~~fiscal year 2021, we made numerous changes to our debt structure and outstanding indebtedness, and interest rates have also been higher in 2022 compared to the prior year. Please see the~~2022. See further analysis under Liquidity and Capital Resources~~section below for a detailed discussion of this activity, as well as a description of debt instruments outstanding as of October 1, 2022 and October 2, 2021.~~ below.

Loss on debt extinguishment was $4.8 million for the three-month period ended October 2, 2021, resulting from the use of proceeds from our IPO to repay $407.0 million in aggregate debt. We did not incur such charges during the three-month period ended October 1, 2022.

Other income was ~~$45.1~~$25.2 million for the ~~three-month~~three month period ended ~~October~~July 1, ~~2022,~~2023, as compared to other ~~expense~~income of ~~$0.5~~$4.9 million for the ~~three-month~~three month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$45.7 million which was primarily attributable to~~$20.2 million. We realized a ~~$43.5~~$10.3 million increase in non-cash valuation gains on interest rate derivatives ~~and a decrease~~resulting from changes in net settlements incurred with swap counterparties. During the three month period ended October 1, 2022 we began receiving cash payments on a net basis from our swap counterparties. The significant valuation gains resulted from accelerated market expectations of future ~~increases in~~ interest rates ~~during 2022.~~as of the comparable quarter-end valuation dates and an $9.6 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year quarter. Details of other income included the following:

We incurred an income tax benefit of ~~$2.7~~$0.8 million for the three-month period ended ~~October~~July 1, ~~2022~~2023, as compared to income tax benefit of ~~$1.1~~$0.3 million for the three-month period ended ~~October~~July 2, ~~2021. The~~2022. This increase in tax benefit was primarily driven by the changes in federal and state valuation allowances, changes in uncertain tax positions and changes to federal and state current tax expense.

~~Nine Month~~Six-Month Period Ended ~~October~~July 1, ~~2022~~2023 Compared to the ~~Nine Month~~Six-Month Period Ended ~~October~~July 2, ~~2021~~2022

NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.

The following tables summarize our key performance measures by segment for the ~~nine-month~~six-month periods indicated:


	PDS													PDS
	For the nine-month periods ended													For the six-month periods ended
(dollars and hours in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	1,053,835		$	1,027,640		$	26,195			2.5	%		$	750,615		$	698,215		$	52,400			7.5	%
Cost of revenue, excluding depreciation and amortization		753,266			719,435			33,831			4.7	%			534,933			498,510			36,423			7.3	%
Gross margin	$	300,569		$	308,205		$	(7,636	)		-2.5	%		$	215,682		$	199,705		$	15,977			8.0	%
Gross margin percentage		28.5	%		30.0	%					-1.5	%	(4)		28.7	%		28.6	%					0.1	%	(4)
Hours		28,868			28,828			40			0.1	%			19,648			19,216			432			2.2	%
Revenue rate	$	36.51		$	35.65		$	0.86			2.4	%	(1)	$	38.20		$	36.34		$	1.86			5.3	%	(1)
Cost of revenue rate	$	26.09		$	24.96		$	1.13			4.6	%	(2)	$	27.23		$	25.94		$	1.29			5.1	%	(2)
Spread rate	$	10.41		$	10.69		$	(0.28	)		-2.6	%	(3)	$	10.98		$	10.39		$	0.59			5.8	%	(3)

	HHH													HHH
	For the nine-month periods ended													For the six-month periods ended
(dollars and admissions/episodes in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	177,858		$	128,589		$	49,269			38.3	%		$	111,536		$	128,005		$	(16,469	)		-12.9	%
Cost of revenue, excluding depreciation and amortization		98,933			67,224			31,709			47.2	%			59,592			65,965			(6,373	)		-9.7	%
Gross margin	$	78,925		$	61,365		$	17,560			28.6	%		$	51,944		$	62,040		$	(10,096	)		-16.3	%
Gross margin percentage		44.4	%		47.7	%					-3.3	%	(4)		46.6	%		48.5	%					-1.9	%	(4)
Home health total admissions (5)		38.0			29.1			8.9			30.6	%			21.6			26.7			(5.1	)		-19.1	%
Home health episodic admissions (6)		23.3			18.0			5.3			29.4	%			14.8			16.3			(1.5	)		-9.2	%
Home health total episodes (7)		37.5			26.5			11.0			41.5	%			23.0			26.1			(3.1	)		-11.9	%
Home health revenue per completed episode (8)	$	2,978		$	2,894		$	84			2.9	%		$	3,005		$	2,961		$	44			1.5	%

	MS													MS
	For the nine-month periods ended													For the six-month periods ended
(dollars and UPS in thousands)	October 1, 2022			October 2, 2021			Change			% Change				July 1, 2023			July 2, 2022			Change			% Change
Revenue	$	104,805		$	108,319		$	(3,514	)		-3.2	%		$	76,207		$	67,269		$	8,938			13.3	%
Cost of revenue, excluding depreciation and amortization		59,847			59,875			(28	)		0.0	%			44,113			39,145			4,968			12.7	%
Gross margin	$	44,958		$	48,444		$	(3,486	)		-7.2	%		$	32,094		$	28,124		$	3,970			14.1	%
Gross margin percentage		42.9	%		44.7	%					-1.8	%	(4)		42.1	%		41.8	%					0.3	%	(4)
Unique patients served (“UPS”)		237			229			8			3.5	%			170			156			14			9.0	%
Revenue rate	$	442.22		$	473.01		$	(30.79	)		-6.7	%	(1)	$	448.28		$	431.21		$	17.07			4.3	%	(1)
Cost of revenue rate	$	252.52		$	261.46		$	(8.94	)		-3.5	%	(2)	$	259.49		$	250.93		$	8.56			3.7	%	(2)
Spread rate	$	189.70		$	211.55		$	(21.85	)		-10.7	%	(3)	$	188.79		$	180.28		$	8.51			5.1	%	(3)

Operating income was ~~$437.8~~$55.1 million, or 5.9% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to operating ~~income~~loss of ~~$76.9~~$442.6 million, or ~~6.1%~~49.5% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021, a decrease~~2022, an increase of ~~$514.8 million.~~

~~The operating loss for~~$497.7 million, or 112.5%, primarily driven by the ~~first nine months~~absence of ~~2022 primarily resulted from a~~the $470.2 million non-cash charge for goodwill impairment recorded in the second quarter of ~~fiscal year 2022 and a decrease~~2022.

Operating income for the first six months of ~~$37.4~~2023 was positively impacted by an increase of $4.6 million, or ~~19.2%~~4.1%, in Field contribution as compared to the first ~~nine~~six months of ~~2021.~~2022. The ~~$37.4~~$4.6 million ~~decrease~~increase in Field contribution resulted from a ~~$72.0~~$44.9 million, or ~~5.7%~~5.0%, increase in consolidated revenue, partially offset by a ~~3.6%~~0.1% decrease in our Field contribution margin to ~~11.8%~~12.4% for the first ~~nine~~six months of ~~2022~~2023 from ~~15.4%~~12.5% for the first ~~nine~~six months of ~~2021.~~2022. The primary ~~drivers~~driver of our lower Field contribution margin year over year was a 0.5% decrease in gross margin percentage to 31.9% for the first six months of 2023 from 32.4% for the first six months of 2022.

In addition to the $4.6 million increase in Field contribution, the following additional items primarily contributed to the overall $497.7 million increase in operating income over the comparable year to date period were decreases in our gross margin percentage from 33.1% to 31.8% and a 2.3% increase in branch and regional administrative expense as a percentage of revenue to 20.0% for the first nine months of 2022 from 17.7% for the first nine months of 2021.periods:

Net loss for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022 from~~2023 was $6.4 million, as compared to net loss of $448.6 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022. The $442.2 million increase in net income was primarily driven by the following:

Revenue was ~~$1,336.5~~$938.4 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023, as compared to ~~$1,264.5~~$893.5 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$72.0~~$44.9 million, or ~~5.7%~~5.0%. This increase resulted from the following segment activity:

~~The $26.2~~Our PDS segment revenue growth of $52.4 million, ~~increase in PDS revenue~~or 7.5%, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 was attributable to ana 2.2% increase in volume ~~of 0.1%,~~ and ana 5.3% increase in revenue ~~rate of 2.4%.~~rate. The 2.2% increase in ~~PDS~~ volume was primarily attributable to ~~the following items:~~growth in demand for non-clinical services.

The ~~2.4%~~5.3% increase in PDS revenue rate for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and ~~managed~~Managed Medicaid payers, partially offset by the growth in our unskilled business contributed by the Accredited acquisition in November 2021, which has lower average revenue rates per hour than the comparable rates in the balance of our PDS businesses. In addition, we received $5.0 million of ARPA Recovery Funds from various states during the current fiscal year, which we recognized as revenue in our consolidated statements of operations.payers.

Our HHH segment revenue ~~growth~~decline of ~~$49.3~~$16.5 million, or ~~38.3%~~12.9%, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 resulted primarily from ~~incremental volume contributed by our 2021 HHH Acquisitions completed during the second and fourth fiscal quarters of 2021; net of~~ a decline in ~~overall HHH~~ volumes over the comparable ~~periods. Revenue was also negatively impacted by an increase in implicit price~~

concessions in connection with the transition from and implementation of legacy and new electronic medical record, billing and collection systems, as well as the reinstatement of Medicare sequestration.period.

The ~~$3.5~~$8.9 million ~~decrease~~increase in MS segment revenue for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022, was attributable to volume growth of 9.0% combined with a ~~6.7% decrease~~4.3% increase in revenue rate ~~net of a 3.5% increase in volume. The decrease in revenue rate was primarily attributable to payer rate decreases that became effective in September 2021 and~~over the ~~impact of certain product recalls on order fulfillment during the nine months ended October 1, 2022.~~comparable period.

Cost of revenue, excluding depreciation and amortization, was ~~$912.0~~$638.6 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$846.5~~$603.6 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$65.5~~$35.0 million, or ~~7.7%~~5.8%. This increase resulted from the following segment activity:

The ~~4.7%~~7.3% increase in PDS cost of revenue for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 resulted from the previously described ~~0.1%~~2.2% increase in PDS volume ~~net of~~combined with a ~~4.6%~~5.1% increase in PDS cost of revenue rate. The ~~4.6%~~5.1% increase in cost of revenue rate primarily resulted from higher caregiver labor costs including pass-through of state reimbursement rate increases received by the Company, partially offset by the previously noted growth of our unskilled business contributed by the Accredited acquisition in November 2021, which has lower cost of revenue rates than the comparable rates in the balance of our PDS businesses.increases.

The ~~47.2%~~ ~~increase~~9.7% decrease in HHH cost of revenue for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 was driven primarily by ~~the increased~~a decline in HHH volumes, ~~associated with the 2021 HHH Acquisitions completed during the second and fourth fiscal quarters~~offset in part by increases in overall caregiver costs as a percentage of ~~2021, in addition to general wage pressures and higher overall salaried caregiver labor costs in relation to current volumes.~~revenue.

The 12.7% increase in MS cost of revenue for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 was ~~unchanged,~~ driven by the previously described ~~3.5%~~9.0% growth in MS volumes during the first ~~nine months~~quarter of 2022 ~~net of~~and a ~~3.5% decrease~~3.7% increase in cost of revenue rate ~~primarily due to lower order fulfillment per UPS and shifts in product mix~~.

Gross margin was ~~$424.5~~$299.7 million, or ~~31.8%~~31.9% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$418.0~~$289.9 million, or ~~33.1%~~32.4% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021.~~2022. Gross margin increased ~~$6.4~~$9.9 million, or ~~1.5%~~3.4%, ~~over~~from the comparable ~~nine-month periods.~~prior year quarter. The ~~1.3%~~0.5% decrease in gross margin percentage for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our ~~PDS and MS~~ segments, which we refer to as the change in our spread rate, ~~and the change in gross margin percentage in our HHH segment,~~ as follows:

Branch and regional administrative expenses were ~~$267.3~~$183.0 million, or ~~20.0%~~19.5% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$223.5~~$177.7 million, or ~~17.7%~~19.9% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021,~~2022, an increase of ~~$43.8~~$5.2 million, or ~~19.6%~~2.9%.

The ~~19.6%~~2.9% increase in branch and regional administrative expenses ~~exceeded~~was lower than our 5.0% revenue growth ~~of 5.7%~~ for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021. The $43.8 million increase~~2022, primarily due to lower integration costs in the current year quarter, as the integration of the 2021 HHH Acquisitions was completed in the second half of 2022, and the positive effects of restructuring portions of our branch and regional administrative expenses resulted from incremental branch and regional costs to support our 2021 HHH acquisitions and Accredited acquisition. We have generally have maintained our existing field overhead structure in order to support the growth of our businesses upon improvements in the labor markets and patient volumes. Taken together, theseoperating structure. These factors have resulted in the overall ~~2.3% increase~~0.4% decrease in branch and regional administrative expenses as a percentage of revenue during the comparable ~~nine-month~~quarterly periods.

Field contribution was ~~$157.2~~$116.8 million, or ~~11.8%~~12.4% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023, as compared to ~~$194.6~~$112.1 million, or ~~15.4%~~12.5% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021.~~2022. Field contribution ~~decreased $37.4~~increased $4.6 million, or ~~19.2%~~4.1%, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021.~~2022. The ~~3.6%~~0.1% decrease in Field contribution margin for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023 resulted from the following:

Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

Corporate expenses as a percentage of revenue for the ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 were as follows:

Corporate expenses were ~~$106.0~~$57.3 million, or ~~7.9%~~6.1% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$97.7~~$72.8 million, or ~~7.7%~~8.1% of revenue, for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021.~~2022. The ~~$8.3~~$15.5 million, or ~~8.5%~~21.3%, ~~increase~~decrease in ~~year over year~~ corporate expenses resulted primarily from:

Depreciation and amortization was $16.8 million for the nine-month period ended October 1, 2022, compared to $15.2 million for the nine-month period ended October 2, 2021, an increase of $1.6 million, or 10.6%. ~~The $1.6 million increase primarily resulted from incremental depreciation and amortization associated with assets acquired in connection with the 2021 HHH Acquisitions and acquisition of Accredited.~~

~~Goodwill~~There was no goodwill impairment ~~was~~charge recorded for the six-month period ended July 1, 2023. For the six-month period ended July 2, 2022, we recorded a $470.2 million ~~for the nine-month period ended October 1, 2022. As a result of continued~~non-cash, goodwill impairment charge resulting from challenges in ~~the~~ labor markets, including both shortages in workforce and inflationary wage ~~pressures which have not abated and which we expect to persist, w~~e recorded a $470.2 million non-cash, goodwill impairment charge during the second quarter of fiscal year 2022. There was no goodwill impairment charge recorded in the comparative nine-month period ended October 2, 2021.pressures.

~~Acquisition-related costs decreased to $0.1~~Depreciation and amortization was $7.5 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022, from $4.8~~2023, as compared to $11.9 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021. Acquisition-related costs were higher~~2022, a decrease of $4.3 million, or 36.5%. The $4.3 million decrease primarily resulted from the absence of amortization charges associated with assets acquired in connection with the acquisition of Comfort Care and Accredited completed in the ~~first nine months~~fourth quarter of 2021 ~~due~~which were amortized over a one year period.

Other operating income was $3.2 million for the six-month period ended July 1, 2023, as compared to $0.2 million for the ~~Doctors Choice acquisition, which closed in April, 2021, and costs~~six-month period ended July 2, 2022, an increase of $3.1 million. The $3.1 million increase primarily resulted from a release of reserve of $3.6 million related to the ~~fourth quarter fiscal year 2021 acquisitions.~~settlement of a legal matter resulting from a 2020 acquisition.

Other operating expenses were $2.0 million for the nine months ended October 1, 2022 and were primarily related to the impairment of licenses associated with a legacy billing and collection system. There were no such costs for the nine-month period ended October 2, 2021.

Interest expense, net of interest income ~~increased to $73.4~~was $73.8 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022, from $53.6~~2023, as compared to $45.1 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021. Over~~2022, an increase of $28.7 million, or 63.6%. The increase was primarily driven by significant increases in LIBOR, largely because the ~~course~~Federal Reserve Board has significantly increased the U.S. federal funds rate since the beginning of ~~fiscal year 2021, we made numerous changes to our debt structure and outstanding indebtedness, and interest rates have also been higher in 2022 compared to the prior year. Please see the~~2022. See further analysis under Liquidity and Capital Resources~~section below for a detailed discussion of this activity, as well as a description of debt instruments outstanding as of October 1, 2022 and October 2, 2021.~~ below.

Other income was ~~$86.5~~$13.0 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$1.1~~other income of $41.4 million ~~other expense~~ for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021, an increase~~2022, a decrease of ~~$87.6~~$28.4 million. We realized a $46.5 million ~~which was primarily attributable to a $83.4 million increase~~decrease in non-cash valuation gains on interest rate ~~derivatives. The significant valuation gains resulted~~derivatives resulting from ~~accelerated~~changes in market expectations of future ~~increases in~~ interest rates ~~during~~as of the ~~first nine months of 2022.~~comparable quarter-end valuation dates; offset by an $18.2 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year period. Details of other income included the following:

We incurred income tax ~~benefit~~expense of ~~$0.4~~$0.8 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022~~2023, as compared to income tax ~~benefit~~expense of ~~$0.6~~$2.3 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021. The~~2022. This decrease in ~~income~~ tax ~~benefit~~expense was primarily driven by the changes in federal and state valuation allowances, changes in uncertain tax positions and changes to federal and state current tax expense.

In addition to our results of operations prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which we have discussed above, we also evaluate our financial performance using EBITDA, Adjusted EBITDA, Field contribution and Field contribution margin.

EBITDA and Adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as net income (loss). Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net income (loss) before interest expense, net; income tax (expense) benefit; and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain other items that are either non-recurring, infrequent, non-cash, unusual, or items deemed by management to not be indicative of the performance of our core operations, including impairments of goodwill, intangible assets, and other long-lived assets; non-cash, share-based compensation; ~~sponsor fees;~~ loss on extinguishment of debt; fees related to debt modifications; the effect of interest rate derivatives; acquisition-related and integration costs; legal costs and settlements associated with acquisition matters; COVID-19 related costs; restructuring costs; other legal matters; and other system transition costs, professional fees and other costs. As non-GAAP financial measures, our computations of EBITDA and Adjusted EBITDA may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of this measure impracticable.

Management believes our computations of EBITDA and Adjusted EBITDA are helpful in highlighting trends in our core operating performance. In determining which adjustments are made to arrive at EBITDA and Adjusted EBITDA, management considers both (1) certain non-recurring, infrequent, non-cash or unusual items, which can vary significantly from year to year, as well as (2) certain other items that may be recurring, frequent, or settled in cash but which management does not believe are indicative of our core operating performance. We use EBITDA and Adjusted EBITDA to assess operating performance and make business decisions.

We have incurred substantial acquisition-related costs and integration ~~costs in fiscal years 2022, 2021 and 2020.~~costs. The underlying acquisition activities take place over a defined timeframe, have distinct project timelines and are incremental to activities and costs that arise in the ordinary course of our business. Therefore, we believe it is important to exclude these costs from our Adjusted EBITDA because it provides management a normalized view of our core, ongoing operations after integrating our acquired companies, which is an important measure in assessing our performance.

Given our determination of adjustments in arriving at our computations of EBITDA and Adjusted EBITDA, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated:


	Impact to Adjusted EBITDA												Impact to Adjusted EBITDA
	For the three-month periods ended						For the nine-month periods ended						For the three-month periods ended						For the six-month periods ended
(dollars in thousands)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021			July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Revenue	$	-		$	(3	)	$	-		$	(153	)	$	-		$	-		$	-		$	-
Cost of revenue, excluding depreciation and amortization		675			2,697			5,850			3,725			(4,823	)		1,239			(4,678	)		5,176
Branch and regional administrative expenses		3,947			1,381			7,512			3,340			1,723			2,174			3,364			3,565
Corporate expenses		8,299			16,234			35,117			34,597			1,311			13,710			6,184			26,816
Goodwill impairment		-			-			470,207			-			-			470,207			-			470,207
Acquisition-related costs		-			2,007			69			4,779			(33	)		(22	)		37			69
Other operating income		2,121			-			1,952			-
Loss on debt extinguishment		-			4,784			-			13,702
Other (income) expense		(45,139	)		513			(86,522	)		1,089
Other operating (income) expense														(3,646	)		1			(3,646	)		(169	)
Other income														(24,829	)		(4,925	)		(12,569	)		(41,382	)
Total adjustments	$	(30,097	)	$	27,613		$	434,185		$	61,079		$	(30,297	)	$	482,384		$	(11,308	)	$	464,282

Field contribution and Field contribution margin are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as ~~operating income (loss).~~gross margin and gross margin percentage. Rather, we present Field contribution and Field contribution margin as supplemental measures of our performance. We define Field contribution as ~~operating income (loss) prior to corporate expenses~~gross margin less branch and ~~other non-field related costs, including depreciation and amortization, acquisition-related costs, and other operating~~regional administrative expenses. Field contribution margin is Field contribution as a percentage of revenue. As non-GAAP financial measures, our

computations of Field contribution and Field contribution margin may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of these measures impracticable.

Field contribution and Field contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to gross margin, gross margin percentage, net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

Management believes Field contribution and Field contribution margin are helpful in highlighting trends in our core operating performance and evaluating trends in our branch and regional results, which can vary from year to year. We use Field contribution and Field contribution margin to make business decisions and assess the operating performance and results delivered by our core field operations, prior to corporate and other costs not directly related to our field operations. These metrics are also important because they guide us in determining whether or not our branch and regional administrative expenses are appropriately sized to support our caregivers

and direct patient care operations. Additionally, Field contribution and Field contribution margin determine how effective we are in managing our field supervisory and administrative costs associated with supporting our provision of services and sale of products.

The following table reconciles ~~operating income~~gross margin to Field contribution and Field contribution margin for the periods indicated:

Our principal sources of cash have historically been from cash provided by operating activities. Our principal source of liquidity in addition to cash provided by operating activities, or when we have used net cash in our operating activities, has historically been from proceeds from our credit facilities and issuances of common stock. In May, 2021 we raised net proceeds of $477.7 million from our initial public offering, after deducting underwriting discounts and commissions and inclusive of our underwriters’ partial exercise of their overallotment option. We used $407.0 million of these proceeds to repay certain first lien and second lien debt obligations with the balance used for acquisitions in 2021 and general corporate purposes. In November 2021, we entered into the Securitization Facility (as defined below under "Indebtedness"), which we also use as a source of liquidity for completing acquisitions and for working capital as needed. In August 2022, we drew $60.0 million under the Delayed Draw Term Loan Facility to replace cash on our balance sheet previously used to complete acquisitions in the fourth quarter of 2021.

Our principal uses of cash and liquidity have historically been for acquisitions, interest and principal payments under our credit facilities, payments under our interest rate derivatives, and financing of working capital. Payment of interest and related fees under our credit facilities is currently the most significant use of our operating cash flow. Our goal is to use cashflow provided by operations primarily as a source of cash to supplement the purchase price for acquisitions.

As permitted by the CARES Act, we deferred payment of $46.8 million of payroll taxes to the Internal Revenue Service (“IRS”) in fiscal year 2020, which increased our net cash provided by operating activities and available cash on hand. Certain companies we acquired in fiscal years 2020 and 2021 also had ~~also~~ deferred payroll taxes of $4.6 million in aggregate in fiscal year 2020. We did not defer any payroll taxes after December 31, 2020. In December 2021, we ~~used cash from operating activities to pay~~paid $25.9 million to the IRS, reducing our aggregate deferred payroll tax liabilities to $25.5 million, which we paid in full to the IRS in December 2022.

In March 2023, in connection with a $19.8 million legal judgment rendered against us, we posted an $18.4 million appellate bond with the court. The $18.4 million appellate bond is collateralized with $15.0 million of letters of credit and $3.4 million of cash collateral, which is recorded in other current assets in the accompanying financial statements. In July 2023, we reached a confidential settlement agreement with the plaintiffs to release all claims and extinguish the aforementioned judgment in exchange for a settlement payment. The corresponding appeal of the judgment will be discontinued upon finalization of the settlement and we are taking all steps necessary to secure the return of the $15.0 million of letters of credit and $3.4 million of cash collateral.

In response to a $7.9 million arbitration award rendered against us in connection with this civil litigation matter, we may have to fund $9.1 million of cash collateral for an appellate bond while this matter is under appeal. The posting of this cash collateral could also reduce cash available to us for general working capital purposes until the appeal process is concluded.

In connection with a settlement agreement we entered into in March 2023 with the sellers of Epic/Freedom LLC and other defendants (collectively, the “Defendants”), we funded $6.8 million in April 2023 to an escrow account for the purposes of settling certain tax audits with the IRS, which are currently under appeal with the IRS. At such time as ~~of October 1, 2022. This remaining balance must~~the audits are concluded, these escrowed funds will be used to satisfy any additional amounts due to the IRS or paid to the ~~IRS on or before December 31, 2022.~~

~~Certain of our acquired home health and hospice companies received advance payments from CMS in April 2020 pursuant~~Seller. To the extent that any additional amounts due to the ~~CARES Act. Receipt of~~IRS exceed the ~~advances did not increase our net cash provided by operating activities in 2020~~escrowed funds, we as the taxpayer, will be required to fund such amounts, ~~reduced~~but we have contractual rights to reimbursement from the ~~respective purchase prices of those acquired companies. Gross advances received by acquired companies totaled $15.7 million.~~Defendants. We ~~began repaying~~

~~the gross amount of the advances during~~expect these tax matters to conclude in the second ~~quarter~~half of fiscal year ~~2021,~~2023.

For additional information with respect to the foregoing litigation matters, please see "Litigation and Other Current Liabilities" set forth in Note 10 to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.

At July 1, 2023 we had ~~repaid all such advances as of October 1, 2022. We repaid $12.2~~$28.0 million in cash on hand, $15.0 million available to us under our Securitization Facility and approximately $162.0 million of ~~such advances in fiscal year 2021 and $3.5~~borrowing capacity under the Revolving Credit Facility. Available borrowing capacity under the Revolving Credit Facility is subject to a maintenance leverage covenant that becomes effective if more than 30% of the total commitment is utilized, subject to a $15.0 million ~~during the nine months ended October 1, 2022.~~carve-out for letters of credit.

We believe that our operating cash flows, available cash on hand, and availability under our Securitization Facility and ~~credit facilities~~Revolving Credit Facility will be sufficient to meet our cash requirements for at least the next twelve months. Our future capital requirements will depend on many factors that are difficult to predict, including the size, timing and

structure of any future acquisitions, future capital investments and future results of operations. We cannot assure you that cash provided by operating activities or cash and cash equivalents on hand will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

We evaluate our liquidity based upon our current cash balances, the availability we have under our credit facilities in addition to the net cash provided by or (used in) operating, investing and financing activities. Specifically, we review the activity under the Securitization Facility and Revolving Credit Facility (as defined below under "Indebtedness") and consider period end balances outstanding under each. Based upon the outstanding borrowings and letters of credit under the Securitization Facility and Revolving Credit Facility, we calculate the aggregate availability for borrowings under such facilities. Such amount, in addition to cash on our balance sheet, is what we consider to be our “Total Liquidity.”

~~The following table provides a calculation of our Total Liquidity for the nine-month periods ended October 1, 2022 and October 2, 2021, respectively:~~

The following table sets forth a summary of our cash flows from operating, investing, and financing activities for the ~~nine-month~~six-month periods presented:

The primary sources ~~and~~or uses of our operating cash flow are operating income or operating losses, ~~net of any goodwill impairments that we record,~~ as well as any other significant non-cash items such as depreciation, amortization and share-based compensation, and cash

paid for interest. The timing of collections of accounts receivable and the payment of accounts payable, other accrued liabilities and accrued payroll ~~and employee benefits~~ can also impact and cause fluctuations in our operating cash flow. Cash used by operating activities ~~increased~~decreased by ~~$30.4~~$26.3 million during the ~~nine-month~~six month period ended ~~October~~July 1, ~~2022~~2023 compared to the ~~nine-month~~six month period ended ~~October~~July 2, ~~2021,~~2022, primarily due to:

DSO provides us with a gauge to measure the timing of cash collections against accounts receivable and related revenue. DSO is derived by dividing our average patient accounts receivable for the fiscal period by our average daily revenue for the fiscal period. The timing of billing and collecting on our receivables can be affected by many factors, including the annual revalidation of third-party insurance in our PDS business which typically occurs in the first quarter of each year; pre-claim reviews and post-claim reviews associated with Medicare's Review Choice Demonstration Program; acquisition and system transition activities; among other things. The collection cycle for ~~the businesses within~~ our HHH segment is generally longer than that of our PDS segment, primarily due to longer billing cycles for HHH, which is generally billed in thirty day ~~increments, is also generally longer than the businesses within our PDS segment.~~increments. The following table presents our trailing five quarter ~~consolidated~~ DSO for the respective periods:

Net cash used in investing activities was ~~$22.1~~$6.1 million for the ~~nine-month~~six-month period ended ~~October~~July 1, ~~2022,~~2023, as compared to ~~$113.5~~$18.5 million for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2021.~~2022. The primary ~~drivers~~driver of the ~~$91.4~~$12.4 million decrease in cash used ~~during~~in the ~~comparable nine months were a decrease of $101.2 million of cash used for acquisitions, net of a~~current period was the $11.7 million premium paid for an interest rate cap in February 2022.

Net cash provided by financing activities decreased by ~~$12.2~~$16.9 million, from ~~$75.7 million net cash provided during the nine-month period ended October 2, 2021 to $63.4 million provided for the nine-month period ended October 1, 2022. The $63.4~~$34.8 million net cash provided for the ~~first nine months of~~six-month period ended July 2, 2022 to $17.9 million for the six-month period ended July 1, 2023. The $16.9 million decrease was primarily ~~related to the following items:~~attributable to:

~~The $75.7 million net cash provided by financing activities in the first nine months of 2021 was primarily related to the following items~~35

~~We manage our capital expenditures based upon a percentage of revenue. Our capital expenditures expressed as a percentage of revenue were as follows for the nine-month periods presented:~~

We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our Securitization Facility and Revolving Credit Facility from time to time for working capital purposes, as well as to finance acquisitions, as needed. The following table presents our current and long-term obligations under our credit facilities as of ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, as well as related interest expense for the ~~nine-month~~six-month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively:


	Current and Long-term							Interest Expense				Current and Long-term							Interest Expense
(dollars in thousands)	Obligations							For the nine-month periods ended				Obligations							For the six-month periods ended
Instrument	October 1, 2022			October 2, 2021			Interest Rate	October 1, 2022		October 2, 2021		July 1, 2023			December 31, 2022			Interest Rate	July 1, 2023		July 2, 2022
Initial First Lien Term Loan (1)	$	-		$	-		L + 4.25%	$	-	$	15,911
First Lien First Amendment Term Loan (1)		-			-		L + 5.50%		-		7,599
First Lien Fourth Amendment Term Loan (1)		-			-		L + 6.25%		-		5,749
Second Lien Term Loan (1)		-			-		L + 8.00%		-		7,252
2021 Extended Term Loan (2)		851,400			860,000		L + 3.75%		32,310		8,021
Delayed Draw Term Loan (2) (3)		59,850			-		L + 3.75%		5,927		354
Term Loan - Second Lien Term Loan (2)		415,000			-		L + 7.00%		25,388		-
2021 Extended Term Loan (1)(3)												$	904,350		$	908,950		S + 3.75%	$	39,625	$	22,911
Term Loan - Second Lien Term Loan (1)													415,000			415,000		S + 7.00%		24,935		16,085
Revolving Credit Facility (2)		-			-		L + 3.75%		716		-		-			-		S + 3.75%		458		429
Securitization Facility (4)		140,000			-		BSBY + 2.00%		3,389		-		160,000			140,000		BSBY + 2.25%		5,458		1,807
Amortization of debt issuance costs		-			-				5,221		5,494		-			-				2,719		3,527
Other		-			-				794		3,413		-			-				748		524
Total Indebtedness	$	1,466,250		$	860,000			$	73,745	$	53,793	$	1,479,350		$	1,463,950			$	73,943	$	45,283
Weighted Average Interest Rate (5)		7.6	%		5.8	%							9.6	%		8.9	%

We were in compliance with all financial covenants and restrictions related to existing credit facilities at ~~October~~July 1, ~~2022.~~

On March 11, 2021, we amended our senior secured revolving credit facility under the First Lien Credit Agreement (the “Revolving Credit Facility”) to increase the maximum availability to $200.0 million, subject to the occurrence of an initial public offering prior to December 31, 2021, which was completed on May 3, 2021. The amendment also extended the maturity date to April 29, 2026 upon completion of the IPO and subject to the completion of the refinancing of our terms loans, which occurred with the Extension Amendment (as defined below).

On May 3, 2021, we completed our initial public offering, and with a portion of the proceeds received, paid an aggregate principal amount of $307.0 million to repay in full all outstanding obligations under our prior second lien credit agreement, including the incremental amount borrowed in connection with financing the acquisition of Doctor’s Choice, thereby terminating such agreement. In

~~addition, on May 4, 2021, we repaid $100.0 million in principal amount of our outstanding indebtedness under our First Lien Credit Agreement (as defined below).~~

On May 4, 2021, following completion of the initial public offering and satisfaction of the other applicable conditions precedent, the maximum availability of our Revolving Credit Facility increased from $75.0 million to $200.0 million. In connection with this increase in capacity, we incurred debt issuance costs of $1.6 million, which we capitalized and included in other long-term assets.

On July 15, 2021 we entered into an Extension Amendment (the “Extension Amendment”) to our First Lien Credit Agreement, originally dated as of March 16, 2017, with Barclays Bank, as administrative agent, the collateral agent, a letter of credit issuer, and swingline lender, and the lenders and other agents party thereto from time to time (as amended to date, the “First Lien Credit Agreement”). The Extension Amendment converted outstanding balances under all remaining first lien term loans into a single term loan in an aggregate principal amount of $860.0 million (the “2021 Extended Term Loan”), and extended the maturity date to July 2028. The Extension Amendment also provided for a delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) in an aggregate principal amount of $200.0 million, which permits us to incur senior secured first lien term loans (the “Delayed Draw Term Loans”) from time to time until July 15, 2023, in each case subject to certain terms and conditions.

For the 2021 Extended Term Loan and the Delayed Draw Term Loans, we can elect, at our option, the applicable interest rate for borrowings using a variable interest rate based on either LIBOR (subject to a minimum of 0.50%), prime or federal funds rate (“Annual Base Rate” or “ABR”) (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus an applicable margin of 3.75% for loans accruing interest based on LIBOR and an applicable margin of 2.75% for loans accruing interest based on ABR, which are subject to certain adjustments as set forth in the First Lien Credit Agreement. Undrawn portions of the Delayed Draw Term Loan Facility incur a commitment fee of 50% of the LIBOR margin of 3.75% beginning 45 days after the amendment date, and the full LIBOR margin beginning 90 days after the amendment date. On August 9, 2022, we borrowed $60.0 million under the Delayed Draw Term Loan Facility to replace cash on our balance sheet previously used to complete acquisitions in the fourth quarter of fiscal year 2021.

On July 15, 2021, we also amended our interest rate swap agreements to extend the expiration dates to June 30, 2026 and reduce the fixed rate paid under the swaps. As amended, our swap rate decreased to 2.08% from 3.107%, with a reduction in the LIBOR floor under the swaps from 1.00% to 0.50%. The notional amount under the interest rate swaps remains at $520.0 million. We also entered into a three-year, $340.0 million notional interest rate cap agreement with a cap rate of 1.75% in July, 2021, which we sold in November 2021.

On August 9, 2021, we entered into the Seventh Amendment to the First Lien Credit Agreement to reduce the interest rates applicable to loans under the Revolving Credit Facility. As amended, such revolving loans bear interest, at our election, at a variable interest rate based on either LIBOR (subject to a minimum of 0.50%) or ABR (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus an applicable margin of 3.75% for loans accruing interest based on LIBOR and an applicable margin of 2.75% for loans accruing interest based on ABR.

On November 12, 2021, we entered into a three-year Securitization Facility (the "Securitization Facility") which increases the Company’s borrowing capacity by collateralizing a portion of our patient accounts receivable at favorable interest rates relative to our 2021 Extended Term Loan. The maximum amount available under the Securitization Facility is $150.0 million, subject to maintenance of certain borrowing base requirements. Borrowings under this facility carry variable interest rates tied to BSBY plus an applicable margin. Please see Note 5 – ~~Securitization Facility~~, to the unaudited consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion related to the Securitization Facility. On August 8, 2022, we amended our Securitization Facility to increase the maximum amount available to $175.0 million, subject to maintaining certain borrowing base requirements.

On December 10, 2021, we entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement” and together with the First Lien Credit Agreement, the “Senior Secured Credit Facilities”) with a syndicate of lending institutions and Barclays Bank, as administrative agent and collateral agent, which provides for a second lien term loan (the “Second Lien Term Loan”) in an aggregate principal amount of $415.0 million, which matures on December 10, 2029. The Second Lien Term Loan bears interest at a rate per annum equal to, at our option, either (1) an applicable margin (equal to 6.00%) plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the Prime Rate and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; or an applicable margin (equal to 7.00%) plus LIBOR determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs; provided that such rate is not lower than a floor of 0.50%.2023.

On February 9, 2022 we entered into a five-year, $880.0 million notional interest rate cap agreement with a cap rate of 3.0%. The cap agreement expires in February 2027 and ~~provides~~provided that the counterparty ~~will~~would pay us the amount by which LIBOR exceeds 3.0% in a given measurement period. During the quarter ended July 1, 2023, the Company amended its interest rate cap agreements to provide that the counterparty will pay the Company the amount by which SOFR exceeds 2.96%.

On August 9, 2022, we borrowed $60.0 million under the Delayed Draw Term Loan Facility to replace cash on our balance sheet previously used to complete acquisitions in the fourth quarter of fiscal year 2021. ~~The~~On November 16, 2022, we terminated the remaining ~~available amount of $140.0 million under the~~ Delayed Draw Term ~~Loans is available until July 15, 2023, subject to certain terms and conditions.~~Loan Facility of $140.0 million.

On March 23, 2023 we amended the ~~U.K. Financial Conduct Authority,~~agreement governing our Revolving Credit Facility to increase the ~~regulator~~sublimit for letters of credit to $40.0 million from $30.0 million. The other terms of the ~~LIBOR, indicated that it will no longer require banks to submit rates~~Revolving Credit Facility remained unchanged by such amendment.

Due to the ~~LIBOR administrator after 2021 (“LIBOR Phaseout”). This announcement signaled that the calculation~~phase-out of LIBOR, ~~and its continued use could not be guaranteed after 2021 and the anticipated cessation date is~~effective June 30, ~~2023. A change away~~2023, the benchmark interest rate under our senior secured credit facilities converted from LIBOR ~~may~~to SOFR, plus an applicable credit spread adjustment (“CSA”). Effective upon the next regular LIBOR loan renewal, which is anticipated on August 31, 2023, outstanding balances under our senior secured credit facilities will bear interest at SOFR (including the applicable CSA), plus a margin. The margins under our senior secured credit facilities are unchanged as a result of the SOFR conversion. The transition to SOFR is not expected to have a material impact ~~our Senior Secured Credit Facilities. We continue to monitor developments related to~~on the ~~LIBOR transition and/~~Company’s results of operations or ~~identification of an alternative, market-accepted rate. The impact related to any changes cannot be predicted at this time.~~liquidity.

On July 31, 2023, we amended our Securitization Facility to extend its maturity date from November 12, 2024 to July 31, 2026.

Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating and financing leases. These contractual obligations impact our short-term and long-term liquidity and capital needs. As of ~~October~~July 1, ~~2022,~~2023, there were no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022 for accounting policies and related estimates we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting estimates include patient services and product revenue; business combinations; goodwill; and insurance reserves. There have been no changes to our critical accounting estimates or their application since the date of our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we ~~carried out~~conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal ~~financial~~accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in ~~Rules~~Rule 13a-15(e) and ~~15d15(e)~~15d-15(e) under the Securities Exchange Act of 1934 (the ~~“Exchange Act”~~"Exchange Act"). Based on this evaluation, our principal executive officer and principal ~~financial~~accounting officer concluded that, as of ~~the end of the period covered by this Quarterly Report on Form 10-Q, our~~July 1, 2023, such disclosure controls and procedures were not effective, ~~due~~solely as a result of a previously reported material weakness.

Notwithstanding the foregoing, there were no changes to previously issued financial statements, and management did not identify any misstatements in our financial statements as a result of this material weakness. Our principal executive officer and principal accounting officer believe that the interim unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.

A material weakness is a deficiency, or a combination of deficiencies, in ~~our~~ internal control over financial reporting, ~~as described below.~~

~~During the period covered by this Quarterly Report, we identified~~such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the material weakness inis due to control deficiencies related to the ~~design and operation of~~overall information technology general controls ~~(“ITGCs”~~("ITGCs") ~~related to one~~for both user access and program change management for systems supporting all of the ~~revenue systems~~Company's internal control processes and controls, controls over the completeness and accuracy of information used in ~~the Private Duty Service segment that supports the processes related to the preparation of our consolidated financial statements.~~business process controls and management review controls. Our business process controls (automated and manual) ~~that are dependent on the affected ITGCs~~, and management review controls were also deemed ineffective because they are adversely impacted by these ineffective ITGCs. ~~The material weakness did not result~~

As previously described in ~~any identified errors in our consolidated financial statements, and there were no errors identified in any~~Part II Item 9A of our ~~previously reported financial results.~~

~~Management has developed a~~Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management is in the process of implementing its remediation ~~plan to address this control deficiency, which involves~~plan. Our remediation efforts include: (i) implementation of a new revenue ~~system~~system; (ii) changes to our ITGCs in the areas of user access and ~~is planned~~program change-management for systems supporting all of the ~~first quarter~~Company’s internal control processes to ensure that internal controls are designed and operating effectively; and (iii) training and educating the control owners on ITGC policies concerning the principles and requirements of ~~2023.~~each control, with a focus on those related to user access and change-management over IT systems impacting financial reporting. We believe that these actions will remediate the foregoing material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.

Except for the actions intended to remediate the material weakness ~~identified~~as described above, there ~~have been~~were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have occurred during the three-month period ended ~~October~~July 1, ~~2022,~~2023, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.

Our management, including our principal executive officer and principal ~~financial~~accounting officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design

of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of our controls and procedures, our principal executive officer and our principal financial officer concluded our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting, as described above, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Information in response to this Item is included in “Part I – Item 1 - Note 10 – Commitments and Contingencies” and is incorporated by reference into this Part II Item 1 of this Quarterly Report on Form 10-Q.

There have been no material changes to the risk factors described in the Item 1A of our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022.

* Pursuant to Item 601(a)(5) of Regulation S-K, schedules and similar attachments to this exhibit have been omitted because they do not contain information material to an investment or voting decision and such information is not otherwise discussed in such exhibit. The Company will supplementally provide a copy of any omitted schedule or similar attachment to the U.S. Securities and Exchange Commission or its staff upon request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AVAH	The Nasdaq Stock Market LLC



		Page

	Cautionary Note Regarding Forward-Looking Statements	1

	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of ~~October~~July 1, ~~2022~~2023 (Unaudited) and ~~January 1,~~December 31, 2022	2
	Consolidated Statements of Operations for the Three and ~~Nine-Month~~Six-Month Periods Ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 (Unaudited)	3
	Consolidated Statements of Stockholders’ (Deficit) Equity for the Three and ~~Nine-Month~~Six-Month Periods Ended ~~October~~July 1, 2023 and July 2, 2022 ~~and October 2, 2021~~ (Unaudited)	4
	Consolidated Statements of Cash Flows for the ~~Nine-Month~~Six-Month Periods Ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4237
Item 4.	Controls and Procedures	4237

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4439
Item 1A.	Risk Factors	4439
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4439
Item 3.	Defaults Upon Senior Securities	4439
Item 4.	Mine Safety Disclosures	4439
Item 5.	Other Information	4439
Item 6.	Exhibits	4439
	SIGNATURES
	Signatures	4541


Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	69,572	$	47,156	$	60,631	$	42,763
Acquisition of property and equipment on accrual	$	502	$	3,246
Offering costs included in accounts payable and other accrued liabilities	$	-	$	135
Cash paid for income taxes, net of refunds received	$	1,410	$	3,915	$	158	$	998


	For the three-month periods ended						For the six-month periods ended
(dollars in thousands)	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Net income (loss)	$	25,599		$	(473,887	)	$	(6,399	)	$	(448,553	)
Interest expense, net		37,872			22,776			73,755			45,078
Income tax (benefit) expense		(810	)		(344	)		756			2,253
Depreciation and amortization		3,491			6,038			7,532			11,857
EBITDA		66,152			(445,417	)		75,644			(389,365	)
Goodwill, intangible and other long-lived asset impairment		313			470,196			381			470,084
Non-cash share-based compensation		2,586			5,781			5,028			10,596
Interest rate derivatives (1)		(24,667	)		(4,845	)		(12,745	)		(41,028	)
Acquisition-related costs (2)		(33	)		(22	)		37			69
Integration costs (3)		102			6,496			1,235			13,243
Legal costs and settlements associated with acquisition matters (4)		(5,446	)		1,470			(5,142	)		2,509
COVID-related costs, net of reimbursement (5)		-			915			-			5,087
Restructuring (6)		2,621			-			4,748			-
Other legal matters (7)		(5,000	)		-			(5,000	)		-
Other system transition costs, professional fees and other (8)		(773	)		2,393			150			3,722
Total adjustments (9)	$	(30,297	)	$	482,384		$	(11,308	)	$	464,282
Adjusted EBITDA	$	35,855		$	36,967		$	64,336		$	74,917


	For the three-month periods ended						For the nine-month periods ended
(dollars in thousands)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Net income (loss)	$	24,298		$	2,090		$	(424,255	)	$	9,148
Interest expense, net		28,298			12,062			73,376			53,611
Income tax benefit		(2,669	)		(1,100	)		(416	)		(612	)
Depreciation and amortization		4,917			5,145			16,774			15,163
EBITDA		54,844			18,197			(334,521	)		77,310
Goodwill, intangible and other long-lived asset impairment		2,108			15			472,192			109
Non-cash share-based compensation		3,512			4,262			14,108			10,142
Sponsor fees (1)		-			-			-			808
Loss on extinguishment of debt		-			4,784			-			13,702
Bank fees related to debt modifications		-			7,178			-			7,178
Interest rate derivatives (2)		(45,038	)		566			(86,066	)		1,252
Acquisition-related costs (3)		-			2,007			69			4,779
Integration costs (4)		3,266			4,364			16,493			12,482
Legal costs and settlements associated with acquisition matters (5)		876			70			3,385			1,120
COVID-related costs, net of reimbursement (6)		-			2,009			5,087			4,329
Restructuring (7)		2,149			-			2,149			-
Other system transition costs, professional fees and other (8)		3,030			2,358			6,768			5,178
Total adjustments (9)	$	(30,097	)	$	27,613		$	434,185		$	61,079
Adjusted EBITDA	$	24,747		$	45,810		$	99,664		$	138,389


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐

~~Non-accelerated filer~~	☒	Smaller reporting company	☒

Emerging growth company	☐


(dollars in thousands)	Consolidated		PDS			HHH			MS			Consolidated		PDS			HHH			MS
For the three-month period ended October 1, 2022	$	443,009	$	355,620		$	49,853		$	37,536
For the three-month period ended July 1, 2023												$	471,945	$	377,668		$	55,410		$	38,867
Percentage of consolidated revenue				81	%		11	%		8	%				80	%		12	%		8	%
For the three-month period ended October 2, 2021	$	411,276	$	327,133		$	47,000		$	37,143
For the three-month period ended July 2, 2022												$	442,955	$	348,025		$	61,382		$	33,548
Percentage of consolidated revenue				80	%		11	%		9	%				78	%		14	%		8	%


	October 2, 2021		January 1, 2022		April 2, 2022		July 2, 2022		October 1, 2022
Days Sales Outstanding		43.4		44.9		46.5		50.0		47.8


	July 2, 2022		September 30, 2023		December 31, 2022		April 1, 2023		July 1, 2023
Days Sales Outstanding		50.0		47.8		44.5		45.2		46.2


Exhibit Number		Description

10.1		Amendment No. 1 to Second Lien Credit Agreement, dated as of June 30, 2023 (the “Effective Date”), is entered into by Aveanna Healthcare LLC, a Delaware limited liability company (the “Borrower Representative” and a “Borrower”), and Barclays Bank PLC, as administrative agent (in such capacity, the “Administrative Agent”).
10.2		Ninth Amendment to First Lien Credit Agreement, dated as of June 30, 2023 (the “Effective Date”), is entered into by Aveanna Healthcare LLC, a Delaware limited liability company (the “Borrower”), and Barclays Bank PLC, as administrative agent (in such capacity, the “Administrative Agent”).
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal ~~Financial~~Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal ~~Financial~~Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


	Aveanna Healthcare Holdings Inc.

Date: ~~November 15, 2022~~August 10, 2023	By:	/s/ ~~Tony Strange~~Jeff Shaner
		~~Tony Strange~~Jeff Shaner Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 15, 2022~~August 10, 2023	By:	/s/ ~~David Afshar~~Deborah Stewart
		~~David Afshar~~Deborah Stewart
		Chief ~~Financial~~Accounting Officer (Principal ~~Financial and~~ Accounting Officer)