UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended April ~~3, 2021~~1, 2023


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

For the transition period from ___________ to ___________

Commission File Number: 001-40362

Aveanna Healthcare Holdings Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

81-4717209

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

400 Interstate North Parkway SE, Atlanta, GA30339

(Address of principal executive offices, including zip code)

~~(770)~~ (770) 441-1580

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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 May ~~25, 2021,~~5, 2023, the registrant had ~~184,164,184~~185,859,165 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page
		~~Page~~

	Cautionary Note Regarding Forward-Looking Statements	1

	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of April ~~3, 2021~~1, 2023 (Unaudited) and ~~January 2, 2021~~December 31, 2022	2
	Consolidated Statements of Operations for the Three-Month Periods Ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 2022 (Unaudited)	3
	Consolidated Statements of Stockholders’ (Deficit) Equity for the Three-Month Periods Ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 2022 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Three-Month Periods Ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 2022 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231
Item 4.	Controls and Procedures	3231

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	3433
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3433
Item 3.	Defaults Upon Senior Securities	3433
Item 4.	Mine Safety Disclosures	3433
Item 5.	Other Information	3433
Item 6.	Exhibits	3433
	SIGNATURES
	Signatures	3634

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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, ~~(the “Securities Act”)~~ 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:

▪

intense competition among home health, hospice and durable medical equipment companies;

▪

our ability to maintain relationships with existing patient referral sources;

▪

the possibility that our business, financial condition and results of operations may be materially adversely affected by a resurgence of the COVID-19 pandemic or variants of the virus;

▪

our ability to have services funded from third-party payers, including Medicare, Medicaid and private health insurance companies;

▪

changes to Medicare or Medicaid rates or methods governing Medicare or Medicaid payments, and the implementation of alternative payment models, including but not limited to Medicare Advantage, Managed Care Organization, managed Medicaid, and other forms of managed care;

▪

any downward pressure on reimbursement resulting from further proliferation of Medicare Advantage plans;

▪

our limited ability to control reimbursement rates received for our services;

▪

delays in collection or non-collection of our patient accounts receivable, particularly during the business integration process, or when transitioning between systems associated with clinical data collection and submission, as well as billing and collection systems;

▪

healthcare reform and other regulations;

▪

changes in the case-mix of our patients, as well as payer mix and payment methodologies;

▪

any reduction in net reimbursement if we do not effectively implement value-based care programs;

▪

our ability to attract and retain experienced employees and management personnel, and including both shortages in workforce and inflationary wage pressures;

▪

any failure to maintain the security and functionality of our information systems or to defend against or otherwise prevent a cybersecurity attack or breach;

▪

our substantial indebtedness, which increases our vulnerability to general adverse economic and industry conditions and may limit our ability to pursue strategic alternatives and react to changes in our business and industry;

▪

our ability to identify, acquire, successfully integrate and obtain financing for strategic and accretive acquisitions;

▪

risks related to legal proceedings, claims and governmental inquiries given that the nature of our business exposes us to various liability claims, which may exceed the level of our insurance coverage; and

▪

the other risks described under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” contained in our Annual Report on Form 10-K filed on March 16, 2023.

▪

~~intense competition among home health, hospice and durable medical equipment companies;~~

▪

~~our ability to maintain relationships with existing patient referral sources;~~

▪

~~the possibility that our business, financial condition and results of operations may be materially adversely affected by the COVID-19 pandemic;~~

▪

~~our ability to have services funded from third-party payers, including Medicare, Medicaid and private health insurance companies;~~

▪

~~changes to Medicare or Medicaid rates or methods governing Medicare or Medicaid payments, and the implementation of alternative payment models;~~

▪

~~our limited ability to control reimbursement rates received for our services;~~

▪

~~delays in collection or non-collection of our patient accounts receivable, particularly during the business integration process;~~

▪

~~healthcare reform and other regulations;~~

▪

~~changes in the case-mix of our patients, as well as payer mix and payment methodologies;~~

▪

~~any loss of existing favorable managed care contracts;~~

▪

~~our ability to attract and retain experienced employees and management personnel;~~

▪

~~any failure to maintain the security and functionality of our information systems or to defend against or otherwise prevent a cybersecurity attack or breach;~~

▪

our substantial indebtedness, which will increase our vulnerability to general adverse economic and industry conditions and may limit our ability to pursue strategic alternatives and react to changes in our business and industry;

▪

~~our ability to identify, acquire, successfully integrate and obtain financing for strategic and accretive acquisitions;~~

▪

~~the other risks described under Part II, Item 1A,“Risk Factors” in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” contained in the Prospectus.~~

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

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

As of

April 3, 2021

January 2, 2021

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents
$
67,105

$
137,345

Patient accounts receivable

195,720

172,887

Receivables under insured programs

8,388

7,992

Prepaid expenses

12,609

11,080

Other current assets

9,394

11,340

     Total current assets

293,216

340,644

Property and equipment, net

32,168

32,650

Operating lease right of use assets

45,231

46,217

Goodwill

1,317,340

1,316,385

Intangible assets, net

72,266

73,572

Receivables under insured programs

25,184

23,990

Deferred income taxes

2,931

2,931

Other long-term assets

9,426

7,627

     Total assets
$
1,797,762

$
1,844,016

LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and other accrued liabilities
$
41,906

$
56,668

Accrued payroll and employee benefits

49,239

56,834

Accrued interest

2,476

2,398

Notes payable

1,814

2,872

Current portion of insurance reserves - insured programs

8,388

7,992

Current portion of insurance reserves

13,186

12,294

Current portion of long-term obligations

9,910

9,910

Current portion of operating lease liabilities

11,312

11,884

Current portion of deferred payroll taxes

24,824

24,824

Government stimulus liabilities

-

29,444

Other current liabilities

44,430

45,293

     Total current liabilities

207,485

260,413

Revolving credit facility

-

-

Long-term obligations, less current portion

1,163,059

1,163,490

Long-term insurance reserves - insured programs

25,184

23,990

Long-term insurance reserves

32,910

30,336

Operating lease liabilities, less current portion

39,260

40,246

Deferred payroll taxes, less current portion

24,824

24,824

Deferred income taxes

3,285

2,591

Other long-term liabilities

28,076

30,957

     Total liabilities

1,524,083

1,576,847

Commitments and contingencies (Note 10)

Deferred restricted stock units

2,135

2,135

Stockholders’ equity:

Preferred stock, no par value, 5,000,000 shares authorized; NaN issued or outstanding

-

-

Common stock, $0.01 par value, 1,000,000,000 shares authorized;

     141,928,184 issued and outstanding, respectively

1,419

1,419

Additional paid-in capital

721,959

721,247

Accumulated deficit

(451,834
)

(457,632
)
     Total stockholders’ equity

271,544

265,034

     Total liabilities, deferred restricted stock units, and stockholders’ equity
$
1,797,762

$
1,844,016


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
	As of
	April 1, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	34,433		$	19,217
Patient accounts receivable		241,832			221,237
Receivables under insured programs		4,802			4,395
Prepaid expenses		16,589			15,089
Other current assets		10,840			9,813
Total current assets		308,496			269,751
Property and equipment, net		21,451			22,752
Operating lease right of use assets		51,679			54,601
Goodwill		1,159,688			1,159,688
Intangible assets, net		97,531			95,863
Receivables under insured programs		24,491			22,865
Other long-term assets		67,559			86,240
Total assets	$	1,730,895		$	1,711,760


LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and other accrued liabilities	$	42,581		$	44,624
Accrued payroll and employee benefits		62,152			43,836
Current portion of insurance reserves - insured programs		4,802			4,395
Current portion of insurance reserves		28,275			27,531
Securitization obligations		155,000			140,000
Current portion of long-term obligations		9,200			9,200
Current portion of operating lease liabilities		16,110			13,070
Other current liabilities		57,626			43,841
Total current liabilities		375,746			326,497
Revolving credit facility		-			-
Long-term obligations, less current portion		1,279,864			1,281,082
Long-term insurance reserves - insured programs		24,491			22,865
Long-term insurance reserves		36,686			35,470
Operating lease liabilities, less current portion		43,087			45,818
Deferred income taxes		4,438			3,844
Other long-term liabilities		314			359
Total liabilities		1,764,626			1,715,935
Commitments and contingencies (Note 10)
Deferred restricted stock units		2,135			2,135
Stockholders’ deficit:
Preferred stock, $0.01 par value as of April 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;
188,859,165 and 188,859,165 issued and outstanding, respectively		1,888			1,888
Additional paid-in capital		1,230,954			1,228,512
Accumulated deficit		(1,268,708	)		(1,236,710	)
Total stockholders’ deficit		(35,866	)		(6,310	)
Total liabilities, deferred restricted stock units, and stockholders’ deficit	$	1,730,895		$	1,711,760

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

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)

For the Three-Month Periods Ended

April 3, 2021

March 28, 2020

Revenue
$
417,160

$
355,223

Cost of revenue, excluding depreciation and amortization

285,477

247,682

Branch and regional administrative expenses

69,372

59,694

Corporate expenses

27,399

25,797

Depreciation and amortization

4,848

4,183

Acquisition-related costs

1,768

-

Operating income

28,296

17,867

Interest income

77

46

Interest expense

(22,425
)

(21,063
)
Gain on debt extinguishment

-

127

Other income

159

41,791

Income before income taxes

6,107

38,768

Income tax expense

(309
)

(1,131
)
Net income
$
5,798

$
37,637

Income per share:

Net income per share, basic
$
0.04

$
0.27

Weighted average shares of common stock outstanding, basic

142,122,934

137,468,875

Net income per share, diluted
$
0.04

$
0.27

Weighted average shares of common stock outstanding, diluted

146,266,014

140,330,909


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


	For the three-month periods ended
	April 1, 2023			April 2, 2022
Revenue	$	466,413		$	450,534
Cost of revenue, excluding depreciation and amortization		321,948			305,708
Branch and regional administrative expenses		91,708			88,743
Corporate expenses		30,935			36,567
Depreciation and amortization		4,041			5,819
Acquisition-related costs		70			91
Other operating expense (income)		72			(170	)
Operating income		17,639			13,776
Interest income		75			62
Interest expense		(35,958	)		(22,364	)
Other (expense) income		(12,188	)		36,457
(Loss) income before income taxes		(30,432	)		27,931
Income tax expense		(1,566	)		(2,597	)
Net (loss) income	$	(31,998	)	$	25,334
Net (loss) income per share:
Net (loss) income per share, basic	$	(0.17	)	$	0.14
Weighted average shares of common stock outstanding, basic		189,054			184,927
Net (loss) income per share, diluted	$	(0.17	)	$	0.14
Weighted average shares of common stock outstanding, diluted		189,054			185,427

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

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)

For the Three-Month Period Ended April 3, 2021

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

Shares

Amount

Capital

Deficit

Equity

Balance, January 2, 2021

141,928,184

$
1,419

$
721,247

$
(457,632
)

$
265,034

Non-cash compensation

-

-

712

-

712

Net income

-

-

-

5,798

5,798

Balance, April 3, 2021

141,928,184

$
1,419

$
721,959

$
(451,834
)

$
271,544

For the Three-Month Period Ended March 28, 2020

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

Shares

Amount

Capital

Deficit

Equity

Balance, December 28, 2019

136,803,189

$
1,368

$
669,406

$
(400,582
)

$
270,192

Issuance of common stock

5,124,995

51

49,949

-

50,000

Non-cash compensation

-

-

318

-

318

Net income

-

-

-

37,637

37,637

Balance, March 28, 2020

141,928,184

$
1,419

$
719,673

$
(362,945
)

$
358,147


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

	For the three-month period ended April 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	)
Non-cash share-based compensation		-		-		2,442		-			2,442
Net loss		-		-		-		(31,998	)		(31,998	)
Balance, April 1, 2023		188,859,165	$	1,888	$	1,230,954	$	(1,268,708	)	$	(35,866	)


	For the three-month period ended April 2, 2022
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance, January 1, 2022		184,732,268	$	1,847	$	1,208,645	$	(574,676	)	$	635,816
Non-cash share-based compensation		-		-		4,815		-			4,815
Net income		-		-		-		25,334			25,334
Balance, April 2, 2022		184,732,268	$	1,847	$	1,213,460	$	(549,342	)	$	665,965

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

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

For the Three-Month Periods Ended

April 3, 2021

March 28, 2020

Cash Flows From Operating Activities:

Net income
$
5,798

$
37,637

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

4,848

4,183

Amortization of deferred debt issuance costs

2,140

1,744

Amortization and impairment of operating lease right of use assets

3,550

3,123

Non-cash compensation

712

318

(Gain) loss on disposal of licenses, property and equipment

(4
)

48

Fair value adjustment on interest rate derivatives

(2,820
)

6,422

Gain on debt extinguishment

-

(127
)
Deferred income taxes

694

573

Changes in operating assets and liabilities, net of impact of acquisitions:

Patient accounts receivable

(22,852
)

(1,168
)
Prepaid expenses

(1,684
)

1,760

Other current and long-term assets

1,957

2,748

Accounts payable and other accrued liabilities

(15,841
)

(10,187
)
Accrued payroll and employee benefits

(7,595
)

(1,881
)
Accrued interest

78

1,826

Insurance reserves

3,466

684

Operating lease liabilities

(4,126
)

(3,317
)
Deferred payroll taxes

-

885

Other current and long-term liabilities

(1,232
)

(1,218
)
Net cash (used in) provided by operating activities

(32,911
)

44,053

Cash Flows From Investing Activities:

Acquisitions of businesses, net of cash acquired

(500
)

-

Purchases of property and equipment

(2,665
)

(6,327
)
Net cash used in investing activities

(3,165
)

(6,327
)
Cash Flows From Financing Activities:

Proceeds from issuance of common stock

-

50,000

Proceeds from revolving credit facility

-

14,000

Repayments on revolving credit facility

-

(45,500
)
Principal payments on term loans and notes payable

(3,535
)

(2,677
)
Payment of government stimulus funds

(29,444
)

-

Principal payments of financing lease obligations

(203
)

(153
)
Payment of debt issuance costs

(196
)

(689
)
Payment of deferred offering costs

(786
)

-

Net cash (used in) provided by financing activities

(34,164
)

14,981

Net (decrease) increase in cash and cash equivalents

(70,240
)

52,707

Cash and cash equivalents at beginning of period

137,345

3,327

Cash and cash equivalents at end of period
$
67,105

$
56,034

Supplemental Disclosures of Cash Flow Information:

Cash paid for interest
$
20,207

$
17,493

Acquisition of property and equipment on accrual
$
2,520

$
4,003

Deferred offering costs included in accounts payable and other accrued liabilities
$
1,874

$
-

Cash paid for income taxes, net of refunds received
$
(202
)

$
-


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
	For the three-month periods ended
	April 1, 2023			April 2, 2022
Cash Flows From Operating Activities:
Net (loss) income	$	(31,998	)	$	25,334
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization		4,041			5,819
Amortization of deferred debt issuance costs		1,421			1,740
Amortization and impairment of operating lease right of use assets		4,236			4,193
Non-cash share-based compensation		2,442			4,815
Loss (gain) on disposal or impairment of licenses, property and equipment, and software		68			(282	)
Fair value adjustments on interest rate derivatives		18,537			(38,256	)
Deferred income taxes		594			1,414
Changes in operating assets and liabilities, net of impact of acquisitions:
Patient accounts receivable		(20,595	)		(22,552	)
Prepaid expenses		(1,500	)		(1,253	)
Other current and long-term assets		(4,441	)		3,554
Accounts payable and other accrued liabilities		(1,763	)		5,199
Accrued payroll and employee benefits		18,316			(1,546	)
Insurance reserves		1,960			3,836
Operating lease liabilities		(1,005	)		(4,370	)
Other current and long-term liabilities		17,182			2,879
Net cash provided by (used in) operating activities		7,495			(9,476	)
Cash Flows From Investing Activities:
Acquisitions of businesses, net of cash acquired		-			(1,394	)
Proceeds from sale of businesses		-			460
Payment for interest rate cap		-			(11,725	)
Purchase of certificates of need		(2,678	)		-
Purchases of property and equipment, and software		(2,122	)		(3,984	)
Net cash used in investing activities		(4,800	)		(16,643	)
Cash Flows From Financing Activities:
Proceeds from securitization obligation		35,000			30,000
Repayment of securitization obligation		(20,000	)		(10,000	)
Proceeds from revolving credit facility		20,000			-
Repayments on revolving credit facility		(20,000	)		-
Principal payments on term loans		(2,300	)		(2,150	)
Principal payments on notes payable		(3,192	)		(2,551	)
Principal payments on financing lease obligations		(206	)		(181	)
Settlements with interest rate swap counterparties		3,219			(2,050	)
Net cash provided by financing activities		12,521			13,068
Net change in cash and cash equivalents		15,216			(13,051	)
Cash and cash equivalents at beginning of period		19,217			30,490
Cash and cash equivalents at end of period	$	34,433		$	17,439


Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	24,196		$	16,136
Cash paid for income taxes, net of refunds received	$	(386	)	$	(161	)

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

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

~~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 ~~operations~~locations in 3033 states with concentrations in California, Texas ~~Pennsylvania,~~ and ~~California,~~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~~hospitalization..

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 April ~~3, 2021~~1, 2023 and the results of operations for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 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 2, 2021~~December 31, 2022 included in the Company’s ~~prospectus dated April 28, 2021 (the “Prospectus”), which is deemed to be part of the Company’s Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-254981)~~10-K filed with the ~~SEC.~~SEC on March 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 April ~~3, 2021~~1, 2023 and ~~January 2, 2021.~~December 31, 2022. For the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, the accompanying interim unaudited consolidated statements of operations, stockholders’ (deficit) equity and cash flows reflect the accounts of the Company from January ~~3, 2021~~1, 2023 through April ~~3, 2021~~1, 2023 and ~~December 29, 2019~~January 2, 2022 through ~~March 28, 2020,~~April 2, 2022, respectively.

Use of Estimates

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

~~Deferred Offering Costs~~

The Company has deferred offering costs, consisting of legal, accounting, filing and other fees and costs directly attributable to the Company’s initial public offering. The deferred offering costs will be offset against the proceeds received upon the closing of the initial public offering. As of April 3, 2021 and January 2, 2021, capitalized deferred offering costs totaled $4.8 million and $2.9 million, respectively, and were included in other long-term assets on the accompanying consolidated balance sheets. ~~See Note 15 – Subsequent Events for additional information regarding the completion of the Company’s initial public offering and its effects.~~

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Recently Adopted Accounting Pronouncements~~

~~In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improves consistent application by clarifying and amending existing guidance. This ASU is effective for annual fiscal years beginning after December 15, 2020, and interim periods therein. The Company adopted this standard effective January 3, 2021, and the adoption of this standard did not materially affect the Company’s consolidated financial statements.

Recently Issued 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 ASU is effective as of March 12, 2020 through December 31, ~~2022.~~2024. An 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.~~

In6

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Additionally, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications 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.~~these standards.

3. REVENUE

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

~~REVENUE~~

Revenue is primarily derived from (i) pediatric healthcare services provided to patients including private duty nursing and therapy ~~services, and~~services; (ii) adult home health and hospice services ~~(“patient~~(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 ~~treatment~~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 ~~upon~~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 disaggregates revenue from contracts with customers by reportable segment and by payer within each of the Company’s lines of business. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.

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 ~~(“EOR”)~~ 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.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Other Revenue.~~ The Company provides financial management services in order to assist families and patients by coordinating the reimbursement of authorized medical expenses between certain state-contracted non-profit programs and families and patients. Other revenue represents the monthly fee earned by the Company for providing these services.

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 providers of state government Medicaid programs (“Medicaid MCO”); (iii) commercial insurers; (iv) other government programs including Medicare, Tricare and ~~Tricare~~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 contractual adjustments and discounts provided to third-party payers and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements ~~discount policies~~ and historical experience. ~~For the PDS, HHH, and MS businesses, implicit~~Implicit price concessions are based on historical collection experience. As of April ~~3, 2021~~1, 2023 and ~~January 2, 2021,~~December 31, 2022, estimated explicit and implicit price concessions of ~~$56.3~~$50.3 million and ~~$55.4~~$52.6 million, respectively, were recorded as reductions to ~~our~~ patient accounts receivable balances to ~~enable us to record our~~arrive at the estimated collectible revenue and patient accounts ~~receivable at the estimated amounts we expected to collect. For the PDS, HHH, and MS businesses, most~~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 0tnot record any bad debt expense for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively.

The Company derives a significant portion of its revenue from Medicaid, Medicaid MCO, Medicare and other ~~government~~ 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 its interpretation of the applicable regulations or contract terms. Updated regulations and contract negotiations occur frequently,

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively.

The following table presents revenue by payer type ~~and~~ as a percentage of total revenue for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020, respectively (in thousands):~~April 2, 2022, respectively:


	For the three-month periods ended
	April 1, 2023			April 2, 2022
Medicaid MCO		54.6	%		49.5	%
Medicaid		22.5	%		22.0	%
Commercial		10.2	%		10.1	%
Medicare		12.6	%		18.3	%
Self-pay		0.1	%		0.1	%
Total revenue		100.0	%		100.0	%

For the Three-Month Periods Ended

April 3, 2021

March 28, 2020

Revenue

Percentage

Revenue

Percentage

Medicaid MCO

$
232,884

55.8
%

$
209,873

59.1
%
Medicaid

103,497

24.8
%

94,960

26.7
%
Commercial

47,003

11.3
%

41,235

11.6
%
Medicare

32,016

7.7
%

8,552

2.4
%
Self-pay

1,760

0.4
%

603

0.2
%
Total revenue

$
417,160

100.0
%

$
355,223

100.0
%

4. LONG-TERM OBLIGATIONS

4.	~~ACQUISITIONS~~

~~Acquisitions During the Three-Month Period Ended April 3, 2021~~

On March 31, 2021, the Company acquired certain assets of Loma Linda University Medical Center (“Loma Linda”). Loma Linda specializes in providing pediatric, private duty, and home care services in California. Total consideration for the transaction was $0.5 million, which was paid in cash at closing. The total consideration was recorded directly to goodwill on the accompanying consolidated balance sheet. The entire amount of goodwill is deductible for tax purposes.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

During the three-month period ended April 3, 2021, the Company incurred $1.8 million in transaction costs, including $0.1 million related to the Loma Linda transaction, as well as $1.7 million related to the subsequent acquisition discussed in Note 15 – Subsequent Events. These costs are included in acquisition-related costs in the accompanying consolidated statement of operations. The Company did 0t incur any acquisition-related costs during the three-month period ended March 28, 2020.

Pro forma financial information related to the Loma Linda acquisition has not been provided as it is not material to the Company’s consolidated results of operations. The results of operations of the Loma Linda acquisition are included in the Company’s consolidated results of operations from the date of acquisition and were not significant for the three-month period ended April 3, 2021.

5.	~~LONG-TERM OBLIGATIONS AND NOTES PAYABLE~~

Long-term obligations ~~and notes payable~~ consisted of the following as of April ~~3, 2021~~1, 2023 and ~~January 2, 2021,~~December 31, 2022, respectively (dollar amounts in thousands):

Instrument
Stated
Maturity
Date
Contractual
Interest
Rate (1)

Interest Rate
as of
April 3, 2021

April 3, 2021

January 2, 2021

Term loan - First Lien Term Loan
03/2024
L + 4.25%

5.25%

$
561,600

$
563,061

Term loan - First Lien Term Loan Amendment
03/2024
L + 5.5%

6.50%

216,580

217,133

Term loan - First Lien Term Loan Fourth Amendment
03/2024
L + 6.25%

7.25%

184,075

184,538

Subordinated term loan - Second Lien Term Loan
03/2025
L + 8.0%

9.00%

240,000

240,000

Revolving Credit Facility
03/2023
L + 4.25%

5.25%

-

-

Notes payable - finance agreements
09/2021
2.07%

2.07%

1,814

2,872

Total principal amount of long-term obligations and notes payable

1,204,069

1,207,604

Less: unamortized debt issuance costs

(29,286
)

(31,332
)
Total amount of long-term obligations and notes payable, net of unamortized debt issuance costs

1,174,783

1,176,272

Less: current portion of long-term obligations and notes payable

(11,724
)

(12,782
)
Total amount of long-term obligations and notes payable, net of unamortized debt issuance costs, less current portion

$
1,163,059

$
1,163,490

⁽¹⁾ L = Greater of 1.00% or one-month LIBOR


Instrument	Stated Maturity Date	Contractual Interest Rate	Interest Rate as of April 1, 2023	April 1, 2023			December 31, 2022
2021 Extended Term Loan (1)	07/2028	L + 3.75%	8.70%	$	906,650		$	908,950
Second Lien Term Loan (1)	12/2029	L + 7.00%	11.95%		415,000			415,000
Revolving Credit Facility (1)	04/2026	L + 3.75%	8.70%		-			-
Total principal amount of long-term obligations					1,321,650			1,323,950
Less: unamortized debt issuance costs					(32,586	)		(33,668	)
Total amount of long-term obligations, net of unamortized debt issuance costs					1,289,064			1,290,282
Less: current portion of long-term obligations					(9,200	)		(9,200	)
Total amount of long-term obligations, net of unamortized debt issuance costs, less current portion				$	1,279,864		$	1,281,082
(1) L = Greater of 0.50% or one-month LIBOR

The 2021 Extended Term Loan and Revolving Credit Facility bear interest, at the Company’s 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. As of April 1, 2023, the principal amount of the 2021 Extended Term Loan and borrowings under the Revolving Credit Facility accrued interest at a rate of 8.70%. On March ~~11, 2021,~~23, 2023, the Company amended ~~its revolving credit facility~~the agreement governing the Revolving Credit Facility to increase the ~~maximum availability~~sublimit for letters of credit to ~~$200.0~~$40.0 million ~~subject~~from $30.0 million. The other terms of the Revolving Credit Facility remained unchanged.

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 ~~occurrence~~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 ~~initial public offering. The amendment also extended~~interest period of one month adjusted for certain additional costs, plus 1.00%; or (2) an applicable margin (equal to 7.00%) plus LIBOR determined by reference to the ~~maturity date~~cost of funds for U.S. dollar deposits for the interest period relevant to ~~March 2023;~~such borrowing adjusted for certain additional costs; provided that ~~upon the occurrence~~such rate is not lower than a floor of ~~an initial public offering, the maturity date will become the date that is five years after the completion~~0.50%. As of ~~such initial public offering, or May 2026; provided further that if the Company does not refinance its term loans by December~~April 1, 2023, the ~~maturity date will become December 2023. See Note 15 – Subsequent Events for additional information regarding the completion~~principal amount of the ~~Company’s initial public offering and its effects on the Company’s long-term obligations.~~

~~In conjunction with entering into~~Second Lien Term Loan accrued interest at a settlement agreement related to an acquisition, the Company amended its first lien credit agreement on March 19, 2020, and April 1, 2020. These amendments allowed the Company to retain certain legal settlement payments it received during the three-month period ended March 28, 2020 and also increased the letter of credit commitment limit under the revolving credit facility to $30.0 million.

The Company has a LIBOR floor of 1.0% under its credit facilities. Beginning on March 18, 2020 and continuing for the remainder of the first fiscal quarter of 2020, as well as continuing through the three-month period ended April 3, 2021, the LIBOR benchmark rates decreased below 1.0%. Accordingly, the LIBOR floor rate of ~~1.0% became operative under the Company’s credit facility agreements and remained in effect at April 3, 2021.~~11.95%.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 April ~~3, 2021~~1, 2023 and ~~January 2, 2021~~December 31, 2022 was ~~$29.3~~$32.6 million and ~~$31.3~~$33.3 million, respectively. Debt issuance costs related to the ~~revolving credit facility~~Revolving Credit Facility are recorded within other long-term assets. The balance

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

for debt issuance costs related to the ~~revolving credit facility~~Revolving Credit Facility as of April ~~3, 2021~~1, 2023 and ~~January 2, 2021~~December 31, 2022 was ~~$0.4~~$0.0 million and ~~$0.5~~$0.2 million, respectively. The Company recognized ~~$2.1 million and $1.7 million of~~ interest expense related to the amortization of debt issuance costs of $1.4 million and $1.7 million during the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively.

Issued letters of credit as of April ~~3, 2021~~1, 2023 and ~~January 2, 2021~~December 31, 2022 were ~~$19.8~~$38.0 million and $19.7 million, respectively. There were 0no swingline loans outstanding as of April ~~3, 2021 and January 2, 2021, respectively.~~1, 2023 or December 31, 2022. Borrowing capacity under the ~~revolving credit facility~~Company's Revolving Credit Facility was ~~$55.2~~approximately $162.0 million as of April ~~3, 2021~~1, 2023 and ~~January~~$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 ~~2021, respectively.~~inputs. The aggregate fair value of the Company's long-term obligations was $1,023.8 million at April 1, 2023.

The Company was in compliance with all financial covenants and restrictions under the foregoing instruments at April 3,1, 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”) entered into a Receivables Financing Agreement (as amended, the “Securitization Facility”) with a lending institution with a termination date of November 12, 2024. The maximum amount available under the Securitization Facility 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 ~~January~~included in other long-term assets. The Company recognized interest expense related to the amortization of debt issuance costs of $0.1 million and $0.1 million for the three-month periods ended April 1, 2023 and April 2, ~~2021.~~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 $155.0 million and $140.0 million at April 1, 2023 and 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 7.16% at April 1, 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 consolidated balance sheets; (ii) the accompanying consolidated statements of operations reflect the interest expense associated 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 consolidated statements of cash flows. The Securitization Facility is included within current liabilities on the accompanying 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

~~FAIR VALUE MEASUREMENTS~~

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 ~~liabilities~~assets measured at fair value ~~are~~were as follows (amounts in thousands):

Fair Value Measurements at April 3, 2021

Level 1

Level 2

Level 3

Total

Liabilities:

Interest rate swap agreements
$
-

$
25,804

$
-

$
25,804

$
-

$
25,804

$
-

$
25,804

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Fair Value Measurements at April 1, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Interest rate cap agreements	$	-	$	36,423	$	-	$	36,423
Interest rate swap agreements		-		26,790		-		26,790
Total derivative assets	$	-	$	63,213	$	-	$	63,213

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

Fair Value Measurements at January 2, 2021

Level 1

Level 2

Level 3

Total

Liabilities:

Interest rate swap agreements
$
-

$
28,624

$
-

$
28,624

$
-

$
28,624

$
-

$
28,624

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 ~~arrangements.~~and cap agreements.

7.DERIVATIVE FINANCIAL INSTRUMENTS

~~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.~~swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value on the accompanying 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 ~~derivative.~~ derivatives.

~~In October 2018, the~~The Company ~~entered into 2~~currently has two interest rate swap agreements intended to limit its exposure to interest rate risk on its variable rate debt. ~~At April 3, 2021~~These swaps expire on June 30, 2026. Under the swaps, the Company pays a fixed rate of 2.08% and ~~January 2, 2021,~~receives the one-month LIBOR rate, subject to a 0.50% floor. The aggregate notional amount of the interest rate swaps ~~was $520.0~~remained unchanged at $520.0 million at April 1, 2023 and December 31, 2022, respectively. The fair value of the interest rate swaps was $26.8 million at April ~~3, 2021~~1, 2023 and ~~January 2, 2021 was $25.8~~$34.3 million ~~and $28.6 million, respectively,~~at December 31, 2022 and is included in other long-term ~~liabilities on~~assets in the accompanying consolidated balance sheets. ~~The agreements expire on October 31, 2023.~~ The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income onin the accompanying consolidated statements of ~~operations.~~operations, which are included within cash flows from operating activities in the accompanying consolidated statements of cash flows. The ~~effects of~~net settlements incurred with swap counterparties under the ~~interest rate swaps~~swap agreements are recognized through cash flows from ~~operating~~financing activities onin the accompanying consolidated statements of cash ~~flows.~~flows due to an other-than-insignificant financing element on the interest rate 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 was $36.4 million at April 1, 2023 and $47.5 million at December 31, 2022 and is included in other long-term assets on the accompanying 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 accompanying 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.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following losses and gains ~~(losses)~~ from these derivatives not designated as hedging instruments were recognized in the Company’s accompanying consolidated statements of operations for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively (amounts in thousands):

Statement of Operations

For the Three-Month Periods Ended

Classification

April 3, 2021

March 28, 2020

Interest rate swap agreements
Other income

$
2,820

$
(6,422
)


	Statement of Operations	For the three-month periods ended
	Classification	April 1, 2023			April 2, 2022
Interest rate cap agreements	Other (expense) income	$	(11,036	)	$	12,545
Interest rate swap agreements	Other (expense) income	$	(7,501	)	$	25,711

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

8. INCOME TAXES

~~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 income tax expense of ~~$0.3~~$1.6 million and ~~$1.1~~$2.6 million for the three-month periods ended April ~~3, 2021~~1, 2023, and ~~March 28, 2020,~~April 2, 2022, respectively. The Company’s effective tax rate was ~~4.8%~~-4.9% and ~~2.9%~~8.7% for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively. The effective tax rates for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 2022 differ from the statutory rate of ~~21%~~21% primarily due to ~~a release of a~~the changes in the valuation allowance recorded ~~for~~against certain deferred tax assets, ~~reflected in the consolidated financial statements~~ and separate state and local income taxes on taxable subsidiaries. ~~The valuation allowance release is due to pre-tax book income recorded in the quarter.~~

For the three-month period ended April ~~3, 2021,~~1, 2023, there were no material changes to the ~~Company’s~~Company's uncertain tax 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.~~expense in the accompanying consolidated statements of operations.

9.	~~STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION~~

~~On March 19, 2020,~~9. SHARE-BASED COMPENSATION

Time-Vesting Options

The Company recorded compensation expense, net of forfeitures, of $0.2 million and $0.4 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively, which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of April 1, 2023 associated with outstanding performance-vesting options was $2.2 million.

Performance-Vesting Options

The Company recorded compensation expense, net of forfeitures, of ($0.4) million and $1.9 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively, which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations. There is no remaining unrecognized compensation expense associated with performance-vesting options.

Director Restricted Stock Units

During the three-month period ended April 1, 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. In connection with such Director RSUs, together with the Director RSUs granted in the prior year, the Company ~~issued 5,124,995 shares~~recorded total compensation expense of ~~common stock as a result of equity contributions totaling $50.0 million. This transaction caused no significant changes~~$0.3 million and $0.2 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively, which is included in corporate expenses in the ~~Company’s ownership structure. The proceeds were used to fund strategic growth initiatives and provide additional liquidity for business~~accompanying consolidated statements of operations. Unrecognized compensation expense as of April 1, 2023 associated with outstanding performance-vesting options was $0.9 million.

~~See Note 15 – Subsequent Events~~Management Restricted Stock Units

The Company recorded compensation expense, net of forfeitures, of $0.7 million and $1.0 million for ~~additional information regarding~~ the ~~completion~~three-month periods ended April 1, 2023 and April 2, 2022, respectively, which is included in corporate expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of April 1, 2023 associated with outstanding management restricted stock units was $10.1 million.

Employee Stock Purchase Plan

Eligible participants contributed $0.9 million during the three-month period ended April 1, 2023, which is included in accrued payroll and employee benefits in the accompanying consolidated balance sheets as of April 1, 2023. The Company recorded compensation expense of $0.2 million and $0.6 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively, which is included in corporate expenses, branch and regional administrative expenses and cost of revenue, excluding

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

depreciation and amortization in the accompanying consolidated statements of operations. Unrecognized compensation expense as of April 1, 2023 associated with the remaining ESPP purchase period through June 30, 2022 was $0.2 million.

Long-Term Incentive Plan ("LTIP")

During the three-month period ended April 1, 2023, the Compensation Committee of the ~~Company’s initial public offering~~Company's Board of Directors approved grants of restricted stock units ("RSUs") and ~~its effects~~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 ~~stockholders’ equity~~the date of grant. Compensation cost for the RSUs is measured based on the grant date fair value of each share and ~~stock-based compensation.~~the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. During the three-month period ended April 1, 2023, the Company granted 4,073,186 RSUs with a grant date per share fair value of $1.26. The Company recorded compensation expense of $0.2 million which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three-month period ended April 1, 2023. Unrecognized compensation expense as of April 1, 2023 associated with the remaining RSUs was $4.8 million.

The PSUs contain a performance criteria based on an adjusted EBITDA target over a three-year performance period. The PSUs are also subject to a three-year service-based cliff vesting schedule commencing on the date of grant. The PSUs 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. During the three-month period ended April 1, 2023, the Company granted 4,073,108 PSUs with a weighted average grant date per share fair value of $1.26. The Company recorded compensation expense of $0.2 million which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three-month period ended April 1, 2023. Unrecognized compensation expense as of April 1, 2023 associated with the remaining PSUs was $4.8 million.

The Company also granted awards under the LTIP during the three-month period ended April 2, 2022. Compensation expense, net of forfeitures for previously granted awards was $1.0 million and $0.8 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively. Unrecognized compensation expense associated with awards previously granted under the LTIP was $8.2 million as of April 1, 2023.

10. COMMITMENTS AND CONTINGENCIES

~~10.~~

~~COMMITMENTS AND CONTINGENCIES~~

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 insurance reserves included in the accompanying consolidated balance sheets include estimates of the ultimate costs, including third-party legal defense costs, in the event the Company was unable to receive funds from claims made under commercial insurance 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 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.

~~The~~Since October 1, 2022, the Company ~~maintains~~has maintained primary commercial insurance coverage on a ~~claim~~claims-made basis for professional malpractice claims with a ~~$500,000~~$1.5 million per claim deductible and ~~$6.0~~$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 ~~$500,000~~$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

1112

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

~~carriers for these~~ (Unaudited)

deductible payments. Collateral as of April ~~3, 2021 and January 2, 2021~~1, 2023 was comprised of ~~$18.8~~$23.0 million of issued letters of credit ~~$2.9~~and $1.9 million in cash collateral. Collateral as of December 31, 2022 was comprised of $19.7 million of issued letters of credit, $1.9 million in cash collateral, and ~~$2.3~~$2.9 million in surety ~~bonds, respectively.~~bonds.

As of April ~~3, 2021,~~1, 2023, insurance reserves totaling ~~$79.7~~$94.3 million were included on the accompanying consolidated balance sheets, representing ~~$41.2~~$43.8 million and ~~$38.5~~$50.5 million of reserves for professional malpractice claims and workers’ compensation claims, respectively. At ~~January 2, 2021,~~December 31, 2022, insurance reserves totaling ~~$74.6~~$90.3 million were included on the accompanying consolidated balance sheets, representing ~~$38.5~~$41.8 million and ~~$36.1~~$48.5 million of reserves for professional malpractice claims and workers’ compensation claims, respectively.

Litigation and Other Current Liabilities

On December 16, 2016, Aveanna Healthcare LLC (f/k/a BCPE Eagle Buyer LLC) entered into a stock purchase agreement with Epic/Freedom, LLC, Epic Acquisition, Inc., and FHH Holdings, Inc. for Aveanna Healthcare LLC to acquire Epic Acquisition, Inc. and FHH Holdings, Inc. (the “Acquisition”). The Acquisition closed on March 16, 2017. On February 19, 2020, the Company entered into a settlement agreement for a legal claim totaling $50.0 million related to the Acquisition. The settlement proceeds were included in other income in the accompanying consolidated statement of operations for the three-month period ended March 28, 2020.

On December 24, 2018, Aveanna Healthcare LLC, ~~(“Aveanna”)~~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~~$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 0~~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 barred.

On August 6, 2020, the Company ~~is unable to predict~~sued Epic/Freedom, LLC (“Seller”), Webster Capital Corporation, and Webster Equity Partners (collectively, the ~~possible loss or range of loss, if any, associated~~“Defendants”) in the Delaware Superior Court. The Company asserted that the Defendants made fraudulent representations and warranties in connection with the Epic acquisition. The Company is seeking 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 had no material impact on the consolidated results of operations. See Note 15 - Subsequent Event for additional disclosure.

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. The Company is vigorously defending this matter, has appealed the judgment to the Texas Court of Appeals, and intends to avail itself of all appellate options.

On January 18, 2023, an arbitration award in the amount of $7.9 million was rendered against the Company related to 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 ~~any~~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 ~~litigation, or any potential related~~proceedings, individually and in the aggregate, will not have a material adverse effect on the ~~Company or its business or operations.~~

~~The Company iscurrentlya partyto variousroutinelitigationincidentalto the business.Whilemanagementcurrentlybelievesthattheultimateoutcomeof such proceedings,individually and in theaggregate,willnot have a materialadverseeffecton the~~Company’sfinancialpositionor overall trendsin resultsof operations,litigationissubjectto inherentuncertainties.Managementhas established provisionswithinothercurrentliabilitiesin theaccompanyingconsolidatedbalancesheets,which in the opinionof managementrepresentsthebestestimateof exposureand adequatelyprovidesforsuch losses thatmayoccurfromassertedclaimsrelatedto theprovisionof professionalservicesand which maynot be coveredby theCompany’sinsurancepolicies.Managementbelievesthatany additionalunfavorable provisionswould not be materialto theCompany’sresultsof operationsor financialposition;however, ifan unfavorablerulingon any assertedor unassertedclaimwere to occur,thereexiststhepossibilityof 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.

~~adverse~~

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~impacton theCompany’snetearningsor financialposition.The estimateof thepotential impactfromlegalproceedingson theCompany’sfinancialpositionor overallresultsof operationscould changein thefuture.~~

Healthcare Regulatory Matters

OnStarting on October 30, 2019 the Company has received a grand jury ~~subpoena (“Subpoena”)~~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 ~~two~~a few of its local markets. The Company is fully cooperating with the Antitrust Division with respect to this investigation and management believes that it is not probable that this matter ~~is unlikely to~~will 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.

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

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~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~~

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 ~~declaration~~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 ~~a national emergency~~the ARPA Recovery Funds is subject to the requirements specified in the United States Treasury Department’s Final Rule issued on ~~March 13, 2020,~~January 6, 2022.

The Final Rule provides states with substantial flexibility 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 following portions of the CARES Act have impacted the Company:~~

~~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. During fiscal year 2020, the Company received PRF payments totaling $25.1 million, which were included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On March 5, 2021, the Company repaid these PRF payments in full.

~~State Sponsored~~utilizing ARPA Relief Funds,~~: In fiscal year 2020,~~ including 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 0t receive stimulus funds from any individual state other than Pennsylvania. The Company recognized $0.5 million of income related~~ability to these funds in fiscal year 2020, with the remaining $4.3 million included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On February 4, 2021, the Company repaid the remaining $4.3 million of direct stimulususe such funds to ~~Pennsylvania DHS.~~

~~Deferred payment of the employer portion of social security taxes: The Company was permitted~~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 other things. States may not use ARPA Recovery Funds 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 April 3, 2021, the Company had deferred payment of $49.6 million of social security taxes in total, which is reflected in the current portion of deferred payroll taxes and in the deferred payroll taxes, less current portion liabilities on the accompanying consolidated balance sheet. The Company did not commence deferrals until April 1, 2020; therefore the Company did not defer any payroll taxes during the three-month period ended March 28, 2020.

~~Temporary reimbursementrateincreasesfrom variousstateMedicaidand MedicaidManagedCare Programs:~~ ~~Shortly after the onset of the COVID-19 pandemic in March 2020, numerousstateMedicaidprograms~~ ~~began~~fund tax cuts, fund budget deficits, or to ~~issue~~ ~~temporaryrateincreasesand similarly directedMedicaidManagedCare programswithinthosestatesto likewise adjust rates. These temporaryrateincreasesarepaidto the Company via normalclaimprocessingby therespective~~payers. Over the remainder of fiscal year 2020 and continuing into fiscal year 2021, while some states discontinued the temporary rate increases, most states issued continuations of the temporary rate increases with many state legislatures communicating support ~~for either making such increases permanent or otherwise increasing PDS reimbursement rates.~~

~~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. Advances received by the Company as of April 3, 2021 totaled $4.3 million. These advances become payable beginning one year from the date on which the accelerated advance was issued. The repayments occur via offsets by Medicare 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.

~~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.

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~12.~~

~~RELATED PARTY TRANSACTIONS~~

The Company had entered into an advisory services agreement with affiliates of certain stockholders of the Company (the “Management Agreement”). Under this agreement, the managers provide general and strategic advisory services and are paid a quarterly management fee plus out of pocket expenses. The Company incurred management fees and expenses totaling $0.9 million and $0.8 million duringpublic employee pensions. For the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, we recognized $2.7 million and $3.1 million, respectively, ~~which are included~~of ARPA Recovery Funds from various states in ~~corporate expenses~~the PDS segment as revenue in ~~the~~our accompanying consolidated statements of operations. The Company did 0t owe any amounts in connection with the Management Agreement as of April 3, 2021. Amounts owed by the Company in connection with the Management Agreement totaled $1.6 million as of January 2, 2021 and were included in accounts payable and other accrued liabilities on the consolidated balance sheet. ~~See Note 15 – Subsequent Events for additional information regarding the completion of the Company’s initial public offering and the resulting termination of the Management Agreement.~~

12. RELATED PARTY TRANSACTIONS

One of the Company’s stockholders has an ownership interest in a revenue cycle vendor used by the Company for eligibility and clearinghouse billing services. Fees for such services totaled $0.1 million during each of the three-month periods ended April 3, 2021 and March 28, 2020, respectively, and are included in corporate expenses in the accompanying consolidated statements of operations. The Company did 0t owe any amounts in connection with the expenses described above as of April 3, 2021 and January 2, 2021, respectively.

As of April ~~3, 2021,~~1, 2023, one of the Company’s stockholders owned ~~5.7%~~6.7% of the Company’s ~~first lien term loan.~~2021 Extended Term Loan.

13. SEGMENT INFORMATION

~~13.~~

~~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, consistent with the criteria in ASC 280,~~ ~~Segment Reporting~~.resources. The Company has 3three operating segments and 3three 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 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.

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 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-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively (amounts in thousands):


	For the three-month period ended April 1, 2023
	PDS			HHH			MS			Total
Revenue	$	372,947		$	56,126		$	37,340		$	466,413
Cost of revenue, excluding depreciation and amortization		268,763			31,095			22,090			321,948
Gross margin	$	104,184		$	25,031		$	15,250		$	144,465
Gross margin percentage		27.9	%		44.6	%		40.8	%		31.0	%


	For the three-month period ended April 2, 2022
	PDS			HHH			MS			Total
Revenue	$	350,190		$	66,623		$	33,721		$	450,534
Cost of revenue, excluding depreciation and amortization		251,874			34,168		$	19,666			305,708
Gross margin	$	98,316		$	32,455		$	14,055		$	144,826
Gross margin percentage		28.1	%		48.7	%		41.7	%		32.1	%


	For the three-month periods ended
Segment Reconciliation:	April 1, 2023			April 2, 2022
Total segment gross margin	$	144,465		$	144,826
Branch and regional administrative expenses		91,708			88,743
Corporate expenses		30,935			36,567
Depreciation and amortization		4,041			5,819
Acquisition-related costs		70			91
Other operating expense (income)		72			(170	)
Operating income		17,639			13,776
Interest income		75			62
Interest expense		(35,958	)		(22,364	)
Other (expense) income		(12,188	)		36,457
(Loss) income before income taxes	$	(30,432	)	$	27,931

For the Three-Month Period Ended April 3, 2021

PDS

HHH

MS

Total

Revenue

$
350,827

$
31,518

$
34,815

$
417,160

Cost of revenue, excluding depreciation and amortization

248,997

17,329

19,151

285,477

Gross margin

$
101,830

$
14,189

$
15,664

$
131,683

Gross margin percentage

29.0
%

45.0
%

45.0
%

31.6
%

For the Three-Month Period Ended March 28, 2020

PDS

HHH

MS

Total

Revenue

$
320,513

$
4,477

$
30,233

$
355,223

Cost of revenue, excluding depreciation and amortization

227,963

2,803

16,916

247,682

Gross margin

$
92,550

$
1,674

$
13,317

$
107,541

Gross margin percentage

28.9
%

37.4
%

44.0
%

30.3
%

1414. NET (LOSS) INCOME PER SHARE

~~AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

For the Three-Month Periods Ended

Segment Reconciliation:

April 3, 2021

March 28, 2020

Total segment gross margin

$
131,683

$
107,541

Branch and regional administrative expenses

69,372

59,694

Corporate expenses

27,399

25,797

Depreciation and amortization

4,848

4,183

Acquisition-related costs

1,768

-

Operating income

28,296

17,867

Interest income

77

46

Interest expense

(22,425
)

(21,063
)
Loss on debt extinguishment

-

127

Other income

159

41,791

Income before income taxes

$
6,107

$
38,768

~~14.~~

~~NET INCOME PER SHARE~~

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

For the Three-Month Periods Ended

April 3, 2021

March 28, 2020

Numerator:

Net income

$
5,798

$
37,637

Denominator:

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

142,122,934

137,468,875

Net income per share, basic

$
0.04

$
0.27

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

146,266,014

140,330,909

Net income per share, diluted

$
0.04

$
0.27

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

Stock options

7,479,384

6,015,548

~~(1)~~15

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

~~15.~~

~~SUBSEQUENT EVENTS~~

~~Acquisition~~

~~On April 16, 2021, the Company acquired 100% of the issued and outstanding membership interests of Doctor’s Choice Holdings, LLC (“Doctor’s Choice”) for~~ ~~a purchase price of $115.0 million, subject to customary adjustments. Doctor’s Choice provides home health services in Florida~~. As part of funding the Doctor’s Choice acquisition, on the date of acquisition, the Company borrowed incremental amounts under the existing Second Lien Term Loan of $67.0 million, including debt issuance costs of $1.7 million. The entire portion of the proceeds, as well as cash on hand, were used to pay cash consideration at closing and costs and expenses incurred by the Company in connection with the transaction of $2.4 million.

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

~~Change in capital structure~~

~~On April 19, 2021, the Company’s Board~~(Unaudited)


	For the three-month periods ended
	April 1, 2023			April 2, 2022
Numerator:
Net (loss) income	$	(31,998	)	$	25,334
Denominator:
Weighted average shares of common stock outstanding (1), basic		189,054			184,927
Net (loss) income per share, basic	$	(0.17	)	$	0.14

Weighted average shares of common stock outstanding (1), diluted		189,054			185,427
Net (loss) income per share, diluted	$	(0.17	)	$	0.14
Dilutive securities outstanding not included in the computation of diluted net loss per share as their effect is antidilutive:
RSUs		8,570			4,394
PSUs		4,620			1,390
Stock options		14,236			9,347

(1)

The calculation of Directors and its stockholders approved, and the Company filed, amendments to the Company’s certificate of incorporation, including the Company’s Second Amended and Restated Certificate of Incorporation, which (i) eliminated Class B common stock, resulting in one class ofweighted average shares of common stock ~~authorized, issued and~~ outstanding (ii) effected a one-to-20.5 forward stock split and (iii) authorized 1,000,000,000 shares of common stock and 5,000,000 shares of preferred stock. The par value of each share of common stock and preferred stock was not adjusted in connection with the aforementioned forward stock split.

~~All share and per share information for prior periods, including options to purchase shares of common stock,~~includes all vested deferred restricted stock ~~units, option exercise prices, weighted average fair value~~units.

15. SUBSEQUENT EVENT

In April 2023, as part of ~~options granted, shares of common stock~~a confidential settlement with Seller and ~~additional paid-in capital accounts on~~Defendants (each as defined in Note 10), the ~~consolidated balance sheets and consolidated statements of stockholders’ equity, including the notes~~Company funded approximately $6.8 million to ~~the consolidated financial statements, have been retroactively adjusted, where applicable, to reflect the stock split and the increase in authorized shares.~~

~~Stock Incentive Plan~~

~~On April 19, 2021, the Company’s Board of Directors adopted the Company’s Amended and Restated 2017 Stock Incentive Plan (the “Amended Plan”). The Amended Plan (i) provides~~an escrow account for the ~~issuance~~purposes of ~~common stock, as opposed to the Class B common stock previously issuable under the plan, to align~~settling certain tax audits with the ~~Company’s Amended~~IRS, which are currently under appeal with the IRS. See Note 10 - Commitments and Restated Certificate of Incorporation and (ii) modified the vesting terms of the existing issued performance-vesting options to now vest upon the achievement of volume weighted average price per share hurdlesContingencies for ~~any ninety consecutive days commencing on or after the nine-month anniversary of the initial public offering.~~additional disclosure.

The issuance of shares of common stock rather than Class B common stock resulted in a modification of the Company’s time-vesting options for accounting purposes; however, the incremental fair value was not material. The amendment of the vesting terms for the performance-vesting options has not yet resulted in a modification for accounting purposes as the Company’s Board of Directors has not specified the volume weighted average price per share.

~~Initial Public Offering and Use of Proceeds~~

~~On May 3, 2021, the Company completed its initial public offering and received proceeds, net of~~ ~~underwriters’ discounts and commissions,~~ of $432.4 million in exchange for the issuance of 38,236,000 shares of the Company’s common stock. On May 3, 2021, the Company paid an aggregate principal amount of $307.0 million to repay in full all outstanding obligations under the second lien credit agreement, including the incremental amount borrowed in connection with financing the acquisition of Doctor’s Choice, thereby terminating the second lien credit agreement. In addition, on May 4, 2021, the Company repaid $100.0 million in principal amount of its outstanding indebtedness under the first lien credit agreement.

On May 4, 2021, following completion of the initial public offering and satisfaction of the other applicable conditions precedent, the maximum availability of the Company’s revolving credit facility increased from $75.0 million to $200.0 million. In connection with this increase in capacity, the Company incurred debt issuance costs of $1.3 million, which the Company capitalized and included in other long-term assets during the second fiscal quarter of 2021.

Upon completion of the initial public offering, the Management Agreement was terminated. Additionally, the managers agreed to waive the fee due to them from the Company upon the successful completion of an initial public offering.

The Company granted the underwriters an overallotment option to purchase up to an additional 5,735,400 shares of common stock from the Company at the offering price of $12.00 per share, less the underwriting discounts and commissions, within 30 days from the date of the Prospectus, dated April 28, 2021. On May 21, 2021, the underwriters exercised their overallotment option to acquire an additional 4,000,000 shares of the Company’s common stock. This transaction was completed on May 25, 2021 and resulted in additional proceeds to the Company of $45.2 million, after deducting underwriting costs of $2.8 million.

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, ~~for the year ended January 2, 2021,~~ our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included in our ~~prospectus dated April 28, 2021 (the “Prospectus”), which is deemed to be part of our Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-254981)~~,10-K for the fiscal year ended 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 ~~Prospectus.~~fiscal year ended December 31, 2022.

Unless otherwise provided, “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 ~~2021”~~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 ~~January 1,~~December 31, 2022. ~~“Fiscal year 2020” refers to the 53-week fiscal year ended on January 2, 2021.~~ The “three-month period ended April ~~3, 2021”~~1, 2023”, or “first quarter ~~2021”~~of 2023” refers to the 13-week fiscal quarter ended on April ~~3, 2021.~~1, 2023. The “three-month period ended ~~March 28, 2020”~~April 2, 2022” or “first quarter ~~2020”~~of 2022” refers to the 13-week fiscal quarter ended on ~~March 28, 2020.~~April 2, 2022.

Overview

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.

Segments

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

The following table summarizes the revenues generated by each of our segments for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, respectively:


(dollars in thousands)	Consolidated		PDS			HHH			MS			Consolidated		PDS			HHH			MS
For the three-month period ended April 3, 2021	$	417,160	$	350,827		$	31,518		$	34,815
For the three-month period ended April 1, 2023												$	466,413	$	372,947		$	56,126		$	37,340
Percentage of consolidated revenue				84	%		8	%		8	%				80	%		12	%		8	%
For the three-month period ended March 28, 2020	$	355,223	$	320,513		$	4,477		$	30,233
For the three-month period ended April 2, 2022												$	450,534	$	350,190		$	66,623		$	33,721
Percentage of consolidated revenue				90	%		1	%		9	%				78	%		15	%		7	%

PDS Segment

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:

•

Tracheotomies or ventilator dependence;

•

Dependence on continuous nutritional feeding through a “G-tube” or “NG-tube”;

•

Dependence on intravenous nutrition;

•

Oxygen-dependence in conjunction with other medical needs; and

•

Complex medical needs such as frequent seizures.

•

~~Tracheotomies or ventilator dependence;~~

•

~~Dependence on continuous nutritional feeding through a “G-tube” or “NG-tube”;~~

•

~~Dependence on intravenous nutrition;~~

•

~~Oxygen-dependence in conjunction with other medical needs; and~~

•

~~Complex medical needs such as frequent seizures.~~

Our PDN services include:

•

In-home skilled nursing services to medically fragile children and adults;

•

Nursing services in school settings in which our caregivers accompany patients to school;

•

Services to patients in our Pediatric Day Healthcare Centers (“PDHC”); and

•

Non-clinical care, including programs such as employer of record support services and personal care services.

•

~~In-home skilled nursing services to medically fragile children;~~

•

~~Nursing services in school settings in which our caregivers accompany patients to school;~~

•

~~Services to patients in our Pediatric Day Healthcare Centers (“PDHC”); and~~

•

~~Unskilled care, including programs such as Employer of Record (“EOR”) support services and personal care services.~~

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. Additionally, our Applied Behavioral Analysis (“ABA”) Therapy services previously provided children with the strategies and skills necessary to maximize their individual potential, achieve meaningful outcomes, and reach their goals to the greatest extent possible. We also provided parents with useful strategies and techniques to support their child’s progress towards meeting developmental milestones in communication and behavior throughout their lifetime. In July 2020, we discontinued providing ABA Therapy services.

HHH Segment

Our Home Healthand Hospicesegmentpredominantlyincludeshomehealthservices,as wellas hospice and specialtyprogramservices.Our HHHpatientstypicallyenterour serviceas seniors,and our mostsignificant referralsourcesfornew patientsarehospitals,physiciansand long-term care facilities.~~carefacilities.~~

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~~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.

MS Segment

Through our Medical Solutions segment, we offer a comprehensive line of ~~durable medical equipment and~~ 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, 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.

~~Recent Developments and~~ 18

Factors Affecting Results of Operations and Comparability

~~Acquisition-related Activities~~

~~During thethirdfiscalquarterof 2020, we acquiredthreecompaniesthatprimarilydeliverPDNservices,in additionto medicalsolutionsservices(collectively,the“2020 PDSAcquisitions”).The 2020 PDSAcquisitions generatedrevenuesin 2020 priorto beingacquiredby us of $55.0 millionand $22.8 millionafterbeingacquired by us. The 2020 PDSAcquisitions generatedoperatingincomein 2020 priorto beingacquiredby us of $4.1 millionand $1.6 millionafterbeing acquiredby us. We report the results of the 2020 PDS Acquisitions in our PDS segment and MS segment.~~

~~In thefourth~~ ~~fiscal~~ ~~quarterof 2020, we acquiredtwo companiesthatprimarilydeliverhomehealthand hospice services,as wellas PDNservices(collectively,the“2020 HHHAcquisition~~s~~”). The 2020 HHHAcquisitions generatedrevenuesin 2020 priorto beingacquiredby us of $104.4 millionand $13.1 millionafterbeing acquiredby us. The 2020 HHH Acquisitionsgeneratedoperatingincomein 2020 priorto beingacquiredby us of $0.9 millionand $2.6 million afterbeingacquiredby us. Home health and hospicebusinessesareprimarilyreimbursedby Medicareforservicesrenderedand thesenew linesof businesswillaccordinglybeginto diversifyour currentpayerbasebeyond itscurrentconcentrationof Medicaid and MedicaidManagedCare revenue.We reportthe results of the 2020 HHH Acquisitions in our HHH segment~~ ~~and PDS~~ ~~segment~~.

~~On April 16, 2021, we acquired Doctor’s Choice Holdings, LLC (“Doctor’s Choice”), which provides home health services.~~ ~~The Doctor’s Choice acquisition generatedrevenuesin 2020 of $64.4 million and operating income of $7.3 million. Similar to the 2020 HHH Acquisitions, Doctor’s Choice will further diversifyour currentpayerbasebeyond itscurrentconcentrationof Medicaid and MedicaidManagedCare revenue.~~We ~~will~~ ~~reportthe results of Doctor’s Choice in our HHHsegment beginning in interim periods following the first quarter of 2021.~~

COVID-19 Pandemic Impact on our Business

In March 2020, the World Health Organization declared COVID-19 a pandemic. 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,Since that time, we altered numerous clinical, operational, and business processes. While each of the states deemed healthcare services an essential business, allowing us to continue to deliver healthcare services to our patients, the effects of the pandemic have been wide-reaching. We have invested in technology and equipment that allows our workforce to provide, on a remote basis, seamless functionality and support to our clinicians who continue to care for our patients. A significant portion of our employees at our corporate support offices in Georgia, Texas and Arizona continue to work remotely at this time. In many cases, we learned that we can effectively conduct our business on a remote basis and have realized a number of efficiencies and benefits as a result.

As our business continues to recover from the effects of the COVID-19 environment, we continue to take precautions to protect the safety and well-being of our employees and patients in 2021 by purchasing and delivering additional supplies of PPE and other medical supplies to branches and regional offices across the country as necessary. We also continue to provide incremental compensation to our caregivers including COVID-19 relief pay and vaccine pay. Despite the COVID-19 environment, we continue to execute on our strategic business plans to grow our services both organically and through acquisitions.

~~We continue to monitor~~monitored the impact of COVID-19 on our caregivers and support personnel, our patients and their families, and our referral ~~sources and continue to adapt~~sources. We adapted our operations as necessary to best protect our people and serve our patients and our ~~communities. We are optimistic~~communities, and also invested in technology and equipment that asallows support personnel to provide, on a ~~greater percentage~~remote basis, seamless functionality and support to our clinicians who care for our patients.

With the onset of the ~~U.S. population becomes vaccinated,~~COVID-19 pandemic in March 2020, we began incurring incremental costs of patient services necessary to maintain our ~~volumes will be positively impacted as~~clinical workforce in the COVID-19 environment, ~~abates. The following factors could potentially alter this outlook~~including costs for additional PPE, hero and ~~negatively impact our recovery from the pandemic: the continued fluctuation in the number of~~hazard pay, COVID-19 ~~cases nationwide; any future shelter-in-place orders; the rate of return of confidence in our patients’ families to allow our caregivers into their homes; our ability~~relief pay, incremental overtime, and various incentives to attract and retain ~~qualified caregivers~~caregivers. The pandemic impacted our operations in the first quarter of 2022 due to the Omicron variant and the attendant pressures on our clinical workforce. The direct effects on our business of the pandemic have significantly lessened since the first quarter of 2022, as a result of declining infection rates and the normalization of living with COVID-19 ~~concerns; cost normalization around PPE;~~following the increase in accessibility to COVID-19 vaccines and ~~our ability to readily access referrals from children’s hospitals. Potential~~antiviral treatments, as well as the expiration of the Public Health Emergency associated with COVID-19 on May 11, 2023.

Any future resurgence in COVID-19 or new variants of the virus, and the severity and duration thereof, remain uncertain, and potential negative impacts of ~~COVID-19~~such a resurgence on our results of operations could include, ~~lower revenue, higher salary and wage expenses due to increased market rate expectations of caregivers, and increased PPE supply costs. The impacts to revenue may consist of the following:~~without limitation: lower volumes due to interruption of the operations of our referral ~~sources and patient~~sources; lower volumes due to lack of availability of caregivers in the workforce; the unwillingness of patients to accept services in their homes; ~~prolonged school closures;~~lower revenue or higher salary and ~~lower~~wage expense 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; increased costs to comply with various federal, state and local vaccine or leave mandates, and any future spikes in PPE supply costs.

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. For the three-month periods ended April 1, 2023, and April 2, 2022, we recognized revenue in our consolidated statements of operations of $2.7 million and $3.1 million, respectively, from ARPA Recovery Funds from various states. We may receive additional ARPA Recovery Funds in the 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 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.

HHS Proposed Rule: “Assuring Access to Medicaid Services”

On April 27, 2023, 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 is subject to comment and specifically requests comments on the 80% threshold, related definitions and the implementation period. The ultimate impact of any final rule, which 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.

Important Operating Metrics

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

PDS and MS Segment Operating Metrics

Volume

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.

Revenue Rate

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.

Cost of Revenue Rate

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.

Spread Rate

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, ~~due~~managing labor and product costs, and assessing opportunities for growth.

HHH Segment Operating Metrics

Home Health Total Admissions and Home Health Episodic Admissions

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 ~~any negative impacts~~better understand the payor mix of our home health business.

Home Health Total Episodes

Home health total episodes represents the number of episodic admissions and episodic recertifications to ~~state Medicaid budgets~~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 ~~a result~~to understand the volume of patients who were authorized to receive care during the month.

Home Health Revenue Per Completed Episode

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 ~~pandemic.~~

~~CARES Act~~business in a single metric.

~~In responseto COVID-19,theU.S.GovernmentenactedtheCARESAct on March27, 2020. The CARESAct has impactedus as follows:~~

•

~~Provider ReliefFund (“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, we received PRF payments from the U.S. Department of Health and Human Services (“HHS”) totaling $25.1 million, which were included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On ~~March~~ ~~5, 2021, we repaid these PRF payments in full.~~

•

~~State SponsoredReliefFunds:~~ ~~In fiscal year 2020, we received~~ ~~$4.8 million of~~ ~~stimulusfundsfromthe Commonwealthof PennsylvaniaDepartmentof Human Services(“PennsylvaniaDHS”). Such funds were not appliedfor~~or requested. We did not receive stimulus funds from any individual state other than Pennsylvania. We recognized $0.5 million of income related to these funds in fiscal year 2020, with the remaining $4.3 million ~~included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021.~~ ~~On February 4, 2021, we repaid the remaining $4.3 million of direct stimulus funds to Pennsylvania DHS.~~

•

~~Deferred payment of theemployerportionof socialsecuritytaxes:We werepermittedto deferpaymentsof theemployerportionof socialsecuritytaxes~~ ~~in fiscal year~~ ~~2020, which are payablein 50% increments,with the first 50%due by December31, 2021 and thesecond50% due by December31, 2022. We~~ ~~did not defer any payroll taxes after December 31, 2020.~~ ~~As of April 3, 2021, we had deferred paymentof $49.6 million of socialsecuritytaxesin total,which~~is~~reflectedin the current portionof deferredpayrolltaxes and in the deferredpayrolltaxes,lesscurrentportion liabilities~~ ~~on the accompanying~~ ~~consolidatedbalancesheet.~~ ~~We did not commence deferrals until April 1, 2020; therefore, we did not defer any payroll taxes during the three-month period ended March 28, 2020.~~

•

~~Temporary reimbursementrateincreasesfrom variousstateMedicaidand MedicaidManagedCare Programs:~~ ~~Shortly after the onset of COVID-19 in March 2020, numerousstateMedicaidprograms~~ ~~began to issue~~ ~~temporaryrateincreasesand similarly directedMedicaidManagedCare programswithinthosestatesto likewise adjust rates. These temporaryrateincreasesarepaidto the Company via normalclaimprocessingby therespective~~payers. Over the remainder of fiscal year 2020 and continuing into fiscal year 2021, while some states discontinued the temporary rate increases, most states issued continuations of the temporary rate increases with many state legislatures communicating support for either making such increases permanent or otherwise increasing PDS reimbursement rates. Furthermore, the focus at both the Federal and State levels on supporting the provision of care in the home, as well as expanding Federal matching funds for the Medicaid Program in recent government legislation, supports a positive outlook on Medicaid reimbursement in the future. As a result of all these factors, and based upon an evaluation of each state individually, beginning in the first fiscal quarter of 2021, we no longer treat temporary rate increases as an adjustment in calculating our Adjusted EBITDA (see “Non-GAAP Financial Measures” below).

•

Results of Operations

Three-Month Period Ended April ~~3, 2021~~1, 2023 Compared to the Three-Month Period Ended ~~March 28, 2020~~April 2, 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)	April 3, 2021			% of Revenue			March 28, 2020			% of Revenue			Change			% Change			April 1, 2023			% of Revenue			April 2, 2022			% of Revenue			Change			% Change
Revenue	$	417,160			100.0	%	$	355,223			100.0	%	$	61,937			17.4	%	$	466,413			100.0	%	$	450,534			100.0	%	$	15,879			3.5	%
Cost of revenue, excluding depreciation and amortization		285,477			68.4	%		247,682			69.7	%		37,795			15.3	%		321,948			69.0	%		305,708			67.9	%		16,240			5.3	%
Gross margin	$	131,683			31.6	%	$	107,541			30.3	%	$	24,142			22.4	%	$	144,465			31.0	%	$	144,826			32.1	%	$	(361	)		-0.2	%
Branch and regional administrative expenses		69,372			16.6	%		59,694			16.8	%		9,678			16.2	%		91,708			19.7	%		88,743			19.7	%		2,965			3.3	%
Field contribution	$	62,311			14.9	%	$	47,847			13.5	%	$	14,464			30.2	%	$	52,757			11.3	%	$	56,083			12.4	%	$	(3,326	)		-5.9	%
Corporate expenses		27,399			6.6	%		25,797			7.3	%		1,602			6.2	%		30,935			6.6	%		36,567			8.1	%		(5,632	)		-15.4	%
Depreciation and amortization		4,848			1.2	%		4,183			1.2	%		665			15.9	%		4,041			0.9	%		5,819			1.3	%		(1,778	)		-30.6	%
Acquisition-related costs		1,768			0.4	%		-			0.0	%		1,768			100.0	%		70			0.0	%		91			0.0	%		(21	)		-23.1	%
Other operating expense (income)																				72			0.0	%		(170	)		0.0	%		242			-142.4	%
Operating income	$	28,296			6.8	%	$	17,867			5.0	%	$	10,429			58.4	%	$	17,639			3.8	%	$	13,776			3.1	%	$	3,863			28.0	%
Interest expense, net of interest income		(22,348	)					(21,017	)					(1,331	)		6.3	%
Loss on extinguishment of debt		-						127						(127	)		-100.0	%
Other income		159						41,791						(41,632	)		-99.6	%
Interest expense, net																				(35,883	)					(22,302	)					(13,581	)		60.9	%
Other (expense) income																				(12,188	)					36,457						(48,645	)		-133.4	%
Income tax expense		(309	)					(1,131	)					822			-72.7	%		(1,566	)					(2,597	)					1,031			-39.7	%
Net income	$	5,798					$	37,637					$	(31,839	)		-84.6	%
Net (loss) income																			$	(31,998	)				$	25,334					$	(57,332	)		-226.3	%

The followingtablesummarizesour consolidatedkey performancemeasures,includingFieldcontribution and Fieldcontributionmargin,which arenon-GAAPmeasures (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:

~~for~~


	For the three-month periods ended
(dollars in thousands)	April 1, 2023			April 2, 2022			Change			% Change
Revenue	$	466,413		$	450,534		$	15,879			3.5	%
Cost of revenue, excluding depreciation and amortization		321,948			305,708			16,240			5.3	%
Gross margin	$	144,465		$	144,826		$	(361	)		-0.2	%
Gross margin percentage		31.0	%		32.1	%
Branch and regional administrative expenses		91,708			88,743			2,965			3.3	%
Field contribution	$	52,757		$	56,083		$	(3,326	)		-5.9	%
Field contribution margin		11.3	%		12.4	%
Corporate expenses	$	30,935		$	36,567		$	(5,632	)		-15.4	%
As a percentage of revenue		6.6	%		8.1	%
Operating income	$	17,639		$	13,776		$	3,863			28.0	%
As a percentage of revenue		3.8	%		3.1	%

~~the~~ ~~three-month~~ ~~periodsindicated:~~

For the Three-Month Periods Ended

(dollars in thousands)
April 3, 2021

March 28, 2020

Change

% Change

Revenue
$
417,160

$
355,223

$
61,937

17.4
%
Cost of revenue, excluding depreciation and amortization

285,477

247,682

37,795

15.3
%
Gross margin
$
131,683

$
107,541

$
24,142

22.4
%
Gross margin percentage

31.6
%

30.3
%

Branch and regional administrative expenses

69,372

59,694

9,678

16.2
%
Field contribution
$
62,311

$
47,847

$
14,464

30.2
%
Field contribution margin

14.9
%

13.5
%

Corporate expenses
$
27,399

$
25,797

$
1,602

6.2
%
As a percentage of revenue

6.6
%

7.3
%

Operating income
$
28,296

$
17,867

$
10,429

58.4
%

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


	PDS
	For the three-month periods ended
(dollars and hours in thousands)	April 1, 2023			April 2, 2022			Change			% Change
Revenue	$	372,947		$	350,190		$	22,757			6.5	%
Cost of revenue, excluding depreciation and amortization		268,763			251,874			16,889			6.7	%
Gross margin	$	104,184		$	98,316		$	5,868			6.0	%
Gross margin percentage		27.9	%		28.1	%					-0.2	%	(4)
Hours		9,783			9,612			171			1.8	%
Revenue rate	$	38.12		$	36.43		$	1.69			4.7	%	(1)
Cost of revenue rate	$	27.47		$	26.20		$	1.27			4.9	%	(2)
Spread rate	$	10.65		$	10.23		$	0.42			4.2	%	(3)

	HHH
	For the three-month periods ended
(dollars and admissions/episodes in thousands)	April 1, 2023			April 2, 2022			Change			% Change
Revenue	$	56,126		$	66,623		$	(10,497	)		-15.8	%
Cost of revenue, excluding depreciation and amortization		31,095			34,168			(3,073	)		-9.0	%
Gross margin	$	25,031		$	32,455		$	(7,424	)		-22.9	%
Gross margin percentage		44.6	%		48.7	%					-4.1	%	(4)
Home health total admissions (5)		11.7			14.3			(2.6	)		-18.2	%
Home health episodic admissions (6)		8.0			8.7			(0.7	)		-8.0	%
Home health total episodes (7)		11.9			13.8			(1.9	)		-13.8	%
Home health revenue per completed episode (8)	$	2,969		$	2,942		$	27			0.9	%

	MS
	For the three-month periods ended
(dollars and UPS in thousands)	April 1, 2023			April 2, 2022			Change			% Change
Revenue	$	37,340		$	33,721		$	3,619			10.7	%
Cost of revenue, excluding depreciation and amortization		22,090			19,666			2,424			12.3	%
Gross margin	$	15,250		$	14,055		$	1,195			8.5	%
Gross margin percentage		40.8	%		41.7	%					-0.9	%	(4)
Unique patients served (“UPS”)		85			78			7			9.0	%
Revenue rate	$	439.29		$	432.32		$	6.97			1.7	%	(1)
Cost of revenue rate	$	259.88		$	252.13		$	7.75			3.3	%	(2)
Spread rate	$	179.41		$	180.19		$	(0.78	)		-0.5	%	(3)

PDS

For the Three-Month Periods Ended

(dollars and hours in thousands)
April 3, 2021

March 28, 2020

Change

% Change

Revenue
$
350,827

$
320,513

$
30,314

9.5
%

Cost of revenue, excluding depreciation and amortization

248,997

227,963

21,034

9.2
%

Gross margin
$
101,830

$
92,550

$
9,280

10.0
%

Gross margin percentage

29.0
%

28.9
%

0.1
%
⁽⁴⁾
Hours

9,910

8,916

994

11.1
%

Revenue rate
$
35.40

$
35.95

$
(0.55
)

-1.6
%
⁽¹⁾
Cost of revenue rate
$
25.13

$
25.57

$
(0.44
)

-1.9
%
⁽²⁾
Spread rate
$
10.28

$
10.38

$
(0.10
)

-1.1
%
⁽³⁾
(1)

Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.

(2)

Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.

HHH

For the Three-Month Periods Ended

(dollars and admissions/episodes in thousands)
April 3, 2021

March 28, 2020

Change

% Change

Revenue
$
31,518

$
4,477

$
27,041

604.0
%

Cost of revenue, excluding depreciation and amortization

17,329

2,803

14,526

518.2
%

Gross margin
$
14,189

$
1,674

$
12,515

747.6
%

Gross margin percentage

45.0
%

37.4
%

7.6
%
⁽⁴⁾
Home health total admissions ⁽⁵⁾**

5.8

**

**

**

Home health episodic admissions ⁽⁶⁾**

3.8

**

**

**

Home health total episodes ⁽⁷⁾**

5.7

**

**

**

Home health revenue per completed episode ⁽⁸⁾**
$
2,962

**

**

**

MS

For the Three-Month Periods Ended

(dollars and UPS in thousands)
April 3, 2021

March 28, 2020

Change

% Change

Revenue
$
34,815

$
30,233

$
4,582

15.2
%

Cost of revenue, excluding depreciation and amortization

19,151

16,916

2,235

13.2
%

Gross margin
$
15,664

$
13,317

$
2,347

17.6
%

Gross margin percentage

45.0
%

44.0
%

1.0
%
⁽⁴⁾
Unique patients served (“UPS”)

73

66

7

10.6
%

Revenue rate
$
476.92

$
458.08

$
18.84

4.6
%
⁽¹⁾
Cost of revenue rate
$
262.34

$
256.30

$
6.04

2.6
%
⁽²⁾
Spread rate
$
214.58

$
201.77

$
12.80

7.0
%
⁽³⁾

~~(1)~~

~~Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.~~

~~(2)~~

~~Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.~~

(3)

Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.

~~(3)~~

~~Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.~~

(4)

Represents the change in margin percentage year over year.

~~(4)~~

(5)

Represents ~~the change in margin percentage year over year.~~

~~(5)~~

~~Represents home health episodic and fee-for-service admissions.~~

~~(6)~~

~~Represents home health episodic admissions.~~

~~(7)~~

~~Represents episodic admissions and recertifications.~~

~~(8)~~

~~Represents Medicare revenue per completed episode.~~

** We entered the home health ~~business in the fourth fiscal quarter of 2020. The metrics presented for the three-month period ended April 3, 2021 pertain to the~~episodic and fee-for-service admissions.

(6)

Represents home health ~~component of the HHH segment. These metrics do not pertain to the hospice portion of this segment or certain other~~episodic admissions.

(7)

Represents episodic admissions and recertifications.

(8)

Represents Medicare ~~services provided in this segment, neither of which are material in the aggregate for the period presented.~~revenue per completed episode.

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.~~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.

Summary Operating Results

Operating Income

~~Overall,our operating~~Operating incomewas ~~$28.3~~$17.6 million,or ~~6.8%~~3.8% of revenue,forthe three-month period ended April ~~3, 2021,~~1, 2023, as comparedto operatingincomeof ~~$17.9~~$13.8 million,or ~~5.0%~~3.1% of revenue,forthe three-month period ended ~~March 28, 2020,~~April 2, 2022, an increase of $3.9 million, or 28.0%.

~~of $10.4 million.~~

Operating income for the first quarter of ~~2021~~2023 was ~~positively~~negatively impacted by ~~an increase~~a decrease of~~$14.5~~ $3.3 million,or ~~30.2%~~5.9%, in Fieldcontributionas comparedto the first quarter of ~~2020~~2022. The $3.3 million decrease in Field contribution resulted from a $15.9 million, or 3.5%, increase.

~~The $14.5 million~~

~~increase~~

in ~~Fieldcontributionwas delivered~~consolidated revenue, partially offset by a ~~$61.9 million,or 17.4%, increasein consolidatedrevenue,combinedwith a 1.4% improvement~~1.1% decrease in our Fieldcontributionmarginto ~~14.9%~~11.3% for the first quarter 2~~021~~of 2023 from~~13.5%~~ 12.4% for the first quarter ~~2020~~.of 2022. The primarydriver of our ~~improved~~lower Fieldcontributionmargin ~~year~~ over ~~year~~the comparable quarter was a ~~1.3% improvement~~1.1% decrease in gross margin percentage to ~~31.6%~~31.0% for the first quarter ~~2021~~of 2023 from ~~30.3%~~32.1% for the first quarter ~~2020.~~of 2022.

~~The $10.4~~In addition to the $3.3 million ~~net~~decrease in Field contribution, the following additional items primarily contributed to the overall $3.9 million increase in operating income ~~is attributable to~~over the ~~$14.5 million~~comparable first quarter periods:

~~increase~~

•

a $5.6 million decrease in corporate expenses; and

•

a $1.8 million decrease in depreciation and amortization.

~~in Field~~

Net (Loss) Income

~~contribution, net of the following activity:~~

•

~~a $1.6 million increase in corporate expenses over the prior year quarter associated with the preparation~~Net loss for ~~and execution of our initial public offering, as well as incremental professional fees associated with integration related activities;~~

•

~~a $1.8 million~~ ~~increase~~ ~~in acquisition-related~~ ~~costs associated with the~~ ~~Doctor’s Choice acquisition, which was completed in the second quarter~~ ~~of 2021, whereas no such costs were incurred during the first quarter 2020; and~~

•

~~a $0.7 million increase in depreciation expense.~~

~~Net Income~~

~~The~~ ~~$31.8~~ ~~milliondecreasein net~~ ~~income~~ ~~for~~the three-month period ended April ~~3, 2021,~~1, 2023 was $32.0 million, as comparedto ~~thethree-month period ended March 28, 2020~~, ~~was primarilydrivenby thefollowing:~~

•

~~the previouslydiscussed$10.4~~ ~~millionincreasein operatingincome;~~

•

~~a $1.3 milliondecreasein interestexpense, netof interestincome;~~

•

~~a $50.0 million~~ de~~creasein otherincomeassociatedwith a legalsettlementrelatedto an acquisition which occurred in the first quarter of 2020;~~

•

~~a $8.3 millionnetdecreasein valuationchargesassociatedwith our interestrateswaps and net settlementsincurredwith swap counterparties; and~~

•

~~a $0.8 millionnetincreasein income taxexpense.~~

~~Revenue~~

~~Revenue was $417.2~~net income of $25.3 millionfor three-month period ended April ~~3, 2021~~2, 2022. The $57.3 million decrease in net income was primarily driven by the following: ~~as compared~~

•

the previously discussed $3.9 million increase in operating income; offset by

•

a $13.6 million increase in interest expense, net of interest income; and

•

an aggregate $48.6 million decrease in valuation gains on interest rate derivatives, net of increases in net settlements received from interest rate derivative counterparties over the comparable quarter.

~~to $355.2 million~~

Revenue

Revenue was $466.4 million for the three-month period ended ~~March 28, 2020~~,April 1, 2023 as compared to $450.5 million for the three-month period ended April 2, 2022, an increaseof ~~$61.9~~$15.9 million,or ~~17.4%~~3.5%. This increase resulted from the following segment activity:

~~resulted~~

•

a $22.8 million, or 6.5%, increase in PDS revenue;

•

a $10.5 million, or 15.8%, decrease in HHH revenue; and

•

a $3.6 million, or 10.7%, increase in MS revenue.

~~fromthefollowingsegmentactivity:~~

•

~~a $30.3 million,or 9.5%, increasein PDSrevenue;~~

•

~~a $27.0 million,or 604.0%, increasein HHH revenue; and~~

•

~~a $4.6 million,or 15.2%, increasein MSrevenue.~~

Our PDSsegmentrevenuegrowth of ~~$30.3~~$22.8 million,or ~~9.5%~~6.5%, for the three-month period ended April ~~3, 2021~~1, 2023 was attributable to a 1.8% increase in volume and a 4.7% increase in revenue rate.

The 4.7% increase in PDS revenue rate for the three-month period ended April 1, 2023, as compared to the three-month period ended April 2, 2022, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers.

Our HHH segment revenue decline of $10.5 million, or 15.8%, for the three-month period ended April 1, 2023 resulted primarily from a decline in volumes over the comparable period.

The $3.6 million increase in MS segment revenue for the three-month period ended April 1, 2023, as compared to the three-month period ended April 2, 2022, was attributable to volume growth of ~~11.1%, netof a decreasein revenuerateof 1.6%. The primarydriversof the11.1% PDS year over year volumeincreasewere stronggrowth in our unskilled business, specifically EOR,netof volumedecreasesin some of our otherPDSbusinesses as a result of the remaining impact of the COVID-19 environment and new volumescontributedby the2020 PDSAcquisitionscompletedin thethirdquarterof 2020. Our volumes in the first quarter of 2021 were also negatively impacted by lost PDS hours as a result of Winter Storm Uri in February 2021.~~

~~The 1.6% decreasein PDSrevenuerate~~ ~~for~~ ~~the~~ ~~three-month period ended April 3, 2021, comparedto the~~ ~~three-month period ended~~ ~~March 28, 2020, resulted~~ ~~primarily~~ ~~fromthepreviouslynotedvolumegrowth in our unskilledbusiness,which has significantlyloweraveragerevenueratesperhour than thecomparableratesin thebalanceof our PDSbusinesses.Accordingly,thegrowth in our unskilledbusiness, specifically EOR, dilutedthe~~ ~~revenue~~ ~~rategrowth otherwise experiencedin thebalanceof our PDSbusinesses.Revenue ratein thebalanceof our PDSbusinessesincreased2.9% overthecomparableprioryearperiodas a resultof both permanent and temporary rateincreasesissuedby variousStateMedicaidprograms.~~

~~Our~~ ~~HHHsegmentrevenuegrowth of $27.0 million,or 604.0%, for~~ ~~the~~ ~~three-month period ended~~ ~~April 3, 2021 resultsfromthe incrementalrevenue generatedby the2020 HHHAcquisitions.~~

~~Our MS segment revenue growth of $4.6 million, or 15.2%, for the~~ ~~three-month period ended~~ ~~April 3, 2021, as compared to the~~ ~~three-month period ended March 28, 2020~~, ~~was attributable to 10.6% volume growth~~9.0% combined with ana 1.7% increase in revenue rate ~~of 4.6%. Overall, our MS volumes grew organically in~~over the first fiscal quarter of 2021 and as a result of the 2020 PDS Acquisitions, none of which contributed to revenue in the first quarter of 2020. One of the 2020 PDS Acquisitions, D&D Services, Inc. d/b/a Preferred Pediatric Home Health Care (“Preferred”), contained MS businesses in two new markets,comparable period.

~~Illinoisand Oklahoma, which we have now integrated into the overall MS segment platform.The 4.6% revenuerateincreaseprimarilyresultedfrom~~ a ~~shift in product mix.~~

Cost of Revenue, Excluding Depreciation and Amortization

Cost of revenue, excludingdepreciationand amortization,was ~~$285.5~~$321.9 millionforthe three-month period ended April ~~3, 2021,~~1, 2023, as comparedto ~~$247.7 millionforthe~~ ~~three-month period ended~~ ~~March 28, 2020, an increaseof $37.8 million,or 15.3%. This increaseresulted fromthefollowingsegmentactivity:~~

•

~~a $21.0 million,or 9.2%, increasein PDScostof revenue;~~

•

~~a $14.5 million,or 518.2%, increasein HHH costof revenue; and~~

•

~~a $2.2 million,or 13.2%, increasein MScostof revenue.~~

~~The 9.2% increasein PDScostof revenue~~ ~~forthe~~ ~~three-month period ended~~ ~~April 3, 2021 resultedfromthepreviouslynoted11.1% growth in PDSvolumesfor~~ ~~the first quarter 2021, netof a 1.9% decreasein PDScostof revenuerate.The 1.9% decreasein costof revenuerateprimarilyresultedfromthegrowth of our unskilledbusiness,which has significantly lowercostof revenueratesthanthecomparableratesin thebalanceof our PDSbusinesses.~~

~~With the onset of the COVID-19 pandemic in March 2020, we began incurring incrementalcostsof patientservicesin the form of incrementalcompensationpaidto caregiverssuch as heropay, COVID-19 reliefpay, incrementalovertime, and otherretention-relatedcompensationto maintainour clinicalworkforcein theCOVID-19environment.We alsoincurredincrementalPPEcoststo supportour caregiversand careforour patients.~~ We incurred $0.4 million of such costs in the first quarter of 2020 and our incurrence of these costs grew sequentially across subsequent fiscal quarters in fiscal year 2020. As of the first quarter of 2021, our run rate of incremental COVID-19 related costs of patient services had declined significantly on a sequential basis from the fourth quarter of fiscal year 2020 to $1.5$305.7 million for the ~~quarter.~~ three-month period ended April 2, 2022, an increase of $16.2 million, or 5.3%. This increase resulted from the following segment activity:~~We believe~~

~~we will~~

•~~continueto incursome~~

a $16.9 million, or 6.7%, increase in PDS cost of ~~these types~~revenue;

•

a $3.1 million, or 9.0%, decrease in HHH cost of revenue; and

•~~incrementalcosts~~

a $2.4 million, or 12.3%, increase in ~~2021,~~MS cost of revenue.

The 6.7% increase in PDS cost of revenue for the three-month period ended April 1, 2023 resulted from the previously described 1.8% increase in PDS volume combined with a 4.9% increase in PDS cost of revenue rate. The 4.9% increase in cost of revenue rate primarily resulted from higher caregiver labor costs including ~~relief pay, vaccine pay, and PPE costs as dictatedby thecontinuallyevolvingCOVID-19 environment. However, we currently expect that the trend~~pass-through of ~~these costs will continue to decline over the remainder of 2021.~~state reimbursement rate increases.

The ~~518.2% increase~~9.0% decrease in HHH cost of revenue for the three-month period ended April ~~3, 2021~~1, 2023 was driven by a decline in HHH volumes, offset in part by increases in overall caregiver costs as a percentage of revenue.

The 12.3% increase in MS cost of revenue for the three-month period ended April 1, 2023 was driven by the ~~increased volumes associated with the 2020 HHH Acquisitions.~~

~~The 13.2% increasein MS costof revenuefor~~ ~~the~~ ~~three-month period ended~~ ~~April 3, 2021 was drivenby the~~previously~~noted10.6%~~ described 9.0% growth in MS volumes~~in 2020, as well~~as during the first quarter of 2022 and a ~~2.6%~~3.3% increasein cost~~of revenuerate.The increasein cost~~of revenue rate.

~~was primarilyattributable to~~ a ~~shift in product mix.~~

Gross Margin and Gross Margin Percentage

Gross marginwas ~~$131.7~~$144.5 million,or ~~31.6%~~31.0% of revenue,forthe three-month period ended April ~~3, 2021,~~1, 2023, as comparedto ~~$107.5~~$144.8 million, or ~~30.3%~~32.1% of revenue,forthe three-month period ended ~~March 28, 2020.~~ April 2, 2022. Gross margin~~increased~~ ~~$24.1~~ decreased $0.4 million,or ~~22.4%~~0.2%, from the comparable prior year ~~over year.~~quarter. The ~~1.3% increase~~1.1% decrease in grossmarginpercentage forthe three-month period ended April ~~3, 2021~~1, 2023 resultedfromthe combinedchangesin our revenueratesand costof revenueratesin eachof our segments,which we referto as thechangein our spread rate, as follows:

~~rate,as follows:~~

•

a 4.2% increase in PDS spread rate from $10.23 to $10.65 driven by the 4.7% increase in PDS revenue rate, net of the 4.9% increase in PDS cost of revenue rate;

•

a 0.5% decrease in MS spread rate from $180.19 to $179.41 driven by the 1.7% increase in MS revenue rate, net of the 3.3% increase in MS cost of revenue rate; and

•

our HHH segment, in which gross margin percentage decreased by 4.1%.

•

~~a 1.1% decreasein PDSspreadratefrom$10.38 to $10.28, drivenby the1.6% decreasein PDSrevenuerate,netof the1.9% decreasein PDScostof revenuerate;~~

•

~~a 7.0% increasein MS spreadratefrom$201.77 to $214.58, drivenby the4.6% increasein MS revenuerate,netof the2.6% increasein MS costof revenuerate; and~~

•

~~our HHHsegment,which increasedHHHgrossmarginpercentageby 7.6% through~~ ~~the~~ ~~2020 HHH Acquisitions.~~

Branch and Regional Administrative Expenses

Branch and regionaladministrativeexpenseswere ~~$69.4~~$91.7 million,or ~~16.6%~~19.7% of revenue,forthe ~~three-month period ended~~ ~~April 3, 2021, as comparedto $59.7 million,or 16.8% of revenue,forthe~~ ~~three-month period ended~~ ~~March 28, 2020, an increaseof $9.7 million,or 16.2%.~~

~~The increasein branchand regionaladministrativeexpensesof $9.7 million,or 16.2%, comparedfavorably to revenuegrowth of 17.4% forthe~~ three-month period ended April ~~3, 2021~~,1, 2023, as comparedto $88.7 million, or 19.7% of revenue, for the three-month period ended April 2, 2022, an increase of $3.0 million, or 3.3%. ~~March 28, 2020.~~

The ~~net decrease~~3.3% increase in branch and regional administrative expenses was consistent with our 3.5% revenue growth for the three-month period ended April 1, 2023, as compared to the three-month period ended April 2, 2022, and resulted in no change in branch and regional administrative expenses as a percentage of revenue ~~of 0.2% was driven by~~over the ~~following factors: (i) we leveraged our organic revenue growth with controlled growth in branch and regional administrative costs while also decreasing our branch and regional~~ comparable quarterly periods.~~traveland officeand administrativecostsin the first quarter 2021~~ as ~~compared to the first quarter 2020~~; (ii) we realized higher costs savings as a percentage of revenue than our consolidated average resulting from our exit of the ABA Therapy business in the second fiscal quarter of 2020; net of (iii) higher incremental costs as a percentage of revenue than our consolidated averages necessary

to support the incremental businesses acquired via the 2020 HHH Acquisitions. While our HHH businesses have higher gross margins than our PDS businesses, they have higher branch and regional administrative expenses than our PDS businesses.

Field Contribution and Field Contribution Margin

Field contributionwas ~~$62.3~~$52.8 million,or ~~14.9%~~11.3% of revenue,forthe three-month period ended April ~~3, 2021~~1, 2023, as comparedto ~~$47.8~~$56.1 million,or ~~13.5%~~12.4% of revenue,forthe three-month period ended ~~March 28, 2020.~~ April 2, 2022. Fieldcontribution~~increased~~ ~~$14.5~~ decreased $3.3 million,or ~~30.2%~~5.9%, forthe three-month period ended April ~~3, 2021,~~1, 2023, as compared tothe three-month period ended ~~March 28, 2020.~~ April 2, 2022. The ~~1.4% increase~~1.1% decrease in Fieldcontributionmarginfor the three-month period ended April ~~3, 2021~~1, 2023 resulted from the following:

~~from~~

•

the 1.1% decrease in gross margin percentage in the three-month period ended April 1, 2023, as compared to the three-month period ended April 2, 2022.

~~thefollowing:~~

•

~~the~~ ~~1.3%~~ ~~increasein grossmarginpercentage~~in ~~the~~ ~~three-month period ended~~ ~~April 3, 2021, as compared~~to ~~the~~ ~~three-month period ended~~ ~~March 28, 2020; and~~

•

~~the~~ ~~0.2%~~ ~~decreasein branchand regionaladministrativeexpensesas a percentageof revenue~~in ~~the~~ ~~three-month period ended~~ ~~April 3, 2021, as compared~~to ~~the~~ ~~three-month period ended March 28, 2020~~.

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

Corporate Expenses

Corporate expenses as a percentage of revenue for the three-month periods ended April ~~3, 2021~~1, 2023 and ~~March 28, 2020~~April 2, 2022 were as follows:


							For the three-month periods ended
	For the Three-Month Periods Ended						April 1, 2023					April 2, 2022
(dollars in thousands)	April 3, 2021			March 28, 2020			Amount		% of Revenue			Amount		% of Revenue
Revenue	$	417,160		$	355,223		$	466,413				$	450,534
Corporate expenses	$	27,399		$	25,797
As a percentage of revenue		6.6	%		7.3	%
Corporate expense components:
Compensation and benefits							$	16,765		3.6	%	$	17,265		3.8	%
Non-cash share-based compensation								2,161		0.5	%		4,029		0.9	%
Professional services								5,973		1.3	%		8,475		1.9	%
Rent and facilities expense								2,861		0.6	%		2,983		0.7	%
Office and administrative								217		0.0	%		1,243		0.3	%
Other								2,958		0.6	%		2,572		0.6	%
Total corporate expenses							$	30,935		6.6	%	$	36,567		8.1	%

Corporate expenseswere ~~$27.4~~$30.9 million,or 6.6% of revenue,for the three-month period ended April ~~3, 2021~~,1, 2023, as comparedto ~~$25.8~~$36.6 million,or ~~7.3%~~8.1% of revenue, for the three-month period ended ~~March 28, 2020.~~April 2, 2022. The ~~$1.6~~$5.6 million, or 15.4%, decrease in corporate expenses resulted primarily from:

~~or 6.2%, increase~~

~~in quarter over~~

~~quarter~~

•~~corporate~~

~~expensesresultedprimarilyfromincreased~~ ~~professional services associated with integration activities from acquisitions and costs associated with the preparation for and execution of our initial public offering, offset in part by~~ lower ~~travel and related costs, and lower rent and facilities expense~~.

~~In total, our corporateexpensesas a percentageof revenue for the first quarter of 2021decreased~~ ~~by 0.7% from the first quarter of 2020 primarily as a result of the decrease in~~ compensation and benefits costs due to a reduction in transition and integration activities with acquired businesses, as well as the executive transition completed on December 31, 2022;

•

lower non-cash share-based compensation costs due to certain forfeitures of unvested awards and the absence of expense from vesting of pre-IPO awards which were fully expensed during fiscal year 2022; and

•

lower professional service costs due to a ~~percentage of revenue year over year, which is the most significant component of corporate expenses. Compensation~~reduction in transition and ~~benefits costs as a percentage of revenue~~integration activities.

Depreciation and Amortization

Depreciation and amortization was ~~3.8% and 4.4%~~$4.0 million for the three-month ~~periods~~period ended April ~~3, 2021~~1, 2023, as compared to $5.8 million for the three-month period ended April 2, 2022, a decrease of $1.8 million, or 30.6%. The $1.8 million decrease primarily resulted from the absence of amortization charges associated with assets acquired in connection with the acquisition of Comfort Care and ~~March 28, 2020, respectively. Compensation and benefits costs~~Accredited completed in the ~~first~~fourth quarter of ~~2020 included charges~~2021 which were amortized over a one year period.

Interest Expense, net of ~~$2.2~~Interest Income

Interest expense, net of interest income was $35.9 million ~~related~~for the three-month period ended April 1, 2023, as compared to ~~a corporate restructuring~~$22.3 million for the three-month period ended April 2, 2022, an increase of $13.6 million, or 60.9%. The increase was primarily driven by significant increases in ~~January 2020.~~LIBOR, largely because the Federal Reserve Board has significantly increased the U.S. federal funds rate since the beginning of 2022. See further analysis under Liquidity and Capital Resources below.

~~Depreciation and Amortization~~

~~Depreciation and amortization~~ ~~were $4.8 million~~

Other (Expense) Income

Other expense was $12.2 million for the three-month period ended April ~~3, 2021,~~1, 2023, as comparedto ~~$4.2~~other income of $36.5 millionfor the three-month period ended ~~March 28, 2020, an increase~~ April 2, 2022, a decrease of ~~$0.7~~$48.6 million. We realized a $56.8 millionor ~~15.9%. The $0.7 millionincrease~~ decrease in ~~depreciationand amortization~~non-cash valuation gains on interest rate derivatives resulting from changes in ~~2020 resultedfromincrementalcapitalexpendituresin fiscalyear2020 thatwere in servicefora full~~ ~~quarter~~ ~~in the first~~ ~~quarter~~ ~~2021, and incrementaldepreciationand amortizationassociatedwith assetsacquiredin connectionwith the2020 PDSAcquisitionsand 2020 HHH Acquisitions.~~

~~Acquisition-related Costs~~

~~Acquisition-relatedcostswere $1.8 millionforthe~~ ~~three-month period ended~~ ~~April 3, 2021, comparedto $0.0 millionforthe~~ ~~three-month period ended~~ ~~March 28, 2020. Substantially all~~market expectations of this increase was related to costs associated with the Doctor’s Choice acquisition, completed on April 16, 2021. In the first quarter of 2020, the Company had not begun to incur costs associated with the 2020 PDS~~Acquisitionsand 2020 HHHAcquisitions.~~

~~Interest Expense, net of Interest Income~~

~~Interest expense,net~~offuture interest~~income~~ ~~was~~ ~~$22.3~~ ~~millionforthe~~ ~~three-month period ended~~ ~~April 3, 2021, comparedto $21.0 millionforthe~~ ~~three-month period ended~~ ~~March 28, 2020, an increaseof $1.3 million,~~or ~~6.3%. The primary driver~~ rates as of the ~~increase was additional~~comparable quarter-end valuation dates; offset by an $8.7 million improvement in net settlements with interest ~~associated with the fourth amendment to our first lien term loan (the “First Lien Fourth Amendment Term Loan”) issued in~~

~~September2020. We incurred $3.6 million of~~rate derivative counterparties as interest ~~associated with this term loan in the first quarter of 2021, whereas we incurred no such interest costs in the first quarter of 2020. These~~rates increased ~~interest costs were offset in part by decreases resulting fromtheonsetof the COVID-19~~ ~~pandemic~~ ~~in March2020, which led LIBORratesapplicableto our outstandingindebtedness~~ to ~~decreaseand remain~~at~~levels below 1% such that the 1% LIBOR floors in our credit agreements became operative. This resultedin lowerinterestcostsunderour creditfacilities.~~ ~~In addition, in March 2020, we fully repaidour revolving~~ c~~redit~~ f~~acility~~, ~~resultingin $0.5 million less ininterestcostsincurredunderour revolvingcredit~~ f~~acilityfor the first quarter of 2021~~ compared to the ~~first quarter~~prior year quarter. Details of ~~2020.~~ other (expense) income included the following:

~~Gain on Debt Extinguishment~~

~~Gain on debt~~ ~~extinguishment~~


	For the three-month periods ended
(dollars in thousands)	April 1, 2023			April 2, 2022
Valuation (loss) gain to state interest rate derivatives at fair value	$	(18,537	)	$	38,256
Net settlements received from (paid to) interest rate derivative counterparties		6,615			(2,073	)
Other		(266	)		274
Total other (expense) income	$	(12,188	)	$	36,457

~~was $0.0 million~~

Income Taxes

We incurred income tax expense of $1.6 million forthe three-month period endedApril ~~3, 2021, comparedto a gain of $0.1 millionfor~~1, 2023~~the~~ ~~three-month period ended~~ ~~March 28, 2020, which was the result of nominal adjustments to the write-off of senior secured notes associated with a terminated transaction, which we redeemed in December 2019.~~

~~Other Income~~

~~Other incomewas $0.2 millionforthe~~ ~~three-month period ended~~ ~~April 3, 2021, comparedto other~~ ~~income~~ ~~of $41.8 millionforthe~~ ~~three-month period ended~~ ~~March 28, 2020, a decreaseof $41.6 million.The primarydriverof thechangewas our receipt of a legalsettlementin connection with an acquisition-relatedmatterin thefirstquarterof 2020. Other~~ ~~income~~ ~~alsoincludesthechargeswe recordedto measureour interestratederivatives~~at~~fairvalue,as wellas thenetsettlementswe incurwith counterpartiesunderour interestrateswap agreements.Our valuation~~ ~~adjustmentsunderour interestrateswaps resulted in a gain of $2.8 million during the first quarter 2021,~~, as compared to ~~a $6.4~~income tax expense of $2.6 million ~~loss in~~for the ~~first quarter 2020.The increasein netsettlement costsresultedfromthedecrease in LIBORthatoccurredwith theonsetof COVID-19,which increasedour paymentsto swap counterparties. Other~~ ~~income~~ ~~was composedof thefollowing:~~

For the Three-Month Periods Ended

(dollars in thousands)
April 3, 2021

March 28, 2020

Valuation change to state interest rate swaps at fair value
$
2,820

$
(6,422
)
Net settlements incurred with swap counterparties

(2,769
)

(1,870
)
Proceeds from legal settlement associated with acquisition-related matters

-

50,000

Other

108

83

Total other income
$
159

$
41,791

~~Income Taxes~~

~~We incurredincometaxexpenseof $0.3 million~~ ~~forthe~~ three-month period ended April ~~3, 2021, as comparedto incometaxexpenseof $1.1 million~~ ~~forthe~~ ~~three-month period ended~~ ~~March 28, 2020.~~2, 2022. This decreasein ~~taxexpensewas primarilydrivenby changesin state~~tax 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.

~~and statevaluationallowances.~~

Non-GAAP Financial Measures

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

EBITDAand AdjustedEBITDAarenon-GAAPfinancial~~measur~~es measures and arenot intendedto replacefinancial performancemeasuresdeterminedin accordancewith U.S. GAAP,such as net~~income~~(loss). income. Rather,we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We defineEBITDAas net (loss) income~~(loss)~~beforeinterestexpense,net;incometax(expense)benefit;and depreciationand amortization.We defineAdjustedEBITDAas ~~EBITD~~A,EBITDA, adjustedfortheimpactof certainotheritemsthatareeithernon-recurring, infrequent,non-cash,unusual,or itemsdeemedby managementto not be indicativeof theperformanceof our coreoperations,includingimpairmentsof goodwill,intangibleassets,and otherlong-livedassets;non-cash, ~~stock-based~~share-based compensation;~~sponsorfees;~~losson extinguishmentof debt;feesrelatedto debtmodifications;the effectof interestratederivatives;acquisition-relatedand integrationcosts;legalcostsand settlementsassociated 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

~~matters;~~

~~the~~

~~discontinuationof our ABATherapyservices;non-acquisition-relatedlegal settlements;and othersystemtransitioncosts,professionalfeesand othercosts.As non-GAAPfinancial measur~~e~~s, our computatio~~ns of EBITDAand AdjustedEBITDAmayvaryfromsimilarlytermednon-GAAP financialmeasuresused by othercompanies,makingcomparisonswith othercompanieson thebasisofthis measure impracticable.

Managementbelievesour ~~computatio~~nscomputations of EBITDAand AdjustedEBITDAarehelpfulin highlighting trendsin our coreoperatingperformance.In determiningwhich adjustmentsaremadeto arriveatEBITDAand AdjustedEBITDA,managementconsidersboth (1)certainnon-recurring,infrequent,non-cashor unusualitems, which can varysignificantlyfromyearto year,as wellas (2)certainotheritemsthatmaybe recurring,frequent, or settledin cashbut which managementdoes not believeareindicativeof our coreoperatingperformance. We use EBITDAand AdjustedEBITDAto assessoperatingperformanceand makebusinessdecisions.

We have incurred substantial acquisition-related costs and integration ~~costs in fiscal years 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 determinationof adjustmentsin arrivingatour ~~computatio~~nscomputations of EBITDAand AdjustedEBITDA, thesenon-GAAP~~measur~~es measures have limitationsas analyticaltools and shouldnot be consideredin isolationor as ~~substitut~~essubstitutes or ~~alternativ~~esalternatives to netincomeor loss,revenue,operatingincomeor loss,cashflowsfromoperating activities,totalindebtednessor any otherfinancialmeasurescalculatedin accordancewith U.S. GAAP.

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


	For the three-month periods ended
(dollars in thousands)	April 1, 2023			April 2, 2022
Net (loss) income	$	(31,998	)	$	25,334
Interest expense, net		35,883			22,302
Income tax expense		1,566			2,597
Depreciation and amortization		4,041			5,819
EBITDA		9,492			56,052
Goodwill, intangible and other long-lived asset impairment		68			(112	)
Non-cash share-based compensation		2,442			4,815
Interest rate derivatives (1)		11,922			(36,183	)
Acquisition-related costs (2)		70			91
Integration costs (3)		1,133			6,747
Legal costs and settlements associated with acquisition matters (4)		304			1,039
COVID-related costs, net of reimbursement (5)		-			4,172
Restructuring (6)		2,127			-
Other system transition costs, professional fees and other (7)		923			1,329
Total adjustments (8)	$	18,989		$	(18,102	)
Adjusted EBITDA	$	28,481		$	37,950

For the Three-Month Periods Ended

(dollars in thousands)

April 3, 2021

March 28, 2020

Net income

$
5,798

$
37,637

Interest expense, net

22,348

21,017

Income tax expense

309

1,131

Depreciation and amortization

4,848

4,183

EBITDA

33,303

63,968

Goodwill, intangible and other long-lived asset impairment

(4
)

48

Non-cash stock-based compensation

712

318

Sponsor fees ⁽¹⁾

808

808

Gain on extinguishment of debt

-

(127
)
Interest rate derivatives ⁽²⁾

(51
)

8,292

Acquisition-related costs and other costs ⁽³⁾

1,768

2,520

Integration costs ⁽⁴⁾

3,469

1,043

Legal costs and settlements associated with acquisition matters ⁽⁵⁾

575

(49,088
)
COVID-related costs, net of reimbursement ⁽⁶⁾

1,760

461

ABA exited operations ⁽⁷⁾

-

860

Other system transition costs, professional fees and other ⁽⁸⁾

1,396

719

Total adjustments ⁽⁹⁾

$
10,433

$
(34,146
)
Adjusted EBITDA

$
43,736

$
29,822

(1)

Represents valuation adjustments and settlements associated with interest rate derivatives that are not included in interest expense, net. Such items are included in other income.

(2)

Represents transaction costs incurred in connection with planned, completed, or terminated acquisitions, which include investment banking fees, legal diligence and related documentation costs, and finance and accounting diligence and documentation, as presented on the Company’s consolidated statements of operations.

(3)

Represents (i) costs associated with our Integration Management Office, which focuses on our integration efforts and transformational projects such as systems conversions and implementations, material cost reduction and restructuring projects, among other things, of $0.4 million and $1.1 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively; and (ii) transitionary costs incurred to integrate acquired companies into our field and corporate operations of $0.7 million and $5.6 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively. Transitionary costs incurred to integrate acquired companies include IT consulting costs and related integration support costs; salary, severance and retention costs associated with duplicative acquired company personnel until such personnel are exited from the Company; accounting, legal and consulting costs; expenses and impairments related to the closure and consolidation of overlapping markets of acquired companies, including lease termination and relocation costs; costs associated with terminating legacy acquired company contracts and systems; and one-time costs associated with rebranding our acquired companies and locations to the Aveanna brand.

(4)

Represents legal and forensic costs, as well as settlements associated with resolving legal matters arising during or as a result of our acquisition-related activities. This primarily includes costs of $0.1 million and $1.0 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively, to comply with the U.S. Department of Justice, Antitrust Division’s grand jury subpoena related to nurse wages and hiring activities in certain of our markets, in connection with a terminated transaction.

(5)

Represents costs incurred as a result of the COVID-19 environment, primarily including, but not limited to, (i) relief, vaccine, and hero pay provided to our caregivers; staffing and retention related incentives to attract and retain caregivers in the midst of the Omicron surge; and other incremental compensation costs; (ii) sick leave for our caregivers required by OSHA's Emergency Temporary Standard, costs required to comply with federal, state and local vaccination mandates and testing requirements, and worker compensation costs for mandated quarantine time; (iii) incremental PPE costs; and (iv) salary, severance and lease termination costs associated with workforce reductions necessitated by COVID-19; net of temporary reimbursement rate increases provided by certain state Medicaid and Medicaid Managed Care programs which approximated $4.2 million for the three-month period ended April 2, 2022.

(6)

Represents costs associated with restructuring our branch and regional administrative footprint as well as our corporate overhead infrastructure costs for the three-month period ended April 1, 2023, in order to appropriately size our resources to current volumes, including: (i) branch and regional salary and severance costs; (ii) corporate salary and severance costs; and (iii) rent and lease termination costs associated with the closure of certain office locations.

(7)

Represents (i) costs associated with the implementation of, and transition to, new electronic medical record systems, billing and collection systems, duplicative system costs while such transformational projects are in-process, and other system transition costs of $0.7 million and $1.6 million for three-month periods ended April 1, 2023 and April 2, 2022, respectively, respectively; (ii) professional fees associated with preparation for Sarbanes-Oxley compliance of $0.5 million and $0.2 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively; (iii) $(0.2) million of net gains on disposal of businesses during the three-month period ended April 2, 2022 (there were no such gains or losses in the current year); and (iv) certain other costs or (income) that are either non-cash or non-core to the Company’s ongoing operations of $(0.3) million and $(0.3) million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively.

(8)

The table below reflects the increase or decrease, and aggregate impact, to the line items included in our consolidated statements of operations based upon the adjustments used in arriving at Adjusted EBITDA from EBITDA for the periods indicated:


	Impact to Adjusted EBITDA
	For the three-month periods ended
(dollars in thousands)	April 1, 2023		April 2, 2022
Revenue	$	-	$	-
Cost of revenue, excluding depreciation and amortization		145		3,936
Branch and regional administrative expenses		1,641		1,390
Corporate expenses		4,874		13,107
Acquisition-related costs		70		91
Other operating expense (income)		-		(170	)
Other (expense) income		12,259		(36,456	)
Total adjustments	$	18,989	$	(18,102	)

~~(1)~~

~~Representsannualmanagementfeespayableto our sponsorsunderour ManagementAgreement as defined in Note 12 – Related Party Transactions within the notes accompanying our consolidated financial statements included in this Quarterly Report on Form 10-Q. The ManagementAgreement terminated~~ ~~in accordance with its terms~~ ~~upon completionof our initialpublicoffering.~~

~~(2)~~

~~Representscostsassociatedwith interestratederivativesnot included in interestexpense which were included in other income~~.

~~(3)~~

~~Represents(i)transactioncostsincurredin connectionwith planned,completed,or terminatedacquisitions, which includeinvestmentbankingfees,legaldiligenceand relateddocumentationcosts,and financeand accountingdiligenceand documentation,as presentedon theCompany’sconsolidatedstatements~~of~~operations,of $1.8 millionforthe first quarter 2021; there were no such costs for the first quarter 2020, and (ii)corporatesalaryand severancecosts in connectionwith our January2020 corporaterestructuringin responseto aterminated~~ t~~ransaction of $2.5 millionforthe~~ ~~first quarter 2020; there were no such costs for the first quarter 2021.~~

~~(4)~~

~~Represents(i)costsassociatedwith our IntegrationManagementOffice,which focusessolelyon our integrationefforts,of $0.9 millionforthe~~ ~~first quarter 2021 and~~ ~~$0.7 millionforthe~~ ~~first quarter 2020~~ ~~and (ii)transitionary costs incurredto integrateacquiredcompaniesintoourfieldand corporateoperationsof $2.6 millionfor the first quarter 2021 and $0.3 millionforthe~~ ~~first quarter 2020. Transitionarycostsincurredto integrateacquiredcompaniesincludeIT consultingcostsand relatedintegrationsupportcosts;salary,severanceand retentioncostsassociatedwith duplicativeacquiredcompanypersonneluntilsuch personnelareexitedfromthe Company;accounting,legal and consultingcosts;expensesand impairmentsrelatedto the~~

~~closureand consolidationof overlapping marketsof acquiredcompanies,includingleaseterminationand relocationcosts;and one-timecosts associatedwith rebrandingour acquiredcompaniesand locationsto theAveanna brand.~~

~~(5)~~

~~Representslegaland forensiccosts,as wellas settlementsassociatedwith resolvinglegalmattersarising duringor as a resultof our acquisition-relatedactivity.This includescostsassociatedwith pursuingcertain claimsin connectionwith an acquisition-related legal matter,as wellas a settlementreceivedpertainingto such matterin the first quarter2020. Italsoincludes,amongotheramounts,costsof $0.6 millionand $0.6 millionforthe~~ ~~first quarters~~ ~~ended April 3, 2021 and March28, 2020, respectively,to complywith theU.S.Departmentof Justice, AntitrustDivision’sgrandjurysubpoenarelatedto nursewages and hiringactivitiesin certainof our markets,in connection with a~~ ~~terminated transaction.~~

~~(6)~~

~~Representscostsincurredas a resultof theCOVID-19environment,primarilyincluding,but not limitedto, (i)relief, vaccine,and heropay providedto our caregiversand otherincrementalcompensationcosts;(ii)incremental PPEcosts;(iii)salary,severanceand leaseterminationcostsassociatedwith workforcereductions necessitatedby COVID-19;and (iv)costsof remoteworkforceenablement,allof which totaled $1.8 million~~ ~~and $0.5 million~~ ~~forthe~~ ~~first quarters~~ ~~ended April 3, 2021 and March 28, 2020, respectively.~~

~~(7)~~

~~Representstheresultsof operations~~ ~~for the periods indicated~~ ~~relatedto theABATherapyservicesbusiness thatwe exitedas a resultof theCOVID-19environment,as wellas one-timecostsincurredin connection with exitingtheABATherapyservicesbusiness.~~

~~(8)~~

~~Represents(i)costsassociatedwith theimplementationof, and transitionto, new electronicmedicalrecord systems,billing,collectionand payrollsystems,businessintelligencesystems,duplicativesystemcosts whilesuch transformationalprojectsarein-process,and othersystemtransitioncostsof $0.4 millionforthe~~ ~~first quarter~~ ~~ended March 28, 2020 (there were no such costs for the first quarter 2021); and (ii)professionalfeesassociatedwith preparationforSarbanes-Oxleycompliance and otheradvisoryfeesassociatedwith preparationforour initialpublicequityoffering,and advisory costsassociatedwith theadoptionof new accountingstandards,such as Accounting Standards Codification (“ASC”)606 and ASC842, of $1.4 millionforthe first quarter ended April 3, 2021 and $0.3 millionforthe first quarterended March 28, 2020, respectively.~~

~~(9)~~

~~The tablebelow reflectstheincreaseor decrease,and aggregateimpact,to thelineitemsincludedon our consolidated statementsof operationsbasedupon theadjustmentsused in arriving~~at~~AdjustedEBITDAfromEBITDA:~~

Impact to Adjusted EBITDA

For the Three-Month Periods Ended

(dollars in thousands)

April 3, 2021

March 28, 2020

Revenue

$
(15
)

$
(4,660
)
Cost of revenue, excluding depreciation and amortization

894

3,441

Branch and regional administrative expenses

200

3,220

Corporate expenses

7,746

5,771

Acquisition-related costs

1,768

-

Gain on debt extinguishment

-

(127
)
Other income

(160
)

(41,791
)
Total adjustments

$
10,433

$
(34,146
)

Field contribution and Field Contribution Margin

FieldcontributionandFieldcontributionmarginarenon-GAAPfinancialmeasuresandarenotintendedto replacefinancialperformancemeasuresdeterminedinaccordancewith U.S. GAAP,suchas~~operatingincome(loss).~~ gross margin and gross margin percentage. Rather,wepresentFieldcontributionandFieldcontributionmarginassupplementalmeasuresofourperformance. Wedefine~~Fieldcontribution~~as~~operatingincome(loss)prior~~to~~corporateexpensesandothernon-fieldrelated costs,includingdepreciationandamortization,acquisition-relatedcosts,andotheroperatingexpenses.~~Field contribution as gross margin less branch and regional administrative expenses. Field contribution margin isFieldcontributionasapercentageofrevenue.Asnon-GAAPfinancialmeasures,our computationsofFieldcontributionandFieldcontributionmarginmayvaryfromsimilarlytermednon-GAAP financialmeasuresusedbyothercompanies,makingcomparisonswithothercompaniesonthebasisofthese measures impracticable.~~impracticable.~~

Fieldcontributionand Fieldcontributionmarginhave limitationsas analyticaltoolsand shouldnot be consideredin isolationor as substitutesor alternativesto gross margin, gross margin percentage, netincomeor loss,revenue,operatingincomeor loss, cashflowsfromoperatingactivities,totalindebtednessor any otherfinancialmeasurescalculatedin accordance with U.S. GAAP.

ManagementbelievesFieldcontributionand Fieldcontributionmarginarehelpfulin highlightingtrends in our coreoperatingperformanceand evaluatingtrendsin our branchand regionalresults,which can varyfrom yearto year.We use Fieldcontributionand Fieldcontributionmarginto makebusinessdecisionsand assessthe operatingperformanceand resultsdeliveredby our corefieldoperations,priorto corporateand othercostsnot directlyrelatedto our fieldoperations.These metricsarealsoimportantbecausetheyguideus in determining whetheror not our branch and regional administrative expenses are appropriately sized to support our caregivers

~~and regional~~

~~administrativeexpensesareappropriatelysizedto supportour caregivers~~

and directpatientcareoperations.Additionally,Fieldcontributionand Fieldcontributionmargindeterminehow effectivewe arein managingour fieldsupervisoryand administrativecostsassociatedwith supportingour provisionof servicesand saleof products.

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

~~table~~


	For the three-month periods ended
(dollars in thousands)	April 1, 2023			April 2, 2022
Gross margin	$	144,465		$	144,826
Gross margin percentage		31.0	%		32.1	%
Branch and regional administrative expenses		91,708			88,743
Field contribution	$	52,757		$	56,083
Field contribution margin		11.3	%		12.4	%
Revenue	$	466,413		$	450,534

~~reconcilesoperatingincometo Fieldcontributionand Fieldcontributionmargin:~~

For the Three-Month Periods Ended

(dollars in thousands)
April 3, 2021

March 28, 2020

Operating income
$
28,296

$
17,867

Acquisition-related costs

1,768

-

Depreciation and amortization

4,848

4,183

Corporate expenses

27,399

25,797

Field contribution
$
62,311

$
47,847

Revenue
$
417,160

$
355,223

Field contribution margin

14.9
%

13.5
%

Liquidity and Capital Resources

Overview

Our principal sources of cash have historically been from cash provided by operating activities. Our principal source of liquidity in ~~excess of~~addition to cash ~~from~~provided by operating activities, or when we have used net cash in our operating activities, has historically been from proceeds from our ~~debt~~credit facilities and issuances of common stock. ~~Most recently,~~In August 2022, we ~~raised an aggregate~~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 $425.6 million, after deducting underwriting discounts and commissions and offering expenses payable by us, in our initial public offering, which closed on May 3, 2021, and an aggregate of $45.2 million, after deducting underwriting discounts and commissions, from the underwriters’ exercise of their overallotment option, which closed on May 25, 2021.

Our principal uses of cash and liquidity have historically been for acquisitions, ~~debt service requirements~~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. Certaincompanieswe acquiredin fiscal years 2020 and 2021 had alsodeferredpayrolltaxesof ~~$2.8~~$4.6 millionin ~~the~~aggregate in fiscal year ~~2020~~.2020. We did not defer any payroll taxes after December 31, 2020. ~~As of April 3,~~In December 2021, we paid $25.9 million to the IRS, reducing our aggregate deferred~~payrolltaxes~~ ~~were$49.6 million.~~ ~~These deferred~~ payroll ~~taxes will require payments~~tax liabilities to $25.5 million, which we paid in full to the ~~Internal Revenue Service~~IRS in December 2022.

In connection with the enforcement of ~~50%~~a $19.8 million legal judgment, in March 2023, $18.4 million of cash was garnished from the Company’s accounts via a writ of garnishment. In response, we promptly obtained and recorded an $18.4 million cash collateralized appellate bond with the court and filed a motion to dissolve the writ of garnishment and return the previously garnished funds. Subsequently in March 2023, the court dissolved the writ of garnishment and released the $18.4 million of cash back to Aveanna. With respect to the additional $18.4 million of cash collateral posted by us in support of the above-described appellate bond, in March 2023 we substituted $15.0 million of letters of credit for cash collateral previously posted, and we received $15.0 million of cash back in March 2023. The remaining $3.4 million of cash collateral supporting the appellate bond is recorded in other current assets in the accompanying financial statements and reduces cash available to us for general working capital purposes until the appeal process is concluded, which may take up to or more than 24 months. In March 2023, we drew on ~~December 31, 2021~~our Securitization Facility and ~~50%~~Revolving Credit Facility to replace cash originally subject to garnishment and also to fund the appellate bond. We used the aggregate $33.4 million of cash subsequently returned in March 2023 to repay the related amounts previously drawn on ~~December 31, 2022.~~ the Revolving Credit Facility and Securitization Facility.

In response to a $7.9 million arbitration award rendered against us in connection with this civil litigation matter, we expect to fund up to $7.9 million of cash collateral for an appellate bond during our second fiscal quarter of 2023 while this matter is under appeal. This cash collateral will also reduce cash available to us for general working capital purposes until the appeal process is concluded. We intend to use available cash on hand or borrow under our Securitization Facility or Revolving Credit Facility to fund this cash collateral based on circumstances at the time of funding.

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 approximately $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 the audits are concluded, these escrowed funds will be used to satisfy any additional amounts due to the IRS or paid to the Seller. 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. We expect these tax matters to conclude in the second half of fiscal year 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 April 1, 2023 we had $34.4 million in cash on hand, $20.0 million available to us under our Securitization Facility and approximately $162.0 million of 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 carve-out for letters of credit. We believe that borrowing capacity under the Revolving Credit Facility will decrease in the second fiscal quarter of 2023 due to the impact of the maintenance leverage covenant. We believe that our operating cash flows, available cash on hand, and availability under our ~~credit facilities~~Securitization Facility and 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 the availability we have under our credit facilities in addition to the net cash (used in) or provided by operating, investing and financing activities. Specifically, we review the activity under the revolving credit facility and consider period end balances outstanding under the revolving credit facility. Based upon the outstanding borrowings and letters of credit under the revolving credit facility, we calculate the availability for borrowings under the revolving credit facility. 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 three-month periods ended April 3, 2021 and March 28, 2020, respectively:~~

For the Three-Month Periods Ended

(dollars in thousands)

April 3, 2021

March 28, 2020

Revolving credit facility rollforward

Beginning revolving credit facility balance

$
-

$
31,500

Draws

-

14,000

Repayments

-

(45,500
)
Ending revolving credit facility balance

$
-

$
-

Calculation of revolving credit facility availability

Revolving credit facility limit

$
75,000

$
75,000

Less: outstanding revolving credit facility balance

-

-

Less: outstanding letters of credit

(19,817
)

(19,718
)
End of period revolving credit facility availability

55,183

55,282

End of period cash balance

67,105

56,034

Total Liquidity, end of period

$
122,288

$
111,316

Cash Flow Activity

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


	For the Three-Month Periods Ended						For the three-month periods ended
(dollars in thousands)	April 3, 2021			March 28, 2020			April 1, 2023			April 2, 2022
Net cash (used in) provided by operating activities	$	(32,911	)	$	44,053
Net cash provided by (used in) operating activities							$	7,495		$	(9,476	)
Net cash used in investing activities	$	(3,165	)	$	(6,327	)	$	(4,800	)	$	(16,643	)
Net cash (used in) provided by financing activities	$	(34,164	)	$	14,981
Net cash provided by financing activities							$	12,521		$	13,068

Operating Activities

~~Net~~The primary sources or uses of our operating cash ~~used~~ flow are operating income or operating losses, 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 can also impact and cause fluctuations in our operating~~activitiesdecreased~~ cash flow. Cash provided by ~~$77.0~~operating activities increased by $17.0 million~~from$44.1 millionnetcashprovided for the three-month period ended March 28, 2020, to $32.9 millionnetcashusedforthe three-month period ended April 3, 2021. The decreasewas primarilydue to the following items:~~

•

~~our operatingincomeincreasedby $10.4 million~~ ~~from the first quarter of~~ ~~2020 to the first quarter of 2021; offset by~~

•

~~a $50.0 million receipt of proceeds from a legal settlement~~ in ~~the first quarter of 2020;~~

•

a $21.7 million net increase in cash used for patient accounts receivable resulting from the following items: (i) significant growth in our normalized, thirteen-week quarterly revenue between the fourth fiscal quarter of 2020 and the first quarter of 2021, as compared to the corresponding prior year periods, resulting in increased accounts receivable; (ii) growth in our receivables as we implement new data collection and billing submission procedures in compliance with new Electronic Visit Verification requirements, which became effective in January 2021; (iii) growth in our HHH revenue and receivables in the first quarter 2021 as compared to the first quarter 2020 as a result of the 2020 HHH acquisitions. HHH patient accounts receivable typically have a longer collection cycle than our PDS and MS businesses; and (iv) other timing-related items associated with normal billing and collections;

•

~~a $10.4 million incremental usage of cash in the first quarter 2021 as compared to the first quarter 2020 related to the timing of payments of certain annual incentives;~~

•

~~a $2.5 million incremental usage of cash related to an increase in the annual payment schedule for certain of our systems; and~~

•

~~approximately $3.4 million of other working capital items related to the timing of payments.~~

~~Taken together, these items~~ ~~drove~~ the first quarter ~~2021~~ ~~decreasein netcashprovidedby operatingactivities as~~of 2023 compared to the first quarter ~~2020.~~of 2022, primarily due to:

•

the provision of cash associated with operating assets and liabilities over the comparable periods, primarily the deferral of one month of interest under our term loans which we typically pay on a monthly basis, and a one-time deferral of cash payments under employee medical plans as we transitioned to a self-insured plan.

Days Sales Outstanding (“DSO”)

DSO provides us with a gauge to measure ~~receivables, revenue,~~the timing of cash collections against accounts receivable and ~~collection activities.~~related revenue. DSO is derived by dividing our average patient accounts receivable for the fiscal ~~quarter~~period by our average daily revenue ~~excluding other revenue,~~ for the fiscal ~~quarter.~~period. The collection cycle for 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. The following table presents our trailing five quarter DSO for the ~~first quarter of 2021 was~~ respective periods:

~~40.2, compared to 40.9~~ ~~for the first quarter of 2020.~~


	April 2, 2022		July 2, 2022		September 30, 2023		December 31, 2022		April 1, 2023
Days Sales Outstanding		46.5		50.0		47.8		44.5		45.2

Investing Activities

Net cashused in investingactivitieswas ~~$3.2 million~~ ~~for~~ ~~the three-month period ended April 3, 2021, as comparedto $6.3 million~~ ~~for~~ ~~the three-month period ended March 28, 2020. The decreasein 2021 was primarily related~~to lower purchases of property and equipment as a result of timing of current year expenditures as well as comparatively larger capital expenditures during the first quarter of 2020 associated with a data center project.

~~Financing Activities~~

~~Net cashused in financingactivities~~ ~~decreased by $49.1 million, from~~ ~~$34.2 million net cash used~~ ~~for~~ ~~the three-month period ended April 3, 2021, as compared to net cash provided of $15.0~~$4.8 million for the three-month period ended ~~March 28, 2020.~~April 1, 2023, as compared to $16.6 million for the three-month period ended April 2, 2022. The ~~$34.2~~primary driver of the $11.8 million ~~net~~decrease in cash used in the ~~first quarter~~current period was the $11.7 million premium paid for an interest rate cap in February 2022.

Financing Activities

Net cash provided by financing activities decreased by $0.6 million, from $13.1 million net cash provided for the three-month period ended April 2, 2022 to $12.5 million for the three-month period ended April 1, 2023. The $0.6 million decrease was primarily attributable to:

•

a $5.3 million increase in cash inflows from settlements with interest rate swap counterparties over the comparable periods; offset by

•

a comparable decrease of ~~2021 was related to the repayment of $29.4 million of aggregate PRF and stimulus funds to HHS and Pennsylvania DHS, and recurring principal payments of debt. The $15.0~~$5.0 million in net ~~cash provided~~borrowings under our Securitization Facility in ~~the first quarter of 2020 was primarily related to the receipt of $50.0 millionof proceedsfromtheissuanceof sharesof common stockto affiliates of~~ our ~~sponsors, Bain Capital L.P. and J.H. Whitney Capital Partners, $31.5 million~~most recently completed quarter.

~~in net~~Indebtedness ~~paymentsundertherevolvingcreditfacility during the first quarter of 2020, and recurring principal payments of debt.~~

~~Purchases of Property and Equipment (capital expenditures)~~

~~We manageour capital expenditures basedupon a percentageof revenue.Our capital expenditures expressedas a percentageof revenuewere as followsforthe~~ ~~three-month~~ ~~periodspresented:~~

•

~~$2.7~~ ~~million,or 0.6% of revenue,~~ ~~for~~ ~~the three-month period ended April 3, 2021; and~~

•

~~$6.3 million,or 1.8% of revenue,for the three-month period ended March 28, 2020.~~

Our capital expenditures for the first quarter were less than is typical due to the timing of current year expenditures. Our capital expenditures during the first quarter of 2020 included $2.8 million related to our implementation and build-out of our data center, which increased our capital expenditures as compared to the current period.

~~Indebtedness~~

We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our ~~revolving credit facility~~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 April ~~3, 2021~~1, 2023 and ~~March 28, 2020,~~April 2, 2022, as well as related interest expense for the ~~three-month~~three month periods ended April 3,1, 2023 and April 2, 2022, respectively:


	Current and Long-term							Interest Expense
(dollars in thousands)	Obligations							For the three-month periods ended
Instrument	April 1, 2023			December 31, 2022			Interest Rate	April 1, 2023		April 2, 2022
2021 Extended Term Loan (1)(2)	$	906,650		$	908,950		L + 3.75%	$	19,238	$	11,113
Term Loan - Second Lien Term Loan (1)		415,000			415,000		L + 7.00%		12,208		7,868
Revolving Credit Facility (1)		-			-		L + 3.75%		253		173
Securitization Facility (3)		155,000			140,000		BSBY + 2.25%		2,538		1,213
Amortization of debt issuance costs		-			-				1,421		1,740
Other		-			-				300		257
Total Indebtedness	$	1,476,650		$	1,463,950			$	35,958	$	22,364
Weighted Average Interest Rate (4)		9.5	%		8.9	%

(1)

Variable rate debt instruments which accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 0.50%), plus an applicable margin.

(2)

Interest associated with the 2021 Extended Term Loan includes commitment fees of $1.9 million in the three-month period ended April 2, 2022 to maintain availability of the Delayed Draw Term Loan Facility ("DDTL"). The Company terminated the DDTL commitment in November 2022.

(3)

Variable rate debt instrument that accrues interest at a rate equal to the Bloomberg Short-term Bank Yield Index (“BSBY”) plus an applicable margin.

(4)

Represents the weighted average annualized interest rate based upon the outstanding balances at April 1, 2023 and ~~March 28, 2020, respectively:~~

Interest Expense

(dollars in thousands)

Long-term Obligations and Notes Payable

For the Three-Month Periods Ended

Instrument

April 3, 2021

January 2, 2021

Interest Rate ⁽¹⁾

April 3, 2021

March 28, 2020

Initial First Lien Term Loan

$
561,600

$
563,061

L + 4.25%

$
7,479

$
8,535

First Lien First Amendment Term Loan

216,580

217,133

L + 5.50%

3,572

3,983

First Lien Fourth Amendment Term Loan

184,075

184,538

L + 6.25%

3,381

-

Second Lien Term Facility

240,000

240,000

L + 8.00%

5,460

5,872

Revolving Credit Facility

-

-

L + 4.25%

70

567

Amortization of debt issuance costs

-

-

2,140

1,744

Other

1,814

2,872

2.07
%

323

362

Total

1,204,069

1,207,604

$
22,425

$
21,063

Less: unamortized debt issuance costs

$
(29,286
)

$
(31,332
)

Total long-term obligations and notes payable, net of unamortized debt issuance costs

$
1,174,783

$
1,176,272

Weighted Average Interest Rate

6.5
%

6.5
%

April 2, 2022, respectively, and the applicate interest rates at that date.

~~(1)~~

~~Our variable rate debt instruments accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 1.0%), plus an applicable margin.~~

We were in compliance with all financial covenants and restrictions related to existing ~~loan~~credit facilities asat April 1, 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 that the counterparty will pay us the amount by which LIBOR exceeds 3.0% in a given measurement period.

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 November 16, 2022, we terminated the remaining Delayed Draw Term Loan Facility of $140.0 million.

On March 23, 2023 we amended the agreement governing our Revolving Credit Facility to increase the sublimit for letters of credit to $40.0 million from $30.0 million. The other terms of the ~~end of each~~Revolving Credit Facility remained unchanged by such amendment.

In July 2017, the U.K. Financial Conduct Authority, the regulator of the ~~three-month periods ended April 3, 2021 and March 28, 2020.~~

~~On March11, 2021, we amendedourrevolvingcreditfacilityto increasethemaximum availabilityto $200.0 million,subjectto theoccurrenceof an initialpublicofferingpriorto December31, 2021, which was completed on May 3, 2021. The amendmentalsoextendedthematuritydateto March2023; provided~~LIBOR, indicated that~~upon theoccurrenceof an initial publicoffering,thematuritydate~~ it will~~becomethedatethat~~is~~fiveyearsafterthecompletionof such initial publicoffering, or May 2026;providedfurtherthat~~if~~we do not refinanceourtermloansunderour~~ s~~enior~~ s~~ecured credit~~ f~~acilitiesby December2023, therevolvingcreditfacility’smaturitydatewillbecomeDecember2023.~~

~~In July2017, theU.K.FinancialConduct Authority,theregulatorof theLIBOR,indicatedthat~~it~~will~~no longerrequirebanks to submitratesto theLIBORadministratorafter2021 (“LIBOR Phaseout”).This announcementsignaledthatthecalculationof LIBORand itscontinueduse couldnot be guaranteedafter2021 and theanticipatedcessationdateisJune 30, 2023. A change away from LIBOR may

~~away from~~

~~LIBOR~~

~~may~~impactour senior s~~ecured~~ secured credit f~~acilities.~~ facilities. We continueto monitordevelopmentsrelatedto theLIBORtransitionand/oridentificationof an alternative,market-acceptedrate.The impactrelatedto any changes cannot be predicted at this time.

~~cannotbe predicted~~at~~thistime.~~

Contractual Obligations

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 April ~~3, 2021,~~1, 2023, there were no material changes to our contractual obligations from those described in our ~~Prospectus.~~Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

~~Off-Balance Sheet Arrangements~~

~~We have not entered into any off-balance sheet arrangements. We enter into letters of credit in the normal course of our operations.~~

Critical Accounting Estimates

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting ~~Policies”~~Estimates” and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the ~~Prospectus~~fiscal year ended 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 ~~policies~~estimates include patient ~~accounts receivable;~~services and product revenue; business combinations; goodwill; ~~intangible assets, net; assessment of loss contingencies;~~and insurance ~~reserves; equity; revenue; and income taxes.~~reserves. There have been no changes to our critical accounting ~~policies~~estimates or their application since the date of our Annual Report on Form 10-K for the ~~Prospectus~~.fiscal year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to changing interest rates primarily under the revolving credit facility, our senior secured first lien term loan facility (the “First Lien Term Facility”) and our senior secured second lien term loan facility (the “Second Lien Term Facility”), each of which currently bears interest at variable rates based on LIBOR~~. As of April 3, 2021, the total amount of outstanding variable rate debt was $1.2 billion.~~

In October 2018, the Company entered into interest rate swap agreements to limit exposure to variable rate debt. The agreements expire on October 31, 2023. Under the terms of the interest rate swap agreements, the Company paysNot required for a ~~rate of 3.107%, and receives the one-month LIBOR rate, subject to a 1.0% floor. As of April 3, 2021, the total notional amounts of the interest rate swap agreements were $520.0 million.~~smaller reporting company.

~~A 1.0% interest rate change for the $682.3 million of unhedged variable rate debt as of April 3, 2021 would cause interest expense to change by approximately $6.8 million annually.~~

The result of the LIBOR Phaseout may impact our interest rate swap agreements. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate. The impact related to any changes cannot be predicted at this time.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), is recorded, processed, summarized, disclosed and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.

~~In connection with~~

As of the ~~preparation~~end of the period covered by this ~~Quarterly Report on Form 10-Q, as of April 3, 2021,~~report, we conducted an evaluation, under the supervision and with the participation of our ~~management, including our~~ principal executive officer and principal financial officer, ~~we conducted an evaluation~~ of the effectiveness of the design and operation of our disclosure controls and procedures as ~~such term is~~ defined ~~under Rules~~in Rule 13a-15(e) and 15d-15(e) ~~promulgated~~ under the Securities Exchange ~~Act.~~

Act of 1934 (the "Exchange Act"). Based on this evaluation, our principal executive officer and principal financial officer concluded that, ~~our~~as of the end of such period such disclosure controls and procedures were not effective, atsolely as a ~~reasonable assurance level~~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 ~~April 3, 2021,~~this material weakness. Our principal executive officer and principal financial officer believe that the ~~end of the period covered by~~interim unaudited consolidated financial statements included in this Quarterly Report on Form ~~10-Q.~~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.

~~We have not engaged an independent registered public accounting firm to perform an audit~~

A material weakness is a deficiency, or a combination of ~~our~~deficiencies, in internal control over financial reporting, assuch that there is a reasonable possibility that a material misstatement of ~~any balance sheet date~~our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the material weakness is due to control deficiencies related to the overall information technology general controls ("ITGCs") for ~~any period reported in our financial statements. Presently, we are a non-accelerated filer~~both user access and ~~therefore our~~program change management ~~is not presently required to perform an annual assessment~~for systems supporting all of the ~~effectiveness of our~~Company's internal control processes and controls, controls over ~~financial reporting. This requirement will apply~~the completeness and accuracy of information used in ~~conjunction with~~business process controls and management review controls. Our business process controls (automated and manual), and management review controls were also deemed ineffective because they are adversely impacted by these ineffective ITGCs.

As previously described in Part II Item 9A of our Annual Report on Form 10-K for the fiscal year ~~ending~~ended December 31, ~~2022.~~2022, management is in the process of implementing its remediation plan. Our ~~independent registered public accounting firm will first be required~~remediation efforts include: (i) implementation of a new revenue system; (ii) changes to ~~attest to~~our ITGCs in the ~~effectiveness~~areas of ~~our~~user access and program change-management for systems supporting all of the 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 each control, with a focus on those related to user access and change-management over IT systems impacting financial ~~reporting~~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 ~~our Annual Report on Form 10-K for the fiscal year ending December 31, 2022.~~a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

~~There have been~~Except for the actions intended to remediate the material weakness as described above, there 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 April ~~3, 2021,~~1, 2023, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial 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 effective at a reasonable assurance level as of April 3, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 3, 2021, we completed our initial public offering (“IPO”) of our common stock. In connection with our IPO, we issued and sold 38,236,000 shares of common stock at a price to the public of $12.00 per share under our Registration Statement on Form S-1 (File No. 333-254981), which was declared effective by the SEC on April 28, 2021. The offering commenced on April 20, 2021 and did not terminate before all of the securities registered in such Registration Statement were sold, excluding up to 5,735,400 additional shares of common stock that may be sold to the underwriters pursuant to their option to purchase such additional shares, which option expires on the 30^th day following the effective date of such Registration Statement. The offering was completed on May 3, 2021. Gross proceeds from the IPO were approximately $458.8 million, and we received net proceeds of approximately $425.6 million after deducting the underwriting discounts and commissions and offering expenses payable by us. On May 3, 2021, we used $307.0 million of proceeds to repay in full all obligations under our Second Lien Term Facility, which we terminated on such date. On May 4, 2021, we used $100.0 million of proceeds to repay an equal amount of principal outstanding under our First Lien Term Facility. On May 21, 2021, the underwriters exercised their overallotment option to acquire an additional 4,000,000 million shares of our common stock. This transaction closed on May 25, 2021 and resulted in additional net proceeds of $45.2 million after deducting underwriters’ discounts and commissions. We intend to use the balance of the proceeds from our IPO for general corporate purposes and future acquisitions.None.

Barclays Capital Inc., J.P. Morgan Securities LLC, BMO Capital Markets Corp. and Credit Suisse Securities (USA) LLC acted as representatives of the underwriters. We paid the underwriters discounts and commissions of approximately $29.1 million, and we incurred other offering expenses of approximately $6.8 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed or furnished herewith:

~~Exhibit~~ ~~Number~~		~~Description~~
Exhibit Number		Description
~~3.1~~		Certificate of Amendment of Amended and Restated Certificate of Incorporation of Aveanna Healthcare Holdings Inc., filed as Exhibit 3.6 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.
~~3.2~~		Second Amended and Restated Certificate of Incorporation of Aveanna Healthcare Holdings Inc., filed as Exhibit 3.3 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.
~~3.2~~		~~Second Amended and Restated Bylaws of Aveanna Healthcare Holdings Inc., filed as Exhibit 3.5 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~4.1~~		~~Amended and Restated Registration Rights Agreement, filed as Exhibit 4.4 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~4.2~~		~~Amended and Restated Stockholders Agreement, filed as Exhibit 4.5 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~

10.1		Amendment No. 28 to the First Lien Credit Agreement, dated as of March ~~19, 2020,~~3, 2023, by and among Aveanna Healthcare LLC, ~~as borrower, the other credit parties,~~ Barclays Bank PLC as administrative agent and ~~the~~other lenders, agents, and guarantors party ~~thereto, filed as Exhibit 10.4 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~10.2~~		Amendment No. 3 to the First Lien Credit Agreement, dated as of April 1, 2020, by and among Aveanna Healthcare LLC as borrower, the other credit parties, Barclays Bank PLC as administrative agent and the lenders party thereto, filed as Exhibit 10.5 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.
~~10.3~~		Third Joinder Agreement and Fifth Amendment, dated as of March 11, 2021, by and among Aveanna Healthcare LLC as borrower, the other credit parties, Barclays Bank PLC as administrative agent and the lenders party thereto, filed as Exhibit 10.19 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.
~~10.4~~		~~Amended and Restated 2017 Stock Incentive Plan, filed as Exhibit 10.8 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~10.5~~		~~2021 Stock Incentive Plan, filed as Exhibit 10.20 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~10.6~~		~~Employee Stock Purchase Plan, filed as Exhibit 10.21 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~
~~10.7~~		~~Form of Indemnification Agreement, filed as Exhibit 10.22 to our Registration Statement on Form S-1 (File No. 333- 254981) and incorporated herein by reference.~~thereto.
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 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 Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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~~SIGNATURES~~

SIGNATURES

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.


	Aveanna Healthcare Holdings Inc.

Date: May ~~25, 2021~~11, 2023	By:	/s/ ~~Tony Strange~~Jeff Shaner
		~~Tony Strange~~Jeff Shaner Chief Executive Officer
		(Principal Executive Officer)

Date: May ~~25, 2021~~11, 2023	By:	/s/ David Afshar
		David Afshar
		Chief Financial Officer (Principal Financial and Accounting Officer)

3634

Instrument	Stated Maturity Date	Contractual Interest Rate (1)	Interest Rate as of April 3, 2021	April 3, 2021			January 2, 2021
Term loan - First Lien Term Loan	03/2024	L + 4.25%	5.25%	$	561,600		$	563,061
Term loan - First Lien Term Loan Amendment	03/2024	L + 5.5%	6.50%		216,580			217,133
Term loan - First Lien Term Loan Fourth Amendment	03/2024	L + 6.25%	7.25%		184,075			184,538
Subordinated term loan - Second Lien Term Loan	03/2025	L + 8.0%	9.00%		240,000			240,000
Revolving Credit Facility	03/2023	L + 4.25%	5.25%		-			-
Notes payable - finance agreements	09/2021	2.07%	2.07%		1,814			2,872
Total principal amount of long-term obligations and notes payable					1,204,069			1,207,604
Less: unamortized debt issuance costs					(29,286	)		(31,332	)
Total amount of long-term obligations and notes payable, net of unamortized debt issuance costs					1,174,783			1,176,272
Less: current portion of long-term obligations and notes payable					(11,724	)		(12,782	)
Total amount of long-term obligations and notes payable, net of unamortized debt issuance costs, less current portion				$	1,163,059		$	1,163,490
⁽¹⁾ L = Greater of 1.00% or one-month LIBOR

										Interest Expense
(dollars in thousands)	Long-term Obligations and Notes Payable									For the Three-Month Periods Ended
Instrument	April 3, 2021			January 2, 2021			Interest Rate ⁽¹⁾			April 3, 2021		March 28, 2020
Initial First Lien Term Loan	$	561,600		$	563,061		L + 4.25%			$	7,479	$	8,535
First Lien First Amendment Term Loan		216,580			217,133		L + 5.50%				3,572		3,983
First Lien Fourth Amendment Term Loan		184,075			184,538		L + 6.25%				3,381		-
Second Lien Term Facility		240,000			240,000		L + 8.00%				5,460		5,872
Revolving Credit Facility		-			-		L + 4.25%				70		567
Amortization of debt issuance costs		-			-						2,140		1,744
Other		1,814			2,872			2.07	%		323		362
Total		1,204,069			1,207,604					$	22,425	$	21,063
Less: unamortized debt issuance costs	$	(29,286	)	$	(31,332	)
Total long-term obligations and notes payable, net of unamortized debt issuance costs	$	1,174,783		$	1,176,272
Weighted Average Interest Rate		6.5	%		6.5	%

Large accelerated filer

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Non-accelerated filer

Smaller reporting company

Emerging growth company