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, 20211, 2023

or

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

img23747605_0.jpg 

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). YesNo

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 184,164,184185,859,165 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, 20211, 2023 (Unaudited) and January 2, 2021December 31, 2022

2

Consolidated Statements of Operations for the Three-Month Periods Ended April 3, 20211, 2023 and March 28, 2020April 2, 2022 (Unaudited)

3

Consolidated Statements of Stockholders’ (Deficit) Equity for the Three-Month Periods Ended April 3, 20211, 2023 and March 28, 2020April 2, 2022 (Unaudited)

4

Consolidated Statements of Cash Flows for the Three-Month Periods Ended April 3, 20211, 2023 and March 28, 2020April 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;

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 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

 

1


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

 

2


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

 

3


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

)

 

$

-

 

4


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.

5

5


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 operationslocations 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 hospitalizationhospitalization..

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, 20211, 2023 and the results of operations for the three-month periods ended April 3, 20211, 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, 2021December 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 StatementAnnual 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, 20211, 2023 and January 2, 2021.December 31, 2022. For the three-month periods ended April 3, 20211, 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, 20211, 2023 through April 3, 20211, 2023 and December 29, 2019January 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.

6


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.

3.

REVENUE

Revenue is primarily derived from (i) pediatric healthcare services provided to patients including private duty nursing and therapy services, andservices; (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 treatmentservice 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 uponof 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, unskillednon-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.

7


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 TricareChampVA (“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, implicitImplicit price concessions are based on historical collection experience. As of April 3, 20211, 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 ourarrive at the estimated collectible revenue and patient accounts receivable at the estimated amounts we expected to collect. For the PDS, HHH, and MS businesses, mostreceivable. 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, 20211, 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,

7


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, 20211, 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, 20211, 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.

8


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, 20211, 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 facilitythe agreement governing the Revolving Credit Facility to increase the maximum availabilitysublimit for letters of credit to $200.0$40.0 million subjectfrom $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 occurrencehighest 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 extendedinterest 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 datecost 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 occurrencesuch 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 completion0.50%. As of such initial public offering, or May 2026; provided further that if the Company does not refinance its term loans by DecemberApril 1, 2023, the maturity date will become December 2023. See Note 15 – Subsequent Events for additional information regarding the completionprincipal amount of the Company’s initial public offering and its effects on the Company’s long-term obligations.

In conjunction with entering intoSecond 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%.

9


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, 20211, 2023 and January 2, 2021December 31, 2022 was $29.3$32.6 million and $31.3$33.3 million, respectively. Debt issuance costs related to the revolving credit facilityRevolving Credit Facility are recorded within other long-term assets. The balance

8


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

for debt issuance costs related to the revolving credit facilityRevolving Credit Facility as of April 3, 20211, 2023 and January 2, 2021December 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, 20211, 2023 and March 28, 2020,April 2, 2022, respectively.

Issued letters of credit as of April 3, 20211, 2023 and January 2, 2021December 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 facilityCompany's Revolving Credit Facility was $55.2approximately $162.0 million as of April 3, 20211, 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 Januaryincluded 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

6.

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 liabilitiesassets measured at fair value arewere 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

 

9


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

7.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The derivatives the Company currently uses are interest rate swaps.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, theThe Company entered into 2currently has two interest rate swap agreements intended to limit its exposure to interest rate risk on its variable rate debt. At April 3, 2021These 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 $520.0remained 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, 20211, 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 onassets 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 ofnet settlements incurred with swap counterparties under the interest rate swapsswap agreements are recognized through cash flows from operatingfinancing activities onin the accompanying consolidated statements of cash flows.flows due to an other-than-insignificant financing element on the interest rate swaps.

10

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, 20211, 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

 

10


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

8.

INCOME TAXES

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

The Company recorded income tax expense of $0.3$1.6 million and $1.1$2.6 million for the three-month periods ended April 3, 20211, 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, 20211, 2023 and March 28, 2020,April 2, 2022, respectively. The effective tax rates for the three-month periods ended April 3, 20211, 2023 and March 28, 2020April 2, 2022 differ from the statutory rate of 21%21% primarily due to a release of athe changes in the valuation allowance recorded foragainst 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’sCompany's uncertain tax positions. There has been no change to the Company’sCompany'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 sharesrecorded 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 businessaccompanying 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 EventsManagement Restricted Stock Units

The Company recorded compensation expense, net of forfeitures, of $0.7 million and $1.0 million for additional information regarding the completionthree-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

11


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 offeringCompany's Board of Directors approved grants of restricted stock units ("RSUs") and its effectsperformance 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’ equitythe 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.

TheSince October 1, 2022, the Company maintainshas maintained primary commercial insurance coverage on a claimclaims-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, 20211, 2023 was comprised of $18.8$23.0 million of issued letters of credit $2.9and $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 0no 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 pursueall potential claims and counterclaims related to the termination of the Agreement and payment of the Break-up Fee. At thisFee by either party are time barred.

On August 6, 2020, the Company is unable to predictsued 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 anythese 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 relatedproceedings, 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 theCompany’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.

13

 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 twoa 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 towill 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

12


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 declarationCOVID-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 emergencythe 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 Sponsoredutilizing 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 relatedability 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 permittedsupport 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 beganfund tax cuts, fund budget deficits, or to issue temporaryrateincreasesand similarly directedMedicaidManagedCare programswithinthosestatesto likewise adjust rates. These temporaryrateincreasesarepaidto the Company via normalclaimprocessingby therespectivepayers. 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.

13


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, 20211, 2023 and March 28, 2020,April 2, 2022, we recognized $2.7 million and $3.1 million, respectively, which are includedof ARPA Recovery Funds from various states in corporate expensesthe PDS segment as revenue in theour 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, unskillednon-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.

14


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, 20211, 2023 and March 28, 2020April 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, 20211, 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.

15


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 valueunits.

16


15. SUBSEQUENT EVENT

In April 2023, as part of options granted, shares of common stocka confidential settlement with Seller and additional paid-in capital accounts onDefendants (each as defined in Note 10), the consolidated balance sheets and consolidated statements of stockholders’ equity, including the notesCompany 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) providesan escrow account for the issuancepurposes of common stock, as opposed to the Class B common stock previously issuable under the plan, to alignsettling certain tax audits with the Company’s AmendedIRS, 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 StatementAnnual 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, 20211, 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

%

17


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 oncontinue to receive our serviceservices into adulthood, as approximately 50%30% of our PDN patients are over the age of 18.


Our PDN services involve the provision of skilledclinical and unskillednon-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 unskillednon-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 involveinvolve 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 HHHAcquisitions”). 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 monitormonitored the impact of COVID-19 on our caregivers and support personnel, our patients and their families, and our referral sources and continue to adaptsources. We adapted our operations as necessary to best protect our people and serve our patients and our communities. We are optimisticcommunities, and also invested in technology and equipment that asallows support personnel to provide, on a greater percentageremote 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 asclinical workforce in the COVID-19 environment, abates. The following factors could potentially alter this outlookincluding costs for additional PPE, hero and negatively impact our recovery from the pandemic: the continued fluctuation in the number ofhazard 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 abilityrelief pay, incremental overtime, and various incentives to attract and retain qualified caregiverscaregivers. 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. Potentialantiviral 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-19such 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 patientsources; 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 lowerwage 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.

19


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, duemanaging 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 impactsbetter 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 budgetscapture 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 resultto 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

20


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 Actbusiness 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 appliedforor 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,whichisreflectedin 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 therespectivepayers. 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).

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.


Results of Operations

Three-Month Period Ended April 3, 20211, 2023 Compared to the Three-Month Period Ended March 28, 2020April 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:

21


 

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 theepisodic 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 otherepisodic 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 operatingOperating 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 20212023 was positivelynegatively impacted by an increasea decrease of$14.5 $3.3 million,or 30.2%5.9%, in Fieldcontributionas comparedto the first quarter of 20202022. The $3.3 million decrease in Field contribution resulted from a $15.9 million, or 3.5%, increase.

22

 The $14.5 million


 increase

in Fieldcontributionwas deliveredconsolidated revenue, partially offset by a $61.9 million,or 17.4%, increasein consolidatedrevenue,combinedwith a 1.4% improvement1.1% decrease in our Fieldcontributionmarginto 14.9%11.3% for the first quarter 2021of 2023 from13.5% 12.4% for the first quarter 2020.of 2022. The primarydriver of our improvedlower Fieldcontributionmargin year over yearthe comparable quarter was a 1.3% improvement1.1% decrease in gross margin percentage to 31.6%31.0% for the first quarter 2021of 2023 from 30.3%32.1% for the first quarter 2020.of 2022.

The $10.4In addition to the $3.3 million netdecrease in Field contribution, the following additional items primarily contributed to the overall $3.9 million increase in operating income is attributable toover the $14.5 millioncomparable 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 preparationNet 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 forthe 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 decreasein 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 $417.2net income of $25.3 millionfor three-month period ended April 3, 20212, 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, 20211, 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 growth9.0% combined with ana 1.7% increase in revenue rate of 4.6%. Overall, our MS volumes grew organically inover 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 typesrevenue;
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 trendpass-through of these costs will continue to decline over the remainder of 2021.state reimbursement rate increases.

The 518.2% increase9.0% decrease in HHH cost of revenue for the three-month period ended April 3, 20211, 2023 was driven by a decline in HHH volumes, offset in part by increases in overall caregiver costs as a percentage of revenue.

23


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 thepreviouslynoted10.6% described 9.0% growth in MS volumesin 2020, as wellas during the first quarter of 2022 and a 2.6%3.3% increasein costof revenuerate.The increasein costof 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 marginincreased $24.1 decreased $0.4 million,or 22.4%0.2%, from the comparable prior year over year.quarter. The 1.3% increase1.1% decrease in grossmarginpercentage forthe three-month period ended April 3, 20211, 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 decrease3.3% 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 byover 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, 20211, 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. Fieldcontributionincreased $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% increase1.1% decrease in Fieldcontributionmarginfor the three-month period ended April 3, 20211, 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 grossmarginpercentagein the three-month period ended April 3, 2021, as comparedto the three-month period ended March 28, 2020; and

the 0.2% decreasein branchand regionaladministrativeexpensesas a percentageof revenuein the three-month period ended April 3, 2021, as comparedto 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, 20211, 2023 and March 28, 2020April 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:

24

 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. Compensationreduction in transition and benefits costs as a percentage of revenueintegration activities.

Depreciation and Amortization

Depreciation and amortization was 3.8% and 4.4%$4.0 million for the three-month periodsperiod ended April 3, 20211, 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 costsAccredited completed in the firstfourth quarter of 2020 included charges2021 which were amortized over a one year period.

Interest Expense, net of $2.2Interest Income

Interest expense, net of interest income was $35.9 million relatedfor 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 $4.2other 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 amortizationnon-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 allmarket 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 PDSAcquisitionsand 2020 HHHAcquisitions.

Interest Expense, net of Interest Income

Interest expense,netoffuture interestincome 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 additionalcomparable 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 ofrate 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. Theserates increased interest costs were offset in part by decreases resulting fromtheonsetof the COVID-19 pandemic in March2020, which led LIBORratesapplicableto our outstandingindebtedness to decreaseand remainatlevels 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 credit facility, resultingin $0.5 million less ininterestcostsincurredunderour revolvingcredit facilityfor the first quarter of 2021 compared to the first quarterprior 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 millionfor1, 2023the 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 interestratederivativesatfairvalue,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 $6.4income tax expense of $2.6 million loss infor 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 statetax 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-GAAPfinancialmeasures measures and arenot intendedto replacefinancial performancemeasuresdeterminedin accordancewith U.S. GAAP,such as netincome(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 EBITDA,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-basedshare-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

25

 matters;


 the

discontinuationof our ABATherapyservices;non-acquisition-relatedlegal settlements;and othersystemtransitioncosts,professionalfeesand othercosts.As non-GAAPfinancial measures, our computations of EBITDAand AdjustedEBITDAmayvaryfromsimilarlytermednon-GAAP financialmeasuresused by othercompanies,makingcomparisonswith othercompanieson thebasisofthis measure impracticable.


Managementbelievesour computationscomputations 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 computationscomputations of EBITDAand AdjustedEBITDA, thesenon-GAAPmeasures measures have limitationsas analyticaltools and shouldnot be consideredin isolationor as substitutessubstitutes or alternativesalternatives 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.

26


(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’sconsolidatedstatementsofoperations,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 transaction 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 arrivingatAdjustedEBITDAfromEBITDA:

 

 

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,suchasoperatingincome(loss). gross margin and gross margin percentage. Rather,wepresentFieldcontributionandFieldcontributionmarginassupplementalmeasuresofourperformance. WedefineFieldcontributionasoperatingincome(loss)priortocorporateexpensesandothernon-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

27

 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 ofaddition to cash fromprovided by operating activities, or when we have used net cash in our operating activities, has historically been from proceeds from our debtcredit facilities and issuances of common stock. Most recently,In August 2022, we raised an aggregatedrew $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 requirementsinterest 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 theaggregate 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 deferredpayrolltaxes were$49.6 million. These deferred payroll taxes will require paymentstax liabilities to $25.5 million, which we paid in full to the Internal Revenue ServiceIRS 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, 2021our 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.

28


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 facilitiesSecuritization 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

NetThe 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 operatingactivitiesdecreased cash flow. Cash provided by $77.0operating activities increased by $17.0 millionfrom$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 asof 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 quarterperiod 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 relatedto 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 $34.2primary driver of the $11.8 million netdecrease in cash used in the first quartercurrent period was the $11.7 million premium paid for an interest rate cap in February 2022.

29


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 providedborrowings 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 millionmost recently completed quarter.

in netIndebtedness 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 facilitySecuritization 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, 20211, 2023 and March 28, 2020,April 2, 2022, as well as related interest expense for the three-monththree 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 loancredit 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 eachRevolving 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; providedLIBOR, indicated thatupon theoccurrenceof an initial publicoffering,thematuritydate it willbecomethedatethatisfiveyearsafterthecompletionof such initial publicoffering, or May 2026;providedfurtherthatifwe do not refinanceourtermloansunderour senior secured credit facilitiesby December2023, therevolvingcreditfacility’smaturitydatewillbecomeDecember2023.

In July2017, theU.K.FinancialConduct Authority,theregulatorof theLIBOR,indicatedthatitwillno longerrequirebanks to submitratesto theLIBORadministratorafter2021 (“LIBOR Phaseout”).This announcementsignaledthatthecalculationof LIBORand itscontinueduse couldnot be guaranteedafter2021 and theanticipatedcessationdateisJune 30, 2023. A change away from LIBOR may

30

 away from


 LIBOR

mayimpactour senior secured secured credit facilities. facilities. We continueto monitordevelopmentsrelatedto theLIBORtransitionand/oridentificationof an alternative,market-acceptedrate.The impactrelatedto any changes cannot be predicted at this time.

 cannotbe predictedatthistime.

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 Prospectusfiscal 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 policiesestimates 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 policiesestimates 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 preparationend 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 Rulesin 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, ouras of the end of such period such disclosure controls and procedures were not effective, atsolely as a reasonable assurance levelresult 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 byinterim 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 ourdeficiencies, in internal control over financial reporting, assuch that there is a reasonable possibility that a material misstatement of any balance sheet dateour 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 filerboth user access and therefore ourprogram change management is not presently required to perform an annual assessmentfor systems supporting all of the effectiveness of ourCompany's internal control processes and controls, controls over financial reporting. This requirement will applythe completeness and accuracy of information used in conjunction withbusiness 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 endingended December 31, 2022.2022, management is in the process of implementing its remediation plan. Our independent registered public accounting firm will first be requiredremediation efforts include: (i) implementation of a new revenue system; (ii) changes to attest toour ITGCs in the effectivenessareas of ouruser 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 reportingreporting. 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.

31


Changes in Internal Control over Financial Reporting

There have beenExcept 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.


32


PART II—OTHER INFORMATION

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 30th 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 theother 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.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)


SIGNATURES

33


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, 202111, 2023

By:

/s/ Tony StrangeJeff Shaner

Tony StrangeJeff Shaner

Chief Executive Officer

(Principal Executive Officer)

Date: May 25, 202111, 2023

By:

/s/ David Afshar

David Afshar

Chief Financial Officer

(Principal Financial and Accounting Officer)

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