Q3 2021 Aveanna Healthcare Holdings Inc Earnings Call

November 16, 2021

[music].

Good morning, and welcome to all be on a health care Holdings third quarter 2021 earnings Conference call.

Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to Shannon Drake other honest chief legal officer.

But secretary. Thank you you may begin.

Thank you operator, good morning, everyone and thank you for joining I'll be honest healthcare's third quarter 2021 earnings call speaking on today's call are Rod Windley I'll be honest executive Chairman, Tony Strange I'll be honest, Chief Executive Officer, and President David F. Shar I'll be honest, Chief financial Officer, and Jeff Shaner, I'll be honest Chief operating officer.

We issued our third cornea quarter earnings press release, and supplemental presentation as well as filed our related form 8-K, and Form 10-Q yesterday with the SEC. These documents are available on the Investor Relations section of our website at Ww Dot I'll be honest dot com. We encourage you to read them also a replay of this.

This call will be available on our website until November 'twenty three 2021 we want to remind anyone who may be listening to a replay of this call that all statements made are as of today November 16th 2021 and these statements have not been or nor will they be updated subsequent to today's call also in today's call may contain forward looking.

<unk>, which may be identified by words, such as May could will expect intend plan and other similar words and expressions. All forward looking statements made today are made are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties.

It could cause our actual results to materially differ from those expressed or implied on today's call listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for more complete discussion of factors that could impact our results, including those risks disclosed in the risk factor headings of our filings except as.

Required by Federal Securities laws I'll be honest does not undertake to publicly update or revise any forward looking statements. Subsequent to the date made as a result of new information future events changing circumstances or for any other reason.

In addition to our financial results reported in accordance with GAAP, We supplement our GAAP results with certain non-GAAP financial measures when viewed together with our GAAP results. We believe that these measures can provide a more complete understanding of our business and operating results, but they should not be relied upon to the exclusion of our financial results reported in accordance with GAAP.

In addition, a reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available in our earnings call and our earnings press release and 10-Q, both of which are available on our website and on the SEC's website at Www SEC Gov.

Following today's prepared remarks, we will close we will open the call to questions. Please limit your initial comments to one question and one follow up so that we can accommodate as many callers as possible in the allotted time with that I will turn the call over to Avi honest, Chief Executive Officer, and President Tony Strange Tony.

Thanks, Shannon and good morning, everyone. Thank you for joining I'll be honest third quarter earnings call. As you can see from our press release last night, we have a lot of information to cover on today's call.

As a result, our prepared remarks may run a little bit long, but will extend our call to accommodate everyone's questions.

The goal of the call today is to provide updates on the company's third quarter results as well as some insights on our current reimbursement in COVID-19 environment.

In addition, we'd like to bring you up to speed on our most recent M&A transactions the deployment of capital to fund our M&A growth as well as provide some insight into our full year 2021 guidance and beyond.

To assist us in discussing all of the above we will be referencing a supplemental investor deck that was published last night, along with the press release and the 10-Q.

Before jumping into all the details I'd like to first take a moment to thank all of our caregivers and administrative employees for what you are doing each and every day today's environment can make even the smallest task more complex you make it your mission to bring to patients and families of the most frail and vulnerable.

In America, so on behalf of the executive team our board of directors and all of our shareholders. Thank you for what you do.

I'd like to spend a moment talking about the overall industry trends and the impact on our current results and perhaps more importantly, how they affect our long term outlook for Avianca.

The demand for home based services as is at an all time high.

Both our private duty services, and our home health and hospice segments continued to experience demand that exceeds our supply and we're not alone.

Across our industry, we see patient discharges from higher acute acuity settings being delayed due to labor constraints and providers inability to hire qualified caregivers at a rate that meets that demand.

For these reasons, we believe that we are experiencing a shift in how homecare is viewed.

For the first time in many years and possibly ever state and federal policymakers legislators and private payers are all recognizing the valuable role that homecare can play an effective clinical outcomes, while reducing overall healthcare cost.

During our second quarter call, we reported that 16 of our 31 states had either increase reimbursement <unk> expanded the benefits for Homebase scare.

As of today that number has grown to 24 of the 31 states that we operate in that indicates that over 75% of the states, where we operate made the decision to invest more dollars and to providing more services in the home.

Many of our managed care partners are following suit. We continued to have success in obtaining rate increases that target our ability to increase our capacity.

And as you saw last week the final rule for home Health was published by CMS and it too was better than originally expected.

All of these indicators point to an increasing belief that home based care can and will play a meaningful and growing role in the health care industry in America.

In the meantime, we're living in an environment that has been disrupted by the pandemic.

COVID-19, vaccinations and vaccination mandates have all played a role in disrupting business as we know it.

The world in general and healthcare, specifically is being affected by what we refer to as a COVID-19 hangover.

Magnify that with the political and social issues surrounding vaccinations, which are further complicated by a wide variety of mandates and you'll find yourself in a world where 3 million Americans have left the workforce.

Hiring enough nurses and caregivers has always been hard but it has become increasingly more difficult in this environment. So what are we doing.

We along with every other health care provider are engaged in hand to hand combat over every single nurse and caregiver we've.

We've implemented a return to work program that incentivizes nurses and caregivers to come back to work and to work more hours, we've created tools to make it easier for nurses and caregivers to apply Orient and train.

We've implemented programs to incentivize nurses and caregivers to get vaccinated, and we rewarded nurses and caregivers who have demonstrated their loyalty to avi on them.

Jeff will provide some additional details during his prepared remarks.

And even with all of these efforts there is still not enough supply to meet the demand.

We view this disruption is near term in nature.

Eventually vaccination rates will reach an equilibrium.

And then and only then the threat of COVID-19 will subside.

The labor markets in the U S will reach a new normal.

And when they do there will be an increasing demand and appreciation for home based care.

We are extremely proud of our results this quarter. Despite these headwinds we grew our revenues 12, 4% over the previous year and even more impressive.

We've expanded our gross margins by 280 basis points to 34%.

Some of these some of this margin expansion is attributable to the business mix shift toward home health, but we also had margin expansion in private duty services.

The team has done an outstanding job in managing labor expenses. During this difficult environment, which has afforded us the flexibility to reinvest some of these dollars back into nurse and caregiver wages that should serve to accelerate growth.

The increase in revenue related to pricing accompanied by disciplined expense management gives us the confidence that we will be able to meet our expectations related to profitability, one lower than expected volumes.

We will provide a detailed review of our results in a moment, but first we'd like to touch on the M&A activity that we announced last night.

As you are aware on October the first we filed an 8-K with the SEC announcing that we had entered into an agreement to acquire comfort care.

As of this call we have received the necessary approvals from the FTC to proceed and as it is our intent to provide you with all of the details surrounding not only comfort care, but our latest agreement to acquire are credited as well.

As Youll recall, our M&A strategy was to acquire between 150 and $200 million of new revenues per year that produced adjusted EBITDA is between 15 and $25 million a year.

Our goal was to acquire both private duty and traditional home health assets and worked diligently to integrate the acquired businesses in the aviano, capturing the synergies on it in a timely manner.

With the acquisition of Doctor's choice in April and the two acquisitions that we announced last evening expected to close in Q4, our acquired revenues in 2021 will be approximately $290 million far exceeding our goal.

Originally we contemplated using a combination of debt and equity to fund the M&A growth, while maintaining net leverage around four five to five times. However, given the depressed values in home care stocks, we have decided to fund both of these transactions with debt, which will raise our net leverage profile to approximately six times.

We will work to bring leverage down over time with continued growth future M&A and the strategic use of our balance sheet.

In the meantime, we're very proud of our continued growth without dilution to our existing shareholders at these depressed valuations.

So with that as a lead in I will turn the call over to Rod for a deeper dive into the two transactions as well as some insights into our pipeline and for future M&A Rod. Thanks, Toni. It's obviously been a very very busy six months just to reiterate we completed six transactions in the second half of 2012.

All of which have now been fully integrated into aviano.

Next we completed Doctor's choice in April and that integration has gone extremely well and is also nearing completion.

Over the summer to additional transactions made it through our <unk> and as a result, we have the internet two definitive agreements to acquire comfort care, a Medicare certified home health and Hospice company in Alabama, and Tennessee, and accredited home care, a private duty based company and Southern California, Let's take a closer look at H B.

Getting with comfort care comfort care provides both home health and hospice services to the traditional Medicare patient population and produces approximately $100 million in revenue on a current run rate basis comfort care provides these services through 31 locations primarily throughout the entire state of Alabama.

With a few locations in Tennessee traditional homecare makes up approximately 40% 47% of its revenue and hospice represents another 53%.

Our diligence indicated that comfort care is a well run company with a solid track record related to compliance and a stellar reputation in its markets, making it an extremely good fit for avianca.

While the purchase price of comfort care is $345 million. We also received a significant tax benefit with the present day value of approximately 55 million, thus, reducing the net purchase price to approximately $290 million. This would imply a fully synergize EBITDA multiple of between <unk> <unk>.

11, and 12 times, we anticipate clearing licensure and closing sometime during the first week of December now.

Now, let's move on to our second transaction accredited home care.

<unk> is a private duty company based in southern California, and is considered one of the leading providers of unskilled care in that state are credited provides unskilled services in the home through designated attendance and unlike our scale business attendance are recruited and retained by the family which eliminates recur.

Routing and today's very difficult labor environment the.

The business has been around for more than 40 years and has a fantastic reputation of being a quality and reliable provider of care. The company is generating approximately $110 million in revenue per year on a current run rate basis, 86% of its revenues are derived through Medicaid or other <unk>.

<unk> funded programs, which is consistent with our own scale business and the state of California.

The base purchase price of credit it is $180 million, which could be adjusted upward to $225 million based on our credit is volumes through the close date, we believe that once the purchase prices settle the implied multiple on a fully synergize EBITDA basis will be between eight and nine times.

Given the role that unskilled can play in reducing overall healthcare expenditures, we believe that dense it the density that accredited brings to Avianca and California can be a strategic advantage advantage for us as we move forward, we have cleared all the necessary hurdles on a crowded anticipate closing by the end.

The month.

While both businesses are different and one is in Alabama and the other one is in California. They are both being integrated at the same time by separate emo teams, both acquisitions will be fully integrated in 'twenty two with the majority of the integration process occurring in the first 180 days.

Each of the transactions were highly competitive environments and we are fortunate to have them under contract that deal flow has not slowed down in either segment. The strategic community along with private equity continues to make every transaction highly competitive as you can tell we are very excited about both of these transactions as <unk>.

Tony mentioned earlier these two transactions bring our acquired revenue for 2021 to approximately $290 million compared to our target of 150 to 200 million on an annualized basis, we believe that both transactions solidify our position as the leader in M&A growth in the home care space.

On any given day, we are tracking in excess of 500 million in potential transactions and our M&A pipeline, we look at a lot of transactions, but only pursue those that fit our business mix geography, and financial profile very few pass our street, our stringent diligent process, while we pay.

So more transactions than we complete we are confident that we will continue to meet our anticipated acquisition targets for the foreseeable future with that let me turn the call over to Dave to tell you about our financing plans and how we intend to pay for these transactions.

Thanks, Rod we're pleased to be in such a strong balance sheet and liquidity position right now that supported the acquisition strategy a strategy that Raj is laid out.

On slide 10 of the deck that we filed on exhibit 99, two yesterday youll see that we plan to fund comfort care and accredited with a combination of cash on the balance sheet and knew that we will use approximately $60 million of cash from the balance sheet of $120 million of borrowings under our new securitization facility that we closed on November 12.

Approximately $400 million proceeds from a new second lien term loan that we plan to launch later in November.

And after we fund these two transactions, we still have good liquidity for 2022, M&A with our available $200 million delayed draw term loan and $180 million of availability on our revolver. We also had approximately $35 million of pro forma cash on the balance sheet at the end of Q3.

I'll provide just a little more information on the new debt that we plan to use to fund our Q4 M&A or.

Our new securitization facility is underwritten by PNC Bank and is secured by our receivables, it's $150 million facility and we plan to draw $120 million to fund our Q4 M&A.

The security securitization facility comes with attractive interest rates and as an efficient piece of new capital for the company that we can scale up as we grow.

Regarding the new second lien term loan it'll be an eight year $415 million loan in total $200 million of which is fully committed and underwritten by Barclays and the other $215 million will be raised through best efforts.

As Youll see on slide 11 pro forma for our Q4, M&A and incremental debt raises our total leverage will be in the six turn range.

We think usage of this incremental leverage, especially in light of the continuing attractiveness of the credit markets instead of issuing new equity to fund our M&A is in the best interest of shareholders at this time and with that Tony would you like to add anything on the M&A financing front no. Dave I think you did a really nice job laying that out.

Our leverage is a little higher than we originally contemplated we believe this is a better use of our balance sheet for the time being we have managed at this low level of leverage many times before and are quite comfortable from a cash flow perspective, as I mentioned before we anticipate reducing leverage over time through continued growth future M&A and strategic.

Use of our balance sheet in short, we believe that our capital structure and our existing pipeline gives us a runway to continue our acquisition growth for 'twenty two for 2022 and beyond.

So, let's turn our attention toward a deeper dive into our Q3 results as I mentioned earlier, we are very pleased with our results. Despite the lower than anticipated volumes. The third quarter is historically, the low point of the year for our business due to schools being out and summer and Fam.

Or family and caregiver vacations.

This coupled with the disruption in the labor market calls volumes and private duty services and home health and hospice to be lower than expectations. The softness in volumes was partially offset by continued rate improvement specific to private duty services. Our overall net revenues were $411 million up 12, 4% from Q.

Three of 2020.

We continued to see gross margin expansion to 34% of net revenue up 280 basis points over Q3 of 2020 and up 40 basis points from Q2 of 2021. The gross margin improvement is primarily driven by three factors continued mix shift toward our.

Home Health <unk>.

We continued rate improvements in our private duty services and a very disciplined approach to labor and other expense controls.

As we continue to navigate the near term choppy labor markets, we will strategically make decisions on how and when to reinvest some of these dollars back into caregiver wages and benefits to accelerate our nurse availability, which will fuel growth.

Other SG&A expenses, including corporate being in line with expectations, our EBITDA for the quarter was $45 8 million or 11, 1% of revenues before.

Before I turn the call over to Jeff for a deeper dive into our segment results I'd also like to highlight our strong cash position that Dave mentioned earlier the biggest driver of cash is the ability to monetize our revenue our revenue cycle team has done an outstanding job in converting to cash this quarter. They collected 400.

$25 million exceeding their goals great job by James L Clinton and the entire revenue cycle team Congrats guys keep it coming.

With that Jeff why don't you walk us through.

A more detailed segment results. Thank you Tony I am pleased to share our Q3 2021 operating indicators in key metrics with you. This morning.

Before I get into the operating segments I'd like to spend a few minutes on our COVID-19 efforts and recent caregiver employment activities and trends.

Throughout the COVID-19, pandemic, our ASEAN and teammates have consistently risen to the challenge of providing safe.

And efficient health care and our patients' homes.

Innovation and creativity has been instrumental in our ability to adapt and overcome the daily challenges poise posed by Covid.

We have re engineered virtually every aspect of our recruiting onboarding clinical training engagement and retention efforts with our employees.

All of our efforts have been focused on streamlining the process to hire and onboard caregivers in the most efficient manner.

As local and state governments have introduced that vaccine mandates, we have doubled our efforts to get each and every caregiver to comply.

To date, we have 11 states that have mandated COVID-19 vaccinations for health care workers.

Proud to say that we are in full compliance with these mandates and thankfully most caregivers have chosen to ultimately receive their vaccination and continue to care for our patients and families.

We expect this trend to continue as we move forward with additional vaccination mandates, including the most recently announced CMS and Osha mandates requiring a first dose by December 5th and all employees to be fully vaccinated by January 4th.

These federal mandates create major challenges for the homecare industry as well as Aviano. However.

One of our ASEAN our models as we can and we will and this is another opportunity for our ASEAN and teammates to come together and continue to serve our mission.

I am proud to report that our reported Covid cases, among employees has continued a downward trend for 12 consecutive weeks.

Covid has taught us to expect the unexpected and be prepared to adapt and overcome at all times.

Now onto caregiver employment trends.

At the end of Q2, we expected hiring trends to improve with the return to schools and the phasing out of enhanced state and federal unemployment benefits.

Our current employment trends point to early September as the low point for caregiver hires caregivers on payroll and hours or visits worked per caregiver.

The last eight weeks have yielded steady improvement in our caregiver employment metrics Karen.

Have you ever hires caregivers completing orientation and CAGR was on payroll are moving in a positive direction and we believe these trends will continue throughout Q4.

I'd like to talk through some of the key efforts that it provided us this lift in our recent employment trends.

They include 24 hours a day recruiting engagement for all applicants.

Virtual orientation offered seven days a week in all time zones.

Virtual clinical training offered seven days a week with over 500 clinicians completed to date.

A daily pay option for caregivers, who need to be paid faster and more flexible.

And a vaccination bonus program offering cash rewards for fully vaccinated caregivers.

We have also introduced a caregiver COVID-19 bonus program.

This 12 week program is designed to reach four distinct caregiver groups and is aligned with our efforts to provide more care.

This program targets for caregiver groups by re engaging in active nurses to bank to bring back former employees.

Recruiting new nurses, who have never worked for Avianca.

Boosting shifts and hours with part time nurses to encourage more work per week and rewarding our full time nurses to strengthen our retention.

It will take all of these efforts and then some to continue the positive momentum and get back to pre Covid labor trends.

As Tony mentioned the demand for our services continues to far exceed our labor supply.

We believe this dynamic will continue well into 2022 for our Pds and home health and hospice segments.

Lastly, we're reminded through this environment that our most precious commodity is our caregiver.

Now onto the private duty services segment.

During Q3, we produced $327 $1 million of revenue or approximately a 1% year over year decline.

Revenue was driven by approximately 9 million hours of care provided during the quarter or a four 4% decline in volume over Q3 of 2020.

Patient demand in our Pts segment is at an all time high as we continue to partner with children's hospitals and payers to find new solutions to get our pediatric patients home.

The primary driver of the decline in volume was the lack of caregiver availability.

As mentioned Labor day week was our low point and caregivers paid and new caregivers hired.

With the return to schools enhanced unemployment benefits phasing out and improvements and high efficiency efficiency. We've had eight weeks of improved caregiver employment metrics and Pds.

I am proud of the innovation and creativity of our Pds leadership teams as they fight through a difficult environment and continue to focus on our patients and families.

Our revenue per hour of $36 36 was up $1 40 from Q3 of 2020 or three 8%.

This was primarily driven by reimbursement rate improvements and a stabilization of our business mix between skilled and unskilled services.

With 24 year to date private duty services rate increases we are actively passing through wage rate improvements to our caregivers.

We expect this trend to continue well into 2022.

And this will be the primary driver of improved employment trends in our Pts segment.

Turning to our cost of labor and gross margin metrics. We continued to experience improvement in gross margin with a $106 million in Q3 or 37%.

This equates to a growth of three 1% year over year and gross margin dollars.

Pds cost per hour of $25 18 was up 58 cents per hour from Q3 of 2020.

Lastly, our spread per hour improved to $11 18.

We expect spread per hour to normalize as we balanced the rate increases against a strategic investment in caregiver wages.

Long term I still believe $10 to $10 50 range is our ideal spread per hour target balanced against a three a positive 3% to 4% year over year volume growth for our Pts segment.

We are committed to being the employer of choice in the Pds industry, and we are working harder than ever to attract and retain qualified caregivers.

As mentioned, our referral sources and Payors urgently need our help transitioning family's home many wanting to go home for the first time ever.

We have found we have found our pds customers, both payors and referral sources to be receptive to our value proposition and the need to attract and retain caregivers.

I would like to add my excitement about the accredited home care acquisition.

Over the last few months I've gotten to know the credit team and have a deep respect for their reputation and quality care provided to the families and southern California.

<unk> team is already preparing for closing and welcoming the accredited employees to the <unk> family.

California continues to be a very important state to our RV on a story and then credited only furthers that strategy.

Yes.

Now moving on to our home health and Hospice segment for Q3, where we continued to expand our national presence as previously mentioned, we have fully integrated five points and recover health into the <unk> family.

I am pleased to share that we are in the final stages of the integration of Doctor's choice and it continues to progress ahead of our expectations. Our dedicated <unk> team has led the way as we methodically integrate our new acquisitions into our home health and hospice business model.

With the recent announcement of comfort care or <unk> has already set their sights on another successful integration and Alabama and Tennessee.

<unk> brings great density of services caregivers and locations, which continues to enhance the home health and hospice network at Aviano.

<unk> also leverages our presence in hospice in a more meaningful way.

And we're excited to talk more about hospice as we move into 2022.

Now onto home health and hospice segment indicators for Q3 <unk>.

During the quarter, we produced $47 million in revenue of 902% increase over Q3 of 2020.

This growth was driven by 11600 total admissions approximately 61% being episodic admissions and 10500 total episodes of care.

Revenue per episode for Q3 was $2894.

And in line with our expectations.

I am pleased with the organic growth rate of our home health and hospice businesses and believe this business will remain a double digit emission growth segment for the remainder of 2021.

From a cost and margin perspective.

Gross margins were 48, 7% for the quarter. The primary driver of gross margin improvement was the doctor's choice business along with a continued focus on episodic payer mix.

On a caregiver employment update we have felt pressure on nurse recruitment and retention efforts, we have invested in additional recruiters and increased recruitment activity to keep up with our newly acquired businesses.

We are leveraging our vast recruitment network from our Pts segment and that has helped to offset some market pressures.

Our use of contract staff staff is within our budget expectations and we have stepped up our wages in retention bonuses to focus on retaining our tenured staff.

We believe this still allows us to maintain a 48% to 50% gross margin range and organically grow our home health and hospice business in the 7% to 10% range.

Lastly, we are pleased with the final home health and hospice rules for 2022 and believes CMS has recognized the current labor pressures and incorporated this into their rate updates.

We also support the expansion of value based purchasing from the pilot program to all 50 States effective 2023, we are well positioned for value based purchasing and look and look to further expand these conversations with them with our Medicare advantage payers.

Now to our Aviano Medical solutions segment results for Q3 <unk>.

During Q3, we produced $37 $1 million of revenue or 14, 9% year over year growth.

Revenue was driven by 78000 unique patients served during the quarter or 11, 4% year over year volume growth.

This growth profile is consistent with our strategy to grow medical solutions with both strong organic and de novo activities.

Our revenue per UBS of $476 19 was up three 5% from.

From Q3 of 2020, primarily driven by product mix shift.

I expect both volume growth and revenue to continue to benefit from the growth of our Pds and home health and hospice segments.

Turning to our cost of goods and gross margin metrics. We continue to experience stability in gross margin was $16 $3 million in Q3 or 43, 8%.

This equates to a year over year growth of 10, 9% and gross margin dollars I expect growth gross margins to remain in the 43% to 45% range moving forward.

Our dedicated focus on ensuring the attrition in our proprietary distribution model allows for continued expansion of this service to pediatric adult and geriatric patients.

In summary, all three of our business segments continue to fight through a very difficult environment.

I am proud of our Avianca team and their dedication to providing high quality cost effective and safe health care and our patients' homes.

Regardless of the current short term market conditions home care is still the number one choice of our patients families referral source referral sources and Payors.

Thank you and I look forward to updating you on our Q4 and year end operating results with that I'd like to turn the call back over to Dave.

Thanks, Jeff I'll go ahead and provide some details on our results of operations liquidity and credit facilities.

Revenue was $411 3 million for Q3 of 'twenty, one as compared to 366 million for Q3 of 'twenty an increase of $45.

4%.

The increase was primarily driven by significant growth in our home health and hospice segment.

$42 3 million increase in home health hospice revenue from the year ago quarter as a result of our home health and hospice acquisitions that we've discussed over this call.

As Tony mentioned, we also continue to see reimbursement rate wins, particularly in the Pts segment, our Pds revenue rate increased three 8% on balance due to those rate increases the pds reimbursement rate environment is supportive of our mission to bring more caregivers back into the workforce and reduce the unmet demand for our services one patient.

In one hour at a time.

Now turning to gross margin, our gross margin was $139 7 million or 34% of revenue for Q3 of 'twenty, one as compared to $114 1 million or 31, 2% of revenue for Q3 of 2020.

<unk> 22, 4% growth in our Q3 gross margin compares favorably to our revenue growth of 12, 4% from the year ago quarter.

Operating income was $18 3 million for the third quarter of 2021 as compared to $12 9 million for the third quarter of $2025 $5 million increase we're pleased to see operating income increase as a percentage of revenue to four 5% in Q2 'twenty one from three 5% of revenue in the year ago quarter.

Our Q3 operating income was positively impacted by an increase of $8 9 million 16, 3% steel contribution as compared to Q3 of 2020.

The $8 9 million increase in fuel contribution was delivered by our $45 3 million increase in consolidated revenue combined with a 50 basis point improvement in our field contribution margin to 15, 4% for Q3 of 'twenty, one from 14, 9% in the year ago quarter.

Offsetting some of the Q3 improvement in our fuel contribution margin over the prior year quarter was an increase in our corporate expenses as a percentage of revenue growing at nine 2% of revenue from eight 9% of revenue in Q3 of 'twenty.

Primary reason for this 30 basis point increase was $2 7 million of incremental debt modification costs included in our corporate expenses and $2 6 million of incremental share based comp charges that we recorded in Q3 related to performance vesting options.

Both of these items are discussed in the footnotes to our financial statements in our MD&A.

Note, however that adjusted corporate expenses as a percentage of revenue decreased to five 3% in Q3.

Five 8% in Q3 of 'twenty.

Moving on to net income net income was $2 1 million for Q3 of 'twenty, one an increase of $9 5 million from Q3 of 2020.

Primary driver of the increase being the $5 5 million increase in operating income and the.

<unk> 7 million decrease in interest expense offset by a $4 8 million loss on extinguishment of debt related to our Q3 term loan refinancing and certain other items.

Adjusted EBITDA was $45 8 million for Q3 of 'twenty, one which represents a $5 8 million increase from Q3 of 2020.

On a year to date basis, adjusted EBITDA increased $138 4 million for the nine months ended Q3 of 'twenty, one which represents a 10, 9% margin from $107 2 million in the first nine months of 2020 or 10.0% margin.

On the liquidity front, we had strong liquidity as of October <unk> 2021, our Q3 and with cash on the balance sheet of $121 7 million in available borrowing capacity under our revolving credit facility of $182 million, resulting in total liquidity of $301 9 million at the end of the quarter.

With respect to cash flow Q3, 2021 cash flow from operations was $36 million turning cash flow from operations for the year to date period positive at $22 million.

And one thing I'd mention is that our year to date cash provided by operations included an approximate 9 million usage of cash to repay advances for Medicare that some of our home health and hospice companies received in 2020 pursuant to the cares Act.

Our assumption of these liabilities reduced purchase price for these transactions. The repayment of these items comes out of operating cash flows and this will continue through the end of the year potentially into Q1 until we fully repaid the advances which are about $12 million.

These payments should be considered nonrecurring.

In addition, we paid about $18 million to restructure our first lien credit facility back in July $7 million of that amount was required to be treated as a debt modification cost and recorded in our corporate expenses. So this also served as a call on our operating cash flow in Q3.

Looking forward into Q4 operating cash flow will be constrained by an approximate $26 million deferred social security taxes to the IRS in December.

Continued repayments of the Medicare advances I, just mentioned and increasing interest costs.

On the cash collections front, we collected approximately $425 million of cash during the quarter in excess of our revenue and $411 million I can't give enough credit to our revenue cycle and operations teams for all they do to drive our collections performance transitioning in integrating acquired revenue cycle systems onto the ASEAN a framework is really hard work.

Combined with maintaining current operations and responding to the never ending challenges that come with health care billing and collection operations. Our teams have done excellent work this year and we continue to see improvements in revenue utilization and yield.

Yes.

In addition to our cash flow.

We've improved our capital structure via the repayment of debt with IPO proceeds and the subsequent refinancing of our first lien term loans with lower interest rates. These actions of collecting collectively resulted in sequential decreases in cash interest paid from $22 million in Q1 of 'twenty $1 million to $67 million in Q2, 'twenty $110 3 million.

In Q3.

Before considering any incremental debt incurred for Q4, M&A, we will see our interest costs begin to tick up a bit from Q3 and thats related to the commitment fees on our delayed draw term loan in connection with our first lien refinancing on July 15th we added the $200 million delayed draw term loan to provide for future acquisition financing in October 15th.

We began incurring for LIBOR margin of 375% on the 200 million delayed draw term loan and so that will increase interest expense comparatively.

To summarize and wrap up here, we're pleased with our improved fuel contribution and operating income margins in the third quarter as well as our improvement in cash flow from operations together with the capital structure improvements. We've continued to make we're well positioned from a liquidity and credit perspective to execute and deliver on our M&A strategy.

And with that I'll turn things back over to Tony.

Thanks, Dave and before we open up the line for Q&A, we'd like to give you our thoughts around our full year 2021 guidance and how we're thinking about 2022, we believe that our current trends will continue for the near term future volumes will continue to be sold partially offset by continued improvement in rate and as a result.

We expect our full year 2021 revenues to be in the range of 1 billion $6 75 to 1 billion $6 80, which is lower than our previous estimate however, given the rate improvements and the disciplined approach to expense management. We believe that we will deliver our original EBITDA estimate of 100.

$85 million for the full year 2021.

This outlook does not include the impact of comfort care and a credit to the acquisitions that we spoke of earlier.

We're currently engaged with both acquisitions in the bottoms up budget process that we used for our base business and we expect to issue full year 2022 guidance sometime during the first quarter. We are optimistic about maintaining our mid teen year over year growth and look forward to sharing our successes.

We go.

Operator, because we've covered so much material in our call we're going to stay on the line longer than usual to accommodate as many people as we can with that why don't we open it up for questions.

Thank you.

We will now be conducting a question and answer session.

If you'd like to ask a question. Please press star one on your telephone keypad.

<unk> will indicate your line is in the queue.

You May press star two if he would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset personnel Starkey.

One moment, please when we poll for questions.

Our first question is from Joanna <unk>.

With Bank of America. Please proceed.

Hey, good morning, Hey, good morning, Thank you for taking my question. So.

I guess.

Okay.

Very last comment here might be.

So I appreciate that he talked about that that's been there trying to steal contribution for the pending acquisition. So it sounds like they could add.

Call it $50 million to EBITDA next year, and that's before any organic growth.

So to clarify that and then also any any other tailwind.

Tailwind and headwinds when we think about 2022 EBITDA.

High level commentary thank you.

So Joanna I think you summarized it fairly well.

I think when we when we think about the first half of 'twenty. Two we don't think theres going to be any miraculous recovery in the labor markets by the time, we get to Q1, I think we'll still be dealing with some of the COVID-19 hangover that we talked about and and I don't I don't see any immediate change in the labor markets. However.

Our opinion is by the time, we get to mid year next year, we're hoping to see some type of stability.

And normalization of the labor markets.

We're going to continue to be nimble I think Jeff laid out some some really innovative ideas that the company is executing on right now that allows us to be reactive to that.

Ever change in labor markets, but I want to bring us back when we think about the long term aspect of the business.

One of the things that you heard several times today is the demand continues to be higher than ever and in that we are finding policymakers and legislators and payers alike, all coming to the table, saying what can we do to help you increase capacity, we need to get patients into.

More cost effective settings sooner rather than later and whether it's the first half of 2022 of the last half of 2022.

I can't answer that what I can tell you is that the demand for our services, we're going to continue to go up and I think the homecare industry is going to.

Continue to be a driver in the health care space that we know today.

Alright, Thank you I'll go back to the queue.

Thanks Joanna.

Okay.

Our next question is from a J rice with credit Suisse. Please proceed.

Yeah.

Hi, everybody thanks for the comments.

Maybe just first.

Obviously on the labor question, it's really hard to know because theres. So many different dynamics going on retention bonuses sign on bonuses hero pay overtime pay.

If you were looking at it sort of an apples to apples you're SWM b this year versus last year in the third quarter.

What kind of <unk> ratio or rate of increase are you seeing and do you have a sense of.

Looking into 'twenty, two parameters around what kind of an increase all is <unk>.

Things might result in.

I think the first half of your question a J is looking at what we're experiencing today and Jeff talked about it as we're getting these rate increases we are actively the team Jeff and operating team are actively looking at how do we reinvest some of these dollars and you pointed out all.

The different ways that we're reinvesting back into our clinicians.

Our margins have continued to expand.

When we think about moving forward. The second half of your question is then going forward, we expect margins to do kind of stabilize and I think Jeff indicated that.

That debt and private duty today, our margins are probably a little bit hot and and Thats, just a timing issue as to when we get the rate increase versus when we put those increased dollars back into wages.

But those rate increases are also continuing to come my guess is if we look into Q4, Jeff I don't want to put you on the spot here and feel free to jump in.

We look into Q4, we'll probably see that spread rate pull back a little bit I don't know if you want to try to quantify that but I think $11 18, probably a little bit hot for that business as we see it today a great Tony in Asia, I think spot on Q4, I think we will see that start to get back under $11 back in the high $10, probably still above our ideal range.

As as we continue to push the incremental rate increases out it's not a.

It's not a it's not all nurses get one dollar its really one nurse by one nurse and their conversations over the phone and so it takes time to get those rate increases the rate increases they hit us on a specific date and we get the rate increase on that date and then it takes us.

<unk> and ultimately months to get those hand, it out to each nurse appropriately and it's a one by one conversation so to Tony's point. It takes us three to six months to get that fully flushed through the market.

I think Tony said, it well, we're going to have more rate increases already on the books for Q4, we have.

Pretty large rate increase on the books for January 1st in one of our largest states. So our.

Our Pts segment rate increases are going to continue to come through into 2022, and so I think it's a good thing as we talked about.

It will take us take us time to kind of push those through but but as Tony said, our gross margins are going to stay on that on the HHH side, we think 48% to 50% is that ideal range and we think on the Pts segment, probably right at 30% we have been at 30% for four or five years, and we think that number is probably going to stay pretty close to that are forward looking.

One of the things, we don't want to leave the listeners here with us somehow these rate increases in wage adjustments are event, driven if you can imagine.

Keeping your hands on the levers of wage and rate is something that our operators do every single day, and we're not going to reach a point where on March the 20, <unk> say, okay. Now we're done with that.

This is an own going exercise.

We look at this new Jeff talked about the spread these guys look at the spread rates every week every day and they're constantly making slight adjustments as we go and I think that that doesn't change.

Okay, and maybe just a quick follow up you mentioned 11 state the Purion have mandated go back.

I Wonder if you could just tell us because obviously, if we get the national rollout of the Ocean provisions.

What how disruptive was that leading up to the date do you see the impact.

It was up quite a bit of lead time or does it happen pretty much right at the end there what was your experience in those 11 states.

Yes, that's a great question AJ in and those 11, where everything from counties cities States.

Obviously, no federal yet until the CMS and our Osha mandates, but I'll tell you Vijay at the end.

Definitive date helped push people to an outcome.

And the primary outcome was people getting vaccinated, but also most of the states had a exemption outcome as well, but where those religious <unk> medical exemption. So it did force people to kind of make a decision.

Obviously, our our compliance rate is 100% in all 11 11.

Government municipalities, but but ultimately I would tell you most caregivers most employees got the vaccination and continued care and there was a lot of noise, leading up to it there's already been a lot of noise about the CMS mandate in Ocean mandate I wish every employee love that they don't.

But I will tell you since last Monday.

Vaccination, whether its new destinations where people turning their cards in and just proving it to us.

Tripled in the last eight to 10 days. So I think it is just.

It's forcing people to make that decision, India and most people are making the decision to stay to continue to work to either be fully vaccinated or to have an appropriate exemption on on file so the 11.

11 specific states in question are counties I think to US has not been a material negative impact to our business. It was it was less than one half of 1% of our volume changed and they were different dates they were staggered dates between September and in early November.

Okay. Thanks, a lot. Thank you.

Yes.

Our next question is from Sarah James with Barclays. Please proceed.

Okay.

Yes.

Okay.

Yeah.

Thanks, Paul.

You bet.

Had a couple of pieces.

Great.

Okay.

Awesome.

Mhm.

Yes.

Well.

Thank you.

Sure Sara.

You asked specifically about 'twenty, two we're not really ready to provide any type of guidance specific guidance on 'twenty. Two however, what I can tell you is that a typical seasonality year for us looks like volumes are up in Q1 volumes or even better in Q2 then.

Volumes tend to tail off during Q3 related to summer vacations, both of caregivers and nurse.

Caregivers as well as families.

And also schools being out and then in Q4, we kind of see volumes come back too.

More normalized level and start building again for Q1, the following year.

If you think about kind of the two ends of the seasonality bookings Q2 tends to be our best quarter in Q3 tends to be our lowest quarter in any given year and so it just kind of follows that cycle. I don't think this year 2021, I don't think is any different than that I think I think the season.

Although we experienced in Q3 was exacerbated by what's going on in the labor markets. However, I think our business still had seasonality in it.

I guess from Jeff you can pile in here, but.

There is nothing that we know of today that would cause 2022 to look any different than that I agree with Tony and I think Sarah Tony said it in his remarks few minutes ago.

The one thing will be as we're fighting through discontinued labor environment in Q1, and Q2 and.

I think you said it we have additional rate increases coming on the books effective January one so.

So that will help us continue to past wages through to caregivers. So I think we're expecting to continue to fight through Q1, and Q2, but I agree with Tony schools schools are in session. So we will have our normal summer seasonality of schools come back out for the summer months and I don't think 2022 will be.

That different from a normal seasonality I would just be the fighting through the labor environment really the first six months of the year.

Okay.

And then.

Uh huh.

Okay.

Cool.

Okay.

Helpful.

Yes.

That's helpful.

You bet.

Okay.

So.

I think the way you are I think the way you're tugging at it is the right way to think about it you can come back between those implied multiples that Ron talked about.

However.

We haven't disclosed any exact EBITDA.

Post synergize EBITDA number and the reason being is that we are just beginning the integration process and as you know.

Things move around as you develop those integration plans.

People that are going to be synergy versus those that are not going to be synergies and all of that is yet to be determined.

With that said.

In terms of the major buckets.

The typical buckets, you would think about it in a synergize deal for us, it's primarily in corporate expenses duplicate overhead related to finance and accounting and payroll and human resources and those types of services more so than than any synergies out in the field and specifically you asked about revenue synergies.

Counting any revenue synergies from either of these deals. These are just.

Additive to our current revenue stream.

And as Rod talked about creating density in markets and we believe that creating density provides value for our shareholders. So they are both we're excited about both transactions.

Thank you Sir.

Thank you. Our next question is from Brian <unk>.

With Jefferies. Please proceed.

Good morning, Brian.

Hey, good morning, Yes, so just to think about 2022 again sorry.

<unk> already touched on this Jeff but.

So we're starting off a base of 185 for this year, we're adding about what 40% to 45 million maybe up to $50 million on the acquisition. So just if you can help us think through the puts and takes as we think about 2022, I know youre, not giving guidance, but just to level set the starting point and kind of the moving parts.

So Brian I think you're right, we're not we're not providing guidance for 'twenty two.

Yet so but we appreciate your tenacity.

Yes.

Sure.

I think I think you have the pieces and we wont comment on the exact numbers, but I think you have the right pieces. The only other piece that you've got to think about in there is what are the growth rate is going to look like in and again I think Jeff has talked about our growth rates in our businesses and what would what we would think is being nor.

Immel Youll real underlying question is is <unk> is the first half of 'twenty two is going to be normal and I don't think we're ready to predict that yet so.

But you've got all the pieces, Jeff anything you'd add Brian I think as Tony mentioned.

We're in the middle of kind of the back half of our budget process at <unk>, we are bringing in both the credit and the comfort care teams and that bottoms bottoms up we do have a budget from every single location up through our corporate infrastructure and so we're bringing accredited and comfort care into that process.

We normally land that about the second week of December and I think I think we'll be right. After the first of the year to what we talked about 2022, but we're excited there's nothing that we've seen and our diligence in the two deals that would say that they think of the budget process any differently than we do in the growth rates have been have been impressive.

Hence why we engaged them, but we're excited to finish that process to have a really solid outlook on 2022.

I appreciate that and then my follow up really quickly Tony It sounds like you still feel pretty good about the demand side of the equation right. So.

It sounds like this is more really labor driven so how do you how are you balancing that right I mean.

That you can chase volume or you could bring in temp staff in all of these things to do.

Fill the demand right, so and gross margins are obviously pretty good during the quarter. So how are you just thinking through that philosophically.

Well I'll correct, you said I felt pretty good about demand I feel great about demand.

Yes.

There's not a day goes by that this group of people don't get phone calls from families are hospitals, saying what can you do how can we get these this particular patient home is there anything that you can do we get.

Jeff Jeff and.

Managed care team are getting calls from Payors, where these payers are bringing us to the table and saying we've got to find ways to get these this patient out of the hospital, we're willing to think out of the box. What can you guys do outside of the box. So the demand for our business is at all time high.

The second part of your question about balancing margin with growth is I think thats the art in this business and.

And I can tell you that we're not going to give away our margins for the sake of growth. However, we're going to be thoughtful and disciplined about how we put those dollars and resources back to work and protect the value for our shareholders.

And it and it doesn't it's not a one and done exercise. If this takes a light touch on the controls every single day, and Jeff and Jason the other operators out in the field. These guys deal not just not just state by state, but market by market.

And sometimes patient by patient, where we're looking at every patient and their particular.

Economic situation and how do we balance the ability to services patient against.

Our margin that our ability to pay our caregivers so.

It is an ongoing exercise that won't in and Brian I think Tony said incredibly well in the old days, we would literally be calling the payers rep.

Begging for another $2 an hour to get our family home in and today that has flipped to where the head of manage of managed Medicaid for a large payers are now calling our operators are managed care payer to payer team, saying what will it take whats the number per hour and in some cases, it's absurd.

It's will.

We doubled the hourly rate for the first 90 days could you get to nurses.

This family home and Tony said it right. It's not it's not statewide its a family is a specific family who is in the hospital and that payer is trying to get them home. So the market has shifted in a way that I think in our 30 years, we've never seen and we don't believe that market goes back from the payer side.

And we love that.

We hate why we're here from a labor standpoint, but we love the creativity that its cause to kind of solve problems and get family's home.

Thank you.

Thanks, Brian.

Okay.

Our next question is from Justin Bowers with Deutsche Bank. Please proceed.

Hi, good morning, guys.

I'm just.

Can you can you help us understand what the what the revenue mix is.

Accredited like skilled versus unskilled and then just maybe elaborate a little bit on how theres less.

Lower labor risks with that model.

You have the asset.

It's probably not well understood.

Our investments would be helpful.

Elaborate on that a little bit.

Well, let's just let's start with our base business in California already so we have a base business in California related to private duty that is an unskilled business now we have.

In California, we also have a significant presence in skilled business as well, but separately and apart from that we do have a very strong base of unskilled business in California, the accredited business mirrors, our unskilled business.

It is predominantly all unskilled theres, a small part of skilled business that will fold into our school business.

But it's through several different Medicaid programs in the state of California.

And to your to your Labor question in this in these particular programs the families.

Of the.

Patients are responsible for identifying and even.

And even hiring.

The attendant or the caregiver and so because of that and I think Rob said, it really well in his prepared remarks.

It really takes the burden of recruitment off of Avianca and places it back with the family and and which is no different than the unskilled businesses that we're in in California, and we like that business a lot.

It's.

Gross margin in terms of percentages is not as high however.

However.

It doesn't take as much overhead to run that business, because youre not doing the recruiting and retaining in the onboarding and all of those types of things. So so.

To answer your question broadly is identical to the unskilled business that we are in California, and it is predominantly on scale.

Understood I appreciate it.

Thanks Joseph.

Okay.

Ladies and gentlemen, we have reached the end of our allocated time and I would like to turn the call back to Tony Strange for any closing.

Operator, operator.

We're going to we're going to stay on the line for a little bit longer we will continue to take questions. Because we are prepared remarks ran over and we knew that but we'll stay with this group as long as we need to to help them understand our business.

Okay.

So as a reminder, if you would.

To ask a question. Please press star one on your telephone keypad.

Yes.

Okay.

And our next question is from Matt Borsch with BMO capital markets. Please proceed.

I thought I would ask one about the.

The reimbursement.

Situation and.

I gather your Jordan.

You seem to be shifting to the idea that that may be.

Correct.

Constraints are going to resolve or hopefully resolve the issue around Medicare advantage reimbursement in the adult.

Home care market.

Are you sure optimism around that.

Yes, I think most of our comments were really around the Medicaid environment in Medicaid.

Vantage payors.

I think most of our optimism and certainly how we are answering Brian's question was that was more of a Medicaid answer for our Pts segment.

Certainly the the rate increase.

Home health Hospice update the rate increase of I think net two 6%.

It will be shared by those Medicare advantage payers, who pay out on an episodic basis.

I think as we continue to grow and scale in this business, we as Tony talked we have a very disciplined approach to the patients that we take on the on the geriatric side and I think we will continue to push our Medicare advantage payers like the rest of the industry is two to two to pay at a more meaningful level.

But I think our comments really were focused more around the Medicaid and Medicaid payers.

And again like theirs.

Alright.

Thank you.

Thanks, Matt.

Okay.

Operator, do we have other questions.

No there are no further questions.

Okay.

Well, we've covered a lot of ground on today's call, but I want to thank each and every one of you for your time and your patience. This morning, I know, we had a lot of information to cover and always we continue. We appreciate your continued support of <unk>. Good luck to all of us and have a great day.

This.

Today's conference you may disconnect your lines at this time, thank you for your participation.

[music].

Good morning, and welcome to all be on a health care Holdings third quarter 2021 earnings Conference call.

Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to Shannon Drake.

As Chief legal officer, and corporate Secretary. Thank you you may begin.

Thank you operator, good morning, everyone and thank you for joining Aviano Healthcare's third quarter 2021 earnings call speaking on today's call are Rod Windley ASEAN as executive Chairman, Tony Strange Aviano's, Chief Executive Officer, and President, David <unk>, Chief Financial Officer, and Jeff Shaner, I'll be honest chief operating office.

We issued our third cornea quarter earnings press release, and supplemental presentation as well as filed our related form 8-K, and Form 10-Q yesterday with the SEC. These documents are available on the Investor Relations section of our website at Ww Dot Aviano Dot com. We encourage you to read them also a replay of this.

This call will be available on our website until November 23, 2021, we want to remind anyone who may be listening to a replay of this call that all statements made are as of today November 16, 2021, and these statements have not been or nor will they be updated subsequent to today's call also today's call may contain forward looking.

It could cause our actual results to materially differ from those expressed or implied on today's call listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results, including those risks disclosed under the risk factor headings of our filings except as.

In addition, a reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available at our earnings call and our earnings press release and 10-Q, both of which are available on our website and on the SEC's website at Www SEC Gov.

Following today's prepared remarks, we will we will open the call to questions. Please limit your initial comments to one question and one follow up so that we can accommodate as many callers as possible in the allotted time with that I will turn the call over to Avi honest, Chief Executive Officer, and President Tony Strange Tony.

As a result, our prepared remarks may run a little bit long, but will extend our call to accommodate everyone's questions.

The goal of the call today is to provide updates on the company's third quarter results as well as some insights on our current reimbursement in COVID-19 environment.

To assist us in discussing all of the above we will be referencing a supplemental investor deck that was published last night, along with the press release and the 10-Q.

Before jumping into all the details I'd like to first take a moment to thank all of our caregivers and administrative employees for what you are doing each and everyday today's environment can make even the smallest task more complex you make it your mission to bring to patients and families of the most frail and vulnerable.

In America, so on behalf of the executive team our board of directors and all of our shareholders. Thank you for what you do.

I'd like to spend a moment talking about the overall industry trends and the impact on our current results and perhaps more importantly, how they affect our long term outlook for Avianca.

The demand for home based services as is at an all time high.

Both our private duty services, and our home health and hospice segments continued to experience demand that exceeds our supply and we're not alone.

For these reasons, we believe that we are experiencing a shift in how homecare is viewed.

For the first time in many years and possibly ever state and federal policymakers legislators and private Payors are all recognizing the valuable role that homecare can play an effective clinical outcomes, while reducing overall healthcare cost.

During our second quarter call, we reported that 16 of our 31 states had either increase reimbursement <unk> expanded the benefits for home based care.

As of today that number has grown to 24 of the 31 states that we operate in.

That indicates that over 75% of the states, where we operate made the decision to invest more dollars and to providing more services in the home.

Many of our managed care partners are following suit. We continued to have success in obtaining rate increases that target our ability to increase our capacity.

And as you saw last week the final rule for home Health was published by CMS and it too was better than originally expected.

All of these indicators point to an increasing belief that home based care can and will play a meaningful and growing role in the health care industry in America.

In the meantime, we're living in an environment that has been disrupted by the pandemic.

COVID-19, vaccinations and vaccination mandates have all played a role in disrupting business as we know it.

The world in General and health care, specifically is being affected by what we refer to as a COVID-19 hangover.

Hiring enough nurses and caregivers has always been hard but it has become increasingly more difficult in this environment. So what are we doing.

We along with every other health care provider are engaged in hand to hand combat over every single nurse and caregiver.

We've implemented programs to incentivize nurses and caregivers to get vaccinated, and we rewarded nurses and caregivers who have demonstrated their loyalty to avianca.

Jeff will provide some additional details during his prepared remarks.

And even with all of these efforts there is still not enough supply to meet the demand.

We view this disruption is near term in nature.

Eventually vaccination rates will reach an equilibrium.

And then and only then the threat of COVID-19 will subside.

The labor markets in the U S will reach a new normal.

And when they do there will be an increasing demand and appreciation or home based care.

We're extremely proud of our results this quarter. Despite these headwinds we grew our revenues 12, 4% over the previous year and even more impressive.

We've expanded our gross margins by 280 basis points to 34%.

Some of these some of this margin expansion is attributable to the business mix shift toward home health, but we also had margin expansion in private duty services.

We will provide a detailed review of our results in a moment, but first we'd like to touch on the M&A activity that we announced last night.

As you are aware on October the first we filed an 8-K with the SEC announcing that we had entered into an agreement to acquire comfort care.

As Youll recall, our M&A strategy was to acquire between 150 and $200 million of new revenues per year that produced adjusted EBITDA is between 15 and $25 million a year.

With the acquisition of Doctor's choice in April and the two acquisitions that we announced last evening. They expected to close in Q4, our acquired revenues in 2021 will be approximately $290 million far exceeding our goal.

We will work to bring leverage down over time with continued growth future M&A and the strategic use of our balance sheet.

In the meantime, we're very proud of our continued growth without dilution to our existing shareholders at these depressed valuations.

All of which have now been fully integrated into aviano.

Next we completed Doctor's choice in April and that integration has gone extremely well and is also nearing completion over.

Over the summer to additional transactions made it through our Gotland and as a result, we have the internet two definitive agreements to acquire comfort care, a Medicare certified home health and Hospice company in Alabama, and Tennessee, and accredited home care, a private duty based company and Southern California, Let's take a closer look at H B.

With a few locations in Tennessee traditional home care makes up approximately 40% 47% of its revenue and hospice represents another 53%.

Diligence indicated that comfort care is a well run company with a solid track record related to compliance and a stellar reputation in its markets, making it an extremely good fit for aviano.

While the purchase price of comfort care is $345 million. We also received a significant tax benefit with the present day value of approximately $55 million, thus, reducing the net purchase price to approximately $290 million. This would imply a fully synergize EBITDA multiple of between <unk> <unk>.

11, and 12 times, we anticipate clearing licensure and closing sometime during the first week of December now.

Now, let's move on to our second transaction accredited home care.

Routing and today's very difficult labor environment.

Business has been around for more than 40 years and has a fantastic reputation of being a quality and reliable provider of care. The company is generating approximately $110 million in revenue per year on a current run rate basis, 86% of its revenues are derived through Medicaid or other states.

Funded programs, which is consistent with our own scale business and the state of California.

The base purchase price of credit it is $180 million, which could be adjusted upward to $225 million based on a credited volumes through the close date, we believe that once the purchase prices settle the implied multiple on a fully synergize EBITDA basis will be between eight and nine times.

Given the role that unskilled can play in reducing overall healthcare expenditures. We believe that density the density that accredited brings to Avianca and California can be a strategic advantage advantage for us as we move forward, we have cleared all the necessary hurdles on a crowded anticipate closing by the <unk>.

End of the month.

While both businesses are different and one is in Alabama and the other one is in California. They are both being integrated at the same time by separate I M. O teams, both acquisitions will be fully integrated in 'twenty two with the majority of the integration process occurring in the first 180 days each of the transactions.

We're highly competitive environments and we are fortunate to have them under contract. The deal flow has not slowed down in either segment. This strategic community along with private equity continues to make every transaction highly competitive as you can tell we are very excited about both of these transactions as Tony mentioned earlier.

These two transactions bring our acquired revenue for 2021 to approximately $290 million.

<unk> to our target of 150 to 200 million on an annualized basis, we believe that both transactions solidify our position as the leader in M&A growth in the homecare space on any given day, we are tracking in excess of 500 million in potential transactions and our M&A pipeline, we look at a lot of transaction.

But only pursue those that fit our business mix geography, and financial profile very few past our street, our stringent diligent process, while we pass on more transactions than we complete we are confident that we will continue to meet our anticipated acquisition targets for the foreseeable future.

With that let me turn the call over to Dave to tell you about our financing plans and how we intend to pay for these transactions.

Thanks, Rod we're pleased to be in such a strong balance sheet and liquidity position right now that supported the acquisition strategy strategy that Roger is laid out.

Approximately $400 million proceeds from a new second lien term loan that we plan to launch later in November.

I'll provide just a little more information on the new debt that we plan to use to fund our Q4 M&A or.

Our new securitization facility is underwritten by PNC bank and secured by our receivables, it's $150 million facility and we plan to draw $120 million to fund our Q4 M&A.

The security securitization.

<unk> facility comes with attractive interest rates and as an efficient piece of new capital for the company that we can scale up as we grow.

As Youll see on slide 11 pro forma for our Q4, M&A and incremental debt raises our total leverage will be in the six turn range.

And with that Tony would you like to add anything on the M&A financing front no. Dave I think you did a really nice job laying that out while our leverage is a little higher than we originally contemplated. We believe this is a better use of our balance sheet for the time being we manage at this level of leverage many times before and are quite comfortable from a cash flow perspective.

As I mentioned before we anticipate reducing leverage over time through continued growth future M&A and strategic use of our balance sheet in short, we believe that our capital structure and our existing pipeline gives us a runway to continue our acquisition growth for 'twenty two for 2022 and beyond.

So, let's turn our attention toward a deeper dive into our Q3 results as I mentioned earlier, we are very pleased with our results despite the lower than anticipated volumes.

Third quarter is historically, the low point of the year for our business due to schools being out in summer and Fam.

Some are family and caregiver vacations.

Q3 of 2020.

Our home health.

The continued rate improvements in our private duty services and are very discipline.

<unk> to labor and other expense controls.

And other SG&A expenses, including corporate being in line with expectations, our EBITDA for the quarter was $45 $8 million or 11, 1% of revenues.

$25 million exceeding their goals great job by James Elkington in the entire revenue cycle team Congrats guys keep it coming.

With that Jeff why don't you walk us through so.

A more detailed segment results. Thank you Tony I am pleased to share our Q3 2021 operating indicators in key metrics with you. This morning.

Before I get into the operating segments I'd like to spend a few minutes on our COVID-19 efforts and recent caregiver employment activities and trends.

Throughout the COVID-19, pandemic, our ASEAN and teammates have consistently risen to the challenge of providing safe.

And efficient health care and our patients' homes.

Innovation and creativity had been instrumental in our ability to adapt and overcome the daily challenges poise posed by Covid.