Q4 2021 Aveanna Healthcare Holdings Inc Earnings Call
Good morning, and welcome to U S.
Al Khair Holdings' fourth 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 shatter Drake every honest chief legal officer and corporate Secretary. Thank you you may begin.
Thank you operator, good morning, everyone and thank you for joining US today 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 earnings press release and filed our 10-K yesterday. These documents are available on the Investor Relations section of our website at Ww Dot Aviano dot com as well as on the SEC's website at Www SEC Gov. A replay of this call will be available until April 5th 2022 we want to remind anyone who may be listening to a.
A replay of this call that all statements made are as of today March 29 2022.
Today's call May contain forward looking statements, which may be identified by the use of words, such as May could will expect intend plan and other similar words and expressions.
All forward looking statements made today are based on management's current beliefs and assumptions about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call except as required by federal Securities laws Aviano will not publicly update of ROE.
Any forward looking statements subsequent to the date beta as a result of new information future events changing circumstances also we supplement our financial results reported in accordance with GAAP and certain non cash financial measures. A reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available in our earnings press release.
And Form 10-K , both of which are available on our website and the SEC's website at Www SEC Gov or is otherwise available separately on our website. Following today's prepared remarks, 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 when the allotted time.
With that I will turn the call over to I'll be honest, Chief Executive Officer, Tony Strange Tony.
Thank you Shannon and good morning, everyone. Thank you for joining I'll be honest fourth quarter and 2021 year end earnings call on the call. Today, we will we will provide some insights into our Q4 results update you on current operating and reimbursement environments bring you up to speed on our most recent M&A activity.
As well as lay out our expectations for the full year 2022.
Before we get into these results and the details I'd like to take a minute and thank the ASEAN a team has.
As you know this is our first year in reporting period for all be honor as a public company, our legal accounting and finance teams have done an outstanding job in preparing us for today.
We've successfully completed our audit finalized the 10-K as well as the proxy all within the required time lines and have line of sight into accelerating our filings by a few weeks for next year.
In addition, I'd like to thank all of our branch personnel and our caregivers for what you do each and every day by putting our patients and their families. First you create the foundation on which these results are bill. Thank you for your dedication and your hard work.
Let's jump right into our results as a reminder, at the end of Q3, we acknowledge that the pandemic was continuing to provide disruption to the labor markets and as a result, we lowered our revenue expectations to a range of 1.675 billion to 1.680 billion.
However, through a disciplined approach to managing gross margins, we felt confident that we could maintain our full year EBITDA guidance of 185 million I'm pleased to report therefore, the year ending 12 31 21, we reported revenues of approximately 1.679 billion and.
Justice EBITDA of approximately $184 2 million or 11%.
Given the ongoing headwinds of the pandemic inclusive of the sudden onset of the omicron variant, we're extremely proud of our year end results.
Congratulations to all of our operators for a job well done in a very difficult environment.
In thinking through our year over year comparisons I'd like to remind everyone that I'll be on a user's our 445 calendar for accounting purposes. As a result every five years the fourth quarter has an extra week, making it a 53 week year.
I'll be honest 2020th results include the 53rd week, making it a 14 week fourth quarter.
Revenue for the quarter was 414 million down 1.9% from Q4 of 2020.
However, adjusted for the 53rd week for comparative purposes, only revenue would have been up five 6%.
Likewise EBITDA for the quarter was $45 8 million up one 3% over Q4 of 2020 again adjusting for the 53rd week for comparison purposes, EBITDA would've been up by nine 1%.
Jeff will provide further details all of our segment results in his prepared comments.
We believe that eventually the pandemic will be in our rearview mirror and having displayed the discipline to protect our gross margins. During these difficult times, we will be well positioned to accelerate growth once again.
Along with the disciplined approach to managing expenses, we continue to experience rate wins across our diversified pay your platform as.
As I mentioned on our last call 24 of our 31 states have put through rate increases in the last 12 months.
For the first time in my career, we have managed care plans state Medicaid agencies, and even CMS, reaching out and asking what can be done to increase access to home and community based services.
We continue to see benefit expansions in several of our key states and are already discussing further rate improvements in states that recently put through rate increases in 2021 .
And while growing Medicare represents only 12% of our overall revenue.
Making it the largest single concentration of any one payment source, we have 31 unique payment systems across as many states. In addition, we have in excess of 250 individual Medicaid managed care contracts.
And while Medicare is a very good partner in our home health and hospice business Medicaid is an excellent pay your partner in the states in which we operate.
Payers fully understand the impact that COVID-19 has had on access to care and have been not only willing but eager to deploy more resources to manage the care of these individuals in their homes.
By way of example, we're in discussions with a couple of payers that are willing to explore new operating and payment models for private duty services that move away from an hourly fee for service model to a broader care management model, allowing for greater flexibility and staffing requirements, we believe that our payer diversity along.
Along with our desire to drive innovation within the benefit provides us multiple opportunities in the expansion of home and community based care.
Let's turn our attention to our most recent M&A activity.
As reported during Q4, both accredited and comfort care transactions closed in December both transactions are well into integration and both are tracking at or ahead of schedule.
As you May recall, we expect these two transactions to deliver approximately $200 million a year in annualized revenue.
I'd like to welcome all of the employees from accredited and from comfort care to the I'll be on a family and to say thank you for all the hard work that's gone into integration thus far.
We're excited to have you as part of the I'll be honest story.
We had originally thought that we would pay for these transaction through cash on our balance sheet with some additional debt, while maintaining leverage around four and a half times and then use equity to fill the gap. However, given that the stock was trading at six to $7 range, we decided that it would be in the best interest of our shareholders to fund that.
The entirety of the transactions with cash and debt taking leverage to the six times range.
In doing so we were able to reduce the overall cost of capital and are quite comfortable with the resulting leverage profile.
Given the risk of rising interest rates, we have put in place two different forms of hedges across all of our outstanding debt.
Well, while we're comfortable with the current leverage it as it's our long term desire to reduce leverage through accretive acquisitions and or the use of operating cash flow to pay down debt Dave's going to provide some additional detail on our operating cash flow debt structure and the hedges that I just talked about.
As I mentioned on the last call. We will focus the first half of 2022, making sure that these businesses are fully integrated and look for further acquired growth in the second half of the year.
As a reminder, we have a $200 million delayed draw term loan for which we're already servicing the spread associated with the debt. In addition, we have $182 million of availability under our revolving credit facility should additional financing would be needed.
We believe that we're well positioned to continue to grow through acquisitions as opportunities present themselves.
That brings us to where we are now and how we're thinking about the full year 2022 .
Like most businesses the omicron variant hasn't had a meaningful impact on our business through most of the pandemic. We had between 203 hundred caregivers out or quarantine due to COVID-19 at any one time beginning.
Beginning in December we saw that number begin to climb then it climbed to almost 3000 caregivers for most of January and February .
Mid March we saw that number begin to trend back down and I'm pleased to say that as of today, we're back down to those pre omicron levels.
In addition, during the same period, we experienced the great vaccine mandate debate.
While the Osha mandate was ultimately rejected the see him in the CMS mandate has been upheld while complying with vaccine mandates has been a struggle for most companies, including Aviano I'm proud to report that 98% of all of our employees have either been vaccinated or have a qualifying exemption on file and we are.
In compliance with all local state and federal mandates.
All of these trends are transitory disruptions has had an impact on our business not only in Q4, but more specifically in Q1, while the impacts of omicron have subsided. The labor markets continue to offer challenges in identifying and hiring enough caregivers to meet the demand.
We anticipate these challenges to continue through the first half of 2022 with much of them being realized in the first quarter keep.
Keep in mind that Q1 will reflect a full quarter of our credits and comfort care, but partially offset by the disruption of omicron, which could negatively affect revenues in the range of $30 million in EBITDA in the range of 10 to 12 million.
As a result, we believe that revenues for the full year 2022 will be in the range of 1.890 billion to 1.920 billion.
And adjusted EBITDA will be in the range of 190 to 205 million or between 10 and 11%.
Notwithstanding further disruptions from additional variance and assuming that the labor markets stabilize we would expect the second half of 2022 to return to a run rate of 215 to 225 million in EBITDA on an annualized run rate basis.
In summary, I'll be honest, a diversified home care company generating $1 9 billion in revenue with EBITDA margins between 10, and 11% and we will consistently grow in the low to mid teens year over year.
We have an excellent track record clinically and a strong commitment to compliance like Medicare Medicaid is an excellent payer for home and community based care.
The demand for our service has never been higher.
And the sentiment from regulators and payers alike is that home care is a solution not a problem.
We believe that I'll be honest positioned to continue its role as a leader in the provision of care and the innovation that will redefine home care as we know it today.
With that I'll turn the call over to Jeff for a little bit deeper dive into our segment results. Thank you Tony before I dive into Q4, and our 2021 year end operating indicators in key metrics.
I'd like to spend a few minutes on our Covid vaccination efforts.
Micron variant impact and caregiver employment trends.
As Tony mentioned, we are very pleased with our overall aviano vaccination and approved exemption rate of 98%.
Our collective efforts to fully vaccinate, our staff has largely been achieved and at this point all new employees are documented with a vaccine or qualified exemption at their higher day.
While this was a major push for 2021, and specifically Q4, we are in full compliance with local state and federal laws regarding vaccination status.
Going forward, we see this process being a part of how we manage the business day to day.
The Omnicom variant had an impact on our December results as it picked up steam aggressively into the new year, we experienced the greatest disruption from omicron in Q1 of 2022 as it affected almost 10 times the number of <unk> employee cases.
Prior to December we averaged 200 to 300 employees per week, and corn <unk> status and therefore not working.
By late December that number had grown to over 1000 employees per week and at its peak in Q1, almost 3000 employees per week in quarantine.
Although short lived omicron left a significant mark on our ability to staff open shifts admit new patients and complete even day to day branch task.
Now onto a caregiver employment trends.
Without the benefit of knowing the impact of the upcoming Omicron variant, we made the strategic decision to invest in a one time effort to reengage caregivers and provide them with a monetary incentives to stay engaged or returned to Avi on them. We refer to this program as the return to work program in.
In short the program began in December and ran through December 31.
During the programme caregivers, we're incentivized to do one of the following.
Either a join ASEAN as a new nurse.
Be rejoined Avi on it if they previously worked for us but had left.
C work additional hours that they already work for us or lastly, commit to working exclusively for Avianca.
Leading up to the onset of <unk>, we saw 10 straight weeks of increased caregiver engagement.
On a onetime basis, we invested close to $11 million in cash to run the program with moderate success.
The return to work program has ended and at this time, we do not have plans to reinstitute similar programs for 2022.
Now onto the private duty services segment.
During Q4, we produced $335 million of revenue revenue was driven by approximately 9 million hours of care provided during the quarter or a seven 7% decline in volume over Q4 2020.
The seven 7% decline in Pds volume is adjusted for the comparable 13 week Q4 2020.
Patient demand continues to be at all time highs as we continue to partner with children hospitals and payers to find new solutions to get our pediatric patients home.
The primary drivers of the decline in volume was the number of caregivers exposed to Amazon and the overall labor shortages I.
I do expect Pds hours to improve in Q1 2022 on a sequential basis, even with the impact of the Omicron Merit.
Our Q4 revenue per hour of $36 56 was up a $1 85 from Q4 of 2020 or four 6%.
This was primarily driven by reimbursement rate improvements and Medicaid program enhancements.
With 24, 2021 Pds rate increases we continually we continue to actively pass through wage rate improvements to our caregivers.
We are already experiencing rate wins into 2022 and expect this trend to continue as we progress throughout the new year.
Turning to our cost of labor and gross margin metrics, we achieved $86 $7 million of gross margin or 26, 2% in Q4.
However, when adjusted for the approximately $11 million invested into the return to work caregiver program.
Our Q4 comparable gross margin would have been 29, 6%.
As this caregiver program was onetime investment in Q4, I expect Pds gross margins to remain in the 29% to 30% range moving forward.
Our spread per hour of $9 59 was also impacted by the return to work program.
On a comparable basis Q4 spread per hour would have been $10 81 down.
Down from its peak of $11 18 in Q3 of 2021.
As I mentioned during our Q3 call. We continue to pass through the rate increases in the form of strategic investments and caregiver wages to drive volume growth in our Pts segment.
Long term I still believe $10 to $10 50.
Is the ideal spread for our target balanced against a 3% to 4% year over year organic volume growth for our Pts segment.
As Tony mentioned, we closed on the accredited home care acquisition in December .
Our <unk> team is working through the integration plans and I am pleased with the progress we've made to date.
We expect to wrap up the credit integration and synergy capture by the end of Q2.
California continues to be a very important state to our Avianca story and the accredited business only further strengthens our position.
Moving on to our home health and Hospice segment for Q4, where we have continued to expand our geographic presence in Alabama, and Tennessee with our acquisition of comfort care I am pleased to share that we are moving efficiently through integration and the comfort care team has a simulated very well into our Avi on a family.
That business is performing in line with expectations and we expect to finish integration and the majority of synergy capture in Q2.
During the quarter, we produced $48 $7 million in revenue, a 181% increase over Q4 2020.
This growth was driven by 10500 total admissions approximately 67% being episodic and 11000 total episodes of care.
These volumes are in line with the Q4 seasonality of the home health business and reflect the impact of the <unk> variant in December .
Revenue per episode for Q4 was $2942 up one 7% from Q3.
On a current run rate basis, our home health and Hospice division is approaching $300 million in annualized revenue.
I am pleased with the organic growth rates of our home health and hospice business and believe it will remain a high single digit admission growth segment for Avianca.
From a cost and margin perspective, Q4 gross margins were 45, 9%, primarily driven by higher seasonal PTO usage and the temporary impact of the omicron variant in December .
2021 annual gross margins were 47, 2% and we believe there remains additional room for improvement.
We see the home health and hospice business segments ideal gross margins landing and a 48% to 50% range.
Lastly, we continue to ramp up our clinical innovation investments to support the value based purchasing efforts in home health.
We are well positioned for value based purchasing and look to benefit from its nationwide expansion in 2023.
Now onto our Avi on a medical solutions segment results for Q4.
During the quarter, we produced $34 $9 million of revenue.
Revenue was driven by approximately 77000 unique patients served UBS or revenue per <unk> of $453 39.
Revenue per <unk> was down approximately $10 or one 9%.
The primary driver of rate decline was the impact of the national intro contract, we signed effective September one 2021.
The longer term impact on rate per UBS should normalize in the 440 to $460 per UBS range.
Lastly from a volume perspective adjusted for the 13 week Q4, 2020 impact volumes for Q4 were flat year over year.
We're experiencing integral product.
Supply chain delays that have temporarily burdened our ability to fill orders.
In some cases, we have patients needing specialty <unk> products and the supplier doesn't have inventory available.
We see these supply chain issues as temporary in nature and are working with our distribution partners to immediately address them.
Turning to our cost of goods and gross margin metrics.
We continued to experience stability in gross margin was $15 $4 million in Q4 or 44, 1%.
Medical solutions 2021 gross margin of 44, 6% was in line with our expectations move.
Moving forward into 2022, we expect gross margins to remain in the 41% to 43% range.
As a result of the impact of the national payer contract mentioned above and pressures on supply chain product availability.
Finally, the demand for our enteral nutrition product and services continue to be very robust.
Our industry, leading clinical model and highly efficient distribution network.
It will allow us to weather the short term impact of the supply chain shortages.
We remain upbeat about the long term value that medical solutions provides and its positive growth impact to <unk> as a whole.
In summary, all three of our business segments have proven to be very resilient in a challenging environment.
I am proud of our disciplined approach to managing margins, while investing in additional caregiver wages.
The ASEAN team is dedicated to providing high quality and cost effective health care and our patients' homes, regardless of the short term market conditions homecare remains the number one choice of our patients families and referral sources and payers.
With that I'd like to turn the call over to Dave for additional color on 2021.
Yes.
Thanks, Jeff.
Tony and Jeff have provided some details on the fourth quarter and I'll go ahead and provide an overview of fiscal year 2021, as well as provide some cash flow debt and hedging details starting out with revenue 'twenty 'twenty. One revenue was $1 68 billion, an increase of $184 million or 12, 3% from 2020.
Our 2021 revenue growth was primarily attributable to a $146 million of growth in our home health and hospice segment as our 2020 Triple H M&A contribute a full year of revenue in 2021 as well as incremental partial year revenue provided by our 2021 Triple H M&A.
Our Pds and medical solutions segments also contributed incremental revenue of $28 million and $9 million, respectively to our 2021 revenue growth and as Tony and Jeff. Both mentioned fiscal year 2020 contains 53 weeks as compared to 52 weeks in 2021, which affects the comparability of our 2021 key performance measures.
<unk> thousand 20.
Now turning to gross margin our gross margin percentage increased to 32, 3% in 2021 from 34% in 2020. This was attributable to the significant growth in our Triple H business, which has a higher gross margin percentage than our pds business as well as a 50 basis point increase in our Pts gross margin percentage field.
Contribution margin also increased 30 basis points to 14, 6% in 2021 from 14, 3% in 2020.
As we think about fuel contribution recall that while triple H has higher gross margins relative to Pds. It also has higher branch and regional administrative expenses as a result, we would not expect to see the full amount of the increases in gross margin percentage flow through to fuel contribution margin.
Corporate expenses were seven 8% of revenue in 2021 as compared to seven 6% of revenue in 2020, primarily as a result of growth in our noncash share based compensation costs as further discussed in footnote <unk> to our financial statements and in our MD&A.
Adjusted corporate expenses, however decreased from five 5% of revenue in 2020% to 5% in 2021.
Principal adjustments from corporate expenses to adjusted corporate expenses in 2021 included integration costs and noncash share based compensation and can be found in the corresponding table in our press release.
I'd like to provide a little color on the goodwill impairment charge, we recorded in Q4.
Deserved a significant decline in our market capitalization over the course of 2021 to.
The continuing impact of COVID-19 on our business has pressured our clinical workforce and caregiver availability in our core pds businesses, thereby constraining pds volume growth and expectations.
As a result, we recorded a $117 7 million impairment charge in our Pts segment in the fourth quarter.
Moving on to net operating loss net loss and adjusted EBITDA.
Operating loss was $36 1 million for fiscal year 2021, as compared to $3 5 million in 2020, while operating loss was positively impacted by a $31 5 million increase in fuel contribution in 2021. The primary driver of the increase in operating loss was $42 million of incremental goodwill impairment charges that we took in 'twenty one versus 'twenty.
Net loss was $117 million in 2021 compared to $57 1 million in 2020.
There are a number of moving parts driving the increase in net loss, which you can see in our income statements with the primary drivers being the increase in operating loss I mentioned earlier as well as the absence of a 50 million legal settlement that we received in 2020.
As Tony mentioned earlier, we were pleased to report adjusted EBITDA of $184 2 million for fiscal year, 2021, and $31 8 million or 21% increase from 2020 and this represents an 11% adjusted EBITDA margin for 2021.
Turning to operating cash flow net cash used by operations was $11 4 million in 2021 bear in mind that this included $38 $1 million of cash repaid to government agencies in 2021 related to certain cares act items, including $25 9 million paid to the IRS for payroll taxes that we deferred in 2020 and 12.
2 million paid to CMS for advances received in 2020 I certain of the companies we acquired.
Over time, some of our analysts and investors have asked questions about how to think about GAAP operating cash flow in relation to adjusted EBITDA and I wanted to provide some color on that here.
When you think about our operating cash flow in relation to our adjusted EBITDA. There are a couple of significant drivers of variances between the two with the largest being cash paid for interest in 2021 cash paid for interest was $59 million.
And as a result of rising forward looking market expectations for interest rates in 'twenty two based on current leverage we expect the cash paid for interest will increase in 'twenty, two and be more significant in relation to our adjusted EBITDA.
Our M&A related costs also create a variance between adjusted EBITDA and operating cash flow M&A related costs include acquisition related costs and integration costs, both of which you can find in our adjusted EBITDA reconciliation in DNA and.
And which approximated $30 million in 2021, Covid related costs were $19 million in 2021, which can be which can also be found in our adjusted EBITDA reconciliation.
And one last item is the $38 1 million of cash we paid to government agencies in 'twenty one related to the cares act items that I mentioned, a moment ago. This caused in part working capital to drive a significant variance between adjusted EBITDA and operating cash flow in 'twenty one.
To finish up on this topic and overall hopefully this provides some useful color on some of the larger drivers of variances between adjusted EBITDA and operating cash flow I would also encourage you to review our statements of cash flows included in our audited financial statements as well as our adjusted EBITDA reconciliation in MD&A because the examples I provided here are not all inclusive, but again in <unk>.
Tended to provide useful reference points and color.
I'll now provide a credit facility and hedging update as a refresher after our IPO last April we used $407 million of the proceeds to fully repay our second lien term loan at the time and pay a 100 million down against our first lien term loans. Then in August 2021, we refinanced our first lien term loans into a single $860 million first lien term loan.
Bearing interest at LIBOR, plus 375% with a 50 basis point floor.
Then in Q4, we entered into a new $415 million second lien term loan to finance, our Q4 M&A for the reasons that Tony mentioned earlier.
The new second lien term loan bears interest at LIBOR, plus 7% also with a 50 basis point LIBOR floor.
In Q4, we also entered into a $150 million accounts receivable securitization facility.
In aggregate, we had $1 three 9 billion of outstanding variable rate debt as of year end we.
We do have two hedges in place against our debt. The first is a 520 million notional interest rate swap to convert $520 million of variable rate debt to fixed rate debt.
Wap expires in June 2026, we also have an 880 million notional interest rate cap, which caps our exposure to LIBOR increasing over 3%.
The interest rate cap expires in February 2027.
In summary, and as I wrap up here, our 2021 operating results underscore the resilience of the Avianca team amidst the challenging operating environment, our IPO and subsequent capital structure improvements have prepared us to take advantage of the opportunities ahead of us with liquidity that is supportive of our 2022 acquisition goals.
In addition, I'd like to say a big thank you to the entire Avianca team for supporting the timely completion of our audit and filing of our first 10-K as a public company.
Particular, our accounting revenue cycle finance and legal teams have moved mountains to make it all happen.
And our professional services.
Providers, including Ernst and young and Greenberg Traurig and provided exceptional service to Avi on in the process.
And with that operator, I think we're ready to open it up for questions.
Okay.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
Like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
In the interest of time, please limit yourself to one question and one follow up so we may get to everyone's questions.
Our first question comes from the line of Peter Chickering with Deutsche Bank. Please proceed with your question.
Hey, good morning, guys. So a lot to unpack here I guess on the Pts segment, what happens during the first quarter when the patients were unable to sort of be staffed in the first quarter or do they go back to the hospital. The did they live without care or did they go to another provider and how should we think about for that rebounding back when you stop is available.
So first of all thank you for your question Pedro.
And let me tell you what doesn't happen they they didn't leave and go to another provider.
Outside of that all of the above is probably true.
Some patients might have had to seek care in a hospital, if they're ventilator or trade dependent.
The most common answer is the family has to pick up that additional care. So so mom and dad are grandmother brothers and sisters, all have to chip in and pick that Kara.
And I think what I thought where you were his question was headed though that once those hours are lost there's really no way to go back and make up those hours and so to your point as the caregivers reengage or come back out of quarantine. Then we can begin staffing those hours I think we talked about in the prepared remarks.
We really kind of saw that bottom January and February we're we're pretty we're pretty dire months in terms of the impact of omicron.
And then in March we began seeing those caregivers reengage, but Jeff anything you want to add to that just just the fact that Peter like as Tony said, but this variant. It was it was really a seven to 10 day quarantine period. It was a rolling period, because it was exposing an and positive confirmations on so many different states and different commute.
But to Tony's point, we paid those caregivers as if they had worked in that period of time. They were gone, which is which is which was our policy along which did allow those caregivers to stay with US. This is a very transient group of PRN employees, we felt it was necessary to pay them to keep them hold to that process.
And so as as abrupt as it was at the.
The good the positive side of it was those nurses and caregivers did come back after the quarantine and I Echo Tonys Tony's comments, it's a tremendous burden placed on the parents on the family. They they have to be up with these pediatric children, sometimes 24 hours a day.
Hey, with them, while they're sleeping and so you can imagine a family and the pressure it puts on them, but we were pleased to be able to reengage. The the caregivers after the quarantine period was over.
Okay and then once you guys question I assume that there'd be a lot of questions around guidance today, but.
Sort of two parts. The first one can you sort of help me bridge.
Fourth quarter EBITDA would have been if all the deals are closed at the beginning of the quarter. Just you know as a launch pad in the first quarter I was estimating around $53 million. This is in the ballpark and the second one.
With the first quarter effectively closed you gave guidance on the first half a year, but can you be more specific about what.
A range of first quarter EBITDA is now will give us sort of the cadence in the rest of the year.
Okay.
Alright, well, let me see if I can take that kind of one piece at a time.
So if you think about if you think about Q4 with a full quarter impact of both accredited and comfort care. However.
However, let me let me caution you because we won't have realized all of the synergies that quickly in the comfort care and a credit to deal. So so remember that the synergies will roll loan.
As we move throughout.
Really the first half of 2022.
And Peter I wanted to be careful because we don't give we don't really provide quarterly guidance, but if you were to take our fourth quarter numbers and think that theres probably another.
Call It <unk>.
$6 million $6 million to $7 million of additional EBITDA associated with having the full year of <unk>.
A full quarter of a credit to income for care in place and then offset that by the impacts of omicron. So that's kind of how to think about fourth quarter moving into first quarter.
However for all the reasons, we've already talked about.
The omicron variant really impacted our business January February and you can really well you can really see it across all three segments. However, the most significant was private duty because that's where we got one nurse one patient and if that nurses not working revenue is not being generated so.
We think the impact of that in Q1 is going to be pretty significant I think in my prepared remarks.
Hi.
I painted a picture, where we could see revenues being off in total in the range of $30 million in Q1, and impacting EBITDA, which is really a gross margin number kind of in that 10% to 12.
But for those reasons.
Our full year outlook is reduced by the impact of what we're going to experience in Q1, and maybe bleeding into Q2, a little bit.
But that's the picture that we're trying to paint and and and.
We're actually giving more color than we would be accustomed to because when youre thinking about aviano being up.
I think the numbers, we used $215 million to $225 million EBITDA run rate company I think that's still the right way to think about our business. It's just we're going to have a different starting point because of the impact that the omicron had in Q1.
Yeah.
Our next question comes from the line of Sarah James with Barclays. Please proceed with your question.
Thank you.
I'm going to stick on the guidance.
Little bit.
You guys mentioned a couple of other moving pieces.
He says he's got a really strong rate increases coming through which generally tend to affect our can you talk about.
The cadence of rolling those out should we think about them being fully play into your hourly rate.
For the full year, starting in <unk> and then.
The supply chain issues that you flagged.
Guidance and do you think about it just being a <unk> this year.
So Jeff in a minute I'll. It why don't you answer the question about how we're thinking about the rate increases flowing through in 2022.
Sir because you're kind of pulling it that Q1 number let me remind everybody that in Q1, especially in private duty.
Everything is so labor intensive we typically see a higher payroll tax impact during the first quarter that really kind of writes itself in March and April .
So that's another thing that's going to pull on that first quarter a little bit.
I think some of our most recent increases.
<unk> actually seen in a portion or some of Q4, we will get to experience that in the full quarter, but as both Jeff and I mentioned in our prepared remarks, we're already seeing in some cases some of the same payers it put through rate increases in 2021 back at the table in discussions with 2022.
With that Jeff why don't you comment about how we think about those playing through throughout the course of the year, yes, Sir.
I think Tony you said it well we already have for rate increases that are in the books for this year. Those are those are had effective dates.
Q1, and Q2, we're already engaged with dozens of other states as they trend towards they're usually July one in September and October one.
Fiscal fiscal year, you'll begin and you are beginning dates so I think we'll see ourselves back in the mid probably mid teens high teens from rate wins and I think we've continued to evolve our strategy around.
Around increasing the benefit opportunities through home and community based services and we see a real opportunity to continue to do that this year I think as Tony mentioned.
Out of the burden has fallen on the families and.
The parents that are with these children every day and I think that we see in a couple of states that have embraced the parent being a a.
Lesser skilled worker and we are continuing to lobby for that acceptance in more states and we had one state dot that this year 2022. So I think we'll see more states adopt that family member, becoming a becoming a full time full time caregiver bars on the on the lesser skill or <unk>.
<unk>.
<unk>.
The second part of that was the supply chain for Ams.
So that really kind of built up over the over I'll call. It the last four months of last year as the supply chain as we saw the ships out in la Port some of those shifts have are integral specialty products and they are coming from Europe .
And we just saw that our distribution partners, where we're starting to run stand on inventory, especially on the specialty products not as much the generics, but the specialty products.
Many of our young young Kids Kids, you know kind of <unk>.
Zero to five age really really are on specialty formulas that are very specific to their disease state and so.
Getting those products and getting them back in the shelves. So we can distribute them was a big deal.
I do see light at the end of the tunnel on that I think as we look forward certainly Q1 continue to be pressure on the supply chain as it related to Ams supply and I think as we look out we see some of them some of the issues being solved in Q2, and then certainly by summer much of that inventory being resupplied. So that so that we can ship.
Every and any medic.
Medical solution into a product that is needed at the time of the patients needed.
Great.
Just one follow up here.
Can you help us understand are there any fee.
He'd enhancements have been part of a multiyear budget. So you have some go forward clarity and as we come to the end of that.
Like health emergency and the enhanced ethanol.
Back are you guys, having any discussions with states on their view.
This program funding.
Yes, that's a great question, Sarah I think I would answer both so.
Or maybe see all of the above we've got permanent right.
Looking backwards at the 24 of those we have permanent right.
Have temporary error rates that have continued to be temporary and moved into the future around the public health emergency and then lastly, I would say we're also seeing one time, one time payments. So states that are using the homecare home and community based services federal rewards as one time payment updates and so.
The thing that we're most focused on is long term rate. So we're most focused on moving the right long term to continue to attract nurses and I would say secondary to what I said before we are very focused at moving the benefit additional services, both both of skilled and unskilled services, but also as Tony mentioned.
We now have audience audiences with the largest Medicaid managed care providers in America talking about a different payment model and I think thats whats excites us. The most is they have come to us and said, let's come up with a different solution to where we can keep these kids out of the hospitals, keeping safe at home and truly reduced the total cost of care.
And that to US is is the exciting part of the future and Sara I'll, let I'll answer the other side of your question, though.
And maybe I interpreted it wrong.
If your question related to what is the risk of downside in the event that rate were to pull back I can tell you that.
And our view today, we don't have any rates that are pulling back our rate is only going to be where it is or positive from here for the foreseeable future.
Okay.
Thank you Sir.
Our next question comes from the line of a J Rice with credit Suisse. Please proceed with your question.
Oh, hi, everybody.
I just want to make sure I understand I know theres a lot in the first quarter going on for 22, but.
When you look at the rest of the year and I understand there may be a little spillover into the second quarter.
Your revenue growth assumption for the back half of the year, if you take out the contribution from acquisitions.
Have you changed your thinking about what the organic growth was I think we talked about this year because of labor.
Originally not being the 8% to 10% organic growth, but maybe being more in the mid single digits, but it almost looks like unless I'm doing the math wrong, which is possible.
You're now looking at something in the low single digits is that is that right can you give us a little more flavor on whats baked in acquisition versus organic.
As you come out of the Q1.
Yeah.
Nothing has changed in our thought process matter of fact, and I'll, even unpack it a little bit further we still think of that private duty business that core private duty business in the skilled side of that we're growing in that.
3%, 3% to 4% range in the unskilled side a private duty.
That business to all of the reasons, Jeff talked about we expect it to grow into high single digits.
Our Medicare home health and hospice business is going to grow in the high single digits are busy.
Business is going to grow in the high single digits and overall I think our growth rate. We still believe we will be in that five.
<unk>.
5% to 6% year over year organically.
And I think as you see us get through the end of 'twenty two we're assuming that those kind of growth rates are.
We will come back.
So I don't think our thoughts have changed at all I think maybe what you might be seeing as kind of a ramping back of the big dip that we're taking here in the first half of the year I think youre seeing some of the impact of ramping that back you know we have a little bit of seasonality that we have to contend with for Q3. So in general Q3 is usually one of our lower quarters. So.
You may be seeing that built in but I don't think our sentiment on the overall business has changed at all if anything I think we see that there's opportunity for upside on that our home health and hospice businesses is growing some of the creative and innovative things that Jeff talked about with some of our payers, where we're now are able to hire family.
Members to provide care and have better greater flexibility with staffing I think all of those things will go into accelerating growth rates.
Okay, and then maybe similar question on the Labor front I know a lot of moving parts.
In the fourth quarter, and the first quarter, but again as you move into the second and then definitely the second half what is your assumption about year to year.
Labor costs on whatever metric, you're you're looking at it for both our Pds business in the adult home business what.
Kind of a.
Increase are you assuming are baked into that guidance.
Well you.
You know I think the best way to think about that a J as in Jeff's prepared remarks, he referenced spread again and so instead of focusing on the margin, we will kind of focus on that spread and in states, where we see rate increases we will take those rate increases and in <unk>.
A very disciplined manner pass some of those wage rate increases along in wages to our caregivers and that in and of itself will help facilitate growth, but as <unk>.
As it relates to the spread we're going to be very disciplined about passing these rate increases through two two to caregivers in the form of wages, because we have to manage the gross margin in this business. Once the once you give up the gross margin you will never get it back and so it.
It takes at 30% gross margin for us to run that business and we'll be we'll be disciplined about it.
I guess, what I'm trying to to give you to paint a picture for you when we get a rate increase in our state.
And I'll, let Jeff comment on that we just don't say, okay, well, let's just give everybody an increase across the state.
It's market by market and sometimes patient by patient.
And a J as Tony said.
The rate increase is effective on one specific date for all patients that are certain.
The reimbursement model and then to Tony's point it takes us weeks since in many cases months to spread that wage right out and Thats why I think our spread we feel confident.
We'll still be in that probably north of $10 50 range, and Pds and <unk> and in Q1, and probably closer to $10 50 in Q2 on the adult side.
I think as we said in our prepared remarks, we still see room for gross margin improvement I think we're still we're still growing our systems and our our kpis for our home health and now our hospice business and.
We were in the 47% range at the end of last year for the full year and we see that.
Probably growing into the 48% to 49% range in 2000 22022, So I think there's still room for improvement on the HHS. So so Jeff I think the best demonstration of that not guys I'm doing this for all for memory, but if you go back to Q1 of 2020 I believe the spread was right at $10 50 in Q2, it went to 10.
<unk> and then in Q3, it jumped all the way to $11 18, and both on our Q2 call and on our Q3 call, Jeff we talked about having to pull that number back a little bit because at $11 18.
That's actually running a little bit hot so what youre seeing play through 2021 is exactly what we said would happen is that as these rate increases come through there is somewhat of a lag time between that and when you start passing.
<unk> down through wages.
And I think the spreads you have talked about today was just over $10 80, I think is a good demonstration of that putting some of those dollars back to work and we will continue to do that in a stair step function as these rates continued to improve throughout 2022.
Yeah.
Our next question comes from the line of Brian <unk> with <unk>.
Jefferies. Please proceed with your question.
Hey, good morning, guys, just shifting gears, a little bit I know, there's been a lot of discussion on gross margins, but as I look at your regional and corporate expenses.
Down sequentially, and even down year over year incorporate.
Just trying to figure out the durability of these levels and how youre thinking about gallium G&A growth going forward.
Well when.
When we do when we grow through acquisitions those are the areas, where we will get the most synergies and so as I made a comment while ago, we will begin to see the synergies associated with.
$200 million increase associated with accredited and comfort care, we'll begin to see those synergies flow through in the first half of the year. So.
So in terms of durability, we think we will be able to continue.
Two to control those expenses and leverage those expenses as the as the company grows now some some of that is attributable to.
Some insurance premiums and other things like managing through.
Crude and Cengage every single quarter, we true up incentives to where the business is operating that date. So all of those things will continue to play through.
But we think the leverage is quite sustainable at the SG&A line for corporate regional and area of expenses.
Got it and then Tony since we're on the topic of home nursing I know you said that.
Two acquisitions are performing at or above plan. So.
Any comments you can make in terms of what you're seeing in terms of like nurse.
The recruitment and the referral patterns that you're seeing coming out of the hospitals as you sorry digesting those two assets.
Yeah.
As it relates specifically I'm going to broaden your question as it relates specifically to those two assets their businesses are doing well.
We've not seen any slowdown or pullback from referral volumes or admissions or our staffed.
And so so those two businesses specifically are doing great.
Matter of fact, I will tell you the folks out of the accredited deal in California, that's been a pleasant surprise their volumes have not only held but improved and so we're really excited about both those transactions I'm going to expand your question a little bit and I think both Jeff made a comment about it and so did I the demand for our services has never been.
Higher we have especially on the private duty side, we have patients in hospitals waiting to come home.
Matter of fact, we referenced this in our most recent health care conference Theres not Theres, a Los Angeles Times article there is a Philadelphia Inquirer article Theres a Washington.
Article all around patients waiting to come home and the lack of access to care.
For home and community based care.
And we think this just creates a tremendous tailwind going forward.
That people have to recognize and investments need to be made into expanding home and community based care through some of the innovative things that Jeff talked about new let's pay let's pay caregivers, let's pay family members to keep these patients at home and I think we're well positioned to lead that innovation and we're pretty excited about it.
Our next question comes from the law.
Line of Matt Borsch with BMO capital markets. Please proceed with your question.
Alright got that.
How you expect.
Markets to shake out as we get through the second.
We would agree with your assumption that.
Let's all hope.
Yeah.
How do you.
Within that estimate that you would get.
And you'd constraints.
Okay.
Okay.
Okay.
Matthew Mr. Borsch your line is cutting in and out.
Yeah.
Matt.
Okay ma'am better.
Matt I'm, sorry, we couldn't eating out I could we couldn't hear your question.
Operator, I'll circle back.
Yeah, operator, I am sorry, Matt will be glad to if you can hear us we'll be glad to catch up with you in a little bit odd.
Operator, maybe we'll go to the next question, while I'm at North out as audio.
Our next question comes from the line of Joanne.
Check with Bank of America. Please proceed with your question.
Yes. Good morning. Thanks, so much for taking the question. So I guess the one the one question and one follow up so the one question in terms of the cash flow.
Obviously, you highlighted a couple of these different things that impact it.
Last year, so how should we think about.
Uh huh.
Outlook for this year going forward.
Joanna Thanks for your question and you know I think we have a good cash flow generation opportunity.
When you look at the net cash used of $11 million in 'twenty. One just recall that 38 million that I mentioned that we repaid related to cares act items on the deferred payroll taxes as well as the CMS is CMS advances so that 38 million weighed down.
Our cash used for operations in 2021.
And then yes.
I'd say when you think about the overall flux and cash flow year over year that change might jump out at you, but again consider some of the nonrecurring items that bridge.
Sorry that bring the change into perspective.
The biggest driver of the year over year change in cash flow was.
$47 million of cash provided in 2020 related to those social security taxes that we deferred as permitted by the cares Act and then in 'twenty, one we repaid $26 million of this to the IRS in the fourth quarter. So thats, a comparative usage of $73 million in operating cash year over year and the other significant item driving the flux was a 50 million legal settlement.
We received last year as we look out into 2022, we expect to generate positive operating cash flow bear in mind that we will pay another $25 million or so to the IRS in the fourth.
'twenty two.
Those are some of the larger moving parts in cash flow.
I direct you to our liquidity and capital resources section in the 10-K for some more insight on that.
Cause I guess now with that with additional debt.
But.
For the two deals that you closed in Q4, that's what I was getting at whether you expect to be you know positive operating cash flow.
We're doing it at a incremental interest expense and it sounds like you are you thinking it's going to be positive for the year.
That's right Joanna.
That's right I mean, we think we've got a good opportunity in front of us as Tony mentioned earlier, we're already servicing the spread on our delayed draw term loans. So any M&A that we drive that we secure with that delay draw will be.
Very accretive to operating cash flow.
Okay, and if I may just a follow up.
On that discussion PTC in terms of the the end of two acquired assets.
Because I guess PVC, where you talk about you know combine I guess, they were kind of running out of $40 million annualized EBITDA.
But you know it seems like you know I mean, there was some impact there too. So can you kind of frame for us whether this is still kind of the run rate for those two assets or you know how much.
Nowhere I guess, the rounding out because of what was happening in Q1. Thank you.
So yes.
The answer to your question is we don't we have not changed our thought process our outlook about these acquisitions at all.
We still believe that.
There are they're going to perform at or better than the model. We discussed before now with that said.
Neither a credit to ignore comfort care are immune to the impacts of omicron in Q1.
They are experiencing the same kind of staffing issues that we've described for the rest of our business.
With that said all of the impact inclusive of accredited and omicron, where in the numbers that I talked about where we felt like it was going to impact revenues by $30 million and EBITDA by 10 to 12 Oh.
That's inclusive of the impact that it would have with accredited and with comfort care hopefully that answers your question.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you operator and again, thank you guys for investing your time in learning about Avianca and being interested in our story as always.
We've tried to be as transparent as possible.
And we're also make ourselves available to anybody that needs to do some additional follow up please give us a call and let US know I hope you have a great day and thanks for your time.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.