Q1 2022 Aveanna Healthcare Holdings Inc Earnings Call

May 12, 2022

Good morning, and welcome to <unk> Holdings first quarter 2022 earnings Conference call.

Today's call is being recorded.

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 US today speaking on today's call are Rod Windley beyond as executive Chairman, Tony Strange Aviano's, Chief Executive Officer, and President David off Shar, I'll be honest, Chief Financial Officer, and Jeff Shaner, Avi honest Chief operating officer.

We issued our earnings press release and filed our 10-Q 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 May 19, 2022, we want to run.

<unk> anyone who may be listening to a replay of this call that all statements made are as of today may 12 2022.

Today's call May contain forward looking statements, which may be identified by the use of words, such as may could will 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 or revise any forward looking statements. Subsequent to the date made as a result of new information future events or changes in circumstances.

Also we supplement our financial results reported in accordance with GAAP. It was certain non-GAAP financial measures reconciliation of any non-GAAP measures mentioned during our call to the most comparable GAAP measure is available in our earnings press release and Form 10-Q, both of which are available on our website and the SEC's website, whereas 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 in the allotted time with that I'll 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 ASEAN as first quarter earnings call. This call marks the anniversary of our first full year of reporting as a public company.

On our call today, we'll provide you an oversight of our Q1 results, we'll provide a little insight into our M&A activity pipeline and integration and finally, we will provide some insight into the current trends both from a volume perspective, as well as the reimbursement environment.

Before we get into the details I'd like to once again say, thank you to all of the ASEAN employees in today's environment, you can choose to work wherever you. Like however, you continue to put the needs of our patients and their families first and for that we're grateful.

Let's turn toward our results revenues for the quarter were approximately $451 million compared to $417 million a year ago, which is an increase of approximately 8%. The increase was driven by the acquisitions of accredited and comfort care later in the fourth quarter and partially offset by the reduction.

<unk> and volume related to the spike in AUM across.

As we outlined on our last call we saw a spike in the number of employees that were out of work related to Covid that began in mid December and ran through early March.

Prior to December we were averaging between two and 300 employees sidelined on any given day that number spike to just under 3000 in January and February timeframe.

We estimate that this interruption cost us approximately $14 million to $15 million in lost revenue during the quarter.

As of today. This disruption is back down to pre omicron levels, and we expect revenues to rebound accordingly, notwithstanding any further disruptions due to additional COVID-19 variance.

However, the labor markets for caregivers, specifically for nursing continued to be disjointed dim.

Demand for services is at an all time high while capacity continues to be constrained.

I'll provide some more color around some of our plans to mitigate these ongoing labor shortages in just a minute.

Moving on to gross margins for the quarter.

Or 32, 1% an increase of 50 basis points from Q1 of 'twenty one.

Given the increased payroll tax burden of the first quarter, each year and the ongoing wage pressures I'm, especially proud of our operating teams discipline around protecting our gross margins.

Adjusted EBITDA for the quarter was $38 million compared to $43 7 million a year ago, the impact of the reduced volumes associated with the omicron bearing is approximately $5 million and adjusted EBITDA.

Total SG&A increased quarter over quarter was driven by the acquisitions of accredited and comfort care and once these synergies are realized our SG&A expenses are right in line with our expectations.

While revenues were in line with what we forecasted on our call in March the softness in volumes had a meaningful impact on Q1 results.

And we expect these revenues to normalize in Q2, and while gross margins remained strong and SG&A remains in line with expectations. We anticipate ongoing labor constraints to continue to be a headwind for revenue in the near term.

While we're on the topic of accredited and comfort care. The integrations of these two acquisitions are going very well.

We're on schedule and in many instances we are actually ahead of schedule with all aspects of integration.

We expect to be largely complete with the integration and all of the synergies realized by mid year 2022.

Neither business was immune from the impact of Omicron. However, both businesses are performing well and we will be highly accretive to the Aviano story a special thank you to the employees of accredited and comfort care as well as our integration management office team for all the heavy lifting that you've done to complete these integrations.

As far as future M&A is concern we stated on our last call that we would spend the first part of 2022 focused on integration, which we've done our pipeline remains robust robust and there are plenty of transactions to consider we will continue to remain disciplined in our approach to transactions focusing only.

On those deals where price consideration and synergies produced.

Accretion for our shareholders.

Our liquidity remains strong we have access to approximately $400 million between cash on hand, the delayed draw term loan and available revolver with very little covenant restrictions, coupled with our various rate interest rate hedges, where we are well protected from the downside risk associated with rising interest rates.

We're comfortable at our current leverage ratios. However, it is our desire to reduce leverage through accretive transactions and or the use of free operating cash flow to reduce debt Dave will provide some additional insight during his remarks.

I'd like to spend a few minutes on the overall reimbursement environment and its connectivity to the labor disruption and eventually to the creation of additional capacity.

But most of you have seen articles in the major news media outlets profiling, the lack of capacity mandating that patients stay in the hospital longer and even in some circumstances indefinitely.

Payers across the country recognized this trend and are also looking for solutions to facilitate safe discharged from the hospital into home or community based care.

The state of Arizona recently announced the approval of a program that would allow <unk> to pay family members to provide unskilled care that could be supplemental to other skill needs in an effort to create additional capacity to provide care in the home.

We're seeing this willingness to invest additional resources into keeping patients out of higher acuity settings and in the safety of their home environments across our platform.

In addition, we continue to have productive discussions with our payer partners around the shortage of caregivers and the impact that inflation is having on our ability to meet the demand of their beneficiaries, resulting in continued rate improvements across our business and.

In addition, there are several states that are in mid legislative sessions that are pending legislation that would further enhance reimbursement in an effort to increase capacity.

The overarching thesis is that home care is a value added in the health care equation and additional resources are needed to expand access to care.

Before I turn the call over to Jeff for a deeper dive into our operating metrics I'd like to spend a minute discussing our outlook for the full year 2022.

On March 29, we provided full year 2022 guidance of revenues between $1.890 billion and $1 billion $920 million and adjusted EBITDA between $190 million and $205 million.

In the roughly 42 days since that guidance, we haven't fully closed on an additional month.

Other than the updates provided in my remarks, Theres really no additional information that we can provide we believe that the rationale behind behind our full year guidance remains sound as you recall, we provided color around our forecast that indicated that the first half of 2022 would be difficult due to the headwinds of <unk>.

Ron and ongoing labor constraints.

We also provided our thoughts around ongoing rate improvements throughout the year that would allow us to continue to invest in wages, which will provide lift in the second half of the year.

In summary, our results are in line with our expectations that we laid out in March the immediate threat and the impact of the Omicron variant has subsided and volumes are returning to pre <unk> levels on the other hand, the labor markets are challenging and will continue to present headwinds to our volumes and overall growth for the near.

Term.

State Medicaid systems as well as Medicaid <unk> recognized this as an issue and are willing to come to the table in a partnership to address the capacity concern give.

Given the challenging environment I'm proud of our results and the tenacity of our team to continue to fight on behalf of our patients and families fellow employees and ultimately our shareholders.

We're proud to be a part of the I'll be honest story with that I'm going to hand, the call over to Jeff for further insights into our operating metrics, Jeff. Thank you Tony.

Spend a few minutes talking through our recent labor and employment trends before I dive into our Q1 operating indicators.

On the labor front, we have stabilized our core caregiver recruitment and retention effort trends.

<unk> was very disruptive to our workforce in Q1, but I'm pleased to say, it's now behind us.

With a fully vaccinated rate approaching 99%.

Are better prepared for future variance and our ability to work through them without significant disruption disruption that omicron cause.

Caregiver wages continue to be the number one driver of new and continued employment for our nurses the increased.

Competition from hospitals and travel agencies had targeted our pool of qualified nurses.

Thankfully, our improved reimbursement rates in many states allow us to be competitive with the cost of hiring and retaining nurses and.

In some states we are aggressively lobbying for improved reimbursement rates as the cost of nursing wages has outpaced the Medicaid private duty nursing rates.

Our nurses tell us that they want to work in home care and love working with a one on one patient setting in the home.

We are focused on ensuring our caregivers can continue to provide the skilled care and earn an appropriate wage and supplemental benefits at aviano.

Now onto the private duty services segment results for Q1.

We produced $352 million of revenue during the quarter revenue was.

Was driven by approximately $9 6 million hours of care or a six 3% sequential improvement over Q4 of 2021.

The improvement in hours was driven by the accredited home care acquisition balanced against the impact of Omicron.

Our Q1 revenue per hour of $36 43.

It was up $1 three from Q1 of 2021 or 3%.

We continue to experience rate improvements in 2022, and I'm proud to say, we already have seven rate increases year to date in our Pts segment.

As many of our state legislators are currently in session, we expect more rate increases and Medicaid benefit expansion throughout 2022.

As recently announced we applaud the Arizona Medicaid system for its licensed health aid LHE program expansion the.

The important program supports family caregivers with appropriate compensation for the unskilled care being provided to a loved one.

The Arizona Lecce program is in addition to the skilled nursing care being provided by a nurse.

Working together and Avi and a nurse and a family caregiver create the appropriate environment for medically fragile children and adults to remain in the lowest cost setting.

Alright, the lowest cost and preferred setting their home.

We are identifying we identifying and actively lobbying additional states for la <unk> like programs to support our families.

We believe this additional level of unskilled care by a loved one can supplement the core skilled services that avina provides and buffer against the current difficult labor markets.

I look forward to updating you on this continued progress in future calls.

Turning to our cost of labor and gross margin metrics, we achieved $98 3 million of gross margin of 28, 1%.

Our wage rate of $26 20, sorry, $26 20 per hour reflects the commitment we've made to passing through a rate wins to our caregivers.

As Q1 has our highest payroll taxes impact I expect gross margins for pds to settle in and the 29% to 30% range.

Our Q1 spread per hour was $10 23 in line with our expectations and within our ideal range of $10 to $10 50.

As Tony mentioned, we have largely completed our accredited home care acquisition in California.

I'm very pleased with the business trends and our <unk> team has once again done a great job integrating the business into our <unk> family.

Now moving on to our home health and Hospice segment for Q1, and staying with the integration team I am pleased to share that we are largely complete with the integration of comfort care.

We are proud of the density of home health and hospice services comfort care delivered to Avianca in both Alabama and Tennessee.

The comfort care acquisition demonstrates our commitment to acquiring high quality assets that complement our geographic expansion plans.

During the quarter, we produced $66 6 million in revenue a 37% increase over Q4 of 2021.

The biggest driver of revenue growth what was the impact of a full quarter of comfort care offset by labor pressures associated with Amazon.

Q1 revenue was driven by 14300 total admissions.

Approximately 61% being episodic and 13800 total episodes of care.

While our episodic admission mix was down slightly we are focused on maintaining this this rate in the 60% to 65% range.

I am pleased with our admission volumes in both home health and hospice and our team's ability to fight through a difficult Q1 labor market.

Revenue per episode for the quarter was $2898 down one 5% from Q4.

This shift reflects the impact of our comfort care episodic patient base.

From a cost and margin perspective, Q1 gross margins were 48, 7% up 280 basis points sequentially from Q4.

Gross margin improvement was driven by less PTO utilization better overtime controls and less dependency on contract labor.

Home health visits per episode and cost per visits are in line with our expectations and give us great confidence that we can manage the home health segment gross margins in the 48% to 50% range.

Lastly.

We are proud to announce that we have fully transitioned our home health and hospice business segment to the homecare Homebase operating system.

From day, one at Aviano, we made the decision to invest in the best in class systems to support our mission.

I am proud of the home health <unk> home health and hospice team.

Our <unk> system's team and our partners at Homecare Homebase that have made this key initiative a reality.

I look forward to giving more insight into our home health and hospice.

Business segment as we move forward.

Now to our ASEAN medical solutions segment results for Q1.

During the quarter, we produced $33 $7 million of revenue.

Revenue was driven by approximately 78000 unique patients served and revenue per UBS of $432 32.

Revenue revenue per <unk> was down sequentially, approximately $21 or four 6%.

The primary drivers of rate decline were the continued impact of the national contract. We signed in September of 2021, and the Abbott recall impact on our internal supply chain.

In February the FDA shutdown, Abbott's Sturgis, Michigan plant, which is the main producer.

The <unk> product.

This event created a supply chain shortage with our suppliers and for families to make urgent decisions on infant nutrition.

Our RV and the team has worked tirelessly to identify solutions and to get products to our patients.

We view this disruption is temporary in nature and believe the <unk> suppliers will rebound by mid summer.

Yes.

Turning to our cost of goods and gross margin metrics, we achieved $14 1 million and gross margin dollars or 41, 7%.

The decline in gross margin was primarily driven by the above mentioned items.

I continue to expect gross margins to stabilize in the second half of 2022, and the 41% to 43% range.

While these disruptions are unfortunate I am confident in the improved efficiencies. We have gained in the back office and our ability to grow the medical solutions business moving forward.

We achieved record patient admissions and unique patients served in March and April due to our team's focus on finding solutions for our families in need.

We expect these growth trends to continue as the near term supply chain issues begin to ease.

In summary.

We continue to fight through a difficult labor and supply chain environment, while keeping our patients care at the center of everything we do.

We will continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve core volumes on.

On the bright side, we continue to see incredible demand for our services along with strong support from our state legislatures and Payors.

In the form of rate improvements.

I'm proud of our Aviano team.

Our resilience and tenacity to continue the care for our patients and their families is inspiring.

With that I'd like to turn the call over today for additional color on Q1, Dave. Thanks, Jeff I'll go ahead and provide a summary of the first quarter results first quarter 2022 revenue was $451 million, an increase of $33 million or 8% from the first quarter of 'twenty. One our Q1 revenue was comprised of $350 million of Pds.

<unk> revenue were 78% of total revenue.

Home Health and Hospice segment revenue was $67 million were 15% of total revenue.

Our medical solutions segment contributed $34 million of revenue in the first quarter were 8% of total revenue.

For care and accredited acquisitions in Q4 drove revenue growth in the first quarter of 2022.

And combined with the Doctor's choice acquisition in April 2021 drove our overall, 8% revenue growth in Q1, 'twenty two from the year ago quarter.

Home Health and Hospice segment revenue increased $35 1 million in the first quarter of 2022 compared to the first quarter of 2021, and Pts segment revenue was flat over the comparable periods. While the acquisition of accredited contributed incremental Pds revenue in the first quarter. The omicron variant pressured our pds clinical workforce constraining caregiver recruitment.

And retention and negatively impacting pds patient volumes.

Medical solutions segment revenue was down slightly decreasing by 3% over Q1 comparable quarters.

Now turning to gross margin our gross margin percentage increased 50 basis points to 32, 1% in the first quarter of 'twenty two from 31, 6% in the year ago quarter. This was attributable to the revenue growth in the home health and hospice business, which has a higher gross margin percentage than our Pds business net of decreases in gross margin percentages in our Pts and medical.

<unk> segments.

Fuel contribution margin decreased to 12, 4% in the first quarter of 'twenty two from 14, 9% in the first quarter of 'twenty one.

Corporate expenses were eight 1% of revenue in the first quarter of 2022 as compared to six 6% of revenue in the first quarter of 2021, primarily as a result of growth in our noncash share based compensation costs as further discussed in footnote nine to our financial statements and in our MD&A.

In addition, we incurred incremental compensation and benefits costs necessary to support our public company infrastructure as.

As well as to support the integration process for the companies we acquire.

And then also incremental professional services associated with those integration activities.

Adjusted corporate expenses were five 2% of revenue for the first quarter of 'twenty, two as compared to four 7% of revenue in the first quarter of 'twenty one the principal adjustments from corporate expenses to adjusted corporate expenses and integration costs and noncash share based compensation and can be found in the corresponding table in our press release.

Moving on to operating income net income and adjusted EBITDA operating income was $13 8 million for the first quarter of 2022 as compared to $28 3 million in the first quarter of 'twenty one in.

In addition to the $6 $2 million decrease in fuel contribution the $9 2 million increase in corporate expenses and the $1 $7 million decrease in acquisition related costs.

This drove a $14 5 million overall decrease in operating income over the comparable first quarter periods.

Net income was $25 3 million in the first quarter of 'twenty, two compared to $5 8 million in the first quarter of 2021. The primary drivers of the increase were $14 5 million decrease in operating income and a $38 3 million noncash gain recorded in other income related to a material increase in valuation of our interest rate swap and cap during.

The first quarter of 2022.

Significant valuation gains resulted from accelerated market expectations of future increases in interest rates during the first quarter of 2022.

Adjusted EBITDA was $38 million or eight 4% of revenue for the first quarter of 2022 as compared to $43 7 million or 10, 5% of revenue for the first quarter of 2021.

Adjusted EBITDA benefited from $3 $1 million of American rescue plan. After recovery funds received during the first quarter of 2022.

Turning to operating cash flow.

<unk> used by operating activities was $9 5 million for the first quarter of 'twenty two a decrease of $23 4 million from net cash used of $32 9 million in the first quarter of 2021. The decrease in net cash used was due to a number of items outlined in the liquidity and capital resources section of our 10-Q, the most significant of which was $21 million in relative higher paint.

That's against accounts payable and accrued liabilities in the first quarter of 2021 compared to the first quarter of 2022 net of a decrease in operating income in the first quarter of 'twenty two compared to 21.

And also net of changes and significant non cash items that affect operating income and share based comp.

When you think about our operating cash flow in relation to our adjusted EBITDA for the first quarter of 2022, the most significant drivers of variances between the two include.

Cash paid for interest.

M&A related costs, which include acquisition related costs and integration costs, both of which you can find in our adjusted EBITDA reconciliation in the MD&A.

Covid related costs, which can also be found in our adjusted EBITDA reconciliation and a net usage of cash for working capital related items, which can be found on our statement of cash flows in the section titled changes in operating assets and liabilities.

I'll now provide an update on liquidity credit facilities and hedging.

As of April two 2022, we had cash of $17 4 million with the following liquidity available under our credit facilities of $182 $4 million of available borrowing capacity under our revolving credit facility $10 million of availability under our securitization facility and $200 million of availability under our delayed draw term loan facility.

<unk> for future acquisitions.

With respect to our cash collections and DSO, we collected $428 million against our revenue of $451 million. During the first quarter of 2022, and our DSO was $46 five days. The primary driver of the sequential increase from $44 nine days in Q4 of 2021 was associated with our home health and hospice business.

I'd like to congratulate our revenue cycle and field teams on as they work with the annual re validation of third party insurance and the Pds business, which typically occurs in the first quarter of each year and requires a significant amount of preparation and execution.

Each year, we continue to improve our processes in this area and our teams performed well on it in the first quarter of 'twenty two.

Turning to our credit facilities are outstanding debt approximated $1 4 billion as of April two 2020 to the components of which can be found in our indebtedness table and liquidity and capital resources section of the 10-Q or.

Our interest rate exposure under our credit facilities was hedged with the following instruments 520 million notional amount of interest rate swaps that variable rate debt to fixed rate.

880 million notional amount of interest rate caps to cap our exposure to LIBOR at 3%.

Submarine as I wrap up here I am proud of the resilience of the team as we work together to build this great company, our people and culture are what makes us special.

Confident that the <unk> on our platform and infrastructure is primed for growth once we navigate through the current labor market headwinds.

Respect to the interest rate environment, we've taken proactive steps to reduce our exposure to these pressures by implementing interest rate hedges that reduce our exposure exposure to rising rates.

And we continue to benefit from our strong liquidity position that is supportive of our strategic initiatives.

And with that operator, I think we're ready to open it up for questions.

Thank you very much.

Ladies and gentlemen, we will now be.

I'll be conducting the question and answer session.

If you would like to ask a question. Please press Star then one on your telephone keypad.

Consultation will indicate your line is in Q.

Please press Star and then two if you would like.

From the queue.

All participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key.

We also to keep it to one question and one follow up when these when we poll for questions.

Our first question is from Matt Borsch of BMO capital markets. Please go ahead.

No. Thank you can you just give us a sense.

We are maybe the composition of your guidance, particularly on the revenue side.

Change is based on the trends that you've now seen.

In the first quarter and coming into the second quarter as well I mean.

In terms of the growth.

As you are seeing and expecting.

In home health and hospice versus.

Versus private duty.

So Matt Thats a good question.

I think when we think about our guidance, let me I'll make a couple of defensive questions comments. One we don't provide segment guidance and two we don't really provide quarterly guidance, but with that said I think this most of the softness that we've talked about in the first half of the year is really.

More attributable to private duty and it's primarily driven by the constraint the labor constraints with the caregivers as well as the impact of omicron.

I think I think our home health business, while they are not immune from some of the labor constraints.

We've been talking about I believe.

It is less impacted by some of the labor issues that we have out there.

With the nurses, so I would probably answer your question with more heavily weighted toward <unk>.

Toward private duty from a labor constraint perspective, I think omicron the impact of <unk> was across all of our businesses are both home health and private duty, but more of the labor constraints on the private duty side as it relates to color around our guidance and I think when we on March 29, I think we laid it out we saw.

Said that most of the omicron variant impact would be Q1 with a little bit of residual in Q2. However.

The labor constraint issue wasn't going to go away when omicron went away and I think that we still believe that that will play itself out.

But in my remarks, as well as in Jeff's remarks, one of the things that we're seeing Jeff made a comment about the 7% rate increases that we've seen so far and the ongoing discussions with different MCR and payers and then legislative sessions that are contemplating rate increases.

We continue to see a very positive rate environment for the foreseeable future and while we can't while we can't talk about the timing of what rate comes in when.

The remainder of 2022, I believe will be a positive rate environment with rate changes happening each and every quarter and as those rate changes happen, we will immediately be able to take those dollars and reinvest it into wages.

And when we invest those dollars into wages one of the things. We then know that volume will improve matter of fact.

What im about to say is all public information.

The state of Pennsylvania put through a rate increase for these services that was effective in January .

<unk> 2022.

And there was a meaningful rate increase I think if you go and read read their press releases, it's 10, 11% rate increases.

And as we see that flow through we actually saw volumes hold their own.

During the quarter, even when the rest of the world was going down with <unk>. So we do know that.

That volume will follow right and Thats, what gives us confidence in that.

The remainder of 2022 that that will.

We'll continue to be able to improve volume based on as we push through these rate increases hopefully and all of that I answered your question Matt.

Well you certainly did thank you for all that detail.

I'll, let you go to the next analyst.

Thanks, Matt.

Thank you Sir the next question is from Julian and good luck.

Think of America. Please go ahead.

Hi, good morning, Thanks for taking the questions. So first I guess in the press release.

Any concern that you mentioned.

At $3 1 million.

Funding you received this quarter under the American West Coast plant.

Yes.

In March so the question is.

This included in the guidance did you contemplate its funding coming through.

Yes.

Julien This is Jeff I think I'll start with <unk>.

We see funds.

The federal government say Mega program said that we consider ARPA related funds.

Throughout 2021, you are correct. We received we received ARPA funds in Q1, we expect to receive the funds in Q2 Q3 and Q4. It is contemplated in how we think about the year, but I'll tell you Julien we receive ARPA funds in numerous different ways. We received a temporary error rate increases permanent rate increases like with the $1.

Tony just talked about in Pennsylvania.

Well as we do receive.

Temporary lump sum amounts that are meant an intended to pass right through to the caregiver.

So I think as we think of that all all things right are certainly being supported and driven by the.

The federal support of the Medicaid programs, and I think as Tony said, it well and whether it's or whether it's a permanent rate in Pennsylvania or its a temporary rate in north Carolina or it's a onetime pass through amount in one of our states all of which is intended to support the realignment of caregivers to wages and I think that's that's what.

You saw in Q1, and I think I think we will continue to see that in Q2 and beyond so Jeff would you agree with this.

In Pennsylvania the rate increase we just talked about more than likely those funds are also derived through our funds theyre just coming through the state of Pennsylvania in the form of rate change. So I agree with the way Jeff laid it out Joanna that when we think about ARPA funds. Those are just additional rate.

I'm reminded of another rate increase in 'twenty I think it was 2021.

Our late 2020, we had a rate increase in North Carolina that was a quote unquote temporary rate increase that is now as just as a permanent rate increase as well. So we do we.

We have rate movement, all the time, both in ARPA funds through temporary rate increases permit rate increases. It is at least in our mind. It's all built into our guidance as it relates to positive rate change.

And to answer that.

Go ahead Sir.

And to Tony's point end to end the intention of that right is that they would be pass through to the caregivers in some form or fashion do help realign caregivers and that is what we have done and continue to do.

No that totally makes sense. So okay. So I guess you been contemplating that's funding and I guess, you've been talking about the expectation for better rates throughout the year.

When we spoke last time at the end of March. So then when I think about the follow up question.

So when I was thinking about that the rate the pn.

Average rate.

To our.

We should use that Q1 right at the starting point because in the shallows back okay, because we have to.

Exclude that $3 million, but it sounds like there's going to be additional funding coming through in the following quarters anyway. So I guess is that the way to think about it that 36 40 something.

In the quarter is that kind of starting point out in growth from there. Thank you.

It's a great question Julian I think the one thing that we would point out in the quarter as it does now have the impact of the accredited acquisition and as we've said that the credit business was primarily.

Lesser skill or unskilled type type business business mix of primarily that that business mix. So I think the 36 30 is more driven on that accredited volume now being a part of our story, but but I think the answer is yes, we will continue to see reimbursement rate increase throughout the throughout the rest of 2022.

We also expect to see wage rate increases throughout the rest of 2022 and then net of all of that is we expect our spread per hour for the Pts segment to remain in that 'twenty, sorry, sorry that $10 25, $10 50 range as we move throughout the rest of the quarters, but yes, I think youre thinking about that correct.

Thank you.

Thank you very much.

Next question is from Peter Chickering Deutsche.

Please go ahead.

Hey, good morning, guys. Thanks, taking my questions just sort of back to the labor markets question can you give us an update in terms of what youre seeing in terms of active nurses and recruitment in both home health and Pds and April and May.

Yes, Peter I think I think Tony Tony said, it well I'm going to use that Pennsylvania example, as is.

Where we can continue to move the reimbursement rates to remain competitive we have found that we are able to both retain and reengage or hire new nurses.

And as we think of the efforts that are going on in April May June leading up to July versus a pretty big date for most state legislature's, we're really focused on the states, where we think the rate has has the reimbursement rate has kind of fallen behind the current market for for nurses in the private duty services side.

Men.

I think as we talk in August we'll be we will be reporting <unk>.

Very positive news on additional rate increases in those states that were necessary to really reengage nurses at the level that we expect.

I think I think we've been able to demonstrate that our lobbying efforts both individually and collectively as a as an industry has been able to move states.

That may have fallen behind kind of the current wage environment from for caregivers as I said in my prepared remarks wage is the absolute number one driving decision cultures, great engagements, great, but wage is the decision and so for us to be able to get the wage rate at the necessary level two to engage caregivers we've.

Got to continue to engage the legislatures and payers and I think as Tony mentioned, we have found that audience to be continually receptive to this conversation so and Peter. This my next my comments are going to be more color around that and this is just my opinion I think I think a year or two years ago I think I think mission was equally.

<unk> I think nurses.

Greater to the places where they felt connected to our mission and I think that was always on our side I think I think the job that we have to offer is a very.

Compelling job with a compelling mission.

And it's a desirable job for nurses. However, I think with this with this new inflation trend. We have I think mission has taken more of a back seat and folks are chasing wage and until we are until we can.

Be in the same place with wages hospitals and surgery centers and skilled nursing facilities I think we're going to be operating at a disadvantage, but for all the reasons, Jeff just laid out I think we're I think we're well on our way to.

We will be able to compete in those environments as well and then when we do then I believe mission will climb back in the front seat and I think we're going to be just fine from that perspective and that all of that gives us confidence in my comments about we think that as the year progresses, we'll be in a better better spot from a wage perspective.

Dave.

So just sort of go back into there I understand that it is rate increases their positive, Pennsylvania as an example in the wage greatest critical to this but as you look your portfolio as a whole today.

How is the active nurse percentage right now and recruitment going or are you just completely dependent upon July 1st rate increases to get things back to normal levels.

I use July one is only as an example of many of our state legislatures effective date is June 30 and from July one.

No no <unk> I think I think let me step back and just say in our home health and hospice business segment, where we are employing fulltime benefited caregivers, we whether the omicron.

Storm much better.

Turnover rates and our retention rates are right in line with what we expect our our reliance on contract labor and overtime has subsided appropriately. So I think I think where we where we can employ a fulltime benefited caregiver.

And with the addition of technology like we mentioned homecare Homebase full rollout and the use of Metalogic amused as better predictive index indicators were better able to allocate our staff in the home health and hospice segment as it relates to our Pts segment and week to week fighting in this business.

Tony My comments.

We are we are held based on the rate that we're able to negotiate with our with our state legislators and our payers and again I think I would tell you.

And we've been talking sequentially the last three or four quarters. We continue to have a very very positive rate discussions with our payers and with our legislators.

We are held to the time at which that they've made their decisions and they make their decisions through their annual budgeting process and so I expect Q2 to be a great outcome for us as it relates to rate and as we've done.

Consistently we will continue to pass that incremental right through to our caregivers to recruit and retain more <unk>.

You didn't ask the question this way, but I'm going to use it as an opportunity to answer we were asked the other day about well why wouldn't you. Just go ahead and pass the wage through now and then let the rate catch up.

That way you can go ahead and fuel your growth the problem fit in our private duty business is that once that wage goes in it's never coming back out and so in the event that we were to push out.

Significant amount of wage through bring our gross margins down significantly we may.

And then the rate is different than we anticipated, we will never be able to pull that back so.

I give our operating team a lot of kudos for being disciplined and passing that weights through as rate materializes and I think that served us well in the past. It certainly has slowed growth down but on the other hand is protected margins in the meantime, so.

That'll be the way, we will proceeds alright, thanks, so much.

Okay.

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

Please please go ahead.

Good morning, guys.

I guess my first question Tony Since you mentioned that Q1 was essentially in line with what you guys are expecting internally, maybe if you can share with us any color on how we should be thinking about in the second quarter. Just so we can avoid currently missing versus street.

First of all tissue.

Well, so so Brian I'll try you know I'm going to stop short of we don't provide we don't provide quarterly guidance our guidance, while we did try to provide color between first half and second half.

Really don't provide.

Quarterly guidance per se.

I think the way that the street is thinking about it today is not not all of that off.

I think I think we will continue to have headwinds related to.

Two two wage pressure.

In the second quarter, we've seen we've seen the impact that that's had on volume and I think that will continue now Jeff made the point, while we don't want to we're not talking about any one player or any one state a lot of our state agencies have a June 30 fiscal year end and so forth.

<unk> are unfortunately, a lot of those rate changes will end up happening.

At the end of June , which wont benefit Q2.

So I would tell you that I don't I think that Q2 will continue to be a challenge no different than we said to you on March 29, we said that Q1, and Q2 would be more challenging than the second half of the year.

Got.

In terms of giving you a number that we think that for Q2 I don't I don't think we're ready to do that.

I appreciate that until I understand I guess my second question as I think about the P&L and where the shortfall was versus the street it looks more in the home health side.

And also regional expenses came in a decent bit higher so maybe just anything you can share with us in terms of what.

What happened in the home health side of the business and just any thoughts on how much you can bring them or if you can bring regional expenses down on a dollar basis going forward.

Yes, it's a great question Steph, Yes, I think I think.

Part of the reason, we announced the completion of the homecare Homebase rollout today was because that has been a.

Distraction for that team and the headwinds that team over the last seven months, we started that implementation in September of last year. We've we've rolled for companies for acquired companies onto that platform.

Been around long enough and covered enough of us that is a major major major lift.

We're going to continue to get some of the synergy realization from that system.

I mean, Q2 and Q4 this year.

But really getting getting our home health and hospice division to be on one platform one set of systems.

We're able to report that at a much much deeper level and to be able to respond accordingly.

We knew what we wanted to achieve in our home health and hospice business today, we acquired five points almost two years ago and part of this was the realization of that so we do think we'll continue to see.

Gross margin improvement.

As I mentioned in my comments, but we also we also believe we'll see continued field.

<unk> contribution even though we don't report that segment or individually, we expect to see continued profitability improvements in that business due to all the things I just mentioned and I think I think we're well positioned for that at this point.

Yes.

Got it thank you.

Thanks, Brian .

Thank you.

Our next question is from Sarah James of Barclays. Please go ahead.

Thank you.

So it sounds like you guys are.

Guy, but maybe there could be some movement.

I found it.

Make sure if I'm understanding this right last quarter, you talked about there potentially being.

The $30 million of Covid impact in <unk> and it sounds like today, you're talking more about 14 to 15 and then.

Last quarter, you talked about the rate increases coming into play in lung cancer and it sounded like today.

Yeah, I guess you're right.

Do I have that changes right.

Is that imply some movement within the range.

So gosh I'm going to try to try to pull that apart.

Going back to the guidance I don't think I don't think our thoughts around our full year guidance has changed at all and so.

<unk>.

We talked about the guidance being one point.

Eight 9 billion, two 1 billion $9 20 in revenue.

And I don't think we've changed our thoughts around that at all specifically about your comments or the comments we made in March about the impact of Covid in omni chron.

I think and I'd have to go back and look at my notes from that call, but I think the reference was the overall impact which would have been some of them. Some in Q4 and some in Q1 and then a smaller portion of Covid in Q.

In Q2, so I think the overall impact.

Across all of that.

<unk> would have been kind of that 30 youre right.

What we talked about in Q1 was kind of being in that $14 million to $15 million revenue number for Q1, but notwithstanding any of that I don't think any of that changes. The way. We are looking about the whole year based on what we know today.

Okay.

Great.

Are they coming in.

Or are being implemented.

What's your expectation now is that this was more of a.

Thank you and then.

No I mean, I think I think they're going to come in throughout the year I mean, Jeff made the comment about mid year and my comment earlier about the.

A lot of states are on the June 30 fiscal year end so.

Definition, a lot of them come in mid year, but no Jeff made the comment throughout the year, we've had seven different rate increases and we don't we anticipate that trend to continue throughout the year.

By the time, we're getting into well into Q3, I mean, I think we'll be in the mid teens to high teens again talking about.

Other year and last year, we had 24 rate increases that was a record that was that was certainly driven by by Covid and some of the federal funds that were in play in 2021, but I think it will be in that same.

15 to 17 to 18 range by the time, we get to September and October we do have some states that are also are September and October fiscal year to date. So I think we will.

We're very pleased with the seven year to date through the end of April and I think it will be.

Great shape mid year, and very well by the time, we end Q3.

Great.

And last question could you just update us on how the rollout is going.

What you said workday do you mean workday, our homecare homebase.

The workday that allows you to.

Okay.

Your inflation.

Yes.

Okay.

It's gone great Sara.

It's almost like an ATM machine that people get to work by the <unk>.

Theyre givers have taken it in groves and run with it.

I can't remember the exact count, but we have thousands and thousands of caregivers.

We're in the tune of three to 4000 caregivers that utilize it on any given week as you know we pay we pay all of our Pds caregivers weekly.

And the carriers have loved it and they have enjoyed it those who need it and want it have access to it.

Those who don't.

Are fine, but it's been a great a great value added in pretty quickly it went from being being something new and shiny too just being something that was being utilized.

Every week by by thousands of CAGR. So it's been a nice Nice addition to our to our toolbox, if you will of recruitment retention tools, but.

Other than that it's gone great.

Thanks for asking.

Thank you. The next question is from a J Rice from credit Suisse. Please go ahead.

Hi, everybody.

Maybe just going back to.

This.

Programs Rolling out in Arizona.

Obviously, you said it could be something that could be a template for other states.

It sounds like if I understand it a little bit about how it would help me on the private duty side, but it sounds like you also think it helps on the adult side is it somehow allow you to leverage.

Would a nurse.

Getting reimbursed for the Medicare level can do to just allow.

Patients that might otherwise have to be institutionalized to stay home.

How does it help you on the adult side.

Yes.

A J I would think of it in the private duty services segment, 100% of this is in the private duty services segment. Some of the age of the patients will be adult age, but think of it not as not as home health hospice, intermittent but think of it as private duty services.

But as you said it is new hours. It is it is the same same patients that were already carrying for on the nursing side and the private duty nursing side that are receiving skilled either our LPN RN hours and now they are being now new hours are being granted.

Obviously cared for by either their parents or their loved one or their immediate neighbors.

In support of the nurse's activities.

The template AJ came out of Colorado, and we've been doing this program in Colorado for over five years now it's been very very successful.

We think that that template not only not only will be adopted by by Arizona, but but numerous states. We are in conversations with numerous states to adopt a similar model.

Which again is additive to in nature.

Not subtracting from that too, but it certainly as unskilled in nature and in the Pds Rome.

Okay and my follow up question was going to ask you about the competitive landscape I think in your prepared remarks, you said you are.

Deal pipeline remains robust.

Our.

Mom and pop regional.

Providers are they dealing with.

The labor challenges that you're describing in pretty much. The same way is there any reason to think that youre doing better and therefore.

Might be looking to.

To partner have you seen anyone drop out of the market because they just can't get the staff at a reasonable rate to continue.

Continue to serve our patients.

So it's an insightful question, a J and I'm going to divide your question between that of home health and hospice versus that of private duty and I think in the home health and hospice space I think the answer is no.

However, they are not immune from the.

The nursing shortage specifically.

And we see home health and hospice companies that.

That are struggling for staffing, but it is certainly not to the level of it.

Throwing in the towel.

But they have reduced volumes and such a matter of fact, many of the deals that we look at Rod will come back and report that they've got this.

Covid adjustment in there.

They are adjusting saying well if it weren't for Covid. This would be my normal run rate and.

So I think they are suffering in the same way now own the private duty side.

The staffing issues and the labor pressures are meaningful and so companies that don't have size and scale to do things that Jeff and.

Jeff and Sarah we're just talking about daily pay and that being just one of the tools with companies that don't have the ability to to try to do those things to attract caregivers. It is a difficult difficult environment. We have seen a couple of private duty companies come to the table and say, we just can't do this anymore.

So I think it creates opportunity, but but as I said in my comment.

We're being very disciplined about that we understand where we're trading and what it takes for a deal to be accretive to us and our shareholders. So we're being very disciplined about the approach to M&A and but we're going to continue to grow at the same time.

Okay, just maybe clarify that is.

So if someone says that we can't do this anymore on the private duty side do you have to buy them out or can you just assume their patients or if they can't make it youre, probably not going to be able to cover those patients how do we think about that.

I wouldn't think about I wouldn't think about Theyre just closing the door and then when I said that maybe I'll clarify that it's just getting harder and harder to get nurses and to be able to run this business in an effective way and size and scale really does matter and.

And especially density and when you have when you are trying to staff 10 patients in a market.

And the 10 patients or 20 miles apart versus staffing 100 patients in a market where they are where they are four and five miles apart.

That makes it easier from on the private duty side, but the private duty business is a difficult business right now.

And we've done some internal work understanding our caregiver population of what they like and don't like and why they leave why they are not working as much and quite frankly, we're getting some really meaningful information back.

The nurses that like the private duty business really like the work.

Like the mission they like the work.

I'm very proud they like our orientation, they like how easy it is.

To work with us they like they like the leadership.

It really is about wage within fleet with them paying $4 $5 a gallon for gas.

And groceries are what they are they have to go where they can make more money.

Matter of fact, the most.

And I'm going to go out on a limb here the most encouraging thing I've heard from the work that we've done with our caregiver.

They would really right to come back to work, it's just they can't do it for less money.

Right. So okay. We know how do we know how to go get the caregiver, we see a clear line of sight of what it's going to take to get the caregivers to reengage and private duty and it's more money.

Right.

Okay. Thanks, a lot thanks.

Jay.

Thank you. The next question is from Ben Hendrix of RBC capital markets. Please go ahead.

Thanks, guys, just a really quick follow up on the home health side kind of with comfort care.

Almost nearly integrated with the homecare Homebase rollout done I just wanted to get an idea of what kind of efficiencies you can expect to gain from margin perspective.

In that segment.

Maybe color on visits per episode and how Thats trended and kind of where that can go now that you've got homecare homebase metalogic amused up and running.

Yes.

It's a great question and I think in my prepared remarks, we said that we still see some room for gross margin improvement we are running right in that 48, and a half pushing 49%.

We still think that we still think there is.

There is about another point point and a half left there.

For improvement and then I'll just say.

Homecare Homebase to it takes a little bit time to get fully digested and I think it's the reason why we really haven't spent a lot of time talking about it over the last few quarters as we were digesting it.

We've just added Metalogic Sam use to our both our home health in our hospice business. We've enjoyed the partnership getting those guys in.

I think as as homecare Homebase settles in as we're as we're able to get one set of reports for all of our home health hospice businesses.

One of the things that we all know about homecare Homebase is just they've got the best data they've got the best reporting.

And the best action actionable items.

I think all of US believe that we can continue to get more cost efficiencies out of the home health and hospice side of the business now that we are on that platform. So.

And just get a better insight as you said, whether it's cost per visit whether its visit per episode, whether its case next whether it is just putting the right nurse and the right home at the right time I think the most.

I'm most excited about is the ability for Rob and I to manage the business on a go forward basis, knowing that we've got the best data and so I think obviously you hear excitement in our voices, it's been it's been a.

Stem almost 10 months since we signed the contract and started to.

Implementation process with homecare Homebase, so we're glad to be on the other side of it and I'm glad to be focus now just on driving the efficiencies.

Great. Thanks, guys. Thanks.

Thanks, Ed.

Thank you. Our last question is from John Ransom of Raymond James. Please go ahead.

Yes.

Hey.

Just to kind of tag onto the.

Labor and money.

The first question.

You have just sort of a range of.

Do you expect to get.

Half of the year.

Sure.

A range of.

I think John the bed.

Best way I can answer that question is if you go back to March 29.

We said on that call that we would expect EBITDA on the second half of the year to be on a run rate kind of back in that.

I think the number we used was $2 15 to $2 20.

In the two to 20 range or so on a run rate basis.

You know.

In order for that to happen, we have to have nurses reengage I don't think we've talked specifically about what that number might look like but we've got to get more nurses in the workforce in order for those numbers to come true.

What I mean about that is lets say youre getting paid $100 on average from all your states do you think a 5% rate increases on the card.

Hi.

You said you have seven update I'm, just trying to think about your pricing kind of had a baseline year pricing expectation.

Realizing we don't have all the detail yes.

I understand your question better now, Jeff why don't you chime in but the answer to your question no. John it's not it's not one or 2% market basket update kind of pricing. It is meaningful price change, but why don't you give some color around that Jeff John a couple of our biggest states.

Two of our biggest five states.

Are in their final legislative process and have a July July one effective date. So in those two states, we have meaningful meaningful talking north of north of 15%, 20% moves.

The movement in the reimbursement rate on the table.

The legislative process and with the full intention that we would move.

We would move wage rates in the five or $6 an hour type type ranges in those market. So thats the kind of movement, we're talking about negotiating well in Pennsylvania would be a great example, in Pennsylvania, just raise their rates. So 11, 11% at the beginning of this year. So.

That's a great data point that shows you the kind of magnitude we're talking about.

So if we were to think about this.

So, let's just use dollar because that might be less confusing. So let's say you got a.

$6 an hour increase.

Are you just having a turnaround right around $6 back to the nurse. So there's really no more earnings total pass through or can we think about that that you keep your kind of historical margin and there is a little bit for the company for most of the guest was back from the near term.

I think the way Youre thinking about it is is correct I think our margins actually hold or even even we could even expand a little bit but most of that most of the rate increase outside the margin would go directly to the caregiver.

And I will say John .

It's going faster.

<unk>.

Okay.

10% increase in gross profit dollars.

I'll do the math, but something like that so there is no.

Okay I got you.

Yes.

Blow up.

John and I am sorry, yes.

Connection is a little tough, but John I, just wanted to be clear, we're not thinking of rate increase as it relates to we're going to drive margins North gross margins, Jeff made the comment kind of when they settle out there'll be that 29.

9% to 30% in the private duty business, we're not thinking of rate increases taking that number to 31 or 32%, we will take all everything but the margin and push it back down to the caregiver.

Yes.

So the margin stays the same the dollars are higher and you've got some G&A leverage that's the way to think about it.

And growth, we get growth and G&A.

Yes, alright.

Your question is obviously the numbers haven't been what we all wanted.

Do we have any debt covenant step up.

And the next year or two that you would care to flag.

No from a maintenance covenant perspective, we just have a first lien leverage covenant at seven six turns a credit adjusted EBITDA. So we have a fair amount of room there.

And that would only be if were in a compliance period, where we have roughly a third or more drawn on our revolver.

Just based on that ratio, we've got we've got a fair amount of room.

Okay.

That's it for me thank you.

John .

Yes.

Thank you very much.

Further questions at this time I would like you to floor back to Mr. Tony Strange with some closing comments.

Thank you. Thank you operator, and we really do appreciate all of your time. This morning, and appreciate your interest in Aviano as always we'll make ourselves available to the extent that anybody needs to do some additional follow up we'd be glad to spend time with you individually with that we look forward to updating you after Q2 and have a great day. Thank you.

Okay.

Thank you very much.

Ladies and gentlemen that concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your put suspension.

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Good morning, and welcome to <unk> Holdings first quarter 2022 earnings Conference call.

Today's call is being recorded.

Located one hour for prepared remarks, and Q&A at this time I'd like to turn the conference over to Shannon Drake of yen as 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 ASEAN as executive Chairman, Tony Strange Aviano's, Chief Executive Officer, and President David off Shar, I'll be honest, Chief Financial Officer, and Jeff Shaner, ASEAN as Chief operating Officer, we issued our earnings press release.

Lease and filed our 10-Q yesterday. These documents are available on the Investor Relations section of our website at Ww Dot <unk> dot com as well as on the SEC's website at Www SEC Gov.

Replay of this call will be available until May 19, 2022, we want to remind anyone who may be listening to a replay of this call that all statements made are as of today may 12 2022.

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 <unk>.

Also we supplement our financial results reported in accordance with GAAP and with certain non-GAAP financial measures. A reconciliation of any non-GAAP measures mentioned during our call to the most comparable GAAP measure is available in our earnings press release and Form 10-Q, both of which are available on our website and the SEC's website, whereas otherwise available.

Separately on our website.

Thank you Shannon and good morning, everyone. Thank you for joining <unk> first quarter earnings call. This call marks the anniversary of our first full year of reporting as a public company.

On our call today, we will provide you an oversight of our Q1 results, we'll provide a little insight into our M&A activity pipeline and integration and finally, we will provide some insight into the current trends both from a volume perspective, as well as the reimbursement environment.

<unk> and volume related to the spike in <unk>.

As we outlined on our last call we saw a spike in the number of employees that were out of work related to Covid that began in mid December and ran through early March.

Prior to December we were averaging between two and 300 employees sidelined on any given day that number spike to just under 3000 in January and February timeframe.

We estimate that this interruption cost us approximately $14 million to $15 million in lost revenue during the quarter.

As of today. This disruption is back down to pre omicron levels, and we expect revenues to rebound accordingly, notwithstanding any further disruptions due to additional COVID-19 variance.

However, the labor markets for caregivers, specifically for nursing continued to be disjointed dim.

Demand for services is at an all time high while capacity continues to be constrained.

Ill provide some more color around some of our plans to mitigate these ongoing labor shortages just a minute.

Moving on to gross margins for the quarter.

Or 32, 1% an increase of 50 basis points from Q1 of 'twenty one.

Given the increased payroll tax burden of the first quarter, each year and the ongoing wage pressures I'm, especially proud of our operating teams discipline around protecting our gross margins.

Adjusted EBITDA for the quarter was $38 million compared to $43 7 million a year ago, the impact of the reduced volumes associated with the <unk> variant is approximately $5 million and adjusted EBITDA.

While revenues were in line with what we forecasted on our call in March the softness in volumes had a meaningful impact on Q1 results.

While we're on the topic of accredited and comfort care. The integrations of these two acquisitions are going very well.

We're on schedule and in many instances we are actually ahead of schedule with all aspects of integration.

We expect to be largely complete with the integration and all of the synergies realized by mid year 2022.

Neither business was immune from the impact of Omicron. However, both businesses are performing well and will be highly accretive to the Aviano story a special thank you to the employees of accredited and comfort care as well as our integration management office team for all the heavy lifting that you've done to complete these integrations.

On those deals where price consideration and synergies produced.

Accretion for our shareholders.

We're comfortable at our current leverage ratios. However, it's our desire to reduce leverage through accretive transactions and or the use of free operating cash flow to reduce debt Dave will provide some additional insight during his remarks.

I'd like to spend a few minutes on the overall reimbursement environment and its connectivity to the labor disruption and eventually to the creation of additional capacity.

Most of you have seen articles in the major news media outlets profiling, the lack of capacity mandating that patients stay in the hospital longer and even in some circumstances indefinitely.

Payers across the country recognized this trend and are also looking for solutions to facilitate safe discharged from the hospital into home or community based care.

The state of Arizona recently announced the approval of a program that would allow <unk> to pay family members to provide unskilled care that could be supplemental to other skilled needs in an effort to create additional capacity to provide care in the home.

We're seeing this willingness to invest additional resources into keeping patients out of higher acuity settings and in the safety of their home environments across our platform.

In addition, there are several states that are in mid legislative sessions that are pending legislation that would further enhance reimbursement in an effort to increase capacity.

The overarching thesis is that home care is a value added in the healthcare equation and additional resources are needed to expand access to care.

Before I turn the call over to Jeff for a deeper dive into our operating metrics I'd like to spend a minute discussing our outlook for the full year 2022.

On March 29, we provided full year 2022 guidance of revenues between $1 billion, and $890 million and $1 billion $920 million and adjusted EBITDA between $190 million and $205 million.

In the roughly 42 days since that guidance, we haven't fully closed an additional month other.

Other than the updates provided in my remarks, Theres really no additional information that we can provide we believe that the rationale behind behind our full year guidance remains sound as you recall, we provided color around our forecast indicated that the first half of 2022 would be difficult due to the headwinds of <unk>.

Ron and ongoing labor constraints.

We also provided our thoughts around ongoing rate improvements throughout the year that would allow us to continue to invest in wages, which will provide lift in the second half of the year.

In summary, our results are in line with our expectations that we laid out in March the immediate threat and the impact of the Omicron variant has subsided and volumes are returning to pre omicron levels on the other hand, the labor markets are challenging and will continue to present headwinds to our volumes and overall growth for the near.

Term.

State Medicaid systems as well as Medicaid <unk> recognized this as an issue and are willing to come to the table in a partnership to address the capacity concern give.

Given the challenging environment I'm proud of our results and the tenacity of our team to continue to fight on behalf of our patients and families fellow employees and ultimately our shareholders.

We're proud to be a part of the Aviano story with that I'm going to hand, the call over to Jeff for further insights into our operating metrics, Jeff. Thank you Tony I'll.

I'll spend a few minutes talking through our recent labor and employment trends before I dive into our Q1 operating indicators.

On the labor front, we have stabilized our core caregiver recruitment and retention effort trends.

<unk> was very disruptive to our workforce in Q1, but I am pleased to say, it's now behind us.

With a fully vaccinated rate approaching 99%.

We are better prepared for future variance and our ability to work through them without significant disruption disruption that <unk> cause.

Caregiver wages continue to be the number one driver of new and continued employment for our nurses the.

The increased competition from hospitals and travel agencies have targeted our pool of qualified nurses.

Thankfully, our improved reimbursement rates in many states allow us to be competitive with the cost of hiring and retaining nurses.

In some states we are aggressively lobbying for improved reimbursement rates as the cost of nursing wages has outpaced the Medicaid private duty nursing rates.

Our nurses tell us that they want to work in home care and love working with a one on one patient setting in the home.

We are focused on ensuring our caregivers can continue to provide the skilled care and earn an appropriate wage and supplemental benefits at aviano.

Now onto the private duty services segment results for Q1, we produced $352 million of revenue during the quarter.

Revenue was driven by approximately $9 6 million hours of care or a six 3% sequential improvement over Q4 of 2021.

The improvement in hours was driven by the accredited home care acquisition balanced against the impact of Omicron.

Our Q1 revenue per hour of $36 43.

It was up $1 three from Q1 of 2021 or 3%.

We continue to experience rate improvements in 2022, and I'm proud to say, we already have seven rate increases year to date in our Pts segment.

As many of our state legislators are currently in session, we expect more rate increases and Medicaid benefit expansion throughout 2022.

As recently announced we applaud the Arizona Medicaid system for its licensed health aid law program expansion.

Important program supports family caregivers with appropriate compensation for the unskilled care being provided to a loved one.

The Arizona Lecce program is in addition to the skilled nursing care being provided by navigate a nurse.

Working together and Avi and a nurse and a family caregiver create the appropriate environment for medically fragile children and adults to remain in the lowest cost setting.

Alright, the lowest cost and preferred setting their home.

We identify and we're identifying and actively lobbying additional states for la <unk> light programs to support our families.

We believe this additional level of unskilled care by our level one can supplement the core skilled services that <unk> provides and buffer against the current difficult labor markets.

Look forward to updating you on this continued progress in future calls.

Turning to our cost of labor and gross margin metrics, we achieved $98 3 million of gross margin of 28, 1%.

Our wage rate of $26 20.

Sorry, $26 20 per hour reflects the commitment we've made to passing through a rate wins to our caregivers.

As Q1 has our highest payroll taxes impact I expect gross margins for pds to settle in and the 29% to 30% range.

Our Q1 spread per hour was $10 23 in line with our expectations and within our ideal range of $10 to $10 50.

As Tony mentioned, we have largely completed our accredited home care acquisition in California.

I am very pleased with the business trends and our <unk> team has once again done a great job integrating the business into our Aviano family.

Now moving on to our home health and Hospice segment for Q1, and staying with the integration team I am pleased to share that we are largely complete with the integration of comfort care.

We are proud of the density of home health and hospice services comfort care delivered to Avianca in both Alabama and Tennessee.

Comfort care acquisition demonstrates our commitment to acquiring high quality assets that complement our geographic expansion plans.

During the quarter, we produced $66 6 million in revenue a 37% increase over Q4 of 2021.

The biggest driver of revenue growth was the impact of a full quarter of comfort care offset by labor pressures associated with Amazon.

Q1 revenue was driven by 14300 total emissions.

Approximately 61% being episodic and 13800 total episodes of care.

While our episodic admission mix was down slightly we are focused on maintaining this this rate in the 60% to 65% range.

I am pleased with our admission volumes in both home health and hospice and our team's ability to fight through a difficult Q1 labor market.

Revenue per episode for the quarter was $2898 down one 5% from Q4.

This shift reflects the impact of our comfort care episodic patient base.

From a cost and margin perspective, Q1 gross margins were 48, 7% up 280 basis points sequentially from Q4 <unk>.

Margin improvement was driven by less PTO utilization better overtime controls and less dependency on contract labor.

Home health visits per episode and cost per visits are in line with our expectations and give us great confidence that we can manage the home health segment gross margins in the 48% to 50% range.

Lastly.

We are proud to announce that we have fully transitioned our home health and hospice business segment to the homecare Homebase operating system.

From day, one at Avianca, we made the decision to invest in the best in class systems to support our mission.

I am proud of the home health <unk> home health and hospice team.

Our <unk> system's team and our partners at Homecare Homebase that had made this key initiative a reality.

I look forward to giving more insight into our home health and hospice.

Business segment as we move forward.

Now to our Avi on a medical solution segment results for Q1.

During the quarter, we produced $33 $7 million of revenue.

Revenue was driven by approximately 78000 unique patients served and revenue per UBS of $432 32.

Revenue revenue per <unk> was down sequentially, approximately $21 or four 6%.

The primary drivers of rate decline were the continued impact of the national contract. We signed in September of 2021, and the Abbott recall impact on our internal supply chain.

In February the FDA shutdown, Abbott's Sturgis, Michigan plant, which is the main producer.

The <unk> product.

This event created a supply chain shortage with our suppliers enforced families to make urgent decisions on interim nutrition.

Our RV on the team has worked tirelessly to identify solutions and to get products to our patients.

We view this disruption is temporary in nature and believe the <unk> suppliers will rebound by mid summer.

Yes.

Turning to our cost of goods and gross margin metrics, we achieved $14 1 million and gross margin dollars or 41, 7%.

The decline in gross margin was primarily driven by the above mentioned items.

I continue to expect gross margins to stabilize in the second half of 2022, and the <unk>, 41% to 43% range.

While these disruptions are unfortunate I am confident in the improved efficiencies. We have gained in the back office and our ability to grow the medical solutions business moving forward.

We achieved record patient admissions and unique patients served in March and April due to our team's focus on finding solutions for our families in need.

We expect these growth trends to continue as the near term supply chain issues begin to ease.

In summary, we continue to fight through a difficult labor and supply chain environment, while keeping our patients care at the center of everything we do.

We will continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve core volumes on.

The bright side, we continue to see incredible demand for our services along with strong support from our state legislatures and Payors.

In the form of rate improvements.

I'm proud of our Avianca team your resilience and tenacity to continue to care for our patients and their families is inspiring.

<unk> revenue were 78% of total revenue.

Home Health and Hospice segment revenue was $67 million were 15% of total revenue.

Our medical solutions segment contributed $34 million of revenue in the first quarter or 8% of total revenue.

For care and accredited acquisitions in Q4 drove revenue growth in the first quarter of 2022 and combined with the Doctor's choice acquisition in April 2021 drove our overall, 8% revenue growth in Q1, 'twenty two from the year ago quarter.

Home Health and Hospice segment revenue increased $35 1 million in the first quarter of 2022 compared to the first quarter of 2021, and Pts segment revenue was flat over the comparable periods. While the acquisition of accredited contributed incremental Pds revenue in the first quarter. The Homochrome variant pressured our pds clinical workforce constraining caregiver recruitment.

On retention and negatively impacting pds patient volumes.

Medical solutions segment revenue was down slightly decreasing by 3% over Q1 comparable quarters.

<unk> segments.

Fuel contribution margin decreased to 12, 4% in the first quarter of 'twenty two from 14, 9% in the first quarter of 'twenty one.

In addition, we incurred incremental compensation and benefits costs necessary to support our public company infrastructure as.

As well as to support the integration process for the companies we acquire.

And then also incremental professional services associated with those integration activities adjust.

<unk> costs and noncash share based compensation and can be found in the corresponding table in our press release.

Moving on to operating income net income and adjusted EBITDA operating income was $13 8 million for the first quarter of 2022 as compared to $28 3 million in the first quarter of 'twenty one.

In addition to the $6 2 million decrease in fuel contribution the $9 2 million increase in corporate expenses and the $1 $7 million decrease in acquisition related costs.

This drove a $14 $5 million overall decrease in operating income over the comparable first quarter periods.

Net income was $25 3 million in the first quarter of 'twenty, two compared to $5 8 million in the first quarter of 2021. The primary drivers of the increase were the $14 5 million decrease in operating income and a $38 3 million noncash gain recorded in other income related to a material increase in valuation of our interest rate swap and cap during <unk>.

The first quarter of 2022.

Significant valuation gains resulted from accelerated market expectations of future increases in interest rates during the first quarter of 2022.

Adjusted EBITDA was $38 million or eight 4% of revenue for the first quarter of 2022 as compared to $43 7 million or 10, 5% of revenue for the first quarter of 2021.

Adjusted EBITDA benefited from $3 $1 million of American Rescue Plan Act recovery funds received during the first quarter of 2022.

Turning to operating cash flow.

Cash used by operating activities was $9 5 million for the first quarter of 'twenty two a decrease of $23 4 million from net cash used of $32 9 million in the first quarter of 2021. The decrease in net cash used was due to a number of items outlined in our liquidity and capital resources section of our 10-Q, the most significant of which was $21 million in relative higher pay.

<unk> against accounts payable and accrued liabilities in the first quarter of 2021 compared to the first quarter of 2022 net of a decrease in operating income in the first quarter of <unk> 22, compared to 21 and also net of changes and significant non cash items that affect operating income share based comp.

When you think about our operating cash flow in relation to our adjusted EBITDA for the first quarter of 2022, the most significant drivers of variances between the two include.

Cash paid for interest.

M&A related costs, which include acquisition related costs and integration costs, both of which you can find on our adjusted EBITDA reconciliation in MD&A.

<unk> related costs, which can also be found in our adjusted EBITDA reconciliation and a net usage of cash for working capital related items, which can be found on our statement of cash flows in the section titled changes in operating assets and liabilities.

I'll now provide an update on liquidity credit facilities and hedging.

As of April two 2022, we had cash of $17 4 million with the following liquidity available under our credit facilities.

<unk> hundred $82 $4 million of available borrowing capacity under our revolving credit facility $10 million of availability under our securitization facility and $200 million of availability under our delayed draw term loan facility for future acquisitions.

With respect to our cash collections and DSO, we collected $428 million against our revenue of $451 million during the first quarter of 2022, and our DSO was $46 five days.

Mary driver of the sequential increase from $44 nine days in Q4 of 2021 was associated with our home health and hospice business.

One of them I would like to congratulate our revenue cycle and field teams on as they work with the annual re validation of third party insurance and the Pds business, which typically occurs in the first quarter of each year and requires a significant amount of preparation and execution. Each year, we continue to improve our processes in this area and our teams performed well on it in the first quarter of 'twenty two.

Turning to our credit facilities are outstanding debt approximated $1 4 billion as of April two 2020 to the components of which can be found on our indebtedness table and liquidity and capital resources section of the 10-Q.

Our interest rate exposure under our credit facilities was hedged with the following instruments 520 million notional amount of interest rate swaps for variable rate debt to fixed rate.

880 million notional amount of interest rate caps to cap, our exposure to LIBOR plus 3%.

Submarine as I wrap up here I am proud of the resilience of the team as we work together to build this great company, our people and culture are what makes us special.

Confident that the <unk> on our platform and infrastructure is primed for growth once we navigate through the current labor market headwinds.

With respect to the interest rate environment, we've taken proactive steps to reduce our exposure to these pressures by implementing interest rate hedges that reduce our exposure exposure to rising rates.

And we'll continue to benefit from our strong liquidity position that is supportive of our strategic initiatives.

With that operator, I think we're ready to open it up for questions.

Thank you very much.

Hudson Jane Smith will now be.

Be conducting the question and answer session.

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

Consultation will indicate your line is in Q.

Pretty stark.

I would like to remove your.

From the queue.

So participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key.

We also to keep it to one question and one follow.

When these when we pull for questions.

Our first question is from Matt Borsch of BMO capital markets. Please go ahead.

Can you just give us a sense.

Where maybe the composition of your guidance, particularly on the revenue side needed changes based on the trends that you've now seen.

In the first quarter and coming into the second quarter as well I mean.

In terms of the growth.

As you are seeing and expecting.

In home health and hospice versus.

Versus private duty.

So Matt Thats a good question.

More attributable to private duty and it's primarily driven by the constraint the labor constraints with the caregivers as well as the impact of Omicron I think I think our home health business, while they are not immune from some of the labor constraints that we have.

Been talking about I believe.

There is less impacted by some of the labor issues that we have out there.

With the nurses so.

I'd probably answer your question with more heavily weighted toward.

Toward private duty from a labor constraint perspective, I think omicron the impact of <unk> was across all of our businesses, both home health and private duty, but more of the labor constraints on the private duty side as it relates to color around our guidance and I think when we on March 29, I think we laid it out well.

<unk> said that most of the omicron variant impact would be Q1 with a little bit of residual in Q2. However.

The labor constraint issue wasn't going to go away when omicron went away and I think that we still believe that that will play itself out.

We continue to see a very positive rate environment for the foreseeable future and while we can't while we can't talk about the timing of what rate comes in when.

And when we invest those dollars into wages one of the things. We then know that volume will improve matter of fact.

What im about to say is all public information.

The state of Pennsylvania put through a rate increase for these services that was effective in January .

<unk> 2022, and there was a meaningful rate increase I think if you go in.

Their press releases, it's 10, 11% rate increases and as we see that flow through we actually saw volumes hold their own.

During the quarter, even when the rest of the world was going down with omicron. So we do know that that volume will follow right and Thats what gives us confidence in that.

And the remainder of 2020 to that.

We will continue to be able to improve volume based on as we push through rate increases hopefully and all of that I answered your question Matt.

Well you certainly get thank you for all that detail.

I'll, let you go to the next analyst.

Thanks, Matt.

Thank you Sir the next question is from Julian and good luck.

Think of America. Please go ahead.

Hi, good morning, Thanks for taking the questions. So first I guess in the press release Thats really.

You mentioned that.

$3 1 million.

Funding you received this quarter.

American West Coast plant.

I guess does that mean.

In March so the question is.

This included in the guidance did you contemplate its funding coming through.

Yes.

Yes, Julien this is Jeff and I think I'll start with <unk>.

We received funds from the federal government state Medicaid programs that we consider ARPA related funds.

Tony just talked about in Pennsylvania.

Well as we do receive.

Temporary lump sum amounts that are meant an intended to pass right through to the caregiver.

So I think as we think of that all all things rates are certainly being supported and driven by the.

The federal support of the Medicaid programs, and I think as Tony said, it well and whether it's or whether it's a permanent rate in Pennsylvania or its a temporary rate in north Carolina or it's a onetime pass through amount on one of our states all of which is intended to support the realignment of caregivers to wages and I think that's that's what.

You saw in Q1, and I think I think we will continue to see that in Q2 and beyond so Jeff would you agree with this.

In Pennsylvania the rate increase we just talked about more than likely those funds are also derived through ARPA funds. They are just coming through the state of Pennsylvania in the form of rate change. So I agree with the way Jeff laid it out Joanna that when we think about ARPA funds. Those are just additional rate.

I'm reminded of another rate increase in 'twenty I think it was 2021.

Our late 2020, we had a rate increase in North Carolina that was a quote unquote temporary rate increase that is now as just as a permanent rate increase as well. So we do we.

We have rate movement, all the time, both in ARPA funds through temporary rate increases permit rate increases.

Is it at least in our mind, it's all built into our guidance as it relates to positive rate change.

Okay.

Go ahead Sir.

And to Tony's point, and and the intention of that right is that they would be pass through to the caregivers in some form or fashion do help realign caregivers and that is what we have done and continue to do.

No that totally makes sense. So okay. So I guess you have been contemplating thats funding and I guess, you've been talking about the expectation for better rates throughout the year.

When we spoke last time at the end of March. So then when I think about the follow up question.

So when I'm thinking about that the rate the pn.

Average rate.

Our.

We should use that Q1 right at the starting Ponca city, Michelle it's like Okay. We have to exclude that $3 million that sounds like there's going to be additional funding coming through in the following quarters anyway. So I guess is that the way to think about it that 36 40 something.

In the quarter is that kind of starting point out and grow from there. Thank you.

It's a great question, Joe and I think the one thing that we would point out in the quarter as it does now have the impact of the accredited acquisition and as we've said that the credit business was primarily.

<unk> skill or unskilled type type business business mix of primarily that that business mix. So I think the $36 30 is more driven on on that accredited volume now being a part of our story, but but I think the answer is yes, we will continue to see reimbursement rate increase throughout the throughout the rest of 2022.

Thank you.

Thank you very much. The next question is from Peter Chickering with Deutsche Bank. Please go ahead.

Hey, good morning, guys. Thanks, taking my questions just so back to the labor markets question can you give us an update in terms of what youre seeing in terms of active nurses and recruitment in both home health and PBS in April and May.

Yes, Peter I think I think Tony Tony said, it well I'm going to use that Pennsylvania example is as well.

Where are we.

We can continue to move the reimbursement rates remain competitive we have found that we are able to both retain and reengage or hire new nurses and as we think of the efforts that are going on in April may June leading up to July versus a pretty big date for most state led.

<unk>, we're really focused on the states, where we think the rate has has the reimbursement rate has kind of fallen behind the current market for for nurses in the private duty services segment and I think as we talk in August we'll be we will be reporting <unk>.

Very positive news on additional rate increases in those states that were necessary to really reengage nurses at the level that we expect.

I think I think we've been able to demonstrate that our lobbying efforts both individually and collectively as a as an industry has been able to move states.

That may have fallen behind kind of the current wage environment from for caregivers as I said in my prepared remarks wage is the absolute number one driving decision cultures, great engagements gray, but wage is the decision and so for us to be able to get the wage rate at the necessary level two to engage caregivers.

Got to continue to engage the legislatures and payers and I think as Tony mentioned, we have found that audience to be continually receptive to this conversation so and Peter My next my comments are going to be more color around that and this is just my opinion I think I think a year or two years ago I think I think mission was equally.

Important I think nurses.

Greater to the places where they felt connected to our mission and I think that was always on our side.

I think the job that we have to offer is a very.

Compelling job with a compelling mission.

We will be able to compete in those environments as well and then when we do then I believe mission will climb back in the front seat and I think we're going to be just fine from that perspective, and that's all of that gives us confidence in my comments about we think that as the year progresses, we'll be in a better better spot from a wage perspective.

Dave.

How is the active nurse percentage right now and recruitment going or are you just completely dependent upon July 1st rate increases to get things back to normal levels.

Yes.

Yes, I use July one is only be as an example of many of our state legislatures effective date is June 30 and from July one.

No no <unk> I think I think let me step back and just say in our home health and hospice business segment, where we are employing fulltime benefited caregivers, we whether the omicron.

Storm much better.

Turnover rates and our retention rates are right in line with what we expect our.

Our reliance on contract labor and overtime has subsided appropriately. So I think I think where we where we can employ a fulltime benefited caregiver.

And with the additional technology like we mentioned homecare Homebase full rollout and the use of Metalogic amused as better predictive index indicators were better able to allocate our staff in the home health and hospice segment as it relates to our Pts segment and week to week fighting in this business.

Tony My comments.

We are we are held based on the rate that we're able to negotiate with our with our state legislators and our payers and again I think I would tell you.

And we've been talking sequentially the last three or four quarters. We continue to have a very very positive rate discussions with our payers and with our legislators.

Consistently we will continue to pass that incremental right through to our caregivers to recruit and retain more.

Peter you didn't ask the question this way, but I'm going to use it as an opportunity to answer.

We're asked the other day about well why wouldn't you just go ahead and pass the wage through now and then let the rate catch up.

And that way you can go ahead and fuel your growth the problem in our private duty business is that once that wage goes in it's never coming back out.

So in the event that we were to push off a significant amount of wage through bring our gross margins down significantly we may.

And then the rate is different than we anticipated, we will never be able to pull that back so.

That'll that'll be the way we will proceed.

Alright, thanks, so much.

Okay.

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

Please please go ahead.

Hey, good morning, guys.

First of all tissue.

Well, so so Brian I'll try you know I'm going to stop short of we don't provide we don't provide quarterly guidance our guidance, while we did try to provide color between first half and second half.

Really don't provide.

Quarterly guidance per se.

I think the way that the street is thinking about it today is not not all of that off.

I think I think we will continue to have headwinds related to.

Two two wage pressure.

<unk> are unfortunately, a lot of those rate changes will end up happening.

At the end of June , which wont benefit Q2.

But.

In terms of giving you a number that we think that for Q2 I don't I don't think we're ready to do that.

I appreciate that until I understand I guess my second question as I think about the P&L and where the shortfall was versus the street it looks more in the home health side.

Also regional expenses came in a decent bit higher so maybe just anything you can share with us in terms of what happened in the home health side of the business and just any thoughts on how much you can bring.

Can bring regional expenses down on a dollar basis going forward.

Yes.

Great questions, Jeff I think I think.

Part of the reason, we announced the completion of the homecare Homebase rollout today was because that has been a.

Sure.

Distraction for that team and a headwind for that team noise. The last seven months, we started that implementation in September of last year. We've we've rolled for companies for acquired companies onto that platform, yet you've been around long enough and covered enough of us that is a major major major lift.

We're going to continue to get some of the synergy realization from that system.

Between Q2 and Q4 this year.

But really getting getting our home health and hospice division to be on one platform one set of systems.

To be able to report that at a much much deeper level and to be able to respond accordingly.

As I mentioned in my comments, but we also we also believe we'll see continued field.

Yes.

Got it thank you.

Thanks, Brian .

Thank you.

The next question is from Sarah James of Barclays. Please go ahead.

Thank you.

So it sounds like you guys are.

<unk> guide, but maybe there could be some movement.

I just want to make sure if I'm understanding this right last quarter, you talked about there potentially being.

The $30 million of Covid impact in one Q&A it sounds like today, you're talking more about 14 to 15 and then.

What are you talked about the rate increases coming into play in <unk> and it sounded like today.

So I guess you're right.

How that changes.

Is that imply some movement within the range.

So gosh I'm going to try to.

Pull that apart of going back to the guidance I don't think I don't think our thoughts around our full year guidance has changed at all and so.

Yes.

We talked about the guidance being 1.8.

Eight 9 billion, two 1 billion $9 20 in revenue.

And I don't think we've changed our thoughts around that at all specifically about your comments or the comments we made in March about the impact of Covid in omni chron.

In Q2, so I think the overall impact.

Across all of that.

Would have been kind of that 30 youre right.

Come in throughout the year I mean, Jeff made the comment about mid year in my comment earlier about the a lot of states or on the June 30 fiscal year in so by definition a lot of them come in mid year, but no Jeff made the comment throughout the year, we've had seven different rate increases and and we don't we we anticipate that trend.

Continue throughout the year.

I think by the time, we're getting into well into Q3, I mean, I think will be in the mid teens to high teens again talking about.

Another year and last year, we had 24 rate increases that that was a record and that was that was certainly driven by by Covid and some of the federal funds that were imply in 2021, but I think we'll be in that same 15 to 17 18 range by the time, we get to September and October we do have some states that are also Ah September and October .

For fiscal year date, so I think we will.

We're very pleased with the seven year to date to.

To the end of April and I think we will be in.

Great shape mid year, and very well by the time, we in Q3.

Okay.

Question.

Okay.

Killing.

What you said work there do you mean workday or homecare homebase.

Alright.

Really bad.

Yeah.

It's going great Sir it's.

It's almost like the ATM machine that people get to walk by the.

The caregivers have taken it in groves and run with it.

I can't remember the exact count, but we have thousands and thousands of caregivers.

Somewhere in the 203 to 4000 caregivers that utilize it on any given week.

We we pay we pay all of our Pds caregivers weekly.

And the carriers and loved it that they've enjoyed it those who need it and wanted to have access to it those.

Those who don't.

Are fine, but but it's been a great a great value added in pretty quickly it went from being being something new and shiny to just being something that was being utilized every every every every week by by thousands of caregivers. So it's been a nice Nice addition to our to our toolbox. If you will of recruitment retention tools.

But but other than that it's going great.

Thanks for asking.

Thank you. The next question is from ancient advice from credit Suisse. Please.

Hi, everybody, maybe just going back to this.

This.

Programs Rolling out in Ah, Arizona.

Obviously, you said it could be something that could be a template for other states.

It sounds like you I understand a little bit about how it would help me on the private duty side, but it sounds like you also think it helps on the adult side is it somehow allow you to leverage.

With a nurse.

Getting reimbursed or the Medicare and level can do does it just fell out patients that might otherwise have to be institutionalized to stay home I guess, how does it help heal on the adult side.

Yes.

A J I would think of it in the private duty services second 100 per cent of this is in the private duty services segment. Some of the age of the patients will be adult age, but think of it not as not as home health and hospice intermittent but think of it as private duty services.

But as you said it is new hours. It is it is the same same patients that were already carrying four on the nursing side of the private nursing side that are receiving shield, either a LPN RN hours and now they're being now new hours are being granted.

Obviously cared for by the either their parents or their level under their immediate neighbors.

In support of the nurses activities in the.

The template AJ came out of Colorado, and we've been doing this program in Colorado for over five years now has been very very successful and.

We think that that template not only not only will be adopted by by Arizona, but but numerous states where we are in conversations with numerous states to adopt a similar model.

Which again is additive to in nature.

It's not subtracting from but it adds up too, but it certainly is unskilled in nature and in the Pds romp.

Okay.

Follow up question was going to be to ask you about the competitive landscape I think in your prepared remarks, you said your.

Deal pipeline will remain robust.

Mom and pop regional providers are they dealing with.

Labour challenges that you're describing and pretty much. The same way is there any reason to think you are doing better and therefore, they might be looking to partner have you seen any one drop out of the market because they just can't get the staff at a reasonable.

To to continue to serve.

Patients.

So it's an insightful question AJ and I'm going to divide your question between that of home health and hospice versus that of private duty and I think in the home health and hospice space I think the answer is no.

However, they're not immune from the.

The nursing shortage, specifically and we see home health and hospice companies that.

That are struggling for staffing, but it's certainly not to the level of.

Throwing in the towel.

But they have reduced volumes in in such a matter of fact, many of the deals that we look at Rod will come back and report that they've got this COVID-19.

Covid adjustment in there.

They're adjusting saying well if it weren't for Covid. This would be my normal run rate and.

So I think they're they're suffering in the same way now on the private duty side.

The staffing issues in the Labour pressures are meaningful and so companies that don't have size and scale to do things that Jeff and Jeff.

Jeff and Sarah were just talking about daily pay and that being just one of the tools, but companies that don't have the ability to to try to do those things to attract caregivers. It is a difficult difficult environment. We have seen a couple of private duty companies come to the table and say, we just can't do this anymore.

So I think it creates opportunity, but as I said in my comment.

We're being very disciplined about that we understand where we're trading and what it takes for a deal to be accretive to us and our shareholders. So we're being very disciplined about the approach to M&A in but we're going to continue to grow at the same time.

Okay, just maybe clarify that is.

So if someone says that we can't do this any more on the private duty side, you have to buy them out or can you just.

Assuming their patients or if they can't make it you're probably not gonna be able to cover those patients. How do we think about that I wouldn't I wouldn't think about I wouldn't think about their just closing the door. When I said that maybe I'll clarify that it's just getting harder and harder to get nurses and to be able to run this business and and <unk>.

Active way in size and scale really does matter and.

And especially density and when you have when you are trying to staff 10 patients in a market and the 10 patients or 20 miles apart versus staffing 100 patients in a market, where there where there are four and five miles apart.

That makes it easier on the private duty side, but the private duty business is a difficult business right now and and we've done some internal work understanding our caregiver population, what they like and don't like and why they leave why they're not working as much and quite frankly, we're getting some really meaningful information.

<unk> back.

The nurses that like the private duty business really like the work they liked the mission they liked the work.

I'm very proud they like our orientation, they like how easy it is.

To work with us they like they like the leadership.

It really is about wage within flight with them paying four and $5 a gallon for gas.

Groceries are what they are they have to go where they can make more money in a.

Matter of fact, the most and I'm going to go out on a limb here. The most encouraging thing I've heard from the work that we've done with our caregiver.

I would really right to come back to work, it's just they can't do it for less money.

Right. So we know how do we know how to go get the caregiver, we see a clear line of sight of what it's going to take to get the caregivers to re engage in private duty and it's more money.

Right, Okay. Thanks, a lot.

Hey, Jay.

Thank you. The next question is from being Hendrix of <unk>.

Thanks, guys, just a really quick follow up on the home health side.

Take care almost nearly integrated with the home care Homebase rollout done I just wanted to get an idea of what kind of efficiency. So you can expect to gain from margin perspective.

In that segment.

Maybe color on visits per episode, how that's trended and can where that can go now that you've got homecare homebase metalogics amused up and running.

Yes. It is.

Great question and I think in mind my prepared remarks, we said that we still see some room for gross margin improvement, we're running right in that 48, and a half pushing 49%. We still think that we still think there is.

Another point point and a half left there.

For improvement and then I'll I'll just say.

Homecare Homebase to it takes a little bit of time to get fully digested and I think it's the reason why we haven't spent a lot of time talking about it over the last few quarters as we were digesting it.

We've just added Metalogics amu's.

To our both our home health in a hospice business. We've enjoyed the partnership getting those guys and and I think as as homecare Homebase settles in as we're as we are able to get one set of reports for for all of our home how the houses businesses one of the things that we all love, but homecare Homebase is just they've got the best data they've got the best reporting.

And the best action actionable items.

Think all of US believe that we can continue to get <unk>.

More cost efficiencies out of the home health and hospice side of the business now that we're on that platform. So.

And just get a better insight as you said, whether it's cost per visit whether it's visit per episode, whether it's case next whether it's just putting the right nurse in the right home at the right time I think the magenta I'm. Most excited about is the ability for for Robin item manage the business on a go forward basis, knowing that we've got the best data and so I think.

You hear excitement in our our voices, it's been it's been a it's been.

Almost 10 months since we sign a contract and started.

Implementation process with homecare Homebase. So we're we're glad to be on the other side of it and and glad to be focused now just on driving the efficiencies.

Great Thanks for that.

Thanks.

Thank you Christian is from John Rencen <unk>. Please.

[laughter].

Hey.

Kind of tag onto the.

Labor and how money solved.

First question do you have.

Have just sort of a range of.

Update you expect to get in the second half of the year.

Per cent of Sir.

A range of the well I think John .

The best way I can answer that question is if you go back to March 29th we said on that call that we would expect EBITDA on the second half of the year to be on a run rate.

Back in that.

I think the number we used was 215 to 220.

And the two 220 range or so on a run rate basis.

You know.

Well, what I mean by that is let's say you are getting paid $100 on average from all your state do you think a 5% rate increase within the card. So it goes to 105.

You said you have seven updates I'm just trying to think about your pricing kind of had a had a baseline year pricing expectation as we said today. Realizing we don't have all the details.

I I understand your question better now than Jeff why don't you just chime in but the answer to your question no. John it's not it's not one or 2% market basket update kind of pricing. It is meaningful price change, but why don't you give some color around that Jeff John a couple of our biggest states.

Two two of our biggest five states are in their final legislative process and have a July July 1st effective date. So in those two states we have meaningful meaningful.

North of North of 15, 20%.

Movement, and the reimbursement rate on the table and.

In the legislative process and with the full intention that we would move we.

We would move wage rates and the five or six dollar an hour type type type range is in those markets.

That's the kind of movement, we're talking about negotiate while in Pennsylvania would be a great example, in Pennsylvania, just raising rates. So 11, 11% at the beginning of this year. So.

That's a great data point that shows you that kind of magnitude we're talking about.

So if we were to think about this.

So, let's just use dollar cause I might be less confusing. So let's say you got.

Six dollar an hour increase in that state.

Are you just having a turnaround right around and pay $6 back to the nurses there is really no more ernie.

Oh, it'll pass through or do we think about that that you keep your kind of historical margin and there is a little bit for the council authentic that's plus taxes.

I think the way you're thinking about it is is correct I think our margins actually hold or even even we could even expand a little bit, but but most of the most of the rate increase outside the margin would go directly to the caregiver.

And I will say John .

It's going faster.

<unk>.

Attempt.

10% increase in gross profit dollars.

I'll do the math, but something like that so there's no.

Okay I got Ya.

Yeah.

And yet.

Sure.

John and I'm sorry, yeah.

Connection is a little tough, but John I, just wanted to be clear, we're not thinking of rate increase as it relates to we're going to drive margins north.

Gross margins, Jeff made the comment kind of when they settle out there'll be that 29, 29% to 30% in the private duty business, we're not thinking of rate increases taking that number to 31% to 32%, we will take all everything but the margin and push it back down to the caregiver.

Yeah, Yeah. So the margin stays the same the dollars are hired and you get some G&A leverage is the way to think about it.

And growth we get growth.

Yeah, Alright. My other question is obviously the numbers haven't been what what we all wanted do we have any debt covenants step up.

And the next year or two that you would care to fly.

No you know from a maintenance covenant perspective, we just have a first lien leverage covenants at seven six turns of credit adjusted EBITDA. So we have a fair amount of room there.

And that that would only be if we're in a compliance period, where we have roughly a third or more drawn on a revolver, but just based on that ratio. We've got we've got a fair amount of room.

Okay.

Is it for me thank you.

Thanks, John .

Thank you very much.

No further questions at this time and I would like you to slip back to Mister Attorney Strange was some <unk> some comments.

Thank you. Thank you operator, and we really do appreciate all of your time. This morning, and appreciate your interest in Aviano as always will make ourselves available to the extent that anybody needs to do some additional follow up we'd be glad to spend time with you individually with that we look forward to updating you after Q2 and have a great day. Thank you.

Okay.

Thank you very much sir.

Ladies and gentlemen that concludes today's teleconference. You may disconnect. Your lines at this time and thank you pull you up with suspicion.

Q1 2022 Aveanna Healthcare Holdings Inc Earnings Call

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