Q3 2024 Aveanna Healthcare Holdings Inc Earnings Call
[music].
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Reconciliation of these measures can be found in this morning's press release, which is posted on our website I'll be on a dot com and in our most recent quarterly report on Form 10-Q when filed.
With that I will turn the call over to Avi honest, Chief Executive Officer, Jeff Shiner, Jeff.
Thank you Debbie good morning, and thank you for joining us today.
We appreciate each of you investing your time this morning to better understand our Q3 2024 week results and how we are moving albeit afford in 'twenty 'twenty four and beyond.
My initial comments will briefly highlight our third quarter along with steps, we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity.
I will then provide insight on how we were thinking about year two of our strategic transformation and our enhanced outlook for 2024 prior to turning the call over to Matt to provide further details into the quarter and our outlook.
Let's move to highlights for the third quarter.
Revenue for the third quarter was approximately $509 million, representing a six 5% increase over the prior year period.
Third quarter, adjusted EBITDA was 47 $8 million, representing a 32, 2% increase over the prior year period, primarily due to the improved payor rate environment as well as cost reduction efforts taking hold.
As we have previously discussed.
The labor environment represented the primary challenge that we needed to address to see aviano resume the growth trajectory that we believed our company could achieve.
to address to see Aviana resume the growth trajectory that we believed our company could achieve.
It is important to note that our industry does not have a demand problem the demand for home and community based care continues to be strong with both state and federal governments and managed care organizations asking for solutions that can create more capacity.
It is important to note that our industry does not have a demand problem. The demand for home and community-based care continues to be strong, with both state and federal governments and managed care organizations asking for solutions that can create more capacity.
Our Q3 results highlight that we continue to align our objectives with those of our preferred payers and government partners.
Our Q3 results highlight that we continue to align our objectives with those of our preferred payers and government partners.
By focusing our clinical capacity on a preferred payors, we achieved solid year over year growth in revenue and adjusted EBITDA.
By focusing our clinical capacity on our preferred payers, we achieved solid year-over-year growth in revenue and adjusted EBITDA.
We also experienced improvement in our caregiver to hiring and retention trends by aligning our efforts to those payers willing to engage with us on enhanced reimbursement rates and value based agreements.
We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts to those payers willing to engage with us on enhanced reimbursement rates and value-based agreements.
While we continue to operate in a challenging labor an inflationary environment. Our preferred payer strategy allows us to return to a more normalized growth rate in our business segments.
Yeah.
Since our second quarter earnings call I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and preferred payors as well as continued signs of improvement and the caregiver labor market specifically.
As it relates to our private duty services business. Our goal for 2024 was to execute on our legislative strategy to improve reimbursement rates in our various states with particular emphasis on Georgia, Massachusetts, and California, which represented approximately 15% of our Pds revenue.
As we reported in Q2, we secured double digit rate improvements in both Georgia, and Massachusetts effective the second half of 'twenty 'twenty four.
These states demonstrate our government affairs strategy to partner with state legislatures governors to identify shortfalls and private duty nursing wages and to align reimbursement rates to improve access to care for patients with complex medical conditions.
We are experiencing accelerated caregiver hiring trends patient discharges from children's hospitals and improved staffing levels in both Georgia and Massachusetts.
Year to date, we have secured 12 private duty services state rate increases and expect a few remaining states to be effective in early 2025.
While we are pleased that our P. D. S. Legislative messaging has been well received by state legislatures. There is still work to do.
As an example of the work ahead, California continues to be a challenging landscape to secure funding for an appropriate P D and rate increase.
We've made significant strides with the Governor Metical Department, and California legislature, demonstrating the importance of private duty nursing right investments and how it supports an overall lower healthcare costs improve patient satisfaction and quality outcomes.
During the latest legislative session. We were successful in obtaining an increase to the Medicare P. D N rates, despite the headwinds with the anticipated, California budget deficit.
Our P D N right investment what had been effective on January one of 'twenty 'twenty six and funded under the M. C O tax provision similar to numerous other Medicaid rate investments.
However, our PD underwrite investment along with the other meta calibrate investments was tied to a voter referendum on the November 5th election ballot designated as proposition 35.
As we expected proposition 35 was approved and therefore, our P. D N right investment will not be included on the indie M. C. O tax provision on January 1st a 'twenty 'twenty six.
We will continue to partner with the Governor and the legislature on a rate increase in the 2025 slash 2026 budget process.
We are committed to advocating for California's children with complex medical conditions and won't stop until the appropriate right investment has been secured.
We have a proven track record of expanding our preferred payer programs and will continue to enhance our efforts in California similar to our approach to other states.
Now moving onto our preferred payer initiatives other states. Our goal for 2024 was to increase the number of Pvs preferred pay agreements from 14 to 22.
Year to date, we have added seven additional preferred payer agreements increasing our total to 21.
With a robust pipeline, we expect to exceed our goal of 22 preferred payers by the end of the year.
I am proud of our payer relations team as they continue to develop partnerships with managed care organizations to find solutions for children with complex medical conditions I'll be honest preferred payer strategy is gaining momentum and allowing us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses for our.
Patients.
Additionally, our Q3 preferred payer agreements account for approximately 47% of our total private duty services M. C O volume's up from 45% in Q2.
This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our private duty services preferred payer partners.
Moving to our preferred payer progress in home health.
Our goal for 'twenty 'twenty four was to maintain our episodic payer mix above 70%, while returning to a more normalized growth rate.
In Q3, our episodic mix was 76% and we achieved positive episodic volume growth of approximately 1% over the prior year period.
We also signed three additional episodic agreements in the quarter, bringing our total episodic agreements to 38.
I am proud of our home health and hospice leadership teams and their commitment to driving positive clinical outcomes episodic growth and profitability.
We will continue to remain focused on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis and focus on improved clinical and financial outcomes.
And finally, as we have achieved our desired preferred payer model and both private duty services and our home health and hospice businesses. We now embark on a similar strategy in our medical solutions segment.
We are in the early stages of implementing our preferred payer strategy and medical solutions and believe it will be fully realized by the end of 2020 five.
As the nation's leading provider eventual nutrition, it's critical for us to ensure our capacity is aligned with those payers who value our services and our partnerships.
Our goal is to improve clinical outcomes and customer service, while protecting our margins and collecting our cash.
Matt will comment further on how we think about our margins and volumes in medical solutions moving forward.
I look forward to updating you on our progress in the coming quarters. Similarly, as we have in our P. D S and home health and hospice segments.
We are encouraged by our 2024 rate increases preferred payer agreements and subsequent recruiting results.
Our business is demonstrating solid signs of recovery as we achieve a rate goals previously discussed.
Home and community based care will continue to grow and I'll be your honor as a comprehensive platform with a diverse pay your base, providing a cost effective high quality alternative to higher cost care settings.
And most importantly, we provide this care in the most desirable setting the comfort of the patients' home.
Speaker Change: Before I turn the call over to Matt, Let me comment on our strategic plan and our improved outlook for 2024.
Matt: As we navigate your two of our strategic transformation, we remain highly focused on those initiatives that create a positive momentum in 2023 and continued execution in 2024.
Matt: We will continue to focus our efforts on four primary strategy strategic initiatives, one enhancing partnerships with government and preferred payers to create additional carrier of our capacity to identify cost efficiencies and synergies that allow us to leverage our growth.
Matt: Three managing our capital structure and collecting our cash while producing positive free cash flow and fourth engaging our leaders and employees in delivering our all the other mission.
Matt: Yeah.
Matt: Based on the strength of our third quarter and year to date results and the continued execution of our key strategic initiatives. We now expect full year 2020 for revenue to be approximately $2 billion.
Matt: And adjusted EBITDA to be greater than $168 million.
Matt: We believe our enhanced outlook provides a prudent view considering the challenges we still face with the evolving labor market.
Matt: In closing.
Matt: I am so proud of our avianca team and their dedication to executing our strategic transformation, while holding our mission at the core of everything we do.
Speaker Change: We offer a cost effective patient preferred and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers referral sources and government partners.
Matt: By partnering with preferred payers, we can and will move rate and wage metrics in meaningful ways that support our growth.
Speaker Change: This strategy allows us to hire retain and engage more caregivers, providing the mission of Avianca everyday.
Speaker Change: With that let me turn the call over to Matt to provide further details on the quarter and our 'twenty 'twenty four outlook Matt.
Matt: Thank you, Jeff and good morning.
Matt: I'll first talk about our third quarter financial results and liquidity before providing additional details on our refreshed outlook for 2024.
Matt: Starting with the topline.
Matt: We saw revenues rise six 5% over the prior year period to $509 million.
Matt: We achieved year over year revenue growth in all three of our operating divisions led by our private duty services medical solutions and <unk>.
Matt: Home health and hospice segments, which grew by six 4% 12.
Matt: 12, 6% and two 2% respectively compared to the prior year quarter.
Matt: Consolidated gross margin was $159 $7 million or 31, 4%.
Matt: Consolidated adjusted EBITDA was $47 $8 million.
Matt: A 32, 2% increase as compared to the prior year.
Matt: <unk>, the improved payor rate environment, as well as cost reduction efforts taking hold.
Matt: Now taking a deeper look at each of our segments.
Matt: Starting with private duty services.
Matt: Revenue for the quarter was approximately $409 million, a six 4% increase and was driven by approximately $10 5 million hours of care, a volume increase of three 8% over the prior year.
Matt: While core volumes have improved over the prior year, we continued to be constrained and our topline growth due to the shortage of available caregivers. Although we are continuing to see signs of improvement in the labor markets.
Matt: Yeah.
Matt: Q3 revenue per hour of $39.10 was up 97 or.
Matt: Or two 6% as compared to the prior year quarter.
Matt: We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.
Matt: Turning to our cost of labor and gross margin metrics, we achieved $109 8 million of gross margin or 26, 8%.
Matt: The cost of revenue rate of $28.62 in Q3 was down slightly from Q2.
Matt: Despite ongoing wage pressures in the labor markets are Q3 spread per hour was $10 48.
Matt: We expect spreads over our to remain in the $10 to $10.50 range going forward.
Matt: Moving on to our home health and Hospice segment.
Matt: Revenue for the quarter was approximately $54 $1 million, a two 2% increase over the prior year.
Matt: Revenue was driven by 8900 total emissions with approximately 76% being episodic.
Matt: 11300 total episodes of care up approximately 1% from the prior year quarter.
Matt: Medicare revenue per episode for the quarter was $3104 up one 9% from the prior year quarter.
Matt: We continue to focus on right sizing our approach to growth in the near term by focusing on preferred payors reimburse us on an episodic basis.
Matt: This episodic focus has accelerated our margin expansion.
Matt: And improved clinical outcomes.
Matt: With episodic admissions well over 70%, we achieved our goal of right sizing our margin profile and enhancing our clinical offerings.
Matt: We are committed to a disciplined approach to growth, while shifting our capacity to those payors, who value our clinical resources.
Matt: We are pleased with our Q3 gross margins of 53, 9% up 6% from the prior year period.
Matt: Representing our continued focused on cost initiatives to achieve our targeted margin profile.
Matt: Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.
Matt: Now to our medical solutions segment results for Q3.
Matt: During the quarter, we produced revenue of $45 3 million, a 12, 6% increase over the prior year.
Matt: Revenue was driven by approximately 92000 unique patients served a four 5% increase over the prior year period and revenue per your P. S of approximately $493.
Matt: Gross margins were approximately $27 million or 45, 6% for the quarter up 18, 8% over the prior year period.
Matt: Revenue and gross margins were impacted by some timing related revenue adjustments in the quarter.
Matt: We expect gross margins to normalize in the 43% to 44% range moving forward.
Speaker Change: As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to leverage our overhead as we continue to grow.
Speaker Change: We are accelerating our preferred payer strategy and medical solutions by aligning our capacity with those payers that value our services and appropriately reimburse us for the services we provide.
Speaker Change: As I said before we expect gross margins to normalize and a 43% to 44% range and U P. S to settle around 90000 per quarter before returning to a more normalized growth rate.
Speaker Change: We will continue to update you on our progress as we execute on this initiative.
Speaker Change: In summary, we continue to fight through a difficult labor environment, while keeping our patients care at the center of everything we do.
Speaker Change: It's clear to us that shifting caregiver capacity to those preferred payors, who value. Our partnership is the path forward at Aviano.
Matt: Our primary challenge continues to be reimbursement rates.
Matt: But the positive momentum we experienced year to date, we remain optimistic that such trends will continue into 2025.
Matt: As we continue to make progress with the rate environment, we will pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes.
Matt: Now moving to our balance sheet and liquidity.
Matt: At the end of the third quarter, we had liquidity of approximately $285 million, representing cash on hand of approximately $79 million.
Matt: $38 million of availability under our securitization facility and approximately.
Matt: $168 million of availability on our revolver, which was undrawn as of the end of the quarter.
Matt: We have $32 million in outstanding letters of credit at the end of Q3.
Matt: Our ample liquidity provides room to operate the business and invest in the company to support our continued growth.
Matt: On the debt service front, we had approximately $1 $48 billion available rate debt at the end of Q3.
Matt: Of this amount.
Matt: $520 million is hedged with fixed rate swaps and $880 million is subject to an interest rate cap, which limits further exposure to increases in sofa above 3%.
Matt: Accordingly substantially all of our variable rate debt is hedged.
Matt: Our interest rate swaps extends through June 2026.
Matt: Our interest rate caps extend through February 2027.
Matt: As a reminder, we have no material term loan maturities until July 2028.
Matt: Lastly.
Matt: In early Q4, we successfully extended our revolving credit facility, ensuring that we have ample access to liquidity to support our growth initiatives.
Matt: Yeah.
Matt: Looking at year to date cash flow cash.
Matt: Cash provided by operating activities was $19 $2 million and free cash flow was approximately $17 million.
Matt: Q3 cash flow exceeded our expectations and we continue to expect to be a positive operating cash flow company for full year 2024.
Matt: We also expect to see continued cash flow benefits as our topline and cost management initiatives come to fruition.
Matt: Before I hand, the call over to the operator for Q&A, Let me take a moment to address our revised outlook for 2024.
Matt: As Jeff mentioned, we currently expect full year revenue to be approximately 2 billion and adjusted EBITDA greater than $168 million.
Matt: These results would not be possible without the hard work and dedication from all of our Avianca team members I.
Matt: I look forward to the continued execution of our 2024 strategic plan and updating you further at the end of Q4 with that let me turn the call over to the operator.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue. We ask that you limit your questions to one and a follow up to the others.
Speaker Change: We have an opportunity to ask questions.
Matt: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment. Please while we poll for questions.
Speaker Change: Our first question comes from Dan Hendrix with RBC capital markets. Please proceed with your question.
Dan Hendrix: Great. Thank you very much and congratulations on the quarter guys. Just a couple of questions on the home health side, just wanted to know what inning. We are in in terms of your progress with your preferred preferred payer relationships in that segment and clearly that's kind of garnering strong episodic volume recovery. There just wanted to see what.
Dan Hendrix: Your outlook for kind of long term episodic growth you know as we move forward given the given this is Nate.
Speaker Change: Awesome good morning, Ben.
Speaker Change: Yeah, Great question Yeah.
Speaker Change: I think as Matt and I, both set of prepared remarks, especially as we start to focus on unmet medical solutions business. We believe really I prefer payer strategy in home health and hospice and then Pds is really I'd say is in the back half of those earnings go seven day bidding, but we felt it's fully baked into our business at this point and now it's really growing growing those real.
Speaker Change: <unk> ships, specifically to your question on home health.
Speaker Change: We're really not trying to drive the business past the 70, 576% episodic.
Speaker Change: Mix, we think that's that's probably run a little bit hot we we'd like to be as we've said kind of between that 70, and 75%. We were proud of our 1% or you know organic year over year growth as that was a first time, we've had both organic growth and revenue and in volume growth in home health.
Speaker Change: Year over year on a comp basis. So it's been a long time comment yes, I think as we said before we expect the home health business and hospice business to kind of land in that 3% three plus percent growth rate and we think we're there now we think we've got the right infrastructure.
Speaker Change: We've got the right clinical capacity you know, we we are entering season as our Florida business kicks in I will say like our peers. We did have a disruption at the end of September 1st two weeks of October with the double Hurricanes that kind of you know, we've got a decent amount of business up through Florida and to the Carolinas and Georgia. So.
Speaker Change: Little bit of disruption in that first month of the quarter, but back to business. The last few weeks have been great for both home health M. P. D. S and we're really just focused on our business. So landing in that kind of three plus percent growth rate for our home health and hospice business organically I think that's where we think we can land.
Speaker Change: Great. Thank you very much just as a follow up any observations or thoughts about the final home health rule. It feels like more of the same.
Speaker Change: We can on that.
Speaker Change: Budget neutrality assumption I just wanted to get your your take.
Speaker Change: Yeah, No. It's a great question and I will comment on both home health Hospice that obviously continued continued support of the hospice benefit, which we think makes a ton of sense.
Speaker Change: We like our peers are very disappointed and not surprised but disappointed in CMS has continued failure to really address the temporary and long term hang hang around or hangover. If you will of of the P. G. M. A call off I'll call, but claw back you know with our model, though Ben I think we're uniquely do.
Speaker Change: And the industry and that is we have found a way to be successful under the current reimbursement structure. So you know as disappointed as I as we are with CMS.
Speaker Change: Although not surprised that they didn't do anything in the election year, we have found a way to be successful in this business and we're going to continue to be successful at this rate. This rate was slightly positive to us. So so you know it's above zero per cent kind of between zero and 1%, which.
Speaker Change: Which as you know it doesn't keep up with inflation, but our model. We have found a way to be successful and we can thrive under this reimbursement model today for home health. Thanks.
Speaker Change: Thanks Ben.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question.
Speaker Change: Hey, good morning, guys. So I know that you aren't giving guidance at this point, but looking at 225.
Speaker Change: Help us.
Speaker Change: Go over the heads and tailwind.
Speaker Change: Specifically on the pricing increases for next year.
Speaker Change: For new increases that you guys know about is a cop out rate increases seen this year.
Speaker Change: And then if he was on the labor market for next year.
Speaker Change: You've talked about sort of that that's improving and then also you know like how how the preferred tier networks can grow in all three business segments, now and how that can potentially provide benefits for pricing for next year.
Speaker Change: Got it that was a lockheed but thank you alright. So I think I think I'd start with just a general comment of part of what was fueling Q3's private duty services growth was really the rate increases specifically in Georgia, and Massachusetts, but the other the other 10 are rate increases that were included with that Q3's growth rate.
Speaker Change: You know I think it was we were we were very pleased with that and I use that as a basis because as you know Peter when we get the right wins, we can we can solve the problem. We can get the kids out of the hospital. We can staff more cases, I E, California, right. So I keep coming back to California that that that many states have now shown these success tracking tracker.
Speaker Change: That we want to implement in California, or continue with them in California, So I say that to just keep pushing California that they've got it they've they've got to do the right thing and we got to get them to do the right thing with that said we have a we have a nice momentum of rate just like we did come out of 23 and 24, we have a really nice nice rate lift both through our.
Speaker Change: Home health and hospice business as well through our Pds business that will help continue to drive both rate momentum, but also help underpin.
Speaker Change: Our growth rates for both Pds and home health Hospice, both Matt and I took the time to focus on medical solutions. In this call. We are going to spend the next three three or four quarters implementing the exact same pay preferred payer strategy that we've implemented in home health and hospice and then private duty services in our medical solutions business.
Speaker Change: The team is already working on it so we expect some a little bit of choppiness through the to the volume side of that business that probably in Q4 Q1 Q2 as margins improve both at the gross margins and bottom line margins for the Med solutions business. So I think I'd say without without stamping 2025.
Speaker Change: Yeah, Theres no negative there's no big negative issue staring us down in 2025, we were not expecting California in 2025 so.
Speaker Change: Good momentum going in and we're going to keep our keep our heads down keep operating the business and keep driving positive results that would you add to that yeah. No. I think you said it really well, Jeff the 12 state rate increases on top of our continue to prefer preferred payer execution has really driven our volume driven and our clinical care. This year I see that momentum continue.
Speaker Change: Into next year, there's still a lot of opportunity for us to move forward and move specific rates you know in California, one of those that we keep talking about but there's others out there, where we really need to move the needle or move a specific area for our patients for to allow us to give better care. Obviously peto you know the economics, you know that the research demonstrates that we saved five to $6000 per day compared to acute.
Speaker Change: Care stay.
Speaker Change: Dressing the labor market's itself you know, we're continuing to see that softening.
Speaker Change: Say that that's a little bit of softening in the market.
Speaker Change: I really attribute that to our hiring success to us being able to drive rate those preferred payers are saying it.
Speaker Change: And they understand the economic benefits the states are seeing it as well so as we continue to move rate that allows us to push caregiver wages up and improved volumes and improve patient care.
Speaker Change: Okay, that's a long answer, but there's a lot to unpack there Peter.
Speaker Change: Yes, sorry for that.
Speaker Change: So looking at your 24 got his commentary on revenues and EBITDA.
Speaker Change: <unk>, a big sequential decrease of margins in <unk> historically, we don't see that.
Speaker Change: Ben's question can you quantify the impact of hurricanes or just something else that could lead to a sequential decrease of margins from figure for you or is this potentially just some more conservatism from you and your team. Thank you.
Speaker Change: No I think you've come to know us pretty well Peter on you know how how we operate as an organization and you know we like to.
Speaker Change: Steve really rock solid and leave opportunity for us to be in front of it a little bit Q.
Speaker Change: Q3 did benefit from a little bit of one timing related items and a medical solution segment, you see that without 45, 6% gross margin that should be in that 43 to 44. So you get back into the math and say all right. There's a <unk>.
Speaker Change: All are amount associated with that one and then honestly, we're really proud about our year to date results. The teams continued to execute in all three of our operating divisions, all three of them being positive year over year revenue growth, Jeff Didnt mentioned in his script or an answer here that theres, a little bit of impact from that hurricane that's going to go through and hit our southeast business. The good news.
Speaker Change: Is that we rebound very quickly our patients need care, they're highly acute so we do rebound quickly, but that couple week interruption does have some impact to us. That's the reason you're seeing that kind of tick down into Q4, but I think will rebound nicely into Q1 and continue that momentum into 2025.
Speaker Change: I think Peter I think to Matt's point that well you know Q3 was probably a little bit harder than we are in a good way.
Speaker Change: But it's probably a little bit above what we thought and we're expecting and Q4, what kind of come in on a normalized basis I think to your point, we will continue to beat and raise as we think of Q4 and still feel very confident how we end the year end ramp into 'twenty five.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thanks Peter.
Speaker Change: Our next question comes from Brian.
Speaker Change: Jefferies. Please proceed with your question.
Speaker Change: Hey, good morning, guys. Congrats on the quarter, maybe just first question free cash flow generation was strong in Q.
Speaker Change: Q3, so just curious how you're thinking about.
Speaker Change: The sustainability of that or if there's anything that we need to be thinking about in terms of what went into that cash flow strength.
Speaker Change: Great question, Brian really proud of it as well we're pleased with our current year to date free cash flow and performance where its currently sitting through Q3 Q.
Speaker Change: Q3 is our seasonally high period, if you go back and look at last year, you can see where it uptick into Q3 as well so a lot of that DSO and the delayed billing comes through in Q3, so a little bit networking capital changes I will say that our teams over performed as well and that's throughout our RCM operations per payer relations teams did a phenomenal job.
Speaker Change: And cash in Q3 as well we will continue to be a positive free cash flow company for all of 2024, I think Q4 of last year was slightly negative $45 million, that's probably not unreasonable to think how where Q4 land plus or minus a few million dollars, but overall pleased with our performance I'm pleased with the team coming out on top of it.
Speaker Change: And really happy to be a positive 2020 for free cash flow generating company.
Speaker Change: Got it makes sense.
Speaker Change: And then as I think about maybe asking Peter's question, a little differently on P. D S gross margins.
Speaker Change: 26, 8% in Q3.
Speaker Change: Is that the right way to be modeling 2025 at this point or how should we be thinking about that number.
Speaker Change: Yeah, and let me start with the top end and then what kind of bring it back and that will bring it back Brian too to really ask the question I think the key thesis here is every time, we win rate our commitment to both the governor or the legislature or the payer is we're pushing the right through to drives to feel more shifts to get more kids home and also be the hire more nurses.
Speaker Change: Engage more nurses so.
Speaker Change: We are taking an absolute focus to not just winning the right but to pushing it through and I use Georgia is a great example, governor Kemp.
Speaker Change: Really stood firm and made up his words, our historic investment into Homebase nursing, what he meant was private private duty nursing for the state of Georgia. This year and it was it's crucial for us to be able to go back to him and the rest of the legislature and show him that we have passed them the majority of that through to the nurse's week.
Speaker Change: Can feel that volume you can see that volume in Q3 Youll see it in Q4, it's lifting our volume because of the historic nature of the investment they made Matt as you think about the actual margin profile. How do you feel like that yeah, Brian and I always kind of go back to the spread per hour being kind of at the end all be all there for US you know that $10 to $10.50 range.
Speaker Change: We know Q1 has some seasonality to it so it's going to be significantly below that but play catch up for the full year on how we view it and it goes back to you might continue to see some margin compression that happens, but if it if we continue to stay in that $10 to $10 50 spread per hour range, that's right, where we want to be and that's doing exactly what Jeff just talked about winning rate.
Speaker Change: Investing to our caregivers investing into our clinical outcomes and providing better care to our patients and then tail that drives our volume. It gets more kids are home from the hospital and its a winning as you know, Brian and especially in Medicaid right.
Speaker Change: Thirtyish sub Thirtyish is is that the legislature understands that kind of gross margin so being in that 27% range. We can be proud of what that means proud of the investments, we're making and it really does as you know it does matter. When you go back to these payers and legislatures that you can show them that you have invested these dollars that they gave you any.
Speaker Change: Incremental nursing wages and incremental nurses, which you know again.
Speaker Change: Again, we will continue to tell that story in California, because it's the same outcome in California, We just got to get the legislature the governor to to.
Speaker Change: Validate that.
Speaker Change: Not 100%, thank you and congrats again.
Speaker Change: Thanks, Brian.
Speaker Change: Our next question comes from David Macdonald mature Securities. Please proceed with your question.
Speaker Change: Oh, Yeah, Hey, guys. This is actually greater than the cost or on for Dave. Congrats on the quarter first question for me just I'm, obviously margins came in.
Speaker Change: Quite a bit better than we were thinking and you know better than last year could you just talk a little bit about the cost savings initiatives in place to kind of what inning you're in.
Speaker Change: And just any low hanging fruit or obvious opportunities at this point. Thanks.
Speaker Change: Okay.
Speaker Change: Hey, Greg good morning.
Speaker Change: Well, we certainly said in Q2, we were not a 9% company moving forward in Q3, we validated we are present business two quarters in a row I think it is Matt Matt said in his prepared remarks, there were a couple of things that were timing related specifically in our Ams business, we had some revenue related adjustments.
Speaker Change: But I do think that the the takeaway Mcmahon will as is the detailed question, but the takeaway is that.
Speaker Change: The cost reduction efforts that we've been talking about now for almost seven quarters really have taken a hold in.
Speaker Change: I think for the most part we can tell you were really done with home health and hospice, we're done with our Pds business, we're pretty much done with our corporate office and corporate support and we're really just.
Speaker Change: Focused heightened focused on medical solutions as we roll into 25. So I think the majority of the work is done I will tell you that we never stop we're always looking for efficiencies always looking for areas, where we can find ways to be more efficient in our RCM and other areas of business, but the majority of our work in our businesses with the exception of Med solutions is really done at this.
Speaker Change: Yeah.
Speaker Change: Yes, Jeff I would just pile onto your statements what did I believe are 100% accurate in here I mean really we're just proud of the teams and the hard work they have done to address costs on the direct and obviously, mostly indirect side of things you know home health and hospice last year, you're seeing the full benefit of that come through this this year P. D. N. In this year and you continue to see the benefit of that in the back half.
Speaker Change: 'twenty 'twenty four and you'll see that into 2025 medical solutions suggest point is the last area of focus for us to go to take out significant savings, but as we always talked about it's just not take it away, but in reinvesting back into the organization reinvesting back into technology and to automation, so that we're able to leverage that going forward as well.
Speaker Change: Our goal is to continue to hold that relatively I'll say flat. There is a lot of takes but then reinvestments into that and youll see that throughout 2025, adding onto our growth where were currently being performing that's where we get that leverage profile and increase that margin on the bottom line.
Speaker Change: Yeah.
Speaker Change: Got it Okay and then just a quick follow up for me.
Speaker Change: Wanted to follow up on hiring friends in Georgia, and Massachusetts, just any color you can provide around the number of hires there or how quickly you're able to see that labor it begin to come online when.
Speaker Change: When you do get those rate increases that through thanks.
Speaker Change: And Chris I'll, just use Georgia, I think I think Georgia is one of his last year, we would've used Oklahoma and 23 this year, but this year, Georgia will end up being the story. We we highlight we're actually building a case study with a third party around Georgia to be able to show to other state governors.
Speaker Change: But we we started I think we told in Q2, we started passing the wage rate through in our Georgia nursing community back in starting in late mid to late April as soon as we knew the Governor's budget was signed so we had a ramp of about 75 days and we hit July one when the rate became effective already running and we can see.
Speaker Change: Significant significant improvement in actual percentage of fill rate number of cases were actually filling compared to the authorized hours the number of new cases.
Speaker Change: The cases, where we were able to get children out of hospital and we ran into a great phenomenon in Georgia and how about this we've been met and I've been here nine years. This has never happened in our nine years and that is some point kind of mid August we didnt have any pending discharged and the children children's hospitals in Georgia. That's the first time in a decade, but that has happened no flu.
Speaker Change: Season comes in infection season, so that that will that will.
Speaker Change: Recreate itself, but we had a point in Georgia, where we didn't have any pending patients to admit and again our pending list at any stage you know could be 30, 40, 50 families or it could be a few hundred.
Speaker Change: So the fact that we were able to push through that many pending cases, and our peers. Our peers did as well just shows how powerful a right investment can be in a state like Georgia or like any of our states. So.
Speaker Change: It will it will it will.
Speaker Change: Settle in over the course of Q4, Q1, Q2, but we've seen material changes in hiring nurses, even the nurses that we had working for us are working more hours and selling more shifts. So we are solving the exact issue that that that we put forth in the state of Georgia, Massachusetts, Similarly, but I think Georgia is the Best example, and again.
Speaker Change: As Matt would say, we're almost two full years into the story and Pds and I think it continues to to just hammer home how important investing in private duty nursing really is in the overall savings and the outcomes for these families are just tremendous.
Speaker Change: Thank you Grace.
Speaker Change: Our next question comes from AJ Rice with UBS. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Hi, This is James on for a J I just had one question for you all.
Speaker Change: Previously talked about expanding geographies and possibly doing this through acquisitions of smaller assets just wanted to get your updated thoughts on this geographic expansion to build your base in the southeast and Midwest just yes, any color there would be helpful.
Speaker Change: No that's a great question and very well timed.
Speaker Change: I think as we sit today, we feel like we were putting year two of our strategic transformation to bed here in Q4, we feel like we have not only stabilize the company, but put the company back on the rightful path for growth and success.
Speaker Change: And we believe it's time for us to reenter the M&A market.
Speaker Change: As we go into 2025, I don't I don't think we'll close anything in Q4 at this point, but as we go into 2025, both organic and inorganic growth becomes really priority number one for the company and we do expect to close transactions within our capital structure to your point, Jamie within our capital structure, both in private duty nursing.
Speaker Change: Same property services business as well as home health and hospice those are the two businesses. We will focus on and are focused on so we've already started ramping up the the engine. The M&A engine. We're looking at you know transactions as we speak with the intent that as we move into 'twenty five we would move back into the M&A market and again, we will stay focused on the <unk>.
Speaker Change: Yes, and our home health and hospice businesses for for most of our M&A activity.
Speaker Change: But great great question. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: There are no further questions at this time I would now like to turn the floor back over to Jeff for closing comments.
Jeff Didnt: Thank you I just wanted to say thank you everyone for your continued interest in our.
Jeff Didnt: The story and thank you to all of your other teammates caregivers of meters for making these results possible. We will look forward to talking to you. After the first of the year and updating you on our 2025 guidance and our full year 2024 results. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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