Q4 2024 Aveanna Healthcare Holdings Inc Earnings Call
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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.
A reconciliation of these measures can be found in this morning's press release, which is posted on our website Avi on a dotcom.
And in our most recent annual report on Form 10-K when filed.
Speaker Change: With that I will turn the call over to Avi honest, Chief Executive Officer, Jeff Sure Jess. 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 Q4 and full year 2024 results and how we are moving forward in 2025.
Speaker Change: My initial comments will briefly highlight our fourth quarter and full year 2024 results along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payors to create additional capacity.
I will then provide insight on how we're thinking about year three of our strategic plan and our initial outlook for 2025 private to turning the call over to Matt to provide further details into the quarter.
Speaker Change: Moving to highlights for the fourth quarter and full year 2024.
Speaker Change: Revenue for the fourth quarter was approximately $520 million, representing an eight 6% increase over the prior year period.
Speaker Change: Fourth quarter, adjusted EBITDA was $55 $2 million, representing a 42, 6% increase over the prior year period, primarily due to the improved payor rate environment as well as cost reduction efforts taking hold.
Speaker Change: Full year 2024 revenue was approximately 2.0 to 4 billion, representing a six 8% increase over the prior year and full year 2024, adjusted EBITDA was $183 $5 million, representing a 31, 8% increase.
Speaker Change: Over the prior year.
Speaker Change: We continue to execute our strategic transformation strategy focused on preferred payors and obtaining adequate rates from our government partners for the services, we provide which is clearly evidenced in our fourth quarter results.
Speaker Change: Our Q4 results also benefited from some timing related items that positively impacted our private duty services division in the quarter, Matt will provide some further details in his prepared remarks.
Speaker Change: As we have previously discussed the labor environment represented the primary challenge that we needed to address to see all the ena resume the growth trajectory that we believed our company could achieve.
Speaker Change: 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, while reducing the total cost of care.
Our Q4 and full year 2024 results highlight that we continue to align our objectives with those of our preferred payers and government partners.
Speaker Change: By focusing our clinical capacity on a preferred payors, we achieved solid year over year growth in revenue and adjusted EBITDA.
Speaker Change: We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value based agreements.
Speaker Change: While we continue to operate in a challenging environment, our preferred payer strategy allows us to return to a more normalized growth rate in our business segments.
Speaker Change: Uh huh.
Speaker Change: Since our third 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 continued signs of improvement and the caregiver labor market.
Speaker Change: 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 a particular emphasis on Georgia, Massachusetts and California.
Speaker Change: As we previously reported we secured double digit rate improvements in both Georgia, and Massachusetts effect in the second half of 2024.
Speaker Change: These states demonstrate our government affairs strategy to partner with state legislatures, and governors to identify shortfalls and private duty nursing wages and do align reimbursement rates to improve access to care for patients with complex medical conditions.
Speaker Change: We continue to experience accelerated caregiver hiring trends patient discharge from the children's hospitals and improved staffing levels in both Georgia and Massachusetts.
Speaker Change: In total we secured 12 private duty services state rate increases for the full year 2024.
Speaker Change: Now moving to our preferred payer initiatives in other states. Our goal for 2024 was to increase the number of private duty services preferred payer agreements from 14 to 22.
Speaker Change: We added eight additional preferred payer agreements in 2022 for achieving our goal of 20, sorry, achieving our goal of 22.
Speaker Change: I am proud of our payer relations teams as they continue to develop partnerships with managed care organizations to find solutions for children with complex medical conditions.
Speaker Change: 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 to our patients.
Speaker Change: Additionally.
Speaker Change: Our Q4 preferred payer agreements account for approximately 50% of our total Pds MTO volumes up from 47% in Q3.
Speaker Change: This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our Pds preferred payer partners.
Moving to our preferred payer progress in home health.
Speaker Change: Our goal for 2024 was to maintain our episodic payor mix above 70%.
Speaker Change: While returning to a more normalized growth rate.
Speaker Change: In Q4 are episodic mix was 76%.
Speaker Change: However, our total episodic dining growth was slightly lower as compared to prior year period.
Speaker Change: We ended 2024 with a total of 38 episodic agreements and are well positioned for growth in 2025.
Speaker Change: We are committed to growing our home health volumes and I expect us to return to positive year over year growth trends in the first half of 2025.
Speaker Change: We will remain focused on aligning our home health care government capacity with those payers willing to reimburse us on an episodic basis and focus on improved clinical and financial outcomes.
Speaker Change: Yeah.
Speaker Change: Finally, as we have achieved our desired preferred payer model in both private duty services and home health and hospice, we have embarked on a similar strategy in our medical solutions business we.
Speaker Change: We are in the early stages of implementing our preferred payer strategy of medical solutions and believe it will be fully realized by the end of 2025.
Speaker Change: As the nation's leading provider of eventual nutrition. It is critical for us to ensure our capacity is aligned with those payers who value our services and partnership.
Speaker Change: Our goal is to improve clinical outcomes and customer service, while protecting our margins and collecting our cash.
Speaker Change: We do expect volume growth to be muted throughout 2025, as we achieve the realization of our medical solutions target operating model.
Speaker Change: Matt will comment further on how we think about margins and volumes in medical solutions moving forward.
Speaker Change: I look forward to updating you on our progress in coming quarters. Similarly, as we have in our Pts and HHH segments.
We are encouraged by our 2024 rate increases preferred payer agreements and subsequent recruiting results.
Speaker Change: Our business has demonstrated solid signs of recovery as we achieve a rate goal as previously discussed.
Speaker Change: Home and community care home and community based care will continue to grow and Avianca is 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 patient.
Speaker Change: Phil.
Speaker Change: Yeah.
Speaker Change: Before I turn the call over to Matt, Let me comment on our strategic plan and initial outlook for 2025.
Speaker Change: We will continue to focus our efforts on five primarily primary strategic initiatives and 2025 first enhancing partnerships with government partners and preferred payors to create additional capacity and growth.
Second identifying cost efficiencies and synergies that allow us to leverage our growth.
Speaker Change: Third modernizing our medical solutions business to achieve our top target operating model.
Speaker Change: Fourth managing our capital structure and collecting our cash while producing positive free cash flow.
And finally, engaging our leaders and employees and delivering our Avi on a mission.
Speaker Change: Based on the strength of our fourth quarter and full year 2024 results and the continued execution of our key strategic initiatives. We anticipate 2025 revenue range of 2.1 to 2.12 billion and adjusted EBITDA range.
Speaker Change: $190 million to $194 million.
We believe this initial twenty-five outlook provides a prudent view considering the challenges we still face with the evolving environment.
Speaker Change: In closing.
Speaker Change: I'm incredibly 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.
Speaker Change: Furthermore, we are the right solution for our payers referral sources and government partners.
Speaker Change: With that let me turn the call over to Matt to provide further details on the quarter and our 25 outlook Matt.
Thank you, Jeff and good morning.
Matt: I'll first talk about our fourth quarter financial results and liquidity before providing additional details on our initial outlook for 2025.
Starting with the topline.
Matt: We saw revenues rise eight 6% over the prior year period to $520 million.
Matt: We achieved year over year revenue growth in all three of our operating divisions led by our private duty services.
Matt: Medical solutions, and home health and hospice segments, which grew by 10, 1%.
Matt: Four 8% and 0.6% compared to the prior year quarter.
Matt: Consolidated gross margin was 171 $7 million or 33%.
Matt: Consolidated adjusted EBITDA was $55 2 million, a 42, 6% increase as compared to the prior year.
Matt: Collecting the roof payer rating environment as well as cost reduction efforts taking hold.
Matt: As Jeff mentioned Q4 benefited from some from a timing related rate enhancement in our Pts segment, which had a positive EBIT impact of approximately $3 million.
Matt: Additionally, Q4 saw a favorable true up in our insurance reserves and this adjustment contributed approximately $3 $5 million to EBITDA for the quarter.
Now, taking a deeper look into each of our segments.
Matt: Starting with private duty services.
Matt: Revenue for the quarter was approximately $422 $2 million, a 10, 1% increase.
Matt: It was driven by approximately $10 5 billion hours of care.
Matt: A volume increase of 4% over the prior year.
Matt: While our core volumes have improved over the prior year, we continue 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: Q4 revenue per hour of $40 25.
Matt: Was up $2 and 21.
Matt: Or six 1% as compared to the prior year quarter.
Matt: Primarily driven by preferred payer volume growth.
Matt: And the rate enhancement previously discussed.
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.
Matt: We achieved $123 $6 million of gross margin or 29, 3%.
Matt: The cost of revenue rate of $28 47 in Q4 was down slightly from Q3.
Matt: Despite ongoing wage pressures in the labor markets are Q4 spread per hour was $11.79.
Matt: We expect spread per hour to normalize in the $10 to $10.50 range moving forward.
Moving onto our home health Hospice segment.
Revenue for the quarter was approximately $54 $4 million, a 0.6% increase over the prior year.
Matt: Revenue was driven by 8500 total emissions with approximately 76% being episodic.
Matt: And 11200 total episodes of care.
Matt: Down approximately 1% from the prior year quarter.
Matt: Medicare revenue per episode for the quarter was $3128 up two 1% 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 have reimburse us on an episodic basis.
Matt: This episodic focus has accelerated our margin expansion and improved clinical outcomes.
Matt: With episodic admission 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.
We're pleased with our Q4 gross margin of 53, 2% up two 3% over the prior year period, and representing our continued focus 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.
Matt: So our medical solutions segment results for Q4.
Matt: During the quarter, we produced revenue of $43 3 million, a four 8% increase over the prior year.
Matt: Revenue was driven by approximately 89000 unique patients served a 1% decrease over the prior year period.
Matt: And revenue per your P. S of approximately $486 up five 9% over the prior year period.
Matt: Gross margins for approximately $19 $2 million or 44, 3% for the quarter up 10, 5% over the prior year period.
Matt: As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model.
Matt: We're accelerating our preferred payer strategy and medical solutions.
Matt: Mining our capacity, but those payors that value our resources appropriately reimburse us for the services we provide.
Matt: We expect gross margin to normalize in the 43% to 44% range and U P. S to settle around the 89000 per quarter before returning to a more normalized growth rate.
Matt: We will continue to update you on our progress as we execute on this initiative.
Matt: In summary, we continue to fight through a difficult labor environment, while keeping our patients care at the center of everything we do.
Matt: It's clear to us that shifting caregiver capacity to those preferred payers who value. Our partnership is the path forward at Aviano.
Matt: Our primary challenge continues to be reimbursement rates.
Matt: With a positive momentum we experienced in 2024.
Matt: Main optimistic that such trends will continue into 2025.
Matt: As we continue to make progress with the rate environment.
Matt: Has to recruitment and other benefits to our caregivers and the ongoing effort to better improve volumes.
Matt: Now moving onto our balance sheet and liquidity.
Matt: At the end of the fourth quarter, we had liquidity of approximately $260 million.
Matt: Representing cash on hand of approximately $84 million.
Matt: $38 million of availability under our securitization facility.
Matt: And approximately $138 million of availability on our revolver, which was undrawn as of the end of the quarter.
Matt: We had $32 million and outstanding letters of credit at the end of Q4.
Matt: Our ample liquidity provides room to operate the business and then to invest in the company to support our continued growth.
Matt: On the debt service front, we had approximately $1.48 billion of variable rate debt at the end of Q4.
Of this amount five.
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 excellent extend through June 2026.
Matt: And our interest rate caps extend through February 2027.
Matt: As a reminder, we have no material term loan maturities until July 2028.
Matt: Lastly in early Q4, we successfully extended our revolving credit facility, ensuring that we have ample access to liquidity to support our continued growth.
Matt: Looking at year to date cash flow cash provided by operating activities was $32 6 million and free cash flow was approximately $25 $7 million.
Matt: We expect to see continued cash flow benefits as our top line and cost management initiatives come to fruition in 2025.
Matt: Before I hand, the call over to the operator for Q&A, Let me take a moment to address our initial outlook for 2025.
Jeff: As Jeff mentioned, we expect full year revenue range of 2.1 to $2, one 2 billion.
Matt: And adjusted EBITDA range of $190 million to $194 million.
Matt: I'd like to highlight that our guidance includes a 50 <unk> week in Q4, which is expected to contribute additional revenue to our overall results for the year.
Matt: As a reminder, Q1 generally sees lower performance due to payroll taxes and post holiday seasonality.
Matt: However, we expect EBIT to build into Q2 and into the second half of 2025.
We believe this outlook is prudent and hopefully it proves to be conservative as the year progresses.
Matt: As we reflect on our 2024 results I'd like to take a moment to express my sincere gratitude to all of our ASEAN teammates. These strong results.
Matt: <unk> would not have been possible without your hard work and dedication.
Matt: Looking ahead I'm excited for the execution of our 2025 strategic plan and look forward to providing you with further updates at the end of Q1 with that let me turn the call over to the operator.
Matt: Thank you.
Matt: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Matt: Confirmation tone will indicate your line is in Washington.
Matt: You May press star team to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before Christmas and Easter. Please.
Matt: We also ask all participants in the queue to limit themselves to one question and one follow up.
One moment, please as we poll for questions.
Speaker Change: And our first question comes from the line of Brian <unk> with Jefferies. Please proceed with your question.
Speaker Change: Good morning, guys. This is meghan hold on for Brian Congrats on the quarter first off I'd like to start on a diet you know as I look at the topline growth at slightly above 4%, implying flat EBITDA margins year over year would you consider it as conservative as Ive spoken to EBITDA margin expansion and 25 previously.
Brian: Hey, Megan good morning, Thank you.
Speaker Change: And and thanks for thanks for getting US started you know I think our thoughts today on guidance is to continue to stay in the mode that we've operated as a management team. The last two years, we've gotten very comfortable with the expectations of beating rate then we like to stay as that team that sets a prudent we use the word prudent versus conservative you can use the word conservative.
Brian: If you like but we use the word prudent.
Brian: Both of them both on our revenue growth and our EBITDA, a guy, but I think as Matt will talk about you know where we're very confident as the year of 2025 is setting up for us and we're expecting to have a third very very significant year of transformation and IV on them.
Matt: Thanks, Ruth talked through Yeah Megan.
Megan: Really excited to continue executing on our 2025 strategic plan, we had really solid momentum, leaving Q4 and 2024 with Craig rate increases from our government partners continue preferred payer execution on there we have really nice line of sight with the final home health and hospice rules in place so great visibility into 2025.
Matt: As Jeff mentioned, we believe our guidance for 2025 is prudent.
But we believe that will continue to capitalize on all the hard work that our teams have put in the past two years and as a results will really flourish into 2025 as well I will tell a little bit of plug in there and just reiterate Q1 does have some seasonality in our EBITDA numbers itself due to higher payroll taxes Guinea caregiver engagement kind of backend post holiday.
Matt: Is it kind of settles in Q1, but then you will see it build in Q2 and then the back half of 2025.
Speaker Change: Okay. Thanks, and just as a quick follow up you know you guys have comment on looking to turn M&A kind of back on I mean can you speak to the pipeline. What areas are you focused on any specific characters character, it's sexy require when looking at assets.
Matt: That's a great question.
Matt: We can see that we continue to have a prudent view of M&A.
Matt: We're focused on our home health specific in our private duty services business as it relates to tuck in M&A.
Matt: We probably won't be in the medical solutions M&A focused in 'twenty four 'twenty five as you heard us talk about we're excited to be kicking off.
Matt: It fully initiating that target operating model and preferred payer strategy for med solutions. So, let's say focus on home health specifically and.
Matt: And private duty services boats, both skilled and unskilled and that business unit I will say, we plan to stay within our capital structure right. So we've got we've got ample liquidity within our current capital structure, but think of us being a tuck in oriented acquire in 'twenty five 'twenty six but we as we said in 'twenty four we do expect to be back in the acquisition business.
Mike: In fiscal year 2025, so more to come as the year plays out but great great Great question Mike.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ben Hendrix with RBC capital markets. Please proceed with your question.
Hi, This is Michael <unk> on for Ben Congrats on the quarter.
Speaker Change: Just drilling down into the Pts segment, you previously noted expectations for some pressure in spread rate in the first quarter, how should we think about modeling the cadence of both rate growth and gross margin progression in 2025.
Speaker Change: Yeah, I think I think as Matt Great question, I think that as Matt laid out we've got eight right clarity and all of our businesses, but specifically Pds for 2025. So that's I think the the really good news is.
Speaker Change: We had a lot of momentum in the second half of 2024 that is carrying through 'twenty five and our 12 state 12 Pds rate increases plus the.
Speaker Change: Do you prefer payers plus plus good insight on home health and hospice rates.
Speaker Change: Give us give us really good certainty throughout the fiscal year 2025.
Speaker Change: As Matt talked about remember Q1 is our high payroll tax.
Speaker Change: Our labor driven company. So we expect Q1 to be a little bit of a headwind. There is also some CS at holiday seasonality that plays into the first month of Q1, but.
Speaker Change: I think as we think mad about our guidance, we're very confident about our pds business and kind of its current growth rates, yes, I mean spread per hour. We believe we'll be back in that $10 to $10 50 range now that's a great core area for us I pointed out those two kind of how we kind of believe are onetime in nature items in Q4 that enhanced our <unk> to $11.
Speaker Change: 79 cents for the quarter, which was a little bit strong. So we just wanted to be upfront and honest about backing that out a little bit for taking the full year of 2025, though we do have seasonality with food a pseudo in Q1, it kind of picks up in the back half of the year Theres. Some holiday you know payroll differentials PTO utilization in there in Q4 as well, but for the entire totality for 2025.
Speaker Change: I would sit between that $10 and $10 50 range.
Speaker Change: That's helpful and just as your cash flow increases how are you thinking about capital allocation I know you touched on M&A, if the right opportunity presented itself what sort of leverage would you be comfortable going up too. Thank you.
Speaker Change: Yeah, I mean, we're really excited about you know where we've been as an organization and deleveraging significantly if you look at our deleveraging profile over the past 24 months, it's been very impressive as an organization and we don't plan on slowing that down as we've alluded to in the past. Our goal is to continue to deleverage it turned to a turn in a quarter on an annual basis, we look to.
Speaker Change: That being a very realistic expectation for us in 2025 as well we were obviously very pleased with our Q4 and full year 2024 operating to keep free cash flow. This was driven by a lot of rate improvements great operational efficiencies from our team cost management that we've gained throughout the organization and we will expect to be a continue.
Speaker Change: Free cash flow.
Speaker Change: <unk> for 2025, as well, we will allude, though we will be a larger federal taxpayer in 2025, so that could create a little bit of a headwind for us and just I'll throw this plug in there as well as a reminder, Q1 does experience some seasonality for that cash flow impact as well due to GPL season, it enhances our <unk>.
Speaker Change: <unk>, our collection cycle and so we'll have a pretty significant negative in Q1, but then continue to build in the sequential quarters.
And I think as you think about you said it.
Speaker Change: The excess cash that we're generating we think of about as accelerating growth in EBITDA right. Both organically to continue to invest in our preferred payer strategy our government affairs team.
Speaker Change: Our clinical innovations team that underpins our clinical outcomes data for our preferred Payors and then just just accelerating the M&A strategy I mean, we are well well well positioned in home health and hospice and then private duty services to being acquire and I think Matt said it well we don't plan on opening the capital structure. This year were very come.
Speaker Change: Well with our with our caps and swaps and we will continue to accelerate both revenue and EBITDA growth organically and Inorganically.
Speaker Change: Thank you alright, thanks, so much.
Speaker Change: Thank you. Our next question comes from the line of Benjamin Rossi with Jpmorgan Chase and company. Please proceed with your question.
Hey, Thanks for the question.
Speaker Change: Regarding your medical solutions payer strategy you mentioned the comments on the segment modernization as you start this process during 2025 and the expected value drag I just wanted to drill down here could you walk us through your approach to payer negotiations here and how you're sizing your contract conversions and potential rate changes within there.
Speaker Change: Yeah, Ben Good morning, It's a great question, Yeah, I think as you look back we would say look backwards to look forwards, meaning look look what we did in 2023 to home health and hospice to rightsize that business model, both clinically and financially look at what we did in the PD and Pds business in 2024.
Speaker Change: Same thing to align with our preferred payers and ultimately to improve clinical outcomes and rightsize margins, both gross and contribution margins. It's the exact same strategy with med solutions, which is to make sure that were aligning our clinical capacity around those payors that not not only pay the most but really are good.
Partners that that give us the opportunity to drive great clinical outcomes appropriate gross margins, Matt highlighted in his comments gross margins in the 43% to 44% range. I think you can see that in our Q4 results that you can see that we're already have improved gross margins and then the.
Speaker Change: The cash collections of this business is a med solutions is a tough cash collection. So part of what we are evaluating and our customers is are you going to pay us an appropriate amount of time, so making sure that not only our clinical outcomes in line, but financial outcomes in line, but also cash collection. So.
Speaker Change: As we did with home health and hospice, we'll narrow our network will align our capacity with a narrow network you'll.
Speaker Change: You'll see in our investor deck that I think we're gonna post tomorrow that we've identified 17 preferred payers in that business that we're aligning with those 17 preferred payers first and we will continue as we execute the target operating model. This year, we will broaden that preferred payer network and I think as Matt said 89000, UBS is probably a good number.
Matt: Anchor to in the near term, probably Q1, and Q2, but you'll see that number get back to mid mid single digit and high single digit growth for the back half of the year as we as we turn back on the growth curve in meso sheets met with that.
Speaker Change: Yeah, Yeah, Great question, Ben There I mean, although I'll lead with we are really excited about implementing our preferred payer strategy in our target operating model medical solutions today.
Speaker Change: To date, we have identified 17 preferred payers in this business and we've actually exited quite a few payer contracts that didnt fit our operating model.
Speaker Change: We do expect year over year volume growth to be relatively muted as we alluded to and as Jeff said, so well just moments ago, but we do expect clinical outcomes to get better margin expansion to happen as well as cash collections to improve in that division as well as we see U P. S kind of settle in the negative we will see positive.
Speaker Change: Gross still as you can see in Q4 of 2024 as it already started to take hold and go into place. So we'll stay close to it we'll update you guys as we go on.
Speaker Change: And throughout 2025 will give you an update on it.
Great really appreciate that background commentary there and then just on the follow up on the macro you know Medicaid regulatory changes I can certainly appreciate.
Speaker Change: A lot of moving pieces right.
Speaker Change: Just with the broader headlines on potential program changes in Medicaid and more details to come into the fold just curious kind of how you're approaching these policy discussions with your regulatory counterparts in and you're finding them to be receptive to some of the changing dynamics on the provider side for Medicaid and chip.
Speaker Change: Great Great question, Ben and I think while it still remains to be seen how this whole government sponsored programs may be impacted by pending legislation and we'll start with if at all it is possible that that core Medicaid programs are not touch at all.
Speaker Change: But with that being said I think to your question. We at Aviano are fully aligned with the goals of the federal governments state governments, which has to be cost efficient and to produce high quality outcomes for every dollar of health care spend.
Speaker Change: And I think if you think about all of you on it that is exactly what our Vienna does everyday we we produce a costs we are cost saver to federal and state governments. We have external studies that show, we say between five and $6000 per day, and our private duty nursing business for everyday we keep a medically complex pediatric patient at her.
And not in the NICU pick you setting. So we are a major major cost saver for the federal government and state governments and so I think as this plays out I think we are incredibly well positioned we are we.
Speaker Change: Have a great government affairs team, we continue to have have great dialogue with our governors.
Speaker Change: Size Republicans and Democrats, we have Greg good dialog with the new administration with the new CMS team and I think I think this is an area where avianca ends up being on the right side of health care and in being able being ultimate winter. So we're excited about the things that are going on we certainly look for certainty like the rest of the market does but we're excited at aviano ultimately will be.
Speaker Change: Net net winter with us thanks.
Speaker Change: Ken.
Speaker Change: Great. Thanks for your comments there.
Thank you.
Speaker Change: Our next question comes from the line of Scott Fidel with Stephens. Please proceed with your question.
Scott Fidel: Hi, Thanks, good morning, actually going to try to stick.
Scott Fidel: Stick on that on that topic, we were just on the Medicaid reform in Jeff appreciate your sort of high level observations there.
Scott Fidel: Try to see if we can get you that maybe peel the onion back a little bit more and just as we think about.
Scott Fidel: Some of that the different specific options that.
Scott Fidel: The <unk>, considering obviously, it's sort of changes every day, but as we.
Scott Fidel: Think about per capita caps in.
Scott Fidel: Changes to tap maps and a provider tax reform work requirements I've heard of that.
Scott Fidel: The main option that they've been looking at.
Speaker Change: We're also proposed by <unk>.
Scott Fidel: You give us your thoughts on which of those.
Speaker Change: You would be sort of most supportive or which of those.
You could see as more disruptive.
Speaker Change: To the pediatric part of the market.
Speaker Change: Okay. Thanks, Scott Good morning, Yeah, one it's it's difficult to speculate on on the guessing game and like you. We watch. It every single day, you know where where our team is in D. C. This week working with the industry, but so it's hard to speculate on what may or may not I think at its core though the most important thing to remember.
Speaker Change: There is we we are we have demonstrated with our preferred payors with state governments, Georgia is a Great example, Massachusetts, Oklahoma last year, Colorado, you can go on on <unk>.
Speaker Change: That the more you can shift.
Institutional spend to homecare spend the better off that we do especially with our core PD and patient population because because of how expensive.
Speaker Change: The the NICU pick your settings are so so the idea that we're able to shift five plus thousand dollars. A day has really really played out well for us over the last two years with the states that have leaned into us as.
Speaker Change: As well as preferred payers, so being a net cost saver to the system. We ultimately feel like what will be what will carry the day.
Speaker Change: We're prepared for different models, Scott you know theres different models play through and we're excited about the new Medicaid leader for CMS. He comes from the state of Mississippi right. They had the highest F map percentage in the country. So we're excited to work with him and his team. We're also excited to work with the new the new CMS leader for Medicare.
Speaker Change: He's got a great approach to to to how business should operate for geriatric.
Speaker Change: Population in America, so without commenting on any specific one potential if end but.
Speaker Change: Our core of our company is built around the idea that we take patients out of the hospital and keep them at home. That's good for health care, it's good for cost savings and it's good for patients and clinical outcomes. So.
Speaker Change: Again were underpinned with.
Speaker Change: With just the right mechanics as an organization. We're also nimble enough to be able to execute on opportunities that this administration may put forth, whether that's block grants and other things so we.
Speaker Change: We see it as an opportunity not a risk we see it as an opportunity to continue to execute on our strategy Scott I will say in the meantime, we're going to control what we can control. So this management team has done a phenomenal job. The last two years I'm just wondering what we can control and leaving the noise outside of our business plan and if you look at our 2020.
Speaker Change: Five business plan that noise will eventually gets sorted out. This team is going to stay focused on executing our business plan that we know how to control. So in the short term we're going to continue doing what we've done which is just from providing great clinical outcomes and great financial outcomes.
Speaker Change: Okay.
As my follow up just I was hoping if we can maybe drilling a bit wide.
Speaker Change: Or on the.
Speaker Change: Sort of what's implied in the revenue guidance for off for Pds are revenue growth within that and how youre thinking about.
Speaker Change: How that splits out between rate.
And balls.
Speaker Change: And then even if you wanted to get a little more detail on the rate side.
Speaker Change: That may break out on yields how youre thinking about that between App.
Speaker Change: This data and then the <unk>.
Speaker Change: As you guys continue to focus on the preferred payers. Thanks.
Scott Fidel: Yes, Scott you know as you look at Q4, we had a lot of success with 4% volume growth over 6%.
Scott Fidel: Rate growth and our Pts segment, we do want to lob out there that we did have some rate enhancements or improvements that we looked at it to be a little bit onetime in nature. In there. We had a specific payor that was originally supposed to go live on one one of 25 and they ended up going live on seven one of 24. So it was about a $3 million.
Scott Fidel: Retro rate and increase in there that dropped down to EBITDA, but really inflated our reimbursement rates as well we expect this to be our guidance implies that three or four 5% kind of total revenue growth in our Pts segment as we alluded to earlier.
Speaker Change: To be prudent you might call. It conservative that's okay, and but we'll continue to update that as the year goes on we do have really good line of sight from our momentum in 2024 with our rate enhancements that we had in our preferred payors, Jeff talked about it earlier, 50% NCO volume on a preferred payer that's phenomenal to see that will.
Speaker Change: Continuing to grow throughout the year and that will actually increase our reimbursement rates as well as Scott as.
Speaker Change: As we did last year, we went 14 to 22 in the Pds preferred payers. We've set an internal goal to go from 22% to 30 its aggressive in this year, but that's our teams goal internally as Matt talked about we've now tip, the 50% volume scale, and we expect that number to keep growing quarter by quarter.
Speaker Change: It touches 60% this year, but it will it'll get to the mid to high 50 percents. This year, which is great and then.
Speaker Change: We haven't said it but we feel confident on home health and hospice growth too so.
We're we're pleased with where we are in home health and hospice gross margins of 53% great clinical outcomes. If you saw our five star ratings were off the charts, our hospice H <unk> scores are off the chart. So.
Speaker Change: We're in a growth focus area in our home health and hospice team and really really bullish on our team's ability to get to.
Speaker Change: Two 3% year over year organic growth rate in home health and hospice, which.
Speaker Change: It would be really nice for that for that team.
Speaker Change: Alright, great.
Speaker Change: Alrighty preferred payers by the end of by 'twenty five.
Speaker Change: And then your target.
Speaker Change: That is our target that is if you ask our preferred payer team internally 30 is our target in we've not set a specific target on the on the volume percentage, but.
Speaker Change: I think it's broad to say that'll be in the mid mid to <unk>.
Speaker Change: In 2025 and continues to show that we lean and shift our capacity towards those payers.
Speaker Change: Okay.
Speaker Change: Thanks Scott.
Speaker Change: Thank you. Our next question comes from the line of Peter Chickering with Deutsche Bank. Please proceed with your question.
Speaker Change: Hi, there you've got a Kieran Ryan on for Peter Thanks for taking the question I was looking to go back to margins here guide calls for flat EBIT margins at the midpoint, which I know you characterized as prudent if we back out kind of the six and a half million combined from those two one.
<unk> and <unk> I'm getting to about 40 bps of margin expansion for 2025 would would you say that's about the right level on an underlying basis and.
Speaker Change: And then is it fair to think that most of that would come from Pds and H H H just given the initiatives you have underway and M. S.
Yeah, Great question.
Speaker Change: And you nailed it kind of on the margin profile itself, we do expect a little bit of increase in margin on the medical solutions side, though we might well have some more muted growth on there, but on private duty services. Once you back out kind of that $6 $5 million for the full year.
Speaker Change: And kind of leaving Triple H flat, we expect margins to be relatively in line with 2024, when wherever we win rate increases whenever we sign a new preferred payer we take those dollars we pass them down to our caregivers to really drive volume and that's our goal is to provide more care drive volume growth there and then leverage that SG&A we've.
Speaker Change: Talk about it over the past few years, our teams have been very.
Speaker Change: Good at leveraging that taking cost out investing where we need to to be able to leverage that SG&A flow. So that 45 bps kind of that you alluded to on that EBITDA margin expansion really comes from SG&A leverage.
Speaker Change: Got it that's helpful. Thank you and then and then just on the little bit slower growth in our home health and hospice and <unk> I was just wondering if you might be able to unpack that a little bit more.
Speaker Change: Does that have anything to do with how you're kind of bumping up on how you want to be on the episodic mix already or was it just hiring or is there any other dynamic we should be thinking about there. Thank you.
Karen: Great question Karen.
Speaker Change: That's what well thought out.
Speaker Change: A little bit a little bit of noise turbulence in Q4 that we had to work through we had it we had a few sales positions in key markets that were open.
Speaker Change:
I think you heard in my voice, we're really excited obviously, we see the trends of the first two months in 'twenty five and we're pleased with where we are today at <unk>.
Speaker Change: <unk> season for us in our Florida business, which is important right we have to be ready to execute during season in Florida.
Speaker Change: But we're pleased with where that business is today I am pleased with the team.
Speaker Change: Leading that business they have filled the majority of our open sales positions and are we're already starting to see some of that lift.
Speaker Change: 76% is still a little bit hot for US I think as you know, Matt and I. Both said in our prepared remarks, 70% is our goal.
Speaker Change: 70% episodic as our goal so.
Speaker Change: As long as we're above that 70%, we're pleased and I think we could give up a few percentage points there.
Speaker Change: Uh huh.
Speaker Change: Trade for organic growth as I mentioned, where we sit today and our operating model, we want to do tuck ins and so I think youll see us do some tuck ins this year in the home health business. Just so we can continue to bring people into our operating model with our clinical outcomes being where they are in our financial outcomes being with where they are.
Speaker Change: It's too good not to expand this business geographically so we're going to stay focused on organic growth with our home health and hospice team again, I think we'll be in that 1% to 3% organic growth rate in 'twenty, five, but I think youll see us tuck in a few markets and geographically expand our home health hospice business.
Speaker Change: Thanks, Karen.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: And we have reached the end of the question and answer session I would like to turn the floor back to Jeff Shane or for closing remarks.
Speaker Change: Awesome. Thank you so much for your interest in our story and we look forward to updating you on our continued progress at the end of Q1, Thank you and have a great day.
Speaker Change: And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.