Q1 2025 Aveanna Healthcare Holdings Inc Earnings Call
Good morning, and welcome to our Vienna Healthcare Holdings' first quarter 2025 earnings Conference call. Today's call is being recorded and we've allocated one hour for prepared remarks and Q&A at this time I'd like to turn the call over to Debbie Stuart I'll be honest Chief Accounting officer. Thank you you may begin.
Good morning, and I'll be honest first quarter 2025 earnings call I am Debbie Stewart, the company's Chief Accounting Officer with me today is Jeff Shaner, Our Chief Executive Officer, and Matt Buckhalter, Our Chief Financial Officer.
During this call we will make forward looking statements risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC.
The company does not undertake any duty to update such forward looking statements.
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 Aviano dot com and in our most recent quarterly report on Form 10-Q when filed.
Speaker Change: With that I will turn the call over to Avi honest, Chief Executive Officer, Jeff Shiner, Jeff.
Speaker Change: Debbie good morning, and thank you for joining us today.
Speaker Change: We appreciate each of you investing your time this morning to better understand our Q1 2000 22025 results and how we are moving all of you on a forward in 2025.
Speaker Change: My initial comments will briefly highlight our first quarter results along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity.
Speaker Change: I will then provide insight on how we're thinking about year three of our strategic plan and our improved outlook for 2025.
Speaker Change: Lastly, I will provide some insight into the recently announced thrive skilled pediatrics acquisition and how we're thinking about the combined company prior to turning the call over to Matt to provide further details into the quarter.
Speaker Change: Moving to our highlights for the first quarter.
Speaker Change: Revenue for the first quarter was approximately $559 million, representing a 14% increase over the prior year period.
Speaker Change: First quarter, adjusted EBITDA was $67 $4 million, representing a 93, 1% increase over the prior year period, primarily due to the improved payor rate environment and cost and continued cost savings initiatives.
Speaker Change: We continue to execute our strategic transformation strategy, focusing on obtaining adequate rates from our payer and government partners for the services, we provide which is clearly evidenced in our first quarter results.
Speaker Change: Our first quarter performance benefited from some timing related revenue items that favorably impacted our Pds division.
Speaker Change: Matt will provide further details on this in his prepared remarks.
Speaker Change: Yes.
Speaker Change: As we have previously discussed the labor environment represented the primary challenge that we needed to address to see aviano resumed 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 create more capacity, while reducing the total cost of care.
Speaker Change: Our Q1 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 significant 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.
Speaker Change: Our preferred payer strategy supports our ability to achieve to achieve normalized growth rates in all three of our business segments.
Speaker Change: Since our fourth quarter earnings call I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners as well as continued signs of improvement and the caregiver labor market.
Speaker Change: Specifically as it relates to our private duty services business.
Speaker Change: Our government affairs strategy for 2025 is two fold.
Speaker Change: First we plan to execute on our legislative strategy to improve reimbursement rates and at least 10 states.
Speaker Change: And second.
Speaker Change: We're advocating for Medicaid rate integrity on behalf of children with complex medical conditions.
Speaker Change: We have a strong advocacy presence with both federal and state legislatures as well as solid support from our governors across our national footprint.
Speaker Change: Legislature's have recognized how meaningful private duty nursing as to the overall cost savings and improved outcomes of our nation's most vulnerable children.
Speaker Change: We achieved five rate enhancements for our Pts segment in Q1 and are well on our way to reach our legislative goals for 2025.
Speaker Change: I am proud of our government affairs, and our advocacy teams for their commitment to protecting children with complex medical conditions.
Speaker Change: No.
Speaker Change: Moving onto our preferred pay your initiatives. Our goal for 2025 is to increase the number of Pds preferred payer agreements from 22 to 30.
Speaker Change: We added two additional preferred pay agreements in Q1 and are currently positioned at 24 agreements in total.
Speaker Change: Managed care organizations continue to ask us for solutions for their members to receive nursing care in the home.
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 for our patients.
Speaker Change: Additionally, our Q1 preferred payer agreements now account for approximately 54% of our total Pds mcl volumes up from 50% in Q4.
Speaker Change: This continued positive momentum in preferred payer volumes highlights the shift in our caregiver capacity and recruitment efforts towards our Pds preferred payer partners.
Speaker Change: Moving to our preferred payer progress in home health.
Speaker Change: Our goal for 2025 is to maintain our episodic mix above 70%.
Speaker Change: Returning to a more normalized growth rate.
Speaker Change: In Q1 are episodic mix was 77%.
Speaker Change: And our total episodic volume growth was essentially flat with the prior year period.
Speaker Change: We added three episodic agreements in the quarter and currently sit at 45 preferred payer agreements in total.
Speaker Change: Our focus on aligning our home health CAGR of our capacity with those payers willing to reimburse us on an episodic basis.
Speaker Change: As led to solid improvement in our clinical and financial outcomes.
Speaker Change: Finally, as we have achieved our desired preferred payer model and private duty services and home health and hospice. We have now we have embarked on a similar strategy in our medical solutions business.
Speaker Change: We're still in the early stages of implementing our preferred payer strategy of medical solutions, but believe it will be fully realized by the end of the year.
Speaker Change: To date, we have 17 preferred payers and medical solutions, and we expect that number to grow as we achieve our desired preferred payer model.
Speaker Change: Our gross margins are stabilizing and the 42% to 44% range as we are aligning our clinical capacity with those payers that value our services and pay us in a timely fashion.
Speaker Change: While our volume growth will be muted. This year, we expect our clinical outcomes customer satisfaction and financial outcomes to improve as we achieve our target operating model.
Speaker Change: I look forward to updating you on our on our medical medical solutions progress over the coming quarters.
Speaker Change: We are encouraged by our rate increases preferred payer agreements and subsequent recruiting results.
Speaker Change: Our business has demonstrated solid signs of recovery as we achieve our rate goal as previously discussed.
Speaker Change: Home and community based care will continue to grow and Avianca is a comprehensive platform with a diverse payer base, providing a cost effective high quality alternative to higher cost care settings, and most importantly.
Speaker Change: 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 enhanced outlook for 2025.
Speaker Change: We will continue to focus our efforts on five primary strategic initiatives first enhancing partnerships with government partners and preferred payors to create additional capacity and growth.
Speaker Change: Second identifying cost efficiencies and synergies that allow us to leverage our growth.
Speaker Change: Third modernizing our medical solutions business to achieve our target operating model.
Speaker Change: Fourth managing our capital structure and collecting our cash while producing positive free cash flow and lastly, engaging our leaders and our employees in delivering our Avi on a mission.
Speaker Change: Okay.
Speaker Change: Based on the strength of our first quarter results and the continued execution of our key strategic initiatives. We now anticipate 2025 revenue to be greater than 215 billion and adjusted EBITDA to be greater than $207 million.
Speaker Change: We believe this enhanced 2025 outlook provides a prudent view considering the challenges we still face with the evolving macro environment.
Speaker Change: As it relates to our recently announced transaction to acquire thrive skilled pediatrics I am pleased to report that we are on target to close this transaction in the coming weeks.
Speaker Change: Our combined leadership teams are collaborating on integration plans communications and post closed strategies to optimize the care delivery for our patients and families.
Speaker Change: Thrive SPC will be a fantastic addition to our Avi on a family and further enhance our preferred payer and government affairs strategies.
Speaker Change: I look forward to updating you on our progress in the coming quarters.
Speaker Change: Yeah.
Speaker Change: In closing I am incredibly proud of our Avianca team.
Speaker Change: 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 had 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 2025 outlook.
Speaker Change: Matt.
Matt Buckhalter: Thank you, Jeff and good morning all.
Matt Buckhalter: I'll first talk about our first quarter financial results and liquidity before providing additional details our improved outlook for 2025.
Matt Buckhalter: Starting with the top line.
Matt Buckhalter: We saw revenues rise up 14% over the prior year period to $559 million.
Matt Buckhalter: We achieved year over year revenue growth in all three of our operating divisions led by private DS services.
Matt Buckhalter: Home health and hospice and medical solutions segments, which grew by 16, 5%.
Matt Buckhalter: Three 9%.
Matt Buckhalter: And three 6% compared to the prior year quarter.
Matt Buckhalter: Consolidated gross margin was $183 6 million or 32, 8%.
Matt Buckhalter: Consolidated adjusted EBITDA was $67 4 million, a 93, 1% increase as compared to the prior year.
Matt Buckhalter: Reflecting the improved payor rate environment as well as continued cost savings initiatives.
Matt Buckhalter: As Jeff mentioned Q1 benefited from some timing related rate enhancements and revenue reserve improvements in our Pts segment, which had a positive EBITDA impact of approximately $11 million.
Matt Buckhalter: Now, taking a deeper look into each of our segments.
Matt Buckhalter: Starting with private duty services.
Matt Buckhalter: Revenue for the quarter was approximately $460 million, a 16, 5% increase and was driven by approximately $10 9 million hours of care.
Matt Buckhalter: A volume increase of six 1% over the prior year.
Matt Buckhalter: Yeah.
Matt Buckhalter: Q1 revenue per hour of $42 25.
Matt Buckhalter: It was up 10, 4% as compared to the prior year quarter.
Matt Buckhalter: Primarily driven by preferred payer volume growth and rate enhancements previously discussed.
Matt Buckhalter: We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.
Matt Buckhalter: Turning to our cost of labor and gross margin metrics, we achieved $134 7 million of gross margin or 29, 3%.
Matt Buckhalter: The cost of revenue rate of $29 88 in Q1.
Matt Buckhalter: It was up one dollar and 15.
Matt Buckhalter: Our four 2% from the prior year period.
Matt Buckhalter: Despite ongoing wage pressures in the labor markets are Q1 spread per hour was $12 37.
Matt Buckhalter: We anticipate this metric will normalize over time as we continue to adjust caregiver wages.
Matt Buckhalter: Our improved volumes and clinical outcomes.
Matt Buckhalter: Okay.
Matt Buckhalter: Moving on to our home health and Hospice segment.
Matt Buckhalter: Revenue for the quarter was approximately $56 7 million.
Matt Buckhalter: A three 9% increase over the prior year.
Matt Buckhalter: Revenue was driven by 9700 total emissions.
Matt Buckhalter: With approximately 77% being episodic.
Matt Buckhalter: 12100 total episodes of care essentially.
Matt Buckhalter: Essentially flat from the prior year quarter.
Matt Buckhalter: Medicare revenue per episode for the quarter was $3152 up two 7% from the prior year quarter.
Matt Buckhalter: We continue to focus on right sizing our approach to growth in the near term by focusing on preferred payors that reimburse us on an episodic basis.
Matt Buckhalter: This episodic focus has accelerated our margin expansion and.
Matt Buckhalter: And improved our clinical outcomes.
Matt Buckhalter: That puts Arctic emissions well over 70%, we have achieved our goal of right sizing our margin profile and enhancing our clinical offerings.
Matt Buckhalter: We're pleased with our Q1 gross margin of 54, 2% up one 1% over the prior year period, and representing our continued focus on cost initiatives to achieve our targeted margin profile.
Matt Buckhalter: Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.
Matt Buckhalter: Now to our medical solutions segment results for Q1.
Matt Buckhalter: During the quarter, we produced revenue of $42 5 million, a three 6% increase over the prior year.
Matt Buckhalter: Revenue was driven by approximately 89000 unique patients served a three 3% decrease over the prior year period and revenue per UBS of approximately $477 up six 9% over the prior year period.
Matt Buckhalter: Gross margins are approximately $18 1 million or 42, 7% for the quarter up one 9% over the prior year period.
Matt Buckhalter: As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model.
Matt Buckhalter: We are accelerating our preferred payer strategy and medical solutions by.
Matt Buckhalter: By aligning our capacity with those payers that value our resources appropriately reimburse us for the services we provide.
Matt Buckhalter: We expect gross margins to normalize in the $50, 42% to 44% range and.
Matt Buckhalter: And UBS to continue around 89000 per quarter before returning to a more normalized growth rate.
Matt Buckhalter: We will continue to update you on our progress as we continue to execute on this initiative.
Matt Buckhalter: In summary, we continue to fight through a difficult labor environment, while keeping our patients care at the center of everything we do.
Matt Buckhalter: It is clear to us that shifting caregiver capacity to those preferred payors, who value our partnership as the path forward at Avianca.
Matt Buckhalter: Our primary challenge continues to be reimbursement rates.
Matt Buckhalter: With the positive momentum we experienced in 2024 in Q1, we remain optimistic that such trends will continue throughout 2025.
Matt Buckhalter: 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 efforts to better improve volumes.
Matt Buckhalter: Now.
Matt Buckhalter: Moving onto our balance sheet and liquidity.
Matt Buckhalter: At the end of the first quarter, we had liquidity of approximately $266 million.
Matt Buckhalter: Representing cash on hand of approximately $72 million.
Matt Buckhalter: $56 million of availability under our securitization facility.
Matt Buckhalter: And approximately $138 million.
Matt Buckhalter: Availability on our revolver.
Matt Buckhalter: Which was undrawn as of the end of the quarter.
Matt Buckhalter: We had $32 million in Outstandings letters of credit at the end of Q1.
Matt Buckhalter: Our ample liquidity provides room to operate the business and invest in the company to support our continued growth.
Matt Buckhalter: On the debt service front, we had approximately 1.4 dollars 7 billion of.
Matt Buckhalter: Variable rate debt at the end of Q1.
Matt Buckhalter: Of this amount $520 million is hedged with fixed rate swaps and <unk>.
Matt Buckhalter: $180 million is subject to an interest rate cap, which limits further exposure to increases in sofa above 3%.
Matt Buckhalter: Accordingly substantially all of our variable rate debt is hedged.
Matt Buckhalter: Our interest rate swaps extend through June 2026.
Matt Buckhalter: And our interest rate caps extend to February 2027.
Matt Buckhalter: As a reminder, we have no material term loan maturities until July 2028.
Matt Buckhalter: Okay.
Matt Buckhalter: Looking at year to date cash flow cash used by operating activities was $8 6 million and free cash flow was negative $12 9 million.
Matt Buckhalter: As a reminder, the first quarter typically represents our seasonal low point for both operating and free cash flows we would expect to see continued improvement over the course of the year.
Matt Buckhalter: Before I hand, the call over to the operator for Q&A, Let me take a moment to address our improved outlook for 2025.
Speaker Change: As Jeff mentioned, we expect full year revenue to be greater than $2 5 billion and.
Speaker Change: And adjusted EBITDA to be greater than $207 million.
Speaker Change: I'd like to highlight that our improved guidance. Currently does not include any impact from the anticipated thrive SPC acquisition.
Speaker Change: Okay.
Speaker Change: As we reflect on our Q1 results I would like to take a moment to express my sincere gratitude to our ASEAN and teammates.
Speaker Change: These strong results would not have been possible without your hard work and dedication.
Speaker Change: Looking ahead I am excited for the execution of our 2025 strategic plan and look forward to providing you with further updates at the end of Q2.
Speaker Change: With that let me turn the call over to the operator.
Speaker Change: Yeah.
Speaker Change: We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Speaker Change: We ask that analysts limit themselves to one question and a follow up sort of others may have an opportunity to do so as well.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from Meghan holds with Jefferies. Please proceed with your question.
Speaker Change: Good morning, guys. This is Maggie on for Brian Congrats on a really strong quarter. It's nice to see the work you guys are doing I'm rates finally coming through I guess can you just discuss where you are in those 10 states that you're targeting for the year and then the remaining six and the preferred payers and how to think about that long term pipeline on the rate side.
Speaker Change: Yeah. Good morning, Thanks for your comments.
Speaker Change: You know as you suggested we expected this year to be a little bit more muted on the government affairs right front. We were we were optimistic that we could reach 10 states, which as you know over the last three years would be that would be a moderated year for us over the last couple of years. We are pleased that out of the gate. We've got five G E rate increases.
Speaker Change: And already two preferred payer wins, so five plus $2 seven in total and in Q1. So it's been a great start to the year.
Speaker Change: We we still are playing through the noise on a macro level and yes, I think we expect to achieve our our 10 G E rate increases, but but I think we're still expecting that to be a relatively.
Speaker Change: Muted year in and I think we'll learn a lot between now and August as the majority of our states finished their annual.
Speaker Change: Budget cycles, and as the as the federal government works through their there.
Speaker Change: Macro processes.
Speaker Change: Thanks to the preferred payer start those two weeks.
Speaker Change: Talked about the percentage of Tds Pds MTO volumes up from 50% of our volumes at the end of the year to 54% that was really driven by those two signings of those two.
Speaker Change: Preferred additional preferred payers there were meaningful in nature, So really nice job to a preferred payer team. They continue to have a very robust pipeline.
Speaker Change: The thesis behind our preferred payer strategy continues to play out our preferred payors.
Speaker Change: Especially on the Pds front continue to just asked for more and more clinical capacity. So we expect that to be a robust year for us.
Speaker Change: On the preferred payer standpoint, and we think that will play through even the macro environment. That's going on today, so setting up setting up to be a nice year for us still a little bit early but what we want to we want to see how things play out through the summer, but setting up to be a really nice year for us.
Speaker Change: Great and then Matt I appreciate your comments on the cash flow and the seasonality to it in one queue, but can you walk us through the thought on the operating cash flow for the second quarter and then how to think about the right EBITDA at a cash flow conversion just given the improvement in margins that we've seen.
Speaker Change: Yes, again, we're really really pleased with our progress in positioning <unk> to be.
Speaker Change: Free cash flow generating organization, our Q1 cash outflow of 13 million Bucks was actually a lot better than we anticipated it being back to back years of having really nice Q1 cash flow numbers. As a reminder to your point Q1 includes a lot of our seasonality and there's normal impacts that go through our business that get better.
Speaker Change: The course of the year on a standalone basis, we continue to expect avianca to generate operating cash flow and be free cash flow in 2025, we will provide a little bit more updates as we integrate thrive SPC into the organization and once we get our arms wrapped around there, we'll give you better clarity in August.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question.
Peter Chickering: Hey, good morning, guys and thanks for taking my questions.
Peter Chickering: Nice job on the quarter, I guess, I guess going to sort of the quarter I mean.
Peter Chickering: Just wanted to think about what is the continuing.
Peter Chickering: I guess EBITDA kind of.
Peter Chickering: As we think about the base coming from here.
Peter Chickering: It kind of one timers in there and then any details you can give us on those one timers.
Peter Chickering: Yeah.
Peter Chickering: Hey, Peter Thanks.
Matt Buckhalter: Thanks for the question two primary areas here for those one timers that resulted in $11 million of EBITDA benefit in Q1.
Matt Buckhalter: First and foremost we had really really strong cash collections and it was great cash collections RCM team working with our operations team working with our payer relations team.
We're able to pull forward, some really old AR that.
Matt Buckhalter: That was previously fully reserved and so that was able to drop to the bottom line come through revenue drop to the bottom line that was roughly about $6 million really proud of the team's efforts for maintaining that Additionally, we benefited from a little bit of retro rate increase as well in there. So taking both of those factors into consideration Q1 was probably closer to.
Matt Buckhalter: On a normalized basis of $550 million revenue number and about $55 million EBIT number still phenomenal results really proud of the teams and what we were able to achieve Jeff any thoughts going forward.
Jeff: Great question, Matt laid it out well our job when we receive these rate improvements is to pass the pass that through to the caregivers. When there is a retro rate increase or rate increases.
Jeff: There is a bolus of revenue that we have to catch up to the wage pass through so I think to the nature of your question. We started passing through the incremental rate wages to our employees literally the first day of the 25 for the retro rate increases some that went back to seven one of 24, others that were effective one 125.
Jeff: So we're catching up to that rate even today in may so we're still passing wage through systematically to the specific payer.
Jeff: Specific caregivers, who work for those payers that gave us those gradual rate increases. So I think as you think of Q2, it will still be slightly elevated spread per hour and pds rate per hour as wage catches up.
Jeff: Our best.
Jeff: Amortization today is it's probably late Q2 by the time, we've fully baked that that wage pass throughs through and probably Q3 before you see spread per hour dropped back down to that normalized rate kind of sub probably sub $11 at that point. So.
Jeff: I think it'll take us a few more months to catch up to that rate. It's a phenomenal outcome for us. Thank you to our payers, who have leaned into us and our partners, but I think by Q3, Youll see us back to that Tds normalized spread per hour that youre used to seeing.
Speaker Change: That is a perfect segue into I guess sort of a follow up question here as you know we saw these rate decreases on Pds and <unk> for quarter. We saw this again, obviously pretty high in the first quarter, you sort of talked to us for that continuing until you convert that into out into the wages I guess, how do we think about hours from here so as you're converting these.
Jeff: Increase.
Jeff: Of rate recovery NUCYNTA wages, Shouldnt, you sort of see yeah. We saw the hours quite strong this quarter on the toughest comp of the year. Despite leap year. So I guess, how should we think about the all of the growth of Pds now that we're seeing this conversion and then the follow up yet.
Jeff: On our stuff is there any I guess.
Jeff: Job getting getting a fully reserve dsos.
Jeff: On the P&L is there any more that you can do there.
Speaker Change: I'll start with the first part and then hand back to Matt and Debbie.
Speaker Change: A question, yes, yes.
Speaker Change: Yes, six 1% volume growth in Pds is extremely hot for us. So that is above our guidance range is 3% to 5% Pds we've been on the higher end of that this was one of the strongest quarters I do think youll see a little bit of that as we as we pass comps for Q2 and Q3 settle.
Speaker Change: Back in that higher end of that 3% to 5%. So I think I think youll see it may take another quarter or two before we get there, but I think youll see a relatively consistent.
Speaker Change: Volume number for us over the next couple of quarters, but as it relates to the comp of 24, it'll settle back in that.
Speaker Change: Roughly 5% range for another couple of quarters again in a year that we thought Gee, a government affairs will be a little bit more muted the preferred payer side of the business continues to pick up and be stronger so.
Speaker Change: It's probably going to be on the higher end of that 3% to 5% volume.
Speaker Change: So it's a great place to be but we are extremely cognizant that our payer partners gave us these rates to pass through wages and higher margin more nurses and caregivers. So we're committed to driving that wage through to the caregiver.
Speaker Change: Talking about air Yeah, I mean, Peter I, just want to reiterate how proud we are of the Avianca team members and their continued efforts are driving strong cash collections as part of one of our <unk> and something that we work for every single day that success and mostly collaboration between ops RCM payer relations is really <unk>.
Speaker Change: Allowed us to achieve these results.
Speaker Change: There could be some opportunity for this in the future as well.
Speaker Change: It takes a whole lot of work to be able to bring a patient home take care of that patient and provide that service training and get a great clinical outcome. We do believe we should be appropriately compensated for it but it's the relationships that we've built with our payers, who understand that and value us is allowing us to go back and get some of that fully reserved.
Speaker Change: There so.
Speaker Change: The answers may be sure. We will continue to work it going forward, but Q1 was just a particularly very good quarter for us and kudos to Matt and James is the gentleman, who runs our RCM and our ops leaders, Matt said, it well the ability to reach out to our payers and have have mature conversations about.
Speaker Change: That's now a year or two or three years old and to work with them to get solutions. It's just we just find ourselves in a much different place in 2025 from where we were two or three years ago, where we didn't even know the name of the.
Speaker Change: Person to call. It. These payers now we have a great relationship and continue to work through with them and in the spirit of being a partner. So it's all part of the preferred payer strategy is well laid out great. Thanks Peter.
Speaker Change: Yes.
Speaker Change: Next question comes from Ben Rossi with J P. Morgan. Please proceed with your question.
Speaker Change: Great. Thanks for the question here, just turning to the <unk> acquisition. So on the acquisition in early April I know you previously mentioned that prudent approach towards M&A.
Speaker Change: More favorable favoring opportunistic tuck ins this year.
Speaker Change: A little bit more sizeable here at 23 locations in seven states could you just provide any additional commentary regarding the.
Speaker Change: Hi, good contribution here in 2025 in terms of revenue earnings and maybe synergies within Pts and there might be overlap in those five states and new entry into two states was this part of our broader goal of adding density in these geographies are entering either these new states.
Matt Buckhalter: Yeah. Good morning. Thanks. Thank you I'll start with the first part of it and then hand to Matt.
Speaker Change: As it relates to guidance and how we think of the business but.
Speaker Change: This is the perfect acquisition for ASEAN as I've told other folks it checks all the boxes. So culturally. These are two companies are very like.
Speaker Change: Our missions are very like <unk>. So what we do every day in both both avia and thrive fit each other like hand in glove.
Speaker Change: So that's for.
Speaker Change: For us most important like culturally and from a clinical standpoint Clinton lifestyle standpoint, do we both think alike and the answer is yes, we do.
Speaker Change: Second the Densification of States like Texas, North Carolina, Virginia, Georgia, Arizona, just make a ton of sense for us that these are states. We've got great payer partners that want more nurses they want more densification of our resources. So the idea of of adding significant density in these states as the <unk>.
Speaker Change: For US and then you said in new Mexico was on our top five.
Speaker Change: States to two to grow into so this is the perfect.
Speaker Change: Knowing what I now know about Kansas I should have added Kansas to the top five states. So we're really excited a couple of our Mcl partners had asked us about being in these states. So the fact that we're able to now grow in those states I think is meaningful.
Speaker Change: The size is yes, it's a little bit bigger from a revenue standpoint, then probably is a pure tuck in but we really think of this as just talking into the Avi on a family.
Speaker Change: Because we're not using any debt. This is incredibly incredibly accretive to us and delevering in nature. So it's just a it's a great scenario, it's an absolute win win win for us culturally from a business strategy standpoint, and a deleveraging standpoint. This is a win win win for US. So Matt you want to touch on how we think about.
Matt Buckhalter: Guidance, yes.
Matt Buckhalter: We haven't included it in our guidance at this time, just because based upon timing of closing we have pretty good line of sight, but you never want to get out in front of your skis. There by a few weeks that materially impacts any of your guidance. So we'll update August with that number in there, particularly back to Jeff's point about the culture of this team and the organization and really bringing in good people.
Matt Buckhalter: We want to be part of Avi on our story and continue to provide great character are our patients. That's we're looking forward to bring in the <unk> organization.
Matt Buckhalter: And I think this fits the spirit of what you should think about us doing in the future. This is this is we will do as many thrive type acquisitions as we can do both in home health and hospice as well as Pds and once we get our medical solutions operating target operating model in place, we'll be back in the medical solutions Enteral nutrition growth.
Matt Buckhalter: M&A growth business as well.
Speaker Change: Great I appreciate the commentary there I guess as a follow up just on Medicaid policy side no broader development in your advocacy efforts. There could you just give us any updates on where those conversations stand with your federal counterparts and.
Speaker Change: And did you notice any unfreeze over the past month or so with communications.
Speaker Change: Administrations settled in here at the federal level.
Speaker Change: Yes, I think my comments are mostly going to be positive on this topic as I think most importantly, the last few months have really demonstrated how significant the bipartisan support for Medicaid Medicaid program integrity really is I think.
Speaker Change: Both parties all branches, including the new CMS appointees for both Medicaid and Medicare are really just showing thoughtful dialogue and thoughtful conversation around anticipated savings. So I think from our standpoint, Ben it's been positive.
Speaker Change: And I think I think it still remains to be seen how this plays out of of course the summer so theres still a lot to be done.
Speaker Change: And if any legislation does impact Medicaid if at all but that still remains to play out, but I think I think our dialogue has been very very positive has been very open and it's great to see bipartisan support for the core of Medicaid program integrity being retained throughout throughout these.
Speaker Change: We also have we've gone on record, we also believe and saving costs for the federal and state governments. So at our core at Aviano, We're a cost saver and our studies show that we say between five to $6000 a day for our core patients. So again, we support the idea of saving dollars, both nationally and a state level in.
Speaker Change: And I think our our dialogue has been.
Speaker Change: Positive with our with the federal.
Speaker Change: Kind of parts as well as our state counterparts.
Speaker Change: Still still time will play out right. There is still as we recognize there are months in front of US before this fully plays out on a federal basis.
Pat: Thanks Pat.
Pat: Understood. Thanks.
Speaker Change: Our next question comes from Ben Hendrix RBC. Please proceed with your question.
Speaker Change: Great. Thanks, guys. Most of my questions have been answered, but just wanted to follow up on this five rated enhancements in the first quarter I just wanted to get an idea of size of those increases.
Speaker Change: Probably just normal course increases.
Speaker Change: Also.
Speaker Change: When it gets your comments there and.
Speaker Change: The outlook for larger double digit wage increases is California still the next kind of catalytic update we're waiting for there. Thanks.
Dan: Hey, Dan Good morning, Thanks, I think I'd separate two pieces of the rate.
Speaker Change: Matt talked about you know about half of the $11 million that we benefited from in the quarter was due to retro rate increases so I would separate that right because that's really a retro catch up of ray.
Speaker Change: I think the part that you are focused on is really how meaningful were the five government affairs right wins in the two preferred pay rate wins and I think that's how we think of the core business that to Peter's question like like what does this look like in two quarters clear.
Speaker Change: Clearly at $12 37, and spread we are hot so we still have work to do to pass those wages through to the caregivers, we expect that number to come down.
Speaker Change: And Q2, and we expect it to come down again in Q3, and we think we think them by time, we get to Q3 and you see spread per hour, we think youll see it in more normal what youre used to seeing from us in that somewhere between 10 and $11 range.
Speaker Change: And we think that kind of as the run rate moving forward.
Speaker Change: We are not expecting material G E rate wins mid year. So so we are expecting additional G&A rate wins, but not not at the level that we've been talking about over the last three or four quarters. So we're thinking through G. E rate increases that will be maybe single digits percentage in nature, which are still beneficial to us.
Speaker Change: And then again from the PR side too.
Speaker Change: Two two.
Speaker Change: Our goal this year was eight additional preferred payer agreements in.
Speaker Change: And <unk>.
Speaker Change: <unk> two nice ones out of the out of the gate team is dialed in and got a very robust pipeline. So I think I think our PR wins this year will continue to be.
Speaker Change: Above our probably our expectations and create good momentum for us going into 'twenty six on the PR side of the business last thing I'll say is Matt comment we have touched much on home health related but signed three more agreements in Q1, all episodes signed three visual episodic treatments 45 episodic agreements. This really gives us the.
Speaker Change: Underpinning to grow home health and hospice for that nature and get back to organic growth of our business. Our rate was up just shy of 4% and home health and hospice on a revenue basis. So we're really excited about where we are from both the Pds, but also a home health and hospice.
Speaker Change: On the preferred payer strategy and how it's flowing through our clinical outcomes are financial outcomes, our collections and just making us a stronger company.
Speaker Change: Okay, great. Thanks.
Speaker Change: Just to get an idea on the Pds side and how much volume could be coming into these preferred care relationships can you are you mentioned, 54% of the volume in preferred.
Speaker Change: It relationships currently where does that go pro forma for bringing bringing up to 30.
Speaker Change: <unk> relationships by the end of the year. Thanks.
Speaker Change: Hey, Ben Great question, and if we get to the point if you start playing law of large average or law of large numbers out there and so the larger that number as the harder. It is to turn we do think that you will see a significant step up in Q2 as well and then Q3 will get there I mean, we will be in the mid mid to high Fifty's exiting this year, we think that'll be a great position.
Speaker Change: <unk> for ourselves, we want to make sure that we're providing the most care possible what through these preferred payer relationships. So whenever we get those rates, we're passing those through our current caregiving staff that is currently under those payors, but also putting it out there for other caregivers to be able to jump on new cases, and bring patients out of the hospital as well. So I think realistic you can.
Speaker Change: See a nice little jump in Q2, and then that will level off on the growth a little bit and being that.
Speaker Change: Mid to mid to high Fifty's exiting the year.
Speaker Change: Great. Thank you. Thanks.
Ben: Thanks Ben.
Speaker Change: Our next question comes from David Macdonald with Trust Securities. Please proceed with your question.
integration Mcallister: Hey, guys. This is integration Mcallister on for Dave.
David MacDonald: Most of my questions have been answered, but just wanted to follow up on home health episodic mix was obviously strong in the quarter, but total episodes were flat. So just wanted to check on how that compared to your expectations and how we should think about volume growth through the remainder of the year.
David MacDonald: Alright, Great question Grace and thank you Yeah, I think to my to my comment I think we're well positioned to grow we are well positioned to grow we've got the model in place.
David MacDonald: We would even if we would even accept three years to 4% less episodic.
David MacDonald: Mix is 77 getting back down to 75 down to 70, 273%, which would tell us that we're accepting a little bit more a little bit more business from our hospital partners specifically.
David MacDonald: The model set right near our clinical outcomes are off the charts fantastic in our home health and hospice, where we're over $4 five out of five stars in our home health business.
David MacDonald: We've got a 99 point I think down nine 8% hospice cap ratings. So we are at the top of the clinical ladder in both home health and hospice and incredibly proud of it margin profile is absolutely dialed in.
David MacDonald: Low <unk> gross margin. So it's really just now about growing smart admissions and smart episodes in total.
David MacDonald: With a 45 <unk>.
David MacDonald: Total episodic agreements plus Medicare. It's just it's just a great place for us to be we bolts, we bolstered our sales team. We have we have re bolstered some some open positions even even layered in some additional growth oriented positions in home health and hospice.
David MacDonald: I think we feel really good about where we are.
David MacDonald: Mid Q2 on our on our Q2 numbers and what we're not going to be a four 5% or 6% year over year organic growth HHH business, yet I say, yet that is our goal to get there, but we think we can be in that 1% to 3% organic volume growth plus another couple of points on the rate to get to that.
David MacDonald: Four or five 5% total total rate growth for home health and hospice, but I think youll hear I think youll hear us be incredibly robust the model is dialed in and honestly I've been doing this for 26 years and its.
David MacDonald: <unk> dialed in as high as I've seen it in the last 26 years, so even in a tough macro environment for home health, we continue to thrive and I feel confident in our team is well positioned for volume growth.
David MacDonald: Great. Thanks, guys.
David MacDonald: Thanks, Craig.
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: Great. Thank you everyone. So much for your interest in our Aviano story, we certainly look forward to updating you on our continued progress and we'll look to talk at the end of Q2 in August Thanks, and have a great day.
Jeff: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Jeff: Yes.
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Jeff: Yeah.