Aveanna Healthcare Holdings Inc. (AVAH) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning. And welcome to the Aveanna Healthcare Holdings First Quarter 2021 Earnings Conference Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Shannon Drake, Aveanna's Chief Legal Officer and Corporate Secretary. Thank you. You may begin. Shannon Drake: Rod Windley : Thank you, Shannon, and welcome to Aveanna's first earnings call. I'd like to take a moment and thank everyone on the call today for your interest and commitment to Aveanna as we move forward as a public company. In addition, I'd like to thank everyone, including our Board of Directors, our accountants, our lawyers, and most of all our employees. Your hard work has culminated in the important milestone that brought Aveanna to the NASDAQ Exchange on April the 29th. We are extremely proud of our results for this quarter and our continued growth through acquisitions. As previously disclosed, our recent acquisition of Doctor’s Choice further expands our footprint in the State of Florida, one of the fastest growing geriatric markets in the country. Our pipeline of acquisitions remains robust, and we plan to continue to accelerate our growth through this process as we move forward. Finally, we are excited to announce that Dr. Erica Schwartz has been appointed to the Board of Directors of Aveanna. Dr. Schwartz brings a wealth of knowledge and experience to the boardroom having previously served as Deputy Surgeon General and Chief of Health Services for the U.S. Coast Guard. We are thrilled to have Dr. Schwartz join our team. And with that, let me turn it over to Tony and the team to discuss our Q1 results. Tony? Tony Strange : Thanks, Rod. And good morning, everyone, and thank you for joining Aveanna's first quarter earnings call as well as Aveanna’s first call as a publicly traded company. We're excited to share our results and to have you participate in our Aveanna story. On behalf of Rod and myself and the entire executive team, we'd like to thank all of our shareholders, our analysts for your participation in our IPO and we look forward to building shareholder value together. In addition, we'd like to thank all of the employees of Aveanna, especially the caregivers in the home, without you none of these results are possible. As a reminder, Aveanna is a diversified home care company providing services to children, adults and seniors through a scaled platform across 30 states. We deliver these services with a focus on providing the highest quality clinical outcomes and customer satisfaction in a consistent and compassionate manner. Today, the company engages over 42,000 caregivers to provide service to in excess of 60,000 patients. As noted in our mission statement, we do this one patient at a time. As outlined in our S-1, our 10-Q and our press release, we provide these services through three business segments. Our largest segment, Private Duty Services provide hourly based care in the patient's home. While we provide both skilled and unskilled services in this segment, the majority of our hours are skilled nursing care for medically fragile children. Jeff Shaner: Thank you, Tony. It brings me great pleasure to share our Q1 2021 operating indicators and key metrics. I will focus my comments on our three operating segments, Private Duty Services, Home Health & Hospice and Medical Solutions. We report each segment as a unique business unit with a full complement of operations, sales, improvement, payer and government relations, clinical support and technology to support the delivery of our care. Each operating segment has a fully dedicated management team, established key indicators and a strong commitment to the Aveanna 5 Cs, core values and commitment to compliance. David Afshar: Thank you, Jeff. Tony and Jeff have given us some great color on our quarter and the positive outlook that we have right now. I'll now provide some more details on the results of operations, adjusted EBITDA, liquidity, some recent events in Q2 that we're very proud of and 2021 guidance. With respect to results of operations, revenue was $417.2 million for the first quarter of 2021, as compared to $355.2 million for the first quarter of 2020, an increase of $61.9 million or 17.4%. This increase was driven by growth across our key segments, including a $30.3 million or 9.5% increase in PDS revenue, a $27.0 million or 604% increase in our Home Health & Hospice revenue and a $4.6 million or 15.2% increase in Medical Solutions revenue. Jeff mentioned it, but our PDS segment volume growth was a robust 11.1% with both organic volume growth and new volumes contributed by the numerous acquisitions we completed in 2020. Our Home Health & Hospice segment revenue growth of $27 million resulted from the incremental revenue generated by the two 2020 Home Health & Hospice acquisitions that we closed in the fourth quarter, Five Points and Recover Health. And as I'll elaborate on later, we've continued our Home Health & Hospice M&A in 2021 with the acquisition of Doctor's Choice in April. Our Medical Solutions segment volume growth was 10.6%. On the rate side of things, while our PDS revenue decreased 1.6% overall due to the change in business mix that Jeff mentioned earlier, we view the PDS reimbursement rate environment as a tailwind resulting from both permanent and temporary rate increases issued by various state Medicaid programs, and which is positively benefiting our PDS businesses. Revenue rate in our Medical Solutions business increased 4.6% from the year ago quarter. Turning to gross margin, our gross margin was $131.7 million or 31.6% of revenue for the first quarter of 2021, as compared to $107.5 million or 30.3% of revenue for the first quarter of 2020. The 22.4% growth in our gross margin compares favorably to our revenue growth of 17.4%. Our gross margin percentage increased 130 basis points in the current quarter as compared to the year ago quarter. Operating income was $28.3 million for the first quarter of 2021 or 6.8% of revenue, as compared to $17.9 million or 5% of revenue for the first quarter of 2020, an increase of $10.4 million. Operating income for the first quarter of 2021 was positively impacted by an increase of $14.5 million or 30.2% in field contribution as compared to the first quarter of 2020. The $14.5 million increase in field contribution was delivered by a $61.9 million or 17.4% increase in consolidated revenue, combined with 140 basis point improvement in our field contribution margin to 14.9% for the first quarter of 2021, an increase from 13.5% from the first quarter of 2020. Field contribution and field contribution margin are important metrics to us because it helps us assess and make decisions about the operating performance of our core field operations, prior to corporate and other costs not directly related to our field operations. It helps guide us in determining whether our branch and regional administrative expenses are appropriately sized to support our caregivers and direct patient care operations. Moving on to net income, net income decreased $31.8 million for the first quarter of 2021 as compared to the first quarter of 2020. And while that looks like a significant decrease in net income, if you exclude the $50 million legal settlement we received in the first quarter of 2020, our net income actually increased by approximately $18.2 million in the current quarter as compared to the year ago quarter. And that's primarily as a result of the $10.4 million increase in operating income I mentioned earlier, and an $8.3 million net decrease in valuation charges associated with our interest rate swaps, and net settlements incurred with swap counterparties. Moving to adjusted EBITDA, adjusted EBITDA was $43.7 million for the first quarter of 2021 as compared to $29.8 million for the first quarter of 2020, an increase of $13.9 million or 46.7%. We're very pleased to see expansion in our adjusted EBITDA margins from 8.4% in the first quarter of 2020 to 10.5% in the first quarter of 2021, as the quality of our adjusted EBITDA has improved, primarily due to the 180 basis point improvement in our operating income as a percentage of revenue. With respect to liquidity, we had strong liquidity at April 3, 2021, with cash on the balance sheet of $67 million and available borrowing capacity under our revolving credit facility of $55 million, resulting in total liquidity of $122 million at the end of the first quarter. And this is after returning in the first quarter $25.1 million of provided relief funds to the federal government and $4.3 million of stimulus funds to the State of Pennsylvania, both of which we received during 2020. With respect to our cash collections and DSO, we're pleased with how our revenue cycle teams continue to perform in a remote work environment. Our focus is integrating the collection operations of the companies we have acquired and normalizing our collections processes for the new electronic visit verification requirements. Proud of how collaborative our revenue cycle and operations teams work to drive excellence in cash collections, which is one of our 5 Cs. Our DSO was 40.2 days for the first quarter of 2021 as compared to 40.9 days for the first quarter of 2020. We expect our DSO to increase over time as we grow our Home Health & Hospice business, as those businesses generally have longer collection cycles. Our capital expenditures in the first fiscal quarter of 2021 were 0.6% of revenue, as compared to 1.8% of revenue in the first quarter of 2020. We typically view or CapEx in a range of 1% to 1.2% of revenue. Our CapEx in the first quarter of 2021 was lower-than-normal due to timing of current year expenditures. I'd like to now cover a couple of recent events in the second quarter of 2021. On April 16, 2021, we closed the acquisition of Doctor's Choice for purchase price of $115 million as we continue to execute our M&A plans. In a short period of time, we have grown our Home Health & Hospice business to $200 million in annual revenue on a pro forma basis, inclusive of Doctor's Choice based on first quarter results. We financed the Doctor's Choice acquisition in part with a $67 million incremental second lien term loan. This incremental second lien term loan was repaid with proceeds from our IPO, which I'll speak to next. On April 28th, we became a public registrar; and on May 3rd, we closed our initial public offering. What a milestone and a tribute to our caregivers and support staff, without whom this would not have been possible. Including the green shoe that we recently partially exercised -- was recently partially exercised by our underwriters, we sold approximately 42 million of our common shares and raised approximately 507 million of gross proceeds from the offering in total. Net of bank fees, we received approximately $478 million. We used those funds primarily to repay debt and accrued interest, but also to pay for offering costs and related items, funding the remainder of the cash to the balance sheet for general corporate purposes and future M&A. Specifically, with respect to debt repayment, we used $307 million of IPO proceeds to fully repay and extinguish our 240 million original second lien credit facility, as well as the 67 million incremental second lien term loans borrowed in the second quarter of 2021 to finance or acquisition of Doctor’s Choice. And we used $100 million to make a principal payment against our first lien credit facility. Pro forma for these principal payments that we made with the IPO proceeds, we had $862 million of total credit facility debt as of the end of Q1 '21. And lastly, we upsized our revolving credit facility in connection with the IPO, which further enhances our liquidity. We've now increased total capacity under the credit facility from $75 million to $200 million. As a result of our initial public offering and repayment of debt, the rating agencies have taken positive actions. On May 3, 2021, S&P upgraded our issuer and issued level credit ratings from B minus -- to B2 minus from CCC plus, with a positive outlook. On May 4th, Moody's upgraded our corporate family rating to B2 from B3 and affirmed our B2 rating on our senior secured first lien credit facility with a stable outlook. We were pleased with these ratings actions. And turning to our full year 2021 guidance, we anticipate our revenue to be at least $1.745 billion. We anticipate our adjusted EBITDA to be at least $185 million. And for the reasons outlined in the press release, we are not providing guidance at this time on net income. And one other item, we also currently plan to provide guidance on adjusted net income per share in the future as we mature as a public company. In summary, we've entered 2021 from a position of strength with first quarter earnings that exceeded our expectations. Additionally, we're pleased to have returned $29.4 million of provider relief and stimulus funds in aggregate that we received during 2020 to the respective government agencies in the first quarter of '21. The proceeds we received from our IPO and the debt we retired as a result has reduced our leverage and related debt service costs in the second quarter. With our improved capital structure, as well as recent positive rating agency actions, we believe we're in even better position to capitalize on the market opportunities before us. And with that, operator, we're ready to open up the call for questions. Operator: . Our first question comes from the line of Steven Valiquette with Barclays. Steven Valiquette: So a couple of questions here. First, just regarding the revenue rate in the PDS segment that was down a little bit year-over-year. You mentioned the change in the business mix between skilled versus unskilled services, and how that should normalize -- start to normalize in the back half of the year. I guess as we think about that recovery, how granular you can get on additional color around this? Or should we assume that, that revenue rake and move back up into the high 30s during that recovery this year or should we still think of that more like a mid-$30 type number during that recovery phase? Then a quick follow-up on the same subject is just any additional color you can provide just on the environment for collective state rate updates, and how that is also impacting your outlook for that metric for the rest of the year? Tony Strange : Well, first of all, Steve, that's a very insightful question, and I think we can give you some color. So I think the change that Jeff talked about in the rate, I think is probably most important to recognize what it's not. It's not a change in payment rate or payment methodology from a payer or from a state. So it is -- as Jeff described, it's a change in the business mix between skilled and unskilled. And so as it relates to how we're thinking about it for the rest of the year, Jeff why don't you talk a little bit about the seasonality piece and how we expect that to shift with schools? Jeff Shaner: Yes. As Tony said, and as we've in our comments, really tied to the COVID pandemic, we've seen a slight downturn in our school business and it is much from the workforce side of it, it is much from our nurses who are staying at home with their children and unable to work. And so it’s some of that skilled business that we would normally have. And then as Tony mentioned, we have a decent amount of schools, skilled nursing hours where our nurse actually goes to the school with our medically fragile child and obviously would be the sensitivity around our children and the COVID pandemic. Most of our kids have not attended school in person both in Q4 of last year -- Q3, Q4 of last year as well as Q1 and now we're like Q2 of this year. We see good trends in how the vaccination process is working. We talk to a lot of our parents and they are intending on putting their kids back in school in the fall, and that really starts to move for us in August. And certainly by Labor Day, September, our schools are back in full session. So, I think as we said our prepared remarks, we expect that to really normalize both from a volume standpoint on our skilled business -- skilled nursing business, as well as our overall rate. And I think as Tony mentioned, we feel very good about that. Tony Strange: So Steve, the second half of your question was related to the -- really the payer and state environment. I'll go all the way back to the beginning of COVID. Many of our states put through rate increases during the first half or the middle of 2020 and some of those states put those rate increases through as temporary rate increases. However, since that time, a lot of those states have now moved those rate increases to permanent rate increases going forward. So, in the second half of 2020 and in the first quarter of '21, I will tell you that our overall rate environment has been positive, and we see that continuing. I'll give Jeff and his payer relations team some credit here. We made an investment back in the first part of 2020 in a government relations and payer relations strategy, and these guys have done an outstanding job in not only keeping rate positive but moving rate forward. And so, we've got additional rate relief coming in '21 and we think for the foreseeable future rate is going to be a positive story in our PDS segment. Operator: Thank you. Our next question comes from the line of Matt Borsch with BMO Capital Markets. Please proceed with your question. Matt Borsch: Thank you and congratulations on everything you've accomplished in the last two months. I wanted to ask about how you see the timeline to normal trends? How much do you anticipate this is going to look like? What the business looked like prior to COVID versus where do you see sustained impacts from the pandemic as you move through rest of this year? Tony Strange: Okay. Well, first of all, Matt, that was a compliment. Thank you. We don't get a lot of those. So anytime we do, we celebrate for a second. So, appreciate the kind words. As it relates to the kind of the normal timeline, and your question about when do we get back to that? I'll tell you, I think we're back to that today. As a matter of fact, in my opinion, I think we're for the most part back to there in Q1 of '21, not because we are where we were prior to COVID but I believe the definition of normal has now changed. And I think that where we are today is where we're going to continue to build from going forward. So I'm not -- we're not expected -- Jeff, I'll ask you to jump in, but we're not expected that, okay, well, in June, all of a sudden things are going to go and change in some way or another. We think we're living in what's going to be our normal world going forward. But any color you want to add, Jeff? Jeff Shaner: Yes. That's well said, Tony. I think our investments, Matt, in technology that we invested in '19 and '20, infrastructure around recruitment, and as Tony talked about government relations and systems -- point of care systems for our business have really helped us benefit from an operating leverage standpoint. Dave talked about the improvement and what we call field contribution, you see the improvement in adjusted EBITDA. And I attribute that to, as Tony talked about, there's a new norm post COVID and we have found a way to operate the business more efficiently, and I don't think -- we don't plan on going back to the old way. Tony Strange: I think, Matt, maybe I read a little bit more into your question. If you think back to prior to COVID, recruiting new caregivers and nurses for us was difficult. Post-COVID recruiting nurses and caregivers is difficult. And I think that's just the world that we're all going to live in and we can't solve that problem. But what we're going to do is make it better for us than anybody else. And so the investments that Jeff talked about into our recruiting structure, I believe is going to pay-off for us in the long run. Now granted our country is struggling with getting people back to work. And while that's above my pay grade, as the unemployment benefit subside and people find a need to go back to work, I think it might make our jobs a little bit easier. But we're not waiting around and hanging our hat on that, we’re operating as if this is the new normal for us. Operator: Thank you. Our next question comes from the line of Lisa Gill with JP Morgan. Lisa Gill: I just wanted to follow-up on two things. One, can you just remind us that the size of the pipeline of acquisitions that you have? And then secondly, I heard the comments that, you don't have any acquisitions currently and the guidance that you gave us for 2021. But can you just remind us how long it would take to close a transaction? Is there the potential that you'd have that opportunity to close something here before the end of the calendar year? Tony Strange: So certainly, Lisa, let me -- and I'm going to take your question kind of in reverse. And I will start with the guidance and then Rod I'll ask you to jump in and talk about our pipeline. So our guidance does not include any future M&A. So we closed Doctor’s in April of this year and that's the only transaction that we have closed in 2021. And so the $1.745 billion in revenue, the $185 million in EBITDA does not include any other acquisitions other than the Doctor’s Choice acquisition that we discussed. With that, we do have a robust pipeline. Rod has been managing that pipeline. Rod, why don't you give a couple of comments about the size of the pipeline and how long it takes from beginning to end. Rod Windley: Lisa, our current pipeline today is roughly $300 million that we're working with on a daily basis. Those are acquisitions in the $20 million to $80 million ranges as we have previously disclosed. We normally kind of work on acquisition pipeline of around this much now. We're very disciplined. That doesn't mean that we've got candidates coming on and going off all the time. We don't do every acquisition that comes our way. We look at a fair amount but we don't close a lot. So we're very particular in discipline with regard to our approach. I think that we have previously disclosed, it takes us about 45 days from the date that we sign a transaction to closing it and we fully integrate every acquisition within 12 months. Tony Strange: But I think Lisa the way that I would think about our acquisitions going forward is we don't have control over when some of these assets come up for sale or the timing of that. So it's a little bit hard to predict the timing of close, so that's why we don't include it in our guidance. However, internally, we're going to continue to grow through acquisition and somewhere between $150 million and $200 million a year is a pretty good number for us. And we believe that we'll be able to achieve that not only in '21 but in '22 and the years following that. So we're going to continue to be very assertive as it relates to our growth through acquisition. Lisa Gill: Just given the focus on home health, do you find that the competitive landscape has changed at all over the last 12 months for these assets as we think about acquisitions? Rod Windley: No, the competitive landscape really hasn't changed really at all. Other than the fact that it's not so much strategic buyers that are out there in the market, it’s more private equity and that's the only change I've seen. Tony Strange: But one of the things that we've been successful at is that, as Rod talks about with the private equity competitors in these deals is that when we identify a transaction that is a good strategic fit for Aveanna, we're going to close that transaction. Our synergies have a lot of value and we can exploit those values in our pricing. And so if it's a good asset and it's a good fit for Aveanna, we're going after and we're going to close that transaction. Operator: Our next question comes from the line of A.J. Rice with Credit Suisse. A.J. Rice: Maybe just look at the cost side for a minute. You alluded to labor obviously being a relatively tight supply. Can you give a little more flavor on the Private Duty side as well as the adult home care side? What you're seeing, how much of a constraint that is? I think there was a mention that you've got some people that are at home with kids and other things that you expect to see schools reopen and all opening back up. How much of a constraint is that right now and how much of a swing could that be for the back half of the year? Can you just give us a little more granular discussion around your labor trends? Jeff Shaner: I think both sides of it. One, I think from the cost side of it, we haven't seen really any leakage on margin or even it being a cost issue, which is nice. So I think as we think about our margins, as we think about the rate increases, the known rate increases and the ones we're still working on for the latter half of 2021 going into 2022 legislative cycle, I think we feel really good in the cost side of it. I think we've seen kind of on the back half of COVID, it's really a nurse saying I need another $0.50 an hour, a dollar an hour. It's just getting that nurse back into the workforce. Tony alluded to it and I think we've heard some of our peers talk about it. The macro trends with unemployment we ultimately do need unemployment checks to come down in the value, the dollar value over time. We're certainly not waiting on that. We're certainly not betting on that. But that macro trend will help our industry and certainly help us. I think the biggest thing for us is really getting kids back to school. I mean, we talked about it, getting kids back to school really helps us from a revenue growth strategy, because it's our kids, our patients with our school, but it's also to that nurse who maybe a single mom, who's got a couple kids. It doesn't matter if we pay $1 more an hour if you've got two kids at home, she can't feel a shift, she got to stay home. And so that macro trend moving back to both schools and also federal and state unemployment rates coming down a little bit, I think will help us. But I think as you think of our growth rates that you saw in first quarter, I think as we think of 2021, those won't -- we don't see those materially changing. We think those growth rates and the ones we talked about in the roadshow are still very solid for our PDS segment, as well as our Home Health & Hospice segment. We can always use -- A.J., we always use more nurses, so it's not an issue of we had too many. But I think it's something that we just find the ability to fight through every day. Rod Windley: And A.J., Jeff gave a metric in his prepared comments and he talked about the spread in private duty services. And that spread is a key metric and one that we gave -- we deliberately put that out there for folks to follow. And I think in his comments he framed that out and says that the spread is going to fluctuate between 10 and 10.50. And I think that answer is ultimately the answer to your question is that we think that spread is going to continue to be in that 10 to 10.50 range. And if you ask us well, what about it by the end of '21, nothing that we can see on the horizon would change how we're thinking about that metric. So if I were in your shoes that would be the piece of the private duty business that I would anchor to. A.J. Rice: And maybe just further on the cost side, it looks like your branch and regional expense as well as your corporate expense in terms of ratios relative to revenue were a little better than we were thinking they were going to be. Can you talk a little bit about the potential for leverage there as you grow the business? And what are the implications for long term margin enhancement opportunities as you get leverage on those lines? David Afshar: As we've grown over the past year, we have already leveraged our branch and regional infrastructure as well as our corporate infrastructure, and so we're pleased with the results that we've turned in. And we think we have some leverage to gain in the future as well. So strong cost control as Tony and Jeff mentioned it. Our operators have done an exceptional job of growing the business, but at the same time, controlling costs. And so we think we've got leverage both in the field as well as in corporate. Rod Windley: And as a reference point, A.J., if you go back a couple of years ago, our corporate expense, Dave, put it in our press release last night. Our adjusted corporate expense numbers down to about 4.7% of revenue. We've picked up 200 basis points in the last couple of years just on corporate overheads. And so as we continue to grow in that mid to high teens year-over-year, we're going to continue to gain leverage against that corporate and regional SG&A. So we think we've got runway left. Operator: Our next question comes from a line of Joanna Gajuk with Bank of America. Joanna Gajuk: My first a follow-up, the commentary around organic growth at each of your business lines you expect to continue to outpace the market. So what was the organic growth, I guess, in your home health market, in your home health segment? Tony Strange: So we didn't break out organic growth from acquisition growth, primarily in our Q1 numbers there's no new acquisitions in that number. All of the acquisitions that were done that are in our Q1 numbers were done in 2020. And as Jeff alluded to, we get after integration very quickly through our integration management office. And this IMO team begins integration literally before we even close. And so because of that when we have overlapping locations, we consolidate those locations and those just become a part of our organic story. So we've not broken out our growth rates organically versus through acquisition. With that said, our businesses, we have talked publicly, depending on who you read, the home health market is growing 4% to 7% year-over-year in home health and our home health organic growth is outpacing that by a few hundred basis points, and we believe that trend will continue. Joanna Gajuk: And just again your market share when you come in into the market when you acquired these assets and you are just going to improve the operations and be able to grow faster than the market rate… Jeff Shaner: I don't think as we identify as -- and I'll use Doctor's Choice as a great example. We're not looking to necessarily take Doctor's Choice and just grow it faster. We bought it because we think the growth story of Doctor's Choice is spot on. As Tony talked about, we are going to gain leverage in Doctor's Choice through back end synergies and then making it part of the Aveanna family. But we are extremely pleased with Doctor's Choice organic growth rate. It's outgrowing the Florida market and most of its peers in the market, and that's part of why we bought it. We liked that asset and it create density. But to Tony's point, we are 30 about 30, a bit 30 days into the closure of that and we're already into integration, we’re already up and running, the team is doing great and it's exceeding our expectations right out of the gate. So it's not as much about changing the growth story, it's really about getting the synergies and then bringing it into our family. And most importantly as we mentioned with both Recover Health and Five Points is growing through the integration process. And I think we're really pleased this year-to-date 2021 with how the home health business has grown through the integration process. Tony Strange: And Joanna, if it's helpful, I think we have made this comment already publicly. We expect our Home Health & Hospice business to continue to grow in that high single digits approaching low double digit growth year-over-year, and we don't see that slowing down at all. Joanna Gajuk: And my question was I guess on the home health side of things in terms of your targets for acquisition. So you're talking about growing revenue in mid to high teens going forward, including acquisition. So how should we think about kind of the amount of revenues you expect to acquire and then how will you be financing these transactions going forward? Tony Strange: Well, I think we tried to put bookings on that a few minutes ago. On any given year, we think that we'll be acquiring $150 million to $200 million of revenue on any given year. Now I will caution you that's not all in Home Health & Hospice. We are going to be opportunistic about continuing to grow our Private Duty Services business as well. And when opportunities to acquire quality assets come up in that space, we'll take those on as well. But I think if you were to use a range of 150 million to 200 million a year, that's probably a pretty good place to land. As it relates to pay inform, as Dave outlined, we've got strong cash on the balance sheet. As we've discussed in the press release and in our Q, we've executed on additional shares through the shoe. That brings us probably to about $90 million to $95 million available to do M&A with cash on our balance sheet. We'll continue to use leverage where it makes sense. We were planning on bringing our leverage ratio down to between 3.5 and 4. Our IPO was a little bit shorter than we had anticipated, so leverage ends up being between 4 and 4.5 gross leverage versus net leverage. We're certainly comfortable in there. We can continue to use our balance sheet to grow. Dave also mentioned we have access to another -- we increased our revolver to $200 million, so we've got access to use to be in or out of the revolver to continue to grow. And then on top of that, we have our equity, both we could execute on a secondary offering and raise capital that way. We have sponsors that are highly supportive of growing this business. And lastly, we could use our stock as a currency. Now granted that's not something we've talked about thus far but it's something -- we've got all of those tools in our bag, I don't think access to capital is going to constrain our growth through acquisition at all. Operator: Thank you. Our next question comes from line of Pito Chickering with Deutsche Bank. Pito Chickering: So two clarifications here, your margin this quarter is very strong at 10.5% and also generally in line with your guidance for 2021. You did referenced continued room for gross margin improvements in Home Health & Hospice plus additional SG&A leverage. So I want to see if you can walk us through the margin progression throughout 2021, will it prevent you getting to the 11 plus range by the fourth quarter? Tony Strange: Well, I think in terms of the outlook on '21, I think about all we're going to be able to say is that the guidance that we've given 1.7 billion in revenue and not less than 185 million in EBITDA, with that, I do believe that there is, again, clear runway for us to continue to improve margins. And Jeff mentioned it in his remarks, our home health margin today runs about in the mid-40s. As we are bringing on new acquisitions, those acquisitions are running at higher gross margins already because they've had a little bit more time under PDGM. And we think that as we grow that business, we will see that gross margin expand to the upper 40s or even low 50s. And we'll continue to make investments and enhancements in our business to get that. I think in our Private Duty Services business, I think our margins are kind of where they're going to be. I don't -- again, it's not a very complex business. We get paid by the hour and we pay our caregiver by the hour. So gross margins are relatively fixed. And so likewise, Jeff said it earlier, I don't think there's a tremendous downside with wage pressure in the immediate future. But on the flip side of that, I don't think there's a tremendous upside because of wage pressure as well. So our gross margins are kind of be flat there. And in the Medical Solutions business, while it's much smaller, our gross margins are going to run mid-40s, that's kind of somewhat of a commodity and that's just kind of where that's going to be. Now with all that said, I do believe there's additional margin expansion that can be had through the leverage of overhead. Dave talked about it. I think A.J. asked the question and so did Lisa, that as we continue to grow, you think about that mid to high teen growth, as we grow that revenue, we're not going to have to grow our corporate infrastructure. We have a we have a very robust compliance program within our corporate infrastructure. We don't have to duplicate that because Rod brings us another $80 million of acquired revenue, and so we'll continue to gain that leverage going forward. And so I think that's going to afford us the opportunity for margin expansion. Pito Chickering: And then a follow-up question on the PDS side and the skilled versus unskilled. Any chance you can quantify the our split between sort of those two businesses in the first quarter. And as you expect that to rebound in the back half of the year, do you think that you can recruit to select demand? Historically, I believe that recruiting was a limitation of growth in PDS. So I want to make sure I can understand both the demand from kids going back-to-school. In recruiting a nurses in the back half of the year to fit that demand? Tony Strange: Jeff and I will tag team that. Let me set the table with we're not going to disclose skilled versus unskilled because then we get into all sorts of other services within Private Duty Services, whether it’d be through our pediatric day health centers, or therapy component, or clinical component. The next thing you know, we're trying to parse that out into 17 different pieces. So we're not going to disclose further below our Private Duty Services segment. With that said, though, we'll try to provide you with some color. Jeff, why don't you talk a little bit about the kind of patients at skilled and unskilled, and what causes them to go up and down? Jeff Shaner: Pito, really the reason we've seen not only the consistency but even the growth through the unskilled side of the business is it's really a family member, a neighbor, a distant relative who's providing that unskilled service. And so through COVID, there's a higher level level of trust between the family and the caregiver there. And it was -- to be honest, it was just easier to keep that group connected, both a family member or a neighbor who's providing that unskilled care to the family. That business has just stayed much more connected and even honestly has grown through the COVID process. Our day health centers, going back a year ago, our day health centers back in April, I think we're fundamentally shut down for like 60 days. We didn't have a single patient. And then slowly, Florida opened up, Pennsylvania -- some of the states opened up and allowed day health centers for us to start bringing the kids back in. So at this point, we've seen that business primarily rebound. There's still a little bit. Pennsylvania is still opening up from 75% capacity to 100% capacity at the end of this month, which allows us to kind of round out that business. And then again, I just keep pointing back to schools. And just the school business, it's all skilled services, so it's an RN or an LPN that meets the family at the home and rides, the school bus with our medical factor child. So it's a skilled service in nature, connecting that business. It's -- you brought recruitment, it's an easier job for us to recruit for because it's primarily a 730 to 435 days a week. It's a good setting in a school setting. And so it's a much easier position for us to fill from a recruitment standpoint and in some ways, it almost fills itself, if you will. So just connecting that business and as Tony said, it's not going to miracally show up on August 1st. But as it phases back in over the course of August, September, October and really the end of the year, that will be a great signal to us that states are really starting to get back to a normal -- a sense of normality post COVID. And I think that, ultimately, we see that as a great sign for our business and even the ability to enhance our growth rate. Operator: Our next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: So since we're down to just one question, I just want to ask if we can level set post IPO, the right share count for 2022 and then, I guess the right debt levels to be thinking about for end of Q2, just for modeling purposes? David Afshar: As far as the share count, today, we've got 184 million of shares outstanding. When you think about the shares that may be outstanding at the end of the year or next year, there's still some mechanics we're working through with respect to the performance component of our options. And so I don't have a number for that for you on that right now, but it's something that we're still we're working through. And then as far as debt, as Tony said, I think the way to think about it is we see ourselves in the 4 to 4.5 turns of leverage range. Pro forma for the IPO, we were at $862 million in gross debt and we see it as 4 to -- low to mid-4s in terms of leverage going forward. Operator: Our next question comes from the line of Frank Morgan with RBC Capital Markets. Frank Morgan: I actually wanted to ask about the home health care side of the business. I know that across the three units, whether it's 5Points, Recovery Health or Doctor's, where are they in the PDGM process? Do you think you really maximize the rate opportunity there? I know you talked about a margin opportunity in home health. So is it more on the rate side from refining PDGM or is it more on a cost mix side question? Tony Strange: So let me start with the idea of getting back into the Medicare home health space. I think we spent the first half of '20 making sure that we understood PDGM and understood how it was going to separate winners from losers and the kind of metrics and systems that you have to have in place to appropriately manage PDGM. I think ultimately, we got extremely comfortable with doing that. I think the companies that we bought 5Points, Recover as well as Doctors' Choice, I think, have done an exceptional job clinically and they provide great care. I'm going to change a wording because I don't think we don't have an initiative to maximize reimbursement. And what we look to do is to deliver the right level of care to each patient under the orders of physician, the reimbursement will sort itself out. And so I think one of the things that we're going to do over time is we're going to bring consistency through each of those businesses that you just described, we're going to bring those into one clinical operating system going forward. And we'll use technology to make sure that our clinicians are documenting appropriately and that we are following physicians’ orders and that we're being compensated accordingly. And I think if we let that be our driving force, I think the outcome will be that we're going to be reimbursed appropriately for the services we're providing. Operator: Our next question comes from the line of John Ransom with Raymond James. John Ransom: Just my one question. If we step back and look at what you're building here, the market's not ever seen a pediatric company combined with an adult home care company. Other than just the normal back office compliance and accounting, is there a natural synergy between those two businesses, or should we think about it as this is a great platform, but it gives us just a chance to rebuild a integrate home health company? Tony Strange: So I'm going to start with the way you asked the question because I thought it was insightful. In terms of traditional synergy between the two, I think the answer is no. There's not a lot of overlap with staffing. There's not a lot of overlap with referral sources. There's not a lot of overlap with billing, the reimbursement piece. And to your point, there is a significant ability to leverage overhead across a much larger platform. And we’ll continue to benefit from being able to leverage our corporate expense across multiple platforms. However, I do believe that there is a pseudo synergy that exists, because we really diversify the risk profile of our business. And granted, from where we sit today, the horizon looks pretty clear. And so for the foreseeable future, rates look stable to positive, growth looks stable to positive. Our acquisition pipeline looks stable. But somewhere out there, there's a storm on the horizon. And I think that having a diverse business platform that would allow us to take a hit here or there without it being devastating across the entire business, I do believe is a strategic advantage for us going forward. So if the waters were to get choppy in any one of those three business segments, the other two business segments gives us the ability to weather those kind of storms, and we think that is a competitive advantage. So hopefully, somewhere in there, I answered your question. Operator: Our next question comes from the line of Scott Fidel with Stephens. Scott Fidel: I just have a follow-up question just on getting the skilled mix back up to more normal in PDS, and it sounds like to school reopenings is a key lever to that. Just interested as you have your conversations with the parents and in terms of getting your kids back into school because, obviously, they do have these more significant medical, complex medical situations. Are you getting any feedback in terms of is there more their parents looking more to get their kids vaccinated because of that, or do you just think that in general, just has the vaccination rates more broadly for teachers and other staff have increased so much, there will just be more comfort with the parents in terms of putting their kids back into the schools? Jeff Shaner: I'll tell you from the parents we've talked to, not unlike the parents that we are, they want their kids back in school. So they understand even though that their child's medically child and it's a specialized environment, they ultimately want their child back in school. They want them back in a safe manner, which goes to your point on not only their vaccination but the other kids in the schools vaccination, the teachers vaccinations, which I think is the primary driver why they were out, the majority of last year and still year-to-date. But now, when we talk to the parents, they know the socialization education that is gained for their kids is absolutely worth it. And they are working with the school systems to build a path back in. These parents are very vocal. They're very motivated. They work hard on their shareholder's behalf and they're excited to get back into the school setting. And most of these parents receive at home nursing services, too. So we're in their home on the off-school hours. So we're there in the evenings and nights and certainly weekends. But the idea of getting their children back to school is very important to them. So I think they're helping to solve the equation. They're helping the schools to solve the equation. And I think secondary and your question is really the vaccination rates, I think it's where we see both the national vaccination rates but also the vaccination rates within our own nursing pool at Aveanna, we feel confident that 2021 is really going to crest the, whether it's the herd immunity or the majority of people getting vaccinated, we feel like, by 2021 is the year where that happens. Tony, anything you'd add? Tony Strange: No, I think you said it well. Scott Fidel: Well, I'm sure for those parent it’s probably tougher having those kids at school that were at home than anyone else, so certainly makes sense. Operator: Thank you. Ladies and gentlemen, that's the end of our question-and-answer session. I'll turn the floor back to Mr. Strange for any final comments. Tony Strange: Thank you, and we appreciate your help during our call. I'd to like to, in closing, I like to welcome Dr. Schwartz to our Board on behalf of the entire executive team, we're looking forward to working with you. Buckle up. I'd also like to thank all of our employees again without the work that you guys do every single day, none of these results are possible. And we really appreciate all of the effort. And then lastly, I'd like to thank the folks that took time out of their day to join our call. We appreciate your support. You guys have been great during this process and we look forward to many future calls and being able to share our success with you. Thanks a lot, operator. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.AVAH Ratings Summary
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