10-Q 1 avah-20220402.htm 10-Q 10-Q
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insurance

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 2, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

Commission File Number: 001-40362

 

img22824085_0.jpg 

 

Aveanna Healthcare Holdings Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-4717209

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

400 Interstate North Parkway SE, Atlanta, GA 30339

(Address of principal executive offices, including zip code)

(770) 441-1580

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

AVAH

 

The Nasdaq Stock Market LLC

 

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 2, 2022, the registrant had 184,732,268 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

 

 

Page

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

1

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Consolidated Balance Sheets as of April 2, 2022 (Unaudited) and January 1, 2022

2

 

Consolidated Statements of Operations for the Three-Month Periods Ended April 2, 2022 and April 3, 2021 (Unaudited)

3

 

Consolidated Statements of Stockholders’ Equity for the Three-Month Periods Ended April 2, 2022 and April 3, 2021 (Unaudited)

4

 

Consolidated Statements of Cash Flows for the Three-Month Periods Ended April 2, 2022 and April 3, 2021 (Unaudited)

5

 

Notes to Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

 

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

 

SIGNATURES

 

 

Signatures

39

 

 

 

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other similar expressions.

These statements are based on certain assumptions that we have made considering our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual results and could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to risks that may cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to, the following risks:

intense competition among home health, hospice and durable medical equipment companies;
our ability to maintain relationships with existing patient referral sources;
the possibility that our business, financial condition and results of operations may be materially adversely affected by the COVID-19 pandemic or variants of the virus;
our ability to have services funded from third-party payers, including Medicare, Medicaid and private health insurance companies;
changes to Medicare or Medicaid rates or methods governing Medicare or Medicaid payments, and the implementation of alternative payment models;
our limited ability to control reimbursement rates received for our services;
delays in collection or non-collection of our patient accounts receivable, or recoupment of payments previously received, particularly during the business integration process or in connection with complying with the electronic visit verification ("EVV") data collection and submission requirements, could adversely affect our business, financial position, results of operations and liquidity;
healthcare reform and other regulations;
changes in the case-mix of our patients, as well as payer mix and payment methodologies;
any loss of existing favorable managed care contracts;
our ability to attract and retain experienced employees and management personnel;
any failure to maintain the security and functionality of our information systems or to defend against or otherwise prevent a cybersecurity attack or breach;
our substantial indebtedness, which increases our vulnerability to general adverse economic and industry conditions and may limit our ability to pursue strategic alternatives and react to changes in our business and industry;
our ability to identify, acquire, successfully integrate and obtain financing for strategic and accretive acquisitions;
risks related to legal proceedings, claims and governmental inquiries given that the nature of our business exposes us to various liability claims, which may exceed the level of our insurance coverage; and
the other risks described under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” contained in our Annual Report on Form 10-K filed on March 28, 2022.

Additionally, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking statements contained in this Quarterly Report on Form 10-Q might not prove to be accurate and you should not place undue reliance upon them or otherwise rely upon them as predictions of future events. All forward-looking statements made by us in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1

 


 

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(Amounts in thousands, except share and per share data)

 

 

As of

 

 

April 2, 2022

 

January 1, 2022

 

 

(Unaudited)

 

 

 

ASSETS

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

17,439

 

$

30,490

 

Patient accounts receivable

 

240,895

 

 

218,917

 

Receivables under insured programs

 

6,900

 

 

6,373

 

Prepaid expenses

 

15,330

 

 

14,233

 

Other current assets

 

5,649

 

 

9,202

 

     Total current assets

 

286,213

 

 

279,215

 

Property and equipment, net

 

29,491

 

 

31,374

 

Operating lease right of use assets

 

51,289

 

 

51,992

 

Goodwill

 

1,837,437

 

 

1,835,580

 

Intangible assets, net

 

102,196

 

 

102,851

 

Receivables under insured programs

 

27,615

 

 

25,530

 

Other long-term assets

 

41,788

 

 

7,829

 

     Total assets

$

2,376,029

 

$

2,334,371

 

 

 

 

 

 

LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

Accounts payable and other accrued liabilities

$

57,309

 

$

52,624

 

Accrued payroll and employee benefits

 

53,019

 

 

54,565

 

Current portion of insurance reserves - insured programs

 

6,900

 

 

6,373

 

Current portion of insurance reserves

 

14,532

 

 

13,466

 

Securitization obligations

 

140,000

 

 

120,000

 

Current portion of long-term obligations

 

8,600

 

 

8,600

 

Current portion of operating lease liabilities

 

13,685

 

 

13,534

 

Current portion of deferred payroll taxes

 

25,523

 

 

25,523

 

Other current liabilities

 

48,222

 

 

50,146

 

     Total current liabilities

 

367,790

 

 

344,831

 

Revolving credit facility

 

-

 

 

-

 

Long-term obligations, less current portion

 

1,225,428

 

 

1,226,517

 

Long-term insurance reserves - insured programs

 

27,615

 

 

25,530

 

Long-term insurance reserves

 

37,892

 

 

35,122

 

Operating lease liabilities, less current portion

 

43,651

 

 

44,682

 

Deferred income taxes

 

4,460

 

 

3,046

 

Other long-term liabilities

 

1,093

 

 

16,692

 

     Total liabilities

 

1,707,929

 

 

1,696,420

 

Commitments and contingencies (Note 10)

 

 

 

 

Deferred restricted stock units

 

2,135

 

 

2,135

 

Stockholders’ equity:

 

 

 

 

Preferred stock, $0.01 par value as of April 2, 2022 and no par value as of January 2, 2021,

 

 

 

 

5,000,000 shares authorized; none issued or outstanding

 

-

 

 

-

 

Common stock, $0.01 par value, 1,000,000,000 shares authorized;

 

 

 

 

184,732,268 and 184,732,268 issued and outstanding, respectively

 

1,847

 

 

1,847

 

Additional paid-in capital

 

1,213,460

 

 

1,208,645

 

Accumulated deficit

 

(549,342

)

 

(574,676

)

     Total stockholders’ equity

 

665,965

 

 

635,816

 

     Total liabilities, deferred restricted stock units, and stockholders’ equity

$

2,376,029

 

$

2,334,371

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2

 


 

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Amounts in thousands, except per share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

For the three-month periods ended

 

 

April 2, 2022

 

April 3, 2021

 

Revenue

$

450,534

 

$

417,160

 

Cost of revenue, excluding depreciation and amortization

 

305,708

 

 

285,477

 

Branch and regional administrative expenses

 

88,743

 

 

69,372

 

Corporate expenses

 

36,567

 

 

27,399

 

Depreciation and amortization

 

5,819

 

 

4,848

 

Acquisition-related costs

 

91

 

 

1,768

 

Other operating income

 

(170

)

 

-

 

Operating income

 

13,776

 

 

28,296

 

Interest income

 

62

 

 

77

 

Interest expense

 

(22,364

)

 

(22,425

)

Other income

 

36,457

 

 

159

 

Income before income taxes

 

27,931

 

 

6,107

 

Income tax expense

 

(2,597

)

 

(309

)

Net income

$

25,334

 

$

5,798

 

Net income per share:

 

 

 

 

Net income per share, basic

$

0.14

 

$

0.04

 

Weighted average shares of common stock outstanding, basic

 

184,927

 

 

142,123

 

Net income per share, diluted

$

0.14

 

$

0.04

 

Weighted average shares of common stock outstanding, diluted

 

185,427

 

 

146,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 


 

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

(Amounts in thousands, except share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three-month period ended April 2, 2022

 

 

Common Stock

 

Additional Paid-in

 

Accumulated

 

Total Stockholders’

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance, January 1, 2022

 

184,732,268

 

$

1,847

 

$

1,208,645

 

$

(574,676

)

$

635,816

 

Non-cash share-based compensation

 

-

 

 

-

 

 

4,815

 

 

-

 

 

4,815

 

Net income

 

-

 

 

-

 

 

-

 

 

25,334

 

 

25,334

 

Balance, April 2, 2022

 

184,732,268

 

$

1,847

 

$

1,213,460

 

$

(549,342

)

$

665,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three-month period ended April 3, 2021

 

 

Common Stock

 

Additional Paid-in

 

Accumulated

 

Total Stockholders’

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance, January 2, 2021

 

141,928,184

 

$

1,419

 

$

721,247

 

$

(457,632

)

$

265,034

 

Non-cash share-based compensation

 

-

 

 

-

 

 

712

 

 

-

 

 

712

 

Net income

 

-

 

 

-

 

 

-

 

 

5,798

 

 

5,798

 

Balance, April 3, 2021

 

141,928,184

 

$

1,419

 

$

721,959

 

$

(451,834

)

$

271,544

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4

 


 

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Amounts in thousands)

 

(Unaudited)

 

 

For the three-month periods ended

 

 

April 2, 2022

 

 

April 3, 2021

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

$

25,334

 

 

$

5,798

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,819

 

 

 

4,848

 

Amortization of deferred debt issuance costs

 

1,740

 

 

 

2,140

 

Amortization and impairment of operating lease right of use assets

 

4,193

 

 

 

3,550

 

Non-cash share-based compensation

 

4,815

 

 

 

712

 

Loss on disposal of licenses, property and equipment

 

(112

)

 

 

(4

)

Fair value adjustments on interest rate derivatives

 

(38,256

)

 

 

(2,820

)

Gain on sale of businesses

 

(170

)

 

 

-

 

Deferred income taxes

 

1,414

 

 

 

694

 

Changes in operating assets and liabilities, net of impact of acquisitions:

 

 

 

 

 

Patient accounts receivable

 

(22,552

)

 

 

(22,852

)

Prepaid expenses

 

(1,253

)

 

 

(1,684

)

Other current and long-term assets

 

3,554

 

 

 

1,957

 

Accounts payable and other accrued liabilities

 

5,199

 

 

 

(15,763

)

Accrued payroll and employee benefits

 

(1,546

)

 

 

(7,595

)

Insurance reserves

 

3,836

 

 

 

3,466

 

Operating lease liabilities

 

(4,370

)

 

 

(4,126

)

Other current and long-term liabilities

 

2,879

 

 

 

(1,232

)

Net cash used in operating activities

 

(9,476

)

 

 

(32,911

)

Cash Flows From Investing Activities:

 

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

(1,394

)

 

 

(500

)

Proceeds from sale of businesses

 

460

 

 

 

-

 

Payment for interest rate cap

 

(11,725

)

 

 

-

 

Purchases of property and equipment

 

(3,984

)

 

 

(2,665

)

Net cash used in investing activities

 

(16,643

)

 

 

(3,165

)

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from securitization obligation

 

30,000

 

 

 

-

 

Repayment of securitization obligation

 

(10,000

)

 

 

-

 

Principal payments on term loans

 

(2,150

)

 

 

-

 

Principal payments on notes payable

 

(2,551

)

 

 

(3,535

)

Repayment of government stimulus funds

 

-

 

 

 

(29,444

)

Principal payments of financing lease obligations

 

(181

)

 

 

(203

)

Payment of offering costs

 

-

 

 

 

(786

)

Payment of debt issuance costs

 

-

 

 

 

(196

)

Settlements with derivative counterparties

 

(2,050

)

 

 

-

 

Net cash provided by (used in) financing activities

 

13,068

 

 

 

(34,164

)

Net decrease in cash and cash equivalents

 

(13,051

)

 

 

(70,240

)

Cash and cash equivalents at beginning of period

 

30,490

 

 

 

137,345

 

Cash and cash equivalents at end of period

$

17,439

 

 

$

67,105

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid for interest

$

16,136

 

 

$

20,207

 

Acquisition of property and equipment on accrual

$

1,110

 

 

$

2,520

 

Offering costs included in accounts payable and other accrued liabilities

$

-

 

 

$

1,874

 

Cash paid for income taxes, net of refunds received

$

(161

)

 

$

(202

)

 

The accompanying notes are an integral part of these consolidated financial statements.

5

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. DESCRIPTION OF BUSINESS

Aveanna Healthcare Holdings Inc. (together with its consolidated subsidiaries, referred to herein as the “Company”) is headquartered in Atlanta, Georgia and has locations in 33 states with concentrations in California, Texas and Pennsylvania, providing a broad range of pediatric and adult healthcare services including nursing, hospice, rehabilitation services, occupational nursing in schools, therapy services, day treatment centers for medically fragile and chronically ill children and adults, as well as delivery of enteral nutrition and other products to patients. The Company also provides case management services in order to assist families and patients by coordinating the provision of services between insurers or other payers, physicians, hospitals, and other healthcare providers. In addition, the Company provides respite healthcare services, which are temporary care provider services provided in relief of the patient’s normal caregiver. The Company’s services are designed to provide a high quality, lower cost alternative to prolonged hospitalization.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying interim unaudited consolidated financial statements include the accounts of Aveanna Healthcare Holdings Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying interim unaudited consolidated financial statements, and business combinations accounted for as purchases have been included in the accompanying interim unaudited consolidated financial statements from their respective dates of acquisition.

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited and have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim unaudited consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, these interim unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position as of April 2, 2022 and the results of operations for the three-month periods ended April 2, 2022 and April 3, 2021, respectively. The results reported in these interim unaudited consolidated financial statements should not be regarded as indicative of results that may be expected for any other period or the entire year. These interim unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended January 1, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2022.

Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52 or 53-week fiscal year. The accompanying interim unaudited consolidated balance sheets reflect the accounts of the Company as of April 2, 2022 and January 1, 2022. For the three-month periods ended April 2, 2022 and April 3, 2021, the accompanying interim unaudited consolidated statements of operations, stockholders’ equity and cash flows reflect the accounts of the Company from January 2, 2022 through April 2, 2022 and January 3, 2021 through April 3, 2021, respectively.

Use of Estimates

The Company’s accounting and reporting policies conform with U.S. GAAP. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that impact the amounts reported in these consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. An entity may adopt this ASU as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the impact of adopting this standard.

6

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This ASU is effective immediately and should be adopted in conjunction with ASU 2020-04. The Company is currently evaluating the impact of adopting this standard.

3. REVENUE

The Company evaluated the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.

Revenue is primarily derived from (i) pediatric healthcare services provided to patients including private duty nursing services, unskilled care, and therapy services; (ii) adult home health and hospice services (collectively “patient revenue”); and (iii) from the delivery of enteral nutrition and other products to patients (“product revenue”). The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time, and therefore, each service provided is its own stand-alone contract. Incremental costs of obtaining a contract are expensed as incurred due to the short-term nature of the contracts.

Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. For patient revenue, the performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the healthcare services provided. For product revenue, the performance obligation is satisfied at the point in time of delivery of the product to the patient. The Company recognizes patient revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payers are billed within several days of the service being performed, and payments are due based on contract terms.

The Company’s lines of business are generally classified into the following categories: private duty services; home health and hospice; and medical solutions.

Private Duty Services (“PDS”). The PDS business includes a broad range of pediatric and adult healthcare services including private duty skilled nursing, unskilled services which include employer of record support services and personal care services, pediatric therapy services, rehabilitation services, and nursing services in schools and pediatric day healthcare centers.

Home Health & Hospice (“HHH”). The HHH business provides home health, hospice, and personal care services to predominately elderly patients.

Medical Solutions (“MS”). The MS business includes the delivery of enteral nutrition and other products to patients.

For the PDS, HHH, and MS businesses, the Company receives payments from the following sources for services rendered: (i) state governments under their respective Medicaid programs (“Medicaid”); (ii) Managed Care providers of state government Medicaid programs (“Medicaid MCO”); (iii) commercial insurers; (iv) other government programs including Medicare and Tricare and ChampVA (“Medicare”); and (v) individual patients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company determines the transaction price based on established billing rates reduced by contractual adjustments and discounts provided to third-party payers and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. For the PDS, HHH, and MS businesses, implicit price concessions are based on historical collection experience. As of April 2, 2022 and January 1, 2022, estimated explicit and implicit price concessions of $57.8 million and $55.8 million, respectively, were recorded as reductions to patient accounts receivable balances to arrive at the estimated collectible revenue and patient accounts receivable. For the PDS, HHH, and MS businesses, most contracts contain variable consideration. However, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense which is included as a component of operating expenses in the consolidated statements of operations. The Company did not record any bad debt expense for the three-month periods ended April 2, 2022 and April 3, 2021, respectively.

7

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company derives a significant portion of its revenue from Medicaid, Medicaid MCO, Medicare and other payers that receive discounts from established billing rates. The regulations and various managed care contracts under which these discounts must be estimated are complex and subject to interpretation. Management estimates the transaction price on a payer-specific basis given its interpretation of the applicable regulations or contract terms. Updated regulations and contract negotiations occur frequently, necessitating regular review and assessment of the estimation process by management; however, there were no material revenue adjustments recognized from performance obligations satisfied or partially satisfied in previous periods for the three-month periods ended April 2, 2022 and April 3, 2021, respectively.

The following table presents revenue by payer type as a percentage of revenue for the three-month periods ended April 2, 2022 and April 3, 2021, respectively:

 

 

For the three-month periods ended

 

 

April 2, 2022

 

April 3, 2021

 

 

Percentage

 

Percentage

 

Medicaid MCO

 

49.5

%

 

55.8

%

Medicaid

 

22.0

%

 

24.8

%

Commercial

 

10.1

%

 

11.3

%

Medicare

 

18.3

%

 

7.7

%

Self-pay

 

0.1

%

 

0.4

%

Total revenue

 

100.0

%

 

100.0

%

 

4. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following as of April 2, 2022 and January 1, 2022, respectively (dollar amounts in thousands):

Instrument

Stated
Maturity
Date

Contractual Interest Rate

Interest Rate
as of April 2, 2022

April 2, 2022

 

January 1, 2022

 

2021 Extended Term Loan (1)

07/2028

L + 3.75%

4.25%

$

855,700

 

$

857,850

 

Term Loan - Second Lien Term Loan (1)

12/2029

L + 7.00%

7.50%

 

415,000

 

 

415,000

 

Revolving Credit Facility (1)

04/2026

L + 3.75%

4.25%

 

-

 

 

-

 

Total principal amount of long-term obligations

 

 

 

 

1,270,700

 

 

1,272,850

 

Less: unamortized debt issuance costs

 

 

 

 

(36,672

)

 

(37,733

)

Total amount of long-term obligations, net of unamortized debt issuance costs

 

 

 

 

1,234,028

 

 

1,235,117

 

Less: current portion of long-term obligations

 

 

 

 

(8,600

)

 

(8,600

)

Total amount of long-term obligations, net of unamortized debt issuance costs, less current portion

 

 

 

$

1,225,428

 

$

1,226,517

 

(1) L = Greater of 0.50% or one-month LIBOR

 

 

 

 

 

 

 

 

The 2021 Extended Term Loan and any Delayed Draw Term Loans bear interest, at the Company’s election, at a variable interest rate based on either LIBOR (subject to a minimum of 0.50%), or ABR (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus an applicable margin of 3.75% for loans accruing interest based on LIBOR and an applicable margin of 2.75% for loans accruing interest based on ABR. As of April 2, 2022, the $860.0 million principal amount of the 2021 Extended Term Loan accrued interest at a rate of 4.25%.

 

The Second Lien Term Loan bears interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin (equal to 6.00%) plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the Prime Rate and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; or (2) an applicable margin (equal to 7.00%) plus LIBOR determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs; provided that such rate is not lower than a floor of 0.50%. As of April 2, 2022, the $415.0 million principal amount of the Second Lien Term Loan accrued interest at a rate of 7.50%.

8

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. The balance for debt issuance costs related to the term loans as of April 2, 2022 and January 1, 2022 was $36.7 million and $37.7 million, respectively. Debt issuance costs related to the Revolving Credit Facility and Delayed Draw Term Loans are recorded within other long-term assets. The balance for debt issuance costs related to the Revolving Credit Facility and Delayed Draw Term Loans as of April 2, 2022 and January 1, 2022 was $2.6 million and $3.2 million, respectively. The Company recognized interest expense related to the amortization of debt issuance costs of $1.7 million and $2.1 million during the three-month periods ended April 2, 2022 and April 3, 2021, respectively.

Issued letters of credit as of April 2, 2022 and January 1, 2022 were $17.6 million and $17.6 million, respectively. There were no swingline loans outstanding as of April 2, 2022 or January 1, 2022. Borrowing capacity under the Company's Revolving Credit Facility was $182.4 million as of April 2, 2022 and $182.4 million as of January 1, 2022.

The fair value of the long-term obligations was $1,270.7 million at April 2, 2022. Due to the variable rate nature of the 2021 Extended Term Loan and Second Lien Term Loan, the Company believes that the carrying amount approximates fair value at April 2, 2022.

The Company was in compliance with all financial covenants and restrictions under the foregoing instruments at April 2, 2022.

5. SECURITIZATION FACILITY

 

On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) (the “special purpose entity”) entered into a Receivables Financing Agreement (the “Securitization Facility”) with a lending institution with a termination date of November 12, 2024. The maximum amount available under the Securitization Facility is $150.0 million subject to certain borrowing base requirements. The Company incurred debt issuance costs of $1.3 million in connection with the Securitization Facility, which were capitalized and included in other long-term assets.

 

Pursuant to two separate sale agreements dated November 12, 2021, each of which is among Aveanna Healthcare, LLC, as initial servicer, certain of the Company's subsidiaries and the special purpose entity, the subsidiaries sold substantially all of their existing and future accounts receivable balances to the special purpose entity. The special purpose entity uses the accounts receivable balances to collateralize loans made under the Securitization Facility. The Company retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Securitization Facility and provides a performance guaranty.

 

The outstanding balance under the Securitization Facility was $140.0 million and $120.0 million at April 2, 2022 and January 1, 2022, respectively. The balance accrues interest at a rate tied to the Bloomberg Short-term Bank Yield Index (BSBY”) plus an applicable margin, which can increase or decrease based upon the Company's credit rating. The interest rate under the Securitization Facility was 2.39% and 2.08% at April 2, 2022 and January 1, 2022, respectively.

 

The Securitization Facility is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and the borrowings are presented as liabilities in the accompanying consolidated balance sheets; (ii) the accompanying consolidated statements of operations reflect the interest expense associated with the collateralized borrowings; and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within the accompanying consolidated statements of cash flows. The Securitization Facility is included within current liabilities on the accompanying interim unaudited consolidated balance sheets as it is collateralized by current patient accounts receivable and not because payments are due within one year of the balance sheet date.

6. FAIR VALUE MEASUREMENTS

The carrying amounts of cash and cash equivalents, patient accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of the instruments.

The Company’s other assets and other liabilities measured at fair value are as follows (amounts in thousands):

9

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Fair Value Measurements at April 2, 2022

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

Interest rate cap agreements

$

-

 

$

24,270

 

$

-

 

$

24,270

 

Interest rate swap agreements

 

-

 

 

10,369

 

 

-

 

 

10,369

 

Total derivative assets

$

-

 

$

34,639

 

$

-

 

$

34,639

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at January 1, 2022

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap agreements

$

-

 

$

15,342

 

$

-

 

$

15,342

 

Total derivative liabilities

$

-

 

$

15,342

 

$

-

 

$

15,342

 

The fair values of the interest rate swap and cap agreements are based on the estimated net proceeds or costs to settle the transactions as of the respective balance sheet dates. The valuations are based on commercially reasonable industry and market practices for valuing similar financial instruments. See Note 7 – Derivative Financial Instruments for further details on the Company’s interest rate swap and cap agreements.

7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The derivatives the Company currently uses are interest rate swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value on the accompanying consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are therefore recorded in earnings throughout the term of the respective derivatives.

In October 2018, the Company entered into two interest rate swap agreements to limit its exposure to interest rate risk on its variable rate debt. In July 2021, the Company amended its interest rate swap agreements to extend the expiration dates to June 30, 2026 and reduce the fixed rate paid under the swaps. As amended, the Company pays a fixed rate of 2.08% and receives the one-month LIBOR rate, subject to a 0.50% floor. The aggregate notional amount of the interest rate swaps remained unchanged at $520.0 million at April 2, 2022 and January 1, 2022, respectively. The fair value of the interest rate swaps at April 2, 2022 and January 1, 2022 was a $10.4 million asset included in other long-term assets and a $15.3 million liability included in other long-term liabilities on the accompanying interim unaudited consolidated balance sheets, respectively. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying interim unaudited consolidated statements of operations, which are included within cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements prior to the amendment were recognized through cash flows from operating activities in the accompanying consolidated statements of cash flows. Subsequent to the interest rate swap amendment in July 2021, the net settlements are recognized through cash flows from financing activities in the accompanying interim unaudited consolidated statements of cash flows due to an other-than-insignificant financing element on the interest rate swaps resulting from the amendment.

On February 9, 2022, the Company entered into interest rate cap agreements for an aggregate notional amount of $880.0 million and a cap rate of 3.00%. The premium paid for the interest rate cap agreements was $11.7 million. The cap agreements have an expiration date of February 28, 2027, and provide that the counterparty will pay the Company the amount by which LIBOR exceeds 3.00% in a given measurement period. The fair value of the interest rate cap agreements at April 2, 2022 was $24.3 million and is included in other long-term assets on the accompanying interim unaudited consolidated balance sheets. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying interim unaudited consolidated statements of operations, which are included within cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows.

10

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following gains from these derivatives not designated as hedging instruments were recognized in the Company’s accompanying interim unaudited consolidated statements of operations for the three-month periods ended April 2, 2022 and April 3, 2021, respectively (amounts in thousands):

 

Statement of Operations

For the three-month periods ended

 

 

Classification

April 2, 2022

 

April 3, 2021

 

Interest rate cap agreements

Other income

$

12,545

 

$

-

 

Interest rate swap agreements

Other income

$

25,711

 

$

2,820

 

The Company does not utilize financial instruments for trading or other speculative purposes.

8. INCOME TAXES

The Company’s provision for income taxes is recorded on an interim basis based upon the Company’s estimate of the annual effective income tax rate for the full year applied to “ordinary” income or loss, adjusted each quarter for discrete items.

The Company recorded income tax expense of $2.6 million and $0.3 million for the three-month periods ended April 2, 2022, and April 3, 2021, respectively. The Company’s effective tax rate was 8.7% and 4.8% for the three-month periods ended April 2, 2022 and April 3, 2021, respectively. The effective tax rates for the three-month periods ended April 2, 2022 and April 3, 2021 differ from the statutory rate of 21% primarily due to the changes in the valuation allowance recorded against certain deferred tax assets, and separate state and local income taxes on taxable subsidiaries.

For the three-month period ended April 2, 2022, there were no material changes to the Company's uncertain tax positions. There has been no change to the Company's policy that recognizes potential interest and penalties related to uncertain tax positions in income tax expense in the accompanying interim unaudited consolidated statements of operations.

9. SHARE-BASED COMPENSATION

Time-Vesting Options

 

The Company recorded compensation expense, net of forfeitures, was $0.4 million, and $0.7 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively, which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of April 2, 2022 associated with outstanding performance-vesting options was $2.9 million.

Performance-Vesting Options

 

The Company recorded compensation expense for the three-month period ended April 2, 2022 of $1.9 million, net of forfeitures of $0.9 million, which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of April 2, 2022 associated with outstanding performance-vesting options was $3.3 million.

 

The Company did not incur or record any expense associated with the performance-vesting options during the three-month period ended April 3, 2021.

Director Restricted Stock Units

The Company recorded compensation expense for the three-month period ended April 2, 2022 of $0.2 million, which is included in corporate expenses in the accompanying consolidated statements of operations. The Company did not incur or record any such expense in the three-month period ended April 3, 2021. Unrecognized compensation expense as of April 2, 2022 associated with outstanding performance-vesting options was $0.2 million.

Management Restricted Stock Units

The Company recorded compensation expense for the three-month period ended April 2, 2022 of $1.0 million, which is included in corporate expenses in the accompanying consolidated statements of operations. The Company did not incur or record any such expense in the three-month period ended April 3, 2021. Unrecognized compensation expense as of April 2, 2022 associated with outstanding management restricted stock units was $14.9 million.

11

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Employee Stock Purchase Plan

Eligible participants contributed $1.6 million during the three-month period ended April 2, 2022, which is included in accrued payroll and employee benefits in the accompanying consolidated balance sheets as of April 2, 2022. The Company recorded compensation expense of $0.6 million which is included in corporate expenses, branch and regional administrative expenses and cost of revenue, excluding depreciation and amortization in the accompanying consolidated statements of operations for the three-month period ended April 2, 2022. The Company did not incur or record any expense associated with the employee stock purchase plan during the three-month period ended April 3, 2021. Unrecognized compensation expense as of April 2, 2022 associated with the remaining ESPP purchase period through June 30, 2022 was $0.6 million.

Long-Term Incentive Plan ("LTIP")

During the three-month period ended April 2, 2022, the Compensation Committee of the Company's Board of Directors approved grants of restricted stock units ("RSUs") and performance stock units ("PSUs") under the Company's 2021 Omnibus Incentive Plan.

The RSUs are subject to a three-year service-based cliff vesting schedule commencing on the date of grant. Compensation cost for the RSUs is measured based on the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. During the three-month period ended April 2, 2022, the Company granted 2,124,212 RSUs with a grant date per share fair value of $4.93. The Company recorded compensation expense of $0.4 million which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three-month period ended April 2, 2022. Unrecognized compensation expense as of April 2, 2022 associated with the remaining RSUs was $10.0 million.

The PSUs contain two performance criteria: (i) 50% based on relative total shareholder return ("TSR") over a three-year performance period, which measures the Company's total shareholder return as compared to the total shareholder return of a designated peer group, and (ii) 50% based on an adjusted EBITDA target over a one-year performance period. The PSUs are also subject to a three-year service-based cliff vesting schedule commencing on the date of grant. For the PSUs that have a service and a market condition, compensation cost is measured based on the grant date estimated fair value determined using a Monte Carlo simulation model and is recognized over the applicable vesting period on a straight-line basis. The fair value inputs included in the Monte Carlo simulation model were remaining measurement period of 2.88 years, stock price on date of grant of $4.93, daily average closing stock price for the two calendar months prior to the beginning of the performance period of $7.29, risk free rate of 1.77%, and the performance payout per TSR performance percentile. For the PSUs that have a service and a performance condition, compensation cost is initially measured based on the grant date fair value of each share. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. During the three-month period ended April 2, 2022, the Company granted 1,389,801 PSUs with a weighted average grant date per share fair value of $5.24. The Company recorded compensation expense of $0.3 million which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three-month period ended April 2, 2022. Unrecognized compensation expense as of April 2, 2022 associated with the remaining PSUs was $7.0 million.

The Company did not incur or record any expense associated with the LTIP during the three-month period ended April 3, 2021.