Aveanna Healthcare Holdings, Inc. [AVAH] Filings

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10-Q 1 avah-20230401.htm 10-Q 10-Q

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 1, 2023


☐	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

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.

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 5, 2023, the registrant had 185,859,165 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 1, 2023 (Unaudited) and December 31, 2022	2
	Consolidated Statements of Operations for the Three-Month Periods Ended April 1, 2023 and April 2, 2022 (Unaudited)	3
	Consolidated Statements of Stockholders’ (Deficit) Equity for the Three-Month Periods Ended April 1, 2023 and April 2, 2022 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Three-Month Periods Ended April 1, 2023 and April 2, 2022 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	SIGNATURES
	Signatures	34

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 Quarterly Report on Form 10-Q, 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 a resurgence of 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, including but not limited to Medicare Advantage, Managed Care Organization, managed Medicaid, and other forms of managed care;

▪

any downward pressure on reimbursement resulting from further proliferation of Medicare Advantage plans;

▪

our limited ability to control reimbursement rates received for our services;

▪

delays in collection or non-collection of our patient accounts receivable, particularly during the business integration process, or when transitioning between systems associated with clinical data collection and submission, as well as billing and collection systems;

▪

healthcare reform and other regulations;

▪

changes in the case-mix of our patients, as well as payer mix and payment methodologies;

▪

any reduction in net reimbursement if we do not effectively implement value-based care programs;

▪

our ability to attract and retain experienced employees and management personnel, and including both shortages in workforce and inflationary wage pressures;

▪

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 16, 2023.

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. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
	As of
	April 1, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	34,433		$	19,217
Patient accounts receivable		241,832			221,237
Receivables under insured programs		4,802			4,395
Prepaid expenses		16,589			15,089
Other current assets		10,840			9,813
Total current assets		308,496			269,751
Property and equipment, net		21,451			22,752
Operating lease right of use assets		51,679			54,601
Goodwill		1,159,688			1,159,688
Intangible assets, net		97,531			95,863
Receivables under insured programs		24,491			22,865
Other long-term assets		67,559			86,240
Total assets	$	1,730,895		$	1,711,760


LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and other accrued liabilities	$	42,581		$	44,624
Accrued payroll and employee benefits		62,152			43,836
Current portion of insurance reserves - insured programs		4,802			4,395
Current portion of insurance reserves		28,275			27,531
Securitization obligations		155,000			140,000
Current portion of long-term obligations		9,200			9,200
Current portion of operating lease liabilities		16,110			13,070
Other current liabilities		57,626			43,841
Total current liabilities		375,746			326,497
Revolving credit facility		-			-
Long-term obligations, less current portion		1,279,864			1,281,082
Long-term insurance reserves - insured programs		24,491			22,865
Long-term insurance reserves		36,686			35,470
Operating lease liabilities, less current portion		43,087			45,818
Deferred income taxes		4,438			3,844
Other long-term liabilities		314			359
Total liabilities		1,764,626			1,715,935
Commitments and contingencies (Note 10)
Deferred restricted stock units		2,135			2,135
Stockholders’ deficit:
Preferred stock, $0.01 par value as of April 1, 2023 and December 31, 2022
5,000,000 shares authorized; none issued or outstanding		-			-
Common stock, $0.01 par value, 1,000,000,000 shares authorized;
188,859,165 and 188,859,165 issued and outstanding, respectively		1,888			1,888
Additional paid-in capital		1,230,954			1,228,512
Accumulated deficit		(1,268,708	)		(1,236,710	)
Total stockholders’ deficit		(35,866	)		(6,310	)
Total liabilities, deferred restricted stock units, and stockholders’ deficit	$	1,730,895		$	1,711,760

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


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 1, 2023			April 2, 2022
Revenue	$	466,413		$	450,534
Cost of revenue, excluding depreciation and amortization		321,948			305,708
Branch and regional administrative expenses		91,708			88,743
Corporate expenses		30,935			36,567
Depreciation and amortization		4,041			5,819
Acquisition-related costs		70			91
Other operating expense (income)		72			(170	)
Operating income		17,639			13,776
Interest income		75			62
Interest expense		(35,958	)		(22,364	)
Other (expense) income		(12,188	)		36,457
(Loss) income before income taxes		(30,432	)		27,931
Income tax expense		(1,566	)		(2,597	)
Net (loss) income	$	(31,998	)	$	25,334
Net (loss) income per share:
Net (loss) income per share, basic	$	(0.17	)	$	0.14
Weighted average shares of common stock outstanding, basic		189,054			184,927
Net (loss) income per share, diluted	$	(0.17	)	$	0.14
Weighted average shares of common stock outstanding, diluted		189,054			185,427

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


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Amounts in thousands, except share data)
(Unaudited)

	For the three-month period ended April 1, 2023
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balance, December 31, 2022		188,859,165	$	1,888	$	1,228,512	$	(1,236,710	)	$	(6,310	)
Non-cash share-based compensation		-		-		2,442		-			2,442
Net loss		-		-		-		(31,998	)		(31,998	)
Balance, April 1, 2023		188,859,165	$	1,888	$	1,230,954	$	(1,268,708	)	$	(35,866	)


	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

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


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
	For the three-month periods ended
	April 1, 2023			April 2, 2022
Cash Flows From Operating Activities:
Net (loss) income	$	(31,998	)	$	25,334
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization		4,041			5,819
Amortization of deferred debt issuance costs		1,421			1,740
Amortization and impairment of operating lease right of use assets		4,236			4,193
Non-cash share-based compensation		2,442			4,815
Loss (gain) on disposal or impairment of licenses, property and equipment, and software		68			(282	)
Fair value adjustments on interest rate derivatives		18,537			(38,256	)
Deferred income taxes		594			1,414
Changes in operating assets and liabilities, net of impact of acquisitions:
Patient accounts receivable		(20,595	)		(22,552	)
Prepaid expenses		(1,500	)		(1,253	)
Other current and long-term assets		(4,441	)		3,554
Accounts payable and other accrued liabilities		(1,763	)		5,199
Accrued payroll and employee benefits		18,316			(1,546	)
Insurance reserves		1,960			3,836
Operating lease liabilities		(1,005	)		(4,370	)
Other current and long-term liabilities		17,182			2,879
Net cash provided by (used in) operating activities		7,495			(9,476	)
Cash Flows From Investing Activities:
Acquisitions of businesses, net of cash acquired		-			(1,394	)
Proceeds from sale of businesses		-			460
Payment for interest rate cap		-			(11,725	)
Purchase of certificates of need		(2,678	)		-
Purchases of property and equipment, and software		(2,122	)		(3,984	)
Net cash used in investing activities		(4,800	)		(16,643	)
Cash Flows From Financing Activities:
Proceeds from securitization obligation		35,000			30,000
Repayment of securitization obligation		(20,000	)		(10,000	)
Proceeds from revolving credit facility		20,000			-
Repayments on revolving credit facility		(20,000	)		-
Principal payments on term loans		(2,300	)		(2,150	)
Principal payments on notes payable		(3,192	)		(2,551	)
Principal payments on financing lease obligations		(206	)		(181	)
Settlements with interest rate swap counterparties		3,219			(2,050	)
Net cash provided by financing activities		12,521			13,068
Net change in cash and cash equivalents		15,216			(13,051	)
Cash and cash equivalents at beginning of period		19,217			30,490
Cash and cash equivalents at end of period	$	34,433		$	17,439


Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	24,196		$	16,136
Cash paid for income taxes, net of refunds received	$	(386	)	$	(161	)

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

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 1, 2023 and the results of operations for the three-month periods ended April 1, 2023 and April 2, 2022, 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 December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023.

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 1, 2023 and December 31, 2022. For the three-month periods ended April 1, 2023 and April 2, 2022, the accompanying interim unaudited consolidated statements of operations, stockholders’ (deficit) equity and cash flows reflect the accounts of the Company from January 1, 2023 through April 1, 2023 and January 2, 2022 through April 2, 2022, 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, 2024. 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.

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Additionally, 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 these standards.

3. REVENUE

The Company evaluates 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 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, non-clinical 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, 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 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 and historical experience. Implicit price concessions are based on historical collection experience. As of April 1, 2023 and December 31, 2022, estimated explicit and implicit price concessions of $50.3 million and $52.6 million, respectively, were recorded as reductions to patient accounts receivable balances to arrive at the estimated collectible revenue and patient accounts receivable. 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 1, 2023 and April 2, 2022, respectively.

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,

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 1, 2023 and April 2, 2022, respectively.

The following table presents revenue by payer type as a percentage of total revenue for the three-month periods ended April 1, 2023 and April 2, 2022, respectively:


	For the three-month periods ended
	April 1, 2023			April 2, 2022
Medicaid MCO		54.6	%		49.5	%
Medicaid		22.5	%		22.0	%
Commercial		10.2	%		10.1	%
Medicare		12.6	%		18.3	%
Self-pay		0.1	%		0.1	%
Total revenue		100.0	%		100.0	%

4. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following as of April 1, 2023 and December 31, 2022, respectively (dollar amounts in thousands):


Instrument	Stated Maturity Date	Contractual Interest Rate	Interest Rate as of April 1, 2023	April 1, 2023			December 31, 2022
2021 Extended Term Loan (1)	07/2028	L + 3.75%	8.70%	$	906,650		$	908,950
Second Lien Term Loan (1)	12/2029	L + 7.00%	11.95%		415,000			415,000
Revolving Credit Facility (1)	04/2026	L + 3.75%	8.70%		-			-
Total principal amount of long-term obligations					1,321,650			1,323,950
Less: unamortized debt issuance costs					(32,586	)		(33,668	)
Total amount of long-term obligations, net of unamortized debt issuance costs					1,289,064			1,290,282
Less: current portion of long-term obligations					(9,200	)		(9,200	)
Total amount of long-term obligations, net of unamortized debt issuance costs, less current portion				$	1,279,864		$	1,281,082
(1) L = Greater of 0.50% or one-month LIBOR

The 2021 Extended Term Loan and Revolving Credit Facility 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 1, 2023, the principal amount of the 2021 Extended Term Loan and borrowings under the Revolving Credit Facility accrued interest at a rate of 8.70%. On March 23, 2023, the Company amended the agreement governing the Revolving Credit Facility to increase the sublimit for letters of credit to $40.0 million from $30.0 million. The other terms of the Revolving Credit Facility remained unchanged.

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 1, 2023, the principal amount of the Second Lien Term Loan accrued interest at a rate of 11.95%.

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 1, 2023 and December 31, 2022 was $32.6 million and $33.3 million, respectively. Debt issuance costs related to the Revolving Credit Facility are recorded within other long-term assets. The balance

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

for debt issuance costs related to the Revolving Credit Facility as of April 1, 2023 and December 31, 2022 was $0.0 million and $0.2 million, respectively. The Company recognized interest expense related to the amortization of debt issuance costs of $1.4 million and $1.7 million during the three-month periods ended April 1, 2023 and April 2, 2022, respectively.

Issued letters of credit as of April 1, 2023 and December 31, 2022 were $38.0 million and $19.7 million, respectively. There were no swingline loans outstanding as of April 1, 2023 or December 31, 2022. Borrowing capacity under the Company's Revolving Credit Facility was approximately $162.0 million as of April 1, 2023 and $180.3 million as of December 31, 2022. Available borrowing capacity under the Revolving Credit Facility is subject to a maintenance leverage covenant that becomes effective if more than 30% of the total commitment is utilized.

The fair value of the Company's long-term obligations was estimated using market-observable inputs from the Company’s comparable peers with public debt, including quoted prices in active markets, which are considered Level 2 inputs. The aggregate fair value of the Company's long-term obligations was $1,023.8 million at April 1, 2023.

The Company was in compliance with all financial covenants and restrictions under the foregoing instruments at April 1, 2023.

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 (as amended, the “Securitization Facility”) with a lending institution with a termination date of November 12, 2024. The maximum amount available under the Securitization Facility is $175.0 million, subject to certain borrowing base requirements. The Company incurred debt issuance costs of $1.4 million in connection with the Securitization Facility, which were capitalized and included in other long-term assets. The Company recognized interest expense related to the amortization of debt issuance costs of $0.1 million and $0.1 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively.

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 $155.0 million and $140.0 million at April 1, 2023 and December 31, 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 7.16% at April 1, 2023.

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 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 measured at fair value were as follows (amounts in thousands):

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Fair Value Measurements at April 1, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Interest rate cap agreements	$	-	$	36,423	$	-	$	36,423
Interest rate swap agreements		-		26,790		-		26,790
Total derivative assets	$	-	$	63,213	$	-	$	63,213

	Fair Value Measurements at December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Interest rate cap agreements	$	-	$	47,459	$	-	$	47,459
Interest rate swap agreements		-		34,291		-		34,291
Total derivative assets	$	-	$	81,750	$	-	$	81,750

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.

The Company currently has two interest rate swap agreements intended to limit its exposure to interest rate risk on its variable rate debt. These swaps expire on June 30, 2026. Under the swaps, 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 1, 2023 and December 31, 2022, respectively. The fair value of the interest rate swaps was $26.8 million at April 1, 2023 and $34.3 million at December 31, 2022 and is included in other long-term assets in the accompanying 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 consolidated statements of operations, which are included within cash flows from operating activities in the accompanying consolidated statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements are recognized through cash flows from financing activities in the accompanying consolidated statements of cash flows due to an other-than-insignificant financing element on the interest rate swaps.

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 was $36.4 million at April 1, 2023 and $47.5 million at December 31, 2022 and is included in other long-term assets on the accompanying consolidated balance sheets. The Company does not apply hedge accounting to interest rate cap agreements and records all mark-to-market adjustments directly to other income in the accompanying consolidated statements of operations, which are included within cash flows from operating activities in the consolidated statement of cash flows. Proceeds from settlements with cap counterparties are included within cash flows from operating activities in the consolidated statement of cash flows. The premium payments on the interest rate caps were recognized through cash flows from investing activities.

The following losses and gains from these derivatives not designated as hedging instruments were recognized in the Company’s accompanying consolidated statements of operations for the three-month periods ended April 1, 2023 and April 2, 2022, respectively (amounts in thousands):


	Statement of Operations	For the three-month periods ended
	Classification	April 1, 2023			April 2, 2022
Interest rate cap agreements	Other (expense) income	$	(11,036	)	$	12,545
Interest rate swap agreements	Other (expense) income	$	(7,501	)	$	25,711

AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 $1.6 million and $2.6 million for the three-month periods ended April 1, 2023, and April 2, 2022, respectively. The Company’s effective tax rate was -4.9% and 8.7% for the three-month periods ended April 1, 2023 and April 2, 2022, respectively. The effective tax rates for the three-month periods ended April 1, 2023 and April 2, 2022 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 1, 2023, 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 consolidated statements of operations.

9. SHARE-BASED COMPENSATION

Time-Vesting Options

The Company recorded compensation expense, net of forfeitures, of $0.2 million

Aveanna Healthcare Holdings, Inc. [AVAH] Filings
10-Q	[2023-05-11]
10-K	[2023-03-16]
10-Q	[2022-11-15]
10-Q	[2022-08-11]
10-Q	[2022-05-11]
10-K	[2022-03-28]
10-Q	[2021-11-15]
10-Q	[2021-08-11]
10-Q	[2021-05-25]
S-1	[2021-04-01]