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AVAH Aveanna Healthcare

Filed: 14 Nov 21, 7:00pm

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 October 2, 2021

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

 

img21926511_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 October 29, 2021, the registrant had 184,164,184 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 October 2, 2021 (Unaudited) and January 2, 2021

2

 

Consolidated Statements of Operations for the Three and Nine-Month Periods Ended October 2, 2021 and September 26, 2020 (Unaudited)

3

 

Consolidated Statements of Stockholders’ Equity for the Three and Nine-Month Periods Ended October 2, 2021 and September 26, 2020 (Unaudited)

4

 

Consolidated Statements of Cash Flows for the Nine-Month Periods Ended October 2, 2021 and September 26, 2020 (Unaudited)

5

 

Notes to Consolidated Financial Statements (Unaudited)

6

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

48

 

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

50

 

SIGNATURES

 

 

Signatures

52

 

 

 

 

 

 

 


 

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, particularly during the business integration process;
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 prospectus dated April 28, 2021, which is deemed to be part of our Registration Statement on Form S-1 (File No. 333-254981).

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

 

 

October 2, 2021

 

January 2, 2021

 

 

(Unaudited)

 

 

 

ASSETS

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

121,708

 

$

137,345

 

Patient accounts receivable

 

189,033

 

 

172,887

 

Receivables under insured programs

 

8,264

 

 

7,992

 

Prepaid expenses

 

13,038

 

 

11,080

 

Other current assets

 

10,692

 

 

11,340

 

     Total current assets

 

342,735

 

 

340,644

 

Property and equipment, net

 

31,599

 

 

32,650

 

Operating lease right of use assets

 

46,817

 

 

46,217

 

Goodwill

 

1,419,591

 

 

1,316,385

 

Intangible assets, net

 

77,612

 

 

73,572

 

Receivables under insured programs

 

25,423

 

 

23,990

 

Deferred income taxes

 

2,931

 

 

2,931

 

Other long-term assets

 

8,946

 

 

7,627

 

     Total assets

$

1,955,654

 

$

1,844,016

 

 

 

 

 

 

LIABILITIES, DEFERRED RESTRICTED STOCK UNITS, AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

Accounts payable and other accrued liabilities

$

46,883

 

$

56,668

 

Accrued payroll and employee benefits

 

55,211

 

 

56,834

 

Accrued interest

 

1,801

 

 

2,398

 

Notes payable

 

2,671

 

 

2,872

 

Current portion of insurance reserves - insured programs

 

8,264

 

 

7,992

 

Current portion of insurance reserves

 

14,105

 

 

12,294

 

Current portion of long-term obligations

 

8,600

 

 

9,910

 

Current portion of operating lease liabilities

 

12,166

 

 

11,884

 

Current portion of deferred payroll taxes

 

25,699

 

 

24,824

 

Government stimulus liabilities

 

-

 

 

29,444

 

Other current liabilities

 

44,173

 

 

45,293

 

     Total current liabilities

 

219,573

 

 

260,413

 

Revolving credit facility

 

-

 

 

-

 

Long-term obligations, less current portion

 

829,674

 

 

1,163,490

 

Long-term insurance reserves - insured programs

 

25,423

 

 

23,990

 

Long-term insurance reserves

 

31,296

 

 

30,336

 

Operating lease liabilities, less current portion

 

40,099

 

 

40,246

 

Deferred payroll taxes, less current portion

 

25,699

 

 

24,824

 

Deferred income taxes

 

3,430

 

 

2,591

 

Other long-term liabilities

 

23,893

 

 

30,957

 

     Total liabilities

 

1,199,087

 

 

1,576,847

 

Commitments and contingencies (Note 10)

 

 

 

 

Deferred restricted stock units

 

2,135

 

 

2,135

 

Stockholders’ equity:

 

 

 

 

Preferred stock, $0.01 par value as of October 2, 2021 and 0 par value as of January 2, 2021,

 

 

 

 

5,000,000 shares authorized; NaN issued or outstanding

 

-

 

 

-

 

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

 

 

 

 

184,164,184 and 141,928,184 issued and outstanding, respectively

 

1,841

 

 

1,419

 

Additional paid-in capital

 

1,201,075

 

 

721,247

 

Accumulated deficit

 

(448,484

)

 

(457,632

)

     Total stockholders’ equity

 

754,432

 

 

265,034

 

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

$

1,955,654

 

$

1,844,016

 

 

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

 

For the Nine-Month Periods Ended

 

 

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Revenue

$

411,276

 

$

366,003

 

$

1,264,548

 

$

1,072,803

 

Cost of revenue, excluding depreciation and amortization

 

271,534

 

 

251,873

 

 

846,534

 

 

744,503

 

Branch and regional administrative expenses

 

76,370

 

 

59,641

 

 

223,462

 

 

174,455

 

Corporate expenses

 

37,873

 

 

32,493

 

 

97,673

 

 

81,039

 

Goodwill impairment

 

-

 

 

-

 

 

-

 

 

75,727

 

Depreciation and amortization

 

5,145

 

 

3,922

 

 

15,163

 

 

12,339

 

Acquisition-related costs

 

2,007

 

 

4,510

 

 

4,779

 

 

4,679

 

Other operating expenses

 

-

 

 

687

 

 

-

 

 

1,274

 

Operating income (loss)

 

18,347

 

 

12,877

 

 

76,937

 

 

(21,213

)

Interest income

 

44

 

 

38

 

 

182

 

 

247

 

Interest expense

 

(12,106

)

 

(19,065

)

 

(53,793

)

 

(58,972

)

Loss on debt extinguishment

 

(4,784

)

 

-

 

 

(13,702

)

 

(73

)

Other (expense) income

 

(511

)

 

(1,723

)

 

(1,088

)

 

35,608

 

Income (loss) before income taxes

 

990

 

 

(7,873

)

 

8,536

 

 

(44,403

)

Income tax benefit (expense)

 

1,100

 

 

471

 

 

612

 

 

(2,915

)

Net income (loss)

$

2,090

 

$

(7,402

)

$

9,148

 

$

(47,318

)

Income (loss) per share:

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

$

0.01

 

$

(0.05

)

$

0.06

 

$

(0.34

)

Weighted average shares of common stock outstanding, basic

 

184,554

 

 

142,123

 

 

165,877

 

 

140,559

 

Net income (loss) per share, diluted

$

0.01

 

$

(0.05

)

$

0.05

 

$

(0.34

)

Weighted average shares of common stock outstanding, diluted

 

188,246

 

 

142,123

 

 

170,667

 

 

140,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 October 2, 2021

 

 

Common Stock

 

Additional Paid-in

 

Accumulated

 

Total Stockholders’

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance, July 3, 2021

 

184,164,184

 

$

1,841

 

$

1,196,813

 

$

(450,574

)

$

748,080

 

Non-cash compensation

 

-

 

 

-

 

 

4,262

 

 

-

 

 

4,262

 

Net income

 

-

 

 

-

 

 

-

 

 

2,090

 

 

2,090

 

Balance, October 2, 2021

 

184,164,184

 

$

1,841

 

$

1,201,075

 

$

(448,484

)

$

754,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three-Month Period September 26, 2020

 

 

Common Stock

 

Additional Paid-in

 

Accumulated

 

Total Stockholders’

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance, June 27, 2020

 

141,928,184

 

$

1,419

 

$

720,247

 

$

(440,498

)

$

281,168

 

Non-cash compensation

 

-

 

 

-

 

 

436

 

 

-

 

 

436

 

Net loss

 

-

 

 

-

 

 

-

 

 

(7,402

)

 

(7,402

)

Balance, September 26, 2020

 

141,928,184

 

$

1,419

 

$

720,683

 

$

(447,900

)

$

274,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine-Month Period October 2, 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

 

Issuance of common stock, net of underwriters’ discounts and commissions

 

42,236,000

 

 

422

 

 

469,686

 

 

-

 

 

470,108

 

Non-cash compensation

 

-

 

 

-

 

 

10,142

 

 

-

 

 

10,142

 

Net income

 

-

 

 

-

 

 

-

 

 

9,148

 

 

9,148

 

Balance, October 2, 2021

 

184,164,184

 

$

1,841

 

$

1,201,075

 

$

(448,484

)

$

754,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine-Month Period September 26, 2020

 

 

Common Stock

 

Additional Paid-in

 

Accumulated

 

Total Stockholders’

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance, December 28, 2019

 

136,803,189

 

$

1,368

 

$

669,406

 

$

(400,582

)

$

270,192

 

Issuance of common stock

 

5,124,995

 

 

51

 

 

49,949

 

 

-

 

 

50,000

 

Non-cash compensation

 

-

 

 

-

 

 

1,328

 

 

-

 

 

1,328

 

Net loss

 

-

 

 

-

 

 

-

 

 

(47,318

)

 

(47,318

)

Balance, September 26, 2020

 

141,928,184

 

$

1,419

 

$

720,683

 

$

(447,900

)

$

274,202

 

 

 

 

 

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 Nine-Month Periods Ended

 

 

October 2, 2021

 

September 26, 2020

 

Cash Flows From Operating Activities:

 

 

 

 

Net income (loss)

$

9,148

 

$

(47,318

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

15,163

 

 

12,339

 

Amortization of deferred debt issuance costs

 

7,234

 

 

5,400

 

Amortization and impairment of operating lease right of use assets

 

11,081

 

 

9,984

 

Non-cash compensation

 

10,142

 

 

2,176

 

Goodwill impairment

 

-

 

 

75,727

 

Loss on disposal of licenses, property and equipment

 

109

 

 

1,566

 

Fair value adjustments on interest rate derivatives

 

(6,246

)

 

6,950

 

Loss on debt extinguishment

 

13,702

 

 

73

 

Deferred income taxes

 

839

 

 

580

 

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

 

 

 

 

Patient accounts receivable

 

(3,376

)

 

7,256

 

Prepaid expenses

 

2,715

 

 

1,754

 

Other current and long-term assets

 

39

 

 

(2,478

)

Accounts payable and other accrued liabilities

 

(15,851

)

 

(5,523

)

Accrued payroll and employee benefits

 

(3,164

)

 

8,383

 

Accrued interest

 

(597

)

 

13,318

 

Insurance reserves

 

2,752

 

 

4,654

 

Operating lease liabilities

 

(11,783

)

 

(9,992

)

Deferred payroll taxes

 

-

 

 

31,291

 

Other current and long-term liabilities

 

(9,719

)

 

1,977

 

Net cash provided by operating activities

 

22,188

 

 

118,117

 

Cash Flows From Investing Activities:

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

(103,202

)

 

(49,345

)

Purchases of property and equipment

 

(10,306

)

 

(12,156

)

Net cash used in investing activities

 

(113,508

)

 

(61,501

)

Cash Flows From Financing Activities:

 

 

 

 

Proceeds from issuance of common stock

 

477,688

 

 

50,000

 

Proceeds from revolving credit facility

 

-

 

 

14,000

 

Repayments on revolving credit facility

 

-

 

 

(45,500

)

Proceeds from issuance of term loans, net of debt issuance costs

 

925,261

 

 

180,651

 

Principal payments on term loans and notes payable

 

(1,276,643

)

 

(8,375

)

Proceeds from government stimulus funds

 

-

 

 

23,826

 

Payment of government stimulus funds

 

(29,444

)

 

-

 

Principal payments of financing lease obligations

 

(503

)

 

(467

)

Payment of debt issuance costs

 

(13,107

)

 

(1,816

)

Settlements with derivative counterparties

 

(2,096

)

 

-

 

Payment of offering costs

 

(5,473

)

 

-

 

Net cash provided by financing activities

 

75,683

 

 

212,319

 

Net (decrease) increase in cash and cash equivalents

 

(15,637

)

 

268,935

 

Cash and cash equivalents at beginning of period

 

137,345

 

 

3,327

 

Cash and cash equivalents at end of period

$

121,708

 

$

272,262

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

Cash paid for interest

$

47,156

 

$

40,254

 

Acquisition of property and equipment on accrual

$

3,246

 

$

2,519

 

Offering costs included in accounts payable and other accrued liabilities

$

135

 

$

-

 

Cash paid for income taxes, net of refunds received

$

3,915

 

$

925

 

 

 

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 30 states with concentrations in Texas, Pennsylvania, and California, providing a broad range of pediatric and adult healthcare services including nursing, 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.

Initial Public Offering

On May 3, 2021, the Company completed the initial public offering (“IPO”) of its common stock pursuant to a Registration Statement on Form S-1 (File No. 333-254981), which was declared effective by the SEC on April 28, 2021. The Company issued and sold an aggregate of 42,236,000 shares of common stock, including 4,000,000 shares of common stock purchased by the underwriters on May 25, 2021 pursuant to the underwriters’ option to purchase additional shares at the initial public offering price, less underwriting discounts and commissions. The Company received net proceeds from the IPO of $477.7 million. On May 3, 2021, the Company used $307.0 million of proceeds to repay in full all outstanding obligations under the second lien credit agreement dated as of March 16, 2017 (as amended, the “Second Lien Credit Agreement”), thereby terminating the Second Lien Credit Agreement. In addition, on May 4, 2021, the Company used $100.0 million of proceeds to repay an equal amount of principal outstanding under its First Lien Credit Agreement (as defined in Note 5). The remaining proceeds have been and are planned to be used for offering costs, general corporate purposes, and future acquisitions.

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 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 October 2, 2021 and the results of operations for the three and nine-month periods ended October 2, 2021 and September 26, 2020, 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 year ended January 2, 2021 included in the Company’s prospectus dated April 28, 2021 (the “Prospectus”), which is deemed to be part of the Company’s Registration Statement on Form S-1 (File No. 333-254981) filed with the SEC.

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 October 2, 2021 and January 2, 2021. For the three-month periods ended October 2, 2021 and September 26, 2020, the accompanying interim unaudited consolidated statements of operations and stockholders’ equity reflect the accounts of the Company from July 4, 2021 through October 2, 2021 and June 28, 2020 through September 26, 2020, respectively. For the nine-month periods ended October 2, 2021 and September 26, 2020, the accompanying interim unaudited consolidated statements of operations, stockholders’ equity and cash flows reflect the accounts of the Company from January 3, 2021 through October 2, 2021 and December 29, 2019 through September 26, 2020, respectively.

6

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

Deferred Offering Costs

Upon closing of the IPO on May 3, 2021, deferred offering costs of $7.6 million were reclassified into stockholders equity and recorded against the proceeds from the offering. As of January 2, 2021, capitalized deferred offering costs totaled $2.9 million and were included in other long-term assets on the accompanying consolidated balance sheet. See Note 1 – Description of Business and Note 9 – Stockholders’ Equity and Stock-Based Compensation for additional information regarding the completion of the Company’s IPO.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improves consistent application by clarifying and amending existing guidance. This ASU is effective for annual fiscal years beginning after December 15, 2020, and interim periods therein. The Company adopted this standard effective January 3, 2021 and the adoption of this standard did not materially affect the Company’s consolidated financial statements.

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.

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

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 disaggregates revenue from contracts with customers by reportable segment and by payer within each of the Company’s lines of business. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.

7

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 (“EOR”) 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.

Other Revenue. The Company provides financial management services in order to assist families and patients by coordinating the reimbursement of authorized medical expenses between certain state-contracted non-profit programs and families and patients. Other revenue represents the monthly fee earned by the Company for providing these services.

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 October 2, 2021 and January 2, 2021, estimated explicit and implicit price concessions of $54.6 million and $55.4 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 0t record any bad debt expense for the three and nine-month periods ended October 2, 2021 and September 26, 2020, 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, 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 and nine-month periods ended October 2, 2021 and September 26, 2020, respectively.

The following tables present revenue by payer type and as a percentage of revenue for the three and nine-month periods ended October 2, 2021 and September 26, 2020, respectively (in thousands):

8

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

For the Three-Month Periods Ended

 

 

October 2, 2021

 

September 26, 2020

 

 

Revenue

 

Percentage

 

Revenue

 

Percentage

 

Medicaid MCO

$

219,418

 

 

53.3

%

$

226,686

 

 

61.9

%

Medicaid

 

101,120

 

 

24.6

%

 

99,742

 

 

27.3

%

Commercial

 

39,867

 

 

9.7

%

 

30,943

 

 

8.4

%

Medicare

 

49,700

 

 

12.1

%

 

8,303

 

 

2.3

%

Self-pay

 

1,171

 

 

0.3

%

 

329

 

 

0.1

%

Total revenue

$

411,276

 

 

100.0

%

$

366,003

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

For the Nine-Month Periods Ended

 

 

October 2, 2021

 

September 26, 2020

 

 

Revenue

 

Percentage

 

Revenue

 

Percentage

 

Medicaid MCO

$

681,548

 

 

53.9

%

$

652,663

 

 

60.8

%

Medicaid

 

308,340

 

 

24.4

%

 

288,156

 

 

26.9

%

Commercial

 

140,718

 

 

11.1

%

 

105,871

 

 

9.9

%

Medicare

 

129,548

 

 

10.3

%

 

24,619

 

 

2.3

%

Self-pay

 

4,394

 

 

0.3

%

 

1,494

 

 

0.1

%

Total revenue

$

1,264,548

 

 

100.0

%

$

1,072,803

 

 

100.0

% 

 

4. ACQUISITIONS

Acquisitions During the Three and Nine-Month Periods Ended October 2, 2021

On March 31, 2021, the Company acquired certain assets of Loma Linda University Medical Center (“Loma Linda”). Loma Linda specializes in providing pediatric, private duty, and home care services in California. Preliminary total consideration for the transaction was $0.5 million, all of which was paid in cash at closing.

On April 16, 2021, the Company acquired 100% of the issued and outstanding membership interests of Doctor’s Choice Holdings, LLC (“Doctor’s Choice”). Doctor’s Choice provides home health services in Florida. Preliminary total consideration for the transaction was 101.6 million, of which $100.6 million was paid in cash at closing. As part of funding the Doctor’s Choice acquisition, on the date of acquisition, the Company borrowed incremental amounts under its then existing second lien term loan facility of $67.0 million, including debt issuance costs of $1.7 million.

The estimated allocations of purchase price for the assets acquired and liabilities assumed with respect to the Loma Linda and Doctor’s Choice acquisitions are preliminary and based on information available to the Company as of October 2, 2021. The Company is completing its procedures related to the purchase price allocations and if information regarding these values is received that would result in a material adjustment to the values recorded, management will recognize the adjustment in the period such determination is made.

The preliminary purchase price allocations as of the acquisition dates, reflecting measurement period adjustments made during the respective period, are as follows (amounts in thousands):

 

9

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Entity

Loma Linda

 

Doctor’s Choice

 

Acquisition Date

3/31/21

 

4/16/21

 

Cash consideration

$

500

 

$

101,609

 

Contingent consideration

 

-

 

 

-

 

Total

$

500

 

$

101,609

 

Cash and cash equivalents

$

-

 

$

1

 

Patient accounts receivable

 

-

 

 

12,789

 

Receivables under insured programs

 

-

 

 

142

 

Prepaid expenses

 

-

 

 

431

 

Other current assets

 

-

 

 

11

 

Property and equipment, net

 

-

 

 

461

 

Operating lease right of use assets

 

-

 

 

1,013

 

Intangible assets, net - licenses

 

-

 

 

4,993

 

Intangible assets, net - trade names

 

-

 

 

1,486

 

Receivables under insured programs

 

-

 

 

312

 

Other long-term assets

 

-

 

 

99

 

Accounts payable and other accrued liabilities

 

-

 

 

(7,135

)

Accrued payroll and employee benefits

 

-

 

 

(2,226

)

Current portion of insurance reserves - insured programs

 

-

 

 

(142

)

Current portion of operating lease liabilities

 

-

 

 

(488

)

Current portion of deferred payroll taxes

 

-

 

 

(875

)

Other current liabilities

 

-

 

 

(11,469

)

Long-term insurance reserves - insured programs

 

-

 

 

(312

)

Long-term insurance reserves

 

-

 

 

(19

)

Operating lease liabilities, less current portion

 

-

 

 

(501

)

Deferred payroll taxes, less current portion

 

-

 

 

(876

)

Total identifiable net assets

 

-

 

 

(2,305

)

Goodwill

 

500

 

 

103,914

 

Total

$

500

 

$

101,609

 

The preliminary goodwill recognized is attributable to the excess of the particular purchase price of the acquisition over the fair value of identifiable net assets acquired, including other identified intangible assets. Preliminary goodwill of $0.5 million and $103.9 million related to the Loma Linda and Doctor’s Choice acquisitions, respectively, is deductible for tax purposes, and amortization commences on the applicable transaction date. Goodwill is primarily attributable to expected synergies resulting from the transactions.

The Company incurred transaction costs of $2.0 million and $4.8 million during the three and nine-month periods ended October 2, 2021, respectively. These costs are included in acquisition-related costs in the accompanying consolidated statements of operations.

Acquisitions During the Three and Nine-Month Periods Ended September 26, 2020

On August 2, 2020, the Company acquired 100% of the issued and outstanding common stock of Total Care, Inc. (“Total Care”). Total Care provides private duty nursing and individual client care for all ages, with a particular focus on pediatric patients. Total consideration for the transaction was $11.8 million, of which $10.4 million was paid in cash at closing.

On September 19, 2020, the Company acquired 100% of the issued and outstanding common stock of D&D Services, Inc. d/b/a Preferred Pediatric Home Health Care (“Preferred”). Preferred is a comprehensive provider of home care services for pediatric and adult patients. Total consideration for the transaction was $40.6 million, of which $39.8 million was paid in cash at closing.

On September 26, 2020, the Company acquired 100% of the issued and outstanding membership interests of Evergreen Home Healthcare, LLC (“Evergreen”). Evergreen offers private duty nursing and unskilled services and home care services to children and adults. Total consideration for the transaction was $14.5 million, of which $11.3 million was paid in cash at closing. Total consideration also included $1.9 million of contingent consideration recognized at the acquisition date. Under the purchase agreement, the Company agreed to pay the sellers of Evergreen up to an additional $1.9 million based on the outcome of whether

10

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Evergreen's Paycheck Protection Program loan was forgiven. During the nine-month period ended October 2, 2021, the Company paid $1.9 million to the sellers of Evergreen following forgiveness of such loan.

The final purchase price allocations as of the respective acquisition dates, reflecting measurement period adjustments made during the respective periods, are as follows (amounts in thousands):

 

Entity

Total Care

 

Preferred

 

Evergreen

 

Acquisition Date

8/2/20

 

9/19/20

 

9/26/20

 

Cash consideration

$

11,787

 

$

40,622

 

$

14,500

 

Contingent consideration

 

-

 

 

-

 

 

-

 

Total

$

11,787

 

$

40,622

 

$

14,500

 

Cash and cash equivalents

$

262

 

$

-

 

$

31

 

Patient accounts receivable

 

868

 

 

3,891

 

 

565

 

Receivables under insured programs

 

17

 

 

1,760

 

 

179

 

Prepaid expenses

 

-

 

 

338

 

 

24

 

Other current assets

 

-

 

 

331

 

 

-

 

Property and equipment, net

 

6

 

 

1,178

 

 

59

 

Operating lease right of use assets

 

329

 

 

480

 

 

342

 

Intangible assets, net - licenses

 

152

 

 

2,815

 

 

1,225

 

Intangible assets, net - trade names

 

109

 

 

392

 

 

135

 

Deferred income taxes

 

7

 

 

-

 

 

-

 

Accounts payable and other accrued liabilities

 

(16

)

 

(1,187

)

 

(40

)

Accrued payroll and employee benefits

 

(561

)

 

(1,394

)

 

(602

)

Current portion of operating lease liabilities

 

(60

)

 

(150

)

 

(130

)

Other current liabilities

 

-

 

 

(3,909

)

 

-

 

Long-term insurance reserves - insured programs

 

(54

)

 

(1,760

)

 

(179

)

Long-term insurance reserves

 

-

 

 

-

 

 

-

 

Operating lease liabilities, less current portion

 

(269

)

 

(330

)

 

(212

)

Deferred income taxes

 

-

 

 

(2,020

)

 

-

 

Other long-term liabilities

 

-

 

 

(93

)

 

-

 

Total identifiable net assets

 

790

 

 

342

 

 

1,397

 

Goodwill

 

10,997

 

 

40,280

 

 

13,103

 

Total

$

11,787

 

$

40,622

 

$

14,500

 



The goodwill recognized is attributable to the excess of the purchase price of the acquisition over the fair value of identifiable net assets acquired, including other identified intangible assets. Goodwill of $11.0 million and $13.1 million related to the Total Care and Evergreen, respectively, is deductible for tax purposes and amortization commenced on the respective transaction dates. None of the goodwill related to the Preferred acquisition is deductible for tax purposes. Goodwill is primarily attributable to expected synergies resulting from the transactions.

 

The Company incurred aggregate transaction costs of $4.5 million and $4.7 million during the three and nine-month periods ended September 26, 2020, respectively. These costs are included in acquisition-related costs in the accompanying consolidated statements of operations.

 

Pending Acquisitions

 

On September 27, 2021, an indirect wholly owned subsidiary of the Company entered into a Membership Interest Purchase Agreement with Comfort Care Home Health Services, LLC, an Alabama limited liability company (“Comfort Care Home Health”), Comfort Care Hospice, L.L.C., an Alabama limited liability company (“Comfort Care Hospice”), Premier Medical Housecall, LLC, an Alabama limited liability company (“Premier Medical Housecall,” and together with Comfort Care Home Health and Comfort Care Hospice, the “Companies”) and the other parties thereto, pursuant to which the Company agreed to acquire the outstanding membership interests of the Companies for aggregate consideration of $345.0 million in cash. The purchase price is subject the Companies being free of debt and cash and otherwise subject to a customary purchase price adjustment for working capital. The transaction is subject to customary closing conditions, including the absence of legal restraints

11

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

and the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

See Note 15 – Subsequent Events for disclosure of an additional pending acquisition.

5. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following as of October 2, 2021 and January 2, 2021, respectively (dollar amounts in thousands):

Instrument

Stated
Maturity
Date

Contractual Interest Rate

Interest Rate
as of
October 2, 2021

October 2, 2021

 

January 2, 2021

 

Term loan - First Lien Term Loan (1)

03/2024

L + 4.25%

5.25%

$

-

 

$

563,061

 

Term loan - First Lien Term Loan Amendment (1)

03/2024

L + 5.5%

6.50%

 

-

 

 

217,133

 

Term loan - First Lien Term Loan Fourth Amendment (1)

03/2024

L + 6.25%

7.25%

 

-

 

 

184,538

 

Subordinated term loan - Second Lien Term Loan (1)

03/2025

L + 8.0%

9.00%

 

-

 

 

240,000

 

2021 Extended Term Loan (2)

07/2028

L + 3.75%

4.25%

 

860,000

 

 

-

 

Revolving Credit Facility (2)

03/2023

L + 3.75%

5.25%

 

-

 

 

-

 

Total principal amount of long-term obligations

 

 

 

 

860,000

 

 

1,204,732

 

Less: unamortized debt issuance costs

 

 

 

 

(21,726

)

 

(31,332

)

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

 

 

 

 

838,274

 

 

1,173,400

 

Less: current portion of long-term obligations

 

 

 

 

(8,600

)

 

(9,910

)

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

 

 

 

$

829,674

 

$

1,163,490

 

(1) L = Greater of 1.00% or one-month LIBOR, (2) L = Greater of 0.50% or one-month LIBOR

 

 

 

 

 

 

 

On March 11, 2021, the Company amended its revolving credit facility to increase the maximum availability to $200.0 million, subject to the occurrence of the Company’s initial public offering. The amendment also extended the maturity date to April 29, 2026 upon completion of the IPO and subject to the completion of the refinancing of the Company’s term loans, which occurred on July 15, 2021.

With proceeds received from the IPO, on May 3, 2021 the Company repaid an aggregate principal amount of $307.0 million under its Second Lien Credit Agreement, including the incremental amount borrowed in connection with financing the acquisition of Doctor’s Choice, thereby repaying in full and terminating the Second Lien Credit Agreement. In addition, on May 4, 2021, the Company repaid $100.0 million in principal amount of its outstanding indebtedness under the First Lien Credit Agreement. In connection with these repayments of principal amounts, the Company wrote off debt issuance costs totaling $8.9 million, which are included in loss on debt extinguishment in the accompanying consolidated statements of operations.

On May 4, 2021, following completion of the initial public offering and satisfaction of the other applicable conditions precedent, the maximum availability of our revolving credit facility increased from $75.0 million to $200.0 million. In connection with this increase in capacity, the Company incurred debt issuance costs of $1.6 million, which were capitalized and included in other long-term assets.

On July 15, 2021 the Company entered into an Extension Amendment ("the Extension Amendment") to its First Lien Credit Agreement with Barclays Bank, as administrative agent, the collateral agent, a letter of credit issuer, and swingline lender, and the lenders and other agents party thereto from time to time (as amended to date, the "First Lien Credit Agreement"). The Extension Amendment converted outstanding balances under all remaining first lien term loans into a single term loan in an aggregate principal amount of $860.0 million (the “2021 Extended Term Loan”), and extended the maturity date to July 2028. In accordance with ASC 470-50-40, Debt Modification and Extinguishments, the Extension Amendment was accounted for as a modification of

12

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

debt for the lenders that remained in the syndicate, while the portions of the converted loans attributable to lenders who did not participate in the conversion were accounted for as an extinguishment of debt. As a result, for the remaining unamortized debt issuance costs related to the First Lien Credit Agreement, the Company recorded a $4.4 million loss on debt extinguishment and deferred $14.0 million as a direct deduction from the carrying amount of the debt. For the newly incurred deferred issuance costs on the Extension Amendment, the Company recorded a $0.4 million loss on debt extinguishment, $7.0 million of modification expense within corporate expenses on the accompanying consolidated statements of operations and deferred $8.3 million as a direct deduction from the carrying amount of the debt.

 

The Extension Amendment also provided for a delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) in an aggregate principal amount of $200.0 million, which permits the Company to incur senior secured first lien term loans (the “Delayed Draw Term Loans”) from time to time until July 15, 2023, in each case subject to certain terms and conditions. The Delayed Draw Term Loan Facility was undrawn as of October 2, 2021, and any future draws thereunder would also mature in July 2028. In connection with this new facility, the Company incurred debt issuance costs of $2.5 million, which were capitalized and included in other long-term assets.

 

On August 9, 2021, the Company entered into the Seventh Amendment to its First Lien Credit Agreement, as previously amended, (the “Seventh Amendment”) to reduce the interest rates applicable to Revolving Credit Loans (as defined in the First Lien Credit Agreement). As amended, Revolving Credit 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 prime or federal funds rate ("Annual Base Rate" 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. In connection with this amendment, the Company incurred debt issuance costs of $0.1 million, which were capitalized and included in other long-term assets.

 

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 October 2, 2021, the $860.0 million principal amount of the 2021 Extended Term Loan accrued interest at a rate of 4.25%.

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 October 2, 2021 and January 2, 2021 was $21.7 million and $31.3 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 October 2, 2021 and January 2, 2021 was $3.8 million and $0.5 million, respectively. The Company recognized interest expense related to the amortization of debt issuance costs of $1.4 million and $7.2 million during the three and nine-month periods ended October 2, 2021, respectively, and $1.9 million and $5.4 million during the three and nine-month periods ended September 26, 2020, respectively.

Issued letters of credit as of October 2, 2021 and January 2, 2021 were $19.8 million, respectively. There were 0 swingline loans outstanding as of October 2, 2021 and January 2, 2021, respectively. Borrowing capacity under the Company's revolving credit facility was $180.2 million as of October 2, 2021 and $55.2 million as of January 2, 2021.

The Company was in compliance with all financial covenants and restrictions at October 2, 2021 and January 2, 2021.

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):

13

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Fair Value Measurements at October 2, 2021

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

Interest rate cap agreement

$

-

 

$

765

 

$

-

 

$

765

 

Total derivative assets

$

-

 

$

765

 

$

-

 

$

765

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap agreements

$

-

 

$

22,290

 

$

-

 

$

22,290

 

Total derivative liabilities

$

-

 

$

22,290

 

$

-

 

$

22,290

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at January 2, 2021

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap agreements

$

-

 

$

28,624

 

$

-

 

$

28,624

 

Total derivative liabilities

$

-

 

$

28,624

 

$

-

 

$

28,624

 

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 an interest rate cap. 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 derivative.

In October 2018, the Company entered into 2 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 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 October 2, 2021 and January 2, 2021, respectively. The fair value of the interest rate swaps at October 2, 2021 and January 2, 2021 was $22.3 million and $28.6 million, respectively, and is included in other long-term liabilities on 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 (expense) income on the accompanying consolidated statements of operations which are included within cash flows from operating activities on the accompanying consolidated statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements prior to the amendment are recognized through cash flows from operating activities on 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 on the accompanying consolidated statements of cash flows due to an other-than-insignificant financing element on the interest rate swaps resulting from the amendment.

 

In July 2021, the Company also entered into a three-year, $340.0 million notional interest rate cap agreement with a cap rate of 1.75%. The cap agreement provides that the counterparty will pay the Company the amount by which LIBOR exceeds 1.75% in a given measurement period and expires on July 31, 2024. The one-time premium paid for this interest rate cap was $0.9 million. The fair value of the interest rate cap at October 2, 2021 was $0.8 million and is included in other long term assets on the accompanying consolidated balance sheets. The Company does not apply hedge accounting to the interest rate cap agreements and records all mark-to-market adjustments directly to other (expense) income on the accompanying consolidated statements of operations. The effects of the interest rate cap are recognized through cash flows from operating activities on the accompanying consolidated statements of cash flows.

14

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following gains (losses) from these derivatives not designated as hedging instruments were recognized in the Company’s consolidated statements of operations for the three-month periods ended October 2, 2021 and September 26, 2020, respectively (amounts in thousands):

 

 Statement of Operations

For the Three-Month Periods Ended

 

 

Classification

October 2, 2021

 

September 26, 2020

 

Interest rate cap agreement

 Other (expense) income

$

(88

)

$

-

 

Interest rate swap agreements

 Other (expense) income

$

1,481

 

$

1,157

 

 

 

 

 

 

 

 

 Statement of Operations

For the Nine-Month Periods Ended

 

 

Classification

October 2, 2021

 

September 26, 2020

 

Interest rate cap agreement

 Other (expense) income

$

(88

)

$

-

 

Interest rate swap agreements

 Other (expense) income

$

6,334

 

$

(6,925

)

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 benefit of $1.1 million and $0.6 million for the three and nine-month periods ended October 2, 2021, respectively, and income tax benefit of $0.5 million and income tax expense of $2.9 million for the three and nine-month periods ended September 26, 2020, respectively. The Company’s effective tax rate was negative 111.1% and negative 7.2% for the three and nine-month periods ended October 2, 2021, respectively, and 6.0% and negative 6.6% for the three and nine-month periods ended September 26, 2020, respectively. The effective tax rates for the three and nine-month periods ended October 2, 2021 and September 26, 2020 differ from the statutory rate of 21% primarily due to the reversal in the third quarter of 2021 of a pre-acquisition tax position initially recorded through goodwill, changes in the valuation allowance recorded against certain deferred tax assets, and separate state and local income taxes on taxable subsidiaries.

9. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Issuance of Shares

On March 19, 2020, the Company issued 5,124,995 shares of common stock as a result of equity contributions totaling $50.0 million. This transaction caused no significant changes in the Company’s ownership structure. The proceeds were used to fund strategic growth initiatives and provide additional liquidity for business operations.

Change in capital structure

On April 19, 2021, the Company’s Board of Directors and its stockholders approved, and the Company filed, amendments to the Company’s certificate of incorporation, including the Company’s Second Amended and Restated Certificate of Incorporation, which (i) eliminated Class B common stock, resulting in one class of shares of common stock authorized, issued and outstanding, (ii) effected a one-to-20.5 forward stock split and (iii) authorized 1,000,000,000 shares of common stock and 5,000,000 shares of preferred stock. The par value of each share of common stock and preferred stock was not adjusted in connection with the aforementioned forward stock split.

All share and per share information for prior periods, including options to purchase shares of common stock, deferred restricted stock units, option exercise prices, weighted average fair value of options granted, shares of common stock and additional paid-in capital accounts on the consolidated balance sheets, consolidated statements of operations and consolidated statements of stockholders’ equity, including the notes to the consolidated financial statements, have been retroactively adjusted, where applicable, to reflect the stock split and the increase in authorized shares.

Initial Public Offering

On May 3, 2021, the Company completed the IPO of its common stock pursuant to a Registration Statement on Form S-1 (File No. 333-254981), which was declared effective by the SEC on April 28, 2021. In the IPO, the Company sold an aggregate of 42,236,000 shares of common stock, including 4,000,000 shares of common stock purchased by the underwriters on May 25, 2021

15

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

pursuant to the underwriters’ option to purchase additional shares at the initial public offering price, less underwriting discounts and commissions. The Company received net proceeds from the IPO of $477.7 million. The Company also incurred offering expenses of $7.6 million.

Stock Incentive Plan

 

On April 19, 2021, the Company’s Board of Directors adopted the Company’s Amended and Restated 2017 Stock Incentive Plan (the “Amended Plan”). The Amended Plan (i) provides for the issuance of common stock, as opposed to the Class B common stock previously issuable under the plan, to align with the Company’s Amended and Restated Certificate of Incorporation and (ii) modified the vesting terms of the existing issued performance-vesting options to vest upon the achievement of volume weighted average price (“VWAP”) per share hurdles for any ninety consecutive days commencing on or after the nine-month anniversary of the IPO. On June 17, 2021 the Company established the VWAP per share hurdles for the performance-vesting options, which resulted in an accounting modification on that date.

The issuance of shares of common stock rather than Class B common stock resulted in an accounting modification on April 19, 2021 to the Company’s time-vesting options; however, the incremental fair value was not material.

Performance-Vesting Options

 

Completion of the Company’s IPO in April 2021 resulted in the Company’s performance-vesting options becoming eligible to potentially vest. Upon completion of the IPO, the Company recognized compensation expense of $3.2 million, representing the time elapsed from the respective grant dates of the outstanding awards to the completion of the IPO in proportion to the total requisite service period of the awards, multiplied by the respective original grant date fair values. The compensation expense recorded was included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations for the nine-month period ended October 2, 2021. The Company recorded compensation expense from the IPO date to the modification date of $0.4 million, which was also included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations for the nine-month period ended October 2, 2021.

 

As a result of the June 17, 2021 modification, the Company calculated the fair value of the outstanding performance-vesting options immediately before and immediately after the modification using the Monte Carlo option-pricing model. The Company calculated incremental fair value of $8.8 million resulting from the modification, which, along with the unrecognized compensation expense of $4.4 million under the original terms, will be recognized prospectively over the revised remaining requisite service period. The Company recorded compensation expense for the period from the modification date through October 2, 2021 of $3.6 million, which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three and nine-month periods ended October 2, 2021. Unrecognized compensation expense as of October 2, 2021 associated with outstanding performance-vesting options was $6.1 million.

 

The Company did 0t incur or record any expense associated with the performance-vesting options during the three and nine-month periods ended September 26, 2020.

Deferred Restricted Stock Units

Deferred restricted stock units (“Deferred RSUs”) issued prior to the Company’s IPO contained a put right that is exercisable only when the participant resigns from the Board of Directors, which is outside the control of the Company. As such, the Company classified these pre-IPO Deferred RSU awards as liabilities for six months and then temporary equity thereafter. Deferred RSUs issued subsequent to the Company’s IPO do not contain any put rights, vest over a one year service period, and are valued based on the fair market value of a share of common stock at grant date. The Company classified these post-IPO Deferred RSU awards as equity and included related amounts within additional paid-in capital on the accompanying consolidated balance sheet as of October 2, 2021. On June 30, 2021, the Company awarded a total of 52,545 Deferred RSUs to members of the Board of Directors. The Company recognized $0.2 million for the three and nine-month periods ended October 2, 2021. Unrecognized compensation expense as of October 2, 2021 associated with outstanding Deferred RSUs was $0.5 million.

Employee Stock Purchase Plan

On April 28, 2021, the Company’s Board of Directors adopted the Aveanna Healthcare Holdings Inc. 2021 Employee Stock Purchase Plan (the “ESPP”). Initially, a maximum of 5,404,926 shares of the Company’s common stock are authorized for issuance under the ESPP. Under the ESPP, shares of common stock may be purchased by eligible participants during defined

16

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

purchase periods at 85% of the lesser of the closing price of the Company’s common stock on the first day or last day of each purchase period. The first purchase period for the ESPP began on August 1, 2021 and ends on December 31, 2021. The Company used a Black-Scholes option pricing model to value the common stock purchased as part of the Company's ESPP. The fair value estimated by the option pricing model is affected by the price of the common stock as well as subjective variables that include assumed interest rates, our expected dividend yield, and our expected share volatility over the term of the award. Eligible participants contributed $1.1 million during the three-month period ended October 2, 2021, which is included in accrued payroll and employee benefits in the accompanying consolidated balance sheets as of October 2, 2021. The Company recorded compensation expense of $0.4 million which is included in corporate and branch and regional administrative expenses in the accompanying consolidated statements of operations for the three and nine-month periods ended October 2, 2021. Unrecognized compensation expense as of October 2, 2021 associated with the remaining ESPP purchase period through December 31, 2021 was $0.6 million.

10. COMMITMENTS AND CONTINGENCIES

Insurance Reserves

As is typical in the healthcare industry, the Company is subject to claims that its services have resulted in patient injury or other adverse effects.

The accrued insurance reserves included in the accompanying consolidated balance sheets include estimates of the ultimate costs, in the event the Company was unable to receive funds from claims made under commercial insurance policies, for claims that have been reported but not paid and claims that have been incurred but not reported at the balance sheet dates. Although substantially all reported claims are paid directly by the Company’s commercial insurance carriers, the Company is ultimately responsible for payment of these claims in the event its insurance carriers become insolvent or otherwise do not honor the contractual obligations under the malpractice policies. The Company is required under U.S. GAAP to recognize these estimated liabilities in its consolidated financial statements on a gross basis; with a corresponding receivable from the insurance carriers reflecting the contractual indemnity provided by the carriers under the related malpractice policies.

The Company maintains primary commercial insurance coverage on a claim basis for professional malpractice claims with a $1.0 million per claim deductible and $5.5 million per claim and annual aggregate limits as of October 1, 2021. Prior to October 1, 2021, the Company maintained primary commercial insurance coverage on a claim basis for professional malpractice claims with a $0.5 million per claim deductible and $6.0 million per claim and annual aggregate limits. Moreover, the Company maintains excess insurance coverage for professional malpractice claims. In addition, the Company maintains workers’ compensation insurance with a $0.5 million per claim deductible and statutory limits. The Company reimburses insurance carriers for deductible losses under these policies. The Company’s insurance carriers require collateral to secure the Company’s obligation to reimburse insurance carriers for these deductible payments. Collateral as of October 2, 2021 and January 2, 2021 was comprised of $18.8 million of issued letters of credit, $2.9 million in cash collateral, and $2.9 million in surety bonds, respectively.

As of October 2, 2021, insurance reserves totaling $79.1 million were included on the consolidated balance sheets, representing $42.5 million and $36.6 million of reserves for professional malpractice claims and workers’ compensation claims, respectively. At January 2, 2021, insurance reserves totaling $74.6 million were included on the consolidated balance sheets, representing $38.5 million and $36.1 million of reserves for professional malpractice claims and workers’ compensation claims, respectively.

Litigation and Other Current Liabilities

On December 16, 2016, Aveanna Healthcare LLC (f/k/a BCPE Eagle Buyer LLC) entered into a stock purchase agreement with Epic/Freedom, LLC, Epic Acquisition, Inc., and FHH Holdings, Inc. for Aveanna Healthcare LLC to acquire Epic Acquisition, Inc. and FHH Holdings, Inc. (the “Acquisition”). The Acquisition closed on March 16, 2017. On February 19, 2020, the Company entered into a settlement agreement for a legal claim totaling $50.0 million related to the Acquisition. The settlement proceeds were included in other income in the accompanying consolidated statements of operations for the nine-month period ended September 26, 2020.

17

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

On December 24, 2018, Aveanna Healthcare LLC, an indirect wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a pediatric home health company (the “Seller”). The agreement contained a provision whereby a $75.0 million transaction termination fee (the “Break-up Fee”) could be payable to the Seller under certain circumstances. On December 20, 2019, Aveanna Healthcare LLC terminated the Agreement, and the Seller demanded payment of the Break-up Fee. The Company believes the Agreement was terminated for cause and therefore 0 payment of the Break-up Fee is due to the Seller. The Seller has disputed this assertion. While the Company believes that litigation over this matter is unlikely at the present time, it is possible that the Company and the Seller may in the future pursue claims and counterclaims related to the termination of the Agreement and payment of the Break-up Fee. At this time, the Company is unable to predict the possible loss or range of loss, if any, associated with the resolution of any such litigation, or any potential related effect on the Company or its business or operations.

The Company is currently a party to various routine litigation incidental to the business. While management currently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Management has established provisions within other current liabilities in the accompanying consolidated balance sheets, which in the opinion of management represents the best estimate of exposure and adequately provides for such losses that may occur from asserted claims related to the provision of professional services and which may not be covered by the Company’s insurance policies. Management believes that any additional unfavorable provisions would not be material to the Company’s results of operations or financial position; however, if an unfavorable ruling on any asserted or unasserted claim were to occur, there exists the possibility of a material adverse impact on the Company’s net earnings or financial position. The estimate of the potential impact from legal proceedings on the Company’s financial position or overall results of operations could change in the future.

On August 6, 2020, the Company sued Epic/Freedom, LLC (“Seller”), Webster Capital Corporation, and Webster Equity Partners (collectively, the “Defendants”) in the Delaware Superior Court. The Company asserted that the Defendants made fraudulent representations and warranties in connection with the Epic acquisition. The Company is seeking damages ranging from $24.0 million to $50.0 million. The Company also requested a declaratory judgment holding that the Defendants waived any claim to the Company’s continued possession of $7.1 million in escrow funds (the “Escrow Funds”) that were delivered to the Company in January 2018 by the Epic acquisition escrow agent. In response, the Defendants asserted four counterclaims: (1) specific performance of an alleged right to control a tax audit; (2) advancement of litigation fees and expenses for certain individual Defendants; (3) a declaratory judgment; and (4) breach of contract claim concerning the Escrow Funds. The Company subsequently reached an agreement with the Defendants, which (1) allowed the Defendants to take a principal role in the applicable tax audit, though the Company will continue to communicate with the Internal Revenue Service and retain the ability to make strategic decisions with respect to the audit and (2) dismissed claims against certain individual Defendants mooting Defendants’ claims for advancement of litigation fees and expenses. On July 29, 2021, the Delaware Superior Court denied the Defendants’ motion for judgment on the pleadings with respect to the Company’s claim for fraud against the Defendants, which allows the Company to pursue discovery with respect to the alleged fraud claim. With respect to the Company’s retention of certain tax refunds the Company received on behalf of Defendants, the Court denied the Company’s motion for judgment on the pleadings, pursuant to which the Company sought to retain the tax refunds as matter of law. The Court also ordered Seller to refile its motion for summary judgment on the same subject and abated a ruling pending further discovery and resolution of whether the parties entered into a post-closing agreement, allowing the Company to retain the tax refunds pending the outcome of the related tax audits. Lastly, the Court denied the Company’s motion for judgment on the pleadings as to its continued possession of the Escrow Funds. At this time, the Company cannot predict the ultimate resolution or estimate the amount of any loss or recovery, if any, related to this matter.

Healthcare Regulatory Matters

Starting on October 30, 2019 the Company has received grand jury subpoenas (“Subpoenas”) issued by the U.S. Department of Justice, Antitrust Division (the “Antitrust Division”) requiring the production of documents and information pertaining to nurse wages, reimbursement rates, and hiring activities in a few of its local markets. The Company is fully cooperating with the Antitrust Division with respect to this investigation and management believes this matter is unlikely to materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this litigation.

Laws and regulations governing the government payer programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action. From time to time, governmental regulatory agencies conduct inquiries and audits of the Company’s practices. It is the Company’s practice to cooperate fully with such inquiries. In addition to laws and regulations governing the Medicaid, Medicaid Managed

18

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Care, and Tricare programs, there are a number of federal and state laws and regulations governing matters such as the corporate practice of medicine, fee splitting arrangements, anti-kickback statues, physician self-referral laws, false or fraudulent claims filing and patient privacy requirements. Failure to comply with any such laws or regulations could have an adverse impact on the Company’s operations and financial results. The Company believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of wrongdoing.

11. COVID-19

In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 outbreak has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains and macroeconomic conditions. After the declaration of a national emergency in the United States on March 13, 2020, in compliance with stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19, the Company altered numerous clinical, operational, and business processes. While each of the states deemed healthcare services an essential business, allowing the Company to continue to deliver healthcare services to patients, the effects of the pandemic have been wide-reaching.

In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. The CARES Act has impacted the Company as follows:

Provider Relief Fund (“PRF”): Beginning in April 2020, funds were distributed to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. During fiscal year 2020, the Company received PRF payments from the U.S. Department of Health and Human Services (“HHS”) totaling $25.1 million, which were included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On March 5, 2021, the Company repaid these PRF payments in full.

State Sponsored Relief Funds: In fiscal year 2020, the Company received $4.8 million of stimulus funds from the Commonwealth of Pennsylvania Department of Human Services (“Pennsylvania DHS”). Such funds were not applied for or requested. The Company did 0t receive stimulus funds from any individual state other than Pennsylvania. The Company recognized $0.5 million of income related to these funds in fiscal year 2020, with the remaining $4.3 million included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On February 4, 2021, the Company repaid the remaining $4.3 million of direct stimulus funds to Pennsylvania DHS.

Deferred payment of the employer portion of social security taxes: The Company was permitted to defer payments of the employer portion of social security taxes in fiscal year 2020, which are payable in 50% increments, with the first 50% due by December 31, 2021 and the second 50% due by December 31, 2022. The Company did not defer any payroll taxes after December 31, 2020. As of October 2, 2021, the Company had deferred payment of $51.4 million of social security taxes in total, which is recorded in the current portion of deferred payroll taxes and in the deferred payroll taxes, less current portion liabilities on the accompanying consolidated balance sheet. The Company did not commence deferrals until April 1, 2020; therefore the Company did not defer any payroll taxes during the three-month period ended March 28, 2020.

Reimbursement rate increases from various state Medicaid and Medicaid Managed Care Programs: Shortly after the onset of COVID-19 in March 2020, numerous state Medicaid programs began to issue temporary rate increases and similarly directed Medicaid Managed Care programs within those states to likewise adjust rates. These temporary rate increases are paid to the Company via normal claim processing by the respective payers. Over the remainder of fiscal year 2020 and continuing into fiscal year 2021, while some states discontinued the temporary rate increases, most states issued continuations of the temporary rate increases with many state legislatures communicating support for either making such increases permanent or otherwise increasing PDS reimbursement rates.

Medicare Advances: Certain of the home health and hospice companies the Company has acquired received advance payments from the Centers for Medicare & Medicaid Services (“CMS”) in April 2020, pursuant to the expansion of the Accelerated Payments Program provided for in the CARES Act. These advances became repayable beginning one year from the date on which the accelerated advance was issued. The repayments occur via offsets by CMS to current payments otherwise due from Medicare at a rate of 25% for the first eleven months. After the eleven months end, payments will be recouped at a rate of 50% for another six months, after which any remaining balance will become due. Gross advances received by acquired companies in April 2020 totaled $15.7 million. The Company began repaying the gross amount of the advances, via the offset mechanism described above, during the second quarter of 2021, and had repaid an aggregate amount of $8.8 million of such advances as of October 2, 2021.

19

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Remaining unpaid advances as of October 2, 2021 totaled $6.9 million and are recorded in other current liabilities on the accompanying consolidated balance sheet.

Temporary Suspension of Medicare Sequestration: The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee-for-service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements are subject to this mandatory reduction, which will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period from May 1, 2020 through December 31, 2021.

 

12. RELATED PARTY TRANSACTIONS

The Company had entered into an advisory services agreement with affiliates of certain stockholders of the Company (the “Management Agreement”). Under this agreement, the managers provided general and strategic advisory services and were paid a quarterly management fee plus out of pocket expenses. Upon completion of the IPO, the Management Agreement was terminated. Additionally, the managers agreed to waive the fee due to them from the Company upon the successful completion of the IPO. The Company incurred management fees and expenses totaling $0.8 million during the nine-month period ended October 2, 2021, and $0.8 million and $2.4 million during the three and nine-month periods ended September 26, 2020, respectively, which are included in corporate expenses in the accompanying consolidated statements of operations. The Company did 0t owe any amounts in connection with the Management Agreement as of October 2, 2021. Amounts owed by the Company in connection with the Management Agreement totaled $1.6 million as of January 2, 2021 and were included in accounts payable and other accrued liabilities on the consolidated balance sheets.

One of the Company’s stockholders has an ownership interest in a revenue cycle vendor used by the Company for eligibility and clearinghouse billing services. Fees for such services totaled $0.1 million and $0.3 million during the three and nine-month periods ended October 2, 2021 and $0.1 million and $0.4 million during the three and nine-month periods ended September 26, 2020, respectively, and are included in corporate expenses in the accompanying consolidated statements of operations. The Company did 0t owe any amounts in connection with the expenses described above as of October 2, 2021 and January 2, 2021, respectively.

As of October 2, 2021, one of the Company’s stockholders owned 6.8% of the Company’s 2021 Extended Term Loan.

 

13. SEGMENT INFORMATION

The Company’s operating segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker (“CODM”) manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting. The Company has 3 operating segments and 3 reportable segments, Private Duty Services, Home Health & Hospice, and Medical Solutions. The PDS segment predominantly includes private duty skilled nursing services, unskilled and personal care services, and pediatric therapy services. The HHH segment provides home health and hospice services to predominately elderly patients. Through the MS segment, the Company provides enteral nutrition and other products to adults and children, delivered on a periodic or as-needed basis.

The CODM evaluates performance using gross margin (and gross margin percentage). Gross margin includes revenue less all costs of revenue, excluding depreciation and amortization, but excludes branch and regional administrative expenses, corporate expenses and other non-field expenses. The CODM does not evaluate a measure of assets when assessing performance.

Results shown for the three and nine-month periods ended October 2, 2021 and September 26, 2020 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.

The following tables summarize the Company’s segment information for the three and nine-month periods ended October 2, 2021 and September 26, 2020, respectively (amounts in thousands):

 

20

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

For the Three-Month Periods Ended October 2, 2021

 

 

PDS

 

HHH

 

MS

 

Total

 

Revenue

$

327,133

 

$

47,000

 

$

37,143

 

$

411,276

 

Cost of revenue, excluding depreciation and amortization

 

226,540

 

 

24,130

 

 

20,864

 

 

271,534

 

Gross margin

$

100,593

 

$

22,870

 

$

16,279

 

$

139,742

 

Gross margin percentage

 

30.7

%

 

48.7

%

 

43.8

%

 

34.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three-Month Periods Ended September 26, 2020

 

 

PDS

 

HHH

 

MS

 

Total

 

Revenue

$

328,985

 

$

4,690

 

$

32,328

 

$

366,003

 

Cost of revenue, excluding depreciation and amortization

 

231,454

 

 

2,774

 

 

17,645

 

 

251,873

 

Gross margin

$

97,531

 

$

1,916

 

$

14,683

 

$

114,130

 

Gross margin percentage

 

29.6

%

 

40.9

%

 

45.4

%

 

31.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine-Month Periods Ended October 2, 2021

 

 

PDS

 

HHH

 

MS

 

Total

 

Revenue

$

1,027,640

 

$

128,589

 

$

108,319

 

$

1,264,548

 

Cost of revenue, excluding depreciation and amortization

 

719,435

 

 

67,224

 

 

59,875

 

 

846,534

 

Gross margin

$

308,205

 

$

61,365

 

$

48,444

 

$

418,014

 

Gross margin percentage

 

30.0

%

 

47.7

%

 

44.7

%

 

33.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine-Month Periods Ended September 26, 2020

 

 

PDS

 

HHH

 

MS

 

Total

 

Revenue

$

963,694

 

$

13,823

 

$

95,286

 

$

1,072,803

 

Cost of revenue, excluding depreciation and amortization

 

683,492

 

 

8,273

 

 

52,738

 

 

744,503

 

Gross margin

$

280,202

 

$

5,550

 

$

42,548

 

$

328,300

 

Gross margin percentage

 

29.1

%

 

40.2

%

 

44.7

%

 

30.6

%

 

 

For the Three-Month Periods Ended

 

For the Nine-Month Periods Ended

 

Segment Reconciliation:

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Total segment gross margin

$

139,742

 

$

114,130

 

$

418,014

 

$

328,300

 

Branch and regional administrative expenses

 

76,370

 

 

59,641

 

 

223,462

 

 

174,455

 

Corporate expenses

 

37,873

 

 

32,493

 

 

97,673

 

 

81,039

 

Goodwill impairment

 

-

 

 

-

 

 

-

 

 

75,727

 

Depreciation and amortization

 

5,145

 

 

3,922

 

 

15,163

 

 

12,339

 

Acquisition-related costs

 

2,007

 

 

4,510

 

 

4,779

 

 

4,679

 

Other operating expenses

 

-

 

 

687

 

 

-

 

 

1,274

 

Operating income (loss)

 

18,347

 

 

12,877

 

 

76,937

 

 

(21,213

)

Interest income

 

44

 

 

38

 

 

182

 

 

247

 

Interest expense

 

(12,106

)

 

(19,065

)

 

(53,793

)

 

(58,972

)

Loss on debt extinguishment

 

(4,784

)

 

-

 

 

(13,702

)

 

(73

)

Other (expense) income

 

(511

)

 

(1,723

)

 

(1,088

)

 

35,608

 

Income (loss) before income taxes

$

990

 

$

(7,873

)

$

8,536

 

$

(44,403

)

 

 

21

 


AVEANNA HEALTHCARE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

14. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the diluted weighted average number of shares of common stock outstanding for the period. For purposes of this calculation, outstanding stock options are considered potential dilutive shares of common stock. The following is a computation of basic and diluted net income (loss) per share (amounts in thousands, except per share amounts):

 

 

For the Three-Month Periods Ended

 

For the Nine-Month Periods Ended

 

 

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

$

2,090

 

$

(7,402

)

$

9,148

 

$

(47,318

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding (1), basic

 

184,554

 

 

142,123

 

 

165,877

 

 

140,559

 

Net income (loss) per share, basic

$

0.01

 

$

(0.05

)

$

0.06

 

$

(0.34

)

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding (1), diluted

 

188,246

 

 

142,123

 

 

170,667

 

 

140,559

 

Net income (loss) per share, diluted

$

0.01

 

$

(0.05

)

$

0.05

 

$

(0.34

)

Dilutive securities outstanding not included in the computation of diluted net income (loss) per share as their effect is antidilutive:

 

 

 

 

 

 

 

 

Stock options

 

6,885

 

 

13,950

 

 

6,360

 

 

13,950

 

 

(1)
The calculation of weighted average shares of common stock outstanding includes all vested deferred restricted stock units. 

 

15. SUBSEQUENT EVENTS

Pending acquisition

 

On November 14, 2021, Aveanna Healthcare, LLC, a Delaware limited liability company (“Buyer”) and indirect wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Dunn & Berger, Inc. d/b/a Accredited Nursing Services, a California corporation (“Accredited”), Barry R. Berger and Jill Taffy Steinfeld-Berger, Trustees of The Barry R. Berger and Jill Taffy Steinfeld-Berger Family Trust dated September 19, 2006 seller ("Seller"), and the other parties thereto, to acquire all of the issued and outstanding stock of Accredited for aggregate consideration of (i) $180.0 million in cash plus (ii) $45.0 million in cash that will be held in escrow (the “Escrowed Purchase Price”), pending final reconciliation, in accordance with the terms of the Purchase Agreement, of Accredited’s volumes for September, October, and November of 2021. Any portion of the Escrowed Purchase Price not payable to Seller will be returned to Buyer. The purchase price payable by Buyer is additionally subject to a customary purchase price adjustment mechanism providing for a normalized level of working capital and that Accredited, together with its subsidiaries, be free of cash and debt at closing. The transaction is subject to customary conditions, including the absence of legal restraints and the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Securitization

On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) entered into a Receivables Financing Agreement with a bank (the “Securitization Facility”) with a termination date of November 12, 2024. The Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the Company's patient accounts receivable. The maximum amount available under the Securitization Facility is $150.0 million subject to maintaining certain borrowing base requirements. Borrowings under this facility carry variable interest rates tied to BSBY plus an applicable margin.

 

22

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented below. This discussion should be read in conjunction with the interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and related notes for the year ended January 2, 2021, our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our prospectus dated April 28, 2021 (the “Prospectus”), which is deemed to be part of our Registration Statement on Form S-1 (File No. 333-254981), filed with the SEC. As discussed in the section above titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below as well as in the Prospectus.

Unless otherwise provided, “Aveanna”, “we,” “our” and the “Company” refer to Aveanna Healthcare Holdings Inc. and its consolidated subsidiaries.

Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52-week or 53-week fiscal year. “Fiscal year 2021” refers to the 52-week fiscal year ended on January 1, 2022. “Fiscal year 2020” refers to the 53-week fiscal year ended on January 2, 2021. The “three-month period ended October 2, 2021”, or “third quarter 2021” refers to the 13-week fiscal quarter ended on October 2, 2021. The “three-month period ended September 26, 2020” or “third quarter 2020” refers to the 13-week fiscal quarter ended on September 26, 2020. The “nine-month period ended October 2, 2021”, or “first nine-months of 2021” refers to the period from January 3, 2021 through October 2, 2021. The “nine-month period ended September 26, 2020”, or “first nine-months of 2020” refers to the period from December 29, 2019 through September 26, 2020.

Overview

We are a leading, diversified home care platform focused on providing care to medically complex, high-cost patient populations. We directly address the most pressing challenges facing the U.S. healthcare system by providing safe, high-quality care in the home, the lower cost care setting preferred by patients. Our patient-centered care delivery platform is designed to improve the quality of care our patients receive, which allows them to remain in their homes and minimizes the overutilization of high-cost care settings such as hospitals. Our clinical model is led by our caregivers, primarily skilled nurses, who provide specialized care to address the complex needs of each patient we serve across the full range of patient populations: newborns, children, adults and seniors. We have invested significantly in our platform to bring together best-in-class talent at all levels of the organization and support such talent with industry leading training, clinical programs, infrastructure and technology-enabled systems, which are increasingly essential in an evolving healthcare industry. We believe our platform creates sustainable competitive advantages that support our ability to continue driving rapid growth, both organically and through acquisitions, and positions us as the partner of choice for the patients we serve.

Segments

We deliver our services to patients through three segments: Private Duty Services (“PDS”); Home Health & Hospice (“HHH”); and Medical Solutions (“MS”).

The following table summarizes the revenues generated by each of our segments for the three-month periods ended October 2, 2021 and September 26, 2020, respectively:

 

(dollars in thousands)

Consolidated

 

PDS

 

HHH

 

MS

 

For the three-month period ended October 2, 2021

$

411,276

 

$

327,133

 

$

47,000

 

$

37,143

 

Percentage of consolidated revenue

 

 

 

80

%

 

11

%

 

9

%

For the three-month period ended September 26, 2020

$

366,003

 

$

328,985

 

$

4,690

 

$

32,328

 

Percentage of consolidated revenue

 

 

 

90

%

 

1

%

 

9

%

The following table summarizes the revenues generated by each of our segments for the nine-month periods ended October 2, 2021 and September 26, 2020, respectively:

 

(dollars in thousands)

Consolidated

 

PDS

 

HHH

 

MS

 

For the nine-month period ended October 2, 2021

$

1,264,548

 

$

1,027,640

 

$

128,589

 

$

108,319

 

Percentage of consolidated revenue

 

 

 

81

%

 

10

%

 

9

%

For the nine-month period ended September 26, 2020

$

1,072,803

 

$

963,694

 

$

13,823

 

$

95,286

 

Percentage of consolidated revenue

 

 

 

90

%

 

1

%

 

9

%

 

23

 


 

PDS Segment

Private Duty Services predominantly includes private duty nursing (“PDN”) services, as well as pediatric therapy services. Our PDN patients typically enter our service as children, as our most significant referral sources for new patients are children’s hospitals. It is common for our PDN patients to stay on our service into adulthood, as approximately 50% of our PDN patients are over the age of 18.

Our PDN services involve the provision of skilled and unskilled hourly care to patients in their homes, which is the preferred setting for patient care. PDN services typically last four to 24 hours a day, provided by our registered nurses, licensed practical nurses, home health aides, and other unskilled caregivers who are focused on providing high-quality short-term and long-term clinical care to medically fragile children and adults with a wide variety of serious illnesses and conditions. Patients who typically qualify for our PDN services include those with the following conditions:

Tracheotomies or ventilator dependence;
Dependence on continuous nutritional feeding through a “G-tube” or “NG-tube”;
Dependence on intravenous nutrition;
Oxygen-dependence in conjunction with other medical needs; and
Complex medical needs such as frequent seizures.

Our PDN services include:

In-home skilled nursing services to medically fragile children;
Nursing services in school settings in which our caregivers accompany patients to school;
Services to patients in our Pediatric Day Healthcare Centers (“PDHC”); and
Unskilled care, including programs such as Employer of Record (“EOR”) support services and personal care services.

Through our pediatric therapy services, we provide a valuable multidisciplinary approach that we believe serves all of a child’s therapy needs. We provide both in-clinic and home-based therapy services to our patients. Our therapy services include physical, occupational and speech services. We regularly collaborate with physicians and other community healthcare providers, which allows us to provide more comprehensive care. Additionally, our Applied Behavioral Analysis (“ABA”) Therapy services previously provided children with the strategies and skills necessary to maximize their individual potential, achieve meaningful outcomes, and reach their goals to the greatest extent possible. We also provided parents with useful strategies and techniques to support their child’s progress towards meeting developmental milestones in communication and behavior throughout their lifetime. In July 2020, we discontinued providing ABA Therapy services.

HHH Segment

Our Home Health and Hospice segment predominantly includes home health services, as well as hospice and specialty program services. Our HHH patients typically enter our service as seniors, and our most significant referral sources for new patients are hospitals, physicians and long-term care facilities.

 

Our home health services involve the provision of in-home services to our patients by our clinicians which may include nurses, therapists, social workers and home health aides. Our caregivers work with our patients’ physicians to deliver a personalized plan of care to our patients in their homes. Home healthcare can help our patients recover after a hospitalization or surgery and assist patients in managing chronic illnesses. We also help our patients manage their medications. Through our care, we help our patients recover more fully in the comfort of their own homes, while remaining as independent as possible. Our home health services include: in-home skilled nursing services; physical, occupational and speech therapy; medical social services and aide services.

 

Our hospice services involve a supportive philosophy and concept of care for those nearing the end of life. Our hospice care is a positive, empowering form of care designed to provide comfort and support to our patients and their families when a life-limiting illness no longer responds to cure-oriented treatments. The goal of hospice is to neither prolong life nor hasten death, but to help our patients live as dignified and pain-free as possible. Our hospice care is provided by a team of specially trained professionals in a variety of living situations, including at home, at the hospital, a nursing home, or an assisted living facility.

MS Segment

Through our Medical Solutions segment, we offer a comprehensive line of enteral nutrition supplies and other products to adults and children, delivered on a periodic or as-needed basis. We provide our patients with access to one of the largest selections of enteral formulas, supplies and pumps in our industry, with more than 300 nutritional formulas available. Our registered nurses, registered

24

 


 

dietitians and customer service technicians support our patients 24 hours per day, 365 days per year, in-hospital, at-home, or remotely to help ensure that our patients have the best nutrition assessments, change order reviews and formula selection expertise.

Acquisitions and other Factors Affecting Results of Operations and Comparability

Acquisition-related Activities

During the third fiscal quarter of 2020, we acquired three companies that primarily deliver PDN services, in addition to medical solutions services (collectively, the “2020 PDS Acquisitions”). The 2020 PDS Acquisitions generated revenues in 2020 prior to being acquired by us of $55.0 million and $22.8 million after being acquired by us. The 2020 PDS Acquisitions generated operating income in 2020 prior to being acquired by us of $4.1 million and $1.6 million after being acquired by us. We report the results of the 2020 PDS Acquisitions in our PDS segment and MS segment.

In the fourth fiscal quarter of 2020, we acquired two companies that primarily deliver home health and hospice services, as well as PDN services (collectively, the “2020 HHH Acquisitions”). The 2020 HHH Acquisitions generated revenues in 2020 prior to being acquired by us of $104.1 million and $13.1 million after being acquired by us. The 2020 HHH Acquisitions generated operating income in 2020 prior to being acquired by us of $0.9 million and $2.6 million after being acquired by us. Home health and hospice businesses are primarily reimbursed by Medicare for services rendered and these new lines of business have accordingly begun to diversify our current payer base beyond Medicaid and Medicaid Managed Care revenue. We report the results of the 2020 HHH Acquisitions in our HHH segment and PDS segment.

On April 16, 2021, we acquired Doctor’s Choice Holdings, LLC (“Doctor’s Choice”), which provides home health services in the state of Florida. Prior to being acquired by us in 2021, Doctor’s Choice generated revenues of $22.9 million and operating losses of $7.2 million. The 2021 operating losses in the period prior to being acquired by us resulted from one-time seller transaction costs and incentives paid in connection with completing the acquisition. Similar to the 2020 HHH Acquisitions, Doctor’s Choice has further diversified our current payer base beyond Medicaid and Medicaid Managed Care revenue. We report the results of Doctor’s Choice in our HHH segment.

COVID-19 Pandemic Impact on our Business

In March 2020, the World Health Organization declared COVID-19 a pandemic. We continue to monitor the impact of COVID-19 on our caregivers and support personnel, our patients and their families, and our referral sources. We have adapted our operations as necessary to best protect our people and serve our patients and our communities. We continue to take precautions to protect the safety and well-being of our employees and patients by purchasing and delivering additional supplies of personal protective equipment ("PPE") and other medical supplies to branches and regional offices across the country as necessary. We have also invested in technology and equipment that allows support personnel to provide, on a remote basis, seamless functionality and support to our clinicians who continue to care for our patients. A significant portion of our employees at our corporate support offices in Georgia, Texas and Arizona continue to work remotely at this time.

 

With the onset of the COVID-19 pandemic in March 2020, we began incurring incremental costs of patient services in the form of incremental compensation paid to caregivers such as hero pay, COVID-19 relief pay, incremental overtime, and other retention-related compensation to maintain our clinical workforce in the COVID-19 environment. We also incurred incremental PPE costs to support our caregivers and care for our patients. The nature of the incremental COVID-19 costs we have incurred has changed over time as dictated by the continually evolving COVID-19 environment. We believe we will continue to incur incremental COVID-19 costs through the remainder of 2021, including newly mandated medical removal protection benefits for our caregivers as required by OSHA's Emergency Temporary Standard and costs required to comply with Federal, State and Local vaccination mandates and testing requirements; retention and incentive related compensation to maintain our clinical workforce in the COVID-19 environment; as well as PPE costs.

Despite the recent surges in COVID-19 cases attributable to the Delta variant and the attendant pressures on our clinical workforce, we continue to execute on our strategic business plans to grow our services both organically and through acquisitions. As the percentage of vaccinated caregivers grows and as caregivers return to the workforce, we believe this will increase our staffed hours and allow us to meet more of the unmet patient demand for our services.

The following factors, however, could negatively impact our results of operations in the future as a result of COVID-19: a further increase in the number of cases due to the Delta or other variants; any future shelter-in-place orders; a decrease in the rate of return of confidence in our patients’ families to allow our caregivers into their homes; the return of patient confidence to enter a hospital or a doctor’s office; our ability to attract and retain qualified caregivers as a result of COVID-19 quarantine requirements or due to caregiver non-compliance with vaccination and testing mandates; uncertainty regarding vaccine distribution timing and efficacy; and our ability to readily access referrals from children’s hospitals. Potential negative impacts of COVID-19 on our results include lower revenue or higher salary and wage expenses due to increased market rate expectations of caregivers, and any future spikes in PPE supply or

25

 


 

mandated COVID-19 testing costs. The impacts to revenue may consist of the following: lower volumes due to interruption of the operations of our referral sources; lower volumes due to lack of availability of caregivers in the workforce; patient unwillingness to accept services in their homes; lower reimbursement due to missed home health visits; and lower reimbursement rates due to any negative impacts to state Medicaid budgets as a result of the pandemic.

On November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) issued the COVID-19 Vaccination and Testing Emergency Temporary Standard (“ETS”) implementing certain workplace safety elements related to Covid-19 vaccination and/or testing requirements. The ETS requires employers with 100 or more employees, to develop, implement, and enforce a mandatory COVID-19 vaccination policy or implement an alternative standard that includes weekly testing. Covered employers are required to determine the vaccination status of each employee, obtain proof of vaccination, properly maintain records and a roster of vaccination status. Covered employers must provide employees with up to four hours of supplemental paid leave for employees to receive each primary vaccination dose (up to eight hours where two shots are required), and “reasonable” time and paid leave for an employee to recover from the side effects of the COVID-19 vaccine (up to two days per vaccination dose). The ETS also includes employee notice requirements, where employees must promptly provide notice when they receive a positive COVID-19 test or are diagnosed with COVID-19 and a requirement that employers immediately remove employees with COVID-19 from the workplace. Finally, the ETS includes additional employer notice, reporting requirements, and recordkeeping requirements. The ETS is effective upon publication and employers must comply with most ETS provisions within 30 days (December 5, 2021) and with optional testing requirements within 60 days (January 4, 2022). The Fifth Circuit Court of Appeals has currently issued a stay of the effectiveness of the ETS.

Furthermore, on November 4, 2021, the Centers for Medicare & Medicaid Services (“CMS”) issued an interim final rule (“IFR”) requiring COVID-19 vaccinations for workers in most health care settings covered by applicable Conditions of Participation, including home health and hospice facilities, that participate in the Medicare and Medicaid programs. The IFR is effective as of November 5, 2021. Under the IRF, all covered healthcare workers and related support staff must be fully vaccinated by January 4, 2022. The vaccination requirement applies to all eligible staff working at a facility that participates in Medicare and Medicaid programs, regardless of clinical responsibility or patient care, including staff who work in offsite locations, such as homes, clinics or administrative offices. The requirement does not apply to individuals who provide services 100% remotely and have no direct contact with patients and other staff. The IRF requires health care providers to establish a process or policy to ensure covered staff, except for those individuals who are granted a religious or medical exemption, are fully vaccinated over two phases. By Phase 1, within 30 days of the IRF’s publication, or by December 6, 2021, all covered staff at all applicable health care facilities must have received their first dose of a 2-shot series (Moderna or Pfizer, currently) or a single dose of a 1-shot vaccine (Johnson and Johnson, currently). Covered staff must complete this step before they can provide any care, treatment or other services for the facility and/or its patients. By Phase 2, within 60 days of the IRF’s publication, or by January 4, 2022, all staff must complete the primary vaccination series. Under this vaccination requirement, all covered staff at health care facilities must be fully vaccinated. Fully vaccinated is defined by CMS as two weeks or more since the individual completed a primary vaccination series for COVID-19. Staff who complete their primary vaccination series by the Phase 2 implementation date will be considered fully vaccinated even if the two-week post-series waiting period has not elapsed. If a healthcare company is deemed to be noncompliant with the requirement, CMS has a number of enforcement tools at its disposal, including assessment of civil monetary penalties, denial of payment and termination from the Medicare and Medicaid program.

As discussed previously, vaccination and testing mandates like the ETS and IRF could negatively impact our results of operations by reducing our operational capacity as a result of fewer available caregivers or increasing salary and wage expenses in response to increased market rate expectations. These vaccination mandates could lead to additional employee turnover, including turnover caused by employees moving to smaller employers that are exempt from the ETS or to companies with service lines that are not covered by the IRF. If we are unable to continue to attract and retain employees at our current level, we could be required to increase employee compensation in an effort to prevent understaffing of our operations. The IRF and ETS also conflict with various state laws and mandates prohibiting Covid-19 vaccination mandates. The IRF and ETS requirements place the Company in the position of either violating federal regulations or applicable state laws, which could result in state agency fines and licensure revocation for possible non-compliance with state vaccine mandate prohibitions.

CARES Act

 

In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. The CARES Act has impacted us as follows:

 

Provider Relief Fund (“PRF”): Beginning in April 2020, funds were distributed to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. In fiscal year 2020, we received PRF payments from the U.S. Department of Health and Human Services (“HHS”) totaling $25.1 million, which were included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On March 5, 2021, we repaid these PRF payments in full.
State Sponsored Relief Funds: In fiscal year 2020, we received $4.8 million of stimulus funds from the Commonwealth of Pennsylvania Department of Human Services (“Pennsylvania DHS”). Such funds were not applied for or requested. We did

26

 


 

not receive stimulus funds from any individual state other than Pennsylvania. We recognized $0.5 million of income related to these funds in fiscal year 2020, with the remaining $4.3 million included in government stimulus liabilities on the accompanying consolidated balance sheet as of January 2, 2021. On February 4, 2021, we repaid the remaining $4.3 million of direct stimulus funds to Pennsylvania DHS.
Deferred payment of the employer portion of social security taxes: We were permitted to defer payments of the employer portion of social security taxes in fiscal year 2020, which are payable in 50% increments, with the first 50% due by December 31, 2021 and the second 50% due by December 31, 2022. We did not defer any payroll taxes after December 31, 2020. As of October 2, 2021, we had deferred payment of $51.4 million of social security taxes in total, which is recorded in the current portion of deferred payroll taxes and in the deferred payroll taxes, less current portion liabilities on the accompanying consolidated balance sheet. We did not commence deferrals until April 1, 2020; therefore, we did not defer any payroll taxes during the three-month period ended March 28, 2020.
Reimbursement rate increases from various state Medicaid and Medicaid Managed Care Programs: Shortly after the onset of COVID-19 in March 2020, numerous state Medicaid programs began to issue temporary rate increases and similarly directed Medicaid Managed Care programs within those states to likewise adjust rates. These temporary rate increases are paid to the Company via normal claim processing by the respective payers. Over the remainder of fiscal year 2020 and continuing into fiscal year 2021, while some states discontinued the temporary rate increases, most states issued continuations of the temporary rate increases with many state legislatures communicating support for either making such increases permanent or otherwise increasing PDS reimbursement rates. Furthermore, the focus at both the Federal and State levels on supporting the provision of care in the home, as well as expanding Federal matching funds for the Medicaid Program in recent government legislation, supports a positive outlook on Medicaid reimbursement in the future. As a result of all these factors, and based upon an evaluation of each state individually, beginning in the first fiscal quarter of 2021, we no longer treat temporary rate increases as an adjustment in calculating our Adjusted EBITDA (see “Non-GAAP Financial Measures” below).
Medicare Advances: Certain of the home health and hospice companies the Company has acquired received advance payments from the Centers for Medicare & Medicaid Services (“CMS”) in April 2020, pursuant to the expansion of the Accelerated Payments Program provided for in the CARES Act. These advances became repayable beginning one year from the date on which the accelerated advance was issued. The repayments occur via offsets by Medicare to current payments otherwise due from Medicare at a rate of 25% for the first eleven months. After the eleven months end, payments will be recouped at a rate of 50% for another six months, after which any remaining balance will become due. Gross advances received by acquired companies in April 2020 totaled $15.7 million. The Company began repaying the gross amount of the advances, via the offset mechanism described above, during the second quarter of 2021, and had repaid an aggregate amount of $8.8 million of such advances as of October 2, 2021. Remaining unpaid advances as of October 2, 2021 totaled $6.9 million and are recorded in other current liabilities on the accompanying consolidated balance sheet.
Temporary Suspension of Medicare Sequestration: The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee-for-service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements are subject to this mandatory reduction, which will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period from May 1, 2020 through December 31, 2021.

Important Operating Metrics

We review the following important metrics on a segment basis and not on a consolidated basis:

PDS and MS Segment Operating Metrics

Volume

 

Volume represents PDS hours of care provided and MS unique patients served, which is how we measure the amount of our patient services provided. We review the number of hours of PDS care provided on a weekly basis and the number of MS unique patients served on a weekly basis. We believe volume is an important metric because it helps us understand how the Company is growing in each of these segments through strategic planning and acquisitions. We also use this metric to inform strategic decision making in determining opportunities for growth.

Revenue Rate

For our PDS and MS segments, revenue rate is calculated as revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe revenue rate is an important metric because it represents the amount of revenue we receive per

27

 


 

PDS hour of patient service or per individual MS patient transaction and helps management assess the amount of fees that we are able to bill for our services. Management uses this metric to assess how effectively we optimize reimbursement rates.

Cost of Revenue Rate

For our PDS and MS segments, cost of revenue rate is calculated as cost of revenue divided by PDS hours of care provided or the number of unique patients served, respectively. We believe cost of revenue rate is an important metric because it helps us understand the cost per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to understand how effectively we manage labor and product costs.

Spread Rate

 

For our PDS and MS segments, spread rate represents the difference between the respective revenue rates and cost of revenue rates. Spread rate is an important metric because it helps us better understand the margins being recognized per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to assess how successful we have been in optimizing reimbursement rates, managing labor and product costs, and assessing opportunities for growth.

HHH Segment Operating Metrics

Home Health Total Admissions and Home Health Episodic Admissions

Home health total admissions represents the number of new patients who have begun receiving services. We review the number of home health admissions on a daily basis as we believe it is a leading indicator of our growth. We measure home health admissions by reimbursement structure separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payor mix of our home health business.

Home Health Total Episodes

Home health total episodes represents the number of episodic admissions and episodic recertifications to capture patients who have either started to receive services or have been recertified for another episode of care. Management reviews home health total episodes on a monthly basis as to understand the volume of patients who were authorized to receive care during the month.

Home Health Revenue Per Completed Episode

Home health revenue per completed episode is calculated by dividing total payments received from completed episodes by the number of completed episodes during the period. Episodic payments are determined by multiple factors including type of referral source, patient

28

 


 

diagnoses, and utilization. Management tracks home health revenue per completed episode over time to evaluate both the clinical and financial profile of the business in a single metric.

Results of Operations

Three-Month Period Ended October 2, 2021 Compared to the Three-Month Period Ended September 26, 2020

The following table summarizes our consolidated results of operations for the three-month periods indicated:

 

 

For the Three-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

% of Revenue

 

September 26, 2020

 

% of Revenue

 

Change

 

% Change

 

Revenue

$

411,276

 

 

100.0

%

$

366,003

 

 

100.0

%

$

45,273

 

 

12.4

%

Cost of revenue, excluding depreciation and amortization

 

271,534

 

 

66.0

%

 

251,873

 

 

68.8

%

 

19,661

 

 

7.8

%

Gross margin

$

139,742

 

 

34.0

%

$

114,130

 

 

31.2

%

$

25,612

 

 

22.4

%

Branch and regional administrative expenses

 

76,370

 

 

18.6

%

 

59,641

 

 

16.3

%

 

16,729

 

 

28.0

%

Field contribution

$

63,372

 

 

15.4

%

$

54,489

 

 

14.9

%

$

8,883

 

 

16.3

%

Corporate expenses

 

37,873

 

 

9.2

%

 

32,493

 

 

8.9

%

 

5,380

 

 

16.6

%

Depreciation and amortization

 

5,145

 

 

1.3

%

 

3,922

 

 

1.1

%

 

1,223

 

 

31.2

%

Acquisition-related costs

 

2,007

 

 

0.5

%

 

4,510

 

 

1.2

%

 

(2,503

)

 

-55.5

%

Other operating expenses

 

-

 

 

0.0

%

 

687

 

 

0.2

%

 

(687

)

 

-100.0

%

Operating income

$

18,347

 

 

4.5

%

$

12,877

 

 

3.5

%

$

5,470

 

 

42.5

%

Interest expense, net of interest income

 

(12,062

)

 

 

 

(19,027

)

 

 

 

6,965

 

 

-36.6

%

Loss on debt extinguishment

 

(4,784

)

 

 

 

-

 

 

 

 

(4,784

)

-

 

Other (expense)

 

(511

)

 

 

 

(1,723

)

 

 

 

1,212

 

 

-70.3

%

Income tax benefit

 

1,100

 

 

 

 

471

 

 

 

 

629

 

 

133.5

%

Net income (loss)

$

2,090

 

 

 

$

(7,402

)

 

 

$

9,492

 

 

-128.2

%

 

The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:

 

 

For the Three-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

Revenue

$

411,276

 

$

366,003

 

$

45,273

 

 

12.4

%

Cost of revenue, excluding depreciation and amortization

 

271,534

 

 

251,873

 

 

19,661

 

 

7.8

%

Gross margin

$

139,742

 

$

114,130

 

$

25,612

 

 

22.4

%

Gross margin percentage

 

34.0

%

 

31.2

%

 

 

 

 

Branch and regional administrative expenses

 

76,370

 

 

59,641

 

 

16,729

 

 

28.0

%

Field contribution

$

63,372

 

$

54,489

 

$

8,883

 

 

16.3

%

Field contribution margin

 

15.4

%

 

14.9

%

 

 

 

 

Corporate expenses

$

37,873

 

$

32,493

 

$

5,380

 

 

16.6

%

As a percentage of revenue

 

9.2

%

 

8.9

%

 

 

 

 

Operating income

$

18,347

 

$

12,877

 

$

5,470

 

 

42.5

%

As a percentage of revenue

 

4.5

%

 

3.5

%

 

 

 

 

 

The following tables summarize our key performance measures by segment for the three-month periods indicated:

 

29

 


 

 

PDS

 

 

 

For the Three-Month Periods Ended

 

 

(dollars and hours in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

327,133

 

$

328,985

 

$

(1,852

)

 

-0.6

%

 

Cost of revenue, excluding depreciation and amortization

 

226,540

 

 

231,454

 

 

(4,914

)

 

-2.1

%

 

Gross margin

$

100,593

 

$

97,531

 

$

3,062

 

 

3.1

%

 

Gross margin percentage

 

30.7

%

 

29.6

%

 

 

 

1.1

%

(4)

Hours

 

8,998

 

 

9,409

 

 

(411

)

 

-4.4

%

 

Revenue rate

$

36.36

 

$

34.96

 

$

1.40

 

 

3.8

%

(1)

Cost of revenue rate

$

25.18

 

$

24.60

 

$

0.58

 

 

2.3

%

(2)

Spread rate

$

11.18

 

$

10.37

 

$

0.81

 

 

7.5

%

(3)

 

 

 

 

 

 

 

 

 

 

 

HHH

 

 

 

For the Three-Month Periods Ended

 

 

(dollars and admissions/episodes in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

47,000

 

$

4,690

 

$

42,310

 

 

902.1

%

 

Cost of revenue, excluding depreciation and amortization

 

24,130

 

 

2,774

 

 

21,356

 

 

769.9

%

 

Gross margin

$

22,870

 

$

1,916

 

$

20,954

 

 

1093.6

%

 

Gross margin percentage

 

48.7

%

 

40.9

%

 

 

 

7.8

%

(4)

Home health total admissions (5)**

 

11.6

 

**

 

**

 

**

 

 

Home health episodic admissions (6)**

 

7.1

 

**

 

**

 

**

 

 

Home health total episodes (7)**

 

10.5

 

**

 

**

 

**

 

 

Home health revenue per completed episode (8)**

$

2,894

 

**

 

**

 

**

 

 

 

 

 

 

 

 

 

 

 

 

 

MS

 

 

 

For the Three-Month Periods Ended

 

 

(dollars and UPS in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

37,143

 

$

32,328

 

$

4,815

 

 

14.9

%

 

Cost of revenue, excluding depreciation and amortization

 

20,864

 

 

17,645

 

 

3,219

 

 

18.2

%

 

Gross margin

$

16,279

 

$

14,683

 

$

1,596

 

 

10.9

%

 

Gross margin percentage

 

43.8

%

 

45.4

%

 

 

 

-1.6

%

(4)

Unique patients served (“UPS”)

 

78

 

 

70

 

 

8

 

 

11.4

%

 

Revenue rate

$

476.19

 

$

461.83

 

$

14.36

 

 

3.5

%

(1)

Cost of revenue rate

$

267.49

 

$

252.07

 

$

15.42

 

 

6.8

%

(2)

Spread rate

$

208.71

 

$

209.76

 

$

(1.06

)

 

-0.5

%

(3)

 

(1)
Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.
(2)
Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.
(3)
Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.
(4)
Represents the change in margin percentage year over year.
(5)
Represents home health episodic and fee-for-service admissions.
(6)
Represents home health episodic admissions.
(7)
Represents episodic admissions and recertifications.
(8)
Represents Medicare revenue per completed episode.

** We entered the home health business in the fourth fiscal quarter of 2020. The metrics presented for the three-month period ended October 2, 2021 pertain to the home health component of the HHH segment. These metrics do not pertain to the hospice portion of this segment or certain other Medicare services provided in this segment, neither of which are material in the aggregate for the period presented.

 

The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures.

 

Summary Operating Results

 

Operating Income

30

 


 

 

Our operating income was $18.3 million, or 4.5% of revenue, for the three-month period ended October 2, 2021, as compared to operating income of $12.9 million, or 3.5% of revenue, for the three-month period ended September 26, 2020, an increase of $5.5 million.

 

Operating income for the third quarter of 2021 was positively impacted by an increase of $8.9 million, or 16.3%, in Field contribution as compared to the third quarter of 2020. The $8.9 million increase in Field contribution was delivered by a $45.3 million, or 12.4%, increase in consolidated revenue, combined with a 0.5% improvement in our Field contribution margin to 15.4% for the third quarter of 2021 from 14.9% for the third quarter of 2020.

 

The $5.5 million net increase in operating income was primarily attributable to the $8.9 million increase in Field contribution, in addition to the following activity:

 

a $2.5 million decrease in acquisition-related costs; net of,
a $5.4 million increase in corporate expenses over the prior year quarter.

 

Net Income (Loss)

 

The $9.5 million improvement in net income (loss) for the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020, resulted from the following:

 

the previously discussed $5.5 million increase in operating income;
a $7.0 million decrease in interest expense, net of interest income;
a $4.8 million loss on debt extinguishment related to the refinancing of our remaining term loans during the three-month period ended October 2, 2021;
a $0.5 million increase in other expense; and
a $0.6 million increase in income tax benefit.

 

Revenue

 

Revenue was $411.3 million for three-month period ended October 2, 2021 as compared to $366.0 million for three-month period ended September 26, 2020, an increase of $45.3 million, or 12.4%. This increase resulted from the following segment activity:

 

a $1.9 million, or 0.6%, decrease in PDS revenue;
a $42.3 million, or 902.1%, increase in HHH revenue; and
a $4.8 million, or 14.9%, increase in MS revenue.

 

Our PDS segment revenue decrease of $1.9 million, or 0.6%, for the three-month period ended October 2, 2021 was attributable to volume decreases of 4.4% in our skilled and unskilled businesses, net of an increase in revenue rate of 3.8%. The primary drivers of the net volume decrease were the continuing impact of the COVID-19 environment on caregiver recruitment and retention, net of new volumes contributed by the 2020 PDS Acquisitions completed in August and September of 2020.

 

The net 3.8% increase in PDS revenue rate for the three-month period ended October 2, 2021, compared to the three-month period ended September 26, 2020, resulted primarily from rate increases issued by various state Medicaid programs and Managed Medicaid payors.

 

Our HHH segment revenue growth of $42.3 million, or 902.1%, for the three-month period ended October 2, 2021 resulted from the incremental revenue generated by the 2020 HHH Acquisitions as well as the Doctor’s Choice acquisition completed on April 16, 2021.

 

Our MS segment revenue growth of $4.8 million, or 14.9%, for the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020, was attributable to 11.4% volume growth combined with an increase in revenue rate of 3.5%. Overall, our MS volumes in the third quarter of 2021 grew both as a result of the 2020 PDS Acquisitions and organically. One of the 2020 PDS Acquisitions, D&D Services, Inc. d/b/a Preferred Pediatric Home Health Care (“Preferred”), contained MS businesses in two new markets, Illinois and Oklahoma, which we have now integrated into the overall MS segment platform. The 3.5% revenue rate increase primarily resulted from a shift in product mix.

 

Cost of Revenue, Excluding Depreciation and Amortization

 

31

 


 

Cost of revenue, excluding depreciation and amortization, was $271.5 million for the three-month period ended October 2, 2021, as compared to $251.9 million for the three-month period ended September 26, 2020, an increase of $19.7 million, or 7.8%. This increase resulted from the following segment activity:

 

a $4.9 million, or 2.1%, decrease in PDS cost of revenue;
a $21.4 million, or 769.9%, increase in HHH cost of revenue; and
a $3.2 million, or 18.2%, increase in MS cost of revenue.

 

The 2.1% decrease in PDS cost of revenue for the three-month period ended October 2, 2021 resulted from the previously noted 4.4% decrease in PDS volumes for the third quarter of 2021, net of a 2.3% increase in PDS cost of revenue rate. The increase in cost of PDS revenue rate primarily resulted from higher caregiver labor costs, including pass-through of state reimbursement rate increases, net of a decrease in COVID-19 related costs and lower professional liability and workers' compensation insurance costs compared to the third quarter of 2020.

 

We believe we will continue to incur incremental COVID-19 costs through the remainder of 2021, including newly mandated sick leave for our caregivers required by OSHA's Emergency Temporary Standard and costs required to comply with federal, state and local vaccination mandates and testing requirements; retention and incentive compensation to maintain our clinical workforce in the COVID-19 environment; and PPE costs, all as dictated by the continually evolving COVID-19 environment.

 

The 769.9% increase in HHH cost of revenue for the three-month period ended October 2, 2021 was driven by the increased volumes associated with the 2020 HHH Acquisitions as well as the Doctor’s Choice acquisition.

 

The 18.2% increase in MS cost of revenue for the three-month period ended October 2, 2021 was driven by the previously noted 11.4% growth in MS volumes in the third quarter of 2021, as well as a 6.8% increase in cost of revenue rate. The increase in cost of revenue rate was primarily attributable to a shift in product mix.

 

Gross Margin and Gross Margin Percentage

 

Gross margin was $139.7 million, or 34.0% of revenue, for the three-month period ended October 2, 2021, as compared to $114.1 million, or 31.2% of revenue, for the three-month period ended September 26, 2020. Gross margin increased $25.6 million, or 22.4%, year over year. The 2.8% increase in gross margin percentage for the three-month period ended October 2, 2021 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:

 

a 7.5% increase in PDS spread rate from $10.37 to $11.18, driven by the 3.8% increase in PDS revenue rate, net of the 2.3% increase in PDS cost of revenue rate;
a 0.5% decrease in MS spread rate from $209.76 to $208.71, driven by the 3.5% increase in MS revenue rate, net of the 6.8% increase in MS cost of revenue rate; and
our HHH segment, which increased HHH gross margin percentage by 7.8% through the 2020 HHH Acquisitions and the Doctor’s Choice acquisition.

Branch and Regional Administrative Expenses

Branch and regional administrative expenses were $76.4 million, or 18.6% of revenue, for the three-month period ended October 2, 2021, as compared to $59.6 million, or 16.3% of revenue, for the three-month period ended September 26, 2020, an increase of $16.7 million, or 28.0%.

The increase in branch and regional administrative expenses of $16.7 million, or 28.0%, exceeded revenue growth of 12.4% for the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020. The increase in branch and regional administrative expenses as a percentage of revenue of 2.3% was primarily driven by higher HHH branch and regional administrative expenses as a percentage of revenue than our historical consolidated averages which are necessary to support our HHH operations. While our HHH businesses have higher gross margins than our PDS businesses, they have higher branch and regional administrative expenses than our PDS businesses. The higher HHH branch and regional administrative expenses were partially offset by lower COVID-19 related expenses during the three-month period ended October 2, 2021.

Field Contribution and Field Contribution Margin

 

Field contribution was $63.4 million, or 15.4% of revenue, for the three-month period ended October 2, 2021 as compared to $54.5 million, or 14.9% of revenue, for the three-month period ended September 26, 2020. Field contribution increased $8.9 million, or 16.3%,

32

 


 

for the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020. The 0.5% increase in Field contribution margin for the three-month period ended October 2, 2021 resulted from the following:

 

the 2.8% increase in gross margin percentage in the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020; net of
the 2.3% increase in branch and regional administrative expenses as a percentage of revenue in the three-month period ended October 2, 2021, as compared to the three-month period ended September 26, 2020.

 

Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

 

Corporate Expenses

 

Corporate expenses as a percentage of revenue for the three-month periods ended October 2, 2021 and September 26, 2020 were as follows:

 

 

For the Three-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Revenue

$

411,276

 

$

366,003

 

Corporate expenses

$

37,873

 

$

32,493

 

As a percentage of revenue

 

9.2

%

 

8.9

%

 

Corporate expenses were $37.9 million, or 9.2% of revenue, for the three-month period ended October 2, 2021, as compared to $32.5 million, or 8.9% of revenue, for the three-month period ended September 26, 2020. The $5.4 million, or 16.6%, increase in quarter over quarter corporate expenses resulted primarily from increased professional services associated with $2.7 million of incremental debt modification expenses and a $2.6 million non-cash compensation expense charge related to performance-vesting options. We incurred debt modification expenses of $7.0 million in the third quarter of 2021 associated with the refinancing of our first lien term loans. We incurred debt modification expenses of $4.3 million in the third quarter of 2020 related to the additional $185.0 first lien debt used to fund our 2020 PDS Acquisitions and 2020 HHH Acquisitions.

 

Depreciation and Amortization

 

Depreciation and amortization were $5.1 million for the three-month period ended October 2, 2021, compared to $3.9 million for the three-month period ended September 26, 2020, an increase of $1.2 million, or 31.2%. The $1.2 million increase in depreciation and amortization in 2020 resulted from incremental capital expenditures in fiscal year 2020 that were in service for a full quarter in the third quarter 2021, and incremental depreciation and amortization associated with assets acquired in connection with the 2020 PDS Acquisitions, 2020 HHH Acquisitions, and Doctor’s Choice.

 

Acquisition-related Costs

 

Acquisition-related costs were $2.0 million for the three-month period ended October 2, 2021, compared to $4.5 million for the three-month period ended September 26, 2020. Acquisition-related costs included in the three-month period ended October 2, 2021 were primarily related to acquisition costs associated with pending acquisitions. In the third quarter of 2020, the Company incurred costs associated with the 2020 PDS Acquisitions.

 

Interest Expense, net of Interest Income

 

Interest expense, net of interest income was $12.1 million for the three-month period ended October 2, 2021, compared to $19.0 million for the three-month period ended September 26, 2020, a decrease of $7.0 million, or 36.6%. The primary drivers of the net decrease were the following:

 

a decrease in interest associated with our $407.0 million aggregate repayment of first and second lien term loans in May 2021 with proceeds from our IPO; and
a decrease in interest resulting from a reduction in the interest rate under our first lien term loan subsequent to the refinancing in July 2021.

 

Loss on Debt Extinguishment

 

33

 


 

Loss on debt extinguishment was $4.8 million for the three-month period ended October 2, 2021. During the three-month period ended October 2, 2021, the Company wrote off debt issuance costs in connection with the refinancing of the $860.0 first lien term loan. There were no such costs in the three-month period ended September 26, 2020.

 

Other Expense

 

Other expense was $0.5 million for the three-month period ended October 2, 2021, compared to $1.7 million for the three-month period ended September 26, 2020, a decrease of $1.2 million. Other expense during the comparable three-month periods included gains and losses to measure our interest rate derivatives at fair value, as well as the net settlements we incur with counterparties under our interest rate swap agreements. Other expense included the following:

 

For the Three-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Valuation gain to state interest rate derivatives at fair value

$

1,393

 

$

1,157

 

Net settlements incurred with swap counterparties

 

(1,959

)

 

(2,770

)

Other

 

55

 

 

(110

)

Total other (expense)

$

(511

)

$

(1,723

)

 

Income Taxes

 

We incurred income tax benefit of $1.1 million for the three-month period ended October 2, 2021, as compared to income tax benefit of $0.5 million for the three-month period ended September 26, 2020. This increase in tax benefit was primarily driven by the reversal in the third quarter of 2021 of a pre-acquisition tax position initially recorded through goodwill, along with changes in federal and state valuation allowances and state tax expense.

 

Nine-Month Period Ended October 2, 2021 Compared to the Nine-Month Period Ended September 26, 2020

 

The following table summarizes our consolidated results of operations for the nine-month periods indicated:

 

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

% of Revenue

 

September 26, 2020

 

% of Revenue

 

Change

 

% Change

 

Revenue

$

1,264,548

 

 

100.0

%

$

1,072,803

 

 

100.0

%

$

191,745

 

 

17.9

%

Cost of revenue, excluding depreciation and amortization

 

846,534

 

 

66.9

%

 

744,503

 

 

69.4

%

 

102,031

 

 

13.7

%

Gross margin

$

418,014

 

 

33.1

%

$

328,300

 

 

30.6

%

$

89,714

 

 

27.3

%

Branch and regional administrative expenses

 

223,462

 

 

17.7

%

 

174,455

 

 

16.3

%

 

49,007

 

 

28.1

%

Field contribution

$

194,552

 

 

15.4

%

$

153,845

 

 

14.3

%

$

40,707

 

 

26.5

%

Corporate expenses

 

97,673

 

 

7.7

%

 

81,039

 

 

7.6

%

 

16,634

 

 

20.5

%

Goodwill impairment

 

-

 

 

0.0

%

 

75,727

 

 

7.1

%

 

(75,727

)

 

-100.0

%

Depreciation and amortization

 

15,163

 

 

1.2

%

 

12,339

 

 

1.2

%

 

2,824

 

 

22.9

%

Acquisition-related costs

 

4,779

 

 

0.4

%

 

4,679

 

 

0.4

%

 

100

 

 

2.1

%

Other operating expenses

 

-

 

 

0.0

%

 

1,274

 

 

0.1

%

 

(1,274

)

 

-100.0

%

Operating income (loss)

$

76,937

 

 

6.1

%

$

(21,213

)

 

-2.0

%

$

98,150

 

 

-462.7

%

Interest expense, net of interest income

 

(53,611

)

 

 

 

(58,725

)

 

 

 

5,114

 

 

-8.7

%

Loss on debt extinguishment

 

(13,702

)

 

 

 

(73

)

 

 

 

(13,629

)

 

18669.9

%

Other (expense) income

 

(1,088

)

 

 

 

35,608

 

 

 

 

(36,696

)

 

-103.1

%

Income tax benefit (expense)

 

612

 

 

 

 

(2,915

)

 

 

 

3,527

 

 

-121.0

%

Net income (loss)

$

9,148

 

 

 

$

(47,318

)

 

 

$

56,466

 

 

-119.3

%

 

The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the nine-month periods indicated:

 

34

 


 

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

Revenue

$

1,264,548

 

$

1,072,803

 

$

191,745

 

 

17.9

%

Cost of revenue, excluding depreciation and amortization

 

846,534

 

 

744,503

 

 

102,031

 

 

13.7

%

Gross margin

$

418,014

 

$

328,300

 

$

89,714

 

 

27.3

%

Gross margin percentage

 

33.1

%

 

30.6

%

 

 

 

 

Branch and regional administrative expenses

 

223,462

 

 

174,455

 

 

49,007

 

 

28.1

%

Field contribution

$

194,552

 

$

153,845

 

$

40,707

 

 

26.5

%

Field contribution margin

 

15.4

%

 

14.3

%

 

 

 

 

Corporate expenses

$

97,673

 

$

81,039

 

$

16,634

 

 

20.5

%

As a percentage of revenue

 

7.7

%

 

7.6

%

 

 

 

 

Operating income (loss)

$

76,937

 

$

(21,213

)

$

98,150

 

 

-462.7

%

As a percentage of revenue

 

6.1

%

 

-2.0

%

 

 

 

 

 

The following tables summarize our key performance measures by segment for the nine-month periods indicated:

 

 

PDS

 

 

 

For the Nine-Month Periods Ended

 

 

(dollars and hours in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

1,027,640

 

$

963,694

 

$

63,946

 

 

6.6

%

 

Cost of revenue, excluding depreciation and amortization

 

719,435

 

 

683,492

 

 

35,943

 

 

5.3

%

 

Gross margin

$

308,205

 

$

280,202

 

$

28,003

 

 

10.0

%

 

Gross margin percentage

 

30.0

%

 

29.1

%

 

 

 

0.9

%

(4)

Hours

 

28,828

 

 

27,338

 

 

1,490

 

 

5.5

%

 

Revenue rate

$

35.65

 

$

35.25

 

$

0.40

 

 

1.1

%

(1)

Cost of revenue rate

$

24.96

 

$

25.00

 

$

(0.04

)

 

-0.2

%

(2)

Spread rate

$

10.69

 

$

10.25

 

$

0.44

 

 

4.5

%

(3)

 

 

 

 

 

 

 

 

 

 

 

HHH

 

 

 

For the Nine-Month Periods Ended

 

 

(dollars and admissions/episodes in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

128,589

 

$

13,823

 

$

114,766

 

 

830.3

%

 

Cost of revenue, excluding depreciation and amortization

 

67,224

 

 

8,273

 

 

58,951

 

 

712.6

%

 

Gross margin

$

61,365

 

$

5,550

 

$

55,815

 

 

1005.7

%

 

Gross margin percentage

 

47.7

%

 

40.2

%

 

 

 

7.5

%

(4)

Home health total admissions (5)**

 

29.1

 

**

 

**

 

**

 

 

Home health episodic admissions (6)**

 

18.0

 

**

 

**

 

**

 

 

Home health total episodes (7)**

 

26.5

 

**

 

**

 

**

 

 

Home health revenue per completed episode (8)**

$

2,894

 

**

 

**

 

**

 

 

 

 

 

 

 

 

 

 

 

 

 

MS

 

 

 

For the Nine-Month Periods Ended

 

 

(dollars and UPS in thousands)

October 2, 2021

 

September 26, 2020

 

Change

 

% Change

 

 

Revenue

$

108,319

 

$

95,286

 

$

13,033

 

 

13.7

%

 

Cost of revenue, excluding depreciation and amortization

 

59,875

 

 

52,738

 

 

7,137

 

 

13.5

%

 

Gross margin

$

48,444

 

$

42,548

 

$

5,896

 

 

13.9

%

 

Gross margin percentage

 

44.7

%

 

44.7

%

 

 

 

0.0

%

(4)

Unique patients served (“UPS”)

 

229

 

 

210

 

 

19

 

 

9.0

%

 

Revenue rate

$

473.01

 

$

453.74

 

$

19.27

 

 

4.7

%

(1)

Cost of revenue rate

$

261.46

 

$

251.13

 

$

10.33

 

 

4.5

%

(2)

Spread rate

$

211.55

 

$

202.61

 

$

8.94

 

 

4.9

%

(3)

 

(1)
Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.
(2)
Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.

35

 


 

(3)
Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.
(4)
Represents the change in margin percentage year over year.
(5)
Represents home health episodic and fee-for-service admissions.
(6)
Represents home health episodic admissions.
(7)
Represents episodic admissions and recertifications.
(8)
Represents Medicare revenue per completed episode.

** We entered the home health business in the fourth fiscal quarter of 2020. The metrics presented for the three-month period ended October 2, 2021 pertain to the home health component of the HHH segment. These metrics do not pertain to the hospice portion of this segment or certain other Medicare services provided in this segment, neither of which are material in the aggregate for the period presented.

 

The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures.

 

Summary Operating Results

 

Operating Income (Loss)

 

Overall, our operating income was $76.9 million, or 6.1% of revenue, for the nine-month period ended October 2, 2021, as compared to operating loss of $21.2 million, or 2.0% of revenue, for the nine-month period ended September 26, 2020, an increase of $98.2 million.

 

Operating income for the first nine-months of 2021 was positively impacted by an increase of $40.7 million, or 26.5%, in Field contribution as compared to the first nine-months of 2020. The $40.7 million increase in Field contribution was delivered by a $191.7 million, or 17.9%, increase in consolidated revenue, combined with a 1.1% improvement in our Field contribution margin to 15.4% for the first nine-months of 2021 from 14.3% for the first nine-months of 2020.

 

The $98.2 million net increase in operating income was primarily attributable to the $40.7 million increase in Field contribution, in addition to the following activity:

 

the absence in the current year of the $75.7 million non-cash charge for goodwill impairment recorded in the second fiscal quarter of 2020 related to our exit of the ABA Therapy business;
a $16.6 million increase in corporate expenses over the prior year to date period; and
a $2.8 million increase in depreciation expense.

 

Net Income (Loss)

 

The $56.5 million increase in net income for the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020, was primarily driven by the following:

 

the previously discussed $98.2 million increase in operating income;
a $5.1 million decrease in interest expense, net of interest income;
the absence of $50.0 million in other income associated with a legal settlement related to an acquisition which was received in the first quarter of 2020; net of a
$13.2 million net decrease in valuation charges associated with our interest rate swaps and net settlements incurred with swap counterparties;
a $13.6 million increase in loss on debt extinguishment related to the repayment of certain long-term debt obligations and refinancing of our remaining $860.0 million first lien term loan during the nine-month period ended October 2, 2021; and
a $3.5 million net decrease in income tax expense.

 

Revenue

 

Revenue was $1,264.5 million for nine-month period ended October 2, 2021 as compared to $1,072.8 million for nine-month period ended September 26, 2020, an increase of $191.7 million, or 17.9%. This increase resulted from the following segment activity:

 

a $63.9 million, or 6.6%, increase in PDS revenue;
a $114.8 million, or 830.3%, increase in HHH revenue; and
a $13.0 million, or 13.7%, increase in MS revenue.

 

36

 


 

Our PDS segment revenue growth of $63.9 million, or 6.6%, for the nine-month period ended October 2, 2021 was attributable to volume growth of 5.5%, and an increase in revenue rate of 1.1%. The primary driver of the 5.5% PDS year over year volume increase was incremental volume growth contributed by our 2020 PDS Acquisitions. We also realized strong growth in our unskilled businesses on a comparable year to date basis, net of volume decreases in our other PDS businesses due to the continuing impact of the COVID-19 environment.

 

The net 1.1% increase in PDS revenue rate for the nine-month period ended October 2, 2021, compared to the nine-month period ended September 26, 2020, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payors.

 

Our HHH segment revenue growth of $114.8 million, or 830.3%, for the nine-month period ended October 2, 2021 resulted from the incremental revenue generated by the 2020 HHH Acquisitions and Doctor’s Choice.

 

Our MS segment revenue growth of $13.0 million, or 13.7%, for the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020, was attributable to 9.0% volume growth combined with an increase in revenue rate of 4.7%. Overall, our MS volumes in the first nine-months of 2021 grew both as a result of the 2020 PDS Acquisitions and organically. One of the 2020 PDS Acquisitions, Preferred, contained MS businesses in two new markets, Illinois and Oklahoma, which we have now integrated into the overall MS segment platform. The 4.7% revenue rate increase primarily resulted from a shift in product mix.

 

Cost of Revenue, Excluding Depreciation and Amortization

 

Cost of revenue, excluding depreciation and amortization, was $846.5 million for the nine-month period ended October 2, 2021, as compared to $744.5 million for the nine-month period ended September 26, 2020, an increase of $102.0 million, or 13.7%. This increase resulted from the following segment activity:

 

a $35.9 million, or 5.3%, increase in PDS cost of revenue;
a $59.0 million, or 712.6%, increase in HHH cost of revenue; and
a $7.1 million, or 13.5%, increase in MS cost of revenue.

 

The 5.3% increase in PDS cost of revenue for the nine-month period ended October 2, 2021 resulted from the previously noted 5.5% growth in PDS volumes for the first nine-months of 2021, net of a 0.2% decrease in PDS cost of revenue rate. The 0.2% decrease in cost of revenue rate primarily resulted from the growth of our unskilled business, which has significantly lower cost of revenue rates than the hourly rates in the balance of our PDS businesses, together with a decrease in COVID-19 related costs and lower professional liability and workers' compensation insurance costs compared to the nine-month period ended September 26, 2020. The decreases in cost of revenue rate were partially offset by higher caregiver labor costs including pass-through of state reimbursement rate increases in the nine-month period ended October 2, 2021.

 

We believe we will continue to incur incremental COVID-19 costs through the remainder of 2021, including newly mandated sick leave for our caregivers required by OSHA's Emergency Temporary Standard and costs required to comply with federal, state and local vaccination mandates and testing requirements; retention and incentive compensation to maintain our clinical workforce in the COVID-19 environment; and PPE costs, all as dictated by the continually evolving COVID-19 environment.

 

The 712.6% increase in HHH cost of revenue for the nine-month period ended October 2, 2021 was driven by the increased volumes associated with the 2020 HHH Acquisitions and Doctor’s Choice.

 

The 13.5% increase in MS cost of revenue for the nine-month period ended October 2, 2021 was driven by the previously noted 9.0% growth in MS volumes during 2021, as well as a 4.5% increase in cost of revenue rate. The increase in cost of revenue rate was primarily attributable to a shift in product mix.

 

Gross Margin and Gross Margin Percentage

 

Gross margin was $418.0 million, or 33.1% of revenue, for the nine-month period ended October 2, 2021, as compared to $328.3 million, or 30.6% of revenue, for the nine-month period ended September 26, 2020. Gross margin increased $89.7 million, or 27.3%, year over year. The 2.5% increase in gross margin percentage for the nine-month period ended October 2, 2021 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:

 

a 4.5% increase in PDS spread rate from $10.25 to $10.69, driven by the 1.1% increase in PDS revenue rate and the 0.2% decrease in PDS cost of revenue rate;

37

 


 

a 4.9% increase in MS spread rate from $202.61 to $211.55, driven by the 4.7% increase in MS revenue rate, net of the 4.5% increase in MS cost of revenue rate; and
our HHH segment, which increased HHH gross margin percentage by 7.5% through the 2020 HHH Acquisitions and the Doctor’s Choice acquisition.

Branch and Regional Administrative Expenses

Branch and regional administrative expenses were $223.5 million, or 17.7% of revenue, for the nine-month period ended October 2, 2021, as compared to $174.5 million, or 16.3% of revenue, for the nine-month period ended September 26, 2020, an increase of $49.0 million, or 28.1%.

The increase in branch and regional administrative expenses of $49.0 million, or 28.1%, exceeded revenue growth of 17.9% for the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020. The increase in branch and regional administrative expenses as a percentage of revenue of 1.4% was primarily driven by higher HHH branch and regional administrative expenses as a percentage of revenue than our historical consolidated averages which are necessary to support our HHH operations; net of higher costs savings as a percentage of revenue than our consolidated average resulting from our exit of the ABA Therapy business in the second fiscal quarter of 2020 and lower COVID-19 related expenses. While our HHH businesses have higher gross margins than our PDS businesses, they have higher branch and regional administrative expenses than our PDS businesses.

Field Contribution and Field Contribution Margin

 

Field contribution was $194.6 million, or 15.4% of revenue, for the nine-month period ended October 2, 2021 as compared to $153.8 million, or 14.3% of revenue, for the nine-month period ended September 26, 2020. Field contribution increased $40.7 million, or 26.5%, for the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020. The 1.1% increase in Field contribution margin for the nine-month period ended October 2, 2021 resulted from the following:

 

the 2.5% increase in gross margin percentage in the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020; net of
the 1.4% increase in branch and regional administrative expenses as a percentage of revenue in the nine-month period ended October 2, 2021, as compared to the nine-month period ended September 26, 2020.

 

Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

 

Corporate Expenses

 

Corporate expenses as a percentage of revenue for the nine-month periods ended October 2, 2021 and September 26, 2020 were as follows:

 

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Revenue

$

1,264,548

 

$

1,072,803

 

Corporate expenses

$

97,673

 

$

81,039

 

As a percentage of revenue

 

7.7

%

 

7.6

%

 

Corporate expenses were $97.7 million, or 7.7% of revenue, for the nine-month period ended October 2, 2021, as compared to $81.0 million, or 7.6% of revenue, for the nine-month period ended September 26, 2020. The $16.6 million, or 20.5%, increase in period over period corporate expenses resulted primarily from: higher non-cash compensation expense related to the performance vesting options; increased compensation and benefits expense necessary to support the integration of acquired companies; increased professional services associated with integration activities; and, incremental debt modification expenses. We incurred debt modification expenses of $7.0 million in the third quarter of 2021 associated with the refinancing of our first lien term loans. We incurred debt modification expenses of $4.3 million in the third quarter of 2020 related to the additional $185.0 first lien debt used to fund our 2020 PDS Acquisitions and 2020 HHH Acquisitions.

 

Depreciation and Amortization

 

Depreciation and amortization were $15.2 million for the nine-month period ended October 2, 2021, compared to $12.3 million for the nine-month period ended September 26, 2020, an increase of $2.8 million, or 22.9%. The $2.8 million increase in depreciation and amortization in 2021 resulted from incremental capital expenditures in fiscal year 2020 that were in service for a full nine-months during

38

 


 

2021, and incremental depreciation and amortization associated with assets acquired in connection with the 2020 PDS Acquisitions, 2020 HHH Acquisitions and Doctors Choice.

 

Acquisition-related Costs

 

Acquisition-related costs were $4.8 million for the nine-month period ended October 2, 2021, compared to $4.7 million for the nine-month period ended September 26, 2020. Acquisition-related costs in 2021 were primarily associated with the Doctor’s Choice acquisition, completed on April 16, 2021 and pending acquisitions. In the second quarter of 2020, the Company began to incur costs associated with the 2020 PDS Acquisitions which continued through the third quarter of 2020.

 

Interest Expense, net of Interest Income

 

Interest expense, net of interest income was $53.6 million for the nine-month period ended October 2, 2021, compared to $58.7 million for the nine-month period ended September 26, 2020, a decrease of $5.1 million, or 8.7%. The primary drivers of the net decrease were the following:

 

a decrease in interest associated with our $407.0 million aggregate repayment of first and second lien term loans in May 2021 with proceeds from our IPO;
a decrease in interest resulting from a reduction in the interest rate under our first lien term loan subsequent to the refinancing in July 2021; net of
incremental costs associated with the $185.0 million first lien fourth amendment term loan issued in September 2020.

 

Loss on Debt Extinguishment

 

Loss on debt extinguishment was $13.7 million for the nine-month period ended October 2, 2021, compared to a loss of $0.1 million for the nine-month period ended September 26, 2020. During the nine-month period ended October 2, 2021, the Company wrote off debt issuance costs in connection with the repayment of an aggregate principal amount of $307.0 million under the Second Lien Credit Agreement, as well as $100.0 million in principal under the First Lien Credit Agreement and additional amounts associated with the refinancing of the $860.0 million first lien term loan during the third quarter of 2021.

 

Other (Expense) Income

 

Other expense was $1.1 million for the nine-month period ended October 2, 2021, compared to other income of $35.6 million for the nine-month period ended September 26, 2020, a decrease of $36.7 million. The primary driver of the change was our receipt of a legal settlement in connection with an acquisition-related matter in the first quarter of 2020. Other (expense) income included gains and losses to measure our interest rate derivatives at fair value, as well as the net settlements we incur with counterparties under our interest rate swap agreements. Our valuation adjustments under our interest rate swaps resulted in a gain of $6.2 million during the first nine-months of 2021, as compared to a $6.9 million loss in the first nine-months of 2020. Other (expense) income included the following:

 

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Valuation gain (loss) to state interest rate derivatives at fair value

$

6,246

 

$

(6,925

)

Net settlements incurred with swap counterparties

 

(7,498

)

 

(7,474

)

Proceeds from legal settlement associated with acquisition-related matters

 

-

 

 

50,000

 

Other

 

164

 

 

7

 

Total other (expense) income

$

(1,088

)

$

35,608

 

 

Income Taxes

 

We incurred income tax benefit of $0.6 million for the nine-month period ended October 2, 2021, as compared to income tax expense of $2.9 million for the nine-month period ended September 26, 2020. This decrease in tax expense was primarily driven by the reversal in the third quarter of 2021 of a pre-acquisition tax position initially recorded through goodwill, along with changes in federal and state valuation allowances and state tax expense.

 

Non-GAAP Financial Measures

39

 


 

In addition to our results of operations prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which we have discussed above, we also evaluate our financial performance using EBITDA, Adjusted EBITDA, Field contribution and Field contribution margin.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as net income (loss). Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net income (loss) before interest expense, net; income tax (expense) benefit; and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain other items that are either non-recurring, infrequent, non-cash, unusual, or items deemed by management to not be indicative of the performance of our core operations, including impairments of goodwill, intangible assets, and other long-lived assets; non-cash, stock-based compensation; sponsor fees; loss on extinguishment of debt; fees related to debt modifications; the effect of interest rate derivatives; acquisition-related and integration costs; legal costs and settlements associated with acquisition matters; the discontinuation of our ABA Therapy services; non-acquisition-related legal settlements; and other system transition costs, professional fees and other costs. As non-GAAP financial measures, our computations of EBITDA and Adjusted EBITDA may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of this measure impracticable.

Management believes our computations of EBITDA and Adjusted EBITDA are helpful in highlighting trends in our core operating performance. In determining which adjustments are made to arrive at EBITDA and Adjusted EBITDA, management considers both (1) certain non-recurring, infrequent, non-cash or unusual items, which can vary significantly from year to year, as well as (2) certain other items that may be recurring, frequent, or settled in cash but which management does not believe are indicative of our core operating performance. We use EBITDA and Adjusted EBITDA to assess operating performance and make business decisions.

We have incurred substantial acquisition-related costs and integration costs in fiscal years 2021 and 2020. The underlying acquisition activities take place over a defined timeframe, have distinct project timelines and are incremental to activities and costs that arise in the ordinary course of our business. Therefore, we believe it is important to exclude these costs from our Adjusted EBITDA because it provides management a normalized view of our core, ongoing operations after integrating our acquired companies, which is an important measure in assessing our performance.

Given our determination of adjustments in arriving at our computations of EBITDA and Adjusted EBITDA, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

40

 


 

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods indicated:

 

 

For the Three-Month Periods Ended

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Net income (loss)

$

2,090

 

$

(7,402

)

$

9,148

 

$

(47,318

)

Interest expense, net

 

12,062

 

 

19,027

 

 

53,611

 

 

58,725

 

Income tax (benefit) expense

 

(1,100

)

 

(471

)

 

(612

)

 

2,915

 

Depreciation and amortization

 

5,145

 

 

3,922

 

 

15,163

 

 

12,339

 

EBITDA

 

18,197

 

 

15,076

 

 

77,310

 

 

26,661

 

Goodwill, intangible and other long-lived asset impairment

 

15

 

 

822

 

 

109

 

 

77,293

 

Non-cash stock-based compensation

 

4,262

 

 

436

 

 

10,142

 

 

2,176

 

Sponsor fees (1)

 

-

 

 

807

 

 

808

 

 

2,422

 

Loss on extinguishment of debt

 

4,784

 

 

-

 

 

13,702

 

 

73

 

Bank fees related to debt modifications

 

7,178

 

 

4,265

 

 

7,178

 

 

4,265

 

Interest rate derivatives (2)

 

566

 

 

1,637

 

 

1,252

 

 

14,399

 

Acquisition-related costs and other costs (3)

 

2,007

 

 

4,475

 

 

4,779

 

 

7,164

 

Integration costs (4)

 

4,364

 

 

1,996

 

 

12,482

 

 

3,841

 

Legal costs and settlements associated with acquisition matters (5)

 

70

 

 

2,277

 

 

1,120

 

 

(45,746

)

COVID-related costs, net of reimbursement (6)

 

2,009

 

 

5,733

 

 

4,329

 

 

9,556

 

ABA exited operations (7)

 

-

 

 

1,917

 

 

-

 

 

4,254

 

Other system transition costs, professional fees and other (8)

 

2,358

 

 

529

 

 

5,178

 

 

820

 

Total adjustments (9)

$

27,613

 

$

24,894

 

$

61,079

 

$

80,517

 

Adjusted EBITDA

$

45,810

 

$

39,970

 

$

138,389

 

$

107,178

 

 

(1)
Represents annual management fees payable to our sponsors under our Management Agreement as defined in Note 12 – Related Party Transactions within the notes accompanying our consolidated financial statements included in this Quarterly Report on Form 10-Q. The Management Agreement terminated in accordance with its terms upon completion of our initial public offering.
(2)
Represents costs associated with interest rate derivatives not included in interest expense which were included in other income.
(3)
Represents (i) transaction costs incurred in connection with planned, completed, or terminated acquisitions, which include investment banking fees, legal diligence and related documentation costs, and finance and accounting diligence and documentation, as presented on the Company’s consolidated statements of operations, of $2.0 million and $4.8 million for the three and nine-month periods ended October 2, 2021, respectively; and $4.5 million and $4.7 million for the three and nine-month periods ended September 26, 2020, respectively, and (ii) corporate salary and severance costs in connection with our January 2020 corporate restructuring in response to a terminated transaction of $0.0 million and $2.5 million for the three and nine-month periods ended September 26, 2020, respectively; there were no such costs in 2021.
(4)
Represents (i) costs associated with our Integration Management Office, which focuses solely on our integration efforts, of $0.9 million and $2.8 million of the three and nine-month periods ended October 2, 2021, respectively, and $0.9 million and $2.1 million for the three and nine-month periods ended September 26, 2020, respectively; and (ii) transitionary costs incurred to integrate acquired companies into our field and corporate operations of $3.5 million and $9.7 million for the three and nine-month periods ended October 2, 2021, respectively, and $1.1 million and $1.7 million for the three and nine-month periods ended September 26, 2020, respectively. Transitionary costs incurred to integrate acquired companies include IT consulting costs and related integration support costs; salary, severance and retention costs associated with duplicative acquired company personnel until such personnel are exited from the Company; accounting, legal and consulting costs; expenses and impairments related to the closure and consolidation of overlapping markets of acquired companies, including lease termination and relocation costs; costs associated with terminating legacy acquired company contracts and systems; and one-time costs associated with rebranding our acquired companies and locations to the Aveanna brand.
(5)
Represents legal and forensic costs, as well as settlements associated with resolving legal matters arising during or as a result of our acquisition-related activities. This includes costs associated with pursuing and resolving certain claims in connection with acquisition-related legal matters, as well as a $50.0 million settlement received pertaining to one such matter in the first quarter 2020. It also includes costs of $0.1 million and $1.1 million for the three and nine-month periods ended October 2, 2021, respectively, and $0.8 million and $2.4 million for the three and nine-month periods ended September 26, 2020, respectively, to comply with the U.S. Department of Justice, Antitrust Division’s grand jury subpoena related to nurse wages and hiring activities in certain of our markets, in connection with a terminated transaction.

41

 


 

(6)
Represents costs incurred as a result of the COVID-19 environment, primarily including, but not limited to, (i) relief, vaccine, and hero pay provided to our caregivers and other incremental compensation costs; (ii) sick leave for our caregivers required by OSHA's Emergency Temporary Standard and costs required to comply with federal, state and local vaccination mandates and testing requirements; (iii) incremental PPE costs; (iv) salary, severance and lease termination costs associated with workforce reductions necessitated by COVID-19; and (v) costs of remote workforce enablement, all of which totaled $2.0 million and $4.5 million for the three and nine-month periods ended October 2, 2021, respectively, and $7.1 million and $12.7 million for the three and nine-month periods ended September 26, 2020, respectively; net of temporary reimbursement rate increases provided by certain state Medicaid and Medicaid Managed Care programs which approximated $1.4 million and $3.1 million for the three and nine-month periods ended September 26, 2020, respectively.
(7)
Represents the results of operations for the periods indicated related to the ABA Therapy services business that we exited as a result of the COVID-19 environment, as well as one-time costs incurred in connection with exiting the ABA Therapy services business.
(8)
Represents (i) costs associated with the implementation of, and transition to, new electronic medical record systems, billing and collection systems, business intelligence systems, customer resource management systems, duplicative system costs while such transformational projects are in-process, and other system transition costs of $1.2 million and $1.5 million for the three and nine-month periods ended October 2, 2021, respectively, and $0.2 and $0.7 million for the three and nine-month periods ended September 26, 2020, respectively; and (ii) professional fees associated with preparation for Sarbanes-Oxley compliance, advisory fees associated with preparation for and execution of our initial public equity offering, and advisory costs associated with the adoption of new accounting standards, of $0.8 million and $4.3 million for the three and nine-month periods ended October 2, 2021, respectively, and $0.4 million and $0.3 million for the three and nine-month periods ended September 26, 2020, respectively; and (iii) certain other costs or (income) that are either non-cash or non-core to the Company’s ongoing operations of $0.4 million and $(0.6) million for the three and nine-month periods ended October 2, 2021, respectively, and $(0.1) million and $(0.2) million for the three and nine-month periods ended September 26, 2020.
(9)
The table below reflects the increase or decrease, and aggregate impact, to the line items included on our consolidated statements of operations based upon the adjustments used in arriving at Adjusted EBITDA from EBITDA for the periods indicated:

 

Impact to Adjusted EBITDA

 

 

For the Three-Month Periods Ended

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Revenue

$

(3

)

$

(1,973

)

$

(153

)

$

(10,122

)

Cost of revenue, excluding depreciation and amortization

 

2,697

 

 

4,089

 

 

3,725

 

 

11,968

 

Branch and regional administrative expenses

 

1,381

 

 

4,705

 

 

3,340

 

 

11,075

 

Corporate expenses

 

16,234

 

 

11,158

 

 

34,597

 

 

21,455

 

Goodwill impairment

 

-

 

 

-

 

 

-

 

 

75,727

 

Acquisition-related costs

 

2,007

 

 

4,510

 

 

4,779

 

 

4,679

 

Other operating expenses

 

-

 

 

687

 

 

-

 

 

1,274

 

Loss on debt extinguishment

 

4,784

 

 

-

 

 

13,702

 

 

73

 

Other expense (income)

 

513

 

 

1,718

 

 

1,089

 

 

(35,612

)

Total adjustments

$

27,613

 

$

24,894

 

$

61,079

 

$

80,517

 

Field contribution and Field Contribution Margin

Field contribution and Field contribution margin are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as operating income (loss). Rather, we present Field contribution and Field contribution margin as supplemental measures of our performance. We define Field contribution as operating income (loss) prior to corporate expenses and other non-field related costs, including depreciation and amortization, acquisition-related costs, and other operating expenses. Field contribution margin is Field contribution as a percentage of revenue. As non-GAAP financial measures, our computations of Field contribution and Field contribution margin may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of these measures impracticable.

Field contribution and Field contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

Management believes Field contribution and Field contribution margin are helpful in highlighting trends in our core operating performance and evaluating trends in our branch and regional results, which can vary from year to year. We use Field contribution and

42

 


 

Field contribution margin to make business decisions and assess the operating performance and results delivered by our core field operations, prior to corporate and other costs not directly related to our field operations. These metrics are also important because they guide us in determining whether or not our branch and regional administrative expenses are appropriately sized to support our caregivers and direct patient care operations. Additionally, Field contribution and Field contribution margin determine how effective we are in managing our field supervisory and administrative costs associated with supporting our provision of services and sale of products.

The following table reconciles operating income to Field contribution and Field contribution margin for the periods indicated:

 

 

For the Three-Month Periods Ended

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

October 2, 2021

 

September 26, 2020

 

Operating income (loss)

$

18,347

 

$

12,877

 

$

76,937

 

$

(21,213

)

Other operating expenses

 

-

 

 

687

 

 

-

 

 

1,274

 

Acquisition-related costs

 

2,007

 

 

4,510

 

 

4,779

 

 

4,679

 

Depreciation and amortization

 

5,145

 

 

3,922

 

 

15,163

 

 

12,339

 

Goodwill impairment

 

-

 

 

-

 

 

-

 

 

75,727

 

Corporate expenses

 

37,873

 

 

32,493

 

 

97,673

 

 

81,039

 

Field contribution

$

63,372

 

$

54,489

 

$

194,552

 

$

153,845

 

Revenue

$

411,276

 

$

366,003

 

$

1,264,548

 

$

1,072,803

 

Field contribution margin

 

15.4

%

 

14.9

%

 

15.4

%

 

14.3

%

 

 

Liquidity and Capital Resources

Overview

Our principal sources of cash have historically been from operating activities. Our principal source of liquidity in excess of cash from operating activities has historically been from proceeds from our debt facilities and issuances of common stock. Most recently, we raised aggregate proceeds of $477.7 million in our initial public offering, after deducting underwriting discounts and commissions and inclusive of our underwriters’ partial exercise of their overallotment option. Our principal uses of cash and liquidity have historically been for acquisitions, debt service requirements and financing of working capital.

As permitted by the CARES Act, we deferred payment of $46.8 million of payroll taxes in fiscal year 2020, which increased our net cash provided by operating activities and available cash on hand. Certain companies we acquired in 2020 and 2021 had also deferred payroll taxes of $4.6 million in aggregate in fiscal year 2020. We did not defer any payroll taxes after December 31, 2020. As of October 2, 2021, our aggregate deferred payroll taxes were $51.4 million. These deferred payroll taxes will require payments to the Internal Revenue Service of 50% on December 31, 2021 and 50% on December 31, 2022.

Certain of our acquired home health and hospice companies received advance payments from CMS in April 2020, pursuant to the CARES Act. Receipt of the advances did not increase our net cash provided by operating activities in 2020. Gross advances received by acquired companies in April 2020 totaled $15.7 million. We began repaying the gross amount of the advances during the three-month period ended July 3, 2021, and had repaid an aggregate amount of $8.8 million of such advances as of October 2, 2021. As of October 2, 2021 remaining advances to be repaid totaled $6.9 million and we expect to repay the majority of the advances in fiscal year 2021.

We believe that our operating cash flows, available cash on hand and availability under our credit facilities will be sufficient to meet our cash requirements for the next twelve months. Our future capital requirements will depend on many factors that are difficult to predict, including the size, timing and structure of any future acquisitions, future capital investments and future results of operations. We cannot assure you that cash provided by operating activities or cash and cash equivalents will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

We evaluate our liquidity based upon our current cash balances, the availability we have under our credit facilities in addition to the net cash (used in) or provided by operating, investing and financing activities. Specifically, we review the activity under the revolving credit facility and consider period end balances outstanding under the revolving credit facility. Based upon the outstanding borrowings and letters of credit under the revolving credit facility, we calculate the availability for borrowings under the revolving credit facility. Such amount, in addition to cash on our balance sheet, is what we consider to be our “Total Liquidity.”

43

 


 

The following table provides a calculation of our Total Liquidity for the nine-month periods ended October 2, 2021 and September 26, 2020, respectively:

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Revolving credit facility rollforward

 

 

 

 

Beginning revolving credit facility balance

$

-

 

$

31,500

 

Draws

 

-

 

 

14,000

 

Repayments

 

-

 

 

(45,500

)

Ending revolving credit facility balance

$

-

 

$

-

 

Calculation of revolving credit facility availability

 

 

 

 

Revolving credit facility limit

$

200,000

 

$

75,000

 

Less: outstanding revolving credit facility balance

 

-

 

 

-

 

Less: outstanding letters of credit

 

(19,817

)

 

(19,718

)

End of period revolving credit facility availability

 

180,183

 

 

55,282

 

End of period cash balance

 

121,708

 

 

85,918

 

Total Liquidity, end of period

$

301,891

 

$

141,200

 

 

Cash Flow Activity

The following table sets forth a summary of our cash flows from operating, investing, and financing activities for the nine-month periods presented:

 

For the Nine-Month Periods Ended

 

(dollars in thousands)

October 2, 2021

 

September 26, 2020

 

Net cash provided by operating activities

$

22,188

 

$

118,117

 

Net cash used in investing activities

$

(113,508

)

$

(61,501

)

Net cash provided by financing activities

$

75,683

 

$

212,319

 

Operating Activities

Net cash provided by operating activities decreased by $95.9 million, from $118.1 million net cash provided for the nine-month period ended September 26, 2020, to $22.2 million net cash provided for the nine-month period ended October 2, 2021. The decrease was primarily due to the following items:

 

an increase in net income of $56.5 million from the first nine-months of 2020 to the first nine-months of 2021;
less the $75.7 million non-cash charge for goodwill impairment recorded in the second fiscal quarter of 2020 related to our exit of the ABA Therapy business;
less the comparative non-cash gains of $13.2 million related to fair value adjustments on interest rate derivatives;
plus $13.6 million of incremental losses on extinguishment of debt associated with the repayment of debt in May, 2021 with proceeds from our IPO and restructuring our remaining term loans in July, 2021;
plus $12.5 million of other adjustments to reconcile net income (loss) to net cash provided by operating activities;
less $13.9 million associated with accrued interest and the timing of payments made under our term loans during the quarter ended September 26, 2020;
less $31.3 million of deferred social security payroll taxes during the second and third quarter of 2020 as permitted by the CARES Act and which ended on December 31, 2020;
less $8.8 million of cash used in 2021 to repay a portion of the advances received from CMS by certain of our acquired home health and hospice companies in 2020 under the CARES Act. These advances reduced total consideration transferred to the sellers in the respective acquisitions. Were these advances repaid to CMS upon closing of the respective acquisitions, the related cash payments would have been treated as cash used for investing activities in our accompanying statements of cash flows; and
usage of approximately $35.6 million related to the timing of collections of accounts receivable, payment of accounts payable and other accrued liabilities, payment of accrued payroll and other benefits, and other working capital items.

 

Days Sales Outstanding (“DSO”)

 

DSO provides us with a gauge to measure receivables, revenue, and collection activities. DSO is derived by dividing our average patient accounts receivable for the fiscal period by our average daily revenue, excluding other revenue, for the fiscal period. The following table shows our DSO for the current quarter and trailing four quarters:

 

44

 


 

 

September 26, 2020

 

January 2,
2021

 

April 3,
2021

 

July 3,
2021

 

October 2, 2021

 

Days Sales Outstanding

 

37.9

 

 

38.3

 

 

40.2

 

 

41.6

 

 

43.4

 

Investing Activities

Net cash used in investing activities was $113.5 million for the nine-month period ended October 2, 2021, as compared to $61.5 million for the nine-month period ended September 26, 2020. The $52.0 million increase in cash used in the nine-month period ended October 2, 2021 was primarily related to the incremental purchase price for the Doctor’s Choice acquisition in April, 2021 beyond the aggregate purchase price of the 2020 PDS acquisitions which occurred in the third quarter of 2020.

Financing Activities

Net cash provided by financing activities decreased by $136.6 million, from $212.3 million for the nine-month period ended September 26, 2020 to $75.7 million net cash provided for the nine-month period ended October 2, 2021. The $75.7 million net cash provided in the first nine-months of 2021 was primarily related to the following items:

 

$477.7 million in net proceeds from the IPO;
$65.3 million in proceeds from the incremental second lien term loan issued to finance the Doctor’s Choice acquisition;
$416.6 million in aggregate principal payments on our term loans and notes payable, including $407.0 million of principal payments made with proceeds from the IPO;
the return of $29.4 million of Provider Relief Funds and state sponsored relief funds;
payment of $13.1 million of debt issuance costs; and
payment of $5.5 million in offering costs associated with the IPO.

The $212.3 million net cash provided in the first nine-months of 2020 was primarily related to the following items:

 

$177.6 million in net proceeds from issuance of the first lien fourth amendment term loan;
the receipt of $50.0 million of proceeds from the issuance of shares of common stock to affiliates of our sponsors, Bain Capital L.P. and J.H. Whitney Capital Partners;
$23.8 million in proceeds from government stimulus funds; net of
$8.4 million in principal payments on term loans and notes payable, and
$31.5 million in net payments under the revolving credit facility during the first quarter of 2020.

Purchases of Property and Equipment (capital expenditures)

We manage our capital expenditures based upon a percentage of revenue. Our capital expenditures expressed as a percentage of revenue were as follows for the nine-month periods presented:

 

$10.3 million, or 0.8% of revenue for the nine-month period ended October 2, 2021; and
$12.2 million, or 1.1% of revenue for the nine-month period ended September 26, 2020.

 

Our capital expenditures for the nine-months ended October 2, 2021 were less than is typical due to the timing of current year expenditures. Our capital expenditures during the nine-months ended September 26, 2020 included $5.2 million related to our implementation and build-out of our data center, which increased our capital expenditures as compared to the current period.

Indebtedness

We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our revolving credit facility from time to time for working capital purposes, as well as to finance acquisitions, as needed. The following table presents our current and long-term obligations under our credit facilities as of October 2, 2021 and September 26, 2020, as well as related interest expense for the nine-month periods ended October 2, 2021 and September 26, 2020, respectively:

45

 


 

 

Current and Long-term Obligations

 

 

Interest Expense

 

(dollars in thousands)

 

 

 

For the Nine-Month Periods Ended

 

Instrument

October 2, 2021

 

January 2, 2021

 

Interest Rate

October 2, 2021

 

September 26, 2020

 

Initial First Lien Term Loan (1)

$

-

 

$

563,061

 

 L + 4.25%

$

15,911

 

$

23,569

 

First Lien First Amendment Term Loan (1)

 

-

 

 

217,133

 

 L + 5.50%

 

7,599

 

 

11,160

 

First Lien Fourth Amendment Term Loan (1)

 

-

 

 

184,538

 

 L + 6.25%

 

5,749

 

 

186

 

Second Lien Term Loan (1)

 

-

 

 

240,000

 

 L + 8.00%

 

7,252

 

 

16,792

 

Incremental Second Lien Term Loan (1)

 

-

 

 

-

 

 L + 8.00%

 

2,024

 

 

-

 

2021 Extended Term Loan (2)

 

860,000

 

 

-

 

 L + 3.75%

 

8,021

 

 

 

Delayed Draw Term Loans (2) (3)

 

-

 

 

-

 

 L + 3.75%

 

-

 

 

-

 

Revolving Credit Facility (2)

 

-

 

 

-

 

 L + 3.75%

 

-

 

 

540

 

Amortization of debt issuance costs

 

-

 

 

-

 

 

 

5,494

 

 

5,399

 

Total

 

860,000

 

 

1,204,732

 

 

$

52,050

 

$

57,646

 

Less: unamortized debt issuance costs

 

(21,726

)

 

(31,332

)

 

 

 

 

 

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

$

838,274

 

$

1,173,400

 

 

 

 

 

 

Weighted Average Interest Rate

 

4.3

%

 

6.5

%

 

 

 

 

 

(1)
Variable rate debt instruments which accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 1.00%), plus an applicable margin.
(2)
Variable rate debt instruments which accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 0.50%), plus an applicable margin.
(3)
No amounts were outstanding on the Delayed Draw Term Loans at October 2, 2021, however, the Company incurred commitment fees of $0.4 million for the nine-month period ended October 2, 2021.

 

We were in compliance with all financial covenants and restrictions related to existing loan facilities at October 2, 2021 and January 2, 2021.

 

On March 11, 2021, we amended our revolving credit facility to increase the maximum availability to $200.0 million, subject to the occurrence of an initial public offering prior to December 31, 2021, which was completed on May 3, 2021. The amendment also extended the maturity date to April 29, 2026 upon completion of the IPO and subject to the completion of the refinancing of our terms loans, which occurred with the Extension Amendment.

On May 3, 2021, we completed our initial public offering, and with a portion of the proceeds received, paid an aggregate principal amount of $307.0 million to repay in full all outstanding obligations under the Second Lien Credit Agreement, including the incremental amount borrowed in connection with financing the acquisition of Doctor’s Choice, thereby terminating the Second Lien Credit Agreement. In addition, on May 4, 2021, we repaid $100.0 million in principal amount of our outstanding indebtedness under our First Lien Credit Agreement.

On May 4, 2021, following completion of the initial public offering and satisfaction of the other applicable conditions precedent, the maximum availability of our revolving credit facility increased from $75.0 million to $200.0 million. In connection with this increase in capacity, we incurred debt issuance costs of $1.6 million, which we capitalized and included in other long-term assets.

On July 15, 2021, we amended our first lien credit facility to, among other things, simplify our first lien term loan structure, reduce the overall interest rates thereunder, extend the maturity date of our resulting 2021 Extended Term Loan to July, 2028, and also provide for a $200.0 million delayed draw term loan facility. Undrawn portions of the delayed draw term loan facility incur a commitment fee of 50% of the LIBOR margin beginning 45 days after the amendment date, and the full LIBOR margin beginning 90 days after the amendment date.

 

On July 15, 2021, we also amended our interest rate swap agreements to extend the expiration dates to June 30, 2026 and reduce the fixed rate paid under the swaps. As amended, our swap rate decreased to 2.08% from 3.107%, with a reduction in the LIBOR floor under the swaps from 1.00% to 0.50%. The notional amount under the interest rate swaps remains at $520.0 million. We also entered into a three-year, $340.0 million notional interest rate cap agreement with a cap rate of 1.75%. in July, 2021. The cap agreement provides that the counterparty will pay us the amount by which LIBOR exceeds 1.75% in a given measurement period and expires on July 31, 2024.

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On November 12, 2021, we entered into a three-year Securitization Facility which increases the Company’s borrowing capacity by collateralizing a portion of our patient accounts receivable at favorable interest rates relative to our 2021 Extended Term Loan. The maximum amount available under the Securitization Facility is $150.0 million, subject to maintaining certain borrowing base requirements. Borrowings under this facility carry variable interest rates tied to BSBY plus an applicable margin. Please see Footnote 15, Subsequent Events, to the unaudited consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion related to the Securitization Facility.

 

In July 2017, the U.K. Financial Conduct Authority, the regulator of the LIBOR, indicated that it will no longer require banks to submit rates to the LIBOR administrator after 2021 (“LIBOR Phaseout”). This announcement signaled that the calculation of LIBOR and its continued use could not be guaranteed after 2021 and the anticipated cessation date is June 30, 2023. A change away from LIBOR may impact our senior secured credit facilities. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate. The impact related to any changes cannot be predicted at this time.

 

Contractual Obligations

Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating and financing leases. These contractual obligations impact our short-term and long-term liquidity and capital needs. As of October 2, 2021, there were no material changes to our contractual obligations from those described in our Prospectus.

 

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements. We enter into letters of credit in the normal course of our operations.

Critical Accounting Estimates

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and our consolidated financial statements and related notes included in the Prospectus for accounting policies and related estimates we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting policies include patient accounts receivable; business combinations; goodwill; intangible assets, net; assessment of loss contingencies; insurance reserves; equity; revenue; and income taxes. There have been no changes to our critical accounting policies or their application since the date of the Prospectus.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to changing interest rates primarily under the revolving credit facility and our senior secured first lien term loan facility, each of which currently bears interest at variable rates based on LIBOR and, until the repayment of the second lien term loan, under our Second Lien Credit Agreement, under which interest at variable rates were based on LIBOR during our second fiscal quarter. As of October 2, 2021, the total amount of outstanding variable rate debt was $0.9 billion.

In July 2021, the Company amended its interest rate swap agreements to limit exposure to variable rate debt. The agreements expire on June 30, 2026. Under the terms of the as amended interest rate swap agreements, the Company pays a rate of 2.08%, and receives the one-month LIBOR rate, subject to a 1.00% floor. As of October 2, 2021, the total notional amounts of the interest rate swap agreements were $520.0 million.

A 1.0% interest rate change for the $340.0 million of unhedged variable rate debt as of October 2, 2021 would cause interest expense to change by approximately $3.4 million annually.

The result of the LIBOR Phaseout may impact our interest rate swap agreements. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate. The impact related to any changes cannot be predicted at this time.

See Note 5 - Long-Term Obligations, and Note 15 - Subsequent Events, to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the material terms of our long-term debt.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, disclosed and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, as of October 2, 2021, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of October 2, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

We have not engaged an independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Presently, we are a non-accelerated filer and therefore our management is not presently required to perform an annual assessment of the effectiveness of our internal control over financial reporting. This requirement will apply in conjunction with our Annual Report on Form 10-K for the fiscal year ending December 31, 2022. Our independent registered public accounting firm will first be required to attest to the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the fiscal year ending December 31, 2022.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have occurred during the three-month period ended October 2, 2021, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of our controls and procedures, our principal executive officer and our principal financial officer concluded our disclosure controls and procedures were effective at a reasonable assurance level as of October 2, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

 

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PART II—OTHER INFORMATION

Information in response to this Item is included in “Part I – Item 1 - Note 10 – Commitments and Contingencies” and is incorporated by reference into this Part II Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors described in the Prospectus except as described below. We are updating or supplementing those risk factors with the following risk factor:

 

The recent federal COVID-19 vaccine mandates for certain employers could negatively impact our ability to attract and retain employees and could add increased administrative burden, which could in turn adversely affect our profitability and ability to grow.

 

On September 9, 2021, President Biden announced a new COVID-19 Action Plan entitled the “Path out of the Pandemic” (the “Plan”). The Plan mandates COVID-19 vaccinations or at least weekly COVID-19 testing for all U.S. employers with 100 or more employees. The United States Department of Labor’s Occupational Safety and Health Administration issued on November 5, 2021 an emergency temporary standard (the “ETS”) entitled “COVID-19 Vaccination and Testing: Emergency Temporary Standard” to make certain requirements of the Plan effective beginning December 5, 2021 and other requirements of the Plan effective beginning January 4, 2022, pending issuance of a permanent rule. Legal challenges to the ETS are currently underway, and additional challenges are possible, which leads to uncertainty about the potential timing of when or if the ETS might actually take effect. The Fifth Circuit Court of Appeals has currently issued a stay of the effectiveness of the ETS. Furthermore, on November 4, 2021, the Centers for Medicare & Medicaid Services (“CMS”) issued an interim final rule (“IFR”) requiring COVID-19 vaccinations for workers in most health care settings covered by applicable “Conditions of Participation,” including home health and hospice facilities, that participate in the Medicare and Medicaid programs. The IFR is effective as of November 5, 2021. Under the IRF, all covered healthcare workers and related support staff must be fully vaccinated by January 4, 2022. The vaccination requirement applies to all eligible staff working at a facility that participates in Medicare and Medicaid programs, regardless of clinical responsibility or patient care, including staff who work in offsite locations, such as homes, clinics or administrative offices. The requirement does not apply to individuals who provide services 100% remotely and have no direct contact with patients and other staff. The IRF requires health care providers to establish a process or policy to ensure covered staff, except for those individuals who are granted a religious or medical exemption, are fully vaccinated over two phases. By Phase 1, within 30 days of the IRF’s publication, or by December 6, 2021, all covered staff at all applicable health care facilities must have received their first dose of a 2-shot series (Moderna or Pfizer, currently) or a single dose of a 1-shot vaccine (Johnson and Johnson, currently). Covered staff must complete this step before they can provide any care, treatment or other services for the facility and/or its patients. By Phase 2, within 60 days of the rule’s publication, or by January 4, 2022, all staff must complete the primary vaccination series.

 

If the ETS becomes effective, whether due to the lifting of the Fifth Circuit Court of Appeals’ stay or otherwise, and/or if all of our employees covered by the IFR are required to be vaccinated by the expiration of Phase 2, it could increase the challenges of maintaining and growing our number of employees across all functions and will create operational burdens necessary to track vaccination status and enforce weekly COVID-19 testing of non-vaccinated employees. These vaccination mandates could lead to additional employee turnover, including turnover caused by employees moving to smaller employers that are exempt from the ETS or to companies with service lines that are not covered by the IRF. If we are unable to continue to attract and retain employees at our current level, we could be required to increase employee compensation in an effort to prevent understaffing of our operations. An increase in our expenses or in the number of employee vacancies could materially and adversely affect our growth and profitability. The IRF and ETS also conflict with various state laws and mandates prohibiting Covid-19 vaccination mandates. The IRF and ETS requirements place the Company in the position of either violating federal regulations or applicable state laws, which could result in state agency fines and licensure revocation for possible non-compliance with state vaccine mandate prohibitions, which could have a material and adverse effect on our results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On November 14, 2021, Aveanna Healthcare, LLC, a Delaware limited liability company (“Buyer”) and indirect wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Dunn & Berger, Inc. d/b/a Accredited Nursing Services, a California corporation (“Accredited”), Barry R. Berger and Jill Taffy Steinfeld-Berger, Trustees of The Barry R. Berger and Jill Taffy Steinfeld-Berger Family Trust dated September 19, 2006 seller (“Seller”), and the other parties thereto.

Pursuant to the Purchase Agreement, at the closing of the transactions contemplated thereby (the “Closing”), Buyer will purchase from Seller, and Seller will sell to Buyer, all of the issued and outstanding stock in each of the Company (the “Stock” and consummation of such purchase and sale at Closing, the “Transaction”). At Closing, Buyer will pay to Seller an aggregate consideration of (i) $180.0 million in cash plus (ii) $45.0 million in cash that will be held in escrow (the "Escrowed Purchase Price"), pending final reconciliation, in accordance with the terms of the Purchase Agreement, of Accredited's volumes for September, October, and November of 2021. Any portion of the Escrowed Purchase Price not payable to Seller will be returned to Buyer. The purchase price is payable by Buyer is additionally subject to a customary purchase price adjustment mechanism providing for a normalized level of working capital and that Accredited, together with its subsidiaries, be free of cash and debt at Closing.

Consummation of the Transaction is subject to customary conditions, including the absence of legal restraints and the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Each party’s obligation to consummate the Transaction is also subject to the accuracy of the representations and warranties of the other parties (subject to certain exceptions) and the performance in all material respects of the other parties’ respective covenants under the Purchase Agreement. Consummation of the Transaction is not subject to a financing condition.

The Purchase Agreement contains certain customary termination rights for both Buyer, on the one hand, and Seller, on the other hand.

The foregoing description of the Purchase Agreement is only a summary and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is filed as Exhibit 2.2 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

The Purchase Agreement is filed with this Quarterly Report on Form 10-Q to provide security holders with information regarding its terms. It is not intended to provide any other factual information about Aveanna, Buyer, Seller, Accredited or any of the other parties to the Purchase Agreement. The representations, warranties and covenants contained in the Purchase Agreement were made solely for purposes of such agreement and as of specific dates, are solely for the benefit of the parties to the Purchase Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties to the Purchase Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to security holders. Security holders should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Aveanna, Buyer, Seller, Accredited or any of the other parties to the Purchase Agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in Aveanna’s public disclosures, except to the extent required by law.

On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) entered into a Receivables Financing Agreement with a bank (the “Securitization Facility”) with a termination date of November 12, 2024. The Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the Company's patient accounts receivable. The maximum amount available under the Securitization Facility is $150.0 million subject to maintaining certain borrowing base requirements. Borrowings under this facility carry variable interest rates tied to BSBY plus an applicable margin.

 

Item 6. Exhibits

The following exhibits are filed or furnished herewith:

 

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Exhibit

Number

 

Description

 

 

 

  2.1*

 

Membership Interest Purchase Agreement, dated September 27, 2021, by and among Aveanna Healthcare Senior Services LLC, Comfort Care Home Health Services, LLC, Comfort Care Hospice, L.L.C., Premier Medical Housecall, LLC and other parties thereto filed as Exhibit 2.1 to the Company's Current Report on Form 8-K on October 1, 2021 and incorporated herein by reference.

  2.2*

 

Stock Purchase Agreement, dated November 14, 2021, by and among Aveanna Healthcare LLC, Dunn & Berger, Inc. d/b/a Accredited Nursing Services and the other parties thereto.

10.1*

 

Extension Amendment to the Credit Agreement, dated July 15, 2021, among Aveanna Healthcare LLC, Aveanna Healthcare Intermediate Holdings, LLC, Barclays Bank PLC, as administrative agent, and the other lenders, agents, and guarantors party thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on July 20, 2021 and incorporated herein by reference).

10.2

 

Seventh Amendment to First Lien Credit Agreement, dated as of August 9, 2021, by and among Aveanna Healthcare LLC, Aveanna Healthcare Intermediate Holdings LLC, Barclays Bank PLC, as administrative agent, and other lenders, agents, and guarantors party thereto (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q on August 11, 2021 and incorporated herein by reference).

10.3*

 

Receivable Financing Agreement, dated as of November 12, 2021, by and among Aveanna SPV I, LLC, as borrower, Aveanna Healthcare LLC, as initial servicer, PNC Bank, as administrative agent, and other lenders and agents party thereto.

31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Pursuant to Item 601(a)(5) of Regulation S-K, schedules and similar attachments to this exhibit have been omitted because they do not contain information material to an investment or voting decision and such information is not otherwise discussed in such exhibit. The Company will supplementally provide a copy of any omitted schedule or similar attachment to the U.S. Securities and Exchange Commission or its staff upon request.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Aveanna Healthcare Holdings Inc.

 

 

 

 

Date: November 15, 2021

 

By:

/s/ Tony Strange

 

 

 

Tony Strange

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

Date: November 15, 2021

 

By:

/s/ David Afshar

 

 

 

David Afshar

 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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