Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) Q1 2026 Earnings Call Transcript

Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) Q1 2026 Earnings Call Transcript May 14, 2026

Aveanna Healthcare Holdings Inc. beats earnings expectations. Reported EPS is $0.18, expectations were $0.13.

Operator: Good morning, and welcome to Aveanna Healthcare Holdings, Inc. First Quarter 2026 Earnings Call. Today’s call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I’d like to turn the call over to Debbie Stewart, Aveanna’s Chief Accounting Officer. Thank you. You may begin.

Debbie Stewart: Good morning, and welcome to Aveanna’s First Quarter 2026 Earnings Call. I am Debbie Stewart, the company’s Chief Accounting Officer. With me today is Jeff Shaner, our Chief Executive Officer; and Matt Buckhalter, our Chief Financial Officer. During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning’s press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today’s call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning’s press release, which is posted on our website, aveanna.com, and in our most recent quarterly report on Form 10-Q when filed. With that, I will turn the call over to Aveanna’s Chief Executive Officer, Jeff Shaner. Jeff?

Jeffrey Shaner: Thank you, Debbie. Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q1 results and how we are moving Aveanna forward in 2026. My initial comments will briefly highlight our first quarter results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide updates on the recently announced Family First Homecare acquisition and how we are thinking about our 2026 strategic initiatives and our enhanced guidance before turning the call over to Matt. Moving to highlights for the first quarter. Revenue for the first quarter was approximately $648 million, representing a 15.9% increase over the prior year period.

First quarter adjusted EBITDA was $84.4 million, representing a 25.2% increase over the prior year period, primarily due to the improved rate and volume environment and continued operational efficiencies. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believe our company could achieve. It is important to note that our industry does not have a demand problem. The demand for home and community-based care continues to be strong with both state and federal governments and managed care organizations asking for solutions that create more capacity while reducing the total cost of care. Our Q1 results highlight that we continue to align our objectives with those of our preferred payers and government partners.

By focusing our clinical capacity on our preferred payers, we achieved solid year-over-year growth in all 3 of our business segments. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging environment, our preferred payer strategy supports our ability to achieve accelerated growth rates in all 3 of our business segments. Since our fourth quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners as well as continued signs of improvement in the caregiver labor market.

Specifically, as it relates to our private duty services business, our government affairs strategy for 2026 was twofold. First, we continue to advocate for Medicaid rate integrity on behalf of children with complex medical condition. Our strong advocacy presence of both federal and state legislatures across our national footprint enhances our value proposition. And second, we expect to achieve mid-single-digit state rate enhancements in 2026. As of Q1, we have received 3 Private Duty Services state rate wins and believe we will achieve our goals as states complete their annual budget processes. After 3 years of meaningful rate increases in the majority of our PDS states, we are in a very stable rate environment and are shifting our focus to cost of living and wage rate adjustments.

Moving to our PDS preferred payer initiatives. Aveanna’s preferred payer strategy continues to gain momentum and allows us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses. Our preferred payer goal for 2026 is to achieve 8 additional agreements for a total of 38 preferred payers. We signed 4 preferred payer agreements in Q1 and are well on our way to achieving our 2026 target. Additionally, our Q1 PDS preferred payer agreements accounted for approximately 60% of our total Private Duty Services MCO volumes, up from 57% at the end of 2025. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our preferred payer partners.

Moving to our preferred payer progress in home health. Our goal for 2026 is to maintain our episodic payer mix above 75%, while returning to a more normalized growth rate. I am pleased to report in Q1, our episodic mix was approximately 80%, and our total episodic volume growth was 23.1% compared with the prior year period. The continued investment in clinical outcomes, sales resources and a focused approach to growth is driving results with Q1 total admissions of approximately 11,000 or 13.4% organic growth over the prior year period. Additionally, we exited 2025 with 45 preferred payer agreements in home health and expected to add 5 agreements in 2026 for a total of 50. As of Q1, I’m pleased to report that we added 4 additional preferred pay agreements and are well on our way to exceeding our goal of 50 preferred payers in home health in 2026.

Our dedicated focus on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis has led to double-digit year-over-year growth in home health total admissions and episodes as well as improvement in our clinical and financial outcomes. Finally, as we have achieved our desired preferred payer model in private duty services and home health and hospice, we are continuing with a similar strategy in our Medical Solutions business. As we exited 2025, we had 18 preferred payer agreements in Med Solutions and expected that number to grow to 25 by the end of 2026. As of Q1, we signed 2 additional agreements for a total of 20 preferred payer agreements to date. Our gross margins have stabilized in our desired range as we align our clinical capacity with those payers that value our services and pay us in a timely fashion.

I am pleased with our Q1 volume growth in Med Solutions of approximately 93,000 UPS or positive 4.5% over the prior year period. As we think about Medical Solutions growth in 2026, I would expect us to remain in the mid-single digits for the next few quarters and then return to double-digit growth by the end of the year. We are encouraged by our rate increases, preferred payer agreements and subsequent growth in our businesses. Our company has demonstrated a stable return to organic growth as we achieve our rate goals previously discussed. Home and community-based care will continue to grow, and Aveanna is a comprehensive platform with a diverse payer base, providing cost-effective, high-quality alternative to higher cost care settings. Now turning to our recently announced transaction to acquire Family First Homecare, a Florida-based company with a great reputation for quality in-home pediatric care.

Again, I would like to send my warm welcome to the Family First teammates. I am thrilled to continue our acquisition growth story with great companies like Thrive Skilled Pediatrics and Family First Homecare. Both companies continue to build upon the Aveanna brand of high-quality compassionate care in the most cost-effective setting, the comfort of our patients’ home. We continue to work through the regulatory approval process and expect the transaction will close sometime in late Q2. I look forward to updating you on our progress in the coming months. Additionally, let me comment on our strategic plan and enhanced outlook for 2026. We will focus our efforts on 5 primary strategic initiatives: first, strengthening our partnerships with government partners and preferred payers to create additional capacity and growth; second, improving clinical outcomes and customer engagement scores while lowering the total cost of care; third, implementing high-priority artificial intelligence and automation efforts to improve operational efficiency and productivity gains.

Fourth, growing through acquisitions while improving net leverage and free cash flow; and finally, engaging our leaders and employees in delivering our Aveanna mission. Based on the strength of our first quarter results and the continued execution of our key strategic initiatives, we are increasing our full year revenue and adjusted EBITDA guidance to a revenue range of $2.56 billion to $2.58 billion and an adjusted EBITDA range of $328 million to $332 million. We believe this enhanced 2026 outlook provides a prudent view considering the challenges we still face with the evolving environment and does not include the impact of the Family First acquisition. As I reflect on the strong start to 2026, I want to take a moment and comment on our second annual Aveanna Cares month of Community service.

We dedicate the month of April to not only focusing on our mission, but living that mission in our 379 communities. Aveanna Cares is an extension of the care we provide families every day, and we are proud to give back, help others and strengthen our communities and our teams through our volunteering efforts. We set an ambitious goal this year to serve 7,500 volunteer hours, and I am extremely proud to announce that our Aveanna family completed over 9,000 total volunteer hours. Our teams held approximately 200 volunteer events nationwide and lived our core values while giving back to the important local charities that support children, adults and seniors in our communities. I look forward to raising the bar in 2027 with plans to further expand our Aveanna Cares impact across the country.

With that, let me turn the call over to Matt to provide further details on the quarter and our 2026 outlook. Matt?

Matt Buckhalter: Thank you, Jeff, and good morning. I will first talk about our first quarter financial results and liquidity before providing additional details on our refreshed outlook for 2026. Starting with the top line. We saw revenues rise 15.9% over the prior year period to $647.9 million. We achieved year-over-year revenue growth in all 3 of our operating divisions, led by our Home Health and Hospice, Private Duty Services and Medical Solutions divisions, which grew by 17.4%, 16.4% and 7.4% compared to the prior year period. Consolidated gross margin was $205.4 million or 31.7%. Consolidated adjusted EBITDA was $84.4 million, a 25.2% increase as compared to the prior year period. This growth reflects an improved rate environment, increased volumes as well as enhanced operational efficiencies.

Now taking a deeper look at each of our segments. Starting with Private Duty Services. Revenue for the quarter was approximately $536 million, a 16.4% increase and was driven by approximately 12.1 million hours of care, a volume increase of 10.7% over the prior year. Q1 revenue per hour of $44.43 was up 5.7% compared to the prior year quarter, primarily driven by growth in preferred payer volume and updated reimbursement agreements. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates. Turning to our cost of labor and gross margin metrics. We achieved $149.2 million of gross margin or 27.9%. The cost of revenue rate of $32.05 in Q1 was up $2.17 or 8.1% from the prior year period.

Our Q1 spread per hour was $12.38, reflecting continued normalization driven in part by ongoing caregiver wage adjustments, supporting higher volumes and improving clinical outcomes. Moving on to our Home Health and Hospice segment. Revenue for the quarter was approximately $66.6 million, a 17.4% increase over the prior year. Revenue was driven by 11,000 total admissions with approximately 80% being episodic and 14,900 total episodes of care, up 23.1% from the prior year quarter. Medicare revenue per episode was $3,167, up 0.5% from the prior year quarter. Our episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 75%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings.

We are pleased with our Q1 gross margin of 53.7%, representing our continued focus on cost initiatives to achieve our targeted margin profile. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now to our Medical Solutions segment results for Q1. During the quarter, we produced revenue of $45.7 million, up 7.4% over the prior year period. Revenue was driven by approximately 93,000 unique patients served and revenue per UPS of approximately $491, up 2.9% over the prior year period. Gross margin was approximately $20.4 million or 44.7% for the quarter. As Jeff mentioned, we are in the final stages of implementing our preferred payer strategy in Medical Solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide.

As a result, we expect margins to normalize and UPS to continue to accelerate its growth in the back half of 2026. In summary, we remain focused on keeping our patients care at the center of everything we do. It is clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aveanna. With the strong momentum through Q1, we are optimistic these trends will continue into 2026. We would continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes. Now moving to our balance sheet and liquidity. At the end of the first quarter, we had liquidity of approximately $525 million, representing cash on hand of approximately $189 million, $110 million of availability under our securitization facility and approximately $226 million of availability on our revolver, which was undrawn as of the end of the quarter.

We had $24.5 million in outstanding letters of credit at the end of Q1. On the debt service front, we had approximately $1.48 billion of variable rate debt at the end of Q1. Of this amount, $520 million is hedged with fixed rate swaps and $880 million is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all our variable rate debt is hedged. Our interest rate swaps extend through June 2026 and our interest rate caps extend through February 2027. In anticipation of the swap expiration, we entered into an additional interest rate cap agreement effective July 2026. This agreement limits exposure on $520 million of variable rate debt to increases in SOFR above 4% through December 2029.

Looking at year-to-date cash flow. Cash generated by operating activities was $4.3 million and free cash flow was negative $3.8 million. We are encouraged by our strong cash collections and cost efficiency efforts, which drove solid operating and free cash flow in 2025, and we expect similar cash flow performance in 2023. As a reminder, the first quarter is typically our seasonal low point for both operating and free cash flow with improvement expected throughout the rest of the year. Before I hand the call over to the operator for Q&A, let me take a moment to address our raised outlook for 2026. As Jeff mentioned, we expect full year 2026 revenue range of $2.56 billion to $2.58 billion and adjusted EBITDA range of $328 million to $332 million.

Consistent with our standard practice, our full year 2026 guidance excludes the pending Family First acquisition, which we expect to close in late Q2. As we reflect on our Q1 results, I’d like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I’m excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q2. With that, let me turn the call over to the operator.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Ben Hendrix with RBC Capital Markets.

Benjamin Hendrix: On the strong performance. Just wanted to get some comments on the regulatory backdrop, specifically with the home health moratorium on new Medicare licensure announced yesterday. Just wanted to get your overall thoughts, any impact it’s having on your acquisition strategy to the extent to which it might impact acquisitions like Family First or others. Any kind of comments you can give on the backdrop?

Jeffrey Shaner: Well, Matt won the bet because we figured that would be the first question, the second question, third question. So I appreciate you just getting us right there. I’ll kidding aside. Ben, I think if I think macro industry-wide, I’ll start with the industry, and then we’ll come back to Aveanna. Dr. Oz and CMS, the administration have been pretty deliberate with their messaging around fraud waste and abuse now for at least a year, if not longer. And we — I view yesterday’s CMS announcement regarding the home health and hospice 6-month enrollment moratoria as consistent with Dr. Oz’s messaging over the last 6 months to a year. I’d be remiss as an industry participant to say that we’re disappointed that a nationwide moratoria is not the way to solve L.A. County specific targeted fraud waste and abuse.

But I do think it’s consistent with the messaging that CMS has been sharing in the last 6 months. If I drill down to Aveanna and Family First, it has absolutely no impact, 0 impact on Aveanna, the way we have read it. It has 0 impact on our 2026 business plan, our 2027 business plan. Our home health and hospice business was built through M&A and then organic growth. So I think for that part of it, we feel positive and pleased that the rule was thoughtful. The moratoria was thoughtful to not penalize current Medicare beneficiaries and current providers. But we would like in this next 6 months with the Alliance National Alliance of Care at Home and all of our industry peers to work with Dr. Oz and CMS to really target the areas where fraud waste and abuse are occurring, specifically places like L.A. County because this does punish rural-type health care, right?

Rural health care needs more providers. They need more robust home health and hospice providers. So we want to work with the administration, and we think the thoughtfulness of how Dr. Oz has approached things that, that opportunity will avail itself. But we expect to get this question a lot today, and I’ll reiterate, absolutely 0 impact on our 2026 guidance, our results and our ability to grow the business successfully.

Benjamin Hendrix: Great. And just to be clear, there’s nothing that involved in the transfer of a Medicare licensure that would require you guys to kind of reapply that might be impacted by this moratorium.

Jeffrey Shaner: No. And I think CMS did a nice job yesterday in releasing the Q&A, right? So you’re able to kind of read the Q&A and the 36-month rule has been in place for at least a decade, maybe even 2. So you still have to adhere to the 36-month rule in any kind of targeted acquisition. on home health and hospice assets, and that’s been in place. So nothing new there. But no, nothing that limits our ability to do normal things like move and address or the normal things that we do. And I think in the Q&A, they did a good job of laying that out, and we don’t see it having any impact on future M&A in that space as well. And again, I think they’re targeting bad actors, and I think they were thoughtful in this to release the fact that they were not intending to punish good actors and reputable providers like us.

Operator: Our next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut: So maybe I’ll add to Matt’s pot here for a little bit. Jeff, a question for you. I appreciate the answer to Ben’s question. I just want to clarify, the moratorium is only on the Medicare home nursing side, right? And then I guess the second part of my regulatory question would be, when we think about the core PBM business in the context of all the scrutiny we’re seeing in private duty or personal care services and the Medicaid, I just want to make sure that your business is not impacted and you’re not seeing anything there.

Jeffrey Shaner: Great question, Brian. And I’ll answer in 2 parts. One, again, kudos to CMS, I thought they were very thoughtful in how they put the information out there yesterday. They did talk about Medicaid and SHIP programs, right? And they certainly are encouraging states to be thoughtful in how states audit the Medicaid and CHIP programs. They also were crystal clear that it did not impact Medicaid and Medicaid reimbursement. The second part is we do operate under a significant number of Medicare provider numbers to get our Medicaid license in certain states. So we have many, many Medicare provider licenses in our PDN business. It’s just to have the right to do business to have a Medicaid license. So again, no impact to our Medicaid business to your point.

And again, I think more thoughtfully, as we think of growing our Medicare business, we put the business together through 4 acquisitions over the last 5 years. The rest of it has been organic growth the last 3 years. Nothing that we have reviewed in yesterday’s announcements would say that we can’t continue an M&A strategy, a thoughtful M&A strategy in our home health and hospice business.

Brian Tanquilut: I appreciate that. And then, Matt, this was for you. When I think of the guidance for the year, just curious if you can call out the cadence that we should be thinking about, especially from Q1 to Q2, given some of the one-timers that were in the quarter?

Matt Buckhalter: Yes. Great question there, Brian. And I’ll first start off by saying how proud we are of all 3 of our divisions and all 3 teams, significant organic growth in all 3 operating divisions. And they really drove great financial performance and the financial results that you’re seeing today, but they also drove phenomenal clinical performance in the background as well. All that being said, we continue to see very, very strong cash collections in Q1 on some previously reserved AR. Really, that was to the tune of about $6 million. That impacted both our revenue and our EBITDA in the quarter itself. So a little bit heightened in the quarter. I know we’ve said this for quite a few quarters now, but it’s — we’re continuing to win and it’s really because of the artificial intelligence and the automation that the teams have put in on our RCM department.

It’s allowed us to really reduce our DSO, improve our cash collections and shift some of our capacity to go grab some of that aged AR that we thought previously was uncollectible. So we’re going to continue to push that forward and remain focused on artificial intelligence, especially in our RCM department as we’re seeing such wonderful results from it. On just one plug I’ll put in there as a reminder for more of a Q2 item itself there. In 2025, we did benefit from about $11 million of that timing-related business or timing-related items. If you exclude those, Brian, for 2025, we still expect to see really solid EBITDA growth in Q2 of 2026. So once again, proud of the teams, what we’ve been able to accomplish, not only on the cash collection side, clinical side, but most importantly, the operational and the organic growth side, too.

Jeffrey Shaner: Matt, great answer. I think as you think of the build this year, it will be a little bit different. Normally, Q1 is one of our lowest EBITDA quarters. And I think from what Matt just said, our build will be a little bit different this year, where Q1 was, I think as Matt laid out, $5 million to $6 million stronger than we had expected to be, both on the revenue and EBITDA side. So our build to Q2 will be a little bit less than it normally is. But still, I think as Matt laid out, we expect to have a strong — very strong Q2. And if you back out the $11 million in Q2 of ’25, it will be a nice year-over-year continued growth. So as Matt said, not only the AI and the automation, but also our preferred payer relationships just continue to generate great collections and efficient collections, which is a wonderful opportunity for us.

Operator: Our next question comes from the line of Raj Kumar with Stephens Inc.

Raj Kumar: Maybe just kind of — I know you talked about some of the preferred payer kind of wins this year on the private duty services side. And maybe kind of thinking about — I think you also talked about adding 4 to 5 value-based care contracts within this year, too. So maybe just any update on the movement on that front.

Jeffrey Shaner: Yes, Raj, I think let me step back for a second. We’ve had a nice balance in the last 3 years of government, state and federal rate wins, mainly Medicaid-driven and preferred payer wins. We started messaging mid last year, we thought the government side of that would start to slow down or we use the word moderate a lot. I think we’ve seen that in the second half of 2025 and the early parts of ’26. What we’ve also seen is the payer relations and preferred payer is picking up for us. So as we exited 2025, we had a nice momentum in 2026. So we see our preferred payer wins, both in PDS, home health and hospice. And if you heard, we had our first 2 additional preferred payers in Medical Solutions in Q1. So I think what you’ll hear from us this year is an uptick of preferred payer wins more so than the government rate wins that we’re receiving, and that’s kind of what we expected.

As you asked, following that will be our value-based agreements, both in PDS and in home health as well. But strong start to the year. Clearly, we set a goal to sign 5 additional agreements in home health. We signed 4 in Q1. So clearly, we will exceed that goal. 8 preferred payers in PDN, and we signed 4 in Q1. I think we feel confident we’ll break that goal. But I think big picture, think of 2026 being more of a preferred payer win and a little more moderated government affairs wins.

Raj Kumar: Got it. And then maybe just following up on the kind of the strategic initiatives within Medical Solutions and the preferred payer strategy there. As you kind of think about the opportunity, is there a way of framing like the number of unique patients that are kind of under the preferred payer arrangement relative to just the number of contracts as we kind of think about the opportunity?

Matt Buckhalter: Yes, Raj, over time, we’ll continue to release this information as we’re continuing to roll out. We’re really proud of what the teams are doing and rolling out and finishing up these modernization efforts, which we expect them to complete in Q2, starting with 0 preferred payers at the beginning of last year, working it up to 18 to end 2025, adding 2 in the fourth quarter itself. We are starting to see that pipeline continue to pull through preferred payers quicker and really put them to the front of the list and valuing those who value our resources and our time, effort and energy as well. We’ll continue to mature this as we sunset or complete our modernization efforts in Medical Solutions. And once we do that, then we’ll start releasing additional data on there.

Jeffrey Shaner: I think Matt has well said, Raj, right now, we would anchor to 4.5% organic year-over-year growth and a 44.7% gross margin.

Matt Buckhalter: Also 7.4% revenue growth, which has some preferred payer work in there.

Jeffrey Shaner: And I think, Raj, that shows you we’re back to growing this business. It’s the first quarter we’ve had 93,000 unique patients served in a quarter. So — and to Matt’s point, our margin profile is working. Our outcomes are successful. Our collections are working. So that business, to your question, is beginning to act like the other 2 businesses under preferred payer. And these guys have been under the hood now for almost 18 months working really hard. So a shout out to our Medical Solutions team. They have really done a lot of work over the last 1.5 years to get this model in place.

Operator: Our next question comes from the line of Benjamin Rossi with JPMorgan.

Benjamin Rossi: Regarding 1Q margin dynamics, I imagine you’ve got some margin lift quarter-over-quarter with the 53rd week dynamic in 4Q. You mentioned the AI contribution here, too, in RCM. I guess as you’ve been assessing the cost structure in context of your long-term margin profile, could you walk us through how expenses trended during 1Q compared to your expectations and how you’re thinking about expense trends within your revised 2026 outlook?

Matt Buckhalter: I would tell you, great question, very thoughtful, too, Ben, at the same time, thinking about that 53rd week transitioning from grabbing a few payroll tax dollars in Q4 of 2025 as opposed to Q1 of 2026. Really, the most impactful one was that $6 million I referenced earlier that hit our EBITDA — that hit our revenue and EBITDA line item. If you still normalize that out, we’re in a very great position on our — for private duty services, really sitting around that 28% gross margin, right in line with our expectations of where we should be. On the SG&A side, really impressed with what the teams have been able to accomplish. We’re continuing to grow our business organically, continuing to add preferred repair contracts, add additional volumes in all 3 operating divisions while adding very, very little overhead at the same time.

It’s really driven by these automation efforts that we put in place, and it’s small items at a time, scheduling, RCM, areas that we think we can get some real good leverage out of. And we haven’t had to add that incremental overhead as we’ve continued to grow. I would expect to see what you saw in Q1 pretty consistent with the rest of this year, while getting small basis point wins in Q2, Q3, Q4 and continue to ramp that up over time.

Jeffrey Shaner: And we didn’t mention weather, and we have a no excuse policy here at Aveanna. So weather is on life. But we did get hit with 2 major weather events in January. So I think to your point, the 53rd week pulled a holiday week into last year, which was nice. That offset probably $1 million worth of payroll taxes and push it into last year. But we lost about $5.5 million, $6 million of revenue through the 2 weeks of whether that equates to about $1.5 million of margin in EBITDA. So we hit these results with playing through that. And I think had you said to us without the timing-related collections and positive, we would have ended up in the high 70s, which is probably where we thought this was going to land. So ramping off a high 70s number, I think, to Matt’s point, makes the rest of the year make a ton of sense.

Benjamin Rossi: Great. Appreciate the added details there. Just a follow-up on the preferred payer contract wins in PDS. And think about those preferred payer economics as penetration of preferred payer mix increases in that segment, do you expect your revenue rate to also reaccelerate or do you expect growth to continue to be more primarily volume-driven with wages absorbing most of this upside in pricing? I guess just curious on wage pass-through here.

Jeffrey Shaner: I’d say the latter. I’d say at this point, our — for the most part, our PDS rate and wage has basically settled in, I think, to the range where we think it will be — it will move by a percentage point or 2, but I don’t think it’s going to move by $0.50 or $1 per hour. Really proud of how the team started the year. I mean, 4 wins in Q1. I’m not going to get ahead of myself talking about Q2 yet. Matt will pull me back. But additional wins that we’ll be talking about in Q2, the team started this year. We knew we needed more out of preferred payers this year. We knew that was going to have to pick up the slack from more moderated state rate wins. And as I mentioned before, we’re seeing that. So I think the majority of this will continue to drive volume, and you’ll see a pretty consistent spread in that low $12 range moving forward. But again, really, really proud of our preferred payer team. They are doing an amazing job.

Operator: Our next question comes from the line of Sean Dodge with BMO Capital Markets.

Sean Dodge: Maybe just staying on PDS for another moment. You talked about before that segment returning to 5% to 7% organic growth for this year. Just any updated thoughts on that. And if we look at what you all did in Q1 in terms of hours and kind of revenue per hour and just annualize that, that alone gets me a bit above the high end of that range. And I know Thrive contributes some there, but it also is not adjusting for the extra week, Matt, that you mentioned, the weather or factoring in any additional rate increases or any new preferred payers you’re talking about. So just trying to square that and make sure I’m not missing any onetimers or anything else impacting kind of Q1 and how we think about that annualizing over the year.

Matt Buckhalter: No, I don’t think you are, Sean. And we’re continuing to see really impressive growth across our PDS segment and from our PDS teams itself. When you start normalizing out the Thrive acquisition, we still had growth in the high single digits on revenue, which was really, really impressive. We will pass that in Q2 because we closed that acquisition on 6/2 of 2025. And so then you’ll see that start to drop back down. But we are seeing moderation starting to occur to there, 16.4% phenomenal, close to double-digit growth, phenomenal, but that will eventually mature over time. We just want to be open and honest with people and understand that, hey, we underpin this division to a much lower growth rate, though we are accelerating at this time.

Sean Dodge: Okay. Great. And then on the tech or the AI initiatives, Matt, you referenced your work in revenue cycle. You’ve also talked before about now tackling more front office type functions with that. I was wondering if you could just kind of help frame for us like what proportion of your OpEx? So I guess this would be like things within the branch and regional admin and your corporate expense line. Like what percent of those do you think is ultimately like impactable with technology over time? And like what inning do you think we are in when it comes to kind of leveraging tech to drive more efficiency and savings?

Matt Buckhalter: Yes. Sean, top of the first inning, bottom of the first inning, but we’re still changing sides right here early in the game. We are seeing benefits from it, but we’re just being very thoughtful. We’re not diving head first into the shallow end without waiting into it first and making sure to see how deep it actually is. We have seen benefits in that RCM and really proud of the teams for leaning in and really being able to drive better results, reduce our DSO, collect cash a lot faster, but also on the operational side of it, between scheduling, between the automation work that a lot of our teams are doing in the medical solutions with tenor, what our accounting teams are doing as well. These are areas that we’re just chipping away at it, and we’re getting better and we’re getting smarter, and we’re getting faster every single day.

I would tell you, it’s still very, very early to crown any champions out here, but we’re going to continue to lean in and get the results that we can from it.

Operator: Our next question comes from the line of John Ransom with Raymond James.

John Ransom: Just to hit on the obvious, you beat by 13, you raised by 10. Is there anything going on here other than just conservatism?

Jeffrey Shaner: I think — well, yes, let’s start with the $6 million of timing related, John. And again, I know we signed a broken record, right, because it’s 3 out of 4 quarters we always talked about positive benefits to revenue and earnings. So we recognize that at some point, folks don’t bake that into our baseline. But we think of the quarter as in the high 70s number, sub-80 number of EBITDA generated out of the quarter based on the results in the quarter. And the other 6 — 5% to 6% being more of lagged AR that was then collected that we’re able to take. So we think of basing off of the high 70s and really the normal step-up to Q2 would be kind of where we were in Q1, kind of a mid-80s. So I think, certainly, it’s still early in the year. We’re still seeing things shake out, but $10 million for us in EBITDA, John, was aggressive. So thank you. We felt like we were being aggressive, but appreciate the conservatism question.

John Ransom: And the other thing, I know you don’t guide for Family first, but assuming we put that in our model, how should we think about 3Q, 4Q EBITDA contribution from that deal?

Matt Buckhalter: Great question.

Jeffrey Shaner: Yes, John. And we’re really excited for this Family First acquisition and really a Family First team and bringing them to the Aveanna family. They’ve got a great focus on clinical outcomes. They have really, really good operational discipline as well, which brings them in culturally and strategically, a nice fit for us. That transaction, we talked about valuing it about 7.5x post-synergy EBITDA itself. So you can back into the math on that one based upon closing date. And then revenue has been sitting around the $120 million mark itself. So depending on closing time of it, we’ll come and update our guidance accordingly. But right now, we’ve just left it out without knowing exactly when that date is going to occur.

John Ransom: Point being like is the post-synergy EBITDA, I assume that’s not going to be realized right off the bat. So just kind of make our own journey on how long it makes you get to that post-synergy EBITDA number.

Matt Buckhalter: Yes. We’re pretty quick on it itself to get on a full run rate basis. It takes us about 6 months, John, to get to our kind of hard number itself. But we start bringing it in day 1. But then we’ll go recognize it, tuck them on to our systems, bring them on to our platforms, put them on our payroll process, put them in our operating model as well. When all that happens, that takes a total of 6 months, and then there’s that lag of AR that runs down. But that full synergy recognition is in with that 180-day period.

Jeffrey Shaner: And John, if we use Thrive from last year, we closed Thrive on June 1, June 2. We were effectively done by Thanksgiving, December 1, and then AR is still running off today. We expect to close this by the end of June, 1st of July. And to Matt’s point, we would be done by December. By Christmas, holidays, we would be done. And then again, AR would run off through the majority of ’27. But low-hanging fruit. It’s a great company. Matt’s point, great culture, fits right in our wheelhouse. This kind of stuff we should be doing.

John Ransom: And I’m sorry to drag this out, but is the first — the rate that you have versus the rates they might have, is that captured immediately? Or do you have to go through a contracting cycle?

Jeffrey Shaner: Here’s the beauty, John. We don’t know. We stay out of that for all the right reasons, for the right regulatory review process. We are — we do not operate around rate knowledge. We just — and none of our assumptions are built on any kind of rate arbitrage. We just focus on filling in the geography that we didn’t have that they do, the density that they had in certain sort of markets that we didn’t even service. So really filling out needed geography for us in key markets like Florida was the most important reason. So we’re excited.

Operator: Our next question comes from the line of Andrew Mok with Barclays.

Andrew Mok: Your home health episodic mix was north of 80% in the quarter and well above the 75% target. Can you help us understand the trends underneath that? How much of this positive trend is driven by Medicare Advantage versus traditional Medicare? And to the extent this is driven by Medicare Advantage, why wouldn’t this number sustain at these levels or tick higher as you target more preferred payer agreements?

Jeffrey Shaner: Thanks for noticing that. Again, we’ve been in the high 70s now for, I’ll call it, 4 quarters in a row. We’ve been floating with 80% towards the end of last year. And we had said that 80% we felt like was kind of the peak. At this point, Andrew, more Medicare Advantage payers are getting comfortable with the episodic nature. And it’s some form of Medicare minus 5%, 10%. So it’s not — they’re not all set at Medicare episodic rates. But as they get more comfortable with this, the growth is just working for us. We’re able to add — we mentioned in Q1, we added 4 new contracts. The majority of those were Medicare Advantage contracts. And they were all episodic, right? So at the end of the day, I think we see this number staying in the high 70s.

We’ve not adjusted our target to 80% or above at this point. I don’t know that we will. But we’ve been pretty consistent now for 2 or 3 quarters in that high, high 70s, low 80s. And I don’t think it’s going to change as we continue to sign more Medicare Advantage contracts. They are getting more and more comfortable with this as a form of contracting.

Andrew Mok: Great. And maybe just a follow-up. Your capital expenditures increased to $4.5 million in the quarter, which is more than double your typical spend. Can you provide more color on the nature of that and how that’s supposed to track for the balance of the year?

Debbie Stewart: So Andrew, that Q1 purchase was really related to a laptop refresh that we had kind of baked in and we’re expecting, but it’s not going to continue. That trend won’t continue through the rest of the year. So it was really a onetime kind of purchase on our laptops.

Jeffrey Shaner: Great. Great. It was our employees’ feedback. It was one of their highest feedback points for us was they wanted new laptops. So good catch, Andrew, very good catch.

Operator: Our next question comes from the line of Pito Chickering with Deutsche Bank.

Pito Chickering: On PBS, I just want to make sure I understand sort of the economics of what you’ve laid out. You won for Preferred contracts in the first quarter, expect to another 4 during the year. And you’re guiding to, I think, the rate being fairly consistent throughout the year. I mean wouldn’t we see some increase as more preferred come online? And then going back into 2024 on the spread side, it looks like the spread is growing at the same level as the rate. Is that the right way to think about spread going forward is if rates grow at X percent, that spreads should grow at the same level?

Jeffrey Shaner: Yes, great question. Thank you. Yes, I think, one, we’re expecting to receive less state government rate wins. So the preferred payer contracts we are winning are offsetting some of the more moderated state government rate wins that we had received over the last 3 years, which is why we don’t see the rate changing materially. 44%, 43% may go to 44 or 60%, but we don’t see it going to 44 or 45 within the course of the year. And then, yes, I think your thoughts on spread and Matt would say, translate that to gross margin. We think that gross margin will stay in that 28%. Could it touch 28.5%, Sure. Could it be 27.6% or 27.7%, Sure. But we think of that being in the 28% range as well as that spread per hour being somewhere just north of $12.

And again, it will move generally. But yes, we are passing — continue to pass wage through the 4 agreements we signed. We have passed wage. We are in the process of passing rates through to those nurses and caregivers as we speak.

Pito Chickering: Great. And then with 60% of the PDS revenues coming from preferred, I know you’re not giving ’27 guidance at this point, but can you talk about the mechanics of how the annual price increases are set on those preferred contracts? As you think about sort of the out years, kind of how much clarity do you have on what those price increases should be by nature of those preferred contracts have already written?

Jeffrey Shaner: I’d like to reflect that. 10.53 on May 14, you.Sed for 2027 guidance. So that’s impressive. Peter, I think as we laid out earlier this year, we thought 57% of the MCO volumes would go to low to mid-60 percentage points. I think based on what we see today, we would say that, that’s accurate this year, be right in the mid-60s. We’ve said before publicly, we thought this could get to the low to mid-80% at some point in the future. People have asked us what inning are you in? It’s not the first inning, but it’s probably the fifth or sixth inning. We’re probably about halfway through this process. As it relates to PDS specifically, I’d say in home health, we’re still in the early stages of this story and certainly Med Solutions, we’re in the very early stages.

But I think you’ll see that somewhere between 3% to 5% volume shift per year continuing over the next 3 to 5 years. there’s not a lot of large, large volume payers for us to sign in our current market. So we’re down to the very fine minute payers. But it’s also why when we talk — and Chris, he’s sitting in — our Chief Operating Officer next to me, we’ve talked about filling in Ohio and Michigan and West Virginia and Tennessee and Kentucky, filling in some of those additional markets where we have no Medicaid revenue today, no preferred payers. All of that’s new greenfield to us. So as we do think about the next 3 to 5 years, we want to fill in those geographies, which would create new opportunity for us to add brand-new preferred and really just new greenfield for us in the Medicaid space.

And we said before, our payers, our national MCO payers have asked us and are asking us to move into these markets for them.

Pito Chickering: So I guess the follow-up there is just what price increases sort of are baked into these preferred contracts. One of the questions that I keep getting is each quarter, you guys are beating by huge amounts and guys isn’t changing, so the buy side tries to figure out what sort of the true out-year numbers. I guess what percent of your contracts have inflation already built in? And kind of any color on sort of what inflation is built into those contracts?

Jeffrey Shaner: I don’t have the perfect answer the way you asked it other than thank you. Thank you for that comment or the compliment. I think there’s a compliment in there. Other than, Pito, all of our contracts are annual and evergreen. So we’ve not — as we said before, our first preferred payer is still part of the 34 preferred payers today. So we’ve not lost a preferred payer to date. That may change in the future, but not today. Every contract we have is reviewed every year. Matt would even say every quarter, even though they’re not quarterly contracts, but our teams are meeting with the payers quarterly. So the opportunity for rate enhancement and for additional value-based agreements are there in every one of the contracts every year.

We’ve also said before that the value-based agreements take normally between 9 and about 18 months post the point at which we signed the preferred pay agreement, not because we’re not ready, but it just takes the payer time to get comfortable with the fact that they would add on an additional upside bonus to us. So again, the tail on this plays out years in front of us on the value-based side, but very few of our agreements have COLA or cost of living type rate increases built into them. Those are annual conversations that we’re — and by the way, we’re not having those every year with them. We’re having every other year, every third year because the upfront rate they’re paying us is pretty material compared to the Medicaid fee-for-service schedule.

That’s probably the best way I can answer the question.

Operator: Our next question comes from the line of A.J. Rice with UBS.

Albert Rice: First, just maybe on your comment in the prepared remarks, I think you said that caregiver hiring and retention is strong or is solid. Is that — would you say that’s pretty much a function of the rate environment that you’re seeing? Or is there any underlying trend with potential clinician candidates that suggest things are stabilizing or even improving somewhat?

Jeffrey Shaner: I think you hit it right, A.J. It’s being driven by rate and wage, right? The 2 are moving in unison, kind of to Peter’s point, like the $12, how that’s moving in unison as our rate goes up, consistently, our wage is going up. So it’s really a function of continuing to get rate wins, turning that into wage improvements and ultimately hiring and employing more caregivers. I wouldn’t say it’s getting easier. I’d also say it’s not getting harder over the last 6 months. We haven’t had — other than the weather type stuff, we’ve not had a position where we felt like nurse hiring or family caregiver hiring has gotten harder. It’s been pretty consistent. But the wins, the growth, Matt talked about high single-digit PDS growth, organic growth, that’s tied to the rate and wage pass-through. So think about accelerated wages tied to accelerated rate.

Albert Rice: Okay. I wanted to just ask you a minute about Medical Solutions. You’re saying, I think, guiding to mid-single-digit growth near term, but double digit by year-end. What specifically is going to drive that acceleration? And is that — are you able to cross-sell on these new — these 2 acquisitions? Is that part of the dynamic that will drive more volume into Med Solutions? And I think you said also gross margins have stabilized there. Is that stable and that’s sort of where we’re going to be for a while? Or is there improvement potential in Med Solutions as well?

Matt Buckhalter: Yes, A.J., on the gross margin side of this, I would tell you that the 44% range is kind of right down the middle where we expect it to be. And really, what you’re already seeing in the Medical Solutions division in Q4 and Q1 of this year is the benefits from the modernization efforts already taken hold. So as we move through 2026, you’ve seen us jump up from mid-single digits to the higher end of that at 7.4%. You’ll see that continuing to grow to that high single digits, low double digits in the back half of this year. But it’s really just the completion of our modernization efforts. To your point, there’s a great cross-sell opportunity in between our businesses themselves and bringing in the Family First acquisition gives another cross-sell opportunity for that division at the same time.

But organic growth is something that this team is ready to start driving. And I would tell you, they’ve been felt left out the past couple of quarters, and they proved it in Q4 and Q1 so far.

Jeffrey Shaner: And A.J., Matt said well, automation and AI is a big part of this. We get 5,000 or 6,000 eFaxes a week for this business. So the more we can use automation and AI to pull through the referral process and the follow-up physician orders and things that come with it, the more we can pull through growth. And so we are very pleased with 4.5%. This is all organic, right? This is truly organic. And I think we’ll see that continue to tick up. Is 10% a little bit aggressive by Q4? Probably, but we think high single digits by Q4 and probably low double digits by the time we get into first half of next year.

Operator: Our next question comes from the line of Jared Haase with William Blair.

Jared Haase: I’ll just stick to one here as I realize we’re getting to the end of the call. But I just wanted to double-click on the home health side. Again, nice to see the growth there. You pointed to clinical offerings and success on that front. And I think that’s been kind of consistent with your commentary in the last few quarters. I was just wondering if there’s any more, I guess, color or data points you could share to sort of illustrate what you mean by the investment that you’ve made in terms of clinical outcomes since that really seems to be underpinning the operational performance here. And I guess to be clear, when you talk about clinical investment, is that more kind of in areas around Star ratings performance? Or is that maybe developing, I guess, specific programs based on the needs of patients and referral partners?

Jeffrey Shaner: Yes. Great question, Jared. Thank you. Yes, I’ll start with TPS scores, right? So we’re now into the second full year of scoring on TPS scores. I think we mentioned last year, we were a net winner, net benefit. So we received value-based payments from Medicare because of our 5-star rankings. We are also on pace to be a net-net winner this year in TPS ranking. So your 5-star scoring tells you based on your value-based payments, whether you net win or net loser. So effectively, we have mitigated some of the rate decrease in the last 18 months in home health through our TPS scores. We also have no 3-star agencies, both in home health or hospice. We — I think on average, we’re 4.5 stars on home health and our 21 out of 22 hospice locations are 5-star branches.

So we have phenomenal performance. The team has rolled out a cardio program that was CAP approved. So they’ve invested in actually — excuse me, clinical programs and protocols that we’re out selling and outsourcing. So I think net takeaway is the team has done a really, really good job of providing great outcomes, great patient satisfaction in both businesses. And we’ve learned over time, you can’t have a great financial outcome without a great clinical outcome. You also shouldn’t have a great clinical outcome without a good financial outcome. And so I think the Ying and Yang in our HHH business are working right now, great growth and great clinical outcomes.

Operator: And our next question comes from the line of Grayson McAlister with Truist Securities.

Grayson Joshua McAlister: This is Grayson on for Dave. Just one for me as well. I wanted to follow up on capital allocation. Obviously, some work left around Family First. But past that, how are you thinking about the potential for tuck-ins in home health, just given the regulatory backdrop versus something like adding density in one of those PE states that you’ve called out like in Ohio or Tennessee. And just following on, still right to think about leverage somewhere in that 4x level ending the year? That would be it for me.

Matt Buckhalter: Perfect. Grace. Yes, I think I’ll start off on cash flow and then this on leverage here for you. So really, really pleased with the teams start to 2026. Our team continues to position Aveanna as a strong free cash flow generator. 2025, obviously, monumental year for us. We had about $130 million, $131 million of free cash flow, reflecting not only a commitment to clinical quality, but also cash collections in there as well. We expect this positive momentum to continue into Q1 and the rest of 2026 and the cash flow generation to be pretty consistent with what you saw in 2025. On the leverage side of it, I couldn’t be more proud of what we’ve been able to accomplish in the last few years on our leverage. We’ve done a lot.

We’ve taken this down from double digits down to 3.8x net leverage here on an LTM basis in Q1. Certainly, not done either, still some more work to do. But we’ll continue to be — grow this company not only organically but also inorganically while continuing to keep leverage at top of mind. We want to be highly sensitive to that and highly aware of it. So there’s still some free cash flow that we can do for small tuck-in acquisitions. But beyond Family First this year, probably nothing monumental.

Jeffrey Shaner: And Matt, I think that’s well said, part of the goal, Grayson, is to do both, is to grow the company through tuck-ins, but also to continue to delever. I know Matt and the team are very proud of, Matt and Debbie, lowering leverage almost 0.25 point in the quarter, close to 3.8x was a continued great movement. We’re not done in that avenue. And as Matt said, our goal is to get down to at or below 3x leverage and to continue to grow the company, and we think we can do both.

Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to Jeff Shaner for closing remarks.

Jeffrey Shaner: Awesome. Thank you, operator, and thank you so much for your interest in our company and our Aveanna story, and we look forward to catching up with you after the end of Q2 in August. Thank you. Have a great day.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.