Aveanna Surpasses M&A Targets, But ‘Choppy’ Job Market Remains Tough

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Not so long ago, home care providers like Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) essentially had to beg their payers for rate increases or additional resources.

“We used to literally call the payer’s rep, you know, to beg an extra $ 2 an hour to get a family home,” Aveanna COO Jeff Shaner said on the call. to the company’s third quarter results on Tuesday.

However, the tables began to turn around, with demand for health and home care services reaching an all-time high.

“Today that has shifted,” Shaner continued, “to the point where the head of Medicaid managed for high payers is now calling our managed care payers team saying,“ What will it take? What is the number per hour? ‘ “

With locations in 31 states, Atlanta-based Aveanna Healthcare offers a range of home health, palliative care and home care services for pediatric and adult patients. The company, which went public earlier this year, additionally operates a case management business and provides respite services.

Soaring demand and greater appreciation from payers is a huge benefit to Aveanna and her industry peers. But a turbulent job market is limiting that rise somewhat and creating short-term turbulence, according to Tony Strange, CEO of Aveanna.

“The demand for home services is at an all time high,” Strange said on the call. “Our private services and our home and palliative care segments continue to experience demand that exceeds our supply. And we are not alone.

Aveanna has invested in a number of strategies to tackle labor supply challenges, including a return to work program that encourages nurses and caregivers to join Aveanna after she leaves. The company also implemented new tools for the application, onboarding and training processes, as well as a daily compensation option for existing employees.

“It will take all of these efforts – and then some – to continue the positive momentum and return to pre-COVID work trends,” Shaner said.

Aveanna will need to continue adding to its recruiting and retention strategies in the coming months as the global business is in the midst of massive expansion, particularly in the home and hospice care space.

“The flow of transactions has not slowed down”

Aveanna’s total revenue was $ 411.3 million in the third quarter of 2021, an increase of 12.4% from $ 366 million in the third quarter of the previous year. The increase, according to the company, is mainly due to significant growth in its home care and palliative care segment.

Specifically, home and palliative care revenue was about $ 47 million this quarter, an increase of over 900% from $ 4.7 million in the third quarter of 2020. A large portion of this is linked to inorganic growth, with Aveanna having completed six transactions in the second half of the past year.

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Aveanna, traditionally a company that operated in the pediatric home health field, presented plans to aggressively build its home health capabilities when filing documents to make them public.

“It has obviously been a very, very busy six months,” Executive Chairman Rod Windley said on the call.

Aveanna typically targets $ 150 million to $ 200 million in earned revenue each year, but the provider has already crossed the $ 290 million mark in 2021. Her most recent actions include planned purchases of Comfort Care Home Health and Accredited Home Care .

Comfort Care is an approximately $ 100 million home and hospice care company with 31 locations in Alabama and Tennessee, while Accredited is an ancillary service provider in the Southern California market with a number of annual business of approximately $ 110 million.

“Each of the operations [came in] highly competitive environments, ”said Windley. “We are lucky to have them under contract. This flow of business has not slowed down in either segment. The strategic community as well as the private equity continue to make every transaction highly competitive. “

Aveanna acquires Comfort Care for a base purchase price of $ 345 million, though part of that is offset by $ 55 million in tax benefits. It is acquiring Accredited for a base purchase price of $ 180 million, which could be adjusted up to $ 225 million depending on volumes at the time of closing.

“We originally envisioned using a combination of debt and equity to fund M&A growth while maintaining around 4.5 to 5 times net leverage,” Strange said. “However, given the depressed values ​​of home care stocks, we have decided to fund these two transactions with debt, which will increase our net debt profile to approximately 6 times.”

Aveanna’s pipeline continues to be active with “many” home health, palliative care and private service opportunities that it is actively exploring, according to the company.

Short-term labor pains

Again, in the long term, Aveanna executives are extremely optimistic about the future of their business.

“We believe we are experiencing a shift in the way home care is viewed for the first time in many years – and maybe never,” Strange said. “State and federal policymakers, lawmakers and private payers all recognize the valuable role that home care can play in affecting clinical outcomes while lowering overall healthcare costs. “

Still, short-term labor pains are hard to look past, and Strange frankly noted that he doesn’t expect “a miraculous recovery in labor markets.”

“We live in an environment that has been disrupted by the pandemic,” he explained. “COVID-19, vaccinations and vaccination warrants have all played a role in disrupting business as we know it. The world in general – and healthcare in particular – is affected by what we call a COVID-19 hangover. Magnify that with the political and social issues surrounding vaccinations, which are further complicated by a wide variety of mandates, and you’ll find yourself in a world where 3 million Americans have left the workforce.

Despite this, Aveanna sees signs of relief from labor.

COVID-19 cases among employees, for example, have declined for 12 straight weeks. Over the past eight weeks, Aveanna has also seen improvements in key metrics such as new hires, payroll caregivers and hours worked.

“We, along with all other health care providers, are engaged in hand-to-hand combat with every nurse and caregiver,” Strange said.

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