Aveanna Healthcare Holdings Inc. Common Stock 2026 Q2 Earnings Call

Good morning, and welcome to Aveanna's second 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? 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 Q2 results and how we are moving Aveanna forward in 2026. My initial comments will briefly highlight our second 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 Family First integration, how we are progressing with our 2026 strategic initiatives, our enhanced 2026 guidance, and updated long-term growth outlook before turning the call over to Matt. Let's move to the highlights for the second quarter. Revenue for the second quarter was approximately $670 million, representing a 13.7% increase over the prior year period.

Second quarter adjusted EBITDA was $95.4 million, representing an 8% 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 believed 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 Q2 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 three 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 three of our business segments. Since our first quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and preferred 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 wanted to expand our strong advocacy presence with both federal and state legislatures across our national footprint and enhancing our value proposition.

Second, we expected to achieve mid-single-digit state rate enhancements. As of Q2, we have achieved seven state rate enhancements and believe we will add a few additional states as they complete their budget process in Q3. Most importantly, after four years of dedicated advocacy and focus on the state of California, I am proud to announce the 2027 California budget includes a significant investment in pediatric private duty nursing rates effective January 1st, 2027. While we are awaiting the final details from the Medi-Cal department, we believe the investment represents a meaningful increase in California's private duty nursing rates. This achievement on behalf of the California medically fragile pediatric patients and families is monumental in nature, as the private duty nursing rates, and as a result, the nursing wages, had fallen far behind the competitive market in California.

We believe the California PDN rate increase will improve our ability to attract and retain nurses, as well as support efficient discharges from the children's hospitals. We plan to proactively address nurse wages this fall in anticipation of the rate increase on January 1st, 2027. As I reflect on the significance of the California private duty nursing rate increase, I think it's important to comment on the success of our government affairs strategy. Roughly four years ago, we set out on a deliberate strategy to address the reimbursement rates and caregiver wages in all 32 Private Duty Services states in which we operate. California represented the final state in our goal to achieve enhanced PDN rates and caregiver wages across our national footprint.

While our work is never done, we believe the disconnect that existed between reimbursement rates and caregiver wages has finally been addressed in every Aveanna state, and we can now focus on cost of living and inflation type enhancement with our government partners. I am proud of our government affairs teams and the advocacy work of our employees, caregivers, patients, and families that have made this a reality. Now moving on to our Private Duty Services preferred payer initiatives. Our preferred payer goal for 2026 was to achieve 8 additional agreements for a total of 38 preferred payers. We signed 3 additional preferred payer agreements in Q2 and now have 37 agreements in total. We expect to exceed our 2026 Private Duty Services preferred payer goal of 38 as we navigate the second half of 2026.

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 for our payer partners. Additionally, our Q2 preferred payer agreements accounted for approximately 64% of our total Private Duty Services MCO volumes, up from 60% at the end of Q1. 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 was to maintain our episodic mix above 75%, while returning to a more normalized growth rate. I am pleased to report in Q2, our episodic mix was approximately 81%, and our total episodic volume growth was 18.5% compared with the prior year period.

Further, we exited 2025 with 45 preferred payer agreements in Home Health and expected to add 5 agreements in 2026 for a total of 50. I am pleased to report in Q2, we have achieved our goal of 50 preferred payers year to date. 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 admissions and episodes, as well as improvement in our clinical and financial outcomes. Also, we are pleased with CMS's proposed Home Health rule published on July 1st, as well as the final Hospice rule published on August 6th. The 2027 proposed Home Health rate shows positive movement by CMS, aligned with a strong collaboration from the National Alliance for Care at Home.

While there still is work to be done addressing the temporary adjustment and its impact on the annual Home Health rate, we have come a long way as an industry. We believe the stability of the Home Health and Hospice rates are important as we continue to meet the increasing demand for America's aging population, cared for in the comfort of their home. 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 and expect that number to grow to 25 by the end of 2026. As of Q2, we have a total of 20 preferred payer agreements.

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 Q2 volume growth of approximately 95,000 unique patients served, or positive 4.4% over the prior year period. As we think about Medical Solutions revenue growth in 2026, I still expect us to remain in the high single digits for the next few quarters and then return to double-digit growth by the beginning of 2027. 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.