Not so long ago, in-home care providers like Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) had to basically beg their payers for rate increases or additional resources.
“In the old days, we would literally be calling the payer’s rep, you know, begging for another $2 an hour to get a family home,” Aveanna COO Jeff Shaner said during the company’s third-quarter earnings call Tuesday.
Tables have started to turn, however, with demand for home health and home care services at an all-time high.
“Today, that has flipped,” Shaner continued, “to where the head of managed Medicaid for large payers is now calling our managed care payer team saying, ‘What will it take? What’s the number per hour?’”
With locations in 31 states, the Atlanta-based Aveanna Healthcare offers a range of home health, hospice and home care services for both pediatric and adult patients. The company, which went public earlier this year, additionally runs a case management business and offers respite services.
The skyrocketing demand and a greater appreciation from payers present enormous upside for Aveanna and its industry peers. But a choppy labor market is somewhat limiting that upside and creating near-term turbulence, according to Aveanna CEO Tony Strange.
“The demand for home-based services is at an all-time high,” Strange said on the call. “Both our private-duty services and our home health and hospice segments continue to experience demand that exceeds our supply. And we’re not alone.”
Aveanna has invested in a number of strategies to combat labor-supply challenges, including a return-to-work program that incentivizes nurses and caregivers to rejoin Aveanna after leaving. The company has likewise implemented new tools for the application, onboarding and training processes, plus a daily-pay option for existing employees.
“It will take all of these efforts — and then some — to continue the positive momentum and get back to pre-COVID labor trends,” Shaner said.
Aveanna will need to continue adding to its recruiting and retention strategies in months to come, as the overall business is in the midst of a massive expansion, particularly in the home health and hospice space.
‘Deal flow has not slowed’
Aveanna’s total revenue was $411.3 million in Q3 2021, a 12.4% increase compared to $366 million in the prior year’s third quarter. The increase, according to the company, was primarily driven by significant growth in its home health and hospice segment.
Specifically, home health and hospice revenue checked in at about $47 million this quarter, a more than 900% increase compared to $4.7 million in Q3 2020. Much of that is linked to inorganic growth, with Aveanna completing six transactions in the second half of last year.
Aveanna, traditionally a company that operated in the pediatric home health space, outlined plans to aggressively beef up its home health capabilities when filing the paperwork to go public.
“It has obviously been a very, very busy six months,” Executive Chairman Rod Windley said on the call.
Aveanna typically targets between $150 million and $200 million in acquired revenue each year, but the provider has already passed the $290 million mark in 2021. Its most recent moves include the planned purchases of Comfort Care Home Health and Accredited Home Care.
Comfort Care is a roughly $100 million home health and hospice business with 31 locations across Alabama and Tennessee, while Accredited is a provider of attendant services in the Southern California market with roughly $110 million in annual revenue.
“Each of the transactions [came in] highly competitive environments,” Windley said. “We are fortunate to have them under contract. That deal flow has not slowed down in either segment. The strategic community along with private equity continues to make every transaction highly competitive.”
Aveanna is acquiring Comfort Care for a base purchase price of $345 million, though some of that will be offset by $55 million in tax benefits. It’s acquiring Accredited for a base purchase price of $180 million, which could be adjusted to as much as $225 million depending on volumes at the time the deal is closed.
“Originally, we contemplated using a combination of debt and equity to fund the M&A growth while maintaining net leverage around 4.5 to 5 times,” Strange said. “However, given the depressed values in home care stocks, we have decided to fund both of these transactions with debt, which will raise our net leverage profile to approximately 6 times.”
Aveanna’s pipeline continues to be active with “numerous” home health, hospice and private-duty services opportunities it is actively exploring, according to the company.
Near-term labor pains
Again, on a long-term basis, Aveanna executives are extremely bullish on their company’s future.
“We believe that we are experiencing a shift in how home care is viewed for the first time in many years — and possibly ever,” Strange said. “State and federal policymakers, legislators and private payers are all recognizing the valuable role that home care can play in affecting clinical outcomes while reducing overall health care costs.”
Yet the near-term labor pains are difficult to look past, and Strange candidly noted that he’s not expecting “any miraculous recovery in the labor markets.”
“We’re living in an environment that has been disrupted by the pandemic,” he explained. “COVID-19, vaccinations and vaccination mandates have all played a role in disrupting business as we know it. The world in general — and health care, specifically — is being affected by what we refer to as 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 will find yourself in a world where 3 million Americans have left the workforce.”
Even so, Aveanna is seeing some signs of labor relief.
COVID-19 cases among employees, for example, have gone down for 12 consecutive weeks. Over the past eight weeks, Aveanna has likewise seen improvements in key metrics like new hires, caregivers on payroll and hours worked.
“We, along with every other health care provider, are engaged in hand-to-hand combat over every single nurse and caregiver,” Strange said.
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