Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) continues to struggle just over a year and a half after entering the public market.
Despite that, its leaders continue to believe in the home health and hospice business, and where it can take them in the future.
“Although Q3 was a difficult quarter for a home health and hospice segment, we firmly believe in this business and its long-term value proposition,” Aveanna COO Jeff Shaner said during the company’s earnings call Thursday. “We have an established home health and hospice platform, poised for growth, that is focused on delivering value through sound operational management and delivering excellence in patient care.”
There were at least three reasons the company struggled in the quarter, according to the company’s leaders. The first was consolidating four operating systems to Homecare Homebase. The second was higher-than-expected adjustments in revenue reserves. The third was higher costs associated with lower revenues.
Another reason was its commitment to value-based care, which could pay long-term dividends while dragging down near-term results.
“Aveanna is a leader in value-based care, and while we’re confident that these decisions are the right long-term strategy for the company, we can see a short-term effect within home health and hospice,” CEO Tony Strange said. “Lower than expected volumes [were a main factor] as Homecare Homebase was rolled out to all 91 branches. While we completed the install in Q2 with little disruption, as we began to implement the discipline policies associated with Homecare Homebase, we saw a decline both in new admissions and recertifications.”
Based in Atlanta, Aveanna delivers home health, private-duty services and hospice care to a broad range of patients in 30 states.
Overall revenue was up 7.7% year over year, $443 million compared to $411.3 million. Home health and hospice saw a 6.1% increase, $49.9 million compared to $47 million a year ago.
Aveanna’s home health and hospice business took a hit in Florida in particular, Strange said.
However, now that Homecare Homebase has been implemented at all of its locations, Aveanna expects volume improvements across the board for Q4 and beyond.
“In September, we eliminated approximately $6.5 million of annualized overhead,” Shaner said. “This important outcome was achieved, in large part, for the long-term benefit of Homecare Homebase and establishing one set of standard practices and policies. It’s been two years and four acquisitions since we re-entered the home health and hospice business, and I’m pleased to have all the company integrations and system implementations now behind us.”
Despite home health admissions falling by 2.6%, Shaner reiterated that it is not a demand issue.
“We saw it’s not a demand issue. I think it’s really just a focus issue,” Shaner said. “I don’t blame our lack of admissions in the summer on Homecare Homebase, it was just the distress of moving four companies to one. We’ve been heads down on the Homecare Homebase implementation for almost a year, and I think it’s just been a distraction for the clinicians, the branch teams and the sales teams.”
The important thing now is that Aveanna has one operating platform for its home health and hospice segment.
“Getting that team to now be on one focus, one strategy and one set of systems has been a big deal to us,” Shaner said. “We feel confident. We have great trends going into Q4. We’re looking into Q1 [2023] to really get back to about 1,000 admissions per week. And maintaining that episodic mix at north of 60% is a big deal.”
As it stands now, Aveanna is averaging about 900 admissions per week, Shaner said. At its lowest in the middle of the summer, that number got down to 800.
For context: 1,000 home health admissions per week equate to Aveanna sustaining organic growth rates in the 7% to 8% range, year over year, Shaner said.
Another silver lining for Aveanna is that after about six quarters of very choppy workforce trends, the company is finally seeing some positive outcomes in recruitment and retention.
“As difficult a year as 2022 has been for us, I think you’ll hear optimism in our voices related to our nursing hiring and retention in our PDS segment and in our home health and hospice segment,” Shaner said. “Over the last 90 days, we have finally seen some positive hiring and retention metrics in our core nursing trends — specifically in our private-duty services segment.”
Despite some of the troubling figures, Strange is confident that Aveanna’s home health segment will pick up sooner rather than later.
“We expect this business to grow in the high-single digits year after year and continue to produce gross margins in the high 40s to 50%,” Strange said. “While it still represents a small portion of our overall revenue, we have continued to see momentum in moving our capacity toward payers that value the role that home care can play in reducing overall health care costs.”
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