Aveanna Healthcare Holdings, Inc.’s (NASDAQ: AVAH) hospice and home health segments saw small jumps in the third quarter, but these lagged behind the company’s growth targets.
The end of this year’s Q1 marked Aveanna’s first year as a publicly traded organization. Founded in 2017, the company launched a $458.8 million initial public offering (IPO) last April.
The IPO occurred during a tumultuous era in health care, with providers across the continuum still reeling from the pandemic and worsened workforce pressures.
“Although disappointed with our Q3 home health and hospice results, we firmly believe in the fundamentals of both businesses, and our home health and hospice leadership team’s ability to generate sustained growth, positive clinical outcomes, improved profitability, and cash collections moving forward,” Aveanna CFO Jeff Shaner said in an earnings call.
Atlanta, Georgia-headquartered Aveanna operates more than 300 locations in 33 states, providing care to upwards of 400,000 adults and children annually. Its services include home health, hospice, private duty services and personal care. The company also provides medical solutions and durable medical equipment.
The company saw modest revenue growth of $49.9 million in its hospice and home health segments during Q3, a rise of $2.9 million compared to the same period last year.
Aveanna’s private duty segment fared better than its home health and hospice lines, seeing a $28.5 million increase since the prior year’s period.
Company-wide revenue reached $440 million during Q3, a 7.7% rise from $411.3 the same period last year, according to its third quarter earnings report.
This “fell below” the company’s expectations, with its” biggest issues driven by home health and hospice” headwinds, according to CEO Tony Strange.
The company anticipates a rebound in home health and hospice results for the fourth quarter and in Q1 2023, Aveanna executives stated.
“Through Q4, our home health and hospice revenue should rebound back into the $54 [million] to $56 million range,” Strange said during the earnings call. “With our home health and hospice significantly improving in our revenue reserve, getting back down below 5% our Q4 gross margin should normalize in the 45% to 47% range.”
Despite the headwinds, home health and hospice acquisitions have been a key driver of growth. This includes the company’s December 2021 $345 million purchase of Comfort Care Home Health, which added 31 locations in Alabama and Tennessee to Aveanna’s footprint.
The Comfort Care deal, and forthcoming transactions in the pipeline, represent “the biggest impact” on revenue strides in these segments, Strange said.
The company also expects favorable demographics to accelerate growth in hospice and home health.
“We feel good about the future of our home health and hospice business,” said Strange. “There are 10,000 Americans turning 65 every day. Home health and hospice provides a cost-effective alternative to rising health care costs. We expect this business to grow in the high-single digits year after year, and continue to produce gross margins in the high 40% to 50%.”
But the company has “work to do” in order for these segments to rebound, according to Shaner.
“Although Q3 was a difficult quarter for our home health and hospice segment, we firmly believe in this business and its long-term value proposition,” Shaner said. “We have an established home health and hospice platform poised for growth and focused on delivering value through sound operational management and delivering excellence in patient care.”
Some of the segment’s growing pains included organization-wide implementation of new operating systems.
The company in Q3 completed its conversion in collaboration with Homecare Homebase, slimming from four operating systems to one across all locations. This included transitioning electronic medical record and operational systems in its newly acquired companies as well.
These initiatives impacted patient admission conversions,, though the company has seen improvement thus far in Q4, according to Shaner.
Total home health and hospice admissions reached 11,300 during the third quarter, a dip from 11,600 the previous year.
“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 in Q3,” said Strange.
Ultimately the return on investment in technology is anticipated to create operational efficiencies and enhance Aveanna’s data analytic capabilities across the board, he added.
Initial system integration caused operational strain as staff underwent training, according to Shaner. The company made a “strategic decision” to direct 100% of its home health and hospice teams’ focus towards implementing the Homecare Homebase system and understanding the process improvements it can drive, he said.
“This necessary change was made to align our teams with our go forward systems, processes and protocols,” Shaner said.
A difficult labor and inflationary environment have limited Aveanna’s progress on recruitment and retention, but the company remains optimistic about its ability to build up its clinical workforce, Shaner said.
“What’s been a very difficult year, and really following a difficult 2021, of almost six quarters in a row in a very, very choppy [labor] environment,” Shaner said. “Over the last 90 days, we have finally seen some positive both hiring and retention metrics in our core nursing trends.”
Sustaining and growing staffing resources hinges in part on the company’s ability to offer higher wages, which ties closely to reimbursement across all its business lines, Strange indicated.
“From a macro perspective, when we adjust rates in such a way that we can pay clinicians market wages, then we can move the ball on volume,” Strange said. “People want to come to work, we’ve just got to position ourselves in a way that we can pay them competitive wages. If we can do that, we can get the nurses. I can see a runway from here where we can get those nurses engaged.”