Aveanna Healthcare Holdings Inc Stock

All right. Thank you again for joining us. Sorry for running a few minutes late here. Very pleased to have CEO and CFO from Aveanna Healthcare. For anyone that doesn't know about this company, I just want to point out that this thing is up 1,700% since you took ownership in end of 2022, started off as a sub-1 distressed equity, almost not making payroll, here we are 14x leverage. I'll get into arguably too low. This big move at 1,700%, that's not so bad. This move has been basically been primarily moving into preferred networks, which structurally involved sort of your entire company. So I guess, can you just talk about the preferred network strategy in each of the segments? And where are we in terms of innings for each segment as you think about this over a 1-, 2-, 3-, 5-year window? And when is it sort of fully penetrated and start growing typically at more "market growth?"

Sounds great. And I want to take the compliment because you were one of the people who pointed out how bad we sucked on the way down from $10 back to $1. So I just want to say thank you, Pito, for giving us some kudos on the other side of it, as you certainly brought up some of the realities to us back in 2021, 2022. But now as you said, Pito, we've been on a multiyear journey. Matt and I and Debbie Stewart, our Chief Accounting Officer, all kind of took our roles in early 2023. Coming out of COVID, we absolutely needed a strategy that dealt with the lack of caregiver capacity in our businesses, obviously, with the hyper wages that all happened through the COVID period.

We're in year 4 now of our preferred payer strategy, Government Affairs strategy, both are continuing to work incredibly well. As you talked about in each one of our businesses, we underpin our growth and where our clinicians are focused every day is to know where every one of our clinicians is going, why they're going there. Not just the patients they're seeing, but who is the payer of the patients they're seeing. And is that payer in our preferred network and it's really the allocation of our clinical capacity.

So start with our largest division, our Private Duty Services division, 80% of our revenue is in Private Duty Services. It's our most mature preferred payer market or segment. At the end of Q2, we had 37 preferred payer arrangements, roughly 64% of our total volumes are in one of those arrangements, that's up from 57% at the beginning of the year. So nice movement year-to-date. And really 7 preferred payer wins in 2026 to date and a couple more that we plan to announce in the second half of the year. So we're going to...

Answer right now if you want, okay. This is being webcast.

This is live, we're live here. I'll give out the winning lottery ticket here in a few minutes. But really going to end up being a great year for PDS. I'm sure we're going to get into California. We're going to talk about some of the Government Affairs wins as well, but really continue to be a great momentum with our PDS preferred payers. They want more. Even our very first preferred payer is still with us today. As a matter of fact, I think the CEO was here this morning. You guys were talking to her. So they've been a great preferred payer for us. They're still with us. They still want more capacity from us. So our very first preferred payer, we're about 55% of their census in the specific state. We signed that first contract 4 years ago. And they still want us to take more. They want more nurses. They want more of our capacity because it truly is bearing the cost -- total cost of care for them. So excited about where PDS goes.

Flipping over quickly to Home Health & Hospice. Also really excited about where our Home Health & Hospice teams are. We have 50 preferred payer agreements. Think of those as episodic agreements, both Medicare and Medicare Advantage, but all episodic in nature. 81% of our business is aligned with an episodic contract in home health. That is -- we believe it's industry-leading, certainly to the higher end of the industry, and we're growing 15%, 15.5% year-over-year organically in the home health business. Really, really proud of that.

Lastly but not least, we've just finished the Medical Solutions modernization in 2025, coming in early '26, and we've got our first 20 preferred payers identified. We're really working that preferred payer progress -- process in the Med Solutions. It's still -- Matt and I would tell you it's in its infancy stages, but proud to be bringing the preferred payer strategy to Med Solutions as well.

Yes. So one of the biggest pushbacks in the last couple of years has been your conservatism, which is -- used to be whipped over there. And if anyone's bored, I take a look at Bloomberg's surprise in terms of Street numbers versus actual numbers and you're beating by 80% or 50%, it's maybe guiding the Street to be too low. I guess if I think about growth in '26 and growth in '27, you guys sort of put out sort of long-term growth rates here. I guess, to think about like this -- how much percent of those long-term growth rates are coming from just overall market growth? How much is coming from sort of market share for preferred networks? And how much is that even coming from just simplistically these sort of very sick kids that are stuck in hospitals that don't have actually a way of getting home.

Let me start with why we kind of got to the long term, and then Matt will jump in with the actual growth rates by segment. But you were kind enough at the end of Q1 to remind us how much we beat consensus by and the fact that was too much from your professional experience. So we spent effectively May through the end of July with our Board looking at re-underpinning all of our business units. And really, the key drivers was we were 15 or 16 months into the One Big Beautiful Bill, and we had enough experience now with 32 states -- with 32 Medicaid states. And with the rate wins from '25, we knew what the rate wins for '26 were shaping up to be.

We had just gotten the California news that we had gotten in the California budget for 2027. That was a big deal for us, 32nd state. And then we hired Capstone to underwrite all 50 states, the impact of [OBBBA] and specifically, what was the -- in their best estimation, what would the output be to the pediatric Private Duty Nursing population. We had strong feelings because we're in it every day, but we really needed a market validation. And all of that kind of came together in the summer with -- the One Big Beautiful Bill is real, and it doesn't impact Medicaid. We know that. It does not primarily target pediatric PDN. And if anything, our pediatric PDN population is incredibly well insulated. States are going to continue to invest generally into pediatric PDN care because it's a winning solution for them.

The other thing that was helpful was we had -- we're big betters on home health, adult-directed home health. And we saw in the '25 final rule, what we thought was a turn in the policy of this administration. When we saw the proposed rule come out in July, it validated. We think home health has turned. We think the trough has happened, and we're starting the way back up in home health. That was a nice validation for us to re-underwrite the growth algorithm, as Matt will talk about, really gave us confidence. And probably the best way I can give you is clarity. We felt like we had enough clarity at this point to readdress our long-term growth algorithm.

Yes. And Pito, I think there was a compliment in there somewhere with 14 consecutive quarters of beating and raising guidance.

By huge amounts.

Baby steps...

Average of 40% to 50%, it's been impressive.

We've done a pretty nice job as an organization. But to kind of echo Jeff here a little bit with our long LRP updates that we had. There was a lot of noise that came out with the [OBBBA], and there was quite a bit of noise of just what is this going to mean to us? Is there going to be friendly fire? Are we going to get clipped by this? Is it just going to be across the board cuts to happen in Medicaid? And what we have felt since then is absolutely nothing. We have had no interruption to our authorizations, no interruptions to our started care, no interruptions to our payment cycles. Everything has just been business as usual in the best possible way out there.

And so as we were even a little bit more conservative at the beginning of the year, just as we wanted to see things, how they settled with the [OBBBA] and year-to-date, 7-state rate wins, right on plan with our expectations, 7 additional preferred payers, getting that to 64% of our MCO volumes on preferred payer contracts themselves. All that's just been more underpinning of just, "Hey, guys, this is the lowest cost setting that anybody can be in." We're going to continue the PDS services, and they're not impacted by the [OBBBA]. And so taking our PDS growth range, LRPs from 3.5 -- 3% to 5% from 5% to 6%. And as well as updating our Home Health & Hospice from that 5% to 7% to the 8%, 10%, even on that one, looking at a positive rate environment for the first time in 6 years.

Now that's kind of -- it was nice to see a proposed rule come out and not have parentheses around it for the first time in 5 years. And so we're seeing that be 2.4%, 2.5%. That's our expectation going forward as well. So that gave us confidence to move that up another 2 percentage on our growth rate.

And then even on the Medical Solutions side, we kept that at that 8% to 10% range. Last quarter, we were right around 9%. We expect that to get back to it single digits or high single digits, low double digits here in the next quarter or 2, just as we finish off that modernization effort and put our preferred payer work on that division as well. So a lot of great work that the teams have done thoughtfully over the last few years. You can't do it all at once, focus on one, focus on the next, focus on the next. We've been able to accomplish a lot and get the company to where it is right now.

I know we'll get into M&A later, but also all of the execution in the last 3.5 years has led to -- you've mentioned it, but a significantly improved capital structure, massive deleveraging of the balance sheet, producing very nice free cash flow. So the other thing that we updated in the LRP was really the M&A update of -- we were effectively in the 0% to 2% and we updated that 2% to 4%. We've been above that the last 2 years with Thrive and Family First. My assumption is we'll play on the higher end of that scale, if not above that in the next few years, but we were able to also put an improved capital structure, lean back into M&A in a more material way.

Look, if I have to write -- look at earnings note 3Q of '27, so a year from now, and you guys have another big beat. Basically, it's a different way of asking kind of where could these levels be conservatism? Would it be you keep on driving new preferred contracts, you're driving depth within those contracts? Is it because more states like California reprice their offerings? Or is it just from the SG&A leverage, I don't think you're guiding to a whole lot of margin expansion despite SG&A coming down 140 basis points a year over the last couple of years?

Yes. I would tell you it's growth. I mean growth is going to be the main driver of that one. And we've done a great job, and I imagine we'll get into California here in a little bit. But California was the last state to kind of move 32 for 32, and we can now just compete in every single state that we're in, Pito. Like there was the black sheep over there that we just couldn't do anything with. We couldn't hire caregivers. We couldn't provide good clinical outcomes. Families are upset, kids are stuck in the hospital.

With the 1/1 go-live of that one, that will help California. And now in every single state, we're in 39 states, 32 in the PDS division, we can compete. It's never easy. It's never going to be easy. Caregivers are in high demand. There's a lack of caregivers out there. It's also the reason why the preferred payer strategy also works in there. But I think if you -- if there is a beat that comes out there, it will continue to be on the volume side of things, less on the rate side, just because there continues to be that pent-up demand for our services.

I would also say just more of the same. So a year from now, with the exception of a little bit more meaningful M&A, I would tell you more of the same that we're going to continue doing the things that have been incredibly successful for the last 3.5 years, being very effective and efficient in the back office, to your point, getting SG&A leverage. We're moving some of our AI and automation from the back office billing collections to the front-facing and scheduling and some other dictation type exercises that are actually in the branch in the homes that will bring some efficiencies to us in the future out years in the branches. But continuing to drive the preferred payer strategy.

I agree with Matt. We've solved the 32 states. We'll be back at the table with 8 or 10 additional states next year, looking for COLA level adjustments, meaning anywhere from 2% to, I'd call it, 10%. And we have about 1/3 of our states every year that we're winning some form of rate. But I think at this point, those are going to be smaller rate enhancements. And we're okay with that. That works in our growth algorithm. And I just think doubling down on home health, I mean we are living so far above what the industry is living today from a growth standpoint and margin and clinical outcomes. We need to double down on that business with our team.

Okay. So California, obviously, pretty big sort of shift there. And frankly, I'm a little amazed that it came through in the economic savings, the state is so high. You guys have talked about sort of $10 million. We modeled sort of like low 20s. As you think about like the timing of sort of how California comes in, the size of California. And then also I think you talked about sort of giving rates ahead of time and I think about 4Q '26 versus 4Q '27?

Let me start with just the work that was done, and then Matt will talk about the wage pass-through side of it. But to your point, we're 5 years into advocating and lobbying for this rate increase. We've had a 40% -- there's one PDN rate in the entire state, which is simplistic, doesn't necessarily make sense for the wage metrics of the state, but one PDN rate of $44.12, we have asked for a 40% -- we -- the industry has been asking for a 40% PDN rate increase now for almost 5 years.

I think part of the story is just how if you stay at the table, you keep talking, you keep advocating. We don't leave states when we don't get rate increases, right? We stay at the table, we fight for our families. And so I think there's a story here of like just staying at it, being committed to the outcome to these families. And ultimately, the last 4.5 years, our California business was just slowly dying on the vine with no rate lift, very, very few MCO opportunities in the state. Most of our children are still on the Medicare program.

The business went from relevant 5 years ago, last rate increase was 8.5 years ago, to irrelevant or un-relevant for our business model in '25 and '26. So as the company has been accelerating and growing, California is slowly dying behind the scenes. Clearly, that's about to change in a material way. So we're excited to be able to put California back on the map, be relevant. We're one of the two largest providers in the state. We cover the entire state, which is great. So the infrastructure is there to be able to go execute. Matt, Matt will tell us more about our Q4 plans and how we grow in 2027.

Yes, really excited for our patients and our families, most importantly. I mean it's been 8 years, 8.5 years since our last rate increase there. And in that time period, COVID happened, hyperinflation, nurse caregiver inflation. It's been a tough, tough environment for the last 5 years out there.

In Q4, we're actually going to front run this wage pass-through a little bit. And so we're going to invest a couple of million dollars in Q4 to continue the ramp-up period. And it's going to -- think about it in kind of 3 stages, Pito. The first stage is our current caregivers who are working for us at this time and maybe they were at their second job because they had to go work a different position that was paying more in an assisted living facility or a skilled nursing facility. But when we're able to move their wages $5 an hour, $6 an hour, $7 an hour, they're going to want to pick up more shifts for us. And that will focus on our patients themselves and getting their fill rates up from their authorized hours.

Next step is going to be the caregivers who used to work for us. They love home care, they love the one-on-one patient experience. They love the patients, the families. They love also at being 2.5 miles down the road from them instead of driving 25 miles into the city to provide care. Those are going to be the next ones that we pull over. They're already up on compliance. They probably have open shifts on the families that they previously worked. And they also once again love that home care. We can get them reengaged relatively quickly. Those are probably your 2 first big jumps that happen on a volume standpoint itself. The next one is...

And we'll do that with our cash flow, our expense, our risk. It's the right thing to do.

It's a good investment.

And think of -- I think we've talked publicly, think of what should be between an 80% and 85% ideal fill rate and California is somewhere closer to 50% or sub-50% over the last 4 years. And to Matt's point, our goal is to reconnect that with the first 2 groups that you just talked about over the next 3 to 6 months. As soon as the rate table is published by the department -- Medicare department, we'll start that pass-through with the intention to start to reconnect quickly 50%, 55% to 60% eventually back to 80%, 85%, all in that set up, all with our current patients.

Yes. And the next step will be just new hires, new patients. So obviously, the NICUs/PICUs are full in California. There's 10 children hospitals in the state itself. So how do we get those beds empty? How do we get those patients home that have been sitting there for 6 months post discharge date, 8 months post discharge date who just don't have nursing care. And that's the reason the state made the investment because those are the hard dollars that they can recognize very quickly and the hard savings they can recognize very quickly.

We also don't want to take them home until we take care of our current patient base that have stuck with us the entire time, too. So that will be new caregivers, new hires, new started cares, new admissions. That will take time. So that one -- so the first one will be quicker. The next one will be pretty quick. The next one will take 12, 18, 24 months before you kind of see that actual impact of what this rate is for us. And it's a little bit of the upfront investment that California has to make to get to the savings they desire as well.

We saw this in Georgia 3 years ago. There's 1 children's hospital in Georgia, so it was easier, but it took us about 120 days to pull 50 or so families out of the hospital and get them home for good. California will be that times 10. So I agree with Matt, this is going to take us and our peers probably close to a year to fully bake in getting an efficient stream of patients out of the hospital. If you think about 2 to 4 nurses for every patient we take home from the hospital, you think about how many patients you got to hire to basically empty the chronic medically fragile children and out of 10 children's hospitals in the State of California. So it's a great growth algorithm for '27, but it's also a growth algorithm all the way through '28.

I mean just talk about [indiscernible] rates, you talked about for all those children hospitals in California, and there are other hospitals where kids are being kept [indiscernible] as hospitals. And obviously, with no rate increases for 5 years, can you quantify the number of -- in California of kids, obviously use this for asking the government for money because you're going to quantify. How many kids are currently in California stuck? As I think about your other states that you exist in, how big is that number? And I think about the states you aren't in today, sort of how big is that number? And this is not about like market share. This is just about how many kids sort of in those 3 buckets are still stuck in hospitals. Think about your highest acuity patients.

And by the way, there's no perfect answer because there's no perfect report. But the best we can tell in California, this is information we've shared with the Governor's office and the Head of the Department of Health and Human Services over the last 4 years is 4,000 -- roughly 4,000 children in California should be receiving at-home Private Duty Nursing daily. And in California, they only qualify if they have [a vent or trach] or both. So it's a pretty high level compared to most of those states.

The best we can tell that the number of kids being serviced is somewhere below 3,000. It's hard to tell at this point, but somewhere sub-3,000. In fact, Aveanna and one of our national peers are the 2 largest providers -- only providers that cover the entire state. So think of the opportunity being somewhere around 1,000 or 1,400 kids who just -- whose either parents are providing the care daily or are stuck in a hospital somewhere or have been in some kind of long-term institutional care waiting to get home.

Now that's a lot of children. That would take us normally 5, 6, 7, 8 years to admit that many. Thankfully, we have peers in the market, but it just shows you the unlock in California is that significant. The idea for us to take a couple of hundred of new patients home in the state is a big deal in the course of the year. So I think we see the growth algorithm in California being a 2- to 3-year growth. Eventually, the new rate will run its course over probably a 3-year period. But for the next year to 2 years, we see a clear path to being able to eat into that unlock.

And Matt said it, but I'm going to go back to, if you're a parent of a child who's got to be seen 24 hours a day and you only have like 50 hours of nursing care a week, that's the only time you can sleep. That's the only time you can actually eat or go out of the house. So the idea that you could get -- and your authorization might be up to 24 hours a day, 7 days a week or 168 hours a week. The idea that you get nursing up to that and be a human being again is so monumental for these families. So I say that to say it's a huge deal for the families in California. It's a big deal for Aveanna.

As you know, we've been talking about it for -- I was just done talking to you about it. I mean at some point, I was just -- I was hiding from you about California. So like you, I'm glad to have it now be fact and we'll be more excited as we get into '27 where it's in print, and we're actually out executing.

Outside of that, we've talked about 7 states that we're not in that we want to be in, in Medicaid. Think of -- I'm not picking on the big 10 here, but think of Michigan, Ohio, West Virginia, Kentucky, Tennessee, Missouri, Arkansas, kind of the 7 states we're not in, in PDS that we feel like we need to round out. Our large peers -- payer peers are asking us to go to some of these states, specifically Tennessee and Ohio. So that's a nice fill-in for us. These are large Medicaid systems, large mature Medicaid systems, not the highest PDN rates, but good mature Medicaid systems. So...

Good Medicaid systems, good population density, they have good labor force. We can actually hire as well. And I think I'm going to echo one thing you said, Jeff, our preferred payers are asking us to be there. They're asking us to go to Tennessee. They're asking us to go to Ohio. They've got problems. And so that's an area that we want to focus on getting there sooner than later.

And to your point, all new geography, all new preferred payer opportunities. And for us, a diversification of a Medicaid portfolio makes a ton of sense. We've seen it with the 32 states. We've really benefited from being in that -- and taking 37 -- sorry, 32 closer to 40 long term to us makes a ton of sense.

So I mean, I guess, the same California question is I think about Tennessee and Ohio, what percent of those orders are getting filled just not by you guys, but...

Much more robust. I mean I would tell you, to the best of our knowledge in those 7 states, 6 of the 7 or 7 of 7 had appropriate rate structures where the rate is not broken. So it's not California like. For us, to Matt's point, it's the payer saying, we want you to go there and we have a preferred rate already in place for you, and we want you to help solve some of our problems.

Ohio is -- Michigan and Ohio are probably the 2 biggest Medicaid states in those 7 states we listed. Those are very, very large Medicaid states. So -- but they're just important for us. As we round out our portfolio, you talked about '27. But as we think about '28, '29, '30, us being around a 40-state, 40, 41-state Medicaid provider is probably the ideal. I know you'd like us to be in Montana for personal reasons and maybe Idaho, places like that where the fishing is good and the hunting is good. But -- and eventually, we'll get there.

But right now, we're to some more focus where our partners are asking us to get really.

Fill in the core states and then we can start thinking about hunting.

So Matt, just to bring you on to this, we've seen AR reserve tailwinds for the last 2 consecutive years. Can you keep this going? Like is this -- like how much more is there to do here? And then more in all seriousness, there's been a lot of -- besides rates in preferred networks and EBITDA growth with the cash flows and a lot of these things happening, like cracking down reserves. Kind of can you sort of talk about the other benefits that you've seen in terms of this new operational structure in the last couple of years?

That's exactly what it's been, Pito. And this is a surprise we didn't necessarily expect when we rolled out the preferred payer agreements and the preferred payer contracts. They cause us to meet with our preferred payers monthly, quarterly, and we're sitting across the table with them at any given time. And in those conversations, you're working on hospitalization rates, you're talking about HBR scores and your cohort of patient base and where we're currently sitting at. And you're asking them, "Hey, what problems do you have?"

And like, "Hey, these 5 patients are really difficult for us. There's been rehospitalizations 3 times. Can you lean into this one?" And in that conversation, they also return the favor and say, "What issues are you having?" It's like, "Well, I've got this AR that's locked up from 2023. It's fully reserved. It's gone through a waterfall process. It's all accounted for. But in this XYZ paperwork, can we get that taken care of?" And, "I guess, sure, of course, you provided the care, you did what you asked, like, yes, no problem." That never happened prior to this one, probably because we didn't have somebody to call. Previously we're calling a 1-800 number or a hotline to try to get to somebody and I get no thanks. And it was really the relationships that we've built out there with the preferred payer network that we're getting paid faster. We're resolving issues quicker. And it's just working together as a partner is really the easiest, simplest way to put it.

To your point, we've had some tailwinds here with some of that aged AR pickups out there. Those won't last. We picked up $5 million here, $6 million there. But our reserve rates have never been lower in all 3 of our divisions in Aveanna history and the history of it. So between all 3 of them, our reserve that we're actually booking is the lowest it has ever, ever been.

A lot of that is through some automation we put into place. We've acquired 2 companies over the last 2 years. We added 0 to our RCM. We've been able to backfill some positions as we've had some turnover occur. And we put some automation and some AI technology in there that's really helped us just leverage that piece. And you alluded to our SG&A leverage, leverage our entire SG&A platform as well. We're going to start pulling that across in 2027 to more being a forward-facing, but we've done a really nice job on the SG&A front with it, too.

As a good CFO, he's told me every quarter, there's no more reserve left, right.

He's telling me to see anything whenever I push him on the post earnings calls and that point, I just don't buy it anymore.

I will validate. Prices are good sometimes.

It is such a nice partnership when your payer partner wants to help you solve a claims issue. Many times, it's just the adjudication of claims that is tough. And Matt said it, the fact that our payer partners are wanting to help us solve these issues, it goes against everything that people hear, is anecdotal, but sometimes people ask me, "What do you do?" I say, "I'm in health care." They are like, "Oh, you know UnitedHealthcare? I am like, "Yes, I know United." "Oh, they suck." I'm like, "They actually don't suck. They are actually good human beings.

They actually try really hard to work with their partners and take care of their beneficiaries." I always ask people, "Do you have United as a coverage?" "No, I don't. They just suck." I'm like, "Okay, we work with them every day." They're actually great people, and they do a great job. And they hold you a high level of accountability as a provider. They expect high things from you. All of our preferred payers, they expect high quality from us. And -- but when you treat them as a business partner, they will treat you as a business partner. And we have found that to be, to your point, on accounts receivable and collections, just a win-win.

So if I want to put a negative hat on here, this is one of the big debates, always happens. If you roll into recession, states are required to balance their budget by law, which means all of a sudden, tax revenues go down and typically costs go up. And therefore, the question around Medicaid rates is always there. What happens in your states, whether it's Medicare fee-for-service or managed Medicaid, if we roll into a recession, tax revenues collapse, they're looking for savings. Do they really realize enough how much your area is savings? Or do you guys just got caught up in just the mass cuts that seem to happen every recession?

Let's give you 2 examples of it because I think both is the answer. So many of our states are managed Medicaid now. Take Texas as an example. We don't see -- we don't care for any -- I say any -- it may be less than 1% of our business is actually Medicaid reimbursed in Texas because 99% of our business is paid through the MCOs, which means the MCOs are at risk, right? They are the capitated risk in that scenario. And I would tell you in that scenario, they absolutely understand the cost savings, and they would push us harder for even more savings.

Now they may not give us rate increases, but they would push us harder and harder for lower the HBR percentage in our contract, save us more money. We like that. We like where the answer is the MCO is the person who's responsible for not balancing the budget, but ultimately is the outsourced Medicaid product. Most Medicaid systems like Georgia, now like California, they understand the value proposition. So we've seen it play through in material rate increases. We have one example of -- and it's Colorado of a state that has a global Medicaid issue, and they've come across with a 2% temporary rate decrease, right? And we're part of that. That's been in place now. It's 2 last fiscal year and this fiscal year.

In Colorado, they kind of ran off the tracks in Medicaid, unfortunately. They kind of covered everything, not just PDN, but everything under the sun and eventually just disconnected, rate reimbursement and expenses disconnected. We are actually -- not, I'd say, pleased. We understand what Colorado has to go through. We're one of the largest providers of PDN in Colorado, and we're going to be there on the other side of Colorado, fixing the Medicaid product.

And so I'd use that as an example of like 32 states, well-diversified. Colorado is a big state for us, and we're proud to be there. And we're fighting through a 2% temporary rate cut there, but it's 1 of 32 states that's implemented that. And when it's all said and done, our growth algorithm doesn't change because Colorado put a 2% rate decrease. We don't like it, but we will be one of the companies that survives while some of the mom-and-pops and even some of our competitors ultimately cannot be efficient enough to make it through that.

Yes, Colorado also had 10 years in a row.

That's fair, that's fair...

Rate increases every single year, too. So with an [indiscernible] there of a 20% onetime as well. So they've been a great state to operate in and will continue to be a great state to operate in. But I think the diversity of our 39 states that we're in is the real big winner there. I'd also say, Pito, kind of totally shifting away from the reimbursement structure. If that situation were to occur, which nobody likes to whisper out loud, we are an area that the workforce can come back to.

Our demand for services is always going to be there. And so if an LPN or an RN needs to get back in the workforce, maybe they left for a period of time, maybe they want to go take care of their own children as they aged and grew up. We are an opportunity for them to reengage into the workforce quickly and to get a paycheck very quickly as well. So there's actually a positive on the labor front for us as well because of the demand for the services, but I understand where you're getting at on the reimbursement side. We also think just being the lowest cost setting is always going to win out at the end of the day, like the moment you're a 10x savings as opposed to an acute care setting, people are going to pay attention to you.

And that's where we finally got this summer with the One Big Beautiful Bill was all of the noise about Minnesota, all the noise about California, both states implemented a PDN rate increase over the last 18 months, both states north of 30% PDN rate increase. They didn't do it to be wasteful. They didn't do it to be spiteful to CMS. And by the way, CMS will have had to approve both of those rates, and they approved them in Minnesota. We know that we expect them to approve the California with no drama.

So even CMS is saying, "Yes, this is a good place to invest in rate to save total cost of care." Almost all of it, if not all of our value-based contracts in our PDN we have 15 value-based contracts. I think it's presale.

Almost all of, if not all of our value-based contracts and our -- we have 15 value-based contracts, I think almost all of them are underpinned by a total cost of care. So the only way we earn a bonus is if we are lowering the total cost of care, which I think is a great -- we love that because now we're -- we've got the higher rate, we're paying the higher wage. Now quarter-by-quarter, we're looking at our cohort of patients and think of that cohort being between 100 patients and maybe 500 patients with a specific payer. And if we don't beat the HBR percentage in that cohort, we don't get paid a bonus.

Shifting to home health a little bit here. It's been a challenging sector in the last 5 years. Several public companies have gone poof. How do you see the M&A markets today? What do you look for? How good are the assets? Where are the multiples? And almost more importantly, what do you see the competition sort of throughout the country now that these large public company acquirers have -- are gone. How much white space has been created?

I'd say it's a lot. First of all, we're robust on home health. And by the way, we love hospice too. We're just not buyers at 13x, 15x, so -- in that base -- space, excuse me. But we love Home Health & Hospice. We've been doing it, as you know, for almost 30 years. The space looks different. It is -- I tell Matt, you've been doing this for 27 years. One day, you're young and the next day you wake up and you realize where everybody go. And most of them retired or have moved on. But you look around and the large players, the Amedisys, the LHCGs, the Gentivas, the Enhabit, the Encompasses, the companies we all knew in this space are effectively all gone somewhere, most of them to the payers, right, and -- or private.

So I do think it's created this opportunity for the next up, the next groups that are building up the regional Home Health & Hospice providers as well as building national networks. And we want to be one of those. We want to be the next -- whether it's Gentivas or Amedisys, we want to be one of the next semi-national and eventually national Home Health & Hospice providers. We're about 70 -- 3/4 home health, 1/4 hospice in our Home Health & Hospice segment. So $300 million, we're 3/4 home health. So we'll be more of a home health acquirer. And Matt loves doting on our team. We just got an amazing team. We've known this team for almost 3 decades. They're growing organically 15.5% year-over-year, 53%, 54% gross margin, 4.5 stars on the...

TPS scores...

Value-based TPS score winners...

Episodic admissions...

So it just is a win-win for us. We need to give them more geography. They are hungry for more. They have fixed -- everything we've given them. They've -- everything we've given them. We need to give them more both in a tuck-in format, a small regional platform and eventually something larger in nature.

Yes. If I think about your preferred payer deals in home health, historically, home health has been known as area where providers really optimize visits in order to optimize revenues and EBITDA. You guys show up with all of a sudden sort of different models here. I mean, how much does this structurally shift the entire market as payers look for a segment that historically was, we'll say, politely highly optimized.

Yes. And we think managing utilization is not the way to go, like trying to manage somebody's care, like provide the right amount of care and the perfect amount of care. And we have 50 preferred payers in that division, and that's up from 45 beginning this year. And we've really seen that flip. One of those is Medicare. The other 49 are MA payers out there. And we've been able to flip those MA payers from pay per visit models to episodic models because they're getting the savings at the end of the day here, Pito.

And we talk about the great financial results we're seeing out there, but the reason we're getting it is the clinical results and the savings at the end of the day. Our star rating, our TPS scores are going up. We're getting rate increases from TPS scores every single year. That's where we're seeing it. And people are realizing paying $3,000 over a 60-day period to prevent a hospitalization is really, really worth it.

And it saves on the administrative side as well. I mean our caregivers are in back office isn't having to run down another authorization after they did 4 PT visits when they need to do 16 and a combination of visits that are going there as well. And so we're seeing -- it all kind of relates down to an access to care issue and payers trying to get to that lowest cost settings that I talked about previously. But we're not seeing that slowdown at all. At 81% episodic admissions, it could be a little hot. We would tell you that a really good company does 70%. A great company does 75% and us at 81%, like that could be a little bit hot out there. If it slowly kind of trailed back down, but we still grew at 15%, 16% organically, we'd be more than happy with that as well.

I agree with Matt. This is the model. This is the model. We're not benefiting from it. Our peers are coming around. We're not the only one doing this model at this point about 80% episodic. And the payers are getting more and more comfortable with adjudicating claims on an episodic arrangement. They tried for 10, 15 years to beat down the pay per visit fee-for-service and just drive down utilization. I don't think it worked.

I think at the end of the day, it just created this huge fight between providers and payers. We just said no so many times that people eventually needed us back in their network and they signed. But I think we can grow this. I think we can grow this. We would like significant more geography over time. But I think these trends can continue in Home Health & Hospice.

So a financial question here is SG&A margin -- SG&A leverage, again, [indiscernible] I'm going to come back to this one again. You're sort of guiding long-term margins 14%, 15%. You've been getting in the last bunch of years, 100 plus, 140 basis points of SG&A leverage. You're talking earlier about using AI for billing, like all these create potential leverage. I'm not talking about margins within the 3 segments. But simply, as you guys keep on scaling here, why should you guys not be sort of 30, 50 basis point margin expansion annually?

I think there's a combination there. Right now, if you actually look at our LRPs for gross margin, we're on the higher end of every single one of those. In Home Health & Hospice, we guide to 52-ish percent. And in Medical Solutions 42% to 44%, we're sitting at 44% and in PDS, we're at [28%, 29%], we're sitting at 29%. So we're doing that because there's a little bit of wage pass-through that's still playing. It's still driving our volume. It's still driving our volume north of that 6% because of that. And so I think as that kind of matures and comes down a little bit and just settles and normalizes out, plus some of those AR benefits you talked about, Pito, are beneficial to my gross margin as well, onetime in nature. We'll still continue to leverage...

Two times in nature...

It's okay. We will continue to leverage that SG&A as size, scale, density, automation continue to play out. Our team does a really good job of looking for it every single day. So as that just kind of settles a little bit, we'll see the expansion or the reduction in SG&A still and kind of end up at that same 14 and change number, we feel really comfortable being a services company right there.

And I'll echo Matt's thoughts. The more we get into Home Health & Hospice, the more you have to get comfortable with the [PICs, the UPICs, the ZPICs]. That's just a part of that business that in Medicaid, it's very infrequent that you're getting audits at that pace. In Home Health & Hospice, you're getting those every day. So there is a cost of that, that you've got to factor in. But I think to your point, being a Medicaid-driven company, we're still 80% plus Medicaid, being a Medicaid-driven company at roughly north of 14% EBITDA feels very, very good to us, comfortable.

You know we don't try to game the gross margin line. Our payers want to know that this is going to the caregivers. So we focus on driving gross margin almost down. It sounds crazy, but it's really passing the wage to the caregiver and then being as efficient as we possibly can. Could we hit 15% EBITDA? Of course. I mean I'm sure it's going to happen. But I think we -- we used to guide to kind of 12% to 14%. We're comfortably at 14% now. I think you'll see us between high 13s and kind of mid- to high 14s for the foreseeable future.

Yes. I mean one of the things to credit you guys have been very transparent about is as these rates come through, somebody saying like it's coming down, it's coming down, it's coming down, just to help drive and then the crush numbers again. So it's a different conversation. All right. We're running out of time here, so I'm going to ask a couple of questions. Balance sheet. Again, the story on the balance sheet is that before it was terrible and now it's great. Lots of things fixed that and EBITDA...

EBITDA...

Doubling, somehow does a good job on leverage ratios as just generating cash. What's the like -- what is the right leverage ratio to be running this business at in the long term? And at some point, I know that there's M&A and other things are going, but your EBITDA is big and you keep on growing with these deals. At some point, do you draw a line in sand and say, "Hey, this is the right level, X and Y, but at X, we'll never go below X because we'll just do share repo." And that gives you enough scale that you need to buy the bigger deals, having a 1 turn range in there, you can buy a lot of deals for that. And pro forma, you can buy a lot of big ones without breaking that band.

I mean really proud, obviously, Pito, from what we've been able to do on the leverage profile. I mean we -- when Jeff and I took our positions, it was double digits at that point in time. And so like we've done a lot of work since there.

And going up...

Yes. Taking cost out, taking cost out all 3 of our divisions and even on corporate, that drove our EBITDA up as well, the efficiencies we put in the preferred payer model, all the things that we listed here earlier. We've done a nice job getting it down to right around 4x or sub-4x leverage. And there's still work to do, though. Like we know there's work to do. We have really nice line of sight to get that to a sub 3x. And that's our goal. We want to be a sub-3x leverage company.

We think that's the right balance to be out there long term itself. I think Family First is a great example of like don't be foolish though and don't have your blinders on just for anything at any given time. We closed Family First in Q2. We had 1 month of results in our financials itself. We spent -- round up with fees, $180 million of cash on hand from free cash flow and cash generated, awesome to be able to do so. And we went up 0.2 turns on that leverage. So like that means we still grew EBITDA organically. We still produced $75 million of free cash flow in Q2.

So we did everything else to be able to go get that deal done, create density in 4 states that we really want to create density, kind of put a bow on those states at the same time. So I think it's just the thoughtfulness of being conscious about your leverage and having a goal to get to sub 3x, but don't put your blinders on too much that inhibits your growth, whether it be an organic growth driver or an inorganic growth driver.

I agree. So 2.75, that's a point where if it goes below that, I'm going to yell you and say just start buying.

Go do something.

Certainly 2.5, 2.5, I think we -- but I agree, Matt. Our -- we've had a clear goal to be sub-3 for now for 2 years, and we're on that march. We can see it in mid- to late '27. Exactly what Matt said, I agree with. We will absolutely do a deal slightly levered to delever right afterwards. And our answer would be, let's do both. At the end of the day, let's keep growing, let's keep driving the company north of double digits year-over-year growth and be able to delever at the same time.

Perfect. That's it. We're out of time. Guys, thank you so much, and thank you guys for being with us.

Thanks so much. Appreciate it. Thank you.

Good morning, and welcome to Aveanna Healthcare Holdings Second Quarter 2026 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A.

At this time, I'd like to turn the call over to Debbie Stewart, Aveanna's Chief Accounting Officer. Thank you. You may begin.

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 of 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. And 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 1, 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 1, 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 eight additional agreements for a total of 38 preferred payers. We signed three 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 five 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're 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 & 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 & 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 a 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 alternatives to higher-cost care settings.

Now, turning to our recently announced acquisition of Family First Homecare, a Florida-based company with a great reputation for quality in-home pediatric care. We closed the Family First acquisition in early June and are progressing nicely in the early stages of integration. Our leadership teams continue to focus on exceptional clinical care and supporting our branches as we navigate the necessary back office integrations. I expect us to wrap up the majority of the Family First integration efforts by late Q4. I believe the Family First team has already made a positive impact on Aveanna and is a welcome addition to our family.

Additionally, let me comment on our strategic plan and enhanced outlook for 2026. We will continue to focus our efforts on five primary strategic initiatives. First, strengthening our partnerships with government partners and preferred payers to create additional capacity and growth. Second, improving clinical outcomes and customer engagement scores while lowering the total cost of care. Third, implementing high-priority artificial intelligence and automation efforts to improve operational efficiency and productivity gains. Fourth, growing through acquisitions while improving net leverage and free cash flow. And finally, engaging our leaders and employees in delivering our Aveanna mission. Based on the strength of our second quarter results and the continued execution of our key strategic initiatives, we are increasing our full-year revenue and adjusted EBITDA guidance to a revenue range greater than $2.6 billion and adjusted EBITDA greater than $365 million.

As I reflect on the strong start to 2026 and the improved visibility with state and federal reimbursement rates a year after the One Big Beautiful Bill Act was passed into legislation. We are now poised to update our long-term core organic growth rates in Private Duty Services and Home Health & Hospice. Specifically, we are adjusting our long-term Private Duty Services organic growth rate from a range of 3% to 5% to now 5% to 6%, primarily driven by the improved state government affairs and continued preferred payer execution. Also, we are updating our long-term Home Health & Hospice organic growth rate range from 5% to 7% to now 8% to 10%, primarily driven by the improved federal government affairs and preferred payer results. We remain consistent with our current growth rates in Medical Solutions of 8% to 10%.

With the durability of our organic growth rates and thoughtful M&A activity, we believe Aveanna is well positioned to achieve double-digit revenue growth on an annual basis. Aveanna has a strong value proposition to our federal and state government partners, as well as to our MCO preferred payers, and these important relationships are underpinning our enhanced view on our future organic growth rates and our core business segments. We look forward to updating you on our continued execution of our business plans as we navigate the back half of 2026.

With that, let me turn the call over to Matt to provide further details on the quarter and our improved capital structure. Matt?

Thank you, Jeff, and good morning. I will first discuss our second quarter financial results and liquidity before providing additional details on our refreshed outlook for 2026. Starting with the top line, we saw revenues rise 13.7% over the prior year period to $670.5 million. We achieved year-over-year revenue growth in all three of our operating divisions, led by our Home Health & Hospice, Private Duty Services, and Medical Solutions divisions, which grew by 14.8%, 14.0%, and 9.4% compared to the prior year period. Consolidated gross margin was $218.5 million, or 32.6%. Consolidated adjusted EBITDA was $95.4 million, an 8% increase as compared to the prior year period. This growth reflects an improved rate environment, increased volumes, as well as enhanced operational efficiencies.

Now taking a deeper look into each of our segments. Starting with Private Duty Services, revenue for the quarter was approximately -- Q2 revenue per hour of $44.62 was up 1.7% compared to the prior year quarter, primarily driven by growth in preferred payer volume and updated reimbursement agreements. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.

Turning to our cost of labor and gross margin metrics, we achieved $159.9 million of gross margin, or 28.9%. The cost of revenue rate of $31.74 in Q2 was up $2.06, or 7.8% from the prior year period. Our Q2 spread per hour was $12.88, reflecting continued normalization driven in part by ongoing caregiver wage adjustments supporting higher volumes, and improving clinical outcomes. As a reminder, Q2 2025 included approximately $9 million of non-recurring, favorable items in our PDS division, primarily driven by the timing of rate enhancements and favorable revenue reserve adjustments.

Moving on to our Home Health & Hospice segment.

Revenue for the quarter was approximately $69 million, a 14.8% increase over the prior year. Revenue was driven by 10,500 total admissions, with approximately 81% being episodic, and 14,700 total episodes of care, up 18.5% from the prior year quarter. Medicare revenue per episode was $3,202 for the quarter. Our episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 75%, we have achieved our goal of right-sizing our margin profile and enhancing our clinical offerings. We are pleased with our Q2 gross margin of 53.9%, representing our continued focus on cost initiatives to achieve our targeted margin profile. Our Home Health & Hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.

Now, to our Medical Solutions segment results for Q2. During the quarter, we produced revenue of $47.5 million, up 9.4% over the prior year period. Revenue was driven by approximately 95,000 unique patients served. Revenue per UPS of approximately $500, up 5% over the prior year period. Gross margin was approximately $21.4 million, or 45.1% for the quarter. As Jeff mentioned, we are in the final stages of our preferred payer strategy in Medical Solutions, by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. As a result, we expect UPS to continue to accelerate its growth in the back half of 2026.

In summary, we remain focused on keeping our patients' care at the center of everything we do. It is clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aveanna. With a strong momentum through Q2, we are optimistic these trends will continue throughout 2026. We will continue to pass through wage improvements and other benefits to our caregivers in the ongoing effort to better improve volumes.

Now, turning to our balance sheet and liquidity. During the quarter, we were pleased to receive credit rating upgrades from all three major rating agencies, reflecting the continued strength in our financial profile and the consistent execution of our long-term strategy. At the end of the second quarter, we had liquidity of approximately $433 million, representing cash on hand of approximately $97 million, $110 million of availability under our securitization facility, and approximately $226 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $24.5 million in outstanding letters of credit at the end of Q2. As a reminder, we funded the Family First acquisition and associated closing costs during Q2 using exclusively cash on hand.

On the debt service front, we had approximately $1.48 billion of variable rate debt at the end of Q2. Of this amount, $1.4 billion is hedged with interest rate caps, which limits exposure to increases in SOFR. Accordingly, substantially all of our variable rate debt is hedged. Additionally, during the second quarter, we successfully repriced our term loan, reducing our interest rate by 75 basis points. This refinancing will lower our annual interest expense by approximately $10 million. The repricing reflects our continued strong operational performance and the ongoing support and confidence of our lending partners.

Looking at year-to-date cash flow, cash generated by operating activities was $85.3 million and free cash flow was positive $75.4 million. We are encouraged by our strong cash collections and the cost efficiency efforts which has driven solid operating and free cash flow in 2026. We expect similar cash flow performance in the back half of the year.

Before I hand the call over to the operator for Q&A, let me take a moment to address our enhanced outlook for 2026. As Jeff mentioned, we expect full-year revenue to be greater than $2.68 billion, adjusted EBITDA greater than $365 million. This improved guidance reflects continued strength in our underlying business, supported by strong organic growth and sustained demand for our services. As we reflect on our Q2 results, I would like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q3.

With that, let me turn the call over to the operator.

[Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies.

This is Meghan Holtz on for Brian Tanquilut. Congrats on the quarter, guys and the full year guidance raise and the California rate increase. I know it's been in the works for a while. I guess starting on your LRPs that you raised for the business segments, given that you're raising the revenue rate, should we be thinking about corresponding margin increase in those segments as well?

Yes, and thank you, Meghan, and good morning. We're excited now that we've kind of 15, 16 months after the OBBBA has settled in, we have more clarity, more visibility in how our state rate setting process works. It has played through and will play through. We also have more confidence, as we talked about, in both our Home Health and our Hospice rate setting and rule-making process. As we think of the long-term revenue growth, to your comment, I think Matt and I would lead you to continue to think about wage pass-through being a key component of our story.

From a gross margin standpoint, I would think about the gross margin percentage staying pretty consistent. Clearly, gross margin dollars will increase as revenue accelerates and revenue dollars accelerate. But I think you're seeing that even in our results today. So really focused on continuing to grow the business at accelerated rates, as well as continuing our caregiver pass-through both on a government basis and a preferred payer basis. Matt, you want to add to that?

No, I think you said it really well, Jeff, but I think gross margins came right in line with our expectations in Q2. Obviously, 2025 had a little bit of timing-related items for PDS segment, and people are able to normalize that out and understand what that is, but we believe Q2 really does, the results represent, and specifically in the PDS business, but everywhere else, where we expect gross margins to remain going forward.

And then on the California state rate increase, is there any additional color you guys can provide on the expected benefit as we think about 2027? I know it's a little early. And then you mentioned passing through the wages prior to the rate going into place in the back half of this year. How should we be thinking about that?

Thanks, Meghan. Probably not the last California question we're going to get this morning. Really excited to your point, because if you think about the last rate increase in California was July 1st of 2018. So I mean, we're coming up on almost 9 years, 8.5 years. We've been advocating with our peers, industry peers, and the California Home Care Association now for almost 5 years. So really pleased that the legislature and the governor both saw the value in investing in the private duty nursing rate. We're in a process now that the legislature and the governor have allocated specific dollars to the Medi-Cal department. We're in the process now of the Medi-Cal department now updating its fee-for-service schedule.

And as you said, we'll have to remain a little bit patient over the next few weeks as they do their normal process. We would expect by the end of September for the Medi-Cal department to have updated 2027 rate schedule to include the updated investment from the legislators. So it'll be a few more weeks, probably a month before we see the final rates for the PDN rate increase in 2027. Matt, with that, you want to talk about the wage pass-through?

Yes, Meghan, we've done this in the past and we've had a lot of great success, but we'll be proactive once things settle to Jeff's point on passing through wages to really pull those patients out of the hospital. It's been, like I said, 8 years going on, 9 years since the last rate increase in the state of California, and there's so much pent-up demand for services. So we will be thoughtful on our approach to that and kind of the back half of Q3, really in Q4 about starting to pass through some of those wages proactively, even before the rate goes live, so that we can pull that census out of the hospital, get our staffing rates and percentages up, and really hire those caregivers to provide that care.

Our next question comes from Raj Kumar with Stephens.

Maybe just on 2026 guidance. I know you guys, intra-quarter, increased it for the Family First acquisition, but maybe comment kind of thinking about the new enhanced guidance. Is there any increased contributions there from Family First or should we just be all thinking about the raise being solely driven by the kind of core organic business?

You nailed it there, Raj, and good question. So we did previously increase our guidance for the Family First impact, kind of within the quarter itself. So that's already contemplated into our previous guidance that we provided earlier. So what you're really seeing now is just driven by strong operational performance in the core Aveanna business. So all three divisions continuing to perform at very high levels give us the confidence to increase our revenue and our EBITDA guidance for 2026.

Got it. And then as my follow up, looking at the long-term outlook, you guys also increased the contributions from M&A. And so as I kind of think about that, maybe kind of just discuss your appetite across private duty nursing and Home Health & Hospice, kind of where do you feel comfortable with the leverage profile as you kind of, think about doing these deals?

Great question and great catch, Raj. Yes, I think as I said in our prepared remarks, thoughtful M&A is continuing to be where we see the opportunity to grow. And to your point, as Matt talked about, free cash flow generation, first half of the year was right around $75 million. I think Matt talked about similar expectations in the back half of the year. So the $150 million, $150-plus million of free cash flow generation, we saw with Family First, we were able to pay for Family First and its closing costs with all cash on the balance sheet, cash on hand, we're quickly regenerating that cash flow.

Matt would want me to point out that although temporary leverage went up, that the story will continue to be deleveraging between now and the end of the year. And so the ability to accelerate our model now using cash flow, cash generation and certainly being thoughtful. I know Matt wanted to talk about leverage just to hammer home that point.

Yes, our M&A pipeline continues to be very robust out there, but we're going to remain focused, Raj. Just acquisitions that fit our culture, of course, create long-term value for Aveanna, of course, and the shareholders at Aveanna. We're going to remain disciplined around the valuation of these acquisitions as well, though, and keeping leverage at our top of mind. So I think you could see us, like you said, increasing that a little bit, but also continuing to deleverage the organization to really get to our long-term goal of being a sub-3x leverage company.

I think that's a very important point. We've had a long-term target now for a couple of years to get the company under 3x leverage. That continues to be our target. The path gets clearer and clearer every quarter. Certainly today's announcements on our growth rates gives us even more confidence on being able to achieve that in 2027. Thanks, Raj.

Our next question comes from Pito Chickering with Deutsche Bank.

Going back to that long-term guidance change in PDS and Home Health & Hospice, on the corporate level, my back of the envelope math here is about 150 basis points revenue raised to long-term guidance. So a pretty big jump from 4.6% to 6.1% assuming my math is right. But can you talk about the margin leverage you can get on the EBITDA line from this revenue raise and does it mean EBITDA should not be growing long-term in like the 7-, 8-plus percent range?

First of all, kudos on your math, Pito. As always, your math is very tight. That's roughly 6% from a core organic standpoint is where we landed on a forward-looking basis. I think I want to be careful as we are touching 14%, EBITDA at this point, I think we've, kind of, guided that that 13% to 14% is where we thought we would land as a primary Medicaid-driven organization. I think I will say, as you think of our forward-looking growth rates, our geriatric business, although it's smaller in nature today, is what will be our fastest-growing business. And I think as you think of M&A, think of us leaning in deeper into the Home Health side of the M&A picture. So I do think what you'll see from our growth rates as we're leaning into the faster growing part of our business and the business where we have the most opportunity to fill in geographically across America.

With that said, we want to be crystal clear. Our job is to hire more nurses and put more caregivers to work. To do that, we've got to continue, and I think California, as Matt said, is a great example of that. Our rate increase won't begin until January 1, '27. We'll start passing wages through some point early to mid-October. And to Matt's point, we will be ramped up. So by the time we hit, at the end of December in California, we want to be running at full speed. And we'll invest those dollars ahead of time to get ahead. All of that is in the spirit of continuing to do the right thing for our families and grow our business. So I don't know that I would try to sell that our 14% EBITDA target is changing materially. Matt, any comments just on leverage?

No, I think, Pito, you've obviously seen it over the last few years where gross margin has been pretty consistent, but our SG&A leverage has been really, really impressive. We've done it through a lot of ways, just being more effective and efficient, filling in some automation technology as well. 14% is a pretty good spot. Maybe that sneaks up to 15% as we continue to develop and get better with some of those growth rates, but I wouldn't bank on it being much higher than that.

Yes, yes. It does much more about obviously SG&A leverage than it was about gross margin, because obviously that's a bit more of a pass-through. So the follow-up question here is looking at the spread sort of in Q2, in PDS. I guess, how should we think about that in the back half of the year? And then the hour growth was incredibly impressive in the second quarter. And as the spreads maybe compressed in the back half of the year, kind of what should we be thinking about the PDS hourly growth rate for the back half?

Yes, I'm going to continue to pull you back to a gross margin comment each time. So 28.9% gross margin on a PDS segment, really impressed with where it came in at, and right where we expected it to come in at. We've guided to that 26% to 28%. We said publicly that, hey, we'll be north of that here in 2026, and we expect the remainder of the year to be right in line with that 28% and change 29% gross margin. So that's our business model. As we continue to win state rate increases, assign additional preferred payers, we'll continue to pass those dollars down, but keeping that 28%, 29% gross margin a top of mind.

Our next question comes from Benjamin Rossi with JPMorgan Chase.

Following up on PDS preferred payer mix, you highlighted that 400 basis point sequential step up during Q2 to 64% of mix covered by these preferred payers. Do you expect that figure to remain largely flat through the remainder of the year and then step up on January 1 when the new California rates take effect? Or how are you thinking about forward cadence as we head into 2027 with that notable state set to come through?

Yes, and let me separate those two, Ben, because remember the 64% is MCO volumes, and the majority of California is still Medi-Cal, Medicaid reimbursed. So we don't count that in the PDS preferred payer MCO volume. So think of 60% -- I think we talked earlier in the year, we kind of ended last year, we were mid- to high-50s percent. We thought we would kind of hit mid-60s this year. I think from where we sit today, we probably tell you we'll be a little bit north, probably still shy of 70% in 2026. So probably another couple of percentage points on the current 64%, but not a whole lot more this year

Pivoting to back that California comment. The majority of our California business is, as I mentioned, is still a Medi-Cal reimbursed. Again, it'll mimic more of what preferred payer rates look like once this rate is, we think, is applied through. We do have a small portion of our business in California, we talked about before, which is preferred payer in nature, and we're excited for those rates to remain intact.

So long story short, I think we'll end the year kind of slightly above what we said from a preferred payer PDS volume standpoint and excited clearly now with the California 2027 kind of bulkhead leading us in. We're excited about the momentum it'll take in '27.

Great. Appreciate that clarification. Just a follow-up on capacity within PDS. Obviously, demand seems to remain elevated there. Where are you seeing the greatest opportunity to add capacity? Do you think it's through these new preferred payer wins in existing states or entering or expanding in the new white space geographies? And do you think the California rate unlock maybe opens up some new market opportunities there?

Yes, Ben, California is obviously lagged the last few years. It's been pretty significant that it's been nine years since the last rate increase itself, and so the amount of our fill rate and our volumes in California has really become less significant to Aveanna over the last few years. With the implementation of it, we will be able to grow this one actively and really hire those caregivers and onboard those caregivers to provide additional care. There are some opportunities for geography that we still want to fill in, specifically in PDS, really that middle of America, the Ohios, the Kentuckys, the West Virginias.

Those are attractive markets for us to continue to grow inorganically, but still organically there's a lot of opportunity out there, whether it's in the states that we currently provide services to, or just the continued high demand for our services in every single one of our markets is there. So there's a lot of meat left on this bone. There's a lot of opportunity out there for it, but we're going to work with our state legislators and our preferred payers to continue to fill that demand.

I think as Matt -- Ben, as we said in the prepared remarks, it's nice to now put California to bed to where we can really focus on cost-of-living type adjustments, inflation types. We don't want to go 9 years with California to do another rate adjustment. We want 24 months later to be in a COLA type or a cost-of-living. And that's what we're in the seven rate wins outside of California, we're seeing more cost of living type adjustments, which is great. That's the world we want to live in moving forward versus this catch-up process we've been in. So it's nice to put that part to bed. Thanks, Ben.

Our next question comes from A.J. Rice with UBS.

Just to lean into California a little more, obviously, if you haven't had a rate increase for that long a period of time, it probably hasn't been a growth vehicle for you. So what is the percent of your business that's in California today? And when you think about the opportunity that this rate update is going to present, I know you're saying you'll lean into giving caregivers the salary increases they need to start attracting them later this year. Do you need to put any infrastructure of any sort to be able to address a state of that size fully given now it's going to become a growth area as opposed to sort of a maintenance of what you already had type of situation?

Great question, A.J. I'll start with a different perspective. We've had a lot of people ask us over the last two years why we stayed in California. Like, why don't you just pack up and leave? The rates don't work. Your business has been lethargic in the state. And I think this is the reason why we don't leave states. This is the lesson that you have to learn in this business is stay focused on the long term, stay focused on the advocacy for these patients. So yes to your point, as the company has accelerated over the last three years, California has been doing, our California business has been doing the opposite. It's been lethargic, lagging, fill rates have dropped almost 30% or 1/3, meaning, our ability to fill the hours that are already authorized.

So the very first thing that we want to do is get the caregivers who are working to work more hours on the shifts, on the patients that they currently have. So the first part of our growth is just getting our caregivers who already are working more engaged by paying them more. As Matt talked about, the next two steps that get exciting is really unlocking the unnecessary hospital days. And that's where the savings come is as we start pulling through the patients that have been just sitting in hospitals waiting to come home.

And then the third group is really the families that have been doing the jobs themselves, meaning you have parents that are providing basically high-level nursing care in their home because they can't hire a nurse anywhere. And so even though they're not in a hospital today, certainly giving those families that have medically-affected children, that may be the mother and the father, neither of which work because they're providing full-time care for the patient, is just a third opportunity for us. So as you think of all of that, it will take some time to solve number two and number three, but the very first thing we want to do that we can start solving even before we get to January 1st is getting the current caregivers more engaged, filling more hours.

So the short-term and long-term growth that unlocks is very exciting for us. But the most important part is we get to actually help the families in California.

Yes, Jeff, I'd just add on to it and address your question out there. A.J., the infrastructure itself is already in place. We have a very robust team, a very strong team, and a team who's ready to grow and now has the ability to grow, which is the most important thing. Going through the PDS modernization a few years ago, we have our targeted operating model, in every single one of our locations and every single one of our areas. And so we live by that every single day. And so that structure and infrastructure is already set up to propel us forward.

Okay. Maybe on the follow-up, you along with some others are obviously feeling a little better about adult home care and the rate updates and the just general backdrop for the segment. Can you talk a little bit about, I know you've got a lot going on with PDS, but how you might lean into growth there, new states, anything you're looking at to try to maybe go on and encourage the acceleration there?

Yes, great question. I think in my comments a few minutes ago, A.J., as we think of our M&A activity, I won't call it 80-20, but we think the majority of our M&A activity moving forward will be in the adult space, primarily because we have filled in the majority of the PDS states in America. Matt talked about we still have about five or six states we want to tuck in on the PDS side, mainly that Michigan, Ohio that Matt was talking about, kind of mid-America, but the remaining part of our growth and our de novo/M&A growth will really be on the more Home Health & Hospice. We love Hospice, we just don't love the multiples of Hospice. So I think we feel we've been a big proponent of Home Health the last three years. We think we've got a best-in-class Home Health & Hospice team. And with the cash generation we're doing now, we think we can begin to grow in that business on an inorganic and organic basis.

Our next question comes from Sean Dodge with BMO Capital Markets.

Maybe just going back to the PDS preferred payer mix. Jeff, you said 64% now. Longer term, how much higher do you think you can drive that mix? And then how should we think about how that impacts your spreads over time, over the next couple of years? How additive can that be aside from any of these more margin neutral dynamics, timing and rate updates and in the subsequent pass-throughs?

Yes, great question, Sean. I think as we've thought about long-term is our ultimate goal is to kind of reach the mid-80s, maybe one day the high-80s in percentage of PDS MCO volumes. That's probably still three to five years from now. So I said I, I think if you just take the last three years and think about what this year is going to most likely be, we've been adding around 4% to 6%, 4% to 7% growth in that per year. So I think that we see that continuing forward. The key thing to really think about underneath that is last week's admissions and PDS the week before, those are still like 90% to 95% preferred payer admissions. So the majority of our admissions, the majority of our nurse hires day to day in a preferred payer environment. So again, I think we're pleased where we're going to end this year in the mid to upper mid 60% and probably in that 4% to 6% per year growth. Matt, anything else on spread?

No, I think we'll continue to stay consistent. Our goal and objective isn't necessarily to increase that gross margin percentage, but to be able to invest those dollars to hire more caregivers and get better clinical outcomes. That's what our preferred payers are continuing to ask of us, and that's what we need to continue to deliver to ultimately reduce the total cost of care.

Okay. And then in Home Health, your episodic mix was 81%, so remains well above your 75% goal. Is there any reason that would begin to normalize back down, or do you think kind of somewhere in the neighborhood of 80% or better is kind of sustainable there going forward?

It's a great point. But by the way, we have fun with that metric internally as a team, we've been at 80% now for almost, not quite a full year, but two to three quarters, and it's been pretty consistent. We would be comfortable, Sean, with that going back down to 78%, 79%, even 77% if growth continued to accelerate north of 20% year-over-year growth. We're okay with anything in the high-70s, low-80s. I think as we lap 2026 into 2027, we'll update our target from greater than 75% to something north of that. Because at this point, it really has settled in pretty comfortably in this 80% range. I'll add to that one other piece.

Where four years ago it was very hard to get a Medicare Advantage MCO payer to want to engage in an episodic agreement, that no longer is that difficult. I think the industry has done a really good job, our peers, us, and even the payers have come around to this is the best form of payment, it is the best clinical outcome, a solid financial outcome, a fair reimbursement. So it has gotten, I don't want to use the word easier, but it has just gotten more efficient for payers to work within an episodic arrangement. And I think that that will continue to help keep us around that 80% long-term episodic range. Thanks, Sean.

Our next question comes from Jared Haase with William Blair.

I'll echo the congrats on all the success so far here. Obviously you guys have talked a little bit about just how the labor environment is really the gating unlock here to driving the volume. And I think you've really well articulated the strategy of getting these rate increases and using that to invest in the workforce. I guess I'm just curious, aside from wages, is there anything incremental, either strategically or operationally, that you feel like is really resonating in terms of how you're finding caregivers, onboarding them, training them up, or ultimately getting them, matched to the cases that they want to work?

Yes, Jared, the answer is yes. I mean, every single, our infrastructure and our size and scale has really allowed us to create that more ease than maybe some of our peers out there in the market. So whether it be your training that's put into place, your onboarding, your quickness to onboarding on top of it, your daily pay that you're being able to offer, the technology for adding in notes, all of those really add up into a benefit of the caregiver. Obviously, one of the biggest drivers and the main driver is going to continue to be wages out there, and so that's the reason we see that success with driving reimbursements and investing into our wages. But our entire infrastructure and our entire technological stack out there also makes it more beneficial for caregivers to be on our service as well, or provide services for us.

And I'll point out, Jared, a great point. We have a national onboarding team led by a wonderful, wonderful clinical leader here. And I'll use Family First as a great example. Family First did a really good job of recruiting and hiring nurses. They didn't have the ability to onboard nurses seven days a week, effectively 24 hours a day, and we do, because of our size and scale, we've invested in a team of nurses that just do virtual orientation and onboarding for our nurses across all 32 states and PDS and growing.

But it's a great example of Matt's point of size and scale. We've invested into that team. They do an amazing job. And as soon as we close on Family First, we're able to offer that service to Family First. And they've been very positive on the efficiency of that team and how it helps nurses onboard quicker to families. So again, I think that to Matt's point, wage is number one, certainly wage is the most important in the decision point for most nurses, but the efficiencies and scale that do help us.

Okay, yes, that's great. That's really helpful. And then maybe just as a follow up. So maybe taking a step back a little bit, but obviously with the Home Health industry becoming perhaps a little bit more appealing here with some clarity on the rate front. And if we start to see some more investment from you guys towards that segment of the market. Can you just talk a little bit about like, how do you think about potential synergies that maybe I might not be thinking about offhand between offering both PDS and Home Health?

Yes, obviously it's a little bit of a different patient population. It's a little bit of a different payer mix, Medicaid versus Medicare. But maybe just, aside from national scale, and potential corporate efficiencies, leverage, things like that, is there anything else you'd flag as far as potential synergies from expanding in that segment of the business?

I'd love to sell you on something, but you hammered the three that we would think of. I mean, it's corporate efficiencies, back office efficiencies, billing collections. We use two different EMR operating systems for those businesses because they're very different. They're different leaders who lead them. I will say just the efficiencies of those great leaders partnering together, because we offer the same services in many of our same states. So people get to know us both on the Medicaid side, the Medicare side. We're branded the same, Aveanna Home Health & Hospice, Aveanna Private Duty Services.

So just using the brand, it is different payers, right? Medicare Advantage payers, even if it's the same parent company of UnitedHealthcare, it is two different total departments in the payer standpoint. So there are efficiencies, but it's not nursing efficiencies, caregiver efficiencies. It's mostly back office, as you pointed out.

Okay, that's fair. And I certainly hear you that you see, elevated growth opportunities in Home Health and that maybe has a margin benefit as well. But I wanted to make sure I wasn't missing anything. But that's great. Thank you.

Our next question comes from Andrew Mok with Barclays.

Can you speak to how your government affairs team has been able to secure better rates under a difficult state funding environment? If we take a step back, state budgets still look constrained, and we're now starting to implement OBBBA. So is the view internally that PDS is benefiting from a reallocation of funding within Medicaid? And is that helped by OBBBA's efforts to curb spending in the adult Medicaid population?

Andrew, good morning. Great question. Very thoughtful question. One, we have a long-term approach to our states. I think California is a great example. There were a lot of low-hanging fruit the last three years when we did not get the California rate increase that we had asked for. So it's a long-term approach to these states. Geographic diversity matters. So I think being spread out across 30 plus states does matter, being able to offset the growth in other states as we have been working through California. But staying at the table, continuing to talk about the benefits of the cost savings of our business has settled in.

And I think to the second part of your question, I hate to say that taking $1 trillion out of Medicaid actually helps PDN, but I think what we take away from it is PDN is absolutely insulated from the idea of cuts through the OBBBA legislation, and over the long term is opening some doors in some states for reallocations of dollars. And so, we don't like the idea of, diminishing Medicaid services for any family who deserves those services, but recognizing the value of PDN.

And I think as we continue to hear from our MCO payers, 10x savings per day, $6,000 or $7,000 a day in the acute care center, $600 or $700 a day at home, that is just resonating incredibly well with the MCO payers and over time our state legislator partners. So I think we're far enough in, being a year and a half into the OBBBA legislation to really be able to see that PDN is going to come out of this, primarily in very good shape.

Our next question comes from Andrew Cooper with Raymond James.

I'll try once just to see, can you give us a little bit more of a quantitative starting point for California and PDS to think about as we head into '27? And then when you think about some other states where you've seen, bigger step function rate increases, how much have you been able to, add that labor pool and drive the volume and response based on some of your historic experience?

Yes, Andrew, while we don't provide specifics about any state or any payer out there, we previously said that California's impact on Aveanna has become a little bit less significant over the last few years. That's really driven by the PDN growth, the PDS growth in the other 31 states itself, and because of California's rates, therefore their wages lagging, they've been less impactful for us. Now, we are really excited about this rate increase and the impact the rate enhancement is going to have on the medically fragile patient population and our ability to recruit and retain those caregivers going forward.

And the second part of your question, Andrew. Let me use Georgia as a great example. So 3 years ago, we had a, it had been 10 years in Georgia since any movement in the Medicaid rate, and we got a, I'd say in line with this increase, if not a little bit even more significant in Georgia, and it moved the market in a matter of days, weeks. We got ahead of the rate increase in Georgia by about three or four months in the wage pass-through. So it was a July 1 effective date. We started passing wage through in March and April. We saw fill rates dramatically improve. And then the most important thing is, one month or two after the rate increase went through in Georgia, the largest children's hospital is a couple miles from our office here in Atlanta.

And we heard things like, the halls have never been empty before and these beds have never been, cleared out. And truly it did, it unlocked the unnecessary days that were being spent in the hospital. And so our hospital peers really, really, really valued that step change. And, again, California is a little bit bigger than Georgia. It's got more children's hospitals than one. But we think we'll see a similar effect take place over Q1 and Q2 of next year as really the unlocking of these unnecessary hospitalizations just start to get pulled through back to the home.

Okay, that's helpful. And then, oh, go ahead.

No, you're fine. Go ahead.

I was just going to say, maybe shifting a little bit and thinking, no, you won't guide to '27 right now. But when we think about the moving parts of kind of on plan, if not ahead of plan in the preferred payer progress across the segments, you get California giving you a bump as well. I mean, is it safe to think that '27's rate increase across the spectrum of the business is probably a little bit more than your average. And so the growth we think about, at least on the rate side, is maybe a little bit better than what the long-term framework would suggest in a more normal year?

No, Andrew, I think that's why we were comfortable increasing our growth rate specifically in PDS from that 3% to 5% range to that 5% to 6% range going forward. Obviously, the clarity of the OBBBA coming through, but also just our consistent engagement with governors and legislative bodies that says like hey this is a value add to the health care system, this is a cost reduction from the health care system, so between that one also with our movement from the 5% to 7% range in our Home Health & Hospice business to going 8% to 10% going forward, we've kind of built that into our long-range growth plans itself.

Yes, California might carry the water a little bit more next year, but then the following year, maybe it's Texas. Maybe the year after that, it's Florida. The year after that, it's Massachusetts. And that's really because of the diversity of the states and the 39 states that are in, the 32 specific PDS states. All that diversity allows us to really increase our growth rates going forward.

And I would still underpin it with it's still more volume growth than rate. So in that 5% to 6% PDS guide, I would still think more of like a 3/4 volume, 1/4 roughly rate. So it's rate is helping drive the volume, but volume is still the biggest driver of all of our organic growth rates. Thank you, Andrew.

Our next question comes from Grayson McAlister with Truist Securities.

Hey guys, Grayson McAlister on for Dave. I'll wrap up with just one quick one for me here. I guess, could you talk a little bit more about the Family First integration thus far? How has the integration gone versus your expectations? And then any bigger, more challenging aspects that you would expect for the second half of the year as you look to get it wrapped up?

Great, great question. And I think in our remarks, we're incredibly pleased. The Thrive integration a year earlier gave us a great roadmap for PDS acquisitions. Family First is a little bit bigger, but very similar, going as well or better than expected. I'd say we're still in the front third of the integration in the next few months, a few months, intensify as we work through the back-office and EMR transitions, which are the biggest movements. The teams are doing great. They've strengthened our business in a couple key markets, including Florida. I'd say we're a better business today because of their partnership in the state of Florida.

And it's also just bolstered some of the service areas in Iowa and South Dakota that were really important. I mean, these are incredibly rural communities, rural states, so the ability to have a little bit better service distribution in those states, Illinois, South Dakota, and Iowa, really, I think, ultimately make us better.

And then, leaning forward, and your last part of your question there is, I think as we think about this moving forward, we'd like to see similar type acquisitions on the HHH side, the Home Health & Hospice side, where we start to materially move our Home Health & Hospice business from an inorganic growth standpoint. But the model is here, we have a great team. Our integration management office does a phenomenal job leading us through the integration process. So incredibly pleased. Also excited to wrap it up here later part of the year and get this done by the end of 2026.

We've reached the end of our question and answer session. I would now like to turn the floor back over to Jeff Shaner for closing comments.

Thank you so much. We look forward to updating you on our continued progress at the end of Q3, and have a great day, and thanks for your continued interest in Aveanna Healthcare.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to Aveanna Healthcare Holdings, Inc. First Quarter 2026 Earnings Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A.

At this time, I'd like to turn the call over to Debbie Stewart, Aveanna's Chief Accounting Officer. Thank you. You may begin.

Good morning, and welcome to Aveanna's First 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 Q1 results and how we are moving Aveanna forward in 2026. My initial comments will briefly highlight our first 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 recently announced Family First Homecare acquisition and how we are thinking about our 2026 strategic initiatives and our enhanced guidance before turning the call over to Matt.

Moving to highlights for the first quarter. Revenue for the first quarter was approximately $648 million, representing a 15.9% increase over the prior year period. First quarter adjusted EBITDA was $84.4 million, representing a 25.2% 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 a primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believe 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 Q1 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 3 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 3 of our business segments. Since our fourth quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and 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 continue to advocate for Medicaid rate integrity on behalf of children with complex medical condition. Our strong advocacy presence of both federal and state legislatures across our national footprint enhances our value proposition.

And second, we expect to achieve mid-single-digit state rate enhancements in 2026. As of Q1, we have received 3 Private Duty Services state rate wins and believe we will achieve our goals as states complete their annual budget processes. After 3 years of meaningful rate increases in the majority of our PDS states, we are in a very stable rate environment and are shifting our focus to cost of living and wage rate adjustments.

Moving to our PDS preferred payer initiatives. 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. Our preferred payer goal for 2026 is to achieve 8 additional agreements for a total of 38 preferred payers. We signed 4 preferred payer agreements in Q1 and are well on our way to achieving our 2026 target.

Additionally, our Q1 PDS preferred payer agreements accounted for approximately 60% of our total Private Duty Services MCO volumes, up from 57% at the end of 2025. 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 is to maintain our episodic payer mix above 75%, while returning to a more normalized growth rate. I am pleased to report in Q1, our episodic mix was approximately 80%, and our total episodic volume growth was 23.1% compared with the prior year period. The continued investment in clinical outcomes, sales resources and a focused approach to growth is driving results with Q1 total admissions of approximately 11,000 or 13.4% organic growth over the prior year period. Additionally, we exited 2025 with 45 preferred payer agreements in home health and expected to add 5 agreements in 2026 for a total of 50.

As of Q1, I'm pleased to report that we added 4 additional preferred payer agreements and are well on our way to exceeding our goal of 50 preferred payers in home health in 2026. 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 total admissions and episodes as well as improvement in our clinical and financial outcomes.

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 in Med Solutions and expected that number to grow to 25 by the end of 2026. As of Q1, we signed 2 additional agreements for a total of 20 preferred payer agreements to date. 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 Q1 volume growth in Med Solutions of approximately 93,000 UPS or positive 4.5% over the prior year period. As we think about Medical Solutions growth in 2026, I would expect us to remain in the mid-single digits for the next few quarters and then return to double-digit growth by the end of the year. 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.

Now turning to our recently announced transaction to acquire Family First Homecare, a Florida-based company with a great reputation for quality in-home pediatric care. Again, I would like to send my warm welcome to the Family First teammates. I am thrilled to continue our acquisition growth story with great companies like Thrive Skilled Pediatrics and Family First Homecare. Both companies continue to build upon the Aveanna brand of high-quality, compassionate care in the most cost-effective setting, the comfort of our patients' home.

We continue to work through the regulatory approval process and expect the transaction will close sometime in late Q2. I look forward to updating you on our progress in the coming months. Additionally, let me comment on our strategic plan and enhanced outlook for 2026.

We will focus our efforts on 5 primary strategic initiatives: first, strengthening our partnerships with government partners and preferred payers to create additional capacity and growth; second, improving clinical outcomes and customer engagement scores, while lowering the total cost of care; third, implementing high-priority artificial intelligence and automation efforts to improve operational efficiency and productivity gains. Fourth, growing through acquisitions, while improving net leverage and free cash flow; and finally, engaging our leaders and employees in delivering our Aveanna mission.

Based on the strength of our first quarter results and the continued execution of our key strategic initiatives, we are increasing our full year revenue and adjusted EBITDA guidance to a revenue range of $2.56 billion to $2.58 billion and an adjusted EBITDA range of $328 million to $332 million. We believe this enhanced 2026 outlook provides a prudent view considering the challenges we still face with the evolving environment and does not include the impact of the Family First acquisition.

As I reflect on the strong start to 2026, I want to take a moment and comment on our Second Annual Aveanna Cares Month of Community service. We dedicate the month of April to not only focusing on our mission, but living that mission in our 379 communities. Aveanna Cares is an extension of the care we provide families every day, and we are proud to give back, help others and strengthen our communities and our teams through our volunteering efforts.

We set an ambitious goal this year to serve 7,500 volunteer hours, and I am extremely proud to announce that our Aveanna's family completed over 9,000 total volunteer hours. Our teams held approximately 200 volunteer events nationwide and lived our core values, while giving back to the important local charities that support children, adults and seniors in our communities. I look forward to raising the bar in 2027 with plans to further expand our Aveanna Cares impact across the country.

With that, let me turn the call over to Matt to provide further details on the quarter and our 2026 outlook. Matt?

Thank you, Jeff, and good morning. I will first talk about our first quarter financial results and liquidity before providing additional details on our refreshed outlook for 2026.

Starting with the topline. We saw revenues rise 15.9% over the prior year period to $647.9 million. We achieved year-over-year revenue growth in all 3 of our operating divisions, led by our Home Health & Hospice, Private Duty Services and Medical Solutions divisions, which grew by 17.4%, 16.4% and 7.4% compared to the prior year period.

Consolidated gross margin was $205.4 million or 31.7%. Consolidated adjusted EBITDA was $84.4 million, a 25.2% increase as compared to the prior year period. This growth reflects an improved rate environment, increased volumes as well as enhanced operational efficiencies.

Now taking a deeper look at each of our segments. Starting with Private Duty Services. Revenue for the quarter was approximately $536 million, a 16.4% increase and was driven by approximately 12.1 million hours of care, a volume increase of 10.7% over the prior year. Q1 revenue per hour of $44.43 was up 5.7% compared to the prior year quarter, primarily driven by growth in preferred payer volume and updated reimbursement agreements. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.

Turning to our cost of labor and gross margin metrics. We achieved $149.2 million of gross margin or 27.9%. The cost of revenue rate of $32.05 in Q1 was up $2.17 or 8.1% from the prior year period. Our Q1 spread per hour was $12.38, reflecting continued normalization driven in part by ongoing caregiver wage adjustments, supporting higher volumes and improving clinical outcomes.

Moving on to our Home Health & Hospice segment. Revenues for the quarter was approximately $66.6 million, a 17.4% increase over the prior year. Revenue was driven by 11,000 total admissions with approximately 80% being episodic and 14,900 total episodes of care, up 23.1% from the prior year quarter. Medicare revenue per episode was $3,167, up 0.5% from the prior year quarter. Our episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 75%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings.

We are pleased with our Q1 gross margin of 53.7%, representing our continued focus on cost initiatives to achieve our targeted margin profile. Our Home Health & Hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.

Now to our Medical Solutions segment results for Q1. During the quarter, we produced revenue of $45.7 million, up 7.4% over the prior year period. Revenue was driven by approximately 93,000 unique patients served and revenue per UPS of approximately $491, up 2.9% over the prior year period. Gross margin was approximately $20.4 million or 44.7% for the quarter. As Jeff mentioned, we are in the final stages of implementing our preferred payer strategy in Medical Solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. As a result, we expect margins to normalize and UPS to continue to accelerate its growth in the back half of 2026.

In summary, we remain focused on keeping our patients care at the center of everything we do. It is clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aveanna. With the strong momentum through Q1, we are optimistic these trends will continue into 2026. We would continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes.

Now moving to our balance sheet and liquidity. At the end of the first quarter, we had liquidity of approximately $525 million, representing cash on hand of approximately $189 million, $110 million of availability under our securitization facility and approximately $226 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $24.5 million in outstanding letters of credit at the end of Q1.

On the debt service front, we had approximately $1.48 billion of variable rate debt at the end of Q1. Of this amount, $520 million is hedged with fixed rate swaps and $880 million is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all our variable rate debt is hedged. Our interest rate swaps extend through June 2026 and our interest rate caps extend through February 2027. In anticipation of the swap expiration, we entered into an additional interest rate cap agreement effective July 2026. This agreement limits exposure on $520 million of variable rate debt to increases in SOFR above 4% through December 2029.

Looking at year-to-date cash flow. Cash generated by operating activities was $4.3 million and free cash flow was negative $3.8 million. We are encouraged by our strong cash collections and cost efficiency efforts, which drove solid operating and free cash flow in 2025, and we expect similar cash flow performance in [ 2026 ] . As a reminder, the first quarter is typically our seasonal low point for both operating and free cash flow with improvement expected throughout the rest of the year.

Before I hand the call over to the operator for Q&A, let me take a moment to address our raised outlook for 2026. As Jeff mentioned, we expect full year 2026 revenue range of $2.56 billion to $2.58 billion and adjusted EBITDA range of $328 million to $332 million. Consistent with our standard practice, our full year 2026 guidance excludes the pending Family First acquisition, which we expect to close in late Q2.

As we reflect on our Q1 results, I'd like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q2.

With that, let me turn the call over to the operator.

[Operator Instructions]

Our first question comes from the line of Ben Hendrix with RBC Capital Markets.

Congrats on the strong performance. Just wanted to get some comments on the regulatory backdrop, specifically with the Home Health moratorium on new Medicare licensure announced yesterday. Just wanted to get your overall thoughts, any impact it's having on your acquisition strategy to the extent to which it might impact acquisitions like Family First or others. Any kind of comments you can give on the backdrop?

Well, Matt won the bet because we figured that would be the first question, the second question, third question. So I appreciate you just getting us right there. All kidding aside. Ben, I think if I think macro industry-wide, I'll start with the industry, and then we'll come back to Aveanna. Dr. Oz at CMS, the administration have been pretty deliberate with their messaging around fraud, waste and abuse now for at least a year, if not longer. And we -- I view yesterday's CMS announcement regarding the Home Health & Hospice 6-month enrollment moratoria as consistent with Dr. Oz's messaging over the last 6 months to a year.

I'd be remiss as an industry participant to say that we're disappointed that a nationwide moratoria is not the way to solve L.A. County's specific targeted fraud, waste and abuse. But I do think it's consistent with the messaging that CMS has been sharing the last 6 months. If I drill down to Aveanna and Family First, it has absolutely no impact, 0 impact on Aveanna, the way we have read it. It has 0 impact on our 2026 business plan, our 2027 business plan. Our Home Health & hospice business was built through M&A and then organic growth. So I think for that part of it, we feel positive and pleased that the rule was thoughtful.

The moratoria was thoughtful to not penalize current Medicare beneficiaries and current providers. But we would like in this next 6 months with The Alliance, National Alliance of Care at Home and all of our industry peers to work with Dr. Oz and CMS to really target the areas where fraud, waste and abuse are occurring, specifically places like L.A. County because this does punish rural-type health care, right? Rural health care needs more providers. They need more robust Home Health & Hospice providers.

So we want to work with the administration, and we think the thoughtfulness of how Dr. Oz has approached things that, that opportunity will avail itself. But we expect to get this question a lot today, and I'll reiterate, absolutely 0 impact on our 2026 guidance, our results and our ability to grow the business successfully.

Great. And just to be clear, there's nothing that involved in the transfer of a Medicare licensure that would require you guys to kind of reapply that might be impacted by this moratorium.

No. And I think CMS did a nice job yesterday in releasing the Q&A, right? So if you're able to kind of read the Q&A and the 36-month rule has been in place for at least a decade, maybe even 2. So you still have to adhere to the 36-month rule in any kind of targeted acquisition on Home Health & Hospice assets, and that's been in place. So nothing new there.

But no, nothing that limits our ability to do normal things like move and address or the normal things that we do. And I think in the Q&A, they did a good job of laying that out, and we don't see it having any impact on future M&A in that space as well. And then again, I think they're targeting bad actors, and I think they were thoughtful in this to release the fact that they were not intending to punish good actors and reputable providers like us.

Our next question comes from the line of Brian Tanquilut with Jefferies.

So maybe I'll add to Matt's pot here for a little bit. Jeff, a question for you. I appreciate the answer to Ben's question. I just want to clarify, the moratorium is only on the Medicare home nursing side, right? And then I guess the second part of my regulatory question would be, when we think about the core PBM business in the context of all the scrutiny we're seeing in Private Duty or Personal Care Services and the Medicaid, I just want to make sure that your business is not impacted and you're not seeing anything there.

Great question, Brian. And I'll answer in 2 parts. One, again, kudos to CMS, I thought they were very thoughtful in how they put the information out there yesterday. They did talk about Medicaid and SHIP programs, right? And they certainly are encouraging states to be thoughtful in how states audit the Medicaid and SHIP programs. They also were crystal clear that it did not impact Medicaid and Medicaid reimbursement.

The second part is we do operate under a significant number of Medicare provider numbers to get our Medicaid license in certain states. So we have many, many Medicare provider licenses in our PBM business. It's just to have the right to do business to have a Medicaid license. So again, no impact to our Medicaid business to your point.

And again, I think more thoughtfully, as we think of growing our Medicare business, we put the business together through 4 acquisitions over the last 5 years. The rest of it has been organic growth over the last 3 years. Nothing that we have reviewed in yesterday's announcements would say that we can't continue an M&A strategy, a thoughtful M&A strategy in our Home Health & Hospice business.

I appreciate that. And then, Matt, this was for you. When I think of the guidance for the year, just curious if you can call out the cadence that we should be thinking about, especially from Q1 to Q2, given some of the one-timers that were in the quarter?

Yes. Great question there, Brian. And I'll first start off by saying how proud we are of all 3 of our divisions and all 3 teams, significant organic growth in all 3 operating divisions. And they really drove great financial performance and the financial results that you're seeing today, but they also drove phenomenal clinical performance in the background as well. All that being said, we continue to see very, very strong cash collections in Q1 on some previously reserved AR. Really, that was to the tune of about $6 million. That impacted both our revenue and our EBITDA in the quarter itself. So a little bit heightened in the quarter.

I know we've said this for quite a few quarters now, but it's -- we're continuing to win and it's really because of the artificial intelligence and the automation that the teams have put in on our RCM department. It's allowed us to really reduce our DSO, improved our cash collections and shift some of our capacity to go grab some of that aged AR that we thought previously was uncollectible. So we're going to continue to push that forward and remain focused on artificial intelligence, especially in our RCM department as we're seeing such wonderful results from it.

On -- just one plug I'll put in there as a reminder for more of a Q2 item itself there. In 2025, we did benefit from about $11 million of that timing-related business or timing-related items. If you exclude those, Brian, for 2025, we still expect to see really solid EBITDA growth in Q2 of 2026. So once again, proud of the teams, what we've been able to accomplish, not only on the cash collection side, clinical side, but most importantly, the operational and the organic growth side, too.

Matt, great answer. I think as you think of the build this year, it will be a little bit different. Normally, Q1 is one of our lowest EBITDA quarters. And I think from what Matt just said, our build will be a little bit different this year, where Q1 was, I think as Matt laid out, $5 million to $6 million stronger than we had expected to be, both on the revenue and EBITDA side. So our build to Q2 will be a little bit less than it normally is. But still, I think as Matt laid out, we expect to have a strong -- very strong Q2.

And if you back out the $11 million in Q2 of '25, it will be a nice year-over-year continued growth. So as Matt said, not only the AI and the automation, but also our preferred payer relationships just continue to generate great collections and efficient collections, which is a wonderful opportunity for us.

Our next question comes from the line of Raj Kumar with Stephens Inc.

Maybe just kind of -- I know you talked about some of the preferred payer kind of wins this year on the Private Duty Services side. And maybe kind of thinking about -- I think you also talked about adding 4 to 5 value-based care contracts within this year, too. So maybe just any update on the movement on that front.

Yes, Raj, I think let me step back for a second. We've had a nice balance in the last 3 years of government, state and federal rate wins, mainly Medicaid-driven and preferred payer wins. We started messaging mid last year, we thought the government side of that would start to slow down or we use the word moderate a lot. I think we've seen that in the second half of 2025 and the early parts of '26. What we've also seen is the payer relations and preferred payer is picking up for us.

So as we exited 2025, we had a nice momentum in 2026. So we see our preferred payer wins, both in PDS, Home Health & Hospice. And if you heard, we had our first 2 additional preferred payers in Medical Solutions in Q1. So I think what you'll hear from us this year is an uptick of preferred payer wins more so than the government rate wins that we're receiving, and that's kind of what we expected.

As you asked, following that will be our value-based agreements, both in PDS and in Home Health as well. But strong start to the year. Clearly, we set a goal to sign 5 additional agreements in Home Health. We signed 4 in Q1. So clearly, we will exceed that goal. 8 preferred payers in PDN, and we signed 4 in Q1. I think we feel confident we'll break that goal. But I think big picture, think of 2026 being more of a preferred payer win and a little bit more moderated government affairs wins.

Got it. And then maybe just following up on the kind of the strategic initiatives within Medical Solutions and the preferred payer strategy there. As you kind of think about the opportunity, is there a way of framing like the number of unique patients that are kind of under the preferred payer arrangement relative to just the number of contracts as we kind of think about the opportunity here?

Yes, Raj, over time, we'll continue to release this information as we're continuing to roll out. We're really proud of what the teams are doing and rolling out and finishing up these modernization efforts, which we expect them to complete in Q2, starting with 0 preferred payers at the beginning of last year, working it up to 18 to end 2025, adding 2 in the fourth quarter itself.

We are starting to see that pipeline continue to pull through preferred payers quicker and really put them to the front of the list and valuing those who value our resources and our time, effort and energy as well. We'll continue to mature this as we sunset or complete our modernization efforts in Medical Solutions. And once we do that, then we'll start releasing additional data on there.

And I think Matt, well said. Raj, right now, we would anchor to 4.5% organic year-over-year growth and a 44.7% gross margin.

Also 7.4% revenue growth, which has some preferred payer work in there.

And I think, Raj, that shows you we're back to growing this business. It's the first quarter we've had 93,000 unique patients served in a quarter. So -- and to Matt's point, our margin profile is working. Our outcomes are successful. Our collections are working.

So that business, to your question, is beginning to act like the other 2 businesses under preferred payer. And these guys have been under the hood now for almost 18 months working really hard. So a shout out to our Medical Solutions team. They have really done a lot of work over the last 1.5 years to get this model in place.

Our next question comes from the line of Benjamin Rossi with JPMorgan.

Regarding 1Q margin dynamics, I imagine you've got some margin lift quarter-over-quarter with the 53rd week dynamic in 4Q. You mentioned the AI contribution here, too, in RCM. I guess as you've been assessing the cost structure in context of your long-term margin profile, could you walk us through how expenses trended during 1Q compared to your expectations and how you're thinking about expense trends within your revised 2026 outlook?

I would tell you, great question, very thoughtful, too, Ben, at the same time, thinking about that 53rd week transitioning from grabbing a few payroll tax dollars in Q4 of 2025 as opposed to Q1 of 2026. Really, the most impactful one was that $6 million I referenced earlier that hit our EBITDA -- that hit our revenue and EBITDA line item. If you still normalize that out, we're in a very great position on our -- for Private Duty Services, really sitting around that 28% gross margin, right in line with our expectations of where we should be.

On the SG&A side, really impressed with what the teams have been able to accomplish. We're continuing to grow our business organically, continuing to add preferred payer contracts, add additional volumes in all 3 operating divisions, while adding very, very little overhead at the same time. It's really driven by these automation efforts that we put in place, and it's small items at a time, scheduling, RCM, areas that we think we can get some real good leverage out of. And we haven't had to add that incremental overhead as we've continued to grow.

I would expect to see what you saw in Q1 pretty consistent with the rest of this year, while getting small basis point wins in Q2, Q3, Q4 and continue to ramp that up over time.

And Ben we didn't mention weather, and we have a no excuse policy here at Aveanna. So weather has an effect on life. But we did get hit with 2 major weather events in January. So I think to your point, the 53rd week pulled a holiday week into last year, which was nice. That offset probably $1 million for the payroll taxes and push it into last year. But we lost about $5.5 million, $6 million of revenue through the 2 weeks of weather that equates to about $1 million, $1.5 million of margin in EBITDA.

So we hit these results with playing through that. And I think had you said to us without the timing-related collections and positive effect, we would have ended up in the high 70s, which is probably where we thought this was going to land. So ramping off a high 70s number, I think, to Matt's point, makes the rest of the year make a ton of sense.

Great. Appreciate the added details there. Just a follow-up on the preferred payer contract wins in PDS. And think about those preferred payer economics as penetration of preferred payer mix increases in that segment, do you expect your revenue rate to also reaccelerate or do you expect growth to continue to be more primarily volume-driven with wages absorbing most of this upside in pricing? I guess just curious on how [ you're thinking about the ] wage pass-through here.

I'd say the latter. I'd say at this point, our -- for the most part, our PDS rate and wage has basically settled in, I think, to the range where we think it will be -- it will move by 1 percentage point or 2, but I don't think it's going to move by $0.50 or $1 per hour.

Really proud of how the team started the year. I mean, 4 wins in Q1. I'm not going to get ahead of myself talking about Q2 yet. Matt will pull me back. But additional wins that we'll be talking about in Q2, the team started this year. We knew we needed more out of preferred payers this year. We knew that was going to have to pick up the slack from more moderated state rate wins. And as I mentioned before, we're seeing that.

So I think the majority of this will continue to drive volume, and you'll see a pretty consistent spread in that low $12 range moving forward. But again, really, really proud of our preferred payer team. They are doing an amazing job.

Our next question comes from the line of Sean Dodge with BMO Capital Markets.

Maybe just staying on PDS for another moment. You talked about before that segment returning to 5% to 7% organic growth for this year. Just any updated thoughts on that. And if we look at what you all did in Q1 in terms of hours and kind of revenue per hour and just annualize that, that alone gets me a bit above the high end of that range. And I know Thrive contributes some there, but it also is not adjusting for the extra week, Matt, that you mentioned, the weather or factoring in any additional rate increases or any new preferred payers you're talking about.

So just trying to square that and make sure I'm not missing any onetimers or anything else impacting kind of Q1 and how we think about that annualizing over the year.

No, I don't think you are, Sean. And we're continuing to see really impressive growth across our PDS segment and from our PDS teams itself. When you start normalizing out the Thrive acquisition, we still had growth in the high single digits on revenue, which was really, really impressive. We will pass that in Q2 because we closed that acquisition on 6/2 of 2025. And so then you'll see that start to drop back down.

But we are seeing moderation starting to occur to there, 16.4% phenomenal, close to double-digit growth, phenomenal, but that will eventually mature over time. We just want to be open and honest with the people and understand that, hey, we underpin this division to a much lower growth rate, though we are accelerating at this time.

Okay. Great. And then on the tech or the AI initiatives, Matt, you referenced your work in revenue cycle. You've also talked before about now tackling more front office type functions with that. I was wondering if you could just kind of help frame for us like what proportion of your OpEx? So I guess this would be like things within the branch and regional admin and your corporate expense line. Like what percent of those do you think is ultimately like impactable with technology over time? And like what inning do you think we are in when it comes to kind of leveraging tech to drive more efficiency and savings?

Yes. Sean, top of the first inning, bottom of the first inning, but we're still changing sides right here early in the game. We are seeing benefits from it, but we're just being very thoughtful. We're not diving head first into the shallow end without wading into it first and making sure to see how deep it actually is.

We have seen benefits in that RCM and really proud of the teams for leaning in and really being able to drive better results, reduce our DSO, collect cash a lot faster, but also on the operational side of it, between scheduling, between the automation work that a lot of our teams are doing in the medical solutions with tenor, what our accounting teams are doing as well.

These are areas that we're just chipping away at it, and we're getting better and we're getting smarter, and we're getting faster every single day. I would tell you, it's still very, very early to crown any champions out here, but we're going to continue to lean in and get the results that we can from it.

Our next question comes from the line of John Ransom with Raymond James.

Just to hit on the obvious, you beat by $13 million, you raised by $10 million. Is there anything going on here other than just conservatism?

I think -- well, yes, let's start with the $6 million of timing related, John. And again, I know we sound like a broken record, right, because it's 3 out of 4 quarters we always talked about positive benefits to revenue and earnings. So we recognize that at some point, folks are just going to bake that into our baseline. But we think of the quarter as in the high 70s number, sub-80 number of EBITDA generated out of the quarter based on the results in the quarter. And the other 6 -- $5 million to $6 million being more of lagged AR that was then collected that we're able to take.

So we think of basing off of the high 70s and really the normal step-up to Q2 would be kind of where we were in Q1, kind of a mid-80s. So I think, certainly, it's still early in the year. We're still seeing things shake out, but $10 million for us in EBITDA, John, was aggressive. So thank you. We felt like we were being aggressive, but appreciate the conservatism question.

And the other thing, I know you don't guide for Family First, but assuming we put that in our model, how should we think about 3Q, 4Q EBITDA contribution from that deal?

Great question.

Yes, John. And we're really excited for this Family First acquisition and really a Family First team and bringing them to the Aveanna family. They've got a great focus on clinical outcomes. They have really, really good operational discipline as well, which brings them in culturally and strategically, a nice fit for us. That transaction, we talked about valuing it about 7.5x post-synergy EBITDA itself.

So you can back into the math on that one based upon closing date. And then revenue has been sitting around the $120 million mark itself. So depending on closing time of it, we'll come and update our guidance accordingly. But right now, we've just left it out without knowing exactly when that date is going to occur.

My point being like is the post-synergy EBITDA, I assume, that's not going to be realized right off the bat. So just kind of make our own journey on how long it takes you get to that post-synergy EBITDA number.

Yes. We're pretty quick on it itself to get on a full run rate basis. It takes us about 6 months, John, to get to kind of hard number itself. But we start bringing it in day 1. But then we'll go recognize it, tuck them on to our systems, bring them on to our platforms, put them on our payroll process, put them in our operating model as well. When all that happens, that takes a grand total of 6 months, and then there's that lag of AR that runs down. But that full synergy recognition is in with that 180-day period.

And John, if we use Thrive from last year, we closed Thrive on June 1, June 2. We were effectively done by Thanksgiving, December 1, and then AR is still running off today. We expect to close this by the end of June, July 1. And to Matt's point, we would be done by December. By Christmas holidays, we would be done. And then again, AR would run off through the majority of '27. But low-hanging fruit. It's a great company. To Matt's point, great culture, fits right in our wheelhouse. This kind of stuff we should be doing.

And I'm sorry to drag this out, but is the first -- the rate that you have versus the rates they might have, is that captured immediately? Or do you have to go through a contracting cycle?

Here's the beauty, John. We don't know. We stay out of that for all the right reasons, for the right regulatory review process. We are -- we do not operate around rate knowledge. We just -- and none of our assumptions are built on any kind of rate arbitrage. We just focus on filling in the geography that we didn't have that they do, the density that they had in certain sort of markets that we didn't even service. So really filling out needed geography for us in key markets like Florida was the most important reason. So we're excited.

Our next question comes from the line of Andrew Mok with Barclays.

Your Home Health episodic mix was north of 80% in the quarter and well above the 75% target. Can you help us understand the trends underneath that? How much of this positive trend is driven by Medicare Advantage versus traditional Medicare? And to the extent this is driven by Medicare Advantage, why wouldn't this number sustain at these levels or tick higher as you target more preferred payer agreements?

Thanks for noticing that. Again, we've been in the high 70s now for, I'll call it, 4 quarters in a row. We've been floating with 80% towards the end of last year. And we had said that 80% we felt like was kind of the peak. At this point, Andrew, more Medicare Advantage payers are getting comfortable with the episodic nature. And it's some form of Medicare minus 5%, 10%. So it's not -- they're not all set at Medicare episodic rates.

But as they get more comfortable with this, the growth is just working for us. We're able to add -- we mentioned in Q1, we added 4 new contracts. The majority of those were Medicare Advantage contracts. And they were all episodic, right? So at the end of the day, I think we see this number staying in the high 70s. We've not adjusted our target to 80% or above at this point. I don't know that we will. But we've been pretty consistent now for 2 or 3 quarters in that high, high 70s, low 80s. And I don't think it's going to change as we continue to sign more Medicare Advantage contracts. They are getting more and more comfortable with this as a form of contracting.

Great. And maybe just a follow-up. Your capital expenditures increased to $4.5 million in the quarter, which is more than double your typical spend. Can you provide more color on the nature of that and how that's supposed to track for the balance of the year?

So Andrew, that Q1 purchase was really related to a laptop refresh that we had kind of baked in and we're expecting, but it's not going to continue. That trend won't continue through the rest of the year. So it was really a onetime kind of purchase on our laptops.

Great. Great. It was our employees' feedback. It was one of their highest feedback points for us was they wanted new laptops. So good catch, Andrew, very good catch.

Our next question comes from the line of Pito Chickering with Deutsche Bank.

On PDS, I just want to make sure I understand sort of the economics of what you've laid out. You won 4 preferred contracts in the first quarter, expect to win another 4 during the year. And you're guiding to, I think, the rate being fairly consistent throughout the year. I mean wouldn't we see some increase as more preferred come online?

And then going back into 2024 on the spread side, it looks like as if spread is growing at the same level as the rate. Is that the right way to think about spread going forward is if rates grow at X percent, that spreads should grow at the same level?

Yes, great question. Thank you. Yes, I think, one, we're expecting to receive less state, government rate wins. So the preferred payer contracts we are winning are offsetting some of the more moderated state, government rate wins that we had received over the last 3 years, which is why we don't see the rate changing materially. 44% -- 43% may go to 44% or 60%, but we don't see it going to 44% or 45% within the course of the year.

And then, yes, I think your thoughts on spread and Matt would say, translate that to gross margin. We think that gross margin will stay in that 28%. Could it touch 28.5%, Sure. Could it be 27.6% or 27.7%, Sure. But we think of that being in the 28% range as well as that spread per hour being somewhere just north of $12. And again, it will move generally. But yes, we are passing -- continue to pass wage through the 4 agreements we signed. We have passed wage. We are in the process of passing rates through to those nurses and caregivers as we speak.

Great. And then with 60% of the PDS revenues coming from preferred, I know you're not giving '27 guidance at this point, but can you talk about the mechanics of how the annual price increases are set on those preferred contracts? As you think about sort of the out years, kind of how much clarity do you have on what those price increases should be by nature of those preferred contracts you guys have already written?

I'd like to reflect that. 10.53 on May 14, you as for 2027 guidance. So that's impressive. Pito, I think as we laid out earlier this year, we thought 57% of the MCO volumes would go to low to mid-60 percentage points. I think based on what we see today, we would say that, that's accurate this year, be right in the mid-60s. We've said before publicly, we thought this could get to the low to mid-80% at some point in the future. People have asked us what inning are you in? It's not the first inning, but it's probably the fifth or sixth inning. We're probably about halfway through this process.

As it relates to PDS specifically, I'd say in Home Health, we're still in the early stages of this story and certainly Med Solutions, we're in the very early stages. But I think you'll see that somewhere between 3% to 5% volume shift per year continuing over the next 3 to 5 years. There's not a lot of large, large volume payers for us to sign in our current market. So we're down to the very fine minute payers.

But it's also why when we talk -- and Kris, he's sitting, our Chief Operating Officer, next to me, we've talked about filling in Ohio and Michigan and West Virginia and Tennessee and Kentucky, filling in some of those additional markets where we have no Medicaid revenue today, no preferred payers. All of that's new greenfield to us. So as we do think about the next 3 to 5 years, we want to fill in those geographies, which would create new opportunity for us to add brand-new preferred and really just new greenfield for us in the Medicaid space. And we said before, our payers, our national MCO payers have asked us and are asking us to move into these markets for them.

So I guess the follow-up there is just what price increases sort of are baked into these preferred contracts. One of the questions that I keep getting is each quarter, you guys are beating by huge amounts guidance isn't changing, so the buy side tries to figure out what are sort of the true out-year numbers. I guess what percent of your contracts have inflation already built in? Kind of any color on sort of what inflation is built into those contracts?

I don't have the perfect answer the way you asked it other than thank you. Thank you for that comment or the compliment. I think there's a compliment in there. Other than, Pito, all of our contracts are annual and evergreen. So we've not -- as we said before, our first preferred payer is still part of the 34 preferred payers today. So we've not lost a preferred payer to date. That may change in the future, but not today. Every contract we have is reviewed every year. Matt would even say every quarter, even though they're not quarterly contracts, but our teams are meeting with the payers quarterly.

So the opportunity for rate enhancement and for additional value-based agreements are there in every one of the contracts every year. We've also said before that the value-based agreements take normally between 9 and about 18 months, post the point at which we signed the preferred payer agreement, not because we're not ready, but it just takes the payer time to get comfortable with the fact that they would add on an additional upside bonus to us.

So again, the tail on this plays out years in front of us on the value-based side, but very few of our agreements have COLA or cost of living type rate increases built into them. Those are annual conversations that we're -- and by the way, we're not having those every year with them. We're having every other year, every third year because the upfront rate they're paying us is pretty material compared to the Medicaid fee-for-service schedule. That's probably the best way I can answer the question.

Our next question comes from the line of A.J. Rice with UBS.

First, just maybe on your comment in the prepared remarks, I think you said that caregiver hiring and retention is strong or is solid. Is that -- would you say that's pretty much a function of the rate environment that you're seeing? Or is there any underlying trend with potential clinician candidates that suggest things are stabilizing or even improving somewhat?

I think you hit it right, A.J. It's being driven by rate and wage, right? The 2 are moving in unison, kind of to Pito's point, like the $12, how that's moving in unison as our rate goes up, consistently, our wage is going up. So it's really a function of continuing to get rate wins, turning that into wage improvements and ultimately hiring and employing more caregivers. I wouldn't say it's getting easier.

I'd also say it's not getting harder over the last 6 months. We haven't had -- other than the weather type stuff, we've not had a position where we felt like nurse hiring or family caregiver hiring has gotten harder. It's been pretty consistent. But the wins, the growth, Matt talked about high single-digit PDS growth, organic growth, that's tied to the rate and wage pass-through. So think about accelerated wages tied to accelerated rate.

Okay. I wanted to just ask you, a minute, about Medical Solutions. You're saying, I think, guiding to mid-single-digit growth near term, but double digit by year-end. What specifically is going to drive that acceleration? And is that -- are you able to cross-sell on these new -- these 2 acquisitions? Is that part of the dynamic that will drive more volume into Med Solutions? And I think you said also gross margins have stabilized there. Is that stable and that's sort of where we're going to be for a while? Or is there improvement potential in Med Solutions as well?

Yes, A.J., on the gross margin side of this, I would tell you that the 44% range is kind of right down the middle where we expect it to be. And really, what you're already seeing in the Medical Solutions division in Q4 and Q1 of this year is the benefits from the modernization efforts already taken hold. So as we move through 2026, you've seen us jump up from mid-single digits to the higher end of that at 7.4%. You'll see that continuing to grow to that high single digits, low double digits in the back half of this year. But it's really just the completion of our modernization efforts.

To your point, there's a great cross-sell opportunity in between our businesses themselves and bringing in the Family First acquisition gives another cross-sell opportunity for that division at the same time. But organic growth is something that this team is ready to start driving. And I would tell you, they've been felt -- left out the past couple of quarters, and they proved it in Q4 and Q1 so far.

And A.J., Matt said well, automation and AI is a big part of this. We get 5,000 or 6,000 e-faxes a week for this business. So the more we can use automation and AI to pull through the referral process and the follow-up physician orders and things that come with it, the more we can pull through growth. And so we are very pleased with 4.5%. This is all organic, right? This is truly organic. And I think we'll see that continue to tick up. Is 10% a little bit aggressive by Q4? Probably. But we think high single digits by Q4 and probably low double digits by the time we get into first half of next year.

Our next question comes from the line of Jared Haase with William Blair.

I'll just stick to one here as I realize we're getting to the end of the call. But I just wanted to double-click on the Home Health side. Again, nice to see the growth there. You pointed to clinical offerings and success on that front. And I think that's been kind of consistent with your commentary in the last few quarters.

I was just wondering if there's any more, I guess, color or data points you could share to sort of illustrate what you mean by the investment that you've made in terms of clinical outcomes since that really seems to be underpinning the operational performance here.

And I guess to be clear, when you talk about clinical investment, is that more kind of in areas around star ratings performance? Or is that maybe developing, I guess, specific programs based on the needs of patients and referral partners?

Yes. Great question, Jared. Thank you. Yes, I'll start with TPS scores, right? So we're now into the second full year of scoring on TPS scores. I think we mentioned last year, we were a net winner, net benefit. So we received value-based payments from Medicare because of our 5-star rankings. We are also on pace to be a net-net winner this year in TPS ranking. So your 5-star scoring tells you based on your value-based payments, whether you net win or net lose. So effectively, we have mitigated some of the rate decrease in the last 18 months in Home Health through our TPS scores.

We also have no 3-star agencies, both in Home Health or Hospice. We -- I think on average, we're 4.5 stars on Home Health and our 21 out of 22 hospice locations are 5-star branches. So we have phenomenal performance. The team has rolled out a cardio program that was CAP approved. So they've invested in, and actually -- excuse me, clinical programs and protocols that we're out selling and outsourcing.

So I think net takeaway is the team has done a really, really good job of providing great outcomes, great patient satisfaction in both businesses. And we've learned over time, you can't have a great financial outcome without a great clinical outcome. You also shouldn't have a great clinical outcome without a good financial outcome. And so I think the Yin and Yang in our HHH business are working right now, great growth and great clinical outcomes.

And our next question comes from the line of Grayson McAlister with Truist Securities.

This is Grayson on for Dave. Just one for me as well. I wanted to follow up on capital allocation. Obviously, some work left around Family First. But past that, how are you thinking about the potential for tuck-ins in Home Health, just given the regulatory backdrop versus something like adding density in one of those PDS states that you've called out like in Ohio or Tennessee. And just following on, still right to think about leverage somewhere in that 4x level ending the year? That would be it for me.

Perfect, Grayson. Yes, I think I'll start off on cash flow and end this on leverage here for you. So really, really pleased for the team's start to 2026. Our team continues to position Aveanna as a strong free cash flow generator. 2025, obviously, monumental year for us. We had about $130 million, $131 million of free cash flow, reflecting not only a commitment to clinical quality, but also cash collections in there as well. We expect this positive momentum to continue into Q1 and the rest of 2026 and the cash flow generation to be pretty consistent with what you saw in 2025.

On the leverage side of it, I couldn't be more proud of what we've been able to accomplish in the last few years on our leverage. We've done a lot. We've taken this down from double digits down to 3.8x net leverage here on an LTM basis in Q1. Certainly, not done either, still some more work to do. But we'll continue to be -- grow this company, not only organically, but also inorganically, while continuing to keep leverage at top of mind. We want to be highly sensitive to that and highly aware of it. So there's still some free cash flow that we can do for small tuck-in acquisitions. But beyond Family First this year, probably nothing monumental.

And Matt, I think that's well said, part of the goal, Grayson, is to do both, is to grow the company through tuck-ins, but also to continue to delever. I know Matt and the team are very proud of, [ Me ] and Debbie, lowering leverage almost 0.25 point in the quarter, close to 3.8x was a continued great movement. We're not done in that avenue. And as Matt said, our goal is to get down to at or below 3x leverage and to continue to grow the company, and we think we can do both.

And we have reached the end of the question-and-answer session. I would like to turn the floor back to Jeff Shaner for closing remarks.

Awesome. Thank you, operator, and thank you so much for your interest in our company and our Aveanna story, and we look forward to catching up with you after the end of Q2 in August. Thank you. Have a great day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to Aveanna Healthcare Holdings Fourth Quarter 2025 Earnings Call. Today's call is being recorded, and we've allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Debbie Stewart, Aveanna's Chief Accounting Officer. Thank you. You may begin.

Thank you, and good morning, and welcome to Aveanna's Fourth Quarter 2025 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 annual report on Form 10-K 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 Q4 and full year 2025 results and how we are moving Aveanna forward in 2026. My initial comments will briefly highlight our fourth quarter and full year '25 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 recently announced [ Family First Home Care ] acquisition and how we are thinking about 2026 strategic initiatives and our full year '26 guidance before turning the call over to Matt.

Now moving to highlights for the fourth quarter and full year 2025. Revenue for the fourth quarter was approximately $662 million, representing a 27.4% increase over the prior year period. Fourth quarter adjusted EBITDA was $85 million, representing a 54% increase over the prior year period, primarily due to the improved rate and volume environment and continued cost savings initiatives. Revenue for the full year 2025 was approximately $2.433 billion representing a 20.2% increase over the prior year period and full year 2025 adjusted EBITDA was $320.8 million, representing a 74.8% increase over the prior year period.

As a reminder, our fourth quarter and full year 2025 results did benefit from a 53rd week due to our accounting calendar. As we sunset 2025, I think it's important to reflect on the 3-year strategic transformation that we have successfully navigated, I am proud of the Aveanna team of leaders, employees and caregivers that believe in our mission and help execute the key strategies that returned Aveanna to our current performance.

As we look forward, we remain deeply committed to our preferred payer and government affair strategies that continue to drive our growth in all 3 operating divisions. 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 believe 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 Q4 and full year 2025 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 revenue and adjusted EBITDA.

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 normalized growth rates in all 3 of our business segments.

Since our third quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners as well as continued signs of improvement in our caregiver labor market. Specifically, as it relates to our private duty services business, our government affairs strategy for 2025 was twofold.

First, we advanced our legislative agenda to improve reimbursement rates in at least 10 states. And second, we continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. Our strong advocacy presence with both federal and state legislatures as well as solid support from our governors across our national footprint provided significant value in 2025.

As it relates to private duty services rate updates, we achieved 10 rate enhancements in 2025, which was in line with our expectations. As we reset our legislative goals for the new year, we expect to achieve high single-digit state rate enhancements for 2026. After 3 years of meaningful rate movement in our PDS stakes, we are generally in a good place as we navigate 2026 and focus on cost of living type rate and wage adjustments moving forward.

Now moving on to our preferred payer initiatives. Our goal for 2025 was to increase the number of private duty services preferred pay agreements from 22 to 30. We added 8 additional preferred pay agreements in 2025, achieving our goal of 30. 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 patients.

As we reset our preferred payer goals for 2026, we believe there is still ample room to grow in our current geography as well as new states that we enter through acquisitions. With that in mind, our goal for 2026 is to add 8 additional agreements with a target of 38 preferred payers by the end of 2026. Additionally, our Q4 preferred pay agreements accounted for approximately 57% of our total private duty services [ MCO ] volumes. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our preferred payer partners. We believe this important volume metric will grow to the low 60% in 2026 and as we continue to align our capacity with our payer partners.

Moving to our preferred payer progress in home health. Our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. I am extremely pleased to report in Q4, our episodic mix was 78% and our total episodic volume growth was 25% compared with the prior year period. The continued investment in clinical outcomes, sales resources and a focused approach to growth is paying dividends with Q4 total admissions of 10,400 or 22.4% growth over the prior year period.

We ended 2025 with 45 preferred pay agreements in home health. 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 total episodes and improvement in our clinical and financial outcomes.

As we reset expectations in home health and hospice for 2026, we believe our episodic payer mix will remain above 75% with organic growth rates approaching double digits. We also expect to sign additional preferred pay agreements in home health and are now targeting more than 50 agreements by the end of 2026. Finally, as we have achieved our desired preferred payer model on private duty services and home health and hospice, we are proceeding with a similar strategy in our Medical Solutions business.

We're in the late stages of implementing our preferred payer strategy in Med Solutions and believe it will be fully realized in 2026. At year-end 2025, we had 18 preferred payers, and we expect that number to grow with a target of 25 total agreements in 2026 as we achieve our desired preferred payer model. 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 timely fashion. I am pleased with our Q4 volume growth of approximately 92,000 unique patients served or positive 3.4% over the prior year period.

As we think about Medical Solutions revenue growth in 2026, I would expect us to remain in the mid-single digits growth for the next few quarters and then returned to double-digit growth by the end of the year. We are encouraged by our rate increases, preferred pay agreements and subsequent recruiting results. Our business has demonstrated solid signs of recovery 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.

Now turning to our recently announced transaction to acquire [ Family First Home Care], a Florida-based company with a great reputation for quality in-home pediatric care. I want to extend a warm welcome to our Family First teammates. I am thrilled to continue our acquisition growth story with great companies like [ Thrive Skilled ] pediatrics and Family First home care. Both companies continue to build upon the Aveanna brand of high-quality compassionate care and the most cost-effective setting, the comfort of our patient's home. We expect the Family First transaction to close sometime in Q2 with normal regulatory approvals. I look forward to updating you on our progress over the coming quarters.

Before I turn the call over to Matt, let me comment on our strategic plan and outlook for 2026. We will focus our efforts on 5 primary strategic initiatives. First, strengthening our partnerships with government partners and preferred payers to create additional capacity and growth. Second, improving clinical outcomes and customer engagement scores while lowering the total cost of care. Third, implementing high-priority artificial intelligence and automation efforts to improve operational efficiency and productivity gains. Fourth, growing through acquisitions, while improving net leverage and generating positive free cash flow. And finally, engaging our leaders and employees and delivering our Aveanna mission.

Based on the strength of our fourth quarter and full year 2025 results and the continued execution of our key strategic initiatives, we anticipate 2026 revenue range of $2.54 billion to $2.56 billion and adjusted EBITDA range of $318 million to $322 million. We believe this '26 outlet provides a prudent view considering the challenges we still face with the evolving environment and does not include the impact of the Family First acquisition.

In closing, I'm incredibly proud of our Aveanna team and their dedication to executing our strategic plan while holding our mission at the core of everything we do. We operate cost-effective patient-preferred and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources and government partners. With that, let me turn the call over to Matt to provide further details on the quarter and our '26 outlook. Matt?

Thank you, Jeff, and good morning. I'll first talk about our fourth quarter and full year 2025 financial results and liquidity before providing additional details on our outlook for 2026.

Starting with the top line. We saw revenues rise 27.4% over the prior year period to $662.5 million. We achieved year-over-year revenue growth in all 3 of our operating divisions, led by our private duty services, home health and hospice and medical solutions divisions, which grew by 28.1%, 27.3% and 21.3% and compared to the prior year quarter. Consolidated gross margin was $213.3 million or 32.2%. Consolidated adjusted EBITDA was $85 million, a 54% increase as compared to the prior year. This growth reflects an improved rate environment, increased volumes as well as enhanced operational efficiencies.

As Jeff mentioned, this year's fourth quarter included an additional 53rd week, which had a positive impact on both revenue and earnings. As a result, the current fiscal year reflects an extra week of business activity compared to a typical year.

Now taking a deeper look into each of our segments. Starting with private duty services. Revenue for the quarter was approximately $541 million, a 28.1% increase and was driven by approximately 12.4 million hours of care, a volume increase of 17.9% over the prior year. Q4 revenue per hour of $43.74 was up 10.2% compared to the prior year quarter, primarily driven by preferred payer volume growth and the rate enhancements previously discussed. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.

Turning to our cost of labor and gross margin metrics. We achieved $149.9 million of gross margin or 27.7%. The cost of revenue rate of $31.62 in Q4 was up $3.15 or 13% from the prior year period. Our Q4 spread per hour was $12.12 and reflecting continued normalization as we make ongoing adjustments to caregiver wages to support higher volumes and improve clinical outcomes.

Moving on to our home health and hospice segment. Revenue for the quarter was approximately $69.3 million, a 27.3% increase over the prior year. Revenue was driven by 10,400 total admissions with approximately 78% being episodic and 14,000 total episodes of care, up 25% from the prior year quarter. Medicare revenue per episode was $3,223, up 3% from the prior year quarter.

We continue to focus on rightsizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic emissions well over 70%, we achieved our goal of rightsizing our margin profile and enhancing our clinical offerings, we are pleased with our Q4 gross margin of 53.7%, representing our continued focus on cost initiatives to achieve our targeted operating model. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.

Now to our Medical Solutions segment results for Q4. During the quarter, we produced revenue of $52.5 million, up 21.3% over the prior year period. Revenue was driven by approximately 92,000 unique patients served and revenue per UPS of approximately $570, up 17.9% over the prior year period. Gross margin was approximately $26.2 million or 50% for the quarter. Medical Solutions Q4 revenue, gross margin and reimbursement rate benefited from a reserve release driven by stronger-than-expected cash collections on claims we have previously estimated as uncollectible. We expect results to normalize in Q1 with gross margins returning to the 43% to 45% range.

As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model. We're accelerating our preferred payer strategy and Medical Solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect margins to normalize and UPS to accelerate its growth as we implement our targeted operating model.

While I'm pleased with the integration efforts to date, we are entering the final push to complete our efficiency efforts and return to a sustained year-over-year volume growth in Medical Solutions.

In summary, we continue to fight through a difficult environment while keeping our patients care at the center of everything we do. It's clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aveanna with a strong momentum from Q4 and throughout 2025, we're optimistic these trends will continue into 2026. We will continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes.

Now moving to our balance sheet and liquidity. At the end of the fourth quarter, we had liquidity of approximately $529 million representing cash on hand of approximately $193 million, $110 million of availability under our securitization facility and approximately $226 million of availability on our revolver which was undrawn as of the end of the quarter. We had $24.5 million in outstanding letters of credit at the end of Q4.

On the debt service front, we had approximately $1.49 billion of variable rate debt at the end of Q4. Of this amount, $520 million is hedged with fixed rate swaps and $880 million is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable rate debt is hedged. Our interest rate swaps extend through June 2026 and our interest rate caps extend through February 2027.

Looking at cash flow. Cash generated by operating activities was $125.9 million, and free cash flow was $131 million. We are encouraged by our strong cash collections and cost efficiency efforts, which drove solid operating and free cash flow in 2025. We expect similar cash flow performance in 2026. As a reminder, the first quarter is typically our seasonal low point for both operating and free cash flow with improvement expected throughout the rest of the year.

But before I hand the call over to the operator for Q&A, let me take a moment to address our outlook for 2026. As Jeff mentioned, we expect full year 2026 revenue range of $2.54 billion to $2.56 billion, an adjusted EBITDA range of $318 million to $322 million. This guidance does not include any impact from the [ Family First ] acquisition, which we expect to close in late Q2.

As outlined in our recent 8-K, we were paying $175.5 million in consideration or approximately 7.5x post-synergy EBITDA. We plan to fund the transaction and related fees with cash on hand and our securitization facility. As we reflect on our Q4 results, I'd like to take a moment to express my sincere gratitude to all of our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q1. With that, let me turn the call over to the operator.

[Operator Instructions]. Our first question comes from A.J. Rice with UBS.

Hi, everybody. Congratulations on the Family First acquisition. Obviously, that's a decent-sized deal for you guys. And I think you've said you're going to fund that with cash and short-term borrowings. How should we think about the impact that's likely to have on leverage? And can you give us any early read on whether there's accretion there or the trajectory on the margin contribution over time?

Yes, A.J., we're really excited to welcome the Family First team and to the Aveanna family. They have really strong clinical outcomes, really disciplined operation and makes them a really nice cultural fit and operational fit and to our family. We value this transaction, as I said in the script, about 7.5x post-synergy EBITDA. You could see that on a very short-term basis, having a very, very minimal impact on our leverage profile. But with the generated free cash flow that we will produce in 2026, you should see us slightly -- flat to slightly down as the year progresses on a pro forma basis with both of those pieces taken into consideration. We still plan on deleveraging in 2026. However, slightly not the large jumps that you've seen in the past 2 years. Jeff, anything else?

Yes. I think, A.J., it's as Matt as well said, we've gotten leverage down to just right at 4x. As Matt said, we should end 2026 in that range with the Family First addition. And suggest it's just another nice transaction. Thrive was a great transaction for us. It densified our services, allowed us to be better payer partners, thrive mainly in Texas. This is a Florida focused deal for us. And it's a nice merger of 2 great companies. We got clear some regulatory hurdles over the next month or 2 and excited to get through those and get on to doing business with the Family First team, but a really nice acquisition for us to start the year.

Okay. Just maybe as a follow-up on the preferred provider arrangements that you're doing. At this point, do you have a pretty good geographic coverage across your footprint? Or are there still major geographies where you do not yet have it? And is the idea that the incremental that you did last year, the incremental this year, is that more density, multiple managed care Medicaid programs that you're contracting with in a given geography or is it still just trying to get the broad coverage?

It's a great question. The 8 we won in '25 and the additional that we're anticipating for '26 are in the current geographies that we have. I'll say current geographies post the Thrive acquisition because we added New Mexico in Kansas as our -- as 2 additional Medicaid states. So as we think about executing on 38 goal for this year, it is still densifying our current geographies.

I would tell you, at this point, we've landed most of the major payers in the major markets. So we're rounding out some of our payer partnerships. And then I think the next steps for us, as you think about like what's next for Aveanna from a Medicaid standpoint, we still want to fill in the states like Ohio, West Virginia, Kentucky, Tennessee, that's still -- that's an open area today where we don't have any Medicaid services. So those 4, 5 states and kind of the, call it, the [ Heartland], we really want to fill in -- that's how we think about additional M&A in the back half of 2026 and going in '27 on the Medicaid side of the business. Thanks, A.J.

Our next question is from Brian Tanquilut with Jefferies Group.

Congrats on this acquisition. Maybe, Matt, as I think about -- to start, when I think of Family First, any other color you can share with us in terms of how we should be thinking about revenues then I guess we go back to the EBITDA contribution. But just any KPIs, any metrics that you can share with us?

And then kind of related to that, Jeff, I mean, is this one of those deals where clearly you're densifying in Florida with a deal? Is this one that's been kind of like supported or encouraged by the payers where they've asked you in the past to go into new markets?

Awesome questions, Brian. And obviously, on 2026, financials themselves, the impact will depend on the timing of closing of this, obviously. That said, we really expect this to be a really smooth and efficient integration consistent on how the team successfully integrated the Thrive acquisition and brought that team onto the Aveanna platform.

On a revenue side of it, it's in the ballpark of $120 million of revenue, and then you can run the math for the 7.5x based upon purchase price. All that depending on a pro forma basis. 2026, we'll see how that really lands just based upon closing timing. Jeff, do you want to add on the --

Yes. Brian, I think Matt hit it. Thrive was right down the middle of the fairway, helped us densify our payer needs in Texas. This one is primarily Florida focused. Both companies have great reputations in the Florida market today is well respected by the MCO payers. Florida is an MCO market, right? So our MCO payers are incredibly important to us.

But this acquisition helps us round out the areas in Florida that we were not in geographically. So it does give us a geographic expansion within Florida. It allows us to service effectively every county in the state of Florida. And again, our payer partners are very supportive of our growth. And -- and so I think this one is right down the middle of the fairway just like Thrive. And again, excited to kind of get through the regulatory approvals here in Q1 and Q2 and get this thing closed up in the latter half of Q2.

No, that makes sense. And then, Matt, any chance you can help us bridge the 2026 EBITDA given I think you have like almost roughly $20 million of one-timers and '25 there's an extra week and then there's Thrive in there. So just try to get that bridge in the guidance from '25 actuals.

Yes. So on the EBITDA, Brian, take that roughly $320 million. We came out earlier this year and talked about, hey, bridge that back down to the $300 million based upon the retro rate increases, the cash collections in that 53rd week itself. So really kind of your jumping off point should be around that $300 million going up to that range of about $320 million as we currently sit organically without any M&A inclusive in there.

On the revenue side of things, the 53rd week and Thrive kind of do a really nice offset to one another within 20 basis points themselves. And so we're still going to be in that 5-plus percent organic revenue growth as we currently sit today, but that's back in line with our normal expectations, that 5% to 7% range on revenue and a high single digit -- or medium to high single digits on EBITDA. So back into a normalized idea of [ Aveanna ].

And Brian, one 1 thing I'll add to that is what [ Will ] said is the EBITDA growth implied about 7% to 17%. Again, we tried to -- in my comments, layout that we expect our government -- our PDS government rate wins to kind of be sub-10 this year. Last year, we landed right at 10%, and that's a net number from positive and negative increases.

So we expect that number to kind of land between -- somewhere between 6 and 8 state rate increases in this year, and we expect them to be more cost of living oriented. So I'll call it kind of the 1% to 5% Medicaid rate win. So less number of total wins, less percentage per win, and that's really what we're factoring into our guidance as we start the year. I think as we get to May, close Q1, close Family First, we'll have a much better feel for how the year plays out, especially with our legislative efforts being in session right now in the first half of the year.

Our next question comes from Raj Kumar with Stephens.

Maybe just kind of focusing on the preferred payer arrangements and kind of thinking about the home health and hospice book. I guess maybe kind of you see an episodic mix trending above 75%. And I think you've previously highlighted you wouldn't be surprised if he got as high as 80%. So maybe just kind of thinking about what's embedded into 2026. And then maybe just any framing around any membership impacts, just given how volatile the membership was during on the Medicare Advantage side? Just any color on that would be helpful.

Yes. Raj, great question. And I'm going to take that as a complement to our -- what we call our [ Triple H ] business. Like you, we're incredibly proud of their results. I think we mentioned it pushing 25% organic year-over-year admission and episodic growth is, I would tell you, first class, best class results and they've done it from just blocking and tackling. They've done it from just being really, really, really good at providing great clinical outcomes and the right level of care to the right payers and the right patients. So we're really robust.

Now that we've got a more a clear path from a federal home health rate standpoint. We continue to lean in. This is an area that we want to grow through both organic and inorganic M&A-related activities in this year. But clinical outcomes are almost 4.5 stars on average for our home health locations. I think it's 4.3 stars where we sit today, gross margins in the 54%, 53%, 54%, great cash collections.

As you said, episodic mix approaching 80%, and we're growing in the north of 10% year-over-year right now 20%. We're off to a great start to the year in Q1. These guys are having a great start to the year. So I think everything we would say is we're going to continue to lean into both home health and hospice and continue to grow it. And am I concerned with the trends of managed Medicare now. I think we're doing our playbook in this business, and our teams just kick and button, taking names right now. So really excited about where we are and as we ended '25 and equally important as we sit here kind of halfway through Q1, really excited what these guys have done for the business model.

Got it. And then maybe just on the Medical Solutions business. 2025 was a year of kind of optimization and around preferred payer strategies. As we kind of think about 2026 and given with the reimbursement dynamics was any kind of framing around what would be in a kind of appropriate run rate when we kind of ex out the reserve dynamics favorability in the quarter?

Debbie, why don't you take us through the reserve impact itself and then we can lay the bigger picture here?

Raj, you called it out. But during the quarter, gross margin and the revenue reimbursement rate were elevated, and that was really from a reserve release that we recorded driven by improved cash collections on previously reserved claims. Now without the inclusion of that reserve release, the Medical Solutions gross margin was slightly elevated compared to our guide. But we do expect it to normalize in Q1 getting back to that 43% to 45% range.

Yes. Will said, Debbie, I think to put the dollars in there themselves, this contribute the contribution of that was $2.5 million to $3 million that we're talking about, Raj, of additional revenue and EBITDA in the quarter. So not overly material to earnings, but it shows up in the Medical Solutions metrics in gross margin just due to its size.

On the modernization, the efforts, though, Raj, we're really excited about what the team has been able to do and what they've been accomplished so far. As we move into '26, we expect to see preferred payer numbers really significantly increase. Currently, we're sitting at 18%. We expect that to continue to grow as we become better aligned. And put our capacity with those who support us. There's a little bit of work to do at the same time. So we plan on wrapping this up in the front half of 2026 and that's when you'll see us return back to a double-digit growth number organically in this business and gross margins, as Debbie pointed out, sustaining in that 43% to 45% range.

Our next question is from Ben Hendrix with RBC Capital Markets.

This is [ Drew Start ] on for Ben Hendrix. You've previously mentioned continued wage pass-through into 2026. Can you quantify the magnitude and timing of these increases?

Yes. Drew, I think the way to look at it is that spread rate that we talk about a lot. Q4 was at $12.12 which is coming back down in line. But we've continued to push through wages. As we've talked about the entire year in 2025 we had some initiatives in place to really drive our volumes, and you see it impacting and really growing our volumes.

This really came down, and you can see it in our gross margins. We settled in that 28% range, which is on the higher end range that we give for that business and in line with our expectations. Looking ahead, we'll continue to actively manage spread as we do every single day, to meet the needs of our preferred payers and our payer partners.

Our next question comes from Benjamin Rossi with JPMorgan.

Appreciate the earlier comments regarding your state contracting. I guess just shifting focus to California, which still seems to be the outlier here on home-based nursing rates. What do you think is the realistic 2026, 2027 scenario for California here between, call it, like no change, a cost of living type increase in that 1% to 5% range or maybe a structural reset? And then under each of those scenarios, do you have any kind of commentary on impact to your PDS spread rate per hour or maybe your broader market share strategy given your stance to not exit California?

Yes. Thanks, Ben. We met with the Governor of California as early as last week. We are not in the budget. There's no PDN rate increase in the '27 budget for California as it exists today. we're still lobbying and advocating to be in the -- what's called the May revised budget. If I'm scoring that as a handicap, I'd say it's less than 10% or 15% that PDN makes it in any shape, way or form in the California budget. We're certainly not expecting and we've not modeled that.

And over time, I hate to say it, but over time, as our other markets have just grown at the 20%, 22%, 25% year-over-year growth rate in PDS, California is unfortunately just gotten smaller and smaller from a materiality for the company. So we still care deeply about our California patients. We still care debt shoveling operations. We advocate very hard. Like I said, we met with the governor last week and we continue to meet with his staff and push forward. But today, as we sit today, I'm not expecting any material change both stop gap, cost of line is potential, but I would say it's unlikely. So there's nothing baked in our guidance that California has a change in heart in 2026.

Understood. Thanks for the additional comments there. I guess just as a follow-up, we've heard some other -- some other health care facilities names regarding a spillover impact from some of the delayed respiratory season and then some of the additive weather-related pressures from some of the winter storms. Just when you think about your 2026 outlook, how are you factoring any of the respiratory or weather-related impacts during 1Q?

No, I mean, definitely that's well said. We didn't put it in our prepared remarks, but we have had to fight through like all of our peers mainly snow and significant snow throughout the entire country. I'd love to say the Northeast, but via Texas all the way up through Maine. So -- but our teams do a good job fighting that through. We have a no-excuse mentality here at Aveanna. We just fight through everything that comes our way and so I don't think -- we didn't certainly change our guidance based on weather. But like our peers, we've had to fight through 2 or 3 weeks of weather in the first 10 weeks of the year.

So again, I won't say it was nothing, but it's just something we handle. We move on. And we're glad whether for the most part is behind us at this point in the year and back to business. So I don't think you'll have any material impact. Matt mentioned in his prepared comments as a reminder, Q1 is our largest payroll tax quarter. So keep in mind, as you think about guidance, Q1 is seasonally low for our margin mainly driven by the payroll tax on our labor cost.

Our next question comes from Andrew Mok with Barclays Bank.

Given the recent increase in oil prices, can you remind us how much -- how travel is reimbursed for your caregivers and how much fuel represents as a percentage of total revenue and total cost?

Great question. 80% of our revenues are driven off of shift care in the home where we don't reimburse any form of mileage or gas or fuel. And it's primarily because our nurse goes from his or her home right to the home of the patient. They're there for 8 or 10 or 12 hours and they go home. So the vast, vast, vast majority of the business at Aveanna has 0 tied to gas prices and from a reimbursement standpoint, our Med Solutions has some impact on a minimum amount from our drivers.

And then the business that it does impact is our home health and hospice business, and that's about 12% of our total revenue. So it's not a nothing impact for us. But thankfully, with the size and scale that we are and the diversity of our payer mix and our business mix, it's not as meaningful as it would be to some of our large home health and hospice peers.

Got it. Maybe just as a follow-up, can you provide a little bit more color on just the pace of pass-through to caregivers on PDS and how you expect the spread to the spread to materialize throughout the year?

Yes, Andrew, I would go back to the gross margin line item here, 27.7% in Q4, a little bit of PTO utilization holiday pay, et cetera, that occurs in Q4, a little bit of extra compression in there. But our range should be in that 27%, 28% gross margin for the Private Duty Services segment. So we're close to it now.

But as we continue to drive reimbursement rates, as Jeff mentioned, single high single digits on the governor far side as we continue to add 8 more preferred payers. And as we continue to organically grow our preferred payers, take those rate wins and be able to continue to push them down to our caregivers still aligning to that 27%, 28% gross margin.

Our next question comes from Pito Chickering with Deutsche Bank.

1 If I think about the PDS business model, like the preferred payer strategy makes a ton of sense just due to the pretty large savings for managed Medicaid and it's obviously -- it's sort of more of a niche market. But if you think about home health, it's a huge market with a lot of nurses employed. So can you just walk us through why you can replicate the preferred payer strategy in the home health segment?

To, I think, one, our discipline around episodic payer mix, I think a year or 2 ago, people questioned whether or not being above 70% was attainable long term. I would say at this point, we've now put that behind us and said be above 75% is our long-term strategy. And over time, payers have come around.

I mean at first payers did not like the episode of conversation 3, 4, 5 years ago. But when you don't bend your backbone and you keep your clinical capacity focused on the right payer base, meaning episode of payers. Eventually, we have found that our payers do come back around. Now clinical outcomes drive the story, right? So great clinical outcomes lead to good financial outcomes.

So I think in our home health and hospice business, specifically home health, we've been able to stand behind great clinical outcomes. But I just think that when you look at -- I got 8 quarters in a row here, we've been above 75% 8 quarters in a row and we're approaching 80% now on an episodic basis. At this point, this is the business model. We're not moving from it. and our payers have kind of caught up to us. And by the way, I want to give a shot to our payer team. We've got a world-class payer team in our home health and hospice payer leader has done a fantastic job. She has been amazing.

So kudos to our payer team for -- they're out every day, continuing to beat the drum, but they will not take fee-for-service, low dollar contracts because of how valuable caregivers and clinicians are in today's world. But thank you for noticing, by the way.

Okay, fair enough. And then one more on Family first. How much of the $120 million of revenues are in Florida versus the other 6 states? And how fast can you roll out the preferred payer strategy in Florida sort of in those new markets? And is thinking about the opportunity there? I assume it's more acceleration of the $120 million of revenues versus sort of around the 20% margin business that the business has today.

Yes. So I think of the revenue base being kind of 2/3, Florida, 1/3 everywhere else. Certainly, Florida is the state that we focused on. They do have meaningful business in other states outside of Florida, but Florida is where we focused on all and what made the most strategic rationale. They have we believe they have really good relationships in the state of Florida today from a payer standpoint. We have very good relationships as well.

I think the feedback we've gotten early from the payers is very supportive and congratulatory on the standpoint of providing more cost-effective patient preferred win-win-type scenarios. But at the end of the day, these are 2 great companies, both providing great care. So it's not like Aveanna is superior in its service. Family First has a really, really nice job providing care in their 7 states.

So again, we think this is good for patients. We think this is good for employees. This is good for payers. And it'll take us a little bit time as we saw with Thrive. It takes us about a half a year or so to kind of get through the integration-related efforts, systems, back office benefits to then really get to the expansion back to the expansion of care, and we think [indiscernible] be similar close, hopefully, close some point in mid-to-late Q2.

And by the end of the year, we're wrapping up Family First. And I think I just want to head on again. We are committed to growing our home health and hospice business through accretive M&A. So I think you'll see us get back to the home health focused, both de novo and tuck-in M&A.

Our next question comes from Sean Dodge with BMO Capital Markets.

Great. It's [ Chris Carlson ] on for Sean. You've mentioned greater adoption of value-based add-ons from some of your earlier preferred partners, particularly in private duty. Can you walk us through what a typical time line looks like from when a preferred payer is initially signed to when value-based arrangements might start contributing to revenue? And then how much visibility you have into the incremental growth on the value-based side in 2026?

Great question, Chris. So I think as we ended the year with 30 preferred payers and just over 10 value-based agreements, right? So about 1/3 of our preferred payers in PDS had a value-based agreement attached to it and think of that being over the course of 3 years, right? We're now starting year 4. So there's definitely a lag, and we think of the lag anywhere between half a year to about 18 months, about 6 months from the time we sign a preferred payer which just means enhanced rates and enhanced wages for the caregiver, it's between half a year and about 18 months later that we expect to then add a value-based agreement. We certainly want the value agreement from day 1, but it takes time to work through that with the said payer.

So as you think of 30 going to 38 this year, we'll guide to the value-based agreements. But I would think of somewhere from 10 going to 14 or 15 this year. And again, our payer team does a great job of continuing to remind the payer, the more we're aligned on outcomes and cost savings, the better we can do as a payer partner. So I'll also point out, remember, Q2 is the quarter where we do our annual true-ups from the previous year, and we called that out in prior years as well. But I think of that nature of -- we ended the year just over 10%, and we'll probably end this year somewhere in the 14% to 15% range.

Okay. That's helpful. And then maybe going back to talking about entering new states and private duty as well. You've been successful in driving great increases across nearly all your states. How has the rates been progressing in other states where you're not currently operating? And how does this maybe impact your approach when you're considering entering new markets over the coming years and 2026?

Yes. And it's -- let me start with it's not always right, right? So we look at a market and look at size and scale of the Medicaid population, number of PDM patients, pediatric population in that state. So when I say Ohio, there's a difference between Ohio and Wyoming, right? And Wyoming, I'm just picking this randomly may have a higher PDN rate, but may only have 75 [ PDM ] patients in the entire state where Ohio has 2000.

So again, there's other factors where we're looking at then just rate we feel confident that as we enter a state or grow in a state, we can work through both our government affairs team, working directly with the governor and the legislate websites as well as our preferred payers and our MCO partners to appropriately address wage and rate. And again, it's not just rate for the sake of rate. It's right for the sake of the right wage rate for the caregivers to attract caregivers into the home.

So again, we think over time in any state, including I think Ben, who brought up California. Eventually, we're going to get California flip. I mean, that's the one state say today, we've not been able get flipped to appropriate wage rate and appropriate reimbursement rate. But eventually, we'll get California. So we think every state, if you look at it over a macro period of 5 or 10 years, every state, any and every payer over time, we think we can get to move to appropriate reimbursement rate, which means an appropriate wage rate.

Our next question comes from Jared Haase with William Blair.

Maybe I want to drill back into the 2026 outlook and specifically thinking about the volume growth opportunity for private duty. So I think we saw you benefit a little bit from sort of the elevated growth on an organic basis throughout 2025, just given all the rate and preferred payer activity that you were able to achieve last year.

Now as we think about you getting more and more caught up on wages, I'm wondering, I guess, if there's any way to sort of contextualize how you're thinking about the runway for volume growth and opportunities to potentially sustain elevated levels of growth over the next handful of quarters.

Yes, Jared. We're really excited about the momentum heading into 2026 and really expect a more normalized growth rate as we enter 2026 as well. To your point, we've had those elevated rates that have been able to drive our volume forward. But we anticipate kind of that organic in that 5% to 7% range as we've guided to additional M&A add-ons like Family First incorporate or adding on top of that as well. EBITDA growing in that high single digits after you adjust out that $20 million of normalization that we backed everybody into in January. But overall, great momentum in 2025 and continue that momentum into 2026, though more -- on a more normalized basis.

And I think, Jared, as we called out, we just don't expect to get the 30%, 40%, 50% PDS Medicaid rate increases, we're really thinking these are more in the 2% to 4% of the 3% to 5% range. And I think we've talked before, we've been in the teens state rate wins, we think this year is probably 6%, 7%, 8%, maybe 9%. If we hit 10 this year, we'd be very pleased on a net basis. So with all that baked in, I think Matt's point of PDS getting back to mid-single-digit volume and rate year-over-year is probably where we think the back half of this year lands. And that's what we guide to long term in our investment thesis.

And then, Jeff, I think you mentioned in the prepared remarks some of the -- or one of the core initiatives you're focusing on here is just some of the high priority AI and automation efforts. So would love to hear a little bit more about just where you're seeing some of the biggest opportunities leveraging those tools. And then I guess maybe the fine point I'd put on it is how quickly might we you start to see those initiatives ramping in terms of impacting either the cost structure or margin profile?

Yes. I think we certainly started in the back office. So we're a couple of years into RCM automation with our RCM partners and want to continue to accelerate that. And I think part of the cash collections and the onetime and timing-related revenue enhancements last year where were related to just great collections and part of that was tied to some of our AI partnerships that helped us collect our cash and more effectively and efficiently.

So I think, think of that being the long pole in the tent, meaning what we've started with and are continuing to drive and Matt and Debbie and James, who leads our CM just does a fantastic job with that. We're also pivoting now to the front office. And so we're in the piloting stages of thinking of caregiver engagement also in shift fulfillment and really how we schedule and think of engaging with our caregiver and using -- sorry, automation and AI related opportunities there. So -- and there's more.

There's more on the AMS business. There's nuances we use for fax automation and some of the back office stuff that just makes the back office more efficient. So I'd think of us being back office focused for the last, I'll call it, 2-plus years. That will continue. And then at the end of '25, '26, we kind of pivoted to more field-facing, front office facing tied to our -- how we think of scheduling engagement of our caregivers.

Our next question is from John Ransom with Raymond James.

So we think about the core EBIT growth this year being just below 70% on a consolidated basis, 30% to [ 320-ish]. How does that look by segment? What are the highest growth segments versus the lowest growth segments of you 3 as we think about modeling in [indiscernible].

Yes. So historically, Medical Solutions and home health and hospice has been our highest organic growth sections of it, John. So we've got medical solutions going through its modernization efforts at this time. And so we talked about still in that low single digits growth in the front half of 2026 by returning to that high single -- or high single digits to double-digit growth in the back half of 2026.

And so there's a little bit of mutedness in that happening in H1 compared to H2. I'll tell you, home health and hospice hitting out of the gate strong just as they finish the year strong. So that will continue to be high single digits to double digits growth. But we think PDS returned back into more normalization 3.5%, 4% volume growth, adding 1 point to 1.5 points of rate growth in there, getting back to your 5% to 7% kind of range itself or 3% to 5% and on the upper end of that one. That's how we kind of have it modeled out and how we're thinking about it into '26 and beyond.

And John, just being cost effective the fish in the back office -- corporate office. I mean I think we're down to 4.5%, corporate costs as a percentage of revenue. We think we can make that get even a little better there. So -- and then you were about to bring this up, so I want to highlight generating a meaningful amount of cash flow.

So I appreciate you highlighting that great point that $131 million of free cash flow last year was well, well beyond our expectations. And really kudos to Matt and Debbie and the team for executing on that. generating that kind of cash moving forward just gives us optionality to continue to do deals like Family First and to use cash. So we're excited about the opportunity to do that. And thanks for asking.

You're welcome. The other question is just the PDS rate outlook. I mean, you're adding 8 preferred payers, but you're only calling for 1.5%, 1%, 2% rate. Is that conservative? Or are we missing something?

I just think it shows how far along the spectrum we are in the strategy, meaning when we first started, we were getting 10% of volume or 15% of volume. Some of these now we're tucking in are smaller in nature. -- they're still niche oriented. They're really important, even a 1% volume mover if we can move into a preferred payer matters. But think of us being just further along the maturity spectrum in the preferred payers, which is why we love the idea of additional states because it opens up new markets for us.

So as we think of Thrive, the New Mexico and the Kansas was so important because it opened up to brand new MCO markets for us. So -- but no, I think just as we think about the preferred payers going from 30% to 38%, we're just continuing to round out some of those final tweaks in our current markets and really focused on new expansion.

Last one for me. I know we're a little over time. If we think about the -- clearly, there's synergy between the Nutrition segment and the pediatric segment. But if I think about home care hospice and personal care, I think the market is kind of mixed. -- there's really that much synergy between the 3 businesses. And so does it help you with payer? Does it help you with nurse recruiting? What is the synergy?

And I guess where I'm going with hospice multiples, M&A multiples being in the peak, if somebody came to you with a 15x multiple offer for your hospices, is that something you would consider? Or do you really think you want to knit all these pieces together definitely?

Yes. First of all, it's a very thoughtful question. I'll say this. Yes, obviously, the intra nutrition business is incredibly synergistic to the PDM business. They do -- they operate as a referral entity incredibly well together. We have a lot of crossover in the referral source, the payer conversations between those 2 businesses. The opposite is true between our PDS and our HHH business. There's very little synergies from a referral source standpoint.

Even a payer standpoint, a very different conversation, as you know, I think why we love being in both businesses, one, the diversification. As we see right now, the last 3 years, Medicaid has been the darling right now, it's being back to Medicare being more of a [ Darling]. We like the idea of being larger in both of these businesses, and we'd like to be larger in the HHH business over time.

But no, I think we think of it as growth rates that these businesses, like home health and hospice can grow in double-digit year-over-year organic growth. We like that from a growth algorithm. So we're committed to all 3 segments, excited about all 3 segments and again, I just want to get back to block and tackling this year and being really good at executing our business plan.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Jeff Shaner for closing comments.

Thank you, operator. And just thank you for your attention and look forward to catching up in mid-May on our Q1 and 2026 results. Thank you, and have a wonderful day.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

Thank you all for joining us here in person. For those who are joining us via webcast, my name is Ben Rossi, and I'm the health care facilities analyst here at JPMorgan. We are excited to welcome Aveanna back to the stage this morning. With us here today are CEO, Jeff Shaner, and CFO, Matt Buckhalter. Thank you both for being here.

Thanks, Ben, and good morning. As Ben said, I'm Jeff Shaner, the CEO of Aveanna Healthcare, and I'm here today with Matt Buckhalter, our Chief Financial Officer.

We're going to kick into our presentation and what we'll get [ wrong ]. But we're pleased to share Aveanna story with you today and provide updates on our 2025 trends and also give initial insight into how we're thinking about 2026. I would like to point out, as Ben knows, we filed an 8-K and press release early this morning, and we plan to cover the details during today's presentation.

Specifically, we will comment on our updated 2025 guidance, our 2025 bridge to normalize adjusted EBITDA and our initial 2026 guidance. With that, we'll jump in to our investor deck on Slide 3.

We believe that scale and density of health care services help support our value proposition. And at Aveanna, we are a leading scaled national provider of health care services. Further, our diversified platform provides pediatric, adult and geriatric services cared for by almost 30,000 caregivers in 30 states -- 38 states, excuse me. Also, our national platform is dedicated to high-quality clinical outcomes and cost-effective health care for our payer and government partners.

We believe that by aligning our interest with our payer and government partners, we can improve cost-effective, innovative care in the comfort of the patient's home. Now moving on to our company overview on Slide 5. As I mentioned, Aveanna's national footprint is highlighted here with 366 locations in 38 states. In addition, our recent acquisition of Thrive Skilled Pediatric enhanced our pediatric footprint into additional states, Kansas and New Mexico.

As we think about the Thrive integration, we are substantially completed in our integration efforts, and I am pleased with the performance of the Thrive acquisition to date. Thrive will serve as our model for our tuck-in acquisition strategy moving forward. Our diversified payer mix supports our impressive 10.3% revenue CAGR over the last 5 years with no single payer contributing more than 10% of total revenue.

Our preferred payer strategy remains the core driver of our growth, with 93 preferred payers agreements in place as of Q3 and we continue to expand across our all 3 business segments. This strategy supports tighter alignment between our caregiver capacity and our payer partner needs.

Finally, our business plan is underpinned by thousands of dedicated clinicians and caregivers who provide compassionate care to our nation's most vulnerable patients. Moving on to our strategic drivers. 2025 represented the year 3 of our strategic transformation plan. And as we wrap up this important chapter at Aveanna, we attribute our success to the following key strategies: first, partnerships with government partners and preferred payers that created additional capacity and growth; second, identified cost efficiencies and synergies that allowed us to leverage our growth; third, the modernization of our Medical Solutions business; fourth, the improvement of our capital structure while we produced meaningful free cash flow; and fifth, the engagement of our leaders and employees as we delivered our Aveanna mission. I am proud of the Aveanna management team that delivered on these key strategies in 2025.

Now let's move on to our payer relations and government affairs key performance indicators. We have a defined payer and government affairs strategy for each of our 3 businesses. Our Private Duty Services preferred payer goal for 2025 was to increase the number of agreements from 22 to 30. We achieved our goal of 30 preferred payer agreements and expect that number to continue to grow in 2026. Accompanying our Private Duty Services preferred payers is the addition of value-based agreements. These are above and beyond enhanced reimbursement rates and are important for the long-term alignment of our partnerships.

We expect to continue to grow our value-based agreements as we partner with our payers. Our government affairs goal for 2025 was to achieve reimbursement rate wins in at least 10 states as well as continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. We achieved this important goal and have shifted our legislative efforts towards our 2026 legislative agenda. As we move on to Home Health & Hospice, our goal for 2025 was to maintain our episodic payer mix above 70%, while returning to a more normalized growth rate.

With 45 preferred payer agreements, and our episodic mix well above 70%, we have achieved this goal, and we'll continue to build upon it in 2026. Our Home Health year-over-year episodic growth in Q3 improved to 14.2% and continued to generate outstanding clinical and financial outcomes.

Finally, as we have achieved our desired preferred payer model in Private Duty Services and Home Health & Hospice, we have embarked on a similar strategy in our Medical Solutions business. To date, we have 18 preferred payer agreements, and we expect that number to grow as we achieve our desired preferred payer model in Med Solutions.

We are wrapping up this important modernization effort in the first half of 2026. These important key performance indicators demonstrate that we have strong momentum entering 2026 that will support our growth story. Speaking of our growth story, let's touch on that on Slide 8.

Our long-term organic growth goal of 5% to 7% is underpinned by the preferred payer and government affairs strategy we just discussed. By aligning our clinical capacity with those government and payer partners that value our services, we've achieved the higher end of our organic growth goals. In addition, our value-based agreements give us upside as we earn bonuses for achieving quality measures and overall cost savings. Also, strategic tuck-ins in Private Duty Services and Home Health & Hospice can add an additional 2% to 3% to our annual growth targets.

As I think about 2026, I believe our business will remain in our expected organic growth range, mainly driven by volume growth. I also expect us to use our additional liquidity to grow through tuck-in M&A. Now let's touch on our Aveanna business segments on Slide 9.

As most of you know, Aveanna operates across 3 primary business segments. Our largest division is our Private Duty Services business, representing approximately 82% of total revenue. Private Duty Services historically has grown organically between 3% and 5% and we believe that outlook is appropriate for 2026.

Medical Solutions contributes approximately 8% of total revenue. Med Solutions has traditionally grown organically between 8% and 10%. And we believe it will return to these growth rates in 2026.

Finally, Home Health & Hospice represents the remaining 10% of our revenue. We believe Home Health & Hospice will grow organically in the 5% to 7% range, driven by our disciplined approach to episodic growth. We currently are experiencing double-digit growth in our Home Health & Hospice business and expect that to moderate over the course of 2026.

In total, we expect Aveanna to grow revenue in the 5% to 7% organic range with additional upside through strategic tuck-in M&A. Speaking of our capital structure, let's transition to capital structure and liquidity on Slide 16. As it relates to our capital structure, as of Q3, we maintained strong liquidity position in excess of $478 million, representing cash on hand of approximately $146 million, a $106 million of availability under our securitization facility and approximately $227 million of availability on our revolver.

We have approximately $1.49 billion in variable rate debt, nearly all of which is hedged through caps and swaps, protecting us from further rate volatility. We continue to focus on delevering as an organization and have reduced approximately 3 turns of leverage through the first 3 quarters in 2025. This -- by the way, that's Matt's favorite statistic right there.

This impressive performance brings us to approximately 4.6x of leverage at the end of Q3, and we remain focused on a leverage goal of less than 4x in the near term. I am proud of the team's progress in positioning Aveanna as a free cash flow generating company. As of Q3, Aveanna generated free cash flows of $86.2 million and we expect Q4 to contribute additional free cash flow and look forward to continuing this positive momentum into 2026.

Also as a reminder, we successfully refinanced our term loan facility and combined our loans into one Term Loan B facility with a new maturity date in 2032. These efforts in Q3 resulted in annual interest savings of approximately $14 million. In summary, we will continue to execute our delevering strategy through exceptional growth, cost management and effective cash collections.

Now let's move on to this morning's 8-K and press release related to our 2025 guidance, 2025 normalized EBITDA and initial thoughts on 2026 guidance. With the positive momentum in our Q4 and year-to-date results, we now believe our 2025 guidance for revenue and adjusted EBITDA will be a revenue range of $2.425 billion to $2.445 billion, increased from our previous guidance of greater than $2.375 billion and adjusted EBITDA range of $318 million to $322 million, increased from our previous guidance of greater than $300 million.

2025 was a truly transformational year to Aveanna and represents the third year in a row of material improvements in our operating, clinical and financial results. This work was completed by a dedicated group of Aveanna leaders and employees who believe deeply in serving our mission. These impressive results laid the foundation for what will now become our annual business plan and allow us to return to more normalized growth rates in all 3 business segments.

Before I talk about our initial thoughts on 2026 guidance, I'd like to remind everyone of some timing-related items in 2025 that propelled our results. As we think about normalized adjusted EBITDA for 2025, we anchor to a $300 million baseline. This approximate $20 million delta from our 2025 guidance relates to 2 primary items: first, as we detailed in Q1, we benefited from approximately $11 million of retro rate increases and improved collections on previously reserved accounts receivable. Second, in Q2, we detailed approximately $9 million of similar retro rate increases, improved collections on previously reserved accounts receivable and annual true-ups in our value-based payments. On a normalized basis, we do not expect the approximately $20 million in timing-related items to reoccur in 2026.

Finally, as we turn to our initial thoughts in guidance for 2026, I am very optimistic about the positive momentum and long-term stability we carry into this new year.

Moving into our guidance for 2026, on Slide 19. As we think about 2026, we will continue to align our capacity with our preferred payers and government partners to achieve continued growth in revenue and earnings while providing the highest level of clinical care at home. We believe our long-term organic growth projection with additional tuck-in M&A is the right way to think about 2026 and beyond.

Our initial revenue and adjusted EBITDA guidance for 2026 is a revenue range of $2.54 billion to $2.56 billion and an adjusted EBITDA range of $318 million to $322 million. We believe this initial 2026 guidance is prudent and reflects our current views on 2026. As a reminder, our guidance does not include any impact of future mergers or acquisitions.

In closing, Aveanna has an impressive 5-year revenue CAGR of 10.3% and an adjusted EBITDA CAGR of 25.5%, representing the commitment our management team has on delivering great results. As we have outlined throughout this presentation, we are executing a focused, disciplined strategy built around scale, clinical excellence and strong partnerships with both payer and government partners.

With a growing national footprint, a balanced capital structure and strong momentum entering 2026, Aveanna is well positioned to deliver long-term value for patients, families and shareholders.

With that, I'll transition over to Ben for some Q&A with Matt and I. Ben?

Great. Great. I appreciate the background and retrospective here. To start off, as you approach the end of year 3 in your strategic transformation, can you just summarize the key learnings and milestones achieved in 2025? And just walk us through your thoughts on the primary drivers of last year's performance?

Yes. It's a real great question, Ben, and I appreciate you having us here today. So to your point, 2025 was year 3 of our strategic initiatives that we put in place a few years back, and it resulted in another banner year for Aveanna, a really re-baseline year for us and how we think about the company going forward. The execution, not only on those strategic initiatives, but specifically our preferred payer initiatives and our government affairs strategies has really been our ramp-up over the past few years, really valuing those payers who value our resources with such a demand for them at any given time.

On the margin side, we obviously benefited from our modernization efforts that we put through in all 3 divisions over the last 3 years. The value-based payments and the programs that we put in place, and we're seeing this continue to grow into 2026. And just that preferred payer strategy that I mentioned previously, it's really allowed us to invest into our caregivers. And that's through direct wages, benefits, stability, stability in their scheduling, kids not going in and out of the hospital. They know they have their shifts next week as well at the same exact time. And that's really helped us on our recruitment efforts, but also our retention efforts of our caregivers at the same time.

On the HHH side of it, phenomenal performance, as Jeff mentioned earlier, double-digit revenue growth in that one and really rightsize that business model, getting into the mid-70% episodic mix for our admissions over the past few years. In 2026, I'd expect you to see a lot of the same. We will have a little bit more normalized growth that occurs into there, and we've kind of worked that back into our guidance for 2026, but we'll maintain gross margins slightly on the higher percent of our range as we have some caregiver wage pass-through plan. But overall, continued execution by a team who's truly focused on this.

Okay. And then just teeing this up and thinking about your 2026 outlook. But I'm thinking about some of the bigger moves from last year, particularly with the Thrive deal that you discussed, how have those strategic priorities evolved? And what are your top areas of focus for this year?

That's a great question, Ben. I think 2025, as we said, was a truly transformational year for the company, went from effectively $184 million, $185 million of EBITDA the year prior to normalized $300 million of EBITDA. So great growth. Matt just talked about some of the drivers, Thrive being one of them. But I also think about the first 3 years of our strategic transformation and rebalance the company is really completed. So I think whether it's our capital structure, our growth plans, how we think of cost efficiencies, we've kind of put that chapter of the company to bed, if you will, and are really now focused on the maturing and we'll call it the maturization of our preferred payer and government affairs strategy.

And so as we think about '26 and even '27, Matt just said, I agree, we're going to do more of the same, more of the similar. We don't have to change the strategy at this point. It's really continuing to lean in. We're now going on year 3 or year 4 of our preferred payer or government affairs strategy depending on when the payer joined us. And it's really the maturity of that relationship, right? And it's getting -- we've gotten past the get to know you stage.

We've effectively grown our census with these payers. But as we say all the time, the demand for our services still far [ exceeds ] the supply. So our payers still have needs that we can't yet meet and continue to lean into. So continuing to lean into the preferred payer and government affairs strategy, as Matt will say over and over again, continue to just be cost-effective, being efficient with our back office, making sure that from an SG&A standpoint that we're being as efficient as we possibly can in collecting our cash. At the end of the day, we want to -- we are a material free cash flow generating company that has helped us delever. We want to continue to do that.

Understood. So with the 8-K this morning, when we think about your margins going forward, clearly, last year benefited from some recovery on that preferred payer strategy. Just when we think about more normalized margin concept for the business, what is a reasonable approach here? And what do you consider to be a starting point within this revised guidance?

Yes. Great point, Ben. That's a reason we wanted to highlight that here and just say, hey, guys, let's think about our business as being a $300 million EBITDA company. We obviously benefited from some of those timing-related items that occurred in there. But we've also been really effective and efficient over the past few years as an organization, taking all 3 of our divisions to those modernization efforts, we were able to take out a lot of cost and put in some technology advancements that has allowed us to scale a little bit more at the same time.

So once you normalize out that little bit of piece of it, gross margins come back in line with additional planned wage pass-through and still getting that leverage from our growth on top of it. We still plan on landing that 12% to 13% EBITDA margin after it all shakes out. So a lot of execution to achieve it, but we have a nice line of sight to do so.

Excellent. So just turning into the specific operations now on 2026 Medicaid rates. Regarding that rate development within PDS, could you walk us through how you're thinking about state-by-state pricing for next year? And then is it fair to think of those rates growing in the typical 1% to 2% range next year barring any more sizable state decisions?

I think it's a great question. I think the difference between 2024 going to '25 and '25 going to '26 is really the moderate nature of those rates. So as you think about Medicaid rates over the last 4 years, clearly, it's been a very attractive environment. We've moved effectively every single state that we're in. I think we're in roughly 30 Medicaid states, and we moved 29 of the 30. Now I'll point out the one we haven't moved yet is the one we're sitting in today, California and more to come on that. But we've effectively been able to realign every state and equally important, every MCO that we partner with in those states to a rate that is appropriate for us to hire caregivers. And key in that, you'll hear us talk about wage pass-through key in that strategy is we have to continue to pass through additional wages to those caregivers to continue to meet the needs, both of our MCO partners, but also our state partners. But I think as you laid it out, the answer is yes.

As we think about goals for 2026, we're still targeting at least 10 states in Medicaid rate wins, hopefully, California being one of them. But we think outside of California, most of those wins will be COL or cost of living-like type rate wins. And again, it's partnering with those states to meet the needs of like weekends, nights, tough-to-fill shifts. That's where we think those right wins will be on top of just the idea of normal cost of living.

So still great momentum in the business and in the Medicaid side of the business. We do think the growth rates in the first part of the year will be a little bit elevated as they have been in the last couple of quarters. But we think that moderates as the year plays on in the PDS segment.

Great. And for California specifically, since we're here, can you provide an update on your advocacy efforts and the outlook for achieving a sustainable rate structure here?

Yes. I'm going to keep this class, yes, so I'll keep this above board. But California still just remains the outlier. I think the best way to think about it is an outlier. I thought about maybe unicorn, but I think outlier is more appropriate, and by that, it means it's the one state that we operate in that has not effectively dealt with home-based nursing rates and, therefore, home-based nursing wages.

The sad part is for the state of California, studies show in the state that for each dollar, the state invest in private nursing, they save net 4. So it includes the amount of money they're spending. So it is an overall economic win for the state, for the Medicaid system. And then you tag on the end of that, the families, right? Because at the end of the day, who's really being harmed in California, it is the families. And so it's the idea that we struggle with our families is they can't be a family at home. They're either stuck in a hospital or the parents have had to quit their jobs and care for the child 24 hours a day. And it's just not a win-win scenario for the state, for the parents, for our referral sources.

So at the end of the day, we are going on year 4 of direct advocating for material rate increases. And we will continue to fight on behalf of our families. We will not give up. And equally, we're not leaving the state of California. We are most likely the largest provider of PD in the State of California. We're not leaving. We work well with our MCO partners where they are -- where they have density, which I think still more 85% Medicaid, 15-ish percent MCO. So one strategy we thought about is helping move the medically fragile children out to the MCOs that will take a few years in California, but probably the right thing to do.

So we got a multifaceted legislative strategy. We -- at the first of every year, we kind of strip everything down and build it back up. We're doing that right now to make sure that we've got the right strategy moving forward. But we will continue to be relevant. We will continue to advocate in these families. And eventually, we will take California off the outlier list in a good way.

Regarding your PDS spread rate, you alluded to that a bit when you're describing California. Last year, you mentioned the expectation of that spread rate within PDS normalizing into, call it, the sub-$11 range or so on an hourly basis. Is there any way to think about where your core spread rate currently sits excluding those items? Just trying to understand the lift that you're getting purely from your previous payer contracting efforts in PDS versus some of these onetime items.

Yes. Let me bridge back more to a gross margin on the PDS segment here a little bit. I think that will be helpful in how we think about it. So obviously, do the $20 million math, everybody can knock that out. But we also had a $6 million legal settlement that was a reversal out that happened in Q2, I believe. Now we adjusted that out of EBITDA. So there's no net impact to that. But it did enhance your gross margin on top of that as well.

Once you pull those out and then you take into consideration how our wage pass-through has continued and how we see that continuing into 2026. We expect to normalize out in that 27%, 28% range on gross margin in that segment itself. So that will be on a little bit higher end of our area, but that will happen over time. Q1 obviously has some of our timing-related items. I mean, we're a labor company, so your [indiscernible] are going to be in there. But as it kind of works through, I think, totality of the year, that 27%, 28% is a good range to live off of.

And then on the volume side within PDS. So last quarter, you mentioned expectations of volume trends for this year growing in the 4% to 5% range. Given the 8-K, I know it's still very early, but how are you seeing trends shape up for this year to start the year post holidays?

Yes. I think we would tell you still elevated. But as we think of -- go back to just PDS, as we think of total revenue growth, we see the shift is happening where less rate more volume. So I think the shift you'll see from '24 to '25 and '25 to '26 is we'll be in the upper end, as Matt just mentioned, of that 3% to 5% range. We'll be in the upper end of that range in the first quarter to but it will be driven more by volume than rate. And we think over the course of the year that it moderates into the mid-range of that kind of 4-ish percent.

But I would just think of Aveanna in really all of our businesses, Med Solutions may be the exception because we're still going through the preferred payer modernization. But in Home Health & Hospice and in PDS, I would think of us being more of a volume driver in '26 than a rate driver. And we're excited about that. That's a great story for us and one that we're very comfortable with.

I guess switching into HHH, the Home Health & Hospice side. On the rate development, at the end of November, we got the final home health rate for this year. Obviously, disappointing with the headline cut but still coming in better than proposed. How are you thinking about your initial thoughts on rate development within this segment and maybe some of the patient mix expectations that come with it for this year?

Yes. And I'll start with, we were really disappointed with the proposed rule. So the level of disappointment of 10 being the max, we were at 13. So the difference between the proposed rule and the final rule, I do think show that the administration and specifically CMS listened and partnered to the extent that they're able with the industry. So I think most of my peers would agree the movement between proposal and final was phenomenal.

[ Fundamental ].

No, it's still a negative rate. So you still have to balance that with. It's still a slightly negative rate. I think as you think, though, if you look within the other things that transpired in the final rule for the first time in 5 or 6 years, we saw the beginning of certainty in the business, which I think is very important for the industry and it's important for us. It was really within the -- how they thought of the permanent rule in what we would call the clawback provision. So for the first time, we kind of saw a light at the end of the tunnel, that permanent adjustment would have more rational thought process behind it, which really allows us to invest. It allows us to plan both as a company and as an industry.

So I think that to us was probably as exciting as the actual -- where the rate landed, the difference between negative 6.4% net and negative maybe 1.5%. I think that the ability to see the clawback being less, less, less likely to occur on a material basis. The last part of it is if you just look at our Home Health business today, we don't do anything to change. But we are running a very, very, very good Home Health, maybe one of, if not the best, in the industry. in that we're driving great clinical outcomes. We're driving an appropriate gross margin. We're growing the business and we're collecting our cash. You can't ask for much more than that, right? That is a -- so I think we are confident with the current landscape of Home Health & Hospice and how we think of '26 and '27 being able to be right down the middle of the fairway.

Just turning to Medical Solutions. Could you walk us through segment performance here, how you're tracking against your goals against recontracting? And any milestones to watch across the segment in 2026?

Yes. I think, one, in our prepared remarks, we want to put to bed the modernization effort that will occur here over the next 3 to 4 months. A team has been heads down now for almost -- well, right at a year, and they have a couple of more months to finish up. We have tinkered with almost everything in the business model, literally everything. And so I think as we think about Medical Solutions in '26, we're excited for them to get back to their growth rate of almost double digits, if not double digits, at 8% to 10%. This business was growing north of 10% 3 years ago.

So getting back to that growth indicator is volume driven. We talked about 18 preferred payers. You'll hear us talk more about additional preferred payers in Q1 and Q2. So we're setting up well for that number to continue to grow. And then really, the 2 other pieces that are incredibly important to us, gross margin, like the ability to operate in that 42% to 44% gross margin. We have a clear line of sight to that with our payers.

And then lastly, our ability to collect cash in that business is so important. The average reimbursement is about $500 per shipment. So it's a smaller reimbursement model for us. We got to collect -- we have to collect cash really well. And lastly, meet the needs of our payers and our customers' needs. And I think under this model, we're able to do that. We're able to meet the needs of our preferred payers and meet the needs of the other customers.

I'd also add on there. I think if you look back at the history and what we've been able to do the last 3 years, HHH was the first one that we focused on in 2023. When we did look at the growth in 2024 and look at the double digit, 14.2%, I think, was a number Jeff was alluding to earlier, organic growth that we're talking about, private-duty services. We focused on that in 2024 and said, hey, guys, this is one of our initiatives, go tackle it, look at what it was able to produce in '25 and it will continue into '26.

Same thing with Medical Solutions. It's small but mighty out there. And as a company, being able to focus on this one, I expect to see us get back to those double-digit growth rates very quickly and a healthy business being run there, too.

Flipping to the cost side of the ledger, just on caregiver recruitment and maybe overall labor management. You mentioned some of the additive volume expectations as the preferred payer strategy is normalized. How are you thinking about wage increases for this year and your ability to recruit and retain caregivers? And what are some of the challenges that you think remain in some of your key markets there?

Yes. We've obviously moved the needle significantly over the last few years. The main piece of that is obviously the rate environment that I won't say that we've benefited from that, we've driven these outcomes through our lobbying efforts, through our preferred payer initiatives out there. And by doing that, we've been able to significantly increase wages or catch up wages to where they need it to be. There was that low period post the hyperinflation, where we didn't have the wages appropriate to staff our caregivers.

We've been able to do that meaningfully throughout, and we think we'll be able to continue that into 2026. There will always be a pocket where it's difficult. The state of California is the pocket here, but it's California with the rate environment, Austin, Texas, Nashville, there's little hyperinflation areas, but even our preferred payers recognize that because we have a relationship with them. And so they're working with us on single case agreements on specific case reimbursement rates for us just so that we can get those staffing rates and percentages up for them.

Turning to your M&A pipeline, given some of your broader deleveraging priorities, and some of the policy shifts making their way across your markets. Could you just update us on your approach towards capital deployment and maybe any potential M&A opportunities across either PDS or Home Health?

Yes. I'll start with and Matt will have thoughts on the capital structure. But I think we're in a great position. I mentioned Thrive is our model. So the Thrive acquisition was just a perfect right in the middle of wheelhouse, great acquisition, added geography and densified geography where our MCO partners were asking for more business, which -- so check, check, win-win. There are PDS states that we're not in, that our national preferred payers want us to be in. And we call out Ohio and West Virginia, Tennessee, Kentucky. So those are 4 examples. There's a few others.

We want to fill in those states over time. There's no perfect acquisition that does all of that, but we want to continue to chip off those states and add those to our Medicaid repertoire. Again, I think we're in 29 Medicaid states today. We'd like that to be 35, 36 over the next 2 to 3 years.

So from a PDS standpoint, it's filling in those holes, continuing to densify in certain states that we could use additional density. On the Home Health & Hospice, it's really Home Health more than Hospice. So we are really focused on the Home Health. And again, I go back to that November final rule. We have the answer we need to continue to invest in Home Health. In that business, we want to densify our business. We're a 14-state Home Health & Hospice company, not a 40 state, but 14 state. We want to densify those geographies in the Midwest, the Southeast and continue to build on our Home Health presence.

Yes. I'd just say on the capital allocation standpoint of it, be selective, be picky, be thoughtful. I mean, I think that's the general tone that you got from this management team. We've done such a great job of deleveraging and producing pretty meaningful free cash flow here. And so as we continue to do so, being able to tuck in M&A through our free cash flow generation while keeping in mind, hey, we want to get sub-4x leverage and we have a nice line of sight to do that, make sure you maintain that goal at all times.

It's a good segue into the next one here on leverage. So with leverage now below 5 turns, you mentioned the sub-4x target. I guess how are you prioritizing debt paydown versus reinvestment in your business or broader M&A?

Balance in there. It's nice to have dry powder at any time. Everybody knows that have dry powder to have the option to pay down debt or do potential M&A. And I think just the thoughtfulness that we'll continue to have been as where we will be, once again, that goal of being sub 4x having a 3 handle in front of our leverage profile is something we have driven to as a management team. And so it's a really important goal for us to be able to keep that ongoing.

And continuing [indiscernible] and continuing to generate meaningful free cash flow. I think when the year's over, investors and people will be very impressed with the amount of work that Matt and Debbie and our team did on collections and really, we have the best collections year we've ever had. And part of that is our preferred payer partners helping us working together to solve. You talked about collections on age, accounts receivable. That's working with our preferred payers, and that's -- so continuing to do that, drive meaningful cash flow, using that cash flow to do the tuck-ins. We're using that to do the tuck-ins. And then Matt said, if we -- there's nothing immediately in front of us using that to potentially pay down debt as well.

So it's -- compared to we were 3.5 years ago, this is a great place to be. And again, Matt and I both -- our team has a goal to be mid- to low 3s over the next year or two from a leverage standpoint.

And then just quickly on the cash flow expectations, just given the guidance out there, do you have any initial comments on how you're thinking about cash flow dynamics this year?

Yes. Great year for us, as Jeff just alluded to, $86 million, $87 million through Q3. We talked about incrementally adding to that will be north of $100 million of free cash flow. But then in '26, I should -- I would say you should look very similar to what 2025 is. We've got really clean EBITDA out there. CapEx runs relatively very low. We're just really tight with our dollars once we're able to generate them. And so I think our 2025 free cash flow, '26 will look very similar to it as well.

On the cash collection side, had the recent improvements under that partially the payer strategies within that. In terms of technology, are you seeing a meaningful contribution from these investments in your tech stack and how your collection processes are working and maybe your overall collections efficiency?

Yes, we are. And again, I give -- we've got a very senior leader of our collections process that works with Matt and team. They've done a phenomenal job. But yes, we're using artificial intelligence. We're using other automation type partners to help make the back-end process. And as that gets moved up to the branch, which is not yet, but as we move some of the technology into our front end of our process, it will get even better. But I think blocking and tackling, these guys have done such a good job of blocking and tackling.

And then one more point to touch on our operators standardize our business, and I talked about over the last 3 years. And when you standardize your business, the collections do get easier. So more efficient, maybe not easier, more efficient. So again, the team has done an amazing job. But yes, we are working with our partners on both artificial intelligence and automation to help make that process more efficient.

Yes. We've done a really nice job of leveraging. Look at our EBITDA growth over the last -- or our EBITDA growth, but also more importantly, our revenue growth over the last 3 years. We've had little to none on that department itself because we've been able to lean into the technology and some places that we'll continue to do so. So we still think we're at the tip of iceberg and then there's more meat on that bone, but it will be a thoughtful approach to be able to get it all.

Great. And just as we're wrapping up here with the time, we'll have one last one. We typically like to end things on a prospective basis. So one year from now, what will investors appreciate about Aveanna that they don't currently today?

I think it's more of the same. One year from now, I just think investors will continue to see that we're the clear leader in pediatric and adult home care in America and that we have meaningful growth and expansion in our both revenue and earnings, and we continue to do a great job for our payers, our families and our shareholders. So I think it will be more of the same, but I don't -- it won't be a departure from who we are right now. It will be more of the same. And I'll highlight we're 13 quarters in a row of beat and raise. So we're proud of that. But we think 2026 will be more the same.

Excellent. Thanks for that. That's all the time we have here today. Thank you all for joining us.

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Joanna Gajuk. Thank you.

Good afternoon, everyone. Thanks so much for joining the second day of our Home Care Conference. And it's my pleasure now to host this session with Aveanna, one of the largest home care providers that's focused on private duty.

And today with us, we have Jeff Shaner, CEO; Matt Buckhalter, who's the CFO; and Debbie Stewart, Principal Accounting Officer. So I'll first turn it over to the team, and then we'll go into Q&A. [Operator Instructions].

Awesome. Thank you, Joanna, and then good afternoon, everyone. Thanks for spending some time with us. As Joanna said, I'm Jeff Shaner, here with Matt and Debbie, and we're pleased to share a story with you. We are going to reference our investor deck, which is, I think, uploaded. It's on our website, but also should have been available to you today. So we're just some talking points in our investor presentation, and then we'll open it up for Q&A.

First of all, we're pleased to share our Aveanna story with you today and really update you on our strategic plan for 2025 and give some insight into how we're thinking about 2026 and beyond. I'm going to touch on Slide 3 in our investor deck, which is about transforming the value of home care. Some things that are unique about Aveanna. We believe that scale and density of health care services help support our value proposition. We are leading -- as Joanna said, we are a leading scaled national provider of home care services.

Specifically, our diversified platform provides pediatric, adult and geriatric services to more than 80,000 patients over 38 states. Our national platform is dedicated to high-quality clinical outcomes and cost-effective health care for our payer and government partners. We believe that by aligning our interest with our payer and government partners, we can improve access to cost-effective, innovative care in the comfort of our patients' home.

If you'll see on Slide 5 of our investor deck and our company overview, we highlight here our national footprint with over 366 individual locations in 38 states and still growing. Something I'm sure we'll talk about today is our recent acquisition of Thrive Skilled Pediatrics, which has enhanced our pediatric footprint into 2 additional states, specifically Kansas and New Mexico as well as help densify 5 of our current states in Arizona, Georgia, North Carolina, Texas and Virginia.

Our diversified payer mix supports an impressive 9.7% revenue CAGR over the last 5 years, and we'll point out that no single payer contributes more than 10% of our total revenue. We'll talk a lot in this call about our preferred payer strategy. It's highlighted on our slide here with 93 preferred payer agreements, inclusive of our 3 business segments, and we continue to align our caregiver capacity with these payer partners.

We recently updated our revenue and adjusted EBITDA guidance to reflect the continued momentum we're experiencing in our business that was as of Q3 and we updated to now expecting 2025 revenue to be greater than $2.375 billion and adjusted EBITDA to be greater than $300 million. Q3 of 2025 did represent our 11th consecutive quarter of beating and raising guidance, and we expect that to continue. Our business plan is underpinned by thousands of dedicated clinicians and caregivers, who provide compassionate care to our nation's most vulnerable patients.

On Slide 6 of our presentation, a little update on some of our strategic drivers of our business. We've talked a lot about this is -- 2025 is us finishing year 3 of our strategic transformation as we continue to focus on the things that have helped us rightsize our business.

Our strategic plan has continued to focus on 5 primary initiatives: first, enhancing partnerships with government partners and preferred payers to create additional capacity and growth; second, identifying cost efficiencies and synergies that allow us to leverage our growth; third, modernizing our Medical Solutions business to achieve our target operating model; fourth, managing our capital structure and collecting our cash, while producing positive free cash flow; and finally, continuing to engage our leaders and employees in delivering our Aveanna mission.

I say this on every earnings call. It's 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.

On our slide -- in Slide 7 in our deck, we update specific key performance indicators related to our preferred payer and government affairs strategy for each of our 3 businesses: Private Duty Services, Home health and bed Solutions.

Specifically in our Private Duty Services business, our goal for 2025 was to increase the number of preferred payer agreements from 22 to 30. As of Q3, we have achieved our goal of 30 agreements, and we will expect that we will end the year above our targeted goal.

Accompanying our preferred payer agreements in PDS is the addition of value-based agreements. These are above and beyond our enhanced reimbursement rates and are important to the long-term alignment of our partnerships. We currently have 9 private duty services value-based agreements and expect that number to grow as we enter 2026.

Our government affairs goal for 2025 is to achieve reimbursement rate wins in at least 10 states as well as continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. As of Q3, we achieved our goal of 10 state rate increases and have now shifted our efforts towards our 2026 legislative goals.

Moving to our goals for Home Health and Hospice. Our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. In Q3, our episodic mix was 77%, and we currently have 45 preferred pay agreements for our Home Health business. Also, year-over-year episodic growth in Q3 improved to 14.2% and continues to generate solid clinical outcomes.

Finally, as we achieved our desired preferred payer model in private duty services and Home Health and Hospice, we have embarked on a similar strategy in our Medical Solutions business. To date, we have 18 preferred payers, and we expect that number to grow as we achieve our desired preferred payer model in Med Solutions.

Finally, for me on Slide 8 about our Aveanna long-term growth plans. We guide folks to our long-term organic growth rate of approximately 5% to 7%. This is underpinned by the preferred payer and government affairs strategies I just mentioned. By aligning our clinical capacity with those government and payer partners that value our services, we are achieving accelerated organic growth rates in our business.

In addition, our value-based agreements give us upside as we earn bonuses for achieving quality metrics and cost savings. Also, strategic tuck-ins in private duty services and Home Health and Hospice, similar to the pre-mentioned Thrive SPC deal can and will push us above the 10% annual revenue growth.

Matt will add some color to our capital structure and our Q3 results and how we continue to delever as our revenue and EBITDA grows. And finally, before I turn it over to Matt, I am very optimistic about Aveanna's future as we offer a cost-effective patient-preferred and clinically sophisticated solution for our patients and families.

Furthermore, we have the right solution for our payers, referral sources and government partners. Matt?

Thanks, Shaner. So starting off, kind of taking a look at our 3 operating divisions out here. We operate in 3 primary divisions, as you guys know. Our first and our largest one is private duty services. This represents a large piece of our organization, roughly about 82% in total. This segment historically grows in about the 3% to 5% range in a normal stable environment.

We have been experiencing heightened growth currently, and that's really being accelerated by the idea of our preferred payer strategy and our government affairs strategy that Jeff highlighted earlier for us as well. Our second Medical Solutions segment is a enteral nutrition base, and that represents about 8% of our total company revenue.

Traditionally, very fast organic growing business for us, 8% to 10% total organic growth. Though as expected and as we've communicated in a lot of our earnings, we -- there's been muted growth for 2025 as we've been putting them through our modernization efforts. We expect to clear that hurdle kind of at the end of Q1 and get back to high single digits, low double digits organic growth kind of moving forward.

Finally, but certainly not least, is our Home Health and Hospice segment. This one makes up roughly 10% of our total company revenue. And organic growth can be expected to be in the 5% to 7% range long term. We do have a very disciplined approach to growth here and our HHH business. We believe that episodic admissions and episodic growth is the path forward for Aveanna. Not only does it allow us to take total care of it, but we see great clinical outcomes that come through our episodic emissions that we bring in as well.

And so we are experiencing double-digit growth, gosh. I think in Q2, we were up 15.3% year-over-year, all organic in our HHH division. Over time, we think that will come back down in line to be in that mid- to high single digits range long term. In total, adding those pieces up, organically, you're talking about Aveanna growing in the 5% to 7% range, while also leaving room for some strategic M&A.

We like the idea of using our free cash flow to tuck-in M&A where appropriate to allow for density in the market, diversification in the market and to allow us to lean into our preferred payer contracts and arrangements even more so with those caregivers. So we want to just take a quick look over at Slide 15. We can drop -- we can take a quick look at our financial statements and where we ended Q3 at -- for the quarter, revenues were up 22.2% over the prior year. So $622 million solid growth that we're seeing through Aveanna.

Year-over-year, obviously, we've seen tremendous growth. It's really being led by 2 of our operating divisions right now. First and foremost, our PDS segment, which is up 25.6% and growth year-over-year. And then HHH, which is up by that 15.3% that I referenced earlier. Medical Solutions, as I talked about, muted in '25 as we're putting them through our operating model and our modernization efforts that will eventually mature and get back to that 8% to 10% growth as we expect it to be.

Consolidated adjusted EBITDA of $80.1 million, so really nice EBITDA that we saw up 67% at 0.5% year-over-year compared to prior year. This was really driven by the improved government affair strategy that we have, but also the preferred payers that Jeff referenced earlier and is a big piece of our initiative.

I would be -- I would like to also point out that we continue to be cost conscious in all 3 of our operating divisions and including in corporate to get the most out of every single dollar that we're putting to work.

I want to take a quick look at our capital structure over here on Slide 16, strong liquidity in excess of $478 million, pushing $480 million of liquidity as an organization, $146 million, just shy of $150 million of cash on balance sheet or cash on hand. We've got $106 million of availability on our securitization facility. And then once again, undrawn our revolver as we continue to be just using it for letters of credit, so $227 million of availability there.

So awesome liquidity as we have an organization and giving us a plenty of room for bringing in a couple of small deals through M&A efforts. Taking a look at our debt stack itself. We have approximately $1.49 billion of variable rate debt. Nearly all of that is hedged through caps and swaps, so we do have some coming up next year, does a nice job of protecting us through rate volatility, and we'll look forward to doing something with those in the future as well.

Do want to highlight, though, with our organic growth and what we've been able to do through our EBITDA, we have done a really nice job of deleveraging our organization as well. Were down 3 full turns in the first 3 quarters of this year alone. So on an LTM basis, on a net debt basis, you're looking at 4.6x total company leverage at the end of Q3, we do remain focused as an organization as a priority of ours to get that down and be a sub-4x levered organization, and we have a pretty nice line of sight to be able to accomplish that as well.

Also, just to highlight, really proud of what the team has been able to accomplish on a free cash flow basis as an organization, we climbed that Hill in 2022, and we really haven't looked back since then. And so we had $86.2 million of free cash flow generated through Q3. We look to add to that here in Q4 as well and be able to continue that story into 2026. So -- just want to highlight a couple of other items.

In Q3, we're also successfully able to refinance our term loan facility. And so we took -- we combined our 2, first and second and to a 1 term loan B that really pushed out our maturities to 2032, so have a long length. It also decreased our total cost of capital by about $14 million on an annual basis, and that's already trading at a really nice level at this time, too.

I would be remiss to also point out that we did take care of our revolving credit facility at the same time we got that taken care of. So we're able to upsize that from about $170 million to $250 million in Q3 and put out the maturity until 2030 as well. So long stay on both of those that we're talking about.

A big focus of ours will continue to be generate free cash flow on capital structure, generate free cash flow. Deleverage an organization and just be really effective on any cost or any capital that we put to use within the company. So closing up on the big picture and then we can open it up for Q&A.

Just thanks, everybody, for your time today. Obviously, there's been a lot of work done from our entire teams here, and we promise that we'll continue to execute a really focused, disciplined strategy as an organization. We're going to focus around the ideas of scale and scale matters, clinical excellence to that scale allows us to achieve and really, really strong partnerships with our preferred payer and government affairs partners.

Those relationships have continued to blossom and bloom, and we see them continue to drive our company forward. So nice national footprint, balanced capital structure, strong momentum exiting 2025 or to continue impressive results for the 2026.

So with that, Joanna, I'll pass it back to you to see if there's any Q&A out there and let you go.

Yes. So maybe just circle back to the PDS and the preferred provider contracts because clearly, you had a very good success there, right, and exceeding your target for the year. And I want to say on third quarter call, you said something about like 56% or so of your managed care PDS volumes were in these preferred payer contracts, so call it, more than half right on the way to increase in Q4, it sounds like.

But the question is, how much more room there is to, I guess, do more of these preferred provider contracts. Is there some limitations, I guess, what I'm trying to figure out is or sort of like once you have the 30 or so in your head, it just makes it easier to kind of convert the rest of the business?

Yes. I mean, to your point, so more than -- if we back up 3 years, right, that number would have started like less than 10% of our business was with or payers. So nice progression in '23, '24 now '25 I will say Thrive helped us. So Thrive adding the 2 new states of New Mexico and Kansas opened up 2 new markets for us. But it is a committed movement long term for us over a 5, 10-year period to align the majority of our business being our clinical capacity and volumes with our preferred payers.

It does take time to execute that strategy. And so I think we'll end the year in the high 50s. Certainly, in that 56% to 60%. We'll set a new target. We haven't set it 1 yet, but we'll set new target for '26 and it will be in the somewhere in the mid-60s percentage-wise and growing.

But Joanna, I think as we talked before, we see that number getting into the low to mid-80s over the next 2 to 3 years. And it may never get to 100%. Not every single one of our families or patients might be with a preferred payer. But -- if you looked at the current admissions over the last 3 quarters, almost 95-plus percent of our admissions in PDS are aligned with the preferred payer.

So the new patients coming in are almost all preferred payer patients. And it's just because at the rate that, that payer pays us, we're able to hire nurses in that market. So it's a great trend to your point. It's -- our partnerships have been great. We were talking with the investor earlier our first preferred payer in 2022 is still part of the 30 today. So we've not lost a single preferred payer yet in PDS or any of our businesses.

It could happen over time, but we've not yet and so proud of even as we've added Thrive and the ideas of adding other companies like Thrive continue to expand the opportunity for us to -- our new geography, new partnerships and additional growth, which we're excited about.

And I guess you alluded to this idea of rate differential, right that allows you to hire the workers that are needed to provide care to these children. But can you share like on average, the differential between these preferred provider contracts and just say, an average contract?

It's very market dependent, Joanna, that these occur. Obviously, the market for Texas or San Francisco or these high cost of living areas are going to be very different throughout. I would say there is a premium to it. And so is it roughly 20% premium that we're talking about to the fee schedule. Directionally, that feels correct, but I wouldn't say that applies to every single place in every single market.

I think the thing you should come back to though is our gross margin between that contract and a normal fee schedule is still the same, though, after it all shakes out. And so we're just able to hire caregivers, retain care givers, fill more shifts, have more patient coverage and we're doing so by taking that premium that we're getting and investing into wages to solidify that care for our patients.

And Joanna, I'm going to highlight that again. Matt, what I think it's key. Our payer partners want to know that what they're paying us is going through to the wage. And the best way to show them that is through our PDS gross margin, right, and they have access to our wage rates now in the market. They go on indeed, and you can see the exact wage that you're paying for nurse and set market. So transparency with our preferred payers has been crucial through the last 3 years and will continue to be. As they win, we win and as the family wins, we all win.

So I think to Matt's point, the biggest point for us is the additional dollars in rate go to additional dollars and wages, which allow us to hire more nurses, which allow us to take on more of their business. And as long as we're in that roughly sub-30% gross margin in PDS, our payer is happy, we're happy and the family is happy. So it's truly a win-win-win.

For sure. And also on a similar topic, I guess, the other piece in terms of your efforts around the, I guess, state rate increases. So it sounds like you made some progress there. But I want to say on third quarter call, you had mentioned there were actually some state that put temporary rate reductions.

I mean this sounds like it was a lot like low single digits or something like this. But then you have like clearly some other states that are giving you a nice increases. So kind of as you think about on average, how we should think about the rate growth that you expect into next year or maybe a couple of next years?

That's a fantastic question. So as we have reported before, from 2022. So think of COVID and then the tail end of COVID through today, we've caught up in our 29 states -- some of those states are all MCO states, right? So there's a blend of Medicaid reimbursed states and MCO states. But all of our states with the exception of California, the rate and wage now works.

So other than California, any state that we operate in, we have -- we've been successful in moving the state rate and/or the MCL rate to a place where we can hire nurses and continue to grow the business, which is key, right? So I think of that as a 3- or 4-year catch-up. And there were some big rate increases in there. We've called out Oklahoma and Georgia and Minnesota and many others that along the way caught up 20%, 30%.

And it was the first rate increase they had given in many cases, over a decade. As we go into '26 and '27, we are thinking that, that will be moderated pretty significantly. So we talked on our Q3 call. We actually had 13 rate wins. We had 3 temporary rate, sorry, 12 with 2 temporary rate decreases. And so when we reported 10, that was net of the 2 temporary rate decreases the 2 temporary rate decreases were not material in nature.

They were like 1%, 2%, 3% type temporary decreases. But still, it's signifying the changing guard of the long-term effects of the OB BBA bill and kind of how it settles in, in our Medicaid system. So as we think of 2026 and 2027, we still -- our goal is still going to be north of 10 rate wins through our state partners, but we think there'll be small rate wins in nature, 2%, 4%, 5%.

They'll be LPN, yes, LPN weekend onlies or holiday weekend rates we think they'll be very focused on solving specific outstanding issues in states versus 30% rate increase for all PDN across the state. And again, with the exception of California, keep going out to California, the rate wage metric does not work in California today.

So our patients are suffering, families are suffering, they're not getting the care California actually spends about $330 million more per year in the hospitals because they haven't increased the rate in the PDN significantly. We'll keep advocating. So are our peers, we're all advocating for the California Medicaid system.

But as we think of '26 and '27, the company is really well positioned to kind of weather the next few years, rate environment, our size, our scale, our efficiencies I think set us up really well to continue to be a great partner for our payers and keep growing the company, while the rate environment is a little bit more muted.

There's a big value add that we're talking about as well will be beneficial to them on a long way. And even those 2 that we're talking about, they were [ COLA ] adjustments of a retro back afterwards. So no impact to us as a...

So one of these years, one of these days, we're going to talk about California rate increase. So it's 5 years, 7 years since the last rate increase in California, 5 years, we've been advocating and spending money.

Yes. So hopefully, that shall. But you mentioned the [ OBB ], so that's what I was getting at. In terms of just -- are you hearing that the states are already kind of responding to what might come in the future in terms of when they try to figure out their budgets and their rates?

Did we lose the Aveanna team? [Operator Instructions] So I don't know whether you heard my question, but I was asking whether some of these states coming out with these rate reductions, the temporary reductions, whether this -- this was in response to the cuts that are coming in the future in terms of the beautiful bill?

And if not, and maybe just kind of give us an update whether you are hearing from these states kind of being concerned and kind of preparing for what might happen to their budgets in the future under the reconciliation though?

Fantastic question, Joanna. And so the 2 specific ones that impacted us were really more about just annual balancing of their budgets. And 1 was North Carolina. There's been a lot of buzz, but North Carolina just actually gave us a rate increase and then frozen and then temporarily reduced it.

And so -- and the governor Stein has been fantastic, trying to work with us in the industry to get the rate reinstated. Their goal was just to balance their budget, and then they would reinstate rates. That's moved around -- the other 1 was Colorado and Colorado, again, gave us a rate increase in July and then took a temporary freeze closer to October.

So -- and I think the great part about being the Medicaid business, Joanna, is it's 50 uniquely different states and they make 50 uniquely different decisions. And we've seen that over the last 4 years as we've had many rate wins. I do think what we're seeing and what we're hearing. I mean, we talked to many of our governors, I mentioned earlier, and I think our governors have more insight now into what the longer-term impact of the [ BVDA ] legislation is, I do think the first part of this year as we talk to our governors, they really struggled -- they were still guesstimating and estimating what the impact would be of a buildup was yet to pass I think now that it's past that they have a better understanding.

We see governors and Medicaid directors making decisions. Some of them, I'll use Wisconsin as an example, Wisconsin after almost 20 years past a material PDN rate increase back in July and August. We're not large in Wisconsin, but it's a positive thing for Wisconsin. I think it showed that each state still makes our individual decisions.

But I do think to the nature of your question, what we're hearing from our governors is just having to be incredibly thoughtful on every dollar that they spend, they still don't have a full knowledge and insight into what years '27, '28, '29 looks like. So they're being very thoughtful.

But as Matt said earlier, most of our governors and our Medicaid Directors recognize private duty nursing in the home, saves the state and the government money. And so cutting PDN rates is not in their best interest. And we've heard that universally across all of our state partners.

All right. So I guess that's more TBD, but as of now, like it doesn't seem like this governor necessarily target PDN, but I guess they're trying to work it out, I guess, -- so I guess we'll see where it lands. And I guess your long-term growth algorithm includes a couple of percent -- percent to 1.5% from deals, right?

So given this beautiful bill and potential uncertainty for my comments such, should we expect you to continue to do the deals? Or do you first want to kind of see how states respond to the funding cuts under the reconciliation bill? How should we think about that piece?

Yes. I mean, we believe we're the nation's leading provider largest and leading provider of private duty services and we want to continue to grow. We want to continue to be the partner that our large payers want us to be across many states. And again, I use the Thrive as an example, Kansas, which did -- was not 1 of our top 5 markets to expand to. What's important to 1 of our national payers.

And so thankfully, to Thrive, we were able to get there and help them solve a problem with PDN. And so I think the larger and the more scale we get across many of the Medicaid states, the better partner we can be to some of our national partners. So we're going to continue to grow organically and inorganically to your point. We think we can get a couple of percentage points of growth.

And my gut is Matt talked about our organic growth has been running high single digits over the last 2 years, which is outpacing our long-term algorithm I think as you think about our growth rate organically for '26 and '27 and then you tack on a couple of percentage points in the M&A growth, I think you're going to see us continue to be in the double-digit revenue growth for '26 and '27.

It will be a little bit more of volume growth and M&A growth than rate growth, right? So it will balance a little bit. But I think you'll continue to see Aveanna in the 10-plus percent total growth. And again, M&A will be a little bit more of that and volume would be a little bit more than that. But it's a good problem to have, and we want to continue to scale this platform and again, we might not be in all 50 states 5 years from now, but we'd like to be in about 40 to 42 of the 50 states, Joanna in the Medicaid business.

Right, right. And then so on that growth, I guess, algorithms. So it sounds like the rate growth is going to slow down, but then I want to ask you about that volume growth. So clearly, there is the acquisition, but even if you exclude that deal in third quarter, the hours actually grew very nicely. So what is the sustainable growth in hours, I guess, so thinking about volumes in that business, say, into next year, a couple of years going forward?

We've been in the high single digits to Jeff's point earlier, Joanna, where we at. I think volume was in the high single digits, pushing 8%, 9%. And organically as we're talking about because you do have a little bit of the murkiness in there with the Thrive deal, which was an awesome deal for us.

Eventually, that will come back down in line to be in your 3.5% -- 3% to 3.5%, 4% range as we expected with our long-term growth algorithm, we sprinkle in the additional 1 point to 1.5 points of rate in there for the PDN segment. That's how you get to your 3% to 5% kind of range. So we think that's the long-term plan. We still think there's a couple -- there's a little bit of time before that gets to that point though, as well.

And we're just saying that hearing that and seeing it was so much pent-up demand and with the success of our preferred payer contracts, they keep pushing more and more patients to us -- and most importantly, we're able to pay our caregivers the appropriate amount to staff these set cases too. So you've got some time before it gets back down to the low and large numbers 5% range. But we'll be still north of that kind of outlook right now.

And I think to Matt's point, well into '26. So we agree, when you think 2 to 5 years out, we think we land back in that sub-5% volume and rate growth in PDS, not acquired -- but I think to Matt's point, certainly through Q4 and everything we can tell, Joanna, we saw a tremendous amount of pent-up demand running through the first half of next year. It's probably not until the back half of next year that we see that growth rate kind of get back in that 5% range.

And if we may have a couple of minutes left. So your other businesses. So Home Health is relatively small for you guys, but historically, you did talk about this being like a growth driver, where you want to grow more. And now we finally got the final Home Health regulation, it's clearly much better than the proposal, but still a cut, right? And how we should think about the impact to you guys and any mitigation strategies there?

And then just your thoughts on how we should think about Home Health rate outlook going forward? It sounds like there are some moving pieces, but I would like to hear how you're thinking about that, reg?

Yes. And let's start with just the rates. So I go on record, we acknowledge and we appreciate the -- both CMS and the current administration for pausing between the proposed final rule and listening to the industry, I think, that's the key. Is that we believe they listen to the industry's feedback and actually made positive changes to the final rule.

With that said, it's still a negative rate. So I think you'll hear from every CEO, it's still a negative rate against positive inflation in the Home Health business, and that does not make sense. Home Health is a cost-effective patient preferred health care setting, right? So it's still at the right set of patient. I think when you focus on Aveanna and specifically our Home Health business, I mentioned and Matt mentioned as well, we're growing north of 10% organically in that business over the last 2 quarters, and we believe that will be the case through the end of the year and into '26.

So we are in a great spot. We've had a very disciplined approach to growth. We're pushing high 70s percent episodic business, both between Medicare and non-Medicare payers. We love our partnership with our 45 preferred payers in Home Health.

And we've got gross margin in line. We've got fantastic clinical outcomes. Matt talked about clinical outcomes. We're north of 4.3 out of 5 stars in our Home Health business and continuing to improve -- we are a TPS winner next year. We are receiving value-based TPS payments from the government.

So all of that said we want to expand our geography in Home Health. We want to expand our current geography into future geographies in home health. And we believe deeply in the business. And we just think that it's a great solution -- it's also a great feeder to our hospice business long term.

So again, we're bullish on Home Health, certainly, the final rule makes us feel more confident in the ability to invest capital into the Home Health business. And we're aligned with our peers to find a longer term rate solution for Home Health that really values what Home Health does, but the nation's geriatric population.

And do that add so -- go ahead...

You'll hear us continue to be bullish on growing the Home Health business.

And to that end, I want to ask you specifically. So do you think this is like enough, I guess, visibility from the final regulation to see more investment in this space and more, I guess, deal activity?

I do think it begins -- I mean, it's been a desert of investments. So the home health business has been a desert for the last 3-plus years of people leaning in, investing, acquiring. So I think it gets incrementally better. I think folks, the Draconian side of this is better. And certainly, we acknowledge CMS for giving some of that insight into that.

But I got to go back to still, it is a negative rate and a positive inflation environment and when you total up the last 5 years, since 2020, you're still talking 15% to 17% negative rate in a space that's dealt with 30% inflation. So -- so I think, Joanna, it's a step in the right direction, and we want to acknowledge that with this administration, we appreciate. But I think it's still it needs stability. Home Health and needs rate stability over the long term.

We also just firm believers it is in the long term. I think you're hearing that from our tone and as an organization and as an industry, it's on the right side of health care. It's the lowest cost setting, it's a patient preferred setting, and it's the right thing to do as an organization. So though we're looking at short -- what we believe short-term headwinds that are going through in the long run, this will be -- it will come out on top.

Great. That's all the time we have for today. But thank you so much to the Aveanna team. And thanks, everyone, for listening. Please stay tuned for more today.

Thanks, Joanna.

Good morning, and welcome to Aveanna's third quarter 2025 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 Q3 2025 results and how we are moving Aveanna forward in 2025. My initial comments will briefly highlight our third 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 Thrive Skilled Pediatrics integration, the current regulatory environment and year 3 of our strategic plan before turning the call over to Matt to provide further details into the quarter.

Moving to highlights for the third quarter. Revenue for the third quarter was approximately $622 million, representing a 22.2% increase over the prior year period. Third quarter adjusted EBITDA was $80.1 million, representing a 67.5% increase over the prior year period, primarily due to the improved rate and volume environment and continued cost savings initiatives. We continue to execute our strategic transformation strategy, focusing on obtaining adequate rates from our payer and government partners for the services we provide, which is clearly evidenced in our third quarter results.

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 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 Q3 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 revenue and adjusted EBITDA. 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 normalized growth rates in all 3 of our business segments. Since our second quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and 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 2025 is twofold. First, we are advancing our legislative agenda to improve reimbursement rates in at least 10 states. And second, we continue to advocate for Medicaid rate integrity on behalf of children with complex medical conditions. We have a strong advocacy presence with both federal and state legislatures as well as solid support from our governors across our national footprint.

State legislators have continued to recognize how meaningful private duty nursing is to the overall cost savings and improved outcomes of our nation's most vulnerable children. As it relates to private duty services rate updates, we achieved 10 rate enhancements this year. which is -- which was in line with our expectations. At this point, our private duty services legislative agenda is primarily wrapped up for this year, and we have transitioned our efforts towards similar legislative goals for 2026.

Now moving on to preferred payer initiatives. Our goal for 2025 was to increase the number of private duty services preferred payer agreements from 22 to 30. We added 5 additional preferred payer agreements in Q3 and are currently positioned at 30 agreements in total. Aveanna's preferred payer strategy continues to gain momentum along with the Thrive SPC acquisition, which broadened our strategy into 2 new states, Kansas and New Mexico.

Additionally, our Q3 preferred payer agreements account for approximately 56% of our total PDS MCO volumes, inclusive of our recent Thrive acquisition. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our private duty services preferred payer partners.

Now moving to our preferred payer progress in home health. Our goal for 2025 was to maintain our episodic payer mix above 70% while returning to a more normalized growth rate. I am pleased to report in Q3, our episodic mix was 77% and our total episodic volume growth was 14.2% compared with the prior year period. The continued investments in clinical outcomes, sales resources and a focused approach to growth is now paying dividends with Q3 total admissions of 9,700 in total or 9% growth over the prior year period.

We have 45 preferred payer agreements in home health. Our dedicated focus on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis has led to positive year-over-year growth and improvement in our clinical and financial outcomes.

Finally, as we have achieved our desired preferred payer model in private duty services and home health and hospice, we are proceeding with a similar strategy in our Medical Solutions business. We're in the mid-stages of implementing our preferred payer strategy in Medical Solutions and believe it will be fully realized by early 2026. To date, we have 18 preferred payers in Medical Solutions, and we expect that number to grow as we achieve our desired preferred payer model.

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 Q3 volume of approximately 91,000 unique patients served as we work to achieve our target operating model. While we expect our volume growth to be muted for the remainder of the year, we are experiencing improvement in our clinical outcomes, customer satisfaction and financial outcomes.

Our Medical Solutions business is well on its way to achieving its target operating model, and we look forward to updating you on its continued progress. We are encouraged by our rate increases, preferred payer agreements and subsequent recruiting results. Our business has demonstrated solid signs of recovery 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 a cost-effective, high-quality alternative to higher cost care settings.

And most importantly, we provide this care in the most desirable setting, the comfort of our patients' home. As it relates to our recent acquisition of Thrive Skill Pediatrics, I am very pleased with the integration efforts and the continued focus on superior clinical and customer experiences with our patients and families. We are on target to complete our integration by the end of this year. Our leadership team has done a nice job staying focused on our mission while achieving the expected synergies in this transaction. The Thrive acquisition is accretive to our '25 results and a great addition to our Aveanna family.

Now turning to the current regulatory environment with Medicaid and Medicare updates. We continue to be quite busy with our advocacy efforts. We have focused our efforts on 2 fronts: supporting overall Medicaid policy and defending the Medicare home health benefit for American seniors. On the Medicaid front, we continue to believe our patient population fared relatively well in the OBBBA legislation. Pediatric and adult patients with complex medical conditions were not directly targeted in the bill, and our view is that PDM was mostly insulated in the almost $1 trillion cut to Medicaid.

With that said, we are experiencing general headwinds with state Medicaid directors and governors as they plan for potentially less overall Medicaid funding and shouldering more of their Medicaid costs in the future. As it relates to the proposed home health rule for calendar year 2026, we continue to voice our disappointment by the significance of these proposed cuts. We are aligned with the National Alliance for Care at Home and our home health peers in our strong opposition to this proposed rule.

Since our last call, we've had many productive conversations with legislative leaders, both Republican and Democrat as well as CMS leadership on the devastating impacts of the proposed home health rule. We submitted our comment letter during the CMS open comment period and have continued to advocate in all 38 Aveanna states for the current administration, CMS and Congress to halt any cuts to home health. We do expect to receive the final calendar year 2026 rule in the coming days. And although not overly material to Aveanna's 2026 results, this rule is critically important to millions of seniors in America.

Before I turn the call over to Matt, let me comment on our strategic plan and enhanced outlook for 2025. We will continue to focus our efforts on 5 primary strategic initiatives. first, enhancing partnerships with government partners and preferred payers to create additional capacity and growth; second, identifying cost efficiencies and synergies that allow us to leverage our growth; third, modernizing our Medical Solutions business to achieve our target operating model; fourth, managing our capital structure and collecting our cash while producing positive free cash flow; and finally, engaging our leaders and employees in delivering our Aveanna mission.

Based on the strength of our third quarter and year-to-date results, we now anticipate 2025 revenue to be greater than $2.375 billion and adjusted EBITDA to be greater than $300 million. We believe this enhanced 2025 outlook provides a prudent view considering the challenges we still face with the evolving regulatory environment.

In closing, I'm incredibly proud of our Aveanna team and their dedication to executing our strategic transformation while holding our mission at the core of everything we do. We offer a cost-effective patient-preferred and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources and government partners.

With that, let me turn the call over to Matt to provide further details on the quarter and our 2025 outlook. Matt?

Thank you, Jeff, and good morning. I'll first talk about our third quarter financial results and liquidity before providing additional details on our improved outlook for 2025. Starting with top line. we saw revenues rise 22.2% over the prior year period to $621.9 million. We achieved year-over-year revenue growth in 2 of our operating divisions, led by our Private Duty Services and Home Health and Hospice division, which grew by 25.6% and 15.3% compared to the prior year quarter.

Consolidated gross margin was $202.8 million or 32.6%. Consolidated adjusted EBITDA was $80.1 million, a 67.5% increase as compared to the prior year. This growth reflects an improved rate environment, increased volumes as well as enhanced operational efficiencies.

Now taking a deeper look into each of our segments. Starting with Private Duty Services. Revenue for the quarter was approximately $514 million, a 25.6% increase and was driven by approximately 11.8 million hours of care, a volume increase of 12.9% over the prior year. Q3 revenue per hour of $43.51 was up 12.7% compared to the prior year quarter, primarily driven by preferred payer volume growth and the rate enhancements previously discussed. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates.

Turning to our cost of labor and gross margin metrics. We achieved $149.3 million of gross margin or 29%. The cost of revenue rate of $30.89 in Q3 was up $2.27 or 8.9% from the prior year period. Our Q3 spread per hour was $12.62. We expect spread per hour to normalize as we continue to make ongoing adjustments to caregiver wages to support higher volumes and improve clinical outcomes.

Moving on to our Home Health and Hospice segment. Revenue for the quarter was approximately $62.4 million, a 15.3% increase over the prior year. Revenue was driven by 9,700 total admissions with approximately 77% being episodic and 12,900 total episodes of care, up 14.2% from the prior year quarter. Medicare revenue per episode was $3,215, up 3.6% from the prior year quarter. We continue to focus on rightsizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes.

With episodic admissions well over 70%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings. We are pleased with our Q3 gross margin of 53.3%, representing our continued focus on cost initiatives to achieve our targeted margin profile. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care.

Now to our Medical Solutions segment results for Q3. During the quarter, we produced revenue of $45.1 million, essentially flat from the prior year period. Revenue was driven by approximately 91,000 unique patients served and revenue per UPS of approximately $495, up 0.6% over the prior year period. Gross margin was approximately $20.3 million or 45% for the quarter.

As Jeff mentioned, we continue to implement initiatives to be more effective and efficient with our operations to achieve our targeted operating model. We are accelerating our preferred payer strategy at Medical Solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect gross margins to normalize in the 42% to 44% range and UPS to accelerate its growth as we implement our targeted operating model. While I'm pleased with the integration efforts to date, we are entering the final push to complete our efficiency efforts and get back to focusing on growth in Medical Solutions.

In summary, we continue to fight through a difficult environment while keeping our patients care at the center of everything we do. It's clear to us that aligning caregiver capacity to those preferred payers who value our partnership is the path forward at Aveanna. With the positive momentum we experienced in Q3, we remain optimistic that such trends will extend throughout 2025. We will continue to pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes.

Now moving to our balance sheet and liquidity. At the end of the third quarter, we had liquidity of approximately $479 million, representing cash on hand of approximately $146 million, $106 million of availability under our securitization facility and approximately $227 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $23 million in outstanding letters of credit at the end of Q3.

During the quarter, we refinanced our first lien credit facility and increased the revolving credit facility's availability from $170 million to $250 million. The combined $1.325 billion of first lien term loan was also extended and is now set to mature in 2032. These actions enhance our balance sheet strength and liquidity, allowing us to continue executing on our strategic priorities. This progress underscores our strong operating performance and the confidence our financing partners have in Aveanna.

On the debt service front, we had approximately $1.49 billion of variable rate debt at the end of Q3. Of this amount, $520 million is hedged with fixed rate swaps and $880 million is subject to an interest rate cap, which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable rate debt is hedged. Our interest rate swaps extend through June 2026 and our interest rate caps extend through February 2027.

Looking at year-to-date cash flow. Cash generated by operating activities was $76.1 million and free cash flow was $86.2 million. We are encouraged by the strong cash collections and expect to generate additional free cash flow throughout the remainder of the year.

Before I hand the call over to the operator for Q&A, let me take a moment to address our improved outlook for 2025. As Jeff mentioned, we now expect full year revenue to be greater than $2.375 billion and adjusted EBITDA to be greater than $300 million. As a reminder, this year's fourth quarter includes an additional 53rd week, which will have a positive impact on both revenue and earnings. The presence of this extra week means the current fiscal year contains an additional week of business activity compared to most years.

As we reflect on our Q3 results, I'd like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2025 strategic plan and look forward to providing you with further updates at the end of Q4.

With that, let me turn the call over to the operator.[ id="-1" name="Operator" /> [Operator Instructions] First question comes from Pito Chickering with Deutsche Bank.

Nice quarter. Every year, the fourth quarter EBITDA has been higher than the third quarter. Are there any headwinds that we should think about for the fourth quarter? Just trying to understand the implied guidance that you have for the fourth quarter after a very strong third quarter? Or is this just a standard conservatism that you've been doing for the past few years?

Thanks for your question. And we're going to take that as a compliment. Thank you. Peter, this is our 11th quarter of beat and raise. And I think as we think of Q3, we were very proud of the results, a clean quarter, a very clean quarter in Q3. Q4 with the exception of the 53rd week that Matt talked about to a 14th week in Q4 should be very similar to Q3. We do have some seasonality that we play through at the end of the year. So the last part of the quarter has a little bit of holiday seasonality.

But no, fundamentally, we think of Q4 in the same realm as we think of the performance of the business in Q3. And again, we've created a prudent -- we use the word prudent, some people call it conservative view of a beat and raise mentality. We are proud to have raised revenue at least $75 million and raised EBITDA of at least $30 million quarter-over-quarter. And if I go back to how we started the year, we started the year with a goal to achieve $200 million of EBITDA and both organically and with the addition of Thrive, which you'll hear us keep talking about Thrive has been a great little tuck-in acquisition for us, great business addition to our core business.

We'll have raised guidance after 3 quarters, $100 million of EBITDA, or 50% guidance raise. So again, we continue to be a conservative group. We love the beat and raise mentality, but raising guidance over 3 quarters by $100 million on a 200 basis is, in our mind, still good days' work.

Yes, Jeff, I'll just add to that, that obviously, operational performance has been amazing by the team, but also the exceptional care that the team has been delivering as well. I'll get back to it though. There's a lot more work to do, Pito. I mean, we're going to get back to work. We're going to continue to chop wood and go do and do what we do best. We're going to continue to focus on providing not only the best patient care. We're also going to continue to strengthen our balance sheet, deleverage our organization once again, as you saw significant leverage coming down from the beginning of the year to where we ended Q3, and we'll continue to see that in the out quarters as well.

Great. And then sort of a follow-up here. You've scaled up your preferred payer agreements throughout 2025, which makes some pretty funky sequential growth this year. In the last couple of years, EBITDA has been about 26% of annual EBITDA. So is it fair to take third quarter results and annualize that as you think about launch pad for 2026 earnings and even that could be conservative, I guess, with the 5 preferred payers that you signed this quarter?

It's a fair question, Pito. Again, we'll start with we're staying focused on finishing the year strong. So our goals right now are to finish out 2025 and finish out strong. We would point people to. There's a lot of momentum in the business, as you pointed out, PDS and our HHH businesses are both just hitting their strides in great ways. Med Solutions, we still are working through, and I hope you read into our comments that Med Solutions, we're doing a tremendous amount of work. We're very proud of our team what they're doing as we speak. But I want to finish that over the next kind of 3 to 4 months, so they can get back to the growth algorithm that we have gotten used to.

Two things I'll point out just to keep in mind, one, we had a significant amount of wage pass-through as the year has played out. And so Matt will keep bringing us back to -- if you look at Q2, we pointed out $9 million of timing related and wage pass-through. We had additional wage pass-through in Q3. We're still passing additional wage through in Q4. So that will continue to play through the first part of next year.

And then we talked about 10 rate wins this year. It's really more than 10, but it nets down with a couple of temporary rate decreases that are in place. So we had a great year in rate wins, but we are feeling and we are hearing the general headwinds of state Medicaid systems. So we expect a similar rate story from a total number of rate wins next year, but we are working through and hearing general headwinds as the OBBBA reality has just settled in on Medicaid systems.

So we would point people towards that general headwinds as we fight through '26 Medicaid rates throughout North America. That's why we love being in 29 states and continuing to grow. We love each Medicaid system is uniquely different. And I'd expect us to do more Thrive-like acquisitions in '26 to continue to build out more Medicaid states.

[ id="-1" name="Operator" /> [Operator Instructions] Next question, Brian Tanquilut with Jefferies.

Congrats on a solid quarter. Maybe, Jeff, just to follow up on that comment you made. So in PDS, you've seen nice strength in hours, obviously. And as we think about the rate increases you've received year-to-date -- I mean, I think that translates into better hours. Is that the right jumping off point in terms of like kind of like your capacity as we think about 2026?

And then maybe for Matt, as a follow-up. Historically, you've kind of spoken about a 10 to 10.50 spread rate in PDS. So how should we think about the path to that level? Or is that still the right level to be thinking about considering that you've got rate increases flowing through and there's a timing dynamic?

I think I'd pick up the Q3 PDS volume of just over 11.8 million hours of care being delivered. That obviously includes the Thrive acquisition. I would tell you that's the full impact of the Thrive acquisition in that Thrive at 13% year-over-year growth, Thrive was about 5% of that 13%. So it still keeps our volume in line with where it was in Q2 at 6% or 7% volume growth. But I think that 11.8 million hours is the right basis to move into Q4. We'll have some seasonality, some normal seasonality as we move into 2026.

I think as I mentioned to Pito, a lot of our rate wins were pent-up rate wins from '24 moving into '25. We expect, as we reset our legislative goals for 2026, we'll probably still set a goal of being double-digit rate wins. But as we've said last quarter, we'll say again, and we'll say next quarter, we expect those rate wins to be smaller in nature, 2%, 3%, very specific like holiday overtime rates. So as we work with our government partners, we do expect those -- the PDS rate wins to be generally smaller than they've been over the course of the last 2.5 years. The great part is we're prepared for that. We're well positioned for that.

As it relates to the preferred payers and the 5 additional rate wins, Thrive helped that. The addition of New Mexico and Kansas as 2 brand-new MCO states helped us in that execution. But that was the thesis of why we did the Thrive acquisition was to roll that new markets and the current business into our relationships, and it's played out exactly as we would have expected. So I expect us to continue to execute additional preferred payer wins in Q4, and we'll reset that goal for 2026.

Yes. And Brian, to your point on the spread itself, as expected, Q3 came right back in line with our Q1 expectations. We made sure to discuss Q2 ad nauseam last quarter for people to understand that, that was a little bit hot. But gross margin settled in line nicely, right around 29% for our PDS segment. That's in line with our expectations. It's probably a little bit on the higher end of that 26% to 28% range that we've come to guide to in the long run here.

But looking ahead, there's still additional wage pass-through to include to our caregivers. And so we'll do those wages along with some other benefits, but that will bleed into 2026 as well. So not only will that only occur in Q4, but we'll see that in Q1 and Q2 of next year, too.

That makes sense. And then, Matt, maybe my follow-up would be just on the balance sheet. So now that you've done your refi, your EBITDA base has gone up, so the leverage ratio has gone down. I mean how should we be thinking about your views on cap structure and then maybe capital deployment towards acquisitions?

Awesome question. Yes, really proud of our teams and what they've been able to accomplish. These great operating results and clinical results have allowed us to really focus on our cash collections as well. It takes a village to be able to do that on a continuous basis. But $86 million of free cash flow year-to-date, that's amazing expectations from our team and what we've been able to achieve. We'll add to that in Q4 as well, though Q3 is historically our best quarter for free cash flow generation as well.

But looking ahead, we'll continue to do that. We'll bring in additional free cash flow in 2026. And we'll use that for potential M&A opportunities. But we're going to do what makes the most sense at Aveanna and whether that is deploying for M&A or paying down debt, we'll just be thoughtful on any dollars that we use.

[ id="-1" name="Operator" /> Next question, Benjamin Rossi with JPMorgan.

I guess just turning to the value-based care contracting, I guess when thinking about your progress towards your broader goal of, I guess, signing 10 VBC contracts this year, can you just walk us through the market appetite you're seeing from your payer partners here? And then have you seen any shift in how payers are maybe viewing value-based care contracts for private duty nursing going forward?

Ben, thanks for the question. Yes, I think the answer is just more and more and more and more. So I'll go back to the Thrive acquisition and why it made as much sense and why we'll do more Thrive-like acquisitions in PDS moving forward. And that is that our preferred payers just want more nurses and they want more of our capacity. And even we are limited on how much nursing capacity we can give them.

So as we talk to our now 30 preferred payers, and again, many of them are national to national leading Medicaid payers in America, they just want more of what we have to offer, both in the amount of nurses, but also the relationship that we have that is tied to total cost of care through HBR and fill rates. So I think as we've had conversations even this week with some of our national payers. And although it takes time to add that value-based agreement, and just as a reminder, we have bonus only, so it's only upside. So there's no -- we don't take institutional risk today in any of our value-based agreements.

So it's upside rewards only. Based on our ability to bend the cost curve, most of our payers are just wanting more of Aveanna and more of what we have to offer. And so I can tell you from having closed the Thrive transaction, we've gotten a couple of nice feedback from our payer leaders, how impressed they were and how proud they are that we've been able to deploy more nurses to their families and their patients. So I'd expect that trend to continue as we reset our goals for 2026, but no slowdown from our MCO partners. They want more of what we have to offer.

Great. Just a follow-up, maybe on the home health hospice front, seeing a nice volume growth there, episodic mix picked up nicely. cost of revenue, it seems like that maybe ticked up a bit and was a bit of a drag on gross margin. I guess anything going on within that segment from the expense side just with growth out there otherwise outpacing top line?

No, nothing crazy there, Ben. Obviously, thanks for looking at that 15.3% growth in that division is outstanding. Hospice phenomenal growth, episodic growth, amazing, 77% admissions are coming in as episodic as well. Those are also delivering great care afterwards. Those are funneling right into great star ratings for our teams on top of it. 53.3% gross margin, that's right in line with our expectations, 55% and change last quarter. It was a little bit hot, and we kind of alluded to that one. We're continuing to invest in some training through some hard ways programs with that team, but really just nothing to be concerned about. It's right in line with our expectations.

And I think Matt said it well, Ben, it's 3 years' worth of work. So again, it's 3 years' worth of our team staying focused on the preferred payer strategy. And again, as we think of Med Solutions, think of what you're seeing now in home health and hospice as what the future of Med Solutions will be where we drive the majority of our volume will be aligned with our preferred payers, and that really is what drives our growth. But no, Matt said it well. Really proud of our home health and hospice team. They've done a great job. And they've stayed focused on episodic care, which is the right payment model for that business.

[ id="-1" name="Operator" /> Next question comes from Raj Kumar with Stephens.

Maybe kind of uncovering the hours growth, decently strong. So just maybe trying to get the disclosures on kind of how census or patients served trended relative to the hours per census yield and kind of remaining opportunities that as you kind of think about the spread normalizing and the company being able to hire and retain more nurses to be able to serve more volumes. So maybe just trying to kind of break that out and kind of how much more room is there on the kind of hours per census side? And then kind of what are you kind of seeing from a census opportunity perspective as well?

Yes. I would say they're directionally in line with each other, Raj. Obviously, I would go back to the statement that everybody is always asking for more and they're needing more. And whether that is our current census that we have on there or patients that are waiting in the hospital to be discharged onto our service as well. So with the preferred payer strategy, we have been able to staff more hours and also pay our caregivers more to staff more hours and work more hours at the same time. But correlated effect, there's still high demand within our preferred payers and outside of it.

We -- there's just unlimited -- there's just limited capacity with those caregivers, and there always will be, unfortunately. So as we lean into these relationships, we're going to do our best to fill as many shifts as possible on behalf of our patients and really drive that growth that you're seeing in our volume right now.

Got it. And then maybe on the home health and hospice side, just with the preferred payer strategy, maybe just kind of want to be able to compare kind of overall reimbursement on your episodic rates versus fee-for-service and kind of where that discount kind of stands or even if you're kind of at reaching parity, just maybe any information on that would be helpful as well.

Yes. I wouldn't say we're reaching parity. So it's why we focus at almost 80%. We've said 70% is our target. It wouldn't shop me if we move that to greater than 75% now that we've been 4 quarters in a row at north of 75% episodic. It's the way of the future in this business. It is -- I think our peers have figured it out. We figured it out. Episodic is the right way to think of it. It's a fair reimbursement for great clinical care and great outcomes. And so -- but I wouldn't say there's parity between non-episodic and episodic. There's not parity, and it's why we do very little of it. And it hasn't hurt us. It hasn't -- our referral sources understand it.

Our payer partners understand it. Just like PDS, they want more nursing, more therapy care, and they want a lower total cost of care for geriatric patients. So yes, you'll see us stay focused on this level of care with this payer, these payers being the focus. And it wouldn't shock me if we start touching 80% of our business on a go-forward basis. We are that committed to be an episodic provider in home health.

[ id="-1" name="Operator" /> Next question, A.J. Rice with UBS.

First, just, obviously, you've made a big push and been successful in getting these preferred payers set up in the PDS business. I wonder if you have had enough time to sort of see over time how that relationship has evolved. Do you get annual updates consistent with what you've been getting historically? Have you seen it evolve in any way that's worth calling out?

A.J., thank you for the question. I think I would say we're in year 4 of our longest, most mature relationships, and we're in year 3 of a lot of the other relationships. So to your point, we're a couple of years into this. I think some of the things that kind of popped out of this that maybe we didn't know going into it or didn't strategize was some of the soft things like collections and working together to help specific high acute families get home and stay home. And just some of the other things like value-based agreement add-ons.

The rate is what starts to -- rate and wage, so let me be specific. The incremental rate we get, the majority of it goes to wage as we've talked about now for 3 years to the nurses. But some of the soft stuff that then kind of adds on over time really becomes the value-based agreement, but also the collections. And we talked this year about having millions of dollars of better collections. And some of that is from calling our payer partners and having them help us with some aged accounts, and they've just been great partners on that front. So that's some of the soft stuff that's come.

But I'll also say like they pick up the phone and just they'll call us on a tough patient that has been back to the hospital 3 or 4 times in a few months, and they'll ask us to dive in and really address that patient to help the family. And that's some of the benefits that we're able to get them. We don't ask for rate enhancements from our preferred payers every year. So we're thoughtful on when we go back to the well with them on needing some kind of COLA or cost of living. Sometimes that is every other year or every third year.

So let me go back to some of those conversations. It's a productive conversation. It's how much do we need to move nurse wages to continue to meet their needs. And -- but I think as we said before, out of all 30 preferred payers, whether they've been with us for 4 years or 4 months, every one of them wants more of our nurses, and that is the constant theme we hear from all of our payers.

Okay. Maybe for my follow-up, just thinking about the organic and inorganic growth in PDS as well as in adult home care. Some of your peers are saying, if we can just get the final rate notice done, that could open the floodgates, give us more clarity on deals and where to look for expansion opportunities. Others are saying that's not enough. We need more clarity on the long-term reimbursement profile. On the PDS side, you're saying you're seeing a little caution in some states. I guess I'm just wondering, is there anywhere where you're thinking about leaning in more to new opportunities, growth, either organic development or acquisitions or where you're being a little more cautious?

I'll go back to who we are to start with. Almost 80% of our company is generated from our PDS segment. So that is the underpinning of Aveanna always has been and certainly is. We added 2 new states with Thrive. So we're now in 29 Medicaid states. I think Matt and I'd tell you, we'd like to be in about 38, maybe 40 total Medicaid states. There's a couple of key states that our large national Medicaid partners are in that we're not like Ohio, West Virginia, Kentucky, those states, we don't have any Medicaid presence there today.

So over time, we'd like to fill those states in. But we want to continue to expand our Medicaid reach, both pediatric and adult. We're a skilled focused company, as you know, A.J. So we always lead with skilled services, nursing services, that is our focus. And then, I guess, Matt, pivoting back to home health, we're in a good position that only today about 10% of our revenue is in home health and hospice. We're big believers in home health. We believe home health is the right solution for American seniors, and we'd like to see a nice rule settle here.

But Matt, how do you think about deployment?

Yes. No, I just would go back to that. We're always going to continue to advocate on behalf of our patients and our families regardless of the industry, regardless of the division. We're going to continue to what we do best. We're going to deliver that exceptional patient care that people know us for. We're going to do that most cost-efficient setting in that patient's home. And then regardless of any policy changes out there, A.J., we're going to focus on that quality care, operational efficiencies and those close partnerships with our payers.

We think that by maintaining those really high standards and demonstrating really good clinical outcomes, everything will work out in the long run here. I think we're well positioned with our size, scale and density and technology and our clinical outcomes that these partnerships will continue to grow and that will be on the right side of health care that we will be a cost savings to the health care system.

[ id="-1" name="Operator" /> Andrew Mok with Barclays.

Just a follow-up on the hours growth. Can you spike out the contribution of Thrive in the quarter and how volumes performed on a same-store basis? Because it still looks like a pretty meaningful increase year-over-year. And once Thrive is fully integrated, what's the annualized earnings contribution expected in that?

Yes, Andrew, with the Thrive business, first off, it's a really great business. The team has done a really nice job integrating it into the Aveanna organization. Q3, to your point, reflects that full financial impact of Thrive. It was in there for a very full quarter on there. If you go back and look at our Q2 on an hours basis, we were mid- to high single digits out there. That's exactly organically what Aveanna was doing as well in Q3. The incremental, what you're seeing is from Thrive.

What we talked about previously, Thrive is coming in at roughly $100 million of revenue and about 7.5x multiple from the purchase price post synergies itself. We're going to be just a little bit north about that, but the team has done a phenomenal job getting after synergies, integrating the organization and really bringing them into to be part of Aveanna.

I think Matt has said that well. Like we've been -- we guide people over 3 to 5 years that PDS should be in that kind of 4% to 5% organic growth rate. We've been a couple of points north of that now for 3 quarters plus. Q3 represented that organically, we were in that same kind of 6.5%, 7% organic and then the nice addition of Thrive. And again, I think as we came out of Q2, we guided people to think of Q2 as $79 million versus $88 million because of the $9 million of timing. And then we said there's a couple of million dollars or more of wage pass-through. So we thought that the organic business would land kind of in the mid- to high 70s, which is where it did.

And then as Matt talked about, the addition of Thrive comfortably settled us right at that $80 million amount. And that's the full impact. We're wrapping up integration literally in the month of November, and we have some AR runoff into early mid next year as normal as the systems run off, but we're really putting the integration to bed here in the month of November and excited to go do it again.

Great. I wanted to follow up on some of the comments around the uncertainty around state budgets and the indirect impact that might have on reimbursement. Are those comments more directional in nature? Or are there specific actions that states are taking that are driving that more prudent posture?

It's more directional in nature, but we spent the entire year talking to both governors, state Medicaid budget directors and the key majority leaders in almost 30 states. And it's been the same -- similar conversation in all 29 states, which is a little bit of uncertainty, a little bit of let's see how this shakes out, a little bit of we want to see how the OBBBA settles in.

So I think at this point, most states have kind of figured out what it means to them. Some Wisconsin was a big winner this year. Wisconsin had a major increase to their Medicaid PDN rate. And -- but we had a couple of states who temporarily put in 2%, 3% reductions just so they could balance their 2026 budget. So we've seen a little bit of everything in the process. But I think as we think of '26 and '27, we think that, that generally in nature, there's going to be some headwinds that states have to work through.

Yes. I think the diversity of the 29 states [Technical Difficulty] for a nice position for some states win, some states hold, some states are going to just be out there for a little bit, but that diversification is a positive for Aveanna.

[Technical Difficulty]

Sorry, we didn't hear the question.

You went on mute for a minute. So just going back to your payer relationships, you said you offer to bend the cost curve and it's an upside only deal. What does that mean exactly? And my follow-up is, does having a payer deal in pediatrics grease the skids for a payer deal in home health and hospice and Med Solutions?

That's great. Let me start with the second one because the second one is easier than the first one. And I'll use United or if you just think about United, our answer would be no. It's 2 totally separate sections of the payer itself. United Community, which is our Medicaid business is totally different than the United Medicare Advantage. We talk to both sides of United in this example, but the paths never really cross inside of their shop. So in most of our payer partners, talking to a Medicaid pediatric rate person is -- has very little benefit to the Medicare geriatric. Many times, they don't even know who the peer is in nature. So unfortunately, unfortunately, it doesn't bleed over.

But going back to your first question about our payer contracts. So first of all, each of our 9 -- I think, 9 to date value-based agreements are in addition to an enhanced rate. So all of 30 of our preferred payers have an enhanced rate, which means enhanced wage for the nurse in those cases. All 9 of the value-based agreements are different in nature. Even some of those with the same payer, they're different. But most of them focus on really 2 fundamental things. One is fill rate, the amount of hours that we've been authorized to fill. And the goal is that we fill as many of those hours as possible. The payer wants us to fill 100%. Most of our targets are between 80% and 90%, where our goals are is to land between 80% and 90% fill rate.

And then the second part is really HBR or MLR, however they think of it as some form of a target cost for the actual services that we provide and really tying to acute care spend, right? So reducing the acute care spend. Most of our 9 contracts have something to do with the 2 of them. There may be a third and fourth like customer satisfaction and other feedback from customers, but most of them are driven by HBR percentage and a fill rate target.

And just to ask the obvious question, so the fact that you're -- you just have more nurses, you have more athletes on the field, you can -- one phone call from them, they can get more spots filled than calling 5 of your smaller competitors. Is it -- I know it's probably not that simple, but is that a big piece of it, I would think?

It's scale. They want scale. They want scale of nurses, but also scale of geography. They want technology. They want our clinical outcomes. They want the best. But yes, they want more nurses. And most of these payers, if you think of their geography, they're -- in a state like Texas, they're in both Dallas, but they're also maybe in South Texas. So it's urban and very rural, and they want both. They want you to cover both of those with equal tenacity. But yes, they want our alignment of our nurses and our scale with their scale of their other beneficiaries. But yes, that is -- you've nailed it.

[ id="-1" name="Operator" /> Next question, Ben Hendrick from RBC Capital Markets.

This is Michael Murray on for Ben. We're getting a lot of questions on the sustainability of growth of the preferred payer relationships. Could you give us an idea of the room to run here? You targeted 30 in 2025. Any idea what the goal would be for 2026? And then what is the potential to increase the number of patients you take within a preferred payer relationship?

I guess I'll start with -- some people ask us what inning are you in, in the preferred payer strategy. And clearly, we're past the first inning, but we're way before the ninth inning, I'll put it in that way. We're somewhere in the middle of the story. We've added volume metrics in PDS. Our goal would be at some point in the future to add a volume metric in Med Solutions tied to the number of preferred payer accounts. If you think of our PDS volumes today, we announced this quarter, 56% of our MCO volumes are aligned with the preferred payer. I think that would tell you we're a little bit more halfway there.

We've said before, we don't think that we'll get to 100% of the MCO volumes being with preferred payer, but we should get to the low to mid-80s and maybe one day, the high 80s in percentages over the next couple of years. So I think as we reset our goals, we met as a team a few weeks ago and started planning for '26. We're in our budgets as we speak now. As we reset our goals for '26, clearly, 30% is no longer the goal. We'll be somewhere in the mid- to high 30s, maybe even approaching 40%.

But it's also the value and why we're looking for additional markets. I mean Thrive is a great example. I mean we added 2 brand-new states. We picked up a couple of preferred payers in those states right out of the gate, enhanced relationships. So I'd tell you, there's just -- there's still a long, long runway in front of us. And again, what we're doing in Med Solutions is exactly the same as what we've done in productivity services and Home Health and Hospice, which is define the preferred payers, define the target operating model and then align our capacity with those payers. And that's what you'll hear us talk about in '26 for Med Solutions.

And then I had a follow-up question on capital structure. I wanted to see what your intermediate leverage targets were. And do you anticipate hitting those through EBITDA growth? Or would you use cash flow to pay down debt?

Great question, Michael. And obviously, once again, really impressed with the team being not only a free cash flow generating organization, but a meaningful free cash flow generating organization, $146 million of cash on hand in the quarter. That's phenomenal work from the team through cash collections and operations efforts. We're currently sitting at, what, 4.62x net leverage currently. I mean, we're down almost 3 turns of leverage this year. We were 2.77 turns last year. We've got line of sight to continue deleveraging the organization in the out quarters as well.

We have an internal goal to make sure we have a 3 handle in front of that. I mean that's something we're going to be at. We probably won't be -- we won't be there wrapping up this year, but into '26 and into '27 to have a 3 handle in front of that. We'll be thoughtful with our dry powder. It's always nice to have dry powder sitting out there for some potential deals that might come through. But if it makes the most sense to the organization, we're not afraid of paying down debt at the same time. So I think thoughtfulness is what you should take away from this one. But right now, we're going to sit on that and see if any opportunities arise.

[ id="-1" name="Operator" /> Next question, David MacDonald with Truist Securities.

Guys, just one left. Just kind of curious, wanted to piggyback on A.J.'s question from earlier. Just with regards to home health and some of the uncertainty there. I'm just curious, has that impacted the strength of the pipeline of opportunities there for you guys? And what would you kind of need to see in terms of the final rule to get comfortable starting to potentially more meaningfully deploy capital there, just given some of the reimbursement uncertainty?

Yes. It's a great question, David. And we've had a lot of -- there's been a lot of activity in the last 6 months, small, medium-sized activity in both Medicaid and Medicare, both home health and hospice on the Medicare side from an M&A standpoint. And we've looked at a bunch of little or tuck-in type opportunities on both Medicaid and Medicare. We've not been in a position today where we've been ready to pull the trigger on a home health or hospice asset pending the final rule. Our expectations are that the rule would be somewhere close to neutral to 0. That's probably a little bit of aggressive expectation, but that is the ask that we have on hand, as you know, from the industry at large, is basically a multiyear pause and no cuts.

We will leverage the 78% of the business to grow the 10% of the business. We've said that before, we mean it. So we'll leverage our Medicaid book to grow on the Medicare side. We're really not a hospice buyer at mid-teens multiples, right? So we're more disciplined as a buyer. We like to buy where we can buy in the high single digits, low double digits and have a clear path to mid double -- sorry, mid-single digits post synergies.

So we'd like to see something that is close to 0 or effectively 0 as -- by the way, we expect to see that next week. So our intel says that, that probably is coming out late next week or certainly the following week. So we will know soon enough. And I think for all of us, as you know, David, it's just getting certainty. Just give us a certain answer that we can read into the future with this administration and then we're ready to go to work.

[ id="-1" name="Operator" /> I would like to turn the floor over to Jeff for closing remarks.

Thank you, Stacy, and thank you so much for your interest in our Aveanna story. We look forward to updating you on our continued progress right after the first of the year. Thank you, and have a great day.

[ id="-1" name="Operator" /> This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.