Segments
We deliver our services to patients through three segments: Private Duty Services (“PDS”); Home Health & Hospice (“HHH”); and Medical Solutions (“MS”).
The following table summarizes the revenues generated by each of our segments for the three-month periods ended April 2, 2022 and April 3, 2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
Consolidated |
|
PDS |
|
HHH |
|
MS |
|
For the three-month period ended April 2, 2022 |
$ |
450,534 |
|
$ |
350,190 |
|
$ |
66,623 |
|
$ |
33,721 |
|
Percentage of consolidated revenue |
|
|
|
78 |
% |
|
15 |
% |
|
7 |
% |
For the three-month period ended April 3, 2021 |
$ |
417,160 |
|
$ |
350,827 |
|
$ |
31,518 |
|
$ |
34,815 |
|
Percentage of consolidated revenue |
|
|
|
84 |
% |
|
8 |
% |
|
8 |
% |
PDS Segment
Private Duty Services predominantly includes private duty nursing (“PDN”) services, as well as pediatric therapy services. Our PDN patients typically enter our service as children, as our most significant referral sources for new patients are children’s hospitals. It is common for our PDN patients to stay on our service into adulthood, as approximately 50% of our PDN patients are over the age of 18.
Our PDN services involve the provision of skilled and unskilled hourly care to patients in their homes, which is the preferred setting for patient care. PDN services typically last four to 24 hours a day, provided by our registered nurses, licensed practical nurses, home health aides, and other unskilled caregivers who are focused on providing high-quality short-term and long-term clinical care to medically fragile children and adults with a wide variety of serious illnesses and conditions. Patients who typically qualify for our PDN services include those with the following conditions:
18
•Tracheotomies or ventilator dependence;
•Dependence on continuous nutritional feeding through a “G-tube” or “NG-tube”;
•Dependence on intravenous nutrition;
•Oxygen-dependence in conjunction with other medical needs; and
•Complex medical needs such as frequent seizures.
Our PDN services include:
•In-home skilled nursing services to medically fragile children;
•Nursing services in school settings in which our caregivers accompany patients to school;
•Services to patients in our Pediatric Day Healthcare Centers (“PDHC”); and
•Unskilled care, including programs such as employer of record support services and personal care services.
Through our pediatric therapy services, we provide a valuable multidisciplinary approach that we believe serves all of a child’s therapy needs. We provide both in-clinic and home-based therapy services to our patients. Our therapy services include physical, occupational and speech services. We regularly collaborate with physicians and other community healthcare providers, which allows us to provide more comprehensive care.
HHH Segment
Our Home Health and Hospice segment predominantly includes home health services, as well as hospice and specialty program services. Our HHH patients typically enter our service as seniors, and our most significant referral sources for new patients are hospitals, physicians and long-term care facilities.
Our home health services involve the provision of in-home services to our patients by our clinicians which may include nurses, therapists, social workers and home health aides. Our caregivers work with our patients’ physicians to deliver a personalized plan of care to our patients in their homes. Home healthcare can help our patients recover after a hospitalization or surgery and assist patients in managing chronic illnesses. We also help our patients manage their medications. Through our care, we help our patients recover more fully in the comfort of their own homes, while remaining as independent as possible. Our home health services include: in-home skilled nursing services; physical, occupational and speech therapy; medical social services and aide services.
Our hospice services involve a supportive philosophy and concept of care for those nearing the end of life. Our hospice care is a positive, empowering form of care designed to provide comfort and support to our patients and their families when a life-limiting illness no longer responds to cure-oriented treatments. The goal of hospice is to neither prolong life nor hasten death, but to help our patients live as dignified and pain-free as possible. Our hospice care is provided by a team of specially trained professionals in a variety of living situations, including at home, at the hospital, a nursing home, or an assisted living facility.
MS Segment
Through our Medical Solutions segment, we offer a comprehensive line of enteral nutrition supplies and other products to adults and children, delivered on a periodic or as-needed basis. We provide our patients with access to one of the largest selections of enteral formulas, supplies and pumps in our industry, with more than 300 nutritional formulas available. Our registered nurses, registered dietitians and customer service technicians support our patients 24 hours per day, 365 days per year, in-hospital, at-home, or remotely to help ensure that our patients have the best nutrition assessments, change order reviews and formula selection expertise.
Acquisitions and other Factors Affecting Results of Operations and Comparability
Acquisition-related Activities
On April 16, 2021, we acquired Doctor’s Choice Holdings, LLC (“Doctor’s Choice”), which provides home health services in the state of Florida. Doctor’s Choice generated revenues in 2021 prior to being acquired by us of $22.9 million and $51.6 million after being acquired by us. On December 10, 2021, we acquired Comfort Care Home Health Services, LLC, including its subsidiaries (“Comfort Care”), which provides home health and hospice services in the states of Alabama and Tennessee. Comfort Care generated revenues in 2021 prior to being acquired by us of $94.4 million and $6.0 million after being acquired by us. Collectively, we refer to the acquisitions of Doctor's Choice and Comfort Care as the “2021 HHH Acquisitions”. We report the results of the 2021 HHH Acquisitions in our HHH segment. We believe we have built a home health and hospice program of significant size and scale, focused on delivering high-quality patient care in attractive geographies.
19
On November 30, 2021, we acquired Accredited Nursing Services (“Accredited”), a provider of primarily unskilled services in the state of California. Accredited generated revenues in 2021 prior to being acquired by us of $107.1 million and $8.9 million after being acquired by us. We report the results of Accredited in our PDS segment.
COVID-19 Pandemic Impact on our Business
In March 2020, the World Health Organization declared COVID-19 a pandemic. We continue to monitor the impact of COVID-19 on our caregivers and support personnel, our patients and their families, and our referral sources. We have adapted our operations as necessary to best protect our people and serve our patients and our communities. We continue to take precautions to protect the safety and well-being of our employees and patients by purchasing and delivering additional supplies of personal protective equipment and COVID-19 testing kits (“PPE”), and other medical supplies to branches and regional offices across the country as necessary. We have also invested in technology and equipment that allows support personnel to provide, on a remote basis, seamless functionality and support to our clinicians who care for our patients. The majority of our employees at our corporate support offices in Georgia, Texas and Arizona continue to work remotely.
With the onset of the COVID-19 pandemic in March 2020, we began incurring incremental costs of patient services necessary to maintain our clinical workforce in the COVID-19 environment. The nature of the incremental COVID-19 costs we have incurred has changed over time as dictated by the continually evolving COVID-19 environment. Examples of the incremental costs we have incurred over time include incremental compensation paid to caregivers such as hero and hazard pay, COVID-19 relief pay, incremental overtime, and most recently, staffing and retention related incentives to attract and retain caregivers in the midst of the Omicron variant surge. We have also incurred incremental worker compensation costs, as well as mandated leave costs while applicable regulations were in effect, and incremental PPE costs to support, protect and test our caregivers, and care for our patients. Additionally, we recorded an impairment charge in the fourth quarter of fiscal 2021 in four of the reporting units within our PDS segment as a result of the continued impact of COVID-19 on our business.
During the three months ended April 2, 2022 we incurred incremental COVID-19 costs, including costs required to comply with federal, state and local vaccination mandates and testing requirements, worker compensation for mandated quarantine time; and remaining staffing and retention related incentives to attract and retain caregivers. However, we have observed a trend of decreasing incremental COVID-19 costs during our most recently completed quarter as compared to the trend in fiscal year 2021. At this time, we expect the trend of decreasing incremental costs to continue for the remainder of fiscal year 2022, although the uncertainty surrounding the continually evolving COVID-19 environment could alter this outlook.
Our operations have been impacted by COVID-19, particularly due to the recent surges in COVID-19 cases attributable to the Omicron variant and the attendant pressures on our clinical workforce that we experienced in the fourth quarter of 2021 and first quarter of 2022. As the impact of the Omicron variant abates, the following factors could further impact our results of operations in the future as a result of COVID-19: a resurgence in the number of cases due to the Omicron or other new variants; any future shelter-in-place orders; a decrease in the rate of return of confidence in our patients’ families to allow our caregivers into their homes; the return of patient confidence to enter a hospital or a doctor’s office; our ability to attract and retain qualified caregivers as a result of COVID-19 quarantine requirements or due to caregiver non-compliance with vaccination and testing mandates; uncertainty regarding vaccine distribution timing and efficacy; and our ability to readily access referrals from children’s hospitals. Potential negative impacts of COVID-19 on our results include lower revenue or higher salary and wage expenses due to increased market rate expectations of caregivers, increased workers compensation insurance and leave costs, costs to comply with various federal, state and local vaccine or leave mandates, civil monetary penalties from CMS if we are unable to comply with its IFR requiring COVID-19 vaccinations, and any future spikes in PPE supply costs. The impacts to revenue may consist of the following: lower volumes due to interruption of the operations of our referral sources; lower volumes due to lack of availability of caregivers in the workforce; the unwillingness of patients to accept services in their homes; lower reimbursement due to missed home health visits resulting in an increase in low utilization payment adjustments; lower hospice volumes; lower reimbursement rates due to any negative impacts to state Medicaid budgets as a result of the pandemic; the sunset of enhanced Federal matching funds for state Medicaid Programs after the end of the Federal public health emergency; or denial of payments from CMS if we are unable to comply with its IFR requiring COVID-19 vaccinations.
CARES Act
In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. The CARES Act has impacted us as follows:
•Provider Relief Fund (“PRF”): Beginning in April 2020, funds were distributed to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. In fiscal year 2020, we received PRF payments from HHS totaling $25.1 million. On March 5, 2021, we repaid these PRF payments in full. In December 2021, we also received PRF payments from HHS totaling $2.5 million, which we repaid in full in December 2021.
20
•State Sponsored Relief Funds: In fiscal year 2020, we received $4.8 million of stimulus funds from the Commonwealth of Pennsylvania Department of Human Services (“Pennsylvania DHS”), which we did not apply for or request. We did not receive stimulus funds from any individual state other than Pennsylvania. We recognized $0.5 million of income related to these funds in fiscal year 2020. On February 4, 2021, we repaid the remaining $4.3 million of direct stimulus funds to Pennsylvania DHS.
•Deferred payment of the employer portion of social security taxes: We were permitted to defer payments of the employer portion of social security taxes in fiscal year 2020, which are payable in 50% increments, with the first 50% due by December 31, 2021 and the second 50% due by December 31, 2022. We did not defer any payroll taxes after December 31, 2020. In December 2021, we repaid $25.9 million of deferred payroll taxes. As of April 2, 2022, and January 1, 2022, we had remaining deferred payments of $25.5 million of social security taxes in total, which is recorded in the current portion of deferred payroll taxes in the accompanying consolidated balance sheet. We expect to repay the remaining $25.5 million of deferred social security payroll taxes in December 2022.
•Reimbursement rate increases from various state Medicaid and Medicaid Managed Care Programs: Shortly after the onset of COVID-19 in March 2020, numerous state Medicaid programs began to issue temporary rate increases and similarly directed Medicaid Managed Care programs within those states to likewise adjust rates. These temporary rate increases are paid to the Company via normal claim processing by the respective payers. Over the remainder of fiscal year 2020, continuing through fiscal year 2021 and into fiscal year 2022, while some states discontinued the temporary rate increases, most state legislatures either made such increases permanent or otherwise increased PDS reimbursement rates in their annual budgetary processes. As a result, in fiscal years 2021 and 2022, most of the states in which we operate have increased PDS reimbursement rates, in some cases significantly. We are also continually engaged in dialogue with our payors as to the importance of and the value provided by our services, with the goal of attracting and retaining more caregivers to meet the unmet demand for our services. These factors, as well as the focus at both the Federal and State levels on supporting the provision of care in the home through temporary and permanent legislation, supports our positive outlook on Medicaid reimbursement.
•Medicare Advances: Certain of the home health and hospice companies we have acquired received advance payments from CMS in April 2020, pursuant to the expansion of the Accelerated Payments Program provided for in the CARES Act. These advances became repayable beginning one year from the date on which the accelerated advance was issued. The repayments occur via offsets by Medicare to current payments otherwise due from Medicare at a rate of 25% for the first eleven months. After the eleven months end, payments will be recouped at a rate of 50% for another six months, after which any remaining balance will become due. Gross advances received by acquired companies in April 2020 totaled $15.7 million. We began repaying the gross amount of the advances, via the offset mechanism described above, during the second quarter of fiscal year 2021, and had repaid an aggregate amount of $12.9 million of such advances as of April 2, 2022. Remaining unpaid advances as of April 2, 2022 totaled $2.8 million and are recorded in other current liabilities in the accompanying consolidated balance sheet. We expect to repay this remaining amount during the remainder of fiscal year 2022.
•Temporary Suspension of Medicare Sequestration: The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee-for-service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements are subject to this mandatory reduction, which will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period from May 1, 2020 through December 31, 2021. In December 2021, Congress extended the suspension of the automatic 2.0% reduction through March 2022 and reduced the sequestration adjustment to 1.0% from April 1, 2022 through June 30, 2022, with the full 2.0% reduction for sequestration resuming thereafter.
American Rescue Plan Act (“ARPA”)
On March 11, 2021 President Biden signed ARPA into law. ARPA is a federal stimulus bill designed to aid public health and economic recovery from the COVID-19 pandemic. ARPA includes $350 billion in emergency funding for state, local, territorial and tribal governments, known as the Coronavirus State and Local Fiscal Recovery Funds (“ARPA Recovery Funds”). States must obligate the ARPA Recovery Funds by December 31, 2024 and spend such funds by December 31, 2026. Usage of the ARPA Recovery Funds is subject to the requirements specified in the United States Treasury Department’s Final Rule issued on January 6, 2022.
The Final Rule provides states with substantial flexibility in utilizing ARPA Relief Funds, including to support public health expenditures such as vaccination programs and testing, and PPE purchases, as well as providing premium pay for essential workers, including those in home-care settings, among many other things. States may not use ARPA Recovery Funds to fund tax cuts, fund budget deficits, or to support public employee pensions. During the quarter ended April 2, 2022 we received $3.1 million of ARPA Recovery Funds from various states, which we recognized as revenue in our consolidated statements of operations. We may receive additional ARPA Recovery Funds in the future, however we cannot estimate the amount or timing of any future receipts. These funds are not subject to repayment, provided we are able to attest and comply with any terms and conditions of such funding, as applicable. If
21
we are unable to attest to attest or comply with current or future terms and conditions, our ability to retain some or all of the ARPA Recovery Funds received may be impacted, which is unknown at this time.
Important Operating Metrics
We review the following important metrics on a segment basis and not on a consolidated basis:
PDS and MS Segment Operating Metrics
Volume
Volume represents PDS hours of care provided and MS unique patients served, which is how we measure the amount of our patient services provided. We review the number of hours of PDS care provided on a weekly basis and the number of MS unique patients served on a weekly basis. We believe volume is an important metric because it helps us understand how the Company is growing in each of these segments through strategic planning and acquisitions. We also use this metric to inform strategic decision making in determining opportunities for growth.
Revenue Rate
For our PDS and MS segments, revenue rate is calculated as revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe revenue rate is an important metric because it represents the amount of revenue we receive per PDS hour of patient service or per individual MS patient transaction and helps management assess the amount of fees that we are able to bill for our services. Management uses this metric to assess how effectively we optimize reimbursement rates.
Cost of Revenue Rate
For our PDS and MS segments, cost of revenue rate is calculated as cost of revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe cost of revenue rate is an important metric because it helps us understand the cost per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to understand how effectively we manage labor and product costs.
Spread Rate
For our PDS and MS segments, spread rate represents the difference between the respective revenue rates and cost of revenue rates. Spread rate is an important metric because it helps us better understand the margins being recognized per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to assess how successful we have been in optimizing reimbursement rates, managing labor and product costs, and assessing opportunities for growth.
HHH Segment Operating Metrics
Home Health Total Admissions and Home Health Episodic Admissions
Home health total admissions represents the number of new patients who have begun receiving services. We review the number of home health admissions on a daily basis as we believe it is a leading indicator of our growth. We measure home health admissions by reimbursement structure, separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payor mix of our home health business.
Home Health Total Episodes
Home health total episodes represents the number of episodic admissions and episodic recertifications to capture patients who have either started to receive services or have been recertified for another episode of care. Management reviews home health total episodes on a monthly basis as to understand the volume of patients who were authorized to receive care during the month.
Home Health Revenue Per Completed Episode
Home health revenue per completed episode is calculated by dividing total payments received from completed episodes by the number of completed episodes during the period. Episodic payments are determined by multiple factors including type of referral source, patient
22
diagnoses, and utilization. Management tracks home health revenue per completed episode over time to evaluate both the clinical and financial profile of the business in a single metric.
Results of Operations
Three-Month Period Ended April 2, 2022 Compared to the Three-Month Period Ended April 3, 2021
The following table summarizes our consolidated results of operations for the three-month periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
% of Revenue |
|
April 3, 2021 |
|
% of Revenue |
|
Change |
|
% Change |
|
Revenue |
$ |
450,534 |
|
|
100.0 |
% |
$ |
417,160 |
|
|
100.0 |
% |
$ |
33,374 |
|
|
8.0 |
% |
Cost of revenue, excluding depreciation and amortization |
|
305,708 |
|
|
67.9 |
% |
|
285,477 |
|
|
68.4 |
% |
|
20,231 |
|
|
7.1 |
% |
Gross margin |
$ |
144,826 |
|
|
32.1 |
% |
$ |
131,683 |
|
|
31.6 |
% |
$ |
13,143 |
|
|
10.0 |
% |
Branch and regional administrative expenses |
|
88,743 |
|
|
19.7 |
% |
|
69,372 |
|
|
16.6 |
% |
|
19,371 |
|
|
27.9 |
% |
Field contribution |
$ |
56,083 |
|
|
12.4 |
% |
$ |
62,311 |
|
|
14.9 |
% |
$ |
(6,228 |
) |
|
-10.0 |
% |
Corporate expenses |
|
36,567 |
|
|
8.1 |
% |
|
27,399 |
|
|
6.6 |
% |
|
9,168 |
|
|
33.5 |
% |
Depreciation and amortization |
|
5,819 |
|
|
1.3 |
% |
|
4,848 |
|
|
1.2 |
% |
|
971 |
|
|
20.0 |
% |
Acquisition-related costs |
|
91 |
|
|
0.0 |
% |
|
1,768 |
|
|
0.4 |
% |
|
(1,677 |
) |
|
-94.9 |
% |
Other operating income |
|
(170 |
) |
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
|
(170 |
) |
- |
|
Operating income |
$ |
13,776 |
|
|
3.1 |
% |
$ |
28,296 |
|
|
6.8 |
% |
$ |
(14,520 |
) |
|
-51.3 |
% |
Interest expense, net |
|
(22,302 |
) |
|
|
|
(22,348 |
) |
|
|
|
46 |
|
|
-0.2 |
% |
Other income |
|
36,457 |
|
|
|
|
159 |
|
|
|
|
36,298 |
|
NM |
|
Income tax expense |
|
(2,597 |
) |
|
|
|
(309 |
) |
|
|
|
(2,288 |
) |
|
740.5 |
% |
Net income |
$ |
25,334 |
|
|
|
$ |
5,798 |
|
|
|
$ |
19,536 |
|
|
336.9 |
% |
NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.
The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Change |
|
% Change |
|
Revenue |
$ |
450,534 |
|
$ |
417,160 |
|
$ |
33,374 |
|
|
8.0 |
% |
Cost of revenue, excluding depreciation and amortization |
|
305,708 |
|
|
285,477 |
|
|
20,231 |
|
|
7.1 |
% |
Gross margin |
$ |
144,826 |
|
$ |
131,683 |
|
$ |
13,143 |
|
|
10.0 |
% |
Gross margin percentage |
|
32.1 |
% |
|
31.6 |
% |
|
|
|
|
Branch and regional administrative expenses |
|
88,743 |
|
|
69,372 |
|
|
19,371 |
|
|
27.9 |
% |
Field contribution |
$ |
56,083 |
|
$ |
62,311 |
|
$ |
(6,228 |
) |
|
-10.0 |
% |
Field contribution margin |
|
12.4 |
% |
|
14.9 |
% |
|
|
|
|
Corporate expenses |
$ |
36,567 |
|
$ |
27,399 |
|
$ |
9,168 |
|
|
33.5 |
% |
As a percentage of revenue |
|
8.1 |
% |
|
6.6 |
% |
|
|
|
|
Operating income |
$ |
13,776 |
|
$ |
28,296 |
|
$ |
(14,520 |
) |
|
-51.3 |
% |
As a percentage of revenue |
|
3.1 |
% |
|
6.8 |
% |
|
|
|
|
The following tables summarize our key performance measures by segment for the three-month periods indicated:
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDS |
|
|
|
For the three-month periods ended |
|
|
(dollars and hours in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Change |
|
% Change |
|
|
Revenue |
$ |
350,190 |
|
$ |
350,827 |
|
$ |
(637 |
) |
|
-0.2 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
251,874 |
|
|
248,997 |
|
|
2,877 |
|
|
1.2 |
% |
|
Gross margin |
$ |
98,316 |
|
$ |
101,830 |
|
$ |
(3,514 |
) |
|
-3.5 |
% |
|
Gross margin percentage |
|
28.1 |
% |
|
29.0 |
% |
|
|
|
-0.9 |
% |
(4) |
Hours |
|
9,612 |
|
|
9,910 |
|
|
(298 |
) |
|
-3.0 |
% |
|
Revenue rate |
$ |
36.43 |
|
$ |
35.40 |
|
$ |
1.03 |
|
|
2.8 |
% |
(1) |
Cost of revenue rate |
$ |
26.20 |
|
$ |
25.13 |
|
$ |
1.07 |
|
|
4.2 |
% |
(2) |
Spread rate |
$ |
10.23 |
|
$ |
10.28 |
|
$ |
(0.05 |
) |
|
-0.5 |
% |
(3) |
|
|
|
|
|
|
|
|
|
|
|
HHH |
|
|
|
For the three-month periods ended |
|
|
(dollars and admissions/episodes in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Change |
|
% Change |
|
|
Revenue |
$ |
66,623 |
|
$ |
31,518 |
|
$ |
35,105 |
|
|
111.4 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
34,168 |
|
|
17,329 |
|
|
16,839 |
|
|
97.2 |
% |
|
Gross margin |
$ |
32,455 |
|
$ |
14,189 |
|
$ |
18,266 |
|
|
128.7 |
% |
|
Gross margin percentage |
|
48.7 |
% |
|
45.0 |
% |
|
|
|
3.7 |
% |
(4) |
Home health total admissions (5) |
|
14.3 |
|
|
5.8 |
|
|
8.5 |
|
|
146.6 |
% |
|
Home health episodic admissions (6) |
|
8.7 |
|
|
3.8 |
|
|
4.9 |
|
|
128.9 |
% |
|
Home health total episodes (7) |
|
13.8 |
|
|
5.7 |
|
|
8.1 |
|
|
142.1 |
% |
|
Home health revenue per completed episode (8) |
$ |
2,898 |
|
$ |
2,962 |
|
$ |
(64 |
) |
|
-2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
MS |
|
|
|
For the three-month periods ended |
|
|
(dollars and UPS in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Change |
|
% Change |
|
|
Revenue |
$ |
33,721 |
|
$ |
34,815 |
|
$ |
(1,094 |
) |
|
-3.1 |
% |
|
Cost of revenue, excluding depreciation and amortization |
|
19,666 |
|
|
19,151 |
|
|
515 |
|
|
2.7 |
% |
|
Gross margin |
$ |
14,055 |
|
$ |
15,664 |
|
$ |
(1,609 |
) |
|
-10.3 |
% |
|
Gross margin percentage |
|
41.7 |
% |
|
45.0 |
% |
|
|
|
-3.3 |
% |
(4) |
Unique patients served (“UPS”) |
|
78 |
|
|
73 |
|
|
5 |
|
|
6.8 |
% |
|
Revenue rate |
$ |
432.32 |
|
$ |
476.92 |
|
$ |
(44.60 |
) |
|
-9.9 |
% |
(1) |
Cost of revenue rate |
$ |
252.13 |
|
$ |
262.34 |
|
$ |
(10.21 |
) |
|
-4.1 |
% |
(2) |
Spread rate |
$ |
180.19 |
|
$ |
214.58 |
|
$ |
(34.39 |
) |
|
-17.1 |
% |
(3) |
(1)Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.
(2)Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.
(3)Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.
(4)Represents the change in margin percentage year over year.
(5)Represents home health episodic and fee-for-service admissions.
(6)Represents home health episodic admissions.
(7)Represents episodic admissions and recertifications.
(8)Represents Medicare revenue per completed episode.
The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures, as well as our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
Summary Operating Results
Operating Income
Operating income was $13.8 million, or 3.1% of revenue, for the three-month period ended April 2, 2022, as compared to operating income of $28.3 million, or 6.8% of revenue, for the three-month period ended April 3, 2021, a decrease of $14.5 million.
Operating income for the first quarter of 2022 was negatively impacted by a decrease of $6.2 million, or 10.0%, in Field contribution as compared to the first quarter of 2021. The $6.2 million decrease in Field contribution resulted from a $33.4 million, or 8.0%, increase
24
in consolidated revenue, offset by a 2.5% decrease in our Field contribution margin to 12.4% for the first quarter of 2022 from 14.9% for the first quarter of 2021. The primary driver of our lower Field contribution margin quarter over quarter was an increase of 3.1% in branch and regional administrative expense as a percentage of revenue to 19.7% for the first quarter of 2022 from 16.6% for the first quarter of 2021.
In addition to the $6.2 million decrease in Field contribution, the following additional items contributed to the $14.5 million decrease in operating income over the comparable first quarter periods:
•a $9.2 million increase in corporate expenses; and
•a $1.7 million decrease in acquisition-related costs.
Net Income
The $19.5 million increase in net income for the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021, was primarily driven by the following:
•the previously discussed $14.5 million decrease in operating income;
•a $36.3 million increase in other income over the prior year quarter driven by a $35.4 million increase in valuation gains on interest rate derivatives; and
•a $2.3 million increase in income tax expense.
Revenue
Revenue was $450.5 million for the three-month period ended April 2, 2022 as compared to $417.2 million for the three-month period ended April 3, 2021, an increase of $33.4 million, or 8.0%. This increase resulted from the following segment activity:
•a $0.6 million, or 0.2%, decrease in PDS revenue;
•a $35.1 million, or 111.4%, increase in HHH revenue; and
•a $1.1 million, or 3.1%, decrease in MS revenue.
The $0.6 million decrease in PDS revenue for the three-month period ended April 2, 2022 was attributable to a decrease in volume of 3.0% net of an increase in revenue rate of 2.8%. The decrease in PDS volume was attributable to the following items:
•a volume decline in our PDS businesses due to the impact of the COVID-19 environment, including the Omicron variant and the effect of vaccine mandates on caregiver recruitment and retention; net of
•new volumes contributed by the Accredited acquisition in December 2021.
The 2.8% increase in PDS revenue rate for the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers, in addition to $3.1 million of ARPA Recovery Funds received from various states during our most recently completed quarter, which we recognized as revenue in our consolidated statements of operations. We may receive additional ARPA Recovery Funds in the future, however we cannot estimate the amount or timing of any future receipts.
Our HHH segment revenue growth of $35.1 million, or 111.4%, for the three-month period ended April 2, 2022 resulted primarily from incremental volume contributed by our 2021 HHH Acquisitions completed during the second and fourth fiscal quarters of 2021.
The $1.1 million decrease in MS segment revenue for the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021, was attributable to a 9.9% decrease in revenue rate, net of a 6.8% increase in volume through organic growth and expansion into new markets. The decrease in revenue rate was primarily attributable to payer rate decreases that became effective in September 2021 and the impact of certain product recalls on order fulfillment.
Cost of Revenue, Excluding Depreciation and Amortization
Cost of revenue, excluding depreciation and amortization, was $305.7 million for the three-month period ended April 2, 2022, as compared to $285.5 million for the three-month period ended April 3, 2021, an increase of $20.2 million, or 7.1%. This increase resulted from the following segment activity:
•a $2.9 million, or 1.2%, increase in PDS cost of revenue;
•a $16.8 million, or 97.2%, increase in HHH cost of revenue; and
25
•a $0.5 million, or 2.7%, increase in MS cost of revenue.
The 1.2% increase in PDS cost of revenue for the three-month period ended April 2, 2022 resulted from the previously described 3.0% decrease in PDS volume, net of a 4.2% increase in PDS cost of revenue rate. The 4.2% increase in cost of revenue rate primarily resulted from higher caregiver labor costs including pass-through of state reimbursement rate increases received by the Company and an increase in COVID-19 related costs as compared to the prior year quarter. However, incremental COVID-19 related costs of patient services declined sequentially to $3.3 million in the first quarter of 2022 from $12.6 million in the fourth quarter of 2021.
The 97.2% increase in HHH cost of revenue for the three-month period ended April 2, 2022 was driven by the increased volumes associated with the 2021 HHH Acquisitions completed during the second and fourth fiscal quarters of 2021.
The 2.7% increase in MS cost of revenue for the three-month period ended April 2, 2022 was driven by the previously described 6.8% growth in MS volumes during the first quarter of 2022, net of a 4.1% decrease in cost of revenue rate.
Gross Margin and Gross Margin Percentage
Gross margin was $144.8 million, or 32.1% of revenue, for the three-month period ended April 2, 2022, as compared to $131.7 million, or 31.6% of revenue, for the three-month period ended April 3, 2021. Gross margin increased $13.1 million, or 10.0%, over the comparable quarterly periods. The 0.5% increase in gross margin percentage for the three-month period ended April 2, 2022 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:
•a 0.5% decrease in PDS spread rate from $10.28 to $10.23;
•a 17.1% decrease in MS spread rate from $214.58 to $180.19;
•our HHH segment, which increased HHH gross margin percentage by 3.7%.
Branch and Regional Administrative Expenses
Branch and regional administrative expenses were $88.7 million, or 19.7% of revenue, for the three-month period ended April 2, 2022, as compared to $69.4 million, or 16.6% of revenue, for the three-month period ended April 3, 2021, an increase of $19.4 million, or 27.9%.
The 27.9% increase in branch and regional administrative expenses exceeded revenue growth of 8.0% for the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021. The 3.1% increase in branch and regional administrative expenses as a percentage of revenue during the comparable quarterly periods was due in part to our continued acquisition mix shift toward the HHH segment with the 2021 HHH Acquisitions. While our HHH businesses have higher gross margins than our PDS businesses, they have higher branch and regional administrative expenses than our PDS businesses as well. Branch and regional administrative expenses within our PDS and MS businesses also increased as a percentage of revenue during the three months ended April 2, 2022 as compared to the prior year quarter.
Field Contribution and Field Contribution Margin
Field contribution was $56.1 million, or 12.4% of revenue, for the three-month period ended April 2, 2022 as compared to $62.3 million, or 14.9% of revenue, for the three-month period ended April 3, 2021. Field contribution decreased $6.2 million, or 10.0%, for the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021. The 2.5% decrease in Field contribution margin for the three-month period ended April 2, 2022 resulted from the following:
•the 0.5% increase in gross margin percentage in the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021; net of
•the 3.1% increase in branch and regional administrative expenses as a percentage of revenue in the three-month period ended April 2, 2022, as compared to the three-month period ended April 3, 2021.
Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.
Corporate Expenses
Corporate expenses as a percentage of revenue for the three-month periods ended April 2, 2022 and April 3, 2021 were as follows:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
|
April 2, 2022 |
|
April 3, 2021 |
|
(dollars in thousands) |
Amount |
|
% of Revenue |
|
Amount |
|
% of Revenue |
|
Revenue |
$ |
450,534 |
|
|
|
$ |
417,160 |
|
|
|
Corporate expense components: |
|
|
|
|
|
|
|
|
Compensation and benefits |
$ |
17,265 |
|
|
3.8 |
% |
$ |
15,140 |
|
|
3.6 |
% |
Non-cash share-based compensation |
|
4,029 |
|
|
0.9 |
% |
|
549 |
|
|
0.1 |
% |
Professional services |
|
8,475 |
|
|
1.9 |
% |
|
6,578 |
|
|
1.6 |
% |
Rent and facilities expense |
|
2,983 |
|
|
0.7 |
% |
|
2,959 |
|
|
0.7 |
% |
Office and administrative |
|
1,243 |
|
|
0.3 |
% |
|
646 |
|
|
0.2 |
% |
Other |
|
2,572 |
|
|
0.6 |
% |
|
1,527 |
|
|
0.4 |
% |
Total corporate expenses |
$ |
36,567 |
|
|
8.1 |
% |
$ |
27,399 |
|
|
6.6 |
% |
Corporate expenses were $36.6 million, or 8.1% of revenue, for the three-month period ended April 2, 2022, as compared to $27.4 million, or 6.6% of revenue, for the three-month period ended April 3, 2021. The $9.2 million, or 33.5%, increase in quarter over quarter corporate expenses resulted primarily from:
•a $3.5 million increase in non-cash, share-based compensation expense primarily associated with the modification of performance vesting options in June 2021; issuance of management restricted stock units in December, 2021; and the Company's first annual issuance of long-term incentive awards in February, 2022. Please see Note 9 – Share-Based Compensation to the accompanying condensed Consolidated Financial Statements for further discussion of these items;
•incremental compensation and benefits necessary to support a public company infrastructure as well as the integration process for the companies we acquire; and
•incremental professional services associated with integration activities.
We expect to continue to invest in our corporate infrastructure in 2022 as we develop as a public company.
Depreciation and Amortization
Depreciation and amortization was $5.8 million for the three-month period ended April 2, 2022, compared to $4.8 million for the three-month period ended April 3, 2021, an increase of $1.0 million, or 20.0%. The $1.0 million increase primarily resulted from incremental depreciation and amortization associated with assets acquired in connection with the 2021 HHH Acquisitions and acquisition of Accredited.
Acquisition-related Costs
Acquisition-related costs decreased to $0.1 million for the three-month period ended April 2, 2022, from $1.8 million for the three-month period ended April 3, 2021. Acquisition-related activity was higher in the first quarter of 2021 due to the Doctors Choice acquisition, which closed in April, 2021.
Interest Expense, net of Interest Income
Interest expense, net of interest income of $22.3 million for the three-month period ended April 2, 2022, was unchanged as compared to the prior year quarter. Over the course of fiscal year 2021, we made numerous changes to our debt structure and outstanding indebtedness. Please see the Liquidity and Capital Resources section below for detail discussion of this activity, as well as a description of debt instruments outstanding as of April 2, 2022 and April 3, 2021.
Other Income (Expense)
Other income was $36.5 million for the three-month period ended April 2, 2022, compared to $0.2 million for the three-month period ended April 3, 2021, an increase of $36.3 million which was primarily attributable to a $35.4 million increase in non-cash valuation gains on interest rate derivatives. The significant valuation gains resulted from accelerated market expectations of future increases in interest rates during the first quarter of 2022. Details of other income included the following:
27
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Valuation gain to state interest rate derivatives at fair value |
$ |
38,256 |
|
$ |
2,820 |
|
Net settlements incurred with swap counterparties |
|
(2,073 |
) |
|
(2,769 |
) |
Other |
|
274 |
|
|
108 |
|
Total other income |
$ |
36,457 |
|
$ |
159 |
|
Income Taxes
We incurred income tax expense of $2.6 million for the three-month period ended April 2, 2022, as compared to income tax expense of $0.3 million for the three-month period ended April 3, 2021. The increase was primarily driven by the changes in federal and state valuation allowances and state tax expense.
Non-GAAP Financial Measures
In addition to our results of operations prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which we have discussed above, we also evaluate our financial performance using EBITDA, Adjusted EBITDA, Field contribution and Field contribution margin.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as net income (loss). Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net income (loss) before interest expense, net; income tax (expense) benefit; and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain other items that are either non-recurring, infrequent, non-cash, unusual, or items deemed by management to not be indicative of the performance of our core operations, including impairments of goodwill, intangible assets, and other long-lived assets; non-cash, share-based compensation; sponsor fees; loss on extinguishment of debt; fees related to debt modifications; the effect of interest rate derivatives; acquisition-related and integration costs; legal costs and settlements associated with acquisition matters; COVID-19 related costs; and other system transition costs, professional fees and other costs. As non-GAAP financial measures, our computations of EBITDA and Adjusted EBITDA may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of this measure impracticable.
Management believes our computations of EBITDA and Adjusted EBITDA are helpful in highlighting trends in our core operating performance. In determining which adjustments are made to arrive at EBITDA and Adjusted EBITDA, management considers both (1) certain non-recurring, infrequent, non-cash or unusual items, which can vary significantly from year to year, as well as (2) certain other items that may be recurring, frequent, or settled in cash but which management does not believe are indicative of our core operating performance. We use EBITDA and Adjusted EBITDA to assess operating performance and make business decisions.
We have incurred substantial acquisition-related costs and integration costs in fiscal years 2022, 2021 and 2020. The underlying acquisition activities take place over a defined timeframe, have distinct project timelines and are incremental to activities and costs that arise in the ordinary course of our business. Therefore, we believe it is important to exclude these costs from our Adjusted EBITDA because it provides management a normalized view of our core, ongoing operations after integrating our acquired companies, which is an important measure in assessing our performance.
Given our determination of adjustments in arriving at our computations of EBITDA and Adjusted EBITDA, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.
28
The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
|
April 2, 2022 |
|
April 3, 2021 |
|
Net income |
|
$ |
25,334 |
|
$ |
5,798 |
|
Interest expense, net |
|
|
22,302 |
|
|
22,348 |
|
Income tax expense |
|
|
2,597 |
|
|
309 |
|
Depreciation and amortization |
|
|
5,819 |
|
|
4,848 |
|
EBITDA |
|
|
56,052 |
|
|
33,303 |
|
Goodwill, intangible and other long-lived asset impairment |
|
|
(112 |
) |
|
(4 |
) |
Non-cash share-based compensation |
|
|
4,815 |
|
|
712 |
|
Sponsor fees (1) |
|
|
- |
|
|
808 |
|
Interest rate derivatives (2) |
|
|
(36,183 |
) |
|
(51 |
) |
Acquisition-related costs and other costs (3) |
|
|
91 |
|
|
1,768 |
|
Integration costs (4) |
|
|
6,747 |
|
|
3,469 |
|
Legal costs and settlements associated with acquisition matters (5) |
|
|
1,039 |
|
|
575 |
|
COVID-related costs, net of reimbursement (6) |
|
|
4,172 |
|
|
1,760 |
|
Other system transition costs, professional fees and other (7) |
|
|
1,329 |
|
|
1,396 |
|
Total adjustments (8) |
|
$ |
(18,102 |
) |
$ |
10,433 |
|
Adjusted EBITDA |
|
$ |
37,950 |
|
$ |
43,736 |
|
(1)Represents management fees previously payable to our sponsors under our Management Agreement as defined in Note 12 – Related Party Transactions within the notes accompanying our consolidated financial statements included in this Quarterly Report on Form 10-Q. The Management Agreement terminated upon completion of our initial public offering.
(2)Represents valuation adjustments and settlements associated with interest rate derivatives that are not included in interest expense, net. Such items are included in other income.
(3)Represents transaction costs incurred in connection with planned, completed, or terminated acquisitions, which include investment banking fees, legal diligence and related documentation costs, and finance and accounting diligence and documentation, as presented on the Company’s consolidated statements of operations.
(4)Represents (i) costs associated with our Integration Management Office, which focuses solely on our integration efforts, of $1.1 million and $0.9 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively; and (ii) transitionary costs incurred to integrate acquired companies into our field and corporate operations of $5.6 million and $2.6 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively. Transitionary costs incurred to integrate acquired companies include IT consulting costs and related integration support costs; salary, severance and retention costs associated with duplicative acquired company personnel until such personnel are exited from the Company; accounting, legal and consulting costs; expenses and impairments related to the closure and consolidation of overlapping markets of acquired companies, including lease termination and relocation costs; costs associated with terminating legacy acquired company contracts and systems; and one-time costs associated with rebranding our acquired companies and locations to the Aveanna brand.
(5)Represents legal and forensic costs, as well as settlements associated with resolving legal matters arising during or as a result of our acquisition-related activities. This primarily includes costs of $1.0 million and $0.6 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively, to comply with the U.S. Department of Justice, Antitrust Division’s grand jury subpoena related to nurse wages and hiring activities in certain of our markets, in connection with a terminated transaction.
(6)Represents costs incurred as a result of the COVID-19 environment, primarily including, but not limited to, (i) relief, vaccine, and hero pay provided to our caregivers; staffing and retention related incentives to attract and retain caregivers in the midst of the Omicron surge; and other incremental compensation costs; (ii) sick leave for our caregivers required by OSHA's Emergency Temporary Standard, costs required to comply with federal, state and local vaccination mandates and testing requirements, and worker compensation costs for mandated quarantine time; (iii) incremental PPE costs; and (iv) salary, severance and lease termination costs associated with workforce reductions necessitated by COVID-19.
(7)Represents (i) costs associated with the implementation of, and transition to, new electronic medical record systems and billing and collection systems, duplicative system costs while such transformational projects are in-process, and other system transition costs of $1.6 million and $0.0 million for the three-month periods ended April 2, 2022, and April 3, 2021, respectively; (ii) professional fees associated with preparation for Sarbanes-Oxley compliance, advisory fees associated with preparation for and execution of our initial public equity offering, of $0.2 million and $2.0 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively; (iii) $(0.2) million of net gains on disposal of businesses during the three months ended April 2, 2022; and (iv) certain other costs or (income) that are either non-cash or non-core to the Company’s ongoing operations of $(0.3) million and $(0.6) million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively.
29
(8)The table below reflects the increase or decrease, and aggregate impact, to the line items included on our consolidated statements of operations based upon the adjustments used in arriving at Adjusted EBITDA from EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Impact to Adjusted EBITDA |
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
|
April 2, 2022 |
|
April 3, 2021 |
|
Revenue |
|
$ |
- |
|
$ |
(15 |
) |
Cost of revenue, excluding depreciation and amortization |
|
|
3,936 |
|
|
894 |
|
Branch and regional administrative expenses |
|
|
1,390 |
|
|
200 |
|
Corporate expenses |
|
|
13,107 |
|
|
7,746 |
|
Acquisition-related costs |
|
|
91 |
|
|
1,768 |
|
Other operating expenses |
|
|
(170 |
) |
|
- |
|
Other income |
|
|
(36,456 |
) |
|
(160 |
) |
Total adjustments |
|
$ |
(18,102 |
) |
$ |
10,433 |
|
Field contribution and Field Contribution Margin
Field contribution and Field contribution margin are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as operating income (loss). Rather, we present Field contribution and Field contribution margin as supplemental measures of our performance. We define Field contribution as operating income (loss) prior to corporate expenses and other non-field related costs, including depreciation and amortization, acquisition-related costs, and other operating expenses. Field contribution margin is Field contribution as a percentage of revenue. As non-GAAP financial measures, our computations of Field contribution and Field contribution margin may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of these measures impracticable.
Field contribution and Field contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.
Management believes Field contribution and Field contribution margin are helpful in highlighting trends in our core operating performance and evaluating trends in our branch and regional results, which can vary from year to year. We use Field contribution and Field contribution margin to make business decisions and assess the operating performance and results delivered by our core field operations, prior to corporate and other costs not directly related to our field operations. These metrics are also important because they guide us in determining whether or not our branch and regional administrative expenses are appropriately sized to support our caregivers and direct patient care operations. Additionally, Field contribution and Field contribution margin determine how effective we are in managing our field supervisory and administrative costs associated with supporting our provision of services and sale of products.
The following table reconciles operating income to Field contribution and Field contribution margin for the periods indicated:
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Operating income |
$ |
13,776 |
|
$ |
28,296 |
|
Other operating income |
|
(170 |
) |
|
- |
|
Acquisition-related costs |
|
91 |
|
|
1,768 |
|
Depreciation and amortization |
|
5,819 |
|
|
4,848 |
|
Corporate expenses |
|
36,567 |
|
|
27,399 |
|
Field contribution |
$ |
56,083 |
|
$ |
62,311 |
|
Revenue |
$ |
450,534 |
|
$ |
417,160 |
|
Field contribution margin |
|
12.4 |
% |
|
14.9 |
% |
Liquidity and Capital Resources
Overview
Our principal sources of cash have historically been from operating activities. Our principal source of liquidity in excess of cash from operating activities has historically been from proceeds from our credit facilities and issuances of common stock. In May, 2021 we raised net proceeds of $477.7 million from our initial public offering, after deducting underwriting discounts and commissions and inclusive of our underwriters’ partial exercise of their overallotment option. We used $407.0 million of these proceeds to repay certain
30
first lien and second lien debt obligations with the balance used for acquisitions in 2021 and general corporate purposes. In November 2021, we entered into the Securitization Facility (as defined below under "Indebtedness"), which we also use as a source of liquidity for completing acquisitions and for working capital as needed.
Our principal uses of cash and liquidity have historically been for acquisitions, interest and principal payments under our credit facilities, payments under our interest rate derivatives, and financing of working capital. Payment of interest and related fees under our credit facilities is currently the most significant use of our operating cash flow. Our goal is to use cashflow provided by operations primarily as a source of cash to supplement the purchase price for acquisitions.
As permitted by the CARES Act, we deferred payment of $46.8 million of payroll taxes to the Internal Revenue Service (“IRS”) in fiscal year 2020, which increased our net cash provided by operating activities and available cash on hand. Certain companies we acquired in 2020 and 2021 had also deferred payroll taxes of $4.6 million in aggregate in fiscal year 2020. We did not defer any payroll taxes after December 31, 2020. In December 2021, we used cash from operating activities to pay $25.9 million to the IRS, reducing our aggregate deferred payroll tax liabilities to $25.5 million as of April 2, 2022. This remaining balance must be paid to the IRS on or before December 31, 2022.
Certain of our acquired home health and hospice companies received advance payments from CMS in April 2020, pursuant to the CARES Act. Receipt of the advances did not increase our net cash provided by operating activities in 2020 as such amounts reduced the respective purchase prices of those acquired companies. Gross advances received by acquired companies totaled $15.7 million. We began repaying the gross amount of the advances in April 2021, using cash from operating activities, and had repaid an aggregate amount of $12.9 million of such advances as of April 2, 2022. As of April 2, 2022 remaining advances to be repaid totaled $2.8 million, which we expect to repay in full during the remainder of fiscal year 2022.
We believe that our operating cash flows, available cash on hand and availability under our Securitization Facility and credit facilities will be sufficient to meet our cash requirements for the next twelve months. Our future capital requirements will depend on many factors that are difficult to predict, including the size, timing and structure of any future acquisitions, future capital investments and future results of operations. We cannot assure you that cash provided by operating activities or cash and cash equivalents will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.
We evaluate our liquidity based upon our current cash balances, the availability we have under our credit facilities in addition to the net cash provided by or (used in) operating, investing and financing activities. Specifically, we review the activity under the Securitization Facility and Revolving Credit Facility (as defined below under "Indebtedness") and consider period end balances outstanding under each. Based upon the outstanding borrowings and letters of credit under the Securitization Facility and Revolving Credit Facility, we calculate the aggregate availability for borrowings under such facilities. Such amount, in addition to cash on our balance sheet, is what we consider to be our “Total Liquidity.”
31
The following table provides a calculation of our Total Liquidity for the three-month periods ended April 2, 2022 and April 3, 2021, respectively:
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Securitization rollforward |
|
|
|
|
Beginning securitization balance |
$ |
120,000 |
|
$ |
- |
|
Draws |
|
30,000 |
|
|
- |
|
Repayments |
|
(10,000 |
) |
|
- |
|
Ending securitization balance |
|
140,000 |
|
|
- |
|
Calculation of securitization availability |
|
|
|
|
Securitization limit |
|
150,000 |
|
|
- |
|
Less: outstanding securitization balance |
|
140,000 |
|
|
- |
|
End of period securitization availability |
|
10,000 |
|
|
- |
|
Revolving Credit Facility rollforward |
|
|
|
|
Beginning Revolving Credit Facility balance |
|
- |
|
|
- |
|
Draws |
|
- |
|
|
- |
|
Repayments |
|
- |
|
|
- |
|
Ending Revolving Credit Facility balance |
|
- |
|
|
- |
|
Calculation of revolving credit facility availability |
|
|
|
|
Revolving Credit Facility limit |
|
200,000 |
|
|
75,000 |
|
Less: outstanding Revolving Credit Facility balance |
|
- |
|
|
- |
|
Less: outstanding letters of credit |
|
(17,565 |
) |
|
(19,817 |
) |
End of period Revolving Credit Facility availability |
|
182,435 |
|
|
55,183 |
|
End of period cash balance |
|
17,439 |
|
|
67,105 |
|
Total Liquidity, end of period |
$ |
209,874 |
|
$ |
122,288 |
|
Cash Flow Activity
The following table sets forth a summary of our cash flows from operating, investing, and financing activities for the three-month periods presented:
|
|
|
|
|
|
|
|
For the three-month periods ended |
|
(dollars in thousands) |
April 2, 2022 |
|
April 3, 2021 |
|
Net cash used in operating activities |
$ |
(9,476 |
) |
$ |
(32,911 |
) |
Net cash used in investing activities |
$ |
(16,643 |
) |
$ |
(3,165 |
) |
Net cash provided by (used in) financing activities |
$ |
13,068 |
|
$ |
(34,164 |
) |
Operating Activities
The primary sources of our operating cash flow are operating income or operating losses, net of any goodwill impairments that we record, as well as any other significant non-cash items such as depreciation, amortization and share-based compensation, less cash paid for interest. The timing of collections of accounts receivable and the payment of accounts payable, other accrued liabilities and accrued payroll and employee benefits can also impact and cause fluctuations in our operating cash flow. Cash used by operating activities decreased by $23.4 million during the first quarter of 2022 compared to the first quarter of 2021, primarily due to:
•the comparative provision of cash of $21.0 million from the timing of payment of accounts payable and other accrued liabilities and related to significant payments made in the first quarter of 2021 to professional services vendors;
•the comparative provision of cash of $6.0 million from the timing of payment of accrued payroll and employee benefits;
•a decrease in cash paid for interest from $20.2 million in the first quarter of 2021 to $16.1 million in the first quarter of 2022; net of:
•a decrease in operating income for the first quarter of 2022 compared to first quarter of 2021, net of changes in significant non-cash items such as goodwill impairment, depreciation and amortization, and share-based compensation.
Days Sales Outstanding (“DSO”)
DSO provides us with a gauge to measure the timing of cash collections against accounts receivable and related revenue. DSO is derived by dividing our average patient accounts receivable for the fiscal period by our average daily revenue for the fiscal period. The timing of billing and collecting on our receivables can be affected by many factors, including the annual revalidation of third-party insurance in our PDS business which typically occurs in the first quarter of each year; pre-claim reviews and post-claim reviews associated with
32
Medicare's Review Choice Demonstration Program; acquisition and system transition activities; among other things. The collection cycle for the businesses within our HHH segment is also generally longer than the businesses within our PDS segment, primarily due to longer billing cycles for HHH, which is generally billed in thirty day increments. The following table presents our trailing five quarter consolidated DSO for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3,
2021 |
|
July 3,
2021 |
|
October 2, 2021 |
|
January 1, 2022 |
|
April 2, 2022 |
|
Days Sales Outstanding |
|
40.2 |
|
|
41.6 |
|
|
43.4 |
|
|
44.9 |
|
|
46.5 |
|
Investing Activities
Net cash used in investing activities was $16.6 million for the three-month period ended April 2, 2022, as compared to $3.2 million for the three-month period ended April 3, 2021. The primary driver of the $13.5 million increase in cash used in the current period was an $11.7 million premium paid for an interest rate cap in February 2022.
Financing Activities
Net cash provided by financing activities increased by $47.2 million, from $34.2 million net cash used for the three-month period ended April 3, 2021 to $13.1 million provided for the three-month period ended April 2, 2022. The $47.2 million increase was primarily attributable to:
•a $29.4 million repayment of government stimulus funds in the first quarter of 2021 with no such payment in our most recently completed quarter; and
•$20.0 million of net borrowings under our Securitization Facility in our most recently completed quarter with no comparable activity in the prior year quarter;
Purchases of Property and Equipment (capital expenditures)
We manage our capital expenditures based upon a percentage of revenue. Our capital expenditures expressed as a percentage of revenue were as follows for the three-month periods presented:
•$4.0 million, or 0.9% of revenue for the three-month period ended April 2, 2022; and
•$2.7 million, or 0.6% of revenue for the three-month period ended April 3, 2021.
We typically plan for capital expenditures equal to 1.0% of revenue, and capital expenditures for the three-month periods ended April 2, 2022 and April 3, 2021 were generally consistent with this target.
Indebtedness
We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our Securitization Facility and Revolving Credit Facility from time to time for working capital purposes, as well as to finance acquisitions, as needed. The following table presents our current and long-term obligations under our credit facilities as of April 2, 2022 and April 3, 2021, as well as related interest expense for the three month periods ended April 2, 2022 and April 3, 2021, respectively:
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and Long-term |
|
|
Interest Expense |
|
(dollars in thousands) |
Obligations |
|
|
For the three-month periods ended |
|
Instrument |
April 2, 2022 |
|
April 3, 2021 |
|
Interest Rate |
April 2, 2022 |
|
April 3, 2021 |
|
Initial First Lien Term Loan (1) |
$ |
- |
|
$ |
561,600 |
|
L + 4.25% |
$ |
- |
|
$ |
7,479 |
|
First Lien First Amendment Term Loan (1) |
|
- |
|
|
216,580 |
|
L + 5.50% |
|
- |
|
|
3,572 |
|
First Lien Fourth Amendment Term Loan (1) |
|
- |
|
|
184,075 |
|
L + 6.25% |
|
- |
|
|
3,381 |
|
Second Lien Term Loan (1) |
|
- |
|
|
240,000 |
|
L + 8.00% |
|
- |
|
|
5,460 |
|
2021 Extended Term Loan (2) |
|
855,700 |
|
|
- |
|
L + 3.75% |
|
9,217 |
|
|
- |
|
Delayed Draw Term Loans (2) (3) |
|
- |
|
|
- |
|
L + 3.75% |
|
1,896 |
|
|
- |
|
Term Loan - Second Lien Term Loan (2) |
|
415,000 |
|
|
- |
|
L + 7.00% |
|
7,868 |
|
|
- |
|
Revolving Credit Facility (2) |
|
- |
|
|
- |
|
L + 3.75% |
|
173 |
|
|
70 |
|
Securitization Facility (4) |
|
140,000 |
|
|
- |
|
BSBY + 2.00% |
|
1,213 |
|
|
- |
|
Amortization of debt issuance costs |
|
- |
|
|
- |
|
|
|
1,740 |
|
|
2,140 |
|
Other |
|
- |
|
|
- |
|
|
|
257 |
|
|
323 |
|
Total Indebtedness |
$ |
1,410,700 |
|
$ |
1,202,255 |
|
|
$ |
22,364 |
|
$ |
22,425 |
|
Weighted Average Interest Rate (5) |
|
5.0 |
% |
|
6.5 |
% |
|
|
|
|
|
(1)Variable rate debt instruments which accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 1.00%), plus an applicable margin.
(2)Variable rate debt instruments which accrue interest at a rate equal to the LIBOR rate (subject to a minimum of 0.50%), plus an applicable margin.
(3)No amounts were outstanding on the Delayed Draw Term Loan ("DDTL") at April 2, 2022, however, the Company incurred commitment fees of $1.9 million in the three month period ended April 2, 2022 in order to maintain the availability of the DDTL.
(4)Variable rate debt instrument that accrues interest at a rate equal to the Bloomberg Short-term Bank Yield Index (“BSBY”) plus an applicable margin.
(5)Represents the weighted average annualized interest rate based upon the outstanding balances at April 2, 2022 and April 3, 2021, respectively, and the applicate interest rates at that date.
We were in compliance with all financial covenants and restrictions related to existing credit facilities at April 2, 2022.
On March 11, 2021, we amended our senior secured revolving credit facility under the First Lien Credit Agreement (the “Revolving Credit Facility”) to increase the maximum availability to $200.0 million, subject to the occurrence of an initial public offering prior to December 31, 2021, which was completed on May 3, 2021. The amendment also extended the maturity date to April 29, 2026 upon completion of the IPO and subject to the completion of the refinancing of our terms loans, which occurred with the Extension Amendment.
On May 3, 2021, we completed our initial public offering, and with a portion of the proceeds received, paid an aggregate principal amount of $307.0 million to repay in full all outstanding obligations under our prior second lien credit agreement, including the incremental amount borrowed in connection with financing the acquisition of Doctor’s Choice, thereby terminating such agreement. In addition, on May 4, 2021, we repaid $100.0 million in principal amount of our outstanding indebtedness under our First Lien Credit Agreement (as defined below).
On May 4, 2021, following completion of the initial public offering and satisfaction of the other applicable conditions precedent, the maximum availability of our Revolving Credit Facility increased from $75.0 million to $200.0 million. In connection with this increase in capacity, we incurred debt issuance costs of $1.6 million, which we capitalized and included in other long-term assets.
On July 15, 2021 we entered into an Extension Amendment (the “Extension Amendment”) to our First Lien Credit Agreement, originally dated as of March 16, 2017, with Barclays Bank, as administrative agent, the collateral agent, a letter of credit issuer, and swingline lender, and the lenders and other agents party thereto from time to time (as amended to date, the “First Lien Credit Agreement”). The Extension Amendment converted outstanding balances under all remaining first lien term loans into a single term loan in an aggregate principal amount of $860.0 million (the “2021 Extended Term Loan”), and extended the maturity date to July 2028. The Extension Amendment also provided for a delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) in an aggregate principal amount of $200.0 million, which permits us to incur senior secured first lien term loans (the “Delayed Draw Term Loans”) from time to time until July 15, 2023, in each case subject to certain terms and conditions. The Delayed Draw Term Loan Facility was undrawn as of January 1, and April 2, 2022, and any future draws thereunder would mature in July 2028.
For the 2021 Extended Term Loan and the Delayed Draw Term Loans, we can elect, at our option, the applicable interest rate for borrowings using a variable interest rate based on either LIBOR (subject to a minimum of 0.50%), prime or federal funds rate (“Annual Base Rate” or “ABR”) (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus an applicable margin
34
of 3.75% for loans accruing interest based on LIBOR and an applicable margin of 2.75% for loans accruing interest based on ABR, which are subject to certain adjustments as set forth in the First Lien Credit Agreement. Undrawn portions of the Delayed Draw Term Loan Facility incur a commitment fee of 50% of the LIBOR margin of 3.75% beginning 45 days after the amendment date, and the full LIBOR margin beginning 90 days after the amendment date.
On July 15, 2021, we also amended our interest rate swap agreements to extend the expiration dates to June 30, 2026 and reduce the fixed rate paid under the swaps. As amended, our swap rate decreased to 2.08% from 3.107%, with a reduction in the LIBOR floor under the swaps from 1.00% to 0.50%. The notional amount under the interest rate swaps remains at $520.0 million. We also entered into a three-year, $340.0 million notional interest rate cap agreement with a cap rate of 1.75%. in July, 2021, which we sold in November 2021.
On August 9, 2021, we entered into the Seventh Amendment to the First Lien Credit Agreement to reduce the interest rates applicable to loans under the Revolving Credit Facility. As amended, such revolving loans bear interest, at our election, at a variable interest rate based on either LIBOR (subject to a minimum of 0.50%) or ABR (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus an applicable margin of 3.75% for loans accruing interest based on LIBOR and an applicable margin of 2.75% for loans accruing interest based on ABR.
On November 12, 2021, we entered into a three-year Securitization Facility (the "Securitization Facility") which increases the Company’s borrowing capacity by collateralizing a portion of our patient accounts receivable at favorable interest rates relative to our 2021 Extended Term Loan. The maximum amount available under the Securitization Facility is $150.0 million, subject to maintenance of certain borrowing base requirements. Borrowings under this facility carry variable interest rates tied to BSBY plus an applicable margin. Please see Note 5 – Securitization Facility, to the unaudited consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion related to the Securitization Facility.
On December 10, 2021, we entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement” and together with the First Lien Credit Agreement, the “Senior Secured Credit Facilities”) with a syndicate of lending institutions and Barclays Bank, as administrative agent and collateral agent, which provides for a second lien term loan (the “Second Lien Term Loan”) in an aggregate principal amount of $415.0 million, which matures on December 10, 2029. The Second Lien Term Loan bears interest at a rate per annum equal to, at our option, either (1) an applicable margin (equal to 6.00%) plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the Prime Rate and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; or an applicable margin (equal to 7.00%) plus LIBOR determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs; provided that such rate is not lower than a floor of 0.50%.
On February 9, 2022 we entered into a five-year, $880.0 million notional interest rate cap agreement with a cap rate of 3.0%. The cap agreement expires in February 2027 and provides that the counterparty will pay us the amount by which LIBOR exceeds 3.0% in a given measurement period.
In July 2017, the U.K. Financial Conduct Authority, the regulator of the LIBOR, indicated that it will no longer require banks to submit rates to the LIBOR administrator after 2021 (“LIBOR Phaseout”). This announcement signaled that the calculation of LIBOR and its continued use could not be guaranteed after 2021 and the anticipated cessation date is June 30, 2023. A change away from LIBOR may impact our Senior Secured Credit Facilities. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate. The impact related to any changes cannot be predicted at this time.
Contractual Obligations
Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating and financing leases. These contractual obligations impact our short-term and long-term liquidity and capital needs. As of April 2, 2022, there were no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
Critical Accounting Estimates
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 for accounting policies and related estimates we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting estimates include patient services and product revenue; business combinations; goodwill; and insurance reserves. There have been no changes to our critical accounting estimates or their application since the date of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
35