Aveanna Q3 2025 Earnings Call Transcript

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Date

Nov. 6, 2025 at 10 a.m. ET

Call participants

Chief Executive Officer — Jeffrey S. Shaner

Chief Financial Officer — Matthew Buckhalter

Chief Strategy Officer — Deborah Stewart

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Risks

Stewart said, "we are hearing the general head of state Medicaid system. 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 system," indicating reimbursement challenges could persist into 2026.

Shaner noted, "a couple of states who temporarily put in 23% reductions just so they could balance their 2026 budget," highlighting exposure to state budget-driven rate volatility.

Management identified that future PDS rate wins "be generally smaller than they've been over the course of last two point five years," signaling reduced pricing momentum.

Takeaways

PDS Hours Delivered -- 11.8 million hours in the quarter, reflecting full Thrive acquisition impact and 13% year-over-year growth; Thrive accounted for approximately 5% of the 13% increase.

PDS Organic Growth -- Organic growth rate was in the 6% to 7% range, consistent with prior quarters before Thrive.

PDS Gross Margin -- 29% for the segment, slightly above the 20% to 28% long-term guidance range.

PDS Rate Wins -- More than 10 rate wins achieved this year, offset by some temporary rate decreases.

PDS Preferred Payer Penetration -- 56% of MCO volume now aligned with preferred payers, with a long-term target of low- to mid-80%, possibly reaching high 80%s.

Value-Based Care Contracts -- Nine value-based care agreements in place, all including a base enhanced rate, plus bonuses for value-based outcomes.

Free Cash Flow -- $86 million year to date, with expectations for additional generation in Q4, though Q3 is typically the strongest quarter for this metric.

Cash Balance and Leverage -- $146 million cash on hand; net leverage at 4.62x, reduced by almost three turns during the year.

Home Health & Hospice Growth -- 15.3% growth in the segment; 77% of admissions in the quarter were episodic.

Episodic Payment Mix -- Greater than 75% of home health business now paid under episodic rates for four quarters running, compared to a 70% target.

Thrive Acquisition -- Added two new Medicaid states (New Mexico, Kansas) and contributed approximately $100 million revenue, acquired at roughly a 7.5x post-synergy multiple.

Geographic Reach -- Now in 29 Medicaid states, with ambitions to expand to 38 to 40 states, targeting key gaps including Ohio, West Virginia, and Kentucky.

Capital Allocation -- Management intends to balance M&A with further deleveraging based on available opportunities and capital structure goals.

Segment Diversification -- 78% of revenue is generated from the Private Duty Services segment.

Payer Demands -- Shaner stated, "out of all 30 preferred payers, whether they've been listed for four years or four months, every one of them wants more of our nurses and that is the constant theme we hear from all of our payers," indicating sustained volume demand from partner payers.

Summary

Management reported robust PDS volume growth, attributing both organic gains and substantial contribution from the Thrive acquisition, while highlighting a rising percentage of MCO volumes sourced from preferred payer relationships. Home Health & Hospice delivered double-digit growth and a continued shift toward episodic payment models, positioning that segment for more stable funding. Further expansion of value-based contracts, all structured for upside only, reflects payer preference for greater capacity and partnership alignment. Enhanced free cash flow and a stronger cash position enabled material deleveraging this year, and capital deployment flexibility remains a focus as acquisition and state expansion opportunities continue. Management cautioned, however, that headwinds in Medicaid rate negotiations and state budget pressures could moderate future rate improvements and segment margin upside.

Buckhalter confirmed the internal goal of having "a three handle" on net leverage in 2026 or 2027, indicating plans for further balance sheet improvements.

Stewart referenced ongoing wage pass-through actions expected to affect margins into 2026, with Q4 and the first half of next year still impacted by catch-up payments.

Shaner directly clarified that preferred payer relationships in pediatric Medicaid do not carry over to Medicare Advantage negotiations, underscoring the segmentation of payer strategies within major institutions.

Management stated that nine value-based contracts are structured around fill rates and HBR/MLR performance, with most targeting 80%-90% fill rate thresholds and reductions in acute care spend.

Future expansion plans include accelerating new preferred payer relationships in the PDS and Med Solutions segments, following the operational model currently deployed in PDS and Home Health & Hospice.

Industry glossary

PDS (Private Duty Services): In-home skilled nursing and related personal care, primarily pediatric and high-acuity populations.

MCO (Managed Care Organization): Insurance entities contracting with Medicaid to manage patient care and reimburse providers.

Value-Based Care Contract: Agreement where provider payment is linked to performance metrics like quality, cost reduction, or patient outcomes, sometimes including bonus structures.

Episodic Payments: Reimbursement based on the completion of a defined period or episode of care, as opposed to traditional fee-for-service arrangements.

HBR (Healthcare Benefit Ratio): Key metric representing cost of delivered care as a percentage of premium revenue, related to managed care performance.

Pass-Through Wages: Increases in government reimbursement rates that are fully or partially passed on as compensation to direct caregivers.

Full Conference Call Transcript

Deborah Stewart: We'll point people to there's a lot of momentum in the business as you pointed out. PDS and our HHS 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 at Med Solutions, we're doing tremendous amount of work. We're very proud of our team, what they're doing as we speak. But want to finish that over the next kind of three to four months so they can get back to the growth algorithm that 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 in wage pass through. We had additional wage pass through in Q3. 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 head of state Medicaid system.

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 system. So we point people towards that general headwinds as we fight through 2026. Medicaid rates throughout North America. 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 2016 to continue to build out more Medicaid states. Thanks, Pia.

Jeffrey S. Shaner: Thank you.

Operator: Next question. Ryan Penkowitz with Jefferies. Please.

Deborah Stewart: Congrats on the solid quarter. Maybe, Jeff, just to follow-up on that comment you made to Peter. So in PDS, you've seen nice strength in hours, obviously. And as we think about the rate increases you've year to date, translate I mean, I'm thinking that translates into better hours. Is that the right jumping off point in terms of like capacity as we think about 2026? And then maybe for Matt, as a follow-up, historically you've kind of spoken about 10 to ten fifty 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 rate increases flowing through and there's a timing dynamic? Hey Brian, good morning. 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 and that Thrive that's 13% year over year growth. Thrive was about 5% of that 13%. So we'd 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 2024 moving into 2025. We expect as we reset our legislative goals for 2026, we'll probably still set a goal of being double digit rate wins as we've said last quarter, we'll say again, we'll say next quarter, 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 last two point five 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 five additional rate wins, Thrive helped that the addition of New Mexico and Kansas as two 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 in 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.

Matthew Buckhalter: Yes. And Brian, to your point on the spread itself, as it expected Q3 came right back in line with our Q1 expectations. We made sure to discuss Q2 agnosium last quarter for people to understand 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 20% 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, 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 EBITDA base has got up, the leverage ratio has gone down. Mean, should we be thinking about your views on cap structure and then maybe capital deployment towards acquisitions? Thanks.

Jeffrey S. Shaner: Awesome question. Yeah, 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 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 it in bring in additional free cash flow in 2026.

And we'll use that for potential M and A opportunities. But we're going to do what makes the most sense at Aviana and whether that is deploying for M and A or paying down debt. Just be thoughtful on any dollars that we use.

Brian Tanquilut: Thanks, Brian.

Operator: Next question, Benjamin Rossi with JPMorgan. Please go ahead.

Benjamin Michael Rossi: Hey, good morning.

Jeffrey S. Shaner: Thanks for

Benjamin Michael Rossi: I guess just turning to the value based care contracting, guess when thinking about your progress towards your broader goal of

Matthew Buckhalter: 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 may be viewing value based care contracts for private duty nursing going forward?

Jeffrey S. Shaner: Ben, good morning. Thanks 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 as our preferred payers just want more nurses and they want more of our capacity even we are limited on how much nursing capacity we can give them. So no, as we talk to our now 30 preferred payers and again many of them are the national leading Medicaid payers in America.

They just want more of what we have to offer both in the amount of nurses, but also relationship that we have that is tied to total cost of care through HBR and fill rates. So I think as we 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, it's upside. Rewards only based on our ability to bend the cost curve. Aviana and more of what we have to offer.

Most of our payers are just wanting more of So I can tell you from having closed the Thrive transaction, got 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. 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.

Matthew Buckhalter: Great.

Benjamin Michael Rossi: As a follow-up,

Matthew Buckhalter: front. maybe on the home health hospice Seeing a nice volume growth there. Episodic mix picked up nicely. For cost of revenue, seemed like that maybe picked up a bit. 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 out, otherwise, outpacing top line?

Jeffrey S. Shaner: 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 was a little bit high. We kind of alluded to that one. We're continuing to invest in some training through some hard waste 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 three years' worth of work. So again, it's three years' worth of our team staying focused the preferred payer strategy. And again, as we think of MedSolutions, think of what you're seeing now in home health and hospice as what the future of MedSolutions 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 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.

Benjamin Michael Rossi: Thanks, Ben.

Operator: Thank you. Next question comes from Raj Kumar with Stephens. Please go ahead.

Raj Kumar: Please Hi, good morning. Maybe

Matthew Buckhalter: kind of uncovering the hours growth, you know,

Raj Kumar: you know, decently strong. So just

Matthew Buckhalter: maybe trying to get in disclosures on kinda how census or patients

Brian Tanquilut: served trended? Relative to the hours per census yield and kind of remaining opportunities that we should kinda think about the spread normalizing and, you know, the company being able to hire and retain more nurses to be able to serve more volumes. So maybe just trying to kinda break that out and kinda how much more room is there on the kinda hours per census side and then and then what kinda what are you kinda seeing from a census opportunity perspective as well?

Matthew Buckhalter: Yeah. I would say they're directly 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, patients that are waiting in the hospital to be discharged on to 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 limited capacity with those caregivers and there always will be unfortunately.

So as we lean into these 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.

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

Jeffrey S. Shaner: Yeah. 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 shock me if we move that to greater than 75% now that we've been four quarters in a row at north of 75% episodic, It's the way of the future in this business. It is 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 that'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 nurse more therapy care. And they want a lower total cost of care for the geriatric patients. 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 being an episodic provider in home health. Thank you, Raj. Thank you.

Operator: Next question, A. J. Rice with UBS. Please proceed.

A. J. Rice: Hi, everybody.

Matthew Buckhalter: First, just obviously, you've

Jeffrey S. Shaner: made a big push and been successful getting these preferred payers.

David Samuel MacDonald: Set up in the PDS business. I wonder if you have had enough time to sort of see over time how that relationship's evolved. Do you get annual updates consistent with what you've been getting historically? Has have you seen it evolve in any way that's worth calling out?

Jeffrey S. Shaner: AJ, good morning. Thank you for the question. I think I would say we're we're in year four of our longest most mature and we're in year three 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. Just some of the other things like value based agreement add ons. The rate is what starts this comp 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 three years to the nurses. But some of the soft stuff that then kind of adds on over time really becomes value based agreement, but also the collections. I mean, 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 also say like they picked up the phone and just they'll call us on a tough patient that has been back to hospital three or four times in a few months and they'll ask us to dive in and really address that patient to help that family and some of the benefits that we're able to get them. We don't ask for rate enhancements from our preparers 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 we go back to them with those conversations, it's a productive conversation. It's a 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 listed for four years or four months, every one of them wants more of our nurses and that is the constant theme we hear from all of our payers.

David Samuel MacDonald: Okay. Maybe for my follow-up, just thinking about the organic and inorganic growth in PDS well as in adult home care. You know, some of your peers are saying, if we can just get the final rate notice done, know, 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 on the PDF side, you're saying you're seeing a little caution in some states.

I guess I'm just wondering is, 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.

Jeffrey S. Shaner: Yeah. I'll go back to who we are to start with. You know, almost 80% of our company generated from our PDS segment. So that is the underpinning of Aviana, always has been and certainly is. We added two 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 are 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 leave 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 revenues in home health and hospice We're big believers in home health. We believe home health is the right solution for America's seniors and we'd like to see a nice rule settle here. But how do you think about deployment? Yes. No, I just will go back to that.

Matthew Buckhalter: We're always to continue to advocate on behalf of our patients and our families regardless of the industry, regardless of the division. Continue to do what we do best. We're going to deliver that exceptional patient care that And then regardless of any policy changes out there, AJ, 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. Think we're well positioned with our size, scale and density and technology in our clinical outcomes. That these partnerships will continue to grow and that will

Brian Tanquilut: Thank you, AJ. Okay.

David Samuel MacDonald: Thanks a lot.

Operator: Andrew Moff with Barclays. Please go ahead.

Brian Tanquilut: Hi. Good morning. So to follow-up on the hours growth, can you spike out the contribution of

Andrew Mok: 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? Thanks.

Matthew Buckhalter: 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 Aviana organization. Q3 to your point reflects that full financial impact of Thrive. We was in there for a very full quarter on there. If you go back and look at our Q2 on it, hours basis, we were high mid to high single digits out there. That's exactly organically what Aviana was doing as well in Q3. Incremental what you're seeing is from Thrive. We talked about previously, Thrive is coming in at roughly $100 million of revenue, and about 7.5 times multiple from the purchase price post synergies itself.

Going to be just a little bit north about that, but team has done a phenomenal job getting synergies, integrating the organization and really bringing in to be part of Aviana.

Jeffrey S. Shaner: And I think Matt said that well. Like we've been we guide people over three to five 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 three quarters plus. Q3 represented that organically. We were in that same kind of 6.57% organic and then the nice addition of Thrive and again, I think as we came out of Q2, 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 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 comfortably settled us right at that $80 million amount. And that's the full impact. Wrapping up integration literally in the month of November and we'll have some AR runoff into early mid next year as that 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.

Andrew Mok: 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? Thanks.

Jeffrey S. Shaner: It's more directional in nature, but we've 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, little bit of let's see how this shakes out, a little bit of we want see how the OBVA 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.

We had a couple of states who temporarily put in 23% 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 of 2026 and 2027, we think that generally in nature there's going be some headwinds the states have to work through.

Matthew Buckhalter: Yes, think the diversity of the 29 states for 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 Aviana.

Brian Tanquilut: Thank you, Andrew.

David Samuel MacDonald: That's just talking.

Matthew Buckhalter: Yeah. Brenda, we're we're here.

Operator: Yes. Please proceed.

Michael Murray: Peanut. No.

Jeffrey S. Shaner: Hey, John. Sorry. We didn't we didn't hear that question.

Brian Tanquilut: So you guys went on mute for a minute.

Jeffrey S. Shaner: So just going back to your payer relationships, you said you offered to bend the cost curve this an upside only deal. What does that mean exactly? And my follow-up is

Brian Tanquilut: does having a payer deal in pediatrics gives for a payer deal in home health and hospice and, med solutions? Thanks. That's great. Let me start with the second one because the second one's easier than the first one.

Jeffrey S. Shaner: And I'll use United or if you just think about United. Our answer would be no. It's two totally separate sections of the payer itself. United Community, which is our Medicaid business, is totally different than the United Medicare Advantage. We talked to both sides of United in this example, but the paths never really cross inside of their shops. So in most of our payer partners talking to a Medicaid pediatric rate person is has very little benefit to the Medicare geriatric rate peer that may 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 about our payer contracts.

So first of all, each of our nine I think nine 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 an enhanced wage for the nurse. In those cases. All nine 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 like two 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 80-90%, where our goals are is to land between 80-90% fill rate. And then the second part is really HBR or MLR however they think of it is some form of a target cost for the actual services that we provide. And really tying to acute care spend, So reducing acute care spend. Most of our nine contracts have something to do with the two 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 Ed, just to ask the obvious question, so the fact that you're you just have more nurses.

You have more, you know, athletes on the field. You can one phone call from them, they can get more spots filled and calling five of your smaller competitors? Is it is it

Matthew Buckhalter: I know it's probably not that simple, but is that a big piece of it, I would think?

Jeffrey S. Shaner: 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

Michael Murray: other

Jeffrey S. Shaner: beneficiaries. But yes, that is you've nailed it.

Michael Murray: Okay, thank you. Thanks, John.

Operator: Next question, Ben Hendricks, RBC Capital Markets. Please go ahead.

Michael Murray: Hi, this is Michael Murray on for Ben. Thanks for taking my questions. 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?

Jeffrey S. Shaner: Hey Michael, good morning. I guess I'll start with some people ask us what inning are you 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 We've added volume metrics in PDS. Our goal would be at some point in the future to add volume metric in med solutions tied to the number of preferred payer counts. If you think of our PDS volumes today, we announced this quarter 56% of our MCO volumes are aligned with the preferred payer. That would tell you we're 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. Started planning for 2026. We're in our budgets as we speak now. As we reset our goals for 2026, 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 in why we're looking for additional markets. I mean Thrive is a great example.

I mean we added two new brand new states. We picked up a couple of preferred payers in those states right out of the gate enhanced relationships. So tell you there's still a long runway in front of us.

Michael Murray: And again,

Jeffrey S. Shaner: we're doing in MedSolutions is exactly the same as what we've done Productivity Services and Home Health and Hospice, which is define the preferred payers, define the target operating model and then align our with those payers. And that's what you'll hear us talk about in 2026 for MedSolutions.

Michael Murray: All right, thank you. 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? Thanks.

Matthew Buckhalter: 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 cash on hand in the quarter. That's phenomenal work from the team through a cash collections and operations efforts. We're currently sitting at what 4.62 times net leverage. Currently, I mean, we're down almost three 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 three handle in front of that. I mean, something we're going to be at.

We probably won't be there wrapping up this year, but into 2026. And into 2027 to have a three 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 not afraid of paying down debt at the same time. So 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.

Jeffrey S. Shaner: Thanks, Michael.

Operator: Next question, David McDonald with Truist Securities. Please go ahead.

David Samuel MacDonald: Guys, just one left. Just kind of curious, wanted to piggyback on A. J. Question from earlier.

Jeffrey S. Shaner: Just with regards to home health and some of the uncertainty there, I'm just curious has that impacted you know, the strength of the pipeline of opportunities there for you guys? And what would you kinda need to see in terms of the final rule to get comfortable starting to potentially more meaningfully deploy capital there? 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 the last six months small, medium sized activity in both Medicaid and Medicare. Both home health and hospice on the Medicare side. From an M and 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 zero. That's probably a little bit of aggressive expectation, but that is the ask that we have on hand. As you know, the industry at large is basically a multiyear pause and no cuts. We will leverage the 78% of the business to grow the percent of business. We've said that before and 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. 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 synergy. So we'd like to see something that is close to zero or effectively zero as a by the way, we expect to see that next week.

David Samuel MacDonald: Our intel says that probably is coming out late next week or certainly

Jeffrey S. Shaner: 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. Okay. Thanks very much.

Michael Murray: Thanks, David. I would like to turn the floor over

Operator: to Jeff. For closing remarks.

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

Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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