Aveanna Healthcare (AVAH) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 12, 2026

CALL PARTICIPANTS

• Chief Accounting Officer - Debbie Stewart
• Chief Executive Officer - Jeffrey Shaner
• Chief Financial Officer - Matt Buckhalter

TAKEAWAYS

• Revenue -- $695.5 million, representing an 11.8% increase driven by growth across all three operating segments.
• Adjusted EBITDA -- $100.1 million, a 25% increase resulting from improved reimbursement rates, volume growth, and operational efficiencies.
• Private Duty Services (PDS) Revenue -- $574 million, an 11.6% increase supported by approximately 13 million hours of care provided during the quarter.
• PDS Volume -- 10.2% growth in care hours compared to the prior year period, reflecting improved caregiver hiring and retention.
• PDS Revenue Per Hour -- $44.09, an increase of 1.4% driven by a higher mix of preferred payer volume.
• Home Health and Hospice (HHH) Revenue -- $72.1 million, representing 15.6% growth over the prior year period.
• HHH Admissions -- 11,600 total admissions, a 19.6% increase driven by a focus on episodic growth.
• HHH Episodic Mix -- 80%, meeting management's goal to maintain an episodic patient profile above 75%.
• HHH Episodes of Care -- 16,000 total episodes, representing a 24% increase compared to the prior year period.
• Medical Solutions (MS) Revenue -- $49.2 million, a 9.1% increase following the completion of segment modernization efforts.
• MS Patient Volume -- 98,000 unique patients served, representing 7.7% growth compared to the prior year period.
• MS Revenue Per Patient -- $502, an increase of 1.4% reflecting the implementation of preferred payer agreements.
• Liquidity -- $492 million, including $198 million in cash on hand and $295 million in available credit facilities.
• Debt and Hedging -- $1.52 billion in total indebtedness, with approximately $1.4 billion hedged via interest rate caps through 2029.
• Free Cash Flow -- $141.2 million year to date, supported by strong cash collections and cost efficiency initiatives.
• 2026 Revenue Guidance -- Greater than $2.695 billion, raised from the previous target of $2.68 billion.
• 2026 Adjusted EBITDA Guidance -- Greater than $374 million, increased from the previous target of $365 million.
• PDS Preferred Payer Mix -- 65% of total PDS managed care volumes, up from 57% at the end of 2025.
• PDS Long-Term Growth Target -- 5% to 6% organic revenue growth, updated from the previous range of 3% to 5%.
• HHH Long-Term Growth Target -- 8% to 10% organic revenue growth, updated from the previous range of 5% to 7%.

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RISKS

• Buckhalter warned that the company cannot implement permanent base wage increases for nurses in California until the state provides certainty that the $60 million rate investment will be a permanent budget fixture rather than a temporary supplemental payment.
• Buckhalter noted that sequential revenue in the fourth quarter may be impacted by the timing of the fiscal calendar, as the prior year period included a 14th week that will not recur in 2026.

SUMMARY

Aveanna Healthcare Holdings Inc. (NASDAQ:AVAH) reported third quarter results that reached several financial milestones, including quarterly adjusted EBITDA of $100.1 million. Management stated that the company is executing a strategic transition toward preferred payer agreements to address labor constraints and increase clinical capacity. The company has integrated the back-office functions of the Family First Home Care acquisition and expects to complete full integration by the end of the fourth quarter. Management reconfirmed its long-term organic growth targets across all three business segments, citing improved visibility in state and federal reimbursement rates and the success of its government affairs advocacy. The company's financial strategy remains focused on utilizing free cash flow for debt reduction and disciplined acquisition activity.

• CEO Shaner stated, "The demand for home and community-based care continues to be burgeoning with both state and federal governments and managed care organizations asking for solutions that create more capacity while reducing the total cost of care."
• Management reported achieving eight state rate enhancements year to date and has shifted advocacy efforts toward the 2027 legislative agenda.
• The company reached its 2026 goal of 38 PDS preferred payer agreements by the end of the third quarter and expects to reach 40 agreements by year-end.
• CEO Shaner noted that the Medical Solutions business has completed its modernization and is currently growing at a rate of 8% to 10%, consistent with long-term projections.
• Management indicated that substantially all variable rate debt is now hedged through December 2029 following the execution of an additional $880 million interest rate cap agreement.
• The company is prioritizing artificial intelligence and automation initiatives to enhance operational productivity and reduce corporate expenses.
• Management stated its goal to reach a net leverage ratio of sub 3x in 2027 through a combination of EBITDA growth and debt repayment.

INDUSTRY GLOSSARY

• CMS: Centers for Medicare & Medicaid Services, the federal agency that administers the Medicare program and works with state governments to administer Medicaid.
• Episodic Mix: The percentage of home health services reimbursed on a per-episode basis rather than a fee-for-service basis.
• FMAP: Federal Medical Assistance Percentage, the rate at which the federal government matches state Medicaid expenditures.
• HHH: Home Health and Hospice segment, providing skilled nursing, therapy, and end-of-life care in patient homes.
• MCO: Managed Care Organization, a health provider or a group of health providers that offers managed care health plans.
• MS: Medical Solutions segment, providing enteral nutrition and other medical supplies to patients.
• PDN: Private Duty Nursing, skilled nursing care provided to medically fragile patients in their homes.
• PDS: Private Duty Services segment, which includes private duty nursing and pediatric therapy services.
• SOFR: Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
• UPS: Unique Patients Served, a metric used to track the number of individual patients receiving medical supplies or services.

Full Conference Call Transcript

Operator: Good morning, and welcome to Aveanna Healthcare Holdings Third Quarter 2026 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Debbie Stewart, Aveanna's Chief Accounting Officer. Please go ahead.

Debbie Stewart: Good morning, and welcome to Aveanna's third quarter 2026 earnings call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Shaner, our Chief Executive Officer; and Matt Buckhalter, our Chief Financial Officer. During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website, aveanna.com, and in our most recent quarterly report on Form 10-Q when filed. With that, I will turn the call over to Aveanna's Chief Executive Officer, Jeff Shaner. Jeff?

Jeffrey Shaner: Thank you, Debbie. Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q3 results and how we are finishing full year 2026 with solid momentum. My initial comments will briefly highlight our third quarter results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide updates on the Family First integration, how we are progressing with our 2026 strategic initiatives, our enhanced guidance and reconfirm our long-term growth outlook before turning the call over to Matt. Let's move to highlights for the third quarter.

Revenue for the third quarter was $695.5 million, representing an 11.8% increase over the prior year period. Third quarter adjusted EBITDA was $100.1 million, representing a 25% increase over the prior year period, primarily due to the improved rate and volume environment and continued operational efficiencies. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believed our company could achieve. It is important to note that our industry does not have a demand problem.

The demand for home and community-based care continues to be burgeoning with both state and federal governments and managed care organizations asking for solutions that create more capacity while reducing the total cost of care. Our Q3 results highlight that we continue to align our objectives with those of our preferred payers and government partners. By focusing our clinical capacity on our preferred payers, we achieved solid year-over-year growth in all 3 of our operating segments. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements.

While we continue to operate in a challenging environment, our preferred payer strategy supports our ability to achieve accelerated growth rates in all 3 of our business segments. Since our second quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and preferred payer partners as well as continued signs of improvement in the caregiver labor markets. Specifically, as it relates to our private duty services business, our 2026 government affairs strategy was twofold: first, to enhance our advocacy presence with both federal and state legislators; and second, to achieve mid-single-digit state rate enhancements.

As of Q3, we have achieved 8 state rate enhancements year-to-date and have shifted our focus to the 2027 legislative agenda. Our messaging of lowering the total cost of care and keeping our medically fragile patients in the comfort of their home continues to resonate well with our state government partners. As we communicated in Q2, after 4 years of dedicated advocacy and focus on the state of California, we are expecting a significant investment in PDN rates effective January 1, 2027. We have engaged extensively with the Department of Health and Community Services, known as DHCS on the adjudication of this rate investment in California.

DHCS has validated that the 2027 California budget includes a hard dollar investment for PDN rates of approximately $30 million, with the understanding that CMS will match it with their 50% FMAP matching or an additional $30 million for a total PDN rate investment of $60 million. DHCS believes this $60 million investment is a supplemental payment for the 2027 budget period of January 1, 2027, through June 30, 2027. The department has communicated that it will most likely apply this supplemental rate increase in addition to the PDN base rates for effectively all PDN patients covered by Medi-Cal.

We are working with Governor Newsom and Governor-elect Becerra to ensure the supplemental payment continues to be included in the California budget as a permanent rate increase to the PDN rate structure. We have every intention of passing material wage improvements on to our caregivers in concert with the permanent rate enhancement. We will continue to communicate and advocate with the Governor's office, California legislature and the Department of Health and Community Services until a permanent rate and wage solution is in place. Now moving on to our PDS preferred initiatives. As of Q3, we have achieved our goal of 38 PDS preferred payers.

We signed one additional preferred pay agreement in the quarter and now expect to land closer to 40 agreements by the end of 2026. Aveanna's preferred payer strategy continues to gain momentum and allows us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses for our payer partners. Additionally, our Q3 preferred payer agreements now account for 65% of our total PDS MCO volumes, up from 57% at the end of 2025. This positive momentum in preferred payer volumes continues to highlight the shift in our caregiver capacity and recruitment efforts towards our preferred payer partners. Moving to our preferred payer progress in Home Health.

Our goal for 2026 was to maintain our episodic mix above 75% while returning to a more normalized growth rate. I'm pleased to report in Q3, our episodic mix was 80% and our total episodic volume growth was 24% compared with the prior year period. Our growth was fueled by an impressive 19.6% episodic admission growth compared with the prior year period. Furthermore, we signed 2 additional episodic agreements in Q3 for a total of 52 agreements year-to-date. While we have exceeded our preferred payer and our organic growth goals in Home Health, we continue to lean into our payer partners.

Our dedicated focus on aligning our Home Health care capacity with those payers willing to reimburse us on an episodic basis has led to double-digit year-over-year growth in Home Health admissions and episodes as well as improvement in our clinical and financial outcomes. Lastly, we're pleased with CMS' final Home Health rule published on November 4 as well as the final hospice rule published on August 6. The 2027 final Home Health rate shows positive movement by CMS, aligned with a strong collaboration from the National Alliance for Care at Home.

While there is still work to be done addressing the temporary adjustment and its impact on the annual Home Health rate, we have come a long way as an industry. We believe the stability of the Home Health and Hospice rate structure are important as we continue to meet the increasing demand for America's aging population cared for in the comfort of their home. Finally, as we have achieved our desired preferred payer model in both private duty services and Home Health and Hospice, we are executing a similar strategy in our Medical Solutions business. As of Q3, we have a total of 22 preferred payer agreements, having added 2 in the quarter.

Our gross margins have stabilized in our desired range as we align our clinical capacity with those payers that value our services and pay us in a timely fashion. I am very pleased with our Q3 volume growth of approximately 98,000 unique patients served or positive 7.7% over the prior year period. As we think about Medical Solutions revenue growth, I expect us to remain in the high single digits, consistent with our long-term growth projections. We are encouraged by our rate increases, preferred payer agreements and subsequent growth in our business. Our company has demonstrated a stable return to organic growth as we achieve our rate goals previously discussed.

Home and community-based care will continue to grow, and Aveanna is a comprehensive platform with a diverse payer base, providing a cost-effective, high-quality alternative to higher cost care settings. Now, turning to our acquisition of Family First Home Care, which we closed in June of this year. We are progressing nicely with the integration and have completed essentially all the back-office functions in Q3. Our leadership teams continue to focus on exceptional clinical care and supporting our branches as we navigate the necessary in-market and EMR integrations. I expect us to wrap up the majority of the Family First integration efforts by the end of Q4.

I believe the Family First acquisition is a great example of how Aveanna will continue to grow inorganically and delever our balance sheet at the same time. I look forward to more Family First type acquisitions in 2027. Additionally, let me comment on our strategic plan and enhanced outlook for 2026.

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

Based on the strength of our third quarter results and the continued execution of our key strategic initiatives, we are increasing our full year revenue and adjusted EBITDA guidance to revenue greater than $2.695 billion and adjusted EBITDA greater than $374 million. As I reflect on the continued strength of our '26 results and the improved visibility with state and federal reimbursement rates, we recently reconfirmed our long-term core organic growth rates in all 3 of our operating segments. As we communicated in Q2, we adjusted our long-term privacy services organic growth rate from 3% to 5% to 5% to 6%, primarily driven by the improved state government affairs and continued preferred payer execution.

Also, we updated our long-term Home Health and Hospice organic growth rates from 5% to 7% to 8% to 10%, primarily driven by the improved federal government affairs and preferred payer results. And we reconfirmed our Medical Solutions growth rate of 8% to 10%. With the durability of our organic growth rates and thoughtful M&A, we continue to believe Aveanna is well poised to achieve double-digit revenue growth on an annual basis. Aveanna has a strong value proposition to our federal and state government partners as well as our MCO preferred payers, and these important relationships are underpinning our enhanced view on our future organic growth rates in our core business segments.

We look forward to updating you on our continued execution of our business plans as we navigate the back half of 2026. With that said, let me turn the call over to Matt to provide further details on the quarter and our improved capital structure. Matt?

Matt Buckhalter: Thank you, Jeff, and good morning. I will first discuss our third quarter financial results and liquidity before providing additional details on our refreshed outlook for 2026. Starting with the top line, we saw revenues rise 11.8% over the prior year period to $695.5 million. We achieved year-over-year revenue growth in all 3 of our operating divisions, led by our Home Health and Hospice, Private Duty Services and Medical Solutions divisions, which grew by 15.6%, 11.6% and 9.1% compared to the prior year period. Consolidated gross margin was $226.8 million or 32.6%. Consolidated adjusted EBITDA was $100.1 million, a 25% increase as compared to the prior year period.

These results reflect strong execution across all 3 business segments and our continued focus on advancing our strategic initiatives that position us for long-term growth. Now taking a deeper look into each of our segments. Starting with Private Duty Services. Revenue for the quarter was approximately $574 million, an 11.6% increase and was driven by approximately 13 million hours of care, a volume increase of 10.2% over the prior year. Q3 revenue per hour of $44.09 was up 1.4% compared to the prior year quarter, driven by growth in our preferred payer volume. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rate.

Turning to our cost of labor and gross margin metrics. We achieved $166 million of gross margin or 28.9%. The cost of revenue rate of $31.34 in Q3 was up $0.45 or 1.6% from the prior year period. Our Q3 spread per hour was $12.75, reflecting continued normalization driven in part by ongoing caregiver wage adjustments supporting higher volumes and improving clinical outcomes. Moving on to our Home Health and Hospice segment. Revenue for the quarter was approximately $72.1 million, a 15.6% increase over the prior year. Revenue was driven by 11,600 total admissions, up 19.6%, with approximately 80% being episodic and 16,000 total episodes of care, up 24% from the prior year quarter.

Medicare revenue per episode was $3,199 for the quarter. Our episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 75%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings. We're pleased with our Q3 gross margin of 53.3%, reflecting the team's continued focus on strong operational execution and delivering consistent results. Our Home Health and Hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now to our Medical Solutions segment results for Q3. During the quarter, we produced revenue of $49.2 million, up 9.1% over the prior year period.

Revenue was driven by approximately 98,000 unique patients served and revenue per UPS of approximately $502, up 1.4% over the prior year period. Gross margin was approximately $22.3 million or 45.2% for the quarter. We're excited to see continued growth in both revenue and UPS as we begin to realize the full benefits of our modernization efforts. In summary, we remain focused on keeping our patients care at the center of everything we do. It is clear that aligning caregiver capacity with preferred payers who value our partnership is the right path forward at Aveanna. With a strong momentum from Q3, we are optimistic these trends will continue throughout 2026.

We will pass through wage improvements and other benefits to our caregivers and the ongoing effort to better improve volumes. Now turning to our balance sheet and liquidity. At the end of the third quarter, we had liquidity of $492 million, representing cash on hand of $198 million, $69 million of availability under our securitization facility and $226 million of availability on our revolver, which was undrawn as of the end of the quarter. We had $24.4 million in outstanding letters of credit at the end of Q3. On the debt service front, we had approximately $1.52 billion of variable rate debt at the end of Q3.

Of this amount, $1.4 billion is hedged with interest rate caps, which limits exposure to increases in SOFR. Accordingly, substantially all of our variable rate debt is hedged. Shortly after quarter end, we executed an additional interest rate cap agreement with a notional amount of $880 million that will become effective upon the expiration of our existing caps in February 2027. This new cap has a strike rate of 5.25% and extends through December 2029, aligning with our existing $520 million cap that expires at the same time. Again, effectively all of our variable rate debt is hedged through December 2029. Looking at year-to-date cash flow.

Cash generated by operating activities was $157.5 million and free cash flow was positive $141.2 million. We are encouraged by our strong cash collections and cost efficiency efforts, which has driven solid operating and free cash flow in 2026. We expect to generate additional operating and free cash flow throughout the remainder of the year. Before I hand the call over to the operator for Q&A, let me take a moment to address our enhanced outlook for 2026. As Jeff mentioned, we expect full year 2026 revenue to be greater than $2.695 billion and adjusted EBITDA greater than $374 million.

This improved guidance reflects continued strength in our underlying business, supported by strong organic growth and sustained demand for our services. As we reflect on Q3 results, I'd like to take a moment to express my sincere gratitude to our Aveanna teammates. These strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the continued execution of our 2026 strategic plan and look forward to providing you with further updates at the end of Q4. With that, let me turn the call over to the operator.

Operator: [Operator Instructions] And our first question will come from Brian Tanquilut with Jefferies.

Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. Congrats on another good quarter. I know it's a little bit early and you guys reconfirmed your updated LRP. But any additional color you can provide on 2027, maybe how you're thinking about preferred payer agreements, state rate increases or California benefit?

Jeffrey Shaner: Meghan, yes, I think to our comments that we had in our prepared comments, we feel very confident in how we're ending 2026. Just another solid year, continued to beat and raise mentality, ending the year strong. Really pleased with the Family First integration. That has been a great integration. It's helped continue to fuel our preferred payer strategy in some of the core states like Florida, just like Thrive did. So I think finishing off strong in our segments, we are very proud of how all 3 business segments met. Matt mentioned the revenue growth rates of all 3. I'm going to give a shot to our Med Solutions business.

That business has just come out of its modernization and is just hitting the sweet spot right now in that kind of 7.5%, 8% growth rate. So really doing a nice job in all 3 businesses. So finishing strong. Obviously, we've kind of moved out of '26 into our '27 legislative agenda. I know we talked a lot about California here this morning, but really focused on just having another great year and our preferred payer execution. Matt, do you want to add any comments?

Matt Buckhalter: Yes. We're still working through the 2027 budget and strategic priorities, Meghan. So it's a little early for us to necessarily get into the specifics. But what I can tell you is we feel really great about the momentum we're carrying into next year, obviously, coming off a really strong quarter here in Q3, and we'll continue that momentum into Q4. But overall, our strategies that got us here like our preferred payer strategy, our government affair strategies and of course, just focusing on great clinical outcomes, those aren't going to change, and we really don't plan on slowing down.

So we're excited about the opportunities ahead, excited about carrying this momentum into 2027, but we'll update you on 2027 after Q4 results come out.

Meghan Holtz: Okay. And then a quick follow-up. I know you guys were going to start hiring for California ahead of getting the rate increase. I guess, can you give us any color on how that hiring process is going? And then just how we should be thinking about margins in Q4 because of that?

Jeffrey Shaner: Yes, I think it's important, Meghan, as we've spent the last 2 months working with California legislature, Governor Newsom's office and the department, in our prepared remarks, we talked about the department is viewing this rate investment as a supplemental payment. And by supplemental payment, they think of it as an add-on to the base fee-for-service reimbursement rates. They agree that it belongs in the second half of 2027, the fiscal year 2027 for California, which is January 1 through June 30. But at the moment, they're viewing it as a supplemental payment. We disagree with this philosophy.

We feel like the legislative intent and Governor Newsom's intent through -- which is SB Bill 111, which is what funded this in the '27 budget was, in our minds, was crystal clear that these rates intended to be long -- to address long-standing and long-term workforce shortages. But we're working with the legislature as we speak, both Governor Newsom, we're also working now with Governor-elect Becerra just to ensure that the department puts this through in the appropriate way that includes it in the 2028 budget and ongoing as a permanent rate. Matt, with that in mind, do you want to talk about how we're thinking about the wage pass-through?

Matt Buckhalter: Yes, Meghan, no impact to 2026 in Q3 or Q4. Overall, with the nurse wages in California, we've communicated clearly with DHCS, Governor Newsom and the legislator that we're just unable to invest meaningful dollars in base wage rates until we have certainty around the PDN rate investment. We still expect that full impact of the supplemental payment to be recognized in the first half of 2026. And we're working on retention and engagement payments for our California nurses. This is temporary, however, and this will temporarily help the current workforce, but it's not a -- it's not addressing the long-standing workforce shortages.

In the meantime, obviously, we're just going to continue to advocate and fight for our patients and our caregivers until we have more certainty around that reimbursement, which gives us more certainty around the wage rate as well.

Operator: And our next question will come from Ben Hendrix with RBC Capital Markets.

Benjamin Hendrix: Great. Just wanted to get a little color on the updated long-range plan for private duty. When we think about the state budgets and the government affairs processes, would you consider this mid-single-digit rate and aid state enhancements that we've seen year-to-date is kind of outperformance to your typical what's baked into your LRP? And what do we really need on a state-by-state or on a year-by-year basis from the states overall to achieve that range?

Jeffrey Shaner: Ben, I think 2026 in our mind, both on the government affairs side and on the preferred payer side is right down the middle of the fairway for us. So not overly aggressive and not certainly conservative, kind of right where we need to be. That high mid-single digits for us is the perfect place to be in our 38 states. It's a perfect place to be. We felt like 10 was probably a little bit of a stretch this year, and it played out to be 8. So I think right in our wheelhouse. If it was 6 to 8 next year, Ben, I think we would be pleased and tied to our LRPs.

And if I flip over to the preferred payer execution, we talked on this call, we achieved 38 preferred payers at the end of Q3. That was our goal for the year. We're going to sign a few more here in Q4, are already in progress. So we think that number kind of easily gets to 40. So it will be a great year for PDS preferred payers. The payers continue to want more from us both on the Medicaid side of the business, but also on the Medicare side of the business. So I think 2026 set up incredibly well.

We think 2027 will be very similar as we focus both on the GA execution as well as the preferred payer execution.

Benjamin Hendrix: And then just to follow up on an earlier point, is there kind of a deadline date we need to be on lookout for, for interpretation of the SB 111 in California?

Jeffrey Shaner: No. I think as it sits today, the department is still working. We expected to have a fee-for-service schedule department about a month ago. They have struggled to work through this. It's taken longer than normal. They've held, I guess, now probably 4 or 5 different phone calls with the provider community and the California Home Care Association. We've been on all of those. We understand their stance today, Ben. And their stance really is instead of changing the fee-for-service schedule by the approximate 40% increase, they're intending to add a supplemental hourly payment on top of the current rate. We understand how they get there. We just vehemently disagree with their position as the department.

We actually just had our legislative partners, our California legislative partners write a letter to them. It was dated November 3. I believe it's public at this point. Certainly, we can post it and share it. But it really goes into the intent of SB Bill 111 and what the intent of those legislators who drove it and passed it as well as Governor Newsom was. And the letter reads very well that it was meant to address the longstanding workforce shortages and it was intended to address wage rate over a long period of time.

Matt said it, and we've been crystal clear with the department and not just us, but our peers as well, we cannot pass through base wage rate improvements to nurses in California until we know the wage rate is permanent in theory, forever. In the '28 budget -- and the department understands that. We met with Governor Newsom again. He understands that, our legislative partners understand that. So we're all in an understanding that we're going to receive the supplemental payment in the first half of 2027, which is great. And that is wonderful. As Matt said in his remarks, it just doesn't address the real issue, which is meaningful wage pass-through.

So we're set to meet with Governor-elect Becerra here in a few weeks. He is -- he and his team are in charge of the '28 budget. So it really moves from Governor Newsom to Governor Becerra at this point. I'm very optimistic that Governor Becerra is his -- one of the leading thesis for California is workforce enhancement and enhancing the worker in California. This is a perfect landing place. We just need both the governor and the legislature to help direct the department that this was not a supplemental 6-month investment. This is an ongoing basis to the California Medi-Cal budget from '27 forward. So the rate is going to come through on January 1.

There's no drama about that. But we've been clear, we cannot pass through meaningful wage, base rate wage changes until such point that it is permanent not only '27, but '28 as well.

Operator: We'll go next to Raj Kumar with Stephens.

Raj Kumar: Maybe just kind of speaking more broadly on the kind of government affairs and kind of the outcomes of the midterm election. I guess kind of any kind of level setting there in terms of any particular states that you think you guys stand to benefit or the provider community stands to benefit from a sea change. And kind of speaking maybe towards broadly, what are kind of some of the early conversations that you're seeing around that for 2027?

Jeffrey Shaner: Generally, we would say over a period of decades that the Democrats have been maybe deeper investors in the Medicaid system. I think that is generally widely known throughout America. I will say many of our PDN rate wins in the states have been with Republican states, Republican governors and Republican legislators. So we've had great success on both sides of the of the aisle. We often point out Georgia, and we often point out Massachusetts and Oklahoma and Pennsylvania. So those are the blue states, red states, we've been very successful in. But generally, the shift to Democrats is normally known as a good thing for Medicaid globally.

I think we were clear the last couple of quarters, the One Big Beautiful Bill, the OBBBA bill really did not directly impact PDN patient positively or negatively. So we don't see a change from that. We don't see this new legislative agenda to unravel the OBBBA bill. And we can be wrong on that, but we just don't see a material change from what the OBBBA bill was intended to do in '27, '28. So with that, Raj, we generally think that it's going to be a steady state, continue to lean in. A couple of our states, big states did flip. Obviously, Georgia was a big change. We'll point out Texas.

Texas has maxed the rainy day fund for the last, I think, 8 years, so last 4 legislative cycles and hasn't had meaningful investment in the Medicaid program over the last 3 or 4 legislative cycles. Now we're paid by the MCOs in Texas, but getting investment -- getting further investment in Texas would be good for the MCOs and will ultimately be good for us as Texas goes into its 2027 legislative cycle. So generally positive, but I don't think anything that we would point out that says drastic change positively or negatively on last Tuesday's outcome.

Raj Kumar: Got it. And then as my follow-up, just kind of on the Medical Solutions business and the preferred payer arrangements there. Are you guys kind of seeing any explicit cross-selling opportunities as part of those arrangements, given that you have a plethora of them across Home Health and Private Duty. So I guess kind of curious on that? Or is that something that's just kind of beyond the contract and will you kind of do that separate from any kind of payer preferences on also being the provider of choice for the same patient?

Matt Buckhalter: Raj, what I would tell you with the preferred payer contract in Medical Solutions, similar to our other 2 divisions, the demand for services still outweighs the supply that we're able to provide them. And in this case, it's dental nutrition and the demand for the services in there. At any given time, we have thousands of referrals that are needing to be used and to be pulled through the pipeline. And so what we're focused on are providing care to those who at the end the day value us and value our services the most. And that can be through reimbursement rate, that can be through our collection cycle, that can be through our authorization process as well.

And so working with the specific payers to make sure that there aren't hiccups in the process of providing these services is what makes somebody a preferred payer. So we're able to add 2 within the quarter, get ourselves up to 22. That's a big step up from where we started 2 years ago at 0. And so we've done a really, really nice job of pulling those preferred payers through. We expect to expand upon that over the next couple of quarters as well. And as you can see, with 9.1% revenue growth this quarter, I think it was 9.4% revenue growth last quarter.

They are now through their modernization efforts, and those relationships are also working very well for that division.

Operator: Moving on to Sean Dodge with BMO Capital Markets.

Sean Dodge: Yes. Maybe in Home Health, you called out your growth in admissions, both episodic and total, accelerated a lot in the quarter. Just any more detail you can share on how you're driving that? I don't think there was anything in there from Family First that I'm aware of. So was that all, I guess, organic?

Jeffrey Shaner: It was, Sean. This is not new. I mean the intensity of this team has been building over the last, I'll call it, 6 quarters. They've honed their model, and they just continue to excel at a high level. If you walk around the halls in our corporate office here, we're high fiving this team daily, if you will. Lot of energy, lot of passion. And they're just executing the business plan that their leaders sent forth a couple of years ago and doing so at a high level. When sales, ops and clinical all work together, a beautiful thing happens.

And I think what you're seeing in our Home Health and our Hospice business is great clinical outcomes, great cash collections, I'll add that as well, solid margins, solid margin profile and unbelievable growth. Do I think we can keep 20% to 25% organic growth going forever? No, I don't think that's sustainable forever. But every quarter, these guys and gals continue to defy logic and how fast they're growing. And the fact now, Sean, we've kind of settled in around that 80% episodic mix.

So we're now in kind of quarter 5, 6 and 7 of episodic mix being in the high 70s, low 80s and -- the team has just done a really good job of executing that business plan. Matt, you want to add with?

Matt Buckhalter: Yes, I couldn't be more proud. Echo Jeff's statements here of what that team has been able to accomplish, 19.6% admission growth, 24% episodic admission growth, 24% total episode growth. Q3 historically has been a little bit of a softer quarter for us because of our geographical density and where we are at in the Southeast, specifically Florida and some of the snowbirds kind of going back up north. The team has actually turned that into a positive and turned that into a growth quarter for us as well. And so going from being one of our softest to one of our strongest is really impressive what they've been able to achieve.

Q4, I wouldn't expect to continue to see 24% to 25% growth. But still, our LRPs are up in the high single digits, double digits, and that team is overachieving those. They probably will for the next few quarters as well.

Jeffrey Shaner: Yeah, for sure came close to winning our Halloween contest. So we'll see next year if they can come in first in the Halloween contest. So kudos to them.

Sean Dodge: That's great. And then maybe just on the revised guidance. If we take, I guess, the low end for both revenue and EBITDA, the $2.695 billion and the $374 million, that imply Q4 would be down sequentially. Just any context, Matt, you can kind of share there? Is there anything seasonality-wise, onetime in Q3 that would point to why that would be the case?

Matt Buckhalter: We had a really great quarter in Q3, Sean. So I just want to highlight that one. Yes, there's a little bit of collection dollars that come in there, but we've been really successful collecting some of the AR over the past, I'll say, 1.5 years as well. We are excited about the continued EBITDA growth across the organization, $100 million in Q3. That was monumental for us and a real big milestone. That's all due to the dedication between the teams of all 3 of our operating divisions. If you look at our growth rates across all 3, very impressive what they've been able to achieve.

I do want to remind one little quick thing in there, Sean, about Q4 of last year. In Q4 2025, we did have an additional week due to the timing of that fiscal calendar and how it landed. So just take that in consideration where that would have gone a little bit flat or even a slight step down sequentially. That's probably what we're expecting in Q4 this one. Yes, there's a couple of dollars here and there, but nothing monumental to point out in Q3.

Sean Dodge: Congrats on the quarter.

Operator: Our next question will come from Pito Chickering with Deutsche Bank.

Pito Chickering: I just want to actually follow up on that one. The 3Q revenue to 4Q revenue sequential decline, you talked about AR days maybe being in 3Q. So I get the year-over-year impact in 4Q with lower days, but just sequentially, I guess, what revenues in 3Q are sort of one-timers we should not consider going into the fourth quarter?

Jeffrey Shaner: It was great to hear from you. And I think, Pito, the holidays, every Q4, we deal with the same thing, which is 3 big, big holiday weeks, Thanksgiving, Christmas and New Year's. Matt talked about last year, we had the 14th week in Q4. Obviously, we don't have that this year. But I think as you think of kind of the run rate going into the holidays continues to be strong, robust, similar trends we saw in Q2 and Q3 -- and then we're going to deal with what we always deal with, which is just 3 choppy -- 3, 3.5 weeks of choppiness through the end of the year.

We'll have our normal year-end true-ups as we think about our reserves and some of our accruals. But I think as Sean laid out and you laid out, certainly mid-90s is where we're targeting for EBITDA and could it be high 90s, approaching 100? Sure. But mid-90s is where we really have anchored to as a team, and we think it's prudent to guide in that manner.

Pito Chickering: And then the follow-up here is on the Home Health. What percent of your contracts today are under episodic reimbursement? And if you look at those that are under episodic, what percent of the patients that those payers are doing are episodic versus fee-for-service? I'm trying to understand sort of the penetration overall of episodic and sort of how much longer we can go there.

Jeffrey Shaner: And so we have 52 episodic agreements in total, 51 of them are Medicare Advantage. One of them is Medicare, right? So at the end of the day, 51 of our 52 contracts are with Medicare Advantage payers. But -- and by the way, we are feeling a similar thing that our industry is, which is the general movement from Medicare to Medicare Advantage. So we feel that within our patient population -- but I think I would just say -- I don't want to use the word easier because nothing is easy in this business, but more payers are more comfortable with episodic agreements in 2026 than they were in '25 and '24 and '23.

I'm not suggesting we are the ones who have changed that, but more of the industry is now advocating for episodic agreements. And it just has gotten smoother for us to operate in that with that group. It's every payer that you know, it's every national payer in America, right? So these are all the known payers that we all deal with from the Medicare Advantage standpoint. We've just gotten more comfortable with them and finding the niches where they need us in specific states operating under an episodic agreement.

So again, if our episodic mix, if the mix of our business went from 80% to 78%, we would be fine with that as long as the growth rate stayed in high single digits, low double digits. But we've been doing this now 6, 7, 8 quarters, it has settled in. It's not going back to 65% or 60% episodic. We've kind of settled in that high, high 70s, low 80s. I just think that, that's -- at this point, that's most likely where that business mix is going to stay. And our payers honestly have gotten more comfortable with it, Pito. They're not fighting us the way they were maybe 2 years ago on using episodic reimbursement.

Operator: We'll go next to Benjamin Rossi with JPMorgan.

Benjamin Rossi: So by the sound of it, you remain eager to deploy capital in Home Health, and you've mentioned that multiples have started to pick up a bit. I know that the better Home Health rates give you a 1-year reprieve, but what gives you confidence that you've passed the trough in Home Health operational sentiment? And then for your long-term guidance of 9% growth at the midpoint in Home Health, can you remind us of the relative contribution to growth from volumes and rates?

Matt Buckhalter: So Ben, first off, let's go back to the Home Health itself and how the team has been able to perform. The last 5 years, 6 years, it's been a downward cycle in the reimbursement environment. At the same time, we've been able to grow this business very significantly, 24% this quarter, 15% last quarter. I think we're at just shy of 16% year-to-date when you look at the numbers itself. And that's with a little bit of a headwind with there being practices around the final rule. Really excited that the final rule came out positive. There's no drama around it, positive net 2.4%. This will be great for the industry, but also our teams itself.

We want to continue to grow this business, and we want to become more relevant and more dense to our payers as well. Right now, we're a regional provider in the Midwest and in the Southeast. But being able to connect those businesses itself and give our team that's operating at a very high level, more responsibility and take it from a $300 million business higher is what our plans and attention are. We have a really robust M&A pipeline right now. We're going to remain focused on finding that right acquisition that obviously fits our organization culturally. It creates a lot of value for Aveanna and of course, our shareholders in that process.

But overall, we're just long-term believers in Home Health industry. 5-year down cycle, 5-year up cycle, it doesn't matter to us. We're going to operate in the lowest cost care setting, the patient's home, providing great care, saving the health care system dollars and also growing it pretty significantly, too.

Benjamin Rossi: And then thinking about PDS M&A, you've mentioned that some markets can have, call it, stale rates when there are long delays between Medicaid rate updates. Are there any states that you'd call out where a rate update could open up some markets that might otherwise not be on your radar in PDS?

Jeffrey Shaner: I think I may answer it a little differently than you asked it, Ben. Certainly, putting California to bed long term continues to be our #1 goal. We have a high level of confidence on that. I think I go back to the 6 states that we're not materially in that we want to be in. We talked about Michigan, Ohio, West Virginia, Kentucky, Tennessee. Those are the states we would like to invest in. They have different reimbursement rates for different states, have different investments, but they're all good Medicaid states with large or significant population of PDN patients, both pediatric and adult.

If you look back at our book, 32 or 32 states we've moved the rate materially or have annual rate movements that can keep us competitive. So in our 32 PDS states today, we're -- it's not perfect of where we need to be. I'd say it's those 6 states we want to fill in over the next 3 years. And again, they're going to be smaller acquisitions. This is -- you said it well. We are shifting our capital towards Home Health and some Hospice and PDS will be more tuck-in related as we just start to pick off those 6 states that we want to be in. We've been pretty clear in the last 3 or 4 quarters.

We're just going to kind of 1 or 2 of those states per year and find ways to get in those states. And then our PDS growth will continue to expand as we open up those additional states. And then that's around 40 PDN states is kind of our goal. Our goal is to kind of be in about 40 of the 50 states on the PDN side.

Operator: We'll hear next from Jared Haase with William Blair.

Jared Haase: Maybe on the PDN preferred payers, just wanted to ask one sort of in terms of the model mechanics, I guess. How much -- can you talk through what the sort of typical growth curve looks like when you sign a new preferred payer agreement? So in other words, when we think about the volume opportunity in 2027, how much of that growth would come from the new preferred payers that you signed in 2026 ramping towards, call it, your target fill rate opportunity versus maybe some of the new agreements that you hope to sign next year?

Matt Buckhalter: Great question, Jared. And any time we sign a brand-new preferred payer agreement, we do see kind of like a whiplash effect that happens there because there's the dam releasing of patients that are stuck in the children's hospital or stuck in a high acute care setting itself. And so whenever we do that, we're able to pull a lot of those referrals and get a lot of starter cares and hire a lot of caregivers to be able to provide that care at the same time. After that, it comes into a more normalization factor itself. And we -- our LRPs for this division are 5% to 6%. We're obviously overachieving that very significantly right now.

And that's because we've been able to sign quite a few preferred pay agreements and a lot of the government fair contracts that we've been able to be successful at as well. They operate in the same manner. The moment you have a significant reimbursement rate increase, you see that whiplash effect. You pull a lot of those through there. But we're seeing that heightened growth continue post because we're able to hire, retain and pay our caregivers an appropriate wage, but that's reducing our turnover and allowing us to provide more care at the same time. So that gives us confidence to take it from that 3% to 5% to that 5% to 6% long term.

And we expect to see that in the future right now. We just happen to be outperforming it pretty significantly at this time.

Jared Haase: Okay. And then you obviously talk about sort of the connection between the focus that you guys have on getting better rates, being able to invest in the workforce and that driving what is still a tough environment, but incrementally better hiring and retention. I guess, are there any operating KPIs around hiring, retention, onboarding, anything like that, that you would sort of point us to that you think would be relevant to support that? I mean, I guess that ultimately, volume growth is kind of the output of that. So perhaps that's the most important thing you want us to focus on.

But just curious if there's any incremental operating metrics you'd sort of point to, to help frame how you're performing in this environment?

Jeffrey Shaner: It's -- you got the same right answer. At the end of the day, the only way we grow volume is ultimately through additional caregivers, additional nurses working. We get seasonally a little bit of growth out of like more hours per week around the holidays, but it's -- that's like 5 -- 4, 5 weeks a year where nurses want to work a little bit more right before the holiday to earn more money. We do pay per week, and we have daily pay, so people can get paid quickly. But ultimately, underpinning our volume growth, which is kind of in that 3.5% to 4% our LRP, 3.5% to 4.5% is more -- just more workforce.

It's also why California is so important, right? Because what we're trying to do here is materially change the wage rate in that state in the home-based nursing. And that was the intent of the legislature and the governor is to really move these wages. The only way to fix the hiring trends and the growth trends in California is to fix the wage rate long term. And so again, that's why we spent so much time focused on that because growing in each state is really tied to reimbursement rate and wage. But you got it, volume growth is absolutely underpinned by more caregivers working more hours and taking home more patients.

Operator: And our next question will come from Andrew Cooper with Raymond James.

Andrew Cooper: A lot covered already. So maybe just one thinking about the fourth quarter in California a little bit. I mean, I know this time last quarter, you talked about flowing some wage increase through ahead of time. It sounds like that's not necessarily happening now. So just curious how much does not doing that impact the way you look at 4Q and how we think about the guidance increase?

Matt Buckhalter: Yes, Andrew, like we said, we're just not going to get ahead of it right now until we have clarity along to the long-term expectations of that -- of that temporary adjustment or that supplemental add-on becoming permanent for us. So we're just not going to get ahead of it. We will be prepared on one-on-one to put something in place about retention and engagement payments to our caregivers, whether it be an onboarding, whether it be a new hire or a volume piece. We're still working through the details itself to actually get those dollars into the caregivers' hands because that's our ultimate goal at the end of the day here.

We just can't move that base wage rate if we don't have clarity to it starting on 7/1 of 2027. With California itself, we have mentioned that it has become a lot less relevant to Aveanna over the last 5 years as our other 38 states have grown pretty significantly and they continue to grow. So it is very important to our patients and families to move this and get this permanent, but this is more just a temporary delay is what we're viewing it as, and it doesn't impact pretty much our 2027 or LRPs in our eyes.

Andrew Cooper: Okay. And then maybe just quickly a little bit more on the M&A landscape and sort of the activity levels you're seeing out there? And has there been any change in some of the valuations that you're seeing? We hear from some others that maybe Home Health and Hospice have normalized a little bit at the same time. We hear from some others that they're also increasingly focused in those areas. So just would love kind of your current lay of the land and how it evolved.

Jeffrey Shaner: Great question, Andrew. I don't think we're trying to game low multiples versus medium multiples with high multiples. Matt said earlier to one of the questions like Ben asked about confidence in Home Health and Hospice. We just have a tremendous confidence in both our team and the industry itself, partly because we've been doing it for 25-plus years, and we've seen the cycles up and the cycles down. We do believe the cycle has turned after 6 years of downward rate in Home Health. We believe that cycle has now turned and will be positive for a few years in the future.

But -- even if it wasn't, we're still long-term believers in that business because we can grow it in double digits. So the multiples will be what they'll be is private equity coming back into Home Health? Sure, absolutely. But we have synergies. We have both back-office synergies. We've proven that with Family First and with Thrive. We have operating synergies of how we operate the business. So for us, it's thoughtful geographic expansion. It's not jumping to Hawaii, it's not jumping left. It's being very thoughtful. We're in 16 states today. We want to densify the states we're in, and we want to build out the Southeast, Southwest and ultimately Mid-America.

Those are the areas that we want to densify, and we will do that. We will -- there are assets coming to market in '26 and '27 that we think are meaningful for Aveanna. I will say caveat to that is we've done an amazing job of deleveraging the company and driving free cash flow. We will continue to be thoughtful on how we do M&A like Family First and continue to delever -- excuse me. We've made it crystal clear. Our goal is to be sub 3x leverage in '27, and we still want to obtain that goal as we do M&A.

Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Jeff Shaner for closing comments.

Jeffrey Shaner: Thank you so much for your time and attention today and your interest in Aveanna. We look forward to catching up with you after the end of the year and as we report our Q4 results and 2027 guidance. Thank you.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

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