AVAH - NASDAQ

Good morning, and welcome to Aveanna Healthcare Holdings Inc. First Quarter 2025 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Debbie Stewart, Aveanna's Chief Accounting Officer. Thank you. You may begin. Good morning. And to Aveanna's first quarter 2025 earnings call. I am Debbie Stewart, the company's Chief Accounting Officer. With me today is Jeff Shaner, our Chief Executive Officer, and Matt Buckhalter, our Chief Financial Officer. During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website aveanna.com, and in our most recent quarterly report on Form 10-Q when filed. With that, I will turn the call over to Aveanna's Chief Executive Officer, Jeff Shaner. Jeff? Thank you, Debbie.

Good morning, and thank you for joining us today. We appreciate each of you investing your time this morning to better understand our Q1 2025 results and how we are moving Aveanna forward in 2025. My initial comments will briefly highlight our first quarter results, along with the steps we are taking to address the labor markets and our ongoing efforts with government and preferred payers to create additional capacity. I will then provide insight on how we are thinking about year three of our strategic plan and our improved outlook for 2025. Lastly, I will provide some insight into the recently announced ThriveSkilled Pediatrics acquisition and how we're thinking about the combined company prior to turning the call over to Matt to provide further details into the quarter. Moving to our highlights for the first quarter. Revenue for the first quarter was approximately $559 million, representing a 14% increase over the prior year period. First quarter adjusted EBITDA was $67.4 million, representing a 93.1% increase over the prior year period primarily due to the improved pay rate environment and continued cost savings initiatives. We continue to execute our strategic transformation strategy focusing on obtaining adequate rates from our payer and government partners for the services we provide, which is clearly evidenced in our first quarter results. Our first quarter performance benefited from some timing-related revenue items that favorably impacted our PDS division. Matt will provide further details on this in his prepared remarks. As we have previously discussed, the labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believed our company could achieve. It is important to note that our industry does not have a demand problem. The demand for home and community-based care continues to be strong, with both state and federal governments and managed care organizations asking for solutions that create more capacity while reducing the total cost of care. Our Q1 results highlight that we continue to align our efforts with those of our preferred payers and government partners. By focusing our clinical capacity on our preferred payers, we achieved significant year-over-year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging environment, our preferred payer strategy supports our ability to achieve normalized growth rates in all three of our business segments. Since our fourth quarter earnings call, I am pleased with the continued progress we have made on several of our rate improvement initiatives with both government and payer partners, as well as continued signs of improvement in the caregiver labor market. Specifically, as it relates to our private duty services business, our government affairs strategy for 2025 is twofold. First, we plan to execute on our legislative strategy to improve reimbursement rates in at least 10 states. And second, we're advocating for Medicaid rate integrity on behalf of children with complex medical conditions. We have a strong advocacy presence with both federal and state legislatures, as well as solid support from our governors across our national footprint. Legislatures have recognized how meaningful private duty nursing is to the overall cost savings and improved outcomes of our nation's most vulnerable children. We achieved five rate enhancements for our PDS segment in Q1 and are well on our way to reach our legislative goals for 2025. I am proud of our government affairs and our advocacy teams for their commitment to protecting children with complex medical conditions. Now moving on to our preferred payer initiatives. Our goal for 2025 is to increase the number of PDS preferred pay agreements from 22 to 30. We added two additional preferred pay agreements in Q1 and are currently positioned at 24 agreements in total. Managed care organizations continue to ask us for solutions for their patients to receive nursing care in the home. Aveanna's preferred payer strategy is gaining momentum and allowing us to invest in caregiver wages and recruitment efforts to accelerate hiring and staffing of nurses for our patients. Additionally, our Q1 preferred pay agreements now account for approximately 54% of our total PDS MCO volumes, up from 50% in Q4. This continued positive momentum in preferred payer volumes highlights the shift in our caregiver capacity and recruitment efforts towards our PDS preferred payer partners. Moving to our preferred payer progress in home health. Our goal for 2025 is to maintain our episodic mix above 70% while returning to a more normalized growth rate. In Q1, our episodic mix was 77% and our total episodic volume growth was essentially flat with the prior year period. We added three episodic agreements in the quarter and currently sit at 45 preferred pay agreements in total. Our focus on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis has led to solid improvement in our clinical and financial outcomes. Finally, as we have achieved our desired preferred payer model in private duty services and home health and hospice, we have now embarked on a similar strategy in our medical solutions business. We're still in the early stages of implementing our preferred payer strategy in medical solutions, but believe it will be fully realized by the end of the year. To date, we have 17 preferred payers in medical solutions, and we expect that number to grow as we achieve our desired preferred payer model. Our gross margins are stabilizing in the 42% to 44% range, as we are aligning our clinical capacity with those payers that value our services and pay us in a timely fashion. While our volume growth will be muted this year, we expect our clinical outcomes, customer satisfaction, and financial outcomes to improve as we achieve our target operating model. I look forward to updating you on our medical solutions progress over the coming quarters. We are encouraged by our rate increases, preferred pay agreements, and subsequent recruiting results. Our business has demonstrated solid signs of recovery as we achieve our rate goals previously discussed. Home and community-based care will continue to grow, and Aveanna is a comprehensive platform with a diverse payer base, providing a cost-effective, high-quality alternative to higher-cost care settings. And most importantly, we provide this care in the most desirable setting: the comfort of the patient's home. Before I turn the call over to Matt, let me comment on our strategic plan and enhanced outlook for 2025. We will continue to focus our efforts on five primary strategic initiatives. First, enhancing partnerships with government partners and preferred payers to create additional capacity and growth. Second, identifying cost efficiencies and synergies that allow us to leverage our growth. Third, modernizing our medical solutions business to achieve our target operating model. Fourth, managing our capital structure and collecting our cash while producing positive free cash flow. And lastly, engaging our leaders and our employees in delivering our Aveanna mission. Based on the strength of our first quarter results and the continued execution of our key strategic initiatives, we now anticipate 2025 revenue to be greater than $2.15 billion and adjusted EBITDA to be greater than $207 million. We believe this enhanced 2025 outlook provides a prudent view considering the challenges we still face with the evolving macro environment. As it relates to our recently announced transaction to acquire ThriveSkilled Pediatrics, I am pleased to report that we are on target to close this transaction in the coming weeks. Our combined leadership teams are collaborating on integration plans, communications, and post-close strategies to optimize the care delivery for our patients and families. Thrive SPC will be a fantastic addition to our Aveanna family and further enhance our preferred payer and government affairs strategies. I look forward to updating you on our progress in the coming quarters. In closing, I am incredibly proud of our Aveanna team and their dedication to executing our strategic transformation while holding our mission at the core of everything we do. We offer a cost-effective, patient-preferred, and clinically sophisticated solution for our patients and families. Furthermore, we are the right solution for our payers, referral sources, and government partners. With that, let me turn the call over to Matt to provide further details on the quarter and our 2025 outlook. Matt? Thank you, Jeff, and good morning. I'll first talk about our first quarter financial results and liquidity before providing additional details on our improved outlook for 2025. Starting with the top line, we saw revenues rise 14% over the prior year period to $559 million. We achieved year-over-year revenue growth in all three of our operating divisions, led by our private duty services, home health and hospice, and medical solutions segments, which grew by 16.5%, 3.9%, and 3.6% compared to the prior year quarter. Consolidated gross margin was $183.6 million or 32.8%. Consolidated adjusted EBITDA was $67.4 million, a 93.1% increase as compared to the prior year, reflecting the improved payer rate environment as well as continued cost savings initiatives. As Jeff mentioned, Q1 benefited from some timing-related rate enhancements and revenue reserve improvements in our PDS segment, which had a positive EBITDA impact of approximately $11 million. Now taking a deeper look into each of our segments. Starting with private duty services, revenue for the quarter was approximately $460 million, a 16.5% increase, and was driven by approximately 10.9 million hours of care, a volume increase of 6.1% over the prior year. Q1 revenue per hour of $42.25 was up 10.4% as compared to the prior year quarter, primarily driven by preferred payer volume growth and rate enhancements previously discussed. We remain optimistic about our ability to attract caregivers and address market demands for our services when we obtain acceptable reimbursement rates. Turning to our cost of labor and gross margin metrics. We achieved $134.7 million of gross margin or 29.3%. The cost of revenue rate of $29.88 in Q1 was up $1.15 or 4.2% from the prior year period. Despite ongoing wage pressures and labor markets, our Q1 spread per hour was $12.37. We anticipate this metric will normalize over time as we continue to adjust caregiver wages to support our improved volumes and clinical outcomes. Moving on to our home health and hospice segment. Revenue for the quarter was approximately $56.7 million, a 3.9% increase over the prior year. Revenue was driven by 9,700 total admissions, with approximately 77% being episodic and 12,100 total episodes of care essentially flat from the prior year quarter. Medicare revenue per episode for the quarter was $3,152, up 2.7% from the prior year quarter. We continue to focus on rightsizing our approach to growth in the near term by focusing on preferred payers that reimburse us on an episodic basis. This episodic focus has accelerated our margin expansion and improved our clinical outcomes. With episodic admissions well over 70%, we have achieved our goal of rightsizing our margin profile and enhancing our clinical offerings. We're pleased with our Q1 gross margin of 54.2%, up 1.1% over the prior year period and representing our continued focus on cost initiatives to achieve our targeted margin profile. Our home health and hospice platform is dedicated to creating value through effective operational management and the delivery of exceptional patient care. Now to our medical solutions segment results for Q1. During the quarter, we produced revenue of $42.5 million, a 3.6% increase over the prior year. Revenue was driven by approximately 89,000 unique patients served, a 3.3% decrease over the prior year period, and revenue per UPS of approximately $477, up 6.9% over the prior year period. Gross margins were approximately $18.1 million or 42.7% for the quarter, up 1.9% over the prior year period. As Jeff mentioned, we continue to implement initiatives to be more effective and efficient in our operations to achieve our targeted operating model. We are accelerating our preferred payer strategy in medical solutions by aligning our capacity with those payers that value our resources and appropriately reimburse us for the services we provide. We expect gross margins to normalize in the 42% to 44% range, and UPS to continue around 89,000 per quarter before returning to a more normalized growth rate. We'll continue to update you on our progress as we continue to execute on this initiative. In summary, we continue to fight through a difficult labor environment while keeping our patients' care at the center of everything we do. It is clear to us shifting caregiver capacity to those preferred payers through value or partnership is the path forward at Aveanna. Our primary challenge continues to be reimbursement rates. With the positive momentum we experienced in 2024 in Q1, we remain optimistic that such trends will continue throughout 2025. As we continue to make progress with the rate environment, we will pass through wage improvements and other benefits to our caregivers and the ongoing efforts to better improve volumes. Now, moving on to our balance sheet and liquidity. At the end of the first quarter, we had liquidity of approximately $266 million, representing cash on hand of approximately $128 million of availability under our securitization facility, and approximately $138 million of availability on a revolver which was undrawn as of the end of the quarter. We had $32 million in outstanding letters of credit at the end of Q1. Our ample liquidity provides room to operate the business and invest in the company to support our continued growth. On the debt service front, we had approximately $1.47 billion of variable rate debt at the end of Q1. Of this amount, $520 million is hedged with fixed rate swaps, and $880 million is subject to an interest rate cap which limits further exposure to increases in SOFR above 3%. Accordingly, substantially all of our variable rate debt is hedged. Our interest rate swaps extend through June 2026, and our interest rate caps extend through February 2027. As a reminder, we have no material term loan maturities until July 2028. Looking at year-to-date cash flow, cash used by operating activities was $8.6 million and free cash flow was negative $12.9 million. As a reminder, the first quarter typically represents our seasonal low point for both operating and free cash flows, and we expect to see continued improvement over the course of the year. Before I hand the call over to the operator for Q&A, let me take a moment to address our improved outlook for 2025. As Jeff mentioned, we expect full-year revenue to be greater than $2.15 billion and adjusted EBITDA to be greater than $207 million. I'd like to highlight that our improved guidance currently does not include any impact from the anticipated Thrive SPC acquisition. As we reflect on our Q1 results, I would like to take a moment to express my sincere gratitude to our Aveanna teammates. Strong results would not have been possible without your hard work and dedication. Looking ahead, I'm excited for the execution of our 2025 strategic plan. I look forward to providing you with further updates at the end of Q2. With that, let me turn the call over to the operator.

We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow-up so that others may have an opportunity to do so as well. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Megan Holton with Jefferies. Please proceed with your question.

Good morning, guys. This is Megan on for Brian. Congrats on a really strong quarter. It's nice to see the work you guys are doing on rate finally coming through. I guess, can you just discuss where you are in those 10 states that you're targeting for the year and then the remaining six in the preferred payers and how to think about that long-term pipeline on the rate side?

Yeah. Megan, good morning. Thanks for your comments. As you suggested, we expected this year to be a little bit more muted on the government affairs rate front. You know, we were optimistic that we could reach 10 states, which, as you know, over the last three years would be a moderated year for us. Over the last couple of years. We are pleased that out of the gate, we've got five GA rate increases and already two preferred payer wins. So five plus two seven in total in Q1. So it's been a great start to the year. You know, we still are playing through the noise on a macro level. And, you know, I think we expect to achieve our 10 GA rate increases. But I think we're still expecting that to be a relatively muted year. And I think we'll learn a lot between now and August as the majority of our states finish their annual budget cycles and as the federal government works through their macro processes. As it relates to the preferred payer start, those two we talked about, the percentage of PDS MCO volumes up from 50% of our volumes at the end of the year to 54%. That was really driven by those two signings of those two additional preferred payers. They were meaningful in nature. So really nice job to our preferred payer team. They continue to have a very robust pipeline. And the thesis behind our preferred payer strategy continues to play out. Our preferred payers, especially on the PDS front, continue to just ask for more and more clinical capacity. So we expect that to be a robust year for us. On the preferred payer standpoint, and we think that will play through even the macro environment that's going on today. So, setting up to be a nice year for us. Still a little bit early, but we want to see how things play out through the summer, but setting up to be a really nice year for us.

Great. And then, Matt, I appreciate your comments on the cash flow and the seasonality to it in 1Q, but can you walk us through the thought on the operating cash flow for the second quarter and then how to think about the right EBITDA to cash flow conversion given the improvement in margins we've seen?

Yeah, Megan. We're really, really pleased with our progress in positioning Aveanna to be a free cash flow generating organization. Our Q1 cash outflow of $13 million was actually a lot better than we anticipated it being back years of having really nice Q1 cash flow numbers. As a reminder, to your point, Q1 includes a lot of our seasonality. And there's normal impacts that go through our business that get better over the course of the year. On a standalone basis, we continue to expect Aveanna to generate operating cash flow and be free cash flow in 2025. We will provide a little bit more updates as we integrate Thrive SPC into the organization and once we get our arms wrapped around there. We'll give you better clarity in August.

Thank you.

Thanks, Megan.

Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.

Hey, good morning, guys. Thanks for taking my questions. Nice job on the quarter. I guess going into sort of the quarter, I mean, just want to think about what is the continuing I guess, EBITDA kind of you think about the base coming from here, and kinda what what what timers in there, and any any details you can give us on those one timers?

Hey, Pito. Yeah. Thanks. And, you know, thanks for the question. Two primary areas here for those one timers that resulted in $11 million of EBITDA benefit in Q1. First and foremost, we had really, really strong cash collections, and it was great cash collections. Our OCM team working with our operations team, working with our payer relations team, we're able to pull forward some really old AR that was previously fully reserved, and so that was able to to the bottom line, come through revenue, drop to the bottom line. That was roughly about $6 million. Really proud of the team's efforts for maintaining that. Additionally, we benefited from a little bit of retro rate increase as well in there. Taking both of those factors into consideration, Q1 was probably closer to a normalized basis of $550 million revenue number and about a $55 million EBITDA number. Still phenomenal results. Really proud of the teams and what we were able to achieve. Jeff, any thoughts going forward?

Yeah. And, Pito, that's and first of great great I mean, Matt laid it out well. Our job when we receive these rate improvements is to pass those pass that through to the caregivers. When there is a retro rate increase or rate increases, it is a bolus then of revenue that we have to catch up to with the wage pass through. So I think to the nature of your question, we started passing through the incremental rate wages to our employees literally the first day of the of '25 for the for the retro rate increases. Some that went back to seven one of 24, others that were effective one one twenty five. So we're catching up to that rate even today in May. So so we're still passing wage through systematically to the specific payer to specific caregivers who work for those payers that gave us those retro rate increases. So I think as you think of Q2, it'll still be a slightly elevated spread per hour in PDS, rate per hour as wage catches up. Our best estimation today is it's probably late Q2 by the time we fully baked that that wage pass through through in probably Q3 before you see spread per hour drop back down to that normalized rate kind of sub probably sub $11 at that at that point. So you know, I think it'll it'll take us a few more months to catch up to that rate. It's a phenomenal outcome for us. Thank you to our payers who have leaned into us and our partners. But I think by by Q3, you'll see us back to that PDS normalized spread per hour that that you're used to seeing. That that is a perfect segue into, I guess, sort of the follow-up question here is, you know, we saw these sort of rates increases on PDS in fourth fourth quarter. We saw this again, obviously, pretty high in first quarter. You sort talked to us for that continuing until you convert that into into the wages. I guess, how do we think about hours from here? So as you're converting these increase of of of rate converting this into wages, we sort of see you know, we saw the hours quite strong this quarter on the toughest comp of the year despite leap year. Because how should we think about the hourly growth of PBS now that we're seeing this conversion? And then the follow-up is on on the AR stuff, is there any I guess, brilliant job getting getting fully reserved DSOs? On the p and l. Is there any more that you can do there? Thanks.

I'll start with the first part and then hand back to Matt and Debbie for the AR question. Yes, 6.1% volume growth in PDS is extremely hot for us. So that is above our guidance range is 3% to 5% in PES. We've been on the higher end of that. This was one of the strongest quarters. Do think you'll see a little bit of that as we pass comps for Q2. And Q3 settle, you know, you know, back in that higher end of that three to 5%. So I think I think you'll see it may take another quarter or two before we get there, but I think you'll see a relatively consistent volume number for us over the next couple of quarters. But is it is it relates to the comp of '24, it'll settle back in that you know, a roughly 5% range for a couple quarters. Again, in a year that we thought GA government affairs would be a little bit more muted, The preferred payer side of the business continues to pick up and be stronger. So you know, it's it's probably gonna be on the higher end of that three to 5%. Volume. So it's it's it's a great place to be, but but we are extremely cognizant that our payer partners gave us these rates to pass through wages and hire more more nurses and caregivers. So we're we're committed to driving that wage through to the caregiver. You wanna talk about AR?

Yeah. I mean, Pito, I just wanna reiterate how proud we are of the Aveanna team members and their continued efforts of driving strong cash collections. It's part of one of our five Cs and something that we work for every single day. That success and mostly collaboration between ops, RCM, payer relations is really what allowed us to achieve these results. There could be some opportunity for this in the future as well. You know, we it a whole lot of work to be able to bring a patient home, take care of that patient, provide that service, train it, and get a great clinical outcome. We do believe we should be appropriately compensated for it. But it's the relationships that we've built with our payers who understand that and value us is allowing us to go back and get some of fully reserved AR out there. So the answer is maybe, sure. We will continue to work it, going forward, but Q1 was just a particularly very good quarter for us.

And kudos to Matt and James, the gentleman who runs our RCM and our ops leaders. And Matt said it well. The ability to reach out to our payers and have have have conversations about AR that's now a year or two or three years old and and to work with them to get solutions. It's just we just find ourselves in a much different place in 2025. From where we were two and three years ago where we we didn't even know the name of the person to call these payers. Now we have a great relationship, and continue to work through with them in the spirit of being a partner. So all part of the preferred payer strategy is met met well laid out.

Great. Thanks, Steve.

Our next question comes from Ben Rasi with JPMorgan. Please proceed with your question.

Great. Thanks for the question here. Just turning to the Thrive acquisition. So on the acquisition early April, I know you previously mentioned prudent approach towards M and A to be more favoring opportunistic tuck ins. This seemed a little bit more sizable here at 23 locations in seven states. Could you just provide any additional commentary regarding the expected contribution here in 2025 in terms of revenue earnings and maybe synergies within PDS? And then with the overlap in those five states and new entry into two states, was this part of a broader goal of adding density in these geographies or entering either of these new states?

Yes, Ben. Good morning. Thank you. I'll start with the first part of it and then then hand to Matt. As it relates to guidance and how we think of the business. But this is the perfect acquisition for Aveanna. And I've told other folks it checks all the boxes. So culturally, these our two companies are very like, Our our our missions are very alike. So so what we do every day in both both Aveanna and Thrive fit each other like like hand in glove. So so that's that's for for us, important. Like, culturally, from a clinical standpoint, clinical excellence standpoint, do we both think alike? And the answer is yes. We do. Second, the densification of states like Texas, North Carolina, Virginia, Georgia, Arizona, just make a ton of sense for us that that these are states we've got great payer partners that want more nurses. They want more densification of our resources. So the idea of of adding significant density to these states is is a is a no brainer for us. And then you said it. New Mexico was on our top five states to to to grow into, so this is perfect. And knowing what I now know about Kansas, I I should have added Kansas to the top five states. So we're really excited. A couple of our MCO partners had asked us about being in these states. So the fact that we're able to now grow in those states think, is meaningful. The size is yeah. It's a little bit bigger from a revenue standpoint than probably as a pure tuck in, but we really think of this as just tucking into the Aveanna family. You know, because we're not using any debt. This is incredibly incredibly accretive to us and delevering in nature. So you know, it's just a it's a great scenario. It's a it's a it's an absolute win win win. For us culturally from a business strategy standpoint. And a deleveraging standpoint. This is a win win win for us. So, you want? Touch on how we think about guidance?

Yeah. We you know, Ben, we haven't included it in our guidance at this time just because based upon timing of closing. You know, we have pretty good line of sight, but you never wanna get out in front skis there by a few weeks, and that in materially impacts any of your guidance. So we'll update August with that number in there, particularly back to Jeff's point about the culture of this team and the organization and really bringing in good people who wanna be part of Aveanna's story and continue to provide great care to our our patients. That's what we're looking forward to bringing in this organization. And and I think this fits the spirit of what you should think about us doing in the future. This is this is we will do as many Thrive type acquisitions as we can do both in home health and hospice as well as PDS. And once we get our medical solutions operating target operating model in place, we'll be back in the, you know, medical solutions, dental nutrition's growth m and a growth business as well.

Great. Appreciate the commentary there. I guess as a follow-up, just on Medicaid policy side, broader development in your advocacy efforts there, could you just give us any updates on where those conversations stand with your federal counterparts? And and did you notice any unfreeze over the past month or so with communications now that the new administration's settled in here at the federal level?

Yeah. I I think my comments are mostly gonna be positive on this topic is I think most importantly, the last few months have really demonstrated how significant the bipartisan support for Medicaid program integrity really is. I think both parties, all branches, including the new CMS appointees for both Medicaid and Medicare are really just showing thoughtful dialogue and thoughtful conversation around, you know, anticipated savings. So I I think from our standpoint, Ben, it's it's it's been positive. And I I think I think it still remains to be seen how this plays out over the course of of summer. So there's still a lot to be done. And if if any legislation does impact Medicaid, if at all, well, you know, that's still remains to play out. But I think I think our dialogue is I mean, it's been very very positive. It's been very open, and it's great to see bipartisan support for the core of Medicaid program integrity being retained throughout throughout these anticipated. We also we've gone record We also believe in saving costs for the federal and state government. So at at our core, at Aveanna, we are a cost saver. Studies show that we save between 5 to $6,000 a day for our core patients. So again, we support the idea of saving dollars, both now nationally and at state level and, and and I think our our our dialogue has been know, positive with with the federal counterparts as well as our state counterparts. Still still time will play out. Right? There still is we we we recognize there are months in front of us before this fully plays out on a federal basis.

Thanks, Ben.

Our next question comes from Ben Hendrix with RBC. Please proceed with your question.

Great. Thanks, guys. Most of my questions have been answered, but just wanted to follow-up on those five rate enhancements in the first quarter. Just wanted to get an idea of size of those increases. I assume those are probably normal course increases. But, also, wanted wanted to get comments there. And the outlook for larger double digit wage increases. Is California still the next kind of catalytic update we're waiting for there? Thanks.

Hey, Ben. Good morning. Thanks. I I think I'd separate two pieces of the ray Matt talked about half of the $11 million that we benefited from in the quarter was due to retro rate increases. So I'd separate that. Right? Because that that's really a retro catch up of rate. The the I think the part that you're focused on is really how meaningful were the gum the five government affairs rate wins and the two preferred payer rate wins. And I think that how we think of the core business that, you know, to Peter's question, like, like, what does this look like in two quarters? Clearly, at $12.37 in spread, we are hot. We still have work to do to pass those wages through to the caregivers We expect that number to come down in Q2, and we expect it to come down again in Q3. And we think we think then by the time we get to Q3, and you see spread per hour, we think you'll see it in more normal what you're used to seeing from us and that somewhere between $10.11 dollar range. And we think that kind of is the run rate moving forward. We are not expecting material GA rate wins mid year. So so we're expecting know, additional GA rate wins, but not not at the level that we've been talking about over the last, you know, three or four quarters. So we're we're thinking through GA rate increases that will be know, maybe single digits percentage in nature, which are still beneficial to us. And and then again, the PR side, you know, to to you know, we our our goal this year was eight additional preferred payer agreements in in PDS, you know, two nice ones out of out of the gate. Teams dialed in, got a very robust pipeline. So I think I think our PR wins this year will continue to be above above our probably our expectations. And create good momentum for us going into '26 on the PR side of the business. Last thing I'll say is and Matt comment. Touched much on home health related to but, you know, signed three more agreements in Q1 all at the signed three additional episodic agreements. 45 episodic agreements. This really gives us the underpinning to grow home health and hospice for that nature and get back to organic growth of our business. You know, our rate was up just shy of 4%. In home health and hospice on a revenue basis. So we're we're really excited about where we are from both the PDS, but also a home health and hospice on the on the preferred payer strategy and and and how it's flowing through our clinical outcomes, our financial outcomes, our collections, and just making us a stronger company.

Great. Thanks. And just just to get an idea on the PDS side of how much volume could be coming into these preferred payer relationships, can you mentioned 54% of the volume in preferred relationships currently. Where does that go pro forma bringing for getting up to thirty thirty relationships by the end of the year? Thanks.

Hey, Ben. Great question. And and if we get to the point, if you start playing law, large numbers out there and so the larger that number is, the harder it is to turn We do think that you will see a significant step in Q2 as well. And then Q3, we'll get there. I mean, we'll be in the mid mid to high fifties exiting this year. We think that'll be a great position for ourselves. We wanna make sure that we're providing the most care with through these preferred payer relationships. So whenever we get those rates, we're passing those through our current caregiving staff that is currently under those payers But, also, putting it out there for other caregivers to be able to jump on new cases and bring patients out the hospital as well. So Think realistic, you can see a nice little jump in in Q2. And then that'll level off on the growth a little bit and be in that mid to mid to high fifties exiting the year.

Great. Thank you.

Thanks, Ben.

Our next question comes from David MacDonald with Truist Securities. Please proceed with your question.

Hey, guys. This is Grayson McAlister on for Dave. Like, most of my questions have been answered, but just wanted to follow-up on home health episodic mix was obviously strong in the quarter, but total episodes were flat. So I just wanted to check on how that compared to your expectations and how we think about volume growth through the remainder of the year? Thanks.

Great question, Grayson. Thank you. Yes, I think to my comment, I think we're well positioned to grow. We are well positioned to grow. We've got the model in place. We would even we would even accept, know, three or 4% less episodic mix, you know, in '77, getting back down to '75, getting back down to '72, '73. Percent, which would tell us that we're accepting a little bit more a little bit more business from our hospital partners specifically The model set. Right? And, you know, our clinical outcomes are off the charts fantastic in our home health and hospice. You know, we're we're over 4.5 out of five stars in our home health business. You know? And and we've got a 99, I think, 99.8% hospice capture rating So so we are at the top of the clinical ladder in both home health and hospice and incredibly proud of it. Margin profile is absolutely dialed in. Know, in the low fifties gross margin. So it's really just now about growing smart admissions and smart episodes in total And I think with the 45 you know, total episodic agreements, you know, plus Medicare, It's just a it's just a great place for us to be We both we bolstered our sales team. We have we have re bolstered some some open positions, even even layered in some additional growth oriented positions in home health and hospice. And I I think, you know, we feel really good about where we are mid mid Q2 on our on our Q2 numbers and you know, we're we're not gonna be a four, five, 6% year over year organic growth HHH business yet. I say yet. That that is our goal to get there. But we think we can be in that one to 3% organic volume growth plus another couple of points on the rate to get to that four and a half, 5% you know, total total rate growth for home health and hospice. But I think you'll hear I think you'll hear us be incredibly robust. The model is dialed in. And, honestly, I've doing this for twenty six years, Grayson. It's dialed in as tight as I've I've seen it in the last twenty six years. So you know, even in a tough macro environment for home health, we continue to to thrive and I feel confident our team is well positioned for for volume growth.

Great. Thanks, guys.

Thanks, Grayson.

There are no further questions at this time. I would now like to turn the floor back over to Jeff Shaner for closing comments.

Great. Thank you, everyone, so much for your interest in our Aveanna story. We certainly look forward to updating you on our continued progress and we'll look talk at the end of Q2 in August. Thanks, have a great day.