Aveanna Healthcare Holdings, Inc. (AVAH) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the PSLRA, Section 27A of the Securities Act, and Section 21E of the Exchange Act, about our expectations, beliefs, plans and intentions regarding our product development efforts, business, financial condition, results of operations, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in “Item 1A — Risk Factors” of this Annual Report on Form 10-K. Forward-looking statements reflect our views only as of the date they are made. We do not undertake any obligation to update forward-looking statements except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA.

Our fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52-week or 53-week fiscal year. Our “fiscal year 2024” refers to the 52-week fiscal year ended on December 28, 2024. Our “fiscal year 2023” refers to the 52-week fiscal year ended on December 30, 2023. Our “fiscal year 2022” refers to the 52-week fiscal year ended on December 31, 2022.

Overview

We are a leading, diversified home care platform focused on providing care to medically complex, high-cost patient populations. We directly address the most pressing challenges facing the U.S. healthcare system by providing safe, high-quality care in the home, the lower cost care setting preferred by patients. Our patient-centered care delivery platform is designed to improve the quality of care our patients receive, which allows them to remain in their homes and minimizes the overutilization of high-cost care settings such as hospitals. Our clinical model is led by our caregivers, primarily skilled nurses, who provide specialized care to address the complex needs of each patient we serve across the full range of patient populations: newborns, children, adults and seniors. We have invested significantly in our platform to bring together best-in-class talent at all levels of the organization and support such talent with industry leading training, clinical programs, infrastructure and technology-enabled systems, which are increasingly essential in an evolving healthcare industry. We believe our platform creates sustainable competitive advantages that support our ability to continue driving rapid growth, both organically and through acquisitions, and positions us as the partner of choice for the patients we serve.

51

Segments

We deliver our services to patients through three segments: Private Duty Services (“PDS”); Home Health & Hospice (“HHH”); and Medical Solutions (“MS”).

The following table summarizes the revenues generated by each of our segments for the fiscal years ended December 28, 2024 and December 30, 2023:

PDS Segment

Private Duty Services predominantly includes private duty nursing (“PDN”) services, as well as pediatric therapy services. Our PDN patients typically enter our service as children, as our most significant referral sources for new patients are children’s hospitals. It is common for our PDN patients to continue to receive our services into adulthood, as approximately 30% of our PDN patients are over the age of 18.

Our PDN services involve the provision of clinical and non-clinical hourly care to patients in their homes, which is the preferred setting for patient care. PDN services typically last four to 24 hours a day, provided by our registered nurses, licensed practical nurses, home health aides, and other non-clinical caregivers who are focused on providing high-quality short-term and long-term clinical care to medically fragile children and adults with a wide variety of serious illnesses and conditions. Patients who typically qualify for our PDN services include those with the following conditions:

•
Tracheotomies or ventilator dependence;

•
Dependence on continuous nutritional feeding through a “G-tube” or “NG-tube”;

•
Dependence on intravenous nutrition;

•
Oxygen-dependence in conjunction with other medical needs; and

•
Complex medical needs such as frequent seizures.

Our PDN services include:

•
In-home skilled nursing services to medically fragile children and adults;

•
Nursing services in school settings in which our caregivers accompany patients to school;

•
Services to patients in our Pediatric Day Healthcare Centers (“PDHC”); and

•
Non-clinical care, including programs such as support services and personal care services.

Through our pediatric therapy services, we provide a valuable multidisciplinary approach that we believe serves all of a child’s therapy needs. We provide both in-clinic and home-based therapy services to our patients. Our therapy services include physical, occupational and speech services. We regularly collaborate with physicians and other community healthcare providers, which allows us to provide more comprehensive care.

HHH Segment

Our Home Health and Hospice segment predominantly includes home health services, as well as hospice and specialty program services. Our HHH patients typically enter our service as seniors, and our most significant referral sources for new patients are hospitals, physicians and long-term care facilities.

Our home health services involve the provision of in-home services to our patients by our clinicians, who may include nurses, therapists, social workers and home health aides. Our caregivers work with our patients’ physicians to deliver a personalized plan of care to our patients in their homes. Home healthcare can help our patients recover after a hospitalization or surgery and assist patients in managing chronic illnesses. We also help our patients manage their medications. Through our care, we help our patients recover more fully in the

52

comfort of their own homes, while remaining as independent as possible. Our home health services include: in-home skilled nursing services; physical, occupational and speech therapy; medical social services and aide services.

Our hospice services involve a supportive philosophy and concept of care for those nearing the end of life. Our hospice care is a positive, empowering form of care designed to provide comfort and support to our patients and their families when a life-limiting illness no longer responds to cure-oriented treatments. The goal of hospice is to neither prolong life nor hasten death, but to help our patients live as dignified and pain-free as possible. Our hospice care is provided by a team of specially trained professionals in a variety of living situations, including at home, at the hospital, a nursing home, or an assisted living facility.

MS Segment

Through our Medical Solutions segment, we offer a comprehensive line of enteral nutrition supplies and other products to adults and children, delivered on a periodic or as-needed basis. We provide our patients with access to a large selection of enteral formulas, supplies and pumps in our industry, with more than 300 nutritional formulas available. Our registered nurses, registered dietitians and customer service technicians support our patients 24 hours per day, 365 days per year, in-hospital, at-home, or remotely to help ensure that our patients have the best nutrition assessments, change order reviews and formula selection expertise.

Important Operating Metrics

We review the following important metrics on a segment basis and not on a consolidated basis:

PDS Segment and MS Segment Operating Metrics

Volume

Volume represents PDS hours of care provided and MS unique patients served, which is how we measure the amount of our patient services provided. We review the number of hours of PDS care provided on a weekly basis and the number of MS unique patients served on a weekly basis. We believe volume is an important metric because it helps us understand how the Company is growing in each of these segments through strategic planning and acquisitions. We also use this metric to inform strategic decision making in determining opportunities for growth.

Revenue Rate

For our PDS and MS segments, revenue rate is calculated as revenue divided by PDS hours of care provided or the number of MS unique patients served, respectively. We believe revenue rate is an important metric because it represents the amount of revenue we receive per PDS hour of patient service or per individual MS patient transaction and helps management assess the amount of fees that we are able to bill for our services. Management uses this metric to assess how effectively we optimize reimbursement rates.

Cost of Revenue Rate

For our PDS and MS segments, cost of revenue rate is calculated as cost of revenue divided by PDS hours of care provided or the number of unique patients served, respectively. We believe cost of revenue rate is an important metric because it helps us understand the cost per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to understand how effectively we manage labor and product costs.

Spread Rate

For our PDS and MS segments, spread rate represents the difference between the respective revenue rates and cost of revenue rates. Spread rate is an important metric because it helps us better understand the margins being recognized per PDS hour of patient service or per individual MS patient transaction. Management uses this metric to assess how successful we have been in optimizing reimbursement rates, managing labor and product costs, and assessing opportunities for growth.

HHH Segment Operating Metrics

Home Health Total Admissions and Home Health Episodic Admissions

Home health total admissions represents the number of new patients who have begun receiving services. We review the number of home health admissions on a daily basis because we believe it is a leading indicator of our growth. We measure home health admissions by

53

reimbursement structure, separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payer mix of our home health business.

Home Health Total Episodes

Home health total episodes represents the number of episodic admissions and episodic recertifications to capture patients who have either started to receive services or have been recertified for another episode of care. Management reviews home health total episodes on a monthly basis to understand the volume of patients who were authorized to receive care during the month.

Home Health Episodic Mix

Home health episodic mix is calculated by dividing the total home health episodic admissions by the home health total admissions. Management monitors home health episodic mix as a simplified metric representing our home health admissions by reimbursement structure, which allows us to better understand the payer mix of our home health business.

Home Health Revenue Per Completed Episode

Home health revenue per completed episode is calculated by dividing total payments received from completed episodes by the number of completed episodes during the period. Episodic payments are determined by multiple factors including type of referral source, patient diagnoses, and utilization. Management tracks home health revenue per completed episode over time to evaluate both the clinical and financial profile of the business in a single metric.

Results of Operations

Fiscal Year Ended December 28, 2024 Compared to the Fiscal Year Ended December 30, 2023

The following table summarizes our consolidated results of operations for the fiscal years indicated:

The following table summarizes our consolidated key performance measures, including Field contribution and Field contribution margin, which are non-GAAP measures (see “Non-GAAP Financial Measures” below), for the fiscal years indicated:

54

The following tables summarize our key performance measures by segment for the fiscal years indicated:

55

1.
Represents the period over period change in revenue rate, plus the change in revenue rate attributable to the change in volume.

2.
Represents the period over period change in cost of patient services rate, plus the change in cost of patient services rate attributable to the change in volume.

3.
Represents the period over period change in spread rate, plus the change in spread rate attributable to the change in volume.

4.
Represents the change in margin percentage year over year.

5.
Represents home health episodic and fee-for-service admissions.

6.
Represents home health episodic admissions.

7.
Represents episodic admissions and recertifications.

8.
Represents the ratio of home health episodic admissions to home health total admissions.

9.
Represents Medicare revenue per completed episode.

The following discussion of our results of operations should be read in conjunction with the foregoing tables summarizing our consolidated results of operations and key performance measures, as well as the Consolidated Financial Statements.

56

Summary Operating Results

Operating Income

Operating income was $139.8 million, or 6.9% of revenue, for the fiscal year ended December 28, 2024, as compared to an operating income of $8.1 million, or 0.4% of revenue, for the fiscal year ended December 30, 2023, an increase of $131.7 million.

The change in operating income for fiscal year 2024 primarily resulted from the $105.1 million in non-cash impairment charges recorded during fiscal year 2023, and a $48.3 million, or 20.6%, increase in Field contribution as compared to fiscal year 2023. The $48.3 million increase in Field contribution resulted from a $129.3 million, or 6.8%, increase in consolidated revenue and a 1.6% improvement in Field contribution margin to 14.0% for fiscal year 2024 from 12.4% for fiscal year 2023. The primary drivers of our higher Field contribution margin over the comparable fiscal year period was a 1.6% decrease in branch and regional administrative expense as a percentage of revenue to 17.4% for fiscal year 2024 from 19.0% for fiscal year 2023.

Net Loss

The $123.6 million decrease in net loss over the comparable fiscal year periods, was primarily driven by the following:

•
the previously discussed $131.7 million increase in operating income; and

•
an aggregate $15.7 million decrease in valuation losses on interest rate derivatives and increase in net settlements received from interest rate derivative counterparties over the comparable periods; offset by

•
a $20.5 million increase in income tax expense; and

•
a $3.2 million increase in interest expense, net of interest income.

Revenue

Revenue was $2,024.5 million for the fiscal year ended December 28, 2024 as compared to $1,895.2 million for the fiscal year ended December 30, 2023, an increase of $129.3 million, or 6.8%. This increase resulted from the following segment activity:

•
a $115.8 million, or 7.6% increase in PDS revenue;

•
a $0.8 million, or 0.4%, decrease in HHH revenue; and

•
a $14.3 million, or 9.1%, increase in MS revenue.

Our PDS segment revenue growth of $115.8 million, or 7.6%, for the fiscal year ended December 28, 2024 was attributable to an increase in volume of 4.4% and an increase in revenue rate of 3.2%. The increase in PDS volume on a year over year basis was attributable to growth in demand for non-clinical services.

The 3.2% increase in PDS revenue rate for the fiscal year ended December 28, 2024, as compared to the fiscal year ended December 30, 2023, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and managed Medicaid payers and increases in value-based payments, offset by increases in implicit price concessions.

Our HHH segment revenue decline of $0.8 million, or 0.4%, for the fiscal year ended December 28, 2024 resulted primarily from a decline in non-episodic volumes over the comparable fiscal year period. While home health total admissions declined 8.0% over the comparable period, total segment revenue declined by a lower rate primarily due to the 4.6% improvement in home health episodic mix.

Our MS segment revenue growth of $14.3 million, or 9.1%, for the fiscal year ended December 28, 2024, as compared to the fiscal year ended December 30, 2023, was attributable to 5.5% volume growth combined with an increase in revenue rate of 3.6% over the comparable period.

Cost of Revenue, Excluding Depreciation and Amortization

Cost of revenue, excluding depreciation and amortization, was $1,389.0 million for the fiscal year ended December 28, 2024, as compared to $1,299.8 million for the fiscal year ended December 30, 2023, an increase of $89.2 million, or 6.9%. This increase resulted from the following segment activity:

•
a $95.1 million, or 8.7%, increase in PDS cost of revenue;

•
a $12.5 million, or 10.9%, decrease in HHH cost of revenue; and

57

•
a $6.6 million, or 7.2%, increase in MS cost of revenue.

The 8.7% increase in PDS cost of revenue for the fiscal year ended December 28, 2024 resulted from the previously described 4.4% increase in PDS volume for the fiscal year ended December 28, 2024 and a 4.3% increase in PDS cost of revenue rate. The 4.3% increase in cost of revenue rate primarily resulted from higher caregiver labor costs, including pass-through of reimbursement rate increases.

The 10.9% decrease in HHH cost of revenue for the fiscal year ended December 28, 2024 was driven by a decline in HHH non-episodic volumes and improvements in HHH caregiver utilization.

The 7.2% increase in MS cost of revenue for the fiscal year ended December 28, 2024 was driven by the previously described 5.5% growth in MS volumes during fiscal year 2024 and a 1.7% increase in cost of revenue rate.

Gross Margin and Gross Margin Percentage

Gross margin was $635.5 million, or 31.4% of revenue, for the fiscal year ended December 28, 2024, as compared to $595.4 million, or 31.4% of revenue, for the fiscal year ended December 30, 2023. Gross margin increased $40.1 million, or 6.7%, year over year. Gross margin percentage was unchanged for the fiscal year ended December 28, 2024 compared to the fiscal year ended December 30, 2023. The increase in gross margin resulted from the combined changes in our revenue rates and cost of revenue rates in our PDS and MS segments, which we refer to as the change in our spread rate, and the change in gross margin percentage in our HHH segment, as follows:

•
a 0.5% increase in PDS spread rate from $10.64 to $10.69, driven by the 3.2% increase in PDS revenue rate, net of the 4.3% increase in PDS cost of revenue rate;

•
a 6.1% increase in MS spread rate from $192.08 to $203.24, driven by the 3.6% increase in MS revenue rate, net of the 1.7% increase in MS cost of revenue rate; and

•
our HHH segment, in which gross margin percentage increased by 5.5%.

Branch and Regional Administrative Expenses

Branch and regional administrative expenses were $352.8 million, or 17.4% of revenue, for the fiscal year ended December 28, 2024, as compared to $361.0 million, or 19.0% of revenue, for the fiscal year ended December 30, 2023, a decrease of $8.2 million, or 2.3%.

The 2.3% decrease in branch and regional administrative expenses was for the fiscal year ended December 28, 2024, as compared to the fiscal year ended December 30, 2023, was primarily due to the positive effects of restructuring portions of our branch and regional operating structure, which resulted in the overall 1.6% decrease in branch and regional administrative expenses as a percentage of revenue over the comparable period.

Field Contribution and Field Contribution Margin

Field contribution was $282.7 million, or 14.0% of revenue, for the fiscal year ended December 28, 2024 as compared to $234.5 million, or 12.4% of revenue, for the fiscal year ended December 30, 2023, an increase of $48.3 million, or 20.6%. The 1.6% increase in Field contribution margin for the fiscal year ended December 28, 2024 is primarily driven by the 1.6% decrease in branch and regional administrative expenses as a percentage of revenue for the fiscal year ended December 28, 2024, as compared to the fiscal year ended December 30, 2023.

Field Contribution and Field Contribution Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

Corporate Expenses

Corporate expenses as a percentage of revenue for the fiscal years ended December 28, 2024 and December 30, 2023 were as follows:

58

Corporate expenses were $125.4 million, or 6.2% of revenue, for the fiscal year ended December 28, 2024, as compared to $113.0 million, or 6.0% of revenue, for the fiscal year ended December 30, 2023. The $12.4 million or 10.9% increase in year over year corporate expenses resulted primarily from higher compensation and benefits and higher non-cash share-based compensation costs.

Goodwill Impairment

During the fiscal year ended December 30, 2023, we recorded an impairment charge of $105.1 million as a result of challenges in the labor markets which resulted in anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment. Due to such labor market factors, we performed an interim impairment assessment as of September 30, 2023 and determined that the carrying value of the reporting unit within our HHH segment exceeded its fair value. There was no goodwill impairment recorded for the fiscal year ended December 28, 2024.

Depreciation and Amortization

Depreciation and amortization was $10.8 million for the fiscal year ended December 28, 2024, compared to $13.8 million for the fiscal year ended December 30, 2023, a decrease of $3.0 million, or 21.8%. The $3.0 million decrease primarily resulted from improved capital asset management.

Other Operating Expense (Income)

Other operating expense was $5.3 million for the fiscal year ended December 28, 2024, compared to other operating income of $6.0 million. The $11.3 million decrease in other operating income primarily resulted from impairment of a certain facility lease asset recorded in the 2024 fiscal year, and both a favorable $5.1 million non-cash gain on the acquisition of a business license and other net assets and a $3.6 million acquisition related legal settlement, recorded in the fiscal year ended December 30, 2023.

Interest Expense, net of Interest Income

Interest expense, net of interest income was $156.1 million for the fiscal year ended December 28, 2024, compared to $152.9 million for the fiscal year ended December 30, 2023, an increase of $3.2 million, or 2.1%. Interest expense increased primarily due to increased borrowing under our Securitization Facility and a higher U.S. federal funds rate during the fiscal year ended December 28, 2024. See further analysis under Liquidity and Capital Resources below.

Other Income

Other income was $21.4 million for the fiscal year ended December 28, 2024, compared to other income of $5.9 million for the fiscal year ended December 30, 2023, an increase of $15.5 million. We realized a $13.1 million decrease in non-cash valuation losses associated with interest rate derivatives in fiscal year 2024 resulting from changes in market expectations of future interest rates in the comparable periods, as well as a $2.7 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year period due to higher market interest rates. Details of other income included the following:

59

Income Taxes

We incurred income tax expense of $16.0 million for the fiscal year ended December 28, 2024, as compared to income tax benefit of $4.5 million for the fiscal year ended December 30, 2023, a net 457.8% increase in income tax expense. This increase in tax expense was primarily driven by the increases to uncertain tax positions, as well as changes in federal and state valuation allowances, and federal and state current tax expense.

Non-GAAP Financial Measures

In addition to our results of operations prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which we have discussed above, we also evaluate our financial performance using EBITDA, Adjusted EBITDA, Field contribution and Field contribution margin.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as net loss. Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net loss before interest expense, net; income tax expense or benefit; and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain other items that are either non-recurring, infrequent, non-cash, unusual, or items deemed by management to not be indicative of the performance of our core operations, including impairments of goodwill, intangible assets, and other long-lived assets; non-cash, share-based compensation; loss on extinguishment of debt; fees related to debt modifications; the effect of interest rate derivatives; acquisition-related and integration costs; legal costs and settlements associated with acquisition matters; restructuring costs; other legal matters; other system transition costs, professional fees; and other costs including gains and losses on acquisitions and dispositions of certain businesses. As non-GAAP financial measures, our computations of EBITDA and Adjusted EBITDA may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of this measure impracticable.

Management believes our computations of EBITDA and Adjusted EBITDA are helpful in highlighting trends in our core operating performance. In determining which adjustments are made to arrive at EBITDA and Adjusted EBITDA, management considers both (1) certain non-recurring, infrequent, non-cash or unusual items, which can vary significantly from year to year, as well as (2) certain other items that may be recurring, frequent, or settled in cash but which management does not believe are indicative of our core operating performance. We use EBITDA and Adjusted EBITDA to assess operating performance and make business decisions.

We have occasionally incurred substantial acquisition-related costs and integration costs. The underlying acquisition activities take place over a defined timeframe, have distinct project timelines and are incremental to activities and costs that arise in the ordinary course of our business. Therefore, we believe it is important to exclude these costs from our Adjusted EBITDA because it provides management a normalized view of our core, ongoing operations after integrating our acquired companies, which is an important measure in assessing our performance.

Given our determination of adjustments in arriving at our computations of EBITDA and Adjusted EBITDA, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

60

The following table reconciles net loss to EBITDA and Adjusted EBITDA for the periods indicated:

1.
Represents valuation adjustments and settlements associated with interest rate derivatives that are not included in interest expense, net. Such items are included in other income.

2.
Represents transaction costs incurred in connection with planned, completed, or terminated acquisitions, which include investment banking fees, legal diligence and related documentation costs, and finance and accounting diligence and documentation, as presented on the Company’s consolidated statements of operations.

3.
Represents (i) costs associated with our Integration Management Office, which focuses on our integration efforts and transformational projects such as systems conversions and implementations, material cost reduction and restructuring projects, among other things, of $1.0 million and $1.5 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively; and (ii) transitionary costs incurred to integrate acquired companies into our field and corporate operations of $0.2 million and $0.8 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively. Transitionary costs incurred to integrate acquired companies include IT consulting costs and related integration support costs; salary, severance and retention costs associated with duplicative acquired company personnel until such personnel are exited from the Company; accounting, legal and consulting costs; expenses and impairments related to the closure and consolidation of overlapping markets of acquired companies, including lease termination and relocation costs; costs associated with terminating legacy acquired company contracts and systems; and one-time costs associated with rebranding our acquired companies and locations to the Aveanna brand.

4.
Represents legal and forensic costs, as well as settlements associated with resolving legal matters arising during or as a result of our acquisition-related activities. This primarily includes (i) costs of $1.1 million and $0.3 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively, to comply with the U.S. Department of Justice, Antitrust Division’s grand jury subpoena related to nurse wages and hiring activities in certain of our markets, in connection with a terminated transaction and (ii) release of reserve of ($3.6) million during the fiscal year ended December 30, 2023, related to the settlement of a legal matter resulting from a 2020 acquisition.

5.
Represents costs associated with restructuring our branch and regional administrative footprint as well as our corporate overhead infrastructure costs in order to appropriately size our resources to current volumes, including (i) branch and regional salary and severance costs; (ii) corporate salary and severance costs; (iii) rent and lease termination costs associated with the closure of certain office locations. Restructuring costs also include compensation, severance and related benefits costs associated with an executive transition plan initiated in the first quarter of 2024.

6.
Represents activity related to accrued legal settlements, related costs, and expenses associated with certain judgments and arbitration awards rendered against the Company where certain insurance coverage is in dispute.

7.
Represents (i) costs associated with the implementation of, and transition to, new electronic medical record systems and billing and collection systems, duplicative system costs while such transformational projects are in-process, and other system transition costs of $1.3 million for the fiscal year ended December 30, 2023; (ii) a ($5.1) million non-cash gain on the acquisition of a business in the fiscal year ended December 30, 2023; and (iii) certain other costs or (income) that are either non-cash or non-core to the Company’s ongoing operations of ($0.8) million and ($1.4) million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

61

8.
The table below reflects the increase or decrease, and aggregate impact, to the line items included on our consolidated statements of operations based upon the adjustments used in arriving at Adjusted EBITDA from EBITDA for the periods indicated:

Field Contribution and Field Contribution Margin

Field contribution and Field contribution margin are non-GAAP financial measures and are not intended to replace financial performance measures determined in accordance with U.S. GAAP, such as gross margin and gross margin percentage. Rather, we present Field contribution and Field contribution margin as supplemental measures of our performance. We define Field contribution as gross margin less branch and regional administrative expenses. Field contribution margin is Field contribution as a percentage of revenue. As non-GAAP financial measures, our computations of Field contribution and Field contribution margin may vary from similarly termed non-GAAP financial measures used by other companies, making comparisons with other companies on the basis of these measures impracticable.

Field contribution and Field contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes or alternatives to gross margin, gross margin percentage, net income or loss, revenue, operating income or loss, cash flows from operating activities, total indebtedness or any other financial measures calculated in accordance with U.S. GAAP.

Management believes Field contribution and Field contribution margin are helpful in highlighting trends in our core operating performance and evaluating trends in our branch and regional results, which can vary from year to year. We use Field contribution and Field contribution margin to make business decisions and assess the operating performance and results delivered by our core field operations, prior to corporate and other costs not directly related to our field operations. These metrics are also important because they guide us in determining whether or not our branch and regional administrative expenses are appropriately sized to support our caregivers and direct patient care operations. Additionally, Field contribution and Field contribution margin determine how effective we are in managing our field supervisory and administrative costs associated with supporting our provision of services and sale of products.

The following table reconciles gross margin to Field contribution and Field contribution margin for the periods indicated:

62

Liquidity and Capital Resources

Overview

Our principal sources of cash have historically been from operating activities. Our principal source of liquidity, in addition to cash provided by operating activities, has historically been from proceeds from our credit facilities and issuances of common stock.

Our principal uses of cash and liquidity have historically been for acquisitions, interest and principal payments under our credit facilities, payments under our interest rate derivatives, and financing of working capital. Payment of interest and related fees under our credit facilities is currently the most significant use of our operating cash flow. Our goal is to use cashflow provided by operations primarily as a source of cash to supplement the purchase price for acquisitions and reduce our net leverage.

In September 2023, in response to a $7.9 million arbitration award rendered against us in connection with a civil litigation matter, we promptly obtained a $9.1 million appellate bond with the trial court. The $9.1 million appellate bond was collateralized with letters of credit. While we intend to avail ourselves of all appellate options, the resolution of this matter could reduce the cash available to us for general working capital purposes.

For additional information with respect to the foregoing litigation matters, please see "Litigation and Other Current Liabilities" set forth in Note 13 to the Consolidated Financial Statements.

At December 28, 2024 we had $84.3 million in cash on hand, $37.9 million available to us under our Securitization Facility and $138.0 million of borrowing capacity under the Revolving Credit Facility (as defined below). Available borrowing capacity under the Revolving Credit Facility is subject to a maintenance leverage covenant that becomes effective if more than 30% of the total commitment is utilized, subject to a $15.0 million carve-out for letters of credit. We believe that our operating cash flows, available cash on hand, and availability under our Securitization Facility and Revolving Credit Facility will be sufficient to meet our cash requirements for at least the next twelve months. Our future capital requirements will depend on many factors that are difficult to predict, including the size, timing and structure of any future acquisitions, future capital investments and future results of operations. We cannot assure you that cash provided by operating activities or cash and cash equivalents on hand will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

Cash Flow Activity

The following table sets forth a summary of our cash flows from operating, investing, and financing activities for the fiscal year presented:

Operating Activities

The primary sources or uses of our operating cash flow are operating income or operating losses, net of any goodwill impairments that we record as well as any other significant non-cash items such as depreciation, amortization and share-based compensation, less cash paid for interest. The timing of collections of accounts receivable and the payment of accounts payable, other accrued liabilities and accrued payroll can also impact and cause fluctuations in our operating cash flow. Cash flow provided by operating activities increased by $10.0 million for fiscal year 2024 compared to fiscal year 2023, primarily due to:

•
improvement in operating income in fiscal year 2024, primarily as a result of the $105.1 goodwill impairment in fiscal year 2023, as compared to no goodwill impairment in fiscal year 2024, net of significant non-cash items such as depreciation and amortization, share-based compensation, and gain on acquisition; partially offset by

•
the comparable use of cash associated with operating assets and liabilities over the comparable periods, primarily associated with the timing of collections of accounts receivable, the prior year benefit of deferring one month of interest under our term loans,

63

which we typically pay on a monthly basis, and the prior year benefit of a one-time deferral of cash payments under employee medical plans as we transitioned to a self-insured plan.

Days Sales Outstanding (“DSO”)

DSO provides us with a gauge to measure the timing of cash collections against accounts receivable and related revenue. DSO is derived by dividing our average patient accounts receivable for the fiscal period by our average daily revenue for the fiscal period. The collection cycle for our HHH segment is generally longer than that of our PDS segment, primarily due to longer billing cycles for HHH, which is generally billed in thirty-day increments. The following table presents our trailing five quarter DSO for the respective periods:

Investing Activities

Net cash used in investing activities was $6.3 million for the fiscal year ended December 28, 2024, as compared to $8.8 million for the fiscal year ended December 30, 2023. The $2.5 million decrease in cash used in the fiscal year ended December 28, 2024 was primarily related to the purchase of certain certificates of need in fiscal year 2023.

Financing Activities

Net cash provided by financing activities increased by $3.2 million, from $10.8 million for the fiscal year ended December 30, 2023 to $14.0 million for the fiscal year ended December 28, 2024. The $14.0 million net cash provided in fiscal year 2024 was primarily related to the following items:

•
$15.5 million in net proceeds from settlements with interest rate swap counterparties;

•
$13.8 million in net proceeds drawn under our Securitization Facility; net of

•
$15.8 million of principal payments on term loans and notes payable.

The $10.8 million net cash provided in fiscal year 2023 was primarily related to the following items:

•
$15.6 million in net proceeds from settlements with interest rate swap counterparties;

•
$15.0 million in net proceeds drawn under our Securitization Facility; net of

•
$19.0 million of principal payments on term loans and notes payable.

Indebtedness

We typically incur term loan indebtedness to finance our acquisitions, and we borrow under our Securitization Facility and Revolving Credit Facility from time to time for working capital purposes, as well as to finance acquisitions, as needed. The following table presents our current and long-term obligations under our credit facilities as of December 28, 2024 and December 30, 2023, as well as related interest expense for fiscal years 2024 and 2023, respectively:

64

1.
Variable rate debt instrument which accrues interest at a rate equal to SOFR (subject to a minimum of 0.50%), plus a credit spread adjustment ("CSA"), plus an applicable margin.

2.
Variable rate debt instrument that accrues interest at a rate equal to SOFR, plus a CSA, plus an applicable margin.

3.
Represents the weighted average annualized interest rate based upon the outstanding balances at December 28, 2024 and December 30, 2023, respectively, and the applicable interest rates at that date.

We were in compliance with all financial covenants and restrictions related to existing credit facilities at December 28, 2024 and December 30, 2023.

On September 30, 2024, the we amended the terms of our revolving credit facility (the "Revolving Credit Facility") under the First Lien Credit Agreement (as defined in Note 6 - Long-Term Obligations to the Consolidated Financial Statements) to extend the Revolving Credit Facility’s maturity date from April 29, 2026 to the earlier of (i) April 15, 2028 and (ii) May 1, 2026 if by such date the Securitization Facility has not been renewed or replaced or paid-off, in each case, in full, with a maturity date that is April 15, 2028, or later. Additionally, such amendment immediately reduced the maximum borrowing availability under the Revolving Credit Facility from $200.0 million to $170.3 million through April 29, 2026, and then further reduces availability to $148.9 million from April 29, 2026 through the amended maturity date.

On May 31, 2024, we amended our Securitization Facility, which matures on July 31, 2026, to increase the borrowing capacity to $225.0 million, subject to certain borrowing base requirements. Further, this amendment revised the Securitization Facility's applicable margin on the borrowing rate to 3.15%, with all other terms remaining the same.

Contractual Obligations

Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating and financing leases. These contractual obligations impact our short-term and long-term liquidity and capital needs.

Critical Accounting Estimates

In preparing our consolidated financial statements in conformity with U.S. GAAP, we must use estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures and the reported amounts of revenue and expenses. In general, our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Patient Services and Product Revenue

Because our services have no fixed duration and can be terminated by the patient or the facility at any time, we consider each treatment as a stand-alone contract for revenue recognition purposes. Additionally, as services ordered by a healthcare provider in an episode of care cannot be separately identified, we combine all services provided into a single performance obligation for each contract. We recognize patient revenue in the reporting period in which we perform the service, and we recognize product revenue on the date required shipping commitments have been completed. We have minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain under our care.

65

All revenue is recognized based on established billing rates reduced by contractual adjustments provided to third-party payers and implicit price concessions which are estimated based on historical collection experience. Our revenue cycle management systems calculate contractual adjustments on a patient-by-patient or product-by-product basis based on the rates in effect for each primary third-party payer. Due to complexities involved in determining amounts ultimately due under reimbursement arrangements with third-party payers, which are often subject to interpretation and review, we may receive reimbursement for healthcare services authorized and provided that is different from our estimates. In addition, due to changes in general economic conditions, patient accounting service center operations, or payer mix, historical collection experience may not accurately reflect current period collections.

We continually review the contractual and implicit concession estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms that result from contract renegotiations and renewals. In addition, laws and regulations governing the Medicaid, Medicaid MCO and Medicare programs are complex and subject to interpretation. If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.

Business Combinations

We account for acquisitions of entities that qualify as business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations. In determining whether an acquisition should be accounted for as a business combination or asset acquisition, we first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business and is instead deemed to be an asset. Under the acquisition method of accounting, the total consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

In determining the fair value of assets acquired and liabilities assumed in a business combination, we primarily use an income approach to estimate the value of tradenames acquired and a cost approach to estimate the value of licenses acquired. The income approach utilizes projected operating results and cash flows and includes significant assumptions such as base revenue, revenue growth rate, projected EBITDA margin, discount rates, rates of increase in operating expenses, and the future effective income tax rates. The cost approach utilizes projected cash outflows and includes significant assumptions such as projected facility costs, projected administrative costs and estimates of the time and effort to acquire a license. The valuations of our significant acquired companies have been performed by a third-party valuation specialist under our management’s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed is based on reasonable assumptions and estimates that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship of those assumptions may result in purchase price allocations that are different than those recorded in recent years.

Acquisitions related costs are not considered part of the consideration paid and are expensed as operating expenses as incurred. Contingent consideration, if any, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until the contingency is resolved and settlement occurs. Subsequent adjustments to contingent considerations are recorded in our consolidated statements of operations. We include the results of operations of the businesses acquired as of the beginning of the acquisition dates.

Goodwill

We perform an impairment test for goodwill at least annually or more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. We perform our annual goodwill impairment test on the first day of the fourth quarter of each fiscal year for each of our reporting units. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The impairment test is a single-step process. The process requires us to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, the goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value up to the amount of goodwill in the reporting unit. The fair value of the reporting units is measured using Level 3 inputs such as operating cash flows and market data.

A reporting unit is either an operating segment or one level below the operating segment, referred to as a component. When the components within our operating segments have similar economic characteristics, we aggregate the components of our operating

66

segments into one reporting unit. Since quoted market prices for our reporting units are not available, we apply judgment in determining the fair value of these reporting units for purposes of performing the goodwill impairment test. For both interim and annual goodwill impairment tests, we engage a third-party valuation firm to assist management in calculating a reporting unit’s fair value, which is derived using an income approach or a combination of both income and market approaches. The income approach utilizes projected operating results and cash flows and includes significant assumptions such as revenue growth rates, projected EBITDA margins, and discount rates. The market approach compares reporting units’ earnings and revenue multiples to those of comparable public companies. Estimates of fair value may differ from actual results due to, among other things, economic conditions, changes to business models or changes in operating performance. These factors increase the risk of differences between projected and actual performance that could impact future estimates of fair value of all reporting units. Significant differences between these estimates and actual future performance could result in impairment in future fiscal periods.

We performed an interim impairment test during the third quarter of fiscal year 2023 primarily as a result of continued challenges in the labor markets which resulted in anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment. While many of our reporting units have a carrying value that is consistent with its fair value due to impairment in five of our six reporting units recorded during the fourth quarter of 2022, our interim impairment test determined that the carrying value of the reporting unit within our HHH segment exceeded its respective fair value and we accordingly recorded an aggregate goodwill impairment charge of $105.1 million during the three-month period ended September 30, 2023. During our annual goodwill impairment tests for both fiscal year 2023 and 2024, which occurred on the first day of the fourth quarter of each fiscal year, we did not identify any reporting units in which the related carrying value exceeded the estimated fair value.

We can provide no assurance that our goodwill will not become subject to impairment in any future period.

Insurance Reserves

As is typical in the healthcare industry, we are subject to claims that our services have resulted in patient injury or other adverse effects.

The Company maintains primary commercial insurance coverage on a claims made basis for professional malpractice claims with a $2.0 million per claim deductible, a $2.0 million aggregate buffer retention, and $5.0 million per claim and annual aggregate limits as of October 1, 2024. The Company maintains excess insurance coverage for professional malpractice claims. In addition, the Company maintains workers’ compensation insurance with a $0.5 million per claim deductible and statutory limits. Our insurance reserves include estimates of the ultimate costs, including third-party legal defense costs for claims that have been reported but not paid and claims that have been incurred but not reported at the balance sheet dates. Although substantially all reported claims are paid directly by our commercial insurance carriers (less any applicable deductibles and/or self-insured retentions), we are ultimately responsible for payment of these claims in the event our insurance carriers become insolvent or otherwise do not honor the contractual obligations under the malpractice policies. We are required under U.S. GAAP to recognize these estimated liabilities in our consolidated financial statements on a gross basis, with a corresponding receivable from the insurance carriers reflecting the contractual indemnity provided by the carriers under the related malpractice policies.

Our insurance reserves require management to make assumptions and apply judgment to estimate the ultimate cost of reported claims and claims incurred but not reported as of the balance sheet date. Our reserves and provisions for professional liability, general liability, and workers’ compensation risks are based largely upon semi-annual actuarial calculations prepared by third-party actuaries. Periodically, we review our assumptions and the valuations provided by third-party actuaries to determine the adequacy of our insurance reserves. The following are certain of the key assumptions and other factors that significantly influence our estimate of insurance reserves:

•
historical claims experience;

•
trending of loss development factors;

•
trends in the frequency and severity of claims;

•
coverage limits of third-party insurance;

•
statistical confidence levels;

•
medical cost inflation; and

•
payroll dollars.

The time period to resolve claims can vary depending upon the jurisdiction, the nature, and the form of resolution of the claims. The estimation of the timing of payments beyond a year can vary significantly. In addition, if current and future claims differ from historical trends, our estimated reserves for insured claims may be significantly affected. Our insurance reserves are not discounted.

67

We believe our insurance reserves are adequate to cover projected costs for claims that have been reported but not paid and for claims that have been incurred but not reported. Due to the considerable variability that is inherent in such estimates, there can be no assurance that the ultimate liability will not exceed management’s estimates. If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.