Comfort Care Deal Boosts Aveanna Amid Persistent Labor Pressures

Aveanna Healthcare (NASDAQ: AVAH) is seeing strong returns from its hospice and home health acquisitions while continuing to battle labor headwinds.

Industry-wide, workforce pressures from staff shortages and rising wages have not relented. While clinical staff were dwindling prior to the pandemic, the pace accelerated when COVID-19 struck. The surges that occurred late last year and into the first quarter hit many providers particularly hard.

For Aveanna, the number of staff on paid leave due to COVID infection or exposure ballooned substantially between late December 2021 and early March of this year.

“Prior to December, we were averaging between two and 300 employees sidelined on any given day,” Aveanna CEO Tony Strange said on a Q1 earnings call. “That number spiked to just under 3,000 in the January and February timeframe.”

The company expects that labor troubles will continue in the near term, but is seeing signs of stabilization, according to Strange. The number of staff off of work due to COVID has returned to pre-Omicron levels, he said on the earnings call.

Though COVID cases and hospitalizations have begun ticking back upward, Aveanna at this point feels more insulated from those risks due to achieving a 99% vaccination rate among its employees.  But the company, like many others, continues to operate in a very competitive labor market.

“We are better prepared for future variants and our ability to work through them without the significant disruption that Omicron causes,” COO Jeff Shaner said. “Caregiver wages continue to be the number one driver of new and continued employment for our nurses. The increased competition from hospitals and travel agencies have targeted our pool of qualified nurses.”

Reimbursement increases in a number of states have allowed Aveanna to remain competitive on recruitment, Shaner indicated.

Disruption from the variant surge cost Aveanna close to $14 million to $15 million during the first quarter of the year, despite rising demand for the company’s private duty, home health, hospice and medical solutions services.

The end of Q1 marks the close of Aveanna’s first year as a publicly traded organization. Founded in 2017, the Atlanta-based provider launched a $458.8 million initial public offering (IPO) last April and currently operates 245 locations nationally.

Aveanna in Q1 saw revenues increase 8% to $450.5 million, compared to the same period in 2021. Gross margin rose 10% to $144.8 million.

Acquisitions in its home health and hospice segment were a key driver of the revenue growth, according to Shaner. This includes the company’s December 2021 purchase of Comfort Care Home Health for $345 million.

Pre-acquisition, Comfort Care operated 31 locations across Alabama and Tennessee and brought in $100 million in annual revenue, with its hospice business representing about 53% of the total.

“The biggest driver of revenue growth was the impact of a full quarter of Comfort Care, offset by labor pressures associated with Omicron,” Shaner said. “We are proud of the density of home health and hospice services that Comfort Care delivered to Aveanna in both Alabama and Tennessee. The Comfort Care acquisition demonstrates our commitment to acquiring high quality assets that complement our geographic expansion plans.”

After taking a short break to focus on integration of its late 2021 acquisitions, Aveanna is back on the lookout for additional deals.

Though the company has not spoken publicly about any potential deals in the works, Reuters recently reported that Aveanna and private equity firm Advent International were among the interested parties in the potential sale Enhabit Home Health & Hospice.

With or without Enhabit, the company is well-positioned to pursue acquisitions, with access to $400 million in cash on hand, a delayed-draw term loan and available revolving credit line.

“Our pipeline remains robust, and there are plenty of transactions to consider,” Strange said. “We will continue to remain disciplined in our approach to transactions focusing only on those deals where price consideration and synergies produce accretion for our shareholders.”