# Aveanna Healthcare Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Aveanna Healthcare Holdings, Inc.](/companies/avah.md) (CIK 1832332)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 11:13 ET
- Period: 2023-09-30
- Accession: 0000950170-23-061484
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1832332/000095017023061484/avah-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1832332/000095017023061484/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-02 to 2023-09-30 | $478.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.42bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2023-07-02 to 2023-09-30 | $147.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $447.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-02 to 2023-09-30 | $91.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $274.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-02 to 2023-09-30 | −$76.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$21.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-02 to 2023-09-30 | $39.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $113.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-02 to 2023-09-30 | $631.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-02 to 2023-09-30 | −$102.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$108.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-02 to 2023-09-30 | −$0.54 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-02 to 2023-09-30 | −$0.54 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-02 to 2023-09-30 | 189,139,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 189,632,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $25.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $48.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $318.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.65bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $364.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.76bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $1.28bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $9.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$105.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 86,920 characters.

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented below. This discussion should be read in conjunction with the interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and related notes, our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC. As discussed in the section above titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below as well as in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Unless otherwise provided, “Aveanna,” “we,” “our” and the “Company” refer to Aveanna Healthcare Holdings Inc. and its consolidated subsidiaries.

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. “Fiscal year 2023” refers to the 52-week fiscal year ending on December 30, 2023. “Fiscal year 2022” refers to the 52-week fiscal year ended on December 31, 2022. The “three-month period ended September 30, 2023”, or “third quarter of 2023” refers to the 13-week fiscal quarter ended on September 30, 2023. The “three-month period ended October 1, 2022” or “third quarter of 2022” refers to the 13-week fiscal quarter ended on October 1, 2022. The "nine-month period ended September 30, 2023", or "first nine months of 2023", refers to the period from January 1, 2023 through September 30, 2023. The "nine-month period ended October 1, 2022", or "first nine months of 2022", refers to the period from January 2, 2022 through October 1, 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.

### 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 three-month periods ended September 30, 2023 and October 1, 2022, respectively:

*(dollars in thousands)*

|  | Consolidated | PDS | HHH | MS |
| --- | ---: | ---: | ---: | ---: |
| For the three-month period ended September 30, 2023 | $478,010 | $384,750 | $52,989 | $40,271 |
| Percentage of consolidated revenue |  | 81% | 11% | 8% |
| For the three-month period ended October 1, 2022 | $443,009 | $355,620 | $49,853 | $37,536 |
| Percentage of consolidated revenue |  | 81% | 11% | 8% |

The following table summarizes the revenues generated by each of our segments for the nine-month periods ended September 30, 2023 and October 1, 2022, respectively:

*(dollars in thousands)*

|  | Consolidated | PDS | HHH | MS |
| --- | ---: | ---: | ---: | ---: |
| For the nine-month period ended September 30, 2023 | $1,416,368 | $1,135,365 | $164,525 | $116,478 |
| Percentage of consolidated revenue |  | 80% | 12% | 8% |
| For the nine-month period ended October 1, 2022 | $1,336,498 | $1,053,835 | $177,858 | $104,805 |
| Percentage of consolidated revenue |  | 79% | 13% | 8% |

### 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 employer of record 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 which 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 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 one of the largest selections 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.

### Factors Affecting Results of Operations and Comparability

### American Rescue Plan Act (“ARPA”)

On March 11, 2021 President Biden signed ARPA into law. ARPA is a federal stimulus bill designed to aid public health and economic recovery from the COVID-19 pandemic. ARPA includes $350 billion in emergency funding for state, local, territorial and tribal governments, known as the Coronavirus State and Local Fiscal Recovery Funds (“ARPA Recovery Funds”). States must obligate the ARPA Recovery Funds by December 31, 2024 and spend such funds by December 31, 2026. Usage of the ARPA Recovery Funds is subject to the requirements specified in the United States Treasury Department’s Final Rule issued on January 6, 2022 (the "Final Rule").

The Final Rule provides states with substantial flexibility in utilizing ARPA Relief Funds, including to support public health expenditures, such as vaccination programs and testing, and PPE purchases, as well as providing premium pay for essential workers, including those in home-care settings, among many other things. States may not use ARPA Recovery Funds to fund tax cuts, fund budget deficits, or to support public employee pensions. We recognized ARPA Recovery funds from various states in revenue in our consolidated statements of operations of $2.9 million and $6.6 million for the three and nine-month periods ended September 30, 2023, respectively, and $1.9 million and $5.5 million for the three and nine-month periods ended October 1, 2022, respectively. We may receive additional ARPA Recovery Funds in the future; however, we cannot estimate the amount or timing of any future receipts. These funds are not subject to repayment, provided we are able to attest to and comply with any terms and conditions of such funding, as applicable. If we are unable to attest to or comply with current or future terms and conditions, our ability to retain some or all of the ARPA Recovery Funds received may be impacted.

### HHS Proposed Rule: “Assuring Access to Medicaid Services”

On April 27, 2023, the U.S. Department of Health & Human Services ("HHS") introduced a proposed rule titled “Assuring Access to Medicaid Services.” The proposed rule has a stated goal of improving access to services for Medicaid beneficiaries. As part of this proposed rule, HHS is proposing that state Medicaid agencies provide assurances that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to direct care workers. The proposed rule would allow states four years to implement changes required by a final rule, with extended time specified for managed care delivery systems. The proposed rule was subject to comment, and HHS specifically requested comments on the 80% threshold, related definitions and the implementation period. The public comment period concluded on July 3, 2023. The ultimate impact of any final rule, which could be adverse for periods after implementation, but could also benefit our business by improving access to services, depends on the requirements set forth in any final rule.

### Important Operating Metrics

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

### PDS 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 MS 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 as we believe it is a leading indicator of our growth. We measure home health admissions by reimbursement structure, separating them into home health episodic admissions and fee-for-service admissions (other admissions), which allows us to better understand the payor 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 as to understand the volume of patients who were authorized to receive care during the month.

### 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

### Three-Month Period Ended September 30, 2023 Compared to the Three-Month Period Ended October 1, 2022

The following table summarizes our consolidated results of operations, including Field contribution, which is a non-GAAP measure (see “Non-GAAP Financial Measures” below), for the three-month periods indicated:

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 | % of Revenue | October 1, 2022 | % of Revenue | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $478,010 | 100.0% | $443,009 | 100.0% | $35,001 | 7.9% |
| Cost of revenue, excluding depreciation and amortization | 330,746 | 69.2% | 308,426 | 69.6% | 22,320 | 7.2% |
| Gross margin | $147,264 | 30.8% | $134,583 | 30.4% | $12,681 | 9.4% |
| Branch and regional administrative expenses | 91,004 | 19.0% | 89,542 | 20.2% | 1,462 | 1.6% |
| Field contribution | $56,260 | 11.8% | $45,041 | 10.2% | $11,219 | 24.9% |
| Corporate expenses | 27,446 | 5.7% | 33,215 | 7.5% | (5,769) | -17.4% |
| Goodwill impairment | 105,136 | 22.0% | - | 0.0% | 105,136 | - |
| Depreciation and amortization | 2,962 | 0.6% | 4,917 | 1.1% | (1,955) | -39.8% |
| Acquisition-related costs | 428 | 0.1% | - | 0.0% | 428 | - |
| Other operating (income) expense | (3,360) | -0.7% | 2,122 | 0.5% | (5,482) | -258.3% |
| Operating (loss) income | $(76,352) | -16.0% | $4,787 | 1.1% | $(81,139) | NM |
| Interest expense, net | (39,549) |  | (28,298) |  | (11,251) | 39.8% |
| Other income | 14,143 |  | 45,140 |  | (30,997) | -68.7% |
| Income tax (expense) benefit | (631) |  | 2,669 |  | (3,300) | -123.6% |
| Net (loss) income | $(102,389) |  | $24,298 |  | $(126,687) | 521.4% |

NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.

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 three-month periods indicated:

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 | October 1, 2022 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $478,010 | $443,009 | $35,001 | 7.9% |
| Cost of revenue, excluding depreciation and amortization | 330,746 | 308,426 | 22,320 | 7.2% |
| Gross margin | $147,264 | $134,583 | $12,681 | 9.4% |
| Gross margin percentage | 30.8% | 30.4% |  |  |
| Branch and regional administrative expenses | 91,004 | 89,542 | 1,462 | 1.6% |
| Field contribution | $56,260 | $45,041 | $11,219 | 24.9% |
| Field contribution margin | 11.8% | 10.2% |  |  |
| Corporate expenses | $27,446 | $33,215 | $(5,769) | -17.4% |
| As a percentage of revenue | 5.7% | 7.5% |  |  |
| Operating (loss) income | $(76,352) | $4,787 | $(81,139) | NM |
| As a percentage of revenue | -16.0% | 1.1% |  |  |

NM = A percentage calculation that is not meaningful due to a percentage change greater than 1000%.

The following tables summarize our key performance measures by segment for the three-month periods indicated:

*(dollars and hours in thousands)*

|  | PDS For the three-month periods ended September 30, 2023 | October 1, 2022 | Change | % Change |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Revenue | $384,750 | $355,620 | $29,130 | 8.2% |  |
| Cost of revenue, excluding depreciation and amortization | 280,288 | 254,756 | 25,532 | 10.0% |  |
| Gross margin | $104,462 | $100,864 | $3,598 | 3.6% |  |
| Gross margin percentage | 27.2% | 28.4% |  | -1.2% | (4) |
| Hours | 10,090 | 9,652 | 438 | 4.5% |  |
| Revenue rate | $38.13 | $36.84 | $1.29 | 3.7% | (1) |
| Cost of revenue rate | $27.78 | $26.39 | $1.39 | 5.5% | (2) |
| Spread rate | $10.35 | $10.45 | $(0.10) | -0.9% | (3) |
|  | **HHH** |  |  |  |  |
|  | **For the three-month periods ended** |  |  |  |  |
| (dollars and admissions/episodes in thousands) | **September 30, 2023** | **October 1, 2022** | **Change** | **% Change** |  |
| Revenue | $52,989 | $49,853 | $3,136 | 6.3% |  |
| Cost of revenue, excluding depreciation and amortization | 27,597 | 32,968 | (5,371) | -16.3% |  |
| Gross margin | $25,392 | $16,885 | $8,507 | 50.4% |  |
| Gross margin percentage | 47.9% | 33.9% |  | 14.0% | (4) |
| Home health total admissions (5) | 9.3 | 11.3 | (2.0) | -17.7% |  |
| Home health episodic admissions (6) | 7.0 | 7.0 | - | 0.0% |  |
| Home health total episodes (7) | 11.2 | 11.4 | (0.2) | -1.8% |  |
| Home health revenue per completed episode (8) | $3,046 | $3,023 | $23 | 0.8% |  |
|  | **MS** |  |  |  |  |
|  | **For the three-month periods ended** |  |  |  |  |
| (dollars and UPS in thousands) | **September 30, 2023** | **October 1, 2022** | **Change** | **% Change** |  |
| Revenue | $40,271 | $37,536 | $2,735 | 7.3% |  |
| Cost of revenue, excluding depreciation and amortization | 22,861 | 20,702 | 2,159 | 10.4% |  |
| Gross margin | $17,410 | $16,834 | $576 | 3.4% |  |
| Gross margin percentage | 43.2% | 44.8% |  | -1.6% | (4) |
| Unique patients served (“UPS”) | 88 | 81 | 7 | 8.6% |  |
| Revenue rate | $457.63 | $463.41 | $(5.78) | -1.3% | (1) |
| Cost of revenue rate | $259.78 | $255.58 | $4.20 | 1.8% | (2) |
| Spread rate | $197.84 | $207.83 | $(9.98) | -5.2% | (3) |

(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 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 our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

#### Summary Operating Results

#### Operating (Loss) Income

Operating loss was $76.4 million for the three-month period ended September 30, 2023, as compared to an operating income of $4.8 million, or 1.1% of revenue, for the three-month period ended October 1, 2022, a decrease of $81.1 million, primarily driven by a $105.1 million non-cash charge for goodwill impairment recorded in the third quarter of 2023.

Operating loss for the third quarter of 2023 was positively impacted by an increase of $11.2 million, or 24.9%, in Field contribution, as compared to the third quarter of 2022. The $11.2 million increase in Field contribution resulted from a $35.0 million, or 7.9%, increase in consolidated revenue and a 1.6% increase in our Field contribution margin to 11.8% for the third quarter of 2023 from 10.2% for the third quarter of 2022. The primary driver of our higher Field contribution margin over the comparable quarter was a 0.4% increase in gross margin percentage to 30.8% for the third quarter of 2023 from 30.4% for the third quarter of 2022.

In addition to the $11.2 million increase in Field contribution, the following additional items primarily contributed to the overall $81.1 million decrease in operating income over the comparable third quarter periods:

- the $105.1 million non-cash charge for goodwill impairment;
- a $5.8 million decrease in corporate expenses;
- a $5.5 million increase in other operating (income) expense; and
- a $2.0 million decrease in depreciation and amortization.

#### Net (Loss) Income

Net loss for the three-month period ended September 30, 2023 was $102.4 million, as compared to net income of $24.3 million for three-month period ended October 1, 2022. The $126.7 million decrease in net income was primarily driven by the following:

- the previously discussed $81.1 million decrease in operating income;
- an aggregate $31.0 million decrease in valuation gains on interest rate derivatives and net settlements received from interest rate derivative counterparties over the comparable quarter;
- a $3.3 million increase in tax expense (benefit); and
- a $11.3 million increase in interest expense, net of interest income.

#### Revenue

Revenue was $478.0 million for the three-month period ended September 30, 2023, as compared to $443.0 million for the three-month period ended October 1, 2022, an increase of $35.0 million, or 7.9%. This increase resulted from the following segment activity:

- a $29.1 million, or 8.2%, increase in PDS revenue;
- a $3.1 million, or 6.3%, increase in HHH revenue; and
- a $2.7 million, or 7.3%, increase in MS revenue.

Our PDS segment revenue growth of $29.1 million, or 8.2%, for the three-month period ended September 30, 2023 was attributable to a 4.5% increase in volume and a 3.7% increase in revenue rate. The 4.5% increase in volume is primarily attributable to growth in demand for non-clinical services.

The 3.7% increase in PDS revenue rate for the three-month period ended September 30, 2023, as compared to the three-month period ended October 1, 2022, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers.

Our HHH segment revenue increase of $3.1 million, or 6.3%, for the three-month period ended September 30, 2023 resulted primarily from an improvement in implicit price concessions compared to the comparable period, partially offset by a decline in volumes over the comparable period.

The $2.7 million, or 7.3%, increase in MS segment revenue for the three-month period ended September 30, 2023, as compared to the three-month period ended October 1, 2022, was attributable to volume growth of 8.6% partially offset by a 1.3% decrease in revenue rate over the comparable period.

#### Cost of Revenue, Excluding Depreciation and Amortization

Cost of revenue, excluding depreciation and amortization, was $330.7 million for the three-month period ended September 30, 2023, as compared to $308.4 million for the three-month period ended October 1, 2022, an increase of $22.3 million, or 7.2%. This increase resulted from the following segment activity:

- a $25.5 million, or 10.0%, increase in PDS cost of revenue;
- a $5.4 million, or 16.3%, decrease in HHH cost of revenue; and
- a $2.2 million, or 10.4%, increase in MS cost of revenue.

The 10.0% increase in PDS cost of revenue for the three-month period ended September 30, 2023 resulted from the previously described 4.5% increase in PDS volume combined with a 5.5% increase in PDS cost of revenue rate. The 5.5% increase in cost of revenue rate primarily resulted from higher caregiver labor costs, including pass-through of state reimbursement rate increases.

The 16.3% decrease in HHH cost of revenue for the three-month period ended September 30, 2023 was primarily driven by a decline in HHH volumes, as well as lower overall caregiver costs as a percentage of revenue.

The 10.4% increase in MS cost of revenue for the three-month period ended September 30, 2023 was driven by the previously described 8.6% growth in MS volumes during the third quarter of 2022 and a 1.8% increase in cost of revenue rate.

#### Gross Margin and Gross Margin Percentage

Gross margin was $147.3 million, or 30.8% of revenue, for the three-month period ended September 30, 2023, as compared to $134.6 million, or 30.4% of revenue, for the three-month period ended October 1, 2022. Gross margin increased $12.7 million, or 9.4%, from the comparable prior year quarter. The 0.4% increase in gross margin percentage for the three-month period ended September 30, 2023 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:

- a 0.9% decrease in PDS spread rate from $10.45 to $10.35 driven by the 3.7% increase in PDS revenue rate, net of the 5.5% increase in PDS cost of revenue rate;
- a 5.2% decrease in MS spread rate from $207.83 to $197.84 driven by the 1.3% decrease in MS revenue rate, net of the 1.8% increase in MS cost of revenue rate; and
- our HHH segment, in which gross margin percentage increased by 14.0%.

#### Branch and Regional Administrative Expenses

Branch and regional administrative expenses were $91.0 million, or 19.0% of revenue, for the three-month period ended September 30, 2023, as compared to $89.5 million, or 20.2% of revenue, for the three-month period ended October 1, 2022, an increase of $1.5 million, or 1.6%.

The 1.6% increase in branch and regional administrative expenses was lower than our 7.9% revenue growth for the three-month period ended September 30, 2023, as compared to the three-month period ended October 1, 2022, primarily due to the positive effects of restructuring portions of our branch and regional operating structure and lower integration costs in the current year quarter, as the integration of our acquisitions in the HHH segment effected in 2021 (the "2021 HHH Acquisitions") was completed in the second half of 2022. These factors resulted in the overall 1.2% decrease in branch and regional administrative expenses as a percentage of revenue during the comparable quarterly periods.

#### Field Contribution and Field Contribution Margin

Field contribution was $56.3 million, or 11.8% of revenue, for the three-month period ended September 30, 2023, as compared to $45.0 million, or 10.2% of revenue, for the three-month period ended October 1, 2022. Field contribution increased $11.2 million, or 24.9%, for the three-month period ended September 30, 2023, as compared to the three-month period ended October 1, 2022. The 1.6% increase in Field contribution margin for the three-month period ended September 30, 2023 resulted from the following:

- the 0.4% increase in gross margin percentage in the three-month period ended September 30, 2023, as compared to the three-month period ended October 1, 2022; and
- the 1.2% decrease in branch and regional administrative expenses as a percentage of revenue for the three-month period ended September 30, 2023 compared to the three-month period ended October 1, 2022.

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 three-month periods ended September 30, 2023 and October 1, 2022 were as follows:

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 Amount | % of Revenue | October 1, 2022 Amount | % of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $478,010 |  | $443,009 |  |
| Corporate expense components: |  |  |  |  |
| Compensation and benefits | $14,593 | 3.1% | $15,274 | 3.4% |
| Non-cash share-based compensation | 2,513 | 0.5% | 2,259 | 0.5% |
| Professional services | 4,492 | 0.9% | 8,576 | 1.9% |
| Rent and facilities expense | 3,301 | 0.7% | 3,362 | 0.8% |
| Office and administrative | 482 | 0.1% | 837 | 0.2% |
| Other | 2,065 | 0.5% | 2,907 | 0.7% |
| Total corporate expenses | $27,446 | 5.7% | $33,215 | 7.5% |

Corporate expenses were $27.4 million, or 5.7% of revenue, for the three-month period ended September 30, 2023, as compared to $33.2 million, or 7.5% of revenue, for the three-month period ended October 1, 2022. The $5.8 million, or 17.4%, decrease in corporate expenses resulted primarily from:

- lower compensation and benefits costs due to a reduction in transition and integration activities with acquired businesses, as well as the executive transition completed on December 31, 2022; and
- lower professional service costs due to a reduction in transition and integration activities.

#### Goodwill Impairment

Goodwill impairment was $105.1 million for the three-month period ended September 30, 2023. As a result of anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment, primarily related to continued challenges in the labor markets, we recorded a $105.1 million non-cash goodwill impairment charge during the three months ended September 30, 2023. There was no goodwill impairment charge recorded in the comparable quarterly period ended October 1, 2022. Please see Note 4 - *Goodwill*, to the interim unaudited consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

#### Depreciation and Amortization

Depreciation and amortization was $3.0 million for the three-month period ended September 30, 2023, as compared to $4.9 million for the three-month period ended October 1, 2022, a decrease of $2.0 million, or 39.8%. The $2.0 million decrease primarily resulted from the absence of amortization charges associated with assets acquired in connection with the acquisition of Comfort Care and Accredited completed in the fourth quarter of 2021 which were amortized over a one-year period.

#### Other Operating (Income) Expense

Other operating income was $3.4 million for the three-month period ended September 30, 2023, as compared to other operating expense of $2.1 million for the three-month period ended October 1, 2022, an increase of $5.5 million. The $5.5 million increase primarily resulted from a $5.1 million non-cash gain on the acquisition of certain business licenses and other net assets recorded during the third quarter of 2023, and a decrease in license impairment charges recorded in the comparable periods.

#### Interest Expense, net of Interest Income

Interest expense, net of interest income was $39.5 million for the three-month period ended September 30, 2023, as compared to $28.3 million for the three-month period ended October 1, 2022, an increase of $11.3 million, or 39.8%. The increase was primarily driven by significant increases in interest rates, largely because the Federal Reserve Board has significantly increased the U.S. federal funds rate since the beginning of 2022. See further analysis under *Liquidity and Capital Resources* below.

#### Other Income

Other income was $14.1 million for the three-month period ended September 30, 2023, as compared to other income of $45.1 million for the three-month period ended October 1, 2022, an decrease of $31.0 million. We realized a $40.5 million decrease in non-cash valuation gains on interest rate derivatives resulting from changes in market expectations of future interest rates as of the comparable quarter-end valuation dates and a $9.6 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year quarter. Details of other income included the following:

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: |
| Valuation gain to state interest rate derivatives at fair value | $4,322 | $44,845 |
| Net settlements received from interest rate derivative counterparties | 9,797 | 193 |
| Other | 24 | 102 |
| Total other income | $14,143 | $45,140 |

#### Income Taxes

We incurred income tax expense of $0.6 million for the three-month period ended September 30, 2023, as compared to income tax benefit of $2.7 million for the three-month period ended October 1, 2022. This decrease in tax benefit was primarily driven by the changes in federal and state valuation allowances, and changes to federal and state current tax expense.

### Nine-Month Period Ended September 30, 2023 Compared to the Nine-Month Period Ended October 1, 2022

The following table summarizes our consolidated results of operations, including Field contribution, which is a non-GAAP measure (see “Non-GAAP Financial Measures” below), for the nine-month periods indicated:

*(dollars in thousands)*

|  | For the nine-month periods ended September 30, 2023 | % of Revenue | October 1, 2022 | % of Revenue | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $1,416,368 | 100.0% | $1,336,498 | 100.0% | $79,870 | 6.0% |
| Cost of revenue, excluding depreciation and amortization | 969,384 | 68.4% | 912,046 | 68.2% | 57,338 | 6.3% |
| Gross margin | $446,984 | 31.6% | $424,452 | 31.8% | $22,532 | 5.3% |
| Branch and regional administrative expenses | 273,967 | 19.3% | 267,283 | 20.0% | 6,684 | 2.5% |
| Field contribution | $173,017 | 12.2% | $157,169 | 11.8% | $15,848 | 10.1% |
| Corporate expenses | 84,735 | 6.0% | 105,984 | 7.9% | (21,249) | -20.0% |
| Goodwill impairment | 105,136 | 7.4% | 470,207 | 35.2% | (365,071) | -77.6% |
| Depreciation and amortization | 10,494 | 0.7% | 16,774 | 1.3% | (6,280) | -37.4% |
| Acquisition-related costs | 466 | 0.0% | 69 | 0.0% | 397 | 575.4% |
| Other operating (income) expense | (6,593) | -0.5% | 1,953 | 0.1% | (8,546) | -437.6% |
| Operating loss | $(21,221) | -1.5% | $(437,818) | -32.8% | $416,597 | -95.2% |
| Interest expense, net | (113,304) |  | (73,376) |  | (39,928) | 54.4% |
| Other income | 27,124 |  | 86,523 |  | (59,399) | -68.7% |
| Income tax (expense) benefit | (1,387) |  | 416 |  | (1,803) | -433.4% |
| Net loss | $(108,788) |  | $(424,255) |  | $315,467 | -74.4% |

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 nine-month periods indicated:

*(dollars in thousands)*

|  | For the nine-month periods ended September 30, 2023 | October 1, 2022 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,416,368 | $1,336,498 | $79,870 | 6.0% |
| Cost of revenue, excluding depreciation and amortization | 969,384 | 912,046 | 57,338 | 6.3% |
| Gross margin | $446,984 | $424,452 | $22,532 | 5.3% |
| Gross margin percentage | 31.6% | 31.8% |  |  |
| Branch and regional administrative expenses | 273,967 | 267,283 | 6,684 | 2.5% |
| Field contribution | $173,017 | $157,169 | $15,848 | 10.1% |
| Field contribution margin | 12.2% | 11.8% |  |  |
| Corporate expenses | $84,735 | $105,984 | $(21,249) | -20.0% |
| As a percentage of revenue | 6.0% | 7.9% |  |  |
| Operating loss | $(21,221) | $(437,818) | $416,597 | -95.2% |
| As a percentage of revenue | -1.5% | -32.8% |  |  |

27

The following tables summarize our key performance measures by segment for the nine-month periods indicated:

*(dollars and hours in thousands)*

|  | PDS For the nine-month periods ended September 30, 2023 | October 1, 2022 | Change | % Change |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Revenue | $1,135,365 | $1,053,835 | $81,530 | 7.7% |  |
| Cost of revenue, excluding depreciation and amortization | 815,221 | 753,266 | 61,955 | 8.2% |  |
| Gross margin | $320,144 | $300,569 | $19,575 | 6.5% |  |
| Gross margin percentage | 28.2% | 28.5% |  | -0.3% | (4) |
| Hours | 29,738 | 28,868 | 870 | 3.0% |  |
| Revenue rate | $38.18 | $36.51 | $1.67 | 4.7% | (1) |
| Cost of revenue rate | $27.41 | $26.09 | $1.32 | 5.2% | (2) |
| Spread rate | $10.77 | $10.41 | $0.36 | 3.5% | (3) |
|  | **HHH** |  |  |  |  |
|  | **For the nine-month periods ended** |  |  |  |  |
| (dollars and admissions/episodes in thousands) | **September 30, 2023** | **October 1, 2022** | **Change** | **% Change** |  |
| Revenue | $164,525 | $177,858 | $(13,333) | -7.5% |  |
| Cost of revenue, excluding depreciation and amortization | 87,189 | 98,933 | (11,744) | -11.9% |  |
| Gross margin | $77,336 | $78,925 | $(1,589) | -2.0% |  |
| Gross margin percentage | 47.0% | 44.4% |  | 2.6% | (4) |
| Home health total admissions (5) | 30.9 | 38.0 | (7.1) | -18.7% |  |
| Home health episodic admissions (6) | 21.8 | 23.3 | (1.5) | -6.4% |  |
| Home health total episodes (7) | 34.2 | 37.5 | (3.3) | -8.8% |  |
| Home health revenue per completed episode (8) | $3,022 | $2,978 | $44 | 1.5% |  |
|  | **MS** |  |  |  |  |
|  | **For the nine-month periods ended** |  |  |  |  |
| (dollars and UPS in thousands) | **September 30, 2023** | **October 1, 2022** | **Change** | **% Change** |  |
| Revenue | $116,478 | $104,805 | $11,673 | 11.1% |  |
| Cost of revenue, excluding depreciation and amortization | 66,974 | 59,847 | 7,127 | 11.9% |  |
| Gross margin | $49,504 | $44,958 | $4,546 | 10.1% |  |
| Gross margin percentage | 42.5% | 42.9% |  | -0.4% | (4) |
| Unique patients served (“UPS”) | 258 | 237 | 21 | 8.9% |  |
| Revenue rate | $451.47 | $442.22 | $9.25 | 2.2% | (1) |
| Cost of revenue rate | $259.59 | $252.52 | $7.07 | 3.0% | (2) |
| Spread rate | $191.88 | $189.70 | $2.18 | 1.2% | (3) |

(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 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 our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

#### Summary Operating Results

#### Operating Loss

Operating loss was $21.2 million for the nine-month period ended September 30, 2023, as compared to operating loss of $437.8 million for the nine-month period ended October 1, 2022, a decrease of $416.6 million, or 95.2%, primarily driven by a $365.1 million decrease in non-cash charges for goodwill impairment recorded in the comparative nine-month period.

Operating loss for the first nine months of 2023 was positively impacted by an increase of $15.8 million, or 10.1%, in Field contribution as compared to the first nine months of 2022. The $15.8 million increase in Field contribution resulted from a $79.9 million, or 6.0%, increase in consolidated revenue and a 0.4% increase in our Field contribution margin to 12.2% for the first nine months of 2023 from 11.8% for the first nine months of 2022. The primary driver of our higher Field contribution margin year over year was a 0.7% decrease in branch and regional administrative expenses as a percentage of revenue to 19.3% for the first nine months of 2023 from 20.0% for the first nine months of 2022.

In addition to the $15.8 million increase in Field contribution, the following additional items primarily contributed to the overall $416.6 million increase in operating income over the comparable periods:

- the $365.1 million decrease in non-cash charges for goodwill impairment;
- a $21.2 million decrease in corporate expenses;
- a $8.5 million increase in other operating income (expense); and
- a $6.3 million decrease in depreciation and amortization.

#### Net Loss

Net loss for the nine-month period ended September 30, 2023 was $108.8 million, as compared to net loss of $424.3 million for the nine-month period ended October 1, 2022. The $315.5 million decrease in net loss was primarily driven by the following:

- the previously discussed $416.6 million increase in operating income; offset by
- a $39.9 million increase in interest expense, net of interest income; and
- an aggregate $59.4 million decrease in valuation gains on interest rate derivatives, net of increases in net settlements received from interest rate derivative counterparties over the comparable year to date periods.

#### Revenue

Revenue was $1,416.4 million for the nine-month period ended September 30, 2023, as compared to $1,336.5 million for the nine-month period ended October 1, 2022, an increase of $79.9 million, or 6.0%. This increase resulted from the following segment activity:

- an $81.5 million, or 7.7%, increase in PDS revenue;
- a $13.3 million, or 7.5%, decrease in HHH revenue; and
- an $11.7 million, or 11.1%, increase in MS revenue.

Our PDS segment revenue growth of $81.5 million, or 7.7%, for the nine-month period ended September 30, 2023 was attributable to a 3.0% increase in volume and a 4.7% increase in revenue rate. The 3.0% increase in volume was primarily attributable to growth in demand for non-clinical services.

The 4.7% increase in PDS revenue rate for the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022, resulted primarily from reimbursement rate increases issued by various state Medicaid programs and Managed Medicaid payers.

Our HHH segment revenue decline of $13.3 million, or 7.5%, for the nine-month period ended September 30, 2023 resulted primarily from a decline in volumes over the comparable period.

The $11.7 million, or 11.1%, increase in MS segment revenue for the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022, was attributable to volume growth of 8.9% combined with a 2.2% increase in revenue rate over the comparable period.

#### Cost of Revenue, Excluding Depreciation and Amortization

Cost of revenue, excluding depreciation and amortization, was $969.4 million for the nine-month period ended September 30, 2023, as compared to $912.0 million for the nine-month period ended October 1, 2022, an increase of $57.3 million, or 6.3%. This increase resulted from the following segment activity:

- a $62.0 million, or 8.2%, increase in PDS cost of revenue;
- a $11.7 million, or 11.9%, decrease in HHH cost of revenue; and
- a $7.1 million, or 11.9%, increase in MS cost of revenue.

The 8.2% increase in PDS cost of revenue for the nine-month period ended September 30, 2023 resulted from the previously described 3.0% increase in PDS volume combined with a 5.2% increase in PDS cost of revenue rate. The 5.2% increase in cost of revenue rate primarily resulted from higher caregiver labor costs including pass-through of state reimbursement rate increases.

The 11.9% decrease in HHH cost of revenue for the nine-month period ended September 30, 2023 was driven primarily by a decline in HHH volumes, offset in part by increases in overall caregiver costs as a percentage of revenue.

The 11.9% increase in MS cost of revenue for the nine-month period ended September 30, 2023 was driven by the previously described 8.9% growth in MS volumes and a 3.0% increase in cost of revenue rate.

#### Gross Margin and Gross Margin Percentage

Gross margin was $447.0 million, or 31.6% of revenue, for the nine-month period ended September 30, 2023, as compared to $424.5 million, or 31.8% of revenue, for the nine-month period ended October 1, 2022. Gross margin increased $22.5 million, or 5.3%, from the comparable prior year quarter. The 0.2% decrease in gross margin percentage for the nine-month period ended September 30, 2023 resulted from the combined changes in our revenue rates and cost of revenue rates in each of our segments, which we refer to as the change in our spread rate, as follows:

- a 3.5% increase in PDS spread rate from $10.41 to $10.77 driven by the 4.7% increase in PDS revenue rate, net of the 5.2% increase in PDS cost of revenue rate;
- a 1.2% increase in MS spread rate from $189.70 to $191.88 driven by the 2.2% increase in MS revenue rate, net of the 3.0% increase in MS cost of revenue rate; and
- our HHH segment, in which gross margin percentage increased by 2.6%.

#### Branch and Regional Administrative Expenses

Branch and regional administrative expenses were $274.0 million, or 19.3% of revenue, for the nine-month period ended September 30, 2023, as compared to $267.3 million, or 20.0% of revenue, for the nine-month period ended October 1, 2022, an increase of $6.7 million, or 2.5%.

The 2.5% increase in branch and regional administrative expenses was lower than our 6.0% revenue growth for the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022, primarily due to lower integration costs in the current year, as the integration of the 2021 HHH Acquisitions was completed in the second half of 2022, and the positive effects of restructuring portions of our branch and regional operating structure. These factors have resulted in the overall 0.7% decrease in branch and regional administrative expenses as a percentage of revenue during the comparable nine-month periods.

#### Field Contribution and Field Contribution Margin

Field contribution was $173.0 million, or 12.2% of revenue, for the nine-month period ended September 30, 2023, as compared to $157.2 million, or 11.8% of revenue, for the nine-month period ended October 1, 2022. Field contribution increased $15.8 million, or 10.1%, for the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022. The 0.4% increase in Field contribution margin for the nine-month period ended September 30, 2023 resulted from the following:

- the 0.2% decrease in gross margin percentage in the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022; and
- a 0.7% decrease in branch and regional administrative expenses as a percentage of revenue in the nine-month period ended September 30, 2023, as compared to the nine-month period ended October 1, 2022.

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 nine-month periods ended September 30, 2023 and October 1, 2022 were as follows:

*(dollars in thousands)*

|  | For the nine-month periods ended September 30, 2023 Amount | % of Revenue | October 1, 2022 Amount | % of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,416,368 |  | $1,336,498 |  |
| Corporate expense components: |  |  |  |  |
| Compensation and benefits | $46,642 | 3.3% | $49,070 | 3.7% |
| Non-cash share-based compensation | 7,179 | 0.5% | 10,607 | 0.8% |
| Professional services | 13,275 | 0.9% | 25,310 | 1.9% |
| Rent and facilities expense | 9,282 | 0.7% | 9,869 | 0.7% |
| Office and administrative | 1,217 | 0.1% | 2,749 | 0.2% |
| Other | 7,140 | 0.5% | 8,379 | 0.6% |
| Total corporate expenses | $84,735 | 6.0% | $105,984 | 7.9% |

Corporate expenses were $84.7 million, or 6.0% of revenue, for the nine-month period ended September 30, 2023, as compared to $106.0 million, or 7.9% of revenue, for the nine-month period ended October 1, 2022. The $21.2 million, or 20.0%, decrease in corporate expenses resulted primarily from:

- lower compensation and benefits costs due to a reduction in transition and integration activities with acquired businesses, as well as the executive transition completed on December 31, 2022;
- lower non-cash share-based compensation costs due to certain forfeitures of unvested awards and the absence of expense from vesting of pre-IPO awards which were fully expensed during fiscal year 2022; and
- lower professional service costs due to a reduction in transition and integration activities.

#### Goodwill Impairment

Goodwill impairment was $105.1 million for the nine-month period ended September 30, 2023. As a result of anticipated volume not being actualized to forecasted levels in the reporting unit within our HHH segment, primarily related to continued challenges in the labor markets, we recorded a $105.1 million non-cash goodwill impairment charge during the nine months ended September 30, 2023. We recorded a goodwill impairment of $470.2 million in the comparable period ended October 1, 2022. Please see Note 4 - *Goodwill*, to the interim unaudited consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

#### Depreciation and Amortization

Depreciation and amortization was $10.5 million for the nine-month period ended September 30, 2023, as compared to $16.8 million for the nine-month period ended October 1, 2022, a decrease of $6.3 million, or 37.4%. The $6.3 million decrease primarily resulted from the absence of amortization charges associated with assets acquired in connection with the acquisition of Comfort Care and Accredited completed in the fourth quarter of 2021 which were amortized over a one year period.

#### Other Operating Income (Expense)

Other operating income was $6.6 million for the nine-month period ended September 30, 2023, as compared to other operating expense of $2.0 million for the nine-month period ended October 1, 2022, an increase of $8.5 million. The $8.5 million increase primarily resulted from a $5.1 million non-cash gain on the acquisition of certain business licenses and other net assets recorded during the third quarter of 2023 and a release of reserve of $3.6 million related to the settlement of a legal matter resulting from a 2020 acquisition.

#### Interest Expense, net of Interest Income

Interest expense, net of interest income was $113.3 million for the nine-month period ended September 30, 2023, as compared to $73.4 million for the nine-month period ended October 1, 2022, an increase of $39.9 million, or 54.4%. The increase was primarily driven by significant increases in interest rates, largely because the Federal Reserve Board has significantly increased the U.S. federal funds rate since the beginning of 2022. See further analysis under *Liquidity and Capital Resources* below.

#### Other Income

Other income was $27.1 million for the nine-month period ended September 30, 2023, as compared to other income of $86.5 million for the nine-month period ended October 1, 2022, a decrease of $59.4 million. We realized a $87.1 million decrease in non-cash valuation gains on interest rate derivatives resulting from changes in market expectations of future interest rates as of the comparable quarter-end valuation dates; offset by an $27.8 million improvement in net settlements with interest rate derivative counterparties as interest rates increased compared to the prior year period. Details of other income included the following:

*(dollars in thousands)*

|  | For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: |
| Valuation gain to state interest rate derivatives at fair value | $2,584 | $89,634 |
| Net settlements received from (paid to) interest rate derivative counterparties | 24,279 | (3,568) |
| Other | 261 | 457 |
| Total other income | $27,124 | $86,523 |

#### Income Taxes

We incurred income tax expense of $1.4 million for the nine-month period ended September 30, 2023, as compared to income tax benefit of $0.4 million for the nine-month period ended October 1, 2022. This increase in tax expense was primarily driven by the changes in federal and state valuation allowances, and changes to 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) income. Rather, we present EBITDA and Adjusted EBITDA as supplemental measures of our performance. We define EBITDA as net (loss) income before interest expense, net; income tax (expense) 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; COVID-19 related costs; 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 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.

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

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 | October 1, 2022 | For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income | $(102,389) | $24,298 | $(108,788) | $(424,255) |
| Interest expense, net | 39,549 | 28,298 | 113,304 | 73,376 |
| Income tax expense (benefit) | 631 | (2,669) | 1,387 | (416) |
| Depreciation and amortization | 2,962 | 4,917 | 10,494 | 16,774 |
| EBITDA | (59,247) | 54,844 | 16,397 | (334,521) |
| Goodwill, intangible and other long-lived asset impairment | 106,841 | 2,108 | 107,222 | 472,192 |
| Non-cash share-based compensation | 5,116 | 3,512 | 10,144 | 14,108 |
| Interest rate derivatives (1) | (14,120) | (45,038) | (26,865) | (86,066) |
| Acquisition-related costs (2) | 428 | - | 465 | 69 |
| Integration costs (3) | 497 | 3,266 | 1,732 | 16,493 |
| Legal costs and settlements associated with acquisition matters (4) | 346 | 876 | (4,796) | 3,385 |
| COVID-related costs, net of reimbursement (5) | - | - | - | 5,087 |
| Restructuring (6) | 985 | 2,149 | 5,733 | 2,149 |
| Other legal matters (7) | - | - | (5,000) | - |
| Other system transition costs, professional fees and other (8) | (4,655) | 3,030 | (4,505) | 6,768 |
| Total adjustments (9) | $95,438 | $(30,097) | $84,130 | $434,185 |
| Adjusted EBITDA | $36,191 | $24,747 | $100,527 | $99,664 |

(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 $0.3 million and $1.1 million for the three and nine-month periods ended September 30, 2023, respectively, and $0.6 million and $2.3 million for the three and nine-month periods ended October 1, 2022, respectively; and (ii) transitionary costs incurred to integrate acquired companies into our field and corporate operations of $0.2 million and $0.6 million for the three and nine-month periods ended September 30, 2023, respectively, and $2.7 million and $14.2 million for the three and nine-month periods ended October 1, 2022, 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 $0.0 million and $0.3 million for the three and nine-month periods ended September 30, 2023, respectively, and $0.8 million and $3.1 million for the three and nine-month periods ended October 1, 2022, 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 for the nine-month periods ended September 30, 2023, related to the settlement of a legal matter resulting from a 2020 acquisition.

(5) Represents costs incurred as a result of the COVID-19 environment, primarily including, but not limited to, (i) relief, vaccine, and hero pay provided to our caregivers; staffing and retention related incentives to attract and retain caregivers in the midst of the Omicron surge; and other incremental compensation costs; (ii) sick leave for our caregivers required by OSHA's Emergency Temporary Standard, costs required to comply with federal, state and local vaccination mandates and testing requirements, and worker compensation costs for mandated quarantine time; (iii) incremental PPE costs; and (iv) salary, severance and lease termination costs associated with workforce reductions necessitated by COVID-19; net of temporary reimbursement rate increases provided by certain state Medicaid and Medicaid Managed Care programs.

(6) Represents costs associated with restructuring our branch and regional administrative footprint as well as our corporate overhead infrastructure costs for the three and nine-month periods ended September 30, 2023, 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; and (iii) rent and lease termination costs associated with the closure of certain office locations.

(7) Represents adjustments to an accrued legal settlement and the related costs and expenses associated with a certain judgment rendered against the Company related to a civil litigation matter in Texas.

(8) Represents (i) costs associated with the implementation of, and transition to, new electronic medical record systems, billing and collection systems, duplicative system costs while such transformational projects are in-process, and other system transition costs of $0.6 million and $1.3 million for the three and nine-month period ended September 30, 2023, respectively, and $2.2 million and $5.4 million for the three and nine-month periods ended October 1, 2022, respectively, there were no such costs incurred in the three-month period ended July 1, 2023, (ii) a $5.1 million non-cash gain on the acquisition of certain business licenses and other net assets in the three and nine-month periods ended September 30, 2023, there were no such gains recorded in any other periods, and (iii) other costs or (income) that are either non-cash or non-core to the Company’s ongoing operations of $(0.2) million and $(0.8) million for the three and nine-month periods ended September 30, 2023, respectively, and $0.8 million and $1.4 million for the three and nine-month periods ended October 1, 2022, respectively.

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

*(dollars in thousands)*

|  | Impact to Adjusted EBITDA For the three-month periods ended September 30, 2023 | October 1, 2022 | For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $- | $- | $- | $- |
| Cost of revenue, excluding depreciation and amortization | 166 | 675 | (4,512) | 5,850 |
| Branch and regional administrative expenses | 2,765 | 3,947 | 6,129 | 7,512 |
| Corporate expenses | 4,445 | 8,299 | 10,629 | 35,117 |
| Goodwill impairment | 105,136 | - | 105,136 | 470,207 |
| Acquisition-related costs | 428 | - | 465 | 69 |
| Other operating (income) expense | (5,090) | 2,121 | (8,735) | 1,952 |
| Other income | (12,412) | (45,139) | (24,982) | (86,522) |
| Total adjustments | $95,438 | $(30,097) | $84,130 | $434,185 |

### 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:

*(dollars in thousands)*

|  | For the three-month periods ended September 30, 2023 | October 1, 2022 | For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross margin | $147,264 | $134,583 | $446,984 | $424,452 |
| Gross margin percentage | 30.8% | 30.4% | 31.6% | 31.8% |
| Branch and regional administrative expenses | 91,004 | 89,542 | 273,967 | 267,283 |
| Field contribution | $56,260 | $45,041 | $173,017 | $157,169 |
| Field contribution margin | 11.8% | 10.2% | 12.2% | 11.8% |
| Revenue | $478,010 | $443,009 | $1,416,368 | $1,336,498 |

### Liquidity and Capital Resources

### Overview

Our principal sources of cash have historically been from cash provided by operating activities. Our principal source of liquidity in addition to cash provided by operating activities, or when we have used net cash in our 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.

In March 2023, in connection with a $19.8 million legal judgment rendered against us, we posted an $18.4 million appellate bond with the court. The $18.4 million appellate bond was collateralized with $15.0 million of letters of credit and $3.4 million of cash collateral. In July 2023, we reached a confidential settlement agreement with the plaintiffs to release all claims and extinguish the aforementioned judgment in exchange for a settlement payment covered by our insurance policy. During the quarter ended September 30, 2023, we secured the return of the $15.0 million of letters of credit and $3.4 million of cash collateral.

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.

In connection with a settlement agreement we entered into in March 2023 with the sellers of Epic/Freedom LLC and other defendants (collectively, the “Defendants”), we funded $6.8 million in April 2023 to an escrow account for the purposes of settling certain tax audits with the IRS, which are currently under appeal with the IRS. At such time as the audits are concluded, these escrowed funds will be used to satisfy any additional amounts due to the IRS or paid to the Seller. To the extent that any additional amounts due to the IRS exceed the escrowed funds, we as the taxpayer, will be required to fund such amounts, but we have contractual rights to reimbursement from the Defendants. We expect these tax matters to conclude in the fourth quarter of fiscal year 2023 or the first half of fiscal year 2024.

For additional information with respect to the foregoing litigation matters, please see "*Litigation and Other Current Liabilities"* set forth in Note 11 to our interim unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.

At September 30, 2023 we had $48.3 million in cash on hand, $20.0 million available to us under our Securitization Facility and approximately $168.0 million of borrowing capacity under the Revolving Credit Facility. 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 nine-month periods presented:

*(dollars in thousands)*

|  | For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $25,677 | $(8,166) |
| Net cash used in investing activities | $(7,226) | $(22,092) |
| Net cash provided by financing activities | $10,626 | $63,449 |

#### Operating Activities

The primary sources or uses of our operating cash flow are operating income or operating losses, as well as any other significant non-cash items such as depreciation, amortization and share-based compensation, and 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 used by operating activities increased by $33.8 million during the nine-month period ended September 30, 2023 compared to the nine-month period ended October 1, 2022, primarily due to:

- the provision of cash associated with operating assets and liabilities over the comparable periods, including the timing of payroll and incentive settlements, the deferral of one month of interest under our term loans which we typically pay on a monthly basis, and 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:

|  | October 1, 2022 | December 31, 2022 | April 1, 2023 | July 1, 2023 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Days Sales Outstanding | 47.8 | 44.5 | 45.2 | 46.2 | 45.0 |

#### Investing Activities

Net cash used in investing activities was $7.2 million for the nine-month period ended September 30, 2023, as compared to $22.1 million for the nine-month period ended October 1, 2022. The primary driver of the $14.9 million decrease in cash used in the current period was the $11.7 million premium paid for an interest rate cap in February 2022.

#### Financing Activities

Net cash provided by financing activities decreased by $52.8 million, from $63.4 million net cash provided for the nine-month period ended October 1, 2022 to $10.6 million for the nine-month period ended September 30, 2023. The $52.8 million decrease was primarily attributable to:

- a $14.0 million increase in cash inflows from settlements with interest rate swap counterparties over the comparable periods; offset by
- a comparable decrease of $64.7 million in net borrowings under our Securitization Facility, Revolving Credit Facility and term loans over the comparable periods.

### 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 September 30, 2023 and October 1, 2022, as well as related interest expense for the nine-month periods ended September 30, 2023 and October 1, 2022, respectively:

*(dollars in thousands)*

| Instrument | Current and Long-term Obligations September 30, 2023 | December 31, 2022 | Interest Rate | Interest Expense For the nine-month periods ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: | --- | ---: | ---: |
| 2021 Extended Term Loan (1)(3) | $902,050 | $908,950 | S + 3.75% | $60,750 | $38,237 |
| Term Loan - Second Lien Term Loan (1) | 415,000 | 415,000 | S + 7.00% | 38,055 | 25,388 |
| Revolving Credit Facility (2) | - | - | S + 3.75% | 667 | 716 |
| Securitization Facility (4) | 155,000 | 140,000 | S + 3.50% | 8,909 | 3,389 |
| Amortization of debt issuance costs | - | - |  | 3,983 | 5,221 |
| Other | - | - |  | 1,178 | 794 |
| Total Indebtedness | $1,472,050 | $1,463,950 |  | $113,542 | $73,745 |
| Weighted Average Interest Rate (5) | 10.0% | 8.9% |  |  |  |

(1) Variable rate debt instruments which accrue interest at a rate equal to the SOFR rate, plus a CSA, (subject to a minimum of 0.50%), plus an applicable margin.

(2) Variable rate debt instruments which accrue interest at a rate equal to the SOFR rate, plus a CSA, plus an applicable margin.

(3) Interest associated with the 2021 Extended Term Loan includes interest expense and commitment fees of $5.9 million in the nine-month period ended October 1, 2022 related to the Delayed Draw Term Loan Facility ("DDTL"). The Company terminated the DDTL commitment in November 2022.

(4) Variable rate debt instrument which accrues interest at a rate equal to the SOFR rate, plus a CSA, plus an applicable margin,

(5) Represents the weighted average annualized interest rate based upon the outstanding balances at September 30, 2023 and October 1, 2022, respectively, and the applicate interest rates at that date.

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

On February 9, 2022 we entered into a five-year, $880.0 million notional interest rate cap agreement with a cap rate of 3.0%. The cap agreement expires in February 2027 and provided that the counterparty would pay us the amount by which LIBOR exceeds 3.0% in a given measurement period. During the second quarter of 2023, the Company amended its interest rate cap agreements to provide that the counterparty will pay the Company the amount by which SOFR exceeds 2.96%.

On August 9, 2022, we borrowed $60.0 million under the Delayed Draw Term Loan Facility to replace cash on our balance sheet previously used to complete acquisitions in the fourth quarter of fiscal year 2021. On November 16, 2022, we terminated the remaining Delayed Draw Term Loan Facility of $140.0 million.

On March 23, 2023 we amended the agreement governing our Revolving Credit Facility to increase the sublimit for letters of credit to $40.0 million from $30.0 million. The other terms of the Revolving Credit Facility remained unchanged by such amendment.

Due to the phase-out of LIBOR, effective June 30, 2023, the benchmark interest rate under our senior secured credit facilities converted from LIBOR to SOFR, plus an applicable credit spread adjustment (“CSA”). Outstanding balances under our senior secured credit facilities bear interest at SOFR (including the applicable CSA), plus a margin. The margins under our senior secured credit facilities are unchanged as a result of the SOFR conversion.

On July 31, 2023, we amended our Securitization Facility to extend its maturity date from November 12, 2024 to July 31, 2026. The facility accrues interest at a rate equal to the SOFR rate, plus a CSA, plus an applicable margin.

### 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. As of September 30, 2023, there were no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### Critical Accounting Estimates

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for accounting policies and related estimates we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting estimates include patient services and product revenue; business combinations; goodwill; and insurance reserves. There have been no changes to our critical accounting estimates or their application since the date of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### 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. 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 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.

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

## Controls and procedures

As filed, 5,351 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on this evaluation, our principal executive officer and principal accounting officer concluded that, as of September 30, 2023, such disclosure controls and procedures were not effective, solely as a result of a previously reported material weakness.

Notwithstanding the foregoing, there were no changes to previously issued financial statements, and management did not identify any misstatements in our financial statements as a result of this material weakness. Our principal executive officer and principal accounting officer believe that the interim unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the material weakness is due to control deficiencies related to the overall information technology general controls ("ITGCs") for both user access and program change management for systems supporting all of the Company's internal control processes and controls, controls over the completeness and accuracy of information used in business process controls and management review controls. Our business process controls (automated and manual), and management review controls were also deemed ineffective because they are adversely impacted by these ineffective ITGCs.

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management is in the process of implementing its remediation plan. Our remediation efforts include: (i) implementation of a new revenue system; (ii) changes to our ITGCs in the areas of user access and program change-management for systems supporting all of the Company’s internal control processes to ensure that internal controls are designed and operating effectively; and (iii) training and educating the control owners on ITGC policies concerning the principles and requirements of each control, with a focus on those related to user access and change-management over IT systems impacting financial reporting. We believe that these actions will remediate the foregoing material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.

### Changes in Internal Control over Financial Reporting

Except for the actions intended to remediate the material weakness as described above, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have occurred during the three-month period ended September 30, 2023, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal accounting officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures.

## Risk factors

As filed, 159 characters.

There have been no material changes to the risk factors described in the Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-061484. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.