Aveanna Healthcare Holdings Inc. (AVAH) Q3 2021 Earnings Call Transcript

Aveanna Healthcare Holdings Inc. (AVAH -2.70%)
Q3 2021 Earnings Call
Nov 16, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Aveanna Healthcare Holdings third quarter 2021 earnings conference call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Shannon Drake, Aveanna's chief legal officer and corporate secretary. Thank you.

You may begin.

Shannon Drake -- Chief legal Officer and Corporate Secretary

Thank you, operator. Good morning, everyone, and thank you for joining Aveanna Healthcare's third quarter 2021 earnings call. Speaking on today's call are Rod Windley, Aveanna's executive chairman; Tony Strange, Aveanna's chief executive officer and president; David Afshar, Aveanna's chief financial officer; and Jeff Shaner, Aveanna's chief operating officer. We issued our third quarter earnings press release and supplemental presentation, as well as filed our related Form 8-K and Form 10-Q yesterday with the SEC.

These documents are available on the investor relations section of our website at www.aveanna.com. We encourage you to read them. Also, a replay of this call will be available on our website until November 23, 2021. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, November 16, 2021, and these statements have not been or nor will they be updated subsequent to today's call.

Also, today's call may contain forward-looking statements, which may be identified by words such as may, could, will, expect, intend, plan and other similar words and expressions. All forward-looking statements made today are made -- are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results, including those risks disclosed under the Risk Factor headings of our filings.

Except as required by federal securities laws, Aveanna does not undertake to publicly update or revise any forward-looking statements subsequent to the date made as a result of new information, future events, changing circumstances or for any other reason. In addition to our financial results reported in accordance with GAAP, we supplement our GAAP results with certain non-GAAP financial measures. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business and operating results, but they should not be relied upon to the exclusion of our financial results reported in accordance with GAAP. In addition, a reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure is available in our earnings call -- in our earnings press release and 10-Q, both of which are available on our website and on the SEC's website at www.sec.gov.

Following today's prepared remarks, we will open the call to questions. [Operator instructions] With that, I will turn the call over to Aveanna's chief executive officer and president, Tony Strange. Tony?

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Shannon, and good morning, everyone. Thank you for joining Aveanna's third quarter earnings call. As you can see from our press release last night, we have a lot of information to cover on today's call. As a result, our prepared remarks may run a little bit long, but we'll extend our call to accommodate everyone's questions.

The goal of the call today is to provide updates on the company's third quarter results, as well as some insights on our current reimbursement and COVID-19 environments. In addition, we would like to bring you up to speed on our most recent M&A transactions, the deployment of capital to fund our M&A growth, as well as provide some insight into our full year 2021 guidance and beyond. To assist us in discussing all of the above, we'll be referencing a supplemental investor deck that was published last night, along with the press release and the 10-Q. Before jumping into all the details, I'd like to first take a moment to thank all of our caregivers and administrative employees for what you are doing each and every day.

Today's environment can make even the smallest task more complex. You make it your mission to bring to patients and families of the most frail and vulnerable population in America. So on behalf of the executive team, our board of directors and all of our shareholders, thank you for what you do. I'd like to spend a moment talking about the overall industry trends and the impact on our current results and, perhaps more importantly, how they affect our long-term outlook for Aveanna.

The demand for home-based services is at an all-time high. Both our private duty services and our home health and hospice segments continue to experience demand that exceeds our supply, and we're not alone. Across our industry, we see patient discharges from higher acuity settings being delayed due to labor constraints and providers' inability to hire qualified caregivers at a rate that meets that demand. For these reasons, we believe that we are experiencing a shift in how home care is viewed.

For the first time in many years and possibly ever, state and federal policymakers, legislators and private payers are all recognizing the valuable role that home care can play in affecting clinical outcomes while reducing overall healthcare costs. During our second quarter call, we reported that 16 of our 31 states had either increased reimbursement and/or expanded the benefits for home-based care. As of today, that number has grown to 24 of the 31 states that we operate in. That indicates that over 75% of the states where we operate made the decision to invest more dollars into providing more services in the home.

Many of our managed care partners are following suit. We continue to have success in obtaining rate increases that target our ability to increase our capacity. And as you saw last week, the final rule for home health was published by CMS and it, too, was better than originally expected. All of these indicators point to an increasing belief that home-based care can and will play a meaningful and growing role in the healthcare industry in America.

In the meantime, we're living in an environment that has been disrupted by a pandemic. COVID-19 vaccinations and vaccination mandates have all played a role in disrupting business as we know it. The world in general and healthcare specifically is being affected by what we refer to as a COVID-19 hangover. Magnify that with the political and social issues surrounding vaccinations, which are further complicated by a wide variety of mandates, and you'll find yourself in a world where 3 million Americans have left the workforce.

Hiring enough nurses and caregivers has always been hard, but it has become increasingly more difficult in this environment. So what are we doing? We, along with every other healthcare provider, are engaged in hand-to-hand combat over every single nurse and caregiver. We've implemented a return-to-work program that incentivizes nurses and caregivers to come back to work and to work more hours. We've created tools to make it easier for nurses and caregivers to apply, orient and train.

We've implemented programs to incentivize nurses and caregivers to get vaccinated, and we rewarded nurses and caregivers who have demonstrated their loyalty to Aveanna. Jeff will provide some additional details during his prepared remarks. And even with all these efforts, there is still not enough supply to meet the demand. We view this disruption as near term in nature.

Eventually, vaccination rates will reach an equilibrium. And then and only then, the threat of COVID-19 will subside. The labor markets in the U.S. will reach a new normal.

And when they do, there will be an increasing demand and appreciation for home-based care. We are extremely proud of our results this quarter. Despite these headwinds, we grew our revenues 12.4% over the previous year, and even more impressive, we've expanded our gross margins by 280 basis points to 34%. Some of this margin expansion is attributable to the business mix shift toward home health, but we also had margin expansion in private duty services.

Team has done an outstanding job in managing labor expenses during this difficult environment, which has afforded us the flexibility to reinvest some of these dollars back into nurse and caregiver wages that should serve to accelerate growth. The increase in revenue related to pricing, accompanied by disciplined expense management, gives us the confidence that we will be able to meet our expectations related to profitability on lower-than-expected volumes. We will provide a detailed review of our results in a moment. But first, we would like to touch on our -- the M&A activity that we announced last night.

As you're aware, on October 1, we filed an 8-K with the SEC announcing that we had entered into an agreement to acquire Comfort Care. As of this call, we have received the necessary approvals from the FTC to proceed, and it is our intent to provide you with all of the details surrounding not only Comfort Care but our latest agreement to acquire Accredited as well. As you'll recall, our M&A strategy was to acquire between $150 million and $200 million of new revenues per year that produced adjusted EBITDAs between $15 million and $25 million a year. Our goal was to acquire both private duty and traditional home health assets and work diligently to integrate the acquired businesses into Aveanna, capturing the synergies on it in a timely manner.

With the acquisition of Doctor's Choice in April and the two acquisitions that we announced last evening expected to close in Q4, our acquired revenues in 2021 will be approximately $290 million, far exceeding our goal. Originally, we contemplated using a combination of debt and equity to fund the M&A growth while maintaining net leverage around four and a half to five times. However, given the depressed values in home care stocks, we have decided to fund both of these transactions with debt, which will raise our net leverage profile to approximately six times. We'll work to bring leverage down over time with continued growth, future M&A and the strategic use of our balance sheet.

In the meantime, we're very proud of our continued growth without dilution to our existing shareholders at these depressed valuations. So with that as a lead-in, I'll turn the call over to Rod for a deeper dive into the two transactions, as well as some insights into our pipeline and for future M&A. Rod?

Rod Windley -- Executive Chairman

Thanks, Tony. It's, obviously, been a very, very busy six months. Just to reiterate, we completed six transactions in the second half of 2020, all of which have now been fully integrated into Aveanna. Next, we completed Doctor's Choice in April, and that integration has gone extremely well and is also nearing completion.

Over the summer, two additional transactions made it through our gauntlet and, as a result, we have entered into definitive agreements to acquire Comfort Care, a Medicare-certified home health and hospice company in Alabama and Tennessee and Accredited Home Care, a private duty-based company in Southern California. Let's take a closer look at each, beginning with Comfort Care. Comfort Care provides both home health and hospice services to the traditional Medicare patient population and produces approximately $100 million in revenue on a current run rate basis. Comfort Care provides these services through 31 locations, primarily throughout the entire state of Alabama with a few locations in Tennessee.

Traditional home care makes up approximately 40% -- 47% of its revenue, and hospice represents another 53%. Our diligence indicated that Comfort Care is a well-run company with a solid track record related to compliance and a stellar reputation in its markets, making it an extremely good fit for Aveanna. While the purchase price of Comfort Care is $345 million, we also received a significant tax benefit with the present day value of approximately $55 million, thus reducing the net purchase price to approximately $290 million. This would imply a fully synergized EBITDA multiple of between 11 and 12 times.

We anticipate clearing licensure and closing sometime during the first week of December. Now, let's move on to our second transaction, Accredited Home Care. Accredited is a private duty company based in Southern California and is considered one of the leading providers of unskilled care in that state. Accredited provides unskilled services in the home through designated attendants.

And unlike our skilled business, attendants are recruited and retained by the family, which eliminates recruiting in today's very difficult labor environment. The business has been around for more than 40 years and has a fantastic reputation of being a quality and reliable provider of care. The company is generating approximately $110 million in revenue per year on a current run rate basis. 86% of its revenues are derived through Medicaid or other state-funded programs, which is consistent with our unskilled business in the state of California.

The base purchase price of Accredited is $180 million, which could be adjusted upward to $225 million based on Accredited's volumes through the close date. We believe that once the purchase prices settle, the implied multiple on a fully synergized EBITDA basis will be between eight and nine times. Given the role that unskilled can play in reducing overall healthcare expenditures, we believe the density that Accredited brings to Aveanna and California can be a strategic advantage for us as we move forward. We have cleared all the necessary hurdles on Accredited and anticipate closing by the end of the month.

While both businesses are different and one is in Alabama and the other one is in California, they are both being integrated at the same time by separate IMO teams. Both acquisitions will be fully integrated in '22, with the majority of the integration process occurring in the first 180 days. Each of the transactions were highly competitive environments, and we are fortunate to have them under contract. The deal flow has not slowed down in either segment.

The strategic community, along with private equity, continues to make every transaction highly competitive. As you can tell, we are very excited about both these transactions. As Tony mentioned earlier, these two transactions bring our acquired revenue for 2021 to approximately $290 million, compared to our target of $150 million to $200 million on an annualized basis. We believe that both transactions solidify our position as the leader in M&A growth in the home care space.

On any given day, we are tracking in excess of $500 million in potential transactions in our M&A pipeline. We look at a lot of transactions but only pursue those that fit our business mix, geography and financial profile. Very few pass our stringent diligent process. While we pass on more transactions than we complete, we are confident that we will continue to meet our anticipated acquisition targets for the foreseeable future.

With that, let me turn the call over to Dave to tell you about our financing plans and how we intend to pay for these transactions.

Dave Afshar -- Chief Financial Officer

Thanks, Rod. We're pleased to be in such a strong balance sheet and liquidity position right now that's supportive of the acquisition strategy that Rod just laid out. On Slide 10 of the deck that we filed on Exhibit 99.2 yesterday, you'll see that we plan to fund Comfort Care and Accredited with a combination of cash on the balance sheet and new debt. We'll use approximately $60 million of cash from the balance sheet, $120 million of borrowings under our new securitization facility that we closed on November 12 and approximately $400 million of proceeds from a new second-lien term loan that we plan to launch later in November.

And after we fund these two transactions, we still have good liquidity for 2022 M&A with our available $200 million delayed draw term loan and $180 million of availability on our revolver. We also had approximately $35 million in pro forma cash on the balance sheet at the end of Q3. I'll provide just a little more information on the new debt that we plan to use to fund our Q4 M&A. Our new securitization facility is underwritten by PNC Bank and is secured by our receivables.

It's a $150 million facility and we plan to draw $120 million to fund our Q4 M&A. The securitization facility comes with attractive interest rates and is an efficient piece of new capital for the company that we can scale up as we grow. Regarding the new second-lien term loan, it will be an eight-year $415 million loan in total, $200 million of which is fully committed and underwritten by Barclays and the other $215 million will be raised through best efforts. As you'll see on Slide 11, pro forma for our Q4 M&A and incremental debt raises, our total leverage will be in the six-term range.

We think usage of this incremental leverage, especially in light of the continuing attractiveness of the credit markets, instead of issuing new equity to fund our M&A, is in the best interest of shareholders at this time. And with that, Tony, would you like to add anything on the M&A financing front?

Tony Strange -- Chief Executive Officer and Treasurer

No, Dave, I think, you did a really nice job laying that out. While our leverage is a little higher than we originally contemplated, we believe this is a better use of our balance sheet for the time being. We've managed at this level of leverage many times before and are quite comfortable from a cash flow perspective. As I mentioned before, we anticipate reducing leverage over time through continued growth, future M&A and strategic use of our balance sheet.

In short, we believe that our capital structure and our existing pipeline gives us a runway to continue our acquisition growth for 2022 and beyond. So let's turn our attention toward a deeper dive into our Q3 results. As I mentioned earlier, we are very pleased with our results despite the lower-than-anticipated volumes. The third quarter is historically the low point of the year for our business due to schools being out and summer family and caregiver vacations.

This, coupled with the disruption in the labor market, caused volumes in private duty services and home health and hospice to be lower than expectations. The softness in volumes was partially offset by continued rate improvements specific to private duty services. Our overall net revenues were $411 million, up 12.4% from Q3 of 2020. We continue to see gross margin expansion to 34% of net revenue, up 280 basis points over Q3 of 2020 and up 40 basis points from Q2 of 2021.

The gross margin improvement is primarily driven by three factors: continued mix shift toward our home health, the continued rate improvements in our private duty services and a very disciplined approach to labor and other expense controls. As we continue to navigate the near-term choppy labor markets, we will strategically make decisions on how and when to reinvest some of these dollars back into caregiver wages and benefits to accelerate our nurse availability, which will fuel growth. Other SG&A expenses, including corporate being in line with expectations, our EBITDA for the quarter was $45.8 million or 11.1% of revenues. Before I turn the call over to Jeff for a deeper dive into our segment results, I'd also like to highlight our strong cash position that Dave mentioned earlier.

The biggest driver of cash is the ability to monetize our revenue. Our revenue cycle team has done an outstanding job in converting AR to cash. This quarter, they collected $425 million, exceeding their goals. Great job by James Elkington and the entire revenue cycle team.

Congrats, guys. Keep it coming. With that, Jeff, why don't you walk us through more detailed segment results?

Jeff Shaner -- Chief Operating Officer

Thank you, Tony. I am pleased to share our Q3 2021 operating indicators and key metrics with you this morning. Before I get into the operating segments, I'd like to spend a few minutes on our COVID-19 efforts and recent caregiver employment activities and trends. Throughout the COVID-19 pandemic, our Aveanna teammates have consistently risen to the challenge of providing safe and efficient healthcare in our patients' homes.

Innovation and creativity have been instrumental in our ability to adapt and overcome the daily challenges posed by COVID. We have reengineered virtually every aspect of our recruiting, onboarding, clinical training, engagement and retention efforts with our employees. All of our efforts have been focused on streamlining the process to hire and onboard caregivers in the most efficient manner. As local and state governments have introduced vaccine mandates, we have doubled our efforts to get each and every caregiver to comply.

To date, we have 11 states that have mandated COVID vaccinations for healthcare workers. I'm proud to say that we are in full compliance with these mandates, and thankfully, most caregivers have chosen to ultimately receive their vaccination and continue to care for our patients and families. We expect this trend to continue as we move forward with additional vaccination mandates, including the most recently announced CMS and OSHA mandates requiring a first dose by December 5 and all employees to be fully vaccinated by January 4. These federal mandates create major challenges for the home care industry, as well as Aveanna.

However, one of our Aveanna mottos is we can and we will, and this is another opportunity for our Aveanna teammates to come together and continue to serve our mission. I am proud to report that our reported COVID cases among employees has continued a downward trend for 12 consecutive weeks. COVID has taught us to expect the unexpected and be prepared to adapt and overcome at all times. Now, on to caregiver employment trends.

At the end of Q2, we expected hiring trends to improve with the return to schools and the phasing out of enhanced state and federal unemployment benefits. Our current employment trends point to early September as the low point for caregiver hires, caregivers on payroll and hours or visits worked per caregiver. The last eight weeks have yielded steady improvement in our caregiver employment metrics. Caregiver hires, caregivers completing orientation and caregivers on payroll are moving in a positive direction, and we believe these trends will continue throughout Q4.

I'd like to talk through some of the key efforts that have provided us this lift in our recent employment trends. They include: 24 hours a day recruiting engagement for all applicants; virtual orientation offered seven days a week in all time zones; virtual clinical training offered seven days a week, with over 1,500 clinicians completed to date; a daily pay option for caregivers who need to be paid faster and more flexible; and a vaccination bonus program offering cash rewards for fully vaccinated caregivers. We have also introduced a caregiver COVID bonus program. This 12-week program is designed to reach four distinct caregiver groups and is aligned with our efforts to provide more care.

This program targets four caregiver groups by: reengaging inactive nurses to bring back former employees; recruiting new nurses who have never worked for Aveanna; boosting shifts and hours with part-time nurses to encourage more work per week; and rewarding our full-time nurses to strengthen our retention. It will take all of these efforts and then some to continue the positive momentum and get back to pre-COVID labor trends. As Tony mentioned, the demand for our services continues to far exceed our labor supply. We believe this dynamic will continue well into 2022 for our PDS and home health and hospice segments.

Lastly, we're reminded through this environment that our most precious commodity is our caregiver. Now, on to the private duty services segment. During Q3, we produced $327.1 million of revenue or approximately a 1% year-over-year decline. Revenue was driven by approximately 9 million hours of care provided during the quarter or a 4.4% decline in volume over Q3 of 2020.

Patient demand in our PDS segment is at an all-time high as we continue to partner with children's hospitals and payers to find new solutions to get our pediatric patients home. The primary driver of the decline in volume was the lack of caregiver availability. As mentioned, Labor Day week was our low point in caregivers paid and new caregivers hired. With the return to schools, enhanced unemployment benefits phasing out and improvements in hiring efficiency, we've had eight weeks of improved caregiver employment metrics in PDS.

I am proud of the innovation and creativity of our PDS leadership teams as they fight through a difficult environment and continue to focus on our patients and families. Our revenue per hour of $36.36 was up $1.40 from Q3 of 2020 or 3.8%. This was primarily driven by reimbursement rate improvements and a stabilization of our business mix between skilled and unskilled services. With 24 year-to-date private duty services rate increases, we are actively passing through wage rate improvements to our caregivers.

We expect this trend to continue well into 2022, and this will be the primary driver of improved employment trends in our PDS segment. Turning to our cost of labor and gross margin metrics. We continued to experience improvement in gross margin with $100.6 million in Q3 or 30.7%. This equates to a growth of 3.1% year over year in gross margin dollars.

PDS cost per hour of $25.18 was up $0.58 per hour from Q3 of 2020. Lastly, our spread per hour improved to $11.18. We expect spread for our to normalize as we balance the rate increases against the strategic investment in caregiver wages. Long term, I still believe $10 to $10.50 range is our ideal spread per hour target balanced against a positive 3% to 4% year-over-year volume growth for our PDS segment.

We are committed to being the employer of choice in the PDS industry, and we are working harder than ever to attract and retain qualified caregivers. As mentioned, our referral sources and payers urgently need our help transitioning families home, many wanting to go home for the first time ever. We have found our PDS customers, both payers and referral sources, to be receptive to our value proposition and the need to attract and retain caregivers. I would like to add my excitement about the Accredited Home Care acquisition.

Over the last few months, I've gotten to know the Accredited team and have a deep respect for the reputation and quality care provided to the families in Southern California. Our IMO team is already preparing for closing and welcoming the Accredited employees to the Aveanna family. California continues to be a very important state to our Aveanna story and Accredited only furthers that strategy. Now, moving on to our home health and hospice segment for Q3, where we continue to expand our national presence.

As previously mentioned, we have fully integrated Five Points and Recover Health into the Aveanna family. I am pleased to share that we are in the final stages of the integration of Doctor's Choice and it continues to progress ahead of our expectations. Our dedicated IMO team has led the way as we methodically integrate our new acquisitions into our home health and hospice business model. With the recent announcement of Comfort Care, our IMO team has already set their sights on another successful integration in Alabama and Tennessee.

Comfort Care brings great density of services, caregivers and locations, which continues to enhance the home health and hospice network at Aveanna. Comfort Care also leverages our presence in hospice in a more meaningful way, and we are excited to talk more about hospice as we move into 2022. Now, on to home health and hospice segment indicators for Q3. During the quarter, we produced $47 million in revenue, a 902% increase over Q3 of 2020.

This growth was driven by 11,600 total admissions, approximately 61% being episodic admissions and 10,500 total episodes of care. Revenue per episode for Q3 was $2,894 and in line with our expectations. I am pleased with the organic growth rate of our home health and hospice businesses and believe this business will remain a double-digit admission growth segment for the remainder of 2021. From a cost and margin perspective, gross margins were 48.7% for the quarter.

The primary driver of gross margin improvement was the Doctor's Choice business along with a continued focus on episodic payer mix. On a caregiver employment update, we have felt pressure on nurse recruitment and retention efforts. We have invested in additional recruiters and increased recruitment activity to keep up with our newly acquired businesses. We are leveraging our vast recruitment network on our PDS segment and that has helped to offset some market pressures.

Our use of contract staff is within our budget expectations, and we have stepped up our wages and retention bonuses to focus on retaining our tenured staff. We believe this still allows us to maintain a 48% to 50% gross margin range and organically grow our home health and hospice business in the 7% to 10% range. Lastly, we are pleased with the final home health and hospice rules for 2022 and believe CMS has recognized the current labor pressures and incorporated this into their rate updates. We also support the expansion of value-based purchasing from the pilot program to all 50 states effective 2023.

We are well-positioned for value-based purchasing and look to further expand these conversations with our Medicare Advantage payers. Now, to our Aveanna medical solutions segment results for Q3. During Q3, we produced $37.1 million of revenue or 14.9% year-over-year growth. Revenue was driven by 78,000 unique patients served during the quarter or 11.4% year-over-year volume growth.

This growth profile is consistent with our strategy to grow medical solutions with both strong organic and de novo activities. Our revenue per UPS of $476.19 was up 3.5% from Q3 of 2020, primarily driven by product mix shift. I expect both volume growth and revenue to continue to benefit from the growth of our PDS and home health and hospice segments. Turning to our cost of goods and gross margin metrics.

We continue to experience stability in gross margin with $16.3 million in Q3 or 43.8%. This equates to a year-over-year growth of 10.9% in gross margin dollars. I expect gross margins to remain in the 43% to 45% range moving forward. Our dedicated focus on intra-nutrition and a proprietary distribution model allows for continued expansion of this service to pediatric, adult and geriatric patients.

In summary, all three of our business segments continued to fight through a very difficult environment. I am proud of our Aveanna team and their dedication to providing high-quality, cost-effective and safe healthcare in our patients' homes. Regardless of the current short-term market condition, home care is still the No. 1 choice of our patients, families, referral sources and payers.

Thank you, and I look forward to updating you on our Q4 and year-end operating results. With that, I'd like to turn the call back over to Dave.

Dave Afshar -- Chief Financial Officer

Thanks, Jeff. I'll go ahead and provide some details on results of operations, liquidity and credit facilities. Revenue was $411.3 million for Q3 of '21 as compared to $366 million for Q3 of '20, an increase of $45.3 million, or 12.4%. The increase was primarily driven by significant growth in our home health and hospice segment.

A $42.3 million increase in home health and hospice revenue from the year-ago quarter as a result of our home health and hospice acquisitions that we've discussed over this call. As Tony mentioned, we also continue to see reimbursement rate wins, particularly in the PDS segment. Our PDS revenue rate increased 3.8% on balance due to those rate increases. The PDS reimbursement rate environment is supportive of our mission to bring more caregivers back into the workforce and reduce the unmet demand for our services one patient and one hour at a time.

Now, turning to gross margin. Our gross margin was $139.7 million or 34% of revenue for Q3 of '21 as compared to $114.1 million or 31.2% of revenue for Q3 of 2020. The 22.4% growth in our Q3 gross margin compares favorably to our revenue growth of 12.4% from the year-ago quarter. Operating income was $18.3 million for the third quarter of 2021 as compared to $12.9 million for the third quarter of 2020, a $5.5 million increase.

We're pleased to see operating income increase as a percentage of revenue to 4.5% in Q3 of '21 from 3.5% of revenue in the year-ago quarter. Our Q3 operating income was positively impacted by an increase of $8.9 million or 16.3% of field contribution as compared to Q3 of 2020. The $8.9 million increase in field contribution was delivered by our $45.3 million increase in consolidated revenue combined with a 50-basis-point improvement in our field contribution margin to 15.4% for Q3 of '21 from 14.9% in the year-ago quarter. Offsetting some of the Q3 improvement in our field contribution margin over the prior year quarter was an increase in our corporate expenses as a percentage of revenue, growing at 9.2% of revenue from 8.9% of revenue in Q3 of '20.

Primary reason for this 30-basis-point increase was $2.7 million of incremental debt modification costs included in our corporate expenses and $2.6 million in incremental share-based comp charges that we recorded in Q3 related to performance vesting options. Both of these items are further discussed in the footnotes to our financial statements and our MD&A. Note, however, that adjusted corporate expenses as a percentage of revenue decreased to 5.3% in Q3 of '21, compared to 5.8% in Q3 of '20. Moving on to net income.

Net income was $2.1 million for Q3 of '21, an increase of $9.5 million from Q3 of 2020. the primary driver of the increase being the $5.5 million increase in operating income, the $7 million decrease in interest expense, offset by a $4.8 million loss on extinguishment of debt related to our Q3 term loan refinancing and certain other items. Adjusted EBITDA was $45.8 million for Q3 of '21, which represents a $5.8 million increase from Q3 of 2020. On a year-to-date basis, adjusted EBITDA increased to $138.4 million for the nine months ended Q3 of '21, which represents a 10.9% margin from $107.2 million in the first nine months of 2020 or a 10% margin.

On the liquidity front, we had strong liquidity as of October 2, 2021, our Q3 end, with cash on the balance sheet of $121.7 million and available borrowing capacity under our revolving credit facility of $180.2 million, resulting in total liquidity of $301.9 million at the end of the quarter. With respect to cash flow, Q3 2021 cash flow from operations was $36 million, turning cash flow from operations for the year-to-date period positive at $22 million. And one thing I'd mention is that our year-to-date cash provided by operations included an approximate $9 million usage of cash to repay advances for Medicare to some of our home health and hospice companies received in 2020, pursuant to the CARES Act. Our assumption of these liabilities reduced the purchase price for these transactions, the repayment of these items comes out of operating cash flows, and this will continue through the end of the year, potentially into Q1 until we fully repay the advances, which are about $12 million in total.

These payments should be considered nonrecurring. In addition, we paid about $18 million to restructure our first-lien credit facility back in July. $7 million of that amount was required to be treated as a debt modification cost and recorded in our corporate expenses, so this also is served as a call on our operating cash flow in Q3. Looking forward to Q4, our operating cash flow will be constrained by an approximate $26 million payment for deferred social security taxes to the IRS in December, continued repayments of the Medicare advances I just mentioned and increasing interest costs.

On the cash collections front, we collected approximately $425 million of cash during the quarter in excess of our revenue of $411 million. I can't give enough credit to our revenue cycle and operations teams for all they do to drive our collections performance. Transitioning and integrating acquired revenue cycle systems onto the Aveanna framework is really hard work. Combined with maintaining current operations and responding to the never-ending challenges that come with healthcare billing and collection operations, our teams have done excellent work this year, and we continue to see improvements in revenue realization and yield.

In addition to our cash flow, we've improved our capital structure via the repayment of debt with IPO proceeds and the subsequent refinancing of our first-lien term loans with lower interest rates. These actions have collectively resulted in sequential decreases in cash interest paid from $20.2 million in Q1 of '21 to $16.7 million in Q2 of '21 to $10.3 million in Q3. Before considering any incremental debt incurred for Q4 M&A, we will see our interest costs begin to tick up a bit from Q3, and that's related to the commitment fees on our delayed draw term loan. In connection with our first-lien refinancing on July 15, we added a $200 million delayed draw term loan to provide for future acquisition financing on October 15.

We began including full LIBOR margin of 3.75% on the $200 million delayed draw term loan and so that will increase interest expense comparatively. To summarize and wrap up here, we're pleased with our improved field contribution and operating income margins in the third quarter, as well as our improvement in cash flow from operations. Together with the capital structure improvements we've continued to make, we're well-positioned from a liquidity and credit perspective to execute and deliver on our M&A strategy. And with that, I'll turn things back over to Tony.

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Dave. And before we open up the line for Q&A, we would like to give you our thoughts around our full year 2021 guidance and how we are thinking about 2022. We believe that our current trends will continue for the near-term future. Volumes will continue to be soft, partially offset by continued improvement in rate.

And as a result, we expect our full year 2021 revenues to be in the range of $1.675 billion to $1.680 billion, which is lower than our previous estimate. However, given the rate improvements and the disciplined approach to expense management, we believe that we will deliver our original EBITDA estimate of $185 million for the full year 2021. This outlook does not include the impact of Comfort Care and Accredited acquisitions that we spoke of earlier. We're currently engaged with both acquisitions in the bottoms-up budget process that we use for our base business, and we expect to issue a full year 2022 guidance sometime during the first quarter.

We are optimistic about maintaining our mid-teen year-over-year growth and look forward to sharing our success as we go. Operator, because we've covered so much material in our call, we're going to stay on the line longer than usual to accommodate as many people as we can. With that, why don't we open it up for questions?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Joanna Gajuk with Bank of America. Please proceed.

Tony Strange -- Chief Executive Officer and Treasurer

Hi, Joanna.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Hi, good morning. Thank you for taking my questions. So I guess, just staying, I guess, on the very last comment here maybe, so I appreciate the details around the synergized deal contribution for the pending acquisitions, so it sounds like they could add, call it, $50 million or so to EBITDA next year, and that's before in your organic growth, I presume. So I want to clarify that.

And then also, any other tailwinds and headwinds when we think about 2022 EBITDA high-level commentary? Thank you.

Tony Strange -- Chief Executive Officer and Treasurer

So Joanna, I think, you summarized it fairly well. I think, when we think about the first half of '22, we don't think there's gonna be any miraculous recovery in the labor markets by the time we get to Q1. I think, we'll still be dealing with some of the COVID hangover that we talked about. And I don't see any immediate change in the labor markets.

However, our opinion is by the time we get to midyear next year, we're hoping to see some type of stability and normalization of the labor markets, and we are going to continue to be nimble. I think, Jeff laid out some really innovative ideas that the company is executing on right now that allows us to be reactive to the ever-changing labor markets. But I want to bring us back. When we think about the long-term aspect of the business, one of the things that you heard several times today is the demand continues to be higher than ever.

And in that, we are finding policymakers and legislators and payers alike all coming to the table saying, what can we do to help you increase capacity? We need to get patients into more cost-effective settings sooner rather than later. And whether it's the first half of 2022 or the last half of 2022, I can't answer that. What I can tell you is that the demand for our services are going to continue to go up. And I think, the home care industry is going to continue to be a driver in the healthcare space that we know today.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Thank you. I will go back to the queue.

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Joanna.

Operator

Our next question is from A.J. Rice with Credit Suisse. Please proceed.

A.J. Rice -- Credit Suisse -- Analyst

Hi, everybody. Thanks for the comment. Maybe just first, obviously, on the labor question, it's really hard to know because there's so many different dynamics going on, retention bonuses, sign-on bonuses, hero pay, overtime pay. If you were looking at it sort of an apples-to-apples, your SWB this year versus last year in the third quarter, what kind of SWB ratio or rate of increase are you seeing? And do you have a sense of, looking into '22, the parameters around what kind of an increase all-in the various things might result in?

Tony Strange -- Chief Executive Officer and Treasurer

I think, the first half of your question, A.J., is looking at what we're experiencing today, and Jeff talked about it. As we're getting these rate increases, we are actively -- the team, Jeff and the operating team are actively looking at how do we reinvest some of these dollars, and you pointed out all the different ways that we're reinvesting back into our clinicians. However, our margins have continued to expand. When we think about moving forward -- the second half of your question is then going forward, we expect margins to kind of stabilize.

And I think, Jeff indicated that in private duty today, our margins are probably a little bit hot, and that's just a timing issue as to when we get the rate increase versus when we put those increased dollars back into wages. But those rate increases are also continuing to come. My guess is if we look into Q4, Jeff, I don't want to put you on the spot here, and feel free to jump in, if I -- if we look into Q4, we'll probably see that spread rate pull back a little bit. I don't know if you want to try to quantify that.

But I think, $11.18 probably a little bit hot for that business as we see it today.

Jeff Shaner -- Chief Operating Officer

Yeah, agreed, Tony. And A.J., I think spot on, Q4, I think we'll see that start to get back under $11, back in the high $10, probably still above our ideal range as we continue to push the incremental rate increases out. It's not all nurses get $1, it's really one nurse by one nurse and their conversations over the phone. And so, it takes time to get those rate increases.

The rate increases, they hit us on a specific date and we get the rate increase on that date. And that takes us weeks and ultimately months to get those handed out to each nurse appropriately. And it's a one-by-one conversation. So to Tony's point, it takes us kind of three to six months to get that fully flushed through the market.

And I think, Tony said it well. We have more rate increases already in the books for Q4. We have a pretty large rate increase on the books for January 1 in one of our largest states. So our PDS segment rate increases are going to continue to come through into 2022.

And so, I think, it's a good thing. As we talked about, it will take us -- take us time to kind of push those through. But as Tony said, our gross margins are going to stay in that. On the HHH side, we think 48% to 50% is that ideal range.

And we think on the PDS segment, probably right at 30%. We've been at 30% for four, five years, and we think that number is probably going to stay pretty close to that forward-looking. 

Tony Strange -- Chief Executive Officer and Treasurer

Yeah. And A.J., one of the things we don't want to leave the listeners here with is that somehow these rate increases and wage adjustments are event-driven. If you can imagine, keeping your hands on the levers of wage and rate is something that our operators do every single day. And we are not going to reach a point where on March 22, people are going to say, "OK, now we're done with that." This is an ongoing exercise.

We look at this -- Jeff talked about the spread, these guys look at the spread rates every week, every day and they're constantly making slight adjustments as we go. And I think, that doesn't change. 

A.J. Rice -- Credit Suisse -- Analyst

OK. Maybe just a quick follow-up. You mentioned 11 states that you're in have mandated the vaccine. I wonder, if you could just tell us because, obviously, if we get the national rollout of the OSHA provisions, what -- how disruptive was that leading up to the date? Do you see the impact with quite a bit of lead time? Or does it happen pretty much right at the end there? What was your experience in those 11 states? 

Jeff Shaner -- Chief Operating Officer

Yeah, that's a great question, A.J. And those 11 where everything from counties, cities, states, obviously, no federal yet until the CMS and now OSHA mandates. But I'll tell you, A.J., at the end, the definitive date helped push people to an outcome. The primary outcome was people getting vaccinated, but also most of the states had an exemption outcome as well, whether it was religious and/or medical exemption.

So it did force people to kind of make a decision. Obviously, our compliance rate is 100% in all 11 government municipalities. But ultimately, I would tell you, most caregivers, most employees got the vaccination and continued care. And there was a lot of noise leading up to it.

There's already been a lot of noise about the CMS mandate and OSHA mandate. I wish every employee love that, they don't. But I would tell you, since last Monday, our vaccination, whether it's new vaccinations or people turning their cards in and just proving it to us, they've tripled in the last eight to 10 days. So I think, it's just -- it's forcing people to make that decision.

In the end, most people are making the decision to stay, to continue to work, to either be fully vaccinated or to have an appropriate exemption on file. So the 11 specific states in question or counties, I think to us has not been a material negative impact to our business. It was less than one half of 1% of our volume changed. And they were different dates.

They were staggered dates between September and in early November.

A.J. Rice -- Credit Suisse -- Analyst

OK, thanks a lot.

Tony Strange -- Chief Executive Officer and Treasurer

Thank you.

Operator

Our next question is from Sarah James with Barclays. Please proceed.

Sarah James -- Barclays -- Analyst

Thank you. Just try to better understand what the seasonality of '22 might look like versus '21 for a normal year? Is there a couple of different moving pieces with rate changes and probably different timing and then also the synergies related to the deal. So can you give us an idea of what the seasonality --

Tony Strange -- Chief Executive Officer and Treasurer

Sure, Sarah. So you asked specifically about '22. We're not really ready to provide any type of guidance -- specific guidance on '22. However, what I can tell you is that a typical seasonality year for us looks like volumes are up in Q1, volumes are even better in Q2.

Then volumes tend to tail off during Q3 related to summer vacations, both of caregivers, as well as families and also schools being out. And then, in Q4, we kind of see volumes come back to a more normalized level and start building again for Q1 the following year. If you think about kind of the two ends of the seasonality bookends, Q2 tends to be our best quarter and Q3 tends to be our lowest quarter in any given year. And so, it just kind of follows that cycle.

I don't think this year, 2021, I don't think is any different than that. I think, that seasonality we experienced in Q3 was exacerbated by what's going on in the labor markets. However, I think, our business still had seasonality in it. And I guess, from -- Jeff, you can pile in here but there's nothing that we know of today that would cause 2022 to look any different than that. 

Jeff Shaner -- Chief Operating Officer

I agree, Tony. I think, Sarah, Tony said it in his remarks a few minutes ago, the one thing will be, as we're fighting through this continued labor environment in Q1 and Q2 and I think you said it, we have additional rate increases coming on the books effective January 1. So that will help us continue to pass wages through to caregivers. So I think, we're expecting to continue to fight through Q1 and Q2, but I agree with Tony.

Schools are in session so we'll have our normal summer seasonality as schools come back out for the summer months. And I don't think 2022 will be that different from a normal seasonality year. It'll just be fighting through the labor environment really the first six months of the year.

Sarah James -- Barclays -- Analyst

That's really helpful. And then, just trying to unpack the implied synergies a little bit for the two deals. We're looking at the pre and post-synergy valuation. It looks like there's about $3 million to $5 million of synergies implied for each deal.

So can you give us an idea of what buckets of cost they're in, or if there any revenue synergies, I think.

Tony Strange -- Chief Executive Officer and Treasurer

So Sarah, I think, the way you're tugging at it is the right way to think about it. You can come back between those implied multiples that Rod talked about. However, we haven't disclosed any exact EBITDA -- post-synergized EBITDA number. And the reason being is that we are just beginning the integration process.

And as you know, things move around as you develop those integration plans. The people that are gonna be synergy versus those that are not gonna be synergies and all of that is yet to be determined. With that said, in terms of the major buckets, it's the typical buckets you would think about in a synergized deal for us. It's primarily in corporate expenses, duplicate overhead related to finance and accounting and payroll and human resources and those types of services more so than any synergies out in the field.

And specifically, you asked about revenue synergies. We're not counting any revenue synergies from either of these deals. These are just additive to our current revenue stream. And as Rod talked about, creating density in markets and we believe that creating density provides value for our shareholders.

So they're both -- we're excited about both transactions.

Thank you, Sarah.

Operator

Thank you. Our next question is from Brian Tanquilut with Jefferies. Please proceed.

Tony Strange -- Chief Executive Officer and Treasurer

Good morning, Brian.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning. Yeah, so just to think about 2022 again, sorry if we've already touched on this, Jeff. But -- so we are starting off a base of $185 million for this year. We're adding about, what, $40 million to $45 million, maybe up to $50 million from the acquisition.

So just if you can help us think through the puts and takes as we think about 2022. I know you're not giving guidance, but just to level set the starting point and kind of like the moving parts.

Tony Strange -- Chief Executive Officer and Treasurer

So Brian, I think, you're right, we're not providing guidance for '22 yet. But we appreciate your tenacity. I think, you have the pieces and we won't comment on the exact numbers, but I think you have the right pieces. The only other piece that you've got to think about in there is what are the growth rate's going to look like.

And again, I think, Jeff has talked about our growth rates in our businesses and what we would think as being normal. Your real underlying question is the first half of '22 gonna be normal? And I don't think we're ready to predict that yet. But you've got all the pieces. Jeff, anything you'd add?

Jeff Shaner -- Chief Operating Officer

And Brian, I think, as Tony mentioned, we're in the middle of kind of the back half of our budget process at Aveanna. We are bringing in both the Accredited and the Comfort Care teams in that bottoms-up. We do a budget from every single location up through our corporate infrastructure, and so we are bringing Accredited and Comfort Care into that process. And we normally land that about the second week of December.

And I think, we'll be right after the first of the year to really talk about 2022. But we're excited. There's nothing that we've seen in our diligence in the two deals that would say that they think of the budgeting process any differently than we do. And their growth rates have been impressive and hence why we engaged them.

But we're excited to finish that process to have a really solid outlook on 2022.

Brian Tanquilut -- Jefferies -- Analyst

Yeah, appreciate that. And then, my follow-up really quickly. Tony, it sounds like you still feel pretty good about the demand side of the equation, right? So it sounds like this is more really labor-driven. So how are you balancing that, right? I mean, the idea that you could chase volume or you could bring in temp staff and all these things to fill the demand, right? And gross margins were, obviously, pretty good during the quarter.

So how are you just thinking through that philosophically? 

Tony Strange -- Chief Executive Officer and Treasurer

Well, I'll correct you. You said I felt pretty good about demand. I feel great about demand. There's not a day goes by that this group of people don't get phone calls from families or hospitals saying, "What can you do? How can we get this particular patient home? Is there anything that you can do?" We get -- Jeff and the managed care team are getting calls from payers, where these payers are bringing us to the table and saying, "We've got to find ways to get this patient out of the hospital.

We're willing to think out of the box. What can you guys do outside of the box?" So the demand for our business is at an all-time high. The second part of your question about balancing margin with growth is I think that's the art in this business. And I can tell you that we are not going to give away our margins for the sake of growth.

However, we're gonna be thoughtful and disciplined about how we put those dollars and resources back to work and protect the value for our shareholders. And it doesn't -- it's not a one-and-done exercise. This takes a light touch on the controls every single day. And Jeff and Jason and the other operators out in the field, these guys deal not just state by state but market by market and sometimes, patient by patient, where we're looking at every patient and their particular economic situation and how do we balance the ability to service this patient against our margin and our ability to pay our caregivers.

So it is an ongoing exercise that won't end.

Jeff Shaner -- Chief Operating Officer

And Brian, I think, Tony said in incredibly well. In the old days, we would literally be calling the payer's rep, begging for another $2 an hour to get a family home. And today, that has flipped to where the head of managed Medicaid for large payers are now calling our operators or our managed care payer team saying, "What will it take? What's the number per hour?" And it's, in some cases, it's obscene. It's -- if we double the hourly rate for the first 90 days, could you get two nurses to take this family home? And Tony said it right, it's not statewide.

It's a family. It is a specific family who's in a hospital and that payer is trying to get them home. So the market has shifted in a way that I think in our 30 years, we've never seen. And we don't believe that market goes back from the payer side.

And we love -- we hate why we're here from a labor standpoint, but we love the creativity that it's caused to kind of solve problems and get families home.

Brian Tanquilut -- Jefferies -- Analyst

Thank you.

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Brian.

Operator

Thanks. Our next question is from Justin Bowers with Deutsche Bank. Please proceed.

Justin Bowers -- Deutsche Bank -- Analyst

Hi, good morning, guys.

Tony Strange -- Chief Executive Officer and Treasurer

Hi, Justin. 

Jeff Shaner -- Chief Operating Officer

Hi, Justin.

Justin Bowers -- Deutsche Bank -- Analyst

Can you help us understand what the revenue mix is of Accredited like skilled versus unskilled? And then, just maybe elaborate a little bit on how there's less lower labor risk with that model? It's just an asset that is probably not well understood by investors. It would be helpful to elaborate on that a little bit.

Tony Strange -- Chief Executive Officer and Treasurer

Well, let's -- Justin, let's start with our base business in California already. So we have a base business in California related to private duty that is an unskilled business. Now, we have -- in California, we also have a significant presence in skilled business as well. But separately and apart from that, we do have a very strong base of unskilled business in California.

The Accredited business mirrors our unskilled business. It is predominantly all unskilled. There's a small part of skilled business that will fold into our skilled business. But it's through several different Medicaid programs in the state of California.

And to your labor question, in these particular programs, the families of the patient are responsible for identifying and even hiring the attendant or the caregiver. And so, because of that, and I think Rod said it really well in his prepared remarks, the -- it really takes the burden of recruitment off of Aveanna and places it back with the family and -- which is no different than the unskilled businesses that we are in, in California. And we like that business a lot. It's -- the gross margin in terms of percentages is not as high.

However, it doesn't take as much overhead to run that business because you're not doing the recruiting and the retaining and the onboarding and all of those types of things. So to answer your question broadly, it's identical to the unskilled business that we are in, in California, and it is predominantly unskilled. 

Justin Bowers -- Deutsche Bank -- Analyst

Understand. Appreciate it.

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Justin.

Operator

Ladies and gentlemen, we have reached the end of our allocated time, and I would like to turn the call back to Tony Strange for any closing comments.

Tony Strange -- Chief Executive Officer and Treasurer

Hold on, operator. Operator, we're going to stay on the line for a little bit longer. We'll continue to take questions because we -- our prepared remarks ran over and we knew that, but we'll stay with this group as long as we need to, to help them understand our business.

Operator

OK. [Operator instructions] And our next question is from Matt Borsch with BMO Capital Markets. Please proceed.

Matt Borsch -- BMO Capital Markets -- Analyst

Hey, I just thought I would ask one about the reimbursement situation. And I gather you're sort of -- you seem to be shifting to the idea that maybe the current constraints are going to resolve or hopefully resolve the issue around the Medicare Advantage reimbursement in the adult home care market. Are you seeing optimism around that? 

Jeff Shaner -- Chief Operating Officer

Yeah. I think, most of our comments were really around the Medicaid environment and the Medicaid Advantage payers. So I think, most of our optimism and certainly how we were answering Brian's question was more of a Medicaid answer for our PDS segment. Certainly, the rate increase, the home health and hospice update, the rate increase of, I think, net 2.6% will be shared by those Medicare Advantage payers who pay on an episodic basis.

I think, as we continue to grow in scale in this business, we -- as Tony talked, we have a very disciplined approach to the patients that we take on the geriatric side. And I think, we will continue to push our Medicare Advantage payers like the rest of the industry is to pay at a more meaningful level. But I think, our comments really were focused more around the Medicaid and Medicaid payers.

Matt Borsch -- BMO Capital Markets -- Analyst

All right. Great. We will wait and see. Thank you.

Tony Strange -- Chief Executive Officer and Treasurer

Thanks, Matt. Operator, do we have other questions? 

Operator

No, there are no further questions.

Tony Strange -- Chief Executive Officer and Treasurer

OK. Well, we've covered a lot of ground on today's call, but I want to thank each and every one of you for your time and your patience this morning. I know we had a lot of information to cover. And always, we continue -- we appreciate your continued support of Aveanna.

Good luck to all of us, and have a great day. 

Operator

[Operator signoff]

Duration: 74 minutes

Call participants:

Shannon Drake -- Chief legal Officer and Corporate Secretary

Tony Strange -- Chief Executive Officer and Treasurer

Rod Windley -- Executive Chairman

Dave Afshar -- Chief Financial Officer

Jeff Shaner -- Chief Operating Officer

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

A.J. Rice -- Credit Suisse -- Analyst

Sarah James -- Barclays -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Justin Bowers -- Deutsche Bank -- Analyst

Matt Borsch -- BMO Capital Markets -- Analyst

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