AVAH — Q2 2026 Financial Report Analysis

Revenue up 13.7%, operating profit flat: lower interest costs and taxes did the work

Aveanna Healthcare sends nurses and aides into patients' homes, mostly to care for medically fragile children, and is paid mainly by state Medicaid programs. In its second quarter of fiscal 2026 (the 13 weeks to July 4, 2026), revenue rose 13.7% to $670.5 million and net income rose 49% to $40.3 million, or $0.18 per diluted share against $0.13 a year earlier. Those two lines do not move together. Operating income, the profit from running the business before interest and tax, was $80.0 million, the same as a year ago ($80.0 million). Caregiver pay rose much faster than the rates Aveanna bills, so the extra $80.9 million of revenue added almost no operating profit. The earnings growth came from lower interest costs, gains on interest-rate hedges and a lower tax rate. Management still raised full-year guidance for the second time this year, and this raise was not driven by acquisitions.

At a glance

• Revenue +13.7% to $670.5M. Nursing hours in the main Private Duty Services (PDS) segment rose 12.3%. Part of that came from the Family First acquisition, which closed June 1, 2026.
• PDS spread rate down 11.1% to $12.88 per hour. The spread is the gross profit Aveanna keeps per hour of care: what it bills minus what it pays the caregiver. Billing rates rose 1.7%. Caregiver cost per hour rose 7.8%.
• 2026 adjusted EBITDA guidance raised to more than $365M, from $338–342M. The June update had already added Family First to guidance, so this increase comes from the existing business.

Key figures

Segments: volume is strong in all three, pricing is the problem in nursing

PDS is 83% of revenue. Its revenue growth split into a 12.3% rise in hours and a 1.7% rise in the average rate billed per hour. The 10-Q attributes the hours growth to "growth in demand for non-clinical services" and to the Thrive (June 2025) and Family First (June 2026) acquisitions. It does not say how much came from each. The rate increase was small partly because of the comparison: the filing says Q2 2025 "benefited from certain rate increases applied retroactively for services provided during the first quarter of 2025." That made last year's rate look higher than its run-rate.

Caregiver cost per hour rose 7.8%. The 10-Q gives two reasons: "higher caregiver labor costs, including the pass-through of reimbursement rate increases," and "higher general and professional liability reserves." Pass-through means that when a state raises its Medicaid nursing rate, Aveanna passes much of the increase to nurses as higher pay. That helps recruiting but limits margin. Spread per hour fell from $14.29 to $12.88. For the first half as a whole the drop was 5.9%, so most of the year-over-year decline came in the second quarter.

Home Health & Hospice grew mostly on volume. Total home health episodes (60-day Medicare care periods, including recertifications) rose 18.5%. Medicare revenue per completed episode slipped 0.9% to $3,202. The share of admissions paid on a per-episode basis rather than per-visit rose to 81.0% from 74.5%. This is part of the company's "Preferred Payor" strategy, which aims to move volume toward payers that reimburse on better terms.

Medical Solutions was the one segment whose reported spread widened: +4.0% to $225.87. Revenue per patient rose 5.0% and cost per patient rose 6.0%. The spread still grew because the dollar increase in revenue per patient was larger than the dollar increase in cost.

What the headline numbers hide

• All of the profit growth came below the operating line. Pre-tax income rose $12.3 million while operating income was unchanged. Net interest expense fell $9.4 million, from $35.9M to $26.5M. The weighted-average interest rate on debt dropped from 9.0% to 6.6% because of lower benchmark rates, a 2025 refinancing, and two price cuts on the term loan in May 2026 (0.50 points, then another 0.25 points after a credit-rating upgrade). Other income swung by $3.0 million, mostly smaller non-cash valuation losses on interest-rate hedges. Tax took a smaller share: the effective rate was 28.7% against 38.8%, helped by a discrete tax benefit. At last year's rate, Q2 net income would have been about $34.6M instead of $40.3M. That is our estimate, and it means roughly $5.7M of the gain came from tax.
• Last year's margin was flattered by a one-off. Q2 2025 cost of revenue included a $6.2 million cut to professional-liability reserves after accrued legal settlements were released. Without it, last year's gross margin would have been about 34.7%, not 35.8% (our calculation). The like-for-like decline is therefore about 2.1 points rather than 3.2. That is still a real decline. Adjusted EBITDA already excludes the release, which is why it shows 8.0% growth while GAAP operating income shows none.
• Dilution reduced per-share growth. Diluted share count rose 6.9% to 224.9 million. Net income grew 49% but EPS grew 38.5%. The secondary offering in August 2026 (15 million shares at $11.75, sold by J.H. Whitney affiliates and some insiders) sold existing shares. It raised no money for Aveanna and did not change the share count.
• GAAP vs adjusted. Adjusted EPS of $0.22 adds back $4.1M of stock-based compensation, $4.4M of acquisition costs (mainly Family First), $1.5M of debt-repricing fees, $1.4M of legal costs tied to past acquisitions (including a Justice Department antitrust subpoena about nurse wages), and $1.2M of integration costs. It removes the $3.1M hedge gain. It then applies a flat 25% tax rate. Most of these are reasonable to exclude. Stock compensation and acquisition costs, however, recur at an acquisitive company.
• Cash conversion is good. Operating cash flow for the first half was $85.3M against net income of $81.9M, up from $42.9M a year earlier. The company says the improvement came from higher operating income, lower interest payments and the timing of collections and payroll. Days sales outstanding (how long customers take to pay) fell to 45.5 days from 47.2 a year ago. Patient receivables rose 7.6% since January to $337.2M. That rise includes acquired Family First receivables, so it is not a sign of slower collections.
• Leverage is still the main balance-sheet risk. Total debt was $1,483.4M at quarter-end. Cash fell to $97.2M from $193.3M in January because Family First was paid for in cash ($173.7M). Net debt of about $1.39 billion is roughly 3.8 times the new adjusted EBITDA guidance floor (our calculation). Operating income covered quarterly interest expense 2.9 times, up from 2.2 times a year ago. Goodwill is $1.28 billion, against shareholders' equity of $287M.

Takeaway: Aveanna grew volume by double digits in every segment, but the nursing business earned 11% less gross profit per hour than a year ago, so the 13.7% revenue gain produced no growth in operating profit. EPS growth this quarter came from cheaper debt and a lower tax rate. Neither can repeat indefinitely, so the PDS spread rate is the number that will decide whether earnings keep growing.

Guidance and outlook

Guidance has gone up three times this year:

The June update said its increase was "exclusively related to" Family First's expected $70M of revenue and $10M of adjusted EBITDA. That means the August raise of at least $30M in revenue and at least $23M in adjusted EBITDA, measured from the top of the June range, comes from the existing business. Subtracting the $1,318.4M of first-half revenue and $179.8M of first-half adjusted EBITDA, guidance implies at least $1.36B of revenue and $185M of adjusted EBITDA in the second half. That is a margin of about 13.6%, the same as the first half. In other words, the guidance assumes neither a margin recovery nor further erosion in the second half. Aveanna does not guide on net income, citing swings in the value of its interest-rate caps.

Our view: demand is not the issue. Hours, episodes and patients served all rose, and about 80% of revenue comes from Medicaid and Medicaid managed-care plans that have been raising nursing rates. The open question is how much of each rate increase Aveanna keeps rather than passes to nurses. Interest savings will keep helping in the second half because the May repricing applies for the full period. The tax benefit will not repeat. In the Q3 report, watch:

1. Whether the PDS spread rate stabilizes near $12.9 or keeps falling.
2. Whether liability reserves stay elevated.
3. How state Medicaid budgets respond to the One Big Beautiful Bill Act's Medicaid changes, which the 10-Q lists as a risk factor.