Aveanna Healthcare Holdings Inc

1. DESCRI PTION OF BUSINESS

Aveanna Healthcare Holdings Inc. (together with its consolidated subsidiaries, referred to herein as the “Company”) is headquartered in Atlanta, Georgia and has locations in 33 states with concentrations in Texas, Pennsylvania, and California, providing a broad range of pediatric and adult healthcare services, including nursing, hospice, rehabilitation services, occupational nursing in schools, therapy services, day treatment centers for medically fragile and chronically ill children and adults, as well as delivery of enteral nutrition and other products to patients. In addition, the Company provides respite healthcare services, which are temporary care provider services provided in relief of the patient’s normal caregiver. The Company’s services are designed to provide a high quality, lower cost alternative to prolonged hospitalization.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Aveanna Healthcare Holdings Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements, and business combinations accounted for as purchases have been included in the accompanying consolidated financial statements from their respective dates of acquisition.

Basis of Presentation

The Company's fiscal year ends on the Saturday that is closest to December 31 of a given year, resulting in either a 52 or 53-week fiscal year. The accompanying consolidated balance sheets reflect the accounts of the Company as of December 30, 2023 and December 31, 2022. For the fiscal years ended December 30, 2023 and December 31, 2022, the accompanying consolidated statements of operations, stockholders'(deficit)equity and cash flows reflect the accounts of the Company from January 1, 2023 through December 30, 2023, and January 2, 2022 through December 31, 2022, respectively. The fiscal years ended December 30, 2023 and December 31, 2022 each included 52 weeks.

Use of Estimates

The Company’s accounting and reporting policies conform with U.S. GAAP. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that impact the amounts reported in these consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Patient Accounts Receivable

The Company receives payments for services rendered from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, and patients. Revenue and receivables from government agencies are significant to the Company's operations, but management does not believe there are significant credit risks associated with these government agencies. The Company writes off patient accounts receivables on a periodic basis once we have exhausted our collection efforts and deem an account to be uncollectible. Management does not believe there are any other significant concentrations of revenue from any particular payer that would subject the Company to any significant credit risks in the collection of accounts receivable. Changes in general economic conditions, patient accounting service center operations, payer mix, or federal or state governmental health care coverage could affect collection of patient accounts receivable, cash flows and results of operations.

Long-Lived Assets

The carrying value of long-lived assets, including amortizable, identifiable intangible assets, and asset groups are evaluated whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an asset is being used or a significant deterioration in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group. A potential impairment has occurred if the projected future undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group are less than the carrying value of the asset or asset group. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in operation. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment charge is recorded equal to the excess of the asset or asset group’s carrying value over its fair value.

Fair value is measured based on a projected discounted cash flow model using a discount rate that the Company believes is commensurate with the risk inherent in its business. Any impairment charge would be recognized within operating expenses as other operating expense in the fiscal year incurred. There wasno impairment of depreciable or amortizable long-lived assets recorded in the fiscal years ended December 30, 2023 and December 31, 2022.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and amortization and are depreciated on a straight-line basis over the estimated useful lives of the assets. Additions and improvements are capitalized. Maintenance and repair expenses are charged to expense as incurred. When assets are sold or retired, the corresponding cost and accumulated depreciation are removed from the related accounts and any gain or loss is recognized in other income on the consolidated statements of operations.

The Company generally provides for depreciation over the following estimated useful lives:

The following table summarizes the balances related to property and equipment, net as of December 30, 2023 and December 31, 2022 (amounts in thousands):

Depreciation expense for the fiscal years ended December 30, 2023 and December 31, 2022, was$11.8 million and$15.2 million, respectively.

Leases

The Company leases office space and certain equipment, which are accounted for as operating leases. The Company’s current leases have expiration dates through 2030. Certain of the Company’s leases include termination options and renewal options. When the Company is not reasonably certain to exercise termination options, the options are not considered in determining the lease term. The Company determines if an arrangement is a lease at inception and evaluates the lease classification at that time. Lease arrangements with an initial term of 12 months or less are considered short-term leases and are not recorded on the accompanying consolidated balance sheets. Rent is recognized on a straight-line basis over the lease term.

Operating leases are included in operating lease right of use assets, current portion of operating lease liabilities, and operating lease liabilities, less current portion on the accompanying consolidated balance sheets. Operating lease right of use assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right of use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

The Company uses the implicit discount rate in the lease contract to discount lease payments to present value. If an implicit discount rate is not available in the lease contract, the Company uses its incremental borrowing rate.

The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for all leases.

Goodwill

Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of an acquired business. Goodwill is not amortized but is subject to an annual impairment test at the reporting unit level. The Company performs its annual goodwill impairment test on the first day of the fourth quarter of each fiscal year. 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. These events or circumstances include but are not limited to, a significant adverse change in the business or regulatory environment or legal factors.

During the fiscal year ended December 30, 2023, we recorded an impairment charge 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. We performed an interim impairment test during the third quarter of fiscal year 2023 due to aforementioned factors. While many of our reporting units have a carrying value that is consistent with its fair value due to impairment in five of our six reporting units recorded during the fourth quarter of 2022, our interim impairment test determined that the carrying value of the reporting unit within our HHH segment exceeded its respective fair value and we accordingly recorded an aggregate goodwill impairment charge of $105.1 million during the three-month period ended September 30, 2023. During our annual goodwill impairment test for fiscal year 2023, we did not identify any reporting units in which the related carrying value exceeded the estimated fair value.

During the fiscal year ended December 31, 2022, we recorded two impairment charges as a result of continuing inflationary and overall cost pressures, which constrained patient volume growth relative to costs across most of our businesses. We performed an interim impairment assessment as of July 2, 2022 and based on that assessment, we determined that the carrying value of five of our six reporting units across our three segments exceeded their respective fair values and accordingly recorded an aggregate goodwill impairment charge of $470.2 million for the three-month period ended July 2, 2022. During our annual goodwill impairment test in the fourth quarter of fiscal year 2022, we determined that the carrying value of five of our six reporting units across our three segments exceeded their respective fair values and accordingly recorded an aggregate goodwill impairment charge of $205.1 million for the three-month period ended December 31, 2022.

For both its interim and annual goodwill impairment tests, the Company engages a third-party valuation firm to assist 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 its reporting units’ earnings and revenue multiples to those of comparable 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 additional impairment in future fiscal years.

The Company determined that it hadsix reporting units for the fiscal years ended December 30, 2023 and

December 31, 2022.

Intangible Assets, Net

Intangible assets consist of licenses (including certificates of need), acquired trade names, non-compete agreements, and internal-use software. The Company amortizes non-compete agreements and acquired trade names that it does not intend to use indefinitely on a straight-line basis over its estimated useful lives, which isone tofour years for non-compete agreements andone totwo years for acquired trade names. In addition, the Company amortizes internal-use software over the lesser of the remaining license term or useful life of the software, which isthree toten years. Impairment tests are performed annually or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the intangible below its carrying amount. These events or circumstances include but are not limited to, a significant adverse change in the business or exiting an overlapping market.

During the fiscal years ended December 30, 2023 and December 31, 2022, the Company recorded asset impairment charges related to previously acquired licenses due to their surrender and the closure of related branches of$2.9 million and$1.7 million, respectively.

These losses are included in other operating expense (income) in the accompanying consolidated statements of operation. The Company utilizes the cost approach to determine the estimated fair value of acquired licenses. The cost approach calculates fair value by calculating the cost to acquire a license in each state the Company operates. The Company calculates the replacement cost based on average incurred costs to acquire a license in each location.

Business Combinations

In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business and is instead deemed to be an asset. If this is not the case, the Company then further evaluates whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the single identifiable asset or group of similar identifiable assets and activities is a business.

The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The assets acquired and liabilities assumed are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill represents the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed. The operations of an acquisition are included in the consolidated financial statements from the respective date of the acquisition.

For the year ended December 30, 2023, the Company recognized a non-cash purchase gain on the acquisition of a business of $5.1 million, which was recorded in Other Operating (Income) Expense.

Debt Issuance Costs

The Company defers costs directly associated with acquiring third-party financing. Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. Debt issuance costs related to the revolving credit facility under the First Lien Credit Agreement (the “Revolving Credit Facility”) and securitization obligations are recorded within other long-term assets. Debt issuance costs related to the Delayed Draw Term Loan Facility (as defined in Note 6 –Long-term obligations) are recorded as a direct deduction from the carrying amount of drawn debt during the fiscal year ending December 31, 2022. Debt issuance costs are amortized using the effective interest rate method over the terms of the related long-term obligation and securitization obligation. The Company recognized approximately$5.2 million and$7.8 million of interest expense related to the amortization of these costs during the fiscal years ended December 30, 2023 and December 31, 2022, respectively.

Insurance Programs

The Company self-insures its exposure to professional malpractice and workers’ compensation risk up to selected retention levels. Reserves are established for estimates of the loss that will ultimately be incurred on claims that have been reported but not paid and claims that have been incurred but not reported. We engage a third-party actuarial valuation firm to assist management in calculating these reserves. The actuarial valuations consider a number of factors, including historical claim payment patterns, changes in case reserves and the assumed rate of increase in healthcare costs. The Company's historical experience and recent trends in industry experience are the most significant factors in the determination of these reserves. Management believes the use of actuarial methods to account for these reserves provides a consistent and effective way to measure these subjective accruals. However, actual claims incurred may differ from estimates due to changes in the timing of claims reporting, claims payment and settlement practices or claims reserve practices, as well as differences between assumed and actual future cost increases. Accrued unpaid claims and expenses that are expected to be paid within the next twelve months are classified as current liabilities. All other accrued unpaid claims and expenses are classified as long-term liabilities.

Receivables under insured programs represent the portion of the Company’s reserves for professional liability and workers’ compensation losses estimated to be reimbursable under commercial insurance policies. The entities providing loss coverage to the Company are creditworthy commercial insurance companies and the Company believes that such receivables are probable of being collected and that these companies will be able to fully satisfy their obligations under the insurance contracts. Receivables under insured programs that are expected to be paid within the next twelve months are classified as current assets. All other receivables under insured programs are classified as long-term assets.

Income Taxes

The Company uses the asset and liability approach for measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. The deferred tax calculation requires the Company to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when the Company believes it is more likely than not that some portion or all the deferred tax assets will not be realized. The effect of a change in tax rate is recognized as income or expense in the fiscal year that includes the enactment date.

Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s entities based upon the weight of available evidence, including such factors as the recent earnings history and expected future taxable income. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in its effective tax rate.

The Company records liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no tax benefit is recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future fiscal years, changes in facts, circumstances, and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense and liability in the fiscal year in which such changes occur. Any interest or penalties incurred related to unrecognized tax benefits are recorded as a component of the provision for income tax expense.

Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the diluted weighted average number of common shares outstanding for the period. For purpose of this calculation, outstanding stock options and unvested deferred restricted stock units are considered potentially dilutive common shares.

Share-Based Compensation

The fair value of time-vesting options is recognized as compensation expense on a straight-line basis over the requisite service period of the award. The fair value of the time-vesting options is determined using the Black-Scholes option pricing model.

Determining the fair value of options at the grant date requires judgment, including estimating the expected term and the associated volatility. Prior to the Company's initial public offering ("IPO"), estimated fair value of the Company’s stock was determined by management, using input from third-party valuations of common stock. Subsequent to the IPO, estimated fair value of the Company's stock is determined by the market price of the Company's stock. The Company has elected to account for forfeitures as they occur rather than apply an estimated forfeiture rate to share-based compensation expense.

The fair value of restricted stock units is recognized as compensation expense on a straight-line basis over the requisite service period of the award. The fair value of restricted stock units is based on the value of the underlying share at the grant date. See Note 11 -Share-Based Compensation for additional discussion of share based compensation awards.

Fair Values of Financial Instruments

Certain assets and liabilities are recorded at fair value in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company uses a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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Level 1 – Quoted market prices in active markets for identical assets and liabilities.

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Level 2 – Observable inputs other than quoted market prices in Level 1, such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.

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Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

See Note 8 –Fair Value Measurements for additional details of the Company’s fair value measurements.

Derivative Financial Instruments

The Company may from time to time utilize derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes derivatives as either assets or liabilities at fair value in the accompanying consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are recognized in the Company’s consolidated statements of operations in other income.

Branch and Regional Administrative Expenses

Branch and regional administrative expenses are administrative costs incurred in the branches and regional offices to administratively support the provision of clinical care to patients. These costs include the compensation of branch and regional leaders, recruiting, scheduling, and rent, among other costs.

Corporate Expenses

Corporate expenses include costs to support the branches and regions including corporate headquarters, corporate payroll, billing and collections, corporate facilities, corporate people services, corporate information technology, and corporate related professional services necessary to support field operations.

Marketing Costs

The Company expenses marketing costs as incurred. Marketing expense for the fiscal years ended December 30, 2023 and December 31, 2022 was$8.3 million and$6.0 million, respectively.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. There was no difference between net loss and comprehensive loss presented in the accompanying consolidated financial statements for the fiscal years ended December 30, 2023 and December 31, 2022.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of patient accounts receivable. Should government agencies suspend or significantly reduce contributions to government insurance programs, the Company’s ability to collect its receivables would be adversely affected. The Company’s exposure to credit risk with respect to its remaining receivables is limited due to the large number of state Medicaid, Medicaid Managed Care Organization payers, and Medicare Advantage payers.

The Company is also subject to credit risk due to the variable interest rates on its term loan obligations. As a result, the Company has entered into interest caps and interest rate swap agreements to limit its exposure to risk on its variable rate debt. See Note 9 –Derivative Financial Instruments for further details on the interest rate derivative instruments.

The Company maintains its cash in bank deposit accounts with major financial institutions, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to significant credit risk on cash and cash equivalents.

Segments

The Company’s operating segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker (“CODM”) manages the business and allocates resources. The Company hasthree operating segments andthree reportable segments, Private Duty Services (“PDS”), Medical Solutions (“MS”) and Home Health & Hospice (“HHH”).

All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled. The Company does not generate revenue outside the United States. See Note 16 –Segment Informationfor additional information on the Company’s segments.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies the scope and application of certain optional expedients and exceptions regarding the original guidance. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which delays the effective date of the guidance issued in ASU 2020-04 to December 31, 2024. The U.S. Dollar LIBOR panel ceased following June 30, 2023, and the Company adopted the guidance in ASU 2020-04 for the second quarter of fiscal year 2023 on a prospective basis, which didnot have a material impact on the Company's financial position, results of operations, and disclosures.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The standard improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit (referred to as the “significant expense principle”). The standard will become effective for the fiscal year 2024 annual financial statements and interim financial statements thereafter and will be applied retrospectively for all prior periods presented in the financial statements, with early adoption permitted. The Company plans to adopt the standard when it becomes effective beginning in the fiscal year 2024 annual financial statements, and is currently evaluating the impact this guidance will have on the disclosures included in the Notes to the Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard enhances income tax disclosure requirements for all entities by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. The standard will be effective for the fiscal year 2025 annual financial statements with early adoption permitted. The Company plans to adopt the standard when it becomes effective beginning in the fiscal year 2025 annual financial statements, and the Company expects the adoption of the standard will impact certain of our income tax disclosures.

3. REVENUE

The Company evaluates the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process. The Company uses a portfolio approach to group contracts with similar characteristics and analyze historical cash collection trends.

Revenue is primarily derived from (i) pediatric healthcare services provided to patients including private duty nursing and therapy services, (ii) adult home health and hospice services (collectively “patient revenue”); and (iii) from the delivery of enteral nutrition and other products to patients (“product revenue”). The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time, and therefore, each service provided is its own stand-alone contract. Incremental costs of obtaining a contract are expensed as incurred due to the short-term nature of the contracts.

Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. For patient revenue, the performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the healthcare services provided. For product revenue, the performance obligation is satisfied at the point in time of delivery of the product to the patient. The Company recognizes patient revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payers are billed within several days of the service being performed, and payments are due based on contract terms.

The Company’s lines of business are generally classified into the following categories: private duty services; home health and hospice; and medical solutions.

Private Duty Services (“PDS”). The PDS business includes a broad range of pediatric and adult healthcare services including private duty skilled nursing, non-clinical services and personal care services, pediatric therapy services, rehabilitation services, and nursing services in schools and pediatric day healthcare centers.

Home Health & Hospice (“HHH”). The HHH business provides home health, hospice, and personal care services to predominately elderly patients.

Medical Solutions (“MS”). The MS business includes the delivery of enteral nutrition and other products to patients.

For the PDS, HHH, and MS businesses, the Company receives payments from the following sources for services rendered: (i) state governments under their respective Medicaid programs (“Medicaid”); (ii) Managed Care providers of state government Medicaid programs (“Medicaid MCO”); (iii) commercial insurers; (iv) other government programs including Medicare and Tricare and ChampVA (“Medicare”); and (v) individual patients. As the period between the time of service and time of payment is typicallyone year or less, the Company did not adjust for the effects of a significant financing component.

Most contracts contain variable consideration, however, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payers and by implicit price concessions which are estimated based on historical collection experience. Management estimates the transaction price on a payer-specific basis given its interpretation of the applicable regulations or contract terms. Updated regulations and contract negotiations occur frequently, necessitating regular review and assessment by management. There were no material revenue adjustments recognized from performance obligations satisfied or partially satisfied in previous periods for the fiscal years ended December 30, 2023 and December 31, 2022.

As of December 30, 2023 and December 31, 2022, estimated contractual adjustments and implicit price concessions of$62.6 million and$52.6 million, respectively, were recorded as reductions to patient accounts receivable balances to arrive at the estimated collectible revenue and patient accounts receivable. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense which is included as a component of operating expenses in the consolidated statements of operations. The Company didnot record any bad debt expense for thefiscal years ended December 30, 2023 and December 31, 2022.

The following table presents revenue as a percentage of total revenue for thefiscal years ended December 30, 2023 and December 31, 2022:

4. GOODWILL AND INTANGIBLE ASSETS, NET

The following table summarizes changes in goodwill by segment during the fiscal years ended December 30, 2023 and December 31, 2022 (amounts in thousands):

(1) Goodwill balance is net of $346.8 million of accumulated impairment losses for PDS and $88.0 million of losses for MS.(2) Goodwill balance is net of accumulated impairment losses of $608.0 million for PDS, $119.8 million for MS, and $382.3 million for HHH.(3) Goodwill balance is net of accumulated impairment losses of $608.0 million for PDS, $119.8 million for MS, and $487.4 million for HHH.

See Note 2 –Summary of Significant Accounting Policies, Goodwill for details on goodwill impairment.

Measurement period adjustments in the fiscal year ended December 31, 2022 in the table above resulted from finalizing the purchase price allocations of acquisitions completed during fiscal year ended January 1, 2022. Purchase price allocations were final for all acquisitions as of December 31, 2022.

The following tables summarize the changes in intangible assets for the fiscal years ended December 30, 2023 and December 31, 2022 (amounts in thousands):

Amortization expense related to the Company’s intangible assets was$2.0 million and$6.0 million for the fiscal years ended December 30, 2023 and December 31, 2022, respectively. Included in the amounts above was amortization expense of internal-use software of $1.9 million for both of the fiscal years ended December 30, 2023 and December 31, 2022. License impairment recorded in the fiscal year ended December 30, 2023 of $0.8 million and $2.1 million was related to the PDS and HHH segments, respectively.

The estimated aggregate amortization expense related to intangible assets for each of the next five years subsequent to December 30, 2023 and thereafter is as follows (amounts in thousands):

5. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Additional information regarding certain balance sheet accounts is presented below as of December 30, 2023 and December 31, 2022 (amounts in thousands):

6. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following as of December 30, 2023 and December 31, 2022 (dollar amounts in thousands):

Scheduled future maturities of term loans for each of the next five years subsequent to December 30, 2023 are as follows (amounts in thousands):

On June 30, 2023, the Company entered into the Ninth Amendment to the 2021 Extended Term Loan and the First Amendment to the Second Lien Term Loan. The Company entered into these amendments in order to remove and replace the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate ("SOFR").

On March 11, 2021, the Company entered into an amendment to the Revolving Credit Facility that increased availability thereunder from $75.0 million to $200.0 million and extendedthe maturity date to April 29, 2026 upon the Company's refinancing of its term loans on July 15, 2021.

On July 15, 2021 the Company entered into an Extension Amendment (the “Extension Amendment”) to its First Lien Credit Agreement, originally dated March 16, 2017, with Barclays Bank, as administrative agent, the collateral agent, a letter of credit issuer, and swingline lender, and the lenders and other agents party thereto from time to time (as amended to date, the “First Lien Credit Agreement”). The Extension Amendment converted outstanding balances under all remaining first lien term loans into a single term loan in an aggregate principal amount of$860.0 million (the “2021 Extended Term Loan”), and extended the maturity date to July 2028.

On August 9, 2022, the Company borrowed $60.0 million under thedelayed draw term loan facility under the First Lien Credit Agreement (the “Delayed Draw Term Loan Facility” and such borrowing, the “Delayed Draw Term Loan”)), the terms of which are similar to those of the 2021 Extended Term Loan, and as a result the balance related to the Delayed Draw Term Loan is presented together with the 2021 Extended Term Loan in the table above. At the time of borrowing, the Company transferred a proportionate share of the debt issuance costs from other long-term assets to a direct deduction of the carrying amount of the debt. On November 16, 2022, the Company terminated the remaining Delayed Draw Term Loan Facility of $140.0 million. At the time of the termination, the Company expensed the remaining unamortized debt issuance costs within other long-term assets to interest expense in the accompanying consolidated statements of operations.

The 2021 Extended Term Loan and the Delayed Draw Term Loan bear interest, at the Company’s election, at a variable interest rate based on either SOFR (subject to a minimum of 0.50%), or prime or federal funds rate (“Annual Base Rate” or “ABR”) (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus a CSA of 0.10% andan applicable margin of 3.75% for loans accruing interest based on SOFR and an applicable margin of 2.75% for loans accruing interest based on ABR. The Revolving Credit Facility bears interest, at the Company's election, at a variable interest rate based on either SOFR (subject to a minimum of 0.50%) or ABR (subject to a minimum of 2.00%) for the interest period relevant to such borrowing, plus a CSA of 0.10% and an applicable margin of 3.75% for loans accruing interest based on SOFR and an applicable margin of 2.75% for loans accruing interest based on ABR. As of December 30, 2023, the principal amount of the 2021 Extended Term Loan and borrowings under the Revolving Credit Facility accrued interest at a rate of 9.24%.

On December 10, 2021, the Company entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) with a syndicate of lending institutions and Barclays Bank, as administrative agent and collateral agent. The Second Lien Term Loan has an aggregate principal amount of $415.0 million and a maturity date of December 10, 2029. The Second Lien Term Loan bears interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin (equal to 6.00%) plus a base rate determined by reference to thehighest of (a)0.50% per annum plus the Federal Funds Effective Rate, (b) the Prime Rate and (c) the SOFR rate for an interest period of one month plus a CSA depending on the interest period plus 1.00%; or (2) an applicable margin (equal to 7.00%) plus SOFR and a CSA depending on the interest period; provided that such rate is not lower than a floor of 0.50%. As of December 30, 2023, the principal amount of the Second Lien Term Loan accrued interest at a rate of 12.54%.

On March 23, 2023, the Company amended the First Lien Credit Agreement to increase the sublimit for letters of credit under the Revolving Credit Facility to $40.0 million from $30.0 million. The other terms of the Revolving Credit Facility remained unchanged.

Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. The balance for debt issuance costs related to the term loans as of December 30, 2023 and December 31, 2022 was$29.2 million and$33.7 million, respectively. Debt issuance costs related to the Revolving Credit Facility are recorded within other long-term assets. The balance for debt issuance costs related to the Revolving Credit Facility as of December 30, 2023 and December 31, 2022 was $0.0 million and$0.2 million, respectively. The Company recognized interest expense related to the amortization of debt issuance costs of$4.7 million and$7.4 million for the fiscal years ended December 30, 2023 and December 31, 2022, respectively.

Issued letters of credit as of December 30, 2023 and December 31, 2022 were$31.9 million and$19.7 million, respectively. Unused letters of credit as of December 30, 2023 and December 31, 2022 were $8.1 million and $10.3 million, respectively. There wereno swingline loans outstanding as of December 30, 2023 and December 31, 2022. Borrowing capacity under the Company's Revolving Credit Facility was$168.1 million as of December 30, 2023 and$180.3 million as of December 31, 2022. 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.

The fair value of the Company's long-term obligations was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets, which are considered Level 2 inputs. The aggregate fair value of the Company's long-term obligationswas $1,141.6 million at December 30, 2023.

The Company was in compliance with all financial covenants and restrictions at December 30, 2023 and December 31, 2022.

7. SECURITIZATION FACILITY

On November 12, 2021, the Company (through a wholly owned special purpose entity, Aveanna SPV I, LLC) (the “special purpose entity”) entered into a Receivables Financing Agreement (the “Securitization Facility”) with a lending institution with a termination date of November 12, 2024. On July 31, 2023, the Company entered into an amendment to the Securitization Facility to extend its maturity to July 31, 2026. The maximum amount available under the Securitization Facility is $175.0 million, subject to certain borrowing base requirements. The Company incurred debt issuance costs of$2.4 million in connection with the Securitization Facility, which were capitalized and included in other long-term assets. The Company recognized interest expense related to the amortization of debt issuance costs of$0.5 million and$0.4 million for the fiscal years ended December 30, 2023 and December 31, 2022, respectively.

Pursuant to sale agreements, each of which is among Aveanna Healthcare, LLC, as initial servicer, certain of the Company's subsidiaries and the special purpose entity, the subsidiaries sold substantially all of their existing and future accounts receivable balances to the special purpose entity. The special purpose entity uses the accounts receivable balances to collateralize loans made under the Securitization Facility. The Company retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Securitization Facility and provides a performance guaranty.

The outstanding balance under the Securitization Facility was$155.0 million and $140.0 million at December 30, 2023 and December 31, 2022, respectively. The balance accrues interest at a rate equal to the SOFR rate, plus a CSA, plus an applicable margin. The interest rate under the Securitization Facility was 8.95% at December 30, 2023.

The Securitization Facility is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and the borrowings are presented as liabilities in the accompanying consolidated balance sheets; (ii) the accompanying consolidated statements of operations reflect the interest expense associated with the collateralized borrowings; and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within the accompanying consolidated statements of cash flows. The Securitization Facility is included within current liabilities on the consolidated balance sheets as it is collateralized by current patient accounts receivable and not because payments are due within one year of the balance sheet date.

8. FAIR VALUE MEASUREMENTS

The carrying amounts of cash and cash equivalents, patient accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of the instruments.

The Company’s other assets and other liabilities measured at fair value are as follows (amounts in thousands):

During the fiscal years ended December 30, 2023 and December 31, 2022, there wereno transfers between Level 1, Level 2, and Level 3.

The fair values of the interest rate swap and cap agreements are based on the estimated net proceeds or costs to settle the transactions as of the respective balance sheet dates. The valuations are based on commercially reasonable industry and market practices for valuing similar financial instruments. See Note 9 –Derivative Financial Instruments for further details on the Company’s interest rate swap and cap agreements.

For the annual goodwill impairment test, the Company performs a Step 1 analysis that uses a combination of expected present value of future cash flows (income approach) and comparable public companies (market approach) to determine the fair value of the reporting unit. These approaches use primarily unobservable inputs, including revenue growth rates, projected EBITDA margins, and discount rates, which are considered Level 3 fair value measurements. The fair value analysis takes into account recent and expected operating performance.

See Note 11 –Share-Based Compensation for further details on the Company’s deferred restricted stock units.

9. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The Company currently uses interest rate swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value in the accompanying consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are therefore recorded in earnings throughout the terms of the respective derivatives. See Note 8 –Fair Value Measurements for further details on the fair value of Company’s derivative financial instruments.

The Company currently hastwo interest rate swap agreements intended to limit its exposure to interest rate risk on its variable rate debt. These swaps expire on June 30, 2026. Prior to the quarter ended July 1, 2023, the Company paid a fixed rate of 2.08% and received the one-month LIBOR rate, subject to a 0.50% floor. During the quarter ended July 1, 2023, the Company amended its interest rate swap agreements to change the benchmark under the agreements from LIBOR to SOFR. As of July 1, 2023, the Company pays a fixed rate of 2.03% under the interest rate swap agreements and receives the one-month SOFR rate, subject to a 0.50% floor. The aggregate notional amount of the interest rate swaps remained unchanged at$520.0 million at December 30, 2023 and December 31, 2022. The fair value of the interest rate swaps was a$23.0 million asset at December 30, 2023 and a$34.3 million asset at December 31, 2022 and is included in other long-term assets in the accompanying consolidated balance sheets. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying consolidated statements of operations, which are included within cash flows from operating activities in the accompanying consolidated statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements were recognized through cash flows from operating activities in the accompanying consolidated statements of cash flows.

On February 9, 2022, the Company entered into interest rate cap agreements for an aggregate notional amount of $880.0 million and a cap rate of 3.00%. The premium paid for the interest rate cap agreements was $11.7 million. The cap agreements have an expiration date of February 28, 2027. Prior to the quarter ended July 1, 2023, the cap agreements provided that the counterparty would pay the Company the amount by which LIBOR exceeded 3.00% in a given measurement period. During the quarter ended July 1, 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%. The fair value of the interest rate cap agreements at December 30, 2023 and December 31, 2022 was$30.5 million and$47.5 million, respectively, and is included in other long-term assets on the accompanying consolidated balance sheets. The Company does not apply hedge accounting to interest rate cap agreements and records all mark-to-market adjustments directly to other income in the accompanying consolidated statements of operations, which is an adjustment to reconcile cash flows from operating activities in the consolidated statement of cash flows. The premium payments of the interest rate caps were recognized through cash flows from investing activities.

The following mark-to-market (losses)gains from these derivatives not designated as hedging instruments were recognized in the Company’s consolidated statements of operations for the fiscal years ended December 30, 2023, and December 31, 2022, respectively.

The Company does not utilize financial instruments for trading or other speculative purposes.

10. INCOME TAXES

Beginning in 2022, the 2017 Tax Cuts and Jobs Act, as amended, eliminated current-year deductibility of research and experimentation ("R&E") expenditures and software development costs (collectively, "R&E expenditures") and instead requires the Company to charge its R&E expenditures to a capital account amortized over five years. For the 2023 tax year, the Company capitalized approximately $5.9 million of R&E expenditures for income tax purposes.

Income taxes consisted of the following for the fiscal years ended December 30, 2023 and December 31, 2022 (amounts in thousands):

A reconciliation of the difference between the federal statutory tax rate and the Company’s effective tax rate for income taxes for the fiscal years ended December 30, 2023 and December 31, 2022 is as follows (amounts expressed as a percentage):

Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and liabilities are as follows as of December 30, 2023 and December 31, 2022 (amounts in thousands):

As of December 30, 2023, the Company had gross federal and state net operating loss (“NOL”) carryforwards of$21.2 million and$380.1 million, respectively. For those losses that have an expiration date, the carryforwards will expire at various dates from 2024 through 2042. For those losses incurred after 2017, there is no statutory time expiration for the federal and certain state NOLs. The Company also has unutilized Federal tax credits of approximately $1.6 million that will expire in years 2038 through 2042. A valuation allowance was established for federal and state losses and federal credits that the Company believes are not more likely than not to be realized in the near future.

Internal Revenue Code Sec. 163(j) limits the deduction for net interest expense that exceeds 30% of the taxpayer’s adjusted taxable income (“ATI”) for the years ended 2023 and 2022. Sec. 163(j) permits an indefinite carryforward of any disallowed business interest. As of December 30, 2023, the Company has$339.0 million of interest expense carryovers. The deferred tax asset associated with these interest expense carryovers of$80.6 million is partially offset by a valuation allowance as the Company believes the benefit of this carryover is not more likely than not to be realized in the future.

Annually, the Company assesses the future realization of the tax benefit of its existing deferred tax assets and determines whether a valuation allowance is needed. Based on the Company’s assessment, it is more likely than not that a portion of the deferred tax assets will not be realized in the future. As a result, the Company recorded a valuation allowance of$244.9 million against its deferred tax assets at December 30, 2023. The valuation allowance increased by$41.5 million from the$203.4 million valuation allowance recorded as of December 31, 2022. The increase is primarily related to new deferred tax assets associated with current year operations, including goodwill impairment. The Company will maintain the valuation allowance until an appropriate level of profitability is sustained or the Company is able to develop prudent and feasible tax planning strategies that enable management to conclude that deferred tax assets are realizable. The following table summarizes changes in the valuation allowance as of December 30, 2023 and December 31, 2022 (amounts in thousands):

The Company is subject to U.S. federal and state income tax in multiple jurisdictions. With limited exceptions, years prior to the 2019 fiscal year are no longer open to U.S. federal, state, or local examinations by taxing authorities. The Company was under examination by the Internal Revenue Service (the “IRS”) for certain historical tax periods in fiscal years 2015, 2016 and 2017. As of December 30, 2023, the IRS and the Company effectively settled the examination, resulting in a re-measurement of certain of its Uncertain Tax Positions. Measurement of Uncertain Tax Positions that meet the more-likely-than-not recognition threshold shall consider the most probable outcome using the facts, circumstances, and information available at the reporting date. As a result of its effective settlement, the Company recognized $5.4 million of Unrecognized Tax Positions, not including accrued penalties and interest. The Company is not under any current income tax examinations by any state or local taxing authorities.

Uncertain Tax Positions

As of December 30, 2023 and December 31, 2022, the total unrecognized tax benefits were$1.7 million and $8.1 million, respectively, and accrued interest and penalties were$0.7 million and$1.8 million, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax benefit. If the Company were to prevail on all unrecognized tax benefits recorded,$2.4 million of tax benefit would impact the overall effective tax rate within the next 12 months. The following table, which excludes penalties and interest, summarizes changes in uncertain tax positions as of December 30, 2023 and December 31, 2022 (amounts in thousands):

11. SHARE-BASED COMPENSATION

Stock Incentive Plans

On July 2, 2021, the Company's Board of Directors adopted the Company's 2021 Stock Incentive Plan (the “2021 Omnibus Incentive Plan”). The 2021 Omnibus Incentive Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Stock or Cash Based Awards and Dividend Equivalents to enhance the Company's ability to attract, retain, and motivate persons who make important contributions to the Company. Since fiscal year 2021, the Company has granted Restricted Stock Units under the 2021 Omnibus Incentive Plan.

On April 19, 2021, the Company’s Board of Directors adopted the Company’s Amended and Restated 2017 Stock Incentive Plan (the “Amended 2017 Plan”). The Amended 2017 Plan (i) provides for the issuance of shares of common stock, as opposed to the Class B common stock previously issuable under the plan, to align with the Company’s Amended and Restated Certificate of Incorporation and (ii) modified the vesting terms of the existing issued performance-vesting options to vest upon the achievement of volume weighted average price (“VWAP”) per share hurdles for any ninety consecutive days commencing on or after the nine-month anniversary of the IPO. On June 17, 2021, the Company established the VWAP per share hurdles for the performance-vesting options.

Amended 2017 Plan

Outstanding awards granted under the Amended 2017 Plan included time-vesting options, performance-vesting options, and restricted stock awards. Most awards granted to Participants consist of 50% time-vesting options and 50% performance-vesting options. Time-vesting options vest 20% per year over a period of 5 years, and the only condition to vesting is the passage of time. The related compensation expense is recognized ratably over the required service period. Time-vesting options will fully vest upon the sale of the Company. The Company has also awarded accelerator-vesting options under the Amended 2017 Plan, which are subject to the time-based vesting schedule of 20% per year over a period of 5 years and provide additional value to holders, should the Company meet specified return levels to its stockholders.

Time-Vesting, Accelerator-Vesting, & Performance-Vesting Options

To determine the fair value of time-vesting and accelerator-vesting options under the Amended 2017 Plan, the Company utilized a Black-Scholes model. No time-vesting, accelerator-vesting, or performance-vesting options were awarded during the fiscal years ended December 30, 2023 and December 31, 2022 under the Amended 2017 Plan. The Company calculated the fair value of the outstanding performance-vesting options using the Monte Carlo option-pricing model. The Company recorded compensation expense, net of forfeitures of $0.7 million and $4.5 million during the fiscal years ended December 30, 2023, and December 31, 2022, respectively, which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense related to all outstanding option awards issued under the Amended 2017 Plan was $1.2 millionas of December 30, 2023.

The following table summarizes the Company’s options activity for the years ended December 30, 2023 and December 31, 2022:

Director Restricted Stock Units - Amended 2017 Plan

In accordance with the Amended 2017 Plan, an aggregate of no more than 307,500 shares of common stock are reserved for settlement of deferred restricted stock units (“Pre-IPO Deferred RSUs”). Pre-IPO Deferred RSUs fully vest on the grant date and convert to common shares upon the earlier of (1) the sale of the Company or (2) termination of service.

The value of the remaining unsettled awards was recognized in deferred restricted stock units as of December 30, 2023 and December 31, 2022 in the accompanying consolidated balance sheets. There wereno awards granted during the fiscal years ended December 30, 2023 and December 31, 2022.

The Pre-IPO Deferred RSUs contain a put right, which would require the Company, at the option of the Participant, to repurchase all the Pre-IPO Deferred RSUs in event of the Participant’s termination at fair market value. The existence of this put right prevents the Participant from bearing the risks and rewards of ownership during the six month period following the vesting date as the put right requires the Company to purchase all shares the Participant received at fair market value on the repurchase date. Based on the nature of the Pre-IPO Deferred RSUs, management determined the awards, upon grant, have characteristics of a liability and accounts for them as liabilities initially.

After the Award has been outstanding for six months and a day, the Participant is subject to the risk and rewards of ownership, and the Award is reclassified to temporary equity, or when the Award has been settled, if earlier. As the put right is exercisable only when the Participant terminates his or her service, which is outside the control of the Company, the Company has classified the awards outstanding subsequent to the initial six-month period as temporary equity.

The Pre-IPO Deferred RSUs are recorded at fair value upon issuance and are remeasured at fair value at each reporting date while classified as a liability and immediately prior to being reclassified as temporary equity. As the Pre-IPO Deferred RSUs are contingently redeemable, the Company does not subsequently adjust the redemption value once classified as temporary equity as it is not deemed probable that the Participant will terminate his or her service. As of both December 30, 2023 and December 31, 2022, the Company had recorded $2.1 million in temporary equity related to all outstanding awards in the accompanying consolidated balance sheets.

As of both December 30, 2023 and December 31, 2022, there were 194,750 Pre-IPO Deferred RSUs outstanding, all of which were fully vested. No Pre-IPO Deferred RSUs vested during the fiscal years ended December 30, 2023 and December 31, 2022. There wasno compensation expense related to the Pre-IPO Deferred RSUs for the fiscal years ended December 30, 2023 and December 31, 2022.

2021 Omnibus Incentive Plan

Outstanding awards under the 2021 Omnibus Incentive Plan as of December 30, 2023 include restricted stock units which were granted to certain members of the Board of Directors and certain members of management of the Company. These restricted stock units vest over time and upon vesting convert into shares of common stock on a one-for-one basis.

Director Restricted Stock Units

On June 30, 2021, the Company awarded Directors an aggregate of 52,545 restricted stock units (“Director RSUs”) under the 2021 Omnibus Incentive Plan. The Director RSUs awarded on June 30, 2021 vested over aone-year period. On August 15, 2022, the Company awarded an aggregate of 308,055 Director RSUs which vest over aone-year period. The weighted average grant date per share fair value of Director RSUs was $2.11. On February 14, 2023, the Company awarded an aggregate of 634,923 Director RSUs which vest over aone-year period. The weighted average grant date per share fair value of Director RSUs was $1.26.

The Company recorded$1.1 million and $0.6 million of compensation expense during the fiscal years ended December 30, 2023 and December 31, 2022, respectively. This expense is included in corporate expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense associated with the Director RSUs as of December 30, 2023 was $0.1 million.

Management Restricted Stock Units

On December 29, 2021, the Company awarded certain members of Management an aggregate of 2,400,000 restricted stock units (“Management RSUs”) under the 2021 Omnibus Incentive Plan. The Management RSUs awarded on December 29, 2021 vest over afour-year period. The weighted average grant date per share fair value of Management RSUs granted during the fiscal year ended January 1, 2022 was $7.00. There were no such awards granted during the fiscal years ended December 30, 2023 and December 31, 2022. The Company recorded compensation expense, net of forfeitures, of $2.2 million and $3.9 million during the fiscal years ended December 30, 2023 and December 31, 2022, respectively, which is included in corporate expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense associated with the Management RSUs as of December 30, 2023 was $6.1 million.

Long-Term Incentive Plan ("LTIP")

In the first quarter of 2022 and in the first quarter of 2023, the Compensation Committee of the Company's Board of Directors approved LTIP grants of restricted stock units ("RSUs") and performance stock units ("PSUs") under the 2021 Omnibus Incentive Plan.

The RSUs are subject to a three-year service-based cliff vesting schedule commencing on the date of grant. Compensation cost for the RSUs is measured based on the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. In the first fiscal quarter of 2022, the Company granted 2,124,212 RSUs with a grant date per share fair value of $4.93. In the first fiscal quarter of 2023, the Company granted 4,073,186 RSUs with a grant date per share fair value of $1.26. The Company recorded compensation expense, net of forfeitures, of$2.8 million and $2.3 million during the fiscal year ended December 30, 2023 and December 31, 2022, respectively, which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of December 30, 2023 was$5.2 million.

The PSUs granted in 2022 contain two performance criteria: (i) 50% based on relative total shareholder return ("TSR") over a three-year performance period, which measures the Company's total shareholder return as compared to the total shareholder return of a designated peer group, and (ii) 50% based on an adjusted EBITDA target over a one-year performance period. The PSUs are also subject to a three-year service-based cliff vesting schedule commencing on the date of grant. For the PSUs that have a service and a market condition, compensation cost is measured based on the grant date estimated fair value determined using a Monte Carlo simulation model and is recognized over the applicable vesting period on a straight-line basis. The fair value inputs included in the Monte Carlo simulation model were remaining measurement period of 2.88 years, stock price on date of grant of $4.93, daily average closing stock price for the two calendar months prior to the beginning of the performance period of $7.29, risk free rate of 1.77%, and the performance payout per TSR performance percentile. The PSUs granted in 2023 contain one performance criterion based on an adjusted EBITDA target which can be met in any one-year period over the three years subsequent to the grant date. For the PSUs that have a service and a performance condition, compensation cost is initially measured based on the grant date fair value of each share. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. In the first fiscal quarter of 2022, the Company granted 1,389,801 PSUs with a weighted average grant date per share fair value of $5.24. In the first fiscal quarter of 2023, the Company granted 4,073,108 PSUs with a weighted average grant date per share fair value of $1.26. The Company recorded compensation expense, net of forfeitures, of $2.2 million and $1.1 million during the fiscal years ended December 30, 2023 and December 31, 2022, respectively, which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of December 30, 2023 associated with the remaining PSUs was$4.2 million.

The following table summarizes the Company’srestricted stock units activity for the years ended December 30, 2023 and December 31, 2022:

Senior Management Retention Plan ("SMRP")

In the second quarter of 2023, the Compensation Committee of the Company's Board of Directors approved SMRP awards to certain members of management to be paid in the form of RSUs under the 2021 Omnibus Incentive Plan. The awards were granted based on a fixed dollar value for each member of senior management included in the plan. The number of RSUs to be paid as compensation is dependent on the share price of the Company's common stock upon completion of both of the SMRP awards' performance criteria. The SMRP awards require the Company to achieve both specified revenue and adjusted EBITDA targets during the performance period ending June 30, 2026. The Company recorded compensation expense, net of forfeitures, of $2.8 million during the fiscal year ended

December 30, 2023, which is included in corporate expenses and branch and regional administrative expenses in the accompanying consolidated statements of operations. Unrecognized compensation expense as of December 30, 2023 associated with the remaining SMRP awards was $12.2 million.

Total compensation expense, net of forfeitures, for all awards under the Amended 2017 Plan and 2021 Omnibus Incentive Plan was $12.0 million and $13.6 million for the fiscal years ended December 30, 2023 and December 31, 2022, respectively. Total unrecognized compensation expense for all awards under the Amended 2017 Plan and 2021 Omnibus Incentive Plan was$29.5 million and $22.6 million as of December 30, 2023 and December 31, 2022, respectively. The weighted-average period over which this expense is expected to be recognized is 2.1 years. The total fair value of all awards vested during the fiscal years ended December 30, 2023 and December 31, 2022 was $1.5 million and $4.5 million, respectively.

Employee Stock Purchase Plan

On April 28, 2021, the Company’s Board of Directors adopted the Aveanna Healthcare Holdings Inc. 2021 Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, shares of common stock may be purchased by eligible participants during defined purchase periods at 85% of the lesser of the closing price of the Company’s common stock on the first day or last day of each purchase period. The Company used a Black-Scholes option pricing model to value the common stock purchased as part of the Company's ESPP. The fair value estimated by the option pricing model is affected by the price of the common stock as well as subjective variables that include assumed interest rates, the expected dividend yield, and the expected share volatility over the term of the award. Fair value inputs for the purchase periods in 2022 included assumed risk free interest rate of 0.19% to 2.51%, expected volatility of 48% to 49%, and expected dividend yield of 0.00%. Fair value inputs for the purchase periods in 2023 included assumed risk free interest rate of 4.77% to 5.53%, expected volatility of 52%, and expected dividend yield of 0.00%. The Company recorded compensation expense of$1.2 million and $2.3 million associated during the fiscal years ended December 30, 2023 and December 31, 2022, respectively, which is included in corporate expenses, branch and regional administrative expenses and cost of revenue, excluding depreciation and amortization in the accompanying consolidated statements of operations. Participants purchased a total of 1,565,933 shares of common stock at a weighted average price of$0.60 per share during the fiscal year ended December 30, 2023. Participants purchased a total of 3,805,844 shares of common stock at a weighted average price of $1.05 per share during the fiscal year ended December 31, 2022.

See Note 19 -Subsequent Events for disclosure of additional ESPP share purchases completed after the fiscal year ended December 30, 2023.

12. LEASES

The Company has historically entered into operating leases for local branches, its corporate headquarters, and certain equipment. The Company’s current leases have expiration dates through 2030. Certain of these lease arrangements have free rent periods and/or escalating rent payment provisions. Rent is recognized on a straight-line basis over the lease term. Certain of the Company’s leases include termination options and renewal options for periods ranging fromoneto five years. Because the Company is not reasonably certain to exercise termination options, the options are not considered in determining the lease term, and payments for the full lease term are included in lease payments. Because the Company is not reasonably certain to exercise renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. The Company’s leases do not contain material residual value guarantees.

Management exercises judgment in the determination of whether a financial arrangement includes a lease and in determining the appropriate discount rates to be applied to leases. When available, the Company uses the implicit discount rate in the lease contract to discount lease payments to present value. If an implicit discount rate is not available in the lease contract, the Company uses its incremental borrowing rate.

Amounts reported in the accompanying consolidated balance sheets as of December 30, 2023 and December 31, 2022 for operating leases were as follows (amounts in thousands):

Lease Costs

The components of lease cost for the fiscal years ended December 30, 2023 and December 31, 2022 are as follows (amounts in thousands):

Supplemental Information

Information related to the Company’s operating lease right of use assets and related operating lease liabilities are as follows (dollar amounts in thousands):

Maturity of Operating Lease Liabilities

Maturities of operating lease liabilities as of December 30, 2023 are as follows (amounts in thousands):

13. COMMITMENTS AND CONTINGENCIES

Insurance Reserves

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

The accrued insurance reserves included in the accompanying consolidated balance sheets include estimates of the ultimate costs, including third-party legal defense costs, in the event the Company was unable to receive funds from claims made under commercial insurance policies, for claims that have been reported but not paid and claims that have been incurred but not reported at the balance sheet dates. Although substantially all reported claims are paid directly by the Company’s commercial insurance carriers (after the Company satisfies the applicable policy deductible and/or retention), the Company is ultimately responsible for payment of these claims in the event its insurance carriers become insolvent or otherwise do not honor the contractual obligations under the malpractice policies. The Company recognizes these estimated liabilities in its consolidated financial statements on a gross basis; with a corresponding receivable from the insurance carriers reflecting the contractual indemnity provided by the carriers under the related insurance policies.

Since October 1, 2023, the Company has maintained primary commercial insurance coverage on a claims-made basis for professional malpractice claims with a $2.0 millionper claim deductible and $4.5 million per claim and annual aggregate limits. Prior to October 1, 2023, the Company maintained primary commercial insurance coverage on a claims made basis for professional malpractice claims with varying deductibles by policy year from$0.5 million to $1.5 million on a per claim basis and $5.0 million to$6.0 million per claim and annual aggregate limits. Moreover, the Company maintains excess insurance coverage for professional malpractice claims to cover any claims over the aggregate limits. In addition, the Company maintains workers’ compensation insurance with a$0.5 million per claim deductible and statutory limits. The Company reimburses insurance carriers for deductible losses under these policies. The Company’s insurance carriers require collateral to secure the Company’s obligation to reimburse insurance carriers for these deductible payments. Collateral as of December 30, 2023 was composed of $22.7 million of issued letters of credit and$0.7 million in cash collateral. Collateral as of December 31, 2022 was composed of $19.7 million of issued letters of credit, $1.9 million in cash collateral, and $2.9 million in surety bonds.

As of December 30, 2023, insurance reserves totaling$91.8 million were included on the consolidated balance sheets, representing$39.4 million and$52.4 million of reserves for professional malpractice claims and workers’ compensation claims, respectively. At December 31, 2022, insurance reserves totaling$90.3 million were included on the consolidated balance sheets, representing$41.8 million and$48.5 million of reserves for professional malpractice claims and workers’ compensation claims, respectively.

Litigation and Other Current Liabilities

On December 24, 2018, Aveanna Healthcare LLC, an indirect wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a pediatric home health company (the “Pediatric Home Health Seller”). The agreement contained a provision whereby a $75.0 million transaction termination fee (the “Break-up Fee”) could be payable to the Pediatric Home Health Seller under certain circumstances. On December 20, 2019, Aveanna Healthcare LLC terminated the Agreement, and the Pediatric Home Health Seller demanded payment of the Break-up Fee. The Company believes the Agreement was terminated for cause, no payment of the Break-up Fee is due to the Pediatric Home Health Seller and all potential claims and counterclaims related to the termination of the Agreement and payment of the Break-up Fee by either party are time barred.

On August 6, 2020, the Company sued Epic/Freedom, LLC (“Seller”), Webster Capital Corporation, and Webster Equity Partners (collectively, the “Defendants”) in the Delaware Superior Court. The Company asserted that the Defendants made fraudulent representations and warranties in connection with the Company's acquisition of Epic Health Services Inc. The Company sought damages ranging from $24.0 million to $50.0 million. The Company also requested a declaratory judgment holding that the Defendants waived any claim to the Company’s continued possession of $7.1 million in escrow funds (the “Escrow Funds”) that were delivered to the Company in January 2018 by the acquisition escrow agent. In response, the Defendants asserted four counterclaims: (1) specific performance of an alleged right to control a tax audit; (2) advancement of litigation fees and expenses for certain individual Defendants; (3) a declaratory judgment; and (4) breach of contract claim concerning the Escrow Funds. The Company subsequently reached an agreement with the Defendants, which (1) allowed the Defendants to take a principal role in the applicable tax audit, though the Company will continue to communicate with the Internal Revenue Service and retain the ability to make strategic decisions with respect to the audit and (2) dismissed claims against certain individual Defendants mooting Defendants’ claims for advancement of litigation fees and expenses. On March 10, 2023, the parties entered into a confidential settlement agreement releasing all claims related to this matter and ending all related litigation. The settlement did not have a material impact on the consolidated results of operations. On April 4, 2023, as part of the settlement, the Company funded $6.8 million to an escrow account for the purpose of settling certain tax audits with the IRS, which have now been effectively settled with the IRS. To the extent that the amount of penalties and interest due to the IRS exceeds the escrowed funds, we as the taxpayer, will be required to fund such excess, but we have contractual rights to reimbursement from the Defendants.

On November 23, 2022, a judgment in the amount of $19.8 million was rendered against the Company related to a civil litigation matter in Texas. In March 2023, the plaintiffs attempted to enforce the judgment by seeking a writ of garnishment, and $18.4 million was garnished from the Company’s cash accounts. The Company promptly obtained and recorded an $18.4 million cash collateralized appellate bond with the state trial court, and such court dissolved the writ of garnishment and ordered the return of the previously garnished funds. All previously garnished funds have been returned to the Company. In July 2023, the Company and the plaintiffs reached a confidential settlement agreement wherein the plaintiffs have agreed to release all claims and extinguish the aforementioned judgment in exchange for a settlement payment. The corresponding appeal of the judgment has been discontinued upon finalization of the settlement and the Company has secured the return of the underlying collateral for the aforementioned appellate bond. The settlement did not have a material impact on the consolidated results of operations.

On January 18, 2023, an arbitration award in the amount of $7.9 million was rendered against the Company related to a claim under the Company's Texas non-subscriber benefit plan. After the trial court entered a judgment to enforce the arbitration award, the Company promptly obtained a $9.1 million collateralized appellate bond and intends to avail itself of all appellate options. The ultimate resolution of these litigated matters is not expected to have a material impact on the consolidated financial statements.

The Company is currently a party to various routine litigation incidental to the business. While management currently believes that the ultimate outcome of such proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Management has established provisions within other current liabilities in the accompanying consolidated balance sheets, which in the opinion of management represents the best estimate of exposure and adequately provides for such losses that may occur from asserted claims related to the provision of professional services and which may not be covered by the Company’s insurance policies. Management believes that any additional unfavorable provisions would not be material to the Company’s results of operations or financial position; however, if an unfavorable ruling on any asserted or unasserted claim were to occur, there exists the possibility of a material adverse impact on the Company’s net earnings or financial position. The estimate of the potential impact from legal proceedings on the Company’s financial position or overall results of operations could change in the future.

Healthcare Regulatory Matters

Starting on October 30, 2019 the Company has received grand jury subpoenas issued by the U.S. Department of Justice, Antitrust Division (the “Antitrust Division”) requiring the production of documents and information pertaining to nurse wages, reimbursement rates, and hiring activities in a few of its local markets. The Company is fully cooperating with the Antitrust Division with respect to this investigation and management believes that a loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this matter.



On July 19, 2023, the Company received a Civil Investigation Demand issued by the U.S. Department of Justice, United States Attorney’s Office, Middle District of Alabama (the “AUSA”), requiring the production of documents and information pertaining to Comfort Care Hospice, LLC, an indirect wholly owned subsidiary of the Company, regarding allegations of (1) improper submission of claims to Medicare and other federal healthcare programs for service to patients who were ineligible or not properly certified for said healthcare services and (2) improper remuneration to medical directors and skilled nursing facilities for patient referrals in violation of certain federal regulations. The Company is fully cooperating with the AUSA with respect to this investigation, and management believes that a loss event is not probable and that this matter will not materially impact the Company’s business, results of operations or financial condition. However, based on the information currently available to the Company, management cannot predict the timing or outcome of this investigation or predict the possible loss or range of loss, if any, associated with the resolution of this matter.

Laws and regulations governing the government payer programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action. From time to time, governmental regulatory agencies conduct inquiries and audits of the Company’s practices. It is the Company’s practice to cooperate fully with such inquiries. In addition to laws and regulations governing the Medicaid, Medicaid Managed Care, and Tricare programs, there are a number of federal and state laws and regulations governing matters such as the corporate practice of medicine, fee splitting arrangements, anti-kickback statues, physician self-referral laws, false or fraudulent claims filing and patient privacy requirements. Failure to comply with any such laws or regulations could have an adverse impact on the Company’s operations and financial results. The Company believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of wrongdoing.

14. EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries sponsor several defined contribution retirement plans, which qualify under Section 401(k) of the Internal Revenue Code, covering substantially all employees. Certain of the Company’s retirement plans require or allow for contributions by the Company. Company contributions to the plans were approximately$5.7 million and$6.4 million for the fiscal years ended December 30, 2023 and December 31, 2022, respectively, and are includedin cost of revenue, excluding depreciation and amortization, branch and regional administrative expenses, and corporate expenses in the accompanying consolidated statements of operations.

15. RELATED PARTY TRANSACTIONS

As of December 30, 2023, one of the Company’s stockholders owned 5.1% of the Company’s 2021 Extended Term Loan.

16. SEGMENT INFORMATION

The Company’s operating segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker (“CODM”) manages the business and allocates resources. The Company hasthree operating segments andthree reportable segments, Private Duty Services, Home Health & Hospice, and Medical Solutions. The PDS segment predominantly includes private duty skilled nursing services, non-clinical and personal care services, and pediatric therapy services and is primarily reimbursed by Medicaid and Medicaid MCO. The HHH segment provides home health and hospice services to predominately elderly patients and is primarily reimbursed by Medicare. Through the MS segment, the Company provides enteral nutrition and other products to adults and children, delivered on a periodic or as-needed basis, primarily reimbursed by Medicaid and Medicaid MCO.

The CODM evaluates performance using gross margin (and gross margin percentage). Gross margin includes revenue less all costs of revenue, excluding depreciation and amortization, but excludes branch and regional administrative expenses, corporate expenses and other non-field expenses. The CODM does not evaluate a measure of assets when assessing performance.

Results shown for the fiscal years ended December 30, 2023 and December 31, 2022 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.

The following tables summarize the Company’s segment information for thefiscal years ended December 30, 2023 and December 31, 2022, respectively (amounts in thousands):

17. NET LOSS PER SHARE

The Company uses the treasury stock method to calculate net loss per share. Basic net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the diluted weighted average number of shares of common stock outstanding for the period. For purposes of this calculation, outstanding stock options are considered potential dilutive shares of common stock. The following is a computation of basic and diluted net loss per share (amounts in thousands, except per share amounts):

The calculation of weighted average shares of common stock outstanding includes all vested deferred restricted stock units.

18. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)

The accompanying note is an integral part of these condensed financial statements.

A statement of cash flows has not been presented as Aveanna Healthcare Holdings Inc. didnot have any cash as of or for the fiscal years ended December 30, 2023 and December 31, 2022.

Note to Condensed Financial Statements of Registrant (Parent Company Only)

Basis of Presentation

These condensed parent company-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of Aveanna Healthcare Holdings Inc. (“Parent”) (as defined in Rule 4-08(e)(3) of Regulation S-X) as of December 30, 2023 exceeded 25% of the consolidated net assets of the Company. The ability of the Company’s operating subsidiaries to pay dividends may be restricted due to the terms of the First Lien Term Loan, Revolver and Second Lien Term Loan, which are discussed in Note 6 –Long-Term Obligations.

These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. These condensed financial statements should be read in conjunction with the consolidated financial statements and related notes thereto.

19. SUBSEQUENT EVENTS

On December 31, 2023, participants in the ESPP purchased a total of 1,010,635 shares of common stock at a weighted average price of$1.33 per share. See Note 11 -Share Based Compensation for additional details of the ESPP.

In February 2024, the Company borrowed $20.0 million under the Securitization Facility primarily to fund general working capital needs. See Note 7 -Securitization Facility for additional details of the terms of the Securitization Facility.