Earnings call transcript Q3 2022

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Operator

Good day, and thank you for standing by. Welcome to The Pennant Group Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Derek Bunker. Please go ahead.

Derek Bunker

welcome, and Cory, you, everyone. Thank joining Thank today. you for us

Brent CEO; Freeman, John with CFO. me our our are today Jen Here Gochnour, Guerisoli, President; our and

Before at is remind be website X, that have December X, may XXXX. available are Friday, We the anyone on updated housekeeping will to Investor replay call that release we these not also listening want this of a as Time be available replay will on XX-Q all subsequent a to our statements until Mountain our nor of XXXX, and section website call November and announcement earnings be today’s We our press to A made X begin, been matters. This of yesterday. of today, Relations have www.pennygroup.com. statements call. p.m. I on filed few this

forward-looking do complete affiliates our any not filings review Pennant circumstances by undertake where or required other than to new changing our based statements statements publicly and operate. arise environment from forward-looking encouraged statements are These information, today materially beliefs made results. cause as on Listeners that differ changes to result its implied today’s should reliance our actual of for factors our for to those discussion or and could call. any in forward-looking a business SEC that more about of Except impact place as laws, assumptions any results not on Also, management’s the to future revise are and risks and could undue are federal reason. and a or statements current uncertainties expressed expectations, we subject which update securities on

collectively assets, is payroll, with to a IT, referred accounting, HR, our the employees as subsidiaries, holding independent addition, operating company In service revenues. provide a Certain or center, and of us other and subsidiaries. contractual The Group, direct Pennant Pennant no Pennant, refer through our Inc. and relationships the to other its services words management company, risk [indiscernible]. with we, the legal, to consolidated operating Group subsidiaries

our separate, and independent companies the the activities herein the operating center and our assets. used the All meant management XX operating similar to Pennant Group terms are nor that Group. the References or not subsidiaries of the service construed to terms it subsidiaries imply as well by use in operated of as be and assets, and assets are today are as that the its revenue their and employees consolidated any employees -- of direct we have operated have company that has or should meaning by

available A Also, we GAAP yesterday’s turn that GAAP relied of call our and supplement measures we reporting GAAP our reports. Brent exclusion press believe our the to non-GAAP business, non-GAAP should these viewed over reconciliation with that, When not upon I’ll a more our in release results, complete of Guerisoli, with in provide the is CEO. they to GAAP can be understanding Brent? metrics. our but together XX-Q. to With

Brent Guerisoli

you for the Thank every sacrifice everyone [tenant] us like our and results. I’d third and joining quarterly call. life-changing day and frontline staff Again, service provide our Thanks, we quarter who recognize XXXX Derek to welcome and today our workers, earnings serve. across leaders to discuss to communities

key to detailed quarters, strength build over long-term continue we several last efforts. several we’ve As foundational the through

health phase practices best with and next leaders care First, our to Pennant focused equipped on developing we growth. accelerate CEO-level are of recruiting

to drive of to many ongoing improve that Second, processes health teams the respond data years tools for the to care investing outsized unique our ability designed engine are communities. in to systems build we the will people, our and come. needs designed local to are of performance These

full we softer seeing strength sequestration expected quarter’s notable we’re occupancy fully this hospice didn’t flow, we’re progress cash of clusters. wage as build ADC, the progress many admissions, by pressures, and measured and earnings we revenue, a continued in reflect While our as seeing and navigated markets

We of and XXXX. produce going to the positioned half are XXXX to significant strong results make second are improvement on in into track

operations. operational we know history. to and our ability there, get for excited substantial and toward return improving we’re have going, making latent landscape. We the We our are active we we of the sheet, pace growth accretive our are how that cash generate and risk in potential of we’ve to acquisitions balance our flow beginning deploy toward where We’ve executed progress excellence existing about been and in to cash to strategic on M&A much are and

mentioned yesterday, mentioned are we for in our of guidance year we As earlier. in pressures light the our revising release full XXXX press

However, guidance end the our momentum confidence XXXX. year of through into and our updated in demonstrates the

tackling We are and us. continue as to forward and earnings we before in on to asked our discipline improvements operations look investment organic update this I’ve We an opportunities acquired high-quality growth At recently provide significant point, Gochnour encouraged there operational and and assets remains by to with results. execute our John many strategic better opportunities. drive around believe opportunity acquire the our to core

John Gochnour

Brent. Thanks,

line quarter. Medicare results [indiscernible], in each operational a XX.X% each total and and results in were home admissions a XX.X% of health our third-quarter health increase home a home positive admissions, operating segment, total prior-year top hospice in In strong in our reflect increase X.X% led increase and the over momentum Our segments. health bottom by hospice

acquisitions continued health the a prior to strong from we year with XX.X% Our across relationships continued over mature. into our as quarter XXXX And communities to lean grew we the partners home revenue serve. our

first increase expect was teams average itself strong growth quarter to saw Though which to second continue X.X% primarily stay sequentially improving the average shorter the growth of our were there due return as traditional a census levels. to our our XXXX, of ADC drag as daily length and normalizes in hospice admissions, our is length over over X.X% we an stay of of local average the some we of grow ADC still temporary quarter

$XX.X discipline increases X.X% rigorous areas, and cost of face fuel significant quarter million or exercise of of EBITDA to million, inflation-sensitive $X leaders the the in the of in adjusted cost labor, XXXX. Our third leading above other

Our be of of home or payer clinical which XX%, majority XX.X% measurably and the to proposition continue to a our rating acute foundation and at average by health below our highlighted national CMS the system the [Technical star partners. rate agencies our in of shows a health of value of our above metrics X.X hospitalization success, Difficulty] operating care real-time is reported

This strategic with as acquisition market state we Palm forward. hospice these in and help locations California our on we Central strong the for a the During operations Ardent proven locations the to acquired Springs, quarter, is build Hospice highly deep in partnerships us throughout Palliative to Valley our Care drive portfolio. and the of with leaders California,

its We served also agency and announced Kenosha, care Wisconsin personal more years. that the communities recently than of health home Kenosha acquisition has XX and for Nurse Visiting Association, surrounding a

We and strong and a are chapter a financial the to significant operation new or entrusted leadership write such legacy clinical we in grateful the organization’s us Board producing Milwaukee another excited has have also exceptional results. where with area,

patients team. good and KVNA leadership hands our local The in staff with are of

acquisitions. for opportunity the of each budding excited in We’re these inherent

originally our a home XXXX. data front, on included offset net adjustment expect XXXX. of XXXX run revenue X% decision Medicare health basket for in our we approximately Based than claims negative on revenue, update. and a proposed impact rate market health final X% Medicare regulatory by cuts stronger CMS rule, home the by CMS’ behavioral reduce the to calendar These recently which calculated were the half On home also XXXX year cuts released health for

While the final headwind negative rules in our adjustments represent a behavioral for industry. providers

model health on of in flexible and commitment and our together can began periods and to recognized segment and scalability increasingly maintaining through hospice home operating approach programs will to leadership, of our value-based rewarded. improve with cuts, and sheet today, manage Advantage much and how our that health a growth show the final to home health the like The has strong purchasing quality providers and in local acquisitive reimbursement and reimbursement uncertainty rule, effectively costs be Medicare opportunistic home And growth. thrived balance thanks of built

the can been even the like levers In forward environment. continued segment, change our ago, reimbursement in to preparing living step metrics. the a senior many years a in implementation key growth, And our of continue have rule. reimbursement to final we pull PDGM for several challenging taking right we we We confident affected through our the by much are recovery

of Same-store $X.X prior-year period. adjusted growth of million or of quarter, senior growth revenue prior the million of $X.X $X $XX.X the over living segment million an represents $X.X was over prior-year XX.X% segment-adjusted the $X.X represents million of million million year of EBITDA Year-to-date, quarter. EBITDA increase over while

the over billing year rate more for went and prior XXX Excluding of provided. prior-year points revenue due we over per and part occupied year-to-date, occupancy in processes effect the the better increased communities increases level improved the room tracking XX.X% the care for basis exited quarter, and summer quarter, that into accurately to average over

momentum X.X% leaders generating the by senior second quarter. quarter average XXXX each with up basis. $XX demonstrated over linger RevPAR is X.X% Labor second in challenges by a our the improving over quarter on occupancy and The are living or wages X.X% the increasing same-store third

leaders attract senior segment. our in We develop instrumental to are in living to will turnaround who be and contributing the continue and

occupancy cost below more points have pre-pandemic with higher levels. We accomplish of several and services to

in as pleased operating resource talented However, a we’re segment, are challenging this progress results we And key beginning see starts fruits know the quarter in strength with that achieving the third we’ve the building and exceptional of with been we leadership Overall, operational effort. local that environment. made our in leaders to support.

focus all Our single partners share operators, on resources and clinicians, center service operational a excellence.

reputations our potential evaluating criteria fit time, same in medium-sized strong our focused the potential At where operational our with our remain stakeholders. expand. operations on to their significant continues expertise growth organic small- investments of communities, that strategic We that for upside pipeline to with capture can operations but of

flow as to to deploy be our is continue we improving. While capital, very cash we disciplined look

focused see of are experience providing a buyers strong employee are we balance the that like to strategic maintaining clinical have sheet, and an ourselves that legacy several quality delivering We exceptional pleased dynamics sellers, and on favor care.

and the dedication I’ll our to confident family With persistent financial we work perform, continue exceptional hard I’m and of clinical results. Pennant Jen Jen? over it for a to that, of financials. hand we grateful will review members, for I’m the and as X,XXX Finally, achieve

Jen Freeman

X the XXXX, Detailed XX, Thank for XX-Q and filed yesterday. everyone. contained results X you, financial John, good are September ended release and months press in and our morning,

in strong, bit slower our of elevated Our ramp labor shy the services and than anticipated to by in expectations a quarter. third quarter due results were impacted a our of hospice volumes though cost

$X.XX, $X.X the diluted GAAP an quarter. increase non-GAAP months earnings X $XXX.X increase of GAAP adjusted over we quarter. reported and the of per of or total share million the $X.XX or per an million, For prior-year $X.XX prior-year XX.X% of over XXXX, diluted September revenue ended XX, earnings X.X% share of

the including are cash balance opportunities. free in QX, ongoing bringing a year-to-date is reimbursement We quarter, were million. in X to sheet million, acquisition $X.X our of important from would environment Also in cash Medicare excluding greater headwinds operations and announced a the our to improvements XXXX strong pleased million for the $XX.X payments, flow since with quarter in have flow present completed take that recessionary our Advance report from flow repayment acquisitions strength excluding is the million, we strong our $X.X cash CapEx year-to-date in the of cash $XX from for QX million $X.X second cash operations communities. of third flow This should which flow million in into operations been as $X.X GAAP

to generate cash solid excited flow stakeholders. our and to We’re continue grow for

of cash $X.X million and drawn ended include for XXXX, highlights end credit adjusted XX, our the and X on net key ratio. line on revolving debt million hand to EBITDA quarter leverage at $X Other months September X.XXx

this excludes full between those added and would year annual yesterday, ourselves acquired between million our the fiscal items prior Consistent are from be transferred start-ups. and revenue measured revenue $XXX million. $XXX $XXX how have we all revenue million XXXX guidance in communities As mentioned $XXX With our back and year, million. and newly in we revising and press with to our year release guidance

million per adjusted $X.XX million. between $XX Additionally, share between earnings diluted $XX.X million EBITDA and we revised of diluted $X.XX shares. revised and on to Adjusted $XX.X was to

by and and senior segments Our revised and an hospice spend to and and a on processes, focus related guidance pressure creating with service -- On that investments our ADC. in investments will performance. operating G&A slightly growth couple and and number leaders. our for that health leaders Difficulty] local training elevated it to our a poised metrics, in including of will [Technical center. increased collection submissions reflects ramp ongoing With new cash of slower-than-anticipated offset ongoing efficiencies both home in increased be to hand in hospice living earnings in wage Brent increased highlight I systems opportunities

Brent Guerisoli

my It’s communities Michele by [Technical in meeting Difficulty] by few that to CEO Jennie] the in of Difficulty] through operating in positive Jen. These despite leaders Delve Under results by are talented the have future to occupancy one [Technical results. Thanks, operating X.X% and [Technical a have achieving of and operating occupied pleasure their achieved organization a our -- needs our a revenue remarkable of markets local resources, foster, and model, experienced. turn emblematic and led XX.X% excellence. to most strong model leaders, $XXX,XXX, leaders XXXX local Difficulty] charge expert and quarter to room level Campbell incredible the [Tiffany good leaders growing in designed XX.X% results Jamie third is environments supported to what spotlight on the turn, national difficult per we’ve

Marinko results. Charlie markets have care home collectively our health Alanda deep our our health Leaders Jordan Adam Johnson In Jesse in McMahon, building other rapidly leaders Baker we many could model CCOs, of clinical turning committed Tina of the each name. [Custer Bill and California Andrea bench these and achieving to This is Tim of the and the leaders financial success a improved to CEO, market supporting leader, and due results, others hospice clinical of Dr. California leadership market flywheel Bohn, , and Nelson] and Bradley, a segment, group and

Over the venture this them joint enabled successfully last to strength few years, health our [Scripps] home foundational hospice transition Health. with

increased to Springs. Sacramento, Care de Riverside XX.X% and of in by year hospice recently health XX% Palm the ratings of operating had can markets group clusters the a third and through clinical to quarter startup of leaders XX.X%. of local This same admissions First operations market by processes XXXX rigorous strong In Valley the on quarter, and health together XXX% application by better our Palliative and home and focus and Central ADC in the leading prior what of in unique is achieved clinical back be grew home increased other EBITDA successful the their the and compared and outcomes At time, Ardent Hospice and novo Call by measures. quality is in the each star model. as on this that County showcasing revenue hospice

thank want Before workers patients are. we recognize partners once and who we’ll to every for our make us to of we make it up all frontline residents move again and open provide to service to day incredible and Q&A, and that, life-changing questions. I our clinical With sure who

Operator

Tao question first comes the Qiu [Operator line Instructions] from of Our from Stifel.

Tao Qiu

raised but is My line us between I the fourth Could performance, big the us the and into the quarter question Could top guidance fourth is guidance. suggests the help the you hospice of on first explain a the on quarter. quarter third you quarter? number. the that getting noticed fourth bridge EBITDA the that I going flat is between moving rate help third in quarter? pieces know some the the improvement

Jen Freeman

There’s a different that Sure. an revenue. on. increase of we’re going going couple to actually, And in experience are things

actually, revenue as growth. health increase from in may we’re about increase revenue. of hospice that increased reporting it increase census should hospice the in see We an way with $X.X reporting with then admissions we’re as our But because look million. our So senses well rates guidance. flat and home And of an our

what pace well, in improving at senior an along that actually factoring We’re occupancy to done. has increase with our similar as it a living additional

the same remain quarter than a For little it G&A occurred for bit at the percentage, to QX. less fourth in

Tao Qiu

What XQ? see about the cost versus on any in you the moderation expense side, quarter do fourth

Jen Freeman

We’re the living that cost growth pick on we incremental fourth increase the quarter bit assuming of and quarter-over-quarter. a a cost occupancy. senior will margin costs similar where covering can already staff in our versus up extra of little the having the be need because in indirect growth some moderation we increased QX, then And margin for occupancy the

Tao Qiu

you. helpful. That’s Got

living So a has the looking were we grow is able the senior you additional my recovery upside. the think year, if to X pretty the aggressively you pricing look at And that operating XXXX you at power question to bps] occupancy think Obviously, as that How the But leverage on business. your and at rate second small. growth relatively on XX%. to should of is business [XXX going we same this the store have components today? about about lot

Unidentified Company Representative

Tao. Yes.

continued would we see increases. expect what is think on rate to growth I the

to some we’ve that and pressures, inflationary the in consistent trying changes of regard. We’re made up catch with

In each revenue the opportunities coming both addition picture from job better much to of in care standpoint managing the getting the that, the a we’re full opportunities. and also of are doing really managing that and understanding cost residents a a of

anticipate so And rate we’ve is spite levers look we’ve seen those XXXX. some this that been year, of consistently into pulling of rolling you growth, in increases. into we as would XXXX, encouraging same And these which occupancy

So expect see increase would well. growth revenue [RevPOR] I as to or occupancy increase rate

we’re rolling what that’s XXXX. anticipating So into

Tao Qiu

my Great. for And question me. final

[mid] in market, at out, is looking that acquisitions the rule you’re the I’m the that final your you health the marketable after the has do size just mentioned any whether And what curious, conversation came small in potential changes home area. in with all? pipeline changed or targets You and today? at and think

Unidentified Company Representative

same. these advantage on small opportunities And providers taking our when larger midsize of I remains themselves. they focused think strategy the and presented to appreciate of then We’ve question. the some I always been

we say there’s that a to in I impact. decision. the for spurring XXXX what It’s about environment the final the of would the as rules pretty additional fact some The moderation and more we’re process to least a change is then make little positive far some certainty at folks the operating the excited have. As rule in pipeline, robust.

lead those I have been sitting some was happen on sidelines the of agencies to going to see to think that what waiting will to home health engage.

in and rule. so we the that our the we’re pipeline, that to And pleased will wake with in we’re what’s excited think final of come see also uptick

Operator

[Operator Instructions] you. Thank

from at Stephens. comes question next Our Scott Fidel

Scott Fidel

COVID that dynamics the just exiting how talk were stats unpack [indiscernible] ADC quarter. maybe [may of the compared average on and factors third those the have] and you quarter. the how impacted pressure quarter hospice, the as some Maybe just question, COVID interest First much throughout maybe in how in versus they other about to

Unidentified Company Representative

Yes. Great question. Scott, thanks on. being for

length quarter. feels hospice was we softer stay of we’re like behind of ended one what October. had -- the going But pleased drivers with steam. it where than are -- Our the we’re really projected. up picking into momentum originally we the It’s we

I declined remaining that you driving think One, is significant mentioned, which flat about is stay what for us. by X length our of couple ADC as of is pretty days, a things.

is The we’re for second continue referrals partners, grateful receive of number to we that. and from an our elevated hospital

also the increase. assisted nursing continue But skilled living at to seeing census partners our and we’re

optimistic identify to as we’re referrals little those need the sooner number often settings that see that rebounds, partners. increased so going we’re trusted And that for from an those bit hospice census of their a

to us sensors more back that that bringing -- And growth. key our see partnerships, starting so and some traditional of we to we level of see a increase forward to to happen. look in starting that we Those

lean our those You outcomes same great has produce into home on ADC, on health we’ve from able partnerships our we see hospice. on and and our the quality impact been that to the the had expect how admissions side

an coming some provide, we’ve stay local And a and strong. continues of our remained the good referrals care from. have trust length of leaders news our eventually little admits we downs so and ADC. bit is where that But The will excellent the -- with it’s into been community had turn are and to and ups that increased

Scott Fidel

detail what go and opportunity margins getting of if into acquisitions and see update those you and can an how you just there. Maybe have on performance call seen The Okay. remaining margins it, would how where next much-embedded a Got improve the the give us little XXXX it. traditionally? the in, on still And you’ve progress more question, to interested acquisitions more to just to trying up let’s you XXXX. like then the class

Unidentified Company Representative

Yes.

our our ends standpoint underperforming somewhat operationally to some those traditional we been integrate as expertise As our to you operational operations. operating that sometimes those. it and to buy up strategy local model, or that’s leverage improve leadership What Scott, are acquire means know, margin our assets, a has from lumpy and to whether that of approach and quarters our clinically is

in those I in ADC from hospice an of a a think But and board. we’re from and to up has much a from I’d in example now grow acquisitions what is what itself additional continued to use which pretty that’s pick is and perspective QX market. we’ve community An number steam. see across to positioned seen view continuing Sacramento, the clinical really perspective that a month-over-month has perspective, trust acquisitions outcome true our

but still we is long-term a that operations XX across growth. order delay opportunity. COVID, that The little upside The those mirrors platform up year-over-year improvement. longer and long-term implement significant changes operational XX we have took and it seeing that bit harder have it the to our little performance. that how backed so it in about bit, that during was huge. We’ve and implement And a those acquisitions change often our improve double-digit at consistently contributed didn’t to those We’re occurred clinical that talked opportunity

in And continue add so Brent potential to platform. as to latent what realize described see to force our we’re really excited and those the value

Unidentified Company Representative

any leaders our team and acquisitions success other financial leadership and focusing success between clinical frankly, a the that operations these realize. much strong we’ve the on we of having I Yes, is would Scott, a in and of place and that add, been our correlation why at direct there’s so this can developing thing new

different number was reasons. challenges disrupted the that And during so pandemic a faced that of we is for pipeline of the one

strong that and we’ve and connect robust was together train of as it Our as all and develop and -- it had ability just to historically. come wasn’t and

we’re our strong why this about And talented And so what our is local quickly leadership efforts the that step this opportunities see growth. investments revamping build pipeline. have that seen that’s that over the right we’ve making. into that confident do to really as we leaders because we’re as way these we’re history, we We talked in we significant very

towards. have that’s what areas building what so struggling what drive to planning and better focus can we’ll as more performance and we’re well. that quick so acquisitions And to on, we’re continue -- we in we’re That’s on that’s continue turnarounds with new our there that

Scott Fidel

just for question then And me. Understood. final one

think I through. the just on there’s helpful, Obviously, trajectory a here you’re have going it margins XXXX? framing manage for home would be that how cut thinking the be going health you’re rate around how to headwind X% or to to about

still cut maybe may so match to talk to levers that’s inflation to other about best wage for you then pull And about you trending able And rate up how be try think me. it that to and expenses of against the that possible. the that to some extent

Unidentified Company Representative

which And to of over Yes, final net a it health of was of the while Scott. close reality that, proposed face able operations. that rule, new we’re is this in we cut projecting wasn’t a the operational much news information, hoped result And and is offset still value working the the would a recognition do to we’ve is on continue to of it. still to in is continuum. order the been The rule improvement to true what that larger the work it the dial our in in home be, got we’ve good

QX. relatively percent pressure about we up in experience QX. X.X-plus to in wage high continue were We Sequentially,

not like levers and as seek we’d choice which that as to, establish on to serve. And to ourselves we that’s to it employer other as focus community ameliorating, continue in have competitive be we the each of means we that but so quickly as

to episodes tightly those A significant still in visits provide manage a mid-level of opportunity to Codes, utilization more the continue way more and those episodes. think way. can few have and LPNs, to the in LVNs, appropriate seek to staff hire routine we’ll monitor managing that continue PPAs, of those levers. those And to We we’re we an still to opportunities remain improve who improve

an opportunity relationships have we’re the so to we when and some that community the provider -- you continue choice well hospital episodes to with that partners early are type episodes patients be there also early our for institutional at our look About see of opportunity referrals. serving. as for referrals improve as XX% We of of all is and those

And so number offset to we see of that. levers a

Our acquisition margin the operations, in with go quarter we XX through in into and fourth for XXXX. to process improvement be we -- continue as new lumpy will see and transition but opportunity continued do a the

Operator

the is there today’s program. further Thank this time, you. for At Thank questions. no you does conclude your participation in conference, this and

You may now disconnect.

The Pennant Group, Inc. (PNTG) 8 Nov 222022 Q3 Earnings call transcript