Q3 2020 Pennant Group Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the pending group third quarter, Tony Tony I think its conference call. At this time, all participants are not listen only mode. After the speakers presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone.
Be advised that todays conference is being recorded if.
If you acquire anybody assistance, please press star zero.
I would now like to hand, the conference U.S., because today deck bunker Chief investment Officer. Please go ahead Sir.
Thanks to all welcome everyone and thank you for joining US today here with me today I have Danny Walker, our CEO Jen.
Gen Freeman our CFO.
John Gardner, our COO and renters solely president of our home health and hospice portfolio company and do as we recently announced will become president of the pending group beginning in 2021.
Before we begin I have a few housekeeping matters, we filed our earnings press release and 10-Q yesterday.
The announcement is available on the Investor Relations section of our website at Www Dot group Dot Com era.
A replay of this call will also be available on our website until five P.M. Mountain time on Friday December 11 2020.
We want to remind anyone that may be listening to a replay of this call that all statements are made as of today November 11 2020.
These statements have not been or will they be updated subsequent to todays call on.
Also any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.
Listeners should not place undue reliance on forward looking statements and are encouraged to review these filings for a more complete discussion of factors that could impact our results.
Except as required by federal Securities laws pending and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
In addition, the Penny group Inc. is a holding company with no direct operating assets employees. The revenue certain of our wholly owned independent subsidiaries collectively referred to as the service center provide accounting payroll human resources information technology legal risk management and other services to the other operating subsidiaries.
Through contractual relationships with such subsidiaries.
The words pennant company, we our and us refer to the pending group Inc.
Consolidated subsidiaries.
All of our operating subsidiaries and the service center are operated by separate wholly owned independent companies that have their own management employees and assets.
References here into the consolidated company and its assets and activities as.
As well as the use of the terms, we us our and similar terms used today are not meant to imply nor should it be construed as meaning that depending group Inc. has direct operating assets employees or revenue without any of the subsidiaries are operated by the tenant group.
Also we supplement our GAAP reporting with non-GAAP metrics when viewed together with our GAAP results. We believe that these measures can provide a more complete understanding of our business.
But they should not be relied upon to the exclusion of GAAP reports.
A GAAP to non-GAAP reconciliation is available in yesterday's press release, and as Bill, but our 10-Q.
With that I will turn the call over to Danny Walker, our CEO, David. Thank you Derek and good morning, everyone. Thank you for joining us today to discuss pennants third quarter 2020 results. We are pleased to report another strong quarter of results. Our local teams continue to face ongoing covered related challenges head on and the car.
Plus difficult things with admirable dedication and drive their job is sometimes think lists and their responsibilities, sometimes overwhelming but day after day they show up when our nation's most vulnerable need them.
I am grateful to each one of them and I'd also like to acknowledge that among our staff members in many of our residents and patients are.
Veterans of the armed services and we on this veterans day pause to give them our appreciation and express that here now.
Now as you as many of you have seen in the recent press release, we have recently appointed a long term leader Brent dare solely to serve as President Pendants, President beginning January one 2021.
We're excited he will be stepping forward into this role we are often we often say were a leadership organization and leaders throughout our organization, our most valuable asset to expanding our management team opens doors for talented leaders and other parts of the organization to extend and expand their roles.
That they are fully capable of and prepared to assume so.
Since joining us in 2012, Brent has built a track record of exceptional.
Operating results. He has helped train and elevate dozens of leaders clinical and operational throughout the company many of whom are critical to our organization success and have been over the years. This.
This new role will provide a broader platform for his talents. So we're thrilled about this change whether and what it means for the pennant group going forward.
As Derek mentioned, Brent is here with us today and will be available during the Q and a portion of the call as we shared in our earnings release yesterday, we are affirming our 2020 annual revenue guidance and bumping our 2020 adjusted earnings per share guidance to a range of 75 cents to 80 cents.
As a reminder, the increase we announced yesterday is an addition to the 34% increase over our initial guidance, we announced last quarter.
In short we have consistently produced strong quarterly results during the pandemic.
We also announced two and 2021 annual revenue guidance of $430 million to $440 million in annual adjusted earnings per share guidance of 89 to 99 cents.
The midpoints of which represent increases of 14.2% and 21.3% respectively over our increased 2020 annual guidance in preparing this guidance. We considered the current status of COVID-19, it's trends so far this year and it's likely effects throughout 2021, assuming a country.
Menus to impact our business in similar ways as we have seen year to date.
Well, we havent assumed a change in the operating environment stemming from the widespread adoption of a vaccine. We are encouraged by the initial reports on the efficacy and availability of potential vaccines over.
Overall this was another strong quarter, despite ongoing pandemic headwinds our adjusted revenue came in at a record 90 996 point.
6 million nearly 10% higher than Q3 last year and consolidated adjusted EBITDA was $8.6 million at 332% increase over the same period.
Jim will discuss our financial results in more detail, but I do want to remind listeners that our adjusted earnings results do not include any cares act provided relief funds.
Our strong results in the face of these many challenges exemplify the the resilience of our local leadership model and our ability to drive long term value in both segments for the benefit of our stakeholders and the communities we serve.
Our home health and hospice operations continue to produce stellar clinical results as well as strong top and bottom line financial results.
We also we are also pleased to report home health total and Medicare admissions that exceed our pre pandemic levels and record hospice ADVATE average daily census, these strong results are especially impressive given the uncertain operating environment in which they were achieved with lingering challenges from the pandemic.
Navigating pdgm and transitioning transitioning multiple newly acquired agencies into our platforms.
Our financial output.
Was produced in large part because of our continued focus on achieving quality clinical outcomes in each operation and tailoring each one to be the local provider of choice overall, our home health and hospice business is firing on all cylinders and is poised for continued growth.
Of note we are pleased with the way our home health teams have continued to operate successfully in the transition to pdgm.
While we recognize our results under Pdgm or a small sample size and it is still early to draw long term conclusions are strong performance is driven by one the ability of our local leaders to adapt to the changing reimbursement and operating environment and to pop appropriate reimbursement for care provided to hire nurses.
The acuity patients since our inception, we have been committed to care for patients.
Based on individual patient and community needs. Often this has resulted in serving underserved higher nursing acuity patients that were under reimbursed by PPS and are now more appropriately reimbursed under pdgm.
These two factors are resulting in strong performance under Pdgm, we're confident in our processes going forward and the ability of our low our local teams supported by field and service Center resources to continue to adapt as we move past the novelty of Pdgm and it becomes a part of our ordinary operational cadence.
In our senior living business local leaders continue to find ways to move their operations forward. Despite challenges stemming from the pandemic. This determined execution was the foundation of our continued profitable result profitable results in the third quarter and quarter over quarter segment revenue and adjusted.
EBITDAR increases, which is noteworthy in light of the pressures facing the senior living industry, our weighted average senior living occupancy declined approximately 370 basis points from the first quarter standing at 776.8% in the third quarter. This occupancy trend was ahead of Nash.
Funnel assisted living averages as reported by Nic by approximately 250 basis points, our occupancy hit a low point in August and since that time, we have seen a 40 40 basis point increase in occupancy across the segment.
While COVID-19 has impacted the senior living industry broadly in particular, the restrictions on in person touring and visitation not every senior living community has been impacted in the same way or to the same degree our local operating model is uniquely suited to equip our local teams to respond to local market dynamics.
Including pandemic related challenges.
This operational resilience is occurring within a portfolio of assets, we have assembled at a significantly lower cost basis than industry averages. These.
These two factors will help us weather. This current storm and drive significant long term shareholder value overtime across pennant, we continue to recruit and develop talented leaders the attracted to our unique operating model. We are pleased to issue strong 2021 revenue and EPS guidance, which reflects.
The strong expected growth over our twice increased 2020 guidance. The overall health of both segments continues to improve as our field and service Center partners driver operations forward clinically and financially. These factors combined with our track record of disciplined growth our strong balance sheet favorable leaf lease coverage.
It is and healthy operating results position us well to drive further organic growth in our existing portfolio and continue as an opportunistic consolidator in the highly fragmented home health hospice and senior living industries with that I'll hand, it off to Derek to discuss our recent investment activities Eric.
Thank you Danny before.
Before providing investment update I, just want to echo to any thoughts and appreciation for the many individuals across both.
Im deeply grateful for their commitment to providing life changing service during a time when our communities need it most.
Its through their effort that we were able to provide strong initial 2020 guidance in the aftermath of a complex spin transaction Bina.
Bina raise earnings guidance last quarter and again this quarter and provide 2021 guidance that would represent very healthy growth year over year.
For those familiar with the unfenced Orient our story before spinning off this kind of performance as possible. When you combine our innovative operating model talented local leaders and disciplined balance sheet management.
The third quarter was illustrative of the momentum achievable in these principles our regular rigorously followed during the quarter and since we announced the acquisition of four home health agencies and two hospice agencies closed on the previously announced home health joint venture with Scripps Health, a leading nonprofit integrated health system based in San Diego, California.
Successfully started two hospice agencies.
These transactions, bringing the total number of operations acquired or started in 2019 cents to 27 each.
Each transaction represents a unique opportunity for our local leaders to drive outsize multiyear growth as they respond to local market conditions and take advantage of additional acquisition opportunities.
As evidenced by the different structures of these transactions our disciplined growth strategy takes many forms our.
Our focus continues to be on the opportunistic acquisition of existing operation. However, we view startup operations and joint ventures as additional tools available for us to drive similar long term results, depending on the unique needs of the community and our leadership pipeline.
Each of these each of these approaches create avenues to provide life changing needs.
Meet the needs of communities and provide opportunities for talented local leaders to create value.
Although the joint venture structure is relatively new to US we have successfully pursued growth path. Many times in our history and expect they will continue to be valuable elements of our operating strategy, particularly as our leadership pipeline grows and we keep our balance sheet strong.
Although we will continue to be disciplined about how we allocate and spend capital ensuring that we do so methodically and with a well supported path to strong value creation for our stakeholders. We are excited about our deal prospects and where our pipeline stands.
We continue to see meaningful opportunities that are that fit our investment criteria and expect to see a similar cases acquisition activity in the near term.
Our field and resource leadership tower, the strong performance of our operations, notably in our home health and Hospice segment.
Our low leverage and strong fixed charge coverage and our consistent and growing cash flow combined to make us well equipped to acquire an onboard additional operations and 2021 and beyond.
With that I'll hand, it over to John to provide more detail.
Financial performance Jen.
Thank you Derek and good morning, everyone.
Detailed financial results for the three months ended September Thirtyth 2020 are contained in our 10-Q and press release filed yesterday.
The three months ended September Thirtyth 2020, we reported total GAAP revenue of $98.4 million, an increase at 10 million or 11.3% over the prior year quarter.
GAAP diluted earnings per share of 15 cents and adjusted diluted earnings per share at 18 cents.
Non-GAAP adjusted earnings per diluted share of 18 cents represents a 63.6% increase ever spent adjusted third quarter 2019 results of 11 cents.
We had strong revenue and earnings per share results stated a consistent operational execution of our field leaders during a very difficult operating environment.
We also benefited from disciplined management of general and administrative costs.
Other key metrics included cash flow from operations at $9.7 million in the third quarter.
$70 million and availability on our revolving line of credit at quarter end.
0.59 times net debt to adjusted EBITDA, If Medicare advanced payments have been paid back as of the end of the quarter.
As a reminder to listeners are strong quarter Lee results do not include any funds from the provider really fine established Vidacare as act.
We continue to benefit from the receipt of approximately $28 million and adapt Medicare payments.
And approximately $5.3 million kind of cares act payroll tax deferral program.
We expect automatically could then at the advanced payment to begin April 2021.
Finally, please note that our year to date non-GAAP adjusted earnings per share results exclude the benefit of $1.7 million received because of the Medicare sequestration holiday, which offset our COVID-19 expenses and our investment.
As Danny mentioned, we are increasing our annual 2020 adjusted earnings per share guidance to a range of 75 cents to 80 cents at midpoint of which represents a 4% increase over our previously increased EPS guidance given in the second quarter and 39.6% increase over our initial 2020 guidance.
We also provided full year 2021 revenue guidance at $430 million to $440 million and adjusted earnings per share guidance at 89 cents to 99 cents per diluted share.
The midpoints of which represent increases at 14.2% and 21.3% respectively over our revised 2020 annual guidance.
The 2021 guidance is based upon a diluted weighted average common shares outstanding of approximately $30.8 million.
The effective tax rate of 25.8%.
The inclusion of acquisitions announced year to date, the estimated ongoing effect of COVID-19 exclusion of costs related to startup operation acquisition related costs redundant or nonrecurring expenses related.
It's a spinoff transition services and stock based compensation.
We believe our operating model and growth strategy enable us to be successful three changing operating environment.
And our strong results here today give us confidence in our ability to meet our revised 2020 and newly issued 2021 guidance.
And with that ill turn the call back over to Dan.
Thank you Jen before we turn to the Q1 of the call I'd like to highlight a few individuals and teams that are examples of what we can achieve in each of our operations by truly living our core values and executing with our cluster centered operating model with diligence and consistent.
First led by Executive Director Director, Patrick Oddly in director of clinical services Tanya Dudley come.
Comfort hospice in Las Vegas, Nevada is an example of a team that has achieved significant results as they continue to address the needs of their local market based on feedback from their partners in the community patent team helped lead the acquisition of a home health and home Health agency to enable comfort to provide both home health and hospice.
Services. In addition, comfort has also expanded their services to act to address unique needs and surrounding small communities that were underserved. These.
These locally tailored solutions are possible because of our unique operating model and combined with the strong culture that Pat and Tanya helped cultivate at comfort have enabled them to achieve 27% revenue growth and 38% EBIT growth quarter over quarter, while achieving these results. These local leaders.
Demonstrated ownership by supporting their cluster partners through the transition of of a new acquisition in their geographic footprint as well as other pennant men sign partners in the coordination of patient care during the pandemic.
Another example, I'd like to highlight as low Hart senior living in Oklahoma, California, which is led by executive Director Candy Franklin and wellness coordinator Amy Castillo happy.
Having led low hard for many years candy and Amy have helped the building become an important part of the continuum of care in their community. They have worked closely with partners in the inside dependent care continuum to tailor low har in an effort to be the senior living solution to providers residents and their families candy and the teams really.
Ventless focus on resident and family satisfaction, even while navigating the pressures of the pandemic has driven higher occupancy. This year over last year can DNA may continue to drive value and they are building, resulting.
Resulting in third quarter revenue, nearly 6% higher than the prior year quarter, and EBIT nearly 27% higher over the prior year quarter. These results are reflective of what talented leaders like candy and Amy can do to drive sustained long term value in the senior living space.
We again want to express our thanks and admiration for the leaders and staff in the field and at our service centers working diligently to care for thousands of lives each day, our local leadership teams and the dedicated Kid resources to surround them are the reason for our success and we continue we could not achieve these results without their excellent execute.
Mission through varying challenges.
We will now turn the call to the Q and a portion of the call as Derek mentioned, we are here with John Gardner, our COO and Brent Gara solely soon to be president dependent and we are who are both available for questions about operations as well Joel can you. Please instruct the audience on the Q on a procedure.
Thank you Ashley I would like to ask a question you will need to press star one on your telephone so let Chuck a question touched upon key sales.
Standby will be capacity candy avastin.
Our first question comes from Scott Idle Steven.
Latin is now open.
Hi, Thanks, and hi, everybody I had a couple of questions. First question just relates to the initial 22 or 21 guidance Jen.
It does not yet include any future unannounced M&A, so far it might be helpful. Just to remind us what type of contribution M&A has made share growth rates historically and whether you think that the recent historical trends should be a relatively good indicator of the likely M&A activity that ultimately you will look to execute it.
Slide 21.
Yes, Hey, Scott good to talk to you thanks for joining the call.
Derek So I think you kind of answered the question in second half of your question at least on the.
The historical trends and what we what we anticipate going forward of course, we don't.
Technically bake it into our guidance, but but looking out at what we see so far.
There is no reason that we don't feel like we can continue that that same pace. Our leaders are in a strong position.
We have maintained a good balance sheet and we're excited about what we see on the horizon. So I think you'll you'll be looking at the past few years of our cadence and the depth of our acquisition activity is a good benchmark for where we stand going forward and as far as the.
The contribution that we've had so far maybe I'll ask John to kind of give some parameters around that one yes.
Hi, Scott Jan.
For the year to date on the revenue side, we are seeing probably.
This quarter, our year to date lets animal fat is about $2 million of revenue on the home health side about.
Yeah.
About $5 million on the hospice side and about $1.3 million on TV.
On the senior living side and and year to date 19 is about the same level $2.1 million for $19.7 million in hospice Frank.
19, and senior living with about 876000, so that kind of gives you an idea the cadence over the last couple of years.
Okay. Thanks for those details in a second question just wanted to hopefully drilling to occupancy and senior living a bit more and you had mentioned that you've seen that sort.
Sort of trough in up around 40 basis points, just interested and if you could help us in terms of what you've built into the implied Fourq you guys in terms of what you're thinking about occupancy relative to Threeq and then also.
Sort of underneath that the 2021 guidance that you provided.
What you're assuming I guess from occupancy.
Offer that sort of Fourq you trend line.
Yes ill, let ill, let Jim comment on that specifically our assumptions are that things are going to continue kind of where they are at which is.
Limited visitation more a higher bar to get people to move in.
We are not anticipating some kind of real change in that but Jan do you have the specific numbers, yes, I think as you can.
And first from the.
Earnings call script out.
The 40 basis points that we're seeing uptick.
And where we ended up last.
Cornerstone if you take that out.
At that to change significantly.
Through the end of the here.
And then also assuming that similar type of trend in that baseline guidance for 2020, onest while around occupancy.
We're assuming an uptick in occupancy for 2021, but not at.
A significant clients.
Incline sell it wed.
Probably be similar to our Q2 levels around on.
Year to date.
Got it and I guess that just conceptually what the interest and all your thoughts on just given the news on the vaccine efficacy this weekend.
Do you think that I'm sure you've all starting to drill into that.
How I guess from a distribution timing perspective, then next year, you think how how quickly it could start.
I'm actually be distributed and where your sense is that.
Senior living facilities may be in the pecking order of actually prior to being prioritized for the vaccine I know Secretary Asia are the speak was just talking about.
Nursing homes and other facilities being sort of at the front end of the packing order so as to your thoughts around that.
Yes.
Our position on that is that we're encouraged.
We will wait to see.
How it actually how the execution.
Carries through but.
But we think that it could benefit us second half of the year.
Maybe you see a little bit of it in the first half which would be really encouraging news.
The key there is is the actual execution finalizing it making sure that communities are comfortable with it I I think once once it's fully.
Fully baked and available I think distribution won't be.
That big of a difficulty we're really pleased with the availability of testing right now.
As things currently stand and so we're heavily relying on that and then working very hard to overcome some of the obstacles, particularly as it relates to limiting in person visits.
When it comes to families, making decisions around where to place their loved ones that that's a real challenge that our teams are finding creative ways to.
To be completely compliant, but connect loved ones in their community to loved ones in our communities that are in our in our care setting. So that's kind of how we're thinking about it obviously the timing could could move rapidly and you could see it if you kind of relieved some pressure early in the.
First half of the year, but.
You know I'd like the world, we're waiting and watching and for US we were doing everything that you you would expect to do without it coming we don't see it as a as a complete solution to what.
What people are going to have to face as they think about this but we think it would be an enormous health. So.
Understood and then just one last one for me I guess would be for Jan just stop it.
Projection that you would be able to share just on expected operating cash flow for 2021, I know you gave us a few of the moving pieces around cares where the advanced Medicare payments.
And elsewhere. So we can try to back into it but just interested if you do have a formal projection for that.
I would have to get back to you on that one.
And we'll put it in our investor deck, and what our projection as.
Okay all right. Thank you.
Yes, I think generally Scott.
We're on a good track there and we feel really comfortable so we would expect that to continue to improve.
The way, we have seen in 19 and 20 so.
Okay, all right. Thanks.
Thanks Scott.
Thank you. Our next question comes from Frank Morgan with RBC capital markets. Your line is now open.
Good morning, I guess first a housekeeping you made a comment I think about adjusted EPS and I couldn't tell did you say that excluded the 2% add on payment could you just.
Go back over that language again about the effect of the 2% AD owned the temporary.
Yes, it's a great question Jen can provide specifics, but we made the decision to for the sequestration holiday, which is a 2% increase we have excluded that from our earnings and then we've we've used that to account for basically our cobot related costs.
So in the first couple of quarters that the costs exceed or the first quarter that it was available to us the cost exceeded.
That sequestration holiday, which took place in May started in may.
This quarter, there is a little bit of that big sequestration exceeded our total costs.
That weve separately identified we expect that might be the case in Q4 so.
Jen you want to add anything specific there we view that as a temporary.
No payment change and so for specific reasons, we've decided that to excluded even though it could could.
On a short term basis be more favorable to us.
Great and then on.
Thanks, Danny yes so.
Look at our investments.
GAAP adjustments and even though we're not far from our segment EBITDA from operations.
Our consolidated combined income from operations, you'll see.
Referenced in that kind of at 19 related costs. So that includes both the component components.
Covance Colgate related costs related to increased.
Increased payroll and supplies expenses and then that is offset in that there's a footnote on that line its reference as the sequestration holiday and the amount of revenue that we have received sales in Q3, we received $1.1 million in sequestration revenue and year to date, it's 1.7.
$7 million.
Gotcha.
And then also.
Also now that you've actually you are talking about a couple of new de Novos.
Coming online.
I think you also said those will get the that the constellation deductibles or get back out of your adjusted numbers, but maybe talk a little bit about those de Novo version, where they are and what sort of the expected ramp up time and when those may low when it may actually flip over enrolled into adjusted numbers.
Yes.
Hey, Frank Derrick Great question so.
Just to step back really briefly startups are really part of a strategy that we've been deploying.
Since our really our inception of our home health and Hospice company.
As part of our overall growth strategy and it is dependent upon the local market dynamics the availability of.
Acquisitions that fit our investment criteria.
Our leadership pipeline ties of our local leaders right Theres a number of factors that.
As we evaluate our growth that we can pull it in order to fit our solution to that Teva to that local market, sometimes most of the time, it's a traditional acquisition of.
Our bread and butter or gives us a platform to grow in that market and expand sometimes as is the case in these two that we announced.
They're within sort of that broader startup umbrella, which which can take a number of forms itself, but but they're the key point is that the long term potential for US is the same whether its a traditional acquisition or a startup we underwrite and evaluate our investment in the same way.
Times, obviously that breakeven might might be a little bit different obviously is that the startup versus a traditional acquisition, but the same.
But we do a startup with that same long term return potential in mine.
And so these were.
We've done eight or nine of these kinds of startups. Previously this is more of the same and maybe I'll ask Brent since he's he's newly joined on this call to kind of comment on the operational decision making behind those.
Yes, Thanks, Frank for the question.
Just a couple of things. So first we did the startup operation in Washington at the certificate of need state. It allowed us to get into a hospice opportunity that goes alongside our one of our home health operations currently there in the state. The other one is in southern California, We added an existing license that we have.
Allowed us to again go into a market with a leader that was prepared to really operate and be successful in that local community.
You asked the question about.
Sort of when do they start to contribute.
We view these in many ways like our acquisitions the goal is to be operationally accretive.
Quickly.
And safely as possible and.
Realistically there is an 18 month to 24 month window that we're targeting but obviously, we'd like to do that even sooner, but thats sort of the expected timeline anytime we do a startup operation that we quickly get to a level of accretion.
And maybe a gen question.
In terms of when those actually flip over into.
Your adjusted numbers when they are no longer exclude it is is there a specific again or is it just purely a matter of time how's that going to work.
And as either a matter that Frank agenda, it's either a matter of time or a.
Or the triggering event has laminate sales profitability.
For a few quarters.
Okay.
Trunk profitable for two quarters okay.
And I guess, just just staying on on the home health care and hospice side.
Im just curious I mean, there were there was really.
Strong rate growth it looked like episodic rate growth.
A little over 2%.
But I'm curious if you could kind of parse that out.
How much of that was.
Just the ability to adjust to.
The new Pdgm payment system, any kind of significant change in acuity in and I'm guessing the sequester holiday.
It's probably in that number is just not in the adjusted numbers Thats correct.
Yes, Thats correct, Frank and this is John I'll take a stab at that.
Our home health operators have done an extraordinary job of responding to this reimbursement change and what you're seeing in that 10% increase quarter over quarter. I think it's important to look at the full year to date as you consider the true implications of PDGF, but really we've we've met and and performed extraordinarily well the result in the third.
Third quarter as a result of a couple of things one we continue to see our loop a percentage trend down from its height. During the pandemic. We've continued to manage that very effectively our operators in the field are very cognizant of that we continue to see an improvement in the accuracy of our Cody.
And simply capturing the proper acuity of our patients and making sure that thats.
Well documented.
We're also effectively.
An increase in institutional early episodes. So we saw about a 2% increase in those episodes and so overall we are seeing.
A really nice impact from Pdgm, our operators are continuing to respond and to meet community needs. I think as you think about that overall increase I'd I'd point, you back to what Danny said.
Really a lot of that increase is based on the fact that the the care for patients that weve always cared for our strategy has always been to be the provider of choice in the community to meet referral sources needs.
Whatever the the acuity of those patients whether they were nursing heavier therapy heavy we want it to be that provider, who could meet those needs as reimbursement has changed to more appropriately reimburse those high nursing acuity patients.
It's generally helped us a little bit.
I think looking at the year to date number is the right way to look at that we are still early.
And but we're very pleased at where we're at.
Got you and then maybe on the cost side in home health care.
Any levers that are.
Our remaining to be pool, there as you adjust to.
Pdgm or is it simply the rate the rate growth is good enough that you don't have to do any other change on the cost side and lot of other operators have talked about the mix of Lps versus oriented those kind of things number of visits but is there anything left to do on the cost side.
Yes, Frank Theres always opportunity right, we're always seeking to provide extraordinary clinical outcomes as efficiently as possible. We're really pleased with the way that we've been able to move, particularly overall visits per episode, we're seeing that number continue to pull down in.
In an appropriate way and at the same time as we're seeing our outcomes continued to improve.
And so we feel like we'll continue to push to provide that care.
Pushing clinical outcomes up and and efficiency up as well, we do have room to move on that on the use of mid levels of Lpms Encoders.
PPA case, and that's something that we're looking at and measuring and tracking but ultimately our approach is to focus on the unique needs of the patient and to make sure that wherever we can those visits are performed by mid level wherever we can we're using tele health and we're using technology to assist according to the plan of care and according to physicians.
Erection and in doing so to be just as efficient as possible and delivering the best quality care.
Got you.
And then maybe one on just.
When you when you look at the acquisition opportunities that you're seeing out. There. Today is it are you really starting to see any impact at all of agencies that are starting to kind of freak out over pdgm or or the start of the repayment of.
In the advanced payments or the grant monies whatever burning off or is it still just you're doing a lot of off market transactions that are very specific or who are you know any any what I would call pdgm induced sailing.
Yes.
We're certainly seeing a lot of off market opportunity, but as far as the kind of those pressures that we all anticipated coming from PJM that would kind of Stoke the M&A pipeline, we're seeing that too we're having those conversations at the part of our pipeline.
As various providers are impacted in different ways as they try to navigate PDGF. It doesn't have the same impact and obviously with the complication of coated it's hard to parse out there.
Directly the pandemic impacts from that from PDGF and isolate those but it's all part of that conversation and we see though that impact in a number of areas. We expect it to continue to.
Create some opportunities for us to to help and B b that that buyer partner for them to.
Carry on the legacy and to bring the all the tools that John has just mentioned to bear into that agency. So.
It's definitely a part of the pipeline, we expect it to be part of a bigger part of the conversation next year as well.
Got you just one final one and I'll hop back in the queue.
Just obviously a lot of talk and concern about this surge it seems to be underway today. So just as a party question any.
How do you view your business today relative to kind of the initial surge real.
Really both for the for the home health care and hospice side as well as the senior housing side and that in.
In terms of how you feel like you're prepared for that.
Going forward. Thanks, Yeah, Thanks, Frank obviously.
Obviously, it's a significant surge that's ongoing.
On the home health and hospice side, we anticipate there could be another slowdown of elective procedures and things like that.
We're prepared to make.
The corresponding adjustments operationally that we need to make.
Like we saw in the in the first significant wave earlier in the spring we.
Our hospice continued to grow through that period of time, and so we expect that to our operators will continue to do that.
The.
The on the senior living side.
Collectively the testing and the overall kind of.
Clinical procedures, we're just in a better place we were in a good place when it first hit.
Increasingly our leaders are more comfortable and confident in their ability to you know.
Interface with families and explain how we're keeping their loved ones safe and and Thats why we feel good about the incremental occupancy increases there so.
So we feel good about our position.
Our ability to track and support our staff members in the first phase our emergency fund and our critical needs fund that we've used to supplement.
Federal and state programs around.
Keeping staff safe and continuing to pay them well.
They're out on quarantine or whatever the circumstances might be those.
Those those are fully active and.
And so I would just say no we feel a lot more confident in our ability to work through this next surge than we were even at the beginning and as you can see we fared quite well through the first.
Unexpected surge so that's our that's our thinking there.
Thank you.
Thanks Frank.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from David Macdonald with Truest Securities. Your line is now open.
Hey, guys I, just I, just got one or two left.
One.
Just wanted to come back to the startups and just make sure I heard the timeframe right in terms of two accretion was that 18 to 24 months and then the second part of that question was when we think about prioritizing needs and you touched on this a little bit with the Washington location, but should we think about Seo and states.
And markets, where you can co locate a start up with Penn.
Pairing either home health and hospice together are those kind of the priorities when we think about where to put these startups.
Yes, yes, that's a great question David.
So a couple of things first.
I'll, let Jan and Brent confirm on the timing.
But usually these startups are art strategic focus there is these adjacent markets, where we already have existing teams with existing strength existing reputations and then the the the lever if the best lever to pull is a startup then that's the path will go down.
Based on sort of a rigorous application of our investment criteria.
The COO in structure in Washington, obviously.
Creates some unique barriers to entry there and so we're very pleased to have been awarded the COO and up there and and so that is just literally bolting it on to an existing operation.
So.
Generally speaking that 12 that 18 to 24 months. This is kind of how we think about the overall timing.
Once once they reach accretion we include them in our earnings after two profitable quarters, but.
The other one is in California, and its kind of fills in a gap between to.
Operations actually three operations is kind of.
In the middle and so the clusters really well with our existing operations and those existing leaders just as we've talked about our cluster model they recruit and train new leaders and then they create these opportunities for those leaders and so these the one in California has three operations that have served.
Around it and they've carefully prepared a leader in there that are kind of going into that that space that this leader that they've been training and working with is already familiar with and.
And so.
The likelihood of being successful quickly is really strong.
Our general thought is that our startup expenses and kind of drag on our operations just won't be significantly changing.
These are just.
Kind of like Derrek mentioned, we've done these in the past we don't ever intend to do you know hundreds of these and we.
We just we'll just methodically deploy them.
You want to comment a little bit of on on.
How we get them to profitability.
Yeah, I mean again it goes back to our model, which is local leadership right and the local teams that see an opportunity.
And when that opportunity presents itself, whether that is via an acquisition or via a startup we take the the best path forward based on the situation and in particular with the startups.
We talked about that 18 to 24 month timeframe, but but our expectation really is the total cost of the investment is repaid and recoup in that 18 to 24 months. So that doesn't mean that we're first making more profitable within 18 to 24 months that means the total cost of going into it and then what we're delivering overall to the organization.
One has paid back any upfront capital expense to get that off the ground and so again, it's always going to be driven.
By those local teams and we're just getting better and better as we go through these experiences to.
To do it in a in a reasonable timeframe.
And then I guess my last question would also be just on the joint ventures.
Given some of the pressures with the hospitals have seen.
Since the outbreak.
Outbreak of coal we can can you just give us a sense of.
How much more interest you guys are hearing from those types of deals comp.
Conversations around joint venture tried type relationships just any additional comments you could provide there would be helpful. Thanks.
I'll turn of John field that one go ahead.
Appreciate the question I think one of the things that we're excited about this quarter is getting fully started on our joint venture with Scripps health down in San Diego, It's been a project we've been working on for a long time very closely with our scripts partners and we're excited about it weve talked a little bit about this idea of it comes from the book Great by choice about shooting bullets before cannabis.
And our goal in this transaction has been to find the right partner in the right market and to do an extraordinary job of transitioning this agency and making sure that it is.
Produces extraordinary clinical outcomes is profitable and self sufficient and really impacts the community and we think that by doing that we are going to set. An example in a model that other health systems are going to really want to follow so where there's definitely demand out there there's definitely conversations that we're having but our real focus right now is on making sure.
That this transition with Scripps health goes extraordinarily well and that that positions us to be an effective partner to others, who might be in that scenario.
And then just as far as the general communication with other systems. There are ongoing conversations out there I think in general systems are looking for solutions and we are working hard to position ourselves as as a very unique partner in that regard.
That deploys our local leadership model that really really integrates with that hospital systems, so that the.
They get the opportunity to continue to orchestrate that local operation and don't feel as though they have to fit into some you know.
We set structure that that might be dictated by other structures out in other markets. So a lot of these hospital systems are very localized.
And we're looking forward to continue to have those conversations so thanks for the question David.
Thanks very much.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Danny Walker for closing remarks.
Yes, Thank you and we want to thank all of you who have joined US we again.
Pause to give thanks to the veterans that have served in this in the country and that are part of our team and also to our staff members, who continue to plod forward and and really just do extraordinary heroic things in the middle of.
Kind of a historic operating environment, we're really grateful for the these strong results that have been delivered and we look forward to continuing that in the fourth quarter and on into 2021. Thank you for joining us.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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