Q4 2020 Pennant Group Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Pinnace Group fourth quarter 2020 earnings call.
At this time all participant lines are on a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask the question don't know session you will need the press Star then one on your telephone please.
Please be advised of today's conference is being recorded if you acquire any further assistance. Please press Star then zero.
I'd now like the hand, the conference over to your host Derek Walker. Please go ahead.
Thank you Sarah welcome everyone and thank you for joining US today here with me today I have Danny Walker CEO, Brent gears solely of President.
Jen Freeman, our CFO and John <unk>, our CFO before we begin out of a few housekeeping matters, we filed our earnings press release and 10-K yesterday the.
<unk> is available on the Investor Relations section of our website at Www Dot pennant group Dot com.
A replay of this call will also be available on our website until five P. M Mountain on Friday March 26 2021.
We want to remind anyone that may be listening to a replay of this call that all statements made are as of today February 25, 2021 on these statements have not been nor will be updated subsequent to today's call.
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 our SEC filings for a more complete discussion of factors that could impact our results.
Except as required by federal Securities laws.
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.
In addition, the pennant group being because of the holding company with no direct operating assets employees of revenues 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.
To the other operating subsidiaries through contractual relationships with such subsidiaries.
The words pennant company, we our and US refer to the pennant Group, Inc, and its 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 herein to the consolidated company and its assets and activities.
As well as the use of the terms, we us and our and similar terms used today are not meant to imply nor should it be construed as meaning that the pennant group, Inc. Has direct operating assets employees of the revenue.
Or that any of the subsidiaries are operated by the pennant 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.
GAAP to non-GAAP reconciliation is available in yesterday's press release.
In our 10-K.
Now with that I'll turn the call over to Danny Walker, our CEO Danny.
You Derrick and good morning, everyone. Thank you for joining us today to discuss pendants full year and fourth quarter 2020 results. Our first year of the public company was eventful challenging and ultimately rewarding we navigated the complexities and dynamics of the new reimbursement methodology and PDGF, we completed the successful.
<unk> of key enterprise financial human capital and systems related to our spin off from the Ensign group.
And we dealt with them continue to deal with the impact of an unprecedented pandemic I'm proud of our collective efforts on each of these fronts and I want to say, thank you to the to each one of our leaders resources and team members for the courage and grid that you've consistently displayed.
Despite the challenges faced we were able to achieve strong results, both clinically and financially and we are well positioned to continue growing in 2021.
Our overall 2020 results were headlined by an incredible year for our home health and hospice segment, which achieved approximately 51% adjusted EBITDA growth in 2020 over the prior year and nearly 60% adjusted EBITDA growth in the fourth quarter over the prior year quarter. These impressive growth rates were.
Underpinned by strong performances in nearly all facets of the business and were comprised of growth in both new and existing operations, excluding home health agencies acquired in the previous 12 months are 2020 total Medicare home health admissions grew nearly 7% and inclusive of the.
Its of the sequestration holiday.
Average Medicare revenue per 60 day episode.
10% as the reimbursement levels, where rebased under PDGF to more appropriately account for the higher acuity nursing acuity of our patient population.
Similarly in hospice, excluding agencies acquired in the previous 12 months, our total hospice admissions grew 32%.
On the hospice average daily census grew eight 4% and inclusive of the benefits of the sequestration holiday our average Medicare revenue per day increased four 1% each over the prior year quarter.
This growth occurred as a result of strong clinical performance as evidenced by our average home health Star rating improving the four three stars across pennant above the national average of three stars and the percentage of agencies, achieving a five star rating grew from 3% to 30% sequentially and.
The fourth quarter.
Our home health discharged community right home health.
Cute care hospitalization rate and hospice quality composite measures continued to outpace national averages as reported by CMS. The foundation for these clinical results was laid years ago. When we continue to see the benefits of those investments year after year and these outcomes are all of the more impressive in light of the significant.
Challenges faced during the pandemic.
In our senior living segment, we continue to confront of difficult operating environment, but we feel confident in the long term potential.
Potential notwithstanding these near term challenges when we shared an update last quarter, we had seen our occupancy declined moderately.
The decline moderate and even slightly increase from September to October of 2020.
Since then however, we felt the acute impact of the second COVID-19 surge as the markets in which we operate experienced accelerating positive cases are.
Our segment results in the fourth quarter were negatively impacted even as we moved to offset pressures on occupancy and staffing and we expect this trend to continue to some degree on other than the first half of 2020. We are also hopeful the ongoing vaccine rollout will bolster public confidence and unlock pent up demand.
For senior living services, particularly as restrictions on in person visitation and touring abate. We're pleased that all of our communities have have or had or have scheduled their first vaccination clinics with 76% of our current revenue residents having received the vaccine.
While the current operating environment is of significant short term headwinds we are confident in our ability to overcome these challenges as our leaders apply our proven principles and look forward to taking advantage of opportunistic acquisitions, resulting from industry disruption in the wake of the pandemic.
In short these near term pressures equate to long term opportunity in the senior living segment.
And as an organization we are built to work through the challenges that come with turning around.
Difficult operating situations.
As Jen will discuss we announced yesterday that we increased the capacity of our revolver revolver from $75 million to $150 million.
As our long term stakeholders are aware, we opportunistically allocate capital, where we have helped the operating markets and our strong leadership pipeline in.
In our senior living segment, we have not allocated and do not anticipate allocating capital for strategic acquisitions in the near term as our leaders focused their efforts on navigating the challenges of the pandemic and driving improved results in our existing buildings.
On the other hand, we have deployed a significant amount of capital Opportunistically in the home health and hospice segment and our capacity to deploy even more continues to increase because we have multiple healthy operating markets and our strong leadership pipeline.
We are grateful to our lending partners for entrusting us with increased borrowing capacity to execute our disciplined growth strategy and we continue to work diligently to improve the health of our operating markets and strengthen our leadership pipeline. So we can strategically invest across many markets in both segments Cymer.
Painlessly.
As we announced yesterday on our press release.
We are affirming our 2021 annual revenue and annual adjusted earnings per share guidance, the strong momentum in our home health.
And hospice business lays the foundation for our continued year over year growth. We are cognizant of the ongoing challenges facing our senior living business and there are multiple reasons to be optimistic we will return to growth in late 2021.
Last year, we maintained the annual guidance when the uncertainties regarding COVID-19 were at their peak based on the confidence we had in the ability of our local leaders to drive results. Despite the unexpected impact of the pandemic with more visibility into how the pandemic is affecting top and bottom line performance in both segments, including the <unk>.
<unk> exhibited in the home health and hospice and the very real headwinds in senior living.
We're affirming our 2021 guidance because we have similar confidence we can navigate the complexities of the current operating environment and performed consistent with the high expectations. We have set for ourselves we commend our local leaders for continuing to execute in the face of the adversity, we have encountered this past year and for <unk>.
The positioning us to continue our growth trajectory in 2021 in spite of the ongoing uncertainties.
Now with that I'll hand, it off to Derek to discuss our recent investment activities Derrick.
Thanks Danny.
During 2020 and since we added 19 operations of the pennant family.
Our investment in these operations reflect the many ways in which we can grow through our disciplined deployment of capital and leadership tower.
We expanded strategically within existing geographies and into adjacent markets.
We expanded the continuum by adding home health services, where we have of hospice agency and vice versa.
We had we acquired large regional providers with a strong local reputation that we expect to further developing our operating model.
We acquired small budding agencies that have significant long term organic growth potential.
And we executed multiple startups consistent with our history of successful startup ventures.
We also began of joint venture relationship with the key hospital system partner the.
Common theme across these transactions was that we maintained discipline with the allocation of our dollars.
On our most important asset our leaders our.
Our strategy of interesting talented entrepreneurial leaders with high upside operations acquired at favorable entry points has laid the foundation for our impressive year over year growth.
Among these deals many were off market opportunities.
And of the some of the second or third transaction, we closed with the same seller evidenced in our reputation as a strategic buyer of choice.
Other deals or marketed processes, which we were able to win not just because we have the highest bidder, but more often that sellers saw value in our decentralized model and our commitment to carrying on their legacy by empowering local leaders closing swiftly and welcoming employees into our unique culture.
We are able to close the high volume of transactions each year of.
Often multiple simultaneously.
Of the collective expertise of our field and service center resources built over dozens and dozens of transactions and you continue to improve our due diligence acquisition and onboarding processes.
While we refrain from providing hard targets for the number or aggregate purchase price of acquisitions, we anticipate in any given year.
Our historical track record of acquisitions as a good indicator of our likely future growth rates are.
Of our capacity to execute a higher number and larger more complex transaction increases as our operating markets mature and our leadership pipeline growth the <unk>.
Strength of our leaders in clusters, the ability of our resources to support acquisitions.
Our access to capital and a favorable M&A landscape combined to represent an exciting period of growth for pennant.
Particularly in the home health hospice and homecare spaces.
We are working feverishly to recapture strength in our senior living operating markets and leadership pipeline.
So that we are poised to pursue opportunities that may present themselves in the future.
And with that I'll hand, it back of hand, it over to Jen to provide some detail on on the Companys financial performance Gen.
Thank you Darren and good morning, everyone.
Detailed financial results for the full year and three months ended December 31, 2020 are contained in our 10-K and press release filed yesterday.
For the full year ended December 31, 2020, we reported total GAAP revenue of $391 million, an increase of $52 4 million of 15, 5% over the prior year.
GAAP diluted earnings per share of the Pts and.
Non-GAAP adjusted earnings per diluted share of <unk> 77.
Which represents a 26, 2% increase.
Of our 2019 adjusted earnings per share of 61.
And 71% of our 2019 and adjusted earnings per diluted cash of 45.
We had strong revenue and earnings per share results due to the consistent operational execution of our field leaders during a very difficult operating environment.
We also benefited from a disciplined management of general and administrative costs.
Even as the completed multiple key and price system transition much of which impacted fourth quarter G&A.
Okay.
Yes.
Okay.
2 million full year exclusive of $28 million of Medicare advanced payment of 15.
$9 5 million of cash balance on our revolving line of credit at year end.
One point here is the time net debt to adjusted EBITDA. This Medicare advanced payment has been paid back half of the year end.
As a reminder to our listeners are strong annual results.
Any follow on to the provider relief fund the established by the Cares Act.
We continue.
Okay.
Yes.
Net of caffeine.
And approximately $8 4 million from the cares act payroll tax.
We expect automatic recruitment of the advanced payments to begin in April 2021.
Finally.
Please note that our full year non-GAAP adjusted earnings per share results.
Revenue from the Medicare sequestration holiday in certain limited COVID-19 expenses.
As a reminder, our adjustments for COVID-19 expenses are those that we are able to easily capture directly.
Weighted to the pandemic.
We do not include more intangible impacts such as lost revenue lots of efficiencies or other very real impact on our revenue on a person.
Of that resulted from the pandemic and are not easily quantifiable.
As Andy mentioned, we expect our near term results to include some lumpiness as we can across this theme of the pandemic.
Nevertheless, our growth potential remains compelling.
And we are confident we can meet the annual guidance, we provided and make that a defining year as we execute on our long term growth strategy and realize the significant upside in both of our business segment.
We were pleased to announce yesterday that we amended our credit facility to increase our revolving line of credit from $75 million to an aggregate principal borrowing amount of $150 million.
The amendment also refreshes the facility's five year tenor extend the termination of the facility out to 2026 and.
And reduces the interest rate on drawn and Undrawn capital among other update.
We are grateful for the partnership of our banking group and the confidence in our model at the upsize represents.
As of February 22021, $131 $7 million remains undrawn on the revolver.
<unk> of substantial dry powder to continue our disciplined growth strategy.
And with that I'll turn the call back over to Danny Danny Thank.
Thank you Jen.
I wanted to just conclude with a couple of final remarks first we knew and we chose not to take the cares Act provider relief funds that we would experience some.
A difficulty in that we wouldn't come out of the pandemic unscathed. However.
However, we feel confident that the course that we have chosen is right for our organization and keeps our ability to move forward in both segments intact, and we look forward to realizing the the untapped potential that we have in both segments now at this time, we normally take time.
The highlight individual operations that have achieved exceptional results clinically and financially.
However, today, we'd like to provide insight and pause to give thanks to that for the incredible bravery encouraged that so many of our caregivers clinicians in frontline staff supported by our local leaders and resources that they provided each day during a turbulent year in 2020, we took we took care of.
Nearly 13000 patients and residents in our home health hospice and senior living operations each day of 2020.
Each of these interactions involved great personal risk.
And the extra extreme difficulties for the members of our team the.
These are frontline staff didn't have the luxury of waiting and hunkering down while the danger past instead, they were responsible for running to the danger.
And meeting needs at a very very high level and of complex environment. We feel so thankful for them. One example of this was in the state of Idaho.
During the early stages of the pandemic there were severe challenges in the assisted living space.
And.
In collaboration with the state of the twin falls manner was opened by the pennant team as.
As the states only COVID-19 dedicated assisted living operation. It took an extraordinary amount of coordination and work to the staff and stand up that facility today. Its closing its doors, because it's work is done and but behind.
On the care that was delivered is the same kind of bravery and courage to run towards the danger be there even when your own families were at risk and you personally we are at risk.
We are so grateful for the frontline team and what they have done we have taken steps internally that.
Owner of those individuals as a collective group, but also individually for their contributions and we look forward to continuing to build.
From this defining year this defining moment in our organization's history towards the very bright future that we possess in both of our segments now.
Now with that we'll turn to the QA portion of our call as Derek mentioned early earlier, we are here with Brent Gareth solely of our President and Jon Doctor, Our COO, who are both available to help with the.
With the answering of questions. Sarah can you instruct everyone on the Q&A procedure. Please.
As a reminder to ask the question you will need the press Star then one on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of David Macdonald of choice.
Your line is now open.
Good afternoon.
A couple of quick questions. Danny one thing I was wondering if you could talk about a little bit more on <unk>.
You mentioned in the release just the completion of the effort to decouple.
Our it systems and move everything onto your own platform. So I was wondering if you could just spend a minute and talk about what that does for you guys in terms of <unk>.
Fishing see spending.
And just agility of the organization.
And then I've got a couple of quick follow ups.
Great. Yes, thanks, Great question, David Thank you.
The.
The biggest initial impact will be the man hours that our resources and leaders.
Now free to devote to other elements of growing the business each of these systems on the financial and accounting.
Side of things the human capital HRS side of things as well as the involved hundreds and hundreds of man hours and planning and execution of each of them involve significant risk of disruption to the <unk>.
Day to day business, but also our reporting and so we took extraordinary care to make sure we move forward. So the.
The benefits of the major benefits of being in our in our own platforms really are involved the ability to provide better field data on of Oregon on operation by operation basis.
These systems were most disruptive in the transition on our senior living side of our business part of the process was implementing a new instance of the electronic medical record and customizing it to the senior living space.
Some of those things were more challenging to do under <unk>.
Under the combined umbrella.
So we see opportunities for the date, our internal data practices to improve and then we anticipate that.
Once those massive undertakings are no longer the constantly on our on our radar that we'll be able to devote more of those hours towards our bread and butter doing good acquisitions strengthening our current operations current market.
Markets. So that we can continue to deploy capital strategically like we have for the past 10 years.
And then just a couple of other quick questions one within your markets.
Just given the relative strength of the company can you talk about what youre seeing in terms of local leadership talent in.
Just the pipeline there.
Sure Great question, I think I'll have John tackle that one David it's of Great question and we appreciate it because it's right at the heart of everything we've been talking about today of momentum that's building.
And bulk segments, our leadership pipeline right now is more robust than it's ever been and one of the exciting things about that we've got 18 different administrators and training in our program right now and of that group.
The third of them are folks who have been elevated internally and I think what that speaks to is our leadership ethos that is built around this idea that if you elevate those around the U. It allows you to expand your influence not just in the community that you are serving but also within the organization and so we're excited about this new or group of the.
Leaders that so many of them being elevated internally and let it positions us to be able to do from a capital allocation standpoint in the future.
Okay, and then and then just last question Danny just on the quality metrics. The four to five stars can you give us a sense of where that number was last year and then during your prepared remarks, you quoted us.
3% of 30% number of sequentially I just wanted to figure out what that was on.
Debt.
Yes, we will pull the number on where we were at in the.
The prior year the three.
<unk>, 3%, we track internally what percentage of our agencies achieved the five star rating and so.
A year ago.
Had 3% of our agencies that had achieved a five star rating.
And now we have 30% of them that of achieved a five star rating. So that's that metric.
On.
So John last year, we were at four stars in the fourth quarter on average and this year, we've moved that up to that four to five that's on the publicly reported CMS data one of the things we're excited about it and debt we continue to use.
Data partners like SHP to monitor and track that on a real time basis, and we continue to move the dial there and this is again the cumulative effort of thousands of hundreds of people spending thousands of hours working to make sure that we're delivering that highest quality clinical product document and coding appropriately to capture.
It.
So thats debt.
Yes on the dynamic there David is when we acquire agencies occasionally they have.
Rarely, but occasionally they have a good start.
<unk> structure right, where there are clinical systems are built.
To deliver well and that within those confines. We it takes time for us to implement systems. Both on the compliance, but also the operational side and continue to move that so there's a lag measure we're constantly looking out at what are we doing today and how is that going to affect us. So we're pleased with the progress that's the.
Overview, though.
And I guess, just last question, 3% of 30 years.
The significant jump and as you highlighted just the way that stars work makes that even more difficult.
Is there anything that you would call out on.
I'm sure you know Covid and maybe a slower acquisition pace, probably helped a little bit but anything else that you would call out in terms of that's a pretty meaningful uptick.
The <unk>.
<unk>.
Yes so.
It really is just how our acquisition and on boarding.
And integration of new teams really works.
<unk>.
As as people spend more time as teams spend more time in our system.
They have more and more clarity around the data on these topics and then behaviors start to change and execution improves and then maintaining that over over a lengthy period of time.
That is supported.
Supported by these reporting structures. That's the key so it really is the foundation of why we're able to execute the year over year over year over year on the kind of growth that we've been able to achieve.
So it's a huge compliment to our teams the.
That dig in our efforts to elevate our clinical leaders and reward them for excellent performance and really get out of their way.
To deliver care in the local markets the way they need to and the way they really want to as well. So now on the comment that our acquisition pace really hasnt slowed.
On a on a per like on an average basis. So we've been able to achieve this progress.
As deals layer into our system. They just they get better and better over time and it takes time for these clinical systems to really.
Becoming grained in.
The highly consistent so we're pleased with it.
Okay. Thanks very much.
David.
Thank you. Our next question comes from the line of Scott Fidel with Stephens. Your line is now open.
Great. Thanks.
Hey, everybody good afternoon, or I guess for you guys and good morning.
Had a few questions wanted to ask I'm really more focused just on on modeling for 2021, just based on some of the most recent developments in the market that you've highlighted.
I guess first just just on senior living in.
Certainly appreciate some of that framework that you provided around the pressures in the one half likely persisting for a bad debt, how big to return to growth.
Yes, I think it might be helpful to the extent you can you can give us any insight maybe into what youre be able to get maybe to the midpoint of guidance into the base case around how you are thinking about occupancy progressing in the senior living.
From that 75, 5% on <unk>.
Figure in the fourth quarter, if you could maybe help us in terms of first quarter second quarter, and then maybe what sort of you get you in the back half of the year.
Yes, I'll have Jen provide what she can.
The the.
The projections on this or a little more difficult right as you know the.
The main thing that I would say is we're seeing really good signs I mean January the same trends from December of continued into January and that will linger into February and possibly into March, but we're seeing signs of things moving in the right direction.
So increasingly we feel confident that that the the further into the year, we get that.
Exceeding the prior year will be.
And that we can achieve for sure and.
We're not used to having declining performance ever right. So this is the first for us and in the quarter and then we won't tolerate it very long.
I think no.
<unk> watched us for a long enough to know that so.
We're rallying and doing the things that are necessary to do that as far as the modeling goes Gen. Can you can provide whatever detail you can share price Scott Chan.
So on the projections concerning the senior living revenue.
Hey on the occupancy side, we're looking at.
Kind of a flat.
On the quarter out of our quarter.
We have seen some pressure in the first quarter.
We probably will continue at one of the flat pace.
As far as what we're projecting through.
The beginning middle of the second quarter with slight uptick towards the end of the year on.
On to try to get on.
Probably two of around what we said for the year.
In 2020.
On that that'd be seven 7%.
Yes.
Looking at what we're doing on Howard.
Moving on the right direction, achieving that towards that as the here on the call.
And there is still opportunities for us Scott I'll just mention that.
We're the.
The adjustment process.
In the fourth quarter two of the combined heavy heavy.
The response on the Covid front.
Combined with declining census.
And on increasing survey and enforcement environment, all to keep our residents safe.
On the ability to capture efficiencies was limited during that window and we're seeing those those conditions change and so we'll be able to.
Make further adjustments to the cost structure, so that we can.
Function well from an earnings perspective on the even at lower occupancy. It's one of the virtues of our portfolio of frankly.
<unk> assembled at a low cost basis opportunistic entry points.
We can still be successful even with the.
Of these challenges so.
It's something that we're just got all our attention we're highly focused on it and we knew that we will like I mentioned in this in the script that.
By choosing not to have provider relief funds that we could fill gaps with that we were going to face a little bit of this and.
And we're excited about the opportunities that it presents in terms of getting better and we're fully committed to.
Building from where we're at and the overcoming the difficulty.
Understood and epic data, you're starting to just qualitatively talking about.
My follow up question was going to be on just the topic.
Just around sort of translating that into into how youre thinking about sort of holding line on EBITDA margins in the shack net.
Obviously, there was a bit more pressure in the fourth quarter, where you did have your first sort of a modest decline in revenues. It sounds like from Johns comments that Youre expecting now that just started to stabilize on the revenue profit and then ultimately start to grow again.
Would definitely be interested in your thoughts on how that would translate into EBITDAR margin sort of progression and shall in 2021 off of that.
<unk> sort of exit rate and how many levers you have it just Paul on.
On the expense side sort of advantage around that.
Yes, Jen Jen can provide a little bit that's gone into our thinking there.
The combination of having to provide a robust clinical response.
Some of the efficiencies that get lost when you were in total lockdown as you can that isn't just hamper your marketing and business development efforts, but youre feeding Reza.
The residents and their own rooms.
Can't do some of the communal kinds of things that that actually.
Cause your labor to be leveraged better.
Let alone the.
The the whole PPP the whole world of the protective equipment is something that we.
We've kind of built into the system. So I think on the margin basis, we'll you'll see us returning to.
On the levels in Q2, and Q3 of this year fairly quickly.
Probably.
Q2, Q3 of this year I think those will be pretty achievable and Q4.
Assuming there isn't some recurrence of what we experienced here.
We can get back to where we have been in the past so.
That's the general feeling as we've dug in obviously.
The execution on it is well within our control.
On the control of the the pandemic and some of what might occur there is less in our control.
However, we were very encouraged by the the the way the vaccine is affecting rates.
In our operations in other skilled nursing settings and hospital.
Discharge structures I think there's some really positive signs there.
Net debt point towards sort of a return to <unk>.
Manageable operating environment that that would be very favorable for us.
Got it and you start to two more quick ones for you first just thinking about the first quarter and.
A couple of I guess exogenous sort of dynamics that affect everyone, but just interested if you wanted to just call out your thoughts there. One obviously just weather obviously, the extreme dynamics playing out particularly in the south.
We're used to it here up north of or I am but.
The impacts impacts on the business there and then from business days I think there is a couple of fewer business days year over year, and you sort of how you think about that impacting comps in the first quarter.
Yes, great question, the weather situation hit hit pretty hard in Texas, we were not immune to that.
We.
It affected several of our operations quite significantly we had a few of them that we had to we had to temporarily evacuate.
And so that'll that'll work its way into our systems, obviously, there is insurance coverage and things like that the.
That will work on but yes. It was it was a little disruptive.
<unk>.
So there'll be a little bit of that in the in the first quarter that we expect will kind of be another headwind but.
We feel good about the way our leaders of responding we feel great about how the residents that are in our care of being treated and protected and.
And I think.
<unk>.
And everything related to being intact and enthused about recovery.
Just kind of exciting for the group.
And it's.
The battle kind of environment, and we're glad to be in the battle. So.
Great and then just last one for you.
Net interest and an update on our hospice ADC as it relates to length of stay.
Some of your peers in their earnings calls have recently called out some pressure there from from the Covid pressures in November December of frankly, just looking at your disclosures in your release. It was hard for me relative I didn't really see the frankly on the Europe you're on.
The <unk> ADC actually look.
Given the strong frankly relative to at least my projections show, but I know there was M&A and stuff on there. So just interested in your update there on whether what you were seeing on length of stay in hospital as it relates to the upgrades, yes, it's something we're watching really closely we've seen normal seasonality. The holidays are always a little interesting from the hospice.
ADC perspective, but.
John has a little more detail he can provide the tia.
I think what Youre seeing is us.
The fairly typical seasonality for us in the first quarter and Thats been impacted a little bit.
Higher than average.
Impact on length of stay in the fourth quarter. So we did see a little bit of impact the length of stay decline meaningfully, but I think what is what's telling us that our operators were able to adjust to that as they continue to find new referral sources and the ultimate impact on our actual ADC.
Haven't been as pronounced and kind of fits within our typical first quarter framework. So we've been we've been pleased with the way we've been able to navigate.
Debt.
Sort of decline relative related we believe to.
The second wave of Covid in the second half of the year.
Okay, great. Thanks, a lot.
Thanks Scott.
Thank you. Our next question comes from the line of Frank Morgan with RBC Capital. Your line is now open.
Good morning, most of my questions have been answered, but I guess going back to just sort of the the external growth outlook, obviously with the near term pressures on the <unk>.
Senior housing side does that really change your priority of M&A activity moving forward.
The more important to look at it the homecare and hospice side or the.
The way that this changes your interest in growing the senior housing Chad. Thanks.
Yeah, Great question, Frank Thanks for that.
Our capital allocation strategy remains quite similar to how it's been in the past.
But given the opportunity that's inherent in our existing buildings.
Just by recovering from the pandemic and of moving Occupancies backup to where we would expect them to be and beyond.
Just would remind listeners that we.
We were at an all time high in March right before the pandemic came in so we see a lot of upside in just building in our own portfolio. It's.
It's not that we won't do any acquisitions, but there is not of the if we follow our acquisition strategy and our disciplined approach the allocation of capital.
It's hard to see how our senior living.
Business will qualify for that right now.
So.
We grow from a position of strength and when we have headwinds like we face we confront those headwinds head on and we overcome them. So that'll be the order of the day four until we see significant consistent signs of strength in the senior living business and recovery there. So.
The the equation on the home health and hospice side is very much intact in strong markets strong leadership pipeline great momentum.
We will put we will put a lot of capital to work in the in that space.
That debt.
Consistently how we've made decisions and.
Had or had our momentum not been interrupted or disrupted during the pandemic, we probably would've put some capital to work in the senior living space during the second half of last year.
But we.
We don't want to lose sight of of our core sort of thoughts on capital allocation.
The grow where we have strength so.
I hope that helps.
Thank you very much strength.
Thank you.
No further questions at this time I would now like to turn the call back to Daniel Walker for closing remarks.
Thank you Sarah and we'd just like to thank everyone for joining US today, we look forward to the bright future in 2021 together. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
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