Q2 2021 Pennant Group Inc Earnings Call

August 10, 2021

[music].

Good day and thank you for standing by welcome to the Phoenix Group second quarter 'twenty 'twenty 1.

Earnings call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to price.

Star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like the hand the conference over to your speaker today Derek Bunker. Please go ahead.

Thank you Adrian.

Welcome everyone and thank you for joining us today here with me today I have Danny Walker, our CEO, Brent <unk> solely of our President and Jen Freeman our CFO.

Before we begin out of a few housekeeping matters.

All of the earnings press release, and 10-Q yesterday. This announcement is available on the Investor Relations section of our website at Www Dot pennant group of Dot com.

A replay of this call will also be available on our website until 5 P. M Mountain time on Friday September night 2021.

We want to remind anyone that may be listening to replay of this call that all statements are made as of today August 10, 2021 day.

The statements have not been nor will they be updated subsequent to today's call.

Any forward looking statements made today are based on management's current expectations assumptions and beliefs about the 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.

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 the new information future events changing.

Changing circumstances or for any other reason in addition, the pennant group Inc. Is the holding company with no direct operating assets employees of the revenues certain.

Certain of our independent subsidiaries collectively referred to of 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 pennant Group, Inc, and its consolidated subsidiaries.

All of our operating subsidiaries and the service center are operated by separate independent companies to have their own management employees and assets references herein to the consolidated the company.

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 the revenue of 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 the GAAP reports the.

GAAP to non-GAAP reconciliation is available in yesterday's press release.

And in our 10-Q with that ill turn the call over to Danny Walker, Our CEO, Danny Thank you Derek and welcome everyone to our second quarter 2021 earnings call yesterday, we reported our financial results for the second quarter. We are pleased with the progress made financially clinically and culturally while acting urgently to accelerate that.

Progress in the second half of the year and position us well for 2022 and beyond before I get into more detailed remarks, I want to express gratitude to the many members of our team employees.

Our shareholders stakeholders.

Partners in the community as we continue to navigate the challenges that are presented by this global pandemic, we're making good progress and there is a lot more improvement to come.

Our home health and Hospice segment continues to produce record results driven by strong adherence to our operating principles. We are pleased to report strong top and bottom line financial growth with segment adjusted revenue, increasing 27, 4% and segment adjusted EBITDA from operations, increasing 32.8.

Each over the prior year quarter, excluding agencies acquired in the previous 12 months, our home health Medicare admissions grew 41, 2%, while our total home health admissions grew 39, 6% both over the prior year quarter.

Our hospice admissions and average daily census were up 4.8% and 16% respectively over the prior year quarter.

Our clinical quality measures continued to improve as a reminder, while CMS has stated that they are not updating their home health or hospice compare tools in 2021 third party real time analytics revealed positive trends in our home health Star ratings with the number of agencies with 4 stars or higher improving to 93.

Percent on a real time basis.

And hospice quality composite trend.

The improving to 97% on a real time basis or 8% over the industry average.

We are confident that as we continue to produce quality care outcomes, we will better address the needs of our complex patient population and expand our growth opportunities at the local level.

Of these clinical and financial achievements in our home health and Hospice segment are particularly impressive trust press of as they came in the midst of of challenging labor environment and a record number of acquisitions in various stages of transition.

Over the past 18 months, notwithstanding the spinoff related distractions system integrations and global pandemic, our local operators of acquired or started 23 operations across the segment. While this record number of transactions contributed.

Do some choppiness to our quarterly results.

They also provide compelling long term growth opportunities across virtually every market in which we operate as we methodically continue to integrate these new pennant affiliated agencies and build the cultural clinical and financial foundation for sustained success.

We are well positioned to produce strong results in the second half of the year and into 2022.

And our senior living segment, we achieved the step forward in many areas of the business, resulting in increased segment revenue of $7 million and segment adjusted EBITDAR of $1 million each over the first quarter of 2021, which represented the pandemic.

Pandemic, driven low point in our results.

Our quarterly occupancy of 72, 7% was 60 basis points higher than our first quarter occupancy we are making progress on our ongoing efforts to deepen the leadership in our senior living communities strengthen our cluster centered operating model across the segment and build out marketing resident.

Care and labor management systems, and tools that will accelerate the ability of our local teams to drive further census growth and margin expansion.

The product the process of becoming the senior living of choice in each local market will take time to fully actualized.

Yet we are confident it will build a solid foundation for which we can generate substantial value for our long term stakeholders. While we knew the second quarter would have some lingering challenges from the sharp second wave of COVID-19 that impacted our first quarter results both segments of tremendous inherent value.

We know that we know we can unlock.

As we guided the last quarter.

While some of these pressures will persist in the second half of 2021, we expect the momentum we started to see in the second quarter to build and lay the foundation for an improved second half and even stronger 2022.

As a reminder, we are not quite 2 years removed from our spin off.

From the Ensign group during which time we have built.

Teams and infrastructure to support our public company functions transitioned nearly every major it accounting HR and payroll system onto our own platform successfully navigated the dynamics of PDGF improved our home health and hospice clinical quality scores and added roughly 2 dozen agencies.

All in the face of an unprecedented global pandemic, while we have been able to accomplish this through the adherence to the.

We have been able to accomplish all of this through the adherence to our core values and best practices that underpin our historical success and the success that we've watched our mentor and business partner Ensign achieve over many years. We're far ahead of where we were 2 years ago today, we have stronger leaders and clusters a deeper leadership.

Pipeline better quality measures more robust solutions, the stronger balance sheet, greater dry power powder and more favorable debt terms and importantly, as we continue to integrate these recent acquisitions and acquire more operations were compounding the dozens of compelling upside opportunities inherent.

Throughout the pennant group all of that said with all of that said, we're not satisfied with where we're at currently and we are acting with urgency to continue to recover from the pandemic effects in our senior living business and deliver on a stronger second half of the year and position ourselves to achieve even strong.

The results in 2022 and beyond without many of the distractions that have weighed on an occupied our time over the past 2 years with that.

Ask Derek to provide an update on our recent investment activity Eric.

Thanks, Danny during the second quarter and since we've welcomed into the pennant family.

2 home health and 2 home care agencies in southwest, Colorado, 1 home Health agency in Fort Worth, Texas, and a hospice agency in Sacramento, California. These.

These acquisitions had strong reputations in their local communities and represent key growth opportunities for these markets. We're thrilled to continue and amplify the legacies of the caregivers clinicians and staff that it provided quality care to these communities.

As Danny mentioned, we've acquired and onboard of nearly 2 dozen operations since the beginning of 2020.

Resenting approximately a quarter of our current home health and Hospice agency count the.

The short term noise in our results that sometimes occurs when we have periods of robust strategic growth as a consequence of our unique acquisition model you.

We don't have a typical corporate development team that runs of the deal process from source to close the handoff.

Instead, our acquisition and transition processes are ultimately led by the field leaders within an impacted market the support of partners and resources from sister operations in our service Center.

The significant advantages to this locally led investment model, including a broader deal pipeline as our leaders cultivate their own network of off market opportunities.

More thorough due diligence and a smoother onboarding and transition process because it is because of an embedded familiarity with the local health care community dynamics the.

The process also functions to develop more capable business leaders across the organization.

While this process can be a drag on results as field leaders temporarily direct some resources from existing to newly acquired operations.

Important to emphasize that each agency, we acquire multiplies, our short and long term growth opportunities, our culture and operating model attract talented leaders at the entrepreneurial experience the pills and the team the impact the lives of the staff patients residents families and community members.

Throughout our history as local teams drive each operation forward the resources in support of unique operating model.

<unk> been able to create significant organic growth year after year after year.

We are excited about these and all of our acquisitions.

Just for what they contribute to our results from the first year of 2 post closing of.

The inherent value that we believe will be realized over the next 10 of 20 years.

As we continue to experience double digit growth in most of our existing operation, even our most mature ones.

Overall, the pipeline for home health and hospice acquisitions remains strong and we.

We're confident as we work through the process of welcoming. These recently acquired operations into our organization and empower their local teams, we will have the capacity for even more growth opportunities in the future.

That I will hand, it over to Jennifer a review of the financials Jen. Thank.

Thank you Derek and good morning, everyone.

Detailed financial results for the 3 months ended June 32021 are contained in our 10-Q and press release filed yesterday.

For the 3 months ended June 32021 reported total GAAP revenue of <unk>.

$10.3 million.

The increase of $17.6 million or 19% over the prior year quarter.

GAAP diluted earnings per share of <unk>, <unk> and non-GAAP adjusted earnings per diluted share of <unk> 17.

The 54% improvement sequentially over the first quarter F 2021.

Note that our non-GAAP adjusted earnings per share results for the 3 months ended June 30th 2021 include the effect of all Covid related expenses and lost revenue as well as the benefit of the Medicare sequestration holiday.

Other key metrics included $43.8 million drawn on our revolving line of credit and $2.9 million cash on hand at quarter end.

1.1 times net debt to adjusted EBITDA and 198 times, if Medicare advanced payment has been paid back as of the quarter end.

Other pack recoupment of the advanced payments began in April 2021 on which we have repaid $9.4 million through August night.

21, and we expect to repay the remaining $18.6 million over time within the payback period.

Cash flow provided from operations at $2.6 million, excluding the impact of the automatic recoupment of advance payments and the impact of the final phase out at the request.

<unk> payment.

Yesterday in our press release, we reiterated our full year 2021 revenue guidance of $430 million to $440 million.

<unk> earnings per share guidance is <unk> 89 to 99 cents.

Per diluted share.

We are pleased with the momentum building in both segments that we believe will lead to a stronger second half of the year.

We know the ramp to achieve our full year guidance is steeper than our performance in the first half and despite the challenges we're facing on the labor.

And then integrating our recent acquisitions inherent opportunities within our portfolio to realize significant value is as compelling as ever.

We are proud of our local leaders and partners across the organization.

Providing extraordinary care to our patients and residents achieving qual.

Quality clinical outcomes and finding ways to grow during the challenging operating environment and with that I'll hand, it over to Brent to highlight a couple of our local leaders ex Gen. It's my pleasure to recognize a few leaders in our organization that are providing excellent care to their local communities, while driving strong finance.

And cultural outcomes at.

At Alpha home health and hospice in Everett, Washington administrators, Chris Betcher director of clinical services, Landy, Almond and director of business development George of Tungo are achieving exceptional results by building a culture focused on our core values, including customer second ownership and intelligent risk taking.

This team first invested in the right individuals that would accelerate the agencies growth trajectory.

And then methodically focus on producing quality of care outcomes and strategically investing in expanding the services offering available.

Available to the community.

Late last year. The team was awarded a certificate of need to provide hospice care to broaden the continuum of care they provide.

Which was which has accelerated the results from both lines of business. Meanwhile, the continued to score well clinically as their home health Star rating improved from 4 stars from the second quarter of 2022 of projected 5 star rating. According to real time data analytics, the investments and the right people culture and.

Providing quality clinical care of help them achieve revenue growth of 141% and EBIT growth of 219% both in the second quarter over the prior year quarter.

The results of Alpha home health and hospice are typical of what talented local leaders can achieve through the application of best practices in our operating model.

At Desert view of assisted living in Las Vegas, Nevada, Executive Director, Mike Trail Wellness director, Joe rank and marketing director, Charlie Charlie Wolf of successfully navigated the ups and downs of the pandemic, providing excellent care to the residents and families in the face of the challenging operating environment.

And his team of established a culture within desert view.

Focused on becoming the senior living community of choice within their market.

The focus is evidenced in growth in occupancy revenue and EBIT in.

In the second quarter of 2021 over the prior year quarter, despite the potential impact of COVID-19.

In addition, the team's influence extends beyond the desert view, because they provide resources and support to their sister operation from the market.

Our senior living segment.

We're grateful for the leadership of Mike, Joe and Charlie and many others like them throughout our organization that embody our core values and provide life changing service to our residents and patients with that I'll turn it back to Dani.

Thank you Brent and the.

And thank you Jen and Derek for your input.

With that Adrian can you. Please instruct the audience audience on the Q&A procedure.

As a reminder of you wish to ask a question. Please press star 1 so let's draw your question press the pound key please standby, while we compile the Q&A roster.

The first question comes from the line of Scott Fidel with Stephens.

Hi, Thanks.

Good afternoon, everyone.

First question just interested if you could maybe give us a little bit of a real time update in terms of what youre seeing with the Delta variant and with the recent uptick in the Covid activity.

How thats impacting I guess.

The 2 businesses that add just more broadly been impacted by Covid have been senior living in hospice, when we kick at the industry level. So.

The only interested in terms of what you are seeing more recently around around delta in those 2 business areas debt.

How that how that influences your thinking around the ramp to achieve.

The full year EPS guidance that you reiterated today.

Yes, Thanks Scott.

Great question.

We're watching it very closely.

It continues to affect mostly the unvaccinated population, we're really fortunate to have a high percentage of vaccination within our senior living.

<unk> in particular and we've seen.

Widespread of <unk>.

Reception to that amongst our employees as well.

The efforts continue and the.

And we are pretty optimistic that the.

We will be able to navigate through that even as it kind of affects the pockets of unvaccinated folks.

The.

On the hospice side.

The we actually are sequentially. Our census between Q1 of Q2, our ADC was down slightly.

But our length of stay has increased ever so slightly so we're in we're in the good spot there we've actually recovered on the hospice side through a variety of efforts by our local teams.

Finding other avenues to support members of the community that need appropriate hospice care.

So we where we stand right now is we're ahead of our all time high back in January before the.

Pre pandemic levels. So we are we're pleased with where we're at on the hospice front there has been some.

Some disruption there, but it's on our teams have been able to navigate through it quite well.

As it relates to the overall sort of progress of the Delta variant as it moves into the west and in other other places where we were a little bit more directly affected we feel like we're better prepared to go through something like that or the systems the processes. The the.

The PPE.

All of those kind of things are are there and we're ready to navigate it.

And then what we find is that our teams debt.

Our culture and our adherence to our core values has really helped.

On issues like caregiver burn out and things like that so we're feeling quite good about our ability to move forward, even with the delta variant kind of doing what it's doing.

<unk> achieved strong results from the second half.

More importantly, we feel really good about our positioning as we look to 2022.

And how things are stacking up as we look to continue to execute on our <unk>.

Long term growth strategy, that's been a part of how we've driven our results for many years so.

Anything to add.

Yeah, I'd, just say, we're kind of seeing a similar.

Census, uptick on the senior living side, we sort of hit debt.

What about the early part of the year and we've gradually picked up the the return to our.

Levels of pre pandemic, it's kind of a little slower than we'd hoped, but I think thats the.

A function of we're continuing to deal with with Covid and we've got.

But we've got we are seeing progress right and so at this point as we follow our normal processes and the systems that we've put into place over a year ago, we feel like we're in a good spot, but we're closely monitoring it.

Every single operation is handling it at the local level.

Okay.

Got it and.

The next question just wanted to follow up on and get an update on the some of the labor dynamics.

You did call out of challenging labor environment, which basically everyone. In healthcare is also experiencing at the same time it was encouraging to hear about the hospice ADC haven't recovered so nicely.

Already so just interested if maybe you can sort of drilling into the labor dynamics, a little bit more by the segments sort of call out.

Where youre seeing the most pressure that's still on the sell side and where you're seeing some of the green shoots in terms of what youre seeing around some of the labor initiatives as well.

Yes, Brent when you tackled Scott. Thanks. Good question I think what Youre seeing reported in some of the information that's coming out of is consistent with what we are experiencing are.

Senior living.

Communities of probably been the most affected in the group of the caregiver Devry group is the 1 that's been the hardest to replace.

And so thats on the senior living side, and then on the home health and hospice side. If these newer acquisitions right, where we oftentimes injected new leadership and we're trying to build out the culture.

What we pride ourselves on is becoming the provider of choice and the employer of choice in each of our markets and in those instances when we're still developing our reputation in the community, it's become a little bit harder to recruit and retain talent, we're making progress but those are really the 2 areas. We've seen the most significant.

Packed.

That being said, we have our stronger senior living providers of tended to weather the storm a little bit better than those that are really working through leadership changes et cetera. So we anticipate that these headwinds will last for quite some time, we're optimistic as we inject our culture right as we built the right leadership teams and we create the.

The best opportunities for employment in our markets that we can combat some of those challenges.

But it's certainly a real struggle for US right now in the moment, but we are making progress.

Got it and just 1 from 1 more from me and then I'll get back in queue.

Just on the home health trends.

That's where youre still seeing particularly really strong growth really across both both Medicare and non Medicare of of the different segments. Just wondering just on the non Medicare side of the particular, yet again really significant sequential revenue growth there.

Around 15% sequentially so.

Maybe just remind us of what the key drivers of the non Medicare.

Revenue growth in home health of bed and then how.

How much further run rate you see on these growth rates, which have remained held up better I would say than really anything else sort of sequentially.

Across the business. Thanks.

It takes care of that Scott, yes, so the home health non Medicare growth really is a byproduct of how we are engaging in the the whole post acute continuum.

Our approach from the beginning has been to lock arms with our skilled nursing partners, particularly at the Ensign group through our Ensign pennant care continuum.

And others in the community.

To develop really effective transition of care programs.

And then make sure that there's alignment in that post acute continuum on.

On the payer side of things so.

The natural growth of.

Non Medicare payers in the skilled nursing arena.

And elsewhere, but particularly in skilled nursing drives us to want to go help take care of those same patients. So there is continuity from the moment they leave the acute care setting all the way until they are fully rehab.

And so that's really kind of just reflective of the growth in our relationships.

How we handle of getting the right patient into the right care setting at the right time and.

We expect that that that growth is very sustainable.

We are just scratching the surface on these opportunities in some of the large markets, where we have a lot of overlap like San Diego.

If phoenix and the debt of whole Phoenix and Tucson, both of the Dallas Fort worth market is another.

Key areas. So you've noticed that a lot of our growth on the home health and hospice acquisition side actually dovetails with those.

Those markets as well.

And it's mostly just us responding to the demand for high quality clinical delivery systems that can the can interact with on a dynamic basis with other care settings in a very effective way so that.

The patients can flow easily from the acute setting into a skilled nursing setting for an optimal length of time.

At an optimal cost for everybody involved and then move into the home setting.

For the complete their recovery process. So.

We.

We feel like the.

When you talk about our growth opportunities Derek mentioned this in his part that we continue to see acquisitions that we brought into the family.

4 of 567 years ago continue to deliver that kind of.

Return, an organic growth rate because of this this process of.

Building at the local level, highlighting the kind of things that Brent talked about in his piece so.

Really it's just a function of are the relationships that we are nurturing and have been for many many years and we expect that the volume that goes through those relationships will continue to increase.

As we are hyper responsive to the acute care partners that we have and and we are building. These transitional care systems, so that they they really work for.

Non Medicare Payors in the managed care world as well so.

Alright, okay. Thank you.

Scott.

Again, if you would like to ask a question press Star 1. The next question comes from the line of Frank Morgan with RBC capital.

Good morning.

To go back to the hospice segment in the sequential results obviously, the the AD midst, we're down but ADC down not nearly as much. So maybe if you could give us a little quarter, a little more color around what happened during the quarter with with with the length of stay.

Actually with both with the admission trends over the months of the quarter and then really how did you exit the quarter in hospice.

From from both the length of stay in a in.

And an emission standpoint, and then maybe also median length of stay.

Yes, so on the length of stay were actually up about 4.3%.

Sequentially from quarter, 1 from quarter end of quarter 2 on the length of stay were up about 4.3% then on the admissions side, we're actually up about it.

If you look at it over the organic.

Looking at it organically.

The admissions are up about 23% and Q2 of 'twenty to Q2 'twenty..1 we did see admissions rise from Q1 to Q2 as well.

And then yeah.

In the ADC. The ADC was just down like the 0.5% Q of our key lately with the ADC during the quarter was it was pretty steady so.

So is that 23, when we left the quarter 1 and.

In quarter, 2 we ended the quarter of 22.96 of that quarter.

During the quarter of its pretty steady kind of.

Just that slight just a slight decline, but it didn't.

Debt beyond that until it was it pretty steady and then now what we're seeing of that where are <unk>.

The ADC is is significantly.

Higher than.

That it was in the first quarter. So we've the recovered that hospice.

We're well over where we were out of January.

For Q1, so I think we're.

We're really pleased with the census growth and what our operators have been able to do it with our hospice growth.

Got you so if you're if you're higher than Q1 and that means you are higher in Q2, So you're all of your momentum coming out of the quarter looks really good.

Patrick any change in.

That the growth in that improvement in the census is it more admissions or is it the.

The continued length of stay growth and are you seeing any differences in referral patterns.

I think.

It's mostly admissions.

With that <unk>.

First price.

And then with average length of stay where I think we're pretty much steady where we were as of the teeth tail.

Yeah, and as far as referral pattern strength.

The dynamic has been.

Interesting right as hospitals have had to think about okay.

And we do these elective surgery, and we not and what where do we need to be positioned from a bed standpoint and so.

Theres been a little bit of ebb and flow over the last.

6 to 12 months for sure on that but but generally speaking and then that flows into.

Residents that are in senior living and skilled nursing and how.

Those residents get to that place, where theres a hospice conversation that's appropriate.

And I would say that theres not been a dramatic change in the referral patterns and our experience as much as just theres been a change in where patients get to that place.

Where theyre, having the hospice conversation and there has been.

A little bit of a lull in the senior housing when when things went.

A little haywire last year and a lot of that normalcy is starting to come back.

And then youre seeing a little bit on the hospital side.

Has patients kind of get to that crossroads, where they're sending them and when they are sending them. There. We've just been prepared and our teams have been really responsive to that.

Obviously of census across the senior living.

Industry has declined there has been a little bit of a lull in those referrals.

Just simply on a head count basis so.

It's just the dynamic environment I don't see any permanent changes in how those conversations are coming to ahead of.

Sometimes if the health care.

Provider is experiencing a little bit of an emergency.

Other its new Covid cases, or a surge of whatever it might be.

Some of those conversations can get put off a little bit.

But the but our approach has been to just be very responsive to all of all of those needs and make sure that we're we're hearing I think are our census in the.

And success is attributable to that approach.

Got you.

The question on the.

You called out the startups of these.

Assets you bought over the last 18 months you've brought on board could you give us any more color about sort of revenue contribution or where they are from a margin standpoint.

Relative to where you think they should be and just curious is there are you seeing anything different in this group of assets and you are more stabilized assets from just the structural standpoint.

Good question. Thank you for asking the so generally speaking I don't know if they are there.

Provide a little more color than I might but generally speaking each of these operations falls right within our target.

Acquisition opportunities they are hell.

Healthy.

Businesses that are smaller that need more resources, maybe need additional leadership.

And with <unk> and other kinds of capital to support their expansion.

The present really good opportunities for us.

We generally from a margin standpoint, the year in which we acquire of business there the often operate in single digit.

Even sort of low single digits.

And then within the first year to 2 years as they get integrated into our systems, our data analytics processes. They get support from other like situated hospice or home health programs that can help them share of the burden, maybe even share some staffing.

Instances, we see margin expansion that the moves fairly quickly into the.

Mid teens and then from there.

Inches upward as they capture more volume from the marketplace and the leverage some of their fixed overhead costs. So.

Derek what would you add there I would just add a couple of thing I think of them to the revenue question.

Inc.

Like I mentioned, the number of operations about a quarter of our overall count and the revenue contribution is probably proportionately a little bit less than that just given the dynamics there of some of them being startups.

Our typical acquisition being.

Sometimes the smaller agency that just has a great clinical or of reputation within the community and the team in place and we're able to.

Take the legacy that they built on the.

Part of the resources and really elevate those local leadership teams and free them up to run the.

The other kind of point I would just emphasize and I kind of said this in their prepared remarks is just.

Because of the some of the the dynamics of the type of acquisitions that we typically do namely the size.

So much of our growth occurs not just in the first year or 2 or 3 years, we do like to see it right out of the gate of course, we see typically a pretty dramatic improvement in the first 2 years, but.

Even in years, 3 and beyond even at some of our acquisitions that we had previous to 2014 are still growing at double digit rates.

Partly because of.

Of the types of acquisitions that we've targeted but more importantly, because of our operating model because of the opportunity for local leaders to drive the business forward to find ways to grow to expand their services to recruit new talent to be creative and creating those opportunities for others.

And so that's what's so exciting about is our recent acquisition is not just what they've been contributing so far but as you look at it.

And you kind of compare it to our track record of all of our acquisitions over the past 10, or so years of modeling. These 23 out it's pretty exciting stuff.

But yes, I mean, the margin compression is very real when you have this volume there.

We view it as pure investment and it's been our playbook from the created.

Of the whole story and we've done this many years in a row.

And we just are you really excited about the the incremental upside that the our natural processes with this many operations it.

It will yield for our long term.

Investors.

Got you and I know you called out of labor the hardest place to find labor right now is in the in the senior housing area of the caregiver level there, but I think you also called out that you are getting getting the right people in some of these recent home health care and hospice acquisition. So.

What is that process like what is it that youre looking for or that you don't have when you buy these in.

Just any color there and I'll hop off thanks.

Great question, Frank and we absolutely that's where we have an established team that's living our culture that embraces our core values that understands the cluster model in the field driven decision, making approach to the local health care market.

That becomes a very attractive place for talented people marketing professionals clinical leaders.

Business operators.

Plus people that are expert in billing and collections.

That are experts in intake and transitional care.

All of those physical therapists.

Speech therapists occupational therapist.

Our ends.

And all of the supporting cast those those folks typically are scattered throughout the market. When we enter it and then as they get a sense that there is of this unique place where they can work have access to the resources of a large.

Corporate entity, but then they have the flexibility that they would have in of mom and pop that might not have all of the the.

Systems, some of the processes and the capital to go.

Drive year over year over year.

The success, it's really all of those types of positions. So each of these new acquisitions when we when the counter them. They have some mix of those there's obviously something that's driven their success.

And usually we're adding 1 or 2 or 3 or 4 of those parts that I just mentioned.

But then it's an ongoing process so that once once you start with the right team.

The new bolt on additional key professionals from the marketplace.

Then the volume comes over and then we can support more leaders coming.

From other places in the marketplace and with them it continues to grow and that.

Of that dynamic in the current labor environment has just been a little bit delayed I wouldnt say its debt.

Were hamstrung at really at all from that but there have been there hasn't been a little bit of.

In the marketplace people pausing and kind of waiting to see what whats going to shake out with some of the unknowns, but but we feel like we're through most of that with our new acquisitions and.

And then really the.

The short answer to this is that our bread and butter is exactly what we're doing and we're really excited about these and how they're shaping up for us, but do you have anything to add on that yes, I think the other part of that is the influence of.

The market partners cluster partners and outside of <unk>.

Leadership teams that can come in and provide support.

Because of the nature of our current environment, there's been a little bit more of a.

Slog to get to be able to have access to our new acquisitions and so that's created some additional challenge with the nice thing though is.

We feel like we're through much of that as well right and so to be able to have culture celebrations and to be able to have 1 on 1 interactions with partners that have done this before and helped to build and grow strong teams.

As of the types of interactions with these newer.

Acquisitions that were slowed a little bit over the last year and so as we return back to a little bit more of normalcy.

Seeing some better response.

Sponsor of the new acquisitions as well and our typical practice is we take our new acquisition in Sacramento for example.

And the team is really strong clinically they've got.

Great reputation, but they've had some natural constraints based on the balance sheet.

Of the team that the.

Previous operator, and the preferences and per <unk>.

Focus is there we normally are able to bring a <unk>.

Jason operations, who have been through an acquisition with us or joined us and they understand our culture and we can sit down with them and immediately connect them.

2 the stories and help them adjust out of an abundance of caution and some of that was done remotely some of it wasn't able to be done in the same way and that's the disruption we're referring to.

But we're through it and really looking forward to setting these teams free and watching what they achieve over the coming years.

Thank you.

Again, if you would like to ask a question press star 1.

Okay.

This concludes.

I will now turn the call back over to the speakers for closing remarks.

Thank you Adrian and I just wanted to thank everybody again for joining us today and thank you to Scott and Frank for your thoughtful questions and again. Thank you to all of our stakeholders, we understand that we're operating through a dynamic environment and and we appreciate the trust that you've placed in us.

And we look forward to honoring that trust as we continue to improve the second quarter and we set the organization up for very healthy 2022.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by.

Welcome to the pennant group second quarter 'twenty 'twenty 1.

Earnings call at.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to price.

Star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Derek Bunker. Please go ahead.

Thank you Adrian.

Welcome everyone and thank you for joining us today.

With me today I have Danny Walker, our CEO, Brian Garrett solely of our President and Jen Freeman our CFO.

Before we begin out of a few housekeeping matters.

All of the earnings press release from 10-Q yesterday. This announcement is available on the Investor Relations section of our website Www Dot pennant group Dot com.

The replay of this call will also be available on our website until 5 P. M Mountain time on Friday September 9.2021.

We want to remind anyone that may be listening to replay of this call that all statements are made as of today August 10.2020.

1 of.

The statements have not been nor will they be updated subsequent of today's call.

Any forward looking statements made today are based on managements.

Current expectations assumptions and beliefs about the business and the environment in which we operate.

<unk> are subject to risks and uncertainties that could cause our actual results.

Really 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 the results of the new information future events.

Changing circumstances or for any of the reason. In addition, the pennant Group Inc. Is the holding company with no direct operating assets employees of revenues certain of our independent subsidiaries collectively referred to as the service Center.

The words Tennant company, we our and US refer to the pennant Group, Inc. Net consolidated subsidiaries.

All of our operating subsidiaries and the service center are operated by a separate independent companies to have their own management employees and assets references herein to the consolidated the company.

Certain activities as well as the use of the terms, we us an hour 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 in place of revenue without any of the subsidiaries are operated by the pennant group.

Also we supplement our GAAP reporting with non-GAAP metrics on the year 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 the GAAP reports the.

GAAP to non-GAAP reconciliation is available in yesterday's press release.

And in our 10-Q with that ill turn the call over to Danny Walker, Our CEO, Danny Thank you Derek and welcome everyone to our second quarter of 2021 earnings call yesterday, we reported our financial results for the second quarter. We are pleased with the progress made financially clinically and culturally while acting urgently to accelerate that.

Progress in the second half of the year and position us well for 2022 and beyond before I get into more detailed remarks, I want to express gratitude to the many members of our team employees.

Our shareholders stakeholders.

The partners in the community as we continue to navigate the challenges that are presented by this global pandemic, we're making good progress and there is a lot more improvement to come.

Our hospice admissions and average daily census were up 4.8% and 16% respectively over the prior year quarter.

Percent on a real time basis.

And hospice quality composite trend.

Improving the 97% on a real time basis or 8% over the industry average.

We are confident that as we continue to produce quality care outcomes, we will better address the needs of our complex patient population and expand our growth opportunities at the local level.

These clinical and financial achievements in our home health and hospice segment are particularly impressive dress pressed of as they came in the midst of of challenging labor environment and a record number of acquisitions in various stages of transition.

Do some choppiness to our quarterly results.

We are well positioned to produce strong results in the second half of the year and into 2022.

Pandemic, driven low point in our results.

Care and labor management systems, and tools that will accelerate the ability of our local teams to drive further census growth and margin expansion.

The product from the process of becoming the senior living of choice in each local market will take time to fully actualized.

And we know that we know we can unlock as we guided the last quarter.

As a reminder, we are not quite 2 years removed from our spin off.

From the Ensign group during which time we have built.

All in the face of an unprecedented global pandemic, while we have been able to accomplish this through the adherence to the.

We have been able to accomplish all of this through the adherence to our core values and best practices that underpin our historical success and the success that we've watched our mentor and business partner Ensign achieve over many years. We are far ahead of where we were 2 years ago today, we have stronger leaders and clusters a deeper leadership.

Pipeline better quality measures more robust solutions, a stronger balance sheet, greater dry power powder and more favorable debt terms and importantly, as we continue to integrate these recent acquisitions and acquire more operations were compounding the dozens of compelling upside opportunities inherent.

The results in 2022 and beyond without many of the distractions that have weighed on an occupied our time over the past 2 years with that.

Ask Derek to provide an update on our recent investment activity Eric.

Thanks, Danny during the second quarter and since we've welcomed into the pennant family.

Home health and 2 home care agencies in southwest, Colorado, 1 home Health agency in Fort Worth, Texas, and the Hospice agency in Sacramento, California. These.

As Danny mentioned, we have acquired and onboard of nearly 2 dozen operations since the beginning of 2020.

Representing approximately a quarter of our current home health and Hospice agency count.

The short term noise in our results that sometimes occurs when we have periods of robust strategic growth as a consequence of our unique acquisition model we.

We don't have a typical corporate development team that runs of the deal process from source to close to handle the.

Instead, our acquisition and transition processes are ultimately led the field leaders within an impacted market the support of partners and resources from sister operations in our service Center.

Significant advantages to this locally led investment model, including a broader deal pipeline as our leaders cultivate their own network of off market opportunities.

Our thorough due diligence and a smoother onboarding and transition process because of the.

Cause of an embedded familiarity with the local healthcare community dynamics the.

The process also functions to develop more capable business leaders across the organization.

While this process can be a drag on results as field leaders temporarily direct some resources from existing and newly acquired operations.

Important to emphasize that each agency, we acquire multiplies, our short and long term growth opportunities, our culture and operating model attract talented leaders at the entrepreneurial experience to build and retain the impact the lives of their staff patients residents of families and community members.

Throughout our history as local teams drive each operation forward through the resources and support unique operating model.

<unk> been able to create significant organic growth year after year after year.

We are excited about these and all of our acquisitions.

Adjusted for what they contribute to our results in the first year of 2 post closing of.

The inherent value that we believe will be realized over the next 10 of 20 years.

As we continue to experience double digit growth in most of our existing operation, even our most mature ones.

Overall, the pipeline for home health and hospice acquisitions remains strong and we.

Thank you Derek and good morning, everyone.

Detailed financial results for the 3 months ended June 30th 2021 are contained in our 10-Q and press release filed yesterday and the.

3 months ended June 32021, we reported total GAAP revenue of $110.3 million.

The increase of $17.6 million or 19% over the prior year quarter.

GAAP diluted earnings per share of <unk>, <unk> and non-GAAP adjusted earnings per diluted share of <unk> 17.

The 54% improvement sequentially over the first quarter of 2021.

Other key metrics included $43.8 million drawn on our revolving line of credit and $2.9 million cash on hand at quarter end.

1.1 times net debt to adjusted EBITDA of 198 times of Medicare advanced payment has been paid back as of the quarter end.

Other pack recoupment of the advanced payments the began in April 2021 of which we have repaid $9.4 million through August 19, 2021, and we expect to repay the remaining $18.6 million over time within the payback period.

Cash flow provided from operations at $2.6 million, excluding the impact of the automatic element of it.

The payments and the impact of the final phase out at the request of correctly anticipated payment.

Yesterday in our press release, we reiterated our full year 2021 revenue guidance of $430 million to $440 million and adjusted earnings per share guidance is <unk> 89 to 99 cents.

Per diluted share.

We are pleased with the momentum building in both segments that we believe will lead to a stronger second half of the year.

You know the ramp to achieve our full year guidance is steeper than our performance in the first half.

The challenges we're facing on the labor.

And then integrating our recent acquisitions inherent opportunities within our portfolio to realize significant value is as compelling as ever.

We are proud of our local leaders and partners across the organization for providing extraordinary care to our patients and residents achieving quality clinical outcomes and finding ways to grow during the challenging operating environment and with that I'll hand, it over to Brent to highlight a couple of our local leaders.

Thanks, Jen it's my pleasure to recognize a few leaders in our organization that are providing excellent care to their local communities, while driving strong financial and cultural outcomes at.

The Alpha home health and hospice in Everett, Washington Administrator, Chris Betcher director of clinical services, Landy, Almond and director of business development George of Tango are achieving exceptional results by building a culture focused on our core values, including customer second ownership and intelligent risk taking.

This team first invested in the right individuals that would accelerate the agencies growth trajectory and then methodically focus on producing quality of care outcomes and strategically investing in expanding the services offering available.

Available to the community.

Late last year. The team was awarded a certificate of need to provide hospice care to broaden the continuum of care, they provide which was which has accelerated the results in both lines of business. Meanwhile, the continued to score well clinically as their home health Star rating improved from 4 stars in the second quarter of 2002.

2 of projected 5 star rating according to real time data analytics, the investments and the right people culture, and providing quality of clinical care of helped them achieve revenue growth of 141% and EBIT growth of 219% both in the second quarter over the prior year quarter.

The results of Alpha of home health and hospice are typical of what talented local leaders can achieve through the application of best practices in our operating model.

And his team of established a culture within desert view.

Focused on becoming the senior living community of choice within their market.

The focus is evidenced in growth in occupancy revenue and EBIT in the second quarter of 2021 over the prior year quarter. Despite the potential impact of COVID-19.

In addition, the team's influence extends beyond the desert view, because they provide resources and support to their sister operation from the market and across our senior living segment.

Thank you Brent and the.

Thank you Jen and Derek for your input.

With that Adrian can you. Please instruct the audience audience on the Q&A procedure.

As a reminder, if you wish to ask a question. Please press star 1 so let's all of your question press the pound key please standby, while we compile the Q&A roster.

The first question comes from the line of Scott Fidel with Stephens.

Hi, Thanks.

Good afternoon, everyone.

The first question just interested if you could maybe give us a little bit of a real time update in terms of what youre seeing with the Gulf of Ariane and with the recent uptick in the Covid activity and how that's impacting.

The 2 businesses that add just more broadly been impacted by Covid have been senior living in hospice when we take at the industry level, So, particularly interested in terms of what youre seeing more recently around non delta in those 2 beds necessarily as debt.

How that how that influences your thinking around the ramp to achieve of.

Full year EPS guidance that you reiterated today.

Thanks Scott.

Great question.

So we're watching it very closely it's it continues to affect mostly the unvaccinated population, we're really fortunate to have a high percentage of vaccination within our senior living.

Immunities in particular and we've seen.

Widespread.

Reception to that amongst our employees as well.

Efforts continue and.

And we are pretty optimistic that the.

Net will be able to navigate through that even as it kind of affects the pockets of unvaccinated folks.

The.

On the hospice side.

The we actually are sequentially our census between Q1 and Q2, our ADC was down slightly.

But our length of stay has increased ever so slightly so we're in a good spot there we've actually recovered on the hospice side through a variety of efforts by our local teams.

Finding other avenues to support members of the community that need appropriate hospice care.

So we where we stand right now is we're ahead of of our all time high back in January before the.

Pre pandemic levels. So we are we're pleased with where we're at on the hospice front there has been some.

Some disruption there, but it's that our teams have been able to navigate through it quite well.

As it relates to the overall sort of progress of the Delta variant as it moves into the west and in other other places where we were a little bit more indirectly affected we feel like we're better prepared to go through something like that or the systems the processes. The the PPE.

All of those kinds of things are are there and we're ready to navigate it.

And then what we find is that our teams debt.

Our culture and our adherence to our core values has really helped.

On issues like caregiver burn out and things like that so we're feeling quite good about our ability to move forward, even with the Delta variant kind of doing what it's doing and achieved strong results from the second half.

More importantly, we feel really good about our positioning as we look to 2022.

And how things are stacking up as we look to continue to execute on our.

Long term growth strategy, that's been a part of of how we've driven our results for many years. So.

Anything to add.

Yes, I would just say, we're kind of staying of similar.

Sensitive uptick on the senior living side, we sort of hit that we bottomed out of the early part of the year and we gradually picked up the the return to our.

Levels pre pandemic.

A little slower than we'd hoped, but I think thats the.

A function of we're continuing to deal with Covid and we've got.

But we've got we are seeing progress right and so at this point as we follow our normal processes and the systems that we put into place over a year ago, we feel like we're in a good spot, but we're closely monitoring it and every single operation as the handling it at the local level.

Okay.

Got it.

The next question just wanted to follow up on debt and update on the some of the labor dynamics.

So just interested if maybe you can sort of drilling into the labor dynamics, a little bit more by the segments of sort of call out.

Where youre seeing the most pressure that's still on the sell side and where you're seeing some of that the green shoots in terms of what youre seeing out some of the labor initiatives as well.

Yes, Brent 1 of you tackle the yes, Scott. Thanks. Good question I think what Youre seeing reported in some of the information that's coming out of is consistent with what we are experiencing at our senior living.

Communities of probably been the most affected in the group of the caregiver era group is the 1 that's been the hardest to replace.

And so thats on the senior living side, and then on the home health and hospice side ex these newer acquisitions right, where we oftentimes injected new leadership and we're trying to build out the culture.

What we pride ourselves of is becoming the provider of choice and the employer of choice in each of our markets and in those instances when we're still developing our reputation in the community, it's become a little bit harder to recruit and retain talent, we're making progress but those are really the 2 areas. We've seen the most significant.

Packed.

That being said, we have our stronger senior living providers of tended to weather the storm a little bit better than those that are really working through leadership changes et cetera. So we anticipate that these headwinds will last for quite some time, we are optimistic as we inject our culture right as we build the right leadership teams and we create.

The best opportunities for employment in our markets debt.

The we can combat some of those challenges.

But it's certainly a real struggle for US right now in the moment, but we are making progress.

Got it.

Just 1 from 1 more from me and then I'll get back in queue.

Just on the home health trends.

The next where youre still seeing particularly strong growth really across the board, both Medicare and non Medicare of of the different segments. Just wondering just on the non Medicare side of particular yet.

Again really significant sequential revenue growth there.

Around 15% sequentially so.

Just remind us of what the key drivers of the non Medicare.

Revenue growth in home health of debt and then how.

How much further run rate you see on the.

These growth rates, which have remained held up better I would say than really anything else sort of sequentially.

Across the business.

Yeah. Thanks, Thanks, Sara that Scott.

Yes, so the home health non Medicare growth really is a byproduct of how we are engaging in the the whole post acute continuum.

Our approach from the beginning has been to lock arms with our skilled nursing partners, particularly at the Ensign group through our Ensign pennant care continuum.

And others in the community.

Do.

Develop really effective transition of care programs.

And then make sure that there is alignment in that post acute continuum.

On the payer side of things so.

The natural growth of.

Non Medicare payers in the skilled nursing arena.

And so that's really kind of just reflective of the growth in our relationships.

How we handle of getting the right patient into the right care setting at the right time and.

We expect that that that growth is very sustainable.

We are just scratching the surface on these opportunities in some of the large markets, where we have a lot of overlap like San Diego.

If phoenix and the debt of whole Phoenix and Tucson, both of the Dallas Fort worth market is another.

Key area, so you've noticed that a lot of our growth on the home health and hospice acquisition side actually dovetails with those those those markets as well.

And it's mostly just us responding to the demand for high quality clinical delivery systems that can that can interact with on a dynamic basis with other care settings in a very effective way so that.

The patients can flow easily from the acute setting into a skilled nursing setting for an optimal length of time.

At an optimal cost for everybody involved and then move into the home setting.

For the complete their recovery process. So.

We.

We feel like the.

When you talk about our growth opportunities Derek mentioned this in his part that we continue to see acquisitions that we brought into the family.

4 of 567 years ago continue to deliver that kind of.

Return, an organic growth rate because of this this process of.

Building at the local level, highlighting the kind of things that Brent talked about in his piece so.

Really it's just the function of our the relationships that we are nurturing and have been for many many years and we expect that the volume that goes through those relationships will continue to increase.

As we are hyper responsive to the acute care partners that we have and and we are building. These transitional care systems, so that they they really work for.

Non Medicare Payors in the managed care world as well so.

Alright, okay. Thank you.

Scott.

Again, if you would like to ask a question Star 1. The next question comes from the line of Frank Morgan with RBC capital.

Good morning.

To go back to the hospice segment in the sequential results obviously, the the add minutes were down, but <unk> ADC down not nearly as much. So maybe if you could give us a little quarter, a little more color around what happened during the quarter with with with the length of stay.

Actually with both with the admission trends over the months of the quarter and then really how did you exit the quarter in hospice.

From from both the length of stay in a.

And an emission standpoint, and then the maybe also median length of stay.

Yes, so on the length of stay were actually up about 4.3%.

Sequentially from quarter, 1 cash from quarter, 1 day quarter 2 on the length of stay were up about 4.3% then on the admissions side, we're actually up about it.

If you look at it over the <unk>.

Ganic.

Looking at it organically.

The admissions are up about 23% and Q2 of 'twenty. The Q2 of 21, we did see admissions rise from Q1 to Q2 as well.

Then in the <unk>.

D C. The ADC was just down like the 0.5% Q of our key lately with the ADC during the quarter was it was pretty steady.

So is that 23, when we left the quarter 1 and.

Quarter, 2 we ended the quarter of 22.96 of the quarter Gary in the quarter of that's pretty steady.

Just kind of just that slight just a slight decline, but it didn't.

Beyond that until it was it pretty steady and then now what we're seeing is that we're are.

ADC is is significantly higher than the.

Is that it was in the first quarter. So we've the recovered that hospice.

Where we're at.

Well over where we were out of January.

For Q1, so I think we're now we're really pleased with the census growth and what our operators have been able to deal with with our hospice growth got.

Got you so if you're if you're higher than Q1 of that means you're higher than Q2, So you're all of your momentum coming out of the quarter looks really good.

Patrick.

The change in.

That the growth in net improvement in the census of is it more admissions or is it the.

Continued length of stay growth and are you seeing any differences in referral patterns.

I think go ahead of.

It's mostly admissions.

With that.

The price.

And then with average length of stay where I think we're pretty much steady where we were as of Keith.

<unk> sales.

Yeah, and as far as referral pattern strength.

The dynamic has been.

Interesting right as hospitals have had to think about okay.

We do these elective surgery is can we not and what where do we need to be positioned from a bed standpoint and so.

Theres been a little bit of ebb and flow over the last 6 to 12 months for sure on that but the.

Generally speaking and then that flows into <unk>.

Residents that are in senior living and skilled nursing and how the.

Those residents get to that place, where theres a hospice conversation that's appropriate.

And I would say that theres not been a dramatic change in the referral patterns and our experience as much as just theres been a change in in where patients get to that place.

Where theyre, having the hospice conversation and there has been.

A little bit of a lull in the senior housing when when things went.

A little haywire last year and a lot of that normalcy is starting to come back.

And then youre seeing a little bit on the hospital side.

<unk> has patients kind of get to that crossroads, where theyre, sending them and when they are sending them. There. We've just been prepared and our teams have been really responsive to that.

Obviously of census across the senior living industry.

The industry has declined there has been a little bit of a lull in those referrals.

Simply on a head count basis so.

It's just the dynamic environment I don't see any permanent changes in how those conversations are coming to ahead sometimes.

Sometimes if the health care provider is experiencing a little bit of an emergency whether its new COVID-19 cases, or a surge whatever it might be.

Some of those conversations can get put off a little bit.

But the but our approach has been to just be very responsive to all of all of those needs and make sure that we're we're here and I think our our census in and success is attributable to that approach.

Got Ya amount of the <unk>.

On the you called out the.

The startup of these.

Assets you bought over the last 18 months you've brought on board could you give us any more color about sort of revenue contribution or where they are from a margin standpoint.

Relative to where you think they should be and just curious is there are you seeing anything different in this group of assets and you are more stabilized assets from just a structural standpoint.

Good question. Thank you for asking yes, so generally speaking I don't know if there <unk>.

Provide a little more color than I might but generally speaking each of these operations falls right within our target <unk>.

Acquisition opportunities they are.

The.

Businesses that are smaller that need more resources, maybe need additional leadership bandwidth and and other kinds of capital to support their expansion.

The present really good opportunities for us.

Generally from a margin standpoint, the <unk>.

Year in which we acquire of business there they often operate in single digit.

Given sort of low single digits.

Instances, we see margin expansion that debt moves fairly quickly into the.

Sure.

Mid teens and then from there.

Inches upward as they capture more volume from the marketplace and the leverage some of their fixed overhead costs.

Derek what would you add there I would just add a couple of thing I think to the revenue question.

<unk>.

Like I mentioned did number of operations is about a quarter of our overall count and the revenue contribution is probably the proportionately a little bit less than that just given the dynamics there are some of them being startups.

Our typical acquisition being.

Sometimes the smaller agency that just has a great clinical our reputation within the community and the team in place and we're able to.

Take the legacy that they built the.

Part of the resources and really elevate those local leadership teams and free them up to run the.

The other kind of point I would just emphasize and I kind of said this in their prepared remarks is just because of the some of the the dynamics of the type of acquisitions that we typically do namely the size.

Even in years, 3 and beyond even at some of our acquisitions that we had previous to 2014 are still growing at double digit rates.

Partly because of.

Of the types of acquisitions that we've targeted but more importantly, because of operating model because of the opportunity for local leaders to drive the business forward to find ways to grow to expand their services to recruiting new talent to be creative and creating those opportunities for others.

And so that's what's so exciting about is our recent acquisition is not just what they have been contributing so far but.

As you look at it.

And you kind of compare it to our track record of all of our acquisitions over the past 10, or so years and modeling. These 23 out it's pretty exciting stuff.

But yes, I mean, the margin compression is very real when you have this volume there.

We view it as pure investment and it's been our playbook from that created.

Of the whole story and we've done this many years in a row.

And we just are you really excited about the incremental upside that debt.

Natural processes with this many operations will.

Will yield for our long term.

<unk>.

Got you and I know you called out of labor the hardest place to find labor right now is in the in the senior housing area of the caregiver level there, but I think you also called out of that you're getting getting the right people in some of these recent home health care and hospice acquisition. So.

What is that process like what is it that you are looking for or that you don't have when you buy these and just any color there and all of our.

Great question, Greg and we absolutely net that's where we have an established team that's living our culture that embraces our core values that understands the cluster model and a field driven decision, making approach to the local health care market.

That becomes a very attractive place for talented people marketing professionals clinical leaders.

Business operators plus people that are expert in billing and collections.

That are experts in intake 10 transitional care.

All of those physical therapist.

Speech therapists occupational therapists.

Our ends.

The corporate entity, but then they have the flexibility that they would have in of mom and pop that might not have all of the the systems and the processes and the capital to go.

Drive year over year over year.

Success, it's really all of those types of physicians. So each of these new acquisitions when we when accounts of them. They have some mix of those there is obviously something that's driven their success.

And usually we're adding.

1 or 2 or 3 or 4 of those parts that I just mentioned.

But then it's an ongoing process so that once once you start with the right team from <unk>.

Bolt on additional key professionals from the marketplace.

The than the volume comes over and then we can support more leaders coming.

From other places in the marketplace and with them it continues to grow in and of that.

That dynamic in the current labor environment has just been a little bit delayed I Wouldnt say that were hamstrung at really at all from that but there have been there hasnt been a little bit of.

In the marketplace people pausing and kind of waiting to see what whats going to shake out with some of the unknowns, but but we feel like we're through most of that with our new acquisitions and.

And when we.

Really the.

The short answer to this is that our bread and butter is exactly what we're doing and we're really excited about these and how they are shaping up for US and then do you have anything to add on that yes, I think the other part of that is the influence of.

Market partners cluster partners and outside.

Leadership teams that can come in and provide support in there just because of the nature of our current environment, there's been a little bit more of.

Slog to get to be able to have access to our new acquisitions and so that's created some additional challenge with the nice thing though is we.

We feel like we're through much of that as well right and so to be able to have culture celebrations and to be able to have 1 on 1 of interactions with partners that have done this before and helps to build and grow strong teams.

As of the types of interactions with these newer ad.

Acquisitions that we have just slowed a little bit over the last year and so as we return back to a little bit more of normalcy.

Seeing some better response in the new acquisitions as well and our typical practice is we take our new acquisition in Sacramento for example, and the team is really strong clinically they've got.

Great reputation, but <unk> had some natural constraints based on the balance sheet.

Of the team that the.

Previous operator, and the references and per <unk>.

Is there we normally are able to bring adjacent operations, who have been through an acquisition with us or joined us and they understand our culture and we can sit down with them and immediately connect them to.

2 the stories and help them adjust out of an abundance of caution some of that was done remotely some of it wasn't able to be done in the same way and that's the disruption we're referring to.

But we're through it and really looking forward to setting these teams free and watching what they achieve over the coming years.

Thank you.

Again, if you would like to ask a question press star 1.

I will now turn the call back over to the speakers for closing remarks.

Thank you Adrian and just wanted to thank everybody again for joining us today and thank you to Scott and Frank for your thoughtful questions and again. Thank you to all of our stakeholders, we understand that we're operating through a dynamic environment and and we appreciate the trust that you've placed in us.

Yes.

And we look forward to honoring that trust as we continue to improve the second quarter and we set the organization up for very healthy 2022.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2021 Pennant Group Inc Earnings Call

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