Q4 2021 Pennant Group Inc Earnings Call

Okay.

Thank you for standing by and welcome to the Clinic Group fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.

As a reminder, today's conference call is being recorded I would now like to turn the conference of Jihad, Mr. Derek Bunker Chief Investment Officer. Please go ahead.

Thank you Valerie.

Welcome everyone and thank you for joining us today here with me today I have Danny Walker, our CEO , Gary <unk>, our President Jen Freeman, our CFO and John <unk>, our CFO before we begin I have a few housekeeping matters, we filed our earnings press release and 10-K yesterday.

This announcement 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 time on Friday March 25 2022.

We wanted to remind anyone that may be listening to a replay of this call that all statements made are as of today March one 2022, and these statements have not been nor will they 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.

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.

<unk> in the pennant Group, Inc. Is a holding company with no direct operating assets employees or revenues.

Certain of our independent subsidiaries collectively referred to as the service Center.

Provide accounting payroll human resources information technology legal risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries.

<unk> Tennant company.

Our and us refer to the pennant Group, Inc, and its consolidated subsidiaries all of our operating subsidiaries and the service center operated by a separate independent companies that have their own management employees and assets references herein to the consolidated company and its assets and activities as.

As well as the use of the terms, we us our and similar terms used today are not meant to imply.

Should it be construed as meaning that the tanker peak.

Direct operating assets employees or 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.

They should not be relied upon to the exclusion of GAAP reports.

A GAAP to non-GAAP reconciliation is available in yesterday's press release and in our 10-K with that I'll turn the call over to Danny Walker, Our CEO , Danny Thank you Derek and welcome everyone to our full year and fourth quarter of 2021 earnings call at the outset here I'd like to first thank our clinical and operational teams.

<unk> for the work that they have done through this most recent omicron Serge the.

The individual and <unk>.

Collective.

Efforts have been both harrowing and heroic and we are deeply grateful.

In 2021, we produced record full year results in our home health and hospice segment, achieving double digit top and bottom line growth.

Strong quality outcomes, while adding 11 agencies to our portfolio. Despite a difficult operating environment, our senior living segment weathered three waves of COVID-19, surges and a record winter storm in Texas and is now poised to recover in 2022 with one more robust leadership.

Throughout the segment to stronger clusters in markets, three better data and systems and for signs of an improving operating environment Ulta.

Ultimately our 2021 results fell short of our high expectations, we established for ourselves in general the demands of completing the spinoff successfully including completing a completely overhauling our it system infrastructure the high volume of home health and hospice acquisitions, the leadership overhaul of our senior living.

Segment, and the investment of time and resources in early stage, new business ventures, combined with the unique pressures the COVID-19 pandemic and the administrative requirements associated with full Sarbanes Oxley 404 compliance.

Have temporarily limited our ability to achieve the exceptional operating results we have been accustomed to.

However, as we look to 2022, we're encouraged by what we see.

As described last quarter, we took action to one ensure that each local team is executing at a high level without distractions to retrench around our core opportunities across both segments.

Three reinforced the core principles of our operating model that have led to our historical successes.

In the fourth quarter and since we executed on these key initiatives and we will continue to do so throughout 2020 to ensure we return to the healthy growth patterns and performance in both segments that we have.

<unk> throughout our history.

After a careful review of our core opportunities and how we could immediately limit distractions. We took several significant steps to this and first we recently announced that we entered into a transaction with our partners at Ensign to transfer do them five senior living communities all of which share it.

Campus setting with ensign affiliated skilled nursing operations.

In a COVID-19 impacted operating environment, we're sharing a kitchen laundry facilities and staff became increasingly costly and complex we believe that combining these operations.

In these campus settings will allow for care staffing and other strategic refinements that will better address the needs of the residents and families involved.

This transaction underscores the value of our ongoing partnership with ensign through the Ensign pennant care continuum, where we continue to explore mutually beneficial collaborations.

And allow our and this these changes will allow our senior living leadership to focus on fewer operations across the tighter geographic footprint.

Based on the performance of these five communities in 2020, we expect that this reconstitution to be mildly accretive to earnings and representing one of just many steps we've been taking to recover from the effects of the pandemic and realize the value inherent in our portfolio.

Second we've restructured our mobile physician services and our home care agencies to optimize payer mix and better contain expenses, while largely retaining the upside potential of each of these lines of business.

Third we have completed the spin related system infrastructure development and implementation of Sarbanes Oxley section 404 compliance.

We have also invested in and will continue to invest in the development of our service center teams and their ability to accelerate our operational results. The combination of these efforts.

Will allow for us to focus on our highest upside opportunities in our existing footprint and position us to continue to grow in 2022 and beyond we are seeing these efforts bear fruit in the first quarter, although there remains significant opportunities in both segments that we're excited to realize.

As in 2022 and for many years to come we continue to focus relentlessly on our biggest opportunities.

As we announced in our press release yesterday, we are providing revised guidance for our full year 2022 in light of the expected ramp in the hospice ADC the impact of the five senior living communities, we're transferring to ensign and considering the lingering COVID-19 related impacts to staffing labor.

And revenue experienced throughout 2021.

We anticipate full year revenue in the range of 450 million to $460 million.

And adjusted earnings per share in the range of 60 to 72.

Throughout 2021, we've provided guidance based on the operating landscape at the time.

And we assumed that we wouldn't have further impacts from COVID-19 surges.

Consistently changed throughout the prior year and our 2022 guidance. We have used the lessons we've learned from 2021 and our guidance is issued with a view of COVID-19 in many of its impacts becoming in the endemic in the communities that we serve.

We again want to thank our operators and clinical partners for their tireless efforts to navigate a very difficult operating environment in 2021, and we are grateful to look into 2022 with greater stability and predictability in our operating results and with that I'll turn the time over to Brent.

To provide more detail on our fourth quarter operational results Brent.

Thanks, Danny turning first to our home health and Hospice segment performance.

Through yet another surge of COVID-19 cases in many of our markets. We increased revenue four 5% to $77 9 million over the prior year quarter.

While adjusted EBITDA of $11 2 million declined $2 7 million or 19, 1% from the prior year quarter.

Even as our hospice admissions and average daily census were down from the third quarter, we saw solid growth in our total home health admissions admissions, which rose 9% over the prior year quarter.

The decline in hospice ADC is largely the result of a modest decline in admissions as well as a higher mix of referrals for more acute settings that tend to have a lower average length of stay.

This softness was concentrated in a handful of markets more acutely impacted by the effects of higher COVID-19 cases, and other operational headwinds, which have continued into the first quarter. However, as we focus on meeting the needs of our local health care communities strengthening relationships with new and existing key part.

<unk> and adding key talent, we are confident we can grow census, and produce stronger results as operating conditions continue to improve.

The bedrock of our confidence in future growth is our relentless focus on providing exceptional clinical care to our patients. We continue to achieve high marks in several quality scores across our home health and hospice segment.

With an average home health CMS star rating of $4, two and a 12, 7% acute care hospitalization rate. According to real time third party analytics.

Meaningfully below the reported national average of 15, 4% in the fourth quarter.

We have successfully improved our quality measures and our recent acquisitions as well with the average CMS star rating of our home health agencies acquired in 2020, improving from three seven stars at the time of acquisition.

243 stars currently.

Additionally, our average discharge to community rate, which measures the percentage of patients discharged to the same or lower level of care was 79% in the fourth quarter, which compares favorably with the reported 72, 8% National average our hospice quality composite score.

<unk> to trend well at 96%.

As of the end of the fourth quarter compared to the reported national average of 89% we.

We are confident our emphasis on quality clinical outcomes will be increasingly recognized by our referral partners as we continue our high performance standards in these areas.

Our senior living segment continues its recovery in the face of another surge of COVID-19 cases that impacted our staffing in census in the quarter as it has throughout 2021.

We are not satisfied with our quarterly results. Although we are pleased to see some wins in this segment, including the first year over year increase in segment segment revenue since the pandemic began despite a decrease in average occupancy of 310 basis points.

Compared to the same period.

We were able to drive targeted rents and care services rate increases more than offset our occupancy decline thanks to better data and resident assessment tools, which we have been rapidly deploying since we completed the spin off system separation that was such a heavy distractions through the first half of 2021 in.

In addition, the fourth quarter, we increased revenue by $1 million and adjusted EBITDAR by <unk> 7 million sequentially over the third quarter, highlighting the incremental margin upside achievable as we drive further revenue growth.

The benefits of having complete control over our systems and our it resources dedicated to accelerating the results of our field will compound over time driving more informed local decision, making improved resident care robust accountability around best practices and ultimately stronger financial results.

In the fourth quarter.

Since we have made significant progress in building a stronger leadership Foundation.

<unk> market in cluster leaders, expanding our marketing and sales expertise elevating and recruiting talented professionals and equipping them with better data analytics and tools and instilling rigor around the key focus areas that will accelerate our on going turnaround in this segment.

As Danny mentioned, we have taken significant steps in recent months to retool, our senior living footprint in a way that we believe will generate immediate and long term benefits.

The transaction with enzyme as a one time paring of campus based operations some of which are geographic outliers, allowing us to concentrate leadership efforts on our core opportunities.

So far in the first quarter, we are seeing occupancy grow sequentially as our operations continue to win the trust of our new residents and their families.

With this leaner senior living portfolio.

Deepening bench of leaders in the field and service Center.

Better data and systems and better data and systems.

We're confident we can recover loss ground and realize the significant potential in this segment.

With that I'll ask Derek to provide an update on our recent investment activity there.

Thanks, Brent our fourth quarter was uncharacteristic uncharacteristically quiet with note post acquisition as we focused on the ongoing transition of the 11 home health Hospice and home care agencies. We added earlier in 2021, and a 15 added in 2020 and navigated the impacts of the Omicron search we're excited for.

Each of these new operations as they hit their stride in their operating model.

<unk> agencies continue to mature we are confident they have the potential to grow in way its much like the agencies. We've acquired for most of our history, many of which still averaged 20% or more growth year after year payback our investment many times over.

The development of certain recently acquired agencies has been slower than we expected as we work to identify the right leaders for each operation and support them as they build culture and established rigor around best practices.

We are confident these deals are fundamentally sound and we look forward to driving the growth in 2022 and beyond that will lead to better overall performance in our home health and hospice segment.

In addition, our pipeline of potential deals is expanding.

As we continue to source quality home health hospice and senior living opportunities.

And as we continue to execute in our recently acquired operations, we're excited to add new quality operations to dependent family.

I will hand, it over to Jen for a review of the financials Jen.

And good morning, everyone.

<unk> financial results for the full year and three months ended December 31, 2021 are contained in our 10-K and press release filed yesterday.

And the full year ended December 31, 2021, we reported total GAAP revenue of $439 7 million, an increase of $48 7 million or 12, 5% over the prior year.

GAAP diluted earnings per share up nine cents and non-GAAP adjusted earnings per diluted share of <unk> 46.

Please note that our GAAP non-GAAP adjusted earnings per share results for the full year and three months ended December 31 2021 include.

The benefit of the Medicare sequestration holiday.

Adjustments for the impairment losses associated with the senior living communities transferring to enzyme.

Well difficult to perfectly capture all such expenses and lost revenue, we estimate that our full year and fourth quarter results were negatively impacted by COVID-19 and.

And the amount of $10 million and $2 million, respectively, and lost revenue and $5 4 million and $2 million, respectively, and expenses, 90% of which are increase in wage rates and overtime.

Over the prior comparable period.

Key metrics for the full year and three months ended December 31 2021 included.

$53 5 million drawn on our revolving line of credit.

$5 2 million cash on hand at quarter end.

175 times net debt to adjusted EBITDA, and 206 times, if Medicare advance payments have been paid back as of quarter end.

Automatically shipment of the advanced payments began in April 2021 on which we have repaid $25 million.

February 22022.

To repay the remaining $3 million over time within the payback period.

Cash provided from operations of $3 6 million, excluding the impact of the automatically shipment of advance payment.

And $2 8 million impairment, including included in cost of service primarily related to the five senior living communities. They are transferring to ensign affiliate.

As Dan mentioned yesterday in our press release, we provided full year 2022 guidance of revenue of $415 million to 460 million and.

And adjusted earnings per share of <unk> 60 to 72.

Our guidance is based on diluted weighted average shares outstanding of approximately $31 6 million and a 26, 1% effective tax rate.

In addition, the guidance assumes among other things anticipated reimbursement rate adjustments.

Sequestration, we starting July 1st no unannounced acquisitions, and the estimated effect of COVID-19.

Excluding cost at startup operations share based compensation acquisition related costs impairment and losses associated with the senior living community is being transferred to Ensign affiliate.

At the midpoint, our revised 2020 to annual guidance.

Flex and increase of seven 5% in revenue and a 34, 7% increase in EPS.

When 2021 and 2022 results alright adjusted.

Disposition of the five senior living communities had occurred on January one 2021.

Our 2022 guidance also includes our read of the current operating environment and consider.

There is a lingering headwinds and rins during the fourth quarter.

Which we are seeing in the first quarter of 2022.

Census, staffing and other operation operating challenges may continue to affect our first half results.

We are confident in our leaders.

Anticipating a 7% to 10% increase in our home health and hospice revenue.

And as a result, and the rates from the home health final rules and Samsung <unk> half the sentence.

And a 4% to 6% increase in senior living.

Our organization our leaders are stronger.

And more capable of confronting these headwinds than ever before.

Revised guidance reflects confidence that the actions we are taking to emphasize our opportunities in both lines of business and strengthen our unique operating model.

<unk> lead to improvement in our recently acquired agencies growth in our same store operations and healthier performance in our senior living business.

Incorporating the impact of increased wage rates and staffing challenges experienced during the latter half of 2021 and.

The midpoint of our guidance anticipates the improvement from our ability to manage costs improving cost of service rates by approximately 20 to 50 basis points.

We're excited for 2022.

Turning to our historical revenue CAGR of 16% and EBITDA CAGR of 15% plus which we have experienced and we know is achievable by executing with discipline.

<unk> and <unk>.

Operational excellence and Linda I'll hand, it back to Brent highlighted a couple of our local leaders.

Thanks Jen.

As we typically do I'd like to highlight a few leaders that have gone above and beyond in their operations and in supporting their partners throughout the organization.

It's my pleasure to share these stories.

<unk> home health and <unk> counties in Washington, CEO , Devin Roswell, and CTO Salon to Morton are achieving exceptional results across the board by building a culture focused on our core values.

Customer ownership and intelligent risk taking.

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

And then methodically focused on producing quality care.

Outcomes and strategically investing in expanding the service offerings available to the community.

Theyre Foundation of clinical quality has led to a $4 five CMS star rating.

The investments and the right people culture, and providing quality clinical care have helped them achieve revenue growth of 9% and EBIT growth of 46, 3% in 2021 over the prior year, which continued our compound annual growth rate of 17, 3% since we.

Purchase the agency in 2013.

Because of the extraordinary impact on the Puget Sound community. The agency was awarded three hospice certificates of need.

2020, and 21 the results of Puget Sound home health and hospice are typical what talented local leaders can achieve through the application of best practices in our operating model.

At Pleasant senior living in Racine, Wisconsin.

Tiffany more.

So Heather Gillis and director of business development Kristine Gomez have led the remarkable turnaround of an operation that had a difficult time finding traction in their community. During the first several years following acquisition.

From the time, they arrived tip, Heather Kristine and their partners in the was in the cluster in Wisconsin market immediately went to work to change the vision for what Pleasant point represents a.

We strategically invested in the community built a strong local team added additional talented marketing and sales professionals. Some of whom are now supporting sister communities in Wisconsin and elsewhere in.

And instilled a culture centered on our core values of customer second ownership accountability and celebration.

The combined impact of these and many other actions helped this team drive occupancy from 63, 6% in the fourth quarter of 2020, the 96, 1% in the fourth quarter of 2021.

A remarkable increase of 32, 5% during a year, which saw many other communities lose residents.

This translated into revenue growth of 97% and EBITDAR growth.

348% each in the fourth quarter over the prior year quarter.

This incredible transformation is emblematic of what is possible at newly acquired and same store operations under the stewardship of the right leaders.

I'll turn it back to Daniel.

Brent now will.

Open it up for questions Valerie could you. Please instruct the audience on the Q&A procedure.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when your Touchstone telephone again, if you would like to ask a question. Please press Star then one one moment please.

Our first question comes from <unk> <unk> of Stifel. Your line is open.

Hi, good morning.

First of all thank you for providing more disclosure on the same agency a new ADC statistics I think last quarter you called out the lagging performance itself recently acquired home health agencies that kind of all contributing to the admission decline there I think this quarter, we've seen some relative outperformance in home health.

But the announcing agency pool with a drag on the hospice side. So could you maybe provide some more context on the bifurcation in performance between the two buckets and the unique challenges scaling up new agencies to the omicron wave and how fast do you expect to get performance back on track is it a metal.

Moving labor environment less rely on the agency labor or maybe making some more investment in the development of our field leadership, just trying to just understand what would be some of the positive drivers short term medium term and how quickly you can get there.

Good thanks for the question.

<unk>.

On the on these transitioning agencies.

We we arent first to make it clear we're not relying heavily on external labor through agency services.

The issues are more related to how we're swinging the market from.

From others referral sources two hours at our normal rate.

And other subtle things related to our implementation of systems.

And so we've had.

More difficulties and a little bit more elongated process of taking our bread and butter, which is smaller.

No.

Well regarded clinical operations that need more infrastructure into them.

And.

And so we've seen significant improvement in those during the fourth quarter.

Our rate of improvement we feel like is continuing into the first quarter and so we feel we feel like we're mostly through that.

<unk> wants to add a little perspective, or John Doctor on that but.

We don't see them continuing to be a significant drag in <unk>.

In 2022.

Having said that you mentioned that the differences between home health volumes in hospice.

The ADC pressures, we are seeing success on the home health volume side, we're excited about that.

Many of these new acquisitions, but also our existing operations.

Whether to a fairly challenging hospice ADC environment, where we've seen a shift in acuity.

Of the patients coming on service coming on later in their disease process.

More referrals from acute care settings.

All of which are positive, but the absence of longer term residents that maybe are living and senior housing properties or skilled nursing facilities.

Has made for a little bit of pressure on the on the.

Hospice ADC front, so we're seeing that persist as Jen mentioned in the first quarter.

We are anticipating that we'll be able to recover well.

Well from that.

John or Brent any color to add there.

I'll just add Danny I think what what Youre seeing now is our same store operations those that have been with us for an extended period of time, those where we've established culture and a place in the community. They performed really well throughout the course of the year and there was softness in the fourth quarter, but you look across the year and you see really strong expense.

Management, you see strong growth.

With those newer acquisitions, we're still formulating our place in the community.

Are often entering into new geographies and so it just takes a little longer to become the employer of choice to become the place where referral sources turn and so you see a little bit more of that margin pressure I think where you have seen the margin pressure in the fourth quarter is really on account of some changes in the labor environment.

Where I think everyone has seen the impact that Covid has had on it from that standpoint, and then the softening in the hospice ADC, which is traditionally for us a little higher margin business.

So that's kind of where that softening is is impacting our results, but as Danny mentioned, we couldnt be more optimistic.

We have a group of really talented Ceos across our home health and hospice organizations, who are weathering a pretty significant omicron search where we saw a lot of people out.

With illness.

Covid related or not and and we feel like we're back at full capacity enable to pick those referrals and the volume that's out there.

Got you.

The second question is about guidance given the lingering headwinds in the first quarter you mentioned when we look at the guidance. If you exclude a $16 million from the five senior housing that you sold.

<unk> essentially flat from the last guidance I think they are also some positive developments since the since the last guidance either from the facing of the sequester or the increase of the Medicaid rates in a few states given the low run rate of <unk> and the softness in <unk>.

Assumptions may have changed since the last update to give you. This.

Flat guidance versus smartphone.

Yes.

I'll, let Jim give you some specifics I just.

As I noted in my prepared remarks, we repeatedly tried to not get in the game of projecting what a surge was going to do to us when those surges of Covid, we're going to come and it's led to a difficult environment for people to understand where we think we're actually going to end up.

And so we've made an attempt with this guidance two to draw things back and build in some some.

Our view of kind of an endemic view of Covid in this 2022 now.

We've kind of taken our our view of how COVID-19 actually affected us in 2021, and we've assumed that we're going to have some some.

<unk> searches.

Hopefully nothing like what we've seen with delta or <unk>, but but still we're baking that in.

So that we ideally don't find ourselves in a situation, where we've set expectations that are above what.

What we can realistically achieve.

So just to speak to some specifics as you mentioned the revenue is impacted by the transfer of the senior living.

<unk> entities to anti that's about $16 million in revenue.

Slightly accretive on the bottom line. So just wanted to make sure that that is.

Recognized sell as.

In 2021 does entities operated and not lost sight of that loss and so when you adjust 2021, that's part of the adjustment there on the guidance and then as I talked about we also incorporated as Danny just mentioned the impacts that we've seen in our wage increases and other <unk>.

Impacts from.

So while we are in.

Operating that we're also looking at an improvement.

As I mentioned in the prepared remarks about 2018 50 basis point improvement in.

Cost of services as a percentage of revenue.

Just keep in mind that our cost of service as a percentage of revenue in the fourth quarter is impacted by $2 8 million.

Accounting and Paramount loss that we took.

In the fourth quarter related to those five communities hopefully that helps too.

Bridge the gap.

Other piece of that is just as we mentioned.

Hospice census, and the lingering effect on hospice related to overtime okay.

<unk> entered the first quarter.

Thanks for the clarification.

Okay.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one our next question comes from Scott Fidel of Stephens. Your line is open.

Yes.

Hi, everyone.

Good morning or afternoon.

It's actually just wanted to pay just wanted to actually follow sort of Bob I just continue on that last line of discussion.

I think it may be helpful. In knowing that you don't provide quarterly guidance, but just given all the current wall that had been thrown at you around the pandemic and relative to the reset guidance.

That you are comfortable just providing us maybe with some more visibility into how you are you are forecasting the first quarter.

From a revenue and EPS perspective, really just to give us some more insight into into the base sort of starting off point for the first quarter and then that how the guidance anticipated sort of building upon that.

Yes.

Then can provide maybe some specific info, but generally speaking Scott we've tried to make a deliberate.

Step to be more conservative in.

In our guidance and try to estimate more significant ongoing kind of cost pressure in revenue pressure from the current operating environment.

So we've really kind of looked at.

Pretty tough Q4, and use that kind of is our starting point of where we can go in Q1 Q2 with some mild improvement in the second half.

Now.

We know that we have.

We've missed our guidance.

Yes.

The last couple of quarters and it is concerning to us that we're not providing more clarity on where where we're at and where we think we can go.

So this is an attempt to be conservative and.

And try to build.

Build in the contingencies for some of the unknowns with how quickly hospice census will recover.

How we will be able to navigate through some of the the.

Labor items now we have internal plans that we feel really good about in terms of our ability to optimize labor, even if we're paying elevated rates.

To optimize revenue structures appropriately based on patient need.

And there is areas of opportunity there that we feel we can offset some of those pressures, but our approach in the past had been to kind of try not to project those types of costs, but we've used the prior year and we've looked at exactly what these waves of <unk>.

Looked like how it has affected our staffing how its affected our revenue cycle.

And we've there's been a lot going on in this last year, we think the weather and sort of operating environment in 2022 will be better and we can hopefully get ahead of these expectations that we're setting.

But but the reality is this is where we're at and and we've tried to take a more conservative approach.

Do when we sit in a room and look at it and say do we think we can.

Achieve.

A lot of success and rebounding from a tough 2021 without all the moving parts that we've had internally even before you get to omicron, yes, we feel really excited about that.

And I think I think in the past, we've kind of baked a lot of that in and assume that the operating environment wouldn't be quite as as messy.

And so we are attempting to not repeat that from from 2021.

I don't know agenda have anything to add there.

I don't think so as Danny I think you've covered.

When we took our approach for Q1.

Pacifically, we looked at what how we were running in Q4 of 2021.

And.

Incorporated modest increases Adler.

<unk> things start to settle as far as the wage rates go but now also making sure that we are incorporating all of what we experienced in 2021, especially in the fourth quarter <unk> first quarter results. I think it's also important to note that in Q4, we had one of our best quarter than senior living.

Brett you want to add something to that.

Our trajectory there.

Yes.

We're making progress it's not anywhere close to where we expect to be.

In the near term, but.

The investments that we've made on the senior living side, especially when you're turning over leadership and Youre building a foundation. It just takes time and navigating that.

Endemic just add some of the complexity.

And we're starting to just starting to realize some of the fruits of those efforts in 2022 is going to be an opportunity for us to build out of that and.

We're optimistic but realistic in the timeframe that its going to take but it was encouraging to see a step forward in 'twenty in Q4 relative to the.

Prior quarter so.

Optimism, but realism all at the same time, so so just to kind of close this out on that on that point Scott. It we looked at it and we're expecting a pretty flat.

By quarter is how we did it.

As we said alright, where should we be in the first quarter end and without assuming aggressive improvements, which could materialize right.

Lets up a little bit and then our teams continue their progress in becoming more effective at navigating surges or flare ups.

But but that's kind of where we're expecting is to take that and evenly spread it out throughout the year and that's R. R.

Our best view of of where we're at right now and assuming an endemic view of Covid.

We're obviously going to seek to define every avenue of improvement.

There's a lot going into that but.

Hopefully that helps.

Yes.

We share all of the qualitative feedback.

And most importantly, just the comment you made about sort of thinking directionally about <unk> versus the fourth quarter and then.

Sort of being relatively stable and thats been sort of building upon that I think that's just important to help at least got the first quarter level set appropriately.

Around the expectations.

If I can just move on to a second question.

Asked about.

The balance sheet and cash flow dynamics.

Obviously, the Medicare advance.

Payment recruitment have affected the optics of cash flows quite meaningfully in the last couple of quarters I just wanted to confirm around sort of I guess fully settling up for.

The Medicare advance payments and then then the deferred.

Payroll.

That normalization relative to the cares John I think you had mentioned did you just want to confirm you said 3 million left to go on the Medicare advance.

Payments just wanted to confirm that and then also if you could just update us.

The deferred payroll piece of that.

And then just to sort of close the loop on the cash flows.

In the press release, you did mentioned how relatively soon you're expecting to start to show improved cash flows I'm assuming that as you lap. These these issues related to cares maybe just give us a little more insight into that in terms of how youre thinking about cash flows.

Sort of showing up.

In the report as we move through.

2021, so really the question is just around sort of your thoughts on the cash flow trajectory here over the course of the year.

Yeah, so definitely in France cash flow over the course of the year I think as our.

Acquired operations also become more stable, we will see them producing cash flows that we are accustomed to you as we take on new businesses.

That's why on it too.

We do have $3 million left in the advance payments, we expect to pay that back I would say at the outer limit by the end of June .

The recruitment goal.

So we're in a full on through the end of March and then you get a smaller amount being taken out.

In April so that will we will pay that back with at that timeframe.

Easily <unk>.

So that will affect.

Mostly the first quarter cash flow.

Equipment.

And then we do have as a part of the settlement with the Ensign group $6 $5 million that will come out for that free cash flow we will.

The holding our assets for sale until we will see that cash, but thats, a one time payment out.

And then for the end of the year we have.

Consequently for $5 million, that's due at the end of 2022 for the deferral and the social security payments. So those are the big items that will be affecting us.

Worse.

We will have some thats all on the operating side.

They will have cash flows out for acquisitions and things like that as well high level, though Scott we're really pleased with the rate of paying back all of that there was the one thing we took advantage of.

In all the money that was available.

And so we've had good strong cash flow you've been able to do the deals that we've wanted to do.

The interruption on collections is built into every new acquisition. There is always this dead period, where we don't collect and and so and then we've coupled that with.

Eliminate the elimination of the rap and.

So overall, there's been a lot going on in our collections, but to have paid a little over $21 million.

5 million back through our regular cash flow processes, where we're pleased with the overall kind of trajectory we're on from a cash standpoint.

Understood and then just one last one for me just on <unk>.

Senior living and actually it was interesting in the fourth quarter.

Actually at least relative to my model.

We did certainly see that that improvement NFL, even though occupancy.

Did show the pressure in terms of having the better pricing and having that dropped to the margin a bit.

I think Brad had said during the prepared remarks that you have actually have seen some improvement in occupancy.

In the <unk>.

Despite beyond the crowd of effects.

If possible would you maybe able to give us sort of a spot update on where occupancy is trending now in the first quarter and then how the guidance is.

Anticipating that occupancy for us that will trend over the course of the year.

Yes, I can't give you a specific number maybe jen can look at some of that detail, but yes. We have continued to experience really from the middle of December we got hit pretty hard from an omicron standpoint, and then write middle December we started to see.

It continues to incline.

Our occupancy numbers and that Hasnt slowed down through January and into February and now that we are hitting March where we're pretty excited about that trend.

And it's something that we experienced over the course of 2021 and this was part of our challenge is even providing guidance you'd see these episodes of improvement and then you'd have another wave that would impact staffing impact sort of.

Customer confidence in going into buildings and so.

Whether those we've learned a little bit about ourselves of that process.

As we have seen a lessening of the omicron impact we're starting to build out of that again and so we feel confident that.

That growth will continue and that's not just because of the lessening of the Covid impact we have spent a significant amount of time.

Focusing our efforts on building the local teams.

Making a conservative effort to.

Improve our relationships in the community strengthening our marketing and business development teams and changing our strategy so that.

We can go out and fill those those empty beds. So.

We're confident we're moving forward and we anticipate that will continue continue to see occupancy improvement throughout the year.

So the improvement has been about 100 basis points.

Genesis so since mid December .

So that's what we've seen.

<unk>.

I'd be lying Scott if I didn't say, we provided updates on occupancy just to see them get wiped out by another surge of omicron or the next thing and so again coming back to the guidance approaches.

We are assuming we are going to feel pressure, even though we've made those gains right and so.

If the pressures.

<unk> materialize, we should be.

Really good position.

And what we're focused on is those things that we can control.

Brent mentioned, making sure that.

As we emerge from a tough 2021, where we've implemented.

We've done our Sox compliance we've cut our systems over.

Finish that process.

Dealt with pretty extreme.

Operating challenges in the <unk>.

The COVID-19 environment.

The one thing that we're all really excited about is that kind of our adherence to our culture and our team morale.

Across the organization is really really strong even having lost.

Team members to Covid, and and others that we care deeply about.

But there is this growing sense of confidence that kind of the worst is behind us.

And our ability to navigate future difficulties related to Covid is increasing.

And so that's the picture on the occupancy front. We're excited we are hopeful that some of the neglected preventative care.

It's been driven May may lead to.

Improvements, even further from where we're at but.

Again until we see those things materialize, we're taking a cautious and have kind of a conservative approach.

Okay I appreciate the feedback.

Thanks, Okay.

Okay. Thanks, Scott.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchstone telephone.

Again to ask a question. Please press Star then one.

I'm showing no further questions at this time I'd like to turn the call back over to Danny Walker for any closing remarks.

Thank you Valerie and just want to thank our stakeholders, both inside the organization and outside the organization.

Shareholders.

<unk> to the organization.

For for supporting Us through a very challenging 2021.

We've only had a couple of years like this.

I remember 2013.

Millions of public view, but.

<unk> 2021.

Our 12 year history and so.

It's unusual for us to come up short of our expectations and we look forward to.

Restoring.

And building confidence.

The organization as we move forward into 2022 and beyond so thank you for joining us today and thank you to everyone who is involved in helping tenant would be what it is to take care.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating.

Participating you may now disconnect have a great day.

[music].

[music].

Thank you for standing by and welcome to the pennant group fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

Ask the question at that time. Please press Star then one on your touch tone telephone.

As a reminder, today's conference call is being recorded.

I'd now like turn the conference over to your host Mr. Derek Barker Chief Investment Officer. Please go ahead.

Thank you Valerie welcome.

Welcome everyone and thank you for joining us today here with me today I have Danny Walker, our CEO Gregg <unk>, our president Jen Freeman, our CFO and John <unk>, our CFO before we begin I have a few housekeeping matters, we filed our earnings press release and 10-K yesterday.

This announcement 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 time on Friday March 22022.

We wanted to remind anyone that may be listening to a replay of this call that all statements made are as of today March one 2022, and these statements have not been nor will they 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.

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 information future events changing circumstances or for any other reason.

<unk> in the pennant Group, Inc. Is a holding company with no direct operating assets employees or revenues.

Certain of our independent subsidiaries collectively referred to as the service Center.

Provide accounting payroll human resources information technology legal risk management and other services to the other operating subsidiaries through.

Through contractual relationships with such subsidiaries.

Tennant company we are.

And us refer to the pennant group, Inc, and its consolidated subsidiaries all of our operating subsidiaries and the service center operated by a separate 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 our and similar terms used today are not meant to imply nor should it be construed as meaning that the pennant group peak has direct operating assets employees or 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.

They should not be relied upon to the exclusion of GAAP reports.

GAAP to non-GAAP reconciliation is available in yesterday's press release and in our 10-K with that I'll turn the call over to Danny Walker, Our CEO , Danny Thank you Derek and welcome everyone to our full year and fourth quarter 2021 earnings call at the outset here I would like to first thank our clinical and operational teams.

For the work that they have done through this most recent omicron Serge.

The individual and <unk>.

Collective.

Efforts have been both harrowing and heroic and we are deeply grateful.

In 2021, we produced record full year results in our home health and hospice segment, achieving double digit top and bottom line growth.

And strong quality outcomes, while adding 11 agencies to our portfolio. Despite a difficult operating environment, our senior living segment weathered three waves of COVID-19 surges in a record winter storm in Texas and is now poised to recover in 2022 with one more robust leadership.

Throughout the segment to stronger clusters in markets, three better data and systems and for signs of an improving operating environment.

Similarly, our 2021 results fell short of our high expectations, we established for ourselves.

In general the demands of completing the spinoff successfully including completing a completely overhauling our it system infrastructure the high volume of home health and hospice acquisitions. The leadership overhaul of our senior living segment and the investment of time and resources in early stage, new business ventures combined with the unique.

<unk>.

COVID-19 pandemic and the administrative requirements associated with full Sarbanes Oxley 404 compliance have temporarily limited our ability to achieve the exceptional operating results we have been accustomed to.

However, as we look to 2022, we're encouraged by what we see.

As described last quarter, we took action to one ensure that each leak local team is executing at a high level without distractions.

To retrench around our core opportunities across both segments and three reinforce the core principles of our operating model that have led to our historical successes.

In the fourth quarter and since we executed on these key initiatives and we will continue to do so throughout 2020 to ensure we return to the healthy growth patterns and performance in both segments that we have achieved throughout our history.

After a careful review of our core opportunities and how we could immediately limit distractions. We took several significant steps to this and <unk>.

First we recently announced that we entered into a transaction with our partners at Ensign to transfer do them five senior living communities, all of which share a campus setting with ensign affiliated skilled nursing operations.

In a COVID-19 impacted operating environment, we're sharing a kitchen and laundry facilities and staff became increasingly costly and complex we believe that combining these operations.

And these campus settings will allow for care staffing and other strategic refinements that will better address the needs of the residents and families involved.

This transaction underscores the value of our ongoing partnership with ensign through the Ensign pennant care continuum, where we continue to explore mutually beneficial collaborations.

And allow our and this these changes will allow our senior living leadership to focus on fewer operations across a tighter geographic footprint base.

Based on the performance of these five communities in 2020, we expect that this re constitution to be mildly accretive to earnings and representing one of many steps we've been taking to recover from the effects of the pandemic and realize the value inherent in our portfolio.

Second we've restructured our mobile physician services and our home care agencies to optimize payer mix and better contain expenses, while largely retaining the upside potential of each of these lines of business.

Third we have completed the spin related system infrastructure development and implementation of Sarbanes Oxley section 404 compliance.

We have also invested in and we will continue to invest in the development of our service center teams and their ability to accelerate our operational results. The combination of these efforts.

Will allow for us to focus on our.

<unk> upside opportunities in our existing footprint and position us to continue to grow in 2022 and beyond we are seeing these efforts bear fruit in the first quarter. Although there remains significant opportunities in both segments that we are excited to realize in 2022 and for many years.

Ours to come we continue to focus relentlessly on our biggest opportunities.

As we announced in our press release yesterday, we are providing revised guidance for a full year of 2022 in light of the expected ramp in the hospice ADC the impact of the five senior living communities, we're transferring to ensign and considering the lingering COVID-19 related impacts to staffing labor.

And revenue experienced throughout 2021.

We anticipate full year revenue in the range of 450 million to $460 million.

And adjusted earnings per share in the range of 60 to 72.

Throughout 2021, we've provided guidance based on the operating landscape at the time.

And we assumed that we wouldn't have further impacts from COVID-19 surges, which.

<unk> consistently changed throughout the prior year and our 2022 guidance. We have used the lessons we've learned from 2021 and our guidance is issued with the view of Covid in many of its impacts becoming in the endemic in the communities that we serve.

We again want to thank our operators and clinical partners for their tireless efforts to navigate a very difficult operating environment in 2021, and we are grateful to look into 2022 with greater stability and predictability in our operating results.

And with that I'll turn the time over to Brent to provide more detail on our fourth quarter operational results Brian .

Danny turning first to our home health and hospice segment performance through.

Through yet another surge of COVID-19 cases in many of our markets. We increased revenue four 5% to $77 9 million over the prior year quarter.

Adjusted EBITDA of $11 2 million declined $2 7 million or 19, 1% from the prior year quarter.

Even as our hospice admissions and average daily census were down from the third quarter, we saw solid growth in our total home health admissions admissions, which rose 9% over the prior year quarter.

The decline in hospice ADC is largely the result of a modest decline in admissions as well as a higher mix of referrals for more acute settings that tend to have a lower average length of stay.

This softness was concentrated in a handful of markets more acutely impacted by the effects of higher COVID-19 cases, and other operational headwinds, which have continued into the first quarter. However, as we focus on meeting the needs of our local health care communities strengthening relationships with new and existing key part.

<unk> and adding key talent, we are confident we can grow census, and produce stronger results as operating conditions continue to improve.

The bedrock of our confidence in future growth is our relentless focus on providing exceptional clinical care to our patients. We continue to achieve high marks in several quality scores across our home health and hospice segment.

With an average home health CMS star rating of $4, two and a 12, 7% acute care hospitalization rate. According to real time third party analytics.

Meaningfully below the reported national average of 15, 4% in the fourth quarter.

We have successfully improved our quality measures and our recent acquisitions as well with the average CMS star rating of our home health agencies acquired in 2020, improving from three seven stars at the time of acquisition to four three stars currently.

Additionally, our average discharge to community rate, which measures the percentage of patients discharged to the same or lower level of care was 79% in the fourth quarter, which compares favorably with the reported 72, 8% National average our hospice quality composite score.

<unk> to trend well at 96%.

As of the end of the fourth quarter compared to the reported national average of 89%. We are confident our emphasis on quality clinical outcomes will be increasingly recognized by our referral partners as we continue our high performance standards in these areas.

Our senior living segment continues its recovery in the face of another surge of COVID-19 cases that impacted our staffing in census in the quarter as it has throughout 2021, we're not satisfied with our quarterly results. Although we are pleased to see some wins in this segment, including the first year over year increase in segment segment.

Revenue since the pandemic began despite a decrease in average occupancy of 310 basis points.

To the same period.

We were able to drive targeted rents and care services rate increases that more than offset our occupancy decline thanks to better data and resident assessment tools, which we have been rapidly deploying since we completed the spin off system separation that was such a heavy distractions through the first half of 2021 in.

In addition, the fourth quarter, we increased revenue by $1 million and adjusted EBITDAR by <unk> 7 million sequentially over the third quarter, highlighting the incremental margin upside achievable as we drive further revenue growth the benefits of having complete control over our systems and our it resources.

Dedicated to accelerating the results of our field will compound over time driving more informed local decision, making improved resident care robust accountability around best practices and ultimately stronger financial results.

In the fourth quarter.

And since we have made significant progress in building a stronger leadership Foundation.

<unk> market in cluster leaders, expanding our marketing and sales expertise elevating and recruiting talented professionals and equipping them with better data analytics and tools and instilling rigor around the key focus areas that will accelerate our on going turnaround in this segment.

As Danny mentioned, we have taken significant steps in recent months to retool, our senior living footprint in a way that we believe will generate immediate and long term benefits.

The transaction with enzyme as a one time paring of campus based operations some of which are geographic outliers.

<unk> us to concentrate leadership efforts on our core opportunities so far in the first quarter, we are seeing occupancy grow sequentially as our operations continue to win the trust of our new residents and their families.

With this leaner senior living portfolio, a deepening bench of leaders in the field and service Center.

Better data and systems and better data and systems.

We're confident we can recover loss ground and realize the significant potential in this segment.

With that I'll ask Derek to provide an update on our recent investment activity there.

Thanks, Fred our fourth quarter was uncharacteristic uncharacteristically quiet with no closed acquisition as we focused on the ongoing transition of the 11 home health Hospice and home care agencies. We added earlier in 2021 and 15 added in 2020 and navigated the impacts of the Omicron search we are excited for.

Each of these new operations as they hit their stride in our operating model as this.

Agencies continue to mature we are confident they have the potential to grow in way its much like the agencies. We've acquired for most of our history, many of which still averaged 20% or more growth year after year and the payback our investment many times over.

The development of certain recently acquired agencies has been slower than we expected as we work to identify the right leaders for each operation and support them as they build culture and established rigor around best practices.

We are confident these deals are fundamentally sound and we look forward to driving the growth in 2022 and beyond that will lead to better overall performance in our home health and hospice segment.

In addition, our pipeline of potential deals is expanding.

As we continue to source quality home health hospice and senior living opportunities.

And as we continue to execute in our recently acquired operations, we're excited to add new quality operations to the pennant family.

I will hand, it over to Jen for a review of the financials Jen.

Thank you Dan and good morning, everyone.

<unk> financial results for the full year and three months ended December 31, 2021 are contained in our 10-K and press release filed yesterday.

And the full year ended December 31, 2021, we reported total GAAP revenue of $439 7 million, an increase of $48 7 million or 12, 5% over the prior year.

GAAP diluted earnings per share up nine cents and non-GAAP adjusted earnings per diluted share of <unk> 46 cents.

Please note that our GAAP, our non-GAAP adjusted earnings per share results for the full year and three months ended December 31 2021 include <unk>.

<unk> of the Medicare sequestration holiday and adjustments for the impairment losses associated with the five senior living communities transferring to enzyme.

Well difficult to perfectly capture offset expenses and lost revenue, we estimate that our full year and fourth quarter results were negatively impacted by COVID-19.

The amount of $10 million and $2 million, respectively, and lost revenue and $5 4 million and $2 million, respectively, and expenses, 90% of which are increase in wage rates and overtime over the prior comparable period.

Key metrics for the full year and treatments ended December 31 2021 include.

$53 $5 million drawn on our revolving line of credit and five.

$5 2 million cash on hand at quarter end.

175 times net debt to adjusted EBITDA, and 2.06 times, if Medicare advance payments have been paid back as of the quarter end.

Automatically treatment of the advanced payments began in April 2021 on which we have repaid $25 million through February .

February 25 2022.

To repay the remaining $3 million over time, which and the payback period.

Cash flow provided from operations of $3 6 million, excluding the impact of the automatically treatment of advance payment and.

And $2 8 million impairment, including included in cost of service primarily related to the five senior living communities. They are transferring to ensign affiliate.

As Damian mentioned yesterday in our press release, we provided full year 2022 guidance of revenue of $415 million to $460 million in.

And adjusted earnings per share of <unk> 60 to 72.

Our guidance is based on diluted weighted average shares outstanding of approximately $31 6 million and a 26, 1% effective tax rate.

In addition, the guidance assumes among other things anticipated reimbursement rate adjustments.

Sequestration, we starting July 1st no unannounced acquisitions, and the estimated effect of COVID-19.

And excludes costs at startup operations share based compensation acquisition related costs impairment and losses associated with the senior living community is being transferred to Ensign affiliate.

At the midpoint of our revised 2020 to annual guidance reflects an increase of seven 5% in revenue and a 34, 7% increase in EPS when 2021 and 2022 results alright adjusted.

As the disposition of the five senior living communities had occurred on January 1st of 2021.

Our 2022 guidance also includes our read of the current operating environment and consider.

So there is a lingering headwinds around during the fourth quarter.

Which we are seeing in the first quarter of 2022.

Census, staffing and other operation operating challenges may continue to affect our first half results.

We are confident in our leaders we are anticipating a 7% to 10% increase in our home health and hospice revenue.

And as a result, and the rates from the home health final rules and Samsung <unk> hospice senses.

And a 4% to 6% increase in senior living.

Across our organization our leaders are stronger.

And more capable of confronting these headwinds than ever before.

This guidance reflects confidence that the actions we are taking to emphasize our opportunities in both lines of business and strengthen the principles of our unique operating model will lead to lead to improvement in our recently acquired agencies.

Within our same store operations and healthier performance in our senior living business.

Incorporating the impact of increased wage rates and staffing challenges experienced during the latter half of 2021.

The midpoint of our guidance anticipates the improvement from our ability to manage costs improving cost of service rates by approximately 20% to 50 basis points.

We're excited for 2022 to return to our historical revenue CAGR of 16% and EBITDA CAGR of 15% plus which we have experienced and we know is achievable by executing with discipline.

Distance and operational excellence and Linda I'll hand, it back to Brad to highlight a couple of our local leaders.

Thanks Jen.

As we typically do I'd like to highlight a few meters that have gone above and beyond in their operations and in supporting their partners throughout the organization.

It's my pleasure to share these stories.

Puget Sound home health and <unk> counties in Washington, CEO , Devin Roswell, and Ccs Yolanda Morton are achieving exceptional results across the board by building a culture focused on our core values.

Customer.

Ownership and intelligent risk taking.

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

And then methodically focused on producing quality care.

It comes and strategically investing in expanding the service offerings available to the community.

Theyre Foundation of clinical quality has led to a four five CMS star rating the.

The investments and the right people culture, and providing quality clinical care have helped them achieve revenue growth of 9% and EBIT growth of 46, 3% in 2021 over the prior year, which continued our compound annual growth rate of 17, 3% since we.

We purchased the agency in 2013.

Because of the extraordinary impact on the Puget Sound community.

The agency was awarded three hospice certificates of need to.

2020, and 21 the results of Puget Sound home health and hospice are typical what talented local leaders can achieve through the application of best practices in our operating model.

Pleasant senior living in Racine, Wisconsin, CEO Tiffany more.

Heather jealous and director of business development, Christine Gomez have led the remarkable turnaround of an operation that had a difficult time finding traction in their community. During the first several years following acquisition.

From the time, they arrived Tiff Heather Kristine and their partners in the was in the cluster in Wisconsin market immediately went to work to change the vision for what Pleasant point represents.

A strategically invested in the community built a strong local team added additional talented marketing and sales professionals. Some of whom are now supporting sister communities in Wisconsin and elsewhere and.

And instilled a culture centered on our core values of customer second ownership accountability and celebration.

The combined impact of these and many other actions helped this team drive occupancy from 63, 6% in the fourth quarter of 2020, the 96, 1% in the fourth quarter of 2021.

A remarkable increase of 32, 5% during a year, which saw many other communities lose residents.

This translated into revenue growth of 97% and EBITDAR growth.

348% each in the fourth quarter over the prior year quarter.

This incredible transformation is emblematic of what is possible at newly acquired and same store operations under the stewardship of the right leaders.

With that I'll turn it back to Daniel.

Thank you Brent now we will open it up for questions Valerie could you. Please instruct the audience on the Q&A procedure.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when your Touchstone telephone again, if you would like to ask a question. Please press Star then one one moment please.

Our first question comes from Tom <unk> of Stifel. Your line is open.

Hi, good morning.

First of all thank you for providing more disclosure on the same agency a new ADC statistics I think last quarter, you called out the lagging performance of recently acquired home health agencies.

Contributing to the admission decline there I think this quarter, we've seen some relative outperformance in home health.

But the announcing agency pool with a drag on the hospice side. So could you maybe provide some more context on the bifurcation in performance between the two buckets and the unique challenges in scaling up new agencies to the omicron wave and how fast do you expect to get performance back on track is it a metal improving labor environment.

And less rely on the agency labor or maybe making some more investment in the development of our field leadership, just trying to just understand what would be some of the positive drivers short term medium term and how quickly you can get there.

Good thanks for the question.

On the on these transitioning agencies.

We are first to make it clear we're not relying heavily on external labor through agency services.

The issues are more related to how we're swinging the market from.

From other referral sources two hours at our normal rate.

And other subtle things related to our implementation of systems.

And so we've had.

More difficulties and a little bit more elongated process of taking our bread and butter, which is smaller.

No.

Well regarded clinical operations that need more infrastructure into them and.

And so we.

We've seen significant improvement in those during the fourth quarter.

And our rate of improvement we feel like is continuing into the first quarter and so we feel we feel like we're mostly through that.

Brent wants to add a little perspective, or John Doctor on that but.

We don't see them continuing to be a significant drag in <unk>.

In 2022.

Having said that you mentioned the differences between home health volumes in hospice.

The ADC pressures, we are seeing success on the home health volume side, we're excited about that.

Many of these new acquisitions, but also our existing operations of have weather to a fairly challenging hospice ADC environment, where we've seen a shift in acuity.

Of the patients coming on service coming on later in their disease process.

<unk> referrals from acute care settings.

All of which are positive, but the absence of longer term residents that maybe are living and senior housing properties or skilled nursing facilities.

It has made for a little bit of pressure on the on the hospice ADC front. So we're seeing that persist as Jen mentioned in the first quarter.

We're anticipating that we'll be able to recover.

Well from that.

John or Brent any any color to add there.

I'll just add Danny I think what what Youre seeing now is our same store operations those that have been with us for an extended period of time, those where we've established culture and our place in the community. They performed really well throughout the course of the year and there was softness in the fourth quarter, but you look across the year and you see really strong expense.

Management, you see strong growth.

With those newer acquisitions, we're still formulating our place in the community.

We are often entering into new geographies and so it just takes a little longer to become the employer of choice to become the place where referral sources turn and so you see a little bit more of that margin pressure I think where you have seen the margin pressure in the fourth quarter is really on account of some changes in the labor environment.

Where I think everyone has seen the impact that Covid has had on it from that standpoint, and then the softening in the hospice ADC, which is traditionally for us a little higher margin business.

So that's kind of where that softening is is impacting our results, but as Danny mentioned, we couldnt be more optimistic.

We have a group of really talented Ceos across our home health and hospice organizations.

Who are weathering, a pretty significant homochrome search, where we saw a lot of people out.

With illness, both COVID-19 related or not.

And we feel like we're back at full capacity enable to take those referrals and the volume that's out there.

Got you.

The second question is about guidance given the lingering headwinds in the first quarter you mentioned when we look at the guidance. If you exclude a $16 million from the five senior housing asset you sold revenue essentially flat from the last guidance I think they are also some positive development.

Since the last guidance either from the facing of the sequester or the increase of the Medicaid rates in a few states given the low run rate of <unk> and the softness in <unk> <unk>.

Assumptions may have changed since the last update to give you this number.

Flat guidance versus smartphone.

Yes.

I'll, let Jim give you some specifics I just.

As I noted in my prepared remarks, we repeatedly tried to not get in the game of projecting what a surge was going to do to us when those surges of Covid, we're going to come and it's led to a difficult environment for people to understand where we think we're actually going to end up.

And so we've made an attempt with this guidance too to drop things back and build in some some.

Our view of kind of an endemic view of Covid in this 2022 now.

We've kind of taken our our view of how COVID-19 actually affected us in 2021, and we've assumed that we're going to have some some periodic searches.

Hopefully nothing like what we've seen it with delta or <unk>, but that's still where we're baking that in.

So that we ideally don't find ourselves in a situation, where we have set expectations that are above what we can realistically achieve.

So just to speak to some specifics as you mentioned the revenue is impacted by the transfer of a senior living.

<unk> and high that's about $16 million in revenue and slightly accretive on the bottom lines to just wanted to make sure that that is rare.

Recognized sell as in 2021 does entities operated in that loss slight that loss and so when you adjust 2021, that's part of the adjustment there in the guidance.

And as I talked about we also incorporated as Danny just mentioned the impacts that we've seen.

In our wage increases and other impacts in <unk>.

Tom comment so while we are in.

Operating that we're also looking at an improvement is.

As I mentioned in the prepared remarks about 20 to 50 basis point improvement in our cost of service as a percentage of revenue.

And then just keep in mind that our cost of service as a percentage of revenue in the fourth quarter is impacted by $2 8 million.

Accounting and Paramount loss that we took.

In the fourth quarter related to those five communities hopefully that helps too.

The gap the other.

Other piece of it is just as we mentioned.

Hospice census, and the lingering effect on hospice related crime foreign.

<unk> entered the first quarter.

Thanks for the clarification.

Okay.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on <unk>.

Next question comes from Scott Fidel of Stephens. Your line is open.

Okay.

Hi, everyone.

Our afternoon.

Just wanted to hey.

Just wanted to actually follow sort of projects.

Just continue on that last line of discussion.

I think it may be helpful. In knowing that you don't provide quarterly guidance, but just given all of the curve ball that that had been thrown at you around the pandemic and relative to the reset guidance.

To the extent that youre comfortable just providing us maybe with some more visibility into how you are you are forecasting the first quarter.

From a revenue and EPS perspective, really just to give us some more insight into into the base sort of starting off point for the first quarter and then how the guidance anticipated started building upon that.

Yes.

Gencon provides maybe some specific info, but generally speaking Scott we've tried to make a deliberate.

Step to be more conservative.

In our guidance and try to estimate more significant ongoing kind of cost pressure in revenue pressure from the current operating environment.

So we've really kind of looked at.

A pretty tough Q4 and use that kind of is our starting point of where we can go in Q1 Q2 with some mild improvement in the second half.

Now.

We know that we have.

We've missed our guidance.

The last couple of quarters and it is concerning to us that we're not providing more clarity on where where we're at and where we think we can go.

So this is an attempt to be conservative and.

And try to build.

Build in the contingencies for some of the unknowns with how quickly hospice census will recover.

How we will be able to navigate through some of the labor items now we have internal plans that we feel really good about in terms of our ability to optimize labor even if we're we're paying elevated rates.

To optimize revenue structures appropriately based on patient need.

And there is areas of opportunity there that we feel we can offset some of those pressures, but our approach in the past had been to kind of try not to project those types of costs, but we've used the prior year and we've looked at exactly what these waves of law.

Like how how its affected our staffing how its affected our revenue cycle.

And we've there's been a lot going on in this last year, we think the weather and sort of operating environment in 2022 will be better and we can hopefully get ahead of these expectations that we're setting.

But but the reality is this is where we're at and and we've tried to take a more conservative approach.

Do when we sit in a room and look at it and say do we think we can.

Achieve.

A lot of success in rebounding from a tough 2021 without all the moving parts that we've had internally even before you get to <unk>, yes, we feel really excited about that.

And I think I think in the past, we've kind of baked a lot of that in and assume that the operating environment wouldn't be quite as as messy.

And so we are attempting to not repeat that from from 2021.

On an agenda have anything to add there.

I don't think so Danny I think you've covered it.

When we took our approach for Q1, specifically, we looked at what how we were running in Q4 of 2021.

<unk>.

Yes.

Incorporated modest increases Adler.

<unk> things start to settle as far as the wage rates go but now also making sure that we're incorporating all of what we experienced in 2021, especially in the fourth quarter <unk> first quarter results. I think it's also important to note that in Q4, we had one of our best quarter than senior living.

Brian you want to add something to that.

Our trajectory there.

Yes.

We're making progress it's not anywhere close to where we expect to be.

In the near term, but.

The investments that we've made on the senior living side, especially when you are turning over leadership and Youre building a foundation. It just takes time and navigating that.

Endemic just add some of the complexity.

And we're starting to just starting to realize some of the fruits of those efforts in 2022 is going to be an opportunity for us to build out of that and.

We're optimistic but realistic in the timeframe that its going to take but it was encouraging to see a step forward in 'twenty in Q4 relative to the.

Prior quarter so.

Optimism, but realism all at the same time, so so just to kind of close this out on that on that point Scott. It we looked at it and we're expecting a pretty flat.

Order by quarter is how we did it.

As we said alright, where should we be in the first quarter end and without assuming aggressive improvements, which could materialize right.

Lets up a little bit and then our teams continue their progress in becoming more effective at navigating surges or flare ups.

But but that's kind of where we're expecting is to take that and evenly spread it out throughout the year and that's R.

Our best view of of where we're at right now and assuming an endemic view of Covid.

We're obviously going to seek to define every avenue of improvement.

There's a lot going into that but.

Hopefully that helps.

Yes that does.

Appreciate all the qualitative feedback.

Most importantly, just the comment you made about sort of thinking directionally about <unk> versus the fourth quarter and then.

Sort of being relatively stable and thats been sort of building upon that I think that's just important to help at least got the first quarter level set appropriately.

Around the expectations.

If I can just move on to a second question and I did want to ask about.

The balance sheet and cash flow dynamics.

Obviously, the Medicare advance.

Payment recruitment half have affected the optics of cash flows quite meaningfully in the last couple of quarters I just wanted to confirm around sort of I guess fully settling up for.

The Medicare advance payments and then then the deferred.

Payroll.

That normalization relative to the cares John I think you had mentioned did you just want to confirm you said 3 million left to go on the Medicare advance.

Payments just wanted to confirm that and then also if you could just update us.

<unk>.

FERC payroll piece of that.

And then just to sort of close the loop on the cash flows.

In the press release, you did mentioned how relatively soon you're you're expecting to start to show improved cash flows I'm assuming that as you lap. These these issues relating to <unk>, maybe just give us a little more insight into that in terms of how youre thinking about cash flows.

Sort of showing up in the reports as we move through.

2021, so really the question is just around sort of your thoughts on the cash flow trajectory here over the course of the year.

Yeah, So definitely improved cash flow over the course of the year I think as our.

Acquired operations also become more stable, we will see them.

And then producing cash flows that we are accustomed to you as we take on.

So that's one two and we do have $3 million left in the advance payments, we expect to pay that back I would say at the outer limit by the end of June .

The recruitment go on sort of full on through the end of March and then you get a smaller amount being taken out starting April Tibet.

We will pay that back with at that timeframe.

Yes.

Italy zone.

And so that will affect.

Mostly the first quarter cash flow in this way.

<unk>.

And then we do have as a part of the settlement with the Ensign group $6 5 million.

That will come out for that free cash flow we will.

The holding our assets for sale until we will see that cash, but thats, a one time payment out.

And then for the end of the year, we have approximately.

Currently $4 5 million Thats due at the end of 2022 for the deferral and the social security payments. So those are the big items that will be affecting us of course.

On.

We will have some at all on the operating side.

We will have cash flows out for acquisitions and things like that as well high level, though Scott we're really pleased with the rate of paying back all of that the one thing we took advantage of.

In all of the money that was available.

And so we've had good strong cash flow, we've been able to do the deals that we've wanted to do that.

The interruption on collections is built into every new acquisition. There is always this dead period, where we don't collect and so and then we've coupled that with.

Eliminate the elimination of the rap and so overall, there's been a lot going on in our collections, but to have paid a little over 21 million 25 million back through our regular cash flow processes, where we're pleased with the overall kind of trajectory we're on from a cash standpoint.

Understood and then just one last one for me just on seeing.

Senior living and actually it was interesting in the fourth quarter.

Actually at least relative to my model.

We did certainly see that that improvement NFL, even though occupancy.

Did show the pressure in terms of having the better pricing and having that dropped to the margin a bit.

I think Brad had said during the prepared remarks that you have actually have seen some improvement in occupancy.

In the <unk>.

Despite beyond the crowd of effects.

If possible would you maybe able to give us sort of a spot update on where occupancy is trending now in the first quarter event, then how the guidance is.

Anticipating that occupancy for us that will trend over the course of the year.

Yes, I can't give you a specific number maybe jen can look at some of that detail, but yes. We have continued to experience really from the middle of December we got hit pretty hard from an omicron standpoint, and then write middle December we started to see.

It continues to incline.

Our occupancy numbers.

That hasnt slowed down through January and into February and now that we are hitting March where we're pretty excited about that trend.

And it's something that we experienced over the course of 2021 and this was part of our challenge is even providing guidance you'd see these episodes of improvement and then you'd have another wave that would impact staffing impact sort of.

Customer confidence going into buildings and so.

Whether those we've learned a little bit about ourselves of that process.

As we have seen a lessening of the omicron impact we're starting to build out of that again and so we feel confident that.

That growth will continue and it's not just because of the lessening of the Covid impact we have spent a significant amount of time.

Focusing our efforts on building a local teams.

We're making a conservative effort to.

Improve our relationships in the community strengthening our marketing and business development teams and changing our strategy so that.

We can go out and fill those those empty beds and so.

We're confident we're moving forward and we anticipate that will continue continue to see occupancy improvement throughout the year.

So the improvement has been about 100 basis points.

Genesis so since mid December .

So that's what we've seen.

<unk>.

I'd be lying Scott if I didn't say, we provided updates on occupancy just to see them get wiped out by another surge of omicron or the next thing and so.

Coming back to the guidance approaches.

We are assuming we are going to feel pressure, even though we've made those gains right and so.

If the pressures don't materialize, we should be in a really good position.

And what we're focused on is those things that we can control the Brent mentioned, making sure that.

As we emerge from a tough 2021, where we've implemented.

We've done our Sox compliance we've cut our systems over.

Finish that process.

Dealt with pretty extreme.

Operating challenges in.

The COVID-19 environment.

One thing that we're all really excited about is that kind of our adherence to our culture and our team morale.

Cross the organization is really really strong even having lost.

Team members to Covid, and and others that we care deeply about.

But there is this growing sense of confidence that the worst is behind us and.

And our ability to navigate future difficulties related to Covid is increasing.

And.

And so that's the picture on the occupancy front. We're excited we are hopeful that some of the neglected preventative care.

Then driven may may lead to.

Improvements, even further from where we're at but.

Again until we see those things materialize, we're taking a cautious and have kind of a conservative approach.

Okay I appreciate the feedback okay. Thanks.

Okay. Thanks, Scott.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchstone telephone.

Again to ask a question. Please press Star then one.

I'm showing no further questions at this time I'd like to turn the call back over to Danny Walker for any closing remarks.

Thank you Valerie and just want to thank our stakeholders, both inside the organization and outside the organization.

Shareholders friends of the organization.

For for supporting Us through a very challenging 2021, we've only had a couple of years like this.

Remember 2013 that wasn't really the public view, but.

In 2021.

Our 12 year history and so.

It's unusual for us to come up short of our expectations and we look forward to restoring and building confidence.

The organization as we move forward into 2022 and beyond so thank you for joining us today and thank you to everyone who is involved in helping tenant be what it is to take care.

Thank you ladies and gentlemen.

Today's conference. Thank you all for it.

Dissipating you may now disconnect have a great day.