Q4 2022 Pennant Group Inc Earnings Call
Yes.
Thank you Olivia welcome everyone and thank you for joining us today.
With me today I have been here so.
CEO , John <unk>, our president and CFO and Jen Freeman, our interim CFO before.
Before we begin I have a few housekeeping matters.
We filed our earnings press release and 10-K yesterday.
Cement 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 pm Mountain.
On March 24th 2023, we want to remind anyone who may be listening to a replay of this call that all statements made are as of today February 24th 2023, and these statements have not been nor will they be updated after today's call.
Also any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.
Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.
Except as required by federal Securities laws pennant and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
In addition, the pennant group incorporated as 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.
Words pennant company, we our and US refer to the pennant group incorporated and its consolidated consolidated subsidiaries.
All of our operating subsidiaries and the service center are 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.
Has direct operating assets employees. Our revenues are there 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.
Should not be relied upon to the exclusion of GAAP reports a.
The GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-K.
With that I'll turn the call over to bring here slowly our CEO Brent.
Thanks Kirk.
And welcome everyone to our full year and fourth quarter 2022 earnings call.
Before we share our results I want to express our deep appreciation to the local leaders and teams who care for our patients and residents in communities across our platform each day.
Tightness compassion work ethic and commitment to excellence is the bedrock of patents operational and clinical success.
We are grateful to work alongside you and partner with you and providing life changing service.
We are pleased to announce fourth quarter results that demonstrate the consistent operational improvement our local leaders and their teams achieved in the fourth quarter and throughout 2022.
Collectively our full year consolidated results reflect revenue of 473.
One 2 million, an increase of $33 5 million or seven 6% over the prior year and.
And adjusted EBITDA improvement of $5 1 million or 19, 5% over the prior year in.
In the fourth quarter revenue increased $12 9 million to $124 7 million and our adjusted EBITDA improved by $4 9 million or 98, 3% over prior year with adjusted EBITDA margin expansion of three 5% over the prior year.
These results reflect the success of our local operating teams.
Responding to extraordinary inflation and labor shortages with consistency and resiliency.
Our home health and hospice leaders continued to drive solid clinical and financial results, including improvement in average star rating and hospitalization, which contributed to double digit topline and bottomline growth our senior living segment experienced transformational change in 2022, as we added talented operational leaders in clinic.
Operational and clinical leaders, who drove stronger results.
And showed increasing momentum in the fourth quarter.
Demand for our high quality senior living services has accelerated allowing us to drive improved occupancy while simultaneously increasing revenue per occupied room, resulting in improved bottom line performance.
Even with this progress significant latent potential still remains across our businesses.
Each segment is well positioned to maintain its growth story in 2023.
The growth and positive momentum we experienced in the fourth quarter are representative of the steady improvement that we committed to provide and executed upon throughout the year.
While we are pleased with the progress we know we can be much better and see tremendous opportunity to unlock additional value in the coming year as we live our culture and leverage our model of empowered local leadership robust cluster accountability and exceptional service center support.
In 2023, we are enhancing our efforts to find train and develop world class operational and clinical leaders our existing talented local leaders and many more who will join us will drive improvement in four key areas.
First best in class clinical outcomes next improved operating margins next organic and inorganic growth and finally, an elevated employee experience Ulf.
Ultimately.
Tennant is more.
Sure and then a health care company dedicated to our mission of providing life changing service.
Our a leadership company deeply committed to creating value, creating opportunity for entrepreneurial individuals to use their unique talents and strengths to create value.
Our operating model empowers these leaders to identify partners and the local community create strategic plans relevant to their local situation.
Line with other cluster partners through our incentive and equity structures.
Our model thrives when local leaders use their freedom within a framework of accountability to operate as owners and drive exceptional performance clinically financially and culturally.
When leaders achieved these results over an extended period. They are awarded C level designations, such as Chief Executive Officer, Chief Clinical Officer, and Chief operating Officer.
There is a lot to accomplish across the organization, but let me be clear.
Developing C level leaders is my number one priority.
Across the organization, we are committed to tripling the number of Ceos in our organization over the next three years.
To accomplish this we are redoubling, our efforts to recruit train and develop more world class leaders.
We are also actively improving the data tools and resources available to our field leaders in order to drive meaningful improvement within operations clusters in markets and to consistently focus leaders on their results and areas of improvement on their path towards the sea level designation achieved.
Achieving success in this priority is paramount to our future success.
As we announced in our press release yesterday, we are providing guidance for the full year of 2023.
We anticipate full year revenue in the range of $503 5 million to $518 4 million and adjusted earnings per share in the range of 66 to 76.
The midpoint of 71.
It represents 25% growth on our 2022 adjusted earnings and 54% growth over our 2021 results or 2023 guidance is informed by the burgeoning momentum in both our segments the impact of the home health and hospice reimbursement changes increased costs associated with labor and other inflation.
Questionary pressures as well as the significant upside we know remains in our existing operations.
With that I will turn the call over to John to provide more detail on our fourth quarter operational results.
Thank you, Brian and good morning, everyone. We are pleased to report that the fourth quarter reflected meaningful progress in both our operating segments, turning first to our home health and hospice segment performance topline revenue for the quarter of $97 million increased $12 8 million or 16, 4% while adjusted EBITDA.
A $15 5 million increased $4 3 million or 38, 5% and adjusted EBITDA margin expanded two 7% each over the prior year quarter.
Our home health business continued its strong year quality clinical outcomes and robust accountability continue to set us apart in the marketplace as our agencies reached an average CMS star rating of four three.
Real time, 60 day hospitalization rate of 12, 1%, which compares favorably to the national average of 14, 7%.
These excellent clinical outcomes contributed to steady admissions growth.
Home health admissions rose eight, 2% and Medicare home health admissions was 10, 6% each over the fourth quarter 2021.
Our local teams continued their focus on care planning, an episode management driving meaningful progress in delivering strong clinical outcomes, while improving efficiency and an elevated cost environment.
Finally, our clinical team service center resources and clusters collaborated to prepare for the expansion of Cms's home health value based purchasing program. This program will benefit providers, who can successfully drive clinical outperformance and represents an opportunity or the opportunity to be measured and rewarded for value in our home health pro.
Grams on.
On the hospice side, our fourth quarter represented a strong step forward in a year that required our team to navigate a uniquely difficult operating environment for.
The full year in the fourth quarter admissions grew six 4% and two 4% respectively. Each over the prior year period, the fourth quarter saw a significant improvement in hospice length of stay for the first time this year as discharge length of stay increased nearly 10% sequentially over the third quarter of 2022 strong admissions and length of stay.
Improvement contributed to our fourth quarter average daily census, growing five 2% over the prior year quarter, and three 5% sequentially over the third quarter of 2022.
While we are pleased with the progress we have made in our home health and Hospice segment. We know our performance can be much better at executing on the fundamentals of our business. We can improve performance. We can create a more robust ramp of hospice growth better manage the cost and efficiency of our care delivery and continued to improve our transitioning operations the strength.
And diversity of our hospice programs are reflected in our fourth quarter ADC growth as we grew sensus. Despite continued challenges in Arizona and Texas two of our historically strongest hospice markets as these markets rebound to historical levels and length of stay continues to normalize we expect hospice ADC growth to ramp through 2023.
Similarly, we are working to improve cost management and optimize care delivery. Our local teams are reporting out regularly on efforts to reduce direct and administrative costs, while driving revenue to meet their commitments as part of this effort. We are working hard to optimize the EMR experience for our clinical teams as we more effectively utilize technology and data to <unk>.
Prove episode management utilization and productivity, while also enhancing the employee experience. Finally, we continue to realize the organic growth potential in new markets opened through acquisitions completed in 2021, and 2022 and 2022, we drove improvement in these recently acquired operations and we remain.
<unk> focused on the significant opportunity each of these new operations represent as an engine for our 2023 growth.
We are excited to report continued progress in the turnaround of our senior living segment over the last 18 months, we have invested extensive time and effort and recruiting and developing senior living living leaders and resources, who understand our culture and have embraced dependent opportunity. These leaders have driven improvement in our top and bottom line performance.
Adjusting for divested building same store senior living segment revenue improved to $126 8 million, an increase of $12 8 million or 11, 2% over the prior year and $33 2 million in the fourth quarter of $3 5 million or 11, 8% increase over the prior year.
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Full year senior living segment, adjusted EBITDA improved to $6 million or $4 4 million or 280 to increase 282% increase over the prior year and $2 million for the fourth quarter, an increase of $1 3 million or 171% over the prior year quarter occupancy continued its steady.
In drilling for a fourth consecutive sequential quarter and reached 78, 6% a 330 basis point improvement in our same store communities over the prior year quarter, and 100 basis point improvement sequentially over the third quarter of 2022, we.
We achieved this occupancy improvement even as average monthly revenue per occupied room for the fourth quarter Rose to 3670, an increase of $282 or eight 3% over the prior year quarter and $113 or three 2% sequentially over the third quarter of 2022.
While we took a significant step forward in 2022 enormous organic growth opportunity exists in our senior living portfolio. We remain focused on translating revenue improvement in our bottom line financial performance through rigorous cost management and cluster accountability growing occupancies to improve sales practices and support and accurately capturing and receiving appropriate.
Get reimbursement for the care, we provide as our local teams succeed in these objectives, we will create stronger operating results from the senior living space and look forward to joining our home health and hospice segment as a growth engine dependent success.
In both segments, we continue to focus on our most important asset.
Our people over the last two years elevated turnover levels and staffing shortages have impacted our ability to grow.
The pandemic has created a role in staffing difficulties in turnover across many industries. We are ultimately responsible for creating a life changing employee experience and our turnover results have not measured up to the highest standards. We have set for ourselves in the fourth quarter and into the month of January we have seen signs of improvement in our labor trends.
Wage inflation slowed sequentially clinical head count increased in home health and hospice turnover has declined as we continued to improve these trends will allow us to admit and serve more patients and residents. Our local leaders and teams are committed to becoming the employer of choice in each community, we serve and are resolutely focused.
I am finding and retaining the best talent as we live our core values of customer second and levels of another.
Turning to growth.
As we increase the quality and depth of our leadership pipeline, we expect to accelerate our growth we see a robust pipeline of acquisition opportunities at home health hospice and senior living across our platform and in new markets as we find opportunities through the efforts of our local teams and our strong relationships with the broker community, we will continue to be disciplined and <unk>.
In executing our growth strategy looking for opportunistic acquisitions in areas, where we have healthy clusters and talented candidates and our leadership development program. We also continued to invest in de Novo locations and branch expansion in markets, where we meet the same criteria and have opportunity to expand our continuum of care and better serve.
The community in the fourth quarter, we announced one home health acquisition, the Kenosha visiting Nurse Association in Kenosha, Wisconsin, We are grateful to the board of <unk>, which is operated independently since 19, 27% for entrusting us with their nearly 100 year legacy of providing high quality in home care in the Kenosha areas.
With three of our senior living operations and the caveat any service area. The acquisition represents an opportunity to continue establishing our pennant care continuum as we support seniors ability to agent place I, providing a skilled care.
<unk> care, they need within our senior living communities with a talented leadership team and the support of our strong home health and hospice operations in the Milwaukee area. We are executing on a plan to quickly drive financial improvement and clinical strength at <unk> positioning it to be accretive to 2023 results.
With that I'll hand, it over to Jen for a review of the financials.
Thank you John and good morning, everyone.
<unk> financial results for the full year and three months ended December 31, 2022 are contained in our 10-K and press release filed yesterday.
Full year ended December 31, 2022, we reported total GAAP revenue of $473 2 million.
An increase of $33 5 million or seven 6% over the prior year.
And GAAP diluted earnings per share of 22 cents, an increase of 13 per 144, 4% over the prior year.
As a reminder, our 2022 full year guidance, let's total revenue between $458 million and $462 million.
Earnings per diluted share.
Between 55 and 60.
And adjusted EBITDA between $31 million and $33 5 million.
Consistent with that guidance revenue adjusted for startups, and the divested building less $464 1 million, a $38 million or nine 1% increase.
<unk> EBITDA was $31 5 million $5 1 million or 19, 5% increase.
non-GAAP adjusted earnings per diluted share of <unk>.
57.
Shares of $30 2 million, an increase of 11 or.
Or 23, 9% over the prior year.
Key metrics for the full year and three months ended December 31 2022 include.
$64 5 million drawn on our revolving line of credit and $2 1 million cash on hand at quarter end.
193 times net debt to adjusted EBITDA.
And cash provided from operations of $9 million for the year and $25 8 million, excluding the impact of $6 5 million transfer related to the divested building four.
$4 1 million and deferred FICA payments and $6 2 million and the repayment of Medicare advanced payment.
As we mentioned in our press release, we are providing full year 2023 guidance of revenue of $53 5 million to 50 to $518 4 million adjusted EBITDA of $38 4 million to $42 6 million and adjusted earnings per share of <unk>, 66% to 76%.
Our guidance incorporates current operations and organic growth dilutive weighted average shares outstanding of approximately $37 million and 25, 5% effective tax rate.
Our 2023 annual guidance anticipates, an EPS increase quarter over quarter consistent with our 2022 performance.
And its ramp.
Based on our ramp in home health and hospice ADC.
Occupancy improvement in senior living.
Anticipated reimbursement rate adjustments and elevated interest rates.
It does not include unannounced acquisition and excludes startup operations share based compensation acquisition related costs.
And one time implementation and unusual items.
Including the factors contemplated in our guidance, we are confident in our local leaders and resources across our organization.
We will continue to drive the momentum that we experienced in the fourth quarter into 2023.
Good thing on the things we have previously emphasized leadership development clinical outcomes margin expansion and culture.
We expect cash flow from operations for 2023 to reflect organic revenue growth and bottom line improvement unencumbered by the onetime cash outlays experienced in 2022 with.
With increases in earnings continued improvement in cash collections and lower capital expenditures, we expect to fund future growth.
That I will hand, it to Brett to highlight a couple of our local leaders.
Thanks, Jen, it's my pleasure to spotlight a few leaders in our organization, who have achieved exceptional results in 2022.
Their stories reaffirm our conviction that elevating local leaders and supporting their progress to CEO will be key to our future success.
As an example, newly appointed Chief Executive Officer.
George lip art and Chief Clinical Officer, Kathy All Mark lead Sacred Heart home health in Tucson, Arizona.
Sacred Heart joined the pendants family through acquisition in January of 2021, and has improved steadily ever since.
George and cap <unk> intense focus on culture.
And operational excellence have led to sacred heart, becoming an employer of choice and a provider of choice in the Tucson market.
We have partnered closely with our other operations in the area and demonstrated the unique value of the enzyme pennant care continuum meeting and coordinating regularly with ensign leaders in Tucson.
Work dedication and collaboration have borne fruit as evidenced by Sacred Heart real time star rating up.
<unk> five.
13% 60 day hospitalization rate.
And by 91% increase in revenue in 2022 versus 2021.
Even more impressive.
These leaders dramatically increase sacred Hearts margins in an inflationary environment, leading to a more than 400% increase in secret Hearts EBIT year over year.
Also in Tucson, Arizona newly appointed CEO Russell Sylvester.
Future Chief Wellness Officer, Calvin Nielsen are building something special at Sherwood village assisted living and memory care.
These leaders have helped Sherwood establish a reputation as a preferred local senior living community.
Sherwood village is known for great care, and providing a welcoming an attractive environment for residents.
Through Russell into Cobos leadership, Sherwood, whether the pandemic and never lost sight of the importance of strong culture throughout 2022, Sherwood gained momentum increasing a census to pre COVID-19 levels to end 2022.
With a census of 151 residents and increase in occupancy from 80% in Q4 2021, 91% in Q4 2022.
Sherwood's financial performance improved accordingly, with a 78% increase in EBITDA year over year.
We're seeing other Arizona communities, following Russell and Dakotas footsteps.
And we're excited about the Arizona senior living market in 2023.
With that.
We will open it up for questions Livia can you. Please instruct the audience on the Q&A procedure.
Sir ladies and gentlemen to ask a question you wanted to Westar one one on your telephone and wait for your name to be announced to withdraw your question Westar. One again, please standby, while we compile the Q&A roster.
And our first question coming from the line of <unk> with Stifel. Your line is now open.
Hey, good morning.
Congratulations on the strong results.
Congrats on the strong result, this quarter and the progress throughout the year I'm just curious on the full year guidance I think the guidance suggest 10% growth on the topline I think 28% increase on EBITDA at the midpoint could you maybe unpack the various components.
Driving the guidance and secondly, I think the guidance also suggests 50 basis point improvement in adjusted EBITDA margin in 2023.
Saw the momentum of the margin expansion that should carry into 2023, but in light of experienced last year what level of conservatism are you building to that margin assumption. Thanks.
Yes. Thank you Tal, it's a great question and I'll I'll.
Provide a general overview and then I'll, let John provide some of the specific details.
As we took into account.
We ended the year, we had a strong fourth quarter, and we're really optimistic going into 'twenty.
2023 at the same time as we mentioned we expect to ramp similar to what we saw in 2022.
Where are we.
We start out solid, but really see a ramp up in the second half of the year.
And just to keep in mind Q1 tends to be a little bit more of a choppy quarter for us we've got.
As you compare quarter over quarter from last year, we have the sequestration holiday that's gone away.
We also are experiencing some some benefits reset and other payroll taxes in this first quarter.
We've got the impact of the home health revenue.
Final rule changes as well as.
It's a slight dip that we sort of we normally see some seasonality in our census through the holiday season, and we did experienced that.
What's great those we've already rebounded and surpass the levels that we had experienced in.
In Q4 so.
We're excited about that progress.
And then just.
Just in general we're starting to see real momentum as we roll into the second half of.
The first quarter so.
Anyway, that's kind of our expectations I will just say this we anticipate.
Some stable, but solid growth from a revenue top line standpoint, and as well as incremental margin improvement.
We've got significant opportunity.
We have pretty conservative estimates built in for our senior living segment.
We we believe that that ramp can really take off and we've talked about sort of the breakout performance that we're expecting but we're really factoring in pretty conservative.
At quarter over quarter improvement, and then Theres significant opportunity as well on the home health and hospice sites to continue to drive our margin improvement there and I would just note. One other thing. We also have some some opportunities on the G&A side, we continue to make investments in 2021, and 2022 that were necessary as we.
Work through the pandemic, but also just transitioning.
Through the spin there's been additional investments there.
We anticipate that those will start to alleviate.
2023, and we will see improvement in the percentages there than any other additional.
Yes, I think that Tal just to.
Maybe put some more color around that for cost of service. We did include some inflation in the ranges of up to 5% improved margins through incremental accretive growth. So.
Affecting a slight improvement in cost of service. We've also benefited from some rents.
Improvements as a percent of revenue as well on the senior living side.
On the home health and hospice side, we are anticipating a <unk>, 8% decrease in our home health reimbursement. So that's built in to our considerations as well on the cost of service side, just looking at margin improvement focused on the areas of operational efficiencies caregiver productivity some visit utilization in our EMR.
Our optimization and then as Brian said on the G&A side, we did see our G&A expenses.
Klein as a percentage of revenue in the fourth quarter overall, we do expect G&A as a percentage of revenue to come down.
Year over year.
Great. Those are great colors. Thank you and my second question is on the hospice side I think the average length of stay was adversely impacted by the shifting referral sources during 'twenty two but we saw that bounce back quite strongly during this fourth quarter.
You talked about the ramping Arizona and Texas could you maybe you can talk about efforts you can make there any changes in reverse splits that you are currently seeing.
Yes, Im happy to take that one.
We're really excited about what we saw in the fourth quarter from a census perspective, particularly with the normalization of length of stay we saw about a 10% increase.
That's really driven across the board.
What we expect to see in 2023 as we believe that we will see more of a normalization, we're getting more and more referrals from our community referral sources, which is terrific, where we still have opportunity to return to pre pandemic levels is in the senior living and skilled nursing partners, who where historically we've had.
A little bit higher number of patients and so as that normalizes as their census continues to grow we expect to see that normalize a little bit and as we've talked about previously.
In those settings, we're better able to identify the hospice need sooner and so there is generally an improvement in length of stay for the patients that come out of those facilities, but we're really excited about the admissions data that show how the community.
Choosing us the referral sources, particularly on the hospital side that we gained during the pandemic. We don't expect those two to change significantly and we see an opportunity for growth as our facility partner census improves.
In Arizona, and Texas, as we called out those markets because we have seen them historically as is critical parts of our hospice census through several leadership transitions.
Some other things that factored in we saw census decline in those areas and the great thing is we've got a good group of leaders who are very focused on bringing those markets back to where they've traditionally been in so what you can what you will see and what we expect to see as those markets on a ramp to return to prior performance.
Continued strong growth in our markets in California, the inner mountain West in the Pacific Northwest.
And then the normalization of length of stay and we view that as what we'll build that ramp in hospice ADC.
Great understood. If I may squeezing one more question on senior living I think the rate growth was pretty strong year on year as well as quarter on quarter.
Some of your competitors has caused a higher level of move outs because they are pushing rates did you guys get any pushback from your resident base and I think also in 'twenty two the cost of services in senior living and benefited from a $4 $2 million State relief fund I assume some of the support a medic on the Medicaid side will probably stay in play.
And <unk> could you maybe comment on <unk>.
So Paul when the public health emergency and what level of support do you anticipate your LOE guidance. Thank you.
Great questions Tao.
Well I'm going to I'll start with the provider relief question that you asked.
We have we have in several of our states received the funding.
On the provider relief and we have confirmation across virtually all of the states that will remain in place for 2023, and obviously 2024 is still in question, but so thats factored in there is one state in particular, Idaho that we didn't receive.
Confirmation that we'll be getting that but what we've done in Idaho is we've actually partnered with the state and other programs that really helped to elevate our performance bottom line and top line performance there. So.
Overall, we expect a similar type of impact in 2023 versus what we experienced in 2022.
As it pertains to sort of the price elasticity of the sensitivity to pricing in our occupancy in Texas.
What we've experienced is I will say this we started from a point of probably from a point of catch up so we're.
We're competitively priced in the majority of our markets and so as we've incrementally increased rates.
We've also seen and we've pointed this out earlier on the call we've seen significant occupancy gains and.
And so we anticipate that we'll continue to see those gains.
We still have plans to.
Increased rates across the board, we're focused on trying to drive.
Right there is rent coverage, but theres also.
Our carriers are provided and so just making sure that we're being reimbursed properly for the carriers that we're providing.
We anticipating continued increases there, but that will likely slow down.
There is going to be some sense that we are anticipating some sensitivity to that as prices get to a certain level, but we still feel like there is still significant upside on the rent increases through the year, just probably not at the same aggressive rate that we experienced in 2022.
Got you. Thank you.
Yes.
Thank you one moment please for our next question.
And our next question coming from the line of Scott Fidel with Stephens. Your line is open.
Hi, Greg Hi, everyone.
Wanted to maybe just follow up on that last discussion point, just just on DSL business and thinking about rate and occupancy.
2023, and would be interested in terms of what you're building into your outlook in terms of.
The rate increases and occupancy.
Sort of trend that you're factoring into the guidance.
Yes. So overall, we're looking at an increase on top line growth of about 10% on our senior living business the breakdown between that.
Clean rate and occupancy would be about 2% to 3% would be on the right side and 7% to 8% would be in the occupancy side and then of course that will translate into incrementally accretive growth in the margin.
Okay, Great that's helpful.
And then also just on the outlook for cash flows and it sounded like.
And your qualitative commentary was pretty positive around normalization and an operating cash flow just interested as well.
If you could quantify that for us in terms of what you're what you're factoring in for operating cash flow and then for Capex as well.
Yes, so I think.
We will see our cap I'll start with the last question first on Capex.
We've made some significant investments in 2022, and Capex and we expect that to come down between eight to 10 million in 2023.
And then in comparison.
And in line with that.
On our cash flow, we do expect that to improve but we don't have those one time expenditures that we've experienced over the last couple of years. The advance payments are all paid back the FICA deferral and then we had a $6 $5 million.
<unk> came out with the divested community. So if you factor those out you are looking at $25 8 million in operating cash flow. So we arent looking at similar to improved as we improve our margins as we improve our bottom line growth that will improve cash flow year over year.
Understood.
It looks like there should be some solid improvement in free cash flow.
And then just if I can sneak one last one in just on the margin side I know you touched on some of the drivers of the margin expansion across the business and just called out <unk> for example.
Interested just within <unk>, how youre thinking about margin progression.
Just given the sort of flat to slight rate rate reduction in home health.
Interested if youre, assuming that youre going up margin expansion in the home health.
Despite that or whether their margin expansion, it's more weighted towards hospice and a solid 2023.
Scott Great questions and we appreciate them and the margin expansion. We've discussed it really applies to all three segments by Jim called out we do expect a modest reduction in home health Medicare revenue.
Going to be offset a little bit as we continue to.
Expand our relationships on the commercial side, it's going to be offset.
Through the clinical optimization that we are in the process of doing with our EMR, which we anticipate leading to improved productivity and.
Our continued focus on on visit utilization and episode management, we've made tremendous progress over the last few years and Thats been our focus and we will we will continue to focus on that our goal is to deliver care as efficiently and as effectively as we can.
And so we do have a little bit of a tick down on the home health side from a Medicare revenue standpoint, but we offset that with significant what we believe is that we can continue the ramp up growth that we've experienced we're continuing to strive to be the provider of choice in each community we serve.
And our admissions remained strong in both the Medicare side and the commercial side.
So that's offset a little bit in that projection by the increase in volume.
As far as the expansion of margin goes overhaul, we called out a couple of things will continue to focus on employee turnover, we feel like that's a real opportunity for us.
Picked up about 25% over the last.
Two years, and we felt like getting that back down to pre pandemic levels.
Really gives us an opportunity to expand margin.
Still feel like we have opportunity on our new transitions.
Acquired a lot of businesses through 2000, 22021, and then well have slowed in 2022. Each of these represents an opportunity for significant growth and we saw that improvement in 2022 and helped to drive the margin expansion. You saw that we believe we continue to have opportunity. There. So those are some of the things I'd call out.
As opportunities to reach the <unk>.
<unk> expansion, we talked about in our guidance.
Okay helpful color. Thanks, a lot.
You bet.
Thank you and our next question coming from the line of Ben.
Ben Hendrix with RBC capital. Your line is now open.
Thank you.
Another quick question on hospice I appreciate all the color on.
To stay incentives, but on the rate side one of your competitors. This morning kind of implied a pretty strong rate update for fiscal 'twenty for us would impact.
23, or the third quarter of this year and was just wondering what you guys had baked into your expectations for four rate progression at the end of the year for hospice. Thanks.
Yes, so we take the approach of kind of including whats known in the guidance and so we did not bake in any any significant increase above the 3% adjustment from the 2023 final rule and so thats that also represents a potential upside for us.
Okay. Thank you very much.
Okay. Thank.
Thank you and I'm showing no further questions at this time.
Thanks.
Okay, well, thank you Olivia and thank you everyone for joining US today, we hope you have a great day.
Yeah.
Ladies and gentlemen, Douglas will go conference for today. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise and lower <unk>.
During Q&A you can dial one one.
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The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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