Q1 2023 The Pennant Group Inc Earnings Call
Good day and thank you were spending by welcome to the pennant group first quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
We'll then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kurt Chini Corporate Secretary. Please go ahead.
Thank you Victor welcome everyone and thank you for joining us today.
With me today are Brent <unk>, our CEO , Dan Gardner, 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-Q 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 PM Mountain on May four 2024.
I'll remind anyone who may be listening to a replay of this call that all statements are made as of today may five 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.
Statements are subject to risks and uncertainties that could cause our actual results.
Materially differ from those expressed or implied on today's call.
Listeners should not place undue reliance on forward looking statements.
And are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.
Except as required by federal Securities laws and its affiliates do not undertake to publicly publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstance circumstances or for any other reason.
In addition, the pennant group, Inc. Is a holding company with no direct operating assets employees or revenues.
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.
Tennant company.
Sure and Thats referred to the pennant Group, Inc. 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 are and similar terms used today are not meant to imply nor should it be construed as meaning that the pennant group, Inc. Has direct operating assets employees 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, but they should not be relied upon to the exclusion of GAAP report.
The non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q.
And with that I'll turn the call over to Frank Gehry.
Grant.
Thanks, Kurt and welcome everyone to our first quarter 2023 earnings call.
We are pleased to announce Q1 brought solid revenue and census growth and overall financial performance in line with our expectations.
Our local leaders and teams drove improvement in our clinical outcomes reduce turnover and grew admissions and occupancy.
Our disciplined approach produced significant progress in an environment with ongoing inflationary headwinds and labor difficulty.
Secondly, our Q1 consolidated results reflect.
Revenue of $126 5 million, an increase of $12 6 million or 11% over the prior year quarter and adjusted EBITDA of $7 9 million, an increase of $1 8 million or 28, 8% over the prior year quarter.
Our unique locally tailored approach resulted in continued growth in each of our primary lines of business.
<unk>, reaching an all time high in home health and Hospice average daily census.
In achieving.
The same store senior living occupancy of 79, 1%.
Presenting a fifth consecutive quarter of occupancy improvement.
We are excited about this progress and still see significant opportunities to improve our bottom line financial performance.
With the benefit of the positive momentum built over the last several quarters, we remain on track to deliver on our 2023 earnings commitments.
I'll get there by focusing on five key organizational priorities, we identified at our most recent call first.
Leadership development second margin.
Our turnover fourth growth and fifth clinical excellence.
Leadership development continues to be our top priority.
Personally investing much of my time and attention.
We are diligently focused on finding hiring and developing a robust pipeline of exceptional operational leaders.
Optimize the many exciting growth opportunities that lay before us.
Our expanded leadership development team now includes several key field and service Center partners, who work closely with markets in clusters to find train and develop future leaders specifically over the next several years. Our commitment is to develop 100 local Ceos to earn the title of CEO , our leaders must not only us.
<unk> extraordinary clinical outcomes culture and growth.
But also drive significant financial improvement in their operations.
We have found that Ceos, typically generate roughly $1 million more in annual earnings at our executive directors as.
As well as better clinical and cultural outcomes.
To support this local CEO development, we've revamped and reinforced many elements of our leadership training programs for operators and clinical leaders.
We have also increased the depth of our leadership pool year to date, we have appointed seven local Ceos, adding to the 22 existing local Ceos and another 10-C level leaders.
<unk> hired 11 Ceos in training with many more in the pipeline for the.
The future of our organization is in good hands and discontinued investment will drive our future growth.
Value creation and margin improvement remains a key operational priorities in 2023.
Our local leaders are succeeding at growing revenues incentive.
Macroeconomic cycle of inflation and rising costs.
Just be even more disciplined and innovative to ensure that our earnings outpace our revenue growth.
We continue our multifaceted approach.
To optimize our operations and appropriately increased margins.
First.
Our local teams carefully measure and manage utilization and staff productivity.
Our teams diligently monitor payer mix to balance reimbursement with our commitment to be a solution to the needs of our communities.
Finally, based on our strategy of acquiring and turning around underperforming operations.
Continue to strengthen our transition process to ensure that our newer operations become accretive more quickly.
Our standard for new operations is that they contribute meaningfully to earnings no later than the ninth quarter post acquisition.
As an example in early 2021, we acquired home health operations in Phoenix, and Tucson, Arizona.
First four quarters post acquisition, where foundation building quarters, reinforcing culture operational and clinical leadership teams and community relationships over those four quarters revenue increased 48% and earnings increased 13% year over year.
In Q1 of 2023, the ninth quarter since the acquisition. These operations are now high performers with a 135% increase in revenue and a 200% increase in earnings since the acquisition there.
<unk> clinical performance is also impressive with star ratings consistently between four and four five stars.
We've made progress in our employee turnover and are committed to being the employer of choice.
In each community we serve.
Leveraging our unique operating model to reduce turnover and improve employee satisfaction, we shared turnover scorecards, probably create accountability and empower our clusters.
Individual operators to drive improvement.
We are achieving encouraging reductions in turnover in both segments.
<unk> double digit year over year improvement with the greatest impact realized in our senior living business.
Turning to growth our acquisition and growth strategy, followed several core principles.
We don't grow for growth's sake, rather we grow to provide meaningful opportunities for local leaders and communities.
Which leads to greater value creation for shareholders.
We invest where we have strength.
Wrong leaders ready to step in and established operations to serve and support is cluster partners.
We are disciplined in our valuation approach and seek to make opportunistic investments.
<unk> long term upside value.
We will continue to invest consistently in home health and hospice through multiple avenues.
These include traditional acquisitions.
Operational expansion such as branch expansion.
Strategic partnerships.
<unk> operations.
<unk> pronged approach.
It provides flexibility to expand and create opportunities for our developing leaders through changing economic cycles.
We also plan to invest strategically in senior living where we can quickly turn operations and create value.
Senior living deals may be attractive based on a number of factors, including favorable lease terms and strong relationships with landlord partners such as enzyme Air Trust and others.
We believe value generating real estate acquisitions are on the horizon, and we will be disciplined yet opportunistic in pursuing these opportunities as we look to the future we see significant potential to invest in both segments.
Long term shareholder value through the post acute care continuum.
With that I'll turn the call over to John to provide more detail our first quarter operational results.
Thank you Brent and good morning, everyone.
We are pleased to report that the first quarter reflected significant progress in both our operating segments, turning first to our home health and hospice performance top line revenue for the quarter of $91 1 million increased $10 6 million or 13, 2% over the prior year quarter.
Adjusted EBITDA of $13 $2 million increased <unk> 5 million or three 7%.
The prior year quarter.
Our home health business continues to thrive home health revenue grew by 11, 7% over the prior year quarter. Despite cms's base rate cut which resulted in a net negative 8% impact on our home health revenue per episode.
Compared to the fourth quarter of 2022.
Revenue per episode increased a modest <unk>, 3% and our results were accelerated by a seven 1% increase in home health admissions and a $6 eight increase in Medicare home health admissions each over the prior year quarter. Our growth is a direct result of our efforts to create unique solutions communities we serve.
<unk> and largely driven by our strong clinical outcomes, our CMS star rating of $4. Two is well above the national average of 3.0 and a real time 60 day hospitalization rate is 12, 1%, which compares favorably to the national average of 14, 2%. These.
These metrics are critical measures for home health value based purchasing and for our partners across the care continuum and our teams are tracking and trending these measures in their clusters to drive continued.
Continued improvement.
We're excited to be measured and rewarded for the clinical outcomes, we deliver through our home health programs.
On the hospice side Q1 brought an important and exciting return to our historically robust growth trajectory hospice admissions increased nine 1% sequentially over the fourth quarter of 2022.
With a more normalized length of stay this led to robust ADC growth of nine 3% and revenue growth of 14, 5% each of the prior year quarter as.
As we described on last quarter's call, we expect to see a continued ramp of growth in the home health and hospice segment throughout 2023, our local teams continued to establish themselves as community resources and as we more rigorously manage cost bottom line results will follow even in a difficult macroeconomic environment.
Last quarter, we highlighted two markets, Arizona, and Texas, where we saw significant opportunity to return to past levels of performance that are more consistent with the strong results in other parts of our portfolio. We continue to work diligently to increase performance in these markets and our efforts are bearing fruit.
We're happy to report significant progress in our Arizona market over the last few quarters, Arizona added and develop several talented leaders and established robust clusters in both urban and rural markets with a resolute commitment to our locally driven operating model, our Arizona agencies are rapidly improving clinically financially and culturally.
Arizona is beginning to again contribute to our overall health demonstrated by its 47, 3% earnings increase over the first quarter of 2022.
In Texas, we have seen strong progress in several of our operations, particularly those in West, Texas, and Dallas and we remain focused on improving performance in the few who are falling short.
Wanted leaders have stepped in to help support this effort fixing culture and creating strong clusters takes time, but we are confidently executing on plans to accelerate performance throughout Texas.
Our senior living business continues its impressive progress improvement is apparent in almost every facet of the business and the experience of our residents the caliber of our leaders the engagement of our employees and the support of our service Center partners are financial performance has improved accordingly, adjusting for divested buildings.
Same store senior living segment revenue improved to $34 6 million, an increase of $4 5 million or 15% over the prior year quarter segment adjusted EBITDA improved to $2 3 million in Q1, an increase of <unk> 7 million or 45, 6% over the prior year quarter.
Same store occupancy continued its steady ramp growing for a fifth consecutive sequential quarter, and reaching 79, 1% a 370 basis point improvement in our same store communities over the prior year quarter, and a 50 basis point improvement sequentially over the fourth quarter of 2022, even as.
<unk> improved we also grew our revenue per occupied room, which rose to $3846 in the first quarter, an increase of 14, 1% over the prior year quarter and four 8% sequentially over the fourth quarter of 2022.
We are pleased and we will continue to drive progress in the senior living business.
Senior living is becoming a source of strength to our organization and one that will contribute significantly to the bottom line with capable leaders improved occupancy and increased room rents to better reflect the cost of services and care, we have a solid foundation from which to execute throughout the remainder of 2023.
The increasing stability in our senior living business, and particularly in our Wisconsin market allowed us to seize a compelling acquisition opportunity in Q1.
Sure.
Her trust REIT, one of our key landlord partners invited us to step in and operate two underperforming communities in the Milwaukee area. We acquired these two operations Robbins landing, a Brookfield and Robin's landing of new Berlin under a long term lease with 88 combined beds attractive facilities and reasonable lease terms, we see a.
<unk> long term financial upside in these opportunities and importantly, we know that we can deliver better care and a better experience to the residents of these communities.
After a relatively quiet first quarter, our home health and hospice pipeline is ripe with opportunities we expect to execute on over the next few quarters. We completed one license acquisition in the first quarter, which allowed us to add home health services to our hospice and senior living operations and an expanded continuum of care in Prescott, Arizona.
We also added one small home health agency after quarter end it allowed us to add home health to Hospice branch, we recently opened in Colorado Springs.
Each of these opportunities is an example of this strategy Brent described earlier as we look for new markets, where we can build strong continuum of care with relatively modest capital outlays, a significant opportunity for value creation is C level leaders step in and begin to build.
In addition to executing on our core acquisition strategy. We are focused on identifying key strategic partnerships across the care continuum. These relationships such as the Ensign pennant care continuum and a successful joint venture we have operated for several years with Scripps health in San Diego present unique opportunities for growth and clinics.
Development, we look forward to establishing such dynamic partnerships across the care continuum with that I'll hand, it over to Jen for a review of the financials, Jeff. Thank you John and good morning, everyone.
<unk> financial results for the three months ended March 31, 2023 are contained in our 10-Q and press release filed yesterday.
The quarter ended March 31, 2023, we reported total GAAP revenue of $126 $5 million, an increase of $12 6 million or 11% over the prior year quarter.
Also reported GAAP diluted earnings per share of <unk> <unk>.
8% increase over the prior year quarter.
non-GAAP diluted earnings per share of 13th.
And 18, 2% increase over the prior year quarter.
These results are consistent with our full year 2023 guidance.
Key metrics for the three months ended March 31 2023 include.
$58 $5 million outstanding on our $150 million revolving line of credit and.
And $3 million cash on hand at quarter end.
162 times net debt to adjusted EBITDA.
Cash flow provided from operations of $9 million for the quarter.
And improvement of $8 $3 million over the prior year quarter.
Adjusted for the repayment of Medicare advanced payment.
We expect cash flow from operations to continue to reflect organic revenue growth strong cash collection and bottom line improvement throughout 2023.
And with that I'll hand, it back to Brent to highlight a couple of our local leaders.
Yeah.
Thanks, Jen, it's my pleasure to spotlight a few leaders in operations in our organization to sort of achieve.
<unk> exceptional results.
SMB home health and hospice and price, Utah newly.
Newly appointed CEO , and Becky Richards and CTO, Melissa Nelson are.
Creating something remarkable and rural Central Utah.
Originally part of the <unk> operations, covering northern and Central Utah <unk>.
<unk> price experience demonstrates the tremendous potential we have to subdivide existing service areas and create exciting opportunities for our emerging leaders.
Can be price became its own independent operation in 2022.
Better, enabling <unk> Melissa to drive performance on their results.
We've delivered exceptional performance and become the overwhelming provider of choice and price.
Can be prices clinically excellence with a real time hotel star rating of four five a real time home health hospitalization rate of 10, 3%.
<unk> the national average of 14, 2%.
In the hospice Haf comprehensive assessment score of 99, 2% compared to the national average of 91%.
This clinical quality has led to financial excellence as well as simply prices revenue grew 18, 2%.
Earnings increased 19, 6% versus the prior year quarter.
These strong consistent results led to their receiving the flag award this year, which represents the highest level of achievement for operations and patents.
Our heritage assisted living in twin falls, Idaho, future, CEO , Bianca Davita and clinical leader Salina Crum Ryan.
We're writing a remarkable story since joining dependent family in Q1 of 2020 heritages growth trajectory has been extraordinary.
<unk> have driven impressive financial performance with.
With a revenue increase of six 9% and an EBITDA increase of over 300% over the prior year quarter.
<unk> clinical performance has been exemplary as well as recognized by the recent receipt of the silver Excellence and care award presented by the state of Idaho, highlighting the outstanding survey results.
The performance of SMB priced and heritage assisted living are examples of the dramatic improvement we see.
CEO caliber local leaders step into operations.
With that we'll open it up for questions.
Victor can you. Please instruct the audience on the Q&A procedure sure as a reminder to ask a question. Please press star one one on your telephone.
For your name to be announced to withdraw your question. Please press star one again.
Please stand by while we compile the Q&A roster.
One moment for our first question.
Okay.
Our first question comes from the line of Raj Kumar from Stephens. Your line is open.
Hi, This is Raj on for Scott Fidel.
Good morning, just wanted to.
Yes, good morning, I just wanted to get your views on the ensuring access to Medicaid services proposal that was released last week.
Given the company's exposure to home care services and also if you could just remind us how much of your home care revenue.
And associated with personal care and what's the payer mix dynamics are there. Thank you.
Yeah, I'll take the first part of that Raj.
We are we're pretty modestly exposed to home care. It is a growing business within our portfolio both from a private pay standpoint and from a Medicaid standpoint.
But it represents a very modest portion of our home health revenue and so we appreciate the work that the government is doing there to evaluate and determine how to.
Appropriately reimburse those home and community based support services.
We don't necessarily agree with the strategy and feel like.
For the most part providers are well positioned to make sure that they are delivering care in a competitive way.
Increasing employee wages and benefits in a way that also allows for the significant costs associated with operating those businesses and so I hope there is an opportunity and we plan to participate in the public comment period, but because of our modest exposure to that rule.
It's not something that we're significantly worried about and Jen can give some more insight on exactly that exposure.
Yeah, Ross our homecare revenue at this point in time of about $2 million for the quarter.
Okay. So thanks for the color there and then just as a quick follow up.
Just wanted to reconfirm the outlook for senior living topline growth of 10%.
The company highlighted last quarter and then also.
I just wanted to see what your margin expectations for the year or for.
For the remainder of the year in terms of the progression.
Yes.
Were actually in line with our projected revenue increases on our senior living side on that revenue growth.
And so we would expect to continue to grow at that pace and in fact, our senior living for the first quarter.
Net revenue grew about 15%.
When you take into account the same store.
On the revenue that we're looking at.
Which excludes any sort of acquisitions or the divested.
All things that we had last year.
When you look at it that way and were right in line.
A little bit ahead of where we projected in our guidance.
On our margins John do you want to talk a little bit about our margins and Larry.
Sure.
I'm happy to address that Jen.
As you look at our performance over the first quarter, Ron you see some really strong growth that's taking place.
Each side of our business our local teams have done an extraordinary job of establishing themselves as providers of choice in the community. Our focus now as Brent mentioned in his remarks is on making sure that that makes its way to the bottom line and so we're focused on a variety of things we've spoken before about our homecare homebase makeover in our efforts to make sure that our.
Clinicians are able to be.
Effective and efficient as possible and so we're really focused on measuring utilization continuing to monitor and deliver the highest quality outcomes effectively.
With the right number of visits per episode and we continue to see progress there.
And so youll see throughout the course of the year, we experienced as we normally do kind of that seasonal drop in census through the holidays at the end of Q4, and our Q1 margin was impacted by the fact that we had to re sort of re grow that census in the first part of the quarter. Fortunately by the end of the quarter were strong.
Our position as we've ever been.
And we've been able to add head count on the clinical side, but will allow us to continue to grow and take more of the volume and market share that's out there for us so our focus throughout the year.
As Bret outlined we will be working on.
Measuring and monitoring and improving utilization, including through reducing the time, our clinicians spend and documentation.
We will be focused on continuing to improve on the transition side and making sure that those underperforming assets that we take over are quickly able to move into the bucket of accretive.
Producing financial results. In addition to the clinical results that we seek to.
Through that transformation process.
And we expect that our margins will.
Come in land quickly over the next couple of quarters.
I would just add a couple of other things that John mentioned it right part of Q1 was an investment period and so as we kept up with that growth. We made those investments and so that hurt our margin a little bit the other piece of this and why we're so focused on our local leadership and driving that forward.
What we've seen is outcomes across the board are better when we have C level caliber leaders and those operations one of those critical outcomes as turnover and the most one of the biggest drivers of margin.
Difficulty is high turnover levels and so as we were excited about the progress we've made on the turnover front, but as we continue to drive that down more and more we expect that to also reflect on the bottomline margin performance.
Great I appreciate all the color. Thank you.
Thank you Josh.
Once again Thats Star one one for a question star one.
On moment for questions.
And im not showing any further questions in the queue and I would like to turn the call back over to Brian Garrett solely for any closing remarks.
Okay, well, thank you Victor and thank you everyone for joining us today, and we hope you have a great rest of your day and weekend.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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