Q4 2023 The Pennant Group Inc Earnings Call

February 29, 2024

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Kurt Keeney. Please go ahead.

Thank you Daniel.

Welcome everyone and thank you for joining us today here with me today I have been Gary Kelly, our CEO, Dan Gardner, our president and CFO and Lynette welcome our CFO before we begin I have a few housekeeping matters.

Okay.

Good day, and thank you for standing by.

We filed our earnings press release and 10-K yesterday. This announcement is available on our Investor Relations section of our website at Ww Ww Dot pennant group Dot Com a replay of this call will also be available on our website until five P. M Mountain on February 29, 2025, all statements made on this call are as of today.

Welcome to the pennant group fourth quarter.

2023 earnings conference 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.

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Day February 29, 2024, and will not be updated after the call.

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Also any forward looking statements made today are based on management's current expectations and assumptions 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.

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<unk> 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.

Kurt King. Please go ahead.

Thank you Daniel welcome everyone and thank you for joining us today.

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 from new information future events changing circumstances or for any other reason.

Here with me today I have been here silly, our CEO, John Gardner, our president and CFO and Matt Walsh our CFO.

Before we begin I have a few housekeeping matters.

In addition, 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.

We filed our earnings press release and 10-K yesterday.

It is available on the Investor Relations section of our website at Ww Ww Dot pennant group Dot Com a replay of this call will also be available on our website until five P. M Mountain on February 29 2025.

All statements made on this call are as of today February 29, 2024 and will not be updated after the call.

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The words pennant company, we are and us refer to the pennant Group, Inc. And its 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.

France's here into the consolidated company and its assets and activities as well as the use of the terms, we us our and similar terms do not imply the pennant group, Inc. Has direct operating assets employees or revenue or that any of the subsidiaries are operated by the pennant group.

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.

Also we supplement our GAAP reporting with non-GAAP metrics when viewed together with our GAAP results. We believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports.

GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-K and with that I'll turn it over to Brent <unk>, our CEO Brent.

In addition, the pennant group, Inc. Is a holding company with no direct operating assets employees or revenues.

One 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.

Thanks, Kurt and welcome everyone to our fourth quarter and full year 2023 earnings call.

Before we share results I want to express deep appreciation to the local leaders and teams who care for our patients and residents across our platform every day your compassion and dedication are the bedrock of tenants clinical and financial success.

Words pennant company, we are in us refer to the pennant Group, Inc. And its consolidated subsidiaries all of our operating subsidiaries and the service center are operated by separate independent companies 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.

We are grateful to work alongside you and partner with you and providing life changing service.

We are pleased to announce strong fourth quarter results to cap off a year of consistent progress and steady growth.

And similar terms.

In Q4, we generated adjusted earnings per share of <unk> 22.

Full year 2023, adjusted earnings per share to <unk> 73.

This exceeds our earnings guidance midpoint of <unk> 72.

Which we raised in our last earnings call.

Collectively our full year consolidated results reflect revenue of $544 9 million, an increase of $71 7 million or 15, 1% over the prior year and adjusted EBITDA of $40 7 million, an improvement of $9 2 million or 29, one <unk>.

Sent over the prior year.

During 2023, our consolidated EBITDA margin increased 80 basis points to seven 6% from six 8%.

In short we delivered on our commitments in 2023. These results were achieved by focusing on five key areas leadership development clinical excellence employee experience margin improvement and growth as we've outlined on prior quarterly calls we saw progress in each of these areas throughout the year.

<unk> and our positive financial results are the outcome of these efforts.

Our priority has been more important to our success and leadership development. We are pleased with the progress we made in this area in 2023 during.

During the year, we added over 50 Ceos in training or cities and 38 local leaders earn C level designations in their operations, including 11 local Ceos.

As we've explained before Ceos and other C level leaders earned this designation by acting as true owners in creating significant financial clinical and cultural value. We have found that Ceos typically generate roughly $1 million more in annual earnings that are non CEO of executive directors.

In conjunction with better clinical and cultural outcome. These.

These most recent C level recipients along with our current <unk> level leaders and new cities will be the foundation of our success moving forward and their contributions are reflected in our 2023 results clinical.

Excellence is at the heart of everything we do and clinical leadership development is a major focus just as we continue to train and elevate operational leaders to become CEO.

We are making similar investments in future clinical leaders to help create chief clinical therapy, and wellness officers and local operations are.

Our clinical Onboarding training and development programs were strengthened and enhanced in 2023 and 16 clinical leaders were elevated to sea level status, which is driving excellent quality outcomes as well as patient and resident satisfaction and.

In addition to leadership development and clinical excellence.

Generate roughly $1 million more in annual earnings that are non CEO of executive directors.

I'd like to provide some data points that highlight the progress we've made and the other three focus areas.

In conjunction with better clinical and cultural outcome.

We made great strides in our employee engagement and recruiting during the year as demonstrated by double digit improvement in our turnover rate.

These most recent C level recipients along with our current C level leaders and new cities will be the foundation of our success moving forward and their contributions are reflected in our 2023 results.

And with additional hires in the first two months of 2024, we have now surpassed 6000 employees a double digit increase over year end 2022.

Clinical excellence is at the heart of everything we do and clinical leadership development is a major focus just as we continue to train and elevate operational leaders to become Ceos, we are making similar investments in future clinical leaders to help create chief clinical therapy, and wellness officers and local.

On the margin front or consolidate our adjusted consolidated EBITDA margin improved 80 basis points year over year and from a growth perspective, our 2023 revenue increased a robust $71 7 million.

<unk> three quarters of which was organic same store growth.

As we announced in our press release yesterday.

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We are providing guidance for the full year of 2024, we anticipate full year revenue in the range of $596 8 million to $633 $7 million and adjusted earnings per share in the range of 82 to <unk> 91.

In addition to leadership development and clinical excellence.

The midpoint of 87 represents 19, 2% growth on our 2023 of adjusted earnings and 52, 6% growth over our 2022 results are.

I'd like to provide some data points that highlight the progress we've made and the other three focus areas. We made great strides in our employee engagement and recruiting during the year as demonstrated by double digit improvement in our turnover rate.

Our 2024 guidance is based on the compelling momentum in both our segments. The readiness of our local leaders to drive organic and inorganic growth and the latent potential that remains in our existing operations.

And with additional hires in the first two months of 2024, we have now surpassed 6000 employees a double digit increase over year end 2022.

We look forward to another year of strong performance and growth in 2024.

On the margin front or consolidate our adjusted consolidated EBITDA margin improved 80 basis points year over year and from a growth perspective, our 2023 revenue increased a robust $71 7 million.

With that I will turn the call over to John to provide more detail on our operational results.

Thank you Brent and good morning, everyone in 2023, our local teams distinguished themselves as key partners and their health care communities driving exceptional topline growth and improved earnings in both of our operating segments.

<unk> three quarters of which was organic same store growth.

As we announced in our press release yesterday.

We are providing guidance for the full year of 2024, we anticipate full year revenue in the range of $596 8 million to $633 $7 million and adjusted earnings per share in the range of 82 to <unk> 91.

Our fourth quarter results highlighted this progress and also the considerable potential for improvement as we resolutely focused on our operational fundamentals.

Turning first to home health and Hospice segment revenue of $106 9 million increased $16 2 million or 17, 9% over the prior year quarter.

The midpoint of 87 represents 19, 2% growth on our 2023 adjusted earnings and 52, 6% growth over our 2022 results are.

This growth was a result of continued momentum in our hospice business. We're at 17, 8% increase in hospice ADC, a 13, 1% increase in hospital admissions and continued normalization in our length of stay resulted in revenue growth of $11 6 million or 27, 1% over the prior year quarter.

Our 2020 forward guidance is based on the compelling momentum in both our segments. The readiness of our local leaders to drive organic and inorganic growth and the latent potential that remains in our existing operations.

We look forward to another year of strong performance and growth in 2024.

Our home Health platform also continued its steady growth at home health revenue increased by $4 million or nine 6% total home health admissions Rose 12, 8% and Medicare home health admissions rose five 6% each over the prior year quarter.

With that I'll turn the call over to John to provide more detail on our operational results.

Thank you Brent and good morning, everyone in 2023, our local teams distinguished themselves as key partners and their health care communities driving exceptional top line growth and improved earnings in both of our operating segments.

Along with strong Medicare growth. We also continue to build upon our managed care relationships and negotiate new and more favorable contracts. These contracts and improved rates increased our ability to take managed care volume, resulting in an 11, 3% increase in managed care visits and a 13, 4% increased in managed care revenue.

Our fourth quarter results highlighted this progress and also the considerable potential for improvement as we resolutely focused on our operational fundamentals.

Turning first to home health and Hospice segment revenue of $106 9 million increased $16 2 million or 17, 9% over the prior year quarter.

Per visit each over the prior year quarter.

Home health and hospice adjusted EBITDA of $16 7 million increased $1 1 million or seven 3% over the prior year quarter in the last half of the year, we have acquired or started eight new locations across the segment.

As we have discussed before because we often acquire underperforming operations a heavy volume of acquisitions can contribute to some lumpiness and margin pressure in our quarterly results, but also provides compelling long term growth opportunity as.

As we continue to integrate these new agencies and build the cultural clinical and financial Foundation for sustained success, we are well positioned to produce strong bottom line results in 2024.

Our clinical results remain the foundation of our success our local teams maintained their focus on delivering best in class clinical outcomes, while effectively managing utilization and expense as part of the expansion of CMS is home health value based purchasing program, we are carefully tracking and managing performance against the value.

Per visit each over the prior year quarter.

Based purchasing criteria.

Just on the initial data we are well positioned to capture positive financial incentives that the program creates to reward providers to deliver exceptional value and clinical outcomes are.

Our senior living business continued its dramatic improvement the business has stabilized and begun to grow with meaningful potential yet unrealized.

Actually in the pandemic, we have invested significant time and attention to recruit and develop strong senior living leaders committed to our culture and model.

As we continue to integrate these new agencies and build the cultural clinical and financial Foundation for sustained success, we are well positioned to produce strong bottom line results in 2024.

These investments have led to robust top and bottom line improvement adjusting.

Adjusting for divested buildings same store senior living segment revenue was $148 2 million, an increase of $21 4 million or 16, 9% over the prior year and $38 7 million in the fourth quarter of $5 2 million or 15, 7% increase over the prior year quarter full.

Our clinical results remain the foundation of our success our local teams maintained their focus on delivering best in class clinical outcomes, while effectively managing utilization and expense as part of the expansion of Cms's home health value based purchasing program, we are carefully tracking and managing performance against the value base.

Year Senior living segment, adjusted EBITDA was $12 3 million, a $6 3 million or 105% increase over the prior year and $3 4 million for the fourth quarter, an increase of $1 4 million or 69% over the prior year quarter Archie.

Purchasing criteria based on initial data, we are well positioned to capture positive financial incentives that the program creates to reward providers, who deliver exceptional value and clinical outcomes.

Occupancy reached a new post pandemic high of 79%, even an average monthly revenue per occupied room for the fourth quarter Rose to 4093, an increase of $423 or 11, 5% over the prior year quarter.

Our senior living business continued its dramatic improvement.

<unk> has stabilized and begun to grow with meaningful potential yet unrealized exiting the pandemic, we have invested significant time and attention to recruit and develop strong senior living leaders committed to our culture and model.

Turning to growth we remain focused on our disciplined strategy of acquiring operations at attractive valuations in locations, where we have strong peer operating clusters and talented leaders ready to drive results consistent with that strategy, we executed a steady steady stream of sweet spot acquisitions during the second half of 2023.

These investments have led to robust top and bottom line improvement.

Including the hospice acquisitions in Arizona, Texas, and Oklahoma, We discussed in last quarter's call in December we acquired another such operation southwestern palliative care and hospice in Yuma, Arizona, creating a unique opportunity to serve a rural population center we.

We are excited that several of these acquisitions create new opportunities to serve residents of rural communities in our existing states our historical strength in operating in rural areas demonstrates the unique advantage of our operating model where decisions driven by local leaders meet the needs of their patients and community partners each of these.

Occupancy reached a new post pandemic high of 79%, even an average monthly revenue per occupied room for the fourth quarter Rose to 4093, an increase of $423 or 11, 5% over the prior year quarter.

<unk> is off to a great start in our model with talented local leadership teams driving strong clinical and financial improvement and growth momentum out of the gate. We look forward to unlocking the tremendous potential of these acquisitions as they mature over the next few quarters on.

Turning to growth, we remain focused on our disciplined strategy of acquiring operations at attractive valuations and locations, where we have strong peer operating clusters and talented leaders ready to drive results consistent with that strategy, we executed a steady steady stream of sweet spot acquisitions during the second half of 2023.

On January one 2024, we established a new home health joint venture with John Muir Health, a leading integrated health system in Northern California.

In this venture and local pennant affiliated operating subsidiary will manage and majority own newer home health, a new home health agencies that will serve the east Bay area like our partnership with Scripps Health. This venture places us on the forefront of true care continuum development, helping support support effective transitions of care.

Between the acute setting and the home and harnessing our home health expertise to improve clinical and financial outcomes. We are excited to innovate with the new talented team at <unk> home health and our partners at John Muir Health, while creating a new home health joint venture is a complex endeavor.

Deep expertise of our strong operational team positions us for success in establishing <unk> as a key solution for the Bay area healthcare continuum.

With that I'll hand, it over to Linda for a review of the financials.

Thank you John and good morning, everyone detailed financial results for the full year and quarter ended December 31, 2023 are contained in our 10-K and press release filed yesterday.

On January one 2024, we established a new home health joint venture with John Muir Health, a leading integrated health system in Northern California. In this venture a local pennant affiliated operating subsidiary will manage and majority own newer home health, a new home health agencies that will serve the east Bay area.

For the full year ended December 31, 2023, we reported total GAAP revenue of $544 9 million, an increase of $71 7 million or 15, 1% over the prior year.

Like our partnership with Scripps Health This venture places us on the forefront of true care continuum development, helping support support effective transitions of care between the acute setting and the home and harnessing our home health expertise to improve clinical and financial outcomes. We are excited to innovate with the new talented.

<unk> EBITDA of $40 7 million, a $9 2 million or 29, 1% increase over the prior year.

<unk> reported GAAP diluted earnings per share at <unk>, 44 cents and non-GAAP adjusted earnings per diluted share.

At a 73 cents an increase of 28, 1% over the prior year with these results, we met or exceeded our updated guidance on an annual basis.

Team at home Health and our partners at John Muir Health, while creating a new home health joint venture is a complex endeavor.

Deep expertise of our strong operational team positions us for success in establishing <unk> as a key solution for the Bay area healthcare continuum.

Key metrics for the full year and quarter ended December 31 2023 include the can.

$9 $2 million drawn on our revolving line of credit.

With that I'll hand, it over to Linda for a review of the financials.

Eight.

Alright, sorry, $6 $1 million in cash.

On hand at quarter end.

Thank you John and good morning, everyone detailed financial results for the full year and quarter ended December 31, 2023 are contained in our 10-K and press release filed yesterday.

<unk> four four times net debt to adjusted EBITDA and cash flows provided from operations of $33 1 million for the year as we mentioned in our press release, we are providing full year 2024 guidance of revenue of $596 8 million to $633 7 million adjusted EBIT.

Full year ended December 31, 2023, we reported total GAAP revenue of $544 9 million, an increase of $71 7 million or 15, 1% over the prior year and adjusted EBITDA of $40 7 million, a $9 2 million or 29, 1% increase over the prior year.

A $46 2 million to.

$49 7 million and adjusted earnings per share of <unk> 82 to 91.

Our guidance incorporates current operations and organic growth.

We also reported GAAP diluted earnings per share at <unk>, 44 cents and non-GAAP adjusted earnings per diluted share.

<unk> weighted average shares outstanding of approximately $34 million and a 26% effective tax rate.

At a 73 cents an increase of 28, 1% over the prior year with these results, we met or exceeded our updated guidance on an annual basis.

Our 2024 annual guidance anticipates, an EPS increase quarter over quarter consistent with our 2023 performance.

Metrics for the full year and quarter ended December 31, 2023 included $69 $2 million drawn on our revolving line of credit and eight alright, sorry, $6 $1 million in cash.

Based on our ramp in home health and hospice ADC continued occupancy improvement in senior living anticipated reimbursement rate adjustments elevated interest rates and continued inflationary pressures, which we see lingering into 2024.

On hand at quarter end.

A 144 times net debt to adjusted EBITDA and cash flows provided from operations of $33 1 million for the year.

It does not include unannounced acquisitions and excludes startup operations share based compensation acquisition related costs, and one time implementation and unusual items.

As we mentioned in our press release, we are providing full year 2024 guidance of revenue of $596 8 million to $633 7 million adjusted EBITDA of $46 2 million.

Our guidance does include expected revenue from the <unk> home from the near home Health joint venture.

Recognizing the startup nature of that operation as Sam said earnings will ramp throughout the year, resulting in a net zero contribution to earnings in 2024, we expect cash flow from operations for 2024.

$49 7 million and adjusted earnings per share of <unk> 82 to 91.

Our guidance incorporates current operations and organic growth.

Organic revenue growth and bottom line improvement with increased earnings continued effective cash collections and lower capital expenditures, we expect to strengthen our balance sheet and fund future growth and with that I'll hand, it back to Brent to highlight a couple of our local leaders.

Weighted average shares outstanding of approximately $34 million and a 26% effective tax rate at.

By 2024 annual guidance anticipates, an EPS increase quarter over quarter consistent with our 2023 performance and is based on our ramp in home health and hospice ADC continued occupancy improvement in senior living anticipated reimbursement rate adjustments elevated interest rates and continued inflationary pressures.

Okay.

Lynette, it's my pleasure to spotlight.

Two operations.

It achieved exceptional results in 2023.

Their stories demonstrates the remarkable progress that can occur when local leaders behave as owners and becomes C level leaders in their operations.

Which we see lingering into 2024.

Does not include unannounced acquisitions and excludes startup operations share based compensation acquisition related costs, and one time implementation and unusual items.

First I'd like to highlight Alpha home health and hospice in Everett Washington.

Led by future CEO, George <unk>, New Hospice, Chief clinical Officer Courtney Petrie.

Our guidance does include expected revenue from the <unk> home from the near home Health joint venture.

Home Health clinical director, Cindy crawl, and Chief Rehab Officer, Travis Renzi Alpha.

Alpha leaders have set a compelling vision to meet the unique needs of their community and established themselves as a premier home health and hospice provider.

By rallying around that vision.

<unk> has created a winning culture and continue to deepen their partnerships and impact on the community their hard work dedication and collaboration are apparent in our results, including strong employee satisfaction exceptionally low turnover, a five star home health quality score.

With that I'll hand, it back to Brent to highlight a couple of our local leaders.

Okay.

Thanks Lynette.

My pleasure to spotlight.

And an 11, 4% re hospitalization rate versus the national average of 14, 1%.

Two operations.

It achieved exceptional results in 2023.

Our story is demonstrate the remarkable progress that can occur when local leaders behave as owners and becomes C level leaders in their operation.

Actual results have followed with a 49, 6% year over year EBIT increased on a 34% increase in revenue.

First I'd like to highlight Alpha home health and hospice in Everett Washington.

In Orange County, California, future CEO Ron <unk>.

Led by future CEO, George <unk>, New Hospice, Chief clinical Officer Courtney Petrie.

Sure.

CMO Elizabeth brand Mendoza and future CW.

Ruby rocker Mcgough have led main place senior living to remarkable success.

Home Health clinical director, Cindy crawl, and Chief Rehab Officer, Travis Ramsey Alpha.

<unk> leaders have set a compelling vision to meet the unique needs of their community and established themselves as a premier home health and hospice provider.

I can do to so many communities. The pandemic took a toll on main place throughout 2020 and 2021.

Ron and team stepped into main place in 2022 and improved all aspects of their community beginning with the culture and the resident and employee experience.

By rallying around that vision.

Because of their efforts main place is now a community of choice in Orange County.

Year over year occupancy has risen from 70% to 91% revenue per occupied room. It has increased 28% and <unk>.

And an 11, 4% re hospitalization rate versus the national average of 14, 1%.

EBIT is six times greater than it was in 2022.

Actual results have followed with a 49, 6% year over year EBIT increased on a 34% increase in revenue.

With that we'll open it up for questions Daniel.

Can you please instruct the audience on the Q&A procedure.

In Orange County, California, future CEO Ron <unk>.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

Future.

CMO Elizabeth brand Mendoza and future CW.

Withdraw your question. Please press star one again.

Ruby rocker Mcgough have led main place senior living to remarkable success.

Please standby, while we compile the Q&A roster.

I can do to so many communities. The pandemic took a toll on main place throughout 2020 and 2021.

Ron and team stepped into main place in 2022 and improved all aspects of their community beginning with the culture and the resident and employee experience.

Our first question comes from Deane Sublet with Stephens. Your line is now open.

Hey, Good morning. This is dean on for Scott. So in the release you speak to the total revenue ramp throughout the year, but we just wanted to see if you could break down how you're thinking about topline growth rates across each of home health hospice and senior living and then how are you thinking about year over year margin trends at the segment.

Because of their efforts main place is now a community of choice in Orange County.

Year over year occupancy has risen from 70% to 91% revenue per occupied room. It has increased 28% and <unk>.

EBIT is six times greater than it was in 2022.

With that we'll open it up for questions Daniel.

Level.

Thanks, Steve for your question and on a before.

Can you please instruct the audience on the Q&A procedure.

Our revenue growth front for our 2024 guidance for existing home health Hospice operations, we look at our growth in our existing and same store operations and also our new store acquisition all operations.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

Withdraw your question. Please press star one again.

With same store growth, we expect that to be in the high single digits and new store growth in the low to mid double digits with a blended rate in the low double digits.

Please standby, while we compile the Q&A roster.

Yeah.

As we look at our senior living operations revenue is impacted by both occupancy increases and reservoir and those were both factors and with occupancy increases similar to the increases in 2023.

Our first question comes from Deane Sublet with Stephens. Your line is now open.

Hey, Good morning. This is dean on for Scott. So in the release you speak to the total revenue ramp throughout the year, but we just wanted to see if you could break down how you are thinking about topline growth rates across each of home health hospice and senior living and then how are you thinking about year over year margin trends at the segment.

Revpar increases in the mid single digits.

We also continue to focus on increasing occupancy pre pandemic levels too.

Closer to our pre pandemic levels of 81 five.

On the margin front, we have factored in a ramp up of our targeted margins on our home health hospice hospice acquisitions and.

Level.

Thanks, Steve for your question and for our.

Our revenue growth front or at our 2024 guidance for existing home health and hospice operations, we look at our growth in our existing and same store operations and also our new store acquisition all operations.

With that there is a drag that occurs with those acquisitions.

Those acquisition.

As we take on potentially underperforming operations and transition them to our system and operating model. We continue to also have some labor pressure and inflationary concerns which have lessened through 2023, I still expect that to continue into 2024.

With same store growth, we expect that to be in the high single digits and new store growth in the low to mid double digits with a blended rate.

On the senior living in France.

Low double digits.

We have included adjusted EBITDA improvements through cost control and operational efficiency.

As we look at our senior living operations revenue is impacted by both occupancy increases and reservoir and those were both factors and with occupancy increases similar to increases in 2023, and our revpar increases in the mid single digits.

And margin gains as we drive occupancy so as that occupancy increases.

Feel that theres, some operational efficiencies there and with those we expect.

Thanks.

Hi.

We have approximately a 1% increase and our margin or EBITDA expansion in both of them.

We also continue to focus on increasing operating occupancy pre pandemic levels two to be.

This operation.

Dean I would just add.

Closer to our pre pandemic levels of 81 five.

One of the things that we're really excited about was the significant growth that we experienced in 2023.

On the margin front, we have factored in.

Ramp up of our targeted margins on our home health hospice hospice acquisitions.

And we've done a lot of these acquisitions near the end of the year and so on the margin front. There is a ton of opportunity for us to take that that revenue grew up growth that we added and put it through the bottom line and so now from estimate standpoint, we're fairly conservative and where.

And with that there is a drag that occurs with those acquisitions.

Those acquisition.

As we take on potentially underperforming operations and transition them to our system and operating model.

We continue to also have some labor pressure and inflationary concerns which have lessened through 2023, there's still expect that to continue into 2024.

We think we can end up by the end of the year in our guidance, but theres certainly significant potential there to continue to drive those improvements.

On the senior living in France, we have included adjusted EBITDA improvements through cost control and operational efficiency and.

As we go forward from the beginning of the year through the end of the year.

Okay, Great. That's that's helpful and just a couple more from us I might've missed it in there, but just anything to call out on how youre thinking about rate growth for senior living in 2024, and just lastly, I think you alluded to it earlier, but anything else to call out for <unk>.

And margin gains as we drive occupancy so as that occupancy increases.

Feel that there is some operational efficiencies there and with US we expect.

Hi.

We have approximately a 1% increase in our margin or EBITDA expansion in both of those operations.

Operating cash flow and Capex as we think about the full year.

Dean I would just add.

One of the things that we're really excited about was the significant growth that we experienced in 2023.

Yes.

On the right growth right.

I mean, we were double digit rate growth again in 2023, which was great right and.

And we've done a lot of these acquisitions near the end of the year and so on the margin front.

That's due in large part due to the investments that we've made into the buildings. The improvements that we've made from a leadership standpoint, and just creating a better offering overall.

Ton of opportunity for us to take that that revenue grew up growth that we added and put it through the bottom line and so now from estimate standpoint, we're fairly conservative and where.

So we're pretty excited about what we saw.

We haven't factored in that high level of rate growth, we're probably about half of that that's what our expectation is and keep in mind there is really.

We think we can end up by the end of the year in our guidance, but theres certainly significant potential there to continue to drive those improvements.

A couple of different levers that we can pull right. One is just the rents right and we pretty much across the board would expect rate rent rate increases at all of our communities.

As we go forward from the beginning of the year through the end of the year.

And so I would say that probably represents a good half of where we're going to see some of that rate growth and then on the other front is on the on the carrier's charges or the direct cost.

Thank you alluded to it earlier, but anything else to call out for operating cash flow and Capex as we think about the full year.

Are the direct carriers that were providing and so that we've talked about this I think in past calls as well there is a significant opportunity to continue to elevate.

Yeah on.

The rate growth right I mean, we were double digit rate growth again in 2023, which was great right.

That's through improved assessments and just ensuring that we're.

We're getting rewarded for the carriers that we're providing and so.

That's due in large part due to the investments that we've made into the buildings. The improvements that we've made from a leadership standpoint, and just creating a better offering overall.

By pulling both of those levers we think we're going to continue to see significant in helping get rate growth, but just not quite at the same level that we saw in 2023.

So we're pretty excited about what we saw.

And then when you want to talk about them on the cash flows.

We haven't factored in that high level of rate growth, we're probably about half of that thats, what our expectation is and keep in mind there is really.

On the cash flow front.

Operating cash flows to be in the range of $30 million to $35 million.

On the operating cash flow.

A couple of different levers that we can pull right. One is just the rents right and we pretty much across the board would expect rate rent rate increases at all of our communities.

And then capex to be in line with spend that we had for this year.

Which was about $8 million little over $8 million.

And so I would say that probably represents a good half of where we're going to see some of that rate growth and then on the other front is on the on the carriers.

Great. Thanks, so much.

Thank you.

I'm showing no further questions at this time.

Charges or the direct cost.

I would now like to turn it back to Brian.

Are the direct carriers that were providing and so that we've talked about this I think in past calls as well there is a significant opportunity to continue to elevate whether thats through improved assessments and just ensuring that we're.

<unk> for closing remarks.

Okay, well, thank you Daniel and thank you everyone for joining us today, and we hope you have a great rest of your day.

We're getting rewarded for the carriers that we're providing and so.

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

By pulling both of those levers we think we're going to continue to see significant in helping get rate growth, but just not quite at the same level that we saw in 2023.

And then when you want to talk about them on the cash.

Cash flows.

On the cash flow front.

We're expecting our operating cash flows.

And the range of $30 million to $35 million.

On the operating cash flow.

And then capex to be in line with spend that we had for this year.

Which was about $8 million little over $8 million.

Great. Thanks, so much.

Thank you.

I'm showing no further questions at this time.

I would now like to turn it back to Brian.

So for closing remarks.

Okay, well, thank you Daniel and thank you everyone for joining us today, and we hope you have a great rest of your day.

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

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Good day, and thank you for standing by.

Welcome to the pennant group fourth quarter.

2023 earnings conference 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.

You will that inherent automated message advising your hands raised.

To withdraw your question. Please press star one one again.

Please be advised Mr. Today's conference is being recorded.

I would now like to hand, the conference over to your speaker today.

Kurt Keenan. Please go ahead.

Thank you Daniel.

Welcome everyone and thank you for joining us today here with me today are Brent <unk>, our CEO, John Gardner, our president and CFO and Lynette welcome 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 Ww Ww Dot pennant group Dot com.

<unk> of this call will also be available on our website until <unk> P. M Mountain on February 29, 2025, all statements made on this call are as of today February 29, 2024 and will not be updated after the 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.

In addition, the pennant group, Inc. Is a holding company with no direct operating assets employees or revenues certain of our.

Pendants 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 are in 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.

And similar terms do not imply the pennant group, Inc has direct operating assets employees or revenue or that any of the subsidiaries are operated by the pennant group.

With that I'll turn it over to Brent <unk>, our CEO Brent.

Thanks, Kurt and welcome everyone to our fourth quarter and full year 2023 earnings call.

Before we share results I want to express our deep appreciation to the local leaders and teams who care for our patients and residents across our platform everyday youre.

Your compassion and dedication are the bedrock of pendants clinical and financial success we.

We are grateful to work alongside you and partner with you and providing life changing service.

We are pleased to announce strong fourth quarter results to cap off a year of consistent progress steady growth.

In Q4, we generated adjusted earnings per share of 22.

<unk> full year 2023, adjusted earnings per share to <unk> 73.

This exceeds our earnings guidance midpoint of <unk> 72.

Which we raised in our last earnings call.

Sent over the prior year.

During 2023, our consolidated EBITDA margin increased 80 basis points to seven 6% from six 8%.

And our positive financial results are the outcome of these efforts.

No priority has been more important to our success and leadership development. We are pleased with the progress we made in this area in 2023.

During the year.

Added over 50, Ceos in training or cities and 38 local leaders earn C level designations in their operations, including 11 local Ceos.

As we've explained before Ceos and other C level leaders earn this designation by acting as true owners in creating significant financial clinical and cultural value. We have found that Ceos typically generate roughly $1 million more in annual earnings that are non CEO executive directors.

In conjunction with better clinical and cultural outcome. These.

These most recent C level recipient along with our current <unk> level leaders and new cities will be the foundation of our success moving forward and their contributions are reflected in our 2023 results clinical excellence.

<unk> is at the heart of everything we do and clinical leadership development is a major focus just as we continue to train and elevate operational leaders to become CEO.

We're making similar investments in future clinical leaders to help create chief clinical therapy, and wellness officers and local operations are.

In addition to leadership development and clinical excellence.

I'd like to provide some data points that highlight the progress we've made and the other three focus areas.

We made great strides in our employee engagement and recruiting during the year as demonstrated by double digit improvement in our turnover rate.

And with additional hires in the first two months of 2024, we have now surpassed 6000 employees a double digit increase over year end 2022.

On the margin front or consolidate our adjusted consolidated EBITDA margin improved 80 basis points year over year and from a growth perspective, our 2023 revenue increased a robust $71 7 million.

Ultimately three quarters of which was organic same store growth.

As we announced in our press release yesterday.

We are providing guidance for the full year of 2024, we anticipate full year revenue in the range of $596 8 million to $633 $7 million and adjusted earnings per share in the range of 82 to <unk> 91.

The midpoint of 87 represents 19, 2% growth.

Q4 2023 The Pennant Group Inc Earnings Call

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