Q1 2024 PACS Group Inc Earnings Call
Conference Center: [music].
Operator: Hello, and welcome to PACS Group's first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Hello, and welcome to packs group's first quarter 'twenty 'twenty four earnings conference call.
Speaker Change: All lines have been placed some mute to prevent any background noise.
Operator: After today's presentation and remarks, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, you may press star 2. The call is being recorded, and a replay of the call will be available on the PACS Group's Investor Relations website about an hour after the completion of this call. I'd now like to turn the conference over to Derek Apt, Chief Financial Officer. Please go ahead.
Speaker Change: After today's presentation and remarks, there'll be an opportunity to ask questions.
Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question you May press Star two.
Speaker Change: The call is being recorded and a replay of the call will be available on the tax group's investor Relations website about an hour after the completion of this call.
I'd now like to turn the conference over to Derek Apt Chief Financial Officer. Please go ahead.
Derek Apt: Thank you and good afternoon, everyone. Thank you for joining us for our first quarter 2024 earnings call. I'm joined today by Jason Murray, our Chairman and CEO, and Josh Jergensen, President and CEO. Before we begin the prepared remarks, we'd like to remind you that yesterday PACS Group issued a press release announcing its first quarter 2024 results. An investor presentation was published and is available in the investor relations section of PACS.com. I'd also like to remind everyone that during the course of today's conference call, we will discuss certain forward-looking information.
Speaker Change: Thank you and good afternoon, everyone. Thank you for joining us for our first quarter 2024 earnings call I'm joined today by Jason Murray, Our chairman and CEO and Josh Jurgensen, President and CFO before we begin the prepared remarks, we'd like to remind you that yesterday packs group issued a press release announcing its first quarter.
Jason Murray: <unk> 2024 results and Investor presentation was published and is available on the Investor Relations section <unk> Dot Com I'd also like to remind everyone that during the course of today's conference call. We will discuss certain forward looking information any forward looking statements made today are based on management's current expectations assumptions and.
Derek Apt: 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 risk and uncertainties that could cause actual results to materially differ from those expressed or implied on today's call. In addition to any risk highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect PACS Group's future results, as described in our quarterly report on Form 10-Q for the period ended March 31, 2024, and our other reports filed with or furnished to the SEC.
And beliefs about our business and the environment in which we operate.
Packs Group: These statements are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied on today's call. In addition to any risks highlighted during this call you should carefully consider other important risk factors and disclosures that may affect packs group's future results as described in our quarterly report on Form 10-Q for the.
Packs Group: Period ended March 31, 2024, and our other reports filed with or furnished to the SEC listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for more complete discussion of factors that could impact our results expect as required by federal Securities Law tax group.
Derek Apt: Consumers 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 law, PACS Group 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. Information discussed on this call concerning PACS Group's industry competitive position and the markets in which we operate is based on information from independent industry and research organizations.
Packs Group: 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 information discussed on this call concerning packs groups industry competitive position in the markets in which we operate is based on information from independent.
Packs Group: Industry and research organizations other third party sources and management estimates, which are derived from publicly available information released by independent industry analysts and other third party sources as well as data from Pax group's internal research and are based on reasonable assumptions and computations made upon reviewing such data and our experience and.
Derek Apt: Other third-party sources and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from PACS Group's internal research and are based on reasonable assumptions and computations made upon reviewing such data and our experience and knowledge of our industry and markets. By definition, assumptions are subject to uncertainties and risk, which could cause results to differ materially from those expressed in this.
Packs Group: Knowledge of our industry and markets by definition assumptions are subject to uncertainties and risks, which could cause results to differ materially from those expressed in estimates. During this call. We will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. These non-GAAP financial measures should be considered as a supplement to.
Derek Apt: During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. These non-GAAP financial measures should be considered as a supplement to, and not a substitute for, measures compared in accordance with GAAP. For reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix included in the investor presentation, which are both published and available on the investor relations section of PAX Group's website. I'll now turn the call over to Jason.
Packs Group: And not a substitute for measures period in accordance with GAAP for a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures. Please refer to the earnings release and the appendix included in the Investor presentation, which are both published and available on the Investor Relations section of <unk> group's website I will now.
Packs Group: Turn the call over to Jason.
Jason Murray: Yeah, thanks, Derek. And thank you all for attending. As many of you are aware, this is our first earnings call. We are very appreciative of those who have trusted in us and in our ability to execute on our mission as a company. We believe strongly in and are committed to our mission of delivering better post-acute clinical care across the country. We recognize the honor and privilege it is to take care of America's most vulnerable, and we take that responsibility very seriously. We're proud of the work our 34,000 employees across the country provide each day, and we're inspired by their commitment to quality and excellence. They are the foundation of our success.
Jason Murray: Thanks, Derek and thank you all for attending as many of you are aware of this is our first earnings call. We are very appreciative of those who have trusted in Austin and our ability to execute on our mission as a company. We believe strongly in and are committed to our mission of delivering better post acute clinical care across the country.
Austin: We are recognized the honor and privilege. It is to take care of America's most vulnerable and we take that responsibility very seriously.
Austin: Out of the work our 34000 employees across the country provides each day and we're inspired by their commitment to quality and excellence. They are the foundation of our success.
Jason Murray: We had a very strong quarter both clinically and financially thanks to the hard work of our teams around the country. Our local leaders remain laser focused on our clinical measures and clinical outcomes, which have helped drive our overall performance. I'd like to share just a couple quick anecdotes that illustrate our facility's dedication to quality. First, in March of this year, our Santa Rosa post-acute facility in California had its first annual survey since early in the pandemic.
Austin: We had a very strong quarter, both clinically and financially thanks to the hard work of our teams around the country. Our local leaders remain laser focused on our clinical measures and clinical outcomes, which have helped drive our overall performance.
Austin: To share just a couple quick anecdotes that illustrate our facilities dedication to quality.
Austin: First in March of this year, our Santa Rosa post acute facility in California had its first annual survey since early in the pandemic they passed with zero regulatory deficiencies and a follow up CMS survey confirmed those remarkable results.
Jason Murray: They passed with zero regulatory deficiencies, and a follow-up CMS survey confirmed those remarkable results. Additionally, Presidential Post-Acute in Marion, Ohio, has now had three annual surveys in a row without a single deficiency and has gone almost five years with only one survey deficiency. As some of you may know, a zero-deficiency annual survey is a relatively rare achievement.
Austin: Additionally.
Austin: Residential post acute and Marion, Ohio has now had three annual surveys in a row without a single deficiency and has gone almost five years with only one survey deficiency.
Austin: As some of you May know zero deficiency annual survey is is a relatively rare achievement and a testament to a lot of hard work and commitment by the staff. So we're very proud of the staffs of Santa Rosa presidential and for the dedication they have to their residents and so these are just a few of many examples throughout our company that point to the commitment.
Jason Murray: And it's a testament to a lot of hard work and commitment by the staff. So we're very proud of the staff at Santa Rosa and Presidential and for the dedication they have to their residents. And so these are just a few of many examples throughout our company that point to the commitment of our teams to patient safety, clinical excellence, and operational integrity. Clinically, our teams continue to excel in caring for their residents. This is illustrated by 158 of our skilled nursing facilities having achieved a four or five-star CMS quality measure rating. Our facilities and teams are always committed to working towards achieving a five-star quality rating.
Of our teams to patient safety clinical excellence and operational integrity.
Austin: Clinically our teams continue to excel in caring for their residents. This is illustrated by 158 of our skilled nursing facilities, having achieved a four or five star CMS quality measure rating our facilities and teams are always committed to working towards a five star quality rating. This kind of effort is the most important factor in our financial strength and.
Jason Murray: This kind of effort is the most important factor in our financial strength and revenue growth year over year of 32% or $226.5 million. Our revenue was driven higher by several factors when compared with the same quarter last year. In addition to increasing occupancy, we also saw revenue per patient day increase. For example, our average daily Medicare rates increased by 11 percent for the three months ended March 31, 2024, compared to the first quarter of 2023.
Austin: Revenue growth year over year of 32% or $226 5 million.
Our revenue was driven higher by several factors when compared with the same quarter last year. In addition to increasing occupancy. We also saw revenue per patient day increases for example, our average daily Medicare rates increased by 11% for the three months ended March 31, 2024 compared to the first quarter of 2023.
Jason Murray: And our average Medicaid rates over the same time period increased 5.3 percent due to state reimbursement increases and our participation in supplemental Medicaid payment and quality improvement programs. Both increases come from our efforts to keep healthcare local by recognizing and serving patients' acuity needs locally. This also allows us to properly meet the continuing shift of higher-acuity patients being discharged from acute care settings into skilled nursing facilities. Outlook for continued growth remains strong, with a robust acquisition pipeline and continued improvement both clinically and financially in the operations we've recently acquired.
Speaker Change: And our average Medicaid rates over the same time period increased five 3% due to state reimbursement increases and our participation in supplemental Medicaid payment and quality improvement programs.
Speaker Change: Both increases come from our efforts to keep health care local by recognizing and serving patients security needs locally. This also allows us to properly meet the continuing shift of higher acuity patients being discharged from acute care settings into skilled nursing facilities.
Speaker Change: Outlook for continued growth remained strong with a robust acquisition pipeline and continued improvement both clinically and financially and the operations. We've recently acquired.
Jason Murray: As many of you know, the demographics remain strong for increased demand for skilled nursing care across the country. We'll continue to seek out the right facilities and the right markets for acquisition to expand our operational reach.
Speaker Change: As many of you know the demographics remained strong for increased demand for skilled nursing care across the country.
Speaker Change: Continue to seek out the right facilities in the right markets for acquisition to expand our operational reach.
Jason Murray: And skilled nursing care represents approximately 43 percent of total CMS spending on post-acute care, and we're confident we can continue to play a vital role in our country's healthcare continuum. So next, as we turn to the new minimum staffing rule, we support CMS's intent to enhance quality care for its seniors as it aligns directly with our mission as a company to provide better clinical outcomes to our patients across the country.
Speaker Change: Skilled nursing represent skilled nursing care represents approximately 43% of total CMS spending on post acute care and we're confident we can continue to play a vital role in our country's health care continuum.
Speaker Change: So next as we turn to the CMS, new minimum staffing rule, we support cms's intent to enhance quality care for our seniors as it aligns directly with our mission as a company to provide better clinical outcomes to our patients across the country.
Jason Murray: However, we do share the sentiment, as many in the industry, that the rule in its current form presents a number of significant challenges to the industry, particularly for the many smaller providers who make up the majority of the nursing homes in our country. The way we see it, there are two major hurdles with the current staffing mandate that need to be overcome. First...
Speaker Change: However, we do share the sentiment as many in the industry that the rule in its current form presents a number of significant challenges to the industry, particularly for the many smaller providers, who make up the majority of the nursing homes in our country.
Speaker Change: We see it there are two major hurdles with the current staffing mandate that need to be overcome first.
Jason Murray: There is a significant lack of caregivers to fill the workforce shortage within the skilled nursing sector. Data shows that almost 250,000 nursing home workers left the industry during the pandemic. And while some have returned, the industry is still about 125,000 workers short. Second, without additional funding, the mandate will impose a significant cost burden, which may, many providers will be unable to shoulder. In light of the legislative and other opposition to the new rule, we can't predict whether the new staffing requirements will, in fact, ultimately take effect in their current form.
Speaker Change: Theres, a significant lack of caregivers to fulfill the workforce shortage within the skilled nursing sector.
Speaker Change: This shows almost 250000 nursing home workers left the industry during the pandemic and while some of return the industry is still about 125000 workers short.
Speaker Change: Without additional funding the mandate won't pose significant cost burden, which may which many providers will be unable to shoulder.
Speaker Change: In light of the legislative and other opposition to the new role, we can't predict whether the new staffing requirements will in fact ultimately take effect in their current form. However, our operating teams are planning for and taking the necessary steps to prepare keep in mind that the new minimum requirements are scheduled to take effect two to three years from now so with that said assuming the new.
Jason Murray: However, our operating teams are planning for and taking the necessary steps to prepare. Keep in mind that the new minimum requirements are scheduled to take effect two to three years from now. So with that said, assuming the new rule is ultimately implemented in its current form, we believe we are in a good position as a company to adapt to the requirements. Due to our operating model and caring for so many higher-acuity patients, the majority of our facilities staff more than the 3.48 nursing hours per patient day, which is a key metric adopted by CMS in the new rule. It's also worth noting that currently, a significant number of our operations are in California, where existing minimum staffing requirements are, in many ways, already similar to the new federal rules.
Operating Team: New rule is ultimately implemented in its current form we believe we're in a good position as a company to adapt to the requirements due to our operating model and carrying for so many higher acuity patients. The majority of our facility staff over the 3.48 nursing hours per patient day, which is a key metric adopted by CMS in the new rule, It's also worth noting that.
Speaker Change: Currently a significant number of our operations or in California, where existing minimum staffing requirements are in many ways already similar to the new federal rules.
Jason Murray: Turning to growth prospects, we are continually evaluating new markets where we can fill our model, and we'll add value to the local health care system. Our leadership model allows us to be nimble and ensure we're prepared to flex and adapt in order to support expansion in existing and new markets, while maintaining sound clinical care and business performance. To support future growth, we continue to focus efforts on a robust administrator and training program where we have a pool of talent ready to take on leadership roles at new facilities quickly.
Speaker Change: Turning to growth prospects, we are continually evaluating new markets, where we feel our model will add value to the local health care system. Our leadership model allows us to be nimble and ensure we are prepared to flex and adapt in order to support expansion in existing and new markets, while maintaining sound clinical care and business performance.
Speaker Change: To support future growth, we continue to focus efforts on our robust administrator and training program, where we have a pool of talent ready to take on leadership roles at new facilities quickly.
Jason Murray: The AIT program's success includes roughly 200 PACS AITs hired since our founding, with 157 of those still employed with us in licensed administrator or other leadership positions, a retention rate of about 75%, which we're very proud of. And we currently, at the moment, have 35 AITs in our program to help facilitate further strengthening existing facilities and to support our growth.
AIT'S: Program success includes roughly 200 packs ait's hired since our founding with 157 of those still employed with us in license administrator or other leadership positions a retention rate of about 75%, which we're very proud of.
And we currently at the moment have thirty-five AI teas, and our program to help facilitate further strengthening existing facilities and to support our growth.
Jason Murray: So, in addition to training new leaders, the PACS leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents and the communities in which they live. With support from PACS services, our back office clinical compliance and business support team, our teams are able to stay laser focused on providing quality clinical care while creating a culture that attracts the best employees to our sector.
Speaker Change: So in addition to training new leaders the packs leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents in our communities in which they live with support from Pac services or back office clinical compliance and business support team. Our teams are able to stay laser focused on providing.
Speaker Change: Aiding quality clinical care, while creating a culture that attracts the best employees to our sector.
Jason Murray: And PACS uses several technology and data-enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on our patient care. The real-time data guides our local teams to prioritize factors that, in the end, lead to more consistent clinical outcomes and better financial performance. As we've been able to focus on improving key clinical and operational metrics, our overall CMS star rating has improved across the portfolio, and readmissions back to hospitals have declined.
Speaker Change: Impacts you the several technology and data enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on our patient care. The real time data guides, our local teams to prioritize factors that in the end lead to more consistent clinical outcomes and better financial performance. So as we've been able to focus on.
Speaker Change: On improving.
Speaker Change: Key clinical and operational metrics are overall CMS star rating has improved across the portfolio and readmissions back to the hospitals have declined. This has resulted in our ability to attract and care for higher acuity patients, which is reflected in our average skilled mix of 32, 5% in our mature facilities in Q1 of 2024.
Jason Murray: This has resulted in our ability to attract and care for higher-acuity patients, which is reflected in our average skilled mix of 32.5% in our mature facilities in Q1 of 2024. So we look forward to the rest of 2024, the improvements we have planned, and the growth opportunities that we see. The quality of our people helps ensure we stay in a strong business position moving forward. With that, I'll turn the call back over to Derek to cover our financial highlights for the quarter.
Derek: So we look forward to the rest of 'twenty 'twenty four the improvements we have planned and the growth opportunities that we see the quality of our people helps ensure we stay and strong business position moving forward. So with that I'll turn the call back over to Derek to cover our financial highlights for the quarter.
Derek Apt: Thank you, Jason, and thanks to our teams for ensuring we meet our mission of excellence in serving our patients, residents, and the communities where they operate. Since the close of the first quarter on March 31st, we successfully completed our IPO, which resulted in net proceeds of $423 million. Here are a few financial highlights for the quarter. We had $934.7 million of revenue for the three months ended March 31st, 2024, a 31.9 percent increase over the prior year period. Adjusted EBITDA was $152.5 million, and adjusted EBITDA was $88.5 million, respectively, for the three months ended March 31st, 2024.
Derek: Thank you, Jason and thanks to our teams for ensuring we meet our mission of excellence in serving our patients residents and the communities where they operate since the close of the first quarter on March 31, we successfully completed our IPO, which resulted in net proceeds of $423 million here are a few financial highlights.
Derek Apt: And last, our earnings per share for the quarter was $0.38, which showed an increase of 31 percent over the prior year on $49.1 million of net income for the three months ended March 31st, 2024. Our total facility occupancy was 91.1% during the first quarter of 2024, compared to an industry average of 78.4%. Specifically, our ramping and mature facilities occupancy increased 1.8% and 1.4%, respectively, over the prior year quarter, while our new facilities entered the quarter with 83.3% occupancy.
Derek: For the quarter, we had $934 7 million of revenue for the three months ended March 31, 2024, a 31, 9% increase over prior year period, adjusted EBITDAR was $152 5 million and adjusted EBITDA was $88 $5 million respectively for the three months ended March 31.
Derek: 2024, and last our earnings per share for the quarter was 38 cents, which showed an increase of 31% over the prior year on $49 1 million of net income for the three months ended March 31 2024.
Speaker Change: Our total facilities occupancy was 91, 1% during the first quarter of 2024 compared to an industry average of 78, 4%, specifically, our ramping and mature facilities occupancy increased one 8% and one 4% respectively over the prior year quarter, while our new facilities ended the quarter with $83 three.
Derek Apt: Historically, this occupancy improves to 90 plus percent during the first three years of PACS operations. We attribute our revenue growth to adding 5,194 beds to the company over the past year, which represents a 35.3% increase in patient days. Additionally, we realized a meaningful improvement in our revenue per patient day over the same time period. We continued the growth of our overall bed count into the first quarter of this year by adding 10 new operations.
Pax Operations: 3% occupancy historically this occupancy improved to 90% during the first three years of Pax operations, we attribute our revenue growth to the adding 5194 beds to the company over the past year, which represents 35, 3% increase in patient days. Additionally, we realized.
Speaker Change: A meaningful improvement on our revenue per patient day over the same time period. We continued the growth of our overall bed count into the first quarter of this year with adding 10, new operations. Our local teams have been making clinical improvements, which is leading to increased occupancy and stabilization of the financial performance of these facilities.
Derek Apt: Our local teams have been making clinical improvements, which is leading to increased occupancy and stabilization of the financial performance of these facilities. Additionally, our average Medicare revenue per patient day remains strong through Q1, at both our ramping and mature facilities, at $969 and $938, respectively, compared to 23, where our average Medicare revenue per patient day at ramping and mature facilities was $836 and $846, respectively.
Speaker Change: Additionally, our average Medicare revenue per patient day remained strong through Q1 at both our ramping and mature facilities at $969 and $938, respectively compared to 23, where our average Medicare revenue per patient day at ramping immature was 836 and 846, respectively.
Derek Apt: Finally, we continue to execute on our strategy to acquire more real estate, adding six real estate assets to our portfolio in the first quarter. In connection with our real estate acquisitions in the quarter, we added $39.8 million to our total long-term debt during the three months ended March 31. Of the $39.8 million, $34.7 million was the assumption of HUD mortgages as part of one of our acquisitions in Missouri, which included three facilities. The mortgages have interest rates ranging from 2.9 to 3.6 percent with terms of 24 to 26 years remaining on the mortgage.
Speaker Change: Finally, we continue to execute on our strategy to acquire more real estate, adding six real estate assets to our portfolio in the first quarter in connection with our real estate acquisitions in the quarter, we added $39 8 million to our total long term debt during the three months ended March 31.
Speaker Change: Of the $39 8 million $34 7 million was assumption of HUD mortgages as part of one of our acquisitions in Missouri, which included three facilities. The mortgages have interest rates ranging from two 9% to three 6% in terms of 24 to 26 years remaining on the mortgage. The addition of these three facilities together.
Derek Apt: The addition of these three facilities, together with our exercising three purchase options in the quarter, brings our total owned facilities to 35. We currently own or have joint venture real estate interest and purchase options on 33.7 percent of our beds, with a long-term goal of owning 50 percent of our portfolio. Of the facilities that we lease, we have an average of 14 years remaining on the initial term of those leases. Now, turning to guidance.
Speaker Change: With our exercising three purchase options in the quarter, bringing our total owned facilities to 35, we currently own or have joint venture real estate interest and purchase options on 33, 7% of our beds with a long term goal of owning 50% of our portfolio.
Speaker Change: Of our facilities that we lease we have at an average of 14 years remaining on the initial term of those leases.
Derek Apt: We look forward to a strong 2024, and our guidance for the full year is as follows. We expect annual revenue to be between $3.65 and $3.75 billion. The midpoint of this is a 19% increase over 2023 revenue. And we expect adjusted EBITDA to be between $351 and $361 million. I'll now turn the call back over to Jason.
Speaker Change: Now turning to guidance, we look forward to a strong 2024 and our guidance for the full years as follows we expect annual revenue to be between $3 65, and $3 75 billion. The midpoint of this is a 19% increase over 2023 revenue and we expect adjusted EBITDA to be between 351 and 360 <unk>.
Jason Murray: 1 million I'll now turn the call back over to Jason.
Jason Murray: Yeah, thanks, Derek. And with that, Operator, we're ready to take questions. And as a reminder to the group, we do have in the room with us Josh Juergensen, our Chief Operating Officer, Derek, and myself, who will be fielding questions. So, with that, we'll turn it back to you, Operator.
Jason: Yes, thanks, Derik and with that operator, we're ready to take question and as a reminder to the group we do have in the room with US Josh Jurgensen, our Chief operating officer, Derek and myself will be fielding questions. So with that I will turn it back to you operator.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. Our first question today comes from David MacDonald of Truist. Please proceed with your question. Okay, good afternoon.
Operator: Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Operator: A confirmation tone will indicate your line is in the question queue.
Operator: You May press Star two if you would like to remove your question from the queue.
Operator: Our first question today comes from David Macdonald of Truest. Please proceed with your question.
David MacDonald: Okay, good afternoon guys. I have a couple of quick questions. First, just on quality, I was wondering if you could just talk quickly about how often when you guys are in contracting discussions, you're able to kind of meaningfully leverage that. You talked about readmissions back to the hospitals declining. Any opportunity or how do you think about longer term, potentially participating in, you know, some of the improvement in quality and just, you know, kind of how you think about contracting relative to that with the payers.
David MacDonald: Hey, good afternoon, guys a couple of quick questions.
David MacDonald: First just on quality I was wondering if you could just talk quickly about.
David MacDonald: How often when you guys are in contracting discussions you're able to kind of meaningfully leverage that you talked about readmissions back to the hospitals have declined.
David MacDonald: Any opportunity or how do you think about longer term potentially participating in.
Speaker Change: Some of the improvement in quality and just kind of how you think about contracting relative to that with the payers.
Josh Jergensen: David, thanks for the question. This is Josh Jurgensen.
Speaker Change: David Thanks for the question. This is Josh Jurgen send them, our president and COO.
Josh Jergensen: I'm our president and COO. Great question. For us, as we talk about often, quality is really, for us, the leading indicator. Care is our product. It's what we do, and we emphasize that to our teams.
Speaker Change: Great question for Us as we talk about often quality really for us is the leading indicator.
Speaker Change: <unk> is our product its what we do and we emphasize that to our teams were heavily invested in making sure that we're focused on some of the key metrics.
Josh Jergensen: We're heavily invested in making sure that we're focused on some of the key metrics that we should care most about and, obviously, our partners in the community care most about. As we know, as we're looking at contracting opportunities, part of our model is to have strategic high density in the markets that we serve so that we can truly be a great partner to those that are looking to find placement for their patients.
We should care, most about and obviously our partners in the community care, most about and as we know as we're looking at contracting opportunities part of our model is to have strategic high density in markets that we serve so that.
Speaker Change: We can truly be a great partner to the.
Speaker Change: Those that are looking to find placement for their patients.
Josh Jergensen: In those conversations, quality always comes up. As a part of most negotiating in those contracts, one of the key gating items is ensuring that the facility has a high enough star rating to meet the minimum of that particular health plan. That star rating is usually a three-star overall ranking.
Speaker Change: And in those conversations quality always comes up as a part of most negotiating.
Speaker Change: And those contracts one of the key gating items is ensuring that the facility has a high enough star rating at.
Speaker Change: To meet the minimum of that particular health plan.
Josh Jergensen: That's an area that we focus on. Rehospitalization is probably another area that they focus on most. As we mentioned, as we dedicate ourselves to the quality of care in the facilities that we have responsibilities in, we've seen those rehospitalization numbers go down. That is a direct result of the coordinated care efforts that are made by our local teams. Our decentralized leadership model, which we feel really shines when it comes to clinical performance.
Speaker Change: That star rating is usually a three star overall.
Speaker Change: Ranking and so that's an area that we focus on re hospitalizations as probably another area that they focused on most and so as we mentioned as we dedicate ourselves to the quality of care and the facilities that we.
Speaker Change: Have responsibilities and we've seen those re hospitalization numbers go down and that has been.
Speaker Change: A direct result of the coordinated care efforts that are made by our local teams are decentralized leadership model, which we feel really shines when it comes to clinical performance and as we do those things we believe theres, a direct correlation to our ability to not only contract, but our ability to drive census, and higher.
Josh Jergensen: As we do those things, we believe there's a direct correlation to our ability to not only contract but also to drive census and higher occupancy rates. We'll continue to focus on quality. We feel that that ultimately will be a competitive advantage to us moving forward.
Speaker Change: Occupancy rates are and so we'll continue to focus on quality and we feel that that ultimately will be a competitive advantage to us moving forward.
David MacDonald: And then, guys, I guess just two other quick ones. One... You know, when I think about the timing around your ramping bucket, I believe a handful of those facilities have been, you know, are pretty close to moving into mature, but just any general comments about, you know, just the strength and ramping. I mean, the numbers look really strong in the ramping bucket. And then I guess the second question is, with regards to minimum staffing, you know, when we think about, you know, what you guys tend to target in terms of M and a, I would think the custodial facilities are going to be a further spread away from those. Staffing levels, is there any reason to think if the rule were to move forward as written, that you wouldn't have, you know, likely a meaningful acceleration pipeline of opportunities, you would say.
Speaker Change: And then guys I guess just two other quick ones one.
Speaker Change: You know when I think about the timing around youre ramping bucket I.
I believe a handful of those facilities have been.
Speaker Change: A pretty close to moving into mature, but just any general comments about.
Speaker Change: No just the strength in ramping I mean, the numbers look really strong in the ramping bucket and then I guess the second question is with regards to minimum staffing.
Speaker Change: We think about what you guys tend to target in terms of M&A I would think the custodial facilities are going to be a further spread away from those staffing levels is there any reason to think if the rule were to move forward as written that you wouldn't have likely a meaningful acceleration of the pipeline of opportunities you would say.
Derek Apt: Yeah, Dave, thanks. This is Derek.
Derrick: Yes, Dave this is derrick.
Derrick: So on the ramping bucket you are right.
Derek Apt: So on the ramping bucket, you are right. There are quite a few in the ramping bucket. I think it's just north of 70 facilities that are nearing the end of their time in the ramping up phase moving to mature. That consists of a large acquisition in California we did in 21, the plum acquisition. And additionally, we acquired a large portfolio in South Carolina around the same time, and both of those are performing exceptionally well.
There's quite a few of the in the ramping bucket I think it's just north of 70 facilities that are nearing the end of their.
Derrick: Their time in the ramping moving to mature that consist of a large acquisition in California. We did in 'twenty one the pumped palm acquisition and then Additionally, we acquired a large portfolio in South Carolina around the same time in both of those are performing exceptionally well that South Carolina portfolio as a whole actually has the highest occupancy in our <unk>.
Derek Apt: That South Carolina portfolio as a whole actually has the highest occupancy in our entire portfolio. And then additionally, as you look at the other key KPIs that we run through the cohorts, you know, the large California plum acquisition had quite a few buildings in higher wage index areas, which is driving that revenue PPD slightly higher for the ramping than for the mature. But, you know, we're overall excited that those buildings are maturing faster than we've historically experienced.
Derrick: Tire portfolio.
Speaker Change: And then additionally, as you look at the other key Kpis that we run through the cohorts the large California.
<unk> acquisition had a quite a few buildings in higher wage index areas, which is driving that revenue PPD are slightly higher for the ramping and the mature.
Jason: But we're overall excited that those buildings are maturing faster than we had historically experienced and it's I think it's just a proof in the pudding for our model and our local leadership the second point on the minimum staffing how it's going to affect the M&A pipeline I think Jason laid it out well our overall <unk>.
Derek Apt: And I think it's just proof in the pudding for our model and our local leadership. The second point on minimum staffing and how it's going to affect the M&A pipeline. I think Jason laid it out well, our overall thoughts from a company perspective that look, we support it. We think it's good to provide better care to more of our seniors across the country. But there are a couple of key caveats, which also leads to your question.
Jason: From a company perspective look we support it we we think it's good to provide better care to more of our seniors across the country.
But theres a couple of key caveat, which ultimately I think leads to your question and it's the funding and the ultimate burden on this custodial care facilities that the smaller operators are going to struggle with being able to absorb and the way. We look at it is ultimately I don't think we're going to shy away from looking at any building or we're going to turn down buildings. If it's a long term.
Derek Apt: And it's the funding and the ultimate burden on those custodial care facilities that the smaller operators are going to struggle with being able to absorb. And the way we look at it is, ultimately, I don't think we're going to shy away from looking at any building, or we're going to turn down buildings if it's a long-term care facility, depending on how it scores on the scorecard. I think, you know, we look through a scorecarding method, and we look at the overall rates in the different states.
Jason: Custodial care, depending on how it scorecards I think.
Jason: We look through our scorecard method and we look at the overall rates at the different states. We look at the labor dynamics and if the building still checks those boxes, even if it's long term custodial, we believe theres always a path to deliver better quality care locally and if we think we can.
Derek Apt: We look at the labor dynamics. And if the building still checks those boxes, even if it's long-term custodial, we believe there's always a path to deliver better quality care locally. And if we think we can, you know, evolve that model from custodial care at a certain facility in a certain state, then we're still going to pursue that acquisition, even though they might be further away on the labor side. If there's a path to get the right mix of patients and payers there, then we're going to be able to make it an attractive acquisition. Okay. Thanks, guys.
Speaker Change: Evolve that model from a custodial care at a certain facility and in a certain state then we're still going to pursue that acquisition.
Speaker Change: Even though they might be further away on the labor side, if there's a path to get the right mix of patients and payers. There then we're going to be able to make it an attractive acquisition.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Yeah.
Operator: The next question is from Scott Fidel of Stephens. Please proceed with your question.
Speaker Change: The next question is from Scott Fidel of Stephens. Please proceed with your question.
Scott Fidel: Great, hi, thanks, hi everyone. First question, just wanted to follow up on that theme that David asked about around the ramping bucket in particular and then the new, where we did see very strong KPIs in the first quarter around that bucket, which would lead me to think that you certainly are sort of moving forward on harvesting that embedded EBITDA opportunity of the 80 to 100 million plus that you've talked about off of acquired facilities.
Speaker Change: Great Hi, Thanks, Hi, everyone.
Scott Fidel: First question just wanted to follow up on that theme that David asked about around the ramping bucket in particular, and then where.
Scott Fidel: Where we did see a very strong kpis in the first quarter around that bucket, which would lead me to think that that you certainly are sort of moving forward on harvesting on that embedded EBITDA opportunity of the 80 to 100 million plus that you've talked about off of acquired facility.
<unk>.
Scott Fidel: Maybe you know, along sort of that context, can you give us some visibility into sort of the, you know, I guess, achievement of that target in terms of you know what you executed on in the first quarter and and sort of how you're thinking about continuing to execute against that target over the balance of the year?
Scott Fidel: Maybe along started that context can you give us some visibility into sort of debt.
Scott Fidel: I guess the achievement towards that target in terms of what you executed on in the first quarter end and sort of how youre thinking about.
Scott Fidel: Continuing to execute against that target over the balance of the year.
Derek Apt: Yeah, great question, Scott. I think for the embedded EBITDA of 80 to 100 million in our overall portfolio, you know, look, we're harvesting some of that. But we also have added additional buildings already in Q1, as I mentioned, 10 facilities came on in Q1, which ultimately continues to build that embedded EBITDA. So as we look through the year for our guidance, you know, we haven't changed the guidance. We still believe there's upside, as you see in the EBITDA from the 23 to our guidance for the 24 EBITDA. And our range is still kind of holding in that 80 to 100 million at the high end on embedded EBITDA growth from the portfolio moving forward.
Scott Fidel: Yes, yes, great question Scott.
Scott Fidel: I think for then embedded EBITDA of 80 to $109 of our overall portfolio look we're harvesting some of that but we also have added additional buildings already in Q1 as I mentioned 10.
Scott Fidel: 10 facilities came on in Q1, which ultimately continues to build that embedded EBITDA. So as we look through the year for our guidance, we havent changed the guidance, we still believe Theres theres upside as you see in the EBITDA from the 23 to our guidance for the 24 EBITDA and our range is still kind of holding in that 80 to 100.
Speaker Change: At the high end on embedded EBITDA growth from the portfolio moving forward.
Scott Fidel: Okay, and then just for my follow-up question, I'll try to put two numbers into it. One, just in terms of thinking about any call-outs that you would want to give us around thinking about sort of trends on the EBITDA margins in terms of seasonality or other dynamics just for 2Q over the balance of the year relative to the 9.5% that you reported in the first quarter. And then similarly on operating cash flow; just hoping to get some thoughts on the full year view on that.
Speaker Change: Okay and then just for my follow up question I'll try to put two numbers questions in queue.
Speaker Change: One just in terms of thinking about any call outs that you would want to give us around thinking about sort of trends on the EBITA margins in terms of seasonality or other dynamics just for QQ over the balance of the year relative to the 95% that you reported in the first quarter.
Speaker Change: And then similarly on operating cash flow just hoping to get.
Speaker Change: Some thoughts on our full year view on that looked like in the first quarter you were at right around 65%.
Scott Fidel: It looks like in the first quarter, you were at right around 65% EBITDA operating cash flow conversion. I'm wondering if that's a good stat for us to think about modeling for the full year or whether you'd have any additional context for us there. Yeah, certainly. Thanks, Scott. Two great questions.
EBITDA operating cash flow conversion wondering if that's a good stat for us to think about modeling for the full year or whether you have any additional on.
Speaker Change: Contacts first half thanks.
Derek Apt: I think both of them, from my perspective, specifically tie back to M&A. You know, last year we saw a little compression in our margin from 22, and ultimately that's driven by the acquisitions, and last year in 23 being a little lumpier acquisition. As we think of seasonality through this year, we don't anticipate any margin compression with seasonality. Historically, as you've seen in our financials, we don't see much seasonality in overall occupancy.
Derek Apt: Yeah, certainly. Thanks, Scott. Two great questions.
Speaker Change: Yes, certainly thanks, Scott two great questions I think both of them from my perspective, specifically tie back to M&A.
Scott: Last year, we saw a little compression in our margin from 22, and ultimately that's driven from the acquisitions and al last year, and 23 being a little Lumpier acquisition as we think of seasonality through this year, we don't anticipate any margin compression with seasonality historically as you've seen.
Speaker Change: In our financials, we don't see much seasonality in overall occupancy skilled mix does vary seasonality and that's ultimately due to respiratory and more skilled patients may be coming in with respiratory issues, whether that's you know influenza or COVID-19 as we had it but ultimately those seasonality things we don't anticipate.
Derek Apt: Skilled mix does vary seasonally, and that's ultimately due to respiratory and more skilled patients maybe coming in with respiratory issues, whether that's, you know, influenza or, you know, COVID as we had it. But ultimately, those seasonal things we don't anticipate.
Derek Apt: Ultimately, what drives the margin compression and expansion is growth and then maturing of the facilities. And that really dovetails in further to your question on free cash flow. And ultimately, with Q1, the free cash flow was strong from our perspective and growing. And that's really from growing and maturing the new buildings that we had brought on last year. Free cash flow takes a hit when you ultimately acquire in the type of transactions that we do because there's a little bit of a delay in collecting that cash flow from the operations.
Ultimately what drives the margin compression and expansion is is the growth and then the maturing of the facilities and that really dovetails in further to your question on the free cash flow and ultimately with Q1, the free cash flow.
What was strong from our perspective and in growing and that's really from growing and maturing the new buildings that we had brought on last year free cash flow takes a hit when you ultimately acquire and the type of transactions that we do because there's a little bit of delay in collecting that cash flow from the operations.
Speaker Change: But as we.
Speaker Change: Say slow growth or theres, not lumpy acquisitions at free cash flow is going to continue to expand as the margin expands.
Derek Apt: But as we, you know, say slow growth or there are no lumpy acquisitions, that free cash flow is going to continue to expand as the margin expands. And so as we look through the year, I don't have anything to point to that says that that free cash flow is not going to stay steady or grow.
Speaker Change: And so as we look through the year I don't have anything to point to that says that that free cash flow is not going to stay steady to expand.
Speaker Change: Okay, great. Thank you.
Operator: The next question comes from Ben Hendricks of RBC Capital Markets. Please proceed with your question.
Speaker Change: The next question comes from Ben Hendrix of RBC Capital markets. Please proceed with your question.
Ben Hendricks: Thank you very much and congratulations, guys. I just wanted to get a little commentary on 11% in Medicare Advantage growth. You guys mentioned a number of drivers already, but I just wanted to kind of think about that 11% and break that up among skilled mix increases. Was there a component of it that had to do with contracting specifically or the addition of new facilities that kind of contributed to that 11%? I just want to get the building blocks. Thanks.
Speaker Change: Thank you very much and congratulations guys.
Ben Hendrix: Wanted to get a little commentary on 11% Medicare advantage growth you guys mentioned, a number of drivers already but just wanted to kind of think about that 11%.
Ben Hendrix: Breaking that up.
Ben Hendrix: Skilled mix increases was it more was there a component of it that had to do with contracting specifically or or addition of new facilities that kind of contribute to that 11% just want to get the building blocks.
Josh Jergensen: Yeah, thanks for the question. This is Josh again.
Josh: Yes. Thanks for the question this is Josh again.
Josh: This is always a focus of ours that I touched on quality a little bit in contracting in general, but this is an area, where we feel again our model shines as we invest specifically on the care the efforts and the systems that we put in place are adding quality personnel, we believe our facilities become more equal.
Josh Jergensen: This is always a focus of ours. I touched on quality a little bit and contracting in general, but this is an area where we feel strongly again. Our model shines as we invest specifically in the care, the efforts, and the systems that we put in place, adding quality personnel. We believe our facilities become more equipped to take care of a more clinically acute patient. And as Jason referenced in his comments that he made, acuity is being pushed from the acute care hospital down to providers, so long as they can take care of those patients and do it well, they can reduce re-hospitalizations, and they can ensure that the care that those patients need is ultimately met.
Jason: To take a more clinically acute patient and as Jason has referenced in his his his comments that he made the acuity is being pushed from the acute care hospital down to providers. So long as they can take care of those patients and do it well they can reduce re hospitalizations. They can ensure that the care that those patients need ultimately as Matt and that's.
Josh Jergensen: And that's where we feel our model is such that it allows us to run a higher skilled mix and higher acuity. There is some seasonality, as Derek mentioned, that happens during specific times that allows us to run a higher skilled mix as more patients are in the acute setting and needing post-acute discharge to continue their care. And so there is an element of that, but we continue to make efforts and see a lot of substantial progress, both in additional contracts and improved rates in the contracts because of the quality metrics that we have across the organization.
Derek: Where we feel we our model is such that it allows us to run a higher skilled mix and higher acuity. There is some seasonality as Derek mentioned that happens during specific times that allows us to run.
Derek Smith: A higher skilled mix as more patients are in the acute setting and needing post acute discharge.
Derek Smith: To continue their care and so there is an element of that but we continue to make efforts and see a lot of substantial progress both in additional contracts and improved rates and the contracts because of the quality metrics that we have across the organization.
Ben Hendricks: Great, thank you. This is my last question on guidance, the EBITDA guidance. Can you talk about the swing factors that get you from the low end to the high end and what considerations we should be thinking about in how you set your range?
Speaker Change: Great. Thank you and just my last one on guidance. The EBITDA guidance can you talk about the swing factors that gets you from the low end to the high end and what considerations, we should be thinking about and how you set your range. Thanks.
Derek Apt: Yeah, certainly, that's.
Derek Apt: Yeah, certainly. That's a great question, Ben. You know, the biggest factors ultimately come back to we just grew by 10 for the year, and seeing how those start maturing, if they're going to be additive to the bottom line, or if they follow the similar trend in the first, you know, 12 to 18 months of low EBITDA margins. And, you know, the range there is really ultimately said that if they follow some of our stronger maturing facilities, then we're going to push to the high end of the range versus being at the low end of the range as it comes to the newest acquisitions that we've folded into the portfolio.
Speaker Change: Yes, certainly that's a great question Ben.
Speaker Change: The biggest factors ultimately come back to we just grew by 10 for.
Ben Hendrix: For the year and seeing how those start maturing if theyre going to be additive to the bottom line or if they followed a similar trend in the first 12 to 18 months of low EBITDA margins and.
Ben Hendrix: The the range there is really ultimately said if they.
Ben Hendrix: Followed some of our stronger maturing facilities than we're going to push to the high end of the range versus being at the low end of the range as of as it comes to the newest acquisitions that we've folded into the portfolio.
Ben Hendrix: Okay.
Speaker Change: Thank you very much guys.
Speaker Change: Okay.
Operator: The next question comes from Jason Cosorla of Citi. Please proceed with your question.
Speaker Change: The next question comes from Jason Cazorla of Citi. Please proceed with your question.
Jason Cazorla: Great. Thanks, good afternoon, and congrats on the quarter, maybe just on occupancy obviously, a strong result in the quarter mature and ramping cohorts rather than covering around 95%.
Jason Cosorla: Great, thanks. Good afternoon, and congrats on the quarter. Maybe just on occupancy, obviously a strong result in the quarter, maturing ramping cohorts covering around 95%. There's some seasonality to consider, but maybe can you just help frame the sustainability of occupancy in those, at those mid-90s levels? And then just for the new cohort, how should we think about the occupancy upside for those facilities at this point? I guess we're up to 24 guide or, you know, you noted in your preparator marks a target of over 90%, you know, over time. But I'm just curious about the timing of that trajectory to get there.
Jason Cazorla: Some seasonality to consider but maybe can you just help frame the sustainability of occupancy in those at those mid nineties levels and then.
Jason Cazorla: So the new cohort how should we think about the occupancy upside for those facilities at this point I guess relative to 'twenty. Four guide are you know you noted in your prepared remarks, a target of over 90% over time, but I just curious on the timing.
That trajectory to get there. Thanks.
Jason Cazorla: Yes.
Josh Jergensen: Yeah, we acknowledge that Q1 was strong from an occupancy percentage standpoint, and I feel like I continue to reharp on some of the same things.
Jason Cazorla: Yes, we acknowledge Q1 was strong from an occupancy percentage and I feel like I continue to re harp on some of the same things, but for US we truly believe.
Josh Jergensen: But for us, we truly believe that to be the best partners for hospitals and discharge planners for the communities that we serve, we have to have great quality outcomes. And we feel that that is the leading indicator of our ability to run high occupancy numbers. Derek referenced this already, but when it comes to seasonality, which naturally we felt some of that in Q1, and we'll see as that varies throughout the year, we haven't seen major changes in our occupancy.
Jason Cazorla: That to be the best partners for hospitals and discharge planners for the communities that we serve we have to have ultimately great quality outcomes and we feel that that is the leading indicator to our ability to run high occupancy numbers, Derek references already but when it comes to seasonality, which naturally we felt some of that in.
Jason Cazorla: Q1, and we'll see as that varies throughout we haven't seen major changes in our occupancy and again this is where our model as our teams that are so locally based and able to make decisions locally for what's best for their communities can adapt and be nimble to ensure that occupancy even during that seasonality.
Josh Jergensen: And again, this is where our model, as our teams that are so locally based and able to make decisions locally about what's best for their communities, can adapt and be nimble to ensure that occupancy, even during that seasonality, doesn't decrease. And so we feel very confident in that model and our ability to continue to maintain strong occupancy as we head through the remainder of 24.
Jason Cazorla: Doesn't decrease and so we feel very confident in that model and our ability to continue to maintain strong occupancy as we head through the remainder of 'twenty four.
Josh Jergensen: One of the things that you did acknowledge, kind of moving on to the second part of that, is the new cohort. When we take over facilities, they're generally underperforming or distressed. Their ability to run a care model similar to ours, where they feel comfortable being able to take, you know, a more clinically acute patient. And another main factor in that is their ability to staff their buildings appropriately and recruit and retain staff to take care of their patients limits their ability to run occupancy or skilled numbers similar to ours.
Jason Cazorla: One of the things that you did acknowledge kind of moving on to the second part of that is the new cohort.
Speaker Change: When we take over facilities, there generally underperforming our distressed their ability to run our care model similar to ours, where they feel comfortable to be able to take.
Speaker Change: More clinically acute patient.
Speaker Change: And another main factor and that is their ability to staff their buildings appropriately and recruit.
Speaker Change: And retain staff to take care of their patients limits their ability to run occupancy or skilled number similar to ours as we go into these facilities. The first item of business for US is to make sure that we have the right people in the right places.
Josh Jergensen: As we go into these facilities, the first order of business for us is to make sure that we have the right people in the right places and make sure that there are good care systems in place so that we can be a good provider in the community. That takes time. And that's exactly why you see these cohorts grouped into new, ramping, and mature. It's no surprise to us, and I'm sure not to you, that these new facilities run a lower occupancy and lower skilled mix.
Speaker Change: Sure that theres good care systems in place so that we can be a good provider in the community.
Speaker Change: That takes time and that's exactly why you see these cohorts grouped into new and ramping and mature and it's no surprise to us and I am sure not to you that these new facilities run a lower occupancy and lower skilled mix. We believe as we continue to move forward and with time.
Josh Jergensen: We believe as we continue to move forward, and with time, and our leadership model and our care model are deployed, we feel that there are a lot of opportunities for these new facilities to move and trend toward ramping and mature historical occupancy and skilled mix numbers.
Speaker Change: Our leadership model and our care model are deployed we feel that theres a lot of opportunities for these new facilities to move in trend towards ramping and mature historical occupancy and skilled mix numbers.
Jason Cosorla: Okay, great. Thanks. Maybe just as a follow-up, I wanted to ask about some recent developments in California that are looking to implement healthcare spending caps. I think it's three and a half percent for 2025 and 2026. It sounds like there's more detail and clarity from the state that's coming, but I guess just any thoughts on the announcement, perhaps if you see this as an opportunity to drive your value proposition further in the state, or how you're thinking about the developments there around the spending caps and your positioning. Thanks. Yeah, again Josh here.
Speaker Change: Okay, great. Thanks, and maybe just as a follow up I wanted to ask about kind of the recent developments in California, that's looking to implement health care spending cap I think is three 5% for 'twenty five 'twenty six it sounds like it's more detail and clarity from the state that's coming but I guess, just any thoughts on the announcement, perhaps if you see this as an opportunity to drive your value proposition.
Speaker Change: Further in the state or how youre thinking about like the developments there around the spending caps and your positioning.
Josh Jergensen: Yeah, again, Josh here. California, as you know, we have a large presence in the state. There's a number of things that get discussed in any state in which we operate, and healthcare is always a key component of those discussions. And there's a number of different things that are discussed that could or could not potentially impact our space.
Josh: Yeah again, Josh here.
Josh: California as you know we have a large presence in the state.
Josh: There's a number of things that get discussed in any state in which we operate and health care is always a key component of those discussions and there's a number of different things that are discussed that could or could not potentially impact our space. I mean, you see that when it comes to budgets or other sorts of things that we keep a close eye on.
Josh Jergensen: I mean, you see that when it comes to budgets or other sorts of things that we keep a close eye on. Again, we kind of returned, and we don't want to generalize the concept, but we have a very strong presence. We have great leadership, and we have great clinical outcomes in the state of California. And we believe that regardless of, you know, the various changes that may come up, we feel we're well positioned in the state because of our density, our ability to contract with key providers to give us access to taking more patients.
Josh: Again, we kind of return to and we don't want to generalize the concept, but we have a very strong presence. We have great leadership, we have great clinical outcomes and the state of California, and we believe that regardless of the various changes that may come up we feel we're well positioned in the state because of our density our ability to <unk>.
Speaker Change: Contract with key providers and they give us access to taking more patients.
Josh Jergensen: You know, we believe, again, with that, you know, with the strength in the state of California and our quality outcomes, that the ability to kind of weather any different changes that are made in the reimbursement environment is such that that's why we've been able to continue to have that success. So we continue to stay close to the changes that are proposed and may be proposed. And as we do that, we again feel that we're well positioned in the state to adapt and to continue to have success in that state.
Speaker Change: We believe again with that.
Speaker Change: With the strength in the state of California, and our quality outcomes that the ability to kind of weather any different changes that are made in the reimbursement environment are such that that's why we've been able to continue to have that success. So we continue to stay close to the changes that are proposed in may be proposed.
Speaker Change: And as we do that we again feel that we're well positioned in the state to adapt and to continue to have success in that state.
Speaker Change: Okay. Thank you.
Operator: The next question is from Cal Sterink of J.P. Morgan. Please proceed with your question.
Speaker Change: The next question is from cow strength of J P. Morgan. Please proceed with your question.
Cal Sterink: Yeah, hi. Thanks for the question and congrats on the quarter. I wanted to get your thoughts on the rate environment. Specifically, you know, the preliminary Medicare notice, just how that compared versus your initial expectations and, I guess, versus what you have built into the model. And then same question on Medicaid, just anything to call out in terms of what you're seeing in terms of rates in the states. Yeah, great question, Kyle.
Speaker Change: Yeah, Hi, Thanks for the question and congrats on the quarter.
Speaker Change: Wanted to get your thoughts on the rate environment.
Speaker Change: Specifically the preliminary Medicare notice, just how that compared versus your initial expectations and I guess versus what you have built into the model.
Speaker Change: And then same question on Medicaid and just anything to call out in terms of what Youre seeing in terms of rates in the states.
Derek Apt: Yeah, great question, Cal, and I appreciate it. So what we have, the Medicare rate that came out is overall higher than we had in our model. Partly, you know, a slight uptick in that rate announcement helps to push to the higher end of our guidance. That's one point.
Kyle: Yes, great question Kyle.
Kyle: And I appreciate so what we have the Medicare rate that came out is overall higher than we had in our model.
Kyle: Partly you know slight uptick on that rate announcement helps to push to the higher end of our guidance. That's one point the other point to bring up.
Derek Apt: The other point to bring up on the rate environment is that we've seen healthy increases from most Medicaid programs that we operate in those states. And we're also seeing some continued strengths, specifically in one of our states out east, which has an announcement that the rate is going up July 1st. And so we think there's potential upside more for a stronger rate environment versus what we had modeled. Because typically, we model to the long-term average on rate increases.
Speaker Change: The rate environment is we've seen healthy increases from most Medicaid programs that we operate in those states and we're also seeing some continued strength specifically in one of our states out east Hasnt announcement that the rate is going up July one and so we think theres potential upside more for stronger rate environment versus what we had model.
Speaker Change: Because typically we model to the long term average on the rate increases in long term average we look back 10 to 15 years by state and by the federal to make sure that as we roll forward and also in the M&A pipeline, we're not over promising what the potential rate would grow too.
Derek Apt: In the long-term average, you know, we look back 10 to 15 years by state and by the federal government to make sure that as we roll forward, and also in the M&A pipeline, we're not over promising what the potential rate would grow to.
Speaker Change: Okay, great. Thank you.
Operator: That concludes today's question and answer session. I'd like to turn the call back to Jason Murray for closing remarks.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Jason Murray for closing remarks.
Jason Murray: Yeah, thank you, operator, and again, thanks for everyone for taking the time to join us today. We hope this was helpful, and have a great rest of your day.
Jason Murray: Yes, Thank you operator and again, thanks for everyone for taking the time to join us today.
Jason Murray: We hope this was helpful.
Jason Murray: Have a great rest of your day.
Jason Murray: Okay.
Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: This concludes today's conference. Thank you for participating you may now disconnect.
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