Q4 2024 The Pennant Group Inc Earnings Call
Okay.
Speaker Change: Good day and thank you for standing by welcome to the pennant group fourth quarter 2024 earnings call.
Speaker Change: Time, all participants are a listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Speaker Change: Ask a question during the session you will need to press star, one one or telephone.
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Speaker Change: To hand, the conference over to your first speaker today, Kurt Keeney. Please go ahead.
Kurt Keeney: Thank you Marvin welcome everyone and thank you for joining US today here with me today I have been carefully our CEO, John Gardner, our president and CFO and then well then our CFO.
Speaker Change: Before we begin I have a few housekeeping matters.
Speaker Change: With other 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.
Speaker Change: A replay of this call will also be available on our website until five P. M Mountain time on February 28, 2026, we want to remind anyone who may be listening to a replay of this call that all statements made are as of today February 28 2025.
Speaker Change: These statements will not be updated after today's call.
Speaker Change: Also any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.
Speaker Change: 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.
Speaker Change: And 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.
Speaker Change: In addition, the pennant group, Inc. Is a holding company with no direct operating assets employees or revenues.
Speaker Change: Our independent subsidiaries collectively referred to as the service center provide administrative support services to the other operating subsidiaries through contractual relationships with the subsidiaries.
Speaker Change: The words pennant company, we are in us refer to the pennant Group, Inc, and its consolidated subsidiaries.
Speaker Change: All of our operating subsidiaries and the service center are operated by a separate independent companies that have their own management employees and assets.
Speaker Change: References herein to the consolidated company and its assets and activities as well as the use of the terms, we us our and similar terms do not imply that any of the subsidiaries are operated directly by the pennant group.
Speaker Change: 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 a GAAP.
Speaker Change: GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-K.
Speaker Change: With that I'll turn the call over to Brent <unk>, our CEO Brent.
Brent: Thanks, Kurt and welcome everyone to our fourth quarter 2024 earnings call.
Brent: This has been a remarkable year for pennant. Thanks to the dedication of our local leaders and teams who care for our patients and residents each day.
Brent: You are so grateful for everything you do to provide life changing service.
Brent: We are pleased to announce strong fourth quarter results to conclude a year of record breaking performance.
Brent: Our Q4 adjusted earnings per share of <unk> 24.
Brent: Contribute to full year 2024 adjusted earnings per share of 94.
Brent: Which exceeds our updated earnings guidance midpoint of <unk> 93.
Brent: As a reminder, we raised guidance twice during 2024, our full year consolidated results include revenue of $695 2 million, an increase of $150 3 million or 27, 6% over the prior year and adjusted EBITDA.
Brent: $53 3 million, an improvement of $12 6 million or 39% over the prior year.
Brent: 2024 was an eventful year for pennant, we launched transformative partnerships, including a joint venture with John Muir Health in the Bay area, which is now successfully transitioned and contributing positively to our results and a management agreement with Hartford healthcare in Connecticut, which we view as a foundational relation.
Brent: Ship for future expansion in the eastern United States.
We completed numerous strategic home health and hospice acquisitions, including the $80 million purchase a signature health care at home a large provider of home health and hospice services in the Pacific Northwest.
Brent: We also made opportunistic senior living acquisitions and added attractive real estate assets to our portfolio.
Brent: And our capital structure enable additional growth by upsizing, our credit facility and completing a follow on equity offering through all of this we significantly expanded our same store operations and continued to add key individuals who will lead us to new heights in the future.
Brent: Throughout 2024, we remain focused on five key initiatives leadership development.
Brent: Alloy experience clinical excellence margin and growth.
Brent: Effectively made progress in each of these areas during the year.
Brent: Most important initiative continues to be leadership development, which ultimately drives performance in the other four areas as a leadership company, we believe that attracting and developing talented leaders is paramount for growth and success for this reason, we continue to invest meaningfully in our leadership development programs.
Brent: Notably in 2024, we added 66 leaders to our CEO and training program and launched a clinical leadership training program that included 40 participants.
Brent: We were not only successful in recruiting and developing new leaders, but also in the continued development of existing local leaders.
Brent: We achieved record numbers of C level designations in the year.
Brent: In total 45 local leaders earn C level designation in their operations, including 18 local Ceos as we've explained before Ceos and other C level leaders earned this designation may behaving as true owners, and creating financial clinical and cultural value in.
Brent: In the process.
Brent: Typically generate higher annual earnings that are non CEO executive directors, along with better clinical and cultural outcomes.
Brent: Following a monumental year for <unk>.
Brent: Excited about the significant progress we've made and expect to build upon it throughout 2025, we.
Brent: We are also focused on quickly and effectively transitioning newly acquired operations.
Brent: The bench strength capital and deal flow to support substantial acquisition growth.
Brent: <unk> to entertain numerous potential opportunities across our existing markets and beyond.
Brent: Turning to 2025 guidance as we announced in our press release yesterday, we are providing guidance for the full year.
Brent: Dissipate full year revenue in the range of $800 million to $865 million and adjusted earnings per share in the range of $1 three to $1 11.
Brent: The midpoint of $1 seven represents 13, 8% growth on our 2024 adjusted earnings and 46, 6% growth over our 2023 results. Our 2025 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 significant.
Brent: Upside, we expect to continue to unlock in our existing operations.
Brent: The guidance is annual not quarterly and it reflects an anticipated ramp throughout the year.
Brent: Particularly as we transition a significant number of recently acquired operations with that ill turn the call over to John to provide more detail on our fourth quarter operational results.
Speaker Change: Thank you Brent and good morning, everyone. I am pleased to report that the strength that has characterized both of our business segments. Throughout 2024 continued in the fourth quarter, turning first to our home health and hospice segment topline revenue for the full year increased to $519 5 million or 102.
Speaker Change: <unk> 5 million or 31, 7% increase over the prior year.
Speaker Change: While revenue for the quarter increased to $142 million or $35 1 million or 32, 9% increase over the prior year quarter earnings growth reflected similarly strong improvement as adjusted EBITDA of $80 7 million represented an increase of $20 5 million or <unk> 34.
Speaker Change: 1% over the prior year and fourth quarter adjusted EBITDA of $21 3 million increased $4 7 million or 27, 9% over the prior year quarter.
Speaker Change: Both our home health and hospice businesses grew rapidly as our local teams attracted outstanding clinical staff built strong partnerships and differentiated themselves by offering an effective clinical solutions to the community.
Speaker Change: Home health admissions hit a new high of 15959, an increase of 49%.
Speaker Change: Medicare admissions increased to a record 6443, an increase of 31% Medicare revenue per episode increased nine 9%.
Speaker Change: Each over the prior year quarter. This overall growth was driven by strong transitions in our new operations and ongoing momentum in our existing portfolio as same store admissions grew 14, 4% and same store Medicare admissions grew six 1% each over the prior year quarter.
Speaker Change: Our hospice operations admissions increased 21, 7% to 3090 in hospice ADC increased 23, 2% to 3445, resulting in strong revenue growth even as our revenue per episode decreased by one 6% each over the prior year quarter and our <unk>.
Speaker Change: Same store hospice operations admissions grew 10, 4% and ADC grew nine 6% each over the prior year quarter. This ADC growth represents the ninth consecutive quarter of ADC increase as our hospice programs continue to meet the needs of the communities they serve.
We attribute much of the outperformance of our home health and hospice business to our local leaders relentless focus on quality clinical outcomes evidenced by the fact that 83% of our agencies have a real time star rating of four stars or above our average CMS reported star rating of $4 one significantly exceeds that.
Speaker Change: National average of 3.0, and our CMS reported potentially preventable hospitalization rate of eight 7% is 120 basis points better than the national average of nine 9%.
Speaker Change: As a result of our strong clinical outcomes, we are poised to benefit in 2025 from the expansion of CMS is home health value based purchasing program.
Speaker Change: As we have described in past calls, we often experienced lumpiness in our operating margin as we acquire and transition underperforming assets. Despite the potential margin pressure that could have resulted from record acquisition growth in 2024, our adjusted EBITDA margin improved 10 basis points year over year to <unk> 50.
Speaker Change: <unk>, 7%, which contributed positively to the home health and hospice segment's adjusted EBITDA increase of $25 million.
In addition, we achieved this improvement despite an atypical hospice cap expense in the fourth quarter of $1 7 million. Excluding this expense our fourth quarter adjusted EBITDA margin would have increased from 15.0% to 16, 2%.
Speaker Change: With the significant number of acquisitions completed in 2023 and 2024.
Speaker Change: Ongoing efforts to drive efficiency through technology and improved management, we are poised to create additional whole dollar value and unlock latent potential for margin improvement in 2025.
Speaker Change: Our senior living business continued its ascent as we improve operational results. While also taking advantage of favorable acquisition opportunities senior living segment revenue improved to $175 8 million, an increase of $25 3 million or 16, 8% over the prior year.
Speaker Change: And $46 9 million in the fourth quarter of $7 8 million or 20% increase over the prior year quarter full year senior living segment, adjusted EBITDA improved to $16 2 million or $3 9 million or 31, 9% increase over the prior year and $4 2 million for the fourth quarter and any.
Speaker Change: Kris a point $8 million or 23, 4% over the prior year quarter on the year occupancy rose 30 basis points to 78, 8% as we have focused on quality of revenue, including both room and board and level of care. We have continued to drive improved average revenue per occupied room, which climbed to <unk>.
Speaker Change: 4961 in the fourth quarter, an increase of 393 or eight 6% over the prior year quarter on.
Speaker Change: On the growth front through our investment in our leadership development program health and momentum in our markets and portfolio companies and the balance sheet transactions. We completed this year, we are well positioned to take advantage of opportunistic acquisitions in both segments in the fourth quarter, we entered into long term triple net leases for <unk>.
Speaker Change: Three senior living communities in the Green Bay area of Wisconsin, bringing 125 additional units into our portfolio. These acquisitions reflect our disciplined approach to growth with experienced leaders ready to step in healthy geographically proximate clusters ready to embrace the operations and implement the payment model.
Speaker Change: An attractive rents with significant upside.
Speaker Change: Buildings have performed well out of the gate and are well positioned to be accretive to our short and long term senior living results.
Speaker Change: After quarter end on January one 2025, we closed on the purchase of signature healthcare at homes, Oregon assets, which completes the two stage transaction with Washington, and Idaho operations, which we purchased on August 1st are transitioning well and contributing positively to our results and we anticipate a similar trajectory.
Oregon operations.
We pursued this deal because we knew that signature was a quality company with talented clinicians strong leaders and the strategic footprint, whose culture aligned exceptionally well with tenants. Our experience has confirmed those expectations. We are excited for the bright future that we can create in Oregon, Washington, and Idaho as our signature.
Speaker Change: Partners become C level leaders and the unique tenant operating model.
Speaker Change: On February one 2025, we closed an additional three senior living deals one in Idaho in two in Texas, each under a long term triple net lease Idaho acquisition at 68 units to our portfolio in the fast growing Boise area.
Speaker Change: <unk> provides an option to purchase the underlying real estate at a predetermined price, making it an attractive way to add to our real estate portfolio as we create value through the operational transformation.
Speaker Change: The acquisitions in Purple and tumble, Texas added 120 units to our senior living portfolio. These are attractive class a buildings and growing population centers significantly overlap with our home health and hospice agencies, creating unique opportunities to build pennant continuum of care.
Speaker Change: With that I'll hand, it over to Lynette for a review of the financials limit.
Lynette: Thank you John and good morning, everyone detailed financial results for the full year and three months ended December 31, 2024 are contained in our 10-K and press release filed yesterday.
Lynette: The full year ended December 31, 2024, we reported total GAAP revenue of $695 2 million, an increase of $153 million or 27, 6% over the prior year GAAP diluted earnings per share of <unk> 70.
Lynette: And adjusted diluted earnings per share of <unk> 94.
Lynette: As a reminder, our 2020 for full year guidance included total revenue between $665 3 million and $706 5 million.
Lynette: Adjusted earnings per diluted share between <unk>, 90, and 96 and.
Lynette: And adjusted EBITDA between $51 9 million and 55 2 million.
Lynette: We delivered on this guidance with adjusted EBITDA of $53 3 million, a $12 6 million or 39% increase over the prior year and non-GAAP adjusted earnings per diluted share of <unk> 94.
Lynette: Increase of 28, 8% over the prior year.
Lynette: Our cash generation remains strong.
Lynette: <unk> quarter was a prolific quarter for cash accumulation, including $26 million and net cash generated from operating activities and $17 2 million in free cash flow.
Based on our solid operational performance the positive impacts of our credit facility upsize in our equity offering in October 2024, we are well positioned for future growth with a healthy balance sheet and ample dry powder to deploy.
Lynette: Key metrics for the full year ended December 31, 2024 include $245 8 million available on our revolving line of credit and $24 $2 million in cash on hand at year end.
Lynette: Youre out of times net debt to adjusted EBITDA and cash flows provided from operations of $39 3 million for the year as we mentioned in our press release, we are providing full year 2025 guidance of revenue.
Lynette: Of $800 million to $865 million.
Lynette: Adjusted EBITDA of $63 1 million to $68 2 million and adjusted earnings per share of $1, three and $1.11 to $1 11.
Our guidance incorporates current operations and organic growth diluted weighted average shares outstanding of approximately $36 million.
Lynette: 25, 5% effective tax rate, our 2025 annual guidance anticipates, an EPS increased quarter over quarter business on a ramp in home health and hospice ADC occupancy and rate improvement in senior living anticipated reimbursement rate adjustment level interest rates and inflation.
Lynette: With 2024.
Lynette: Not include unannounced acquisitions, and excludes startup operations share based compensation acquisition related costs, and one time implementation and unusual items.
Lynette: Now, it's my pleasure to spotlight, a few operations and their leaders who have demonstrated exceptional performance in 2024 near stories illustrate the remarkable results that can occur when local leaders behaviors owners and drive operational excellence.
Big Sky home health and hospice future CEO, Jamie White future CCL.
Lynette: <unk> and future CLO General lawyer has built an operation that is an employer and provider of choice and the Missoula, Montana healthcare continuum.
Lynette: Jamie took the helm sky in 2022, Big Sky added home health services to its offering decreased turnover by more than 50% and improved its employee engagement score to 88% in 2024 clinically Big Sky has achieved a real time star rating of four five.
Lynette: Hospice composite score of 100, and hospice cap score of 84, 5% each well above national benchmarks. In addition, big Sky received a full 5% positive revenue adjustment for home health performance under Cms's value based purchasing program is excellent excellent clinical and cultural outcome.
Lynette: Coupled with solutions designed to designed to meet the needs of their local continuum, driven 2024 results that reflect the 145% increase in revenue and a 410% increase in EBITDA over the past two years.
Lynette: In Whittier, California, future CEO <unk>.
Lynette: Barbara.
Lynette: And wellness director Kathleen Mcdonalds have created an exceptional community at what Eric line of assisted living.
Lynette: This community has clearly become an employer of choice with employee satisfaction scores of 92% and turnover has improved 35% year over year and is significantly better than industry averages.
Lynette: <unk> cultural strength has led to exceptional clinical outcomes, increasing resident safety and satisfaction.
Lynette: Ultimately this impact financial results year over year <unk> revenue has increased 16% and EBITDA has increased 147%.
Now I'd like to hand, it back to Brent.
Brent: Thank you Lynette as you can see we've had a remarkable year and are primed for success in 2025 and beyond with that we'll open it up for questions. Marvin can you. Please instruct the audience on the Q&A procedure.
Marvin: Thank you at this time, we will conduct a question and answer session.
Marvin: As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
Marvin: To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And our first question comes from the line of Scott Fidel.
Speaker Change: Of Stephens. Your line is now open.
Speaker Change: Okay, yes. Thanks.
Speaker Change: Hi, everyone couple of questions here for me.
Speaker Change: Maybe the first one just.
Speaker Change: Within the 2025 outlook.
Speaker Change: It would be helpful. If you want to walk us through how you are how you are.
Speaker Change: Embedding expectations for same store.
Speaker Change: Revenue growth for for home health Hospice and senior living.
Speaker Change: Within that within the guidance.
Speaker Change: On a same store front for revenue.
Speaker Change: We're projecting about.
Speaker Change: A 7% increase.
Speaker Change: <unk> revenue for those same store and same store includes when I'm looking at that as the entire portfolio.
Speaker Change: So same store and you start with the exception of signature.
Speaker Change: The signature ads, we are looking at signature is kind of a separate piece.
Speaker Change: Yes, okay.
Speaker Change: <unk>.
Speaker Change: And then we're not just like around that 7%.
Speaker Change: Yes, you might not have the specific spot in EUR, Brent and John like Directionally, How would you think about home health hospice and agile.
Speaker Change: They're being sort of over or under that 7% aggregate same store growth.
Speaker Change: Yes, I'm happy to jump in Scott. This is John and just share from our home health and hospice perspective, obviously <unk>.
Speaker Change: The recent trends over the last two years would suggest that we've got opportunity to improve on that number.
Speaker Change: Wanted to recognize the fact that we have a lot going on from a transition standpoint.
Speaker Change: We're always sensitive to that but when you look at our growth. This year. It was really record breaking to have a 40% increase in home health admissions to grow our revenue by 30%.
Speaker Change: We're feeling really optimistic about the opportunity that we have the continued to drive growth.
Speaker Change: Within those same store operations on the senior living side, I think you see our ability to continue to push rate improvement.
Speaker Change: That's ameliorated a little bit our occupancy growth the quality of revenue our ability to capture care's revenue.
Speaker Change: Accurately our ability to still pass through room and board increases that's what gives us a lot of optimism in both segments that from a same store standpoint, we can continue to push growth.
Speaker Change: Okay. Thanks, John.
Speaker Change: And my second question.
Speaker Change: Yes, that'd be obligatory.
Speaker Change: Question around.
Speaker Change: Sort of the legislative funding environment in Washington in the discussion there.
I appreciate your payer mix disclosures in 2024, you had Medicaid mix right around 13%.
Speaker Change: Maybe if you could sort of.
Speaker Change: I guess sort of gave us some details there.
Speaker Change: Seem to be mostly homecare right, then I would suspect within that.
Speaker Change: Maybe sort of talk about I guess.
Sort of contribution to earnings relative to the 13th.
Speaker Change: <unk> revenue mix and that sort of how your assessment would be around.
Speaker Change: The exposure or not to some of the difference.
Speaker Change: Funding.
Speaker Change: Our savings options that the GOP is considering.
Speaker Change: Heartland D J.
Speaker Change: Yes, Scott I appreciate the question and I think it's an important one for us to consider just to highlight sort of add some color to the 13% that's primarily driven by the Medicaid business in our senior living business and so you can add a couple of percent for our homecare for a total of about 15% of our.
Speaker Change: Business that would be exposed to potential impact from Medicare.
Speaker Change: On the earnings front I would say, we have been able to identify and find some some fairly favorable programs on the senior living side, but these are all programs that are designed to serve the communities that are so important.
Speaker Change: Our nation's future that are vulnerable and that our need that need a place to stay in low cost settings, and so as we look at what the administration is doing they're looking at every opportunity to save money. We appreciate that they've been fairly consistent in saying that Medicare wont be touched a medicaid they're looking for fraud waste and abuse.
Speaker Change: Not to cut these essential services for critical patient populations and so we're optimistic that as they look at places to cut theyre going to identify that the services, we provide home health hospice and homecare non skilled homecare and senior living all represent sort of.
Speaker Change: Lower expenditure of Medicaid dollars and offer opportunities to actually save money because of the high touch nature of our care. The fact that it is the lowest cost setting and the fact that it helps keep patients out of the hospital and higher acuity settings, and so we remain optimistic that from a.
Speaker Change: From an impact standpoint, that's going to hold true. The final thing I'll say is we.
We have endured a number of changes throughout the history of the time that Britain I've been doing this for over 13 years and during that time, we've gone through multiple changes.
Speaker Change: The change from the PDGF, we've received ARPA funding on the senior living side, we have that taken away throughout all of those changes I think our model has shown its resilience our local operators have the transparent visibility to be able to understand how payment changes impact their patient mix and resident mix and they.
Speaker Change: Have the visibility to adjust those as those changes occur and so as much as obviously this is very pertinent in our space right now we feel confident that we're well positioned to adjust to any changes that do occur, but again, it's a fairly modest amount of our revenue that is potentially implicated by any Medicaid cuts.
Speaker Change: Okay. Thanks, John and then just one final one for me if I can.
Speaker Change: I know you guys called out a couple of times anticipating.
Speaker Change: And on its way out over the course of the year I know thats generally been the pattern in the last couple of years. So just just wanted to confirm or not whether there is any any different level or magnitude of ramp that youre thinking about for this year versus the last couple of years and then if you could give us your.
Thinking around operating cash flow and Capex for 'twenty five.
Speaker Change: That's it for me thanks.
Speaker Change: Yeah, and I'll, let Linda take the question on cash flow and Capex, but in general Yes, we expect to see a similar ramp to what we have seen in years past.
Speaker Change: That being said because of all of the new transitions and larger acquisitions acquisitions, we've done.
And the really the end of the year.
Speaker Change: I think it may be a little more of an aggressive ramp over the year. So the beginning of the year, we're trying to integrate these operations and.
Speaker Change: So from that perspective, yes, it will be similar to years past, but maybe a little lighter at the beginning of the year and more aggressive towards the end of the year.
Speaker Change: On the operating cash flow front, we're looking at.
Speaker Change: Mid to high Forty's.
For operating cash flow and then as we look at Capex Capex expenditure is similar to what we've experienced this year.
Speaker Change: Sure.
Speaker Change: Alright in 2024.
Speaker Change: Okay, as a percentage of revenue or absolute dollars.
Speaker Change: Absolute dollars.
Speaker Change: Okay.
Speaker Change: Just a little just a little color on that and so we've spent a lot of time over the last several years really reinvesting in our buildings and so that's why we're seeing a little bit about just an overall flattening in the capex spend.
Speaker Change: So.
And then some of these newer acquisitions are newer buildings that we brought on are nicer class a buildings that don't necessarily require as much capex spend so anyway, that's what's kind of built into that as well.
Speaker Change: Alright, thats good to hear so probably important to call out there. So it seems like free cash flow that should probably wrap I'll see that a little more pronounced to 'twenty five relative to 'twenty four it sounds like.
Speaker Change: Yes.
Yeah, Okay, great. Thank you.
Speaker Change: Thanks Scott.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Stephen Baxter: Our next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open.
Stephen Baxter: Hi, Thanks.
Speaker Change: Similar question just.
Speaker Change: The guidance assumptions I was hoping you could help us think about.
Speaker Change: When we look at the drivers of EBITDA margin improvement I guess, how do we think about the balance between what's being driven by some of the recently acquired assets. How do we think about what's in there on a maybe a same store pools for home health advances both local and then also you had the same store type trials that you would expect with that sooner or later than that.
Speaker Change: And I have a follow up thank you.
Speaker Change: We're thinking about margin I would say that there will be some impact as we've had these acquisitions at the end of 2024 and then beginning in 2025 that will as we bring those operations.
Speaker Change: Closer to our our EBITA margin there will be some noise there, but when we look at where we think we'll end up on that home health margin.
Speaker Change: Where we're at this year in that 15%.
Speaker Change: <unk>, 16%.
Speaker Change: EBITDA margin and then with senior living and we're looking at that margin.
Speaker Change: Creasing three.
Speaker Change: Throughout the year again, as we drive occupancy and just improve some of our cost control measures.
And moving that margin closer to that 10, 5%.
Speaker Change: Got it okay. Thank you.
Speaker Change: And then just just to kind of discuss the hospice cap issue a little bit more on I know it has popped up.
Speaker Change: In the past and you guys have.
Speaker Change: Operational methods to remediate that so I guess, just how do we think about the operational changes you make to deal with that how long that persists throughout 2025, I'm just trying to think about how much of a drag there might be that might be sort of transient with the 2025 outlook as well. Thank you.
Speaker Change: Yes, I appreciate that question, Stephen and I think as you look at hospice cap historically hospice cap that we have not operated with significant hospice cap.
Speaker Change: Uniquely about 88% of the cap impact that we accrued in 2000, and 2004 came from California state where because the.
Speaker Change: The wage index is tied to the reimbursement or reimbursement increases at a faster rate than the hospice cap allowance increases and thats what.
Speaker Change: That is just a fact right that we have to address and deal with our focus has been on how do we change the underlying mix of our patients.
Speaker Change: We're in this business to serve patients who are terminally ill throughout their disease prognosis, it's impossible to verify that we all side former President Jimmy Carter, who is on hospice for a significantly longer time than the six months that are expected and we want to be the partner of choice for every patient.
Speaker Change: And the communities. We serve that said there are certain referral sources, who generally refer patients that are later along in their disease prognosis and our focus is on continuing to develop and build those relationships, where we can take more acute patients and balance out those patients that identify the need for hospice care earlier.
Speaker Change: And their disease prognosis and ensure that we avoid accumulative hospice cap as far as the impact on on last year, we called it out it was somewhat pronounced $1 7 million in the fourth quarter, that's a very significant and atypical expense and affected our margin.
Speaker Change: As we go into 2025, we have been on for several months, we have been focused on adjusting those referral patterns and we'll continue to do that I would expect some continued drag in 2025, but our focus is on managing our business in such a way as to.
Speaker Change: Eliminating as much of that cap as possible in 2025, and whatever residual there may be would be from the 2024 cap here.
Speaker Change: And I would estimate that as potentially about a third of what we experienced this year.
Speaker Change: Potentially less than that if we manage it effectively so.
Speaker Change: We're focused on again changing the referral source, making sure that we are the partner of choice in the communities that we serve and I'll emphasize that this really only affects a couple of agencies most of our agencies operate well below the cap.
Speaker Change: Agencies that are affected are in those higher reimbursement geographies, where we simply have less time to care for the patients because of the design.
Speaker Change: Of the hospice cap allowance.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Ben Hendrix of RBC capital markets. Your line is now open.
Speaker Change: Okay, great. Thank you very much I wanted to turn back to the senior living segment, clearly youre seeing really strong rate momentum there and I know you've outlined.
Speaker Change: Initiatives in the past to kind of focus and optimize mix towards potentially maybe more mix.
Speaker Change: I just wanted to get an idea of kind of what inning. We're in there with our same store portfolio and kind of how youre thinking about those opportunities as you look for M&A in the future.
Ben: Yes, great Great question, Ben and.
Speaker Change: I think we.
Speaker Change: We kind of touched on this in our script, but.
Speaker Change: One of the things that we saw in 2024 was a real focus on driving revenue quality and so what that means is some of the resident population or just in general bringing in folks in at a higher rate.
Speaker Change: It plateaued, a little bit some of our occupancy growth. The great thing, though is we're in a much better position now than we've ever been I also mentioned the investments in our buildings and trying to create an.
Speaker Change: An experienced that as to the expectations of our residents and so those investments coupled with continued investments on the technology front trying to build out our sales cycle and really being able to capture new and different residents in the communities that we're in.
We feel really good about where we're at in terms of like.
Speaker Change: <unk>.
Speaker Change: We're still kind of in the.
Speaker Change: Early stages of this and I think as we really start to ramp up these efforts in and execute on what we've implemented.
Speaker Change: That's why we are optimistic that going into 2025, we will continue to see that ramp up in occupancy.
Speaker Change: And the other thing just to bear in mind is we have a significant number of our operations that are in the high <unk> or low <unk> in terms of their occupancy. So we know that we know how to make it happen. It's just a matter of helping to build those local teams and giving them the tools and resources.
Speaker Change: To be able to effectively.
Speaker Change: Build their occupancy at the local level as well and so again, we're confident that we've got kind of the foundation in place and so this should be a year that we continue to grow off of.
Great. Thank you.
Brent: Thank you I'm showing no further questions at this time I would now like to turn it back to Brent solely for closing remarks.
Brent: Okay, well, thank you Marvin and thank you everyone for joining us today.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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