Q1 2025 The Pennant Group Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Pennant Group First Quarter 2025 At this time, all participants are in a listen only mode
Please be advised that today's conference is being recorded.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To with a drier question, please press star 1-1 again. I would not like to hand a conference over to your speaker today, Kirk Cheney, Executive Vice President.
Thank you.
Kirk Cheney: Thank you, Josh. Welcome, everyone, and thank you for joining us today. Who is me today? I have Brent Guerisoli, our CEO , John Gochnour, President and COO, and Lynette Walbom, RCFO. Before we begin, I have a few housekeeping matters.
Kirk Cheney: A replay of this call will also be available on our website until 5 p.m. mountain time on May 6, 2026. We want to remind anyone who may be listening to a replay of this call that all statements are made as of today, May 7, 2025, and these statements will not be updated after today's call.
Kirk Cheney: 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 from pile on today's call.
Kirk Cheney: This nurse should not place undue reliance on forward-looking statements and are encouraged to review our FTC filings for a more complete discussion of factors that could impact
Speaker Change: Acceptors required by Federal Security's 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 incorporated the holding company with no direct operating assets including employees or revenues.
Speaker Change: Certainly of our independent subsidiaries collectively referred to as a service center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the other operating subsidiaries through contractual relationships with such subsidiaries.
Speaker Change: The Words Pennage Company, we are in us, referred to the Pennant Group Inc. and its consolidated subsidiaries.
Speaker Change: All of our operating subsidiaries and the Service Center are operated by separate independent companies that have their own management, employees, and assets.
Speaker Change: Reference is here into the consolidated company and its assets and activities as well as the use of the terms we, us, our and similar terms, do not imply that the Pennant Group Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by the Pennant Group.
Also, we supplement our gas reporting with non-gas metrics.
Speaker Change: When viewed together with our gap results, we believe that these mentors can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of gap reports.
Speaker Change: Adaptenon Gap Reconciliation is available in yesterday's press release and is available.
Speaker Change: in R10Q and 10K. And with that, I will turn the call over to Penn Guerisoli, RCEO, Brent.
Brent Guerisoli: Thanks, Kirk. Good morning, everyone, and welcome to our first quarter of 2025 earnings call. To begin, I want to recognize all the contributions and efforts of our incredible partners across the Pennant footprint.
Brent Guerisoli: Always, the especially in periods of dramatic growth, the work our teams do can be demanding and so inspired to see our people daily rising to the challenge.
Brent Guerisoli: We are pleased to report another record-breaking quarter with strong performance across our business, resulting in revenue of 209.8 million, an increase of 52.9 million or 33.7% over the prior year quarter.
Consolidated Adjusted EBITDA
Brent Guerisoli: of 16.4 million, an increase of 5.1 million, or 45.9% over the prior year quarter, and adjusted the alluded earnings per share of 27 cents, an increase of 7 cents, or 35% over the prior year
[inaudible]
Brent Guerisoli: Our first quarter success can be attributed to our consistent focus on 5D initiatives, leadership development, clinical excellence, employee experience, margin improvement, and growth.
Brent Guerisoli: As we make progress in each of these areas, the flywheel also continues to turn in each of our business segments.
allowing us to opportunistically add and transition new operations.
Brent Guerisoli: as our existing operations drive strong performance and organic growth. This is primarily a product of our innovative operating model and multi-year focus on leadership development and building a robust pipeline of leaders.
Brent Guerisoli: As we've explained before, Pennant is a leadership company committed to providing life-changing opportunities for local leaders to achieve sea-level performance in their operations and become owners and pennants.
Brent Guerisoli: Our local CEOs and other sea level leaders earn this designation.
Brent Guerisoli: by demonstrating true ownership and creating clinical, financial, and cultural value. In the process, they typically generate higher annual earnings than our non-CEO executive directors, along with better clinical and cultural outcomes.
Brent Guerisoli: This January of last year, 52 local leaders earned sea level designations in their operations.
Brent Guerisoli: including 19 local CEOs. In 2025, we are ahead of our year-to-date goals to recruit CEOs in training and elevate clinical leadership through our clinical operations leadership training program.
Brent Guerisoli: By investing in our leaders and continuously recruiting new ones, we position ourselves to be ready when unique and compelling situations arise.
Brent Guerisoli: For example, in January , we completed the second stage of the Signature Healthcare Transaction, which included several locations across Oregon.
Brent Guerisoli: At Signature, as in all our transitions, our first focus has been on leadership and culture. Signature's leaders have joined clusters with existing pennant leaders, allowing them to share best practices and peer accountability.
Brent Guerisoli: leveraging Pennant's locally driven operating model, signature's operations have quickly and successfully integrated and as a result the signature transition is ahead of schedule.
Brent Guerisoli: We have proven countless times over many years that our model works well when it applies to single-site for target acquisitions.
Brent Guerisoli: and the signature experience is proving that it also works well at scale in multi-site and platform acquisitions.
Brent Guerisoli: What is notable about a recent performance is that we achieved these tremendous results in the midst of adding 36 new operations since January of 2024 across both business segments and most of our markets.
Brent Guerisoli: Many of these acquisitions are already performing above our initial expectations.
Brent Guerisoli: based on our strong performance in Q1. The early progress we're seeing in our recent acquisitions and the continued momentum we're experiencing across our businesses.
Brent Guerisoli: We would point you to the upper end of our 2025 guidance range as we continue to monitor our results and navigate economic uncertainties. We will revise guidance as appropriate.
Brent Guerisoli: Now, I'll turn the call over to John Gochnour, our president and COO to provide more detail on our first quarter operational results.
John Gochnour: Thanks, Brent. I'm pleased to report strong performance across both operating segments in the first quarter. Our focus on leadership has allowed us to pair robust organic growth with the effective transition of newly acquired operations.
Our home health and hospice segment delivered another record setting quarter.
In Q1, segment revenue reached 159.9 million.
up 43.4 million or 37.2%.
John Gochnour: and adjusted Ubadah rose to 25.1 million, an increase of 7.3 million or 40.6 percent.
John Gochnour: each over the prior year quarter. We also remain steadily focused on improved clinical outcomes and strong, cost-discipline at the local level, resulting in an adjusted EBEDEM margin of 15.8%.
John Gochnour: A 10 basis point improvement, even as we experience rapid growth and significant acquisition activity.
The growth in our hospice programs reflected this momentum.
up 28.1%.
each over the prior year quarter.
John Gochnour: Organic Growth was a key contributor to this improvement as length of stay increased and same-store average daily census.
John Gochnour: These locally-led programs supported by our provider services resource team.
John Gochnour: are designed to address critical gaps in the local care continuance.
John Gochnour: and ensure that patients receive the right care in the right setting at the right time to improve clinical outcomes and patient satisfaction. In many cases, these provider driven programs have helped us open new doors and expand referrals across the care continuum.
John Gochnour: The proposed 2026 hospice rule, released last month, include the 2.4% rate increase. Based on our initial modeling, we expect to receive a similar 2.42% upward adjustment, which is consistent with our previously released guidance.
John Gochnour: Our home health segment continues to be a pillar of strength. Total admissions grew to 18,878, an increase of 4,229 or 28.9%. Medicare admissions rose 19.7%.
and MediCare Revenue for Episode, increased by 9.3%.
each over the prior year, quarter.
Skrong Transitions, including those at signature and viewer-home-out.
John Gochnour: Health Drive, this outsized growth, along with continued performance at our same store operations, where we saw admissions increase, 12.2%, Medicare admissions increase, 5% and Medicare revenue per episode increased by 0.9%.
John Gochnour: Each of the prior year quarter, clinical quality continued to set our home health operations apart with a CMS reported average star rating of 4.1 significantly above the industry average of three stars and a potentially preventable hospitalization rate of just 8.7%.
well below the industry average of 10%.
John Gochnour: Our senior living business continues to gather steam as our flywheel of operational improvement, coupled with opportunistic acquisitions, picks up speed. We continue to methodically expand and deepen our bench of entrepreneurial leaders and we are seeing progress resulting from these efforts.
John Gochnour: Senior Living segment revenue of 50 million increased by 9.5 million or 23.6% over the prior year quarter, adjusted even out of 4.9 million increased by 1.4 million or 40.8%.
and a segment-adjusted EBITDA margin increased to 9.9%.
on a hundred and point basis point improvement over the prior year quarter.
John Gochnour: Over the same period, occupancy was essentially flat, as we intentionally focused on capturing high-quality revenue, leading revenue-procupied room to increase 11.3%.
John Gochnour: over the prior year quarter. While our senior living performance is solid, we also see significant latent potential that we can unlock as we improve occupancy and margin.
John Gochnour: As Brent mentioned, as we discussed on our prior earnings call, on January 1st, we completed the acquisition of signature healthcare, bringing the organ operations into our portfolio.
John Gochnour: As we expected, signature has been an excellent sit with Pennant.
John Gochnour: An operationally and clinically, we have made significant progress since acquisition, including completing the transition to our systems and instance of home care home base. This transition was driven by our local Northwest portfolio company, with significant support from our exceptional service center.
John Gochnour: The early success in retaining leaders, employees, and patients reflects our ability to successfully acquire and transition multi-state, multi-site operations for our unique operating model.
John Gochnour: also mentioned on our priorities call on February 1st, 2025. We announced that we acquired through long-term Truffle Matleases, senior living operations in Nampa, Idaho, Curval, Texas, and Palmble, Texas.
These two are off to a great start.
John Gochnour: on April 1st, 2025. We announced our acquisition of the villages at Red Mountain Senior Living in Mesa, Arizona, adding 128 units in this key state. In addition to the operations, Hendrix purchased the underlying real estate.
John Gochnour: Red Mountain had underperformed under prior ownership and been placed in the state receivership.
John Gochnour: Allowing us to purchase this relatively new and attractive facility for a favorable price and become a solution for the receiver, the residents, and the local community. This acquisition highlights our ability to navigate unique transitions and unlock significant value in complex circumstances.
John Gochnour: Finally, on May 1, 2025, we issued an 8K related to our agreement with United Health Group and a metasist to acquire certain assets connected to their planned transaction.
John Gochnour: This opportunity remains subject to the closing of United and the Medicis's broader transaction and other customary closing conditions. We will disclose additional information related to this transaction as the process unfolds.
The Army-United Health and Medicines Deal.
John Gochnour: We continue to evaluate a strong pipeline of acquisition opportunities in both segments.
John Gochnour: As always, we will approach these opportunities with discipline, pursuing only those we believe we have the leadership capacity and operational strength to support.
Lynette Walbom: Thank you, John , and good morning, everyone. Detailed financial results for the three months ended March 31st, 2025 are included in our 10Q and press release filed yesterday.
Speaker Change: Key metrics for the three months ended March 31, 2025 include 56.7 million drawn on a revolving line of credit with 193.3 million available and 5.2 million in cash on hand at quarter
and a .83 times net debt to adjusted EBITDA.
Speaker Change: The company's cash flows used in operations was 21.2 million a decrease of operating cash flow of 21.8 million compared to the prior year quarter.
Speaker Change: This was due to significant acquisitions we made in the first quarter of 2025, which come with elevated accounts receivable due to revenue growth and normal transition related payment reconciliation processes.
Speaker Change: In addition, first quarter operating cash flows were impacted by our annual incentive payouts.
Speaker Change: and payroll accrual timing. In short, this swing is a function of acquisitions and accrual timing, and not a fundamental change in our longer term, operating cash flow expectation.
Speaker Change: We have sufficient available funds on our revolver to execute on the United Health, a metasist transaction and remain well within our covenants.
Speaker Change: with our strong operating results in Q1. We are trending towards the upper end of our 2025 guidance. As a reminder, our guidance includes revenue of 800 to 865 million, adjusted EBITDA, 63.1 to 68.2 million, and adjusted EPS of $1.3 to $1.11.
Speaker Change: I would now like to spotlight a few of our leaders in our organization who earned a flag award in 2024, which is Pennant's most prestigious award to recognize an outstanding achievement in all facets of an operation.
Speaker Change: Their stories demonstrate the remarkable progress that can occur when local leaders build strong culture and develop high performing teams of sea level leaders in their businesses.
Speaker Change: at Symbi Home Health and Hospice in Idaho Falls, Idaho, CEO Josh Bradshaw, CCO, Solicitor, and CMO, Christina Dara, have built a remarkable culture and have become a provider of choice in eastern Idaho.
Speaker Change: Symbi's culture is the foundation of its success, as is evidenced by a 100% employee engagement score and 90% employee satisfaction score.
Speaker Change: Symbi is building a continuum of care in its local community, which includes not just home health and hospice.
Speaker Change: but also in-home provider services in Mooncare. By offering this effective continuum, Symbi has increased its revenue 46.6% and its EBITDA 120.3% each over the prior year.
Speaker Change: In Tucson, Arizona, at Sherwood Village, assisted living in memory care, CEO Russell Sylvester, C.W.O., Kimberly Frejo, and CMO, Jenny Faye, continue to create a legacy of incredible care.
Speaker Change: by elevating culture and providing an exceptional resident experience. It continued to be a solution to their local community as demonstrated by their 91% occupancy rate.
Speaker Change: Engaged employees tend to drive strong results, and Sherwood is no exception. Sherwood's turnover is significantly below industry standard, and its employee satisfaction is 85%. Financial success has followed with even dog growth of 25.7 and 24.
Brent Guerisoli: With that, I'll turn the call back over to Brent for concluding comments
Brent Guerisoli: Thanks Lynette. As we conclude, I'd like to once again thank all the operators and clinicians who like those highlighted above, Medicaid themselves daily to providing life-changing service to our patients and residents.
Brent Guerisoli: You are truly making a difference in the lives and communities we serve, and it is an honor to work alongside you.
Brent Guerisoli: With that, we'll open it up for questions. Josh, can you please instruct the audience on the Q&A procedure?
Josh Bradshaw: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.
. . . .
Moderator: Our first question comes from Stephen Baxter, with Wells Fargo, you may proceed.
Speaker Change: Hi, thanks. I just wanted to start with the re-acceleration of same-store growth, particularly in the home health and houses business. It looked a lot more like the growth you had in the early part of last year than maybe the growth you saw in the fourth quarter. I was wondering if there's anything that ...
Speaker Change: You would call out in the first quarter specifically as a driver of that re-acceleration or anything as you look back at the fourth quarter that gives you maybe a sense that there was something about the fourth quarter that was a little bit of a one-off dynamic that you've now worked through, maybe we could start there and I have a couple of follow-ups.
Speaker Change: Yeah, thanks for the questions, Stephen. And I think as you look at the trajectory that we experienced last year, that state and store growth was strong throughout the year. And we really believe that that is consistent with our unique...
Approach to being a locally driven solution in the community.
Speaker Change: Every year in the fourth quarter, we experience some seasonal decline during the holiday season, as patients and their families often are, are reticent to choose hospice and sometimes even home-out. And then we see that pick back up in the first quarter. And so, I don't think there's anything there more than seasonal change. But as far as, as you look year over year, we've continued to have that double-digit growth.
Speaker Change: from an ADC standpoint on the hospital side and on the home health addition side. So you think that it reflects some really positive trends in the community choosing us and we're excited to see a building steam in the first quarter.
Okay.
Speaker Change: I appreciate that. And then, just hoping that maybe you could expand a little bit on the guidance expectations, loud and clear that you're now expecting to be in the upper part of the range just as we think about the outperformance.
Speaker Change: Ibidot margins are also higher, or the same kind of Ibidot margins that were embedded on the initial guidance of potentially the higher revenue against that. How do we think about the kind of moving pieces inside the guidance as well? Thank you.
Brent Guerisoli: Yeah, I might, this is Brent, and I might let Lynette respond on specifics in the guidance model. What I would say is both of our segments have performed really well. So we're excited about the progress, you know, the revenue quality on the senior living side and...
in addition to some of the margin improvement.
Brent Guerisoli: We've had really outside performance as well on the home health and off the site.
Brent Guerisoli: and we called out signature the transition of those in that larger acquisition.
Brent Guerisoli: Part of the reason for, I mean at this point we're essentially pointing to the top end of the guys. We're very, we're really excited about the progress that we've made.
Brent Guerisoli: But with any new transition, we're always, we want to be conservative and ensure that the trends continue. So, we would expect if we continue to
Brent Guerisoli: performed well to see opportunities on the guidance front. So at this point we're really excited about the progress we've made. Obviously we had a really strong corner and we're seeing
Brent Guerisoli: Strong Improvement in both segments at the same time, so all in all it's just just really good momentum across the businesses.
Thank you.
Okay, I'll get back in the key zone. Thank you.
Thank you, Steve.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone, one moment for questions.
Speaker Change: And I'm not showing any further questions at this time. I would like to turn the call back.
We have one question. One moment please.
Stephen Baxter: Our next question goes from Stephen Baxter at Wells Fargo. You may proceed.
Stephen Baxter: Yeah, hey, thanks. I've had a couple more maybe touch on if there's the time for it. So I'm not sure how much you can really say at this point in time around the
Stephen Baxter: You know, you're willing to kind of look at a transaction that looks like that. We'll just get a little bit of color about what goes into...
Stephen Baxter: for the evaluation of that. I mean, how we should think about that looking in terms of...
Stephen Baxter: You know, potentially requiring new clusters versus kind of folding into, you know, existing geographies. We'll just get the company's kind of philosophical.
Stephen Baxter: You know, perspective on looking at a transaction and maybe a little bit different from the other ones you pursued in the past.
Speaker Change: Yeah, it's a great question. Obviously, we've already mentioned it. We filed the AK and due to the ongoing antitrust process, we're pretty limited on what we're going to be discussing. We're certainly excited to partner with UHD and Amedicis. We see these as high-quality assets.
Speaker Change: and it doesn't give us an opportunity to expand in new and compelling markets. Beyond that, we'll kind of refer you to the AK on any additional details. The one thing I'll say just in general about the ways that we evaluate.
Speaker Change: Any sort of acquisitions is really the opportunity to have great leaders step into place so we've been building a leadership pipeline over time.
Speaker Change: and so we feel confident that, you know, we'll have leaders and we'll continue to develop leaders to be able to step into those opportunities and that we can support it through our current operations.
Speaker Change: Those are kind of two of the key factors and then obviously it has to be a compelling opportunity overall and so as we evaluate this deal along with any other deal, that's kind of the way that we process it.
The other thing I would point to [inaudible]
Speaker Change: Obviously, the signature transaction was a larger transaction for us, and we've been really positive with the early returns in that, and it's given us confidence too.
continue to build on a larger platform.
and especially where you've got...
Speaker Change: Strong Assets and Performing Assets to be able to sort of fold in.
Speaker Change: Strong Assets and create opportunities for local leaders. It creates pretty compelling story and so those are just a couple of the factors that we consider as we evaluate a deal such as this.
Speaker Change: Got it. Okay, and then I'll just lie down, you know, it's a couple of other ones.
Speaker Change: You know, in terms of thinking about, you know, the level of, I guess, rate growth that you saw in the senior living business in the first quarter, I think obviously that's a very, you know, strong number.
Speaker Change: Dave Brotter, Matt Crowe, and maybe Marcus Uncertainty that we're kind of dealing with right now. This remind us, you know, philosophically how to think about the senior living, you know, sort of economic sensitivity, and how to think about, you know, these people are obviously dealing with kind of a fixed income situation here as they're considering any of this potential.
Speaker Change: Changes. Just in general, you know, what's the right way to think about your ability to maybe continue to realize the strong price growth in the back at the year, whether the macro gives you any, you know, kind of concern, or there's risk to that as a result.
Speaker Change: Yeah, there's always some sensitivity to the macro environment, especially in particular for our private pay residents. That being said, and we kind of talked about it in the call.
Speaker Change: Our focus over the last really couple of years has been improving our revenue quality.
Speaker Change: That could mean by payer, it could mean by, you know, just ensuring that we're charging the right race
Speaker Change: at the local operations. And so we've had a pretty robust effort to improve, and that's why you've seen such robust, what we're over 11% this quarter year over year.
Speaker Change: Medicaid, or state waiver program. And so there's an offer and oftentimes those programs are robust enough to that they create value.
Speaker Change: and so from that standpoint we've been able to partner in the right way with the right programs to create opportunities there so that does impact a little bit some of that sensitivity because we can go and find partner with some of these programs and still in many cases get reimbursed at or near private pay rates.
and then, you know, from an occupancy standpoint, with...
Speaker Change: We've been pretty flat and I think it's primarily because of that focus on really getting the right level of revenue quality. One of the things that we're really focused on now is sort of thinking about that price sensitivity, ensuring that
We can couple of increased rev four growth with occupancy growth.
and so we've sort of targeted a mid single digit.
Speaker Change: Rev Poor Growth over the year. Obviously, we're trending above that right now. And so that's a good sign, but it also means that there may be some opportunity to drive census growth as we sort of manage that that Rev Poor Growth at the same time.
. . . . .
Speaker Change: Thank you, and maybe the last one for me, which would be great to get an update on what you're seeing.
Speaker Change: in the hiring environment, whether you feel like there's been any change in the trends that you've maybe discussed more recently, and that's probably it for me. Thank you.
Speaker Change: I appreciate that and what I would say, Stephen, is that we have seen strong friends both in hiring and retention.
Speaker Change: and we're excited about that because anytime you're experiencing the type of growth that we are experiencing, it comes back to our ability to attract and retain talent.
Speaker Change: and so adding more than 200 net nurses in the first quarter, year over year, is something that we're excited about. It shows sort of our capacity to retain those existing talented clinicians who have entrusted us with their careers, also to add new clinicians both from signature and across the platform, and so really strong trends on that side of the business. Similarly, in senior living, we've been able to continue to staff and be prepared for growth as that occurs.
Speaker Change: and so we feel pretty excited about where we stand right now. Obviously, there's a lot of economic dislocation.
Speaker Change: that could happen as things trend over the year. And so we're watching it very closely. But the trends so far this year have been positive. On the labor inflation side, we continue to see somewhat elevated labor cost inflation, particularly on the senior living side, I would say, where we saw about just under 5%.
Speaker Change: Labor inflation on the home health and hospital side. We saw it was a little more normalized in the 3.2% range.
Speaker Change: and so we continue to see a little bit of normalization and that's going to be an important piece in us continuing the growth that we've experienced throughout the last few years.
Okay, I've got it. Thanks so much.
Thank you.
Speaker Change: Thank you. I would not like to turn the call back over to Brent Guerisoli for any closing remarks.
Brent Guerisoli: Right, well thank you Josh and thank you everyone for joining us today.
Brent Guerisoli: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Speaker Change: and Mark Silver would like to thank tennis coach Joel MacBook. Next I think we will watch the game against London City.