Q2 2025 The Pennant Group Inc Earnings Call

Speaker #1: Good day. And thank you for standing by. Welcome to the Pennant Group second quarter 2025 earnings call. At this time, all participants are in a listen-only mode.

Speaker #1: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, Kirk Cheney, executive vice president. Please go ahead.

Speaker #2: Thank you, DeeDee. Welcome, everyone. And thank you for joining us today. Here with me today, I have Brent Guerisoli, our CEO, John Gochnour, our president and COO, and Lynette Walbom, our CFO.

Speaker #2: Before we begin, I have a few housekeeping matters. We filed our earnings press release intended for you yesterday. This announcement is available on the investor relations section of our website at www.pennantgroup.com.

Speaker #2: A replay of this call will also be available on our website until 5:00 PM Mountain Time on August 6th, 2026. We want to remind anyone who may be listening to a replay of this call that all statements are made as of today, August 7th, 2025, and these statements will not be updated after today's call.

Speaker #2: Also, any forward-looking statements made today are based on management's current expectations 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 #2: Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a complete discussion of factors that could impact our results.

Speaker #2: Except as required by federal securities laws, we do not publicly update or revise any forward-looking statements where changes arise from new information, future events, or for any other reasons.

Speaker #2: In addition, the Pennant Group Incorporated is a holding company with no direct operating assets, employees, or revenues. Certain of our independent subsidiaries collectively referred to as the service center provide administrative services to the other operating subsidiaries through contractual relationships.

Speaker #2: The words Pennant, Company, We, Our, and Us refer to the Pennant Group Incorporated in this consolidated subsidiaries. Our operating subsidiaries and the service center are operated by separate independent companies that have their own management, employees, and assets.

Speaker #2: References 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 Incorporated has direct operating assets, employees, or revenues, or that any other subsidiaries are operated by the Pennant Group.

Speaker #2: Also, we supplement our gap reporting with non-gap metrics. When viewed ether with our gap 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 gap reports.

Speaker #2: A gap to non-gap reconciliation is available in yesterday's press release and is available in our 10-Q. And with that, 'll turn the call over to Brent Guerisoli, our CEO.

Speaker #2: Brent?

Speaker #3: Thanks, Kirk. And welcome, everyone, to our second quarter 2025 earnings call. Building on a robust first quarter, we are pleased to report continued strong results and momentum across each of our service lines.

Speaker #3: Our positive performance reflects the consistent effort we've applied to every aspect of our business through our five key focus areas: leadership development, clinical excellence, employee engagement, margin, and growth.

Speaker #3: We have been talking about these initiatives on our earnings calls for many quarters, and these focus areas continue to be the catalyst for relentless improvement.

Speaker #3: In Q2, we generated revenue of $219.5 million, an increase of 50.8 million, or 30.1%. And adjusted EBITDA of $16.4 million, an increase 3.2 million, or 24.5%, each over the prior year quarter.

Speaker #3: We are operators. We have succeeded and continued to perform in all kinds of environments: through inflation, reimbursement cuts, a global pandemic, regulatory changes, multiple presidential administrations, market disruptions, emerging payer trends, and more.

Speaker #3: Through it all, we have grown, thrived, and created more and more opportunities for local teams to build amazing operations that benefit their communities, residents, and patients.

Speaker #3: At this moment, CMS's misguided and counterproductive 2026 proposed home health rule has generated negative investor sentiment about home health. We agree that the proposed rule is seriously flawed and we are engaged in an urgent effort to improve the final rule.

Speaker #3: But we would also urge you to dig beneath that narrative and examine the strength of our home health operations and the diversity of our business.

Speaker #3: Despite years of flat or modestly negative rate updates, our home health business has continued to grow. Organically and by acquisition, our hospice service line continues to achieve record-breaking success.

Speaker #3: Our senior living operations are now in a much stronger position and have positive momentum. Pennant continues its steady, upward trajectory. Our announced purchase of Divested Assets from Amedesis and United Health Group demonstrates the abiding potential we continue to see in home health.

Speaker #3: Home health services are a vital component of America's healthcare strategy. Their importance will only increase as more seniors age into these services. Government leaders are looking for solutions to reduce the nation's overall healthcare spending.

Speaker #3: Patients want to receive care in the home. Lawmakers want to reduce deficits and improve health outcomes. Home health is a solution for both issues.

Speaker #3: Regarding our acquisition, connected to the Amedesis United Health Divestiture, we understand that just moments ago, an order was filed on the court's docket in the District of Maryland outlining United's settlement with the Department of Justice in the antitrust matter.

Speaker #3: As you will see in the order, we are purchasing a large portfolio of agencies from United and Amedesis primarily in Tennessee, with additional locations in Alabama and Georgia.

Speaker #3: We view it as a very compelling transaction that will take us into attractive markets and create a center of strength in the Southeast. We are well prepared to execute on this expansion as we have continued to deepen our leadership bench through our CEO in training and clinical leadership training programs.

Speaker #3: Built momentum across our business lines, and have a healthy balance sheet with ample capacity. John will provide more specific details on the acquisition in a moment.

Speaker #3: As announced in yesterday's press release, we are raising annual guidance based on the momentum in the business. The operations we have added or expanded, and the significant upside in our existing operations.

Speaker #3: We anticipate full year revenue in the range of $852.8 million to $887.6 million and adjusted earnings per share in the range of $1.9 to $1.15.

Speaker #3: The midpoint of $1.12 represents a 5 cent increase over our over our original 2025 guidance and a 19.1% increase over our 2024 adjusted earnings per share.

Speaker #3: With today's announcement of the UnitedHealth Amedisys settlement, we anticipate updating guidance once again as we gain additional clarity regarding closing conditions and timing.

Speaker #3: With solid performance across the portfolio, exciting growth opportunities, and a healthy balance sheet, we are excited for the remainder of 2025 and beyond. With that, I'll turn the call over to John to ide more detail on our second quarter operational results.

Speaker #4: Thank you, Brent, and good morning, everyone. Pennant's local leaders continue to drive inspiring clinical and operational results across the organization. Our results reflect strong organic growth, even as we onboarded a record number of new operations.

Speaker #4: In our home health and hospice segment, our excellent clinical and cultural performance continues to translate to record financial results. Top-line segment revenue in the second quarter was $166 million, an increase of 40.7 million, or 32.5%.

Speaker #4: Adjusted EBITDA was $25.5 million, an increase of $5.9 million, or 29.9%, compared to the prior year quarter. While we are pleased with these strong results, we continue to see opportunities to drive improvement in each of our five focus areas that will help us realize the extraordinary potential inherent in each of our operations.

Speaker #4: On the hospice side, we continue to see strong progress and growth. Hospice revenue was $73.8 million, an increase of 14.4 million, or 24.3% over the prior year quarter.

Speaker #4: Hospice admins increased 14.7%. Average daily census increased 21.4%. And revenue per day increased 3.3%, each over the prior year quarter. Our mature operations continued to expand and deepen their impact in their communities as same-store admissions grew 4.5% and ADC increased 6.6%.

Speaker #4: Each over the prior year quarter. These results demonstrate the alignment inherent in our unique operating model, as operators drive significant growth in our mature portfolio even as they help support acquisitions and transition new operations.

Speaker #4: While our hospice results are strong, as described in our last call, our results continue to be impacted by hospice cap expense at a limited number of operations in California.

Speaker #4: As we continue to make progress in resolving these exposures, the underlying strength of our hospice performance will be more evident. While overall cap expense remains elevated, we are pulling the appropriate levers and have made solid progress tapering our 2025 cap exposure in the state.

Speaker #4: Despite the difficult reimbursement environment and sustained expense pressure, our home health business has continued to perform well. We are admitting ever more patients, managing episodes, and optimizing referral flow at the local level to ensure we deliver care as efficiently and effectively as possible.

Speaker #4: As a result, our home health revenue grew to $79.2 million, an increase of 17.6 million, or 28.5% over the prior year quarter. Total home health admissions increased 26.1%, Medicare admissions increased 21.6%, and revenue per episode increased 5.9%, each over the prior year quarter.

Speaker #4: Our mature home health operations continued their steady growth story as same-store admissions increased 6%. Medicare admissions increased 2.9%, and revenue per episode increased 5.5%, each over the prior year quarter.

Speaker #4: We are a clinical business, and our clinical quality continues to be essential to unlocking new opportunities for us, including our joint ventures and the United Amedesis transaction.

Speaker #4: Our quality scores remain excellent, with an average CMS star rating of 4.1, compared to the national average of 3.0, and a reported potentially preventable hospitalization rate of 8.6%, which compares favorably to the national average of 9.9% and the peer group average of 10.3%.

Speaker #4: We also continue to succeed in CMS's home health value-based purchasing program, where we have experienced positive revenue impacts at our mature operations. Turning to regulatory updates, on the hospice side, CMS recently issued its final hospice rule with a 2.6% rate increase.

Speaker #4: As applied to Pennant, our modeling of the rule's impact anticipates an increase in our revenue per day of approximately 2.5%. This increase applies effective October 1, 2025, and will provide a tailwind for our hospice results in Q4 and into 2026.

Speaker #4: As those listening to this call are likely aware, in late June, CMS issued the proposed 2026 home health rule, which proposes to reduce aggregate payments to home health agencies by a net 6.4% in 2026, this net reduction includes a payment update of positive 2.4% offset by a 3.7% negative permanent behavioral adjustment and estimated 4.6% negative proposed temporary adjustment and a 0.5% decrease based on a proposed update to the FDL ratio.

Speaker #4: CMS's proposal is seriously misguided, is based on flawed methodology and data, and works against the administration's stated goals of reducing deficits and preserving access to care.

Speaker #4: If enacted, the proposed rule will have several negative effects. First, these extreme cuts will significantly reduce home health access for vulnerable patients, particularly in rural areas where agencies already struggle for financial viability.

Speaker #4: Second, these cuts, when contrasted with reimbursement increases for other provider types over the same period, will reduce the competitiveness of home health agencies in recruiting and retaining talented clinical staff.

Speaker #4: Third, the cuts will cause an overall increase in healthcare spending, as patients are unable to receive high-quality home health services in a timely manner, resulting in greater spending in higher-cost settings.

Speaker #4: Along with the national alliance for care at home and industry partners, we have mobilized a vigorous and urgent advocacy response at all levels of government.

Speaker #4: Through these efforts, we believe there is good reason to hope that the reimbursement established in the final rule will better reflect the vital role of home health in our nation's care continuum.

Speaker #4: We are also mindful that each of CMS's last three proposed rules initially reflected deeper cuts than those ultimately included in the final rules. As devastating as these cuts would be for the home health industry, traditional Medicare home health revenue represents only approximately 18% of our total revenue in Q2 2025.

Speaker #4: Whatever the result of the 2026 final rule may be, our strong growth, diversified revenue streams, and transparent operating model have helped consistently thrive through disruption.

Speaker #4: Our local teams have already begun preparing operation-by-operation plans for adjusting their businesses to the impacts of the proposed rule. At every level of the organization, we are laser-focused on adjusting our operations and controlling the things that we can control.

Speaker #4: As we have shared repeatedly, our portfolio has been built during a period of dynamic changes to the regulatory and reimbursement environment in our industries.

Speaker #4: As demonstrated time and again, our operating model is uniquely suited to adapt to challenges and find competitive advantage in difficulty. Our senior living segment continued its excellent progress.

Speaker #4: As revenue improved to $53.5 million, an increase of $10 million, or 23.1%, over the prior year quarter. Segment-adjusted EBITDA improved to 5.1 million, a 1.1 million, or 25.7% increase over the prior year quarter.

Speaker #4: These improvements have more than offset the phase-out of pandemic-era support programs, which contributed over $1 million of incremental funds in the second quarter of 2024.

Speaker #4: We are pleased to note that same-store occupancy grew 90 basis points sequentially and now exceeds 80%, even as we have shored up pricing and strengthened our revenue quality over the past.

Speaker #4: Two years. In Q2, average monthly revenue per occupied room rose to $5,188, an increase of $398, or 8.3%, over the prior year quarter. Our resurgent senior living business reflects the strength of our operating model to drive improvement across multiple care settings.

Speaker #4: The strength of our local leaders and teams is the foundation of these financial improvements. We are pleased to see an increased depth in our bench of C-level leaders driving results across the segment.

Speaker #4: Turning to acquisitions and growth, Signature Healthcare at Home, the large multi-site acquisition we completed on January 1st, continued to progress in its successful transition to Pennant.

Speaker #4: The transition highlights the ability of our seasoned Pennant operational leaders to support new leaders while continuing to perform at strong levels in their existing operations.

Speaker #4: Many of the Signature operations are led by pre-acquisition leaders who have now completed our leadership training program and embraced our unique operating model. Our core principles of local ownership, peer accountability, transparent data sharing, and strong resource support have had an immediate impact on the clinical, operational, and community results in these businesses, leading to an accretive transition that has strengthened our platform in the Pacific Northwest.

Speaker #4: We see parallels between the Signature experience and the opportunities that lie ahead of us in the new markets through the United Amedesis divestiture. Pursuant to the court order, we are purchasing the divested Amedesis and United LHC assets in Tennessee, Georgia, and Alabama.

Speaker #4: The package will include between 38 and 50 locations, primarily in the state of Tennessee. We anticipate that our final asset package will be closer to 50 locations.

Speaker #4: Approximately two-thirds of the revenue is connected to home health, and one-third to hospice. The purchase price is between $113 and $147 million, which is based on an EBITDA multiple that is comfortably within our target range of 4 to 8 times.

Speaker #4: We have ample capacity on our revolver to execute the transaction well within our leverage covenants. We anticipate closing the transaction in the fourth quarter.

Speaker #4: We have a transition services agreement in place to facilitate a smooth transition and have been preparing for this moment for several months as we've waited for the antitrust process to play out.

Speaker #4: We are excited to bring these agencies into our portfolio and implement the Pennant operating model in the Southeast United States. As discussed in our previous earnings call on April 1, 2025, we acquired Red Mountain Senior Living in Mesa, Arizona.

Speaker #4: This acquisition included 128 units, along with the underlying real estate. We continue to transition this attractive but previously underperforming community in a key market of strength for Pennant, and we look forward to further unlocking its significant potential.

Speaker #4: Immediately after quarter end on July 1st, 2025, we acquired Grand Care Home Health, which provides home healthcare in Los Angeles, Orange, and Riverside counties.

Speaker #4: Grand Care enjoys a well-deserved reputation for providing excellent patient care in its markets and enjoys strong relationships with key acute care systems across its service area.

Speaker #4: The acquisition expands Pennant's area in a region where we have a number of senior living communities, creating a unique opportunity to build a Pennant care continuum.

Speaker #4: We look forward to continuing to grow Grand Care's impact on the community as it benefits from Pennant's operating model, peer support, and world-class resources.

Speaker #4: With that, I'll hand it over to Lynette for a review of the financials. Lynette?

Speaker #5: Thank you, John, and good morning, everyone. Detailed financial results for the three months ended June 30, 2025, are contained in our 10-Q and press release filed yesterday.

Speaker #5: For the quarter ended June 30, 2025, we reported total GAAP revenue of $219.5 million, an increase of $50.8 million, or 30.1% over the prior year quarter.

Speaker #5: Gap diluted earnings per share of $0.20, and adjusted diluted earnings per share of $0.27. Our year-to-date results put us on pace to exceed the top end of our full year guidance, accordingly we are revising and raising our full year 2025 guidance as follows.

Speaker #5: Full-year total revenue is anticipated to be between $852.8 million and $887.6 million. Full-year adjusted earnings per diluted share is anticipated to be between $1.09 and $1.15, and full-year adjusted EBITDA is anticipated to be between $69.1 million and $72.7 million.

Speaker #5: This updated guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately $35.7 million, and a 26% effective tax rate. This guidance includes additional expenses and in anticipation of the transaction with United Health Group and medesis but no additional earnings because of the uncertainty surrounding the timing of our losing on that transaction.

Speaker #5: The guidance assumes ong other things reimbursement rate adjustments and no unannounced acquisitions. It excludes the tax-affected costs at startup of startup operations, share-based compensation, acquisition-related costs, and gain-loss on disposition of assets and impairments.

Speaker #5: As Brent mentioned earlier, we will issue additional 2025 guidance updates that will reflect the impact of the UnitedHealth Group, Amedisys transaction in the coming weeks.

Speaker #5: Key metrics for the three months ended June 30th, 2025 include 41.2 million drawn on our ving line of credit and 14.4 million cash on hand at quarter end.

Speaker #5: 0.38 times net debt to adjusted EBITDA and cash flows provided from operations of $13.4 million year-to-date, including $34.6 million in Q2. I would now like to spotlight a few leaders in our organization who have achieved exceptional results.

Speaker #5: Their stories demonstrate the remarkable progress that can occur when local leaders build strong culture and develop high-performing teams of C-level leaders in their operations.

Speaker #5: At the shores of Sheboygan in Wisconsin, newly awarded CEO Susan Tastrati and CCO Tanya Gruno are creating a community that stands out among its peers.

Speaker #5: Susan, Tanya, and the team have invested in culture and community. The shores live our core value of customer second, with a greater than 90% favorable rating among employees.

Speaker #5: And a turnover rate among the lowest in the company, this positive culture has promoted a strong reputation in the community, leading to 96% occupancy.

Speaker #5: Financial results have followed. Revenues at the Shores increased 22%, and EBITDA increased 187% each over the prior year quarter. At Riverside Home Health and Hospice in Grants Pass, Oregon, CEO Will Johns, Clinical Leaders Heather Hodges and Jenny Phillips, and CMO Sabrina Zihi have created a center of strength in Southern Oregon.

Speaker #5: Over the last two years, Riverside has invested significantly in clinical leadership. These investments have strengthened their ability to recruit and retain the best clinical staff, improved clinical outcomes, and allowed them to add geriatric primary and palliative care to our continuum of care.

Speaker #5: Riverside's strong culture and clinical outcomes have led to a 25.5% increase in home health census and a 115% increase in hospice ADC. Great clinical outcomes, a strong culture, and growth have led to improved financial performance, as revenue increased 45%, and EBITDA has increased 292% each over the prior year quarter.

Speaker #5: Safe Harbor Home Care in San Diego, California, demonstrates the important role that non-medical home care plays in our communities and in the patient journey.

Speaker #5: Under the leadership of CEO Jesse Madera and Director of Operations Luke Madera, Safe Harbor has become a provider and employer of choice in San Diego County.

Speaker #5: Safe Harbor's deep commitment to its employees is illustrated by its employee satisfaction rating of almost 90%, in a period where headcount grew dramatically and in an industry with historically high turnover.

Speaker #5: Clinically, Safe Harbor has differentiated itself with a unique focus on the social determinants of health and exceptional customer service. Through partnerships with home health, hospice, assisted living, skilled nursing, and acute care systems, Safe Harbor has become an essential part of its local healthcare continuum.

Speaker #5: As a result, Q2 revenue increased 84%, and EBITDA increased almost 183%, each over the prior year quarter. SafeB?? is making a real impact in the lives of vulnerable populations in Southern California, including many veterans, and is showing that it is possible in non-medical home care.

Speaker #5: With that, I'll turn the call back over to Brent for concluding comments.

Speaker #6: Thanks, Lynette. Before we transition to questions, I want to thank our employees whose daily efforts create the results we share on these calls. You are vitally important; your work truly changes lives and makes the world better.

Speaker #6: With that, we'll open it up for questions. DeeDee, can you please instruct the audience on the Q&A procedure?

Speaker #1: Certainly. As a reminder to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Speaker #1: Please stand by while we compile the Q&A roster. And our first question comes from Ben Hendricks of RBC Capital Markets. Your line is open.

Speaker #7: Great. Thank you very much, and I reciate the comments on the United Amedesis deal. Given the color that you just provided and the concentration of assets you expect to enter into Tennessee, I wonder if ou could give us a little background on how you view the Tennessee market, how you view the payer landscape there, and then on the provider side, just how you to what degree did the enzyme Pennant care continuum relationship you have already established, you know, in the West, you know, influence your decision there and what kind of benefits that could that could bring?

Speaker #7: Thank ou.

Speaker #6: Well, thanks for the question, Ben. And I think, you ow, you hit the nail on the head a little bit in why we were so interested in the Tennessee portion of this divestiture.

Speaker #6: We believe the Tennessee market is unique, and that there's an immense amount of talent in our industries in that particular state and in the region.

Speaker #6: And we're excited about the Alabama and Georgia assets as well. Having a foothold in those regions, we are also excited about the scale that we will have in Tennessee and the opportunities it will give us to impact that care continuum, interact with payers, and become a resource to the communities in that state.

Speaker #6: I think one of the things that was attractive was that Enzyme had recently entered the state. Obviously, we share DNA, and our operating model uses the same principles.

Speaker #6: And they've seen, they've found Tennessee to be a very successful state and a state that has a need for quality providers. One of the things that we find advantageous is the opportunity to build an enzyme Pennant care continuum in Tennessee.

Speaker #6: But overall, we're just excited about the deal. We're excited about how it positions us with a center of strength from which we can grow in the Southeast.

Speaker #6: And we believe that these are high-quality assets that are making an impact in the community. And most importantly, that have great teams that deliver high-quality care to their patients.

Speaker #7: Great. Thank you for that. And just a follow-up on our comments around the proposed clawback in home health. I appreciate the commentary that it really directly impacts 18% of the business, but I was just wondering what's the potential for a clawback of that magnitude to trickle through some of your capitated relationships with managed care payers?

Speaker #7: Thanks.

Speaker #6: Yeah. So any time we face an adjustment from a Medicare rate perspective, it affects both traditional fee-for-service Medicare and then any of our contracts that our managed Medicare or commercial contracts that are capitated at a percent of the Medicare rate.

Speaker #6: And so there is modest potential for that also to affect some of our commercial revenue. What I would say is we still have a variety of levers that we can pull as we seek to offset these cuts.

Speaker #6: And I think we highlighted some of them in the call. We're a diversified business. Our hospice business continues to grow and thrive. Our senior living business has produced extraordinary progress over the last few quarters.

Speaker #6: And so we look at it and we see we continue to believe in home health. We think that those services are essential to the continuum of care, and that reimbursement while cyclical will end up providing the reimbursement that's necessary to ensure that those services are delivered to patients.

Speaker #6: And so that's really our belief: there’s impact from this rule that stretches across our traditional fee-for-service business and through some of our capitated contracts.

Speaker #6: But that we have opportunities to, one, affect the actual implementation of the final rule, through the advocacy efforts that I mentioned, and two, that we've got opportunities operationally to deliver care more efficiently and effectively across our diversified business.

Speaker #7: Thank you very much.

Speaker #6: Thank you, Ben.

Speaker #1: And our next question comes from David McDonald of Truest. Your line is open.

Speaker #8: Good afternoon, everyone. A couple of questions first. I just wanted to start actually in the senior living business. Can you talk a little bit about the ongoing strength in revenue per occupied bed?

Speaker #8: I mean, you guys have been driving that metric for, you know, a number of years now. And looking at occupancy, obviously, demand is pretty meaningful.

Speaker #8: But can you just talk about the sustainability of that? And, you know, longer term, would we think about that being more kind of a mid-single digit? Or just, you know, any commentary there?

Speaker #9: Yeah, David, it's a great question. We have spent a significant amount of time really focusing on revenue quality. And we've talked about it a little bit in the past calls that part of the reason there was kind of flat occupancy growth is because of the challenges or the efforts to make sure that the revenue quality that's coming in is offset by transitioning or getting to a better point of strength from a REV4 standpoint.

Speaker #9: So overall, those efforts have paid off. And the other thing is, you ow, we are also really focused on providing a better experience in each of those communities.

Speaker #9: And so it's just been a really positive experience overall, I think. And that's a lection of that increase over time. We have seen double-digit growth.

Speaker #9: It's tapered down to high single digits. The number that you reflected in the mid-single digits, that's kind of what we anticipate on an ongoing basis.

Speaker #9: But we are also encouraged by the short-term growth that we saw sequentially from our same-store occupancy growth. We anticipate that our occupancy will continue to grow as well.

Speaker #7: Okay. And then just two on the home health side. One, just with regards to the Amed United deal, can you talk about some areas where you guys are doing some spending in front of that closing and areas where you can kind of get in front of some things so this kind of hits the ground running and maybe able to pull some of the synergy capture forward, etc., once the deal is actually done and you guys take control of the assets?

Speaker #9: Yeah, it's a great question, David. I think you saw us call out some of that spend when we were discussing guidance. That's because we are preparing for the deal even now, investing in the right resources at the service center, as well as significantly investing in our operational training program.

Speaker #9: We've hired more CITs this year than we've ever hired before because we knew this potential growth would come in. I'd say our primary investments to date have been from a resource perspective and a leadership perspective with field leaders. We anticipate additional investments across the service center and additional investments from a shared services standpoint.

Speaker #9: Ensuring that we're able to continue supporting these agencies in the same way that they've been supported by United and Amedesis. But of course, we'll be implementing our local lead-driven operating model, and so those investments will vary and be a little bit different than maybe what they were under Amedesis and United.

Speaker #9: And so our focus really to date has been leadership and then certain key resource areas, things like collections and finance. As we get closer, we've got significant investments planned across the service center and the field.

Speaker #7: And then I guess just the last question, a little more of a philosophical one. If the final rule doesn't get candidly a lot more reasonable, can you guys talk a little bit about just how you think about the balance of potential M&A versus just sitting back and gaining market share as your competitors struggle with this dramatically more than you do?

Speaker #7: Just any high-level comments in terms of how you balance that.

Speaker #9: Yeah. I mean, we talked a little bit about the diversity of our business. And we believe in home health. I mean, anytime something like this happens, there are multiple different effects.

Speaker #9: Obviously, the direct effect is on reimbursement. But on the flip side of that, it's going to create probably a disruption in agencies and their ability to function.

Speaker #9: And so there's an opportunity from an organic standpoint to really grow in markets if there's a drop-off in number of agencies. But also from a valuation standpoint, there's would be a reasonable expectation that there would be opportunities there.

Speaker #9: But again, we always focus our growth on three factors. One, do we have leaders in place ready to step in? Two, do we have strength in operations to be able to support new opportunities?

Speaker #9: And then third, is it does the deal make sense? And so as long as we meet those three criteria, whether it's home health, hospice, or senior living, we will continue to grow.

Speaker #9: And frankly, I think it'll probably create more momentum or opportunity. You know, we will have to look and see, though, right? Every deal that we do, we value, and we're pretty meticulous in the process in making sure that we can get the return that we're looking for.

Speaker #9: But I do think that it will create additional opportunity for us in the future. But again, it'll be a little tempered. Early on, as we kind of understand what the actual outcome the final rule is.

Speaker #7: Okay. Thank ou very much.

Speaker #1: Thank you. And our next question comes from Raj Kumar of Stephens. Your line is open.

Speaker #10: Hey, good morning. Just kind of focusing on senior living, just looking at the overall year-to-date progression from a same-store perspective, kind of being up 10 bps occupancy-wise and then being up high single digits from a REVPAR perspective.

Speaker #10: Maybe if you could help us kind of bridge what's embedded into this new guidance for senior living from an occupancy and REV4 perspective. And then maybe also from a margin seasonality perspective as well.

Speaker #5: Thanks, Raj. When we're discussing the margin side, we do see more flowing through on margin for senior living as we continue to improve our occupancy.

Speaker #5: Right? As we drive that occupancy, it does allow us to drive more through the bottom line. So that is some of the improvement that you're seeing on the EBITDA side.

Speaker #5: And then, when we're talking rates, what's been built into the model is roughly about a 6% increase. This is still consistent with what we had reported earlier, but it's about a 6% increase.

Speaker #5: And then on the occupancy front, again, still trending towards that. So, on the occupancy front, it's 30 to 50 basis points, which is what we had at the beginning of the year.

Speaker #5: And still continue to see that we'll be able to drive occupancy both on the senior living, the same-store, and also as we're bringing these newer operations in, driving occupancy there.

Speaker #7: Got it. And then just as a follow-up, just like you know seeing that you know there's some medicine asset is coming online, does that you know in the near term stop progression around you know the typical turnaround operations that are core to the M&A story or so essentially the estion is is like is that in the back burner you ow until you know Amedesis gets integrated or you know that's still kind of active and going?

Speaker #6: So I think, Raj, and clarify if I'm getting this wrong. But as far as the integration of previously acquired assets, this doesn't change anything related to our approach to how we integrate, how we support, and how we drive improved performance at our recently acquired assets.

Speaker #6: So whether that's Signature, whether it's Grand Care, or whether it's the management agreement that we worked on in Hartford, our focus and energy remain deeply committed to ensuring outstanding results in those locations.

Speaker #6: That's what is central to our flywheel. As far as new acquisitions, I think you'll see a focus for us on these new assets. The pipeline is robust.

Speaker #6: There's a lot of opportunities right. We felt like, from a geographic location, from a scale and density, and a quality of asset, this was the right acquisition for us to pursue.

Speaker #6: And so, much of our time, focus, and attention will be on ensuring that these assets transition and become a strength to the overall Pennant platform.

Speaker #6: And so you may not see the volume kind of the traditional one or two or three a month that we have executed on over the past couple of years.

Speaker #6: But as far as previously integrated assets, I think our plans remain completely the same with how we're supporting them, how we're driving improvement, and ensuring that they deliver outstanding clinical, financial, culture, and community results.

Speaker #6: And Raj, I would just add, just remind you of our model. We have multiple portfolio companies spread out across the country, with leaders who are focused on finding additional leaders for the local operations as well as implementing growth strategies.

Speaker #6: And so in the case of you know as it was with Signature and now as it will be with the Amedesis United operations, we do have some of those portfolio companies that will be supporting those acquisitions and those transitions.

Speaker #6: But then we will also have other portfolio leaders and portfolio companies that are focused on growth of their own. And so anyway, that's just been our model over time.

Speaker #6: And of course, most of our focus will be on transitioning because there's such a large number of agencies. But at the same time, as John said, the flywheel continues, and it's why we're structured the way that we are so that we can sort of operate independently of each other in each of those respective portfolio companies.

Speaker #7: Got it. Thank you for the call.

Speaker #1: Thank you.

Speaker #6: Thank you.

Speaker #1: And our next question comes from Stephen Paxter of Wells Fargo. Your line is open.

Speaker #11: Hi. Thanks for the question. I just wanted to ask a couple, I guess, about the guidance since that hasn't really been touched on yet. I guess, in terms of the revenue raised, it'd be great if maybe we could help understand, you know, how much of the revenue raised comes from, you know, organic versus acquired revenue.

Speaker #11: And then I do believe you went into the year expecting same-store growth in both your segments to be approximately 7%. Previously, you've outperformed that in the first half of the year.

Speaker #11: I was wondering if you could update us on the same-store growth expectations that are factored in for both home health and hospice, and for senior living.

Speaker #11: And then I have follow-up. ank you.

Speaker #5: Thanks for the question, Stephen. I think if we're talking about revenue, there's a piece when we look at what was guidance at the beginning of the year to current time.

Speaker #5: The update on revenue: we have additional revenue coming in from our Grand Care operation, which was acquired in July. That would not be included in what we’re looking at as same-store from the beginning of the year.

Speaker #5: And that would be about $6 million in revenue from Grand Care. As we look at the revenue growth, we are still expecting roughly 7% to 8% revenue growth on the home health front.

Speaker #5: For home health and hospice, on the front, and then on the senior living front, we're looking at, again, like I said, occupancy growth, and that’s 30 to 50 basis points.

Speaker #5: And also between 6% to 7%, 8% on the rate REV4 growth for senior living.

Speaker #11: Okay. Got it. If we were to maybe look at the EBITDA or, more specifically, the EBITDA margin, you know, in the first half of the year, it looks like those were relatively flat year over year, maybe up 10 basis points.

Speaker #11: And then think in the back half of the year, they are up a bit more. I think we were doing math suggesting more like 70 basis points year-over-year in the second half.

Speaker #11: And I think you also have to overcome some of these additional costs on the acquisitions that you're speaking about here. Could you help us just understand what, if anything, we should think about as the key drivers of the year-over-year margin improvement in the back half?

Speaker #11: I think also maybe the discussion around hospice cap suggested maybe you're laughing at some of the bigger exposures that you might have had in the back half of this year.

Speaker #11: Just trying to better understand the progression margins throughout the year. Thank you.

Speaker #9: Yeah, great question. So there's a handful of levers that we expect to pull in the second half of the year. The first one, it always starts with our operations.

Speaker #9: We think we can drive, and we expect to drive some additional operational levers that will drive improved margin. We kind of addressed some of those points related to our preparation for a potential home health reimbursement change.

Speaker #9: But overall, you know we've got a lot of efforts across each of our business segments to improve their performance. Secondly, you know we have factored in a decline in the overall cap amount going into the second half of the year.

Speaker #9: That should have a positive impact relative to the first half of the year. Of course, we've factored in the additional hospice final rule that is roughly a 2.5% increase on our Medicare revenue.

Speaker #9: And then the other thing I would say is just that we've got Signature that continues to optimize. We've got this new acquisition in Grand Care.

Speaker #9: Each of those should meaningfully contribute in a greater way in the second half of the year. And then we are also seeing momentum in our senior living segment.

Speaker #9: So that, in particular, will drive margin improvement as well.

Speaker #11: Okay. Got it. Thank you so much for the call.

Speaker #1: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Brent Guerisoli for closing remarks.

Speaker #6: Okay. Well, thank you, DeeDee. And thank you, everyone, for joining us today.