The Pennant Group, Inc. Price & Performance (PNTG)

We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, 02/28/2025, and these statements will not be updated after today's call.

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. 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. As is required by federal securities laws, Tenet and its affiliates do not undertake a publicly update or revise any forward looking statements where changes arise from new information, changing circumstances or for any other reason. In addition, the Pennant Group Inc. Is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries collectively referred to as the The Center provide administrative support services to the other operating subsidiaries through contractual relationships with The subsidiaries. We, R and Us refer to the Pennant Group Inc. And its consolidated subsidiaries. All of our operating subsidiaries and the service center are operated by separate independent companies The own management, employees and assets. 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 any of the subsidiaries are operated directly by the Pennant Group.

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 of our business but they should not be relied upon to the exclusion of GAAP reports A GAAP to non GAAP reconciliation is available in yesterday's press release and is available in our 10 ks. And with that, I'll turn the call over Brent Gier Stoli, our CEO. [indiscernible] Thanks, Kirk.

And welcome everyone to our fourth quarter twenty twenty four earnings call. The 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, We're so grateful for everything you do to provide life changing service.

We are pleased to announce strong fourth quarter results to conclude a year of record breaking performance. Our Q4 adjusted earnings per share of $0.24 contribute to full year 2024 adjusted earnings per share of $0.94 which exceeds our updated earnings guidance midpoint of $0.93 As a reminder, we raised guidance twice during 2024, Our full year consolidated results include revenue of $695,200,000 an increase of $150,300,000 or 27.6% over the prior year and adjusted EBITDA of 53,300,000.0 an improvement of $12,600,000 or 30.9% over the prior year. 2024 was an eventful year for Pennant. We launched transformative partnerships including a joint venture with John Muir Health in the Bay Area which has now successfully transitioned and contributing positively to our results.

And a management agreement with Hartford Healthcare in Connecticut which we view The a foundational relationship for future expansion in the Eastern United States. We completed numerous strategic home health and hospice acquisitions including the $80,000,000 purchase of Signature Healthcare at Home, a large provider of home health and hospice services and Northwest We also made opportunistic senior living acquisitions and added attractive real estate assets to our [indiscernible] We strengthened our capital structure enable additional growth by upsizing our credit facility and completing a follow on equity offering 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. We remain focused on five gs initiatives leadership development, employee experience, clinical excellence, margin and growth. We've effectively made progress in each of these areas during the year. The most important initiative continues to be leadership development which ultimately drives performance in the other four The. As a leadership company, we believe that attracting and developing talented leaders is paramount for growth and success. Our leadership development programs.

Notably, in 2024, we added 66 leaders to our CEO and training program and launched a clinical leadership training program that included 40 participants were not only successful in recruiting and developing new leaders, but also in the continued development of existing local leaders who achieved record numbers of C level designations in the year. In total, 45 local leaders earned C level designations in their operations including 18 local CEOs, As we've explained before, CEOs and other C level leaders earn this designation behaving as true owners and creating financial [indiscernible] cultural value In the process, they typically generate higher annual earnings than our non CEO executive directors, along with better clinical and cultural outcomes. Following a monumental year, We are excited about the significant progress we've made and expect to build upon it throughout 2025 We are also focused on quickly and effectively transitioning newly acquired operations and have the bench strength capital and deal flow to support substantial acquisitional growth we continue to entertain numerous potential opportunities across our existing markets and beyond. Turning to 2025 guidance. As we announced in our press release yesterday, we are providing guidance for the full year We anticipate full year revenue in the range of $800,000,000 to $865,000,000 and adjusted earnings per share in the range of $1.03 to 1.11 The midpoint of $1.07 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 upside we expect to continue to unlock in our existing operations. The guidance is annual, not quarterly, and it reflects an anticipated ramp throughout the year. Particularly as we transition a significant number of recently acquired With that, turn the call over to John to provide more detail on our fourth quarter operational results.

Good morning, everyone. I'm pleased to report The strength The has characterized both of our business segments throughout 2024 continued in the fourth quarter. Turning first to our Home Health and Hospice segment. Top line revenue for the full year increased to $519,500,000.0125000000 dollars or 31.7% increase over the prior year. While revenue for the quarter increased to $142,000,000 a $35,100,000 or 32.9% increase over the prior year quarter. Earnings growth reflected similarly strong improvement. As adjusted EBITDA of 80,700,000.0 represented an increase of $20,500,000 or 34.1% over the prior year. And fourth quarter adjusted EBITDA of $21,300,000 increased $4,700,000 or 27.9% over the prior year quarter. 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 effective clinical solutions The the community. Home health admissions hit a new high of 15,959 an increase of 40.9%. Medicare admissions increased to a record 6,443, an increase of 30.1%. And Medicare revenue per episode increased 9.9%.

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 6.1%, each over the prior year quarter.

At our hospice operations, admissions increased 21.7% to 3,090 and hospice ADC increased 23.2% to 3,445. Resulting in strong revenue growth even as our revenue per episode decreased by 1.6%.

Each over the prior year quarter, In our same store hospice operations, admissions grew 10.4% and ADC grew 9.6%. 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. 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 4.1 significantly exceeds the national average of three point zero and our CMS reported potentially preventable hospitalization rate of eight point seven percent is 120 basis points better than the national average of nine point nine percent.

As a result of our strong clinical outcomes, we are poised to benefit in 2025 from the expansion of CMS's The health value based purchasing program. As we have described in past calls, we often experience lumpiness in our operating margin as we acquire and transition underperforming assets. Despite the potential margin pressure that could have resulted from record acquisitional growth in 2024, we 10 basis points year over year to 15.7% The. Which contributed positively to the 20,500,000 In addition, we achieved this improvement despite an atypical hospice cap expense in the fourth quarter of 1,700,000.0 Excluding this expense, our fourth quarter adjusted EBITDA margin would have increased from 15% to 16.2%. With The significant number of acquisitions completed in 2023, and 2024, and 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 2025. Senior Living business continued its ascent as we improved operational results while also taking advantage of favorable acquisition opportunities. Senior Living segment revenue improved to $175,800,000 an increase of $25,300,000 or 16.8% over the prior year and $46,900,000 in the fourth quarter.

A $7,800,000 or 20% increase over the prior year quarter.

Full year Senior Living segment adjusted EBITDA improved to $16,200,000 a $3,900,000 or 31.9% increase over the prior year.

And $4,200,000 for the fourth quarter, an increase of $800,000 or The% 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 per occupied room, which climbed to 4,961 in the fourth quarter. Increase of three ninety three or 8.6% over the prior year quarter.

On the growth front, through our investment in our leadership development program, the 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 lease [indiscernible] 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 Pennant model and attract the rents with significant upside These buildings have performed well out of the gate and are well positioned to be accretive to our short and long term senior living results. After quarter end, on 01/01/2025, we closed on the purchase of Signature Healthcare at Homes, Oregon assets. We completes the two stage transaction. The Washington and Idaho operations, which we purchased on August 1, are transitioning well and contributing positively to our results and we anticipate a similar trajectory for the 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 Pennant.

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 partners become C level leaders in the unique tenant operating model. On 02/01/2025, we closed an additional three senior living deals, one in Idaho and two in Texas. Each under a long term triple net lease.

The Idaho acquisition adds 68 units to our portfolio in the fast growing Boise The, The 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. The acquisitions in Kerbal and Tomball, Texas 120 units to our senior living portfolio. The These are attractive Class A buildings in growing population centers that significantly overlap with our home health and hospice agencies creating unique opportunities to build tenant continuums of care.

With that, I'll hand it over to Lynette for a review of the financials. 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 ks and press release filed yesterday.

For the full year ended 12/31/2024, we reported total GAAP revenue of $695,200,000 an increase of $150,300,000 or 27.6% over the prior year GAAP diluted earnings per share of $0.7 and adjusted diluted earnings per share of $0.94 As a reminder, our 2024 full year guidance included total revenue between 665,300,000.0 and $706,500,000 adjusted earnings per diluted share between $0.9 and 0.9 adjusted EBITDA between $51,900,000 and 55,200,000.0 We delivered on this guidance with adjusted EBITDA of $53,300,000 a $12,600,000 or 30.9% increase over the prior year and non GAAP adjusted earnings per diluted share of $0.94 an increase of 28.8% over the prior year. Our cash generation remains strong. The fourth quarter was a prolific quarter for cash accumulation including $20,600,000 in net cash generated from operating activities and $17,200,000 in free cash flow.

Based on our solid operational performance, the positive impacts of our credit facility upsize and our equity offering in we are well positioned for future growth with a healthy balance sheet and ample dry powder to deploy Key metrics for the full year ended December 31, 2024 include $245,800,000 available on our revolving line of credit and $24,200,000 in cash on hand at year end. Zero times net debt to adjusted EBITDA and cash flows provided from operations of $39,300,000 for the year As we mentioned in our press release, we are providing full year 2025 guidance of rev of $800,000,000 to $865,000,000 adjusted EBITDA of $63,100,000 to 68,200,000.0 and adjusted earnings per share of $1.03 and $1.11 to $1.11 Our guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 36,000,000 a 25.5% effective tax rate Our 2025 annual guidance anticipates an EPS increase quarter over quarter and is based on our ramp in home health and hospice ADC occupancy and rate improvement in senior living, anticipated reimbursement rate adjustments, level interest rates and inflation consistent with 2024.

It does not include unannounced acquisitions and excludes startup operations, share based compensation acquisition related costs and one time implementation and unusual items. It's my pleasure to spotlight a few operations and their leaders who have demonstrated exceptional performance in 2024. Their stories illustrate the remarkable results that can occur when local leaders behave as owners and drive operational excellence. At Big Sky Home Health and Hospice, Future CEO, Janie White future CCO, Ama Sankey and future COO Jenna Loya have built an operation that is an employer and provider of choice Since Jamie took the helm of Big Sky in 2022 The, 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 4.5 hospice composite score of 100, Hospice CAP score of 84.5%.

Each well above national benchmarks In addition, Big Sky received the full 5% positive revenue adjustment for home health performance Under CMS's value based purchasing program, These excellent clinical and cultural outcomes coupled with solutions designed to meet the needs of their local continuum driven 2024 results that reflect a 140% increase in revenue and a 410% increase in EBITDA over the past two years. In Whittier, California, Future CEO, [indiscernible] and Wellness Director, Kathleen McDonald have created an exceptional community at Whittier Glen Assisted Living. This community has clearly become an employer of choice with employee sets scores of 92% and Stern Alert has improved 35% year over year and is significantly better than industry averages. Whittier's cultural strength has led to exceptional clinical outcomes in increasing resident safety and satisfaction.

Ultimately, this impacts financial results Year over year, Whittier's revenue has increased 16% and EBITDA has increased 147%. Now I'd like to hand it back to Brent.

Thank you, Lynette. As you can see, we've had remarkable year and are primed for success.

In 2025 and beyond.

With that, Marvin, can you please instruct the audience on the Q and A procedure?

Thank you. At this time, we'll conduct The question and answer session. And our first of Stephens. Your line is now open. Okay. Thanks. Hi, everyone. A couple of questions here for me.

Maybe the first one The within the 2025 outlook, it would be helpful if you want to walk us through how your embedding expectations for same store revenue growth for Home Health Hospice and Senior Living within that within the guidance.

On the same store front for revenue, we're projecting about a 7% increase in revenue for those same store. And same store includes I'm looking at that, it's the entire portfolio. So same store, new store with the exception of Signature. The signature ads. We are looking at signature as kind of a separate piece. [indiscernible] And then when I just like around that 7%, I guess, you might not have the specifics, but any or Brent and John like directionally how would you think about home health hospice and SL either being sort of over or under that 7% aggregate Yes. I'm happy to jump in This is John and just share from a home health and hospice perspective, obviously, recent trends over the last two years would suggest that we've got opportunity to improve on that number. We wanted to recognize the fact that we have a lot going on for from a transition standpoint and 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 [indiscernible] [indiscernible] within those same store operations. On the senior living side, I think you see our ability to continue to push rate improvement While that's ameliorated a little bit our occupancy growth, the quality of revenue, our ability to capture care's revenue more 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.

Okay. Thanks, John. The my second question, I guess we have to have the obligatory question around The legislative funding environment in Washington and the discussion there. Appreciate your payer mix disclosures. In 2024, you had Medicaid mix right at around 13%.

Maybe if you could sort of I guess sort of give us some details The. I mean that does would seem to be mostly home care, right, The I would suspect, within The. Maybe sort of talk about, I guess, sort of contribution to earnings relative to the 13% revenue mix? And then sort of how your assessment would be around the exposure or not to some of the different funding or savings options that the GOP is considering currently in D. C?

Yes, Scott. Appreciate the question. And I think it's an important one for us to consider. Just to highlight sort of and 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 more percent for our home care for a total of about 15% of our business that would be exposed to potential impact from Medicare. On the earnings front, I would say we have been able to identify and find 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 to our nation's future The are vulnerable and that our need a place to stay in low a low cost setting. 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 won't be touched of Medicaid. They're looking for fraud, waste and abuse, not to cut these essential services for critical patient populations. And so we're optimistic that as they look at places to cut, they're going to identify that the services we provide Hospice, home care, nonskilled home care, and Senior Living all represent sort of a lower expenditure of Medicaid dollars and offer opportunities to actually save money because of the high touch nature of our care fact that it's 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 from an impact standpoint, that that's going to hold true. The final thing I'll say is we have endured a number of changes throughout the history of the time The Brett and I have been doing this for over thirteen years. And during that time, we've gone through multiple changes The change from to PDGM, we received ARPA funding on the senior living side. We've had 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 have the visibility to adjust those as those changes occur. And so as much as obviously this is it's 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, a fairly modest amount of our revenue that is potentially implicated by any Medicaid cuts. Okay. Thanks, John. And then just one final one.

Me if I can. I know you guys called out a couple of times anticipating an earnings ramp.

Over the course of the year. I know that's generally been the pattern the last couple of years. So just wanted to confirm or not whether there's any any different level or magnitude of ramp that you're thinking about for this year versus the last couple of years? And then if you could give us your your thinking around operating cash flow and CapEx for $25,000,000 and The that's it for me. Thanks.

Yes. And I'll let Lynette 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. That being said, because of all of the new transitions in larger acquisitions acquisitions we've done in the really the end of the year, I think it may be a little more of an aggressive ramp over the year. So beginning of the year, we're trying to integrate these operations and so from that perspective, yes, it'll be similar to years past, but maybe a little lighter the beginning of the year and more aggressive toward the end of the year.

On the operating cash flow front, we're looking at mid to high 40s for operating cash flow. And then as we look at CapEx CapEx expenditures, it's similar to what we've experienced this year. In 2024.

Okay. As a percentage of revenue or absolute dollars limit? Absolute dollars.

Okay. Just a little color on that. So we've spent a lot of time over the last several years really reinvesting in our building And so that's why we're seeing a little bit of just an overall flattening in the CapEx spend. [indiscernible] So and then some of these newer acquisitions or newer billings 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.

All right. That's good to hear. So probably important call out there. So it seems like free cash flow then should probably ramp. We'll see that a little more pronounced to 25 relative to 24, sounds like.

Yes. Yes.

Okay, great. Thank you. Thanks, Scott. Our next question comes from the line of Steven Baxter of Wells Fargo Your line is now open. Hi, thanks. Kind of a similar theme question. Just on the guidance assumptions. I was hoping you could help us think about 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 recent acquired assets How do we think about what's in there on a maybe a same store basis for home health and hospice business? And then also The same store type trends that you'd expect within Senior Living and then I have a follow-up. Thank you.

When we're thinking about margin, I would say that there will be some impact as The we've had these acquisitions at the end of twenty twenty four and then beginning of twenty twenty five The will as we bring those operations closer to our EBITDA margin. There will be some noise The. But when we look at, where we think we'll end up on that home health margin, It's similar to where we're at this year in that 15 high 15%, low 16% EBITDA margin. And then with Senior Living, we're looking at that margin increasing 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 Got it. Okay. Thank you. And then just to kind of discuss the The cat issue little bit more and I know these popped up in the past and you guys have operational methods to kind of remediate that. So I guess just how do we think about the operational changes you make to deal with that and how long that kind of persists throughout 2025. I'm just trying to think about how much of a drag there might be that might be sort of transient within 2025 outlook as The?

Yes. Appreciate that question, Stephen. And I think as you look at hospice cap, historically hospice cap we have not operated with significant hospice cap. Uniquely, about 88% of the cap impact that we accrued in 2024 came from California, a state where because The the wage index is tied to the reimbursement, our reimbursement increases at a faster rate the hospice cap allowance increases. And that's what 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? We are we're in this business to serve patients who are terminally ill throughout the their disease prognosis. It's impossible to verify The. We also had 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 partner of choice for every patient in the communities we serve. That said, there are certain referral sources who generally refer patients that are later along in their disease prognosis our focus is on continuing to develop and build those relationships where we can take more acute patients balance out those patients that identify the need for hospice care earlier on in their disease prognosis and ensure that we avoid cumulative hospice cap As far as the impact on last year, we called it out.

It was somewhat pronounced $1,700,000 in the fourth quarter. That's a a very significant and atypical expense and affected our margin. As we go into 2025, we have been on for several months, we've been focused on adjusting those referral patterns, and we'll continue to do The. I would expect some continued drag in 2025, but our focus is on managing our business in such a way as to eliminate as much of that cap as possible in 2025. And whatever residual there may be would be from the 2024 cap year. And I would estimate that as potentially about a third of what we experienced this year. Potentially less than that if we manage it effectively. So we're focused on again, changing the referral source, making sure that we're The the partner of choice in our communities that we serve. And I'll emphasize that this really only affects The couple of agencies. Most of our agencies operate well below the cap and those 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 of the hospice cap allowance.

Thank you. One moment for our next question. Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.

Great. Thank you very much. I wanted to turn back to The senior living segment. Clearly, you're seeing really strong rate momentum The. And I know you've outlined initiatives in the past to kind of focus and optimize mix towards potentially maybe more AL mix Just wanted to get an idea of kind of what inning we're in there with our same store portfolio and kind of how you're thinking about those opportunities as you look for M and A in the future?

Thanks.

Yes, great question, Ben. And I think we kind of touched on this in our script, but one of the things that we saw in twenty twenty twenty four was a real focus on driving revenue quality. And so what that means is some of The the resident population or just in general bringing in folks in at a higher rate. 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 experience that is The expectations of our residents. And so The 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. I mean, in terms of like inning, we're still kind of in the early stages of The. And I think as we really start to ramp up The efforts and and execute on what we've implemented, That's why we're optimistic that going into 2025, we'll continue to see that ramp up in occupancy.

And the other thing just to bear in mind is, we have a significant number of our operations that are in the high 80s or low 90s 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 to be able to effectively build The And so again, we're confident that we've got the foundation in place. And so this should be a year that we continue to grow off of.

Great. Thank you. Thank you. I'm showing no further questions at this time. I would now like turn it back to Brent Gasoli for closing remarks.

Well, thank you, Marvin, and thank you everyone for joining us today.

Thank you for your participation in today's conference. The does [indiscernible]