Pennant Group, Inc. Q4 FY2024 earnings call

• Launched transformative partnerships (e.g., joint venture with John Muir Health, management agreement with Hartford Healthcare) and completed strategic acquisitions (e.g., $80M purchase of Signature Healthcare at Home).
• Strengthened capital structure via upsizing credit facility and follow-on equity offering.
• Focused on 5 key initiatives: leadership development (added 66 leaders to CEO training, launched clinical leadership program; 45 local leaders earned C-level designations), employee experience, clinical excellence, margin, growth.
• Strong clinical outcomes in home health/hospice contributed to positioning for CMS home health value-based purchasing program expansion. Senior living continued ascent with acquisitions and improved operations.

Home Health and Hospice

• Full-year revenue: $519.5 million, an increase of $125 million or 31.7% over the prior year. Q4 revenue: $142 million, a $35.1 million or 32.9% increase over the prior year quarter.
• Full-year adjusted EBITDA: $80.7 million, an increase of $20.5 million or 34.1% over the prior year. Q4 adjusted EBITDA: $21.3 million, an increase of $4.7 million or 27.9% over the prior year quarter.
• Home health admissions hit 15,909 (a 40.9% increase), Medicare admissions 6,443 (a 30.1% increase), Medicare revenue per episode up 9.9% Q4 y-o-y. Hospice admissions 3,090 (a 21.7% increase), ADC 3,445 (a 23.2% increase).
• 83% of agencies have a real-time star rating of four stars or above. Average CMS-reported star rating 4.1, better than national average of 3.0. CMS-reported potentially preventable hospitalization rate 8.7%, better than national average of 9.9%.

Senior Living

• Full-year revenue: $175.8 million, an increase of $25.3 million or 16.8% over the prior year. Q4 revenue: $46.9 million, a $7.8 million or 20% increase over the prior year quarter.
• Full-year adjusted EBITDA: $16.2 million, an increase of $3.9 million or 31.9% over the prior year. Q4 adjusted EBITDA: $4.2 million, an increase of $0.8 million or 23.4% over the prior year quarter.
• Occupancy rose 30 basis points to 78.8%. Average revenue per occupied room in Q4 $4,961, an increase of $393 or 8.6% over the prior year quarter.

• 2025 full-year guidance: revenue $800 million to $865 million, adjusted EBITDA $63.1 million to $68.2 million, adjusted earnings per share $1.03 to $1.11.
• Anticipates ramp in home health/hospice ADC, senior living occupancy and rate improvement, reimbursement rate adjustments, level interest rates, and inflation consistent with 2024.

• Margin pressure from record acquisitional growth in 2024 and atypical hospice cap expense in Q4 2024. Potential impact from legislative changes on Medicaid funding affecting revenue mix.

Q: Walk us through how you are embedding expectations for same-store revenue growth for home health, hospice, and senior living within that guidance.

A: On same-store revenue, projecting about a 7% increase. Same store includes the entire portfolio except for Signature. For home health/hospice, recent trends and transition opportunities drive optimism. For senior living, rate improvement and quality of revenue contribute to growth.

Q: Discuss the Medicaid mix and legislative exposure.

A: Medicaid mix is ~13% (primarily in senior living), with about 15% of business exposed to potential Medicare impact. Optimistic about impact due to low-cost care model and services provided being lower expenditure Medicaid dollars that help keep patients out of higher acuity settings.

Q: How to think about the balance between drivers of EBITDA margin improvement, including recently acquired assets and same-store trends.

A: There will be noise from acquisitions, but home health margin expected to be in the high 15% to low 16% range, and senior living margin to increase throughout the year due to occupancy and cost control measures.

Q: Explain the hospice cap issue and its impact in 2025.

A: Historically, hospice cap has been an issue, but focus is on changing referral sources to avoid cumulative cap. In 2025, aiming to eliminate most of the cap impact, with residual likely less than 2024's impact as we manage referral patterns effectively.

Q: Discuss the Senior Living segment's rate momentum and mix optimization opportunities.

A: Focus on driving revenue quality, investments in buildings and technology, and building out sales cycles. Optimistic about continued occupancy growth as local teams are given tools and resources, with operations in high occupancy areas already established.