The Pennant Group, Inc. Q2 FY2025 earnings call

• Key focus areas for the company include leadership development, clinical excellence, employee engagement, margin, and growth. Q2 revenue was $219.5 million, up $50.8 million or 30.1% from the prior year quarter, and adjusted EBITDA was $16.4 million, an increase of $3.2 million or 24.5% year-over-year. - CMS' 2026 proposed home health rule is seen as flawed, and the company is actively advocating to improve the final rule. Home health business has grown organically and via acquisition despite reimbursement challenges, while hospice has had record success but is impacted by cap expense in some California operations. Senior living has rebounded, with revenue per occupied room increasing. - Acquisitions include the successful transition of Signature Healthcare at Home, the acquisition of GrandCare Home Health, and the planned purchase of divested Amedisys and United LHC assets in Tennessee, Georgia, and Alabama.

In the Home Health and Hospice segment, Q2 revenue was $166 million, an increase of $40.7 million or 32.5% compared to the prior year quarter, and adjusted EBITDA was $25.5 million, a rise of $5.9 million or 29.9% year-over-year. Home health revenue specifically grew to $79.2 million, an increase of $17.6 million or 28.5% over the prior year quarter, with home health admissions up 26.1%. Hospice revenue was $73.8 million, a $14.4 million or 24.3% increase year-over-year. The Senior Living segment saw revenue improve to $53.5 million, a $10 million or 23.1% increase over the prior year quarter, and segment adjusted EBITDA improved to $5.1 million, a $1.1 million or 25.7% increase year-over-year.

Full-year 2025 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. This guidance incorporates current operations and organic growth, and the company will issue additional 2025 guidance updates reflecting the impact of the UnitedHealth Group Amedisys transaction.

• CMS' proposed home health rule could cause actual results to materially differ from expectations. - Hospice cap expense in limited California operations remains an issue. - Uncertainty around the timing and impact of the UnitedHealth Group Amedisys transaction creates risks.

Q: Given the color on the United Amedisys deal and the concentration of assets in Tennessee, could you give background on the Tennessee market, payer landscape, and how the Ensign Pennant Care Continuum relationship in the West influences the decision?

A: Ben, we believe the Tennessee market is unique with immense talent. We're excited about the Alabama and Georgia assets too. Ensign had recently entered Tennessee and shares our operating model, which helps build a care continuum, interact with payers, and impact the community there.

Q: Talk about the ongoing strength in revenue per occupied bed in senior living, sustainability, and longer-term commentary?

A: David, we've focused on revenue quality. Efforts have paid off, and we're focused on better community experiences. We anticipate mid-single digit growth on an ongoing basis.

Q: About the guidance, how much of the revenue raise comes from organic versus acquired revenue, and update on same-store growth expectations?

A: Lynette says the revenue raise includes about $6 million from the July-acquired GrandCare. Home health and hospice have roughly 7%-8% revenue growth expectations, and senior living has occupancy growth of 30 to 50 basis points and 6%-8% RevPOR growth.

Q: Key drivers of year-over-year margin improvement in the back half?

A: Brent says operations, decline in hospice cap amount, the hospice final rule increase, optimization of Signature, growth from GrandCare, and momentum in senior living are key drivers.