Good day, and thank you for standing by. Welcome to the Pennant Group First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kirk Cheney, Corporate Secretary. Please go ahead.

Thank you, Victor. 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 Jen Freeman, our Interim CFO. Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investor Relations section of our website at www.pennantgroup.com. A replay of this call will also be available on our website until 5:00 P.M. Mountain on May 4, 2024. I want to remind anyone who may be listening to a replay of this call that all statements are made as of today, May 5, 2023, and these statements have not been nor will they 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 the forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Pennant and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, 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 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. The words Pennant, company, we, our 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 that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the use of the terms we, us, our and similar terms used today are not meant to imply nor should it be construed as meaning 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 GAAP reporting with non-GAAP metrics. When viewed together with our GAAP 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 GAAP reports. The GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q. And with that, I'll turn the call over to Brent Guerisoli, our CEO. Brent?

Thanks, Kirk, and welcome everyone, to our first quarter 2023 earnings call. We are pleased to announce that Q1 brought solid revenue in census growth and overall financial performance in line with our expectations. Our local leaders and teams drove improvement in our clinical outcomes, reduced turnover and grew admissions and occupancy. Their disciplined approach produced significant progress in an environment with ongoing inflationary headwinds and labor difficulties. Collectively, our Q1 consolidated results reflect revenue of $126.5 million, an increase of $12.6 million or 11% over the prior year quarter and adjusted EBITDA of $7.9 million, an increase of $1.8 million or 28.8% over the prior year quarter. Our unique locally tailored approach resulted in continued growth in each of our primary lines of business, including reaching an all-time high in home health and hospice average daily census and achieving a same-store senior living occupancy of 79.1%, representing a fifth consecutive quarter of occupancy improvement. We are excited about this progress and still see significant opportunities to improve our bottom line financial performance. With the benefit of the positive momentum built over the last several quarters, we remain on track to deliver on our 2023 earnings commitments and we'll get there by focusing on the five key organizational priorities we identified on our most recent call: first, leadership development; second, margin; third, turnover; fourth, growth; and fifth, clinical excellence. Leadership development continues to be our top priority, where I'm personally investing much of my time and attention. We are diligently focused on finding, hiring and developing a robust pipeline of exceptional operational leaders, who can optimize the many exciting growth opportunities that lay before us. Our expanded leadership development team now includes several key field and service center partners who work closely with markets and clusters to find, train and…

Thank you, Brent, and good morning, everyone. We are pleased to report that the first quarter reflected significant progress in both our operating segments. Turning first to our home health and hospice performance. Top line revenue for the quarter of $91.1 million increased $10.6 million or 13.2% over the prior year quarter, while adjusted EBITDA of $13.2 million increased $0.5 million or 3.7% over the prior year quarter. Our home health business continues to thrive. Home health revenue grew by 11.7% over the prior year quarter despite CMS's base rate cut, which resulted in a net negative 0.8% impact on our home health revenue per episode as compared to the fourth quarter of 2022. Revenue per episode increased to modest 0.3%, and our results were accelerated by a 7.1% increase in home health admissions and a 6.8% increase in Medicare home health admissions, each over the prior year quarter. Our growth is a direct result of our efforts to create unique solutions in communities we serve and largely driven by our strong clinical outcomes. Our CMS star rating of 4.2 is well above the national average of 3.0, and our real-time 60-day hospitalization rate is 12.1%, which compares favorably to the national average of 14.2%. These metrics are critical measures for home health value-based purchasing and for our partners across the care continuum and our teams are tracking and trending these measures in their clusters to drive continued improvement. We are excited to be measured and rewarded for the clinical outcomes we deliver through our home health programs. On the hospice side, Q1 brought an important and exciting return to our historically robust growth trajectory. Hospice admissions increased 9.1% sequentially over the fourth quarter of 2022. Coupled with a more normalized length of stay, this led to robust ADC growth…

Thank you, John, and good morning, everyone. Detailed financial results for the 3 months ended March 31, 2023 are contained in our 10-Q and press release filed yesterday. For the quarter ended March 31, 2023, we reported total GAAP revenue of $126.5 million, an increase of $12.6 million or 11% over the prior year quarter. We also reported GAAP diluted earnings per share of $0.06, a 50% increase over the prior year quarter and non-GAAP diluted earnings per share of $0.13, an 18.2% increase over the prior year quarter. These results are consistent with our full year 2023 guidance. Key metrics for the three months ended March 31, 2023, include $58.5 million outstanding on our $150 million revolving line of credit and $3 million cash on hand at quarter end, 1.62 times net debt-to-adjusted EBITDA and cash flows provided from operations of $9 million for the quarter. An improvement of $8.3 million over the prior year quarter adjusted for the repayment of Medicare advanced payments. We expect cash flow from operations to continue to reflect organic revenue growth, strong cash collections and bottom line improvement throughout 2023. And with that, I'll hand it back to Brent to highlight a couple of our local leaders.

Thanks, Jen. It's my pleasure to spotlight a few leaders in operations in our organization who have achieved exceptional results. At Symbii Home Health and Hospice, in Price, Utah, newly appointed CEO, Becky Richens and CCO, Melissa Nelson, are creating something remarkable in rural Central Utah. Originally part of the Symbii operations covering Northern and Central Utah, the Symbii Price experience demonstrates the tremendous potential we have to subdivide existing service areas and create exciting opportunities for our emerging leaders. Symbii Price became its own independent operation in 2022, better enabling Becky and Melissa to drive performance and own their results. They've delivered exceptional performance and become the overwhelming provider of choice in Price. Symbii Price is clinically excellent with a real-time home health star rating of 4.5, a real-time home health hospitalization rate of 10.3% versus the national average of 14.2%. In the hospice, HIS comprehensive assessment score of 99.2% compared to the national average of 91%. This clinical quality has led to financial excellence as well as Symbii Price's revenue grew 18.2% and earnings increased 19.6% versus the prior year quarter. These strong consistent results led to their receiving the flag award this year, which represents the highest level of achievement for operations in Pennant. At Heritage Assisted Living in Twin Falls, Idaho, future CEO, Bianca Acevedo, and clinical leader, Celina Crumrine are writing a remarkable story. Since joining the Pennant family in Q1 of 2020, Heritage's growth trajectory has been extraordinary. Bianca and Celina have driven impressive financial performance with a revenue increase of 6.9% and an EBITDAR increase of over 1,300% over the prior year quarter. Heritage's clinical performance has been exemplary as well as recognized by the recent receipt of the Silver Excellence in Care Award presented by the State of Idaho highlighting their outstanding survey results. The performance of both Symbii Price and Heritage Assisted Living are examples of the dramatic improvement we see with CEO caliber local leaders step into operations. With that, we'll open it up for questions. Victor, can you please instruct the audience on the Q&A procedure?

Sure. [Operator Instructions] Our first question will come from the line of Raj Kumar from Stephens. Your line is open.

Hi. This is Raj on for Scott Fidel. Just wanted to get your views on the -- and showing access to the Medicaid services proposal that released last week, given the company's exposure to home care services? And then also, if you could just remind us how much of your home care revenue is associated with personal care and what the payor mix dynamics over there? Thank you.

Yeah. I'll take the first part of that, Raj. We're pretty modestly exposed to home care. It is a growing business within our portfolio, both from a private pay standpoint and from a Medicaid standpoint, but it represents a very modest portion of our home health revenue. And so, we appreciate the work that the government is doing there to evaluate and determine how to appropriately reimburse those home and community based support services. We don't necessarily agree with the strategy and feel like for the most part, providers are well positioned to make sure that they're delivering care in a competitive way by increasing employee wages and benefits in a way that also allows for the significant costs associated with operating those businesses. And so, I hope there is an opportunity, and we plan to participate in the public comment period. But because of our modest exposure to that rule, it's not something that we're significantly worried about. And Jen can give some more insight on exactly that exposure.

Yeah, Raj. Our home care revenue at this point in time is about $2 million for the quarter.

Okay. Thanks for the color there. And then just as a quick follow-up. Just wanted to reconfirm the outlook for senior living top line growth of 10% the company highlighted last quarter? And then also, I just wanted to see what your margin expectations for the year are -- for the remainder of the year in terms of the progression?

Yeah. We're actually in line with our projected revenue increases on our senior living side on the revenue growth. And so, we would expect to continue to grow at that pace. And in fact, our senior living for the first quarter, the revenue grew about 15% when you take into account the same-store revenue that we're looking at, which excludes any sort of acquisitions or the divested buildings that we had last year. So when you look at it that way, we're right in line and actually a little bit ahead of where we projected in our guidance. On our margins, John, do you want to talk a little bit about our margins and where we expect to go this year?

Yeah. I'm happy to address that, Jen. As you look at our performance over the first quarter, Raj, you see some really strong growth that's taking place in each side of our business. Our local teams have done an extraordinary job of establishing themselves as providers of choice in the community. Our focus now, as Brad mentioned in his remarks is on making sure that, that makes its way to the bottom line. And so we're focused on a variety of things. We've spoken before about our home care, home base makeover and our efforts to make sure that our clinicians are able to be as effective and efficient as possible. And so, we're really focused on measuring utilization, continuing to monitor and deliver the highest quality outcomes effectively with the right number of visits per episode and we continue to see progress there. And so, you'll see throughout the course of the year, we experienced as we normally do kind of that seasonal drop in census through the holidays at the end of Q4. And our Q1 margin was impacted by the fact that we had to sort of regrow that census in the first part of the quarter. Fortunately, by the end of the quarter, we're in a stronger position as we've ever been. And we've been able to add headcount on the clinical side that will allow us to continue to grow and take more of the volume and market share that's out there for us. So our focus throughout the year, as Brett outlined, we'll be working on measuring and monitoring and improving utilization, including through reducing the time our clinicians spend in documentation. We'll be focused on continuing to improve on the transition side and making sure that those underperforming assets that we take over are quickly able to move into the bucket of accretive and are producing financial results in addition to the clinical results that we seek to take through that transformation process. And we expect that our margins will come in line quickly over the next couple of quarters.

Yeah. I would just add a couple of other things. And John mentioned it right, part of Q1 was an investment period. And so, we kept up with that growth, we made those investments. And so that hurt our margin a little bit. The other piece of this and why we're so focused on our local leadership and driving that forward, what we've seen is outcomes across the board are better when we have C-level caliber leaders in those operations. One of those critical outcomes is turnover. And the most -- one of the biggest drivers of margin difficulty is high turnover levels. And so as -- we're excited about the progress that we've made on the turnover front, but as we continue to drive that down more and more, we expect that to also reflect on the bottom line margin performance.

Great. Appreciate all that color. Thank you.

[Operator Instructions] I'm not showing any further questions in the queue. Now I'd like to turn the call back over to Brent Guerisoli for any closing remarks.

Okay. Well, thank you, Victor, and thank you, everyone for joining us today. And we hope you have a great rest of your day and weekend.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.