Good day, and thank you for standing by. Welcome to The Pennant Group's Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kirk Cheney, Corporate Secretary. Please go ahead.

Thank you, Ripka. 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. 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 Time on August 6, 2025. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, August 7, 2024, 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. Except as required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements where changes arise from new information, future events 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 service center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other operating subsidiaries through contractual relationships. 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 do not imply 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. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-K. With that, I'll turn the call over to Brent Guerisoli, our CEO. Brent?

Thanks, Kirk, and welcome, everyone, to our second quarter 2024 earnings call. Following a robust first quarter, we are thrilled to report record-breaking second quarter results as we continue to experience momentum across each of our service lines and create meaningful growth opportunities for local leaders and teams. Our financial performance and growth trajectory reflect the consistent effort we have applied to every aspect of our business through our 5 key focus areas: leadership development, clinical excellence, employee engagement, margin, and growth. We have been talking about these initiatives on our earnings calls for many quarters, but the tangible financial fruits of these efforts are now coming to bear. In Q2, we generated revenue of $168.7 million, adjusted EBITDA of $13.2 million and adjusted earnings per share of $0.24, each exceeding the top end of consensus. These results are the product of a relentless focus on fundamentals, steady incremental improvement, and a prudent yet proactive approach to growth as we build a leadership pipeline. They also demonstrate the firm foundation we have laid over the last several years and upon which we are now positioned to build. We are experiencing an exciting time in our history as both organic and acquisitional growth are at all-time highs. This period of expansion provides insight into our potential as a provider of choice in our local communities, a best-in-class operator across our industries, and a disciplined yet bold growth company with the sophistication and adaptability to become a key solution in the health care continuum. Since the beginning of the year, we have entered into the Muir Home Health joint venture, closed an additional 2 Home Health and 2 Hospice transactions, initiated a management agreement with Hartford HealthCare, announced the largest acquisition in our history in Signature Healthcare at Home and completed 3…

Thank you, Brent, and good morning, everyone. We are pleased to report inspiring clinical and operational results driven by local leaders across Pennant. We have continued to execute at our existing operations even during a period of record-breaking growth. In our Home Health and Hospice segment, we experienced strong organic growth, successful transitions, improving margin, and excellent clinical outcomes. Top line segment revenue was $125.3 million, an increase of $30.3 million or 31.9%, and adjusted EBITDA was $19.6 million, an increase of $5.2 million or 36.3%, each over the prior year quarter. On the Hospice side, we continued to make exceptional progress. Hospice revenue was $59.3 million, an increase of $12.8 million or 27.5% over the prior year quarter. Hospice admits rose 31.4%. Average daily census rose 29.1% and length of stay increased 4.3%, each over the prior year quarter, which more than offset a 2.6% reduction in revenue per day over the same period, driven primarily by census growth in states with lower per-day reimbursement. The growth flywheel continued to turn at our mature operations as same-store admissions grew 15.3% and ADC increased 14.8%, each over the prior year quarter. This double-digit growth reflects the latent potential across our portfolio as our mature operations continue to become a provider and employer of choice in the communities they serve. Our Home Health business experienced similar progress. Home Health revenue grew to $66 million, an increase of $17.5 million or 36.1% over the prior year quarter. Total Home Health admissions increased 35.4% and Medicare admissions increased 18.3%, each over the prior year quarter. Revenue per episode increased 6.6% over the prior year as we admitted more patients in higher reimbursement states along the West Coast, diversified our referral source pipelines and effectively managed episodes at the local level. Much like our…

Thank you, John, and good morning, everyone. Detailed financial results for the 3 months ended June 30, 2024, are contained in our 10-Q and press release filed yesterday. For the quarter ended June 30, 2024, we reported total GAAP revenue of $168.7 million, an increase of $36.4 million or 27.6% over the prior year quarter, GAAP diluted earnings per share of $0.18 and adjusted diluted earnings per share of $0.24. As a reminder, we do not issue quarterly guidance, but our 2024 full year guidance was total adjusted revenue between $596.8 million and $633.7 million, adjusted earnings per diluted share between $0.82 and $0.91, and adjusted EBITDA between $46.2 million and $49.7 million. 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 2024 guidance as follows: full year total revenue is anticipated to be between $654 million and $694.5 million. Full year adjusted earnings per diluted share is anticipated to be between $0.89 and $0.95. And full year adjusted EBITDA is anticipated to be between $50.7 million and $53.8 million. This updated guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 30.7 million and a 25.8% effective tax rate. It anticipates continued strong operating performance through the end of the year, hospice reimbursement rate adjustments, increased interest expense and contributions from our joint ventures and management agreements. It excludes unannounced acquisitions, the announced purchase of Signature's Oregon assets, start-ups, share-based compensation, acquisition-related costs or onetime implementation and unusual items. As detailed in our 8-K filing dated August 1, 2024, Pennant has entered into an amended and restated credit facility that, among other changes and improvements, increase the total amount of the facility from $150 million to $250 million.…

Thanks, Lynette. Before we transition to questions, I want to take a moment to thank all of our amazing employees across the organization. This period of exceptional growth would not be possible without the thousands of dedicated individuals across the Pennant footprint who are at the heart of our success. We continue to demonstrate industry-leading clinical and financial performance because of their commitment to providing life-changing service each and every day. With that, we'll open it up for questions. Ripka, can you please instruct the audience on the Q&A procedure?

[Operator Instructions] Our first question comes from the line of Ben Hendrix of RBC Capital Markets.

I was wondering if you could provide us a little bit of context or your early thoughts on the time line for the Signature integration. I realize it's being done kind of in 2 slugs. And just wanted to get your thoughts on kind of the big key milestones for integration, whether it be leadership implementation, G&A synergies. And kind of what are the key milestones for getting us from kind of a high single-digit margin to your kind of corporate run rate margin?

Yes, Ben, thanks for the question. We're so excited about this opportunity to partner with Signature in Washington, Oregon, and Idaho. The first phase of the transaction, which already closed August 1, included the Washington and Idaho assets. That added about 1,000 home health patients and about 30 hospice patients across those -- that portfolio. And we're really focused right now on integrating from a system standpoint and making sure that we have the right leaders in each seat on those first teams. And so that's the kind of first bedrock foundational thing that we're looking at is making sure that those first teams are constructed in the Pennant model and that those leaders have the right training to be able to thrive. We will then move to sort of the implementation with the Oregon assets at the beginning of the new year. And that will kind of precipitate the larger system transition on the EMR side. And so that will be the big push during the first quarter of next year is to make sure that all of those agencies transition effectively and successfully to Homecare Homebase. But really, our focus right now is making sure that we have the right leaders, that those leaders are trained and prepared in the Pennant model and that they're ready to thrive. And I think you'll start -- you'll begin to see synergies and improvement in margin gradually through the end of the year and really accelerating as we influence our instance of Homecare Homebase and our technology stack in the first quarter of next year and into the second quarter.

Just to clarify, is Signature already on Homecare Homebase, just a different instance?

That's correct. They're on Homecare Homebase, just a different instance, and so that was an important part of this transition.

[Operator Instructions] Our next question comes from the line of Scott Fidel of Stephens.

Actually just wanted to keep on that same topic on Signature. And just because there are the 2 tranches and so there's a little bit of nuance in the modeling and I appreciate some of the stats that John already gave, but thought it might be helpful if you can maybe just sort of break down, when thinking about the tranche 1 that's getting done this year and then the tranche 2, what the revenue split is between the 2? And then also the EBITDA split or maybe if you want to talk about sort of how the margins maybe vary between those 2 tranches at closing. Obviously, you're going to look to get the margins up to your standards across both of those tranches. But curious if you could just sort of give us the revenue and EBITDA sort of splits between the 2 tranches.

Yes. It's about 2/3 and 1/3 as far as the revenue goes with the bigger portion being the Signature Oregon assets. That's where a similar number of hospice -- or a similar number of home health and then a much larger portion of their hospice is located down there in Oregon. And so that hopefully gives you some insight into the revenue split. When we factor it into our guidance, I'll let Lynette speak to a little bit how we're factoring Signature Washington into our guidance for the remainder of the second half of this year.

Yes. For the remainder of the year, we have about $9 million in revenue factored into our current revenue guidance with about an 8% to 9% EBITDA margin on that revenue.

And Scott, I think you'll see a little higher margin from the Oregon portion of the business just because it has that hospice component. But our goal is really to continue to move that business towards our traditional target margins. And the way we will do that is through our sort of normal approach, right? First, implementing our operating model, supporting the exceptional leaders and the new leaders that we'll place with an outstanding group of resources, helping to look at everything from the revenue side of the business to the expense management side of the business. And then most importantly, helping them to grow and continue to become the employer of choice and provider of choice in each of those communities that they serve. So it doesn't happen overnight. We talk a lot about how our traditional process takes about 9 months to optimize a business. This is a healthy business. It's got a great team, really fantastic clinicians, dedicated. And so this will be an opportunity for us to come in and support them in a new way, provide them additional technology, provide them a unique operating model that will help them accelerate results.

Okay, got it. Very helpful data points. Appreciate that. A follow-up question then just sort of thinking about the revised guidance for this year. And I think the detail you just gave us on Signature really does reinforce how much of the raise this year does seem to be coming from sort of the existing core operations. And so on that note, certainly seeing strength really across all 3 business lines. Hospice has been firing on all cylinders, it feels like, but the Home Health growth also very outsized versus the market and, then SL also showing good growth. So just I thought it might be helpful as well when you sort of think about the raise to the existing business, if you can maybe sort of give us some nuance into how that maybe breaks down between the 3 business lines.

Scott, as we looked at it, basically, what you have is we've had a real period of outperformance. We're significantly ahead of where we expected to be, growing Hospice census by 30%, Home Health census by nearly 30%. Our Senior Living business, our revenue there is up 16%. It's just really been an outstanding start to the year. And so as we have modeled out the remainder of the year, our trends remain strong, and our focus is on continued execution. Continued execution on the transitions that we've been working on since really March of 2023 through now. We've closed nearly an acquisition a month. And that's all factored into our new store. And so you see this strong performance in our same-store operations, which is really about half of our growth, and then we've layered on accretive transitions that have really sort of shown the fact that for a while there during the pandemic, those turns were taking longer than they traditionally have for us. And I think what we've seen over the course of the past year is we've been able to move those businesses maybe from underperforming or where they were at when we acquired them into performing assets that are contributing to our results. And so as we look out, we anticipate this momentum is going to continue. We continue to see strong admission momentum. We continue to see our agencies and operations being chosen as the provider of choice in our communities. We also anticipate that our Senior Living business is going to continue to get stronger. We've had really a remarkable run in that business over the last 1.5 years as that group of operators, as we called out in the script, has really settled in and done making gradual progress towards our target margins. And so we see continued growth on the Senior Living side with improved margin as we go. We see continued growth on the Home Health and Hospice side at our same-store operations. We see the transitions that we've done, particularly some of these larger deals sort of layering on to that, and that's what's contributing to the guidance raise. And we feel like in all honesty, there's still even more potential there. And so we're going to keep working hard to execute through the growth.

Okay, great. And then just 1 last question if I could sneak it in. I thought it also might be helpful just given some of the moving pieces if you wanted to give us some insight into sort of modeling the leverage ratio or just sort of how much of the tapping of the revolver you expect just as you fund these transactions as the EBITDA is going to be ramping. So to the extent that you maybe are thinking about where leverage sits at year-end and then sort of how that evolves towards then sort of getting reduced effectively as you complete out the second tranche and drive those margins off in -- so sort of thinking about leverage at year-end '24 and then at a steady state after the deal is fully completed for both tranches.

Yes. On the leverage front, when we look at what will be at the beginning of 2025 when we complete that, the rest of the Signature transaction is kind of between that 2 to 2.5x leverage ratio. Again then as we have strong cash flow from operations, what we're expecting, that would continue to drop throughout the year back down to our more normalized under 2x and continuing to go from there. We still plan on having incremental acquisitions through that time and so that will play a piece in there. And again, as we don't include those acquisitions in our model until they're going to happen and we are very strategic as to what acquisitions we're going to do, there will be some impact on the operating cash flow, use of operating cash flow to pay down as we bring on other acquisitions through that time frame as well.

I am showing no further questions at this time. I would like to turn it back to Brent Guerisoli, CEO, for closing remarks.

Thank you, Ripka, and thank you, everyone, for joining us today. Have a great day.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.