Hello, and welcome to the 2024 RBC Capital Markets Global Healthcare Conference. I'm Ben Hendrix, RBC's Healthcare Services and Healthcare Analyst. We are pleased to host The Pennant Group, operator of senior living communities, and a provider of home health and hospice services. With us this afternoon from management are Brent Guerisoli, Chief Executive Officer, John Gochnour, the President and Chief Operating Officer, and Lynette Walbom, Chief Financial Officer. Thank you all for joining us today. Thank you. Thank you. So, occupancy growth has been a key driver of this industry. It's, we've heard from your peer yesterday, it seems like everybody's making great progress with occupancy. It seems like you and your peer are both outperforming the industry, more broadly. Just wanted to get your thoughts on kind of key drivers and what we're seeing relative to the broader market. Yeah, I, you know, we, we've seen improved occupancy really over the last year plus, and that, that's a number of different things. I think from a supply and demand standpoint, we're seeing positive pressures in that regard, much more of a demand for the services, and, and there's sort of a flattening out of the number of beds that are available, so we've seen positive trending there. You know, for us specifically, we spent a lot of the last few years investing in our building, investing in our properties, making sure that they're in, you know, in such a manner that they're attractive for residents and their families to place their loved ones. On top of that, we've made significant investment in on the sales force and just creating a model that would make sense. Then just overall, I think, you know, we've talked a lot about leadership and the importance of leadership in our organization, and as we've built strong teams at the local level, we've seen a greater response in being able to drive improved experience at the operations, and therefore, the occupancy has increased as well. And so we're excited about the progress we've made. We think there's a ton of opportunity that still exists. At pre-pandemic levels, we were around 81%, and we're still just about one percentage point behind that. But we think we, with these adjustments that we've made, that we can continue to reach that number and then outpace it. Perhaps not, you know, this year, but in years to come, that we ought to be able to drive to the mid, you know, around 85% or so. That's kind of the target that we, we look at. And you guys have achieved these improvements with really solid rent updates. RevPOR, you know, it was about 12.9%. I guess we're at 6.5%, about half of what you saw last year, which is kind of consistent with trends we're hearing from your peers. And then maybe they outperform that a little bit for the rest of the year. How are you thinking about RevPOR kind of progressing, where are the sources? I think on the RevPOR side, it was an exciting first quarter, the 8.5%, you know, year-over-year occupancy or RevPOR increase. I think we'll see that normalizing more as we go throughout the year, really probably closer to that 6.5 is what we guided to. And some of that is because we had some significant rent increases at the beginning of the year, and then we'll have some, you know, later in the year, in July timeframe. But, a lot of that was driven by significant increases over the prior year, Q1, so... When we think about RevPOR, are you, it seems like you had some level of care impact in there as well. Kind of what, how are you thinking about just kind of the overall, normal course rent increase versus the level of care that you're, you know, that you... The indications from the patients that are in, or, the residents in your communities, is there a component of care that's associated that's driving that rent higher? Yeah, so there's two components, that room and board piece, and then the care side. And room and board is roughly three-quarters, about 75% of what our revenue is. And then on the cares front, again, we are working to make sure that we're adequately charging for the cares that are being provided. And so a component of that was increases on the cares front, and we'll continue to see that, as we again assess those residents that are in the communities and make sure that we're charging for the cares that are being provided. To that point, can you remind us kind of your overall mix of memory care versus IL, AL, and different modalities of the senior housing? You're saying the overall between... Yeah, I mean, the majority is, ... gonna be AL. Okay. We've got a smaller amount that's memory care, and then an even smaller amount that's IL. Gotcha. How would you just kind of describe the competitive backdrop? I mean, are you kind of a market leader in your industry? Do you get competitive forces from the other providers? Are you seeing more construction in your that are pressuring supply in your markets? Yeah, I think the market conditions are favorable. I talked about that already. I think from a bed standpoint, there's been a flattening in the number of beds. You know, there was a lot of construction pre-pandemic, and it's slowed down significantly. On top of that, we've got the Silver Tsunami coming down the pike. And so from that perspective, we expect the demand for our services to increase significantly over the next several years, and the supply is just lower. So from that standpoint, from a macro standpoint, it's very favorable. On top of that, I think just overall, there is some competitiveness, but at the same time, it really is going to vary from market to market. You know, senior living, there's many variations of types of buildings and types of services that are provided. Some, you know, the private pay side, you've got waiver programs, and whatnot. So one of the things that our leaders have done a really good job of in their local markets is recognizing what opportunities exist and, for the most part, the buildings that we have aren't the high-end buildings. They're sort of the middle-of-the-road buildings. So there's opportunities to be a solution for some of these waiver programs, while also building through the private, having private pay residents as well. So from that perspective, we've sort of seen gradual, incremental increases in our occupancy as a result of those investments. So we're, you know, we think the macro environment is very favorable for us going forward, and we anticipate... That's why I mentioned our occupancy targets going for the next few years, why they are where they are. And I wanted to touch on something you mentioned. You mentioned that, you know, your facilities are kind of the middle tier in terms of your target. I remember that being a key differentiator for you about the time of your spin-off from Ensign, and kind of versus some of the other supply in the market. And just wanted to get your take. Is that still the case? That's kind of where kind of all your development is focused, and kind of what the competitive backdrop? Is competition growing in that middle tier? Yeah. So, I don't think the competition has changed a whole lot in that tier. It kind of continues to be what it was beforehand. That being said, you know, one of the things that we've done more recently, we've done a number of new acquisitions, and the quality of the building, the newer buildings that we're bringing on, tend to be a little bit higher level than the ones that we've had. We've kind of been across the board, but the newer buildings, we're excited because one of the things that's really helpful in our environment is we're able to get either good lease rates, or in the case of these two new acquisitions that we did back in March, high-quality buildings for a reasonable valuation. And so, you know, as long as we can step into opportunities where the lease or the mortgage is reasonable, there's a lot of upside there as well. So we're, you know, we're gonna continue to make the right investments and try to bring a product to whatever community we go into that we can build from. I'd just add, I don't think the way that we think about it is, it's not about the middle-tier building, it's serving the middle market. We believe that these demographics, there's a huge segment of the population that needs these services, that is aging into them, nearly doubling over the next 15 years. That middle-market person can't afford $10,000, $12,000, $15,000 a month at a luxury resort. I think from a development standpoint, there's been a lot of dollars that have been put into that, that level of building. Our view is, let's find buildings that we can, we can take over, that can be nice, home-like settings that really appeal to the middle market, and that the growth in that segment, we're gonna be able to help meet that need. So we're, we're spending, we're beautifying these buildings. We're making sure that they're a high-quality property and an appealing residence, even if they're not the super luxury resort. You've noted that a key to your execution on that strategy is the local leadership. Seems to be, like, really the secret sauce for you guys. And we've heard similar commentary from The Group yesterday, but maybe you could talk about your differentiated approach to local leadership and how it's helping you guys achieve margins. Yeah, I think at the heart of our model is the idea that healthcare is inherently local, and that healthcare decisions are made based on local indicators. So our model is built around the idea that the better we can be at keeping decisions in the local operation, whether that's a senior living community, whether it's a home health or hospice, close to the patient, close to our resident, close to the employees, that we're gonna be able to drive better outcomes. I think that's our legacy, that's our track record over the last 12 years. It's the track record we inherited from the Ensign Group, which was our former parent company. It's investing in CEO-caliber local leaders at the local level, developing them through a rigorous training process, giving them an entrepreneurial opportunity where they can go out and create value clinically, culturally, financially, and in the communities that they serve. And that's a really attractive and compelling opportunity to really talented people. And so they're coming in, and that's really what's driving a lot of our growth, is this strategy of investing in local leaders. And maybe switching over to the clinical side, to hospice in particular, you guys have seen really, really strong census growth over the last several quarters. Just wanted to get your take on that trend. It seems to be consistent with what we're seeing for some of the more sophisticated operators in our coverage. And kind of how we're thinking about the hospice business. We're really positive on what's happened over the last, you know, year and a half from our perspective. We've seen continued differentiation in our growth rate versus those of our peers, and I think that's driven by a couple of things. First, the investment in leadership that we've talked about. Second, you've seen an increase in occupancy in some of our facility partners. Inherently, when someone is living in a facility, whether that's a skilled nursing facility, whether it's an assisted living facility, or even an independent living facility, they have eyes on them that are recognizing earlier, "Hey, this patient is appropriate," as opposed to them going to the emergency department, and three days before they die, they're eligible for hospice. We're getting those patients a little bit earlier, and able to provide them more effectively the benefits of hospice care. I think the third thing is, we've invested significantly in growing palliative care and geriatric primary care in a lot of our locations. And that investment is about filling a gap in the continuum, where people aren't quite eligible for hospice, but they have a need for a more robust oversight of their care. So when you fill that with a nurse practitioner or a physician, who can guide them on their journey through the continuum, you're better able to keep those patients in at the right place in the continuum at the right time, and make sure you get the best possible health outcome at the lowest cost. There's just a couple of driving factors, I think, that have led to our hospice growth. It all comes back to differentiating ourselves in the local community based on meeting those needs. Gotcha. And I know the pandemic was really it impaired your ability to access hospice patients, you know, early, and get those longer length of stay patients. Can you talk about kind of how length of stay has trended in the census calculus, and what has changed over the last couple of quarters? It's trending better. We're still, you know, we're still below where we'd like to be, because we truly believe in our product, and the services, and the benefit it offers people. And so we've seen a tick up. We're probably 10% above where we were at the pandemic- ... but we're still probably 10% below, you know, where we were pre-pandemic. We do believe there's more opportunity to identify appropriate hospice patients earlier, and make sure that they get the care that they need and that they deserve. We have seen improvement, and I think some of that goes back to what I described about as census increases with our facility partners in the community, that's helped to improve the identification of appropriate hospice patients and getting them onto our service. Gotcha. And then kind of moving over to home health side, you know, home health seems to be, obviously, there's mixed shift concerns in that industry. Your larger peers have really kind of struggled under the Medicare Advantage growth, but it seems like you guys have been a little, able to be a little bit more targeted. Can you talk about kind of your approach there in your local markets? You know, it comes back to this idea that healthcare is local, and that those decisions are made on the local level. And so our strategy for the last 12 years that we've been, you know, around as a company, has been: meet the needs of the community. And so even before, you know, some of these changes, we were taking and building a network of insurance contracts. Not because necessarily, that business is lower margin, but it meets the needs of the community. If we meet the needs of the community, then we're going to also receive those higher margin patients. And so we really built the business in such a way that we were never, you know, 75% or 65% Medicare mix. We always had a more balanced Medicare mix. And so as that transition has occurred, our strategy has helped us maintain that Medicare mix, even as more and more patients have flowed into those managed Medicare, you know, payers. And so I think that comes back to, we have local leaders who have alignment around... They're making the decision based on whether to accept a particular patient. They understand the financial impact of it, and they understand the community impact of it. And when you balance those two, and you balance the needs of the community with the financial impact on your business, then you can grow in such a way that you grow volume- ... but you do it in a healthy and balanced way. That's what's really preserved, you know, the overall value creation. Even as Medicare mix has slipped a little, it hasn't slipped anywhere near what some of our other folks have struggled with. How about on the Medicare Advantage MCO side? Are you able to get episodic rates regularly, or do you have kind of a mix of maybe stronger per visit rates and episodic? Or how do you focus there? Yeah, so about a third of our business is managed care, and about half of that is episodic. And so we are really talking about, you know, the other half of that 30% is per visit. And I think, and Lynette can comment more about this, because her team has done just a phenomenal job over the course of the past two years. We've seen more movement, I think, on per visit rates than we saw in the prior 10. Because, one, we have a really high-quality product, and payers are more and more recognizing that, "I'll pay a little more for the best clinical outcome. And we're more in a position where we'll say to the payer, "Look, we're taking a lot of your volume right now. We can't continue to do that at the rates you're paying us. So either we're gonna back out, and you're gonna lose the best clinical provider in your community, or you've got to pay us more." And I think what that has generated, and you've seen it in the numbers that we've reported each quarter, is, you know, 10, 11, 12, 15% growth in those per visit rates. So it's been meaningful. Lynette, anything you'd add? No, I think it's just been the, again, the benefit from having really strong clinical outcomes that has allowed us to go back to those payers and just really push on. In order for us to take, to continue to take these patients, we have to have a better rate, and we've seen some huge benefits in that in the latter half of 2023 and into this year. I would just add, I think the payers are recognizing that this isn't a commodity business. That there's a real need to partner with high-quality providers in the communities. And so as a result of that, that's also why these negotiations or these discussions have gone favorably for us, because they recognize the value of that quality with having a quality provider, and because in the end, they still save money, right? Because we're the lowest cost setting, and they make the right investment, we reduce hospitalization, we reduce the overall cost of the care, and it's a win-win for both. Seems like what's helping, maybe helping those negotiations, if I think about kind of commentary among, you know, the home care space, it's just the overall shortage of nurses and labor. It's like, "Hey, this is how much capacity we have, you know, pay us for if you want our capacity." So if we continue to see the labor environment improve, are we gonna kind of get into a kind of a leveling point? Will the carriers have more negotiating power at that point? ... You know, it's a great question, and I wish that was the way we were trending, is that there was gonna be enough supply of nursing that we ended up there. Kind of a high-class problem. But yeah, it's a high-class problem, I would say. Yeah. I think what we're seeing is, yes, there will be more normalization, right? As rates increase, and the delta between episodic payment and per-visit payment narrows- ... you're gonna see more and more organizations that are willing to take that risk and take managed care volume, and so you'll see a little bit slower rate growth. I think the differentiator is going to continue to be, who can keep people out of the hospital and deliver value? And that's what we're, we're focused, is how do we make sure that we are well-positioned in the value-based care environment to show, "Hey, this organization outperforms on every clinical metric, and so our overall cost as a payer is gonna be lower"? And that's what we're focused on showing the payers, is through this effective, innovative, local operating model, we can deliver better, better clinical outcomes than anyone. And I think there's always gonna be a place for great clinical providers to be paid fairly. Maybe that's a good full way into your home health joint venture with John Muir that you started at, you know, the beginning of the year. Can you kind of talk about that, you know, that structure, that relationship, and kind of what differentiates you in that market? Yeah. So the John Muir Health is one of the premier integrated healthcare systems in the Bay Area. And it—for those of you who are familiar with the story, we about five years ago in 2019, we entered a joint venture with Scripps Health down in San Diego. And that joint venture has performed extraordinarily well, and it's positioned us and the healthcare system to be able to accomplish the goals that we set out in that joint venture: financial stability, serving more and more patients, improving clinical outcomes, and effectively helping patients get out of the hospital, particularly those with chronic conditions, that it costs a lot for them to care for them in the hospital, get them out into the home care setting. As we've drawn more acuity, that's benefited the hospital. As a result of that, that's created positive momentum with other health systems who have seen the success of that venture and said, "Hey, we'd like to partner with you as well." John Muir was one of those systems, and so we're really excited to partner with them. Just, they have an innovative approach to care delivery in the Bay Area. It's a community that has a need for high-quality home health and hospice. We've been very successful in the South Bay, and so it's great to now be focused in the North Bay. I'll say, you know, anytime we step into a new operation, there's an implementation period, right? We're going through Homecare Homebase transition. We're going through HRIS transition. We're going through best practice implementation. But what I will say is, we've got an amazing leadership team on the ground, in, in Concord and Walnut Creek, that are already driving terrific outcomes. We've seen progress clinically. We've seen progress in census. We've seen, you know, just it's performing where we expected it to perform. And we're excited to share more as we get through. You know, obviously, the time to measure it isn't in month 4, it's in, you know, month 6, 9, 14, and so we're excited to continue to share the progress that happens there. But we do think that joint ventures is a meaningful accelerant of our business because we believe it helps to solve a struggle or a problem that our partners have with wanting home health to be a significant part of what they're building and doing. We can operate it well. Gotcha. And then how is that shaping your thought about capital deployment and M&A going forward? What are the key target areas and priorities there? Well, I mean, we, we've had the same approach, right? It sort of first begins with leadership, right? And anytime we look at a deal, whether it's on the home health and hospice side with a joint venture or on the senior living side, it starts, first starts with leadership. Do we have a leader waiting in the wings to step into an opportunity? Then second, it's about the cluster in the market, so the group of operations around them that help support. We're a very flat organization, and so it's those local teams that actually drive the acquisitions. And so, in order to make that investment, we've got to have strong local teams surrounding them that can do that. And then third, it's got to be the right opportunity, and opportunity means it's... You know, normally, we're taking some sort of distressed asset. It may be that it's a clinical struggle, it may be a financial struggle, or other reasons, but is it an opportunity that we could step in and create this opportunity, we call them life-changing opportunities, for our local leaders to step in and build something special? And so as long as those three components exist, that's when we'll do the deals. The other thing that we're seeing, though, is over the last couple of years, especially beginning in 2023, you know, we've seen valuations that are much more favorable for us, both on the home health and hospice side and on the senior living side, so that's encouraging. And as a result of that, these last set of acquisitions and transitions that we've done, we've been much more effective at turning them quickly and getting a positive result from them. And so as we go forward, we're always going to invest where we have strength. That's why over the last five or so years, you saw us primarily invest in the home health and hospice side. That was where the strength of our business was. Now that we're seeing strength coming through on the senior living side, we, you know, we're excited about opportunities that are presented there. And most recently, we did an asset acquisition of a couple of buildings in Utah, which was really exciting. We think there's an opportunity over time to continue to build a portfolio of buildings. And so we'll be judicious in the way that we allocate capital there because we recognize that it is an allocation of resources, scarce resources at times. But if the right opportunity presents itself, that's also an avenue that we can go down as well. Well, great. I think that brings us about to time, guys. Thank you so much for joining us today. Thank you, Ben. Thank you, Ben.