Morning. Welcome to Oppenheimer's 35th Annual Healthcare Conference. I'm Mike Wiederhorn, Healthcare Service Analyst, and it's my pleasure to introduce the Pennant Group. We have Chief Executive Officer Brent Guerisoli, Chief Financial Officer Lynette Walbom, President of Pinnacle Business Andrew Ryder, and Executive Vice President, General Counsel Kirk Cheney. Welcome. Thanks, guys, for attending. Appreciate your time today. This is going to be a fireside, so we'll kind of start right into it. I'll start with, you know, kind of, you know, can you just kind of, coming out of Q4, how do you feel about the business and your guide going forward? Yeah, Mike, thanks for the question. We're excited to spend some time with you today. We appreciate being here with Oppenheimer. You know, we feel really good. I think the most basic response is we feel really good about a strong 2024. We had nearly 30% from a growth standpoint, 30% top-line growth, and over 30% bottom-line growth. We're kind of executing on a lot of our initiatives to drive continued opportunities for our leaders. We often talk about being a leadership company. You know, we've seen significant investments in the leadership pipeline as well. That includes both operators and clinical leaders. As a result of that, we have a robust pipeline of leaders ready to go for current and/or new opportunities that present themselves. You know, in addition to that, we upsized our revolver up to $250 million in the middle of last year, and we did an equity offering. What that means, as we closed out the year, we essentially had full access to the entire revolver and ample dry powder as we continue to grow. Not only that, but we actually performed some really significant acquisitions in 2024. Signature being the primary one, represented over $80 million in revenue. That was in an area of the country on the western side in the Pacific Northwest, and primarily in Washington and Oregon, that really right in our right in our wheelhouse. We are in the process of sort of transitioning those operations, and that seems to be going well. We are excited about that. You know, I think the other thing is, you know, we talked about, as we guided a few weeks ago, we still expect nearly 20% growth on the top line and over 20% growth on the bottom line. All of that means that we're well positioned to execute on our short, mid, and long-term strategies. We've got excitement and progress in each of our key business lines: home health, hospice, and senior living, and an expectation that we'll drive both top line, bottom line growth, and improve margin as well. That sounds great. Why don't we move to home health? You know, can you talk a little bit more of what you're seeing on the home health side from an organic growth perspective, and how do you think the trends are going moving forward? When we look at it, like on a macro level, the demand for home health obviously has been steadily rising, really driven by that aging population and the preference to receive care in the home. When we look at it, you know, for Pennant, we had very strong organic, really outsized growth in 2024. As we look into 2025, we've modeled, again, some strong growth in the high single-digit range. I think as we continue to be that provider of choice in our local communities, we can expect to continue to see growth year over year as we, you know, continue to provide great care for our patients and be that provider that is able to partner with these higher, with the acute care settings to bring some of that higher acuity and chronic conditions into the home. What do you, when we think about payer mix, what are you seeing in terms of the mix of Medicare Advantage, and how should we think about your contracting efforts going forward? When we look at payer mix, Medicare Advantage makes up about 13% of our overall revenue. That's when we're looking at home health, hospice, and senior living, and about 31% of our revenue for home health, just to kind of paint a bit of the picture of how it looks for our company. We continue to work with our Medicare Advantage payers to really drive rate improvements based on being a quality home health provider that provides quality outcomes and lower preventable hospitalization rates. In 2024, we were able to increase our Medicare, or sorry, our Med Advantage payer rate by about 2.5%. Some of that's driven by the fact that we do have about half of our Medicare Advantage mix is episodic, while the other half is based on a per-visit basis. One of the other things that I'd like to highlight is when we look at that payer mix, it is really driven at the local level. That's not something that we're driving from, you know, a corporate office. Our local home health agencies are able to look at what their payer mix is in their area and, you know, look at their referral sources to really drive the best payer mix that we can possibly have at that local level. Yep. Let's move over to the value-based care contracting. What are you seeing there? You know, kind of how are the models performing? Give us an update there, kind of your thoughts around that. Yeah, on the value-based care front, as we look at going into 2025, roughly 80, actually over 80% of our home health agencies are receiving a positive rate adjustment based on their 2023 results. You know, some of that is mitigated as we bring in acquisitions that may have had those lower clinical outcomes and patient satisfaction prior to our acquisition. Some of that is bringing that down. We continue to really focus on driving that quality care and being able to improve the patient experience in a way that will allow us to continue to take advantage of that value-based care model. Perfect. Let's move over to another leg of the business, the hospice. Can you kind of give us, you know, kind of discuss trends, what you're seeing in the business, and what you're seeing in terms of short and long length of stay patients and your balance on the margins? Obviously, some concerns around the Medicare cap, if you can kind of highlight all those issues. Sure. As we look at, you know, hospice, you know, more on that macro level, we see, you know, there's so many, the baby boomer population is aging into that service. And, you know, in addition to that, we've had some other acquisitions on the hospice front, the acquisitions that we just did with Signature included some hospice. You know, we'll see some growth there on the non-organic front. When we look at the population, those that are eligible for hospice services, we're seeing more and more people electing into being able to receive that hospice care at end of life, with over 52% of the Medicare, those that are electing, they're able to elect this hospice benefit. You know, and I think that we will continue to see that growth across, you know, all of our agencies and being able to grow that hospice as we, because we provide care along the continuum, not just hospice care, but the home health and senior living, we're able to educate our patients and residents on what the benefits of hospice care are. We have seen the benefit of that, of being able to provide care along the continuum. Okay. Mike, I know you asked a little bit about the cap. I can explain to someone on that too. I think, you know, the cap is one of those things that is sort of variable every year, and it's hard to project it. We've sort of had ups and downs. This is a year where, in particular, there were a couple of operations in California that sort of breached that cap number. We feel really good about the way that we track, measure, and respond to any issues related to cap. On an ongoing basis, we don't really see this as a major issue. It did sort of produce at the end of 2024. The other thing to keep in mind is the majority of those are in California. California is a high-reimbursement state. Just because of the nature of the reimbursement and the fact that the cap is sort of universal across states, regardless of the wage index, those higher reimbursing markets tend to be affected. You know, we have local teams that respond pretty quickly. In years past, when we've had issues like this, we've been able to make changes pretty quickly. You know, we don't anticipate nearly the same level of impact in 2025. Certainly going into 2026, you know, we would expect to have more normalized historical rates around cap adjustments. Not a ton of impact there. Perfect. Now, let's move to the third leg, senior living. You know, can you give us an update of where it's at? Then we can touch on what you're seeing in terms of occupancy and kind of where do you see same-store occupancy heading over the next 12 months? Then we'll move over to pricing. Yeah, I appreciate the question, Mike. I think overall, we're pleased. We continue to see recovery and strength building on a lot of our core initiatives from our leadership pipeline and really training and building out a strong leadership force that will provide the foundation for us to build on going forward. We see acquisition opportunities that are attractive both on the value creation front and also a handful of attractive deals where we can step into businesses that are operating fairly well. Overall, I think we are well positioned to continue to take advantage of good tailwinds that are moving us forward. On the occupancy front, you know, on the same-store side, I think we've modeled a pretty steady increase of about 0.5% to 1% over 2025, kind of building quarter over quarter. You know, seasonally, Q1s generally are kind of our low point, and we build through the year, hitting our high in Q3 and then tapering a little in Q4. You know, that's kind of reflected in our modeling as well. That's kind of what we're expecting on that front. On the rate side, you know, 5%-6%, you know, somewhere in that mid-single-digit range in terms of rate growth. In prior years, we've been able to outperform that a little bit. I think we'll continue to find that balance between rate growth and occupancy growth and make sure that our revenue is growing appropriately. Okay. All right. Let's go, you know, to obviously the, you know, kind of the big-picture question on the regulatory environment. That's been obviously, the market's been focused on, you know, Trump 2.0. You know, it seems like, you know, Medicare looks like it's been largely steer clear of any major cuts in the reconciliation bill. But can you kind of speak broadly to the regulatory reimbursement environment and how we should view this at this point in time? Sure. You know, it's obviously dynamic right now. It's like the old joke, if you don't like the weather, wait 15 minutes. I mean, it's kind of you have to check every day what's happening. Generally, when we look at the trends we've seen with this administration, you know, in the past, the Trump 1.0, there are parts of their focus that have been helpful to us. There's generally a deregulatory approach. Some parts of the DOJ approach that are, you know, finding inefficiencies and reducing bureaucracy are consistent with that. You know, immediately when this administration took over, we saw a cancellation of the Hospice Special Focus Program, which was consistent with that general theme. Of course, there's also the fine savings part of their mission, which, like you said, Medicare has been not really in the crosshairs there. There's a statement on the White House website today that says we're not cutting Medicare, Medicaid, or Social Security. Obviously, there are the threats from some of the bills, the reconciliation bill. I would say on that, it's easy to say an aspirational number in a budget resolution, and it's a lot harder to get down to the nitty-gritty and take away benefits from seniors. When you think about that $880 billion number that's in the House resolution on Medicaid, there's a lot of ways that they can get to that. I would say that cutting Medicaid for elderly is low on the list. Most of the proposals we've seen have focused on creating work requirements and attacking fraud, waste, and abuse as opposed to just withdrawing entitlements. On the home health side with Medicare, obviously, since the 2018 Balanced Budget Act, there has been this, you know, generally flat to slightly negative reimbursement trend. I would say similarly on that, there's this building clawback overhang. It is also something that, you know, at this point, it's going to be very politically difficult to try to do some kind of draconian enforcement of that all at once. So far, CMS has recognized that they have time and manner discretion about when and if to apply that. We expect that the trend kind of continues with pretty flat or modest home health rates this year. We just do not see, when it comes down to actually having to go back and face your constituents, it is a lot harder to take a draconian measure that really impacts rural communities, which is a big part of the Republican base. Because if home health and hospice are not available in those communities, I think the representatives will feel it and will hear about it. Do you think the clawback, they're going to kick the can down the field again? Or do you think they can even just, is there a way to actually just get rid of it or, you know, erase it from, you know, potentially occurring? Kind of what's your, you know, more specific thoughts around that? I think, you know, obviously a matter of opinion and speculation, but I think they'll kick the can this year because they have that discretion through 2026. I think there will be a legislative solution eventually because of those access concerns. We are working on that with our industry partners. There's not discretion to just cancel it outright under the current bill, but there are political ways to approach that legislatively or otherwise. Great. That's good color. Let's talk about labor. You know, labor's obviously been a big concern around the industry and the environment over the last few years. Are we back to pre-pandemic levels in terms of the trends going there? You know, what should we be thinking about, you know, wage inflation going forward as well, you know, across the different lines of businesses here? Yeah, great question. We've looked at labor over the last few years, right? We were at 11%, you know, down to about 8% this year, ending at roughly 5% in wage inflation in Q4 of this year over the prior year. As we look into 2025, while we're not down to pre-pandemic levels, we see that labor inflation be roughly in that 4.5%-5% range for the year. Looking more long-term, you know, I do think that we will still see a little bit more tightening where we're able to get potentially down to that 4% range. I do think that that's more of a long-term wage inflation number. I would love to get down to that pre-pandemic level, but I'm not sure if we'll get there in the near term. How is turnover trending at this point in time? Turnover is actually, we've had some really positive momentum on improving our turnover in both the senior living and home health and hospice sides of the business. We've really focused on becoming that employer of choice. Something that we've always been dedicated to is driving that culture that really makes us the place where people want to come work and where they want to stay. We've done a lot of initiatives to drive and enhance our 90-day retention. We found that when you can keep people past that 90 days, they really are able to become immersed in that culture. That's being done on a couple of different fronts. We've talked about our leadership programs. You know, we've built out our leadership programs on both the executive director side, but also on the clinical side. I think that that's really helping to improve some of that turnover just by having, you know, these leaders and these organizations that people are really wanting to come in and work with Pennant and our agencies and senior living communities. Overall, how do you think capacity is positioned relative to demand in the marketplace? I think that there's, you know, we'll still see, you know, some of that impact is, you know, people, there is still somewhat of a nursing or capacity shortage, but I think that that's becoming more normalized. We're seeing the benefits of being that employer of choice in having that, you know, kind of tighter labor environment. Perfect. Let's move over to M&A. Obviously, it's a big part of your strategy. Can you guys discuss the pipeline, what you're seeing in terms of deals, deal sizes, geography, and competition at this point in time? Yeah, I can talk about home health and hospice. I think Andy will talk about senior living. It is a robust pipeline. We see a lot of good opportunities. As we zoom out, you know, we think about our disciplined approach to acquisitions. We start with who do we have a leader? Then we move to, you know, where is it somewhere where we have existing strength and what we call clusters, which are peer operations that can support and help that operation to make sure that the transition is effective and the best practices are shared. What is it a great deal? Is it a good opportunity? Is the pricing right? You know, as you look back five years ago, there was a time where we were having a hard time finding these deals with a lot of private equity competition, a lot of auctions and bidding. We like to get off-market deals. We like to get good deals where the seller is more interested in the legacy, or that's at least one consideration as opposed to just always competing on pricing. We have been successful in finding those deals. One of the ways we do that, you know, our sweet spot acquisition has been a $3 million-$10 million revenue deal with a four-seven times multiple on home health and a five-eight range on hospice. In the last couple of years, there has been a lot less competition as interest rates have affected private equity. I also think there's a regulatory component affecting private equity. More states have introduced legislation that makes it harder for private equity deals to go through and imposes a review process where private equity is usually frowned upon, which does position us well to be competitive because we are long-term holders with a good track record, positive quality scores. We stand out in those processes. Right now, you know, as we look at the last year, we continuously raised the bar in terms of what we could execute. We started the year with a joint venture with Muir Health in California that was a $30 million range deal with more complexity, then we did the Signature deal in August and completed in January at an $80 million purchase price roughly. We were able to successfully transition those. That has been a pretty smooth process, not that it is all the way done. We will obviously report on that at the end of Q1. That was, we view that as a successful deal. We have flexed the muscle now of being able to tackle these bigger deals. I would say that we see a lot of deals right now in the pipeline in our typical sweet spot. We also see some bigger opportunities in our current geography where we think there is a lot of opportunity. We could grow many times just by filling in those spaces. We also are willing to explore new geographies for the right opportunities if we meet those three criteria that we identified earlier or we see a path. Obviously, the CEOs in training, that's a big, you know, ties into this whole effort. Kind of how is that progressing, you know, with your effort to hire more CEOs and clinical leaders and kind of where are you at at this point in time? Last year was a record year in terms of bringing in our CITs. We had nearly 70 CITs go through the program or enter the program. In addition to that, I mentioned it before, but we also launched our clinical leadership training program. We had 40 new entrants into that program and continue to build out that side of the business as well. We have made those investments. We recognize the significant value creation because remember, our model is all about creating opportunities at the local level. If we can get opportunities, whether Kirk talked about it and Andy's talked about it as well, when we go and do a deal, we are actually looking for an opportunity for a local leader to step in and have an entrepreneurial experience. The more really strong leaders that we have in the pipeline, coupled with really strong potential clinical partners, that combination of a strong Executive Director and a strong clinical leader really sets the table for us to have a lot of success and to build these, generally speaking, underperforming or, you know, challenged operations that we typically have acquired. From that perspective, we've made significant investments, like I mentioned. We feel really good about the, you know, the number of CITs, and we call them CITs or clinical leaders. We continue to make those investments. I'd expect similar numbers like we saw in 2024 and 2025. I think the other thing that's really important to identify here is we are structurally organized in portfolio companies. We have six portfolio companies on our Home Health and Hospice side. We have another five portfolio companies on our senior living side. Those leaders and teams are essentially building in their markets. They are the ones who are out recruiting the leaders. They are the ones that are looking for deals. They are the ones that are really driving the growth. A lot of our growth is tied to finding these leaders, but also finding the right opportunities at the local levels to create a pathway for these leaders to have success. This has been our number one priority for the last two years, and it will continue to be our number one priority because, you know, our two avenues for growth are leaders and access to capital. Right now, we have ample access to both. Just to follow on. When you look at your portfolio, you know, your three key segments, what are the keys to unlocking the upside? And, you know, where do you think the largest opportunity exists? Yeah. The great thing is we have a ton of opportunity in all three segments. You have seen this over the last year or two. You know, for most of the pandemic, our investments were in home health and hospice. As we have strengthened and invested in leadership on the senior living side, we have also started to make more and more investments on the senior living side as well. Just to start out, we feel really, really good about where we are at in each of those segments. On the home health side, you know, there continues to be some rate pressure. You know, what we see here is because of that, you know, Kirk talked about the available deals and whatnot, there are a lot more deals at our disposal at favorable valuations. We can continue to make the right strategic investments as long as we have leaders ready to go. The other thing is we can drive margin. Margin is a significant opportunity across the board, but in particular in home health because the reimbursement rates have been relatively flat. There are opportunities to make investments in technology to drive improvement there. You know, I think the other thing is just ensuring we have quality providers. We have significant outperformance on the quality side across most of our operations. We are chosen, whether it is chosen by the community or chosen by payers, because of that. I think that will provide continued opportunities going forward. On the hospice side, same kind of thing. The valuations are a little bit higher, but there is still plenty of opportunity. You know, I think with all of these regulatory and other, you know, challenging, you know, the rate environment has been pretty steady, but not like super robust. There continues to be opportunities to find sweet spot deals there. On that side, it's really just maintaining discipline around finding the right deals and creating the right opportunities for the local leaders. The other thing I would say is there's also performance measures that are being implemented in that space. Where we've always really performed well on the quality side, we think that'll just create additional opportunities for us. Lastly, senior living, Andy talked about this. We have opportunities to grow on an occupancy standpoint. We also can continue to drive revenue quality. Ultimately, it's just driving margin there. You know, just the nice thing, though, is we can grow on the senior living side without really any capital outlay upfront because we can do triple net leases. We also, we've done this a couple of times last year, and we're looking for opportunities this year. There are some favorable real estate transactions that we can start to invest in building out a real estate portfolio as well if it really fits into what we're looking to do. We're running out of time here. One last question, just, you know, kind of a high level. You know, everyone keeps asking about AI, AI. Kind of what do you think of the role of AI in your business model? Is there an opportunity here, and how do you think it can be used going forward? There's definitely an opportunity. We recognize that it has a lot of potential, that there's a lot of processes that are manual that could be significantly enhanced by AI. You have an interesting environment where, you know, some folks are scared of it. Some regulators are scared of it. If you watched the Dr. Oz hearing the other day, he was all about AI. He was talking about AI for CMS again and again. We feel like the regulatory environment is opening up, that there's a bit more of a green light. It's something that we continuously evaluate and will look to invest in and even, you know, build to some degree as we unlock our own technology here. We think it's an important part of the future and an important way that we can impact our margins in a positive way. Great. We are out of time. I appreciate it. This was really useful, very thorough today. Appreciate your time. Good luck the rest of the day. Thank you. Thanks.