The Pennant Group, Inc. (NASDAQ:PNTG) Q4 2024 Earnings Conference Call February 28, 2025 12:00 PM ET Company Participants Kirk Cheney - General Counsel and Corporate Secretary Brent Guerisoli - CEO John Gochnour - President and COO Lynette Walbom - CFO Conference Call Participants Scott Fidel - Stephens Stephen Baxter - Wells Fargo Ben Hendrix - RBC Capital Markets Operator Good day, and thank you for standing by. Welcome to The Pennant Group Fourth Quarter 2024 Earnings Call. [Operator Instructions]. Pleas ...

Group 1 - The Pennant Group, Inc. reported quarterly earnings of $0.24 per share, missing the Zacks Consensus Estimate of $0.25 per share, but showing an increase from $0.22 per share a year ago, resulting in an earnings surprise of -4% [1] - The company posted revenues of $188.89 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.12%, and compared to year-ago revenues of $145.95 million [2] - The stock has underperformed the market, losing about 3.9% since the beginning of the year, while the S&P 500 gained 1.3% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.24 on revenues of $196.7 million, and for the current fiscal year, it is $1.08 on revenues of $809.14 million [7] - The Medical - Outpatient and Home Healthcare industry is currently in the top 31% of Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - The estimate revisions trend for The Pennant Group is mixed, resulting in a Zacks Rank 3 (Hold), suggesting the shares are expected to perform in line with the market in the near future [6]

Financial Performance - Total revenue for fiscal year 2024 was $695.2 million, an increase of $150.3 million or 27.6% year-over-year, and for Q4 was $188.9 million, an increase of $42.9 million or 29.4% year-over-year[3] - Net income for fiscal year 2024 was $22.6 million, an increase of $9.2 million or 68.6% year-over-year, and for Q4 was $5.8 million, an increase of $1.4 million or 32.4% year-over-year[3] - Adjusted EBITDA for fiscal year 2024 was $53.3 million, an increase of $12.6 million or 30.9% year-over-year, and for Q4 was $13.8 million, an increase of $1.9 million or 16.1% year-over-year[3] - Total revenue for the year ended December 31, 2024, was $695,240 thousand, a 27.5% increase from $544,891 thousand in 2023[25] - Total revenue for Q4 2024 reached $188.892 million, a 29.4% increase from $145.954 million in Q4 2023[35] - Non-GAAP net income for Q4 2024 was $8.494 million, up from $6.635 million in Q4 2023, reflecting a 28% increase[38] - Adjusted diluted earnings per share for the year ended December 31, 2024, was $0.94, compared to $0.73 in 2023, representing a 28.5% increase[38] Segment Performance - Home Health and Hospice Services segment revenue for fiscal year 2024 was $519.5 million, an increase of $125.0 million or 31.7% year-over-year, and for Q4 was $142.0 million, an increase of $35.1 million or 32.9% year-over-year[3] - Senior Living segment revenue for fiscal year 2024 was $175.8 million, an increase of $25.3 million or 16.8% year-over-year, and for Q4 was $46.9 million, an increase of $7.8 million or 20.0% year-over-year[7] - Hospice average daily census for fiscal year 2024 was 3,268, an increase of 661 or 25.4% year-over-year, and for Q4 was 3,445, an increase of 649 or 23.2% year-over-year[7] - Segment revenue for Home Health and Hospice Services increased to $141,849,000 in Q4 2024 from $104,990,000 in Q4 2023, representing a growth of 35%[46] - Segment revenue for Senior Living Services rose to $46,871,000 in Q4 2024 from $38,748,000 in Q4 2023, marking an increase of 21%[46] - Total segment revenue for the year ended December 31, 2024, reached $695,240,000, up from $544,891,000 in 2023, reflecting a year-over-year growth of 28%[46] Guidance and Future Outlook - 2025 total revenue guidance is anticipated to be between $800.0 million and $865.0 million, with adjusted earnings per diluted share expected between $1.03 and $1.11[6] - The midpoint of 2025 earnings guidance represents 13.8% growth on 2024 adjusted earnings per share and 46.6% growth over 2023 results[7] - The company plans to continue expanding its market presence and investing in new technologies to enhance service delivery and operational efficiency[48] Cash Flow and Balance Sheet - The company ended the year with record-setting cash flows from operations, enhancing its balance sheet for future growth opportunities[4] - Total assets increased to $679,521 thousand as of December 31, 2024, up from $539,691 thousand in 2023, representing a growth of 25.9%[19] - Net cash provided by operating activities was $39,298 thousand in 2024, up from $33,090 thousand in 2023, reflecting a growth of 18.7%[22] - The company reported a net increase in cash to $24,246 thousand at the end of 2024, compared to $6,059 thousand at the end of 2023[22] - Total equity grew to $311,965 thousand in 2024, up from $145,515 thousand in 2023, indicating a significant increase of 114.4%[19] Liabilities and Expenses - Total current liabilities increased to $101,700 thousand in 2024 from $71,549 thousand in 2023, a rise of 42.1%[19] - Unallocated corporate expenses for Q4 2024 were $11,747,000, compared to $8,208,000 in Q4 2023, reflecting an increase of 43%[46] - The company incurred share-based compensation expenses of $2.425 million in Q4 2024, compared to $1.401 million in Q4 2023[38] Medicare and Revenue Sources - Average Medicare revenue per 60-day completed episode rose to $3,677 in 2024, a 6.0% increase from $3,468 in 2023[29] - Medicare revenue for Q4 2024 was $90.116 million, accounting for 47.7% of total revenue, compared to $70.915 million (48.6%) in Q4 2023[35] - Managed Care revenue for Q4 2024 was $26.613 million, up from $20.210 million in Q4 2023, indicating a 31.6% growth[35] - Private and Other payors revenue for Q4 2024 was $46.845 million, representing 24.8% of total revenue, up from $33.947 million (23.3%) in Q4 2023[35] Tax and Income from Operations - The effective tax rate for the year ended December 31, 2024, was 25.2%, slightly lower than 25.8% in 2023[41] - The company reported income from operations of $9,236,000 for Q4 2024, up from $7,567,000 in Q4 2023, a growth of 22%[46]

Revenue Growth and Market Trends - Home health and hospice services revenue grew by 669.0% from 2014 to 2024, representing a compounded annual growth rate of 22.6%[39] - The home health market is projected to grow at a CAGR of 8.0% from 2024 to 2030, while the hospice industry is estimated to grow at a CAGR of 8.1%[45] - The over-65 population in the U.S. is projected to increase by nearly 54% to 89 million by 2060, driving demand for home health and senior living services[46] - For the year ended December 31, 2024, the company generated 74.7% of its revenue from home health and hospice services and 25.3% from senior living services[72] Payor Mix and Revenue Sources - As of December 31, 2024, 64.7% of home health and hospice segment revenue was generated from Medicare, a slight decrease from 67.7% in 2022[31] - Medicare accounted for 48.3% of total revenue in 2024, with Medicaid contributing 13.2% and managed care at 13.3%[57] - The blended payor mix as of December 31, 2024, was 48.3% Medicare, 13.2% Medicaid, 13.3% managed care, and 25.2% private pay and other[72] - Senior living services revenue is primarily derived from private pay residents, with Medicaid programs supplementing payments in some cases[113] Operational Strategy and Growth - The company plans to pursue a disciplined acquisition strategy to expand its footprint in fragmented markets, targeting underperforming operations with high upside potential[36] - From 2014 to 2024, the company grew senior living units by 149.5%, reflecting a strategic focus on expanding service offerings[41] - The company adheres to a disciplined acquisition strategy, having successfully transitioned dozens of value-add operations[70] - The company aims to leverage operational capabilities to expand partnerships and improve clinical outcomes through data analytics[37] Workforce and Employee Management - The company had approximately 7,000 employees as of December 31, 2024, with 67.7% of total expenses being payroll related[73][75] - The company is committed to ongoing training and leadership development to attract and retain qualified leaders and caregivers[69] Quality and Compliance - The average rating for the company's home health agencies was 4.1 out of 5 stars, compared to the industry average of 3.0 stars for the year ended December 31, 2024[71] - Home health agencies must submit quality reporting data through OASIS assessments within 30 days, or face a 4% reduction in annual payments[86] - Agencies that do not participate in CAHPS surveys incur a 4% reduction in their annual base rate payment update[87] - The average star rating for home health agencies is 4.1 out of 5, compared to the industry average of 3.0 stars[88] - The company has a compliance program to ensure adherence to federal, state, and private healthcare program requirements[106] - The company is subject to extensive regulatory inspections, with unannounced surveys occurring at least annually at independent operating subsidiaries[107] - Operations with poor regulatory histories may face sanctions from CMS or state regulators, impacting future performance[108] - The company maintains a HIPAA compliance plan to adhere to patient health information confidentiality regulations, which incurs significant costs[109] Regulatory Environment and Challenges - The Hospice Payment Final Rule for fiscal year 2025 includes a payment update percentage of 2.9%, estimated to increase payments by $790 million from fiscal year 2024[80] - The Home Health Payment Final Rule for calendar year 2025 has a payment update percentage of 2.7%, resulting in an estimated increase of $445 million from calendar year 2024[81] - The expanded HHVBP model could result in payment adjustments of up to 5% in FY 2025 based on FY 2023 performance[91] - The hospice cap amount for FY 2025 is set at $34,465.34, reflecting a 2.9% increase from FY 2024[96] - Failure to report standardized assessment data under the IMPACT Act may lead to a 2% reduction in market basket prices[97] - The Hospice Special Focus Program will survey selected hospices at least semiannually for 18 months[94] - Compliance with Medicare rules under the Review Choice Demonstration allows for additional choices after demonstrating compliance[93] Competitive Landscape - The company faces increased competition in the post-acute care industry, which is expected to become more competitive in the future[63][65] - The company’s innovative operating model emphasizes local decision-making and team building, which is a key competitive strength[68] Environmental and Legal Considerations - California's SB 253 requires companies with annual revenues of $1 billion or more to disclose greenhouse gas emissions starting in 2026[111] - The company is exposed to antitrust laws, with increasing enforcement activity that could lead to civil and criminal liabilities[112] - The company faces various environmental regulations, including air and water quality control and hazardous waste management[114] - The company entered into an Amended Credit Agreement with a borrowing capacity of $250 million, managing interest rate risk associated with market changes[261]

Core Insights - The Pennant Group, Inc. reported strong financial results for the fiscal year and fourth quarter of 2024, with total revenue reaching $695.2 million, a 27.6% increase from the previous year [2] - The company achieved GAAP diluted earnings per share of $0.70 for the year and $0.16 for the fourth quarter, alongside adjusted diluted earnings per share of $0.94 for the year and $0.24 for the quarter [1][2] - The management anticipates continued growth in 2025, projecting total revenue between $800 million and $865 million and adjusted earnings per diluted share between $1.03 and $1.11 [6][7] Financial Performance - Total revenue for the full year was $695.2 million, an increase of $150.3 million or 27.6% over the prior year, and for the fourth quarter was $188.9 million, an increase of $42.9 million or 29.4% over the prior year quarter [2] - Net income for the full year was $22.6 million, an increase of $9.2 million or 68.6% over the prior year, and for the fourth quarter was $5.8 million, an increase of $1.4 million or 32.4% over the prior year quarter [2] - Adjusted EBITDA for the full year was $53.3 million, an increase of $12.6 million or 30.9% over the prior year, and for the fourth quarter was $13.8 million, an increase of $1.9 million or 16.1% over the prior year quarter [2] Segment Performance - Home Health and Hospice Services segment revenue for the year was $519.5 million, an increase of $125.0 million or 31.7% over the prior year, and for the fourth quarter was $142.0 million, an increase of $35.1 million or 32.9% over the prior year quarter [2] - Senior Living segment revenue for the full year was $175.8 million, an increase of $25.3 million or 16.8% over the prior year, and for the fourth quarter was $46.9 million, an increase of $7.8 million or 20.0% over the prior year quarter [2] Operational Highlights - Total home health admissions for the full year were 59,741, an increase of 16,233 or 37.3% over the prior year, and for the fourth quarter were 15,959, an increase of 4,631 or 40.9% over the prior year quarter [2] - Hospice average daily census for the full year was 3,268, an increase of 661 or 25.4% over the prior year, and for the fourth quarter was 3,445, an increase of 649 or 23.2% compared to the prior year quarter [2] - Average occupancy for the Senior Living segment for the fourth quarter was 78.6%, a decrease of 40 basis points over the prior year quarter, while average monthly revenue per occupied room for the fourth quarter was $4,961, an increase of $393 or 8.6% over the prior year quarter [2] Future Guidance - The company expects adjusted EBITDA for 2025 to be between $63.1 million and $68.2 million, reflecting management's expectations based on 2024 performance and current operating conditions [6][8] - The earnings guidance midpoint of $1.07 represents a 13.8% growth on 2024 adjusted earnings per share and a 46.6% growth over 2023 results [7]

Core Viewpoint - Analysts project that The Pennant Group, Inc. (PNTG) will report quarterly earnings of $0.25 per share, reflecting a 13.6% increase year over year, with revenues expected to reach $186.81 million, a 28% increase from the same quarter last year [1]. Earnings Estimates - Over the last 30 days, there has been no revision in the consensus EPS estimate for the quarter, indicating that analysts have not changed their initial forecasts during this period [2]. - Changes in earnings estimates are crucial for predicting investor reactions to the stock, as empirical research shows a strong correlation between earnings estimate revisions and short-term stock price performance [3]. Revenue Projections - The consensus estimate for 'Revenue- Total home health and hospice services' is projected at $141.45 million, representing a 32.3% increase from the year-ago quarter [5]. - Analysts estimate 'Revenue- Senior living services' to reach $45.37 million, suggesting a 16.1% year-over-year change [5]. - The average prediction for 'Revenue- Home health and hospice services- Home care and other' is $12.33 million, indicating an 88.1% increase from the prior-year quarter [6]. - The consensus estimate for 'Revenue- Home health and hospice services- Hospice' is $65.33 million, reflecting a 20.1% increase from the year-ago quarter [6]. - Analysts project 'Revenue- Home health and hospice services- Home health' to arrive at $63.79 million, indicating a year-over-year change of 38.9% [7]. Stock Performance - Over the past month, shares of The Pennant Group have returned -3.4%, compared to the Zacks S&P 500 composite's -2.3% change [7]. - Currently, PNTG holds a Zacks Rank 3 (Hold), suggesting that its performance may align with the overall market in the near future [7].

Group 1 - The recent minor pullback in gold prices followed a record high of $2,943, indicating a potential double top pattern [1] - Despite bearish trading activity, today's bullish price action suggests that the negative implications may have lessened, allowing for another attempt to rise [2] - A bull pennant pattern has formed on the daily chart for gold, with a rise above today's high of $2,937 signaling bullish potential [3] Group 2 - A sustained breakout above the bull pennant could confirm a bullish reversal, especially after the failed breakdown last Friday [4] - The situation surrounding a breakout above the $2,943 high indicates potential bearish pressure, as evidenced by a shooting star candlestick pattern from last week [5]

Group 1 - The Pennant Group, Inc. will release its fourth quarter and full year 2024 financial results on February 27, 2025 [1] - A live webcast for discussing the financial results is scheduled for February 28, 2025, at 10:00 a.m. Mountain Time [2] - The webcast will be available for replay until February 27, 2026 [3] Group 2 - The Pennant Group operates independent subsidiaries providing healthcare services, including home health, hospice, and senior living across multiple states [4]

Core Viewpoint - The Pennant Group, Inc. has acquired three senior living facilities in Idaho and Texas, enhancing its national footprint and commitment to quality care for seniors [1][2][3] Group 1: Acquisition Details - The acquisition includes one facility in Idaho under a triple net lease with an option to purchase, and two facilities in Texas under long-term triple net leases [1] - The acquisitions add 188 units to Pennant's operations, which include both assisted living and memory care services [2] Group 2: Strategic Importance - These acquisitions are part of Pennant's strategy to meet the increasing demand for senior living services and to provide personalized, high-quality care [2] - The CEO emphasized the importance of these facilities in expanding operations in key markets and creating vibrant communities for seniors [3] Group 3: Company Overview - The Pennant Group operates through independent subsidiaries providing healthcare services across multiple states, including Arizona, California, and Texas [4]

Core Insights - The Pennant Group, Inc. has acquired three senior living facilities in Idaho and Texas, effective February 1, 2025, enhancing its operational footprint and service offerings [1][2][3] Group 1: Acquisition Details - The acquisition includes one facility in Idaho under a triple net lease with an option to purchase, and two facilities in Texas under long-term triple net leases [1] - The transactions add 188 units to Pennant's operations, which include both assisted living and memory care services [2] Group 2: Strategic Commitment - These acquisitions reflect Pennant's commitment to expanding its national presence and improving the quality of care for senior residents [2][3] - The company aims to meet the increasing demand for senior living services, reinforcing its mission to provide personalized, high-quality care [2] Group 3: Leadership Statements - CEO Brent Guerisoli emphasized that these acquisitions are a significant step in expanding operations in key markets [3] - Andrew Rider, President of Pinnacle Senior Living LLC, highlighted the focus on long-term growth and exceptional care for residents in the newly acquired facilities [3]