The Pennant Group, Inc.

Good day and thank you for standing by. Welcome to the PAN Group 3rd Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today Mr. Derek Bunker, please go ahead.

Thank you, Chino, and welcome, everyone. Thanks all for joining us today. Here with me today, I have Danny Walker, our CEO, Brent Gersoli, our president, Jen Freeman, our CFO, and John Gochner, our COO. Before we begin, I have a few housekeeping matters. With all the press release and 10Q yesterday, for our third quarter earnings. This announcement is available on the investor relations section of our website at tenantgroup.com. A replay of this call will also be available on our website until 5 p.m. Mountain Time on Friday, December 10th, 2021. We want to remind anyone that may be listening to a replay of this call that all statements are made are as of today, November 9th, 2021, and these statements have not been or will they be updated subsequent to today's call. 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, 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 the service center, provide accounting, payroll, HR, IT, 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 in 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 tenant group has direct operating assets, employees, or revenue, or that any of the subsidiaries are operated by the tenant 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. They should not be relied upon to the exclusion of GAAP reports. A gap to non-gap reconciliation is available in yesterday's press release and in our 10Q. With that, I'll turn the call over to Danny Walker, our CEO. Danny.

Thank you, Derek, and welcome, everyone, to our third quarter 2021 earnings call. Thank you for joining us today to discuss our third quarter results and, more importantly, the steps we are methodically taking to return to the healthy growth rate we've achieved over much of our history. These ongoing multifaceted efforts will position us for a stronger 2022. We're grateful for our frontline employees and resources that continue to provide exceptional care to the 23,000 patients and residents we served during the third quarter. Our third quarter results are sobering, given the high expectations we established for ourselves. and have caused us to review our actions to identify missteps we've taken over the past two years as a public company. In general, the demands of completing the spinoff successfully, the high volume of home health and hospice acquisitions, the leadership overhaul of our senior living segment, and the investment of time and resources in early stage new business measures, all when coupled with the unique pressures of the COVID-19 pandemic have diluted our effectiveness. at operating to our standards. Throughout our history, we have gone through periods of substantial growth followed by periods of retrenchment and concerted focus on organic growth. We know that sustainable clinical and financial results are achieved when our investment activity is well calibrated with the health of our current operations and bandwidth of our leaders and resources. We haven't struck this delicate balance well enough over the past 18 months. We are taking immediate actions to, one, ensure that each local team is executing at a high level without distractions. Two, retrench around the core opportunities across both segments. And three, reinforce the core principles of our operating model that have led to our historical success. We believe that these efforts will yield significant results in the short term and ensure long-term health. Now turning first to our home health and hospice segment performance, we continue to produce solid results with segment revenue up 14.6 million or 22.7% and adjusted EBITDA up of 0.05 million or 3.9% both over the prior year quarter. Our third quarter results reflect both the strength of our same store agencies and the challenges of integrating a large number of new acquisitions. The operating environment in the third quarter was impacted by the rise in COVID-19 cases in several of our key markets and the ongoing labor pressures across the platform. For example, in the third quarter, total home health admissions declined 5.7% from the second quarter, nearly a quarter of of which relate to the delay in elective procedures in key markets such as Arizona, Idaho, Utah, and the Dallas-Fort Worth Metroplex, where we've recently acquired home health agencies. Approximately 80% of our decline in our total home health admissions is attributable to agencies acquired over the past 24 months. Our hospice business continued to produce steady results despite similar pressures. related to COVID-19 and our recent acquisitions. Excluding agencies acquired within the past 12 months, our hospice admissions increased 12% in the third quarter over the prior year quarter and average daily census increased 1.4% over the prior year quarter. When we see a spike in COVID-19 cases like we saw in the latter half of the third quarter, it temporarily impacts our ability to admit and increases our cost of services as more and more staff our enter quarantine protocol. As COVID-19 cases normalized in our markets as we exited the third quarter, we are beginning to see traction in our home health business, evidenced by an 8.7% increase in total admissions in October over September. The bedrock of our confidence in continued growth and our long-term health is our relentless focus on providing exceptional clinical care to our patients and residents. We continue to achieve high marks in several quality scores across our home health and hospice segment, with an average home health star rating of 4.23 stars according to CMS and 4.4 stars according to real-time third-party analytics. Our hospice quality composite score continues to trend well at 95% at the end of the third quarter compared to the reported national average of 90%. Our emphasis on clinical outcomes will be increasingly rewarded as the home health value-based purchase model is rolled out nationwide through the expansion of hospice and through the expansion of hospice quality reporting programs Since 2018, 12 of our agencies have participated in the home health value-based purchasing model in Washington, Arizona, and Iowa, and we achieved net positive revenue adjustments each year. Just as we have successfully prepared for and navigated the implementation of the patient-driven groupings model, or PDGM, and prior reimbursement program changes, We look forward to the opportunity presented by the nationwide home health value-based purchasing model and related value-based reimbursement models to demonstrate and be rewarded for the clinical quality of care that our talented teams provide. In our senior living segment, the ongoing effort to support our leaders in executing within our unique operating model continues. The improvement we achieved in the second quarter and believed would continue into the third quarter was disrupted by the sharp rise in COVID-19 cases, particularly in the markets where our senior living communities are concentrated. During the quarter, the spike in COVID-19 cases also amplified the labor pressures we've felt across our senior living communities for most of 2021. There are several levers we are pulling to help address these pressures directly and help offset their impact. And now that we've completed the implementation of our full suite of IT systems, the tools and analytics available are improving our sales and marketing processes, wellness delivery, and labor management. As we build stronger senior living operations, move past the worst of COVID-19, and begin serving a growing addressable senior population, our senior living segment has the potential to be a source of strength for Pennant. As we announced in our press release yesterday, we are providing guidance for the full year of 2022. We anticipate full year revenue in the range of $468 million to $478 million and adjusted earnings per share in the range of $0.75 to $0.82. As we consider the impact that COVID-19 has had on our businesses over the past 18 months, We believe and have assumed in our guidance some ongoing pressure, similar to what we've experienced in 2021. We also believe that the external effects we experienced in the third quarter are more transitory and likely to dissipate as cases normalize. Our guidance assumes accelerated results in our recent acquisitions, more in line with our historical transition rate, continued growth in our home health and hospice same-store agencies, and incremental improvement in our senior living segment. With that, I would just say that our hope remains strong in our long-term value proposition, and we're deeply grateful for the team members in the field and at the service center that are making the important changes that need to take place for us to unlock that value and opportunity for our shareholders. With that, I'll ask Derek to provide an update on our recent investment activity. Derek?

Thank you, Danny. During the third quarter, we announced the acquisition of one hospice agency in Texas, bringing the total number of new operations since the beginning of 2020 to 27. As Danny mentioned, the sheer number of new operations acquired immediately before and during the pandemic, coupled with the ongoing pressures in our senior living segment, caused some short-term chop in our operating results. The complexities of the current environment, including elective procedure delays and markets in which we've acquired new agencies, stretched many teams that are new to our operating model, contributing to the delays in our expected performance ramp. Much of this pressure appears temporary, and we remain confident in the underlying fundamentals of our acquisitions, each of which have the potential to contribute in a meaningful way to our long-term results, just as many of our existing agencies continue to grow year after year. Our growth strategy often leads to bursts of activity when we are opportunistically deploying capital toward acquisitions led by talented local leaders. Following such periods of high activity, our priority is ensuring that these new teams are transitioned into our unique operating model in a way that would lead to years of successful results. As we focus the energy of our local leadership teams, refocus the energy of our local leadership teams, retrench around our core business opportunities, and reinforce the principles of our operating model, we will create a stronger foundation from which to pursue growth opportunities in 2022. With that, I'll pass it to Jen for a review of the financials. Jen?

Thank you, Derek, and good morning, everyone. Detailed financial results for the three months ended September 30th, 2021 are contained in our 10Q and press release filed yesterday. The three months ended September 30th, 2021, we reported total GAAP revenue of 111.9 million, an increase of 13.5 million or 13.7% over the prior year quarter. GAAP diluted earnings per share of 4 cents and non-GAAP adjusted earnings per diluted share of 11 cents. Please note that our non-GAAP adjusted earnings per share results for the three months ended September 30th, 2021 include the benefit of the Medicare sequestration holiday, as well as the effects of all COVID related expenses and lost revenue. While difficult to perfectly capture all such expenses and lost revenue, we estimate that our third quarter results were negatively impacted by COVID-19 in the amount of approximately $2.3 million in lost revenue. at least 0.3 million in specifically identified expenses across both segments, and approximately 1.6 million increase in wages, including overtime, compared to the second quarter. The combined impacts on our business will likely continue to impact our results through the end of the year, which we have considered in our updated guidance released on November 1st. Key metrics for the quarter ended September 30th, 2021 include 101.7 million remaining on our revolving line of credit and 3.7 million cash on hand at quarter end. 1.31 times net debt to adjusted EBITDA and 1.75 times if Medicare advance payments had been paid back as of the quarter end. Automatic recoupment of the advance payments began in April 2021 on which we have repaid $17.6 million through November 5th, 2021. And we expect to repay the remaining $10.4 million over time within the payback period. Cash flows provided from operations of $1.5 million, excluding the impact of the automatic recoupment of advance payments and the impact of the final phase-out of the request for advance or anticipated payment. As Danny mentioned yesterday in our press release, we provided full year 2022 guidance of revenue of $468 million to $478 million and adjusted earnings per share of $0.75 to $0.82. Our guidance is based on diluted weighted average shares outstanding of approximately $31.7 million and a 26.1% effective tax rate. In addition, the guidance assumes, among other things, anticipated reimbursement rate adjustments, no unannounced acquisitions, and the estimated ongoing effect of COVID-19. It excludes costs at startup operations, share-based compensation, and acquisition-related costs. In our guidance development, we considered the reality of how COVID has impacted our operations. Our 2022 guidance includes incremental improvements in our segments throughout the year, recognizing some revenue growth and accounting for the lingering effects of COVID on our census and occupancy, as well as cost through 2022. We have looked through the lens of the two COVID peaks that we experienced in 2021 and included moderate recovery throughout the 2022 calendar year. 2020 proved to be less challenging than 2021 and in some ways we benefited in the early days of the pandemic. COVID impacted our markets more heavily in 2021 compared to 2020. Although predicting the impact of COVID is difficult, we have used our experience in 2021 to create a better picture of what to expect in 2022. With that in mind, we included moderate revenue growth and slight improvement over our 2021 adjusted cost of service as a percentage of revenue. Despite the setbacks in 2021, our local leaders have proven to be adept at adjusting to challenging environments. With a focus on our core principles, retrenching to focus on our core opportunities across both segments, and emphasis on execution, I am confident their results can match our historical success. And with that, I'll hand it over to Brent to highlight a couple of our local leaders.

Thank you, Jen. It's great to be with all of you today. It's my pleasure to acknowledge the tremendous accomplishments of a few leaders in our organization. At Preceptor Home Health and Hospice in Milwaukee, Wisconsin, Chief Executive Officer Sarah Martel and Chief Clinical Officer Shelley Darmody have built an incredible culture of success. In the early days of the pandemic, Sarah, Shelley, and the preceptor team developed solutions tailored to the unique needs of the communities they serve, quickly increasing their reputation as the provider of choice. Their leadership has led to consistently strong financial and clinical results, including revenue growth of 36% in the third quarter over the prior year quarter, and EBIT growth of 38% over the same period. They've also improved their CMS star rating to four stars on a real-time basis. The preceptor team also exemplified our core value of ownership and supported the delivery of quality care at several of our senior living communities across the state of Wisconsin, building a strong continuum of care to better serve our residents, patients, and their families. Staying in Wisconsin, Executive Director Jeanne Brogni, Wellness Director Susie Carr, and the whole leadership team at Brenwood Park Assisted Living in Franklin, Wisconsin have shown it's possible to grow in the midst of a historically challenging operating environment. Jeanne and team have helped lead Brenwood Park to revenue growth of 16% in the third quarter over the prior year quarter and occupancy growth of 8% over the same period. This strong top-line growth occurred during a period when many other communities saw significant pressure on occupancy. The Brentwood team also focused on managing their business effectively while providing quality services to their residents, contributing to the EBIT growth of 39% through the first three quarters of 2021 over the same period of 2020. Jeannie and Susie are examples of what can be accomplished by executing in our unique operating model and achieving success even in very difficult operating environments. With that, I'll turn it back to Danny.

Thank you, Brent, and thank you, Derek and Jen, for your contributions today. I'd also like to just express, again, our gratitude for the Pennant team members throughout the organization that are fighting through the current complexities of the operating environment to ensure short-term results improve and maintain long-term health in the process. We also want to express gratitude to our long-term-minded shareholders for their continued belief in our ability to work through these temporary headwinds and drive and unlock the long-term value proposition that we believe so deeply in. Thank you all. Chino, can you please instruct the audience on the Q&A procedure, please?

All right, so as a reminder, if you would like to ask a question, please press star one on your telephone. And if you would like to resolve your question, press the pound key. Again, that is star one on your telephone. Please stand by while we compile the Q&A roster. First question comes from the line of Scott Fidel from Stephens. Your line's now open.

Hi, thanks, and hi, everyone. First question, just wanted to just drill into the 2022 guidance and just as it relates to the implied margin improvement that you're targeting for next year. It works out to around an implied 150 basis points of adjusted EBITDA margin improvement in the guidance. And just interested if you can talk about the tempo of that margin improvement. Do you see this sort of playing out just readably, you know, throughout the year, or is there some seasonality that you're expecting, you know, in the sort of the tempo of that margin improvement that you're baking into the guidance?

Yes, Scott. Thank you for your question. This is Jen. We are anticipating that the margins will improve throughout the year and that our seasonality would be in line with our typical seasonality. So, we do have cost pressures that occur in the third quarter. We do have some seasonality as well in the second and fourth quarter, so we would expect that seasonality to occur with a margin improvement increasing throughout the year.

Okay, and then just a follow-up, just one on each of the segments, if I could. First, just on the home health and hospice business, what you're estimating the Pennant-specific home health rate increase would be. You know, CMS had talked about a 3.2% rate increase for the industry. Just interested if it's what you're estimating with all the puts and takes for Pennant. And then any thoughts that you could give us on some of the same store volume assumptions that you may be thinking about for HHH in 2022?

Yeah, so on the rate increase, we – Estimated a rate increase of about 2.3%. And with that, we are also assuming in our guidance that the sequestration holiday goes away. So that sequestration is reinstated. So sort of a flat rate year-over-year assumption is on that side on the rate. On the volume, we do anticipate that our volume would increase and our revenue would continue to grow, both in our same store and our acquisitions. I think we have a lot of margin opportunity in our acquisitions, as Danny mentioned. And in our same store, we are anticipating our normal growth that we would expect year over year. So it's around about a 10% to 11% increase in the home health and hospice segment.

And I'll just add, Scott, maybe John Dockner can comment a little bit on that. The way the operating environment has affected our same store operations in home health versus the new acquisitions is fairly meaningful. So, John, do you want to?

Yeah, I'm happy to comment a little bit on that, Scott, and I appreciate the question. I think our expectations and what I think our results show throughout the year is that where we've had an operation for a consistent period of time, the opportunity to develop a team, we've been able to really meet these headwinds and move through them. And you see that in some of the strengths we've shown year over year from the admissions side. A lot of the opportunity and kind of the untapped potential in our portfolio resides in these acquisitions that we've talked about. And those are acquisitions that have occurred over the last two years. And we've talked for a long time about how that's often a nine-quarter process of moving through sort of taking an acquisition that is relatively weak from a margin standpoint, from a clinical standpoint, and transforming that to operate at our level. And I think what we've experienced through some of the headwinds of COVID and the labor situation we've been facing is is that's taken a little bit more time. So the untapped potential is there, and I think that's why we're very optimistic in that margin expectation. We feel like there's a lot of untapped potential that we can reach.

Yeah, thanks, John. We've weathered the storm really well on the same storefront, and we look forward to providing even more clarity on same store versus new store in the future.

Ken? Scott, I just wanted to provide a clarification. So the rates that I was quoting about what the impact of the rule was on us was actually on the proposed rule. Home care and home base is still updating with the final rule. So we should be able to have that estimate this week sometime.

Okay, got it. So I would assume there's probably a tad of upside then, right, to that 2.3% right there and just didn't win the final Q&A. Okay, I'll get back in the queue and let others ask questions. Thanks.

Okay. Okay.

All right, next one on the queue is Frank Morgan. Your line is now open.

Good morning. I guess being on that subject of margins, could you maybe talk about sort of the relative weight and contribution between this, you know, the same store portfolio that you've had the two years or more or nine quarters, whatever the measure is. Like what's the relative weight of that in the enterprise versus all the things that you have bought in the last, It would be sort of in the non-same-store bucket. What's the weighting there? And then what, on a relative basis, I mean, are we talking about a margin differential of 500 bips or 800 bips or just any help there would be appreciated? And that's my first question.

Yeah, you know, great question, Frank, and we appreciate it. I think what you're seeing is a pretty significant differential between those two, and that's driven primarily by a couple of large acquisitions that we've done and that have underperformed from a margin standpoint. And so our same store, those acquisitions that we've carried for a while, they've faced some of the same labor pressures, they've been impacted, but they've managed really well through it. And when you look at a couple of these acquisitions, and I'll highlight our joint venture with Scripps, which was included in this quarter's financials, and you see a pretty significant revenue boost from that acquisition, about $3.4 million in the quarter, but you see a very minimal margin on that business. And I think the untapped potential that's reflected in that acquisition, that we've increased, at that acquisition, we've increased the census by 32% since we took it over. We've increased the quality outcomes. There's tremendous opportunity that exists. And our direct costs have declined by about 13%. during that same period. And so we expect to see that untapped potential start to be realized really effectively both in the fourth quarter and into the first quarter of next year. And so there's some significant upside in that new store bucket, while our same store has performed really well. Jen, do we have an exact number?

Yeah, so if you were looking at your EBITDA margin on same store, it's 18.3% year-to-date compared to our acquirers, about 6.5%.

And then the percentage, I think Frank was asking the percentage that are in our, what we're going to call new store bucket versus same store, 27 of those, roughly about a quarter. Yeah, so Frank, that's there. And then on the margin, I guess you provided that perspective on the margin.

And I'm sorry, the quarter, what is the quarter? Is that the same store or the new store?

New store is about 25% of our total operations.

Okay. And that's of agencies or I guess, yeah, maybe it's on agencies. Yeah. Yeah. Okay. Gotcha. So it sounds like that a lot of this, you know, similar pressures, is it fair to say that it's just basically the lack of having a seasoned management team in place at all these locations or is Was there just something that happened above and beyond the impact of COVID, which is obviously not insignificant, but was there anything else that happened, just some kind of unexpected integration issue?

No, none of those kinds of unexpected integration issues. It really is the complexities of the COVID environment within a new management team that you know, you're having to deal with quarantine, vaccination processes, and then in a number of the states that we're in where we did new acquisitions, you know, elective procedures were shut down for a period of time in the quarter. The combination of all of that is just our seasoned leadership teams navigate those complexities and have much better than our newer teams. But there's not been any you know, major disruption to our normal acquisition process. We're just performing behind where we expected to. Uh, and we, you know, frankly, we don't like to attribute it to external factors. We, we're looking hard at the ways we have made missteps, things that we control and we see opportunities for improvement. We're, we're making those changes, um, and learning from that process. But, um, But really, that's the story is that, you know, it's like a rookie season being a little tough for somebody or a sophomore season, you know, and that's what's going on.

Gotcha. Maybe just two more and I'll hop. Just curious, the rate growth in hospice was remarkably strong, up about 6.1% per day. Any color on what's driving that? And then also just on the senior living side, I appreciate the color you gave about how things are going in October on the home health care side, but any updated color on occupancy trends in senior living? Thanks.

Yeah. Well, on the hospice front, you know, this Scripps acquisition that we've talked about, it's a joint venture, and we're really excited about its overall trajectory. A lot of those patients are first period discharges. We've seen a, you know, not just in that pocket of the organization, but across the board, we've seen an increase of referrals from our higher acuity setting and actually a decline of you know, referrals in that sort of mid-tier where SNFs typically reside. Most of that is just a function of what's been happening in the hospital systems and what's been happening overall in the post-acute census world. So that's really the main story, unless there's something to add from Jen or John. And then on the occupancy side on senior living, I'll have Brent tackle that one.

Yeah, so we saw pretty sustained growth up until the middle of September, August-September timeframe, and then we started to see a dip, partially because of COVID, and there's some seasonality in that as well. So right now, we're still being impacted by COVID, and so we anticipate that it'll be There may be some occupancy pressures going into the end of the year from a seasonality standpoint. November and December tend to be a little bit tougher generally, but then things will pick back up at the beginning of the year.

And Frank, I'd add one more piece of color just on that hospice rate opportunity, and that is that as we have grown, Our geographies have changed a little bit. So our traditional business, we've been very strong for many years in Utah, Idaho, Arizona. As we've grown on the Pacific Coast, that's going to affect our rates. So we've been awarded several CONs in Washington this year. We're very excited about those. We've completed a startup up in Everett, Washington, as well as down in Olympia, Washington. And so as those have come online, that's affecting our rates just because we receive higher reimbursement in some of those geographic areas. The same thing is true of our growth in California. And so you'll see that fluctuate as we grow in different parts of our platform as well.

Gotcha. So the geographic wage adjustment would affect that more. Okay, that's great. What about length of stay? It sits on hospice. How are ALOS and median length of stays? Thanks.

Yeah, Frank, that's a great question. We've been really pleased actually to see that our median length of stay has remained fairly constant from the second quarter to the third quarter. We have experienced a fairly, it's been declining for throughout the pandemic. And so to see that stabilize a bit, we're very optimistic. As Danny said, some of this is driven by the percentage of our patients that are coming out of the acute setting. which is higher than it's ever been. We're excited about that. We're excited about the fact that acute systems are trusting us with their patients, and we continue to work with our partners in the Enzyme Pennant Care Continuum and other facility partners to be the resource that we can be to the community, which I think will stabilize those facility admin numbers.

Thanks, Frank.

Thanks. All right, again, if you would like to ask a question, please press star one. Next one on the queue is Tao Que. The line is now open.

Hey, good morning, guys. I just wanted to ask about the 2021 guidance. In terms of the revenue guidance, $425 to $430 million, it seems to imply kind of a decline in revenue in the fourth quarter. I'm just wondering what is driving that revenue decrease sequentially. And just a text-on question to that, you know, if you look at the way you guide, you know, your operations, any reason you prefer to guide EPS versus using EBITDAO, EBITDAR at this point, given, you know, the high volatility associated with EPS?

So, on the revenue side, Tao, thank you. This is Jen. We guide to adjusted revenue, so that is going to take into account that the Scripps revenue is not included in the first two quarters and will be included in the second or the third and fourth quarter. So, you'll just need to adjust for that particular piece. We're not anticipating a decline in the fourth quarter in revenue. So it actually is increasing. It's just that that will probably be, that's part of your difference if you're looking at GAAP revenue versus adjusted revenue. And then on EPS, we've traditionally guided on EPS as looking at the various inputs, puts and takes that we have into various items of revenue and cost of service. So we've just historically guided on EPS.

We'll review that, though. Thanks for the question. We'll take it into consideration. We'll do a review of that.

Sounds good. And just on the acquisition front, I know given the strength you see on the hospice side, I know that you guys did one acquisition this quarter, and I think you started up another hospice agency during the quarter. How should we think about the pipeline of investment going forward? Will you guys take a breather next year on the home health front and kind of focus more on the hospice front?

Yeah, I would say that's what we're trying to communicate in the script. And that's a natural process for it. It's not a sign that we're sort of taking a break from acquisitions or something's wrong. It's just when we see significant opportunity in our already acquired operations, we see the best return coming from continuing to transition those and ensure that that's the case. Our return to different types of acquisition opportunities will actually be fairly uneven in that if certain markets in our portfolio make more progress more quickly, they will start deploying capital sooner than perhaps others who may have a little more prolonged lifting to do. But this is kind of a typical cycle for us where we see so much opportunity internally that it's harder to justify taking resources and deploying capital externally. So I think it would be a little lighter, you know, in the fourth quarter, maybe into the first quarter. And then I expect we'll be in the trajectory we would want to be to make sure we're deploying more capital next year.

Sounds good. And on the home health value-based purchasing, you mentioned that there are 12 agencies that you guys have that are already participating in the program and getting positive revenue adjustments. Could you quantify the revenue you see among the 12, and how should we think about when the program gets rolled out nationwide, what will be the impact on your total portfolio?

That is a good question. I'm not sure we have that. We're looking it up right now. Collectively, those agencies represent a fairly small percentage of our overall home health revenue, but we viewed them as test cases and made sure, well, the number, a little more concrete numbers are coming, but we've learned a lot from those experiences. There's a lot of data uh tracking and reporting that is really important uh on that front and we feel like those those test cases have been really positive for us but uh john or jen do you have other specific on the numbers um so our total you know the impact was a positive about 125 000 across those agencies and again as danny said um some of those are very small some of them are mid-sized

But we've been very pleased overall at how our local teams have taken the data around these clinical metrics, how our service center partners have helped to scoreboard and provide education and training. And the resulting impact has been that the majority of those agencies have been in a positive, have had a positive impact year over year. And I think that's one of the reasons we really are excited about home health value-based purchasing rolling out across the country. We see it as a way that our model has the potential to impact our operational results because of our focus on clinical outcomes, because of the way we measure them and provide leaders with transparent data, and their ability as clusters and local leaders to address the unique opportunities in their markets. So we're excited.

And those agencies accounted for 16% of our home health revenue. What that whole dollar translates to in terms of a revenue increase is about 1%.

And that's a year-to-date number.

And that's just our year-to-date stuff. Did that help, Tao?

That's very helpful. Yeah, yeah, obviously. And lastly, you know, I wanted to ask about the vaccine mandate that OSHA and CMS is pushing through. I know that in certain states where there are already no state mandates, What kind of turnover impact are you expecting on the vaccine mandate? What's your experience with the markets that have already gone through this?

Thank you for that question. We have been dealing with mandates and, frankly, counter forces to mandates in various states. There's some states who have gone Away from that there's been states that have done it now that the federal mandate process is underway There's a lot of dynamics moving both directions depending on markets specific issues and And but you know, I believe it that it hasn't contributed Enormously to our overall turnover situation. Although the there's a lot going on in the labor market right now and When we are watching it closely, we have seen a fairly high adoption in those states that have had mandates and a really very modest turnover rate driven by it. Now, it's difficult for us to say how that's affecting the rest of the marketplace. It certainly is factoring into people's decision making. But we've done careful reviews. We're reporting, you know, we have good data systems now to report vaccine status. And, you know, it's spending a lot of one-on-one time with individuals in their individual circumstances, reviewing, you know, the nuances that go into the decision around vaccination. We're not anticipating a significant turnover, you know, spike as a result of these mandates making their way through. We've spent a lot of time individually with our staff members and understanding where they're at, why they're in the place that they are, and how we can best support them as they move forward. So, you know, we won't see the full effects of it here for probably another, you know, several weeks, but it adds to the dynamic. We feel like Our culture of high trust and local decision-making has served us well in that regard, and we anticipate that we'll be able to get through that without any major disruptions to the already difficult labor environment, but we don't anticipate it being something that is significantly problematic for us.

Thanks for the call. Yeah, thank you for taking my questions.

Yeah, thank you, Tao.

And there are no further questions on the queue. I will now turn the call over back to the presenters.

Okay, thank you all again. Thank you for joining us. Thank you for your continued belief in our story. And thank you to all of our leaders and stakeholders for the amazing work that you do on a daily basis. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.