The Pennant Group, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Pennant Group first quarter 2026 earnings call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Kirk Cheney. Please go ahead.

Thank you, Michelle. Welcome, everyone, and thanks for being with us today. Joining me are Brent Garasoli, our CEO, John Gochner, our president and COO, Lynette Walbaum, our CFO, and Andy Ryder, president of our senior living segment. Before we get started, I have a few housekeeping items. Yesterday, we filed our earnings press release in Form 10-Q. The release is posted in the Investor Relations section of our website at www.pennantgroup.com. A replay of today's call will also be available on our website until 5 p.m. Mountain Time on May 6, 2027. We also want to remind anyone listening by replay that all statements are made as of today, May 7, 2026, and we do not intend to update these statements after this call. In addition, any forward-looking statements we make today reflecting management's current expectations, assumptions, and beliefs regarding our business and the operating environment. These statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Listeners should not place undue reliance on forward-looking statements and should review our SEC filings for a fuller discussion of factors that could affect our results. Except as required by federal securities laws, PENET and its affiliates undertake no obligation to publicly update or revise any forward-looking statements due to new information, future events, changing circumstances, or otherwise. Further, the Pennant Group, Inc. is a holding company and does not have direct operating assets, employees, or revenues. Certain independent subsidiaries, collectively referred to as the service center, provide administrative services to our other operating subsidiaries pursuant to contractual arrangements. References to Pennant, the company, we, our, and us mean the Pennant Group, Inc. and its consolidated subsidiaries. Each of our operating subsidiaries in the service center is operated as a separate independent company with its own management team, employees, and assets. Accordingly, references in this presentation to the consolidated company and its assets and activities, as well as the use of we, us, are, and similar terms, should not be understood to suggest that the Pennant Group, Inc. directly employs operating personnel or that any subsidiary is directly operated by the Pennant Group. We also supplement our GAAP results with certain non-GAAP measures. We believe these measures, when considered alongside our GAAP results, can help provide a more complete view of our performance. However, they should not be considered in isolation or as a substitute for GAAP reporting. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release and is also available in our 10Q. With that, I'll turn the call over to our CEO, Brent Garasoli. Brent?

Thanks, Kirk. Good morning, everyone, and welcome to our first quarter 2026 earnings call. To start, I want to acknowledge the dedication of Pennant's people. Through different cycles and environments, during rapid growth, changing macroeconomic conditions, and more, our teams consistently rise to meet the moment. I am proud to work alongside you. We're pleased to report another excellent quarter with strong results across our businesses, including revenue of $285.4 million, up $75.5 million or 36 percent, adjusted EBITDA of 21.7 million, up 5.3 million, or 32.6 percent, adjusted EBITDA prior to NCI of 23.5 million, up 6.4 million, or 37.2 percent, and adjusted diluted earnings per share of 32 cents, up 5 cents, or 18.5 percent each over the prior year quarter. Across both segments, We continue to build momentum and drive relentless operational improvement. As we've discussed on prior calls, 2025 was a year of dramatic acquisitional growth. And in 2026, we are committed to improving our operational performance in both new and mature operations. One clear indication of progress is our same store segment adjusted EBITDA margins, which are on a substantial upward trajectory. As we deliver exceptional results for patients, attract the best leaders, and create a culture of excellence in our agencies and communities, we will continue to unlock meaningful value in our operations. A key to our success, as we have repeatedly emphasized, is attracting and developing exceptional leaders. Without this focus, the type of growth we have experienced would not have been possible. The large acquisitions we completed in 2025 called upon us to stretch our leadership recruitment and development muscles like never before. We rose to the challenge. In 2025, we added 101 CEOs in training to our development program, and we have followed with 47 more in 2026 year to date. Also in 2025, we elevated 11 local CEOs and 24 other local C-level leaders. Our leadership pipeline remains robust and positions us well for additional growth in the future. With the addition of leaders recognized thus far in 2026, we now have 55 CEOs and 92 other C-level leaders in operations, driving our results across the business. The transition of Tennessee, Alabama, and Georgia operations from United Healthcare continues to progress. We have transitioned two of five operational waves fully into our systems, and will continue this process through October. As this occurs, we anticipate improved operational performance and incremental reduction in expenses, including those under the transition services agreement. The leaders of each agency continue to work closely in clusters with experienced tenant partners to unleash the full potential of our locally driven operating models. Despite the anticipated challenges of maintaining census during an EMR transition, lower seasonal admission trends over the holidays, and severe weather events in January, we have successfully rebounded and increased total census above the levels at the time of acquisition. Even as we continue to implement our systems and operating model and anticipate some additional disruption, we are pleased that the transition is progressing consistent with our expectations. The future is bright for Pennant in the Southeast. In sum, the first quarter was a tremendous start to the year, and we are well situated to deliver positive results throughout 2026 and beyond. With only one quarter behind us and substantial additional transition work on the near horizon, we are not adjusting guidance at this time, but would point you to the upper end of our guidance range. Now, I'll turn the call over to John Gochner, our President and COO, to share additional detail on our first quarter operating performance. John?

Thank you, Brent, and good morning to everyone on the call. I'm pleased to report strong first quarter performance across both operating segments, driven by our continued focus on operational excellence, margin improvement, organic growth, clinical excellence, and leadership development. Our home health and hospice segment extended its exceptional growth trajectory delivering quarterly revenue of $229.1 million, an increase of $69.2 million, or 43.3% over the prior year quarter. Segment-adjusted EBITDA of $33.6 million, up $8.5 million, or 33.7%, and segment-adjusted EBITDA prior to NCI of $35.4 million, up $9.5 million, or 36.6% each over the prior year quarter. This performance reflects consistent growth in existing operations and effective transitions in our newer operations. Total home health admissions reached 30,721, an increase of 62.7%, while Medicare home health admissions rose to 13,303, an increase of 75.1% each over the prior year quarter. These strong total growth metrics include same-store admission growth of 5.8%, and same-store Medicare admission growth of 9.2% each over the prior year quarter. Our hospice business also continued its robust growth. Average daily census reached 5,199, an increase of 37%, and same-store hospice average daily census grew to 3,952, an increase of 10.2%, each compared to the prior year quarter. This momentum is driven by strong clinical outcomes, including positive reimbursement adjustments based on our home health value-based purchasing performance, deepening relationships with payers, and our local leaders' ability to serve as trusted community resources for patients, employees, and partners. Even amid significant transition activity, and despite a 1.3% reduction in our Medicare home health base rate, and continued wage pressure on the labor front. Our local leaders focus on operational excellence drove same-store segment-adjusted EBITDA margin prior to NCI to 17.2%, a 110 basis point improvement over the prior year quarter. Overall, segment-adjusted EBITDA margin prior to NCI decreased to 15.5%, 70 bps, reflecting the expected impact of transitioning more than 50 new operations to our systems and the temporary higher costs of the ongoing transition services agreement. The new store margin performance was consistent with the expectations we set out in our guidance. And as Brent noted, as we fully integrate our new operations and talented local teams adopt our operating model, we expect these operations and our total segment margins to move toward our 18% target. So progress will not be immediate or perfectly linear. On the regulatory front, in April, we received the proposed 2026 hospice rules. which includes a 2.4% rate increase to the hospice daily rate. This aligns with our guidance assumptions and should provide an additional tailwind in the fourth quarter. Our senior living segment also delivered meaningful progress. Revenue of 56.3 million increased 6.3 million, or 12.6%. Adjusted EBITDA of 6.4 million increased 1.5 million, or 30.6%. and segment adjusted EBITDA margin improved to 11.8%, a 190 basis point increase each over the prior year quarter. Since the pandemic, we have steadily expanded segment margin into the double digits with significant opportunity remaining. Same store occupancy rose to 81%, up 180 basis points, while all store occupancy reached 78.6%, up 10 basis points, each over the prior year quarter. Sequentially, we saw a 200 basis point decline in our all store occupancy, which was driven almost entirely by our recent acquisitions of low occupancy communities, along with some typical holiday related seasonality. We have seen a rapid rebound from the holiday seasonality and expect some continued volatility in our all store occupancy as we add underperforming but high potential senior living communities to our portfolio. Turning to growth, we completed the transition of 54 home health, hospice, and home care operations in Tennessee, Alabama, and Georgia in the fourth quarter of 2025. Throughout quarter one, our service center and segment leaders dedicated substantial time to integrating these operations into our systems and the unique tenant operating model. As Brent described, results have been consistent with our expectations, and we anticipate completing the transition by the end of the third quarter. We are very excited about the progress and the potential to unlock significant value in these operations and as we grow in the Southeast. While integration remains our primary focus, we continue to evaluate a pipeline of home health and hospice tuck-ins and potential joint ventures with integrated healthcare systems. As we find opportunities that meet our discipline criteria and will not distract from our integration efforts, we expect to pursue them in the coming months. In senior living, we completed four acquisitions after quarter end. On April 1st, 2026, we acquired the operations and real estate of Lavender Lane Senior Living, which includes 43 assisted living and memory care units and 25 independent living units. This addition strengthens our growing Phoenix area portfolio, where we have deep leadership talent and a robust continuum of care across home health, hospice, home care, and senior living. Additionally, on May 1, 2026, three more senior living communities joined Pennant through triple net leases with trusted capital partners, a 100-unit community in Glendale, Arizona, now operating as Saguaro Senior Living, and two Wisconsin communities, 45 units and 50 units, now operating as Cardinal Lane Senior Living and Harbor Haven Senior Living. These additions further expand our presence in two of our most strategic markets. We continue to review multiple senior living opportunities, and supported by strong operational performance and investments in leadership development, expect to remain active acquirers throughout the year. With that, I'll turn the call over to Lynette to walk through the financial results. Lynette?

Thank you, John, and good morning, everyone. Additional detail on our financial performance for the three months ended March 31, 2026 is included in the Form 10-Q and press release filed yesterday. Some additional highlights for the quarter compared to the prior year quarter include the following. GAAP revenue of $285.4 million, an increase of $75.5 million, or 36%. GAAP net income of $8.5 million, an increase of $0.7 million, or 9.6%. Adjusted net income of $11.5 million, an increase of $1.9 million, or 19.8%. GAAP diluted earnings per share of $0.24, an increase of $0.02, or 9.1%. and adjusted diluted earnings per share of $0.32, an increase of $0.05, or 18.5%. Additional selected metrics for the three months ended March 31, 2026 include $72 million outstanding on our revolving line of credit and $98.8 million outstanding on our term loan, for a total of $170.8 million outstanding under our credit facility. We had $4.9 million in cash on hand at quarter end and a net debt to adjusted EBITDA ratio of 1.3%. 93 times. Cash flows used in operations were $3.4 million, an improvement of $17.8 million versus the prior year quarter. I'd now like to highlight a few leaders across our organization who have delivered exceptional outcomes. Their examples illustrate the meaningful progress that can occur when local leaders build strong cultures and develop high performing teams of C-level leaders within their operations. Riverside Home Health and Hospice in Grants Pass, Oregon is led by Chief Executive Officer Will Johns, Chief Marketing Officer Sabrina Zahe, and future CCOs Jennifer Doman and Heather Hodge. Riverside is a provider of choice in Southern Oregon with a home health star rating of 4.5 stars, hospice composite score of 100%, and hospice visits in the last day of life of 84% versus a national average of 48%. This clinical quality has resulted in exceptional financial performance. Since taking the helm in 2024, Will and the Riverside team have doubled revenue from $2.5 million in Q1 2024 to $5 million in Q1 2026, tripled EBITDA, and improved agency level operating margin by more than 1,100 basis points over the same period. With a broad rural service area, Riverside's story demonstrates once again that our unique operating model can support tremendous success outside of large population centers, and that home health and hospice are critical components in the healthcare continuum in rural communities. At Capitol Hill Senior Living, newly appointed CEO Rodney Washburn and CCO Brittany Plascencia and CMO Roxy Romero provide a caring and attractive home for over 100 residents in downtown Salt Lake City. With low turnover and high employee satisfaction, it is clear that Capitol Hill's culture contributes to a positive resident experience. As a result, occupancy has increased over 2,300 basis points, revenue has increased 46%, and EBITDA has increased over 238% each over the prior year quarter. Capitol Hill was one of our first real estate acquisitions, which we purchased in 2024 as an underperforming asset in an attractive location for a compelling price. By improving the operations, the Capitol Hill team has now added value to the operation, to the real estate, and most importantly, to the residents and community. With strong demand for its services, Capitol Hill is now adding units to its upper floor, further expanding the business's financial opportunity going forward. With that, I'll hand the call back to Brent for closing remarks.

Thanks, Lynette. As we wrap up, I want to again thank our operators, clinicians, and service center partners who, like the individuals highlighted, provide truly life-changing service to our patients and residents every day. We are grateful for all you do. With that, we'll open the lineup for questions. Michelle, would you please provide the audience with the Q&A instructions?

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Wait for your name to be announced. And to withdraw your question, please press star 1-1 again. And our first question is going to come from Brian Tanvalet with Jefferies. Your line is open.

Hey, good morning, guys. Congrats on a good quarter. So maybe I'll start. if you can speak to the integration progress that you're seeing with the Metasys United assets and how we should be thinking about the cadence of, you know, kind of like the impact of that on margins for the remainder of the year. And then if you can share with us kind of like, you know, KPIs and labor and patient retention, just think along those lines. Thank you.

Yeah, Brian, thanks for the question. And like, as Brent stated in the call, we're really excited about where we stand in the integration to date. We have been able to move through the first two waves of our integration process, moving those agencies onto our systems. We've begun the third wave. The third and fourth wave are the largest of the five waves. And so we're sort of in the heart of getting those operations over. We have been in the process of moving through the leadership development aspect. In some cases, that has meant leaders that came into our program in Q4 and even earlier made it through our CEO development program and have now been placed as executive directors. In other cases, we found some really amazing and talented people in these Emeticis and United locations who qualified for our CIT program and have either begun training or have already completed training in our unique operating model and stepped in as executive directors and future CEOs. So we're really excited about where we stand on kind of those two fronts. From a KPI standpoint, as Brent mentioned in the call, we have rebounded during the transition period as we guided and sort of according to our expectations, we expect modest blips in the census. As we transition the EMR, we experienced those and have rebounded, particularly in those agencies where we have completed the integration. We also made it through a unique January where in addition to the typical holiday seasonality, you saw some winter storms in Tennessee in particular that really prevented us from admitting patients. And so it's really great to see that census above where it was As far as margin goes, we're really right on target. We have the added costs, as we've telegraphed, of the transition services agreement, in addition to the system transitions, which take a lot of training time, take people out of the field from delivering care. But we've got an amazing team providing that support. And so we see a lot of opportunity as those transition services agreement costs roll off. as folks roll into our systems, as we improve clinical outcomes and continue to deliver for that margin improvement that we've sort of built into our guide to occur throughout the year. So that's a little bit about the KPIs we're looking towards.

That's really helpful. Maybe just to follow up on that, as I think about the CapEx spend for the quarter, obviously a little bit of elevation here as you built the infrastructure here in the South. So just curious how we should be thinking about CapEx trend over the course of the year?

We talked in the call earlier about some of the acquisitions that we had come on at the end of Q4 for the senior living side. Some of those were having significant CapEx spend in the first part of the year. And so I think we will see heavier spend in the first part of the year with CapEx spend probably ending up in that 15 to 18 million for the year.

Got it. And then maybe my last question, if you don't mind. As I think about where the hospital stands today, whether it's the team model being rolled out or some of the JVs that you've announced, how do we think about the receptivity of the hospital population, especially in the markets that you're in, to sign JVs with you guys on the home health side?

You know, we've had now... six years of experience working in in joint ventures with premier integrated health care systems and through that we've built a track record of being able to help them take generally underperforming parts of their business that are critical to their continuums of care right they need to decamp the hospital in many cases so that they can take higher acuity patients they need chronic condition payment patients to receive the care in the home that keeps them out of the hospital And so we've been able to partner with them in building really effective home health programs, hospice programs that reduce their mortality rates, that improve their readmission rates and return to acute rates. And so as a result, there's a lot of receptivity out there. I think as hospitals have experienced some of the struggles that we've all in healthcare experienced from a labor standpoint, as their need to pull acuity and serve those most acute patients that can only receive care in that setting, they've seen the value of partnering with an expert partner. And we think we've built a pretty impressive track record of being that partner. And so as I talked about in the call, you know, those conversations are ongoing. We are, you know, we're a very disciplined organization. partner, and we don't move faster than we're able. And so we're not out, you know, talking to every healthcare system in the country and saying, we'll do this for you, we'll do this for you. But when we see the right situations with the right partners, with the kind of commitment to clinical excellence, financial performance, and the development of excellent culture, we're going to take advantage of those opportunities and partner to create special joint ventures.

Awesome. Thanks and congrats again, guys. Thanks, Brian.

And the next question is going to come from Raj Kumar with Stevens. Your line's open.

Hey, good morning. Maybe I just wanted to look at some of the same sort of trends in home health. You know, Medicare admission growth continues to be strong. Just want to curious to see what you're seeing at the market level in terms of if it's a function of just, you know, enrollment shift dynamics kind of given, you know, MA tapping out. from a mixed perspective relative to the entire Medicare population, or if it's still just a gradual kind of more idiosyncratic market-level wins from a referral standpoint, and maybe if you've seen any acceleration on that front as you kind of get more ingrained within your markets.

It's a great question, Raj. And I think we're still a little bit early to see how sort of some of those macroeconomic factors are affecting that number. What we're seeing is we're continuing to be chosen. Our goal in every operation is to create the provider of choice and the employer of choice in the community. And when we're able to attract the talent and we have the staff Um, we, we have the opportunity to serve those communities and I think our, our local teams and our local leaders have executed in an extraordinary way. Our model is built around the idea that we can be the solution of choice. And I think as you've seen some adjustment in the marketplace, you've got several of our largest competitors who have become affiliated with one particular provider. That's left space for an independent provider with extraordinary clinical outcomes and commitment to local communities to step in and execute. And so I think those are macroeconomic trends that we're watching. Is this sort of a longer-term trend where there's more patients that are on the traditional Medicare, that are participating in traditional Medicare, and therefore we will see our mix start to shift back the other direction? Or is this short-term sort of market share execution? But we're very optimistic and really pleased with just the way we're being chosen in the community and the growth that it's helping us drive.

Great. And then maybe kind of thinking about hospice and look at the same score growth trends there. You know, I think there's a, you know, pretty wide gap between ADC and total admit. So just kind of curious on that front, you know, what do you think, you know, are you kind of comfortable with the length of stay profile that you have right now? Maybe anything around CAP and then incrementally, I guess, anything you've kind of seen on the fuel front, any kind of headwinds from that kind of macroeconomic pressure to call out or anything that you kind of foresee or embed within the kind of maintained guidance? Thank you.

Yeah, from a hospice ADC standpoint, like we called out in the script, I think we had a 10.2% improvement in ADC, even as we had softer admission trends. Overall, we had a discharge length of stay that actually decreased. But of course, length of stay is a factor of those patients that are coming on service, and we continue to improve relationships across the continuum of care. which we think is part of what's driving that impressive increase in same-store hospice ADC. It's really about execution. It's really about delivering exceptional care and the community choosing us and giving us the opportunity to serve patients. I think one of the macro trends I would point to, there was just data released in the last few weeks that showed that when patients elect hospice five days earlier, it can save the Medicare trust fund a billion and a half dollars. And that just goes to show that as we do a better job educating, as we do a better job partnering and collaborating with referral sources and get people onto hospice sooner, that benefit has the potential to be a solution to some of our Medicare trust fund woes. On the CAP side, we saw a significant reduction quarter over quarter in, or I should say over the prior year quarter in CAP. And we continue to work on that. That really is a local situation. Some of our agencies, particularly in California, the reimbursement is higher than the CAP. allows, and so they're only able to provide care for a certain number of days. That's going to continue to be something that we're watching very closely. But what I think I would call out is we've had excellent partnership with our expert finance resources in the service center. They've built models that help our local executive directors understand where they sit relative to cap limitations and understand from a business development perspective how to partner with shorter length of stay referral sources where they can navigate that mix and make sure that we don't get caught in those cap situations. And finally, on the fuel situation, I think that's, again, another macroeconomic indicator that is early in the process. Certainly, if gas prices stay elevated the way they are, we'll begin, you know, providing what we've done in the past is we've provided stipends or we've adjusted our mileage rates to account for that and to make sure that our employees are not left in bad situations. Currently, we still view this as a short-term flux, and so we're watching that closely, but we hope that it's going to pass and that as things settle down over in the Middle East that there's going to be a retreat in gas prices. So we're not building into our current comments on guidance significant fuel expense or mileage increases.

Perfect. Thank you.

Thanks, Raj.

And our next question will come from David McDonald with Truist. Your line's open.

Good afternoon, everyone. Congratulations. Just a couple of questions. I guess first, just at a high level, I was wondering if you guys could talk about, you know, just conversations with payers, any early conversations around just the expansion into the southeast, some of the opportunities that you're seeing there. And then secondly, I was wondering if you could also comment just on the increased market focus on waste, fraud, and abuse, and what that may mean around market share gain opportunity over time.

Yeah, great question, David. So I'll take the question on the payer front. So One of the things that we have seen is as we've expanded, obviously in the Southeast, we've got relationships in the Northeast, we've become much more of a natural player. So we've also progressed a lot of the conversations with these big payers on a broader basis. And the other thing that we've done is we've made significant investment in our team to help in that regard, and we're making a ton of progress there. I would say this is an ongoing conversation, but it's been really positive. And ultimately, what our payer partners are looking for is somebody that can be consistent and provide high quality of care. And so from the beginning, we've talked about the importance of our clinical product and the quality solutions we're providing at the local communities, but that's also expanding to the national communities as well. And so it is creating significant opportunity for us. And even with some of the managed care conversations, we have consistently seen positive results in terms of getting better contracts, getting Medicare-like reimbursement. And so we expect that to continue as we make these investments, as we expand across the country, and also as we continue to perform well clinically.

And David, I'll just take the fraud, waste, and abuse question. I think this is a really unique time. We have an administration that is commendably very focused on rooting out fraud, waste, and abuse, particularly from our industries. And we're grateful. We've been grateful for the opportunity that we've had to have a voice and to partner in that effort. I think some of the tools that they are using or thinking of using are fairly blunt instruments. And we continue to encourage a nuanced approach to that dialogue. But what we do see is a couple of different things. First, we feel like we're differentiated in, you know, if we have a provider number under review or where there's a question, a community, we have invested heavily in developing an industry leading compliance program. where every one of our provider numbers undergoes an audit every year. We are, and that's a claims audit. It is a onsite audit. So there's a very thorough review process. The second thing I'd say is as there's been, particularly, for example, in California or Arizona, where there's been aggressive enforcement action, that's opened up new opportunities or reopened opportunities for our agencies that are longstanding parts of those communities that have delivered excellent clinical quality, deep compliant partnership. And so there's opportunities for us as bad actors are sort of rooted out. And so we see that as a potential opportunity. At the same time, we will continue to work closely to have a voice with the administration through our partner, through our industry partnerships with the Alliance to make sure that there is and there is thoughtfulness in how we continue to root out fraud, waste, and abuse. But we think at the end of the day, this is a commendable effort because it will result in the dollars that are there for our Medicare Trust Fund beneficiaries going to providers who are delivering exceptional care, high-quality clinical outcomes, and improving the lives of the patients we serve.

Okay, and then just appreciate that. And then just one quick follow-up on integration timing. I think, John, you said, you know, two of the three largest, the two largest of the remaining three waves you guys are integrating right now. So just when we think about pacing between now and October when you finish up, is it fair to assume that the bulk of the heavy lifting is going to be done in the second quarter and then it ramps down, you know, somewhat noticeably from there?

Yeah, I think you're going to see the heart of it is really this third and fourth wave. The third wave has already begun. The fourth wave is coming. And so I think through the second quarter and the early, very early part of the third quarter is when the bulk of it is going to the bulk of the transition is going to occur. And then we would expect, you know, September and October, really, we're just going to be winding down that final wave. And so you'll start to see TSA expenses significantly drop and you'll start to see the opportunity for those agencies and local teams to use our systems to improve their clinical, financial, and community results. Okay, thanks very much. Thank you.

And the next question is going to come from Ben Hendrix with RBC Capital Markets. Your line's open.

Great. Thank you very much. Just wanted to quickly follow up on the hospice discussion from earlier. I still think you guys have some really strong systems in place for monitoring CAP. But one of your competitors in the past has cited competition for short-stay admissions as a headwind when it comes to CAP management. Are there any particular markets that you're operating in right now where even if you are monitoring the CAP dynamic, you could have a heightened competition that could kind of box you out of a short-stay admission access that could be a headwind?

Yeah, I mean, that's always going to be the case, especially in markets with higher reimbursements. So California would be an example of that in our case. And, you know, really what it boils down to is you think about our model. Again, John referenced this. There are going to be cap pressures depending upon the local operation. And so, but in those operations, they're coming up with multiple different tactics, right? And one of those things is finding those short length of stay. But really, it boils down to ensuring that the patient appropriateness and that those teams are very proactive in having a robust outreach to the entire community. And so, I mean, there are a number of different ways to attack the cap. The most important thing, though, is that we're tracking it at every single operation. Every team is aware of their circumstances, and there are, you know, best practices out there to help them to drive improvement there.

Great. Thanks. And then shifting over to senior housing, I was just wondering if you could talk about some of your newer acquisitions, kind of the status of those acquisitions. of those assets, you know, kind of how much quality improvement you expect to get out of those and kind of where you can take performance, you know, of those new platforms.

Yeah. Thanks for the question, Ben. This is Andy. I think we're pretty excited about the latest group of acquisitions that we're currently, you know, integrating. And also the ones that we brought on towards the end of last year all have pretty significant pretty large upside, but are pretty much all distressed assets. And so, as we step in, you know, there's always going to be lumpiness, both in occupancy, in the new store margin, and just some of the pressures that exist with integrating these types of opportunities. On the long haul, they have tremendous upside. We're getting favorable pricing, and we're really excited about kind of the long-term view. And we're getting better. You know, the past couple of years, we've had some opportunity to integrate and to kind of get our hands dirty and learn. And so as we continue to go through the process, we're getting better and better. And those turns are happening faster and coming together. I think the story Lynette highlighted is, At Capitol Hill, senior living is a good example of what we can do in a couple of years' time, over an eight-quarter period or so, in really transforming an operation and getting it up to our standards. This group that we just brought on, we're excited to roll up our sleeves and get to work.

Thank you.

And the next question will come from Stephen Baxter with Wells Fargo. Your line's open.

Yeah. Hi. Thanks. Good to hear the guidance pushing towards the upper end. I was hoping to get a little bit more color on that one. I guess first when we think about the first quarter, it sounds like you probably outperformed maybe your internal expectations. So I guess I'm wondering how much of the sort of nudge up on the guidance is really just flowing through the first quarter upside. And is there any element of caring anything about the first quarter forward into the rest of the year, whether that's maybe better same-store growth in home health and hospice or maybe better same-store margins that you've made some effort to highlight? Thank you.

Yeah, Stephen, I'll let Lynette speak maybe a little on the more detailed aspects of the guidance. But what I would just say is, As we've integrated these new businesses in the southeast with any transition, there is going to be some lumpiness and results. And as you think about the various waves, especially where we're in wave three, and we're going into wave four, we feel really good about where we stand. We're, what, seven months into the transition. but we don't want to declare victory just yet, right? And so we're seeing the progress. We'd really like to get another quarter under our belts before we make any adjustments because this next quarter will be kind of very insightful in terms of where we're going to end up through the end of the year. So that's part of the reason why we're just holding out. And we'll look, obviously, based on performance through the end of Q2 to make adjustments if that's appropriate.

I'd say it Talking more specifically about some of the same store, we continue to expect that same store improvements that we've made in this quarter to continue. And just that performance of those existing operators, they're hitting their stride on really making sure that they're trying to drive in every way possible additional margin to the bottom line. But again, as Brent said, we'll give you further updates as to guidance probably in Q2.

And to that point, I might just add one additional, like, one of the things, and I think we've shared this in the past, but the way that we do the integrations is we support them with other operations, other clusters, other partners scattered across the organization. And so it was really, that's why our same store results in Q1 were even that more impressive was because that was in the midst of reduction in our home health reimbursement, And all of this additional support going into the transition in the southeast, yet our current operators continue to perform really well. And so that's a good sign that we're able to integrate and keep the kind of that momentum of operations going forward. So, again, we just want to get a little bit more experience with this transition before we make any changes.

Thank you. And as a reminder, to ask a question, please press star 11 on your telephone. The next question is coming from Jarrett Hassa with William Blair. Your line's open.

Hey, guys. Thanks for taking the question. I'll actually maybe stick with a point that you just alluded to, Brian, sort of the impressive margin performance on a SAMHSA basis. But I wanted to ask about that because I think you mentioned the sort of same agency prior to NCI was up, I think, 110 basis points year over year. And so I just wanted to kind of understand specifically where you're finding the biggest levers for operating leverage, again, considering that there's maybe a little bit of duplicative work related to the transition. And I also heard you call out, you know, where there's still some pressures on the labor side. So just wanted to kind of understand, again, what's working from an efficiency standpoint that's driving that same agency margin.

Yeah, thanks, Jared. Appreciate the question. And I think what we're most excited about, Brett highlighted some of the headwinds that we've faced. But what's been most impressive is I think our model is about, it's about people, and it's about ownership, and it's about owning things at the local level and having cluster partners that care deeply about each other, diving in and helping each other. And I think there's been a few things, certainly from an efficiency standpoint, that have helped drive that. One is we were able to offset some of that revenue decline through strong performance in home health value-based purchasing. We've been able to move from a business development standpoint when we asked every operation to come up with their plan for how they would offset the initial six plus percent decline that was proposed. Part of it was, how do we work in the community more effectively? How do we work with institutional partners? How do we get early referrals? And in those areas, we saw significant improvement this quarter, and so we were able to see some meaningful same-store revenue per episode growth, even though we faced the base rate decrease. On the efficiency side, though, we saw exceptional care planning. The utilization of best practices, our clinical team has been working relentlessly to make our more efficient to allow our nurses and our other clinicians to spend their time with the patient and to cut the amount of time that it takes them to document while still ensuring that everything is documented and shown as is required. by regulation. And so we saw some meaningful progress there. That allowed us to reduce visits per episode in a pretty meaningful way. And so we are continuing to see better productivity, reduced visits per episode. We're managing the revenue side as well in a meaningful way. And so I think that's really where you see margin driving. And then, of course, we view this as a single segment. And so when you see some of that improvement, we view each local team as building a continuum. So often they have home health and hospice together. So sometimes when you face home health pressure, if you can grow your hospice census and your hospice business, that can help you offset some of those cuts as well. And so the strong ADC growth also helped to drive same-store margin improvements.

Yeah, and Jared, I would just add one additional element. We've talked about this in the past, the tools and the resources available to our local teams, the technology stack that we have available to us. Those are some of the elements that are helping our teams to get better information and understand how to drive efficiencies in their business. And certainly as we look forward, the continued investment in technology and creating solutions that will allow us to efficiently drive positive outcomes. That's a big emphasis for us, and it will continue to be in the future because, you know, as we all know, this reimbursement environment can be difficult, and so we're looking to the future to provide opportunities for each of our local teams to be as efficient but as effective as possible.

Got it. That's super helpful. And then I'll just ask one quick follow-up on the senior living segments. You know, we've seen the Medicaid mix tick up just a little bit over the last couple quarters, and we certainly saw that again. I think it was maybe plus three on our basis points year over year. So, just wanted to ask if there were any call-outs as to what specifically was driving that. And then, you know, just what are your latest thoughts about the durability of, you know, some of the Medicaid waivers that are out there, you know, in light of potential for state budget .

Yeah, great question. You know, we like was just highlighted on the home health and hospice side. Similarly, on the senior living side, we we push operators to to drive and to make plans to connect with their local government agencies and and to understand all of the opportunities out there and serve the populations that that need the assistance, regardless of payer source. They're responsible for the financial outcomes. And so it's very driven at a local level. From a kind of a broad senior housing environment, you know, we're seeing kind of the Class A properties really, from a pricing standpoint, accelerate. And so we're, you know, playing a lot in the kind of Class B or Class C space in terms of acquisitions. And so, you know, we may see some of that continue to tick up, but we continue to adjust state by state depending on what the pressures look like. We have seen just a little bit of some of the pressures from the administration's push against kind of fraud, waste, and abuse, but by and large, I think we're really confident in the Medicaid programs and in the areas that we specifically play in in the Medicaid programming. They all save the state significant money. We're a low-cost provider in terms of the the services that we render, it's a lower cost of care along the continuum. We can help both prevent and reduce hospitalization. And ultimately, you know, we're one of the, we believe we're one of the better options in terms of being fiscally responsible from a government standpoint. And so we're confident, we're excited about the continued growth in kind of any area of our business as we continue to to pull on those levers and empower our local operators to make the right financial decisions to drive margin growth and to take care of the residents there.

Yeah. And Jared, I would just maybe expound a little bit more on the waiver programs. Oftentimes these are seen as sort of negative or less than from a reimbursement perspective. But what we found in many of the states that we work that these programs are actually have healthy reimbursement or appropriate reimbursement for the services that are provided. And so in some ways, it's actually driving some of our acquisition strategy. So in the case of Wisconsin and Arizona, where we've just acquired new buildings, we have a great relationship with the state and the payers in the state. And so that's why you can see our turnarounds that Andy alluded to earlier, why they're going so quickly or so much better is we can come in and there's a need. That's the other thing about. this population, it's a very vulnerable population. And in many cases, the states are looking for solutions to place these residents that are very vulnerable. And so we can acquire these buildings, come in and be a solution because we take those waivers. They're already pre-negotiated, right? So we know what we're getting as soon as we step into those buildings. And it becomes a great opportunity for us to quickly expand and improve occupancy and create a benefit in the communities where we enter into.

Brilliant. Perfect. That's great to hear.

Thank you.

I am showing no further questions in the queue at this time. I will now turn it back over to Brent for closing remarks.

Okay. Well, thank you, Michelle, and thank you, everyone, for joining us on the call today. Have a great day.

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