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DATE

Thursday, May 7, 2026 at 12 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Brent Guerisoli
  • President and Chief Operating Officer — John Gochnour
  • Chief Financial Officer — Lynette Walbom
  • President, Senior Living Segment — Andy Rider
  • General Counsel — Kirk Cheney

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TAKEAWAYS

  • GAAP revenue -- $285.4 million, up $75.5 million or 36%, driven by growth in both reporting segments.
  • Adjusted EBITDA -- $21.7 million, up $5.3 million or 32.6%.
  • Adjusted EBITDA prior to NCI -- $23.5 million, up $6.4 million or 37.2%.
  • Adjusted diluted EPS -- $0.32, up $0.05 or 18.5%.
  • GAAP Net Income -- $8.5 million, up $0.7 million or 9.6%.
  • GAAP Diluted EPS -- $0.24, up $0.02 or 9.1%.
  • Credit Facility Outstanding -- $170.8 million, comprised of $72 million on the revolving line and $98.8 million on the term loan.
  • Net Debt to Adjusted EBITDA Ratio -- 1.93x.
  • Cash on Hand -- $4.9 million as of quarter-end.
  • Home Health and Hospice Segment Revenue -- $229.1 million, up $69.2 million or 43.3%.
  • Home Health and Hospice Segment Adjusted EBITDA -- $33.6 million, up $8.5 million or 33.7%.
  • Home Health Admissions -- 30,721, up 62.7%.
  • Medicare Home Health Admissions -- 13,303, up 75.1%.
  • Same-Store Home Health Admissions Growth -- 5.8%.
  • Same-Store Medicare Home Health Admissions Growth -- 9.2%.
  • Hospice Average Daily Census -- 5,199, up 37%.
  • Same-Store Hospice ADC Growth -- 10.2%.
  • Same-Store Segment Adjusted EBITDA Margin (prior to NCI) -- 17.2%, up 110 basis points.
  • Overall Segment Adjusted EBITDA Margin (prior to NCI) -- 15.5%, down 70 basis points, impacted by new operations and temporary increased transition costs.
  • Proposed 2026 Hospice Rule -- Includes a 2.4% rate increase to the hospice daily rate, expected to benefit performance in the fourth quarter.
  • Senior Living Segment Revenue -- $56.3 million, up $6.3 million or 12.6%.
  • Senior Living Segment Adjusted EBITDA -- $6.4 million, up $1.5 million or 30.6%.
  • Senior Living Segment Adjusted EBITDA Margin -- 11.8%, up 190 basis points.
  • Same-Store Occupancy -- 81%, up 180 basis points.
  • All-Store Occupancy -- 78.6%, up 10 basis points, though declined 200 basis points sequentially due to acquisition and holiday season effects.
  • Integration Progress -- 2 of 5 operational waves in Tennessee, Alabama, and Georgia transitioned, with completion anticipated by end of third quarter; margin gains expected as transition expenses subside.
  • Pipeline -- The company continues to evaluate Home Health and Hospice tuck-ins and joint venture opportunities.
  • CapEx Guidance -- Expected range of $15 million to $18 million for the full year, front-loaded due to integration and improvement spend in acquired Senior Living assets.

SUMMARY

Management emphasized operational improvement as a priority for 2026 following a year of acquisitional growth, underscoring their intention not to adjust guidance but to "point you to the upper end of our guidance range." Focused leadership recruitment resulted in the addition of 47 CEOs in training so far this year, supporting the integration of significant Southeast acquisitions. Segment-specific performance included noted margin compression from higher transition-related costs, with management expecting these to decline as system conversion completes. The proposed 2.4% hospice daily rate increase is anticipated as a tailwind for fourth quarter results, aligning with previous guidance assumptions. Integration efforts in Tennessee, Alabama, and Georgia are progressing as expected, with management reiterating confidence in completing the transition by the end of the third quarter.

  • John Gochnour explained that temporary "added costs as we've telegraphed of transition services agreement in addition to the system transitions, which take a lot of training time," and will subside later in the year.
  • Brent Guerisoli noted, "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."
  • Management explicitly highlighted development and deployment of technology and process improvements as core drivers of efficiency gains, especially in navigating rate pressures.
  • The call outlined favorable payer negotiations, especially in managed care, with "getting better contracts, getting Medicare-like reimbursement" described as ongoing successful outcomes of recent investments in the payer relations team.
  • Senior Living acquisitions are expected to provide turnaround opportunities, leveraging prenegotiated Medicaid waiver rates and favorable state relationships to drive occupancy and margin gains.
  • Company commentary confirms that joint venture receptivity with hospital partners is based on demonstrated outcomes, such as "reduce their mortality rates, that improve their readmission rates and return to acute rates."

INDUSTRY GLOSSARY

  • Adjusted EBITDA prior to NCI: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) before allocating profits or losses attributable to noncontrolling interests in consolidated subsidiaries.
  • CAP: The Medicare Aggregate Cap limitation in hospice, setting a maximum Medicare revenue per provider annually, beyond which payments must be refunded.
  • All-store occupancy: The occupancy rate across all Senior Living properties, including recently acquired or opened locations.
  • Same-store: Refers to metrics from locations under company operation for both the current and prior comparison periods, excluding new acquisitions or closures.

Full Conference Call Transcript

Kirk Cheney: Thank you, Michelle. Welcome, everyone, and thanks for being with us today. Joining me are Brent Guerisoli, our CEO; John Gochnour, our President and COO; Lynette Walbom, our CFO; and Andy Rider, President of our Senior Living segment. Before we get started, I have a few housekeeping items. Yesterday, we filed our earnings press release and 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 5:00 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, Pennant 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. Reference is dependent. The company, we are and us meeting The Pennant Group, Inc. and its consolidated subsidiaries. Each of our operating subsidiaries and 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 10-Q.

With that, I'll turn the call over to our CEO, Brent Guerisoli. Brent?

Brent Guerisoli: 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%; adjusted EBITDA of $21.7 million, up $5.3 million or 32.6%; adjusted EBITDA prior to NCI of $23.5 million, up $6.4 million or 37.2%; and adjusted diluted earnings per share of $0.32, up $0.05 or 18.5% 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 and 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 UnitedHealthcare continues to progress. We have transitioned 2 of 5 operational waves fully into our systems and we'll 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 model. 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 Gochnour, our President and COO, to share additional details on our first quarter operating performance.

John?

John Gochnour: 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 amidst 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 cost 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, though progress will not be immediate or perfectly linear.

On the regulatory front, in April, we received the proposed 2026 hospice rule, 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 1, 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 health care systems.

As we find opportunities that meet our disciplined criteria and will not distract from our integration efforts, we expect to pursue them in the coming months. In Senior Living, we completed 4 acquisitions after quarter end. On April 1, 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, a Three more senior living communities joined Pennant through triple net leases with trusted capital partners, a 100-unit community in Glendale, Arizona, now operating at Saguaro Senior Living and 2 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 2 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?

Lynette Walbom: Thank you, John, and good morning, everyone. Additional detail on our financial performance for the 3 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 3 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 1.93x. 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 and Grants Pass Oregon is led by Chief Executive Officer; Will Johns, Chief Marketing Officer, Sabrina Zage; and future CCOs, Jennifer Doman and Heather Raj. 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 the 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 story demonstrates once again that our unique operating model can support tremendous success outside of large population centers. And Home Health and Hospice are critical components in the health care continuum and rural communities. At Capitol Hill Senior Living, newly appointed CEO, Rodney Washburn; and CCO, Britanee Plascencia; and CMO, Roxy Romero, provided carrying an 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 and 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' financial opportunity going forward. With that, I'll hand the call back to Brent for closing remarks.

Brent Guerisoli: 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 line up for questions. Michelle, would you please provide the audience with the Q&A instructions?

Operator: [Operator Instructions] And our first question is going to come from Brian Tanquilut with Jefferies.

Brian Tanquilut: Congrats on a good quarter. So maybe I'll start. If you can speak to the integration progress that you're seeing with the Amedisys United assets and how should we think about the cadence of 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 KPIs and labor and payer retention? Just think along those lines.

John Gochnour: 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 2 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 5 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 Visa Metasys 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 2 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 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.

Brian Tanquilut: No, that's really helpful. Maybe just a 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?

Brent Guerisoli: 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 million to $18 million for the year.

Brian Tanquilut: 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 for some of the JVs that you've announced. I mean how do we think about the receptivity of the hospital population, especially with -- in the markets that you're in to sign JVs with you guys on the Home Health side?

John Gochnour: We've had now 6 years of experience working 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 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, we -- there's a lot of receptivity out there. I think as hospitals have experienced some of the struggles that we've all in health care experienced from a labor standpoint as there 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, those conversations are ongoing. We're a very disciplined partner, and we don't move faster than we're able.

And so we're not out talking to every health care system in the country and say, we'll do this for you, we'll do this for you. But when we see the right situation 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.

Operator: And the next question come from Raj Kumar with Stephens.

Raj Kumar: Maybe I just wanted to look at some of the same-store trends in Home Health. Medicare admission growth continues to be strong. Just wanted curious to see what you're seeing at the market level in terms of if it's a function of just enrollment shift dynamics kind of given MA tapping out from a mix 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?

John Gochnour: 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, we have the opportunity to serve those communities. And I think 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 provider that's less 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.

Raj Kumar: Great. And then maybe kind of thinking about Hospice and look at the same-store growth trends there. I think there's a pretty wide graph between ADC and total admit. So just kind of curious on that front, where do you think -- 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?

John Gochnour: Yes. 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 have 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 5 days earlier, it can save the Medicare Trust Fund $1.5 billion. 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 on to hospice sooner, that benefit has the potential to be a solution to some of our Medicare Trust Fund rose. 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 built models that help our local executive directors understand where they sit relative to CAP limitation 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 providing what we've done in the past is we've provided stipends or we've adjusted our mileage rates to account for that 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.

Operator: And our next question will come from David MacDonald with Truist.

David MacDonald: Congratulations. Just a couple of questions. I guess, first, just at a high level, I was wondering if you guys could talk about 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.

Brent Guerisoli: Yes. Great question, Dave. 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 that -- in our team to help in that regard, and we're making a ton of progress there. So we're in -- 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 a 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.

John Gochnour: 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 -- if we have a provider number under review or where there's a question in a community, we have invested heavily in developing an industry-leading compliance program where every one of our provider numbers undergoes and audit every year. We are -- and that's a claims audit. It is an on-site 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 long-standing 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 nuance 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.

David MacDonald: Okay. And then just appreciate that. And then just 1 quick follow-up on integration timing. I think, John, you said 2 of the 3 large -- the 2 largest of the remaining 3 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 somewhat noticeably from there?

John Gochnour: Yes. 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 September and October, really, we're just going to be winding down that final wave.

And so you'll start to see TS 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.

Operator: And the next question is going to come from Ben Hendrix with RBC Capital Markets.

Benjamin Hendrix: Just wanted to quickly follow up on the hospice discussion from earlier. I sound like you guys have some really strong systems in place for monitoring CAP. But one of your competitors in the past decided 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?

Unknown Executive: Yes. I mean that's always going to be the case, especially in markets with higher reimbursement. So California would be an example of that in our case. So -- and 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 best practices out there to help them to drive improvement there.

Benjamin Hendrix: Great. 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 of those assets. Kind of how much quality improvement you expect to get out of those and kind of where you could take the performance of those new platforms?

Unknown Executive: Yes. Thanks for the question, Ben. This is Andy. I think we're pretty excited about the latest group of acquisitions that we're currently integrating and also the ones that we brought on towards the end of last year all have pretty large upside but are pretty much all distressed assets. And so as we step in, 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.

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 at Capitol Hill, Senior Living is a good example of what we can do in a couple of years' time over an 8-quarter period or so in really transforming an operation and getting it up to our standards. And so yes, this last -- this group that we just brought on, we're excited to roll up our sleeves and get to work.

Operator: And the next question will come from Stephen Baxter with Wells Fargo.

Stephen Baxter: 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 carrying 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?

Brent Guerisoli: Yes, 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 in results. And as you think about the various waves, especially where we're in Wave 3 and we're going into Wave 4, we feel really good about where we stand. We're, what, 7 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.

Lynette Walbom: I'd say 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.

Brent Guerisoli: Yes. And to that point, I might just add 1 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 or partners scattered across the organization. And so it was really -- that's why our same-store results in Q1 were even that more impressive is because that was in the midst of a reduction in our Home Health reimbursement. And all of this additional support going into our -- 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.

Operator: [Operator Instructions] The next question is coming from Jared Haase with William Blair.

Jared Haase: I'll actually maybe stick with the point that you just alluded to in sort of the impressive margin performance on a same-store 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 where there's still some pressures on the labor side.

So I just wanted to kind of understand, again, what's working from an efficiency standpoint that's driving that same agency margin?

John Gochnour: Yes. Thanks, Jared. I appreciate the question. And I think what we're most excited, Brett highlighted some of the headwinds that we 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 ask every operation to come up with their plan for how they would offset the initial 6-plus percent. The client 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 EMR 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 in 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 improvement.

Brent Guerisoli: Yes. And Jared, I would just add 1 additional element. We've talked about this in the past. The tools and the resources available at our -- our local team is 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 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.

Jared Haase: Got it. That's super helpful. And then I'll just ask 1 quick follow-up on the Senior Living segment. We've seen the Medicaid mix tick up just a little bit over the last couple of quarters, and we certainly saw that again. I think it was maybe plus 300 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 just what are your latest thoughts about the durability of some of the Medicaid waivers that are out there in light of potential for same budget over the next couple years?

John Gochnour: Yes. Great question. I think we like was just highlighted on the Home Health and Hospice side. Similarly on the Senior Living side, we push operators to drive and to make plans to connect with their local government agencies and to understand all of the opportunities out there and serve the populations 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, we're seeing kind of the Class A properties really from a pricing standpoint accelerate. And so we're playing a lot in the kind of Class B or Class C space in terms of acquisitions.

And so we may see some of that continue to tick up. But we continue to adjust state by state depending on how the -- 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 services that we render. It's the lower cost of care along the continuum. We can help both prevent and reduce hospitalization.

And ultimately, 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 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.

Brent Guerisoli: Yes. 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 the -- our turnarounds that Andy alluded to earlier, why they're going so quickly or so much better as 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 prenegotiated rates 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.

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

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

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