Pennant Group Inc Stock

Good day and thank you for standing by. Welcome to the Pennant Group Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Kirk Cheney. Please go ahead.

Thank you, Olivia. Welcome, everyone, and thank you for joining us today. Here with me today, I have Brent Guerisoli, our CEO; John Gochnour, our President and COO; Lynette Walbom, our CFO; and Andy Rider, our Senior Living President.

Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investor Relations section of our website at www.pennantgroup.com. A replay of this call will also be available on our website until 5:00 p.m. Mountain on August 6, 2027.

We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, August 6, 2026, and these statements will not be updated after today's call. Also any forward-looking statements made today are based on management's current expectations about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, we do not publicly update or revise any forward-looking statements where changes arise from new information or for any other reason.

In addition, the Pennant Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the Service Center, provide administrative services to the operating companies through contractual relationships. The words Pennant, company, we, our and us refer to the Pennant Group, Inc. and its consolidated subsidiaries.

Our operating subsidiaries and the Service Center are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as use of the terms we, us, our and similar terms do not imply that the Pennant Group, Inc. has direct operating assets, employees or revenues or that any of the subsidiaries are operated by the Pennant Group.

Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q.

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

Thanks, Kirk, and welcome, everyone, to our second quarter 2026 earnings call. We are pleased to report another strong quarter, which put us on pace to surpass the top end of our original guidance range. Our momentum is a product of diligent focus on operational excellence, along with effective transitions at recently acquired operations.

In Q2, we generated revenue of $298 million, an increase of $78.5 million or 35.8% over the prior year quarter; adjusted EBITDA of $24.3 million, an increase of $7.9 million or 48.2% over the prior year quarter; adjusted EBITDA prior to NCI of $26.1 million, an increase of $8.8 million or 51% over the prior year quarter, and adjusted diluted earnings per share of $0.36, an increase of $0.09 or 33.3% over the prior year quarter.

I'm incredibly proud of our local leaders and teams. Heading into this year, we outlined 2 critical initiatives that would create success in 2026. First, we would rigorously pursue operational excellence across all of our business lines, looking at every lever to increase efficiencies, and improve results.

Second, after a period of significant investment, we would focus sufficient resources and attention on integrating those operations, especially our sizable recent acquisition in the Southeast to ensure that they were transitioned quickly and effectively.

As a testament to the strength of our operating model, we have experienced remarkable progress in organic growth across our core operations even as we have outperformed internal expectations thus far in the transition of the largest acquisition in our history. This has been the story of Pennant's year thus far.

Before the recent announcement of the 2027 proposed Home Health rule, home health reimbursement had been in a down cycle with annual base rate cuts for 4 consecutive years. We made the best of this challenging environment by rigorously innovating and optimizing our operations and delivering exceptional clinical care more efficiently. Throughout this period, we continue to invest in home health at attractive valuation and reaffirmed our bullish view and long-term commitment to these services even as we have expanded our hospice and senior living businesses.

We know and we believe the government also knows that home health services are a vital component of America's health care strategy, and their importance will only increase as more seniors age into the services, and governmental leaders look for solutions to reduce the nation's overall health care spend. The silver wave will continue to unfold over the next decade and beyond.

Each year, more than 4 million Americans turn 65. As the share of the U.S. population over 65 increases and life expectancy continues to expand, we anticipate growing demand for our services. Our home health and hospice services will continue to be critical, lowest cost solutions to address these demographic changes.

Health care reimbursement is cyclical. It appears now that the payment pendulum is moving in a better direction with a 2.4% increase in the 2027 proposed rule, which we're modeling as a 1.7% increase as applied to our operations. We see this as a positive signal and welcome the opportunity to collaborate with CMS and Congress on a more stable home health rate environment that aligns reimbursement with the increasing costs of delivering high-quality care. As payers and CMS increasingly focus on rewarding quality outcomes and value-based care, we are well positioned to be a solution in the health care continuum.

As announced in yesterday's press release, we are raising annual guidance based on the momentum in the business, the progress we have made in transitioning new acquisitions in the Southeast and the significant upside that remains in our existing operations. We anticipate full year revenue in the range of $1.17 billion to $1.19 billion, adjusted EBITDA prior to NCI of $101.5 million to $105.1 million and adjusted earnings per share in the range of $1.34 to $1.41.

With solid performance across the portfolio, a pipeline of potential growth opportunities and a robust balance sheet, we are excited for the remainder of 2026 and beyond.

With that, I'll turn the call over to John to provide more details on our second quarter operational results.

Thank you, Brent, and good morning, everyone. Pennant's local leaders continue to drive inspiring clinical and operational results in their communities. We are pleased to see strong performance in our mature operations even as we are onboarding these new acquisitions. In our home health and hospice segment, exemplary clinical and cultural performance continues to create financial momentum.

Top line segment revenue in the second quarter was $237.8 million, an increase of $71.8 million or 43.2%. Adjusted EBITDA was $37.7 million, an increase of $12.3 million or 48.2% and adjusted EBITDA prior to NCI of $39.6 million, an increase of $13.2 million or 50% each over the prior year quarter. Our growth in adjusted EBITDA prior to NCI reflects not only the addition of new operations, but also our focus on operational excellence as same-store margin improved 70 basis points year-over-year.

Our hospice business continues to excel. Hospice revenue in Q2 was $103.6 million, an increase of $29.8 million or 40.4% over the prior year quarter. Hospice admits increased 38.4% and average daily census increased 40.1%. While this increase reflects the impact of our investment in the Southeast, our same-store trends reflect that the community is responding to our locally driven approach and clinical excellence.

For the second quarter, same-store hospice admissions increased 8.8% and ADC grew 10.8%, each over the prior year quarter. In July, CMS released the 2027 hospice final payment rule, which includes a 2.3% increase in revenue per day, along with several program integrity measures primarily intended to increase rigor relating to hospice enrollment.

The hospice industry is currently the subject of intense scrutiny because of the significant fraud and abuse issues perpetrated by bad actors in California and elsewhere. While they have created new administrative costs, we understand and support the need for program integrity measures that will help lawmakers and regulators pinpoint and punish fraudsters.

We are working closely with regulators to narrowly tailor regulations and enforcement in ways that improve patient care and increase trust in the industry. By identifying and isolating bad actors, funds can be redirected to providers like Pennant who deliver great care in a compliant manner. In short, we are well equipped to thrive through this dynamic regulatory environment.

On the home health side, our operations continue to grow and perform well. Home health revenue increased to $119.4 million, an increase of $40.3 million or 50.8% over the prior year quarter. Total home health admissions increased 62.3% and Medicare admissions increased 70.7%, each over the prior year quarter.

Revenue per episode decreased by 1.9% over the prior year as we anticipated based on our significant growth in the Southeast. These markets have lower CMS wage indexes and thus lower revenue per episode, offset by lower actual wages and overall cost of service.

Consistent with our hospice results, our same-store strength illustrates our foundation of quality care with total same-store home health admissions increasing 9.7% and same-store Medicare admissions increasing 13.6%.

The transition of new operations in the Southeast continues to roll forward on schedule, but we see significant variability and much opportunity to improve individual operations. We are pleased with our overall performance and transition progress to date.

Financially, margins in these businesses are trending ahead of internal expectations. Clinically, where we have successfully transitioned to Pennant's EMR instance and implemented our technology stack and clinical best practices, we are seeing outcomes improve, including star ratings and potentially preventable hospitalization scores.

That said, we are currently in the thick of our largest transition waves, which will continue through October. This will naturally cause some ongoing disruption. In the long term, we see so much potential in these operations and the local leaders and teams. We expect them to thrive in Pennant's unique operating model for many years to come.

Clinical excellence is the foundation of all we do. Our quality scores remain excellent with an average CMS star rating of 4.1 compared to the national average of 3.0, and a potentially preventable hospitalization rate of 10%, which compares favorably to the national average of 10.8%.

We also continue to benefit from CMS' home health value-based purchasing program, in which our mature operations have experienced positive revenue impacts on average. These favorable adjustments helped our same-store revenue per episode increase by 40 basis points over the prior year quarter despite the impact of Medicare base rate cuts.

Our senior living segment continued its significant growth in the second quarter as revenue improved to $60.2 million, an increase of $6.7 million or 12.6% over the prior year quarter. Segment adjusted EBITDA increased to $5.8 million, a $0.7 million or 13.2% increase over the prior year quarter.

In Q2, average all-store monthly revenue per occupied unit rose to $5,392, an increase of $204 or 3.9% over the prior year quarter, and same-store monthly revenue per occupied unit rose to $5,413, an increase of $282 or 5.5% over the prior year quarter. Same-store occupancy ticked up 150 basis points versus the prior year quarter to 81.6%, even as we have consistently strengthened our revenue quality year after year.

We are pleased with the broad-based stability and leadership in our senior living business which has enabled us to be active acquirers with 7 deals closed year-to-date. As we have discussed previously, in Q3 and Q4, we anticipate some lumpiness in senior living margin as we integrate these newly acquired communities, many of which have low occupancy but compelling long-term potential that we are excited to unlock.

Turning to acquisitions more specifically, Q2 produced a steady stream of senior living deals. On our Q1 call, we discussed our April and May acquisitions of 2 communities in Arizona and 2 in Wisconsin, constituting 262 units. Later in May, we acquired the operations and real estate of Copper Canyon Memory Care, a 40-unit community in Tucson, Arizona.

On June 1st, Pennant assumed operations of a senior living community in Pleasant Hill, California, known as Memory Care of Contra Costa, including 46 memory care units. These acquisitions reflect Pennant's commitment to high acuity senior living care, which is embedded in our DNA as a clinical company. We believe that our ability to accept and serve more clinically complex residents positions us well for the demographic trends ahead.

On August 1st, we acquired the operations and real estate associated with River Center Assisted Living, a 63-unit community in Tucson, Arizona. The addition of River Center and Copper Canyon increases our growing real estate portfolio to 9 properties, including 5 acquired in the last 12 months. It also strengthens our robust care continuum in Tucson, which includes multiple home health, hospice and senior living operations.

On the home health and hospice side, we made an investment in Hartford HealthCare at Home that we are excited to discuss. On June 4, we announced the next evolution of our partnership with Hartford HealthCare, which began more than 2 years ago. In 2024, we commenced management of Hartford HealthCare at Home, which now provides home health and hospice services to more than 30,000 patients annually from 9 locations throughout the State of Connecticut.

In June, we made an investment in the future of Hartford HealthCare at Home that allows us to share in the profits or losses recognized in connection with our management of the business. These now appear as income from equity method investments in our financial statements and more details are available in our 10-Q.

We are pleased that since we began working with Hartford, we have expanded patient access, improved clinical outcomes and brought financial stability to Hartford HealthCare at Home. We have also established a service center in Connecticut, invested in strong operational and resource leaders and created a foundation from which we can grow in the Northeast.

With that, I'll hand it over to Lynette for a review of the financials. Lynette?

Thank you, John, and good morning, everyone. Detailed financial results for the 3 months ended June 30, 2026, are contained in our 10-Q and press release filed yesterday. For the quarter ended June 30, 2026, we reported total GAAP revenue of $298 million, an increase of $78.5 million or 35.8% over the prior year quarter; adjusted EBITDA of $24.3 million, an increase of $7.9 million or 48.2% over the prior year quarter; adjusted EBITDA prior to NCI of $26.1 million, an increase of $8.8 million or 51% over the prior year quarter; GAAP diluted earnings per share of $0.25; and adjusted diluted earnings per share of $0.36.

Our year-to-date results put us on pace to exceed the top end of our full year guidance. Accordingly, we are revising and raising our full year 2026 guidance as follows: full year total revenue is anticipated to be between $1.17 billion and $1.19 billion. Full year adjusted diluted earnings per share is anticipated to be between $1.34 and $1.41, and full year adjusted EBITDA is anticipated to be between $94.4 million and $98 million, and full year adjusted EBITDA prior to NCI is anticipated to be between $101.5 million and $105.1 million.

This updated guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 37 million and a 26% effective tax rate. It anticipates continued strong operating performance through the end of the year, hospice reimbursement rate adjustments, elevated interest expense and the contributions from our joint ventures and management agreements. It excludes unannounced acquisitions, start-ups, share-based compensation, acquisition-related costs and one-time implementation and unusual items.

Key metrics as of June 30, 2026, include $201.9 million outstanding under our credit facility and $15.3 million cash on hand at quarter end, 1.96x net debt to adjusted EBITDA and cash flows provided from operations of $18.4 million year-to-date.

I would now like to spotlight a few leaders in our organization who have achieved exceptional results. Their stories demonstrate the remarkable progress that can occur when local leaders build strong culture and develop high-performing teams of C-level leaders in their operations.

At Emblem Hospice in Tucson, Arizona, CEO, Tobias Emms; CCO, Adriana Chrite; future CCO, Itzel Eriksen; and future CMO, Chelsey Kahn, have created a culture that makes Emblem a vital contributor to the Tucson market. Emblem's leaders have intently focused on cultural excellence, creating a supportive environment where employees feel aligned with the organization's goals and ownership over results.

This has resulted in a caregiver satisfaction score of 95%. This alignment has also allowed Emblem to become a consistent provider of choice in the Tucson market as the team works collaboratively to respond quickly and communicate effectively with referral sources and families.

Emblem has developed an outstanding clinical reputation, highlighted by their strong scores for visiting patients in the last days of their life. As a result of these efforts, average daily hospice census has grown 43% year-over-year. Financial results have followed suit as Emblem's revenue has increased 75% and EBITDA has increased 315%, each over the prior year. Emblem is a valued partner in the robust care continuum that Pennant has developed to serve Tucson and the surrounding community.

At Signature Healthcare at Home in Eugene, Oregon, CEO Samantha Monroe; CCO, Lucy Arbow; and future CMO, Milly Sage, have demonstrated how local leaders and teams can transition and thrive in Pennant's unique operating model, adding tremendous value to their local communities. Since its acquisition by Pennant in January 2025, Samantha and Lucy have embraced CAPLICO and our unique locally driven model.

Signature's rigorous focus on operational excellence has resulted in exceptional clinical and cultural outcomes, including a real-time star rating of 4.5, a potentially preventable hospitalization score of 7.2%, single-digit turnover and home health value-based purchasing score significantly better than the national and state average.

As a result of this clinical excellence and workforce stability, census has increased nearly 30% since acquisition and EBITDA has doubled versus the prior year. Samantha, Lucy and team are helping to set the bar and elevate care in Oregon.

On the senior living side, CEO, Ryan Weaver; CWO, Abigail Santos; and CMO, Charlie Wolfe, have created a community of choice at Desert View Senior Living in Las Vegas, Nevada. With a special focus on caring for our nation's military veterans Desert View benefits the lives of a deserving elderly population. Desert View's occupancy has consistently been above 95% over the past 4 years, demonstrating that it is an in-demand community.

By creating a comfortable and caring environment, Desert View has grown revenue 10% year-over-year and EBITDA 29% year-over-year. Desert View's story exemplifies how established leaders in a stable, mature operation can drive steady organic growth year after year and benefit the lives of a vulnerable population.

With that, I'll turn the call back over to Brent for concluding comments.

Thanks, Lynette. Before we transition to questions, I want to thank our employees whose daily efforts create the results we share on these calls.

With that, we'll open it up for questions. Olivia, can you please instruct the audience on the Q&A procedure?

[Operator Instructions] Our first question coming from the line of Raj Kumar with Stephens.

Maybe kind of focusing on home health and the strong organic growth that you guys are seeing there. Fee-for-service pretty healthy and MA kind of right behind it. So as I kind of think about some of the dynamics underlying that this year, MA has kind of been tempered from a growth perspective, might kind of rebound next year. How should we kind of be thinking about just the kind of profile of the business and the underlying stability if there are certain population shifts across the fee-for-service or MA kind of insurance backdrop?

Yes. Thank you for the question. I think one thing that is unique about our business is our locally driven models impact on how we make referral and acceptance of referral decisions. So each of those decisions is made at the local level by leaders and teams who understand sort of both sides of the equation. They understand what their staffing looks like. They understand what their reimbursement looks like. And so they're really well positioned to make those decisions in a way that benefits patients and the community and the organization as a whole.

And so I think one of the things that your question highlights is we've had incredible success in driving organic growth across the platform. 13.6% increase in Medicare referrals, a 9.9% increase in total admissions sort of reflects that the communities that we serve are choosing us. And because we've been able to staff, because we've been able to take volume in those more in-demand communities, it's positioned us to sort of choose which referrals to accept.

I think we believe that there will continue to be growth on both sides of the ledger. I think as Brent highlighted, there's just going to be more patients that need services and more demand for the services we provide. But certainly, we expect that there's going to be more growth in Medicare Advantage and commercial plans. And so we're investing strategically within the service center to make sure that we have the best team possible to present the compelling tenant story from a clinical outcome standpoint, from an efficiency of care delivery standpoint so that we can make sure that we have the rate that's necessary to take that volume.

And so I think you'll continue to see growth in both fee-for-service patients and in MA patients. We believe that being a solution to the community is critical to our overall success as a company. And so that's how we're intending to approach it.

Got it. And then maybe following up on thinking about senior living and I think the kind of uniqueness of your portfolio with the Medicaid exposure. Just kind of curious on the waiver programs there, the sustainability that just underlying the backdrop around constrained Medicaid funding overall under this administration. So curious on what offers advantage or stability from that standpoint with your Medicaid weighted business as you kind of think about the senior living business long term?

Thanks, Raj. This is Andy. Yes, we have developed really meaningful relationships with the managed payers in the states where we serve higher density on the Medicaid population side. We're pretty particular about the states where we're expanding that offering versus not, and we're thoughtful about how we grow that business.

In the case of those specific programs, we see stability where we have that density and believe that we need to create an offering for all, but also it has to be in a way that protects margin in those states where we have those relationships. Because we're providing a lot of value and we're working with those managed care payers, we continue to be able to negotiate and work with them to create not just an offering from kind of a community standpoint, but one that does have a viable margin and gives us hope for the future.

In terms of the rate pressure, we continue to monitor that situation, but haven't felt large effects in any of our major density areas.

Our next question in queue coming from the line of David MacDonald with Truist. Your line is now open.

David, your line is now open. Please check your mute button.

Alright, we'll go to the next person in queue. David, join the queue again, if you can.

Our next question coming from the line of Brian Tanquilut with Jefferies.

Congrats on a solid quarter. Maybe my first question, as I think about the Amedisys assets, if you can share with us just the progress in that integration. It seems like there's still waves to be done, but any color you can share with us in terms of the strength in that business that you're seeing as you evaluate the new market in Tennessee?

Yes, Brian, thanks for the question. I would start with the people. There's amazing people that we inherited in these operations. And it's been fun to see them embrace our unique operating model. Anytime you go into a new community with 46 new assets in Tennessee, multiple assets in Alabama and Georgia, there's that question of how people are going to respond. And it's been really exciting to see them embrace the Pennant model and how quickly and effectively they've worked through the difficulties that are inherent in any transition.

We're currently -- we've completed 3 waves. We are approaching the end of Wave 4, which was one of the larger waves. And then we've still got one of the largest waves, which is Wave 5 that just started August 1.

And so as I mentioned in the call, I think we are on schedule from a timing standpoint. Our service center team and our operations teams that have been supporting these assets have done a remarkable job of working through the implementation of new brands, training and developing the existing leaders and some new leaders to step in and lead these operations in our model. And then, of course, implementing our instance of Homecare Homebase, our technology stack and ultimately -- and this process will take longer, the implementation of our clinical best practices. But all of that is proceeding on schedule, and we're excited about it.

I think Brent mentioned we feel like we're a little bit ahead of schedule with regard to how the assets are performing. We've seen volumes sort of stay well and really above where we expected it to be through the transition, through the brand change, through the leadership change. And I think that's a sign of the need in these communities for high-quality providers. And that's exactly what we have in these assets.

And so we're just really excited about the future of what we can build in the Southeast in the quality of these assets and most importantly, in the quality of the people and the way that they can impact the remainder of the year, but more importantly, how they impact the future of Pennant.

That's good. And then when I think about the same-store performance for the quarter, I mean, really strong, right? And when I think through the drivers of that, obviously, the market for home health and post-acute as a whole is growing. But how are you thinking about market share gains and the ability to sustain that level of same-store performance?

I think there's a couple of things I would highlight with regard to our same-store home health and hospice performance. One of them, obviously, is the strong organic growth numbers, which really play into your question about market share. And that comes back to what I stated in responding to Raj's question.

I think our local approach allows us to diversify our offering based on the needs of the community. And that includes everything from the clinical programs we design, which -- some of which are designed at the service center, but then implemented according to the needs of the local community. It also allows us to be super responsive to referral sources because decision-makers are housed there in the local community. And so we've just seen that resonate with people.

I also think that it's resonating with staff. And that's a big -- the big question of the future. There is so much demand. The big question is who will be the best at recruiting, retaining and creating a life-changing opportunity for clinicians. And I think our leaders are doing a good job of that. I think our turnover shows it that as that has declined, I think our headcount growth shows that our recruiting has improved. And overall, we're better meeting that need.

And so when you look out and say, is this sustainable, I think we have traditionally sort of cited that mid- to high single digits as where we think our mature organic growth is going to lie. We've been performing above that for a number of quarters in a row. And I think that reflects the increasing demand and our ability to take market share.

The other thing that I would highlight is just in, and I called it out on the call, even as we've been going through this growth, we improved margin at our same-store operations by 50 basis points year-over-year -- actually 70 basis points year-over-year. And when you think about that, I think that reflects sort of this element of our model where owners are supporting other owners and cluster partners are supporting other cluster partners in driving improved operational outcomes. And I think that is sustainable because it's such a focus and because the way our model ties people together to support each other.

I see David MacDonald is back in queue.

Can you guys hear me?

Yes, we can hear you.

Okay. Sorry about that. So guys, just 2 quick questions. One, we hear a lot in terms of providers talk about automation, talking about AI, talking about a lot of the things that are changing the market a little bit. Can you guys just talk about -- obviously, you've got a staff that deals with a lot of clinical paperwork, a lot of things where there is potentially an opportunity to drive some efficiencies. Just kind of how you're thinking about that relative to your employee base and any opportunities there over the next, let's say, 12 to 24 months?

Yes, David, I appreciate the question. And it's certainly something we haven't spent a lot of time talking about on past calls. But I will say this, it is a key focus area for us. We recognize and acknowledge that moving forward, technology advancements and specifically related to using AI and the tools available there are going to be critical to delivering more effective, more efficient care. And so we've spent a significant amount of money and investment in driving and elevating the performance from a technology standpoint. And a lot of this stuff is in development.

There's a huge opportunity to do a few things. First of all, we think a lot about our clinicians and the experience that they have in patient homes and just the work that they do. A lot of that is tied into documentation time. And so we're really focused on coming up with solutions and piloting different solutions that will allow our clinicians to be more efficient and effective in the care that they provide and frankly, just provide a better experience for them in general because we know if they can do that, they will be more productive. We'll be able to increase the number of patients that we can care for. And it should also ensure that the care that the patients are getting is increasing and improving.

The other side of this is on the back-office automation piece. And there's a lot of procedures or manual processes that currently is just part of what we do. But a lot of these AI tools are going to allow us to eliminate many of those processes and really reduce the indirect spend.

And so I could elaborate for an extended period of time on all of this, but I'll just say this, we are very focused on this. We believe it's a part of our future. We look forward to maybe speaking about it more as some of these pilot programs and these trials continue to show progress. And ultimately, we would expect to see improved quality outcomes and improved financial outcomes as a result of the investments that we're making on the technology front.

Okay. And then just one quick follow-up. I wanted to just jump off what Brian was asking about. Just in terms of the market share and the underlying trends, this is probably a little bit hard to parse, but I'm just curious, do you guys think that some of the noise around waste, fraud and abuse has potentially started to accelerate some market share shift towards some of the larger, more sophisticated folks? And are you guys benefiting from some of that share shift?

Yes. It's a great question. And I think what we believe we've seen, particularly on the hospice side, is that it is a fundamentally different enforcement environment than it has been over the last few years. The result of that is there's these things, these payment suspensions, these audits, all of these different things that are causing providers and referral sources to question how they move forward. And I think that that has allowed us to step into a place where we've had more opportunities to provide life-changing care because of those changing dynamics in the industry.

Our robust internal compliance program, our strong ability to navigate and manage through audit activity and the enforcement activity that exists, that has positioned us in a place of trust in a lot of these communities and allowed us to accept patients that were maybe looking for a home or work with referral sources who maybe previously had worked with others, but now are focused on those kind of things. And so I do think that there is an impact.

We think that our biggest opportunity is to continue to focus rigorously from an eligibility criteria standpoint, from a compliance standpoint in delivering life-changing care in each community we serve and that that's going to give us opportunities to continue to grow market share.

Our next question is coming from the line of Ben Hendrix with RBC Capital Markets.

Just wanted to move to the hospice segment real-quick. And I know I ask you guys a lot about cap, but we get a lot of clients focus on it, especially I think one of your peers put up a cap accrual this quarter in a market we don't typically think of high wage index. And just given this strong organic census growth still outpacing admissions, just want to get your thoughts on how that management process is going, how you guys think about balance and if there's anything kind of emerging either in your new markets or in your same-store markets regarding cap accrual.

Thanks, Ben. It's one of the things that we constantly focus on. The Medicare cap, particularly in California, as we've discussed on previous calls, requires us to sort of manage our census because patients are eligible for a longer period of time than the cap allows them to receive services. And so I think you saw us record about $1.3 million in the quarter. We're still about $0.5 million behind where we were last year. And that has come from -- we approach cap like we approach every other operational thing when we notice a problem, and we're tracking this constantly.

Our finance team has developed sophisticated tools that project cap over multiple years, and they present that data to our operators on a monthly basis so that they know how they're trending. That data also works in census growth and admissions growth and kind of how that plays into cap management. And then our operators understand that the mix of patients that they receive, whether it's from hospitals, whether it's from dialysis, that they've got to manage that length of stay, particularly in those higher reimbursement states.

As a rule, most of our cap continues to come from California. And so we feel pretty comfortable with the way that we're managing it. From time to time, you'll see an individual operation where there's cap liability. And again, we focus on that with an individualized plan based on the needs of that community and the way we feel like we can better serve that community by working with referral sources where we traditionally receive shorter length of stay patients.

But overall, I think we're managing it well. We'd always like to have no cap, but the reality is our most important obligation is to provide service to eligible patients. And in states like California, that may result in cap from time to time.

Our next question in queue coming from the line of Jared Haase with William Blair & Company.

I wanted to ask about the partnership expansion with Hartford. Just wanted to hear a little bit more about what led you guys to sort of want to take more of an equity stake here with that partnership. And then I guess, any other thoughts around potential growth or expansion or maybe taking that a step further. Are you thinking about that as kind of a beachhead to give you more expansion opportunities throughout the Northeast region?

Yes. Thanks for the question, Jared. I'll take the first part, and Brent will jump in on the second part. I think what attracted us to the opportunity at Hartford is honestly the excellence of Hartford HealthCare and their commitment to in-home care. They had built Hartford HealthCare at Home as the largest provider of home health and hospice services in Connecticut. They recognized that they needed a partner from an operational standpoint to be able to deliver the best quality care most efficiently and make sure that there was financial stability and patient access in that business.

And so we started 2 years ago as a manager with those sort of twin obligations and goals. As we succeeded in driving improvement in each of those areas, we felt like we reached the time where we both felt like we should invest in the partnership on a go-forward basis that together, both as owners, we would have an opportunity to build something even more special to serve the residents of Connecticut and those who need home health and hospice services.

And so we're just thrilled with the opportunity. We're thrilled to partner with Hartford HealthCare. We're thrilled to operate the largest home health and hospice provider in Connecticut. That won't consolidate into our revenue. And so you'll see it a little bit differently in our financials. But we believe it's a great opportunity for Pennant and for the residents of Hartford and actually the whole State of Connecticut.

Yes. And sort of to that point what John has shared and to your question, we looked at this certainly from an incredible opportunity to partner with a high-quality provider out on the East Coast, but it also allowed us to have a pretty sizable platform to build off of. And so our intention going in was to really help stabilize and grow this business, but eventually have the support, invest in service center.

We have a service center location out there on the East Coast and to recruit leaders that could develop that business, but then also expand beyond that. And in many ways, it's similar to the way we think about the Southeast. That is the beginning stage with some size, it allows us to really make strategic investments, demonstrate in these broader markets that we're a viable operation.

And now we're essentially becoming a national company that can operate. Historically, we've been primarily in the West, but now we're in the Southeast and in the Northeast. And that really is beneficial in a couple of different ways. One is from a relationship with payer standpoint, we can become a much broader solution and that really helps in our negotiations from a rate standpoint. And then it opens up other doors to potentially expand into additional markets where we aren't currently operating.

And so we're excited about that deal because of the opportunity to continue to expand. And we see it sort of as this continuing step in the progression of our relationships with health care systems, joint ventures, et cetera. We now have 4 meaningful relationships that kind of dot the country, and there's certainly an opportunity to expand in our relationship with health care systems going forward as well.

Okay. That's very helpful. And then as a follow-up, I wanted to just turn to cash flow on the balance sheet. So it looks like CapEx was a little bit elevated, which I think is something you guys had talked about previously in regards to some investments on the senior living side. I guess just more broadly, could you remind us kind of your thoughts on cash flow from here?

And then it looks like debt came up a little bit this quarter, which I think was attributable to the investment in Hartford that you made. I guess just as you think about the opportunities to drive cash flow, how are you thinking about prioritizing maybe paying down some of that debt versus maintaining some flexibility for growth investments?

Yes. From a cash flow perspective, I think we're on track to be where we have guided to, which is the $45 million to $55 million in operating cash flows with that kind of going up as we've raised guidance to about $58 million on the high end. And so there will be some extra noise as we go through these transitions. There's some collections pieces as we go through any transition from an acquisition, but there will be some extra noise there.

From a cash outflow looking at that CapEx piece, we do have some acquisitions that we've done on the senior living side towards the end of 2025 that are having larger CapEx expenditures for those buildings. They were significantly distressed buildings that we acquired, and we're spending money to get them up to the standards that we would like them to be at.

And so there's more cash expenditure that has happened related to those. And we anticipate that cash expenditure to be probably in that $15 million to $17 million on a year basis for CapEx spend on that line item on the cash flow statement.

The debt side did go up. That mainly was driven by the acquisition or the Hartford -- what we just talked about, Hartford HealthCare at Home and acquiring an interest in that. And so that piece, we will continue to work on paying down through our operating cash flows, that outstanding balance and we want to make sure we're maintaining the ability for us to continue to acquire when we have acquisitions that come along that fit our acquisition profile.

Our next question coming from the line of Stephen Baxter with Wells Fargo.

I wanted to ask about the senior living business and the acquisition pace you're doing. I'd love to hear a little bit about what the same-store margins look like in that business. I think you cited the same-store margins for the home health and hospice business earlier, but I'm not sure I heard them for senior living. Just trying to understand the progress you're making there because it seems like the occupancy and the rate growth are going in the right direction to drive same-store margin improvement that might just being offset by some of the new store activity you have.

Yes. I appreciate the question. I -- on the same-store side, we continue to see stability and progress from a margin standpoint. And really, most of that impact is really driven by these new store adds that we've had. The stability, and I think John and Brent kind of outlined this in the call, but the stability in the same-store business has been consistent, and we expect that to be ongoing.

Okay. And then I'd love to just hear a little bit about the improved guidance. Is there a reason to think that that's driven by home health and hospice perhaps a little bit more so than senior living given some of the progress that you discussed on the call today? Or how should we think about the composition of the improvement and kind of where that sits within the segments?

Yes. So just to kind of add a little bit on the senior living side, most of the lumpiness that's going to be coming in Q3 and Q4. Q4 as I said, is driven by that new store challenge. And so on the same-store side, I just pulled up the numbers, sorry, I want to just add a little bit more color there. Same-store improved from 10% to 10.5% year-over-year.

And then I'll let the team answer the second part of that question.

Yes. On the guidance, I think you're just seeing the progress in the acquisition in Tennessee or in the Southeast, but then also just the continuing performance of our current operations. And I started kind of talking about this at the beginning of my remarks, but it's pretty remarkable the progress that has been made on core operations even in light of this pretty intense transition period.

And so we're just really encouraged. And obviously, at the beginning of the year, as we project out and we anticipate the challenges related to any sort of transition, let alone the largest transition in our history, we're naturally going to be conservative to ensure that we're accounting for any lumpiness in results or any fluctuations that may come and things that we just don't know what to expect.

And the team has talked about the incredible contributions of our local leaders and teams and the ability to maintain and even improve performance consistently over time. And so we're ahead of schedule up to now on the transition, but we're also making meaningful progress on our key initiatives across our core operations as well.

So that's really what's led to the increase in the guidance because we're just -- we're performing better than we anticipated at the beginning of the year. And so we hope that that will continue, but we're also cautiously optimistic, recognizing that there's the work -- there's still work to be done, and there's still a lot of progress to be made, but we anticipate a continuing improvement going forward.

Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Brent Guerisoli for any closing remarks.

All right. Well, thank you, Olivia, and thank you, everyone, for joining us on the call today.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to The Pennant Group First Quarter 2026 Earnings Call. [Operator Instructions] 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 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. References to Pennant, the company, we, our and us mean 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, our 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?

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-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 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 Pennant 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?

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 Pennant 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, 3 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 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?

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 in Grants Pass, Oregon is led by Chief Executive Officer, Will Johns; Chief Marketing Officer, Sabrina Zehe; 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 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 that Home Health and Hospice are critical components in the health care continuum in rural communities.

At Capitol Hill Senior Living, newly appointed CEO, Rodney Washburn; and CCO, Britanee 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' 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 line up for questions. Michelle, would you please provide the audience with the Q&A instructions?

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

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 we should be thinking 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 in labor and patient retention, just things along those lines.

Yes, 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 these Amedisys 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 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.

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?

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.

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, 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?

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 decant 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 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, 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.

And the next question is going to come from Raj Kumar with Stephens.

Maybe I just wanted to look at some of the same-store trends in Home Health. Medicare admission growth continues to be strong. Just kind of curious to see what you're seeing at the market level in terms of it's -- 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?

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 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-store growth trends there, I think there's a pretty wide gap 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?

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 release 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 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 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 as 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.

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

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.

Yes. 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 national 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.

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 an 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.

Okay. And then just -- appreciate that. And then just one 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?

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 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.

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

Just wanted to quickly follow up on the hospice discussion from earlier. It sounds like 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?

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, as 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.

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 assets. Kind of how much quality improvement you expect to get out of those and kind of where you can take the performance of those new platforms?

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.

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

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?

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.

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.

Yes. 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 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 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 Instructions] The next question is coming from Jared Haase with William Blair.

I'll actually maybe stick with the point that you just alluded to, Brent, 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?

Yes. Thanks, Jared. I appreciate the question. And I think what we're most excited, Brent 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 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 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.

Yes. And Jared, I would just add one additional element. We've talked about this in the past. The tools and the resources available at our local -- to our local team, 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 and as effective as possible.

Got it. That's super helpful. And then I'll just ask one 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 state budget over the next couple of years?

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 a 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.

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 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 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.

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

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.

Good day, and thank you for standing by. Welcome to The Pennant Group Fourth Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like to turn the call over now to Kirk Cheney. Please go ahead.

Thank you, Lisa. Welcome, everyone, and thank you for joining us today. Here with me today, I have Brent Guerisoli, our CEO; John Gochnour, our President and COO; and Lynette Walbom, our CFO.

Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-K this morning. These are available on the Investor Relations section of our website at www.pennantgroup.com. A replay of this call will also be available on our website until 5:00 p.m. Mountain Time on February 26, 2027.

We want to remind anyone who may be listening to a replay of this call that all statements are made as of today, February 26, 2026, and these statements will not be updated after today's call. Any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.

Except as required by federal securities laws, Pennant and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise from new information, future events or any other reason.

In addition, The Pennant Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the service center, provide administrative and other services to the operating subsidiaries through contractual relationships with those subsidiaries. The words Pennant, company, we, our and us refer to The Pennant Group, Inc. and its consolidated subsidiaries. All of our operating subsidiaries and the service center are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the use of the terms we, us, our and similar terms do not imply that The Pennant Group, Inc. has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Pennant Group.

We supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and in our 10-K.

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

Thanks, Kirk, and good morning, everyone. Before I say anything about our results, I want to take a moment to recognize the local leaders and teams across our organization whose commitment to our patients and residents makes everything we're going to share this morning possible. We are deeply grateful for the daily actions you take in support of our honorable mission to provide life-changing service to the people in your communities. It is your dedication that defines who we are as a company.

2025 was an exceptional year for Pennant. Our fourth quarter adjusted earnings per share of $0.34 contributed to full year 2025 adjusted earnings per share of $1.18, exceeding the midpoint of our updated annual guidance of $1.16. Our full year consolidated results include revenue of $947.7 million, an increase of $252.5 million or 36.3%, adjusted EBITDA of $72.5 million, an increase of $19.2 million or 36% and adjusted EBITDA prior to NCI of $76.7 million, an improvement of $21.6 million or 39.2% each over the prior year. In short, we met or exceeded the midpoint of our updated guidance across the board.

From day 1, 2025 was a year of growth. On January 1, we completed our acquisition of Signature Healthcare at Home in the Pacific Northwest and quickly integrated them into our unique operating model, dramatically improving their performance throughout the year. In October, we expanded eastward with the largest acquisition in our history, the purchase of over 50 locations from UnitedHealth and Amedisys, adding meaningful reach in the Southeast. We also opportunistically acquired operations and real estate assets in our Senior Living segment. During this time of rapid growth, we drove progress in our same-store operations in both segments and added key leaders in the field and the service center who accelerated our results in 2025 and have positioned us for future success.

Our 5 key focus areas remain the guiding principles that informed our efforts: leadership development, clinical excellence, employee experience, margin improvement and growth. We continue to make progress across each of these areas in 2025. On the leadership front, we added more than 100 leaders to our CEO and training program this year. Talented individuals whose skills and entrepreneurial energy will help us unlock additional value in our new and maturing operations.

In addition, we elevated another 39 leaders to C-level status within their local operations. We have consistently said that great results begin with great people. As we invest in the right leaders and give them the tools to succeed, we become the employer and provider of choice in our communities, and the results we're reporting today are proof.

Now following a year of tremendous growth, while we remain open to selective and opportunistic acquisitions, we are intensely focused on optimizing performance and driving operational excellence. We must and we will deliver exceptional integrations of our newly acquired operations. The transition of former Amedisys and UnitedHealth agencies in Tennessee, Georgia and Alabama is well underway, and we see enormous potential in these locations. Even as we integrate these new assets, we intend to drive growth and improvement in the mature operations across our portfolio as we have year after year. That focus on operational excellence includes not only top line growth, but corresponding bottom line improvement and clinical outperformance.

Every one of our local teams is committed to delivering more value in 2026 while maintaining exceptional outcomes for patients and employees. We also intend to continue the upward trajectory of our senior living business. Since the pandemic, we have seen occupancy, revenue and adjusted EBITDA climb consistently and significantly. There is still substantial opportunity to unlock in our senior living portfolio. And as we continue to add operations and accelerate our flywheel of operational excellence, the growth potential ahead is compelling.

Turning to 2026 guidance. As announced in our press release yesterday, we are providing full year guidance of revenue in the range of $1.13 billion to $1.17 billion, a 22.4% increase at the midpoint; adjusted EBITDA of $88.5 million to $94.1 million, a 26% increase at the midpoint; adjusted EBITDA prior to NCI of $94.2 million to $100 million, a 26.7% increase at the midpoint and adjusted earnings per share in the range of $1.26 to $1.36 with a midpoint of $1.31. Our guidance reflects the readiness of our local leaders, the strength in both of our segments and the significant upside we expect to continue to unlock in our existing operations, both in the mature portfolio and the newly acquired locations. This guidance is annual, not quarterly. And like prior years, it reflects an anticipated ramp throughout the year, particularly as we transition a significant number of recently acquired operations in the first half.

With that, I'll turn the call over to John to provide more detail on our fourth quarter operational results. John?

Thank you, Brent, and good morning, everyone. Q4 was a strong finish to an exceptional year, and I'm excited to take you through the key operational metrics, highlighting our progress across both segments.

In our Home Health And Hospice segment, revenue for the quarter of $233.3 million increased $91.3 million or 64.3%, while adjusted EBITDA of $33.7 million increased $12.4 million or 58.2% each over the prior year quarter. On the home health side, we saw our growth flywheel turn rapidly as we mix strong organic growth with our newly acquired agencies throughout the Southeast.

Fourth quarter admissions surged 81.3% and Medicare admissions grew 87.5% each over the prior year quarter. While quarter-over-quarter admission growth is impacted by our acquisition of the United and Amedisys assets, I would highlight the quality of the underlying organic growth. Same-store Medicare admissions grew 8.2%, along with a 3.7% increase in Medicare revenue per episode each over the prior year quarter. This strong organic improvement is attributable to our clinical excellence and the entrepreneurial ownership our local leaders bring to their operations each day.

Our average CMS star rating rose to 4.2 and compares favorably to the national average of 3.0, and that quality advantage is driving real results. Under CMS' home health value-based purchasing program, the vast majority of the agencies that we owned in the 2023 measurement period received positive revenue adjustments in 2025. The combination of admission strength, same-store growth and clinical quality gives us high confidence in the underlying trajectory of our business even in a reimbursement environment that continues to present headwinds. Our local leaders know how to pull the right levers.

On the hospice side, we saw steady and consistent growth. Our CMS reported hospice quality composite score of 97.5% helped drive all-time highs in average daily census, which grew to 5,060, a 46.9% increase over the prior year quarter. As in home health, our acquisition growth was complemented by exceptionally strong growth in our same-store results, where average daily census increased 8.4%, admissions increased 6.6% and hospice Medicare revenue per day increased 5.9% each over the prior year quarter.

The continued progress of our senior living business also should not be overlooked. With a stable and driven group of experienced leaders in that segment, we have seen substantially all metrics moving in the right direction, rate, same-store occupancy, revenue, margin and adjusted EBITDA. Full year Senior Living segment revenue improved to $215 million, an increase of $39.2 million or 22.3% over the prior year. Fourth quarter revenue of $56.1 million increased $9.2 million or 19.6% over the prior year.

Fourth quarter Senior Living segment adjusted EBITDA improved to $6.1 million, an increase of $1.9 million or 46% over the prior year quarter. All store occupancy rose 200 basis points to 80.6%, even as revenue per occupied room increased 5.6% each over the prior year quarter.

Same-store occupancy, which more accurately reflects the underlying operational improvement, grew 250 basis points compared to the prior year period, ending the year at 82.1%. The health of our senior living operations is enabling us to take advantage of a favorable growth environment.

Turning to our integration efforts. As Brent noted, we are diligently engaged in the transition and integration of the former Amedisys and UnitedHealth operations we acquired in October 2025. We are transitioning the locations in waves and expect to complete all waves by October 2026. As we've noted before, any transition of this scale will have initial choppiness in early results, which our guidance anticipates. As we complete the system and branding transitions and fully implement our operating model, we expect to achieve operational efficiencies and strong clinical outcomes, similar to the prompt improvement we experienced in our recent Signature acquisition.

What I would tell you is that the transition is progressing well. The reception we've had in the Southeast has been encouraging. We inherited and have already attracted additional talented leaders in the field and in our new Nashville service center, and these teams are genuinely eager to harness Pennant's locally driven model. These new operations have joined clusters with seasoned and successful Pennant operations. And so the building blocks of peer accountability that make our model work are in place. We remain very bullish on the long-term potential of these operations and the regional expansion they will enable.

On the growth front, we continue to see strong deal flow. We are always disciplined in our approach, but we will be even more selective on the home health and hospice front in the first half of 2026 as we focus on ensuring our recently acquired operations are on firm footing. On the senior living side, our reputation as a high-quality operator and our working relationships with REITs and sellers continue to generate compelling opportunities, often through triple net leases with minimal capital outlay.

We will remain disciplined and opportunistic as we screen for attractive deals in areas of strength where we have leaders prepared to step in. We expect a steady pipeline of such opportunities throughout 2026.

In Q4, we completed 2 senior living acquisitions. On November 1, Pennant acquired the operations and real property of a 55-bed assisted living community in Lewiston, Idaho, now known as Twin Rivers Senior Living. This community reinforces our strategic commitment to expanding high-quality senior care across Idaho.

Lewiston has long been a high-performing market for Pennant's home health and hospice operations, and we're excited to strengthen the continuum of care in that market.

On November 4, we completed the acquisition of the real estate related to Honey Creek Heights Senior Living in West Dallas, Wisconsin, following our earlier operational acquisition on January 1, 2025. This community adds 135 assisted living beds to our growing Midwest portfolio and demonstrates the value we can create through real estate ownership as we acquire and improve underperforming operations.

With that, I'll hand it over to Lynette for a review of the financials. Lynette?

Thank you, John, and good morning, everyone. Detailed financial results for the full year ended December 31, 2025, are contained in our 10-K and press release. We reported total GAAP revenue of $947.7 million, adjusted EBITDA of $72.5 million and adjusted diluted earnings per share of $1.18. In each case, we met or exceeded the midpoint of our guidance, which we raised in November.

As a note, the full year adjusted EBITDA of $72.5 million reflects both organic improvements across our mature portfolio and the contribution of acquired operations, including the October close of the UnitedHealth transaction. Our balance sheet remains strong.

In Q4, we expanded our credit facility with the addition of a $100 million term loan, bringing our total facility to $350 million. We invested $147.2 million in the UnitedHealth acquisition in October, and we now have a net debt to adjusted EBITDA ratio of 1.7x, well under our covenant limit of 3.25x.

We are in a comfortable leverage position with ample capacity for additional investments when we are prepared to make them. Our cash flows continue to be robust. In Q4, we generated $21 million of cash flows from operations, bringing our year-to-date total to $48.3 million. We had $17 million of cash on hand at year-end. We expect cash flow from operations in 2026 to reflect organic revenue growth and continued bottom line improvement. With robust earnings and effective cash collections, we expect to fund future growth and pay down outstanding debt from prior acquisitions throughout the year.

Turning to 2026 guidance. As announced in our press release yesterday, we are providing full year guidance of revenue of $1.13 billion to $1.17 billion, adjusted EBITDA of $88.5 million to $94.1 million, adjusted EBITDA prior to NCI of $94.2 million to $100 million and adjusted earnings per share of $1.26 to $1.36. It incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 37 million and a 26% effective tax rate. The guidance also anticipates EPS growth quarter-over-quarter, reflecting the ramp Brent described. It is based on ongoing integration efforts across over 50 recently acquired locations and expected ramp in home health and hospice ADC, continued occupancy and rate increases in senior living and the anticipated hospice reimbursement rate adjustments.

It excludes unannounced acquisitions and start-up operations, share-based compensation, acquisition-related costs, certain transition service agreement costs and onetime implementation and unusual items.

And with that, I'll hand it back to Brent.

Thanks, Lynette. It's my pleasure to spotlight a few leaders in our organization who have set a standard of excellence in 2025. Their results are not an accident. They are the direct product of strong local leadership, peer accountability and a relentless commitment to serving their patients and residents. This is what our model looks like in practice.

Future Chief Executive Officer, [ Eric Wise ]; and Chief Clinical Officer, [ Tracy Repco ], have built something remarkable at Columbia River Home Health in Kennewick, Washington. It begins, as it always does, with people. [ Eric, Tracy ] and their team have created a genuinely great place to work, evidenced by a nearly 90% employee favorability score and clinical turnover under 10%. Engaged teams deliver strong clinical results, and Columbia River is no exception. They have earned a real-time CMS star rating of 4.5 and potentially preventable hospitalizations of 6.2% compared to a national average of 10.8%. And the financial results have followed.

Columbia River's revenue grew 43% and EBITDA grew 60% year-over-year. Columbia River's clinical and financial excellence demonstrates the power of our model to create industry-leading clinical outcomes while also generating strong financial returns.

At Table Rock Senior Living at Paramount in Meridian, Idaho, future CEO, [ Heath Braberman ]; and future CCO, [ Lindsay Zawatsky ], have created a community defined by an exceptional team and the genuine care they provide each day to their residents. Acquired by Pennant in May 2024, Table Rock at Paramount is the kind of opportunity our model was built to unlock an underperforming operation in an area of organizational strength with prepared leaders in a community that needed what we have to offer.

In just 1.5 years, the community has grown from a starting occupancy of 76% to now well over 90%. Employee engagement scores have increased by 15% and clinical metrics have seen dramatic improvements across the board. This has led to material financial improvement. Revenue increased by 27%, revenue per occupied room increased 12% and EBITDA improved 236% each over the prior year quarter.

In part due to the success of Table Rock, our Idaho leaders continue to build an impressive collection of exemplary operations, and they are actively pursuing additional growth in the region.

With that, we'll open it up for questions. Lisa, can you please instruct the audience on the Q&A procedure?

[Operator Instructions] The first question will be coming from the line of Brian Tanquilut of Jefferies.

Maybe I'll start first with the guidance. Lynette, as I think about the guidance here, it looks pretty conservative. So am I right in just thinking that given the different moving pieces with the AMAD-LHCG integration that you've taken a much more conservative approach to guidance set. Is that the right way to think through this?

Yes, that's definitely the right way to think about this. When we look at it, when -- we will have some initial noise as we're transitioning those operations from United and Amedisys, and that transition will occur over the first 3 quarters. And so there will be a time that as we're transitioning both our operating systems, so HCHB and also doing the name changes, all those pieces will cause some noise there.

We also have operations that are supporting them from across the country. So while we continue those operations to still have strong growth, there will be some additional support that's being provided there. And so I think that's another factor that we wanted to continue to build into this guidance, and we can update as needed as we go throughout the year.

Okay. That makes sense. And then one of the things that we've noticed with the acquired assets is the joint venture strategy that's embedded there. I guess it's legacy LHCG and one of the examples is the University of Tennessee JV. How do I think about, number one, the performance of the JVs relative to non-JV agencies? And then the other side of it is, how do you think about the strategy or strategizing around joint ventures going forward, given what you're learning from that asset?

Yes, Brian, this is John. That's a great question. I think as we look at our joint venture operations, and we have several of these opportunities across the country, we treat them like any Pennant business, which means that we have exceptionally local leaders who collaborate directly with their health system partners to deliver exceptional clinical outcomes and great financial outcomes to that community. And so what is -- what was really exciting and part of the reason why we were so excited about this deal was the UT JV.

It's an exceptional health system that services communities across Northeastern Tennessee. And I think as we've gotten in there, that's exactly what we found. We found a great health system partner who wants to ensure great clinical outcomes for their patients, who wants us to take our great clinical outcomes and service a broader community, bringing patients into a continuum of care. And that's what's special about these partnerships.

It gives us an opportunity with a premier acute partner to collaborate, to share data, to share information to ensure the seamless processing of transitions of care to make sure that the patient experience is top notch. And that's what we're experiencing in California in our joint ventures. It's what we're experiencing in Tennessee.

And so I think on a go-forward basis, working with acute care partners is part of our strategy. It won't displace our core strategy, which is to create -- our mission is to create life-changing opportunities for local leaders, and that will include both joint venture opportunities where we'll work with acute system partners, but also opportunities to acquire independent agencies and continue the strategy that we've operated under for the last 10 years.

Our next question is coming from the line of Ben Hendrix of RBC Capital Markets.

Just wanted to ask a question on the Amedisys/UNH asset ramp-up. Just wanted to see if you could help us compare and contrast a little bit kind of what you saw with Signature versus kind of what you're seeing in this Tennessee portfolio. What might work better, what might lag a little bit versus Signature and kind of what lessons learned you can apply that's given you confidence in the time line there?

Yes. There are a lot of similarities. First and foremost, there's a lot of great leaders in operations there. Certainly, there's a mix of really strong operations and some that need to turn. But in general, we've been really pleased with the leaders that are there and the teams that have been in place as well.

Also other similarities, they've been on Homecare Homebase. And so even though there is noise in the transition from different instances, that does help to facilitate the transition a little bit better. I also think we've learned a lot from our time last year and the end of 2024 transitioning Signature. There was a lot of learning. And that's why we had a ton of confidence going into this deal.

The other thing I would say, and you probably remember from our conversations last year around this time when we talked about transitioning Signature that we likely wouldn't be doing any major acquisitions in 2025 as a result of the integration. And what we found was as our leaders jumped in, as we helped to develop and elevate the leader -- the local leaders that were already in place and then add additional leaders from our CIT pipeline that -- those transitions went a lot more quickly than we initially anticipated.

And so we look at that, and therefore, we put ourselves in a position at the end of 2025 to be able to do this larger acquisition with the Amedisys and United operations. And so we're approaching 2026 in the same way with conservatism, recognizing that this is still larger in terms of size, in terms of operations. And there are multiple waves that go into place there. There's also the transition services agreement that is a unique element of this particular deal. And then we're also transitioning other support services as well.

And so there are nuances that are different, but we feel confident in our local leaders. We feel confident in the teams that are already in place. We feel confident in the bench of CITs and other leaders that we brought in and the support across the entire organization to be able to transition well. So we remain optimistic.

The other thing I would just end with is 2026 is going to be a year of transition, but we wholeheartedly believe that we should be pretty well optimized by the end of the year and going into 2027. And so our normal sort of rate of return and expectations around performance, we anticipate in the coming years.

So overall, we're really excited about the progress that's already been made, but really knee-deep in all of the implementation and integration that's taking place right now.

Great. And just one quick question, if I may. Was the Columbia River discussion that Brent offered, was that part of the Signature group of assets that came over?

So yes, thank you, Ben. It was not part of those assets. We've actually operated that operation for, I think, 7 years. It's been a great operation. We acquired it from a health system, and we have been operating in that Tri-City community that it's a great story because it shows the efficacy of our model. Those local leaders have expanded relationships in that community. They've grown revenue tremendously. They've grown bottom line tremendously.

And that's not a 1-year story. That's a 7-year story from taking it over as a very small agency that was purchased from a bankrupt health system to being a true asset to the community. They've just year-over-year grown consistently. And so we were excited to honor them today.

I would also just add a key point here. [ Eric and Tracy ] and that team have, however, been involved in the transition of the Signature operations, its cluster partners and its market partners. And so it shows that even in the midst of support outside of their agencies, they're able to perform well in their local operations. And so that's just another takeaway from that experience.

That's the way that we operate. Our local teams go and support each other. And there are -- sometimes what happens is there's learning that happens in existing operations that kind of motivate change and to do things differently. And that's something that we experienced at Columbia River as well. So it helps to give us additional confidence as we're transitioning in the Southeast.

Our next question is coming from the line of Stephen Baxter of Wells Fargo.

I just wanted to follow up on the guidance. Obviously, you've given us the expected contribution from the deal assets, which is very helpful so we can think about the year-over-year and kind of what that adds. As we kind of think about the rest of the home health and hospice, maybe on a framing of like a same-store basis, could you give us a sense of what kind of same-store revenue growth you're embedding in the model or in the guidance for 2026?

And then as we think about your ability to grow same-store EBITDA or EBITDAR given the rate conditions you'll have in home health for 2026, would love just more insight into kind of how you're thinking about the ability to kind of grow the same-store earnings base with that rate in place.

Yes. Thanks, Stephen. So when we're talking about same-store home health and hospice growth for 2026, we've built into the model about a 7% increase in home health and hospice revenue in the 2026 model.

And then when we're talking about EBITDA expansion, yes, we do have the impacts of the home health rule, which will make softness in the revenue side. But as we discussed last year, we put together plans last year to really make sure that while we might have a rate decrease at that point, was looking at 6.5% essentially, what were the things that we could do to still have margin expansion or to maintain margin at that higher 6.5%. And so those initiatives are still pushing forward the ones that make sense for us to do at a 1.3% rate decrease.

So as we look at that, we expect to still have margin expansion a few basis points to get us to, again, having some margin expansion in 2026.

Got it. That's great. And then I would love to just hear a little bit kind of continuing on the guidance theme, just how you guys are thinking about the margin opportunity in senior living. And then just as we kind of look at the corporate line, like obviously, the corporate lines kind of had a decent amount of growth as you've done acquisitions in the past couple of years. I would love just a sense of how to think about modeling growth in corporate expenses maybe over the next year or 2.

Yes. As we're looking at G&A, we've modeled in roughly a 3.4% -- or sorry, it's not 3.4%, 6.4% to 6.5% of revenue for G&A for 2026. And then on the senior living front, we're looking at, again, revenue when we look at the revenue components. So an occupancy rate -- or an occupancy increase of about 100 basis points over the year.

And then on the rate side, roughly having RevPOR increases similar to this past year at about 6%.

And our next question is coming from the line of David MacDonald of Truist Securities.

Guys, more of a strategic question. If we look back a couple of years, your scaled competitors were -- are now basically captives. So I'm just curious, can you spend a minute on just what you think the incremental opportunity you're afforded now given what the competitive dynamic looks like across some of the home health and hospice competitors?

Yes, Dave, it's a really fair question. And I think one of the things that we -- I would highlight is the acquisition of some of our peers by payers, in particular, reflects the value that home health care, in particular and hospice care in addition reflects in the continuum of care. And so I think one of the key things to highlight is we are adding tremendous value.

The efforts by our home health partners and hospice partners, they keep people out of the hospital. They allow people to receive care in their homes, which is the lowest cost setting. And so when you look at the competitive dynamics, they've certainly changed, but it hasn't changed our modus operandi. Our focus is our belief that health care is a local business. It's a belief that there's going to be nuanced needs from -- for patients, employees and referral partners in every community that we serve. And so our focus is really on how do we develop a local leadership team that can respond to those needs in the most effective way that can be most responsive to community partners that can deliver the best clinical outcomes for our patients.

And I think that's why you continue to see such strong organic growth quarter after quarter and year-over-year. And so when you look at the dynamics of potentially some of our largest competitors being part of a specific health care payer, that gives us an opportunity to position ourselves as the premier independent provider of these services. And we feel like that argument is compelling. It gives us an opportunity to negotiate with payers across the board, letting them make the decision based on exceptional clinical outcome and not the fact that we may be affiliated with a different payer.

And so we think there's opportunity from a contract negotiation place. We feel like our clinical outcomes set us apart at the local level, at the national level. And then I think that is what drives the sustainable financial results and outperformance from a growth perspective that you're seeing right now.

So we're excited about the future. Obviously, we feel like these services add tremendous value. It gives us an opportunity to work with our industry partners from a regulatory perspective to really push on the narrative around that value and make sure it's reflected in Medicare reimbursement and really accelerate our business as we go forward.

And then, guys, just one other quick follow-up just in terms of potential share gain. I mean when we look at the captives, all of those companies had a very heavy footprint east of the Mississippi. And now that you guys -- as your footprint kind of further expands, a, can you talk about share gain opportunity, especially in some of your new markets? And then b, I know that you've talked about a little bit of a pause as you integrate in terms of M&A, but with a high-profile transaction like the United-AMED deal, can you just talk about incomings and what you've seen in terms of a potential uptick in the pipeline even if you're going to wait a bit to execute on some of that?

Yes. Dave, one thing I would say, part of the strategy or the rationale for going into Tennessee, in particular, was just the talent base that's there and the ability to build a service center and a location in the Southeast to be able to expand. So that was part of the calculus.

Obviously, we need to integrate the operations, but we anticipate that the Southeast will become an area of strength for us and that we can grow significantly there. And we've seen it already as we've incorporated these operations. We've had a significant number of folks that we've been able to add to the team, others that have reached out to us. And there's ample opportunity for us to grow.

And so we're excited about the potential that allows us to have. And certainly, as we look forward right now, we've put a little bit of a pause on the large growth. We'll do tuck-in acquisition opportunities. It actually doesn't change our approach on the senior living side. And we've got -- there's always opportunities in the pipeline there. But on the home health and hospice side, there has been plenty of outreach as well. There's much more recognition. I think as you expand into different geographies, certainly, it opens up the door for more opportunities to expand as well. And so assuming that we transition the way that we expect to, that we're looking forward to really doing the integration, but then seeking significant expansion opportunities going forward as well.

And David, on the market share question, we do think that the Southeast is different than where we operate in the West in part because there has been so much consolidation. And we believe that gives us a unique opportunity to set ourselves apart because of our local operating model. And so where there's -- all of the competitors are national in scope and scale, we think that gives us a competitive advantage because of our unique locally driven focus. And so that there is an opportunity to gain market share over where this business was when we acquired it. And that's part of the compelling growth opportunity that we see just in these assets, but also as we expand in the Southeast. So thanks for the question.

And the next question is coming from the line of Raj Kumar of Stephens.

Maybe just following up on the kind of senior living kind of 100 bps occupancy improvement and mid-single-digit kind of RevPOR baked into '26 guide. I guess what's the kind of underlying cost assumption as we kind of parse out kind of incremental margin improvement in the kind of Senior Living segment?

And then historically, I believe you kind of called out a kind of operating income margin in the kind of mid-teens for this segment. And now you're kind of in the double-digit range. So as we kind of think about that opportunity, what does that kind of look like from an occupancy standpoint as we kind of think about the long-term trajectory of the senior living business?

Yes. Thanks, Raj. When we're talking about the 1% increase in occupancy over the year, what that will allow us to do, again, is those operations where we've kind of achieved that breakeven of where we're able to drop more to the bottom line from a rent -- we've covered our rent hurdle. We look at that as being about 30% of that can flow down through the bottom line to get us to higher and more adjusted EBITDA. So that would be the math on that one.

Yes. I mean just to provide a little more color, Raj, we've -- that 100 bps increase really calculates at our current incremental operational -- operating margin just a little under $1 million in value for every 100 basis point increase. And so obviously, there is expansion in that. So if that margin increases a little bit, then that opportunity increases a little bit as well. But hopefully, that gives you a little bit more just clarity on the kind of incremental increase on the occupancy front.

Got it. And then maybe just a couple of quick ones from a modeling perspective. Just kind of any kind of goalposts around operating cash flow. And then as we think about kind of CapEx from the kind of deal integration, any framing around that would be helpful.

Yes. From an operating cash flow perspective for the year, we're looking at between $45 million and $55 million. I think we will have some noise that comes in there from cash collections as we're starting to transition those operations and working under a TSA that we've built into that number.

And then from a CapEx perspective, we are forecasting roughly $15 million in CapEx spend in 2026. Some of that increase is due to some of the buildings that we've acquired that needed a little more CapEx spend to get them to where we want them to be from a property standpoint.

And our next question is coming from the line of Jared Haase of William Blair & Company.

Maybe I'll ask another one about 2026 and try and take a slightly different angle. But when you think about the moving parts this year with the transition and some of the incremental costs that are sort of absorbed in 2026 and kind of having this mindset of targeting, having most of the optimization efforts completed by year-end, I'm wondering if there's sort of a way to frame what the exit run rate for EBITDA could look like by year-end relative to what you're actually guiding to. Obviously, not to get too far ahead of things, but just think it might be helpful to sort of frame what the jumping off point could look like for 2027.

Yes. Well, I will just jump in. I mean our goal, we talk about -- I mean, our current rate is between 15% and 16%. And so that would sort of be kind of a target natural place to get to is to sort of where we currently are running. And then our optimal level is around 18% is what we've talked about. And so that might be aggressive to get there by the end of the year. However, we're going to push toward that number.

But that kind of gives you an idea of the potential upside there if we can drive to kind of our current operational levels.

Got it. That's helpful. And then as my follow-up, I would like to drill into the hospice segment. I'm curious what the competitive backdrop is like these days. Obviously, you guys continue to put up really strong organic growth, strong ADC growth on a same agency basis.

It seems like others in the market are experiencing strong organic growth trends as well. So just kind of curious to hear your perspective on the competitive dynamics in that business.

I think you've seen a normalization, right? We went through an acceleration at the beginning of the pandemic. We went through a deceleration after the pandemic ended because of the sort of pull forward that happened because we lost so many lives that would have otherwise received more extended hospice care during the pandemic. And so I think you've now sort of -- you're starting to see the beginning of what for years has been sort of called the silver wave, where that generation of Americans are average -- the average age of our hospice patient is 83 years old.

So you go back 83 years and what was happening, it was 1944 and the war was ending and you start to see the beginning of that baby boomer generation. And so it's -- there is in part -- I think people were anticipating the silver wave beginning. But during the war, there was a downturn in birth. And so now we're getting to the other side of that.

And you look at and say, okay, going forward, we've got some real opportunity to care for people at this most important stage of their life when they need medical help and they need an interdisciplinary team that can provide everything from psychosocial to medical director care. And that, I think, is why we feel so blessed to be in the hospice business and have the opportunity to serve and care for these patients. But I think that is part of the backdrop.

I think you also see not everyone is doing -- is seeing that kind of growth. I think what you're seeing is folks who have an ability to meet the needs of their local communities, those are the folks who are doing well. And I think that is highlighted by our over 8% quarter-over-quarter same-store growth, highlighted by our 7.5% year-over-year same-store growth that just shows that across our platform, our teams are doing a great job of meeting the needs of their communities, and that's giving them an opportunity to care for this silver wave of aging patients that desperately need this care to improve their quality of life during that last stage of life.

And this does conclude today's Q&A session. I would now like to turn the call back over to Brent Guerisoli, CEO, for closing remarks. Please go ahead.

Thank you, Lisa, and thank you, everyone, for joining us today. Have a great day.

This concludes today's program for today. You may all disconnect.

Good day, and thank you for standing by. Welcome to The Pennant Group Third Quarter 2025 Earnings Call. [Operator Instructions].

Please be advised today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Kirk Cheney, Executive Vice President. Please go ahead.

Thank you, [ Kevin ]. Welcome, everyone, and thank you for joining us today.

Here with me today, I have Brent Guerisoli, our CEO; John Gochnour, our President and COO; and Lynette Walbom, our CFO.

Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investor Relations section of our website. A replay of this call will also be available on our website until 5:00 p.m. Mountain Time on November 5, 2026.

All statements are made as of today, November 6, 2025, and these statements will not be updated after today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and operating environment. These statements are subject to risks and uncertainties that could cause our actual results to materially differ.

Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Pennant and its affiliates do not publicly update or revise any forward-looking statements where changes arise from new information, future events or for any other reason.

In addition, The Pennant Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our independent operating subsidiaries, collectively referred to as the service center, provide administrative services to the other operating subsidiaries through contractual relationships with such subsidiaries. The words Pennant, company, we, our and us refer to The Pennant Group, Inc. and its consolidated subsidiaries. All of our operating subsidiaries and the service center are operated by separate independent companies that have their own management, employees and assets.

References herein to the consolidated company and its assets and activities as well as use of the terms we, us, our and similar terms do not imply that The Pennant Group, Inc. has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Pennant Group.

Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-K.

And with that, I will turn the call over to Brent Guerisoli, our CEO. Brent?

Thanks, Kirk, and welcome, everyone, to our third quarter 2025 earnings call.

We are pleased to report another successful quarter with strong results across our business. The third quarter brought new highs in revenue, census, occupancy and earnings even as we prepared for the largest transaction in our history.

In Q3, we reported revenues of $229 million, an increase of $48.4 million or 26.8% adjusted EBITDA of $17.3 million, an increase of $2.2 million or 14.5% and adjusted EPS of $0.30, an increase of $0.04 or 15.4% each over the prior year quarter.

We closed on the UnitedHealth Amedisys transaction on October 1. We are excited to add these operations to Pennant. The United Amedisys process created a unique opportunity to add high-quality assets in desirable markets at an attractive valuation, rarely seen on larger deals with sophisticated operators. As we've closed the transaction and divided into the -- and dived into the businesses, our excitement has only grown. We have met many incredible leaders and team members who are deeply committed to their local communities.

In the near term, we are heavily engaged in the complex integration matters that accompany such acquisitions, which we expect to create some lumpiness in results through the transition. But in the longer term, we see immense potential in these operations.

Our recent Signature transition gives us a model. Only a year ago, Signature was the largest transaction in our history, completed in 2 tranches from August 2024 to January 2025 with locations across 3 states, the Signature acquisition was similar in many respects to this most recent deal.

Signature enjoyed a deserved reputation as a quality operator, and we saw that we could build on their legacy through The Pennant model. Signature's transition has been a tremendous success. We have seen former Signature leaders enthusiastically embrace The Pennant model and culture and lift their operations to new heights. They have expressed how they now feel unlocked, capable of owning their operations and empowered to grow. Thanks to the efforts of these leaders, along with new leaders developed in our training program, the acquired Signature operations have outpaced our financial expectations while maintaining or improving their clinical and quality metrics. In much the same way, we expect that over time, these new operations we've acquired in the Southeast will demonstrate that The Pennant model adds value not only to turnaround situations, but to stable, solidly performing operations.

Over the past several years, our focus has been on recruiting and developing great leaders and continuously improving our transitions. As a result, we have delivered increasingly strong performance in our recent acquisitions, and we now see this powerful flywheel continuing to accelerate. Across senior living, hospice and home health, our local leaders have consistently stepped up to the operating challenges in their communities by directly controlling outcomes and relentlessly driving improvement.

At present, the uncertainty surrounding the 2026 home health rule has cast a pall over the industry, but Pennant is not a passive index tied to home health reimbursement rates with less than 20% of our revenue arising from Medicare home health fee-for-service reimbursement. We are a diversified post-acute provider with strength across hospice, senior living and home health. And more importantly, we are a locally driven leadership company that empowers leaders to adapt proactively to external challenges. We will continue to advocate against the rule -- the proposed rule as bad for patients, providers and taxpayers.

Ultimately, we will respond operationally to the outcome of the final rule, and we believe that home health care will continue to play a vital role in the post-acute continuum for many years to come. We are positioned to be at the forefront of that care and remain invested in driving growth in home health, along with the growth we foresee in our hospice and senior living operations.

Based on the sustained momentum in our businesses and the addition of the operations in the Southeast, we are again raising annual earnings guidance. We anticipate full year revenue of $911.4 million to $948.6 million, adjusted EBITDA of $70.9 million to $73.8 million and adjusted earnings per share of $1.14 to $1.18. The earnings per share midpoint of $1.16 represents a 23.4% increase over our 2024 earnings per share.

With that, I'll turn the call over to John to provide more detail on our third quarter operational results.

Thank you, Brent, and good morning, everyone.

Q3 brought strong performance in both operating segments. Our Home Health and Hospice segment continued to drive record-breaking clinical and financial results. Segment revenue of $173.6 million increased $37.9 million or 27.9% and segment adjusted EBITDA of $26.8 million increased $5 million or 22.7% each over the prior year quarter. This was fueled by continued robust organic growth, coupled with continued execution on successful transitions.

Our local leaders continue to demonstrate their ability to operate successfully through dynamic markets and conditions. As we have consistently said, our clinical results are the foundation of strong and lasting financial performance.

In Q3, we saw an average CMS reported star rating of 4.1 compared with the industry average of 3 stars. Potentially preventable hospitalizations decreased to 8.4%, well below the national average of 9.9%. CMS reported hospice quality composite score improved to 97%, well above the national average of 92%.

In short, our unique model of empowering local clinical leaders to make key decisions and support their teams based on local community needs continues to drive clinical outperformance. The impact of this clinical excellence continues to be demonstrated in our strong growth. Total home health admissions of 20,426 represent an increase of 36.2%. Same-store admissions increased 7% and revenue per episode increased 2.9% each over the prior year quarter.

Our hospice business generated similar momentum as average daily census increased 17.4%. Hospice admissions increased 16.6% same-store average daily census increased 6.1% and average revenue per day increased 3.3%, each over the prior year quarter. We see significant opportunity for growth in our existing operations and an ability to add hospices to the many home health agencies we have recently acquired that currently lack an overlapping hospice operation.

The momentum in our senior living business is significant as the multiyear growth story in this segment continues to unfold. Senior Living segment revenue of $55.5 million is up 23.2% over the prior year quarter and 3.7% sequentially. Adjusted EBITDA of $5.6 million has increased 26.2% over the prior year and 8.4% sequentially.

Segment adjusted EBITDA margin increased 50 basis points over the prior year quarter, reaching a new post-pandemic high of 10.3% and continuing its path toward our target segment margin of 15%.

Same-store occupancy reached a new high of 81.8% and all-store occupancy also passed the 80% mark at 80.9%. This record occupancy represents a major milestone, especially because it was achieved alongside 7.4% year-over-year rate growth, following several years of high single-digit or low double-digit increases.

Notwithstanding all of this progress, we're far from satisfied. As we continue to drive occupancy with high revenue quality, having covered the fixed costs in our communities, the opportunity for incremental margin expands dramatically. The latent upside in this segment remains significant. Just as we continuously invest in future operational leaders to fuel our growth, throughout the year, we have invested significantly in our service center. We recognize that we must have the right people and technology to execute well on our critical transitions and that attracting talented individuals to join us is an essential component of our future success.

The return on these investments becomes clear when you look at the accretive results of our recent acquisitions, along with our strong organic growth. We expect G&A expense to remain slightly elevated during this period of transition. But as the revenue and earnings from the latest acquisitions come online, we expect to see economies of scale on these front-loaded investments in people and technology and return back to historical levels.

On the regulatory front, we will experience positive revenue adjustment of approximately 2.6% related to the hospice final rule beginning on October 1, 2025. The home health final rule has not been issued. We expect it to arrive in the coming weeks. We cannot predict whether the delay is a positive sign, signaling that CMS went back to the drawing board to make much needed changes or whether it is solely related to the government shutdown, but we can say this with certainty. During this rule-making cycle, policymakers, including CMS, legislators and others have become more aware of the harmful and self-defeating impacts that the proposed rule would have on the American health care continuum.

If implemented, the proposed rule would undermine the lowest cost setting most preferred by patients. It would force agency closures and consolidation. It would increase hospital visits and aggregate Medicare spend. In short, it would be bad policy. We are hopeful that the final rule will recognize this in some fashion. But if not, we have worked with industry partners to craft contingency plans and will continue to advocate assertively for a legislative solution.

Regardless, our focus remains intently on controlling the things we can control, and each of our operators has prepared plans at the local level to adapt to the cuts and take advantage of the opportunities created by reimbursement down cycles. They are reacting nimbly and will continue to drive improvement and growth as they have through the last 3 years of weak reimbursement and rising costs.

Health care reimbursement is cyclical, and we have unshaken faith in the long-term value of home health services. The long-term trend is toward more care in the home. That's what patients want and what makes the most sense for our nation. Over time, we believe rates will reflect that.

Turning to growth. It's been a busy and productive quarter. In addition to the GranCare acquisition in Southern California, which closed on July 1 and which we discussed in our Q2 earnings call.

In September, we closed on a single-site agency in Gillette, Wyoming called Healing Hearts Home Health and Healing Hearts Outpatient Therapy. After quarter end, we completed 2 senior living transactions, each of which included the acquisition of the associated real estate. On November 1, we acquired -- two Rivers Senior Living in Lewiston, Idaho, which adds an exciting opportunity near our well-established home health and hospice agencies.

On November 4, we purchased Honey Creek Heights Senior Living in West Dallas, Wisconsin. This was an underperforming building with serious issues impacting the license and the continued viability of the operations. We stepped in under a management agreement, collaborated with the state, cleared up the outstanding issues and most importantly, restored dignity and joy to the residents.

We've now formally purchased the operation and the related real estate and look forward to providing a quality home for residents in West Dllas for many years to come. Much of the quarter was spent preparing for the October 1 closing of the United Amedisys acquisition in Tennessee, Georgia and Alabama. This purchase includes 54 locations with combined trailing 12-month revenues of $189.3 million for a purchase price of $146.5 million.

The trailing 12-month EBITDA reflects a purchase price multiple comfortably within our target range of 4x to 7x for home health acquisitions. which we view as attractive for a large and well-operated platform comprised of roughly 70% home health and 30% hospice revenues, primarily in certificate of need states.

As we've shared many times previously, we typically expect acquisitions to be optimized within 9 quarters, and we anticipate some variability of results during that interim.

That said, our transition efforts are well underway, and we are excited by the quality of leaders, team members and operations. Much like our signature transition, we will build on the local strength, community ties and long history of success of these operations in the region.

These new operations have already joined clusters with seasoned and successful tenant operators to help implement the unique tenant model. We are bullish on the long-term potential of these operations and the additional expansion they will enable in the Southeastern United States for years to come.

Market forces and our own reputation as a quality buyer continue to drive a very robust pipeline of acquisition opportunities in all of our segments. As I just discussed, our focus is on successfully integrating our recent acquisitions. We will maintain discipline, and we will not compromise the priority of those efforts, but remain open to additional hospice and home health opportunities. We also see many potential transactions in the senior living space that fit our acquisition criteria and our senior living leaders will continue to prudently pursue growth in that segment.

With that, I'll hand it over to Lynette for a review of the financials. Lynette?

Thank you, John, and good morning, everyone.

Detailed financial results for the 3 months ended September 30, 2025, are contained in our 10-Q and press release filed yesterday. For the quarter ended September 30, 2025, we reported total GAAP revenue of $229 million, adjusted EBITDA of $17.3 million, GAAP diluted earnings per share of $0.17 and adjusted diluted earnings per share of $0.30.

This week, we closed on an amendment that added a $100 million term loan to our credit facility. We consider this prudent balance sheet management. As described in more detail in the 8-K and press release we issued yesterday, this amendment frees up additional capacity under our revolver and provides dry powder to deploy when appropriate.

Key metrics for the 3 months ended September 30, 2025, include $30.2 million drawn on our revolving line of credit and $2.3 million in cash on hand at quarter end. 0.38x net debt to adjusted EBITDA and cash flows provided from operations of $27.3 million year-to-date, including $13.9 million in Q3.

Our year-to-date results and the impact of our purchase of United Amedisys assets merit an increase in our full year guidance. Accordingly, we are revising and raising our full year 2025 guidance as follows:

Full year total revenue is anticipated to be between $911.4 million and $948.6 million, full year adjusted earnings per diluted share between $1.14 and $1.18 and full year adjusted EBITDA between $70.9 million and $73.8 million. This updated guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 35.7 million and a 26% effective tax rate.

It anticipates continued strong operating performance through the end of the year, hospice reimbursement rate adjustments, increased interest expense and contributions from announced acquisitions that excludes unannounced acquisitions, start-ups, share-based compensation, acquisition-related costs, onetime implementation and unusual costs and noncontrolling interest income.

I would like to spotlight a few of our leaders in our organization who have achieved exceptional results. Their stories demonstrate the remarkable progress that can occur when local leaders build strong culture and develop high-performing teams of C-level leaders in their operations.

Zion's Way Home Health and Hospice in Southern Utah and Northern Arizona continues to build a legacy of excellence, led by CEO, [ Courtney Matthews ]; CMO, [ Justin Hofer ]; Home health CCO, [ Jeremy Green ]; Hospice CCO, [ Jason Olson ]; COO, [ Chad Jensen ]; and future COO, [ Alexis Cutler ], and along with other key branch leaders, Zion's Way is a key resource to communities across its geographic service area.

In 2025, the Zion's Way team has again set records clinically, culturally, financially and in the community. Zion's Way locations each achieved 5-star ratings for clinical quality, potentially preventable hospitalizations below 3.5% compared to a national average of 9.9%.

Zion's Way investment and leadership has created a world-class employee experience as turnover decreased to 15% and employee engagement was a remarkable 93% -- these clinical and cultural results have fueled their 2025 financial performance as revenue increased 11% and EBITDA increased 34% over the prior year. As impressive as these 2025 results are, the Zions Way story reflects the unique ability our model creates for local leaders to generate value over the long term.

We acquired Zion's Way in 2012 as one of our first home health and hospice acquisitions. Since its first full year of operations in 2013 through its projected 2025 results, Zion's Way has produced a compounded annual growth rate of 27% and has grown from 2 locations to 8. This growth reflects the trust and confidence of the community.

On the senior living side, Lo-Har Senior Living is a community of choice in Southern California. led by future CEO, [ Jonathan Wheeler ]; and future CCO, [ Yoana Torres ], the Lo-Har team has created a special environment that is fun and welcoming and that continues to attract residents as evidenced by their consistent 100% occupancy. Lo-Har's investment in the employee experience has led to a remarkable 92% employee engagement score and a 20% year-over-year reduction in turnover. When employees are engaged, it shows in the operational results and Lohar is no exception with revenue up 16% and EBITDA up 306% year-over-year.

In addition, the Lo-Har team is a true partner to its peer operations throughout the California market, helping to raise all ships. [ Jonathan ] and [ Yolanda ] are -- truly model our core principles of accountability and ownership.

With that, I'll turn the call back over to Brent for concluding comments.

Thanks, Lynette. As we conclude, I'd like to thank all the operators and clinicians who, like those highlighted above, dedicate themselves daily to providing life-changing service to our patients and residents. You are truly making a difference in the lives and communities we serve, and it is an honor to work alongside you.

With that, we'll open it up for questions. Kevin, can you please instruct the --

[Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies.

This is [ Megan Holz ] on for Brian Tanquilut. Congratulations on closing the Amedisys transaction and starting there. Now that you're a month in, what are some of your top priorities for integration, including the JV with the University of Tennessee? And then how should we be thinking about these assets contributing to earnings in 2026?

Yes, Megan, thanks for the question. We're really, really excited about what we've found as we've gotten a chance to get into the operations and work closely with the teams out there. There's an amazing group of talented leaders, clinicians and staff, and it's been fun for our teams. And we've got folks from across the organization, owners who are anxious to help those agencies implement the payment model successfully.

Our focus right now is, first, identifying and elevating leaders into our model where we've got an Executive Director and a clinical director in each local community able to meet the needs of that community. And so that's sort of our first in the order of operations. Our second, of course, we're focused on ensuring that these agencies receive exceptional support. So we are building a shared services organization that can ensure that the services they historically have received from Amedisys and from United through LHC that they experience no diminishment in those services.

The third thing I'd highlight, and you called it out, the University of Tennessee joint venture. It's a really exciting joint venture with a lot of potential. We just had our first Board meeting out there, and there's a strong sense of support from the University of Tennessee, there's strong engagement in both hospice and home health. And so we're excited to add that to our JVs in California and our relationship with Hartford in Connecticut to allow us to continue to innovate clinically, to continue to produce outstanding financial results and to drive improvement in the legacy of what they've already created.

So that's always sort of where we start is with leadership and then, of course, implementing our systems and processes. The transition, we expect it to be completed by the end of Q3 next year. And so we've got a transition services agreement in place for that period. And then we are gradually pulling each of those locations off of their systems and on to ours.

As far as contribution, initially, we anticipate relatively light contribution in the fourth quarter. That's simply because we continue to have elevated costs associated with the transition and then bringing those businesses on and having a full picture of their performance will help us provide better guidance.

In 2026, as we look forward, those businesses are currently performing about a 12.5% margin. We anticipate a modest decline as we go through a brand change as we go through a Homecare Homebase reimplementation into our tenant and as we gradually wean off of the transition services agreement. So we anticipate them performing between 9.5% and 11% in 2026. So that gives you a little bit of an idea. We're not guiding yet because we expect to have more clarity as we spend more time with the business and go through several month-end closes through the fourth quarter.

But that's the way we're thinking about it right now.

Okay. And then for my follow-up, looking at the senior housing, you've seen strong momentum and occupancy approaches levels where operating leverage becomes more pronounced. I guess how should we be thinking about the trajectory of margins going forward in that business?

Yes. Great question. Really, it's just a matter of -- as we add occupancy, we think that there's going to be more that's going to move to the bottom line. So really, over the last several years, the focus has been building the foundation, getting to -- back to the levels of occupancy that we were at pre-pandemic. And so we're pretty excited about the margin opportunity there. I mean we've had some pressures this past year just because some of the ARPA funding has gone away. So normally, we probably would have seen a little bit more elevated margin. But because of some of those pressures and other labor-related pressures, it hasn't moved quite as much. But from an incremental improvement standpoint, as we see additional occupancy rise, we should see incremental improvement on the bottom line margin as well.

Our next question comes from Stephen Baxter with Wells Fargo.

This is [ Mitchell ] on for Steve. Just on the margin guidance, your previous guide assumed EBITDA margins would improve year-over-year in the second half, but the new guidance looks closer to flat. I know you mentioned G&A, but just want to understand if there are any other dynamics to consider there, specifically on the core business.

Yes. When we look at that, the other piece that needs to be factored in is NCI. We continue to have the NCI growth as we add this JV. And so because we back out NCI or it backed out in this guidance, that's also another piece that is impacting that EBITDA margin. So when you consider the NCI through the third quarter was $2.4 million, and we're anticipating about $1.9 million in NCI in Q4 impacting that EBITDA margin. And so I think that's the piece that's missing and maybe you look at it.

Got it. Very helpful. And then maybe just one more on same-store hospice length of stay. It appears to have increased year-over-year in each of the past 3 quarters. Is there anything you'd call out that's driving that? And just how are you thinking about that going forward?

Yes. I appreciate the question, Mitchell. And really, what I would point out is we continue to return closer and closer to pre-pandemic levels. And this really is about where is the location of our patients who are receiving services. Historically, we had a very good mix between assisted living communities, senior skilled nursing facilities. And then, of course, most of our care is delivered in the home. We've seen a small tick up in the percent of care that's delivered in assisted living. We're really excited about where we sit from a length of stay standpoint.

It reflects continued work to identify patients that are appropriate earlier in the process and allowing them to receive the benefits of hospice for a longer time. And that's why you can see the strength of our ADC on top of our strong admission momentum, both organically and with our new transitions. But that's really what's driving it is just a very modest uptick in the percent of our hospice patients that are housed in senior living communities.

Our next question comes from David MacDonald with Truist.

A couple of quick questions. One, just coming back to the Amedisys deal. That deal obviously took kind of a uniquely long time to close. I'm just curious if you could talk a little bit about the employees, what you're seeing in terms of just excitement that they now have visibility in terms of where those assets have landed. Just anything that you can talk about in terms of the reception that you're getting internally in terms of the assets that you picked up?

Yes. I appreciate that question, David. It's been really remarkable to be a part of -- we went out at the end of September just before the close and had operators from across our organization and key resources from across Pennant who went to every location and met with the teams in town halls and took the opportunity to listen and to hear what their experience had been through the history and also through the transition period and also answer questions about who we are. Our web and media team did a remarkable job of putting together a website to consistently deliver information, both in video form as well as constantly updating frequently asked questions.

And our goal has been throughout this process, like it is in any transition process to be as transparent as we can, and to be as responsive as we can to employees because we believe that in the long run, if we create a world-class employee experience that we're going to get the best talent and keep the best talent and be able to grow our business and impact the community we serve.

And certainly, in this transition, we've seen a group of remarkable people, many of whom have been with these agencies for longer than 10 years, but certainly, a very strong contingent of clinicians who really believe in what they do and are committed to their communities and have embraced Pennant and our locally driven operating model and focus on how we can meet the needs of local referral sources and patients.

And so that's been really exciting. And I think is part of the reason why we feel a sense of optimism that despite the challenges of offering new brands in the community, despite the fact that we've got to go through an HCHB transition, we haven't experienced material turnover at all. And I think we are doing our best to make sure people understand what life will be like at Pennant. And as a result, we're hopeful that we can keep these great teams together and build on the legacy that they've created.

Yes. I would just add one additional thought. One of the other things that has been really impressive about this group of leaders and these teams is even in the midst of all of this kind of chaos is obviously, this process has gone on for a long time.

They've continued to perform at a high level with very little, if any, drop-off in census and financial performance, clinical performance. And that's really a credit to the teams that are there. They -- in many ways, they're like us, they love being in the communities they serve, and they reflect the people of their communities. And so they take a lot of pride in the work that they do. And so we've inherited a great group of operators that really want to make a difference.

And so that's just another element of this that we might have expected to see a drop off, but it's actually -- they've continued to perform well.

Okay. And then just one other quick follow-up. If we look at the occupancy in senior living year-over-year, the growth in occupancy accelerated pretty nicely in the third quarter relative to the second quarter. Is there anything that you guys would call out in terms of stuff that you've been doing that is incrementally resonating? Or is that just kind of a little bit of just kind of ongoing growth? Just anything you would call out there just given the sequential improvement.

Yes. Well, I think it's been years of ongoing investment in multiple different ways. First and foremost, it's been the investment in the leaders. Really, occupancy moves the quickest when we've got a great group of leaders and team members that are driving it, creating the right experience for residents and really reaching out in the community. And so as we've invested in the local leaders, they've been the ones that have really turned the tide from an occupancy standpoint.

The other thing just we've actually made significant CapEx investments in a lot of these buildings over the last 2 or 3 years to bring them up to the standards that we'd expect and create an ambience or an experience for our residents that is meaningful and really just a great place to live.

And then the other thing that I would say is we've had this balance of driving rate in terms of our revenue per occupied unit with the occupancy. And so as we've tried to improve the revenue quality, there's -- I think that's part of the reason why the occupancy has been somewhat flat. And now that we've -- I don't want to say totally optimized, but for the most part, our revenue quality is at a really strong level. And so because of that, the focus can be less on really replacing the low poor revenue quality with better revenue quality and really driving occupancy improvement. So that's another element.

And then the last thing, which is probably a really critical piece in all of this is our overall digital marketing efforts. We've made significant investments on improving the sophistication of our outreach into the communities. We basically overhauled all of the brand websites and created kind of a local needs brand experience that has resonated with the communities that's driving improvement there.

And then our ability to just capture leads is, as I said before, much more sophisticated. We've increased our spend as well. And so it's improving the outreach, too. So we're just getting better all across the board in each of these areas. And so that's -- now you're starting to see kind of the momentum really hit, and that's why that flywheel has started to really drive.

Our next question comes from Raj Kumar with Stephens.

I appreciate the commentary on prudent growth within senior living. Maybe just kind of touching upon that. There seems to be kind of kind of increased activity amongst just market participants on the M&A front on that end. And Pennant has also made incremental investments throughout this year. So maybe just kind of any update on what you're kind of seeing from a market participant standpoint and a competitive standpoint on SO deals that you might be going after? And what's kind of the pricing environment looking like on that end and whether or not you're kind of seeing anything that's kind of outsized and beyond your comfort level and you're seeing any trends on that front?

Yes, Raj, I would just say there is a lot of activity right now in the senior living space in terms of acquisition opportunities. And the pricing is all over the map. So there are plenty of opportunities that are outside of our comfortable range, but there are also plenty of opportunities that are square in our target range. And so we're excited about the future -- what the future holds, the robust pipeline that we have right now. And obviously, we talked about this a lot. Our focus is really finding incredible leaders and getting them prepared to step into opportunities.

And so that's the biggest limiting factor. There's going to be plenty of opportunities for us just in terms of availability. And we have as large a pipeline of CITs in -- both on the home health and hospice and on the senior living side. as we've ever had. And so from that standpoint, we're ready to go with these deals.

And then just in terms of competition, yes, I mean, there is a little more noise, and there certainly are more players interested in this space. But at the same time, I think the amount of deals has increased as well. And so while there are -- there is competition in what we go out and try to get, at the same time, we have kind of a unique profile. And in a number of these deals, we have relationships with specific brokers or groups that have worked with us in the past that directly reach out to us and want us to participate.

One of the things that we're seeing that's really critical right now, and we've seen it kind of over the last 5 years, COVID kind of bore out the fact that you've got to be a really good operator to be successful in senior living. And as we demonstrate our operating shops, these folks want to come to us because they have confidence in our ability to provide great care and build a really strong presence in those buildings.

And so that has afforded us some privileges or opportunities that maybe others don't get because of the reputation that we're establishing. So we're excited about the pipeline. We certainly have a lot of opportunity in front of us and continue to work toward growing.

The last thing I will say just on the real estate side, so this last deal, we acquired 2 of the real estate assets on the building. So that brings us to a total of 6. Roughly 10% of our buildings now we own. And we see that as a really important lever that we can pull going forward. As we've kind of slowly gone into this, just wanting to make sure that we can do this right and we can create the right value. And as that's proving out, we expect to continue to prudently invest in real estate as well and use that as an opportunity for growth.

Got it. And then maybe as my follow-up, just kind of focusing on the Amedisys assets. I know the profile of the deal has kind of changed throughout its inception. But maybe as we kind of look at what the identifiable synergies are from a baseline perspective, are you kind of willing to size that opportunity? And in terms of where you're seeing it is kind of on the cost front or the contracting front with payers? Just kind of any color on that would be great.

I think there's opportunities, Raj, in a lot of places. I think I'd group them into 3 areas. One of them is certainly improving their margins up to our target margin. And so we see some opportunity there. Like I telegraphed in the answer to Megan's question, we do expect through the transition, a little softer margin. But once we get through the transition, like we've seen with Signature, we believe that our model of transparently sharing data with local operators and building aligned incentive structures around that will create opportunities to drive margin improvement and acceleration.

I think the second thing I would focus on is growth. Again, these communities have not had -- they don't have as many local solutions. They've got lots of big regional and national players, but we feel like there's an opportunity to really be the local solution of choice in each community and that, that can drive a bigger share of the market to our agencies. And so that's the second opportunity I'd highlight.

And then I think the final thing that I would highlight is this is really a starting point or a jumping off point. We feel like throughout the Southeast, there's an opportunity to take the Pennant experience and The Pennant model and for that to improve outcomes throughout the states that we serve. As far as contracting goes, we are optimistic. We obviously have already begun conversations and communications with those payers. We do think there's -- there's opportunity on the contract front, but it's early in the process.

And so I don't want to get too far ahead in projecting that we're going to be able to move those rates significantly. I do think our clinical quality gives us a unique opportunity, particularly the preventable hospitalization data that we shared today, that drives an overall lower cost to payers. And so we've got something unique to share in our clinical outcomes and in our ability to lower overall spend for managed care providers. And so we're confident going into those negotiations that we'll have success, but it's just early and too early to kind of project what that might look like.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Brent for any further remarks.

All right. Well, thank you, Kevin, and thank you, everyone, for joining us today.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.