Pennant Group at Stephens Conference: Leadership and Growth Strategies

On Wednesday, 19 November 2025, at the Stephens Annual Investment Conference, Pennant Group (NASDAQ:PNTG) outlined its strategic focus on leadership development and growth through acquisitions and organic expansion. The company emphasized its commitment to integrating sizable acquisitions and enhancing operations. However, it also acknowledged challenges such as reimbursement issues and the need for operational efficiency improvements.

Key Takeaways

• Pennant Group is investing in leadership to drive revenue and earnings growth.
• Successful integration of Optum AMED Asset Divestiture was highlighted.
• The company is focusing on improving Medicare Advantage rates and expanding through joint ventures.
• Targeting a 15% EBITDA margin in the Senior Living segment through growth and efficiency.

Financial Results

• G&A Costs: Pennant plans to expand its service center with IT, HR, and accounting staff in 2026, anticipating a decrease in G&A from 6.7% to 6.5% by the end of 2026.
• Leverage: The company increased its credit facility with a $100 million term loan, maintaining a leverage ratio of roughly 2x net debt to adjusted EBITDA, within their target range of 2 to 2.5x.
• Acquisitions: Pennant expects a five-year return on capital for acquisitions.

Operational Updates

• Home Health: Focus on a nine-quarter optimization process for acquired agencies, including technology implementation and community branding. The company is working to reduce the differential between MA rates and fee-for-service.
• Hospice: Aims for mid to high single-digit organic growth and improving the average length of stay to pre-pandemic levels.
• Senior Living: Achieved record occupancy rates with high single-digit rate updates. The care component is expected to grow from 20%-25% to 25%-33% of the business.

Future Outlook

• Home Health: Awaiting the final home health rate rule with contingency plans in place, and expanding through joint ventures with health systems.
• Hospice: Focus on improving length of stay while managing the hospice cap, especially in California.
• Senior Living: Targeting a 15% EBITDA margin through occupancy growth and cost optimizations.

Q&A Highlights

• Discussions centered on integration processes and reimbursement challenges, with a focus on Home Health, Hospice, and Senior Living.
• The company is actively involved in advocacy efforts on Capitol Hill to emphasize the importance of home health services.

For a deeper understanding of Pennant Group's strategies and future plans, please refer to the full transcript below.

Full transcript - Stephens Annual Investment Conference:

Unidentified speaker: Look at the methodology behind those cuts and the way they've been implemented over the past few years with fresh eyes because it's a new administration.

Raj Kumar, healthcare services analyst, Stevens: Yeah.

Unidentified speaker: Hopefully they'll be able to see this hasn't been properly implemented.

Raj Kumar, healthcare services analyst, Stevens: Yeah, we'll see. I guess people at MedPAC don't really change. We'll see what they have to say in December.

Unidentified speaker: I don't see the world.

Raj Kumar, healthcare services analyst, Stevens: Yeah.

Unidentified speaker: No.

Unidentified speaker: I'm on a bunch of other HRIP deal that has performed terribly. It makes me feel a little bit better when everybody comes to me.

Raj Kumar, healthcare services analyst, Stevens: I'm not imagining this, but within the kind of home health and hospice portfolio, there is a Cornerstone naming scheme, right?

Unidentified speaker: Naming scheme.

Raj Kumar, healthcare services analyst, Stevens: Like heavy a Pinnacle kind of for senior on the senior living side.

Unidentified speaker: Cornerstone pinnacle.

Raj Kumar, healthcare services analyst, Stevens: Okay. Because I feel like I've seen that either on someone's backpack, maybe Brent's backpack.

Unidentified speaker: Yeah, for sure.

Raj Kumar, healthcare services analyst, Stevens: Okay.

Unidentified speaker: We've seen some swag.

Raj Kumar, healthcare services analyst, Stevens: Yeah. Yeah. Okay. So.

Lynette Wallbom, CFO, Pennant Group: Andy does a great job at swag for Pinnacle.

Raj Kumar, healthcare services analyst, Stevens: Yeah.

Unidentified speaker: It's not me, though. That's the thing. It's mostly Matt and other leaders that are good at that.

Lynette Wallbom, CFO, Pennant Group: Hey, I love your backpack.

Unidentified speaker: Again, not me.

Raj Kumar, healthcare services analyst, Stevens: All right. Okay. Looks like we're at the top of the hour. Welcome, everyone, to day two of the Stevens 2025 Annual Investment Conference, live and in person in Nashville. I'm Raj Kumar, healthcare services analyst with Stevens. Today we have the Pennant Group, a leading provider of home health and hospice services and operator of senior living facilities across the country. Joining us from Pennant today are John Gochnour, President and COO, Lynette Wallbom, CFO, and Andrew Ryder, President of Pinnacle Senior Living. I want to thank you all for joining us today at the conference. I think if it's all right with you, we'll just jump into Q&A.

Unidentified speaker: That sounds great, Raj. Thanks for having us.

Raj Kumar, healthcare services analyst, Stevens: All right. We have been kind of starting off these conversations with the kind of year in review with kind of all of our companies. For Pennant, it is kind of an exciting year because you started off a year with a sizable deal, at least a second tranche of one, and then closing a year with another sizable deal with the United or the Optum AMED Asset Divestiture. Maybe just kind of working through all that, maybe just kind of summarizing all that and packaging that kind of progression throughout this year and how that has kind of culminated in this productive year of revenue and earnings growth for the company.

Unidentified speaker: Yeah. Thanks, Raj. I think our focus, as always, is Pennant is a leadership company, which means we invest in people and we invest in creating life-changing opportunities for people. What that has meant during the year of 2025 has been, like you described, first, we started January with the second tranche of what we call the Signature acquisition. We'd done the first tranche in August. It culminates now with the purchase of a large portfolio from UnitedHealth and Amedisys as part of that divestiture process. I think what's really exciting to think about is what happened, what led to that. That's been investment in leadership, which has encouraged operators at the local level to grow in their roles, to become CEOs, and then to expand their influence through that growth.

What is maybe more exciting to me is that our growth in our organic operations has been better than it has ever been before, even as we have successfully integrated these large portfolios into our platform. That is really what we are about, a flywheel that includes creating life-changing opportunities for local leaders where they can step in and grow a business through their entrepreneurial mindset and endeavors, and then giving them opportunities to expand influence and ownership through growth, bringing more leaders into their operation, helping to train new leaders at those new operations. I think the flywheel has been turning throughout this year in both segments of our business, home health and hospice and senior living, and really positioned us well going into 2026.

Raj Kumar, healthcare services analyst, Stevens: Great. I think that's a great summarization. I think we're going to kind of tackle this across each of the segments, maybe starting off with Home Health, since most of the acquisitions have been on that front from a larger deal perspective. I think it would be helpful to try to gain more familiarity with the overall integration process, especially considering that the reimbursement backdrop hasn't been as favorable to maybe make it as easy as it could be from an integration standpoint.

Since you're kind of entering new markets and states as well, it would kind of be helpful to walk through the day one to maturation timeline and some of the key milestones that you kind of benchmark against internally and how we should kind of be thinking about that as we kind of go on to 2026 and beyond.

Unidentified speaker: Yeah. Let me start with sort of our approach to growth and acquisitions. That starts with just like I described at the beginning, first who and then what. What does our leadership training pool look like? How prepared are we to put in place leaders who can be CEOs in our organization into these local businesses to drive results? The second piece is, what is the health of our existing business? Because implementing our model is different than the typical model that an acquisition we acquire is. Either they are a locally owned agency that's a single site run by an owner who that is their career and their job, or it is a large corporate organization like what we've acquired from UnitedHealth and Amedisys. Both of those strategies are different than our strategy.

We need strong operations to absorb those new operations and integrate our model. Of course, the third piece is the opportunity itself. When you look at, okay, we have executed on that in that disciplined manner. We have decided to do an acquisition. On day one, we begin with the implementation of the operating model. It is making sure that the right leader on both the clinical side and the operation side are in place, that they have an aligned incentive plan, that they are part of a healthy and functioning cluster who can help hold them accountable to producing best-in-class results. The second thing is a system integration.

We have our unique technology stack that we have invested in over the years that includes HomeCare HomeBase as our EMR, but builds on top of that with both internally developed technologies and external vendors who we believe offer a unique service. There is that technology. The third piece that is sort of unique with these United and Amedisys acquisitions is we've got to implement new brands. We have to rebrand each of these operations in a different way since they've historically run under those companies' brands. I think as you look through the timeline, we normally call out about nine quarters as the period of optimization. That includes after implementing the technology, implementing our operating model, and setting ourselves apart in the community as an employer of choice, which leads to becoming the provider of choice.

That process of optimization, both operationally, clinically, culturally, ultimately leads to growth. That is about a nine-quarter process traditionally.

Raj Kumar, healthcare services analyst, Stevens: Got it. Got it. Kind of thinking of some of the key capital investments, you already kind of alluded to some of those around the tech stack and then kind of making investments, at least kind of with the Amedisys and LHC Group assets around kind of branding. How should we kind of think about those types of capital investments over the next couple of quarters in terms of how that impacts the P&L? Beyond that horizon, what are kind of some of the synergies that you can kind of extract from these assets over that kind of nine-quarter type of horizon?

Lynette Wallbom, CFO, Pennant Group: I think when we look at those costs, let's say it's G&A costs, we expect to continue to add some to our service center as we head into 2026, both on the IT front, some HR and accounting staffing to really support these additional Amedisys and LHC assets. We'll see that. There's also the piece that's going to come through the transition services agreement that we have with Amedisys and LHC that will be additional costs that we'll be bringing on. Some of those will be able to be non-gapped out under that non-GAAP process. We will have some noise definitely in that corporate overhead, the G&A spend.

We do expect there to be some more normalization and leverage that we'll achieve, though, towards the end of the year on that G&A, taking us from roughly running about 6.7% right now down to 6.5% on the G&A front by the end of 2026.

Raj Kumar, healthcare services analyst, Stevens: Got it. Also, kind of looking at some of the post-acquisition dynamics, I guess leverage post-deal, it seems like you're kind of within this comfortable range. Right now the focus is kind of on integration. I guess is there still capacity to pursue future M&A opportunities? Maybe just kind of refresh us on where you think the kind of upper limit of leverage is in terms of comfort for the business, and then kind of timeline to deleveraging post-deal.

Lynette Wallbom, CFO, Pennant Group: Sure. When we look at leverage, right, in the beginning of November, we did increase our credit facility by adding a term loan. We termed out a piece of the debt that we brought on doing the Amedisys LHC acquisition. So about $100 million is now sitting in term loan. We're roughly pro forma basis, about two times leverage ratio our net debt to adjusted EBITDA. When we talk about where we like to sit at is somewhere between two to two and a half times net debt to adjusted EBITDA. On the high end, we do still have additional capacity after that within our covenants to be able to grow if we wanted to go beyond that. That's really kind of where we would like to sit or be under that.

When we do an acquisition, generally, we're expecting a five-year timeframe for return of capital on that acquisition. Like John talked about, we have that nine quarters of kind of optimization. There's a little bit of extra noise during that time, but that would be the timeframe that we would look at to have a return on that capital.

Raj Kumar, healthcare services analyst, Stevens: Got it. I guess with the more recent deals, especially kind of Tennessee, Alabama, and Georgia, the unique dynamic there is that the kind of Ensign Pennant continuum, when the company spun off, that was a kind of major dynamic of the thesis. I think both companies have kind of broadened on into their own horizons and proven out the independent model. I think this is definitely a unique dynamic when we think about kind of deal structure where you're going into markets where they're not entirely new from that standpoint, although they are new. What are kind of the key tangible and intangible benefits operationally from this partnership? Then kind of a bit going granularly, what's the kind of referral mix from the overall operational baseline that your Home Health and Hospice operations get from kind of Ensign's skilled nursing operations?

Unidentified speaker: Across the border in Tennessee.

Raj Kumar, healthcare services analyst, Stevens: Across the border.

Unidentified speaker: Okay. Yeah. I think the Ensign Pennant care continuum is the way that we established at the beginning of the spin. We knew we'd shared the same DNA. We grew up with Ensign, and we wanted to make sure that we didn't lose what was so important to us. They wanted to make sure that the impact of the Ensign operating model continued to thrive in the industries we serve. There is deep connection on a variety of things. I'll give one example: senior living, where we collaborate a lot with them to lend our senior living expertise to combine it with their expertise to make sure that both agencies or both operations are thriving. The same thing is true. We have a clinical section of that continuum where we collaborate on transitions of care and think about how we can best serve the community.

We have a culture section of that where we strive to make sure that we help them when they're going through a transition in an area where we have operations, or they help us when we step into a new area. When we stepped into Alabama, we didn't have any operations, but they have an operation in they just got an operation in Birmingham. They have another operation. We spoke, and those leaders have been super helpful, and we tried to help with their transition. There is a multi-pronged benefit from it, and it goes beyond just referrals. It goes to shared DNA, opportunities for clinical collaboration, and then opportunities for specific collaboration where we share similar service lines so that we can grow together. Of course, then there's the opportunity to work together as business partners.

For example, they're one of the capital partners that we collaborate with when we're acquiring senior living communities. When you look at our overall portfolio, it remains relatively, we have never had a mandate to serve that any Ensign discharge should come to a Pennant facility. As we have spun, that percentage has remained relatively similar. We still serve, of our referrals or of their referrals, it's a low single-digit number. There are areas where they don't have, we don't have overlap, but as a total, that's sort of what it looks like.

Raj Kumar, healthcare services analyst, Stevens: Also, kind of maybe on Tennessee, and I think you kind of rebranding to Beacon. I guess how does that help from a Head Start perspective, or at least kind of stability in referral trends, right? Because when you have a new operator, it can kind of cause some volatility across the referral channel. How does that kind of help in that regard? And what is the kind of referral mix from Ensign SNFs' operations?

Unidentified speaker: I'll say it's a huge benefit in this way. They have had operations and have been operating here for the last three years. As soon as we started these conversations under our NDA, obviously, we were able to consult with them, understand what it was like to operate in Tennessee, what the challenges and the benefits are. That was part of our decision-making process, was understanding their experience. It was not a greenfield market. We feel like because Ensign was here, we understood what and how we would be able to effectively put our model into effect here. As far as the current relationships, we have some overlap in northeastern Tennessee and then some modest overlap in southeastern Tennessee. It's a relatively small part of the current referral relationship, but we see lots of opportunities for it to expand.

If you know anything about Ensign, you're going to expect them to continue to grow and increase density in the state. One of the great things about the portfolio that we've acquired is that we have significant density from the very northwest corner or northeast corner of the Tri-Cities area down to Memphis and from sort of northwest down to Chattanooga. We've got a lot of coverage across the state, a lot of opportunities to collaborate.

Raj Kumar, healthcare services analyst, Stevens: Got it. Got it. I kind of want to go back to the point around clearly this is a leadership company. Local level CEOs, CCOs, and CMOs are the cornerstone, right, to Pennant's operating model and a key differentiating for the value proposition for both delivering on quality of care and growth. I guess given the heavily fragmented marketplace, home health still remains very fragmented, how do you compete for talent in this kind of landscape? How is Pennant differentiated from that regard to ultimately garnering talent and acquiring that talent and then kind of getting them up to the C-suite level, etc., for local operations?

Unidentified speaker: I think it starts with the fact that we do not believe that we are recruiting someone to manage a business. We believe that we are recruiting someone to be a C-level leader in accomplishing our mission of providing life-changing service. When you think about the type of person who you need to recruit from an operational standpoint, from a clinical standpoint, and whether that is in Senior Living or it is in Home Health and Hospice, we are always looking to identify leaders who we believe could be a CEO of a $25 million, $30 million, $50 million business and could operate it, could elevate people beside them, could improve clinical best practices, could improve financial results. That is attractive and we try to create compensation structures that reflect the value we believe that that high-level leader can create.

We have built this model that reflects an entrepreneurial opportunity to come and build a business, to share in the value you create, to have aligned incentive structures with your peers, which creates a supportive but accountable environment and leads to people reaching their potential. That really becomes the heart of what we are trying to do. We are trying to find the best people. We are trying to give them a vision for what they can accomplish here. They can come from anywhere. They do not have to be clinical. They do not have to be even in our industry, but they have to be a leader. They have to be someone that people would follow. We have just found, I think this year, we just crossed over 100 people coming into our CEO and training program between our senior living business and our home health and hospice business.

That reflects sort of the desire to be part of the future of Pennant and what we're building. That's a hard program to get into. We don't hire just anyone. I think that kind of volume just shows there's a lot of passionate people that believe in our mission, believe in our training program and its ability to help them accomplish their dreams for their career. That's our differentiator. Our differentiator, just like Ensign's, they're not valued as a skilled nursing company because they're not a skilled nursing company. They're a leadership company that does skilled nursing. That's our value proposition. Regardless of the industry we're in, regardless of whether it's the headwind in home health from reimbursement or whether it's the positive things that are happening in hospice and senior living from reimbursement, it's not about the industry.

It's about giving people opportunity, training them to take that opportunity and create something special.

Raj Kumar, healthcare services analyst, Stevens: Great. I think you kind of alluded to our next topic there about kind of reimbursement. We will not talk about home health fee for service right now, but maybe touching upon kind of the MA side of things and around kind of quality measures. Clearly, every earnings call you kind of highlight lower than industry readmission rates, which is a key metric that kind of not only the CMS look at, but even payers look at when it comes to kind of their financial impacts. How has that been able to translate to overall conversations with payers around reimbursement, especially kind of when you hear that on a per-visit basis, the typical discount relative to the fee for service is 40% for the industry, where larger scale operators have kind of been able to break into that 20-30% range.

Maybe I'm just kind of curious how that's kind of been on Pennant's book of business and where the success has been on breaking through on these kind of value-based or shared savings types of arrangements.

Unidentified speaker: Yeah, I think that as we've been able to prove to those payers what our value proposition is in being able to provide care, we have a 4.1 CMS Star Rating, really great preventable hospitalization rates, all of those things that it's been able to help us drive down that differential between the MA rates and fee for service. Right now, looking at about a 20-25% difference between those MA rates and the fee for service rates. I think that that quality level has allowed us in those negotiations to drive that down from the higher average of 35-40% difference between those rates.

Raj Kumar, healthcare services analyst, Stevens: Yeah, I appreciate the dynamic that's always kind of blocking and tackling with the payers on that front. I guess it's never going to be at parity because that might just be in a different world altogether. What is kind of that targeted threshold that you kind of think about internally in terms of being more of a partner and serving kind of their members outside of a SNF and NERF into a more lower-cost setting? Is there kind of like a sweet spot in terms of the realm of realism that you can kind of get that discount down to or that you're targeting towards?

Unidentified speaker: I think, again, the lower the better. I think that there's still room for us to move. In some of that movement, I think we'll end up being through, are we able to design plans where there is a synergy like savings where when we can show that quality piece that there is an additional savings or driver and benefit for us. I think that's the additional component as we're looking at those relationships is how do we do that? Also, is there a way that we can drive more high acuity into the home relating to a higher rate that we'd be able to get from those MA investments?

Raj Kumar, healthcare services analyst, Stevens: Yeah, that's a very important aspect because even with kind of some of the recent deals, we've seen more high acuity home health-based assets that have been acquired by Pennant and clearly kind of climbing that PDGM ladder against the reimbursement backdrop that has kind of been flat, but against inflation, essentially a cut. How should we think about the additional push for acuity or kind of structuring the overall kind of referral channels to focusing on kind of those high acuity cases?

Lynette Wallbom, CFO, Pennant Group: Or did you want to start?

Unidentified speaker: I'm happy to take it. I think our focus has been always on serving the needs of the community. I think our belief is if we are responsive to the needs of the community, then we're going to be prepared for we're going to be able to prepare to serve whatever that community needs. I'll use for an example our work with the John Muir Health System in Northern California, where there is a significant need to serve a higher acuity patient. We have worked collaboratively to improve the provision of provider services, so NPs and that quality of care. That allows us to serve those higher acuity patients that may not be eligible for home health or hospice. We've done this kind of throughout our portfolio.

We've built these provider services programs that allow us to bring on a higher acuity patient to make sure that they're triaged between care settings and make sure that we're the effective resource for those referrals.

Raj Kumar, healthcare services analyst, Stevens: Great. I think that kind of transitions to this topic as well, where it's not only M&A and there's also kind of the aspect of an avenue towards JV partnerships. We have one in Connecticut where that kind of planted the flag for Pennant in the northeast. Kind of along those lines in terms of expanding Pennant's presence, can you kind of talk about the JV opportunities and pipelines and maybe framing criteria around pursuing JVs relative to M&A and in some of those kind of more distinct markets?

Unidentified speaker: Yeah, we're excited about what we've been able to do with joint ventures. We feel like there is a need. You've got these great nonprofit healthcare systems, for-profit healthcare systems that have deep expertise in providing care across the acute care continuum. They've got these post-acute businesses, often home health and hospice in particular, that traditionally get less attention, that are sometimes burdened with high costs associated with the acute dynamics where reimbursement is higher. We've found that we can add value by coming in and by implementing home health and hospice best practices into that strong infrastructure of the system. There's a relatively clear opportunity where when we partner in the right way, we can care for that system's discharges. We can keep them out of the hospital, lowering the mortality rates and lowering rehospitalization rates for those hospital systems that have risk-based plans.

There are both clinical benefits where we can improve star ratings, we can improve preventable hospitalizations, we can improve mortality rates. There are financial benefits of being able to identify those patients who may need services and use the connection that they already have by being part of that acute partner. When you have a name like Scripps or John Muir or Hartford or the University of Tennessee, all of these are trusted names in their communities. We are able to sort of draft from the strength of those names, but what we bring is a great home health and hospice product that was difficult for them to achieve without us. The synergy is a great home health and hospice with a great acute partner yields to exceptional clinical culture and community results.

Raj Kumar, healthcare services analyst, Stevens: Kind of maybe fleshing out the JV dynamic with kind of the health systems, does that kind of open up an opportunity for maybe hospital home models that you could pilot? Clearly, very nascent in the broader scheme of things, even from kind of a reimbursement standpoint. Is that kind of an area of interest when you kind of think about these JVs and kind of maybe thinking of ways of how to step up the care model at home?

Unidentified speaker: 100%. I think what we have found and the way we continue to collaborate, we meet at least quarterly, sometimes monthly with our partners from those health systems. We are constantly exploring how do we bring acuity into the home? How do we care more effectively for COPD patients or for other chronic conditions where they may not need—they may be going to the hospital because they're not getting that care in the home. What we have found so far is implementing different pieces of that hospital at home, sort of cadre of services. We haven't yet found the right reimbursement models where it makes sense to offer the full package. We have explored that with our partners. As those models become more clear, I think you'll see us do that.

For right now, our focus is how do we clinically build the different infrastructures that allow us to draw acuity into the home and care for folks and deliver great clinical outcomes there.

Raj Kumar, healthcare services analyst, Stevens: Great. Maybe just one more last one on the home health side kind of before we move on to the kind of other segments. Surprisingly, we got in 25 minutes in and haven't brought up the home health rate, right? Usually it's like the first five-minute topic. Clearly, we don't have that rule out yet. There's been kind of developments in the background around investigations on fraudulent billing, especially in LA County around some of those practices and how that distorts the underlying data used in the payment policy. I guess from your perspective and from your conversations, what's the timeline for this thing to come out?

Do you think CMS is kind of going back to the drawing board and actually kind of reconsidering some of the things that were in the proposed rule? Just kind of, I guess, from your perspective. Clearly, no one has a crystal ball, but.

Unidentified speaker: We certainly don't have a crystal ball. We don't have any inside information to share other than to say we've been very intimately involved in those conversations across Capitol Hill, working very closely with our exceptional industry partners to share the message of how important home health services are to the continuum of care and how risky it is to decrease reimbursement in such a way that it will, without a doubt, result in less access to care. From the beginning, when CMS first initially released its rule, we had the opportunity to say, "This is flawed methodology," and to demonstrate to CMS and to the administration that the methodology that has been put in place to calculate what constitutes budget neutral under the provisions of the Balanced Budget Act, coupled with the implementation of PDGM, are inaccurate.

I think as an industry, we've done a good job of that. We've shown very clearly where the flaws are. We've shown the ultimate outcome has resulted in net decrease in aggregate spend, which means that regardless of how you look at it, it's certainly been, at the very least, budget neutral, but in reality, the spending has decreased. That's not necessarily a good thing. When you spend less on home health, it means that you spend more in other cost settings. I think we've been able to effectively translate that message to CMS, to the administration on the Hill.

That's what's exciting is we've found an open door and a willingness to hear in all three of those areas where there's been a willingness to look and to understand what's occurred, what have been the actual impacts to people, and what are the risks associated with this bad public policy. Now, we'll see what the actual impact is. I think CMS has their job, and part of their job is not to comment on the rule while it's being made.

Once it's released, I think we have worked closely with our industry partners to create contingency plans on how do we respond and how do we ensure that care continues to be accessible and that we are cognizant of the impact of these flaws in methodology, whether that's fraud in LA County, whether it's a rebasing that really isn't being taken into account, or any of the other ways the methodology is flawed.

Raj Kumar, healthcare services analyst, Stevens: Great, great. I think that sums up the kind of home health part of the equation. I think maybe just moving on to hospice, clearly, healthy organic growth year to date. I guess we're kind of thinking about this post-pandemic recovery, and it might kind of feel like that we're essentially kind of getting to these pre-pandemic types of levels of KPIs. I just kind of had one on the maybe length of stay front. Kind of what's the maybe balancing opportunity there for incremental opportunity on recovering some more length of stay without pushing cap because that's kind of been a larger issue for some other of your peers that are more Florida-based. How should we think about organic revenue growth as we go into the segment across the opportunities on kind of length of stay, ADC?

We kind of know the rate as is. I guess kind of maybe some framing on 2026.

Lynette Wallbom, CFO, Pennant Group: Yeah, I think we look at length of stay. I think there's still room for us to improve on length of stay. We're just under 100 days. Pre-pandemic, I think our high was at 106 days. There is still room for us to move. I think as we kind of balance that length of stay and hospice cap, there are certain states where hospice cap is, we have greater exposure because of what the reimbursement is on a daily rate. When we look at California, for example, that would be a state where we would have some exposure. It's, again, balancing the acuity of the patient that we're getting, whether they're coming in from an acute care setting, which is generally a shorter length of stay.

As we are in states that potentially have more exposure on hospice cap, it is really being able to balance that piece of providing for those shorter length of stay and then really being able to look at how can we provide this meaningful service for that longer, what is planned for six-month hospice length of stay. I think that is a piece. On the where do we see that growth coming, I think that as we look at how do we, where our growth trajectory is, really in that mid to high single digits is where we kind of see that normalization coming from on the hospice side of the business.

Raj Kumar, healthcare services analyst, Stevens: Great. I guess kind of on that length of stay front, clearly, a lot of it does have to do with kind of referrals, kind of SNF versus acute and the short versus long stay. I guess how would you characterize that kind of mixed standing relative to pre-pandemic trends?

Lynette Wallbom, CFO, Pennant Group: I think that, again, we have it's really looking at it on a local level and really finding what works best for those local agencies and what's meeting the needs of that community. I think it's relatively similar to what it was pre-pandemic. John, would you like to?

Unidentified speaker: Yeah, it's still a little bit lower. I don't want to say we're fighting that battle. We feel really good about where it's at from a healthiness standpoint, but certainly we've still got some room to go to get back to where we were pre-pandemic. The question is, in light of the experience we've had in California, where you can only care for someone for 90 days. I think our length of stay will probably hover in that 100-day area across the board. We do think it's important to continue to increase length of stay where it's appropriate based on patient need and patient diagnosis because patients benefit from the hospice benefit. They benefit from earlier recognition that palliative care is the appropriate thing for that patient. Their families benefit from having access to psychosocial and spiritual counseling.

We want to increase that length of stay. We feel like we've still got a little bit of room. I think, like Lynette said, we're in a good target range right now.

Raj Kumar, healthcare services analyst, Stevens: Great. Maybe just a quick follow-up. A third of the book that you're acquiring from Amedisys LHC is hospice. I guess anything to call out from that standpoint since we haven't had the benefit of looking at those books in terms of if they've kind of been close to rubbing against cap issues?

Unidentified speaker: Yeah, I think their length of stay is a little longer than our average length of stay. As far as the health of the business, the health of patient population, the quality of those businesses, we feel good about them. Of course, we are always evaluating things and making sure that everything is as strong as it can be. I think their length of stay is just a little bit longer than our average.

Raj Kumar, healthcare services analyst, Stevens: Maybe just kind of on the hospice M&A front, clearly valuations have been healthy relative to senior living or even home health. Most kind of stay away from those mid to high teens valuation. I guess kind of thinking about the strategy and maybe thinking about the throughput between home health and hospice in terms of referral standpoint or even from senior living to hospice, right? Where does that mix stand in terms of how much of your referrals are coming from your existing operation based on the home health or senior living side? Does Denovo fit into the strategic playbook for Pennant just given how expensive the kind of marketplace is for M&A and hospice?

Unidentified speaker: Yes, Denovo definitely fits. I think our belief is that in every community we serve, we want to have a continuum of care. We want to be able to provide home health. We want to be able to provide hospice. We would love to provide senior living. We'd love to provide non-skilled home care. We start with sort of home health and then adding hospice. I think when you look at multiples right now, they are becoming more elevated again in hospice. I think that's a factor of the consistency of reimbursement as opposed to home health. It's easier to value those businesses, and it opens the door to more investment. What we have found is there are still opportunities for us to grow through acquisition in the right way. Our focus has been finding those opportunities and making those investments.

Certainly, Denovo's is a critical piece of our long-term strategy. As far as our relationships with our senior living business, I think we started from a thesis that senior living, hospice, and home health would be a very effective collaboration. It has been. I think where we have overlap, we have a significant portion of the discharges that come from our senior living communities, not a disproportionate share because we are an organization that is driven by patient choice. We never have mandates that require every patient to choose that partner. Certainly, I think we have established these continuums of care and trust that have allowed a significant portion of discharges for home health, not discharges, but of residents who need that level of care, both home health and hospice, to be provided by their sister Pennant affiliate, home health and hospice.

That's still because it still isn't a huge number of our total company admissions.

Raj Kumar, healthcare services analyst, Stevens: Okay, great, great. Now kind of just moving on to senior living, very healthy progression on both the rate and occupancy front, especially in the third quarter with kind of an all-timer on occupancy. Kind of maybe helpful to gauge you're passing down high single-digit rate updates, but you're still also gaining occupancy. From our standpoint, it's just like, how does that value convey to residents, especially considering, like I said, the high single-digit rate hikes? How does that, kind of, what does the value convey to those residents in terms of the reason why it's not impacting occupancy and essentially driving resident retention at a pretty healthy pace?

Unidentified speaker: Thanks, Raj. Yeah, we're excited about the progress in senior living. We've definitely been able to see consistent progress across the board. You mentioned our all-time high on occupancy. We're thrilled about that. Obviously, it's challenging to continue to pass on rate increases. You do have to have a value proposition. Some of the key things that we've done to really make those palatable and create value to the residents are we've improved the look, feel, and function of our communities. There's a lot of capital investment that has happened in order to improve the overall aesthetics, the function, make sure that the community itself is value-add for them. We've invested in our clinical product and have now more licensed individuals in our communities providing care than we've ever had.

We are excited about that and feel like that's really delivering value for those residents. We have also really focused on our activities programming, especially in memory care, where we are developing and continuing to improve the overall experience that an individual is having or a family member can see that experience that someone's having in memory care. Those are some of the ways that we've been able to, I think, mitigate the potential occupancy decline that comes sometimes when you push rate. Obviously, there are underlying demographics that are in our favor and helping keep kind of prop that up.

Raj Kumar, healthcare services analyst, Stevens: Great. Clearly, there's been a shift in senior living more from a hospitality standpoint to there's more healthcare in those settings. I guess kind of when we think about resident uptake on those healthcare services, kind of where does that sit from an opportunity set standpoint, whether it be kind of on the pharmacy side or on the nursing kind of supervision type of side? What's kind of the opportunity set on those? I think you've kind of framed them as care charges maybe in the past. How much of that is still kind of not embedded or kind of an opportunity going forward?

Unidentified speaker: Yeah, we continue to see more utilization and more acuity in our space, as you mentioned. I think we're well-positioned for it because of our heritage and DNA coming from a skilled nursing organization spinning out of Ensign. We have a lot of the fundamentals around care actually pretty well developed, and we know what that can look like. Unlike the hospitality side, we know that side of our business really, really well. We're born out of the care industry. We're excited about being able to deliver high-quality care to more residents as the kind of acuity levels change. Our business, about 20%-25% currently comes from the care side of the business from the healthcare services. That has increased over prior years slightly and continues to trend that direction.

On the long-term basis, probably looking in the 25%, maybe even up to a third. We still see room there. A lot of the gap that we needed to close, we've executed on and have been able to really ensure that we're charging appropriately for the services that we're providing, that we're doing effective assessments of resident needs and charging for the care that we're giving.

Raj Kumar, healthcare services analyst, Stevens: Resident satisfaction is clearly a component to retaining and overall long-term trajectory of occupancy, but also labor is a crucial factor. I think when we hear last year, I think the kind of messaging was it's like we might not get to pre-pandemic since kind of where caregiver hiring and retention trends are. Clearly, you've hit an all-time high on occupancy in the third quarter. It seems like the labor uptake has been there. Maybe just any update on caregiver staffing and retention trends and whether the current capacity that you have from that standpoint kind of still sustains more occupancy, or is it kind of an equation where you kind of need more incremental caregiver capacity to still increase?

Unidentified speaker: Yeah, thankfully, we've put a ton of effort into improving our onboarding, training, and overall retention strategy. We've seen that playing out. We've seen now for four years in a row decreases in turnover and improvement in overall employee experience via engagement surveys and such. We're proud of that. We're excited about the direction that that's heading. It's enabling, like you said, us to push further into the occupancy thresholds that we know we need to push into. On the scalability, when you're getting into the 80s plus, mid 80s even occupancy levels, it scales. We feel like we are well-positioned to scale occupancy as that demand continues to present itself. It's not without its challenges, but we're improving markedly every year and expect to see that continue. Inflation pressures have softened, and that's also helping.

Raj Kumar, healthcare services analyst, Stevens: Yeah. Kind of maybe one last, once it's we're almost up on time, but I guess still a lot of opportunity on the top line front from senior living. Then also when we think about kind of EBITDA and the margin there, I think you've targeted 15% in the past. I think we're a couple hundred basis points off of that still. What's kind of the incremental kind of push towards getting to that? Is it just really a function of occupancy or is it there's just marginal cost optimizations or a combination?

Unidentified speaker: Yeah, it's probably a function of occupancy and that revenue growth. It's also just a function of scale, right, because we've made significant investments in our leadership development program and in our digital marketing strategy. As we are able to deploy that across more communities as we acquire, that will help. On the margin front, as we have incremental gains in occupancy, it's a range because we're also acquiring underperforming assets, and that's going to create pressure in the margin. We're always kind of in that game. Generally speaking, I would expect a percentage in occupancy giving us maybe 50-75 basis points in terms of margin improvement depending on kind of some of those other factors. As we scale, that also improving some of the underlying deferring of fixed costs.

Yeah, we see a path to that 15% that remains our target margin, and we're pushing hard to get there. It also takes a little bit of time. We just touched that occupancy number. And so there's optimization and process that happens there to make sure to mature that margin as it relates to occupancy. It takes a second.

Raj Kumar, healthcare services analyst, Stevens: Great. I think that wraps it up for us. I want to thank the Pennant team for joining us here today.

Unidentified speaker: Thanks so much, Raj.

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