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Presentation

Operator:

Derek Bunker: 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 Jen Freeman, our interim CFO. Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-K 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 p.m. Mountain on March 24, 2023. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, February 24, 2023, and these statements have not been nor will they 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 the environment in which we operate.

These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today’s call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Pennant and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. In addition, the Pennant Group Incorporated is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries.

The words Pennant, company, we, our and us refer to the Pennant Group Incorporated 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 used today are not meant to imply nor should it be construed as meaning that The Pennant Group 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-K. And with that, I’ll turn the call over to Brent Guerisoli, our CEO. Brent?

Brent Guerisoli: Thanks Derek, and welcome everyone to our full year and fourth quarter 2022 earnings call. Before we share our results, I want to express deep appreciation to the local leaders and teams who care for our patients and residents and communities across our platform each day. Your kindness, compassion, work ethic, and commitment to excellence is the bedrock of Pennant’s operational and clinical success. We are grateful to work alongside you and partner with you in providing life-changing service. We are pleased to announce fourth quarter results that demonstrate the consistent operational improvement our local leaders and their teams achieved in the fourth quarter and throughout 2022. Collectively, our full year consolidated results reflect revenue of $473.2 million, an increase of $33.5 million or 7.6% over the prior year, and adjusted EBITDA improvement of $5.1 million or 19.5% over the prior year.

In the fourth quarter, revenue increased $12.9 million to $124.7 million, and our adjusted EBITDA improved by $4.9 million or 98.3% over prior year with adjusted EBITDA margin expansion of 3.5% over the prior year. These results reflect the success of our local operating teams, responding to extraordinary inflation and labor shortages with consistency and resiliency. Our home health and hospice leaders continued to drive solid clinical and financial results, including improvement in average star rating and hospitalization, which contributed to double-digit top line and bottom line growth. Our senior living segment experienced transformational change in 2022 as we added talented operational leaders — operational and clinical leaders who drove stronger results and showed increasing momentum in the fourth quarter.

Demand for our high quality senior living services has accelerated, allowing us to drive improved occupancy while simultaneously increasing revenue per occupied room, resulting in improved bottom line performance. Even with this progress, significant latent potential still remains across our businesses, and each segment is well positioned to maintain its growth story in 2023. The growth and positive momentum we experienced in the fourth quarter are representative of the steady improvement that we committed to provide and executed upon throughout year. While we are pleased with the progress we know we can be much better and see tremendous opportunity to unlock additional value in the coming year as we live our culture and leverage our model of empowered local leadership, robust cluster accountability, and exceptional service center support.

In 2023, we are enhancing our efforts to find, train and develop world class operational and clinical leaders. Our existing talented local leaders and many more who will join us will drive improvement in four key areas. First, best in class clinical outcomes; next, improved operating margins; next, organic and inorganic growth; and finally an elevated employee experience. Ultimately Pennant is more than a healthcare company dedicated to our mission of providing life changing service. We are a leadership company, deeply committed to creating opportunity for entrepreneurial individuals to use their unique talents and strengths to create value. Our operating model empowers these leaders to identify partners in the local community, create strategic plans relevant to their local situation and align with other cluster partners through our incentive and equity structures.

Our model thrives when local leaders use their freedom within a framework of accountability to operate as owners and drive exceptional performance clinically, financially and culturally. When leaders achieved these results over an extended period, they’re awarded C level designations such as Chief Executive Officer, Chief Clinical Officer, and Chief Operating Officer. There’s a lot to accomplish across the organization, but let me be clear, developing C level leaders is my number one priority. Across the organization, we are committed to tripling the number of CEOs in our organization over the next three years. To accomplish this, we are redoubling our efforts to recruit, train and develop more world class leaders. We are also actively improving the data, tools and resources available to our field leaders in order to drive meaningful improvement within operations clusters and markets, and to consistently focus leaders on their results in areas of improvement on their path towards a C level designation.

Achieving success in this priority is paramount to our future success. As we announced in our press release yesterday, we are providing guidance for the full year of 2023. We anticipate full year revenue in the range of $503.5 million to $518.4 million and adjusted earnings per share in the range of $0.66 to $0.76. The midpoint of $0.71 represents 25% growth on our 2022 adjusted earnings and 54% growth over our 2021 results. Our 2023 guidance is informed by the burgeoning momentum in both our segments, the impacts of the home health and hospice reimbursement changes, increased costs associated with labor and other inflationary pressures, as well as the significant upside we know remains in our existing operations. With that, I’ll turn the call over to John to provide more detail on our fourth quarter operational results.

John Gochnour: Thank you, Brent, and good morning, everyone. We are pleased to report that the fourth quarter reflected meaningful progress in both our operating segments. Turning first to our home health and hospice segment performance. Top-line revenue for the quarter of $90.7 million increased $12.8 million or 16.4%, while adjusted EBITDA of $15.5 million increased $4.3 million or 38.5% and adjusted EBITDA margin expanded 2.7% each over the prior year quarter. Our home health business continued its strong year. Quality clinical outcomes and robust accountability continue to set us apart in the marketplace, as our agencies reached an average CMS star rating of 4.3 and a real-time 60-day hospitalization rate of 12.1%, which compares favorably to the national average of 14.7%.

These excellent clinical outcomes contributed to steady admissions growth as home health admissions rose 8.2% and Medicare home health admissions rose 10.6%, each over the fourth quarter 2021. Our local teams continued their focus on care planning and episode management, driving meaningful progress in delivering strong clinical outcomes while improving efficiency in an elevated cost environment. Finally, our clinical teams, service center resources and clusters collaborated to prepare for the expansion of CMS’s home health value-based purchasing program. This program will benefit providers, who can successfully drive clinical outperformance and represents an opportunity to be measured and rewarded for value in our home health programs. On the hospice side, our fourth quarter represented a strong step forward in a year that required our teams to navigate a uniquely difficult operating environment.

For the full year and the fourth quarter, admissions grew 6.4% and 2.4%, respectively, each over the prior year period. The fourth quarter saw a significant improvement in hospice length of stay for the first time this year, the discharge length of stay increased nearly 10% sequentially over the third quarter of 2022. Strong admissions and length of stay improvement contributed to our fourth quarter average daily census growing 5.2% over the prior year quarter and 3.5% sequentially over the third quarter of 2022. While we are pleased with the progress we have made in our home health and hospice segment, we know our performance can be much better. By executing on the fundamentals of our business, we can improve performance. We can create a more robust ramp of hospice growth, better manage the cost and efficiency of our care delivery and continue to improve our transitioning operations.

The strength and diversity of our hospice programs are reflected in our fourth quarter ADC growth as we grew census despite continued challenges in Arizona and Texas, two of our historically strongest hospice markets. As these markets rebound to historical levels and length of stay continues to normalize, we expect hospice ADC growth to ramp through 2023. Similarly, we are working to improve cost management and optimize care delivery. Our local teams are reporting out regularly on efforts to reduce direct and administrative costs while driving revenue to meet their commitments. As part of this effort, we are working hard to optimize the EMR experience for our clinical teams, as we more effectively utilize technology and data to improve episode management, utilization and productivity, while also enhancing the employee experience.

Finally, we continue to realize the organic growth potential in new markets open through acquisitions completed in 2021 and 2022. In 2022, we drove improvement in these recently acquired operations and we remain focused on the significant opportunity each of these new operations represents as an engine for our 2023 growth. We are excited to report continued progress in the turnaround of our senior living segment. Over the last 18 months, we have invested extensive time and effort in recruiting and developing senior living leaders and resources, who understand our culture and have embraced the Pennant opportunity. These leaders have driven improvement in our top and bottom line performance, adjusting for divested buildings, same-store senior living segment revenue improved to $126.8 million, an increase of $12.8 million or 11.2% over the prior year, and $33.2 million in the fourth quarter, a $3.5 million or 11.8% increase over the prior year quarter.

Full year senior living segment adjusted EBITDA improved to $6 million, up $4.4 million or 282% increase over the prior year and $2 million for the fourth quarter, an increase of $1.3 million or 171% over the prior year quarter. Occupancy continued its steady ramp, growing for a fourth consecutive sequential quarter and reached 78.6%, a 330 basis-point improvement in our same store communities over the prior year quarter, and a 100 basis-point improvement sequentially over the third quarter of 2022. We achieved this occupancy improvement even as average monthly revenue per occupied room for the fourth quarter rose to $3,670, an increase of $282 or 8.3% over the prior year quarter, and $113 or 3.2% sequentially over the third quarter of 2022.

While we took a significant step forward in 2022, enormous organic growth opportunity exists in our senior living portfolio. We remained focused on translating revenue improvement, the bottom line financial performance through rigorous cost management and cluster accountability, growing occupancy through improved sales practices and support, and accurately capturing and receiving appropriate reimbursement for the care we provide. As our local teams succeed in these objectives, we will create stronger operating results in the senior living space and look forward to it joining our home health and hospice segment as a growth engine for Pennant’s success. In both segments, we continue to focus on our most important asset, our people. Over the last two years, elevated turnover levels and staffing shortages have impacted our ability to grow.

While the pandemic has created a role in staffing difficulties and turnover across many industries, we are ultimately responsible for creating a life-changing employee experience. And our turnover results have not measured up to the high standards we have set for ourselves. In the fourth quarter and into the month of January, we have seen signs of improvement in our labor trends. Wage inflation slowed sequentially, clinical headcount increased, and home health and hospice turnover has declined. As we continue to improve, these trends will allow us to admit and serve more patients and residents. Our local leaders and teams are committed to becoming the employer of choice in each community we serve and are resolutely focused on finding and retaining the best talent as we live our core values of customer second and love one another.

Turning to growth. As we increase the quality and depth of our leadership pipeline, we expect to accelerate our growth. We see a robust pipeline of acquisition opportunities in home health, hospice and senior living across our platform and in new markets. As we find opportunities through the efforts of our local teams and our stronger relationships with the broker community, we will continue to be disciplined and diligent in executing our growth strategy, looking for opportunistic acquisitions in areas where we have healthy clusters and talented candidates in our leadership development program. We also continue to invest in de novo locations and branch expansions in markets where we meet the same criteria and have opportunity to expand our continuums of care and better serve the community.

In the fourth quarter, we announced one home health acquisition, the Kenosha Visiting Nurse Association in Kenosha, Wisconsin. We are grateful to the board of KVNA, which has operated independently since 1927 for entrusting us with their nearly 100-year legacy of providing high-quality in-home care in the Kenosha area. With three of our senior living operations in the KVNA service area, the acquisition represents an opportunity to continue establishing our Pennant care continuum as we support senior’s ability to age in place by providing the skilled care they need within our senior living communities. With a talented leadership team and the support of our strong home health and hospice operations in the Milwaukee area, we are executing on a plan to quickly drive financial improvement and clinical strength at KVNA, positioning to be accretive to 2023 results.

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

Jen Freeman: Thank you, John, and good morning, everyone. Detailed financial results for the full year and three months ended December 31, 2022 are contained in our 10-K and press release filed yesterday. For the full year ended December 31, 2022, we reported total GAAP revenue of $473.2 million, an increase of $33.5 million or 7.6% over the prior year, and GAAP diluted earnings per share of $0.22, an increase of $0.13 or 144.4% over the prior year. As a reminder, our 2022 full year guidance was total revenue of between $458 million and $462 million, earnings per diluted share between $0.55 and $0.60, and adjusted EBITDA of between $31 million and $33.5 million. Consistent with that guidance, revenue adjusted for startups and the domestic building was $464.1 million, $38 million or 9.1% increase, adjusted EBITDA was $31.5 million, a $5.1 million or 19.5% increase, and non-GAAP adjusted earnings per diluted share of $0.57 on shares a 30.2 million, an increase of $0.11, or 23.9% over the prior year.

Key metrics for the full year and three months ended December 31, 2022 include $64.5 million drawn on our revolving line of credit and $2.1 million cash on hand at quarter-end; 1.93 times net debt to adjusted EBITDA; and cash flows provided from operations of $9 million for the year and $25.8 million excluding the impact of $6.5 million of the transfer related to the divested buildings, $4.1 million in deferred FICA payments and $6.2 million in the repayment of Medicare advance payments. As we mentioned in our press release, we are providing full year 2023 guidance of revenue of $53.5 million (sic) to 518.4 million; adjusted EBITDA of $38.4 million to $42.6 million; and adjusted earnings per share of $0.66 to $0.76. Our guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 30.7 million and a 25.5% effective tax rate.

Our 2023 annual guidance anticipates an EPS increase quarter-over-quarter consistent with our 2022 performance and is based on a ramp in home health and hospice ADC, occupancy improvements in senior living, anticipated reimbursement rate adjustments and elevated interest rates, does not include unannounced acquisitions and excludes startup operations, share-based compensation, acquisition-related costs and onetime implementation and unusual items. Including the factors contemplated in our guidance, we are confident in our local leaders and resources across our organization that they will continue to drive the momentum that we experienced in the fourth quarter into 2023 by focusing on the things we have previously emphasized: leadership development, clinical outcomes, margin expansion and culture.

We expect cash flow from operations for 2023 to reflect organic revenue growth and bottom-line improvement, unencumbered by the onetime cash outlays experienced in 2022. With increases in earnings, continued improvement in cash collections and lower capital expenditures, we expect to fund future growth. And with that, I’ll hand it to Brent to highlight a couple of our local leaders.

Brent Guerisoli: Thanks, Jen. It’s my pleasure to spotlight a few leaders in our organization, who have achieved exceptional results in 2022. Their stories reaffirm our conviction that elevating local leaders and supporting their progress to CEO will be key to our future success. As an example, newly appointed Chief Executive Officer, George Lipphardt and Chief Clinical Officer, Cassie Allmark, lead Sacred Heart Home Health in Tucson, Arizona. Sacred Heart joined the Pennant family through acquisition in January of 2021 and has improved steadily ever since. George and Cassie’s intense focus on culture and operational excellence have led to Sacred Heart becoming an employer of choice and a provider of choice in the Tucson market.

They have partnered closely with our other operations in the area and demonstrated the unique value of the Ensign Pennant Care Continuum by meeting and coordinating regularly with Ensign leaders in Tucson. Their hard work, dedication and collaboration have borne fruit as evidenced by Sacred Heart’s real time star rating of 4.5, 13% 60-day hospitalization rate and by a 91% increase in revenue in 2022 versus 2021. Even more impressive, these leaders dramatically increased Sacred Heart’s margins in an inflationary environment, leading to a more than 400% increase in Sacred Heart’s EBIT year-over-year. Also in Tucson, Arizona, newly appointed CEO, Russell Sylvester and future Chief Wellness Officer, Dakova Nielsen are building something special at Sherwood Village Assisted Living and Memory Care.

These leaders have helped Sherwood establish a reputation as a preferred local senior living community. Sherwood Village is known for great care and providing a welcoming and attractive environment for residents. Through Russell and Dakova’s leadership, Sherwood weathered the pandemic and never lost sight of the importance of strong culture. Throughout 2022, Sherwood gained momentum, increasing its census to pre-COVID levels to end 2022, with the census of 151 residents, and increase in occupancy from 80% in Q4 2021 to 91% in Q4 2022. Sherwood’s financial performance improved accordingly with a 78% increase in EBITDAR year-over-year. We are seeing other Arizona communities following Russell and Dakova’s footsteps, and we’re excited about the Arizona senior living market in 2023.

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

Operator: And our first question coming from the line of Tao Qiu with Stifel. Your line is open.

Tao Qiu: Hey. Good morning. Congratulations on the strong results this quarter and the progress throughout the year. I’m just curious on the full year guidance. I think the guidance suggests 10% growth on the top-line and I think 28% increase on EBITDA at the midpoint. Could you maybe unpack the various components that are driving the guidance? And second, I think the guidance also suggests 50 basis-point improvement in adjusted EBITDA margin in 2023. Certainly, we saw the momentum of the margin expansion that should carry into 2023. But in light of the experience last year, what level of conservatism are you building to that margin assumption? Thanks.

Brent Guerisoli: Yes. Thank you, Tao. It’s a great question. And I’ll provide a general overview and then I’ll let Jen provide some of the specific details. As we took into account the way that we ended the year, we had a strong fourth quarter and we’re really optimistic going into 2023. At the same time, as we mentioned, we expect a ramp similar to what we saw in 2022 in the — where we start out solid, but really see a ramp up in the second half of the year. And just to keep in mind, right, Q1 tends to be a little bit more of a — it’s a choppier quarter for us. We’ve got as you compare quarter over quarter from last year, we have the sequestration holiday that’s gone away. We also are experiencing some benefits reset and other payroll taxes in this first quarter.

We’ve got the impact of the home health revenue, the final rule changes as well as a slight dip that we sort of — we normally see some seasonality in our census through the holiday season, and we did experience that. What’s great though is we’ve already rebounded and surpassed the levels that we had experienced in Q4. So, we’re excited about that progress. And then, just in general, we’re starting to see real momentum as we roll into the second half of the first quarter. So, anyway, that’s kind of our expectations. I’ll just say this, we anticipate some stable but solid growth from a revenue top line standpoint and as well as incremental margin improvement. We’ve got significant opportunity. We have pretty conservative estimates built in on our senior living segment.

We believe that that ramp can really take off and we’ve talked about sort of the breakout performance that we’re expecting, but we’re really factoring in pretty conservative kind of quarter-over-quarter improvement. And then there’s significant opportunity as well on the home health and hospice size to continue to drive our margin improvement there. And I would just note one other thing. We also have some opportunities on the G&A side. We continue to make investments in 2021 and 2022 that were necessary as we work through the pandemic, but also just transitioning, we’re — through the spin, there’s been — there were additional investments there, but we anticipate that those will start to alleviate in 2023 and we’ll see improvement in the percentages there.

Jen, any other additional information?

Jen Freeman: Yes. I think that — Tao, just to maybe put some more color around it. For cost of service, we did include some inflation in the ranges of up to 5% improved margins through incremental creative growth. So, we are expecting a slight improvement in cost of service. We’ve also benefited from some rent improvements as a percent of revenue as well on the senior living side. On the home health and hospice side, we are anticipating a 0.8% decrease in our home health reimbursement. So, that’s built in to our considerations as well on the cost of service side, just looking at margin improvement focused on the areas of operational efficiencies, caregiver productivity, some visit utilization, and our EMR optimization. And then, as Brent said, on the G&A side, we did see our G&A expenses decline as a percentage of revenue in the fourth quarter. Overall, we do expect G&A as a percentage of revenue to come down year-over-year.

Tao Qiu: And my second question is on the hospice side. I think the average length of stay was adversely impacted by the shifting refer, so was this your during 2022. But we saw that bounced back quite strongly during this fourth quarter. You talked about the ramping Arizona and Texas, could you maybe talk about efforts you make there, any changes in referral sources you’re currently seeing?

John Gochnour: Yes. Tao, I’m happy to take that one. We’re really excited about what we saw in the fourth quarter from a census perspective, particularly with the normalization of length of stay. We saw about a 10% increase and that’s really driven across the board. What we expect to see in 2023 is we believe that we’ll see more of a normalization, we’re getting more and more referrals from our community referral sources, which is terrific. Where we still have opportunity to return to pre-pandemic levels is in those senior living and skilled nursing partners, who — where historically we’ve had a little bit higher number of patients. And so, as that normalizes, as their census continues to grow, we expect to see that normalize a little bit.

And as we’ve talked about previously, in those settings, we’re better able to identify the hospice needs sooner. And so, there’s generally an improvement in length of stay for the patients that come out of those facilities. But we’re really excited about the admissions data that show how the community is choosing us the referral sources, particularly on the hospital side that we gained during the pandemic. We don’t expect those to change significantly, and we see an opportunity for growth as our facility partner’s census improves. In Arizona and Texas, we called out those markets, because we have seen them historically as critical parts of our hospice census. Through several leadership transitions and some other things that factored in, we saw census decline in those areas.

And the great thing is we’ve got a good group of leaders who are very focused on bringing those markets back to where they’ve traditionally been. And so what you can — what you will see and what we expect to see is those markets on a ramp to return to prior performance, continued strong growth in our markets in California, the intermountain west and the Pacific Northwest and then the normalization of length of stay, and we view that as what will build that ramp in hospice ADC.

Tao Qiu: If I may, squeezing one more question on senior living. I think the rate growth was pretty strong year-on-year as well as quarter-on-quarter. I think some of your competitors called higher level of move-outs, because they’re pushing rates. Did you guys get any pushback from your resident base? And I think also in 2022, the cost of services in senior living benefited from a $4.2 million state relief fund. I assume some of the support on the Medicaid side will probably stay in place in 2023. Could you maybe comment on government support on the public health emergency and what level of support do you anticipate in your guidance? Thank you.

Brent Guerisoli: Yes. Great questions, Tao. I’ll start with the provider relief question that you asked. We have in several of our states received the funding on the provider relief, and we have confirmation across virtually all of the states that that will remain in place for 2023 and obviously 2024 is still in question. But — so that’s factored in. There is one state in particular, Idaho, that we didn’t receive confirmation that — we’ll be getting that. But, what we’ve done in Idaho is we’ve actually partnered with the state and other programs that really helped to elevate our performance, bottom-line and top-line performance there. So, overall, we expect a similar type of impact in 2023 versus what we experienced in 2022.

As it pertains to sort of the price elasticity or sensitivity to pricing and our occupancy incentives. What we have experienced is — I will say this, we have started from — probably from a point of catch-up. So, we are competitively priced in the majority of our markets. And so, as we’ve incrementally increased rates, we’ve also seen — and we pointed this out earlier on the call, we’ve seen significant occupancy gains. And so we anticipate that we will continue to see those gains and we still have plans to increase rates across the board. We are focused on trying to drive — there is rent coverage, but there is also our cares that are provided. And so just making sure that, we are being reimbursed properly for the cares that we are providing.

So, we anticipate continued increases there, but that will likely slow down. There is going to be some — we are anticipating some sensitivity to that as prices get to a certain level. But we still feel like there is still significant upside on the rent increases through the year, just probably not at the same aggressive rate that we experienced in 2022.

Tao Qiu: Got you. Thank you.

Operator: Thank you. One moment please for our next question. And our next question coming from the line of Scott Fidel with Stephens. Your line is open.

Scott Fidel: Hi, great. Hi, everyone. Wanted to maybe just follow up on that last discussion point just on the SL business and thinking about rate and occupancy in 2023. And would be interested in terms of what you are building into your outlook in terms of the rate increases, and then occupancy sort of trend that you are factoring into the guidance?

Jen Freeman: Yes. So overall, we are looking at an increase on top-line growth of about 10% on our senior living business. The breakdown between that — between rate and occupancy would be about 2% to 3% would be in the rate side and 7% to 8% would be in the occupancy side. And then, of course, that will translate into incrementally accretive growth in the margin.

Scott Fidel: Okay, great. That’s helpful. And then also just on the outlook for cash flows. And it sounded like, Jen, your qualitative commentary was pretty positive around normalization in operating cash flow. Just interested as well if you could quantify that for us in terms of what you are factoring in for operating cash flow and then for CapEx as well?

Jen Freeman: Yes. So, I think we’ll see our — I’ll start with the last question first on CapEx. We have made some investments in 2022 in CapEx, and we expect that to come down between $8 million to $10 million in 2023. And then, in comparison or in line with that, on our cash flow, we do expect that to improve. We don’t have those one-time expenditures that we have experienced over the last couple of years. The advance payments are all paid back for FICA deferral. And then we had a $6.5 million payment with the divested community. So, if you factor those out, you are looking at $25.8 million in operating cash flow. So, we are looking at similar to improved as we improve our margins, as we improve our bottom line growth that will improve cash flow year-over-year.

Scott Fidel: Understood. So, it definitely looks like there should be some solid improvements in free cash flow. And then, just if I could sneak one last one and just on the margin side. And I know you touched on some of the drivers of the margin expansion across the business and just called out SL. For example, interested just within HH&H how you are thinking about margin progression, just given the sort of flat to slight rate reduction in home health. Interested if you’re assuming that you’re going to have margin expansion in home health despite that or whether margin expansion is more weighted towards hospice and in SL in 2023? Thanks.

John Gochnour: Scott, great questions and we appreciate them. And the margin expansion we’ve discussed, it really applies to all three segments. Like Jen called out, we do expect a modest reduction in home health Medicare revenue, that’s going to be offset a little bit as we continue to expand our relationships on the commercial side, it’s going to be offset through the clinical optimization that we are in the process of doing with our EMR, which we anticipate leading to improved productivity, and a continued focus on visit utilization and episode management. We’ve made tremendous progress over the last few years as that’s been a focus and we will — we’ll continue to focus on that. Our goal is to deliver care as efficiently and as effectively as we can.

And so, we do have a little bit of a tick down on the home health side from a Medicare revenue standpoint. But we offset that with significant — what we believe is that we can continue the ramp of growth that we’ve experienced. We’re continuing to strive to be the provider of choice in each community we serve. And our admissions remain strong on both the Medicare side and the commercial side. And so, that’s offset a little bit in that projection by the increase in volume. As far as the expansion of margin goes overall, we called out a couple of things. We’ll continue to focus on employee turnover. We feel like that’s a real opportunity for us. It ticked up about 25% over the last two years, and we feel like getting that back down to pre-pandemic levels, really gives us an opportunity to expand margin.

We still feel like we have opportunity on our new transitions. We acquired a lot of businesses through 2020, 2021. And then while it slowed in 2022, each of these represents an opportunity for significant growth. And we saw that improvement in 2022. It helped to drive the margin expansion you saw. And we believe we continue to have opportunity there. So, those are some of the things I’d call out as opportunities to reach the margin expansion we talked about in our guidance.

Operator: And our next question coming from the line of Ben Hendrix with RBC Capital. Your line is now open.

Ben Hendrix: Thank you. Just another quick question on hospice. I appreciate all the color on length of stay and census. But on the rate side, one of your competitors this morning kind of implied a pretty strong rate update for fiscal €˜24 which would impact €˜23 — or the third quarter of this year. And was just wondering what you guys had baked into your expectations for rate progression at the end of the year for hospice? Thanks.

Brent Guerisoli: Yes. So, we take the approach of kind of including what’s known in the guidance. And so we did not bake in any significant increase above the 3% adjustment from the 2023 final rule. And so, that also represents potential upside for us.

Operator: Thank you. And I’m showing no further questions at this time.

Brent Guerisoli: Well, thank you, Olivia, and thank you everyone for joining us today. We hope you have a great day.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.