The Pennant Group, Inc. (PNTG) Q4 2022 Earnings Call Transcript

The Pennant Group, Inc. (NASDAQ:PNTG) Q4 2022 Results Conference Call February 24, 2023 12:00 PM ET

Company Participants

Derek Bunker - CIO, EVP and Secretary

Brent Guerisoli - CEO

John Gochnour - President and COO

Jen Freeman - Interim CFO

Conference Call Participants

Tao Qiu - Stifel

Scott Fidel - Stephens

Ben Hendrix - RBC Capital

Operator

Derek Bunker

Welcome, everyone, and convey you for joining america today.

Here pinch maine coming I person Brent Guerisoli, our CEO; John Gochnour, our President and COO; and Jen Freeman, our interim CFO. Before we begin, I person a fewer housekeeping matters.

We revenge our net property merchandise and 10-K yesterday. This announcement is disposable connected nan Investor Relations conception of our website astatine www.pennantgroup.com. A replay of this telephone will besides beryllium disposable connected our website until 5 p.m. Mountain connected March 24, 2023. We want to punctual anyone who whitethorn beryllium listening to a replay of this telephone that each statements made are arsenic of today, February 24, 2023, and these statements person not been nor will they beryllium updated aft today’s call.

Also, immoderate forward-looking statements made coming are based connected management’s existent expectations, assumptions and beliefs astir our business and nan situation successful which we operate. These statements are taxable to risks and uncertainties that could origin our existent results to materially disagree from those expressed aliases implied connected today’s call. Listeners should not spot undue reliance connected forward-looking statements and are encouraged to reappraisal our SEC filings for a much complete chat of factors that could effect our results. Except arsenic required by national securities laws, Pennant and its affiliates do not undertake to publically update aliases revise immoderate forward-looking statements wherever changes originate arsenic a consequence of caller information, early events, changing circumstances, aliases for immoderate different reason.

In addition, nan Pennant Group Incorporated is simply a holding institution pinch nary nonstop operating assets, labor aliases revenues. Certain of our independent subsidiaries, collectively referred to arsenic nan Service Center, supply accounting, payroll, quality resources, accusation technology, legal, consequence guidance and different services to nan different operating subsidiaries done contractual relationships pinch specified subsidiaries.

The words Pennant, company, we, our and america mention to nan Pennant Group Incorporated and its consolidated subsidiaries. All of our operating subsidiaries and nan Service Center are operated by separate, independent companies that person their ain management, labor and assets. References herein to nan consolidated institution and its assets and activities arsenic good arsenic nan usage of nan position we, us, our and akin position utilized coming are not meant to connote nor should it beryllium construed arsenic meaning that The Pennant Group has nonstop operating assets, labor aliases revenues aliases that immoderate of nan subsidiaries are operated by nan Pennant Group.

Also, we supplement our GAAP reporting pinch non-GAAP metrics. When viewed together pinch our GAAP results, we judge that these measures tin supply a much complete knowing of our business, but they should not beryllium relied upon to nan removal of GAAP reports. A GAAP to non-GAAP reconciliation is disposable successful yesterday’s property merchandise and is disposable successful our 10-K.

And pinch that, I’ll move nan telephone complete to Brent Guerisoli, our CEO. Brent?

Brent Guerisoli

Thanks Derek, and invited everyone to our afloat twelvemonth and 4th fourth 2022 net call.

Before we stock our results, I want to definitive heavy appreciation to nan section leaders and teams who attraction for our patients and residents and communities crossed our level each day. Your kindness, compassion, activity ethic, and committedness to excellence is nan bedrock of Pennant’s operational and objective success. We are grateful to activity alongside you and partner pinch you successful providing life-changing service.

We are pleased to denote 4th fourth results that show nan accordant operational betterment our section leaders and their teams achieved successful nan 4th fourth and passim 2022. Collectively, our afloat twelvemonth consolidated results bespeak gross of $473.2 million, an summation of $33.5 cardinal aliases 7.6% complete nan anterior year, and adjusted EBITDA betterment of $5.1 cardinal aliases 19.5% complete nan anterior year. In nan 4th quarter, gross accrued $12.9 cardinal to $124.7 million, and our adjusted EBITDA improved by $4.9 cardinal aliases 98.3% complete anterior twelvemonth pinch adjusted EBITDA separator description of 3.5% complete nan anterior year.

These results bespeak nan occurrence of our section operating teams, responding to bonzer ostentation and labour shortages pinch consistency and resiliency. Our location wellness and hospice leaders continued to thrust coagulated objective and financial results, including betterment successful mean prima standing and hospitalization, which contributed to double-digit apical statement and bottommost statement growth. Our elder surviving conception knowledgeable transformational alteration successful 2022 arsenic we added talented operational leaders -- operational and objective leaders who drove stronger results and showed expanding momentum successful nan 4th quarter.

Demand for our precocious value elder surviving services has accelerated, allowing america to thrust improved occupancy while simultaneously expanding gross per occupied room, resulting successful improved bottommost statement performance. Even pinch this progress, important latent imaginable still remains crossed our businesses, and each conception is good positioned to support its maturation communicative successful 2023.

The maturation and affirmative momentum we knowledgeable successful nan 4th fourth are typical of nan dependable betterment that we committed to supply and executed upon passim year. While we are pleased pinch nan advancement we cognize we tin beryllium overmuch amended and spot tremendous opportunity to unlock further worth successful nan coming twelvemonth arsenic we unrecorded our civilization and leverage our exemplary of empowered section leadership, robust cluster accountability, and exceptional work halfway support.

In 2023, we are enhancing our efforts to find, train and create world people operational and objective leaders. Our existing talented section leaders and galore much who will subordinate america will thrust betterment successful 4 cardinal areas. First, champion successful people objective outcomes; next, improved operating margins; next, integrated and inorganic growth; and yet an elevated worker experience.

Ultimately Pennant is much than a healthcare institution dedicated to our ngo of providing life changing service. We are a activity company, profoundly committed to creating opportunity for entrepreneurial individuals to usage their unsocial talents and strengths to create value. Our operating exemplary empowers these leaders to place partners successful nan section community, create strategical plans applicable to their section business and align pinch different cluster partners done our inducement and equity structures.

Our exemplary thrives erstwhile section leaders usage their state wrong a model of accountability to run arsenic owners and thrust exceptional capacity clinically, financially and culturally. When leaders achieved these results complete an extended period, they’re awarded C level designations specified arsenic Chief Executive Officer, Chief Clinical Officer, and Chief Operating Officer.

There’s a batch to execute crossed nan organization, but fto maine beryllium clear, processing C level leaders is my number 1 priority. Across nan organization, we are committed to tripling nan number of CEOs successful our statement complete nan adjacent 3 years. To execute this, we are redoubling our efforts to recruit, train and create much world people leaders. We are besides actively improving nan data, devices and resources disposable to our section leaders successful bid to thrust meaningful betterment wrong operations clusters and markets, and to consistently attraction leaders connected their results successful areas of betterment connected their way towards a C level designation. Achieving occurrence successful this privilege is paramount to our early success.

As we announced successful our property merchandise yesterday, we are providing guidance for nan afloat twelvemonth of 2023. We expect afloat twelvemonth gross successful nan scope of $503.5 cardinal to $518.4 cardinal and adjusted net per stock successful nan scope of $0.66 to $0.76. The midpoint of $0.71 represents 25% maturation connected our 2022 adjusted net and 54% maturation complete our 2021 results. Our 2023 guidance is informed by nan burgeoning momentum successful some our segments, nan impacts of nan location wellness and hospice reimbursement changes, accrued costs associated pinch labour and different inflationary pressures, arsenic good arsenic nan important upside we cognize remains successful our existing operations.

With that, I’ll move nan telephone complete to John to supply much item connected our 4th fourth operational results.

John Gochnour

Thank you, Brent, and bully morning, everyone.

We are pleased to study that nan 4th fourth reflected meaningful advancement successful some our operating segments. Turning first to our location wellness and hospice conception performance.

Top-line gross for nan 4th of $90.7 cardinal accrued $12.8 cardinal aliases 16.4%, while adjusted EBITDA of $15.5 cardinal accrued $4.3 cardinal aliases 38.5% and adjusted EBITDA separator expanded 2.7% each complete nan anterior twelvemonth quarter. Our location wellness business continued its beardown year. Quality objective outcomes and robust accountability proceed to group america isolated successful nan marketplace, arsenic our agencies reached an mean CMS prima standing of 4.3 and a real-time 60-day hospitalization complaint of 12.1%, which compares favorably to nan nationalist mean of 14.7%. These fantabulous objective outcomes contributed to dependable admissions maturation arsenic location wellness admissions roseate 8.2% and Medicare location wellness admissions roseate 10.6%, each complete nan 4th fourth 2021.

Our section teams continued their attraction connected attraction readying and section management, driving meaningful advancement successful delivering beardown objective outcomes while improving ratio successful an elevated costs environment.

Finally, our objective teams, work halfway resources and clusters collaborated to hole for nan description of CMS’s location wellness value-based purchasing program. This programme will use providers, who tin successfully thrust objective outperformance and represents an opportunity to beryllium measured and rewarded for worth successful our location wellness programs.

On nan hospice side, our 4th fourth represented a beardown measurement guardant successful a twelvemonth that required our teams to navigate a uniquely difficult operating environment. For nan afloat twelvemonth and nan 4th quarter, admissions grew 6.4% and 2.4%, respectively, each complete nan anterior twelvemonth period. The 4th fourth saw a important betterment successful hospice magnitude of enactment for nan first clip this year, nan discharge magnitude of enactment accrued astir 10% sequentially complete nan 3rd 4th of 2022. Strong admissions and magnitude of enactment betterment contributed to our 4th fourth mean regular census increasing 5.2% complete nan anterior twelvemonth 4th and 3.5% sequentially complete nan 3rd 4th of 2022.

While we are pleased pinch nan advancement we person made successful our location wellness and hospice segment, we cognize our capacity tin beryllium overmuch better. By executing connected nan fundamentals of our business, we tin amended performance. We tin create a much robust ramp of hospice growth, amended negociate nan costs and ratio of our attraction transportation and proceed to amended our transitioning operations.

The spot and diverseness of our hospice programs are reflected successful our 4th fourth ADC maturation arsenic we grew census contempt continued challenges successful Arizona and Texas, 2 of our historically strongest hospice markets. As these markets rebound to humanities levels and magnitude of enactment continues to normalize, we expect hospice ADC maturation to ramp done 2023. Similarly, we are moving to amended costs guidance and optimize attraction delivery. Our section teams are reporting retired regularly connected efforts to trim nonstop and administrative costs while driving gross to meet their commitments. As portion of this effort, we are moving difficult to optimize nan EMR acquisition for our objective teams, arsenic we much efficaciously utilize exertion and information to amended section management, utilization and productivity, while besides enhancing nan worker experience.

Finally, we proceed to recognize nan integrated maturation imaginable successful caller markets unfastened done acquisitions completed successful 2021 and 2022. In 2022, we drove betterment successful these precocious acquired operations and we stay focused connected nan important opportunity each of these caller operations represents arsenic an motor for our 2023 growth.

We are excited to study continued advancement successful nan turnaround of our elder surviving segment. Over nan past 18 months, we person invested extended clip and effort successful recruiting and processing elder surviving leaders and resources, who understand our civilization and person embraced nan Pennant opportunity. These leaders person driven betterment successful our apical and bottommost statement performance, adjusting for divested buildings, same-store elder surviving conception gross improved to $126.8 million, an summation of $12.8 cardinal aliases 11.2% complete nan anterior year, and $33.2 cardinal successful nan 4th quarter, a $3.5 cardinal aliases 11.8% summation complete nan anterior twelvemonth quarter. Full twelvemonth elder surviving conception adjusted EBITDA improved to $6 million, up $4.4 cardinal aliases 282% summation complete nan anterior twelvemonth and $2 cardinal for nan 4th quarter, an summation of $1.3 cardinal aliases 171% complete nan anterior twelvemonth quarter.

Occupancy continued its dependable ramp, increasing for a 4th consecutive sequential 4th and reached 78.6%, a 330 basis-point betterment successful our aforesaid shop communities complete nan anterior twelvemonth quarter, and a 100 basis-point betterment sequentially complete nan 3rd 4th of 2022. We achieved this occupancy betterment moreover arsenic mean monthly gross per occupied room for nan 4th fourth roseate to $3,670, an summation of $282 aliases 8.3% complete nan anterior twelvemonth quarter, and $113 aliases 3.2% sequentially complete nan 3rd 4th of 2022.

While we took a important measurement guardant successful 2022, tremendous integrated maturation opportunity exists successful our elder surviving portfolio. We remained focused connected translating gross improvement, nan bottommost statement financial capacity done rigorous costs guidance and cluster accountability, increasing occupancy done improved income practices and support, and accurately capturing and receiving due reimbursement for nan attraction we provide. As our section teams win successful these objectives, we will create stronger operating results successful nan elder surviving abstraction and look guardant to it joining our location wellness and hospice conception arsenic a maturation motor for Pennant’s success.

In some segments, we proceed to attraction connected our astir important asset, our people. Over nan past 2 years, elevated turnover levels and staffing shortages person impacted our expertise to grow. While nan pandemic has created a domiciled successful staffing difficulties and turnover crossed galore industries, we are yet responsible for creating a life-changing worker experience. And our turnover results person not measured up to nan precocious standards we person group for ourselves.

In nan 4th fourth and into nan period of January, we person seen signs of betterment successful our labour trends. Wage ostentation slowed sequentially, objective headcount increased, and location wellness and hospice turnover has declined. As we proceed to improve, these trends will let america to admit and service much patients and residents. Our section leaders and teams are committed to becoming nan employer of prime successful each organization we service and are resolutely focused connected uncovering and retaining nan champion talent arsenic we unrecorded our halfway values of customer 2nd and emotion 1 another.

Turning to growth. As we summation nan value and extent of our activity pipeline, we expect to accelerate our growth. We spot a robust pipeline of acquisition opportunities successful location health, hospice and elder surviving crossed our level and successful caller markets. As we find opportunities done nan efforts of our section teams and our stronger relationships pinch nan agent community, we will proceed to beryllium disciplined and diligent successful executing our maturation strategy, looking for opportunistic acquisitions successful areas wherever we person patient clusters and talented candidates successful our activity improvement program. We besides proceed to put successful de novo locations and branch description s successful markets wherever we meet nan aforesaid criteria and person opportunity to grow our continuums of attraction and amended service nan community.

In nan 4th quarter, we announced 1 location wellness acquisition, nan Kenosha Visiting Nurse Association successful Kenosha, Wisconsin. We are grateful to nan committee of KVNA, which has operated independently since 1927 for entrusting america pinch their astir 100-year bequest of providing high-quality in-home attraction successful nan Kenosha area. With 3 of our elder surviving operations successful nan KVNA work area, nan acquisition represents an opportunity to proceed establishing our Pennant attraction continuum arsenic we support senior’s expertise to property successful spot by providing nan skilled attraction they request wrong our elder surviving communities.

With a talented activity squad and nan support of our beardown location wellness and hospice operations successful nan Milwaukee area, we are executing connected a scheme to quickly thrust financial betterment and objective spot astatine KVNA, positioning to beryllium accretive to 2023 results.

With that, I’ll manus it complete to Jen for a reappraisal of nan financials. Jen?

Jen Freeman

Thank you, John, and bully morning, everyone.

Detailed financial results for nan afloat twelvemonth and 3 months ended December 31, 2022 are contained successful our 10-K and property merchandise revenge yesterday.

For nan afloat twelvemonth ended December 31, 2022, we reported full GAAP gross of $473.2 million, an summation of $33.5 cardinal aliases 7.6% complete nan anterior year, and GAAP diluted net per stock of $0.22, an summation of $0.13 aliases 144.4% complete nan anterior year.

As a reminder, our 2022 afloat twelvemonth guidance was full gross of betwixt $458 cardinal and $462 million, net per diluted stock betwixt $0.55 and $0.60, and adjusted EBITDA of betwixt $31 cardinal and $33.5 million. Consistent pinch that guidance, gross adjusted for startups and nan home building was $464.1 million, $38 cardinal aliases 9.1% increase, adjusted EBITDA was $31.5 million, a $5.1 cardinal aliases 19.5% increase, and non-GAAP adjusted net per diluted stock of $0.57 connected shares a 30.2 million, an summation of $0.11, aliases 23.9% complete nan anterior year.

Key metrics for nan afloat twelvemonth and 3 months ended December 31, 2022 see $64.5 cardinal drawn connected our revolving statement of in installments and $2.1 cardinal rate connected manus astatine quarter-end; 1.93 times nett indebtedness to adjusted EBITDA; and rate flows provided from operations of $9 cardinal for nan twelvemonth and $25.8 cardinal excluding nan effect of $6.5 cardinal of nan transportation related to nan divested buildings, $4.1 cardinal successful deferred FICA payments and $6.2 cardinal successful nan repayment of Medicare beforehand payments.

As we mentioned successful our property release, we are providing afloat twelvemonth 2023 guidance of gross of $53.5 cardinal (sic) [$503.5] to 518.4 million; adjusted EBITDA of $38.4 cardinal to $42.6 million; and adjusted net per stock of $0.66 to $0.76. Our guidance incorporates existent operations and integrated growth, diluted weighted mean shares outstanding of astir 30.7 cardinal and a 25.5% effective taxation rate.

Our 2023 yearly guidance anticipates an EPS summation quarter-over-quarter accordant pinch our 2022 capacity and is based connected a ramp successful location wellness and hospice ADC, occupancy improvements successful elder living, anticipated reimbursement complaint adjustments and elevated liking rates, does not see unannounced acquisitions and excludes startup operations, share-based compensation, acquisition-related costs and onetime implementation and different items.

Including nan factors contemplated successful our guidance, we are assured successful our section leaders and resources crossed our statement that they will proceed to thrust nan momentum that we knowledgeable successful nan 4th fourth into 2023 by focusing connected nan things we person antecedently emphasized: activity development, objective outcomes, separator description and culture. We expect rate travel from operations for 2023 to bespeak integrated gross maturation and bottom-line improvement, unencumbered by nan onetime rate outlays knowledgeable successful 2022. With increases successful earnings, continued betterment successful rate collections and little superior expenditures, we expect to money early growth.

And pinch that, I’ll manus it to Brent to item a mates of our section leaders.

Brent Guerisoli

Thanks, Jen. It’s my pleasance to spotlight a fewer leaders successful our organization, who person achieved exceptional results successful 2022. Their stories reaffirm our condemnation that elevating section leaders and supporting their advancement to CEO will beryllium cardinal to our early success.

As an example, recently appointed Chief Executive Officer, George Lipphardt and Chief Clinical Officer, Cassie Allmark, lead Sacred Heart Home Health successful Tucson, Arizona. Sacred Heart joined nan Pennant family done acquisition successful January of 2021 and has improved steadily ever since. George and Cassie’s aggravated attraction connected civilization and operational excellence person led to Sacred Heart becoming an employer of prime and a supplier of prime successful nan Tucson market. They person collaborated intimately pinch our different operations successful nan area and demonstrated nan unsocial worth of nan Ensign Pennant Care Continuum by gathering and coordinating regularly pinch Ensign leaders successful Tucson. Their difficult work, dedication and collaboration person borne consequence arsenic evidenced by Sacred Heart’s existent clip prima standing of 4.5, 13% 60-day hospitalization complaint and by a 91% summation successful gross successful 2022 versus 2021. Even much impressive, these leaders dramatically accrued Sacred Heart’s margins successful an inflationary environment, starring to a much than 400% summation successful Sacred Heart’s EBIT year-over-year.

Also successful Tucson, Arizona, recently appointed CEO, Russell Sylvester and early Chief Wellness Officer, Dakova Nielsen [ph] are building thing typical astatine Sherwood Village Assisted Living and Memory Care. These leaders person helped Sherwood found a estimation arsenic a preferred section elder surviving community. Sherwood Village is known for awesome attraction and providing a welcoming and charismatic situation for residents. Through Russell and Dakova’s leadership, Sherwood weathered nan pandemic and ne'er mislaid show of nan value of beardown culture. Throughout 2022, Sherwood gained momentum, expanding its census to pre-COVID levels to extremity 2022, pinch nan census of 151 residents, and summation successful occupancy from 80% successful Q4 2021 to 91% successful Q4 2022. Sherwood’s financial capacity improved accordingly pinch a 78% summation successful EBITDAR year-over-year. We are seeing different Arizona communities pursuing Russell and Dakova’s footsteps, and we’re excited astir nan Arizona elder surviving marketplace successful 2023.

With that, we’ll unfastened it up for questions. Olivia, tin you please instruct nan assemblage connected nan Q&A procedure?

Question-and-Answer Session

Operator

[Operator Instructions] And our first mobility coming from nan statement of Tao Qiu pinch Stifel. Your statement is open.

Tao Qiu

Hey. Good morning. Congratulations connected nan beardown results this 4th and nan advancement passim nan year. I’m conscionable funny connected nan afloat twelvemonth guidance. I deliberation nan guidance suggests 10% maturation connected nan top-line and I deliberation 28% summation connected EBITDA astatine nan midpoint. Could you possibly unpack nan various components that are driving nan guidance? And second, I deliberation nan guidance besides suggests 50 basis-point betterment successful adjusted EBITDA separator successful 2023. Certainly, we saw nan momentum of nan separator description that should transportation into 2023. But successful ray of nan acquisition past year, what level of conservatism are you building to that separator assumption? Thanks.

Brent Guerisoli

Yes. Thank you, Tao. It’s a awesome question. And I’ll supply a wide overview and past I’ll fto Jen supply immoderate of nan circumstantial details. As we took into relationship nan measurement that we ended nan year, we had a beardown 4th fourth and we’re really optimistic going into 2023. At nan aforesaid time, arsenic we mentioned, we expect a ramp akin to what we saw successful 2022 successful nan -- wherever we commencement retired solid, but really spot a ramp up successful nan 2nd half of nan year. And conscionable to support successful mind, right, Q1 tends to beryllium a small spot much of a -- it’s a choppier 4th for us. We’ve sewage arsenic you comparison 4th complete 4th from past year, we person nan sequestration vacation that’s gone away. We besides are experiencing immoderate benefits reset and different payroll taxes successful this first quarter.

We’ve sewage nan effect of nan location wellness revenue, nan last norm changes arsenic good arsenic a flimsy dip that we benignant of -- we usually spot immoderate seasonality successful our census done nan vacation season, and we did acquisition that. What’s awesome though is we’ve already rebounded and surpassed nan levels that we had knowledgeable successful Q4. So, we’re excited astir that progress. And then, conscionable successful general, we’re starting to spot existent momentum arsenic we rotation into nan 2nd half of nan first quarter. So, anyway, that’s benignant of our expectations.

I’ll conscionable opportunity this, we expect immoderate unchangeable but coagulated maturation from a gross apical statement standpoint and arsenic good arsenic incremental separator improvement. We’ve sewage important opportunity. We person beautiful blimpish estimates built successful connected our elder surviving segment. We judge that that ramp tin really return disconnected and we’ve talked astir benignant of nan breakout capacity that we’re expecting, but we’re really factoring successful beautiful blimpish benignant of quarter-over-quarter improvement. And past there’s important opportunity arsenic good connected nan location wellness and hospice size to proceed to thrust our separator betterment there.

And I would conscionable statement 1 different thing. We besides person immoderate opportunities connected nan G&A side. We proceed to make investments successful 2021 and 2022 that were basal arsenic we activity done nan pandemic, but besides conscionable transitioning, we’re -- done nan spin, there’s been -- location were further investments there, but we expect that those will commencement to alleviate successful 2023 and we’ll spot betterment successful nan percentages there.

Jen, immoderate different further information?

Jen Freeman

Yes. I deliberation that -- Tao, conscionable to possibly put immoderate much colour astir it. For costs of service, we did see immoderate ostentation successful nan ranges of up to 5% improved margins done incremental imaginative growth. So, we are expecting a flimsy betterment successful costs of service. We’ve besides benefited from immoderate rent improvements arsenic a percent of gross arsenic good connected nan elder surviving side.

On nan location wellness and hospice side, we are anticipating a 0.8% alteration successful our location wellness reimbursement. So, that’s built successful to our considerations arsenic good connected nan costs of work side, conscionable looking astatine separator betterment focused connected nan areas of operational efficiencies, caregiver productivity, immoderate sojourn utilization, and our EMR optimization.

And then, arsenic Brent said, connected nan G&A side, we did spot our G&A expenses diminution arsenic a percent of gross successful nan 4th quarter. Overall, we do expect G&A arsenic a percent of gross to travel down year-over-year.

Tao Qiu

And my 2nd mobility is connected nan hospice side. I deliberation nan mean magnitude of enactment was adversely impacted by nan shifting refer, truthful was this your during 2022. But we saw that bounced backmost rather powerfully during this 4th quarter. You talked astir nan ramping Arizona and Texas, could you possibly talk astir efforts you make there, immoderate changes successful referral sources you’re presently seeing?

John Gochnour

Yes. Tao, I’m happy to return that one. We’re really excited astir what we saw successful nan 4th fourth from a census perspective, peculiarly pinch nan normalization of magnitude of stay. We saw astir a 10% summation and that’s really driven crossed nan board. What we expect to spot successful 2023 is we judge that we’ll spot much of a normalization, we’re getting much and much referrals from our organization referral sources, which is terrific. Where we still person opportunity to return to pre-pandemic levels is successful those elder surviving and skilled nursing partners, who -- wherever historically we’ve had a small spot higher number of patients.

And so, arsenic that normalizes, arsenic their census continues to grow, we expect to spot that normalize a small bit. And arsenic we’ve talked astir previously, successful those settings, we’re amended capable to place nan hospice needs sooner. And so, there’s mostly an betterment successful magnitude of enactment for nan patients that travel retired of those facilities. But we’re really excited astir nan admissions information that show really nan organization is choosing america nan referral sources, peculiarly connected nan infirmary broadside that we gained during nan pandemic. We don’t expect those to alteration significantly, and we spot an opportunity for maturation arsenic our installation partner’s census improves.

In Arizona and Texas, we called retired those markets, because we person seen them historically arsenic captious parts of our hospice census. Through respective activity transitions and immoderate different things that factored in, we saw census diminution successful those areas. And nan awesome point is we’ve sewage a bully group of leaders who are very focused connected bringing those markets backmost to wherever they’ve traditionally been. And truthful what you tin -- what you will spot and what we expect to spot is those markets connected a ramp to return to anterior performance, continued beardown maturation successful our markets successful California, nan intermountain westbound and nan Pacific Northwest and past nan normalization of magnitude of stay, and we position that arsenic what will build that ramp successful hospice ADC.

Tao Qiu

If I may, squeezing 1 much mobility connected elder living. I deliberation nan complaint maturation was beautiful beardown year-on-year arsenic good arsenic quarter-on-quarter. I deliberation immoderate of your competitors called higher level of move-outs, because they’re pushing rates. Did you guys get immoderate pushback from your resident base? And I deliberation besides successful 2022, nan costs of services successful elder surviving benefited from a $4.2 cardinal authorities alleviation fund. I presume immoderate of nan support connected nan Medicaid broadside will astir apt enactment successful spot successful 2023. Could you possibly remark connected authorities support connected nan nationalist wellness emergency and what level of support do you expect successful your guidance? Thank you.

Brent Guerisoli

Yes. Great questions, Tao. I’ll commencement pinch nan supplier alleviation mobility that you asked. We person successful respective of our states received nan backing connected nan supplier relief, and we person confirmation crossed virtually each of nan states that that will stay successful spot for 2023 and evidently 2024 is still successful question. But -- truthful that’s factored in. There is 1 authorities successful particular, Idaho, that we didn’t person confirmation that -- we’ll beryllium getting that. But, what we’ve done successful Idaho is we’ve really collaborated pinch nan authorities and different programs that really helped to elevate our performance, bottom-line and top-line capacity there. So, overall, we expect a akin type of effect successful 2023 versus what we knowledgeable successful 2022.

As it pertains to benignant of nan value elasticity aliases sensitivity to pricing and our occupancy incentives. What we person knowledgeable is -- I will opportunity this, we person started from -- astir apt from a constituent of catch-up. So, we are competitively priced successful nan mostly of our markets. And so, arsenic we’ve incrementally accrued rates, we’ve besides seen -- and we pointed this retired earlier connected nan call, we’ve seen important occupancy gains. And truthful we expect that we will proceed to spot those gains and we still person plans to summation rates crossed nan board. We are focused connected trying to thrust -- location is rent coverage, but location is besides our cares that are provided. And truthful conscionable making judge that, we are being reimbursed decently for nan cares that we are providing. So, we expect continued increases there, but that will apt slow down. There is going to beryllium immoderate -- we are anticipating immoderate sensitivity to that arsenic prices get to a definite level. But we still consciousness for illustration location is still important upside connected nan rent increases done nan year, conscionable astir apt not astatine nan aforesaid fierce complaint that we knowledgeable successful 2022.

Tao Qiu

Got you. Thank you.

Operator

Thank you. One infinitesimal please for our adjacent question. And our adjacent mobility coming from nan statement of Scott Fidel pinch Stephens. Your statement is open.

Scott Fidel

Hi, great. Hi, everyone. Wanted to possibly conscionable travel up connected that past chat constituent conscionable connected nan SL business and reasoning astir complaint and occupancy successful 2023. And would beryllium willing successful position of what you are building into your outlook successful position of nan complaint increases, and past occupancy benignant of inclination that you are factoring into nan guidance?

Jen Freeman

Yes. So overall, we are looking astatine an summation connected top-line maturation of astir 10% connected our elder surviving business. The breakdown betwixt that -- betwixt complaint and occupancy would beryllium astir 2% to 3% would beryllium successful nan complaint broadside and 7% to 8% would beryllium successful nan occupancy side. And then, of course, that will construe into incrementally accretive maturation successful nan margin.

Scott Fidel

Okay, great. That’s helpful. And past besides conscionable connected nan outlook for rate flows. And it sounded like, Jen, your qualitative commentary was beautiful affirmative astir normalization successful operating rate flow. Just willing arsenic good if you could quantify that for america successful position of what you are factoring successful for operating rate travel and past for CapEx arsenic well?

Jen Freeman

Yes. So, I deliberation we’ll spot our -- I’ll commencement pinch nan past mobility first connected CapEx. We person made immoderate investments successful 2022 successful CapEx, and we expect that to travel down betwixt $8 cardinal to $10 cardinal successful 2023. And then, successful comparison aliases successful statement pinch that, connected our rate flow, we do expect that to improve. We don’t person those one-time expenditures that we person knowledgeable complete nan past mates of years. The beforehand payments are each paid backmost for FICA deferral. And past we had a $6.5 cardinal costs pinch nan divested community. So, if you facet those out, you are looking astatine $25.8 cardinal successful operating rate flow. So, we are looking astatine akin to improved arsenic we amended our margins, arsenic we amended our bottommost statement maturation that will amended rate travel year-over-year.

Scott Fidel

Understood. So, it decidedly looks for illustration location should beryllium immoderate coagulated improvements successful free rate flow. And then, conscionable if I could sneak 1 past 1 and conscionable connected nan separator side. And I cognize you touched connected immoderate of nan drivers of nan separator description crossed nan business and conscionable called retired SL. For example, willing conscionable wrong HH&H really you are reasoning astir separator progression, conscionable fixed nan benignant of level to flimsy complaint simplification successful location health. Interested if you’re assuming that you’re going to person separator description successful location wellness contempt that aliases whether separator description is much weighted towards hospice and successful SL successful 2023? Thanks.

John Gochnour

Scott, awesome questions and we admit them. And nan separator description we’ve discussed, it really applies to each 3 segments. Like Jen called out, we do expect a humble simplification successful location wellness Medicare revenue, that’s going to beryllium offset a small spot arsenic we proceed to grow our relationships connected nan commercialized side, it’s going to beryllium offset done nan objective optimization that we are successful nan process of doing pinch our EMR, which we expect starring to improved productivity, and a continued attraction connected sojourn utilization and section management. We’ve made tremendous advancement complete nan past fewer years arsenic that’s been a attraction and we will -- we’ll proceed to attraction connected that. Our extremity is to present attraction arsenic efficiently and arsenic efficaciously arsenic we can.

And so, we do person a small spot of a tick down connected nan location wellness broadside from a Medicare gross standpoint. But we offset that pinch important -- what we judge is that we tin proceed nan ramp of maturation that we’ve experienced. We’re continuing to strive to beryllium nan supplier of prime successful each organization we serve. And our admissions stay beardown connected some nan Medicare broadside and nan commercialized side. And so, that’s offset a small spot successful that projection by nan summation successful volume.

As acold arsenic nan description of separator goes overall, we called retired a mates of things. We’ll proceed to attraction connected worker turnover. We consciousness for illustration that’s a existent opportunity for us. It ticked up astir 25% complete nan past 2 years, and we consciousness for illustration getting that backmost down to pre-pandemic levels, really gives america an opportunity to grow margin. We still consciousness for illustration we person opportunity connected our caller transitions. We acquired a batch of businesses done 2020, 2021. And past while it slowed successful 2022, each of these represents an opportunity for important growth. And we saw that betterment successful 2022. It helped to thrust nan separator description you saw. And we judge we proceed to person opportunity there. So, those are immoderate of nan things I’d telephone retired arsenic opportunities to scope nan separator description we talked astir successful our guidance.

Operator

And our adjacent mobility coming from nan statement of Ben Hendrix pinch RBC Capital. Your statement is now open.

Ben Hendrix

Thank you. Just different speedy mobility connected hospice. I admit each nan colour connected magnitude of enactment and census. But connected nan complaint side, 1 of your competitors this greeting benignant of implied a beautiful beardown complaint update for fiscal ‘24 which would effect ‘23 -- aliases nan 3rd 4th of this year. And was conscionable wondering what you guys had baked into your expectations for complaint progression astatine nan extremity of nan twelvemonth for hospice? Thanks.

Brent Guerisoli

Yes. So, we return nan attack of benignant of including what’s known successful nan guidance. And truthful we did not cook successful immoderate important summation supra nan 3% accommodation from nan 2023 last rule. And so, that besides represents imaginable upside for us.

Operator

Thank you. And I’m showing nary further questions astatine this time.

Brent Guerisoli

Well, convey you, Olivia, and convey you everyone for joining america today. We dream you person a awesome day.

Operator

Ladies and gentlemen, that does reason our convention for today. Thank you for your participation. You whitethorn now disconnect.