The Pennant Group, Inc. (PNTG) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to The Pennant Group First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Derek Bunker. Thank you. Please go ahead, sir.

Thank you, Federica, and welcome, everyone. Thank you for joining us today. Here with me today I have Danny Walker, our CEO and President; Jen Freeman, our CFO; and John Gochnour, our COO. Before we begin, I have a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investor Relations section of our website at, www.pennantgroup.com. A replay of this call will also be available on our website until 5:00 PM Mountain on Friday, June 12, 2020. We want to remind anyone that may be listening to a replay of this call that all statements are made as of today, May 14, 2020, and these statements have not been nor will they be updated subsequent to 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 or changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, The Pennant Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our wholly-owned independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, HR, 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, Inc. and its consolidated subsidiaries. All of our operating subsidiaries and the service center are operated by separate, wholly-owned 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, Inc. has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Pennant Group. Also we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe 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 available in our 10-Q. And with that, I will turn the call over to Danny Walker, our CEO. Danny?

Thanks, Derek. Good morning, everyone and thank you for joining us today to discuss Pennant's first quarter 2020 results. Before we begin our prepared remarks, we would like to just recognize the incredible commitment and courage of our frontline clinicians, caregivers and staff along with the field leaders who care for and support these courageous individuals on the frontline every day. In the face of the ongoing global pandemic, they have spent night and day serving our patients, residents and their families through this chaotic and challenging time. Day after day they've gone above and beyond the call of duty to provide care, relief and comfort to the countless individuals that are in our care. We love each of one of you and are honored to be associated with you. Before I turn it over to Derek and Jen for an update on our investment activity and detailed financial results, I'll comment on COVID-19's impact on our operations and results and we'll conclude with examples of our leaders exemplifying the best practices of our operating model to show case our resilience in the face of the pandemic and why we're excited for the future of The Pennant Group. Our Home Health and Hospice business continues to achieve solid top and bottom-line gains. Segment revenue increased 23% over the prior year quarter and segment adjusted EBITDAR from operations increased 36.8% over the prior year quarter, yielding an EBITDAR margin that improved 150 basis points. Such margin expansion is the result of our cluster centered operating model that is designed to accelerate the sharing of best practices, data and processes, which positions us to provide tailor-made responses to challenges like COVID-19 on a market-by-market basis. Excluding the agencies we acquired, since the first quarter of 2019, our total and Medicare home health admissions increased 10% and 8% respectively over the prior year quarter. And our hospice total admissions and average daily census increased 8% over the prior year quarter. We are excited about the additional organic growth opportunities in our relatively young Home Health and Hospice portfolio. In our Senior Living business, we saw good signs of financial, cultural and clinical progress. Our occupancy gains across the whole portfolio were a strong -- were strong at 40 basis points over the prior year quarter and even stronger at 250 basis points when backing out the three communities acquired over the prior year quarter, each of us -- each of which were substantially underperforming at the time of acquisition and acquired at significantly below average lease terms. Coupled with a steady increase in revenue per occupied unit, the business posted gains in revenue and EBITDAR. During the quarter, our senior living leaders made a number of concerted efforts to increase occupancy and exercise discipline around expenses. The early results from these efforts have been positive and we have strong momentum going into the rest of the year. Now turning to the topic on everyone's mind, COVID-19 certainly impacted our business late in the first quarter and those impacts have continued into the second quarter. From March 11 to May 11, the company experienced an 8.2% decrease in home health census, and a 2.5% decrease in senior living occupancy. That was offset somewhat by a 3.1% increase in hospice average daily census. So far in May, we have -- we are seeing signs of improvement in our home health census, stabilization in our senior living occupancy and continued strength in our hospice average daily census. As of May 12, four of our senior living communities have experienced COVID positive cases with 10 active cases in two different communities. 49 of our senior living communities have not experienced any positive cases. 11 of our home health and hospice agencies have admitted and are currently serving 34 active positive patients. We have seen these trends continue into the second quarter and expect our results to reflect these challenges through -- though we are moving quickly to offset these headwinds and become better through the process. At each operation, our response to the pandemic was swift, locally tailored and evolved quickly to meet the needs of our patients and their loved ones. The unique features of the virus, it's highly contagious nature, ability to be transmitted by asymptomatic patients, wide range of symptoms among others created an unprecedented situation that required robust channels of communication across the organization and strong partnerships within the vendor and operator communities. Our decentralized local approach supported by our service center and professional field resources is designed to respond rapidly in situations like this, where information and data can be shared broadly and quickly without having to go through the usual corporate channels of communication that can be slow and deteriorate the quality of the information shared. The response from our field and service center partners was quick and organized creating methodical pathways for communication and accountability to react quickly when operations experienced suspected cases or needed supplies or had to react to the dozens of federal state or local regulatory updates. Our response plan was organized in four general areas: environmental precautions, supplies, staffing and communication. Our environmental response plan identified isolation and infection control best practices from the CDC and other regulators focusing on sanitization, prevention and population tracking measures designed to reduce the spread of the virus from person-to-person or from object to person. Our commitment to high quality clinical systems in the senior living setting differentiates our operations generally and especially in the face of an unprecedented health emergency. On the supply front aided by our partners at the Ensign Group and Care Trust as well as our own extensive network, we pursued personal protective equipment related to supply -- and related supplies aggressively and early. Through April, we spent over $500,000 above our usual cost levels to secure necessary PPE and related supplies. As of today, our efforts have pointed us -- have positioned us with the PPE necessary to operate for several months at current levels, and with the pipeline to quickly obtain more. In a handful of select operations, we have implemented increased premium or hero pay, where there is a heightened risk of exposure to the virus. Through April, we have experienced nearly $1 million in labor costs related to COVID-19. In order to offset this our field and service center have carefully implemented cost control measures such as flex schedules and furloughs of select non-clinical employees. In addition, our Board of Directors, executive team and other senior leaders throughout the organization have voluntarily reduced their base salaries while the pandemic pressure persists. While we maintain financial discipline through this pandemic, we also see opportunity and the dislocation of employees in other industries, and are actively expanding our leadership pipeline. In all of these efforts, our philosophy has been to manage the current demands of the crisis while investing in the future. While we have experienced some overall negative impact from COVID-19, we firmly believe this is one, although significant, of many challenges, we have and will face and likely will not be the last one we face. When we spun-off from Ensign, it was our stated mission to create two healthy public companies that will provide long-term value for our stakeholders, and with that in mind, we ensured that our Home Health and Hospice and Senior Living businesses were operating within the Ensign model. And that -- our balance sheet and long-term leases, positioned us with cushion to weather difficult operating conditions. The local approach to health care that is the foundation of our operating model is the mechanism that will lead to our success, and sufficient liquidity ensures that we can continue to operate and become stronger through adversity. With that, I'll hand it off to Derek to discuss our recent investment activity. Derek?

Thanks, Danny. During the first quarter, we continued to execute on our disciplined growth strategy by closing a handful of acquisitions, while maintaining a pipeline of additional opportunities. We began the year by acquiring a home health agency serving Clark County, Nevada, which together with our hospice agency and senior living communities in the area, strengthens the continuum of care there. We also added a senior living community in Twin Falls, Idaho and a hospice agency in Missoula, Montana. And we continue to make progress on the, previously announced, home health joint venture with Scripps Health. And as we announced in our press release yesterday, we are days away from closing the first phase of a transaction involving three affiliated hospice agencies with sizable footprints in the Southwestern, United States. We expect the full transaction to be completed on or before July 1, subject to standard closing conditions. Through the pandemic, we continue to maintain a robust pipeline of acquisition opportunities, while bolstering our balance sheet and liquidity position. We understand that some investments with the highest returns are executed during periods of disruption. So an important part of our pandemic response was improving our cash position and revolver availability to be ready to move quickly for the right opportunities, whether it sourced from market offerings or our cultivated network of market partners. We're excited about the deals we've closed or announced year-to-date. And think that there are many more opportunities for consolidation as pandemic headwinds persist and disproportionately affect some operators that will be looking for the right strategic buyer. With that, I'll hand it over to Jen to provide more detail on the company's financial performance. Jen?

Thank you, Derek, and good morning, everyone. Detailed financial results for the three months ended March 31, 2020, are contained in our Form 10-Q and press release filed yesterday. We reported GAAP diluted earnings per share of $0.10 and adjusted diluted earnings per share of $0.16 for the three months ended March 31, 2020, with approximately 90% of the adjustments to earnings, pertaining to the exclusion of redundant and non-recurring costs related to transition services and share-based compensation. We had strong revenue and earnings per share results, primarily due to the strong execution of our field leaders during a very difficult operating environment. We also benefited from disciplined management of our general and administrative costs. Non-GAAP adjusted earnings per diluted share of $0.16, represents a 23.1% increase over spin-adjusted first quarter 2019, adjusted earnings per diluted share of $0.13. Other key metrics include $17 million of cash on hand as of May 13, 2020, cash generated from operations of $2.1 million during the first quarter, a lease adjusted net debt-to-adjusted EBITDAR ratio of 4.85 times as of March 31, 2020 and $62 million of availability on our line of credit as of May 14, 2020. Our results during the first quarter do not include the impact of any CARES Act funds. Since quarter end, we received approximately $9.9 million in CARES Act provider relief funds for which we did not apply. We have not made a decision to accept or return the funds as we are evaluating their terms and conditions. In the meantime, we are holding these funds in a segregated account and carefully tracking lost revenues and expenses related to COVID-19. We also applied for and received approximately $28 million in advanced Medicare payments of which $19 million went to paying down the outstanding balance on our revolver. These advanced payments are subject to automatic recoupment through offsets to new claims beginning 120 days after their payment issuance. We also intend to utilize the CARES Act payroll tax deferral program to delay payment of approximately $7.2 million of the estimated employer portion of payroll taxes during 2020. Finally, we estimate a positive impact of $2.5 million related to the temporary suspension of the 2% Medicare payment sequestration established by the CARES Act. As we announced in our press release yesterday, we are not changing nor withdrawing our 2020 guidance of annual adjusted earnings per diluted share of $0.53 to $0.58 and annual revenue of $376 million to $386 million. The 2020 guidance is based upon diluted weighted average common shares outstanding of approximately $30 million, an effective tax rate of 26.4%, the inclusion of acquisitions announced year-to-date, the exclusion of costs related to start-up operations, the exclusion of acquisition-related costs, the exclusion of redundant or nonrecurring expenses related to spin-off transition services and the exclusion of stock-based compensation. As we announced in our earnings press release yesterday, we made the decision to maintain our fiscal year 2020 guidance. While the pandemic has impacted our results so far and there remain unknowns about the length and depth of its future effects, the data we have available at this point give us confidence in our ability to meet the previously established guidance. We believe our operating model and growth strategy enable us to be successful through changing operating environments COVID-19 included. In addition to the measures we've taken to mitigate revenue impacts and to flex our experience around changes in our revenue, we believe the pandemic presents new opportunities for resilient operators that are responsive to local needs. And with that, I'll turn the call back over to Danny. Danny?

Thank you, Jen. Before we turn it over to the Q&A, I'd like to just recognize a few of our local teams that have achieved outstanding results and each of these stories you are able to witness the resilience of our model. Led by Executive Director, Matthew Briggs and Directors of Clinical Service, Christine Stier and Sandra Copsey, River Valley Home Health & Hospice has established itself as the provider and employer of choice in Northwestern Arizona. These leaders and their teams have established a culture of driving objectively strong clinical and financial results. River Valley has achieved a 4.5 star CMS star rating and multiple deficiency free surveys, all while preparing their team for PDGM and helping with the acquisition of urgently needed PPE for other Pennant affiliated operations. During the first four years of our ownership spanning the years 2015 to 2018, the team has achieved a revenue CAGR of 28% and an EBIT CAGR of 22%. In 2019, revenue continued to increase and EBIT increased another 22% over the prior year. Their momentum carried into 2020 with their highest admit month ever in January. River Valley is an example of entrepreneurial leaders providing excellent care to local communities and achieving quality clinical outcomes and financial milestones along the way. Sherwood Village, a 160-bed assisted living and memory care community in Tucson, Arizona is another remarkable example of what can happen when leaders live our core values and are empowered to run their local businesses, led by CEO, Cindy Fitzgerald COO, Patty Stevens; and now Executive Director Russell Sylvester. The Sherwood team has gone through a transformation in their community culture and care to become a high-quality solution for the growing needs of seniors in their area. At the time of our acquisition in 2014, Sherwood was 58% occupied. These leaders and their staff have steadily grown that occupancy over time, which now stands at 95% or an increase of 37%. During the first quarter, Sherwood set a new record EBITDAR of $537,000, an increase of 39% over the prior year quarter. Their excellent care quality and performance earned Sherwood the coveted Pennant Flag award in 2019, which is the highest award one our operations can achieve. Last quarter, we shared the incredible progress made at Rose Court Assisted Living & Memory Care in Phoenix Arizona. And we'd like to share what clinical leader and COO; Tristis [ph] Patrick; and CEO, Carolyn Lynch have done over the past few months to confront the challenges of the pandemic. Carolyn and Tristis and their team started long before the coronavirus outbreak hit their state. They jumped on all the preventative guidelines in real-time as they were rolling out from the CDC and local health departments. Weeks before any suspected COVID cases arrived in their community, the Rose Court leadership team already had their own five-step escalation plan in place, had ordered additional PPE moved, to universal masking prior to CDC recommending it, secured new equipment and supplies to facilitate in-room dining for all residents, trained all their staff on infection control measures with a COVID positive environment and had -- and communicated with their residents and family members what their plan was and how they would execute it. Because of these measures and their existing relationship of the Rose Court team with the community and residents and their family and because of their ongoing communication and extraordinary care, those family members in the community have been incredibly supportive of Rose Court's frontline heroes and residents. Carolyn and Tristis lived and led by our core values of customer second to take care of their employees, going through the challenges due to the pandemic. The Rose Court team rallied together in amazing ways to take care of their beloved residents and each other. On top of all of their incredible actions to take care of their residents, families and staff, during April, Rose Court achieved one of its best EBIT months ever, a monumental testament to their dedication and disciplined execution within our local operating model. We are so grateful for them and these teams and so many others in the field. It's through examples like River Valley, Sherwood and Rose Court and many more like it that we were able to achieve our success. Now, we will turn to the Q&A portion of the call. As Derek mentioned earlier, we're here with our COO, John Gochnour who is available for questions about operations as well. Federica, can you please instruct the audience on the Q&A procedure?

[Operator Instructions] Your first question comes from the line of David MacDonald with SunTrust.

Hi guys. A couple quick questions. I'm just curious, I mean look, in this environment there's been a lot of providers who haven't been able to kind of rise to the occasion in the same manner. I'm just curious what you've seen in terms of referral sources. When you look at your different businesses, are you seeing a meaningful expansion in referral sources as candidly some competitors fall down and you're able to kind of gain share on that front?

Yes. Generally speaking, yes, we don't -- we haven't talked about and disclosed a particular number of referral sources. But I will tell you, we've seen a widespread strengthening of our existing referral relationships and then an expansion of those. Literally there were instances where some of our referral sources were in really difficult situations whether it was staff abandoning ship or not really truly having any place to place patients that needed to be discharged from any of these care settings and our team's -- the ability to execute in the environment with appropriate PPE combined with this localized responsiveness that we talk about all the time the story we could spend all day talking about the stories on the ground as it relates to these things. But yes, I don't know if we have particular numbers on that John or Jen, but we're seeing that same trend. It's been really gratifying

Okay. Can you just talk in a little bit more detail about kind of the local leadership model? The strength of your IT systems, what it has afforded you in terms of speed of decision-making and flexibility. Obviously, the conditions on the ground are very different in different markets. And then also in that same vein, can you also talk about -- look you guys have a pretty big presence where this kind of hit first what you learned early and what best practices you were able to share just coming out of the Pacific Northwest?

Yes. Thank you. That's a great question. So each one of our operations -- the best way to think about our response to this is there was a Pennant response and then there were 130 individual responses, each CEO has the ability because of our IT systems and other processes to see exactly what their P&L is going to look like, and so some of them were affected very differently. And as you mentioned, our operators in the Pacific Northwest were hit much, much earlier than the rest of the organization. But there's this extreme transparency around where everyone's census is, and the individual local team sees that, but so do all of their other partners. And so the ability to look at their own individual supply costs, their own individual staffing measures, their own individual revenue and earnings model in a given month, it takes tremendous effort from our finance team to make sure that they have an objective P&L that doesn't have wide variances in it, and that really is kind of the heartbeat. So, none of our operators are flying blind. They're able to really understand, okay, this is how we're being affected in Seattle. And it's different in Arizona right now and it's different in Denver. Denver was also hit really hard early on. It didn't make as much of the news, but -- so what happens there is those leaders are pulling financial and clinical levers just immediately. So you're not waiting for us in the service center to see something and then make changes. Our operations are dynamically changing on a daily basis in these markets. And then they're able to draw on their partners. So as it relates to what we saw in the Pacific Northwest that, I mean, that was ground zero in a lot of ways. And we immediately were able to have ongoing calls so that everyone around them from other parts of the country were watching things literally as they unfolded daily. What cases are you facing, how is it affecting your employees, what types of employment -- different benefits do we need to put in place to reassure employees, what kind of communication is really going to help employees, residents, family members, how do you stand up digital visitation. And so we just -- by the end of the first week of this, we had a list of best practices that others were already implementing in other markets. And then as it continued, we even had leaders who were in good positions in other states fly right into the eye of the hurricane up there in Seattle and get on the ground and do work to help stabilize things and provide support. And then they come back to their operations with a better understanding of the urgency around a lot of the measures for environmental controls and infection control. And it's -- that's just an example of how the best practices get shared in our organization. And they're not being rolled out from us. It's motivated entrepreneurs, who are trying to protect their business and their residents and their staff as much, as we are. And they just quickly learn from each other. And so our focus is on how to share that. And so I think we were really fortunate to have a toe up there in the northwest. And really see what this looked like early, early on. And then our -- to the credit of our operators they learned and adapted very, very quickly.

Okay. Just a last for me, one, I would assume, your learnings in the Pacific Northwest was part of what helped you guys, get ahead of the PP&E purchasing. And secondly just anything -- it's kind of gotten lost in the shuffle, but anything that you'd call out in terms of the implementation of PDGM? And then, I guess, my final one would be, has the relief funds here just kind of delayed the inevitable in terms of a meaningful uptick in M&A opportunities?

Yeah. Great, so on the PPE front, yeah, I mean, because we were affected early and we were -- we had a multifaceted response to securing PPE, everything from getting it from dental offices, that had been closed down, and making sure that there was the immediate ability for our staff members to start caring for their patients with adequate PPE. We also leveraged the relationships that we have with the Ensign Group and with Care Trust and other operators to place large bulk orders. And really our model was on full display there, with our local operators leveraging their existing channels of ordering for PPE, so the McKesson' and other types of companies in the world. But then it was supplemented with our ability to do large bulk orders from the service center. And those were happening simultaneously. And we would see successes here and there. And then, you set out a supplier and jump to that one and secure as much as we needed. And that was coupled with daily projections on a burn-rate and other measures to -- the PPE side of this has been very interesting and challenging. But again, our model really enabled us to get through that environment. On the PDGM question, just overall, it's coming in line with our expectations. It's hard to believe that PDGM is kind of an afterthought, to this conversation. But our preparation paid off the execution of it just a lot of really positive things in the field, making adjustments thoughtfully. Overall, our quarter -- our first quarter included the impact of some higher than normal LUPA outcomes, because of missed visits towards the end of March. And even with that impact baked in, we're still at about an even relative to our previous revenue levels. So, we're pleased with that. We think that there could even be some improvement from there, based on our ability to execute within a non-panicked environment, like existed in the last two weeks of March. So the final question was on relief funds. There are a lot of smaller providers from our just limited sample size that are turning heavily to those. The PPE or the PPP loans in particular, but the other stimulus funds from the CARES Act, I think it's going to delay things a little bit. But we still are seeing opportunities coming our way. And we're prepared to take advantage of those opportunities. And do deals in the current environment. As we talked about we've got one that we're anticipating closing here in the next 30, 45 days. So what's -- where the relief funds will ultimately, kind of, factor in to everyone's calculation, I think, is going to be correlated with a better understanding of the terms and conditions. Our concern on that front is to just make sure that our long-term health is intact. And if there's short-term benefits that come from the relief funds that don't compromise our long-term organizational health, we're open to that. But our focus has been primarily on operating with resilience through the difficult situations without external help. So thanks for your questions, David.

Thanks very much, guys. Congratulations.

Your next question comes from the line of Frank Morgan with RBC Capital Markets.

Good morning. I guess, staying on that subject of the grants is there any specific thing that you could call out, any kind of specific terms to that financial assistant that are worrisome? Because I know, we've had a number of companies some are taking it others over. But anything you would call out specifically that's the most worrisome?

Yes. So really the first -- the most worrisome issue is that there's not clarity on the terms. And so right now the information we're getting is you -- it's an all or nothing proposition. And the decision there doesn't give you adequate clarity on the terms that are or will exist. And so that's probably the primary issue. The secondary component is just really what the scope and nature of the auditing and reporting requirements are and -- in making some of the decisions around lost revenue, there's a lot of assumptions that go into that and we are very, very conservative organization as it relates to matters of compliance and things like that. So making determinations on what counts as lost revenue or what doesn't count as lost revenue becomes pretty complex and tricky when you're thinking about that and the implications of accepting the funds. So those are the two primary items. I don't know if there's anything that Jen or Derek or John have to add to that. But we're watching it every day. We're in close touch with our external advisers on the legal and accounting front. And even they are, sort of, flying blind trying to sort out -- parse the meanings of really limited guidance from the government. So…

It really still feels Frank like the book is being written. And that's I think our biggest hesitation here is whether it's from the executive pay limitation to whether you have to return the whole thing there's just a lot that seems ambiguous about those terms and we're studying it out. We're working with the best experts that we have to make a great decision there.

Got you. And I guess, going to the subject of PDGM. Just wanted to go back again and talk about – obviously, you talked about how your revenue held up pretty well even on the -- and I think you called out in the press release you were very specific to say PDGM cases. So I guess, I wanted to confirm that. And I guess, if LUPAs did pick up and you were able to grow that either hold or even grow the PDGM case revenue, I guess that would suggest you did pretty well on the rate side. So I was wondering maybe more color around your ability to drive that? Was it coding? And was it changing mix, or any kind of color around that? Thanks.

I'll have John to tackle that one.

Yes. I think from what you're seeing in that is we had a strong quarter from a revenue side. That included both PPS episodes for all those episodes that were being completed into the quarter, and then of course, PDGM episodes for everything subsequent. And I think we're -- as Danny said -- we were where thought we would be. We've been able to execute on the education, related to coding accuracy, related to eliminating questionable encounters. And really where -- what we saw is at the end of the month of March, we started to see a pickup in LUPAs because we couldn't get into facilities sometimes or patients with decline visits. And so that resulted in some episodes ending early. It resulted in a significantly increased LUPA percentage. But we feel like based on what we've seen, we're right where we thought we would be which is this will be a net benefit as long as we continue to execute we code accurately and we capture the acuity of our patients properly.

And it will be a multifaceted ongoing effort, but we -- early indications are we feel very, very good about it.

Got you. Thanks very much. And then, I guess jumping over, you've got several, I think, three pending deals you called out in the Southwest. And I know you can't provide a lot of details, but can you give us maybe like a revenue number that -- how much revenue we might be talking about as a result of these three? And yes, I'll stop there for a bit.

Yeah. Thanks Frank. I think consistent with as we've disclosed previous deals, and especially so since this one is signed, but we haven't closed it yet. We'll have more to share as that signing -- as that closing takes place, but we're not in a position to give that detail yet.

Is it would be accretive to this year, or would that be maybe a next year kind of event?

Yeah. Because it's hospice, and it's a more sizable hospice, these three different ones, your ADC range is plus 200. And so, when you take all of that together, we see it being mildly accretive. We don't ever count on that often. The home health deals tend to be a little dilutive. Senior living obviously is frequently dilutive. This one, there might be some mild benefit to it.

Got you. And just to be clear the 200 ADC, is that across the three programs, or is that each?

No. That's across the three.

Okay.

And it's a little more to that.

Okay. And Dan, I'm curious on the Scripps, you talked about that relationship. Any more color you could share with us there, on how that's developing and kind of what you envision it turning into, and maybe some thoughts around what type of revenue opportunity that might be?

Yeah. So I'll -- John's been really heavily involved in this, so I want him to comment on this. But sort of high level, we view this as a test case. And Scripps has been a great partner for us through this process. They have been attracted to our localized operating model, and the idea that they can have a decision-maker that has full P&L responsibility right there alongside them. So there are some systems and processes that we have been investing in, quite heavily to make sure that we could respond to other inquiries from hospital systems that either aren't getting what they want out of their current home health arrangements or hospice arrangements. And then, others as we look to the future of the Ensign Pennant Care Continuum, we see increasing integration with hospital systems around controlling re-hospitalizations, care delivery systems that might involve SNFs and the whole post-acute continuum. So, this is kind of a test case for us. We feel like it's a perfect situation. Ensign in that market controls a high percentage of the skilled nursing bed. And so, there's a unique relationship and integration to that whole health community down there. And yet we know that, we've got to build systems and processes to really make sure we can take care of the health system as a partner. And so, we're -- it's a beginning of something that if it's highly successful, which we believe it will be, we would then seek to replicate it in a very disciplined targeted way in markets where it makes the most sense for us. So John, what else would you add?

I'd add just a little bit of color to those high-level points with specific regards to Scripps. This relationship has been ongoing. We've been working on this deal for a long time, but we've actually been able to be involved and be supportive over the last -- since the beginning of the year. We've been able to implement Homecare Homebase, as their new EMR in that program, which I think has allowed them to have access to data and to metrics and to ways to measure that previously their old system couldn't give them. And so, we've been excited about that opportunity to support them through that, to support them clinically and operationally as they transition through that. And the relationship is strong. We're excited about the way the Board will function and support the agency on a go-forward basis and we're looking forward to October and closing that deal.

I mean in the fourth quarter will affect the revenue, specifically to your question. Not dramatically amongst for one quarter. As you layer it into next year, it should be significant. That census in that joint venture is highly sensitive to volumes at the hospital and the hospital systems. So they've been affected quite heavily in the current environment. We expect them to recover. But that gives you a little bit to chew on.

Thank you. And then I guess just looking at the margin picture on the senior living side Dan your margin's down year-over-year, but up 140 basis points sequentially by our math. And I know that as you look forward, obviously some of the sense of softness will probably affect that margin here in the near term. But is there anything else that on the cost side that you see? I know a lot of changes were made in that division at bit. But any commentary around either any incremental cost control efforts on that part of the business? And I'll stop there. Thanks.

Yes. Frank, this is Jen. There have been some concerted efforts to focus on cost management during the first quarter on our Senior Living business. And their spend -- as you know in the last call that we had we talked specifically about the senior living business and our need to focus on the cost there. And so there has been improvement over the quarter in those costs. So we are seeing positive progress and we'd anticipate that that will continue throughout the year.

Yes. It's sort of coupled with our overall focus on helping them as a group adhere a little more carefully to our operating model as we share data around cost measures and align those cost measures with resident needs. You see lots of unique opportunity to refine and improve quality of care while doing it more efficiently. One example this gets missed quite a bit. But on food cost, a lot of times people -- the convenience of ordering frozen or whatever, but the -- when you compare it with a chef that's doing meals from scratch and a custom menu, you actually save quite a bit you improve satisfaction. And it's just like cooking from home instead of ordering from Grubhub. That kind of practice is something that we will continue to see and improve upon in that portfolio.

Okay. That’s helpful. Thank you very much.

Thanks, Frank. Appreciate you.

[Operator Instructions] And we have no audio questions at this time.

Okay. Thank you, Federica, and thank you to all of you for joining us. We're grateful that you're part of the Pennant journey. And during this historic -- the event going on in the world, we're grateful for the support that you continue to show and we look forward to visiting again in the next quarter. Bye-bye.

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