Pennant Group, Inc. Q1 FY2020 Earnings Call

Thank you for joining us. Welcome to The Pennant Group First Quarter 2020 Earnings Call. All participants are currently in listen-only mode. After the presentation, we will have a question-and-answer session. I would now like to turn the call over to Mr. Derek Bunker. Please proceed.

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 should 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 and every 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 showcase 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 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 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 seen 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 even though we are moving quickly to offset these headwinds and grow stronger 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, its 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. 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 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 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. Additionally, 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 in 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. Our balance sheet and long-term leases position us with a 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. We continue to make progress on the previously announced home health joint venture with Scripps Health. 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. 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 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 believe 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 in 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 of our operations can achieve. Last quarter, we shared the incredible progress made at Rose Court Assisted Living & Memory Care in Phoenix, Arizona. We'd like to share what clinical leader and COO Tristis 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 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 with 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?

Your first question comes from David MacDonald with SunTrust.

Hi guys. A couple of 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, we haven't disclosed a specific number of referral sources, but we've noticed a significant strengthening of our existing relationships and an expansion of those as well. There have been instances where some of our referral sources faced serious challenges, such as staff shortages and a lack of places to discharge patients from care settings. Our team's ability to perform effectively in this environment, with the right PPE and a strong localized response, has been crucial. We could share many stories about this situation. While I'm not sure if we have specific numbers to share, we are seeing the same positive trend, which has been very rewarding.

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?

Thank you for your question. Each of our operations has individual responses based on local conditions. Our IT systems enable each CEO to view their specific profit and loss statements, resulting in varying impacts across different regions. For instance, operators in the Pacific Northwest faced challenges much earlier than others. There is a high level of transparency regarding the current situation in each area, which is accessible to both local teams and their partners. They can analyze their own supply costs, staffing metrics, revenue, and earnings on a monthly basis. This requires significant effort from our finance team to ensure they have accurate profit and loss statements without significant fluctuations, which is crucial for our operations. Our operators have a clear understanding of how they are impacted in different locations, such as Seattle, Arizona, and Denver, which was also affected severely early on. However, this information is not reliant on our service center; operations are adapting daily to changes in their markets. They are in constant communication with partners, allowing for real-time collaboration. Early on, we established ongoing calls to monitor issues and develop solutions for employees, including employment benefits and communication strategies. Within a week, we compiled a list of best practices being implemented across various markets. Additionally, leaders from more stable regions traveled to areas like Seattle to offer assistance, which improved their understanding of urgent measures needed for infection control and environmental safety. This exchange of best practices is driven by the initiative of our operators, who are focused on preserving their businesses and supporting their residents and staff, leading to prompt learning and adaptation within our organization. We were fortunate to have early insights from the northwest that helped shape our approach, and our operators responded rapidly to the challenges.

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 PPE purchasing. 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?

On the PPE front, we were affected early, so we implemented a comprehensive strategy to secure PPE. This included obtaining supplies from closed dental offices to ensure our staff could care for patients safely with the necessary PPE. We also used our connections with the Ensign Group and other operators to place large bulk orders. Our local operators effectively utilized their existing ordering channels for PPE, working with companies like McKesson, while also making bulk orders through our service center simultaneously. We experienced varying degrees of success, and once we identified a reliable supplier, we secured the quantity needed. We managed this with daily tracking of our usage rate and other metrics. The PPE situation has been complex and challenging, but our model allowed us to navigate through it. Regarding PDGM, it is aligning with our expectations, and it's surprising that it has become somewhat secondary in this discussion. Our preparations have been beneficial, and we've seen positive execution in the field with thoughtful adjustments. Our first quarter reflected some unusually high LUPA outcomes due to missed visits at the end of March. Despite this, we remain on par with previous revenue levels, which we are pleased about, and we believe there is potential for improvement now that we are operating in a more stable environment compared to the panic of late March. As for relief funds, many smaller providers are relying on these, particularly the PPE or PPP loans, along with other stimulus funds from the CARES Act. This may cause some delays, but we continue to see new opportunities and are ready to capitalize on them, with one expected to close in the next 30 to 45 days. The role of relief funds in future calculations will likely depend on understanding their terms and conditions. Our priority is to maintain our long-term health. If short-term benefits from relief funds do not jeopardize our long-term organizational well-being, we are open to them. Throughout this process, we have focused on operating resiliently in challenging situations without relying heavily on external support. Thank you 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 assistance 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. The main concern is the lack of clarity regarding the terms. Currently, we understand that it's an all or nothing situation. The decision does not provide sufficient details about the existing or future terms, which is a significant issue. Another aspect is the scope and nature of the auditing and reporting requirements. When we consider lost revenue, many assumptions are involved, and we approach compliance matters very cautiously. Determining what qualifies as lost revenue can become quite complex, especially when considering the repercussions of accepting the funds. Those are the two main points. I’m not sure if Jen, Derek, or John have anything to add, but we are monitoring the situation closely and in regular communication with our external legal and accounting advisers. Even they are struggling to interpret the limited guidance provided by the government.

It really still feels, Frank, like the book is being written. That's our biggest hesitation here regarding 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.

I understand. Regarding PDGM, I wanted to revisit the topic. You've mentioned that your revenue remained strong, especially noting in the press release about PDGM cases specifically. I would like to confirm this. If LUPAs increased and you managed to maintain or even grow the PDGM case revenue, it suggests successful performance on the rate side. Could you provide more details on how you achieved that? Was it related to coding, changes in case mix, or anything else? Thank you.

I'll have John tackle that one.

We had a strong quarter in terms of revenue, which included both PPS episodes completed during the quarter and PDGM episodes for everything that followed. As Danny mentioned, we were where we anticipated being. We successfully executed our education efforts related to coding accuracy and eliminating questionable encounters. By the end of March, we observed an increase in LUPAs due to difficulties accessing facilities or patients who had to decline visits. This led to some episodes concluding early and a higher LUPA percentage. Based on our observations, we believe we are positioned as expected, and anticipate that this will yield a net benefit, provided we continue to execute effectively, code accurately, and properly capture the acuity of our patients.

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

Thank you. I appreciate it. Moving on, I understand you have three pending deals in the Southwest. While I know you can't share too many details, could you provide an estimated revenue figure related to these three deals? I'll pause there for now.

Thanks, Frank. I think consistent with how we've disclosed previous deals, especially since this one is signed but not closed yet, we'll have more to share as that signing closes, 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. 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. 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. John has been significantly involved in this, so I want him to share his thoughts. At a high level, we see this as a test case. Scripps has been an excellent partner for us throughout this process. They are drawn to our localized operating model and the notion that they can have a decision-maker with full P&L responsibility working directly with them. We have been investing in systems and processes to address requests from hospital systems that may not be satisfied with their existing home health or hospice arrangements. Looking ahead at the future of the Ensign-Pennant Care Continuum, we anticipate greater integration with hospital systems to manage re-hospitalizations and care delivery systems that may include skilled nursing facilities and the entire post-acute continuum. This is essentially a test case for us, and we feel it's an ideal situation. Ensign has a significant share of skilled nursing beds in that market, and there is a unique relationship and integration within the overall health community there. We recognize the importance of building systems and processes to effectively partner with the health system. We are enthusiastic about how the Board will operate and support the agency moving forward, and we are looking forward to October and finalizing that deal. In the fourth quarter, it will affect revenue, specifically to your question. Not dramatically among 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 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 margins down year-over-year but up 140 basis points sequentially by our math. 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. 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. In the first quarter, we made significant efforts to focus on cost management in our Senior Living business. As we discussed in the last call, it was important to concentrate on costs in that area. We have seen improvements in those costs over the quarter. There is positive progress, and we expect this trend to continue throughout the year.

Our overall goal is to help the group follow our operating model more closely by sharing data on cost measures and aligning those costs with resident needs. There are significant opportunities to enhance and improve the quality of care while increasing efficiency. For instance, many people overlook the comparison of food costs. While ordering frozen meals might seem convenient, a chef preparing meals from scratch with a custom menu can actually save money and enhance satisfaction, similar to cooking at home rather than ordering from delivery services. This approach is something we will keep developing and improving in that sector.

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

Thanks, Frank. Appreciate you.

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. During this historic 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.