Thank you all for joining us for The Pennant Group's Q2 2020 Earnings Conference Call. Please note that this call may be recorded. I will now hand the call over to Mr. Derek Bunker, our Chief Executive Officer. You may proceed.

Thank you, Valerie. Welcome everyone, and thank you for joining us today. Here with me today I have Danny Walker, our CEO; 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, September 11, 2020. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, August 12, 2020 and these statements have not been or will 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 where 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, human resources, information technology, legal, risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries. The words Pennant, company, we, our and us refer to The Pennant Group, 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 that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q. With that, I'll turn the call over to Danny Walker, our CEO. Danny?

Thank you, Derek. Good morning, everyone. Thank you for joining us today to discuss Pennant's second quarter 2020 results. We are pleased with the clinical and financial results our local leaders achieved in both segments. I'm inspired by the countless acts of service and leadership we've witnessed this quarter, and I am deeply grateful for each one of our team members. We often refer to these folks as heroes, and you see signs throughout the healthcare industry saying heroes work here. Sometimes I feel like that statement is a little trite because these heroes are actual people. They have actual families. They have hopes and dreams and they're facing very real risks as they continue to care for those in our organization. We are so grateful for each one of them and encourage them as they continue forward. Overall, this was a strong quarter with adjusted EBITDA increasing nearly 60% quarter-over-quarter. And as we announced yesterday in our press release, we are raising our annual earnings guidance for the remainder of the year. Jen will discuss our financial results in more detail, but I want to point out that our adjusted earnings results do not include any CARES Act funds, nor the benefit of the sequestration holiday, and they do not include a modest amount of COVID-related expenses that were very clearly identifiable. In addition, we estimate that we have experienced potential COVID-related revenue of $8.1 million since the start of the pandemic through the end of the quarter. In the last six months, we have successfully navigated an unprecedented pandemic, a significant home health reimbursement change, and continued spin-related system transitions. Our strong results in the face of these many challenges exemplify the resilience of our local leadership model and our ability to drive long-term value in both segments for the benefit of our stakeholders and the communities we serve. In our Home Health and Hospice segment, we achieved strong top and bottom-line financial results while improving on a number of clinical measures. Our Hospice average daily census grew uninterrupted throughout the quarter and as of June 30, stands at 18.3% above the prior year quarter. Our Home Health volumes experienced a V-shaped pattern that was driven primarily by stay-at-home mandates and the delay of elective procedures. From our low point in mid-May, our total Home Health census grew 10.6% through June 30, resulting in an overall 1.5% improvement from our March 11 pre-COVID high point. Since the end of the quarter, Home Health census has continued to grow despite the increase in the number of COVID cases in many geographies we serve. While our local leaders drove census growth, they simultaneously managed costs in a disciplined manner, leading to segment EBITDA of $10.4 million, an increase of 41.8% over the prior year quarter, all while deploying special care programs for frontline staff establishing daily tracking mechanisms and ensuring adequate PPE and testing availability to confront the pandemic. Simultaneously, our clinical outcomes and quality measures continue to improve in a number of areas. The number of our Home Health agencies with the CMS star rating of 4.5 or 5 increased 10% over the prior year quarter. Our rehospitalization rate continues to decline, and our Hospice quality trends continue to improve. These results highlight the tremendous advantage of decentralized leadership with service center support that can dynamically respond to various community needs market-by-market with precision. We are also pleased with the progress our operators and clinicians have made navigating PDGM during the quarter. Though we believe it's too early to draw conclusions about the long-term effects of PDGM, so far our current results are ahead of expectations based upon our preparation, behavioral adjustments, and patient population. We are increasingly confident in our ability to adapt and thrive in the new reimbursement environment. Turning to our Senior Living business, while facing COVID-related obstacles, the second quarter represented another strong step forward in our long-term cultural and clinical development. As of yesterday, we were serving 13 residents with active COVID-19 cases across six of our 54 senior living communities. In the midst of the pandemic, our total senior living occupancy declined 2.2% during the quarter and declined an additional 2% since as cases increased in the states where we are concentrated. Despite these COVID-related declines, our occupancy still stood 40 basis points higher and revenue per occupied unit increased 3.2% quarter-over-quarter, excluding communities acquired in the last 12 months. We also saw our segment EBITDAR, adjusted EBITDAR increased 12.3% to $13.5 million and our adjusted EBITDA increased 47.5% to $4.6 million over the spin-adjusted prior year quarter as our local leaders effectively adapted to increasingly complex operating conditions, which varied from market-to-market. The pandemic is confirming our long-held view that the senior living community is an important care delivery setting and that there is a growing need for senior living operators to prioritize care programs, including infection control in addition to providing quality of life amenities. We anticipate that the pandemic's impact may continue for a period of time, but our local operating model and clinical strength position us well to address the community demand for robust care and wellness programs in a high-quality living setting. I'd like to take a step back and remind everyone about the investment thesis for our Senior Living business. There is enormous inherent upside in our senior living communities given our below-market entry prices and our operating model that provides the tools for our local leaders to build significant value over time. What we're experiencing in our Senior Living business right now is part of the cyclical nature of healthcare and akin to the industry headwinds we faced when starting our Home Health and Hospice business 10 years ago. Our platform represents a unique opportunity for our stakeholders to experience similar long-term value creation within a revenue-generating Senior Living business at a time of significant industry disruption. Much like Ensign incubated our development during our early stage growth, Pennant's true value comes from the dual-opportunity of our strong Home Health and Hospice business and the cultivation of a second growth story in our Senior Living business. Because of our strong balance sheet, disciplined approach to our capital allocation, and entrepreneurial leadership model, we can pursue both compelling growth stories simultaneously by driving further organic growth in our existing portfolio and continuing as an opportunistic consolidator in both the highly fragmented home health and hospice and senior living industries. With that, I'll hand it off to Derek to discuss our recent investment activity. Derek?

Thanks, Danny. During the second quarter and since, we were pleased to keep executing on our disciplined growth strategy through the acquisition of four hospice agencies and two home health agencies in Arizona, Utah, and Idaho. All of these transactions were off-market opportunities. These agencies were largely strategic tuck-in acquisitions, identified and led by our local operators, allowing us to leverage our existing strength in those states and adjacent markets. With the support of their cluster and resource partners, our local leaders were able to transition these operations onto our platform with relative smoothness, thanks to their creativity and rigorous execution of best practices developed over dozens of acquisitions. We are excited to welcome these agencies into the Pennant family and look forward to their growth over time within our cluster-driven model. We also continue to make progress on the previously announced home health joint venture with Scripps Health, which we anticipate closing early in the fourth quarter. Our pipeline of acquisition opportunities remains healthy. As we shared last quarter, 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 off-market partners. We are pleased with the current strength of our balance sheet and access to capital, even after executing multiple transactions during the quarter. We think there are many more opportunities this year and beyond for growth through acquisitions. 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 June 30, 2020 are contained in our 10-Q and press release filed yesterday. For the three months ended June 30, 2020, we reported total GAAP revenue of $92.7 million, an increase of $10 million or 12.1% over the prior year quarter. GAAP diluted earnings per share of $0.15 and adjusted diluted earnings per share of $0.24. Non-GAAP adjusted earnings per diluted share of $0.24 represents 118% increase over spin-adjusted second quarter of 2019 results of $0.11. We had strong revenue and earnings per share results due to the consistent operational execution of our field leaders during a very difficult operating environment. We also benefited from a disciplined management of general and administrative costs. Other key metrics include approximately $6 million of cash on hand as of August 10, 2020. During the second quarter, cash generated from operations of $43.4 million, and $15.4 million excluding the Medicare advanced payment. A lease-adjusted net debt adjusted EBITDAR ratio of 4.27x as of June 30, 2020, full availability of our $75 million line of credit as of August 10, 2020. During the second quarter, we received approximately $10 million in CARES Act Provider Relief Fund, for which we did not apply. After careful analysis, we determined it would be in the best interest of the organization to reject and return these funds, which we did during the quarter, so our results do not include the impact of any Provider Relief Fund money. We also applied for and received approximately $28 million in advanced Medicare payments, which we used to pay down the outstanding balance on our revolver. These advanced payments are subject to automatic recoupment through offset to new claims beginning August 20, 2020. We also intend to utilize the CARES Act payroll tax deferral program to delay payment of approximately $7.3 million of the estimated employer portion of payroll taxes for 2020. Under the CARES Act, half of these funds are due at the end of 2021 and half due at the end of 2022. Finally, during the quarter, we saw a positive impact of $0.6 million in GAAP revenue from the temporary suspension of the 2% Medicare payment sequestration established by the CARES Act. Please note that our non-GAAP adjusted earnings per share results exclude the benefit of the sequestration holiday as a net against COVID-19-related costs. We estimate additional impact of $2 million from the sequestration holiday through the end of 2020. As we announced in our press release yesterday, we are affirming our annual revenue guidance range of $376 million to $386 million. And we are raising our annual adjusted earnings per share guidance to a range of $0.71 to $0.78, the midpoint of which represents a 34.2% increase over the midpoint of our previous earnings guidance. 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 and the exclusion of cost-related to start-up operations, acquisition-related costs, sequestration revenue and COVID-related costs, redundant or non-recurring expenses related to spin-off transition services and stock-based compensation. While we remain unknowns about the length and depth of the pandemic and future effects, the data we have available at this point gives us confidence in our ability to meet our revised 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 impact and to adjust our expenses, we believe the pandemic presents new opportunities for resilient operators that are responsive to local needs.

Thank you, Jen. Before we open it up for Q&A, it's our custom each quarter to share a few examples of our local leaders exemplifying the best of our core values. I'd like to share two of these, although there are many more like it across the organization, I wish I had time today to individually praise each of them. First, Emblem Home Health & Hospice in Phoenix, Arizona, led by newly announced CEO, Mitch North and Directors in Clinical Service, Elise Allston and Kristen Carpenter has produced remarkable financial and clinical outcomes, while truly going above and beyond to meet the needs of their partners in the local healthcare community. Their revenue grew 28% over the prior year quarter and EBIT in the second quarter was nearly $580,000, an increase of 96% over the prior year quarter. As Emblem continued to grow, the local team elevated Executive Director, Shawn Blue and Directors of Clinical Service, Sally Prieto and Kathy Stolberg, each trusted internal partners to expand geographically and better meet the needs of our local community partners. While driving these impressive results, Emblem has established itself as a trusted resource to the strong network of local partners in the Ensign-Pennant care continuum. Their leadership in the local community was especially evident during the initial months of the pandemic when they quickly implemented creative and effective solutions to the complex needs of their acute and post-acute partners. Next, Cranberry Court Assisted Living in Wisconsin Rapids, Wisconsin, Executive Director, Crystal Stover, and Wellness Director, Brie Pendzinski have led their team to success as they built a reputation as a preferred community partner and employer of choice. Since taking over as Executive Director, a little over a year ago, Crystal has helped lead the Cranberry Court team to steady top and bottom-line financial growth, thanks to a culture of caring and dedication to providing life-changing service to residents, families, and employees. Since the second quarter of 2019, revenue has grown 18%, thanks to improved occupancy, and EBITDAR has increased 56% as the team exemplified disciplined and shared ownership over the community's collective results. In addition to becoming a premier senior living solution in the local community, Crystal and Brie actively support their cluster and market partners in Northern Wisconsin, helping to build culture and drive results in our sister communities as they share best practices. We again want to express our thanks and admiration for the leaders and staff in the field and at our service centers working diligently to care for thousands of lives each day. It is through examples like Emblem and Cranberry Court and many more like it that we are able to achieve success. We will now turn to the Q&A portion of our call. As Derek mentioned earlier, we're here with John Gochnour, our COO, who is available for questions about operations as well. Valerie, can you please instruct the audience on the Q&A procedure?

Thank you. Our first question comes from Scott Dupslaff with Stephens. Your line is open.

First question, just interested if you want to call out anything to think about in terms of the progression of earnings in the back half of the year relative to the updated guidance in terms of whether you think there is more of a ramp from 3Q to 4Q or do you think those will look relatively similar? And interested as well, just given the fact that you were able to grow EBITDAR in the senior living business in the second quarter, which is obviously a challenging quarter for the segment. Just in terms of the updated guidance, how you're thinking about year-over-year earnings growth in senior living in the back half of the year? I know occupancy ticked down again a bit, but just interested in can you achieve earnings growth given the headwinds that area is seeing from COVID?

Yes. Thanks, Scott. I'll have Jen give you detail. Generally speaking, as we look at the second half of the year, it's important to note that we're better equipped now clinically and operationally to make the adjustments as COVID ebbs and flows in the communities that we're serving and local counties issue different types of orders. Obviously, we responded quickly and well to the onset of this, but as this continues to move around the country, our systems and leaders are better equipped to handle it. So that's the general view as we look at the second half of the year. We fully expect the virus to continue to circulate and affect us, but we're more confident in our ability to make the appropriate adjustments, keep our staff and residents and families safe and connected. So Jen can give you some specifics on the assumptions we have built in.

Hi, Scott. So on the high-end of our guidance, we're looking at a modest increase in our home health census excluding the acquisitions that we're doing at the end of the year. So we are putting in an increase for acquisitions that we have coming in throughout the third and fourth quarter. And in our hospice, we're continuing to expect an increasing census of around 3% plus acquisitions in July and August. On the senior living side, at the high-end, we are assuming a mostly flat senior living census. In our low-end, a decline of around 2% in census throughout the rest of the year. And for the cost of service, we are considering basically the same average cost of service on a high-end and then a little bit of an increase in cost of service on the low-end and G&A cost around the same percentage as a percentage of revenue. So we are assuming that the resurgence is mostly contained that we're able to respond to it effectively and that things don't fully recover. We're not assuming that there is a big surge. We've also built in our sort of normal seasonality through the rest of the year.

And the one acquisition that is contemplated there is the Scripps joint venture, which we have spoken about in the past.

Got it. Thanks. That's a lot of helpful detail. And I had a follow-up just on the M&A pipeline and I know that you highlighted that it appears to be strong across each of the business segments. Just if you could give us a little more detail in terms of whether you do see a bias towards any of the particular segments in terms of where you see more near-term opportunity, whether it's in the back half of the year or in 2021, just as we think about home health hospice and that senior living?

Yes. I'll give some thoughts and then have Derek kind of chime in here. But we have seen, obviously, we closed deals and we've continued to do that. We expect to be able to continue to do that. They've been in the home health and hospice space. Pure play home health businesses have experienced a pretty disruptive environment with the combination of COVID, census pressures and PDGM. Some of those have pulled back from the acquisition cycle. I'm presuming some of it's related to those effects and the prop-up from some of the federal money that's been available. But we expect those to become more available; we think in the first half of next year, maybe even later this year. But we continue to see a pipeline that we're excited about. There's the increasing disruption in the senior living space; we see that there will be opportunities flowing out of that. Derek, maybe you can comment a little on both.

Yes. I think that covers it pretty well. We are disciplined; kind of the way we've looked at the market has always focused on where we stand from a leadership perspective, where our balance sheet stands. And from that perspective, we've seen some great growth and strength in our leadership within our home health and hospice company across those local operations, which lines up well with the deals we've closed so far and as Danny mentioned, what we're kind of seeing as we peek into the crystal ball for the next 18 months or so. And we still see some growth or some strong development in our senior living business as well and that market has been a little choppier really as kind of the impact of the COVID-19 has been sort of a prolonged kind of a gradual impact in that industry relative to home health, which kind of saw that V-shaped as we mentioned. So we'll continue to kind of look for deals. We're still opportunistic but looking out, we like where we stand, particularly on the home health and hospice side but we continue to see a lot of senior living opportunities and we're just keeping very picky about what we want to explore further.

Understood. As we work on our models for 2021, I’m interested if you have an estimate for the Pennant-specific rate updates for home health and hospice for 2021, considering the positive rate updates for the industry.

Yes. Scott, this is Jen again. For our home health modeling on the home health proposal, we're looking at about a 2.1% increase, and on hospice it's about 2.2%.

Thank you. Our next question comes from Frank Morgan of RBC Capital Markets. Your line is open.

I guess, first is a housekeeping matter to follow-up on Scott's question. I just want to get a clarification. In terms of acquisition, it's only these recent acquisitions that you're putting in your guidance for the rest of the year or is there an expectation for additional deals that are yet announced?

No, it's only the acquisitions that have been announced, Frank.

Okay, great. Okay. It looks like the rates look pretty good on the hospice side and I think on the home healthcare side and I think you attributed part of that to some of your early success in your patient mix and in your coding. But how would you assess where you are in that process? Is that largely done or do you still see additional upside from a rate perspective for home healthcare as a result of PDGM?

Yes. Frank, I appreciate the question. And I think what we're seeing as we look at PDGM and as we try to project out, it's a relatively small sample size. But we're very optimistic and we feel really good about where we're at. We think that's kind of the result of two things. One is our efforts of preparation, like you've described, our efforts at our local clusters and within our agencies and operations and adapting to these changes and making sure staff are trained and were able to code and capture everything accurately. I think the other side of that has been our patient mix, which is a little bit different maybe than some of the other folks that you're seeing. Our volumes are based on the community needs. And that's how we've always gone about our marketing strategy as to be a resource to the community and we think patient mix is a little bit different. And from that, we're seeing a positive as the PDGM reimbursement structure rewards some of that care, things like wound care and neurological care that maybe were less reimbursed under the PPS structure and are better reimbursed under the PDGM structure. As we go forward, we think there is opportunity on both sides. Both as we continue to more accurately capture acuity and make sure that our LUPA percentage stays low, make sure that we're capturing co-morbidities. There is also opportunity on the cost side as we continue to focus in. We're working hard to drive down our cost per visit as well as our visits per episode, while still achieving extraordinary clinical outcomes. And so that's the mix and that's what we project for the next year that we'll be focused on, is continuing to achieve similar results. And like I said at the beginning, it's a small sample size. And so we feel very good about where we're at and it's very in line with our projections. But we think there is still opportunity both on the revenue side and the cost side.

Yes. That was John Gochnour. And this is Danny and I'll just add to that. We were positioned a little differently under the PPS structure in terms of the patient population that we cared for. And PDGM, part of the rebalancing of the reimbursement structure kind of moves away from the high therapy utilization, which we never were chasing. And so I think we're seeing kind of the favorable side of that. I think we'll still be doing meaningful work on that throughout the remainder of the year, just like we are continuing to work on the spin-related issues, and we need more volume to really kind of refine the whole process. But overall, we feel really good about where we're at.

Got you. Thanks very much. Maybe one on the senior housing side, obviously, you have the benefit of having a much lower entry point acquisition price on your deals. But I'm just curious, how do you think about cash flow breakeven? I mean, is there an occupancy number that you just say this is the point at which we're not covering our financing costs? Any color around that. And then my other question was just any discernible difference that you're seeing in the occupancy trends between AL and IL? Thanks.

Yes, great question. The first question about what's our like red line. We don't even consider that honestly. It's so low that it's kind of irrelevant for us. Estimating I would pull it out at somewhere in the mid-to-low 60% occupancy range depending on the particular operation and its history and the condition it was in when we invested, and then whatever additional capital expenditures we've put in. We have a really disciplined approach to tracking all of those dollars that go into each of these communities and then set the targets from there. But there is ample room for us there. And really we should never have to really worry about that if we're getting things right on the leadership model front and the experience that our employees and residents and their families are having. And so those are the things that concern us more. I suppose Jen and Derek could probably model that at some point out into the future but it's well below where we're at right now. And so I think the main takeaway there is ample space for us to drive long-term success. And then, obviously, sitting at right now in the high-70s of occupancy, we still have a lot of room in terms of upside as things with COVID continue to resolve themselves and our teams continue to put their clinical prowess out for families to really see and understand how we work to keep everyone safe and communicate and a variety of factors there. The second part of your question is, the IL census has been more directly affected. Those decisions are more voluntary for the families. They're more of a lifestyle choice than they are a healthcare choice. And so, we have seen on a higher percentage basis but our IL unit count is so small that it's not something that I have off the top of my head honestly. So there is more pressure on the IL side, but we continue to see move-ins based on exactly what our thesis is that there is healthcare matters and caregiver issues that drive placement in the senior housing space and that's primarily memory care and true assisted living, supportive living decisions. So hopefully that helps.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to the CEO, Danny Walker for any closing remarks.

Thank you, Valerie. We would just again like to express our deep appreciation for the people. We call them heroes, but these are men and women of all ages, race, gender, all the diversity that exists in this country and they are heroic in their efforts and yet they are real people that are facing real risks and our hearts are just full of gratitude for the sacrifices and the commitment to principled service of others and care for others that has been exhibited this quarter and really has been the hallmark of how we've operated for years and plan to operate in the future. So thank you to our team and to those that are our stakeholders who believe in us. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may disconnect. Have a great day.