Pennant Group, Inc. Q4 FY2021 Earnings Call

Thank you for standing by and welcome to The Pennant Group Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Derek Bunker, Chief Investment Officer. Please go ahead.

Thank you, everyone, and thank you for joining us today. Here with me today, I have Danny Walker, our CEO; Brent Guerisoli, our 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-K yesterday. This announcement is available on the Investor Relations section of our website at pennantgroup.com. A replay of this call will also be available on our website until 5 PM Mountain Time on Friday, March 25, 2022. We want to remind anyone that may be listening to a replay of this call that all statements made, or as of today, March 1, 2022, and these statements have not updated or 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 in 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 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 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, that 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 in our 10-K. With that, I'll turn the call over to Danny Walker, our CEO.

Thank you, Derek, and welcome everyone to our full-year and fourth quarter 2021 earnings call. I want to start by expressing our gratitude to our clinical and operational teams for their remarkable efforts during the recent Omicron surge. Their hard work has been both challenging and commendable, and we appreciate it deeply. In 2021, we achieved record results in our Home Health and Hospice segment, with substantial growth in both revenue and profits, as well as excellent quality outcomes, all while adding 11 agencies to our portfolio despite a tough operating environment. Our Senior Living segment faced multiple COVID-19 surges and a severe winter storm in Texas, but we are now ready to recover in 2022 thanks to stronger leadership, improved clusters and markets, enhanced data and systems, and evidence of a better operating environment. However, our 2021 results did not meet the high expectations we set for ourselves. The challenges of completing the spinoff, revamping our IT infrastructure, managing a high volume of acquisitions in Home Health and Hospice, restructuring leadership in Senior Living, and investing in new business ventures, along with the unique pressures of the COVID-19 pandemic and compliance with Sarbanes-Oxley, have temporarily hindered our ability to achieve the outstanding operating results we are used to. Looking ahead to 2022, we feel encouraged by the progress we are making. As mentioned last quarter, we took steps to ensure that our local teams are focused and executing effectively, to concentrate on our core opportunities across both segments, and to reinforce the principles of our operating model that historically led to our successes. In the fourth quarter and since then, we have implemented these key initiatives, and we will maintain this focus throughout 2022 to ensure we return to our historical growth patterns in both segments. After reviewing our core opportunities and how to reduce distractions, we have made several significant decisions. We have announced a transaction with our partners at Ensign to transfer five Senior Living communities to them, all located on campuses with Ensign-affiliated skilled nursing facilities. This will streamline operations, as sharing resources in a COVID-impacted environment has become increasingly complex and costly. This decision highlights the value of our partnership with Ensign and will enable our Senior Living leadership to concentrate on fewer operations in a tighter geographic area. Based on the performance of these communities, we expect this change to be slightly beneficial to our earnings and is just one of the many steps we are taking to recover from the pandemic's effects and realize the value in our portfolio. Additionally, we have optimized our mobile physician services and home care agencies to improve our payer mix and better manage expenses while still retaining growth potential. We have completed the infrastructure development related to the spinoff and implemented Sarbanes-Oxley compliance. We are committed to investing in our Service Center teams to improve our operational results. These combined efforts will help us focus on our best opportunities in our existing markets and position us for growth in 2022 and beyond. We are starting to see these initiatives yield positive results in the first quarter. Although there are still significant opportunities in both segments that we are eager to capitalize on in 2022 and in the future, we will keep our attention on our most important growth prospects. As we shared in our press release yesterday, we are updating our guidance for the full year of 2022, reflecting the expected increase in hospice average daily census, the impact of the five Senior Living communities being transferred to Ensign, and the ongoing effects of COVID-19 on staffing, labor, and revenue experienced in 2021. We anticipate full-year revenue to be between $450 million and $460 million and adjusted earnings per share to be between $0.60 and $0.72. In 2021, we provided guidance based on the operating conditions at that time, under the assumption that there would be no additional impacts from COVID-19 surges, which proved to be incorrect throughout the year. Our guidance for 2022 incorporates the lessons learned from 2021, reflecting our view that COVID and its impacts are becoming more endemic in the communities we serve. We want to thank our operators and clinical partners once again for their relentless efforts to navigate through the challenges of 2021, and we look forward to 2022 with increased stability and predictability in our operating performance. Now, I will turn the call over to Brent to discuss our operational results for the fourth quarter.

Thanks, Danny. Turning first to our Home Health and Hospice segment performance. Through yet another surge of COVID-19 cases in many of our markets, we increased revenue 4.5% to $77.9 million over the prior year quarter, while adjusted EBITDA of $11.2 million declined $2.7 million or 19.1% from the prior year quarter. Even as our hospice admissions and average daily census were down from the third quarter, we saw solid growth in our total Home Health and Hospice admissions, which rose 9% over the prior year quarter. The decline in hospice ADC is largely the result of a modest decline in admissions, as well as a higher mix of referrals for more acute settings that tend to have a lower average length of stay. This softness was concentrated in a handful of markets more acutely impacted by the effects of higher COVID-19 cases and other operational headwinds, which have continued into the first quarter. However, as we focus on meeting the needs of our local healthcare communities, strengthening relationships with new and existing key partners and adding key talents, we are confident we can grow census and produce stronger results as operating conditions continue to improve. The bedrock of our confidence in future growth is our relentless focus on providing exceptional clinical care to our patients. We continue to achieve high marks in several quality scores across our Home Health and Hospice segment, with an average Home Health CMS star rating of 4.2 and a 12.7% acute care hospitalization rate according to real-time third-party analytics, which is meaningfully below the reported national average of 15.4% in the fourth quarter. We have successfully improved our quality measure in our recent acquisitions as well with the average CMS star rating of our Home Health agencies acquired in 2020, improving from 3.7 stars at the time of acquisition to 4.3 stars currently. Additionally, our average discharge to community rate, which measures the percentage of patients discharged to the same or lower level of care was 79% in the fourth quarter, which compares favorably with the reported 72.8% national average. Our hospice quality composite score continues to trend well at 96% as of the end of the fourth quarter, compared to the reported national average of 89%. We are confident our emphasis on quality clinical outcomes will be increasingly recognized by our referral partners, as we continue our high performance standards in these areas. Our Senior Living segment continues its recovery in the face of another surge of COVID-19 cases that impacted our staffing and census this in the quarter as it has throughout 2021. We are not satisfied with our quarterly results, although, we are pleased to see some wins in this segment, including the first year-over-year increase in segment revenue since the pandemic began despite a decrease in average occupancy of 310 basis points compared to the same period. We were able to drive targeted rent and care services rate increases that more than offset our occupancy decline, thanks to better data and resident assessment tools which we've been rapidly deploying since we completed the spinoff system separation that was such a heavy distraction through the first half of 2021. In addition, the fourth quarter, we increase revenue by 1 million and adjusted EBITDA by 0.7 million sequentially over the third quarter, highlighting the incremental margin upside achievable as we drive further revenue growth. The benefits of having complete control over our systems and our IT resources dedicated to accelerating the results of our field will compound over time, driving more informed local decision making, improved resident care, robust accountability around best practices, and ultimately stronger financial results. In the fourth quarter, and since, we have made significant progress in building a stronger leadership foundation, developing market and cluster leaders, expanding our marketing and sales expertise by elevating and recruiting talented professionals, and equipping them with better data analytics and tools, and instilling rigor around the key focus areas that will accelerate our ongoing turnaround in this segment. As Danny mentioned, we have taken significant steps in recent months to retool our Senior Living footprint in a way that we believe will generate immediate and long-term benefits. The transaction with Ensign is a one-time pairing of campus based operations, some of which are geographic outliers, allowing us to concentrate leadership efforts on our core opportunities. So far in the first quarter, we are seeing occupancy growth sequentially as our operations continue to win the trust of our new residents and their families. With this leaner Senior Living portfolio, a deepening bench of leaders in the field and service center, a better data and systems, we are confident we can recover lost ground and realize the significant potential in this segment. With that, I'll ask Derek to provide an update on our recent investment activity.

Thanks, Brent. Our fourth quarter was uncharacteristically quiet with no closed acquisitions as we focused on the ongoing transition of the 11 Home Health, Hospice and Home Care agencies, we added earlier in 2021 and the 15 added in 2020, and navigated the impacts of the Omicron surge. We are excited for each of these new operations as they hit their stride in their operating model. As these agencies continue to mature, we are confident they have the potential to grow in ways much like the agencies we've acquired for most of our history, many of which still average 20% or more growth year after year, and paid back our investment many times over. The development of certain recently acquired agencies has been slower than we expected as we work to identify the right leaders for each operation and support them as they build culture and establish rigor around best practices. We are confident these deals are fundamentally sound, and we look forward to driving the growth in 2022 and beyond that will lead to better overall performance in our Home Health and Hospice segment. In addition, our pipeline of potential deals is expanding as we continue to source quality Home Health and Hospice and Senior Living opportunities. And as we continue to execute in our recently acquired operations, we're excited to add new quality operations to the Pennant family. And now, I’ll hand it over to Jen for review of the financials.

Thank you, Derek, and good morning everyone. Detailed financial results for the full-year and three months ended December 31, 2021 are contained in our 10-K and press release filed yesterday. For the full-year ended December 31, 2021, we reported total GAAP revenue of $439.7 million, an increase of $48.7 million or 12.5% over the prior year. GAAP diluted earnings per share of $0.09 and non-GAAP adjusted earnings per diluted share of $0.46. Please note that our non-GAAP adjusted earnings per share results for the full-year and three months ended December 31, 2021 include the benefit of the Medicare sequestration holiday and adjustments for the impairment losses associated with the five Senior Living communities transferring to Ensign. While difficult to perfectly capture all such expenses and lost revenue, we estimate that our full-year and fourth quarter results were negatively impacted by COVID-19 in the amount of $10 million and $2 million respectively in lost revenue and $5.4 million and $2 million respectively in expenses, 90% of which are increases in wage rates and overtime over the prior comparable period. Key metrics for the full-year and three months ended December 31, 2021 include $53.5 million drawn on our revolving line of credit and $5.2 million cash on hand at quarter end, 1.75x net debt-to-adjusted EBITDA and 2.06x if Medicare advanced payments have been paid back as of the quarter end. Automatic recoupment of the advanced payments began in April 2021, on which we have repaid $25 million through February 25, 2022, and we expect to repay the remaining $3 million over time within the payback period. Cash flows provided from operations of $3.6 million, excluding the impact of the automatic recoupment of advanced payments, and $2.8 million impairment included in cost of service primarily related to the five Senior Living communities we are transferring to Ensign affiliates. As Danny mentioned, yesterday in our press release, we provided full year 2022 guidance of revenue of $450 million to $460 million and adjusted earnings per share of $0.60 to $0.72. Our guidance is based on diluted weighted average shares outstanding of approximately 31.6 million and a 26.1% effective tax rate. In addition, the guidance assumes, among other things, anticipated reimbursement rate adjustments, sequestration restarting on July 1, no unannounced acquisitions and the estimated effect of COVID-19. It excludes costs at startup operations, share-based compensation, acquisition-related costs, impairments, and losses associated with the Senior Living communities being transferred to Ensign's affiliates. At the midpoint, our revised 2022 annual guidance reflects an increase of 7.5% in revenue and a 34.7% increase in EPS when 2021 and 2022 results are adjusted as if the disposition of the five Senior Living communities had occurred on January 1, 2021. Our 2022 guidance also includes our read of the current operating environment and considers the lingering headwinds that arose during the fourth quarter, which we are seeing in the first quarter of 2022. While census, staffing, and other operating challenges may continue to affect our first half results, we are confident in our leaders. We are anticipating a 7% to 10% increase in our Home Health and Hospice revenue, some as a result of the rates from the Home Health final rule and some from improved hospice census, and a 4% to 6% increase in Senior Living. Across our organization, our leaders are stronger and more capable of confronting these headwinds than ever before. Our revised guidance reflects confidence that the actions we are taking to emphasize our core opportunities in both lines of business and strengthen the principles of our unique operating model will lead to improvement in our recently acquired agencies, growth in our same-store operations, and healthier performance in our Senior Living business. While incorporating the impacts of increased wage rates and staffing challenges experienced during the latter half of 2021, the midpoint of our guidance anticipates the improvement from our ability to manage costs, improving cost of service rates by approximately 20 to 50 basis points. We are excited for 2022 to return to our historical revenues CAGR of 16% and EBITDA CAGR of 15% plus, which we have experienced and we know is achievable by executing with discipline, persistence, and operational excellence. And with that, I'll hand it back to Brent to highlight a couple of our local leaders.

Thanks, Jen. As we typically do, I'd like to highlight a few leaders that have gone above and beyond in their operations and in supporting their partners throughout the organization. It's my pleasure to share these stories. At Puget Sound Home Health in Pierce and King Counties in Washington, CEO Devin Rothwell; and CCO Shalonda Morton, are achieving exceptional results across the board by building a culture focused on our core values of customer second ownership and intelligent risk-taking. This team first invested in the right individuals that would accelerate the agency's growth trajectory, and then methodically focus on producing quality care outcomes in strategically investing in expanding the service offerings available to the community. Their foundation of clinical quality has led to a 4.5 CMS star rating. The investments in the right people, culture, and providing quality clinical care have helped them achieve revenue growth of 9% and EBIT growth of 46.3% in 2021 over the prior year, which continued a compound annual growth rate of 17.3% since we purchased the agency in 2013. Because of the extraordinary impact on the Puget Sound Community, the agency was awarded three hospice certificates of need in 2020 and '21. The results of Puget Sound Home Health and Hospice are typical of what talented local leaders can achieve through the application of best practices in our operating model. At Pleasant Point Senior Living in Racine, Wisconsin, CEO Tiffany Morth; COO Heather Gillis; and Director of Business Development Christine Gomez, have led the remarkable turnaround of an operation that had a difficult time finding traction in their community during the first several years following acquisition. From the time they arrived, Tiff, Heather, Christine, and their partners in the cluster in the Wisconsin market immediately went to work to change the vision for what Pleasant Point represents. They strategically invested in the community, built a strong local team, added additional talented marketing and sales professionals, some of whom are now supporting sister communities in Wisconsin and elsewhere, and instill the culture centered on our core values of customer second ownership, accountability, and celebration. The combined impact of these and many other actions helped this team drive occupancy from 63.6% in the fourth quarter of 2020 to 96.1% in the fourth quarter of 2021, a remarkable increase of 32.5% during a year that saw many other communities lose residents. This translated into revenue growth of 97% and EBITDAR growth of 348% each in the fourth quarter over the prior year quarter. This incredible transformation is emblematic of what is possible at newly acquired and same store operations under the stewardship of the right leaders. With that, I'll turn it back to Danny.

Thank you, Brent. Now, we'll open it up for questions. Valerie, could you please instruct the audience on the Q&A procedure?

First question comes from Tao Qiu of Stifel. Your line is open.

Hi, good morning. First of all, thank you for providing more disclosure on the same agency and new agency statistics. I think last quarter, you called out the lagging performance of the recently acquired Home Health agencies that contributed to the admission decline there. I think this quarter, we've seen some relative outperformance in Home Health now, but the non-same agency pool was a drag on the hospice side. So could you maybe provide some more context on the bifurcating performance between the two buckets and the unique challenges in scaling up new agencies through the Omicron wave? And how fast do you expect to get performance back on track? Is it a matter of improving labor environment, less reliant on agency labor or maybe making some more investments in the development of few leadership? Just trying to understand what would be some of the positive drivers short-term and medium-term? And how quickly you can get there?

Yes. Thanks for the question, Tao. On these transitioning agencies, we want to make it clear. We're not relying heavily on external labor through agency services. The issues are more related to how we're swaying the market from other referral sources to ours at our normal rate, and other subtle things related to our implementation of systems. And so, we've had more difficulty and a little bit of a more elongated process of taking our bread and butter, which is smaller well-regarded clinical operations that need more infrastructure into them. And so we've seen significant improvement in those during the fourth quarter. And our rate of improvement, we feel like is continuing into the first quarter. And so we feel like we're mostly through that. I don't know if Brent wants to add a little perspective or John Gochnour on that. But we don't see them continuing to be a significant drag in 2022. Having said that, you mentioned the differences between Home Health volumes and Hospice ADC pressures, we are seeing success on the Home Health volume side. We're excited about that. Many of these new acquisitions, but also our existing operations have weathered a fairly challenging hospice ADC environment where we've seen a shift in acuity of the patients coming on service, coming on later in their disease process, more referrals from acute care settings. All of which are positive, but the absence of longer-term residents that may be living in senior housing properties or skilled nursing facilities has made for a little bit of pressure on the hospice ADC front. So we're seeing that persist, as Jen mentioned, in the first quarter. We're anticipating that we'll be able to recover well from that. John or Brent, any color to add there?

I'll just add, Danny. I think what you're seeing, Tao, is our same-store operations, those that have been with us for an extended period of time, those where we've established culture and a place in the community, they performed really well throughout the course of the year. And there was softness in the fourth quarter, but you look across the year, and you see really strong expense management, you see strong growth. With those newer acquisitions, we're still formulating our place in the community. We are often entering into new geographies. And so it just takes a little longer to become the employer of choice, to become the place where referral sources turn. And so you see a little bit more of that margin pressure. I think where you have seen the margin pressure in the fourth quarter is really on account of some changes in the labor environment, where I think everyone has seen the impact that COVID has had from that standpoint. And then the softening in the hospice ADC, which is traditionally for us a little higher margin business, and so that's kind of where that softening is impacting our results. But as Danny mentioned, we couldn't be more optimistic. We have a group of really talented CEOs across our Home Health and Hospice organizations who are weathering a pretty significant Omicron surge, where we saw a lot of people out with illness, both COVID-related and not. And we feel like we're back at full capacity and able to take those referrals and the volume that's out there.

Got you. The second question is about guidance. Given the lingering headwinds in the first quarter you mentioned, when we look at the guidance, if you exclude the $16 million from the five Senior Housing assets you sold, revenue effect essentially flat from the last guidance. I think there are also some positive developments since the last guidance, either from the phasing of the sequester or the increase of the Medicaid rates in a few states. Given the low run rate of 4Q and the softness in 1Q, what assumptions may have changed since the last update to give you this kind of flat guidance versus the last one?

Yes. I'll let Jen provide some details. As I mentioned in my prepared remarks, we have consistently avoided making projections about the impact of COVID surges on our business. This has created a challenging environment for understanding our expected outcomes. With our current guidance, we aimed to clarify our expectations and incorporate our perspective on COVID as we move into 2022. We have considered how COVID affected us in 2021 and anticipated some periodic surges, though we hope they won't be as severe as what we experienced with Delta or Omicron. We are factoring this in to avoid setting expectations that exceed what we can realistically achieve.

So just to speak to some specifics. As you mentioned, the revenue is impacted by the transfer of the Senior Living entities to Ensign. That's about $16 million in revenue and slightly accretive on the bottom line. So I just want to make sure that that is recognized. So in 2021, those entities operated in that loss, slight net loss. So when you adjust 2021, that's part of the adjustment there on the guidance. And then as I talked about, we also incorporated, as Danny just mentioned, the impact that we've seen in our wage increases and other impacts from COVID. So while we are incorporating that, we're also looking at an improvement of, as I mentioned in the prepared remarks, about a 20 to 50 basis point improvement in our cost of service as a percentage of revenue. And just keep in mind that our cost of service as a percentage of revenue in the fourth quarter is impacted by the $2.8 million accounting impairment loss that we took in the fourth quarter related to those five communities. Hopefully, that helps to bridge the gap. The other piece of it is just as we mentioned, the hospice census and the lingering effects on hospice related to Omicron carried forward into the first quarter.

Our next question comes from Scott Fidel of Stephens. Your line is open.

Hi, everyone. Good morning. I wanted to continue on that last discussion. It might be helpful to know that although you don’t provide quarterly guidance, given the challenges posed by the pandemic and the recent adjustments, could you share some insights into how you’re forecasting the first quarter in terms of revenue and EPS? This would give us a better understanding of the starting point for the first quarter and how your guidance is expected to build on that.

Yes. Jen can share some specific information. Generally, we've made a conscious decision to adopt a more conservative stance in our guidance, factoring in ongoing significant cost and revenue pressures from the current operating conditions. We've assessed a difficult fourth quarter as our baseline for expectations in the first and second quarters, with hopes for modest improvement in the second half. We're aware that we've fallen short of our guidance in the past few quarters, and it's troubling that we aren't clearer about our current position and prospects. This conservative approach accounts for uncertainties regarding the recovery of hospice census and our handling of labor issues. We have internal plans we are confident in, focusing on optimizing labor costs while addressing patient needs and adjusting revenue structures. There are opportunities we believe can help mitigate some pressures, but we previously hesitated to project these costs. We've analyzed the past year, considering how various factors impacted our staffing and revenue. We expect that the operating environment in 2022 will be more favorable, and we aim to exceed the expectations we've established. However, this is our current reality, and we've chosen to be conservative. When evaluating our potential for recovery from a challenging 2021 and considering all the internal complexities, including before Omicron, we're genuinely optimistic. In the past, we may have overestimated and assumed a cleaner operational environment. We're making a conscious effort to avoid repeating that mistake from 2021. Jen, do you have any additional insights?

I don't think so, Dan. I believe you've covered it. For our Q1 approach, we examined our performance in Q4 of 2021 and included modest increases as we observed some stabilization in wage rates. We also made sure to factor in all our experiences from 2021, particularly in the fourth quarter, when analyzing our first quarter results. It's also worth mentioning that we had one of our strongest quarters in Senior Living during Q4. Brent, would you like to contribute to that and our growth trajectory?

Yes, we're making progress. It's not quite where we want to be in the near term, but the investments we've made in Senior Living, especially with new leadership and building a solid foundation, take time to yield results, particularly during a pandemic, which adds complexity. We're beginning to see some positive outcomes from those efforts, and 2022 will provide us with the chance to expand on that. We're hopeful but understand the time it will take. It was encouraging to see improvement in Q4 compared to the previous quarter, so we maintain optimism while being realistic about our timeline.

So just to kind of close this out on that point, Scott, we looked at it, and we're expecting a pretty flat sort of quarter-by-quarter is how we did it. As we said, all right, where should we be in the first quarter and without assuming aggressive improvements, which could materialize, right, if COVID lets up a little bit, our teams continue their progress in becoming more effective at navigating surges or flare-ups. But that's kind of where we're expecting is to take that and evenly spread it out throughout the year. And that's our best view of where we're at right now and assuming an endemic view of COVID, we're obviously going to seek to define every avenue of improvement, and there's a lot going into that. But hopefully, that helps.

Yes, I appreciate all the qualitative feedback and your comment about considering the first quarter relative to the fourth quarter and maintaining stability while building on that. I believe that finish is important for setting the expectations for the first quarter. Moving on to another question, I wanted to inquire about the balance sheet and cash flow dynamics. The Medicare advance payment requirements have significantly impacted cash flow visibility over the past few quarters. I want to confirm the status of settling the Medicare advance payments and the normalization of deferred payroll regarding the CARES act. Jen, I think you mentioned there is $3 million left on the Medicare advance payments. Can you confirm that? Additionally, please provide an update on the deferred payroll aspect. Lastly, in the press release, you noted that you expect to see improved cash flows soon. I'm assuming that as we address the issues related to CARES, could you share more insight into how you are viewing cash flows in the reports as we progress through 2021? The main question is your thoughts on the cash flow trajectory for the year.

Yes, we have definitely seen improved cash flow throughout the year. As our acquired operations stabilize, we expect them to generate the cash flows we are used to as we take on new businesses. Additionally, we have $3 million remaining in advanced payments, which we anticipate repaying by the end of June at the latest. The recoupments will continue fully through the end of March, with a smaller amount being deducted starting in April. We will easily pay that back within the expected timeframe, primarily impacting first quarter cash flow. Also, as part of the settlement with the Ensign Group, we will see a $6.5 million cash flow payment associated with that. We will be holding our assets for sale and will receive that cash as a one-time payment. At the end of the year, we have approximately $4.5 million due for the deferral of social security payments. These are the main items that will affect us, along with cash flows for acquisitions and other operating expenses.

High level, we're really pleased with the rate of repayment. That was the one opportunity we took advantage of with the available funds. We've experienced strong cash flow and have been able to pursue our desired deals. There is always a dead period in collections with every new acquisition where we don't collect. Additionally, we've eliminated the RAP. Overall, there has been a lot happening in our collections, but we're pleased to have repaid just over $21 million to $25 million through our regular cash flow processes and are satisfied with our overall cash trajectory.

Understood. And then just one last one for me, just on Senior Living. And actually, it was interesting in the fourth quarter, actually, at least relative to my model. We did certainly see that improvement in SL, even though occupancy did show the pressure in terms of having the better pricing and having that drop to the margin a bit. I think Brent had said during the prepared remarks that you actually have seen some improvement in occupancy in the 1Q, even despite the Omicron effects. If possible, would you maybe be able to give us sort of a spot update on where SL occupancy is trending now in the first quarter? And then, how the guidance is anticipating that occupancy for SL will trend over the course of the year?

Yes. While I can't provide a specific number, we have seen a steady increase in our occupancy numbers since mid-December. Although we were significantly affected by the Omicron variant, the trend of improvement has continued through January, February, and into March, which we’re really excited about. This pattern was similar to what we experienced in 2021, where we encountered challenges in providing guidance due to periods of improvement followed by setbacks that affected staffing and customer confidence. As we navigated these ups and downs, we learned valuable lessons. With the impact of Omicron easing, we are starting to rebound, and we believe this growth will persist. It's not solely due to the reduced COVID impact; we've dedicated a lot of time to enhancing our local teams, improving community relationships, strengthening our marketing and business development efforts, and adjusting our strategies to fill vacancies. We're optimistic and expect to see continued occupancy improvements throughout the year.

So the improvement has been about 100 basis points since mid-December. So that's what we've seen. I'd be lying, Scott, if I didn't say we've provided updates on occupancy just to see them get wiped out by another surge of Omicron or the next thing. And so again, coming kind of back to the guidance approach is we are assuming we're going to feel pressure even though we've made those gains, right? And so if the pressures don't materialize, we should be in a really good position. And what we're focused on is those things that we can control that Brent's mentioned making sure that as we emerge from a tough 2021, where we've implemented on our SOX compliance, we've cut our systems over, can finish that process. We've dealt with pretty extreme operating challenges in the COVID environment. One thing that we're all really excited about is that kind of our adherence to our culture and our team kind of morale across the organization is really, really strong, even having lost team members to COVID and others that we care deeply about. But there's this growing sense of confidence that kind of the worst is behind us and our ability to navigate future difficulties related to COVID is increasing. And so that's the picture. On the occupancy front, we're excited. We're hopeful that some of the neglected preventative care that's been driven may lead to improvements even further from where we're at. But again, until we see those things materialize, we're taking a cautious and a conservative approach.

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

Thank you, Valerie. And I would just want to thank our stakeholders, both inside the organization and outside the organization, shareholders, friends of the organization for supporting us through a very challenging 2021. We've only had a couple of years like this. I remember 2013; that wasn't in a public view, but in 2021 in our 12-year history. And so, it's unusual for us to come up short of our expectations, and we look forward to restoring and building confidence in the organization as we move forward into 2022 and beyond. So thank you for joining us today and thank you to everyone who's involved in helping Pennant be what it is. Take care.

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