Earnings Call Transcript - PNTG Q3 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to The Pennant Group Third Quarter 2025 Earnings Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kirk Cheney, Executive Vice President. Please go ahead.

Kirk Cheney, Executive Vice President

Thank you all for joining us today. Alongside me are Brent Guerisoli, our CEO; John Gochnour, our President and COO; and Lynette Walbom, our CFO. Before we start, I want to mention a few housekeeping items. We filed our earnings press release and 10-Q yesterday, and this announcement can be found in the Investor Relations section of our website. A replay of this call will also be accessible on our website until 5:00 p.m. Mountain Time on November 5, 2026. All statements made today are as of November 6, 2025, and will not be updated after this call. Any forward-looking statements today are based on management's current expectations, assumptions, and beliefs about our business and operating environment, and these statements may be subject to risks and uncertainties that could lead to actual results differing significantly. We advise listeners not to place undue reliance on these forward-looking statements and encourage them to review our SEC filings for a thorough discussion of factors that may impact our results. Other than as mandated by federal securities laws, Pennant and its affiliates will not publicly update or revise any forward-looking statements due to new information, future events, or other reasons. It's also important to note that The Pennant Group, Inc. is a holding company with no direct operating assets, employees, or revenues. Our independent operating subsidiaries, collectively referred to as the service center, provide administrative services to the other subsidiaries through contractual agreements. The terms 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 distinct independent companies that have their own management, employees, and assets. References to the consolidated company, its assets and activities, as well as the use of terms like we, us, our, and similar terms do not indicate that The Pennant Group, Inc. possesses direct operating assets, employees, or revenues or that any subsidiaries are operated by The Pennant Group. Additionally, we provide non-GAAP metrics alongside our GAAP reporting. We believe these measures, when viewed in conjunction with our GAAP results, offer a more comprehensive understanding of our business, but they should not be considered as a substitute for GAAP reports. A reconciliation from GAAP to non-GAAP is available in yesterday's press release and in our 10-K. Now, I will hand the call over to Brent Guerisoli, our CEO. Brent?

Brent Guerisoli, CEO

Thanks, Kirk, and welcome, everyone, to our third quarter 2025 earnings call. We are pleased to report another successful quarter with strong results across our business. The third quarter brought new highs in revenue, census, occupancy and earnings even as we prepared for the largest transaction in our history. In Q3, we reported revenues of $229 million, an increase of $48.4 million or 26.8% adjusted EBITDA of $17.3 million, an increase of $2.2 million or 14.5% and adjusted EPS of $0.30, an increase of $0.04 or 15.4% each over the prior year quarter. We closed on the UnitedHealth Amedisys transaction on October 1. We are excited to add these operations to Pennant. The United Amedisys process created a unique opportunity to add high-quality assets in desirable markets at an attractive valuation, rarely seen on larger deals with sophisticated operators. As we've closed the transaction and dived into the businesses, our excitement has only grown. We have met many incredible leaders and team members who are deeply committed to their local communities. In the near term, we are heavily engaged in the complex integration matters that accompany such acquisitions, which we expect to create some lumpiness in results through the transition. But in the longer term, we see immense potential in these operations. Our recent Signature transition gives us a model. Only a year ago, Signature was the largest transaction in our history, completed in 2 tranches from August 2024 to January 2025 with locations across 3 states. The Signature acquisition was similar in many respects to this most recent deal. Signature enjoyed a deserved reputation as a quality operator, and we saw that we could build on their legacy through The Pennant model. Signature's transition has been a tremendous success. We have seen former Signature leaders enthusiastically embrace The Pennant model and culture and lift their operations to new heights. They have expressed how they now feel unlocked, capable of owning their operations and empowered to grow. Thanks to the efforts of these leaders, along with new leaders developed in our training program, the acquired Signature operations have outpaced our financial expectations while maintaining or improving their clinical and quality metrics. In much the same way, we expect that over time, these new operations we've acquired in the Southeast will demonstrate that The Pennant model adds value not only to turnaround situations, but to stable, solidly performing operations. Over the past several years, our focus has been on recruiting and developing great leaders and continuously improving our transitions. As a result, we have delivered increasingly strong performance in our recent acquisitions, and we now see this powerful flywheel continuing to accelerate. Across senior living, hospice and home health, our local leaders have consistently stepped up to the operating challenges in their communities by directly controlling outcomes and relentlessly driving improvement. At present, the uncertainty surrounding the 2026 home health rule has cast a pall over the industry, but Pennant is not a passive index tied to home health reimbursement rates with less than 20% of our revenue arising from Medicare home health fee-for-service reimbursement. We are a diversified post-acute provider with strength across hospice, senior living and home health. And more importantly, we are a locally driven leadership company that empowers leaders to adapt proactively to external challenges. We will continue to advocate against the proposed rule as bad for patients, providers and taxpayers. Ultimately, we will respond operationally to the outcome of the final rule, and we believe that home health care will continue to play a vital role in the post-acute continuum for many years to come. We are positioned to be at the forefront of that care and remain invested in driving growth in home health, along with the growth we foresee in our hospice and senior living operations. Based on the sustained momentum in our businesses and the addition of the operations in the Southeast, we are again raising annual earnings guidance. We anticipate full year revenue of $911.4 million to $948.6 million, adjusted EBITDA of $70.9 million to $73.8 million and adjusted earnings per share of $1.14 to $1.18. The earnings per share midpoint of $1.16 represents a 23.4% increase over our 2024 earnings per share. With that, I'll turn the call over to John to provide more detail on our third quarter operational results.

John Gochnour, President and COO

Thank you, Brent, and good morning, everyone. Q3 brought strong performance in both operating segments. Our Home Health and Hospice segment continued to drive record-breaking clinical and financial results. Segment revenue of $173.6 million increased $37.9 million or 27.9% and segment adjusted EBITDA of $26.8 million increased $5 million or 22.7% each over the prior year quarter. This was fueled by continued robust organic growth, coupled with continued execution on successful transitions. Our local leaders continue to demonstrate their ability to operate successfully through dynamic markets and conditions. As we have consistently said, our clinical results are the foundation of strong and lasting financial performance. In Q3, we saw an average CMS reported star rating of 4.1 compared with the industry average of 3 stars. Potentially preventable hospitalizations decreased to 8.4%, well below the national average of 9.9%. CMS reported hospice quality composite score improved to 97%, well above the national average of 92%. In short, our unique model of empowering local clinical leaders to make key decisions and support their teams based on local community needs continues to drive clinical outperformance. The impact of this clinical excellence continues to be demonstrated in our strong growth. Total home health admissions of 20,426 represent an increase of 36.2%. Same-store admissions increased 7% and revenue per episode increased 2.9% each over the prior year quarter. Our hospice business generated similar momentum as average daily census increased 17.4%. Hospice admissions increased 16.6%, same-store average daily census increased 6.1% and average revenue per day increased 3.3%, each over the prior year quarter. We see significant opportunity for growth in our existing operations and an ability to add hospices to the many home health agencies we have recently acquired that currently lack an overlapping hospice operation. The momentum in our senior living business is significant as the multiyear growth story in this segment continues to unfold. Senior Living segment revenue of $55.5 million is up 23.2% over the prior year quarter and 3.7% sequentially. Adjusted EBITDA of $5.6 million has increased 26.2% over the prior year and 8.4% sequentially. Segment adjusted EBITDA margin increased 50 basis points over the prior year quarter, reaching a new post-pandemic high of 10.3% and continuing its path toward our target segment margin of 15%. Same-store occupancy reached a new high of 81.8% and all-store occupancy also passed the 80% mark at 80.9%. This record occupancy represents a major milestone, especially because it was achieved alongside 7.4% year-over-year rate growth, following several years of high single-digit or low double-digit increases. Notwithstanding all of this progress, we're far from satisfied. As we continue to drive occupancy with high revenue quality, having covered the fixed costs in our communities, the opportunity for incremental margin expands dramatically. The latent upside in this segment remains significant. Just as we continuously invest in future operational leaders to fuel our growth, throughout the year, we have invested significantly in our service center. We recognize that we must have the right people and technology to execute well on our critical transitions and that attracting talented individuals to join us is an essential component of our future success. The return on these investments becomes clear when you look at the accretive results of our recent acquisitions, along with our strong organic growth. We expect G&A expense to remain slightly elevated during this period of transition. But as the revenue and earnings from the latest acquisitions come online, we expect to see economies of scale on these front-loaded investments in people and technology and return back to historical levels. On the regulatory front, we will experience positive revenue adjustment of approximately 2.6% related to the hospice final rule beginning on October 1, 2025. The home health final rule has not been issued. We expect it to arrive in the coming weeks. We cannot predict whether the delay is a positive sign, signaling that CMS went back to the drawing board to make much needed changes or whether it is solely related to the government shutdown, but we can say this with certainty. During this rule-making cycle, policymakers, including CMS, legislators and others have become more aware of the harmful and self-defeating impacts that the proposed rule would have on the American health care continuum. If implemented, the proposed rule would undermine the lowest cost setting most preferred by patients. It would force agency closures and consolidation and it would increase hospital visits and aggregate Medicare spend. In short, it would be bad policy. We are hopeful that the final rule will recognize this in some fashion. But if not, we have worked with industry partners to craft contingency plans and will continue to advocate assertively for a legislative solution. Regardless, our focus remains intently on controlling the things we can control, and each of our operators has prepared plans at the local level to adapt to the cuts and take advantage of the opportunities created by reimbursement down cycles. They are reacting nimbly and will continue to drive improvement and growth as they have through the last 3 years of weak reimbursement and rising costs. Health care reimbursement is cyclical, and we have unshaken faith in the long-term value of home health services. The long-term trend is toward more care in the home. That's what patients want and what makes the most sense for our nation. Over time, we believe rates will reflect that. Turning to growth. It's been a busy and productive quarter. In addition to the GranCare acquisition in Southern California, which closed on July 1 and which we discussed in our Q2 earnings call. In September, we closed on a single-site agency in Gillette, Wyoming called Healing Hearts Home Health and Healing Hearts Outpatient Therapy. After quarter end, we completed 2 senior living transactions, each of which included the acquisition of the associated real estate. On November 1, we acquired Two Rivers Senior Living in Lewiston, Idaho, which adds an exciting opportunity near our well-established home health and hospice agencies. On November 4, we purchased Honey Creek Heights Senior Living in West Dallas, Wisconsin. This was an underperforming building with serious issues impacting the license and the continued viability of the operations. We stepped in under a management agreement, collaborated with the state, cleared up the outstanding issues and most importantly, restored dignity and joy to the residents. We've now formally purchased the operation and the related real estate and look forward to providing a quality home for residents in West Dallas for many years to come. Much of the quarter was spent preparing for the October 1 closing of the United Amedisys acquisition in Tennessee, Georgia and Alabama. This purchase includes 54 locations with combined trailing 12-month revenues of $189.3 million for a purchase price of $146.5 million. The trailing 12-month EBITDA reflects a purchase price multiple comfortably within our target range of 4x to 7x for home health acquisitions, which we view as attractive for a large and well-operated platform comprised of roughly 70% home health and 30% hospice revenues, primarily in certificate of need states. As we've shared many times previously, we typically expect acquisitions to be optimized within 9 quarters, and we anticipate some variability of results during that interim. That said, our transition efforts are well underway, and we are excited by the quality of leaders, team members and operations. Much like our Signature transition, we will build on the local strength, community ties and long history of success of these operations in the region. These new operations have already joined clusters with seasoned and successful tenant operators to help implement the unique tenant model. We are bullish on the long-term potential of these operations and the additional expansion they will enable in the Southeastern United States for years to come. Market forces and our own reputation as a quality buyer continue to drive a very robust pipeline of acquisition opportunities in all of our segments. As I just discussed, our focus is on successfully integrating our recent acquisitions. We will maintain discipline, and we will not compromise the priority of those efforts, but remain open to additional hospice and home health opportunities. We also see many potential transactions in the senior living space that fit our acquisition criteria and our senior living leaders will continue to prudently pursue growth in that segment.

Lynette Walbom, CFO

Thank you, John, and good morning, everyone. Detailed financial results for the 3 months ended September 30, 2025, are contained in our 10-Q and press release filed yesterday. For the quarter ended September 30, 2025, we reported total GAAP revenue of $229 million, adjusted EBITDA of $17.3 million, GAAP diluted earnings per share of $0.17 and adjusted diluted earnings per share of $0.30. This week, we closed on an amendment that added a $100 million term loan to our credit facility. We consider this prudent balance sheet management. As described in more detail in the 8-K and press release we issued yesterday, this amendment frees up additional capacity under our revolver and provides dry powder to deploy when appropriate. Key metrics for the 3 months ended September 30, 2025, include $30.2 million drawn on our revolving line of credit and $2.3 million in cash on hand at quarter end. 0.38x net debt to adjusted EBITDA and cash flows provided from operations of $27.3 million year-to-date, including $13.9 million in Q3. Our year-to-date results and the impact of our purchase of United Amedisys assets merit an increase in our full year guidance. Accordingly, we are revising and raising our full year 2025 guidance as follows: Full year total revenue is anticipated to be between $911.4 million and $948.6 million, full year adjusted earnings per diluted share between $1.14 and $1.18 and full year adjusted EBITDA between $70.9 million and $73.8 million. This updated guidance incorporates current operations and organic growth, diluted weighted average shares outstanding of approximately 35.7 million and a 26% effective tax rate. It anticipates continued strong operating performance through the end of the year, hospice reimbursement rate adjustments, increased interest expense and contributions from announced acquisitions that exclude unannounced acquisitions, start-ups, share-based compensation, acquisition-related costs, one-time implementation and unusual costs and non-controlling interest income.

Brent Guerisoli, CEO

I would like to highlight some of our organization's leaders who have achieved outstanding results. Their experiences illustrate the significant advancements that can be made when local leaders foster a strong culture and cultivate high-performing teams of top executives. Zion's Way Home Health and Hospice in Southern Utah and Northern Arizona is building a legacy of excellence under the leadership of CEO Courtney Matthews, CMO Justin Hofer, Home Health CCO Jeremy Green, Hospice CCO Jason Olson, COO Chad Jensen, and future COO Alexis Cutler. Together with other key branch leaders, Zion's Way serves as an essential resource for communities in its service area. In 2025, the Zion's Way team has again broken records in clinical performance, culture, finances, and community engagement. Each Zion's Way location achieved 5-star ratings for clinical quality, with potentially preventable hospitalizations below 3.5% compared to a national average of 9.9%. Their investment in leadership has fostered a world-class employee experience reflected in a turnover rate of 15% and an impressive employee engagement score of 93%. These clinical and cultural achievements have driven their financial performance in 2025, with revenue increasing by 11% and EBITDA rising by 34% from the previous year. While these results are remarkable for 2025, the story of Zion's Way illustrates the unique value generation capability of our model for local leaders over the long haul. We acquired Zion's Way in 2012 as one of our initial home health and hospice acquisitions. From its first full year of operations in 2013 to its projected results for 2025, Zion's Way has achieved a compounded annual growth rate of 27% and expanded from 2 locations to 8, reflecting the trust and confidence of the community. On the senior living side, Lo-Har Senior Living has become a preferred community in Southern California, led by future CEO Jonathan Wheeler and future CCO Yoana Torres. The Lo-Har team has fostered an enjoyable and welcoming environment, consistently achieving 100% occupancy. Their investment in employee experience has resulted in a notable employee engagement score of 92% and a 20% reduction in turnover year-over-year. High employee engagement translates to strong operational results, and Lo-Har exemplifies this with revenue growth of 16% and a staggering 306% increase in EBITDA year-over-year. Moreover, the Lo-Har team actively partners with peer operations across the California market, contributing to overall improvements. Jonathan and Yolanda truly embody our core principles of accountability and ownership. I will now turn the call back over to Brent for final comments. Thanks, Lynette. As we conclude, I'd like to thank all the operators and clinicians who, like those highlighted above, dedicate themselves daily to providing life-changing service to our patients and residents. You are truly making a difference in the lives and communities we serve, and it is an honor to work alongside you. With that, we'll open it up for questions. Kevin, can you please instruct the...

Operator, Operator

Our first question comes from Brian Tanquilut with Jefferies.

Unknown Analyst, Analyst

This is Megan Holz on for Brian Tanquilut. Congratulations on closing the Amedisys transaction and starting there. Now that you're a month in, what are some of your top priorities for integration, including the joint venture with the University of Tennessee? Also, how should we consider these assets contributing to earnings in 2026?

Brent Guerisoli, CEO

Yes, Megan, thanks for the question. We're really, really excited about what we've found as we've gotten a chance to get into the operations and work closely with the teams out there. There's an amazing group of talented leaders, clinicians and staff, and it's been fun for our teams. And we've got folks from across the organization, owners who are anxious to help those agencies implement the payment model successfully. Our focus right now is, first, identifying and elevating leaders into our model where we've got an Executive Director and a clinical director in each local community able to meet the needs of that community. So that's sort of our first in the order of operations. Our second, of course, we're focused on ensuring that these agencies receive exceptional support. So we are building a shared services organization that can ensure that the services they historically have received from Amedisys and from United through LHC that they experience no diminishment in those services. The third thing I'd highlight, and you called it out, the University of Tennessee joint venture. It's a really exciting joint venture with a lot of potential. We just had our first Board meeting out there, and there's a strong sense of support from the University of Tennessee, there's strong engagement in both hospice and home health. And so we're excited to add that to our JVs in California and our relationship with Hartford in Connecticut to allow us to continue to innovate clinically, to continue to produce outstanding financial results and to drive improvement in the legacy of what they've already created. So that's always sort of where we start is with leadership and then, of course, implementing our systems and processes. The transition, we expect it to be completed by the end of Q3 next year. And so we've got a transition services agreement in place for that period. And then we are gradually pulling each of those locations off of their systems and onto ours. As far as contribution, initially, we anticipate relatively light contribution in the fourth quarter. That's simply because we continue to have elevated costs associated with the transition and then bringing those businesses on and having a full picture of their performance will help us provide better guidance. In 2026, as we look forward, those businesses are currently performing about a 12.5% margin. We anticipate a modest decline as we go through a brand change as we go through a Homecare Homebase reimplementation into our tenant and as we gradually wean off of the transition services agreement. So we anticipate them performing between 9.5% and 11% in 2026. So that gives you a little bit of an idea. We're not guiding yet because we expect to have more clarity as we spend more time with the business and go through several month-end closes through the fourth quarter. But that's the way we're thinking about it right now.

Unknown Analyst, Analyst

Okay. And then for my follow-up, looking at the senior housing, you've seen strong momentum and occupancy approaches levels where operating leverage becomes more pronounced. I guess how should we be thinking about the trajectory of margins going forward in that business?

Brent Guerisoli, CEO

Yes, that's a great question. It's really about adding occupancy, which we believe will lead to greater contributions to the bottom line. Over the past few years, our emphasis has been on rebuilding our foundation and returning to pre-pandemic occupancy levels. We're quite optimistic about the margin potential in this area. This year, we've faced some challenges due to the decline of ARPA funding, which meant we likely would have experienced higher margins under normal circumstances. However, due to these challenges and other labor-related issues, margins haven't improved as much as we anticipated. As occupancy continues to increase, we expect to see incremental improvements in our bottom line margins as well.

Operator, Operator

Our next question comes from Stephen Baxter with Wells Fargo.

Unknown Analyst, Analyst

This is Mitchell on for Steve. Regarding the margin guidance, your earlier estimate suggested that EBITDA margins would improve year-over-year in the second half, but the updated forecast appears more stable. I understand you mentioned general and administrative expenses, but I would like to know if there are any other factors to consider, particularly concerning the core business.

Lynette Walbom, CFO

Yes. When we look at that, the other piece that needs to be factored in is NCI. We continue to have the NCI growth as we add this JV. And so because we back out NCI or it backed out in this guidance, that's also another piece that is impacting that EBITDA margin. So when you consider the NCI through the third quarter was $2.4 million, and we're anticipating about $1.9 million in NCI in Q4 impacting that EBITDA margin. And so I think that's the piece that's missing and maybe you look at it.

Unknown Analyst, Analyst

Got it. Very helpful. And then maybe just one more on same-store hospice length of stay. It appears to have increased year-over-year in each of the past 3 quarters. Is there anything you'd call out that's driving that? And just how are you thinking about that going forward?

Brent Guerisoli, CEO

Yes. I appreciate the question, Mitchell. And really, what I would point out is we continue to return closer and closer to pre-pandemic levels. And this really is about where is the location of our patients who are receiving services. Historically, we had a very good mix between assisted living communities, senior skilled nursing facilities. And then, of course, most of our care is delivered in the home. We've seen a small tick-up in the percent of care that's delivered in assisted living. We're really excited about where we sit from a length of stay standpoint. It reflects continued work to identify patients that are appropriate earlier in the process and allowing them to receive the benefits of hospice for a longer time. And that's why you can see the strength of our ADC on top of our strong admission momentum, both organically and with our new transitions. But that's really what's driving it, is just a very modest uptick in the percent of our hospice patients that are housed in senior living communities.

Operator, Operator

Our next question comes from David MacDonald with Truist.

David MacDonald, Analyst

A couple of quick questions. One, just coming back to the Amedisys deal. That deal obviously took kind of a uniquely long time to close. I'm just curious if you could talk a little bit about the employees, what you're seeing in terms of just excitement that they now have visibility in terms of where those assets have landed. Just anything that you can talk about in terms of the reception that you're getting internally in terms of the assets that you picked up?

Brent Guerisoli, CEO

I appreciate your question, David. It has been truly remarkable to be involved in the process leading up to the end of September, when we gathered operators and key resources from our organization to connect with teams through town halls. We listened to their experiences, both historically and during the transition, and answered questions about our identity. Our web and media team excelled at creating a website to provide consistent information, including videos and frequently asked questions updates. Our aim throughout this transition has been to maintain transparency and responsiveness to employees, as we believe that fostering a world-class employee experience will attract and retain the best talent, enabling us to grow and positively impact our community. Throughout this transition, we've encountered an impressive group of individuals, many with over ten years of service, including a dedicated team of clinicians committed to their communities, who have embraced Pennant's locally driven operating model. This has been exciting, and it contributes to our optimism. Despite challenges like introducing new brands and undergoing an HCHB transition, we have not encountered significant turnover. We are committed to helping our people understand what life at Pennant will be like, and we hope to keep these outstanding teams together and build upon their legacy.

John Gochnour, President and COO

I would like to add one more thought. What has been really impressive about this group of leaders and their teams is that even amidst all the chaos, this process has been ongoing for a long time. They have continued to perform at a high level with very little, if any, decline in census, financial performance, or clinical performance. This speaks volumes about the teams involved. In many ways, they are like us; they are passionate about serving their communities and reflect the people in those communities. They take great pride in their work. We have inherited a remarkable group of operators who genuinely want to make a difference. This is another aspect to consider, as we might have anticipated a decline, but instead, they have continued to perform well.

David MacDonald, Analyst

Okay. And then just one other quick follow-up. If we look at the occupancy in senior living year-over-year, the growth in occupancy accelerated pretty nicely in the third quarter relative to the second quarter. Is there anything that you guys would call out in terms of stuff that you've been doing that is incrementally resonating? Or is that just kind of a little bit of ongoing growth? Just anything you would call out there just given the sequential improvement.

Brent Guerisoli, CEO

Yes, I believe our steady investments over the years have played a crucial role. Primarily, we've focused on enhancing our leadership teams. When we have strong leaders and team members, occupancy tends to improve rapidly as they create a positive experience for residents and engage with the community. By investing in local leaders, we've effectively increased occupancy rates. Additionally, we've made significant capital expenditures on many of our buildings over the past few years to upgrade them to our expected standards and to foster a welcoming ambiance for residents. We've also worked on balancing our revenue per occupied unit with occupancy levels. While enhancing revenue quality has somewhat flattened occupancy growth, our revenue quality is now quite strong. This allows us to concentrate more on improving occupancy rather than just shifting low revenue quality to better levels. Another key aspect has been our enhanced digital marketing strategies. We've invested heavily in refining our community outreach, completely overhauling our brand websites to create a localized brand experience that resonates well with communities. Our lead capture method has also become more refined, and we’ve increased our marketing budget, resulting in better outreach. Overall, we are improving across the board in these areas, and we are beginning to see the positive momentum take shape.

Operator, Operator

Our next question comes from Raj Kumar with Stephens.

Raj Kumar, Analyst

I appreciate the commentary on prudent growth within senior living. Maybe just kind of touching upon that. There seems to be kind of increased activity amongst just market participants on the M&A front on that end. And Pennant has also made incremental investments throughout this year. So maybe just kind of any update on what you're kind of seeing from a market participant standpoint and a competitive standpoint on SO deals that you might be going after? And what's kind of the pricing environment looking like on that end and whether or not you're kind of seeing anything that's kind of outsized and beyond your comfort level and you're seeing any trends on that front?

Brent Guerisoli, CEO

Yes, Raj, I would say there is currently a lot of activity in the senior living sector concerning acquisition opportunities. The pricing varies significantly. There are many opportunities outside our comfort zone, but there are also numerous opportunities well within our target range. We're enthusiastic about our future and the strong pipeline we have at the moment. We've discussed this extensively—our main focus is finding outstanding leaders and getting them ready to take on these opportunities. That's the biggest challenge we face. There are many opportunities available, and we have the largest pipeline of CITs we’ve ever had in both home health and hospice as well as senior living. From that perspective, we are prepared for these deals. Regarding competition, there is indeed more noise and a growing number of players interested in this area. However, the number of deals has also increased. While we face competition in pursuing opportunities, we have a unique profile. In many of these deals, we have established relationships with certain brokers or groups who have worked with us before and are eager for us to be involved. It has become evident over the past five years, especially during COVID, that being an effective operator is essential for success in senior living. As we showcase our operational excellence, we attract interest from others who believe in our ability to provide high-quality care and establish a solid presence in those facilities. This reputation grants us opportunities that others may not have. We are looking forward to our pipeline and recognize the many opportunities ahead as we continue to strive for growth. On the real estate side, we recently acquired two properties, bringing our total to six. Approximately 10% of our buildings are now owned by us, which we see as an important lever for future growth. We are taking a cautious approach to ensure we do this correctly and create value. As this strategy proves effective, we plan to continue investing prudently in real estate to facilitate our growth.

Raj Kumar, Analyst

Got it. And then maybe as my follow-up, just kind of focusing on the Amedisys assets. I know the profile of the deal has kind of changed throughout its inception. But maybe as we kind of look at what the identifiable synergies are from a baseline perspective, are you kind of willing to size that opportunity? And in terms of where you're seeing it is kind of on the cost front or the contracting front with payers? Just kind of any color on that would be great.

Brent Guerisoli, CEO

I see opportunities in several areas. Firstly, we aim to improve our margins to meet our target. While we anticipate some softness in margins during the transition, we believe that, similar to our experience with Signature, transparently sharing data with local operators and creating aligned incentive structures will help us enhance margins over time. Secondly, there is significant potential for growth. In many communities, we find a lack of local solutions, with only large regional and national players present. We believe we can become the preferred local solution, which could increase our market share. Lastly, I view this as a starting point. Across the Southeast, we see an opportunity to leverage the Pennant experience and model to improve outcomes in the states we operate in. Regarding contracting, we are optimistic and have started discussions with payers. While we see potential there, it's still early in the process, and I don't want to overstate expectations for significant rate changes just yet. However, our clinical quality, especially the data on preventable hospitalizations we discussed today, positions us uniquely to offer lower overall costs to payers. We’re confident as we enter negotiations, but it is still too early to predict the outcomes accurately.

Operator, Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Brent for any further remarks.

Brent Guerisoli, CEO

All right. Well, thank you, Kevin, and thank you, everyone, for joining us today.

Operator, Operator

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.