Margins and occupancy are on the upswing for Pennant Group (Nasdaq: PNTG), and CEO Brent Guerisoli believes the company’s focus on cultivating “local CEOs” at the community level is a big reason why.
Occupancy for Pennant’s 36 senior living communities ticked up to 78% in the second quarter of 2023, reflecting a gain of 150 basis points over the same period in 2022. Average monthly revenue per occupied room (RevPOR) registered at $3,939 in 2Q23, an increase of 13.5% over 2Q22.
That has led to a “pretty significant ramp in margin improvement and overall bottom-line improvement,” according to Guerisoli.
Pennant currently has a goal of growing its senior living operating margins to 15%, according to CFO Lynette Walbom.
The company’s senior living services segment reported second-quarter revenue of $37.3 million, an increase of 20.3% over the same period in 2022. Pennant’s practice of investing in local community-level leaders primarily drove those results, Guerisoli said.
“It’s because we invested not only in the local leaders,” he added. “But also in each of the markets, there is a team that helps to develop those leaders and to look for acquisition opportunities.”
Earlier this year, Guerisoli said that developing a stable of local leaders was the company’s “number-one priority.” Since then, the company has looked to elevate 100 leaders as community “CEOs,” who “must not only achieve extraordinary clinical outcomes, culture and growth, but also drive significant financial improvement in their operations.”
“Progress in this key initiative is essential, and will be the foundation upon which our growth and success will thrive for many years to come,” he said.
The company is currently about halfway through those efforts, Guerisoli noted, with more leadership development planned after that.
“Once we hit that number, we’re going to get to 200 and beyond that,” he said. “That’s our model for growth for the future.”
While Guerisoli noted some “sensitivity” about new resident rate increases compared with two years ago, he added that the company hasn’t seen any “significant attrition” as a result.
“We’re pretty optimistic that we can drive our occupancy levels back to where we were — and perhaps above the levels that we were — at pre-pandemic,” Guerisoli said.
On the growth front, Pennant added three home health agencies, one hospice agency, two home care agencies and two senior living communities to its operations in a six-month period ending on June 30.
Looking ahead, the company has “plenty of dry powder in our revolver and a robust flow of meaningful acquisition opportunities,” said President and COO John Gochnour. The company’s current acquisition pipeline is more “robust” than at any period in several years, he added.
“Our growth is not the result of arbitrary goals for capital deployment,” Gochnour said. “We focus first on the ‘who,’ making sure that we have the right operational and clinical leadership to make an impact on a new community or market.”
He later added: “We feel like valuations on the senior living side are coming a little bit better into focus.”
Pennant Group’s share value registered at $10.99 as of the end of the day Wednesday, reflecting a decline of about 2%.
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