The Pennant Group, Inc. (PNTG) Earnings Call Transcript & Summary

Okay. Great. Well, thank you, and welcome to day 3 of the Stephens Annual Investment Conference live and in person in Nashville. I'm Scott Fidel, I'm the health care services analyst with Stephens. And we're delighted to have our first panel this morning with the Pennant Group. The Pennant Group is an operator of both Home Health and Hospice, agencies and Senior Living and Assisted Living facilities and the company has been really ramping up their platform in the last several years. Delighted to have the full senior management team with us today. We've got Danny Walker, the CEO; John Gutter, the COO; Jen Freeman, the Chief Financial Officer; and Derek Bunker, over there on the left, the Chief Investment Officer. So first of all, great to see you all. Thanks so much for joining us here in Nashville today. It's great to see you all in person. I thought before we get into the Q&A, Danny, maybe I'll just sort of pass it over to you if you wanted to just for folks that aren't familiar with the Pennant Group, provide an introduction to the company and if there's any initial high-level comments you wanted to make.

Great. Yes. Thank you, Scott, and it's good to be here in person. Thanks for being here. So the Pennant Group spun off from a company called the Ensign Group in 2019. Previous to that, we had been building a Home Health and Hospice and Senior Housing portfolio company within the Ensign Group, following kind of the operating philosophy that has existed there, which basically is this, that health care is a local business and that we build our organization and what we refer to as the cluster model where there's an enormous amount of peer accountability across local operations. Where they share best practices, they support one another in their day-to-day operational responsibilities. And so our operators have this freedom and flexibility of a mom-and-pop kind of operation, and that's really where the highest degree of trust is built in the health care, particularly, in the post-acute spectrum. People don't frequently refer people to a national brand when they're talking about getting post-acute health care, they refer to them -- they refer them to people that they know in the local market who have credibility. And so we're in the process of building these local teams that can attract talent, be the employer of choice and then, of course, take care of patients and residents in the most effective way. So we like to say we have the freedom and flexibility of the mom-and-pop operator in the local market and all the resources of a large healthy organization in the -- across the spectrum. If you zoom out and just look at us, home health and hospice industries are very fragmented, senior housing is very fragmented. And we view ourselves as a prime consolidator of those operations across the country. We're operating in 14 states right now. We have 88 Home Health and Hospice operations and 54 Senior Living operations. A final note, the pandemic has been obviously a big deal. We are positioned right in the space where you're going to see increased demographic need in the post-acute senior care world. We really like the industries that we're in. The pandemic has been much more challenging for our Senior Living business. And overall, I would say the pandemic's effects have been uneven across markets. In 2020, it was a fairly -- is actually a positive for us in some regards. But in 2021, there was kind of two really distinct peaks of cases in our states that we operate in, and it was a drag for us. We're well positioned as we go into 2022. We've confronted a lot of significant challenges in the labor environment. And we're really excited about where we stand as it relates to the demographic trends where things are at related to the health of our organization. When you look at the kind of strain that the pandemic has created on real lives. We've lost staff members. We -- our team members go on a daily basis into a really challenging environment. Obviously, we've had patients and residents affected. And for us, there's an important long game that's going on. And we want to make sure that we come through this with people's belief in our organization and in the services that we provide intact, and we feel really good about that process about where we're at. So overall, we're in a healthy place. We're in a bad weather situation, if you were to kind of describe it that way. And we're really focused on making sure that, that helps stays intact, and we put ourselves in a position to continue our growth story into 2022 and '23.

All right. Great. Why don't we start just with the big picture around the company and drill a bit to the corporate structure. And one key aspect of Pennant is that obviously, you operate both the Home Health and Hospice business and then the Senior Living business as well. So one of the questions, frankly, I get from investors quite often when they're starting to do their research on Pennant is what -- talk about the value of having the two -- those two assets combined under one corporate structure in terms of what are the synergies that you see from that? And sort of how does that drive stronger long-term value creation relative to have them separate? So I would love to ask your thoughts on that.

I'm sure others will want to chime in as well. But once a patient leaves -- goes through any kind of health care event often they come into this post-acute world. And within that post-acute space, you have skilled nursing, which is kind of the highest level of care in the post-acute space or inpatient rehab of some sort. And then from there, there's a whole array of different services. Senior housing is a natural next step for people. Home health is -- can be layered on top of senior housing. So when a resident is in a senior living or assisted living, independent living operation that becomes their primary residence, it's as though it's their home. And so home health and hospice services can come into that facility and provide additional levels of care. And so what we see is we're increasingly positioning ourselves to manage patient lives. So when they come out of a hospital, the hospital wants them to be able to stay out of the hospital and get their needs met, regardless of changes of condition. And so when you layer on top of it, senior housing, both assisted living, independent living, memory care, all three of those, plus Home Health and Hospice, that combination -- there's a constant ecosystem of referrals and cross referrals and cross supportive relationships that we leverage. I don't know, John, do you want to add anything to that or Derek?

I'll add just a couple of thoughts, Danny. I think one thing that I would emphasize also is our relationship with our partners at Ensign through the Ensign Pennant Care Continuum, which really fills out that skilled nursing facility, Home Health and Hospice, assisted living facility continuum. I think we see so much value in being able to improve our residents and patients' quality of life, allowing them to age in place. And that's where our history as a medical services provider, I think, differentiates us in the senior living world. And so we combine that with our home health patients that naturally, at times, have needs that require them to go to an elevated setting. And so we have this unique sort of symbiotic relationship where we can ensure that our patients are in the right setting at the right time. And I think that's where there's true value in our structure.

There's a couple of other things. Those are the main points, but just there's a handful of other kind of secondary impacts from combining these two similar related businesses. Our model is very entrepreneurial. So we attract a lot of leaders from both within health care, but even from with outside of health care, they're seeking an opportunity to grow a business, to be a leader of a team and to have potential upside and to develop a culture that is their own with expert resources. And what we've found, even within Ensign, was as we create more opportunities for these leaders, it differentiates us as a recruiter, as a retainer and as a developer of talent. They have different pathways as they enter our organization. It's not just a very kind of clear hierarchical, they can -- there is that path to, but there's others. We've -- a lot of us here at this table and others within the organization have taken different paths within the organization. We've come to the organization for a part of that reason. So we found that a big benefit clinically is another big benefit as well for our Senior Living to tap into the clinical expertise of our Home Health Hospice business and the clinicians there. And then vice versa on the home health side. John, Danny, kind of mentioned it, but to be able to see a different perspective on the business and to have the direct feedback of a potential referral source is critical. It helps us be a better Home Health Hospice operator, just as it does help us be a better Senior Living operator as we have this insight from our peers. So there's a lot there but...

Very helpful. I appreciate that a lot. Right, maybe we could just spend a little bit of time just talking about some of the business trends in the operating environment, clearly, been very fluid, right, for a sustained period of time. I guess that when we look most recently, some of the key dynamics have been that COVID cases generally nationally have sort of unfortunately troughed out and picked up a bit again. Obviously, we've got Omicron we all know is here, and those numbers are going to start to rise. So clearly, that's something everybody is aware of. And then clearly, the labor environment is obviously just a huge area of focus for everyone in the industry. So maybe we can unpack that dynamic a little bit. Got a few different sort of topics we can maybe hit on. Maybe if we can start, though, on the third quarter call, you had given us some initial sort of 4Q visibility around October to talk about admissions in home health having been up around 9% or so from September -- maybe if you can try to fill up on to the extent you can on sort of how trends been evolving since then, if there's any updates on November, for example, that you can give us about the business, that would be great.

So I think what you're seeing, Scott, we were really pleased with sort of the transition back. We were hit hard during that second peak in several of our key markets, in the Intermountain West. We're very strong there, and they were hit hard by COVID. And so we saw that tick back up in October. It's still early. Admits are still coming in from November into the system. But what we're seeing is a continuation of that. From an ADC standpoint, we're very, very pleased with where we're at from an admit standpoint, it's right where we would expect it to be adjusted a little bit for the seasonality of November. But that trend has continued, and we're excited about where we stand on the Home Health side.

Good. Okay. Good. So it sounds like at least relative to the framework that you have provided on the 3Q call when you updated your outlook, it sounds like the backdrop is still consistent with how you're envisioning it at that time.

That's right. And cases in those Intermountain states have continued to trend relatively down -- flat and down. And so that's opened up elective procedures into the hospitals where previously they weren't available for an extended stretch during Q3.

Okay. All right. Maybe -- and so that was a bit of an update on the Home Health side. Any commentary on the Senior Living side in terms of what trends have been looking like more recently?

Yes, I can add and John supplement, but the trends are pretty consistent with what we mentioned in the third quarter. We've tracked Senior Living occupancy seems to follow COVID cases pretty directly as a kind of a lag measure, and as cases have come down since the Delta spike. We saw sort of a trough of occupancy decline from that -- early September decline that started. For us, it's been -- the labor market is, I don't want to say stabilized, but it's been better than the third quarter. When the mandates were announced, when the cases were spiking, we had about 7x the number of employees that entered quarantine in the third quarter compared to the second quarter. It was a pretty acute kind of labor impact there. And fourth quarter is better, which we expected. And there are some improvements we've been making locally to ensure that we're addressing that challenge head-on being the employer of choice. The other piece of our business that we had talked about, but was addressing the occupancy challenge through rate increases. We've made a pretty concerted effort across all of our senior living operations to more appropriately peg the room and board and the rate care revenue levels to our actual expenses and are improving. And you'll see that pick up in the fourth quarter on like a revenue per room basis. And that should probably be a start. We're going to keep revisiting that. We finally have good data on all this, and it's reflecting in the rates that we're able to charge. So despite the occupancy pressure revenue should be better in the fourth quarter there. So there's more there, but those are sort of the headline things and just kind of peaking backing off of what we previewed and talked about on our last earnings call.

And just as a follow-up to that, any way you can potentially quantify some of the price increases or the rates that you're trying to put in on the Senior Living side and sort of what your -- maybe what the underlying wage inflation looks like against that?

Yes. So in our projections, especially for 2022, we're including a revenue increase of about 4% for rates on the Senior Living side and then also including some increased incentives. So with sensitivity around the state of the Senior Living business as well as the impact of COVID. So all in all, growth in revenue on the senior Living Side is about 80%. When we look at wage pressure taking what we're experiencing currently and projecting it into 2022 with some -- a little bit of or moderate, I would say, improvement because in the third quarter, we had -- because of the employees that we had out, we had a lot of overtime. So the rate was increased by overtime. We're also seeing increased rates that we're paying. But it has it consistent with what Derek said stabilized. So we did see -- we have seen an increase in the fourth quarter in comparison to the third quarter, but it's minimal in comparison to what we experienced from Q2 to Q3.

And as you started rate increases in, how has the persistency been on? Are you -- do you feel like you're being able to put those price increases through and not having an impact on the occupancy?

Yes. I mean overall, families residents, there's a recognition, I think, in the market in general that senior housing, in particular, is not the same as it was 2 years ago. And I think the response in the local communities has been very favorable, is how I would couch it. You always worry, right, that it's going to come across as you're just raising cost, but they've seen the actual extra support that they've been getting and it's gone over well.

I'd also add...

On your contracts, are you able to do that sort of whenever you...

Yes. There's a process in each state then there's state regulations around it. And obviously, there's a private purchasing dynamic, right, with your customer, and then there's regulatory oversight for that. And so -- but our contracts allow us to do that, we have to follow a process and we initiated that process in September, actually in August. But some of them get sort of layered in depending on what the state, sort of, notice periods are and things like that, they're being layered in as we speak, I mean, this month and next month. John?

I'd just add, some of this reflects the increase in sophistication that we've been able to attain as we have moved from Ensign systems into our own systems. We're able to have much more visibility. And so rather than just a targeted, hey, we're upping rent across the board by the same amount. We've been able to go community by community to look at the data related to cost increase and to be able to communicate effectively with those residents and their families about the increased cost of labor, the increased cost of supplies and different things. And I think that's why, as Danny says, this has not gone over like a ton of bricks. It's been well received.

Great. Maybe sticking with this topic, too. If we could talk about your expectations around the margin structure on the senior living side, when pre-pandemic and look back a couple of years ago, you guys were operating at sort of like a 40% EBITDA margin for the Senior Living business. Obviously, there's been some pretty significant margin compression. More recently, margins have come in below 30%. Maybe talk to us about how you see the margins ultimately sort of trending out into 2022? And then I guess the key question is, do you think that ultimately the business can get back to pre-pandemic margin levels? Or do you think that there have been some structural changes to the business because of the pandemic and you're going to assume that there's going to be a somewhat lower margin run rate longer term?

I'll have Jen give a lot more clarity on it, but I think it's worth commenting on our long-term view. I think as it relates to senior housing operators who can deliver a high-quality medical structure around that, that there's going to be a lot of opportunity there. Just from a -- just a high level, there's -- what is it, somewhere around 11,000 or 12,000 skilled nursing facilities. There's about 20,000 senior housing properties. And that fragmentation is very real. I'm not sure that all of it is going to thrive, but I know that what the post-acute system is demanding is a place where they can place residents that aren't at the level that skilled nursing residents need to be that they can effectively manage their health care situations. So there may be some lifestyle portions of that pool of senior housing that are going to have a little bit of a difficult time. But we're squarely in the middle of properties that have low real estate costs, and we are in a good position to deliver health care in that setting. So the margin profile has definitely been impacted it's early to draw long-term conclusions, but I think we have some insight, and I do think there will be some general compression. And it may take a little bit of time for the reimbursement structure, whether it's through state programs like Medicaid or the general private paying public to adjust all the way there. But Jen, we have some assumptions, I think, on that, right?

Yes, I will. The assumptions include some of the things that I talked about. So the margins are compressed for two reasons, for the rates that we have been charging as well as our census. So as we are improving our rates and our census into 2022. Those margins will continue to improve. But I -- to Danny's point, I do think we're going to see compression on the margin kind of generally with the recognition of what the labor costs are where we're seeing the labor rates increases in our sort of lower compensated staff, so your nursing assistance, your housekeepers and things like that. So I think that there's going to be that compression. And to Danny's point, I think in the long term and the long view is that those -- the rates that we're charging are going to take that into account as well as the level of care. So in the most recent 3 or 4 months, what we've done is we've gone through all of our communities and assessed our residents on the level of care that they're receiving what that cost structure is looking like, and that's why we've been able to make the rate adjustments that we have. And to John's point, been able to specifically talk to the residents about the care that they're receiving. So our view is that Senior Living is part of the care continuum and will be a part of the health care continuum for the long term and that kind of recognition is going to come into play, but I think it will take some time to adjust to that.

And I think when you think relative to that 40% side, it might -- our best guess is you're going to -- we're going to get back to 35% probably is kind of what I see when you pull out the sort of acute spikes that are driven by staff quarantine and overtime demands and things like that. But I should comment that our operating model is built for entrepreneurs to find solutions to those types of challenges. And so we have a strong belief that our leaders are going to be able to make adjustments and find ways. It may be -- the current environment where you're kind of balancing the short-term demands that the staff have, the short-term concerns that residents have you do the right thing in that environment. I mean it's important to remember that people are dying. And they're our friends, and that happens. And so there's a short-term demand to do the right thing by people. But as it relates to just the fundamentals of in time being able to get the business back to a place where we would expect it to be. That's also very intact in our organization. So there's real headwinds for sure. Some of those headwinds, I think when we think about 2022 are going to persist. But we're deeply concerned about that credibility and that ability to really continue to build these businesses. Our portfolio is very new in a lot of respects, right? It's not something that we feel like we've tapped out. There's still a lot of room for us to fill vacant beds, and we see a lot of longer-term upside -- midterm and long-term upside. And we want to navigate the short-term challenges in a way that allows us to really take advantage of everything we can now within good judgment and thoughtfulness, but to make sure that we're well positioned for the future.

Understood. So if we're taking that and then trying to convert that into a model, I mean, to me, it sounds like thinking about a sort of step function up in margins over the next few years, where you're going to be trying to drive a couple of points of margin improvement per year and ultimately trying to recover and getting back a significant chunk of the margin compression and that's all that occurs during the pandemic.

That's right. Yes.

One other question just on SL. And obviously, we want to talk about H H and H, of course, to -- but just sort of your thoughts in terms of from the business cycle perspective in Senior Living, how the pandemic has impacted it and where we are now? Because obviously, even before the pandemic, the cycle had been getting a bit more challenging just in terms of supply, right? And a lot of your units coming online and that creating a more competitive environment. Derek, you had views on this all along the last couple of years. So -- has the pandemic started to in terms of the data that you track essentially, where do you think we are after pandemic's created -- starting to create more equilibrium just around supply dynamics in terms of units, not on labor. Just interested where you're thinking that is there now.

It certainly has. It's started to. It's a long-term industry. And as trends have -- that's not a trend that pivots within a 1 year, it's been a multi-- we've seen it like you mentioned, even before COVID. There was oversupply. Starts were high. And I think you saw us -- a little bit of a pause reckoning through COVID as those skinny margins a lot of providers in the industry evaporated or were filled by government assistance that has a deadline. It has a clock that's running out pretty quickly. So we think it will continue to accelerate as some of that picks up. But from our perspective, we've seen a lot of -- we've seen M&A activity pick up in the early months of COVID. People sort of took their foot off the gas and weren't quite sure how to value the buildings and do I adjust out all the COVID? And then when you started to see some normalization this summer and you saw buildings come back online, then everyone kind of pulled it off in the hall when Delta spiked again. And we're starting to see more come out again. And I think you're going to see a similar trend as you see in occupancy and just kind of the health of buildings as people see, I'm up for air for a second, let me move, let me take advantage of this period. And that sort of feels like what a lot of providers are going through is looking for kind of that window to be able to transact and to kind of strategically address their portfolios. And I think that's a multiyear trend that really has begun this past year. We're going to see that supply tighten. We think that these are not sustainable. We have invested, kind of to your earlier question, Scott, what differentiates Senior Living is that there's a lot of variety. There's different cohorts. You can -- because of the private pay structure, you can go to one building and pay $3,500 a month for basic AL services and room and board could walk 100 yards down the street and pay $10,000. So it's just -- there's a vastly different offerings within that business. And so the margin structure, the way you address it can be very different as well. And what we found successful and what we think is successful, what we're hearing from the health care community is that Senior Living needs to improve itself as a health care setting, that when they send a patient there or a family member there, they expect them to be taken care of. And that requires staffing, that requires clinical excellence, that requires being able to comply with increasingly complex regulations. There's going to be increasing oversight and that's an environment in which we thrive, both within our Home Health Hospice and from our experience within Ensign, and we've built robust compliance and clinical programs. So we're positioning ourselves for that future and it's coming. The industry is talking about it. It might not happen in 2021. You'll see some talk of it in 2022, but it's a multiyear trend. And so those that are positioned for it should do better. There will be those that can't position themselves for it, whether they're the nonclinical variety, and there's a place for that too in the continuum. But increasingly, the number of those communities that are prepared to clinically address the care of their residents is going to not keep up with the demand for that. And that's where we're positioning ourselves for. So if you narrow the window to that setting, which we think will become the predominant setting of Senior Living, I think you're going to see that trend kind of reverse itself and improve for us.

Thank you. Well, we'll shift for a little bit to everyone's favorite topic labor. And I want to start -- I'm trying to ask each of the companies, I guess, do a mini survey. I ask everybody one exact question the exact same way, which is -- so let's start with that. And just when we look out to 2022 and with your crystal ball, do you expect that labor conditions for Pennant will improve, worsen or remain the same relative to 2021?

Well, yes, I think they will improve. That's our view of it. I think an underestimated driver of the labor and stability has been the forthcoming mandate process for vaccination. And we saw the reaction to that in the second and the third quarters largely. And what we're seeing is that people have digested that and those that have serious concerns about that process and the mandate and all of those things, they've made their decisions. Those that aren't, they're in. And there's risk of burn out. But in our view and what we've seen is that process has already kind of made its way through the system. Now could there be continued difficulty? Sure. But our view is that things are going to -- that they are already improving that they are going to continue to improve. I don't know if we have anything to temper that. But at best, stay the same. I don't anticipate things getting worse.

By the way, I haven't had one company yet, say, it's going to get worse.

Yes. There's been a lot of challenges, right? But there's -- and there's been a lot of people kind of examining their life and -- but I think we're kind of through that process for the most part. There's still going to be small portions that are there, and we're really attuned to those that are still in that bucket. We have a portion of our staff that are still in this place where they maybe live in a state where the mandate is stayed and they're trying to decide what to do. But we're staying really close to them. And I think just the worst is through.

John, maybe just -- I know you want to make a comment too, but maybe if I could also ask you a specific question around this as well. Maybe just to add on to that, you have any -- maybe give us just an update on sort of real-time as we look in the fourth quarter. How the underlying labor environment is playing out for you guys when you think about hiring, retention, wage inflation?

Yes. That's exactly what I was just going to add to Danny's comment that I think he made very well. So within our platform, we've seen a significant increase. The average registered nurse is costing us about 8% more than earlier in the year in 2020. And that's just the reality of the market that we're operating in. I think what Danny said about turnover is very important. We saw a significant kind of spike as people made their decisions as these spikes in COVID happened during the third quarter. We've seen that ameliorate a little bit in the fourth quarter. And what we have seen consistently is where we have had the opportunity to really create the culture that is we are right at the heart of our model. We have been able to keep people happy to be the employer of choice. We have a waitlist in many cases of people who want to work for us. And so the way that we view it is that is going to be localized just like every other part of health care. And in certain markets, the supply is very tight. It's driving wages up. In certain markets, we're newer to that market. We're still establishing a reputation and a name for the quality of care we provide for the way that we treat people. But what we're very pleased with and what gives us confidence going into 2022, is where we have been for an extended period of time, we see consistently that our operations are able to perform well from a wage growth standpoint, from a turnover standpoint, from an employee satisfaction standpoint. And so we feel like we're going to be able to capitalize in many of those cases on the growth that is out there and available to us as we're able to bring more employees on.

Great. All right. Great. So let me just pause here and just check if there's a question over there.

[indiscernible]

No. There's been some of those that are self-selected. Yes, we haven't -- the mandates have been in the states that we operate in, there have been in mandates in place in Washington, in Colorado, California. So we've been through that process. And usually, the staff are pretty forthcoming about it, and they'll come and they'll talk to us and say, this is just one of those situations where I'm going to be out. It's not a high number. It's just a big distraction. Then there's another group that have medical or religious issues, concerns and that lead to legitimate exemptions. But we've seen it all. We've seen a lot in that. And I would say that's just an under maybe appreciated element of this entire environment. But we feel like if we're really healthy, to John's point, as an employer where you can have sincere conversations with people about a thorny topic, you're in a really good spot. One just example, we have an employee emergency fund that we created years ago, that employees -- fellow employees contribute to and then when there's difficulty in an employee's life of all shapes and sizes, a committee of peers can come and help monetarily. Across the Ensign and Pennant portfolio, there's nearly 80% of our employees that participate in that. That's across -- 50,000 employees across the pool. That kind of behavior is really unique as it relates to this kind of environment where am I cared about as an individual. Can I -- is my voice heard? What -- how do I move forward here? We found that where we're really strong in that area, not just that participation in that employee emergency fund, but just in that ability to have heart-to-heart kind of conversations. We've done really, really well. Where we've struggled to be -- and we've talked about this, is we have a fairly robust pool of new acquisitions, which is our pattern for a long time. Sometimes your credibility, it takes a little bit of time to develop that as an employer. And so we've seen more weakness in those areas than in our well-established places where sort of our cultural foundations are intact. And so to us, that's a really good sign. We're really excited about that because we can control that. We can determine the kind of employer and the kind of culture that we create in that operation. Now there's a flywheel there that takes a little bit of time and some experiences and to build the level of trust that we see in our healthiest operations. And so that's what's occupying a lot of our time and energy is to get to that place with our employees. And as it relates to the whole environment, that's what people have been looking for, right? So sometimes people have gotten to a place where they're like, okay, the mandate however they feel about it. There's a whole matrix there. But just my life in general. I mean, that's -- there's been a lot of that commentary coming to us is, am I pleased with the direction that my life is headed? And where we're a really strong employer, we're part of that like positive equation, and we feel really excited about that because we think that will become an increasingly valuable element of our local health care sort of cluster model because we can do that in ways that are just extraordinary. And I won't bore you all with the -- with our patterns and our practices for how we do that. But it that's the positive of this is that we've seen the effects of both where there's loyalty to the employer based on real trust and earned trust, people are coming to us. And we feel like we can just continue to drive that flywheel and our new acquisitions in particular.

When you mention spike, did you mean in the wage rates or turnover or...

So we saw a spike in COVID cases during Q3. And I think during -- through 2021, we have seen employee wages, both on the Senior Living side and the Home Health and Hospice side, they've grown much more quickly than normal. And so what -- I think what gives us a sense of optimism is our local operators have been able to adjust to those significant labor expense increases, offsetting them in other areas of the business. And so the overall cost of goods increase is less than we would have expected.

Just on the vaccination front, to close that out. Do you have the updated stat for us on where the staff vaccination rate is?

Yes. And John, I think you have those numbers for us.

Yes. So as of today, basically 72% of our employees have been vaccinated. We have approximately 15% are still working through the process. They've either got one dose of the vaccination or they're working through the exemption process. And so that's kind of where we stand with regard to the mandate that has just been state. We're very optimistic based on what we've seen in Colorado and California that sort of as deadlines come into focus. It brings people this attention, and we've been able -- they've gotten the vaccine or they have -- if they have an appropriate request for exemption, we can process that.

Right. I think we probably have time for one more topic, which is an important one. Pennant is probably one of the few companies at this conference that's already provided formal 2020 guidance. So just for those that weren't aware of that and it's pretty attractive there. The company is guiding for 11% top line and around 43% EPS growth. We already -- we've talked throughout the conversation on a number of things that are ultimately part of the infrastructure, right, of improving on that growth for next year, clearly, Senior Living. We've got some very helpful sort of framing for you on that. And one other topic I want to talk about is on the Home Health and Hospice side. Pennant has been very much a growth company, and you've been very active on the acquisition side, too. I think, Danny, you were transparent and frank on the third quarter call about the pacing of some of the acquisitions during the pandemic clearly has created a bit more disruption around sort of ramping, right, on some of the newer acquisitions, than you tend to be familiar with pre-pandemic. So maybe we could drill into that a little bit here and sort of talk to us a bit about sort of what some of the key initiatives that you're putting into place are to improve the performance on these acquired acquisitions. And ultimately, it feels to me like -- and maybe the stock isn't appreciating this is that there's probably a very healthy EBITDA, incremental EBITDA opportunity over the next several years as you do ultimately harvest that improvement on that. And the level also maybe sort of -- I guess the first would be the qualitative around the plan and then the second would be the quantitative, if you want to talk maybe about some of the incremental EBITDA opportunity that you could drive off of that?

Great. Good question. This is what we love talking about. This is our core of who we are is finding businesses that we can fold into our model that work well to have a good clinical foundation and then we can take those and drive significant growth over many, many, many years. And just anecdotally, our acquisitions that we did 7 -- 6, 7 years ago are still growing in the 20-plus percent range on both top line and bottom line. We love that. That is how we build. That's how Ensign was built. And that's something that -- we have been just executing on that in the Home Health and Hospice space. Obviously, we've been very thoughtful about what we're doing in the Senior Living space, and that's not where we're spending our acquisition dollars. But there's a lot in the hopper. And so how I would describe it as two things I want to say about it. One, we made a decision early on in the pandemic that we would not take the government dollars. We've taken advantage of a couple of the systems where we can defer and some of those like cash flow kind of things, but we didn't -- we chose not to take any of the funds that were available. And we knew that, that would be -- that would create a little bit of uneasiness and unevenness in what we were doing because there's uncertainty about what we were going into. But part of the reason for that is we wanted to be able to continue to deploy capital in our standard method and not get hung up by some reporting process or whatever it might be. So we basically have 27 new Home Health and Hospice acquisitions. That -- just from a perspective, it's a large number for us, even by our historical growth standards. We don't go by other people's EBITDA I mean it's -- we rarely count on anything when we do these deals. And so there's a ramp-up process that takes place over the first 6 to 9 quarters. And that process in these is just because of the pandemic has elongated a little bit. But when you look at the real upside potential in our portfolio, it exists right there in those businesses doing what we have done in our other 61 of them. And so there's leaders that know how to go down that path. They've had experiences, and they're sharing those best practices with this new group. And there are some really exciting things. So on the quantitative side, John, and Jen, do you want to tackle a little bit of that?

Yes. So built into our guidance for 2022, we're -- when we look at our acquisitions that we've done over the last 2 years, we're building in a revenue increase of about 15% over this year. And then on the EBITDA side, we're also building in an increase in margins. So we've been operating at about 6.5%. Typically, we do see our acquisitions come in at a 10% or less margin. So we're ramping that up towards the 15% historically in the second full year -- by the second full year of ownership. We typically achieve a 15% or higher. That's what we target as a healthy operation. We've done better than that on EBITDA margins in our Home Health and Hospice business. But that's where we kind of see the sweet spot of we know it's gaining momentum. The flywheel's working. Things are where they need to be once we hit that 15% threshold. So for those acquisitions that we've had for close to 2 years, we do expect them to be performing at that level and we should see some good things.

Great. That's really helpful, actually, to get those statistics. So I appreciate that. Unfortunately, it looks like we're a little bit actually over time here, so we're going to have to conclude. Again, I really want to thank the Pennant group for joining us today. It was great to see you all.

Thank you. Thank you all for being here.