# Pennant Group, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Pennant Group, Inc.](/companies/pntg.md) (CIK 1766400)
- Form: 10-Q
- Filed: 2024-11-06
- Accepted by EDGAR: Nov 6, 2024, 16:14 ET
- Period: 2024-09-30
- Accession: 0001766400-24-000128
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1766400/000176640024000128/pntg-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1766400/000176640024000128/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $180.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $506.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $13.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $36.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $10.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $28.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $2.9m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $6.3m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $5.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $6.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $16.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 31,363,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 30,869,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $18.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $5.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $4.5m | us-gaap:Cash |
| Current assets | at 2024-09-30 | $101.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $646.8m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $90.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $459.5m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $108.9m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $187.3m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 67,247 characters.

*You should read the following discussion and analysis in conjunction with the Interim Financial Statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). The information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-K, Form 10-Q and Form 8-K, for additional information. The section entitled “Risk Factors” filed within our 2023 Annual Report describes some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.*

### Special Note About Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “might,” “will,” “should,” “could,” “seeks,” “approximately,” “goals,” “future,” “projects,” “predicts,” “guidance,” “target,” “intends,” “plans,” “estimates,” “anticipates,” the negative version of these words or other comparable words. Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the effects of competition and the effects of future legislation or regulations and other non-historical statements.

The risk factors discussed in this Quarterly Report and the 2023 Annual Report under the heading “Risk Factors,” could cause our results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:

- federal and state changes to, or delays receiving, reimbursement and other aspects of Medicaid and Medicare;
- changes in, and compliance with, the laws and regulations affecting the U.S. healthcare industry;
- proposed changes to payment models and reimbursement amounts within the Medicare and Medicaid fee schedules for future calendar years;
- future cost containment measures undertaken by payors;
- government reviews, audits and investigations of our business;
- potential additional regulation affecting the transparency, ownership, operating standards, and staffing of businesses in our industry;
- increased competition and increased cost of acquisition or retention for, or a shortage of, skilled personnel;
- achievement and maintenance of competitive quality of care ratings and referrals from referral sources;
- changes in, and compliance with, state and federal employment, fair housing, safety, licensing and other laws;
- competition from other healthcare providers, federal and state efforts to regulate or deregulate the healthcare services industry, including through staffing levels and requirements, or the construction or expansion of the number of home health, hospice or senior living operations;
- actions of labor unions, including strikes, work stoppages, unfair labor practices claims, or related labor activity;
- costs associated with litigation or any future litigation settlements;
- the leases of our affiliated senior living communities;
- inability to complete future acquisitions at attractive prices or at all, and failure to successfully or efficiently integrate new acquisitions into our existing operations and operating subsidiaries;
- general economic conditions, including a housing downturn, which could affect seniors’ ability to afford resident fees, or inflation and increasing interest rates, which raise the costs of goods and borrowing capital, which may affect the delivery and affordability of our services;
- security breaches and other cyber security incidents;
- the performance of the financial and credit markets and uncertainties related to our ability to obtain financing or the terms of such financing; and
- uncertainties related to the lingering effect of the COVID-19 pandemic, including new regulatory risks impacting our operations, the effects of Medicaid disenrollment, potential litigation, and vaccination mandates

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements in this Quarterly Report. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by applicable securities laws.

### Overview

We are a leading provider of high-quality healthcare services to patients of all ages, including the growing senior population, in the United States. We strive to be the provider of choice in the communities we serve through our innovative operating model. We operate in multiple lines of businesses including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. We provide home health and hospice operational support through a management service agreement in Connecticut. As of September 30, 2024, our home health and hospice business provided home health, hospice and home care services from 122 agencies operating across these 13 states, and our senior living business operated 54 senior living communities throughout six states.

The following table summarizes our affiliated home health and hospice agencies and senior living communities as of:

|  | December 31, 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | September 30, 2024 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Home health and hospice agencies | 39 | 46 | 54 | 63 | 76 | 88 | 95 | 111 | 122 |
| Senior living communities | 36 | 43 | 50 | 52 | 54 | 54 | 49 | 51 | 54 |
| Senior living units | 3,184 | 3,434 | 3,820 | 3,963 | 4,127 | 4,127 | 3,500 | 3,588 | 3,835 |
| Total number of home health, hospice, and senior living operations | 75 | 89 | 104 | 115 | 130 | 142 | 144 | 162 | 176 |

### Recent Activities

*Acquisitions.* During the nine months ended September 30, 2024, we expanded our operations with the addition of eight home health agencies, three hospice agencies, and three senior living communities. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction.

### Trends

We have experienced modest senior living occupancy improvement during the nine months ended September 30, 2024, compared to the same period in 2023. Though we have seen improvements in occupancy year over year, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which we change our occupancy levels in our senior living communities.

When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted. We expect these metrics to vary from period to period based upon the maturity of the operations within our portfolio. We have generally experienced lower occupancy rates and higher costs at our senior living communities and lower census and higher costs at our home health and hospice agencies for recently acquired operations; as a result, we generally anticipate lower and/or fluctuating consolidated and segment margins during years of acquisition growth.

### Government Regulation

We have disclosed under the heading “Government Regulation” in the 2023 Annual Report a summary of regulations that we believe materially affect our business, financial condition or results of operations. Since the time of the filing of the 2023 Annual Report, the following regulations have been updated.

On July 30, 2024, CMS issued the 2025 Hospice Payment Rate Update final rule (the “Hospice Payment Final Rule”). The Hospice Payment Final Rule’s payment update percentage is 2.9%, which is an estimated increase of $790 million in payments from fiscal year 2024. The payment update percentage is based on a 3.4% market basket percentage increase, which is reduced by a 0.5% productivity adjustment. Hospices that fail to meet quality reporting requirements under the Hospice Quality Reporting Program (“HQRP”) will receive a 4% reduction to the annual hospice payment update percentage increase for that year, resulting in a total decrease of 1.1% to those non-compliance hospices’ payments and more than negating the payment update percentage for fiscal year 2025. The Hospice Payment Final Rule also adds two new process measures to HQRP: timely reassessment of pain impact, and timely reassessment of non-pain symptom impact, which are both expected to begin in fiscal year 2028. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap that limits the overall payments per patient that may be made to a hospice annually. The hospice cap amount for the 2025 fiscal year is $34,465.34, increased from the 2024 fiscal year cap of $33,494.01. The Hospice Payment Final Rule also includes clarifying revisions to the hospice conditions of participation; updates statistical area delineations; and makes changes to the Consumer Assessment of Healthcare Providers and Systems (“CAHPS”) Hospice Survey.

On November 1, 2024, CMS issued the 2025 Home Health Prospective Payment System Final Rule (the “Home Health Payment Final Rule”). The Home Health Payment Final Rule’s payment update percentage for calendar year 2025 is 2.7%, an estimated increase of $445 million from calendar year 2024, which is offset by an estimated -1.8% behavioral adjustment, along with a -0.4% estimated adjustment for fixed dollar losses, resulting in an aggregate net increase of 0.5%, or $85 million, for the calendar year 2025 payment rate compared to calendar year 2024. The Home Health Payment Final Rule also recalibrates PDGM case-mix weights, finalizes an update to the home health wage index, updates home health conditions of participation to require patient acceptance policies, and establishes or updates certain LUPA add-on factors.

In June 2024, CMS announced a Period of Enhanced Oversight for newly enrolled hospices in Arizona, California, Nevada, and Texas. The program includes hospices that are newly enrolled, or that undergo a change of ownership, or reactivating after being in a deactivated status after July 13, 2023. Such hospices are subject to enhanced oversight for up to one year and may undergo medical review by CMS contractors to deter fraud, waste and abuse of Medicare funds.

On April 22, 2024, CMS published the Ensuring Access to Medicaid Services Final Rule (the “Access Rule”) which creates and, over the course of five years, implements new obligations for providers of home- and community-based services (“HCBS”), including non-skilled personal care services in the home. The Access Rule requires that, beginning in 2030, states must implement data collection and monitoring systems to ensure that, subject to exceptions, Medicaid-funded HCBS providers spend at least 80% of their Medicaid HCBS reimbursement on compensation for direct care workers, as opposed to administrative overhead or profits. The Access Rule further requires states to establish a grievance system for addressing services provided in the fee-for-service context, publish fee-for-service payment rates paid by Medicaid, publish the average hourly rate paid to HCBS care providers, and develop hardship exemptions and separate requirements for small providers, with these requirements to be implemented within one to three years from the Access Rule taking effect. The Company anticipates potential changes to the Access Rule, or offsetting Medicaid rate increases, before its ultimate implementation in six years.

On March 6, 2024, the SEC issued its final climate disclosure rule (the “Climate Rule”), intended to regulate how public companies report on the risks and impacts of climate-related matters. The Climate Rule requires companies to report on how they manage and assess climate-related risks, as well as how the board and management oversee these risks. The Climate Rule also mandates companies to disclose the financial consequences of extreme weather events and other natural conditions in their audited financial statements. Additionally, larger companies will have to report on their greenhouse gas emissions, which will be subject to a gradual assurance requirement. The Company anticipates that it will be required to disclose information about its management and oversight of climate risks beginning in 2027, and its greenhouse gas emissions beginning in 2029, assuming no further changes to the Climate Rule, or to the Company’s status as an Accelerated Filer under SEC rules. The Climate Rule is the subject of litigation in various courts and on April 4, 2024, the SEC stayed the Climate Rule pending the outcome of these cases.

### Segments

We have two reportable segments: (1) home health and hospice services, which includes our home health, home care and hospice businesses; and (2) senior living services, which includes the operation of assisted living, independent living and memory care communities. Our Chief Executive Officer, who is our CODM, reviews financial information at the operating segment level. We also report an “all other” category that includes general and administrative expense from our Service Center.

### Key Performance Indicators

We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following:

### Home Health and Hospice Services

- ***Total home health admissions***. Total admissions of home health patients, including new acquisitions, new admissions and readmissions.
- ***Total Medicare home health admissions.*** Total admissions of home health patients, who are receiving care under Medicare reimbursement programs, including new acquisitions, new admissions and readmissions.
- ***Average Medicare revenue per completed 60-day home health episode.*** The average amount of revenue for each completed 60-day home health episode generated from patients who are receiving care under Medicare reimbursement programs.
- ***Total hospice admissions***. Total admissions of hospice patients, including new acquisitions, new admissions and recertifications.
- ***Average hospice daily census.*** The average number of patients who are receiving hospice care during any measurement period divided by the number of days during such measurement period.
- ***Hospice Medicare revenue per day***. The average daily Medicare revenue recorded during any measurement period for services provided to hospice patients.

The following table summarizes our overall home health and hospice statistics for the periods indicated:

| Home health services: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Total home health admissions | 14,993 | 10,829 | 43,782 | 32,180 |
| Total Medicare home health admissions | 6,071 | 4,640 | 18,155 | 14,437 |
| Average Medicare revenue per 60-day completed episode(a) | $3,760 | $3,480 | $3,646 | $3,467 |
| Hospice services: |  |  |  |  |
| Total hospice admissions | 2,987 | 2,433 | 9,118 | 7,206 |
| Average hospice daily census | 3,444 | 2,698 | 3,209 | 2,544 |
| Hospice Medicare revenue per day | $183 | $183 | $182 | $184 |

(a) The year-to-date average Medicare revenue per 60-day completed episode includes post period claim adjustments for prior quarters.

### Senior Living Services

- ***Occupancy.*** The ratio of actual number of days our units are occupied during any measurement period to the number of days units are available for occupancy during such measurement period.
- ***Average monthly revenue per occupied unit***. The revenue for senior living services during any measurement period divided by actual occupied senior living units for such measurement period divided by the number of months for such measurement period.

The following table summarizes our senior living statistics for the periods indicated:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Occupancy | 79.1% | 78.9% | 78.9% | 78.4% |
| Average monthly revenue per occupied unit | $4,836 | $4,486 | $4,758 | $4,401 |

### Revenue Sources

### Home Health and Hospice Services

***Home Health.*** We derive the majority of our home health revenue from Medicare and managed care. The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Net service revenue is recognized in accordance with PDGM methodology. Under PDGM, Medicare provides agencies with payments for each 30-day period of care provided to beneficiaries. If a beneficiary is still eligible for care after the end of the first 30-day payment period, a second 30-day payment period can begin. There are no limits to the number of periods of care a beneficiary who remains eligible for the home health benefit can receive. While payment for each 30-day period of care is adjusted to reflect the beneficiary’s health condition and needs, a special outlier provision exists to ensure appropriate payment for those beneficiaries that have the most expensive care needs. The PDGM payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments. These variables are subject to periodic adjustments set by CMS regulations. For further detail regarding PDGM see the *Government Regulation* section of our 2023 Annual Report.

***Hospice.*** We derive the majority of our hospice business revenue from Medicare reimbursement. The estimated payment rates are calculated as daily rates for each of the levels of care we deliver. Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation. The following are the four levels of care provided under the hospice benefit:

- ***Routine Home Care (“RHC”).*** Care that is not classified under any of the other levels of care, such as the work of nurses, social workers or home health aides.
- ***General Inpatient Care.*** Pain control or acute or chronic symptom management that cannot be managed in a setting other than an inpatient Medicare-certified facility, such as a hospital, skilled nursing facility or hospice inpatient facility.
- ***Continuous Home Care.*** Care for patients experiencing a medical crisis that requires nursing services to achieve palliation and symptom control, if the agency provides a minimum of eight hours of care within a 24-hour period.
- ***Inpatient Respite Care.*** Short-term, inpatient care to give temporary relief to the caregiver who regularly provides care to the patient.

CMS has established a two-tiered payment system for RHC services. Hospices are reimbursed at a higher rate for RHC services provided from days of service one through 60 and a lower rate for all subsequent days of service. CMS also provides for a Service Intensity Add-On, which increases payments for certain RHC services provided by registered nurses and social workers to hospice patients during the final seven days of life.

Medicare reimbursement is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, we monitor our provider numbers and estimate amounts due back to Medicare to the extent that the cap has been exceeded.

***Senior Living Services.*** As of September 30, 2024, we provided assisted living, independent living and memory care services in 54 communities. Within our senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid or other state-specific programs.

### Primary Components of Expense

***Cost of Services (excluding rent, general and administrative expense and depreciation and amortization).*** Our cost of services represents the costs of operating our independent operating subsidiaries, which primarily consists of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients. Cost of services also includes the cost of general and professional liability insurance and other general cost of services specifically attributable to our operations.

***Rent—Cost of Services.*** Rent—cost of services consists solely of base minimum rent amounts payable under lease agreements to our landlords. Our subsidiaries lease and operate but do not own the underlying real estate at our operations, and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements.

***General and Administrative Expense.*** General and administrative expense consists primarily of payroll and related benefits and travel expenses for our Service Center personnel, including training and other operational support. General and administrative expense also includes professional fees (including accounting and legal fees), costs relating to information systems, stock-based compensation and rent for our Service Center offices.

***Depreciation and Amortization.*** Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from one to 40 years). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on Interim Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Interim Financial Statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis we review our judgments and estimates, including but not limited to those related to self-insurance reserves, revenue, intangible assets, and goodwill. We base our estimates and judgments upon our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty, and actual results could differ materially from the amounts reported. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. Refer to Note 2, *Basis of Presentation and Summary of Significant Accounting Policies*, within the 2023 Annual Report for further information on our critical accounting estimates and policies, which are as follows:

- ***Self-insurance reserves*** - The valuation methods and assumptions used in estimating costs up to retention amounts to settle open claims of insureds and an estimate of the cost of insured claims up to retention amounts that have been incurred but not reported;
- ***Revenue recognition*** - The amounts owed by private pay individuals for services and estimate of variable considerations to arrive at the transaction price, including methods and assumptions, used to determine settlements with Medicare and Medicaid adjustments due to audits and reviews; and
- ***Acquisition accounting and goodwill*** - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions, and the review of goodwill for impairment at the Company’s annual impairment test date or upon the occurrence of a triggering event.

### Recent Accounting Pronouncements

Information concerning recently issued accounting pronouncements, if applicable, are included in Note 2, *Basis of Presentation and Summary of Significant Accounting Policies* in the Interim Financial Statements.

### Results of Operations

The following table sets forth details of our revenue, expenses and earnings as a percentage of total revenue for the periods indicated:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Total revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| Expense: |  |  |  |  |
| Cost of services | 80.0 | 80.2 | 80.1 | 80.5 |
| Rent—cost of services | 6.0 | 7.1 | 6.3 | 7.4 |
| General and administrative expense | 7.2 | 6.7 | 7.2 | 6.7 |
| Depreciation and amortization | 0.8 | 1.0 | 0.8 | 1.0 |
| Loss (gain) on disposition of property and equipment, net | — | — | (0.1) | — |
| Total expenses | 94.0 | 95.0 | 94.3 | 95.6 |
| Income from operations | 6.0 | 5.0 | 5.7 | 4.4 |
| Other expense: |  |  |  |  |
| Other income | 0.1 | — | — | — |
| Interest expense, net | (1.6) | (1.1) | (1.2) | (1.1) |
| Other expense, net | (1.5) | (1.1) | (1.2) | (1.1) |
| Income before provision for income taxes | 4.5 | 3.9 | 4.5 | 3.3 |
| Provision for income taxes | 0.8 | 0.7 | 1.0 | 0.9 |
| Net income | 3.7 | 3.2 | 3.5 | 2.4 |
| Less: net income attributable to noncontrolling interest | 0.3 | 0.1 | 0.2 | 0.1 |
| Net income attributable to Pennant | 3.4% | 3.1% | 3.3% | 2.3% |

The following table presents our consolidated GAAP Financial measures for the three and nine months ended September 30, 2024 and 2023:

*(In thousands)*

| Consolidated GAAP Financial Measures: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Total revenue | $180,688 | $140,192 | $506,348 | $398,937 |
| Total expenses | $169,894 | $133,131 | $477,468 | $381,335 |
| Income from operations | $10,794 | $7,061 | $28,880 | $17,602 |

32

The following tables present certain financial information regarding our reportable segments for the periods presented. General and administrative expenses are not allocated to the reportable segments and are included in “All Other”:

*(In thousands)*

| Segment GAAP Financial Measures: Three Months Ended September 30, 2024 | Home Health and Hospice Services | Senior Living Services | All Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $135,672 | $45,016 | $— | $180,688 |
| Segment Adjusted EBITDAR from Operations | $23,724 | $13,411 | $(11,133) | $26,002 |
| **Three Months Ended September 30, 2023** |  |  |  |  |
| Revenue | $101,474 | $38,718 | $— | $140,192 |
| Segment Adjusted EBITDAR from Operations | $17,271 | $11,473 | $(8,097) | $20,647 |

*(In thousands)*

| Segment GAAP Financial Measures: Nine Months Ended September 30, 2024 | Home Health and Hospice Services | Senior Living Services | All Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $377,463 | $128,885 | $— | $506,348 |
| Segment Adjusted EBITDAR from Operations | $64,488 | $38,226 | $(31,840) | $70,874 |
| **Nine Months Ended September 30, 2023** |  |  |  |  |
| Revenue | $287,573 | $111,364 | $— | $398,937 |
| Segment Adjusted EBITDAR from Operations | $47,364 | $33,394 | $(23,496) | $57,262 |

The table below provides a reconciliation of Segment Adjusted EBITDAR from Operations to Condensed Consolidated Income from Operations:

*(In thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Segment Adjusted EBITDAR from Operations(a) | $26,002 | $20,647 | $70,874 | $57,262 |
| Less: Depreciation and amortization | 1,493 | 1,323 | 4,292 | 3,817 |
| Rent—cost of services | 10,906 | 10,006 | 31,814 | 29,439 |
| Other income (expense) | 109 | (37) | 192 | 28 |
| Adjustments to Segment EBITDAR from Operations: |  |  |  |  |
| Less: Costs at start-up operations(b) | 65 | (108) | (72) | 160 |
| Share-based compensation expense(c) | 2,342 | 1,391 | 5,817 | 4,164 |
| Acquisition related costs and credit allowances(d) | 494 | 71 | 996 | 175 |
| Costs associated with transitioning operations(e) | 12 | 10 | (583) | 595 |
| Unusual, non-recurring or redundant charges(f) | 239 | 1,009 | 546 | 1,633 |
| Add: Net income attributable to noncontrolling interest | 452 | 79 | 1,008 | 351 |
| Condensed Consolidated Income from Operations | $10,794 | $7,061 | $28,880 | $17,602 |

33

(a) Segment Adjusted EBITDAR from Operations is net income (loss) attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs and credit allowances, (4) the costs associated with transitioning operations, (5) unusual, non-recurring or redundant charges, and (6) net income attributable to noncontrolling interest. General and administrative expenses are not allocated to the reportable segments, and are included as “All Other,” accordingly the segment earnings measure reported is before allocation of corporate general and administrative expenses. The Company's segment measures may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

(b) Represents results related to start-up operations. This amount excludes rent and depreciation and amortization expense related to such operations.

(c) Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.

(d) Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(e) During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and began seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. The amounts reported exclude rent and depreciation and amortization expense related to such operations and include legal settlement costs associated with an entity transitioned to Ensign.

(f) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses.

#### Performance and Valuation Measures:

*(In thousands)*

| Consolidated Non-GAAP Financial Measures: Performance Metrics | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Consolidated EBITDA | $11,944 | $8,268 | $32,356 | $21,096 |
| Consolidated Adjusted EBITDA | $15,149 | $10,880 | $39,523 | $28,864 |
| Valuation Metric |  |  |  |  |
| Consolidated Adjusted EBITDAR | $26,002 |  | $70,874 |  |

*(In thousands)*

| Segment Non-GAAP Measures:(a) Segment Adjusted EBITDA from Operations | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Home health and hospice services | $21,863 | $15,904 | $59,356 | $43,476 |
| Senior living services | $4,419 | $3,073 | $12,007 | $8,884 |

(a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

The table below reconciles Consolidated Net Income to the consolidated Non-GAAP financial measures, Consolidated EBITDA and Consolidated Adjusted EBITDA, and to the Non-GAAP valuation measure, Consolidated Adjusted EBITDAR, for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Consolidated net income | $6,657 | $4,462 | $17,809 | $9,381 |
| Less: Net income attributable to noncontrolling interest | 452 | 79 | 1,008 | 351 |
| Add: Provision for income taxes | 1,354 | 1,066 | 4,957 | 3,894 |
| Interest expense, net | 2,892 | 1,496 | 6,306 | 4,355 |
| Depreciation and amortization | 1,493 | 1,323 | 4,292 | 3,817 |
| Consolidated EBITDA | 11,944 | 8,268 | 32,356 | 21,096 |
| Adjustments to Consolidated EBITDA |  |  |  |  |
| Add: Costs at start-up operations(a) | 65 | (108) | (72) | 160 |
| Share-based compensation expense(b) | 2,342 | 1,391 | 5,817 | 4,164 |
| Acquisition related costs and credit allowances(c) | 494 | 71 | 996 | 175 |
| Costs associated with transitioning operations(d) | 12 | 10 | (583) | 595 |
| Unusual, non-recurring or redundant charges(e) | 239 | 1,009 | 546 | 1,633 |
| Rent related to items (a) and (d) above | 53 | 239 | 463 | 1,041 |
| Consolidated Adjusted EBITDA | 15,149 | 10,880 | 39,523 | 28,864 |
| Rent—cost of services | 10,906 | 10,006 | 31,814 | 29,439 |
| Rent related to items (a) and (d) above | (53) | (239) | (463) | (1,041) |
| Adjusted rent—cost of services | 10,853 | 9,767 | 31,351 | 28,398 |
| Consolidated Adjusted EBITDAR | $26,002 |  | $70,874 |  |

(a) Represents results related to start-up operations. This amount excludes rent and depreciation and amortization expense related to such operations.

(b) Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.

(c) Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(d) During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and began seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. The amounts reported exclude rent and depreciation and amortization expense related to such operations and include legal settlement costs associated with an entity transitioned to Ensign.

(e) Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses.

35

The tables below reconcile Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, Home Health and Hospice 2024 | 2023 | Senior Living 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Segment Adjusted EBITDAR from Operations | $23,724 | $17,271 | $13,411 | $11,473 |
| Less: Rent—cost of services | 1,861 | 1,439 | 9,045 | 8,567 |
| Rent related to start-up and transitioning operations | — | (72) | (53) | (167) |
| Segment Adjusted EBITDA from Operations | $21,863 | $15,904 | $4,419 | $3,073 |

*(In thousands)*

|  | Nine Months Ended September 30, Home Health and Hospice 2024 | 2023 | Senior Living 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Segment Adjusted EBITDAR from Operations | $64,488 | $47,364 | $38,226 | $33,394 |
| Less: Rent—cost of services | 5,254 | 4,136 | 26,560 | 25,303 |
| Rent related to start-up and transitioning operations | (122) | (248) | (341) | (793) |
| Segment Adjusted EBITDA from Operations | $59,356 | $43,476 | $12,007 | $8,884 |

The following discussion includes references to certain performance and valuation measures, which are non-GAAP financial measures, including Consolidated EBITDA, Consolidated Adjusted EBITDA, Segment Adjusted EBITDA from Operations, and Consolidated Adjusted EBITDAR (collectively, “Non-GAAP Financial Measures”). Non-GAAP Financial Measures are used in addition to, and in conjunction with, results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations and company that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, we believe can provide a more comprehensive understanding of factors and trends affecting our business.

We believe these Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

- they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest expense, rent expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, the method by which assets were acquired, and differences in capital structures;
- they help investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base and capital structure from our operating results; and
- Consolidated Adjusted EBITDAR is used by investors and analysts in our industry to value the companies in our industry without regard to capital structures.

We use Non-GAAP Financial Measures:

- as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis from period to period;
- to allocate resources to enhance the financial performance of our business;
- to assess the value of a potential acquisition;
- to assess the value of a transformed operation’s performance;
- to evaluate the effectiveness of our operational strategies; and
- to compare our operating performance to that of our competitors.

We typically use Non-GAAP Financial Measures to compare the operating performance of each operation from period to period. We find that Non-GAAP Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Consolidated Adjusted EBITDAR targets.

Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:

- they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;
- they do not reflect changes in, or cash requirements for, our working capital needs;
- they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
- in the case of Consolidated Adjusted EBITDAR, it does not reflect rent expenses, which are normal and recurring operating expenses that are necessary to operate our leased operations;
- they do not reflect any income tax payments we may be required to make;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and
- other companies in our industry may calculate the same Non-GAAP Financial Measures differently than we do, which may limit their usefulness as comparative measures.

We compensate for these limitations by using Non-GAAP Financial Measures only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business. Our use of Non-GAAP Financial Measures should not be construed as an inference that our future results will be unaffected by unusual or unexpected items.

We strongly encourage investors to review the Interim Financial Statements, included in this Quarterly Report in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of Consolidated Net Income to the Non-GAAP Financial Measures in the table presented above, along with the Interim Financial Statements and related notes included elsewhere in this Quarterly Report.

We believe the following Non-GAAP Financial Measures are useful to investors as key operating performance measures and valuation measures:

### Performance Measures:

#### Consolidated EBITDA

We believe Consolidated EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate Consolidated EBITDA as net income, before (a) interest expense (b) provision for income taxes and (c) depreciation and amortization.

#### Consolidated Adjusted EBITDA

We adjust Consolidated EBITDA when evaluating our performance because we believe that the exclusion of the additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Consolidated Adjusted EBITDA, when considered with Consolidated EBITDA and GAAP Consolidated Net Income is beneficial to an investor’s complete understanding of our operating performance.

We calculate Consolidated Adjusted EBITDA by adjusting Consolidated EBITDA to exclude the effects of non-core business items, which for the reported periods includes, to the extent applicable:

- costs at start-up operations;
- share-based compensation expense;
- acquisition related costs and credit allowances;
- costs associated with transitioning operations; and
- unusual, non-recurring, or redundant charges.

#### Segment Adjusted EBITDA from Operations

We calculate Segment Adjusted EBITDA from Operations by adjusting Segment Adjusted EBITDAR from Operations to include rent-cost of services. We believe that the inclusion of rent-cost of services provides useful supplemental information to investors regarding our ongoing operating performance for each segment.

### Valuation Measure:

#### Consolidated Adjusted EBITDAR

We use Consolidated Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a measure commonly used by us, research analysts and investors to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures. Additionally, we believe the use of Consolidated Adjusted EBITDAR allows us, research analysts and investors to compare operational results of companies with operating and finance leases. A significant portion of finance lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.

This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense and, as such, does not reflect our cash requirements for leasing commitments. Our presentation of Consolidated Adjusted EBITDAR should not be construed as a financial performance measure.

The adjustments made and previously described in the computation of Consolidated Adjusted EBITDA are also made when computing Consolidated Adjusted EBITDAR. We calculate Consolidated Adjusted EBITDAR by excluding rent-cost of services and rent related to start up operations from Consolidated Adjusted EBITDA.

### Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

### Revenue

*(In thousands)*

| Home health and hospice services | Three Months Ended September 30, 2024 Revenue Dollars | Revenue Percentage | 2023 Revenue Dollars | Revenue Percentage |
| --- | ---: | ---: | ---: | ---: |
| Home health | $60,988 | 33.8% | $44,921 | 32.0% |
| Hospice | 62,757 | 34.7 | 50,371 | 35.9 |
| Home care and other(a) | 11,927 | 6.6 | 6,182 | 4.4 |
| Total home health and hospice services | 135,672 | 75.1 | 101,474 | 72.3 |
| Senior living services | 45,016 | 24.9 | 38,718 | 27.7 |
| Total revenue | $180,688 | 100.0% | $140,192 | 100.0% |

(a) Home care and other revenue is included with home health revenue in other disclosures in this Quarterly Report.

Our total revenue increased $40.5 million, or 28.9% during the three months ended September 30, 2024. We experienced growth of $34.2 million from increased operational performance in our Home Health and Hospice segment from increased admissions and rates when compared to the three months ended September 30, 2023. The growth in our Senior Living segment resulted in an increase in revenue of $6.3 million driven primarily by the improved average rate per occupied room.

#### Home Health and Hospice Services

*(In thousands)*

| Home health and hospice revenue | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Home health services | $60,988 | $44,921 | $16,067 | 35.8% |
| Hospice services | 62,757 | 50,371 | 12,386 | 24.6 |
| Home care and other | 11,927 | 6,182 | 5,745 | 92.9 |
| Total home health and hospice revenue | $135,672 | $101,474 | $34,198 | 33.7% |
|  | **Three Months Ended September 30,** |  |  |  |
|  | **2024** | **2023** | **Change** | **% Change** |
| Home health services: |  |  |  |  |
| Total home health admissions | 14,993 | 10,829 | 4,164 | 38.5% |
| Total Medicare home health admissions | 6,071 | 4,640 | 1,431 | 30.8 |
| Average Medicare revenue per 60-day completed episode | $3,760 | $3,480 | $280 | 8.0 |
| Hospice services: |  |  |  |  |
| Total hospice admissions | 2,987 | 2,433 | 554 | 22.8 |
| Average daily hospice census | 3,444 | 2,698 | 746 | 27.7 |
| Hospice Medicare revenue per day | $183 | $183 | $— | — |
| Number of home health and hospice agencies at period end | 122 | 103 | 19 | 18.4 |

Home health and hospice revenue increased $34.2 million, or 33.7%, for the three months ended September 30, 2024 compared to the prior year quarter. Revenue grew due to an increase in certain key performance indicators including, an increase of 38.5% in total home health admissions, an increase in total hospice admissions of 22.8%, and an increase in average daily hospice census of 27.7% during the three months ended September 30, 2024 compared to the prior year quarter. Growth was also driven by the addition of nineteen home health and hospice operations between September 30, 2023 and September 30, 2024, resulting in an increase of $22.2 million, or 21.9%.

#### Senior Living Services

|  | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue (in thousands) | $45,016 | $38,718 | $6,298 | 16.3% |
| Number of communities at period end | 54 | 51 | 3 | 5.9 |
| Occupancy | 79.1% | 78.9% | 0.2% |  |
| Average monthly revenue per occupied unit | $4,836 | $4,486 | $350 | 7.8 |

Senior living revenue increased $6.3 million, or 16.3%, for the three months ended September 30, 2024 compared to the prior year quarter. Revenue grew primarily due to a 7.8% increase in average monthly revenue per occupied unit and an increase of 20 basis points in occupancy between September 30, 2023 and September 30, 2024. Growth was also driven by the addition of three senior living communities between September 30, 2023 and September 30, 2024, resulting in an increase of $3.4 million, or 8.8%, overall.

### Cost of Services

The following table sets forth total cost of services by each of our reportable segments for the periods indicated:

*(In thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Home Health and Hospice | $112,591 | $84,795 | $27,796 | 32.8% |
| Senior Living | 31,877 | 27,589 | 4,288 | 15.5 |
| Total cost of services | $144,468 | $112,384 | $32,084 | 28.5% |

Total consolidated cost of services increased $32.1 million, or 28.5%, for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. Cost of services as a percentage of revenue decreased by 20 basis points from 80.2% to 80.0% for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

#### Home Health and Hospice Services

*(In thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of service | $112,591 | $84,795 | $27,796 | 32.8% |
| Cost of services as a percentage of revenue | 83.0% | 83.6% | (0.6)% |  |

Cost of services related to our Home Health and Hospice Services segment increased $27.8 million, or 32.8%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the three months ended September 30, 2024 decreased 60 basis points when compared to the three months ended September 30, 2023.

#### Senior Living Services

*(In thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of service | $31,877 | $27,589 | $4,288 | 15.5% |
| Cost of services as a percentage of revenue | 70.8% | 71.3% | (0.5)% |  |

Cost of services related to our Senior Living Services segment increased $4.3 million, or 15.5%, primarily due to increased wages and benefits. As a percentage of revenue, costs of service decreased by 50 basis points for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

*Rent—Cost of Services*. Rent expense increased 9.0% from $10.0 million to $10.9 million in the three months ended September 30, 2024 when compared to the three months ended September 30, 2023, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. Rent as a percentage of total revenue decreased 110 basis points from 7.1% for the three months ended September 30, 2023, compared to 6.0% for the three months ended September 30, 2024.

*General and Administrative Expense.* Our general and administrative expense increased $3.6 million, or 38.3%, from $9.4 million to $13.0 million for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. General and administrative expense as a percentage of revenue increased 50 basis points from 6.7% to 7.2% during the period. The primary driver of the increase in general and administrative expense was due to an increase in payroll and related benefits for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

*Depreciation and Amortization.* Depreciation and amortization expense remained consistent with the comparable period.

*Provision for Income Taxes*. We recorded income tax expense of $1.4 million and $1.1 million or 16.9% and 19.3% of earnings before income taxes for the three months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to more excess tax benefits on equity compensation.

### Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

### Revenue

*(In thousands)*

| Home health and hospice services | Nine Months Ended September 30, 2024 Revenue Dollars | Revenue Percentage | 2023 Revenue Dollars | Revenue Percentage |
| --- | ---: | ---: | ---: | ---: |
| Home health | $172,773 | 34.1% | $129,112 | 32.4% |
| Hospice | 176,711 | 34.9 | 140,222 | 35.1 |
| Home care and other(a) | 27,979 | 5.5 | 18,239 | 4.6 |
| Total home health and hospice services | 377,463 | 74.5 | 287,573 | 72.1 |
| Senior living services | 128,885 | 25.5 | 111,364 | 27.9 |
| Total revenue | $506,348 | 100.0% | $398,937 | 100.0% |

(a) Home care and other revenue is included with home health revenue in other disclosures in this Quarterly Report.

Our total revenue increased $107.4 million, or 26.9%, during the nine months ended September 30, 2024. The increase in revenue was driven by increases in key metrics for home health and hospice and senior living, including hospice admissions, hospice revenue per day, hospice average daily census, senior living occupancy, and senior living revenue per occupied room.

#### Home Health and Hospice Services

*(In thousands)*

| Home health and hospice revenue | Nine Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Home health services | $172,773 | $129,112 | $43,661 | 33.8% |
| Hospice services | 176,711 | 140,222 | 36,489 | 26.0 |
| Home care and other | 27,979 | 18,239 | 9,740 | 53.4 |
| Total home health and hospice revenue | $377,463 | $287,573 | $89,890 | 31.3% |
|  | **Nine Months Ended September 30,** |  |  |  |
|  | **2024** | **2023** | **Change** | **% Change** |
| Home health services: |  |  |  |  |
| Total home health admissions | 43,782 | 32,180 | 11,602 | 36.1% |
| Total Medicare home health admissions | 18,155 | 14,437 | 3,718 | 25.8 |
| Average Medicare revenue per 60-day completed episode(a) | $3,646 | $3,467 | $179 | 5.2 |
| Hospice services: |  |  |  |  |
| Total hospice admissions | 9,118 | 7,206 | 1,912 | 26.5 |
| Average daily census | 3,209 | 2,544 | 665 | 26.1 |
| Hospice Medicare revenue per day | $182 | $184 | $(2) | (1.1) |
| Number of home health and hospice agencies at period end | 122 | 103 | 19 | 18.4 |

(a) The year-to-date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.

Home health and hospice revenue increased $89.9 million, or 31.3% during the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to an increase of 36.1% in home health admissions, inclusive of an increase in total Medicare home health admissions of 25.8%, an increase in hospice average daily census of 26.1%, and an increase of 26.5% in hospice admissions. The addition of nineteen home health and hospice operations between September 30, 2023 and September 30, 2024, added revenue of $51.2 million, or 17.8%.

#### Senior Living Services

|  | Nine Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue (in thousands) | $128,885 | $111,364 | $17,521 | 15.7% |
| Number of communities at period end | 54 | 51 | 3 | 5.9 |
| Occupancy | 78.9% | 78.4% | 0.5% |  |
| Average monthly revenue per occupied unit | $4,758 | $4,401 | $357 | 8.1 |

Senior living revenue increased $17.5 million, or 15.7%, for the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to an increase of 8.1% in average monthly revenue per occupied unit and an increase of 50 basis points in the occupancy rate between September 30, 2023 and September 30, 2024. The acquisition of three senior living communities between September 30, 2023 and September 30, 2024, added $8.1 million, or 7.3%, in revenue.

### Cost of Services

*(In thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Home Health and Hospice | $314,458 | $242,280 | $72,178 | 29.8% |
| Senior Living | 91,318 | 78,882 | 12,436 | 15.8 |
| Total cost of services | $405,776 | $321,162 | $84,614 | 26.3% |

Consolidated cost of services increased $84.6 million, or 26.3%, during the nine months ended September 30, 2024 compared to the same period in the prior year. Cost of services as a percentage of revenue for the nine months ended September 30, 2024 decreased by 40 basis points to 80.1% from 80.5% compared to the nine months ended September 30, 2023.

#### Home Health and Hospice Services

|  | Nine Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of service (in thousands) | $314,458 | $242,280 | $72,178 | 29.8% |
| Cost of services as a percentage of revenue | 83.3% | 84.2% | (0.9)% |  |

Cost of services related to our Home Health and Hospice services segment increased $72.2 million, or 29.8%, compared to the same period in the prior year primarily due to the increased volume of services from the growth in admissions and average daily census. Cost of services as a percentage of revenue for the nine months ended September 30, 2024 decreased by 90 basis points compared to the nine months ended September 30, 2023 primarily due to decreased wages and benefits as a percent of revenue.

#### Senior Living Services

|  | Nine Months Ended September 30, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of service (in thousands) | $91,318 | $78,882 | $12,436 | 15.8% |
| Cost of services as a percentage of revenue | 70.9% | 70.8% | 0.1% |  |

Cost of services related to our Senior Living services segment increased $12.4 million, or 15.8%, during the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to higher occupancy and wage rate increases. As a percentage of revenue, costs of service increased by 10 basis points during the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023.

*Rent—Cost of Services*. Rent increased 8.1% from $29.4 million to $31.8 million during the nine months ended September 30, 2024 compared to the same period in the prior year, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. As a percentage of revenue, rent—cost of services decreased 110 basis points when compared to the nine months ended September 30, 2023 due to improved senior living performance.

*General and Administrative Expense.* Our general and administrative expense increased $9.4 million, or 35.0%, from $26.9 million to $36.3 million for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023. The increase in general and administrative expense was due to an increase in payroll and related benefits, for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023.

*Depreciation and Amortization.* Depreciation and amortization expense remained consistent with the comparable period.

*Gain on disposition of property and equipment, net.* We recorded a gain of $0.8 million for insurance proceeds received in excess of the carrying values of related assets during the nine months ended September 30, 2024. No gain on disposition of property and equipment was recorded during the nine months ended September 30, 2023.

*Provision for Income Taxes*. We recorded income tax expense of $5.0 million and $3.9 million, or 21.8% and 29.3% of earnings before income taxes, for the nine months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to more excess tax benefits on equity compensation.

### Liquidity and Capital Resources

Our primary sources of liquidity are net cash provided by operating activities and borrowings under our Revolving Credit Facility.

#### Revolving Credit Facility

On July 31, 2024, Pennant amended and restated its existing credit agreement (as amended, the “Amended Credit Agreement”), which provides for an increased revolving credit facility with a syndicate of banks with a borrowing capacity of $250.0 million (the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Amended Revolving Credit Facility prior to maturity in 2029. The Company is permitted to prepay all or any portion of the loans under the Amended Revolving Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders.

The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of September 30, 2024, the Company was compliant with all such financial covenants.

As of September 30, 2024, we had $4.5 million of cash and $132.8 million of available borrowing capacity on our Amended Revolving Credit Facility. As described in Note 17, *Subsequent Events*, to the Interim Financial Statements in Part I of this Quarterly Report, on October 2, 2024, the Company closed a public offering of 4,025,000 shares of its common stock with net proceeds to the Company from the offering, after underwriting discounts and commissions and before expenses, of approximately $118.5 million. The proceeds were subsequently used to pay the outstanding balance on our Amended Revolving Credit Facility.

We believe that our existing cash, cash generated through operations, and access to available borrowing capacity under our Amended Credit Agreement, will be sufficient to provide adequate liquidity for the next twelve months for our operating activities and for opportunities of acquisition growth.

The following table presents selected data from our Condensed Consolidated Statement of Cash Flows for the periods presented:

*(In thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $18,729 | $27,910 |
| Net cash used in investing activities | (66,287) | (17,576) |
| Net cash provided by (used in) financing activities | 45,963 | (9,030) |
| Net (decrease) increase in cash | (1,595) | 1,304 |
| Cash at beginning of period | 6,059 | 2,079 |
| Cash at end of period | $4,464 | $3,383 |

44

### Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Our net cash flow from operating activities for the nine months ended September 30, 2024 decreased by $9.2 million when compared to the nine months ended September 30, 2023. The primary driver of this difference was a decrease in cash flows from the change in operating assets and liabilities of $14.9 million, net, and a decrease of $2.7 million in non-cash expenses, partially offset by an increase in net income of $8.4 million.

Our net cash used in investing activities for the nine months ended September 30, 2024 increased by $48.7 million compared to the nine months ended September 30, 2023, primarily driven by an increase in business and asset acquisitions.

Our net cash used in financing activities increased by approximately $55.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to a net increase in the balance on our line of credit during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

### Contractual Obligations, Commitments and Contingencies

We continue to make draws and payments on our Revolving Credit Facility, as described in Note 11, *Debt*, to the Interim Financial Statements in Part I of this Quarterly Report. Additionally, we have right-of-use assets obtained in exchange for new operating lease obligations, as described in the supplemental disclosures of cash flow information in the Condensed Consolidated Statement of Cash Flows and in Note 13, *Leases,* to the Interim Financial Statements in Part I of this Quarterly Report.

Other than those transactions there have been no other material changes to our total obligations during the period covered by this Quarterly Report outside of the normal course of our business.

## Market risk

As filed, 547 characters.

*Interest Rate Risk*. We are exposed to risks associated with market changes in interest rates. On July 31, 2024, Pennant entered into the Amended Credit Agreement, which provides for a revolving credit facility with a syndicate of banks with a borrowing capacity of $250.0 million. A 1.0% interest rate change would cause interest expense to change by approximately $1.1 million annually based upon our outstanding long-term debt as of September 30, 2024. We manage our exposure to this market risk by monitoring available financing alternatives.

## Controls and procedures

As filed, 1,475 characters.

#### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

#### Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,334 characters.

We have disclosed under the heading “Risk Factors” in the 2023 Annual Report risk factors that materially affect our business, financial condition or results of operations, and disclosed more recent events relevant to our business under Item 2, *Management’s Discussion and Analysis of Financial Condition and Results of Operations*. You should carefully consider the risk factors set forth in the 2023 Annual Report and the other information set forth elsewhere in this Quarterly Report. In particular, if CMS adopts the Home Health Payment Proposed Rule as a final rule in its current form or in a substantially similar form, we may be adversely affected by decreased Medicare reimbursement for home health services in calendar year 2025. Medicare’s rates for home health services not only affect Medicare beneficiaries but may also have consequences for home health patients whose benefits are paid by commercial insurance or other payors that base their payments to home health agencies on Medicare’s payment rates. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed Nov 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001766400-24-000128. Last ingested by Listed: Nov 4, 2026, 17:26 ET. No prices; not investment advice.