Pennant Group, Inc.: Form 10-Q for the period ended Sep 30, 2025

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, 2024 (the “2024 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 2024 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 2024 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, including proposed Medicare reimbursement reductions in the Calendar Year 2026 Home Health Prospective Payment System Proposed Rule and changes to Medicaid funding within the One Big Beautiful Bill Act;
• 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, conditions of licensure or participation in certain payment programs, 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; and
• the performance of the financial and credit markets and uncertainties related to our ability to obtain financing or the terms of such financing.

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 and residents 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 also provide home health and hospice operational support through a management service agreement in Connecticut. As of September 30, 2025, our home health and hospice business provided home health, hospice and home care services from 141 agencies operating across these 13 states, and our senior living business operated 61 senior living communities throughout seven states.

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

Recent Activities

Acquisitions. During the nine months ended September 30, 2025, we expanded our operations with the addition of nine home health agencies, four hospice agencies, and four 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 improvement in senior living revenue per occupied unit and occupancy during the nine months ended September 30, 2025, compared to the same period in 2024. Though we have seen improvements in revenue per occupied unit and occupancy year over year, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which our revenue per occupied unit changes 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 2024 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 2024 Annual Report, the following regulations have been updated.

On June 30, 2025, CMS issued the Calendar Year (“CY”) 2026 Home Health Prospective Payment System proposed rule (the “HH Payment Proposed Rule”). The 2026 HH Payment Proposed Rule includes several changes that, if finalized, could materially impact reimbursement for home health providers. The HH Payment Proposed Rule’s net payment update percentage is -6.4%, which would result in an aggregate estimated decrease across all home health providers of $1.135 billion in payments compared to fiscal year 2025. The payment update percentage includes a market basket update of 2.4%, a permanent behavior adjustment of -3.7%, a temporary payment adjustment of -4.6%, and a -0.5% update to the fixed dollar loss ratio. These adjustments are intended, in part, to account for differences between assumed and actual provider behavior changes since the PDGM’s implementation in 2020, as required by the Bipartisan Budget Act of 2018. The HH Payment Proposed Rule also proposes changes to the regulations governing home health face-to-face visits, which would allow physicians, in addition to other professionals, to perform the face-to-face encounter regardless of whether they are the certifying practitioner or whether they previously cared for the patient. In addition, CMS proposes to recalibrate case-mix weights, adjust certain items relating to the home health quality reporting program, and revise certain measures included in the home health value-based purchasing model.

On August 1, 2025, CMS issued the 2026 Hospice Wage Index and Payment Rate Update final rule (the “Hospice Payment Final Rule”) with changes effective October 1, 2025. The Hospice Payment Final Rule’s payment update percentage is 2.6%, which is an estimated increase of $750 million in payments from fiscal year 2025 in the aggregate across all hospice providers. The payment update percentage is based on a 3.3% market basket percentage increase, which is reduced by a 0.7% productivity adjustment. The Hospice Payment Final Rule clarifies that the physician member of a hospice’s interdisciplinary group may recommend admission to hospice care, which aligns certification regulations with the hospice conditions of participation. 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 2026 fiscal year is $35,361.44, increased by 2.6% from the 2025 fiscal year cap of $34,465.34.

In recent months, President Trump has signed executive orders imposing a variety of tariffs on the global trading partners of the United States. These tariffs have the potential to increase costs on goods that are imported into the United States. As it pertains to our independent subsidiaries, tariffs on medical supplies may lead to higher costs to providers and the federal government through the Medicare and Medicaid programs and may impact the formulas used to calculate federal reimbursements.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law, which enacts significant reforms to the Medicaid program that may indirectly impact the Company’s operations. These changes include mandatory work requirements for certain adult beneficiaries, expanded cost-sharing obligations, and reductions to provider tax funding. As a result, states may experience reduced federal Medicaid funding, which could lead to changes in Medicaid eligibility and benefit design and result in potential reductions or delays in reimbursement for Medicaid-covered services our independent subsidiaries provide. The Company’s independent subsidiaries that serve Medicaid or dual-eligible beneficiaries may be affected by these policy changes, particularly in states with high Medicaid utilization. In addition, the OBBBA may impact state budgets due to reduced federal Medicaid contributions as a result of the OBBBA. Some states where the Company provides services have taken actions to address the OBBBA. For example, California signed S.B. 105 into law on September 17, 2025, which is a comprehensive budget bill for the state’s fiscal year 2025 - 2026 and contains specific allocation of funds for the state’s Medicaid program, Medi-Cal, to align with the OBBBA. Other states may take similar actions to address the OBBBA which can further affect the Company’s operations.

Segments

We have two reportable segments: (1) home health and hospice services, which includes our home health, hospice, home care, and geriatric primary and palliative care businesses; and (2) senior living services, which includes our assisted living, independent living, and memory care services. Our Chief Executive Officer, who is our CODM, reviews financial information at the operating segment level using segment adjusted EBITDAR from operations.

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:

(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:

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 LUPA 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 2024 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 that are provided for days of service 1 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 based upon empirical experience, estimate amounts due back to Medicare to the extent that the cap has been exceeded.

Senior Living Services. 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 employee wages and related benefits, share-based compensation, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients and residents. 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 employee wages and related benefits and travel expenses for our Service Center personnel in providing 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 historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from one to forty 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 2024 Annual Report for further information on our critical accounting estimates and policies, which are as follows:

• Self-insurance reserves - The Company is self-insured for general and professional liability, workers’ compensation, automobile, and its employee health plans while maintaining stop-loss coverage with third-party insurers to limit its total liability exposure. 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:

The following table presents our consolidated GAAP Financial measures for the three and nine months ended September 30, 2025 and 2024:

(In thousands)

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.

(In thousands)

(In thousands)

33

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

(In thousands)

(a) Segment Adjusted EBITDAR from Operations is net income attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, unallocated corporate and administrative expenses, and, in order to view the operations’ performance on a comparable basis from period to period, certain adjustments including: (1) activities associated with start-up operations, (2) share-based compensation expense, (3) acquisition related costs, (4) activities associated with transitioning operations, (5) unusual, non-recurring, or redundant charges, and (6) net income attributable to noncontrolling interest. “All Other” consists of revenues generated at operating locations not included in the segment financial information reviewed by the CODM. Revenue included in the “All Other” category is insignificant individually, and therefore does not constitute a reportable segment. General and administrative expenses are not allocated to the reportable segments, and are included as “Unallocated corporate expenses”, 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 and write-offs for amounts in dispute with the prior owners of certain acquired operations.

(e) During 2024 and 2025, an affiliate of the Company held its memory care units in transition and is converting the facility into an assisted living community. We received insurance proceeds related to the property in 2024 and 2025 which were recorded in gain on disposition of property and equipment, net on the consolidated statements of income.

(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.

34

Performance and Valuation Measures:

(In thousands)

(In thousands)

(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)

(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 and write-offs for amounts in dispute with the prior owners of certain acquired operations.

(d) During 2024 and 2025, an affiliate of the Company held its memory care units in transition and is converting the facility into an assisted living community. We received insurance proceeds related to the property in 2024 and 2025 which were recorded in gain on disposition of property and equipment, net on the consolidated statements of income.

(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.

The table below reconciles Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented:

(In thousands)

36

(In thousands)

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 term of the lease to which the asset applies, 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 these non-cash charges 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.

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, adjusted for net income attributable to noncontrolling interest, 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 certain 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 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:

• results at start-up operations;
• share-based compensation expense;
• acquisition related costs;
• activities 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 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 without regard to 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, 2025 Compared to the Three Months Ended September 30, 2024

Revenue

(In thousands)

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

Our total revenue increased $48.4 million, or 26.8%, during the three months ended September 30, 2025. We experienced growth of $37.9 million from increased operational performance in our Home Health and Hospice segment from increased admissions and census, in part driven by newly acquired agencies when compared to the three months ended September 30, 2024. The growth in our Senior Living segment resulted in an increase in revenue of $10.5 million driven by acquired senior living communities and an improved average rate per occupied room and improved occupancy.

Home Health and Hospice Services

(In thousands)

Home health and hospice revenue increased $37.9 million, or 27.9%, for the three months ended September 30, 2025 compared to the prior year quarter. Revenue grew due to an increase in certain key performance indicators, including an increase of 36.2% in total home health admissions, an increase in total hospice admissions of 16.6%, and an increase in average daily hospice census of 17.4% during the three months ended September 30, 2025 compared to the prior year quarter. Growth was also driven by the addition of nineteen home health and hospice operations between September 30, 2024 and September 30, 2025. Agencies acquired during calendar year 2024 and year-to-date September 30, 2025 drove an increase in revenue of $25.3 million, representing an 18.7% increase compared to the prior year quarter.

Senior Living Services

Senior living revenue increased $10.5 million, or 23.2%, for the three months ended September 30, 2025 compared to the prior year quarter. Revenue grew due to a 7.4% increase in average monthly revenue per occupied unit and an increase of 180 basis points in occupancy between September 30, 2024 and September 30, 2025. Growth was also driven by the addition of seven senior living communities between September 30, 2024 and September 30, 2025. Communities acquired during calendar year 2024 and year-to-date September 30, 2025 drove an increase in revenue of $6.6 million, representing a 14.7% increase compared to the prior year quarter.

Cost of Services

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

(In thousands)

Total consolidated cost of services increased $41.0 million, or 28.4%, for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024. Cost of services as a percentage of revenue increased by 100 basis points from 80.0% to 81.0% for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024.

Home Health and Hospice Services

(In thousands)

Cost of services related to our Home Health and Hospice Services segment increased $32.3 million, or 28.7%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the three months ended September 30, 2025 increased 50 basis points when compared to the three months ended September 30, 2024.

Senior Living Services

(In thousands)

Cost of services related to our Senior Living Services segment increased $8.6 million, or 27.1%, primarily due to increased wages and benefits and acquisition activity. As a percentage of revenue, costs of service increased by 220 basis points for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024 primarily due to decreases in state relief funding.

Rent—Cost of Services. Rent expense increased 10.6% from $10.9 million to $12.1 million in the three months ended September 30, 2025 when compared to the three months ended September 30, 2024, primarily as a result of the new leases related to the acquired home health and hospice operations and senior living communities. Rent as a percentage of total revenue decreased 70 basis points from 6.0% for the three months ended September 30, 2024, compared to 5.3% for the three months ended September 30, 2025.

General and Administrative Expense. Our general and administrative expense increased $6.3 million, or 48.2%, from $13.0 million to $19.3 million for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024. General and administrative expense as a percentage of revenue increased 120 basis points from 7.2% to

8.4% during the period. The primary driver of the increase in general and administrative expense was due to an increase in payroll and related benefits and an increase in professional services related to acquisition activities for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024.

Depreciation and Amortization. Depreciation and amortization expense increased $0.6 million, or 38.2%, from $1.5 million to $2.1 million for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024. The increase in depreciation and amortization was due to the increase in overall property and equipment, net balances driven in part by acquisition activity.

Provision for Income Taxes. We recorded income tax expense of $2.5 million and $1.4 million, or 26.8% and 16.9% of earnings before income taxes, for the three months ended September 30, 2025 and 2024, respectively. The increase in the effective tax rate is primarily due to having more compensation subject to IRC Section 162(m) and less excess tax benefits on equity compensation.

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

Revenue

(In thousands)

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

Our total revenue increased $152.0 million, or 30.0%, during the nine months ended September 30, 2025. We experienced growth of $122.0 million from increased operational performance in our Home Health and Hospice segment from increased admissions and census, in part driven by newly acquired agencies when compared to the nine months ended September 30, 2024. The growth in our Senior Living segment resulted in an increase in revenue of $30.0 million driven by acquired senior living communities and an improved average rate per occupied room.

Home Health and Hospice Services

(In thousands)

(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 $122.0 million, or 32.3%, during the nine months ended September 30, 2025 compared to the same period in the prior year primarily due to an increase of 30.5% in home health admissions, inclusive of an increase in total Medicare home health admissions of 25.6%, an increase in hospice average daily census of 22.0%, and an increase of 18.1% in hospice admissions. Growth was also driven by the addition of nineteen home health and hospice operations between September 30, 2024 and September 30, 2025. Agencies acquired during calendar year 2024 and year-to-date September 30, 2025 drove an increase in revenue of $85.7 million, representing a 22.7% increase compared to the same period in the prior year.

Senior Living Services

Senior living revenue increased $30.0 million, or 23.3%, for the nine months ended September 30, 2025 compared to the same period in the prior year primarily due to an increase of 8.9% in average monthly revenue per occupied unit between September 30, 2024 and September 30, 2025. Growth was also driven by the addition of seven senior living communities between September 30, 2024 and September 30, 2025. Communities acquired during calendar year 2024 and year-to-date September 30, 2025 drove and increase in revenue of $19.0 million, representing a 14.7% increase compared to the same period in the prior year.

Cost of Services

(In thousands)

Consolidated cost of services increased $125.7 million, or 31.0%, during the nine months ended September 30, 2025 compared to the same period in the prior year. Cost of services as a percentage of revenue for the nine months ended September 30, 2025 increased by 70 basis points to 80.8% from 80.1% compared to the nine months ended September 30, 2024.

Home Health and Hospice Services

Cost of services related to our Home Health and Hospice services segment increased $101.5 million, or 32.3%, 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, 2025 increased by 0 basis points compared to the nine months ended September 30, 2024.

Senior Living Services

Cost of services related to our Senior Living services segment increased $24.2 million, or 26.4%, during the nine months ended September 30, 2025 compared to the same period in the prior year primarily due to increased wages and benefits and acquisition activity. As a percentage of revenue, costs of service increased by 180 basis points during the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024 primarily due to decreases in state relief funding.

Rent—Cost of Services. Rent increased 12.2% from $31.8 million to $35.7 million during the nine months ended September 30, 2025 compared to the same period in the prior year, primarily as a result of the new leases related to the acquired home health and hospice operations and senior living communities. As a percentage of revenue, rent—cost of services decreased 90 basis points when compared to the nine months ended September 30, 2024.

General and Administrative Expense. Our general and administrative expense increased $15.4 million, or 42.4%, from $36.3 million to $51.7 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024. The increase in general and administrative expense was due to an increase in payroll and related benefits and an increase in professional services related to acquisition activities for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024.

Depreciation and Amortization. Depreciation and amortization expense increased $1.9 million, or 44.0%, from $4.3 million to $6.2 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024. The increase in depreciation and amortization was due to the increase in overall property and equipment, net balances driven in part by acquisition activity.

Gain on disposition of property and equipment, net. We recorded a net gain of $1.1 million primarily due to insurance proceeds received in excess of the carrying values of related assets during the nine months ended September 30, 2025. 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.

Provision for Income Taxes. We recorded income tax expense of $8.0 million and $5.0 million, or 25.4% and 21.8% of earnings before income taxes, for the nine months ended September 30, 2025 and 2024, respectively. The increase in the effective tax rate is primarily due to having more compensation subject to IRC Section 162(m) and less 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 Amended 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, 2025, the Company was compliant with all such financial covenants.

As of September 30, 2025, we had $2.3 million of cash and $219.8 million of available borrowing capacity on our Amended Revolving Credit Facility.

On November 3, 2025, the Company entered into the First Amendment to the Amended Credit Agreement (“Amendment”), which establishes an incremental term loan with an aggregate principal amount of $100,000. The incremental term loan constitutes a term loan under, and is subject to the terms and provisions of, the Amended Credit Agreement, including bearing interest at the same interest rate, and having the same maturity date. The Company used the proceeds of the incremental term loan to refinance a portion of the outstanding revolving loans under the Amended Credit Agreement and to pay fees and expenses incurred in connection with the Amendment. The lender group remains unchanged.

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 both 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, 2025 Compared to the Nine Months Ended September 30, 2024

Our net cash flow from operating activities for the nine months ended September 30, 2025 increased by $8.6 million when compared to the nine months ended September 30, 2024. The primary driver of this difference was an increase in net income of $5.6 million, an increase of $1.2 million in non-cash expenses, and an increase in cash flows from the change in operating assets and liabilities of $1.8 million, net.

Our net cash used in investing activities for the nine months ended September 30, 2025 increased by $8.7 million compared to the nine months ended September 30, 2024, primarily driven by an increase in business acquisitions.

Our net cash provided by financing activities decreased by approximately $20.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily due to a net decrease in the balance on our line of credit during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

Contractual Obligations, Commitments and Contingencies

We continue to make draws and payments on our Amended 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.

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 $0.3 million annually based upon our outstanding long-term debt as of September 30, 2025. We manage our exposure to this market risk by monitoring available financing alternatives.

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.

We have disclosed under the heading “Risk Factors” in the 2024 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 2024 Annual Report and the other information set forth elsewhere in this Quarterly Report. In particular, if CMS adopts the 2026 HH PPS 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 2026. 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. Additionally, the effects of the OBBBA may cause a material adverse effect on our reimbursement for our services to Medicaid beneficiaries, particularly in the states where we operate and Medicaid is highest. State responses to the OBBBA may vary widely, and we may face material adverse effects on our operations in states that do not address potential Medicaid funding shortfalls caused by the OBBBA. Additionally, the federal government shutdown commencing on October 1, 2025, may have adverse effects on our operations due to the scope of activities within CMS that are not permitted during this government shutdown and the unknown duration of this shutdown. 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.