Pennant Group, Inc.: Form 10-Q for the period ended Jun 30, 2026

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, 2025 (the “2025 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 2025 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 2025 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 Rate Update Final Rule and changes to Medicaid funding and eligibility within the One Big Beautiful Bill Act;
• changes in, and compliance with, the laws and regulations affecting the U.S. healthcare industry, and changes based on the outcomes of the 2026 midterm elections and state level elections that may affect how these laws are enacted and enforced in the future;
• proposed changes to payment models and reimbursement amounts within the Medicare and Medicaid fee schedules for future calendar years, including potentially minimal increases in Medicare Advantage rates and payments in the future;
• 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 Alabama, Arizona, California, Colorado, Georgia, Idaho, Montana, Nevada, Oklahoma, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin and Wyoming. We also provide home health and hospice operational support through a management service agreement in Connecticut. See Note 9, Equity Method Investments, for further details about our investment in these operations. As of June 30, 2026, our home health and hospice business provided home health, hospice and home care services from 175 agencies operating across these 16 states, and our senior living business operated 69 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 six months ended June 30, 2026, we expanded our operations with the addition of six 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

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 2025 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 2025 Annual Report, the following regulations have been updated.

On July 30, 2026, CMS issued the Calendar Year (“CY”) 2027 Hospice Wage Index and Payment Rate Update proposed rule (“Hospice Payment Final Rule”). The Hospice Payment Final Rule’s net payment update percentage is 2.3%, which is an estimated increase of $755 million in payments from fiscal year 2026 in the aggregate across all hospice providers. The payment update percentage is based on a 3.2% market basket percentage increase, reduced by a 0.9% productivity adjustment. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap of the total overall payments per patient that may be made to a hospice annually to $36,174.75 for fiscal year 2027, which is an increase of 2.3% from the 2026 fiscal year cap of $35,361.44.

The Hospice Payment Final Rule makes a technical change extending a hospice’s ability to use telehealth to conduct encounters that otherwise have to be conducted face-to-face through December 31, 2027, to align with the Consolidated Appropriations Act of 2026. Further, CMS has made the hospice election statement addendum, which was originally only provided to hospice patients upon request, mandatory for all hospice elections. In publishing the Hospice Payment Final Rule, CMS explained that this requirement will provide beneficiaries additional transparency regarding the items, services, and drugs not covered under Medicare’s hospice benefits, so that those beneficiaries can make appropriate treatment decisions. Finally, as part of the Hospice Quality Reporting Program, CMS will add an icon to the Medicare.gov Compare Tool that will identify hospices failing to submit any data or submitting less than the required quality data beginning in the 2028 fiscal year.

Effective May 13, 2026, CMS announced a six-month, nationwide moratorium on new Medicare enrollment applications for hospice providers and home health agencies (“HHA”); this applies to all initial Medicare enrollment applications and to certain changes in majority ownership of existing enrolled providers. The moratorium does not affect currently enrolled providers. This moratorium was announced in coordination with the Anti-Fraud Task Force focusing on initiatives to combat fraud, waste, and abuse. Also, in connection with such moratorium, CMS announced certain enforcement activity against hospices and HHAs (e.g., suspension of Medicare payments to certain providers). Notably, CMS announced heightened scrutiny of newly enrolled providers in Arizona, California, Georgia, Nevada, Ohio, Oklahoma, and Texas. Following CMS’s announcement of this moratorium, certain states have followed suit: Ohio announced a Medicaid enrollment moratorium on May 14, 2026, through November 14, 2026; Arkansas announced it will no longer accept applications for hospices effective May 13, 2026; and, Nevada announced a temporary pause on the issuance of new state licenses for hospices and HHAs on June 5, 2026. All of these reflect alignment with the federal enrollment moratorium.

On July 1, 2026, CMS published the CY 2027 Home Health Prospective Payment System proposed rule (“HHA Payment Proposed Rule”). The HHA Payment Proposed Rule includes several changes that, if finalized, could materially impact our home health offerings. Under the HHA Payment Proposed Rule, CMS proposes increasing the aggregate net payments to home health agencies by 2.4%, resulting in an aggregate estimated increase across all home health providers of $420 million in payments compared to CY 2026. The payment update percentage includes a payment increase of 2.1% or $370 million, and a 0.3% update to the fixed dollar loss ratio for outlier payments, representing a $50 million increase in funding.

The HHA Payment Proposed Rule also proposes several specific Home Health Quality Reporting Program (“QRP”) proposals. First, CMS proposed to shorten the OASIS assessment data submission and correction deadline to the fifteenth day of the second month after the end of the calendar quarter, beginning with the CY 2027 QRP. Second, CMS proposed aligning the OASIS APU reporting period, which currently begins each July 1 and ends the following June 30, with the calendar year. Third, CMS proposed regulatory changes to transition the QRP noncompliance reconsideration process from letter-based communications to a digital process using communications through CMS’s data submission system to expedite this process

The HHA Payment Proposed Rule also set forth significant changes to Medicare provider and supplier enrollment processes. If adopted, these provisions would apply to any Medicare provider or supplier, consistent with HHS and CMS’s stated priorities of combatting fraud, waste, and abuse. First, CMS proposed to expand the false-or-misleading information basis for denying or revoking enrollment in Medicare so that this lower standard for denial or revocation of enrollment shall be applicable to any and all of CMS’s and Medicare’s provider-enrollment-related forms or documentation. Second, CMS proposed new and expanded grounds for denying enrollment in Medicare, including but not limited to, an applicant’s failure to abide by certain change in majority ownership rules for hospices and HHAs, if that applicant’s licensure or participation ins a state or federal program for the payment of healthcare services had been suspended or revoked. Third, CMS proposed to make all Medicare enrollment revocations retroactive to the date the event or circumstance giving rise to revocation began, rather than applying only prospectively and commencing 30 days after CMS or its contractor mails notice of revocation to the provider.

Fourth, the HHA Payment Proposed Rule expands the reapplication-bar authority so that CMS may prohibit a prospective provider or supplier from enrolling in Medicare for up to ten years if its prior application is denied for certain reasons defined by regulation, such as noncompliance with enrollment requirements, misconduct, or unpaid claims or debt owed to Medicare. The proposed rule, if adopted, would significantly expand the grounds on which providers or suppliers are barred from re-applying for enrollment in Medicare after a prior enrollment denial, which currently are limited to denials based on false or misleading information. Finally, a series of other enrollment-related changes were proposed including a new general signage requirement, documentation requirements, and clarification of procedures for appeals and rebuttals concerning CMS’s enrollment decisions.

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 units 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 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 payment periods; (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 2025 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, which are included in cost of services and general and administrative expense.

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 initially 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 periods. 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 2025 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 Company accrues amounts equal to the actuarial estimated costs to settle open claims of insureds, as well as an estimate of the costs of insured claims that have been incurred but not reported. We develop information about the size of the ultimate claims based on historical experience, current industry information, and actuarial analysis;
• 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 six months ended June 30, 2026 and 2025:

(In thousands)

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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)

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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) transition services costs, (6) other unusual, non-recurring, or redundant charges, and (7) 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.

(e) During 2025, an affiliate of the Company held its memory care units in transition and converted the facility into an assisted living community. In 2026, this community is included in start-up operations.

(f) Costs identified as redundant or non-recurring incurred by the Company as a result of the transition services agreement between the Company and UnitedHealth Group Incorporated (“UnitedHealth”) entered into as part of the acquisition agreement consummated on October 1, 2025. All amounts are included in Cost of services. Fees incurred under the transition services agreement were $2,491 and $5,306 for the three and six months ended June 30, 2026.

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

35

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.

(d) During 2025, an affiliate of the Company held its memory care units in transition and converted the facility into an assisted living community. In 2026, this community is included in start-up operations.

(e) Costs identified as redundant or non-recurring incurred by the Company as a result of the transition services agreement between the Company and UnitedHealth Group Incorporated (“UnitedHealth”) entered into as part of the acquisition agreement consummated on October 1, 2025. All amounts are included in Cost of services. Fees incurred under the transition services agreement were $2,491 and $5,306 for the three and six months ended June 30, 2026.

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

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

(In thousands)

(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, and 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.

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 include, to the extent applicable:

• results at start-up operations;
• share-based compensation expense;
• acquisition related costs;
• activities associated with transitioning operations; and
• other 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 June 30, 2026 Compared to the Three Months Ended June 30, 2025

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 $78.5 million, or 35.8%, during the three months ended June 30, 2026. We experienced growth of $71.8 million from increased operational performance in our Home Health and Hospice segment from increased admissions and census, primarily driven by newly acquired agencies when compared to the three months ended June 30, 2025. The growth in our Senior Living segment resulted in an increase in revenue of $6.7 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 $71.8 million, or 43.2%, for the three months ended June 30, 2026 compared to the prior year quarter. Revenue grew due to an increase in certain key performance indicators, including an increase of 62.3% in total home health admissions, an increase in total hospice admissions of 38.4%, and an increase in average daily hospice census of 40.1% during the three months ended June 30, 2026 compared to the prior year quarter. Growth was also driven by the addition of thirty-eight home health and hospice operations between June 30, 2025 and June 30, 2026. Agencies acquired during calendar year 2025 and year-to-date June 30, 2026 drove an increase in revenue of $55.8 million, representing an increase of 33.6% compared to the prior year quarter.

Senior Living Services

Senior living revenue increased $6.7 million, or 12.6%, for the three months ended June 30, 2026 compared to the prior year quarter. Revenue grew due to an increase of 3.9% in average monthly revenue per occupied unit and an increase of 10 basis points in occupancy between June 30, 2025 and June 30, 2026. Growth was also driven by the addition of eight senior living communities between June 30, 2025 and June 30, 2026. Communities acquired during calendar year 2025 and year-to-date June 30, 2026 drove an increase in revenue of $3.2 million, representing an increase of 6.0% 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 $65.4 million, or 36.9%, for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025. Cost of services as a percentage of revenue increased by 60 basis points from 80.8% to 81.4% for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025.

Home Health and Hospice Services

(In thousands)

Cost of services related to our Home Health and Hospice Services segment increased $59.5 million, or 43.1%, for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025, primarily due to increased volume of services provided and transition costs related to acquisitions. Cost of services as a percentage of revenue for the three months ended June 30, 2026 decreased 10 basis points when compared to the three months ended June 30, 2025.

Senior Living Services

(In thousands)

Cost of services related to our Senior Living Services segment increased $5.8 million, or 14.9%, for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025, primarily due to increased wages and benefits and acquisition activity. As a percentage of revenue, costs of service increased by 150 basis points for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025, primarily due to higher cost patterns at newly acquired operations.

Rent—Cost of Services. Rent expense increased 12.6% from $11.9 million to $13.4 million in the three months ended June 30, 2026 when compared to the three months ended June 30, 2025, 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 90 basis points from 5.4% for the three months ended June 30, 2025, compared to 4.5% for the three months ended June 30, 2026.

General and Administrative Expense. Our general and administrative expense increased $4.0 million, or 22.8%, from $17.6 million to $21.6 million for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025. General and administrative expense as a percentage of revenue decreased 70 basis points from 8.0% to 7.3% during the period. The primary driver of the increase in general and administrative expense was due to an increase in payroll, incentives, and related benefits for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025.

Depreciation and Amortization. Depreciation and amortization expense increased $0.9 million, or 39.9%, from $2.2 million to $3.1 million for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025. 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 gain of $1.0 million for insurance proceeds received in excess of the carrying values of related assets during the three months ended June 30, 2025.

Provision for Income Taxes. We recorded income tax expense of $3.9 million and $2.6 million, or 26.5% and 24.6% of earnings before income taxes, for the three months ended June 30, 2026 and 2025, respectively. The increase in the effective tax rate is primarily attributable to higher state income taxes driven by changes in the geographic mix of earnings, net of the associated federal tax benefit.

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

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 $154.0 million, or 35.9%, during the six months ended June 30, 2026. We experienced growth of $141.0 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 six months ended June 30, 2025. The growth in our Senior Living segment resulted in an increase in revenue of $13.0 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 $141.0 million, or 43.3%, during the six months ended June 30, 2026 compared to the same period in the prior year primarily due to an increase of 62.5% in home health admissions, inclusive of an increase in total Medicare home health admissions of 73.0%, an increase in hospice average daily census of 38.6%, and an increase of 32.5% in hospice admissions. Growth was also driven by the addition of thirty-eight home health and hospice operations between June 30, 2025 and June 30, 2026. Agencies acquired during calendar year 2025 and year-to-date June 30, 2026 drove an increase in revenue of $109.1 million, representing an increase of 33.5% compared to the same period in the prior year.

Senior Living Services

Senior living revenue increased $13.0 million, or 12.6%, for the six months ended June 30, 2026 compared to the same period in the prior year primarily due to an increase of 4.4% in average monthly revenue per occupied unit between June 30, 2025 and June 30, 2026. Growth was also driven by the addition of eight senior living communities between June 30, 2025 and June 30, 2026. Communities acquired during calendar year 2025 and year-to-date June 30, 2026 drove an increase in revenue of $6.0 million, representing an increase of 5.8% compared to the same period in the prior year.

Cost of Services

(In thousands)

Consolidated cost of services increased $129.3 million, or 37.4%, during the six months ended June 30, 2026 compared to the same period in the prior year. Cost of services as a percentage of revenue for the six months ended June 30, 2026 increased by 90 basis points to 81.5% from 80.6% compared to the six months ended June 30, 2025.

Home Health and Hospice Services

Cost of services related to our Home Health and Hospice services segment increased $118.8 million, or 43.8%, 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 six months ended June 30, 2026 increased by 30 basis points compared to the six months ended June 30, 2025.

Senior Living Services

Cost of services related to our Senior Living services segment increased $10.5 million, or 14.0%, during the six months ended June 30, 2026 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 80 basis points during the six months ended June 30, 2026 when compared to the six months ended June 30, 2025 primarily due to higher cost patterns at newly acquired operations.

Rent—Cost of Services. Rent increased 12.2% from $23.6 million to $26.5 million during the six months ended June 30, 2026 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 100 basis points when compared to the six months ended June 30, 2025.

General and Administrative Expense. Our general and administrative expense increased $8.9 million, or 27.3%, from $32.4 million to $41.3 million for the six months ended June 30, 2026 when compared to the six months ended June 30, 2025. General and administrative expense as a percentage of revenue decreased 50 basis points from 7.6% to 7.1% during the period. The increase in general and administrative expense was due to an increase in payroll, incentive, and related benefits, along with increased professional services for the six months ended June 30, 2026 when compared to the six months ended June 30, 2025.

Depreciation and Amortization. Depreciation and amortization expense increased $1.6 million, or 39.2%, from $4.1 million to $5.7 million for the six months ended June 30, 2026 when compared to the six months ended June 30, 2025. 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 gain of $1.0 million for insurance proceeds received in excess of the carrying values of related assets during the six months ended June 30, 2025.

Provision for Income Taxes. We recorded income tax expense of $7.7 million and $5.5 million, or 26.7% and 24.8% of earnings before income taxes, for the six months ended June 30, 2026 and 2025, respectively. The increase in the effective tax rate is primarily attributable to higher state income taxes driven by changes in the geographic mix of earnings, net of the associated federal tax benefit.

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.

On November 3, 2025, Pennant entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”), which provides for an incremental term loan with an aggregate principal amount of $100.0 million (the “Incremental Term Loans”). The Incremental Term Loans constitute term loans under, and are 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, as the Amended Revolving Credit Facility. The Company used the proceeds of the Incremental Term Loans to refinance a portion of the outstanding revolving loans under the Amended Revolving Credit Facility and to pay fees and expenses incurred in connection with the First Amendment.

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 June 30, 2026, the Company was compliant with all such financial covenants.

As of June 30, 2026, we had $15.3 million of cash and $145.6 million of available borrowing capacity 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 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)

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

Our net cash provided by operating activities for the six months ended June 30, 2026 increased by $5.0 million when compared to the six months ended June 30, 2025. The primary driver of this difference was an increase in net income of $4.7 million, an increase of $6.0 million in non-cash adjustments, and a decrease in cash flows from the change in operating assets and liabilities of $5.7 million, net.

Our net cash used in investing activities for the six months ended June 30, 2026 decreased by $15.1 million compared to the six months ended June 30, 2025, primarily driven by a decrease in business acquisitions.

Our net cash provided by financing activities decreased by approximately $12.0 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The decrease was primarily due to a decrease in the net amount drawn on our line of credit used primarily to fund acquisition activity during the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Contractual Obligations, Commitments and Contingencies

We continue to make draws and payments on our Amended Revolving Credit Facility, as described in Note 13, 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 12, 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. On November 3, 2025, Pennant entered into the First Amendment, which provides for an incremental term loan with an aggregate principal amount of $100.0 million. A 1.0% interest rate change would cause interest expense to change by approximately $2.0 million annually based upon our outstanding long-term debt as of June 30, 2026. 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 2025 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 2025 Annual Report and the other information set forth under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Quarterly Report. 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.

Since the filing of our 2025 Annual Report on February 26, 2026, the following addition has been made to the risk factors previously disclosed.

The Increasing Use of Artificial Intelligence Creates or Increases Regulatory and Business Risks That May Have a Material Impact on Our Results.

We are increasingly incorporating artificial intelligence ("AI") and machine learning technologies into certain aspects of our operations. AI is also embedded in or utilized by third-party systems and vendor products on which we rely, in ways that may or may not be apparent. The inherent complexity of AI models may make it difficult to understand how decisions are made, and certain methodologies may lack transparency or explainability.

AI models may produce inaccurate, incomplete, or biased outputs due to limitations in data quality, biased training data, flawed algorithms, or changing data patterns. If AI-supported processes result in errors affecting clinical decision-making, patient care, administrative operations, or other aspects of our business, we could experience adverse patient outcomes, legal claims, regulatory enforcement, and reputational harm. There is also a risk that our confidential information or protected health information could become part of an AI model accessible to third-party applications or users as a result of a cybersecurity incident or a vendor's violation of its contractual obligations, which could create new privacy obligations under state and federal laws governing the privacy of patient health information, including the creation of new business associate obligations under HIPAA, and heighten the risk of data breaches or unauthorized use of protected health information.

The legal and regulatory landscape governing AI in healthcare is rapidly evolving at the federal, state, and international levels. Changes in the laws or regulations, or uncertainty regarding their interpretation and enforcement, may increase our compliance costs, require modifications to our operations or technologies, restrict our use of AI, or render our current practices non-compliant. If we or our third-party providers fail to comply with applicable AI laws and regulations, we could face legal proceedings, investigations, penalties, and reputational harm.

In addition, our ability to compete effectively may depend in part on our ability to develop, adopt, and deploy AI technologies in a timely and cost-effective manner. If we are unable to do so, or if our competitors or new market entrants deploy AI more effectively, our competitive position could be adversely affected.