• Pennant Reports First Quarter 2022 Results

    Source: Nasdaq GlobeNewswire / 09 May 2022 16:10:00   America/New_York

    EAGLE, Idaho, May 09, 2022 (GLOBE NEWSWIRE) -- The Pennant Group, Inc. (NASDAQ: PNTG), the parent company of the Pennant group of affiliated home health, hospice and senior living companies, today announced its operating results for the first quarter 2022, reporting GAAP diluted earnings per share of $0.03 and adjusted diluted earnings per share of $0.11 for the quarter(1).

    First Quarter Highlights

    • Total revenue for the quarter was $113.9 million, an increase of $8.2 million or 7.8% over the prior year quarter;
    • Net income for the first quarter was $1.0 million, adjusted EBITDA for the quarter was $6.1 million, and adjusted EBITDAR for the quarter was $15.2 million;
    • Home Health and Hospice Services segment revenue for the first quarter was $80.5 million, an increase of $5.9 million or 7.9% over the prior year quarter; segment adjusted EBITDAR from operations(2) was $13.9 million for the quarter, an increase of $0.2 million or 1.1% over the prior year quarter and an increase of $1.5 million or 12.2% over the fourth quarter of 2021;
    • Total home health admissions for the first quarter was 10,182, an increase of 11.9% over the prior year quarter, and total Medicare home health admissions for the first quarter was 4,633, an increase of 3.0% over the prior year quarter;
    • Total hospice admissions for the first quarter was 2,409, an increase of 11.8% over the prior year quarter, and hospice average daily census for the first quarter was 2,232, a decrease of 1.1% compared to the fourth quarter of 2021;
    • Senior Living Services segment revenue for the first quarter was $33.4 million, an increase of $2.4 million or 7.7% over the prior year quarter, segment adjusted EBITDA for the first quarter was $1.6 million, an increase of $1.7 million over the prior year quarter, and segment adjusted EBITDAR for the quarter was $9.4 million;
    • Senior living average occupancy for the first quarter was 72.6%, an increase of 50 basis points over the prior year quarter and 20 basis points over the fourth quarter 2021, and average monthly revenue per occupied room for the first quarter was $3,371, an increase of $185 or 5.8% over the prior year quarter and $80 or 2.4% over the fourth quarter of 2021. Excluding the impact of senior living operations exited during the first quarter and since, same store average occupancy for the first quarter was 75.4%, an increase of 10 basis points over the fourth quarter 2021 and 80 basis points over the prior year quarter, and same store average revenue per occupied room would have increased 1.9% over the fourth quarter 2021 and 4.9% over the prior year quarter.
    (1) See "Reconciliation of GAAP to Non-GAAP Financial Information.”
    (2) Segment Adjusted EBITDAR from Operations is defined and outlined in Note 6 on Form 10-Q and is the segment GAAP measure of profit and loss.

    Operating Results

    “We are pleased to report first quarter results that reflect the momentum building in both segments,” said Daniel Walker, Pennant’s Chief Executive Officer. “We experienced challenges related to the Omicron variant surge in the early part of the first quarter and ongoing labor pressures. Despite these headwinds, our local teams navigated a challenging operating environment and produced strong results in line with our projections. We know what we have to do to continue this momentum and are anxious to unlock additional value for long-term stakeholders. On the back of this confidence, we are affirming our full year 2022 guidance of annual revenue between $450 million and $460 million and adjusted earnings per diluted share of $0.60 to $0.72.”

    Commenting on the Company’s operating results, Brent Guerisoli, Pennant’s President, said, “Our home health business experienced strong growth, while results in our hospice business were more mixed, partly the result of COVID-related length of stay trends. In the first quarter, home health revenue grew $4.2 million or 12.7% and hospice revenue grew $0.9 million or 2.5%, each over the prior year quarter. Our strong top line home health results were driven largely by home health admissions that increased 9.6% over the fourth quarter 2021. While total hospice admissions grew 9.8% over the fourth quarter 2021, we experienced a decrease in average daily census of 1.1% compared to the same period, as a higher percentage of our patients began care further along in the end-of-life period, resulting in a slight decline in average discharge length of stay. However, we continue to focus on meeting the needs of our local healthcare communities and strengthening relationships with new and existing key partners, leading to a 9.8% increase in total hospice referrals compared to the fourth quarter 2021. Despite the challenges from Omicron and ongoing labor pressures, our segment adjusted EBITDA grew $1.5 million compared to the fourth quarter 2021 and our adjusted EBITDA margin improved by 110 basis points. Going forward, we know there is much more to accomplish in our home health and hospice segment and look forward to further organic and strategic growth.”

    “Our senior living segment took another step forward in its ongoing turnaround,” said Mr. Guerisoli. “We continued to make significant progress in building a stronger leadership foundation, developing market and cluster leaders, expanding our marketing and sales expertise by elevating and recruiting talented professionals and equipping them with better data analytics and tools, and driving rigorous accountability around the key focus areas that will accelerate our segment results. In the first quarter, these efforts contributed to segment revenue growth of $2.4 million, or 7.7%, over the prior year quarter, and segment adjusted EBITDA growth of $1.7 million over the prior year quarter. Our occupancy improved 50 basis points and our revenue per occupied room increased by 5.8%, each over the prior year quarter, highlighting the demand for quality senior living services that we are poised to address in our markets. During the quarter and since, we closed on the transfer of five senior living communities to affiliates of The Ensign Group, Inc., completing a transaction that we believe is a win for all parties involved and which allows us to concentrate our resources on our highest-upside opportunities to unlock value faster. With developing leadership teams, better data and systems, and accountability around our core opportunities, we know we can continue to drive improved segment earnings if we execute with operational excellence.”

    In addition to the transfer of five senior living communities to Ensign affiliates, since quarter-end the Company closed on the acquisition of one home health agency in Montana. “This small transaction allows us to expand the continuum of care services we can provide to patients and their families in the Big Sky state, pairing strategically with our successful hospice operations there,” said Derek Bunker, Pennant’s Chief Investment Officer. The Company also acquired the real estate underlying the operations of its 82-unit assisted living and memory care community in Twin Falls, Idaho, and exited the operations of an independent living community that was utilized during the height of the pandemic as a short-term stay setting for COVID-19 patients transitioning home from acute settings. “Our recently acquired operations are picking up steam, and as they continue to mature in our portfolio we are excited to invest in additional agencies throughout this year. Our pipeline of potential acquisitions is solid. We continue to source many off-market opportunities as sellers seek a strategic partner aligned with their mission and focused on providing exceptional employee experiences and quality care to patients and families,” said Mr. Bunker.

    Jennifer Freeman, Pennant's Chief Financial Officer, reported that the Company ended the first quarter with strong liquidity, with $3.6 million of cash on hand and $87.3 million of availability on its revolving line of credit. Ms. Freeman reported that the Company had a net debt-to-adjusted EBITDA ratio of 2.03x and a lease-adjusted net debt-to-adjusted EBITDAR ratio of 5.71x as of December 31, 2021. “Our cash position and liquidity remain strong despite the challenges of the first quarter. We expect our leverage ratio to continue to be elevated above our historical trend as the repayment of the Medicare advance payments wraps up in the second quarter. As this cash outflow abates, we look forward to our cash flow improving and deploying that growing dry powder in what we believe will be a compelling investment environment on the horizon,” said Ms. Freeman.

    Ms. Freeman noted that management’s 2022 annual guidance reiterated today is based on diluted weighted average shares outstanding of approximately 31.2 million and a 26.1% effective tax rate. The guidance assumes, among other things, anticipated reimbursement rate adjustments, no unannounced acquisitions, and the lingering effects of COVID-19. It excludes costs at start-up operations, share-based compensation, acquisition-related costs, assets held for sale, and losses of disposed operations.

    A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to EBITDA, adjusted EBITDAR and adjusted EBITDA, as well as a reconciliation of GAAP earnings per share, net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release.   More complete information is contained in the company’s Annual Report on Form 10-Q for the three months ended March 31, 2022, which has been filed with the SEC today and can be viewed on the company’s website at www.pennantgroup.com.

    Conference Call

    A live webcast will be held tomorrow, May 10, 2022 at 10:00 a.m. Mountain time (12:00 p.m. Eastern time) to discuss Pennant’s first quarter 2022 financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Pennant’s website at https://investor.pennantgroup.com. The webcast will be recorded and will be available for replay via the website until 5:00 p.m. Mountain time on Friday, June 3, 2022.

    About Pennant

    The Pennant Group, Inc. is a holding company of independent operating subsidiaries that provide healthcare services through 88 home health and hospice agencies and 52 senior living communities located throughout Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. Each of these businesses is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated "company" and "its" assets and activities, as well as the use of the terms "we," "us," "its" and similar verbiage, are not meant to imply that The Pennant Group, Inc. has direct operating assets, employees or revenue, or that any of the home health and hospice businesses, senior living communities or the Service Center are operated by the same entity. More information about Pennant is available at www.pennantgroup.com.

    Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

    This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management’s current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

    These risks and uncertainties relate to the company’s business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company’s periodic filings with the Securities and Exchange Commission, including its Form 10-Q, for a more complete discussion of the risks and other factors that could affect Pennant’s business, prospects and any forward-looking statements. Except as required by the federal securities laws, Pennant does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

    Contact Information

    Investor Relations
    The Pennant Group, Inc.
    (208) 506-6100
    ir@pennantgroup.com

    SOURCE: The Pennant Group, Inc.

    THE PENNANT GROUP, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    (unaudited, in thousands, except for per-share amounts)

     Three Months Ended March 31,
      2022   2021 
        
    Revenue$113,910  $105,663 
        
    Expense:   
    Cost of services 90,353   83,622 
    Rent—cost of services 10,051   9,965 
    General and administrative expense 10,033   9,288 
    Depreciation and amortization 1,147   1,175 
    Total expenses 111,584   104,050 
    Income from operations 2,326   1,613 
    Other income (expense):   
    Other income 3   — 
    Interest expense, net (629)  (360)
    Other expense, net (626)  (360)
    Income before provision for income taxes 1,700   1,253 
    Provision for income taxes 542   340 
    Net income 1,158   913 
    Less: net income/ attributable to noncontrolling interest 144   (37)
    Net income and other comprehensive income attributable to The Pennant Group, Inc.$1,014  $950 
    Earnings per common share:   
    Basic$0.04  $0.03 
    Diluted$0.03  $0.03 
    Weighted average common shares outstanding:   
    Basic 28,572   28,291 
    Diluted 30,143   30,907 


    THE PENNANT GROUP, INC.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (unaudited, in thousands, except par value)

     March 31, 2022 December 31, 2021
    Assets   
    Current assets:   
    Cash$3,627  $5,190 
    Accounts receivable—less allowance for doubtful accounts of $868 and $902, respectively 56,918   53,940 
    Prepaid expenses and other current assets 20,967   16,711 
    Total current assets 81,512   75,841 
    Property and equipment, net 17,941   16,788 
    Right-of-use assets 272,477   300,997 
    Deferred tax assets, net 2,099   3,848 
    Restricted and other assets 5,412   4,828 
    Goodwill 74,265   74,265 
    Other indefinite-lived intangibles 53,730   53,730 
    Total assets$507,436  $530,297 
    Liabilities and equity   
    Current liabilities:   
    Accounts payable$10,910  $10,553 
    Accrued wages and related liabilities 22,686   23,480 
    Operating lease liabilities—current 16,379   16,118 
    Other accrued liabilities 18,630   21,484 
    Total current liabilities 68,605   71,635 
    Long-term operating lease liabilities—less current portion 259,092   287,753 
    Other long-term liabilities 5,306   5,293 
    Long-term debt, net 56,501   51,372 
    Total liabilities 389,504   416,053 
    Commitments and contingencies   
    Equity:   
    Common stock, $0.001 par value; 100,000 shares authorized; 28,849 and 28,530 shares issued and outstanding, respectively, at March 31, 2022;
    and 28,826 and 28,499 shares issued and outstanding, respectively, at December 31, 2021    		 29   28 
    Additional paid-in capital 98,124   95,595 
    Retained earnings 15,655   14,641 
    Treasury stock, at cost, 3 shares at March 31, 2022 and December 31, 2021 (65)  (65)
    Total Pennant Group, Inc. stockholders' equity 113,743   110,199 
    Noncontrolling interest 4,189   4,045 
    Total equity 117,932   114,244 
    Total liabilities and equity$507,436  $530,297 


    THE PENNANT GROUP, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, in thousands)

    The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

     Three Months Ended March 31,
      2022   2021 
        
    Net cash used in operating activities$(4,071) $(7,267)
    Net cash used in investing activities (2,582)  (3,995)
    Net cash provided by financing activities 5,090   16,824 
    Net (decrease) increase in cash (1,563)  5,562 
    Cash beginning of period 5,190   43 
    Cash end of period$3,627  $5,605 


    THE PENNANT GROUP, INC.
    REVENUE BY SEGMENT
    (unaudited, dollars in thousands)

    The following table sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated:

     Three Months Ended March 31,
      2022   2021 
     Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage
            
    Home health and hospice services       
    Home health$37,420 32.9% $33,204 31.4%
    Hospice 37,823 33.2   36,914 34.9 
    Home care and other(a) 5,232 4.5   4,489 4.3 
    Total home health and hospice services 80,475 70.6   74,607 70.6 
    Senior living services 33,435 29.4   31,056 29.4 
    Total revenue$113,910 100.0% $105,663 100.0%

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


    THE PENNANT GROUP, INC.
    SELECT PERFORMANCE INDICATORS
    (unaudited, total revenue dollars in thousands)

    The following table summarizes our overall home health and hospice performance indicators for the each of the dates or periods indicated:

     Three Months Ended March 31,    
      2022  2021 Change % Change
    Total agency results:       
    Home health and hospice revenue$80,475 $74,607 $5,868  7.9%
            
    Home health services:       
    Total home health admissions 10,182  9,097  1,085  11.9%
    Total Medicare home health admissions 4,633  4,498  135  3.0%
    Average Medicare revenue per 60-day completed episode(a)$3,539 $3,395 $144  4.2%
    Hospice services:       
    Total hospice admissions 2,409  2,154  255  11.8%
    Average daily census 2,232  2,308  (76) (3.3)%
    Hospice Medicare revenue per day$179 $172 $7  4.1%


     Three Months Ended March 31,    
      2022  2021 Change % Change
    Same agency(b)results:       
    Home health and hospice revenue$74,024 $73,609 $415  0.6%
            
    Home health services:       
    Total home health admissions 9,404  9,047  357  3.9%
    Total Medicare home health admissions 4,166  4,448  (282) (6.3)%
    Average Medicare revenue per 60-day completed episode(a)$3,576 $3,407 $169  5.0%
    Hospice services:       
    Total hospice admissions 2,220  2,152  68  3.2%
    Average daily census 2,117  2,308  (191) (8.3)%
    Hospice Medicare revenue per day$175 $172 $2  1.2%


     Three Months Ended March 31,    
      2022  2021 Change % Change
    New agency(c)results:       
    Home health and hospice revenue$6,451 $998 $5,453 546.4%
            
    Home health services:       
    Total home health admissions 778  50  728 1456.0%
    Total Medicare home health admissions 467  50  417 834.0%
    Average Medicare revenue per 60-day completed episode(a)$3,168 $1,397 $1,771 126.8%
    Hospice services:       
    Total hospice admissions 189  2  187 9350.0%
    Average daily census 115  —  115 —%
    Hospice Medicare revenue per day$242 $173 $70 40.7%

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

    (b)   Same agency results represent all facilities purchased or licensed prior to January 1, 2021.

    (c)   New agency results represent all agencies acquired subsequent to January 1, 2021 and all startup operations that have a start date or license date subsequent to January 1, 2021.

     


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

     Three Months Ended March 31,
      2022   2021 
        
    Occupancy 72.6%  72.1%
    Average monthly revenue per occupied unit$3,371  $3,186 


    THE PENNANT GROUP, INC.
    REVENUE BY PAYOR SOURCE
    (unaudited, dollars in thousands)

    The following table presents our total revenue by payor source and as a percentage of total revenue for the periods indicated:

      Three Months Ended March 31,
       2022   2021 
      Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage
             
    Revenue:        
    Medicare $55,078 48.4% $53,739 50.9%
    Medicaid  15,394 13.5   13,853 13.1 
    Subtotal  70,472 61.9   67,592 64.0 
    Managed Care  14,036 12.3   11,089 10.5 
    Private and Other(a)  29,402 25.8   26,982 25.5 
    Total revenue $113,910 100.0% $105,663 100.0%

    (a)   Private and other payors in our home health and hospice services segment includes revenue from all payors generated in home care operations.


    THE PENNANT GROUP, INC.
    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
    (unaudited, in thousands, except per share data)

    The following table reconciles net income to Non-GAAP net income for the periods presented:

     Three Months Ended March 31,
      2022   2021 
        
    Net income attributable to The Pennant Group, Inc.$1,014  $950 
    Add: Net loss attributable to noncontrolling interest 144   (37)
    Net income 1,158   913 
        
    Non-GAAP adjustments   
    Costs at start-up operations(a) 155   146 
    Share-based compensation expense(b) 2,440   2,416 
    Acquisition related costs(c) —   7 
    Transition services costs(d) 37   902 
    Operating results of transferred senior living facilities(e) 181   — 
    Provision for income taxes on Non-GAAP adjustments(f) (645)  (1,068)
    Non-GAAP net income$3,326  $3,316 
        
    Dilutive Earnings Per Share As Reported   
    Net Income$0.03  $0.03 
    Average number of shares outstanding 30,143   30,907 
        
    Adjusted Diluted Earnings Per Share   
    Net Income$0.11  $0.11 
    Average number of shares outstanding 30,143   30,907 

    (a)   Represents results related to start-up operations.


         Three Months Ended March 31,
          2022   2021 
      Revenue$(486) $(4,555)
      Cost of services 617   4,667 
      Rent 24   34 
      Total Non-GAAP adjustment$155  $146 
            
    (b)   Represents share-based compensation expense incurred for the periods presented.
         Three Months Ended March 31,
          2022   2021 
      Cost of services$593  $435 
      General and administrative 1,847   1,981 
      Total Non-GAAP adjustment$2,440  $2,416 
            
    (c)   Represents costs incurred to acquire an operation that are not capitalizable.
            
    (d)   Costs identified as redundant or nonrecurring incurred by the Company as a result of the Spin-off. The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement, $988 for the three months ended March 31, 2021.


    THE PENNANT GROUP, INC.
    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
    (unaudited, in thousands, except per share data)

            
    (e)   On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount above represents the net impact on revenue and cost of service attributable to the all of the transferred entities. This amount excludes rent and depreciation and amortization expense related to such operations.
         Three Months Ended March 31,
          2022   2021
      Revenue$(3,336) $—
      Cost of services 2,579   —
      Rent 938   —
      Total Non-GAAP adjustment$181  $—
            
    (f)   Represents an adjustment to the provision for income tax to our year-to-date effective tax rate of 26.3% and 29.8% for the three months ended March 31, 2022 and 2021, respectively. This rate excludes the tax benefit of shared-based payment awards.
            

    THE PENNANT GROUP, INC.
    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
    (unaudited, in thousands)

    The tables below reconcile Consolidated net income to the consolidated Non-GAAP financial measures, Consolidated and Consolidated Adjusted EBITDA, and to the Non-GAAP valuation measure, Consolidated Adjusted EBITDAR, for the periods presented:

     Three Months Ended March 31,
      2022   2021 
        
    Consolidated net income$1,158  $913 
    Less: Net loss attributable to noncontrolling interest 144   (37)
    Add: Provision for income taxes (benefit) 542   340 
    Net interest expense 629   360 
    Depreciation and amortization 1,147   1,175 
    Consolidated EBITDA 3,332   2,825 
    Adjustments to Consolidated EBITDA   
    Add: Costs at start-up operations(a) 131   112 
    Share-based compensation expense(b) 2,440   2,416 
    Acquisition related costs(c) —   7 
    Transition services costs(d) 37   902 
    Operating results of transferred senior living facilities(e) (757)  — 
    Rent related to items (a) and (e) above 962   34 
    Consolidated Adjusted EBITDA 6,145   6,296 
    Rent—cost of services 10,051   9,965 
    Rent related to items (a) and (e) above (962)  (34)
    Adjusted rent—cost of services 9,089   9,931 
    Consolidated Adjusted EBITDAR$15,234   

    (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 incurred which is included in cost of services and general and administrative expense.

    (c)   Acquisition related costs that are not capitalizable.

    (d)   Costs identified as redundant or nonrecurring incurred by the Company as a result of the Spin-off. The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement, $988 for the three months ended March 31, 2021.

    (e)   On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount above represents the net impact on revenue and cost of service attributable to the all of the transferred entities. This amount excludes rent and depreciation and amortization expense related to such operations.

     


    THE PENNANT GROUP, INC.
    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
    (unaudited, in thousands)

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

     Home Health and
    Hospice Services    		 Senior Living Services All Other Total
    Segment GAAP Financial Measures:       
    Three Months Ended March 31, 2022       
    Revenue$80,475 $33,435 $—  $113,910
    Segment Adjusted EBITDAR from Operations$13,948 $9,432 $(8,146) $15,234
    Three Months Ended March 31, 2021       
    Revenue$74,607 $31,056 $—  $105,663
    Segment Adjusted EBITDAR from Operations$13,791 $8,834 $(6,398) $16,227


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

     Three Months Ended March 31,
      2022   2021 
        
    Segment Adjusted EBITDAR from Operations(a)$15,234  $16,227 
    Less: Depreciation and amortization 1,147   1,175 
    Rent—cost of services 10,051   9,965 
    Other Income 3   — 
    Adjustments to Segment EBITDAR from Operations:   
    Less: Costs at start-up operations(b) 131   112 
    Share-based compensation expense(c) 2,440   2,416 
    Acquisition related costs(d) —   7 
    Transition services costs(e) 37   902 
    Operating results of transferred senior living facilities(f) (757)  — 
    Add: Net loss attributable to noncontrolling interest 144   (37)
    Consolidated Income from Operations$2,326  $1,613 

    (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, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs, (4) redundant and nonrecurring costs associated with the Transition Services Agreement, (5) the operating results of senior living facilities transferred to Ensign, and (6) net income (loss) attributable to noncontrolling interest. General and administrative expenses are not allocated to the reportable segments, and are included as “All Other”, accordingly the segment earnings measure reported is before allocation of corporate general and administrative expenses. The Company's segment measures may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

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

    (c)   Share-based compensation expense incurred which is included in cost of services and general and administrative expense.

    (d)   Acquisition related costs related to business combinations during the periods.

    (e)   Costs identified as redundant or nonrecurring incurred by the Company as a result of the Spin-off. The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $988 for the three months ended March 31, 2021.

    (f)   On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount above represents the net impact on revenue and cost of service attributable to the all of the transferred entities. This amount excludes rent and depreciation and amortization expense related to such operations.


    THE PENNANT GROUP, INC.
    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
    (unaudited, in thousands)

    The table below reconcile Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for each reportable segment for the periods presented:

     Three Months Ended March 31,
     Home Health and Hospice Senior Living
      2022   2021   2022   2021 
            
    Segment Adjusted EBITDAR from Operations$13,948  $13,791  $9,432  $8,834 
    Less: Rent—cost of services 1,262   1,130   8,789   8,835 
    Rent related to start-up and transferred operations (24)  (114)  (938)  80 
    Segment Adjusted EBITDA from Operations$12,710  $12,775  $1,581  $(81)


    Discussion of Non-GAAP Financial Measures

    EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, and (c) depreciation and amortization. Adjusted EBITDA consists of net income attributable to the Company before (a) provisions for income taxes, (b) depreciation and amortization, (c) costs incurred for start-up operations, including rent and excluding depreciation, interest and income taxes, (d) share-based compensation expense, (e) non-capitalizable acquisition related costs, (f) redundant or non-recurring transition services costs, (g) the operating results of senior living facilities transferred to Ensign, and (h) net income (loss) attributable to noncontrolling interest.long-lived assets. Consolidated Adjusted EBITDAR is a valuation measure applicable to current periods only and consists of net income attributable to the Company before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) costs incurred for start-up operations, excluding rent, depreciation, interest and income taxes, (f) share-based compensation expense, (g) acquisition related costs, (h) redundant or non-recurring transition services costs, (i) the operating results of senior living facilities transferred to Ensign, and (j) net income attributable to noncontrolling interest. The company believes that the presentation of EBITDA, adjusted EBITDA, consolidated adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company’s operating performance. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and consolidated adjusted EBITDAR has economic substance because the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company’s periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Pennant’s website at http://www.pennantgroup.com.


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