The Pennant Group, Inc.

f
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________________________________________________________
FORM 10-K 
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2024. 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     .
Commission file number: 001-38900
_______________________________________________________________________________________________________________________________________
THE PENNANT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
83-3349931
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
1675 East Riverside Drive, Suite 150, Eagle, ID 83616
(Address of Principal Executive Offices and Zip Code)
(208) 506-6100
(Registrant’s Telephone Number, Including Area Code)
__________________________________________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
PNTG
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☒Yes ☐No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of February 24, 2025, 34,429,989 shares of the registrant’s common stock were outstanding. The aggregate market value of the shares of common stock held by non-affiliates of
the registrant on the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2024) was approximately $669,703,000 based upon the closing price
of the common stock on such date. For purposes of this calculation, the registrant has excluded the market value of all common stock beneficially owned by all executive officers
and directors of the registrant.


Note on Incorporation by Reference
Part III of this Form 10-K incorporates information by reference from the Registrant's definitive proxy statement on Schedule 14A for the Registrant's
2025 Annual Meeting of Stockholders to be filed within 120 days after the close of the fiscal year covered by this annual report.

THE PENNANT GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024
TABLE OF CONTENTS
Part I.
Item 1.
Business
2
Item1A.
Risk Factors
17
Item 1B.
Unresolved Staff Comments
26
Item 1C.
Cybersecurity
26
Item 2.
Properties
27
Item 3.
Legal Proceedings
28
Item 4.
Mine Safety Disclosures
28
Part II.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
28
Item 6.
[Reserved]
29
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
29
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
44
Item 8.
Financial Statements and Supplementary Data
44
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
44
Item 9A.
Controls and Procedures
44
Item 9B.
Other Information
47
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
47
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance
47
Item 11.
Executive Compensation
47
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
47
Item 13.
Certain Relationships and Related Transactions and Director Independence
47
Item 14.
Principal Accountant Fees and Services
47
Part IV.
Item 15.
Exhibits, Financial Statements and Schedules
48
Item 16.
Form 10-K Summary
50
Signatures
51

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Cautionary Note Regarding Forward-Looking Statements
Our reports, filings and other public announcements, including this Annual Report on Form 10-K may from time to time contain statements that do not
directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995, and typically include, but are not limited to, our expected future financial position, results of operations, cash flows, financing plans, business
strategy, budgets, capital expenditures, competitive positions, growth opportunities and plans and objectives of management. Forward-looking statements can often
be identified by words such as “anticipate,” “expect,” “intend,” “plan,” “predict,” “believe,” “seek,” “estimate,” “may,” “will,” “should,” “would,” “could,”
“potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words. These statements are subject to the safe harbors created under
the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are
not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ
materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed in Part I, Item 1A., Risk
Factors, of this Annual Report on Form 10-K for the year ended December 31, 2024. Accordingly, you should not rely upon forward-looking statements as
predictions of future events. These forward-looking statements speak only as of the date of this Annual Report, and are based on our current expectations,
estimates and projections about our industry and business, management's beliefs, and certain assumptions made by us, all of which are subject to change. We
undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.
As used in this Annual Report on Form  10-K, the words, “Pennant,” “Company,” “we,” “our” and “us” refer to The Pennant Group, Inc. and its
consolidated subsidiaries. All of our independent operating subsidiaries, and the Service Center (defined below) are operated by separate, wholly-owned,
independent subsidiaries that have their 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,” “our” and similar terms in this Annual Report are not meant to imply, nor should they be construed as meaning, that The
Pennant Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Pennant Group, Inc.
 
The Pennant Group, Inc. is a holding company with no direct operating assets, employees or revenues. In addition, certain of our wholly-owned
independent subsidiaries, collectively referred to as the “Service Center,” provide centralized accounting, payroll, human resources, information technology, legal,
risk management, compliance oversight and other services to the other independent operating subsidiaries through contractual relationships with such subsidiaries.
The address of our headquarters is 1675 East Riverside Drive, Suite 150, Eagle, ID 83616, and our telephone number is (208) 506-6100. Our corporate
website is located at www.pennantgroup.com. The information contained in, or that can be accessed through, our website does not constitute a part of this Annual
Report on form 10-K.
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Part I.
Item 1.    Business
Overview
The Pennant Group, Inc. is a leading provider of high-quality healthcare services to patients or residents of all ages, including the growing senior
population, in the United States. Through our innovative operating model and unique core values, we strive to be the provider of choice in the communities we
serve.
As of December  31, 2024, we operate multiple lines of business, including home health, hospice and senior living, throughout Arizona, California,
Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. We also provide home health and hospice operational
support through a management service agreement in Connecticut. We provide home health and hospice services through 123 agencies, and senior living services at
57 communities with 3,960 total units in our assisted living, independent living and memory care business. We derive revenue from a diversified blend of payors
including Medicare and Medicaid programs, private pay patients and residents, and managed care payors.
We believe our key differentiators are our (1) ability to recruit, train, and develop talented local leaders at each of our operations; (2) innovative operating
model that empowers those leaders to make decisions that meet the needs of patients and residents, employees, referral sources and the communities they serve
with the support of our service center; (3) disciplined growth strategy; and (4) ability to achieve quality care outcomes in cost effective settings. In our experience,
healthcare is a local endeavor, largely dependent upon personal and professional relationships, community reputation and an ability to adapt to the changing needs
of patients, residents, partners and communities. As our operational leaders build strong relationships with key partners in their local communities, they are
empowered to make informed and critical operational decisions that produce quality care outcomes and more effectively meet the needs of our patients and
residents.
We believe our home health and hospice businesses achieve quality outcomes—as measured by multiple industry and value-based metrics (such as
hospital readmission rates)—in cost-effective settings. We believe our senior living business is able to offer our residents a safe and tailored quality-of-life at an
affordable cost, thus appealing to a broad population. With our platform of diversified service offerings, we believe that we are well-positioned to take advantage
of favorable demographic shifts as well as industry trends that reward providers offering quality care in lower cost settings.
Our Innovative Operating Model
Our innovative operating model is the foundation of our superior performance and success. Our operating model is founded on two core principles: (1)
healthcare is a local business where providers are most successful when key operational decision-making meets local community needs and occurs close to patients
or residents and employees, and (2) peer accountability from operational and resource partners is more effective at driving excellent clinical and financial results
than traditional hierarchical or “top-down” accountability structures.
Our model is innovative because each operation functions under the direction of local clinical and operational leaders, each of whom is empowered to
make decisions based on the unique needs of the patients or residents, partners and communities they serve. This is in contrast to typical models where control and
key decision-making is centralized at the corporate level. Moreover, we utilize a “cluster model,” where every operation is part of a defined “cluster,” which is a
group of geographically proximate operations working together to allow leaders to communicate and provide support and accountability to each other. Clusters
create incentives for leaders to share best practices and real-time data and benchmark clinical and financial performance with their cluster partners. We believe this
locally-driven data-sharing and peer accountability model is unique among healthcare and senior living providers and has proven effective in improving clinical
care, enhancing patient and resident satisfaction and promoting operational efficiencies. This “cluster” operating model is the same model used by local leaders
prior to our spin-off from The Ensign Group, Inc. in 2019 (further discussed below under Company History) and is key to the success of our future operations.
Our organizational structure empowers our highly dedicated leaders and staff at the local level to make key decisions and creates a sense of ownership
over operational and clinical results and the overall employee experience. Each operation’s leader and their staff are encouraged to make their operations the
“provider of choice” in the communities they serve. To accomplish this goal, our leaders work closely with their clinical staff and our expert resources to identify
unique patient and resident needs and priorities in their communities and to create superior service offerings tailored to those needs and priorities. We believe that
our localized approach to program development and care leads prospective patients or residents and referral sources to choose or recommend our operations.
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Similarly, our emphasis on empowering local decision-makers encourages leaders to strive to become the “employer of choice” in the communities they
serve. One of our core values is the principle that the best patient care is provided by employees who experience significant work satisfaction because they are
valued as individuals. Our leaders work hard to embody this core value to attract, train, and retain outstanding clinical staff by creating a work environment that
fosters critical thinking, measurement, and relevance. Our local teams are motivated and empowered to quickly and proactively meet the needs of those they serve,
without waiting for permission to act or being bound to a “one-size-fits-all” corporate strategy. In many markets, we attribute census growth and excellent clinical
and financial outcomes to a healthy organizational culture built on these principles. With strong employee satisfaction across the organization, we believe we can
continue to attract and retain the best talent in our industries.
Lastly, while our teams are local, they are also supported by cutting-edge systems and our “Service Center”, which is staffed with teams of subject-matter
experts who advise regarding their respective fields of expertise, including information technology, compliance oversight, human resources, accounting, payroll,
legal, risk management, and other services. The partnership and peer accountability that exists between our local leaders and Service Center resources allows each
operation to improve while benefiting from the technical expertise, systems and accountability provided by our Service Center.
Partner of Choice in Local Healthcare Communities
We view healthcare services primarily as a local business, driven by personal relationships, reputation and the ability to identify and address unmet
community needs. We believe our success is largely driven by our ability to build strong relationships with key stakeholders within the local healthcare
communities, leveraging our reputation for providing superior care.
We believe we are a partner of choice to payors, providers, patients, residents and employees in the healthcare communities we serve. As a partner, we
focus on improving care outcomes and the quality of life of our patients and residents in their home. Our local leadership approach facilitates the development of
strong professional relationships within communities, which allows us to better understand and meet the needs of our partners. We believe our emphasis on
working closely with other providers, payors, residents and patients yields unique, customized solutions and programs that meet local market needs and improve
clinical outcomes, which in turn accelerates revenue growth and profitability.
We are a trusted partner to, and work closely with, payors and acute and post-acute providers to deliver innovative healthcare solutions in lower cost
settings. In the markets we serve, we have initiated joint venture partnerships, developed formal and informal preferred provider relationships with key referral
sources, and implemented transitional care programs that result in better coordination within the care continuum. These solutions have produced significant
benefits to patients, residents, payors, and other providers, including reduced hospital readmission rates, appropriate transitions within the care continuum, overall
cost savings, increased patient satisfaction and improved quality outcomes. In addition, positive, repeated interactions and data sharing result in strong local
relationships and encourage referrals from our acute and post-acute care partners. As we continue to strengthen these formal and informal relationships and expand
our referral base, we believe we will continue to drive revenue growth and operational results.
Company History
The Pennant Group, Inc. was incorporated as a Delaware corporation on January 24, 2019, for the purpose of holding the home health and hospice
agencies and substantially all of the senior living businesses of The Ensign Group, Inc. (“Ensign”), which was formed in 1999 with the goal of establishing a new
level of quality care within the skilled nursing industry. On October 1, 2019, Ensign completed the separation of Pennant (the “Spin-Off”). We believe that,
through our innovative operating model, we can foster a new level of patient care and professional competence at our independent operating subsidiaries and set
new industry standards for quality home health and hospice and senior living services.
Our independent operating subsidiaries are organized into industry-specific portfolio companies, which we believe has enabled us to maintain a local,
field-driven organizational structure, to attract qualified leaders and expert resources, and to effectively identify, acquire, and improve operations. Each of our
portfolio companies has its own leader. These experienced and proven leaders are generally taken from the ranks of our operational leaders to serve as resources to
independent operating subsidiaries within their own portfolio companies and have the primary responsibility for recruiting qualified talent, finding potential
acquisition targets, and identifying other strategic and organic growth opportunities. We believe this decentralized organizational structure will continue to improve
the quality of our recruiting and facilitate successful acquisitions.
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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. We also report an “all
other” category that includes general and administrative expense. Our reporting segments are business units that offer different services and are managed
separately to provide greater visibility into those operations. For more information about our operating segments, as well as financial information, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 6, Business Segments, to the Consolidated Financial
Statements.
Services
Home Health and Hospice. As of December 31, 2024, we provided home health and hospice services through 123 agencies. We also provide home health
and hospice operational support through a management service agreement in Connecticut. Our home health services consist of providing a combination of clinical
services including nursing, speech, occupational and physical therapy, medical social work and home health aide services within a patient's home. Home health is
often a cost-effective solution for patients and can also increase their quality of life by allowing them to receive excellent clinical services in the comfort and
convenience of each patient’s home. Our hospice services focus on the physical, spiritual and psychosocial needs of terminally ill patients and their families and
consist primarily of clinical care, education and counseling. Our home care services include the provision of case management services, personal care services, and
assistance with the activities of daily living. Our geriatric primary and palliative care services include physician and nurse practitioner services provided in the
home, facility, or other appropriate setting. We generated approximately 64.7%, 66.9% and 67.7% of our home health and hospice segment revenue from Medicare
during the years ended December 31, 2024, 2023 and 2022, respectively.
Senior Living. As of December 31, 2024, we provided assisted living, independent living and memory care services in 57 communities with 3,960 total
available units. Our senior living operations provide a variety of services tailored to our residents’ needs, including residential accommodations, activities, meals,
housekeeping and assistance in the activities of daily living to seniors who are independent or who require some support, but not at the level of clinical care
provided in a skilled nursing facility. We generate revenue in these communities primarily from private pay sources, with a portion earned from Medicaid or other
state-specific programs. We derived approximately 69.4%, 68.8% and 71.3% of our senior living revenue from private pay sources during the years ended
December 31, 2024, 2023 and 2022, respectively.
Our Growth Strategy
We believe that the following strategies are primarily responsible for our growth to date and will continue to drive the growth of our business:
Grow Talent Base and Develop Future Leaders. We view ourselves as a leadership company. Our growth strategy is focused on expanding our talent
base and recruiting and developing future leaders. A key component of our organizational culture is our belief that strong local leadership is a primary ingredient to
operational success. We use a multi-faceted strategy to identify and recruit proven business leaders from various industries and backgrounds. To develop these
leaders, we have a rigorous “CEO-in-Training Program” that includes significant in-person instruction on leadership, clinical and operational topics, as well as
extensive on-the-ground training and active learning with key leaders from across the organization. After placement in a local operation, our leaders continue to
receive training and regular feedback and support from operational, clinical and Service Center peers. We also have similar programs for our new and emerging
clinical leaders. We believe our model of empowering local leaders and providing them a platform of support, including expert resources and industry-leading
systems, will continue to attract and retain highly talented and entrepreneurial leaders.
Focus on Organic Growth. We believe that we have a significant opportunity to drive organic growth within our current portfolio, including recently
acquired operations. As we improve clinical outcomes, quality of care and operational results at each of our existing and newly acquired operations, we believe we
will become a provider of choice in the communities we serve, which leads to census growth. Through this census growth, and as we continue to expand our
service areas and offerings, we believe we will continue to translate revenue growth into bottom line success with rigorous adherence to our core operating
principles. By effectively using data systems and analytics and embracing a culture of transparency and accountability, we expect to see our local leaders steadily
improving operational results. We believe our unique operating model will continue to cultivate steady and consistent organic growth in the future.
Pursue Disciplined Acquisition Strategy. The disciplined acquisition and integration of strategic and underperforming operations is a key element of our
past success and is integral to our future growth plans. Historically, we have successfully transitioned both turnaround and stable target businesses, transforming
them into top-quality operations preferred by referral
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sources and community partners. We plan to continue to take advantage of the fragmented home health, hospice and senior living industries by being proactive yet
disciplined in acquiring strategic and underperforming operations with high upside potential within both existing and new geographic markets. With experienced
leaders in place at the local level and demonstrated success in improving operating conditions at acquired businesses, we believe we are well positioned to
continue expanding our footprint through strategic and opportunistic acquisitions.
Leverage Our Operational Capabilities to Expand Partnerships. Our local leadership approach enables us to adapt to and efficiently meet the needs of
our partners in the communities we serve. Our clinical and data analytics capabilities foster solutions and allow us to optimize clinical outcomes. We use this data
to communicate with key partners in an effort to reduce overall cost of care and drive improved clinical outcomes. We also operate joint ventures with leading
health systems, which allows us to expand our partnership in the space, and we may undertake additional joint ventures in the future. We will continue to expand
formal and informal partnerships across the healthcare continuum by strategically investing in programs and data analytics that help us and our partners improve
care transitions, achieve better outcomes and reduce costs.
Growth and Acquisition History
Much of our historical growth can be attributed to our expertise in acquiring strategic and underperforming operations and transforming them into market
leaders in clinical quality, staff competency and financial performance. Our local leaders are trained to identify these opportunities for long-term organic growth as
we strive to become the provider of choice in our local communities. Accordingly, we plan to continue to drive organic growth and acquire additional operations in
existing and new markets in a disciplined manner.
 
From 2014 to 2024, we grew our home health and hospice services and senior living services revenue by 669.0% or a compounded annual growth rate of
22.6%.
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From December 31, 2014 to December 31, 2024, we grew the number of our home health and hospice agencies and senior living units by 392.0% and
149.5%, respectively.
Agency and Unit Growth Since 2014
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Home health and hospice agencies
25 
32 
39 
46 
54 
63 
76 
88 
95 
111 
123 
Senior living communities
15 
36 
36 
43 
50 
52 
54 
54 
49 
51 
57 
Senior living units
1,587 
3,184 
3,184 
3,434 
3,820 
3,963 
4,127 
4,127 
3,500 
3,588 
3,960 
Total number of home health,
hospice, and senior living operations
40 
68 
75 
89 
104 
115 
130 
142 
144 
162 
180 
(a)
During January 2022, affiliates of the Company entered into certain operations transfer agreements with affiliates of Ensign, providing for the transfer of the operations of five senior living
communities.
We aim to continue to grow our revenue and earnings by expanding our existing operations and acquiring additional operations in existing and new
markets.
Industry Trends
The healthcare sector is one of the largest and fastest-growing sectors of the U.S. economy. According to the Centers for Medicare and Medicaid Services
(“CMS”), national healthcare spending increased from 8.9% of U.S. GDP, or $253 billion, in 1980 to an estimated 17.6% of GDP, or $4.8 trillion, in 2023. CMS
projects national healthcare spending will grow by an average of 5.6% annually from 2023 through 2032, accounting for approximately 19.7% of U.S. GDP, or
approximately $7.7 trillion, in 2032.
The home health and hospice segment is growing within the overall healthcare landscape in the United States. According to Grandview Research, Inc.,
the home health market is expected to grow at a compounded annual growth rate (“CAGR”) of 8.0% from 2024 to 2030. The hospice industry is estimated at
approximately $37.9 billion and is projected to grow at an estimated CAGR of 8.1% from 2024 to 2030. The senior living market is expected to expand at an
estimated CAGR of 4.2% between 2024 to 2030. We believe that the industries in which we operate will continue to benefit from several macroeconomic and
regulatory trends highlighted below:
Increased Demand Driven by Aging Populations. As seniors account for an increasing percentage of the total U.S. population, we believe demand for
home health and hospice will continue to increase and demand for senior living services will improve. According to the U.S. Census Bureau in 2023, between
2022 and 2060, the number of individuals over 65 years old is projected to be one of the fastest growing segments of the United States population, growing from
17% to 24%. The Bureau
(a)
(a)
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identified the year 2030 as the year all baby boomers will be more than 65 years of age. The Bureau expects the over-65 population segment to increase nearly
54% to 89 million by 2060 (from 2022) as compared to the total U.S. population which is projected to increase by 9.3% over that same time period. Furthermore,
the generation currently retiring has access to fewer post-retirement benefits and accumulated less savings than in the past, creating demand for more affordable
senior housing and in-home care options. As a high-quality provider in lower cost settings, we believe we are well-positioned to benefit from this trend.
Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the U.S. continues to increase healthcare costs, often at a rate
faster than the available funding from government-sponsored healthcare programs. In response, government payors have adopted measures that encourage the
treatment of patients in their homes and other cost-effective settings where the staffing requirements and associated costs are often significantly lower than the
alternatives. With our emphasis on the home health, hospice and senior living industries, which are among the lowest cost settings within the post-acute care
continuum, we expect this shift to continue to drive our growth.
Transition to Value-Based Payment Models. In response to rising healthcare spending, certain markets’ commercial, government and other payors are
shifting away from fee-for-service payment models toward value-based models, including risk-based payment models that tie financial incentives to quality,
efficiency and coordination of care. We believe that payors will continue to emphasize reimbursement models driven by value and that our clinical outcomes
combined with our services in cost effective settings will be increasingly rewarded. Many of our home health agencies already receive value-based payments, and
we are well-positioned to capitalize on this trend as it unfolds across the markets we serve. Please see further discussion of value-based payment models below
under Government Regulation.
Significant Acquisition and Consolidation Opportunities. The home health, hospice and senior living industries are highly fragmented markets with
thousands of small and regional providers and only a handful of large national players. There were over 11,300 Medicare-certified home health agencies operating
in 2022, with the top ten largest operators accounting for approximately 26.6% of the market. There are approximately 6,000 hospice agencies in the U.S. with the
top ten largest operators accounting for about 19.1% of the total market share. As with the home health and hospice industries, there is significant fragmentation in
the senior housing industry, with the top 25 operators owning approximately 28% of the licensed beds within the US. We believe that our strategy of acquiring
strategic and underperforming operations in these highly fragmented markets will be an instrumental to our future growth.
Changing Regulatory Framework. Regulations and reimbursement change frequently in our industries. Our model is designed to successfully navigate
these regulatory and reimbursement changes. For example, effective January 1, 2020, CMS enacted additional changes to the Medicare home health prospective
payment system (“HH PPS”) with the implementation of the Patient Driven Groupings Model (“PDGM”). As discussed in greater detail below under Government
Regulation, and adjusted in subsequent calendar years’ payment rules, this reimbursement structure involved case mix calculation methodology refinements,
changes to low-utilization payment adjustment (“LUPA”) thresholds, the elimination of therapy thresholds, a change to the unit of payment from a 60-day episode
to a 30-day period of care, and reduction in fiscal year 2020 and full elimination in fiscal year 2021 of requests for anticipated payments (“RAPs”), which were no
longer available by January 1, 2022. In fiscal year 2022, CMS replaced the RAP process with the home health Notice of Admission (“NOA”), which requires a
single NOA filing that will cover continuous 30-day periods of care until the patient is discharged. We believe our unique operating model has allowed us to
effectively transition to PDGM as local operations and clinical leaders, supported by our expert resources, have adapted to the new reimbursement environment.
Payor Sources
We derive revenue primarily from Medicare and Medicaid programs, managed care and private insurance, and private and other payors.
Medicare. Medicare is a federal program that provides healthcare benefits to individuals who are 65 years of age or older or are disabled. The Medicare
home health benefit is available both for patients who need care following discharge from an inpatient facility and patients who suffer from chronic conditions that
require ongoing but intermittent care. The Medicare hospice benefit is also available to Medicare-eligible patients with terminal illnesses, certified by a physician,
where life expectancy is six months or less.
Medicaid. Medicaid is a program financed by state funds and matching federal funds administered by state agencies or managed care organizations on
their behalf. Medicaid programs generally provide health benefits for qualifying individuals and may supplement Medicare benefits for the disabled and for
persons aged 65 and older meeting financial eligibility
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requirements. Medicaid reimbursement formulas are established by each state with the approval of the federal government in accordance with federal guidelines.
Medicaid reimbursement varies from state to state and is based upon a number of different methodologies, including cost-based, prospective payment,
case mixed adjusted payments, and negotiated rates. Rates are subject to a state’s annual budgetary requirements and funding, statutory and regulatory changes and
interpretations and rulings by individual state agencies and State Plan Amendments approved by CMS.
Managed Care and Private Insurance. Managed care patients consist of individuals who are insured by certain third-party entities, or who are Medicare
beneficiaries who have assigned their Medicare benefits to a managed care organization plan. Another type of insurance, long-term care insurance, is also
becoming more widely available to consumers and is not expected to contribute significantly to industry revenues in the near term.
Private and Other Payors. Private and other payors consist primarily of individuals, family members or other third parties who directly pay for the
services we provide.
The following table sets forth our total revenue by payor source as a percent of revenue generated by each of our reportable segments and as a percentage
of total revenue for the year ended December 31, 2024:
Year Ended December 31, 2024
Home Health and Hospice Services
Home Health Services
Hospice Services
Senior Living Services
Total Revenue
Medicare
45.8 %
86.6 %
— %
48.3 %
Medicaid
4.3 
10.8 
30.6 
13.2 
Subtotal
50.1 
97.4 
30.6 
61.5 
Managed care
31.5 
2.0 
— 
13.3 
Private and other
18.4 
0.6 
69.4 
25.2 
Total revenue
100.0 %
100.0 %
100.0 %
100.0 %
(a)
Private and other payors in the Company’s home health services includes revenue from all payors generated in the Company’s home care operations and management services agreement.
Reimbursement for Specific Services
Historically, adjustments to reimbursement under Medicare and Medicaid have had a significant effect on our revenue and results of operations. Recently
enacted, pending and proposed legislation and administrative rulemaking at the federal and state levels could have similar effects on our business. Efforts to
impose reduced reimbursement rates, greater discounts, cost sequestrations in federal spending bills passed by Congress, and more stringent cost controls by
government and other payors are expected to continue for the foreseeable future and could adversely affect our business, financial condition and results of
operations. Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially
and adversely affect our business, financial condition and results of operations.
Reimbursement for Home Health Services. Our home health business derives substantially all of its revenue from Medicare, managed care, and private
pay sources, which may vary in the markets we serve. Our home health services generally consist of providing some combination of the services of registered
nurses, speech, occupational and physical therapists, medical social workers and certified home health aides. Home health is often a cost-effective solution for
patients and can also increase their quality of life and allow them to receive quality medical care in the comfort and convenience of a familiar setting.
Reimbursement for Hospice Services. Hospice revenues are primarily derived from Medicare. We receive one of four predetermined rate categories
based on four different levels of care provided: routine home care, continuous home care, inpatient respite care and general inpatient care. This payment structure
is designed to include all of the services needed to manage a beneficiary’s care, consisting primarily of clinical care, education and counseling. These rates are
subject to annual adjustments based on inflation and geographic wage considerations.
Reimbursement for Senior Living Services. Assisted living, independent living and memory care community revenue is primarily derived from private
pay residents at rates we establish based upon the services we provide and market conditions
(a)
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in the area of operation. In addition, Medicaid or other state-specific programs in some states where we operate supplement payments for board and care services
provided in assisted living and memory care communities.
Competition
The post-acute care industry is highly competitive, and we expect that the industry will become increasingly competitive in the future. The industry is
highly fragmented and characterized by numerous local and regional providers, in addition to large national providers that have achieved geographic diversity and
economies of scale. Some of our independent operating subsidiaries also compete with skilled nursing facilities, inpatient rehabilitation facilities and long-term
acute care hospitals. Competitiveness may vary significantly from location to location, depending upon factors such as the number of competing operations,
availability of services, expertise of staff, and the physical appearance and amenities of senior living communities. We believe that the primary competitive factors
in the post-acute care industry are:
•
ability to attract and to retain qualified leaders and caregivers;
•
reputation and achievements of quality healthcare outcomes and patient and resident satisfaction;
•
attractiveness and location of senior living communities and other physical assets;
•
the expertise and commitment of operational leaders and employees; and
•
private equity, payors, and other firms with greater financial resources and/or lower costs of capital with similar asset acquisition objectives.
We seek to compete effectively in each market by establishing a reputation within the local community as the “provider of choice.” This means that the
operation leaders are generally free to discern and address the unique needs and priorities of healthcare professionals, customers and other stakeholders in the local
community or market, and then create superior service offerings that are calculated to encourage prospective customers and referral sources to choose or
recommend the operation.
Increased competition could limit our ability to attract and retain patients and residents, maintain or increase rates of reimbursement or to expand our
business. Some of our competitors have greater financial and other resources than we have, may have greater brand recognition and may be more established in
their respective communities than we are. Competing companies may also offer newer or more recently renovated communities or different programs or services
than we offer and may, therefore, attract individuals who are currently patients of our operations, potential residents of our senior living communities, or who are
otherwise receiving our healthcare services. Other competitors may have lower expenses or other competitive advantages than we do and, therefore, provide
services at lower prices than we offer.
There are few barriers to entry in the home health and hospice business in jurisdictions that do not require certificates of need or permits of approval. Our
primary competition in these jurisdictions comes from local privately and publicly owned providers and hospital-owned healthcare providers. We compete based
on the availability of personnel, the quality of services, expertise of visiting staff, and, in certain instances, on the price of our services. In addition, we compete
with a number of non-profit organizations that finance acquisitions and capital expenditures on a tax-exempt basis and charity-funded programs that may have
strong ties to their local medical communities and receive charitable contributions that are unavailable to us.
Our senior living services also compete with local, regional and national companies. The primary competitive factors in these businesses include
reputation, attractiveness and location of physical assets, cost of services, quality of clinical services, responsiveness to patient or resident needs, location and the
ability to provide support in other areas such as third-party reimbursement, information management and patient recordkeeping. The market for acquiring and/or
operating senior living communities is highly competitive, and some of our present and potential senior living competitors have, or may obtain, greater financial
resources than us and may have a lower cost of capital.
Our Competitive Strengths
We believe that we are well positioned to benefit from the ongoing regulatory, reimbursement and demographic changes within the home health, hospice
and senior living industries. We believe that we will achieve clinical, financial and cultural success as a direct result of the following key competitive strengths:
Innovative Operating Model. We believe healthcare should be operated primarily as a local business. Our innovative operating model, described in Part
1, Item 1 - “Our Innovative Operating Model”, is one of our key competitive strengths.
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Effective Talent Recruitment, Development and Retention. We believe we have an advantage and are successful in attracting, developing, and retaining
outstanding business and clinical leaders to lead our independent operating subsidiaries. Our unique operating model, which emphasizes local decision making and
team building, supported by our platform of expert resources and best-in-class systems, attracts a highly talented and entrepreneurial group of leaders. Our
operational leaders are committed to ongoing training and participate in regular leadership development and educational programs. We believe that our
commitment to professional development strengthens the quality of our operational leaders and staff and will continue to differentiate us from our competitors.
Proven Track Record of Successful Acquisitions. We adhere to a disciplined acquisition strategy focused on sourcing and selectively acquiring
operations within our target markets. Local leaders are heavily involved in the acquisition process and are recognized and rewarded as these acquired operations
become the provider of choice in the communities they serve. Through our innovative operating model and disciplined approach to strategic growth, we have
completed and successfully transitioned dozens of value-add operations. Our expertise in acquiring and transforming strategic and underperforming operations
allows us to consider a broad range of potential acquisition targets and will be a key element of our future success.
Superior Clinical Outcomes and Quality Care. We will continue to succeed by delivering high quality home health, hospice and senior living services.
Using the CMS five-star quality rating criteria, our home health agencies achieved an average of 4.1 out of 5 stars across all agencies for the for the year ended
December 31, 2024, compared to the industry average of 3.0 stars (see Government Regulation below for further discussion on the five-star quality rating system).
Our locally driven, patient-centered approach to clinical care allows us to meet the unique needs of our patients, resulting in improved clinical outcomes, including
reduced hospital readmission rates. These improved outcomes are driven by both our talented local clinicians and our data-driven analytical approach to patient
care and risk stratification. We believe that our achievement of high-quality clinical outcomes positions us as a solution for patients, residents and referral sources,
leading to census growth and improved profitability.
Diversified Portfolio by Payor and Services. As of December  31, 2024, we operated 123 home health and hospice agencies and 57 senior living
communities across 13 states. Because of this diversified portfolio, our blended payor mix was 48.3% Medicare, 13.2% Medicaid, 13.3% managed care and 25.2%
private pay and other for the year ended December 31, 2024. Our balanced payor mix can provide greater business stability through economic cycles and mitigates
volatility arising from government-driven reimbursement changes. For the year ended December 31, 2024, we generated 74.7% of our revenue from home health
and hospice services and 25.3% of our revenue from senior living services. Our diversified service portfolio allows us to opportunistically execute on our
acquisition strategy as valuations fluctuate over industry cycles.
Human Capital
The operation of our home health and hospice operations and senior living communities requires a large number of highly skilled healthcare professionals
and support staff. As of December 31, 2024, we had approximately 7,000 employees who were employed by our independent operating subsidiaries or our Service
Center.
Our ability to attract and retain future leaders is critical to our ongoing success. Therefore, we are dedicated to continuously recruiting and developing a
diverse group of capable leaders. As described in Part 1, Item 1., Grow Talent Base and Develop Future Leaders, our CEO-in-Training and Clinical Operations
Leadership Training programs provide significant in-person instruction and extensive training with key leaders from across the organization to empower local
leaders.
For the year ended December 31, 2024, 67.7% of our total expenses were payroll related. Periodically, market forces, which vary by region, require that
we increase wages in excess of general inflation or increases in reimbursement rates we receive. We believe that we staff appropriately, focusing primarily on the
acuity level and day-to-day needs of our patients and residents. We seek to manage our labor costs by improving staff retention, improving operating efficiencies,
maintaining competitive wage rates and benefits and reducing reliance on overtime compensation and temporary nursing agency services.
The healthcare industry as a whole has been experiencing shortages of qualified professional clinical staff. We believe that our ability to attract and retain
qualified professional clinical staff stems from our ability to offer attractive wage and benefits packages, a high level of employee training, a culture that provides
incentives for individual efforts and a quality work environment.
Government Regulation
General. The laws and statutes affecting the regulatory landscape of the home health, hospice and senior living industries continue to expand. We expect
that these changes will continue. In addition to this changing regulatory environment,
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federal, state and local officials are increasingly focusing their efforts on the enforcement of these laws. In order to operate our businesses, we must comply with
federal, state and local laws relating to, among other things, licensure, delivery and adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel, operating policies, fire prevention, immigration, employment, rate-setting, billing and reimbursement, building codes and environmental protection.
Additionally, we must also adhere to federal and state anti-fraud and abuse laws, such as anti-kickback statutes and, physician referral laws, as well as safety and
health standards set by the Occupational Safety and Health Administration (“OSHA”). Changes in laws or regulations, or new interpretations of existing laws may
have an adverse impact on our methods and costs of doing business.
Our independent operating subsidiaries are also subject to various regulations and licensing requirements promulgated by state and local health and social
service agencies and other regulatory authorities. Requirements vary from state to state, and these requirements can affect, among other things, personnel
education and training, patient and personnel records, services, staffing levels, monitoring of patient wellness, patient furnishings, housekeeping services, dietary
requirements, emergency plans and procedures, certification and licensing of staff prior to beginning employment, and patient rights. These laws and regulations
could limit our ability to expand into new markets and to expand our services and facilities in existing markets.
Recent Updates. On July 30, 2024, CMS issued the 2025 Hospice Payment Rate Update Final Rule (the “Hospice Payment Final Rule”). The Hospice
Payment Final Rule’s payment update percentage is 2.9%, which is an estimated increase of $790 million in payments from fiscal year 2024. The payment update
percentage is based on a 3.4% market basket percentage increase, which is reduced by a 0.5% productivity adjustment. Hospices that fail to meet quality reporting
requirements under the Hospice Quality Reporting Program (“HQRP”) will receive a 4% reduction to the annual hospice payment update percentage increase for
that year, resulting in a total decrease of 1.1% to those non-compliant hospices’ payments and more than negating the payment update percentage for fiscal year
2025. The Hospice Payment Final Rule also adds two new process measures to HQRP: timely reassessment of pain impact, and timely reassessment of non-pain
symptom impact, which are both expected to begin in fiscal year 2028. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap that limits
the overall payments per patient that may be made to a hospice annually. The hospice cap amount for the 2025 fiscal year is $34,465.34, increased from the 2024
fiscal year cap of $33,494.01. The Hospice Payment Final Rule also includes clarifying revisions to the hospice conditions of participation; updates statistical area
delineations; and makes changes to the Consumer Assessment of Healthcare Providers and Systems (“CAHPS”) Hospice Survey.
On November 1, 2024, CMS issued the 2025 Home Health Prospective Payment System Final Rule (the “Home Health Payment Final Rule”). The Home
Health Payment Final Rule’s payment update percentage for calendar year 2025 is 2.7%, an estimated increase of $445 million from calendar year 2024, which is
reduced by an estimated 1.8% behavioral adjustment, along with a 0.4% estimated reduction for fixed dollar losses, resulting in an aggregate net increase of 0.5%,
or $85 million, for the calendar year 2025 payment rate compared to calendar year 2024. The Home Health Payment Final Rule also recalibrates PDGM case-mix
weights, finalizes an update to the home health wage index, updates home health conditions of participation to require patient acceptance policies, and establishes
or updates certain LUPA add-on factors.
In June 2024, CMS announced a Period of Enhanced Oversight for newly enrolled hospices in Arizona, California, Nevada, and Texas. The program
includes hospices that are newly enrolled, or that undergo a change of ownership, or reactivating after being in a deactivated status after July 13, 2023. Such
hospices are subject to enhanced oversight for up to one year and may undergo medical review by CMS contractors to deter fraud, waste and abuse of Medicare
funds. This period of enhanced oversight may last up to one year.
On April 22, 2024, CMS published the Ensuring Access to Medicaid Services Final Rule (the “Access Rule”), which creates and, over the course of five
years, implements new obligations for providers of home- and community-based services (“HCBS”), including non-skilled personal care services in the home. The
Access Rule requires that, beginning in 2030, states must implement data collection and monitoring systems to ensure that, subject to exceptions, Medicaid-funded
HCBS providers spend at least 80% of their Medicaid HCBS reimbursement on compensation for direct care workers, as opposed to administrative overhead or
profits. The Access Rule further requires states to establish a grievance system for addressing services provided in the fee-for-service context, publish fee-for-
service payment rates paid by Medicaid, publish the average hourly rate paid to HCBS care providers, and develop hardship exemptions and separate requirements
for small providers, with these requirements to be implemented within one to three years from the Access Rule taking effect. We anticipate potential changes to the
Access Rule, or offsetting Medicaid rate increases, before the Access Rule’s ultimate implementation in six years.
Medicare. All providers are subject to compliance with various federal, state and local statutes and regulations in the U.S. and receive periodic inspection
by state licensing agencies to review standards of medical care, equipment and safety.
Conditions of Participation. Our home health and hospice operations must comply with regulations promulgated by the United States
Department of Health and Human Services (“HHS”) and CMS in order to participate
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in the Medicare program and receive Medicare payments. Among other things, these conditions of participation (the “CoPs”), relate to the type of
operation, its personnel and its standards of medical care, as well as its compliance with state and local laws and regulations.
Home Health Quality Reporting Requirements. The CoPs require home health agencies to submit quality reporting data through Outcome and
Assessment Information Set (“OASIS”) assessments within 30 days of completing the assessment of the Medicare and Medicaid beneficiary as a
condition of payment and for quality measurement purposes. If the OASIS assessment is not found in CMS’s quality system upon receipt of a final claim
for a home health episode and the receipt date of the claim is more than 30 days after the assessment completion date, CMS will deny the claim. Home
health agencies that do not submit quality measure data to CMS incur a 4% reduction in their annual home health payment update. Under this CoP, all
home health agencies are required to timely submit both a Start of Care or Resumption of Care OASIS assessment and a Transfer or Discharge OASIS
assessment for a minimum of 90% of all episodes.
In addition, CMS requires that all Medicare certified home health and hospice agencies participate in CAHPS surveys. CAHPS surveys are
designed to produce comparable data on the perspective of patients and their caregivers that allows meaningful and objective comparisons between
agencies. Home health and hospice agencies that do not submit the required data incur a 4% reduction in their annual base rate payment update.
Home Health Star Rating. As a consumer tool for selecting a home health provider, CMS has used a five-star rating model to rate home health
agencies since 2015. This Quality of Patient Care Star Rating is a summary measure of a home health agency’s performance based upon how well it
provides patient care. CMS uses seven measurements indicating quality to determine its quality of patient care rating, including how often the agency
initiated care in a timely manner, how often patients demonstrated improvements in ambulation, bed transferring, bathing, oral medication administration,
less shortness of breath, and decreased need for acute care hospitalization. According to CMS, a 3-star rating means the agency provides good quality of
care, as a 3-star rating applies to most home health agencies. According to the January 2025 quarterly refresh of CMS Home Health Compare star rating
criteria, our home health agencies have achieved an average of 4.1 out of 5 stars across all agencies compared to the industry average of 3.0 stars.
Home Health Reimbursement Under PDGM. To qualify for home health services, Medicare CoPs require that beneficiaries (1) be homebound
(meaning that the beneficiary is unable to leave their home without a considerable and taxing effort); (2) require intermittent skilled nursing, physical
therapy, or speech therapy services; (3) have a face to face encounter that (a) has occurred no more than 90 days prior to the start of care or within 30 days
after the start of care, (b) was related to the primary reason the patient requires home health services, and (c) was performed by a physician or allowed
non-physician provider; and (4) receive treatment under a plan of care established and periodically reviewed by a physician.
Under PDGM, Medicare provides agencies with payments for each 30-day payment period provided to beneficiaries. There is no limit to the
number of periods of care a beneficiary who remains eligible for the home health benefit can receive. The reimbursement rate is determined by a set of
factors intended to account for the cost of providing care to each patient. Payments may be adjusted for certain variables including, but not limited to the
number of visits provided, patient transfers, and other factors.
Home Health Value Based Purchasing (“HHVBP”). After introducing HHVBP models in select states from 2016 to 2021, CMS expanded
HHVBP to all fifty states beginning on January 1, 2022. Fiscal Year (“FY”) 2022 was the pre-implementation year wherein CMS provided Home Health
Agencies (“HHAs”) with resources and training, which allowed HHAs time to prepare and learn about the expectations and requirements of the expanded
HHVBP Model without risk to payments. FY 2023 (beginning on January 1, 2023) was the first full performance year for the expanded HHVBP Model.
FY 2024 was the second year for the expanded HHVBP model, based on FY 2022 for its baseline, and HHA performance for the FY 2024 applicable
measure set determines payment adjustments applicable to FY 2026 Medicare fee-for-service claims by HHAs. FY 2025 is the first year when payment
will be adjusted determined on FY 2023 performance. Payment adjustments could be as much as 5% in 2025 based on data obtained in FY 2023 and
CMS could increase the payment adjustment percentage in future years.
Review Choice Demonstration for Home Health Services. The Review Choice Demonstration for Home Health Services (“RCD”) is mandatory
for our HHAs in Texas and allows them to select from three initial options for payment review:
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•
Pre-claim review
•
Post-payment review
•
Minimal post-payment review with a 25% payment reduction
After a 6-month period, HHAs demonstrating compliance with Medicare rules through pre-claim review or post-payment review will have
additional choices, including relief from most reviews except for a review of a small sample of claims. (To be eligible, HHAs must meet a 90% target full
provisional affirmation rate based on a minimum 10 requests or claims submitted.) This program is designed to reduce the number of Medicare appeals,
improve provider compliance with Medicare program requirements, should not delay care to Medicare beneficiaries, and does not alter or reduce the
Medicare home health benefit.
Hospice Special Focus Program. In 2024, CMS implemented a Hospice Special Focus Program (“HSFP”). Under this program, 50 hospices will be
selected annually for inclusion in the HSFP based on certain quality and survey data. Hospices in the HSFP will be surveyed at least semiannually every 6 months
for a period of 18 months. To successfully exit the HSFP, a hospice must have two surveys within 18 months with no uncorrected condition-level deficiencies, and
no pending complaint investigations triaged at the immediate jeopardy or condition-level and must otherwise be substantially compliant with all applicable
requirements.
Hospice Reimbursement and Cap Amounts. Payments are based on daily rates for each day a beneficiary is enrolled in the hospice benefit and are
subject to two annual caps. 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. Hospices are reimbursed at a higher rate for RHC services provided from days of service one
through 60 and then a lower rate for all subsequent days of service. CMS also provided 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 payments are subject to two fixed annual caps, which are assessed on a provider-number basis and are broken into an inpatient cap amount and
an overall payment cap. These cap amounts are calculated and published by the applicable Medicare fiscal intermediary on an annual basis covering the fiscal year,
measured as the period from October 1 through September 30. The inpatient cap limits hospice care provided on an inpatient basis. This cap limits the number of
days that are paid at the higher inpatient care rate to 20.0% of the total number of days of hospice care that are provided to all Medicare beneficiaries served by a
provider. The daily rate for all days exceeding the cap is the standard RHC daily rate, and the provider must reimburse Medicare for any payments received
exceeding that amount. The Medicare fiscal intermediary calculates the overall payment cap at the end of each hospice cap period to determine the maximum
allowable payments to a hospice provider during the period. We estimate our potential cap exposure by using available information to compare our actual
reimbursement for all hospice services provided during the period to the number of beneficiaries we served multiplied by the statutory per beneficiary cap amount.
If payments received by any one of our hospice provider numbers exceeds either of these caps, we are required to reimburse Medicare for payments received in
excess of the cap amounts. The hospice cap amount for the 2024 fiscal year was $33,494.01. The hospice cap amount for the 2025 fiscal year is $34,465.34, which
is a 2.9% increase over the 2024 fiscal year hospice cap.
Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”). The IMPACT Act requires the submission of standardized
assessment data for quality improvement, payment and discharge planning purposes across the spectrum of post-acute care providers (“PACs”), including home
health agencies. Failure to report such data when required subjects a PAC to a 2% reduction in market basket prices then in effect.
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Hospice Quality Reporting Requirements. HQRP, mandated by the Patient Protection and Affordable Care Act, requires hospice agencies to submit
required quality data for inclusion on the public facing Hospice Compare website hosted by CMS. Hospices that fail to meet quality reporting requirements receive
a 4.0% reduction to the annual market basket update for the next fiscal year.
Licensure and Certificates of Need (“CON”). Home health, hospice and most senior living communities operate under licenses granted by the health
authorities of their respective states. Some states require healthcare providers (including home health, hospice and most senior living providers) to obtain prior
state approval for the purchase, construction or expansion of healthcare operations, or changes in services. Certain states, including a number in which we operate,
carefully restrict new entrants into the market based on demographic and/or demonstrative usage of additional providers. These states limit the entry of new
providers or services and the expansion of existing providers or services in their markets through a CON process, which is periodically evaluated and updated as
required by applicable state law. For those states that require a CON, we must also complete a separate application process establishing a location and must receive
required approvals. Washington and Montana are the only CON states in which we operate home health or hospice agencies.
Patient Protection and Affordable Care Act (“ACA”). Various healthcare reform provisions became law upon enactment of the ACA in 2010. The
reforms contained in the ACA have affected our independent operating subsidiaries in some manner and are directed in large part at increased quality and cost
reductions. These reforms include modifications to the conditions of qualification for payment, bundling of payments to cover both acute and post-acute care and
the imposition of enrollment limitations on new providers. In 2022 and 2023, HHS engaged in rulemaking under Section 1557 of the ACA that would expand the
influence and authority of existing civil rights laws, and prohibitions against discrimination on the bases of race, national origin, sex (or sex stereotype), gender
identity or expression, disability, or age, within the healthcare context. On April 27, 2024, HHS finalized and published a final rule containing revised regulations
that implemented Section 1557 of the ACA and its anti-discrimination provisions, which contains staggered implementation dates that began taking effect on July
5, 2024. Presidential and congressional elections may result in significant changes in legislation, regulation, and implementation of Medicare, Medicaid, and
government policy, along with potential changes to tax rates and other tax treatment of our operations. We continually monitor these developments so we can
respond to the changing regulatory environment impacting our business. These rules could be amended by the current administration.
Civil Rights. On January 25, 2024, the HHS Office for Civil Rights (“OCR”) issued guidance to healthcare providers, services, and facilities emphasizing
the importance of non-discriminatory visitation policies consistent with CMS regulations and the U.S. National Strategy to Counter Antisemitism, highlighting the
prohibition of discrimination based on religion or other protected characteristics during public health emergencies. This guidance also addresses instances of non-
compliance, such as unequal treatment based on religious beliefs or dietary restrictions, and outlines the support OCR provides to ensure compliance, encouraging
affected individuals to file complaints for potential enforcement actions. This guidance could be amended by the current administration.
Civil and Criminal Fraud and Abuse Laws and Enforcement. Various complex federal and state laws exist which govern a wide array of referrals,
relationships and arrangements, and prohibit fraud by healthcare providers. Governmental agencies are devoting increasing attention and resources to such anti-
fraud efforts. In connection with our involvement with federal healthcare reimbursement programs, the government or those acting on its behalf may bring an
action under the False Claims Act (“FCA”), alleging that a healthcare provider has defrauded the government by submitting a claim for items or services not
rendered as claimed, which may include coding errors, billing for services not provided, and submitting false or erroneous cost reports. The FCA is a frequent
topic of analysis for the United States Supreme Court. As a result, interpretations of the FCA’s meaning periodically change, and the FCA has been, and may be in
the future, amended by Congress as a result of United States Supreme Court decisions. Civil monetary penalties (“CMPs”) under the FCA and other authorities,
including the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a, are substantial and are adjusted annually for inflation. Under the qui tam or “whistleblower”
provisions of the FCA, a private individual with knowledge of fraud may bring a claim on behalf of the federal government and receive a percentage of the federal
government’s recovery. Due to these whistleblower incentives, lawsuits have become more frequent. Many states also have a false claim prohibition that mirrors or
tracks the federal FCA. Federal law also provides that the Office of the Inspector General for HHS (“OIG”) has the authority to exclude individuals and entities
from federally funded healthcare programs on a number of grounds, including, but not limited to, certain types of criminal offenses, licensure revocations or
suspensions, and exclusion from state or other federal healthcare programs. In addition, CMS can recover overpayments from healthcare providers up to five years
following the year in which payment was made.
We may also face adverse consequences if we violate federal law related to certain Medicare physician referrals. Section 1877 of the Social Security Act,
commonly known as the “Stark Law,” provides that a physician may not refer a
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Medicare or Medicaid patient for a “designated health service” to an entity with which the physician or an immediate family member has a financial relationship
unless the financial arrangement meets an exception under the Stark Law or its regulations. Any funds collected for an item or service resulting from a referral that
violates the Stark Law must be repaid to Medicare or Medicaid, any other third-party payor, and the patient. In addition, CMPs, which are adjusted for annual
inflation, treble damages, and Medicare exclusion may be imposed for presenting or causing to be presented, a claim for a service rendered in violation of the Stark
Law. Many states have enacted healthcare provider referral laws that go beyond physician self-referrals or apply to a greater range of services than just the
designated health services under the Stark Law.
Monitoring Compliance in our Operations. As a healthcare provider, we have a compliance program to help us comply with various requirements of
federal, state and private healthcare programs. Our compliance program includes, among other things, (1) policies and procedures modeled after applicable laws,
regulations, government manuals and industry practices and customs that govern the clinical, reimbursement and operational aspects of our subsidiaries; (2)
training about our compliance process for the employees of our independent operating subsidiaries, our directors and officers; (3) training about Medicare and
Medicaid laws, fraud and abuse prevention, clinical standards and practices, and claim submission and reimbursement policies and procedures for appropriate
employees; and (4) internal controls that monitor, for example, the accuracy of claims, reimbursement submissions, cost reports and source documents, provision
of patient care, services, and supplies as required by applicable standards and laws, accuracy of clinical assessment and treatment documentation, and
implementation of judicial and regulatory requirements (e.g., background checks, licensing and training). The results of our compliance program are regularly
reported to the board of directors.
Additionally, government agencies and other authorities periodically inspect our operations to assess our compliance with various standards, rules and
regulations. The robust regulatory and enforcement environment continues to impact healthcare providers, especially in connection with responses to any alleged
noncompliance identified in periodic surveys and other inspections by government authorities. Unannounced surveys or inspections generally occur at least
annually at our independent operating subsidiaries and may also follow a government agency's receipt of a complaint about an operation. We are also subject to
regulatory reviews relating to Medicare services, billings and potential overpayments resulting from the Recovery Audit Contractors, Zone Program Integrity
Contractors, Program Safeguard Contractors, Unified Program Integrity Contractors, Supplemental Medical Review Contractors and Medicaid Integrity
Contributors programs in which third party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential
improper payments under the Medicare programs. We must pass these inspections to maintain our licensure under state law, to obtain or maintain certification
under the Medicare and Medicaid programs, to continue participation in the Veterans Administration (“VA”) program at some operations, and/or to comply with
our provider contracts with managed care clients at many operations. From time to time, we, like others in the healthcare industry, may receive notices from
federal and state regulatory agencies alleging that we failed to substantially comply with applicable standards, rules or regulations. These notices may require us to
take corrective action, may impose CMPs for noncompliance, and may threaten or impose other sanctions and operating restrictions, up through and including the
loss of licensure and termination of, or exclusion from, important payor relationships. If our operations fail to comply with these directives or otherwise fail to
comply substantially with licensure and certification laws, rules and regulations, we could lose our certification as a Medicare or Medicaid provider, lose our state
licenses to operate and be subject to fines and penalties.
Healthcare operations in our industries with otherwise acceptable regulatory histories are generally given an opportunity to correct deficiencies and
continue their participation in the Medicare and Medicaid programs by a certain date, usually within nine months, although where denial of payment or similar
remedies are asserted, such interim remedies go into effect much sooner. Operations with poor regulatory histories continue to be classified by CMS as poor
performing operations notwithstanding any intervening change in ownership, unless the new owner obtains a new Medicare provider agreement instead of
assuming the operation's existing agreement. However, new owners (including us, historically) nearly always assume the existing Medicare provider agreement
due to the difficulty and time delays generally associated with obtaining new Medicare certifications, especially in previously certified locations with sub-par
operating histories. Accordingly, operations that have poor regulatory histories before we acquire them may be more likely to have sanctions imposed upon them
by CMS or state regulators.
Regulations Regarding Patient Record Confidentiality. We are also subject to laws and regulations enacted to protect the confidentiality of patient health
information. For example, HHS has issued rules pursuant to Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health
Information Technology for Economic and Clinical Health (“HITECH”) Act, which relate to the privacy of certain patient information and provide patients with
the right of access to their health information. These rules govern our use and disclosure of protected health information. We have established policies and
procedures to comply with HIPAA privacy, security and breach notification requirements at our facilities and operations subject to HIPAA. We maintain a
company-wide HIPAA compliance plan, which we believe complies with the HIPAA regulations. The HIPAA regulations have and will continue to impose
significant costs on our facilities in order to
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comply with these standards. Our operations are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations
issued under HIPAA. These laws vary and could impose additional penalties for privacy and security breaches. In December 2024, HHS issued a notice of
proposed rulemaking proposing several changes to HIPAA’s security rule, including, among other things, requiring written procedures to respond to security
incidents, annual security compliance audits, encryption of PHI, and use of multi-factor authentication. These requirements could change before the proposed rule
is finalized.
Climate Laws. In 2023, California enacted SB 253 and SB 261, which require new climate disclosures from companies doing business in California. SB
253 requires companies with annual revenues of $1 billion or more to disclose their greenhouse gas emissions. SB 261 requires companies with annual revenues of
$500 million or more to disclose their climate-related risks and the measures they use to reduce and adapt to those risks. These reports are first due from companies
in 2026. Additional details regarding the application and requirements of these laws will be included in future regulations.
Antitrust Laws. We are also subject to federal and state antitrust laws. Enforcement of the antitrust laws against healthcare providers is common, and
antitrust liability may arise in a wide variety of circumstances, including third party contracting, physician relations, joint venture, merger, affiliation and
acquisition activities. In some respects, the application of federal and state antitrust laws to healthcare is still evolving, and enforcement activity by federal and
state agencies appears to be increasing. At various times, healthcare providers and insurance and managed care organizations may be subject to an investigation by
a governmental agency charged with the enforcement of antitrust laws or may be subject to administrative or judicial action by a federal or state agency or a
private party. Violators of the antitrust laws could be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants.
Regulations Specific to Senior Living Communities. Senior living services revenue is primarily derived from private pay residents at rates we establish
based upon the needs of the resident, the amount of services we provide the resident, and market rate environment in the area of operation. In addition, Medicaid or
other state-specific programs may supplement payments for board and care services provided in senior living communities. A majority of states provide, or are
approved to provide, Medicaid payments for personal care and medical services to some residents in licensed senior living communities under waivers granted by
or under Medicaid state plans approved by CMS. State Medicaid programs control costs for assisted living and other home- and community-based services by
various means such as restrictive financial and functional eligibility standards, enrollment limits and waiting lists. States that administer Medicaid programs for
services in senior living communities are responsible for monitoring the services at, and physical conditions of, the participating communities. As a result of the
growth of assisted living in recent years, states have adopted licensing standards applicable to assisted living communities. Most state licensing standards apply to
assisted living communities regardless of whether they accept Medicaid funding.
Our senior living segment is subject to a variety of federal, state and local environmental laws and regulations. As a senior living services provider, we
face regulatory requirements in areas of air and water quality control, medical and low-level radioactive waste management and disposal, asbestos management,
response to mold and lead-based paint in our facilities and employee safety.
As an operator of our communities, we also may be required to investigate and remediate hazardous substances that are located on and/or under the
property, including any such substances that may have migrated off, or may have been discharged or transported from the property. Part of our operations involves
the handling, use, storage, transportation, disposal and discharge of medical, biological, infectious, toxic, flammable and other hazardous materials, wastes,
pollutants or contaminants. In addition, we are sometimes unable to determine with certainty whether prior uses of our communities and properties or surrounding
properties may have produced continuing environmental contamination or noncompliance, particularly where the timing or cost of making such determinations is
not deemed cost-effective. These activities, as well as the possible presence of such materials in, on and under our properties, may result in damage to individuals,
property or the environment; may interrupt operations or increase costs; may result in legal liability, damages, injunctions or fines; may result in investigations,
administrative proceedings, penalties or other governmental agency actions. Associated costs may not be covered by insurance.
Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, we are
required to file reports and information with the Securities and Exchange Commission (“SEC”), including reports on the following forms: annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act. These reports and other information concerning our company may be accessed through the SEC’s website at http://www.sec.gov.
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You may also find on our website at www.pennantgroup.com electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Such filings are placed on
our website as soon as reasonably possible after they are filed with the SEC. All such filings are available free of charge. Information contained in our website is
not deemed to be a part of this Annual Report on Form 10-K.
Item 1A. Risk Factors -
Based on the information currently known to us, we believe that the following information identifies material risk factors affecting our company. However,
the risks and uncertainties we face are not limited to those described below. Additional risks and uncertainties may also adversely affect our business. If any of the
following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of
operations. In such case, the trading price of our common stock could decline.
Risks Related to Our Business and Industry
Our revenue could be impacted by federal changes to reimbursement and other aspects of Medicare. We derived 48.3% of our revenue from the Medicare
program for the year ended December 31, 2024, which is typical. In addition, other payors may use published Medicare rates as a basis for reimbursements. The
Medicare program and its reimbursement rates, caps, deductibles and rules are subject to frequent change for a variety of reasons, which is discussed in Item 1.,
Government Regulation. Budget pressures also frequently lead the federal government to reduce or limit reimbursement rates under Medicare, and to adjust when
or how those reductions or limitations are implemented, including sometimes doing so retroactively. Additionally, Medicare payments can be delayed or denied
(including retroactively) due to determinations that certain costs, services or providers are not covered. Accordingly, if Medicare reimbursement rates are reduced
or fail to increase as quickly as our costs, if we do not realize an adequate percentage of billed Medicare charges, or if there are changes in the way these programs
pay for services or what services or providers are covered, our business and results of operations would be adversely affected. CMS has also introduced in the past,
and will likely introduce in the future, new payment models, such as value-based arrangements or payment models that look to numerous factors in order to issue
full payment, in markets in which we operate. Those models may depend on the formation of preferred provider relationships among payors and providers. Our
operations may not successfully implement or adapt to these changes and our operations could be materially impacted.
Reductions in Medicaid reimbursement rates or changes in the rules governing the Medicaid program could have a material, adverse effect on our revenues,
financial condition and results of operations. We derived 13.2% of our revenue from Medicaid programs for the year ended December 31, 2024, which is typical.
Any budget reductions or funding restrictions, discontinuance or reduction of federal matching, change in payment methodology or delays in states in which we
operate could adversely affect our net patient service revenue and profitability. Like Medicare payments, Medicaid payments can be delayed due to budgetary
constraints of the state or state agencies responsible for making such payments, and Medicaid payments may be declined (including retroactively) due to
determinations that certain costs, services or providers are not covered by the state Medicaid agency or its intermediary organizations. Additionally, in many states
where we operate Medicaid benefits are administered through Medicaid Managed Care Organizations (“MCOs”), which are operated by private insurance
companies. These MCOs may apply different, stricter standards for reimbursement and prior authorization of our services, which may further adversely affect our
ability to be paid for our services. We can expect continuing cost containment pressures on Medicaid outlays, whether administered directly by a state program or
through an MCO, for our services.
Reforms to the U.S. healthcare system continue to impose new requirements upon us and may lower our reimbursements. Healthcare reform is a key political
and legislative focal point. We cannot predict what effect legislative or regulatory changes (including, for instance, proposals for Medicare-for-All or public option
insurers operated by one or more individual states), will have on our business, including the demand for our services or the amount of reimbursement available for
those services. The consequences of elections are not yet fully known for this industry, and our industry may be affected by presidential and congressional election
outcomes. It is possible new laws may lower reimbursement or increase the cost of doing business and adversely affect our business.
We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts
previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs. As
discussed in greater detail in Item 1., Government Regulation, as a result of our participation in the Medicaid and Medicare programs, we are frequently subject to
various governmental reviews, audits and investigations to verify our compliance with these programs. In addition to routine audits, in its November 2023 Final
Rule, CMS finalized a provisional period of enhanced oversight, including prepayment medical reviews, for all
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hospice providers that are newly enrolled or undergo a change of ownership, which expanded in June 2024 to include reactivated hospice providers in states where
we operate. Private pay sources also reserve the right to conduct audits. Disagreements about billing and reimbursement are common in our industry due in part to
the subjectivity inherent in patient diagnosis and care, record keeping, claims processing and other aspects of the patient service and reimbursement processes. An
adverse review, audit or investigation could result in (1) an obligation to refund amounts previously paid to us by payors in amounts that could vastly exceed the
revenue derived from claims actually reviewed in the audit, and could be material to our business; (2) state or federal agencies imposing fines, penalties and other
sanctions on us; (3) suspension of Medicare or Medicaid payments (4) loss of our right to participate in the Medicare or Medicaid programs or one or more private
payor networks; (5) an increase in private litigation against us; and (6) damage to our reputation with potential residents, referral sources, and others in various
markets.
In cases where claim and documentation review by any CMS contractor results in repeated poor performance, an operation can be subjected to protracted
oversight. Sustained failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare
decertification. Additionally, both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts as part of
numerous ongoing investigations of healthcare companies. The focuses of these investigations include among other things: cost reporting and billing practices;
quality of care; financial relationships with referral sources; and medical necessity of services provided. If any of our affiliated operations is decertified, loses its
license(s), or is subject to criminal charges or civil claims, administrative sanctions or penalties, our revenue, financial condition or results of operations would be
adversely affected. We or some of the key personnel of our independent operating subsidiaries could also be temporarily or permanently excluded from future
participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare. In addition, the report of such issues at any of our affiliated
operations could harm our reputation for quality care and could cause us to be in default under some of our agreements, including agreements governing
outstanding indebtedness. Responding to audits, litigation or enforcement efforts diverts material time, resources and attention, and could have a materially
detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail.
If we do not operate in compliance with the extensive laws and regulations to which we are subject, or if these laws and regulations change, we could be
required to make significant expenditures or change our operations to bring our operations into compliance. We, like other companies in the healthcare
industry, are required to comply with extensive and complex laws and regulations at the federal, state and local government levels as discussed in greater detail in
Item 1., Government Regulation. These laws and regulations are subject to frequent and unpredictable change. If we fail to comply with these applicable laws and
regulations, we could suffer civil or criminal penalties and other detrimental consequences, including denial of reimbursement, imposition of fines, temporary
suspension of admission of new patients, suspension or decertification from the Medicaid and Medicare programs, restrictions on our ability to acquire new
operations or expand or operate existing operations, the loss of our licenses to operate and the loss of our ability to participate in federal and state reimbursement
programs. These laws and regulations are complex, and we do not always have the benefit of significant regulatory or judicial interpretation of these laws and
regulations. Changing interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or
illegality or could require us to change our operations, equipment, personnel, services, capital expenditure programs and operating expenses.
Public and government calls for increased survey and enforcement efforts toward our industries could result in increased scrutiny and potential sanctions or
costly remedies. Government authorities have increased the scope or number of inspections or surveys and the severity of consequent citations for alleged failure
to comply with regulatory requirements. As discussed in Item 1., Government Regulation, from time to time in the ordinary course of business, we receive
deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys. Although most inspection deficiencies are resolved through
an agreed-upon plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified operation, which
could result in the imposition of fines and penalties, reports to the national practitioner data bank, imposition of a provisional or conditional license, suspension or
revocation of a license, suspension of new admission or bed holds, loss of certification as a provider under state or federal healthcare programs or termination of
the operations’ payment relationships with those programs, or imposition of other sanctions, including criminal penalties. Furthermore, in some states, citations
issued against one operation can affect other operations in the state, particularly where there is any element of common or affiliated ownership. Revocation of a
license or decertification at a given operation could therefore impair our ability to obtain new licenses or to renew existing licenses at other operations, which may
also trigger defaults or cross-defaults under our leases and our credit arrangements, or adversely affect our ability to operate in the future. If state or federal
regulators were to determine, formally or otherwise, that one operation’s regulatory history ought to impact another of our existing or prospective businesses, this
could also increase costs, result in additional fines or penalties, result in increased scrutiny by state and federal survey agencies, and impact our expansion plans as
well as our ongoing operations. In addition, from time to time, we may opt to voluntarily stop accepting new patients pending completion of a new state survey, to
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avoid straining staff and other resources while retraining staff, upgrading operating systems or making other operational improvements, all of which can impact
our financial results.
Future cost containment initiatives undertaken by payors may limit our future revenue and profitability. Our managed care revenue and profitability may be
affected by continuing efforts of third-party payors to maintain or reduce costs of healthcare by lowering payment rates, narrowing the scope of covered services
and network providers, increasing case management review of services and negotiating pricing. In addition, sustained unfavorable economic conditions may affect
the number of patients enrolled in managed care programs and the profitability of managed care companies, which could result in reduced revenue due to reduced
reimbursement for our services. There can be no assurance that third-party payors will make timely payments for our services, not seek recoupment of payments
on grounds that may or may not be valid, or that we will continue to maintain our current payor or revenue mix. We are continuing our efforts to develop our
private pay sources of revenue. Any changes in payment levels from current or future third-party payors could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In addition, enrollment in Medicare Advantage programs continues to grow nationwide, and an increasing
proportion of Medicare and Medicaid funds are managed by MCOs that also act as third-party payors who may seek to reduce reimbursement as described above.
Any economic downturn, deepening of an economic downturn, continued deficit spending by the Federal Government or state budget pressures may result in
a reduction in payments and covered services. Adverse economic developments in the United States could lead to a reduction in Federal Government
expenditures, including government-funded programs in which we participate, such as Medicare and Medicaid. In addition, if at any time the Federal Government
is not able to meet its debt payments due to Congress failing to appropriate funds for the payment of these obligations, the Federal Government may stop or delay
making payments on its obligations, including funding for government programs in which we participate, such as Medicare and Medicaid. Failure of the
government to make payments under these programs could have a material adverse effect on our business and consolidated financial condition, results of
operations and cash flows. Further, any failure by the United States Congress to complete the federal budget process and fund government operations may result in
a Federal Government shutdown, potentially causing us to incur substantial costs without reimbursement under the Medicare program, which could have a material
adverse effect on our business and consolidated financial condition, results of operations and cash flows. As an example, the failure of the 2011 Joint Select
Committee to meet its Deficit Reduction goal resulted in an automatic reduction in Medicare home health and hospice payments of 2% beginning April 1, 2013
(“sequestration” - suspended from May 1, 2020 through March 31, 2022; further extended by the Infrastructure Investment and Jobs Act of 2023, the Consolidated
Appropriations Act of 2023, and the Consolidated Appropriations Act of 2024; the continuing resolution for further spending passed in the American Relief Act of
2025 (“ARA”) did waive the 4% pay-as-you-go sequestration, but the ARA did not halt reductions found in Medicare payment rules that took effect for fiscal year
2025, including those reductions that exceeded 2%). In addition, the Federal Reserve has increased interest rates repeatedly and significantly in recent quarters and
may further increase or decrease interest rates in future quarters, impacting our cost of capital, our operating costs, and the economy as a whole.
Increased competition for, or a shortage of, nurses and other skilled personnel could increase our staffing and labor costs and negatively impact our
operations. Our success depends upon our ability to retain and attract nurses, certified nurse assistants, social workers and speech, physical and occupational
therapists, as well as skilled personnel who are responsible for the day-to-day operations of each of our affiliated operations. If we fail to attract and retain
qualified and skilled personnel, or if the associated costs to do so increase, our independent operating subsidiaries’ ability to conduct their business operations
effectively could be harmed. Staffing challenges increased during the pandemic and have persisted due to health care worker burnout, COVID-19 exposures,
vaccine mandates, and wage inflation, increasing the competition for qualified staff and cost of retaining personnel, and continue to affect our operations. There
can be no assurance that we will be able to attract and retain key personnel going forward.
We depend on our management team and local leaders, and the loss of their services could harm our business. We believe that our success depends in part on
the continued services of our executive management and local leadership teams. The loss of, or failure to recruit, such key personnel could have a material adverse
effect on our business and could adversely affect our strategic relationships and impede our ability to execute our business strategies. The market for qualified
individuals is highly competitive and finding and recruiting suitable replacements for our leaders may be difficult, time-consuming and costly.
Our hospice independent operating subsidiaries are subject to annual Medicare caps calculated by Medicare. With respect to our hospice independent operating
subsidiaries, overall payments made by Medicare for each Medicare beneficiary are subject to caps calculated by Medicare, as discussed in greater detail in Item
1., Government Regulation. If payments received by any one of our hospice provider numbers exceeds the caps for the beneficiary, we are required to reimburse
Medicare for payments received in excess of the caps, which could have a material adverse effect on our business. Additionally, the annual increase in
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Medicare beneficiary caps may not keep pace with the rate of inflation or increased operating costs as it applies to the costs of caring for such patients, potentially
resulting in our hospice independent operating subsidiaries treating these patients at a loss.
Security breaches and other cyber-security incidents could subject us to significant liability. Data breaches and leaks, which represent a material risk to our
business, are reported to have occurred with greater frequency and severity in 2024 than in prior years. Our business depends on the proper functioning and
availability of our computer systems and networks. Our security measures designed to protect our information systems, data and patient health information and
disaster recovery plan may not prevent damage, interruption, or breach of our information systems and operations. In addition, hardware, software or applications
we use may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems.
Unauthorized parties may attempt to gain access to our systems or operations, or those of third parties with whom we do business, through fraud or other forms of
deceiving our employees or contractors. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded
systems and technology or with maintenance or support of existing systems also could disrupt or reduce the efficiency of our operations. If a cyber-security attack
or other unauthorized attempt to access our systems, such as a ransomware attack, were to be successful, the incident could result in the theft, destruction, loss,
misappropriation or release of confidential information or intellectual property, and could cause delays or disruptions that may materially impact our ability to
provide various healthcare services. Any successful cyber-security attack or other unauthorized attempt to access our systems or operations also could result in
negative publicity which could damage our reputation or brand with our patients, referral sources, payors or other third parties and could subject us to substantial
regulatory, civil or criminal penalties, fines, investigations and enforcement actions, including under HIPAA and other federal and state privacy laws, including, for
example, the California Consumer Privacy Act and Nevada Privacy Law, which includes a private right of action that may expose us to private litigation regarding
our privacy practices and significant damages awards or settlements in civil litigation.
State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of the number of home health, hospice or senior living
operations could impair our ability to expand or result in increased competition. As discussed in greater detail in Item 1., Government Regulation, our ability to
acquire or establish new home health, hospice or senior living operations or expand or provide new services at existing operations would be adversely affected if
we are unable to obtain the necessary approvals, if there are changes in the standards applicable to those approvals, new laws or changes in applicable laws
governing CON requirements (or increasing the circumstances where a CON is needed), or if we experience delays and increased expenses associated with
obtaining those approvals. We may not be able to obtain licensure, CON approval, Medicare or Medicaid certification, Attorney General approval or other
necessary approvals for future expansion projects. In recent years, states including, but not limited to, California and Oregon have introduced additional regulatory
reviews and other barriers to health care transactions. Conversely, and specific to the highly competitive senior living industry, the elimination or reduction of state
regulations that limit the construction, expansion or renovation of new or existing communities could result in increased competition to us. In general, regulatory
and other barriers to entry in the senior living industry are not prohibitive. Over the last several years, there has been a significant increase in the construction of
new senior living communities, including in the markets where we provide services. This has resulted in increased competition in many of our markets. Such new
competition may limit our ability to attract new residents, raise rents or otherwise expand our senior living business, which could have a material adverse effect on
our revenues, results of operations and cash flow.
Changes in federal and state employment-related laws and regulations could increase our cost of doing business. Our independent operating subsidiaries are
subject to a variety of federal and state employment-related laws and regulations, including, but not limited to, the U.S. Fair Labor Standards Act which governs
such matters as minimum wages, overtime and other working conditions, the Americans with Disabilities Act (the “ADA”) and similar state laws that provide civil
rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act,
regulations of the Equal Employment Opportunity Commission, regulations of the Office of Civil Rights, regulations of state Attorneys General, family leave
mandates and a variety of similar laws. Because labor represents a large portion of our operating costs, changes in federal and state employment-related laws and
regulations could increase our cost of doing business. We also may be subject to employee-related claims such as wrongful discharge, discrimination or violation
of equal employment law. Employment claims, such as wage and hour claims, frequently are the subject of class action lawsuits in many states in which our
independent affiliates operate, including, for example, California.
Required regulatory approvals could delay or prohibit transfers of our healthcare operations, which could result in periods in which we are unable to receive
reimbursement for such properties. Our independent operating subsidiaries must be licensed under applicable state law and, depending upon the type of
operation, certified or approved as providers under the Medicare and/or Medicaid programs. In the process of acquiring or transferring operating assets, our
operations must receive change of ownership approvals from state licensing agencies, Medicare and Medicaid, and third-party payors. If there are any delays in
receiving regulatory approvals from the applicable federal, state or local government agencies, or from independent accreditation authorities that may be required
by federal, state or local government agencies, or the inability to receive such
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approvals, such delays could result in delayed or lost reimbursement related to periods of service prior to the receipt of such approvals. By way of example, in
2022 California passed Assembly Bill 2673 which prohibits issuance of new hospice licenses and limits transfer of existing licenses, and other states where we
operate may introduce similar legislation in the future. In 2024, CMS implemented a rule prohibiting hospice ownership from being transferred more than once in
a 36-month period.
Compliance with federal and state fair housing, fire, safety and other regulations may require us to make unanticipated expenditures, which could be costly to
us. We must incur the expense of complying with the federal Fair Housing Act and similar state laws, and applicable fire and safety regulations, building codes
and other land use regulations and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from time to time and
the expense may be substantial. Changes to these laws may require us to close operations, limit occupancy, or make other costly changes.
Our revenue, financial condition and results of operations could be negatively impacted by any changes in the acuity mix of patients in our affiliated
operations as well as payor mix and payment methodologies. Our revenue is determined in part by the acuity of home health and hospice patients and senior
living residents. Changes in the acuity level of patients we attract, as well as our payor mix among Medicare, Medicaid, managed care organizations and private
payors, may significantly affect our profitability because we generally receive higher reimbursement rates for high acuity patients and because the payors
reimburse us at different rates. For the year ended December 31, 2024, 61.5% of our revenue was provided by government payors that reimburse us at
predetermined rates, which is typical. If we fail to maintain our proportion of high acuity patients or if there is any significant increase in the percentage of the
patients of our independent operating subsidiaries for whom we receive Medicaid reimbursement, our results of operations may be adversely affected. Among
other initiatives, these payors attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that
this trend will continue and may limit reimbursements for healthcare services. If insurers or managed care companies from whom we receive substantial payments
were to reduce the amounts they pay for services, we may lose patients if we choose not to renew our contracts with these insurers at lower rates.
We are subject to litigation that could result in significant legal costs and large settlement amounts or damage awards. Our business involves a significant risk
of liability given the age and health of the patients and residents of our independent operating subsidiaries and the services we provide. The frequency and severity
of litigation in the healthcare industry has increased, due in part to large verdicts and punitive damage awards. Claims are filed based upon a wide variety of
assertions and theories, including deficiencies in conditions of participation under certain state and federal healthcare programs and wage and hour class actions.
Plaintiffs’ attorneys have become increasingly aggressive in their pursuit of claims against healthcare providers, including home health, hospice and senior living
providers, employing a wide variety of advertising and solicitation activities to generate more claims. Additionally, California, through its passage of AB 35, has
increased the non-economic (i.e., pain and suffering) damages that may be recovered by attorneys on claims of professional negligence or malpractice in healthcare
cases filed in California, and may embolden plaintiff’s attorneys to be more aggressive in their pursuit of facilities operated by our independent operating
subsidiaries and the services provided through them. Since California’s passage of AB 35, Iowa and Nevada have enacted similar laws that increase the non-
economic damages that may serve as the basis for the recovery for attorney’s fees in those states, which may stimulate additional litigation in those states and
could have an adverse material effect on our financial performance. The defense of lawsuits may result in significant legal costs, regardless of the outcome.
Further, such litigation against us or our independent operating subsidiaries may result in increased liability insurance premiums and/or a decline in available
insurance coverage levels, which could materially and adversely affect our business, financial condition and results of operations.
Instances of noncompliance can decrease our revenue. As discussed under Item 1., Monitoring Compliance in our Operations, we have internal compliance
policies and procedures, including ongoing monitoring and controls, pursuant to which we have identified, and may in the future identify, deficiencies in the
assessment of and recordkeeping for patients and residents. We must accrue liabilities for claim costs and interest and repay any amounts due in normal course.
Failure to refund overpayments within required time frames (as described in greater detail under Item 1., Government Regulation) could result in FCA liability and
other penalties, fines, or sanctions. If future investigations ultimately result in findings of significant billing and reimbursement noncompliance, which require us
to record significant additional provisions or remit payments, our business, financial condition and results of operations could be materially and adversely affected.
We may be unable to complete future acquisitions at attractive prices or at all, which may adversely affect our revenue growth. To date, our revenue growth has
been significantly accelerated by our acquisition of new operations. Subject to general market conditions and the availability of essential resources and leadership
within our company, we continue to seek home health, hospice and senior living acquisition opportunities that are consistent with our geographic, financial and
operating objectives. We face competition for the acquisition of operations and businesses and expect this competition to increase. Based upon factors such as our
ability to identify suitable acquisition candidates, the purchase price of the operations, prevailing market conditions, the availability of leadership to manage new
operations and our own willingness to take on new operations,
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the rate at which we have historically acquired home health, hospice and senior living operations has fluctuated and we anticipate similar fluctuation in the future.
Further, acquisitions may require financing, which may not be available to us or may be available to us only on terms that are not favorable. If funds are raised
through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted, and any newly issued equity securities may
have rights, preferences or privileges senior to those of our common stock. We may acquire operations that prove to be non-strategic or less desirable, and we may
consider disposing of such operations or exchanging them for operations which are more desirable.
We may not be able to successfully integrate acquired operations, and we may not achieve the benefits we expect from our acquisitions. We may not be able to
successfully or efficiently integrate new acquisitions with our existing independent operating subsidiaries, culture and systems. We also may determine that
renovations of acquired operations and changes in staff and operating management personnel are necessary to successfully integrate those acquisitions into our
existing operations. We may not be able to recover the costs incurred to reposition or renovate newly independent operating subsidiaries. The financial benefits we
expect to realize from many of our acquisitions are largely dependent upon our ability to improve clinical performance, overcome regulatory deficiencies,
rehabilitate or improve the reputation of the operations in the community, increase and maintain census, control costs, and in some cases change the patient acuity
mix. Growth also places significant demands on our leaders and operational, financial and management information systems. If we are unable to accomplish any of
these objectives at the independent operating subsidiaries we acquire, we will not realize the anticipated benefits and we may experience lower than anticipated
profits, or even losses.
In undertaking acquisitions, we may be impacted by costs, liabilities and regulatory issues that may adversely affect our operations. In undertaking acquisitions,
we also may be adversely impacted by unforeseen liabilities attributable to the prior providers who operated the acquired operations, against whom we may have
little or no recourse. Many operations we have historically acquired were underperforming prior to the acquisition. Even where operations have been improved, we
still may face post-acquisition regulatory issues related to pre-acquisition events. These may include, without limitation, payment recoupment related to our
predecessors’ prior noncompliance, the imposition of fines, penalties, operational restrictions or special regulatory status. Further, we may incur post-acquisition
compliance risk due to the difficulty or impossibility of immediately or quickly bringing non-compliant operations into full compliance. Diligence materials
pertaining to acquisition targets, especially the underperforming operations that often represent the greatest opportunity for return, are often inadequate, inaccurate
or impossible to obtain, sometimes requiring us to make acquisition decisions with incomplete information. Operations that we have acquired or may acquire in the
future may generate unexpectedly low returns, may cause us to incur substantial losses (including sanctions, fines, penalties, and other liabilities that state and
federal authorities may seek to impose upon us under various theories of successor liability despite our efforts to prevent such liabilities during our transactions),
may require unexpected levels of management time, expenditures or other resources, or may otherwise not meet a risk profile that our investors find acceptable.
We also incur regulatory risk in acquiring certain operations due to the licensing, certification and other regulatory requirements affecting our right to operate the
acquired operations, which are frequently obtained post-closing. If we were denied licensure or certification for any reason, we might not realize the expected
benefits of the acquisition and would likely incur unanticipated costs and other challenges which could cause our business to suffer.
If our referral sources fail to view us as an attractive provider, or if our referral sources otherwise refer fewer patients or residents, our patient or resident base
may decrease. We rely on appropriate referrals from physicians, hospitals and other healthcare providers in the communities we serve to attract appropriate
residents and patients to our affiliated operations. Our referral sources are not obligated to refer business to us and may refer business to other healthcare providers.
If we lose, or fail to maintain, existing relationships with our referral resources, fail to develop new relationships, or if we are perceived by our referral sources as
not providing high quality patient care, our independent subsidiaries’ respective censuses could decline and our patient mix could change. In addition, if any of our
referral sources have a reduction in patients whom they can refer due to a decrease in their business, our census could decline and patient mix could change.
If we do not achieve and maintain competitive quality of care ratings from CMS and private organizations engaged in similar monitoring activities, our
business may be negatively affected. Providing quality patient care is the cornerstone of our business. We believe that referral sources, residents and patients select
us in large part because of our reputation for delivering quality care. If we should fail to attain our goals regarding acute care hospitalization readmission rates and
other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business,
financial condition, results of operations and cash flows. In addition, our home health payment rates could be reduced, as described in Item 1., Government
Regulation - Home Health Value Based Purchasing (HHVBP); further, our star ratings measured by CMS on a five-star basis may decrease, resulting in lower
estimation by potential residents and patients and reducing the likelihood of having those potential residents and patients use our services, as described in Item 1.,
Our Competitive Strengths - Superior Clinical Outcomes and Quality Care.
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If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected. It may become more
difficult and costly for us to obtain coverage for patient care liabilities and other risks, including property and casualty insurance. Our claims history, asset mix, or
other factors may adversely affect our ability to obtain insurance at favorable rates. Recent legislation in Nevada that prohibits the reduction of funds available to
pay claims based on the costs of defending claims or litigation may result in higher premiums for our operations within that state. Similarly, recent legislation in
California and Nevada increasing the amounts of non-economic damages recoverable in actions based on professional negligence against healthcare providers may
also result in higher premiums for our operations within those states and limit the options for available coverage. Our insurance carriers may require us to pay
substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment
practices liability, directors and officers liability, employee healthcare insurance benefits, and general and professional liability coverages. Further, many claims
and other risks we face are not insurable. Climate change and the proliferation of natural disasters may increase the cost of coverage or make coverage impossible
to obtain.
We retain certain risks related to our insurance coverage. Under our insurance policies, we bear the risk of loss up to specified deductible limits, which may be
substantial if there is a surge in the volume of claims subject to the deductible. We recognize obligations associated with these costs in the period in which a claim
is incurred, including with respect to both reported claims and claims incurred but not reported. These costs generally are estimated based on our historical claims
experience. Projections of self-insured retention losses are estimates that are subject to significant variability, and as a result, our actual losses and expenses may be
more or less than recorded liabilities.
Our self-insurance programs may expose us to significant and unexpected costs and losses. Our general liability and workers compensation insurance policies
include self-insured retentions under which we are responsible to pay for a portion of each claim. We establish insurance loss reserves based on an estimation
process that use information obtained from both company-specific and industry data. The estimation process requires us to continually monitor and evaluate the
life cycle of claims. Using data obtained from this monitoring and our assumptions about emerging trends, we, along with an independent actuary, develop
information about the size of ultimate claims based on historical experience and other available industry information. The most significant assumptions used in the
estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damages
with respect to unpaid claims. It is possible, however, that the actual liabilities may exceed our estimates of loss. We may also experience an unexpectedly large
number of successful claims or claims that result in costs or liability significantly exceeding our projections. For these and other reasons, our self-insurance
reserves could prove to be inadequate, resulting in liabilities exceeding our available insurance and self-insurance reserves. If a successful claim is made against us
and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted. Further, because our self-
insured retentions under our general and professional liability and workers’ compensation program apply on a per claim basis, there is no limit to the maximum
number of claims or the total amount for which we could be responsible during any policy period. We also self-insure our employee health benefits. With respect
to our health benefits self-insurance, our reserves and premiums are computed based on a mix of company-specific and general industry data. Even with a
combination of limited company-specific loss data and general industry data, our loss reserves are based on actuarial estimates that may not correlate to actual loss
experience in the future. Therefore, our reserves may prove to be insufficient, and we may be exposed to significant and unexpected losses.
The unionization of our workers may adversely affect our revenue and profitability. To date, with the exception of one joint venture, where certain employees
had elected to unionize prior to our acquisition, our employees have chosen not to unionize. Throughout 2023 and 2024, however, there has been a nationwide
trend of increasing union activity, including strikes in the healthcare industry and in states, such as California, in which we operate. Increasing trends of service
workers successfully organizing to unionize their workplaces may increase the likelihood of our employees seeking to unionize their activities at one or more
additional locations controlled by our independent operating subsidiaries. If union activity among our employees increases, our cost of doing business could
increase, our operations could experience disruption, and affected operations may no longer be economical to continue operating. Further, labor disputes and
unionization efforts, among our own employees or among the employees of our referral partners, payors, vendors, joint venture partners, acquisition targets, or
other parties, could lead to work stoppages, slowdown, strikes, lockouts, and increased costs, which could materially and adversely impact our operations.
Because we lease most of our affiliated senior living communities, we could experience risks associated with leased property, including risks relating to lease
termination, lease extensions and special charges, which could adversely affect our business, financial position or results of operations. As of December 31,
2024, we leased all of our senior living communities, except for three. We also leased all of our administrative offices. Most of our leases are triple-net leases,
which means that, in addition to rent, we are required to pay for the costs related to the property (including property taxes, insurance, and maintenance and repair
costs), the cost of which tend to increase year-over year and may adversely affect us with future increases and operating expense reconciliations due for prior
years. Under certain master leases, a breach at a single community
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could subject one or more of the other communities covered by the same master lease to the same default risk. Failure to comply with provider requirements is a
default under several of the leases and master lease agreements. In addition, lease defaults could trigger cross-default provisions in our outstanding debt
arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the
consent of the landlord.
A housing downturn could decrease demand for assisted living services. Seniors often use the proceeds of home sales to fund their admission to assisted living
communities. A downturn in the housing markets, such as the slowdown in activity that was ongoing in 2023 and 2024 as a result of higher-than-normal mortgage
interest rates, could adversely affect seniors’ ability to afford our resident fees and entrance fees. If national or local housing markets enter a persistent decline in
prices or transaction activity, our occupancy rates, revenues, results of operations and cash flow could be negatively impacted.
Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt and operating leases could result in
defaults under such agreements and cross-defaults under other debt or operating lease arrangements, which could harm our independent operating
subsidiaries and cause us to lose operations or experience foreclosures. We have significant future operating lease obligations. We intend to continue financing
operations through long-term operating leases, mortgage financing and other types of financing, including borrowings under future credit facilities we may obtain.
We may not generate sufficient cash flow from operations to cover required interest, principal and lease payments. If we are unable to generate sufficient cash flow
from operations in the future to service our debt or to make lease payments on our operating leases, we may be required, among other things, to seek additional
financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets, reduce or delay planned capital
expenditures or delay or abandon desirable acquisitions. Such measures might not be sufficient to enable us to service our debt or to make lease payments on our
operating leases. The failure to make required payments on our debt or operating leases or the delay or abandonment of our planned growth strategy could
adversely affect our future ability to generate revenue and sustain profitability and subject us to foreclosure. In addition, any such financing, refinancing or sale of
assets might not be available on terms that are economically favorable to us, or at all. Our financing arrangements contain restrictions, covenants and events of
default that, among other things, could limit our ability to respond to market conditions, provide for capital investment needs or take advantage of business
opportunities by restricting our ability to incur or guarantee additional indebtedness or requiring us to offer to repurchase such indebtedness in the event of a
change of control or a change of control triggering event; pay dividends or make distributions; make investments or acquisitions; sell, transfer or otherwise dispose
of certain assets; create liens; consolidate or merge; enter into transactions with affiliates; and prepay and repurchase or redeem certain indebtedness.
The condition of the financial markets, including volatility and deterioration in the capital and credit markets, could limit the availability of debt and equity
financing sources to fund the capital and liquidity requirements of our business, as well as negatively impact or impair the value of our future portfolio of
cash, cash equivalents and investments. Credit markets are cyclical. Volatility in financial and credit markets may reduce the availability of certain types of debt
financing and restrict the availability of credit. Further, we anticipate that our future cash, cash equivalents and investments may be held in a variety of interest-
bearing instruments. As a result of the uncertain domestic and global political, credit and financial market conditions, investments in these types of instruments
pose risks arising from liquidity and credit concerns.
Inflation may negatively impact profitability. The annual inflation rate in recent years has impacted our operations, placing upward pricing pressure on all things
from wages to supplies to energy costs. Inflation is expected to ease in 2025 but may continue to affect the Company’s profit in providing services. We have
historically derived a substantial portion of our revenue from the Medicare program. We also derive revenue from state Medicaid and similar reimbursement
programs. Payments under these programs generally provide for reimbursement levels that are adjusted for inflation annually. These inflation-based increases may
not continue in the future, such as in the case of Medicare payments subject to reduction under sequestration required by prior legislation. Even if these
reimbursement rate increases continued, such adjustments may not reflect the actual increase in our costs for providing healthcare services. Labor and supply
expenses make up a substantial portion of our cost of services. Those expenses are subject to increase in periods of rising inflation and when labor shortages occur
in the marketplace. Inflation has led, and may continue to lead, to increased interest rates, which have and could continue to increase our cost of capital, impair
consumers’ ability to purchase our services, or otherwise harm us financially.
Changes to immigration law or enforcement could adversely affect our results from operations. Changes to immigration laws and policies, or increased
enforcement of existing laws and regulations, could impact our employees or the labor pool from which we hire future employees. Such changes could reduce the
number of eligible workers and increase wage costs, including for skilled workers who may work or receive professional training in the United States under
various visa programs, making it more difficult or impossible for us to staff our operations.
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Extreme weather, natural disasters, or other catastrophic events could adversely affect our results from operations. We operate and are subject to long term
leases in areas particularly susceptible to damage or losses caused by catastrophic or extreme weather and other natural events, including fires, snow, rain or ice
storms, windstorms, tornadoes, hurricanes, earthquakes, landslides or mudslides, flooding and other severe weather. Many of our services require our employees to
travel to patients’ homes by car. Adverse weather events could impair our ability to provide services and could cause substantial damages or losses to our
communities or operations, which may not be covered by insurance. These events may also indirectly affect our business by increasing the cost of (or making
unavailable) insurance on terms we find acceptable. Changes in regulations relating to climate change could require us to change the way we provide services and
could result in increased costs without a corresponding increase in revenue.
Delays in reimbursement may cause liquidity problems. If we experience problems with our billing information systems or if payment issues arise with Medicare,
Medicaid or other payors, we may encounter delays in our payment cycle or delays in submitting required cost reports. From time to time, we have experienced
such delays as a result of government payors instituting planned reimbursement delays for budget balancing purposes or as a result of prepayment reviews. Some
states in which we operate experience or have experienced budget deficits or could have a budget deficit in the future, which may delay reimbursement in a
manner that would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which
contributes to aged receivables. Unanticipated delays in receiving reimbursement from state programs due to changes in their policies or billing or audit procedures
may adversely impact our liquidity and working capital. Failure to timely submit required cost reports may result in financial penalties.
Compliance with the regulations of the Department of Housing and Urban Development (“HUD”) may require us to make unanticipated expenditures which
could increase our costs. Seventeen of our affiliated senior living communities are currently subject to regulatory agreements with HUD that give the
Commissioner of HUD broad authority to have us replaced as the operator of those communities in the event that the Commissioner determines there are
operational deficiencies at such communities under HUD regulations. Compliance with HUD’s requirements can often be difficult because these requirements are
not always consistent with the requirements of other federal and state agencies and, in some instances, may require us to make additional capital expenditures to
meet HUD’s heightened requirements. Appealing a failed inspection can be costly and time-consuming and, if we do not successfully remediate the failed
inspection, we could be precluded from obtaining HUD financing in the future or we may encounter limitations or prohibitions on our operation of HUD-insured
communities.
Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.
Our independent operating subsidiaries are subject to regulations under various federal, state and local environmental laws, primarily those relating to the handling,
storage, transportation, treatment and disposal of medical waste; the identification and warning of the presence of asbestos-containing materials in buildings, as
well as the encapsulation or removal of such materials; and the presence of other substances in the environment. The presence of such materials may be unknown
and could result in remediation costs, fines, damages and other material harm to our business.
We are a holding company with no operations and rely upon our independent operating subsidiaries to provide us with the funds necessary to meet our
financial obligations. We are a holding company with no direct operating assets, employees or revenues. Each of our affiliated operations is operated through a
separate, independent subsidiary, which has its own management, employees and assets. Our principal assets are the equity interests we directly or indirectly hold
in our independent operating subsidiaries. As a result, we are dependent upon distributions from our subsidiaries to generate the funds necessary to meet our
financial obligations. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us. The ability of our subsidiaries to make
distributions to us will depend substantially on their respective operating results and will be subject to restrictions under, among other things, the laws of their
jurisdiction of organization, which may limit the amount of funds available for distribution to investors or stockholders, agreements of those subsidiaries, the terms
of our financing arrangements and the terms of any future financing arrangements of our subsidiaries.
Two of our directors continue to serve as a director on the Ensign board of directors, and ownership of shares of Ensign common stock or equity awards of
Ensign by our directors and executive officers may create conflicts of interest or the appearance of conflicts of interest. Two of our directors continue to serve
on the Ensign board of directors and a portion of our executive officers and non-employee directors own shares of Ensign common stock. This could create, or
appear to create, potential conflicts of interest when our or Ensign’s management or directors face decisions that could have different implications for us and
Ensign, including our existing long term leases, any commercial agreements entered into in the future between us and Ensign and the allocation of such directors’
time between us and Ensign.
Risks Related to Ownership of Our Common Stock
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Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider
favorable. Our amended and restated certificate of incorporation and amended and restated bylaws may make the merger or acquisition of our company more
difficult without the approval of our board of directors. Among other things, these provisions: allow us to authorize the issuance of undesignated preferred stock,
the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval,
dividend, or other rights or preferences superior to the rights of the holders of common stock; establish advance notice requirements for nominations for elections
to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings; create a classified board of directors whose members serve
staggered three-year terms; and limit the ability of our stockholders to call and bring business before special meetings. Further, as a Delaware corporation, we are
also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These provisions could discourage,
delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect
the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors of
their choosing and to cause us to take other corporate actions desired.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We leverage information technology to enable our teams to share best practices, stay informed, adapt to challenges and opportunities promptly, improve the quality
of care, mitigate risks, and enhance both clinical outcomes and financial performance. Additionally, we have invested in specialized healthcare technology systems
to support our nursing and support staff. Our software and technology in each operation allows our clinical staff to monitor and deliver patient care and record
patient information more efficiently, but the use of information systems also introduces cybersecurity risks, including system disruption, security breaches,
ransomware, theft, espionage, and inadvertent release of information.
Risk Management and Strategy
Risk Management
We assess and identify security risks to the organization by:
•
Conducting regular risk assessments to determine the likelihood and magnitude of an attack from unauthorized access, use, disclosure, disruption,
modification, or destruction of information systems and related information processes, stored, or transmitted;
•
Performing annual security assessments and producing security assessment reports for review by Information Technology (“IT”) senior leadership,
including the service center's Chief Information Officer (“CIO”) and Chief Information Security Officer (“CISO”);
•
Regularly assessing security controls for effectiveness, proper functioning, and satisfactory results; and
•
Continuously monitoring and addressing vulnerabilities.
Monitoring
We have established a monitoring strategy and program, which includes:
•
Active, automated threat detection and screening;
•
Clearly defined security metrics to be monitored;
•
Regular security control assessments;
•
Regular communication about security issues with the executive team and board of directors;
•
Monitoring information systems to detect attacks and indicators of potential attacks or compromises;
•
Identifying unauthorized use of information system resources; and
•
Deploying monitoring systems and agents strategically within the information system environment.
Data Protection
We have implemented policies and programs to secure sensitive data. These include:
•
Data security policies for the Company and its subsidiaries;
•
Frequent security training;
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•
Establishing controls over network devices, actively tracking, monitoring, and evaluating them for new, missing, or updated software needed to strengthen
security, patch known vulnerabilities, or stabilize software or operating system issues;
•
Protecting sensitive data through encryption techniques; and
•
Utilizing systems with backup and recoverability principles, such as periodic data backups and safeguards in case of a disaster.
Incident Management
Our cybersecurity incident management plan includes the following five-step process:
1.
The service center's CIO and CISO lead the Information Security (“IS”) team in developing, documenting, reviewing, and testing security and incident
management procedures;
2.
The IS team works with the executive team to identify, assess, verify, and classify incidents to determine affected stakeholders and appropriate parties for
contact;
3.
In the event of a security incident, the service center's CIO and CISO are responsible for launching an Incident Response Team (“IRT”) if necessary and
notifying the executive team, who will contact the board of directors and the Audit Committee to validate the response;
4.
The IRT, in consultation with outside experts if needed, is responsible for initial containment, analysis, incident containment, incident eradication, and
recovery. The IS team also coordinates with our legal and compliance teams as needed; and
5.
After each significant incident, analyses are conducted to improve prevention and make incident response processes more efficient and effective.
We have not experienced a material cybersecurity breach as an organization in the past five years. Moreover, cybersecurity threats have not materially affected our
business strategy, results of operations, or financial condition. While we have implemented processes and procedures to address and mitigate cybersecurity threats,
there can be no assurances that such an incident will not occur despite our efforts, as described in Item 1A. Risk Factors.
Governance
Our Audit Committee receives quarterly reports on our information security and cyber fraud prevention programs from the service center's CIO and CISO, each of
whom has over 15 years of experience in IT, including various leadership roles at other large corporations. Directors Scott E. Lamb, Gregory K. Morris M.D., and
John G. Nackel, Ph.D. provide key oversight on cybersecurity matters. Our executive team is also regularly briefed on any significant security risks during
monthly leadership meetings.
The IS team, established by the service center's CIO and CISO, has dedicated cybersecurity staff focusing on security monitoring, vulnerability management,
incident response, risk assessments, employee training, security engineering, and management of cybersecurity policies, standards, and regulatory compliance. The
Company implements security standards that include SOC 1 and SOC 2 compliance. We align with a Cyber Security Framework and take a risk-based approach
during control assessment and implementation, following the National Institute of Standards and Technology (“NIST”) framework. We are committed to protecting
our data, systems, and network and continually invest in enhancements to mitigate or reduce the impact of cybersecurity threats. We conduct periodic tests to
maintain readiness and resiliency while regularly reviewing policies to protect data security. External companies or agencies may provide consulting, guidance,
assistance, or support in response to a cybersecurity incident. Employees receive regular training, at least annually, on cybersecurity threats and best practices to
maintain information security.
Item 2. Properties
Service Center
We lease office space to accommodate our Service Center. Our primary Service Center is located in Eagle, Idaho. The leased property consists of
approximately 16,794 square feet of office space and the lease term expires March 31, 2025. We also have leased office space for service centers in Midvale, Utah
and Farmington, Connecticut.
Home Health and Hospice Agencies and Senior Living Communities
As of December 31, 2024, we operated 123 home health, hospice and home care agencies in Arizona, California, Colorado, Idaho, Montana, Nevada,
Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. Office space is leased within geographies served by our agencies.
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As of December 31, 2024, we operated 57 affiliated senior living communities in Arizona, California, Idaho, Nevada, Texas, Utah, and Wisconsin with
3,960 Senior Living units. We lease 54 of our communities through long-term, triple-net lease arrangements, and own the remaining 3 properties.
The following table provides summary information regarding the locations of our home health and hospice agencies and our senior living communities
and operational units as of December 31, 2024:
State
Home Health
Agencies
 
Hospice Agencies
Senior Living
Communities
Senior Living Units
Arizona
7 
13 
5 
840 
California
9 
12 
7 
629 
Colorado
9 
2 
— 
— 
Idaho
6 
5 
3 
232 
Montana
1 
1 
— 
— 
Nevada
1 
2 
4 
385 
Oklahoma
2 
2 
— 
— 
Oregon
2 
1 
— 
— 
Texas
6 
10 
12 
709 
Utah
8 
5 
2 
188 
Washington
10 
4 
— 
— 
Wisconsin
2 
1 
24 
977 
Wyoming
1 
1 
— 
— 
Total
64 
59 
57 
3,960 
Item 3.    Legal Proceedings
We are involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to
have a material adverse effect on our results of operations or financial condition. However, the results of such matters cannot be predicted with certainty, and we
cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on our business, financial
condition, results of operations and cash flows. See Note 16, Commitments and Contingencies, to the Consolidated Financial Statements for a description of claims
and legal actions arising in the ordinary course of our business.
Item 4.    Mine Safety Disclosures
None.
Part II.
Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Common stock trades under the symbol “PNTG” on the NASDAQ Global Select Market. As of February 24, 2025, there are approximately 71 holders
of record of our stock.
Dividend Policy
We do not intend to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to
support our operations and to finance the growth and development of our business.
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Issuer Repurchases of Equity Securities
The Company did not repurchase any shares in 2024, nor did it approve any share repurchase program.
Stock Performance Graph
The following Stock Performance Graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor should such
information be incorporated by reference into any future filings under the Securities Act or the Exchange Act except to the extent that we specifically incorporate it
by reference in such filing.
The graph below compares the cumulative total stockholder return on our common stock, $0.001 par value per share, during the period from January 1,
2020, through December 31, 2024, with the cumulative total return on the NASDAQ composite index and an industry peer group over the same period (assuming
the investment of $100 in our common stock, the NASDAQ composite index and the industry peer group on January 1, 2020 and the reinvestment of dividends).
The peer group we selected is comprised of: Amedysis, Inc. (“AMED”), Addus Homecare Corporation (“ADUS”), Chemed Corporation (“CHE”), Encompass
Health Corporation (“EHC”), Sonida Senior Living Inc., formerly known as Capital Senior Living Corporation (“SNDA”), and Brookdale Senior Living, Inc.
(“BKD”). The cumulative total stockholder return on the following graph is historical and is not necessarily indicative of future stock price performance. No cash
dividends have been paid on our common stock.
1/1/2020
12/2020
12/2021
12/2022
12/2023
12/2024
PNTG
$
100.0 
$
175.6 
$
69.8 
$
33.2 
$
42.1 
$
80.1 
NASDAQ
100.0 
144.9 
177.1 
119.5 
172.8 
223.9 
Peer Group
100.0 
130.3 
102.6 
92.3 
105.8 
116.6 
Item 6.    [Reserved]
Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in
this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report. See
Item 1A., Risk Factors and Cautionary Note Regarding Forward-Looking Statements.
Overview
We are a leading provider of high-quality healthcare services to patients and residents of all ages, including the growing senior population, in the United
States. We strive to be the provider of choice in the communities we serve through our innovative operating model. We operate in multiple lines of businesses
including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah,
Washington, Wisconsin and Wyoming. We also provide home health and hospice operational support through a management service agreement in Connecticut. As
of December 31, 2024, our home health and hospice business provided home health, hospice and
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home care services from 123 agencies operating across 13 states, and our senior living business operated 57 senior living communities throughout seven states.
The following table summarizes our affiliated home health and hospice agencies and senior living communities as of:
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Home health and hospice agencies
25 
32 
39 
46 
54 
63 
76 
88
95 
111 
123 
Senior living communities
15 
36 
36 
43 
50 
52 
54 
54
49 
51 
57 
Senior living units
1,587 
3,184 
3,184 
3,434 
3,820 
3,963 
4,127 
4,127 
3,500 
3,588 
3,960 
Total number of home health,
hospice, and senior living operations
40
68 
75 
89 
104 
115 
130 
142 
144 
162 
180 
Recent Activities
Acquisitions. During 2024, we expanded our operations with the addition of eight home health agencies, three hospice agencies, and six senior living
communities. A subsidiary of the Company entered into a separate purchase agreements with the prior operator of each acquired operation as part of each
transaction.
Trends
We have experienced stable senior living occupancy through the year ended December 31, 2024. Although we saw steady improvements in occupancy
throughout 2023 as a result of renewed consideration of senior living communities as the negative impacts of the global pandemic subsided, and stable occupancy
during 2024, the highly competitive environment for senior living residents and inflationary factors will continue to impact our occupancy levels in our senior
living communities.
When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted. We expect these metrics to vary from period
to period based upon the maturity of the operations within our portfolio. We have generally experienced lower occupancy rates and higher costs at our senior living
communities and lower census and higher costs at our home health and hospice agencies for recently acquired operations; as a result, we generally anticipate lower
and/or fluctuating consolidated and segment margins during years of acquisition growth.
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 Chief Operating Decision Maker (“CODM”), reviews financial information at the operating segment level using segment adjusted EBITDAR
from operations. We also report an “all other” category that includes general and administrative expense from our Service Center.
Key Performance Indicators
We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their
definitions include the following:
Home Health and Hospice Services
•
Total home health admissions. The 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.
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•
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 services statistics for the periods indicated:
Year Ended December 31,
2024
2023
Home health services:
Total home health admissions
59,741 
43,508 
Total Medicare home health admissions
24,598 
19,389 
Average Medicare revenue per completed 60-day home health episode
$
3,677 
$
3,468 
Hospice services:
Total hospice admissions
12,208 
9,746 
Average hospice daily census
3,268 
2,607 
Hospice Medicare revenue per day
$
183 
$
185 
(a)
The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods.
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:
Year Ended December 31,
2024
2023
Occupancy
78.8 %
78.5 %
Average monthly revenue per occupied unit
$
4,811 
$
4,443 
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
(a)
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of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the
timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for
the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the
Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments.
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. Hospices are reimbursed at a higher rate for RHC services provided from days of service 1
through 60 and a lower rate for all subsequent days of service. CMS also provided 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 or 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 payroll 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 (such as
accounting and legal fees), costs relating to our information systems, share-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 40 years). Leasehold improvements are amortized on a straight-line basis
over the shorter of their estimated useful lives or the remaining lease term.
 
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these 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, and 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 Consolidated Financial Statements for further information on our critical accounting estimates and policies, which are as follows:
•
Self-insurance reserves - The Company is self-insured for general and professional liability, workers’ compensation, automobile, and its employee health
plans while maintaining stop-loss coverage with third-party insurers to limit its total liability exposure. The valuation methods and assumptions used in
estimating costs up to retention amounts to settle open claims of insureds and an estimate of the cost of insured claims up to retention amounts that have
been incurred but not reported;
•
Revenue recognition - The amounts owed by private pay individuals for services and estimate of variable considerations to arrive at the transaction price,
including methods and assumptions, used to determine settlements with Medicare and Medicaid adjustments due to audits and reviews; and
•
Acquisition accounting and goodwill - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection
with our acquisitions, and the review of goodwill for impairment at the Company’s annual impairment test date or upon the occurrence of a triggering
event.
Recent Accounting Pronouncements
    Information concerning recently issued accounting pronouncements which are not yet effective is included in Note 2, Basis of Presentation and Summary of
Significant Accounting Policies in the Consolidated Financial Statements.
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Results of Operations
The following table sets forth details of our expenses and earnings as a percentage of total revenue for the periods indicated:
Year Ended December 31,
2024
2023
2022
Total revenue
100.0 %
100.0 %
100.0 %
Expense:
Cost of services
80.3 
80.4 
79.6 
Rent—cost of services
6.2 
7.3 
8.0 
General and administrative expense
7.2 
6.7 
7.2 
Depreciation and amortization
0.9 
0.9 
1.0 
(Gain) loss on asset dispositions and impairment, net
(0.1)
— 
1.5 
Total expenses
94.5 
95.3 
97.3 
Income from operations
5.5 
4.7 
2.7 
Other expense, net:
Other income
— 
0.1 
— 
Interest expense, net
(1.0)
(1.2)
(0.8)
Other expense, net
(1.0)
(1.1)
(0.8)
Income before provision for income taxes
4.5 
3.6 
1.9 
Provision for income taxes
1.0 
1.0 
0.4 
Net income
3.5 
2.6 
1.5 
Less: net income attributable to noncontrolling interest
0.3 
0.1 
0.1 
Net income attributable to Pennant
3.2 %
2.5 %
1.4 %
Year Ended December 31,
2024
2023
2022
(In thousands)
Consolidated GAAP Financial Measures:
Total revenue
$
695,240  $
544,891  $
473,241 
Total expenses
657,124 
519,722 
460,502 
Income from operations
$
38,116  $
25,169  $
12,739 
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The following table presents certain financial information regarding our reportable segments. General and administrative expenses are not allocated to the
reportable segments:
Home Health and
Hospice Services
Senior Living
Services
All Other
Total
Year Ended December 31, 2024
Segment Revenue
$
515,344  $
174,767  $
5,129  $
695,240 
Segment Cost of Services
427,635 
123,107 
Segment Adjusted EBITDAR from Operations
$
87,709  $
51,660 
$
139,369 
Year Ended December 31, 2023
Segment Revenue
$
385,652  $
148,198  $
11,041  $
544,891 
Segment Cost of Services
320,046 
102,904 
Segment Adjusted EBITDAR from Operations
$
65,606  $
45,294 
$
110,900 
Year Ended December 31, 2022
Segment Revenue
$
337,371  $
126,758  $
9,112  $
473,241 
Segment Cost of Services
275,544 
89,195 
Segment Adjusted EBITDAR from Operations
$
61,827  $
37,563 
$
99,390 
The table below provides a reconciliation of Segment Adjusted EBITDAR from Operations above to income from operations:
2024
2023
2022
Segment Adjusted EBITDAR from Operations
$
139,369 
$
110,900 
$
99,390 
Less: Unallocated corporate expenses
43,587 
31,704 
31,435 
Less: Depreciation and amortization
6,119 
5,130 
4,900 
Rent—cost of services
43,029 
39,759 
38,018 
Other income
207 
339 
(31)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations
137 
102 
1,435 
Share-based compensation expense
8,242 
5,565 
3,363 
Acquisition related costs and credit allowances
1,278 
476 
731 
Costs associated with transitioning operations
(570)
612 
6,103 
Unusual, non-recurring or redundant charges
1,004 
2,575 
1,297 
Add: Net income attributable to noncontrolling interest
1,780 
531 
600 
Income from operations
$
38,116 
$
25,169 
$
12,739 
(a)
 (b)
(c)
(d)
(e)
(f)
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(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) costs at start-up operations, (2) share-based compensation expense, (3) acquisition related costs and credit allowances, (4) costs associated with transitioning
operations, (5) unusual, non-recurring or redundant charges, 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 and related payroll taxes incurred, including the impact of the modification of certain restricted stock units described below in Note 12, Options and
Awards, to the Consolidated Financial Statements. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(d)
Non-capitalizable costs associated with acquisitions and credit allowances for amounts in dispute with the prior owners of certain acquired operations.
(e)
During the year ended December 31, 2023, an affiliate of the Company placed its memory care units into transition and is converting the facility into an assisted living community. We
received insurance proceeds related to the property in 2024 which were recorded as a gain on asset disposition on the consolidated statements of income. The amounts reported exclude rent
and depreciation and amortization expense related to such operations and include legal settlement costs associated with one of the entities transitioned to Ensign. 


During January 2022, affiliates of the Company entered into 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 all of the transferred entities. The amounts reported
exclude rent and depreciation and amortization expense related to such operations.
(f)
Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses. The
amounts reported for the year ended December 31, 2022 include certain costs identified as redundant or non-recurring incurred by the Company for services provided by Ensign under the
Transition Services Agreement, and were included in general and administrative expense.
Performance and Valuation Measures:
Year Ended December 31,
2024
2023
2022
(In thousands)
Consolidated Non-GAAP Financial Measures:
Performance Metrics
Consolidated EBITDA
$
42,662 
$
30,107 
$
17,008 
Consolidated Adjusted EBITDA
$
53,286 
$
40,716 
$
31,545 
Valuation Metric
Consolidated Adjusted EBITDAR
$
95,782 
Year Ended December 31,
2024
2023
2022
(In thousands)
Segment Non-GAAP Measures:
Segment Adjusted EBITDA from Operations
Home health and hospice services
$
80,660 
$
60,128 
$
56,977 
Senior living services
$
16,213 
$
12,293 
$
6,003 
(a)
General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.
(a)
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The table below reconciles Consolidated Net Income to Consolidated EBITDA, Consolidated Adjusted EBITDA and Consolidated Adjusted EBITDAR
for the periods presented:
Year Ended December 31,
2024
2023
2022
(In thousands)
Consolidated Net income
$
24,339 
$
13,910 
$
7,243 
Less: Net income attributable to noncontrolling interest
1,780 
531 
600 
Add: Provision for income taxes
7,028 
5,674 
1,649 
Net interest expense
6,956 
5,924 
3,816 
Depreciation and amortization
6,119 
5,130 
4,900 
Consolidated EBITDA
42,662 
30,107 
17,008 
Adjustments to Consolidated EBITDA
Add: Costs at start-up operations
137 
102 
1,435 
Share-based compensation expense
8,242 
5,565 
3,363 
Acquisition related costs and credit allowances
1,278 
476 
731 
Activities associated with transitioning operations
(570)
612 
6,103 
Unusual or non-recurring charges
1,004 
2,575 
1,297 
Rent related to items (a) and (e) above
533 
1,279 
1,608 
Consolidated Adjusted EBITDA
53,286 
40,716 
31,545 
Rent—cost of services
43,029 
39,759 
38,018 
Rent related to items (a) and (e) above
(533)
(1,279)
(1,608)
Adjusted rent—cost of services
42,496 
38,480 
36,410 
Consolidated Adjusted EBITDAR
$
95,782 
(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, including the impact of the modification of certain restricted stock units described below in Note 12, Options and Awards, to
the Consolidated Financial Statements. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)
Non-capitalizable costs associated with acquisitions and credit allowances for amounts in dispute with the prior owners of certain acquired operations.
(d)
During the year ended December 31, 2023, an affiliate of the Company placed its memory care units into transition and is converting the facility into an assisted living community. We received
insurance proceeds related to the property in 2024 which were recorded as a gain on asset disposition on the consolidated statements of income. The amounts reported exclude rent and
depreciation and amortization expense related to such operations and include legal settlement costs associated with one of the entities transitioned to Ensign. 


During January 2022, affiliates of the Company entered into 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 all of the transferred entities. The amounts reported exclude rent
and depreciation and amortization expense related to such operations.
(e)
Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses. The
amounts reported for the year ended December 31, 2022 include certain costs identified as redundant or non-recurring incurred by the Company for services provided by Ensign under the
Transition Services Agreement, and were included in general and administrative expense.
(a)
(b)
(c)
(d)
(e)
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The table below reconciles Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented:
Year Ended December 31,
Home Health and Hospice
Senior Living
2024
2023
2022
2024
2023
2022
(In thousands)
Segment Adjusted EBITDAR from Operations
$
87,709 
$
65,606 
$
61,827  $
51,660 
$
45,294  $
37,563 
Less: Rent—cost of services
7,189 
5,791 
5,060 
35,840 
33,967 
32,958 
Rent related to start-up and transitioning operations
(140)
(313)
(210)
(393)
(966)
(1,398)
Segment Adjusted EBITDA from Operations
$
80,660 
$
60,128 
$
56,977  $
16,213 
$
12,293  $
6,003 
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 length of the lease to which the asset applies, the method by which assets were acquired, and differences in
capital structures;
•
they help investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base and capital structure
from our operating results; and
•
Consolidated Adjusted EBITDAR is used by investors and analysts in our industry to value the companies in our industry without regard to capital
structures.
We use Non-GAAP Financial Measures:
•
as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis from period to period;
•
to allocate resources to enhance the financial performance of our business;
•
to assess the value of a potential acquisition;
•
to assess the value of a transformed operation’s performance;
•
to evaluate the effectiveness of our operational strategies; and
•
to compare our operating performance to that of our competitors.
We typically use Non-GAAP Financial Measures to compare the operating performance of each operation from period to period. We find that Non-GAAP
Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense,
which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or
business, and the tax law of the state in which a business unit operates.
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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 our Consolidated Financial Statements, included in this 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 income from
operations to the Non-GAAP Financial Measures in the table presented above, along with our Consolidated Financial Statements and related notes included
elsewhere in this 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 (loss) attributable to noncontrolling interest, before (a) interest expense
(b) provision for income taxes and (c) depreciation and amortization.
Consolidated Adjusted EBITDA
We adjust Consolidated EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below
provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Consolidated Adjusted
EBITDA, when considered with Consolidated EBITDA and GAAP net income, is beneficial to an investor’s complete understanding of our operating
performance. 
We calculate Consolidated Adjusted EBITDA by adjusting Consolidated EBITDA to exclude the effects of non-core business items, which for the
reported periods includes, to the extent applicable:
•
costs at start-up operations;
•
share-based compensation expense;
•
acquisition related costs and credit allowances;
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•
costs associated with transitioning operations; and
•
unusual or non-recurring charges.
Segment Adjusted EBITDA from Operations
We calculate Segment Adjusted EBITDA from Operations by adjusting Segment Adjusted EBITDAR from Operations to include rent-cost of services.
We believe that the inclusion of rent-cost of services provides useful supplemental information to investors regarding our ongoing operating performance for each
segment.
Valuation Measure:
Consolidated Adjusted EBITDAR
We use Consolidated Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a measure commonly used by us,
research analysts and investors to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital
structures. Additionally, we believe the use of Consolidated Adjusted EBITDAR allows us, research analysts and investors, to compare operational results of
companies without regard to operating or financed leases. A significant portion of financed 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.
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Revenue
Year Ended December 31,
2024
2023
Revenue Dollars
Revenue Percentage
Revenue Dollars
Revenue Percentage
(In thousands)
Home health and hospice services
Home health
$
239,539 
34.5 % $
175,044 
32.1 %
Hospice
240,102 
34.5 
194,627 
35.7 
Home care and other
39,843 
5.7 
24,793 
4.6 
Total home health and hospice services
519,484 
74.7 
394,464 
72.4 
Senior living services
175,756 
25.3 
150,427 
27.6 
Total revenue
$
695,240 
100.0 % $
544,891 
100.0 %
(a)
Home care and other revenue is included with home health revenue in other disclosures in this report.
Our consolidated revenue increased $150.3 million, or 27.6%, driven by the net organic growth of existing operations across all segments of $59.2 million
or 10.9% as well as increased revenue from acquired operations of $91.1 million, or 16.7%, during the year ended December 31, 2024.
(a)
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Home Health and Hospice Services
Year Ended December 31,
2024
2023
Change
% Change
(In thousands)
Home health and hospice revenue
Home health services
$
239,539 
$
175,044 
$
64,495 
36.8 %
Hospice services
240,102 
194,627 
45,475 
23.4 
Home care and other
39,843 
24,793 
15,050 
60.7 
Total home health and hospice revenue
$
519,484 
$
394,464 
$
125,020 
31.7 %
Year Ended December 31,
2024
2023
Change
% Change
Home health services:
Total home health admissions
59,741 
43,508 
16,233 
37.3 %
Total Medicare home health admissions
24,598 
19,389 
5,209 
26.9 
Average Medicare revenue per 60-day completed episode
$
3,677 
$
3,468 
$
209 
6.0 
Hospice services:
Total hospice admissions
12,208 
9,746 
2,462 
25.3 
Average daily census
3,268 
2,607 
661 
25.4 
Hospice Medicare revenue per day
$
183 
$
185 
$
(2)
(1.1)
Number of home health and hospice agencies at period end
123 
111 
12 
10.8 %
(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 $125.0 million, or 31.7%. Revenue grew due to an increase in almost all key performance indicators
including an increase in total home health admissions of 37.3%, an increase in Medicare home health admissions of 26.9%, an increase in average Medicare
revenue per 60-day completed episode of 6.0%, an increase of 25.3% in total hospice admissions, and an increase of 25.4% in hospice average daily census, while
Hospice Medicare revenue per day decreased by 1.1%. The improvement in these metrics resulted in net organic revenue growth of $46.4 million for the year
ended December 31, 2024. Growth was also driven by the acquisition of eleven home health and hospice operations during the year ended December 31, 2024, and
the acquisition of thirteen home health, home care, and hospice operations during the year ended December 31, 2023, resulting in an increase in revenue of $78.6
million, or 19.9% overall.
Senior Living Services
Year Ended December 31,
2024
2023
Change
% Change
Revenue (in thousands)
$
175,756 
$
150,427 
$
25,329 
16.8 %
Number of communities at period end
57 
51 
6 
11.8 
Occupancy
78.8 %
78.5 %
0.3 %
Average monthly revenue per occupied unit
$
4,811 
$
4,443 
$
368 
8.3 %
Senior living revenue increased $25.3 million, or 16.8%, for the year ended December 31, 2024 when compared to the same period in the prior year
primarily due to a 8.3% increase in average monthly revenue per occupied unit and a 0.3% increase in occupancy rate. Growth in revenue was also driven by the
acquisition of six senior living communities during the year ended December 31, 2024, and the acquisition of two senior living communities during the year ended
December 31, 2023, resulting in an increase of $12.5 million, or 8.3% overall.
(a)
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Cost of Services
The following table sets forth total cost of services by each of our reportable segments for the periods indicated:
Year Ended December 31,
2024
2023
Change
% Change
(In thousands)
Home Health and Hospice
$
433,474 
$
331,844  $
101,630 
30.6 %
Senior Living
124,975 
106,252 
18,723 
17.6 
Total cost of services
$
558,449 
$
438,096  $
120,353 
27.5 %
Consolidated cost of services increased $120.4 million, or 27.5%, for the year ended December 31, 2024 when compared to the year ended December 31,
2023. The increase in the amount of cost of services was driven primarily by volume of services provided and increased wages and benefits. Cost of services as a
percentage of revenue decreased by 10 basis points from 80.4% to 80.3% over the same time period.
Home Health and Hospice Services
Year Ended December 31,
2024
2023
Change
% Change
(In thousands)
Cost of service
$
433,474 
$
331,844 
$
101,630 
30.6 %
Cost of services as a percentage of revenue
83.4 %
84.1 %
(0.7)%
Cost of services related to our Home Health and Hospice services segment increased $101.6 million, or 30.6%, primarily due to increased volume of
services from the growth in admissions and average daily census as well as increased wages and benefits. Cost of services as a percentage of revenue for the year
ended December 31, 2024 decreased by 70 basis points compared to the year ended December 31, 2023 primarily due to increased efficiency in our operations.
Senior Living Services
Year Ended December 31,
2024
2023
Change
% Change
(In thousands)
Cost of service
$
124,975 
$
106,252 
$
18,723 
17.6 %
Cost of services as a percentage of revenue
71.1 %
70.6 %
0.5 %
Cost of services related to our Senior Living services segment increased $18.7 million, or 17.6%, during the year ended December 31, 2024 in response to
higher occupancy, acquisitions and wage rate increases. As a percentage of revenue, costs of service increased by 50 basis points during the year ended December
31, 2024 when compared to the year ended December 31, 2023 primarily due to increased wages and benefits.
Rent—Cost of Services. Rent increased 8.2% from $39.8 million to $43.0 million for the year ended December 31, 2024 compared to the year ended
December 31, 2023, primarily as a result of the newly acquired senior living communities. As a percentage of revenue, rent—cost of services decreased 110 basis
points when compared to the year ended December 31, 2023 due to improved overall sales leverage and performance.
General and Administrative Expense. General and administrative expense increased $13.5 million, or 36.9%, from $36.7 million to $50.2 million for the
year ended December 31, 2024 when compared to the year ended December 31, 2023. The increase in general and administrative expense was primarily due to an
increase of $12.5 million in wages and benefits for the year ended December 31, 2024 when compared to the year ended December 31, 2023.
Depreciation and Amortization. Depreciation and amortization expense stayed flat as a percentage of total revenue.
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(Gain) loss on Asset Dispositions and Impairment, Net. (Gain) loss on asset dispositions and impairment, net is a gain of $0.7 million for the year ended
December 31, 2024 compared to a loss of $0.1 million for the year ended December 31, 2023 primarily due to insurance proceeds related to one of our senior
living communities.
Provision for Income Taxes. Our effective tax rate for the year ended December 31, 2024 was 22.4% of earnings before income taxes compared with an
effective tax rate of 29.0% for the year ended December 31, 2023. The decrease in the effective tax rate is primarily due to a change in deductible equity
compensation expenses. See Note 14, Income Taxes, to the Consolidated Financial Statements included elsewhere in this report filed on Form 10-K for further
discussion.
Comparison of Prior Year Information
For a comparison of our results of operations of the fiscal year ended December 31, 2023 as compared to the year ended December 31, 2022 refer to Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K filed with the SEC on February 28, 2024.
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated through operating activities and borrowings under our revolving credit facility.
Revolving Credit Facility    
On July 31, 2024, Pennant amended and restated its existing credit agreement (as amended, the “Amended Credit Agreement”), which provides for an
increased revolving credit facility with a syndicate of banks with a borrowing capacity of $250.0  million (the “Amended Revolving Credit Facility”). The
Amended Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Amended Revolving
Credit Facility prior to maturity in 2029. The Company is permitted to prepay all or any portion of the loans under the Amended Revolving Credit Facility prior to
maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders.
The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company
and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or
consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain
levels of leverage ratios that impact the amount of interest. As of December 31, 2024, the Company was compliant with all such financial covenants.
On October 2, 2024, the Company closed the public offering (the “Offering”) of 4,025 shares of its common stock, $0.001 par value per share (“common
stock”). The net proceeds to the Company from the offering, after underwriting discounts, commissions, and expenses, was approximately $118.1 million. The
majority of the proceeds were subsequently used to pay the outstanding balance on our Amended Revolving Credit Facility.
As of December 31, 2024 we had $24.2 million of cash and $245.8 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 opportunities for acquisition growth.
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The following table presents selected data from our statement of cash flows for the periods presented:
Year Ended December 31,
2024
2023
(In thousands)
Net cash provided by operating activities
$
39,298 
$
33,090 
Net cash used in investing activities
(70,684)
(30,222)
Net cash provided by financing activities
49,573 
1,112 
Net change in cash
18,187 
3,980 
Cash at beginning of year
6,059 
2,079 
Cash at end of year
$
24,246 
$
6,059 
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
    
Our net cash flow from operating activities for the year ended December 31, 2024 increased by $6.2 million when compared to the year ended December
31, 2023. The primary drivers of this difference was a $10.4 million increase in net income, offset by a $2.5 million net decrease in cash flows from the change in
operating assets and liabilities and a net decrease of $1.7 million in non-cash expenses.
Our net cash used in investing activities for the year ended December 31, 2024 increased by $40.5 million compared to the year ended December 31,
2023, primarily driven by a $40.4 million increase in business acquisitions, asset acquisitions, and escrow deposits during the year ended December 31, 2024
compared to the year ended December 31, 2023.
    Our net cash provided by financing activities increased by $48.5 million for the year ended December 31, 2024 when compared to the year ended December 31,
2023 primarily due to an issuance of equity through a secondary offering totaling $118.1 million offset by a net repayment of debt totaling $65.0 million and
payments for deferred financing costs of $3.9 million during the year ended December 31, 2024.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. We are exposed to risks associated with market changes in interest rates. On July 31, 2024, Pennant entered into the Amended Credit
Agreement, which provides for a revolving credit facility with a syndicate of banks with a borrowing capacity of $250.0 million. A 1.0% interest rate change
would cause interest expense to remain constant based upon our outstanding long-term debt as of December 31, 2024. We manage our exposure to this market risk
by monitoring available financing alternatives.
Item 8.    Financial Statements and Supplementary Data
The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are included
elsewhere in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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 Annual 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
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Table of Contents
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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our internal control
over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated
Framework (2013). As a result of this assessment, management concluded that, as of December  31, 2024, our internal control over financial reporting was
effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Our independent registered public accounting firm, Deloitte & Touche LLP, has audited the consolidated financial statements included in this Annual
Report on Form 10-K and, as part of their audit, has issued an audit report, included herein, on the effectiveness of our internal control over financial reporting.
Their report is set forth below.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended December 31, 2024, there were no material changes in our internal control over financial reporting 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.
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Pennant Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Pennant Group, Inc. and subsidiaries (the “Company”) as of December 31, 2024, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements as of and for the year ended December 31, 2024, of the Company and our report dated February 27, 2025, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management's report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Boise, ID
February 27, 2025
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Item 9B. Other Information
Rule 10b5-1 Plan Election
JoAnne Stringfield, Director, entered into a Rule 10b5-1 trading arrangement on November 11, 2024. Ms. Stringfield’s 10b5-1 Plan provides for the sale of 7,750
shares of the Company’s common stock on predetermined dates from April 21, 2025 to January 20, 2026.
These Rule 10b5-1 trading arrangements were entered into during open trading windows and are intended to satisfy the affirmative defense conditions of Rule
10b5-1(c) under the Securities Exchange Act of 1934, as amended, and the Company's policies regarding transactions in Company securities.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
Part III.
Item 10.     Directors, Executive Officers and Corporate Governance
The information required by this Item is hereby incorporated by reference to our definitive proxy statement on Form 14A for the 2025 Annual Meeting of
Stockholders.
Item 11. Executive Compensation
The information required by this Item is hereby incorporated by reference to our definitive proxy statement on Form 14A for the 2025 Annual Meeting of
Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is hereby incorporated by reference to our definitive proxy statement on Form 14A for the 2025 Annual Meeting of
Stockholders.
Item 13.     Certain Relationships and Related Transactions and Director Independence
The information required by this Item is hereby incorporated by reference to our definitive proxy statement on Form 14A for the 2025 Annual Meeting of
Stockholders.
Item 14.     Principal Accountant Fees and Services
The information required by this Item is hereby incorporated by reference to our definitive proxy statement on Form 14A for the 2025 Annual Meeting of
Stockholders.
47

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Part IV.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as a part of this report:
 
(a)(1) Financial Statements:
The following Consolidated Financial Statements of the Company are included in Part II, Item 8 of this Annual Report on Form 10-K.
•
Report of Independent Registered Public Accounting Firm
•
Consolidated Balance Sheets as of December 31, 2024 and 2023
•
Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022
•
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2024, 2023 and 2022
•
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
•
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
There are no financial schedules included in this Report as they are either not applicable or included in the financial statements.
 
(a) (3) Exhibits: The following exhibits are filed with this Report or incorporated by reference:
Exhibits
Exhibit No.
Exhibit Description
2.1#
Master Separation Agreement, dated as of October 1, 2019, by and between The Ensign Group, Inc. and The Pennant Group, Inc. (incorporated
by reference to Exhibit 2.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3,
2019).
2.2#
Form of Operations Transfer Agreement, dated as of January 27, 2022, entered into by affiliates of the Company and affiliates of Ensign
(incorporated by reference to Exhibit 2.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on
January 27, 2022).
3.1
Amended and Restated Certificate of Incorporation of The Pennant Group, Inc., effective as of September 27, 2019 (incorporated by reference to
Exhibit 3.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3, 2019).
3.2
Second Amended and Restated Bylaws of The Pennant Group, Inc., effective as of February 21, 2022 (incorporated by reference to Exhibit 3.1 to
The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC February 22, 2022).
4.1
Description of Securities of The Pennant Group, Inc. (incorporated by reference to Exhibit 4.1 to The Pennant Group, Inc.’s Annual Report on
Form 10-K (File No. 001-389000) filed with the SEC on March 4, 2020).
4.2
Form of Indenture (incorporated by reference to Exhibit 4.4 to The Pennant Group, Inc.’s Registration Statement on Form S-3 (File No. 333-
281302) filed with the SEC August 6, 2024 ).
10.1
Transition Services Agreement, dated as of October 1, 2019, by and between The Ensign Group, Inc. and The Pennant Group, Inc. (incorporated
by reference to Exhibit 10.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3,
2019).
10.2
Tax Matters Agreement, dated as of October 1, 2019, by and between The Ensign Group, Inc. and The Pennant Group, Inc. (incorporated by
reference to Exhibit 10.2 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3,
2019).
10.3
Employee Matters Agreement, dated as of October 1, 2019, by and between The Ensign Group, Inc. and The Pennant Group, Inc. (incorporated
by reference to Exhibit 10.3 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3,
2019).
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10.4
Form of Lease Agreement by and among subsidiaries of The Ensign Group, Inc. and subsidiaries of The Pennant Group, Inc. (incorporated by
reference to Exhibit 10.4 to The Pennant Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-38900) filed
with the SEC on August 19, 2019).
10.5+
The Pennant Group, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.12 to The Pennant Group, Inc.’s Current Report
on Form 8-K (File No. 001-38900) filed with the SEC on October 3, 2019).
10.6+
Form of Options Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 to The
Pennant Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on August 19,
2019).
10.7+
Form of RSUs Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.7 to The Pennant
Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on August 19, 2019).
10.8+
Form of RS Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.8 to The Pennant
Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on August 19, 2019).
10.9+
The Pennant Group, Inc. 2019 Long Term Incentive Plan (incorporated by reference to Exhibit 10.11 to The Pennant Group, Inc.’s Current
Report on Form 8-K (File No. 001-38900) filed with the SEC on October 3, 2019).
10.10+
Form of LTIP RS Granted Under The Pennant Group, Inc. 2019 Long Term Incentive Plan (incorporated by reference to Exhibit 10.10 to The
Pennant Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on August 19,
2019).
10.11
Form of Indemnification Agreement to be entered into between The Pennant Group, Inc. and each of its directors and executive officers
(incorporated by reference to Exhibit 10.11 to The Pennant Group, Inc.’s Amendment No. 2 to the Registration Statement on Form 10 (File No.
001-38900) filed with the SEC on August 19, 2019).
10.12
Credit Agreement, dated February 23, 2021, by and among the Company and certain of its subsidiaries, the lenders named therein, and Truist
Bank (successor by merger to SunTrust Bank), as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to The Pennant
Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on February 24, 2021).
10.13+
Cornerstone Healthcare, Inc. 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.13 to The Pennant Group, Inc.’s Amendment
No. 3 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on September 3, 2019).
10.14+
The Ensign Group, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14 to The Pennant Group, Inc.’s Amendment No.
3 to the Registration Statement on Form 10 (File No. 001-38900) filed with the SEC on September 3, 2019).
10.15+
Consulting Agreement, dated July 25, 2022, by and between The Pennant Group, Inc. and Daniel H. Walker (incorporated by reference to Exhibit
10.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on July 29, 2022).
10.16+
Amendment to Restricted Stock Unit Agreement, dated July 25, 2022, by and between The Pennant Group, Inc. and Daniel H. Walker
(incorporated by reference to Exhibit 10.2 to The Pennant Group, Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on
July 29, 2022).
10.17
Credit Agreement, dated June 12, 2023, by and among the Company and certain of its subsidiaries, the lenders named therein, and Truist Bank
(successor by merger to SunTrust Bank), as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to The Pennant Group,
Inc.’s Current Report on Form 8-K (File No. 001-38900) filed with the SEC on June 12, 2023).
10.18
Amended and Restated Credit Agreement, dated as of July 31, 2024, by and among The Pennant Group, Inc. and Truist Bank, as administrative
agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to The Pennant Group, Inc.’s Current Report on Form 8-K (File
No. 001-38900) filed with the SEC August 1, 2024 ).
19.1*
Statement of Company Policy Regarding Insider Trading
21.1*
Subsidiaries of The Pennant Group, Inc.
23.1*
Consent of Deloitte & Touche LLP.
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
49

Table of Contents
32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2**
Certification of Chief Financial Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1*
Clawback Policy of The Pennant Group, Inc.
101.INS*
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document.
* Filed with this report.
** Furnished with this report.

+ Exhibit constitutes a management contract or compensatory plan or agreement.

# Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Pennant Group Inc. agrees to furnish a supplemental copy of any omitted
schedule to the SEC upon request.
Item 16.     Form 10-K Summary
Not applicable.
50

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
The Pennant Group, Inc.
Dated: February 27, 2025
BY: 
/s/ LYNETTE B. WALBOM
 
 
Lynette B. Walbom
 
 
Chief Financial Officer (Principal Financial Officer, Principal
Accounting Officer and Duly Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ BRENT J. GUERISOLI
Chief Executive Officer (Principal Executive
Officer)
February 27, 2025
Brent J. Guerisoli
/s/ LYNETTE B. WALBOM
Chief Financial Officer (Principal Financial Officer,
Principal Accounting Officer and Duly Authorized
Officer)
February 27, 2025
Lynette B. Walbom
/s/ BARRY M. SMITH
Chairman
February 27, 2025
Barry M. Smith
/s/ CHRISTOPER R. CHRISTENSEN
Director
February 27, 2025
Christopher R. Christensen
/s/ JOHN G. NACKEL, Ph.D.
Director
February 27, 2025
John G. Nackel, Ph.D.
 /s/ STEPHEN M. R. COVEY
Director
February 27, 2025
Stephen M. R. Covey
/s/ JOANNE STRINGFIELD
Director
February 27, 2025
JoAnne Stringfield
/s/ SCOTT E. LAMB
Director
February 27, 2025
Scott E. Lamb
/s/ GREGORY K. MORRIS M.D.
Director
February 27, 2025
Gregory K. Morris M.D.
51

Table of Contents
THE PENNANT GROUP, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
53
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2024 and 2023
55
Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022
56
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024, 2023 and 2022
57
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
58
Notes to the Consolidated Financial Statements
60
52

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Pennant Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Pennant Group, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023,
the related consolidated statements of income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the
related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2025, expressed an unqualified opinion on the Company's
internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Self-Insurance Reserve — Refer to Note 2 and Note 16 to the financial statements
Critical Audit Matter Description
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 self-insurance reserves are undiscounted. Self-insurance reserves consist of the projected
settlement value of reported and unreported claims. The projected settlement values are estimated based on the Company’s historical claim experience,
supplemented with industry experience, as necessary and are established using actuarial methods followed in the insurance industry.
We identified the evaluation of the Company’s self-insurance reserves for general and professional liability and workers’ compensation as a critical audit matter
because estimating projected settlement value of reported and unreported claims involves significant estimation by management. This required a high degree of
auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether
self-insurance reserves were appropriately recorded as of December 31, 2024.
53

Table of Contents
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the self-insurance reserves for general and professional liability and workers’ compensation included the following among others:
•
We tested the effectiveness of controls related to self-insurance reserves for general and professional liability and workers’ compensation, including
management’s controls over the review of the historical claim data and the projection of the settlement value of the reported and unreported claims.
•
We evaluated the methods and assumptions used by management to estimate the self-insurance reserves for general and professional liability and
workers’ compensation by:
◦
Reading the Company’s insurance policies and compared the coverage and terms to the assumptions used by management.
◦
Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial
estimate were accurate and complete.
◦
Comparing management's change in ultimate loss to the differential between expected development and actuals incurred during the current year
to identify potential bias in the determination of the insurance reserves.
•
With the assistance of our actuarial specialists, we developed independent estimates of self-insurance reserves for general and professional liability and
workers’ compensation and compared our estimates to management’s estimates.
/s/ DELOITTE & TOUCHE LLP
Boise, ID
February 27, 2025
We have served as the Company's auditor since 2019.
54

Table of Contents
THE PENNANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
December 31, 2024
December 31, 2023
Assets
Current assets:
Cash
$
24,246 
$
6,059 
Accounts receivable—less allowance for doubtful accounts of $232 and $259 at December 31, 2024
and 2023, respectively
81,302 
61,116 
Prepaid expenses and other current assets
17,308 
12,902 
Total current assets
122,856 
80,077 
Property and equipment, net
43,296 
28,598 
Right-of-use assets
270,586 
262,923 
Restricted and other assets
17,477 
9,337 
Goodwill
129,124 
91,014 
Other indefinite-lived intangibles
96,182 
67,742 
Total assets
$
679,521 
$
539,691 
Liabilities and equity
Current liabilities:
Accounts payable
$
18,737 
$
10,841 
Accrued wages and related liabilities
43,106 
28,256 
Lease liabilities—current
19,671 
17,122 
Other accrued liabilities
20,186 
15,330 
Total current liabilities
101,700 
71,549 
Long-term lease liabilities—less current portion
253,420 
248,596 
Deferred tax liabilities, net
1,861 
1,855 
Other long-term liabilities
10,575 
8,262 
Long-term debt, net
— 
63,914 
Total liabilities
367,556 
394,176 
Commitments and contingencies (Note 16)
Equity:
Common stock, $0.001 par value; 100,000 shares authorized; 34,670 and 34,373 shares issued and
outstanding at December 31, 2024, respectively, and 30,297 and 29,948 shares issued and outstanding
at December 31, 2023, respectively
35 
29 
Additional paid-in capital
236,091 
105,712 
Retained earnings
57,222 
34,663 
Treasury stock, at cost, 3 shares at December 31, 2024 and 2023
(65)
(65)
Total The Pennant Group, Inc. stockholders' equity
293,283 
140,339 
Noncontrolling interest
18,682 
5,176 
Total equity
311,965 
145,515 
Total liabilities and equity
$
679,521 
$
539,691 
See accompanying notes to the consolidated financial statements.
55

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THE PENNANT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per-share amounts)
Year Ended December 31,
2024
2023
2022
Revenue
$
695,240 
$
544,891 
$
473,241 
Expense:
Cost of services
558,449 
438,096 
376,638 
Rent—cost of services
43,029 
39,759 
38,018 
General and administrative expense
50,209 
36,667 
33,981 
Depreciation and amortization
6,119 
5,130 
4,900 
(Gain) loss on asset dispositions and impairment, net
(682)
70 
6,965 
Total expenses
657,124 
519,722 
460,502 
Income from operations
38,116 
25,169 
12,739 
Other income (expense), net:
Other income (expense)
207 
339 
(31)
Interest expense, net
(6,956)
(5,924)
(3,816)
Other expense, net
(6,749)
(5,585)
(3,847)
Income before provision for income taxes
31,367 
19,584 
8,892 
Provision for income taxes
7,028 
5,674 
1,649 
Net income
24,339 
13,910 
7,243 
Less: net income attributable to noncontrolling interest
1,780 
531 
600 
Net income and other comprehensive income attributable to The Pennant Group, Inc.
$
22,559 
$
13,379 
$
6,643 
Earnings per share:
Basic
$
0.72 
$
0.45 
$
0.23 
Diluted
$
0.70 
$
0.44 
$
0.22 
Weighted average common shares outstanding:
Basic
31,191 
29,863 
29,064 
Diluted
32,000 
30,193 
30,159 
See accompanying notes to the consolidated financial statements.
56

Table of Contents
THE PENNANT GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Non-
controlling
Interest
Total
Equity
Shares
Amount
Shares
Amount
Balance at December 31, 2021
28,826 
$
28 
$
95,595 
$
14,641 
3 
$
(65)
$
4,045 
$
114,244 
Net income attributable to The Pennant
Group, Inc.
— 
— 
— 
6,643 
— 
— 
— 
6,643 
Net income attributable to Non-
controlling interests
— 
— 
— 
— 
— 
— 
600 
600 
Share-based compensation
— 
— 
3,086 
— 
— 
— 
— 
3,086 
Net issuance of common stock due to
share based compensation
125 
1 
1,083 
— 
— 
— 
— 
1,084 
Net issuance of restricted stock
1,198 
— 
— 
— 
— 
— 
— 
— 
Balance at December 31, 2022
30,149 
29 
99,764 
21,284 
3 
(65)
4,645 
125,657 
Net income attributable to The Pennant
Group, Inc.
— 
— 
— 
13,379 
— 
— 
— 
13,379 
Net income attributable to Non-
controlling interests
— 
— 
— 
— 
— 
— 
531 
531 
Share-based compensation
— 
— 
5,369 
— 
— 
— 
— 
5,369 
Net issuance of common stock due to
share based compensation
89 
— 
579 
— 
— 
— 
— 
579 
Net issuance of restricted stock
59 
— 
— 
— 
— 
— 
— 
— 
Balance at December 31, 2023
30,297 
29 
105,712 
34,663 
3 
(65)
5,176 
145,515 
Net income attributable to The Pennant
Group, Inc.
— 
— 
— 
22,559 
— 
— 
— 
22,559 
Noncontrolling interests assumed related
to acquisitions
— 
— 
— 
— 
— 
— 
11,726 
11,726 
Equity adjustments related to
acquisitions
— 
— 
3,602 
— 
— 
— 
— 
3,602 
Net income attributable to Non-
controlling interests
— 
— 
— 
— 
— 
— 
1,780 
1,780 
Share-based compensation
— 
— 
7,781 
— 
— 
— 
— 
7,781 
Net issuance of common stock due to
share based compensation
254 
2 
851 
— 
— 
— 
— 
853 
Net issuance of restricted stock
94 
— 
— 
— 
— 
— 
— 
— 
Issuance of equity through secondary
offering
4,025 
$
4 
$
118,145 
$
— 
— 
$
— 
$
— 
$
118,149 
Balance at December 31, 2024
34,670 
$
35 
$
236,091 
$
57,222 
3 
$
(65)
$
18,682 
$
311,965 
See accompanying notes to the consolidated financial statements.
57

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THE PENNANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income
$
24,339 
$
13,910 
$
7,243 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
6,119 
5,130 
4,900 
Amortization and write-off of deferred financing fees
1,096 
521 
520 
Provision for doubtful accounts
903 
646 
881 
Share-based compensation
7,781 
5,369 
3,086 
Deferred income taxes
(1,187)
4,004 
1,700 
(Gain) loss on asset dispositions and impairment
(682)
70 
218 
Change in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable
(21,088)
(7,350)
(361)
Prepaid expenses and other assets
(5,604)
7,770 
(7,426)
Operating lease obligations
(349)
(12)
(67)
Accounts payable
8,052 
(1,845)
2,368 
Accrued wages and related liabilities
14,504 
4,972 
(197)
Other accrued liabilities
4,497 
(814)
1,856 
Advance payments
— 
— 
(6,211)
Other long-term liabilities
917 
719 
534 
Net cash provided by operating activities
39,298 
33,090 
9,044 
Cash flows from investing activities:
Purchase of property and equipment
(8,992)
(8,105)
(14,170)
Cash payments for business acquisitions
(48,416)
(21,376)
(10,130)
Cash payments for asset acquisitions
(11,380)
(211)
— 
Escrow deposits
(2,344)
(201)
(49)
Other investing activities
448 
(329)
110 
Net cash used in investing activities
(70,684)
(30,222)
(24,239)
Cash flows from financing activities:
Proceeds from secondary offering, net of expenses
118,149 
— 
— 
Proceeds from revolver agreement
309,500 
182,000 
129,500 
Payments on revolver agreement
(374,500)
(181,500)
(118,500)
Payments for deferred financing costs
(3,915)
— 
— 
Net issuance of common stock due to share based compensation
853 
579 
1,084 
Other financing activities
(514)
33 
— 
Net cash provided by financing activities
49,573 
1,112 
12,084 
Net increase (decrease) in cash
18,187 
3,980 
(3,111)
Cash beginning of period
6,059 
2,079 
5,190 
Cash end of period
$
24,246 
$
6,059 
$
2,079 
See accompanying notes to the consolidated financial statements.
58

Table of Contents
THE PENNANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In Thousands)
Year Ended December 31,
2024
2023
2022
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
$
6,521 
$
5,012 
$
3,027 
Income taxes
$
7,351 
$
841 
$
99 
Operating lease liabilities
$
39,503 
$
36,653 
$
35,994 
Right-of-use assets obtained in exchange for new operating lease obligations
$
25,267 
$
12,826 
$
12,645 
Finance lease assets obtained in exchange for new finance lease obligations
$
506 
$
633 
$
— 
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications
$
260 
$
5,195 
$
6,270 
Non-cash adjustment to right-of-use assets and lease liabilities from lease terminations and assignments
$
— 
$
— 
$
(43,136)
Non-cash investing activity:
Capital expenditures in accounts payable and other accrued liabilities
$
1,333 
$
319 
$
1,280 
See accompanying notes to the consolidated financial statements.
59

Table of Contents
THE PENNANT GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data and operational senior living units)
1. DESCRIPTION OF BUSINESS
The Pennant Group, Inc. (herein referred to as “Pennant,” the “Company,” “it,” or “its”), is a holding company with no direct operating assets, employees
or revenue. The Company, through its independent operating subsidiaries, provides healthcare services across the post-acute care continuum. As of December 31,
2024, the Company’s subsidiaries operated 123 home health, hospice and home care agencies and 57 senior living communities located in Arizona, California,
Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. We also provide home health and hospice operational
support through a management service agreement in Connecticut.
Certain of the Company’s subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information
technology, legal, risk management, and other services to the operations through contractual relationships.
Each of the Company’s affiliated operations are operated by separate, independent subsidiaries that have their own management, employees and assets.
References herein to the consolidated “Company” and “its” assets and activities are not meant to imply, nor should they be construed as meaning, that Pennant has
direct operating assets, employees or revenue, or that any of the subsidiaries, are operated by Pennant.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements of the Company (the “Financial Statements”) reflect the Company’s financial
position for the years ended December 31, 2024 and 2023, and the Company’s results of operations and cash flows for the years ended December 31, 2024, 2023
and 2022 and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the regulations of
the Securities and Exchange Commission (“SEC”). The Company presents noncontrolling interests within the equity section of its consolidated balance sheets and
the amount of consolidated net income (loss) that is attributable to The Pennant Group, Inc. and the noncontrolling interest in its consolidated statements of
income.
All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. The
consolidated statements of income reflect income that is attributable to the Company and the noncontrolling interest.
The Company consists of various limited liability companies and corporations established to operate home health, hospice, home care, and senior living
operations. The Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest. Revenue
was derived from transactional information specific to the Company’s services provided.
Reclassifications - Certain amounts in the prior financial statements have been reclassified to conform to the presentation of the current period financial
statements.
Estimates and Assumptions - The preparation of the Financial Statements in conformity with GAAP requires management to make certain 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. The most significant estimates in the Financial Statements relate to self-insurance
reserves, revenue recognition, and intangible assets and goodwill. Actual results could differ from those estimates.
Revenue Recognition - Revenues are recognized when services are provided to the patients at the amount that reflects the consideration to which the
Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in
exchange for providing patient care. Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction
price. The Company determines the transaction price based on contractually agreed-upon amounts or rate, adjusted for estimates of variable consideration. The
Company uses the expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual
agreements and historical reimbursement experience within each payor type. The amount of variable consideration which is included in the transaction price may
be constrained and is included in the net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized
will
60

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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
not occur in a future period. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates,
which would effect net service revenue in the period such variances become known.
As the Company’s contracts have an original duration of one year or less, the Company uses the practical expedient applicable to its contracts and does
not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the
remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue. In addition, the Company has
applied the practical expedient provided by Accounting Standard Codification (“ASC”) Topic 340, Other Assets and Deferred Costs, and all incremental customer
contract acquisition costs are expensed as they are incurred because the amortization period would have been one year or less. See Note 5, Revenue and Accounts
Receivable.
CARES Act - The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States. The
CARES Act allowed for deferred payment of the employer-paid portion of social security taxes through the end of 2020, with 50% due on December 31, 2021 and
the remainder due on December 31, 2022. The Company deferred approximately $7,836 of employer-paid portion of social security tax, all of which was repaid as
of December 31, 2022. The CARES Act also expanded the Centers for Medicare & Medicaid Services’ (“CMS”) ability to provide accelerated/advance payments
intended to increase the cash flow of healthcare providers and suppliers impacted by COVID-19. During 2020, the Company applied for and received $27,997 in
funds under the Accelerated and Advance Payment (“AAP”) Program, all of which was recouped as of June 23, 2022.
Cash - Cash consists of bank deposits and therefore approximates fair value. The Company places its cash with high credit quality financial institutions.
Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable consist primarily of amounts due from Medicare and Medicaid
programs, other government programs, healthcare systems, managed care health plans and private payor sources, net of estimates for variable consideration. The
allowance for doubtful accounts is the Company’s best estimate of current expected credit losses in the accounts receivable balance.
Property and Equipment - 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 40 years). Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the remaining lease term. Repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets - The Company reviews the carrying value of long-lived assets that are held and used in the independent operating
subsidiaries for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operating subsidiary to which the assets
relate, utilizing management’s best estimate, appropriate assumptions, and projections at the time. If the carrying value is determined to be unrecoverable from
future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair
value of the asset. The Company estimates the fair value of assets on a non-recurring basis and the inputs used to determine the fair value of the long-lived assets
are considered Level 3 measurements due to their subjective nature. There were no long-lived asset impairments during the years ended December 31, 2024 and
2023. Management evaluated its long-lived assets and the Company identified $218 in long-lived asset impairments related to six senior living communities for the
year ended December 31, 2022.
Intangible Assets and Goodwill - The Company’s indefinite-lived intangible assets consist of trade names and Medicare and Medicaid licenses. The
Company tests indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the
carrying amount of the intangible asset may not be recoverable.
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. The Company
reviews goodwill for impairment annually on the first day of the fourth quarter and also if events or changes in circumstances indicate the occurrence of a
triggering event. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to
perform a quantitative impairment test by comparing the fair value with the carrying amount of the reporting unit. If
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the carrying amount of a reporting unit exceeds its fair value, then the Company records an impairment of goodwill equal to the amount that the carrying amount
of a reporting unit exceeds its fair value.
As of December 31, 2024, we evaluated potential triggering events that might be indicators that our goodwill and indefinite-lived intangible assets were
impaired. As a result of our evaluation, no goodwill or indefinite-lived intangible asset impairments were recorded during the years ended December 31, 2024,
2023 and 2022. See further discussion at Note 9, Goodwill and Intangible Assets.
Self-Insurance Reserve - The Company retains risk for a substantial portion of potential claims for general and professional liability and workers’
compensation. The Company recognizes obligations associated with these costs, up to specified deductible limits in the period in which a claim is incurred,
including with respect to both reported claims and claims incurred but not reported. The Company evaluates the adequacy of the self-insurance reserves in
conjunction with an independent actuarial assessment. As of December 31, 2024, the general and professional liability insurance has a retention limit of $250 per
claim with a $500 corridor as an additional out-of-pocket retention we must satisfy for claims within the policy year before the carrier will reimburse losses. The
workers’ compensation insurance has a retention limit of $250 per claim, except for policies held in Texas, Washington, and Wyoming, which are subject to state
insurance and possess their own limits.
These costs have generally been estimated based on historical data of our claims experience. Such estimates, and the resulting reserves, are reviewed and
updated by us on a quarterly basis.
The following table presents details of the Company's insurance program, including general and professional liability and workers’ compensation, and
amounts accrued for the periods indicated in other accrued liabilities and other long-term liabilities in our accompanying consolidated balance sheets. The amounts
accrued are undiscounted and established using actuarial methods followed in the insurance industry based on claims filed and an estimate of claims incurred but
not reported. The amounts accrued below represent the total estimated liability for individual claims that are less than our noted insurance coverage amounts,
which includes outstanding claims and claims incurred but not reported. The amounts are reported gross of reinsurance receivable of $3,613 and $2,045 included
in restricted and other assets for the years ended December 31, 2024 and 2023, respectively, and $205 and $237 included in prepaid expenses and other current
assets for the years ended December 31, 2024 and 2023, respectively.
As of December 31,
2024
2023
Type of Insurance
General and professional liability
$
5,343 
$
4,078 
Workers’ compensation
5,441 
4,892 
Total estimated liability
10,784 
8,970 
Less: long-term portion, included in other long-term liabilities
(7,739)
(6,509)
Current portion of estimated liability, included in other accrued liabilities
$
3,045 
$
2,461 
Beginning on January 1, 2022, the Company transitioned its employee health plans to a self-insurance model. Prior to that date, the Company did not
retain risk related to its employee health plans. The Company self-funds medical, including prescription drugs, dental healthcare, and vision benefits for its
employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure associated with this policy,
the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $350 for each covered person for fiscal year 2024
and $325 for each covered person for fiscal year 2023. As of December 31, 2024 and 2023, our medical benefits liability was $2,650 and $1,931, respectively,
recorded as a component of accrued wages and related liabilities and other accrued liabilities.
Fair Value of Financial Instruments - The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued
liabilities, and debt. The Company believes all of the financial instruments’ recorded values approximate fair values because of their nature or respective short
durations. The Company determines fair value measurements based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers
include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices
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included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs for which little or no
market data exists, therefore requiring an entity to develop its own assumptions.
Income Taxes - Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities at tax rates in effect when such temporary differences are expected to reverse. The Company generally expects to fully utilize its
deferred tax assets; however, when necessary, the Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely
than not to be realized.
In determining the need for a valuation allowance or the need for and magnitude of liabilities for uncertain tax positions, the Company makes certain
estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely
future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with the Company’s
estimates and assumptions, actual results could differ.
Common Stock - Each share of common stock, $0.001 par value per share (“common stock”) has the right to one vote. On October 2, 2024, the Company
closed the public offering (the “Offering”) of 4,025 shares of its common stock. The net proceeds to the Company from the offering, after underwriting discounts,
commissions, and expenses, was approximately $118,145. The majority of the proceeds were subsequently used to pay the then outstanding balance on our
Amended Revolving Credit Facility.
Noncontrolling Interest - The noncontrolling interest in a subsidiary is initially recognized at estimated fair value on the acquisition date and is presented
within total equity in the Company's consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income
and other comprehensive income attributable to The Pennant Group, Inc. in its consolidated statements of income. Net income per share is calculated based on net
income attributable to The Pennant Group, Inc.'s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary
earnings based on ownership interest.
Share-Based Compensation - The Company measures and recognizes compensation expense for all share-based payment awards, including employee
stock options and restricted stock, made to employees and Pennant’s directors based on estimated fair values, ratably over the requisite service period of the award.
The Company accounts for forfeitures as they occur. The total amount of share-based compensation was $7,781, $5,369, and $3,086 for the years ended December
31, 2024, 2023 and 2022, respectively, of which $3,927, $2,250 and $647, respectively, was recorded in general and administrative expense, with the difference
being recorded in cost of services. For further discussion see Note 12, Options and Awards.
State Relief Funding - The Company receives state relief funding through programs from various states, including healthcare relief funding under the
American Rescue Plan Act (“ARPA”), and other state specific relief programs. The funding generally incorporates specific use requirements primarily for direct
patient care including labor-related expenses that are attributable to the COVID-19 pandemic or are associated with providing patient care.
These funds are recognized as a reduction of cost of services when related expenses are incurred. As of December 31, 2024 and 2023, the Company had
$705 and $780 in unapplied state relief funds, respectively. The unapplied state relief funds received are recorded in other accrued liabilities on the consolidated
balance sheets. As of December 31, 2024 and 2023, the Company recognized state relief funding totaling $3,331 and $4,654, respectively, which the Company
recognized as a reduction of cost of services.
Recent Accounting Pronouncements - Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the
FASB and applicable to the Company. For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous
generally accepted accounting principles and determines whether any new or modified principles will have a material impact on the Company's reported financial
position or operations in the near term. The applicability of any standard is subject to the formal review of the Company's financial management and certain
standards are under consideration.
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Recent Accounting Standards Adopted by the Company - In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):
Improvements to Reportable Segment Disclosures”, which requires the Company to expand the breadth and frequency of segment disclosures to include additional
information about significant segment expenses, the chief operating decision maker and other items, and also require the annual disclosures on an interim basis.
This guidance is effective for annual periods beginning after December 15, 2023. The Company adopted the requirements of this ASU in Note 6, Business
Segments.
Recently Issued Accounting Pronouncements Not Yet Adopted - In October 2023, the FASB issued ASU 2023-06 “Codification Amendments in Response
to the SEC’s Disclosure Update and Simplification Initiative,” which amends U.S. GAAP to include 14 disclosure requirements that are currently required under
SEC Regulation S-X or Regulation S-K. Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC
Regulation S-X or Regulation S-K. The adoption is not expected to have a material impact on the Company’s Financial Statements as these requirements were
previously incorporated under the SEC Regulations.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires the Company
to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This
guidance is effective for annual periods beginning after December 15, 2024, which will be the Company's fiscal year 2025, with early adoption permitted. The
Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
In November 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses,” which requires the Company to disaggregate key
expense categories such as employee compensation, depreciation and intangible asset amortization within its financial statements. This guidance is effective for
annual periods beginning after December 15, 2026, which will be the Company’s fiscal year 2027, and interim periods within the Company’s fiscal year 2028,
with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
3. TRANSACTIONS WITH ENSIGN
On October 1, 2019, The Ensign Group, Inc. (“Ensign”) completed the separation of Pennant (the “Spin-Off”). Pennant and Ensign continue to partner in
the provision of services along the healthcare continuum.
The Company has incurred costs of $959, $1,035, and $1,561 for the years ended December 31, 2024, 2023 and 2022, respectively, that related primarily
to shared services at proximate operations.
Expenses related to room and board charges at Ensign skilled nursing facilities for hospice patients were $5,529, $4,583, and $3,211 for the years ended
December 31, 2024, 2023 and 2022, respectively.
The Company’s independent operating subsidiaries leased 32 of its senior living communities from subsidiaries of Ensign under two master lease
arrangements as of December 31, 2024. See further discussion below at Note 13, Leases.
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 five senior living communities (the “Transaction”). The Transfer Agreements required one of the
transferors to place $6,500 in escrow to cover post-closing capital expenditures and operating losses related to one of the communities, and such escrow was
funded by an initial payment by the transferor at closing followed by eight equal monthly installments. The Company recorded the amount in loss on asset
dispositions and impairment, net during 2022. The Transaction closed in April 2022.
4. COMPUTATION OF NET INCOME PER COMMON SHARE
Basic net income per share is computed by dividing net income attributable to stockholders of the Company by the weighted average number of
outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share except that
the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had
been issued.
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The following table sets forth the computation of basic and diluted net income per share for the periods presented:
Year Ended December 31,
 
2024
2023
2022
Numerator:
Net income
$
24,339 
$
13,910 
$
7,243 
Less: net income attributable to noncontrolling interest
1,780 
531 
600 
Net income attributable to The Pennant Group, Inc.
$
22,559 
$
13,379 
$
6,643 
Denominator:
Weighted average shares outstanding for basic net income per share
31,191 
29,863 
29,064 
Plus: incremental shares from assumed conversion
809 
330 
1,095 
Adjusted weighted average common shares outstanding for diluted income per share
32,000 
30,193 
30,159 
Earnings Per Share:
Basic net income per common share
$
0.72 
$
0.45 
$
0.23 
Diluted net income per common share
$
0.70 
$
0.44 
$
0.22 
(a)
The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the
period) because their inclusion would have been antidilutive. Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were
1,271, 2,363, and 1,860 for the years ended December 31, 2024, 2023 and 2022, respectively.
5. REVENUE AND ACCOUNTS RECEIVABLE
Revenue is recognized when services are provided to the patients at the amount that reflects the consideration to which the Company expects to be
entitled from patients and third-party payors, including Medicaid, Medicare and managed care programs (Commercial, Medicare Advantage and Managed
Medicaid plans). The healthcare services in home health and hospice patient contracts include routine services in exchange for a contractual agreed-upon amount
or rate. Routine services are treated as a single performance obligation satisfied over time as services are rendered. As such, patient care services represent a
bundle of services that are not capable of being distinct within the context of the contract. Additionally, there may be ancillary services which are not included in
the rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered.
Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price. The Company
determines the transaction price based on contractually agreed-upon amounts or rate, adjusted for estimates of variable consideration. The Company uses the
expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual agreements and historical
reimbursement experience within each payor type. The amount of variable consideration which is included in the transaction price may be constrained and is
included in the net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a
future period. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would
affect net service revenue in the period such variances become known.
The Company records revenue from Medicare, Medicaid and managed care programs as services are performed at their expected net realizable amounts
under these programs. The Company’s revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and
third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recorded in the period the
change or adjustment becomes known based on final settlement.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with its patients or residents by reportable operating segments and payors. The Company has
determined that disaggregating revenue into these categories achieves the disclosure objectives to
(a)
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depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. A reconciliation of disaggregated revenue to
segment revenue as well as revenue by payor is provided below.
The Company’s service specific revenue recognition policies are as follows:
Home Health Revenue
Medicare Revenue
Net service revenue is recognized in accordance with the Patient Driven Groupings Model (“PDGM”). Under PDGM, Medicare provides agencies with
payments for each 30-day payment period 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 payment period 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 payment under the Medicare program is also adjusted for certain
variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the
diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before
completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting
within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date,
regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-
day payment period; (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.
The Company adjusts Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, an inability to
obtain appropriate billing documentation and other reasons unrelated to credit risk. Therefore, the Company believes that its reported net service revenue and
patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.
In addition to revenue recognized on completed episodes and periods, the Company also recognizes a portion of revenue associated with episodes and
periods in progress. Episodes in progress are 30-day payment periods that begin during the reporting period but were not completed as of the end of the period. As
such, the Company estimates revenue and recognizes it on a daily basis. The primary factors underlying this estimate are the number of episodes in progress at the
end of the reporting period, expected Medicare revenue per period of care or episode of care and the Company’s estimate of the average percentage complete based
on the scheduled end of period and end of episode dates.
Non-Medicare Revenue
Episodic Based Revenue - The Company recognizes revenue in a similar manner as it recognizes Medicare revenue for episodic-based rates that are paid
by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms.
Non-episodic Based Revenue - Revenue is recognized on an accrual basis based upon the date of service at amounts equal to its established or estimated
per visit rates, as applicable.
Management Services Revenue - The Company recognizes revenue earned from its management service agreements as the services are provided. Fees
charges are based upon the contractual terms of each agreement.
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Hospice Revenue
Revenue is recognized on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates
are calculated as daily rates for each of the levels of care the Company delivers. Revenue is adjusted for an inability to obtain appropriate billing documentation or
authorizations acceptable to Medicare and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap and an
overall payment cap, the Company monitors its provider numbers and estimates amounts due back to Medicare if a cap has been exceeded. The Company regularly
evaluates and records these adjustments as a reduction to revenue and an increase to other accrued liabilities.
Senior Living Revenue
The Company has elected the lessor practical expedient within ASC Topic 842, Leases, and therefore recognizes, measures, presents, and discloses the
revenue for services rendered under the Company’s senior living residency agreements based upon the predominant component, either the lease or non-lease
component, of the contracts. The Company has determined that the services included under the Company’s senior living residency agreements each have the same
timing and pattern of transfer. The Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers, for its senior residency
agreements, for which it has determined that the non-lease components of such residency agreements are the predominant component of each such contract.
The Company’s senior living revenue consists of fees for basic housing and assisted living care. Accordingly, we record revenue when services are
rendered on the date services are provided at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees
billed monthly in advance. For residents under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or
rates on a per resident, daily basis or as services are rendered.
Revenue by payor for the years ended December 31, 2024, 2023 and 2022, is summarized in the following tables:
Year Ended December 31, 2024
Home Health and Hospice Services
Home Health Services
Hospice Services
Senior Living Services
Total Revenue
Revenue %
Medicare
$
127,891 
$
207,971 
$
— 
$
335,862 
48.3 %
Medicaid
12,037 
25,904 
53,763 
91,704 
13.2 
Subtotal
139,928 
233,875 
53,763 
427,566 
61.5 
Managed care
87,981 
4,716 
— 
92,697 
13.3 
Private and other
51,473 
1,511 
121,993 
174,977 
25.2 
Total revenue
$
279,382 
$
240,102 
$
175,756 
$
695,240 
100.0 %
(a)
Private and other payors in the Company’s home health services includes revenue from all payors generated in the Company’s home care operations and management services agreement.
Year Ended December 31, 2023
Home Health and Hospice Services
Home Health Services
Hospice Services
Senior Living Services
Total Revenue
Revenue %
Medicare
$
96,035 
$
167,775 
$
— 
$
263,810 
48.4 %
Medicaid
9,625 
20,738 
46,974 
77,337 
14.2 
Subtotal
105,660 
188,513 
46,974 
341,147 
62.6 
Managed care
68,260 
5,488 
— 
73,748 
13.5 
Private and other
25,917 
626 
103,453 
129,996 
23.9 
Total revenue
$
199,837 
$
194,627 
$
150,427 
$
544,891 
100.0 %
(a)
Private and other payors in the Company’s home health services includes revenue from all payors generated in the Company’s home care operations.
(a)
(a)
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year Ended December 31, 2022
Home Health and Hospice Services
Home Health Services
Hospice Services
Senior Living Services
Total Revenue
Revenue %
Medicare
$
91,415 
$
140,338 
$
— 
$
231,753 
49.0 %
Medicaid
9,749 
15,568 
37,617 
62,934 
13.3 
Subtotal
101,164 
155,906 
37,617 
294,687 
62.3 
Managed care
57,824 
4,277 
— 
62,101 
13.1 
Private and other
22,741 
337 
93,375 
116,453 
24.6 
Total revenue
$
181,729 
$
160,520 
$
130,992 
$
473,241 
100.0 %
(a)
Private and other payors in the Company’s home health services includes revenue from all payors generated in the Company’s home care operations.
Balance Sheet Impact
Included in the Company’s consolidated balance sheets are contract assets, comprised of billed accounts receivable and unbilled receivables, which are
the result of the timing of revenue recognition, billings and cash collections, as well as, contract liabilities, which primarily represent payments the Company
receives in advance of services provided.
Accounts receivable as of December 31, 2024 and December 31, 2023 is summarized in the following table:
December 31, 2024
December 31, 2023
Medicare
$
46,677 
$
35,665 
Medicaid
13,382 
11,578 
Managed care
14,220 
11,752 
Private and other
7,255 
2,380 
Accounts receivable, gross
81,534 
61,375 
Less: allowance for doubtful accounts
(232)
(259)
Accounts receivable, net
$
81,302 
$
61,116 
The following table summarizes the activity for our allowance for doubtful accounts for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31,
2024
2023
2022
Balance at beginning of period
$
259 
$
592 
$
902 
Additions to bad debt expense
903 
646 
881 
Write-offs of uncollectible accounts
(930)
(979)
(1,191)
Balance at end of period
$
232 
$
259 
$
592 
(a)
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Concentrations- Credit Risk
Credit Risk - The Company has significant accounts receivable balances, the collectability of which is dependent on the availability of funds from certain
governmental programs, primarily Medicare and Medicaid. These receivables represent the only significant concentration of credit risk for the Company. The
Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an appropriate allowance has
been recorded for the possibility of these receivables proving uncollectible, and continually monitors and adjusts these allowances as necessary. The Company’s
gross receivables from the Medicare and Medicaid programs accounted for approximately 73.7% and 77.0% of its total gross accounts receivable as of December
31, 2024 and December 31, 2023, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 61.5%, 62.6%, and 62.3%
of the Company's revenue for the years ended December 31, 2024, 2023 and 2022, respectively.
6. BUSINESS SEGMENTS
The Company classifies its operations into the following reportable operating segments: (1) home health and hospice services, which includes the
Company’s home health, hospice, home care, and geriatric primary and palliative care businesses; and (2) senior living services, which includes the operation of
assisted living, independent living and memory care communities. The reporting segments are business units that offer different services and are managed
separately to provide greater visibility into those operations. The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker
(“CODM”), reviews financial information at the operating segment level.
As of December 31, 2024, the Company provided services through 123 affiliated home health, hospice and home care agencies, and 57 affiliated senior
living operations. The Company evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize
the quality of care provided and profitability. The Company’s Service Center provides various services to all lines of business. The CODM does not review assets
by segment and therefore assets and capital expenditure by segment are not disclosed below.
The CODM uses Segment Adjusted EBITDAR from Operations as the primary measure of profit and loss for the Company's reportable segments and to
compare the performance of its operations with those of its competitors. The CODM monitors these results and provides guidance to the segment leadership to
allocate enterprise-wide resources. 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) costs at start-up operations, (2) share-based
compensation expense, (3) acquisition related costs and credit allowances, (4) costs associated with transitioning operations, (5) unusual, non-recurring or
redundant charges, and (6) net income (loss) 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 do 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.
The following table presents certain financial information regarding the Company’s reportable segments, provided that general and administrative
expenses are not allocated to the reportable segments.
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Home Health and
Hospice Services
Senior Living
Services
All Other
Total
Year Ended December 31, 2024
Segment Revenue
$
515,344  $
174,767  $
5,129  $
695,240 
Segment Cost of Services
427,635 
123,107 
Segment Adjusted EBITDAR from Operations
$
87,709  $
51,660 
$
139,369 
Year Ended December 31, 2023
Segment Revenue
$
385,652  $
148,198  $
11,041  $
544,891 
Segment Cost of Services
320,046 
102,904 
Segment Adjusted EBITDAR from Operations
$
65,606  $
45,294 
$
110,900 
Year Ended December 31, 2022
Segment Revenue
$
337,371  $
126,758  $
9,112  $
473,241 
Segment Cost of Services
275,544 
89,195 
Segment Adjusted EBITDAR from Operations
$
61,827  $
37,563 
$
99,390 
2024
2023
2022
Segment Adjusted EBITDAR from Operations
$
139,369 
$
110,900 
$
99,390 
Less: Unallocated corporate expenses
43,587 
31,704 
31,435 
Less: Depreciation and amortization
6,119 
5,130 
4,900 
Rent—cost of services
43,029 
39,759 
38,018 
Other income
207 
339 
(31)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations
137 
102 
1,435 
Share-based compensation expense
8,242 
5,565 
3,363 
Acquisition related costs and credit allowances
1,278 
476 
731 
Costs associated with transitioning operations
(570)
612 
6,103 
Unusual, non-recurring or redundant charges
1,004 
2,575 
1,297 
Add: Net income attributable to noncontrolling interest
1,780 
531 
600 
Income from operations
$
38,116 
$
25,169 
$
12,739 
(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, including the impact of the modification of certain restricted stock units described below in Note 12, Options and
Awards, to the Consolidated Financial Statements. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)
Non-capitalizable costs associated with acquisitions and credit allowances for amounts in dispute with the prior owners of certain acquired operations.
(e)
During the year ended December 31, 2023, an affiliate of the Company placed its memory care units into transition and is converting the facility into an assisted living community. We
received insurance proceeds related to the property in 2024 which were recorded as a gain on asset disposition on the consolidated statements of income. The amounts reported exclude rent
and depreciation and amortization expense related to such operations and include legal settlement costs associated with one of the entities transitioned to Ensign. 


During January 2022, affiliates of the Company entered into 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 all of the transferred entities. The amounts reported
exclude rent and depreciation and amortization expense related to such operations.
(f)
Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees in general and administrative and cost of services expenses. The
amounts reported for the year ended December 31, 2022 include certain costs identified as redundant or non-recurring incurred by the Company for services provided by Ensign under the
Transition Services Agreement, and were included in general and administrative expense.
 (a)
(b)
(c)
(d)
(e)
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Adjusted segment depreciation expense
Home Health and
Hospice Services
Senior Living Services
Year Ended December 31, 2024
$
870  $
4,107 
Year Ended December 31, 2023
$
1,208  $
3,452 
Year Ended December 31, 2022
$
1,407  $
2,662 
7. ACQUISITIONS
The Company’s acquisition focus is to purchase or lease operations that are complementary to the Company’s current businesses, accretive to the
Company’s business or otherwise advance the Company’s strategy. The results of all the Company’s independent operating subsidiaries are included in the
Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting.
2024 Acquisitions
During the year ended December 31, 2024, the Company expanded its operations with the addition of eight home health agencies, three hospice agencies,
and six senior living communities. The Company also acquired the real estate of two of the six acquired senior living communities. The aggregate purchase price
of the real estate of the two senior living communities acquired was $10,380, which consisted primarily of land and buildings and were accounted for as asset
acquisitions. In connection with the remaining senior living communities acquired, the Company entered into new long-term “triple-net” leases. 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. These new
communities included 386 operational senior living units to be operated by the Company's independent operating subsidiaries.
On January 1, 2024, the Company announced it closed on a joint venture for a home health agency with John Muir Health (“Muir”), a leading nonprofit
integrated health system serving communities throughout the east bay region of San Francisco, California. The transaction combines certain assets and the
operations of Muir’s home health business with the assets and operations of a local Pennant-affiliated home health agency. The joint venture is majority-owned and
managed by an independent operating subsidiary of the Company and provides home health services to patients throughout the San Francisco east bay region. The
Company contributed certain assets of a local Pennant-affiliated home health agency to the joint venture and paid Muir $11,680 for a 60% controlling ownership
interest in the joint venture.
The fair value of assets for the joint venture acquired was mostly concentrated in goodwill and intangible assets and as such, this transaction was
classified as a business combination in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The fair value of assets acquired for the business
combination was $28,200, which consisted of goodwill of $15,500, indefinite-lived intangible assets of $8,600 related to a Medicare and Medicaid license, and
tradenames of $4,100. Through its contributions of assets to the joint venture, Muir retained a non-controlling ownership interest which resulted in the Company
recording a 40% noncontrolling interest with a fair value of $11,726, a deferred tax liability of $1,193, and an adjustment to additional paid-in capital of $3,601.
The Company anticipates that the total goodwill recognized will be partially deductible for tax purposes. The Muir acquisition contributed $28,614 in revenue and
operating income of $5,163 during the year ended December 31, 2024.
On May 16, 2024, the Company acquired one home health agency and one hospice agency. On July 1, 2024, one acquisition of a provider service agency
was completed. These transactions were classified as a business combination in accordance with ASC 805. The aggregate purchase price for the business
combinations was $5,350, which consisted of goodwill of $2,310 and indefinite-lived intangible assets of $3,040 related to Medicare and Medicaid licenses. The
Company anticipates that the total goodwill recognized will be fully deductible for tax purposes. The acquisitions contributed $4,982 in revenue and operating
income of $954 during the year ended December 31, 2024.
On August 1, 2024, the Company completed the first part of its planned acquisition of certain Signature Group, LLC operations. Through the completed
acquisition, the Company acquired four home health agencies and one hospice agency. The transaction was classified as business combination in accordance with
ASC 805. The aggregate purchase price for the business combinations was $32,000, including acquired liabilities, which consisted of goodwill of $20,300,
indefinite-lived intangible assets of $9,000 related to Medicare and Medicaid licenses, and tradenames of $2,700. The Company anticipates that the total goodwill
recognized will be fully deductible for tax purposes. The Company completed an additional acquisition transaction with Signature Group, LLC that closed on
January 1, 2025, and is described in “Subsequent Events” below. The Company
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anticipates that the total goodwill recognized will be fully deductible for tax purposes. The Signature Group, LLC acquisition contributed $9,787 in revenue and
operating income of $2,190 during the year ended December 31, 2024.
The Company acquired one hospice and two home health Medicare licenses through asset acquisitions. The fair value of the assets acquired in these
transactions primarily consisted of indefinite-lived intangibles of $1,000.
There were no material acquisition costs that were incurred related to the business combinations during the year ended December 31, 2024.
2023 Acquisitions
During the year ended December 31, 2023, the Company expanded its operations with the addition of three home health agencies, eight hospice agencies,
two home care agencies, and two senior living communities. In connection with the addition of the two senior living communities, the Company entered into a
new long-term “triple-net” lease. 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.
The fair value of assets for two home health agencies, eight hospice agencies, and two home care agencies acquired were mostly concentrated in goodwill
and indefinite-lived intangible assets and as such, these transactions were classified as business combinations in accordance with ASC 805. The purchase price for
the business combinations was $21,376, which primarily consisted of goodwill of $11,517, indefinite-lived intangible assets of $8,914 related to Medicare and
Medicaid licenses, and equipment, other assets and accounts receivable of $1,026, less assumed liabilities of $81. The acquisitions contributed $10,549 in revenue
and operating income of $280 during the year ended December 31, 2023.
One home health agency acquired a Medicare license and was considered an asset acquisition. The fair value of the home health license acquired was
$211 and was recorded in other indefinite-lived intangibles.
There were no material acquisition costs that were expensed related to the business combinations during the year ended December 31, 2023.
2022 Acquisitions
During the year ended December 31, 2022, the Company expanded its operations with the addition of three home health agencies, four hospice agencies,
and one senior living community. In connection with the addition of the senior living community, the Company entered into a new long-term “triple-net” lease. 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.
The aggregate purchase price for the home health and hospice acquisitions was $10,130. The goodwill was primarily attributable to indefinite-lived
intangible assets that do not qualify for separate recognition, and to synergies the Company expects to achieve related to the acquisition, which was allocated to the
Company's operating segments which are its reporting units. Total goodwill recognized was fully deductible for tax purposes. There were no material acquisition
costs that were expensed related to the business combination during the year ended December 31, 2022.
The fair value of assets for home health and hospice acquisitions was mostly concentrated in goodwill and as such, these transactions were classified as
business combinations in accordance with ASC 805. The table below presents the
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allocation of the purchase price for the operations acquired in acquisitions during the years ended December 31, 2024, 2023 and 2022 as noted above:
December 31,
2024
2023
2022
Property and equipment, net
$
10,380  $
34  $
188 
Goodwill
38,110 
11,517 
5,232 
Other indefinite-lived intangible assets
28,440 
8,914 
4,897 
Other assets
23 
992 
— 
Liabilities assumed
(1,830)
(81)
(187)
    Total acquisitions
$
75,123  $
21,376  $
10,130 
Less: noncontrolling interest
(11,726)
— 
— 
Less: additional paid in capital
(3,601)
— 
— 
Total cash paid for acquisitions
$
59,796  $
21,376  $
10,130 
(a)
Consists of the of noncontrolling interest related to John Muir Health contribution of assets to the joint venture.
Subsequent Events
On January 1, 2025, the Company closed the second part of its planned acquisition of certain Signature Group, LLC operations. The purchase price was
$48,480 paid through a combination of cash on hand and available credit on our revolving credit facility. Through the completed acquisition, the Company
acquired five home health agencies and four hospice agencies located in Oregon.
On February 1, 2025, the Company closed on the acquisition of three senior living communities. These new communities included 188 operational senior
living units to be operated by the Company's independent operating subsidiaries. In connection with each of the senior living communities, the Company entered
into a new long-term “triple-net” lease. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired
operation as part of the transaction.
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
December 31,
2024
2023
Land
$
5,632 
$
96 
Building
8,778 
1,890 
Leasehold improvements
21,879 
21,204 
Equipment
31,200 
27,984 
Construction in progress
2,715 
1,263 
Furniture and fixtures
1,541 
1,238 
Total property and equipment
71,745 
53,675 
Less: accumulated depreciation
(28,449)
(25,077)
Property and equipment, net
$
43,296 
$
28,598 
Depreciation expense was $6,119, $5,120 and $4,856 for the years ended December 31, 2024, 2023 and 2022, respectively.
9. GOODWILL AND INTANGIBLE ASSETS
The Company tests goodwill annually and also if events or changes in circumstances indicate the occurrence of a
(a)
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triggering event which might indicate there may be impairment. The Company performs its goodwill impairment analysis for each reporting unit that constitutes a
component for which (1) discrete financial information is available and (2) segment management regularly reviews the operating results of that component, in
accordance with the provisions of ASC Topic 350, Intangibles-Goodwill and Other.
The Company reviews goodwill for impairment by initially considering qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative analysis. If it is determined that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative analysis is performed to identify goodwill impairment.
If it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, it is unnecessary to perform a
quantitative analysis. The Company may elect to bypass the qualitative assessment and proceed directly to performing a quantitative analysis. An impairment loss
is recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill
allocated to that reporting unit. The Company did not identify any impairment charges during the years ended December 31, 2024, 2023 and 2022.
The following table represents activity in goodwill by segment:
Home Health and
Hospice Services
Senior Living Services
Total
December 31, 2022
$
75,855 
$
3,642 
$
79,497 
Additions
11,517 
— 
11,517 
December 31, 2023
87,372 
3,642 
91,014 
Additions
38,110 
— 
38,110 
December 31, 2024
$
125,482 
$
3,642 
$
129,124 
Other indefinite-lived intangible assets consist of the following:
December 31,
2024
2023
Trade names
$
8,465  $
1,385 
Medicare and Medicaid licenses
87,717 
66,357 
Total other indefinite-lived intangibles
$
96,182  $
67,742 
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
December 31, 2024
December 31, 2023
Refunds payable
$
1,382  $
1,566 
Deferred revenue
2,284 
1,658 
Resident deposits
1,399 
2,367 
Property taxes
1,028 
1,255 
Deferred state relief funds
705 
780 
Accrued self-insurance liabilities
5,396 
4,392 
Hospice CAP liabilities
4,007 
661 
Software license payable
1,170 
— 
Other
2,815 
2,651 
Other accrued liabilities
$
20,186  $
15,330 
Refunds payable includes payables related to overpayments, duplicate payments and credit balances from various payor sources. Deferred revenue occurs
when the Company receives payments in advance of services provided. Resident
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deposits include refundable deposits to residents and a small portion consists of non-refundable deposits recognized into revenue over a period of time. Deferred
state relief funds are relief funds the Company has received from various states that will offset against future related expenses.
11. DEBT
Long-term debt, net consists of the following:
December 31,
2024
2023
Revolving credit facility
$
— 
$
65,000 
Less: unamortized debt issuance costs
— 
(1,086)
Long-term debt, net
$
— 
$
63,914 
(a)
On October 4, 2024, the Company used the proceeds from the Offering of common stock to pay in full the outstanding balance on our Amended Revolving Credit Facility.
(b)
Amortization expense for debt issuance costs, including expense of $428 related to the July 31, 2024 refinancing of our Revolving Credit Facility, was $1,096, $521, and $520 for the yea
December 31, 2024, 2023 and 2022, respectively, and is recorded in interest expense, net on the consolidated statements of income. For year ended December 31, 2024, the outstand
issuance costs of $3,906 are recorded in Restricted and other assets.
On February 23, 2021, Pennant entered into an amendment to its existing credit agreement (as amended, the “Credit Agreement”), which provided for an
increased revolving credit facility with a syndicate of banks with a borrowing capacity of $150,000 (the “Revolving Credit Facility”). On June 12, 2023, Pennant
entered into a second amendment to the Credit Agreement that modified the reference rate from LIBOR to Standard Overnight Financing Rate (“SOFR”). The
interest rates applicable to loans under the Revolving Credit Facility were, at the Company’s election, either (i) Adjusted Term SOFR (as defined in the Credit
Agreement) plus a margin ranging from 2.25% to 3.25% per annum or (ii) Base Rate plus a margin ranging from 1.25% to 2.25% per annum, in each case, based
on the ratio of Consolidated Total Net Debt to Consolidated EBITDA (each, as defined in the Credit Agreement). In addition, Pennant paid a commitment fee on
the undrawn portion of the commitments under the Revolving Credit Facility which ranged from 0.35% to 0.50% per annum, depending on the Consolidated Total
Net Debt to Consolidated EBITDA ratio of the Company and its subsidiaries.
On July 31, 2024, Pennant entered into an Amended and Restated Credit Agreement (the Credit Agreement, as amended and restated, the “Amended
Credit Agreement”), which provides for a revolving credit facility (the Revolving Credit Facility, as upsized, the “Amended Revolving Credit Facility”) with a
syndicate of banks with a borrowing capacity of $250,000. In conjunction with the amendment, the Company incurred additional debt issuance costs of $3,915 and
wrote off previously deferred unamortized debt issuance costs of $428. After the effectiveness of the Amended Credit Agreement, the interest rates applicable to
loans under the Amended Revolving Credit Facility are, at the Company’s election, either (i) Term SOFR (as defined in the Amended Credit Agreement) plus a
margin ranging from 1.75% to 2.75% per annum or (ii) Base Rate plus a margin ranging from 0.75% to 1.75% per annum, in each case based on the ratio of
Consolidated Total Net Debt to Consolidated EBITDA (each, as defined in the Amended Credit Agreement). In addition, Pennant pays a commitment fee on the
undrawn portion of the commitments under the Amended Revolving Credit Facility that ranges from 0.25% to 0.45% per annum, depending on the Consolidated
Total Net Debt to Consolidated EBITDA ratio of the Company and its subsidiaries. The Company is not required to repay any loans under the Amended Credit
Agreement prior to maturity in July 2029. On October 4, 2024, the Company used the proceeds from the Offering of common stock to pay in full the outstanding
balance on our Amended Revolving Credit Facility. As of December 31, 2024, the Company’s weighted average interest rate on its outstanding debt was 0.0%. As
of December 31, 2024, the Company had available borrowing on the Revolving Credit Facility of $245,814, which is net of outstanding letters of credit of $4,186.
The fair value of the Amended Revolving Credit Facility approximates carrying value, due to the short-term nature and variable interest rates. The fair
value of this debt is categorized within Level 2 of the fair value hierarchy based on the observable market borrowing rates.
The Amended Credit Agreement is guaranteed, jointly and severally, by certain of the Company’s independent operating subsidiaries, and is secured by a
pledge of stock of the Company's material independent operating subsidiaries as well as a first lien on substantially all of each material operating subsidiary's
personal property. 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
(a)
(b)
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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 December 31, 2024 and 2023, the Company was compliant with all such
financial covenants.
12. OPTIONS AND AWARDS
Outstanding options and restricted stock awards of the Company were granted under the 2019 Omnibus Incentive Plan and Long-Term Incentive Plan (the
“LTIP”), (together referred to as the “Pennant Plans”).
Under the Pennant Plans, stock-based payment awards, including employee stock options, restricted stock awards (“RSA”), and restricted stock units
(“RSU” and together with RSA, “Restricted Stock”) are issued based on estimated fair value. The following disclosures represent share-based compensation
expense relating to employees of the Company’s subsidiaries and non-employee directors who have awards under the Pennant Plans.
Share-Based Compensation
The following disclosures represent share-based compensation expense relating to the Pennant Plans, including awards to employees of the Company’s
subsidiaries.
Total share-based compensation expense for all of the Pennant Plans for the years ended December 31, 2024, 2023 and 2022 were as follows:
Year Ended December 31,
2024
2023
2022
Share-based compensation expense related to stock options
$
4,944 
$
3,945 
$
3,266 
Share-based compensation expense related to Restricted Stock
561 
712 
(467)
Share-based compensation expense related to Restricted Stock to non-employee directors
2,276 
712 
287 
Total share-based compensation
$
7,781 
$
5,369 
$
3,086 
In future periods, the Company estimates it will recognize the following share-based compensation expense for unvested stock options and unvested
Restricted Stock. Total unrecognized share-based compensation as of December 31, 2024 was as follows:
Unrecognized Share-Based
Compensation Expense
Weighted Average
Recognition Period (in years)
Unvested stock options
$
14,734 
3.6
Unvested Restricted Stock
2,203 
3.3
Total unrecognized share-based compensation expense
$
16,937 
On July 25, 2022 the Company modified certain outstanding RSUs granted to the former chief executive officer of the Company in connection with the
Spin-Off. All the RSUs had an original vesting date of October 1, 2022. The modification resulted in the forfeiture of 250 outstanding RSUs and accelerated the
vesting on the remaining 943 RSUs from October 1, 2022 to July 31, 2022. The modification of the award resulted in a net reduction of share-based compensation
expense related to the awards of $3,812 recorded in general and administrative expense during 2022. There were no modifications of awards during 2024 and
2023.
Stock Options
Under the Pennant Plans, options granted to employees of the subsidiaries of Pennant generally vest over five years at 20% per year on the anniversary of
the grant date. Options expire ten years after the date of grant.
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The Company uses the Black-Scholes option-pricing model to determine the grant date fair value which is used to recognize the value of share-based
compensation expense for share-based payment awards under the Pennant Plans. Determining the appropriate fair-value model and calculating the fair value of
share-based awards at the grant date requires considerable judgment, including estimating stock price volatility and expected option life. The Company develops
estimates based on historical data and market information, which can change significantly over time.
The fair value of each option is estimated on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions
for stock options granted:
Grant Year
Options
Granted
Risk-Free Interest
Rate
Expected Life
Expected
Volatility
Dividend Yield
Weighted
Average Fair
Value of Options
2024
850 
4.3 %
6.5
42.6 %
— % $
10.88 
2023
924 
4.2 %
6.5
41.8 %
— % $
6.59 
2022
448 
2.7 %
6.5
39.8 %
— % $
6.35 
(a)
Under the midpoint method, the expected option life is the midpoint between the contractual option life and the average vesting period for the options being granted. This resulted in an expected
option life of 6.5 years for the options granted.
(b)
Because the Company’s equity shares have been traded for a relatively short period of time, expected volatility assumption was based on the volatility of related industry stocks.
The following table represents the employee stock option activity during the year ended December 31, 2024:
Number of
Options
Outstanding
Weighted
Average
Exercise Price
Number of
Options Vested
Weighted
Average
Exercise Price
of Options
Vested
December 31, 2023
2,924  $
18.79 
1,190  $
19.14 
Granted
850  $
22.03 
Exercised
(254) $
9.82 
Forfeited
(128) $
20.04 
Expired
(61) $
30.71 
December 31, 2024
3,331  $
20.01 
1,367  $
20.67 
The aggregate intrinsic value of options outstanding, vested, unvested and exercised as of and for the year ended December 31, 2024 is as follows:
Options
December 31, 2024
Outstanding
$
28,471 
Vested
12,103 
Unvested
16,368 
Exercised
3,500 
The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the options. There
were 1,964 unvested and outstanding options at December 31, 2024. The weighted average contractual life for options outstanding, vested and expected to vest at
December 31, 2024 was 7.23 years.
(a)
(b)
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Restricted Stock
Under the Pennant Plans, the Company granted Restricted Stock to Pennant employees, Ensign employees, and to non-employee directors. All awards
generally vest between three to five years. A summary of the status of Pennant’s non-vested Restricted Stock, and changes during the year ended December 31,
2024, is presented below:
Non-Vested Restricted
Awards
Weighted Average
Grant Date Fair Value
December 31, 2023
265 
$
14.27 
Granted
114 
26.04 
Vested
(206)
19.12 
Forfeited
(21)
16.26 
December 31, 2024
152 
$
16.27 
13. LEASES
The Company’s independent operating subsidiaries lease senior living communities under non-cancelable operating leases, most of which have initial
lease terms ranging from 15 to 25 years. The Company’s independent operating subsidiaries also lease the administrative offices of home health and hospice
agencies and the service centers which generally range from one to seven years. Most of these leases contain renewal options, most involve rent increases and none
contain purchase options. The lease term excludes lease renewals because the renewal rents are not at a bargain, there are no economic penalties for the Company
to renew the lease, and it is not reasonably certain that the Company will exercise the extension options. The Company elected the accounting policy practical
expedients in ASC 842 to: (i) combine associated lease and non-lease components into a single lease component; and (ii) exclude recording short-term leases as
right-of-use assets and liabilities on the consolidated balance sheets. Non-lease components, which are not significant overall, are combined with lease
components. The Company has an insignificant amount of finance lease right of use assets included in Restricted and other assets and finance lease liabilities
included in Other accrued liabilities and Other long-term liabilities on our consolidated balance sheets. Amortization and interest expense was $214 and $35,
respectively for the year ended December 31, 2024. As of December 31, 2024, the weighted average remaining lease term and the weighted average discount rate
was 3.4 years and 6.9% for finance leases, respectively.
As of December 31, 2024, the Company’s independent operating subsidiaries leased 32 senior living communities from subsidiaries of Ensign (“Ensign
Leases”) under two master lease arrangements. The existing leases with subsidiaries of Ensign are for initial terms of between 14 to 20 years. The total amount of
rent expense included in rent - cost of services paid to subsidiaries of Ensign was $14,018, $13,567, and $13,595, for the years ended December 31, 2024, 2023
and 2022, respectively. In addition to rent, each of the operating companies are required to pay the following: (1) all impositions and taxes levied on or with
respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties
and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased
properties; (4) all community maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the
leased properties and the business conducted on the leased properties.
Fourteen of the Company’s affiliated senior living communities, excluding the communities that are operated under the Ensign Leases (as defined herein),
are operated under three separate master lease arrangements. Under these master leases, a breach at a single community could subject one or more of the other
communities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under
several of the Company’s leases and master leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the
master lease without the consent of the landlord.
As further described in Note 3, Transactions with Ensign, on January 27, 2022, affiliates of the Company entered into Transfer Agreements with affiliates
of Ensign, providing for the transfer of the operations of five senior living communities. 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. As a result of the lease terminations, the Company reduced both the
right of use assets and the lease liabilities by $42,506. Four of the terminated leases were part of a master lease agreement. As a result of the transferred leases
being removed from the master lease arrangement, the remaining lease components under the master lease
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
arrangement were modified which resulted in a net increase to the lease liability and ROU asset balance of $6,161 for the year ended December 31, 2022.
The components of operating lease cost, are as follows:
Year Ended December 31,
2024
2023
2022
Operating lease costs:
Facility rent—cost of services
$
35,840 
$
33,992 
$
32,958 
Office rent—cost of services
7,189 
5,767 
5,060 
Rent—cost of services
$
43,029 
$
39,759 
$
38,018 
General and administrative expense
$
451 
$
385 
$
370 
Variable lease cost
$
8,688 
$
7,369 
$
6,281 
(a)
Includes short-term lease cost, which is immaterial
(b)
Represents variable lease cost for operating leases including property taxes, insurance, common area maintenance, and consumer price index increases. Costs of $5,348, $4,891, and $4,451 are
recorded in cost of services and $3,340, $2,478, and $1,830 are included in rent-cost of services for the years ended December 31, 2024, 2023 and 2022.
The following table shows the lease maturity analysis for all leases as of December 31, 2024:
Year
Operating Leases
2025
$
40,349 
2026
38,522 
2027
37,452 
2028
36,473 
2029
35,340 
Thereafter
235,690 
Total lease payments
423,826 
Less: present value adjustments
(150,735)
Present value of total lease liabilities
273,091 
Less: current lease liabilities
(19,671)
Long-term operating lease liabilities
$
253,420 
At lease commencement, lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining
the present value of lease payments, the Company used its incremental borrowing rate based on the information available at each lease’s commencement date to
determine each lease's liability. As of December 31, 2024, the weighted average remaining lease term and the weighted average discount rate was 11.8 years and
8.0% for operating leases, respectively.
(a)
(b)
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. INCOME TAXES
The provision for income tax expense for the years ended December 31, 2024, 2023 and 2022 is summarized as follows:
Year Ended December 31,
2024
2023
2022
Current:
Federal
$
6,449 
$
1,178 
$
(193)
State
1,766 
492 
146 
Total current
8,215 
1,670 
(47)
Deferred:
Federal
(998)
3,217 
1,334 
State
(189)
787 
362 
Total deferred
(1,187)
4,004 
1,696 
Total provision for income taxes
$
7,028 
$
5,674 
$
1,649 
A reconciliation of the federal statutory tax rate to the effective tax rate for income from continuing operations for the years ended December 31, 2024,
2023 and 2022, respectively, is comprised as follows:
Year Ended December 31,
2024
2023
2022
Income tax expense at statutory rate
21.0 %
21.0 %
21.0 %
State income taxes - net of federal benefit
4.2 
5.3 
4.7 
Non-deductible meals and entertainment
0.5 
0.8 
0.6 
Section 162(m) limitation
3.1 
3.0 
(5.5)
Other non-deductible expenses
— 
0.2 
0.2 
Tax credits
(0.3)
(0.2)
— 
Stock based compensation
(4.6)
— 
(0.8)
Noncontrolling interest
(1.4)
(0.7)
(1.7)
Other adjustments
(0.1)
(0.4)
— 
Total income tax expense at effective rate
22.4 %
29.0 %
18.5 %
(a)
During the year ended December 31, 2023, approximately $2,078 of the share-based compensation expense related to restricted stock that originally resulted in a deferred tax asset was written off.
(b)
During the year ended December 31, 2024, employees exercised stock options representing approximately 254 shares. Although the Company had slightly higher option expirations in the year
ended December 31, 2024, the tax deductions from the significantly increased option exercises resulted in a significant tax benefit. During the year ended December 31, 2023, employees exercised
stock options representing approximately 89 shares. The Company had decreased exercises and increased expirations of stock options in the year ended December 31, 2023 and coupled with an
increase in book income has caused the effect of this on the effective tax rate to be minimal. During the year ended December 31, 2022, employees exercised stock options representing
approximately 125 shares.
(a)
(b)
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s deferred tax assets and liabilities for the years ended December 31, 2024 and 2023 are summarized below.
Year Ended December 31,
 
2024
2023
Deferred tax assets (liabilities):
Accrued compensation
$
11,196 
$
8,472 
Allowance for doubtful accounts
1,690 
960 
State taxes
128 
64 
Lease liabilities
70,706 
69,029 
Insurance
1,839 
1,769 
Other
1,276 
756 
Total deferred tax assets
86,835 
81,050 
Depreciation and amortization
(16,010)
(13,714)
Prepaid expenses
(902)
(786)
Right-of-use assets
(69,813)
(68,105)
Other
(1,971)
(300)
Total deferred tax liabilities
(88,696)
(82,905)
Net deferred tax liabilities
$
(1,861)
$
(1,855)
During the year ended December 31, 2023, the Company fully utilized all of its federal and state net operating loss carryforwards from the year ended
December 31, 2022.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year Ended December 31,
2024
2023
2022
Balance at January 1
$
— 
$
— 
$
65 
Additions for tax positions of prior years
— 
— 
— 
Reductions for tax positions related to the current year
— 
— 
(65)
Balance at December 31
$
— 
$
— 
$
— 
None of the unrecognized tax benefits net of their state benefits would affect the Company’s effective tax rate for the years ended December 31, 2024,
2023 and 2022. The Company classifies interest and/or penalties on income tax liabilities or refunds as additional income tax expense or income. Such amounts are
not material.
As of December 31, 2024, the Company is no longer subject to federal tax examinations for the fiscal years prior to 2021, and in most states, is no longer
subject to state income tax examinations for fiscal years before 2020. The lapsing of the statutes of limitation for the years ended December 31, 2020 and
December 31, 2019 had no impact on the Company’s unrecognized tax benefits.
15. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) defined contribution plan (the “401(k) Plan”), whereby eligible employees may contribute up to 90% of their annual basic
earnings, subject to applicable annual Internal Revenue Code limits. Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in
the 401(k) Plan) by the Company. The Company expensed matching contributions to the 401(k) Plan of $1,219, $866, and $627 during the years ended December
31, 2024, 2023 and 2022, respectively.
During fiscal year 2021, the Company implemented a non-qualified deferred compensation plan (the “DCP”) for executives, other highly compensated
employees, independent contractors and non-employee directors which went into effect
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
on June 1, 2021, effective for compensation to be paid in 2022 and thereafter. The independent contractors and non-employee directors are otherwise ineligible for
participation in the Company's 401(k) plan. The DCP allows participants to defer the receipt of a portion of their base compensation, and further allows certain
participants to defer up to 80% of their base salary and bonus compensation or director fees. At the participant’s election, payments can be deferred until a specific
date at least one year after the year of deferral or until termination of engagement with the Company and can be paid in a lump sum or in up to ten annual
installments. Separate deferral elections can be made for each year, and in limited circumstances, existing payment elections may be changed. The amounts
deferred are credited with earnings and losses based upon the actual performance of the deemed investments selected by the participant. The rate of return for each
participant varies depending on the specific investment elections made by the participant. Additionally, the plan deposits the employee deferrals into a rabbi trust
and the funds are generally invested in individual variable life insurance contracts owned by the Company that are specifically designed to informally fund savings
plans of this nature. The Company paid for related administrative costs, which were immaterial during the fiscal years presented.
As of December 31, 2024 and 2023, the Company’s deferred compensation liabilities were $2,170 and $1,108, respectively, in other long-term liabilities
on the consolidated balance sheets. The cash surrender value of the individual variable life insurance contracts is based on investment funds that shadow the
investment allocations specified by participants in the DCP. As of December 31, 2024 and 2023, the cash surrender value of the company owned life insurance
(“COLI”) policies were $2,182 and $1,123, respectively, and were included as a component of restricted and other assets on the consolidated balance sheets. There
are no outstanding loan amounts offset against the cash surrender value of the COLI policies. The losses recorded for the change in cash surrender value were
immaterial for each period presented.
16. COMMITMENTS AND CONTINGENCIES
Regulatory Matters - The Company provides services in complex and highly regulated industries. The Company’s compliance with applicable U.S.
federal, state and local laws and regulations governing these industries may be subject to governmental review and adverse findings may result in significant
regulatory action, which could include sanctions, damages, fines, penalties (many of which may not be covered by insurance), and even exclusion from
government programs. The Company is a party to various regulatory and other governmental audits and investigations in the ordinary course of business and
cannot predict the ultimate outcome of any federal or state regulatory survey, audit or investigation. While governmental audits and investigations are the subject
of administrative appeals, the appeals process, even if successful, may take several years to resolve and penalties subject to appeal may remain in place during such
appeals. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the
Company's businesses. The Company believes that it is presently in compliance in all material respects with all applicable laws and regulations.
Cost-Containment Measures - Government and third-party payors have instituted cost-containment measures designed to limit payments made to
providers of healthcare services, may propose future cost-containment measures, and there can be no assurance that future measures designed to limit payments
made to providers will not adversely affect the Company.
Indemnities - From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against
third-party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior
operators for post-transfer environmental or other liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer
agreements, in which the Company agrees to indemnify past operators of agencies and communities the Company acquires against certain liabilities arising from
the transfer of the operation and/or the operation thereof after the transfer, (iii) certain Ensign lending agreements, and (iv) certain agreements with management,
directors and employees, under which the subsidiaries of the Company may be required to indemnify such persons for liabilities arising out of their employment
relationships. The terms of such obligations vary by contract, and, in most instances, a specific or maximum dollar amount is not explicitly stated therein.
Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no
liabilities have been recorded for these obligations on the Company’s consolidated balance sheets for any of the periods presented.
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Litigation - The Company’s businesses involve a significant risk of liability given the age and health of the patients and residents served by its
independent operating subsidiaries. The Company, its operating companies, and others in the industry may be subject to a number of claims and lawsuits, including
professional liability claims, alleging that services provided have resulted in personal injury, elder abuse, wrongful death or other related claims. Healthcare
litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories, and the Company is routinely subjected to
these claims in the ordinary course of business, including potential claims related to patient care and treatment, and professional negligence. The Company may
also face employment related claims, including wage and hour class actions, which are frequent in our industries. If there were a significant increase in the number
of these claims or an increase in amounts owing should plaintiffs be successful in their prosecution of these claims, this could materially adversely affect the
Company’s business, financial condition, results of operations and cash flows. In addition, the defense of these lawsuits may result in significant legal costs,
regardless of the outcome, and may result in large settlement amounts or damage awards.
In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the False Claims Act (the “FCA”)
and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payor. A violation may provide
the basis for exclusion from federally funded healthcare programs. Such exclusions could have a correlative negative impact on the Company’s financial
performance. Some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. In addition, the
Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the FCA, for which 18 states have qualified, including
California and Texas, where we conduct business. As such, the Company could face increased scrutiny, potential liability and legal expenses and costs based on
claims under state false claims acts in markets in which it conducts business.
Under the Fraud Enforcement and Recovery Act (“FERA”) and its associated rules, healthcare providers face significant penalties for the knowing
retention of government overpayments, even if no false claim was involved. Providers have an obligation to proactively exercise “reasonable diligence” to identify
overpayments and return those overpayments to CMS within 60 days of “identification” or the date any corresponding cost report is due, whichever is later.
Retention of overpayments beyond this period may create liability under the FCA. In addition, FERA protects whistleblowers (including employees, contractors,
and agents) from retaliation.
The Company cannot predict or provide any assurance as to the possible outcome of any litigation. If any litigation were to proceed, and the Company
and its operating companies are subjected to, alleged to be liable for, or agree to a settlement of, claims or obligations under federal Medicare statutes, the FCA, or
similar state and federal statutes and related regulations, the Company’s business, financial condition and results of operations and cash flows could be materially
and adversely affected. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged civil violations and
may also include the assumption of specific procedural and financial obligations by the Company or its independent operating subsidiaries going forward under a
corporate integrity agreement and/or other arrangement with the government. The Company establishes reserves to cover the anticipated costs of such litigation,
including legal fees and expected settlements, based on the Company’s historical litigation experience, current developments, and other factors.
Medicare Revenue Recoupments - The Company is subject to probe reviews relating to Medicare services, billings and potential overpayments by Unified
Program Integrity Contractors (“UPIC”), Recovery Audit Contractors (“RAC”), Zone Program Integrity Contractors (“ZPIC”), Program Safeguard Contractors
(“PSC”), Supplemental Medical Review Contractors (“SMRC”) and Medicaid Integrity Contributors (“MIC”) programs, (each of the foregoing collectively
referred to as “Reviews.”)
As of December 31, 2024, 13 of the Company’s independent operating subsidiaries had Reviews scheduled, on appeal or in dispute resolution process,
both pre- and post-payment. If an operation fails an initial or subsequent Review, the operation could then be subject to extended Review, suspension of payment,
or extrapolation of the identified error rate to all billing in the same time period. The Company, from time to time, receives record requests in Reviews which have
resulted in claim denials on paid claims. The Company has appealed substantially all denials arising from these Reviews using the applicable appeals process. As
of December 31, 2024, and through the filing of this Annual Report on Form 10-K, the Company’s independent operating subsidiaries have responded to the
Reviews that are currently ongoing, on appeal or in dispute resolution process. The Company cannot predict the ultimate outcome of any regulatory and other
governmental Reviews. While such reviews are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve.
The costs to respond to and defend such Reviews may be significant and an adverse determination in such reviews may subject the Company to sanctions,
damages, extrapolation of damage findings, additional recoupments, fines, other penalties (some of which may not be covered by insurance), and termination from
Medicare programs which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
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THE PENNANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
From June 2021 to May 2022, one hospice provider number was subject to a Medicare payment suspension imposed by a UPIC. The total amount
suspended was $5,105, which represents all Medicare payments due to the provider number during the suspension. As of December 31, 2024, the total amount due
from the government payor impacted by the suspension was $246 and was recorded in long-term other assets.
In May 2022, the Company received communication that the Medicare payment suspension, for the above-referenced hospice provider number, was
terminated and the UPIC’s review was complete. The UPIC reviewed 107 patient records covering a 10-month period to determine whether, in its view, a Medicare
overpayment was made. Based on the results of the review, the UPIC initially alleged sampled and extrapolated overpayments of $5,105, and withheld that amount
through continued recoupment of Medicare payments. The Company is pursuing its appeal rights through the administrative appeals process, including contesting
the methodology used by the UPIC to perform statistical extrapolation. To date the Company has been successful in appealing the majority of the previously
denied claims. The Company received the refund of previously withheld amounts totaling $1,610 and $3,249 during the years ended December 31, 2024 and 2023,
respectively. The Company continues to work through the appeals process for the remaining denied claims of $246 and expects to be successful in those appeals.
Based on the information currently available to the Company, the Company cannot predict the timing or the ultimate outcome of this review including refunds to
be received.
Insurance - The Company retains risk for a substantial portion of potential claims for general and professional liability, workers’ compensation and
automobile liability. The Company recognizes obligations associated with these costs, up to specified deductible limits in the period in which a claim is incurred,
including with respect to both reported claims and claims incurred but not reported. The general and professional liability insurance has a retention limit of $250
per claim with a $500 corridor as an additional out-of-pocket retention the Company must satisfy for claims within the policy year before the carrier will reimburse
losses. The workers’ compensation insurance has a retention limit of $250 per claim, except for policies held in Texas, Washington and Wyoming which are
subject to state insurance and possess their own limits.
Effective January 1, 2022, the Company is self-insured for claims related to employee health, dental and vision care. To protect itself against loss
exposure, the Company has purchased individual stop-loss insurance coverage that insures individual health claims that exceed $350 for each covered person for
fiscal year 2024, and $325 for each covered person for fiscal year 2023.
84

STATEMENT OF COMPANY
POLICY REGARDING INSIDER TRADING
Adopted September 30, 2019
This policy applies to all officers, directors and employees of 

The Pennant Group, Inc. and its subsidiaries (collectively the “Company”) and supersedes 

all prior insider trading policies
I.
THE NEED FOR A POLICY STATEMENT
Under the federal securities laws, it is illegal to trade in the Company’s securities while in the possession of material nonpublic
information about the Company. It is also illegal to disclose or give material nonpublic information to others who may trade on the
basis of that information or to advise others how to trade while in possession of material nonpublic information. Any person who
possesses material nonpublic information about the Company is deemed to be an “insider.” The category of insiders is NOT limited to
officers and directors.
Insider trading violations are pursued vigorously by the Securities and Exchange Commission (the “SEC”) and the U.S.
Attorneys and such violations are punished severely. While the regulatory authorities concentrate their efforts on the individuals who
trade, or who tip inside information to others who trade, the federal securities laws also impose potential liability on companies and
other controlling persons if they fail to take reasonable steps to prevent insider trading by Company personnel. Both the SEC and the
Nasdaq Stock Market are very effective at detecting and pursuing insider trading cases. The SEC has successfully prosecuted cases
against employees trading through foreign accounts, trading by family members and friends, and trading involving only a small number
of shares.
    The Company has adopted this Statement of Company Policy Regarding Insider Trading (the “Policy Statement”) both to satisfy the
Company’s obligation to prevent insider trading and to help Company personnel avoid the severe consequences associated with
violations of the insider trading laws. This Policy Statement is also intended to prevent even the appearance of improper conduct on the
part of anyone employed by or associated with the Company (not just the officers or directors of the Company).
    This Policy Statement applies to all directors, officers and employees of the Company. The Company may also determine that other
persons should be subject to this Policy, such as contractors or consultants who have access to material nonpublic information. This
Policy Statement also applies to family members, other members of a person’s household and entities controlled by a person covered by
this Policy Statement, as described below.
        This Policy Statement applies to transactions in the Company’s securities (collectively referred to in this Policy Statement as
“Company Securities”), including the Company’s common stock, options to purchase common stock, or any other type of securities
that the Company may issue, including (but not limited to) preferred stock, convertible debentures and warrants, as well
1

as derivative securities that are not issued by the Company, such as exchange-traded put or call options or swaps relating to Company
Securities.
    Persons subject to this Policy Statement have ethical and legal obligations to maintain the confidentiality of information about the
Company and to not engage in transactions in Company Securities while in possession of material nonpublic information. Each
individual is responsible for making sure that he or she complies with this Policy Statement, and that any family member, household
member or entity whose transactions are subject to this Policy Statement, as discussed below, also comply with this Policy. In all cases,
the responsibility for determining whether an individual is in possession of material nonpublic information rests with that individual,
and any action on the part of the Company, the General Counsel or any other employee or director pursuant to this Policy Statement (or
otherwise) does not in any way constitute legal advice or insulate an individual from liability under applicable securities laws. You
could be subject to severe legal penalties and disciplinary action by the Company for any conduct prohibited by this Policy or
applicable securities laws, as described below in more detail under the heading “The Penalties.”
II.
THE PENALTIES
The consequences of an insider trading violation can be extremely serious and severe:
Traders and Tippers. Company personnel (or their tippees) who trade on inside information (or tip inside information to others)
are subject to the following penalties, among other things:
•
A civil penalty of up to three times the profit gained or loss avoided;
•
A criminal fine of up to $5,000,000 (no matter how small the profit from the trade); and
•
A jail term of up to twenty years.
A person who tips information to a person who then trades is subject to the same penalties as the tippee, even if the person did
not trade and did not profit from the tippee’s trading.
Control Persons. The Company and its supervisory personnel, if they fail to take appropriate steps to prevent illegal insider
trading, can be subject to the following penalties:
•
A civil penalty of up to $1,000,000 or, if greater, three times the profit gained or loss avoided as a result of the employee’s
violation; and
•
A criminal penalty of up to $25,000,000.
Company-Imposed Sanctions. Compliance with the Policy Statement is a condition of continued employment or service with
the Company of each employee, officer and director. An employee’s failure to comply with the Policy Statement will subject the
employee to Company-imposed sanctions, which may include dismissal for cause, whether or not the employee’s failure
2

to comply results in a violation of law. The Company reserves the right to determine, in its own discretion and on the basis of the
information available to it, whether this Policy Statement has been violated. The Company may also determine that specific conduct
violates this Policy Statement whether or not the conduct also violates the law. It is not necessary for the Company to wait for the filing
or conclusion of a civil or criminal action against the alleged violator before taking disciplinary action.
III.
STATEMENT OF POLICY
    It is the policy of the Company that no director, officer or other employee of the Company who is aware of material nonpublic
information relating to the Company may, directly or through family members or other persons or entities, (a) engage in transaction in
Company Securities (other than pursuant to a pre-approved trading plan that complies with SEC Rule 10b5-1), or engage in any other
action to take personal advantage of that information, (b) disclose material nonpublic information to persons within the Company
whose jobs do not require them to have that information, or outside of the Company to other persons, including, but not limited to,
family, friends, acquaintances, business associates, investors and expert consulting firms, unless any such disclosure is made in
accordance with the Company’s policies regarding the protection or authorized external disclosure of information regarding the
Company, (c) recommend the purchase or sale of Company Securities, or (d) assist anyone engaged in the above activities.. In addition,
it is the policy of the Company that no director, officer or other employee of the Company (or any other person designated as subject to
this Policy Statement) who, in the course of working for the Company, learns of material nonpublic information about a company with
which the Company does business, including a customer or supplier of the Company, may trade in that company’s securities until the
information becomes public or is no longer material.
No Exception for Emergencies. Transactions that may be necessary or justifiable for independent reasons (such as the need to
raise money for an emergency expenditure) are not excepted from the policy. If the employee, officer or director has material,
nonpublic information, the prohibition still applies. The securities laws do not recognize such mitigating circumstances, and, in any
event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to high
standards of conduct.
Disclosure of Information to Others. The Company is required under Regulation FD of the federal securities laws to avoid the
selective disclosure of material nonpublic information. The Company has established procedures for releasing material information in a
manner that is designed to achieve broad public dissemination of the information immediately upon its release. You may not disclose
such information to anyone outside the Company, including family members and friends, other than in accordance with those
procedures. You may not pass on to others any inside information about the Company or recommend the purchase or sale of Company
Securities while in the possession of material nonpublic information (even if that information itself is not disclosed). You also may not
discuss the Company or its business in an Internet ‘chat room’ or similar Internet-based forum.
3

Contract Personnel (Non-Employees). The Company sometimes utilizes the services of contract personnel who are not
employees of the Company. As such, non-employee personnel may have access to material nonpublic information about the Company.
The Company expects all such contract personnel to comply with its policies on the trading of its securities to the same extent as
employees are required to comply with such policies. The Company will take appropriate action against any such personnel and the
organizations for which they are employed if there is a failure to comply with the policies of the Company.
Material Information. Material information is any information that a reasonable investor would consider important in making a
decision to buy, hold or sell securities. Any information that could be expected to affect the Company’s stock price, whether it is
positive or negative, should be considered material. Some examples of information that ordinarily would be regarded as material are set
forth below but this list is not exhaustive – other information may be deemed material based upon the circumstances:
•
Financial information, including, but not limited to, revenue results, operating income or loss, or net income or loss;
•
Earnings that are inconsistent with the consensus expectations of the investment community or other earnings guidance,
projections or budgets;
•
News about a significant contract or cancellation of an existing significant contract;
•
News about significant new services or lines of business;
•
The gain or loss of a significant supplier;
•
A pending or proposed merger, acquisition, restructuring, joint venture or tender offer;
•
A pending or proposed acquisition or disposition of a significant asset(s) or facility;
•
Significant related party transactions;
•
A change in the Company’s dividend policy or the declaration of a stock split;
•
The implementation, change in or results of a Company stock buy-back;
•
A public or private offering of additional securities, borrowings, credit facilities or other financing transactions;
•
The imposition of a ban on trading in Company Securities or the securities of another company;
•
A change in the Board of Directors, senior management or any other major personnel changes;
•
A change in the Company’s pricing or cost structure;
•
Major marketing changes;
4

•
A change in auditors or notification that the auditor’s reports may no longer be relied upon;
•
Significant cybersecurity incidents;
•
Significant legal exposure due to actual, pending or threatened litigation; or
•
Impending bankruptcy or the existence of financial or liquidity problems.
If you are unsure whether information is material, you should either consult the General Counsel before making any decision to
disclose such information (other than to persons who need to know it) or to trade in or recommend securities to which that information
relates or assume that the information is material.
Twenty-Twenty Hindsight. Remember, anyone scrutinizing your transactions will be doing so after the fact, with the benefit of
20/20 hindsight. As a practical matter, before engaging in any transaction, you should carefully consider how enforcement authorities
and others might view the transaction in hindsight.
When Information is “Public.” Information that has not been disclosed to the public is generally considered to be nonpublic
information. In order to establish that the information has been disclosed to the public, it may be necessary to demonstrate that the
information has been widely disseminated. Information generally would be considered widely disseminated if it has been disclosed
through the Dow Jones “broad tape,” newswire services, a broadcast on widely- available radio or television programs, publication in a
widely-available newspaper, magazine or news website, or public disclosure documents filed with the SEC that are available on the
SEC’s website. By contrast, information would likely not be considered widely disseminated if it is available only to the Company’s
employees, or if it is only available to a select group of analysts, brokers and institutional investors. If you are aware of material
nonpublic information, you may not trade until the information has been disclosed broadly to the marketplace (such as by press release
or an SEC filing) and the investing public has had time to absorb the information fully. To avoid the appearance of impropriety, as a
general rule, information should not be considered fully absorbed by the marketplace until after the second business day after
the information is released. If, for example, the Company were to make an announcement on a Monday, you should not trade in
Company Securities until Thursday. If an announcement was made on a Friday, Wednesday generally would be the first eligible trading
day after the announcement. Depending on the particular circumstances, the Company may determine that a longer or shorter period
should apply to the release of specific material nonpublic information.
Transactions by Family Members. The insider trading policy also applies to your family members who reside with you, anyone
else who lives in your household, and any family members who do not live in your household but whose transactions in Company
Securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they
trade in Company Securities) (collectively referred to as “Family Members”). You are responsible for the transactions of these other
persons, and therefore should make them aware of the need to confer with you before they trade in Company Securities, and you should
treat all such transactions for the purposes of this Policy and applicable securities
5

laws as if the transactions were for your own account. This Policy does not, however, apply to personal securities transactions of
Family Members where the purchase or sale decision is made by a third party not controlled by, influenced by or related to you or your
Family Members.
    Transactions by Entities that You Influence or Control. This Policy Statement applies to any entities that you influence or control,
including any corporations, partnerships or trusts (collectively referred to as “Controlled Entities”), and transactions by these Controlled
Entities should be treated for the purposes of this Policy Statement and applicable securities laws as if they were for your own account.
Stock Option Exercises. This Policy Statement does not apply to the exercise of an employee stock option acquired pursuant to
the Company’s plans, or to the exercise of a tax withholding right pursuant to which you elect to have the Company withhold shares
subject to an option to satisfy tax withholding requirements. The policy does apply, however, to any sale of stock as part of a broker-
assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price
of an option.
Restricted Stock Awards. This Policy Statement does not apply to the vesting of restricted stock, or the exercise of a tax
withholding right pursuant to which you elect to have the Company withhold shares of stock to satisfy tax withholding requirements
upon the vesting of any restricted stock. The Policy Statement does apply, however, to any market sale of restricted stock.
401(k) Plan. This Policy Statement does not apply to purchases of Company Securities in the Company’s 401(k) plan resulting
from your periodic contribution of money to the plan pursuant to your payroll deduction election. This Policy Statement does apply,
however, to certain elections you may make under the 401(k) plan, including: (a) an election to increase or decrease the percentage of
your periodic contributions that will be allocated to the Company stock fund; (b) an election to make an intra-plan transfer of an
existing account balance into or out of the Company stock fund; (c) an election to borrow money against your 401(k) plan account if
the loan will result in a liquidation of some or all of your Company stock fund balance; and (d) an election to pre-pay a plan loan if the
pre-payment will result in allocation of loan proceeds to the Company stock fund.
    Transactions Not Involving a Purchase or Sale. Bona fide gifts are not transactions subject to this Policy Statement, unless the
person making the gift has reason to believe that the recipient intends to sell Company Securities while the officer, employee or director
is aware of material nonpublic information, or the person making the gift is subject to the trading restrictions specified below under the
heading “Additional Procedures” and the sales by the recipient of the Company Securities occur during a blackout period. Directors,
officers and other insiders subject to this policy are encouraged to make gifts during open trading windows or pursuant to approved
Rule 10b5-1 Plans. Further, transactions in mutual funds that are invested in Company Securities are not transactions subject to this
Policy Statement.
6

Additional Prohibited Transactions. The Company considers it improper and inappropriate for any director, officer or other
employee of the Company to engage in short-term or speculative transactions in the Company Securities. It therefore is the
Company’s policy that directors, officers and other employees may NOT engage in any of the following transactions:
a.
Short-Swing Trades. Except in connection with certain stock plan transactions, bona fide gift transactions and other
transactions approved in advance by the General Counsel, directors, executive officers, Presidents and such other persons as are
designated by the General Counsel may not engage in transactions in which the individual or their agent buys and sells, or sells and
buys, any Company Securities within a period of less than six months.
b.
Short Sales. Short sales of the Company Securities evidence an expectation on the part of the seller that the securities
will decline in value, and therefore signal to the market that the seller has no confidence in the Company or its short-term prospects. In
addition, short sales may reduce the seller’s incentive to improve the Company’s performance. For these reasons, short sales of
Company Securities are prohibited by this Policy Statement. In addition, Section 16(c) of the Exchange Act prohibits officers and
directors from engaging in short sales.
c.
Publicly-Traded Options. A transaction in options is, in effect, a bet on the short-term movement of the Company’s
stock, and therefore creates the appearance that the director, officer or employee is trading based on inside information. Transactions in
options also may focus the director’s, officer’s or employee’s attention on short-term performance at the expense of the Company’s
long-term objectives. Accordingly, transactions in puts, calls or other derivative securities involving the Company, on an exchange or in
any other organized market, are prohibited by this Policy Statement. (Option positions arising from certain types of hedging
transactions are governed by the section below captioned “Hedging Transactions.”)
d.
Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker without the customer’s
consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan may be sold in
foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a time when the pledgor is
aware of material nonpublic information or otherwise is not permitted to trade in Company Securities, directors, officers and other
employees are prohibited from holding Company Securities in a margin account or pledging Company Securities as collateral for a
loan. An exception to this prohibition exists where a person wishes to pledge Company Securities as collateral for a loan (not including
margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities.
e.
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1
Plans, as described below) create heightened risks for insider trading violations similar to the use of margin accounts. There is no
control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the broker could execute a
transaction when a director, officer or other employee is in possession of material nonpublic information. The Company therefore
discourages placing standing or limit orders on Company Securities. If a person subject to this Policy determines that they must use a
7

standing order or limit order, the order should be limited to short duration and should otherwise comply with the restrictions and
procedures outlined below under the heading “Additional Procedures.”
f.
Hedging Transactions. Certain forms of hedging or monetization transactions can be accomplished through a number of
possible mechanisms, such as zero-cost or prepaid variable collars, forwards, equity swaps, and exchange funds, and allow a director,
officer or employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the potential for upside
appreciation in the stock. These transactions allow the director, officer or employee to continue to own the covered securities, but
without the full risks and rewards of ownership. When that occurs, the director, officer or employee may no longer have the same
objectives as the Company’s other stockholders. Therefore, the Company prohibits you from engaging in such transactions. Any person
wishing to enter into such an arrangement must first pre-clear the proposed transaction with the Board of Directors. Any request for
pre-clearance of a hedging or similar arrangement must be submitted to the General Counsel for approval at least one week prior to the
proposed execution of documents evidencing the proposed transaction and must set forth a justification for the proposed transaction.
Post-Termination Transactions. The Policy Statement continues to apply to your transactions in Company Securities even after
you have terminated service as an employee, officer or director of the Company. If you are aware of material nonpublic information
when you terminate service as a director, officer, President or other employee of the Company, you may not trade in Company
Securities until that information has become public or is no longer material. The pre-clearance procedures specified under the heading
“Additional Procedures” above, however, will cease to apply to your transactions in Company Securities upon the expiration of any
“blackout period” or other Company-imposed trading restrictions applicable to your transactions at the time of your termination of
service.
g.
Pre-Clearance Procedures. To help prevent inadvertent violations of the federal securities laws and to avoid even the
appearance of trading on inside information, directors, officers, accounting employees with the title of vice president or higher, investor
relations employees that assist with earnings releases, legal department employees that assist with preparing SEC filings, any
employees on the Company’s disclosure committee, and any persons designated by the General Counsel as being subject to the
Company’s pre-clearance procedures, together with the Family Members and Controlled Entities of such persons (“Covered Senior
Persons”), may not engage in any transaction involving Company Securities (including a stock plan transaction such as an option
exercise, gift, loan or pledge or hedge, contribution to a trust, or any other transfer) without first obtaining pre-clearance of the
transaction from the General Counsel. A request for pre-clearance should be submitted to the General Counsel at least two business
days in advance of the proposed transaction, unless earlier notice is otherwise required by the Policy Statement (e.g., one week for
hedging transactions). The General Counsel is under no obligation to approve a trade submitted for pre-clearance, and may in his sole
discretion, determine not to permit the trade. If a person seeks pre-clearance and permission to engage in the transaction is denied, then
he or she should refrain from initiating any transaction in Company Securities, and should not inform any other person of the
restriction. When a request for pre-
8

clearance is made, the requestor should indicate whether he or she has effected any non-exempt “opposite-way” transactions within the
past six months, and should be prepared to report the proposed transaction on an appropriate Form 4 or Form 5. The requestor should
also be prepared to comply with SEC Rule 144 and file a Form 144, if necessary, at the time of any sale. If a person seeks pre-clearance
and permission to engage in the transaction is granted, then such trade must be effected within five business days of receipt of pre-
clearance unless an exception is granted. Such person must promptly notify the General Counsel following the completion of the
transaction. A person who has not effected a transaction within the time limit may not engage in such transaction without again
obtaining pre-clearance of the transaction from the General Counsel.
h.
The General Counsel has designated the presidents of the Company’s several “portfolio” or direct operating
subsidiaries (herein the “Presidents”) as key employees subject to these pre-clearance procedures, regardless of whether they have been
designated as Section 16 Officers.
i.
Any person subject to the pre-clearance requirements who wishes to implement a trading plan under SEC Rule
10b5-1 must first pre-clear the plan with the General Counsel. As required by Rule 10b5-1, you may enter into a trading plan only when
you are not in possession of material nonpublic information. In addition, you may not enter into a trading plan during a blackout period
or within forty-five (45) days after the cancellation of any existing 10b5-1 plan. Transactions effected pursuant to a pre-cleared trading
plan will not require further pre-clearance at the time of the transaction if the plan specifies the dates, prices and amounts of the
contemplated trades, or establishes a formula for determining the dates, prices and amounts. Except as noted above, no trading may
occur under any 10b5-1 trading plan or modification thereof until at least 30 days after adoption of the 10b5-1 trading plan or
modification.
j.
Quarterly Blackout Periods. The Company’s announcement of its quarterly financial results almost always has the
potential to have a material effect on the market for the Company’s securities. Therefore, to avoid even the appearance of trading while
aware of material nonpublic information, persons who are or may be expected to be aware of the Company’s quarterly financial results
generally will not be pre-cleared to trade in the Company’s securities during the period beginning on the fourteenth calendar day of the
last month of each fiscal quarter and ending after the second full business day following the Company’s issuance of its quarterly
earnings release. Persons subject to these quarterly blackout periods include all directors and executive officers, other Section 16
Officers (if any), the Presidents, the controller of the Company, and all other persons who are informed by the General Counsel that
they are subject to the quarterly blackout periods. The General Counsel and the Chief Executive Officer shall meet at least annually or
at such more frequent intervals as they deem advisable to establish those employees subject to this trading window requirement.
The Company may on occasion issue interim earnings guidance or other potentially material information by means of a press
release, a Form 8-K filed with the SEC or by other means designed to achieve widespread dissemination of the information. You should
anticipate that trades are unlikely to be pre-cleared while the Company is in the process of assembling the
9

information to be released and until the information has been released and fully absorbed by the market.
k.
Event Specific Black-Outs; Cancellation of Existing Orders. From time to time, an event may occur that is material to
the Company, such as a cybersecurity incident, and is known by only a few directors or employees. So long as the event remains
material and nonpublic, directors, executive officers, Presidents and such other persons as are designated by the General Counsel may
not trade in the Company’s securities. The existence of an event-specific blackout will not be announced, other than to those who are
aware of the event giving rise to the blackout. If, however, a person whose trades are subject to pre-clearance requests permission to
trade in the Company’s securities during an event-specific blackout, the General Counsel will inform the requester of the existence of a
blackout period, without disclosing the reason for the blackout. Any person made aware of the existence of an event-specific blackout
should not disclose the existence of the blackout to any other person. The failure of the General Counsel to designate a person as being
subject to an event-specific blackout will not relieve that person of the obligation not to trade while aware of material nonpublic
information.
l.
Hardship Exceptions. A person who is subject to a quarterly earnings blackout period and who has an unexpected and
urgent need to sell Company Securities in order to generate cash may, in appropriate and very limited rare circumstances, be permitted
to sell Company stock even during the blackout period. A hardship exception may be granted only by the Audit Committee, at its sole
discretion, and such exception must be requested at least two business days in advance of the proposed trade. A hardship exception may
be granted only if the Audit Committee concludes that the Company’s earnings information for the applicable quarter does not
constitute material nonpublic information or if the Company does not have sufficient insight as to the Company’s earnings information
as of that time. It is highly unlikely that a hardship exception will be granted, and under no circumstance will a hardship exception be
granted during an event-specific blackout period.
IV.
Our Broker Interface Procedures. The accelerated reporting obligations for Section 16 reports require tight interface
with brokers handling transactions for our Section 16 executives. In addition, the Presidents and any other persons designated by the
General Counsel as being subject to the Company’s broker interface and notification procedures, together with their family members,
must abide by these procedures at all times. We require that you provide a copy of this Policy Statement to your broker and such broker
must agree that he or she:
a.
Will not enter any orders for you (except for orders under pre-approved Rule 10b5-1 plans) without first:
(1)
verifying with the Company that your transaction was pre-cleared; and
(2)
complying with the brokerage firm’s compliance procedures (e.g., Rule 144).
b.
Report any transactions immediately to the General Counsel of the Company via:
(1)
telephone; and
10

(2)
in writing via e-mail to legal@pennantgroup.com, describing the details of every transaction involving Company
stock, including gifts, transfers, pledges, and all 10b5-1 transactions.
Company Assistance. Any person who has a question about this Policy Statement or its application to any proposed transaction
may obtain additional guidance from the Company’s General Counsel or the Company’s Executive Vice President and Secretary, whose
telephone number is (949) 487-9500. In addition, if you have any doubt as to whether you are in possession of material, nonpublic
information or whether a trade may otherwise violate this Policy Statement, you should contact the foregoing person before trading any
Company Securities.
Other Procedures. The Company may change these procedures or adopt such other procedures in the future as the Company
considers appropriate or advisable in order to carry out the purposes of this Policy Statement or to comply with the federal securities
laws. Wherever this Policy refers to, or calls for action by or involving the Company’s General Counsel, such reference shall include
the Company’s Executive Vice President and Secretary or such other person as the General Counsel may designate from time to time, if
the General Counsel is unavailable or otherwise unable to act for any reason.
No Third Party Rights. This Policy Statement is not intended to create any rights in third parties with respect to any violation of
its terms and is also not intended to create any legal liability for the Company or any employee, officer or director beyond those for
which they are already responsible under applicable securities laws.
Certifications. All employees, officers and directors must annually certify their understanding of, and intent to comply with, this
Policy Statement. A copy of the certification that all employees (other than executive officers) must sign is attached to this Policy
Statement. Please return an executed copy of the attached certification immediately. Directors, executive officers and certain key
employees are also subject to additional restrictions on their transactions in Company Securities, which are described in a separate
Addendum to this Policy Statement. Directors, executive officers and such key employees subject to the Addendum should sign the
certification attached to that Addendum instead of the one attached hereto.
11

CERTIFICATION
I hereby certify that:
1.    I have read and understand Statement of Company Policy Regarding Insider Trading dated September 30, 2019 (the “Policy
Statement”). I understand that the General Counsel and the outside legal counsel of The Pennant Group, Inc. (the “Company”) are
available to answer any questions I have regarding the Policy Statement.
2.    I agree that I will comply with the Policy Statement for as long as I am subject to the Policy Statement.
3.     I understand that all of my trades must be preapproved by the Company’s General Counsel or such other person as the
Company may designate from time to time.
4.    I agree that the Company may at any time and in its sole discretion issue a prohibition on trading in Company Securities
and that the Company shall have full power and authority to cancel any outstanding orders, including “good until cancelled” orders, that
I may place, but that I have the sole responsibility for compliance with the Policy Statement. I further agree and represent that I will
never trade in Company Securities while I am in possession of material nonpublic information regarding the Company.
5.    This certification constitutes consent for the Company to issue any necessary stop-transfer orders to the Company’s transfer
agent to enforce compliance with this Policy Statement.
Signature:    
Print Name:    
Date:    
12

Exhibit 21.1
List of Subsidiaries of The Pennant Group, Inc.
The following is a list of subsidiaries of The Pennant Group, Inc. as of December 31, 2024:
Subsidiary
  
Jurisdiction
2410 Stillhouse Senior Living, Inc.
Nevada
Alpowa Healthcare, Inc.
Nevada
Apricus Home Health LLC
Arizona
Arches Home Care, Inc.
Nevada
Audition LLC
Nevada
Autumn Ridge Senior Living, Inc.
Nevada
Bear River Healthcare LLC
Nevada
Bellingham Healthcare LLC
Nevada
Black Mountain Healthcare LLC
Delaware
Bluebird Home Care, LLC
Delaware
Bluebird Home Health Holdings, LLC
Delaware
Bluebird Home Health, LLC
Delaware
Bluebird Hospice, LLC
Delaware
Brenwood Park Senior Living, Inc.
Nevada
Brio Arizona Home Health, LLC
Arizona
Brookfield Senior Living LLC
Nevada
Brookhollow Senior Living LLC
Nevada
Brown Road Senior Housing LLC
Nevada
Bruce Neenah Senior Living, Inc.
Nevada
Buffalo Springs Healthcare LLC
Nevada
Cactus Heights Healthcare LLC
Nevada
Canyon Healthcare, Inc.
Nevada
Capitol Healthcare, Inc.
Nevada
Care Continuum Solutions LLC
Nevada
Cascades Healthcare LLC
Nevada
CCS Holding LLC
Nevada
Cedar Senior Living, Inc.
Nevada
City Creek Holding LLC
Nevada
City Creek Senior Living LLC
Nevada
Clark Fork Healthcare LLC
Nevada
Clear Creek Healthcare, Inc.
Nevada
Connected Healthcare, Inc.
Nevada
Copper Basin Healthcare, Inc.
Nevada
Cornerstone Healthcare, Inc.
Nevada
Cornerstone Service Center, Inc.
Nevada
Crown Point Healthcare LLC
Nevada
Custom Care Healthcare, Inc.
Nevada

De Soto Senior Living, Inc.
Nevada
Denmark Senior Living, Inc.
Nevada
Eagle Healthcare LLC
Nevada
Eden Landing Healthcare LLC
Nevada
Elevate HC Partners, LLC
Delaware
Elkhorn Healthcare LLC
Nevada
Elm Creek Senior Living LLC
Nevada
Emblem Healthcare, Inc.
Nevada
Emerald Healthcare, Inc.
Nevada
Eureka Healthcare, Inc.
Nevada
Exemplar Healthcare, Inc.
Nevada
Finding Home Healthcare, Inc.
Nevada
Finding Home Physician Services LLC
Texas
Glacier Peak Healthcare, Inc.
Nevada
Go Assisted, Inc.
Nevada
Grand River Senior Living LLC
Nevada
Grandview Healthcare LLC
Nevada
Granite Healthcare, Inc.
Nevada
Granite Hills Senior Living, Inc.
Nevada
Great Lakes Healthcare, Inc.
Nevada
Great Plains Healthcare, Inc.
Nevada
Green Bay Senior Living, Inc.
Nevada
Green Meadows Senior Living LLC
Nevada
Happy Valley Healthcare LLC
Nevada
Heartland Healthcare, Inc.
Nevada
Hollow Creek Senior Living LLC
Nevada
Huachuca Healthcare LLC
Nevada
Hummingbird Healthcare LLC
Nevada
iCare Private Duty, Inc.
Nevada
Indigo Healthcare LLC
Nevada
Iron Bridge Healthcare, Inc.
Nevada
Jameson Senior Living, Inc.
Nevada
Jentilly Healthcare LLC
Nevada
Joshua Tree Healthcare, Inc.
Nevada
Juniper Point Healthcare LLC
Nevada
Kenosha Senior Living, Inc.
Nevada
Keystone Hospice Care, Inc.
Nevada
Lake Pointe Senior Living, Inc.
Nevada
Lakeside Senior Living LLC
Nevada
Lowes Senior Living, Inc.
Nevada
Madison Senior Living, Inc.
Nevada
Manitowoc Senior Living, Inc.
Nevada
Maritime Healthcare LLC
Nevada

McFarland Senior Living, Inc.
Nevada
Mesa Grande Senior Living, Inc.
Nevada
Mesa Springs Senior Living LLC
Nevada
Mohave Healthcare, Inc.
Nevada
Monitive Group, LLC
Utah
Monument Healthcare, Inc.
Nevada
Moorland Senior Living LLC
Nevada
Moss Bay Senior Living, Inc.
Nevada
Moulton Falls Healthcare LLC
Nevada
Mount Hood Healthcare LLC
Nevada
Mountain Peak Home Care, Inc.
Nevada
Mountain Vista Senior Living, Inc.
Nevada
NP2U, LLC
Oregon
Oceano Senior Living, Inc.
Nevada
Orange Senior Living, Inc.
Nevada
Orangewood Senior Living, Inc.
Nevada
Orchard Prairie Healthcare LLC
Nevada
Oso Bay Healthcare LLC
Nevada
Painted Sky Healthcare Inc.
Nevada
Paragon Healthcare, Inc.
Nevada
Park Point Healthcare LLC
Nevada
Peaceful Heart Healthcare LLC
Nevada
Pearl Senior Living, Inc.
Nevada
Pecan Bayou Healthcare LLC
Nevada
Pennant Services, Inc.
Nevada
Pine Grove Senior Living LLC
Nevada
Pine Valley Holding LLC
Nevada
Pine Valley Senior Living LLC
Nevada
Pinnacle Senior Living LLC
Nevada
Pinnacle Service Center LLC
Nevada
Pleasant Run Senior Living, Inc.
Nevada
Ponderosa Healthcare LLC
Nevada
PPM California LLC
Nevada
PPM Colorado LLC
Nevada
PPM Nevada LLC
Nevada
PPM Oregon LLC
Nevada
PPM Texas LLC
Nevada
PPM Washington LLC
Nevada
PPM Wisconsin LLC
Nevada
PPM Wyoming LLC
Nevada
Prairie View Healthcare, Inc.
Nevada
Primrose Senior Living, Inc.
Nevada
Prospect Senior Living, Inc.
Nevada

Racine Senior Living, Inc.
Nevada
Rancho Bernardo Healthcare LLC
Delaware
Red Rock Healthcare, Inc.
Nevada
Rio Verde Healthcare LLC
Nevada
Riverview Village Senior Living, Inc.
Nevada
Rock Garden Healthcare LLC
Nevada
Rockbrook Senior Living, Inc.
Nevada
Rogue River Healthcare LLC
Nevada
Rolling Hills Healthcare, Inc.
Nevada
Rosenburg Senior Living, Inc.
Nevada
Sacramento River Healthcare LLC
Nevada
Saguaro Senior Living, Inc.
Nevada
San Gabriel Senior Living, Inc.
Nevada
Sand Lily Healthcare, Inc.
Nevada
Sandstone Senior Living, Inc.
Nevada
Sawtooth Senior Living LLC
Nevada
Sentinel Healthcare LLC
Nevada
Seven Springs Holding LLC
Nevada
Seven Springs Senior Living LLC
Nevada
Sheboygan Senior Living, Inc.
Nevada
Shoshone Holdings LLC
Nevada
Silver Lake Healthcare, Inc.
Nevada
Somers Kenosha Senior Living, Inc.
Nevada
Somersett Healthcare LLC
Nevada
South Bay Healthcare, Inc.
Nevada
South Plains Healthcare, Inc.
Nevada
Southern Pines Healthcare LLC
Nevada
Southport Healthcare LLC
Nevada
Spanish Meadows Healthcare LLC
Nevada
Spokane Healthcare, Inc.
Nevada
Spring Valley Assisted Living, Inc.
Nevada
Star Valley Healthcare, Inc.
Nevada
Stevens Point Senior Living, Inc.
Nevada
Stone Creek Healthcare LLC
Nevada
Stoughton Senior Living, Inc.
Nevada
Summerlin Healthcare, Inc.
Nevada
Sun Peak Healthcare LLC
Nevada
Sun Spruce Healthcare LLC
Nevada
Sunset Mesa Healthcare LLC
Nevada
Sycamore Grove Healthcare LLC
Nevada
Sycamore Senior Living, Inc.
Nevada
Symbol Healthcare, Inc.
Nevada
Table Rock Senior Living LLC
Nevada

Tamarack Healthcare LLC
Nevada
Terrace Court Senior Living, Inc.
Nevada
Teton Healthcare, Inc.
Nevada
The Pennant Group, Inc.
Delaware
Thomas Road Senior Housing, Inc.
Nevada
Thousand Peaks Healthcare, Inc.
Nevada
Three Rocks Healthcare LLC
Nevada
Total Healthcare Services LLC
Nevada
Triumph Healthcare LLC
Nevada
Tumalo Falls Healthcare LLC
Nevada
Tuolumne Holding LLC
Nevada
Twin Falls Senior Living LLC
Nevada
Two Rivers Senior Living, Inc.
Nevada
Vesper Healthcare, Inc.
Nevada
Victoria Ventura Assisted Living Community, Inc.
Nevada
Virgin River Healthcare, Inc.
Nevada
Warhawk Holding LLC
Nevada
Warhawk Senior Living LLC
Nevada
West Allis Holding LLC
Nevada
Whitetank Mountain Healthcare LLC
Nevada
Whitewater Healthcare LLC
Nevada
Willamette Healthcare LLC
Nevada
Willow Creek Healthcare LLC
Nevada
Willow Creek Senior Living, Inc.
Nevada
Wisconsin Rapids Senior Living, Inc.
Nevada
Woodlake Healthcare LLC
Nevada

EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-233937 on Form S-8 and No. 333-281302 on Form S-3 of our reports dated
February 27, 2025, relating to the financial statements of The Pennant Group, Inc. and the effectiveness of the Pennant Group, Inc.’s internal control over financial
reporting, appearing in this Annual Report on Form 10-K for the year ended December 31, 2024.
/s/ DELOITTE & TOUCHE LLP
Boise, ID
February 27, 2025

EXHIBIT 31.1
I, Brent J. Guerisoli, certify that:
1.
I have reviewed this annual report on Form 10-K of The Pennant Group, Inc;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 27, 2025
 
 
   
 
 
/s/ BRENT J. GUERISOLI
 
 
Name: 
Brent J. Guerisoli
 
 
Title:  
Chief Executive Officer (Principal Executive
Officer)
 

EXHIBIT 31.2
I, Lynette B. Walbom, certify that:
1.
I have reviewed this annual report on Form 10-K of The Pennant Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 27, 2025
 
   
 
 
/s/ LYNETTE B. WALBOM
 
 
Name: 
Lynette B. Walbom
 
 
Title:  
Chief Financial Officer (Principal Financial
Officer, Principal Accounting Officer and Duly
Authorized Officer)
 

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Pennant Group, Inc. (the Company) on Form 10-K for the period ended December 31, 2024, as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Brent J. Guerisoli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
1
  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2
  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
   
 
 
/s/ BRENT J. GUERISOLI
 
 
Name:
Brent J. Guerisoli
 
 
Title:
Chief Executive Officer (Principal Executive
Officer)
 
 
 
February 27, 2025
 
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Pennant Group, Inc. (the Company) on Form 10-K for the period ended December 31, 2024, as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Lynette B. Walbom, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
1
  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2
  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
   
 
 
/s/ LYNETTE B. WALBOM
 
 
Name: 
Lynette B. Walbom
 
 
Title:  
Chief Financial Officer (Principal Financial
Officer, Principal Accounting Officer and Duly
Authorized Officer)
 
 
 
February 27, 2025
 
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.

CLAWBACK POLICY
of
THE PENNANT GROUP, INC.
(Adopted as of December 1, 2023)
The Board of Directors (the “Board”) of The Pennant Group, Inc. (the “Company”) believes that it is in the best interest of the
Company and its stockholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the
Company’s pay-for-performance compensation philosophy. The Board has therefore adopted this Clawback Policy (this “Policy”) to
address the recovery of erroneously awarded incentive-based compensation in compliance with the rules set forth in Section 10D-1 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the related listing rules of the Nasdaq Stock Market
(“Nasdaq”), specifically including Listing Rule 5608 of the Nasdaq Stock Market Rulebook (collectively, the “Clawback Rules”). This
Policy supersedes and replaces in its entirety any prior or existing policies adopted by the Company with respect to the clawback of
incentive-based compensation payable to a person covered by this Policy. To the extent this Policy is in any manner deemed
inconsistent with the Clawback Rules, this Policy shall be treated as retroactively amended to be compliant with such rules.
Definitions
An “Executive Officer”  is the Company’s president, principal financial officer, principal accounting officer (or if there is no such
accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such
as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs
similar policy-making functions for the Company.
Executive officers of the Company’s subsidiaries are deemed executive officers of the Company if such persons perform policy making
functions for the Company.
Reference to “policy-making function” is not intended to include policymaking functions that are not significant. Identification of an
Executive Officer for purposes of this Policy would include, at a minimum, executive officers identified pursuant to Item 401(b) of
Regulation S-K promulgated under the Exchange Act.
“Financial Reporting Measures” are measures that are determined and presented in accordance with the accounting principles used in
preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and
total shareholder return are also Financial Reporting Measures. A Financial Reporting Measure need not be presented within the
financial statements of the Company or included in a filing made by the Company with the Securities and Exchange Commission (the
“SEC”).

“Incentive-Based Compensation” is any compensation that is granted, earned, or vested based wholly or in part upon the attainment of
a Financial Reporting Measure.
Incentive-Based Compensation is deemed “Received” in the Company’s fiscal period during which the Financial Reporting Measure
specified in the Incentive-Based Compensation award is attained, even if the payment or grant of the Incentive-Based Compensation
occurs after the end of that period.
Administration and Interpretation of Policy
The Policy shall be administered by the Compensation Committee of the Board (the “Compensation Committee”), or in the absence of
such a committee, a majority of the independent directors serving on the Board (either the Compensation Committee or a majority of
the independent directors serving on the Board in the administration of this Policy, the “Committee”). Decisions of the Committee with
respect to this Policy shall be final, conclusive and binding on all Executive Officers subject to this Policy, unless determined to be an
abuse of discretion or determined to be unenforceable by the U.S. Securities and Exchange Commission (the “SEC”) or Nasdaq.
The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable
for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of
Section 10D of the Exchange Act, Rule 10D-1 of the Exchange Act, the Clawback Rules, and any other applicable law, regulation, rule
or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith.
Application of the Policy
This Policy shall apply in the event that the Company is required to prepare an “accounting restatement” due to material
noncompliance of the Company with any financial reporting requirement under applicable securities laws, including any required
accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial
statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the
current period.
Recovery of Erroneously Awarded Compensation
The compensation that is subject to clawback under this Policy is Incentive-Based Compensation that is Received by an Executive
Officer:
a) after such person began service as an Executive Officer;
b) who served as an Executive Officer at any time during the performance period for such Incentive-Based Compensation (for the
avoidance of doubt, this includes both current and former Executive Officers);
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c) while the Company has a class of securities listed on Nasdaq (or such other national securities exchange on which the
Company’s securities are then listed); and
d) during the three completed fiscal years immediately preceding the date that the Company is required to prepare an accounting
restatement as described under the heading “Application of the Policy.” Further, see Rule 10D-1(b)(1)(i)(D) of the Exchange
Act for certain circumstances under which the Policy will apply to Incentive-Based Compensation Received by an Executive
Officer during a transition period arising due to a change in the Company’s fiscal year within or immediately following those
three completed fiscal years.
The Company’s obligation to recover Erroneously Awarded Compensation is not dependent on if or when the restated financial
statements are filed.
In addition, the Committee shall have authority to clawback compensation that does not constitute Incentive-Based Compensation in its
discretion in accordance with the objectives and terms of this Policy.
Determination of Recovery Period
For purposes of determining the relevant recovery period, the date that the Company is required to prepare an accounting restatement
shall be the earlier to occur of:
a) the date the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board
action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an accounting
restatement as described under the heading “Application of the Policy”; or
b) the date a court, regulator, or other legally authorized body directs the Company to prepare an accounting restatement.
Erroneously Awarded Compensation
The amount of Incentive-Based Compensation subject to this Policy (“Erroneously Awarded Compensation”) is the amount of
Incentive-Based Compensation Received that exceeds the amount of Incentive Based-Compensation that otherwise would have been
Received had it been determined based on the restated amounts and shall be computed without regard to any taxes paid.
For Incentive-Based Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded
Compensation is not subject to mathematical recalculation directly from the information in an accounting restatement:
3

a) the amount shall be based on a reasonable estimate of the effect of the accounting restatement on the stock price or total
shareholder return upon which the Incentive-Based Compensation was Received; and
b) the Company must maintain documentation of the determination of that reasonable estimate and provide such
documentation to Nasdaq.
Recovery by the Company
The Company shall recover reasonably promptly any Erroneously Awarded Compensation in compliance with this Policy, except to the
extent that: (i) the conditions of paragraphs (a) or (b) below apply, and (ii) the Compensation Committee, or in the absence of such a
committee, a majority of the independent directors serving on the Board, has made a determination that recovery would be
impracticable.
a) The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered. Before
concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of
enforcement, the Company shall make a reasonable attempt to recover such Erroneously Awarded Compensation, document
such reasonable attempt(s) to recover, and provide that documentation to Nasdaq.
b) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the registrant, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations
thereunder.
“Reasonably Promptly”
The Committee shall determine the repayment schedule for each amount of Erroneously Awarded Compensation in a manner that
complies with the “reasonably promptly” requirement. Such determination shall be made consistent with any applicable legal guidance,
by the SEC, Nasdaq, judicial opinion, or otherwise. The determination of what constitutes “reasonably promptly” may vary from case
to case and will depend on the particular facts and circumstances applicable to the Company, the accounting restatement and the
Erroneously Awards Compensation, among other factors. The Committee is authorized to adopt additional rules to further describe
what repayment schedules satisfy this requirement.
No Indemnification
Notwithstanding anything to the contrary in any other policy or governing document of the Company or any agreement between the
Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss of any Erroneously
Awarded Compensation.
4

Effective Date
This Policy shall be effective as of December 1, 2023.
Amendment; Termination
The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary.
Notwithstanding anything in this section to the contrary, no amendment or termination of this Policy shall be effective if such
amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such
amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Nasdaq rule.
Other Recoupment Rights
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be
available to the Company under applicable law, regulation or rule, or pursuant to the terms of any policy of the Company or any
provision in any employment agreement, equity award agreement, compensatory plan, agreement or arrangement.
Relationship to Other Plans and Agreements
The Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement,
equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to
include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy.
In the event of any inconsistency between the terms of this Policy and the terms of any employment agreement, equity award
agreement, compensatory plan or any other agreement or arrangement with an Executive Officer under which Incentive-Based
Compensation has been granted, awarded, earned, or paid to an Executive Officer, whether or not deferred, the terms of this Policy shall
govern with respect to recoupment rights.
Agreement to Policy by Executive Officers
The Committee shall take reasonable steps to inform Executive Officers of this Policy. Executive Officers should read this Policy
carefully, ask questions of the Company’s Office of the General Counsel, and sign and return the certification attached hereto as Annex
A.
5

ANNEX A

CLAWBACK POLICY CERTIFICATION
 
I have read and understand the Clawback Policy (the “Policy”) of The Pennant Group, Inc. (the “Company”). I agree that I will
comply with the policies and procedures set forth in the Policy. I understand and agree that, if I am an employee of the Company or
one of its subsidiaries or other affiliates, my failure to comply in all respects with the Company’s policies, including the Policy, is a
basis for termination of my employment with the Company and any subsidiary or other affiliate to which my employment now relates
or may in the future relate. 
 
I am aware that this signed Certification will be filed with my personnel records in the Company’s Human Resources Department.
Signature:                     
Print Name:                     
Date:                         
30943432_v3
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