Pennant Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statements are unaudited; dollar amounts below are in millions unless otherwise noted. Pennant provides home health, hospice, home care and senior living services through independent subsidiaries.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $156.9 | $126.5; up 24.1% |
| Income from operations | $8.5; 5.4% margin | $4.3; 3.4% margin |
| Net income attributable to Pennant | $4.9; diluted EPS $0.16 | $1.9; diluted EPS $0.06 |
| Operating cash flow | $0.5 | $9.0 |
| Investing cash flow | $(23.6) | $(2.3) |
| Cash at period end | $2.7 | $6.1 at December 31, 2023 |
| Revolving credit facility debt, net of issuance costs | $83.3 | $63.9 at December 31, 2023 |
| Available revolver capacity | $61.6 | At March 31, 2024 |
Revenue growth reflected higher service volumes and rates across the businesses. Home health and hospice revenue rose 27.9% to $116.5 million; senior living revenue rose 14.2% to $40.4 million. Cost of services declined to 80.3% of revenue from 81.1%, while general and administrative expense increased 31.4% to $11.4 million. The quarter included a $0.8 million gain on insurance proceeds from disposed property and $0.5 million of state relief funding recorded as a reduction of cost of services.
Segment Adjusted EBITDAR from Operations, a company-defined non-GAAP measure, was $21.4 million versus $17.1 million. This measure excludes rent and other specified items; it should not be treated as GAAP operating income or cash flow.
Material changes and business activity
- Home health and hospice growth included 34.3% more home health admissions, 25.7% more hospice admissions and 21.4% higher average hospice daily census. The agency count increased to 112 from 96 a year earlier.
- Senior living occupancy was 78.5%, up 0.4 percentage points year over year; average monthly revenue per occupied unit increased 8.5% to $4,667. Pennant reported 53 communities and 3,811 units at quarter end.
- Q1 acquisitions included a 60%-owned home health joint venture with John Muir Health and two senior living communities. The JV acquisition added preliminary goodwill of $16.2 million and licenses of $7.2 million. Cash paid for business and asset acquisitions totaled $22.1 million.
- Accounts receivable rose to $71.4 million from $61.1 million at year-end. The filing attributes the year-over-year operating cash flow decline primarily to changes in operating assets and liabilities, including receivables.
Outlook, risks and unusual items
- No specific company revenue, earnings or margin guidance is provided in the supplied filing text. Management expects cash, operating cash generation and revolver access to provide adequate liquidity for the next 12 months, including acquisition opportunities.
- Management reports modest senior living occupancy improvement, but says competition and inflation may slow a return to pre-pandemic occupancy. Acquired, start-up or turnaround operations may have lower occupancy or census and higher costs, causing consolidated and segment margins to fluctuate.
- Debt carried a weighted average interest rate of 8.22% at quarter end and matures in 2026. The company reported compliance with financial covenants. A 1 percentage-point interest-rate change would affect annual interest expense by approximately $0.8 million, based on quarter-end debt.
- Ten operating subsidiaries had Medicare or Medicaid reviews scheduled, on appeal or in dispute resolution. Potential outcomes include recoupments, penalties, payment suspension or program exclusion. For a prior hospice payment suspension, $1.774 million remained recorded as a long-term asset at March 31; Pennant received an additional $1.431 million refund after quarter end and continues to appeal remaining denials.
- Other material risk areas include reimbursement changes, regulatory and quality requirements, labor availability and costs, professional liability claims, and long-term lease obligations. Operating lease liabilities totaled $261.6 million, including $244.2 million long term.
- Subsequent to quarter end, Pennant reported acquisitions of a Washington home health agency and, in May, an Idaho senior living community plus home health and hospice agencies in Utah.
Important facts for investors to verify
- Whether revenue growth and improved operating margins persist after acquisition-related effects and the $0.8 million insurance gain.
- Whether receivables convert to cash and operating cash flow recovers from the sharp year-over-year decline.
- How acquisition spending, borrowing, the 8.22% borrowing rate and substantial lease commitments affect liquidity and covenant headroom.
- The outcome and timing of Medicare and Medicaid reviews, including collection of the remaining hospice refund and any further recoupments.
- Whether senior living occupancy continues to improve and acquired operations meet expected operating and margin targets.