Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2023.


☐			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)

None

(Former name, former address and former fiscal year, if changed since last report)

________________

Securities registered pursuant to Section 12(b) of the 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 Act: None

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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of November 6, 2023, 29,926,501 shares of the registrant’s common stock were outstanding.

Table of Contents

THE PENNANT GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS


	Part I. Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
	Part II. Other Information
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46




Item 6.	Exhibits	47
	Signatures	48

Table of Contents

PART I. FINANCIAL INFORMATION

Item I. Financial Statements

THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except par value)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash	$	3,383	$	2,079
Accounts receivable—less allowance for doubtful accounts of $931 and $592, respectively	59,353		53,420
Prepaid expenses and other current assets	9,460		18,323
Total current assets	72,196		73,822
Property and equipment, net	27,983		26,621
Right-of-use assets	262,987		260,868
Deferred tax assets, net	126		2,149
Restricted and other assets	7,983		10,545
Goodwill	86,132		79,497
Other indefinite-lived intangibles	62,908		58,617
Total assets	$	520,315	$	512,119
Liabilities and equity
Current liabilities:
Accounts payable	$	12,182	$	13,647
Accrued wages and related liabilities	24,660		23,283
Operating lease liabilities—current	16,341		16,633
Other accrued liabilities	15,577		16,684
Total current liabilities	68,760		70,247
Long-term operating lease liabilities—less current portion	249,574		247,042
Other long-term liabilities	8,679		6,281
Long-term debt, net	53,783		62,892
Total liabilities	380,796		386,462
Commitments and contingencies
Equity:
Common stock, $0.001 par value; 100,000 shares authorized; 30,266 and 29,919 shares issued and outstanding, respectively, at September 30, 2023; and 30,149 and 29,692 shares issued and outstanding, respectively, at December 31, 2022	29		29
Additional paid-in capital	104,245		99,764
Retained earnings	30,314		21,284
Treasury stock, at cost, 3 shares at September 30, 2023 and December 31, 2022	(65)		(65)
Total The Pennant Group, Inc. stockholders’ equity	134,523		121,012
Noncontrolling interest	4,996		4,645
Total equity	139,519		125,657
Total liabilities and equity	$	520,315	$	512,119

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in thousands, except for per-share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Revenue	$	140,192	$	118,350	$	398,937	$	348,576

Expense
Cost of services	112,384		94,680		321,162		277,658
Rent—cost of services	10,006		9,391		29,439		28,520
General and administrative expense	9,417		5,879		26,913		25,653
Depreciation and amortization	1,323		1,251		3,817		3,677
Loss on asset dispositions and impairment, net	1		5		4		6,713
Total expenses	133,131		111,206		381,335		342,221
Income from operations	7,061		7,144		17,602		6,355
Other (expense) income:
Other (expense) income	(37)		(18)		28		(50)
Interest expense, net	(1,496)		(1,058)		(4,355)		(2,508)
Other (expense), net	(1,533)		(1,076)		(4,327)		(2,558)
Income before provision for income taxes	5,528		6,068		13,275		3,797
Provision for income taxes	1,066		1,074		3,894		241
Net income	4,462		4,994		9,381		3,556
Less: Net income attributable to noncontrolling interest	79		163		351		387
Net income attributable to The Pennant Group, Inc.	$	4,383	$	4,831	$	9,030	$	3,169
Earnings per share:
Basic	$	0.15	$	0.16	$	0.30	$	0.11
Diluted	$	0.15	$	0.16	$	0.30	$	0.10
Weighted average common shares outstanding:
Basic	29,912		29,335		29,825		28,840
Diluted	30,206		30,172		30,178		30,182

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited, in thousands)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-controlling Interest
	Shares	Amount						Shares	Amount				Total

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.	—	—		—		1,850		—	—		—		1,850
Net income attributable to noncontrolling interests	—	—		—		—		—	—		147		147
Share-based compensation	—	—		1,367		—		—	—		—		1,367
Issuance of common stock from the exercise of stock options	26	—		203		—		—	—		—		203
Net issuance of restricted stock	28	—		—		—		—	—		—		—
Balance at March 31, 2023	30,203	$	29	$	101,334	$	23,134	3	$	(65)	$	4,792	$	129,224
Net income attributable to The Pennant Group, Inc.	—	—		—		2,797		—	—		—		2,797
Net income attributable to noncontrolling interests	—	—		—		—		—	—		125		125
Stock-based compensation	—	—		1,303		—		—	—		—		1,303
Issuance of common stock from the exercise of stock options	38	—		249		—		—	—		—		249
Net issuance of restricted stock	10	—		—		—		—	—		—		—
Balance at June 30, 2023	30,251	$	29	$	102,886	$	25,931	3	$	(65)	$	4,917	$	133,698
Net income attributable to The Pennant Group, Inc.	—	—		—		4,383		—	—		—		4,383
Net income attributable to noncontrolling interests	—	—		—		—		—	—		79		79
Stock-based compensation	—	—		1,341		—		—	—		—		1,341
Issuance of common stock from the exercise of stock options	4	—		18		—		—	—		—		18
Net issuance of restricted stock	11	—		—		—		—	—		—		—
Balance at September 30, 2023	30,266	$	29	$	104,245	$	30,314	3	$	(65)	$	4,996	$	139,519

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THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Continued)

(unaudited, in thousands)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-controlling Interest
	Shares	Amount						Shares	Amount				Total

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.	—	—		—		1,014		—	—		—		1,014
Net income attributable to noncontrolling interests	—	—		—		—		—	—		144		144
Share-based compensation	—	—		2,440		—		—	—		—		2,440
Issuance of common stock from the exercise of stock options	21	1		89		—		—	—		—		90
Net issuance of restricted stock	2	—		—		—		—	—		—		—
Balance at March 31, 2022	28,849	$	29	$	98,124	$	15,655	3	$	(65)	$	4,189	$	117,932
Net loss attributable to The Pennant Group, Inc.	—	—		—		(2,676)		—	—		—		(2,676)
Net income attributable to noncontrolling interests	—	—		—		—		—	—		80		80
Share-based compensation	—	—		2,380		—		—	—		—		2,380
Issuance of common stock from the exercise of stock options	33	—		271		—		—	—		—		271
Net issuance of restricted stock	4	—		—		—		—	—		—		—
Balance at June 30, 2022	28,886	$	29	$	100,775	$	12,979	3	$	(65)	$	4,269	$	117,987
Net income attributable to The Pennant Group, Inc.	—	—		—		4,831		—	—		—		4,831
Net income attributable to noncontrolling interests	—	—		—		—		—	—		163		163
Share-based compensation	—	—		(2,747)		—		—	—		—		(2,747)
Issuance of common stock from the exercise of stock options	52	—		606		—		—	—		—		606
Net issuance of restricted stock	1,208	—		—		—		—	—		—		—
Balance at September 30, 2022	30,146	$	29	$	98,634	$	17,810	3	$	(65)	$	4,432	$	120,840

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	9,381	$	3,556
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,817		3,677
Amortization of deferred financing fees	391		390
Impairment of long-lived assets	—		218
Provision for doubtful accounts	620		603
Share-based compensation	4,011		2,073
Deferred income taxes	3,066		752

Change in operating assets and liabilities, net of acquisitions:
Accounts receivable	(5,560)		1,734
Prepaid expenses and other assets	11,387		(1,429)
Operating lease obligations	121		(140)
Accounts payable	(866)		1,655
Accrued wages and related liabilities	1,376		1,278
Other accrued liabilities	(394)		4,333
Contract liabilities (CARES Act advance payments)	—		(6,211)

Other long-term liabilities	560		485
Net cash provided by operating activities	27,910		12,974
Cash flows from investing activities:
Purchase of property and equipment	(5,746)		(10,426)
Cash payments for business acquisitions	(11,662)		(9,680)




Other	(168)		(70)
Net cash used in investing activities	(17,576)		(20,176)
Cash flows from financing activities:




Proceeds from Revolving Credit Facility	131,500		82,000
Payments on Revolving Credit Facility	(141,000)		(78,000)

Issuance of common stock upon the exercise of options	470		967
Net cash (used in) provided by financing activities	(9,030)		4,967
Net increase (decrease) in cash	1,304		(2,235)
Cash beginning of period	2,079		5,190
Cash end of period	$	3,383	$	2,955

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(unaudited, in thousands)


	Nine Months Ended September 30,
	2023		2022
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	3,997	$	2,114
Income taxes	$	176	$	77
Lease liabilities	$	27,231	$	27,092
Right-of-use assets obtained in exchange for new operating lease obligations	$	9,357	$	10,326
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications	$	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	$	680	$	1,100

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 September 30, 2023, the Company’s subsidiaries operated 103 home health, hospice and home care agencies and 51 senior living communities located in Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.

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 unaudited condensed consolidated financial statements of the Company (the “Interim Financial Statements”) reflect the Company’s financial position, results of operations and cash flows of the business. The Interim Financial Statements 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”). Management believes that the Interim Financial Statements reflect, in all material respects, all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented in conformity with GAAP. The results reported in these Interim Financial Statements are not necessarily indicative of results that may be expected for the entire year.

The Condensed Consolidated Balance Sheet as of December 31, 2022 is derived from the Company’s annual audited Consolidated Financial Statements for the fiscal year ended December 31, 2022, which should be read in conjunction with these Interim Financial Statements. Certain information in the accompanying footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with GAAP.

All significant intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its Condensed Consolidated Balance Sheets and the amount of consolidated net income that is attributable to the Company and the noncontrolling interest in its Condensed Consolidated Statements of Income.

The Company consists of various limited liability companies and corporations established to operate home health, hospice, home care, and senior living operations. The Interim Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.

Estimates and Assumptions - The preparation of the Interim 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 Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Interim Financial Statements relate to revenue, intangible assets and goodwill, right-of-use assets and lease liabilities for leases greater than 12 months, self-insurance reserves, and income taxes. Actual results could differ from those estimates.

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 the employer-paid portion of social security taxes, all of which was repaid by 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.

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 expenses when related expenses are incurred. As of September 30, 2023 and December 31, 2022, the Company had $872 and $1,479 in unapplied state relief funds, respectively. The unapplied state relief funds received are recorded in other accrued liabilities. The Company recognized state relief funding totaling $923 and $3,005 for the three and nine months ended September 30, 2023, respectively, and $734 and $1,980 for the three and nine months ended September 30, 2022, respectively, which the Company recognized as a reduction of cost of services expense.

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.

On August 23, 2023, the FASB issued ASU 2023-05 “Business Combinations—Joint Venture Formations (Subtopic 805-60)” (ASU 2023-05) under which an entity that qualifies as either a joint venture or a corporate joint venture, as defined in the ASC master glossary, is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, ASU 2023-05 stipulates that a joint venture or a corporate joint venture must initially measure its assets and liabilities at fair value on the formation date. The amendments in ASU 2023-05 are effective for all joint ventures within the ASU’s scope that are formed on or after January 1, 2025. Early adoption is permitted. The Company is evaluating this ASU and notes that any impact to financial statements would be dependent on the facts and circumstances surrounding any new joint venture formed after the date of adoption.

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 incurred costs of $254 and $719 for the three and nine months ended September 30, 2023, and $231 and $1,332 for the three and nine months ended September 30, 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 $1,217 and $3,171 for the three and nine months ended September 30, 2023, respectively, and $812 and $2,035 for the three and nine months ended September 30, 2022, respectively, and are included in cost of services.

The Company’s independent operating subsidiaries leased 29 communities from subsidiaries of Ensign under a master lease arrangement as of both September 30, 2023 and September 30, 2022. See further discussion below at Note 8, 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 the three months ended June 2022. The Transaction closed in April 2022.

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. NET INCOME PER COMMON SHARE

Basic net income (loss) per share is computed by dividing net income (loss) attributable to stockholders of the Company by the weighted average number of outstanding common shares for the period. The computation of diluted net income (loss) per share is similar to the computation of basic net income (loss) 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.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:


Net income attributable to The Pennant Group, Inc.	$	4,383	$	4,831	$	9,030	$	3,169

Denominator:
Weighted average shares outstanding for basic net income per share	29,912		29,335		29,825		28,840
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock(a)	294		837		353		1,342
Adjusted weighted average common shares outstanding for diluted income per share	30,206		30,172		30,178		30,182

Earnings Per Share:
Basic net income per common share	$	0.15	$	0.16	$	0.30	$	0.11
Diluted net income per common share	$	0.15	$	0.16	$	0.30	$	0.10


(a)						The diluted per share amounts do not reflect common equivalent shares outstanding of 2,718 and 2,278 for the three and nine months ended September 30, 2023, respectively, and 1,858 and 1,806 for the three and nine months ended September 30, 2022, respectively, because of their anti-dilutive effect.

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 Medicare, Medicaid, Commercial and managed care programs (Medicare Advantage and Managed Medicaid plans), in exchange for providing patient care. 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 is 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 rates, 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.

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Combined revenue from the Medicare and Medicaid programs accounted for 62.7% and 62.5% of the Company’s revenue for the three and nine months ended September 30, 2023, respectively, and 62.4% and 62.3% for the three and nine months ended September 30, 2022, respectively. The Company records revenue from these governmental 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 by reportable operating segments and payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

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 carriers administrating Medicare Advantage programs. 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.

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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 the payor 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, the Company records 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

Revenue by payor for the three months ended September 30, 2023 and 2022, is summarized in the following tables:


	Three Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	24,076	$	43,849	$	—	$	67,925	48.5	%
Medicaid	2,521		5,190		12,182		19,893		14.2
Subtotal	26,597		49,039		12,182		87,818		62.7
Managed care	17,927		1,231		—		19,158		13.6
Private and other(a)	6,579		101		26,536		33,216		23.7
Total revenue	$	51,103	$	50,371	$	38,718	$	140,192	100.0	%


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

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	Three Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	23,040	$	35,367	$	—	$	58,407	49.4	%
Medicaid	2,151		4,065		9,127		15,343		13.0
Subtotal	25,191		39,432		9,127		73,750		62.4
Managed care	14,594		1,062		—		15,656		13.2
Private and other(a)	5,472		28		23,444		28,944		24.4
Total revenue	$	45,257	$	40,522	$	32,571	$	118,350	100.0	%


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

Revenue by payor for the nine months ended September 30, 2023 and 2022, is summarized in the following tables:


	Nine Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	71,372	$	121,523	$	—	$	192,895	48.3	%
Medicaid	7,178		14,470		34,807		56,455		14.2
Subtotal	78,550		135,993		34,807		249,350		62.5
Managed care	49,696		3,842		—		53,538		13.4
Private and other(a)	19,105		387		76,557		96,049		24.1
Total revenue	$	147,351	$	140,222	$	111,364	$	398,937	100.0	%


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


	Nine Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	67,861	$	103,322	$	—	$	171,183	49.1	%
Medicaid	7,389		11,189		27,502		46,080		13.2
Subtotal	75,250		114,511		27,502		217,263		62.3
Managed care	42,106		2,999		—		45,105		13.0
Private and other(a)	16,538		194		69,476		86,208		24.7
Total revenue	$	133,894	$	117,704	$	96,978	$	348,576	100.0	%


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

Balance Sheet Impact

Included in the Company’s Condensed 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.

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Accounts receivable, net as of September 30, 2023 and December 31, 2022 is summarized in the following table:


	September 30, 2023		December 31, 2022
Medicare	$	33,709	$	31,321
Medicaid	12,699		10,700
Managed care	11,422		9,370
Private and other	2,454		2,621
Accounts receivable, gross	60,284		54,012
Less: allowance for doubtful accounts	(931)		(592)
Accounts receivable, net	$	59,353	$	53,420

Concentrations - 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 77.0% and 77.8% of its total gross accounts receivable as of September 30, 2023 and December 31, 2022, respectively. Combined revenue from reimbursement under the Medicare and Medicaid programs accounted for 62.7% and 62.5% for the three and nine months ended September 30, 2023, respectively, and 62.4% and 62.3% of the Company’s revenue for the three and nine months ended September 30, 2022, respectively.

Practical Expedients and Exemptions

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 ASC 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.

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 and home 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. The Company also reports an “all other” category that includes general and administrative expense from the Company’s Service Center.

As of September 30, 2023, the Company provided services through 103 affiliated home health, hospice and home care agencies, and 51 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 Company does not review assets by segment and therefore assets 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. Segment Adjusted EBITDAR from Operations is net income (loss) attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs and credit allowances, (4) the costs associated with transitioning

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operations, (5) unusual, non-recurring or redundant charges, and (6) net income 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.

The following tables present certain financial information regarding the Company’s reportable segments, general and administrative expenses are not allocated to the reportable segments and are included in “All Other” for the three and nine months ended September 30, 2023 and 2022:


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Three Months Ended September 30, 2023
Revenue	$	101,474	$	38,718	$	—	$	140,192
Segment Adjusted EBITDAR from Operations	$	17,271	$	11,473	$	(8,097)	$	20,647
Three Months Ended September 30, 2022
Revenue	$	85,779	$	32,571	$	—	$	118,350
Segment Adjusted EBITDAR from Operations	$	15,380	$	9,370	$	(7,779)	$	16,971


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Nine Months Ended September 30, 2023
Revenue	$	287,573	$	111,364	$	—	$	398,937
Segment Adjusted EBITDAR from Operations	$	47,364	$	33,394	$	(23,496)	$	57,262
Nine Months Ended September 30, 2022
Revenue	$	251,598	$	96,978	$	—	$	348,576
Segment Adjusted EBITDAR from Operations	$	45,056	$	27,573	$	(23,795)	$	48,834

The following table provides a reconciliation of Segment Adjusted EBITDAR from Operations to income from operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Segment Adjusted EBITDAR from Operations	$	20,647	$	16,971	$	57,262	$	48,834
Less: Depreciation and amortization	1,323		1,251		3,817		3,677
Rent—cost of services	10,006		9,391		29,439		28,520
Other (expense) income	(37)		(18)		28		(50)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations(a)	(108)		430		160		938
Share-based compensation expense and related taxes(b)	1,391		(2,501)		4,164		2,319
Acquisition related costs and credit allowances(c)	71		1,000		175		1,014

Costs associated with transitioning operations(d)	10		144		595		6,078
Unusual, non-recurring or redundant charges(e)	1,009		293		1,633		370
Add: Net income attributable to noncontrolling interest	79		163		351		387
Condensed Consolidated Income from Operations	$	7,061	$	7,144	$	17,602	$	6,355


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

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(b)						Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)						Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(d)						During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. 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 nine months ended September 30, 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.

7. ACQUISITIONS

The Company is focused on acquiring 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 Interim Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting.

2023 Acquisitions

During the nine months ended September 30, 2023, the Company expanded its operations with the addition of three home health agencies, three 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, three hospice agencies, and two home care agencies acquired were mostly concentrated in goodwill and intangible assets and as such, these transactions were classified as business combinations in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The purchase price for the business combinations was $11,662, which preliminarily consisted of of goodwill of $6,635, indefinite-lived intangible assets of $3,895 related to Medicare and Medicaid licenses, equipment and other assets of $1,027 related to accounts receivable, and other indefinite-lived intangible assets of $186, less assumed liabilities of $81. The Company anticipates that the total goodwill recognized will be fully deductible for tax purposes.

One home health agency acquired was a Medicare license and is considered an asset acquisition. The fair value of the home health license acquired was $210 and was recorded in indefinite-lived intangible assets.

There were no material acquisition costs that were expensed related to the business combinations during the nine months ended September 30, 2023.

2022 Acquisitions

During the nine months ended September 30, 2022, the Company expanded its operations with the addition of two home health and four hospice agencies as well as one senior living community. 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 home health acquisitions was mostly concentrated in goodwill and 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 $9,680, which consisted of equipment and other assets of $188, goodwill of $4,925, indefinite-lived intangible assets of $4,714 related to Medicare and Medicaid licenses, and other intangible assets of $40, net of assumed liabilities of $187. The Company anticipates that the total goodwill recognized will be fully deductible for tax purposes. There

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were no material acquisition costs that were expensed related to the business combinations during the nine months ended September 30, 2022.

Subsequent Events

On October 2, 2023, the Company closed on an acquisition of one hospice agency in California. On November 1, 2023, the Company closed on an acquisition of two hospice agencies, one in Texas and one in Oklahoma. The total purchase price of the three hospice agencies was $6,600. As of the date of this report, the preliminary allocation of the purchase price for the acquisitions acquired subsequent to September 30, 2023 were not completed as necessary valuation information was not yet available. As such, the determination whether these acquisitions should be classified as business combinations or asset acquisitions under ASC 805 will be determined upon completion of the allocation of the purchase price.

8. PROPERTY AND EQUIPMENT—NET

Property and equipment, net consist of the following:


	September 30, 2023		December 31, 2022
Land	$	96	$	96
Building	1,890		1,890
Leasehold improvements	20,496		18,759
Equipment	28,730		25,532
Furniture and fixtures	1,271		1,151
	52,483		47,428
Less: accumulated depreciation	(24,500)		(20,807)
Property and equipment, net	$	27,983	$	26,621

Depreciation expense was $1,321 and $3,807 for the three and nine months ended September 30, 2023, respectively, and $1,244 and $3,640 for the three and nine months ended September 30, 2022, respectively.

The Company measures certain assets at fair value on a non-recurring basis, including long-lived assets, which are evaluated for impairment. Long-lived assets include assets such as property and equipment, operating lease assets and certain intangible assets. The inputs used to determine the fair value of long-lived assets in the impairment analysis are considered Level 3 measurements due to their subjective nature. Management has evaluated its long-lived assets and determined there was no impairment recorded during the three and nine months ended September 30, 2023 and 2022.

9. GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

The following table represents activity in goodwill by segment for the nine months ended September 30, 2023:


	Home Health and Hospice Services		Senior Living Services		Total
December 31, 2022	$	75,855	$	3,642	$	79,497
Additions	6,635		—		6,635

September 30, 2023	$	82,490	$	3,642	$	86,132

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Other indefinite-lived intangible assets consist of the following:


	September 30, 2023		December 31, 2022
Trade name	$	1,571	$	1,385
Medicare and Medicaid licenses	61,337		57,232
Total	$	62,908	$	58,617

No goodwill or intangible asset impairments were recorded during the three and nine months ended September 30, 2023 and 2022.

10. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:


	September 30, 2023		December 31, 2022
Refunds payable	$	1,754	$	2,244
Deferred revenue	1,786		1,592
Resident deposits	2,657		4,315
Property taxes	1,254		1,027
Deferred state relief funds	872		1,479
Accrued self-insurance liabilities	4,590		3,546

Other	2,664		2,481
Other accrued liabilities	$	15,577	$	16,684

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 deposits include refundable deposits to residents.

11. DEBT

Long-term debt, net consists of the following:


	September 30, 2023		December 31, 2022
Revolving Credit Facility	$	55,000	$	64,500
Less: unamortized debt issuance costs(a)	(1,217)		(1,608)
Long-term debt, net	$	53,783	$	62,892


(a)						Amortization expense for debt issuance costs was $130 and $391 for the three and nine months ended September 30, 2023, respectively, and $130 and $390 for the three and nine months ended September 30, 2022, respectively, and is recorded in interest expense, net on the Condensed Consolidated Statements of Income.

On February 23, 2021, Pennant entered into an amendment to its existing credit agreement (as amended, the “Credit Agreement”), which provides 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 are, 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 pays a commitment fee on the undrawn portion of the commitments under the Revolving Credit Facility which ranges 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. The Company is not required to repay any loans under the Credit Agreement prior to maturity in 2026, other than to the extent the outstanding borrowings

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exceed the aggregate commitments under the Credit Agreement. As of September 30, 2023, the Company’s weighted average interest rate on its outstanding debt was 8.17%. As of September 30, 2023, the Company had available borrowing on the Revolving Credit Facility of $90,814, which is net of outstanding letters of credit of $4,186.

The fair value of the 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 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 Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of September 30, 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 (the “OIP”) and Long-Term Incentive Plan (the “LTIP”, and together with the OIP, 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.

Total share-based compensation expense for all Plans for the three and nine months ended September 30, 2023 and 2022 was:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Share-based compensation expense related to stock options	$	1,044	859		$	2,878	$	2,480
Share-based compensation expense related to Restricted Stock	178		(3,664)		535		(643)
Share-based compensation expense related to Restricted Stock to non-employee directors	119		58		598		236
Total share-based compensation	$	1,341	$	(2,747)	$	4,011	$	2,073

In future periods, the Company estimates it will recognize the following share-based compensation expense for unvested stock options and unvested Restricted Stock as of September 30, 2023:


	Unrecognized Compensation Expense		Weighted Average Recognition Period (in years)
Unvested Stock Options	$	12,492	3.4
Unvested Restricted Stock	2,573		3.7
Total unrecognized share-based compensation expense	$	15,065

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 in the third quarter of 2022.

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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.

The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for share-based payment awards under the Plans. Determining the appropriate fair-value model and calculating the fair value of stock-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 as of September 30:


Grant Year	Options Granted	Risk-Free Interest Rate		Expected Life(a)	Expected Volatility(b)		Dividend Yield		Weighted Average Fair Value of Options
2023	874	4.1	%	6.5	41.8	%	—	%	$	6.61
2022	349	2.3	%	6.5	39.8	%	—	%	$	6.71


(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 nine months ended September 30, 2023:


	Number of Options Outstanding	Weighted Average Exercise Price		Number of Options Vested	Weighted Average Exercise Price of Options Vested
December 31, 2022	2,219	20.76		973	$	16.90
Granted	874	13.62
Exercised	(66)	7.06
Forfeited	(48)	21.63
Expired	(49)	19.87
September 30, 2023	2,930	$	18.79	1,073	$	18.63

Restricted Stock

A summary of the status of Pennant’s non-vested Restricted Stock, and changes during the nine months ended September 30, 2023, is presented below:


	Non-Vested Restricted Stock	Weighted Average Grant Date Fair Value
December 31, 2022	418	$	14.26
Granted	53	11.40
Vested	(199)	13.51
Forfeited	(3)	15.61
September 30, 2023	269	$	15.36

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. LEASES

The Company’s independent operating subsidiaries lease 51 senior living communities and its administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 25 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’s independent operating subsidiaries leased 29 communities from subsidiaries of Ensign (the “Ensign Leases”) under a master lease arrangement as of both September 30, 2023 and September 30, 2022. Each of the leases have an initial term of between 14 and 20 years from the lease commencement date. The total amount of rent expense included in rent - cost of services paid to subsidiaries of Ensign was $3,339 and $10,088 for the three and nine months ended September 30, 2023, respectively, and $3,760 and $10,250 for the three and nine months ended September 30, 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, 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 $42,515. 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 arrangement were modified which resulted in a net increase to the lease liability and ROU asset balance of $6,522 for the nine months ended September 30, 2022.

On July 7, 2023 the Company modified one of its master leases, which included nine locations, with an unrelated party to extend the term of the master lease from September 30, 2035 to March 31, 2038. As a result of the modification, the lease components under the master lease arrangement were modified which resulted in a net increase to the lease liability and ROU asset balance of $5,195 for the three and nine months ended September 30, 2023.

The components of operating lease cost, are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating Lease Costs:
Community Rent—cost of services	$	8,567	$	8,129	$	25,303	$	24,755
Office Rent—cost of services	1,439		1,262		4,136		3,765
Rent—cost of services	$	10,006	$	9,391	$	29,439	$	28,520

General and administrative expense	$	94	$	86	$	291	$	241
Variable lease cost (a)	$	1,876	$	1,590	$	5,367	$	4,463


(a)						Represents variable lease cost for operating leases, which costs include property taxes and insurance, common area maintenance, and consumer price index increases, incurred as part of the Company’s triple net lease, and which is included in cost of services for the three and nine months ended September 30, 2023 and 2022.

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table shows the lease maturity analysis for all leases as of September 30, 2023, for the years ended December 31:


Year	Amount
2023 (Remainder)	$	9,287
2024	36,549
2025	35,195
2026	34,032
2027	33,268
Thereafter	281,565
Total lease payments	429,896
Less: present value adjustments	(163,981)
Present value of total lease liabilities	265,915
Less: current lease liabilities	(16,341)
Long-term operating lease liabilities	$	249,574

Operating 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 operating lease liability. As of September 30, 2023, the weighted average remaining lease term is 12.8 years and the weighted average discount rate is 8.1%.

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. INCOME TAXES

The Company recorded income tax expense of $1,066 and $1,074 or 19.3% and 17.7% of earnings before income taxes for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to the modification of certain outstanding RSUs granted in connection with the Spin-off and not having the impact of the Transaction in the current year.

The Company recorded income tax expense of $3,894 and $241, or 29.3% and 6.3% of earnings before income taxes for the nine months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to the modification of certain outstanding RSUs granted in connection with the Spin-off and not having the impact of the Transaction in the current year.

15. 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, which may include suspension, termination, or revocation of participation in governmental programs for the payment of the services the Company provides. 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 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 Condensed Consolidated Balance Sheets for any of the periods presented.

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, as well as employment-related claims. Certain of the states where we conduct business, including California, recently adopted laws that increase the maximum amount of non-economic damages that may be awarded to a successful plaintiff in a claim for professional negligence or malpractice arising from care provided by our independent operating subsidiaries. These changes in applicable law may also increase the cost of obtaining and maintaining professional liability insurance to pay for the defense of, and any liability arising under, such claims. 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

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 also is subject to potential lawsuits under the False Claims Act (the “FCA”) and comparable state laws alleging submission of fraudulent claims for services to any governmental healthcare program (such as Medicare) or commercial 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 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.

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 September 30, 2023, nine 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 previously paid claims. The Company has appealed substantially all denials arising from these Reviews using the applicable appeals process. As of September 30, 2023, and through the filing of this Quarterly Report on Form 10-Q, 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.

From June 2021 to May 2022, one hospice provider number was subject to a Medicare payment suspension imposed by a UPIC. The total amounts suspended was $5,105, which represents all Medicare payments due to the provider number during the suspension. As of September 30, 2023, the total amount due from the government payor impacted by the suspension was $1,915 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

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THE PENNANT GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 some of the previously denied claims. The Company received the refund of previously withheld amounts totaling $3,191 and $3,222 for the three and nine months ended September 30, 2023, respectively. The Company continues to work through the appeals process for the remaining denied claims of $1,915 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. As of September 30, 2023, the Company has an accrued liability that is immaterial for this review which was recorded as an offset to revenue.

Insurance - The Company retains risk for a substantial portion of potential claims for general and professional liability, workers’ compensation and automobile liability. Based on changes in law that increase the maximum damages that may be recovered for professional negligence or malpractice claims in states where we operate, including, California, the costs of maintaining some of these insurance policies may increase in the future. 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 $150 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.

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 2023 and fiscal year 2022.

16. COMMON STOCK REPURCHASE PROGRAM

On December 12, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1,000 of its common stock. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. No shares were repurchased during the three and nine months ended September 30, 2023.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with the Interim Financial Statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). The information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-K, Form 10-Q and Form 8-K, for additional information. The section entitled “Risk Factors” filed within our 2022 Annual Report describes some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

Special Note About Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “might,” “will,” “should,” “could,” “seeks,” “approximately,” “goals,” “future,” “projects,” “predicts,” “guidance,” “target,” “intends,” “plans,” “estimates,” “anticipates”, the negative version of these words or other comparable words. Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the effects of competition and the effects of future legislation or regulations and other non-historical statements.

The risk factors discussed in this Quarterly Report and the 2022 Annual Report under the heading “Risk Factors,” could cause our results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:

•federal and state changes to, or delays receiving, reimbursement and other aspects of Medicaid and Medicare;

•changes in, and compliance with, the laws and regulations affecting the U.S. healthcare industry;

•proposed changes to payment models and reimbursement amounts within the Medicare and Medicaid fee schedules for future calendar years;

•future cost containment measures undertaken by payors;

•government reviews, audits and investigations of our business;

•potential additional regulation affecting the transparency, ownership, operating standards, and staffing of businesses in our industry;

•increased competition and increased cost of acquisition or retention for, or a shortage of, skilled personnel;

•achievement and maintenance of competitive quality of care ratings and referrals from referral sources;

•changes in, and compliance with, state and federal employment, fair housing, safety, licensing and other laws;

•competition from other healthcare providers, 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;

•actions of labor unions, including strikes, work stoppages, unfair labor practices claims, or related labor activity;

•costs associated with litigation or any future litigation settlements;

•the leases of our affiliated senior living communities;

•inability to complete future acquisitions at attractive prices or at all, and failure to successfully or efficiently new acquisitions into our existing operations and operating subsidiaries;

•general economic conditions, including a housing downturn, which could affect seniors’ ability to afford resident fees, or inflation and increasing interest rates, which raise the costs of goods and borrowing capital, which may affect the delivery and affordability of our services;

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•security breaches and other cyber security incidents;

•the performance of the financial and credit markets and uncertainties related to our ability to obtain financing or the terms of such financing; and

•uncertainties related to the lingering effect of the COVID-19 pandemic, including new regulatory risks impacting our operations, potential litigation, and vaccination mandates

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements in this Quarterly Report. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by applicable securities laws.

Overview

We are a leading provider of high-quality healthcare services to patients 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, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. As of September 30, 2023, our home health and hospice business provided home health, hospice and home care services from 103 agencies operating across these 14 states, and our senior living business operated 51 senior living communities throughout six states.

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


	December 31,								September 30,
	2015	2016	2017	2018	2019	2020	2021	2022	2023
Home health and hospice agencies	32	39	46	54	63	76	88	95	103
Senior living communitiesa	36	36	43	50	52	54	54	49	51
Senior living unitsa	3,184	3,184	3,434	3,820	3,963	4,127	4,127	3,500	3,588
Total number of home health, hospice, and senior living operationsa	68	75	89	104	115	130	142	144	154


(a)						See Footnote 3 Transactions with Ensign for discussion of the 2022 Transaction.

Recent Activities

Acquisitions. During the nine months ended September 30, 2023, we expanded our operations with the addition of three home health agencies, three hospice agencies, two home care agencies, as well as two senior living communities. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction.

Trends

We have experienced modest senior living occupancy improvement through the nine months ended September 30, 2023, partly as a result of improving COVID-19 case trends and renewed consideration of senior living communities as a home-based care setting. Though we have seen steady improvements in occupancy throughout 2022 and 2023, we cannot be sure when the occupancy levels in our senior living communities will return to pre-pandemic levels.

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.

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Government Regulation

We have disclosed under the heading “Government Regulation” in the 2022 Annual Report a summary of regulations that we believe materially affect our business, financial condition or results of operations. Since the time of the filing of the 2022 Annual Report, the following regulations have been updated.

On July 28, 2023, CMS issued the Hospice Payment Rate Update final rule (the “Hospice Payment Final Rule”) for fiscal year 2024. The Hospice Payment Final Rule’s hospice payment update percentage is 3.1%, which is an estimated increase of $780 million in payments from fiscal year 2023. The payment update percentage of 3.1% is based on a 3.3% market basket percentage increase, which is reduced by a 0.2% productivity adjustment. The Hospice Payment Final Rule makes permanent the Hospice Quality Reporting program (“HQRP”) data submission threshold policy adopted in the 2016 Hospice Payment Rule Update final rule, which is that hospices must submit at least 90 percent of required data within 30 days of the relevant reporting event. Hospices that fail to meet quality reporting requirements will receive a 4% reduction to the annual hospice payment update percentage increase for that year, which would more than negate the payment update percentage for fiscal year 2024 contained in the Hospice Payment Final Rule for hospices that fail to submit required quality reporting data to CMS.

On November 1, 2023, CMS finalized rules regarding the administration of a Hospice Special Focus Program (HSFP) beginning in CY 2024. Under this final rule, CMS established the data sources for identifying hospices for inclusion in the HSFP, defined the scoring system, and set the criteria for selection into the HSFP. Based on public comments, CMS is finalizing the HSFP without any modifications of the proposed rule with respect to the hospice care index (HCI) score, standardization of HCI scores, and addressing how missing scores will be handled in the HSFP algorithm. Specifically, for missing scores, CMS will replace a hospice’s missing score with a zero after standardization, which is equivalent to replacing a non-reporting hospice’s missing data with the average value for that score or measure. This final rule mandates hospices in the HSFP to be surveyed at least semiannually over 18 months. This final rule also outlines conditions for successful completion and exit from the HSFP, as well as termination from the Medicaid program for those hospices that cannot meet substantial compliance for surveys conducted during the HSFP. Additionally, the final rule implements an informal resolution process for disputes between CMS and hospices related to condition-level deficiencies, similar to the process for home health agencies.

On November 1, 2023, CMS issued the CY 2024 Home Health Prospective Payment System Final Rule (“Home Health Payment Final Rule”). The Home Health Payment Final Rule finalizes an estimated 0.8% aggregate increase to all home health agencies in CY 2024. This increase reflects the effects of the 3.0 percent home health payment update percentage ($525 million increase), an estimated 2.6 percent decrease that reflects the net effects of CMS’s finalized prospective permanent behavior assumption adjustment across all payments (half of the full proposed adjustment), ($455 million decrease), and an estimated 0.4 percent increase that reflects the effects of an update to the fixed-dollar loss ratio (FDL) used in determining outlier payments ($70 million increase). CMS also finalized recalibrated case-mix weights and low utilization payment adjustment thresholds using 2022 data. Overall, the Home Health Payment Final Rule estimates that Medicare payments to all home health agencies will increase in the aggregate by $140.0 million based on its contents.

On October 7, 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.

Segments

We have two reportable segments: (1) home health and hospice services, which includes our home health, home care and hospice businesses; and (2) senior living services, which includes the operation of assisted living, independent living and memory care communities. Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), reviews financial information at the operating segment level. We also report an “all other” category that includes general and administrative expense from our Service Center.

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Common Stock Repurchase Program

On December 12, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1.0 million of its common stock. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. No shares were repurchased during the three and nine months ended September 30, 2023.

Key Performance Indicators

We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following:

Home Health and Hospice Services

•Total home health admissions. Total admissions of home health patients, including new acquisitions, new admissions and readmissions.

•Total Medicare home health admissions. Total admissions of home health patients, who are receiving care under Medicare reimbursement programs, including new acquisitions, new admissions and readmissions.

•Average Medicare revenue per completed 60-day home health episode. The average amount of revenue for each completed 60-day home health episode generated from patients who are receiving care under Medicare reimbursement programs.

•Total hospice admissions. Total admissions of hospice patients, including new acquisitions, new admissions and recertifications.

•Average hospice daily census. The average number of patients who are receiving hospice care during any measurement period divided by the number of days during such measurement period.

•Hospice Medicare revenue per day. The average daily Medicare revenue recorded during any measurement period for services provided to hospice patients.

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The following table summarizes our overall home health and hospice statistics for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Home health services:
Total home health admissions	10,829		10,152		32,180		30,389
Total Medicare home health admissions	4,640		4,637		14,437		13,952
Average Medicare revenue per 60-day completed episode(a)	$	3,585	$	3,553	$	3,536	$	3,543
Hospice services:
Total hospice admissions	2,433		2,392		7,206		6,920
Average hospice daily census	2,698		2,293		2,544		2,270
Hospice Medicare revenue per day	$	183	$	176	$	184	$	177


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

Senior Living Services

•Occupancy. The ratio of actual number of days our units are occupied during any measurement period to the number of days units are available for occupancy during such measurement period.

•Average monthly revenue per occupied unit. The room and board 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:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Occupancy	78.9		%	76.5		%	78.4		%	75.1		%
Average monthly revenue per occupied unit	$	3,991		$	3,560		$	3,927		$	3,465

Revenue Sources

Home Health and Hospice Services

Home Health. We derive the majority of our home health revenue from Medicare and managed care. The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Net service revenue is recognized in accordance with PDGM methodology. Under PDGM, Medicare provides agencies with payments for each 30-day period of care provided to beneficiaries. If a beneficiary is still eligible for care after the end of the first 30-day payment period, a second 30-day payment period can begin. There are no limits to the number of periods of care a beneficiary who remains eligible for the home health benefit can receive. While payment for each 30-day period of care is adjusted to reflect the beneficiary’s health condition and needs, a special outlier provision exists to ensure appropriate payment for those beneficiaries that have the most expensive care needs. The PDGM payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of 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. For further detail regarding PDGM see the Government Regulation section of our 2022 Annual Report.

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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 one through 60 and a lower rate for all subsequent days of service. CMS also provides for a Service Intensity Add-On, which increases payments for certain RHC services provided by registered nurses and social workers to hospice patients during the final seven days of life.

Medicare reimbursement is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, we monitor our provider numbers and estimate amounts due back to Medicare to the extent that the cap has been exceeded.

Senior Living Services. As of September 30, 2023, we provided assisted living, independent living and memory care services in 51 communities. 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 payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients. Cost of services also includes the cost of general and professional liability insurance and other general cost of services specifically attributable to our operations.

Rent—Cost of Services. Rent—cost of services consists solely of base minimum rent amounts payable under lease agreements to our landlords. Our subsidiaries lease and operate but do not own the underlying real estate at our operations, and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements.

General and Administrative Expense. General and administrative expense consists primarily of payroll and related benefits and travel expenses for our Service Center personnel, including training and other operational support. General and administrative expense also includes professional fees (including accounting and legal fees), costs relating to information systems, stock-based compensation and rent for our Service Center offices.

Depreciation and Amortization. Property and equipment are recorded at their original 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.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on Interim Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Interim Financial Statements and related disclosures requires us to make judgments, estimates and

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assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis we review our judgments and estimates, including but not limited to those related to self-insurance reserves, revenue, leases, intangible assets, goodwill, and income taxes. 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 2022 Annual Report for further information on our critical accounting estimates and policies, which are as follows:

•Self-insurance reserves - 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 estimate of variable considerations to arrive at the transaction price, including methods and assumptions used to determine settlements with Medicare and Medicaid payors or retroactive adjustments due to audits and reviews;

•Leases - We use our estimated incremental borrowing rate based on the information available at lease commencement date in determining the present value of future lease payments;

•Acquisition accounting - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions; and

•Income taxes - The estimation of valuation allowance or the need for and magnitude of liabilities for uncertain tax position.

Recent Accounting Pronouncements

Information concerning recently issued accounting pronouncements, if applicable, are included in Note 2, Basis of Presentation and Summary of Significant Accounting Policies in the Interim Financial Statements.

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Results of Operations

The following table sets forth details of our revenue, expenses and earnings as a percentage of total revenue for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022



Total revenue	100.0	%	100.0	%	100.0	%	100.0	%
Expense:
Cost of services	80.2		80.0		80.5		79.7
Rent—cost of services	7.1		7.9		7.4		8.2
General and administrative expense	6.7		5.0		6.7		7.4
Depreciation and amortization	1.0		1.1		1.0		1.1
Loss on asset dispositions and impairment, net	—		—		—		1.9
Total expenses	95.0		94.0		95.6		98.3

Income from operations	5.0		6.0		4.4		1.7
Other expense:

Interest expense, net	(1.1)		(0.9)		(1.1)		(0.7)
Other expense, net	(1.1)		(0.9)		(1.1)		(0.7)
Income before provision for income taxes	3.9		5.1		3.3		1.0
Provision for income taxes	0.7		0.9		0.9		0.1
Net income	3.2		4.2		2.4		0.9
Less: net income attributable to noncontrolling interest	0.1		0.1		0.1		0.1
Net income attributable to Pennant	3.1	%	4.1	%	2.3	%	0.8	%

The following table presents our consolidated GAAP Financial measures for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Consolidated GAAP Financial Measures:
Total revenue	$	140,192	$	118,350	$	398,937	$	348,576
Total expenses	$	133,131	$	111,206	$	381,335	$	342,221
Income from operations	$	7,061	$	7,144	$	17,602	$	6,355

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


	Home Health and Hospice Services		Senior Living Services		All Other		Total
	(In thousands)
Segment GAAP Financial Measures:
Three Months Ended September 30, 2023
Revenue	$	101,474	$	38,718	$	—	$	140,192
Segment Adjusted EBITDAR from Operations	$	17,271	$	11,473	$	(8,097)	$	20,647
Three Months Ended September 30, 2022
Revenue	$	85,779	$	32,571	$	—	$	118,350
Segment Adjusted EBITDAR from Operations	$	15,380	$	9,370	$	(7,779)	$	16,971


	Home Health and Hospice Services		Senior Living Services		All Other		Total
	(In thousands)
Segment GAAP Financial Measures:
Nine Months Ended September 30, 2023
Revenue	$	287,573	$	111,364	$	—	$	398,937
Segment Adjusted EBITDAR from Operations	$	47,364	$	33,394	$	(23,496)	$	57,262
Nine Months Ended September 30, 2022
Revenue	$	251,598	$	96,978	$	—	$	348,576
Segment Adjusted EBITDAR from Operations	$	45,056	$	27,573	$	(23,795)	$	48,834

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Segment Adjusted EBITDAR from Operations(a)	$	20,647	$	16,971	$	57,262	$	48,834
Less: Depreciation and amortization	1,323		1,251		3,817		3,677
Rent—cost of services	10,006		9,391		29,439		28,520
Other (expense) income	(37)		(18)		28		(50)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations(b)	(108)		430		160		938
Share-based compensation expense(c)	1,391		(2,501)		4,164		2,319
Acquisition related costs and credit allowances(d)	71		1,000		175		1,014



Costs associated with transitioning operations(e)	10		144		595		6,078
Unusual, non-recurring or redundant charges(f)	1,009		293		1,633		370
Add: Net income attributable to noncontrolling interest	79		163		351		387
Condensed Consolidated Income from Operations	$	7,061	$	7,144	$	17,602	$	6,355

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(a)						Segment Adjusted EBITDAR from Operations is net income (loss) attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs and credit allowances, (4) the costs associated with transitioning operations, (5) unusual, non-recurring or redundant charges, and (6) net income 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. 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, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(e)						During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. 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 nine months ended September 30, 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Consolidated Non-GAAP Financial Measures:
Performance Metrics
Consolidated EBITDA	$	8,268	$	8,214	$	21,096	$	9,595
Consolidated Adjusted EBITDA	$	10,880	$	7,895	$	28,864	$	21,648
Valuation Metric
Consolidated Adjusted EBITDAR	$	20,647			$	57,262


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Segment Non-GAAP Measures:(a)
Segment Adjusted EBITDA from Operations
Home health and hospice services	$	15,904	$	14,208	$	43,476	$	41,452
Senior living services	$	3,073	$	1,466	$	8,884	$	3,991


(a)						General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Consolidated net income	$	4,462	$	4,994	$	9,381	$	3,556
Less: Net income attributable to noncontrolling interest	79		163		351		387
Add: Provision for income taxes	1,066		1,074		3,894		241
Interest expense, net	1,496		1,058		4,355		2,508
Depreciation and amortization	1,323		1,251		3,817		3,677
Consolidated EBITDA	8,268		8,214		21,096		9,595
Adjustments to Consolidated EBITDA
Add: Costs at start-up operations(a)	(108)		430		160		938
Share-based compensation expense(b)	1,391		(2,501)		4,164		2,319
Acquisition related costs and credit allowances(c)	71		1,000		175		1,014


Costs associated with transitioning operations(d)	10		144		595		6,078
Unusual, non-recurring or redundant charges(e)	1,009		293		1,633		370
Rent related to items (a) and (d) above	239		315		1,041		1,334
Consolidated Adjusted EBITDA	10,880		7,895		28,864		21,648
Rent—cost of services	10,006		9,391		29,439		28,520
Rent related to items (a) and (d) above	(239)		(315)		(1,041)		(1,334)
Adjusted rent—cost of services	9,767		9,076		28,398		27,186
Consolidated Adjusted EBITDAR	$	20,647			$	57,262


(a)						Represents results related to start-up operations. This amount excludes rent and depreciation and amortization expense related to such operations.
(b)						Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)						Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(d)						During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. 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 nine months ended September 30, 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.

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


	Three Months Ended September 30,
	Home Health and Hospice				Senior Living
	2023		2022		2023		2022
	(In thousands)
Segment Adjusted EBITDAR from Operations	$	17,271	$	15,380	$	11,473	$	9,370
Less: Rent—cost of services	1,439		1,262		8,567		8,129
Rent related to start-up and transitioning operations	(72)		(90)		(167)		(225)
Segment Adjusted EBITDA from Operations	$	15,904	$	14,208	$	3,073	$	1,466


	Nine Months Ended September 30,
	Home Health and Hospice				Senior Living
	2023		2022		2023		2022
	(In thousands)
Segment Adjusted EBITDAR from Operations	$	47,364	$	45,056	$	33,394	$	27,573
Less: Rent—cost of services	4,136		3,765		25,303		24,755
Rent related to start-up and transitioning operations	(248)		(161)		(793)		(1,173)
Segment Adjusted EBITDA from Operations	$	43,476	$	41,452	$	8,884	$	3,991

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 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;

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•to evaluate the effectiveness of our operational strategies; and

•to compare our operating performance to that of our competitors.

We typically use Non-GAAP Financial Measures to compare the operating performance of each operation from period to period. We find that Non-GAAP Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Consolidated Adjusted EBITDAR targets.

Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:

•they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;

•they do not reflect changes in, or cash requirements for, our working capital needs;

•they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

•in the case of Consolidated Adjusted EBITDAR, it does not reflect rent expenses, which are normal and recurring operating expenses that are necessary to operate our leased operations;

•they do not reflect any income tax payments we may be required to make;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and 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. Our use of Non-GAAP Financial Measures should not be construed as an inference that our future results will be unaffected by unusual or unexpected items.

We strongly encourage investors to review the Interim Financial Statements, included in this Quarterly Report in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of Consolidated Net Income to the Non-GAAP Financial Measures in the table presented above, along with the Interim Financial Statements and related notes included elsewhere in this Quarterly Report.

We believe the following Non-GAAP Financial Measures are useful to investors as key operating performance measures and valuation measures:

Performance Measures:

Consolidated EBITDA

We believe Consolidated EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate Consolidated EBITDA as net income, before (a) interest expense (b) provision for income taxes and (c) depreciation and amortization.

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Consolidated Adjusted EBITDA

We adjust Consolidated EBITDA when evaluating our performance because we believe that the exclusion of the 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 Consolidated 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;

•costs associated with transitioning operations; and

•unusual, non-recurring, or redundant charges.

Segment Adjusted EBITDA from Operations

We calculate Segment Adjusted EBITDA from Operations by adjusting Segment Adjusted EBITDAR from Operations to include rent-cost of services. We believe that the inclusion of rent-cost of services provides useful supplemental information to investors regarding our ongoing operating performance for each segment.

Valuation Measure:

Consolidated Adjusted EBITDAR

We use Consolidated Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a measure commonly used by 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 with operating and finance leases. A significant portion of finance lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.

This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense and, as such, does not reflect our cash requirements for leasing commitments. Our presentation of Consolidated Adjusted EBITDAR should not be construed as a financial performance measure.

The adjustments made and previously described in the computation of Consolidated Adjusted EBITDA are also made when computing Consolidated Adjusted EBITDAR. We calculate Consolidated Adjusted EBITDAR by excluding rent-cost of services and rent related to start up operations from Consolidated Adjusted EBITDA.

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Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Revenue


	Three Months Ended September 30,
	2023				2022
	Revenue Dollars		Revenue Percentage		Revenue Dollars		Revenue Percentage
	(In thousands)
Home health and hospice services
Home health	$	44,921	32.0	%	$	39,873	33.8	%
Hospice	50,371		35.9		40,522		34.2
Home care and other(a)	6,182		4.4		5,384		4.5
Total home health and hospice services	101,474		72.3		85,779		72.5
Senior living services	38,718		27.7		32,571		27.5
Total revenue	$	140,192	100.0	%	$	118,350	100.0	%


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

Our total revenue increased $21.8 million, or 18.5% during the three months ended September 30, 2023. We experienced growth of $15.7 million from increased operational performance in our Home Health and Hospice segment from increased admissions and rates when compared to the three months ended September 30, 2022. The growth in our Senior Living segment resulted in an increase in revenue of $6.1 million driven primarily by the combination of increased occupancy and improved average rate per occupied room.

Home Health and Hospice Services


	Three Months Ended September 30,
	2023		2022		Change		% Change
	(In thousands)
Home health and hospice revenue
Home health services	$	44,921	$	39,873	$	5,048	12.7	%
Hospice services	50,371		40,522		9,849		24.3
Home care and other	6,182		5,384		798		14.8
Total home health and hospice revenue	$	101,474	$	85,779	$	15,695	18.3	%

	Three Months Ended September 30,
	2023		2022		Change		% Change
Home health services:
Total home health admissions	10,829		10,152		677		6.7	%
Total Medicare home health admissions	4,640		4,637		3		0.1
Average Medicare revenue per 60-day completed episode	$	3,585	$	3,553	$	32	0.9
Hospice services:
Total hospice admissions	2,433		2,392		41		1.7
Average daily hospice census	2,698		2,293		405		17.7
Hospice Medicare revenue per day	$	183	$	176	$	7	4.0
Number of home health and hospice agencies at period end	103		94		9		9.6

Home health and hospice revenue increased $15.7 million, or 18.3%. Revenue grew due to an increase in certain key performance indicators including, an increase of 6.7% in total home health admissions, an increase in total hospice admissions

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of 1.7%, an increase in average daily hospice census of 17.7%, and an increase of 4.0% in hospice Medicare revenue per day, during the three months ended September 30, 2023 compared to the prior year quarter. Growth was also driven by the addition of nine home health and hospice operations between September 30, 2022 and September 30, 2023, resulting in an increase of $3.8 million or 4.4%.

Senior Living Services


	Three Months Ended September 30,
	2023			2022			Change			% Change

Revenue (in thousands)	$	38,718		$	32,571		$	6,147		18.9	%
Number of communities at period end	51			49			2			4.1
Occupancy	78.9		%	76.5		%	2.4		%
Average monthly revenue per occupied unit	$	3,991		$	3,560		$	431		12.1

Senior living revenue increased $6.1 million, or 18.9%, for the three months ended September 30, 2023 compared to the prior year quarter. Revenue grew primarily due to a 12.1% increase in average monthly revenue per occupied unit and an increase of 240 basis points in occupancy between September 30, 2022 and September 30, 2023. Growth was also driven by the addition of two senior living communities between September 30, 2022 and September 30, 2023, resulting in an increase of $0.6 million or 1.8% overall.

Cost of Services

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


	Three Months Ended September 30,
	2023		2022		Change		% Change
	(In thousands)
Home Health and Hospice	$	84,795	$	71,112	$	13,683	19.2	%
Senior Living	27,589		23,568		4,021		17.1
Total cost of services	$	112,384	$	94,680	$	17,704	18.7	%

Total consolidated cost of services increased $17.7 million, or 18.7%, for the three months ended September 30, 2023 when compared to the three months ended September 30, 2022. Cost of services as a percentage of revenue increased by 20 basis points from 80.0% to 80.2% for the three months ended September 30, 2023 when compared to the three months ended September 30, 2022.

Home Health and Hospice Services


	Three Months Ended September 30,
	2023			2022			Change			% Change
	(In thousands)
Cost of service	$	84,795		$	71,112		$	13,683		19.2	%
Cost of services as a percentage of revenue	83.6		%	82.9		%	0.7		%

Cost of services related to our Home Health and Hospice Services segment increased $13.7 million, or 19.2%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the three months ended September 30, 2023 increased 70 basis points for the three months ended September 30, 2023 when compared to the three months ended September 30, 2022, primarily due to increased wages, benefits and other staffing costs.

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Senior Living Services


	Three Months Ended September 30,
	2023			2022			Change			% Change
	(In thousands)
Cost of service	$	27,589		$	23,568		$	4,021		17.1	%
Cost of services as a percentage of revenue	71.3		%	72.4		%	(1.1)		%

Cost of services related to our Senior Living Services segment increased $4.0 million, or 17.1%, primarily due to increased wages and benefits. As a percentage of revenue, costs of service decreased by 110 basis points for the three months ended September 30, 2023 when compared to the three months ended September 30, 2022.

Rent—Cost of Services. Rent expense increased 6.5% from $9.4 million to $10.0 million in the three months ended September 30, 2023 when compared to the three months ended September 30, 2022, primarily as a result of the newly acquired senior living communities. Rent as a percentage of total revenue decreased 80 basis points from 7.9% to 7.1% for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

General and Administrative Expense. Our general and administrative expense increased $3.5 million or 60.2% from $5.9 million to $9.4 million for the three months ended September 30, 2023 when compared to the three months ended September 30, 2022. General and administrative expense as a percentage of revenue increased 170 basis points from 5.0% to 6.7%. The primary driver of the increase in general and administrative expense was the increase in share-based compensation of $3.7 million due primarily to the modification of certain outstanding RSUs during the three months ended September 30, 2022 that resulted in a reduction of expense in that quarter. For further detail see Note 12, Options and Awards to the Interim Financial Statements included elsewhere in this Quarterly Report.

Depreciation and Amortization. Depreciation and amortization expense was essentially flat as a percentage of total revenue. The impact of increased capital expenditures on depreciation was offset by the prior year impairment of assets that were transferred to Ensign during the current year.

Provision for Income Taxes. We recorded income tax expense of $1.1 million and $1.1 million or 19.3% and 17.7% of earnings before income taxes for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to not having the impact of the Ensign Transaction in the current year.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Revenue


	Nine Months Ended September 30,
	2023				2022
	Revenue Dollars		Revenue Percentage		Revenue Dollars		Revenue Percentage
	(In thousands)
Home health and hospice services
Home health	$	129,112	32.4	%	$	117,962	33.8	%
Hospice	140,222		35.1		117,704		33.8
Home care and other(a)	18,239		4.6		15,932		4.6
Total home health and hospice services	287,573		72.1		251,598		72.2
Senior living services	111,364		27.9		96,978		27.8
Total revenue	$	398,937	100.0	%	$	348,576	100.0	%


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

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Our total revenue increased $50.4 million, or 14.4%, during the nine months ended September 30, 2023. The increase in revenue was driven by increases in key metrics for home health and hospice and senior living, including hospice admissions, hospice revenue per day, hospice average daily census, senior living occupancy, and senior living revenue per occupied room.

Home Health and Hospice Services


	Nine Months Ended September 30,
	2023		2022		Change		% Change
	(In thousands)
Home health and hospice revenue
Home health services	$	129,112	$	117,962	$	11,150	9.5	%
Hospice services	140,222		117,704		22,518		19.1
Home care and other	18,239		15,932		2,307		14.5
Total home health and hospice revenue	$	287,573	$	251,598	$	35,975	14.3	%

	Nine Months Ended September 30,
	2023		2022		Change		% Change
Home health services:
Total home health admissions	32,180		30,389		1,791		5.9	%
Total Medicare home health admissions	14,437		13,952		485		3.5
Average Medicare revenue per 60-day completed episode(a)	$	3,536	$	3,543	$	(7)	(0.2)
Hospice services:
Total hospice admissions	7,206		6,920		286		4.1
Average daily census	2,544		2,270		274		12.1
Hospice Medicare revenue per day	$	184	$	177	$	7	4.0
Number of home health and hospice agencies at period end	103		94		9		9.6


(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 $36.0 million, or 14.3% during the nine months ended September 30, 2023. Segment revenue grew primarily due an increase in hospice average daily census of 12.1%, an increase of 5.9% in home health admissions, inclusive of an increase in total Medicare home health admissions of 3.5%, and an increase of 4.1% in hospice admissions. The addition of nine home health and hospice operations between September 30, 2022 and September 30, 2023, added revenue of $5.7 million or 2.3%.

Senior Living Services


	Nine Months Ended September 30,
	2023			2022			Change			% Change

Revenue (in thousands)	$	111,364		$	96,978		$	14,386		14.8	%
Number of communities at period end	51			49			2			4.1
Occupancy	78.4		%	75.1		%	3.3		%
Average monthly revenue per occupied unit	$	3,927		$	3,465		$	462		13.3

Senior living revenue increased $14.4 million, or 14.8%, for the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to an increase of 13.3% in average monthly revenue per occupied unit and an increase of 330 basis points in the occupancy rate between September 30, 2022 and September 30, 2023. The acquisition of two senior living communities between September 30, 2022 and September 30, 2023, added $1.1 million or 1.2% in revenue.

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Cost of Services


	Nine Months Ended September 30,
	2023		2022		Change		% Change
	(In thousands)
Home Health and Hospice	$	242,280	$	208,345	$	33,935	16.3	%
Senior Living	78,882		69,313		9,569		13.8
Total cost of services	$	321,162	$	277,658	$	43,504	15.7	%

Consolidated cost of services increased $43.5 million, or 15.7%, during the nine months ended September 30, 2023. Cost of services as a percentage of revenue for the nine months ended September 30, 2023 increased by 80 basis points to 80.5% from 79.7% compared to the nine months ended September 30, 2022.

Home Health and Hospice Services


	Nine Months Ended September 30,
	2023			2022			Change			% Change
Cost of service (in thousands)	$	242,280		$	208,345		$	33,935		16.3	%
Cost of services as a percentage of revenue	84.2		%	82.8		%	1.4		%

Cost of services related to our Home Health and Hospice services segment increased $33.9 million, or 16.3%, primarily due to the increased volume of services from the growth in admissions and average daily census. Cost of services as a percentage of revenue for the nine months ended September 30, 2023 increased by 140 basis points compared to the nine months ended September 30, 2022 primarily due to increased wages and benefits.

Senior Living Services


	Nine Months Ended September 30,
	2023			2022			Change			% Change
Cost of service (in thousands)	$	78,882		$	69,313		$	9,569		13.8	%
Cost of services as a percentage of revenue	70.8		%	71.5		%	(0.7)		%

Cost of services related to our Senior Living services segment increased $9.6 million, or 13.8%, during the nine months ended September 30, 2023 in response to higher occupancy and wage rate increases. As a percentage of revenue, costs of service decreased by 70 basis points during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022.

Rent—Cost of Services. Rent increased 3.2% from $28.5 million to $29.4 million during the nine months ended September 30, 2023 compared to the same period in the prior year, primarily as a result of the newly acquired senior living communities. As a percentage of revenue, rent—cost of services decreased 80 basis points when compared to the nine months ended September 30, 2022 due to improved senior living performance.

General and Administrative Expense. Our general and administrative expense increased $1.3 million, or 4.9%, from $25.7 million to $26.9 million for the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022. The increase in general and administrative expense was due to an increase of $1.4 million in share-based compensation, for the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022.

Depreciation and Amortization. Depreciation and amortization expense was essentially flat as a percentage of total revenue.

Loss on asset dispositions and impairment, net. Loss on asset dispositions and impairment, net decreased $6.7 million for the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to senior living communities transferred to Ensign in 2022.

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Provision for Income Taxes. We recorded income tax expense of $3.9 million and $0.2 million, or 29.3% and 6.3% of earnings before income taxes, for the nine months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to not having the impact of the Ensign Transaction in the current year.

Liquidity and Capital Resources

Our primary sources of liquidity are net cash provided by operating activities and borrowings under our revolving credit facility.

Revolving Credit Facility

The Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of September 30, 2023, the Company was compliant with all such financial covenants.

As of September 30, 2023, we had $3.4 million of cash and $90.8 million of available borrowing capacity on our Revolving Credit Facility.

We believe that our existing cash, cash generated through operations, and access to available borrowing capacity under our existing Credit Agreement, will be sufficient to provide adequate liquidity for the next twelve months for our operating activities and for opportunities of acquisition growth.

The following table presents selected data from our Condensed Consolidated Statement of Cash Flows for the periods presented:


	Nine Months Ended September 30,
	2023		2022
	(In thousands)
Net cash provided by operating activities	$	27,910	$	12,974
Net cash used in investing activities	(17,576)		(20,176)
Net cash (used in) provided by financing activities	(9,030)		4,967
Net increase (decrease) in cash	1,304		(2,235)
Cash at beginning of period	2,079		5,190
Cash at end of period	$	3,383	$	2,955

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Our net cash flow from operating activities for the nine months ended September 30, 2023 increased by $14.9 million when compared to the nine months ended September 30, 2022. The primary driver of this difference was a $5.9 million increase in Net income, and a $4.9 million net increase in cash flows from the change in operating assets and liabilities, partially offset by a decrease of $4.2 million in non-cash expenses.

Our net cash used in investing activities for the nine months ended September 30, 2023 decreased by $2.6 million compared to the nine months ended September 30, 2022, primarily driven by a $2.1 million increase in business acquisitions

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and other assets offset by a $4.7 million decrease in purchases of property and equipment during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Our net cash used in financing activities increased by approximately $14.0 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was primarily due to a net reduction in the balance on our line of credit during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Contractual Obligations, Commitments and Contingencies

We continue to make draws and payments on our Revolving Credit Facility, as described in Note 11, Debt, to the Interim Financial Statements in Part I of this Quarterly Report. Additionally, we have right-of-use assets obtained in exchange for new operating lease obligations, as described in the supplemental disclosures of cash flow information in the Condensed Consolidated Statement of Cash Flows and in Note 13, Leases, to the Interim Financial Statements in Part I of this Quarterly Report.

Besides those transactions there have been no other material changes to our total obligations during the period covered by this Quarterly Report outside of the normal course of our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. We are exposed to risks associated with market changes in interest rates. On June 12, 2023, Pennant entered into a second amendment to the Credit Agreement that modified the reference rate from LIBOR to SOFR. A 1.0% interest rate change would cause interest expense to change by approximately $0.6 million annually based upon our outstanding long-term debt as of September 30, 2023. We manage our exposure to this market risk by monitoring available financing alternatives.

Item 4. 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 Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. 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 15, Commitments and Contingencies, to the Interim Financial Statements for a description of claims and legal actions arising in the ordinary course of our business.

Item 1A. Risk Factors

We have disclosed under the heading “Risk Factors” in the 2022 Annual Report risk factors that materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in the 2022 Annual Report and the other information set forth elsewhere in this Quarterly Report. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Since the filing of our 2022 Annual Report on February 23, 2023, the following additions have been made to the risk factors previously disclosed.

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 governmentally 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; reinstated at 1% for the period April 1, 2022 through June 30, 2022 and at 2% thereafter). 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.

Union activity is increasing and could impact our operations. Throughout 2023, there has been a trend of increasing union activity, including strikes in the health care industry and in locations, such as California, in which we operate. 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 impact our operations.

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Item 6. Exhibits

EXHIBIT INDEX


Exhibit						Description

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).

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

32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						XBRL 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 (embedded within the Inline XBRL document)

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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: November 7, 2023	BY:	/s/ LYNETTE B. WALBOM
		Lynette B. Walbom
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

EXHIBIT 31.1

I, Brent J. Guerisoli, certify that:

1.I have reviewed this annual report on Form 10-Q 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)) 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: November 7, 2023

/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-Q of The Pennant Group, Inc.;

(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: November 7, 2023

/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-Q for the period ended September 30, 2023, 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:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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)

November 7, 2023

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-Q for the period ended September 30, 2023, 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:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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)

November 7, 2023

COVER - shares	9 Months Ended
COVER - shares	Sep. 30, 2023	Nov. 06, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	001-38900
Entity Registrant Name	THE PENNANT GROUP, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	83-3349931
Entity Address, Address Line One	1675 East Riverside Drive
Entity Address, Address Line Two	Suite 150
Entity Address, City or Town	Eagle
Entity Address, State or Province	ID
Entity Address, Postal Zip Code	83616
City Area Code	(208)
Local Phone Number	506-6100
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	PNTG
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		29,926,501
Entity Central Index Key	0001766400
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Amendment Flag	false

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current assets:
Cash	$ 3,383	$ 2,079
Accounts receivable—less allowance for doubtful accounts of $931 and $592, respectively	59,353	53,420
Prepaid expenses and other current assets	9,460	18,323
Total current assets	72,196	73,822
Property and equipment, net	27,983	26,621
Right-of-use assets	262,987	260,868
Deferred tax assets, net	126	2,149
Restricted and other assets	7,983	10,545
Goodwill	86,132	79,497
Other indefinite-lived intangibles	62,908	58,617
Total assets	520,315	512,119
Current liabilities:
Accounts payable	12,182	13,647
Accrued wages and related liabilities	24,660	23,283
Operating lease liabilities—current	16,341	16,633
Other accrued liabilities	15,577	16,684
Total current liabilities	68,760	70,247
Long-term operating lease liabilities—less current portion	249,574	247,042
Other long-term liabilities	8,679	6,281
Long-term debt, net	53,783	62,892
Total liabilities	380,796	386,462
Commitments and contingencies
Equity:
Common stock, $0.001 par value; 100,000 shares authorized; 30,266 and 29,919 shares issued and outstanding, respectively, at September 30, 2023; and 30,149 and 29,692 shares issued and outstanding, respectively, at December 31, 2022	29	29
Additional paid-in capital	104,245	99,764
Retained earnings	30,314	21,284
Treasury stock, at cost, 3 shares at September 30, 2023 and December 31, 2022	(65)	(65)
Total The Pennant Group, Inc. stockholders’ equity	134,523	121,012
Noncontrolling interest	4,996	4,645
Total equity	139,519	125,657
Total liabilities and equity	$ 520,315	$ 512,119

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 931	$ 592
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	30,266,000	30,149,000
Common stock, shares outstanding (in shares)	29,919,000	29,692,000
Treasury stock, at cost (in shares)	3,000	3,000

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Income Statement [Abstract]
Revenue	$ 140,192	$ 118,350	$ 398,937	$ 348,576
Expense
Cost of services	112,384	94,680	321,162	277,658
Rent—cost of services	10,006	9,391	29,439	28,520
General and administrative expense	9,417	5,879	26,913	25,653
Depreciation and amortization	1,323	1,251	3,817	3,677
Loss on asset dispositions and impairment, net	1	5	4	6,713
Total expenses	133,131	111,206	381,335	342,221
Income from operations	7,061	7,144	17,602	6,355
Other (expense) income:
Other (expense) income	(37)	(18)	28	(50)
Interest expense, net	(1,496)	(1,058)	(4,355)	(2,508)
Other (expense), net	(1,533)	(1,076)	(4,327)	(2,558)
Income before provision for income taxes	5,528	6,068	13,275	3,797
Provision for income taxes	1,066	1,074	3,894	241
Net income	4,462	4,994	9,381	3,556
Less: Net income attributable to noncontrolling interest	79	163	351	387
Net income attributable to The Pennant Group, Inc.	$ 4,383	$ 4,831	$ 9,030	$ 3,169
Earnings per share:
Basic (in dollars per share)	$ 0.15	$ 0.16	$ 0.30	$ 0.11
Diluted (in dollars per share)	$ 0.15	$ 0.16	$ 0.30	$ 0.10
Weighted average common shares outstanding:
Basic (in shares)	29,912	29,335	29,825	28,840
Diluted (in shares)	30,206	30,172	30,178	30,182

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Treasury Stock	Non-controlling Interest
Equity, beginning balance, common stock (in shares) at Dec. 31, 2021		28,826
Equity, beginning balance at Dec. 31, 2021	$ 114,244	$ 28	$ 95,595	$ 14,641	$ (65)	$ 4,045
Equity, beginning balance, treasury stock (in shares) at Dec. 31, 2021					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	1,014			1,014
Net income attributable to noncontrolling interests	144					144
Share-based compensation	2,440		2,440
Issuance of common stock from the exercise of stock options (in shares)		21
Issuance of common stock from the exercise of stock options	90	$ 1	89
Net issuance of restricted stock (in shares)		2
Equity, ending balance, common stock (in shares) at Mar. 31, 2022		28,849
Equity, ending balance at Mar. 31, 2022	117,932	$ 29	98,124	15,655	$ (65)	4,189
Equity, ending balance, treasury stock (in shares) at Mar. 31, 2022					3
Equity, beginning balance, common stock (in shares) at Dec. 31, 2021		28,826
Equity, beginning balance at Dec. 31, 2021	114,244	$ 28	95,595	14,641	$ (65)	4,045
Equity, beginning balance, treasury stock (in shares) at Dec. 31, 2021					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	3,169
Net income attributable to noncontrolling interests	387
Equity, ending balance, common stock (in shares) at Sep. 30, 2022		30,146
Equity, ending balance at Sep. 30, 2022	120,840	$ 29	98,634	17,810	$ (65)	4,432
Equity, ending balance, treasury stock (in shares) at Sep. 30, 2022					3
Equity, beginning balance, common stock (in shares) at Mar. 31, 2022		28,849
Equity, beginning balance at Mar. 31, 2022	117,932	$ 29	98,124	15,655	$ (65)	4,189
Equity, beginning balance, treasury stock (in shares) at Mar. 31, 2022					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	(2,676)			(2,676)
Net income attributable to noncontrolling interests	80					80
Share-based compensation	2,380		2,380
Issuance of common stock from the exercise of stock options (in shares)		33
Issuance of common stock from the exercise of stock options	271		271
Net issuance of restricted stock (in shares)		4
Equity, ending balance, common stock (in shares) at Jun. 30, 2022		28,886
Equity, ending balance at Jun. 30, 2022	117,987	$ 29	100,775	12,979	$ (65)	4,269
Equity, ending balance, treasury stock (in shares) at Jun. 30, 2022					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	4,831			4,831
Net income attributable to noncontrolling interests	163					163
Share-based compensation	(2,747)		(2,747)
Issuance of common stock from the exercise of stock options (in shares)		52
Issuance of common stock from the exercise of stock options	606		606
Net issuance of restricted stock (in shares)		1,208
Equity, ending balance, common stock (in shares) at Sep. 30, 2022		30,146
Equity, ending balance at Sep. 30, 2022	$ 120,840	$ 29	98,634	17,810	$ (65)	4,432
Equity, ending balance, treasury stock (in shares) at Sep. 30, 2022					3
Equity, beginning balance, common stock (in shares) at Dec. 31, 2022	29,692	30,149
Equity, beginning balance at Dec. 31, 2022	$ 125,657	$ 29	99,764	21,284	$ (65)	4,645
Equity, beginning balance, treasury stock (in shares) at Dec. 31, 2022	3				3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	$ 1,850			1,850
Net income attributable to noncontrolling interests	147					147
Share-based compensation	1,367		1,367
Issuance of common stock from the exercise of stock options (in shares)		26
Issuance of common stock from the exercise of stock options	203		203
Net issuance of restricted stock (in shares)		28
Equity, ending balance, common stock (in shares) at Mar. 31, 2023		30,203
Equity, ending balance at Mar. 31, 2023	$ 129,224	$ 29	101,334	23,134	$ (65)	4,792
Equity, ending balance, treasury stock (in shares) at Mar. 31, 2023					3
Equity, beginning balance, common stock (in shares) at Dec. 31, 2022	29,692	30,149
Equity, beginning balance at Dec. 31, 2022	$ 125,657	$ 29	99,764	21,284	$ (65)	4,645
Equity, beginning balance, treasury stock (in shares) at Dec. 31, 2022	3				3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	$ 9,030
Net income attributable to noncontrolling interests	$ 351
Equity, ending balance, common stock (in shares) at Sep. 30, 2023	29,919	30,266
Equity, ending balance at Sep. 30, 2023	$ 139,519	$ 29	104,245	30,314	$ (65)	4,996
Equity, ending balance, treasury stock (in shares) at Sep. 30, 2023	3				3
Equity, beginning balance, common stock (in shares) at Mar. 31, 2023		30,203
Equity, beginning balance at Mar. 31, 2023	$ 129,224	$ 29	101,334	23,134	$ (65)	4,792
Equity, beginning balance, treasury stock (in shares) at Mar. 31, 2023					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	2,797			2,797
Net income attributable to noncontrolling interests	125					125
Share-based compensation	1,303		1,303
Issuance of common stock from the exercise of stock options (in shares)		38
Issuance of common stock from the exercise of stock options	249		249
Net issuance of restricted stock (in shares)		10
Equity, ending balance, common stock (in shares) at Jun. 30, 2023		30,251
Equity, ending balance at Jun. 30, 2023	133,698	$ 29	102,886	25,931	$ (65)	4,917
Equity, ending balance, treasury stock (in shares) at Jun. 30, 2023					3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to The Pennant Group, Inc.	4,383			4,383
Net income attributable to noncontrolling interests	79					79
Share-based compensation	1,341		1,341
Issuance of common stock from the exercise of stock options (in shares)		4
Issuance of common stock from the exercise of stock options	$ 18		18
Net issuance of restricted stock (in shares)		11
Equity, ending balance, common stock (in shares) at Sep. 30, 2023	29,919	30,266
Equity, ending balance at Sep. 30, 2023	$ 139,519	$ 29	$ 104,245	$ 30,314	$ (65)	$ 4,996
Equity, ending balance, treasury stock (in shares) at Sep. 30, 2023	3				3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities:
Net income	$ 9,381	$ 3,556
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,817	3,677
Amortization of deferred financing fees	391	390
Impairment of long-lived assets	0	218
Provision for doubtful accounts	620	603
Share-based compensation	4,011	2,073
Deferred income taxes	3,066	752
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable	(5,560)	1,734
Prepaid expenses and other assets	11,387	(1,429)
Operating lease obligations	121	(140)
Accounts payable	(866)	1,655
Accrued wages and related liabilities	1,376	1,278
Other accrued liabilities	(394)	4,333
Contract liabilities (CARES Act advance payments)	0	(6,211)
Other long-term liabilities	560	485
Net cash provided by operating activities	27,910	12,974
Cash flows from investing activities:
Purchase of property and equipment	(5,746)	(10,426)
Cash payments for business acquisitions	(11,662)	(9,680)
Other	(168)	(70)
Net cash used in investing activities	(17,576)	(20,176)
Cash flows from financing activities:
Proceeds from Revolving Credit Facility	131,500	82,000
Payments on Revolving Credit Facility	(141,000)	(78,000)
Issuance of common stock upon the exercise of options	470	967
Net cash (used in) provided by financing activities	(9,030)	4,967
Net increase (decrease) in cash	1,304	(2,235)
Cash beginning of period	2,079	5,190
Cash end of period	3,383	2,955
Cash paid during the period for:
Interest	3,997	2,114
Income taxes	176	77
Lease liabilities	27,231	27,092
Right-of-use assets obtained in exchange for new operating lease obligations	9,357	10,326
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications	5,195	6,270
Non-cash adjustment to right-of-use assets and lease liabilities from lease terminations and assignments	0	(43,136)
Non-cash investing activity:
Capital expenditures in accounts payable	$ 680	$ 1,100

DESCRIPTION OF BUSINESS	9 Months Ended
DESCRIPTION OF BUSINESS	Sep. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
DESCRIPTION OF BUSINESS	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 September 30, 2023, the Company’s subsidiaries operated 103 home health, hospice and home care agencies and 51 senior living communities located in Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. 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.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9 Months Ended
	Sep. 30, 2023
Accounting Policies [Abstract]
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of the Company (the “Interim Financial Statements”) reflect the Company’s financial position, results of operations and cash flows of the business. The Interim Financial Statements 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”). Management believes that the Interim Financial Statements reflect, in all material respects, all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented in conformity with GAAP. The results reported in these Interim Financial Statements are not necessarily indicative of results that may be expected for the entire year. The Condensed Consolidated Balance Sheet as of December 31, 2022 is derived from the Company’s annual audited Consolidated Financial Statements for the fiscal year ended December 31, 2022, which should be read in conjunction with these Interim Financial Statements. Certain information in the accompanying footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with GAAP. All significant intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its Condensed Consolidated Balance Sheets and the amount of consolidated net income that is attributable to the Company and the noncontrolling interest in its Condensed Consolidated Statements of Income. The Company consists of various limited liability companies and corporations established to operate home health, hospice, home care, and senior living operations. The Interim Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest. Estimates and Assumptions - The preparation of the Interim 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 Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Interim Financial Statements relate to revenue, intangible assets and goodwill, right-of-use assets and lease liabilities for leases greater than 12 months, self-insurance reserves, and income taxes. Actual results could differ from those estimates. 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 the employer-paid portion of social security taxes, all of which was repaid by 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. 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 expenses when related expenses are incurred. As of September 30, 2023 and December 31, 2022, the Company had $872 and $1,479 in unapplied state relief funds, respectively. The unapplied state relief funds received are recorded in other accrued liabilities. The Company recognized state relief funding totaling $923 and $3,005 for the three and nine months ended September 30, 2023, respectively, and $734 and $1,980 for the three and nine months ended September 30, 2022, respectively, which the Company recognized as a reduction of cost of services expense. 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. On August 23, 2023, the FASB issued ASU 2023-05 “Business Combinations—Joint Venture Formations (Subtopic 805-60)” (ASU 2023-05) under which an entity that qualifies as either a joint venture or a corporate joint venture, as defined in the ASC master glossary, is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, ASU 2023-05 stipulates that a joint venture or a corporate joint venture must initially measure its assets and liabilities at fair value on the formation date. The amendments in ASU 2023-05 are effective for all joint ventures within the ASU’s scope that are formed on or after January 1, 2025. Early adoption is permitted. The Company is evaluating this ASU and notes that any impact to financial statements would be dependent on the facts and circumstances surrounding any new joint venture formed after the date of adoption.

TRANSACTIONS WITH ENSIGN	9 Months Ended
TRANSACTIONS WITH ENSIGN	Sep. 30, 2023
Related Party Transactions [Abstract]
TRANSACTIONS WITH ENSIGN	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 incurred costs of $254 and $719 for the three and nine months ended September 30, 2023, and $231 and $1,332 for the three and nine months ended September 30, 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 $1,217 and $3,171 for the three and nine months ended September 30, 2023, respectively, and $812 and $2,035 for the three and nine months ended September 30, 2022, respectively, and are included in cost of services. The Company’s independent operating subsidiaries leased 29 communities from subsidiaries of Ensign under a master lease arrangement as of both September 30, 2023 and September 30, 2022. See further discussion below at Note 8, 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 the three months ended June 2022. The Transaction closed in April 2022.

NET INCOME PER COMMON SHARE

9 Months Ended

Sep. 30, 2023

Earnings Per Share [Abstract]

NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:


Net income attributable to The Pennant Group, Inc.	$	4,383	$	4,831	$	9,030	$	3,169

Denominator:
Weighted average shares outstanding for basic net income per share	29,912		29,335		29,825		28,840
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock(a)	294		837		353		1,342
Adjusted weighted average common shares outstanding for diluted income per share	30,206		30,172		30,178		30,182

Earnings Per Share:
Basic net income per common share	$	0.15	$	0.16	$	0.30	$	0.11
Diluted net income per common share	$	0.15	$	0.16	$	0.30	$	0.10


(a)						The diluted per share amounts do not reflect common equivalent shares outstanding of 2,718 and 2,278 for the three and nine months ended September 30, 2023, respectively, and 1,858 and 1,806 for the three and nine months ended September 30, 2022, respectively, because of their anti-dilutive effect.

REVENUE AND ACCOUNTS RECEIVABLE

9 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

REVENUE AND ACCOUNTS RECEIVABLE

Disaggregation of Revenue

The Company’s service specific revenue recognition policies are as follows:

Home Health Revenue

Medicare Revenue

Non-Medicare Revenue

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.

Hospice Revenue

Senior Living Revenue

Revenue By Payor

Revenue by payor for the three months ended September 30, 2023 and 2022, is summarized in the following tables:


	Three Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	24,076	$	43,849	$	—	$	67,925	48.5	%
Medicaid	2,521		5,190		12,182		19,893		14.2
Subtotal	26,597		49,039		12,182		87,818		62.7
Managed care	17,927		1,231		—		19,158		13.6
Private and other(a)	6,579		101		26,536		33,216		23.7
Total revenue	$	51,103	$	50,371	$	38,718	$	140,192	100.0	%


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


	Three Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	23,040	$	35,367	$	—	$	58,407	49.4	%
Medicaid	2,151		4,065		9,127		15,343		13.0
Subtotal	25,191		39,432		9,127		73,750		62.4
Managed care	14,594		1,062		—		15,656		13.2
Private and other(a)	5,472		28		23,444		28,944		24.4
Total revenue	$	45,257	$	40,522	$	32,571	$	118,350	100.0	%


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

Revenue by payor for the nine months ended September 30, 2023 and 2022, is summarized in the following tables:


	Nine Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	71,372	$	121,523	$	—	$	192,895	48.3	%
Medicaid	7,178		14,470		34,807		56,455		14.2
Subtotal	78,550		135,993		34,807		249,350		62.5
Managed care	49,696		3,842		—		53,538		13.4
Private and other(a)	19,105		387		76,557		96,049		24.1
Total revenue	$	147,351	$	140,222	$	111,364	$	398,937	100.0	%


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


	Nine Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	67,861	$	103,322	$	—	$	171,183	49.1	%
Medicaid	7,389		11,189		27,502		46,080		13.2
Subtotal	75,250		114,511		27,502		217,263		62.3
Managed care	42,106		2,999		—		45,105		13.0
Private and other(a)	16,538		194		69,476		86,208		24.7
Total revenue	$	133,894	$	117,704	$	96,978	$	348,576	100.0	%


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

Balance Sheet Impact

Accounts receivable, net as of September 30, 2023 and December 31, 2022 is summarized in the following table:


	September 30, 2023		December 31, 2022
Medicare	$	33,709	$	31,321
Medicaid	12,699		10,700
Managed care	11,422		9,370
Private and other	2,454		2,621
Accounts receivable, gross	60,284		54,012
Less: allowance for doubtful accounts	(931)		(592)
Accounts receivable, net	$	59,353	$	53,420

Concentrations - Credit Risk

Practical Expedients and Exemptions

BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2023

Segment Reporting [Abstract]

BUSINESS SEGMENTS


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Three Months Ended September 30, 2023
Revenue	$	101,474	$	38,718	$	—	$	140,192
Segment Adjusted EBITDAR from Operations	$	17,271	$	11,473	$	(8,097)	$	20,647
Three Months Ended September 30, 2022
Revenue	$	85,779	$	32,571	$	—	$	118,350
Segment Adjusted EBITDAR from Operations	$	15,380	$	9,370	$	(7,779)	$	16,971


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Nine Months Ended September 30, 2023
Revenue	$	287,573	$	111,364	$	—	$	398,937
Segment Adjusted EBITDAR from Operations	$	47,364	$	33,394	$	(23,496)	$	57,262
Nine Months Ended September 30, 2022
Revenue	$	251,598	$	96,978	$	—	$	348,576
Segment Adjusted EBITDAR from Operations	$	45,056	$	27,573	$	(23,795)	$	48,834

The following table provides a reconciliation of Segment Adjusted EBITDAR from Operations to income from operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Segment Adjusted EBITDAR from Operations	$	20,647	$	16,971	$	57,262	$	48,834
Less: Depreciation and amortization	1,323		1,251		3,817		3,677
Rent—cost of services	10,006		9,391		29,439		28,520
Other (expense) income	(37)		(18)		28		(50)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations(a)	(108)		430		160		938
Share-based compensation expense and related taxes(b)	1,391		(2,501)		4,164		2,319
Acquisition related costs and credit allowances(c)	71		1,000		175		1,014

Costs associated with transitioning operations(d)	10		144		595		6,078
Unusual, non-recurring or redundant charges(e)	1,009		293		1,633		370
Add: Net income attributable to noncontrolling interest	79		163		351		387
Condensed Consolidated Income from Operations	$	7,061	$	7,144	$	17,602	$	6,355


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


(b)						Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)						Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(d)						During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. 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 nine months ended September 30, 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.

ACQUISITIONS	9 Months Ended
ACQUISITIONS	Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract]
ACQUISITIONS	ACQUISITIONS The Company is focused on acquiring 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 Interim Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. 2023 Acquisitions During the nine months ended September 30, 2023, the Company expanded its operations with the addition of three home health agencies, three 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, three hospice agencies, and two home care agencies acquired were mostly concentrated in goodwill and intangible assets and as such, these transactions were classified as business combinations in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The purchase price for the business combinations was $11,662, which preliminarily consisted of of goodwill of $6,635, indefinite-lived intangible assets of $3,895 related to Medicare and Medicaid licenses, equipment and other assets of $1,027 related to accounts receivable, and other indefinite-lived intangible assets of $186, less assumed liabilities of $81. The Company anticipates that the total goodwill recognized will be fully deductible for tax purposes. One home health agency acquired was a Medicare license and is considered an asset acquisition. The fair value of the home health license acquired was $210 and was recorded in indefinite-lived intangible assets. There were no material acquisition costs that were expensed related to the business combinations during the nine months ended September 30, 2023. 2022 Acquisitions During the nine months ended September 30, 2022, the Company expanded its operations with the addition of two home health and four hospice agencies as well as one senior living community. 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 home health acquisitions was mostly concentrated in goodwill and 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 $9,680, which consisted of equipment and other assets of $188, goodwill of $4,925, indefinite-lived intangible assets of $4,714 related to Medicare and Medicaid licenses, and other intangible assets of $40, net of assumed liabilities of $187. The Company anticipates that the total goodwill recognized will be fully deductible for tax purposes. There were no material acquisition costs that were expensed related to the business combinations during the nine months ended September 30, 2022. Subsequent Events On October 2, 2023, the Company closed on an acquisition of one hospice agency in California. On November 1, 2023, the Company closed on an acquisition of two hospice agencies, one in Texas and one in Oklahoma. The total purchase price of the three hospice agencies was $6,600. As of the date of this report, the preliminary allocation of the purchase price for the acquisitions acquired subsequent to September 30, 2023 were not completed as necessary valuation information was not yet available. As such, the determination whether these acquisitions should be classified as business combinations or asset acquisitions under ASC 805 will be determined upon completion of the allocation of the purchase price.

PROPERTY AND EQUIPMENT—NET

9 Months Ended

Sep. 30, 2023

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT—NET

Property and equipment, net consist of the following:


	September 30, 2023		December 31, 2022
Land	$	96	$	96
Building	1,890		1,890
Leasehold improvements	20,496		18,759
Equipment	28,730		25,532
Furniture and fixtures	1,271		1,151
	52,483		47,428
Less: accumulated depreciation	(24,500)		(20,807)
Property and equipment, net	$	27,983	$	26,621

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

The following table represents activity in goodwill by segment for the nine months ended September 30, 2023:


	Home Health and Hospice Services		Senior Living Services		Total
December 31, 2022	$	75,855	$	3,642	$	79,497
Additions	6,635		—		6,635

September 30, 2023	$	82,490	$	3,642	$	86,132

Other indefinite-lived intangible assets consist of the following:


	September 30, 2023		December 31, 2022
Trade name	$	1,571	$	1,385
Medicare and Medicaid licenses	61,337		57,232
Total	$	62,908	$	58,617

No goodwill or intangible asset impairments were recorded during the three and nine months ended September 30, 2023 and 2022.

OTHER ACCRUED LIABILITIES

9 Months Ended

Sep. 30, 2023

Payables and Accruals [Abstract]

OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:


	September 30, 2023		December 31, 2022
Refunds payable	$	1,754	$	2,244
Deferred revenue	1,786		1,592
Resident deposits	2,657		4,315
Property taxes	1,254		1,027
Deferred state relief funds	872		1,479
Accrued self-insurance liabilities	4,590		3,546

Other	2,664		2,481
Other accrued liabilities	$	15,577	$	16,684

DEBT

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

DEBT

Long-term debt, net consists of the following:


	September 30, 2023		December 31, 2022
Revolving Credit Facility	$	55,000	$	64,500
Less: unamortized debt issuance costs(a)	(1,217)		(1,608)
Long-term debt, net	$	53,783	$	62,892


(a)						Amortization expense for debt issuance costs was $130 and $391 for the three and nine months ended September 30, 2023, respectively, and $130 and $390 for the three and nine months ended September 30, 2022, respectively, and is recorded in interest expense, net on the Condensed Consolidated Statements of Income.

OPTIONS AND AWARDS

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

OPTIONS AND AWARDS

Total share-based compensation expense for all Plans for the three and nine months ended September 30, 2023 and 2022 was:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Share-based compensation expense related to stock options	$	1,044	859		$	2,878	$	2,480
Share-based compensation expense related to Restricted Stock	178		(3,664)		535		(643)
Share-based compensation expense related to Restricted Stock to non-employee directors	119		58		598		236
Total share-based compensation	$	1,341	$	(2,747)	$	4,011	$	2,073

In future periods, the Company estimates it will recognize the following share-based compensation expense for unvested stock options and unvested Restricted Stock as of September 30, 2023:


	Unrecognized Compensation Expense		Weighted Average Recognition Period (in years)
Unvested Stock Options	$	12,492	3.4
Unvested Restricted Stock	2,573		3.7
Total unrecognized share-based compensation expense	$	15,065

Stock Options

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 as of September 30:


Grant Year	Options Granted	Risk-Free Interest Rate		Expected Life(a)	Expected Volatility(b)		Dividend Yield		Weighted Average Fair Value of Options
2023	874	4.1	%	6.5	41.8	%	—	%	$	6.61
2022	349	2.3	%	6.5	39.8	%	—	%	$	6.71


(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 nine months ended September 30, 2023:


	Number of Options Outstanding	Weighted Average Exercise Price		Number of Options Vested	Weighted Average Exercise Price of Options Vested
December 31, 2022	2,219	20.76		973	$	16.90
Granted	874	13.62
Exercised	(66)	7.06
Forfeited	(48)	21.63
Expired	(49)	19.87
September 30, 2023	2,930	$	18.79	1,073	$	18.63

Restricted Stock

A summary of the status of Pennant’s non-vested Restricted Stock, and changes during the nine months ended September 30, 2023, is presented below:


	Non-Vested Restricted Stock	Weighted Average Grant Date Fair Value
December 31, 2022	418	$	14.26
Granted	53	11.40
Vested	(199)	13.51
Forfeited	(3)	15.61
September 30, 2023	269	$	15.36

LEASES

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

LEASES

The components of operating lease cost, are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating Lease Costs:
Community Rent—cost of services	$	8,567	$	8,129	$	25,303	$	24,755
Office Rent—cost of services	1,439		1,262		4,136		3,765
Rent—cost of services	$	10,006	$	9,391	$	29,439	$	28,520

General and administrative expense	$	94	$	86	$	291	$	241
Variable lease cost (a)	$	1,876	$	1,590	$	5,367	$	4,463


(a)						Represents variable lease cost for operating leases, which costs include property taxes and insurance, common area maintenance, and consumer price index increases, incurred as part of the Company’s triple net lease, and which is included in cost of services for the three and nine months ended September 30, 2023 and 2022.

The following table shows the lease maturity analysis for all leases as of September 30, 2023, for the years ended December 31:


Year	Amount
2023 (Remainder)	$	9,287
2024	36,549
2025	35,195
2026	34,032
2027	33,268
Thereafter	281,565
Total lease payments	429,896
Less: present value adjustments	(163,981)
Present value of total lease liabilities	265,915
Less: current lease liabilities	(16,341)
Long-term operating lease liabilities	$	249,574

INCOME TAXES	9 Months Ended
INCOME TAXES	Sep. 30, 2023
Income Tax Disclosure [Abstract]
INCOME TAXES	INCOME TAXESThe Company recorded income tax expense of $1,066 and $1,074 or 19.3% and 17.7% of earnings before income taxes for the three months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to the modification of certain outstanding RSUs granted in connection with the Spin-off and not having the impact of the Transaction in the current year.The Company recorded income tax expense of $3,894 and $241, or 29.3% and 6.3% of earnings before income taxes for the nine months ended September 30, 2023 and 2022, respectively. The increase in the effective tax rate is primarily due to the modification of certain outstanding RSUs granted in connection with the Spin-off and not having the impact of the Transaction in the current year.

COMMITMENTS AND CONTINGENCIES	9 Months Ended
COMMITMENTS AND CONTINGENCIES	Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES	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, which may include suspension, termination, or revocation of participation in governmental programs for the payment of the services the Company provides. 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 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 Condensed Consolidated Balance Sheets for any of the periods presented. 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, as well as employment-related claims. Certain of the states where we conduct business, including California, recently adopted laws that increase the maximum amount of non-economic damages that may be awarded to a successful plaintiff in a claim for professional negligence or malpractice arising from care provided by our independent operating subsidiaries. These changes in applicable law may also increase the cost of obtaining and maintaining professional liability insurance to pay for the defense of, and any liability arising under, such claims. 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 also is subject to potential lawsuits under the False Claims Act (the “FCA”) and comparable state laws alleging submission of fraudulent claims for services to any governmental healthcare program (such as Medicare) or commercial 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 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. 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 September 30, 2023, nine 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 previously paid claims. The Company has appealed substantially all denials arising from these Reviews using the applicable appeals process. As of September 30, 2023, and through the filing of this Quarterly Report on Form 10-Q, 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. From June 2021 to May 2022, one hospice provider number was subject to a Medicare payment suspension imposed by a UPIC. The total amounts suspended was $5,105, which represents all Medicare payments due to the provider number during the suspension. As of September 30, 2023, the total amount due from the government payor impacted by the suspension was $1,915 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 some of the previously denied claims. The Company received the refund of previously withheld amounts totaling $3,191 and $3,222 for the three and nine months ended September 30, 2023, respectively. The Company continues to work through the appeals process for the remaining denied claims of $1,915 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. As of September 30, 2023, the Company has an accrued liability that is immaterial for this review which was recorded as an offset to revenue. Insurance - The Company retains risk for a substantial portion of potential claims for general and professional liability, workers’ compensation and automobile liability. Based on changes in law that increase the maximum damages that may be recovered for professional negligence or malpractice claims in states where we operate, including, California, the costs of maintaining some of these insurance policies may increase in the future. 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 $150 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. 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 2023 and fiscal year 2022.

COMMON STOCK REPURCHASE PROGRAM	9 Months Ended
COMMON STOCK REPURCHASE PROGRAM	Sep. 30, 2023
Equity [Abstract]
COMMON STOCK REPURCHASE PROGRAM	COMMON STOCK REPURCHASE PROGRAMOn December 12, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1,000 of its common stock. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. No shares were repurchased during the three and nine months ended September 30, 2023.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	9 Months Ended
	Sep. 30, 2023
Accounting Policies [Abstract]
Basis of Presentation	The accompanying unaudited condensed consolidated financial statements of the Company (the “Interim Financial Statements”) reflect the Company’s financial position, results of operations and cash flows of the business. The Interim Financial Statements 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”). Management believes that the Interim Financial Statements reflect, in all material respects, all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented in conformity with GAAP. The results reported in these Interim Financial Statements are not necessarily indicative of results that may be expected for the entire year.
Consolidation	The Company consists of various limited liability companies and corporations established to operate home health, hospice, home care, and senior living operations. The Interim Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.
Estimates and Assumptions	The preparation of the Interim 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 Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Interim Financial Statements relate to revenue, intangible assets and goodwill, right-of-use assets and lease liabilities for leases greater than 12 months, self-insurance reserves, and income taxes. Actual results could differ from those estimates.
Revenue Recognition	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 Medicare, Medicaid, Commercial and managed care programs (Medicare Advantage and Managed Medicaid plans), in exchange for providing patient care. 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 is 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 rates, 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. 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 carriers administrating Medicare Advantage programs. 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. 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 the payor 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.
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. On August 23, 2023, the FASB issued ASU 2023-05 “Business Combinations—Joint Venture Formations (Subtopic 805-60)” (ASU 2023-05) under which an entity that qualifies as either a joint venture or a corporate joint venture, as defined in the ASC master glossary, is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, ASU 2023-05 stipulates that a joint venture or a corporate joint venture must initially measure its assets and liabilities at fair value on the formation date. The amendments in ASU 2023-05 are effective for all joint ventures within the ASU’s scope that are formed on or after January 1, 2025. Early adoption is permitted. The Company is evaluating this ASU and notes that any impact to financial statements would be dependent on the facts and circumstances surrounding any new joint venture formed after the date of adoption.

NET INCOME PER COMMON SHARE (Tables)

9 Months Ended

Sep. 30, 2023

Earnings Per Share [Abstract]

Schedule of basic and diluted net income (loss) per share

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:


Net income attributable to The Pennant Group, Inc.	$	4,383	$	4,831	$	9,030	$	3,169

Denominator:
Weighted average shares outstanding for basic net income per share	29,912		29,335		29,825		28,840
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock(a)	294		837		353		1,342
Adjusted weighted average common shares outstanding for diluted income per share	30,206		30,172		30,178		30,182

Earnings Per Share:
Basic net income per common share	$	0.15	$	0.16	$	0.30	$	0.11
Diluted net income per common share	$	0.15	$	0.16	$	0.30	$	0.10


(a)						The diluted per share amounts do not reflect common equivalent shares outstanding of 2,718 and 2,278 for the three and nine months ended September 30, 2023, respectively, and 1,858 and 1,806 for the three and nine months ended September 30, 2022, respectively, because of their anti-dilutive effect.

REVENUE AND ACCOUNTS RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

Schedule of revenue by major payor source

Revenue by payor for the three months ended September 30, 2023 and 2022, is summarized in the following tables:


	Three Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	24,076	$	43,849	$	—	$	67,925	48.5	%
Medicaid	2,521		5,190		12,182		19,893		14.2
Subtotal	26,597		49,039		12,182		87,818		62.7
Managed care	17,927		1,231		—		19,158		13.6
Private and other(a)	6,579		101		26,536		33,216		23.7
Total revenue	$	51,103	$	50,371	$	38,718	$	140,192	100.0	%


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


	Three Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	23,040	$	35,367	$	—	$	58,407	49.4	%
Medicaid	2,151		4,065		9,127		15,343		13.0
Subtotal	25,191		39,432		9,127		73,750		62.4
Managed care	14,594		1,062		—		15,656		13.2
Private and other(a)	5,472		28		23,444		28,944		24.4
Total revenue	$	45,257	$	40,522	$	32,571	$	118,350	100.0	%


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

Revenue by payor for the nine months ended September 30, 2023 and 2022, is summarized in the following tables:


	Nine Months Ended September 30, 2023
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	71,372	$	121,523	$	—	$	192,895	48.3	%
Medicaid	7,178		14,470		34,807		56,455		14.2
Subtotal	78,550		135,993		34,807		249,350		62.5
Managed care	49,696		3,842		—		53,538		13.4
Private and other(a)	19,105		387		76,557		96,049		24.1
Total revenue	$	147,351	$	140,222	$	111,364	$	398,937	100.0	%


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


	Nine Months Ended September 30, 2022
	Home Health and Hospice Services
	Home Health Services		Hospice Services		Senior Living Services		Total Revenue		Revenue %
Medicare	$	67,861	$	103,322	$	—	$	171,183	49.1	%
Medicaid	7,389		11,189		27,502		46,080		13.2
Subtotal	75,250		114,511		27,502		217,263		62.3
Managed care	42,106		2,999		—		45,105		13.0
Private and other(a)	16,538		194		69,476		86,208		24.7
Total revenue	$	133,894	$	117,704	$	96,978	$	348,576	100.0	%


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

Schedule of accounts receivable

Accounts receivable, net as of September 30, 2023 and December 31, 2022 is summarized in the following table:


	September 30, 2023		December 31, 2022
Medicare	$	33,709	$	31,321
Medicaid	12,699		10,700
Managed care	11,422		9,370
Private and other	2,454		2,621
Accounts receivable, gross	60,284		54,012
Less: allowance for doubtful accounts	(931)		(592)
Accounts receivable, net	$	59,353	$	53,420

BUSINESS SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2023

Segment Reporting [Abstract]

Schedule of financial data combined by business segment


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Three Months Ended September 30, 2023
Revenue	$	101,474	$	38,718	$	—	$	140,192
Segment Adjusted EBITDAR from Operations	$	17,271	$	11,473	$	(8,097)	$	20,647
Three Months Ended September 30, 2022
Revenue	$	85,779	$	32,571	$	—	$	118,350
Segment Adjusted EBITDAR from Operations	$	15,380	$	9,370	$	(7,779)	$	16,971


	Home Health and Hospice Services		Senior Living Services		All Other		Total
Nine Months Ended September 30, 2023
Revenue	$	287,573	$	111,364	$	—	$	398,937
Segment Adjusted EBITDAR from Operations	$	47,364	$	33,394	$	(23,496)	$	57,262
Nine Months Ended September 30, 2022
Revenue	$	251,598	$	96,978	$	—	$	348,576
Segment Adjusted EBITDAR from Operations	$	45,056	$	27,573	$	(23,795)	$	48,834

Schedule of reconciliation of total combined adjusted EBITDAR from operations for our reportable segments to combined income from operations

The following table provides a reconciliation of Segment Adjusted EBITDAR from Operations to income from operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Segment Adjusted EBITDAR from Operations	$	20,647	$	16,971	$	57,262	$	48,834
Less: Depreciation and amortization	1,323		1,251		3,817		3,677
Rent—cost of services	10,006		9,391		29,439		28,520
Other (expense) income	(37)		(18)		28		(50)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations(a)	(108)		430		160		938
Share-based compensation expense and related taxes(b)	1,391		(2,501)		4,164		2,319
Acquisition related costs and credit allowances(c)	71		1,000		175		1,014

Costs associated with transitioning operations(d)	10		144		595		6,078
Unusual, non-recurring or redundant charges(e)	1,009		293		1,633		370
Add: Net income attributable to noncontrolling interest	79		163		351		387
Condensed Consolidated Income from Operations	$	7,061	$	7,144	$	17,602	$	6,355


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


(b)						Share-based compensation expense and related payroll taxes incurred. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense.
(c)						Non-capitalizable costs associated with acquisitions, credit allowances, and write offs for amounts in dispute with the prior owners of certain acquired operations.

(d)						During the nine months ended September 30, 2023, an affiliate of the Company placed its memory care units into transition and is actively seeking to sublease the units to an unrelated third party. The amount above represents the net operating impact attributable to the units in transition. 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 nine months ended September 30, 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.

PROPERTY AND EQUIPMENT—NET (Tables)

9 Months Ended

Sep. 30, 2023

Property, Plant and Equipment [Abstract]

Schedule of property and equipment, net

Property and equipment, net consist of the following:


	September 30, 2023		December 31, 2022
Land	$	96	$	96
Building	1,890		1,890
Leasehold improvements	20,496		18,759
Equipment	28,730		25,532
Furniture and fixtures	1,271		1,151
	52,483		47,428
Less: accumulated depreciation	(24,500)		(20,807)
Property and equipment, net	$	27,983	$	26,621

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of activity in goodwill by segment

The following table represents activity in goodwill by segment for the nine months ended September 30, 2023:


	Home Health and Hospice Services		Senior Living Services		Total
December 31, 2022	$	75,855	$	3,642	$	79,497
Additions	6,635		—		6,635

September 30, 2023	$	82,490	$	3,642	$	86,132

Schedule of other indefinite-lived intangible assets

Other indefinite-lived intangible assets consist of the following:


	September 30, 2023		December 31, 2022
Trade name	$	1,571	$	1,385
Medicare and Medicaid licenses	61,337		57,232
Total	$	62,908	$	58,617

OTHER ACCRUED LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2023

Payables and Accruals [Abstract]

Schedule of other accrued liabilities

Other accrued liabilities consist of the following:


	September 30, 2023		December 31, 2022
Refunds payable	$	1,754	$	2,244
Deferred revenue	1,786		1,592
Resident deposits	2,657		4,315
Property taxes	1,254		1,027
Deferred state relief funds	872		1,479
Accrued self-insurance liabilities	4,590		3,546

Other	2,664		2,481
Other accrued liabilities	$	15,577	$	16,684

DEBT (Tables)

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Schedule of long-term debt

Long-term debt, net consists of the following:


	September 30, 2023		December 31, 2022
Revolving Credit Facility	$	55,000	$	64,500
Less: unamortized debt issuance costs(a)	(1,217)		(1,608)
Long-term debt, net	$	53,783	$	62,892


(a)						Amortization expense for debt issuance costs was $130 and $391 for the three and nine months ended September 30, 2023, respectively, and $130 and $390 for the three and nine months ended September 30, 2022, respectively, and is recorded in interest expense, net on the Condensed Consolidated Statements of Income.

OPTIONS AND AWARDS (Tables)

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

Schedule of total share-based compensation expense

Total share-based compensation expense for all Plans for the three and nine months ended September 30, 2023 and 2022 was:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Share-based compensation expense related to stock options	$	1,044	859		$	2,878	$	2,480
Share-based compensation expense related to Restricted Stock	178		(3,664)		535		(643)
Share-based compensation expense related to Restricted Stock to non-employee directors	119		58		598		236
Total share-based compensation	$	1,341	$	(2,747)	$	4,011	$	2,073

In future periods, the Company estimates it will recognize the following share-based compensation expense for unvested stock options and unvested Restricted Stock as of September 30, 2023:


	Unrecognized Compensation Expense		Weighted Average Recognition Period (in years)
Unvested Stock Options	$	12,492	3.4
Unvested Restricted Stock	2,573		3.7
Total unrecognized share-based compensation expense	$	15,065

Schedule of stock options granted fair value assumptions

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 as of September 30:


Grant Year	Options Granted	Risk-Free Interest Rate		Expected Life(a)	Expected Volatility(b)		Dividend Yield		Weighted Average Fair Value of Options
2023	874	4.1	%	6.5	41.8	%	—	%	$	6.61
2022	349	2.3	%	6.5	39.8	%	—	%	$	6.71


(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.

Schedule of employee stock option activity

The following table represents the employee stock option activity during the nine months ended September 30, 2023:


	Number of Options Outstanding	Weighted Average Exercise Price		Number of Options Vested	Weighted Average Exercise Price of Options Vested
December 31, 2022	2,219	20.76		973	$	16.90
Granted	874	13.62
Exercised	(66)	7.06
Forfeited	(48)	21.63
Expired	(49)	19.87
September 30, 2023	2,930	$	18.79	1,073	$	18.63

Schedule of non-vested restricted stock awards

A summary of the status of Pennant’s non-vested Restricted Stock, and changes during the nine months ended September 30, 2023, is presented below:


	Non-Vested Restricted Stock	Weighted Average Grant Date Fair Value
December 31, 2022	418	$	14.26
Granted	53	11.40
Vested	(199)	13.51
Forfeited	(3)	15.61
September 30, 2023	269	$	15.36

LEASES (Tables)

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

Schedule of operating lease cost

The components of operating lease cost, are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating Lease Costs:
Community Rent—cost of services	$	8,567	$	8,129	$	25,303	$	24,755
Office Rent—cost of services	1,439		1,262		4,136		3,765
Rent—cost of services	$	10,006	$	9,391	$	29,439	$	28,520

General and administrative expense	$	94	$	86	$	291	$	241
Variable lease cost (a)	$	1,876	$	1,590	$	5,367	$	4,463


(a)						Represents variable lease cost for operating leases, which costs include property taxes and insurance, common area maintenance, and consumer price index increases, incurred as part of the Company’s triple net lease, and which is included in cost of services for the three and nine months ended September 30, 2023 and 2022.

Schedule of future minimum lease payments

The following table shows the lease maturity analysis for all leases as of September 30, 2023, for the years ended December 31:


Year	Amount
2023 (Remainder)	$	9,287
2024	36,549
2025	35,195
2026	34,032
2027	33,268
Thereafter	281,565
Total lease payments	429,896
Less: present value adjustments	(163,981)
Present value of total lease liabilities	265,915
Less: current lease liabilities	(16,341)
Long-term operating lease liabilities	$	249,574

DESCRIPTION OF BUSINESS (Details) - Sep. 30, 2023	agency	facility
Home Health and Hospice Services
Segment Reporting Information [Line Items]
Number of service providers	103
Senior Living Services
Segment Reporting Information [Line Items]
Number of properties under lease	51	51

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022	Dec. 31, 2020
Unusual or Infrequent Item, or Both [Line Items]
Deferred state relief funds	$ 872		$ 872		$ 1,479
State relief funds, reduction	$ 923	$ 734	$ 3,005	$ 1,980
CARES Act
Unusual or Infrequent Item, or Both [Line Items]
Accrued payroll taxes employer portion					$ 7,836
The coronavirus aid, relief, and economic security act, advance payments received						$ 27,997

TRANSACTIONS WITH ENSIGN (Details) $ in Thousands	3 Months Ended		9 Months Ended
TRANSACTIONS WITH ENSIGN (Details) $ in Thousands	Sep. 30, 2023 USD ($) agency	Sep. 30, 2022 USD ($) property	Sep. 30, 2023 USD ($) agency	Sep. 30, 2022 USD ($) property	Sep. 30, 2023 property	Sep. 30, 2023 facility	Jan. 27, 2022 USD ($) facility
Affiliates of Ensign
Related Party Transaction [Line Items]
Escrow deposits							$ 6,500
Senior Living Services
Related Party Transaction [Line Items]
Number of properties under lease	51		51			51
Related party
Related Party Transaction [Line Items]
Cost of services	$ 1,217	$ 812	$ 3,171	$ 2,035
Related party \| Senior Living Services
Related Party Transaction [Line Items]
Number of operating facilities \| property		29		29	29
Number of properties under lease \| facility							5
Number of communities \| facility							1
Related party \| Transition Services Agreement
Related Party Transaction [Line Items]
Expenses from transactions with related party	$ 254	$ 231	$ 719	$ 1,332

NET INCOME PER COMMON SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2023	Sep. 30, 2022
Numerator:
Net income attributable to The Pennant Group, Inc.	$ 4,383	$ 2,797	$ 1,850	$ 4,831	$ (2,676)	$ 1,014	$ 9,030	$ 3,169
Denominator:
Weighted average shares outstanding for basic net income per share (in shares)	29,912			29,335			29,825	28,840
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock (in shares)	294			837			353	1,342
Adjusted weighted average common shares outstanding for diluted income per share (in shares)	30,206			30,172			30,178	30,182
Earnings Per Share:
Basic net income per common share (in dollars per share)	$ 0.15			$ 0.16			$ 0.30	$ 0.11
Diluted net income per common share (in dollars per share)	$ 0.15			$ 0.16			$ 0.30	$ 0.10
Anti-dilutive effect of common equivalent shares outstanding (in shares)	2,718			1,858			2,278	1,806

REVENUE AND ACCOUNTS RECEIVABLE - NARRATIVE (Details)	3 Months Ended		9 Months Ended		12 Months Ended
REVENUE AND ACCOUNTS RECEIVABLE - NARRATIVE (Details)	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Disaggregation of Revenue [Line Items]
Payment terms			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.
Customer concentration risk \| Revenue
Disaggregation of Revenue [Line Items]
Revenue, percent	100.00%	100.00%	100.00%	100.00%
Customer concentration risk \| Revenue \| Subtotal
Disaggregation of Revenue [Line Items]
Revenue, percent	62.70%	62.40%	62.50%	62.30%
Customer concentration risk \| Receivables \| Subtotal
Disaggregation of Revenue [Line Items]
Revenue, percent			77.00%		77.80%

REVENUE AND ACCOUNTS RECEIVABLE - REVENUE BY MAJOR PAYOR (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Disaggregation of Revenue [Line Items]
Revenue	$ 140,192	$ 118,350	$ 398,937	$ 348,576
Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	100.00%	100.00%	100.00%	100.00%
Medicare
Disaggregation of Revenue [Line Items]
Revenue	$ 67,925	$ 58,407	$ 192,895	$ 171,183
Medicare \| Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	48.50%	49.40%	48.30%	49.10%
Medicaid
Disaggregation of Revenue [Line Items]
Revenue	$ 19,893	$ 15,343	$ 56,455	$ 46,080
Medicaid \| Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	14.20%	13.00%	14.20%	13.20%
Subtotal
Disaggregation of Revenue [Line Items]
Revenue	$ 87,818	$ 73,750	$ 249,350	$ 217,263
Subtotal \| Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	62.70%	62.40%	62.50%	62.30%
Managed care
Disaggregation of Revenue [Line Items]
Revenue	$ 19,158	$ 15,656	$ 53,538	$ 45,105
Managed care \| Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	13.60%	13.20%	13.40%	13.00%
Private and other
Disaggregation of Revenue [Line Items]
Revenue	$ 33,216	$ 28,944	$ 96,049	$ 86,208
Private and other \| Revenue \| Customer concentration risk
Disaggregation of Revenue [Line Items]
Revenue %	23.70%	24.40%	24.10%	24.70%
Home Health and Hospice Services \| Home Health Services
Disaggregation of Revenue [Line Items]
Revenue	$ 51,103	$ 45,257	$ 147,351	$ 133,894
Home Health and Hospice Services \| Home Health Services \| Medicare
Disaggregation of Revenue [Line Items]
Revenue	24,076	23,040	71,372	67,861
Home Health and Hospice Services \| Home Health Services \| Medicaid
Disaggregation of Revenue [Line Items]
Revenue	2,521	2,151	7,178	7,389
Home Health and Hospice Services \| Home Health Services \| Subtotal
Disaggregation of Revenue [Line Items]
Revenue	26,597	25,191	78,550	75,250
Home Health and Hospice Services \| Home Health Services \| Managed care
Disaggregation of Revenue [Line Items]
Revenue	17,927	14,594	49,696	42,106
Home Health and Hospice Services \| Home Health Services \| Private and other
Disaggregation of Revenue [Line Items]
Revenue	6,579	5,472	19,105	16,538
Home Health and Hospice Services \| Hospice Services
Disaggregation of Revenue [Line Items]
Revenue	50,371	40,522	140,222	117,704
Home Health and Hospice Services \| Hospice Services \| Medicare
Disaggregation of Revenue [Line Items]
Revenue	43,849	35,367	121,523	103,322
Home Health and Hospice Services \| Hospice Services \| Medicaid
Disaggregation of Revenue [Line Items]
Revenue	5,190	4,065	14,470	11,189
Home Health and Hospice Services \| Hospice Services \| Subtotal
Disaggregation of Revenue [Line Items]
Revenue	49,039	39,432	135,993	114,511
Home Health and Hospice Services \| Hospice Services \| Managed care
Disaggregation of Revenue [Line Items]
Revenue	1,231	1,062	3,842	2,999
Home Health and Hospice Services \| Hospice Services \| Private and other
Disaggregation of Revenue [Line Items]
Revenue	101	28	387	194
Senior Living Services
Disaggregation of Revenue [Line Items]
Revenue	38,718	32,571	111,364	96,978
Senior Living Services \| Medicare
Disaggregation of Revenue [Line Items]
Revenue	0	0	0	0
Senior Living Services \| Medicaid
Disaggregation of Revenue [Line Items]
Revenue	12,182	9,127	34,807	27,502
Senior Living Services \| Subtotal
Disaggregation of Revenue [Line Items]
Revenue	12,182	9,127	34,807	27,502
Senior Living Services \| Managed care
Disaggregation of Revenue [Line Items]
Revenue	0	0	0	0
Senior Living Services \| Private and other
Disaggregation of Revenue [Line Items]
Revenue	$ 26,536	$ 23,444	$ 76,557	$ 69,476

REVENUE AND ACCOUNTS RECEIVABLE - ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Accounts Receivable [Abstract]
Accounts receivable, gross	$ 60,284	$ 54,012
Less: allowance for doubtful accounts	(931)	(592)
Accounts receivable, net	59,353	53,420
Medicare
Accounts Receivable [Abstract]
Accounts receivable, gross	33,709	31,321
Medicaid
Accounts Receivable [Abstract]
Accounts receivable, gross	12,699	10,700
Managed care
Accounts Receivable [Abstract]
Accounts receivable, gross	11,422	9,370
Private and other
Accounts Receivable [Abstract]
Accounts receivable, gross	$ 2,454	$ 2,621

BUSINESS SEGMENTS - NARRATIVE (Details) - Sep. 30, 2023	agency	facility
Home Health and Hospice Services
Segment Reporting Information [Line Items]
Number of service providers	103
Senior Living Services
Segment Reporting Information [Line Items]
Number of properties under lease	51	51

BUSINESS SEGMENTS - FINANCIAL DATA (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Segment Reporting Information [Line Items]
Revenue	$ 140,192	$ 118,350	$ 398,937	$ 348,576
Segment Adjusted EBITDAR from Operations	20,647	16,971	57,262	48,834
Senior Living Services
Segment Reporting Information [Line Items]
Revenue	38,718	32,571	111,364	96,978
Operating segments \| Home Health and Hospice Services
Segment Reporting Information [Line Items]
Revenue	101,474	85,779	287,573	251,598
Segment Adjusted EBITDAR from Operations	17,271	15,380	47,364	45,056
Operating segments \| Senior Living Services
Segment Reporting Information [Line Items]
Revenue	38,718	32,571	111,364	96,978
Segment Adjusted EBITDAR from Operations	11,473	9,370	33,394	27,573
All Other
Segment Reporting Information [Line Items]
Revenue	0	0	0	0
Segment Adjusted EBITDAR from Operations	$ (8,097)	$ (7,779)	$ (23,496)	$ (23,795)

BUSINESS SEGMENTS - INCOME FROM OPERATIONS (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2023	Sep. 30, 2022
Segment Reporting [Abstract]
Segment Adjusted EBITDAR from Operations	$ 20,647			$ 16,971			$ 57,262	$ 48,834
Less: Depreciation and amortization	1,323			1,251			3,817	3,677
Rent—cost of services	10,006			9,391			29,439	28,520
Other (expense) income	(37)			(18)			28	(50)
Less: Costs at start-up operations	(108)			430			160	938
Share-based compensation expense and related taxes	1,391			(2,501)			4,164	2,319
Acquisition related costs and credit allowances	71			1,000			175	1,014
Costs associated with transitioning operations	10			144			595	6,078
Unusual, non-recurring or redundant charges	1,009			293			1,633	370
Add: Net income attributable to noncontrolling interest	79	$ 125	$ 147	163	$ 80	$ 144	351	387
Condensed Consolidated Income from Operations	$ 7,061			$ 7,144			$ 17,602	$ 6,355

ACQUISITIONS (Details) $ in Thousands			1 Months Ended	9 Months Ended
ACQUISITIONS (Details) $ in Thousands	Nov. 01, 2023 agency	Oct. 02, 2023 agency	Nov. 01, 2023 USD ($)	Sep. 30, 2023 USD ($) agency	Sep. 30, 2022 USD ($) agency	Dec. 31, 2022 USD ($)
Business Acquisition [Line Items]
Goodwill				$ 86,132		$ 79,497
Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Total acquisition				11,662	$ 9,680
Goodwill				6,635	4,925
Other indefinite-lived intangible assets					4,714
Equipment and other assets				1,027	188
Other intangible assets				186	40
Liabilities assumed				81	187
Acquisition costs				0	$ 0
Home Health Services \| Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Other indefinite-lived intangible assets				$ 3,895
Hospice Services \| Subsequent Event
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency	2	1
Hospice Services \| Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				3
Other indefinite-lived intangible assets				$ 210
Home Health and Hospice Services
Business Acquisition [Line Items]
Goodwill				$ 82,490		75,855
Home Health and Hospice Services \| Subsequent Event
Business Acquisition [Line Items]
Business combination, purchase price			$ 6,600
Home Health and Hospice Services \| Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				2
Home Health and Hospice Services \| Home Health Services
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				3	2
Home Health and Hospice Services \| Hospice Services
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				3	4
Home Health and Hospice Services \| Hospice Services \| Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				1
Home Care Services Segment \| Home Care Agencies
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				2
Senior Living Services
Business Acquisition [Line Items]
Number of businesses acquired and assets acquisitions \| agency				2	1
Goodwill				$ 3,642		$ 3,642

PROPERTY AND EQUIPMENT—NET (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 52,483		$ 52,483		$ 47,428
Less: accumulated depreciation	(24,500)		(24,500)		(20,807)
Property and equipment, net	27,983		27,983		26,621
Depreciation	1,321	$ 1,244	3,807	$ 3,640
Land
Property, Plant and Equipment [Line Items]
Property and equipment, gross	96		96		96
Building
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,890		1,890		1,890
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	20,496		20,496		18,759
Equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	28,730		28,730		25,532
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 1,271		$ 1,271		$ 1,151

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS - ACTIVITY IN GOODWILL (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning balance	$ 79,497
Additions	6,635
Goodwill, ending balance	86,132
Home Health and Hospice Services
Goodwill [Roll Forward]
Goodwill, beginning balance	75,855
Additions	6,635
Goodwill, ending balance	82,490
Senior Living Services
Goodwill [Roll Forward]
Goodwill, beginning balance	3,642
Additions	0
Goodwill, ending balance	$ 3,642

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS - INDEFINITE-LIVED INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Indefinite-lived Intangible Assets [Line Items]
Other indefinite-lived intangibles	$ 62,908	$ 58,617
Trade name
Indefinite-lived Intangible Assets [Line Items]
Other indefinite-lived intangibles	1,571	1,385
Medicare and Medicaid licenses
Indefinite-lived Intangible Assets [Line Items]
Other indefinite-lived intangibles	$ 61,337	$ 57,232

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS - NARRATIVE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible asset impairments	$ 0	$ 0	$ 0	$ 0

OTHER ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Other Accrued Liabilities, Current [Abstract]
Refunds payable	$ 1,754	$ 2,244
Deferred revenue	1,786	1,592
Resident deposits	2,657	4,315
Property taxes	1,254	1,027
Deferred state relief funds	872	1,479
Accrued self-insurance liabilities	4,590	3,546
Other	2,664	2,481
Other accrued liabilities	$ 15,577	$ 16,684

DEBT - SCHEDULE OF LONG-TERM DEBT (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Debt Instrument [Line Items]
Less: unamortized debt issuance costs	$ (1,217)		$ (1,217)		$ (1,608)
Long-term debt, net	53,783		53,783		62,892
Amortization of deferred financing fees	130	$ 130	391	$ 390
Revolving Credit Facility \| Line of credit
Debt Instrument [Line Items]
Revolving Credit Facility	$ 55,000		$ 55,000		$ 64,500

DEBT - NARRATIVE (Details) - USD ($)	Jun. 12, 2023	Sep. 30, 2023	Feb. 23, 2021
Revolving Credit Facility
Debt Instrument [Line Items]
Borrowing capacity			$ 150,000,000
Revolving Credit Facility \| Line of credit
Debt Instrument [Line Items]
Weighted average interest rate		8.17%
Borrowing availability		$ 90,814,000
Revolving Credit Facility \| Minimum
Debt Instrument [Line Items]
Margin	0.35%
Revolving Credit Facility \| Minimum \| SOFR
Debt Instrument [Line Items]
Margin	2.25%
Revolving Credit Facility \| Minimum \| Base Rate
Debt Instrument [Line Items]
Margin	1.25%
Revolving Credit Facility \| Maximum
Debt Instrument [Line Items]
Margin	0.50%
Revolving Credit Facility \| Maximum \| SOFR
Debt Instrument [Line Items]
Margin	3.25%
Revolving Credit Facility \| Maximum \| Base Rate
Debt Instrument [Line Items]
Margin	2.25%
Letters of credit \| Line of credit
Debt Instrument [Line Items]
Letters of credit outstanding		$ 4,186,000

OPTIONS AND AWARDS - SHARE-BASED COMPENSATION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	$ 1,341	$ (2,747)	$ 4,011	$ 2,073
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	1,044	859	2,878	2,480
Restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	178	(3,664)	535	(643)
Restricted stock awards \| Non-employee directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	$ 119	$ 58	$ 598	$ 236

OPTIONS AND AWARDS - UNVESTED STOCK OPTIONS AND RESTRICTED STOCK (Details) - The Ensign Plans $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized share-based compensation expense	$ 15,065
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested Stock Options	$ 12,492
Weighted Average Recognition Period (in years)	3 years 4 months 24 days
Restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested Restricted Stock	$ 2,573
Weighted Average Recognition Period (in years)	3 years 8 months 12 days

OPTIONS AND AWARDS - NARRATIVE (Details) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 25, 2022	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation		$ 1,341	$ (2,747)	$ 4,011	$ 2,073
Restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation		178	(3,664)	535	(643)
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation		$ 1,044	859	$ 2,878	$ 2,480
The Ensign Plans
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Forfeited (in shares)				48
Share-based compensation			$ 3,812
The Ensign Plans \| Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Forfeited (in shares)	250
Vested (in shares)	943
The Ensign Plans \| Restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				5 years
The Ensign Plans \| Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, vesting percent per year				20.00%
Options, expiration period				10 years

OPTIONS AND AWARDS - OPTIONS GRANTED (Details) - The Ensign Plans - $ / shares shares in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (in shares)	874
2023
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (in shares)	874
Weighted average fair value of options (in dollars per share)	$ 6.61
2023 \| Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-Free Interest Rate	4.10%
Expected life	6 years 6 months
Expected volatility	41.80%
Dividend Yield	0.00%
2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (in shares)		349
Weighted average fair value of options (in dollars per share)		$ 6.71
2022 \| Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-Free Interest Rate		2.30%
Expected life		6 years 6 months
Expected volatility		39.80%
Dividend Yield		0.00%

OPTIONS AND AWARDS - EMPLOYEE STOCK OPTION ACTIVITY (Details) - The Ensign Plans shares in Thousands	9 Months Ended
	Sep. 30, 2023 $ / shares shares	Dec. 31, 2022 $ / shares shares
Number of Options Outstanding
Beginning balance, outstanding (in shares) \| shares	2,219
Granted (in shares) \| shares	874
Exercised (in shares) \| shares	(66)
Forfeited (in shares) \| shares	(48)
Expired (in shares) \| shares	(49)
Ending balance, outstanding (in shares) \| shares	2,930
Weighted Average Exercise Price
Beginning of period, weighted average exercise price (in dollars per share) \| $ / shares	$ 20.76
Granted (in dollars per share) \| $ / shares	13.62
Exercised (in dollars per share) \| $ / shares	7.06
Forfeited (in dollars per share) \| $ / shares	21.63
Expired (in dollars per share) \| $ / shares	19.87
End of period, weighted average exercise price (in dollars per share) \| $ / shares	$ 18.79
Number of options vested (in shares) \| shares	1,073	973
Weighted average exercise price of options vested (in dollars per share) \| $ / shares	$ 18.63	$ 16.90

OPTIONS AND AWARDS - RESTRICTED STOCK (Details) - The Ensign Plans - Restricted stock awards shares in Thousands	9 Months Ended
	Sep. 30, 2023 $ / shares shares
Non-Vested Restricted Stock
Beginning balance, outstanding (in shares) \| shares	418
Granted (in shares) \| shares	53
Vested (in shares) \| shares	(199)
Forfeited (in shares) \| shares	(3)
Ending balance, outstanding (in shares) \| shares	269
Weighted Average Grant Date Fair Value
Beginning of period, weighted average exercise price (in dollars per share) \| $ / shares	$ 14.26
Granted (in dollars per share) \| $ / shares	11.40
Vested (in dollars per share) \| $ / shares	13.51
Forfeited (in dollars per share) \| $ / shares	15.61
End of period, weighted average exercise price (in dollars per share) \| $ / shares	$ 15.36

LEASES - NARRATIVE (Details) $ in Thousands	3 Months Ended		9 Months Ended
LEASES - NARRATIVE (Details) $ in Thousands	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($) property	Sep. 30, 2023 agency	Sep. 30, 2023 property	Sep. 30, 2023 facility	Sep. 30, 2023 arrangement	Sep. 30, 2023	Jul. 07, 2023 location	Apr. 01, 2022 lease	Jan. 27, 2022 facility
Lessee, Lease, Description [Line Items]
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications	$ 5,195		$ 5,195	$ 6,270
Number of locations \| location										9
Weighted average remaining lease term	12 years 9 months 18 days		12 years 9 months 18 days
Weighted average discount rate									8.10%
Related party
Lessee, Lease, Description [Line Items]
Non-cash adjustment to right-of-use assets and lease liabilities from lease terminations and assignments			$ 42,515
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications				6,522
Related party \| Operating lease, rent expense
Lessee, Lease, Description [Line Items]
Fees incurred	$ 3,339	$ 3,760	$ 10,088	$ 10,250
Senior Living Services
Lessee, Lease, Description [Line Items]
Number of properties under lease					51		51
Senior Living Services \| Related party
Lessee, Lease, Description [Line Items]
Number of properties under lease \| facility												5
Number of operating facilities \| property		29		29		29
Number of properties under lease, master lease agreement \| facility							14
Number of separate master lease arrangements \| arrangement								3
Number of terminated leases under master lease agreement \| lease											4
Senior Living Services \| Minimum
Lessee, Lease, Description [Line Items]
Lease term	15 years		15 years
Senior Living Services \| Minimum \| Related party
Lessee, Lease, Description [Line Items]
Lease term	14 years		14 years
Senior Living Services \| Maximum
Lessee, Lease, Description [Line Items]
Lease term	25 years		25 years
Senior Living Services \| Maximum \| Related party
Lessee, Lease, Description [Line Items]
Lease term	20 years		20 years

LEASES - IMPACT OF NEW LEASES GUIDANCE (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Lease, Cost
Variable lease cost	$ 1,876	$ 1,590	$ 5,367	$ 4,463
Cost of services
Lease, Cost
Operating lease costs	10,006	9,391	29,439	28,520
Cost of services \| Community
Lease, Cost
Operating lease costs	8,567	8,129	25,303	24,755
Cost of services \| Office
Lease, Cost
Operating lease costs	1,439	1,262	4,136	3,765
General and administrative expense
Lease, Cost
Operating lease costs	$ 94	$ 86	$ 291	$ 241

LEASES - FUTURE MINIMUM LEASE PAYMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Leases, Under Adoption of ASC 842 [Abstract]
2023 (Remainder)	$ 9,287
2024	36,549
2025	35,195
2026	34,032
2027	33,268
Thereafter	281,565
Total lease payments	429,896
Less: present value adjustments	(163,981)
Present value of total lease liabilities	265,915
Less: current lease liabilities	(16,341)	$ (16,633)
Long-term operating lease liabilities	$ 249,574	$ 247,042

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
INCOME TAXES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ 1,066	$ 1,074	$ 3,894	$ 241
Effective income tax rate reconciliation, percent	19.30%	17.70%	29.30%	6.30%

COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	1 Months Ended	3 Months Ended	9 Months Ended	12 Months Ended
COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	May 31, 2022 USD ($) agency	Sep. 30, 2023 USD ($) review	Sep. 30, 2023 USD ($) review	Dec. 31, 2022 USD ($)
Concentration Risk [Line Items]
Number of operating subsidiaries with reviews scheduled \| review		9	9
Suspended payments		$ 5,105	$ 5,105
Sampled and extrapolated overpayments	$ 1,915
Number of patient records under review \| agency	107
Period of review	10 months
Previously withheld amounts		(3,191)	(3,222)
General and professional liability, retention limit		150	150
Out-of-pocket retention		500	500
Workers' compensation, retention limit		$ 250	250
Maximum
Concentration Risk [Line Items]
Self insurance, individual coverage limit			$ 350	$ 350

COMMON STOCK REPURCHASE PROGRAM (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023	Dec. 12, 2022
Equity [Abstract]
Repurchase of common stock amount			$ 1,000
Stock repurchased (in shares)	0	0

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