COMPUTATION OF NET INCOME PER COMMON SHARE

3 Months Ended

Mar. 31, 2020

COMPUTATION OF NET INCOME PER COMMON SHARE

Basic and diluted net income per share are computed by dividing net income by the weighted average number of outstanding common shares during the period. In the basic and diluted earnings per share calculations, net income is equal to net income attributable to The Pennant Group, Inc. adjusted to include net income attributable to noncontrolling interest. Net income attributable to the noncontrolling interest has been included in the numerator for all periods as the non-controlling subsidiary interest included in the Financial Statements was converted into common shares of Pennant concurrent with the distribution to Ensign stockholders at the date of the Spin-Off.

On October 1, 2019, the distribution date, Ensign stockholders received one share of Pennant common stock for every two shares of Ensign’s common stock held as of the record date. The total shares distributed to Ensign stockholders was 26,674. Additionally, concurrent with the Spin-Off the noncontrolling subsidiary interest converted into 1,160 shares of Pennant. The total number of common shares distributed on October 1, 2019 of 27,834 is being utilized for the calculation of basic and diluted earnings per share for all prior periods, as no common stock was outstanding prior to the date of the Spin-Off.

In conjunction with the Spin-Off, outstanding options and unvested restricted stock awards held by employees of the Company in Pre-Spin Plans, were modified and replaced with Pennant awards under the Pennant Plans (see Note 12, Options and Awards). Additionally, the Company issued new options and restricted stock awards to Pennant and Ensign employees under the 2019 Omnibus Incentive Plan (the “OIP”) and Long-Term Incentive Plan (the “LTIP”) which were not included in the computation of basic and diluted earnings per share for any periods prior to the Spin-Off. Subsequent to the Spin-Off, the dilutive impact of outstanding options and equity incentive awards are reflected in diluted net income per share using the treasury stock method. See further discussion at of the Company’s equity incentive plans in Note 12, Options and Awards.

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


	Three Months Ended March 31,
	2020		2019
Numerator:
Net income attributable to The Pennant Group, Inc.	$	2,980	$	1,334
Add: net income attributable to noncontrolling interests	—		150
Net Income	$	2,980	$	1,484

Denominator:
Weighted average shares outstanding for basic net income per share	27,891		27,834
Plus: incremental shares from assumed conversion or vesting of restricted stock^(a)	1,982		—
Adjusted weighted average common shares outstanding for diluted income per share	29,873		27,834

Earnings Per Share:
Basic net income per common share	$	0.11	$	0.05
Diluted net income per common share	$	0.10	$	0.05


(a)						The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were immaterial for the three months ended March 31, 2020.