0001766400-22-000124.txt : 20220808 0001766400-22-000124.hdr.sgml : 20220808 20220808162831 ACCESSION NUMBER: 0001766400-22-000124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220808 DATE AS OF CHANGE: 20220808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Pennant Group, Inc. CENTRAL INDEX KEY: 0001766400 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38900 FILM NUMBER: 221144801 BUSINESS ADDRESS: STREET 1: 1675 E. RIVERSIDE DRIVE, SUITE 150 CITY: EAGLE STATE: ID ZIP: 83616 BUSINESS PHONE: 2089576025 MAIL ADDRESS: STREET 1: 1675 E. RIVERSIDE DRIVE, SUITE 150 CITY: EAGLE STATE: ID ZIP: 83616 10-Q 1 pntg-20220630.htm 10-Q pntg-20220630
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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 June 30, 2022.
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePNTGNasdaq 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 August 5, 2022, 29,550,951 shares of the registrant’s common stock were outstanding.



THE PENNANT GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
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)

June 30, 2022December 31, 2021
Assets
Current assets:
Cash $3,200 $5,190 
Accounts receivable—less allowance for doubtful accounts of $974 and $902, respectively
53,154 53,940 
Prepaid expenses and other current assets18,283 16,711 
Total current assets74,637 75,841 
Property and equipment, net22,423 16,788 
Right-of-use assets257,395 300,997 
Deferred tax assets, net2,831 3,848 
Restricted and other assets10,386 4,828 
Goodwill74,785 74,265 
Other indefinite-lived intangibles53,974 53,730 
Total assets$496,431 $530,297 
Liabilities and equity
Current liabilities:
Accounts payable$12,717 $10,553 
Accrued wages and related liabilities23,446 23,480 
Operating lease liabilities—current15,662 16,118 
Other accrued liabilities23,043 21,484 
Total current liabilities74,868 71,635 
Long-term operating lease liabilities—less current portion244,620 287,753 
Other long-term liabilities5,825 5,293 
Long-term debt, net53,131 51,372 
Total liabilities378,444 416,053 
Commitments and contingencies
Equity:
Common stock, $0.001 par value; 100,000 shares authorized; 28,886 and 28,601 shares issued and outstanding, respectively, at June 30, 2022; and 28,826 and 28,499 shares issued and outstanding, respectively, at December 31, 2021
29 28 
Additional paid-in capital100,775 95,595 
Retained earnings12,979 14,641 
Treasury stock, at cost, 3 shares at June 30, 2022 and December 31, 2021
(65)(65)
Total Pennant Group, Inc. stockholders’ equity113,718 110,199 
Noncontrolling interest4,269 4,045 
Total equity117,987 114,244 
Total liabilities and equity$496,431 $530,297 
See accompanying notes to condensed consolidated financial statements.

1

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

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue$116,316 $110,345 $230,226 $216,008 
Expense
Cost of services92,716 86,667 182,978 170,289 
Rent—cost of services9,078 10,156 19,129 20,121 
General and administrative expense9,741 8,783 19,774 18,071 
Depreciation and amortization1,279 1,170 2,426 2,345 
Loss on asset dispositions and impairment, net
6,617  6,708  
Total expenses119,431 106,776 231,015 210,826 
(Loss) income from operations(3,115)3,569 (789)5,182 
Other income (expense):
Other expense(35)(24)(32)(24)
Interest expense, net(821)(472)(1,450)(832)
Other income (expense), net(856)(496)(1,482)(856)
(Loss) income before provision for income taxes(3,971)3,073 (2,271)4,326 
(Benefit) provision for income taxes(1,375)604 (833)944 
Net (loss) income(2,596)2,469 (1,438)3,382 
Less: net income (loss) attributable to noncontrolling interest80 (181)224 (218)
Net (loss) income and other comprehensive (loss) income attributable to The Pennant Group, Inc. $(2,676)$2,650 $(1,662)$3,600 
(Loss) earnings per share:
Basic$(0.09)$0.09 $(0.06)$0.13 
Diluted$(0.09)$0.09 $(0.06)$0.12 
Weighted average common shares outstanding:
Basic28,605 28,356 28,589 28,324 
Diluted28,605 30,647 28,589 30,785 

See accompanying notes to condensed consolidated financial statements.

2


`THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited, in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockNon-Controlling Interest
SharesAmountSharesAmountTotal
Balance at December 31, 202128,826 $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 Non-Controlling Interests— — — — — — 144 144 
Share-based compensation— — 2,440 — — — — 2,440 
Issuance of common stock from the exercise of stock options21 1 89 — — — — 90 
Net issuance of restricted stock2 — — — — — — — 
Balance at March 31, 202228,849 $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 Non-Controlling Interests80 80 
Stock-based compensation2,380 2,380 
Issuance of common stock from the exercise of stock options33 271 271 
Net issuance of restricted stock4 — 
Balance at June 30, 202228,886 $29 $100,775 $12,979 3 $(65)$4,269 $117,987 

Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockNon-Controlling Interest
SharesAmountSharesAmountTotal
Balance at December 31, 202028,696 $28 $84,671 $11,945 3 $(65)$4,593 $101,172 
Net income attributable to The Pennant Group, Inc.— — — 950 — — — 950 
Net loss attributable to Non-Controlling Interests— — — — — — (37)(37)
Share-based compensation— — 2,416 — — — — 2,416 
Issuance of common stock from the exercise of stock options21 — 218 — — — — 218 
Net issuance of restricted stock3 — — — — — — — 
Balance at March 31, 202128,720 $28 $87,305 $12,895 3 $(65)$4,556 $104,719 
Net income attributable to The Pennant Group, Inc.— — — 2,650 — — — 2,650 
Net loss attributable to Non-Controlling Interests— — — — — — (181)(181)
Share-based compensation— — 2,499 — — — — 2,499 
Issuance of common stock from the exercise of stock options35 — 295 — — — — 295 
Net issuance of restricted stock4 — — — — — — — 
Balance at June 30, 202128,759 $28 $90,099 $15,545 3 $(65)$4,375 $109,982 

See accompanying notes to condensed consolidated financial statements.
3

THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended June 30,
20222021
Cash flows from operating activities:
Net (loss) income$(1,438)$3,382 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization2,426 2,345 
Amortization of deferred financing fees260 229 
Impairment of long-lived assets214  
Provision for doubtful accounts380 446 
Share-based compensation4,820 4,915 
Deferred income taxes1,017 111 
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable406 (5,360)
Prepaid expenses and other assets(7,049)(7,221)
Operating lease obligations13 893 
Accounts payable1,794 (1,500)
Accrued wages and related liabilities(34)(5,017)
Other accrued liabilities7,832 2,328 
Contract liabilities (CARES Act advance payments)(6,211)(7,096)
Other long-term liabilities469 (261)
Net cash provided by (used in) operating activities4,899 (11,806)
Cash flows from investing activities:
Purchase of property and equipment(7,863)(2,412)
Cash payments for business acquisitions(775)(12,800)
Other(112)(265)
Net cash used in investing activities(8,750)(15,477)
Cash flows from financing activities:
Proceeds from Revolving Credit Facility41,000 70,500 
Payments on Revolving Credit Facility(39,500)(39,500)
Payments for deferred financing costs (1,394)
Issuance of common stock upon the exercise of options361 513 
Net cash provided by financing activities1,861 30,119 
Net (decrease) increase in cash (1,990)2,836 
Cash beginning of period5,190 43 
Cash end of period$3,200 $2,879 

See accompanying notes to condensed consolidated financial statements.

4

THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(unaudited, in thousands)
Six Months Ended June 30,
20222021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$1,187 $598 
Income taxes$55 $1,295 
Lease liabilities$18,256 $19,496 
Right-of-use assets obtained in exchange for new operating lease obligations$1,385 $2,872 
Non-cash adjustment to right-of-use assets and lease liabilities from lease modifications$6,522 $ 
Non-cash adjustment to right-of-use assets and lease liabilities from lease terminations and assignments$(42,515)$ 
Non-cash investing activity:
Capital expenditures in accounts payable$1,100 $561 

See accompanying notes to condensed consolidated financial statements.























5

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 June 30, 2022, the Company’s subsidiaries operated 89 home health, hospice and home care agencies and 48 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 is not meant to imply, nor should it 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, 2021 is derived from the Company’s annual audited Consolidated Financial Statements for the fiscal year ended December 31, 2021, 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 (loss) 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.

Certain prior quarter amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations in the current period or prior period.

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, of which $4,129 remains as of June 30, 2022 and is included in current liabilities in accrued wages and related liabilities. The CARES Act also expanded the Centers
6

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 has been recouped as of since the start of repayment in 2021 through June 30, 2022.

3. TRANSACTIONS WITH ENSIGN
On October 1, 2019, The Ensign Group, Inc. (“Ensign”) completed the separation of Pennant (the “Spin-Off”). In connection with the Spin-Off, Pennant entered into several agreements with Ensign that set forth the principal actions taken or to be taken in connection with the Spin-Off and govern the relationship of the parties following the Spin-Off. The Transitions Services Agreement with Ensign (the “Transition Services Agreement”) provided Pennant primarily administrative support. The Transitions Services Agreement expired two years from the Spin-Off date. The Company incurred costs of $458 and $1,101 for the three and six months ended June 30, 2022 and $747 and $1,735 for the three and six months ended June 30, 2021, respectively that related primarily to shared administrative support and other services at proximate operations.

Services included in cost of services were $648 and $1,223 for the three and six months ended June 30, 2022 and $749 and $1,617 for the three and six months ended June 30, 2021, respectively, that related primarily to room and board charges at skilled nursing facilities for hospice patients. Additionally, the Company’s independent operating subsidiaries leased 29 and 31 communities from subsidiaries of Ensign under a master lease arrangement as of June 30, 2022 and June 30, 2021, respectively. 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 require one of the transferors to place in escrow $6.5 million to cover post-closing capital expenditures and operating losses related to one of the communities, such escrow is funded by an initial payment by the transferor at closing followed by eight equal monthly installments. The Transaction closed in April 2022.

4. COMPUTATION OF NET (LOSS) INCOME PER COMMON SHARE
Basic net (loss) income per share is computed by dividing net (loss) income attributable to stockholders of the Company by the weighted average number of outstanding common shares for the period. The computation of diluted net (loss) income per share is similar to the computation of basic net (loss) income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

7

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Numerator: 
Net (loss) income$(2,596)$2,469 $(1,438)$3,382 
Less: net income (loss) attributable to noncontrolling interests80 (181)224 (218)
Net (loss) income attributable to The Pennant Group, Inc.$(2,676)$2,650 $(1,662)$3,600 
Denominator:
Weighted average shares outstanding for basic net (loss) income per share28,605 28,356 28,589 28,324 
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock(a)
 2,291  2,461 
Adjusted weighted average common shares outstanding for diluted income per share28,605 30,647 28,589 30,785 
(Loss) Earnings Per Share:
Basic net (loss) income per common share$(0.09)$0.09 $(0.06)$0.13 
Diluted net (loss) income per common share$(0.09)$0.09 $(0.06)$0.12 
(a)
The diluted per share amounts do not reflect common equivalent shares outstanding of 3,832 and 3,806 for the three and six months ended June 30, 2022 and 484 and 380 for the three and six months ended June 30, 2021, 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 Medicaid, Medicare and managed care programs (Commercial, 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 are adjusted for estimates of variable consideration to arrive at the transaction price. The Company determines the transaction price based on contractually agreed-upon amounts or rate, adjusted for estimates of variable consideration. The Company uses the expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net service revenue in the period such variances become known.

Revenue from the Medicare and Medicaid programs accounted for 62.8% and 62.4% of the Company’s revenue, for the three and six months ended June 30, 2022, and 61.7% and 62.8% for the three and six months ended June 30, 2021, 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.

8

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 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.

9

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 (“ASC 842”) 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 June 30, 2022 and 2021, is summarized in the following tables:

Three Months Ended June 30, 2022
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$23,464 $34,234 $ $57,698 49.6 %
Medicaid2,732 3,859 8,752 15,343 13.2 
Subtotal26,196 38,093 8,752 73,041 62.8 
Managed care14,260 1,153  15,413 13.3 
Private and other(a)
5,529 113 22,220 27,862 23.9 
Total revenue$45,985 $39,359 $30,972 $116,316 100.0 %
(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.

10

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Three Months Ended June 30, 2021
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$20,498 $33,303 $ $53,801 48.8 %
Medicaid2,525 2,708 9,004 14,237 12.9 
Subtotal23,023 36,011 9,004 68,038 61.7 
Managed care12,165 725  12,890 11.7 
Private and other(a)
6,079 102 23,236 29,417 26.6 
Total revenue$41,267 $36,838 $32,240 $110,345 100.0 %
(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 six months ended June 30, 2022 and 2021, is summarized in the following tables:

Six Months Ended June 30, 2022
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$44,821 $67,955 $ $112,776 49.0 %
Medicaid5,238 7,124 18,375 30,737 13.4 
Subtotal50,059 75,079 18,375 143,513 62.4 
Managed care27,512 1,937  29,449 12.7 
Private and other(a)
11,066 166 46,032 57,264 24.9 
Total revenue$88,637 $77,182 $64,407 $230,226 100.0 %
(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.

Six Months Ended June 30, 2021
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$40,828 $66,712 $ $107,540 49.8 %
Medicaid4,721 5,433 17,936 28,090 13.0 
Subtotal45,549 72,145 17,936 135,630 62.8 
Managed care22,617 1,362  23,979 11.1 
Private and other(a)
10,794 245 45,360 56,399 26.1 
Total revenue$78,960 $73,752 $63,296 $216,008 100.0 %
(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.

11

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Accounts receivable, net as of June 30, 2022 and December 31, 2021 is summarized in the following table:

June 30, 2022December 31, 2021
Medicare$30,384 $31,327 
Medicaid10,225 11,793 
Managed care9,826 7,901 
Private and other3,693 3,821 
Accounts receivable, gross54,128 54,842 
Less: allowance for doubtful accounts(974)(902)
Accounts receivable, net$53,154 $53,940 

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 75.0% and 78.6% of its total gross accounts receivable as of June 30, 2022 and December 31, 2021, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 62.8% and 62.4% for the three and six months ended June 30, 2022, and 61.7% and 62.8% of the Company’s revenue for the three and six months ended June 30, 2021.

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 (“ASC 340”), 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 June 30, 2022, the Company provided services through 89 affiliated home health, hospice and home care agencies, and 48 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, (4) redundant and nonrecurring costs associated with the Transition Services Agreement, (5) the loss related to senior living operations transferred to Ensign, and (6) net income (loss) attributable
12

THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 six months ended June 30, 2022 and 2021:

Home Health and Hospice ServicesSenior Living ServicesAll OtherTotal
Three Months Ended June 30, 2022
Revenue$85,344 $30,972 $ $116,316 
Segment Adjusted EBITDAR from Operations$15,728 $8,771 $(7,870)$16,629 
Three Months Ended June 30, 2021
Revenue$78,105 $32,240 $ $110,345 
Segment Adjusted EBITDAR from Operations$14,931 $9,752 $(6,068)$18,615 

Home Health and Hospice ServicesSenior Living ServicesAll OtherTotal
Six Months Ended June 30, 2022
Revenue$165,819 $64,407 $ $230,226 
Segment Adjusted EBITDAR from Operations$29,676 $18,203 $(16,016)$31,863 
Six Months Ended June 30, 2021
Revenue$152,712 $63,296 $ $216,008 
Segment Adjusted EBITDAR from Operations$28,722 $18,586 $(12,466)$34,842 

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

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Segment Adjusted EBITDAR from Operations$16,629 $18,615 $31,863 $34,842 
Less: Depreciation and amortization1,279 1,170 2,426 2,345 
Rent—cost of services9,078 10,156 19,129 20,121 
Other expense(35)(24)(32)(24)
Adjustments to Segment EBITDAR from Operations:
Less: Costs at start-up operations(a)
377 347 508