Pennant Reports Fiscal Year 2019 and Fourth Quarter Financial Results

Conference Call and Webcast scheduled for tomorrow, March 5, 2020 at 10:00 am MT

EAGLE, Idaho, March 04, 2020 (GLOBE NEWSWIRE) -- The Pennant Group, Inc. PNTG, the parent company of the Pennant group of affiliated home health, hospice and senior living companies, today announced its operating results for the fiscal year 2019 and fourth quarter, reporting GAAP earnings per share of $0.11 for the full year ended December 31, 2019(1), and loss per share of $0.14 for the fourth quarter. Pennant also reported adjusted earnings per share of $0.61 for the year and $0.16 for the quarter(2), and spin-off adjusted earnings per share of $0.48 for the full year.

Full Year and Fourth Quarter Highlights

  • Total revenue for the full year was $338.5 million, an increase of $52.5 million or 18.3% over the prior year, and total revenue for the quarter was $89.5 million, an increase of $14.2 million or 18.8% over the prior year quarter;

     
  • Adjusted EBITDA for the full year was $27.2 million, an increase of 3.3% over the prior year, and adjusted EBITDA for the fourth quarter was $7.5 million, an increase of $0.7 million or 11.1% over the prior year quarter;

     
  • Home Health and Hospice Services segment revenue for the full year was $206.6 million, an increase of $37.6 million or 22.2% over the prior year, and segment revenue for the quarter was $55.1 million, an increase of $10.9 million or 24.7% over the prior year quarter;

     
  • Home Health and Hospice Services segment adjusted EBITDAR from operations(3) was $33.4 million for the year, an increase of $6.9 million or 26.2% over the prior year, and segment adjusted EBITDAR from operations was $9.5 million in the fourth quarter, an increase of $2.9 million or 44.9% over the prior year quarter;

     
  • Total home health total admissions for the full year increased 24.2% over the prior year, and total home health admissions in the fourth quarter increased 25.2% over the prior year quarter;

     
  • Hospice average daily census for the full year was 1,680, an increase of 26.4% over the prior year, and hospice average daily census in the fourth quarter increased 33.1% over the prior year quarter;

     
  • Senior Living Services segment revenue for the full year was $131.9 million, an increase of $14.9 million or 12.7% over the prior year, and segment revenue for the fourth quarter was $34.4 million, an increase of $3.2 million or 10.3% over the prior year quarter; and

     
  • Senior living occupancy was 80.2% for the full year and 81.1% in the fourth quarter, each an increase of 70 basis points over the prior year periods, and average monthly revenue per occupied unit for the year increased 2.5% over the prior year.  

(1) Prior to the spin-off from the Ensign Group, Inc. the combined financial statements filed on Form 10-K were prepared on a stand-alone basis and derived from the consolidated financial statements and accounting records of Ensign.

(2) See "Reconciliation of GAAP to Non-GAAP Financial Information."

(3) Segment Adjusted EBITDAR from Operations is defined and outlined in Note 6 on Form 10-K and is the segment GAAP measure of profit and loss.

Operating Results

Daniel Walker, Pennant's Chief Executive Officer and President, commented, "We are pleased with our full year and fourth quarter results and are encouraged by the progress being made across the organization. We are grateful for our local operators who, in the midst of the spin-off, remained focused on executing with sound operational fundamentals.  We are confident in our ability to achieve strong results and continued growth in 2020."

Commenting on the health of our operations, Mr. Walker continued, "In our home health and hospice business, our local leaders achieved solid organic growth in 2019 while preparing for the implementation of PDGM, and we are excited about additional organic growth and acquisition opportunities throughout 2020. Our senior living segment continues to navigate the significant leadership, systems and business alignment changes resulting from the spin-off transaction. This segment is showing signs of growth in a few metrics, and there remains significant untapped potential across this business. As you may recall, most of these buildings are relatively new to the portfolio and we expect this process to continue for several more quarters."

Noting a healthy balance sheet, sequential leverage ratio improvement and available credit capacity, Mr. Walker said, "We also see signs of significant acquisition opportunities in the near future, and we have positioned ourselves to be an active solution in the deal market, particularly where our underlying operational results support further growth." 

Jennifer Freeman, Pennant's Chief Financial Officer, noted that at the beginning of the quarter the Company drew down $30 million of its new $75 million revolving line of credit in connection with the spin-off to fund a dividend to Ensign, pay transaction-related costs and retain a portion as cash on hand for working capital and other related purposes. During the quarter and since, the Company paid down $10 million of its revolver, with approximately $52.0 million of availability for future acquisitions and general business purposes. Ms. Freeman commented that the Company's balance sheet remains strong, with a net debt-to-adjusted EBITDA ratio of 0.72x, a lease-adjusted net debt-to-adjusted EBITDAR ratio of 4.82x and cash on hand of $0.4 million at quarter end. "Our leverage ratios improved from the beginning of the quarter with our fourth quarter results and the pay down of the revolver. With the last of the large spin-off related transaction costs behind us, we can draw on our ample revolver capacity for acquisition activity we anticipate in 2020 and beyond. As our operations continue to mature, we expect our leverage ratios and balance sheet to remain healthy," said Ms. Freeman.

A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to EBITDA, adjusted EBITDAR, adjusted EBITDA, and segment adjusted EBITDA, a reconciliation of GAAP segment adjusted EBITDAR from operations to net income, and a reconciliation of GAAP earnings per share to adjusted net earnings per share, appear in the financial data portion of this release.  More complete information is contained in the company's Annual Report on Form 10-K for the year ended December 31, 2019, which is expected to be filed with the SEC today and can be viewed on the company's website at www.pennantgroup.com.

Investment Highlights

Since year end, Pennant's affiliates acquired the following operations:

  • Comfort Home Health, a home health agency serving patients in Clark County, Nevada;

     
  • Heritage Assisted Living of Twin Falls, a senior living community with 75 assisted living units and 89 independent living units located in Twin Falls, Idaho; and

     
  • Hospice of Missoula, a hospice agency based in Missoula, Montana.

Pennant also recently announced that it entered into a definitive agreement with Scripps Health ("Scripps"), a leading nonprofit integrated health system, to form a home health joint venture to serve patients throughout San Diego County, California, and surrounding areas. The transaction is scheduled to close in the third quarter of 2020. "We are thrilled to partner with Scripps to expand our collective capabilities to provide exceptional home health services to the residents of San Diego. Together with the network of Ensign-affiliated skilled nursing facilities in San Diego with which we have partnered through the Ensign Pennant Care Continuum, we believe this joint venture will accelerate our ability to provide collaborative, unique solutions to the community," commented Mr. Walker.

"We will continue to be disciplined when it comes to investment activity and are excited about our ability to grow. As we focus on ensuring our existing operations are healthy and we have local teams ready to step in and lead newly acquired businesses, we will be ready to deploy capital toward deals of all sizes that align with our strategic mission," added Derek Bunker, Pennant's Chief Investment Officer.

Operations acquired bring Pennant's growing portfolio to 65 home health and hospice agencies and 53 senior living communities located across 14 states.

2020 Guidance

For the full year 2020, the Company is not changing the following guidance:

  • Total revenue is anticipated to be in the range of $376 million to $386 million, the midpoint of which represents an increase of 12.5% over the midpoint of our full year 2019 revenue.

     
  • Adjusted earnings per share is anticipated to be in the range of $0.53 to $0.58 per diluted share, the midpoint of which represents an increase of 15.6% over our full year spin-adjusted 2019 adjusted earnings per share of $0.48.

The Company's 2020 guidance is based on diluted weighted average shares outstanding of approximately 30.0 million and a 26.4% effective tax rate. In addition, the guidance assumes, among other things, anticipated reimbursement rate adjustments, including the impact of PDGM, no unannounced acquisitions, and the full year impact of general and administrative expenses associated with being a public company. It excludes costs at start-up operations, share-based compensation, acquisition-related costs and certain redundant or nonrecurring general and administrative costs incurred during the transition services period. Full year spin-off adjusted 2019 earnings of $0.48 modifies adjusted earnings per share of $0.61 for the full year impact of several items, including rent modifications that occurred as a result of the spin-off, interest expense, and general and administrative expenses associated with being a public company.  

Conference Call

A live webcast will be held tomorrow, March 5, 2020 at 10:00 a.m. Mountain time (12:00 p.m. Eastern time) to discuss Pennant's fourth quarter and full year 2019 financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Pennant's website at https://investor.pennantgroup.com. The webcast will be recorded, and will be available for replay via the website until 5:00 p.m. Mountain time on Friday, April 3, 2020.

About Pennant

The Pennant Group, Inc. is a holding company of independent operating subsidiaries that provide healthcare services through 65 home health and hospice agencies and 53 senior living communities located throughout Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. Each of these businesses is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated "company" and "its" assets and activities, as well as the use of the terms "we," "us," "its" and similar verbiage, are not meant to imply that The Pennant Group, Inc. has direct operating assets, employees or revenue, or that any of the home health and hospice businesses, senior living communities or the Service Center are operated by the same entity. More information about Pennant is available at www.pennantgroup.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management's current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

These risks and uncertainties relate to the company's business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company's periodic filings with the Securities and Exchange Commission, including its Form 10-K, for a more complete discussion of the risks and other factors that could affect Pennant's business, prospects and any forward-looking statements. Except as required by the federal securities laws, Pennant does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

Contact Information

The Pennant Group, Inc., (208) 506-6100, ir@pennantgroup.com

SOURCE: The Pennant Group, Inc.



THE PENNANT GROUP, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

(In thousands, except for per-share amounts)

 Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (unaudited)  
Revenue$89,492   $75,337  $338,531   $286,058 
        
Expense       
Cost of services68,888   56,313  258,941   212,421 
Rent—cost of services9,607   8,134  34,975   31,199 
General and administrative expense11,425   5,387  35,135   18,843 
Depreciation and amortization967   787  3,810   2,964 
Total expenses90,887   70,621  332,861   265,427 
Income from operations(1,395)  4,716  5,670   20,631 
Other income (expense):       
Interest expense, net(410)    (410)   
Income before provision for income taxes(1,805)  4,716  5,260   20,631 
Provision for income taxes1,994   764  2,085   4,352 
Net income (loss)(3,799)  3,952  3,175   16,279 
Less: net income attributable to noncontrolling interest   182  629   595 
Net income (loss) attributable to The Pennant Group, Inc.$(3,799)  $3,770  $2,546   $15,684 
Earnings (loss) per share(a):       
Basic$(0.14)  $0.14  $0.11   $0.58 
Dilutive$(0.14)  $0.14  $0.11   $0.58 
Weighted average common shares outstanding:       
Basic27,849   27,834  27,838   27,834 
Dilutive27,849   27,834  29,586   27,834 

(a) 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.





THE PENNANT GROUP, INC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

(In thousands)

 December 31, 2019 December 31, 2018
Assets   
Current assets:   
Cash$402   $41 
Accounts receivable—less allowance for doubtful accounts of $677 and $616, respectively32,183   24,469 
Prepaid expenses and other current assets6,098   4,613 
Total current assets38,683   29,123 
Property and equipment, net14,644   10,458 
Right-of-use assets316,328    
Escrow deposits1,400    
Restricted and other assets1,955   2,464 
Intangible assets, net45   78 
Goodwill41,233   30,892 
Other indefinite-lived intangibles33,462   25,136 
   Total assets$447,750   $98,151 
Liabilities and equity   
Current liabilities:   
Accounts payable$8,653   $4,390 
Accrued wages and related liabilities16,343   12,786 
Lease liabilities—current12,285    
Other accrued liabilities13,911   12,371 
Total current liabilities51,192   29,547 
Long-term lease liabilities—less current portion304,044    
Other long-term liabilities2,877   3,316 
Long-term debt, net18,526    
Total liabilities376,639   32,863 
Commitments and contingencies   
Equity:   
Common Stock, $0.001 par value; 100,000 shares authorized; 28,435 and 27,853 shares issued and outstanding at December 31, 2019, respectively.28    
Additional paid-in capital74,882    
Retained Earnings(3,799)   
Net parent investment   55,856 
Noncontrolling interest   9,432 
Total equity71,111   65,288 
   Total liabilities and equity$447,750   $98,151 
 



THE PENNANT GROUP, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

The following table presents selected data from our consolidated and combined statement of cash flows for the periods presented:

 Year Ended December 31,
 2019 2018
 (In thousands)
Net cash provided by operating activities$9,554   $23,275  
Net cash used in investing activities(26,465)  (9,477) 
Net cash provided by/(used in) financing activities17,272   (13,793) 
Net increase in cash361   5  
Cash at beginning of year41   36  
Cash at end of year$402   $41  
 



THE PENNANT GROUP, INC.

REVENUE BY SEGMENT

The following tables sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated:

 For The Three Months Ended December 31,
 2019 2018
 Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage
 (In thousands, unaudited)
Home health and hospice services       
Home health$21,798  24.4% $18,473  24.5%
Hospice28,816  32.2  21,579  28.7 
Home care and other4,513  5.0  4,141  5.5 
Total home health and hospice services55,127  61.6  44,193  58.7 
Senior living services34,365  38.4  31,144  41.3 
Total revenue$89,492  100.0% $75,337  100.0%



 Year Ended December 31,
 2019 2018
 Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage
 (In thousands)
Home health and hospice services       
Home health$83,330  24.6% $71,669  25.1%
Hospice105,682  31.2  82,658  28.9 
Home care and other17,612  5.2  14,710  5.1 
Total home health and hospice services206,624  61.0  169,037  59.1 
Senior living services131,907  39.0  117,021  40.9 
Total revenue$338,531  100.0% $286,058  100.0%
 



THE PENNANT GROUP, INC.

SELECT PERFORMANCE INDICATORS

(unaudited)

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

 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
      
Home health services:       
Total home health admissions5,914  4,724  22,637  18,220 
Total Medicare home health admissions2,777  2,230  10,656  8,711 
Average Medicare revenue per 60-day completed episode$2,912  $3,027  $3,018  $2,982 
Hospice services:       
Average daily census1,845  1,386  1,680  1,329 
Total hospice admissions1,542  1,139  6,196  4,764 
Hospice Medicare revenue per day$163  $158  $164  $160 



The following table summarizes our senior living performance indicators for the periods indicated:

 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
      
Occupancy81.1% 80.4% 80.2% 79.5%
Average monthly revenue per occupied unit$3,149  $3,038  $3,120  $3,044 
                



THE PENNANT GROUP, INC.

REVENUE BY PAYOR SOURCE

The following table presents our total revenue by payor source and as a percentage of total revenue for the periods indicated:

  For The Three Months Ended December 31,
  2019 2018
  $ % $ %
  (In thousands, unaudited)
Revenue:        
Medicare $38,940  43.5% $30,012  39.8%
Medicaid 12,138  13.6  9,971  13.3 
Subtotal 51,078  57.1  39,983  53.1 
Managed Care 7,819  8.7  6,262  8.3 
Private and Other(a) 30,595  34.2  29,092  38.6 
Total revenue $89,492  100.0% $75,337  100.0%


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



  Year Ended December 31,
  2019 2018
  $ % $ %
         
  (In thousands)
Revenue:        
Medicare $141,752  41.9% $115,997  40.5%
Medicaid 46,455  13.7  36,033  12.6 
Subtotal 188,207  55.6  152,030  53.1 
Managed Care 29,247  8.6  24,459  8.6 
Private and Other(a) 121,077  35.8  109,569  38.3 
Total revenue $338,531  100.0% $286,058  100.0%


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



THE PENNANT GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)

 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (unaudited)    
Net income (loss) attributable to The Pennant Group, Inc.$(3,799)  $3,770   $2,546   $15,684  
Add: Net income attributable to noncontrolling interest   182   629   595  
Net income (loss)(3,799)  3,952   3,175   16,279  
        
Non-GAAP adjustments       
Costs at start-up operations(a)118   45   508   159  
Share-based compensation expense(b)1,987   592   3,382   2,382  
Depreciation and amortization - patient base(c)4   11   39   87  
Acquisition related costs(d)52      665     
Spin-off related transaction costs(e)5,199   756   13,219   756  
Transition services costs(f)757      965     
Provision for income taxes on Non-GAAP adjustments(g)353   (767)  (4,023)  (1,653) 
Non-GAAP net income$4,671   $4,589   $17,930   $18,010  
        
Dilutive Earnings Per Share As Reported       
Net Income (loss)$(0.14)  $0.14   $0.11   $0.58  
Average number of shares outstanding27,849   27,834   29,586   27,834  
        
Adjusted Diluted Earnings Per Share        
Net Income$0.16   $0.16   $0.61   $0.65  
Average number of shares outstanding29,597   27,834   29,586   27,834  
        
(a)  Represents results related to start-up operations. This amount excludes rent, depreciation and amortization.
 
 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Revenue$(476)  $(45)  $(801)  $(220) 
Cost of services582   82   1,284   349  
Rent12   8   25   30  
Total Non-GAAP adjustment$118   $45   $508   $159  
        
(b)  Represents share-based compensation expense incurred for the periods presented.
 
 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Cost of services$276   $114   $613   $480  
General and administrative1,711   478   2,769   1,902  
Total Non-GAAP adjustment$1,987   $592   $3,382   $2,382  
        
(c)  Included in depreciation and amortization expenses related to patient base intangible assets at newly acquired senior living facilities.
 
(d)  Represents costs incurred to acquire an operation that are not capitalizable.
 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Cost of services$   $   $505   $  
General and administrative52      160     
Total Non-GAAP adjustment$52   $   $665   $  
        
(e)  Costs incurred related to the Spin-Off that are included in general and administrative expense.
        
(f)  The portion of the costs incurred under the Transition Services Agreement identified as redundant or nonrecurring that are included in general and administrative expense. Total fees under incurred under the Transition Services agreement were $2,982 for the year ended December 31, 2019.
    
 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
General and administrative$532   $   $532   $  
Depreciation and amortization(1)225      433     
 $757   $   $965   $  
(1) Consists of depreciation and amortization on IT hardware and software acquired to build infrastructure in anticipation of our transition from Ensign's IT infrastructure.
        
(g)  Represents an adjustment to the provision for income tax to our historical year to date effective tax rate of 25.0% and 25.4% for the three and twelve months ended December 31, 2019 and December 31, 2018, respectively. This rate excludes the tax benefit of shared-based payment awards.
 



THE PENNANT GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

The tables below reconcile Consolidated and Combined Net Income (Loss) to Consolidated and Combined EBITDA, and Consolidated and Combined Adjusted EBITDAR for the periods presented:

 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (unaudited)    
Consolidated and combined net income (loss)$(3,799)  $3,952   $3,175   $16,279  
Less: Net income attributable to noncontrolling interest   182   629   595  
Add: Provision for income taxes (benefit)1,994   764   2,085   4,352  
Net interest expense410      410     
Depreciation and amortization967   787   3,810   2,964  
Consolidated and Combined EBITDA(428)  5,321   8,851   23,000  
Adjustments to Consolidated and Combined EBITDA       
Add: Costs at start-up operations(a)106   37   483   129  
Share-based compensation expense(b)1,987   592   3,382   2,382  
Acquisition related costs(c)52      665     
Spin-off related transaction costs(d)5,199   756   13,219   756  
Transition services costs(e)532      532     
Rent related to item (a) above12   8   25   30  
Consolidated and Combined Adjusted EBITDA7,460   6,714   27,157   26,297  
Rent—cost of services9,607   8,134   34,975   31,199  
Rent related to item (a) above(12)  (8)  (25)  (30) 
Adjusted rent—cost of services9,595   8,126   34,950   31,169  
Consolidated and Combined Adjusted EBITDAR$17,055     $62,107    

(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 incurred which is included in cost of services and general and administrative expense.

(c)  Acquisition related costs that are not capitalizable.

(d)  Costs incurred related to the Spin-Off are included in general and administrative expense.

(e)  The portion of the costs incurred under the Transition Services Agreement identified as redundant or nonrecurring that are included in general and administrative expense.  Total fees under incurred under the Transition Services agreement were $2,982 for the year ended December 31, 2019.



THE PENNANT GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

Beginning in the third quarter of 2019, the GAAP segment measure of profit and loss was changed from segment income (loss) before provision for income taxes to Adjusted Segment EBITDAR from Operations. Prior period presentation has been revised to reflect the new measurement. 

The following table presents certain financial information regarding our reportable segments. General and administrative expenses are not allocated to the reportable segments and are included in "All Other":

  For The Three Months Ended December 31,
  Home Health and Hospice Services Senior Living Services All Other Total
Segment GAAP Financial Measures: (In thousands, unaudited)
Three Months Ended December 31, 2019        
Revenue $55,128  $34,364  $   $89,492 
Segment Adjusted EBITDAR from Operations $9,481  $11,641  $(4,067)  $17,055 
Three Months Ended December 31, 2018        
Revenue $44,193  $31,144  $   $75,337 
Segment Adjusted EBITDAR from Operations $6,541  $12,456  $(4,157)  $14,840 



  Year Ended December 31,
  Home Health and Hospice Services Senior Living Services All Other Total
Segment GAAP Financial Measures: (In thousands)
Year Ended December 31, 2019        
Revenue $206,624  $131,907  $   $338,531 
Segment Adjusted EBITDAR from Operations $33,354  $47,344  $(18,591)  $62,107 
Year Ended December 31, 2018        
Revenue $169,037  $117,021  $   $286,058 
Segment Adjusted EBITDAR from Operations $26,427  $47,230  $(16,191)  $57,466 



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

 For The Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (unaudited)    
Segment Adjusted EBITDAR from Operations(a)$17,055   $14,840  $62,107  $57,466 
Less: Depreciation and amortization967   787  3,810  2,964 
Rent—cost of services9,607   8,134  34,975  31,199 
Adjustments to Segment EBITDAR from Operations:       
Less: Costs at start-up operations (b)106   37  483  129 
Share-based compensation expense (c)1,987   592  3,382  2,382 
Acquisition related costs (d)52     665   
Spin-off related transaction costs (e)5,199   756  13,219  756 
Transition services costs(f)532        
Add: Net income attributable to noncontrolling interest   182  629  595 
Consolidated and Combined income (loss) from Operations$(1,395)  $4,716  $5,670  $20,631 

(a)  Segment Adjusted EBITDAR from Operations is net income attributable to the Company's reportable segments excluding the 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) transaction costs, (5) redundant and nonrecurring costs associated with the transition services agreement, 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 Chief Operating Decision Maker ("CODM") uses Segment Adjusted EBITDAR from Operations as the primary measure of profit and loss for the Company's reportable segments and to compare the performance of its operations with those of its competitors. The 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 incurred which is included in cost of services and general and administrative expense.

(d)  Acquisition related costs that are not capitalizable.

(e)  Costs incurred related to the Spin-Off are included in general and administrative expense.

(f)  The portion of the costs incurred under the Transition Services Agreement identified as redundant or nonrecurring that are included in general and administrative expense.  Total fees under incurred under the Transition Services agreement were $2,982 for the year ended December 31, 2019.



THE PENNANT GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

The tables below reconcile segment adjusted EBITDAR from operations to segment EBITDA for each reportable segment for the periods presented:

 For The Three Months Ended December 31,
 Home Health and Hospice Senior Living
 2019 2018 2019 2018
 (unaudited)
Segment Adjusted EBITDAR from Operations$9,481   $6,541   $11,641  $12,456 
Less: Rent—cost of services825   610   8,782  7,524 
Rent related to costs at start-up operations(12)  (8)     
Segment Adjusted EBITDA$8,668   $5,939   $2,859  $4,932 



 Year Ended December 31,
 Home Health and Hospice Senior Living
 2019 2018 2019 2018
Segment Adjusted EBITDAR from Operations$33,354   $26,427   $47,344  $47,230 
Less: Rent—cost of services2,964   2,281   32,011  28,918 
Rent related to costs at start-up operations(25)  (30)     
Segment Adjusted EBITDA$30,415   $24,176   $15,333  $18,312 



Discussion of Non-GAAP Financial Measures

EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes and (c) depreciation and amortization. Adjusted EBITDA consists of net income attributable to the Company before, (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) costs incurred for start-up operations, including rent and excluding depreciation, interest and income taxes, (e) share-based compensation expense, (f) acquisition related costs, (g) spin-off related transaction costs, (h) redundant and nonrecurring costs associated with the transition services agreement, and (i) net income attributable to noncontrolling interest. Combined Adjusted EBITDAR is a valuation measure applicable to current periods only and consists of net income attributable to the Company before (a) interest expense, net, (b) rent, (c) provisions for income taxes, (d) depreciation and amortization, (e) costs incurred for start-up operations, including rent and excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) acquisition related costs, (h) spin-off related transaction costs, (i) redundant and nonrecurring costs associated with the transition services agreement, and (j) net income attributable to noncontrolling interest. The company believes that the presentation of EBITDA, adjusted EBITDA, combined adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company's operating performance. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and combined adjusted EBITDAR has economic substance because the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company's periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Pennant's website at http://www.pennantgroup.com.

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