The Pennant Group, Inc. (PNTG) Earnings

Management highlights

### Core Strategic Focus - Management continues to prioritize five core focus areas to drive consistent improvement: leadership development, clinical excellence, employee engagement, margin expansion, and growth. - The company's decentralized operating model enables local leadership teams to drive growth in mature operations while simultaneously supporting acquisition onboarding and transition. ### Acquisition Activity - The company agreed to acquire a portfolio of 38-50 divested home health and hospice locations from Amedisys and UnitedHealth Group, primarily concentrated in Tennessee with additional sites in Alabama and Georgia. Approximately two-thirds of the portfolio revenue is from home health, and one-third from hospice, with a purchase price of $113 million to $147 million, within the company's 4x to 8x target EBITDA multiple range. Closing is anticipated in Q4 2025, and the company has ample balance sheet capacity to complete the transaction within leverage covenants. - The January 2025 acquisition of Signature Healthcare at Home is progressing successfully, with the transition complete and the acquisition already accretive, strengthening Pennant's position in the Pacific Northwest. - The April 2025 acquisition of Red Mountain Senior Living (128 units in Mesa, Arizona) is ongoing, and the July 2025 acquisition of GrandCare Home Health (expanding service in Southern California) creates new opportunities to build an integrated regional care continuum. ### Regulatory and Reimbursement Updates - CMS issued a final 2026 hospice rule with a 2.6% rate increase, which management models will deliver a ~2.5% increase in Pennant's hospice revenue per day effective October 1, 2025, creating a tailwind for results. - CMS's proposed 2026 home health rule includes a net 6.4% aggregate payment cut, which management calls seriously misguided. The company has joined with industry groups to mount an urgent advocacy campaign to revise the final rule, noting that CMS has historically reduced proposed cuts in final rules. - Traditional Medicare home health revenue represents only ~18% of Pennant's total Q2 2025 revenue, and the company has already begun preparing operational adjustments to adapt if the proposed cuts stand. ### Operational Performance - Multiple local operations have delivered strong outperformance, with double-digit revenue growth and triple-digit EBITDA growth YoY, driven by investments in culture, clinical leadership, and community alignment.

Guidance

- Management raised full-year 2025 guidance based on stronger-than-expected operating momentum, organic growth, and completed acquisitions. - New full-year guidance ranges are: total revenue of $852.8 million to $887.6 million; adjusted diluted earnings per share of $1.09 to $1.15 (the midpoint of $1.12 is a 5 cent increase from original guidance, representing a 19.1% increase over 2024 adjusted EPS); and adjusted EBITDA of $69.1 million to $72.7 million. - The updated guidance includes pre-transaction expenses for the Amedisys/UnitedHealth acquisition, but no revenue or earnings from the deal due to closing timing uncertainty. An additional guidance update will be issued once closing timing and conditions are clear. - For senior living, guidance embeds ~6% REVPOR growth and 30 to 50 basis points of same-store occupancy growth for full-year 2025. - For home health and hospice, full-year same-store revenue growth guidance is 7% to 8%.

Segment performance

Total consolidated Q2 2025 revenue was $219.5 million, a 30.1% increase year-over-year, with total adjusted EBITDA of $16.4 million, a 24.5% YoY increase. 1. Home Health and Hospice Segment: - Total segment revenue: $166 million, up $40.7 million (32.5%) YoY. This segment contributes 75.6% of total company revenue. - Total segment adjusted EBITDA: $25.5 million, up $5.9 million (29.9%) YoY. - Hospice sub-segment: Revenue of $73.8 million, up $14.4 million (24.3%) YoY. Hospice admits grew 14.7%, average daily census (ADC) grew 21.4%, and revenue per day increased 3.3% YoY; same-store admissions grew 4.5% and same-store ADC grew 6.6% YoY. - Home Health sub-segment: Revenue of $79.2 million, up $17.6 million (28.5%) YoY. Total admissions grew 26.1%, Medicare admissions grew 21.6%, and revenue per episode increased 5.9% YoY; same-store admits grew 6%, same-store Medicare admissions grew 2.9%, and same-store revenue per episode increased 5.5% YoY. Home health maintains an average CMS star rating of 4.1, above the national average of 3.0. 2. Senior Living Segment: - Total segment revenue: $53.5 million, up $10 million (23.1%) YoY. This segment contributes 24.4% of total company revenue. - Total segment adjusted EBITDA: $5.1 million, up $1.1 million (25.7%) YoY. - Same-store occupancy grew 90 basis points sequentially, and now exceeds 80%. Average monthly revenue per occupied room (REVPOR) rose to $5,188, an increase of $398 (8.3%) YoY.

Risks & headwinds

- CMS's proposed 2026 home health rule would implement a net 6.4% aggregate payment cut, which management states would harm home health agencies' ability to recruit and retain clinical staff, and could lead to higher overall national healthcare spending as patients are forced to higher-cost care settings. If the cuts are implemented as proposed, they would have a modest impact on some managed Medicare and commercial capitated contracts that are tied to Medicare rates. - Elevated hospice cap expenses at a limited number of California operations continue to weigh on results, though management has made progress reducing 2025 cap exposure in the state. - Acquisitions carry integration risk, though management's operating model and pre-closing preparation are designed to mitigate this risk.

Analyst Q&A

• Q: Why is the concentrated Tennessee footprint of the Amedisys/UnitedHealth acquisition attractive, and how could the deal impact existing care continuum efforts? /

  A: Management sees strong existing provider talent in Tennessee and the broader Southeast, and is excited to build scale in the state to create an integrated regional care continuum. Enzyme, an organization that shares Pennant's operating principles, already had successful early entry into Tennessee, which increased management's confidence in the market. The deal establishes a regional center of strength to support further organic growth in the Southeast. (358 characters)

• Q: If CMS's proposed 2026 home health cuts go into effect, how will this change Pennant's M&A strategy versus pursuing organic market share gains from struggling competitors? /

  A: The diversified business model reduces Pennant's overall exposure to the cuts. If the cuts stand, they will likely create market disruption that opens new organic growth and M&A opportunities. Management will continue evaluating all potential growth opportunities based on three core criteria: available trained leadership to support the assets, existing operational strength to absorb new growth, and attractive returns that meet the company's valuation requirements. Any new activity will be tempered until the final rule details are clear. (469 characters)

• Q: What portion of the raised 2025 revenue guidance comes from organic versus acquired growth, and what are the updated same-store growth outlooks for each segment? /

  A: $6 million of the revenue increase comes from the July 2025 GrandCare Home Health acquisition, which was not included in the original guidance. Same-store revenue growth guidance for home health and hospice remains 7% to 8%. For senior living, guidance remains 30 to 50 basis points of same-store occupancy growth and 7% to 8% REVPOR growth, consistent with prior outlooks. (321 characters)

• Q: What are the key drivers of expected EBITDA margin improvement in the second half of 2025? /

  A: Key drivers include ongoing operational efficiency initiatives across all segments, a projected decline in hospice cap expenses relative to the first half of 2025, the 2.5% hospice reimbursement increase from the final CMS rule starting in Q4, continued optimization of the Signature Healthcare acquisition, contribution from the GrandCare acquisition, and expanding margins from the accelerating senior living segment. (313 characters)