The Pennant Group, Inc. Common Stock 2026 Q2 Earnings Call

Welcome everyone, thank you for joining us today. Here with me today, I have Brent Guerisoli, our CEO, John Gochnour, our President and COO, Lynette Walbom, our CFO, and Andy Rider, our Senior Living President. Before we begin, I have a few housekeeping matters. We filed our earnings press release in 10-Q yesterday. This announcement is available on the investor relations section of our website at www.pennantgroup.com. A replay of this call will also be available on our website until 5:00 P.M. Mountain on August 6th, 2027. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, August 6th, 2026. These statements will not be updated after today's call. Any forward-looking statements made today are based on management's current expectations about our business and the environment in which we operate.

These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, we do not publicly update or revise any forward-looking statements where changes arise from new information or for any other reason. The Pennant Group Inc. is a holding company with no direct operating assets, employees, or revenues. Certain of our independent subsidiaries, collectively referred to as the service center, provide administrative services to the operating companies through contractual relationships. The words Pennant company, we, our, and us refer to The Pennant Group Inc. and its consolidated subsidiaries.

Our operating subsidiaries and the service center are operated by separate independent companies that have their own management, employees, and assets. References herein to the consolidated company and its assets and activities, as well as use of the terms we, us, our, and similar terms do not imply that The Pennant Group Inc. has direct operating assets, employees or revenues, or that any of the subsidiaries are operated by The Pennant Group. We supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q. With that, I'll turn the call over to Brent Guerisoli, our CEO.

Brent? Thanks, Kirk, and welcome everyone to our second quarter 2026 earnings call.

We are pleased to report another strong quarter, which put us on pace to surpass the top end of our original guidance range. Our momentum is the product of diligent focus on operational excellence, along with effective transitions at recently acquired operations. In Q2, we generated revenue of $298 million, an increase of $78.5 million or 35.8% over the prior year quarter. Adjusted EBITDA of $24.3 million, an increase of $7.9 million or 48.2% over the prior year quarter. Adjusted EBITDA prior to NCI of $26.1 million, an increase of $8.8 million or 51% over the prior year quarter, and adjusted diluted earnings per share of $0.36, an increase of $0.09 or 33.3% over the prior year quarter. I'm incredibly proud of our local leaders and teams.

Heading into this year, we outlined two critical initiatives that would create success in 2026. First, we would rigorously pursue operational excellence across all of our business lines, looking at every lever to increase efficiencies and improve results. Second, after a period of significant investment, we would focus sufficient resources and attention on integrating those operations, especially our sizable recent acquisition in the Southeast, to ensure that they were transitioned quickly and effectively. As a testament to the strength of our operating model, we have experienced remarkable progress in organic growth across our core operations, even as we have outperformed internal expectations thus far in the transition of the largest acquisition in our history. This has been the story of Pennant's year thus far.

Before the recent announcement of the 2027 proposed home health rule, home health reimbursement had been in a down cycle, with annual base rate cuts for four consecutive years. We made the best of this challenging environment by rigorously innovating and optimizing our operations and delivering exceptional clinical care more efficiently. Throughout this period, we continued to invest in home health at attractive valuations and reaffirmed our bullish view and long-term commitment to these services, even as we have expanded our hospice and senior living businesses. We know, and we believe the government also knows, that home health services are a vital component of America's healthcare strategy, and their importance will only increase as more seniors age into the services and governmental leaders look for solutions to reduce the nation's overall healthcare spend. The silver wave will continue to unfold over the next decade and beyond.

Each year, more than four million Americans turn 65. As the share of the U.S. population over 65 increases and life expectancy continues to expand, we anticipate growing demand for our services. Our home health and hospice services will continue to be critical, lowest cost solutions to address these demographic changes. Healthcare reimbursement is cyclical. It appears now that the payment pendulum is moving in a better direction, with a 2.4% increase in the 2027 proposed rule, which we're modeling as a 1.7% increase as applied to our operations. We see this as a positive signal and welcome the opportunity to collaborate with CMS and Congress on a more stable home health rate environment that aligns reimbursement with the increasing costs of delivering high-quality care. As payers and CMS increasingly focus on rewarding quality outcomes and value-based care, we are well-positioned to be a solution in the healthcare continuum.

As announced in yesterday's press release, we are raising annual guidance based on the momentum in the business, the progress we have made in transitioning new acquisitions in the Southeast, and the significant upside that remains in our existing operations. We anticipate full year revenue in the range of $1.17 billion to $1.19 billion, Adjusted EBITDA prior to NCI of $101.5 million to $105.1 million, and adjusted earnings per share in the range of $1.34 to $1.41. With solid performance across the portfolio, a pipeline of potential growth opportunities, and a robust balance sheet, we are excited for the remainder of 2026 and beyond. With that, I'll turn the call over to John to provide more details on our second quarter operational results.

Thank you, Brent, and good morning, everyone. Pennant's local leaders continued to drive inspiring clinical and operational results in their communities. We are pleased to see strong performance in our mature operations, even as we are onboarding these new acquisitions. In our home health and hospice segment, exemplary clinical and cultural performance continues to create financial momentum. Top line segment revenue in the second quarter was $237.8 million, an increase of $71.8 million or 43.2%. Adjusted EBITDA was $37.7 million, an increase of $12.3 million or 48.2%, and Adjusted EBITDA prior to NCI of $39.6 million, an increase of $13.2 million or 50% each over the prior year quarter. Our growth in Adjusted EBITDA prior to NCI reflects not only the addition of new operations, but also our focus on operational excellence, as same-store margin improved 70 basis points year-over-year. Our hospice business continues to excel.

Hospice revenue in Q2 was $103.6 million, an increase of $29.8 million or 40.4% over the prior year quarter. Hospice admits increased 38.4%, and average daily census increased 40.1%. While this increase reflects the impact of our investment in the Southeast, our same-store trends reflect that the community is responding to our locally driven approach and clinical excellence. For the second quarter, same-store hospice admissions increased 8.8% and ADC grew 10.8% each over the prior year quarter. In July, CMS released the 2027 Hospice Final Payment rule, which includes a 2.3% increase in revenue per day, along with several program integrity measures primarily intended to increase rigor relating to hospice enrollment. The hospice industry is currently the subject of intense scrutiny because of the significant fraud and abuse issues perpetrated by bad actors in California and elsewhere.

While they have created new administrative costs, we understand and support the need for program integrity measures that will help lawmakers and regulators pinpoint and punish fraudsters. We are working closely with regulators to narrowly tailor regulations and enforcement in ways that improve patient care and increase trust in the industry. By identifying and isolating bad actors, funds can be redirected to providers like Pennant, who deliver great care in a compliant manner. In short, we are well equipped to thrive through this dynamic regulatory environment. On the home health side, our operations continue to grow and perform well. Home health revenue increased to $119.4 million, an increase of $40.3 million or 50.8% over the prior year quarter. Total home health admissions increased 62.3%, and Medicare admissions increased 70.7% each over the prior year quarter.

Revenue per episode decreased by 1.9% over the prior year, as we anticipated based on our significant growth in the Southeast. These markets have lower CMS wage indexes and thus lower revenue per episode, offset by lower actual wages and overall cost of service. Consistent with our hospice results, our same-store strength illustrates our foundation of quality care, with total same-store home health admissions increasing 9.7% and same-store Medicare admissions increasing 13.6%. The transition of new operations in the Southeast continues to roll forward on schedule. Though we see significant variability and much opportunity to improve individual operations, we are pleased with their overall performance and transition progress to date. Financially, margins in this business are trending ahead of internal expectations.