Pennant Group Hits Home Run with Q3 M&A, Hospice Census Growth

Acquisitions and a nearly 30% rise in hospice patient census gave a substantial boost to third quarter earnings at the Pennant Group, Inc. (NASDAQ: PNTG).

Pennant emerged earlier this year as a hospice, home health and senior living spin-off from The Ensign Group (NASDAQ: ENSG). As part of the spin off, Ensign’s stockholders were given one share of Pennant common stock for every two shares of Ensign common stock they held at the end of the business day on September 20, 2019.

Third quarter 2019 was Pennant’s first earnings report since completion of the spin-off in October, with the company’s home health and hospice segment bringing in $55.2 million, up more than 25% over the prior year quarter.

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“The third quarter concluded with our spin-off from Ensign, which marks an important milestone in our organization’s history. The transaction would not have happened without the tireless effort and extraordinary results of thousands of individuals across both Pennant and Ensign,” said Pennant President and CEO Daniel Walker. “We are pleased with the performance of our home health and hospice business and expect to see strong organic growth coupled with strategic acquisition opportunities.”

During the third quarter Pennant acquired the assets of Tucson, Ariz.-based Agape Hospice and Palliative Care for an undisclosed amount. 

The Arizona market is becoming increasingly important to hospice companies due to the state’s evolving demographics. Currently, 17.5% of the state’s nearly 7.2 million residents are age 65 or older, according to the U.S. Census Bureau. By 2050 that number is expected to rise to 21%, according to the Arizona Department of Health Services (ADHS).

Between 2010 and 2015 ADHS anticipates that the number of Medicare-age residents in the state will increase 174% and that the number of seniors older than 85 will quadruple from 2010 levels.

Hospice utilization also runs high in the state. In 2017, Arizona had the second-highest number of Medicare decedents who died in hospice at 59.2%, behind only Utah at 59.4%, according to the National Hospice & Palliative Care Organization.

Further acquisition are likely in the works at Pennant for 2019 and 2020.

“Despite the work needed to execute the spin-off, our disciplined acquisition strategy led by our local leaders allowed us to continue to scale by finding and executing on a number of opportunities with significant organic growth potential,” said Pennant’s Chief Investment Officer Derek Bunker. “Closing out 2019 and looking out into 2020, we are excited to deploy the dry powder generated from operational cash flow and our new revolver in pursuing even more acquisition opportunities.” 

Pennant operates 61 home health and hospice agencies, 51 senior living operations, and mobile diagnostics and lab operations located across 13 states, with 23 of the senior living assets subject to leases with third-party landlords, as well as mobile diagnostic services and clinical laboratory operations. Pennant also manages 28 senior living communities pursuant to a new, long-term triple-net leases with Ensign subsidiaries.

“Pennant starts out as a public company with good momentum reflecting solid growth both organically and from recent acquisitions, which appear to be transitioning smoothly,” Analyst Frank Morgan of RBC Capital Markets, LLC., indicated in an note shared with Hospice News. “The company presents few surprises out of the gate and appears to be executing well despite spin-related distractions and pockets of wage pressure within nursing staff.”

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