Early action to stave off the fallout of the COVID-19 pandemic has paid off for The Pennant Group (NASDAQ: PNTG), which saw substantial growth in its hospice business during the first quarter, even as the company gears up for the forthcoming acquisition of three affiliated hospice providers located in the southwestern United States.
Post-acute providers have been hit hard by the pandemic due to drops in referrals, surging personal protective equipment (PPE) costs, reduced access to patients in nursing homes and reluctance among some patients to have clinicians enter their homes due to fears of infection.
Despite these pressures, Pennant Group was able to pull through the first quarter with minimal damage.
“While we have experienced some overall negative impact from COVID-19, we firmly believe this is one of those significant of many challenges we have faced and likely will not be the last one we face,” said CEO Daniel Walker in an earnings call. “When we spun off from Ensign, it was our stated mission to create two healthy public companies that will provide long-term value for our stakeholders. With that in mind, we ensured that our home health and hospice and senior living businesses were operating within the Ensign model, and that our balance sheet and long-term leases positioned us with cushion to weather difficult operating conditions.”
Pennant, which owns and operates hospice provider Cornerstone Healthcare, was spun in 2019 off from The Ensign Group (NASDAQ: ENSG). Pennant retained Ensign’s hospice, home health and senior living operations.
Pennant operates 65 home health and hospice agencies, 51 senior living operations, and mobile diagnostics and lab operations located across 14 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.
During Q1, the company’s home health and hospice segment saw a 23% revenue increase from the prior year’s first quarter, bringing in $56.8 million.
A 32.2% jump in hospice average daily census from Q1 2019 helped bolster the company as its home health component saw a more than 8% decline in referrals due to COVID-19. Factors such as the cancellation of elective surgeries in hospitals caused industry-wide drops in home health referrals beginning in mid March. The company’s hospice admissions rose more than 25%.
“COVID-19 certainly impacted our business late in the first quarter, and those impacts have continued into the second quarter from March 11 through May 11th. So far in May, we are seeing signs of improvement in our home health census stabilization, in our senior living occupancy and continued strength in our hospice average daily census,” Walker said. “We are moving quickly to offset these headwinds and become better through the process. At each operation, our response to the pandemic was swift, locally tailored and evolved quickly to meet the needs of our patients and their loved ones.”
Through the second quarter and beyond, the company has its eye on hospice acquisitions. An agreement to purchase three affiliated hospices in the Southwest is days away, according to Walker.
The names of the three companies have not yet been disclosed, but they have a combined average daily census of about 200 patients.
“Through the pandemic we continue to maintain a robust pipeline of acquisition opportunities, while bolstering our balance sheet and liquidity position,” Walker said. “We understand that some investments with the highest returns are executed during periods of disruption, so an important part of our pandemic response was improving our cash, cash position and revolver availability to be ready to move quickly for the right opportunities.”