Pennant Primed for Hospice Acquisitions, De Novos

The Pennant Group (NASDAQ: PNTG) is investing heavily in the growth of its hospice business both through acquisitions and de novo activity during the remainder of the year and into 2021. Pennant set itself on a strong trajectory in 2020 with two start-up locations and four hospice acquisitions thus far.

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.

“We are excited about our deal prospects and where our pipeline stands. We continue to see meaningful opportunities that fit our investment criteria and expect to see a similar pace acquisition activity in the near term,” said CEO Daniel Walker in an earnings conference call. “Our field and resource leadership power, the strong performance of our operations — notably in our home health and hospice segment — low leverage, strong fixed charge coverage and our consistently growing cash flow combine to make us well equipped to acquire and onboard additional operations in 2021 and beyond.”

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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.

The company’s Home Health and Hospice Services segment brought in $64 million during the third quarter of 2020, up 16.7% from $9.2 million in Q3 2019. The segment’s adjusted EBITDAR from operations rose 5% to $13.5 million.

Hospice-specific revenue was up to more than $33 million, up from $29.1 million in the prior year’s quarter. In addition to acquisitions, Pennant’s average daily hospice census reached 2,177. This represents a 21.8% increase from Q3 2019. Admissions were up 25.4% during that same time period.

“The strides being made clinically and financially across our home health and hospice business, combined with our strong balance sheet and steady pipeline of acquisition opportunities, give us confidence in our ability to continue generating impressive results in the fourth quarter and beyond,” Walker said.

Pennant has been an active acquirer in recent months. As recently as October, the company bought Harmony Hospice in Las Vegas, which had been affiliated with two other hospices that Pennant purchased earlier in the year: Prime Hospice, located near Phoenix, and Harmony Hospice of Arizona. Financial terms of these deals were confidential.

In July, Pennant also acquired hospice and home health assets of Signature Health Care at Home for an undisclosed sum, each with multiple locations throughout southeastern Idaho and northern Utah. Pennant also completed a number of home health acquisitions.

Just last week, the company announced the launch of two start-ups, one in Washington state and one in California.

“Our focus continues to be on the opportunistic acquisition of existing operations. However, we do startup operations and joint ventures as additional tools available for us to drive similar long term results, depending on the unique needs of the community and our leadership pipeline,” Walker said. “The start-ups are really part of a strategy that we’ve been deploying since the inception of our home health and hospice company, as part of our overall growth strategy.”

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