The Pennant Group (NASDAQ: PNTG) will likely slow down its acquisition activity during the remainder of the year and early 2022 as they work to recover from pandemic headwinds that bruised the hospice, home health and senior housing provider during the third quarter.
Pennant has been aggressive on acquisitions during the past two years, including in the hospice space. While the company continues to eye opportunities, Pennant is refocusing on bringing their recently acquired assets up to speed financially as they absorb elevated costs and disruption from COVID-19.
“This is a typical cycle for us, where we see so much opportunity internally that it’s harder to justify taking resources and deploying capital externally,” CEO Daniel Walker said in a third quarter earnings call. “[M&A] would be a little lighter in the fourth quarter, maybe into the first quarter.”
Walker indicated that Pennant plans to refocus on deploying more capital towards acquisitions in periods beyond the first quarter of 2022. The company in February increased its revolving line of credit by $75 million to a total $150 million, pledging to apply those resources to buying new operations.
The company’s performance fell short of expectations for Q3, though its hospice segment remains a bright spot with rising volume. Pennant’s average daily hospice census reached 2,337 during the third quarter, up 7.3% from the prior year’s quarter. Admissions rose 4% year-over-year to 2,219.
Nevertheless, earnings-per-share were down to $0.11 from $0.18 in Q3 2020. This is down sequentially from $0.17 In Q2. An admissions decline in its home health business due to suspensions of elective procedures due to the outbreak contributed to the decline.
The company reduced its full-year 2021 revenue guidance to a range of $425 million to $430 million, down from previous projections of $430 million to $440 million.
In addition to transactions in the company’s other business lines, Pennant Group in September acquired Amarillo,Texas-based Open Heart Hospice for an undisclosed sum. In June, the company purchased Sacramento, Calif.-based First Call Hospice in June.
When Walker cited factors that contributed to the company’s third quarter challenges, including the pandemic, the company’s spin-off from The Ensign Group (NASDAQ: ENSG), its high volume of hospice and home health deals, leadership changes in its senior living segment and investment of time and resources in early-stage new business ventures.
“We know that sustainable clinical and financial results are achieved when our investment activity is well-calibrated with the health of our current operations and bandwidth of our leaders and resources,” Walker said. “We haven’t struck this delicate balance well enough over the past 18 months.”
Pennant, which owns and operates hospice provider Cornerstone Healthcare, was spun off in 2019 from The Ensign Group. Pennant retained Ensign’s hospice, home health businesses and a portion of its senior living operations.
Labor pressures and COVID outbreaks in key markets also adversely impacted the company’s bottom line. In Q3, pandemic-related losses totaled $2.3 million, Pennant Group reported.
The Pennant Group is implementing plans to reverse course after a difficult quarter.
“We are taking immediate actions to No. 1, ensure that each local team is executing at a high level without distractions,” Walker said. “No. 2, retrench around the core opportunities across both segments, and, No. 3, reinforce the core principles of our operating model that have led to our historical success. We believe that these efforts will yield significant results in the short term and ensure long-term health.”
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