Pennant Group Inc

Previous wording

We are a leading provider of high-quality healthcare services to patients of all ages, including the growing senior population, in the United States. We strive to be the provider of choice in the communities we serve through our innovative operating model. We operate in multiple lines of businesses including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. As of June 30, 2024, our home health and hospice business provided home health, hospice and home care services from 117 agencies operating across these 13 states, and our senior living business operated 54 senior living communities throughout six states.

Current wording

We are a leading provider of high-quality healthcare services to patients of all ages, including the growing senior population, in the United States. We strive to be the provider of choice in the communities we serve through our innovative operating model. We operate in multiple lines of businesses including home health, hospice and senior living services across Arizona, California, Colorado, Idaho, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. We provide home health and hospice operational support through a management service agreement in Connecticut. As of September 30, 2024, our home health and hospice business provided home health, hospice and home care services from 122 agencies operating across these 13 states, and our senior living business operated 54 senior living communities throughout six states.

Previous wording

Acquisitions. During the six months ended June 30, 2024, we expanded our operations with the addition of four home health agencies, two hospice agencies, and three senior living communities. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction.

Current wording

Acquisitions. During the nine months ended September 30, 2024, we expanded our operations with the addition of eight home health agencies, three hospice agencies, and three senior living communities. A subsidiary of the Company entered into a separate operations transfer agreement with the prior operator of each acquired operation as part of each transaction.

Previous wording

We have experienced modest senior living occupancy improvement for the six months ended June 30, 2024, compared to the same period in 2023. Though we have seen improvements in occupancy year over year, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which increase our occupancy levels in our senior living communities.

Current wording

We have experienced modest senior living occupancy improvement during the nine months ended September 30, 2024, compared to the same period in 2023. Though we have seen improvements in occupancy year over year, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which we change our occupancy levels in our senior living communities.

Previous wording

On July 31, 2024, CMS issued the 2025 Hospice Payment Rate Update final rule (the “Hospice Payment Final Rule”). The Hospice Payment Final Rule’s payment update percentage is 2.9%, which is an estimated increase of $790 million in payments from fiscal year 2024. The payment update percentage is based on a 3.4% market basket percentage increase, which is reduced by a 0.5% productivity adjustment. Hospices that fail to meet quality reporting requirements under the Hospice Quality Reporting Program (HQRP) will receive a 4% reduction to the annual hospice payment update percentage increase for that year. Such a reduction would more than negate the payment update percentage for fiscal year 2025 contained in the Hospice Payment Final Rule for hospices that fail to submit required quality reporting data to CMS. The Hospice Payment Final Rule also adds two new process measures to HQRP, timely reassessment of pain impact, and timely reassessment of non-pain symptom impact, which are both expected to begin in fiscal year 2028. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap that limits the overall payments per patient that may be made to a hospice annually. The hospice cap amount for the 2025 fiscal year is $34,465.34. The Hospice Payment Final Rule also includes clarifying revisions to the hospice conditions of participation; updates statistical area delineations; and makes changes to the Consumer Assessment of Healthcare Providers and Systems (CAHPS) Hospice Survey.

Current wording

On July 30, 2024, CMS issued the 2025 Hospice Payment Rate Update final rule (the “Hospice Payment Final Rule”). The Hospice Payment Final Rule’s payment update percentage is 2.9%, which is an estimated increase of $790 million in payments from fiscal year 2024. The payment update percentage is based on a 3.4% market basket percentage increase, which is reduced by a 0.5% productivity adjustment. Hospices that fail to meet quality reporting requirements under the Hospice Quality Reporting Program (“HQRP”) will receive a 4% reduction to the annual hospice payment update percentage increase for that year, resulting in a total decrease of 1.1% to those non-compliance hospices’ payments and more than negating the payment update percentage for fiscal year 2025. The Hospice Payment Final Rule also adds two new process measures to HQRP: timely reassessment of pain impact, and timely reassessment of non-pain symptom impact, which are both expected to begin in fiscal year 2028. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap that limits the overall payments per patient that may be made to a hospice annually. The hospice cap amount for the 2025 fiscal year is $34,465.34, increased from the 2024 fiscal year cap of $33,494.01. The Hospice Payment Final Rule also includes clarifying revisions to the hospice conditions of participation; updates statistical area delineations; and makes changes to the Consumer Assessment of Healthcare Providers and Systems (“CAHPS”) Hospice Survey.

Previous wording

On June 26, 2024, CMS issued the 2025 Home Health Prospective Payment System Proposed Rule (the “Home Health Payment Proposed Rule”). The Home Health Payment Proposed Rule’s payment update percentage is 2.5%, which is an estimated increase of $415 million from fiscal year 2024, which is offset by an estimated -3.6% behavioral adjustment, along with a -0.6% estimated adjustment for fixed dollar losses, resulting in a an aggregate net decrease of 1.7% or $280 million compared to fiscal year 2024. The Home Health Payment Proposed Rule also recalibrates PDGM case-mix weights, updates low utilization payment adjustment (LUPA) thresholds, and establishes or updates certain LUPA add-ons.

Current wording

On November 1, 2024, CMS issued the 2025 Home Health Prospective Payment System Final Rule (the “Home Health Payment Final Rule”). The Home Health Payment Final Rule’s payment update percentage for calendar year 2025 is 2.7%, an estimated increase of $445 million from calendar year 2024, which is offset by an estimated -1.8% behavioral adjustment, along with a -0.4% estimated adjustment for fixed dollar losses, resulting in an aggregate net increase of 0.5%, or $85 million, for the calendar year 2025 payment rate compared to calendar year 2024. The Home Health Payment Final Rule also recalibrates PDGM case-mix weights, finalizes an update to the home health wage index, updates home health conditions of participation to require patient acceptance policies, and establishes or updates certain LUPA add-on factors.

Previous wording

In June 2024, CMS announced a Period of Enhanced Oversight for newly enrolled hospices in Arizona, California, Nevada, and Texas. The program includes hospices that are newly enrolled, or that undergo a change of ownership, after July 13, 2023. Such hospices are subject to enhanced oversight for up to one year and may undergo medical review by CMS contractors to deter fraud, waste and abuse of Medicare funds.

Current wording

In June 2024, CMS announced a Period of Enhanced Oversight for newly enrolled hospices in Arizona, California, Nevada, and Texas. The program includes hospices that are newly enrolled, or that undergo a change of ownership, or reactivating after being in a deactivated status after July 13, 2023. Such hospices are subject to enhanced oversight for up to one year and may undergo medical review by CMS contractors to deter fraud, waste and abuse of Medicare funds.

Previous wording

On April 22, 2024, CMS published the Ensuring Access to Medicaid Services (the “Access Rule”) which creates and, over the course of five years, implements new obligations for providers of home- and community-based services (“HCBS”), including non-skilled personal care services in the home. The Access Rule requires that, beginning in 2030, states must implement data collection and monitoring systems to ensure that, subject to exceptions, Medicaid-funded HCBS providers spend at least 80% of their Medicaid HCBS reimbursement on compensation for direct care workers, as opposed to administrative overhead or profits. The Access Rule further requires states to establish a grievance system for addressing services provided in the fee-for-service context, publish fee-for-service payment rates paid by Medicaid, publish the average hourly rate paid to HCBS care providers, and develop hardship exemptions and separate requirements for small providers. The Company anticipates potential changes to the Access Rule, or offsetting Medicaid rate increases, before its ultimate implementation in six years.

Current wording

On April 22, 2024, CMS published the Ensuring Access to Medicaid Services Final Rule (the “Access Rule”) which creates and, over the course of five years, implements new obligations for providers of home- and community-based services (“HCBS”), including non-skilled personal care services in the home. The Access Rule requires that, beginning in 2030, states must implement data collection and monitoring systems to ensure that, subject to exceptions, Medicaid-funded HCBS providers spend at least 80% of their Medicaid HCBS reimbursement on compensation for direct care workers, as opposed to administrative overhead or profits. The Access Rule further requires states to establish a grievance system for addressing services provided in the fee-for-service context, publish fee-for-service payment rates paid by Medicaid, publish the average hourly rate paid to HCBS care providers, and develop hardship exemptions and separate requirements for small providers, with these requirements to be implemented within one to three years from the Access Rule taking effect. The Company anticipates potential changes to the Access Rule, or offsetting Medicaid rate increases, before its ultimate implementation in six years.

Previous wording

Home Health. We derive the majority of our home health revenue from Medicare and managed care. The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Net service revenue is recognized in accordance with PDGM methodology. Under PDGM, Medicare provides agencies with payments for each 30-day period of care provided to beneficiaries. If a beneficiary is still eligible for care after the end of the first 30-day payment period, a second 30-day payment period can begin. There are no limits to the number of periods of care a beneficiary who remains eligible for the home health benefit can receive. While payment for each 30-day period of care is adjusted to reflect the beneficiary’s health condition and needs, a special outlier provision exists to ensure appropriate payment for those beneficiaries that have the most expensive care needs. The PDGM payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments. For further detail regarding PDGM see the Government Regulation section of our 2023 Annual Report.

Current wording

Home Health. We derive the majority of our home health revenue from Medicare and managed care. The Medicare payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Net service revenue is recognized in accordance with PDGM methodology. Under PDGM, Medicare provides agencies with payments for each 30-day period of care provided to beneficiaries. If a beneficiary is still eligible for care after the end of the first 30-day payment period, a second 30-day payment period can begin. There are no limits to the number of periods of care a beneficiary who remains eligible for the home health benefit can receive. While payment for each 30-day period of care is adjusted to reflect the beneficiary’s health condition and needs, a special outlier provision exists to ensure appropriate payment for those beneficiaries that have the most expensive care needs. The PDGM payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits is below an established threshold that varies based on the diagnosis of a beneficiary; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the period of care; (c) adjustment to the admission source of claim if it is determined that the patient had a qualifying stay in a post-acute care setting within 14 days prior to the start of a 30-day payment period; (d) the timing of the 30-day payment period provided to a patient in relation to the admission date, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes to the acuity of the patient during the previous 30-day period of care; (f) changes in the base payments established by the Medicare program; (g) adjustments to the base payments for case mix and geographic wages; and (h) recoveries of overpayments. These variables are subject to periodic adjustments set by CMS regulations. For further detail regarding PDGM see the Government Regulation section of our 2023 Annual Report.

Previous wording

The following table presents our consolidated GAAP Financial measures for the three and six months ended June 30, 2024 and 2023:

Current wording

The following table presents our consolidated GAAP Financial measures for the three and nine months ended September 30, 2024 and 2023:

Previous wording

The tables below reconcile Consolidated Net Income to the consolidated Non-GAAP financial measures, Consolidated EBITDA and Consolidated Adjusted EBITDA, and to the Non-GAAP valuation measure, Consolidated Adjusted EBITDAR, for the periods presented:

Current wording

The table below reconciles Consolidated Net Income to the consolidated Non-GAAP financial measures, Consolidated EBITDA and Consolidated Adjusted EBITDA, and to the Non-GAAP valuation measure, Consolidated Adjusted EBITDAR, for the periods presented:

Previous wording

The tables below reconciles Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented:

Current wording

The tables below reconcile Segment Adjusted EBITDAR from Operations to Segment Adjusted EBITDA from Operations for the periods presented:

Previous wording

Our total revenue increased $36.5 million, or 27.6% during the three months ended June 30, 2024. We experienced growth of $30.3 million from increased operational performance in our Home Health and Hospice segment from increased admissions and rates when compared to the three months ended June 30, 2023. The growth in our Senior Living segment resulted in an increase in revenue of $6.2 million driven primarily by the combination of increased occupancy and improved average rate per occupied room.

Current wording

Our total revenue increased $40.5 million, or 28.9% during the three months ended September 30, 2024. We experienced growth of $34.2 million from increased operational performance in our Home Health and Hospice segment from increased admissions and rates when compared to the three months ended September 30, 2023. The growth in our Senior Living segment resulted in an increase in revenue of $6.3 million driven primarily by the improved average rate per occupied room.

Previous wording

Home health and hospice revenue increased $30.3 million, or 31.9%, for the three months ended June 30, 2024 compared to the prior year quarter. Revenue grew due to an increase in certain key performance indicators including, an increase of 35.4% in total home health admissions, an increase in total hospice admissions of 31.4%, and an increase in average daily hospice census of 29.1% during the three months ended June 30, 2024 compared to the prior year quarter. Growth was also driven by the addition of sixteen home health and hospice operations between June 30, 2023 and June 30, 2024, resulting in an increase of $16.2 million, or 17.0%.

Current wording

Home health and hospice revenue increased $34.2 million, or 33.7%, for the three months ended September 30, 2024 compared to the prior year quarter. Revenue grew due to an increase in certain key performance indicators including, an increase of 38.5% in total home health admissions, an increase in total hospice admissions of 22.8%, and an increase in average daily hospice census of 27.7% during the three months ended September 30, 2024 compared to the prior year quarter. Growth was also driven by the addition of nineteen home health and hospice operations between September 30, 2023 and September 30, 2024, resulting in an increase of $22.2 million, or 21.9%.

Previous wording

Senior living revenue increased $6.2 million, or 16.6%, for the three months ended June 30, 2024 compared to the prior year quarter. Revenue grew primarily due to a 8.6% increase in average monthly revenue per occupied unit and an increase of 80 basis points in occupancy between June 30, 2023 and June 30, 2024. Growth was also driven by the addition of three senior living communities between June 30, 2023 and June 30, 2024, resulting in an increase of $3.3 million, or 8.8%, overall.

Current wording

Senior living revenue increased $6.3 million, or 16.3%, for the three months ended September 30, 2024 compared to the prior year quarter. Revenue grew primarily due to a 7.8% increase in average monthly revenue per occupied unit and an increase of 20 basis points in occupancy between September 30, 2023 and September 30, 2024. Growth was also driven by the addition of three senior living communities between September 30, 2023 and September 30, 2024, resulting in an increase of $3.4 million, or 8.8%, overall.

Previous wording

Total consolidated cost of services increased $29.1 million, or 27.4%, for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023. Cost of services as a percentage of revenue decreased by 20 basis points from 80.4% to 80.2% for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023.

Current wording

Total consolidated cost of services increased $32.1 million, or 28.5%, for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. Cost of services as a percentage of revenue decreased by 20 basis points from 80.2% to 80.0% for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

Previous wording

Cost of services related to our Home Health and Hospice Services segment increased $24.5 million, or 30.6%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the three months ended June 30, 2024 decreased 90 basis points when compared to the three months ended June 30, 2023.

Current wording

Cost of services related to our Home Health and Hospice Services segment increased $27.8 million, or 32.8%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the three months ended September 30, 2024 decreased 60 basis points when compared to the three months ended September 30, 2023.

Previous wording

Cost of services related to our Senior Living Services segment increased $4.7 million, or 17.9%, primarily due to increased wages and benefits. As a percentage of revenue, costs of service increased by 80 basis points for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023.

Current wording

Cost of services related to our Senior Living Services segment increased $4.3 million, or 15.5%, primarily due to increased wages and benefits. As a percentage of revenue, costs of service decreased by 50 basis points for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

Previous wording

Rent—Cost of Services. Rent expense increased 7.0% from $9.8 million to $10.5 million in the three months ended June 30, 2024 when compared to the three months ended June 30, 2023, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. Rent as a percentage of total revenue decreased 120 basis points from 7.4% for the the three months ended June 30, 2023, compared to 6.2% for the three months ended June 30, 2024.

Current wording

Rent—Cost of Services. Rent expense increased 9.0% from $10.0 million to $10.9 million in the three months ended September 30, 2024 when compared to the three months ended September 30, 2023, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. Rent as a percentage of total revenue decreased 110 basis points from 7.1% for the three months ended September 30, 2023, compared to 6.0% for the three months ended September 30, 2024.

Previous wording

General and Administrative Expense. Our general and administrative expense increased $3.1 million, or 35.1%, from $8.8 million to $11.9 million for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023. General and administrative expense as a percentage of revenue increased 40 basis points from 6.6% to 7.0% during the period. The primary driver of the increase in general and administrative expense was due to an increase of $2.7 million in payroll and related benefits, for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023.

Current wording

General and Administrative Expense. Our general and administrative expense increased $3.6 million, or 38.3%, from $9.4 million to $13.0 million for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. General and administrative expense as a percentage of revenue increased 50 basis points from 6.7% to 7.2% during the period. The primary driver of the increase in general and administrative expense was due to an increase in payroll and related benefits for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023.

Previous wording

Provision for Income Taxes. We recorded income tax expense of $1.8 million and $1.9 million or 23.2% and 39.7% of earnings before income taxes for the three months ended June 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to the non-deductibility of equity compensation of certain executives in the prior year.

Current wording

Provision for Income Taxes. We recorded income tax expense of $1.4 million and $1.1 million or 16.9% and 19.3% of earnings before income taxes for the three months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to more excess tax benefits on equity compensation.

Previous wording

Our total revenue increased $66.9 million, or 25.9%, during the six months ended June 30, 2024. The increase in revenue was driven by increases in key metrics for home health and hospice and senior living, including hospice admissions, hospice revenue per day, hospice average daily census, senior living occupancy, and senior living revenue per occupied room.

Current wording

Our total revenue increased $107.4 million, or 26.9%, during the nine months ended September 30, 2024. The increase in revenue was driven by increases in key metrics for home health and hospice and senior living, including hospice admissions, hospice revenue per day, hospice average daily census, senior living occupancy, and senior living revenue per occupied room.

Previous wording

Home health and hospice revenue increased $55.7 million, or 29.9% during the six months ended June 30, 2024 compared to the same period in the prior year primarily due to an increase in hospice average daily census of 25.3%, an increase of 34.8% in home health admissions, inclusive of an increase in total Medicare home health admissions of 23.3%, and an increase of 28.5% in hospice admissions. The addition of sixteen home health and hospice operations between June 30, 2023 and June 30, 2024, added revenue of $29.0 million, or 15.6%.

Current wording

Home health and hospice revenue increased $89.9 million, or 31.3% during the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to an increase of 36.1% in home health admissions, inclusive of an increase in total Medicare home health admissions of 25.8%, an increase in hospice average daily census of 26.1%, and an increase of 26.5% in hospice admissions. The addition of nineteen home health and hospice operations between September 30, 2023 and September 30, 2024, added revenue of $51.2 million, or 17.8%.

Previous wording

Senior living revenue increased $11.2 million, or 15.4%, for the six months ended June 30, 2024 compared to the same period in the prior year primarily due to an increase of 8.6% in average monthly revenue per occupied unit and an increase of 60 basis points in the occupancy rate between June 30, 2023 and June 30, 2024. The acquisition of three senior living communities between June 30, 2023 and June 30, 2024, added $4.7 million, or 6.5%, in revenue.

Current wording

Senior living revenue increased $17.5 million, or 15.7%, for the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to an increase of 8.1% in average monthly revenue per occupied unit and an increase of 50 basis points in the occupancy rate between September 30, 2023 and September 30, 2024. The acquisition of three senior living communities between September 30, 2023 and September 30, 2024, added $8.1 million, or 7.3%, in revenue.

Previous wording

Consolidated cost of services increased $52.5 million, or 25.2%, during the six months ended June 30, 2024 compared to the same period in the prior year. Cost of services as a percentage of revenue for the six months ended June 30, 2024 decreased by 50 basis points to 80.2% from 80.7% compared to the six months ended June 30, 2023.

Current wording

Consolidated cost of services increased $84.6 million, or 26.3%, during the nine months ended September 30, 2024 compared to the same period in the prior year. Cost of services as a percentage of revenue for the nine months ended September 30, 2024 decreased by 40 basis points to 80.1% from 80.5% compared to the nine months ended September 30, 2023.

Previous wording

Cost of services related to our Home Health and Hospice services segment increased $44.4 million, or 28.2%, compared to the same period in the prior year primarily due to the increased volume of services from the growth in admissions and average daily census. Cost of services as a percentage of revenue for the six months ended June 30, 2024 decreased by 110 basis points compared to the six months ended June 30, 2023 primarily due to decreased wages and benefits as a percent of revenue.

Current wording

Cost of services related to our Home Health and Hospice services segment increased $72.2 million, or 29.8%, compared to the same period in the prior year primarily due to the increased volume of services from the growth in admissions and average daily census. Cost of services as a percentage of revenue for the nine months ended September 30, 2024 decreased by 90 basis points compared to the nine months ended September 30, 2023 primarily due to decreased wages and benefits as a percent of revenue.

Previous wording

Cost of services related to our Senior Living services segment increased $8.1 million, or 15.9%, during the six months ended June 30, 2024 compared to the same period in the prior year primarily due to higher occupancy and wage rate increases. As a percentage of revenue, costs of service increased by 30 basis points during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023.

Current wording

Cost of services related to our Senior Living services segment increased $12.4 million, or 15.8%, during the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to higher occupancy and wage rate increases. As a percentage of revenue, costs of service increased by 10 basis points during the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023.

Previous wording

Rent—Cost of Services. Rent increased 7.6% from $19.4 million to $20.9 million during the six months ended June 30, 2024 compared to the same period in the prior year, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. As a percentage of revenue, rent—cost of services decreased 110 basis points when compared to the six months ended June 30, 2023 due to improved senior living performance.

Current wording

Rent—Cost of Services. Rent increased 8.1% from $29.4 million to $31.8 million during the nine months ended September 30, 2024 compared to the same period in the prior year, primarily as a result of the new leases on the acquired home health and hospice operations and senior living community. As a percentage of revenue, rent—cost of services decreased 110 basis points when compared to the nine months ended September 30, 2023 due to improved senior living performance.

Previous wording

General and Administrative Expense. Our general and administrative expense increased $5.8 million, or 33.3%, from $17.5 million to $23.3 million for the six months ended June 30, 2024 when compared to the six months ended June 30, 2023. The increase in general and administrative expense was due to an increase of $2.2 million in payroll and related benefits, for the six months ended June 30, 2024 when compared to the six months ended June 30, 2023.

Current wording

General and Administrative Expense. Our general and administrative expense increased $9.4 million, or 35.0%, from $26.9 million to $36.3 million for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023. The increase in general and administrative expense was due to an increase in payroll and related benefits, for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023.

Previous wording

Gain on disposition of property and equipment, net. We recorded a gain of $0.8 million for insurance proceeds received in excess of the carrying values of related assets during the six months ended June 30, 2024. No gain on disposition of property and equipment was recorded during the six months ended June 30, 2023.

Current wording

Gain on disposition of property and equipment, net. We recorded a gain of $0.8 million for insurance proceeds received in excess of the carrying values of related assets during the nine months ended September 30, 2024. No gain on disposition of property and equipment was recorded during the nine months ended September 30, 2023.

Previous wording

Provision for Income Taxes. We recorded income tax expense of $3.6 million and $2.8 million, or 24.4% and 36.5% of earnings before income taxes, for the six months ended June 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to the non-deductibility of equity compensation of certain executives in the prior year.

Current wording

Provision for Income Taxes. We recorded income tax expense of $5.0 million and $3.9 million, or 21.8% and 29.3% of earnings before income taxes, for the nine months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily due to more excess tax benefits on equity compensation.

Previous wording

On February 23, 2021, Pennant entered into an amendment to its existing credit agreement (as amended, the “Credit Agreement”), which provides for an increased revolving credit facility with a syndicate of banks with a borrowing capacity of $150.0 million (the “Revolving Credit Facility”). The Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Revolving Credit Facility prior to maturity in 2026. On June 12, 2023, Pennant entered into a second amendment to the Credit Agreement that modified the reference rate from LIBOR to Standard Overnight Financing Rate (“SOFR”). The Company is permitted to prepay all or any portion of the loans under the Revolving Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders.

Current wording

On July 31, 2024, Pennant amended and restated its existing credit agreement (as amended, the “Amended Credit Agreement”), which provides for an increased revolving credit facility with a syndicate of banks with a borrowing capacity of $250.0 million (the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility is not subject to interim amortization and the Company will not be required to repay any loans under the Amended Revolving Credit Facility prior to maturity in 2029. The Company is permitted to prepay all or any portion of the loans under the Amended Revolving Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders.

Previous wording

The Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of June 30, 2024, the Company was compliant with all such financial covenants.

Current wording

The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Financial covenants require compliance with certain levels of leverage ratios that impact the amount of interest. As of September 30, 2024, the Company was compliant with all such financial covenants.

Previous wording

Our net cash flow from operating activities for the six months ended June 30, 2024 decreased by $4.5 million when compared to the six months ended June 30, 2023. The primary driver of this difference was a decrease in cash flows from the change in operating assets and liabilities of $8.0 million, net, and a decrease of $2.7 million in non-cash expenses, partially offset by an increase in net income of $6.2 million.

Current wording

Our net cash flow from operating activities for the nine months ended September 30, 2024 decreased by $9.2 million when compared to the nine months ended September 30, 2023. The primary driver of this difference was a decrease in cash flows from the change in operating assets and liabilities of $14.9 million, net, and a decrease of $2.7 million in non-cash expenses, partially offset by an increase in net income of $8.4 million.

Previous wording

Our net cash used in investing activities for the six months ended June 30, 2024 increased by $22.1 million compared to the six months ended June 30, 2023, primarily driven by an increase in business and asset acquisitions.

Current wording

Our net cash used in investing activities for the nine months ended September 30, 2024 increased by $48.7 million compared to the nine months ended September 30, 2023, primarily driven by an increase in business and asset acquisitions.

Previous wording

Our net cash used in financing activities increased by approximately $22.8 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily due to a net increase in the balance on our line of credit during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

Our net cash used in financing activities increased by approximately $55.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to a net increase in the balance on our line of credit during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.