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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2021.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
    For the transition period from                      to                     .
Commission file number: 001-38900
__________________________
THE PENNANT GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)
Delaware
83-3349931
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
1675 East Riverside Drive, Suite 150, Eagle, ID 83616
(Address of Principal Executive Offices and Zip Code)
(208) 506-6100
(Registrant’s Telephone Number, Including Area Code)
None
(Former name, former address and former fiscal year, if changed since last report)
________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePNTGNasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of August 9, 2021, 28,361,909 shares of the registrant’s common stock were outstanding.




Table of Contents
THE PENNANT GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
TABLE OF CONTENTS
Item 1A.
Risk Factors




Table of Contents
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)

June 30, 2021December 31, 2020
Assets
Current assets:
Cash $2,879 $43 
Accounts receivable—less allowance for doubtful accounts of $914 and $643, respectively
52,136 47,221 
Prepaid expenses and other current assets18,463 12,335 
Total current assets73,478 59,599 
Property and equipment, net17,969 17,884 
Right-of-use assets303,431 308,650 
Escrow deposits 525 
Deferred tax assets1,987 2,097 
Restricted and other assets5,691 4,289 
Goodwill73,364 66,444 
Other indefinite-lived intangibles53,889 47,488 
Total assets$529,809 $506,976 
Liabilities and equity
Current liabilities:
Accounts payable$8,321 $9,761 
Accrued wages and related liabilities21,856 26,873 
Operating lease liabilities—current15,233 14,106 
Other accrued liabilities37,412 38,275 
Total current liabilities82,822 89,015 
Long-term operating lease liabilities—less current portion291,160 296,615 
Other long-term liabilities7,732 11,897 
Long-term debt, net38,113 8,277 
Total liabilities419,827 405,804 
Commitments and contingencies
Equity:
Common stock, $0.001 par value; 100,000 shares authorized; 28,759 and 28,355 shares issued and outstanding, respectively at June 30, 2021, and 28,696 and 28,243 shares issued and outstanding, respectively at December 31, 2020.
28 28 
Additional paid-in capital90,099 84,671 
Retained earnings15,545 11,945 
Treasury stock, at cost, 3 shares at June 30, 2021 and December 31, 2020
(65)(65)
Total Pennant Group, Inc. stockholders’ equity105,607 96,579 
Noncontrolling interest4,375 4,593 
Total equity109,982 101,172 
Total liabilities and equity$529,809 $506,976 

See accompanying notes to condensed consolidated financial statements.

1


Table of Contents
THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except for per-share amounts)

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue$110,345 $92,740 $216,008 $184,589 
Expense
Cost of services86,667 68,159 170,289 138,348 
Rent—cost of services10,156 9,767 20,121 19,473 
General and administrative expense8,783 7,538 18,071 14,199 
Depreciation and amortization1,170 1,201 2,345 2,222 
Total expenses106,776 86,665 210,826 174,242 
Income from operations3,569 6,075 5,182 10,347 
Other expense:
Other expense(24) (24) 
Interest expense, net(472)(301)(832)(704)
Other expense, net(496)(301)(856)(704)
Income before provision for income taxes3,073 5,774 4,326 9,643 
Provision for income taxes604 1,437 944 2,326 
Net income2,469 4,337 3,382 7,317 
Less: net loss attributable to noncontrolling interest(181) (218) 
Net income and other comprehensive income attributable to The Pennant Group, Inc. $2,650 $4,337 $3,600 $7,317 
Earnings per share:
Basic$0.09 $0.16 $0.13 $0.26 
Diluted$0.09 $0.15 $0.12 $0.25 
Weighted average common shares outstanding:
Basic28,356 27,952 28,324 27,922 
Diluted30,647 29,662 30,785 29,780 

See accompanying notes to condensed consolidated financial statements.

2


Table of Contents
THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited, in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockNon-Controlling Interest
SharesAmountSharesAmountTotal
Balance at December 31, 202028,696 $28 $84,671 $11,945 3 $(65)$4,593 $101,172 
Net income attributable to The Pennant Group, Inc.— — — 950 — — — 950 
Net loss attributable to Non-Controlling Interests— — — — — — (37)(37)
Stock-based compensation — — 2,416 — — — — 2,416 
Issuance of common stock from the exercise of stock options21 — 218 — — — — 218 
Net issuance of restricted stock3 — — — — — — — 
Balance at March 31, 202128,720 $28 $87,305 $12,895 3 $(65)$4,556 $104,719 
Net income attributable to The Pennant Group, Inc.— — — 2,650 — — — 2,650 
Net loss attributable to Non-Controlling Interests— — — — — — (181)(181)
Stock-based compensation— — 2,499 — — — — 2,499 
Issuance of common stock from the exercise of stock options35 — 295 — — — — 295 
Net issuance of restricted stock4 — — — — — — — 
Balance at June 30, 202128,759 $28 $90,099 $15,545 3 $(65)$4,375 $109,982 

Common StockAdditional Paid-In CapitalRetained Earnings/ (Accumulated Deficit)Treasury StockNon-Controlling Interest
SharesAmountSharesAmountTotal
Balance at December 31, 201928,435 $28 $74,882 $(3,799) $ $ $71,111 
Net income attributable to The Pennant Group, Inc.— — — 2,980 — — — 2,980 
Stock-based compensation— — 1,956 — — — — 1,956 
Issuance of common stock from the exercise of stock options38 — 138 — — — — 138 
Net issuance of restricted stock3 — — — — — — — 
Balance at March 31, 202028,476 $28 $76,976 $(819) $ $ $76,185 
Net income/ (loss) attributable to The Pennant Group, Inc.— — — 4,337 — — — 4,337 
Share-based compensation— — 1,959 — — — — 1,959 
Issuance of common stock from the exercise of stock options20 — 77 — — — — 77 
Net issuance of restricted stock20 — — — — — — — 
Shares of common stock withheld to satisfy tax withholding obligations(2)— — — 2 (57)— (57)
Balance at June 30, 202028,514 $28 $79,012 $3,518 $2 $(57)$ $82,501 

See accompanying notes to condensed consolidated financial statements.
3


Table of Contents
THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended June 30,
20212020
Cash flows from operating activities:
Net income$3,382 $7,317 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization2,345 2,222 
Amortization of deferred financing fees229 162 
Provision for doubtful accounts446 282 
Share-based compensation4,915 3,915 
Deferred income taxes111  
Change in operating assets and liabilities:
Accounts receivable(5,360)(2,077)
Prepaid expenses and other assets(7,221)(232)
Operating lease obligations893 2,168 
Accounts payable(1,500)(2,019)
Accrued wages and related liabilities(5,017)(937)
Other accrued liabilities2,328 4,600 
Contract liabilities (CARES Act advance payments)(7,096)27,997 
Other long-term liabilities(261) 
Net cash (used in) provided by operating activities(11,806)43,398 
Cash flows from investing activities:
Purchase of property and equipment(2,412)(5,963)
Cash payments for business acquisitions, net of escrow(12,800)(6,868)
Escrow deposits (639)
Other(265)(333)
Net cash used in investing activities(15,477)(13,803)
Cash flows from financing activities:
Proceeds from Revolving Credit Facility70,500 26,500 
Payments on Revolving Credit Facility(39,500)(44,500)
Repurchase of shares of common stock to satisfy tax withholding obligations (57)
Payments for deferred financing costs(1,394)(26)
Issuance of common stock upon the exercise of options513 215 
Net cash provided by (used in) financing activities30,119 (17,868)
Net increase in cash 2,836 11,727 
Cash beginning of period43 402 
Cash end of period$2,879 $12,129 

See accompanying notes to condensed consolidated financial statements.

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THE PENNANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(unaudited, in thousands)
Six Months Ended June 30,
20212020
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$598 $619 
Income taxes$1,295 $2,430 
Lease liabilities$19,496 $18,462 
Right-of-use assets obtained in exchange for new operating lease obligations$2,872 $3,437 
Net non-cash adjustment to right-of-use assets and lease liabilities from lease modifications$ $441 
Non-cash investing activity:
Capital expenditures$561 $1,035 

See accompanying notes to condensed consolidated financial statements.























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THE PENNANT GROUP INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data and operational senior living units)


1. DESCRIPTION OF BUSINESS
The Pennant Group, Inc. (herein referred to as “Pennant,” the “Company,” “it,” or “its”), is a holding company with no direct operating assets, employees or revenue. The Company, through its independent operating subsidiaries, provides healthcare services across the post-acute care continuum. As of June 30, 2021, the Company’s subsidiaries operated 86 home health, hospice and home care agencies and 54 senior living communities located in Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.

On October 1, 2019, The Ensign Group, Inc. (NASDAQ: ENSG) (“Ensign” or the “Parent”) completed the separation of Pennant (the “Spin-Off”). To accomplish the Spin-Off, Ensign contributed all of its home health and hospice and substantially all of its senior living businesses into Pennant. Each Ensign stockholder received a distribution of one share of Pennant’s common stock for every two shares of Ensign’s common stock, plus cash in lieu of fractional shares. The noncontrolling interest was converted into shares of Pennant at the established conversion ratio. As a result of the Spin-Off on October 1, 2019, Pennant began trading as an independent company on the NASDAQ under the symbol “PNTG.”
Certain of the Company’s subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the operations through contractual relationships.
Each of the Company’s affiliated operations are operated by separate, independent subsidiaries that have their own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities is not meant to imply, nor should it be construed as meaning, that Pennant has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by Pennant.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of the Company (the “Interim Financial Statements”) reflect the Company’s financial position, results of operations and cash flows of the business. The Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the regulations of the Securities and Exchange Commission (“SEC”). Management believes that the Interim Financial Statements reflect, in all material respects, all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented in conformity with GAAP. The results reported in these Interim Financial Statements are not necessarily indicative of results that may be expected for the entire year.

The Condensed Consolidated Balance Sheet as of December 31, 2020 is derived from the Company’s annual audited Consolidated Financial Statements for the fiscal year ended December 31, 2020 which should be read in conjunction with these Interim Financial Statements. Certain information in the accompanying footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with GAAP.

All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its Condensed Consolidated Balance Sheets and the amount of consolidated net income that is attributable to the Company and the noncontrolling interest in its Condensed Consolidated Statements of Income.

The Company consists of various limited liability companies and corporations established to operate home health, hospice, home care, and senior living operations. The Interim Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.

Estimates and Assumptions - The preparation of the Interim Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Interim Financial Statements relate to revenue, intangible assets and goodwill, right-of-use assets and lease liabilities for leases greater than 12 months, self-insurance reserves, and income taxes. Actual results could differ from those estimates.

CARES Act: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act allowed for deferred payment of the employer-paid portion of social security taxes
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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


through the end of 2020, with 50% due on December 31, 2021 and the remainder due on December 31, 2022. As of June 30, 2021, the Company deferred approximately $7,836 of the employer-paid portion of social security taxes, of which $3,918 is included in other long-term liabilities and the current portion of $3,918 in accrued wages and related liabilities. The CARES Act also expanded the Centers for Medicare & Medicaid Services’ (“CMS”) ability to provide accelerated/advance payments intended to increase the cash flow of healthcare providers and suppliers impacted by COVID-19. During the prior year, the Company applied for and received $27,997 in funds under the Accelerated and Advance Payment (“AAP”) Program, of which $7,096 had been recouped as of June 30, 2021. See Note 10, Other Accrued Liabilities for further discussion of the AAP.

The American Rescue Plan Act of 2021 (the “ARP Act”) was enacted on March 11, 2021 in the United States. The ARP Act was designed to assist the country with the effects of the COVID-19 pandemic and included a number of tax components. The ARP Act’s primary tax impact on the Company is a new revenue raising provision that requires the Company to include the next five highest paid employees to the list of covered officers already subject to the IRC Section 162(m) wage limitation beginning in the 2027 tax year. The Company will continue to assess the effect of the ARP Act and ongoing other government legislation related to the COVID-19 pandemic that may be issued.

Recent Accounting Standards Adopted by the Company

FASB Accounting Standards Update, or ASU, ASU 2021-01 “Reference Rate Reform (Topic 848): Scope” or ASU 2020-4 - On January 7, 2021, the FASB issued ASU 2021-01 to amend the scope of the guidance in ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” or ASU 2020-4. Specifically, the amendments in ASU 2021-01 clarify that “certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.” The amendment in ASU 2021-1 is available to all entities: (i) on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through the date that the final update to the standard was issued or (ii) on a prospective basis for new contract modifications through December 31, 2022. The Company has adopted ASU 2021-01 on a prospective basis effective as of January 7, 2021. There was no material impact to the Company’s Interim Financial Statements or related disclosures as a result of the adoption of ASU 2021-01.

3. RELATED PARTY TRANSACTIONS
The Company leases 31 of its senior living communities from subsidiaries of Ensign, and each of the leases have a term of between 14 and 20 years from the lease commencement date. The total amount of rent expense included in Rent - cost of services paid to subsidiaries of Ensign was $3,173 and $6,246 for the three and six months ended June 30, 2021, respectively, and $3,071 and $6,172 for the three and six months ended June 30, 2020, respectively.

The Company’s subsidiaries received services from Ensign’s subsidiaries. Services included in cost of services were $749 and $1,617 for the three and six months ended June 30, 2021 and $1,166 and $2,188 for the three and six months ended June 30, 2020, respectively.

On October 1, 2019, in connection with the Spin-Off, Pennant entered into several agreements with Ensign that set forth the principal actions taken or to be taken in connection with the Spin-Off and govern the relationship of the parties following the Spin-Off. The Company has incurred costs of $747 and $1,735 for the three and six months ended June 30, 2021, respectively, and $1,525 and $2,861 for the three and six months ended June 30, 2020, respectively, which costs related primarily to administrative support under the Transitions Services Agreement

4. COMPUTATION OF NET INCOME PER COMMON SHARE
Basic net income per share is computed by dividing net income attributable to stockholders of the Company by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.


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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The following table sets forth the computation of basic and diluted net income per share for the periods presented:

Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Numerator: 
Net income$2,469 $4,337 $3,382 $7,317 
Add: net loss attributable to noncontrolling interests(181) (218) 
Net income attributable to The Pennant Group, Inc.$2,650 $4,337 $3,600 $7,317 
Denominator:
Weighted average shares outstanding for basic net income per share28,356 27,952 28,324 27,922 
Plus: assumed incremental shares from exercise of options and assumed conversion or vesting of restricted stock(a)
2,291 1,710 2,461 1,858 
Adjusted weighted average common shares outstanding for diluted income per share30,647 29,662 30,785 29,780 
Earnings Per Share:
Basic net income per common share$0.09 $0.16 $0.13 $0.26 
Diluted net income per common share$0.09 $0.15 $0.12 $0.25 
(a)
The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 484 and 380 for the three and six months ended June 30, 2021 and 240 and 102 for the three and six months ended June 30, 2020.

5. REVENUE AND ACCOUNTS RECEIVABLE
Revenue is recognized when services are provided to the patients at the amount that reflects the consideration to which the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private, Medicare Advantage and Medicare replacement plans), in exchange for providing patient care. The healthcare services in home health and hospice patient contracts include routine services in exchange for a contractual agreed-upon amount or rate. Routine services are treated as a single performance obligation satisfied over time as services are rendered. As such, patient care services represent a bundle of services that are not capable of being distinct within the context of the contract. Additionally, there may be ancillary services which are not included in the rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered.

Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price. The Company determines the transaction price based on contractually agreed-upon amounts or rate, adjusted for estimates of variable consideration. The Company uses the expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net service revenue in the period such variances become known.

Revenue from the Medicare and Medicaid programs accounted for 61.7% and 62.8% of the Company’s revenue, for the three and six months ended June 30, 2021, and 59.4% and 58.7% for the three and six months ended June 30, 2020, respectively. The Company records revenue from these governmental and managed care programs as services are performed at their expected net realizable amounts under these programs. The Company’s revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recorded in the period the change or adjustment becomes known based on final settlement.

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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Disaggregation of Revenue

The Company disaggregates revenue from contracts with its patients by reportable operating segments and payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s service specific revenue recognition policies are as follows:

Home Health Revenue

Medicare Revenue

For Medicare episodes that began after January 1, 2020, net service revenue is recognized in accordance with the Patient Driven Groupings Model (“PDGM”). This new reimbursement structure involves case mix calculation methodology refinements, changes to low-utilization payment adjustment (“LUPA”) thresholds, the elimination of therapy thresholds, a change to the unit of payment from a 60-day episode to a 30-day payment period, and reduction of requests for anticipated payments (“RAPs”) to 20% of the estimated payment for a patient’s initial or subsequent period of care up-front (after the initial assessment is completed and upon initial billing). The RAPs were phased out effective January 1, 2021. Under PDGM, Medicare provides agencies with payments for each 30-day payment period 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 payment period 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 payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a LUPA 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 payment period; (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 all episodes that began prior to January 1, 2020, net service revenue was recorded under the Medicare prospective payment system based on a 60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) an outlier payment if the patient’s care was unusually costly; (b) a LUPA if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider or transferred from another provider before completing the episode; (d) a payment adjustment based upon the level of covered therapy services; (e) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (f) changes in the base episode payments established by the Medicare program; (g) adjustments to the base episode payments for case mix and geographic wages; and (h) recoveries of overpayments.

The Company adjusts Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation and other reasons unrelated to credit risk. Therefore, the Company believes that its reported net service revenue and patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.

In addition to revenue recognized on completed episodes and periods, the Company also recognizes a portion of revenue associated with episodes and periods in progress. Episodes in progress are 30-day payment periods, if the episode started after January 1, 2020, or 60-day episodes of care, if the episode started prior to January 1, 2020, that begin during the reporting period but were not completed as of the end of the period. As such, the Company estimates revenue and recognizes it on a daily basis. The primary factors underlying this estimate are the number of episodes in progress at the end of the reporting period, expected Medicare revenue per period of care or episode of care and the Company’s estimate of the average percentage complete based on the scheduled end of period and end of episode dates.
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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Non-Medicare Revenue

Episodic Based Revenue - The Company recognizes revenue in a similar manner as it recognizes Medicare revenue for episodic-based rates that are paid by other insurance carriers, including Medicare Advantage programs. These rates can vary based upon the negotiated terms.

Non-episodic Based Revenue - Revenue is recognized on an accrual basis based upon the date of service at amounts equal to its established or estimated per visit rates, as applicable.

Hospice Revenue

Revenue is recognized on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are calculated as daily rates for each of the levels of care the Company delivers. Revenue is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap and an overall payment cap, the Company monitors its provider numbers and estimates amounts due back to Medicare if a cap has been exceeded. The Company regularly evaluates and records these adjustments as a reduction to revenue and an increase to other accrued liabilities.

Senior Living Revenue

The Company has elected the lessor practical expedient within ASC Topic 842, Leases (“ASC 842”) and therefore recognizes, measures, presents, and discloses the revenue for services rendered under the Company’s senior living residency agreements based upon the predominant component, either the lease or non-lease component, of the contracts. The Company has determined that the services included under the Company’s senior living residency agreements each have the same timing and pattern of transfer. The Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers for its senior residency agreements, for which it has determined that the non-lease components of such residency agreements are the predominant component of each such contract.

The Company’s senior living revenue consists of fees for basic housing and assisted living care. Accordingly, the Company records revenue when services are rendered on the date services are provided at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For residents under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.

Revenue By Payor

Revenue by payor for the three months ended June 30, 2021 and 2020, is summarized in the following tables:

Three Months Ended June 30, 2021
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$20,498 $33,303 $ $53,801 48.8 %
Medicaid2,525 2,708 9,004 14,237 12.9 
Subtotal23,023 36,011 9,004 68,038 61.7 
Managed care12,165 725  12,890 11.7 
Private and other(a)
6,079 102 23,236 29,417 26.6 
Total revenue$41,267 $36,838 $32,240 $110,345 100.0 %
(a)Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.

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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Three Months Ended June 30, 2020
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$11,808 $28,550 $ $40,358 43.5 %
Medicaid1,963 3,637 9,155 14,755 15.9 
Subtotal13,771 32,187 9,155 55,113 59.4 
Managed care6,846 397  7,243 7.8 
Private and other(a)
4,744 39 25,601 30,384 32.8 
Total revenue$25,361 $32,623 $34,756 $92,740 100.0 %
(a)Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.

Revenue by payor for the six months ended June 30, 2021 and 2020, is summarized in the following tables:

Six Months Ended June 30, 2021
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$40,828 $66,712 $ $107,540 49.8 %
Medicaid4,721 5,433 17,936 28,090 13.0 
Subtotal45,549 72,145 17,936 135,630 62.8 
Managed care22,617 1,362  23,979 11.1 
Private and other(a)
10,794 245 45,360 56,399 26.1 
Total revenue$78,960 $73,752 $63,296 $216,008 100.0 %
(a)Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.
Six Months Ended June 30, 2020
Home Health and Hospice Services
Home Health ServicesHospice ServicesSenior Living ServicesTotal RevenueRevenue %
Medicare$24,384 $55,230 $ $79,614 43.1 %
Medicaid3,553 6,966 18,188 28,707 15.6 
Subtotal27,937 62,196 18,188 108,321 58.7 
Managed care13,962 813  14,775 8.0 
Private and other(a)
9,784 54 51,655 61,493 33.3 
Total revenue$51,683 $63,063 $69,843 $184,589 100.0 %
(a)Private and other payors in our home health and hospice services segment includes revenue from all payors generated in our home care operations.

Balance Sheet Impact

Included in the Company’s Condensed Consolidated Balance Sheets are contract assets, comprised of billed accounts receivable and unbilled receivables, which are the result of the timing of revenue recognition, billings and cash collections, as well as, contract liabilities, which primarily represent payments the Company receives in advance of services provided. As of June 30, 2021, the Company had contract liabilities in the amount of $20,901 related to Advance Payments received in connection with the CARES Act reported in other current liabilities. As further discussed in Note 10, Other Accrued Liabilities, the repayment terms for Medicare advance payments were modified through the passage of the Continuing Appropriations Act, 2021 and Other Extensions Act on October 1, 2020.

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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Accounts receivable, net as of June 30, 2021 and December 31, 2020 is summarized in the following table:

June 30, 2021December 31, 2020
Medicare$29,331 $28,569 
Medicaid8,233 7,669 
Managed care10,858 7,590 
Private and other4,628 4,036 
Accounts receivable, gross53,050 47,864 
Less: allowance for doubtful accounts(914)(643)
Accounts receivable, net$52,136 $47,221 

Practical Expedients and Exemptions

As the Company’s contracts have an original duration of one year or less, the Company uses the practical expedient applicable to its contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue. In addition, the Company has applied the practical expedient provided by ASC 340, Other Assets and Deferred Costs (“ASC 340”), and all incremental customer contract acquisition costs are expensed as they are incurred because the amortization period would have been one year or less.

6. BUSINESS SEGMENTS
The Company classifies its operations into the following reportable operating segments: (1) home health and hospice services, which includes the Company’s home health, hospice and home care businesses; and (2) senior living services, which includes the operation of assisted living, independent living and memory care communities. The reporting segments are business units that offer different services and are managed separately to provide greater visibility into those operations. Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), reviews financial information at the operating segment level. We also report an “all other” category that includes general and administrative expense from our Service Center.

As of June 30, 2021, the Company provided services through 86 affiliated home health, hospice and home care agencies, and 54 affiliated senior living operations. The Company evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize the quality of care provided and profitability. The Company’s Service Center provides various services to all lines of business. The Company does not review assets by segment and therefore assets by segment are not disclosed below.

The CODM uses Segment Adjusted EBITDAR from Operations as the primary measure of profit and loss for the Company's reportable segments and to compare the performance of its operations with those of its competitors. Segment Adjusted EBITDAR from Operations is net income (loss) attributable to the Company's reportable segments excluding interest expense, provision for income taxes, depreciation and amortization expense, rent, and, in order to view the operations performance on a comparable basis from period to period, certain adjustments including: (1) costs at start-up operations, (2) share-based compensation, (3) acquisition related costs, (4) redundant and nonrecurring costs associated with the Transition Services Agreement, and (5) net loss attributable to noncontrolling interest. General and administrative expenses are not allocated to the reportable segments, and are included as “All Other”, accordingly the segment earnings measure reported is before allocation of corporate general and administrative expenses. The Company's segment measures may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
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THE PENNANT GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The following tables present certain financial information regarding our reportable segments, general and administrative expenses are not allocated to the reportable segments and are included in “All Other” for the three and six months ended June 30, 2021 and 2020:

Home Health and Hospice ServicesSenior Living ServicesAll OtherTotal
Three Months Ended June 30, 2021
Revenue$78,105 $32,240 $ $110,345 
Segment Adjusted EBITDAR from Operations$14,931 $9,752 $(6,068)$18,615 
Three Months Ended June 30, 2020
Revenue$57,984 $34,756 $ $92,740 
Segment Adjusted EBITDAR from Operations$11,245 $13,492 $(3,999)$20,738 
Home Health and Hospice ServicesSenior Living ServicesAll OtherTotal
Six Months Ended June 30, 2021
Revenue$152,712 $63,296 $ $216,008 
Segment Adjusted EBITDAR from Operations$28,722 $18,586 $(12,466)$34,842 
Six Months Ended June 30, 2020
Revenue$114,746 $69,843 $ $184,589 
Segment Adjusted EBITDAR from Operations$21,151 $25,989 $(8,781)$38,359 

This following table provides a reconciliation of Segment Adjusted EBITDAR from Operations to income from operations:

<
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Segment Adjusted EBITDAR from Operations$18,615 $20,738 $34,842 $38,359 
Less: Depreciation and amortization1,170 1,201 2,345 2,222 
Rent—cost of services10,156 9,767 20,121 19,473 
Other expense(24)