Pennant Group, Inc. (PNTG)

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with the Interim Financial Statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). The information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report”), which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-K, Form 10-Q and Form 8-K, for additional information. The section entitled “Risk Factors” filed within our 2025 Annual Report describes some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

Special Note About Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “might,” “will,” “should,” “could,” “seeks,” “approximately,” “goals,” “future,” “projects,” “predicts,” “guidance,” “target,” “intends,” “plans,” “estimates,” “anticipates,” the negative version of these words or other comparable words. Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the effects of competition and the effects of future legislation or regulations and other non-historical statements.

The risk factors discussed in this Quarterly Report and the 2025 Annual Report under the heading “Risk Factors,” could cause our results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:

•federal and state changes to, or delays receiving, reimbursement and other aspects of Medicaid and Medicare, including proposed Medicare reimbursement reductions in the Calendar Year 2026 Home Health Prospective Payment System Rate Update Final Rule and changes to Medicaid funding and eligibility within the One Big Beautiful Bill Act;

•changes in, and compliance with, the laws and regulations affecting the U.S. healthcare industry, and changes based on the outcomes of the 2026 midterm elections and state level elections that may affect how these laws are enacted and enforced in the future;

•proposed changes to payment models and reimbursement amounts within the Medicare and Medicaid fee schedules for future calendar years, including potentially minimal increases in Medicare Advantage rates and payments in the future;

•future cost containment measures undertaken by payors;

•government reviews, audits and investigations of our business;

•potential additional regulation affecting the transparency, ownership, operating standards, conditions of licensure or participation in certain payment programs, and staffing of businesses in our industry;

•increased competition and increased cost of acquisition or retention for, or a shortage of, skilled personnel;

•achievement and maintenance of competitive quality of care ratings and referrals from referral sources;

•changes in, and compliance with, state and federal employment, fair housing, safety, licensing and other laws;

•competition from other healthcare providers, federal and state efforts to regulate or deregulate the healthcare services industry, including through staffing levels and requirements, or the construction or expansion of the number of home health, hospice or senior living operations;

•actions of labor unions, including strikes, work stoppages, unfair labor practices claims, or related labor activity;

•costs associated with litigation or any future litigation settlements;

•the leases of our affiliated senior living communities;

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•inability to complete future acquisitions at attractive prices or at all, and failure to successfully or efficiently integrate new acquisitions into our existing operations and operating subsidiaries;

•general economic conditions, including a housing downturn, which could affect seniors’ ability to afford resident fees, or inflation and increasing interest rates, which raise the costs of goods and borrowing capital, which may affect the delivery and affordability of our services;

•security breaches and other cyber security incidents; and

•the performance of the financial and credit markets and uncertainties related to our ability to obtain financing or the terms of such financing.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements in this Quarterly Report. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by applicable securities laws.

Overview

We are a leading provider of high-quality healthcare services to patients and residents 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 Alabama, Arizona, California, Colorado, Georgia, Idaho, Montana, Nevada, Oklahoma, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin and Wyoming. We also provide home health and hospice operational support through a management service agreement in Connecticut. See Note 9, Equity Method Investments, for further details about our investment in these operations. As of June 30, 2026, our home health and hospice business provided home health, hospice and home care services from 175 agencies operating across these 16 states, and our senior living business operated 69 senior living communities throughout seven states.

The following table summarizes our affiliated home health and hospice agencies and senior living communities as of:

Recent Activities

Acquisitions. During the six months ended June 30, 2026, we expanded our operations with the addition of six 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.

Trends

When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted. We expect these metrics to vary from period to period based upon the maturity of the operations within our portfolio. We have generally experienced lower occupancy rates and higher costs at our senior living communities and lower census and higher costs at our home health and hospice agencies for recently acquired operations; as a result, we generally anticipate lower and/or fluctuating consolidated and segment margins during years of acquisition growth.

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Government Regulation

We have disclosed under the heading “Government Regulation” in the 2025 Annual Report a summary of regulations that we believe materially affect our business, financial condition or results of operations. Since the time of the filing of the 2025 Annual Report, the following regulations have been updated.

On July 30, 2026, CMS issued the Calendar Year (“CY”) 2027 Hospice Wage Index and Payment Rate Update proposed rule (“Hospice Payment Final Rule”). The Hospice Payment Final Rule’s net payment update percentage is 2.3%, which is an estimated increase of $755 million in payments from fiscal year 2026 in the aggregate across all hospice providers. The payment update percentage is based on a 3.2% market basket percentage increase, reduced by a 0.9% productivity adjustment. In addition, the Hospice Payment Final Rule updates the statutory aggregate cap of the total overall payments per patient that may be made to a hospice annually to $36,174.75 for fiscal year 2027, which is an increase of 2.3% from the 2026 fiscal year cap of $35,361.44.

The Hospice Payment Final Rule makes a technical change extending a hospice’s ability to use telehealth to conduct encounters that otherwise have to be conducted face-to-face through December 31, 2027, to align with the Consolidated Appropriations Act of 2026. Further, CMS has made the hospice election statement addendum, which was originally only provided to hospice patients upon request, mandatory for all hospice elections. In publishing the Hospice Payment Final Rule, CMS explained that this requirement will provide beneficiaries additional transparency regarding the items, services, and drugs not covered under Medicare’s hospice benefits, so that those beneficiaries can make appropriate treatment decisions. Finally, as part of the Hospice Quality Reporting Program, CMS will add an icon to the Medicare.gov Compare Tool that will identify hospices failing to submit any data or submitting less than the required quality data beginning in the 2028 fiscal year.

Effective May 13, 2026, CMS announced a six-month, nationwide moratorium on new Medicare enrollment applications for hospice providers and home health agencies (“HHA”); this applies to all initial Medicare enrollment applications and to certain changes in majority ownership of existing enrolled providers. The moratorium does not affect currently enrolled providers. This moratorium was announced in coordination with the Anti-Fraud Task Force focusing on initiatives to combat fraud, waste, and abuse. Also, in connection with such moratorium, CMS announced certain enforcement activity against hospices and HHAs (e.g., suspension of Medicare payments to certain providers). Notably, CMS announced heightened scrutiny of newly enrolled providers in Arizona, California, Georgia, Nevada, Ohio, Oklahoma, and Texas. Following CMS’s announcement of this moratorium, certain states have followed suit: Ohio announced a Medicaid enrollment moratorium on May 14, 2026, through November 14, 2026; Arkansas announced it will no longer accept applications for hospices effective May 13, 2026; and, Nevada

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report. See Item 1A., Risk Factors and Cautionary Note Regarding Forward-Looking Statements.

Overview

We are a leading provider of high-quality healthcare services to patients and residents 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 Alabama, Arizona, California, Colorado, Georgia, Idaho, Montana, Nevada, Oklahoma, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin and Wyoming. We also provide home health and hospice operational support through a management service agreement in Connecticut. As of December 31, 2025, our home health and hospice business provided

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home health, hospice and home care services from 172 agencies operating across 16 states, and our senior living business operated 63 senior living communities throughout seven states.

The following table summarizes our affiliated home health and hospice agencies and senior living communities as of:

Recent Activities

Acquisitions. During 2025, we expanded our operations with the addition of 30 home health agencies, nine hospice agencies, four home care agencies, and six senior living communities. A subsidiary of the Company entered into a separate purchase agreements with the prior operator of each acquired operation as part of each transaction.

Expansion into New States. In the fourth quarter of 2025, we expanded our home health, hospice, and home care operations into the southeastern United States. This expansion was our largest acquisition to date and included 30 home health, hospice, and home care agencies in Alabama, Georgia, and Tennessee. This expansion is part of our strategy to grow our national presence in the post-acute care continuum across both our existing markets and new markets.

Trends

We have experienced improvement in senior living revenue per occupied unit and occupancy through the year ended December 31, 2025, compared to the same period in 2024. Though we have seen improvements in revenue per occupied unit and occupancy year over year, the highly competitive environment for senior living residents and inflationary factors will continue to impact the rate at which our revenue per occupied unit and occupancy levels change in our senior living communities.

When we acquire turnaround or start-up operations, we expect that our combined metrics may be impacted. We expect these metrics to vary from period to period based upon the maturity of the operations within our portfolio. We have generally experienced lower occupancy rates and higher costs at our senior living communities and lower census and higher costs at our home health and hospice agencies for recently acquired operations; as a result, we generally anticipate lower and/or fluctuating consolidated and segment margins during years of acquisition growth.

Segments

We have two reportable segments: (1) home health and hospice services, which includes our home health, hospice, home care, and geriatric primary and palliative care businesses; and (2) senior living services, which includes our assisted living, independent living and memory care services. Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), reviews financial information at the operating segment level using segment adjusted EBITDAR from operations.

Key Performance Indicators

We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following:

Home Health and Hospice Services

•Total home health admissions. The total admissions of home health patients, including new acquisitions, new admissions and readmissions.

•Total Medicare home health admissions. Total admissions of home health patients, who are receiving care under Medicare reimbursement programs, including new acquisitions, new admissions and readmissions.

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•Average Medicare revenue per completed 60-day home health episode. The average amount of revenue for each completed 60-day home health episode generated from patients who are receiving care under Medicare reimbursement programs.

•Total hospice admissions. Total admissions of hospice patients, including new acquisitions, new admissions and recertifications.

•Average hospice daily census. The average number of patients who are receiving hospice care during any measurement period divided by the number of days during such measurement period.

•Hospice Medicare revenue per day. The average daily Medicare revenue recorded during any measurement period for services provided to hospice patients.

The following table summarizes our overall home health and hospice services statistics for the periods indicated:

Senior Living Services

•Occupancy. The ratio of actual number of days our units are occupied during any measurement period to the number of units available for occupancy during such measurement period.

•Average monthly revenue per occupied unit. The revenue for senior living services during any measurement period divided by actual occupied senior living units for such measurement period divided by the number of months for such measurement period.

The following table summarizes our senior living statistics for the periods indicated:

Revenue Sources

Home Health and Hospice Services

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

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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.

Hospice. We derive the majority of our hospice business revenue from Medicare reimbursement. The estimated payment rates are calculated as daily rates for each of the levels of care we deliver. Rates are set based on specific levels of care, are adjusted by a wage index to reflect healthcare labor costs across the country and are established annually through federal legislation.

CMS has established a two-tiered payment system for RHC. Hospices are reimbursed at a higher rate for RHC services provided from days of service 1 through 60 and a lower rate for all subsequent days of service. CMS also provided for a Service Intensity Add-On, which increases payments for certain RHC services provided by registered nurses and social workers to hospice patients during the final seven days of life.

Medicare reimbursement 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 limit and an overall payment cap, we monitor our provider numbers and based upon empirical experience estimate amounts due back to Medicare to the extent that the cap has been exceeded.

Senior Living Services. Within our senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid or other state-specific programs.

Primary Components of Expense

Cost of Services (excluding rent, general and administrative expense and depreciation and amortization). Our cost of services represents the costs of operating our independent operating subsidiaries, which primarily consists of employee wages and related benefits, share-based compensation, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients or residents. Cost of services also includes the cost of general and professional liability insurance and other general cost of services specifically attributable to our operations.

Rent—Cost of Services

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