# Pennant Group, Inc. (PNTG) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Pennant Group, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1766400/000176640023000026/pntg-20221231.htm
Accession: 0001766400-23-000026
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PNTG/
All MD&A years: /company/PNTG/mda/
Previous year: /company/PNTG/mda/fy2021/ (FY 2021)
Next year: /company/PNTG/mda/fy2023/ (FY 2023)

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 Arizona, California, Colorado, Idaho, Iowa, Montana, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming. As of December 31, 2022, our home health and hospice business provided home health, hospice and home care services from 95 agencies operating across 14 states, and our senior living business operated 49 senior living communities throughout six states.

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

[[GREPCENT_TABLE]]
[["","2014","","2015","","2016","","2017","","2018","","2019","","2020","","2021","","2022"],["Home health and hospice agencies","25","","","32","","","39","","","46","","","54","","","63","","","76","","","88","","95"],["Senior living communities","15","","","36","","","36","","","43","","","50","","","52","","","54","","","54","","49"],["Senior living units","1,587","","","3,184","","","3,184","","","3,434","","","3,820","","","3,963","","","4,127","","","4127","","3,500"],["Total number of home health, hospice, and senior living operations","40","","","68","","","75","","","89","","","104","","","115","","","130","","","142","","","144"]]
[[/GREPCENT_TABLE]]

COVID-19

We have been, and we expect to continue to be, impacted by several factors related to the viral disease known as COVID-19 that may cause actual results to differ from our historical results or current expectations. Due to the COVID-19 pandemic, the results presented in this report are not necessarily indicative of future operating results. The situation surrounding COVID-19 remains fluid. We are actively managing our response in collaboration with government officials, team members

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and business partners, and we are assessing potential impacts to our financial position and operating results, as well as adverse developments in our business.

Home Health and Hospice

During the year ended December 31, 2022, the labor challenges experienced throughout the past year continued with some moderation. During 2022, hospice average discharged length of stay was impacted slightly as a result of a shift of patient referrals from more acute settings, resulting in a modest decline in hospice average length of stay despite an incremental improvement in hospice admissions.

Senior Living

COVID-19 continues to impact our senior living business and geographies, including impacts on our residents, team members, vendors and business partners. While our overall senior living occupancy has decreased since the onset of the COVID-19 pandemic due to a greater number of move outs net of move ins, during the year ended December 31, 2022 we experienced modest improvement in occupancy. We cannot be sure if or when the occupancy levels in our senior living communities will improve over multiple measurement periods or return to pre-pandemic levels.

Labor

Wage rates have increased in response to COVID-driven staffing shortages and the lingering disruption COVID-19 caused to the labor market. We are monitoring the ongoing impact of COVID-19 on labor costs due to increased overtime, premium pay, and temporary labor to supplement existing staffing. Accordingly, we received state relief funding in selected states, which have been designed to provide additional funding to cover COVID-19 related expenses. For the year ended December 31, 2022, we recorded state relief funds of $4.2 million in costs of services as a direct offset against COVID-19 related expenses we incurred in those states in our senior living operations.

Recent Activities

Acquisitions. During 2022, we expanded our operations with the addition of three home health agencies, four hospice agencies and one senior living community. 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.

Other Activities. On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the “Transfer Agreements”) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the “Transaction”) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The transfer includes a $6.5 million payment to Ensign for the year ended December 31, 2022 to cover post-closing capital expenditures and operating losses related to one of the communities transferred on April 1, 2022, which was recorded in loss on asset dispositions and impairment, net.

Trends

Since the pandemic began and until the first quarter of 2021, we experienced a steady decline in senior living occupancy as move-ins declined relative to move-outs due to the pandemic. However, we have experienced modest senior living occupancy improvement during 2022, partly as a result of improving COVID-19 case trends and renewed consideration of senior living communities as a home based care setting. Nevertheless, we cannot be sure when the occupancy levels in our senior living communities will completely return to pre-pandemic levels. As uncertainty regarding the COVID-19 pandemic persists, if there is a resurgence in cases, or if variant strains aggressively emerge, we could see a more prolonged recovery.

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. We established two start-up hospice agencies in Colorado and Washington, and one home health agency in California during the year ended December 31, 2022.

Regulation

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The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020, and subsequent regulatory actions. The CARES Act contained provisions for accelerated or advance Medicare payments (“AAP”) to provide supporting cash flow to providers and suppliers combating the effects of the COVID-19 pandemic. We applied for and received $28.0 million in 2020. These funds were subject to automatic recoupment through offsets to new claims beginning one year after payment were issued. On June 23, 2022, we completed repayment of all the AAP we had received.

The CARES Act payroll tax deferral program allowed employers to defer the deposit and payment of the employer’s portion of social security taxes that otherwise would be due between March 27, 2020, and December 31, 2020. The CARES Act permits employers to deposit half of these deferred payments by the end of 2021 and the other half by the end of 2022. The Company deferred approximately $7.8 million of employer-paid portion of social security tax, all of which was paid by the end of 2022.

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 us is a new revenue raising provision that requires us 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.

In 2021 CMS issued, and the United States Supreme Court upheld, an interim final rule requiring workers of Medicare- or Medicaid-reimbursed operations to be fully vaccinated or subject to an appropriate exemption. The application of this interim final rule has been extended to all 50 states. In addition, several states in which our independent operating subsidiaries are located issued their own vaccine requirements, most notably California, Colorado, Oregon, and Washington. Since then, CMS has issued guidance indicating that its surveys for compliance with the interim final rule’s vaccine mandate will only be enforced in surveys used for initial certification or recertification of providers, and in response to complaints of non-compliance. Colorado has since allowed its COVID-19 vaccination mandate for healthcare workers to expire. In some states where our independent operating subsidiaries are located, state requirements for vaccination of healthcare workers have been updated to address the availability and necessity of vaccine boosters after receiving an initial one- or two-injection course of vaccination. Still other states, such as Texas, have prohibited COVID-19 vaccines from being required as a matter of state law, although the interim final rule requires employees of Medicare-participating health care facilities to receive the COVID-19 vaccination. Compliance with the relevant federal and state vaccine mandates or laws is challenging, due to legal challenges, differing requirements, and changes to those requirements, including their expiration or termination.

As of December 31, 2022, our independent operating subsidiaries are substantially in compliance with these mandates. While the mandates have contributed to industry-wide staffing shortages and increased competition for qualified employees, increasing our employee costs, those impacts have been felt across the health care industry and are not unique to our operations. The various federal and state mandates have also created ongoing testing, tracking and other administrative obligations and expenses, which may persist as long as the mandates are in place.

On July 27, 2022, CMS issued the 2023 Hospice Payment Rate Update final rule (“Hospice Payment Final Rule”). The Final Rule provides that a hospice’s wage index (one component of its payment rate) will not be reduced more than 5.0% year-over-year. In other words, a hospice’s wage index each fiscal year will be no less than 95.0% of its prior fiscal year wage index. This will help protect hospices against large annual wage-based reimbursement decreases. This change is permanent and will not automatically expire or require renewal. Subject to this wage index change, the Hospice Payment Final Rule adopts a 3.8% increase in payments made for hospice services, including the cap amount, which the rule increases from $31,297.61 to $32,486.92. The Hospice Payment Final Rule also outlines reductions in payment ranging from two percent (2.0%) to four percent (4.0%), beginning in 2024, for hospices that fail to meet quality reporting requirements.

On October 31, 2022, CMS issued the 2023 Home Health Prospective Payment System Rate Update final rule (“Home Health Payment Final Rule”). The rule implements a 3.9% decrease to the home health 30-day period standard payment rate in 2023, half of the 7.9% permanent decrease which CMS proposes to fully implement by 2024. This decrease is based on assumed behavior changes resulting from implementation of the Patient Driven Grouping Model (“PDGM”). Low Utilization Payment Adjustments (“LUPAs”) are excluded. Aside from these adjustments, CMS finalized a 2.9% basket increase for the home health payment update in calendar year 2023. CMS also recalibrated case-mix weights and low utilization payment adjustment thresholds using 2021 data. Additionally, the rule applies a permanent 5.0% cap on decreases in the wage index, meaning an agency’s wage index for any future year will not be less than 95.0% of the final wage index for the preceding year. For home health agencies that do not report required quality reporting data to CMS, their increase in payment will be 0.9%, rather than the full 2.9% contemplated in the rule. Overall, the Home Health Payment Final Rule estimates that Medicare

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payments to all home health agencies will increase in the aggregate by 0.7%, or $125 million, based on its contents. The rule is effective beginning January 1, 2023.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted. The IRA introduced changes to U.S. corporate income tax law, including a 15% corporate minimum tax, a 1% excise tax on stock buybacks, and various energy-related deduction and credit provisions.

Segments

We have two reportable segments: (1) home health and hospice services, which includes our home health, home care and hospice businesses; and (2) senior living services, which includes the operation of assisted living, independent living and memory care communities. 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. We also report an “all other” category that includes general and administrative expense from our Service Center.

Common Stock Repurchase Program

On December 12, 2022, the Board of the Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1,000 of its common stock. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the company to acquire any amount of common stock. No shares were repurchased during the year ended December 31, 2022.

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.

•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.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["Home health services:"],["Total home health admissions","40,436","","","37,366"],["Total Medicare home health admissions","18,641","","","17,356"],["Average Medicare revenue per 60-day completed episode(a)","$","3,545","","","$","3,443"],["Hospice services:"],["Total hospice admissions","9,166","","","8,613"],["Average hospice daily census","2,296","","","2,291"],["Hospice Medicare revenue per day","$","178","","","$","174"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["Occupancy","75.7","%","","72.7","%"],["Average monthly revenue per occupied unit","$","3,516","","","$","3,207"]]
[[/GREPCENT_TABLE]]

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. For Medicare episodes that began prior to January 1, 2020, home health agencies were reimbursed under the Medicare HH PPS, while Medicare periods of care that began on or after that date are reimbursed under the 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 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.

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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. The following are the four levels of care provided under the hospice benefit:

•Routine Home Care (“RHC”). Care that is not classified under any of the other levels of care, such as the work of nurses, social workers or home health aides.

•General Inpatient Care. Pain control or acute or chronic symptom management that cannot be managed in a setting other than an inpatient Medicare-certified facility, such as a hospital, skilled nursing facility or hospice inpatient facility.

•Continuous Home Care. Care for patients experiencing a medical crisis that requires nursing services to achieve palliation and symptom control, if the agency provides a minimum of eight hours of care within a 24-hour period.

•Inpatient Respite Care. Short-term, inpatient care to give temporary relief to the caregiver who regularly provides care to the patient.

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, 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. Rent—cost of services consists solely of base minimum rent amounts payable under lease agreements to our landlords. Our subsidiaries lease and operate but do not own the underlying real estate at our operations, and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements.

General and Administrative Expense. General and administrative expense consists primarily of payroll and related benefits and travel expenses for our Service Center personnel in providing training and other operational support. General and administrative expense also includes professional fees (such as accounting and legal fees), costs relating to our information systems, share-based compensation and rent for our Service Center offices.

Depreciation and Amortization. Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from three to 40 years). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

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statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis we review our judgments and estimates, including but not limited to those related to self-insurance reserves, revenue, leases, intangible assets, goodwill, and income taxes. We base our estimates and judgments upon our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty, and actual results could differ materially from the amounts reported. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, within the Consolidated Financial Statements for further information on our critical accounting estimates and policies, which are as follows:

•Self-insurance reserves - The valuation methods and assumptions used in estimating costs up to retention amounts to settle open claims of insureds and an estimate of the cost of insured claims up to retention amounts that have been incurred but not reported;

•Revenue recognition - The amounts owed by private pay individuals for services and estimate of variable considerations to arrive at the transaction price, including methods and assumptions, used to determine settlements with Medicare and Medicaid adjustments due to audits and reviews;

•Leases - We use our estimated incremental borrowing rate based on the information available at lease commencement date in determining the present value of future lease payments;

•Acquisition accounting - The assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions; and

•Income taxes - The estimation of valuation allowance or the need for and magnitude of liabilities for uncertain tax position.

Recent Accounting Pronouncements

    Information concerning recently issued accounting pronouncements which are not yet effective is included in Note 2, Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements. As of December 31, 2022, there were no recently issued accounting pronouncements that were expected to have an impact on the Company.

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Results of Operations

The following table sets forth details of our expenses and earnings as a percentage of total revenue for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Total revenue","100.0","%","","100.0","%","","100.0","%"],["Expense:"],["Cost of services","79.6","","","79.7","","","75.9"],["Rent\u2014cost of services","8.0","","","9.3","","","10.1"],["General and administrative expense","7.2","","","8.2","","","8.0"],["Depreciation and amortization","1.0","","","1.1","","","1.2"],["Loss on asset dispositions and impairment, net","1.5","","","0.6","","","\u2014"],["Total expenses","97.3","","","98.9","","","95.2"],["Income from operations","2.7","","","1.1","","","4.8"],["Other income (expense):"],["Other income","\u2014","","","\u2014","","","0.1"],["Interest expense, net","(0.8)","","","(0.5)","","","(0.3)"],["Other expense, net","(0.8)","","","(0.5)","","","(0.2)"],["Income before provision for income taxes","1.9","","","0.6","","","4.6"],["Provision for income taxes","0.4","","","0.1","","","0.6"],["Net income","1.5","","","0.5","","","4.0"],["Less: net income (loss) attributable to noncontrolling interest(a)","0.1","","","(0.1)","","","\u2014"],["Net income attributable to Pennant","1.4","%","","0.6","%","","4.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","Net loss attributable to noncontrolling interest for the year ended December 31, 2020 was less than 0.1% and thus not meaningful as a percentage of total revenue."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","(In thousands)"],["Consolidated GAAP Financial Measures:"],["Total revenue","$","473,241","","","$","439,694","","","$","390,953"],["Total expenses","460,502","","","434,999","","","372,036"],["Income from operations","$","12,739","","","$","4,695","","","$","18,917"]]
[[/GREPCENT_TABLE]]

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The following table presents certain financial information regarding our reportable segments. General and administrative expenses are not allocated to the reportable segments and are included in “All Other”:

[[GREPCENT_TABLE]]
[["","","Home Health and Hospice Services","","Senior Living Services","","All Other","","Total"],["","","(In thousands)"],["Segment GAAP Financial Measures:"],["Year Ended December 31, 2022"],["Revenue","","$","342,249","","","$","130,992","","","$","\u2014","","","$","473,241"],["Segment Adjusted EBITDAR from Operations","","$","61,827","","","$","37,563","","","$","(31,435)","","","$","67,955"],["Year Ended December 31, 2021"],["Revenue","","$","309,570","","","$","130,124","","","$","\u2014","","","$","439,694"],["Segment Adjusted EBITDAR from Operations","","$","55,565","","","$","37,517","","","$","(26,208)","","","$","66,874"],["Year Ended December 31, 2020"],["Revenue","","$","253,659","","","$","137,294","","","$","\u2014","","","$","390,953"],["Segment Adjusted EBITDAR from Operations","","$","49,501","","","$","48,309","","","$","(22,762)","","","$","75,048"]]
[[/GREPCENT_TABLE]]

The table below provides a reconciliation of Segment Adjusted EBITDAR from Operations above to income from operations:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","(In thousands)"],["Segment Adjusted EBITDAR from Operations(a)","$","67,955","","","$","66,874","","","$","75,048"],["Less: Depreciation and amortization","4,900","","","4,784","","","4,675"],["Rent\u2014cost of services","38,018","","","40,863","","","39,191"],["Other (expense) income","(31)","","","(24)","","","225"],["Adjustments to Segment EBITDAR from Operations:"],["Less: Costs at start-up operations(b)","1,435","","","1,045","","","1,787"],["Share-based compensation expense(c)","3,363","","","10,040","","","8,335"],["Acquisition related costs and credit allowances(d)","731","","","80","","","99"],["Transition services costs(e)","77","","","2,008","","","1,181"],["COVID-19 related costs and supplies(f)","\u2014","","","\u2014","","","447"],["Loss related to senior living operations transferred to Ensign(g)","6,103","","","2,835","","","\u2014"],["Unusual or non-recurring charges(h)","1,220","","","\u2014","","","\u2014"],["Add: Net income (loss) attributable to noncontrolling interest","600","","","(548)","","","(191)"],["Income from operations","$","12,739","","","$","4,695","","","$","18,917"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(a)","","Segment Adjusted EBITDAR from Operations is net income 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 and credit allowances, (4) redundant and nonrecurring costs associated with the Transition Services Agreement, (5) loss related to senior living operations transferred to Ensign, (6) unusual or non-recurring charges, and (7) net income (loss) attributable to noncontrolling interest. General and administrative expenses are not allocated to the reportable segments, and are included as \u201cAll Other\u201d, 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."],["(b)","","Represents results related to start-up operations. This amount excludes rent and depreciation and amortization expense related to such operations."],["(c)","","Share-based compensation expense and related payroll taxes incurred, including the impact of the modification of certain restricted stock units described below in Note 12, Options and Awards, to the Consolidated Financial Statements. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense."],["(d)","","Non-capitalizable costs associated with acquisitions and credit allowances for amounts in dispute with the prior owners of certain acquired operations."],["(e)","","Costs identified as redundant or non-recurring incurred by the Company as a result of the Spin-off. The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,561, $3,124, and $5,536 for the year ended December 31, 2022, 2021 and 2020, respectively."],["(f)","","Beginning in the first quarter of fiscal year 2021, we updated our definition of Segment Adjusted EBITDAR to no longer include an adjustment for COVID-19 expenses offset by the amount of sequestration relief. COVID-19 expenses continue to be part of daily operations for which less specific identification is visible. Furthermore, the sequestration relief was extended through December 31, 2021. Sequestration relief was $3,555 for the year ended December 31, 2021. The 2020 amount represents incremental costs incurred as part of the Company's response to COVID-19 including direct medical supplies, labor, and other expenses, net of $2,765 in increased revenue related to the 2% payment increase in Medicare reimbursements for sequestration relief for the year ended December 31, 2020."],["(g)","","On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the \u201cTransfer Agreements\u201d) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the \u201cTransaction\u201d) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount includes $6,500 for the year ended December 31, 2022 to cover post-closing capital expenditures and operating losses related to one of the communities transferred on April 1, 2022. The amount above also includes an offset of $397 for the year ended December 31, 2022, for the related net impact on revenue and cost of service attributable to the transferred entities. This amount excludes rent and depreciation and amortization expense related to such operations. During year ended December 31, 2021, the Company impaired certain leasehold improvements included in property and equipment totaling $2,835 primarily related to the operations included in the transaction with Ensign."],["(h)","","Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees including $958 in general and administrative expenses and $262 in cost of services for the year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

Performance and Valuation Measures:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","(In thousands)"],["Consolidated Non-GAAP Financial Measures:"],["Performance Metrics"],["Consolidated EBITDA","$","17,008","","","$","10,003","","","$","24,008"],["Consolidated Adjusted EBITDA","$","31,545","","","$","26,407","","","$","36,080"],["Valuation Metric"],["Consolidated Adjusted EBITDAR","$","67,955"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","(In thousands)"],["Segment Non-GAAP Measures:(a)"],["Segment Adjusted EBITDA from Operations"],["Home health and hospice services","$","56,977","","","$","51,045","","","$","46,015"],["Senior living services","$","6,003","","","$","1,570","","","$","12,827"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss."]]
[[/GREPCENT_TABLE]]

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The table below reconciles Consolidated Net Income to Consolidated EBITDA, Consolidated Adjusted EBITDA and Consolidated Adjusted EBITDAR for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","(In thousands)"],["Consolidated Net income","$","7,243","","","$","2,148","","","$","15,553"],["Less: Net income (loss) attributable to noncontrolling interest","600","","","(548)","","","(191)"],["Add: Provision for income taxes","1,649","","","582","","","2,350"],["Net interest expense","3,816","","","1,941","","","1,239"],["Depreciation and amortization","4,900","","","4,784","","","4,675"],["Consolidated EBITDA","17,008","","","10,003","","","24,008"],["Adjustments to Consolidated EBITDA"],["Add: Costs at start-up operations(a)","1,435","","","1,045","","","1,787"],["Share-based compensation expense(b)","3,363","","","10,040","","","8,335"],["Acquisition related costs and credit allowances(c)","731","","","80","","","99"],["Transition services costs(d)","77","","","2,008","","","1,181"],["Net COVID-19 related costs(e)","\u2014","","","\u2014","","","447"],["Loss related to senior living operations transferred to Ensign(f)","6,103","","","2,835","","","\u2014"],["Unusual or non-recurring charges(g)","1,220","","","\u2014","","","\u2014"],["Rent related to items (a) and (f) above","1,608","","","396","","","223"],["Consolidated Adjusted EBITDA","31,545","","","26,407","","","36,080"],["Rent\u2014cost of services","38,018","","","40,863","","","39,191"],["Rent related to items (a) and (f) above","(1,608)","","","(396)","","","(223)"],["Adjusted rent\u2014cost of services","36,410","","","40,467","","","38,968"],["Consolidated Adjusted EBITDAR","$","67,955"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","Represents results related to start-up operations. This amount excludes rent and depreciation and amortization expense related to such operations."],["(b)","","Share-based compensation expense and related payroll taxes incurred, including the impact of the modification of certain restricted stock units described below in Note 12, Options and Awards, to the Consolidated Financial Statements. Share-based compensation expense and related payroll taxes are included in cost of services and general and administrative expense."],["(c)","","Non-capitalizable costs associated with acquisitions and credit allowances for amounts in dispute with the prior owners of certain acquired operations."],["(d)","","Costs identified as redundant or non-recurring incurred by the Company as a result of the Spin-off. The 2021 amounts represents part of the costs incurred under the Transition Services Agreement. All amounts are included in general and administrative expense. Fees incurred under the Transition Services Agreement were $1,561, $3,124, and $5,536 for the year ended December 31, 2022, 2021 and 2020, respectively."],["(e)","","Beginning in the first quarter of fiscal year 2021, we updated our definition of Segment Adjusted EBITDAR to no longer include an adjustment for COVID-19 expenses offset by the amount of sequestration relief. COVID-19 expenses continue to be part of daily operations for which less specific identification is visible. Furthermore, the sequestration relief was extended through December 31, 2021. Sequestration relief was $3,555 for the year ended December 31, 2021. The 2020 amount represents incremental costs incurred as part of the Company's response to COVID-19 including direct medical supplies, labor, and other expenses, net of $2,765 in increased revenue related to the 2% payment increase in Medicare reimbursements for sequestration relief for the year ended December 31, 2020."],["(f)","","On January 27, 2022, affiliates of the Company, entered into certain operations transfer agreements (collectively, the \u201cTransfer Agreements\u201d) with affiliates of Ensign, providing for the transfer of the operations of certain senior living communities (the \u201cTransaction\u201d) from affiliates of the Company to affiliates of Ensign. The closing of the Transaction was completed in two phases with the transfer of two operations on March 1, 2022 and the remainder transferred on April 1, 2022. The amount includes $6,500 for the year ended December 31, 2022 to cover post-closing capital expenditures and operating losses related to one of the communities transferred on April 1, 2022. The amount above also includes an offset of $397 for the year ended December 31, 2022, for the related net impact on revenue and cost of service attributable to the transferred entities. This amount excludes rent and depreciation and amortization expense related to such operations. During year ended December 31, 2021, the Company impaired certain leasehold improvements included in property and equipment totaling $2,835 primarily related to the operations included in the transaction with Ensign."],["(g)","","Represents unusual or non-recurring charges for legal services, implementation costs, integration costs, and consulting fees including $958 in general and administrative expenses and $262 in cost of services for the year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","Home Health and Hospice","","Senior Living"],["","2022","","2021","","2020","","2022","","2021","","2020"],["","(In thousands)"],["Segment Adjusted EBITDAR from Operations","$","61,827","","","$","55,565","","","$","49,501","","","$","37,563","","","$","37,517","","","$","48,309"],["Less: Rent\u2014cost of services","5,060","","","4,906","","","3,629","","","32,958","","","35,957","","","35,562"],["Rent related to start-up operations","(210)","","","(386)","","","(143)","","","(1,398)","","","(10)","","","(80)"],["Segment Adjusted EBITDA from Operations","$","56,977","","","$","51,045","","","$","46,015","","","$","6,003","","","$","1,570","","","$","12,827"]]
[[/GREPCENT_TABLE]]

The following discussion includes references to certain performance and valuation measures, which are non-GAAP financial measures, including Consolidated EBITDA, Consolidated Adjusted EBITDA, Segment Adjusted EBITDA from Operations, and Consolidated Adjusted EBITDAR (collectively, “Non-GAAP Financial Measures”). Non-GAAP Financial Measures are used in addition to, and in conjunction with, results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations and company that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, we believe can provide a more comprehensive understanding of factors and trends affecting our business.

We believe these Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

•they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest expense, rent expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, the length of the lease to which the asset applies, the method by which assets were acquired, and differences in capital structures;

•they help investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base and capital structure from our operating results; and

•Consolidated Adjusted EBITDAR is used by investors and analysts in our industry to value the companies in our industry without regard to capital structures.

We use Non-GAAP Financial Measures:

•as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis from period to period;

•to allocate resources to enhance the financial performance of our business;

•to assess the value of a potential acquisition;

•to assess the value of a transformed operation’s performance;

•to evaluate the effectiveness of our operational strategies; and

•to compare our operating performance to that of our competitors.

We typically use Non-GAAP Financial Measures to compare the operating performance of each operation from period to period. We find that Non-GAAP Financial Measures are useful for this purpose because they do not include such costs as interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the date of acquisition of a community or business, and the tax law of the state in which a business unit operates.

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Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:

•they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;

•they do not reflect changes in, or cash requirements for, our working capital needs;

•they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

•in the case of Consolidated Adjusted EBITDAR, it does not reflect rent expenses, which are normal and recurring operating expenses that are necessary to operate our leased operations;

•they do not reflect any income tax payments we may be required to make;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these non-cash charges do not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate the same Non-GAAP Financial Measures differently than we do, which may limit their usefulness as comparative measures.

We compensate for these limitations by using Non-GAAP Financial Measures only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business.

We strongly encourage investors to review our Consolidated Financial Statements, included in this report in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table presented above, along with our Financial Statements and related notes included elsewhere in this report.

We believe the following Non-GAAP Financial Measures are useful to investors as key operating performance measures and valuation measures:

Performance Measures:

Consolidated EBITDA

We believe Consolidated EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate Consolidated EBITDA as net income, adjusted for net income (loss) attributable to noncontrolling interest, before (a) interest expense (b) provision for income taxes and (c) depreciation and amortization.

Consolidated Adjusted EBITDA

We adjust Consolidated EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Consolidated Adjusted EBITDA, when considered with Consolidated EBITDA and GAAP net income is beneficial to an investor’s complete understanding of our operating performance. 

We calculate Consolidated Adjusted EBITDA by adjusting Consolidated EBITDA to exclude the effects of non-core business items, which for the reported periods includes, to the extent applicable:

•costs at start-up operations;

•share-based compensation expense;

•acquisition related costs and credit allowances;

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•redundant or nonrecurring costs associated with the Transition Services Agreement (as defined in Note 3, Transactions with Ensign);

•loss related to senior living operations transferred to Ensign;

•unusual or non-recurring charges; and

•net income attributable to noncontrolling interest.

Segment Adjusted EBITDA from Operations

We calculate Segment Adjusted EBITDA from Operations by adjusting Segment Adjusted EBITDAR from Operations to include rent-cost of services. We believe that the inclusion of rent-cost of services provides useful supplemental information to investors regarding our ongoing operating performance for each segment.

Valuation Measure:

Consolidated Adjusted EBITDAR

We use Consolidated Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a measure commonly used by us, research analysts and investors to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures. Additionally, we believe the use of Consolidated Adjusted EBITDAR allows us, research analysts and investors to compare operational results of companies without regard to operating or financed leases. A significant portion of financed lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.

This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense and, as such, does not reflect our cash requirements for leasing commitments. Our presentation of Consolidated Adjusted EBITDAR should not be construed as a financial performance measure.

The adjustments made and previously described in the computation of Consolidated Adjusted EBITDA are also made when computing Consolidated Adjusted EBITDAR. We calculate Consolidated Adjusted EBITDAR by excluding rent-cost of services and rent related to start up operations from Consolidated Adjusted EBITDA.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Revenue

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","Revenue Dollars","","Revenue Percentage","","Revenue Dollars","","Revenue Percentage"],["","(In thousands)"],["Home health and hospice services"],["Home health","$","159,858","","","33.8","%","","$","136,505","","","31.0","%"],["Hospice","160,520","","","33.9","","","151,612","","","34.5"],["Home care and other(a)","21,871","","","4.6","","","21,453","","","4.9"],["Total home health and hospice services","342,249","","","72.3","","","309,570","","","70.4"],["Senior living services","130,992","","","27.7","","","130,124","","","29.6"],["Total revenue","$","473,241","","","100.0","%","","$","439,694","","","100.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","Home care and other revenue is included with home health revenue in other disclosures in this report."]]
[[/GREPCENT_TABLE]]

Our consolidated revenue increased $33.5 million, or 7.6%, driven by the net organic growth of existing operations across all segments of $29.4 million or 6.7% as well as increased revenue from acquired operations of $4.1 million or 0.9% during the year ended December 31, 2022.

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Home Health and Hospice Services

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["","(In thousands)"],["Home health and hospice revenue"],["Home health services","$","159,858","","","$","136,505","","","$","23,353","","","17.1","%"],["Hospice services","160,520","","","151,612","","","8,908","","","5.9"],["Home care and other","21,871","","","21,453","","","418","","","1.9"],["Total home health and hospice revenue","$","342,249","","","$","309,570","","","$","32,679","","","10.6","%"],["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["Home health services:"],["Total home health admissions","40,436","","","37,366","","","3,070","","","8.2","%"],["Total Medicare home health admissions","18,641","","","17,356","","","1,285","","","7.4"],["Average Medicare revenue per 60-day completed episode(a)","$","3,545","","","$","3,443","","","$","102","","","3.0"],["Hospice services:"],["Total hospice admissions","9,166","","","8,613","","","553","","","6.4"],["Average daily census","2,296","","","2,291","","","5","","","0.2"],["Hospice Medicare revenue per day","$","178","","","$","174","","","$","4","","","2.3"],["Number of home health and hospice agencies at period end","95","","","88","","","7","","","8.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","","The year to date average for Medicare revenue per 60-day completed episode includes post period claim adjustments for prior periods."]]
[[/GREPCENT_TABLE]]

Home health and hospice revenue increased $32.7 million, or 10.6%. Revenue grew due to an increase in all key performance indicators including an increase in total home health admissions of 8.2%, an increase in Medicare home health admissions of 7.4%, an increase in average Medicare revenue per 60-day completed episode of 3.0%, an increase of 6.4% in total hospice admissions, an increase of 2.3% in hospice revenue per day, and an increase of 0.2% in hospice average daily census. The improvement in these metrics resulted in net organic revenue growth of $29.5 million for the year ended December 31, 2022. Growth was also driven by the acquisition of seven home health and hospice operations, between December 31, 2021 and December 31, 2022, resulting in an increase in revenue of $3.2 million or 1.0% overall.

Senior Living Services

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["Revenue (in thousands)","$","130,992","","","$","130,124","","","$","868","","","0.7","%"],["Number of communities at period end","49","","","54","","","(5)","","","(9.3)","%"],["Occupancy","75.7","%","","72.7","%","","3.0","%"],["Average monthly revenue per occupied unit","$","3,516","","","$","3,207","","","$","309","","","9.6","%"]]
[[/GREPCENT_TABLE]]

Senior living revenue increased $0.9 million, or 0.7%, for the year ended December 31, 2022 when compared to the same period in the prior year primarily due to a 9.6% increase in average monthly revenue per occupied unit and a 3.0% increase in occupancy rate between December 31, 2021 and December 31, 2022. The increases were offset by the loss of revenue of $12.8 million from the senior living communities transferred to Ensign. Growth in revenue was also driven by the acquisition of one senior living community, between December 31, 2021 and December 31, 2022, resulting in an increase of $0.9 million or 0.7% overall.

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Cost of Services

The following table sets forth total cost of services by each of our reportable segments for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["","(In thousands)"],["Home Health and Hospice","$","282,988","","","$","257,251","","","$","25,737","","","10.0","%"],["Senior Living","93,650","","","92,985","","","665","","","0.7"],["Total cost of services","$","376,638","","","$","350,236","","","$","26,402","","","7.5","%"]]
[[/GREPCENT_TABLE]]

Consolidated cost of services increased $26.4 million, or 7.5%, for the year ended December 31, 2022 when compared to the year ended December 31, 2021. Cost of services as a percentage of revenue decreased by 0.1% from 79.7% to 79.6% over the same time period. The increase in the amount cost of services was driven primarily by volume of services provided.

Home Health and Hospice Services

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["","(In thousands)"],["Cost of service","$","282,988","","","$","257,251","","","$","25,737","","","10.0","%"],["Cost of services as a percentage of revenue","82.7","%","","83.1","%","","(0.4)","%"]]
[[/GREPCENT_TABLE]]

Cost of services related to our home health and hospice services segment increased $25.7 million, or 10.0%, primarily due to increased volume of services provided. Cost of services as a percentage of revenue for the year ended December 31, 2022 decreased 0.4% compared to the year ended December 31, 2021, primarily due to a decrease in benefits cost related to transitioning to being self-insured for claims related to employee health, dental, and vision care in the current year partially offset by wage costs increase over the prior year in per hour wage rates and in overtime costs.

Senior Living Services

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","Change","","% Change"],["","(In thousands)"],["Cost of service","$","93,650","","","$","92,985","","","$","665","","","0.7","%"],["Cost of services as a percentage of revenue","71.5","%","","71.5","%","","\u2014","%"]]
[[/GREPCENT_TABLE]]

Cost of services related to our senior living services segment increased $0.7 million, or 0.7%, for the year ended December 31, 2022 when compared to the year ended December 31, 2021. As a percentage of revenue, costs of service remained flat primarily due to a decrease in benefits cost related to transitioning to being self-insured for claims related to employee health, dental, and vision care in the current year and the receipt of $4.2 million in state relief funds. The decreases were partially offset by wage cost increases over the prior year in per hour wages and in overtime.

Rent—Cost of Services. Rent decreased 7.0% from $40.9 million to $38.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as a result of the transfer of senior living communities to Ensign. Rent as a percentage of total revenue decreased from 9.3% to 8.0% in the year ended December 31, 2022.

General and Administrative Expense. Our general and administrative expense decreased $2.3 million or 6.3% from $36.3 million to $34.0 million and as a percent of revenue from 8.2% to 7.2% for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease in general and administrative costs was primarily driven by a decrease in stock-based compensation of $7.3 million, partially offset by an increase of $3.3 million in wages and benefits for our increased headcount. The stock based compensation decrease is primarily related to the modification of certain outstanding RSUs granted in connection with the Spin-off as described above in Note 12, Options and Awards to the Consolidated Financial Statements included elsewhere in this Report.

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Depreciation and Amortization. Depreciation and amortization expense decreased slightly as a percentage of total revenue.

Loss on asset dispositions and impairment, net. Loss on asset dispositions and impairment, net includes a transaction fee of $6.5 million for post-closing capital expenditures and operating losses related to one of the communities transferred to Ensign as well as asset impairment for the year ended December 31, 2022. Asset impairments related to the communities transferred to Ensign totaled $2.8 million for the year ended December 31, 2021.

Provision for Income Taxes. Our effective tax rate for the year ended December 31, 2022 was 18.5% of earnings before income taxes compared with an effective tax rate of 21.3% for the year ended December 31, 2021. The decrease in the effective tax rate was due to a change in deductible equity compensation expenses. See Note 14, Income Taxes, to the Consolidated Financial Statements included elsewhere in this report filed on Form 10-K for further discussion.

Comparison of Prior Year Information

For a comparison of our results of operations of the fiscal year ended December 31, 2021 as compared to the year ended December 31, 2020 refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation on Form 10-K filed with the SEC on February 28, 2022.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated through operating activities and borrowings under our revolving credit facility.

Revolving Credit Facility    

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. 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 LIBOR breakage costs of the lenders.

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 December 31, 2022, we were in compliance with all covenants.

As of December 31, 2022 we had $2.1 million of cash and $81.3 million of available borrowing capacity on our Revolving Credit Facility.

On December 12, 2022, the Board of the Directors of the Company approved a share repurchase program under which the Company may repurchase up to $1.0 million of its common stock. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, including through the use of trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on December 12, 2023, and may be suspended or discontinued at any time and does not obligate the company to acquire any amount of common stock. No shares were repurchased during the year ended December 31, 2022.

We believe that our existing cash, cash generated through operations, and access to available borrowing capacity under our existing Credit Agreement, will be sufficient to provide adequate liquidity for the next twelve months for both our operating activities and opportunities for acquisition growth.

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The following table presents selected data from our statement of cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(In thousands)"],["Net cash provided by (used in) operating activities","$","9,044","","","$","(18,223)"],["Net cash used in investing activities","(24,239)","","","(20,120)"],["Net cash provided by financing activities","12,084","","","43,490"],["Net change in cash","(3,111)","","","5,147"],["Cash at beginning of year","5,190","","","43"],["Cash at end of year","$","2,079","","","$","5,190"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Our net cash from operating activities for the year ended December 31, 2022 increased by $27.3 million when compared to the year ended December 31, 2021. The increase was primarily related to the decrease of $15.6 million in 2022 from the repayment of AAP and increase in net income of $5.1 million when compared to the year ended December 31, 2021. Net cash from operations is impacted by the 2022 repayment of AAP of $6.2 million, $4.1 million for the FICA deferral payment, and the escrow payment of $6.5 million for transferred communities.

Our net cash used in investing activities for the year ended December 31, 2022 increased by $4.1 million compared to the year ended December 31, 2021. The increase in funds used for investing activities was primarily due to an increase of $7.9 million in cash paid for property and equipment, offset by a decrease of $3.4 million in cash paid for acquisitions during the year ended December 31, 2022.

    Our net cash provided by financing activities decreased by approximately $31.4 million for the year ended December 31, 2022 when compared to the year ended December 31, 2021 primarily due to a decrease in our net borrowings.