Pennant Says Efforts ‘Fell Short’ in Q3 to Confront Labor Challenges, Covid Outbreaks

A rise in Covid-19 cases and the ongoing labor crunch derailed The Pennant Group’s (Nasdaq: PNTG) momentum in the third quarter of 2021.

In a press release distributed ahead of the company’s Nov. 9 earnings call, Pennant leadership warned that the Eagle, Idaho-based company’s third-quarter earnings were negatively affected by its ongoing challenges.

“Our efforts to adequately respond to these headwinds in the quarter ultimately fell short,” Pennant CEO Daniel Walker said in the release.

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While Pennant’s senior living portfolio grew occupancy between March and August, a “sharp climb” in Covid-19 cases fueled by the delta variant hurt average occupancy by about 38 basis points in September.

Preliminary third-quarter data shows Pennant’s senior living occupancy registered at 73.7%, which is 3.1% lower than what the company reported in 3Q20 but an increase of 1% compared with the second quarter of 2021. Average monthly revenue per occupied unit was $3,174.

“While declining Covid-19 cases has historically led to improving occupancy in the following months, there are several steps we are taking across the segment to drive more transparency into our marketing and sales efforts and tools we are deploying to assist our local teams in building a stronger pipeline of potential residents,” Walker noted. “These ongoing efforts will take time to fully come to fruition, and we are confident they will steadily improve our ability to drive healthier occupancy.”

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Pennant leadership added that the company was feeling further pressure on wages along with greater use of overtime and agency and registry staffing.

Pennant’s senior living communities are offsetting those pressures with “more appropriate rent and care rates,” which leadership believes will translate into a positive tailwind in the fourth quarter of 2021 and into 2022.

Pennant Group first spun off from The Ensign Group (Nasdaq: ENSG) in 2019. The company’s operations also include 88 home health and hospice agencies.

“As we continue to digest the large number of operations acquired since our spin-off and our pace of acquisitive growth normalizes, our ability to unlock the tremendous inherent upside in our operations expands,” Walker said.

Revenue for the company’s 54-community senior living segment is expected to be $32.9 million in the third quarter of 2021, representing a 3.2% decrease in revenue over the same time in 2020 and an increase of about 2.1% over the second quarter of 2021.

The company also expects to report an adjusted EBITDAR of $9.1 million in the third quarter of 2021, a decrease of 22.1% over 3Q22 and a decrease of 6.6% over the second quarter of 2021.

As a result of its recent challenges, the company adjusted its full-year 2021 guidance to revenue of about $425 million to $430 million; and earnings per share of $0.53 to $0.57. Previously, Pennant leadership expected annual revenue of about $430 million to $440 million and earnings per share of $0.89 to $0.99.

The revised guidance “reflects the challenging operating environment experienced during the third quarter and our expectation of some lingering impacts in the fourth quarter,” Walker noted.

And he did strike an upbeat tone with regard to future potential.

“While we are disappointed our momentum slowed, we are as enthusiastic as ever about the long-term value we can realize as we continue to add and develop talented leadership, build operational health at the local and cluster levels, and equip our local teams with better tools and resources,” Walker continued. “Covid-19 cases are trending down, which has been a positive lead indicator of greater admissions, particularly in our senior living communities.”

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