0001766400-25-000103
SEC filingRevenue grew 30.1% in Q2 2025 driven by acquisitions and organic growth, while operating margin compressed 40bps to 5.3%.
The three months ended June 30, 2025 showed robust top-line growth with total revenue of $219.5 million, a 30.1% increase from $168.7 million in the same period of 2024. Net income attributable to Pennant rose to $7.1 million (3.2% of revenue) from $5.7 million (3.4% of revenue) in the prior year, reflecting modest margin compression. Operating income grew 20.6% to $11.5 million (5.3% of revenue) compared to $9.6 million (5.7% of revenue) in Q2 2024. The decline in operating margin was driven by a 60 basis point increase in cost of services as a percentage of revenue (80.8% vs. 80.2%), partially offset by a 80 basis point decline in rent-cost of services (5.4% vs. 6.2%). General and administrative expenses rose to 8.0% of revenue from 7.0%, reflecting higher payroll and professional services costs associated with acquisition activities. The effective tax rate increased to 24.6% from 23.2% due to higher compensation subject to IRC Section 162(m). On a non-GAAP basis, Consolidated Adjusted EBITDA increased to $16.4 million from $13.2 million, and Segment Adjusted EBITDAR from Operations rose to $42.5 million from $34.0 million.
Home Health and Hospice Services remained the primary growth engine, with segment revenue of $166.0 million (75.6% of total), up 32.5% year-over-year. Growth was driven by a 26.1% increase in total home health admissions, a 14.7% increase in hospice admissions, and a 21.4% rise in average daily hospice census. Acquisitions contributed $29.5 million in incremental revenue (23.5% of prior-year quarter). Segment cost of services as a percentage of revenue improved slightly to 83.3% from 83.4%, indicating operating leverage. Senior Living Services revenue grew 23.1% to $53.5 million, with average monthly revenue per occupied unit increasing 8.3% to $5,188, while occupancy remained flat at 78.8%. However, cost of services as a percentage of revenue rose to 72.9% from 70.8%, primarily due to decreased state relief funding, squeezing margins. Acquisitions added $6.4 million in senior living revenue (14.6% of prior-year quarter). Total operations increased to 198 (137 home health/hospice agencies and 61 senior living communities) as of June 30, 2025.
Management provided no explicit quantitative guidance but highlighted several regulatory developments that could materially impact future operations. The CY 2026 Home Health Prospective Payment System Proposed Rule includes a net payment reduction of -6.4%, potentially reducing aggregate home health payments by $1.135 billion if finalized. Conversely, the Hospice Payment Final Rule for FY 2026 includes a 2.6% payment increase (estimated $750 million aggregate increase). Additionally, the One Big Beautiful Bill Act may reduce Medicaid funding, affecting states with high Medicaid utilization. The company continues to pursue acquisitions, having added five home health agencies, four hospice agencies, and four senior living communities in the first half of 2025. With $14.4 million in cash and $208.8 million available under its revolving credit facility, Pennant maintains ample liquidity to support organic growth and M&A.
The six-month cash flow statement shows operating cash flow of $13.4 million, a 21.5% increase from $11.0 million in the prior year. Net income rose by $5.4 million, but working capital changes consumed $5.0 million, tempering cash generation. The company maintained positive CFO, though it was insufficient to cover substantial investing outflows of $60.4 million, which were driven by business acquisitions. Financing activities provided $37.1 million, largely from additional borrowings under the credit facility, offsetting the investing cash deficit. No capital expenditures or share repurchases were separately disclosed. The overall cash balance declined by $9.9 million to $14.4 million. The reliance on debt to fund acquisitions and the negative free cash flow (implied by CFO minus investing) indicate aggressive growth spending. Working capital swings should be monitored for sustainability. The company has $208.8 million in available borrowing capacity, providing liquidity buffer.