The Pennant Group Inc. (Nasdaq: PNTG) is sitting on a newly increased revolving line of credit, giving it plenty of M&A firepower to work with moving forward. The company specifically plans on putting “a lot of capital to work” in its home health business, executives noted during a Thursday earnings call.
The Eagle, Idaho-based Pennant announced it extended its credit facility — arranged by Truist Bank — by $75 million to a total of $150 million on Tuesday.
“We have deployed a significant amount of capital opportunistically in the home health and hospice segment,” Pennant CEO Daniel Walker said during Thursday’s call. “Our capacity to deploy even more continues to increase because we have multiple healthy operating markets and a strong leadership pipeline. We are grateful to our lending partners for entrusting us with increased borrowing capacity to execute our disciplined growth strategy.”
Pennant is a holding company of independent operating subsidiaries that provide health care services through 80 home health and hospice agencies, in addition to 54 senior living communities.
As of Tuesday, $131.7 million remained “undrawn on the revolver,” providing the company substantial dry powder to continue its growth strategy, according to Jennifer Freeman, Pennant’s CFO.
Those added resources may soon come into play, as the company saw ample dealmaking opportunities during the fourth.
Over the last three months of 2020, Pennant announced the acquisitions of one home health agency and one hospice agency. In November, the company also established two de novo hospice agencies.
“We expanded strategically within existing geographies and into adjacent markets,” Derek Bunker, Pennant’s chief investment officer, said during the call. “We expanded the continuum by adding home health services where we have a hospice agency and vice versa. We acquired large regional providers with a strong local reputation that we expect to further develop in our operating model. We acquired small budding agencies that have significant long-term organic growth potential. We executed multiple startups consistent with our history of successful startup ventures.”
Additionally, the company formed Seaport Scripps Home Health — a home health joint venture — with Scripps Health.
Bunker noted that Pennant’s track record of being aggressive on acquisitions is a good indicator of the company’s future growth rate.
The company will likely ease up on senior living transactions in the near term, however.
In general, senior living providers have seen occupancy rates take a dip as a result of the COVID-19 emergency. Capacity in senior living is down by nearly 6% in major markets, according to the National Investment Center for Seniors Housing & Care (NIC).
“That’ll be the order of the day until we see significant, consistent signs of strength in the senior living business and recovery there,” Walker said. “The equation on the home health and hospice side is very much intact with strong markets, a strong leadership pipeline and great momentum. We’ll put a lot of capital to work in that space.”
So far, Pennant already has one home health acquisition under its belt for 2021.
In January, the company acquired Sacred Heart Home Health Care — a provider that operates in Phoenix and Tucson, Arizona.
In total, Pennant’s 2020 revenue was $391 million, an increase of $52.4 million, or 15.5%, over the prior year. The company’s home health and hospice services segment brought in $253.7 million on the year, an increase of $47 million, or 22.8%, compared to 2019.
In Q4 of last year, Pennant’s total revenue checked in at $108 million, an increase of $18.5 million, or 20.6%, compared to the prior year’s fourth quarter. The company’s home health and hospice services segment revenue was $74.5 million, an increase of $19.4 million, or 35.2%, compared to Q4 2019.
Total home health admissions for Pennant in Q4 increased by 44.1% over the prior year’s quarter. Home health admissions for all of 2020 increased by 17.8% compared to 2019.
Walker noted that the company cared for nearly 13,000 patients and residents across its home health, hospice and senior living operations over the course of 2020.
“Our first year as a public company was eventful, challenging and ultimately rewarding,” Walker said. “We navigated the complexities and dynamics of a new reimbursement methodology in [the Patient-Driven Groupings Model]. We completed the successful transition of key enterprise, financial, human capital and IT systems related to our spinoff from The Ensign Group. And we dealt with — and continue to deal with — the impact of an unprecedented pandemic. I am proud of our collective efforts on each of these fronts.”