ACQUISITIONS The Companys acquisition focus is to purchase or lease operations that are complementary to the Companys current businesses, accretive to the Companys business or otherwise advance the Companys strategy. The results of all the Companys independent operating subsidiaries are included in the Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. 2019 Acquisitions During the year ended December 31, 2019, the Company expanded its operations with the addition of two home health agencies, five hospice agencies, two home care agencies and two senior living operations. In connection with the acquisitions of one of the senior living communities, the Company entered into a new long-term triple-net lease with a subsidiary of Ensign. The Company did not acquire any material assets or assume any liabilities. 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. The addition of these operations added a total of 143 operational senior living units to be operated by the Companys independent operating subsidiaries. The aggregate purchase price for these acquisitions was $18,780. The fair value of assets for all home health, hospice and home care acquisitions was concentrated in goodwill and as such, these transactions were classified as business combinations in accordance with ASC Topic 805, Business Combinations (Topic 805). The purchase price for the business combinations was $18,760, which mostly consisted of goodwill of $10,341 and indefinite-lived intangible assets of $8,326 related to Medicare and Medicaid licenses. The fair value of assets for the senior living acquisitions were concentrated in intangible assets and as such, these transactions were classified as an asset acquisition. The purchase price for the asset acquisitions was $20. The Company anticipates that the majority of total goodwill recognized will be fully deductible for tax purposes as of December 31, 2019. Acquisition costs related to the business combinations of home health, hospice, and home care was $611 during the year ended December 31, 2019. 2018 Acquisitions During the year ended December 31, 2018, the Company expanded its operations with the addition of four home health agencies, two hospice agency, two home care agency and seven senior living operations. The Company did not acquire any material assets or assume any liabilities other than the tenants post-assumption rights and obligations under the senior living long-term leases. The aggregate purchase price for these acquisitions during the year ended December 31, 2018 was $5,318. The addition of these operations added a total of 386 operational senior living units to be operated by the Companys independent operating subsidiaries. Typically, subsidiaries of the Company entered into a separate operations transfer agreement with the prior operator as part of each transaction. The fair value of assets for nine of the acquisitions was concentrated in property and equipment and as such, these transactions were classified as asset acquisitions in accordance with Topic 805. The aggregate purchase price for these acquisitions was $593, mainly consisting of indefinite-lived intangible assets of $515. The fair value of assets for the remaining six acquisitions was concentrated in goodwill and as such, these transactions were classified as business acquisitions in accordance with Topic 805. The purchase price for the six business combinations was $4,725, mainly consisted of goodwill and indefinite-lived intangible assets of $4,710. The Company did not incur acquisition costs related to business combinations during the year ended December 31, 2018. 2017 Acquisitions During the year ended December 31, 2017, the Company expanded its operations with the addition of seven senior living operations, three home health agencies, three hospice agencies and one home care agency. The Company did not acquire any material assets or assume any liabilities, other than the tenants post-assumption rights and obligations under the senior living long-term leases. The aggregate purchase price for these acquisitions for the year ended December 31, 2017 was 12,059. The addition of these operations added 250 senior living units operated by the Companys independent operating subsidiaries. Typically, subsidiaries of the Company entered into a separate operations transfer agreement with the prior operator as part of each transaction. Unaudited Pro Forma Financial Information The Companys acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities for return. The independent operating subsidiaries acquired by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome. From time to time, these acquisitions are more strategic in nature that may or may not have positive operational results. Financial information, especially with underperforming independent operating subsidiaries, is often inadequate, inaccurate or unavailable. Consequently, the Company believes that prior operating results are not a meaningful representation of the Companys current operating results or indicative of the integration potential of its newly acquired independent operating subsidiaries. Revenue and income before tax included in the consolidated and combined statement of income relating to the business combinations was $17,006 and $3,036, respectively, during the year ended December 31, 2019. The unaudited pro forma financial information has been included for the businesses combinations during the year ended December 31, 2019. Business combinations during the year ended December 31, 2018 and 2017 were deemed immaterial and as such, no pro forma financial information has been included. The acquisitions during the year ended December 31, 2019 have been included in the December 31, 2019 consolidated and combined balance sheets of the Company, and the operating results have been included in the consolidated and combined statements of income of the Company since the dates the Company gained effective control. Revenues and operating costs were based on actual results from the prior operator or from regulatory filings where available. If actual results were not available, revenues and operating costs were estimated based on available partial operating results of the prior operator of the operation, or if no information was available, estimates were derived from the Companys post-acquisition operating results for that particular operation. The unaudited pro forma information is not indicative of what the results of operations would have been if the business combinations had actually occurred at the beginning of the periods presented and is not intended as a projection of future results or trends. The following tables represent unaudited pro forma results of consolidated and combined operations as if the business combinations in fiscal year 2019 had occurred at the beginning of 2018, after giving effect to certain adjustments. The unaudited pro forma information is not indicative of what the results of operations would have been if the acquisitions had actually occurred at the beginning of the periods presented and is not intended as a projection of future results or trends. Unaudited Pro Forma Data Year Ended December 31, 2019 2018 Revenue $ 349,881 $ 315,127 Net income attributable to The Pennant Group, Inc. (a) $ 2,956 $ 16,690 (a) Net income attributable to The Pennant Group, Inc. for each of the years ended December 31, 2019 and 2018 includes a tax impact of 25.4% and 25.0%, which are the respective statutory tax rates. Subsequent Events Subsequent to December 31, 2019, the Company acquired one home health agency, one hospice agency and one senior living community. The aggregate purchase price for these acquisitions was $2,968. In connection with the acquisition of the senior living community, the Company entered into a new long-term triple-net lease with a subsidiary of Ensign. As of the date of this report, the preliminary allocation of the purchase price for the acquisitions acquired subsequent to December 31, 2019 were not completed as necessary valuation information was not yet available. As such, the determination whether these acquisitions should be classified as business combinations or asset acquisitions under ASC 805 will be determined upon completion of the allocation of the purchase price. Additionally, subsequent to December 31, 2019, the Company announced that a subsidiary of its home health and hospice portfolio company entered into an agreement to form a home health joint venture with Scripps Health, a leading nonprofit integrated health system based in San Diego, California. The finalization of the joint venture is subject to customary closing conditions and is expected to occur in the third quarter of 2020. Following the closing of the transaction, the joint venture will be managed by a Cornerstone affiliate and will provide home health services to patients throughout San Diego County and surrounding areas.