COMPUTATION OF NET INCOME PER COMMON SHARE

Basic and diluted net income per share are computed by dividing net income by the weighted average number of outstanding common shares during the period. Net income is equal to net income attributable to The Pennant Group, Inc. adjusted to include net income attributable to noncontrolling interest. Net income attributable to the noncontrolling interest has been included in the numerator for the historical periods prior to the spin-off as the non-controlling subsidiary interest included in the condensed combined financial statements was converted into common shares of Pennant concurrent with the distribution to Ensign stockholders at the date of the spin-off.

The weighted average common shares outstanding for basic and diluted net income per share for the periods presented is based on the number of shares of Pennant common stock outstanding on the distribution date. On October 1, 2019, the distribution date, Ensign stockholders received one share of Pennant common stock for every two shares of Ensign’s common stock held as of the record date. The total shares distributed to the Ensign Group shareholders was 26,674. Additionally, concurrent with the Spin-Off the noncontrolling subsidiary interest converted into 1,160 shares of Pennant. The total number of common shares distributed on October 1, 2019 of 27,834 is being utilized for the calculation of basic and diluted earnings per share for all periods presented, as no common stock was outstanding prior to the date of the Spin-Off.

In conjunction with the spin-off, outstanding options and unvested restricted stock awards held by employees of the Company under the Ensign stock plans (“2007 Omnibus Incentive Plan” and “2017 Omnibus Incentive Plan” or collectively the "Ensign Plans”) and the Company Subsidiary Equity Plan (together with the Ensign Plans the "Plans”) were modified and replaced with Pennant awards. Additionally, the Company issued new options and restricted stock awards to Pennant and Ensign employees under the 2019 Omnibus Incentive Plan (the “OIP”) and Long-Term Incentive Plan (the “LTIP”) which were not included in the computation of basic and diluted earnings per share for any periods presented. Beginning in the fourth quarter, the dilutive impact of the outstanding options and equity incentive awards will be reflected in diluted net income per share using the treasury stock method. See further discussion at Note 15, Subsequent Events.

The following table sets forth the computation of basic and diluted net income per share for the periods presented:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Numerator:
Net income attributable to The Pennant Group, Inc.	$	1,524	$	4,372	$	6,345	$	11,914
Add: net income attributable to noncontrolling interests	279		43		629		413
Net Income	$	1,803	$	4,415	$	6,974	$	12,327

Denominator:
Adjusted weighted average common shares	27,834		27,834		27,834		27,834

Earnings Per Share:
Basic and diluted net income per common share	$	0.06	$	0.16	$	0.25	$	0.44