ENSIGN GROUP, INC [ENSG] Filings

10-Q 1 ensg-20240630.htm 10-Q ensg-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q



☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2024.


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
			For the transition period from to .

Commission file number: 001-33757

_____________________________

THE ENSIGN GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			33-0861263
(State or Other Jurisdiction of			(I.R.S. Employer
Incorporation or Organization)			Identification No.)

29222 Rancho Viejo Road, Suite 127

San Juan Capistrano, CA 92675

(Address of Principal Executive Offices and Zip Code)

(949) 487-9500

(Registrant’s Telephone Number, Including Area Code)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ENSG	NASDAQ Global Select Market

Indicate by check mark:

whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☐

whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☐

whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Yes

☐

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

As of July 22, 2024, 57,113,703 shares of the registrant’s common stock, $0.001 par value, were outstanding.

Table of Contents

THE ENSIGN GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024

TABLE OF CONTENTS


PART I. Financial Information			Pg.
Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of June 3 0 , 2024 and December 31, 2023			1

Condensed Consolidated Statements of Income for the three and six months ended June 3 0 , 2024 and 2023			2

Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 3 0 , 2024 and 2023			3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023			5

Notes to Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30

Item 3. Quantitative and Qualitative Disclosures About Market Risk			69

Item 4. Controls and Procedures			69

P ART II. Other Information
Item 1. Legal Proceedings			70

Item 1A. Risk Factors			73







Item 5. Other Information			103

Item 6. Exhibits			104

Signatures

Table of Contents

PART I.

Item 1. FINANCIAL STATEMENTS

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)


	June 30, 2024		December 31, 2023





ASSETS
Current assets:
Cash and cash equivalents	$	477,336	$	509,626
Accounts receivable—less allowance for doubtful accounts of $9,460 and $9,348 at June 30, 2024 and December 31, 2023, respectively	547,121		485,039

Investments—current	24,126		17,229
Prepaid income taxes	18,798		3,830
Prepaid expenses and other current assets	47,699		31,206


Total current assets	1,115,080		1,046,930
Property and equipment, net	1,177,822		1,090,771
Right-of-use assets	1,842,613		1,756,430
Insurance subsidiary deposits and investments	112,756		92,687

Deferred tax assets	66,572		67,124
Restricted and other assets	38,551		40,205
Intangible assets, net	6,703		6,525
Goodwill	77,241		76,869


TOTAL ASSETS	$	4,437,338	$	4,177,541
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	88,652	$	92,811

Accrued wages and related liabilities	322,928		332,568
Lease liabilities—current	89,176		82,526
Accrued self-insurance liabilities—current	61,356		54,664


Other accrued liabilities	164,640		168,228
Current maturities of long-term debt	4,017		3,950

Total current liabilities	730,769		734,747
Long-term debt—less current maturities	143,559		145,497
Long-term lease liabilities—less current portion	1,720,250		1,639,326
Accrued self-insurance liabilities—less current portion	123,835		111,246
Other long-term liabilities	55,854		49,408


TOTAL LIABILITIES	$	2,774,267	$	2,680,224

Commitments and contingencies (Notes 15 and 20)

EQUITY
Ensign Group, Inc. stockholders' equity:
Common stock: $0.001 par value; 150,000 shares authorized; 60,449 and 57,049 shares issued and shares outstanding at June 30, 2024, respectively, and 59,987 and 56,597 shares issued and shares outstanding at December 31, 2023, respectively	61		60
Additional paid-in capital	499,411		465,707
Retained earnings	1,275,657		1,142,653
Common stock in treasury, at cost, 3,400 and 3,390 shares at June 30, 2024 and December 31, 2023, respectively	(117,764)		(116,555)
Total Ensign Group, Inc. stockholders' equity	1,657,365		1,491,865
Non-controlling interest	5,706		5,452
Total equity	$	1,663,071	$	1,497,317
TOTAL LIABILITIES AND EQUITY	$	4,437,338	$	4,177,541

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023

	(In thousands, except per share data)
REVENUE
Service revenue	$	1,030,574	$	916,101	$	2,035,059	$	1,798,019
Rental revenue	5,711		5,244		11,398		10,167
TOTAL REVENUE	$	1,036,285	$	921,345	$	2,046,457	$	1,808,186


Expense:
Cost of services	820,360		722,685		1,619,623		1,419,011



Rent—cost of services	53,272		49,760		105,148		96,397
General and administrative expense	56,194		53,430		113,352		105,321
Depreciation and amortization	20,488		17,596		40,145		34,708
TOTAL EXPENSES	950,314		843,471		1,878,268		1,655,437
Income from operations	85,971		77,874		168,189		152,749
Other income (expense):
Interest expense	(2,040)		(2,023)		(4,004)		(4,059)
Interest income	7,084		3,542		13,544		7,526
Other income	1,049		1,660		3,933		3,219
Other income, net	6,093		3,179		13,473		6,686
Income before provision for income taxes	92,064		81,053		181,662		159,435
Provision for income taxes	20,883		16,963		41,521		35,376


NET INCOME	71,181		64,090		140,141		124,059
Less:


Net income attributable to noncontrolling interests	174		97		299		214
Net income attributable to The Ensign Group, Inc.	$	71,007	$	63,993	$	139,842	$	123,845





NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.



Basic	$	1.26	$	1.15	$	2.48	$	2.23



Diluted	$	1.22	$	1.12	$	2.41	$	2.17
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	56,544		55,611		56,441		55,456
Diluted	58,013		57,260		57,969		57,190

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-Controlling Interest
(In thousands)	Shares	Amount						Shares	Amount				Total
BALANCE - JANUARY 1, 2024	56,597	$	60	$	465,707	$	1,142,653	3,390	$	(116,555)	$	5,452	$	1,497,317
Issuance of common stock to employees and directors resulting from the exercise of stock options	219	—		6,229		—		—	—		—		6,229
Issuance of restricted stock, net of forfeitures (Note 16)	88	—		6,165		—		—	—		—		6,165
Shares of common stock used to satisfy tax withholding obligations	—	—		—		—		—	(14)		—		(14)
Dividends declared ($0.0600 per share)	—	—		—		(3,414)		—	—		—		(3,414)
Employee stock award compensation	—	—		8,231		—		—	—		—		8,231

Acquisition of noncontrolling interest shares	—	—		(10)		—		—	—		—		(10)
Net income attributable to noncontrolling interest	—	—		—		—		—	—		125		125
Noncontrolling interests attributable to subsidiary equity plan	—	—		14		—		—	—		(11)		3
Net income attributable to the Ensign Group, Inc.	—	—		—		68,835		—	—		—		68,835
BALANCE - MARCH 31, 2024	56,904	$	60	$	486,336	$	1,208,074	3,390	$	(116,569)	$	5,566	$	1,583,467
Issuance of common stock to employees and directors resulting from the exercise of stock options	117	1		4,089		—		—	—		—		4,090
Issuance of restricted stock, net of forfeitures (Note 16)	38	—		—		—		—	—		—		—
Shares of common stock used to satisfy tax withholding obligations	(10)	—		—		—		10	(1,195)		—		(1,195)
Dividends declared ($0.0600 per share)	—	—		—		(3,424)		—	—		—		(3,424)
Employee stock award compensation	—	—		8,978		—		—	—		—		8,978

Acquisition of noncontrolling interest shares	—	—		(29)		—		—	—		—		(29)
Net income attributable to noncontrolling interest	—	—		—		—		—	—		174		174
Noncontrolling interests attributable to subsidiary equity plan	—	—		37		—		—	—		(34)		3
Net income attributable to the Ensign Group, Inc.	—	—		—		71,007		—	—		—		71,007
BALANCE - JUNE 30, 2024	57,049	$	61	$	499,411	$	1,275,657	3,400	$	(117,764)	$	5,706	$	1,663,071

Table of Contents


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-Controlling Interest
(In thousands)	Shares	Amount						Shares	Amount				Total
BALANCE - JANUARY 1, 2023	55,661	$	59	$	415,560	$	946,339	3,368	$	(114,626)	$	1,468	$	1,248,800
Issuance of common stock to employees and directors resulting from the exercise of stock options	145	1		2,653		—		—	—		—		2,654
Issuance of restricted stock, net of forfeitures	102	—		5,068		—		—	—		—		5,068
Shares of common stock used to satisfy tax withholding obligations	(1)	—		—		—		1	(20)		—		(20)
Dividends declared ($0.0575 per share)	—	—		—		(3,215)		—	—		—		(3,215)
Employee stock award compensation	—	—		6,573		—		—	—		—		6,573

Acquisition of noncontrolling interest shares	—	—		(77)		—		—	—		—		(77)
Net income attributable to noncontrolling interest	—	—		—		—		—	—		117		117
Noncontrolling interests attributable to subsidiary equity plan	—	—		6		—		—	—		(4)		2
Net income attributable to the Ensign Group, Inc.	—	—		—		59,852		—	—		—		59,852
BALANCE - MARCH 31, 2023	55,907	$	60	$	429,783	$	1,002,976	3,369	$	(114,646)	$	1,581	$	1,319,754
Issuance of common stock to employees and directors resulting from the exercise of stock options	253	—		5,905		—		—	—		—		5,905
Issuance of restricted stock, net of forfeitures	54	—		—		—		—	—		—		—
Shares of common stock used to satisfy tax withholding obligations	(21)	—		—		—		21	(1,909)		—		(1,909)
Dividends declared ($0.0575 per share)	—	—		—		(3,231)		—	—		—		(3,231)
Employee stock award compensation	—	—		8,881		—		—	—		—		8,881

Acquisition of noncontrolling interest shares	—	—		(100)		—		—	—		—		(100)
Net income attributable to noncontrolling interest	—	—		—		—		—	—		97		97
Noncontrolling interests attributable to subsidiary equity plan	—	—		(3,937)		—		—	—		3,940		3
Net income attributable to the Ensign Group, Inc.	—	—		—		63,993		—	—		—		63,993
BALANCE - JUNE 30, 2023	56,193	$	60	$	440,532	$	1,063,738	3,390	$	(116,555)	$	5,618	$	1,393,393

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
(In thousands)	2024		2023
Cash flows from operating activities:
Net income	$	140,141	$	124,059

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	40,145		34,708

Amortization of deferred financing fees	531		536

Non-cash leasing arrangement	385		481
Impairment of long-lived assets	1,849		—

Deferred income taxes	552		47
Provision for doubtful accounts	718		2,250
Stock-based compensation	17,222		15,454
Cash received from insurance proceeds	199		750

Loss (Gain) on insurance claims and asset disposals	254		(749)
Litigation adjustment	(3,734)		(818)

Change in operating assets and liabilities
Accounts receivable	(62,813)		(39,433)
Prepaid income taxes	(14,968)		4,186
Prepaid expenses and other assets	(15,538)		(516)

Cash surrender value of life insurance policy premiums	(10,725)		(12,132)
Deferred compensation liability	10,707		12,170
Operating lease obligations	400		(6,411)
Accounts payable	(5,559)		1,020
Accrued wages and related liabilities	(8,343)		(991)
Income taxes payable	—		25,240
Other accrued liabilities	650		(578)
Accrued self-insurance liabilities	19,568		8,832
Other long-term liabilities	608		(23)
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	112,249	$	168,082


Cash flows from investing activities:
Purchase of property and equipment	(64,635)		(51,614)
Cash payments for business acquisitions	(494)		—
Cash payments for asset acquisitions	(64,896)		(399)
Escrow deposits	(646)		(1,202)

Cash from insurance proceeds	961		913
Cash proceeds from the sale of assets	1,988		18


Purchases of investments	(35,508)		(18,425)
Maturities of investments	19,267		7,862
Other restricted assets	(601)		412
NET CASH USED IN INVESTING ACTIVITIES	$	(144,564)	$	(62,435)



Cash flows from financing activities:

Payments on debt	(1,958)		(1,958)


Issuance of common stock upon exercise of options	10,319		8,559
Repurchase of shares of common stock to satisfy tax withholding obligations	(1,209)		(1,929)


Dividends paid	(6,810)		(6,415)



Non-controlling interest distribution	(278)		(4)
Purchase of non-controlling interest	(39)		(177)
Payments of deferred financing costs	—		(19)



NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	$	25	$	(1,943)


Net (decrease) increase in cash and cash equivalents	(32,290)		103,704
Cash and cash equivalents beginning of period	509,626		316,270
Cash and cash equivalents end of period	$	477,336	$	419,974

Table of Contents


	Six Months Ended June 30,
(In thousands)	2024		2023
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:
Interest	$	3,488	$	3,534
Income taxes	56,062		6,030
Lease liabilities	104,749		95,938
Non-cash financing and investing activity
Accrued capital expenditures	$	6,000	$	5,000
Accrued dividends declared	3,424		3,231


Right-of-use assets obtained in exchange for new and modified operating lease obligations	124,133		352,131

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars, shares and options in thousands, except per share data)

1. DESCRIPTION OF BUSINESS

The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of June 30, 2024, the Company's independent subsidiaries operated 312 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin. The Company's independent subsidiaries have a collective capacity of approximately 31,800 operational skilled nursing beds and 3,300 senior living units. As of June 30, 2024, the Company's independent subsidiaries operated 222 facilities under long-term lease arrangements and had options to purchase 12 of those 222 facilities. The Company's real estate portfolio consists of 120 owned real estate properties, which includes 90 facilities operated and managed by the Company's independent subsidiaries, 30 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 30 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries. The Company also has a wholly-owned captive insurance subsidiary that provides some claims-made coverage to the Company’s independent subsidiaries for general and professional liabilities, as well as coverage for certain workers’ compensation insurance liabilities.

In 2022, the Company formed a captive real estate investment trust (REIT), which owns and manages its real estate business, called Standard Bearer Healthcare REIT, Inc. (Standard Bearer). The REIT structure provides the Company with an efficient vehicle for future acquisitions of properties that could be operated by Ensign's independent subsidiaries or other third parties. Standard Bearer has elected to be taxed as a REIT for U.S. federal income tax purposes. Refer to Note 6, Standard Bearer for additional information on Standard Bearer.

Each of the Company's independent subsidiaries are operated by wholly-owned subsidiaries that have their own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Quarterly Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc.

Other Information — The accompanying condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 (collectively, the Interim Financial Statements) are unaudited. Certain information and note disclosures normally included in the annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations. Readers of the Interim Financial Statements should refer to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K, File No. 001-33757 (the Annual Report) filed with the Securities and Exchange Commission (SEC). Management believes that the Interim Financial Statements reflect all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations in all material respects. The results of operations presented in the Interim Financial Statements are not necessarily representative of operations for the entire year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its condensed consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interests in its condensed consolidated statements of income. The Interim Financial Statements include the accounts of all independent subsidiaries controlled by the Company through its ownership of a majority voting interest.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The preparation of the Interim Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, acquired property and equipment, goodwill, right-of-use assets, impairment of long-lived assets, lease liabilities, general and professional liabilities, workers' compensation and healthcare claims included in accrued self-insurance liabilities and income taxes. Actual results could differ from those estimates. Certain amounts in the prior period condensed balance sheet and statement of income have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net income or total assets.

Recently Issued Accounting Pronouncements — In October 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-06 "Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative," which amends U.S. GAAP to include 14 disclosure requirements that are currently required under SEC Regulation S-X or Regulation S-K. Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S-X or Regulation S-K. The adoption is not expected to have a material impact on the Company's Interim Financial Statements as these requirements were previously incorporated under the SEC Regulations.

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires the Company to expand the breadth and frequency of segment disclosures to include additional information about significant segment expenses, the chief operating decision maker (CODM) and other items, and also require the annual disclosures on an interim basis. This guidance is effective for annual periods beginning after December 15, 2023, which will be the Company's fiscal year 2024, and in interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the ASU on its Quarterly and Annual Reports.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This guidance is effective for annual periods beginning after December 15, 2024, which will be the Company's fiscal year 2025, with early adoption permitted. The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements. The Company is currently evaluating the impact of the ASU on its Annual Report.

3. REVENUE AND ACCOUNTS RECEIVABLE

The Company's service revenue is derived primarily from providing healthcare services to its patients. Revenue is recognized when services are provided to patients at the amount that reflects the consideration that the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with its patients by payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Revenue by Payor

The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue from the Medicare and Medicaid programs accounted for 71.2% and 71.4% of all service revenue for the three and six months ended June 30, 2024, respectively, and 73.1% and 73.2% of all service revenue for the three and six months ended June 30, 2023, respectively. Settlements with Medicare and Medicaid payors for retroactive adjustments due to audits and reviews are considered variable consideration and are included in the determination of the estimated transaction price. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity. Consistent with healthcare industry practices, any changes to these revenue estimates are recorded in the period the change or adjustment becomes known based on the final settlement. The Company recorded adjustments to revenue which were not material to the Company's revenue for the three and six months ended June 30, 2024 and 2023.

Service revenue for the three and six months ended June 30, 2024 and 2023 is summarized in the following tables:



	Three Months Ended June 30,
	2024				2023
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)(2)	$	411,760	40.0	%	$	359,781	39.3	%
Medicare	258,869		25.1		248,081		27.1
Medicaid — skilled	62,969		6.1		62,015		6.7
Total Medicaid and Medicare	733,598		71.2		669,877		73.1
Managed care	191,022		18.5		161,101		17.6
Private and other(3)	105,954		10.3		85,123		9.3
SERVICE REVENUE	$	1,030,574	100.0	%	$	916,101	100.0	%

(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the three months ended June 30, 2023.

(3) Private and other also includes revenue from senior living operations and all revenue generated in other ancillary services.



	Six Months Ended June 30,
	2024				2023
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)(2)	$	801,923	39.4	%	$	700,045	38.9	%
Medicare	524,452		25.8		495,804		27.6
Medicaid — skilled	126,278		6.2		119,942		6.7
Total Medicaid and Medicare	1,452,653		71.4		1,315,791		73.2
Managed care	379,126		18.6		317,764		17.7
Private and other(3)	203,280		10.0		164,464		9.1
SERVICE REVENUE	$	2,035,059	100.0	%	$	1,798,019	100.0	%

(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the six months ended June 30, 2023.

(3) Private and other also includes revenue from senior living operations and all revenue generated in other ancillary services.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties are $5,711 and $11,398, respectively, for the three and six months ended June 30, 2024 and $5,244 and $10,167, respectively, for the three and six months ended June 30, 2023.

State relief funding

In 2023, the Company received state relief funding through Medicaid programs from various states, including healthcare relief funding under the American Rescue Plan Act (ARPA), increases in the Federal Medical Assistance Percentage (FMAP) under the Families First Coronavirus Response Act (FFCRA) and other state specific relief programs. The funding generally incorporates specific use requirements primarily for direct patient care including labor related expenses that are attributable to the COVID-19 pandemic or are associated with providing patient care. Due to the expiration of the COVID-19 Public Health Emergency in May 2023, the Company did not receive additional funding during the three and six months ended June 30, 2024. During the three and six months ended June 30, 2023, the Company received $17,580 and $44,844 in state relief funding and recognized $18,453 and $44,811, respectively, as revenue.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Balance Sheet Impact

Included in the Company’s condensed consolidated balance sheets are contract balances, comprised of billed accounts receivable and unbilled receivables, which are the result of the timing of revenue recognition, billings and cash collections, as well as contract liabilities, which primarily represent payments the Company receives in advance of services provided. The Company had no material contract liabilities and contract assets as of June 30, 2024 and December 31, 2023, or activity during the three and six months ended June 30, 2024 and 2023.

Accounts receivable consist primarily of amounts due from Medicare and Medicaid programs, other government programs, managed care health plans and private payor sources, net of estimates for variable consideration. Accounts receivable as of June 30, 2024 and December 31, 2023, is summarized in the following table:


	June 30, 2024		December 31, 2023


Medicaid	$	208,584	$	178,285
Managed care	139,200		125,907
Medicare	86,496		85,512
Private and other payors	122,301		104,683
	556,581		494,387
Less: allowance for doubtful accounts	(9,460)		(9,348)
ACCOUNTS RECEIVABLE, NET	$	547,121	$	485,039

4. COMPUTATION OF NET INCOME PER COMMON SHARE

Basic net income per share is computed by dividing income from operations attributable to stockholders of The Ensign Group, Inc. by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
NUMERATOR:
Net income	$	71,181	$	64,090	$	140,141	$	124,059
Less: net income attributable to noncontrolling interests	174		97		299		214
Net income attributable to The Ensign Group, Inc.	$	71,007	$	63,993	$	139,842	$	123,845





DENOMINATOR:
Weighted average shares outstanding for basic net income per share	56,544		55,611		56,441		55,456

Basic net income per common share:	$	1.26	$	1.15	$	2.48	$	2.23


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A reconciliation of the numerator and denominator used in the calculation of diluted net income per common share follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
NUMERATOR:
Net income	$	71,181	$	64,090	$	140,141	$	124,059
Less: net income attributable to noncontrolling interests	174		97		299		214
Net income attributable to The Ensign Group, Inc.	$	71,007	$	63,993	$	139,842	$	123,845





DENOMINATOR:
Weighted average common shares outstanding	56,544		55,611		56,441		55,456
Plus: incremental shares from assumed conversion (1)	1,469		1,649		1,528		1,734
Adjusted weighted average common shares outstanding	58,013		57,260		57,969		57,190

Diluted net income per common share:	$	1.22	$	1.12	$	2.41	$	2.17

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,368 and 1,252 for the three and six months ended June 30, 2024, respectively, and 1,419 and 1,317 for the three and six months ended June 30, 2023, respectively.

5. FAIR VALUE MEASUREMENTS

The Company's financial assets include the captive insurance subsidiary's deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at amortized cost basis of $63,826 and $59,530 as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024 and December 31, 2023, the amortized cost basis of the Company's financial assets included in the captive insurance subsidiary's investments are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs.

Also included are contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that are held in a rabbi trust. The cash surrender value of these contracts is based on funds that shadow the investment allocations specified by participants in the deferred compensation plan and are held at fair value. As of June 30, 2024, and December 31, 2023, the fair value of the investment funds was $51,941 and $41,216, respectively, which are derived using Level 2 inputs.

Additionally, the Company has other investments held at historical cost basis, which are not material, for which the fair value is derived using Level 3 inputs. The Company believes its amortized cost basis investments that were in an unrealized loss position as of June 30, 2024 and December 31, 2023 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

6. STANDARD BEARER

Standard Bearer's real estate portfolio consists of 115 of the Company's 120 owned real estate properties, of which 86 are operated and managed by the Company's independent subsidiaries and 30 are leased to and operated by third-party operators. Of those 30 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

During the six months ended June 30, 2024, Standard Bearer acquired the real estate of five stand-alone skilled nursing operations and two campus operations for an aggregate purchase price of $63,412. These new additions are operated by seven of the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.

As part of the formation of Standard Bearer, certain of the Company's independent subsidiaries, Standard Bearer and Standard Bearer's independent real estate subsidiaries entered into several agreements that include leasing, management services and debt arrangements between the operations. All intercompany transactions have been eliminated in consolidation. Refer to Note 8, Business Segments, for additional information related to these intercompany eliminations as well as Standard Bearer as a reportable segment.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intercompany master lease agreements

Certain of the Company's independent subsidiaries and 86 Standard Bearer independent real estate subsidiaries have entered into six triple-net master lease agreements (collectively, the Standard Bearer Master Leases). The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions. The rent structure under the Standard Bearer Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. In addition to rent, the independent subsidiaries are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties; (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. Rental revenue generated from Ensign affiliated operations was $19,156 and $37,162, respectively, for the three and six months ended June 30, 2024 and $16,128 and $32,059, respectively, for the three and six months ended June 30, 2023.

Intercompany management agreement

Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5% of total rental revenue and an incentive management fee that is equal to 5% of funds from operations (FFO) and is capped at 1% of total rental revenue, for a total of 6%. Management fee generated between Standard Bearer and the Service Center for the three and six months ended June 30, 2024 was $1,401 and $2,733, respectively. Management fees generated between Standard Bearer and the Service Center for the three and six months ended June 30, 2023 was $1,195 and $2,377, respectively.

Intercompany debt arrangements

Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans. The intercompany debt arrangements include mortgage loans and the Credit Facility to fund acquisitions and working capital needs. The interest rate under the Credit Facility is a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum.

In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory note are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income. Refer to Note 15, Debt, for additional information related to these debts.

Equity Instrument Denominated in the Shares of a Subsidiary

As part of the formation of Standard Bearer in 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted stock awards is tied to the value of the common stock of Standard Bearer, which is determined based on an independent valuation of Standard Bearer. The awards can be put to Standard Bearer at various prescribed dates, which in no event is earlier than six months after vesting of the restricted awards or exercise of the stock options. The Company can also call the awards, generally upon employee termination. During the six months ended June 30, 2024 and 2023, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

7. OPERATION EXPANSIONS

The expansion focus of the Company's independent subsidiaries is to purchase or lease operations that are complementary to the current operations, accretive to the business, or otherwise advance the Company's strategy. The results of all independent subsidiaries are included in the Interim Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. The Company's independent subsidiaries also enter into long-term leases that may include options to purchase the facilities. As a result, from time to time, an independent real estate subsidiary will acquire the property of facilities that have previously been operated under third-party leases.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2024 Expansions

During the six months ended June 30, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 13 stand-alone skilled nursing operations and two campus operations. One of the stand-alone skilled nursing operations includes a long-term acute care hospital. Of these additions, Standard Bearer acquired the real estate of seven of these operations, all of which were leased back to the Company's independent subsidiaries. Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate properties. These new operations added a total of 1,369 operational skilled nursing beds and 202 operational senior living units to be operated by the Company's independent subsidiaries. Included within the operational skilled nursing beds are 43 long-term acute care beds. In connection with the new operations obtained through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The Company entered into a separate operations transfer agreement with each prior operator as part of each transaction. The Company also invested in new ancillary services that are complementary to its existing businesses.

2023 Expansions

During the six months ended June 30, 2023, the Company expanded its operations through long-term leases, with the addition of 19 stand-alone skilled nursing operations. These new operations added a total of 1,764 operational skilled nursing beds operated by the Company's independent subsidiaries. In connection with the new operations obtained through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The Company entered into a separate operations transfer agreement with each prior operator as part of each transaction.

The Company’s acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities for return. The operations added by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. Consequently, the Company believes that prior operating results are not a meaningful representation of the Company’s current operating results or indicative of the integration potential of its newly acquired independent subsidiaries. The assets added during the six months ended June 30, 2024 were not material operations to the Company individually or in the aggregate. Accordingly, pro forma financial information is not presented. These additions have been included in the condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of income of the Company since the date the Company gained effective control.

8. BUSINESS SEGMENTS

The Company has two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators.

As of June 30, 2024, the skilled services segment includes 272 skilled nursing and 29 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. The Company's Standard Bearer segment consists of 115 owned real estate properties.

The Company also reports an “All Other” category that includes results from its senior living operations, which includes 11 stand-alone senior living operations and the senior living operations at 29 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate and other ancillary operations. Services included in the “All Other” category are insignificant individually, and therefore do not constitute a reportable segment.

The Company’s reportable segments are significant operating segments that offer differentiated services. The Company's CODM reviews financial information for each operating segment to evaluate performance and allocate capital resources. This structure reflects its current operational and financial management and provides the best structure to maximize the quality of care and investment strategy provided, while maintaining financial discipline. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses. Segment income and loss is defined as profit or loss from operations before provision for income taxes, excluding gain or loss from sale of real estate, real estate insurance recoveries and impairment of long-lived assets. Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 6, Standard Bearer, as it is part of the CODM financial information.

The following tables set forth financial information for the segments:



	Three Months Ended June 30, 2024
	Skilled Services		Standard Bearer		All Other(1)		Intercompany Elimination		Total
Service revenue(2)	$	991,285	$	—	$	44,340	$	(5,051)	$	1,030,574
Rental revenue(3)	—		23,354		2,999		(20,642)		5,711
TOTAL REVENUE	$	991,285	$	23,354	$	47,339	$	(25,693)	$	1,036,285
Segment income (loss)	122,185		7,360		(37,481)		—		92,064


Income before provision for income taxes									$	92,064
Depreciation and amortization	10,911		7,166		2,411		—		20,488
Interest expense(4)	$	—	$	6,699	$	339	$	(4,998)	$	2,040

(1) All Other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center.

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $1,089 for the three months ended June 30, 2024. Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's independent subsidiaries. Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense.

(4) Included in interest expense in Standard Bearer is interest expense incurred from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. Intercompany interest expense is eliminated in the "Intercompany Elimination" column.



	Three Months Ended June 30, 2023
	Skilled Services		Standard Bearer		All Other (1)		Intercompany Elimination		Total
Service revenue(2)	$	884,200	$	—	$	35,535	$	(3,634)	$	916,101
Rental revenue(3)	—		19,914		2,819		(17,489)		5,244
TOTAL REVENUE	$	884,200	$	19,914	$	38,354	$	(21,123)	$	921,345
Segment income (loss)	117,008		7,133		(42,988)		—		81,153

Loss on insurance recoveries from real estate									$	(100)
Income before provision for income taxes									$	81,053
Depreciation and amortization	9,417		6,133		2,046		—		17,596
Interest expense(4)	$	—	$	4,575	$	304	$	(2,856)	$	2,023

(1) All Other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center.

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly owned healthcare facilities and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $1,063 for the three months ended June 30, 2023. Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's independent subsidiaries. Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense.


Table of Contents			THE ENSIGN GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



	Six Months Ended June 30, 2024
	Skilled Services		Standard Bearer		All Other (1)		Intercompany Elimination		Total
Service revenue(2)	$	1,960,887	$	—	$	83,966	$	(9,794)	$	2,035,059
Rental revenue(3)	—		45,555		5,945