ENSIGN GROUP, INC [ENSG] Filings

10-Q 1 ensg-20240930.htm 10-Q ensg-20240930

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 September 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 October 21, 2024, 57,295,682 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 NINE MONTHS ENDED SEPTEMBER 30, 2024

TABLE OF CONTENTS


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

Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023			1

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023			2

Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2024 and 2023			3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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			70

Item 4. Controls and Procedures			71

P ART II. Other Information
Item 1. Legal Proceedings			71

Item 1A. Risk Factors			74







Item 5. Other Information			104

Item 6. Exhibits			105

Signatures

Table of Contents

PART I.

Item 1. FINANCIAL STATEMENTS

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)


	September 30, 2024		December 31, 2023





ASSETS
Current assets:
Cash and cash equivalents	$	532,066	$	509,626
Accounts receivable—less allowance for doubtful accounts of $9,822 and $9,348 at September 30, 2024 and December 31, 2023, respectively	554,091		485,039

Investments—current	38,969		17,229
Prepaid income taxes	25,960		3,830
Prepaid expenses and other current assets	45,844		31,206


Total current assets	$	1,196,930	$	1,046,930
Property and equipment, net	1,217,689		1,090,771
Right-of-use assets	1,904,181		1,756,430
Insurance subsidiary deposits and investments	115,496		92,687

Deferred tax assets	65,193		67,124
Restricted and other assets	45,753		40,205
Intangible assets, net	6,676		6,525
Goodwill	77,241		76,869


TOTAL ASSETS	$	4,629,159	$	4,177,541
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	90,274	$	92,811

Accrued wages and related liabilities	353,563		332,568
Lease liabilities—current	93,868		82,526
Accrued self-insurance liabilities—current	57,989		54,664


Other accrued liabilities	169,195		168,228
Current maturities of long-term debt	4,051		3,950

Total current liabilities	$	768,940	$	734,747
Long-term debt—less current maturities	142,577		145,497
Long-term lease liabilities—less current portion	1,777,566		1,639,326
Accrued self-insurance liabilities—less current portion	126,037		111,246
Other long-term liabilities	63,092		49,408


TOTAL LIABILITIES	$	2,878,212	$	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; 60,681 and 57,281 shares issued and shares outstanding at September 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	514,336		465,707
Retained earnings	1,350,664		1,142,653
Common stock in treasury, at cost, 3,400 and 3,390 shares at September 30, 2024 and December 31, 2023, respectively	(117,764)		(116,555)
Total Ensign Group, Inc. stockholders' equity	$	1,747,297	$	1,491,865
Non-controlling interest	3,650		5,452
Total equity	$	1,750,947	$	1,497,317
TOTAL LIABILITIES AND EQUITY	$	4,629,159	$	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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

	(In thousands, except per share data)
REVENUE
Service revenue	$	1,076,092	$	935,324	$	3,111,151	$	2,733,343
Rental revenue	5,684		5,467		17,082		15,634
TOTAL REVENUE	$	1,081,776	$	940,791	$	3,128,233	$	2,748,977


Expense:
Cost of services	859,992		741,069		2,479,615		2,160,080



Rent—cost of services	54,792		50,357		159,940		146,754
General and administrative expense	56,180		51,127		169,532		156,448
Depreciation and amortization	21,474		18,446		61,619		53,154
TOTAL EXPENSES	$	992,438	$	860,999	$	2,870,706	$	2,516,436
Income from operations	89,338		79,792		257,527		232,541
Other income (expense):
Interest expense	(2,024)		(2,024)		(6,028)		(6,083)
Interest income	7,607		5,259		21,151		12,785
Other income (expense)	3,753		(982)		7,686		2,237
Other income, net	$	9,336	$	2,253	$	22,809	$	8,939
Income before provision for income taxes	98,674		82,045		280,336		241,480
Provision for income taxes	20,107		18,077		61,628		53,453


NET INCOME	$	78,567	$	63,968	$	218,708	$	188,027
Less:


Net income attributable to noncontrolling interests	123		105		422		319
Net income attributable to The Ensign Group, Inc.	$	78,444	$	63,863	$	218,286	$	187,708





NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC.



Basic	$	1.38	$	1.14	$	3.86	$	3.38



Diluted	$	1.34	$	1.11	$	3.76	$	3.28
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	56,776		55,829		56,553		55,582
Diluted	58,444		57,337		58,125		57,245

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
Issuance of common stock to employees and directors resulting from the exercise of stock options	205	—		7,977		—		—	—		—		7,977
Issuance of restricted stock, net of forfeitures (Note 16)	27	—		—		—		—	—		—		—

Dividends declared ($0.0600 per share)	—	—		—		(3,437)		—	—		—		(3,437)
Employee stock award compensation	—	—		9,177		—		—	—		—		9,177

Acquisition of noncontrolling interest shares	—	—		(2,387)		—		—	—		(2,024)		(4,411)

Net income attributable to noncontrolling interest	—	—		—		—		—	—		123		123
Noncontrolling interests attributable to subsidiary equity plan	—	—		158		—		—	—		(155)		3
Net income attributable to the Ensign Group, Inc.	—	—		—		78,444		—	—		—		78,444
BALANCE - SEPTEMBER 30, 2024	57,281	$	61	$	514,336	$	1,350,664	3,400	$	(117,764)	$	3,650	$	1,750,947

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
Issuance of common stock to employees and directors resulting from the exercise of stock options	180	—		4,148		—		—	—		—		4,148
Issuance of restricted stock, net of forfeitures	40	—		—		—		—	—		—		—

Dividends declared ($0.0575 per share)	—	—		—		(3,243)		—	—		—		(3,243)
Employee stock award compensation	—	—		7,230		—		—	—		—		7,230
Acquisition of noncontrolling interest shares	—	—		(57)		—		—	—		—		(57)

Net income attributable to noncontrolling interest	—	—		—		—		—	—		105		105
Noncontrolling interests attributable to subsidiary equity plan	—	—		30		—		—	—		(27)		3
Net income attributable to the Ensign Group, Inc.	—	—		—		63,863		—	—		—		63,863
BALANCE - SEPTEMBER 30, 2023	56,413	$	60	$	451,883	$	1,124,358	3,390	$	(116,555)	$	5,696	$	1,465,442

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(In thousands)	2024		2023
Cash flows from operating activities:
Net income	$	218,708	$	188,027

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	61,619		53,154

Amortization of deferred financing fees	796		802

Non-cash leasing arrangement	590		692
Impairment of long-lived assets	1,849		—

Deferred income taxes	1,931		(325)
Provision for doubtful accounts	1,419		3,081
Stock-based compensation	26,406		22,691
Cash received from insurance proceeds	199		1,396

Loss (gain) on sale of assets and insurance claims	849		(995)
Litigation adjustment	(4,289)		(818)

Change in operating assets and liabilities
Accounts receivable	(69,025)		(66,630)
Prepaid income taxes	(22,130)		4,643
Prepaid expenses and other assets	(16,668)		1,459

Cash surrender value of life insurance policy premiums	(14,840)		(11,723)
Deferred compensation liability	14,941		11,663
Operating lease obligations	331		(6,345)
Accounts payable	(5,237)		704
Accrued wages and related liabilities	25,303		24,700
Income taxes payable	—		40,781
Other accrued liabilities	5,997		11,387
Accrued self-insurance liabilities	17,381		13,090
Other long-term liabilities	600		(37)
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	246,730	$	291,397


Cash flows from investing activities:
Purchase of property and equipment	(110,079)		(77,360)
Cash payments for business acquisitions	(494)		—
Cash payments for asset acquisitions	(82,890)		(53,684)
Escrow deposits	(3,846)		(325)

Cash from insurance proceeds	1,562		1,129
Cash proceeds from the sale of assets	2,808		48


Purchases of investments	(52,262)		(20,538)
Maturities of investments	22,553		12,103
Other restricted assets	(817)		873
NET CASH USED IN INVESTING ACTIVITIES	$	(223,465)	$	(137,754)



Cash flows from financing activities:
Proceeds from debt (Note 15)	400		—
Payments on debt	(3,350)		(2,917)


Issuance of common stock upon exercise of options	18,296		12,707
Repurchase of shares of common stock to satisfy tax withholding obligations	(1,209)		(1,929)


Dividends paid	(10,234)		(9,647)



Non-controlling interest distribution	(278)		(4)
Purchase of non-controlling interest	(4,450)		(234)
Payments of deferred financing costs	—		(19)



NET CASH USED IN FINANCING ACTIVITIES	$	(825)	$	(2,043)


Net increase in cash and cash equivalents	22,440		151,600
Cash and cash equivalents beginning of period	509,626		316,270
Cash and cash equivalents end of period	$	532,066	$	467,870

Table of Contents


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

Cash paid during the period for:
Interest	$	5,276	$	5,287
Income taxes	81,962		8,480
Lease liabilities	159,487		146,162
Non-cash financing and investing activity
Accrued capital expenditures	$	7,300	$	4,100
Accrued dividends declared	3,437		3,243


Right-of-use assets obtained in exchange for new and modified operating lease obligations	220,815		373,832

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 September 30, 2024, the Company's independent subsidiaries operated 322 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 33,000 operational skilled nursing beds and 3,100 senior living units. As of September 30, 2024, the Company's independent subsidiaries operated 231 facilities under long-term lease arrangements and had options to purchase 12 of those 231 facilities. The Company's real estate portfolio consists of 121 owned real estate properties, which includes 91 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.

The Company's captive real estate investment trust (REIT), Standard Bearer Healthcare REIT, Inc. (Standard Bearer), owns and manages its real estate business. 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 September 30, 2024 and for the three and nine months ended September 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 70.2% and 71.0% of all service revenue for the three and nine months ended September 30, 2024, respectively, and 72.1% and 72.8% of all service revenue for the three and nine months ended September 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 nine months ended September 30, 2024 and 2023.

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



	Three Months Ended September 30,
	2024				2023
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)(2)	$	425,642	39.6	%	$	374,838	40.1	%
Medicare	263,594		24.5		237,531		25.4
Medicaid — skilled	65,907		6.1		62,452		6.6
Total Medicaid and Medicare	$	755,143	70.2	%	$	674,821	72.1	%
Managed care	202,528		18.8		170,747		18.3
Private and other(3)	118,421		11.0		89,756		9.6
SERVICE REVENUE	$	1,076,092	100.0	%	$	935,324	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 September 30, 2023.

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



	Nine Months Ended September 30,
	2024				2023
	Revenue		% of Revenue		Revenue		% of Revenue
Medicaid(1)(2)	$	1,227,565	39.5	%	$	1,074,883	39.3	%
Medicare	788,046		25.3		733,335		26.8
Medicaid — skilled	192,185		6.2		182,394		6.7
Total Medicaid and Medicare	$	2,207,796	71.0	%	$	1,990,612	72.8	%
Managed care	581,654		18.7		488,511		17.9
Private and other(3)	321,701		10.3		254,220		9.3
SERVICE REVENUE	$	3,111,151	100.0	%	$	2,733,343	100.0	%

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

(2) Medicaid payor includes revenue related to state relief funding during the nine months ended September 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 were $5,684 and $17,082, respectively, for the three and nine months ended September 30, 2024 and $5,467 and $15,634, respectively, for the three and nine months ended September 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 nine months ended September 30, 2024. During the three and nine months ended September 30, 2023, the Company received $9,900 and $54,744 in state relief funding and recognized $10,298 and $55,109, 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 September 30, 2024 and December 31, 2023, or activity during the three and nine months ended September 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 September 30, 2024 and December 31, 2023, is summarized in the following table:


	September 30, 2024		December 31, 2023


Medicaid	$	222,056	$	178,285
Managed care	138,543		125,907
Medicare	79,427		85,512
Private and other payors	123,887		104,683
	$	563,913	$	494,387
Less: allowance for doubtful accounts	(9,822)		(9,348)
ACCOUNTS RECEIVABLE, NET	$	554,091	$	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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
NUMERATOR:
Net income	$	78,567	$	63,968	$	218,708	$	188,027
Less: net income attributable to noncontrolling interests	123		105		422		319
Net income attributable to The Ensign Group, Inc.	$	78,444	$	63,863	$	218,286	$	187,708





DENOMINATOR:
Weighted average shares outstanding for basic net income per share	56,776		55,829		56,553		55,582

Basic net income per common share:	$	1.38	$	1.14	$	3.86	$	3.38


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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
NUMERATOR:
Net income	$	78,567	$	63,968	$	218,708	$	188,027
Less: net income attributable to noncontrolling interests	123		105		422		319
Net income attributable to The Ensign Group, Inc.	$	78,444	$	63,863	$	218,286	$	187,708





DENOMINATOR:
Weighted average common shares outstanding	56,776		55,829		56,553		55,582
Plus: incremental shares from assumed conversion (1)	1,668		1,508		1,572		1,663
Adjusted weighted average common shares outstanding	58,444		57,337		58,125		57,245

Diluted net income per common share:	$	1.34	$	1.11	$	3.76	$	3.28

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 400 and 858 for the three and nine months ended September 30, 2024, respectively, and 1,475 and 1,389 for the three and nine months ended September 30, 2023, respectively.

5. FAIR VALUE MEASUREMENTS

The Company's financial assets include investments, some of which are designated to support long-term insurance subsidiary liabilities, are carried at amortized cost basis of $90,422 and $59,530, as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the amortized cost basis of these financial assets are considered to approximate fair value and are derived using Level 2 inputs.

The Company's financial assets also include the 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 September 30, 2024, and December 31, 2023, the fair value of the investment funds was $56,056 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 September 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 116 of the Company's 121 owned real estate properties, of which 87 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 nine months ended September 30, 2024, Standard Bearer acquired the real estate of seven stand-alone skilled nursing operations and two campus operations for an aggregate purchase price of $81,274. These new additions are operated by nine of the Company's independent subsidiaries. Refer to Note 7, Operation Expansions, for additional information.

Subsequent to September 30, 2024, Standard Bearer acquired the real estate of one campus operation for an aggregate purchase price of $3,140, which is operated by one 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 87 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 $20,234 and $57,396, respectively, for the three and nine months ended September 30, 2024 and $16,976 and $49,035, respectively, for the three and nine months ended September 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 nine months ended September 30, 2024 were $1,466 and $4,199, respectively. Management fees generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2023 were $1,259 and $3,636, 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 nine months ended September 30, 2024 and 2023, the Company did not grant any stock options or 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 nine months ended September 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 24 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 nine 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 2,565 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.

Subsequent to September 30, 2024, the Company expanded its operations and real estate portfolio with the addition of one campus operation. Standard Bearer acquired the real estate of this operation, which was leased back to the Company's independent subsidiary. The new operation added 83 operational skilled nursing beds and 20 operational senior living units to be operated by the Company's independent subsidiary. Refer to Note 6, Standard Bearer, for additional information on the purchases of real estate properties.

2023 Expansions

During the nine months ended September 30, 2023, the Company expanded its operations through long-term leases, with the addition of 24 stand-alone skilled nursing operations. Of these additions, Standard Bearer acquired the real estate of three of the stand-alone skilled nursing operations, which were leased back to Ensign affiliated entities. These new operations added a total of 2,340 operational skilled nursing beds operated by the Company's independent subsidiaries. The Company also invested in new ancillary services that are complementary to its existing businesses. 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.