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Item 5. Market for Registrant’s Common Equity

2021-02-03 compared with 2020-02-05 · 94 added, 59 removed, 160 unchanged (49% of the section changed)

9 unchanged sentences

Stock Repurchase Programs.

As approved by the Board of Directors on March 4, 2020 and March 13, 2020, the Company entered into two stock repurchase programs pursuant to which the Company was authorized to repurchase up to $20.0 million and $5.0 million, respectively, of its common stock under the programs for a period of approximately 12 months.

Under these programs, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws.

During the first quarter of 2020, the Company repurchased 0.5 million and 0.2 million shares of its common stock for $20.0 million and $5.0 million, respectively.

These repurchase programs expired upon the repurchase of the full authorized amount under the two plans.

As approved by the Board of Directors on August 26, 2019, we entered into a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months.

Under this program, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws, including Rule 10b-18 promulgated under the Securities Exchange Act of 1934 as amended.

During the year ended December 31, 2019 , we repurchased 138 thousand shares of our common stock for a total of $6.4 million .

The stock repurchase program will expire on August 31, 2020 .

We did not have any repurchase of shares subsequent to December 31, 2019 .

As approved by our Board of Directors on April 3, 2018, we entered into a stock repurchase program pursuant to which we may repurchase up to $30.0 million of our common stock under the program for a period of approximately 11 months .

The stock repurchase program expired on February 20, 2019 .

We did not purchase any shares pursuant to this stock repurchase program.

During the year ended December 31, 2020, we repurchased 0.1 million shares of our common stock for a total of $6.4 million.

The stock repurchase program expired on August 31, 2020.

A summary of the repurchase activity for the year ended December 31, 2020 is as follows (dollars in millions, except per share amounts):

Total Number of Shares Repurchased

Average Price Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)

September 10 - September 27, 2019 (1)

October 1, 2019 (1)

(1) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on September 9, 2019.

Period Total Number of Shares Repurchased Average Price Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

March 4 - March 12, 2020 (1) 503,026 $ 39.73 503,026 $ —

March 16 - March 17, 2020 (2) 188,951 $ 26.43 188,951 $ —

(1) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on March 4, 2020.

(2) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on March 13, 2020.

SELECTED FINANCIAL DATA

Upon the completion of the Spin-Off on October 1, 2019, Pennant's historical financial results for periods prior to the Spin-Off were reflected in our consolidated financial statements as discontinued operations.

All share and per share amounts presented reflect a two-for-one stock split effected in December 2015.

The following selected consolidated financial data are qualified in their entirety, and should be read in conjunction with the consolidated financial statements and related notes thereto, and " Management's Discussion and Analysis of Financial Condition and Results of Operations " in Item 7 of Part II of this Annual Report on Form 10-K.

We derived the selected consolidated statements of operations data for the years ended December 31, 2019, 2018 and 2017 and the selected consolidated balance sheets data as of December 31, 2019 and 2018 from our audited consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10-K.

We derived the selected consolidated statements of operations data for the years ended December 31, 2020, 2019 and 2018 and the selected consolidated balance sheets data as of December 31, 2020 and 2019 from our audited consolidated financial statements contained in Item 15., Exhibits, Financial Statements and Schedules of this Annual Report on Form 10-K.

We derived the selected consolidated statements of operations data for the years ended December 31, 2017 and 2016 and the selected consolidated balance sheets data as of December 31, 2018, 2017 and 2016 from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K.

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Year Ended December 31,

2020 2019 (4)

(In thousands, except per share data)

Service revenue $ 2,387,439 $ 2,031,266 $ 1,752,991 $ 1,598,159 $ 1,437,489

Rental revenue 15,157 5,258 1,610 167 150

Total revenue (1)

$ 2,402,596 $ 2,036,524 $ 1,754,601 $ 1,598,326 $ 1,437,639

Cost of services (1)

1,865,201 1,620,628 1,418,249 1,313,451 1,184,757

(Return of unclaimed class action settlement)/charges related to class action lawsuit — — (1,664) 11,000 —

Losses/(gains) related to divestitures (2)

— — — 2,321 (11,225)

Rent—cost of services 129,926 124,789 117,676 111,980 106,134

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Interest expense (9,362) (15,662) (15,182) (13,616) (7,136)

Interest income

Interest and other income 3,813 2,649 2,016 1,609 1,107

Other expense, net (5,549) (13,013) (13,166) (12,007) (6,029)

1 unchanged sentence

Provision for income taxes (3)

46,242 23,954 12,685 14,206 19,678

Net income from continuing operations 171,364 92,213 59,062 16,973 32,110

Net income from discontinued operations, net of tax — 19,473 33,466 23,860 20,733

Net income 171,364 111,686 92,528 40,833 52,843

Net income/(loss) attributable to noncontrolling interests in continuing operations 886 523 (431) 198 2,827

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Net income attributable to The Ensign Group, Inc.

$ 170,478 $ 110,534 $ 92,364 $ 40,475 $ 49,990

Amounts attributable to the The Ensign Group, Inc.:

Income from continuing operations attributable to The Ensign Group, Inc.

$ 170,478 $ 91,690 $ 59,493 $ 16,775 $ 29,283

Income from discontinued operations, net of income tax (4)

— 18,844 32,871 23,700 20,707

Net income attributable to The Ensign Group, Inc.

$ 170,478 $ 110,534 $ 92,364 $ 40,475 $ 49,990

Net income per share attributable to The Ensign Group, Inc.:

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Discontinued operations (4)

— 0.35 0.64 0.46 0.41

Basic income per share attributable to The Ensign Group, Inc.

$ 3.19 $ 2.07 $ 1.78 $ 0.79 $ 0.99

Continuing operations $ 3.06 $ 1.64 $ 1.09 $ 0.32 $ 0.56

Discontinued operations (4)

— 0.33 0.61 0.45 0.40

Diluted income per share attributable to The Ensign Group, Inc.

$ 3.06 $ 1.97 $ 1.70 $ 0.77 $ 0.96

Weighted average common shares outstanding:

Basic 53,434 53,452 52,016 50,932 50,555

Diluted 55,787 55,981 54,397 52,829 52,133

2020 2019 (4)

(In thousands, except per share data)

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Working capital 20,557 67,908 78,845 142,255 121,934

Total assets (5)

2,545,578 2,361,909 1,181,958 1,102,433 1,001,025

Long-term debt, less current maturities 112,544 325,217 233,135 302,990 275,486

Equity 818,227 656,144 602,340 500,059 460,495

Cash dividends declared per common share $ 0.2025 $ 0.1925 $ 0.1825 $ 0.1725 $ 0.1625

(1) As a result of the adoption of Accounting Standard Codification (ASC) 606 in 2018, the majority of what was previously presented as bad debt expense in cost of services has been incorporated as an implicit price concession factored into the calculation of net revenues for fiscal year 2018.

The comparative information in prior years has not been restated and continues to be reported under the accounting standards in effect for the period presented.

(2) In 2016, we completed the sale of seventeen urgent care centers for an aggregate sale price of $41,492.

(2) In 2016, we completed the sale of 17 urgent care centers for an aggregate sale price of $41,492.

As a result of the sale, we recognized a pretax gain of $19,160, which is included in operating income.

The sale transactions did not meet the criteria of a discontinued operation as they did not represent a strategic shift that has or will have a major effect on our operations and financial results.

(3) 2017 includes the significant impact of the enactment of the Tax Cuts and Job Act (the Tax Act) discussed further in Note 14 to the Consolidated Financial Statements.

(3) 2017 includes the significant impact of the enactment of the Tax Cuts and Job Act (the Tax Act) discussed further in Note 14, Income Taxes , to the Consolidated Financial Statements.

2018 reflects a lower effective tax rate than the years prior to the enactment of the Tax Act.

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federal statutory tax rate from 35% to 21%.

(4) The selected financial table has been adjusted to reflect the impact of the Spin-Off, in all periods, including the presentation of continuing and discontinued operations basis.

Refer to Note 3 Spin-Off of Subsidiaries in our Consolidated Financial Statements for additional information.

(4) The selected financial table has been adjusted to reflect the impact of the Spin-Off for fiscal years 2016 through 2019, including the presentation of continuing and discontinued operations basis.

Refer to Note 21, Spin-Off Of Subsidiaries in our Notes to Consolidated Financial Statements for additional information.

(5) The adoption of ASC 842 resulted in the recognition of right-of-use assets of $1,016 million and lease liabilities of $1,007 million on the consolidated balance sheet as of January 1, 2019.

The comparative information in prior years has not been restated and continues to be reported under the accounting standards in effect for the period presented.

Year Ended December 31,

2020 2019 2018

(In thousands)

Segment Income (1)

Transitional and skilled services $ 327,812 $ 225,910 $ 175,552

Real estate (2)

$ 31,323 $ 17,479 $ 11,853

Non-GAAP Financial Measures:

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EBITDA from continuing operations $ 276,840 $ 179,711 $ 130,208

EBITDA total $ 276,840 $ 206,594 $ 175,668

Adjusted EBITDA from continuing operations $ 292,751 $ 195,645 $ 147,988

Adjusted EBITDA total $ 292,751 $ 232,446 $ 195,615

FFO for real estate segment $ 49,541 $ 32,675 $ 23,888

Valuation Metric

Adjusted EBITDAR $ 422,577

The following discussion includes references to EBITDA, Adjusted EBITDA and Adjusted EBITDAR which are non-GAAP financial measures (collectively, Non-GAAP Financial Measures).

(1) Segment income represents operating results of the reportable segments excluding gain and loss on sale of assets, impairment charges and provision for income taxes.

Segment income is reconciled to the Consolidated Statement of Income in Note 7, Business Segments in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

(2) Real estate segment income includes rental revenue from Ensign affiliated tenants and related expenses.

The following discussion includes references to EBITDA, Adjusted EBITDA, Adjusted EBITDAR and Funds from Operations (FFO) which are non-GAAP financial measures (collectively, the Non-GAAP Financial Measures).

Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Exchange Act, define and prescribe the conditions for use of certain non-GAAP financial information.

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These Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business.

We believe the presentation of Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest expense, net and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired;

• they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.

We use Non-GAAP Financial Measures:

We use the Non-GAAP Financial Measures:

• as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis;

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• to compare our operating performance to that of our competitors.

We typically use Non-GAAP Financial Measures to compare the operating performance of each operation.

We use certain Non-GAAP Financial Measures to compare the operating performance of each operation.

These measures are useful in this regard because they do not include such costs as net interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Adjusted EBITDAR targets.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, Non-GAAP Financial Measures have no standardized meaning defined by GAAP.

Therefore, our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP.

Therefore, certain of our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP.

Some of these limitations are:

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• results related to start-up operations;

return of unclaimed class action settlement funds;

charges related to the settlement of the class action lawsuit and insurance claims;

share-based compensation expense;

expenses incurred in connection with the completed spin-off transaction;

• return of unclaimed class action settlement funds and charges related to the settlement of the class action lawsuit and insurance claims;

• stock-based compensation expense;

• expenses incurred in connection with the completed Spin-Off;

• gain on sale and impairment charges on fixed assets;

4 unchanged sentences

• operating results and gain on sale of urgent care centers;

costs incurred related to system implementation and professional service fee and

breakup fee, net of costs, received in connection with a public auction

• costs incurred related to system implementation and professional service fee.

Funds from Operations

We consider FFO to be a useful supplemental measure of our real estate segment operating performance.

Historical cost accounting for real estate assets in accordance with U.S.

GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation.

However, since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient.

In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs which excludes historical cost depreciation from net income.

We define (in accordance with the definition used by NAREIT) FFO to mean net income attributable to common stockholders (NICS), computed in accordance with U.S.

GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable real estate assets and adding depreciation and amortization related to real estate to earnings.

VALUATION MEASURE:

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Year Ended December 31,

2020 2019 2018 2017 2016

(In thousands)

Consolidated statements of income data:

Net income $ 171,364 $ 111,686 $ 92,528 $ 40,833 $ 52,843

net income (loss) attributable to noncontrolling interests in continuing operations 886 523 (431) 198 2,827

4 unchanged sentences

EBITDA from continuing operations 276,840 179,711 130,208 85,256 91,059

EBITDA from discontinued operations(i)

EBITDA from discontinued operations(g) — 26,883 45,460 40,143 36,617

EBITDA $ 276,840 $ 206,594 $ 175,668 $ 125,399 $ 127,676

Stock-based compensation expense 14,524 11,322 8,367 7,755 7,237

Results related to closed operations and operations not at full capacity(a) 1,183 1,680 601 3,906 8,705

(Earnings)/losses related to operations in the start-up phase(b)

Acquisition related costs(b) 104 277 322 717 1,102

Impairment of goodwill and intangible assets — 941 3,177 — —

Spin-Off transaction costs(c) — 464 — — —

Impairment charges to fixed assets, net of gain on sale(d) — 329 4,632 — —

(Earnings)/losses related to operations in the start-up phase(e) — — (11,628) (3,739) 3,696

(Return of unclaimed class action settlement)/charges related to the settlement of the class action lawsuit and insurance claims — — (1,664) 11,177 4,924

Share-based compensation expense

Bonus accrual as a result of the Tax Act

Business interruption (recoveries) and losses related to Hurricane Harvey and California fires — — (675) 1,242 —

Bonus accrual as a result of the Tax Act — — — 3,100 —

Operating results and gain on sale of urgent care centers — — — — (18,893)

Spin-Off transaction costs(c)

Acquisition related costs(d)

Costs incurred related to system implementation and professional service fee(e)

Breakup fee, net of costs, received in connection with a public auction(f)

Impairment charges to fixed assets, net of gain on sale(g)

Impairment of goodwill and intangible assets(h)

Costs incurred related to system implementation and professional service fee(f) — — — 80 1,148

Rent related to items above 100 921 14,648 16,305 12,449

Adjusted EBITDA from continuing operations 292,751 195,645 147,988 125,799 111,427

Adjusted EBITDA from discontinued operations(i)

Adjusted EBITDA from discontinued operations(g) — 36,801 47,627 43,477 38,671

Adjusted EBITDA $ 292,751 $ 232,446 $ 195,615 $ 169,276 $ 150,098

4 unchanged sentences

Adjusted EBITDAR from continuing operations $ 422,577

Adjusted EBITDAR

Represents results at closed operations and operations not at full capacity during the years ended December 31, 2019, 2018, 2017, and 2016 including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million and $7.9 million for the years ended December 31, 2017 and 2016, respectively.

(a) Represents results at closed operations and operations not at full capacity, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million and $7.9 million for the years ended December 31, 2017 and 2016, respectively.

Included in the year ended December 31, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in 2016.

Represents results related to facilities currently in the start up phase after construction was completed.

(b) Costs incurred to acquire operations which are not capitalizable.

(c) Costs incurred in connection with the completed Spin-Off Transaction costs incurred prior to Spin-Off date are included in discontinued operations as an adjustment.

(d) Impairment charges, net of gain on sale, to fixed assets includes a gain recognized for the sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations and one of our skilled nursing operation of $3.2 million during the year ended December 31, 2019.

(e) Represents results related to facilities currently in the start-up phase after construction was completed.

This amount excludes rent, depreciation and interest expense.

Costs incurred in connection with the completed Spin-Off transaction of our home health and hospice operations and substantially all of our senior living operations to a newly formed publicly traded company.

Transaction costs incurred prior to Spin-Off date are included in discontinued operations as an adjustment.

Costs incurred to acquire operations which are not capitalizable.

Costs incurred related to systems implementation and professional fees associated with income tax credits, tax reform impacts and adoption of the new revenue recognition standard;

and expenses incurred in connection with the stock-split effected in December 2015.

Break-up fee, net of costs, received in connection with a public auction in which we were the priority bidder.

Impairment charges, net of gain on sale, to fixed assets includes a gain recognized for the sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations and one of our skilled nursing operation of $3.2 million during the year ended December 31, 2019.

Impairment charges to goodwill and intangible assets during the year ended December 31, 2019 and 2018.

(i) All adjustments included in the table below are presented within net income from discontinued operations, net of tax within the consolidated statements of income for the periods presented.

(f) Costs incurred related to systems implementation and professional fees associated with income tax credits, tax reform impact and adoption of the new revenue recognition standard.

(g) All adjustments included in the table below are presented within net income from discontinued operations, net of tax within the consolidated statements of income for the periods presented.

Year Ended December 31,

2019 2018 2017 2016

Net income from discontinued operations, net of tax $ 19,473 $ 33,466 $ 23,860 $ 20,733

net income attributable to noncontrolling interests in discontinued operations 629 595 160 26

Interest income, net

Interest and other income, net (26) (47) — —

Provision for income taxes 5,663 10,156 14,239 13,297

3 unchanged sentences

Losses related to operations in the start-up phase 377 128 478 154

Share-based compensation expense

Stock-based compensation expense 1,018 1,970 1,940 1,864

Spin-Off transaction costs 7,909 — — —

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity