Item 5. Market for Registrant’s Common Equity
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been traded under the symbol “ENSG” on the NASDAQ Global Select Market since our initial public offering on November 8, 2007. Prior to that time, there was no public market for our common stock. As of January 29, 2021, there were approximately 285 holders of record of our common stock.
Dividend Policy
We do not have a formal dividend policy, but we currently intend to continue to pay regular quarterly dividends to the holders of our common stock. We have been a dividend-paying company since 2002 and have increased our dividend every year for the last 18 years.
Issuer Repurchases of Equity Securities
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. 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):
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.
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Item 6. 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. 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, 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. Historical results are not necessarily indicative of results to be expected for future periods.
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Year Ended December 31,
2020 2019 (4)
2018 (4)
2017 (4)
2016 (4)
(In thousands, except per share data)
Revenue
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
Expense
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
General and administrative expense 129,743 110,873 90,563 74,120 64,087
Depreciation and amortization 54,571 51,054 44,864 42,268 36,069
Total expenses 2,179,441 1,907,344 1,669,688 1,555,140 1,379,822
Income from operations 223,155 129,180 84,913 43,186 57,817
Other income (expense):
Interest expense (9,362) (15,662) (15,182) (13,616) (7,136)
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)
Income before provision for income taxes 217,606 116,167 71,747 31,179 51,788
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
Less: Net income/(loss) attributable to noncontrolling interests in continuing operations 886 523 (431) 198 2,827
Net income attributable to noncontrolling interest in discontinued operations — 629 595 160 26
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.:
Basic:
Continuing operations $ 3.19 $ 1.72 $ 1.14 $ 0.33 $ 0.58
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
Diluted:
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
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December 31,
2020 2019 (4)
2018 (4)
2017 (4)
2016 (4)
(In thousands, except per share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 236,562 $ 59,175 $ 31,083 $ 42,337 $ 57,706
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 revenue 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 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, 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. The Tax Act reduced the U.S. federal statutory tax rate from 35% to 21%.
(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:
Performance Metrics
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
(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.
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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. These Non-GAAP Financial Measures are used in addition to and in conjunction with results presented in accordance with GAAP. These Non-GAAP Financial Measures should not be relied upon to the exclusion of GAAP financial measures. 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 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; and
• 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 the Non-GAAP Financial Measures:
• as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis;
• to allocate resources to enhance the financial performance of our business;
• to assess the value of a potential acquisition;
• to assess the value of a transformed operation's performance;
• to evaluate the effectiveness of our operational strategies; and
• to compare our operating performance to that of our competitors.
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, 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:
• they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;
• they do not reflect changes in, or cash requirements for, our working capital needs;
• they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
• they do not reflect rent expenses, which are necessary to operate our leased operations, in the case of Adjusted EBITDAR;
• they do not reflect any income tax payments we may be required to make;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.
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We compensate for these limitations by using them only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business.
Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table below, along with our consolidated financial statements and related notes included elsewhere in this document.
We use the following Non-GAAP financial measures that we believe are useful to investors as key valuation and operating performance measures:
PERFORMANCE MEASURES:
EBITDA
We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.
We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) interest expense, net, (b) provision for income taxes, and (c) depreciation and amortization.
Adjusted EBITDA
We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.
Adjusted EBITDA is EBITDA adjusted for non-core business items, which for the reported periods includes, to the extent applicable:
• results related to closed operations and operations not at full capacity;
• results related to start-up operations;
• 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;
• impairment of intangible assets and goodwill;
• acquisition related costs;
• business interruption recoveries and losses;
• bonus accrual as a result of the Tax Act;
• operating results and gain on sale of urgent care centers; and
• costs incurred related to system implementation and professional service fee.
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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:
Adjusted EBITDAR
We use Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a commonly used measure by our management, research analysts and investors, to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures and leasing arrangements. Adjusted EBITDAR is a financial valuation measure that is not specified in GAAP. This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense.
The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. We calculate Adjusted EBITDAR by excluding rent-cost of services from Adjusted EBITDA.
We believe the use of Adjusted EBITDAR allows the investor to compare operational results of companies who have operating and capital leases. A significant portion of capital lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.
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The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:
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
Less: net income (loss) attributable to noncontrolling interests in continuing operations 886 523 (431) 198 2,827
Less: net income from discontinued operations — 19,473 33,466 23,860 20,733
Add: Interest expense, net 5,549 13,013 13,166 12,007 6,029
Provision for income taxes 46,242 23,954 12,685 14,206 19,678
Depreciation and amortization 54,571 51,054 44,864 42,268 36,069
EBITDA from continuing operations 276,840 179,711 130,208 85,256 91,059
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
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
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)
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(g) — 36,801 47,627 43,477 38,671
Adjusted EBITDA $ 292,751 $ 232,446 $ 195,615 $ 169,276 $ 150,098
Rent—cost of services 129,926 124,789 117,676 111,980 106,134
Less: rent related to items above (100) (921) (14,648) (16,305) (12,449)
Adjusted rent from continuing operations $ 129,826 $ 123,868 $ 103,028 $ 95,675 $ 93,685
Adjusted rent included in discontinued operations — 17,283 20,805 19,939 18,447
Adjusted EBITDAR from continuing operations $ 422,577
(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.
(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.
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(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
Less: net income attributable to noncontrolling interests in discontinued operations 629 595 160 26
Add: Interest and other income, net (26) (47) — —
Provision for income taxes 5,663 10,156 14,239 13,297
Depreciation and amortization 2,402 2,480 2,204 2,613
EBITDA from discontinued operations $ 26,883 $ 45,460 $ 40,143 $ 36,617
Results related to closed operations — — 726 —
Losses related to operations in the start-up phase 377 128 478 154
Stock-based compensation expense 1,018 1,970 1,940 1,864
Spin-Off transaction costs 7,909 — — —
Acquisition related costs 603 39 — —
Rent related to items above 11 30 190 36
Adjusted EBITDA from discontinued operations $ 36,801 $ 47,627 $ 43,477 $ 38,671