What changed in this filing

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Item 1. Financial Statements

2021-07-28 compared with 2021-04-29 · 344 added, 236 removed, 838 unchanged (41% of the section changed)

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(In thousands, except par values)

1 unchanged sentence

Cash and cash equivalents $ 198,411 $ 236,562

Accounts receivable—less allowance for doubtful accounts of $ 11,090 and $ 8,718 at March 31, 2021 and December 31, 2020, respectively

Accounts receivable—less allowance for doubtful accounts of $ 10,602 and $ 8,718 at June 30, 2021 and December 31, 2020, respectively

313,663 305,062

36 unchanged sentences

100,000 shares authorized;

57,744 and 54,953 shares issued and outstanding at March 31, 2021, respectively, and 57,417 and 54,626 shares issued and outstanding at December 31, 2020, respectively

57,941 and 55,130 shares issued and outstanding at June 30, 2021, respectively, and 57,417 and 54,626 shares issued and outstanding at December 31, 2020, respectively

Additional paid-in capital 357,451 338,177

Retained earnings 643,906 551,055

Common stock in treasury, at cost, 2,791 shares at both periods ended March 31, 2021 and December 31, 2020 (Note 19)

Common stock in treasury, at cost, 2,811 and 2,791 shares at June 30, 2021 and December 31, 2020, respectively (Note 19)

( 72,822 ) ( 71,213 )

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(In thousands, except per share data)

41 unchanged sentences

Balance - March 31, 2021 54,953 $ 58 $ 349,836 $ 597,375 2,791 $ ( 71,222 ) $ ( 467 ) $ 875,580

Issuance of common stock to employees and directors resulting from the exercise of stock options 148 — 2,982 — — — — 2,982

Issuance of restricted stock, net of forfeitures 49 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations ( 20 ) — — — 20 ( 1,600 ) — ( 1,600 )

Dividends declared ($ 0.0525 per share)

— — — ( 2,894 ) — — — ( 2,894 )

Employee stock award compensation — — 4,633 — — — — 4,633

Net income attributable to noncontrolling interest — — — — — — 1,158 1,158

Distribution to noncontrolling interest holder — — — — — — ( 641 ) ( 641 )

Net income attributable to the Ensign Group, Inc.

— — — 49,425 — — — 49,425

Balance - June 30, 2021 55,130 $ 58 $ 357,451 $ 643,906 2,811 $ ( 72,822 ) $ 50 $ 928,643

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Non-Controlling Interest

13 unchanged sentences

Balance - March 31, 2020 53,666 $ 57 $ 315,786 $ 429,689 2,771 $ ( 70,296 ) $ 1,579 $ 676,815

Issuance of common stock to employees and directors resulting from the exercise of stock options 31 — 456 — — — — 456

Issuance of restricted stock 75 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations ( 17 ) — — — 17 ( 753 ) — ( 753 )

Dividends declared ($ 0.0500 per share)

— — — ( 2,718 ) — — — ( 2,718 )

Employee stock award compensation — — 3,528 — — — — 3,528

Net income attributable to noncontrolling interest — — — — — — 440 440

Distribution to noncontrolling interest holder — — — — — — ( 240 ) ( 240 )

Net income attributable to the Ensign Group, Inc.

— — — 40,248 — — — 40,248

Balance - June 30, 2020 53,755 $ 57 $ 319,770 $ 467,219 2,788 $ ( 71,049 ) $ 1,779 $ 717,776

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2021 2020

8 unchanged sentences

Stock-based compensation 8,687 6,763

(Gain)/loss on sale of asset disposals ( 236 ) 101

Loss on sale of asset disposals 205 108

Change in operating assets and liabilities

14 unchanged sentences

Purchase of property and equipment ( 33,795 ) ( 27,070 )

Cash payments for business acquisitions (Note 8)

Cash payments for asset acquisitions (Note 8)

( 5,183 ) ( 14,054 )

Escrow deposits — ( 364 )

15 unchanged sentences

Non-controlling interest distribution ( 1,889 ) ( 960 )

Proceeds from CARES Act Provider Relief Fund (Note 3)

Repayments of CARES Act Provider Relief Fund and Medicare Advance Payment

Program(Note 3)

Proceeds from CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3)

11,538 207,642

Repayments of CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3)

( 113,561 ) —

Net cash used in financing activities ( 105,686 ) ( 3,249 )

5 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2021 2020

2 unchanged sentences

Interest $ 2,836 $ 6,917

Income taxes $ 34,540 $ 1,935

Lease liabilities $ 67,539 $ 65,109

11 unchanged sentences

The Company, through its operating subsidiaries, is a provider of health care services across the post-acute care continuum, engaged in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties, and other ancillary businesses.

As of March 31, 2021, the Company operated 232 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

As of June 30, 2021, the Company operated 240 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

The Company's operating subsidiaries, each of which strives to be the operation of choice in the community it serves, provide a broad spectrum of skilled nursing, senior living and other ancillary services.

The Company's operating subsidiaries have a collective capacity of approximately 24,500 operational skilled nursing beds and 2,200 senior living units.

As of March 31, 2021, the Company operated 168 facilities under long-term lease arrangements, and had options to purchase 11 of those 168 facilities.

As of June 30, 2021, the Company operated 175 facilities under long-term lease arrangements, and had options to purchase 11 of those 175 facilities.

The Company's real estate portfolio includes 95 owned real estate properties, which included 65 facilities operated and managed by the Company, 31 senior living operations leased to and operated by The Pennant Group, Inc., or Pennant, as part of the spin-off transaction that occurred in October 2019, and the Service Center location.

7 unchanged sentences

The Company has two reportable segments:

(1) transitional and skilled services and (2) real estate.

(1) skilled services and (2) real estate.

Refer to Note 7, Business Segments , for additional information.

1 unchanged sentence

This structure reflects its current operational and financial management, and provides the best structure for the Company to focus on growth and investing opportunities while maintaining financial discipline.

Other Information — The accompanying condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 (collectively, the Interim Financial Statements) are unaudited.

Other Information — The accompanying condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 (collectively, the Interim Financial Statements) are unaudited.

Certain information and note disclosures normally included in annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations.

15 unchanged sentences

The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of power and economics that considers which entity has the power to direct the activities that "most significantly impact" the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to, the VIE.

The Company's relationship with variable interest entities was not material during the three months ended March 31, 2021 and 2020.

Reclassifications — Certain prior period results have been reclassified to be consistent with the current period presentation.

The Company's relationship with variable interest entities was not material during the three and six months ended June 30, 2021 and 2020.

Reclassifications — Certain prior period results have been reclassified to be consistent with the current period presentation, including presenting the change of the deferred compensation separately on the Company's Consolidated Statements of Cash Flows.

Prior period results also reflect reclassifications, for comparative purposes, related to the change in the Company's segment structure.

18 unchanged sentences

The Company determines the allowance based on known troubled accounts and other currently available evidence.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Property and Equipment — Property and equipment are initially recorded at their historical cost.

2 unchanged sentences

Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Leases and Leasehold Improvements — The Company leases skilled nursing facilities, senior living facilities and commercial office space.

On January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases (ASC 842), electing the transition method that allows it to apply the standard as of the adoption date and record a cumulative adjustment in retained earnings.

The Company determines if an arrangement is a lease at the inception of each lease.

At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating or finance lease.

As of March 31, 2021, the Company does not have any leases that are classified as finance leases.

Leases commencing prior to the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases ("ASC 842") adoption date were classified as operating lease under historical guidance.

As the Company has elected the package of practical expedients allowing it to not reassess lease classification, these leases are classified as operating leases under ASC 842 as well.

For leases commencing subsequent to the ASC 842 adoption date, the Company performs an evaluation to determine whether the lease should be classified as an operating or finance lease at the inception of the lease.

As of June 30, 2021, the Company does not have any leases that are classified as finance leases.

Rights and obligations of operating leases are included as right-of-use assets, current lease liabilities and long-term lease liabilities on the Company's condensed consolidated balance sheet.

14 unchanged sentences

The Company estimates the fair value of assets based on the estimated future discounted cash flows of the asset.

Management has evaluated its long-lived assets and determined there was no impairment during the three months ended March 31, 2021 and 2020.

Management has evaluated its long-lived assets and determined there was no impairment during the three and six months ended June 30, 2021 and 2020.

Intangible Assets and Goodwill — Definite-lived intangible assets consist primarily of patient base, facility trade names and customer relationships.

7 unchanged sentences

The Company performs its annual test for impairment during the fourth quarter of each year.

The Company did no t identify any goodwill or intangible asset impairment during the three months ended March 31, 2021 and 2020.

The Company did no t identify any goodwill or intangible asset impairment during the three and six months ended June 30, 2021 and 2020.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Self-Insurance — The Company is partially self-insured for general and professional liability claims up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit.

3 unchanged sentences

In Colorado, the third-party coverage above these limits is $ 1,000 per claim and $ 3,000 per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities for all states (except Texas and Washington for workers' compensation) are self-insured through the Captive, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets.

The majority of the self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities are self-insured through the Captive, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets.

The Captive is subject to certain statutory requirements as an insurance provider.

2 unchanged sentences

The Company uses actuarial valuations to estimate the liability based on historical experience and industry information.

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 60,761 and $ 57,628 as of March 31, 2021 and December 31, 2020, respectively.

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 61,099 and $ 57,628 as of June 30, 2021 and December 31, 2020, respectively.

The Company’s operating subsidiaries are self-insured for workers’ compensation liabilities in California.

2 unchanged sentences

The Company’s operating subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $ 350 per occurrence.

In Washington, the operating subsidiaries' coverage is financed through premiums paid by the employers and employees.

The claims and benefit payments are managed through a state insurance pool.

Outside of California, Texas and Washington, the Company has purchased insurance coverage that insures individual claims that exceed $ 350 per occurrence.

In all states except Washington, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported.

In the state of Washington, the Company is self insured and has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 500 per occurrence.

For all of the self insured plans and retention, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported.

The Company uses actuarial valuations to estimate the liability based on historical experience and industry information.

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 25,078 and $ 24,499 as of March 31, 2021 and December 31, 2020, respectively.

Effective April 1, 2021, the Company's operating subsidiaries in Washington are covered under the Company's self-insured program and the Company purchased individual specific excess insurance coverage that insures individual claims that exceed $ 500 per occurrence.

In addition, the Company has recorded an asset and equal liability of $ 7,602 and $ 7,138 as of March 31, 2021 and December 31, 2020, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 25,527 and $ 24,499 as of June 30, 2021 and December 31, 2020, respectively.

In addition, the Company has recorded an asset and equal liability of $ 7,401 and $ 7,138 as of June 30, 2021 and December 31, 2020, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

See Note 12 Restricted and Other Assets.

2 unchanged sentences

To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 500 for each covered person for fiscal year 2021.

The Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 8,436 and $ 7,533 as of March 31, 2021 and December 31, 2020, respectively.

The Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 8,751 and $ 7,533 as of June 30, 2021 and December 31, 2020, respectively.

The Company believes that adequate provision has been made in the Interim Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date.

22 unchanged sentences

Net income has been reduced as a result of the recognition of the fair value of all stock options and restricted stock awards issued, the amount of which is contingent upon the number of future grants and other variables.

Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous generally accepted accounting principles and determines whether any new or modified principles will have a material impact on the Company's reported financial position or operations in the near term.

29 unchanged sentences

The final rules are effective for all registration statements, annual reports and quarterly reports filed on or after August 9, 2021, with early adoption permitted.

The Company is currently evaluating the impact of the disclosure changes in its annual and quarterly report.

The Company is currently evaluating the impact of the disclosure changes in its annual and quarterly reports.

In July 2021, the FASB issued ASU 2021-05 “ Lessors—Certain Leases with Variable Lease Payments (Topic 842), ” which amends the lessor classification guidance to introduce additional criteria when classifying leases with variable lease payments that do not depend on a reference index or a rate.

This guidance is effective for annual periods beginning after December 15, 2021, which will be the Company's fiscal year 2022, with early adoption permitted.

The Company has not yet determined the effect of the ASU on its results of operations, financial condition or cash flows.

COVID-19 UPDATE

2 unchanged sentences

Department of Health and Human Services (HHS) to be used to protect residents of nursing homes and long-term care facilities from the impact of COVID-19 throughout 2020 and continued into 2021.

During the first quarter of 2021, the Company received $ 9,139 in Provider Relief Funds and as of March 31, 2021 had returned all of the funds.

During the three and six months ended June 30, 2021, the Company received and returned $ 2,399 and $ 11,538 , respectively, in Provider Relief Funds.

During both the three and six months ended June 30, 2020, the Company received $ 108,756 in Provider Relief Funds, which it subsequently returned in the third quarter of 2020.

The Company may continue to receive additional funding in future periods.

Subsequent to March 31, 2021, the Company received and returned another $ 2,083 in Provider Relief Funds.

Additionally, the Company applied for and received $ 105,255 through the Medicare Accelerated and Advance Payment Program under the CARES Act during fiscal year 2020.

In fiscal year 2020, the Company applied for and received $ 105,255 through the Medicare Accelerated and Advance Payment Program under the CARES Act.

The purpose of the program is to assist in providing needed liquidity to care delivery providers.

7 unchanged sentences

In certain operations where the Company received additional payments that exceeded expenses incurred related to COVID-19, the Company characterized such payments as variable revenue that required additional consideration and accordingly, the amount of state relief revenue recognized is limited to the actual COVID-19 related expenses incurred.

As of December 31, 2020, the Company had $ 6,520 in unapplied state relief funds.

During the three months ended March 31, 2021, the Company received an additional $ 15,645 in state relief funding and recognized $ 16,465 as revenue.

For the three months ended March 31, 2020, the Company received and recognized $ 730 in state relief funding.

The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due by December 31, 2021 and the remaining 50% due by December 31, 2022.

The Company recorded $ 48,309 of deferred payments of social security taxes as a liability during 2020.

The total short-term balance of $ 24,155 is included in accrued wages and related liabilities and the remaining $ 24,154 is included in other long-term liabilities within the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

As of June 30, 2021 and December 31, 2020, the Company had $ 5,792 and $ 6,520 in unapplied state relief funds, respectively.

During the three and six months ended June 30, 2021, the Company received an additional $ 16,776 and $ 32,421 in state relief funding and recognized $ 16,692 and $ 33,157 , respectively, as revenue.

During the three and six months ended June 30, 2020, the Company received $ 14,388 and $ 15,118 in state relief funding and recognized $ 12,404 and $ 13,134 , respectively, as revenue.

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1 unchanged sentence

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company recorded $ 48,309 of deferred payments of social security taxes as a liability during 2020.

REVENUE AND ACCOUNTS RECEIVABLE

2 unchanged sentences

Revenue is recognized when services are provided to the patients at the amount that reflects the consideration to which 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.

The healthcare services in transitional and skilled patient contracts include routine services in exchange for a contractual agreed-upon amount or rate.

The healthcare services in skilled patient contracts include routine services in exchange for a contractual agreed-upon amount or rate.

Routine services are treated as a single performance obligation satisfied over time as services are rendered.

6 unchanged sentences

If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net revenue in the period such variances become known.

Revenue from the Medicare and Medicaid programs accounted for 74.1 % and 71.0 % of all service revenue for the three months ended March 31, 2021 and 2020, respectively.

Revenue from the Medicare and Medicaid programs accounted for 73.1 % and 73.6 % for the three and six months ended June 30, 2021, respectively, and 75.3 % and 73.1 % for the three and six months ended June 30, 2020, 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.

1 unchanged sentence

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 consolidated revenue for the three months ended March 31, 2021 and 2020.

The Company recorded adjustments to revenue which were not material to the Company's consolidated revenue for the three and six months ended June 30, 2021 and 2020.

Rental Revenue

7 unchanged sentences

The components of the Company's operating leases qualify for the single component presentation.

Tenant reimbursements related to property taxes and insurance are neither considered lease nor non-lease components under the new lease standards.

Lessee payments for taxes and insurance paid directly to a third party, on behalf of the Company, are excluded from variable lease payments and rental revenue in the Company’s condensed consolidated statements of income.

Otherwise, tenant reimbursements for taxes and insurance that are paid by the Company directly to a third party are classified as additional rental revenue and expense and recognized by the Company on a gross basis.

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1 unchanged sentence

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Tenant reimbursements related to property taxes and insurance are neither considered lease nor non-lease components under the new lease standards.

Disaggregation of Revenue

4 unchanged sentences

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 rate, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.

Service revenue for the three months ended March 31, 2021 and 2020 is summarized in the following tables:

Three Months Ended March 31,

Service revenue for the three and six months ended June 30, 2021 and 2020 is summarized in the following tables:

Three Months Ended June 30,

Revenue % of Revenue Revenue % of Revenue

7 unchanged sentences

Service revenue $ 634,609 100.0 % $ 581,079 100.0 %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended March 31, 2021 and 2020.

(2) Private and other payors also includes revenue from all payors generated in other an cillary services for the three months ended March 31, 2021 and 2020 .

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 3,977 and $ 3,662 , respectively for the three months ended March 31, 2021 and 2020.

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended June 30, 2021 and 2020 .

(2) Private and other payors also includes revenue from all payors generated in other an cillary services for the three months ended June 30, 2021 and 2020 .

Six Months Ended June 30,

Revenue % of Revenue Revenue % of Revenue

$ 482,813 38.4 % $ 450,314 38.6 %

Medicare 360,311 28.6 330,628 28.3

Medicaid — skilled 82,733 6.6 72,394 6.2

Total Medicaid and Medicare 925,857 73.6 853,336 73.1

Managed care 221,308 17.6 184,345 15.8

Private and other (2)

110,720 8.8 129,349 11.1

Service revenue $ 1,257,885 100.0 % $ 1,167,030 100.0 %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the six months ended June 30, 2021 and 2020.

(2) Private and other payors also includes revenue from all payors generated in other ancillary services for the six months ended June 30, 2021 and 2020.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 3,927 and $ 7,904 , respectively, for the three and six months ended June 30, 2021 and $ 3,620 and $ 7,282 , respectively, for the three and six months ended June 30, 2020.

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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 March 31, 2021 and December 31, 2020, or activity during the three months ended March 31, 2021 and 2020.

Accounts receivable as of March 31, 2021 and 2020, is summarized in the following table:

March 31, 2021 December 31, 2020

The Company had no material contract liabilities and contract assets as of June 30, 2021 and December 31, 2020, or activity during the three and six months ended June 30, 2021 and 2020.

Accounts receivable as of June 30, 2021 and December 31, 2020, is summarized in the following table:

June 30, 2021 December 31, 2020

Medicaid $ 125,899 $ 102,077

9 unchanged sentences

In addition, the Company has applied the practical expedient provided by ASC 340, Other Assets and Deferred Costs , and all incremental customer contract acquisition costs are expensed as they are incurred because the amortization period would have been one year or less.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

COMPUTATION OF NET INCOME PER COMMON SHARE

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income $ 50,583 $ 40,688 $ 100,420 $ 81,890

5 unchanged sentences

$ 0.91 $ 0.76 $ 1.82 $ 1.52

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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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income $ 50,583 $ 40,688 $ 100,420 $ 81,890

4 unchanged sentences

incremental shares from assumed conversion (1)

2,529 2,087 2,614 2,204

Adjusted weighted average common shares outstanding 56,997 55,181 56,945 55,489

1 unchanged sentence

$ 0.87 $ 0.73 $ 1.73 $ 1.46

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 28 and 787 for the three months ended March 31, 2021 and 2020, respectivel y.

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 167 and 80 for the three and six months ended June 30, 2021, respectively, and 1,199 and 852 for the three and six months ended June 30, 2020, respectivel y.

FAIR VALUE MEASUREMENTS

4 unchanged sentences

and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair value of cash and cash equivalents of $ 155,527 and $ 236,562 as of March 31, 2021 and December 31, 2020, respectively, is derived using Level 1 inputs.

The fair value of cash and cash equivalents of $ 198,411 and $ 236,562 as of June 30, 2021 and December 31, 2020, respectively, is derived using Level 1 inputs.

The Company's other financial assets include contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans which are held in a rabbi trust.

The cash surrender value of these contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in the deferred compensation plan.

As of March 31, 2021, and December 31, 2020, the fair value of the pooled investment funds of $ 14,017 and $ 6,577 , respectively, is derived using Level 2 inputs.

As of June 30, 2021, and December 31, 2020, the fair value of the pooled investment funds of $ 15,438 and $ 6,577 , respectively, is derived using Level 2 inputs.

The pooled investment funds are included in restricted and other assets in the Condensed Consolidated Balance Sheets.

3 unchanged sentences

When impairment has occurred, such long-lived assets are written down to fair value.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Debt Security Investments - Held to Maturity

As of March 31, 2021 and December 31, 2020, the Company had approximately $ 48,993 and $ 45,554 , respectively, in debt security investments which were classified as held to maturity and carried at amortized cost.

As of June 30, 2021 and December 31, 2020, the Company had approximately $ 48,861 and $ 45,554 , respectively, in debt security investments which were classified as held to maturity and carried at amortized cost.

The carrying value of the debt securities approximates fair value based on Level 1 inputs.

The Company has the intent and ability to hold these debt securities to maturity.

Further, as of March 31, 2021, the debt security investments were held in AA, A and BBB r ated de bt securities.

The Company believes its debt security investments that were in an unrealized loss position as of March 31, 2021 were not other-than-temporarily impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment.

Further, as of June 30, 2021, the debt security investments were held in AA, A and BBB r ated de bt securities.

The Company believes its debt security investments that were in an unrealized loss position as of June 30, 2021 were not other-than-temporarily impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment.

BUSINESS SEGMENTS

2 unchanged sentences

The Company has two reportable segments:

(1) transitional and skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) real estate, which is comprised of properties owned by the Company and leased to skilled nursing and assisted living operations where the properties are subject to triple-net long-term leases, including operations that are owned and operated by the Company.

Prior to this new segment structure, the Company had one reportable segment, transitional and skilled services.

(1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) real estate, which is comprised of properties owned by the Company and leased to skilled nursing and assisted living operations where the properties are subject to triple-net long-term leases, including operations that are owned and operated by the Company.

Prior to this new segment structure, the Company had one reportable segment, skilled services.

Corresponding items of segment information for prior periods have been recast to reflect the change of the Company’s segment structure.

As of March 31, 2021, the transitional and skilled services segment includes 200 skilled nursing operations and 23 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of June 30, 2021, the skilled services segment includes 209 skilled nursing operations and 22 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

The Company's real estate segment includes 95 owned real estate properties.

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Interest revenue is related to the investment accounts that the Service Center manages on behalf of the Company and is included in the "All Other" category.

The following tables set forth financial information for the segments:

Three Months Ended June 30, 2021

Skilled Services Real Estate All Other (1)

Intercompany Elimination (2)

Service revenue $ 612,882 $ — $ 21,727 $ — $ 634,609

Rental revenue — 16,031 — ( 12,104 ) 3,927

Total revenue $ 612,882 $ 16,031 $ 21,727 $ ( 12,104 ) $ 638,536

Segment income (loss) 90,010 8,891 ( 34,560 ) — 64,341

Income before provision for income taxes $ 64,341

Depreciation and amortization 7,703 4,784 1,308 — 13,795

Other expense (income), net (3)

$ — $ 1,634 $ ( 1,121 ) $ — $ 513

(1) General and administrative expense are included in the "all other" category.

(2) Intercompany elimination represents rental income at the real estate segment generated from triple-net lease arrangements with the Company's affiliated wholly-owned healthcare facilities.

Intercompany rental revenue is eliminated in consolidation, along with corresponding intercompany rent expenses of related healthcare facilities.

(3) Other expense (income), net includes interest expense and interest revenue.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following tables set forth financial information for the segments:

Three Months Ended March 31, 2021

Transitional and Skilled Services Real Estate All Other (1)

Three Months Ended June 30, 2020

Skilled Services Real Estate All Other (1)

Intercompany Elimination (2)

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Segment income (loss) 78,302 7,794 ( 31,873 ) — 54,223

Income before provision for income taxes $ 54,223

Depreciation and amortization 7,005 4,587 2,013 — 13,605

Other expense (income), net (3)

$ — $ 2,293 $ ( 1,082 ) $ — $ 1,211

(1) General and administrative expense is included in the "all other" category

(2) Intercompany elimination represents rental income at the real estate segment generated from triple-net lease arrangements with the Company's affiliated wholly-owned healthcare facilities.

Intercompany rental revenue is eliminated in consolidation, along with corresponding intercompany rent expenses of related healthcare facilities.

(3) Other expense (income), net includes interest expense and interest revenue.

Six Months Ended June 30, 2021

Skilled Services Real Estate All Other (1)

Intercompany Elimination (2)

Service revenue $ 1,213,918 $ — $ 43,967 $ — $ 1,257,885

Rental revenue — 31,910 — ( 24,006 ) 7,904

Total revenue $ 1,213,918 $ 31,910 $ 43,967 $ ( 24,006 ) $ 1,265,789

Segment income (loss) 178,941 17,712 ( 69,966 ) — 126,687

Gain on sale of real estate 440

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Intercompany rental revenue is eliminated in consolidation, along with corresponding intercompany rent expenses of related healthcare facilities.

(3) Other expense (income), net includes interest expense and interest revenue.

Three Months Ended March 31, 2020

Transitional and Skilled Services Real Estate All Other (1)

(3) Other expense, net includes interest expense and interest revenue.

Six Months Ended June 30, 2020

Skilled Services Real Estate All Other (1)

Intercompany Elimination (2)

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Intercompany rental revenue is eliminated in consolidation, along with corresponding intercompany rent expenses of related healthcare facilities.

(3) Other expense (income), net includes interest expense and interest revenue.

(3) Other expense, net includes interest expense and interest revenue.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Service revenue by major payor source were as follows:

Three Months Ended March 31, 2021

Transitional and Skilled Services All Other Total Service Revenue Revenue %

Three Months Ended June 30, 2021

Skilled Services All Other Total Service Revenue Revenue %

Medicaid $ 247,671 $ 3,784 (1) $ 251,455 39.6 %

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Total service revenue $ 612,882 $ 21,727 $ 634,609 100.0 %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended March 31, 2021.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the three months ended March 31, 2021.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Three Months Ended March 31, 2020

Transitional and Skilled Services All Other Total Service Revenue Revenue %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended June 30, 2021.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the three months ended June 30, 2021.

Three Months Ended June 30, 2020

Skilled Services All Other Total Service Revenue Revenue %

Medicaid $ 222,924 $ 3,194 (1) $ 226,118 38.9 %

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Total service revenue $ 556,677 $ 24,402 $ 581,079 100.0 %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended March 31, 2020.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the three months ended March 31, 2020.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 3,977 and $ 3,662 for the three months ended March 31, 2021 and 2020, respectively.

This revenue is included in our real estate segment.

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP for the three months ended June 30, 2020.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the three months ended June 30, 2020.

Six Months Ended June 30, 2021

Skilled Services All Other Total Service Revenue Revenue %

Medicaid $ 475,412 $ 7,401 (1) $ 482,813 38.4 %

Medicare 360,311 — 360,311 28.6

Medicaid-skilled 82,733 — 82,733 6.6

Subtotal 918,456 7,401 925,857 73.6

Managed care 221,308 — 221,308 17.6

Private and other 74,154 36,566 (2) 110,720 8.8

Total service revenue $ 1,213,918 $ 43,967 $ 1,257,885 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations for the six months ended June 30, 2021.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the six months ended June 30, 2021.

Six Months Ended June 30, 2020

Skilled Services All Other Total Service Revenue Revenue %

Medicaid $ 443,893 $ 6,421 (1) $ 450,314 38.6 %

Medicare 330,628 — 330,628 28.3

Medicaid-skilled 72,394 — 72,394 6.2

Subtotal 846,915 6,421 853,336 73.1

Managed care 184,345 — 184,345 15.8

Private and other 83,721 45,628 (2) 129,349 11.1

Total service revenue $ 1,114,981 $ 52,049 $ 1,167,030 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations for the six months ended June 30, 2020.

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services for the six months ended June 30, 2020.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

OPERATION EXPANSIONS

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2021 Expansions

During the three months ended March 31, 2021, the Company expanded its operations through long-term leases, with the addition of four stand-alone skilled nursing operations.

During the six months ended June 30, 2021, the Company expanded its operations through a combination of long-term leases and a real estate purchase, with the addition of twelve stand-alone skilled nursing operations.

Of these additions, one is related to a purchase of owned property, further expanding the Company's real estate portfolio.

These new operations added a total of 1,263 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

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 aggregate purchase price for these acquisitions during the six months ended June 30, 2021 was $ 11,183 .

In connection with the new operations made 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 the prior operator as part of each transaction.

Subsequent to March 31, 2021, the Company expanded its operations through long-term leases with the addition of three stand-alone skilled nursing operations.

These new operations added 322 operational skilled nursing beds to be operated by the Company's affiliated operating subsidiaries.

The fair value of assets for nine of the acquisitions was concentrated in property and equipment and as such, the transaction was classified as an asset acquisition.

The aggregate purchase price for the asset acquisitions during the six months ended June 30, 2021 was $ 5,183 , which consists of building and improvements of $ 4,547 , land of $ 316 , equipment, furniture and fixtures of $ 216 , other indefinite-lived intangible assets of $ 75 and assembled occupancy of $ 29 .

The fair value of assets for the remaining four additions was concentrated in goodwill of $ 6,000 and as such, the transaction was classified as a business combination.

2020 Expansions

During the three months ended March 31, 2020, the Company expanded its operations through a combination of a long-term lease and real estate purchases, with the addition of three stand-alone skilled nursing operations and one stand-alone senior living operation.

Of these additions, two are related to purchases of owned properties, further expanding our real estate portfolio.

During the six months ended June 30, 2020, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of three stand-alone skilled nursing operations and one stand-alone senior living operation.

Of these additions, two are related to purchases of owned properties, further expanding the Company's real estate portfolio.

These new operations added a total of 247 operational skilled nursing beds and 162 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

The aggregate purchase price for these acquisitions during the three months ended March 31, 2020 was $ 14,054 .

The Company entered into a separate operations transfer agreement with the prior operator as part of each transaction.

The fair value of assets for our purchases of these properties was concentrated in property and equipment and as such, these transactions were classified as asset acquisitions.

The purchase price for the asset acquisitions consists of building and improvements of $ 9,669 ;

land of $ 4,080 ;

equipment, furniture and fixtures of $ 236 ;

and assembled occupancy of $ 69 .

The aggregate purchase price for these acquisitions during the six months ended June 30, 2020 was $ 14,054 .

The fair value of assets for the purchases of these properties was concentrated in property and equipment and as such, these transactions were classified as asset acquisitions.

The purchase price for the asset acquisitions consists of building and improvements of $ 9,669 , land of $ 4,080 , equipment, furniture and fixtures of $ 236 , and assembled occupancy of $ 69 .

During the first quarter of 2020, the Company entered into a long-term lease agreement to transfer two senior living operations to Pennant.

Ensign affiliates retained ownership of the real estate for these two senior living communities.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities for return.

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Consequently, the Company believes that prior operating results are not a meaningful representation of the Company’s current operating results or indicative of the integration potential of its newly acquired operating subsidiaries.

The assets added during the three months ended March 31, 2021 were not material operations to the Company individually or in the aggregate.

The assets added during the six months ended June 30, 2021 were not material operations to the Company individually or in the aggregate.

Accordingly, pro forma financial information is not presented.

These additions have been included in the March 31, 2021 condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of operations of the Company since the date the Company gained effective control.

These additions have been included in the June 30, 2021 condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of operations of the Company since the date the Company gained effective control.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

PROPERTY AND EQUIPMENT - NET

Property and equipment, net consists of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Land $ 101,552 $ 101,236

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Property and equipment, net $ 788,601 $ 778,244

See also Note 8, Operation Expansions for information on acquisitions during the three months ended March 31, 2021 and 2020.

See also Note 8, Operation Expansions for information on acquisitions during the six months ended June 30, 2021 and 2020.

INTANGIBLE ASSETS - NET

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Weighted Average Life (Years)

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Total $ 5,383 $ ( 2,599 ) $ 2,784 $ 5,412 $ ( 2,513 ) $ 2,899

During the three months ended March 31, 2021 and 2020, amortization expense was $ 361 and $ 674 , respectively, of which $ 290 and $ 354 was related to the amortization of right-of-use assets, respectively.

During the three and six months ended June 30, 2021, amortization expense was $ 363 and $ 724 , respectively, of which $ 290 and $ 580 was related to the amortization of right-of-use assets, respectively.

Amortization expense was $ 417 and $ 1,091 , respectively, of which $ 290 and $ 644 was related to the amortization of right-of-use assets for the three and six months ended June 30, 2020, respectively.

Additionally, the Company identified intangible assets which became fully amortized during the prior year and removed these fully amortized balances from the gross asset and accumulated amortization amounts.

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An impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value.

The Company anticipates that the majority of total goodwill recognized will be fully deductible for tax purposes as of March 31, 2021.

The Company's expansions during the three months ended March 31, 2021 were all through long-term leases and accordingly, no goodwill was recognized for these acquisitions.

There were no activities in goodwill during the three months ended March 31, 2021.

The Company anticipates that the majority of total goodwill recognized will be fully deductible for tax purposes as of June 30, 2021.

Provided that goodwill corresponds to the acquisition of a business and not merely the acquisition of real estate property, the Company's real estate segment appropriately does not carry a goodwill balance.

The following table represents the goodwill value by transitional and skilled service segment and "all other" category, which includes other ancillary services, as of March 31, 2021 and December 31, 2020:

Transitional and Skilled Services All Other Total

Goodwill $ 45,486 $ 8,983 $ 54,469

The following table represents the goodwill value by skilled service segment and "all other" category, which includes other ancillary services, as of and for the six months ended June 30, 2021:

Skilled Services All Other Total

January 1, 2021 $ 45,486 $ 8,983 $ 54,469

Additions 6,000 — 6,000

June 30, 2021 $ 51,486 $ 8,983 $ 60,469

Other indefinite-lived intangible assets consist of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Trade name $ 889 $ 889

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$ 3,621 $ 3,716

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

RESTRICTED AND OTHER ASSETS

Restricted and other assets consist of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Debt issuance costs, net $ 2,309 $ 2,664

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Restricted and other assets $ 42,496 $ 33,155

Included in restricted and other assets as of March 31, 2021 and December 31, 2020 are anticipated insurance recoveries related to the Company's workers' compensation liabilities and general and professional liability claims that are recorded on a gross rather than net basis in accordance with ASU issued by the FASB.

Included in restricted and other assets as of June 30, 2021 and December 31, 2020 are anticipated insurance recoveries related to the Company's workers' compensation liabilities and general and professional liability claims that are recorded on a gross rather than net basis in accordance with ASU issued by the FASB.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company implemented a non-qualified deferred compensation plan (the DCP) that was effective in 2019 for certain executives and was expanded to other highly compensated employees on January 1, 2020.

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Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in the deferred compensation plan.

The Company recorded a gain on the deferral investment of $ 306 , which is included in interest and other income, and an offsetting expense of $ 351 between cost of services and general and administrative expenses in the accompanying consolidated statements of income for the three months ended March 31, 2021.

During the three months ended March 31, 2020, the Company had an expense of $ 87 , which was recorded between cost of services and general and administrative expenses.

For the three and six months ended June 30, 2021, respectively, the Company recorded interest income on the investment acquired in connection with our deferred compensation plan of $ 751 and $ 1,057 , which is included in interest and other income and an offsetting expense of $ 780 and $ 1,131 between cost of services and general and administrative expenses in the accompanying condensed consolidated statements of income.

For both the three and six months ended June 30, 2020, the Company recorded interest income on the investment acquired in connection with our deferred compensation plan of $ 458 .

During the same periods, the Company recorded an offsetting expense of $ 302 and $ 389 , respectively, between cost of services and general and administrative expenses.

OTHER ACCRUED LIABILITIES

Other accrued liabilities consists of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Quality assurance fee $ 6,455 $ 6,631

5 unchanged sentences

Property taxes 8,158 9,222

Income tax payable 11,927 136

Other 10,897 11,144

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The cash balance related to this liability is included in other current assets in the accompanying condensed consolidated balance sheets.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company recorded income tax expense of $ 12,949 and $ 12,625 during the three months ended March 31, 2021 and 2020, respectively, or 20.6 % of earnings before income taxes for the three months ended March 31, 2021, compared to 23.5 % for the three months ended March 31, 2020.

The effective tax rate for both periods is driven by the impact of excess tax benefits from stock-based compensation, offset by non-deductible expenses including non-deductible compensation.

The Company recorded income tax expense of $ 26,707 and $ 26,159 during the six months ended June 30, 2021 and 2020, respectively, or 21.0 % of earnings before income taxes for the six months ended June 30, 2021, compared to 24.2 % for the six months ended June 30, 2020.

The effective tax rate for both periods is driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses.

The 2021 reporting period had a larger excess tax benefit from stock-based compensation compared to 2020.

Th e Company is not currently under examination by any major income tax jurisdiction.

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The Company does not believe the Federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months.

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the three months ended March 31, 2021 and 2020.

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the six months ended June 30, 2021 and 2020.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Debt consists of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Mortgage loans and promissory notes $ 116,645 $ 117,806

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Mortgage Loans and Promissory Notes

As of March 31, 2021, the Company's operating subsidiaries had $ 116,957 outstanding under the mortgage loans and notes, of which $ 2,828 is classified as short-term and the remaining $ 114,129 is classified as long-term.

The Company was in compliance with all loan covenants as of March 31, 2021.

As of March 31, 2021, 19 of the Company's subsidiaries have mortgage loans insured with the Department of Housing and Urban Development (HUD) in the aggregate amount of $ 113,304 , which subjects these subsidiaries to HUD oversight and periodic inspections.

The mortgage loans bear fixed interest rates ranging from 2.6 % to 3.5 % per annum.

As of June 30, 2021, the Company's operating subsidiaries had $ 116,645 outstanding under the mortgage loans and notes, of which $ 3,009 is classified as short-term and the remaining $ 113,636 is classified as long-term.

The Company was in compliance with all loan covenants as of June 30, 2021.

As of June 30, 2021, 19 of the Company's subsidiaries have mortgage loans insured with the Department of Housing and Urban Development (HUD) in the aggregate amount of $ 112,919 , which subjects these subsidiaries to HUD oversight and periodic inspections.

The mortgage loans bear effective interest rates range of 2.8 % to 4.2 %, including fixed interest rates range of 2.6 % to 3.3 % per annum.

Amounts borrowed under the mortgage loans may be prepaid, subject to prepayment fees based on the principal balance on the date of prepayment.

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The terms for all the mortgage loans are 25 to 35 years.

Loan proceeds were used to pay down previously drawn amounts on Ensign's revolving line of credit.

In addition to refinancing existing borrowings, the proceeds of the HUD-insured debt helped fund acquisitions, renovate and upgrade existing and future facilities, cover working capital needs and other business purposes.

In addition to the HUD mortgage loans above, the Company has a promissory note in connection with an acquisition.

The note bears a fixed interest rate of 5.3 % per annum and the term of the note is 12 years.

The note which was used for an acquisition is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility.

In addition to the HUD mortgage loans above, the Company has two promissory notes.

The notes bear fixed interest rates of 5.0 % and 5.3 % per annum and the term of the notes are ten months and twelve years , respectively.

The 12 year note which was used for an acquisition is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility.

Based on Level 2, the carrying value of the Company's long-term debt is considered to approximate the fair value of such debt for all periods presented based upon the interest rates that the Company believes it can currently obtain for similar debt.

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In addition, the Company pays a commitment fee on the unused portion of the commitments that ranges from 0.25 % to 0.45 % per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Credit Facility is guaranteed, jointly and severally, by certain of the Company’s wholly owned subsidiaries, and is secured by a pledge of stock of the Company's material operating subsidiaries as well as a first lien on substantially all of its personal property.

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provided that if the aggregate consideration for approved acquisitions in a six month period is greater than $ 50,000 , then the ratio can be increased at the election of the Company with notice to the administrative agent to 3.50 :1.00 for the first fiscal quarter and the immediately following three fiscal quarters), and (ii) a minimum interest/rent coverage ratio (which cannot be less than 1.50 :1.00).

As of March 31, 2021, and April 26, 2021, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of March 31, 2021.

As of June 30, 2021, and July 23, 2021, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of June 30, 2021.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Off-Balance Sheet Arrangements

As of March 31, 2021, the Company had approximately $ 7,580 o n the Credit Facility of borrowing capacity pledged as collateral to secure outstanding letters of credit.

As of June 30, 2021, the Company had approximately $ 7,580 o n the Credit Facility of borrowing capacity pledged as collateral to secure outstanding letters of credit.

OPTIONS AND AWARDS

Stock-based compensation expense consists of stock-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values.

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2021 and 2020 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

The Company estimates forfeitures at the time of grant and, if necessary, revises the estimate in subsequent periods if actual forfeitures differ.

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Granted non-employee director options vest and become exercisable in three equal annual installments, or the length of the term if less than three years , on the completion of each year of service measured from the grant date.

All other options generally vest over 5 years at 20 % per year on the anniversary of the grant date.

Options expire 10 years from the date of grant.

As of March 31, 2021, there were approximately 2,839 unissued shares of common stock available for issuance under this plan.

All other options generally vest over five years at 20 % per year on the anniversary of the grant date.

Options expire ten years from the date of grant.

As of June 30, 2021, there were approximately 2,537 unissued shares of common stock available for issuance under this plan.

The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for stock option awards.

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Stock Options

The Company granted 136 stock options during the three months ended March 31, 2021.

The Company used the following assumptions for stock options granted during the three months ended March 31, 2021 and 2020:

The Company granted 209 and 345 stock options during the three and six months ended June 30, 2021, respectively.

The Company used the following assumptions for stock options granted during the three months ended June 30, 2021 and 2020:

Grant Year Options Granted Weighted Average Risk-Free Rate Expected Life Weighted Average Volatility Weighted Average Dividend Yield

1 unchanged sentence

2020 235 0.4 % 6.2 years 40.9 % 0.4 %

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For the three months ended March 31, 2021 and 2020, the following represents the exercise price and fair value displayed at grant date for stock option grants:

The Company used the following assumptions for stock options granted during the six months ended June 30, 2021 and 2020:

Grant Year Options Granted Weighted Average Risk-Free Rate Expected Life Weighted Average Volatility Weighted Average Dividend Yield

2021 345 0.9 % 6.3 years 42.2 % 0.2 %

2020 380 0.8 % 6.2 years 37.6 % 0.4 %

For the six months ended June 30, 2021 and 2020, the following represents the exercise price and fair value displayed at grant date for stock option grants:

Grant Year Granted Weighted Average Exercise Price Weighted Average Fair Value of Options

1 unchanged sentence

2020 380 $ 47.26 $ 16.87

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the periods ended March 31, 2021 and 2020 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the three months ended March 31, 2021:

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the periods ended June 30, 2021 and 2020 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the six months ended June 30, 2021:

Number of Options Outstanding Weighted Average

5 unchanged sentences

Exercised ( 394 ) 17.42

March 31, 2021 3,895 $ 30.30 2,034 $ 17.73

The following summary information reflects stock options outstanding, vested and related details as of March 31, 2021:

June 30, 2021 3,923 $ 33.36 2,075 $ 19.15

The following summary information reflects stock options outstanding, vested and related details as of June 30, 2021:

Stock Options Outstanding Stock Options Vested

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Total 3,923 $ 49,528 2,075

The aggregate intrinsic value of options outstanding, vested and expected to vest as of March 31, 2021 and December 31, 2020 is as follows:

Options March 31, 2021 December 31, 2020

The aggregate intrinsic value of options outstanding, vested and expected to vest as of June 30, 2021 and December 31, 2020 is as follows:

Options June 30, 2021 December 31, 2020

Outstanding $ 209,111 $ 182,552

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The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the options .

The aggregate intrinsic value of options that vested during the three months ended March 31, 2021 and 2020 was $ 8,545 and $ 2,084 , respectively.

The total intrinsic value of options exercised during the three months ended March 31, 2021 and 2020 was $ 17,241 and $ 5,621 , respectively.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The aggregate intrinsic value of options that vested during the six months ended June 30, 2021 and 2020 was $ 17,618 and $ 4,816 , respectively.

The total intrinsic value of options exercised during the six months ended June 30, 2021 and 2020 was $ 26,715 and $ 6,532 , respectively.

Restricted Stock Awards

The Company granted 90 and 113 restricted stock awards during the three months ended March 31, 2021 and 2020 , respectively.

The Company granted 54 and 144 restricted stock awards during the three and six months ended June 30, 2021, respectively.

The Company granted 81 and 194 restricted stock awards during the three and six months ended June 30, 2020, respectively.

All awards were granted at an issue price of $ 0 and generally vest over five years .

The fair value per share of restricted awards granted during the three months ended March 31, 2021 and 2020 ranged from $ 83.64 to $ 84.70 and $ 42.02 to $ 51.20 , respectively.

The fair value per share of restricted awards granted during the six months ended June 30, 2021 and 2020 ranged from $ 82.20 to $ 93.31 and $ 35.47 to $ 51.20 , respectively.

The fair value per share includes quarterly stock awards to non-employee directors.

A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2021 and changes during the three months ended March 31, 2021 is presented below:

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of the status of the Company's non-vested restricted stock awards as of June 30, 2021 and changes during the six months ended June 30, 2021 is presented below:

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

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Forfeited ( 14 ) 44.90

Nonvested at March 31, 2021 592 $ 42.16

During the three months ended March 31, 2021, the Company granted 6 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors.

The fair value per share of these stock awards was $ 84.70 based on the market price on the grant date.

Nonvested at June 30, 2021 550 $ 47.01

During the three and six months ended June 30, 2021, the Company granted five and 11 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors.

The fair value per share of these stock awards was $ 84.70 to $ 93.31 based on the market price on the grant date.

Long-Term Incentive Plan

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If a recipient is terminated or voluntarily leaves the Company, all shares subject to restriction or not yet vested shall be entirely forfeited.

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 201 and $ 194 for the three months ended March 31, 2021 and 2020, respectively.

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three months ended March 31, 2021 and 2020 was as follows:

Three Months Ended March 31,

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 202 and $ 403 for the three and six months ended June 30, 2021, respectively, compared to $ 195 and $ 389 for the three and six months ended June 30, 2020, respectively.

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three and six months ended June 30, 2021 and 2020 was as follows:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Stock-based compensation expense related to stock options $ 2,026 $ 1,545 $ 3,759 $ 2,965

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Total $ 4,633 $ 3,528 $ 8,687 $ 6,763

In future periods, the Company expects to recognize approximately $ 27,178 and $ 26,072 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2021.

In future periods, the Company expects to recognize approximately $ 31,731 and $ 27,708 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of June 30, 2021.

Future stock-based compensation expense will be recognized over 3.9 and 3.6 weighted average years for unvested options and restricted stock awards, respectively.

There were 1,861 unvested and outstanding options as of March 31, 2021, of which 1,726 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of March 31, 2021 was 6.1 years.

There were 1,848 unvested and outstanding options as of June 30, 2021, of which 1,715 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of June 30, 2021 was 6.1 years.

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Additionally, four of the 93 facilities leased from CareTrust include an option to purchase that the Company can exercise starting on December 1, 2024.

In the second quarter of 2021, the Company added four operations and extended the term for one of the Master Leases for an additional 15 years.

As a result, the total lease liabilities and right-of-use assets increased by $ 54,716 to reflect the new lease obligation.

The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent.

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The terms and conditions of the one stand-alone lease are substantially the same as those for the master leases described above.

Total rent expense under the Master Leases was approximately $ 14,080 and $ 13,125 for the three months ended March 31, 2021 and 2020, respectively.

Total rent expense under the Master Leases was approximately $ 14,419 and $ 28,499 for the three and six months ended June 30, 2021, respectively, and $ 13,130 and $ 26,255 for the three and six months ended June 30, 2020, respectively

Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio.

The Master Leases also include certain reporting, legal and authorization requirements.

The Company is in compliance with requirements of the Master Leases as of March 31, 2021.

The Company is in compliance with requirements of the Master Leases as of June 30, 2021.

In connection with the spin-off transaction that occurred in October 2019, the Company guaranteed certain leases of Pennant based on the underlying terms of the leases.

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Most of these leases contain renewal options, certain of which involve rent increases.

Total rent expense inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 33,476 and $ 32,347 for the three months ended March 31, 2021 and 2020, respectively.

Forty of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under seven separate master lease arrangements.

Total rent expense inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 34,476 and $ 67,952 for the three and six months ended June 30, 2021, respectively, and $ 32,499 and $ 64,846 for the three and six months ended June 30, 2020, respectively.

Forty-three of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under eight separate master lease arrangements.

Under these master leases, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk.

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The components of operating lease expense are as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Rent - cost of services (1)

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Depreciation and amortization (2)

290 290 580 644

Variable lease costs (3)

3,694 3,252 7,137 6,463

(1) Rent- cost of services includes deferred rent expense adju stments of $ 112 and $ 125 for the three months ended March 31, 2021 and 2020, respectively.

Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 584 and $ 594 for the three months ended March 31, 2021 and 2020, respectively.

$ 38,460 $ 36,041 $ 75,669 $ 71,953

(1) Rent - cost of services includes deferred rent expense adju stments of $ 109 and $ 221 for the three and six months ended June 30, 2021, respectively, and $ 111 and $ 236 for the three and six months ended June 30, 2020, respectively.

Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 832 and $ 1,416 for the three and six months ended June 30, 2021, respectively, and $ 620 and $ 1,214 for the three and six months ended June 30, 2020, respectively.

(2) Depreciation and amortization is related to the amortization of favorable and direct lease costs.

(3) Variable lease costs, including property taxes and insurance, are classified in cost of services in the Company's condensed consolidated statements of income.

Future minimum lease payments for all leases as of March 31, 2021 are as follows:

Future minimum lease payments for all leases as of June 30, 2021 are as follows:

2021 (remainder) $ 68,108

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In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date.

As of March 31, 2021, the weighted average remaining lease term is 13.7 years and the weighted average discount rate used to determine the operating lease liabilities is 8.2 %.

Subsequent to March 31, 2021, the Company expanded its operations through long-term lease arrangements with the addition of three stand-alone skilled nursing facilities under a new triple-net master lease, adding a total of 322 operational skilled nursing beds operated by the Company’s affiliated operating subsidiaries.

The aggregate impact to the fair value of lease liabilities and right-of-use assets related to new master lease is estimated to be approximately $ 20,005 .

As of June 30, 2021, the weighted average remaining lease term is 14.1 years and the weighted average discount rate used to determine the operating lease liabilities is 8.0 %.

Lessor Activities

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The initial terms range between 14 to 16 years.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Total rental income from all third-party sources for the three months ended March 31, 2021 and 2020 is as follows:

Three Months Ended March 31,

Total rental income from all third-party sources for the three and six months ended June 30, 2021 and 2020 is as follows:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

$ 3,440 $ 3,131 $ 6,928 $ 6,232

Other third-party 487 489 976 1,050

$ 3,927 $ 3,620 $ 7,904 $ 7,282

(1) Pennant rental income includes variable rent such as property taxes of $ 314 and $ 466 during the three months ended March 31, 2021 and 2020.

Future annual rental income for all leases as of March 31, 2021 were as follows:

(1) Pennant rental income includes variable rent such as property taxes of $ 266 and $ 580 during the three and six months ended June 30, 2021 and $ 131 and $ 597 for the three and six months ended June 30, 2020.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Future annual rental income for all leases as of June 30, 2021 were as follows:

Year Amount (1)

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Total $ 160,248

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of March 31, 2021 .

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of June 30, 2021 .

COMMITMENTS AND CONTINGENCIES

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Compliance with such laws and regulations can likewise be subject to future governmental review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs.

Included in these laws and regulations is the Health Insurance Portability and Accountability Act of 1996, which requires healthcare providers (among other things) to safeguard the privacy and security of certain health information.

Included in these laws and regulations is monitoring performed by the Office of Civil Rights which covers the Health Insurance Portability and Accountability Act of 1996, that requires healthcare providers (among other things) to safeguard the privacy and security of certain health information.

Cost-Containment Measures — Both government and private pay sources have instituted cost-containment measures designed to limit payments made to providers of healthcare services, and there can be no assurance that future measures designed to limit payments made to providers will not adversely affect the Company.

Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims.

These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities the Company acquires against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company's independent operating subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment or other relationship to the Company.

These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities the Company acquires against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company's independent operating subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with the Company’s officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company.

The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount.

3 unchanged sentences

These guarantees could result in significant additional liabilities and obligations for the Company if Pennant were to default on their obligations under their leases with respect to these properties.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Department of Justice Civil Investigative Demand — On May 31, 2018, the Company received a Civil Investigative Demand (CID) from the U.S.

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Department of Justice declined to intervene in any subsequent action filed by a relator in connection with the subject matter of this investigation.

House of Representatives Select Subcommittee Request — The U.S.

House of Representatives Select Subcommittee on the Coronavirus Crisis has launched a nation-wide investigation into the COVID-19 pandemic, which includes the impact of the coronavirus on residents and employees in nursing homes.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

House of Representatives Select Subcommittee Request — In 2020, the U.S.

House of Representatives Select Subcommittee on the Coronavirus Crisis launched a nation-wide investigation into the COVID-19 pandemic, which includes the impact of the coronavirus on residents and employees in nursing homes.

In June 2020, the Company received a document and information request from the House Select Subcommittee.

The Company is cooperating in responding to this inquiry.

However, it is not possible to predict the ultimate outcome of any such investigation or whether and what other investigations or regulatory responses may result from the investigation and could have a material adverse effect on our reputation, business, financial condition, and results of operations.

However, it is not possible to predict the ultimate outcome of any such investigation or whether and what other investigations or regulatory responses may result from the investigation, which could have a material adverse effect on our reputation, business, financial condition, and results of operations.

Litigation — The skilled nursing business involves a significant risk of liability given the age and health of the patients and residents served by the Company's independent operating subsidiaries.

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The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.

In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payor.

In addition to the potential lawsuits and claims described above, the Company and its independent operating subsidiaries are also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare or Medicaid) or other payor.

A violation may provide the basis for exclusion from Federally-funded healthcare programs.

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For example, and despite the decision of the U.S.

Department of Justice to decline to participate in litigation based on the subject matter of its previously issued Civil Investigative Demand, the qui tam relator has continued on with the lawsuit and is pursuing claims that the Company has allegedly violated the False Claims Act and/or the Anti-Kickback Statute.

Department of Justice to decline to participate in litigation based on the subject matter of its previously issued Civil Investigative Demand, the qui tam relator has continued on with the lawsuit and is pursuing claims that the Company and certain of its independent operating subsidiaries have allegedly violated the False Claims Act and/or the Anti-Kickback Statute.

In addition to the Federal False Claims Act, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations.

Further, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the Federal False Claims Act.

As such, the Company could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets in which its independent operating subsidiaries do business.

As such, the Company and its independent operating subsidiaries could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets in which its independent operating subsidiaries do business.

In May 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA) which made significant changes to the Federal False Claims Act and expanded the types of activities subject to prosecution and whistleblower liability.

5 unchanged sentences

Thus, an employment relationship is generally not required in order to qualify for protection against retaliation for whistleblowing.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories, and the Company's independent operating subsidiaries are routinely subjected to varying types of claims, including class action "staffing" suits.

3 unchanged sentences

Other claims and suits, including class actions, continue to be filed against the Company and other companies in its industry.

The Company and its independent operating subsidiaries have been subjected to, and are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour laws as related to the alleged failure to pay wages, to timely provide and au thorize meal and rest breaks, and related causes action.

The Company does not believe that the ultimate resolution of these actions will have an ongoing material adverse effect on the Company’s business, cash flows, financial condition or results of operations.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company and its independent operating subsidiaries have been, and continue to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims filed by residents and responsible parties related to patient care and treatment (professional negligence claims), as well as employment related claims filed by current or former employees.

A significant increase in the number of these claims, or an increase in the amounts owing should plaintiffs be successful in their prosecution of these claims, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.

The Company and its independent subsidiaries are also subject to requests for information and investigations by other State and Federal governmental entities (e.g., offices of the attorney general and offices of the inspector general).

The Company cannot predict or provide any assurance as to the possible outcome of any inquiry, investigation or litigation.

4 unchanged sentences

Beginning in August 2020, CMS resumed Targeted Probe and Educate Program activity.

As of March 31, 2021, two of the Company's independent operating subsidiaries had Reviews scheduled, on appeal, or in a dispute resolution process.

Subsequently, during April, one facility review was resolved and closed.

The Company anticipates that these Reviews could increase in frequency in the future.

If an operation fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period.

As of March 31, 2021, the Company's independent operating subsidiaries have responded to the requests with respect to the claims currently under review, on appeal or in a dispute resolution process.

The Company anticipates that these Reviews could increase in frequency in the future.

As of June 30, 2021, none of the Company's independent operating subsidiaries had Reviews scheduled, on appeal, or in a dispute resolution process.

Concentrations

3 unchanged sentences

The Company believes that an appropriate allowance has been recorded for the possibility of these receivables proving uncollectible, and continually monitors and adjusts these allowances as necessary.

The Company’s receivables from Medicare and Medicaid payor programs accounted for 57.2 % and 58.3 % of its total accounts receivable as of March 31, 2021 and December 31, 2020, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 74.1 % and 71.0 % of the Company's service revenue for the three months ended March 31, 2021 and 2020, respectively.

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s receivables from Medicare and Medicaid payor programs accounted for 55.9 % and 58.3 % of its total accounts receivable as of June 30, 2021 and December 31, 2020, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 73.1 % and 73.6 % of the Company's service revenue for the three and six months ended June 30, 2021, respectively, and 75.3 % and 73.1 % for the three and six months ended June 30, 2020, respectively.

Cash in Excess of FDIC Limits — The Company currently has bank deposits with financial institutions in the U.S.

2 unchanged sentences

In addition, the Company has uninsured bank deposits with a financial institution outside the U.S.

As of April 26, 2021, the Company had approximately $ 424 in uninsured cash deposits.

As of July 23, 2021, the Company had approximately $ 761 in uninsured cash deposits.

All uninsured bank deposits are held at high quality credit institutions.

4 unchanged sentences

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

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THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As approved by the Board of Directors on August 26, 2019, the Company entered into a stock repurchase program pursuant to which the Company may repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months.

2 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-Q

Item 1. Financial Statements