What changed in this filing

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Item 1. Financial Statements

2021-10-27 compared with 2021-07-28 · 290 added, 243 removed, 939 unchanged (36% of the section changed)

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In thousands, except par values)

1 unchanged sentence

Cash and cash equivalents $ 304,620 $ 236,562

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

Accounts receivable—less allowance for doubtful accounts of $ 11,267 and $ 8,718 at September 30, 2021 and December 31, 2020, respectively

313,858 305,062

36 unchanged sentences

100,000 shares authorized;

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

58,059 and 55,247 shares issued and outstanding at September 30, 2021, respectively, and 57,417 and 54,626 shares issued and outstanding at December 31, 2020, respectively

Additional paid-in capital 363,779 338,177

Retained earnings 688,287 551,055

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

Common stock in treasury, at cost, 2,812 and 2,791 shares at September 30, 2021 and December 31, 2020, respectively (Note 19)

( 72,924 ) ( 71,213 )

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

11 unchanged sentences

Interest expense ( 1,709 ) ( 1,740 ) ( 4,984 ) ( 7,698 )

Interest and other income 1,121 1,082 1,869 1,780

Other income (expense), net 248 850 2,117 2,630

Other expense, net ( 1,461 ) ( 890 ) ( 2,867 ) ( 5,068 )

39 unchanged sentences

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

Issuance of common stock to employees and directors resulting from the exercise of stock options 69 — 1,246 — — — — 1,246

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

Shares of common stock used to satisfy tax withholding obligations ( 1 ) — — — 1 ( 102 ) — ( 102 )

Dividends declared ($ 0.0525 per share)

— — — ( 2,900 ) — — — ( 2,900 )

Employee stock award compensation — — 5,082 — — — — 5,082

Net income attributable to noncontrolling interest — — — — — — 1,063 1,063

Distribution to noncontrolling interest holder — — — — — — ( 1,019 ) ( 1,019 )

Net income attributable to the Ensign Group, Inc.

— — — 47,281 — — — 47,281

Balance - September 30, 2021 55,247 $ 58 $ 363,779 $ 688,287 2,812 $ ( 72,924 ) $ 94 $ 979,294

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

14 unchanged sentences

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

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

Issuance of restricted stock, net of forfeitures 75 — — — — — — —

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

7 unchanged sentences

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

Issuance of common stock to employees and directors resulting from the exercise of stock options 340 — 4,404 — — — — 4,404

Issuance of restricted stock, net of forfeitures 43 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations ( 3 ) — — — 3 ( 154 ) — ( 154 )

Dividends declared ($ 0.0500 per share)

— — — ( 2,725 ) — — — ( 2,725 )

Employee stock award compensation — — 4,173 — — — — 4,173

Net income attributable to noncontrolling interest — — — — — — 253 253

Distribution to noncontrolling interest holder — — — — — — ( 1,243 ) ( 1,243 )

Net income attributable to the Ensign Group, Inc.

— — — 43,060 — — — 43,060

Balance - September 30, 2020 54,135 $ 57 $ 328,347 $ 507,554 2,791 $ ( 71,203 ) $ 789 $ 765,544

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2021 2020

3 unchanged sentences

Depreciation and amortization 41,383 41,082

Impairment of long-lived assets — 2,681

Amortization of deferred financing fees 637 630

25 unchanged sentences

Escrow deposits used to fund acquisitions — 14,050

Cash proceeds from insurance proceeds 6,705 —

Cash from insurance proceeds 6,705 —

Cash proceeds from the sale of assets and ancillary business 951 359

4 unchanged sentences

Cash flows from financing activities:

Proceeds from revolving credit facility and other debt (Note 15)

Payments on revolving credit facility and other debt (Note 15)

Proceeds from debt (Note 15)

31,646 380,600

Payments on debt (Note 15)

( 2,146 ) ( 592,255 )

Issuance of common stock upon exercise of options 8,108 6,412

3 unchanged sentences

Non-controlling interest distribution ( 2,908 ) ( 2,203 )

Payments of deferred financing costs ( 881 ) —

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

3 unchanged sentences

Net cash used in financing activities ( 78,562 ) ( 117,471 )

Net (decrease)/increase in cash and cash equivalents ( 38,151 ) 142,563

Net increase in cash and cash equivalents 68,058 116,205

Cash and cash equivalents beginning of period 236,562 59,175

3 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2021 2020

7 unchanged sentences

Accrued dividends declared $ 2,900 $ 2,725

Right-of-use assets obtained in exchange for new operating lease obligations $ 112,192 $ 8,370

Right-of-use assets obtained in exchange for new and modified operating lease obligations $ 175,617 $ 14,669

See accompanying notes to condensed consolidated financial statements.

6 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 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.

As of September 30, 2021, the Company operated 242 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 24,700 operational skilled nursing beds and 2,200 senior living units.

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.

As of September 30, 2021, the Company operated 177 facilities under long-term lease arrangements, and had options to purchase 11 of those 177 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.

11 unchanged sentences

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 June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 (collectively, the Interim Financial Statements) are unaudited.

Other Information — The accompanying condensed consolidated financial statements as of September 30, 2021 and for the three and nine months ended September 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.

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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 and six months ended June 30, 2021 and 2020.

The Company's relationship with variable interest entities was not material during the three and nine months ended September 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.

12 unchanged sentences

The fair value of the pooled investment funds is derived using Level 2 inputs.

Service Revenue Recognition — The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).

S ee Note 4, Revenue and Accounts Receivable.

Rental Revenue Recognition — The Company recognizes rental revenue for operating leases on a straight-line basis over the lease term when collectability of all minimum lease payments is probable (ASC 842).

Service Revenue Recognition — The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606).

See Note 4, Revenue and Accounts Receivable.

Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable consist primarily of amounts due from Medicare and Medicaid programs, other government programs, managed care health plans and private payor sources, net of estimates for variable consideration.

10 unchanged sentences

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

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.

Leases commencing prior to the 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.

As of September 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.

5 unchanged sentences

The lease term used for this evaluation also provides the basis for establishing depreciable lives for buildings subject to lease and leasehold improvements.

The Company's real estate leases generally have initial lease terms of ten years or more and typically include one or more options to renew, with renewal terms that generally extend the lease term for an additional ten to 15 years.

Exercise of the renewal options is generally subject to the satisfaction of certain conditions which vary by contract and generally follow payment terms that are consistent with those in place during the initial term.

The Company reassesses the renewal option using a "reasonably certain" threshold, which is understood to be a high threshold.

For leases where the Company is reasonably certain to exercise its renewal option, the option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability.

The payment structure of the Company's leases generally contain annual escalation clauses that are either fixed or variable in nature, some of which are dependent upon published indices.

The Company recognizes lease expense for leases with an initial term of 12 months or less on a straight-line basis over the lease term.

7 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 and six months ended June 30, 2021 and 2020.

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

The Company recorded an impairment charge of $ 2,681 during the three and nine months ended September 30, 2020.

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

3 unchanged sentences

The Company tests indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

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THE ENSIGN GROUP, INC.

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

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.

2 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 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)

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

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.

8 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 $ 61,099 and $ 57,628 as of June 30, 2021 and December 31, 2020, respectively.

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 63,689 and $ 57,628 as of September 30, 2021 and December 31, 2020, respectively.

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

5 unchanged sentences

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 $ 25,527 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.

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 25,968 and $ 24,499 as of September 30, 2021 and December 31, 2020, respectively.

In addition, the Company has recorded an asset and equal liability of $ 7,573 and $ 7,138 as of September 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 $ 8,751 and $ 7,533 as of June 30, 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 $ 9,799 and $ 7,533 as of September 30, 2021 and December 31, 2020, respectively.

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THE ENSIGN GROUP, INC.

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

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.

6 unchanged sentences

If the Company’s actual liabilities exceed its estimates of losses, its future earnings, cash flows and financial condition would be adversely affected.

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THE ENSIGN GROUP, INC.

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

Income Taxes — Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates in effect when such temporary differences are expected to reverse.

19 unchanged sentences

The Company adopted this standard on January 1, 2021 and determined there was no material impact on the Company's financial position, results of operations and liquidity.

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THE ENSIGN GROUP, INC.

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

In May 2020, the SEC issued Final Rule Release No.

5 unchanged sentences

The Company adopted this standard on January 1, 2021 and determined there was no material impact on the Company's condensed consolidated financial statements.

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THE ENSIGN GROUP, INC.

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

Accounting Standards Recently Issued but Not Yet Adopted by the Company

11 unchanged sentences

The final rules also amended various aspects of Item 303, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” among others.

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 reports.

The final rules are effective for all registration statements and annual 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 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.

4 unchanged sentences

The Company received cash distribution of relief fund payments (Provider Relief Funds) from the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) and funds authorized by U.S.

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 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.

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 2021.

During the three and nine months ended September 30, 2021, the Company received and returned $ 99 and $ 11,637 , respectively, in Provider Relief Funds.

During both the three and nine months ended September 30, 2020, the Company received $ 23,296 and $ 132,052 , respectively, in Provider Relief Funds, of which $ 108,756 was returned in the third quarter of 2020.

The remaining amount received was subsequently returned in the fourth quarter of 2020.

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

1 unchanged sentence

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

The Company repaid $ 3,232 of the funds in July 2020.

The Company repaid $ 3,232 of the funds in 2020.

In March 2021, the Company repaid the remaining funds of $ 102,023 .

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THE ENSIGN GROUP, INC.

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

The Family First Coronavirus Response Act was signed into law in 2020 to provide a temporary 6.2% increase to the Federal Medical Assistance Percentage (FMAP) effective January 1, 2020.

4 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 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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THE ENSIGN GROUP, INC.

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

As of September 30, 2021 and December 31, 2020, the Company had $ 4,392 and $ 6,520 in unapplied state relief funds, respectively.

During the three and nine months ended September 30, 2021, the Company received an additional $ 17,829 and $ 50,250 in state relief funding and recognized $ 19,229 and $ 52,386 , respectively, as revenue.

During the three and nine months ended September 30, 2020, the Company received $ 17,344 and $ 32,455 in state relief funding and recognized $ 11,691 and $ 24,825 , respectively, as revenue.

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 June 30, 2021 and December 31, 2020.

REVENUE AND ACCOUNTS RECEIVABLE

11 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 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.

Revenue from the Medicare and Medicaid programs accounted for 73.6 % for both the three and nine months ended September 30, 2021, and 75.5 % and 74.0 % for the three and nine months ended September 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 and six months ended June 30, 2021 and 2020.

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

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THE ENSIGN GROUP, INC.

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

Rental Revenue

7 unchanged sentences

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

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THE ENSIGN GROUP, INC.

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.

7 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 and six months ended June 30, 2021 and 2020 is summarized in the following tables:

Three Months Ended June 30,

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

Three Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

7 unchanged sentences

Service revenue $ 664,597 100.0 % $ 595,341 100.0 %

(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,

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

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THE ENSIGN GROUP, INC.

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

Nine Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

7 unchanged sentences

Service revenue $ 1,922,482 100.0 % $ 1,762,371 100.0 %

(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)

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

(2) Private and other payors also includes revenue from all payors generated in other ancillary services for the nine months ended September 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 $ 3,933 and $ 11,837 , respectively, for the three and nine months ended September 30, 2021 and $ 3,914 and $ 11,196 , respectively, for the three and nine months ended September 30, 2020.

Balance Sheet Impact

Included in the Company’s condensed consolidated balance sheets are contract balances, comprised of billed accounts receivable and unbilled receivables, which are the result of the timing of revenue recognition, billings and cash collections, as well as, contract liabilities, which primarily represent payments the Company receives in advance of services provided.

The Company had no material contract liabilities and contract assets as of June 30, 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

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

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

September 30, 2021 December 31, 2020

Medicaid $ 118,102 $ 102,077

13 unchanged sentences

The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

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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 basic net income per common share follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

6 unchanged sentences

$ 0.87 $ 0.81 $ 2.68 $ 2.33

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

9 unchanged sentences

$ 0.83 $ 0.77 $ 2.56 $ 2.23

(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.

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 365 and 139 fo r the three and nine months ended September 30, 2021, respectively, and 1,144 and 979 for the three and nine months ended September 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 $ 198,411 and $ 236,562 as of June 30, 2021 and December 31, 2020, respectively, is derived using Level 1 inputs.

The fair value of cash and cash equivalents of $ 304,620 and $ 236,562 as of September 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 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.

As of September 30, 2021, and December 31, 2020, the fair value of the pooled investment funds of $ 16,082 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 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.

As of September 30, 2021 and December 31, 2020, the Company had approximately $ 48,024 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 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.

Further, as of September 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 September 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

5 unchanged sentences

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

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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.

As of September 30, 2021, the skilled services segment includes 211 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.

13 unchanged sentences

Included in the real estate segment income is interest expense related to the borrowings to fund real estate acquisitions.

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.

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THE ENSIGN GROUP, INC.

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

The following tables set forth financial information for the segments:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Skilled Services Real Estate All Other (1)

11 unchanged sentences

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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THE ENSIGN GROUP, INC.

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

Three Months Ended June 30, 2020

(3) Other expense (income), net includes interest expense, interest income and gain and loss on investments.

Three Months Ended September 30, 2020

Skilled Services Real Estate All Other (1)

4 unchanged sentences

Segment income (loss) 84,747 8,474 ( 36,289 ) — 56,932

Loss on sale of real estate and impairment charges ( 2,753 )

Income before provision for income taxes $ 54,179

5 unchanged sentences

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

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

Nine Months Ended September 30, 2021

Skilled Services Real Estate All Other (1)

12 unchanged sentences

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

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

Six Months Ended June 30, 2020

(3) Other expense, net includes interest expense, interest income and gain and loss on investments.

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THE ENSIGN GROUP, INC.

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

Nine Months Ended September 30, 2020

Skilled Services Real Estate All Other (1)

4 unchanged sentences

Segment income (loss) 243,640 22,593 ( 101,252 ) — 164,981

Loss on sale of real estate and impairment charges ( 2,753 )

Income before provision for income taxes $ 162,228

5 unchanged sentences

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

(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)

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

Service revenue by major payor source were as follows:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Skilled Services All Other Total Service Revenue Revenue %

6 unchanged sentences

Total service revenue $ 642,075 $ 22,522 $ 664,597 100.0 %

(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

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

Three Months Ended September 30, 2020

Skilled Services All Other Total Service Revenue Revenue %

6 unchanged sentences

Total service revenue $ 570,282 $ 25,059 $ 595,341 100.0 %

(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

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

Nine Months Ended September 30, 2021

Skilled Services All Other Total Service Revenue Revenue %

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Total service revenue $ 1,855,993 $ 66,489 $ 1,922,482 100.0 %

(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

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP for the nine months ended September 30, 2021.

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

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THE ENSIGN GROUP, INC.

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

Nine Months Ended September 30, 2020

Skilled Services All Other Total Service Revenue Revenue %

6 unchanged sentences

Total service revenue $ 1,685,263 $ 77,108 $ 1,762,371 100.0 %

(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)

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP for the nine months ended September 30, 2020.

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

OPERATION EXPANSIONS

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2021 Expansions

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.

During the nine months ended September 30, 2021, the Company expanded its operations through a combination of long-term leases and a real estate purchase, with the addition of fourteen 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 1,504 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

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

The aggregate purchase price for these acquisitions during the nine months ended September 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.

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 ten 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 nine months ended September 30, 2021 was $ 5,183 , which primarily consists of building and improvements of $ 4,547 .

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.

Subsequent to September 30, 2021, the Company expanded its operations through long-term leases with the addition of three stand-alone skilled nursing operations.

These new operations added 328 operational skilled nursing beds to be operated by the Company's affiliated operating subsidiaries.

2020 Expansions

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.

During the nine months ended September 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, one stand-alone senior living operation and one campus operation.

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

These new operations added a total of 303 operational skilled nursing beds and 298 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

1 unchanged sentence

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

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

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THE ENSIGN GROUP, INC.

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

The aggregate purchase price for these acquisitions during the nine months ended September 30, 2020 was $ 23,077 .

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 .

The purchase price for the asset acquisitions primarily consists of building and improvements of $ 13,365 and land of $ 8,938 .

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

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

The assets added during the nine months ended September 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 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)

These additions have been included in the September 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.

PROPERTY AND EQUIPMENT - NET

Property and equipment, net consists of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Land $ 101,552 $ 101,236

7 unchanged sentences

Property and equipment, net $ 791,247 $ 778,244

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

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

INTANGIBLE ASSETS - NET

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Weighted Average Life (Years)

5 unchanged sentences

Total $ 5,383 $ ( 2,672 ) $ 2,711 $ 5,412 $ ( 2,513 ) $ 2,899

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.

During the three and nine months ended September 30, 2021, amortization expense was $ 363 and $ 1,087 , respectively, of which $ 289 and $ 869 was related to the amortization of right-of-use assets, respectively.

During the three and nine months ended September 30, 2020, amortization expense was $ 354 and $ 1,445 , respectively, of which $ 289 and $ 933 was related to the amortization of right-of-use assets, 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.

Estimated amortization expense for each of the years ending December 31 is as follows:

2021 (remainder) $ 132

Thereafter 1,482

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

Estimated amortization expense for each of the years ending December 31 is as follows:

2021 (remainder) $ 59

Thereafter 1,482

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

The Company tests goodwill during the fourth quarter of each year or more often if events or circumstances indicate there may be impairment.

The Company performs its analysis for each reporting unit that constitutes a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other components of the operating segment, in accordance with the provisions of Accounting Standards Codification topic 350, Intangibles—Goodwill and Other (ASC 350).

The Company performs its analysis for each reporting unit that constitutes a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other components of the operating segment, in accordance with the provisions of FASB ASC Topic 350, Intangibles—Goodwill and Other (ASC 350).

This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, a "Step 0" analysis.

4 unchanged sentences

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 June 30, 2021.

The Company anticipates that the majority of total goodwill recognized will be fully deductible for tax purposes as of September 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 skilled service segment and "all other" category, which includes other ancillary services, as of and for the six months ended June 30, 2021:

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 nine months ended September 30, 2021:

Skilled Services All Other Total

1 unchanged sentence

Additions 6,000 — 6,000

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

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

Other indefinite-lived intangible assets consist of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Trade name $ 889 $ 889

1 unchanged sentence

$ 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:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Debt issuance costs, net $ 2,131 $ 2,664

4 unchanged sentences

Restricted and other assets $ 44,382 $ 33,155

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.

Included in restricted and other assets as of September 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.

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

The plan allows for the employee deferrals to be deposited into a rabbi trust and the funds are generally invested in individual variable life insurance contracts owned by the Company that are specifically designed to informally fund savings plans of this nature.

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.

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 .

For the three months ended September 30, 2021, the Company recorded loss on the investment acquired in connection with our deferred compensation plan that was not material.

For the nine months ended September 30, 2021, the Company recorded net income on the investment acquired in connection with our deferred compensation plan of $ 940 , which is included in other income (expense), net, and an offsetting expense of $ 1,046 between cost of services and general and administrative expenses.

For the three and nine months ended September 30, 2020, the Company recorded income on the investment acquired in connection with our deferred compensation plan of $ 252 and $ 710 , respectively.

During the same periods, the Company recorded an offsetting expense of $ 268 and $ 657 , respectively, between cost of services and general and administrative expenses.

1 unchanged sentence

Other accrued liabilities consists of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Quality assurance fee $ 6,470 $ 6,631

14 unchanged sentences

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

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.

During 2021, the statutes of limitations will lapse on the Company's 2017 Federal tax year and certain 2016 and 2017 state tax years.

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 six months ended June 30, 2021 and 2020.

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

The Company recorded income tax expense of $ 43,220 and $ 37,026 during the nine months ended September 30, 2021 and 2020, respectively, or 22.5 % of earnings before income taxes for the nine months ended September 30, 2021, compared to 22.8 % for the nine months ended September 30, 2020.

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

During the current quarter, the state of Wisconsin initiated an examination of the Company's income tax returns for fiscal years 2017, 2018 and 2019.

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

During 2021, the statutes of limitations will lapse on the Company's 2017 Federal tax year and certain 2016 and 2017 state tax years.

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 nine months ended September 30, 2021 and 2020.

Debt consists of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Mortgage loans and promissory notes $ 147,306 $ 117,806

3 unchanged sentences

Mortgage Loans and Promissory Notes

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.

As of September 30, 2021, the Company's operating subsidiaries had $ 147,306 outstanding under the mortgage loans and notes, of which $ 3,548 is classified as short-term and the remaining $ 143,758 is classified as long-term.

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

During nine months ended September 30, 2021, three of the Company's subsidiaries entered into the Department of Housing and Urban Development (HUD) mortgage loans in the aggregate amount of $ 31,420 .

As a result, 22 of the Company's subsidiaries have mortgage loans insured with HUD in the aggregate amount of $ 143,776 , as of September 30, 2021, which subjects these subsidiaries to HUD oversight and periodic inspections.

The mortgage loans bear effective interest rates range of 3.1 % to 4.2 %, including fixed interest rates range of 2.4 % to 3.3 % per annum.

In addition to the interest rate, we incur other fees for HUD placement, including but not limited to audit fees.

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

3 unchanged sentences

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 notes bear fixed interest rates of 5.0 % and 5.3 % per annum and the term of the notes are ten months and 12 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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THE ENSIGN GROUP, INC.

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

Credit Facility with a Lending Consortium Arranged by Truist

9 unchanged sentences

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 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)

As of September 30, 2021, and October 22, 2021, there was no outstanding debt under the Credit Facility.

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

Off-Balance Sheet Arrangements

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.

As of September 30, 2021, the Company had approximately $ 6,544 o n the Credit Facility of borrowing capacity pledged as collateral to secure outstanding letters of credit, which is a reduction of $ 1,036 from the second quarter.

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 and six months ended June 30, 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 nine months ended September 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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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.

As of September 30, 2021, there were approximately 2,270 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 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:

The Company granted 151 and 496 stock options during the three and nine months ended September 30, 2021, respectively.

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THE ENSIGN GROUP, INC.

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

The Company used the following assumptions for stock options granted during the three months ended September 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 160 0.4 % 6.3 years 41.8 % 0.3 %

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

The Company used the following assumptions for stock options granted during the nine months ended September 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 540 0.7 % 6.2 years 38.8 % 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:

For the nine months ended September 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 540 $ 50.46 $ 18.62

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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:

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 September 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 nine months ended September 30, 2021:

Number of Options Outstanding Weighted Average

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Exercised ( 463 ) 17.51

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:

September 30, 2021 3,994 $ 35.35 2,129 $ 20.25

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THE ENSIGN GROUP, INC.

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

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

Stock Options Outstanding Stock Options Vested

13 unchanged sentences

Total 3,994 $ 53,402 2,129

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

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

Options September 30, 2021 December 31, 2020

Outstanding $ 161,371 $ 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 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.

The aggregate intrinsic value of options that vested during the nine months ended September 30, 2021 and 2020 was $ 18,500 and $ 13,681 , respectively.

The total intrinsic value of options exercised during the nine months ended September 30, 2021 and 2020 was $ 31,167 and $ 21,044 , respectively.

Restricted Stock Awards

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.

The Company granted 51 and 195 restricted stock awards during the three and nine months ended September 30, 2021, respectively.

The Company granted 48 and 242 restricted stock awards during the three and nine months ended September 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 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 of restricted awards granted during the nine months ended September 30, 2021 and 2020 ranged from $ 82.20 to $ 93.31 and $ 35.47 to $ 58.06 , respectively.

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

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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:

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

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

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Forfeited ( 16 ) 45.65

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.

Nonvested at September 30, 2021 557 $ 50.43

During the three and nine months ended September 30, 2021, the Company granted six and 17 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.

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THE ENSIGN GROUP, INC.

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

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 $ 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,

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 248 and $ 651 for the three and nine months ended September 30, 2021, respectively, compared to $ 286 and $ 675 for the three and nine months ended September 30, 2020, respectively.

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Total $ 5,082 $ 4,173 $ 13,769 $ 10,936

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.

In future periods, the Company expects to recognize approximately $ 34,086 and $ 29,021 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of September 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 1,848 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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THE ENSIGN GROUP, INC.

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

There were 1,865 unvested and outstanding options as of September 30, 2021, of which 1,754 shares are expected to vest.

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

The Company leases from CareTrust REIT, Inc.

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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.

In the third quarter of 2021, the Company added two operations and extended the term for one of the Master Leases for an additional 17 years.

As a result, the total lease liabilities and right-of-use assets increased by $ 54,716 and $ 63,374 , respectively, to reflect the new lease obligations.

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

If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term as well as maintenance and repair costs for the leased property.

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THE ENSIGN GROUP, INC.

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

The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5 %.

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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 $ 14,419 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

Total rent expense under the Master Leases was approximately $ 15,445 and $ 43,944 for the three and nine months ended September 30, 2021, respectively, and $ 13,139 and $ 39,394 for the three and nine months ended September 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 June 30, 2021.

The Company is in compliance with requirements of the Master Leases as of September 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.

The Company does not consider these guarantees to be probable and the likelihood of Pennant defaulting is remote, and therefore no liabilities have been accrued.

The Company also leases certain affiliated operations and its administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years.

The Company also leases certain affiliated operations and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years.

The Company has entered into multiple lease agreements with various landlords to operate newly constructed state-of-the-art, full-service healthcare resorts.

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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 $ 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.

Total rent expense inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 35,646 and $ 103,598 for the three and nine months ended September 30, 2021, respectively, and $ 32,520 and $ 97,366 for the three and nine months ended September 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.

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With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.

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THE ENSIGN GROUP, INC.

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

The components of operating lease expense are as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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$ 39,517 $ 36,038 $ 115,186 $ 107,991

(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.

(1) Rent - cost of services includes deferred rent expense adju stments of $ 125 and $ 346 for the three and nine months ended September 30, 2021, respectively, and $ 101 and $ 337 for the three and nine months ended September 30, 2020, respectively.

Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 1,127 and $ 2,543 for the three and nine months ended September 30, 2021, respectively, and $ 567 and $ 1,781 for the three and nine months ended September 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 June 30, 2021 are as follows:

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THE ENSIGN GROUP, INC.

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

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

2021 (remainder) $ 34,660

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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 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 %.

As of September 30, 2021, the weighted average remaining lease term is 14.9 years and the weighted average discount rate used to determine the operating lease liabilities is 7.7 %.

Subsequent to September 30, 2021, the Company expanded its operations through a long-term lease arrangement with the addition of three stand-alone skilled nursing facilities under a new triple-net master lease, adding a total of 328 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 $ 22,828 .

Lessor Activities

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The initial terms range between 14 to 16 years.

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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$ 3,933 $ 3,914 $ 11,837 $ 11,196

(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.

(1) Pennant rental income includes variable rent such as property taxes of $ 301 and $ 881 during the three and nine months ended September 30, 2021 and $ 312 and $ 909 for the three and nine months ended September 30, 2020.

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

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

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

Year Amount (1)

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Total $ 160,773

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

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

COMMITMENTS AND CONTINGENCIES

Regulatory Matters — Laws and regulations governing Medicare and Medicaid programs are complex and subject to review and interpretation.

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 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.

Compliance with such laws and regulations is evaluated regularly, the results of which can be subject to future governmental review and interpretation, and can include significant regulatory action including fines, penalties, and exclusion from certain governmental programs.

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, the terms of which require healthcare providers (among other things) to safeguard the privacy and security of certain patient protected 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.

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As a general matter, the Company’s independent operating entities have established and maintain policies and procedures to promote compliance with the False Claims Act, the Anti-Kickback Statute, and other applicable regulatory requirements.

The Company has fully cooperated with the U.S.

Department of Justice and promptly responded to the requests for information, and has been advised that the U.S.

The Company fully cooperated with the U.S.

Department of Justice and promptly responded to its requests for information;

in April 2020, the Company was advised that the U.S.

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

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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.

House of Representatives Select Subcommittee on the Coronavirus Crisis launched a nation-wide investigation into the COVID-19 pandemic, which included 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 in connection with its investigation.

The Company has cooperated 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, which could have a material adverse effect on our reputation, business, financial condition, and results of operations.

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Such exclusions could have a correlative negative impact on the Company’s financial performance.

Under the qui tam or "whistleblower" provisions of the False Claims Act, a private individual with knowledge of fraud may bring a claim on behalf of the Federal Government and receive a percentage of the Federal Government's recovery.

Under the qui tam or "whistleblower" provisions of the False Claims Act, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the Federal Government and receive a percentage of the Federal Government's recovery.

Due to these whistleblower incentives, qui tam lawsuits have become more frequent.

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 and certain of its independent operating subsidiaries have 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 involved 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.

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

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.

These class-action “staffing” suits have the potential to result in large jury verdicts and settlements, and may result in significant legal costs.

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While the Company has been able to settle these claims without an ongoing material adverse effect on its business, future claims could be brought that may materially affect its business, financial condition and results of operations.

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

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, 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.

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If any such inquiry, investigation or litigation were to proceed, and the Company and its independent operating subsidiaries are subjected to, alleged to be liable for, or agree to a settlement of, claims or obligations under Federal Medicare statutes, the Federal False Claims Act, or similar state and federal statutes and related regulations, or if the Company or its independent operating subsidiaries are alleged or found to be liable on theories of general or professional negligence or wage and hour violations, the Company's business, financial condition and results of operations and cash flows could be materially and adversely affected and its stock price could be adversely impacted.

Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged violations, and may also include the assumption of specific procedural and financial obligations by the Company or its operating subsidiaries going forward under a corporate integrity agreement and/or other such arrangement.

Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged violations, and may also include the assumption of specific procedural and financial obligations by the Company or its operating subsidiaries under a corporate integrity agreement and/or other such arrangement.

Medicare Revenue Recoupments — The Company's independent operating entities are subject to regulatory reviews relating to the provision of Medicare services, billings and potential overpayments as a result of Recovery Audit Contractors (RAC), Program Safeguard Contractors, and Medicaid Integrity Contractors programs (collectively referred to as Reviews).

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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.

As of September 30, 2021 and subsequently, seven 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 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.

The Company’s receivables from Medicare and Medicaid payor programs accounted for 53.7 % and 58.3 % of its total accounts receivable as of September 30, 2021 and December 31, 2020, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 73.6 % of the Company's service revenue for both the three and nine months ended September 30, 2021, and 75.5 % and 74.0 % for the three and nine months ended September 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 July 23, 2021, the Company had approximately $ 761 in uninsured cash deposits.

As of October 22, 2021, the Company had approximately $ 677 in uninsured cash deposits.

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

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THE ENSIGN GROUP, INC.

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

COMMON STOCK REPURCHASE PROGRAM

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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.

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The Company repurchased 138 shares of its common stock for a total of $ 6,406 in fiscal year 2019 before the repurchase program was cancelled in the first quarter of 2020.

On October 21, 2021, the Board of Directors approved the Company to enter 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 that starts on October 29, 2021.

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

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