ENSIGN GROUP, INC 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE ENSIGN GROUP, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm 91 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2022 and 2 021 92 Consolidated Statements of Income for the Years Ended December 31, 2022 , 2021 and 2 020 93 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2022 , 2021 and 2 020 94 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 , 2021 and 2 020 95 Notes to Consolidated Financial Statements 96 90 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of The Ensign Group, Inc. San Juan Capistrano, California Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Ensign Group, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 2, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Self-Insurance Liabilities (General and Professional Liability Claims) - Refer to Notes 2 and 19 to the financial statements Critical Audit Matter Description The Company's self-insurance liabilities for general and professional liability claims totaled $87.0 million at December 31, 2022. The Company develops information about the size of the ultimate claims based on historical experience, current industry information, and actuarial analysis. The determination of reserves for general and professional liability claims is highly subjective. Given the significant judgments in estimating the general and professional liability claims, we have determined this to be a critical audit matter. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management estimates of reserves for open claims as well as for claims that are incurred but not reported (IBNR). How the Critical Audit Matter Was Addressed in the Audit Our audit procedures relating to management’s judgment regarding the estimation of the reserve for general and professional liability claims included the following, among others: • We tested the effectiveness of controls over the reserve for general and professional liabilities, including those related to both the determination of reserves for open claims and estimation of the IBNR claims. • We obtained an understanding of the factors considered and assumptions made by management and its external actuarial specialists in developing the estimate of the general and professional liability reserves, including the sources of data relevant to these factors and assumptions. We tested underlying claims data, including testing the completeness and accuracy of open cases handled by legal firms. • We involved our actuarial specialists to assist in our evaluation of the methodologies applied by management's specialist and to assess the accuracy of the Company's reserves. We also compared the reserves recorded to an independent range developed by our actuarial specialists. • We performed a retrospective review in which we compared the current portion of the total liability at the end of the prior year to actual paid claim emergence in the current year. /s/ DELOITTE & TOUCHE LLP Costa Mesa, California February 2, 2023 We have served as the Company's auditor since 1999. 91 Table of Contents THE ENSIGN GROUP, INC. CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 (In thousands, except par values) ASSETS Current assets: Cash and cash equivalents $ 316,270 $ 262,201 Accounts receivable—less allowance for doubtful accounts of $ 7,802 and $ 11,213 at December 31, 2022 and 2021, respectively 408,432 328,731 Investments—current 15,441 13,763 Prepaid income taxes 4,643 5,452 Prepaid expenses and other current assets 36,339 29,562 Total current assets 781,125 639,709 Property and equipment, net 992,010 888,434 Right-of-use assets 1,450,995 1,138,872 Insurance subsidiary deposits and investments 67,652 54,097 Deferred tax assets 39,643 33,147 Restricted and other assets 37,291 29,516 Intangible assets, net 2,465 2,652 Goodwill 76,869 60,469 Other indefinite-lived intangibles 3,972 3,727 TOTAL ASSETS $ 3,452,022 $ 2,850,623 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 77,087 $ 58,116 Accrued wages and related liabilities (Note 3) 289,810 278,770 Lease liabilities—current 65,796 52,181 Accrued self-insurance liabilities—current 48,187 40,831 Other accrued liabilities 97,309 89,410 Current maturities of long-term debt 3,883 3,760 Total current liabilities 582,072 523,068 Long-term debt—less current maturities 149,269 152,883 Long-term lease liabilities—less current portion 1,355,113 1,056,515 Accrued self-insurance liabilities—less current portion 83,495 69,308 Other long-term liabilities 33,273 27,135 TOTAL LIABILITIES $ 2,203,222 $ 1,828,909 Commitments and contingencies (Notes 16, 18 and 21) EQUITY Ensign Group, Inc. stockholders' equity: Common stock: $ 0.001 par value; 100,000 shares authorized; 59,029 and 55,661 shares issued and outstanding at December 31, 2022, respectively, and 58,134 and 55,190 shares issued and outstanding at December 31, 2021, respectively 59 58 Additional paid-in capital 415,560 369,760 Retained earnings 946,339 733,992 Common stock in treasury, at cost, 3,368 and 2,944 shares at December 31, 2022 and 2021, respectively (Note 22) ( 114,626 ) ( 83,042 ) Total Ensign Group, Inc. stockholders' equity 1,247,332 1,020,768 Non-controlling interest 1,468 946 Total equity $ 1,248,800 $ 1,021,714 TOTAL LIABILITIES AND EQUITY $ 3,452,022 $ 2,850,623 See accompanying notes to consolidated financial statements. 92 Table of Contents THE ENSIGN GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2022 2021 2020 (In thousands, except per share data) REVENUE Service revenue $ 3,008,711 $ 2,611,476 $ 2,387,439 Rental revenue 16,757 15,985 15,157 TOTAL REVENUE $ 3,025,468 $ 2,627,461 $ 2,402,596 Expense: Cost of services 2,354,434 2,019,879 1,865,201 Rent—cost of services 153,049 139,371 129,926 General and administrative expense 158,805 151,761 129,743 Depreciation and amortization 62,355 55,985 54,571 TOTAL EXPENSES $ 2,728,643 $ 2,366,996 $ 2,179,441 Income from operations 296,825 260,465 223,155 Other (expense) income: Interest expense ( 8,931 ) ( 6,849 ) ( 9,362 ) Other income 1,195 4,388 3,813 Other expense, net $ ( 7,736 ) $ ( 2,461 ) $ ( 5,549 ) Income before provision for income taxes 289,089 258,004 217,606 Provision for income taxes 64,437 60,279 46,242 NET INCOME $ 224,652 $ 197,725 $ 171,364 Less: Net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886 Net income attributable to The Ensign Group, Inc. $ 224,681 $ 194,652 $ 170,478 NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC. Basic $ 4.09 $ 3.57 $ 3.19 Diluted $ 3.95 $ 3.42 $ 3.06 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 54,887 54,486 53,434 Diluted 56,871 56,925 55,787 See accompanying notes to consolidated financial statements. 93 Table of Contents THE ENSIGN GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Non-Controlling Interest (In thousands) Shares Amount Shares Amount Total BALANCE - JANUARY 1, 2020 53,487 $ 56 $ 307,914 $ 391,523 2,079 $ ( 45,296 ) $ 1,947 $ 656,144 Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards 979 1 12,654 — — — — 12,655 Issuance of restricted stock, net of forfeitures 872 1 3,085 — — — — 3,086 Shares of common stock used to satisfy tax withholding obligations ( 20 ) — — — 20 ( 917 ) — ( 917 ) Dividends declared ($ 0.2025 per share) — — — ( 10,946 ) — — — ( 10,946 ) Employee stock award compensation — — 14,524 — — — — 14,524 Repurchase of common stock (Note 22) ( 692 ) — — — 692 ( 25,000 ) — ( 25,000 ) Net income attributable to noncontrolling interest — — — — — — 886 886 Distribution to noncontrolling interest holder — — — — — — ( 2,683 ) ( 2,683 ) Net income attributable to the Ensign Group, Inc. — — — 170,478 — — — 170,478 BALANCE - DECEMBER 31, 2020 54,626 $ 58 $ 338,177 $ 551,055 2,791 $ ( 71,213 ) $ 150 $ 818,227 Issuance of common stock to employees and directors resulting from the exercise of stock options 516 — 9,180 — — — — 9,180 Issuance of restricted stock, net of forfeitures 201 — 3,725 — — — — 3,725 Shares of common stock used to satisfy tax withholding obligations ( 21 ) — — — 21 ( 1,711 ) — ( 1,711 ) Dividends declared ($ 0.2125 per share) — — — ( 11,715 ) — — — ( 11,715 ) Employee stock award compensation — — 18,678 — — — — 18,678 Repurchase of common stock (Note 22) ( 132 ) — — — 132 ( 10,118 ) — ( 10,118 ) Deconsolidation of an ancillary business — — — — — — ( 1,369 ) ( 1,369 ) Capital contribution from noncontrolling interest holder — — — — — — 2,000 2,000 Net income attributable to noncontrolling interest — — — — — — 3,073 3,073 Distribution to noncontrolling interest holder — — — — — — ( 2,908 ) ( 2,908 ) Net income attributable to the Ensign Group, Inc. — — — 194,652 — — — 194,652 BALANCE - DECEMBER 31, 2021 55,190 $ 58 $ 369,760 $ 733,992 2,944 $ ( 83,042 ) $ 946 $ 1,021,714 Issuance of common stock to employees and directors resulting from the exercise of stock options 688 1 12,676 — — — — 12,677 Issuance of restricted stock, net of forfeitures 207 — 5,241 — — — — 5,241 Shares of common stock used to satisfy tax withholding obligations ( 20 ) — — — 20 ( 1,702 ) — ( 1,702 ) Dividends declared ($ 0.2225 per share) — — — ( 12,334 ) — — — ( 12,334 ) Employee stock award compensation — — 22,720 — — — — 22,720 Repurchase of common stock (Note 22) ( 404 ) — — — 404 ( 29,882 ) — ( 29,882 ) Acquisition of noncontrolling interest shares — — ( 1,539 ) — — — 835 ( 704 ) Issuance of noncontrolling interests through subsidiary equity plan — — 6,693 — — — — 6,693 Net loss attributable to noncontrolling interest — — — — — — ( 29 ) ( 29 ) Distribution to noncontrolling interest holder and other changes — — 9 — — — ( 284 ) ( 275 ) Net income attributable to the Ensign Group, Inc. — — — 224,681 — — — 224,681 BALANCE - DECEMBER 31, 2022 55,661 $ 59 $ 415,560 $ 946,339 3,368 $ ( 114,626 ) $ 1,468 $ 1,248,800 See accompanying notes to consolidated financial statements. 94 Table of Contents THE ENSIGN GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 224,652 $ 197,725 $ 171,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 62,355 55,985 54,571 Impairment of long-lived assets — — 2,681 Amortization of deferred financing fees 1,036 859 840 Non-cash leasing arrangement 493 485 451 Write-off of deferred financing fees 566 — — Deferred income taxes ( 6,496 ) ( 724 ) ( 27,809 ) Provision for doubtful accounts 2,390 2,609 7,058 Stock-based compensation 22,720 18,678 14,524 Cash received from insurance proceeds 1,282 2,382 — Gain on sale of assets ( 3,467 ) ( 1,371 ) — Loss (gain) on insurance claims, legal finding and asset disposals 3,926 ( 977 ) 625 Change in operating assets and liabilities Accounts receivable ( 82,426 ) ( 30,771 ) 2,171 Prepaid income taxes 809 ( 4,228 ) ( 485 ) Prepaid expenses and other assets ( 9,141 ) ( 4,898 ) ( 2,897 ) Deferred employer portion of social security taxes ( 24,155 ) ( 24,154 ) 48,309 Cash surrender value of life insurance policy premiums ( 7,614 ) ( 10,953 ) ( 6,577 ) Deferred compensation liability 7,637 11,078 6,615 Operating lease obligations 345 ( 5,814 ) ( 724 ) Accounts payable 17,870 7,117 6,627 Accrued wages and related liabilities 38,982 47,701 68,365 Other accrued liabilities 3,010 1,297 17,536 Accrued self-insurance liabilities 17,785 13,724 10,293 Other long-term liabilities ( 46 ) ( 66 ) ( 187 ) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 272,513 $ 275,684 $ 373,351 Cash flows from investing activities: Purchase of property and equipment ( 87,545 ) ( 69,550 ) ( 50,326 ) Cash payments for business acquisitions (Note 9) ( 16,400 ) ( 6,000 ) — Cash payments for asset acquisitions (Note 9) ( 84,736 ) ( 98,224 ) ( 24,997 ) Escrow deposits — 100 ( 100 ) Escrow deposits used to fund acquisitions — — 14,050 Cash from insurance proceeds 1,339 6,899 800 Cash proceeds from the sale of assets 8,630 1,854 412 Deconsolidation of an ancillary business — ( 1,984 ) — Cash payments for Medicare and Medicaid licenses — ( 106 ) — Purchases of investments ( 21,975 ) ( 32,257 ) ( 21,708 ) Maturities of investments 14,356 27,481 24,479 Other restricted assets 149 ( 2,120 ) ( 1,276 ) NET CASH USED IN INVESTING ACTIVITIES $ ( 186,182 ) $ ( 173,907 ) $ ( 58,666 ) Cash flows from financing activities: Proceeds from debt (Note 16) 411 45,218 417,200 Payments on debt (Note 16) ( 4,106 ) ( 3,056 ) ( 629,745 ) Issuance of common stock upon exercise of options 12,677 9,180 12,654 Repurchase of shares of common stock to satisfy tax withholding obligations ( 1,702 ) ( 1,711 ) ( 917 ) Repurchase of shares of common stock (Note 22) ( 29,882 ) ( 10,118 ) ( 25,000 ) Dividends paid ( 12,168 ) ( 11,548 ) ( 10,830 ) Proceeds from sale of subsidiary shares (Note 7) 6,693 — — Non-controlling interest distribution ( 284 ) ( 2,908 ) ( 2,683 ) Purchase of non-controlling interest ( 704 ) 2,000 — Payments of deferred financing costs ( 3,197 ) ( 1,172 ) — Proceeds from CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3) — 11,637 246,955 Repayments of CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3) — ( 113,660 ) ( 144,932 ) NET CASH USED IN FINANCING ACTIVITIES $ ( 32,262 ) $ ( 76,138 ) $ ( 137,298 ) Net increase in cash and cash equivalents 54,069 25,639 177,387 Cash and cash equivalents beginning of period 262,201 236,562 59,175 Cash and cash equivalents end of period $ 316,270 $ 262,201 $ 236,562 Year Ended December 31, (In thousands) 2022 2021 2020 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 7,604 $ 5,690 $ 9,920 Income taxes $ 70,055 $ 65,547 $ 74,365 Lease liabilities $ 151,870 $ 138,795 $ 129,569 Non-cash financing and investing activity Accrued capital expenditures $ 4,800 $ 3,700 $ 3,400 Accrued dividends declared $ 3,201 $ 3,035 $ 2,868 Note receivable from insurance settlement $ — $ — $ 5,500 Right-of-use assets obtained in exchange for new and modified operating lease obligations $ 370,753 $ 198,593 $ 24,599 See accompanying notes to consolidated financial statements. 95 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Dollars, shares and options in thousands, except per share data) 1. DESCRIPTION OF BUSINESS The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent operating subsidiaries provide 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 December 31, 2022, the Company's independent operating subsidiaries operated 271 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 independent operating subsidiaries have a collective capacity of approximately 28,100 operational skilled nursing beds and 3,000 senior living units. As of December 31, 2022, the Company's independent operating subsidiaries operated 192 facilities under long-term lease arrangements, and had options to purchase 11 of those 192 facilities. The Company's real estate portfolio includes 108 owned real estate properties, which included 79 facilities operated and managed by the Company's independent operating subsidiaries, 29 senior living operations leased to and operated by The Pennant Group, Inc. (Pennant) as part of the spin-off transaction in October 2019, and the Service Center location. Of those 29 senior living operations, one is located on the same real estate property as a skilled nursing facility that the Company owns and operates. Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other operating subsidiaries through contractual relationships with such subsidiaries. The Company also has a wholly-owned captive insurance subsidiary that provides some claims-made coverage to the Company’s operating subsidiaries for general and professional liabilities, as well as coverage for certain workers’ compensation insurance liabilities. In January of 2022, the Company formed a captive real estate investment trust (REIT), which owns and manages its real estate business, called Standard Bearer Healthcare REIT, Inc. (Standard Bearer). The Company expects the REIT structure will provide it with an efficient vehicle for future acquisitions of properties that could be operated by Ensign affiliates or other third parties. Refer to Note 7, Standard Bearer for additional information on Standard Bearer. Each of the Company's affiliated operations are operated by separate, wholly-owned, independent subsidiaries that have their own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Annual Report is not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries, are operated by The Ensign Group, Inc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The accompanying consolidated financial statements (the Financial Statements) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interest in its consolidated statements of income. The Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest. Reclassifications — Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net income. Prior period results reflect reclassifications, for comparative purposes, related to the change in the Company's segment structure as a result of the formation of Standard Bearer. Refer to Note 8, Business Segments. Reclassification adjustments have been made to reclassify investments associated with the Company's non-qualified deferred compensation plan with investments held by the Company's captive insurance subsidiary on the consolidated balance sheets. 96 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Estimates and Assumptions — The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Financial Statements relate to revenue, acquired property and equipment, intangible assets and goodwill, right-of-use assets, impairment of long-lived assets, lease liabilities, general and professional liabilities, workers' compensation and healthcare claims included in accrued self-insurance liabilities, and income taxes. Actual results could differ from those estimates. Fair Value of Financial Instruments — The Company’s financial instruments consist principally of cash and cash equivalents, debt security investments, accounts receivable, insurance subsidiary deposits, accounts payable and borrowings. The Company believes all of the financial instruments’ recorded values approximate fair values because of their nature or respective short durations. See Note 6, Fair Value Measurements. 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. 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 in accordance with FASB ASC Topic 842, Leases (ASC 842). 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. Cash and Cash Equivalents — Cash and cash equivalents consist of bank term deposits, money market funds and treasury bill related investments with original maturities of three months or less at time of purchase and therefore approximate fair value. The fair value of money market funds is determined based on “Level 1” inputs, which consist of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets. The Company places its cash and short-term investments with high credit quality financial institutions. Insurance Subsidiary Deposits and Investments — The Company's captive insurance subsidiary cash and cash equivalents, deposits and investments are designated to support long-term insurance subsidiary liabilities and have been classified as short-term and long-term assets based on the timing of expected future payments of the Company's captive insurance liabilities. The majority of these deposits and investments are currently held in AA, A and BBB rated debt security investments and the remainder is held in a bank account with a high credit quality financial institution. The Company's non-qualified deferred compensation plan (the DCP)'s contracts insuring the lives of certain employees who are eligible to participate in the DCP are held in a rabbi trust. Cash surrender value of the contracts is based on funds that shadow the investment allocations specified by participants in the deferred compensation plan. The fair value of the investment funds is derived using Level 2 inputs. When evaluating an investment for its current expected credit losses, the Company reviews factors such as historical experience with defaults, losses, credit ratings, term, market sector and macroeconomic trends, including current conditions and forecasts to the extent they are reasonable and supportable. Property and Equipment — Property and equipment are initially recorded at their historical cost. Repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from three to 59 years). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. 97 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Leases and Leasehold Improvements — The Company leases skilled nursing facilities, senior living facilities and commercial office space. The Company determines if an arrangement is a lease at the inception of each lease. 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 December 31, 2022, 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 consolidated balance sheets. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of future lease payments. The Company utilized a third-party valuation specialist to assist in estimating the incremental borrowing rate. The Company records rent expense for operating leases on a straight-line basis over the term of the lease. The lease term used for straight-line rent expense is calculated from the date the Company is given control of the leased premises through the end of the lease term. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. 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 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. These leases are not recorded on the consolidated balance sheets. Certain of the Company's lease agreements include rental payments that are adjusted periodically for inflation. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not have material subleases. Impairment of Long-Lived Assets — The Company reviews the carrying value of long-lived assets that are held and used in the Company’s operating subsidiaries for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operating subsidiaries to which the assets relate, utilizing management’s best estimate, appropriate assumptions, and projections at the time. If the carrying value is determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset. 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 years ended December 31, 2022 and 2021. The Company recorded an impairment charge of $ 2,681 during the year ended December 31, 2020. Intangible Assets and Goodwill — Definite-lived intangible assets consist primarily of patient base, facility trade names and customer relationships. Patient base is amortized over a period of four to eight months , depending on the classification of the patients and the level of occupancy in a new acquisition on the acquisition date. Trade names at affiliated facilities are amortized over 30 years and customer relationships are amortized over a period of up to 20 years. The Company's indefinite-lived intangible assets consist of trade names, and Medicare and Medicaid licenses. 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. Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is subject to annual testing for impairment. In addition, goodwill is tested for impairment if events occur or circumstances indicate that its carrying value may not be recoverable. The Company performs its annual test for impairment during the fourth quarter of each year. The Company did not identify any goodwill or intangible asset impairment during the years ended December 31, 2022, 2021, and 2020. 98 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Self-Insurance — The Company is partially self-insured for general and professional liability claims up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. The combined self-insured retention is $ 500 per claim, subject to an additional one-time deductible of $ 1,000 for California affiliated operations and a separate, one-time, deductible of $ 1,250 for non-California operations. For all affiliated operations, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 5,000 blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits is $ 1,000 per claim and $ 3,000 per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado. The majority of the self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities are self-insured through the captive insurance subsidiary, the related assets and liabilities of which are included in the accompanying consolidated balance sheets. The captive insurance subsidiary is subject to certain statutory requirements as an insurance provider. The Company’s policy is to accrue amounts equal to the actuarial estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported. The Company develops information about the size of the ultimate claims based on historical experience, current industry information and actuarial analysis, and evaluates the estimates for claim loss exposure on a quarterly basis. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information. The Company’s operating subsidiaries are self-insured for workers’ compensation liabilities in California. To protect itself against loss exposure in California with this policy, the Company has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 625 per occurrence. In Texas, the operating subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $ 750 per occurrence. The Company’s operating subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $ 350 per occurrence. In the state of Washington, the Company is self-insured and has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 500 per occurrence. For all of the self-insured plans and retention, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information. In addition, the Company has recorded an asset and equal liability in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis. See Note 13, Restricted and Other Assets. The Company self-funds medical (including prescription drugs) and dental healthcare benefits to the majority of its employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 , $ 500 and $ 300 for each covered person for fiscal years 2022, 2021 and 2020, respectively. The Company believes that adequate provision has been made in the Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date. The amount of the Company’s reserves was determined based on an estimation process that uses information obtained from both company-specific and industry data. This estimation process requires the Company to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and the Company’s assumptions about emerging trends, the Company, with the assistance of an independent actuary, develops information about the size of ultimate claims based on the Company’s historical experience and other available industry information. The most significant assumptions used in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damage awards with respect to unpaid claims. The self-insured liabilities are based upon estimates, and while management believes that the estimates of loss are reasonable, the ultimate liability may be in excess of or less than the recorded amounts. Due to the inherent volatility of actuarially determined loss estimates, it is reasonably possible that the Company could experience changes in estimated losses that could be material to net income. If the Company’s actual liabilities exceed its estimates of losses, its future earnings, cash flows and financial condition would be adversely affected. 99 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE 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. The Company generally expects to fully utilize its deferred tax assets; however, when necessary, the Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. In determining the need for a valuation allowance or the need for and magnitude of liabilities for uncertain tax positions, the Company makes certain estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with the Company’s estimates and assumptions, actual results could differ. Standard Bearer intends to qualify and elect to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2022. Standard Bearer believes it has been organized, has operated and intends to continue to operate in a manner to qualify for taxation as a REIT. In order to qualify as a REIT, Standard Bearer must meet certain organizational and operational requirements, including a requirement to distribute to its shareholders, which in this case is the Company, at least 90% of its annual taxable income. As a REIT, Standard Bearer generally will not be subject to federal income tax to the extent it distributes as qualifying dividends all of its REIT taxable income to its shareholders. If Standard Bearer fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Noncontrolling Interest — The noncontrolling interest in a subsidiary is initially recognized at estimated fair value on the acquisition date and is presented within total equity in the Company's consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to The Ensign Group, Inc. in its consolidated statements of income. Net income per share is calculated based on net income attributable to The Ensign Group, Inc.'s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest. Stock-Based Compensation — The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors including employee stock options based on estimated fair values, ratably over the requisite service period of the award. Net income has been reduced as a result of the recognition of the fair value of all stock options and restricted stock awards issued, the amount of which is contingent upon the number of future grants and other variables. Comprehensive Income — The Company does not have any components of other comprehensive income recorded within its consolidated Financial Statements and, therefore, does not separately present a statement of comprehensive income in its consolidated Financial Statements. Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the FASB ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous generally accepted accounting principles and determines whether any new or modified principles will have a material impact on the Company's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company's financial management and certain standards are under consideration. Recent Accounting Standards Adopted by the Company — In November 2021, the FASB issued ASU 2021-10 “ Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, ” which created FASB ASC Topic 832, Government Assistance (ASC 832) . ASC 832 requires business entities to disclose information about certain government assistance they receive. The Company adopted this standard on January 1, 2022 and determined there was no material impact on the Company's Financial Statements. 100 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In February 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848)," which provides temporary, optional practical expedients and exceptions to enable a smoother transition to reference rates which are expected to replace London Interbank Offered Rate (LIBOR) reference rates. Adoption of the provisions of ASU 2020-04 is optional. The amendments are effective for all entities from the beginning of the interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2024. During the year ended December 31, 2022, the Company and its subsidiaries including Standard Bearer, entered into the Second Amendment to Third Amended and Restated Credit Agreement (such agreement, the Amended Credit Agreement, and the revolving credit facility thereunder, the Revolving Credit Facility), which increased the Revolving Credit Facility by $ 250,000 to an aggregate principal amount of up to $ 600,000 . Pursuant to the Amended Credit Agreement, the Company transitioned from LIBOR to the Secured Overnight Financing Rate (SOFR) as the applicable reference rate for borrowings under the Revolving Credit Facility and determined there was no resulting material impact on the Company's Financial Statements. 3. COVID-19 UPDATE The COVID-19 pandemic has continued to impact the Company's affiliated operations. In prior years, as part of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act), the Company received cash distributions of relief fund payments (Provider Relief Funds) 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 (LTC) facilities from the impact of COVID-19 . During the year ended December 31, 2022, the Company did not receive Provider Relief Funds. During the year ended December 31, 2021 and 2020, the Company received and returned $ 11,637 and $ 141,700 , respectively, in Provider Relief Funds. In fiscal year 2020, the Company applied for and received $ 105,255 through the Medicare Accelerated and Advance Payment Program under the CARES Act. The purpose of the program is to assist in providing needed liquidity to care delivery providers. The Company repaid $ 3,232 of the funds in 2020 and the remaining funds of $ 102,023 in March 2021. The Families 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. The law permits states to retroactively change their state's Medicaid program rates effective as of January 1, 2020. The law provides discretion to each state and specifies the funds are to be used to reimburse the recipient for healthcare related expenses that are attributable to COVID-19 and associated with providing patient care. In addition, increases in Medicaid rates can come from other areas of the state's budget outside of FMAP funding. Revenues from these additional payments are recognized in accordance with ASC 606, subject to variable consideration constraints. In certain operations where the Company received additional payments that exceeded expenses incurred related to COVID-19, the Company characterized such payments as variable revenue that required additional consideration and accordingly, the amount of state relief revenue recognized is limited to the actual COVID-19 related expenses incurred. As of December 31, 2022 and 2021, the Company had $ 1,001 and $ 1,781 in unapplied state relief funds, respectively. During the years ended December 31, 2022, 2021, and 2020, the Company received an additional $ 81,057 , $ 70,484 , and $ 51,927 in state relief funding and recognized $ 81,837 , $ 75,231 , and $ 45,407 , 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 approximately 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, and paid the first and second half of the payments in the fourth quarters of 2021 and 2022, respectively. 4. REVENUE AND ACCOUNTS RECEIVABLE Service Revenue The Company's service revenue is derived primarily from providing healthcare services to its patients. Revenue is recognized when services are provided to the patients at the amount that reflects the consideration to which the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care. The healthcare services in skilled patient contracts include routine services in exchange for a contractual agreed-upon amount or rate. Routine services are treated as a single performance obligation satisfied over time as services are rendered. As such, patient care services represent a bundle of services that are not capable of being distinct. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered. 101 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price. The Company determines the transaction price based on contractually agreed-upon amounts or rate on a per day basis, adjusted for estimates of variable consideration. The Company uses the expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. The amount of variable consideration which is included in the transaction price may be constrained, and is included in net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. 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 73.7 %, 73.6 % and 74.5 % for the years ended December 31, 2022, 2021, and 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. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity. Consistent with healthcare industry practices, any changes to these revenue estimates are recorded in the period the change or adjustment becomes known based on the final settlement. The Company recorded adjustments to revenue which were not material to the Company's revenue for the years ended December 31, 2022, 2021, and 2020. Rental Revenue The Company's rental revenues are primarily generated by leasing healthcare-related properties through triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property. Revenue is recognized on a straight-line basis over the lease term if it has been deemed probable of collection. The Company has elected the single component practical expedient, which allows a lessor, by class of underlying asset, not to allocate the total consideration to the lease and non-lease components based on their relative stand-alone selling prices where certain criteria are met. Tenant reimbursements related to property taxes and insurance are neither considered lease nor non-lease components under the new lease standards. Lessee payments for taxes and insurance paid directly to a third party, on behalf of the Company, are excluded from variable lease payments and rental revenue in the Company’s consolidated statements of income. Otherwise, tenant reimbursements for taxes and insurance that are paid by the Company directly to a third party are classified as additional rental revenue and expense and recognized by the Company on a gross basis. Disaggregation of Revenue The Company disaggregates revenue from contracts with its patients by payors. The Company determines that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue by Payor The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed. 102 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Service revenue for the years ended December 31, 2022, 2021, and 2020 is summarized in the following tables: Year Ended December 31, 2022 2021 2020 Revenue % of Revenue Revenue % of Revenue Revenue % of Revenue Medicaid (1) $ 1,183,156 39.3 % $ 1,022,460 39.2 % $ 900,249 37.7 % Medicare 832,160 27.7 727,103 27.8 727,374 30.5 Medicaid — skilled 200,878 6.7 172,770 6.6 149,846 6.3 Total Medicaid and Medicare 2,216,194 73.7 1,922,333 73.6 1,777,469 74.5 Managed care 525,710 17.5 456,728 17.5 367,095 15.4 Private and other (2) 266,807 8.8 232,415 8.9 242,875 10.1 SERVICE REVENUE $ 3,008,711 100.0 % $ 2,611,476 100.0 % $ 2,387,439 100.0 % (1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP and other COVID-19 related state funding. (2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services. In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 16,757 , $ 15,985 and $ 15,157 for the years ended December 31, 2022, 2021, and 2020. Balance Sheet Impact Included in the Company’s 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 December 31, 2022 and 2021, or activity during the years ended December 31, 2022, 2021, and 2020. Accounts receivable as of December 31, 2022 and 2021, is summarized in the following table: December 31, 2022 2021 Medicaid $ 157,878 $ 123,647 Managed care 95,940 79,722 Medicare 76,526 59,797 Private and other payors 85,890 76,778 416,234 339,944 Less: allowance for doubtful accounts ( 7,802 ) ( 11,213 ) ACCOUNTS RECEIVABLE, NET $ 408,432 $ 328,731 Practical Expedients and Exemptions As the Company’s contracts with its patients have an original duration of one year or less, the Company uses the practical expedient applicable to its contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue. In addition, the Company has applied the practical expedient provided by ASC 340, Other Assets and Deferred Costs , and all incremental customer contract acquisition costs are expensed as they are incurred because the amortization period would have been one year or less. 5. COMPUTATION OF NET INCOME PER COMMON SHARE Basic net income per share is computed by dividing income from operations attributable to stockholders of The Ensign Group, Inc. by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. 103 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows: Year Ended December 31, 2022 2021 2020 NUMERATOR: Net income $ 224,652 $ 197,725 $ 171,364 Less: net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886 Net income attributable to The Ensign Group, Inc. $ 224,681 $ 194,652 $ 170,478 DENOMINATOR: Weighted average shares outstanding for basic net income per share 54,887 54,486 53,434 Basic net income per common share: $ 4.09 $ 3.57 $ 3.19 A reconciliation of the numerator and denominator used in the calculation of diluted net income per common share follows: Year Ended December 31, 2022 2021 2020 NUMERATOR: Net income $ 224,652 $ 197,725 $ 171,364 Less: net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886 Net income attributable to The Ensign Group, Inc. $ 224,681 $ 194,652 $ 170,478 DENOMINATOR: Weighted average common shares outstanding 54,887 54,486 53,434 Plus: incremental shares from assumed conversion (1) 1,984 2,439 2,353 Adjusted weighted average common shares outstanding 56,871 56,925 55,787 Diluted net income per common share: $ 3.95 $ 3.42 $ 3.06 (1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 780 , 198 and 956 for th e years ended December 31, 2022, 2021 and 2020, respectively. 6. FAIR VALUE MEASUREMENTS Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; 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 $ 316,270 and $ 262,201 as of December 31, 2022 and 2021, respectively, is derived using Level 1 inputs. The Company's other financial assets include the captive insurance subsidiary's cash and cash equivalents, deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at cost basis of $ 69,290 and $ 67,734 as of December 31, 2022 and 2021, respectively. Also included are 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 funds that shadow the investment allocations specified by participants in the deferred compensation plan. As of December 31, 2022, and 2021, the adjusted cost basis of the investment funds is $ 25,144 and $ 17,530 , respectively. As of December 31, 2022 and 2021, the cost basis of the Company's financial assets included in the captive insurance subsidiary's investments and the deferred compensation plan investment funds are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs. 104 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company believes its investments that were in an unrealized loss position as of December 31, 2022 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so. The Company's non-financial assets, which includes goodwill, intangible assets, property and equipment and right-of-use assets, are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, the Company assesses its long-lived assets for impairment. When impairment has occurred, such long-lived assets are written down to fair value. 7. STANDARD BEARER Standard Bearer's real estate portfolio consists of 103 of the Company's 108 owned real estate properties, of which 75 are operated and managed by the Company and 29 are leased to and operated by Pennant. Of those 29 senior living operations, one is located on the same real estate property as a skilled nursing facility that the Company owns and operates. Standard Bearer intends to qualify and elect to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2022. During the year ended December 31, 2022, Standard Bearer acquired the real estate of ten skilled nursing facilities for a purchase price of $ 84,656 , three of which were previously operated and managed by Ensign's affiliated operations. Refer to Note 9, Operation Expansions for additional information. As part of the formation of Standard Bearer, certain of the Company's operating subsidiaries, Standard Bearer and Standard Bearer's subsidiaries entered into several agreements that include leasing, management services and debt arrangements between the operations. As these intercompany arrangements were entered into when Standard Bearer was formed in January 2022, the transactions related to these agreements are reflected in Standard Bearer's segment income during year ended December 31, 2022. All intercompany transactions have been eliminated in consolidation. Refer to Note 8, Business Segments , for additional information related to these intercompany eliminations as well as Standard Bearer as a reportable segment. Intercompany master lease agreements Certain of the Company's operating subsidiaries and the 75 Standard Bearer subsidiaries entered into five "triple-net" master lease agreements (collectively, the Standard Bearer Master Leases) in January 2022. The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions. The rent structure under the Standard Bearer Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero ) or (2) 2.5 %. In addition to rent, the operating subsidiaries are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties; (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. The ten real estate properties acquired during year ended December 31, 2022 were added to the Standard Bearer Master Leases. Rental revenue generated from Ensign affiliated operations was $ 57,967 , $ 44,165 and $ 40,946 for the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, total annual rental income under the Standard Bearer Master Lease is approximately $ 62.5 million. Intercompany management agreement Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5 % of total rental revenue and an incentive management fee that is equal to 5 % of funds from operations (FFO) and is capped at 1 % of total rental revenue. Management fee generated between Standard Bearer and the Service Center for the year ended December 31, 2022 was $ 4,367 , which represents 6 % of total Standard Bearer rental revenue. No management fees were recorded in 2021 and 2020, which was prior to the formation of Standard Bearer. Intercompany debt arrangements Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans. The intercompany debt arrangements include mortgage loans and the Revolving Credit Facility to fund acquisitions and working capital needs. The interest rate under the Amended Credit Agreement is a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin range from 1.25 % to 2.25 % per annum. 105 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory notes are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income. Refer to Note 16, Debt , for additional information related to these debts. Equity Instrument Denominated in the Shares of a Subsidiary As part of the formation of Standard Bearer in January of 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's affiliated subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted stock awards is tied to the value of the common stock of Standard Bearer, which is determined based on an independent valuation of Standard Bearer. The awards can be put to Standard Bearer at various prescribed dates, which in no event is earlier than six months after vesting of the restricted awards or exercise of the stock options. The Company can also call the awards, generally upon employee termination. During the year ended December 31, 2022, Standard Bearer sold fully vested common shares from the Standard Bearer Equity Plan to shareholders for cash of $ 6,544 . During the year ended December 31, 2022, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan. During the year ended December 31, 2022, Standard Bearer established shareholders of its preferred shares through contributions of cash of $ 149 . These preferred shares were fully vested at the time of the contributions by the shareholders. The value of Standard Bearer common and preferred shares held by the Company are eliminated in consolidation and the value held by other shareholders are classified as noncontrolling interests on the Company's consolidated balance sheets. Dividends on Shares of a Subsidiary During the year ended December 31, 2022, Standard Bearer met the requirement to distribute to its shareholders at least 90% of its annual taxable income through a declaration and payment of cash dividends totaling $ 30,379 . Of that amount, $ 30,095 was paid in the form of a distribution to the Company and $ 284 was paid in the form of a distribution to noncontrolling interests. 8. BUSINESS SEGMENTS In conjunction with the formation of Standard Bearer in January 2022, the Company's Chief Executive Officer, who is its chief operating decision maker, or CODM, began reviewing the results of Standard Bearer instead of all real estate properties. Accordingly, the Company revised its former real estate segment to include only real estate properties that are part of Standard Bearer. This change in organizational structure demonstrates that Standard Bearer's real estate is a core part of the Company's expansion of its real estate investment strategy. As of the first quarter of 2022, the Company has two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators. Segment information for prior periods has been recast to reflect the change of the Company’s segment structure. As of December 31, 2022, the skilled services segment includes 234 skilled nursing operations and 26 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. The Company's Standard Bearer segment consists of 103 owned real estate properties. These properties include 75 operations the Company operated and managed and 29 senior living operations that are leased to and operated by third parties. Of the 29 real estate operations leased to third parties, one senior living operation is located on the same real estate property as a skilled nursing facility that the Company owns and operates. The Company also reports an “All Other” category that includes results from its senior living operations, which includes eleven stand-alone senior living operations and the senior living operations at 26 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate and other ancillary operations. Services included in the “All Other” category are insignificant individually, and therefore do not constitute a reportable segment. 106 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company’s reportable segments are significant operating segments that offer differentiated services. The Company's CODM reviews financial information for each operating segment to evaluate performance and allocate capital resources. This structure reflects its current operational and financial management and provides the best structure to maximize the quality of care and investment strategy provided, while maintaining financial discipline. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below. The accounting policies of the reportable segments are the same as those described in Note 2, Summary of Significant Accounting Policies . Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses. Segment income and loss is defined as profit or loss from operations before provision for income taxes, excluding gain or loss from sale of real estate, real estate insurance recoveries and losses and impairment charges from operations. Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 7, Standard Bearer , as it is part of the CODM financial information. The following tables set forth financial information for the segments: Year Ended December 31, 2022 Skilled Services Standard Bearer All Other (1) Intercompany Elimination Total Service revenue (2) $ 2,906,215 $ — $ 115,214 $ ( 12,718 ) $ 3,008,711 Rental revenue (3) — 72,937 7,396 ( 63,576 ) 16,757 TOTAL REVENUE $ 2,906,215 $ 72,937 $ 122,610 $ ( 76,294 ) $ 3,025,468 Segment income (loss) 408,732 27,871 ( 150,781 ) — 285,822 Gain on sale of real estate assets and insurance recoveries, net 3,267 Income before provision for income taxes $ 289,089 Depreciation and amortization 33,224 21,613 7,518 — 62,355 Interest expense (4) $ — $ 15,707 $ 1,870 $ ( 8,646 ) $ 8,931 (1) All other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center. (2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service. (3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities. Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense. (4) Included in interest expense in Standard Bearer is interest expense incurred from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. The intercompany interest expense is eliminated in the "Intercompany Elimination" column. Year Ended December 31, 2021 Skilled Services Standard Bearer All Other (1) Intercompany Elimination Total Service revenue (2) $ 2,523,234 $ — $ 95,276 $ ( 7,034 ) $ 2,611,476 Rental revenue (3) — 58,127 7,409 ( 49,551 ) 15,985 TOTAL REVENUE $ 2,523,234 $ 58,127 $ 102,685 $ ( 56,585 ) $ 2,627,461 Segment income (loss) 373,603 31,876 ( 147,915 ) — 257,564 Gain on real estate insurance recoveries 440 Income before provision for income taxes $ 258,004 Depreciation and amortization 30,681 17,558 7,746 — 55,985 Interest expense $ — $ 6,842 $ 7 $ — $ 6,849 (1) All other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center. (2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities. Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service. (3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities. Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense. 107 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2020 Skilled Services Standard Bearer All Other (1) Intercompany Elimination Total Service revenue (2) $ 2,288,182 $ — $ 105,548 $ ( 6,291 ) $ 2,387,439 Rental revenue (3) — 54,104 7,171 ( 46,118 ) 15,157 TOTAL REVENUE $ 2,288,182 $ 54,104 $ 112,719 $ ( 52,409 ) $ 2,402,596 Segment income (loss) 327,812 27,299 ( 134,752 ) — 220,359 Loss on sale of real estate and impairment charges ( 2,753 ) Income before provision for income taxes $ 217,606 Depreciation and amortization 28,585 16,134 9,852 — 54,571 Interest expense $ — $ 9,350 $ 12 $ — $ 9,362 (1) All other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center. (2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities. Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service. (3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities. Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense. Service revenue by major payor source were as follows: Year Ended December 31, 2022 Skilled Services Other Service Revenue Total Service Revenue Revenue % Medicaid (1) $ 1,158,309 $ 24,847 $ 1,183,156 39.3 % Medicare 832,160 — 832,160 27.7 Medicaid-skilled 200,878 — 200,878 6.7 Subtotal 2,191,347 24,847 2,216,194 73.7 Managed care 525,710 — 525,710 17.5 Private and other (2) 189,158 77,649 266,807 8.8 TOTAL SERVICE REVENUE $ 2,906,215 $ 102,496 $ 3,008,711 100.0 % (1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding. (2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services. Year Ended December 31, 2021 Skilled Services Other Service Revenue Total Service Revenue Revenue % Medicaid (1) $ 1,007,061 $ 15,399 $ 1,022,460 39.2 % Medicare 727,103 — 727,103 27.8 Medicaid-skilled 172,770 — 172,770 6.6 Subtotal 1,906,934 15,399 1,922,333 73.6 Managed care 456,728 — 456,728 17.5 Private and other (2) 159,572 72,843 232,415 8.9 TOTAL SERVICE REVENUE $ 2,523,234 $ 88,242 $ 2,611,476 100.0 % (1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding. (2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services. 108 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2020 Skilled Services Other Service Revenue Total Service Revenue Revenue % Medicaid (1) $ 886,991 $ 13,258 $ 900,249 37.7 % Medicare 727,374 — 727,374 30.5 Medicaid-skilled 149,846 — 149,846 6.3 Subtotal 1,764,211 13,258 1,777,469 74.5 Managed care 367,095 — 367,095 15.4 Private and other (2) 156,876 85,999 242,875 10.1 TOTAL SERVICE REVENUE $ 2,288,182 $ 99,257 $ 2,387,439 100.0 % (1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding. (2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services. 9. OPERATION EXPANSIONS The Company's subsidiaries expansion focus is to purchase or lease operations that are complementary to the current affiliated operations, accretive to the business, or otherwise advance the Company's strategy. The results of all operating subsidiaries are included in the Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. The Company's affiliated operations also enter into long-term leases that may include options to purchase the facilities. As a result, from time to time, a real estate affiliated subsidiary will acquire the property of facilities that have previously been operated under third-party leases. FASB ASC Topic 805, Clarifying the Definition of a Business (ASC 805) defined the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed to be a business. Determining whether a transferred set constitutes a business is important because the accounting for a business combination differs from that of an asset acquisition. The definition of a business also affects the accounting for dispositions. When substantially all of the fair value of assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business and business combination accounting would not be required. 2022 Expansions During the year ended December 31, 2022, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of 23 stand-alone skilled nursing operations and one campus operation. Of these additions, Standard Bearer acquired the real estate of seven of the stand-alone skilled nursing operations, which were leased back to Ensign affiliated entities. In addition, the Company purchased the real estate at three skilled nursing properties that the Company was already operating, further expanding the Company's real estate portfolio. Refer to Note 7, Standard Bearer, for additional information on the purchase of real estate properties. In addition, the Company added five senior living operations that were transferred from Pennant, three of which are part of campuses operated by the Company's affiliated operating subsidiaries. These new operations added a total of 3,058 operational skilled nursing beds and 674 operational senior living units to be operated by the Company's affiliated operating subsidiaries. The Company also invested in new ancillary services that are complementary to its existing businesses. The aggregate purchase price for these expansions during the year ended December 31, 2022 was $ 101,136 . 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 aggregate purchase price for the transactions that were classified as asset acquisitions during the year ended December 31, 2022 was $ 84,736 , consisting of real estate properties and indefinite-lived intangible assets. The remaining aggregate purchase price for transactions during the year ended December 31, 2022 was concentrated in goodwill of $ 16,400 and accordingly, the transactions were classified as business combinations. Subsequent to December 31, 2022, the Company expanded its operations through a combination of long-term leases, with the addition of seventeen stand-alone skilled nursing operations. These new operations added 1,462 operational skilled nursing beds. The Company also invested in new ancillary services that are complementary to its existing businesses. 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. 109 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2021 Expansions During the year ended December 31, 2021, the Company expanded its operations through a combination of long-term leases and a real estate purchase, with the addition of 17 stand-alone skilled nursing operations and five real estate purchases, four of which the Company previously operated and continues to operate. The remaining real estate purchase is operated by Pennant. These new operations added a total of 1,832 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries. The aggregate purchase price for these acquisitions during the year ended December 31, 2021 was $ 104,224 . 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 aggregate purchase price for the asset acquisitions during the year ended December 31, 2021 was $ 98,224 , consisting of real estate properties. The fair value of assets for the remaining additions was concentrated in goodwill of $ 6,000 and as such, the transaction was classified as a business combination. 2020 Acquisitions During the year ended December 31, 2020, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of five stand-alone skilled nursing operations, one stand-alone senior living operation and one campus operation. Of these additions, four are related to purchases of owned properties, further expanding the Company's real estate portfolio. These new operations added a total of 507 operational skilled nursing beds and 298 operational senior living units to be operated by the Company's affiliated operating subsidiaries. The aggregate purchase price for these acquisitions during the year ended December 31, 2020 was $ 24,997 . 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 the purchases of these properties was concentrated in property and equipment and as such, these transactions were classified as asset acquisitions. During the first quarter of 2020, the Company entered into a long-term lease agreement to transfer two senior living operations to Pennant. Ensign affiliates retained ownership of the real estate for these two senior living communities, which was subsequently sold in 2022. The table below presents the allocation of the purchase price for the operations acquired during the years ended December 31, 2022, 2021, and 2020 , excluding assets that were contributed to Pennant that occurred during the spin-off transaction in 2019. Year Ended December 31, 2022 2021 2020 Land $ 15,527 $ 19,928 $ 9,496 Building and improvements 65,070 77,975 14,178 Equipment, furniture, and fixtures 1,618 217 568 Assembled occupancy 367 29 107 Goodwill 16,400 6,000 — Leased asset 1,909 — — Other indefinite-lived intangible assets 245 75 648 TOTAL ACQUISITIONS $ 101,136 $ 104,224 $ 24,997 110 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company’s acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities for return. The operations added by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. 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 year ended December 31, 2022 and through the issuance of the Financial Statements 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 December 31, 2022 consolidated balance sheets of the Company, and the operating results have been included in the consolidated statements of operations of the Company since the date the Company gained effective control. 10. PROPERTY AND EQUIPMENT - NET Property and equipment, net consists of the following: December 31, 2022 2021 Land $ 134,864 $ 121,164 Buildings and improvements 728,231 646,221 Leasehold improvements 150,903 140,012 Equipment 295,739 262,246 Furniture and fixtures 4,544 4,305 Construction in progress 17,521 10,253 1,331,802 1,184,201 Less: accumulated depreciation ( 339,792 ) ( 295,767 ) PROPERTY AND EQUIPMENT, NET $ 992,010 $ 888,434 The Company completed the sale of assets for a sale price of $ 8,607 and recorded a gain of $ 3,467 within the Company's consolidated statement of income as cost of services during the year ended December 31, 2022. In addition, the Company evaluated its long-lived assets and did not record an impairment charge for the fiscal years ended 2022 and 2021. The Company recorded impairment charges of $ 2,681 for the fiscal year ended 2020. See also Note 7, Standard Bearer and Note 9, Operation Expansions for information on acquisitions during the year ended December 31, 2022. 11. INTANGIBLE ASSETS - NET Weighted Average Life (Years) December 31, 2022 2021 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Intangible Assets Net Net Assembled occupancy 0.3 $ 435 $ ( 388 ) $ 47 $ 68 $ ( 68 ) $ — Facility trade name 30.0 733 ( 415 ) 318 733 ( 391 ) 342 Customer relationships 18.4 4,582 ( 2,482 ) 2,100 4,582 ( 2,272 ) 2,310 TOTAL $ 5,750 $ ( 3,285 ) $ 2,465 $ 5,383 $ ( 2,731 ) $ 2,652 During the years ended December 31, 2022, 2021, and 2020, amortization expense was $ 1,714 , $ 1,435 and $ 1,813 , respectively, of which $ 1,160 , $ 1,158 , and $ 1,223 was related to the amortization of right-of-use assets, respectively. The Company did not record any impairment charge to intangible assets during the years ended December 31, 2022, 2021, and 2020. 111 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Estimated amortization expense for each of the years ending December 31 is as follows: Year Amount 2023 $ 281 2024 234 2025 234 2026 234 2027 234 Thereafter 1,248 $ 2,465 12. 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 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. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a goodwill impairment test by comparing the carrying value of each reporting unit to its respective fair value. The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis. The fair value of the reporting unit is the implied fair value of goodwill. In the event a reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized. An impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value. The Company performs its goodwill impairment test annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The Company performs the annual impairment testing of goodwill using October 1 as the measurement date. The Company completed its goodwill impairment test as of October 1, 2022 and did no t record any impairment charge to goodwill or other intangible assets for the fiscal years 2022, 2021 or 2020. The Company has recognized cumulative goodwill impairment losses of $ 7,410 . The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of December 31, 2022. All of the Company's acquisitions during the year ended December 31, 2020 were classified as asset acquisitions and accordingly, no goodwill was recognized for these acquisitions. There were no other activities in goodwill during the year ended December 31, 2020. Provided that goodwill corresponds to the acquisition of a business and not merely the acquisition of real estate property, the Company's Standard Bearer segment appropriately does not carry a goodwill balance. The following table represents activity in goodwill by skilled service segment and "all other" category as of and for the year ended December 31, 2022, 2021 and 2020: Goodwill Skilled Services All Other Total January 1, 2020 $ 45,486 $ 8,983 $ 54,469 December 31, 2020 $ 45,486 $ 8,983 $ 54,469 Additions 6,000 — 6,000 December 31, 2021 $ 51,486 $ 8,983 $ 60,469 Additions 16,400 — 16,400 December 31, 2022 $ 67,886 $ 8,983 $ 76,869 During the year ended December 31, 2022, the Company acquired $ 245 in Medicare and Medicaid licenses compared to $ 181 and $ 648 in the fiscal years 2021 and 2020, respectively. 112 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other indefinite-lived intangible assets consist of the following: December 31, 2022 2021 Trade name $ 889 $ 889 Medicare and Medicaid licenses 3,083 2,838 TOTAL $ 3,972 $ 3,727 13. RESTRICTED AND OTHER ASSETS Restricted and other assets consist of the following: December 31, 2022 2021 Debt issuance costs, net $ 3,753 $ 1,953 Long-term insurance losses recoverable asset 10,512 6,755 Capital improvement reserves with landlords and lenders 6,446 7,103 Deposits with landlords 2,527 2,606 Other 14,053 11,099 RESTRICTED AND OTHER ASSETS $ 37,291 $ 29,516 Included in restricted and other assets as of December 31, 2022 and 2021 are anticipated insurance recoveries related to the Company's workers' compensation, general and professional liability claims that are recorded on a gross rather than net basis in accordance with an Accounting Standards Update issued by the FASB. 14. OTHER ACCRUED LIABILITIES Other accrued liabilities consists of the following: December 31, 2022 2021 Quality assurance fee $ 7,701 $ 6,474 Refunds payable 40,783 34,814 Resident advances 9,698 9,337 Unapplied state relief funds 1,001 1,781 Cash held in trust for patients 6,400 6,430 Dividends payable 3,201 3,035 Property taxes 10,926 9,124 Legal finding accrued 4,553 — Other 13,046 18,415 OTHER ACCRUED LIABILITIES $ 97,309 $ 89,410 Quality assurance fee represents the aggregate of amounts payable to Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Utah, Washington and Wisconsin as a result of a mandated fee based on patient days or licensed beds. Refunds payable includes payables related to overpayments, duplicate payments and credit balances from various payor sources. Resident advances occur when the Company receives payments in advance of services provided. Cash held in trust for patients reflects monies received from or on behalf of patients. Maintaining a trust account for patients is a regulatory requirement and, while the trust assets offset the liabilities, the Company assumes a fiduciary responsibility for these funds. The cash balance related to this liability is included in other current assets in the consolidated balance sheets. 113 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 15. INCOME TAXES The provision for income taxes on continuing operations for the years ended December 31, 2022, 2021 and 2020 is summarized as follows: Year Ended December 31, 2022 2021 2020 Current: Federal $ 56,717 $ 49,105 $ 60,591 State 14,216 11,898 13,460 70,933 61,003 74,051 Deferred: Federal ( 5,158 ) ( 716 ) ( 23,054 ) State ( 1,338 ) ( 8 ) ( 4,755 ) ( 6,496 ) ( 724 ) ( 27,809 ) TOTAL $ 64,437 $ 60,279 $ 46,242 A reconciliation of the federal statutory rate to the effective tax rate for income from continuing operations for the years ended December 31, 2022, 2021 and 2020, respectively, is comprised as follows: December 31, 2022 2021 2020 Income tax expense at statutory rate 21.0 % 21.0 % 21.0 % State income taxes - net of federal benefit 3.5 3.7 3.2 Non-deductible expenses 2.0 2.4 1.8 Equity compensation ( 3.6 ) ( 3.3 ) ( 4.3 ) Other adjustments ( 0.6 ) ( 0.4 ) ( 0.4 ) TOTAL INCOME TAX PROVISION 22.3 % 23.4 % 21.3 % The Company's effective tax rate was 22.3 % for the year ended December 31, 2022, compared to 23.4 % for the same period in 2021 and 21.3 % in 2020. The lower effective tax rate is due to higher tax benefits from stock compensation and lower tax expense from non-deductible expenses. 114 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company's deferred tax assets and liabilities as of December 31, 2022 and 2021 are summarized below. December 31, 2022 2021 Deferred tax assets (liabilities): Accrued expenses $ 61,685 $ 58,640 Revenue related reserves 18,046 13,171 Tax credits 1,742 2,138 Insurance 11,910 8,712 Lease liability 364,408 285,643 State taxes 28 ( 165 ) 457,819 368,139 Valuation allowance ( 789 ) ( 789 ) TOTAL DEFERRED TAX ASSETS 457,030 367,350 Depreciation and amortization ( 49,146 ) ( 45,827 ) Prepaid expenses ( 5,150 ) ( 4,265 ) Right of use asset ( 363,091 ) ( 284,111 ) TOTAL DEFERRED TAX LIABILITIES ( 417,387 ) ( 334,203 ) NET DEFERRED TAX ASSETS $ 39,643 $ 33,147 The Company had state credit carryforwards as of December 31, 2022 and 2021 of $ 1,742 and $ 2,138 , respectively. These carryforwards almost entirely relate to state limitations on the application of Enterprise Zone employment-related tax credits. Unless the Company uses the Enterprise Zone credits beforehand, the carryforward will begin to expire in 2023. As of December 31, 2022 and 2021, the valuation allowance of $ 789 , for both years, was primarily recorded against the Enterprise Zone credits as the Company believes it is more likely than not that some of the benefit of the credits will not be realized. The Company's operating loss carry forwards for states were not material during the years ended December 31, 2022 and 2021. As of December 31, 2022, 2021 and 2020, the Company did not have any unrecognized tax benefits, net of its state benefits that would affect the Company's effective tax rate. The Company classifies interest and/or penalties on income tax liabilities or refunds as additional income tax expense or income. Such amounts are not material. The Federal statutes of limitations on the Company's 2018, 2017, and 2016 income tax years lapsed during the third quarter of 2022, 2021, and 2020, respectively. During the fourth quarter of each year, various state statutes of limitations also lapsed. The lapses for the years ended December 31, 2022 and 2021 had no impact on the Company's unrecognized tax benefits. During the year ended December 31, 2021, the state of Wisconsin initiated and completed an examination of the Company's 2019, 2018, and 2017 state tax years with no adjustments. The Company is not under examination by any major income tax jurisdiction. 16. DEBT Debt consists of the following: December 31, 2022 2021 Mortgage loans and promissory notes $ 156,271 $ 159,967 Less: current maturities ( 3,883 ) ( 3,760 ) Less: debt issuance costs, net ( 3,119 ) ( 3,324 ) LONG-TERM DEBT LESS CURRENT MATURITIES $ 149,269 $ 152,883 115 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Credit Facility with a Lending Consortium Arranged by Truist The Company maintains a revolving credit facility between the Company and its subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Revolving Credit Facility). Borrowings are supported by a lending consortium arranged by Truist. On April 8, 2022, the Company and its subsidiaries, including Standard Bearer, entered into the Amended Credit Agreement, which amended the Revolving Credit Facility to increase the revolving line of credit from $ 350,000 to $ 600,000 in aggregate principal amount. The Amended Credit Agreement also extended the maturity date of the Revolving Credit Facility to April 8, 2027 and modified the reference rate from LIBOR to SOFR. The interest rates applicable to loans under the Amended Credit Facility are, at the Company's option, equal to either a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin range from 1.25 % to 2.25 % per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the agreement). In addition, the Company and its subsidiaries, including Standard Bearer, will pay a commitment fee on the unused portion of the commitments that will range from 0.20 % to 0.40 % per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio. Except as set forth in the Amended Credit Facility, all other terms and conditions of the Credit Facility remained in full force and effect as described below. As part of the entry into the Amended Credit Agreement, deferred financing costs of $ 566 were written off and additional deferred financing costs of $ 3,197 were capitalized during the year ended December 31, 2022. Borrowings made under the Revolving Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material operating subsidiaries as well as a first lien on substantially all of their personal property. The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Under the Amended Credit Agreement, the Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.00 :1.00; provided that if the aggregate consideration for approved acquisitions in a six months 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 December 31, 2022, and January 30, 2023, there was no outstanding debt under the Revolving Credit Facility. The Company was in compliance with all loan covenants as of December 31, 2022. Mortgage Loans and Promissory Notes As of December 31, 2022, the Company's operating subsidiaries had $ 156,271 outstanding under the mortgage loans and notes, of which $ 3,883 is classified as short-term and the remaining $ 152,388 is classified as long-term. The Company was in compliance with all loan covenants as of December 31, 2022. As of December 31, 2022, 23 of the Company's subsidiaries have mortgage loans insured with HUD in the aggregate amount of $ 153,488 , which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates in a range of 3.1 % to 4.2 %, including fixed interest rates in a 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. For the majority of the loans, during the first three years , the prepayment fee is 10.0 % and is reduced by 3.0 % in the fourth year of the loan, and reduced by 1.0 % per year for years five through ten of the loan. There is no prepayment penalty after year ten . The terms for all the mortgage loans are 25 to 35 years. In addition to the HUD mortgage loans above, the Company has two promissory notes. The notes bear fixed interest rates of 6.3 % and 5.3 % per annum and the term of the notes are 10 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. 116 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Future principal payments due under the long-term debt arrangements discussed above are as follows: Years Ending December 31, Amount 2023 $ 3,883 2024 3,950 2025 4,086 2026 4,227 2027 3,897 Thereafter 136,228 $ 156,271 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. Off-Balance Sheet Arrangements As of December 31, 2022, the Company had approximately $ 6,710 of borrowing capacity under the Revolving Credit Facility pledged as collateral to secure outstanding letters of credit, which remained consistent from 2021. 17. 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 consolidated statements of income for the years ended December 31, 2022, 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. The Company has one active stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan), which was approved by the Company's stockholders on May 26, 2022, and replaced the Company's prior option plan, the 2017 Omnibus Incentive Plan (the 2017 Plan). 2022 Omnibus Incentive Plan (2022 Plan) — During the second quarter of 2022, the Company's shareholders approved the 2022 Plan. Including the shares rolled over from the 2017 Plan, the 2022 Plan provides for the issuance of 3,452 shares of common stock. The number of shares available to be issued under the 2022 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) two shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). Non-employee director options, to the extent granted, will vest and become exercisable in three equal annual installments, or the length of the term if less than three years , on the completion of each year of service measured from the grant date. All other options generally vest over five years at 20 % per year on the anniversary of the grant date. Options expire ten years from the date of grant. At December 31, 2022, the total number of shares available for issuance under the 2022 Plan was 2,861 . 2017 Omnibus Incentive Plan (2017 Plan) — The 2017 Plan provided for the issuance of 6,881 shares of common stock which are to be proportionally adjusted in the event of any Equity Restructuring. The number of shares available to be issued under the 2017 Plan were adjusted to 8,118 shares of common stock in order to reflect the proportional adjustments as part of the spin-off transaction that occurred in October 2019. The number of shares available to be issued under the 2017 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) 2.5 shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). Granted non-employee director options vest and become exercisable in three equal annual installments, or the length of the term if less than three years , on the completion of each year of service measured from the grant date. All other options generally vest over five years at 20 % per year on the anniversary of the grant date. Options expire ten years from the date of grant. The Company granted 165 stock options and 116 restricted stock awards from the 2017 Plan in the first half of 2022 prior to the retirement of the 2017 plan. 117 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for stock option awards. Determining the appropriate fair-value model and calculating the fair value of stock option awards at the grant date requires judgment, including estimating stock price volatility, expected option life, and forfeiture rates. The fair-value of the restricted stock awards at the grant date is based on the market price on the grant date, adjusted for forfeiture rates. The Company develops estimates based on historical data and market information, which can change significantly over time. The Black-Scholes model required the Company to make several key judgments including: • The expected option term is calculated by the average of the contractual term of the options and the weighted average vesting period for all options. The calculation of the expected option term is based on the Company's experience due to sufficient history. • The Company utilizes its own experience to calculate estimated volatility for options granted. • The dividend yield is based on the Company's historical pattern of dividends as well as expected dividend patterns. • The risk-free rate is based on the implied yield of U.S. Treasury notes as of the grant date with a remaining term approximately equal to the expected term. • Estimated forfeiture rate of approximately 7.84 % per year is based on the Company's historical forfeiture activity of unvested stock options. Stock Options The Company granted 581 , 621 and 669 stock options from the available plans during the year ended December 31, 2022, 2021 and 2020, respectively. The Company used the following assumptions for stock options granted during the years ended December 31, 2022, 2021 and 2020 : Grant Year Options Granted Weighted Average Risk-Free Rate Expected Life Weighted Average Volatility Weighted Average Dividend Yield 2022 581 2.8 % 6.2 years 42.1 % 0.3 % 2021 621 1.0 % 6.2 years 42.4 % 0.3 % 2020 669 0.6 % 6.2 years 39.4 % 0.4 % For the years ended December 31, 2022, 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 2022 581 $ 85.74 $ 37.83 2021 621 $ 80.19 $ 32.82 2020 669 $ 52.20 $ 19.52 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 December 31, 2022, 2021 and 2020 and therefore, the intrinsic value was $ 0 at the date of grant. 118 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table represents the employee stock option activity during the year ended December 31, 2022, 2021 and 2020: Number of Options Outstanding Weighted Average Exercise Price Number of Options Vested Weighted Average Exercise Price of Options Vested January 1, 2020 4,428 $ 20.85 2,557 $ 12.82 Granted 669 52.20 Forfeited ( 80 ) 33.68 Exercised ( 979 ) 12.93 December 31, 2020 4,038 $ 27.71 2,148 $ 16.66 Granted 621 80.19 Forfeited ( 105 ) 44.76 Exercised ( 516 ) 17.80 December 31, 2021 4,038 $ 36.60 2,183 $ 21.02 Granted 581 85.74 — — Forfeited ( 98 ) 59.52 — — Exercised ( 688 ) 18.43 — — December 31, 2022 3,833 $ 46.72 2,069 $ 28.87 The following summary information reflects stock options outstanding, vested and related details as of December 31, 2022: Stock Options Outstanding Stock Options Vested Number Outstanding Black-Scholes Fair Value Remaining Contractual Life (Years) Vested and Exercisable Year of Grant Exercise Price 2013 6.76 - 9.74 65 274 1 65 2014 8.94 - 16.05 399 1,930 2 399 2015 18.20 - 21.39 211 1,645 3 211 2016 15.93 - 16.86 198 1,162 4 198 2017 15.80 - 19.41 236 1,387 5 236 2018 22.49 - 32.71 449 4,341 6 330 2019 41.07 - 45.76 590 9,275 7 324 2020 44.84 - 59.49 545 10,734 8 197 2021 73.47 - 83.64 567 18,597 9 109 2022 $ 79.79 $ 94.88 573 21,689 10 — TOTAL 3,833 $ 71,034 2,069 The aggregate intrinsic value of options outstanding, vested and expected to vest as of December 31, 2022, 2021 and 2020 is as follows: December 31, Options 2022 2021 2020 Outstanding $ 183,593 $ 191,242 $ 182,552 Vested 136,000 137,382 120,867 Expected to vest 43,232 48,548 53,366 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 year ended December 31, 2022, 2021 and 2020 was $ 27,955 , $ 27,731 , and $ 26,030 , respectively. The total intrinsic value of options exercised during the year ended December 31, 2022, 2021 and 2020 was $ 47,441 , $ 34,278 , and $ 45,081 , respectively. 119 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Restricted Stock Awards The Company granted 233 , 222 and 281 restricted stock awards during the years ended December 31, 2022 , 2021 and 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 years ended December 31, 2022 , 2021 and 2020 ranged from $ 73.17 to $ 94.88 , $ 72.84 to $ 93.31 and $ 35.47 to $ 58.06 , respectively. The fair value per share includes quarterly stock awards to non-employee directors. A summary of the status of the Company's non-vested restricted stock awards as of December 31, 2022 and changes during the years ended December 31, 2022, 2021 and 2020 is presented below : Non-Vested Restricted Awards Weighted Average Grant Date Fair Value Nonvested at January 1, 2020 610 $ 31.35 Granted 281 48.73 Vested ( 280 ) 32.84 Forfeited ( 20 ) 31.71 Nonvested at December 31, 2020 591 $ 38.90 Granted 222 81.65 Vested ( 244 ) 47.45 Forfeited ( 20 ) 45.64 Nonvested at December 31, 2021 549 $ 52.16 Granted 233 81.57 Vested ( 269 ) 54.06 Forfeited ( 26 ) 57.29 Nonvested at December 31, 2022 487 $ 64.92 During the year ended December 31, 2022, the Company granted 18 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors from the 2017 and 2022 Plan. The fair value per share of these stock awards ranged from $ 75.33 to $ 86.34 based on the market price on the grant date. Long-Term Incentive Plan On August 27, 2019, the Board approved the Long-Term Incentive Plan (the 2019 LTI Plan). The 2019 LTI Plan provides that certain employees of the Company who assisted in the consummation of the spin-off transaction in 2019 are granted shares of restricted stock upon successful completion. The 2019 LTI Plan provides for the issuance of 500 shares of Pennant restricted stock. The shares are vested over five years at 20 % per year on the anniversary of the grant date. 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 $ 836 , $ 854 , and $ 881 for the years ended December 31, 2022, 2021 and 2020, respectively. Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the years ended December 31, 2022, 2021, and 2020 was as follows: Year Ended December 31, 2022 2021 2020 Stock-based compensation expense related to stock options $ 11,361 $ 8,459 $ 6,132 Stock-based compensation expense related to restricted stock awards 9,920 8,385 7,373 Stock-based compensation expense related to stock options and restricted stock awards to non-employee directors 1,439 1,834 1,019 TOTAL $ 22,720 $ 18,678 $ 14,524 120 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In future periods, the Company expects to recognize approximately $ 43,388 and $ 29,149 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of December 31, 2022. Future stock-based compensation expense will be recognized over 3.6 and 3.4 weighted average years for unvested options and restricted stock awards, respectively. There were 1,764 unvested and outstanding options as of December 31, 2022, of which 1,666 shares are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of December 31, 2022 was 6.0 years. 18. LEASES The Company leases from CareTrust REIT, Inc. (CareTrust) real property associated with 97 affiliated skilled nursing and senior living facilities used in the Company’s operations, 96 of which are under nine “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years. At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and being continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases. If the Company elects to renew the term of a Master Lease, the renewal will be effective to all, but not less than all, of the leased property then subject to the Master Lease. Additionally, four of the 97 facilities leased from CareTrust include an option to purchase that the Company can exercise starting on December 1, 2024. 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. 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 %. In addition to rent, the Company is required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. 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 for continuing operations under the Master Leases was approximately $ 64,178 , $ 59,571 and $ 52,838 for the years ended December 31, 2022, 2021 and 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 December 31, 2022. In connection with the spin-off transaction in 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 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. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years . Most of these leases contain renewal options, certain of which involve rent increases. Total rent expense for continuing operations inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 153,174 , $ 139,458 and $ 129,990 for the year ended December 31, 2022, 2021 and 2020, respectively. 121 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fifty-eight of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under ten separate master lease arrangements. During 2022, the Company amended two of its separate master leases to add operations and extend the initial terms, which increased the lease liabilities and right-of-use assets by $ 207,638 to reflect the new lease obligations. Additionally, during 2022, the Company added six new operations to two new master leases, which increased the lease liabilities and right-of-use assets by $ 54,755 to reflect the new lease obligations. Under these master leases, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. 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. During 2022, Standard Bearer acquired the real estate of three skilled nursing operations, which were previously under separate long-term lease arrangements. The aggregate reduction in the carrying value of the Company's lease liabilities and right-of-use assets related to this acquisition is $ 10,080 . The components of operating lease expense are as follows: Year Ended December 31, 2022 2021 2020 Rent - cost of services (1) $ 153,049 $ 139,371 $ 129,926 General and administrative expense 125 87 64 Depreciation and amortization (2) 1,160 1,158 1,223 Variable lease costs (3) 16,938 14,077 12,774 $ 171,272 $ 154,693 $ 143,987 (1) Rent- cost of services includes deferred rent expense adju stments of $ 493 , $ 485 and $ 451 for the years ended December 31, 2022, 2021 and 2020, respectively. Additionally, rent- cost of services includes other variable lease costs such as consumer price index increases and short-term leases of $ 5,878 , $ 3,702 , $ 2,394 for the years ended December 31, 2022, 2021, and 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 consolidated statements of income. Future minimum lease payments for all leases as of December 31, 2022 are as follows: Year Amount 2023 $ 157,963 2024 157,630 2025 157,455 2026 157,380 2027 156,860 Thereafter 1,456,411 TOTAL LEASE PAYMENTS 2,243,699 Less: present value adjustment ( 822,790 ) PRESENT VALUE OF TOTAL LEASE LIABILITIES 1,420,909 Less: current lease liabilities ( 65,796 ) LONG-TERM OPERATING LEASE LIABILITIES $ 1,355,113 Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. 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 December 31, 2022 and 2021, the weighted average remaining lease term is 15.0 and 14.8 , respectively, and the weighted average discount rate used to determine the operating lease liabilities is 6.7 % and 7.6 %, respectively. Subsequent to December 31, 2022, the Company expanded its operations through two separate master lease arrangements for 20 stand-alone skilled nursing operations, of which 17 will be operated by the Company's affiliated operating subsidiaries and the remaining three will be subleased to a third-party operator. The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the two separate master lease agreements is estimated to be approximately $ 315,337 . 122 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Lessor Activities In connection with the spin-off transaction in 2019, Ensign affiliates retained ownership of the real estate at 29 senior living operations that were contributed to Pennant. As of December 31, 2022, Ensign affiliates retained ownership of the real estate for these 29 senior living communities. All of these properties are leased to Pennant on a triple-net basis, whereas the respective Pennant affiliates are responsible for all costs at the properties including: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. The initial terms range between 14 to 16 years. Total rental income from all third-party sources for the years ended December 31, 2022, 2021, and 2020 is as follows: Year Ended December 31, 2022 2021 2020 Pennant (1) $ 14,915 $ 14,073 $ 13,163 Other third-party 1,842 1,912 1,994 $ 16,757 $ 15,985 $ 15,157 (1) Pennant rental income includes variable rent such as property taxes of $ 1,318 , $ 1,199 , and $ 1,224 during the year ended December 31, 2022, 2021, and 2020. Future annual rental income for all leases as of December 31, 2022 were as follows: Year Amount (1) 2023 $ 16,408 2024 15,826 2025 15,391 2026 15,166 2027 15,166 Thereafter 79,171 TOTAL $ 157,128 (1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of December 31, 2022 . 19. SELF INSURANCE LIABILITIES The following table represents activity in our insurance liabilities as of and for the years ended December 31, 2022 and 2021: Amount Balance January 1, 2021 $ 96,798 Current year provisions 114,907 Claims paid and direct expenses ( 101,183 ) Change in long-term insurance losses recoverable ( 383 ) Balance December 31, 2021 $ 110,139 Current year provisions 115,793 Claims paid and direct expenses ( 98,007 ) Change in long-term insurance losses recoverable 3,757 Balance December 31, 2022 $ 131,682 123 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Included in the table above are accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, of $ 87,000 and $ 69,748 as of December 31, 2022 and 2021, respectively. Included in long-term insurance losses recoverable as of December 31, 2022 and 2021 are anticipated insurance recoveries related to the Company's general and professional liability claims that are recorded on a gross rather than net basis in accordance with GAAP. 20. DEFINED CONTRIBUTION PLANS The Company has a 401(k) defined contribution plan (the 401(k) Plan), whereby eligible employees may contribute up to 90 % of their annual basic earnings, subject to applicable annual Internal Revenue Code limits. Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company. The Company expensed matching contributions to the 401(k) Plan of $ 2,418 , $ 2,121 , and $ 1,889 during the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2019, the Company implemented non-qualified deferred compensation plan (the DCP) that was effective in 2019 for certain executives. The plan was then offered to other highly compensated employees, which went into effect on January 1, 2020. These individuals are otherwise ineligible for participation in the Company's 401(k) plan. The DCP allows participating employees to defer the receipt of a portion of their base compensation and certain employees up to 100 % of their eligible bonuses. Additionally, 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. The Company paid for related administrative costs, which were not significant during fiscal years 2022, 2021 and 2020. As of the years ended December 31, 2022, 2021, and 2020, the Company accrued $ 33,017 , $ 26,832 and $ 14,232 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet. Cash surrender value of the contracts is based on investment funds that shadow the investment allocations specified by participants in the deferred compensation plan. Refer to Note 6, Fair Value Measurements for more information on the funds. For the year ended December 31, 2022, the Company recorded a loss on the investment acquired in connection with our deferred compensation plan of $ 4,188 , which is included in other income (expense), net. During the same period, the Company recorded an offsetting reduction in expense of $ 4,051 , which is allocated between cost of services and general and administrative expenses. For the years ended December 31, 2021 and 2020, the Company recorded net income on the investment acquired in connection with our deferred compensation plan of $ 1,612 and $ 1,396 , respectively, which is included in other income (expense), net. During the same periods, the Company recorded an offsetting expense of $ 1,758 , and $ 1,355 , respectively, which is allocated between cost of services and general and administrative expenses. 21. 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 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. 124 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer environmental obligations or other liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities the Company acquires against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company's independent operating subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with the Company’s officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for these obligations on the Company’s consolidated balance sheets for any of the periods presented. In connection with the spin-off transaction in 2019, certain landlords required, in exchange for their consent to the transaction, that the Company's lease guarantees remain in place for a certain period of time following the transaction. These guarantees could result in significant additional liabilities and obligations for the Company if Pennant were to default on their obligations under their leases with respect to these properties. U.S. Department of Justice Civil Investigative Demand — On May 31, 2018, the Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice stating that it was investigating whether there had been a violation of the False Claims Act and/or the Anti-Kickback Statute with respect to relationships between certain of the Company’s independently operated skilled nursing facilities and persons who serve or have served as medical directors, advisory board participants or other potential referral sources. The CID covered the period from October 3, 2013 through 2018, and was limited in scope to ten of the Company’s Southern California independent operating entities. In October 2018, the Department of Justice made an additional request for information covering the period of January 1, 2011 through 2018, relating to the same topic. 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 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. U.S. 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 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. In July 2022 and thereafter, the Company received follow up requests for additional documents and information. The Company has responded to these requests, and continued to cooperate with the House Select Subcommittee in connection with its investigation. On December 9, 2022, the House Select Subcommittee issued its final report summarizing its investigation and related recommendations designed "to strengthen the nation's ability to prevent and respond to public health and economic emergencies." According to the information provided by the House Select Subcommittee, the issuance of this report was the House Select Subcommittee's final official act. Litigation — The skilled nursing business involves a significant risk of liability given the age and health of the patients and residents served by the Company's independent operating subsidiaries. The Company, its independent operating subsidiaries, and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, alleging that services provided have resulted in personal injury, elder abuse, wrongful death or other related claims. In addition, the Company, its independent operating subsidiaries, and others in the industry are subject to claims and lawsuits in connection with COVID-19 and a facility's preparation for and/or response to COVID-19. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. 125 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In addition to the potential lawsuits and claims described above, the Company and its independent operating subsidiaries are also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare or Medicaid) or other payor. A violation may provide the basis for exclusion from Federally-funded healthcare programs. 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 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 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 (AKS). In addition to the Federal False Claims Act, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. Further, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the Federal False Claims Act. As such, the Company and its independent operating subsidiaries could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets in which its independent operating subsidiaries do business. In May 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA) which made significant changes to the Federal False Claims Act and expanded the types of activities subject to prosecution and whistleblower liability. Following changes by FERA, health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved. Health care providers can now be liable for knowingly and improperly avoiding or decreasing an obligation to pay money or property to the government. This includes the retention of any government overpayment. The government can argue, therefore, that a Federal False Claims Act violation can occur without any affirmative fraudulent action or statement, as long as the action or statement is knowingly improper. In addition, FERA extended protections against retaliation for whistleblowers, including protections not only for employees, but also contractors and agents. 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 where the allegation is understaffing at the facility level. These class-action “staffing” suits have the potential to result in large jury verdicts and settlements, and may result in significant legal costs. The Company expects the plaintiffs' bar to continue to be aggressive in their pursuit of these staffing and similar claims. 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 authorize 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. The Company and its independent operating subsidiaries have been, and continue to be, subject to claims, findings and legal actions that arise in the ordinary course of the various businesses, including healthcare and non-healthcare services. These claims include, but are not limited to, potential claims filed by residents, customers, patients and responsible parties related to patient care and treatment (professional negligence claims); to non-care based activities of certain of the subsidiaries; and to employment related claims filed by current or former employees. A significant increase in the number of these claims, or an increase in the amounts owing should plaintiffs be successful in their prosecution of these claims, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows. In addition, these claims could impact the Company's ability to procure insurance to cover its exposure related to the various services provided by its independent operating subsidiaries to their residents, customers and patients. 126 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company and its independent subsidiaries are also subject to requests for information and investigations by other State and Federal governmental entities (e.g., offices of the attorney general and offices of the inspector general). The Company cannot predict or provide any assurance as to the possible outcome of any inquiry, investigation or litigation. 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 independent 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). For several months during the COVID-19 pandemic, the Centers for Medicare and Medicaid Services (CMS) suspended its Targeted Probe and Educate Program. Beginning in August 2020, CMS resumed Targeted Probe and Educate Program activity. If an operation fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period. The Company anticipates that these Reviews could increase in frequency in the future. As of December 31, 2022 and since, 34 of the Company's independent operating subsidiaries had Reviews scheduled, on appeal, or in a dispute resolution process. Concentrations Credit Risk — The Company has significant accounts receivable balances, the collectability of which is dependent on the availability of funds from certain governmental programs, primarily Medicare and Medicaid. These receivables represent the only significant concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. 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 56.3 % and 54.0 % of its total accounts receivable as of December 31, 2022 and 2021, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 73.7 %, 73.6 % and 74.5 % of the Company's revenue for the years ended December 31, 2022, 2021 and 2020, respectively. Cash in Excess of FDIC Limits — The Company currently has bank deposits with financial institutions in the U.S. that exceed FDIC insurance limits. FDIC insurance provides protection for bank deposits up to $250. In addition, the Company has uninsured bank deposits with a financial institution outside the U.S. As of January 30, 2023, the Company's uninsured cash deposits are not material. All uninsured bank deposits are held at high quality credit institutions. 22. COMMON STOCK REPURCHASE PROGRAM On July 28, 2022, the Board of Directors approved 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 from August 2, 2022. 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. The Company did not purchase any shares pursuant to this stock repurchase program in the year ended December 31, 2022. The share repurchase program does not obligate the Company to acquire any specific number of shares. On February 9, 2022, the Board of Directors approved a stock repurchase program pursuant to which the Company could repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from February 10, 2022. Under this program, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. During the three months ended June 30, 2022, the Company repurchased 271 shares of its common stock for $ 20,000 . This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect. 127 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On October 21, 2021, the Board of Directors approved a stock repurchase program pursuant to which the Company could repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months that started on October 29, 2021. Under this program, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. The Company repurchased 133 and 132 shares of its common stock for $ 9,882 and $ 10,118 during the years ended December 31, 2022 and 2021, respectively. This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect. On March 4, 2020 and March 13, 2020, the Board of Directors approved two stock repurchase programs pursuant to which the Company was authorized to repurchase up to $ 20,000 and $ 5,000 , respectively, of its common stock under the programs for a period of approximately 12 months. Under these programs, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. During the first quarter of 2020, the Company repurchased 503 and 189 shares of its common stock for $ 20,000 and $ 5,000 , respectively. These repurchase programs expired upon the repurchase of the full authorized amount under the two plans and are no longer in effect. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.