What changed in this filing

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Item 1. Financial Statements

2023-10-25 compared with 2023-07-27 · 281 added, 233 removed, 900 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except par values)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

Cash and cash equivalents $ 467,870 $ 316,270

Accounts receivable—less allowance for doubtful accounts of $ 9,281 and $ 7,802 at June 30, 2023 and December 31, 2022, respectively

Accounts receivable—less allowance for doubtful accounts of $ 9,422 and $ 7,802 at September 30, 2023 and December 31, 2022, respectively

472,123 408,432

29 unchanged sentences

$ 0.001 par value;

150,000 , 59,583 and 56,193 shares authorized, shares issued and outstanding at June 30, 2023, respectively, and 100,000 , 59,029 and 55,661 shares authorized, shares issued and outstanding at December 31, 2022, respectively

150,000 , 59,803 and 56,413 shares authorized, shares issued and shares outstanding at September 30, 2023, respectively, and 100,000 , 59,029 and 55,661 shares authorized, shares issued and shares outstanding at December 31, 2022, respectively

Additional paid-in capital 451,883 415,560

Retained earnings 1,124,358 946,339

Common stock in treasury, at cost, 3,390 and 3,368 shares at June 30, 2023 and December 31, 2022, respectively

Common stock in treasury, at cost, 3,390 and 3,368 shares at September 30, 2023 and December 31, 2022, respectively

( 116,555 ) ( 114,626 )

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

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

2023 2022 2023 2022

55 unchanged sentences

BALANCE - JUNE 30, 2023 56,193 $ 60 $ 440,532 $ 1,063,738 3,390 $ ( 116,555 ) $ 5,618 $ 1,393,393

Issuance of common stock to employees and directors resulting from the exercise of stock options 180 — 4,148 — — — — 4,148

Issuance of restricted stock, net of forfeitures 40 — — — — — — —

Dividends declared ($ 0.0575 per share)

— — — ( 3,243 ) — — — ( 3,243 )

Employee stock award compensation — — 7,230 — — — — 7,230

Acquisition of noncontrolling interest shares — — ( 57 ) — — — — ( 57 )

Net income attributable to noncontrolling interest — — — — — — 105 105

Noncontrolling interests attributable to subsidiary equity plan — — 30 — — — ( 27 ) 3

Net income attributable to the Ensign Group, Inc.

— — — 63,863 — — — 63,863

BALANCE - SEPTEMBER 30, 2023 56,413 $ 60 $ 451,883 $ 1,124,358 3,390 $ ( 116,555 ) $ 5,696 $ 1,465,442

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

24 unchanged sentences

Net income attributable to noncontrolling interest — — — — — — 112 112

Distribution to noncontrolling interest holder — — — — — — ( 8 ) ( 8 )

Noncontrolling interests attributable to subsidiary equity plan — — — — — — ( 8 ) ( 8 )

Net income attributable to the Ensign Group, Inc.

1 unchanged sentence

BALANCE - JUNE 30, 2022 55,278 $ 58 $ 398,793 $ 835,941 3,368 $ ( 114,626 ) $ 527 $ 1,120,693

Issuance of common stock to employees and directors resulting from the exercise of stock options 151 — 2,635 — — — — 2,635

Issuance of restricted stock, net of forfeitures 36 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations — — — — — — — —

Dividends declared ($ 0.0550 per share)

— — — ( 3,051 ) — — — ( 3,051 )

Employee stock award compensation — — 5,898 — — — — 5,898

Acquisition of noncontrolling interest shares — — ( 1,774 ) — — — 1,105 ( 669 )

Repurchase of common stock (Note 19) — — —

Net income attributable to noncontrolling interest — — — — — — 63 63

Noncontrolling interests attributable to subsidiary equity plan — — 3 — — — ( 3 ) —

Net income attributable to the Ensign Group, Inc.

— — — 56,179 — — — 56,179

BALANCE - SEPTEMBER 30, 2022 55,465 $ 58 $ 405,555 $ 889,069 3,368 $ ( 114,626 ) $ 1,692 $ 1,181,748

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2023 2022

57 unchanged sentences

Cash and cash equivalents end of period $ 467,870 $ 308,864

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2023 2022

15 unchanged sentences

The Company's independent operating subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and other ancillary businesses.

As of June 30, 2023, the Company's independent operating subsidiaries operated 290 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

As of September 30, 2023, the Company's independent operating subsidiaries operated 295 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 30,500 operational skilled nursing beds and 3,000 senior living units.

As of June 30, 2023, the Company's independent operating subsidiaries operated 211 facilities under long-term lease arrangements, and had options to purchase 11 of those 211 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 that occurred in 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.

As of September 30, 2023, the Company's independent operating subsidiaries operated 213 facilities under long-term lease arrangements, and had options to purchase 11 of those 213 facilities.

The Company's real estate portfolio includes 112 owned real estate properties, which includes 82 facilities operated and managed by the Company's independent operating subsidiaries, 30 operations leased to and operated by third party operators, and the Service Center location.

Of those 30 operations, one senior living facility 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.

2 unchanged sentences

(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.

The REIT structure provides the Company with an efficient vehicle for future acquisitions of properties that could be operated by Ensign affiliates or other third parties.

Refer to Note 6, Standard Bearer for additional information on Standard Bearer.

2 unchanged sentences

has direct operating assets, employees or revenue, or that any of the subsidiaries, are operated by The Ensign Group, Inc.

Other Information — The accompanying condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 (collectively, the Interim Financial Statements) are unaudited.

Other Information — The accompanying condensed consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 (collectively, the Interim Financial Statements) are unaudited.

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

50 unchanged sentences

The Company determines if an arrangement is a lease and performs an evaluation to determine whether the lease should be classified as an operating or finance lease at the inception of the lease.

As of June 30, 2023, the Company has one financing lease that is not material to the condensed consolidated balance sheets.

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

As of September 30, 2023, the Company has one financing lease that is not material to the condensed consolidated balance sheets.

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

19 unchanged sentences

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

Management has evaluated its long-lived assets and determined there was no impairment during the three and six months ended June 30, 2023 and 2022.

Management has evaluated its long-lived assets and determined there was no impairment during the three and nine months ended September 30, 2023 and 2022.

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

9 unchanged sentences

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

Management has evaluated its intangible assets and determined there was no impairment during the three and six months ended June 30, 2023 and 2022.

Management has evaluated its intangible assets and determined there was no impairment during the three and nine months ended September 30, 2023 and 2022.

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

8 unchanged sentences

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

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 87,521 and $ 79,781 as of June 30, 2023 and December 31, 2022, respectively.

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 90,811 and $ 79,781 as of September 30, 2023 and December 31, 2022, respectively.

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

5 unchanged sentences

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

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 27,918 and $ 27,301 as of June 30, 2023 and December 31, 2022, respectively.

In addition, the Company has recorded an asset and corresponding liability of $ 12,699 and $ 10,512 as of June 30, 2023 and December 31, 2022, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 28,733 and $ 27,301 as of September 30, 2023 and December 31, 2022, respectively.

In addition, the Company has recorded an asset and corresponding liability of $ 13,439 and $ 10,512 as of September 30, 2023 and December 31, 2022, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

See Note 12, Restricted and Other Assets.

2 unchanged sentences

To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 for each covered person for fiscal year 2023.

As of June 30, 2023 and December 31, 2022, the Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 14,563 and $ 14,088 , respectively.

As of September 30, 2023 and December 31, 2022, the Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 14,716 and $ 14,088 , respectively.

THE ENSIGN GROUP, INC.

14 unchanged sentences

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.

Standard Bearer elected to be taxed as a REIT, for U.S.

federal income tax purposes, commencing with its taxable year ended December 31, 2022.

19 unchanged sentences

For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.

Revenue from the Medicare and Medicaid programs accounted for 73.1 % and 73.2 % for the three and six months ended June 30, 2023, respectively, and 73.4 % for both the three and six months ended June 30, 2022.

Revenue from the Medicare and Medicaid programs accounted for 72.1 % and 72.8 % for the three and nine months ended September 30, 2023, respectively, and 73.7 % and 73.5 % for the three and nine months ended September 30, 2022.

Settlements with Medicare and Medicaid payors for retroactive adjustments due to audits and reviews are considered variable consideration and are included in the determination of the estimated transaction price.

1 unchanged sentence

Consistent with healthcare industry practices, any changes to these revenue estimates are recorded in the period the change or adjustment becomes known based on the final settlement.

The Company recorded adjustments to revenue which were not material to the Company's revenue for the three and six months ended June 30, 2023 and 2022.

Service revenue for the three and six months ended June 30, 2023 and 2022 is summarized in the following tables:

Three Months Ended June 30,

The Company recorded adjustments to revenue which were not material to the Company's revenue for the three and nine months ended September 30, 2023 and 2022.

Service revenue for the three and nine months ended September 30, 2023 and 2022 is summarized in the following tables:

Three Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

9 unchanged sentences

(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services.

Six Months Ended June 30,

Nine Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

9 unchanged sentences

(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 $ 5,244 and $ 10,167 , respectively, for the three and six months ended June 30, 2023 and $ 4,139 and $ 8,428 , respectively, for the three and six months ended June 30, 2022.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 5,467 and $ 15,634 , respectively, for the three and nine months ended September 30, 2023 and $ 4,122 and $ 12,550 , respectively, for the three and nine months ended September 30, 2022.

THE ENSIGN GROUP, INC.

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

State relief funding

1 unchanged sentence

The funding generally incorporates specific use requirements primarily for direct patient care including labor related expenses that are attributable to the COVID-19 pandemic or are associated with providing patient care.

THE ENSIGN GROUP, INC.

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

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 the specific qualifiers, and additional expenses are required for recognition.

In certain operations where the Company received additional payments that exceeded expenses incurred related to specific qualifiers, the Company recorded deferred revenue for the excess amount until additional expenses are incurred for recognition.

Accordingly, the amount of state relief revenue recognized is limited to the actual related expenses incurred.

As of June 30, 2023 and December 31, 2022, the Company had $ 1,034 and $ 1,001 in unapplied state relief funds, respectively.

During the three and six months ended June 30, 2023, the Company received $ 17,580 and $ 44,844 in state relief funding and recognized $ 18,453 and $ 44,811 , respectively, as revenue.

During the three and six months ended June 30, 2022, the Company received $ 27,345 and $ 44,662 in state relief funding and recognized $ 24,489 and $ 42,088 , respectively, as revenue.

As of September 30, 2023 and December 31, 2022, the Company had $ 636 and $ 1,001 in unapplied state relief funds, respectively.

During the three and nine months ended September 30, 2023, the Company received $ 9,900 and $ 54,744 in state relief funding and recognized $ 10,298 and $ 55,109 , respectively, as revenue.

During the three and nine months ended September 30, 2022, the Company received $ 20,293 and $ 64,955 in state relief funding and recognized $ 21,400 and $ 63,488 , respectively, as revenue.

Balance Sheet Impact

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

The Company had no material contract liabilities and contract assets as of June 30, 2023 and December 31, 2022, or activity during the three and six months ended June 30, 2023 and 2022.

Accounts receivable as of June 30, 2023 and December 31, 2022, is summarized in the following table:

June 30, 2023 December 31, 2022

The Company had no material contract liabilities and contract assets as of September 30, 2023 and December 31, 2022, or activity during the three and nine months ended September 30, 2023 and 2022.

Accounts receivable as of September 30, 2023 and December 31, 2022, is summarized in the following table:

September 30, 2023 December 31, 2022

Medicaid $ 188,572 $ 157,878

9 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

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

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

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

2023 2022 2023 2022

6 unchanged sentences

$ 1.14 $ 1.02 $ 3.38 $ 3.00

THE ENSIGN GROUP, INC.

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

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

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

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

2023 2022 2023 2022

9 unchanged sentences

$ 1.11 $ 0.99 $ 3.28 $ 2.89

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,419 and 1,317 for th e three and six months ended June 30, 2023, respectively, and 789 and 697 for the three and six months ended June 30, 2022, respectivel y.

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,475 and 1,389 for th e three and nine months ended September 30, 2023, respectively, and 918 and 734 for the three and nine months ended September 30, 2022, respectivel y.

FAIR VALUE MEASUREMENTS

The Company's financial assets include the captive insurance subsidiary's deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at a cost basis of $ 59,417 and $ 53,924 as of June 30, 2023 and December 31, 2022, respectively.

The Company's financial assets include the captive insurance subsidiary's deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at a cost basis of $ 57,290 and $ 53,924 as of September 30, 2023 and December 31, 2022, respectively.

Also included are contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that 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 June 30, 2023, and December 31, 2022, the adjusted cost basis of the investment funds was $ 37,276 and $ 25,144 , respectively.

As of June 30, 2023 and December 31, 2022, the cost basis of the Company's financial assets included in the captive insurance subsidiary's investments and deferred compensation plan investment funds are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs.

Additionally, the Company has other investments where the fair value is derived using Level 3 inputs which are not material.

The Company believes its investments that were in an unrealized loss position as of June 30, 2023 and December 31, 2022 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

As of September 30, 2023, and December 31, 2022, the adjusted cost basis of the investment funds was $ 36,867 and $ 25,144 , respectively.

As of September 30, 2023 and December 31, 2022, the cost basis of the Company's financial assets included in the captive insurance subsidiary's investments and deferred compensation plan investment funds are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs.

Additionally, the Company has other investments, which are not material, where the fair value is derived using Level 3 inputs.

The Company believes its investments that were in an unrealized loss position as of September 30, 2023 and December 31, 2022 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

THE ENSIGN GROUP, INC.

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

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.

2 unchanged sentences

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.

Standard Bearer's real estate portfolio consists of 107 of the Company's 112 owned real estate properties, of which 78 are operated and managed by the Company and 30 are leased to and operated by third party operators.

Of those 30 operations, one senior living facility is located on the same real estate property as a skilled nursing facility that the Company owns and operates.

Standard Bearer elected to be taxed as a REIT, for U.S.

federal income tax purposes, commencing with its taxable year ended December 31, 2022.

Standard Bearer did not have any real estate acquisitions during the six months ended June 30, 2023 .

During the six months ended June 30, 2022, Standard Bearer acquired the real estate of two skilled nursing facilities for a purchase price of $ 17,412 .

During the nine months ended September 30, 2023, Standard Bearer acquired the real estate of three stand-alone skilled nursing facilities and one campus operation for an aggregate purchase price of $ 52,802 .

Of these additions, the three skilled nursing facilities acquired are operated by the Company's affiliated operating subsidiaries and the campus operation is leased to a third party operator.

During the nine months ended September 30, 2022, Standard Bearer acquired the real estate of eight skilled nursing facilities for an aggregate purchase price of $ 65,619 , three of which were previously operated and managed by Ensign's affiliated operations.

Refer to Note 7, Operation Expansions , for additional information.

2 unchanged sentences

Refer to Note 8, Business Segments , for additional information related to these intercompany eliminations as well as Standard Bearer as a reportable segment.

THE ENSIGN GROUP, INC.

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

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).

Certain of the Company's operating subsidiaries and the 78 Standard Bearer subsidiaries have entered into five triple-net master lease agreements (collectively, the Standard Bearer Master Leases).

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.

6 unchanged sentences

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.

Rental revenue generated from Ensign affiliated operations was $ 16,128 and $ 32,059 , respectively, for the three and six months ended June 30, 2023 and $ 13,894 and $ 27,319 , respectively, for the three and six months ended June 30, 2022.

Rental revenue generated from Ensign affiliated operations was $ 16,976 and $ 49,035 for the three and nine months ended September 30, 2023, respectively, and $ 15,024 and $ 42,343 for the three and nine months ended September 30, 2022, respectively.

Intercompany management agreement

2 unchanged sentences

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, for a total of 6 %.

Management fee generated between Standard Bearer and the Service Center for the three and six months ended June 30, 2023 was $ 1,195 and $ 2,377 , respectively.

Management fees generated between Standard Bearer and the Service Center for the three and six months ended June 30, 2022 was $ 1,056 and $ 2,078 , respectively.

Management fee generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2023 was $ 1,259 and $ 3,636 , respectively.

Management fees generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2022 was $ 1,124 and $ 3,202 , respectively.

Intercompany debt arrangements

2 unchanged sentences

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.

THE ENSIGN GROUP, INC.

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

In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory note 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.

9 unchanged sentences

In the second quarter of 2022, Standard Bearer sold fully vested common shares from the Standard Bearer Equity Plan to shareholders for cash of $ 6,544 .

During the six months ended June 30, 2023 and 2022, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

During the nine months ended September 30, 2023 and 2022, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

Also in the second quarter of 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.

OPERATION EXPANSIONS

The expansion focus of the Company's subsidiaries 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 Interim 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.

2023 Expansions

During the nine months ended September 30, 2023, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 24 stand-alone skilled nursing operations.

Of these additions, Standard Bearer acquired the real estate of three of the stand-alone skilled nursing operations, which were leased back to Ensign affiliated entities.

Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate properties.

These new operations added a total of 2,340 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

The Company also invested in new ancillary services that are complementary to its existing businesses.

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

Subsequent to September 30, 2023, the Company expanded its operations through a long-term lease, with the addition of one stand-alone skilled nursing operation.

This new operation added 45 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

THE ENSIGN GROUP, INC.

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

2022 Expansions

During the nine months ended September 30, 2022, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 11 stand-alone skilled nursing operations and one campus operation.

Of these additions, Standard Bearer acquired the real estate of five of the stand-alone skilled nursing operations, which was leased back to Ensign affiliated entities.

Refer to Note 6, Standard Bearer , for additional information on the purchases of real estate properties.

In addition, the Company added five senior living operations that were transferred from The Pennant Group, Inc.

(Pennant), three of which are part of campuses operated by the Company's affiliated operating subsidiaries.

These new operations added a total of 1,553 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.

Of the new operations acquired during the nine months ended September 30, 2022, $ 16,400 was concentrated in goodwill and accordingly, the transactions were classified as business combinations.

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

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 nine months ended September 30, 2023 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 September 30, 2023 condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of operations of the Company since the date the Company gained effective control.

BUSINESS SEGMENTS

1 unchanged sentence

(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.

As of June 30, 2023, the skilled services segment includes 253 skilled nursing operations and 26 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

As of September 30, 2023, the skilled services segment includes 258 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 107 owned real estate properties.

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Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 6, Standard Bearer , as it is part of the CODM financial information.

THE ENSIGN GROUP, INC.

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

The following tables set forth financial information for the segments:

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Skilled Services Standard Bearer All Other (1)

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Segment income (loss) 117,816 7,165 ( 42,936 ) — 82,045

Loss on real estate insurance recoveries ( 100 )

Income before provision for income taxes $ 82,045

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Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 1,063 for the three months ended June 30, 2023.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 1,063 for the three months ended September 30, 2023.

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.

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Intercompany interest expense is eliminated in the "Intercompany Elimination" column.

THE ENSIGN GROUP, INC.

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Skilled Services Standard Bearer All Other (1)

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Segment income (loss) 101,750 6,941 ( 37,036 ) — 71,655

Gain on sale of assets 2,467

Gain on sale of assets, net 800

Income before provision for income taxes $ 72,455

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Intercompany interest expense is eliminated in the "Intercompany Elimination" column.

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Skilled Services Standard Bearer All Other (1)

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Intercompany service revenue is eliminated in consolidation along with corresponding intercompany cost of service.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 1,771 for the six months ended June 30, 2023.

THE ENSIGN GROUP, INC.

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

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 2,834 for the nine months ended September 30, 2023.

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.

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Intercompany interest expense is eliminated in the "Intercompany Elimination" column.

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Skilled Services Standard Bearer All Other (1)

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Segment income (loss) 302,272 20,679 ( 114,580 ) — 208,371

Gain on sale of assets 2,467

Gain on sale of assets, net 3,267

Income before provision for income taxes $ 211,638

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Interest expense $ — $ 11,385 $ 1,557 $ ( 6,078 ) $ 6,864

THE ENSIGN GROUP, INC.

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

(1) All Other primarily includes all ancillary operations, stand-alone senior living operations and the Service Center.

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Service revenue by major payor source were as follows:

Three Months Ended June 30, 2023

Skilled Services Other Service Revenue Total Service Revenue Revenue %

Three Months Ended September 30, 2023

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 367,079 $ 7,759 $ 374,838 40.1 %

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(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services.

Three Months Ended June 30, 2022

Skilled Services Other Service Revenue Total Service Revenue Revenue %

(3) All Other incorporates intercompany eliminations.

Three Months Ended September 30, 2022

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 295,927 $ 6,688 $ 302,615 39.5 %

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(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services.

Six Months Ended June 30, 2023

Skilled Services Other Service Revenue Total Service Revenue Revenue %

(3) All Other incorporates intercompany eliminations.

THE ENSIGN GROUP, INC.

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

Nine Months Ended September 30, 2023

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 1,052,904 $ 21,979 $ 1,074,883 39.3 %

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(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services.

THE ENSIGN GROUP, INC.

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

Six Months Ended June 30, 2022

Skilled Services Other Service Revenue Total Service Revenue Revenue %

(3) All Other incorporates intercompany eliminations.

Nine Months Ended September 30, 2022

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 845,341 $ 17,750 $ 863,091 39.2 %

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(2) Private and other payors also includes revenue from senior living operations and all payors generated in other ancillary services.

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 Interim 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.

2023 Expansions

During the six months ended June 30, 2023, the Company expanded its operations through long-term leases, with the addition of 19 stand-alone skilled nursing operations.

These new operations added a total of 1,764 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

The Company also invested in new ancillary services that are complementary to its existing businesses.

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

2022 Expansions

During the six months ended June 30, 2022, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of four stand-alone skilled nursing operations.

Of these additions, two were related to purchases of real estate properties.

In addition, the Company added five senior living operations that were transferred from Pennant, three of which are part of a campus operated by the Company's affiliated operating subsidiaries.

These new operations added a total of 453 operational skilled nursing beds and 633 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

The aggregate purchase price for these expansions during the six months ended June 30, 2022 was $ 33,892 .

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 six months ended June 30, 2022 was $ 17,492 , consisting of real estate properties and indefinite-lived intangible assets.

The remaining aggregate purchase price during the six months ended June 30, 2022 was concentrated in goodwill of $ 16,400 and accordingly, the transactions were classified as business combinations.

THE ENSIGN GROUP, INC.

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

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

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.

The assets added during the six months ended June 30, 2023 were not material operations to the Company individually or in the aggregate.

Accordingly, pro forma financial information is not presented.

These additions have been included in the June 30, 2023 condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of operations of the Company since the date the Company gained effective control.

(3) All Other incorporates intercompany eliminations.

PROPERTY AND EQUIPMENT - NET

Property and equipment, net consists of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Land $ 140,239 $ 134,864

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PROPERTY AND EQUIPMENT, NET $ 1,067,902 $ 992,010

During the three months ended June 30, 2022, the Company completed the sale of assets for a sale price of $ 7,707 and recorded a gain of $ 2,567 included in the condensed consolidated statement of income .

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 condensed consolidated statement of income as cost of services during the nine months ended September 30, 2022.

See also Note 6, Standard Bearer and Note 7, Operation Expansions for information on acquisitions during the nine months ended September 30, 2023.

THE ENSIGN GROUP, INC.

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

INTANGIBLE ASSETS - NET

Weighted Average Life (Years) June 30, 2023 December 31, 2022

Weighted Average Life (Years) September 30, 2023 December 31, 2022

Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

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TOTAL $ 6,017 $ ( 3,642 ) $ 2,375 $ 5,750 $ ( 3,285 ) $ 2,465

During the three and six months ended June 30, 2023, amortization expense was $ 357 and $ 761 , respectively, of which $ 298 and $ 596 was related to the amortization of right-of-use assets, respectively.

During the three and six months ended June 30, 2022, amortization expense was $ 418 and $ 822 , respectively, of which $ 288 and $ 577 was related to the amortization of right-of-use assets, respectively.

THE ENSIGN GROUP, INC.

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

During the three and nine months ended September 30, 2023, amortization expense was $ 495 and $ 1,256 , respectively, of which $ 303 and $ 899 was related to the amortization of right-of-use assets, respectively.

During the three and nine months ended September 30, 2022, amortization expense was $ 432 and $ 1,254 , respectively, of which $ 289 and $ 866 was related to the amortization of right-of-use assets, respectively.

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

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Other indefinite-lived intangible assets consist of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Trade name $ 889 $ 889

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TOTAL $ 3,972 $ 3,972

The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of June 30, 2023.

The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of September 30, 2023.

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 June 30, 2023 and December 31, 2022:

The following table represents activity in goodwill by skilled service segment and "all other" category as of September 30, 2023 and December 31, 2022:

Skilled Services All Other Total

Goodwill $ 67,886 $ 8,983 $ 76,869

THE ENSIGN GROUP, INC.

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

RESTRICTED AND OTHER ASSETS

Restricted and other assets consist of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Debt issuance costs, net $ 3,104 $ 3,753

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RESTRICTED AND OTHER ASSETS $ 35,979 $ 37,291

Included in restricted and other assets as of June 30, 2023 and December 31, 2022 are anticipated insurance recoveries related to the Company's workers' compensation and general and professional liability claims that are recorded on a gross, rather than net, basis.

THE ENSIGN GROUP, INC.

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

Included in restricted and other assets as of September 30, 2023 and December 31, 2022 are anticipated insurance recoveries related to the Company's workers' compensation and general and professional liability claims that are recorded on a gross, rather than net, basis.

OTHER ACCRUED LIABILITIES

Other accrued liabilities consists of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Quality assurance fee $ 8,786 $ 7,701

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

The Company recorded income tax expense of $ 35,376 and $ 31,292 during the six months ended June 30, 2023 and 2022, respectively, or 22.2 % of earnings before income taxes for the six months ended June 30, 2023, compared to 22.5 % for the six months ended June 30, 2022.

The Company recorded income tax expense of $ 53,453 and $ 47,505 during the nine months ended September 30, 2023 and 2022, respectively, or 22.1 % of earnings before income taxes for the nine months ended September 30, 2023, compared to 22.4 % for the nine months ended September 30, 2022.

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

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

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the six months ended June 30, 2023 and 2022.

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the nine months ended September 30, 2023 and 2022.

THE ENSIGN GROUP, INC.

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

Debt consists of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Mortgage loans and promissory note $ 153,354 $ 156,271

2 unchanged sentences

LONG-TERM DEBT LESS CURRENT MATURITIES $ 146,453 $ 149,269

THE ENSIGN GROUP, INC.

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

Credit Facility with a Lending Consortium Arranged by Truist

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In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20 % to 0.40 % per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.

When the Company amended the Credit Facility in 2022 with the terms and conditions described above, it wrote off deferred financing costs of $ 566 and additional deferred financing costs of $ 3,197 were capitalized during the three months ended June 30, 2022.

Borrowings made under the 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 such operating subsidiaries' personal property.

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

As of June 30, 2023, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of June 30, 2023.

As of September 30, 2023, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of September 30, 2023.

Mortgage Loans and Promissory Note

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Based on Level 2 inputs, 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.

THE ENSIGN GROUP, INC.

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

Off-Balance Sheet Arrangements

As of June 30, 2023, the Company had approximately $ 6,710 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit.

As of September 30, 2023, the Company had approximately $ 6,710 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit.

OPTIONS AND AWARDS

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

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 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 ENSIGN GROUP, INC.

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

2022 Omnibus Incentive Plan (2022 Plan) — The Company has one active stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan).

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Options expire ten years from the date of grant.

At June 30, 2023, the total number of shares available for issuance under the 2022 Plan was 2,133 .

At September 30, 2023, the total number of shares available for issuance under the 2022 Plan was 1,856 .

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

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Stock Options

The Company granted 191 and 413 stock options during the three and six months ended June 30, 2023, respectively.

The Company used the following assumptions for stock options granted during the three months ended June 30, 2023 and 2022:

The Company granted 193 and 606 stock options during the three and nine months ended September 30, 2023, respectively.

The Company used the following assumptions for stock options granted during the three months ended September 30, 2023 and 2022:

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

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2022 145 3.1 % 6.3 years 41.8 % 0.2 %

The Company used the following assumptions for stock options granted during the six months ended June 30, 2023 and 2022:

The Company used the following assumptions for stock options granted during the nine months ended September 30, 2023 and 2022:

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

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2022 463 2.5 % 6.2 years 42.1 % 0.3 %

For the six months ended June 30, 2023 and 2022, the following represents the exercise price and fair value displayed at grant date for stock option grants:

For the nine months ended September 30, 2023 and 2022, 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

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2022 463 $ 83.41 $ 36.22

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the six month periods ended June 30, 2023 and 2022 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the six months ended June 30, 2023:

THE ENSIGN GROUP, INC.

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

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the nine month periods ended September 30, 2023 and 2022 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the nine months ended September 30, 2023:

Number of Options Outstanding Weighted Average

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Exercised ( 578 ) 21.99

June 30, 2023 3,805 $ 53.84 2,007 $ 34.73

THE ENSIGN GROUP, INC.

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

The aggregate intrinsic value of options outstanding, vested and expected to vest as of June 30, 2023 and December 31, 2022 is as follows:

Options June 30, 2023 December 31, 2022

September 30, 2023 3,784 $ 57.37 1,960 $ 37.69

The aggregate intrinsic value of options outstanding, vested and expected to vest as of September 30, 2023 and December 31, 2022 is as follows:

Options September 30, 2023 December 31, 2022

Outstanding $ 135,648 $ 183,593

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

The aggregate intrinsic value of options that vested during the six months ended June 30, 2023 and 2022 was $ 13,639 and $ 10,409 , respectively.

The total intrinsic value of options exercised during the six months ended June 30, 2023 and 2022 was $ 29,741 and $ 25,642 , respectively.

The aggregate intrinsic value of options that vested during the nine months ended September 30, 2023 and 2022 was $ 16,856 and $ 15,810 , respectively.

The total intrinsic value of options exercised during the nine months ended September 30, 2023 and 2022 was $ 43,299 and $ 36,151 , respectively.

Restricted Stock Awards

The Company granted 61 and 166 restricted stock awards during the three and six months ended June 30, 2023, respectively.

The Company granted 46 and 158 restricted stock awards during the three and six months ended June 30, 2022, respectively.

The Company granted 49 and 215 restricted stock awards during the three and nine months ended September 30, 2023, respectively.

The Company granted 41 and 199 restricted stock awards during the three and nine months ended September 30, 2022, respectively.

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

The fair value per share of restricted awards granted during the six months ended June 30, 2023 and 2022 ranged from $ 89.83 to $ 94.63 and $ 73.17 to $ 83.93 , respectively.

The fair value per share of restricted awards granted during the nine months ended September 30, 2023 and 2022 ranged from $ 89.83 to $ 98.31 and $ 73.17 to $ 90.50 , 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 June 30, 2023 and changes during the six months ended June 30, 2023 is presented below:

A summary of the status of the Company's non-vested restricted stock awards as of September 30, 2023 and changes during the nine months ended September 30, 2023 is presented below:

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

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Forfeited ( 19 ) 70.64

Nonvested at June 30, 2023 460 $ 74.52

During the three and six months ended June 30, 2023, the Company granted 5 and 9 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors, respectively.

Nonvested at September 30, 2023 458 $ 77.81

During the three and nine months ended September 30, 2023, the Company granted 4 and 13 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors, respectively.

The fair value per share of these stock awards ranged from $ 89.94 to $ 98.31 based on the market price on the grant date.

THE ENSIGN GROUP, INC.

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

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 were granted shares of restricted stock upon successful completion of the spin-off transaction.

The 2019 LTI Plan provides that certain employees of the Company who assisted in the consummation of the spin-off of Pennant from the Company in 2019 (spin-off transaction) were granted shares of restricted stock upon successful completion of the spin-off transaction.

The 2019 LTI Plan provides for the issuance of 500 shares of Pennant restricted stock.

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

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 211 and $ 402 for the three and six months ended June 30, 2023, respectively, compared to $ 195 and $ 390 for the three and six months ended June 30, 2022, respectively.

THE ENSIGN GROUP, INC.

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

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 218 and $ 620 for the three and nine months ended September 30, 2023, respectively, compared to $ 248 and $ 638 for the three and nine months ended September 30, 2022, respectively.

Stock-based compensation expense

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three and six months ended June 30, 2023 and 2022 was as follows:

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

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three and nine months ended September 30, 2023 and 2022 was as follows:

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

2023 2022 2023 2022

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TOTAL $ 7,230 $ 5,898 $ 22,684 $ 16,681

In future periods, the Company expects to recognize approximately $ 50,924 and $ 31,288 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of June 30, 2023.

In future periods, the Company expects to recognize approximately $ 54,532 and $ 32,210 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of September 30, 2023.

Future stock-based compensation expense will be recognized over 3.8 and 3.6 weighted average years for unvested options and restricted stock awards, respectively.

There were 1,798 unvested and outstanding options as of June 30, 2023, of which 1,563 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of June 30, 2023 was 6.4 years.

There were 1,824 unvested and outstanding options as of September 30, 2023, of which 1,667 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of September 30, 2023 was 6.5 years.

The Company leases from CareTrust REIT, Inc.

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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 have occurred;

and (2) the tenants provided timely notice of their intent to renew.

(1) no event of default under any of the Master Leases having occurred and been 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.

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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 ENSIGN GROUP, INC.

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

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

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

Total rent expense under the Master Leases was approximately $ 16,674 and $ 32,957 for the three and six months ended June 30, 2023, respectively, and $ 16,007 and $ 31,652 for the three and six months ended June 30, 2022, respectively.

Total rent expense under the Master Leases was approximately $ 16,741 and $ 49,698 for the three and nine months ended September 30, 2023, respectively, and $ 16,259 and $ 47,911 for the three and nine months ended September 30, 2022, respectively.

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

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

The Company is in compliance with requirements of the Master Leases as of June 30, 2023.

THE ENSIGN GROUP, INC.

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

The Company is in compliance with requirements of the Master Leases as of September 30, 2023.

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

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

Total rent expense for continuing operations inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 49,885 and $ 96,646 for the three and six months ended June 30, 2023, respectively, and $ 37,251 and $ 73,036 for the three and six months ended June 30, 2022, respectively.

Seventy-eight of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under 12 separate master lease arrangements.

Total rent expense for continuing operations inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 50,480 and $ 147,126 for the three and nine months ended September 30, 2023, respectively, and $ 38,940 and $ 111,976 for the three and nine months ended September 30, 2022, respectively.

Eighty of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under 13 separate master lease arrangements.

In the first quarter of 2023, the Company expanded its operations through two separate master lease arrangements for 20 stand-alone skilled nursing operations, of which 17 are operated by the Company's affiliated operating subsidiaries and the remaining three are subleased to a third-party operator.

These two master leases increased the lease liabilities and right-of-use assets by $ 325,369 to reflect the new lease obligations and have initial lease terms of 18 and 20 years.

In the third quarter of 2023, the Company expanded its operations through one separate master lease arrangement for two stand-alone skilled nursing operations.

This master lease increased the lease liabilities and right-of-use assets by $ 21,420 to reflect the new lease obligations and has an initial lease terms of 20 years.

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

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The components of operating lease expense are as follows:

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

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

2023 2022 2023 2022

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$ 56,159 $ 43,350 $ 163,387 $ 126,098

(1) Rent- cost of services includes deferred rent expense adju stments of $ 218 and $ 481 for the three and six months ended June 30, 2023, respectively, and $ 116 and of $ 240 for the three and six months ended June 30, 2022, respectively.

Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 2,398 and $ 4,458 for the three and six months ended June 30, 2023, respectively, and $ 1,302 and $ 2,239 for the three and six months ended June 30, 2022, respectively.

(1) Rent- cost of services includes deferred rent expense adju stments of $ 211 and $ 692 for the three and nine months ended September 30, 2023, respectively, and $ 111 and of $ 351 for the three and nine months ended September 30, 2022, respectively.

Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 2,859 and $ 7,317 for the three and nine months ended September 30, 2023, respectively, and $ 1,758 and $ 3,997 for the three and nine months ended September 30, 2022, respectively.

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

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

Future minimum lease payments for all leases as of June 30, 2023 are as follows:

THE ENSIGN GROUP, INC.

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

Future minimum lease payments for all leases as of September 30, 2023 are as follows:

2023 (remainder) $ 47,730

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LONG-TERM OPERATING LEASE LIABILITIES $ 1,657,955

THE ENSIGN GROUP, INC.

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

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 June 30, 2023, the weighted average remaining lease term is 15.3 years and the weighted average discount rate used to determine the operating lease liabilities is 6.5 %.

As of September 30, 2023, the weighted average remaining lease term is 15.1 years and the weighted average discount rate used to determine the operating lease liabilities is 6.5 %.

Subsequent to September 30, 2023, the Company expanded its operations through a long-term lease arrangement with the addition of one stand-alone skilled nursing facility, adding a total of 45 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

Lessor Activities

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During the first quarter of 2023, the Company entered into a sublease agreement for three stand-alone skilled nursing operations with a third-party operator with an initial lease term of 18 years.

Total rental income from all third-party sources for the three and six months ended June 30, 2023 and 2022 is as follows:

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

Additionally, during the three months ended September 30, 2023, the Company entered into a lease agreement with a third-party operator for one campus operation with an initial lease term of 15 years.

Total rental income from all third-party sources for the three and nine months ended September 30, 2023 and 2022 is as follows:

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

2023 2022 2023 2022

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TOTAL $ 5,467 $ 4,122 $ 15,634 $ 12,550

(1) Pennant rental income includes variable rent such as property taxes of $ 325 and $ 650 during the three and six months ended June 30, 2023, respectively, and $ 327 and $ 657 for the three and six months ended June 30, 2022, respectively.

In addition, the number of senior living operations leased to and operated by Pennant was 29 during the six months ended June 30, 2023 and decreased from 32 to 29 during the six months ended June 30, 2022.

Future annual rental income for all leases as of June 30, 2023 were as follows:

(1) Pennant rental income includes variable rent such as property taxes of $ 324 and $ 974 during the three and nine months ended September 30, 2023, respectively, and $ 331 and $ 988 for the three and nine months ended September 30, 2022, respectively.

In addition, the number of senior living operations leased to and operated by Pennant was 29 during the nine months ended September 30, 2023 and decreased from 32 to 29 during the nine months ended September 30, 2022.

THE ENSIGN GROUP, INC.

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

Future annual rental income for all leases as of September 30, 2023 were as follows:

Year Amount (1)

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TOTAL $ 238,342

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of June 30, 2023.

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of September 30, 2023.

DEFINED CONTRIBUTION PLANS

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Additionally, the DCP 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 fund savings plans of this nature.

The Company paid for related administrative costs, which were not significant during three and six months ended June 30, 2023 and 2022.

THE ENSIGN GROUP, INC.

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

As of June 30, 2023 and December 31, 2022, the Company accrued $ 41,765 and $ 33,017 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet.

The Company paid for related administrative costs, which were not significant during three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023 and December 31, 2022, the Company accrued $ 42,613 and $ 33,017 , 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 5, Fair Value Measurements for more information on the funds.

For the three and six months ended June 30, 2023, the Company recorded a gain related to its DCP of $ 1,250 and $ 2,489 , respectively, which is included in other income (expense), net.

During the same periods, the Company recorded an offsetting expense of $ 1,332 and $ 2,612 , respectively, which is allocated between cost of services and general and administrative expenses.

For the three and six months ended June 30, 2022, the Company recorded a a loss related to its DCP of $ 3,313 and $ 4,515 , respectively, which is included in other income (expense), net.

For the three months ended September 30, 2023, the Company recorded a loss related to its DCP of $ 1,424 , which is included in other income (expense), net, and recorded an offsetting reduction in expense of $ 1,352 , which is allocated between cost of services and general and administrative expenses.

For the nine months ended September 30, 2023, the company recorded a gain related to its DCP of $ 1,065 , which is included in other income (expense), net, and recorded an offsetting expense of $ 1,261 , which is allocated between cost of services and general and administrative expenses.

For the three and nine months ended September 30, 2022, the Company recorded a loss related to its DCP of $ 1,135 and $ 5,650 , respectively, which is included in other income (expense), net.

During the same periods, the Company recorded an offsetting reduction in expense of $ 1,055 and $ 5,566 , respectively, which is allocated between cost of services and general and administrative expenses.

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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.

THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED 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.

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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.

Additionally, the Company is aware of a claim filed by an individual related to this matter.

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.

THE ENSIGN GROUP, INC.

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

Department of Justice (DOJ) stating that it was investigating whether there had been a violation of the False Claims Act (FCA) and/or the Anti-Kickback Statute (AKS) 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.

The Company fully cooperated with the DOJ and promptly responded to its requests for information.

In April 2020, the Company was advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation.

Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator has moved forward with the lawsuit.

The Company is vigorously defending this lawsuit, but expects the costs of defense to be significant given the nature of the allegations and the date range contemplated by the complaint.

At this time, the Company is unable to estimate the range of loss and cannot predict the final outcome of this lawsuit.

If this lawsuit is ultimately resolved against the Company, the amounts owed, including fines, penalties and other consequences relating to the lawsuit, could have a material adverse effect on the Company's results of operations, financial condition and cash flows.

As a general matter, the Company’s independent operating entities have established and maintain policies and procedures to promote compliance with the FCA, the AKS, and other applicable regulatory requirements.

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

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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.

The Company 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.

The Company 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.

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

In addition to the potential lawsuits and claims described above, the Company 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.

THE ENSIGN GROUP, INC.

NOTES TO THE UNAUDITED CONDENSED 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 FCA 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.

Under the qui tam or "whistleblower" provisions of the FCA, 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.

For example, and despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator has moved forward with the lawsuit and is pursuing claims that the Company and certain of its independent operating subsidiaries allegedly violated the FCA and/or AKS.

The Company is vigorously defending this lawsuit, but expects the costs of defense to be significant given the nature of the allegations and the date range contemplated by the complaint.

In addition to the FCA, 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 FCA.

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.

In May 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA) which made significant changes to the FCA 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.

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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.

The government can argue, therefore, that a FCA 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.

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

THE ENSIGN GROUP, INC.

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

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

3 unchanged sentences

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.

non-care based activities of certain of the subsidiaries;

and 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.

THE ENSIGN GROUP, INC.

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

The Company and its independent operating 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.

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 FCA, 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.

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

As of June 30, 2023 and through the filing date of this report, 37 of the Company's independent operating subsidiaries had Reviews scheduled, on appeal, or in a dispute resolution process.

As of September 30, 2023 and through the filing date of this report, 41 of the Company's independent operating subsidiaries had Reviews scheduled or in process.

CMS announced a new nationwide audit, the “SNF 5-Claim Probe & Educate Review”, in which the Medicare Administrative Contractors (MACs) will review five claims from each SNF to check for compliance.

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Additionally, CMS's education for each SNF will be individualized and based on observed claim review errors, with rationales for denial explained to the SNF on a claim-by-claim basis.

This program will apply only to claims submitted after October 1, 2019, and will exclude claims containing a COVID-19 diagnosis.

This program applies only to claims submitted after October 1, 2019, and will exclude claims containing a COVID-19 diagnosis.

Concentrations

3 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

The Company’s receivables from Medicare and Medicaid payor programs accounted for 55.2 % and 56.3 % of its total accounts receivable as of June 30, 2023 and December 31, 2022, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 73.1 % and 73.2 % of the Company's revenue for the three and six months ended June 30, 2023, respectively, and 73.4 % for both the three and six months ended June 30, 2022.

The Company’s receivables from Medicare and Medicaid payor programs accounted for 54.9 % and 56.3 % of its total accounts receivable as of September 30, 2023 and December 31, 2022, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 72.1 % and 72.8 % of the Company's revenue for the three and nine months ended September 30, 2023, respectively, and 73.7 % and 73.5 % for the three and nine months ended September 30, 2022.

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

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

As of June 30, 2023, the Company's uninsured cash deposits are not material.

As of September 30, 2023, the Company's uninsured cash deposits are not material.

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

COMMON STOCK REPURCHASE PROGRAM

On August 29, 2023, 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 September 1, 2023.

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 during the three months ended September 30, 2023.

THE ENSIGN GROUP, INC.

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

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.

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The share repurchase program does not obligate the Company to acquire any specific number of shares.

The Company did not purchase any shares pursuant to this stock repurchase program during the six months ended June 30, 2023.

The stock repurchase program expired on August 2, 2023 and is no longer in effect.

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

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.

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

What changed 10-Q

Item 1. Financial Statements