What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-01 compared with 2023-02-02 · 446 added, 495 removed, 876 unchanged (52% of the section changed)

9 unchanged sentences

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021

Notes to Consolidated Financial Statements

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of The Ensign Group Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2023, and 2022, the related consolidated statements of income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

22 unchanged sentences

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures relating to management’s judgment regarding the estimation of the reserve for general and professional liability claims included the following, among others:

Our audit procedures related to management’s judgment regarding the estimation of the reserve for general and professional liability claims included the following, among others:

• We tested the effectiveness of controls over the reserve for general and professional liabilities, including those related to both the determination of reserves for open claims and estimation of the IBNR claims.

• We obtained an understanding of the factors considered and assumptions made by management and its external actuarial specialists in developing the estimate of the general and professional liability reserves, including the sources of data relevant to these factors and assumptions.

We tested underlying claims data, including testing the completeness and accuracy of open cases handled by legal firms.

• We involved our actuarial specialists to assist in our evaluation of the methodologies applied by management's specialist and to assess the accuracy of the Company's reserves.

We also compared the reserves recorded to an independent range developed by our actuarial specialists.

• We performed a retrospective review in which we compared the current portion of the total liability at the end of the prior year to actual paid claim emergence in the current year.

We tested underlying claims data, including testing the completeness and accuracy of open cases.

• We involved our actuarial specialists to assist in our evaluation of the methodologies applied by management's specialist and to develop an independent range of expected reserves.

We compared the recorded reserves to the estimated independent range.

• We performed a retrospective review in which we compared the prior-year recorded amounts for ultimate losses and current liabilities to the subsequent claim emergence.

/s/ DELOITTE & TOUCHE LLP

10 unchanged sentences

Investments—current 17,229 15,441

Prepaid income taxes 4,643 5,452

Prepaid expenses and other current assets 35,036 40,982

7 unchanged sentences

Goodwill 76,869 76,869

Other indefinite-lived intangibles 3,972 3,727

TOTAL ASSETS $ 4,177,541 $ 3,452,022

2 unchanged sentences

Accounts payable $ 92,811 $ 77,087

Accrued wages and related liabilities (Note 3)

289,810 278,770

Accrued wages and related liabilities 332,568 289,810

Lease liabilities—current 82,526 65,796

13 unchanged sentences

$ 0.001 par value;

100,000 shares authorized;

59,029 and 55,661 shares issued and outstanding at December 31, 2022, respectively, and 58,134 and 55,190 shares issued and outstanding at December 31, 2021, respectively

150,000 , 59,987 and 56,597 shares authorized, shares issued and shares outstanding at December 31, 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 465,707 415,560

Retained earnings 1,142,653 946,339

Common stock in treasury, at cost, 3,368 and 2,944 shares at December 31, 2022 and 2021, respectively (Note 22)

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

( 116,555 ) ( 114,626 )

19 unchanged sentences

Income from operations 255,367 296,825 260,465

Other (expense) income:

Other income (expense):

Interest expense ( 8,087 ) ( 8,931 ) ( 6,849 )

Other income 1,195 4,388 3,813

Other expense, net $ ( 7,736 ) $ ( 2,461 ) $ ( 5,549 )

25,482 1,195 4,388

Other income (expense), net 17,395 ( 7,736 ) $ ( 2,461 )

Income before provision for income taxes 272,762 289,089 258,004

1 unchanged sentence

NET INCOME 209,850 224,652 $ 197,725

Net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886

Net income (loss) attributable to noncontrolling interests 451 ( 29 ) 3,073

Net income attributable to The Ensign Group, Inc.

20 unchanged sentences

( 132 ) — — — 132 ( 10,118 ) — ( 10,118 )

Deconsolidation of an ancillary business — — — — — — ( 1,369 ) ( 1,369 )

Capital contribution from noncontrolling interest holder — — — — — — 2,000 2,000

Net income attributable to noncontrolling interest — — — — — — 3,073 3,073

Distribution to noncontrolling interest holder — — — — — — ( 2,683 ) ( 2,683 )

Noncontrolling interest attributable to subsidiary equity plan — — — — — — ( 2,908 ) ( 2,908 )

Net income attributable to the Ensign Group, Inc.

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( 404 ) — — — 404 ( 29,882 ) — ( 29,882 )

Deconsolidation of an ancillary business — — — — — — ( 1,369 ) ( 1,369 )

Capital contribution from noncontrolling interest holder — — — — — — 2,000 2,000

Net income attributable to noncontrolling interest — — — — — — 3,073 3,073

Distribution to noncontrolling interest holder — — — — — — ( 2,908 ) ( 2,908 )

Acquisition of noncontrolling interest shares — — ( 1,539 ) — — — 835 ( 704 )

Issuance of noncontrolling interests through subsidiary equity plan — — 6,693 — — — — 6,693

Net loss attributable to noncontrolling interest — — — — — — ( 29 ) ( 29 )

Noncontrolling interest attributable to subsidiary equity plan — — 9 — — — ( 284 ) ( 275 )

Net income attributable to the Ensign Group, Inc.

7 unchanged sentences

Employee stock award compensation — — 30,754 — — — — 30,754

Repurchase of common stock (Note 22)

( 404 ) — — — 404 ( 29,882 ) — ( 29,882 )

Acquisition of noncontrolling interest shares — — ( 256 ) — — — — ( 256 )

Issuance of noncontrolling interests through subsidiary equity plan — — 6,693 — — — — 6,693

Net loss attributable to noncontrolling interest — — — — — — ( 29 ) ( 29 )

Distribution to noncontrolling interest holder and other changes — — 9 — — — ( 284 ) ( 275 )

Net income attributable to noncontrolling interest — — — — — — 451 451

Noncontrolling interest attributable to subsidiary equity plan — — ( 3,787 ) — — — 3,533 ( 254 )

Net income attributable to the Ensign Group, Inc.

10 unchanged sentences

Depreciation and amortization 72,387 62,355 55,985

Impairment of long-lived assets — — 2,681

Amortization of deferred financing fees 1,067 1,036 859

6 unchanged sentences

Gain on sale of assets ( 123 ) ( 3,467 ) ( 1,371 )

Loss (gain) on insurance claims, legal finding and asset disposals 3,926 ( 977 ) 625

(Gain)/loss on insurance claims, legal matters and asset disposals

( 1,368 ) 3,926 ( 977 )

Change in operating assets and liabilities

2 unchanged sentences

Prepaid expenses and other assets 6,993 ( 9,141 ) ( 4,898 )

Deferred employer portion of social security taxes ( 24,155 ) ( 24,154 ) 48,309

Deferred employer portion of social security taxes (Note 3)

— ( 24,155 ) ( 24,154 )

Cash surrender value of life insurance policy premiums ( 16,072 ) ( 7,614 ) ( 10,953 )

15 unchanged sentences

Escrow deposits ( 1,216 ) — 100

Escrow deposits used to fund acquisitions — — 14,050

Cash from insurance proceeds 2,029 1,339 6,899

22 unchanged sentences

Proceeds from CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3) — — 11,637

— 11,637 246,955

Repayments of CARES Act Provider Relief Fund and Medicare Advance Payment Program (Note 3) — — ( 113,660 )

— ( 113,660 ) ( 144,932 )

NET CASH USED IN FINANCING ACTIVITIES

13 unchanged sentences

Accrued dividends declared $ 3,396 $ 3,201 $ 3,035

Note receivable from insurance settlement $ — $ — $ 5,500

Right-of-use assets obtained in exchange for new and modified operating lease obligations $ 376,550 $ 370,753 $ 198,593

6 unchanged sentences

(collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue.

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

As of December 31, 2022, the Company's independent operating subsidiaries operated 271 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

The Company's independent operating subsidiaries have a collective capacity of approximately 28,100 operational skilled nursing beds and 3,000 senior living units.

As of December 31, 2022, the Company's independent operating subsidiaries operated 192 facilities under long-term lease arrangements, and had options to purchase 11 of those 192 facilities.

The Company's real estate portfolio includes 108 owned real estate properties, which included 79 facilities operated and managed by the Company's independent operating subsidiaries, 29 senior living operations leased to and operated by The Pennant Group, Inc.

(Pennant) as part of the spin-off transaction in October 2019, and the Service Center location.

Of those 29 senior living operations, one is located on the same real estate property as a skilled nursing facility that the Company owns and operates.

Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other operating subsidiaries through contractual relationships with such subsidiaries.

The Company also has a wholly-owned captive insurance subsidiary that provides some claims-made coverage to the Company’s operating subsidiaries for general and professional liabilities, as well as coverage for certain workers’ compensation insurance liabilities.

In January of 2022, the Company formed a captive real estate investment trust (REIT), which owns and manages its real estate business, called Standard Bearer Healthcare REIT, Inc.

The Company's independent 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 December 31, 2023, the Company's independent subsidiaries operated 297 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

Subsequent to December 31, 2023, one of the Company's independent subsidiaries expanded its operations into Tennessee.

The Company's independent subsidiaries have a collective capacity of approximately 30,600 operational skilled nursing beds and 3,100 senior living units.

As of December 31, 2023, the Company's independent subsidiaries operated 214 facilities under long-term lease arrangements and had options to purchase 11 of those 214 facilities.

The Company's real estate portfolio includes 113 owned real estate properties, which includes 83 facilities operated and managed by the Company's independent subsidiaries, 30 operations leased to and operated by third-party operators, and the Service Center (defined below) location.

Of those 30 operations, one senior living facility is located on the same real estate property as a skilled nursing facility that an independent subsidiary 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 independent subsidiaries through contractual relationships with such subsidiaries.

The Company also has a wholly-owned captive insurance subsidiary that provides some claims-made coverage to the Company’s independent subsidiaries for general and professional liabilities, as well as coverage for certain workers’ compensation insurance liabilities.

In 2022, the Company formed a captive real estate investment trust (REIT), which owns and manages its real estate business, called Standard Bearer Healthcare REIT, Inc.

(Standard Bearer).

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

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

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

Each of the Company's affiliated operations are operated by separate, wholly-owned, independent subsidiaries that have their own management, employees and assets.

References herein to the consolidated “Company” and “its” assets and activities in this Annual Report is not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc.

Each of the Company's independent subsidiaries are operated by wholly-owned subsidiaries that have their own management, employees and assets.

References herein to the consolidated “Company” and “its” assets and activities in this Annual Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc.

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

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The Company presents noncontrolling interests within the equity section of its consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc.

and the noncontrolling interest in its consolidated statements of income.

The Financial Statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.

and the noncontrolling interests in its consolidated statements of income.

The Financial Statements include the accounts of all independent subsidiaries controlled by the Company through its ownership of a majority voting interest.

Reclassifications — Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These reclassifications had no effect on the previously reported net income.

Prior period results reflect reclassifications, for comparative purposes, related to the change in the Company's segment structure as a result of the formation of Standard Bearer.

Refer to Note 8, Business Segments.

Reclassification adjustments have been made to reclassify investments associated with the Company's non-qualified deferred compensation plan with investments held by the Company's captive insurance subsidiary on the consolidated balance sheets.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Estimates and Assumptions — The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenue and expenses during the reporting periods.

1 unchanged sentence

Actual results could differ from those estimates.

Fair Value of Financial Instruments — The Company’s financial instruments consist principally of cash and cash equivalents, debt security investments, accounts receivable, insurance subsidiary deposits, accounts payable and borrowings.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Fair Value Considerations — The Company’s financial instruments consist principally of cash and cash equivalents, debt security investments, accounts receivable, insurance subsidiary deposits, deferred compensation investment funds, equity investments, accounts payable and borrowings.

The Company believes all of the financial instruments’ recorded values approximate fair values because of their nature or respective short durations.

See Note 6, Fair Value Measurements.

Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value.

These tiers include:

Level 1, defined as observable inputs such as quoted market prices in active markets;

Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;

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

See Note 5, Fair Value Measurements for additional information.

The Company's non-financial assets, which includes goodwill, intangible assets, property and equipment and right-of-use assets, are not required to be measured at fair value on a recurring basis.

However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, the Company assesses its long-lived assets for impairment.

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

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

See Note 4, Revenue and Accounts Receivable.

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

See Note 4, Revenue and Accounts Receivable.

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

The Company's service revenue is derived primarily from providing healthcare services to its patients.

Revenue is recognized when services are provided to patients at the amount that reflects the consideration that the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care.

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

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

As such, patient care services represent a bundle of services that are not capable of being distinct.

Additionally, there may be ancillary services that are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered.

Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price.

The Company determines the transaction price based on contractually agreed-upon amounts or rate on a per day basis, adjusted for estimates of variable consideration.

The Company uses the expected value method in determining the variable component that should be used to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type.

The amount of variable consideration that is included in the transaction price may be constrained and is included in net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

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

As the Company’s contracts with its patients have an original duration of one year or less, the Company uses the practical expedient applicable to its contracts and does not consider the time value of money.

Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue.

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

Rental Revenue Recognition — The Company's rental revenues are primarily generated by leasing healthcare-related properties through triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property.

Revenue for operating leases is recognized on a straight-line basis over the lease term when collectability of all minimum lease payments is probable in accordance with FASB ASC Topic 842, Leases (ASC 842).

The Company has elected the single component practical expedient, which allows a lessor, by class of underlying asset, not to allocate the total consideration to the lease and non-lease components based on their relative stand-alone selling prices where certain criteria are met.

Tenant reimbursements related to property taxes and insurance are neither considered lease nor non-lease components under ASC 842.

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

Cash and Cash Equivalents — Cash and cash equivalents consist of bank term deposits, money market funds and treasury bill related investments with original maturities of three months or less at time of purchase and therefore approximate fair value.

5 unchanged sentences

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

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

When evaluating an investment for its current expected credit losses, the Company reviews factors such as historical experience with defaults, losses, credit ratings, term, market sector and macroeconomic trends, including current conditions and forecasts to the extent they are reasonable and supportable.

3 unchanged sentences

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

Leases commencing prior to the ASC 842 adoption date were classified as operating lease under historical guidance.

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

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

As of December 31, 2022, the Company does not have any leases that are classified as finance leases.

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

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

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 December 31, 2023, the Company has one financing lease that is not material to the consolidated balance sheet.

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

As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of future lease payments.

The Company utilized a third-party valuation specialist to assist in estimating the incremental borrowing rate.

The Company utilizes a third-party valuation specialist to assist in estimating the incremental borrowing rate.

The Company records rent expense for operating leases on a straight-line basis over the term of the lease.

11 unchanged sentences

The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company does not have material subleases.

Impairment of Long-Lived Assets — The Company reviews the carrying value of long-lived assets that are held and used in the Company’s operating subsidiaries for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operating subsidiaries to which the assets relate, utilizing management’s best estimate, appropriate assumptions, and projections at the time.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company subleases skilled nursing facilities to third-party operators and considers the subleases to be separate contracts as the Company is not relieved of its primary obligation under its operating lease.

The rental income from third-parties related to these subleases is presented on a gross basis from the rent expense associated with the Company's lease obligations and is not material to the consolidated statements of income.

Impairment of Long-Lived Assets — The Company reviews the carrying value of long-lived assets that are held and used in the Company’s independent subsidiaries for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the independent subsidiaries to which the assets relate, utilizing management’s best estimate, appropriate assumptions and projections at the time.

If the carrying value is determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset.

1 unchanged sentence

Management has evaluated its long-lived assets and determined there was no impairment during the years ended December 31, 2023, 2022, and 2021.

The Company recorded an impairment charge of $ 2,681 during the year ended December 31, 2020.

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

Patient base is amortized over a period of four to eight months , depending on the classification of the patients and the level of occupancy in a new acquisition on the acquisition date.

Trade names at affiliated facilities are amortized over 30 years and customer relationships are amortized over a period of up to 20 years.

Trade names at independent subsidiaries are amortized over 30 years and customer relationships are amortized over a period of up to 20 years.

The Company's indefinite-lived intangible assets consist of trade names and Medicare and Medicaid licenses.

1 unchanged sentence

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

Goodwill is subject to annual testing for impairment.

In addition, goodwill is tested for impairment if events occur or circumstances indicate that its carrying value may not be recoverable.

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

The Company did not identify any goodwill or intangible asset impairment during the years ended December 31, 2022, 2021, and 2020.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

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

If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a goodwill impairment test by comparing the carrying value of each reporting unit to its respective fair value.

The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis.

The fair value of the reporting unit is the implied fair value of goodwill.

In the event a reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized.

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

Management has evaluated its goodwill and intangible assets and determined there was no impairment during the years ended December 31, 2023, 2022, and 2021.

The Company has recognized cumulative goodwill impairment losses of $ 7,410 , since inception in 1999.

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

Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company.

The combined self-insured retention is $ 500 per claim, subject to an additional one-time deductible of $ 1,000 for California affiliated operations and a separate, one-time, deductible of $ 1,250 for non-California operations.

For all affiliated operations, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 5,000 blanket aggregate limit and an additional state-specific aggregate where required by state law.

The combined self-insured retention is $ 500 per claim, subject to an additional one-time deductible of $ 1,250 for the Company's independent subsidiaries in California and a separate, one-time, deductible of $ 1,250 for the Company's independent subsidiaries not in California.

For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 5,000 blanket aggregate limit and an additional state-specific aggregate where required by state law.

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

Subsequent to December 31, 2023, the self-insured retention is $ 750 per claim, subject to an additional one-time deductible of $ 1,500 for the Company's independent subsidiaries in California.

For the independent subsidiaries not in California, the self-insured retention is $ 650 per claim, subject to an additional one-time deductible of $ 1,350 .

For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 10,000 blanket aggregate limit and an additional state-specific aggregate where required by state law.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

3 unchanged sentences

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

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

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

To protect itself against loss exposure in California with this policy, the Company has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 625 per occurrence.

In Texas, the operating subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $ 750 per occurrence.

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

In Texas, the independent subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $ 750 per occurrence.

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

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

1 unchanged sentence

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

In addition, the Company has recorded an asset and equal liability in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

See Note 13, Restricted and Other Assets.

The Company self-funds medical (including prescription drugs) and dental healthcare benefits to the majority of its employees.

The Company is fully liable for all financial and legal aspects of these benefit plans.

To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 , $ 500 and $ 300 for each covered person for fiscal years 2022, 2021 and 2020, respectively.

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 years 2023 and 2022, respectively, and $ 500 for each covered person for fiscal year 2021.

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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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.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 believes it has been organized, has operated and intends to continue to operate in a manner to qualify for taxation as a REIT.

Standard Bearer was organized, has operated and intends to continue to operate in a manner to qualify for taxation as a REIT.

In order to qualify as a REIT, Standard Bearer must meet certain organizational and operational requirements, including a requirement to distribute to its shareholders, which in this case is the Company, at least 90% of its annual taxable income.

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Stock-Based Compensation — The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors including employee stock options based on estimated fair values, ratably over the requisite service period of the award.

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

Comprehensive Income — The Company does not have any components of other comprehensive income recorded within its consolidated Financial Statements and, therefore, does not separately present a statement of comprehensive income in its consolidated Financial Statements.

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

Comprehensive Income — The Company does not have any components of other comprehensive income recorded within its Financial Statements and, therefore, does not separately present a statement of comprehensive income in its Financial Statements.

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

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The applicability of any standard is subject to the formal review of the Company's financial management and certain standards are under consideration.

Recent Accounting Standards Adopted by the Company — In November 2021, the FASB issued ASU 2021-10 “ Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance, ” which created FASB ASC Topic 832, Government Assistance (ASC 832) .

ASC 832 requires business entities to disclose information about certain government assistance they receive.

The Company adopted this standard on January 1, 2022 and determined there was no material impact on the Company's Financial Statements.

Recent Accounting Standards Issued But Not Yet Adopted by the Company — In October 2023, the FASB issued ASU 2023-06 "Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative", which amends U.S.

GAAP to include 14 disclosure requirements that are currently required under SEC Regulation S-X or Regulation S-K.

Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S-X or Regulation S-K.

The adoption is not expected to have a material impact on the Company's Notes to the Consolidated Financial Statements as these requirements were previously incorporated under the SEC Regulations.

In November 2023, the FASB issued ASU 2023-07 " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ", which requires the Company to expand the breadth and frequency of segment disclosures to include additional information about significant segment expenses, the chief operating decision maker (CODM) and other items, and also require the annual disclosures on an interim basis.

This guidance is effective for annual periods beginning after December 15, 2023, which will be the Company's fiscal year 2024, with early adoption permitted.

The Company is currently evaluating the impact of the ASU on its Quarterly and Annual Reports.

In December 2023, the FASB issued ASU 2023-09 " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ", which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts.

This guidance is effective for annual periods beginning after December 15, 2024, which will be the Company's fiscal year 2025, with early adoption permitted.

The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements.

The Company is currently evaluating the impact of the ASU on its Annual Report.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In February 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848)," which provides temporary, optional practical expedients and exceptions to enable a smoother transition to reference rates which are expected to replace London Interbank Offered Rate (LIBOR) reference rates.

Adoption of the provisions of ASU 2020-04 is optional.

The amendments are effective for all entities from the beginning of the interim period that includes the issuance date of the ASU.

An entity may elect to apply the amendments prospectively through December 31, 2024.

During the year ended December 31, 2022, the Company and its subsidiaries including Standard Bearer, entered into the Second Amendment to Third Amended and Restated Credit Agreement (such agreement, the Amended Credit Agreement, and the revolving credit facility thereunder, the Revolving Credit Facility), which increased the Revolving Credit Facility by $ 250,000 to an aggregate principal amount of up to $ 600,000 .

Pursuant to the Amended Credit Agreement, the Company transitioned from LIBOR to the Secured Overnight Financing Rate (SOFR) as the applicable reference rate for borrowings under the Revolving Credit Facility and determined there was no resulting material impact on the Company's Financial Statements.

COVID-19 UPDATE

The COVID-19 pandemic has continued to impact the Company's affiliated operations.

In prior years, as part of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act), the Company received cash distributions of relief fund payments (Provider Relief Funds) and funds authorized by U.S.

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

During the year ended December 31, 2022, the Company did not receive Provider Relief Funds.

During the year ended December 31, 2021 and 2020, the Company received and returned $ 11,637 and $ 141,700 , respectively, in Provider Relief Funds.

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

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

The Company repaid $ 3,232 of the funds in 2020 and the remaining funds of $ 102,023 in March 2021.

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

The law permits states to retroactively change their state's Medicaid program rates effective as of January 1, 2020.

The law provides discretion to each state and specifies the funds are to be used to reimburse the recipient for healthcare related expenses that are attributable to COVID-19 and associated with providing patient care.

In addition, increases in Medicaid rates can come from other areas of the state's budget outside of FMAP funding.

Revenues from these additional payments are recognized in accordance with ASC 606, subject to variable consideration constraints.

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

As of December 31, 2022 and 2021, the Company had $ 1,001 and $ 1,781 in unapplied state relief funds, respectively.

During the years ended December 31, 2022, 2021, and 2020, the Company received an additional $ 81,057 , $ 70,484 , and $ 51,927 in state relief funding and recognized $ 81,837 , $ 75,231 , and $ 45,407 , respectively, as revenue.

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

The Company recorded $ 48,309 of deferred payments of social security taxes as a liability during 2020, and paid the first and second half of the payments in the fourth quarters of 2021 and 2022, respectively.

REVENUE AND ACCOUNTS RECEIVABLE

Service Revenue

The Company's service revenue is derived primarily from providing healthcare services to its patients.

Revenue is recognized when services are provided to the patients at the amount that reflects the consideration to which the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care.

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

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

As such, patient care services represent a bundle of services that are not capable of being distinct.

Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time, if and when those services are rendered.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price.

The Company determines the transaction price based on contractually agreed-upon amounts or rate on a per day basis, adjusted for estimates of variable consideration.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Revenue from the Medicare and Medicaid programs accounted for 73.7 %, 73.6 % and 74.5 % for the years ended December 31, 2022, 2021, and 2020, respectively.

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

These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity.

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

The Company recorded adjustments to revenue which were not material to the Company's revenue for the years ended December 31, 2022, 2021, and 2020.

Rental Revenue

The Company's rental revenues are primarily generated by leasing healthcare-related properties through triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property.

Revenue is recognized on a straight-line basis over the lease term if it has been deemed probable of collection.

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

Disaggregation of Revenue

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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.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue from the Medicare and Medicaid programs accounted for 72.6 %, 73.7 % and 73.6 % for the years ended December 31, 2023, 2022, and 2021, respectively.

These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity.

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

The Company recorded adjustments to revenue which were not material to the Company's revenue for the years ended December 31, 2023, 2022, and 2021.

Service revenue for the years ended December 31, 2023, 2022, and 2021 is summarized in the following tables:

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SERVICE REVENUE $ 3,708,071 100.0 % $ 3,008,711 100.0 % $ 2,611,476 100.0 %

(1) Medicaid payor includes revenue for senior living operations and revenue related to FMAP and other COVID-19 related state funding.

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

(1) Medicaid payor includes revenue for senior living operations and revenue related to state relief funding .

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

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties is $ 21,284 , $ 16,757 and $ 15,985 for the years ended December 31, 2023, 2022, and 2021.

State relief funding

The Company received state relief funding through Medicaid programs from various states, including healthcare relief funding under the American Rescue Plan Act (ARPA), increases in the Federal Medical Assistance Percentage (FMAP) under the Families First Coronavirus Response Act (FFCRA) and other state specific relief programs.

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 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 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 years ended December 31, 2023 and 2022, the Company had $ 486 and $ 1,001 in unapplied state relief funds, respectively.

During the years ended December 31, 2023, 2022, and 2021, the Company received an additional $ 64,238 , $ 81,057 , and $ 70,484 in state relief funding and recognized $ 64,753 , $ 81,837 , and $ 75,231 , respectively, as revenue.

Federal relief funding

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

During the years ended December 31, 2023 and 2022, the Company did not receive Provider Relief Funds.

During the year ended December 31, 2021, the Company received and returned $ 11,637 in Provider Relief Funds.

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

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

The Company repaid $ 3,232 of the funds in 2020 and the remaining funds of $ 102,023 in March 2021.

Balance Sheet Impact

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ACCOUNTS RECEIVABLE, NET $ 485,039 $ 408,432

Practical Expedients and Exemptions

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

COMPUTATION OF NET INCOME PER COMMON SHARE

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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.

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

Year Ended December 31,

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Net income $ 209,850 $ 224,652 $ 197,725

net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886

net income (loss) attributable to noncontrolling interests 451 ( 29 ) 3,073

Net income attributable to The Ensign Group, Inc.

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Net income $ 209,850 $ 224,652 $ 197,725

net (loss) income attributable to noncontrolling interests ( 29 ) 3,073 886

net income (loss) attributable to noncontrolling interests 451 ( 29 ) 3,073

Net income attributable to The Ensign Group, Inc.

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$ 3.65 $ 3.95 $ 3.42

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 780 , 198 and 956 for th e years ended December 31, 2022, 2021 and 2020, respectively.

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,429 , 780 and 198 for the years ended December 31, 2023, 2022 and 2021, respectively.

FAIR VALUE MEASUREMENTS

Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value.

These tiers include:

Level 1, defined as observable inputs such as quoted market prices in active markets;

Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;

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

The fair value of cash and cash equivalents of $ 316,270 and $ 262,201 as of December 31, 2022 and 2021, respectively, is derived using Level 1 inputs.

The Company's other financial assets include the captive insurance subsidiary's cash and cash equivalents, deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at cost basis of $ 69,290 and $ 67,734 as of December 31, 2022 and 2021, respectively.

Also included are contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans which are held in a rabbi trust.

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

As of December 31, 2022, and 2021, the adjusted cost basis of the investment funds is $ 25,144 and $ 17,530 , respectively.

As of December 31, 2022 and 2021, the cost basis of the Company's financial assets included in the captive insurance subsidiary's investments and the deferred compensation plan investment funds are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs.

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 amortized cost basis of $ 59,530 and $ 53,924 as of December 31, 2023 and 2022, respectively.

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

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 and are held at fair value.

As of December 31, 2023, and 2022, the fair value of the investment funds was $ 41,216 and $ 25,144 , respectively, which are derived using Level 2 inputs.

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

The Company believes its amortized cost basis investments that were in an unrealized loss position as of December 31, 2023 and 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 CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company believes its investments that were in an unrealized loss position as of December 31, 2022 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

The Company's non-financial assets, which includes goodwill, intangible assets, property and equipment and right-of-use assets, are not required to be measured at fair value on a recurring basis.

However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, the Company assesses its long-lived assets for impairment.

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

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 108 of the Company's 113 owned real estate properties, of which 79 are operated and managed by the Company's independent subsidiaries 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 an independent subsidiary 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.

During the year ended December 31, 2022, Standard Bearer acquired the real estate of ten skilled nursing facilities for a purchase price of $ 84,656 , three of which were previously operated and managed by Ensign's affiliated operations.

During the year ended December 31, 2023, Standard Bearer acquired the real estate of three stand-alone skilled nursing facilities and two campus operations for an aggregate purchase price of $ 65,899 .

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

During the year ended December 31, 2022, Standard Bearer acquired the real estate of ten skilled nursing facilities for an aggregate purchase price of $ 84,656 , three of which were previously operated and managed by the Company's independent subsidiaries.

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

As part of the formation of Standard Bearer, certain of the Company's operating subsidiaries, Standard Bearer and Standard Bearer's subsidiaries entered into several agreements that include leasing, management services and debt arrangements between the operations.

As these intercompany arrangements were entered into when Standard Bearer was formed in January 2022, the transactions related to these agreements are reflected in Standard Bearer's segment income during year ended December 31, 2022.

As part of the formation of Standard Bearer, certain of the Company's independent subsidiaries, Standard Bearer and Standard Bearer's independent real estate subsidiaries entered into several agreements that include leasing, management services and debt arrangements between the operations .

All intercompany transactions have been eliminated in consolidation.

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Intercompany master lease agreements

Certain of the Company's operating subsidiaries and the 75 Standard Bearer subsidiaries entered into five "triple-net" master lease agreements (collectively, the Standard Bearer Master Leases) in January 2022.

Certain of the Company's independent subsidiaries and 79 Standard Bearer independent real estate 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.

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

In addition to rent, the operating subsidiaries are required to pay the following:

In addition to rent, the independent subsidiaries are required to pay the following:

(1) all impositions and taxes levied on or with respect to the leased properties;

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and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties.

The ten real estate properties acquired during year ended December 31, 2022 were added to the Standard Bearer Master Leases.

Rental revenue generated from Ensign affiliated operations was $ 57,967 , $ 44,165 and $ 40,946 for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, total annual rental income under the Standard Bearer Master Lease is approximately $ 62.5 million.

Rental revenue generated from the Company's independent subsidiaries was $ 66,712 , $ 57,967 , and $ 44,165 for the years ended December 31, 2023, 2022, and 2021, respectively.

Intercompany management agreement

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The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center.

The management agreement provides for a base management fee that is equal to 5 % of total rental revenue and an incentive management fee that is equal to 5 % of funds from operations (FFO) and is capped at 1 % of total rental revenue.

Management fee generated between Standard Bearer and the Service Center for the year ended December 31, 2022 was $ 4,367 , which represents 6 % of total Standard Bearer rental revenue.

No management fees were recorded in 2021 and 2020, which was prior to the formation of Standard Bearer.

Management fee generated between Standard Bearer and the Service Center for the year ended December 31, 2023 and 2022 was $ 4,948 and $ 4,367 , respectively.

No management fees were recorded in 2021, which was prior to the formation of Standard Bearer.

Intercompany debt arrangements

Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans.

The intercompany debt arrangements include mortgage loans and the Revolving Credit Facility to fund acquisitions and working capital needs.

The interest rate under the Amended Credit Agreement is a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin range from 1.25 % to 2.25 % per annum.

The intercompany debt arrangements include mortgage loans and the Credit Facility to fund acquisitions and working capital needs.

The interest rate under the Credit Facility 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.

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.

Refer to Note 15, Debt , for additional information related to these debts.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory notes are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income.

Refer to Note 16, Debt , for additional information related to these debts.

Equity Instrument Denominated in the Shares of a Subsidiary

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2022 Omnibus Incentive Plan (Standard Bearer Equity Plan).

The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's affiliated subsidiaries.

The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries.

These awards generally vest over a period of five years or upon the occurrence of certain prescribed events.

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During the year ended December 31, 2022, Standard Bearer sold fully vested common shares from the Standard Bearer Equity Plan to shareholders for cash of $ 6,544 .

During the year ended December 31, 2022, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

During the year ended December 31, 2022, Standard Bearer established shareholders of its preferred shares through contributions of cash of $ 149 .

During the year ended December 31, 2023 and 2022, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

Also, during the year ended December 31, 2022, Standard Bearer established shareholders of its preferred shares through contributions of cash of $ 149 .

These preferred shares were fully vested at the time of the contributions by the shareholders.

The value of Standard Bearer common and preferred shares held by the Company are eliminated in consolidation and the value held by other shareholders are classified as noncontrolling interests on the Company's consolidated balance sheets.

Dividends on Shares of a Subsidiary

During the year ended December 31, 2022, Standard Bearer met the requirement to distribute to its shareholders at least 90% of its annual taxable income through a declaration and payment of cash dividends totaling $ 30,379 .

Of that amount, $ 30,095 was paid in the form of a distribution to the Company and $ 284 was paid in the form of a distribution to noncontrolling interests.

OPERATION EXPANSIONS

The expansion focus of the Company's independent subsidiaries is to purchase or lease operations that are complementary to the current operations, accretive to the business, or otherwise advance the Company's strategy.

The results of all independent subsidiaries are included in the Financial Statements subsequent to the date of acquisition.

Acquisitions are accounted for using the acquisition method of accounting.

The Company's independent subsidiaries also enter into long-term leases that may include options to purchase the facilities.

As a result, from time to time, an independent real estate subsidiary will acquire the property of facilities that have previously been operated under third-party leases.

2023 Expansions

During the year ended December 31, 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 25 stand-alone skilled nursing operations and one campus operation.

Of these additions, Standard Bearer acquired the real estate of three of the stand-alone skilled nursing operations and one campus operation, which were leased back to the Company's independent subsidiaries.

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

These new operations added a total of 2,483 operational skilled nursing beds and 94 operational senior living units to be operated by the Company's independent 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 December 31, 2023, the Company expanded its operations through a long-term lease, with the addition of two stand-alone skilled nursing operations, totaling 241 operational skilled nursing beds operated by the Company's independent subsidiaries, including one in a new state, Tennessee.

2022 Expansions

During the year ended December 31, 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 23 stand-alone skilled nursing operations and one campus operation.

Of these additions, Standard Bearer acquired the real estate of seven of the stand-alone skilled nursing operations, which were leased back to Ensign's independent subsidiaries.

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 independent subsidiaries.

These new operations added a total of 3,058 operational skilled nursing beds and 674 operational senior living units to be operated by the Company's independent subsidiaries.

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Of the new operations acquired during the year ended December 31, 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.

2021 Acquisitions

During the year ended December 31, 2021, the Company expanded its operations through a combination of long-term leases and a real estate purchase, with the addition of 17 stand-alone skilled nursing operations and five real estate purchases, four of which the Company previously operated and continues to operate.

The remaining real estate purchase is operated by Pennant.

These new operations added a total of 1,832 operational skilled nursing beds operated by the Company's independent subsidiaries.

Of the new operations acquired during the year ended December 31, 2021, $ 6,000 was concentrated in goodwill and accordingly, the transactions were classified as business combinations.

In connection with the new operations made through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease.

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

The table below presents the allocation of the purchase price for the operations acquired during the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31,

2023 2022 2021

Land $ 7,794 $ 15,527 $ 19,928

Building and improvements 57,488 65,070 77,975

Equipment, furniture, and fixtures 1,840 1,618 217

Assembled occupancy 346 367 29

Goodwill — 16,400 6,000

Leased asset — 1,909 —

Other indefinite-lived intangible assets 330 245 75

TOTAL ACQUISITIONS $ 67,798 $ 101,136 $ 104,224

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 independent subsidiaries .

The assets added during the year ended December 31, 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 consolidated balance sheets of the Company, and the operating results have been included in the consolidated statements of income of the Company since the date the Company gained effective control.

BUSINESS SEGMENTS

In conjunction with the formation of Standard Bearer in January 2022, the Company's Chief Executive Officer, who is its chief operating decision maker, or CODM, began reviewing the results of Standard Bearer instead of all real estate properties.

Accordingly, the Company revised its former real estate segment to include only real estate properties that are part of Standard Bearer.

This change in organizational structure demonstrates that Standard Bearer's real estate is a core part of the Company's expansion of its real estate investment strategy.

As of the first quarter of 2022, the Company has two reportable segments:

The Company has two reportable segments:

(1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators.

Segment information for prior periods has been recast to reflect the change of the Company’s segment structure.

As of December 31, 2023, the skilled services segment includes 259 skilled nursing operations and 27 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

The Company's Standard Bearer segment consists of 108 owned real estate properties.

These properties include 75 operations the Company operated and managed and 29 senior living operations that are leased to and operated by third parties.

Of the 29 real estate operations leased to third parties, one senior living operation is located on the same real estate property as a skilled nursing facility that the Company owns and operates.

The Company also reports an “All Other” category that includes results from its senior living operations, which includes eleven stand-alone senior living operations and the senior living operations at 26 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate and other ancillary operations.

Services included in the “All Other” category are insignificant individually, and therefore do not constitute a reportable segment.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company also reports an “All Other” category that includes results from its senior living operations, which includes 11 stand-alone senior living operations and the senior living operations at 27 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate and other ancillary operations.

Services included in the “All Other” category are insignificant individually, and therefore do not constitute a reportable segment.

The Company’s reportable segments are significant operating segments that offer differentiated services.

16 unchanged sentences

Segment income (loss) 464,925 29,065 ( 221,251 ) — 272,739

Gain on sale of real estate assets and insurance recoveries, net 3,267

Gain on sale of assets and insurance recoveries from real estate, net

Income before provision for income taxes $ 272,762

3 unchanged sentences

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

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities and management service revenue generated by the Service Center with Standard Bearer.

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer.

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

(3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 3,897 for the year ended December 31, 2023.

Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's independent subsidiaries.

Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense.

(4) Included in interest expense in Standard Bearer is interest expense incurred from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc.

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Year Ended December 31, 2022

7 unchanged sentences

Segment income (loss) 408,732 27,871 ( 150,781 ) — 285,822

Gain on real estate insurance recoveries 440

Gain on sale of assets and insurance recoveries from real estate, net

Income before provision for income taxes $ 289,089

1 unchanged sentence

Interest expense (4)

$ — $ 15,707 $ 1,870 $ ( 8,646 ) $ 8,931

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

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities.

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

(3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities.

(3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's independent subsidiaries.

Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(4) Included in interest expense in Standard Bearer is interest expense incurred from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc.

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

Year Ended December 31, 2021

7 unchanged sentences

Segment income (loss) 373,603 31,876 ( 147,915 ) — 257,564

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

Gain on real estate insurance recoveries 440

Income before provision for income taxes $ 258,004

2 unchanged sentences

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

(2) Intercompany service revenue represents service revenue generated by ancillary operations provided to the Company's affiliated wholly-owned healthcare facilities.

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

(3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's affiliated wholly-owned healthcare facilities.

(3) Intercompany rental revenue represents rental income generated by both Standard Bearer and other real estate properties with the Company's independent subsidiaries.

Intercompany rental revenue is eliminated in consolidation along with corresponding intercompany rent expense.

1 unchanged sentence

Year Ended December 31, 2023

Skilled Services Other Service Revenue Total Service Revenue Revenue %

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 1,429,473 $ 29,976 $ 1,459,449 39.4 %

6 unchanged sentences

TOTAL SERVICE REVENUE $ 3,578,855 $ 129,216 $ 3,708,071 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding.

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to state relief funding.

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

(3) All Other incorporates intercompany eliminations.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Year Ended December 31, 2022

Skilled Services Other Service Revenue Total Service Revenue Revenue %

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 1,158,309 $ 24,847 $ 1,183,156 39.3 %

6 unchanged sentences

TOTAL SERVICE REVENUE $ 2,906,215 $ 102,496 $ 3,008,711 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding.

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to state relief funding.

(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 CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(3) All Other incorporates intercompany eliminations.

Year Ended December 31, 2021

Skilled Services Other Service Revenue Total Service Revenue Revenue %

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 1,007,061 $ 15,399 $ 1,022,460 39.2 %

6 unchanged sentences

TOTAL SERVICE REVENUE $ 2,523,234 $ 88,242 $ 2,611,476 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to FMAP and other COVID-19 related state funding.

(1) Medicaid payor includes revenue generated from senior living operations and revenue related to state relief funding.

(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 Financial Statements subsequent to the date of acquisition.

Acquisitions are accounted for using the acquisition method of accounting.

The Company's affiliated operations also enter into long-term leases that may include options to purchase the facilities.

As a result, from time to time, a real estate affiliated subsidiary will acquire the property of facilities that have previously been operated under third-party leases.

FASB ASC Topic 805, Clarifying the Definition of a Business (ASC 805) defined the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed to be a business.

Determining whether a transferred set constitutes a business is important because the accounting for a business combination differs from that of an asset acquisition.

The definition of a business also affects the accounting for dispositions.

When substantially all of the fair value of assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business and business combination accounting would not be required.

2022 Expansions

During the year ended December 31, 2022, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of 23 stand-alone skilled nursing operations and one campus operation.

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

In addition, the Company purchased the real estate at three skilled nursing properties that the Company was already operating, further expanding the Company's real estate portfolio.

Refer to Note 7, Standard Bearer, for additional information on the purchase of real estate properties.

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

These new operations added a total of 3,058 operational skilled nursing beds and 674 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

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

The aggregate purchase price for these expansions during the year ended December 31, 2022 was $ 101,136 .

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

The aggregate purchase price for the transactions that were classified as asset acquisitions during the year ended December 31, 2022 was $ 84,736 , consisting of real estate properties and indefinite-lived intangible assets.

The remaining aggregate purchase price for transactions during the year ended December 31, 2022 was concentrated in goodwill of $ 16,400 and accordingly, the transactions were classified as business combinations.

Subsequent to December 31, 2022, the Company expanded its operations through a combination of long-term leases, with the addition of seventeen stand-alone skilled nursing operations.

These new operations added 1,462 operational skilled nursing beds.

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2021 Expansions

The remaining real estate purchase is operated by Pennant.

These new operations added a total of 1,832 operational skilled nursing beds operated by the Company's affiliated operating subsidiaries.

The aggregate purchase price for these acquisitions during the year ended December 31, 2021 was $ 104,224 .

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

The aggregate purchase price for the asset acquisitions during the year ended December 31, 2021 was $ 98,224 , consisting of real estate properties.

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

2020 Acquisitions

During the year ended December 31, 2020, the Company expanded its operations through a combination of long-term leases and real estate purchases, with the addition of five stand-alone skilled nursing operations, one stand-alone senior living operation and one campus operation.

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

These new operations added a total of 507 operational skilled nursing beds and 298 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

The aggregate purchase price for these acquisitions during the year ended December 31, 2020 was $ 24,997 .

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

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

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

Ensign affiliates retained ownership of the real estate for these two senior living communities, which was subsequently sold in 2022.

The table below presents the allocation of the purchase price for the operations acquired during the years ended December 31, 2022, 2021, and 2020 , excluding assets that were contributed to Pennant that occurred during the spin-off transaction in 2019.

Year Ended December 31,

2022 2021 2020

Land $ 15,527 $ 19,928 $ 9,496

Building and improvements 65,070 77,975 14,178

Equipment, furniture, and fixtures 1,618 217 568

Assembled occupancy 367 29 107

Goodwill 16,400 6,000 —

Leased asset 1,909 — —

Other indefinite-lived intangible assets 245 75 648

TOTAL ACQUISITIONS $ 101,136 $ 104,224 $ 24,997

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

The operations added by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome.

Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable.

The assets added during the year ended December 31, 2022 and through the issuance of the Financial Statements were not material operations to the Company individually or in the aggregate.

Accordingly, pro forma financial information is not presented.

These additions have been included in the December 31, 2022 consolidated balance sheets of the Company, and the operating results have been included in the consolidated statements of operations of the Company since the date the Company gained effective control.

(3) All Other incorporates intercompany eliminations.

PROPERTY AND EQUIPMENT - NET

11 unchanged sentences

In addition, the Company evaluated its long-lived assets and did not record an impairment charge for the fiscal years ended 2023, 2022, and 2021.

The Company recorded impairment charges of $ 2,681 for the fiscal year ended 2020.

See also Note 6, Standard Bearer and Note 7, Operation Expansions for information on acquisitions during the year ended December 31, 2023.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

INTANGIBLE ASSETS - NET

7 unchanged sentences

During the years ended December 31, 2023, 2022, and 2021, amortization expense was $ 1,790 , $ 1,714 and $ 1,435 , respectively, of which $ 1,202 , $ 1,160 and $ 1,158 was related to the amortization of right-of-use assets, respectively.

The Company did not record any impairment charge to intangible assets during the years ended December 31, 2022, 2021, and 2020.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company did no t record any impairment charge to intangible assets during the years ended December 31, 2023, 2022, and 2021.

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

Thereafter 1,013

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

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

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

The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis.

The fair value of the reporting unit is the implied fair value of goodwill.

In the event a reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized.

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

The Company performs its goodwill impairment test annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable.

The Company performs the annual impairment testing of goodwill using October 1 as the measurement date.

The Company completed its goodwill impairment test as of October 1, 2022 and did no t record any impairment charge to goodwill or other intangible assets for the fiscal years 2022, 2021 or 2020.

The Company has recognized cumulative goodwill impairment losses of $ 7,410 .

Other indefinite-lived intangible assets consist of the following:

Trade name $ 889 $ 889

Medicare and Medicaid licenses 3,413 3,083

TOTAL $ 4,302 $ 3,972

During the year ended December 31, 2023, the Company acquired $ 330 in Medicare and Medicaid licenses compared to $ 245 and $ 181 in the fiscal years 2022 and 2021, respectively.

The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of December 31, 2023.

2 unchanged sentences

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

The following table represents activity in goodwill by skilled service segment and "all other" category as of and for the year ended December 31, 2022, 2021 and 2020:

The following table represents activity in goodwill by skilled service segment and "all other" category as of December 31, 2023, 2022 and 2021:

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Skilled Services All Other Total

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

December 31, 2020 $ 45,486 $ 8,983 $ 54,469

Additions 6,000 — 6,000

2 unchanged sentences

December 31, 2022 $ 67,886 $ 8,983 $ 76,869

During the year ended December 31, 2022, the Company acquired $ 245 in Medicare and Medicaid licenses compared to $ 181 and $ 648 in the fiscal years 2021 and 2020, respectively.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other indefinite-lived intangible assets consist of the following:

Trade name $ 889 $ 889

Medicare and Medicaid licenses 3,083 2,838

TOTAL $ 3,972 $ 3,727

December 31, 2023 $ 67,886 $ 8,983 $ 76,869

RESTRICTED AND OTHER ASSETS

4 unchanged sentences

Deposits with landlords 2,661 2,527

Escrow deposits 1,216 —

Other 12,662 14,053

RESTRICTED AND OTHER ASSETS $ 40,205 $ 37,291

Included in restricted and other assets as of December 31, 2022 and 2021 are anticipated insurance recoveries related to the Company's workers' compensation, general and professional liability claims that are recorded on a gross rather than net basis in accordance with an Accounting Standards Update issued by the FASB.

Included in restricted and other assets as of December 31, 2023 and 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:

Other accrued liabilities consist of the following:

Quality assurance fee $ 14,035 $ 7,701

5 unchanged sentences

Property taxes 12,875 10,926

Legal finding accrued 4,553 —

Accrued litigation (Note 20)

Other 17,405 13,046

27 unchanged sentences

The Company's effective tax rate was 23.1 % for the year ended December 31, 2023, compared to 22.3 % for the same period in 2022 and 23.4 % in 2021.

The lower effective tax rate is due to higher tax benefits from stock compensation and lower tax expense from non-deductible expenses.

The higher effective tax rate is due to higher non-deductible expenses compared to tax benefits from stock compensation.

The Company's deferred tax assets and liabilities as of December 31, 2023 and 2022 are summarized below.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company's deferred tax assets and liabilities as of December 31, 2022 and 2021 are summarized below.

Deferred tax assets (liabilities):

8 unchanged sentences

TOTAL DEFERRED TAX ASSETS 567,073 457,030

State taxes ( 280 ) —

Depreciation and amortization ( 52,334 ) ( 49,146 )

5 unchanged sentences

These carryforwards almost entirely relate to state limitations on the application of Enterprise Zone employment-related tax credits.

Unless the Company uses the Enterprise Zone credits beforehand, the carryforward will begin to expire in 2023.

Unless the Company uses the Enterprise Zone credits beforehand, the carryforward began to expire in 2023.

The remainder of these carryforwards relate to credits against the Texas margin tax and is expected to carryforward until 2027.

As of December 31, 2023 and 2022, the valuation allowance of $ 789 , for both years, was primarily recorded against the Enterprise Zone credits as the Company believes it is more likely than not that some of the benefit of the credits will not be realized.

The Company's operating loss carry forwards for states were not material during the years ended December 31, 2022 and 2021.

The Company's operating loss carry forwards for states were not material during the year ended December 31, 2023 and 2022.

As of December 31, 2023, 2022 and 2021, the Company did not have any unrecognized tax benefits, net of its state benefits that would affect the Company's effective tax rate.

3 unchanged sentences

During the fourth quarter of each year, various state statutes of limitations also lapsed.

The lapses for the years ended December 31, 2022 and 2021 had no impact on the Company's unrecognized tax benefits.

The lapses during the years ended December 31, 2023 and 2022 had no impact on the Company's unrecognized tax benefits.

During the year ended December 31, 2021, the state of Wisconsin initiated and completed an examination of the Company's 2019, 2018, and 2017 state tax years with no adjustments.

1 unchanged sentence

Debt consists of the following:

Mortgage loans and promissory notes $ 156,271 $ 159,967

Mortgage loans and promissory note $ 152,388 $ 156,271

current maturities ( 3,950 ) ( 3,883 )

4 unchanged sentences

Credit Facility with a Lending Consortium Arranged by Truist

The Company maintains a revolving credit facility between the Company and its subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Revolving Credit Facility).

The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $ 600,000 in aggregate principal amount with a maturity date of April 8, 2027.

Borrowings are supported by a lending consortium arranged by Truist.

On April 8, 2022, the Company and its subsidiaries, including Standard Bearer, entered into the Amended Credit Agreement, which amended the Revolving Credit Facility to increase the revolving line of credit from $ 350,000 to $ 600,000 in aggregate principal amount.

The Amended Credit Agreement also extended the maturity date of the Revolving Credit Facility to April 8, 2027 and modified the reference rate from LIBOR to SOFR.

The interest rates applicable to loans under the Amended Credit Facility are, at the Company's option, equal to either a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin range from 1.25 % to 2.25 % per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the agreement).

In addition, the Company and its subsidiaries, including Standard Bearer, will pay a commitment fee on the unused portion of the commitments that will range from 0.20 % to 0.40 % per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.

Except as set forth in the Amended Credit Facility, all other terms and conditions of the Credit Facility remained in full force and effect as described below.

As part of the entry into the Amended Credit Agreement, deferred financing costs of $ 566 were written off and additional deferred financing costs of $ 3,197 were capitalized during the year ended December 31, 2022.

Borrowings made under the Revolving Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material operating subsidiaries as well as a first lien on substantially all of their personal property.

The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its operating subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments.

Under the Amended Credit Agreement, the Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.00 :1.00;

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

As of December 31, 2022, and January 30, 2023, there was no outstanding debt under the Revolving Credit Facility.

The Company was in compliance with all loan covenants as of December 31, 2022.

Mortgage Loans and Promissory Notes

As of December 31, 2022, the Company's operating subsidiaries had $ 156,271 outstanding under the mortgage loans and notes, of which $ 3,883 is classified as short-term and the remaining $ 152,388 is classified as long-term.

The interest rates applicable to loans under the Credit Facility are, at the Company's option, equal to either a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin range from 1.25 % to 2.25 % per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility).

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 year ended December 31, 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 independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments.

The Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.00 :1.00;

provided that if the aggregate consideration for approved acquisitions in a six 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 December 31, 2023, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of December 31, 2023.

As of December 31, 2022, 23 of the Company's subsidiaries have mortgage loans insured with HUD in the aggregate amount of $ 153,488 , which subjects these subsidiaries to HUD oversight and periodic inspections.

Mortgage Loans and Promissory Note

The Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 150,244 , which subjects these subsidiaries to HUD oversight and periodic inspections.

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

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

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

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

2 unchanged sentences

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

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

The notes bear fixed interest rates of 6.3 % and 5.3 % per annum and the term of the notes are 10 months and 12 years, respectively.

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In addition to the HUD mortgage loans above, the Company has a promissory note of $ 2,144 that bears a fixed interest rate of 5.3 % per annum and has a term of 12 years.

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

Future principal payments due under the long-term debt arrangements discussed above are as follows:

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Thereafter 132,449

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

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 CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Off-Balance Sheet Arrangements

As of December 31, 2022, the Company had approximately $ 6,710 of borrowing capacity under the Revolving Credit Facility pledged as collateral to secure outstanding letters of credit, which remained consistent from 2021.

As of December 31, 2023, the Company had approximately $ 6,255 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit, which decreased by $ 455 from prior year.

OPTIONS AND AWARDS

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

The Company has one active stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan), which was approved by the Company's stockholders on May 26, 2022, and replaced the Company's prior option plan, the 2017 Omnibus Incentive Plan (the 2017 Plan).

2022 Omnibus Incentive Plan (2022 Plan) — During the second quarter of 2022, the Company's shareholders approved the 2022 Plan.

Including the shares rolled over from the 2017 Plan, the 2022 Plan provides for the issuance of 3,452 shares of common stock.

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

Including the shares rolled over from the 2017 Omnibus Incentive Plan, the 2022 Plan provides for the issuance of 3,452 shares of common stock.

The number of shares available to be issued under the 2022 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) two shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award).

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At December 31, 2023, the total number of shares available for issuance under the 2022 Plan was 1,454 .

2017 Omnibus Incentive Plan (2017 Plan) — The 2017 Plan provided for the issuance of 6,881 shares of common stock which are to be proportionally adjusted in the event of any Equity Restructuring.

The number of shares available to be issued under the 2017 Plan were adjusted to 8,118 shares of common stock in order to reflect the proportional adjustments as part of the spin-off transaction that occurred in October 2019.

The number of shares available to be issued under the 2017 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) 2.5 shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award).

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

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

Options expire ten years from the date of grant.

The Company granted 165 stock options and 116 restricted stock awards from the 2017 Plan in the first half of 2022 prior to the retirement of the 2017 plan.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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Stock Options

The Company granted 581 , 621 and 669 stock options from the available plans during the year ended December 31, 2022, 2021 and 2020, respectively.

The Company granted 1,008 , 581 and 621 stock options during the years ended December 31, 2023, 2022, and 2021, respectively.

The Company used the following assumptions for stock options granted during the years ended December 31, 2023, 2022 and 2021:

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For the years ended December 31, 2023, 2022 and 2021, the following represents the exercise price and fair value displayed at grant date for stock option grants:

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the periods ended December 31, 2023, 2022 and 2021 and therefore, the intrinsic value was $ 0 at the date of grant.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table represents the employee stock option activity during the year ended December 31, 2022, 2021 and 2020:

The following table represents the employee stock option activity during the year ended December 31, 2023:

Number of Options Outstanding Weighted Average

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The aggregate intrinsic value of options outstanding, vested and expected to vest as of December 31, 2023, 2022 and 2021 is as follows:

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Options 2023 2022 2021

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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 year ended December 31, 2022, 2021 and 2020 was $ 27,955 , $ 27,731 , and $ 26,030 , respectively.

The total intrinsic value of options exercised during the year ended December 31, 2022, 2021 and 2020 was $ 47,441 , $ 34,278 , and $ 45,081 , respectively.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

At December 31, 2023, 2022 and 2021, t he aggregate intrinsic value of options that vested during the years ended December 31, 2023, 2022 and 2021 was $ 31,658 , $ 27,955 , and $ 27,731 , respectively.

The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $ 56,186 , $ 47,441 , and $ 34,278 , respectively.

Restricted Stock Awards

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Nonvested at December 31, 2023 431 $ 78.91

During the year ended December 31, 2022, the Company granted 18 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors from the 2017 and 2022 Plan.

During the year ended December 31, 2023, the Company granted 18 quarterly stock awards to non-employee directors for their service on the Company's board of directors from the 2022 Plan.

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.

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On August 27, 2019, the Board approved the Long-Term Incentive Plan (the 2019 LTI Plan).

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

The 2019 LTI Plan provides 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.

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

The shares are vested over five years at 20 % per year on the anniversary of the grant date.

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

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

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 827 , $ 836 , and $ 854 for the years ended December 31, 2023, 2022 and 2021, respectively.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock-based compensation expense

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the years ended December 31, 2023 , 2022 and 2021 was as follows:

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TOTAL $ 30,754 $ 22,720 $ 18,678

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In future periods, the Company expects to recognize approximately $ 67,750 and $ 29,245 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of December 31, 2023.

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The Company leases from CareTrust REIT, Inc.

(CareTrust) real property associated with 97 affiliated skilled nursing and senior living facilities used in the Company’s operations, 96 of which are under nine “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years.

(CareTrust) real property associated with 97 independent skilled nursing and senior living facilities used in the Company’s operations, 96 of which are under nine “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years.

At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions.

The extension of the term of any of the Master Leases is subject to the following conditions:

(1) no event of default under any of the Master Leases having occurred and being continuing;

(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.

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The Company is in compliance with requirements of the Master Leases as of December 31, 2023.

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

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

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

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

In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years .

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

Total rent expense for continuing operations inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 153,174 , $ 139,458 and $ 129,990 for the year ended December 31, 2022, 2021 and 2020, respectively.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

During 2022, the Company amended two of its separate master leases to add operations and extend the initial terms, which increased the lease liabilities and right-of-use assets by $ 207,638 to reflect the new lease obligations.

Additionally, during 2022, the Company added six new operations to two new master leases, which increased the lease liabilities and right-of-use assets by $ 54,755 to reflect the new lease obligations.

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

The Company leases facilities where its independent subsidiaries operate and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years.

In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years .

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

Total rent expense for continuing operations inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $ 197,856 , $ 153,174 and $ 139,458 for the years ended December 31, 2023, 2022 and 2021, respectively.

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

During 2023, the Company expanded its operations through three separate master lease arrangements for 22 stand-alone skilled nursing operations, of which 19 are operated by the Company's independent subsidiaries and the remaining three are subleased to a third-party operator.

These three master leases increased the lease liabilities and right-of-use assets by $ 346,789 to reflect the new lease obligations and have initial lease terms of 18 , 20 and 20 years, respectively.

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

Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases, master lease agreements and debt financing instruments.

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

During 2022, Standard Bearer acquired the real estate of three skilled nursing operations, which were previously under separate long-term lease arrangements.

The aggregate reduction in the carrying value of the Company's lease liabilities and right-of-use assets related to this acquisition is $ 10,080 .

The components of operating lease expense are as follows:

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

Future minimum lease payments for all leases as of December 31, 2022 are as follows:

Future minimum lease payments for all third-party leases as of December 31, 2023 are as follows:

2024 $ 191,352

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

As of December 31, 2022 and 2021, the weighted average remaining lease term is 15.0 and 14.8 , respectively, and the weighted average discount rate used to determine the operating lease liabilities is 6.7 % and 7.6 %, respectively.

Subsequent to December 31, 2022, the Company expanded its operations through two separate master lease arrangements for 20 stand-alone skilled nursing operations, of which 17 will be operated by the Company's affiliated operating subsidiaries and the remaining three will be subleased to a third-party operator.

The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the two separate master lease agreements is estimated to be approximately $ 315,337 .

As of December 31, 2023 and 2022, the weighted average remaining lease term is 14.9 years and 15.0 years and the weighted average discount rate used to determine the operating lease liabilities is 6.5 % and 6.7 %.

Subsequent to December 31, 2023, the Company amended an existing separate master lease arrangement to add two stand-alone skilled nursing facilities and extend the initial term to 20 years.

This added a total of 241 operational skilled nursing beds operated by the Company's independent subsidiaries and the aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the separate master lease agreement is estimated to be approximately $ 30,980 .

THE ENSIGN GROUP, INC.

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Lessor Activities

In connection with the spin-off transaction in 2019, Ensign affiliates retained ownership of the real estate at 29 senior living operations that were contributed to Pennant.

As of December 31, 2022, Ensign affiliates retained ownership of the real estate for these 29 senior living communities.

All of these properties are leased to Pennant on a triple-net basis, whereas the respective Pennant affiliates are responsible for all costs at the properties including:

The Company leases its owned real estate properties to third-party operators, of which 29 senior living operations are operated by Pennant.

All of these properties are triple-net leases, whereby the respective tenants are responsible for all costs at the properties including:

(1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor);

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and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties.

The initial terms range between 14 to 16 years.

The initial terms range from 14 to 16 years.

During 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.

Additionally, during the year, 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 years ended December 31, 2023, 2022 and 2021 is as follows:

4 unchanged sentences

6,236 1,842 1,912

TOTAL $ 21,284 $ 16,757 $ 15,985

(1) Pennant rental income includes variable rent such as property taxes of $ 1,296 , $ 1,318 , and $ 1,199 during the year ended December 31, 2023, 2022, and 2021.

Future annual rental income for all leases as of December 31, 2022 were as follows:

In addition, the number of senior living operations leased to and operated by Pennant was 29 during the year ended December 31, 2023 and decreased from 32 to 29 during the year ended December 31, 2022.

(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 3,897 for the year ended December 31, 2023.

There was no sublease rental revenue for the years ended December 31, 2022 and 2021.

Future annual rental income for all third-party leases as of December 31, 2023 were as follows:

Year Amount (1)

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(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of December 31, 2023.

DEFINED CONTRIBUTION PLANS

The Company has a 401(k) defined contribution plan (the 401(k) Plan), whereby eligible employees may contribute up to 90 % of their annual basic earnings, subject to applicable annual Internal Revenue Code limits.

Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company.

The Company expensed matching contributions to the 401(k) Plan of $ 2,836 , $ 2,418 , and $ 2,121 during the years ended December 31, 2023, 2022 and 2021, respectively.

The Company has a non-qualified deferred compensation plan (DCP), whereby certain highly compensated employees who are otherwise ineligible to participate in the Company's 401(k) plan, may defer the receipt of a portion of their base compensation and, for certain employees, up to 100 % of their eligible bonuses.

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 fiscal years 2023, 2022 and 2021.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of the years ended December 31, 2023 and 2022, the Company accrued $ 49,201 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 years ended December 31, 2023 and 2021, the Company recorded gains related to its DCP of $ 4,634 and $ 1,612 , respectively, which are included in other income (expense), net, and recorded offsetting expenses of $ 4,887 and $ 1,758 , respectively, which are allocated between cost of services and general and administrative expenses.

For the year ended December 31, 2022, the Company recorded a loss related to its DCP of $ 4,188 , which is included in other income (expense), net, and recorded an offsetting reduction in expense of $ 4,051 , which is allocated between cost of services and general and administrative expenses.

SELF INSURANCE LIABILITIES

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Balance December 31, 2023

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Included in the table above are accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, of $ 117,744 and $ 87,000 as of December 31, 2023 and 2022, respectively.

Included in long-term insurance losses recoverable as of December 31, 2023 and 2022 are anticipated insurance recoveries related to the Company's general and professional liability claims that are recorded on a gross rather than net basis in accordance with GAAP.

DEFINED CONTRIBUTION PLANS

Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company.

The Company expensed matching contributions to the 401(k) Plan of $ 2,418 , $ 2,121 , and $ 1,889 during the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2019, the Company implemented non-qualified deferred compensation plan (the DCP) that was effective in 2019 for certain executives.

The plan was then offered to other highly compensated employees, which went into effect on January 1, 2020.

These individuals are otherwise ineligible for participation in the Company's 401(k) plan.

The DCP allows participating employees to defer the receipt of a portion of their base compensation and certain employees up to 100 % of their eligible bonuses.

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

The Company paid for related administrative costs, which were not significant during fiscal years 2022, 2021 and 2020.

As of the years ended December 31, 2022, 2021, and 2020, the Company accrued $ 33,017 , $ 26,832 and $ 14,232 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet.

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

Refer to Note 6, Fair Value Measurements for more information on the funds.

For the year ended December 31, 2022, the Company recorded a loss on the investment acquired in connection with our deferred compensation plan of $ 4,188 , which is included in other income (expense), net.

During the same period, the Company recorded an offsetting reduction in expense of $ 4,051 , which is allocated between cost of services and general and administrative expenses.

For the years ended December 31, 2021 and 2020, the Company recorded net income on the investment acquired in connection with our deferred compensation plan of $ 1,612 and $ 1,396 , respectively, which is included in other income (expense), net.

During the same periods, the Company recorded an offsetting expense of $ 1,758 , and $ 1,355 , respectively, which is allocated between cost of services and general and administrative expenses.

COMMITMENTS AND CONTINGENCIES

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

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

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

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

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

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Consequently, because no claims have been asserted, no liabilities have been recorded for these obligations on the Company’s consolidated balance sheets for any of the periods presented.

In connection with the spin-off transaction in 2019, certain landlords required, in exchange for their consent to the transaction, that the Company's lease guarantees remain in place for a certain period of time following the transaction.

In connection with the spin-off in 2019, certain landlords required, in exchange for their consent to the transaction, that the Company's lease guarantees remain in place for a certain period of time following the transaction.

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

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

Department of Justice stating that it was investigating whether there had been a violation of the False Claims Act and/or the Anti-Kickback Statute with respect to relationships between certain of the Company’s independently operated skilled nursing facilities and persons who serve or have served as medical directors, advisory board participants or other potential referral sources.

The CID covered the period from October 3, 2013 through 2018, and was limited in scope to ten of the Company’s Southern California independent operating entities.

In October 2018, the Department of Justice made an additional request for information covering the period of January 1, 2011 through 2018, relating to the same topic.

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

The Company fully cooperated with the U.S.

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

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

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

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

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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 us.

The Company and its independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that services provided to patients by the Company’s independent subsidiaries have resulted in injury or death, and claims related to employment and commercial matters.

For example, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of the Company’s independent subsidiaries in late November 2023.

The Company intends to appeal the verdict.

The Company has in the past appealed and have in some circumstances received returned decisions in its favor.

Although the Company intends to vigorously defend against these claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition.

Additionally, in certain states in which the Company has or has had independent subsidiaries, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions.

There can be no assurance that the Company or its independent subsidiaries will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.

The skilled nursing and post-acute care industry is heavily regulated.

As such, the Company and its independent subsidiaries are continuously subject to state and federal regulatory scrutiny, supervision and control in the ordinary course of business.

Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine.

In addition to being subject to direct regulatory oversight from state and federal agencies, the skilled nursing and post-acute care industry is also subject to regulatory requirements which, if noncompliance is identified, could result in civil, administrative or criminal fines, penalties or restitutionary relief, and reimbursement;

authorities could also seek the suspension or exclusion of the provider or individual from participation in their programs.

The Company believes that there has been, and will continue to be, an increase in governmental investigations of post-acute providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations.

Adverse determinations in civil legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on the Company’s financial position, results of operations, and cash flows.

Additionally, such proceedings and/or investigation can be a distraction to the business.

For example, in 2020, the U.S.

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

In June 2020, the Company received a document and information request from the House Select Subcommittee in connection with its investigation.

The Company has cooperated in responding to this inquiry.

In July 2022 and thereafter, the Company received follow up requests for additional documents and information.

The Company has responded to these requests, and continued to cooperate with the House Select Subcommittee in connection with its investigation.

On December 9, 2022, the House Select Subcommittee issued its final report summarizing its investigation and related recommendations designed "to strengthen the nation's ability to prevent and respond to public health and economic emergencies." According to the information provided by the House Select Subcommittee, the issuance of this report was the House Select Subcommittee's final official act.

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

The Company, its independent operating subsidiaries, and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, alleging that services provided have resulted in personal injury, elder abuse, wrongful death or other related claims.

In addition, the Company, its independent operating subsidiaries, and others in the industry are subject to claims and lawsuits in connection with COVID-19 and a facility's preparation for and/or response to COVID-19.

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

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

The Company and its independent subsidiaries cooperated in responding to this inquiry.

In July 2022 and thereafter, the Company and its independent subsidiaries received follow up requests for additional documents and information.

The Company and its independent subsidiaries responded to these requests and cooperated with the House Select Subcommittee in connection with its investigation.

Also , the Company, on behalf of its independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S.

Department of Justice (DOJ) in January of 2024 indicating that the DOJ is investigating the Company to determine whether it has caused the submission of claims to Medicare and Texas Medicaid for services which were unnecessary or otherwise not consistent with existing reimbursement requirements.

The CID covers the period from January 1, 2016, to the present.

As a general matter, the Company's independent subsidiaries maintain policies and procedures to promote compliance with all applicable Medicare and Medicaid requirements, including but not limited to those relating to the presentation of claims for reimbursement for services provided.

The Company intends to fully cooperate with the DOJ in response to the CID.

However, the Company cannot predict the outcome of the investigation or its potential impact on the consolidated financial statements.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

In addition, and pursuant to 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.

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.

For example, on May 31, 2018, the Company, on behalf of its independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the False Claims Act (FCA) and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of the Company’s independent subsidiaries 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 moved forward with the complaint in December 2020.

From that time until December 2023, and notwithstanding the Company's success in early pre-trial motions, the Company continued to incur legal defense costs and fees, including significant amounts as part of discovery in the fourth quarter of 2023.

In early January 2024, the Company entered into mediation and on January 19, 2024, the parties agreed to settle the civil case for $ 48,000 , subject to the review of the DOJ and other relevant government entities.

The settlement does not include admissions on the part of the Company or its independent subsidiaries and the Company maintains that it has and continues to comply with all applicable State and Federal statutes (including but not limited to the FCA and the AKS).

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 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 subsidiaries do business.

In May 2009, Congress passed the 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 an 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.

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

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

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

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

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

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

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

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

The Company and its independent operating subsidiaries have been, and continue to be, subject to claims, findings and legal actions that arise in the ordinary course of the various businesses, including healthcare and non-healthcare services.

These claims include, but are not limited to, potential claims filed by residents, customers, patients and responsible parties related to patient care and treatment (professional negligence claims);

to non-care based activities of certain of the subsidiaries;

and to employment related claims filed by current or former employees.

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

In addition, these claims could impact the Company's ability to procure insurance to cover its exposure related to the various services provided by its independent operating subsidiaries to their residents, customers and patients.

THE ENSIGN GROUP, INC.

2 unchanged sentences

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

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

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

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

For several months during the COVID-19 pandemic, the Centers for Medicare and Medicaid Services (CMS) suspended its Targeted Probe and Educate Program.

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

If any such inquiry, investigation or litigation were to proceed, and the Company and its independent 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 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 subsidiaries under a Corporate Integrity Agreement and/or other such arrangement.

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

For several months during the COVID-19 pandemic, the Centers for Medicare and Medicaid Services (CMS) suspended its Targeted Probe and Educate (TPE) Program.

Beginning in August 2020, CMS resumed TPE Program activity.

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

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

As of December 31, 2022 and since, 34 of the Company's independent operating subsidiaries had Reviews scheduled, on appeal, or in a dispute resolution process.

As of December 31, 2023 and through the filing date of this report, 40 of the Company's independent subsidiaries had Reviews scheduled or in process.

In June 2023, 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.

In implementing this SNF 5-Claim Probe & Educate Review, CMS acknowledged that the increase in observed improper payments from 2021 to 2022 may have arisen from a "misunderstanding" by SNFs about how to appropriately bill for claims of service after October 1, 2019.

All facilities that are not undergoing TPE reviews, or have not recently passed a TPE review, will be subject to the nationwide audit.

MACs will complete only one round of probe-and-educate for each SNF, rather than three rounds that typically occur in the TPE.

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

Concentrations

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

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

As of December 31, 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 July 28, 2022, the Board of Directors approved a stock repurchase program pursuant to which the Company may repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from August 2, 2022.

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

The Company did not purchase any shares pursuant to this stock repurchase program in the year ended December 31, 2022.

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

On February 9, 2022, the Board of Directors approved a stock repurchase program pursuant to which the Company could repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from February 10, 2022.

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

During the three months ended June 30, 2022, the Company repurchased 271 shares of its common stock for $ 20,000 .

This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.

THE ENSIGN GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On October 21, 2021, the Board of Directors approved a stock repurchase program pursuant to which the Company could repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months that started on October 29, 2021.

COMMON STOCK REPURCHASE PROGRAM

On August 29, 2023, 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 September 1, 2023.

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

The Company did not purchase any shares pursuant to this stock repurchase program during the year ended December 31, 2023.

On July 28, 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 August 2, 2022.

The Company repurchased 133 and 132 shares of its common stock for $ 9,882 and $ 10,118 during the years ended December 31, 2022 and 2021, respectively.

This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect.

On March 4, 2020 and March 13, 2020, the Board of Directors approved two stock repurchase programs pursuant to which the Company was authorized to repurchase up to $ 20,000 and $ 5,000 , respectively, of its common stock under the programs for a period of approximately 12 months.

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

During the first quarter of 2020, the Company repurchased 503 and 189 shares of its common stock for $ 20,000 and $ 5,000 , respectively.

These repurchase programs expired upon the repurchase of the full authorized amount under the two plans and are no longer in effect.

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

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.

In addition, the Company repurchased 404 shares of its common stock for $ 29,882 during the year ended December 31, 2022, and 132 shares of its common stock for $ 10,118 during the year ended December 31, 2021, related to two separate stock repurchase programs that are no longer in effect.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

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-K

Item 8. Financial Statements and Supplementary Data