What changed in this filing

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Item 1. Financial Statements

2024-07-25 compared with 2024-05-01 · 307 added, 156 removed, 762 unchanged (38% of the section changed)

3 unchanged sentences

(In thousands, except par values)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

Cash and cash equivalents $ 477,336 $ 509,626

Accounts receivable—less allowance for doubtful accounts of $ 9,463 and $ 9,348 at March 31, 2024 and December 31, 2023, respectively

Accounts receivable—less allowance for doubtful accounts of $ 9,460 and $ 9,348 at June 30, 2024 and December 31, 2023, respectively

547,121 485,039

Investments—current 24,126 17,229

Prepaid income taxes 18,798 3,830

Prepaid expenses and other current assets 47,699 31,206

28 unchanged sentences

150,000 shares authorized;

60,294 and 56,904 shares issued and shares outstanding at March 31, 2024, respectively, and 59,987 and 56,597 shares issued and shares outstanding at December 31, 2023, respectively

60,449 and 57,049 shares issued and shares outstanding at June 30, 2024, respectively, and 59,987 and 56,597 shares issued and shares outstanding at December 31, 2023, respectively

Additional paid-in capital 499,411 465,707

Retained earnings 1,275,657 1,142,653

Common stock in treasury, at cost, 3,390 shares at both March 31, 2024 and December 31, 2023

Common stock in treasury, at cost, 3,400 and 3,390 shares at June 30, 2024 and December 31, 2023, respectively

( 117,764 ) ( 116,555 )

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

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

2024 2023 2024 2023

(In thousands, except per share data)

10 unchanged sentences

Interest expense ( 2,040 ) ( 2,023 ) ( 4,004 ) ( 4,059 )

Interest income 7,084 3,542 13,544 7,526

1,049 1,660 3,933 3,219

Other income, net

6,093 3,179 13,473 6,686

Income before provision for income taxes 92,064 81,053 181,662 159,435

2 unchanged sentences

Net income attributable to noncontrolling interests

174 97 299 214

Net income attributable to The Ensign Group, Inc.

13 unchanged sentences

Issuance of common stock to employees and directors resulting from the exercise of stock options 219 — 6,229 — — — — 6,229

Issuance of restricted stock, net of forfeitures 88 — 6,165 — — — — 6,165

Issuance of restricted stock, net of forfeitures (Note 16)

88 — 6,165 — — — — 6,165

Shares of common stock used to satisfy tax withholding obligations — — — — — ( 14 ) — ( 14 )

8 unchanged sentences

BALANCE - MARCH 31, 2024 56,904 $ 60 $ 486,336 $ 1,208,074 3,390 $ ( 116,569 ) $ 5,566 $ 1,583,467

Issuance of common stock to employees and directors resulting from the exercise of stock options 117 1 4,089 — — — — 4,090

Issuance of restricted stock, net of forfeitures (Note 16)

38 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations ( 10 ) — — — 10 ( 1,195 ) — ( 1,195 )

Dividends declared ($ 0.0600 per share)

— — — ( 3,424 ) — — — ( 3,424 )

Employee stock award compensation — — 8,978 — — — — 8,978

Acquisition of noncontrolling interest shares — — ( 29 ) — — — — ( 29 )

Net income attributable to noncontrolling interest — — — — — — 174 174

Noncontrolling interests attributable to subsidiary equity plan — — 37 — — — ( 34 ) 3

Net income attributable to the Ensign Group, Inc.

— — — 71,007 — — — 71,007

BALANCE - JUNE 30, 2024 57,049 $ 61 $ 499,411 $ 1,275,657 3,400 $ ( 117,764 ) $ 5,706 $ 1,663,071

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

13 unchanged sentences

BALANCE - MARCH 31, 2023 55,907 $ 60 $ 429,783 $ 1,002,976 3,369 $ ( 114,646 ) $ 1,581 $ 1,319,754

Issuance of common stock to employees and directors resulting from the exercise of stock options 253 — 5,905 — — — — 5,905

Issuance of restricted stock, net of forfeitures 54 — — — — — — —

Shares of common stock used to satisfy tax withholding obligations ( 21 ) — — — 21 ( 1,909 ) — ( 1,909 )

Dividends declared ($ 0.0575 per share)

— — — ( 3,231 ) — — — ( 3,231 )

Employee stock award compensation — — 8,881 — — — — 8,881

Acquisition of noncontrolling interest shares — — ( 100 ) — — — — ( 100 )

Net income attributable to noncontrolling interest — — — — — — 97 97

Noncontrolling interests attributable to subsidiary equity plan — — ( 3,937 ) — — — 3,940 3

Net income attributable to the Ensign Group, Inc.

— — — 63,993 — — — 63,993

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2024 2023

10 unchanged sentences

Cash received from insurance proceeds 199 750

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

Loss (Gain) on insurance claims and asset disposals

Litigation adjustment

( 3,734 ) ( 818 )

Change in operating assets and liabilities

10 unchanged sentences

Accrued self-insurance liabilities 19,568 8,832

Other long-term liabilities 608 ( 23 )

NET CASH PROVIDED BY OPERATING ACTIVITIES

4 unchanged sentences

Cash payments for asset acquisitions

( 64,896 ) ( 399 )

Escrow deposits ( 646 ) ( 1,202 )

Cash proceeds from insurance proceeds and the sale of assets

Cash from insurance proceeds 961 913

Cash proceeds from the sale of assets

Purchases of investments ( 35,508 ) ( 18,425 )

14 unchanged sentences

$ 25 $ ( 1,943 )

Net increase in cash and cash equivalents 2,213 10,699

Net (decrease) increase in cash and cash equivalents

( 32,290 ) 103,704

Cash and cash equivalents beginning of period 509,626 316,270

Cash and cash equivalents end of period $ 477,336 $ 419,974

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2024 2023

2 unchanged sentences

Interest $ 3,488 $ 3,534

Income taxes 56,062 6,030

Lease liabilities 104,749 95,938

11 unchanged sentences

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 ancillary businesses.

As of March 31, 2024, the Company's independent subsidiaries operated 302 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

As of June 30, 2024, the Company's independent subsidiaries operated 312 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

The Company's independent subsidiaries have a collective capacity of approximately 31,800 operational skilled nursing beds and 3,300 senior living units.

As of March 31, 2024, the Company's independent subsidiaries operated 218 facilities under long-term lease arrangements and had options to purchase 11 of those 218 facilities.

As of June 30, 2024, the Company's independent subsidiaries operated 222 facilities under long-term lease arrangements and had options to purchase 12 of those 222 facilities.

The Company's real estate portfolio consists of 120 owned real estate properties, which includes 90 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 third-party 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.

Of those 30 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

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.

8 unchanged sentences

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

Other Information — The accompanying condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 (collectively, the Interim Financial Statements) are unaudited.

Other Information — The accompanying condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 (collectively, the Interim Financial Statements) are unaudited.

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

15 unchanged sentences

Actual results could differ from those estimates.

Certain amounts in the prior period condensed balance sheet and statement of income 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 or total assets.

Recently Issued Accounting Pronouncements — In October 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-06 "Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative," which amends U.S.

20 unchanged sentences

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

Revenue from the Medicare and Medicaid programs accounted for 71.6 % and 73.3 % of all service revenue for the three months ended March 31, 2024 and 2023, respectively.

THE ENSIGN GROUP, INC.

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

Revenue from the Medicare and Medicaid programs accounted for 71.2 % and 71.4 % of all service revenue for the three and six months ended June 30, 2024, respectively, and 73.1 % and 73.2 % of all service revenue for the three and six months ended June 30, 2023, respectively.

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

1 unchanged sentence

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

The Company recorded adjustments to revenue which were not material to the Company's revenue for the three months ended March 31, 2024 and 2023.

THE ENSIGN GROUP, INC.

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

Service revenue for the three months ended March 31, 2024 and 2023 is summarized in the following tables:

Three Months Ended March 31,

The Company recorded adjustments to revenue which were not material to the Company's revenue for the three and six months ended June 30, 2024 and 2023.

Service revenue for the three and six months ended June 30, 2024 and 2023 is summarized in the following tables:

Three Months Ended June 30,

Revenue % of Revenue Revenue % of Revenue

Medicaid (1)(2)

$ 411,760 40.0 % $ 359,781 39.3 %

6 unchanged sentences

SERVICE REVENUE $ 1,030,574 100.0 % $ 916,101 100.0 %

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

(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the three months ended June 30, 2023.

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

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.

Rental revenue was $ 5,687 and $ 4,923 , respectively, for the three months ended March 31, 2024 and 2023.

Six Months Ended June 30,

Revenue % of Revenue Revenue % of Revenue

Medicaid (1)(2)

$ 801,923 39.4 % $ 700,045 38.9 %

Medicare 524,452 25.8 495,804 27.6

Medicaid — skilled 126,278 6.2 119,942 6.7

Total Medicaid and Medicare 1,452,653 71.4 1,315,791 73.2

Managed care 379,126 18.6 317,764 17.7

Private and other (3)

203,280 10.0 164,464 9.1

SERVICE REVENUE $ 2,035,059 100.0 % $ 1,798,019 100.0 %

(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the six months ended June 30, 2023.

(3) Private and other also includes revenue from senior living operations and all revenue 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 are $ 5,711 and $ 11,398 , respectively, for the three and six months ended June 30, 2024 and $ 5,244 and $ 10,167 , respectively, for the three and six months ended June 30, 2023.

State relief funding

1 unchanged sentence

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

Due to the expiration of the COVID-19 Public Health Emergency on May 11, 2023, the Company did not receive additional funding during the three months ended March 31, 2024.

The Company received $ 27,264 in state relief funding and recognized $ 26,358 as revenue during the three months ended March 31, 2023.

Due to the expiration of the COVID-19 Public Health Emergency in May 2023, the Company did not receive additional funding during the three and six months ended June 30, 2024.

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

THE ENSIGN GROUP, INC.

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

Balance Sheet Impact

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

The Company had no material contract liabilities and contract assets as of March 31, 2024 and December 31, 2023, or activity during the three months ended March 31, 2024 and 2023.

The Company had no material contract liabilities and contract assets as of June 30, 2024 and December 31, 2023, or activity during the three and six months ended June 30, 2024 and 2023.

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.

Accounts receivable as of March 31, 2024 and December 31, 2023, is summarized in the following table:

March 31, 2024 December 31, 2023

Accounts receivable as of June 30, 2024 and December 31, 2023, is summarized in the following table:

June 30, 2024 December 31, 2023

Medicaid $ 208,584 $ 178,285

5 unchanged sentences

ACCOUNTS RECEIVABLE, NET $ 547,121 $ 485,039

THE ENSIGN GROUP, INC.

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

COMPUTATION OF NET INCOME PER COMMON SHARE

3 unchanged sentences

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Net income $ 71,181 $ 64,090 $ 140,141 $ 124,059

net income attributable to noncontrolling interests

174 97 299 214

Net income attributable to The Ensign Group, Inc.

3 unchanged sentences

$ 1.26 $ 1.15 $ 2.48 $ 2.23

THE ENSIGN GROUP, INC.

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

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Net income $ 71,181 $ 64,090 $ 140,141 $ 124,059

net income attributable to noncontrolling interests

174 97 299 214

Net income attributable to The Ensign Group, Inc.

2 unchanged sentences

incremental shares from assumed conversion (1)

1,469 1,649 1,528 1,734

Adjusted weighted average common shares outstanding 58,013 57,260 57,969 57,190

1 unchanged sentence

$ 1.22 $ 1.12 $ 2.41 $ 2.17

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,143 and 1,178 for the three months ended March 31, 2024 and 2023, respectivel y.

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,368 and 1,252 for the three and six months ended June 30, 2024, respectively, and 1,419 and 1,317 for the three and six months ended June 30, 2023, respectivel y.

FAIR VALUE MEASUREMENTS

The Company's financial assets include the captive insurance subsidiary's deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at amortized cost basis of $ 62,063 and $ 59,530 as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024 and December 31, 2023, 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.

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 $ 63,826 and $ 59,530 as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, 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 March 31, 2024, and December 31, 2023, the fair value of the investment funds was $ 50,894 and $ 41,216 , respectively, which are derived using Level 2 inputs.

THE ENSIGN GROUP, INC.

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

As of June 30, 2024, and December 31, 2023, the fair value of the investment funds was $ 51,941 and $ 41,216 , respectively, which are derived using Level 2 inputs.

Additionally, the Company has other investments held at historical cost basis, which are not material, for which 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 March 31, 2024 and December 31, 2023 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 Company believes its amortized cost basis investments that were in an unrealized loss position as of June 30, 2024 and December 31, 2023 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.

STANDARD BEARER

Standard Bearer's real estate portfolio consists of 115 of the Company's 120 owned real estate properties, of which 86 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.

During the three months ended March 31, 2024, Standard Bearer acquired the real estate of one stand-alone skilled nursing operation for an aggregate purchase price of $ 1,604 .

This facility is operated by one of the Company's independent subsidiaries .

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

Subsequent to March 31, 2024, Standard Bearer acquired the real estate of two stand-alone skilled nursing facility, one long-term acute care hospital and two campus operations for an aggregate purchase price of $ 56,015 .

The five additions are operated by certain of the Company's independent subsidiaries .

Of those 30 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

During the six months ended June 30, 2024, Standard Bearer acquired the real estate of five stand-alone skilled nursing operations and two campus operations for an aggregate purchase price of $ 63,412 .

These new additions are operated by seven of the Company's independent subsidiaries .

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

2 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

Intercompany master lease agreements

Certain of the Company's independent subsidiaries and 80 Standard Bearer independent real estate subsidiaries have entered into five triple-net master lease agreements (collectively, the Standard Bearer Master Leases).

Certain of the Company's independent subsidiaries and 86 Standard Bearer independent real estate subsidiaries have entered into six triple-net master lease agreements (collectively, the Standard Bearer Master Leases).

The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions.

6 unchanged sentences

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

Rental revenue generated from Ensign affiliated operations for the three months ended March 31, 2024 and 2023 was $ 18,006 and $ 15,931 , respectively.

Rental revenue generated from Ensign affiliated operations was $ 19,156 and $ 37,162 , respectively, for the three and six months ended June 30, 2024 and $ 16,128 and $ 32,059 , respectively, for the three and six months ended June 30, 2023.

Intercompany management agreement

2 unchanged sentences

The management agreement provides for a base management fee that is equal to 5 % of total rental revenue and an incentive management fee that is equal to 5 % of funds from operations (FFO) and is capped at 1 % of total rental revenue, for a total of 6 %.

Management fee generated between Standard Bearer and the Service Center for the three months ended March 31, 2024 and 2023 was $ 1,332 and $ 1,182 , respectively, representing 6 % of total Standard Bearer rental revenue, as of each such date.

Management fee generated between Standard Bearer and the Service Center for the three and six months ended June 30, 2024 was $ 1,401 and $ 2,733 , respectively.

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

Intercompany debt arrangements

2 unchanged sentences

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 ranging from 1.25 % to 2.25 % per annum.

THE ENSIGN GROUP, INC.

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

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

8 unchanged sentences

The Company can also call the awards, generally upon employee termination.

During the three months ended March 31, 2024 and 2023, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

During the six months ended June 30, 2024 and 2023, the Company did not grant any stock options nor restricted shares under the Standard Bearer Equity Plan.

OPERATION EXPANSIONS

4 unchanged sentences

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.

THE ENSIGN GROUP, INC.

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

2024 Expansions

During the three months ended March 31, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and a real estate purchase , with the addition of five stand-alone skilled nursing operations.

Of these additions, Standard Bearer acquired the real estate of one stand-alone skilled nursing operation, which was leased back to one of the Company's independent subsidiary.

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

These new operations added a total of 591 operational skilled nursing beds to be operated by the Company's independent subsidiaries.

During the six months ended June 30, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 13 stand-alone skilled nursing operations and two campus operations.

One of the stand-alone skilled nursing operations includes a long-term acute care hospital.

Of these additions, Standard Bearer acquired the real estate of seven of these operations, all of 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 1,369 operational skilled nursing beds and 202 operational senior living units to be operated by the Company's independent subsidiaries.

Included within the operational skilled nursing beds are 43 long-term acute care beds.

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.

1 unchanged sentence

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

Subsequent to March 31, 2024, 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 long-term acute care hospital and two campus operations.

Of these additions, Standard Bearer acquired the real estate of five of these operations, which were leased back to the Company's independent subsidiaries.

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

These new operations added 625 operational skilled nursing beds, 43 long-term acute care beds, and 202 operational senior living units to be operated by the Company's affiliated operating subsidiaries.

2023 Expansions

During the three months ended March 31, 2023, the Company expanded its operations through long-term leases , with the addition of 19 stand-alone skilled nursing operations.

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

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

1 unchanged sentence

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

THE ENSIGN GROUP, INC.

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

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

2 unchanged sentences

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 three months ended March 31, 2024 were not material operations to the Company individually or in the aggregate.

The assets added during the six months ended June 30, 2024 were not material operations to the Company individually or in the aggregate.

Accordingly, pro forma financial information is not presented.

3 unchanged sentences

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

As of March 31, 2024, the skilled services segment includes 264 skilled nursing operations and 27 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

As of June 30, 2024, the skilled services segment includes 272 skilled nursing and 29 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

The Company's Standard Bearer segment consists of 115 owned real estate properties.

6 unchanged sentences

The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below.

THE ENSIGN GROUP, INC.

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

Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses.

2 unchanged sentences

The following tables set forth financial information for the segments:

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Skilled Services Standard Bearer All Other (1)

6 unchanged sentences

Segment income (loss) 122,185 7,360 ( 37,481 ) — 92,064

Impairment of long-lived assets

Income before provision for income taxes $ 92,064

5 unchanged sentences

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

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 1,080 for the three months ended March 31, 2024.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 1,089 for the three months ended June 30, 2024.

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

2 unchanged sentences

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

Three Months Ended June 30, 2023

Skilled Services Standard Bearer All Other (1)

Intercompany Elimination Total

Service revenue (2)

$ 884,200 $ — $ 35,535 $ ( 3,634 ) $ 916,101

Rental revenue (3)

— 19,914 2,819 ( 17,489 ) 5,244

TOTAL REVENUE $ 884,200 $ 19,914 $ 38,354 $ ( 21,123 ) $ 921,345

Segment income (loss) 117,008 7,133 ( 42,988 ) — 81,153

Loss on insurance recoveries from real estate $ ( 100 )

Income before provision for income taxes $ 81,053

Depreciation and amortization 9,417 6,133 2,046 — 17,596

Interest expense (4)

$ — $ 4,575 $ 304 $ ( 2,856 ) $ 2,023

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

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

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

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

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.

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

THE ENSIGN GROUP, INC.

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

Three Months Ended March 31, 2023

Six Months Ended June 30, 2024

Skilled Services Standard Bearer All Other (1)

6 unchanged sentences

Segment income (loss) 248,994 14,618 ( 80,101 ) — 183,511

Impairment of long-lived assets ( 1,849 )

Income before provision for income taxes $ 181,662

Depreciation and amortization 21,447 13,995 4,703 — 40,145

4 unchanged sentences

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

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 708 for the three months ended March 31, 2023.

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 2,169 for the six months ended June 30, 2024.

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

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

Six Months Ended June 30, 2023

Skilled Services Standard Bearer All Other (1)

Intercompany Elimination Total

Service revenue (2)

$ 1,735,123 $ — $ 70,068 $ ( 7,172 ) $ 1,798,019

Rental revenue (3)

— 39,631 5,382 ( 34,846 ) 10,167

TOTAL REVENUE $ 1,735,123 $ 39,631 $ 75,450 $ ( 42,018 ) $ 1,808,186

Segment income (loss) 230,353 14,352 ( 85,170 ) — 159,535

Loss on insurance recoveries from real estate ( 100 )

Income before provision for income taxes $ 159,435

Depreciation and amortization 18,481 12,099 4,128 — 34,708

Interest expense (4)

$ — $ 9,144 $ 615 $ ( 5,700 ) $ 4,059

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

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

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

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.

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

THE ENSIGN GROUP, INC.

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

Service revenue by major payor source were as follows:

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Skilled Services All Other (3)

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TOTAL SERVICE REVENUE $ 991,285 $ 39,289 $ 1,030,574 100.0 %

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

(1) Medicaid payor includes revenue generated from senior living operations.

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

(3) All Other incorporates intercompany eliminations.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Skilled Services All Other (3)

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(3) All Other incorporates intercompany eliminations.

Six Months Ended June 30, 2024

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 785,245 $ 16,678 $ 801,923 39.4 %

Medicare 524,452 — 524,452 25.8

Medicaid-skilled 126,278 — 126,278 6.2

Subtotal 1,435,975 16,678 1,452,653 71.4

Managed care 379,126 — 379,126 18.6

Private and other (2)

145,786 57,494 203,280 10.0

TOTAL SERVICE REVENUE $ 1,960,887 $ 74,172 $ 2,035,059 100.0 %

(1) Medicaid payor includes revenue generated from senior living operations.

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

(3) All Other incorporates intercompany eliminations.

Six Months Ended June 30, 2023

Skilled Services All Other (3)

Total Service Revenue Revenue %

$ 685,825 $ 14,220 $ 700,045 38.9 %

Medicare 495,804 — 495,804 27.6

Medicaid-skilled 119,942 — 119,942 6.7

Subtotal 1,301,571 14,220 1,315,791 73.2

Managed care 317,764 — 317,764 17.7

Private and other (2)

115,788 48,676 164,464 9.1

TOTAL SERVICE REVENUE $ 1,735,123 $ 62,896 $ 1,798,019 100.0 %

(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 revenue generated in other ancillary services.

(3) All Other incorporates intercompany eliminations.

THE ENSIGN GROUP, INC.

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Property and equipment, net consists of the following:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Land $ 157,147 $ 142,656

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PROPERTY AND EQUIPMENT, NET $ 1,177,822 $ 1,090,771

Management evaluated its long-lived assets and recorded an impairment charge of $ 1,849 during the three months ended March 31, 2024.

The Company determined there was no impairment during the three months ended March 31, 2023.

See also Note 6, Standard Bearer and Note 7, Operation Expansions for information on acquisitions during the three months ended March 31, 2024.

Management evaluated its long-lived assets and recorded an impairment charge of $ 1,849 during the six months ended June 30, 2024.

The Company determined there was no impairment during the three months ended June 30, 2024 and during the three and six months ended June 30, 2023.

See also Note 6, Standard Bearer and Note 7, Operation Expansions for information on acquisitions during the six months ended June 30, 2024.

INTANGIBLE ASSETS - NET

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Weighted Average Life (Years)

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TOTAL $ 6,473 $ ( 4,204 ) $ 2,269 $ 6,096 $ ( 3,873 ) $ 2,223

During the three months ended March 31, 2024 and 2023, amortization expense was $ 401 and $ 404 , respectively, of which $ 303 and $ 298 was related to the amortization of right-of-use assets, respectively.

During the three and six months ended June 30, 2024, amortization expense was $ 536 and $ 937 , respectively, of which $ 303 and $ 606 was related to the amortization of right-of-use assets, respectively.

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

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

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Thereafter 779

THE ENSIGN GROUP, INC.

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

Other indefinite-lived intangible assets consist of the following:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Trade name $ 889 $ 889

1 unchanged sentence

TOTAL $ 4,434 $ 4,302

THE ENSIGN GROUP, INC.

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

Goodwill is subject to annual testing for impairment during the fourth quarter of each year.

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

There were no indicators of goodwill impairment noted during the three months ended March 31, 2024.

The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of March 31, 2024.

There were no indicators of goodwill impairment noted during the three and six months ended June 30, 2024.

The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of June 30, 2024.

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 three months ended March 31, 2024:

The following table represents activity in goodwill by the skilled services segment and "all other" category as of and for the six months ended June 30, 2024:

Skilled Services All Other Total

1 unchanged sentence

Additions — 372 372

March 31, 2024 $ 67,886 $ 9,355 $ 77,241

June 30, 2024 $ 67,886 $ 9,355 $ 77,241

RESTRICTED AND OTHER ASSETS

Restricted and other assets consist of the following:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Debt issuance costs, net $ 2,439 $ 2,883

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RESTRICTED AND OTHER ASSETS $ 38,551 $ 40,205

Included in restricted and other assets as of March 31, 2024 and December 31, 2023 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.

Included in restricted and other assets as of June 30, 2024 and December 31, 2023 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 consist of the following:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Quality assurance fee $ 14,490 $ 14,035

4 unchanged sentences

Property taxes 9,825 12,875

Income tax payable 16,173 —

Accrued litigation (Note 20)

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

The Company recorded income tax expense of $ 20,638 and $ 18,413 during the three months ended March 31, 2024 and 2023, respectively, or 23.0 % of earnings before income taxes for the three months ended March 31, 2024, compared to 23.5 % for the three months ended March 31, 2023.

The Company recorded income tax expense of $ 41,521 and $ 35,376 during the six months ended June 30, 2024 and 2023, respectively, or 22.9 % of earnings before income taxes for the six months ended June 30, 2024, compared to 22.2 % for the six months ended June 30, 2023.

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

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

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the three months ended March 31, 2024 and 2023.

The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the six months ended June 30, 2024 and 2023.

Debt consists of the following:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Mortgage loans and promissory note $ 150,430 $ 152,388

11 unchanged sentences

provided that if the aggregate consideration for approved acquisitions in a six month period is greater than $ 50,000 , then the ratio can be increased at the election of the Company with notice to the administrative agent to 4.25 :1.00 for the first fiscal quarter and the immediately following three fiscal quarters), and (ii) a minimum interest/rent coverage ratio (which cannot be less than 1.50 :1.00).

As of March 31, 2024, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of March 31, 2024.

As of June 30, 2024, there was no outstanding debt under the Credit Facility.

The Company was in compliance with all loan covenants as of June 30, 2024.

THE ENSIGN GROUP, INC.

1 unchanged sentence

Mortgage Loans and Promissory Note

As of March 31, 2024, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 149,416 , which subjects these subsidiaries to HUD oversight and periodic inspections.

As of June 30, 2024, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 148,583 , 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.

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Off-Balance Sheet Arrangements

As of March 31, 2024, the Company had approximately $ 6,305 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit, which increased by $ 50 from December 31, 2023.

As of June 30, 2024, the Company had approximately $ 26,895 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit, which increased by $ 20,640 from December 31, 2023.

The Company believes that its outstanding letters of credit as of June 30, 2024 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.

OPTIONS AND AWARDS

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

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2024 and 2023 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2024 and 2023 was based on awards expected to vest, it has been reduced for estimated forfeitures.

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

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

2022 Omnibus Incentive Plan (2022 Plan) — The Company has one stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan), pursuant to which grants of the Company's securities may currently be made.

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.

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Options expire ten years from the date of grant.

At March 31, 2024, the total number of shares available for issuance under the 2022 Plan was 1,106 .

At June 30, 2024, the total number of shares available for issuance under the 2022 Plan was 860 .

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 used the following assumptions for stock options granted during the three months ended March 31, 2024 and 2023:

The Company used the following assumptions for stock options granted during the three months ended June 30, 2024 and 2023:

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

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2023 191 3.7 % 6.3 years 41.4 % 0.3 %

For the three months ended March 31, 2024 and 2023, the following represents the exercise price and fair value displayed at grant date for stock option grants:

The Company used the following assumptions for stock options granted during the six months ended June 30, 2024 and 2023:

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

2024 354 4.4 % 6.1 years 40.8 % 0.2 %

2023 413 3.9 % 6.3 years 41.5 % 0.3 %

For the six months ended June 30, 2024 and 2023, the following represents the exercise price and fair value displayed at grant date for stock option grants:

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

1 unchanged sentence

2023 413 $ 90.31 $ 41.46

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the three months ended March 31, 2024 and 2023 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the three months ended March 31, 2024:

The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the periods ended June 30, 2024 and 2023 and therefore, the intrinsic value was $ 0 at the date of grant.

The following table represents the employee stock option activity during the six months ended June 30, 2024:

Number of Options Outstanding Weighted Average

5 unchanged sentences

Exercised ( 336 ) 30.75

March 31, 2024 3,928 $ 67.19 1,808 $ 43.49

The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of March 31, 2024 and December 31, 2023 is as follows:

Options March 31, 2024 December 31, 2023

June 30, 2024 3,967 $ 70.34 1,881 $ 46.34

The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of June 30, 2024 and December 31, 2023 is as follows:

Options June 30, 2024 December 31, 2023

Outstanding $ 211,650 $ 197,819

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

The aggregate intrinsic value of options that vested during the three months ended March 31, 2024 and 2023 was $ 7,382 and $ 5,337 , respectively.

The total intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $ 19,959 and $ 10,950 , respectively.

The aggregate intrinsic value of options that vested during the six months ended June 30, 2024 and 2023 was $ 18,073 and $ 13,639 , respectively.

The total intrinsic value of options exercised during the six months ended June 30, 2024 and 2023 was $ 29,894 and $ 29,741 , respectively.

THE ENSIGN GROUP, INC.

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

Restricted Stock Awards

The Company granted 95 and 105 restricted stock awards during the three months ended March 31, 2024 and 2023 , respectively.

The Company granted 42 and 137 restricted stock awards during the three and six months ended June 30, 2024, respectively.

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

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

The fair value per share of restricted awards granted during the three months ended March 31, 2024 and 2023 ranged from $ 116.65 to $ 122.69 and $ 89.83 to $ 94.63 , respectively.

The fair value per share of restricted awards granted during the six months ended June 30, 2024 and 2023 ranged from $ 116.65 to $ 122.69 and $ 89.83 to $ 98.31 , respectively.

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

THE ENSIGN GROUP, INC.

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

A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2024 and changes during the three months ended March 31, 2024 is presented below:

Included in the restricted stock award grants are $ 6,165 and $ 5,068 of annual bonuses that were settled in vested restricted stock awards d uring the six months ended June 30, 2024 and 2023, respectively.

A summary of the status of the Company's non-vested restricted stock awards as of June 30, 2024 and changes during the six months ended June 30, 2024 is presented below:

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

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Forfeited ( 11 ) 80.17

Nonvested at March 31, 2024

During the three months ended March 31, 2024, the Company granted 4 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors.

The fair value per share of these stock awards was $ 116.65 based on the market price on the grant date.

Nonvested at June 30, 2024

During the three and six months ended June 30, 2024, the Company granted 5 and 9 , respectively, automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors.

The fair value per share of these stock awards ranged from $ 116.65 to $ 118.69 based on the market price on the grant date.

Long-Term Incentive Plan

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

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 206 and $ 191 for the three months ended March 31, 2024 and 2023, respectively.

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 208 and $ 414 for the three and six months ended June 30, 2024, respectively, compared to $ 211 and $ 402 for the three and six months ended June 30, 2023, respectively.

Stock-based compensation expense

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three months ended March 31, 2024 and 2023 was as follows:

Three Months Ended March 31,

Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three and six months ended June 30, 2024 and 2023 was as follows:

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

2024 2023 2024 2023

Stock-based compensation expense related to stock options $ 5,518 $ 4,963 $ 10,506 $ 8,388

1 unchanged sentence

Stock-based compensation expense related to restricted stock awards to non-employee directors

524 437 1,040 857

TOTAL $ 8,978 $ 8,881 $ 17,209 $ 15,454

In future periods, the Company expects to recognize approximately $ 72,032 and $ 30,655 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2024.

In future periods, the Company expects to recognize approximately $ 75,356 and $ 31,859 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of June 30, 2024.

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

There were 2,120 unvested and outstanding options as of March 31, 2024, of which 1,952 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of March 31, 2024 was 6.8 years.

There were 2,086 unvested and outstanding options as of June 30, 2024, of which 1,916 shares are expected to vest.

The weighted average contractual life for options outstanding, vested and expected to vest as of June 30, 2024 was 6.8 years.

THE ENSIGN GROUP, INC.

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Additionally, four of the 99 facilities leased from CareTrust include an option to purchase that the Company can exercise starting on December 1, 2024.

During three months ended March 31, 2024, the Company added two operations and extended the term for one of the Master Leases to 20 years.

In the first quarter of 2024, the Company added two operations and extended the term for one of the Master Leases to 20 years.

As a result, the total lease liabilities and right-of-use assets increased by $ 48,112 to reflect the new lease obligations.

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

Total rent expense under the Master Leases was approximately $ 16,800 and $ 16,283 for the three months ended March 31, 2024 and 2023, respectively.

Total rent expense under the Master Leases was approximately $ 17,272 and $ 34,072 for the three and six months ended June 30, 2024, respectively, and $ 16,674 and $ 32,957 for the three and six months ended June 30, 2023, respectively.

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

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

The Company is in compliance with requirements of the Master Leases as of March 31, 2024.

The Company is in compliance with requirements of the Master Leases as of June 30, 2024.

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.

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Eighty-two 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 the three months ended March 31, 2024, the Company amended one of the separate master lease arrangements to add two stand-alone skilled nursing operations operated by the Company's independent subsidiaries.

In the first quarter of 2024, the Company amended one of the separate master lease arrangements to add two stand-alone skilled nursing operations operated by the Company's independent subsidiaries.

The amended master lease increased the lease liabilities and right-of-use assets by $ 30,980 to reflect the new lease obligations and extended the term to 20 years.

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The components of operating lease expense are as follows:

Three Months Ended March 31,

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

2024 2023 2024 2023

Rent - cost of services (1)

2 unchanged sentences

Depreciation and amortization (2)

303 298 606 596

Variable lease costs (3)

5,649 5,154 11,419 9,986

(1) Rent- cost of services includes deferred rent expense adju stments of $ 195 and $ 263 for the three months ended March 31, 2024 and 2023, respectively.

Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 3,057 and $ 2,060 for the three months ended March 31, 2024 and 2023, respectively.

$ 59,405 $ 55,337 $ 117,507 $ 107,228

(1) Rent - cost of services includes deferred rent expense adju stments of $ 190 and $ 385 for the three and six months ended June 30, 2024, respectively, and $ 218 and $ 481 for the three and six months ended June 30, 2023, respectively.

Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 3,300 and $ 6,357 for the three and six months ended June 30, 2024, respectively, and $ 2,398 and $ 4,458 for the three and six months ended June 30, 2023, respectively.

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

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

Future minimum lease payments for all third-party leases as of March 31, 2024 are as follows:

Future minimum lease payments for all third-party leases as of June 30, 2024 are as follows:

2024 (remainder)

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

As of March 31, 2024, the weighted average remaining lease term is 15.1 years and the weighted average discount rate used to determine the operating lease liabilities is 6.4 %.

Subsequent to March 31, 2024, the Company expanded its operations through long-term leases with the addition of three standalone skilled nursing operations.

The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the long-term leases is estimated to be approximately $ 39,689 .

As of June 30, 2024, the weighted average remaining lease term is 14.9 years and the weighted average discount rate used to determine the operating lease liabilities is 6.4 %.

Lessor Activities

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

Total rental income from all third-party sources for the three months ended March 31, 2024 and 2023 is as follows:

Three Months Ended March 31,

Total rental income from all third-party sources for the three and six months ended June 30, 2024 and 2023 is as follows:

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

2024 2023 2024 2023

$ 3,824 $ 3,742 $ 7,644 $ 7,484

Other third-party (2)

1,887 1,502 3,754 2,683

TOTAL $ 5,711 $ 5,244 $ 11,398 $ 10,167

(1) Pennant rental income includes variable rent such as property taxes of $ 318 and $ 325 during the three months ended March 31, 2024 and 2023, respectively.

(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 1,080 and $ 708 for the three months ended March 31, 2024 and 2023.

Future annual rental income for all third-party leases as of March 31, 2024 were as follows:

(1) Pennant rental income includes variable rent such as property taxes of $ 314 and $ 632 during the three and six months ended June 30, 2024 and $ 325 and $ 650 for the three and six months ended June 30, 2023, respectively.

(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 1,089 and $ 2,169 for the three and six months ended June 30, 2024, and $ 1,063 and $ 1,771 for the three and six months ended June 30, 2023, respectively.

Future annual rental income for all third-party leases as of June 30, 2024 were as follows:

Year Amount (1)

2 unchanged sentences

TOTAL $ 226,770

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of March 31, 2024.

(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of June 30, 2024.

DEFINED CONTRIBUTION PLANS

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

The Company paid for related administrative costs, which were not significant during the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and December 31, 2023, the Company accrued $ 51,478 and $ 49,201 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet.

The Company paid for related administrative costs, which were not significant during the three and six months ended June 30, 2024 and 2023.

As of June 30, 2024 and December 31, 2023, the Company accrued $ 55,041 and $ 49,201 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet.

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

Refer to Note 5, Fair Value Measurements for more information on the funds.

For the three months ended March 31, 2024 and 2023, the Company recorded gains related to its DCP of $ 2,394 and $ 1,239 , respectively, which are included in other income, net, and recorded offsetting expenses of $ 2,488 and $ 1,280 , respectively, which are allocated between cost of services and general and administrative expenses.

For the three and six months ended June 30, 2024, the Company recorded gains related to its DCP of $ 527 and $ 2,921 , respectively, which are included in other income, and recorded offsetting expenses of $ 628 and $ 3,116 , which are allocated between cost of services and general and administrative expenses.

For the three and six months ended June 30, 2023, the Company recorded gains related to its DCP of $ 1,250 and $ 2,489 , respectively, which are included in other income, and recorded offsetting expenses of $ 1,332 and $ 2,612 , respectively, which are allocated between cost of services and general and administrative expenses.

THE ENSIGN GROUP, INC.

12 unchanged sentences

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

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 116,892 and $ 105,729 as of March 31, 2024 and December 31, 2023, respectively.

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 123,278 and $ 105,729 as of June 30, 2024 and December 31, 2023, respectively.

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

5 unchanged sentences

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

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 30,765 and $ 29,454 as of March 31, 2024 and December 31, 2023, respectively.

In addition, the Company has recorded an asset and corresponding liability of $ 15,901 and $ 15,913 as of March 31, 2024 and December 31, 2023, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 31,585 and $ 29,454 as of June 30, 2024 and December 31, 2023, respectively.

In addition, the Company has recorded an asset and corresponding liability of $ 15,626 and $ 15,913 as of June 30, 2024 and December 31, 2023, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

See Note 12, Restricted and Other Assets.

2 unchanged sentences

To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 for each covered person for fiscal year 2024.

As of March 31, 2024 and December 31, 2023, the Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 16,395 and $ 14,814 , respectively.

As of June 30, 2024 and December 31, 2023, the Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 14,702 and $ 14,814 , respectively.

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

15 unchanged sentences

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 similar decisions and has, in some circumstances, received returned decisions in its favor.

The Company is in the process of appealing the jury verdict.

The Company has in the past appealed similar decisions and has, in some circumstances, received 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.

36 unchanged sentences

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).

The settlement documents are in the process of being finalized and, following payment of the settlement funds, the qui tam complaint will be dismissed and the matter will be resolved.

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

26 unchanged sentences

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

As of March 31, 2024 and through the filing date of this report, 22 of the Company's independent subsidiaries had Reviews scheduled or in process.

As of June 30, 2024 and through the filing date of this report, 11 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.

11 unchanged sentences

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

The Company’s receivables from Medicare and Medicaid payor programs accounted for 52.5 % and 53.4 % of its total accounts receivable as of March 31, 2024 and December 31, 2023, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 71.6 % and 73.3 % of the Company's revenue for the three months ended March 31, 2024 and 2023, respectively .

The Company’s receivables from Medicare and Medicaid payor programs accounted for 53.0 % and 53.4 % of its total accounts receivable as of June 30, 2024 and December 31, 2023, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 71.2 % and 71.4 % of the Company's revenue for the three and six months ended June 30, 2024, respectively, and 73.1 % and 73.2 % for the three and six months ended June 30, 2023, respectively.

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.

On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which the Company may repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from September 1, 2024.

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 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 three months ended March 31, 2024.

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

On August 29, 2023, the Board of Directors approved a stock repurchase program pursuant to which the Company may repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from September 1, 2023.

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

The Company did not purchase any shares pursuant to this stock repurchase program during the six months ended June 30, 2024.

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

What changed 10-Q

Item 1. Financial Statements