What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-05-01 · 425 added, 172 removed, 883 unchanged (40% of the section changed)

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We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare related properties and ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

Our independent subsidiaries, each of which strive to be the operation of choice in the community they serve, provide a broad spectrum of services.

As of March 31, 2024, we offered skilled nursing, senior living and rehabilitative care services through 302 skilled nursing and senior living facilities.

Our independent subsidiaries, each of which strive to be the operation of choice in the communities they serve, provide a broad spectrum of services.

As of June 30, 2024, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 312 skilled nursing and senior living facilities.

Our real estate portfolio includes 120 owned real estate properties, which includes 90 facilities operated and managed by us, 30 operations leased to and operated by third-party operators and the Service Center location.

Of the 30 third-party operations, one senior living facility is located on the same real estate property as a skilled nursing facility that we own and operate.

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of March 31, 2024:

Of the 30 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of June 30, 2024:

Owned and Operated Leased (with a Purchase Option) Leased (without a Purchase Option) Total for Facilities Operated

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In addition, certain of our wholly-owned subsidiaries including Ensign Services, Inc.

and Cornet Limited, Inc., referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries through contractual relationships with such subsidiaries.

We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our independent subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities and our captive real estate trust owns and operates our real estate portfolio.

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Our results serve as a strong indicator that our strategy is working and our transformation is underway.

Our dedication to our cultural and operational fundamentals coupled with key initiatives refined through the pandemic resulted in strong first quarter results.

Our dedication to our cultural and operational fundamentals continues to deliver strong results.

Refer to Results of Operations for further discussion.

Operational Expansions — During the three months ended March 31, 2024, we expanded our 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 of the stand-alone skilled nursing operations, which was leased back to one of our independent subsidiaries.

These new operations added a total of 591 operational skilled nursing beds to be operated by our independent subsidiaries.

Operational Expansions — During the six months ended June 30, 2024, we expanded our 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.

Of these additions, Standard Bearer acquired the real estate of seven of the operations, all of which were leased back to our independent subsidiaries.

These new operations added a total of 1,369 operational skilled nursing beds and 202 operational senior living units to be operated by our independent subsidiaries.

We also invested in new ancillary services that are complementary to our existing businesses.

Subsequent to March 31, 2024, we expanded our operations with the addition of five stand-alone skilled nursing operations, one long-term acute care hospital and two campus operations.

These new operations added 625 operational skilled nursing beds, 43 long-term acute care beds and 202 operational senior living units operated by our independent subsidiaries.

Expansion into a New State — In the first quarter of 2024 and subsequently, we expanded our operations into the state of Tennessee with the addition of three stand-alone skilled nursing operation.

Common Stock Repurchase Program — On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

Expansion into a New State — In 2024, we expanded our operations into the state of Tennessee with the addition of three stand-alone skilled nursing operations.

These expansions are part of our strategic vision to further strengthen our growing national presence in both existing and new attractive markets.

Facility Information

The following table sets forth the location of our operated and owned facilities by type as well as the number of beds and units located at operated and owned facilities as of March 31, 2024:

The following table sets forth the location of our operated and owned facilities by type as well as the number of beds and units located at operated and owned facilities as of June 30, 2024:

TX CA AZ UT CO WA ID SC NE IA KS NV WI TN

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Skilled nursing operations

78 67 31 20 22 15 11 9 4 5 2 3 2 3 272

Senior living operations 1 — 1 2 5 1 — — 1 — — — — — 11

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Skilled nursing properties

18 10 10 9 5 4 5 5 1 1 1 — 2 — 71

Senior living communities 1 — — — 3 — — — 1 — — — — — 5

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Owned skilled nursing beds

2,377 1,185 1,694 764 467 391 470 544 88 82 423 — 100 — 8,585

Owned Senior living units 538 42 501 — 459 — — — 302 — 167 — — — 2,009

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• Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.

These rates exclude additional state relief funding, which includes ARPA, FFCRA and other state relief programs.

These rates exclude additional state relief funding, which includes the American Rescue Plan Act (ARPA), the Family First Coronavirus Response Act (FFCRA) and other state specific relief programs.

• Occupancy percentage (operational beds) — The total number of patients occupying a bed in a skilled nursing facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.

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The following table summarizes our overall skilled mix from our skilled nursing services for the periods indicated as a percentage of our total skilled nursing routine revenue and as a percentage of total skilled nursing patient days:

Three Months Ended March 31,

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

2024 2023 2024 2023

Days 29.9 % 30.8 % 30.4 % 31.5 %

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The following table summarizes our overall occupancy statistics for skilled nursing operations for the periods indicated:

Three Months Ended March 31,

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

Occupancy for skilled services:

2024 2023 2024 2023

Operational beds at end of period 31,813 29,919 31,813 29,919

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Revenue Sources

The following table sets forth our total service revenue by payor source generated by our skilled services segment and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):

Three Months Ended March 31,

The following tables set forth our total service revenue by payor source generated by our skilled services segment and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):

Three Months Ended June 30,

Skilled Services All Other (4)

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TOTAL SERVICE REVENUE $ 991,285 $ 884,200 $ 39,289 $ 31,901 $ 1,030,574 $ 916,101

Three Months Ended March 31,

Three Months Ended June 30,

Skilled Services All Other (4)

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2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

40.7 % 39.9 % 22.0 % 23.2 % 40.0 % 39.3 %

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TOTAL SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 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 in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

(4) All Other incorporates intercompany eliminations.

Six Months Ended June 30,

Skilled Services All Other (4)

Total Service Revenue

2024 2023 2024 2023 2024 2023

$ 785,245 $ 685,825 $ 16,678 $ 14,220 $ 801,923 $ 700,045

Medicare 524,452 495,804 — — 524,452 495,804

Medicaid-skilled 126,278 119,942 — — 126,278 119,942

Subtotal 1,435,975 1,301,571 16,678 14,220 1,452,653 1,315,791

Managed care 379,126 317,764 — — 379,126 317,764

Private and other (3)

145,786 115,788 57,494 48,676 203,280 164,464

TOTAL SERVICE REVENUE $ 1,960,887 $ 1,735,123 $ 74,172 $ 62,896 $ 2,035,059 $ 1,798,019

Six Months Ended June 30,

Skilled Services All Other (4)

Total Service Revenue

2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

40.0 % 39.5 % 22.5 % 22.6 % 39.4 % 38.9 %

Medicare 26.7 28.6 — — 25.8 27.6

Medicaid-skilled 6.5 6.9 — — 6.2 6.7

Subtotal 73.2 75.0 22.5 22.6 71.4 73.2

Managed care 19.3 18.3 — — 18.6 17.7

Private and other (3)

7.5 6.7 77.5 77.4 10.0 9.1

TOTAL SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 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 in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

(4) All Other incorporates intercompany eliminations.

Skilled Services — Within our skilled nursing operations, we generate revenue from Medicaid, private pay, managed care and Medicare payors.

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We participate in supplemental payment programs and quality improvement programs in various states that provide supplemental Medicaid payments for skilled nursing facilities that are licensed to non-state government-owned entities such as city and county hospital districts.

Numerous independent subsidiaries entered into transactions with various hospital districts providing for the transfer of the licenses for those skilled nursing facilities to the hospital districts.

A number of our independent subsidiaries have entered into transactions with various hospital districts providing for the transfer of the licenses for those skilled nursing facilities to the hospital districts.

Each affected independent subsidiary agreement between the hospital district and our subsidiary is terminable by either party to fully restore the prior license status.

Standard Bearer — We generate rental revenue primarily by leasing post-acute care properties that we acquired to healthcare operators under triple-net lease arrangements, whereby the tenants are solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions.

As of March 31, 2024, our real estate portfolio within Standard Bearer is comprised of 109 real estate properties.

As of June 30, 2024, our real estate portfolio within Standard Bearer is comprised of 115 real estate properties.

Of these properties, 86 are leased to our independent subsidiaries and 30 are leased to facilities wholly-owned and managed 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, we generated rental revenues of $22.2 million, of which $18.0 million, was derived from our independent subsidiaries' operators and therefore eliminated in consolidation.

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 three and six months ended June 30, 2024, we generated rental revenues of $23.4 million and $45.6 million, respectively, of which $19.2 million and $37.2 million, respectively, was derived from our independent subsidiaries and therefore eliminated in consolidation.

Other — Within our senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid payors or through other state-specific programs.

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Many of our operations already participate in value-based initiatives and models.

With our focus on quality care and strong clinical outcomes, Ensign is well-positioned to benefit from these outcome-based payment models.

With our focus on quality care and strong clinical outcomes, we are well-positioned to benefit from these outcome-based payment models.

We believe the post-acute industry has been and will continue to be impacted by several other trends.

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The SNF PPS FY 2025 Proposed Rule also includes proposals for CMS to have greater sanctioning authority for ongoing or persistent deficiencies in Medicare-participating SNFs.

If CMS adopts this proposal after notice and comment, these increased sanctioning authorities will take effect as soon as the 2025 fiscal year, beginning in late 2024.

If CMS adopts this proposal after notice and comment, these increased sanctioning authorities will take effect as soon as the 2025 federal fiscal year, beginning in late 2024.

Final rules will follow publication of these proposed rules after a notice-and-comment period required by law.

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(2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value;

and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to the SNF.

and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs.

The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility.

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For example, in July 2023, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency.

Additionally, in July 2023, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued a notice of proposed rulemaking containing regulations that would implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — On March 9, 2023, the Home and Community-Based Services (HCBS) Access Act was introduced to expand access to and resources available for HCBS.

Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — On March 9, 2023, the Home and Community-Based Services (HCBS) Access Act (Access Act) was introduced to expand access to and resources available for HCBS.

The Access Act ensures that Medicaid funding is made available to individuals who provide direct home- and community-based care to adults over the age of 60 or people who have disabilities.

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On October 24, 2023, the HCBS Relief Act was introduced to provide additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services.

Under the HCBS Relief act, states would receive a temporary 10% increase in the applicable Federal Medical Assistance Percentage (FMAP) under Medicaid for certain approved home and community-based services that are provided during FY 2024 through FY 2025.

To qualify for the enhanced rate, a state much commit to initiatives aimed at improving the provision of services.

Under the HCBS Relief Act, states would receive a temporary 10% increase in the applicable Federal Medical Assistance Percentage (FMAP) under Medicaid for certain approved home and community-based services that are provided during fiscal year (FY) 2024 through FY 2025.

To qualify for the enhanced rate, a state must commit to initiatives aimed at improving the provision of services.

This includes offering additional advantages to home health aides and assisting individuals in transition from nursing facilities back to their homes.

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On October 13, 2023, the California Governor signed into law a bill that impacts the minimum wages of healthcare workers.

Effective June 1, 2024, the law raises the minimum wage for California healthcare employees and sets a new wage threshold for those who are considered exempt healthcare employees.

Effective June 1, 2024, the law raised the minimum wage for California healthcare employees and set a new wage threshold for those who are considered exempt healthcare employees.

The bill only becomes effective for SNFs if a patient care minimum spending requirement bill is also passed.

We anticipate that a minimum spending bill will be proposed in the future.

On April 24, 2024, the California Department of Health Care Access and Information (HCAI) announced that the Office of Health Care Affordability’s Board approved a statewide healthcare spending target of 3%, which represents a long-term reduction of current levels of statewide healthcare spending.

The spending target will be phased in over time, initially starting at 3.5% for 2025 and 2026, the target will be lowered to 3.2% for 2027 and 2028 before ultimately reaching 3% for 2029 and beyond.

Final Rule Fiscal Year 2024 Skilled Nursing Facility Prospective Payment System (SNF PPS) — On July 31, 2023, CMS published its final rule updating the Medicare payment rates within the SNF PPS for FY 2024 (SNF PPS FY 2024 Final Rule).

The SNF PPS FY 2024 Final Rule modifies the SNF Quality Reporting Program (QRP) and the SNF Value-Based Purchasing (VBP) Program.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in the 2024 fiscal year.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in the 2024 fiscal year, which started on October 1, 2023.

The SNF PPS FY 2024 Final Rule increases the Medicare payment rate aggregate net market basket by 4.0%.

The increase includes a 6.4% net market basket update to the payment rates of 3.0%, plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3% in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration.

The net effect of these changes is expected to be an overall 4.0% increase in payments to SNFs in FY 2024.

The net effect of these changes was an overall 4.0% increase in payments to SNFs in FY 2024.

This final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures.

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The proposed rule also includes significant enhancements to its enforcement capabilities within nursing homes, aiming to reinforce the safety and quality of care.

The proposed rule seeks to broaden CMS’s ability to levy financial penalties as a means to ensure sustained remediation of health and safety infractions, thereby motivating facilities to quickly and permanently comply with CMS regulations.

The proposed rule aims to eliminate the restrictions of per instance (PI) for isolated violations or per day (PD) for ongoing non-compliance restrictions, allowing for more flexible imposition of both PD and PI penalties, which would not exceed statutory daily limits.

This change is intended to provide CMS with enhanced tools to address violations more effectively and reflect the severity of the impact on residents’ health and safety.

CMS is seeking public feedback on how to utilize this increased flexibility to better enforce standards in nursing homes.

CMS sought public feedback regarding this proposed flexibility to enforce its standards in nursing homes and SNFs through a comment period that closed on May 28, 2024.

More than half of the public comments CMS received addressed the proposed rule’s expansion of financial penalties that could be assessed against SNFs for non-compliance.

CMS Minimum Staffing Standards Final Rule — On April 22, 2024, CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule).

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Prior to the issuance of the Staffing Rule, there have been two bills under the names Protecting America’s Seniors’ Access to Care Act and Protecting Rural Seniors’ Access to Care Act (one in the House and a companion bill in the Senate), that were intended to block the rule from taking effect.

The Senate bill has garnered broad bi-partisan support and is endorsed by over 90 organizations.

These bills reason that the minimum staffing standard would endanger rural nursing facilities, subjecting them to potential fines and closures for failure to comply and might require them to discharge residents or limit the number of residents they accept in an effort to meeting the requirements of the bill.

The Senate bill has garnered broad bipartisan support and is endorsed by over 90 organizations.

It is uncertain if any of these bills or other legislative action will pass as well as their potential impact on the Staffing Rule.

Medicare presently accounts for approximately 27.4% of our skilled nursing services revenue year-to-date, being our second-largest payor.

The Staffing Rule has been met with further opposition and proposed legislation to halt its implementation.

On May 23, 2024, the American Health Care Association (AHCA) filed a lawsuit in the Northern District of Texas against HHS and CMS, alleging that the Staffing Rule exceeds the scope of CMS’s statutory authority and violates the Administrative Procedure Act.

On May 10, 2024, a measure was introduced in the House of Representatives under the Congressional Review Act to overturn the Staffing Rule.

Related to the pending proposed legislation regarding the Staffing Rule, on April 19, 2024, the Long-Term Care Workforce Support Act was introduced in both the Senate and House of Representatives in an effort to increase the direct care workforce and improve pay, by increasing the federal match for Medicaid by up to 10% for each state across 10 years.

The recent Supreme Court decision in Loper Bright Enterprises v.

Raimondo ("Chevron" decision) gives courts greater authority to challenge federal agencies' statutory interpretations.

As such, the Staffing Rule may see increase legal challenges under the new doctrine.

(For further discussion of the Chevron case and its implications see "United States Supreme Court Decisions" section below.)

Medicare presently accounts for approximately 26.7% of our skilled nursing services revenue year-to-date, being our second-largest revenue payor.

The Medicare program and its reimbursement rates and rules are subject to frequent change.

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Going forward, CMS plans to implement similar rating threshold increases every six months.

In 2022, CMS adopted a process measure for influenza vaccination coverage among healthcare personnel within SNFs.

This measure is determined by the percentage of SNF healthcare personnel who receive an influenza vaccine any time from when it first becomes available through March 31 of the following year.

SNFs began submitting this data on October 1, 2022.

On July 31, 2023, CMS published the SNF PPS FY 2024 Final Rule, which included changes to the SNF QRP, including adopting, removing and modifying specific measures.

The final rule also includes policy changes and the public reporting of four measures.

The final rule adopts the Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score.

CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score.

The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS).

The DC Function will replace the current process and is scheduled to go into effect for the FY 2025 SNF QRP.

The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure.

The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations.

The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.

CMS will adopt two measures for the SNF QRP starting in FY 2026.

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This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.

The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure.

The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations.

Previously, SNFs were only obligated to disclose whether their healthcare workers had completed the initial vaccination series for COVID-19.

Now, there is an added requirement to report the total count of healthcare employees who have maintained their COVID-19 vaccination status in line with CDC recommendations.

The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.

CMS stated the decision stemmed from two primary reasons:

first, the consistently high-performance levels among SNFs make it challenging for CMS to identify significant advancements;

and second, the DC Function measure aligns more closely with the preferred functional outcomes for residents.

CMS’s SNF PPS FY 2025 Proposed Rule includes several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data.

Starting in fiscal year 2027, CMS plans to introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the minimum data set.

Additionally, CMS proposes that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF VBP Program.

This process, mandated by recent legislation, aims to verify the accuracy of the data submitted through the minimum data set.

CMS plans to require this validation because SNFs that fail to meet the SNF QRP reporting requirements face a 2% reduction in their annual payment update.

CMS is also seeking public input through a request for information regarding future quality measure concepts for the SNF QRP.

Medicare Annual Payment Rule — CMS is required to calculate an annual Medicare market-basket update to the payment rates.

On March 28, 2024, CMS issued a proposed rule that would increase the Medicare payment rates to SNFs in fiscal year 2025 by 4.1%, which is based on a market basket of 2.8% plus a 1.7% market basket forecast error adjustment, and a negative 0.4% productivity adjustment.

The SNF PPS FY 2025 Proposed Rule, issued on March 28, 2024 would increase the Medicare payment rates to SNFs in fiscal year 2025 by 4.1%, which is based on a market basket of 2.8% plus a 1.7% market basket forecast error adjustment, and a negative 0.4% productivity adjustment.

On July 31, 2023, CMS issued the SNF PPS FY 2024 Final Rule that increased Medicare payment rates by 4.0% to SNFs in fiscal year 2024.

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The recalibrated parity adjustment is being phased in at a rate of 2.3% per year on both the SNF PPS FY 2024 and FY 2023 Final Rules.

Sequestration of Medicare Rates — The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration.

Sequestration of Medicare Rates — The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called sequestration.

Medicare FFS claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments through at least 2023, unless Congress takes further action.

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Additionally, the SNF WS PPR measure's calculations use two years of Medicare claims data to generate a provider-specific risk-standardized readmission rate.

The SNF PPS FY 2025 Proposed Rule proposed several operational and administrative updates to the SNF VBP.

The proposed rule seeks the adoption of a policy to retain and remove measurements to ensure the VBP Program’s evaluation metrics remain relevant and effective for assessing care quality.

Additionally, CMS plans to update the case-mix methodology for the Total Nurse Staffing measure and revise the review and correction policy to allow SNFs to review and correct Payroll-Based Journal (PBJ) data from FY 2026 and MDS data from FY 2027.

CMS has provided guidance related to the proposed changes and the changes already made in SNF PPS FY 2024 Final Rule CMS, with a focus on how CMS will now calculate performance scores and collect data on the new quality measures related to nursing staff turnover, infection prevention and control, and nursing care hours.

Part B Rehabilitation Requirements — Some of our revenue is paid by the Medicare Part B program under a fee schedule.

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The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration.

On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93 percent update to the CY 2024 Physician Fee Schedule (PFS) Conversion Factor (CF) for dates of service March 9, 2024 through December 31, 2024.

This replaces the 1.25 percent update provided by the Consolidated Appropriations Act, 2023.

On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93% update to the CY 2024 Physician Fee Schedule (PFS) Conversion Factor (CF) for dates of service March 9, 2024 through December 31, 2024.

This replaces the 1.25% update provided by the Consolidated Appropriations Act, 2023.

On November 2, 2023, CMS published the CY 2024 Physician Fee Schedule (2024 PFS Final Rule), which changes Medicare payments under the PFS and other Medicare Part B components.

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The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records.

A new Caregiver Education Code has been made available to therapists providing face-to-face education to patient caregivers.

This replaces the 1.25% update provided by the Consolidated Appropriations Act, 2023, therefore the CY 2024 CF for dates of service January 1 through March 8, 2024 is $32.74.

CMS has implemented the new legislation by adjusting the CY 2023 CF of $33.07 by 2.93% and the budget neutrality adjustment for a CY 2024 CF of $33.29 for dates of service March 9 through December 31.

The CY 2024 PFS Final Rule will allow for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services.

This change may affect the rate of reimbursement for PT and OT services in the future and may affect the desirability and utilization of physical therapy assistants and occupational therapy assistants for certain patient services.

Additionally, the CY 2024 PFS Final rule adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for CY 2024.

Additionally, the CY 2024 PFS Final rule adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for 2024.

The final rule also adds risk assessments for social determinants of health to the list of telehealth services Medicare will reimburse on a permanent basis.

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The CAA 2023 revised the funds available to fund Medicare in 2023 and deferred the PAYGO sequestration of Medicare expenses.

The 2024 presidential election may significantly alter the current regulatory framework and impact our business and the health care industry, including any further extensions or expansions of certain ACA provisions, namely recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions.

The 2024 presidential election may significantly alter the current regulatory framework and impact our business and the health care industry, including any further extensions or expansions of certain ACA provisions, included, but not limited to recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions.

We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.

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and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.

In February of 2024, the OIG added to its work plan a study regarding the use of the National ackground Check Program (NBCP) in conducting background checks of prospective long-term care provider employees.

In February of 2024, the OIG added to its work plan a study regarding the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees.

The purpose of this study will be to prepare a report regarding the cost of background checks, number of applicants who received background checks, and disqualification of employees during and after NBCP participation.

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In addition, the Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.

Based on the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide updated in 2023, CMS will be auditing schizophrenia coding within the MDS reported to CMS, with adjustments to quality ratings based on any inaccuracies in this schizophrenia-related data.

Additionally, the outcome of citations that a facility has informally disputed will only be included in the calculation of a facility’s star rating once the dispute is completed and the underlying survey considered final.

CMS also revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding its calculation of the staff turnover measure and publishing an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings within its state.

Importantly, under the new guidelines, only 10% of nursing facilities can receive a five-star rating in the state where it operates, with the bottom 20% receiving a one-star rating and the remaining 70% receiving a distribution of two-, three-, and four-star ratings (with approximately 23.3% of facilities receiving such ratings).

In September 2023, CMS announced that it will update the staffing level case-mix adjustment methodology and freeze four of the quality measures used in the Nursing Home Five-Star Quality Rating System beginning with the April 2024 refresh of the Nursing Home Compare website’s data.

This freeze is implemented to accommodate changes to the MDS so that information that will be added to the MDS can be gathered.

For three months, until the July 2024 refresh of the Nursing Home Compare website rankings, CMS will freeze the staffing level measures for all SNFs.

Beginning with the July 2024 refresh, CMS will change the staffing case-mix adjustment methodology to a model based on PDPM, which is discussed above.

The Nursing Home Compare website will then begin posting staffing level measures that use this PDPM methodology.

To incentivize SNFs to submit accurate staffing data, CMS will revise the staffing methodology to penalize SNFs that fail to submit staffing data, or submit erroneous data, by awarding them the lowest possible score for those measures beginning in April of 2024.

In April of 2024, CMS updated its Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide in several respects.

First, CMS froze four of the quality measures from any changes:

(1) percentage of residents who made improvements in function (short stay);

(2) percentage of residents whose need for help with activities of daily living has increased (long stay);

(3) percentage of residents whose ability to move independently worsened (long stay);

and (4) percentage of high-risk residents with pressure ulcers (long stay).

All of these measures will be frozen until January 2025, while the short-stay functional improvement measure is replaced in October of 2024 with a new cross-setting function measure used in the SNF QRP.

Also in April of 2024, CMS is updating the staffing level case-mix adjustment methodology and freezing three staffing level measures until July of 2024:

(1) adjusted RN staffing (HPRD);

(2) adjusted total nurse staffing (HPRD);

and (3) adjusted total nurse staffing on weekends (HPRD).

These frozen measures will not affect staff turnover measures.

Additionally, beginning in April of 2024, CMS will revise the staffing rating methodology to give the lowest possible score for staffing turnover measures to providers who fail to submit staffing data or submit erroneous data.

Based on the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide update in 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding the staff turnover measure and an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings.

Under these guidelines, only 10% of nursing facilities can receive a five-star rating in the state where it operates, with the bottom 20% receiving a one-star rating and the remaining 70% receiving a distribution of two-, three-, and four-star ratings.

In September 2023, CMS announced a freeze on four of the quality measures used in the Nursing Home Five-Star Quality Rating System From April 2024 until July 2024 CMS will freeze the staffing level measures for all SNFs.

Beginning with the July 2024 refresh, CMS will change the staffing case-mix adjustment methodology to a model based on PDPM

State Legislation Concerning Nursing Home Supervision — California passed into law a bill which changes the limitations, or “caps,” on non-economic damages that can be awarded in medical negligence cases filed against healthcare providers (including skilled nursing and long-term care facilities).

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This law also requires SNF license applicants to disclose additional information in connection with a license application and evaluates more data regarding the applicant’s prior operations, including prior citations, CMS sanctions and legal proceedings against the applicant or other facilities owned or managed by the applicant before issuing a license.

United States Supreme Court Decisions – On June 8, 2023, the United States Supreme Court issued its opinion in Health and Hospital Corporation of Marion County, Indiana (HHC) v.

Talevski , which pertained to claims of mistreatment in a nursing home.

The nursing home was publicly owned by the government county where it operated, rather than privately owned.

The question before the Supreme Court was whether the Nursing Home Reform Act, passed as part of the Omnibus Budget Reconciliation Act of 1987, gave Talevski the right to sue HHC for a violation of his civil rights under 42 U.S.C.

§ 1983, a specific statute that allows for claims against persons who act for and on behalf of any government entity.

The Supreme Court held that Talevski’s civil rights claim against HHC could proceed.

While the facts of this case are of limited precedential value to our independent subsidiaries, which are not owned by and do not act on behalf of any government entity, this decision may draw wider public interest into claims against SNFs and ALFs generally.

United States Supreme Court Decisions – On June 28, 2024, the United States Supreme Court issued its opinion in Loper Bright Enterprises v.

Raimondo, deciding to vacate and remand decisions by the United States Courts of Appeals that relied on the Supreme Court’s own 1984 precedent in Chevron U.S.A.

Natural Resources Defense Council, Inc., which sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administered and enforced—a legal doctrine known as the “Chevron doctrine.” In Loper, the Supreme Court had to decide whether it should overrule or clarify the Chevron doctrine based on its application more than 40 years after its creation, and the Supreme Court chose to overrule it.

The Chevron doctrine required courts to use a two-step process to interpret statutes administered by federal agencies.

After determining that the Chevron doctrine may apply to a dispute before it, a federal court must assess whether Congress has directly spoken to the precise question at issue.

If (and only if) the congressional intent of the statute is clear, that is the end of the inquiry as to the statute’s meaning.

If the court determines that the statute is silent or ambiguous regarding the issue at hand, then the Chevron doctrine requires the court to defer to the agency’s interpretation if it “is based on a permissible construction of the statute.”

The Supreme Court’s Loper decision found that the Chevron doctrine is incompatible with the federal Administrative Procedure Act’s requirement for courts to exercise their independent judgment in deciding whether a federal agency has acted within its statutory authority.

It further held that courts may not defer to an agency interpretation of a statute merely because the statute is ambiguous, as it is the responsibility of the court, rather than an agency that administers or acts under a statute, to discern the statute’s meaning.

The Supreme Court reasoned that allowing agencies to interpret the laws they enforce or act under, rather than reserving that activity for the courts, was an impermissible delegation of an activity reserved to the courts.

While the decisions at issue in Loper pertained to fishing regulations promulgated by the Department of Commerce, the Chevron doctrine’s significance to the highly regulated field of healthcare is profound.

The Chevron doctrine is frequently implicated in litigation over healthcare regulation, ranging from rules concerning staffing requirements and the validity of arbitration provisions, to requirements for healthcare workers to be vaccinated.

As such, the Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.

Monitoring Compliance in Our Facilities

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A facility “graduates” from the program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.

On October 21, 2022, CMS issued a Memorandum identifying the changes it intends to make in connection with the oversight of those facilities that fall under the SFF Program, including increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.

In October 2022, CMS issued a Memorandum identifying the changes it intends to make in connection with the oversight of those facilities that fall under the SFF Program, including increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.

Sanctions such as denial of payment for new admissions often are scheduled to go into effect before surveyors return to verify compliance.

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RESULTS OF OPERATIONS

We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic as our overall same store skilled nursing occupancy was 81.0% for the first quarter of 2024, marking the first quarter where we have surpassed pre-pandemic occupancy.

Further, our combined Same Facilities and Transitioning Facilities occupancy increased by 2.2% to 79.8% compared to the same period in 2023, once again demonstrating our ability to gain additional market share even at our more mature operations.

Since the first quarter of 2024, Same Facilities skilled nursing occupancy has surpassed pre-pandemic occupancy.

Our focus on rebuilding census resulted in Same Facilities occupancy of 80.8% during the three months ended June 30, 2024, an increase of 2.2% compared to the same period in 2023, demonstrating our ability to gain additional market share even at our more mature operations.

Further, our Transitioning Facilities occupancy increased by 3.1% to 75.7% compared to the same period in 2023, highlighting our ability to increase occupancy during the transition period and to transform the underperforming operations that we have acquired.

Throughout most of our history, our business has been affected by seasonal fluctuations including occupancy and acuity.

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As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.

Our total revenue for the three months ended March 31, 2024 increased $123.3 million, or 13.9%, compared to the three months ended March 31, 2023, while our diluted GAAP earnings per share grew by 13.3%, from $1.05 to $1.19, compared to the three months ended March 31, 2023.

Throughout the quarter, we have continued to make progress on targeted initiatives related to increasing occupancy in our facilities, attracting and developing our people and acquiring new skilled nursing operations and integrating them with our proven cultural and operational principles.

Our total revenue for the three months ended June 30, 2024 increased $114.9 million, or 12.5%, compared to the three months ended June 30, 2023, while our diluted GAAP earnings per share grew by 8.9%, from $1.12 to $1.22, compared to the three months ended June 30, 2023.

Throughout the quarter, we continued to make progress on targeted initiatives related to increasing occupancy in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles.

We continue to experience healthy growth in both revenue and overall results.

During the three months ended March 31, 2024, we added five new operations.

During the six months ended June 30, 2024, we added fifteen new operations.

We continue to work diligently with existing and recently acquired operations so that each can reach its full clinical and financial potential.

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The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

Three Months Ended March 31,

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

2024 2023 2024 2023

Service revenue 99.4 % 99.4 % 99.4 % 99.4 %

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Interest expense (0.2) (0.2) (0.2) (0.2)

Interest income 0.7 0.4 0.7 0.4

Other income 0.1 0.1 0.2 0.2

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Net income attributable to The Ensign Group, Inc.

Three Months Ended March 31,

6.9 % 6.9 % 6.8 % 6.8 %

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

2024 2023 2024 2023

SEGMENT INCOME (1)

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Standard Bearer (2)

7,360 7,133 14,618 14,352

NON-GAAP FINANCIAL MEASURES:

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We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as other income, net and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired;

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest income, interest expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired;

• they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.

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These measures are useful in this regard because they do not include such costs as other expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Adjusted EBITDAR targets.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of certain Non-GAAP Financial Measures.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP.

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• acquisition related costs;

• costs incurred related to new systems implementation;

• costs incurred related to system implementations;

• business interruption recoveries and

• depreciation and amortization of patient base intangible assets.

We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) other income, net, (b) provision for income taxes, and (c) depreciation and amortization.

We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) interest income, (b) provision for income taxes, (c) depreciation and amortization, and (d) interest expense.

EBITDA in the prior period has been recast to conform to the current period presentation.

Adjusted EBITDA

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The table below reconciles income before provision for income taxes to Adjusted EBT for the periods presented:

Three Months Ended March 31,

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

2024 2023 2024 2023

Consolidated statements of income data:

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Stock-based compensation expense

8,985 8,881 17,223 15,454

Litigation (a)

(1,634) (885) (870) (818)

Business interruption recoveries

— (750) — (750)

Impairment of long-lived assets

Acquisition related costs (b)

Costs incurred related to new systems implementation

165 112 279 572

Costs incurred related to system implementations

2,357 60 2,433 875

Depreciation and amortization - patient base (c)

$ 102,111 $ 88,471 $ 202,789 $ 174,815

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business.

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business and legal adjustments associated with a favorable overturned verdict.

(b) Costs incurred to acquire operations that are not capitalizable.

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The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

Three Months Ended March 31,

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

2024 2023 2024 2023

Consolidated statements of income data:

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Net income attributable to noncontrolling interests

Other income, net

174 97 299 214

Interest income

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

Provision for income taxes

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20,488 17,596 40,145 34,708

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

EBITDA $ 107,334 $ 97,033 $ 211,968 $ 190,462

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Litigation (a)

(1,634) (885) (870) (818)

Impairment of long-lived assets

Business interruption recoveries

— (750) — (750)

Acquisition related costs (b)

Costs incurred related to new systems implementation 76 815

165 112 279 572

Costs incurred related to system implementations

2,357 60 2,433 875

ADJUSTED EBITDA

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ADJUSTED EBITDAR

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business.

$ 170,479 $ 338,030

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business and legal adjustments associated with a favorable overturned verdict.

(b) Costs incurred to acquire operations that are not capitalizable.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

The following table sets forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Three Months Ended June 30, 2024

Skilled services Standard Bearer All Other Eliminations Consolidated

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

Impairment of long-lived assets — — — — (1,849)

Income before provision for income taxes $ 92,064

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Skilled services Standard Bearer All Other Eliminations Consolidated

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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

Our total revenue increased by $123.3 million, or 13.9%, compared to the three months ended March 31, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.1% and 2.2% from our skilled services Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

Additionally, our skilled services Recently Acquired Facilities increased total revenue by $62.2 million, when compared to the same period in 2023.

Our total revenue increased by $114.9 million, or 12.5%, compared to the three months ended June 30, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.2% and 3.1% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

Additionally, our skilled services in Recently Acquired Facilities increased total revenue by $52.6 million, when compared to the same period in 2023.

Skilled Services

The following table presents the skilled services revenue and key performance metrics by category during the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

The following tables present the skilled services revenue and key performance metrics by category during the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 48.2 % 50.7 % (2.5) % (4.9) %

Three Months Ended March 31,

Three Months Ended June 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 49.4 % 51.5 % (2.1) % (4.1) %

Three Months Ended March 31,

Three Months Ended June 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 38.3 % 38.8 % (0.5) % (1.3) %

Three Months Ended March 31,

Three Months Ended June 30,

2024 2023 Change % Change

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Actual patient days 264,304 138,166 126,138 NM

Occupancy percentage — Operational beds 83.8 % 85.6 % NM

Skilled mix by nursing days 34.1 % 43.0 % NM

Skilled mix by nursing revenue 56.1 % 66.9 % NM

Occupancy percentage — Operational beds 81.5 % 86.1 % NM NM

Skilled mix by nursing days 29.9 % 38.9 % NM NM

Skilled mix by nursing revenue 50.4 % 62.3 % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services.

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(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2023.

Skilled services revenue increased by $118.7 million, or 13.9%, compared to the three months ended March 31, 2023.

Skilled services revenue increased by $107.1 million, or 12.1%, compared to the three months ended June 30, 2023.

The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $51.7 million, or 12.5%, Medicare revenue of $10.8 million, or 4.3%, managed care revenue of $29.9 million, or 18.6% and private revenue of $14.7 million, or 24.2%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.2% to 80.1%, during the three months ended March 31, 2024 compared to the same period in 2023.

During the first quarter of 2023 with the Public Health Emergency still in place, we had strong skilled mix and acuity driven by large volumes of COVID cases.

Comparatively, in the first quarter of 2024, we experienced strong skilled mix driven by steady growth in our managed care and other skilled patients.

Our consolidated occupancy increased by 2.1% to 80.1%, during the three months ended June 30, 2024 compared to the same period in 2023.

In addition, in the second quarter of 2024, we experienced an increase in skilled days, driven by steady growth in our managed care and our Medicaid patients.

Revenue in our Same Facilities increased by $47.5 million, or 6.8%, compared to the same period in 2023, due to increased occupancy and revenue per patient day.

Our Same Facilities occupancy for the first quarter of 2024 has surpassed pre-pandemic levels.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and the local communities we operate in, increased our managed care revenue by 13.4%, mainly due to an increase in managed care days of 4.8% and managed care revenue per patient day of 6.1%.

Our Same Facilities occupancy continues to surpass pre-pandemic levels.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.2%, mainly due to an increase in managed care days of 5.7% and managed care revenue per patient day of 3.9%.

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment accounted for a larger portion of the overall population.

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Revenue generated by our Transitioning Facilities increased by $6.9 million, or 6.0%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Our Managed Care revenue increased by 38.7%;

Medicaid revenue increased by 6.0%;

and private and other revenue increased by 35.6%;

demonstrating our ability to focus on increasing occupancy across payer types.

Skilled services revenue generated by Recently Acquired Facilities increased by $62.2 million compared to the three months ended March 31, 2023 .

The increase was primarily due to 12 operational expansions between April 1, 2023 and March 31, 2024 across seven states.

In addition, we acquired 17 operations in February 2023 that contribute to the year over year increase.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate generally lower overall occupancy during years of growth.

Included in our metrics for Recently Acquired Facilities are 17 facilities we acquired in California that were mature and had higher occupancy rates, higher skilled mix days and higher skilled mix revenue than our typical acquisitions.

In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of acquisitions we acquire.

Our Managed Care revenue increased by 36.5% and private and other revenue increased by 17.4%, demonstrating our ability to focus on increasing occupancy across payer types.

Included in the three months ended June 30, 2023 is the revenue related to a facility not operating at full capacity starting in first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by $52.6 million compared to the three months ended June 30, 2023 .

The increase was primarily due to 22 operational expansions between July 1, 2023 and June 30, 2024 across ten states.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth.

Included in our metrics for Recently Acquired Facilities are 17 facilities we acquired in California in 2023 that were more mature and accordingly, had higher occupancy rates, higher skilled mix days and higher skilled mix revenue than our typical acquisitions.

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Three Months Ended March 31,

Three Months Ended June 30,

Same Facility Transitioning Acquisitions Total

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$ 402.18 $ 379.46 $ 337.56 $ 315.27 $ 434.66 $ 476.45 $ 396.63 $ 376.00

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 and state relief funding.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 4.7% and 4.0%, respectively, compared to the three months ended March 31, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.5% and 4.9%, respectively, compared to the three months ended June 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023 and a shift to higher acuity patients.

Our average Medicaid rates increased 10.1% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states, and change in Medicaid mix.

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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Three Months Ended March 31,

Three Months Ended June 30,

Same Facility Transitioning Acquisitions Total

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100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Three Months Ended March 31,

Three Months Ended June 30,

Same Facility Transitioning Acquisitions Total

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The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

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Cost of services as a percentage of revenue increased to 79.9% from 78.8% due to the increase in labor cost as a result of new acquisitions with higher expenses in the turnaround stage, as well as an increase related to general and professional liability reserves.

In addition, included in cost of services during the three months ended March 31, 2024 and 2023 are expenses related to our deferred compensation plan of $1.2 million and $0.6 million, respectively.

We continue to make progress in reducing contracted labor by driving up retention and hiring.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transitioning period.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

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$ 14,526 $ 13,266 $ 1,260 9.5 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $2.5 million, or 12.6%, to $22.2 million, compared to the three months ended March 31, 2023.

The increase in revenue is primarily attributable to five real estate purchases, as well as annual rent increases since the three months ended March 31, 2023.

FFO — Our FFO increased by $0.9 million, or 6.8%, to $14.1 million, compared to the three months ended March 31, 2023.

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $3.4 million, or 17.3%, to $23.4 million, compared to the three months ended June 30, 2023.

The increase in revenue is primarily attributable to 12 real estate purchases, as well as annual rent increases since the three months ended June 30, 2023.

FFO — Our FFO increased by $1.3 million, or 9.5%, to $14.5 million, compared to the three months ended June 30, 2023.

The increase in rental revenue of $3.4 million is offset by increases in interest expense of $2.1 million associated with the intercompany agreements as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $5.5 million, or 14.8%, to $42.6 million, compared to the three months ended March 31, 2023.

Our other revenue increased by $9.0 million, or 23.4%, to $47.3 million, compared to the three months ended June 30, 2023.

Other revenue includes senior living revenue of $21.9 million, revenue from other ancillary services of $22.4 million and rental income of $3.0 million.

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Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of total revenue decreased by 0.1% to 5.2%, primarily due to the growth in revenue outpacing the increase in rent expense and as our operational expansions include the acquisition of the related real estate properties.

Rent-cost of services — Our rent-cost of services as a percentage of total revenue decreased by 0.3% to 5.1%, as our operational expansions included a mix of both leases and purchases of real estate.

General and administrative expense — General and administrative expense increased $2.8 million or 5.2%, to $56.2 million.

This increase was primarily driven by additional headcount due to acquisition activity.

This increase was primarily driven by additional headcount due to acquisition activities and system implementation costs.

General and administrative expense as a percentage of revenue decreased by 0.4% to 5.4%.

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This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization expense remained consistent at 1.9%, as a percentage of revenue.

Other income, net — Other income, net as a percentage of revenue increased by 0.3%.

Other income primarily includes interest income from our investments, offset by interest expense related to our debt.

The increase is related to an increase in interest income from our investments and gains in our deferred compensation plan which incurs gains or losses depending on market performance.

During the three months ended March 31, 2024 and 2023, the deferred compensation plan had gains of $2.4 million and $1.2 million, respectively, with an offsetting expense allocated between cost of services and general and administrative expenses.

Provision for income taxes — Our effective tax rate was 23.0% for the three months ended March 31, 2024, compared to 23.5% for the same period in 2023.

Depreciation and amortization increased by 0.1%, to 2.0%, as a percentage of revenue.

Other income, net — Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net as a percentage of revenue increased by 0.3% due to the increase in interest income from our investments.

Provision for income taxes — Our effective tax rate was 22.7% for the three months ended June 30, 2024, compared to 20.9% for the same period in 2023.

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

See Note 14, Income Taxes , in the Notes to the Interim Financial Statements for further discussion.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Six Months Ended June 30, 2024

Skilled Services Standard Bearer All Other Eliminations Consolidated

Total revenue $ 1,960,887 $ 45,555 $ 89,911 $ (49,896) $ 2,046,457

Total expenses, including other income, net

1,711,893 30,937 170,012 (49,896) 1,862,946

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

Impairment of long-lived assets

Income before provision for income taxes $ 181,662

Six Months Ended June 30, 2023

Skilled Services Standard Bearer All Other Eliminations Consolidated

Total revenue $ 1,735,123 $ 39,631 $ 75,450 $ (42,018) $ 1,808,186

Total expenses, including other income, net

1,504,770 25,279 160,620 (42,018) 1,648,651

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

Loss on insurance recoveries from real estate

Income before provision for income taxes $ 159,435

Our total revenue increased $238.3 million, or 13.2%, compared to the six months ended June 30, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.2% and 2.6% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

Additionally, our skilled services in Recently Acquired Facilities increased total revenue by $114.8 million, when compared to the same period in 2023.

Skilled Services Segment

The following tables present the skilled services revenue and key performance metrics by category during the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

2024 2023 Change % Change

TOTAL FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 1,960,887 1,735,123 $ 225,764 13.0 %

Number of facilities at period end 272 253 19 7.5 %

Number of campuses at period end (1)

29 26 3 11.5 %

Actual patient days 4,554,599 4,172,567 382,032 9.2 %

Occupancy percentage — Operational beds 80.1 % 78.0 % 2.1 % 2.7 %

Skilled mix by nursing days 30.4 % 31.5 % (1.1) % (3.5) %

Skilled mix by nursing revenue 49.0 % 51.7 % (2.7) % (5.2) %

Six Months Ended June 30,

2024 2023 Change % Change

SAME FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 1,488,722 $ 1,393,741 $ 94,981 6.8 %

Number of facilities at period end 194 194 — — %

Number of campuses at period end (1)

Actual patient days 3,416,043 3,313,436 102,607 3.1 %

Occupancy percentage — Operational beds 80.9 % 78.7 % 2.2 % 2.8 %

Skilled mix by nursing days 31.9 % 32.8 % (0.9) % (2.7) %

Skilled mix by nursing revenue 50.2 % 52.5 % (2.3) % (4.4) %

Six Months Ended June 30,

2024 2023 Change % Change

TRANSITIONING FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 247,120 $ 231,144 $ 15,976 6.9 %

Number of facilities at period end 40 40 — — %

Number of campuses at period end (1)

Actual patient days 657,532 639,117 18,415 2.9 %

Occupancy percentage — Operational beds 74.8 % 72.2 % 2.6 % 3.6 %

Skilled mix by nursing days 21.7 % 21.8 % (0.1) % (0.5) %

Skilled mix by nursing revenue 38.1 % 40.4 % (2.3) % (5.7) %

Six Months Ended June 30,

2024 2023 Change % Change

RECENTLY ACQUIRED FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 225,045 $ 110,238 $ 114,807 NM

Number of facilities at period end 38 19 19 NM

Number of campuses at period end (1)

Actual patient days 481,024 220,014 261,010 NM

Occupancy percentage — Operational beds 82.5 % 85.9 % NM NM

Skilled mix by nursing days 31.8 % 40.4 % NM NM

Skilled mix by nursing revenue 53.0 % 64.0 % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services.

Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.

(2) Same Facility results represent all facilities purchased prior to January 1, 2021.

(3) Transitioning Facility results represent all facilities purchased from January 1, 2021 to December 31, 2022.

(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2023.

Skilled services revenue increased $225.8 million, or 13.0%, compared to the six months ended June 30, 2023.

The increases in skilled services revenue were across all payer types including increases in Medicaid revenue of $105.8 million, or 13.1%, Medicare revenue of $28.6 million, or 5.8%, managed care revenue of $61.4 million, or 19.3%, and private revenue of $30.0 million, or 25.9%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.1% to 80.1% during the six months ended June 30, 2024 compared to the same period in 2023.

In addition, we continue to increase our skilled days, mainly in the steady growth in our managed care and our long-term care Medicaid patients.

Revenue in our Same Facilities increased $95.0 million, or 6.8%, compared to the same period in 2023, due to increased occupancy from long-term care patients and revenue per patient day and strong skilled days.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.8%, mainly due to increases in managed care days of 5.2% and revenue per patient day of 5.0%.

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment accounts for a larger portion of the overall population.

In addition, Medicaid revenue increased by $49.1 million or 7.6%, mainly from the increases in Medicaid days and revenue per patient day.

Revenue generated by our Transitioning Facilities increased $16.0 million, or 6.9%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Managed Care and private revenue increased by 37.6% and 25.8%, respectively, demonstrating our ability to focus on increasing occupancy across payer types.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $114.8 million compared to the six months ended June 30, 2023.

The increases were primarily due to 22 operational expansions between July 1, 2023 and June 30, 2024 across ten states.

In addition, we acquired 17 operations in February 2023 that contributed to the year over year increase.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth.

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Six Months Ended June 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

SKILLED NURSING AVERAGE DAILY REVENUE RATES

Medicare $ 747.66 $ 711.25 $ 696.25 $ 666.23 $ 852.62 $ 858.19 $ 759.21 $ 720.06

Managed care 548.52 522.43 523.54 512.50 586.47 606.49 549.10 525.35

Other skilled 619.01 597.65 494.77 498.79 603.84 524.67 606.98 584.16

Total skilled revenue 631.63 608.89 594.02 589.49 743.85 754.00 640.09 616.65

Medicaid 296.64 270.02 269.31 243.89 302.48 278.36 292.81 265.79

Private and other payors 280.87 262.14 254.55 237.16 332.78 347.26 281.69 261.44

Total skilled nursing revenue

$ 402.00 $ 380.36 $ 337.89 $ 318.63 $ 445.75 $ 476.32 $ 397.34 $ 375.96

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.1% and 4.5%, respectively, compared to the six months ended June 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023 and a shift toward higher acuity patients.

Our average Medicaid rates increased 10.2% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states, and change in Medicaid mix.

For example, we continue to have an increase in Medicaid days in states with higher rates, such as California.

Payor Sources as a Percentage of Skilled Nursing Services — We use our skilled mix as a measure of the quality of reimbursements we receive at our independent skilled nursing facilities over various periods.

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Six Months Ended June 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

PERCENTAGE OF SKILLED NURSING REVENUE

Medicare 20.9 % 24.1 % 19.3 % 23.5 % 35.6 % 45.2 % 22.5 % 25.4 %

Managed care 20.2 20.0 14.1 11.5 13.4 14.2 18.7 18.5

Other skilled 9.1 8.4 4.7 5.4 4.0 4.6 7.8 7.8

Skilled mix 50.2 52.5 38.1 40.4 53.0 64.0 49.0 51.7

Private and other payors 7.1 7.4 9.0 8.6 7.4 5.9 7.4 7.4

Medicaid 42.7 40.1 52.9 51.0 39.6 30.1 43.6 40.9

TOTAL SKILLED NURSING 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Six Months Ended June 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

PERCENTAGE OF SKILLED NURSING DAYS

Medicare 11.3 % 12.9 % 9.4 % 11.2 % 18.6 % 25.1 % 11.8 % 13.3 %

Managed care 14.8 14.5 9.1 7.2 10.2 11.2 13.5 13.2

Other skilled 5.8 5.4 3.2 3.4 3.0 4.1 5.1 5.0

Skilled mix 31.9 32.8 21.7 21.8 31.8 40.4 30.4 31.5

Private and other payors 10.3 10.7 11.9 11.5 9.9 8.1 10.5 10.7

Medicaid 57.8 56.5 66.4 66.7 58.3 51.5 59.1 57.8

TOTAL SKILLED NURSING 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Cost of Services

The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Six Months Ended June 30, Change

2024 2023 $ %

Cost of service $ 1,559,590 $ 1,367,817 $ 191,773 14.0 %

Revenue percentage 79.5 % 78.8 % 0.7 %

Cost of services related to our skilled services segment increased by $191.8 million, or 14.0%, from the same period in 2023.

Cost of services as a percentage of revenue increased to 79.5% from 78.8%, due to an increase in labor cost as a result of new acquisitions with higher expenses in the turnaround stage, as well as an increase related to general and professional liability reserves.

In addition, included in cost of services during the six months ended June 30, 2024 is the expense related to the deferred compensation investment program of $1.6 million compared to a gain of $1.3 million during the six months ended June 30, 2023.

We continue to make progress in reducing contracted labor by driving up retention and hiring.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Six Months Ended June 30, Change

2024 2023 $ %

(Dollars in thousands)

Rental revenue generated from third-party tenants $ 8,393 $ 7,572 $ 821 10.8 %

Rental revenue generated from Ensign's independent subsidiaries

37,162 32,059 5,103 15.9

TOTAL RENTAL REVENUE $ 45,555 $ 39,631 $ 5,924 14.9 %

Segment income 14,618 14,352 266 1.9

Depreciation and amortization 13,995 12,099 1,896 15.7

FFO $ 28,613 $ 26,451 $ 2,162 8.2 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $5.9 million, or 14.9%, to $45.6 million, compared to the six months ended June 30, 2023.

The increase in revenue is primarily attributable to 12 real estate purchases as well as annual rent increases since the six months ended June 30, 2023.

FFO — Our FFO increased by $2.2 million, or 8.2%, to $28.6 million, compared to the six months ended June 30, 2023.

The increase in rental revenue of $5.9 million is offset by increases in interest expense of $3.6 million associated with the intercompany debt arrangements between Standard Bearer and us, as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $14.5 million, or 19.2%, to $89.9 million, compared to the six months ended June 30, 2023.

Other revenue for 2024 includes senior living revenue of $42.2 million, revenue from other ancillary services of $41.8 million and rental income of $5.9 million.

The increase in other revenue is primarily attributable to our other ancillary services.

Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of total revenue decreased by 0.2% to 5.1%, as our operational expansions included a mix of both leases and purchases of real estate.

General and administrative expense — General and administrative expense increased by $8.0 million or 7.6%, to $113.4 million.

This increase was primarily driven by additional headcount due to acquisition activity and system implementation costs.

General and administrative expense as a percentage of revenue decreased by 0.2% to 5.6%.

Depreciation and amortization — Depreciation and amortization expense increased by $5.4 million, or 15.7%, to $40.1 million.

This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization expense remained consistent at 2.0%, as a percentage of revenue.

Other income, net — Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net as a percentage of revenue increased by 0.3% mainly due to an increase in interest income from our investments.

Provision for income taxes — Our effective tax rate was 22.9% for the six months ended June 30, 2024, compared to 22.2% for the same period in 2023.

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

See Note 14, Income Taxes , in the Interim Financial Statements for further discussion.

Liquidity and Capital Resources

Our primary sources of liquidity have historically been derived from our cash flows from operations and long-term debt secured by our real property and our Credit Facility.

Our liquidity as of March 31, 2024 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Our liquidity as of June 30, 2024 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations.

Cash paid to fund acquisitions was $2.9 million for the three months ended March 31, 2024 compared to no cash paid for the three months ended March 31, 2023.

Total capital expenditures for property and equipment were $29.4 million and $26.7 million for the three months ended March 31, 2024 and 2023, respectively.

Cash paid to fund acquisitions was $66.0 million for the six months ended June 30, 2024 compared to $1.6 million cash paid for the six months ended June 30, 2023.

Total capital expenditures for property and equipment were $64.6 million and $51.6 million for the six months ended June 30, 2024 and 2023, respectively.

We currently have approximately $110.0 million budgeted for renovation projects in 2024.

1 unchanged sentence

We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Our cash and cash equivalents as of March 31, 2024 consisted of bank term deposits, money market funds and U.S.

Our cash and cash equivalents as of June 30, 2024 consisted of bank term deposits, money market funds and U.S.

Treasury bill related investments.

In addition, as of March 31, 2024, we held investments of approximately $122.1 million.

We believe our investments that were in an unrealized loss position as of March 31, 2024 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

In addition, as of June 30, 2024, we held investments of approximately $136.9 million.

We believe our investments that were in an unrealized loss position as of June 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

As mentioned above, our primary source of cash is from our ongoing operations.

Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders.

We currently anticipate that existing cash and total investments as of March 31, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

We currently anticipate that existing cash and total investments as of June 30, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

On August 29, 2023, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2023.

Under this program, we are authorized to repurchase our 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.

We did not purchase any shares pursuant to this stock repurchase program during the three months ended March 31, 2024.

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

Under these repurchase programs, we are authorized to repurchase our 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 stock repurchase programs do not obligate us to acquire any specific number of shares.

The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

NET CASH PROVIDED BY/(USED IN):

3 unchanged sentences

Financing activities 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

2 unchanged sentences

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.

The $13.0 million decrease in cash provided by operating activities for the three months ended March 31, 2024 compared to the same period in 2023 w as due to the timing of payments and wages and benefits o ffset by an increase in operational performance.

The $55.8 million decrease in cash provided by operating activities for the six months ended June 30, 2024 compared to the same period in 2023 w as due primarily to the timing of income tax payments.

In 2023, the U.S.

Internal Revenue Service and California provided disaster-area tax relief for the deferral of federal and California estimated tax payments until the fourth quarter of 2023.

As of the second quarter of 2023, the Company deferred approximately $50.0 million of 2023 federal and California estimated tax payments that were paid in the fourth quarter of 2023.

In the second quarter of 2024, we paid $56.1 million in income tax payments.

The remaining change in cash provided by operating activities is due to the timing of accounts receivable collections as well as timing of payments and wages and benefits o ffset by an increase in operational performance.

Investing Activities

Investing cash flows consist primarily of capital expenditures, investment activities, insurance proceeds and cash used for acquisitions.

The $1.3 million decrease in cash used in investing activities for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to an increase investment maturities, offset by cash used for operational expansions and capital expenditures.

The $82.1 million increase in cash used in investing activities for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to cash used for operational expansions and capital expenditures.

Financing Activities

Financing cash flows consist primarily of payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, payment for share repurchases and sale of subsidiary shares.

The $3.2 million increase in cash provided by financing activities for the three months ended March 31, 2024 compared to the same period in 2023, was primarily due to stock option exercises.

The $2.0 million increase in cash provided by financing activities for the six months ended June 30, 2024 compared to the same period in 2023, was primarily due to stock option exercises.

Credit Facility with a Lending Consortium Arranged by Truist

5 unchanged sentences

Mortgage Loans and Promissory Note

As of March 31, 2024, 23 of our subsidiaries have mortgage loans insured with HUD for an aggregate amount of $149.4 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

As of June 30, 2024, 23 of our subsidiaries have mortgage loans insured with HUD for an aggregate amount of $148.6 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

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

7 unchanged sentences

Operating Leases

As of March 31, 2024, 218 of our facilities are under long-term lease arrangements, of which 98 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

As of June 30, 2024, 222 of our facilities are under long-term lease arrangements, of which 98 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

The Master Leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography.

21 unchanged sentences

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 2. Management’s Discussion and Analysis