What changed in this filing

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Item 1. Financial Statements

2024-10-24 compared with 2024-07-25 · 224 added, 197 removed, 872 unchanged (33% of the section changed)

3 unchanged sentences

(In thousands, except par values)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

Cash and cash equivalents $ 532,066 $ 509,626

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

Accounts receivable—less allowance for doubtful accounts of $ 9,822 and $ 9,348 at September 30, 2024 and December 31, 2023, respectively

554,091 485,039

31 unchanged sentences

150,000 shares authorized;

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

60,681 and 57,281 shares issued and shares outstanding at September 30, 2024, respectively, and 59,987 and 56,597 shares issued and shares outstanding at December 31, 2023, respectively

Additional paid-in capital 514,336 465,707

Retained earnings 1,350,664 1,142,653

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

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

( 117,764 ) ( 116,555 )

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

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

2024 2023 2024 2023

12 unchanged sentences

Interest income 7,607 5,259 21,151 12,785

Other income (expense)

3,753 ( 982 ) 7,686 2,237

46 unchanged sentences

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

Issuance of common stock to employees and directors resulting from the exercise of stock options 205 — 7,977 — — — — 7,977

Issuance of restricted stock, net of forfeitures (Note 16) 27 — — — — — — —

Dividends declared ($ 0.0600 per share)

— — — ( 3,437 ) — — — ( 3,437 )

Employee stock award compensation — — 9,177 — — — — 9,177

Acquisition of noncontrolling interest shares — — ( 2,387 ) — — — ( 2,024 ) ( 4,411 )

Net income attributable to noncontrolling interest — — — — — — 123 123

Noncontrolling interests attributable to subsidiary equity plan — — 158 — — — ( 155 ) 3

Net income attributable to the Ensign Group, Inc.

— — — 78,444 — — — 78,444

BALANCE - SEPTEMBER 30, 2024 57,281 $ 61 $ 514,336 $ 1,350,664 3,400 $ ( 117,764 ) $ 3,650 $ 1,750,947

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

25 unchanged sentences

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

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

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

Dividends declared ($ 0.0575 per share)

— — — ( 3,243 ) — — — ( 3,243 )

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

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

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

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

Net income attributable to the Ensign Group, Inc.

— — — 63,863 — — — 63,863

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2024 2023

10 unchanged sentences

Cash received from insurance proceeds 199 1,396

Loss (Gain) on insurance claims and asset disposals

Loss (gain) on sale of assets and insurance claims

Litigation adjustment

29 unchanged sentences

Cash flows from financing activities:

Proceeds from debt (Note 15)

Payments on debt

6 unchanged sentences

Payments of deferred financing costs — ( 19 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CASH USED IN FINANCING ACTIVITIES

$ ( 825 ) $ ( 2,043 )

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

22,440 151,600

1 unchanged sentence

Cash and cash equivalents end of period $ 532,066 $ 467,870

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2024 2023

16 unchanged sentences

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

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

As of September 30, 2024, the Company's independent subsidiaries operated 322 facilities and other ancillary operations located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

The Company's independent subsidiaries have a collective capacity of approximately 33,000 operational skilled nursing beds and 3,100 senior living units.

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

As of September 30, 2024, the Company's independent subsidiaries operated 231 facilities under long-term lease arrangements and had options to purchase 12 of those 231 facilities.

The Company's real estate portfolio consists of 121 owned real estate properties, which includes 91 facilities operated and managed by the Company's independent subsidiaries, 30 operations leased to and operated by third-party operators and the Service Center (defined below) location.

2 unchanged sentences

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

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

(Standard Bearer).

The Company's captive real estate investment trust (REIT), Standard Bearer Healthcare REIT, Inc.

(Standard Bearer), owns and manages its real estate business.

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

5 unchanged sentences

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

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

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

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

41 unchanged sentences

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

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

Revenue from the Medicare and Medicaid programs accounted for 70.2 % and 71.0 % of all service revenue for the three and nine months ended September 30, 2024, respectively, and 72.1 % and 72.8 % of all service revenue for the three and nine months ended September 30, 2023, respectively.

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

1 unchanged sentence

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

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

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

Three Months Ended June 30,

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

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

Three Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

9 unchanged sentences

(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.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Revenue % of Revenue Revenue % of Revenue

9 unchanged sentences

(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.

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

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

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties are $ 5,711 and $ 11,398 , respectively, for the three and six months ended June 30, 2024 and $ 5,244 and $ 10,167 , respectively, for the three and six months ended June 30, 2023.

In addition to the service revenue above, the Company's rental revenue derived from triple-net lease arrangements with third parties were $ 5,684 and $ 17,082 , respectively, for the three and nine months ended September 30, 2024 and $ 5,467 and $ 15,634 , respectively, for the three and nine months ended September 30, 2023.

State relief funding

1 unchanged sentence

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

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

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

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

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

THE ENSIGN GROUP, INC.

2 unchanged sentences

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

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

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

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

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

June 30, 2024 December 31, 2023

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

September 30, 2024 December 31, 2023

Medicaid $ 222,056 $ 178,285

10 unchanged sentences

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

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

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

2024 2023 2024 2023

10 unchanged sentences

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

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

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

2024 2023 2024 2023

10 unchanged sentences

$ 1.34 $ 1.11 $ 3.76 $ 3.28

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

(1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 400 and 858 for the three and nine months ended September 30, 2024, respectively, and 1,475 and 1,389 for the three and nine months ended September 30, 2023, respectivel y.

FAIR VALUE MEASUREMENTS

The Company's financial assets include the captive insurance subsidiary's deposits and investments designated to support long-term insurance subsidiary liabilities and are carried at amortized cost basis of $ 63,826 and $ 59,530 as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, the amortized cost basis of the Company's financial assets included in the captive insurance subsidiary's investments are considered to approximate the fair value of these financial assets and are derived using Level 2 inputs.

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

The Company's financial assets include investments, some of which are designated to support long-term insurance subsidiary liabilities, are carried at amortized cost basis of $ 90,422 and $ 59,530 , as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the amortized cost basis of these financial assets are considered to approximate fair value and are derived using Level 2 inputs.

The Company's financial assets also include the contracts insuring the lives of certain employees who are eligible to participate in non-qualified deferred compensation plans that are held in a rabbi trust.

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

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

As of September 30, 2024, and December 31, 2023, the fair value of the investment funds was $ 56,056 and $ 41,216 , respectively, which are derived using Level 2 inputs.

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

The Company believes its amortized cost basis investments that were in an unrealized loss position as of June 30, 2024 and December 31, 2023 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

The Company believes its amortized cost basis investments that were in an unrealized loss position as of September 30, 2024 and December 31, 2023 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

STANDARD BEARER

1 unchanged sentence

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

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

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

During the nine months ended September 30, 2024, Standard Bearer acquired the real estate of seven stand-alone skilled nursing operations and two campus operations for an aggregate purchase price of $ 81,274 .

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

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

Subsequent to September 30, 2024, Standard Bearer acquired the real estate of one campus operation for an aggregate purchase price of $ 3,140 , which is operated by one of the Company's independent subsidiaries .

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

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

13 unchanged sentences

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

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

Rental revenue generated from Ensign affiliated operations was $ 20,234 and $ 57,396 , respectively, for the three and nine months ended September 30, 2024 and $ 16,976 and $ 49,035 , respectively, for the three and nine months ended September 30, 2023.

Intercompany management agreement

2 unchanged sentences

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

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

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

Management fee generated between Standard Bearer and the Service Center for the three and nine months ended September 30, 2024 were $ 1,466 and $ 4,199 , respectively.

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

Intercompany debt arrangements

12 unchanged sentences

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

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

During the nine months ended September 30, 2024 and 2023, the Company did not grant any stock options or restricted shares under the Standard Bearer Equity Plan.

OPERATION EXPANSIONS

7 unchanged sentences

2024 Expansions

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

During the nine months ended September 30, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 24 stand-alone skilled nursing operations and two campus operations.

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

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

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

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

4 unchanged sentences

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

Subsequent to September 30, 2024, the Company expanded its operations and real estate portfolio with the addition of one campus operation.

Standard Bearer acquired the real estate of this operation, which was leased back to the Company's independent subsidiary.

The new operation added 83 operational skilled nursing beds and 20 operational senior living units to be operated by the Company's independent subsidiary.

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

2023 Expansions

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

During the nine months ended September 30, 2023, the Company expanded its operations through long-term leases , with the addition of 24 stand-alone skilled nursing operations.

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

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

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

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

4 unchanged sentences

Consequently, the Company believes that prior operating results are not a meaningful representation of the Company’s current operating results or indicative of the integration potential of its newly acquired independent subsidiaries .

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

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

Accordingly, pro forma financial information is not presented.

3 unchanged sentences

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

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

As of September 30, 2024, the skilled services segment includes 282 skilled nursing and 29 campus operations that provide both skilled nursing and rehabilitative care services and senior living services.

The Company's Standard Bearer segment consists of 116 owned real estate properties.

2 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

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

2 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

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

2 unchanged sentences

The following tables set forth financial information for the segments:

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Skilled Services Standard Bearer All Other (1)

6 unchanged sentences

Segment income (loss) 128,489 7,274 ( 36,603 ) — 99,160

Loss on long-lived assets

Income before provision for income taxes $ 98,674

5 unchanged sentences

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

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

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

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

2 unchanged sentences

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Skilled Services Standard Bearer All Other (1)

6 unchanged sentences

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

Loss on insurance recoveries from real estate $ ( 100 )

Income before provision for income taxes $ 82,045

5 unchanged sentences

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

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

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

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

4 unchanged sentences

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

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Skilled Services Standard Bearer All Other (1)

6 unchanged sentences

Segment income (loss) 377,483 21,892 ( 116,704 ) — 282,671

Impairment of long-lived assets ( 1,849 )

Loss on long-lived assets

Income before provision for income taxes $ 280,336

5 unchanged sentences

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

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

(3) All Other rental revenue includes rental revenue associated with the Company's subleases to third parties of $ 3,258 for the nine months ended September 30, 2024.

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

2 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Skilled Services Standard Bearer All Other (1)

14 unchanged sentences

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

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

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

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

2 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

Service revenue by major payor source were as follows:

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Skilled Services All Other (3)

11 unchanged sentences

(3) All Other incorporates intercompany eliminations.

Three Months Ended June 30, 2023

THE ENSIGN GROUP, INC.

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

Three Months Ended September 30, 2023

Skilled Services All Other (3)

11 unchanged sentences

(3) All Other incorporates intercompany eliminations.

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Skilled Services All Other (3)

11 unchanged sentences

(3) All Other incorporates intercompany eliminations.

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Skilled Services All Other (3)

15 unchanged sentences

Property and equipment, net consists of the following:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Land $ 160,235 $ 142,656

7 unchanged sentences

PROPERTY AND EQUIPMENT, NET $ 1,217,689 $ 1,090,771

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

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

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

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

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

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

INTANGIBLE ASSETS - NET

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Weighted Average Life (Years)

5 unchanged sentences

TOTAL $ 6,611 $ ( 4,499 ) $ 2,112 $ 6,096 $ ( 3,873 ) $ 2,223

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

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

During the three and nine months ended September 30, 2024, amortization expense was $ 598 and $ 1,535 , respectively, of which $ 303 and $ 909 was related to the amortization of right-of-use assets, respectively.

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

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

1 unchanged sentence

Thereafter 779

THE ENSIGN GROUP, INC.

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

Other indefinite-lived intangible assets consist of the following:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Trade name $ 889 $ 889

1 unchanged sentence

TOTAL $ 4,564 $ 4,302

THE ENSIGN GROUP, INC.

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

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

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

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

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

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

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

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

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

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

Skilled Services All Other Total

1 unchanged sentence

Additions — 372 372

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

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

RESTRICTED AND OTHER ASSETS

Restricted and other assets consist of the following:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Debt issuance costs, net $ 2,217 $ 2,883

5 unchanged sentences

RESTRICTED AND OTHER ASSETS $ 45,753 $ 40,205

Included in restricted and other assets as of June 30, 2024 and December 31, 2023 are anticipated insurance recoveries related to the Company's workers' compensation and general and professional liability claims that are recorded on a gross, rather than net, basis.

Included in restricted and other assets as of September 30, 2024 and December 31, 2023 are anticipated insurance recoveries related to the Company's workers' compensation and general and professional liability claims that are recorded on a gross, rather than net, basis.

OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Quality assurance fee $ 11,845 $ 14,035

8 unchanged sentences

OTHER ACCRUED LIABILITIES $ 169,195 $ 168,228

THE ENSIGN GROUP, INC.

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

Quality assurance fee represents the aggregate of amounts payable to Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Tennessee, Utah, Washington and Wisconsin as a result of a mandated fee based on patient days or licensed beds.

4 unchanged sentences

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

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

THE ENSIGN GROUP, INC.

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

The Company recorded income tax expense of $ 61,628 and $ 53,453 during the nine months ended September 30, 2024 and 2023, respectively, or 22.0 % of earnings before income taxes for the nine months ended September 30, 2024, compared to 22.1 % for the nine months ended September 30, 2023.

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

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

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

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

Debt consists of the following:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Mortgage loans and promissory note $ 149,438 $ 152,388

11 unchanged sentences

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

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

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

THE ENSIGN GROUP, INC.

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

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

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

Mortgage Loans and Promissory Note

As of June 30, 2024, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 148,583 , which subjects these subsidiaries to HUD oversight and periodic inspections.

As of September 30, 2024, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 147,744 , which subjects these subsidiaries to HUD oversight and periodic inspections.

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

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

THE ENSIGN GROUP, INC.

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

In addition to the HUD mortgage loans above, the Company has a promissory note of $ 1,694 that bears a fixed interest rate of 5.3 % per annum and has a term of 12 years.

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Off-Balance Sheet Arrangements

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

The Company believes that its outstanding letters of credit as of June 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

As of September 30, 2024, the Company had approximately $ 27,893 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit, which increased by $ 21,638 from December 31, 2023.

The Company believes that its outstanding letters of credit as of September 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred through the filing date of this report that would indicate differently.

OPTIONS AND AWARDS

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

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

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

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

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Options expire ten years from the date of grant.

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

At September 30, 2024, the total number of shares available for issuance under the 2022 Plan was 708 .

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

2 unchanged sentences

The Company develops estimates based on historical data and market information, which can change significantly over time.

THE ENSIGN GROUP, INC.

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

Stock Options

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

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

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

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2023 193 4.4 % 6.1 years 41.3 % 0.2 %

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

THE ENSIGN GROUP, INC.

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

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

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

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2023 606 4.0 % 6.2 years 41.4 % 0.3 %

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

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

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

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2023 606 $ 92.54 $ 42.50

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

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

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

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

Number of Options Outstanding Weighted Average

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Exercised ( 541 ) 33.84

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

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

Options June 30, 2024 December 31, 2023

September 30, 2024 3,853 $ 74.11 1,825 $ 49.48

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

Options September 30, 2024 December 31, 2023

Outstanding $ 268,924 $ 197,819

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

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

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

THE ENSIGN GROUP, INC.

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

The aggregate intrinsic value of options that vested during the nine months ended September 30, 2024 and 2023 was $ 34,971 and $ 16,856 , respectively.

The total intrinsic value of options exercised during the nine months ended September 30, 2024 and 2023 was $ 50,840 and $ 43,299 , respectively.

Restricted Stock Awards

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

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

The Company granted 29 and 166 restricted stock awards during the three and nine months ended September 30, 2024, respectively.

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

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

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

The fair value per share of restricted awards granted during the nine months ended September 30, 2024 and 2023 ranged from $ 116.65 to $ 146.37 and $ 89.83 to $ 98.31 , respectively.

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

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

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

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

THE ENSIGN GROUP, INC.

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

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

Non-Vested Restricted Awards Weighted Average Grant Date Fair Value

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Forfeited ( 13 ) 80.53

Nonvested at June 30, 2024

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

Nonvested at September 30, 2024

During the three and nine months ended September 30, 2024, the Company granted 4 and 13 , respectively, automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors.

The fair value per share of these stock awards ranged from $ 116.65 to $ 135.18 based on the market price on the grant date.

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

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

The total stock-based compensation related to the 2019 LTI Plan was approximately $ 132 and $ 546 for the three and nine months ended September 30, 2024, respectively, compared to $ 218 and $ 620 for the three and nine months ended September 30, 2023, respectively.

Stock-based compensation expense

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

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

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

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

2024 2023 2024 2023

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TOTAL $ 9,177 $ 7,230 $ 26,386 $ 22,684

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

In future periods, the Company expects to recognize approximately $ 76,142 and $ 32,427 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of September 30, 2024.

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

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

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

There were 2,028 unvested and outstanding options as of September 30, 2024, of which 1,873 shares are expected to vest.

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

THE ENSIGN GROUP, INC.

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

In the third quarter of 2024, the Company added one operation and extended the term for one of the Master Leases to 15 years.

As a result, the total lease liabilities and right-of-use assets increased by $ 24,391 to reflect the new lease obligations.

The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent.

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

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

Total rent expense under the Master Leases was approximately $ 17,635 and $ 51,707 for the three and nine months ended September 30, 2024, respectively, and $ 16,741 and $ 49,698 for the three and nine months ended September 30, 2023, respectively.

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

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

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

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

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

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

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

THE ENSIGN GROUP, INC.

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

Ninety of the Company’s independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 14 separate master lease arrangements.

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

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

In the third quarter of 2024, the Company entered into one new master lease arrangement to add six stand-alone skilled nursing operations operated by the Company's independent subsidiaries.

The new master lease increased the lease liabilities and right-of-use assets by $ 40,636 to reflect the new lease obligations for a term of 15 years.

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

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

THE ENSIGN GROUP, INC.

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

The components of operating lease expense are as follows:

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

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

2024 2023 2024 2023

7 unchanged sentences

$ 61,618 $ 56,159 $ 179,125 $ 163,387

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

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

(1) Rent - cost of services includes deferred rent expense adju stments of $ 205 and $ 590 for the three and nine months ended September 30, 2024, respectively, and $ 211 and $ 692 for the three and nine months ended September 30, 2023, respectively.

Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 3,668 and $ 10,025 for the three and nine months ended September 30, 2024, respectively, and $ 2,859 and $ 7,317 for the three and nine months ended September 30, 2023, respectively.

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

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

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

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

2024 (remainder)

7 unchanged sentences

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

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

As of September 30, 2024, the weighted average remaining lease term is 14.7 years and the weighted average discount rate used to determine the operating lease liabilities is 6.3 %.

THE ENSIGN GROUP, INC.

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

Lessor Activities

8 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

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

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

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

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

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

2024 2023 2024 2023

3 unchanged sentences

TOTAL $ 5,684 $ 5,467 $ 17,082 $ 15,634

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

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

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

(1) Pennant rental income includes variable rent such as property taxes of $ 308 and $ 940 during the three and nine months ended September 30, 2024 and $ 324 and $ 974 for the three and nine months ended September 30, 2023, respectively.

(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 1,089 and $ 3,258 for the three and nine months ended September 30, 2024, and $ 1,063 and $ 2,834 for the three and nine months ended September 30, 2023, respectively.

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

Year Amount (1)

2 unchanged sentences

TOTAL $ 226,506

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

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

DEFINED CONTRIBUTION PLANS

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

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

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

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

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

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

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

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

THE ENSIGN GROUP, INC.

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

As of September 30, 2024 and December 31, 2023, the Company accrued $ 62,285 and $ 49,201 , respectively, as long term deferred compensation in other long term liabilities on the consolidated balance sheet.

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

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

For the three and nine months ended September 30, 2024, the Company recorded gains related to its DCP of $ 3,175 and $ 6,096 , respectively, which are included in other income (expense), and recorded offsetting expenses of $ 3,294 and $ 6,410 , which are allocated between cost of services and general and administrative expenses.

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

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

SELF INSURANCE LIABILITIES

10 unchanged sentences

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

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

Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $ 120,905 and $ 105,729 as of September 30, 2024 and December 31, 2023, respectively.

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

5 unchanged sentences

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

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

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

Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $ 32,355 and $ 29,454 as of September 30, 2024 and December 31, 2023, respectively.

In addition, the Company has recorded an asset and corresponding liability of $ 16,648 and $ 15,913 as of September 30, 2024 and December 31, 2023, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis.

See Note 12, Restricted and Other Assets.

THE ENSIGN GROUP, INC.

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

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

1 unchanged sentence

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

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

As of September 30, 2024 and December 31, 2023, the Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $ 14,118 and $ 14,814 , respectively.

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

THE ENSIGN GROUP, INC.

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

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted.

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

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

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

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

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

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

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

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

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

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

5 unchanged sentences

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

THE ENSIGN GROUP, INC.

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

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

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

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

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

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

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

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

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

authorities could also seek the suspension or exclusion of the provider or individual from participation in state and federal healthcare programs.

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

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

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

THE ENSIGN GROUP, INC.

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

For example, in 2020, the U.S.

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

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

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

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

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

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

Additionally, such proceedings and/or investigations can be a distraction to the business of the Company's independent subsidiaries.

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

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Such exclusions could have a correlative negative impact on the Company’s financial performance.

In addition, and pursuant to the qui tam or "whistleblower" provisions of the FCA, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government's recovery.

Due to these whistleblower incentives, qui tam lawsuits have become more frequent.

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Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in December 2020.

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

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

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

From that time until December 2023, and notwithstanding the Company's success in early pre-trial motions, the Company continued to incur legal defense costs and fees, including significant amounts related to the mandatory exchange of information between the parties in the fourth quarter of 2023.

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

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

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

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As such, the Company and its independent subsidiaries could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets in which its independent subsidiaries do business.

THE ENSIGN GROUP, INC.

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

Under the Fraud Enforcement and Recovery Act of 2009 (FERA), health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved.

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

THE ENSIGN GROUP, INC.

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

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

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

The Company expects the plaintiffs' bar to continue to be aggressive in their pursuit of these staffing and similar claims.

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

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

Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories.

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

Additionally, in July of 2024, the Company and two of its independent subsidiaries received a subpoena to produce documents regarding related to alleged environmental matters from the United States’ Attorney’s office for the Western District of Washington.

The Company and its subsidiaries are fully cooperating with the United States' Attorney’s office in response to the subpoena.

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

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

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

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

Beginning in August 2020, CMS resumed TPE Program activity.

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

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

Reviews vary in claim selection size and processes, ranging from a single episode/claim month to larger, multi-claim batches;

and from single rounds of review to reviews of multiple rounds with pass/fail criteria.

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

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

As of June 30, 2024 and through the filing date of this report, 11 of the Company's independent subsidiaries had Reviews scheduled or in process.

As of September 30, 2024 and through the filing date of this report, 18 of the Company's independent subsidiaries had multi-claim Reviews scheduled or in process.

In June 2023, CMS announced a new nationwide audit, the “SNF 5-Claim Probe & Educate Review,” in which the Medicare Administrative Contractors (MACs) will review five claims from each SNF to check for compliance.

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

THE ENSIGN GROUP, INC.

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

Concentrations

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

THE ENSIGN GROUP, INC.

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

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

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

The Company’s receivables from Medicare and Medicaid payor programs accounted for 53.5 % and 53.4 % of its total accounts receivable as of September 30, 2024 and December 31, 2023, respectively.

Revenue from reimbursement under the Medicare and Medicaid programs accounted for 70.2 % and 71.0 % of the Company's revenue for the three and nine months ended September 30, 2024, respectively, and 72.1 % and 72.8 % for the three and nine months ended September 30, 2023, respectively.

COMMON STOCK REPURCHASE PROGRAM

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

Under this program, the Company is authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws.

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

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

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

On August 29, 2023, the Board of Directors previously approved a stock repurchase program pursuant to which the Company could repurchase up to $ 20,000 of its common stock under the program for a period of approximately 12 months from September 1, 2023, which the program terminated by its terms on August 31, 2024 and is no longer in effect.

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

Under these repurchase programs, the Company is authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws.

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

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

Any such repurchases will depend on the Company's business strategy, prevailing market conditions, the Company's liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors.

The amounts involved in any such transaction may be material.

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

What changed 10-Q

Item 1. Financial Statements