ENSIGN GROUP, INC 10-Q

Item 1. FINANCIAL STATEMENTS THE ENSIGN GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par values) March 31, 2025 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 282,666 $ 464,598 Accounts receivable—less allowance for doubtful accounts of $ 8,400 and $ 8,435 at March 31, 2025 and December 31, 2024, respectively 584,048 569,897 Investments—current 61,805 62,255 Prepaid expenses and other current assets 57,872 60,882 Total current assets $ 986,391 $ 1,157,632 Property and equipment, net 1,459,378 1,291,354 Right-of-use assets 1,896,409 1,861,071 Insurance subsidiary deposits and investments 157,307 141,246 Deferred tax assets 66,278 66,281 Restricted and other assets 80,826 46,499 Intangible assets, net 6,947 7,292 Goodwill 106,310 97,981 TOTAL ASSETS $ 4,759,846 $ 4,669,356 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 95,326 $ 98,947 Accrued wages and related liabilities 284,769 347,532 Lease liabilities—current 97,176 93,475 Accrued self-insurance liabilities—current 69,959 67,331 Other accrued liabilities 153,857 132,057 Current maturities of long-term debt 4,120 4,086 Total current liabilities $ 705,207 $ 743,428 Long-term debt—less current maturities 140,585 141,585 Long-term lease liabilities—less current portion 1,767,210 1,735,325 Accrued self-insurance liabilities—less current portion 150,661 144,421 Other long-term liabilities 66,026 64,169 TOTAL LIABILITIES $ 2,829,689 $ 2,828,928 Commitments and contingencies (Notes 14 and 19) EQUITY Ensign Group, Inc. stockholders' equity: Common stock: $ 0.001 par value; 150,000 shares authorized; 61,031 and 57,547 shares issued and shares outstanding at March 31, 2025, respectively, and 60,838 and 57,438 shares issued and shares outstanding at December 31, 2024, respectively 61 61 Additional paid-in capital 551,867 528,052 Retained earnings 1,503,442 1,426,762 Common stock in treasury, at cost, 3,484 and 3,400 shares at March 31, 2025 and December 31, 2024, respectively ( 128,553 ) ( 117,764 ) Total Ensign Group, Inc. stockholders' equity $ 1,926,817 $ 1,837,111 Non-controlling interest 3,340 3,317 Total equity $ 1,930,157 $ 1,840,428 TOTAL LIABILITIES AND EQUITY $ 4,759,846 $ 4,669,356 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents THE ENSIGN GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2025 2024 (In thousands, except per share data) REVENUE Service revenue $ 1,167,040 $ 1,004,485 Rental revenue 6,001 5,687 TOTAL REVENUE $ 1,173,041 $ 1,010,172 Expense: Cost of services 927,849 799,263 Rent—cost of services 57,076 51,876 General and administrative expense 62,555 57,158 Depreciation and amortization 24,188 19,657 TOTAL EXPENSES $ 1,071,668 $ 927,954 Income from operations 101,373 82,218 Other income (expense): Interest expense ( 2,037 ) ( 1,964 ) Interest income 6,883 6,460 Other income 361 2,884 OTHER INCOME, NET $ 5,207 $ 7,380 Income before provision for income taxes 106,580 89,598 Provision for income taxes 26,227 20,638 NET INCOME $ 80,353 $ 68,960 Less: Net income attributable to noncontrolling interests 76 125 NET INCOME ATTRIBUTABLE TO THE ENSIGN GROUP, INC. $ 80,277 $ 68,835 NET INCOME PER SHARE ATTRIBUTABLE TO THE ENSIGN GROUP INC. Basic $ 1.41 $ 1.22 Diluted $ 1.37 $ 1.19 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 57,099 56,337 Diluted 58,500 57,921 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents THE ENSIGN GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Non-Controlling Interest (In thousands) Shares Amount Shares Amount Total BALANCE - JANUARY 1, 2025 57,438 $ 61 $ 528,052 $ 1,426,762 3,400 $ ( 117,764 ) $ 3,317 $ 1,840,428 Issuance of common stock to employees and directors resulting from the exercise of stock options 106 — 5,050 — — — — 5,050 Issuance of restricted stock, net of forfeitures 87 — 8,003 — — — — 8,003 Shares of common stock used to satisfy tax withholding obligations — — — — — ( 14 ) — ( 14 ) Dividends declared ($ 0.0625 per share) — — — ( 3,597 ) — — — ( 3,597 ) Employee stock award compensation — — 10,691 — — — — 10,691 Repurchase of common stock (Note 20) ( 84 ) — — — 84 ( 10,775 ) — ( 10,775 ) Acquisition of noncontrolling interest shares — — ( 11 ) — — — — ( 11 ) Net income attributable to noncontrolling interest — — — — — — 76 76 Noncontrolling interests attributable to subsidiary equity plan — — 82 — — — ( 53 ) 29 Net income attributable to the Ensign Group, Inc. — — — 80,277 — — — 80,277 BALANCE - MARCH 31, 2025 57,547 $ 61 $ 551,867 $ 1,503,442 3,484 $ ( 128,553 ) $ 3,340 $ 1,930,157 Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Non-Controlling Interest (In thousands) Shares Amount Shares Amount Total BALANCE - JANUARY 1, 2024 56,597 $ 60 $ 465,707 $ 1,142,653 3,390 $ ( 116,555 ) $ 5,452 $ 1,497,317 Issuance of common stock to employees and directors resulting from the exercise of stock options 219 — 6,229 — — — — 6,229 Issuance of restricted stock, net of forfeitures 88 — 6,165 — — — — 6,165 Shares of common stock used to satisfy tax withholding obligations — — — — — ( 14 ) — ( 14 ) Dividends declared ($ 0.0600 per share) — — — ( 3,414 ) — — — ( 3,414 ) Employee stock award compensation — — 8,231 — — — — 8,231 Acquisition of noncontrolling interest shares — — ( 10 ) — — — — ( 10 ) Net income attributable to noncontrolling interest — — — — — — 125 125 Noncontrolling interests attributable to subsidiary equity plan — — 14 — — — ( 11 ) 3 Net income attributable to the Ensign Group, Inc. — — — 68,835 — — — 68,835 BALANCE - MARCH 31, 2024 56,904 $ 60 $ 486,336 $ 1,208,074 3,390 $ ( 116,569 ) $ 5,566 $ 1,583,467 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents THE ENSIGN GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, (In thousands) 2025 2024 Cash flows from operating activities: Net income $ 80,353 $ 68,960 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,188 19,657 Amortization of deferred financing fees 266 266 Non-cash leasing arrangement 208 195 Impairment of long-lived assets — 1,849 Deferred income taxes — 638 Provision for doubtful accounts 438 378 Stock-based compensation 10,724 8,238 Cash received from insurance proceeds — 199 Loss (gain) on insurance claims and asset disposals 420 ( 171 ) Change in operating assets and liabilities Accounts receivable ( 14,589 ) ( 34,964 ) Prepaid income taxes 13,057 3,830 Prepaid expenses and other assets ( 9,360 ) ( 11,388 ) Cash surrender value of life insurance policy premiums ( 7,489 ) ( 9,678 ) Deferred compensation liability 7,441 9,059 Operating lease obligations ( 102 ) 606 Accounts payable ( 3,521 ) ( 10,376 ) Accrued wages and related liabilities ( 60,021 ) ( 38,978 ) Income taxes payable 13,219 16,173 Other accrued liabilities 8,278 ( 3,236 ) Accrued self-insurance liabilities 8,710 14,055 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 72,220 $ 35,312 Cash flows from investing activities: Purchase of property and equipment ( 42,926 ) ( 29,437 ) Cash payments for acquisitions ( 159,172 ) ( 2,437 ) Escrow deposits ( 35,069 ) ( 486 ) Cash from insurance proceeds and the sale of assets 1,494 536 Purchases of investments ( 25,984 ) ( 12,815 ) Maturities of investments 17,862 10,284 Other restricted assets ( 9 ) ( 300 ) NET CASH USED IN INVESTING ACTIVITIES $ ( 243,804 ) $ ( 34,655 ) Cash flows from financing activities: Payments on debt ( 1,009 ) ( 975 ) Issuance of common stock upon exercise of options 5,050 6,229 Repurchase of shares of common stock to satisfy tax withholding obligations ( 14 ) ( 14 ) Repurchase of shares of common stock (Note 20) ( 10,775 ) — Dividends paid ( 3,589 ) ( 3,396 ) Non-controlling interest distribution — ( 278 ) Purchase of non-controlling interest ( 11 ) ( 10 ) NET CASH (USED IN)/PROVIDED BY IN FINANCING ACTIVITIES $ ( 10,348 ) $ 1,556 Net (decrease) increase in cash and cash equivalents ( 181,932 ) 2,213 Cash and cash equivalents beginning of period 464,598 509,626 Cash and cash equivalents end of period $ 282,666 $ 511,839 4 Table of Contents Three Months Ended March 31, (In thousands) 2025 2024 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 1,769 $ 1,729 Lease liabilities 59,165 51,207 Non-cash financing and investing activity Accrued capital expenditures $ 7,800 $ 4,800 Accrued dividends declared 3,597 3,414 Right-of-use assets obtained in exchange for new and modified operating lease obligations 57,961 80,920 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars, shares and options in thousands, except per share data) 1. DESCRIPTION OF BUSINESS The Company — The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company's independent subsidiaries provide health care services across the post-acute care continuum and engage in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties and ancillary businesses. As of March 31, 2025, the Company's independent subsidiaries operated 340 facilities and other ancillary operations located in Alabama, Alaska, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin. The Company's independent subsidiaries have a collective capacity of approximately 34,900 operational skilled nursing beds and 3,200 senior living units. As of March 31, 2025, the Company's independent subsidiaries operated 233 facilities under long-term lease arrangements and had options to purchase eight of those 233 facilities. The Company's real estate portfolio consists of 140 owned real estate properties, which includes 107 facilities operated and managed by the Company's independent subsidiaries, 33 operations leased to and operated by third-party operators and the Service Center (defined below) location. Of those 33 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates. Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide specific accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries. 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. 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. Standard Bearer has elected to be taxed as a REIT for U.S. federal income tax purposes. Refer to Note 6, Standard Bearer for additional information on Standard Bearer. Each of the Company's independent subsidiaries are operated by wholly-owned subsidiaries that have their own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities in this Quarterly Report are not meant to imply, nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc. Other Information — The accompanying condensed consolidated financial statements as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 (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. Readers of the Interim Financial Statements should refer to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2024 which are included in the Company’s Annual Report on Form 10-K, File No. 001-33757 (the Annual Report) filed with the Securities and Exchange Commission (SEC). Management believes that the Interim Financial Statements reflect all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations in all material respects. The results of operations presented in the Interim Financial Statements are not necessarily representative of operations for the entire year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member or stockholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its condensed consolidated balance sheets and the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interests in its condensed consolidated statements of income. The Interim Financial Statements include the accounts of all independent subsidiaries controlled by the Company through its ownership of a majority voting interest. 6 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The preparation of the Interim Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, acquired property and equipment, goodwill, right-of-use assets, impairment of long-lived assets, lease liabilities, general and professional liabilities, workers' compensation and healthcare claims included in accrued self-insurance liabilities and income taxes. Actual results could differ from those estimates. Certain amounts in the prior period condensed statement of income have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net income. Recently Issued Accounting Pronouncements — In December 2023, the FASB issued ASU 2023-09 " Income Taxes (Topic 740): Improvements to Income Tax Disclosures, " which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This guidance is effective for annual periods beginning after December 15, 2024, which will be the Company's fiscal year 2025, with early adoption permitted. The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements. The Company is currently evaluating the impact of the ASU on its Annual Report. In November 2024, the FASB issued ASU 2024-03 " Disaggregation of Income Statement Expenses, " which requires the Company to disaggregate key expense categories such as employee compensation, depreciation and intangible asset amortization within its financial statements. ASU 2024-03 is effective for annuals periods beginning with the Company's fiscal year 2027, and interim periods within the Company's fiscal year 2028, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Notes to the Consolidated Financial Statements. 3. REVENUE AND ACCOUNTS RECEIVABLE The Company's service revenue is derived primarily from providing healthcare services to its patients. Revenue is recognized when services are provided to patients at the amount that reflects the consideration that the Company expects to be entitled from patients and third-party payors, including Medicaid, Medicare and insurers (private and Medicare replacement plans), in exchange for providing patient care. Disaggregation of Revenue The Company disaggregates revenue from contracts with its patients by payors. The Company has determined that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue by Payor The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed. Revenue from the Medicare and Medicaid programs accounted for 69.5 % and 71.6 % of all service revenue for the three months ended March 31, 2025 and 2024, respectively. Settlements with Medicare and Medicaid payors for retroactive adjustments due to audits and reviews are considered variable consideration and are included in the determination of the estimated transaction price. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity. Consistent with healthcare industry practices, any changes to these revenue estimates are recorded in the period the change or adjustment becomes known based on the final settlement. The Company recorded adjustments to revenue which were not material to the Company's revenue for the three months ended March 31, 2025 and 2024. 7 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Service revenue for the three months ended March 31, 2025 and 2024 is summarized in the following tables: Three Months Ended March 31, 2025 2024 Revenue % of Revenue Revenue % of Revenue Medicaid (1) $ 453,840 38.9 % $ 390,163 38.8 % Medicare 287,751 24.7 265,583 26.4 Medicaid — skilled 69,551 5.9 63,309 6.4 Total Medicaid and Medicare $ 811,142 69.5 % $ 719,055 71.6 % Managed care 227,217 19.5 188,104 18.7 Private and other (2) 128,681 11.0 97,326 9.7 SERVICE REVENUE $ 1,167,040 100.0 % $ 1,004,485 100.0 % (1) Medicaid payor includes revenue for senior living operations. (2) 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 was $ 6,001 and $ 5,687 , respectively, for the three months ended March 31, 2025 and 2024. Balance Sheet Impact Included in the Company’s condensed consolidated balance sheets are contract balances, comprised of billed accounts receivable and unbilled receivables, which are the result of the timing of revenue recognition, billings and cash collections, as well as contract liabilities, which primarily represent payments the Company receives in advance of services provided. The Company had no material contract liabilities and contract assets as of March 31, 2025 and December 31, 2024, or activity during the three months ended March 31, 2025 and 2024. 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 and doubtful accounts. Accounts receivable as of March 31, 2025 and December 31, 2024, is summarized in the following table: March 31, 2025 December 31, 2024 Medicaid $ 217,845 $ 228,872 Managed care 151,162 139,711 Medicare 85,571 77,056 Private and other payors 137,870 132,693 $ 592,448 $ 578,332 Less: allowance for doubtful accounts ( 8,400 ) ( 8,435 ) ACCOUNTS RECEIVABLE, NET $ 584,048 $ 569,897 4. COMPUTATION OF NET INCOME PER COMMON SHARE Basic net income per share is computed by dividing income from operations attributable to stockholders of The Ensign Group, Inc. by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. 8 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows: Three Months Ended March 31, 2025 2024 NUMERATOR: Net income $ 80,353 $ 68,960 Less: net income attributable to noncontrolling interests 76 125 Net income attributable to The Ensign Group, Inc. $ 80,277 $ 68,835 DENOMINATOR: Weighted average shares outstanding for basic net income per share 57,099 56,337 Basic net income per common share: $ 1.41 $ 1.22 A reconciliation of the numerator and denominator used in the calculation of diluted net income per common share follows: Three Months Ended March 31, 2025 2024 NUMERATOR: Net income $ 80,353 $ 68,960 Less: net income attributable to noncontrolling interests 76 125 Net income attributable to The Ensign Group, Inc. $ 80,277 $ 68,835 DENOMINATOR: Weighted average common shares outstanding 57,099 56,337 Plus: incremental shares from assumed conversion (1) 1,401 1,584 Adjusted weighted average common shares outstanding 58,500 57,921 Diluted net income per common share: $ 1.37 $ 1.19 (1) Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 1,171 and 1,143 for the three months ended March 31, 2025 and 2024, respectivel y. 5. FAIR VALUE MEASUREMENTS The Company's financial assets include held-to-maturity investments carried at amortized cost basis of $ 146,635 and $ 138,600 , of which $ 75,707 and $ 65,831 are designated to support long-term insurance subsidiary liabilities, as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, the amortized cost basis of these financial assets are considered to approximate fair value and are derived using Level 2 inputs. The Company believes its amortized cost basis investments that were in an unrealized loss position as of March 31, 2025 and December 31, 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. 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 March 31, 2025 and December 31, 2024, the fair value of the investment funds was $ 63,538 and $ 56,049 , 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. 9 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. STANDARD BEARER Standard Bearer's real estate portfolio consists of 135 of the Company's 140 owned real estate properties, of which 103 are operated and managed by the Company's independent subsidiaries and 33 are leased to and operated by third-party operators. Of those 33 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 months ended March 31, 2025, Standard Bearer added $ 147,796 of real estate assets associated with eight stand-alone skilled nursing operations, one stand-alone senior living operation and two campus operations . Four of the acquisitions were related to exercising purchase options under an existing lease arrangement from CareTrust REIT, Inc. (CareTrust). All these additions are operated by the Company's independent subsidiaries . Refer to Note 7, Operation Expansions , for additional information. Subsequent to March 31, 2025, Standard Bearer added $ 24,781 of real estate assets associated with two stand-alone skilled nursing operations, of which one was leased back to the Company's independent subsidiaries and one leased to a third-party operator. Refer to Note 7, Operation Expansions , for additional information. As of the date of this filing, the preliminary allocation of the purchase price for the acquisitions in the first quarter and subsequently has not been finalized, as necessary valuation information was not yet available. During the three months ended March 31, 2024, Standard Bearer added $ 1,604 of real estate assets associated with one skilled nursing facility, which is operated by the Company's independent subsidiary. 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 . All intercompany transactions have been eliminated in consolidation. Refer to Note 8, Business Segments , for additional information related to these intercompany eliminations as well as Standard Bearer as a reportable segment. Intercompany master lease agreements Certain of the Company's independent subsidiaries and 103 Standard Bearer independent real estate subsidiaries have entered into seven triple-net master lease agreements (collectively, the Standard Bearer Master Leases). The lease periods range from 15 to 19 years with three five-year renewal options beyond the initial term, on the same terms and conditions. The rent structure under the Standard Bearer Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero ) or (2) 2.5 %. In addition to rent, the independent subsidiaries are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties; (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; 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. Intercompany rental revenue generated from Ensign affiliated operations for the three months ended March 31, 2025 and 2024 was $ 23,904 and $ 18,006 , respectively. Intercompany management agreement Standard Bearer has no employees. The Service Center provides personnel and services to Standard Bearer pursuant to the management agreement between Standard Bearer and the Service Center. The management agreement provides for a base management fee that is equal to 5.0 % of total rental revenue and an incentive management fee that is equal to 5.0 % of funds from operations (FFO) and is capped at 1.0 % of total rental revenue, for a total of 6.0 %. Management fee generated between Standard Bearer and the Service Center for the three months ended March 31, 2025 and 2024 was $ 1,692 and $ 1,332 , respectively, both representing 6 % of total Standard Bearer rental revenue. Intercompany debt arrangements Standard Bearer obtains its funding through various sources including operating cash flows, access to debt arrangements and intercompany loans. The intercompany debt arrangements include mortgage loans and a credit facility to fund acquisitions and working capital needs. The interest rate under the credit facility is a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin ranging from 1.25 % to 2.25 % per annum. 10 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In addition, as the Department of Housing and Urban Development (HUD) mortgage loans and promissory note are entered into by real estate subsidiaries of Standard Bearer, the interest expense incurred from these debts are included in Standard Bearer's segment income. Refer to Note 14, Debt , for additional information related to these debts. Equity Instrument Denominated in the Shares of a Subsidiary As part of the formation of Standard Bearer in 2022, the Company established the Standard Bearer Healthcare REIT, Inc. 2022 Omnibus Incentive Plan (Standard Bearer Equity Plan). The Company may grant stock options and restricted stock awards under the Standard Bearer Equity Plan to employees and management of Ensign's independent subsidiaries. These awards generally vest over a period of five years or upon the occurrence of certain prescribed events. The value of the stock options and restricted stock awards is tied to the value of the common stock of Standard Bearer, which is determined based on an independent valuation of Standard Bearer. The Company can also call the awards, generally upon employee termination. During the three months ended March 31, 2025 and 2024, the Company did not grant any stock options or restricted shares under the Standard Bearer Equity Plan. During the three months ended March 31, 2025 and 2024, there were no restricted stock awards vested for the periods. The grant-date fair value of the awards is recognized as compensation expense over the relevant vesting periods, with a corresponding adjustment to noncontrolling interests. The grant value was determined based on an independent valuation of the subsidiary shares. For the three months ended March 31, 2025, the Standard Bearer Equity Plan's share-based compensation expense was not material. There was no expense during the three months ended March 31, 2024. 7. OPERATION EXPANSIONS The expansion focus of the Company's independent subsidiaries is to purchase or lease operations that are complementary to the current operations, accretive to the business, or otherwise advance the Company's strategy. The results of all independent subsidiaries are included in the Interim Financial Statements subsequent to the date of acquisition. Acquisitions are accounted for using the acquisition method of accounting. In connection with the new operations obtained through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The Company also entered into a separate operations transfer agreement with each prior operator as part of each transaction. The Company's independent subsidiaries also enter into long-term leases that may include options to purchase the facilities. As a result, from time to time, an independent real estate subsidiary may acquire the property of facilities that have previously been operated under third-party leases. 2025 Expansions During the three months ended March 31, 2025, the Company expanded its operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 11 stand-alone skilled nursing operations, one stand-alone senior living operation and one campus operation. Of these additions, Standard Bearer acquired the real estate of seven of these operations, all of which were leased back to the Company's independent subsidiaries. Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate properties. These new operations added a total of 1,365 operational skilled nursing beds and 132 operational senior living units to be operated by the Company's independent subsidiaries. Subsequent to March 31, 2025, the Company expanded its operations through a combination of long-term leases and real estate purchases , with the addition of two stand-alone skilled nursing operations and one stand-alone senior living operation. Of these additions, Standard Bearer acquired the real estate of one stand-alone skilled nursing operation, which was leased back to the Company's independent subsidiary. Refer to Note 6, Standard Bearer, for additional information on the purchase of the real estate property. The new operations added 241 operational skilled nursing beds and 68 operational senior living units to be operated by the Company's independent subsidiaries. Additionally, the Company added one stand-alone senior living facility to its real estate portfolio, which is leased to a third-party operator. 2024 Expansions During the three months ended March 31, 2024, the Company expanded its operations and real estate portfolio through a combination of long-term leases and a real estate purchase , with the addition of five stand-alone skilled nursing operations. Of these additions, Standard Bearer acquired the real estate of one of the stand-alone skilled nursing operation, which was leased back to the Company's independent subsidiary. Refer to Note 6, Standard Bearer, for additional information on the purchase of real estate property. These new operations added a total of 591 operational skilled nursing beds to be operated by the Company's independent subsidiaries. The Company also invested in new ancillary services that are complementary to its existing businesses. 11 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of the date of this filing, the preliminary allocation of the purchase price for the acquisitions in the first quarter of 2025 was not finalized as necessary valuation information was not yet available. The table below presents the allocation of the purchase price for the operations acquired during the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Land $ 20,136 $ 241 Building and improvements 127,660 1,503 Equipment, furniture, and fixtures 2,723 189 Assembled occupancy 324 — Goodwill 8,329 372 Other indefinite-lived intangible assets — 132 TOTAL ACQUISITIONS $ 159,172 $ 2,437 The Company’s acquisition strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities for return. The operations added by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. Consequently, the Company believes that prior operating results are not a meaningful representation of the Company’s current operating results or indicative of the integration potential of its newly acquired independent subsidiaries . The operations added during the three months ended March 31, 2025 were not material to the Company individually or in the aggregate. Accordingly, pro forma financial information is not presented. These additions have been included in the condensed consolidated balance sheets of the Company, and the operating results have been included in the condensed consolidated statements of income of the Company since the date the Company gained effective control. 8. BUSINESS SEGMENTS The Company has two reportable segments: (1) skilled services, which includes the operation of skilled nursing facilities and rehabilitation therapy services and (2) Standard Bearer, which is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators. As of March 31, 2025, the skilled services segment includes 297 skilled nursing and 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. The Company's Standard Bearer segment consists of 135 owned real estate properties. The Company also reports an “All Other” category that includes results from its senior living operations, which includes 12 stand-alone senior living operations and the senior living operations at 31 campus operations that provide both skilled nursing and rehabilitative care services and senior living services. In addition, the "All Other" category includes mobile diagnostics, medical transportation, other real estate, other ancillary operations and the Service Center. Services included in the “All Other” category are insignificant individually, and therefore do not constitute a reportable segment. The Company’s reportable segments are significant operating segments that offer differentiated services. The segment structure reflects the Company's current operational and financial management and provides the best structure to maximize the quality of care and investment strategy provided, while maintaining financial discipline. Segment income (loss) is defined as income or loss before provision for income taxes, excluding gain or loss from sale of real estate, real estate insurance recoveries and impairment of long-lived assets. The Company's chief operating decision maker or CODM, who is the Chief Executive Officer, reviews segment income or loss for each operating segment to evaluate performance and allocate capital resources. The CODM uses segment income or loss to analyze actual results as part of operational planning and to decide whether to reinvest profits into the segments or into other parts of the Company, such as through acquisitions, to pay dividends or to recommend a stock repurchase program. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below. Intercompany revenue is eliminated in consolidation, along with corresponding intercompany expenses. Included in segment income for Standard Bearer is expense for intercompany services provided by the Service Center as described in Note 6, Standard Bearer , as it is part of the CODM financial information. 12 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables set forth financial information for the segments: Three Months Ended March 31, 2025 Skilled Services Standard Bearer Total Service revenue (1) $ 1,123,554 $ — $ 1,123,554 Rental revenue — 28,401 28,401 Segment revenue $ 1,123,554 $ 28,401 $ 1,151,955 Reconciliation of revenue: All other revenue (2) 52,426 Elimination of intercompany revenue (3) ( 31,340 ) TOTAL CONSOLIDATED REVENUE $ 1,173,041 Less: Other segment items (4) 966,410 2,606 Depreciation and amortization 13,213 8,476 Interest expense (5) — 8,736 Segment income $ 143,931 $ 8,583 $ 152,514 Reconciliation of profit or loss: All other not included in segment income ( 45,934 ) INCOME BEFORE PROVISION FOR INCOME TAXES $ 106,580 (1) Skilled services service revenue does not include intercompany service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in "Elimination of intercompany revenue". (2) All other revenue includes $ 49,427 of service revenue and $ 2,999 of rental revenue for the three months ended March 31, 2025, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue". (3) Elimination of intercompany revenue includes the elimination of intercompany rental revenue of $ 25,399 and intercompany service revenue of $ 5,941 for the three months ended March 31, 2025. (4) Other segment items includes cost of services and rent expense for the skilled services segment and cost of services, rent expense and general and administrative expenses for the Standard Bearer segment. Additionally, there are intercompany expenses of $ 31,340 during the three months ended March 31, 2025, which are eliminated in consolidation. (5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $ 7,040 during the three months ended March 31, 2025, which is eliminated in consolidation. 13 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Three Months Ended March 31, 2024 Skilled Services Standard Bearer Total Service revenue (1) $ 969,602 $ — $ 969,602 Rental revenue — 22,201 22,201 Segment revenue $ 969,602 $ 22,201 $ 991,803 Reconciliation of revenue: All other revenue (2) 42,572 Elimination of intercompany revenue (3) ( 24,203 ) TOTAL CONSOLIDATED REVENUE $ 1,010,172 Less: Other segment items (4) 832,257 2,137 Depreciation and amortization 10,536 6,829 Interest expense (5) — 5,977 Segment income $ 126,809 $ 7,258 $ 134,067 Reconciliation of profit or loss: All other not included in segment income ( 44,469 ) INCOME BEFORE PROVISION FOR INCOME TAXES $ 89,598 (1) Skilled services service revenue does not include intercompany service revenue generated by ancillary operations provided to the Company's independent subsidiaries and management service revenue generated by the Service Center with Standard Bearer. Intercompany service revenue is eliminated in "Elimination of intercompany revenue". (2) All Other revenue includes $ 39,626 of service revenue and $ 2,946 of rental revenue for the three months ended March 31, 2024, both of which include intercompany revenue that is eliminated in "Elimination of intercompany revenue". (3) Elimination of intercompany revenue includes the elimination intercompany rental revenue of $ 19,460 and intercompany service revenue of $ 4,743 for the three months ended March 31, 2024. (4) Other segment items includes cost of services and rent expense for the skilled services segment and cost of services, rent expense and general and administrative expenses for the Standard Bearer segment. Additionally, there are intercompany expenses of $ 24,203 during the three months ended March 31, 2024, which is eliminated in consolidation. (5) Included in interest expense in Standard Bearer is interest from intercompany debt arrangements between Standard Bearer and The Ensign Group, Inc. of $ 4,285 during the three months ended March 31, 2024, which is eliminated in consolidation. Service revenue by major payor source were as follows: Three Months Ended March 31, 2025 Skilled Services All Other (3) Total Service Revenue Revenue % Medicaid (1) $ 443,411 $ 10,429 $ 453,840 38.9 % Medicare 287,751 — 287,751 24.7 Medicaid-skilled 69,551 — 69,551 5.9 Subtotal $ 800,713 $ 10,429 $ 811,142 69.5 % Managed care 227,217 — 227,217 19.5 Private and other (2) 95,624 33,057 128,681 11.0 TOTAL SERVICE REVENUE $ 1,123,554 $ 43,486 $ 1,167,040 100.0 % (1) Medicaid payor includes revenue generated from senior living operations. (2) Private and other payors also includes revenue from senior living operations and all revenue generated in other ancillary services. (3) All Other incorporates intercompany eliminations. 14 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Three Months Ended March 31, 2024 Skilled Services All Other (3) Total Service Revenue Revenue % Medicaid (1) $ 382,118 $ 8,045 $ 390,163 38.8 % Medicare 265,583 — 265,583 26.4 Medicaid-skilled 63,309 — 63,309 6.4 Subtotal $ 711,010 $ 8,045 $ 719,055 71.6 % Managed care 188,104 — 188,104 18.7 Private and other (2) 70,488 26,838 97,326 9.7 TOTAL SERVICE REVENUE $ 969,602 $ 34,883 $ 1,004,485 100.0 % (1) Medicaid payor includes revenue generated from senior living operations. (2) Private and other payors also includes revenue from senior living operations and all revenue generated in other ancillary services. (3) All Other incorporates intercompany eliminations. 9. PROPERTY AND EQUIPMENT - NET Property and equipment, net consists of the following: March 31, 2025 December 31, 2024 Land $ 183,009 $ 162,873 Buildings and improvements 1,067,867 933,790 Leasehold improvements 221,540 212,603 Equipment 418,828 396,018 Furniture and fixtures 4,516 4,349 Construction in progress 46,402 41,209 $ 1,942,162 $ 1,750,842 Less: accumulated depreciation ( 482,784 ) ( 459,488 ) PROPERTY AND EQUIPMENT, NET $ 1,459,378 $ 1,291,354 Management evaluated its long-lived assets and recorded an impairment charge of $ 1,849 within the Company's consolidated statement of income as cost of services during the three months ended March 31, 2024. The Company determined there was no impairment during the three months ended March 31, 2025. 10. INTANGIBLE ASSETS - NET March 31, 2025 December 31, 2024 Weighted Average Life (Years) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Intangible Assets Net Net Assembled occupancy 0.4 $ 2,315 $ ( 1,927 ) $ 388 $ 1,991 $ ( 1,316 ) $ 675 Facility trade name 30.0 733 ( 468 ) 265 733 ( 462 ) 271 Customer relationships 18.4 4,582 ( 2,954 ) 1,628 4,582 ( 2,902 ) 1,680 TOTAL $ 7,630 $ ( 5,349 ) $ 2,281 $ 7,306 $ ( 4,680 ) $ 2,626 During the three months ended March 31, 2025 and 2024, amortization expense was $ 811 and $ 401 , respectively, of which $ 142 and $ 303 was related to the amortization of right-of-use assets, respectively. 15 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Estimated amortization expense for each of the years ending December 31 is as follows: Year Amount 2025 (remainder) $ 537 2026 234 2027 234 2028 234 2029 234 2030 234 Thereafter 574 $ 2,281 Other indefinite-lived intangible assets consist of the following: March 31, 2025 December 31, 2024 Trade name $ 889 $ 889 Medicare and Medicaid licenses 3,777 3,777 TOTAL $ 4,666 $ 4,666 11. GOODWILL Goodwill is subject to annual testing for impairment during the fourth quarter of each year. In addition, goodwill is tested for impairment if events occur or circumstances indicate that its carrying value may not be recoverable. There were no indicators of goodwill impairment noted during the three months ended March 31, 2025. The Company anticipates that the majority of goodwill recognized will be fully deductible for tax purposes as of March 31, 2025. 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 three months ended March 31, 2025: Goodwill Skilled Services All Other Total January 1, 2025 $ 88,626 $ 9,355 $ 97,981 Additions 8,329 — 8,329 March 31, 2025 $ 96,955 $ 9,355 $ 106,310 12. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following: March 31, 2025 December 31, 2024 Quality assurance fee $ 13,423 $ 12,667 Refunds payable 74,340 56,755 Resident advances 14,572 18,818 Cash held in trust for patients 6,301 6,370 Dividends payable 3,597 3,589 Property taxes 8,782 15,400 Income tax payable 13,219 — Other 19,623 18,458 OTHER ACCRUED LIABILITIES $ 153,857 $ 132,057 16 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Quality assurance fee represents the aggregate of amounts payable to various states that have a mandated fee based on patient days or licensed beds. Refunds payable includes payables related to overpayments, duplicate payments and credit balances from various payor sources. Resident advances occur when the Company receives payments in advance of services provided. Cash held in trust for patients reflects monies received from or on behalf of patients. Maintaining a trust account for patients is a regulatory requirement and, while the trust assets offset the liabilities, the Company assumes a fiduciary responsibility for these funds. The cash balance related to this liability is included in other current assets in the condensed consolidated balance sheets. 13. INCOME TAXES The Company recorded income tax expense of $ 26,227 and $ 20,638 during the three months ended March 31, 2025 and 2024, respectively, or 24.6 % of earnings before income taxes for the three months ended March 31, 2025, compared to 23.0 % for the three months ended March 31, 2024. 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. The Company is not currently under examination by any major income tax jurisdiction. During 2025, the statutes of limitations will lapse on the Company's 2021 federal tax year and certain 2020 and 2021 state tax years. The Company does not believe the federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months. The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the three months ended March 31, 2025 and 2024. 14. DEBT Debt consists of the following: March 31, 2025 December 31, 2024 Mortgage loans and promissory note $ 147,429 $ 148,438 Less: current maturities ( 4,120 ) ( 4,086 ) Less: debt issuance costs, net ( 2,724 ) ( 2,767 ) LONG-TERM DEBT LESS CURRENT MATURITIES $ 140,585 $ 141,585 Credit Facility with a Lending Consortium Arranged by Truist The Company maintains a revolving credit facility between the Company and its independent subsidiaries, including Standard Bearer as co-borrowers, and Truist Securities (Truist) (the Credit Facility) with a revolving line of credit of up to $ 600,000 in aggregate principal amount with a maturity date of April 8, 2027. Borrowings are supported by a lending consortium arranged by Truist. The interest rates applicable to loans under the Credit Facility are, at the Company's option, equal to either a base rate plus a margin ranging from 0.25 % to 1.25 % per annum or SOFR plus a margin ranging from 1.25 % to 2.25 % per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility). In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20 % to 0.40 % per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio. Borrowings made under the Credit Facility are guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries, and are secured by a pledge of stock of the Company's material independent subsidiaries as well as a first lien on substantially all of such independent subsidiaries' personal property. The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its independent subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. Under the terms of the Credit Facility, the Company must comply with financial maintenance covenants to be tested quarterly, consisting of (i) a maximum consolidated total net debt to consolidated EBITDA ratio (which shall not be greater than 3.75 :1.00; provided that if the aggregate consideration for approved acquisitions in a six month period is greater than $ 50,000 , then the ratio can be increased at the election of the Company with notice to the administrative agent to 4.25 :1.00 for the first fiscal quarter and the immediately following three fiscal quarters), and (ii) a minimum interest/rent coverage ratio (which cannot be less than 1.50 :1.00). As of March 31, 2025, there was no outstanding debt under the Credit Facility. The Company was in compliance with all loan covenants as of March 31, 2025. 17 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Mortgage Loans and Promissory Note As of March 31, 2025, the Company has 23 subsidiaries that have mortgage loans insured with HUD in the aggregate amount of $ 146,045 , which subjects these subsidiaries to HUD oversight and periodic inspections. The mortgage loans bear effective interest rates in a range of 3.1 % to 4.2 %, including fixed interest rates in a range of 2.4 % to 3.3 % per annum. In addition to the interest rate, the Company incurs other fees for HUD placement, including, but not limited to audit fees. Amounts borrowed under the mortgage loans may be prepaid, subject to prepayment fees based on the principal balance on the date of prepayment. For the majority of the loans, during the first three years, the prepayment fee is 10.0 % and is reduced by 3.0 % in the fourth year of the loan and reduced by 1.0 % per year for years five through ten of the loan. There is no prepayment penalty after year ten. The terms for all the mortgage loans are 25 to 35 years. In addition to the HUD mortgage loans above, the Company has a promissory note of $ 1,384 that bears a fixed interest rate of 5.3 % per annum and has a term of 12 years. The note, which was assumed as part of an acquisition, is secured by the real property comprising the facility and the rent, issues and profits thereof, as well as all personal property used in the operation of the facility. Off-Balance Sheet Arrangements As of March 31, 2025, the Company had approximately $ 27,893 of borrowing capacity under the Credit Facility pledged as collateral to secure outstanding letters of credit. The Company believes that its outstanding letters of credit as of March 31, 2025 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. 15. OPTIONS AND AWARDS Stock-based compensation expense consists of stock-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values. As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2025 and 2024 was based on awards expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant and, if necessary, revises the estimate in subsequent periods if actual forfeitures differ. 2022 Omnibus Incentive Plan (2022 Plan) — The Company has one stock incentive plan, the 2022 Omnibus Incentive Plan (the 2022 Plan), pursuant to which grants of the Company's securities may currently be made. Including the shares rolled over from the 2017 Omnibus Incentive Plan, the 2022 Plan provides for the issuance of 3,452 shares of common stock. The number of shares available to be issued under the 2022 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) two shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). Non-employee director options, to the extent granted, will vest and become exercisable in three equal annual installments, or the length of the term if less than three years , on the completion of each year of service measured from the grant date. All other options generally vest over five years at 20 % per year on the anniversary of the grant date. Options expire ten years from the date of grant. At March 31, 2025, the total number of shares available for issuance under the 2022 Plan was 28 . The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for stock option awards. Determining the appropriate fair-value model and calculating the fair value of stock option awards at the grant date requires judgment, including estimating stock price volatility, expected option life, and forfeiture rates. The fair-value of the restricted stock awards at the grant date is based on the market price on the grant date, adjusted for forfeiture rates. The Company develops estimates based on historical data and market information, which can change significantly over time. Stock Options The Company used the following assumptions for stock options granted during the three months ended March 31, 2025 and 2024: Grant Year Options Granted Weighted Average Risk-Free Rate Expected Life Weighted Average Volatility Weighted Average Dividend Yield 2025 152 4.3 % 6.2 years 39.8 % 0.2 % 2024 181 4.3 % 6.1 years 40.9 % 0.2 % 18 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three months ended March 31, 2025 and 2024, 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 2025 152 $ 126.34 $ 57.17 2024 181 $ 122.69 $ 56.23 The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the three months ended March 31, 2025 and 2024 and therefore, the intrinsic value was $ 0 at the date of grant. The following table represents the employee stock option activity during the three months ended March 31, 2025: Number of Options Outstanding Weighted Average Exercise Price Number of Options Vested Weighted Average Exercise Price of Options Vested January 1, 2025 3,987 $ 78.84 1,895 $ 52.64 Granted 152 126.34 Forfeited ( 14 ) 111.49 Exercised ( 106 ) 47.47 March 31, 2025 4,019 $ 81.35 1,941 $ 55.85 The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of March 31, 2025 and December 31, 2024 is as follows: Options March 31, 2025 December 31, 2024 Outstanding $ 198,136 $ 219,309 Vested 142,748 152,011 Expected to vest 52,289 63,243 The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the options . The aggregate intrinsic value of options that vested during the three months ended March 31, 2025 and 2024 was $ 6,045 and $ 7,382 , respectively. The total intrinsic value of options exercised during the three months ended March 31, 2025 and 2024 was $ 9,470 and $ 19,959 , respectively. Restricted Stock Awards The Company granted 92 and 95 restricted stock awards during the three months ended March 31, 2025 and 2024 , respectively. All awards were granted at an issue price of $ 0 and generally vest over five years . The fair value per share of restricted awards granted during the three months ended March 31, 2025 and 2024 ranged from $ 126.34 to $ 134.58 and $ 116.65 to $ 122.69 , respectively. The fair value per share includes quarterly stock awards to non-employee directors. Included in the restricted stock award grants are $ 8,003 and $ 6,165 of annual bonuses that were settled in vested restricted stock awards during the three months ended March 31, 2025 and 2024, respectively. A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2025 and changes during the three months ended March 31, 2025, is presented below: Non-Vested Restricted Awards Weighted Average Grant Date Fair Value Nonvested at January 1, 2025 435 $ 102.71 Granted 92 128.67 Vested ( 101 ) 115.25 Forfeited ( 5 ) 114.00 Nonvested at March 31, 2025 421 $ 105.22 19 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During the three months ended March 31, 2025, the Company granted 3.6 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors. The fair value per share of these stock awards was $ 134.58 based on the market price on the grant date. Stock-based compensation expense Stock-based compensation expense recognized for the Company's equity incentive plans and long-term incentive plan for the three months ended March 31, 2025 and 2024 was as follows: Three Months Ended March 31, 2025 2024 Stock-based compensation expense related to stock options $ 6,805 $ 4,988 Stock-based compensation expense related to restricted stock awards 3,402 2,727 Stock-based compensation expense related to restricted stock awards to non-employee directors 484 516 TOTAL $ 10,691 $ 8,231 In future periods, the Company expects to recognize approximately $ 86,128 and $ 37,841 in stock-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2025. Future stock-based compensation expense will be recognized over 3.7 weighted average years for both unvested options and restricted stock awards. There were 2,078 unvested and outstanding options as of March 31, 2025, of which 1,913 options are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest as of March 31, 2025 was 6.7 years. 16. LEASES The Company leases from CareTrust real property associated with 96 independent skilled nursing and senior living facilities used in the Company’s operations under eight “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years. At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases. If the Company elects to renew the term of a Master Lease, the renewal will be effective to all, but not less than all, of the leased property then subject to the Master Lease. During the three months ended March 31, 2025, the Company exercised purchase options under an existing lease arrangement to acquire the real estate of four facilities from CareTrust for $ 44,627 . The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent. If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term as well as maintenance and repair costs for the leased property. The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero ) or (2) 2.5 %. In addition to rent, the Company is required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. The 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 $ 17,126 and $ 16,800 for the three months ended March 31, 2025 and 2024, respectively. Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio. The Master Leases also include certain reporting, legal and authorization requirements. The Company is in compliance with requirements of the Master Leases as of March 31, 2025. 20 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company leases facilities where its independent subsidiaries operate and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 20 years. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years . Most of these leases contain renewal options, certain of which involve rent increases. The Company's 96 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 15 separate master lease arrangements. During the three months ended March 31, 2025, the Company entered into one new master lease arrangement to add six stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new master lease arrangement increased the lease liabilities and right-of-use assets by $ 57,961 to reflect the new lease obligations. 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. Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. 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 components of operating lease expense are as follows: Three Months Ended March 31, 2025 2024 Rent - cost of services (1) $ 57,076 $ 51,876 Cost of services (2) 6,429 5,770 General and administrative expense 199 153 Depreciation and amortization (3) 142 303 $ 63,846 $ 58,102 (1) Rent- cost of services includes deferred rent expense adju stments of $ 208 and $ 195 for the three months ended March 31, 2025 and 2024, respectively. Additionally, rent- cost of services includes other variable lease costs such as CPI increases and short-term leases of $ 4,004 and $ 3,057 for the three months ended March 31, 2025 and 2024, respectively. (2) Cost of services includes variable lease costs, which consists of property taxes and insurance. (3) Depreciation and amortization is related to the amortization of favorable and direct lease costs. Future minimum lease payments for all third-party leases as of March 31, 2025 are as follows: Year Amount 2025 (remainder) $ 158,154 2026 210,667 2027 209,973 2028 208,964 2029 205,115 2030 200,938 Thereafter 1,635,059 TOTAL LEASE PAYMENTS $ 2,828,870 Less: present value adjustment ( 964,484 ) PRESENT VALUE OF TOTAL LEASE LIABILITIES $ 1,864,386 Less: current lease liabilities ( 97,176 ) LONG-TERM OPERATING LEASE LIABILITIES $ 1,767,210 Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date. As of March 31, 2025, the weighted average remaining lease term is 14.4 years and the weighted average discount rate used to determine the operating lease liabilities is 6.3 %. Subsequent to March 31, 2025, the Company expanded its operations through a new master lease with the addition of one stand-alone skilled nursing operation and one stand-alone senior living operation. The aggregate impact to the carrying value of lease liabilities and right-of-use assets related to the long-term leases is estimated to be approximately $ 34,000 . 21 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Lessor Activities The Company leases its owned real estate properties to third-party operators, of which 32 senior living operations are operated by The Pennant Group, Inc. (Pennant). All of these properties are triple-net leases, whereby the respective tenants are responsible for all costs at the properties including: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. The initial terms range from 14 to 16 years. Total rental income from all third-party sources for the three months ended March 31, 2025 and 2024 is as follows: Three Months Ended March 31, 2025 2024 Pennant (1) $ 4,122 $ 3,820 Other third-party (2) 1,879 1,867 TOTAL $ 6,001 $ 5,687 (1) Pennant rental income includes variable rent such as property taxes of $ 310 and $ 318 during the three months ended March 31, 2025 and 2024. (2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $ 1,107 and $ 1,080 for the three months ended March 31, 2025 and 2024. Future annual rental income for all third-party leases as of March 31, 2025 were as follows: Year Amount (1) 2025 (remainder) $ 18,591 2026 24,123 2027 23,605 2028 23,369 2029 23,292 2030 22,300 Thereafter 98,057 TOTAL $ 233,337 (1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of March 31, 2025. Subsequent to March 31, 2025, the Company entered into two lease agreements with a third-party operator for one stand-alone skilled nursing operation and one stand-alone senior living operation with an initial lease term of 15 years, respectively. 17. DEFINED CONTRIBUTION PLANS The Company has a 401(k) defined contribution plan (the 401(k) Plan), whereby eligible employees may contribute up to 90 % of their annual basic earnings, subject to applicable annual Internal Revenue Code limits. Additionally, the 401(k) Plan provides for discretionary matching contributions (as defined in the 401(k) Plan) by the Company. The Company has a non-qualified deferred compensation plan (DCP), whereby certain highly compensated employees who are otherwise ineligible to participate in the Company's 401(k) plan, may defer the receipt of a portion of their base compensation and, for certain employees, up to 100 % of their eligible bonuses. Additionally, the DCP allows for the employee deferrals to be deposited into a rabbi trust and the funds are generally invested in individual variable life insurance contracts owned by the Company that are specifically designed to fund savings plans of this nature. The Company paid for related administrative costs, which were not significant during the three months ended March 31, 2025 and 2024. As of March 31, 2025 and December 31, 2024, the Company accrued $ 65,232 and $ 63,051 , respectively, as long term deferred compensation in other long term liabilities on the condensed consolidated balance sheets. 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. 22 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three months ended March 31, 2025, the Company recorded a loss related to its DCP of $ 282 , which is included in other income (expense), and recorded an offsetting reduction in expense of $ 234 , which is allocated between cost of services and general and administrative expenses. For the three months ended March 31, 2024, the Company recorded a gain related to its DCP of $ 2,394 , which is included in other income (expense), and recorded an offsetting expense of $ 2,488 , which is allocated between cost of services and general and administrative expenses. 18. SELF INSURANCE LIABILITIES The Company is partially self-insured for general and professional liability claims up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. The combined self-insured retention for the Company's independent subsidiaries in California is $ 1,000 per claim ($ 750 if an enforceable arbitration agreement applies), subject to an additional one-time deductible of $ 2,950 . For the independent subsidiaries not in California, the self-insured claim is $ 750 per claim ($ 650 if an enforceable arbitration agreement applies), subject to an additional one-time, deductible of $ 4,500 . For all independent subsidiaries, except those located in Colorado, the third-party coverage above these limits is $ 1,000 per claim, $ 3,000 per operation, with a $ 10,000 blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits is $ 1,000 per claim and $ 3,000 per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado. The majority of the self-insured retention and deductible limits for general and professional liabilities and workers' compensation liabilities are self-insured through the captive insurance subsidiary, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets. The captive insurance subsidiary is subject to certain statutory requirements as an insurance provider. The Company’s policy is to accrue amounts equal to the actuarial estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported. The Company develops information about the size of the ultimate claims based on historical experience, current industry information and actuarial analysis, and evaluates the estimates for claim loss exposure on a quarterly basis. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information. The Company’s independent subsidiaries are self-insured for workers’ compensation liabilities in California. To protect itself against loss exposure in California with this policy, the Company has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 625 per occurrence. In Texas, the independent subsidiaries have elected non-subscriber status for workers’ compensation claims and the Company has purchased individual stop-loss coverage that insures individual claims that exceed $ 750 per occurrence. The Company’s independent subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $ 350 per occurrence. In the state of Washington, the Company is self-insured and has purchased individual specific excess insurance coverage that insures individual claims that exceed $ 500 per occurrence. For all of the self-insured plans and retention, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information. The Company self-funds medical (including prescription drugs) and dental healthcare benefits for the majority of its employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $ 525 for each covered person for fiscal year 2025. 23 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table represents the Company's self-insurance insurance liabilities, on an undiscounted basis, inclusive of anticipated insurance recoveries, as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 Accrued general liability and professional malpractice liabilities $ 166,680 $ 160,149 Accrued workers’ compensation liabilities 38,375 37,291 Accrued health benefits 15,565 14,312 TOTAL SELF-INSURANCE LIABILITIES $ 220,620 $ 211,752 Less: current self-insurance liabilities 69,959 67,331 LONG-TERM SELF-INSURANCE LIABILITIES $ 150,661 $ 144,421 The anticipated insurance recoveries included in the self-insurance liabilities are presented gross rather than net with the corresponding asset of $ 17,899 and $ 17,741 , as of March 31, 2025 and December 31, 2024, respectively, included in Restricted and other assets on the consolidated balance sheets. 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. 19. COMMITMENTS AND CONTINGENCIES Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. 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 condensed consolidated balance sheets for any of the periods presented. Litigation and Regulatory Matters — 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. Such claims may be related to, but are not limited to, the Health Insurance Portability and Accountability Act of 1996, alleged Medicare or Medicaid false claims, qui tam or "whistleblower" provisions of the False Claims Act and/or the Anti-Kickback Statute, alleged violations of state and federal wage and hour laws, environmental matters, investigations, examinations, audits, site visits and surveys or other claims in connection with the delivery of healthcare and non-healthcare services. The Company and its independent subsidiaries are also subject to requests for information and investigations by other state and federal governmental entities (e.g., Offices of the Attorney General and Offices of the Inspector General). The Company cannot predict or provide any assurance as to the possible outcome of any inquiry, investigation or litigation. If any such inquiry, investigation or litigation were to proceed, and the Company and its independent subsidiaries are subjected to, alleged to be liable for, or agree to a settlement of, claims or obligations under federal Medicare statutes, the FCA, or similar state and federal statutes and related regulations, or if the Company or its independent subsidiaries are alleged or found to be liable on theories of general or professional negligence or wage and hour violations, the Company's business, financial condition and results of operations and cash flows could be materially and adversely affected and its stock price could be adversely impacted. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged violations and may also include the assumption of specific procedural and financial obligations by the Company or its independent subsidiaries under a Corporate Integrity Agreement and/or other such arrangement. Other claims and suits, including class actions, continue to be filed against the Company and other companies in its industry. The Company and its independent subsidiaries have been subjected to, and are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour laws as related to the alleged failure to pay wages, to timely provide and authorize meal and rest breaks, and related causes of action. The Company does not believe that the ultimate resolution of these actions will have an ongoing material adverse effect on the Company’s business, cash flows, financial condition or results of operations. Refer to Part I. Item 3. Legal Proceedings for additional information on litigation and regulatory matters. 24 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In 2024, the Company, on behalf of its independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) indicating that the DOJ is investigating the Company to determine whether claims have been submitted to Medicare and Texas Medicaid for services which were unnecessary or otherwise not consistent with existing reimbursement requirements. The CID covers the period from January 1, 2016, to the present. As a general matter, the Company's independent subsidiaries maintain policies and procedures to promote compliance with all applicable Medicare and Medicaid requirements, including but not limited to those relating to the presentation of claims for reimbursement for services provided . The Company is fully cooperating with the DOJ in response to the CID. However, the Company cannot predict the outcome of the investigation or its potential impact on the consolidated financial statements. In 2023, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of the Company’s independent subsidiaries. The Company is in the process of appealing the jury verdict. The Company has in the past appealed similar decisions and has, in some circumstances, received decisions in its favor. Although the Company intends to vigorously defend against these claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition. In 2018, the Company, on behalf of its independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the False Claims Act (FCA) and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of the Company’s independent subsidiaries and persons who serve or have served as medical directors. In 2020, the Company was advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation. Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in 2020. In 2024, the Company mediated with the involved parties and agreed to settle the civil case for $ 48,000 and recorded the accrual as of December 31, 2023. Following the finalization of the settlement documents and payment of the settlement funds during the fourth quarter of 2024, the qui tam complaint was dismissed and the matter was resolved. Medicare Revenue Recoupments — The Company's independent subsidiaries are subject to regulatory reviews relating to the provision of Medicare and Medicaid 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 March 31, 2025 and through the filing date of this report, 18 of the Company's independent subsidiaries had multi-claim Reviews scheduled or in process. Concentrations Credit Risk — The Company has significant accounts receivable balances, the collectability of which is dependent on the availability of funds from certain governmental programs, primarily Medicare and Medicaid. These receivables represent the only significant concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. 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 Company’s receivables from Medicare and Medicaid payor programs accounted for 51.2 % and 52.9 % of its total accounts receivable as of March 31, 2025 and December 31, 2024, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 69.5 % and 71.6 % of the Company's revenue for the three months ended March 31, 2025 and 2024, respectively. 20. COMMON STOCK REPURCHASE PROGRAM On February 21, 2025, 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 March 26, 2025. During the three months ended March 31, 2025, the Company purchased 84 shares of its common stock for $ 10,775 . Subsequent to March 31, 2025, the Company repurchased 73 shares of its common stock for $ 9,225 . This repurchase program expired upon the repurchase of the fully authorized amount under the plan and is no longer in effect. On May 16, 2024, 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, 2024. The Company did not purchase any shares pursuant to this stock repurchase program before the repurchase program was cancelled on February 21, 2025. 25 Table of Contents THE ENSIGN GROUP, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. 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. 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.