Form 8-K ENSIGN GROUP, INC For: Aug 02

August 7, 2018 5:16 PM

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2018

The Ensign Group, Inc.

(Exact name of registrant as specified in its charter)




Delaware	001-33757		33-0861263

(State or other jurisdiction of incorporation)	(Commission File Number)		(IRS Employer Identification No.)

27101 Puerta Real, Suite 450, Mission Viejo, CA		92691

(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (949) 487-9500

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02. Results of Operations and Financial Condition.

On August 2, 2018, The Ensign Group, Inc. (the Company) issued a press release reporting the financial results of the Company for its second quarter ended June 30, 2018. A copy of the press release is attached to this Current Report as Exhibit 99.1.

The press release includes “non-GAAP financial measures.” Specifically, the press release refers to EBITDA, Adjusted EBITDA and Adjusted EBITDAR. EBITDA, Adjusted EBITDA and Adjusted EBITDAR are supplemental non-GAAP financial measures. Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes and (c) depreciation and amortization. EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization and (d) rent-cost of services. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) (earnings)/losses related to operations currently being constructed and other start-up operations, excluding depreciation, interest and income taxes, (e) results of closed operations and facilities not at full operation, excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) return of unclaimed class action settlement and charges related to class action lawsuit, (h) business interruption recoveries, and (i) patient base and other transaction-related costs. Adjusted EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) (earnings)/losses related to facilities currently being constructed and other start-up operations, excluding rent, depreciation, interest and income taxes, (f) results of closed operation and facilities not at full operation, excluding rent, depreciation, interest and income taxes, (g) share-based compensation expense, (h) return of unclaimed class action settlement and charges related to class action lawsuit, (i) business interruption recoveries and (j) patient base and other transaction-related costs. The company believes that the presentation of EBITDA, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company’s operating performance. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and adjusted EBITDAR has economic substance because the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company's periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Ensign's website at http://www.ensigngroup.net.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.




Exhibit No.		Description

99.1		Press Release of the Company dated August 2, 2018

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




Dated: August 7, 2018	THE ENSIGN GROUP, INC.
	By:	/s/ Suzanne D. Snapper
		Suzanne D. Snapper
		Chief Financial Officer

EXHIBIT INDEX




Exhibit No.		Description

99.1		Press Release of the Company dated August 2, 2018

The Ensign Group Reports Second Quarter Results

Conference Call and Webcast Scheduled for tomorrow, August 3, 2018 at 10:00 am PT

MISSION VIEJO, Calif., August 02, 2018 (GLOBE NEWSWIRE) --

The Ensign Group, Inc. (Nasdaq: ENSG), the parent company of the Ensign™ group of skilled nursing, rehabilitative care services, home health, home care, hospice care and assisted living companies, today announced its operating results for the second quarter of 2018, reporting GAAP diluted earnings per share of $0.41 for the quarter with adjusted earnings per share of $0.44 for the quarter ⁽¹⁾.

Highlights Include:


▪	GAAP earnings for the quarter was up 78.3% over the prior year quarter to $0.41 per diluted share, and adjusted earnings per share was up 41.9% over the prior year quarter to $0.44 per diluted share⁽¹⁾⁽²⁾;


▪	Consolidated GAAP Net Income for the quarter was $22.0 million, and consolidated adjusted Net Income was $23.7 million, an increase of 47.3% over the prior year quarter⁽¹⁾⁽²⁾;


▪	Total Transitional and Skilled Services segment income was $43.2 million for the quarter, an increase of 36.3% over the prior year quarter;


▪	Same-store skilled nursing revenue was $286.3 million, an increase of 4.2% over the prior year quarter and same-store skilled mix revenue was $143.8 million, an increase of 3.1% over the prior year quarter⁽³⁾;


▪	Transitioning skilled occupancy was 73.4%, an increase of 274 basis points over the prior year quarter and transitioning skilled nursing revenue was $98.7 million, an increase of 6.3% over the prior year quarter⁽³⁾;


▪	Transitioning skilled managed care revenue and managed care days were up 7.1% and 8.8%, respectively, over the prior year quarter⁽³⁾;


▪	Total Assisted Living Services segment revenue was up 12.6% to $37.2 million and Assisted Living Services segment income was up 35.8% to $5.0 million, both over the prior year quarter; and


▪	Total Home Health and Hospice Services segment revenue was up 20.7% to $41.8 million and segment income was up 27.3% to $6.3 million, both over the prior year quarter⁽³⁾.

(1) See "Reconciliation of GAAP to Non-GAAP Financial Information".

(2) Adjusted earnings per share and Consolidated Adjusted Net Income increased by 22.2% and 26.6%, respectively, over the prior year quarter if we applied a 25% tax rate to both periods.

(3) Excludes the impact of ASC 606.

Operating Results

Commenting on the quarter’s operating results, Ensign’s President and Chief Executive Officer Christopher Christensen said, “We are pleased to report that the improvements we experienced in the first quarter continued, resulting in a very strong second quarter, especially in our most mature operations.” Christensen said, “We are excited about the positive momentum in same-store skilled nursing revenue and same-store skilled mix revenue, which increased by 4.2% and 3.1%, respectively, over the prior year quarter.” Noting that the Company expected to experience some typical second quarter seasonality, he highlighted the significant quarter over quarter improvement in adjusted earnings per share and consolidated adjusted net income, which increased by 41.9% and 47.3%, respectively, over the prior year quarter.

“We are reaffirming our 2018 annual earnings per share guidance to between $1.80 and $1.87 per diluted share. Overall, the midpoint of this guidance represents a 31.1% increase over our annual earnings for 2017,” Christensen said. He also remarked that even without the Company’s lower effective income tax rate, which was reduced from 35.5% in 2017 to an estimated 25.0% for 2018, the midpoint of management’s guidance represents a 15.7% increase over 2017 results. “We are very excited about the future and look forward to continuing to drive quality healthcare outcomes and corresponding financial results,” he said.

Christensen also stated that the Company’s operating subsidiaries in several states have renewed their focus on applying proven best-practices in every transition. As a result of these efforts, during the quarter the Company’s 2017 and 2018 acquisitions collectively achieved an EBIT margin that is 760 basis points higher than its 2015 and 2016 acquisitions. “These results not only show healthier transitions, but also demonstrate the enormous potential that remains in our overall portfolio. We have great confidence that the combination of our locally-driven operating model, along with the backing of our world-class Service Center, will continue to create enormous organic growth in our newly acquired, transitioning and same-store buckets,” Christensen said.

“We are also pleased to report that Bridgestone Living LLC, Ensign’s assisted living and independent living portfolio company, which now consists of 51 stand-alone operations and 22 campuses in 12 states, grew its segment revenue and income by 12.6% and 35.8%, respectively, over the prior year quarter,” Christensen stated. He also noted that Cornerstone Healthcare, Inc., Ensign’s home health and hospice portfolio subsidiary, grew its segment revenue and income by 20.7% and 27.3%, respectively, over the prior year quarter. “Each segment’s leadership team has independently driven their respective businesses to achieve outstanding results. As they do so, we continue to evaluate ways in which we can enhance operational synergies while also ensuring that all of our affiliated operations will continue to create long-term shareholder value,” Christensen added.

Chief Financial Officer Suzanne Snapper reported that, “Our liquidity remains strong with approximately $235 million of availability as of today on Ensign’s $450 million credit facility, which also has a built-in expansion option, and 48 unlevered real estate assets that add additional borrowing capacity.” She also noted that the Company’s net-debt-to-EBITDAR ratio went down again this quarter to 4.0x in spite of additional borrowings incurred during the quarter to acquire certain real estate assets. She also indicated that cash generated from operations was $101.2 million in the six months ended June 30, 2018, which was primarily driven by an increase in operating results, stronger collections and lower taxes.

A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to EBITDA, adjusted EBITDAR and adjusted EBITDA, as well as a reconciliation of GAAP earnings per share, net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release. More complete information is contained in the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is expected to be filed with the SEC today and can be viewed on the company’s website at http://www.ensigngroup.net.

Quarter Highlights

During the quarter, Ensign paid a quarterly cash dividend of $0.045 per share of its common stock. Ensign has been a dividend-paying company since 2002 and has increased its dividend every year for 16 years.

In April, Ensign announced that Bandera Healthcare, Inc., the Company’s Arizona-based portfolio company, acquired the real estate and operations of Peoria Post Acute and Rehabilitation, a 128-bed skilled nursing facility located in Peoria, Arizona. The acquisition was effective April 1, 2018. The facility also included an adjacent 50-bed long-term acute care hospital that is currently operated by a third party under a lease arrangement. “While we continue to evaluate many potential acquisition opportunities with extreme care and thought, this operation stood out as one that shows significant long-term potential while adding strength to our growing footprint in Arizona,” he added.

In May, Keystone Care LLC, the Company’s Texas-based portfolio company, acquired the real estate and operations of Grace Presbyterian Village, a 26-acre post-acute care and retirement campus located in Dallas, Texas. The acquisition was effective May 1, 2018. “This acquisition adds to our expanding footprint in the Dallas area and adds to our ability to accelerate the quality of care we can provide to our patients and their loved ones,” Mr. Christensen said.

In June, Bandera also acquired the operations of Sun West Choice Healthcare and Rehabilitation, a 140-bed skilled nursing facility in Sun City West, Arizona, and entered into a new long-term lease. The acquisition was effective June 1, 2018. “Sun West Choice is a perfect example of an off-market acquisition resulting from relationships built by our local operators over many years,” said Mr. Christensen.

In July, Ensign also announced that Pennant Healthcare, Inc., its Northwest-based portfolio subsidiary, acquired the real estate and operations of McCall Rehabilitation and Care Center, a 40-bed skilled nursing facility located in McCall, Idaho. “Our history and track record of successful acquisitions, together with the talented leaders and staff in Idaho that seek to be the provider of

choice in their respective communities, give us the confidence to pursue opportunities in the state both big and small,” Christensen said.

Ensign also recently announced during the quarter that a wholly-owned subsidiary acquired an office building located in San Juan Capistrano, California. “We are thrilled about our purchase of office space in nearby San Juan Capistrano to accommodate our growing Service Center team,” Christensen said. “With our existing lease in Mission Viejo set to expire in 2019, we diligently reviewed current market conditions as well as the Service Center’s short- and long-term real estate needs. After considering dozens of possibilities over the last 18 months, we determined that owning the Service Center made the most sense financially and operationally,” he added.

Ensign reported that the commercial real estate property consists of approximately 115,517 square feet of usable office space, and that the building was 92% occupied by third-party tenants at the time of acquisition. The Company closed with cash drawn from its revolver.

"We carefully selected this space based on the attractive and convenient location for our current and future team members, as well as our third-party tenants. With this ownership, we not only expect to save millions of dollars in future rental increases for decades to come, but we are most excited about the ability this will give us to continue to attract and retain the best and brightest Service Center leaders,” he added.

The Company expects Ensign Services to occupy a portion of the space upon termination of its existing office leases in 2019. Ensign also expects to continue market-rate third-party leasing arrangements for any space not occupied by Ensign Services.

These additions bring Ensign's growing portfolio to 185 skilled nursing operations, 22 of which also include assisted living operations, 51 assisted and independent living operations, 22 hospice agencies, 21 home health agencies and five home care businesses across fifteen states. Ensign owns the real estate at 68 of its 236 healthcare facilities. Mr. Christensen reaffirmed that Ensign continues to actively seek transactions to acquire real estate and to lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses in new and existing markets.

Conference Call

A live webcast will be held Friday, August 3, 2018 at 10:00 a.m. Pacific time (1:00 p.m. Eastern time) to discuss Ensign’s second quarter financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Ensign’s website at http://investor.ensigngroup.net. The webcast will be recorded, and will be available for replay via the website until 5:00 p.m. Pacific time on Friday, August 31, 2018.

About Ensign^TM

The Ensign Group, Inc.'s independent operating subsidiaries provide a broad spectrum of skilled nursing and assisted living services, physical, occupational and speech therapies, home health and hospice services and other rehabilitative and healthcare services at 236 healthcare facilities, 22 hospice agencies, 21 home health agencies and five home care businesses in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska, Oregon, Wisconsin, Kansas, South Carolina, and Oklahoma. Each of these operations is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated “company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “its” and similar terms, are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the operations, the home health and hospice businesses, the Service Center or the captive insurance subsidiary are operated by the same entity. More information about Ensign is available at

http://www.ensigngroup.net.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management’s current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

These risks and uncertainties relate to the company’s business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company’s periodic filings with the Securities and Exchange Commission, including its Form 10-Q, for a more complete discussion of the risks and other factors that could affect Ensign’s business, prospects and any forward-looking statements. Except as required by the federal securities laws, Ensign does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

Contact Information

Investor/Media Relations, The Ensign Group, Inc., (949) 487-9500, [email protected].

SOURCE: The Ensign Group, Inc.

THE ENSIGN GROUP, INC.

CONSOLIDATED STATEMENT OF INCOME

(In thousands, except per share data)

(Unaudited)



	Three Months Ended June 30,									Six Months Ended June 30,
	2018			2018 Pro forma ⁽¹⁾			2017			2018			2018 Pro forma ⁽¹⁾			2017
Revenue
Service revenue	$	459,222		$	468,300		$	415,270		$	915,243		$	933,125		$	824,664
Assisted and independent living revenue	37,164			37,164			33,009			73,277			73,277			65,355
Total revenue	496,386			505,464			448,279			$	988,520		1,006,402			$	890,019
Expense
Cost of services	396,132			405,210			366,946			786,375			804,257			722,433
(Return of unclaimed class action settlement)/charges related to class action lawsuit	—			—			—			(1,664		)	(1,664		)	11,000
(Gains)/Losses related to divestitures	—			—			(1,286		)	—			—			2,731
Rent—cost of services	34,472			34,472			32,585			68,322			68,322			64,485
General and administrative expense	22,386			22,386			17,253			47,490			47,490			38,523
Depreciation and amortization	11,621			11,621			10,750			23,243			23,243			21,264
Total expenses	464,611			473,689			426,248			923,766			941,648			860,436
Income from operations	31,775			31,775			22,031			64,754			64,754			29,583
Other income (expense):
Interest expense	(3,869		)	(3,869		)	(3,053		)	(7,482		)	(7,482		)	(6,498		)
Interest income	562			562			288			1,010			1,010			578
Other expense, net	(3,307		)	(3,307		)	(2,765		)	(6,472		)	(6,472		)	(5,920		)
Income before provision for income taxes	28,468			28,468			19,266			58,282			58,282			23,663
Provision for income taxes	6,142			6,142			6,886			12,663			12,663			8,326
Net income	22,326			22,326			12,380			45,619			45,619			15,337
Less: net income attributable to noncontrolling interests	315			315			163			476			476			279
Net income attributable to The Ensign Group, Inc.	$	22,011		$	22,011		$	12,217		$	45,143		$	45,143		$	15,058

Net income per share attributable to The Ensign Group, Inc.:
Basic	$	0.42		$	0.42		$	0.24		$	0.87		$	0.87		$	0.30
Diluted	$	0.41		$	0.41		$	0.23		$	0.84		$	0.84		$	0.29

Weighted average common shares outstanding:
Basic	51,880			51,880			50,705			51,733			51,733			50,736
Diluted	54,251			54,251			52,548			53,909			53,909			52,593

Dividends per share	$	0.0450		$	0.0450		$	0.0425		$	0.0900		$	0.0900		$	0.0850

(1) The pro forma amounts in the table demonstrate the impact of adopting Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), for the three and six months ended June 30, 2018 by presenting the dollars as if the previous accounting guidance was still in effect.

THE ENSIGN GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



	June 30, 2018		December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	27,184	$	42,337
Accounts receivable—less allowance for doubtful accounts of $1,643 and $43,961 at June 30, 2018 and December 31, 2017, respectively	251,042		265,068
Investments—current	12,952		13,092
Prepaid income taxes	8,590		19,447
Prepaid expenses and other current assets	27,801		28,132
Total current assets	327,569		368,076
Property and equipment, net	591,580		537,084
Insurance subsidiary deposits and investments	31,396		28,685
Escrow deposits	2,652		228
Deferred tax assets	12,731		12,745
Restricted and other assets	21,046		16,501
Intangible assets, net	32,605		32,803
Goodwill	81,019		81,062
Other indefinite-lived intangibles	25,249		25,249
Total assets	$	1,125,847	$	1,102,433

Liabilities and equity
Current liabilities:
Accounts payable	$	39,018	$	39,043
Accrued wages and related liabilities	89,462		90,508
Accrued self-insurance liabilities—current	24,826		22,516
Other accrued liabilities	66,972		63,815
Current maturities of long-term debt	10,058		9,939
Total current liabilities	230,336		225,821
Long-term debt—less current maturities	268,066		302,990
Accrued self-insurance liabilities—less current portion	53,775		50,220
Deferred rent and other long-term liabilities	11,645		11,268
Deferred gain related to sale-leaseback	11,746		12,075
Total equity	550,279		500,059
Total liabilities and equity	$	1,125,847	$	1,102,433

THE ENSIGN GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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



	Six Months Ended June 30,
	2018			2017
Net cash provided by operating activities	101,240			24,920
Net cash used in investing activities	(81,244		)	(48,626		)
Net cash used in financing activities	(35,149		)	(524		)
Net decrease in cash and cash equivalents	(15,153		)	(24,230		)
Cash and cash equivalents beginning of period	42,337			57,706
Cash and cash equivalents end of period	$	27,184		$	33,476



	THE ENSIGN GROUP, INC.
	REVENUE BY SEGMENT

The following tables sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated:



	Three Months Ended June 30,
	2018 (As Reported)				2018 (Pro Forma (2))				2017
	$		%		$		%		$		%

	(Dollars in thousands)
Transitional and skilled services	$	408,518	82.3	%	$	417,061	82.5	%	$	375,217	83.7	%
Assisted and independent living services	37,164		7.5		37,164		7.4		33,009		7.4
Home health and hospice services:
Home health	21,321		4.3		21,701		4.3		17,871		4.0
Hospice	19,928		4.0		20,083		4.0		16,750		3.7
Total home health and hospice services	41,249		8.3		41,784		8.3		34,621		7.7
All other ⁽¹⁾	9,455		1.9		9,455		1.8		5,432		1.2
Total revenue	$	496,386	100.0	%	$	505,464	100.0	%	$	448,279	100.0	%
(1) Includes revenue from services generated by our other mobile diagnostic and ancillary services.
(2) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the three months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.



	Six Months Ended June 30,
	2018 (As Reported)				2018 Pro Forma (2)				2017
	$		%		$		%		$		%

	(Dollars in thousands)
Transitional and skilled services	$	815,534	82.5	%	$	832,282	82.7	%	$	747,556	84.0	%
Assisted and independent living services	73,277		7.4		73,277		7.3		65,355		7.3
Home health and hospice services:
Home health	41,505		4.2		42,297		4.2		34,922		3.9
Hospice	39,502		4.0		39,844		4.0		31,832		3.6
Total home health and hospice services	81,007		8.2		82,141		8.2		66,754		7.5
All other ⁽¹⁾	18,702		1.9		18,702		1.8		10,354		1.2
Total revenue	$	988,520	100.0	%	$	1,006,402	100.0	%	$	890,019	100.0	%
(1) Includes revenue from services generated by our other mobile diagnostic and ancillary services.
(2) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the six months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.



	THE ENSIGN GROUP, INC.
	SELECT PERFORMANCE INDICATORS
	(Unaudited)

The following tables summarize our selected performance indicators for our transitional and skilled services segment along with other statistics, for each of the dates or periods indicated:



	Three Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Total Facility Results:
Transitional and skilled revenue (As Reported)	$	408,518		$	375,217		$	33,301	8.9	%
Transitional and skilled revenue (Pro forma (5))	417,061			375,217			41,844		11.2	%
Number of facilities at period end	162			155			7		4.5	%
Number of campuses at period end*	22			21			1		4.8	%
Actual patient days	1,330,057			1,232,842			97,215		7.9	%
Occupancy percentage — Operational beds	76.6		%	74.7		%			1.9	%
Skilled mix by nursing days	29.7		%	30.7		%			(1.0	)%
Skilled mix by nursing revenue	50.2		%	52.1		%			(1.9	)%



	Three Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Same Facility Results(1):
Transitional and skilled revenue (As Reported)	$	280,477		$	274,680		$	5,797	2.1	%
Transitional and skilled revenue (Pro forma (5))	286,330			274,680			11,650		4.2	%
Number of facilities at period end	108			108			—		—	%
Number of campuses at period end*	11			11			—		—	%
Actual patient days	871,035			868,397			2,638		0.3	%
Occupancy percentage — Operational beds	78.3		%	78.0		%			0.3	%
Skilled mix by nursing days	31.3		%	31.2		%			0.1	%
Skilled mix by nursing revenue	52.1		%	52.3		%			(0.2	)%



	Three Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Transitioning Facility Results(2):
Transitional and skilled revenue (As Reported)	$	96,690		$	92,875		$	3,815	4.1	%
Transitional and skilled revenue (Pro forma (5))	98,693			92,875			5,818		6.3	%
Number of facilities at period end	40			40			—		—	%
Number of campuses at period end*	9			9			—		—	%
Actual patient days	348,385			335,472			12,913		3.8	%
Occupancy percentage — Operational beds	73.4		%	70.7		%			2.7	%
Skilled mix by nursing days	28.5		%	30.1		%			(1.6	)%
Skilled mix by nursing revenue	48.3		%	52.0		%			(3.7	)%



	Three Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Recently Acquired Facility Results(3):
Transitional and skilled revenue (As Reported)	$	31,351		$	7,489		$	23,862	NM
Transitional and skilled revenue (Pro forma (5))	32,038			7,489			24,549		NM
Number of facilities at period end	14			7			7		NM
Number of campuses at period end*	2			1			1		NM
Actual patient days	110,637			28,424			82,213		NM
Occupancy percentage — Operational beds	74.1		%	45.9		%			NM
Skilled mix by nursing days	21.6		%	23.0		%			NM
Skilled mix by nursing revenue	38.5		%	44.0		%			NM



	Three Months Ended June 30,
	2018			2017			Change			% Change

	(Dollars in thousands)
Facility Closed Results(4):
Skilled nursing revenue	$	—		$	173		$	(173	)	NM
Actual patient days	—			549			(549		)	NM
Occupancy percentage — Operational beds	—		%	50.0		%				NM
Skilled mix by nursing days	—		%	13.8		%				NM
Skilled mix by nursing revenue	—		%	35.5		%				NM

* Campus represents a facility that offers both skilled nursing and assisted and/or independent living services. Revenue and expenses related to skilled nursing, assisted and independent living services have been allocated and recorded in the respective reportable segment.


(1)	Same Facility results represent all facilities purchased prior to January 1, 2015.


(2)	Transitioning Facility results represents all facilities purchased from January 1, 2015 to December 31, 2016.


(3)	Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2017.


(4)	Facility Closed results represents closed operations during the three months ended June 30, 2017, which were excluded from Same Store and Transitioning results for the three months ended June 30, 2017, for comparison purposes.


(5)	The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the three months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.



	Six Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Total Facility Results:
Transitional and skilled revenue (As Reported)	$	815,534		$	747,556		$	67,978	9.1	%
Transitional and skilled revenue (Pro forma (5))	832,282			747,556			84,726		11.3	%
Number of facilities at period end	162			155			7		4.5	%
Number of campuses at period end*	22			21			1		4.8	%
Actual patient days	2,645,027			2,442,106			202,921		8.3	%
Occupancy percentage — Operational beds	77.2		%	74.8		%			2.4	%
Skilled mix by nursing days	30.7		%	31.4		%			(0.7	)%
Skilled mix by nursing revenue	51.2		%	52.7		%			(1.5	)%



	Six Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Same Facility Results(1):
Transitional and skilled revenue (As Reported)	$	560,724		$	548,410		$	12,314	2.2	%
Transitional and skilled revenue (Pro forma (5))	572,170			548,410			23,760		4.3	%
Number of facilities at period end	108			108			—		—	%
Number of campuses at period end*	11			11			—		—	%
Actual patient days	1,741,558			1,730,523			11,035		0.6	%
Occupancy percentage — Operational beds	78.8		%	78.2		%			0.6	%
Skilled mix by nursing days	31.7		%	31.5		%			0.2	%
Skilled mix by nursing revenue	52.6		%	52.6		%			—	%



	Six Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Transitioning Facility Results(2):
Transitional and skilled revenue (As Reported)	$	198,537		$	188,605		$	9,932	5.3	%
Transitional and skilled revenue (Pro forma (5))	202,656			188,605			14,051		7.4	%
Number of facilities at period end	40			40			—		—	%
Number of campuses at period end*	9			9			—		—	%
Actual patient days	705,192			672,779			32,413		4.8	%
Occupancy percentage — Operational beds	74.7		%	71.3		%			3.4	%
Skilled mix by nursing days	30.4		%	31.2		%			(0.8	)%
Skilled mix by nursing revenue	50.5		%	53.2		%			(2.7	)%



	Six Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Recently Acquired Facility Results(3):
Transitional and skilled revenue (As Reported)	$	56,273		$	8,673		$	47,600	NM
Transitional and skilled revenue (Pro forma (5))	57,456			8,673			48,783		NM
Number of facilities at period end	14			7			7		NM
Number of campuses at period end*	2			1			1		NM
Actual patient days	198,277			33,229			165,048		NM
Occupancy percentage — Operational beds	73.0		%	36.1		%			NM
Skilled mix by nursing days	22.5		%	23.2		%			NM
Skilled mix by nursing revenue	39.7		%	44.6		%			NM



	Six Months Ended June 30,
	2018			2017			Change			% Change

	(Dollars in thousands)
Facility Closed Results(4):
Skilled nursing revenue	$	—		$	1,868		$	(1,868	)	NM
Actual patient days	—			5,575			(5,575		)	NM
Occupancy percentage — Operational beds	—		%	34.3		%				NM
Skilled mix by nursing days	—		%	46.7		%				NM
Skilled mix by nursing revenue	—		%	71.5		%				NM


(1)	Same Facility results represent all facilities purchased prior to January 1, 2015.


(2)	Transitioning Facility results represents all facilities purchased from January 1, 2015 to December 31, 2016.


(3)	Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2017.


(4)	Facility Closed results represents closed operations during the six months ended June 30, 2017, which were excluded from Same Store and Transitioning results for the six months ended June 30, 2017, for comparison purposes.


(5)	The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the six months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.

THE ENSIGN GROUP, INC.

SKILLED NURSING AVERAGE DAILY REVENUE RATES AND

PERCENT OF SKILLED NURSING REVENUE AND DAYS BY PAYOR

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate, and revenue associated with these metrics are generated based on contractually agreed-upon amounts or rate, excluding the estimates of variable consideration under ASC 606:



	Three Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Skilled Nursing Average Daily Revenue Rates:
Medicare	$	615.55	$	599.86	$	516.78	$	504.49	$	534.46	$	499.43	$	582.05	$	567.65
Managed care	461.65		455.74		410.59		417.24		422.43		377.38		445.48		444.65
Other skilled	486.12		456.99		349.01		379.94		444.55		650.86		467.19		446.94
Total skilled revenue	528.70		516.37		455.64		459.54		484.99		481.16		507.68		500.59
Medicaid	221.75		213.21		194.38		179.62		212.69		179.72		213.86		203.49
Private and other payors	225.93		202.58		196.96		194.61		230.57		196.36		217.35		199.90
Total skilled nursing revenue	$	318.56	$	305.91	$	269.45	$	266.13	$	274.57	$	251.58	$	302.01	$	293.84



	Six Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Skilled Nursing Average Daily Revenue Rates:
Medicare	$	612.97	$	598.57	$	515.68	$	503.88	$	527.57	$	495.95	$	578.24	$	566.07
Managed care	460.62		449.01		409.68		418.85		421.00		374.41		444.31		440.45
Other skilled	484.37		458.35		357.20		373.36		460.15		650.86		467.16		446.23
Total skilled revenue	526.67		513.76		456.62		460.06		485.62		478.44		505.91		498.60
Medicaid	221.47		214.02		193.93		179.50		212.72		175.92		213.61		204.17
Private and other payors	225.56		204.56		202.76		198.19		229.50		193.64		218.67		202.29
Total skilled nursing revenue	$	319.20	$	307.20	$	275.13	$	269.58	$	276.69	$	249.30	$	304.24	$	296.08

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the three and six months June 30, 2018 and 2017:



	Three Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Percentage of Skilled Nursing Revenue:
Medicare	24.5	%	25.4	%	25.9	%	29.6	%	22.7	%	35.3	%	24.7	%	26.7	%
Managed care	18.0		18.4		19.4		19.0		11.8		6.6		17.8		18.3
Other skilled	9.6		8.5		3.0		3.4		4.0		2.1		7.7		7.1
Skilled mix	52.1		52.3		48.3		52.0		38.5		44.0		50.2		52.1
Private and other payors	7.7		7.9		10.5		10.8		12.1		11.9		8.6		8.7
Quality mix	59.8		60.2		58.8		62.8		50.6		55.9		58.8		60.8
Medicaid	40.2		39.8		41.2		37.2		49.4		44.1		41.2		39.2
Total skilled nursing	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



	Three Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Percentage of Skilled Nursing Days:
Medicare	12.6	%	13.1	%	13.5	%	15.6	%	11.6	%	17.8	%	12.8	%	13.9	%
Managed care	12.3		12.4		12.7		12.1		7.6		4.4		12.0		12.2
Other skilled	6.4		5.7		2.3		2.4		2.4		0.8		4.9		4.6
Skilled mix	31.3		31.2		28.5		30.1		21.6		23.0		29.7		30.7
Private and other payors	11.1		11.5		14.5		14.7		15.0		15.3		12.4		12.5
Quality mix	42.4		42.7		43.0		44.8		36.6		38.3		42.1		43.2
Medicaid	57.6		57.3		57.0		55.2		63.4		61.7		57.9		56.8
Total skilled nursing	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



	Six Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Percentage of Skilled Nursing Revenue:
Medicare	24.7	%	25.9	%	27.4	%	30.7	%	24.6	%	36.5	%	25.3	%	27.3	%
Managed care	18.5		18.6		20.0		19.2		11.4		6.3		18.4		18.6
Other skilled	9.4		8.1		3.1		3.3		3.7		1.8		7.5		6.8
Skilled mix	52.6		52.6		50.5		53.2		39.7		44.6		51.2		52.7
Private and other payors	7.5		7.8		10.3		10.4		11.2		13.7		8.5		8.5
Quality mix	60.1		60.4		60.8		63.6		50.9		58.3		59.7		61.2
Medicaid	39.9		39.6		39.2		36.4		49.1		41.7		40.3		38.8
Total skilled nursing	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



	Six Months Ended June 30,
	Same Facility				Transitioning				Acquisitions				Total
	2018		2017		2018		2017		2018		2017		2018		2017
Percentage of Skilled Nursing Days:
Medicare	12.8	%	13.3	%	14.6	%	16.4	%	12.8	%	18.3	%	13.3	%	14.3	%
Managed care	12.8		12.8		13.4		12.3		7.5		4.2		12.6		12.5
Other skilled	6.1		5.4		2.4		2.5		2.2		0.7		4.8		4.6
Skilled mix	31.7		31.5		30.4		31.2		22.5		23.2		30.7		31.4
Private and other payors	11.1		11.5		14.1		14.1		14.0		17.7		12.1		12.2
Quality mix	42.8		43.0		44.5		45.3		36.5		40.9		42.8		43.6
Medicaid	57.2		57.0		55.5		54.7		63.5		59.1		57.2		56.4
Total skilled nursing	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



	THE ENSIGN GROUP, INC.
	SELECT PERFORMANCE INDICATORS
	(Unaudited)

	The following tables summarize our selected performance indicators for our assisted and independent living segment along with other statistics, for each of the dates or periods indicated:



	Three Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Resident fee revenue	$	37,164		$	33,009		$	4,155	12.6	%
Number of facilities at period end	51			46			5		10.9	%
Number of campuses at period end	22			21			1		4.8	%
Occupancy percentage (units)	75.2		%	77.4		%			(2.2	)%
Average monthly revenue per unit	$	2,863		$	2,799		$	64	2.3	%



	Six Months Ended June 30,
	2018			2017			Change		% Change

	(Dollars in thousands)
Resident fee revenue	$	73,277		$	65,355		$	7,922	12.1	%
Number of facilities at period end	51			46			5		10.9	%
Number of campuses at period end	22			21			1		4.8	%
Occupancy percentage (units)	75.4		%	77.1		%			(1.7	)%
Average monthly revenue per unit	$	2,860		$	2,818		$	42	1.5	%



	THE ENSIGN GROUP, INC.
	SELECT PERFORMANCE INDICATORS
	(Unaudited)

	The following tables summarize our selected performance indicators for our home health and hospice segment along with other statistics, for each of the dates or periods indicated:



	Three Months Ended June 30,
	2018		2017		Change			% Change

	(Dollars in thousands)
Home health and hospice revenue
Home health services	$	21,321	$	17,871	$	3,450		19.3	%
Hospice services	19,928		16,750		3,178			19.0
Total home health and hospice revenue	$	41,249	$	34,621	$	6,628		19.1	%
Pro forma(1)
Home health and hospice revenue
Home health services	$	21,701	$	17,871	$	3,830		21.4	%
Hospice services	20,083		16,750		3,333			19.9
Total home health and hospice revenue	$	41,784	$	34,621	$	7,163		20.7	%

Home health services:
Average Medicare Revenue per Completed Episode	$	3,064	$	3,140	$	(76	)	(2.4	)%
Hospice services:
Average Daily Census	1,290		1,020		270			26.5	%

(1) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the three months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.



	Six Months Ended June 30,
	2018		2017		Change			% Change

	(Dollars in thousands)
Home health and hospice revenue
Home health services	$	41,505	$	34,922	$	6,583		18.9	%
Hospice services	39,502		31,832		7,670			24.1
Total home health and hospice revenue	$	81,007	$	66,754	$	14,253		21.4	%
Pro forma(1)
Home health and hospice revenue
Home health services	$	42,297	$	34,922	$	7,375		21.1	%
Hospice services	39,844		31,832		8,012			25.2
Total home health and hospice revenue	$	82,141	$	66,754	$	15,387		23.1	%

Home health services:
Average Medicare Revenue per Completed Episode	$	2,951	$	3,058	$	(107	)	(3.5	)%
Hospice services:
Average Daily Census	1,275		1,011		264			26.1	%

(1) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the six months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.

THE ENSIGN GROUP, INC.

REVENUE BY PAYOR SOURCE

The following table sets forth our total revenue by payor source and as a percentage of total revenue for the periods indicated:



	Three Months Ended June 30,
	2018 As Reported				2018 Pro forma (2)				2017
	$		%		$		%		$		%

	(Dollars in thousands)
Revenue:
Medicaid	$	173,169	34.9	%	$	176,689	35.0	%	$	152,637	34.0	%
Medicare	136,813		27.6		138,027		27.3		128,151		28.6
Medicaid-skilled	28,298		5.7		28,935		5.7		24,913		5.6
Total	338,280		68.2		343,651		68.0		305,701		68.2
Managed Care	80,150		16.1		81,786		16.2		74,925		16.7
Private and Other⁽¹⁾	77,956		15.7		80,027		15.8		67,653		15.1
Total revenue	$	496,386	100.0	%	$	505,464	100.0	%	$	448,279	100.0	%
(1) Private and other payors also includes revenue from all payors generated by our other ancillary services for the three months ended June 30, 2018 and 2017.
(2) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the three months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.



	Six Months Ended June 30,
	2018 As Reported				2018 Pro forma (2)				2017
	$		%		$		%		$		%

	(Dollars in thousands)
Revenue:
Medicaid	$	340,794	34.5	%	$	346,998	34.5	%	$	300,908	33.8	%
Medicare	276,127		27.9		278,408		27.7		258,072		29.0
Medicaid-skilled	55,340		5.6		56,473		5.6		47,930		5.4
Total	672,261		68.0		681,879		67.8		606,910		68.2
Managed Care	163,866		16.6		167,631		16.7		150,486		16.9
Private and Other⁽¹⁾	152,393		15.4		156,892		15.5		132,623		14.9
Total revenue	$	988,520	100.0	%	$	1,006,402	100.0	%	$	890,019	100.0	%
(1) Private and other payors also includes revenue from all payors generated by our other ancillary services for the six months ended June 30, 2018 and 2017.
(2) The pro forma amounts in the table demonstrate the impact of adopting ASC 606 for the six months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.

THE ENSIGN GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)

(Unaudited)

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income attributable to The Ensign Group, Inc.	$	22,011		$	12,217		$	45,143		$	15,058

Non-GAAP adjustments
Results related to facilities currently being constructed and other start-up operations(a)	1,272			3,365			2,847			7,907
(Return of unclaimed class action settlement)/charges related to the settlement of the class action lawsuit(b)	—			163			(1,664		)	11,163
Share-based compensation expense(c)	2,520			2,376			4,829			4,600
Results related to closed operations and operations not at full capacity, including continued obligations and closing expense(d)	291			(457		)	489			5,130
Depreciation and amortization - patient base(e)	62			115			101			151
General and administrative - transaction-related costs(f)	83			360			111			448
COS - business interruption gains(g)	(675		)	—			(675		)	—
Provision for income taxes on Non-GAAP adjustments(h)	(1,863		)	(2,054		)	(3,416		)	(10,508		)
Non-GAAP Net Income	$	23,701		$	16,085		$	47,765		$	33,949

Diluted Earnings Per Share As Reported
Net Income	$	0.41		$	0.23		$	0.84		$	0.29
Average number of shares outstanding	54,251			52,548			53,909			52,593

Adjusted Diluted Earnings Per Share
Net Income	$	0.44		$	0.31		$	0.89		$	0.65
Average number of shares outstanding	54,251			52,548			53,909			52,593

Footnotes:
(a) Represents operating results for facilities currently being constructed and other start-up operations.
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenue	$	(16,343	)	$	(15,912	)	$	(32,566	)	$	(28,879	)
Cost of services	13,800			15,055			27,772			28,653
Rent	3,571			3,934			7,154			7,596
Depreciation and amortization	244			288			487			537
Total Non-GAAP adjustment	$	1,272		$	3,365		$	2,847		$	7,907

(b) (Return of unclaimed class action settlement funds)/charges incurred in connection with the settlement of the class action lawsuit.
(c) Represents share-based compensation expense incurred.
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Cost of services	$	1,381		$	1,338		$	2,638		$	2,573
General and administrative	1,139			1,038			2,191			2,027
Total Non-GAAP adjustment	$	2,520		$	2,376		$	4,829		$	4,600



(d) Represents results at closed operations and operations not at full capacity, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the six months ended June 30, 2017. Included in the three and six months ended June 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in prior year.
	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Revenue	$	—	$	(172	)	$	—	$	(2,544	)
(Gains)/Losses related to operational closures	—		(1,286		)	—		2,731
Cost of services	209		903			325		4,177
Rent	75		85			149		696
Depreciation and amortization	7		13			15		70
Total Non-GAAP adjustment	$	291	$	(457	)	$	489	$	5,130

(e) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and assisted living facilities.
(f) Included in general and administrative expense are costs incurred to acquire an operation which are not capitalizable.
(f) Business interruption recoveries related to insurance claims of the California fires that occurred in the fourth quarter of 2017.
(g) Represents an adjustment to the provision for income tax to our historical year to date effective tax rate of 25.0%, resulting from the adoption of the Tax Cuts and Jobs Act, for the three and six months ended June 30, 2018 and 35.5% for the three and six months ended June 30, 2017.

THE ENSIGN GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

(Unaudited)

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Consolidated Statements of Income Data:
Net income	$	22,326		$	12,380		$	45,619		$	15,337
Less: net income attributable to noncontrolling interests	315			163			476			279
Plus: Interest expense, net	3,307			2,765			6,472			5,920
Provision for income taxes	6,142			6,886			12,663			8,326
Depreciation and amortization	11,621			10,750			23,243			21,264
EBITDA	$	43,081		$	32,618		$	87,521		$	50,568

Adjustments to EBITDA:
Results related to facilities currently being constructed and other start-up operations(a)	(2,543		)	(857		)	(4,794		)	(226		)
(Return of unclaimed class action settlement)/charges related to the settlement of the class action lawsuit(b)	—			163			(1,664		)	11,163
Share-based compensation expense(c)	2,520			2,376			4,829			4,600
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(d)	209			(555		)	325			4,364
Transaction-related costs(e)	83			360			111			448
Business interruption recoveries(f)	(675		)	—			(675		)	—
Rent related to items(a) and (d) above	3,646			4,019			7,303			8,292
Adjusted EBITDA	$	46,321		$	38,124		$	92,956		$	79,209
Rent—cost of services	34,472			32,585			68,322			64,485
Less: rent related to items(a) and (d) above	(3,646		)	(4,019		)	(7,303		)	(8,292		)
Adjusted EBITDAR	$	77,147		$	66,690		$	153,975		$	135,402


(a)	Represents results related to facilities currently in the start up phase after construction was completed. This amount excludes rent, depreciation and interest expense.

(b) Return of unclaimed class action settlement funds or charges incurred in connection with the settlement of the class action lawsuit.


(c)	Share-based compensation expense incurred.


(d)	Represents results at closed operations and operations not at full capacity during the three and six months ended June 30, 2018 and 2017. Included in the three and six months ended June 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in 2016.


(e)	Costs incurred to acquire operations which are not capitalizable.

(f) Business interruption recoveries related to insurance claims with respect to the California fires that occurred in the fourth quarter of 2017.



THE ENSIGN GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands)
(Unaudited)

The table below reconciles net income from operations to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for each reportable segment for the periods presented:

	Three Months Ended June 30,
	Transitional and Skilled Services						Assisted and Independent Services						Home Health and Hospice
	2018			2017			2018			2017			2018			2017

Statements of Income Data:
Income from operations, excluding general and administrative expense(a)	$	43,210		$	31,704		$	4,966		$	3,657		$	6,268		$	4,923
Less: net income attributable to noncontrolling interests	—			—			—			—			281			86
Depreciation and amortization	7,708			7,204			1,863			1,492			281			230
EBITDA	$	50,918		$	38,908		$	6,829		$	5,149		$	6,268		$	5,067

Adjustments to EBITDA:
Results related to facilities currently being constructed and other start-up operations(b)	(2,626		)	(1,256		)	56			271			27			128
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c)	209			(657		)	—			—			—			—
Share-based compensation expense(d)	1,076			992			180			233			99			86
Business interruption recoveries(e)	$	(675	)	—			$	—		$	—		$	—		$	—
Rent related to item(b),(c) and (d) above	$	2,759		3,720			$	880		$	289		$	7		$	10
Adjusted EBITDA	51,661			41,707			7,945			5,942			6,401			5,291
Rent—cost of services	27,832			26,733			5,928			5,323			552			426
Less: rent related to items(b),(c) and(d) above	(2,759		)	(3,720		)	(880		)	(289		)	(7		)	(10		)
Adjusted EBITDAR	$	76,734		$	64,720		$	12,993		$	10,976		$	6,946		$	5,707

(a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

(b) Results from facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest expense.

(c) Represent results at closed operations and operations not at full capacity during the three months ended June 30, 2018 and 2017, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the three months ended June 30, 2017. Included in the three months ended June 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in 2016.

(d) Share-based compensation expense incurred.

(e) Business interruption recoveries related to insurance claims of the California fires that occurred in the fourth quarter of 2017.



	Six Months Ended June 30,
	Transitional and Skilled Services						Assisted and Independent Services						Home Health and Hospice
	2018			2017			2018			2017			2018			2017

Statements of Income Data:
Income from operations, excluding general and administrative expense(a)	$	89,405		$	63,494		$	9,629		$	8,096		$	12,326		$	9,217
Less: net income attributable to noncontrolling interests	—			—			—			—			370			94
Depreciation and amortization	15,510			14,157			3,460			3,115			526			466
EBITDA	$	104,915		$	77,651		$	13,089		$	11,211		$	12,482		$	9,589

Adjustments to EBITDA:
Results related to facilities currently being constructed and other start-up operations(b)	(5,008		)	(1,066		)	178			616			36			224
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c)	325			3,749			—			—			—			513
Share-based compensation expense(d)	2,063			2,020			338			323			190			174
Business interruption recoveries(e)	$	(675	)	—			$	—		$	—		$	—		$	—
Rent related to item(b),(c) and (d) above	5,526			6,900			1,764			1,223			13			168
Adjusted EBITDA	$	107,146		$	89,254		$	15,369		$	13,373		$	12,721		$	10,668
Rent—cost of services	54,609			52,679			12,309			10,631			1,089			978
Less: rent related to items(b),(c) and(d) above	(5,526		)	(6,900		)	(1,764		)	(1,223		)	(13		)	(168		)
Adjusted EBITDAR	$	156,229		$	135,033		$	25,914		$	22,781		$	13,797		$	11,478

(a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

(b) Results from facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest expense.

(c) Represent results at closed operations and operations not at full capacity during the six months ended June 30, 2018 and 2017, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the six months ended June 30, 2017. Included in the six months ended June 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in 2016.

(d) Share-based compensation expense incurred.

(e) Business interruption recoveries related to insurance claims of the California fires that occurred in the fourth quarter of 2017.

Discussion of Non-GAAP Financial Measures

EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes and (c) depreciation and amortization. EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization and (d) rent-cost of services. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) (earnings)/losses related to operations currently being constructed and other start-up operations, excluding depreciation, interest and income taxes, (e) results of closed operations and facilities not at full operation, excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) return of unclaimed class action settlement and charges related to class action lawsuit, (h) business interruption recoveries, and (i) patient base and other transaction-related costs. Adjusted EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) (earnings)/losses related to facilities currently being constructed and other start-up operations, excluding rent, depreciation, interest and income taxes, (f) results of closed operation and facilities not at full operation, excluding rent, depreciation, interest and income taxes, (g) share-based compensation expense, (h) return of unclaimed class action settlement and charges related to class action lawsuit, (i) business interruption recoveries and (j) patient base and other transaction-related costs. The company believes that the presentation of EBITDA, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company’s operating performance. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and adjusted EBITDAR has economic substance because the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company's periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Ensign's website at http://www.ensigngroup.net.

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Form 8-K ENSIGN GROUP, INC For: Aug 02

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