Market Overview

The Ensign Group Reports Second Quarter Results

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

MISSION VIEJO, Calif., Aug. 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 added, "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 during the quarter. 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

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, ir@ensigngroup.net.   

SOURCE: The Ensign Group, Inc.


 

THE ENSIGN GROUP, INC.
CONSOLIDATED STATEMENTS 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 table sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated: 
 
    Three Months Ended June 30,   Six Months Ended June 30,
  2018 (As Reported)   2018 (Pro Forma (2))     2017     2018 (As Reported)   2018 (Pro Forma (2))      2017  
  $   %   $   %   $   %   $   %   $   %   $   %
    (Dollars in thousands)   (Dollars in thousands)
Transitional and skilled services   $   408,518   82.3 %   $   417,061   82.5 %   $   375,217   83.7 %   $   815,534   82.5 %   $   832,282   82.7 %   $   747,556   84.0 %
Assisted and independent living services      37,164   7.5 %      37,164   7.4 %      33,009   7.4 %      73,277   7.4 %      73,277   7.3 %      65,355   7.3 %
Home health and hospice services:                                                
Home health      21,321   4.3 %      21,701   4.3 %      17,871   4.0 %      41,505   4.2 %      42,297   4.2 %      34,922   3.9 %
Hospice      19,928   4.0 %      20,083   4.0 %      16,750   3.7 %      39,502   4.0 %      39,844   4.0 %      31,832   3.6 %
Total home health and hospice services      41,249   8.3 %      41,784   8.3 %      34,621   7.7 %      81,007   8.2 %      82,141   8.2 %      66,754   7.5 %
All other (1)      9,455   1.9 %      9,455   1.8 %      5,432   1.2 %      18,702   1.9 %      18,702   1.8 %      10,354   1.2 %
Total revenue   $   496,386   100.0 %   $   505,464   100.0 %   $   448,279   100.0 %   $   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 three and 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
   
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 independently 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 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
               
*  Campus represents a facility that offers both skilled nursing and assisted and/or independently 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 six months ended June 30, 2017, which were excluded from Same Store and Transitioning results for 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: 
                               
  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 ended 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,   Six Months Ended June 30,
    2018 As Reported   2018 Pro forma (2)      2017     2018 As Reported   2018 Pro forma (2)      2017  
    $   %   $   %   $   %   $   %   $   %   $   %
                                                                         
    (Dollars in thousands)   (Dollars in thousands)
Revenue:                                                
Medicaid   $   173,169   34.9 %   $   176,689   35.0 %   $   152,637   34.0 %   $   340,794   34.5 %   $   346,998   34.5 %   $   300,908   33.8 %
Medicare      136,813   27.6 %      138,027   27.3 %      128,151   28.6 %      276,127   27.9 %      278,408   27.7 %      258,072   29.0 %
Medicaid-skilled      28,298   5.7 %      28,935   5.7 %      24,913   5.6 %      55,340   5.6 %      56,473   5.6 %      47,930   5.4 %
Total      338,280   68.2 %      343,651   68.0 %      305,701   68.2 %      672,261   68.0 %      681,879   67.8 %      606,910   68.2 %
Managed Care      80,150   16.1 %      81,786   16.2 %      74,925   16.7 %      163,866   16.6 %      167,631   16.7 %      150,486   16.9 %
Private and Other(1)      77,956   15.7 %      80,027   15.8 %      67,653   15.1 %      152,393   15.4 %      156,892   15.5 %      132,623   14.9 %
Total revenue   $   496,386   100.0 %   $   505,464   100.0 %   $   448,279   100.0 %   $   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 three and 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 three and six months ended June 30, 2018 by presenting the dollars and percentages as if the previous accounting guidance was still in effect.
                                                 


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              
(Earnings)/losses 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  
Business interruption recoveries(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) or 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    8        13        15        70  
Total Non-GAAP adjustment $   292     $   (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. 
(g) Business interruption recoveries related to insurance claims of the California fires that occurred in the fourth quarter of 2017. 
(h) Represents an adjustment to the provision for income tax to our historical year to date effective tax rate of 25.0%, resulting from adoption of 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:                
(Earnings)/losses 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)  Represent results at closed operations and operations not at full capacity during the three and 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 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,   Six Months Ended June 30,  
  Transitional
and Skilled
Services
  Assisted and Independent
Services
  Home Health
and 
Hospice
  Transitional
and Skilled
Services
  Assisted and Independent
Services
  Home Health
and
 Hospice
 
       2018        2017        2018        2017        2018        2017        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     $   89,405     $   63,494     $   9,629     $   8,096     $   12,326     $   9,217      
Less: net income attributable to noncontrolling interests      —        —        —        —        281        86        —        —        —        —        370        94      
Depreciation and amortization      7,708        7,204        1,863        1,492        281        230        15,510        14,157        3,460        3,115        526        466    
EBITDA   $   50,918     $   38,908     $   6,829     $   5,149     $   6,268     $   5,067     $   104,915     $   77,651     $   13,089     $   11,211     $   12,482     $   9,589    
                                                   
Adjustments to EBITDA:                                                  
(Earnings)/losses related to facilities currently being constructed and other start-up operations(b)      (2,626 )      (1,256 )      56        271        27        128        (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)      209        (657 )      —        —        —        —        325        3,749        —        —        —        513    
Share-based compensation expense(d)      1,076        992        180        233        99        86        2,063        2,020        338        323        190        174    
Business interruption recoveries(e)      (675 )      —        —        —        —        —        (675 )      —        —        —        —        —    
Rent related to item(b) and (c) above   $   2,759        3,720     $   880     $   289     $   7     $   10     $   5,526        6,900     $   1,764     $   1,223     $   13     $   168    
Adjusted EBITDA      51,661        41,707        7,945        5,942        6,401        5,291        107,146        89,254        15,369        13,373        12,721        10,668    
Rent—cost of services      27,832        26,733        5,928        5,323        552        426        54,609        52,679        12,309        10,631        1,089        978    
Less: rent related to items(b) and (c) above      (2,759 )      (3,720 )      (880 )      (289 )      (7 )      (10 )      (5,526 )      (6,900 )      (1,764 )      (1,223 )      (13 )      (168 )  
Adjusted EBITDAR   $   76,734     $   64,720     $   12,993     $   10,976     $   6,946     $   5,707     $   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)  (Earnings)/costs incurred for 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 and 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 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.
(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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