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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

The Ensign Group Reports Third Quarter Results, Raises Guidance

October 30, 2019 GMT

SAN JUAN CAPISTRANO, Calif., Oct. 30, 2019 (GLOBE NEWSWIRE) -- The Ensign Group, Inc. (Nasdaq: ENSG), the parent company of the Ensign(TM) group of companies, which provide skilled nursing and assisted living services, physical, occupational and speech therapies and other rehabilitative and healthcare services, announced its operating results for the third quarter of 2019, reporting a GAAP diluted earnings per share of $0.48 for the quarter with adjusted earnings per share of $0.55 for the quarter (1).

Highlights Include:

# GAAP earnings per share for the quarter was $0.48, an increase of 26.3% over the prior year quarter, and adjusted earnings per share was $0.55, up 19.6% over the prior year quarter(1); # Consolidated GAAP Net Income for the quarter was $27.2 million, an increase of 30.2% over the prior year quarter, and adjusted Net Income was $30.9 million, an increase of 24.0% over the prior year quarter(1); # Consolidated EBITDA for the quarter was $52.6 million, an increase of 26.1% over the prior year quarter, and adjusted EBITDA was $58.5 million, an increase of 20.9% over the prior year quarter(1); # Total Transitional and Skilled Services segment revenue was $485.9 million, an increase of 15.2% over the prior year quarter, and segment income was $56.8 million for the quarter, an increase of 22.6% over the prior year quarter(2); # Same store skilled services occupancy was 80.0%, an increase of 210 basis points over the prior year quarter, and skilled managed care revenue was up 11.2%; # Transitioning skilled services occupancy was 77.9%, an increase of 240 basis points over the prior year quarter; and skilled managed care revenue was up 19.9%;

(1) See “Reconciliation of GAAP to Non-GAAP Financial Information”. (2) Segment income is defined and outlined in Note 7 on Form 10-Q. Segment income excludes general and administrative expenses and interest expense, as well as the elimination of intercompany transactions.

Operating Results

“As we celebrate the completion of the spin-off of The Pennant Group, Inc. we are very pleased to announce one of our largest third quarter improvements in our history, with GAAP earnings per share for the quarter of $0.48, an increase of 26.3% over the prior year quarter, and adjusted earnings per share of $0.55, up 19.6% over the prior year quarter,” said Ensign’s Chief Executive Officer Barry Port. He continued, “These extraordinary results are a testament to the quality outcomes that are being achieved by our local leaders and caregivers, as they continue to drive impressive increases to occupancy, and are even more noteworthy given that in third quarter of 2018 we had the largest quarter over quarter improvements in our history.”

Port noted that much of the improvement has come from strong quarter over quarter improvements in occupancy and skilled mix across all operations, including same store, transitioning and newly acquired operations. He added, “We are excited about the momentum we continue to see in occupancy, as this is the second quarter in a row where we have experienced an increase of over 200 basis points in occupancy in both same store and transitioning operations. We believe these results demonstrate that even in a period where occupancies across the industry are down, and in what is historically one of our slowest quarters, we are able to consistently drive results across all payor types, including Medicaid, Medicare, managed care and private pay.”

Pointing to the enormous effort that went into consummating the spin-off of Pennant, Port added, “We are especially grateful to our Service Center partners who worked tirelessly to prepare for and complete the spin-off while simultaneously providing support to our local leaders. While it would have been easy to allow the spin-off to become a distraction, our unique operating model of local leadership, combined with the support of a world class Service Center, has been proven once more. The results also show, yet again, that our local approach to healthcare is scalable even in the midst of a transformational spin and acquisitions,” he said.

For the second time this year, Ensign raised its pre-spin 2019 annual earnings guidance. “Because we are ahead of schedule on our results this year, we again increased our 2019 annual earnings guidance to between $2.24 and $2.31 per diluted share and annual revenue of between $2.35 billion and $2.40 billion. Overall, the midpoint of this guidance represents an increase of 21.2% over Ensign’s 2018 annual earnings,” Port said.

“When adjusting for only the fourth quarter impact of the Pennant spin-off, this newly increased 2019 annual guidance translates to between $2.15 to $2.21 per diluted share and annual revenue of between $2.27 billion and $2.30 billion. We are very excited about our performance so far this year and are confident that, even with the implementation of PDPM, which took effect October 1st, as our local leaders continue to adjust to local market conditions, we will carry this momentum into the fourth quarter and beyond,” Port added.

“We are also very pleased to give you our 2020 annual earnings guidance of between $2.22 and $2.30 per diluted share and annual revenue guidance of between $2.30 billion and $2.35 billion, which does not include any of the results from the spun-out Pennant businesses. We are very optimistic that with the continued upside that is inherent in our portfolio and the attractive acquisitions on the horizon, that we will be able to continue to meet or exceed our pre-spin growth rates. To underline this confidence, the midpoint of our 2020 guidance represents an increase of 18.3% over the midpoint of our 2019 full-year spin-adjusted earnings guidance, which is between $1.88 and $1.94 per diluted share.” Port said. He concluded, “We believe we are on a path to make up for all of Pennant’s 2019 earnings by the end of 2020. We have not even come close to reaching our full potential, and to do so it will take a relentless commitment to our culture and the repetitious adherence to sound fundamentals.”

Chad Keetch, Ensign’s Chief Investment Officer also highlighted Ensign’s unique entrepreneurial culture and its history of incubating other post-acute related healthcare businesses, including the home health, hospice and senior living businesses that were spun off as Pennant. “We have several other post-acute related new ventures we are growing and look forward to watching them follow the same path as our Pennant partners. While these businesses are relatively small today, we are excited to support them in their growth as they apply proven Ensign leadership and operational principles to their respective businesses,” Keetch said.

Chief Financial Officer, Suzanne Snapper reported that the company’s liquidity remains strong with approximately $195 million of availability on its new $350 million credit facility, which also has a built-in expansion option, and 62 unlevered real estate assets that add additional liquidity. Snapper also indicated that the company maintained a lease-adjusted net-debt-to-adjusted EBITDAR ratio of 3.72x at quarter end, even after continued acquisitions, which tend to temporarily raise the ratio while EBITDAR from new acquisitions catches up. She also indicated that cash generated from operations was $137.6 million during the nine months ended September 30, 2019, which was primarily driven by an increase in operating results.

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 three and nine months ended September 30, 2019, which is expected to be filed with the SEC today and can be viewed on the company’s website at http://www.ensigngroup.net.

Quarterly Growth

During the quarter, Ensign paid a quarterly cash dividend of $0.0475 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.

Also during the quarter and since, Ensign’s affiliates acquired the following skilled nursing and healthcare campus operations:

-- Valley of the Moon Post Acute, a 27-bed hospital-based skilled nursing operation that is being operated under a management arrangement with Sonoma Valley Hospital in Sonoma, California; -- The Terrace at Mount Ogden, a 114-bed skilled nursing operation in Ogden, Utah; -- Surprise Health and Rehabilitation Center, a skilled nursing facility with 100 skilled nursing beds located in Surprise, Arizona; -- Temple View Transitional Care Center, a 119-bed skilled nursing facility located in Rexburg, Idaho; and -- St. Joseph’s Villa Independent Living, a 58-unit independent living operation in Salt Lake City, Utah.

Also during the quarter, our Pennant partners acquired the following operations:

-- Agape Hospice, a hospice agency providing services in Tucson, Arizona; and -- Mainplace Senior Living, a 91-unit senior living center, located in Orange, California.

“Even though we’ve had a solid year on the acquisition front so far, we expect several acquisitions that we have been working on for months to close in the fourth quarter or early in the first quarter of next year,” Keetch said. “Our pipeline remains very healthy but we continue to be very selective and are keeping plenty of dry powder on hand for what we believe will be an increasingly more attractive buyer’s market,” he added.

These additions bring Ensign’s growing portfolio to 202 skilled nursing operations, 27 of which also include senior living operations across fourteen states. Ensign owns the real estate at 81 of its 260 healthcare facilities. Keetch reaffirmed that Ensign continues to actively seek transactions to acquire real estate and to lease both well-performing and struggling skilled nursing, senior living and other healthcare related businesses in new and existing markets.

2019 Guidance

Management raised its 2019 annual earnings per share guidance and translated the guidance to include the fourth quarter impact of the spin-off of Pennant, to between $2.15 and $2.21 per diluted share and revenue to between $2.27 billion and $2.30 billion. Snapper indicated that the 2019 guidance excludes the spin-off transaction costs, share-based compensation and costs incurred for start-up operations. The guidance includes, among other things, self-insured healthcare costs, anticipated Medicare and Medicaid reimbursement rates, the implementation of the new Patient Driven Payment Model (PDPM) and acquisitions completed through the end of the year.

2020 Guidance

Management provided guidance for 2020, with annual earnings per share guidance of $2.22 to $2.30 per diluted share and annual revenue guidance of $2.30 billion to $2.35 billion. The midpoint of this 2020 guidance represents an increase of 18.3% over the midpoint of Ensign’s 2019 full-year spin-adjusted earnings guidance, which is between $1.88 and $1.94 per diluted share. Management’s guidance is based on diluted weighted average common shares outstanding of approximately 57.6 million and a 25% tax rate. In addition, the guidance assumes, among other things, normalized health insurance costs, anticipated Medicare and Medicaid reimbursement rate increases, net of provider taxes, the implementation of the new Patient Driven Payment Model (PDPM) and acquisitions closed in the first half of 2020. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, share-based compensation and start-up losses.

Conference Call

A live webcast will be held Thursday, October 31, 2019 at 10:00 a.m. Pacific time (1:00 p.m. Eastern time) to discuss Ensign’s third 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, December 6, 2019.

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 and other rehabilitative and healthcare services at 212 healthcare facilities in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. Ensign’s new business venture operating subsidiaries also offer several other post-acute-related services, including mobile x-ray, lab, non-emergency transportation services and other consulting services also across several states. 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 verbiage, are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the facilities, 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. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September September 30, 30, ----------------------- --------------------------- 2019 2018 2019 2018 - ------- - - ------- - - --------- - - --------- - Revenue $ 600,507 $ 514,364 $ 1,725,372 $ 1,502,884 Expense Cost of services 477,805 413,723 1,364,807 1,200,098 Return of unclaimed class action settlement - - - (1,664 ) Rent—cost of services 37,728 34,851 110,574 103,173 General and administrative expense 31,710 24,601 95,295 72,091 Depreciation and amortization 14,319 11,902 40,101 35,145 - ------- - - ------- - - --------- - - --------- - Total expenses 561,562 485,077 1,610,777 1,408,843 Income from operations 38,945 29,287 114,595 94,041 Other income (expense): Interest expense (3,900 ) (3,989 ) (11,513 ) (11,471 ) Interest income 736 467 1,883 1,477 - ------- - - ------- - - --------- - - --------- - Other expense, net (3,164 ) (3,522 ) (9,630 ) (9,994 ) - ------- - - ------- - - --------- - - --------- - Income before provision for income taxes 35,781 25,765 104,965 84,047 Provision for income taxes 7,953 5,415 20,605 18,078 - ------- - - ------- - - --------- - - --------- - Net income 27,828 20,350 84,360 65,969 Less: net income/(loss) attributable to noncontrolling 669 (511 ) 1,220 (35 ) interests - ------- - - ------- - - --------- - - --------- - Net income attributable to The Ensign Group, Inc. $ 27,159 $ 20,861 $ 83,140 $ 66,004 - ------- - - ------- - - --------- - - --------- - Net income per share attributable to The Ensign Group, Inc.: Basic $ 0.50 $ 0.40 $ 1.55 $ 1.27 - ------- - - ------- - - --------- - - --------- - Diluted $ 0.48 $ 0.38 $ 1.48 $ 1.22 - ------- - - ------- - - --------- - - --------- - Weighted average common shares outstanding: Basic 53,941 52,139 53,470 51,870 - ------- - - ------- - - --------- - - --------- - Diluted 56,364 54,632 56,054 54,176 - ------- - - ------- - - --------- - - --------- -

THE ENSIGN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 2019 2018 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 44,396 $ 31,083 Accounts receivable—less allowance for doubtful accounts of $3,707 and $2,886 at 308,093 276,099 September 30, 2019 and December 31, 2018, respectively Investments—current 13,026 8,682 Prepaid income taxes 2,536 6,219 Prepaid expenses and other current assets 25,150 24,130 Assets held for sale - current - 1,859 - --------- - - --------- - Total current assets 393,201 348,072 Property and equipment, net 708,224 618,874 Right-of-use assets 1,062,219 - Insurance subsidiary deposits and investments 34,561 36,168 Escrow deposits 50 7271 Deferred tax assets 8,105 11,650 Restricted and other assets 17,351 20,844 Intangible assets, net 3,541 31,000 Goodwill 96,199 80,477 Other indefinite-lived intangibles 36,098 27,602 - --------- - - --------- - Total assets $ 2,359,549 $ 1,181,958 - --------- - - --------- - Liabilities and equity Current liabilities: Accounts payable $ 40,019 $ 44,236 Accrued wages and related liabilities 132,659 119,656 Lease liabilities—current 60,817 - Accrued self-insurance liabilities—current 26,707 25,446 Other accrued liabilities 84,250 69,784 Current maturities of long-term debt 10,177 10,105 - --------- - - --------- - Total current liabilities 354,629 269,227 Long-term debt—less current maturities 265,692 233,135 Long-term lease liabilities—less current portion 974,496 - Accrued self-insurance liabilities—less current portion 58,958 54,605 Other long-term liabilities 3,968 11,234 Deferred gain related to sale-leaseback - 11,417 Total equity 701,806 602,340 Total liabilities and equity $ 2,359,549 $ 1,181,958 - --------- - - --------- - THE ENSIGN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented: Nine Months Ended September 30, ---------------------------- 2019 2018 - --------- - - --------- - Net cash provided by operating activities $ 137,593 $ 157,277 Net cash used in investing activities (149,388 ) (95,269 ) Net cash provided by/(used in) financing activities 25,108 (58,688 ) - --------- - - --------- - Net increase in cash and cash equivalents 13,313 3,320 Cash and cash equivalents beginning of period 31,083 42,337 - --------- - - --------- - Cash and cash equivalents end of period $ 44,396 $ 45,657 - --------- - - --------- -

THE ENSIGN GROUP, INC. REVENUE BY SEGMENT (Unaudited) The following table sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------- --------------------------------------- 2019 2018 2019 2018 - -------------- - -------------- - ---------------- - ---------------- $ % $ % $ % $ % --------- ------- --------- ------- ----------- ------- ----------- ------- (Dollars in thousands) (Dollars in thousands) Transitional and skilled services $ 485,973 80.9% $ 421,764 82.0% $ 1,404,469 81.4% $ 1,237,298 82.3% Senior living services 43,796 7.3 38,058 7.4 126,536 7.3 111,335 7.4 Home health and hospice services: Home health 25,983 4.3 22,260 4.3 74,630 4.3 63,765 4.2 Hospice 29,188 4.9 21,577 4.2 76,866 4.5 61,079 4.1 Total home health and hospice 55,171 9.2 43,837 8.5 151,496 8.8 124,844 8.3 services All other(1) 15,567 2.6 10,705 2.1 42,871 2.5 29,407 2.0 Total revenue $ 600,507 100.0% $ 514,364 100.0% $ 1,725,372 100.0% $ 1,502,884 100.0% - ------- ------ - ------- ------ - --------- ------ - --------- ------ (1) Includes revenue from services generated in our other ancillary services.

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 September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Total Facility Results: Transitional and skilled revenue $ 485,973 $ 421,764 $ 64,209 15.2% Number of facilities at period 175 163 12 7.4% end Number of campuses at period end* 27 22 5 22.7% Actual patient days 1,516,697 1,367,142 149,555 10.9% Occupancy percentage — 78.9% 77.3% 1.6% Operational beds Skilled mix by nursing days 28.5% 28.3% 0.2% Skilled mix by nursing revenue 47.8% 47.9% (0.1)% Three Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Same Facility Results(1): Transitional and skilled revenue $ 353,745 $ 329,461 $ 24,284 7.4% Number of facilities at period 127 127 - -% end Number of campuses at period end* 14 14 - -% Actual patient days 1,066,467 1,032,002 34,465 3.3% Occupancy percentage — 80.0% 77.9% 2.1% Operational beds Skilled mix by nursing days 30.4% 29.8% 0.6% Skilled mix by nursing revenue 49.9% 49.5% 0.4% Three Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Transitioning Facility Results (2): Transitional and skilled revenue $ 91,776 $ 82,535 $ 9,241 11.2% Number of facilities at period 33 33 - -% end Number of campuses at period end* 7 7 - -% Actual patient days 313,858 302,868 10,990 3.6% Occupancy percentage — 77.9% 75.5% 2.4% Operational beds Skilled mix by nursing days 25.1% 24.0% 1.1% Skilled mix by nursing revenue 44.1% 43.5% 0.6% Three Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Recently Acquired Facility Results(3): Transitional and skilled revenue $ 40,452 $ 9,768 $ 30,684 NM Number of facilities at period 15 3 12 NM end Number of campuses at period end* 6 1 5 +NM Actual patient days 136,372 32,272 104,100 NM Occupancy percentage — 73.4% 75.0% NM Operational beds Skilled mix by nursing days 21.5% 19.5% NM Skilled mix by nursing revenue 37.0% 32.0% NM * Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective reportable segment. (1) Same Facility results represent all facilities purchased prior to January 1, 2016. (2) Transitioning Facility results represent all facilities purchased from January 1, 2016 to December 31, 2017. (3) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2018. Nine Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Total Facility Results: Transitional and skilled revenue $ 1,404,469 $ 1,237,298 $ 167,171 13.5% Number of facilities at period 175 163 12 7.4% end Number of campuses at period end* 27 22 5 22.7% Actual patient days 4,395,864 4,012,169 383,695 9.6% Occupancy percentage — 79.2% 77.2% 2.0% Operational beds Skilled mix by nursing days 29.1% 29.9% (0.8)% Skilled mix by nursing revenue 48.7% 50.1% (1.4)% Nine Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Same Facility Results(1): Transitional and skilled revenue $ 1,046,925 $ 977,456 $ 69,469 7.1% Number of facilities at period 127 127 - -% end Number of campuses at period end* 14 14 - -% Actual patient days 3,160,286 3,066,751 93,535 3.0% Occupancy percentage — 80.1% 77.9% 2.2% Operational beds Skilled mix by nursing days 31.0% 31.3% (0.3)% Skilled mix by nursing revenue 50.8% 51.4% (0.6)% Nine Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Transitioning Facility Results (2): Transitional and skilled revenue $ 269,559 $ 244,279 $ 25,280 10.3% Number of facilities at period 33 33 - -% end Number of campuses at period end* 7 7 - -% Actual patient days 934,292 893,771 40,521 4.5% Occupancy percentage — 78.2% 75.0% 3.2% Operational beds Skilled mix by nursing days 25.5% 25.5% -% Skilled mix by nursing revenue 44.7% 45.6% (0.9)% Nine Months Ended September 30, -------------------------------------------------------- 2019 2018 Change % Change - --------- ------------------------------- - --------- --------- -------- (Dollars in thousands) Recently Acquired Facility Results(3): Transitional and skilled revenue $ 87,985 $ 15,563 $ 72,422 NM Number of facilities at period 15 3 12 NM end Number of campuses at period end* 6 1 5 NM Actual patient days 301,286 51,647 249,639 NM Occupancy percentage — 73.8% 75.2% NM Operational beds Skilled mix by nursing days 20.8% 21.0% NM Skilled mix by nursing revenue 35.3% 34.5% NM * Campus represents a facility that offers both skilled nursing and senior living services. Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective reportable segment. (1) Same Facility results represent all facilities purchased prior to January 1, 2016. (2) Transitioning Facility results represent all facilities purchased from January 1, 2016 to December 31, 2017. (3) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2018.

THE ENSIGN GROUP, INC. SKILLED NURSING AVERAGE DAILY REVENUE RATES AND PERCENT OF SKILLED NURSING REVENUE AND DAYS BY PAYOR (Unaudited) 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 September 30, ----------------------------------------------------------------------- Same Facility Transitioning Acquisitions Total ----------------- ----------------- ----------------- ----------------- 2019 2018 2019 2018 2019 2018 2019 2018 - ------ - ------ - ------ - ------ - ------ - ------ - ------ - ------ Skilled Nursing Average Daily Revenue Rates: Medicare $ 616.19 $ 596.41 $ 537.04 $ 519.26 $ 607.90 $ 541.46 $ 597.82 $ 577.09 Managed care 468.06 462.02 417.52 406.74 433.30 420.98 455.48 450.07 Other skilled 488.46 479.57 488.95 546.70 336.04 241.31 482.68 480.62 Total skilled revenue 527.58 518.06 478.97 471.07 504.83 462.02 517.16 508.31 Medicaid 232.70 226.90 206.58 193.34 233.84 238.19 227.48 219.54 Private and other payors 233.36 223.74 198.26 195.44 249.94 238.54 225.04 216.49 Total skilled nursing revenue $ 322.89 $ 313.78 $ 274.02 $ 260.46 $ 294.25 $ 281.90 $ 310.18 $ 301.19 Nine Months Ended September 30, ----------------------------------------------------------------------- Same Facility Transitioning Acquisitions Total ----------------- ----------------- ----------------- ----------------- 2019 2018 2019 2018 2019 2018 2019 2018 - ------ - ------ - ------ - ------ - ------ - ------ - ------ - ------ Skilled Nursing Average Daily Revenue Rates: Medicare $ 614.39 $ 597.81 $ 534.36 $ 518.26 $ 579.11 $ 534.74 $ 594.51 $ 577.88 Managed care 465.90 455.68 417.45 409.21 428.21 423.68 453.94 446.17 Other skilled 491.11 471.66 489.42 501.73 330.02 245.09 487.06 471.84 Total skilled revenue 528.59 515.54 478.03 471.49 489.11 462.37 517.24 506.68 Medicaid 230.69 222.86 202.51 190.61 236.25 231.45 225.10 215.68 Private and other payors 234.47 225.18 204.44 199.46 240.68 237.91 226.66 217.91 Total skilled nursing revenue $ 323.81 $ 315.12 $ 273.25 $ 263.69 $ 289.78 $ 281.02 $ 310.71 $ 303.20

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the three and nine months ended September 30, 2019 and 2018: Three Months Ended September 30, --------------------------------------------------------------- Same Facility Transitioning Acquisitions Total --------------- --------------- --------------- --------------- 2019 2018 2019 2018 2019 2018 2019 2018 ------ ------ ------ ------ ------ ------ ------ ------ Percentage of Skilled Nursing Revenue: Medicare 21.7% 22.2% 24.3% 25.3% 20.6% 16.6% 22.1% 22.6% Managed care 18.4 17.6 18.1 16.4 14.0 14.2 18.0 17.3 Other skilled 9.8 9.7 1.7 1.8 2.4 1.2 7.7 8.0 Skilled mix 49.9 49.5 44.1 43.5 37.0 32.0 47.8 47.9 Private and other payors 7.6 7.9 11.6 11.3 10.5 15.5 8.5 8.8 Quality mix 57.5 57.4 55.7 54.8 47.5 47.5 56.3 56.7 Medicaid 42.5 42.6 44.3 45.2 52.5 52.5 43.7 43.3 Total skilled nursing 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ ------ ------ ------ ------ Three Months Ended September 30, --------------------------------------------------------------- Same Facility Transitioning Acquisitions Total --------------- --------------- --------------- --------------- 2019 2018 2019 2018 2019 2018 2019 2018 ------ ------ ------ ------ ------ ------ ------ ------ Percentage of Skilled Nursing Days: Medicare 11.3% 11.6% 12.3% 12.6% 10.0% 8.6% 11.4% 11.8% Managed care 12.6 11.9 11.8 10.5 9.5 9.5 12.2 11.5 Other skilled 6.5 6.3 1.0 0.9 2.0 1.4 4.9 5.0 Skilled mix 30.4 29.8 25.1 24.0 21.5 19.5 28.5 28.3 Private and other payors 10.9 11.5 16.4 15.2 12.7 18.4 12.2 12.5 Quality mix 41.3 41.3 41.5 39.2 34.2 37.9 40.7 40.8 Medicaid 58.7 58.7 58.5 60.8 65.8 62.1 59.3 59.2 Total skilled nursing 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ ------ ------ ------ ------ Nine Months Ended September 30, --------------------------------------------------------------- Same Facility Transitioning Acquisitions Total --------------- --------------- --------------- --------------- 2019 2018 2019 2018 2019 2018 2019 2018 ------ ------ ------ ------ ------ ------ ------ ------ Percentage of Skilled Nursing Revenue: Medicare 22.9% 23.8% 24.8% 27.4% 19.1% 18.2% 23.0% 24.4% Managed care 18.4 18.4 18.3 16.8 14.2 15.1 18.1 18.0 Other skilled 9.5 9.2 1.6 1.4 2.0 1.2 7.6 7.7 Skilled mix 50.8 51.4 44.7 45.6 35.3 34.5 48.7 50.1 Private and other payors 7.5 7.7 11.4 11.8 11.7 14.8 8.5 8.5 Quality mix 58.3 59.1 56.1 57.4 47.0 49.3 57.2 58.6 Medicaid 41.7 40.9 43.9 42.6 53.0 50.7 42.8 41.4 Total skilled nursing 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ ------ ------ ------ ------ Nine Months Ended September 30, --------------------------------------------------------------- Same Facility Transitioning Acquisitions Total --------------- --------------- --------------- --------------- 2019 2018 2019 2018 2019 2018 2019 2018 ------ ------ ------ ------ ------ ------ ------ ------ Percentage of Skilled Nursing Days: Medicare 12.0% 12.5% 12.7% 13.9% 9.5% 9.6% 12.0% 12.8% Managed care 12.8 12.6 11.9 10.8 9.6 10.0 12.4 12.2 Other skilled 6.2 6.2 0.9 0.8 1.7 1.4 4.7 4.9 Skilled mix 31.0 31.3 25.5 25.5 20.8 21.0 29.1 29.9 Private and other payors 10.8 11.1 15.4 15.7 14.4 17.5 12.0 12.2 Quality mix 41.8 42.4 40.9 41.2 35.2 38.5 41.1 42.1 Medicaid 58.2 57.6 59.1 58.8 64.8 61.5 58.9 57.9 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 senior living services segment along with other statistics, for each of the date or periods indicated: Three Months Ended September 30, -------------------------------- 2019 2018 Change % Change - ------- - ------- ----------- -------- -------- (Dollars in thousands) Resident fee revenue $ 43,796 $ 38,058 $ 5,738 15.1% Number of facilities at period end 57 51 6 11.8% Number of campuses at period end 27 22 5 22.7% Occupancy percentage (units) 75.2% 76.0% (0.8)% Average monthly revenue per unit $ 2,907 $ 2,855 $ 52 1.8% Nine Months Ended September 30, -------------------------------- 2019 2018 Change % Change - ------- - ------- ----------- -------- -------- (Dollars in thousands) Resident fee revenue $ 126,536 $ 111,335 $ 15,201 13.7% Number of facilities at period end 57 51 6 11.8% Number of campuses at period end 27 22 5 22.7% Occupancy percentage (units) 75.3% 75.6% (0.3)% Average monthly revenue per unit $ 2,917 $ 2,858 $ 59 2.1%

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 date or periods indicated: Three Months Ended September 30, ------------------- 2019 2018 Change % Change - ------- - ------- -------- -------- (Dollars in thousands) Home health and hospice revenue Home health services $ 25,983 $ 22,260 $ 3,723 16.7% Hospice services 29,188 21,577 7,611 35.3% Total home health and hospice revenue $ 55,171 $ 43,837 $ 11,334 25.9% Home health, hospice and home care agencies 63 49 14 28.6% Home health services: Average Medicare revenue per completed episode $ 3,173 $ 3,001 $ 172 5.7% Hospice services: Average daily census 1,788 1,379 409 29.7% Nine Months Ended September 30, ------------------- 2019 2018 Change % Change (Dollars in thousands) Home health and hospice revenue Home health services $ 74,630 $ 63,765 $ 10,865 17.0% Hospice services 76,866 61,079 15,787 25.8% Total home health and hospice revenue $ 151,496 $ 124,844 $ 26,652 21.3% Home health, hospice and home care agencies 63 49 14 28.6% Home health services: Average Medicare revenue per completed episode $ 3,072 $ 2,968 $ 104 3.5% Hospice services: Average daily census 1,625 1,310 315 24.0%

THE ENSIGN GROUP, INC. REVENUE BY PAYOR SOURCE (Unaudited) 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 September 30, Nine Months Ended September 30, ----------------------------------- --------------------------------------- 2019 2018 2019 2018 - -------------- - -------------- - ---------------- - ---------------- $ % $ % $ % $ % --------- ------- --------- ------- ----------- ------- ----------- ------- (Dollars in thousands) (Dollars in thousands) ----------------------------------- --------------------------------------- Revenue: Medicaid $ 218,725 36.4% $ 188,486 36.6% $ 620,539 36.0% $ 529,280 35.2% Medicare 157,046 26.2 133,554 26.0 457,953 26.5 409,681 27.3 Medicaid-skilled 34,080 5.7 30,684 6.0 96,323 5.6 86,024 5.7 Total Medicaid and Medicare 409,851 68.3 352,724 68.6 1,174,815 68.1 1,024,985 68.2 Managed Care 96,095 16.0 80,196 15.6 279,633 16.2 244,062 16.2 Private and Other(1) 94,561 15.7 81,444 15.8 270,924 15.7 233,837 15.6 Revenue $ 600,507 100.0% $ 514,364 100.0% $ 1,725,372 100.0% $ 1,502,884 100.0% - ------- ------ - ------- ------ - --------- ------ - --------- ------ (1) Private and other payors also includes revenue from all payors generated in our other ancillary services for the three and nine months ended September 30, 2019 and 2018.

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 Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Net income attributable to The Ensign Group, Inc. $ 27,159 $ 20,861 $ 83,140 $ 66,004 Non-GAAP adjustments Results related to operations in the start-up phase(a) 63 500 390 3,347 Return of unclaimed class action settlement - - - (1,664 ) Share-based compensation expense(b) 2,978 2,811 9,233 7,639 Results related to closed operations and operations not at 1,219 224 2,192 712 full capacity(c) Transaction-related costs(d) 139 228 748 338 Depreciation and amortization - patient base(e) 110 48 296 150 General and administrative - spin-off transaction costs(f) 3,261 - 7,908 - Gain on sale of/impairment charges to fixed assets(g) (1,402 ) - (1,402 ) - COS - business interruption gains(h) - - - (675 ) COS - Goodwill and intangible assets impairment(i) - 3,177 - 3,177 Provision for income taxes on Non-GAAP adjustments(j) (2,584 ) (2,890 ) (10,478 ) (6,309 ) - ------ - - ------- - - ------- - - ------- - Non-GAAP Net Income $ 30,943 $ 24,959 $ 92,027 $ 72,719 - ------ - - ------- - - ------- - - ------- - Diluted Earnings Per Share As Reported Net Income $ 0.48 $ 0.38 $ 1.48 $ 1.22 - ------ - - ------- - - ------- - - ------- - Average number of shares outstanding 56,364 54,632 56,054 54,176 - ------ - - ------- - - ------- - - ------- - Adjusted Diluted Earnings Per Share Net Income $ 0.55 $ 0.46 $ 1.64 $ 1.34 - ------ - - ------- - - ------- - - ------- - Average number of shares outstanding 56,364 54,632 56,054 54,176 - ------ - - ------- - - ------- - - ------- - Footnotes: -------------------------------------------------------------- ---------- ----------- ----------- ----------- (a) Represents operating results for start-up operations. Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Revenue $ (73 ) $ (17,011 ) $ (325 ) $ (49,577 ) Cost of services 132 13,672 702 41,444 Rent 4 3,596 13 10,750 Depreciation and amortization - 243 - 730 - ------ - - ------- - - ------- - - ------- - Total Non-GAAP adjustment $ 63 $ 500 $ 390 $ 3,347 - ------ - - ------- - - ------- - - ------- - (b) Represents share-based compensation expense incurred. Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Cost of services $ 1,853 $ 1,533 $ 5,371 $ 4,170 General and administrative 1,125 1,278 3,862 3,469 - ------ - - ------- - - ------- - - ------- - Total Non-GAAP adjustment $ 2,978 $ 2,811 $ 9,233 $ 7,639 - ------ - - ------- - - ------- - - ------- - (c) Represents results at closed operations and operations not at full capacity Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Revenue $ (2,567 ) $ - $ (4,427 ) $ - Cost of services 3,122 139 5,609 464 Rent 295 76 478 225 Depreciation and amortization 369 9 532 23 - ------ - - ------- - - ------- - - ------- - Total Non-GAAP adjustment $ 1,219 $ 224 $ 2,192 $ 712 - ------ - - ------- - - ------- - - ------- - (d) Represents costs incurred to acquire an operation which are not capitalizable Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Cost of services $ 66 $ - $ 505 $ - General and administrative 73 228 243 338 Total Non-GAAP adjustment $ 139 $ 228 $ 748 $ 338 (e) Included in depreciation and amortization are expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities. (f) Included in general and administrative expense are costs incurred in connection with the completed spin-off of our home health and hospice operations and substantially all of our senior living operations to a newly formed publicly traded company. (g) Gain on sale of/impairment charges to fixed assets includes a gain recognized for the sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations of $1.5 million during the three and nine months ended September 30, 2019. (h) Business interruption recoveries related to insurance claims of the California fires that occurred in the fourth quarter of 2017. (i) Impairment charges to goodwill and intangible assets for one of our other ancillary operations. Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------- - - ------- - - ------- - Cost of services $ - $ 3,653 $ - $ 3,653 Non-controlling interest - (476 ) - (476 ) - ------ - - ------- - - ------- - - ------- - Total Non-GAAP adjustment $ - 3,177 $ - 3,177 - ------ - - ------- - - ------- - - ------- - (j) Represents an adjustment to the provision for income tax to our historical year to date effective tax rate of 25.0% for the three and nine months ended September 30, 2019 and 2018. This rate excludes the tax benefit of shared-based payment awards.

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 Nine Months Ended September 30, September 30, --------------------- ----------------------- 2019 2018 2019 2018 - ------ - - ------ - - ------- - - ------- - Consolidated Statements of Income Data: Net income $ 27,828 $ 20,350 $ 84,360 $ 65,969 Less: net income/(loss) attributable to noncontrolling 669 (511 ) 1,220 (35 ) interests Add: Interest expense, net 3,164 3,522 9,630 9,994 Provision for income taxes 7,953 5,415 20,605 18,078 Depreciation and amortization 14,319 11,902 40,101 35,145 - ------ - - ------ - - ------- - - ------- - EBITDA $ 52,595 $ 41,700 $ 153,476 $ 129,221 - ------ - - ------ - - ------- - - ------- - Adjustments to EBITDA: Results related to closed operations and operations not at full 555 139 1,182 464 capacity(a) Losses/(earnings) related to operations in the start-up phase 59 (3,339 ) 377 (8,133 ) (b) Return of unclaimed class action settlement - - - (1,664 ) Share-based compensation expense 2,978 2,811 9,233 7,639 Spin-off transaction costs(c) 3,261 - 7,908 - Acquisition related costs(d) 139 228 748 338 Gain on sale of/impairment charges to fixed assets(e) (1,402 ) - (1,402 ) - Impairment of goodwill and intangible assets(f) - 3,177 - 3,177 Business interruption recoveries(g) - - - (675 ) Rent related to items above 299 3,672 491 10,975 - ------ - - ------- - Adjusted EBITDA $ 58,484 $ 48,388 $ 172,013 $ 141,342 - ------ - - ------ - - ------- - - ------- - Rent—cost of services 37,728 34,851 110,574 103,173 Less: rent related to items above (299 ) (3,672 ) (491 ) (10,975 ) - ------ - - ------ - - ------- - - ------- - Adjusted rent—cost of services 37,429 31,179 110,083 92,198 - ------ - - ------- - Adjusted EBITDAR $ 95,913 $ 282,096 ---------- ----------- (a) Results at closed operations and operations not at full capacity during the three and nine months ended September 30, 2019 and 2018. (b) Represents results related to facilities currently in the start-up phase after construction was completed. This amount excludes rent, depreciation and interest expense. (c) Costs incurred in connection with the completed spin-off transaction of our home health and hospice operations and substantially all of our senior living operations to a newly formed publicly traded company. (d) Costs incurred to acquire operations which are not capitalizable. (e) Gain on sale of/impairment charges to fixed assets includes a gain recognized for the sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations of $1.5 million during the three and nine months ended September 30, 2019. (f) Impairment charges to goodwill and intangible assets for our other ancillary operations during the three and nine months ended September 30, 2018, excluding the impact of non-controlling interest of $0.5 million. Including the impact of noncontrolling interest, goodwill and intangible assets impairment is $3.7 million. (g) 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 and Adjusted EBITDA for each reportable segment for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------------------------------- ----------------------------------------------------------------- Transitional and Senior Living Home Health and Transitional and Senior Living Home Health and Skilled Services Hospice Skilled Services Hospice Services Services --------------------- ----------------- ------------------- ----------------------- ------------------- --------------------- 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - Statements of Income Data: Income from operations, excluding general $ 56,838 $ 46,350 $ 2,815 $ 4,733 $ 8,424 $ 7,297 $ 172,254 $ 135,755 $ 12,674 $ 14,361 $ 22,598 $ 19,623 and administrative expense(a) Less: net income attributable to - - - - 279 42 - - - - 629 413 noncontrolling interests Depreciation and 9,331 8,061 2,127 1,902 317 263 26,883 23,571 6,046 5,362 897 789 amortization - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - EBITDA $ 66,169 $ 54,411 $ 4,942 $ 6,635 $ 8,462 $ 7,518 $ 199,137 $ 159,326 $ 18,720 $ 19,723 $ 22,866 $ 19,999 - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - Adjustments to EBITDA: Results related to operations in the - (3,461 ) - 64 59 58 - (8,469 ) - 243 377 93 start-up phase(b) Results related to closed operations 190 139 - - - - 480 464 - - - - and operations not at full capacity(c) Share-based compensation 1,566 1,197 56 182 181 124 4,524 3,259 231 521 479 314 expense Gain on sale of/impairment (2,873 ) - 1,471 - - - (2,873 ) - 1,471 - - - charges to fixed assets(d) Transaction-related - - - 67 - - - - 505 - costs(e) - - Business interruption - - - - - (675 ) - - - - recoveries(f) - - Rent related to 245 2,777 886 4 9 398 8,303 2,649 13 23 items above - - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------ - ------ - - ------ - Adjusted EBITDA $ 65,297 $ 55,063 $ 6,469 $ 7,767 $ 8,773 $ 7,709 $ 201,666 $ 162,208 $ 20,422 $ 23,136 $ 24,240 $ 20,429 - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - Rent—cost of 30,285 28,088 6,471 6,015 725 583 88,504 82,698 19,280 18,324 2,137 1,671 services Less: rent related (245 ) (2,777 ) - (886 ) (4 ) (9 ) (398 ) (8,303 ) - (2,649 ) (13 ) (23 ) to items above - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - Adjusted rent—cost $ 30,040 $ 25,311 $ 6,471 $ 5,129 $ 721 $ 574 $ 88,106 $ 74,395 $ 19,280 $ 15,675 $ 2,124 $ 1,648 of services - ------ - - ------ - - ----- - ----- - - ----- - - ----- - - ------- - - ------- - - ------ - ------ - - ------ - - ------ - (a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss. (b) Represents results related to facilities currently in the start-up phase after construction was completed. This amount excludes rent, depreciation and interest expense. (c) Results at closed operations and operations not at full capacity during the three and nine months ended September 30, 2019 and 2018. (d) Gain on sale of/impairment charges to fixed assets includes a gain recognized for the sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations of $1.5 million during the three and nine months ended September 30, 2019. (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.

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. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) costs incurred for operations currently in start-up phase, excluding depreciation, interest and income taxes, (e) results of operations not at full capacity, excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) return of unclaimed class action settlement, (h) patient base and other acquisition-related costs, (i) spin-off transaction costs, (j) gain on sale of/impairment charges to fixed assets, (k) impairment of intangible assets and goodwill and (l) business interruption recoveries. 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) costs incurred for facilities currently in start-up phase, excluding rent, depreciation, interest and income taxes, (f) results operations not at full capacity, excluding rent, depreciation, interest and income taxes, (g) share-based compensation expense, (h) return of unclaimed class action settlement, (i) patient base and other acquisition-related costs, (j) spin-off transaction costs, (k) gain on sale of/impairment charges to fixed assets, (l) impairment of intangible assets and goodwill and (m) business interruption recoveries. The company believes that the presentation of EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company’s operating performance. Adjusted EBITDAR is a financial valuation measure that is not specified in GAAP. This measure is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and adjusted EBITDAR has 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.