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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
| | | | | |
| |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2020.
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
| For the transition period from to . |
Commission file number: 001-33757
_____________________________
THE ENSIGN GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | |
Delaware | 33-0861263 |
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
29222 Rancho Viejo Road, Suite 127
San Juan Capistrano, CA 92675
(Address of Principal Executive Offices and Zip Code)
(949) 487-9500
(Registrant’s Telephone Number, Including Area Code)
_____________________________
Securities registered pursuant to Section 12(g) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | ENSG | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indicate by check mark: | | | | |
| | | | |
| | | | |
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | þ | Yes | ☐ | No |
whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | þ | Yes | ☐ | No |
whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act: | | | | |
Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | | | | |
If an emerging growth company, indicate if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | Yes | ☐ | No |
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ☐ | Yes | þ | No |
|
| |
| | | |
As of October 26, 2020, 54,241,788 shares of the registrant’s common stock, $0.001 par value, were outstanding.
THE ENSIGN GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
PART I.
Item 1. FINANCIAL STATEMENTS
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| |
| | | |
| | | |
| (In thousands, except par values) |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 175,380 | | | $ | 59,175 | |
Accounts receivable—less allowance for doubtful accounts of $6,053 and $2,472 at September 30, 2020 and December 31, 2019, respectively | 294,151 | | | 308,985 | |
| | | |
Investments—current | 17,577 | | | 17,754 | |
Prepaid income taxes | 13,550 | | | 739 | |
Prepaid expenses and other current assets | 25,969 | | | 24,428 | |
| | | |
| | | |
Total current assets | 526,627 | | | 411,081 | |
Property and equipment, net | 783,187 | | | 767,565 | |
Right-of-use assets | 1,027,434 | | | 1,046,901 | |
Insurance subsidiary deposits and investments | 31,768 | | | 30,571 | |
Escrow deposits | 35 | | | 14,050 | |
Deferred tax assets | 3,435 | | | 4,615 | |
Restricted and other assets | 31,777 | | | 26,207 | |
Intangible assets, net | 2,959 | | | 3,382 | |
Goodwill | 54,469 | | | 54,469 | |
Other indefinite-lived intangibles | 3,299 | | | 3,068 | |
| | | |
Total assets | $ | 2,464,990 | | | $ | 2,361,909 | |
Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 50,971 | | | $ | 44,973 | |
| | | |
Accrued wages and related liabilities | 177,115 | | | 151,009 | |
Lease liabilities—current | 47,342 | | | 44,964 | |
Accrued self-insurance liabilities—current | 33,022 | | | 29,252 | |
| | | |
CARES Act Provider Relief Fund and advance payment liabilities (Note 3) | 123,988 | | | — | |
Other accrued liabilities | 89,625 | | | 70,273 | |
Current maturities of long-term debt | 3,139 | | | 2,702 | |
| | | |
Total current liabilities | 525,202 | | | 343,173 | |
Long-term debt—less current maturities | 113,222 | | | 325,217 | |
Long-term lease liabilities—less current portion | 952,866 | | | 973,983 | |
Accrued self-insurance liabilities—less current portion | 62,016 | | | 58,114 | |
Other long-term liabilities (Note 3) | 46,140 | | | 5,278 | |
| | | |
| | | |
Total liabilities | 1,699,446 | | | 1,705,765 | |
| | | |
Commitments and contingencies (Notes 16, 18 and 19) | | | |
Equity | | | |
Ensign Group, Inc. stockholders' equity: | | | |
Common stock: $0.001 par value; 100,000 shares authorized; 56,926 and 54,135 shares issued and outstanding at September 30, 2020, respectively, and 56,176 and 53,487 shares issued and outstanding at December 31, 2019, respectively (Note 20) | 57 | | | 56 | |
Additional paid-in capital | 328,347 | | | 307,914 | |
Retained earnings | 507,554 | | | 391,523 | |
Common stock in treasury, at cost, 2,791 and 2,079 shares at September 30, 2020 and December 31, 2019, respectively (Note 20) | (71,203) | | | (45,296) | |
Total Ensign Group, Inc. stockholders' equity | 764,755 | | | 654,197 | |
Non-controlling interest | 789 | | | 1,947 | |
Total equity | 765,544 | | | 656,144 | |
Total liabilities and equity | $ | 2,464,990 | | | $ | 2,361,909 | |
See accompanying notes to condensed consolidated financial statements.
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 | | |
| | | | | | | | | |
| (In thousands, except per share data) | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Revenue | $ | 599,255 | | | $ | 512,109 | | | $ | 1,773,567 | | | $ | 1,476,333 | | | |
| | | | | | | | | |
| | | | | | | | | |
Expense: | | | | | | | | | |
Cost of services | 465,108 | | | 410,516 | | | 1,371,378 | | | 1,177,246 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Rent—cost of services | 32,504 | | | 31,875 | | | 97,318 | | | 93,278 | | | |
General and administrative expense | 32,817 | | | 25,514 | | | 96,493 | | | 78,622 | | | |
Depreciation and amortization | 13,757 | | | 13,405 | | | 41,082 | | | 37,700 | | | |
Total expenses | 544,186 | | | 481,310 | | | 1,606,271 | | | 1,386,846 | | | |
Income from operations | 55,069 | | | 30,799 | | | 167,296 | | | 89,487 | | | |
Other income (expense): | | | | | | | | | |
Interest expense | (1,740) | | | (3,900) | | | (7,698) | | | (11,513) | | | |
Interest and other income | 850 | | | 732 | | | 2,630 | | | 1,857 | | | |
Other expense, net | (890) | | | (3,168) | | | (5,068) | | | (9,656) | | | |
Income before provision for income taxes | 54,179 | | | 27,631 | | | 162,228 | | | 79,831 | | | |
Provision for income taxes | 10,866 | | | 5,093 | | | 37,026 | | | 14,944 | | | |
Net income from continuing operations | 43,313 | | | 22,538 | | | 125,202 | | | 64,887 | | | |
Net income from discontinued operations, net of tax (Note 4) | — | | | 5,290 | | | — | | | 19,473 | | | |
Net income | 43,313 | | | 27,828 | | | 125,202 | | | 84,360 | | | |
Less: | | | | | | | | | |
Net income attributable to noncontrolling interests in continuing operations | 253 | | | 390 | | | 1,045 | | | 591 | | | |
Net income attributable to noncontrolling interests in discontinued operations (Note 4) | — | | | 279 | | | — | | | 629 | | | |
Net income attributable to noncontrolling interests | 253 | | | 669 | | | 1,045 | | | 1,220 | | | |
Net income attributable to The Ensign Group, Inc. | $ | 43,060 | | | $ | 27,159 | | | $ | 124,157 | | | $ | 83,140 | | | |
| | | | | | | | | |
Amounts attributable to The Ensign Group, Inc.: | | | | | | | | | |
Income from continuing operations attributable to The Ensign Group, Inc. | $ | 43,060 | | | $ | 22,148 | | | $ | 124,157 | | | $ | 64,296 | | | |
Income from discontinued operations, net of income tax (Note 4) | — | | | 5,011 | | | — | | | 18,844 | | | |
Net income attributable to The Ensign Group, Inc. | $ | 43,060 | | | $ | 27,159 | | | $ | 124,157 | | | $ | 83,140 | | | |
Net income per share attributable to The Ensign Group, Inc.: | | | | | | | | | |
Basic: | | | | | | | | | |
Continuing operations | $ | 0.81 | | | $ | 0.41 | | | $ | 2.33 | | | $ | 1.20 | | | |
Discontinued operations | — | | | 0.09 | | | — | | | 0.35 | | | |
Basic income per share attributable to The Ensign Group, Inc. | $ | 0.81 | | | $ | 0.50 | | | $ | 2.33 | | | $ | 1.55 | | | |
Diluted: | | | | | | | | | |
Continuing operations | $ | 0.77 | | | $ | 0.39 | | | $ | 2.23 | | | $ | 1.15 | | | |
Discontinued operations | — | | | 0.09 | | | — | | | 0.33 | | | |
Diluted income per share attributable to The Ensign Group, Inc. | $ | 0.77 | | | $ | 0.48 | | | $ | 2.23 | | | $ | 1.48 | | | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | 53,328 | | | 53,941 | | | 53,299 | | | 53,470 | | | |
Diluted | 55,713 | | | 56,364 | | | 55,585 | | | 56,054 | | | |
See accompanying notes to condensed consolidated financial statements.
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Non-Controlling Interest | | |
(In thousands) | Shares | | Amount | | | | Shares | | Amount | | | Total |
Balance - January 1, 2020 | 53,487 | | | $ | 56 | | | $ | 307,914 | | | $ | 391,523 | | | 2,079 | | | $ | (45,296) | | | $ | 1,947 | | | $ | 656,144 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 148 | | | — | | | 1,552 | | | — | | | — | | | — | | | — | | | 1,552 | |
Issuance of restricted stock | 723 | | | 1 | | | 3,085 | | | — | | | — | | | — | | | — | | | 3,086 | |
Dividends declared ($0.0500 per share) | — | | | — | | | — | | | (2,683) | | | — | | | — | | | — | | | (2,683) | |
Employee stock award compensation | — | | | — | | | 3,235 | | | — | | | — | | | — | | | — | | | 3,235 | |
Repurchase of common stock (Note 20) | (692) | | | — | | | — | | | — | | | 692 | | | (25,000) | | | — | | | (25,000) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 352 | | | 352 | |
Distribution to noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | (720) | | | (720) | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 40,849 | | | — | | | — | | | — | | | 40,849 | |
Balance - March 31, 2020 | 53,666 | | | $ | 57 | | | $ | 315,786 | | | $ | 429,689 | | | 2,771 | | | $ | (70,296) | | | $ | 1,579 | | | $ | 676,815 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 31 | | | — | | | 456 | | | — | | | — | | | — | | | — | | | 456 | |
Issuance of restricted stock | 75 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares of common stock used to satisfy tax withholding obligations | (17) | | | — | | | — | | | — | | | 17 | | | (753) | | | — | | | (753) | |
Dividends declared ($0.0500 per share) | — | | | — | | | — | | | (2,718) | | | — | | | — | | | — | | | (2,718) | |
Employee stock award compensation | — | | | — | | | 3,528 | | | — | | | — | | | — | | | — | | | 3,528 | |
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Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 440 | | | 440 | |
Distribution to noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | (240) | | | (240) | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 40,248 | | | — | | | — | | | — | | | 40,248 | |
Balance - June 30, 2020 | 53,755 | | | $ | 57 | | | $ | 319,770 | | | $ | 467,219 | | | 2,788 | | | $ | (71,049) | | | $ | 1,779 | | | $ | 717,776 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options | 340 | | | — | | | 4,404 | | | — | | | — | | | — | | | — | | | 4,404 | |
Issuance of restricted stock | 43 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares of common stock used to satisfy tax withholding obligations | (3) | | | — | | | — | | | — | | | 3 | | | (154) | | | — | | | (154) | |
Dividends declared ($0.0500 per share) | — | | | — | | | — | | | (2,725) | | | — | | | — | | | — | | | (2,725) | |
Employee stock award compensation | — | | | — | | | 4,173 | | | — | | | — | | | — | | | — | | | 4,173 | |
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Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 253 | | | 253 | |
Distribution to noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | (1,243) | | | (1,243) | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 43,060 | | | — | | | — | | | — | | | 43,060 | |
Balance - September 30, 2020 | 54,135 | | | $ | 57 | | | $ | 328,347 | | | $ | 507,554 | | | 2,791 | | | $ | (71,203) | | | $ | 789 | | | $ | 765,544 | |
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| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | | | Non-Controlling Interest | | |
(In thousands) | Shares | | Amount | | | | Shares | | Amount | | | | Total |
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Balance - January 1, 2019 | 52,584 | | | $ | 55 | | | $ | 284,384 | | | $ | 344,901 | | | 1,932 | | | $ | (38,405) | | | | | $ | 11,405 | | | $ | 602,340 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards | 371 | | | — | | | 5,616 | | | — | | | — | | | — | | | | | — | | | 5,616 | |
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Dividends declared ($0.0475 per share) | — | | | — | | | — | | | (2,543) | | | — | | | — | | | | | — | | | (2,543) | |
Employee stock award compensation | — | | | — | | | 2,612 | | | — | | | — | | | — | | | | | — | | | 2,612 | |
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Noncontrolling interest attributable to subsidiary equity plan (Note 17) | — | | | — | | | — | | | (317) | | | — | | | — | | | | | 658 | | | 341 | |
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Cumulative effect of accounting change, net of tax | — | | | — | | | — | | | 9,030 | | | — | | | — | | | | | — | | | 9,030 | |
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Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | | | 235 | | | 235 | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 27,372 | | | — | | | — | | | | | — | | | 27,372 | |
Balance - March 31, 2019 | 52,955 | | | $ | 55 | | | $ | 292,612 | | | $ | 378,443 | | | 1,932 | | | $ | (38,405) | | | | | $ | 12,298 | | | $ | 645,003 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards | 326 | | | — | | | 3,213 | | | — | | | — | | | — | | | | | — | | | 3,213 | |
Shares of common stock used to satisfy tax withholding obligations | (9) | | | — | | | — | | | — | | | 9 | | | (485) | | | | | — | | | (485) | |
Dividends declared ($0.0475 per share) | — | | | — | | | — | | | (2,559) | | | — | | | — | | | | | — | | | (2,559) | |
Employee stock award compensation | — | | | — | | | 3,066 | | | — | | | — | | | — | | | | | — | | | 3,066 | |
Noncontrolling interest attributable to subsidiary equity plan (Note 17) | — | | | — | | | — | | | (2,497) | | | — | | | — | | | | | 2,733 | | | 236 | |
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Distribution to noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | | | (92) | | | (92) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | | | 316 | | | 316 | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 28,609 | | | — | | | — | | | | | — | | | 28,609 | |
Balance - June 30, 2019 | 53,272 | | | $ | 55 | | | $ | 298,891 | | | $ | 401,996 | | | 1,941 | | | $ | (38,890) | | | | | $ | 15,255 | | | $ | 677,307 | |
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards | 200 | | | $ | — | | | $ | 1,828 | | | $ | — | | | — | | | $ | — | | | | | $ | — | | | $ | 1,828 | |
Repurchase of common stock | (105) | | | — | | | — | | | — | | | 105 | | | (5,000) | | | | | — | | | (5,000) | |
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Dividends declared ($0.0475 per share) | — | | | — | | | — | | | (2,564) | | | — | | | — | | | | | — | | | (2,564) | |
Employee stock award compensation | — | | | — | | | 2,961 | | | — | | | — | | | — | | | | | — | | | 2,961 | |
Repurchase of common stock attributable to subsidiary equity plan (Note 17) | — | | | — | | | — | | | — | | | — | | | — | | | | | (394) | | | (394) | |
Noncontrolling interest attributable to subsidiary equity plan (Note 17) | — | | | — | | | — | | | (177) | | | — | | | — | | | | | 194 | | | 17 | |
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Distribution to noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | | | (177) | | | (177) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | | | 669 | | | 669 | |
Net income attributable to the Ensign Group, Inc. | — | | | — | | | — | | | 27,159 | | | — | | | — | | | | | — | | | 27,159 | |
Balance - September 30, 2019 | 53,367 | | | $ | 55 | | | $ | 303,680 | | | $ | 426,414 | | | 2,046 | | | $ | (43,890) | | | | | $ | 15,547 | | | $ | 701,806 | |
See accompanying notes to condensed consolidated financial statements.
THE ENSIGN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(In thousands) | 2020 | | 2019 | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 125,202 | | | $ | 84,360 | | | |
Net income from discontinued operations, net of tax | — | | | (19,473) | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 41,082 | | | 37,700 | | | |
Impairment of long-lived assets | 2,681 | | | 1,471 | | | |
Amortization of deferred financing fees | 630 | | | 876 | | | |
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Non-cash leasing arrangement (Note 18) | 337 | | | 134 | | | |
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Deferred income taxes | 1,179 | | | — | | | |
Provision for doubtful accounts | 4,193 | | | 824 | | | |
Stock-based compensation | 10,936 | | | 8,215 | | | |
Cash received from insurance proceeds related to replacement properties and business interruptions | 282 | | | 803 | | | |
Gain on insurance claims and disposal of assets | — | | | (3,026) | | | |
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Change in operating assets and liabilities | | | | | |
Accounts receivable | 11,441 | | | (27,847) | | | |
Prepaid income taxes | (12,811) | | | 3,677 | | | |
Prepaid expenses and other assets | (7,468) | | | 2,755 | | | |
Operating lease obligations | (542) | | | (7,427) | | | |
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Accounts payable | 7,197 | | | (4,623) | | | |
Accrued wages and related liabilities | 29,194 | | | 14,493 | | | |
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Other accrued liabilities | 19,333 | | | 8,487 | | | |
Accrued self-insurance liabilities | 8,433 | | | 4,686 | | | |
Other long-term liabilities | 40,862 | | | 2,992 | | | |
Net cash provided by continuing operating activities | 282,161 | | | 109,077 | | | |
Net cash provided by discontinued operating activities (Note 4) | — | | | 23,296 | | | |
Net cash provided by operating activities | 282,161 | | | 132,373 | | | |
Cash flows from investing activities: | | | | | |
Purchase of property and equipment | (37,824) | | | (49,857) | | | |
Cash payments for business acquisitions (Note 9) | — | | | (6,455) | | | |
Cash payments for asset acquisitions (Note 9) | (23,077) | | | (75,305) | | | |
Escrow deposits | (35) | | | (50) | | | |
Escrow deposits used to fund acquisitions | 14,050 | | | 7,271 | | | |
Cash proceeds from the sale of assets and insurance proceeds | 359 | | | 7,835 | | | |
Purchases of investments | (14,648) | | | (11,042) | | | |
Maturities of investments | 13,626 | | | 8,306 | | | |
Other restricted assets | (936) | | | (1,886) | | | |
Net cash used in continuing investing activities | (48,485) | | | (121,183) | | | |
Net cash used in discontinued investing activities (Note 4) | — | | | (22,985) | | | |
Net cash used in investing activities | (48,485) | | | (144,168) | | | |
Cash flows from financing activities: | | | | | |
Proceeds from revolving credit facility and other debt (Note 16) | 380,600 | | | 895,000 | | | |
Payments on revolving credit facility and other debt (Note 16) | (592,255) | | | (863,494) | | | |
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Issuance of common stock upon exercise of options | 6,412 | | | 7,376 | | | |
Repurchase of shares of common stock to satisfy tax withholding obligations | (907) | | | (485) | | | |
Repurchase of shares of common stock and subsidiary shares (Note 17) | |