SEC Filing - The Ensign Group, Inc.

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ensg-20200930

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.


☐			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.

Yes

☐

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).

Yes

☐

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

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

☐

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

As of October 26, 2020, 54,241,788 shares of the registrant’s common stock, $0.001 par value, were outstanding.

Table of Contents

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. Financial Information			Pg.
Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019			1

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019			2

Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019			3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019			5

Notes to Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37

Item 3. Quantitative and Qualitative Disclosures About Market Risk			80

Item 4. Controls and Procedures			81

P ART II. Other Information
Item 1. Legal Proceedings			81

Item 1A. Risk Factors			83

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			110

Item 3. Defaults Upon Senior Securities			110

Item 4. Mine Safety Disclosures			110

Item 5. Other Information			110

Item 6. Exhibits			110

Signatures

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.

Table of Contents

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.

Table of Contents

THE ENSIGN GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-Controlling Interest
(In thousands)	Shares	Amount						Shares	Amount				Total
Balance - January 1, 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

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

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

Table of Contents



	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Non-Controlling Interest
(In thousands)	Shares	Amount						Shares	Amount				Total





































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



Dividends declared ($0.0475 per share)	—	—		—		(2,543)		—	—		—			(2,543)
Employee stock award compensation	—	—		2,612		—		—	—		—			2,612

Noncontrolling interest attributable to subsidiary equity plan (Note 17)	—	—		—		(317)		—	—		658			341

Cumulative effect of accounting change, net of tax	—	—		—		9,030		—	—		—			9,030

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



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)

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



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.

Table of Contents

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

Non-cash leasing arrangement (Note 18)	337		134


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)

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)


Accounts payable	7,197		(4,623)
Accrued wages and related liabilities	29,194		14,493

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)


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)