Table of 2006 we acquired a facility that had a history of intermittent noncompliance. Although the affiliated facility had already been surveyed once by the local state survey agency after being acquired by us, and that survey would have met the heightened requirements of the special focus facility program, based upon the facility's compliance history prior to our acquisition, in January 2008, state officials nevertheless recommended to CMS that the facility be placed on special focus facility status. In addition, in October of 2006, we acquired a facility which had a history of intermittent non-compliance. This affiliated facility was surveyed by the local state survey agency during the third quarter of 2008 and passed the heightened survey requirements of the special focus facility program. Both affiliated facilities have successfully graduated from the Centers for Medicare and Medicaid Services' Special Focus program. We've had other affiliated facilities that have successfully graduated from the program. Other affiliated facilities may be identified for special focus status in the future.Con tents

In addition, we might encounter unanticipated difficulties and expenditures relating to any of the acquired facilities, including contingent liabilities. For example, when we acquire a facility, we generally assume the facility's existing Medicare provider number for purposes of billing Medicare for services. If CMS later ~~determined~~determines that the prior owner of the facility had received overpayments from Medicare for the period of time during which it operated the facility, or had incurred fines in connection with the operation of the facility, CMS could hold us liable for repayment of the overpayments or fines. ~~If the prior operator is defunct or otherwise unable to reimburse us, we may be unable to recover these funds.~~ We may be unable to improve every facility that we acquire. In addition, operation of these facilities may divert management time and attention from other operations and priorities,

negatively impact cash flows, result in adverse or unanticipated accounting charges, or otherwise damage other areas of our company if they are not timely and adequately improved.

We also incur regulatory risk in acquiring certain facilities due to the licensing, certification and other regulatory requirements affecting our right to operate the acquired facilities. For example, in order to acquire facilities on a predictable schedule, or to acquire declining operations quickly to prevent further pre-acquisition declines, we frequently acquire such facilities prior to receiving license approval or provider certification. We operate such facilities as the interim manager for the outgoing licensee, assuming financial responsibility, among other obligations for the facility. To the extent that we may be unable or delayed in obtaining a license, we may need to operate the facility under a management agreement from the prior operator. Any inability in obtaining consent from the prior operator of a target acquisition to utilizing its license in this manner could impact our ability to acquire additional facilities. If we were subsequently denied licensure or certification for any reason, we might not realize the expected benefits of the acquisition and would likely incur unanticipated costs and other challenges which could cause our business to suffer.

~~Termination of our patient admission agreements and the resulting vacancies in our affiliated facilities could cause revenue at our affiliated facilities to decline.~~

Most state regulations governing skilled nursing and assisted living facilities require written patient admission agreements with each patient. Several of these regulations also require that each patient have the right to terminate the patient agreement for any reason and without prior notice. Consistent with these regulations, all of our skilled nursing patient agreements allow patients to terminate their agreements without notice, and all of our assisted living resident agreements allow patients to terminate their agreements upon thirty days' notice. Patients and residents terminate their agreements from time to time for a variety of reasons, causing some fluctuations in our overall occupancy as patients and residents are admitted and discharged in normal course. If an unusual number of patients or residents elected to terminate their agreements within a short time, occupancy levels at our affiliated facilities could decline. As a result, beds may be unoccupied for a period of time, which would have a negative impact on our revenue, financial condition and results of operations.

~~We face significant competition from other healthcare providers and may not be successful in attracting patients and residents to our affiliated facilities.~~

The post-acute care industry is highly competitive, and we expect that our industry may become increasingly competitive in the future. Our affiliated skilled nursing facilities compete primarily on a local and regional basis with many long-term care providers, from national and regional multi-facility providers that have substantially greater financial resources to small providers who operate a single nursing facility. We also compete with other skilled nursing and assisted living facilities, and with inpatient rehabilitation facilities, long-term acute care hospitals, home healthcare and other similar services and care alternatives. Increased competition could limit our ability to attract and retain patients, attract and retain skilled personnel, maintain or increase private pay and managed care rates or expand our business.

We may not be successful in attracting patients to our operating subsidiaries, particularly Medicare, managed care, and private pay patients who generally come to us at higher reimbursement rates. Some of our competitors have greater financial and other resources than us, may have greater brand recognition and may be more established in their respective communities than we are. Competing companies may also offer newer facilities or different programs or services than we do and may thereby attract current or potential patients. Other competitors may have lower expenses or other competitive advantages, and, therefore, present significant price competition for managed care and private pay patients. In addition, some of our competitors operate on a not-for-profit basis or as charitable organizations and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us.

If we do not achieve ~~and~~or maintain competitive quality of care ratings from CMS ~~and~~or private organizations engaged in similar monitoring activities, ~~or if the frequency of CMS surveys and enforcement sanctions increases,~~ our business may be negatively affected.

CMS, as well as certain private organizations engaged in similar monitoring activities, provides comparative ~~data available to the~~ public ~~on its web site,~~data, rating every skilled nursing facility operating in each state based upon quality-of-care indicators. These quality-of-care indicators include such measures as percentages of patients with infections, bedsores and unplanned weight loss. In addition, CMS has undertaken an initiative to increase Medicaid and Medicare survey and enforcement activities, to focus more survey and enforcement efforts on facilities with findings of substandard care or repeat violations of Medicaid and Medicare standards, and to require state agencies to use enforcement sanctions and remedies more promptly when substandard care or repeat violations are identified. We have found a correlation between negative Medicaid and Medicare surveys and the incidence of

~~professional liability litigation. From time to time, we experience a higher than normal number of negative survey findings in some of our affiliated facilities.~~

~~In December 2008, CMS introduced~~CMS’s system is the Five-Star Quality Rating System, introduced in 2008, to help consumers, their families and caregivers compare nursing homes more easily. The Five-Star Quality Rating System gives each nursing home a rating of between one and five stars in various ~~categories.~~categories, and the ratings are available on a consumer-facing website, Nursing Home Compare. In cases of acquisitions, the previous operator's clinical ratings are included in our overall Five-Star Quality Rating. ~~The prior operator's results will impact our rating until we have sufficient clinical measurements subsequent to~~Over the acquisition date. If we are unable to achieve quality of care ratings that are comparable or superior to those of our competitors, our ability to attract and retain patients could be adversely affected.

~~On February 20, 2015, CMS modified~~years, the ~~Five Star~~Five-Star Quality Rating System ~~for nursing homes~~ has been modified, with the most recent changes being implemented in 2018 and 2019. Additionally, as a result of the COVID-19 pandemic and CMS’s suspension of certain inspection and reporting requirements, the data used to ~~include the use of antipsychotics in calculating~~calculate the star ratings ~~modified calculations for staffing levels and reflect higher standards for nursing homes to achieve a high rating~~of facilities was interrupted. CMS temporarily froze certain data on the ~~quality measure dimension. On August 10, 2016, CMS modified the~~ ~~Five Star Quality Rating System~~ ~~for nursing homes to include five of the six new quality measures added April 27, 2016 to its consumer-based~~ Nursing Home Compare website asthrough January 2021. Other data related to quality-reporting measures will not be factored into star calculations until 2022 and will not be reflected on the Nursing Home Compare website until April 2022, The temporary adjustments due to COVID-19 could impact facilities that might have less favorable Five-Star Ratings from being able to demonstrate improvements on the public-facing website through mid-2022. For more information on these changes, see Item 1., under Government Regulation.

CMS continues to increase quality measure thresholds, making it more difficult to achieve upward ratings. CMS acknowledges that some facilities may see a decline in their overall five-star rating absent any new inspection information. This change could further affect star ratings across the industry. Additionally, on the Nursing Home Compare website, CMS recently began displaying a consumer alert icon next to nursing homes that have been cited on inspection reports for incidents of abuse, neglect, or exploitation. See Item 1., under Government Regulation.

Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources refer patients to us in large part because of ~~an initiative~~our reputation for delivering quality care. If we should fail to ~~broaden~~achieve our internal rating goals or fail to exceed the ~~quality~~national average rating on the Five-Star Quality Rating System, or have facilities displaying a consumer alert icon for incidents of ~~information available on that site. They include the rate of rehospitalization, emergency room use, community discharge, improvements in function, and independently worsened~~abuse, neglect, or exploitation, it may affect our ability to ~~move. In 2017, CMS issued~~generate referrals, which could have a ~~temporary freeze~~material adverse effect upon our business and consolidated financial condition, results of ~~the Health Inspection Five Star Ratings beginning in 2018 that will last approximately 12 months. The health inspection star rating for recertification surveys~~operations and complaints conducted on or after November 28, 2017 will be frozen. The freeze of the Health Inspection Five Star Ratings and the increase in the standards for performance on quality measures could reduce the number of our 4 and 5 star facilities.cash flows.

In July 17, 2015, CMS announced Home Health Star Ratings for home health agencies. All Medicare-certified HHAs are potentially eligible to receive a Quality of Patient Care Star Rating. The Star Ratings include assessments of quality of patient care based on Medicare claims data and patient experience of care. The Star Rating may impact patient choice of home health agencies and reimbursement from home health agencies, as a higher Star rating indicates better patient care than a lower Star rating. A low Star rating may decrease the number of patients for Medicare reimbursement. On December 14, 2017, CMS announced that the influenza vaccination measure would be removed from consideration in the Quality of Patient Care Star Rating beginning with the April 2018 Home Health Compare refresh, reducing the number of quality measures used from nine to eight.

In addition, CMS announced proposals to adopt new standards that home health agencies must comply with in order to participate in the Medicare program, including the strengthening of patient rights and communication requirements that focus on patient well-being.

If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected.

It may become more difficult and costly for us to obtain coverage for resident care liabilities and other risks, including property and casualty insurance. For example, the following circumstances may adversely affect our ability to obtain insurance at favorable rates:

•we experience higher-than-expected professional liability, property and casualty, or other types of claims or losses;

•we receive survey deficiencies or citations of higher-than-normal scope or severity;

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•we acquire especially troubled operations or facilities that present unattractive risks to current or prospective insurers;

•insurers tighten underwriting standards applicable to us or our industry; or

•insurers or reinsurers are unable or unwilling to insure us or the industry at historical premiums and coverage levels.

If any of these potential circumstances were to occur, our insurance carriers may require us to significantly increase our self-insured retention levels or pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages.

In some states, the law prohibits or limits insurance coverage for the risk of punitive damages arising from professional liability and general liability claims or litigation. Coverage for punitive damages is also excluded under some insurance policies. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of our insurance

policy limits. Claims against us, regardless of their merit or eventual outcome, also could inhibit our ability to attract patients or expand our business, and could require our management to devote time to matters unrelated to the day-to-day operation of our business.

With few exceptions, workers' compensation and employee health insurance costs have also increased markedly in recent years. To partially offset these increases, we have increased the amounts of our self-insured retention ~~(SIR)~~ and deductibles in connection with general and professional liability claims. We also have implemented a self-insurance program for workers compensation in all states, except Washington, ~~and Texas,~~ and elected non-subscriber status for workers' compensation in Texas. In Washington, the insurance coverage is financed through premiums paid by the employers and employees. If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, or if the coverage levels we can economically obtain decline, our business may be adversely affected.

Our self-insurance programs may expose us to significant and unexpected costs and losses.

We have maintained general and professional liability insurance since 2002 and workers' compensation insurance since 2005 through a ~~wholly-owned~~wholly owned subsidiary insurance company, Standardbearer Insurance Company, Ltd. ~~(Standardbearer)~~, to insure our self-insurance reimbursements ~~(SIR)~~ and deductibles as part of a continually evolving overall risk management strategy. We establish the insurance loss reserves based on an estimation process that uses information obtained from both company-specific and industry data. The estimation process requires us to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and our assumptions about emerging trends, we, along with an independent actuary, develop information about the size of ultimate claims based on our historical experience and other available industry information. The most significant assumptions used in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damages with respect to unpaid claims. It is possible, however, that the actual liabilities may exceed our estimates of loss. We may also experience an unexpectedly large number of successful claims or claims that result in costs or liability significantly in excess of our projections. For these and other reasons, our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance. If a successful claim is made against us and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted.

Further, because our ~~SIR~~self-insurance reimbursements under our general and professional liability and workers compensation programs applies on a per claim basis, there is no limit to the maximum number of claims or the total amount for which we could incur liability in any policy period.

~~In May 2006, we began self-insuring~~We also self-insure our employee health benefits. With respect to our health benefits self-insurance, our reserves and premiums are computed based on a mix of company specific and general industry data that is not specific to our own company. Even with a combination of limited company-specific loss data and general industry data, our loss reserves are based on actuarial estimates that may not correlate to actual loss experience in the future. Therefore, our reserves may prove to be insufficient and we may be exposed to significant and unexpected losses.

The frequency and magnitude of claims and legal costs may increase due to the COVID-19 pandemic or our related response efforts.

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The geographic concentration of our affiliated facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.

Our affiliated facilities located in Arizona, California, and Texas account for the majority of our total revenue. As a result of this concentration, the conditions of local economies, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our revenue, costs and results of operations. Moreover, since ~~20.9%~~over 21% of our affiliated facilities are located in California, we are particularly susceptible to revenue loss, cost increase or damage caused by natural disasters such as fires, earthquakes or mudslides.

In addition, our affiliated facilities in Iowa, Nebraska, Kansas, South Carolina, Washington and Texas are more susceptible to revenue loss, cost increases or damage caused by natural disasters including hurricanes, tornadoes and flooding. These acts of nature may cause disruption to us, the employees of our operating subsidiaries and our affiliated facilities, which could have an adverse impact on the patients of our operating subsidiaries and our business. In order to provide care for the patients of our operating subsidiaries, we are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our affiliated facilities, and the availability of employees to provide services at our affiliated facilities. If the delivery of goods or the ability of employees to reach our affiliated facilities were interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on our affiliated facilities and our business. Furthermore, the impact, or impending threat, of a natural disaster may require that we evacuate one or more facilities, which would be costly and would involve risks, including potentially fatal risks, for the patients. The impact of disasters and similar events is inherently uncertain. Such events

could harm the patients and employees of our operating subsidiaries, severely damage or destroy one or more of our affiliated facilities, harm our business, reputation and financial performance, or otherwise cause our business to suffer in ways that we currently cannot predict.

The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.

We continue to maintain our right to inform the employees of our operating subsidiaries about our views of the potential impact of unionization upon the workplace generally and upon individual employees. With one exception, to our knowledge the ~~staffs~~staff at our affiliated facilities that have been approached to unionize have uniformly rejected union organizing efforts. If employees decide to unionize, our cost of doing business could increase, and we could experience contract delays, difficulty in adapting to a changing regulatory and economic environment, cultural conflicts between unionized and non-unionized employees, strikes and work stoppages, and we may conclude that affected facilities or operations would be uneconomical to continue operating.

The unwillingness on the part of both our management and staff to accede to union demands for “neutrality” and other concessions has resulted in a negative labor campaign by at least one labor union, the Service Employees International Union. From 2002 to 2007, this union, and individuals and organizations allied with or sympathetic to this union actively prosecuted a negative retaliatory publicity action, also known as a “corporate campaign,” against us and filed, promoted or participated in multiple legal actions against us. The union's campaign asserted, among other allegations, poor treatment of patients, inferior clinical services provided by the employees of our operating subsidiaries, poor treatment of the employees of our operating subsidiaries, and health code violations by our operating subsidiaries. In addition, the union has publicly mischaracterized actions taken by the DHS against us and our affiliated facilities. In numerous cases, the union's allegations created the false impression that violations and other events that occurred at facilities prior to our acquisition of those facilities were caused by us. Since a large component of our business involves acquiring underperforming and distressed facilities, and improving the quality of operations at these facilities, we may have been associated with the past poor performance of these facilities. To the extent this union or another elects to directly or indirectly prosecute a corporate campaign against us or any of our affiliated facilities, our business could be negatively affected.

The Service Employees International Union has issued in the past, and may again issue in the future, public statements alleging that we or other for-profit skilled nursing operators have engaged in unfair, questionable or illegal practices in various areas, including staffing, patient care, patient evaluation and treatment, billing and other areas and activities related to the industry and our operating subsidiaries. We continue to anticipate similar criticisms, charges and other negative publicity from such sources on a regular basis, particularly in the current political environment and following the December 2010 OIG report entitled “Questionable Billing by Skilled Nursing Facilities," described above in " The Office of the Inspector General or other organizations may choose to more closely scrutinize the billing practices of for-profit skilled nursing facilities, which could result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations." Two of our affiliated facilities have been listed on the report. Such reports provide unions and their allies with additional opportunities to make negative statements about, and to encourage regulators to seek investigatory and enforcement actions against, the industry in general and non-union operators like us specifically. Although we believe that our operations and business practices substantially conform to applicable laws and regulations, we cannot predict the extent to which we might be subject to adverse publicity or calls for increased regulatory scrutiny from union and union ally sources, or what effect, if any, such negative publicity would have on us, but to the extent they are successful, our revenue may be reduced, our costs may be increased and our profitability and business could be adversely affected.

This union has also in the past attempted to pressure hospitals, doctors, insurers and other healthcare providers and professionals to cease doing business with or referring patients to us. If this union or another union is successful in convincing the patients of our operating subsidiaries, their families or our referral sources to reduce or cease doing business with us, our revenue may be reduced and our profitability could be adversely affected. Additionally, if we are unable to attract and retain qualified staff due to negative public relations efforts by this or other union organizations, our quality of service and our revenue and profits could decline. Our strategy for responding to union allegations involves clear public disclosure of the union's identity, activities and agenda, and rebuttals to its negative campaign.

Our ability to respond to unions, however, may be limited by some state laws, which purport to make it illegal for any recipient of state funds to promote or deter union organizing. For example, such a state law passed by the California Legislature was successfully challenged on the grounds that it was preempted by the National Labor Relations Act, only to have the challenge overturned by the Ninth Circuit in 2006 before being ultimately upheld by the United States Supreme Court in 2008. In addition, proposed legislation making it more difficult for employees and their supervisors to educate co-workers and oppose unionization, such as the proposed Employee Free Choice Act which would allow organizing on a single “card check” and without a secret ballot and similar changes to federal law, regulation and labor practice being advocated by unions and considered by Congress

and the National Labor Relations Board, could make it more difficult to maintain union-free workplaces in our affiliated facilities. Further, the expedited election rules adopted by the National Labor Relations Board took effect on April 14, 2015 and make it far easier for unions to organize employees. These and similar laws have the potential to facilitate unionization procedures or hinder employer responses thereto, which may hinder our ability to oppose unionization efforts and negatively affect our business.

Because we lease ~~substantially all~~the majority of our affiliated facilities, we ~~could experience~~are subject to risks associated with leased real property, including risks relating to lease termination, lease extensions and special charges, any of which could adversely affect our business, financial position or results of operations.

As of December 31, ~~2017,~~2020, we leased ~~167~~164 of our ~~230~~228 affiliated facilities. Most of our leases are triple-net leases, which means that, in addition to rent, we are required to pay for the costs related to the property (including property taxes, insurance, and maintenance and repair costs). We are responsible for paying these costs notwithstanding the fact that some of the benefits associated with paying these costs accrue to the landlords as owners of the associated facilities.

Each lease provides that the landlord may terminate the lease for a ~~number~~variety of reasons, including ~~subject to applicable cure periods,~~ the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of a lease could result in a default under our debt agreements and could adversely affect our business, financial position or results of operations. There can be no assurance that we will be able to comply with all of our obligations under the leases in the future.

~~In 2017, we voluntarily discontinued operations at one~~

Table of our skilled nursing facilities after determining that the facility could not competitively operate in the marketplace without substantial investment renovating the building. After careful consideration, we determined that the costs to renovate the facility would outweigh the future returns from the operation. As part of the arrangement, we remain obligated for lease payments and other obligation under the lease agreement. We have in the past and may need to do so in the future continued to be obligated for lease payments and other obligations under the leases even if we decided to withdraw from those locations. We could incur special charges relating to the closing of such facilities including lease termination costs, impairment charges and other special charges that would reduce our net income and could adversely affect our business, financial condition and results of operations.Con tents

Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our operating subsidiaries and cause us to lose facilities or experience foreclosures.

We maintain a revolving credit facility under the Third Amended and Restated Credit Agreements, dated as of October 1, 2019, between the Company and a lending consortium arranged by Truist Financial Corporation (Truist) (formerly known as SunTrust Bank, Inc.) with a ~~lending consortium.~~revolving line of credit of up to $350.0 million in aggregate principal amount (the Credit Facility). As of December 31, ~~2017, our operating subsidiaries had $190.6 million~~2020, we have no outstanding debt under our credit facility. On February 5, 2016, we amended our existing revolving credit facility to increase our aggregate principal amount available to $250.0 million. On July 19, 2016, we entered into the Second Amended Credit ~~Facility to increase the aggregate principal amount up to $450.0 million comprised of a $300.0 million revolving credit facility and a $150.0 million term loan. In December 2017, seventeen~~Facility. Nineteen of our subsidiaries ~~entered into~~are under mortgage loans ~~in the aggregate amount of $112.0 million under~~insured with Department of Housing and Urban Development (HUD) ~~insured loans.~~for an aggregate amount of $113.9 million, which subjects these subsidiaries to HUD oversight and periodic inspections. The terms of the mortgage loans range from ~~30- or~~25- to 35-years. We also had ~~other~~two outstanding ~~indebtedness~~promissory notes of approximately ~~$13.4~~$3.9 million as of December 31, ~~2017 under other HUD-insured loans~~2020. The terms of the notes are 12 years and ~~promissory note issued in connection with various acquisitions with maturity dates ranging from 2027 through 2052.~~10 months. Because these mortgage loans are insured with HUD, our borrower subsidiaries under these loans are subject to HUD oversight and periodic inspections.

In addition, we had ~~$1.8~~$1.7 billion of future operating lease obligations as of December 31, ~~2017.~~2020. We intend to continue financing our operating subsidiaries through mortgage financing, long-term operating leases and other types of financing, including borrowings under our lines of credit and future credit facilities we may obtain.

We may not generate sufficient cash flow from operations to cover required interest, principal and lease payments. In addition, our outstanding ~~credit facilities~~Credit Facility and mortgage loans contain restrictive covenants and require us to maintain or satisfy specified coverage tests on a consolidated basis and on a facility or facilities basis. These restrictions and operating covenants include, among other things, requirements with respect to occupancy, debt service coverage, project yield, net leverage ratios, minimum interest coverage ratios and minimum asset coverage ratios. These restrictions may interfere with our ability to obtain additional advances under our existing ~~credit facilities~~Credit Facility or to obtain new financing or to engage in other business activities, which may inhibit our ability to grow our business and increase revenue.

From time to time, the financial performance of one or more of our mortgaged facilities may not comply with the required operating covenants under the terms of the mortgage. Any non-payment, noncompliance or other default under our financing

arrangements could, subject to cure provisions, cause the lender to foreclose upon the facility or facilities securing such indebtedness or, in the case of a lease, cause the lessor to terminate the lease, each with a consequent loss of revenue and asset value to us or a loss of property. Furthermore, in many cases, indebtedness is secured by both a mortgage on one or more facilities, and a guaranty by us. In the event of a default under one of these scenarios, the lender could avoid judicial procedures required to foreclose on real property by declaring all amounts outstanding under the guaranty immediately due and payable, and requiring us to fulfill our obligations to make such payments. If any of these scenarios were to occur, our financial condition would be adversely affected. For tax purposes, a foreclosure on any of our properties would be treated as a sale of the property for a price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which would negatively impact our earnings and cash position. Further, because our mortgages and operating leases generally contain cross-default and cross-collateralization provisions, a default by us related to one facility could affect a significant number of other facilities and their corresponding financing arrangements and operating leases.

Because our term loans, promissory notes, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk. Our ability to make payments of principal and interest on our indebtedness and to make lease payments on our operating leases depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operating subsidiaries, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt or to make lease payments on our operating leases, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets, reduce or delay planned capital expenditures or delay or abandon desirable acquisitions. Such measures might not be sufficient to enable us to service our debt or to make lease payments on our operating leases. The failure to make required payments on our debt or operating leases or the delay or abandonment of our planned growth strategy could result in an adverse effect on our future ability to generate revenue and sustain profitability. In addition, any such financing, refinancing or sale of assets might not be available on terms that are economically favorable to us, or at all.

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Move-in and occupancy rates may remain unpredictable even after the COVID-19 pandemic is over.

Occupancy levels at skilled nursing facilities are likely to remain vulnerable to the effects of COVID-19 even after the pandemic is over. Facilities experiencing decreases in move-in rates in the fourth quarter of 2020 cite resident or family member concerns as the basis for such decreases. These and other similar concerns may continue to impact our ability to attract new residents and our ability to retain existing residents.

A housing downturn could decrease demand for senior living services.

Seniors often use the proceeds of home sales to fund their admission to senior living facilities. A downturn in the housing markets could adversely affect seniors’ ability to afford our resident fees and entrance fees. If national or local housing markets enter a persistent decline, our occupancy rates, revenues, results of operations and cash flow could be negatively impacted.

As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.

As part of, and subsequent to, the Spin-Off, we lease 31 of our properties to Pennant’s senior living operations. In the future, we might expand our leasing property portfolio to additional Pennant operations or other unaffiliated tenants. We have very limited control over the success or failure of our tenants’ and operators’ businesses and, at any time, a tenant or operator may experience a downturn in its business that weakens its financial condition. If that happens, the tenant or operator may fail to make its payments to us when due. Although our lease agreements give us the right to exercise certain remedies in the event of default on the obligations owing to us, we may determine not to do so if we believe that enforcement of our rights would be more detrimental to our business than seeking alternative approaches.

An important part of our business strategy is to continue to expand and diversify our real estate portfolio through accretive acquisition and investment opportunities in healthcare properties. Our execution of this strategy by successfully identifying, securing and consummating beneficial transactions is made more challenging by increased competition and can be affected by many factors, including our relationships with current and prospective tenants, our ability to obtain debt and equity capital at costs comparable to or better than our competitors and our ability to negotiate favorable terms with property owners seeking to sell and other contractual counterparties. Our competitors for these opportunities include healthcare REITs, real estate partnerships, healthcare providers, healthcare lenders and other investors, including developers, banks, insurance companies, pension funds, government-sponsored entities and private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. If we are unsuccessful at identifying and capitalizing on investment or acquisition opportunities, our growth and profitability in our real estate investment portfolio may be adversely affected.

Investments in and acquisitions of healthcare properties entail risks associated with real estate investments generally, including risks that the investment will not achieve expected returns, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant or operator will fail to meet performance expectations. Income from properties and yields from investments in our properties may be affected by many factors, including changes in governmental regulation (such as licensing and government payment), general or local economic conditions (such as fluctuations in interest rates, senior savings, and employment conditions), the available local supply of and demand for improved real estate, a reduction in rental income as the result of an inability to maintain occupancy levels, natural disasters (such as hurricanes, earthquakes and floods) or similar factors. Furthermore, healthcare properties are often highly customized and the development or redevelopment of such properties may require costly tenant-specific improvements. As a result, we cannot assure you that we will achieve the economic benefit we expect from acquisition or investment opportunities.

As we expand our presence in ~~the assisted living, home health or hospice~~other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.

The majority of our affiliated facilities have historically been skilled nursing facilities. As we expand our presence in ~~the assisted living, home health and hospice services or~~ other relevant healthcare service, our existing overall business model will continue to change and expose our company to risks in ~~a market~~markets in which we have limited experience. Although assisted living operating subsidiaries generally have lower costs and higher margins than skilled nursing, they typically generate lower overall revenue than skilled nursing operating subsidiaries. In addition, assisted living revenue is derived primarily from private payors as opposed to government reimbursement. In most states, skilled nursing, assisted living, home health and hospice care are regulated by different agencies, and we have less experience with the agencies that regulate assisted living, home health and hospice care. In general, we believe that assisted living is a more competitive industry than skilled nursing. As we expand our presence in the assisted living, home health and hospice services, and other ancillary services weWe expect that we will have to adjust certain elements of our existing business model, which could have an adverse effect on our business.

Table of Con tents

If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.

We rely significantly on appropriate referrals from physicians, hospitals and other healthcare providers in the communities in which we deliver our services to attract appropriate residents and patients to our affiliated facilities. Our referral sources are not obligated to refer business to us and may refer business to other healthcare providers. We believe many of our referral sources refer business to us as a result of the quality of our patient care and our efforts to establish and build a relationship with our referral sources. If we lose, or fail to maintain, existing relationships with our referral resources, fail to develop new relationships, or if we are perceived by our referral sources as not providing high quality patient care, our occupancy rate and the quality of our patient mix could suffer. In addition, if any of our referral sources have a reduction in patients whom they can refer due to a decrease in their business, our occupancy rate and the quality of our patient mix could suffer.

~~Our systems are subject to security breaches and other cybersecurity incidents.~~

Our business is dependent on the proper functioning and availability of our computer systems and networks. While we have taken steps to protect the safety and security of our information systems and the patient health information and other data maintained within those systems, we cannot assure you that our safety and security measures and disaster recovery plan will prevent damage,

interruption or breach of our information systems and operations. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect, we may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems. Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deceiving our employees or contractors.

On occasion, we have acquired additional information systems through our business acquisitions. We have upgraded and expanded our information system capabilities and have committed significant resources to maintain, protect, enhance existing systems and develop new systems to keep pace with continuing changes in technology, evolving industry and regulatory standards, and changing customer preferences.

We license certain third party software to support our operations and information systems. Our inability, or the inability of third party software providers, to continue to maintain and upgrade our information systems and software could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency of our operations.

A cyber security attack or other incident that bypasses our information systems security could cause a security breach which may lead to a material disruption to our information systems infrastructure or business and may involve a significant loss of business or patient health information. If a cyber security attack or other unauthorized attempt to access our systems or facilities were to be successful, it could result in the theft, destructions, loss, misappropriation or release of confidential information or intellectual property, and could cause operational or business delays that may materially impact our ability to provide various healthcare services. Any successful cyber security attack or other unauthorized attempt to access our systems or facilities also could result in negative publicity which could damage our reputation or brand with our patients, referral sources, payors or other third parties and could subject us to substantial penalties under HIPAA and other federal and state privacy laws, in addition to private litigation with those affected.

Failure to maintain the security and functionality of our information systems and related software, or a failure to defend a cyber security attack or other attempt to gain unauthorized access to our systems, facilities or patient health information could expose us to a number of adverse consequences, the vast majority of which are not insurable, including but not limited to disruptions in our operations, regulatory and other civil and criminal penalties, fines, investigations and enforcement actions (including, but not limited to, those arising from the SEC, Federal Trade Commission, the OIG or state attorneys general), fines, private litigation with those affected by the data breach, loss of customers, disputes with payors and increased operating expense, which either individually or in the aggregate could have a material adverse effect on our business, financial position, results of operations and liquidity.

We may need additional capital to fund our operating subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.

Our ability to maintain and enhance our operating subsidiaries and equipment in a suitable condition to meet regulatory standards, operate efficiently and remain competitive in our markets requires us to commit substantial resources to continued investment in our affiliated facilities and equipment. We are sometimes more aggressive than our competitors in capital spending to address issues that arise in connection with aging and obsolete facilities and equipment. In addition, continued expansion of our business through the acquisition of existing facilities, expansion of our existing facilities and construction of new facilities may require additional capital, particularly if we were to accelerate our acquisition and expansion plans. Financing may not be available to us or may be available to us only on terms that are not favorable. In addition, some of our outstanding indebtedness and long-term leases restrict, among other things, our ability to incur additional debt. If we are unable to raise additional funds or obtain additional funds on terms acceptable to us, we may have to delay or abandon some or all of our growth strategies. Further, if additional funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted. Any newly issued equity securities may have rights, preferences or privileges senior to those of our common stock.

The condition of the financial markets, including volatility and deterioration in the capital and credit markets, could limit the availability of debt and equity financing sources to fund the capital and liquidity requirements of our business, as well as negatively impact or impair the value of our current portfolio of cash, cash equivalents and investments, including U.S. Treasury securities and U.S.-backed investments.

Financial markets experienced significant disruptions from 2008 through 2010. These disruptions impacted liquidity in the debt markets, making financing terms for borrowers less attractive and, in certain cases, significantly reducing the availability of certain types of debt financing. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to borrowers.

~~Further, our~~Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including U.S. treasury securities. As a result of the uncertain domestic and global political, credit and financial market conditions, investments in these types of financial instruments pose risks arising from liquidity and credit concerns. Given that future deterioration in the U.S. and global credit and financial markets is a possibility, no assurance can be made that losses or significant deterioration in the fair value of our cash, cash equivalents, or investments will not occur. Uncertainty surrounding the trading market for U.S. government securities or impairment of the U.S. government's ability to satisfy its obligations under such treasury securities could impact the liquidity or valuation of our current portfolio of cash, cash equivalents, and investments, a substantial portion of which were invested in U.S. treasury securities. Further, unless and until the current U.S. and global political, credit and financial market crisis has been sufficiently resolved, it may be difficult for us to liquidate our investments prior to their maturity without incurring a loss, which would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Though we anticipate that the cash amounts generated internally, together with amounts available under the revolving credit facility portion of the Credit Facility, will be sufficient to implement our business plan for the foreseeable future, weWe may need additional capital if a substantial acquisition or other growth opportunity becomes available or if unexpected events occur or opportunities arise. U.S. capital markets can be volatile. We cannot assure you that additional capital will be available or available on terms favorable to us. If capital is not available, we may not be able to fund internal or external business expansion or respond to competitive pressures or other market conditions.

Table of Con tents

Delays in reimbursement may cause liquidity problems.

If we experience problems with our billing information systems or if issues arise with Medicare, Medicaid or other payors, we may encounter delays in our payment cycle. From time to time, we have experienced such delays as a result of government payors instituting planned reimbursement delays for budget balancing purposes or as a result of prepayment reviews. ~~For example,~~

Some states in ~~January 2009, the State of California announced expected cash shortages in February~~ which impacted payments to Medi-Cal providers from late March through April. Medi-Cal had also delayed the release of the reimbursement rates which were announced in January 2010. These rate increases were put in place on a retrospective basis, effective August 1, 2009.

~~Further, on March 24, 2011, the governor of California signed Assembly Bill 97 (AB 97), the~~we operate are operating with budget trailer bill on health, into law. AB 97 outlines significant cuts to state health and human services programs. Specifically, the law reduced provider payments by 10% for physicians, pharmacies, clinics, medical transportation, certain hospitals, home health, and nursing facilities. AB X1 19 Long-Term Care was subsequently approved by the governor on June 28, 2011. Federal approval was obtained on October 27, 2011. AB X1 19 limited the 10% payment reduction to skilled-nursing providers to 14 months for the services provided on June 1, 2011 through July 31, 2012. The 10% reduction in provider payments was repaid by December 31, 2012. There can be no assurance that similar delaysdeficits or ~~reductions in our payment cycle of provider payments will not lead to material adverse consequences~~could have budget deficit in the ~~future.~~future, which may delay reimbursement in a manner that would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which contributes to our aged receivables. Unanticipated delays in receiving reimbursement from state programs due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital.

Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.

Nineteen of our affiliated facilities are currently subject to regulatory agreements with HUD that give the Commissioner of HUD broad authority to require us to be replaced as the operator of those facilities in the event that the Commissioner determines there are operational deficiencies at such facilities under HUD regulations. In 2006, one of our HUD-insured mortgaged facilities did not pass its HUD inspection. Following an unsuccessful appeal of the decision, we requested a re-inspection. The re-inspection occurred in the fourth quarter of 2009 and the facility passed its HUD re-inspection. Compliance with HUD's requirements can often be difficult because these requirements are not always consistent with the requirements of other federal and state agencies. Appealing a failed inspection can be costly and time-consuming and, if we do not successfully remediate the failed inspection, we could be precluded from obtaining HUD financing in the future or we may encounter limitations or prohibitions on our operation of HUD-insured facilities.

~~Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.~~

Our operating subsidiaries are subject to regulations under various federal, state and local environmental laws, primarily those relating to the handling, storage, transportation, treatment and disposal of medical waste; the identification and warning of the presence of asbestos-containing materials in buildings, as well as the encapsulation or removal of such materials; and the presence of other substances in the indoor environment.

Our affiliated facilities generate infectious or other hazardous medical waste due to the illness or physical condition of the patients. Each of our affiliated facilities has an agreement with a waste management company for the proper disposal of all infectious medical waste, but the use of a waste management company does not immunize us from alleged violations of such laws for operating subsidiaries for which we are responsible even if carried out by a third party, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed.

Some of the affiliated facilities we lease, own or may acquire may have asbestos-containing materials. Federal regulations require building owners and those exercising control over a building's management to identify and warn their employees and other employers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building's management may be subject to an increased risk of personal injury lawsuits. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for improper handling or a release into the environment of asbestos containing materials and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials. The presence of asbestos-containing materials, or the failure to properly dispose of or remediate such materials, also may adversely affect our ability to attract and retain patients and staff, to borrow when using such property as collateral or to make improvements to such property.

The presence of mold, lead-based paint, underground storage tanks, contaminants in drinking water, radon and/or other substances at any of the affiliated facilities we lease, own or may acquire may lead to the incurrence of costs for remediation, mitigation or the implementation of an operations and maintenance plan and may result in third party litigation for personal injury or property damage. Furthermore, in some circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after successful remediation, the known prior presence of extensive mold could adversely affect the ability of a facility to retain or attract patients and staff and could adversely affect a facility's market value and ultimately could lead to the temporary or permanent closure of the facility.

If we fail to comply with applicable environmental laws, we would face increased expenditures in terms of fines and remediation of the underlying problems, potential litigation relating to exposure to such materials, and a potential decrease in value to our business and in the value of our underlying assets.

In addition, because environmental laws vary from state to state, expansion of our operating subsidiaries to states where we do not currently operate may subject us to additional restrictions in the manner in which we operate our affiliated facilities.

If we fail to safeguard the monies held in our patient trust funds, we will be required to reimburse such monies, and we may be subject to citations, fines and penalties.

Each of our affiliated facilities is required by federal law to maintain a patient trust fund to safeguard certain assets of their residents and patients. If any money held in a patient trust fund is misappropriated, we are required to reimburse the patient trust fund for the amount of money that was misappropriated. If any monies held in our patient trust funds are misappropriated in the future and are unrecoverable, we will be required to reimburse such monies, and we may be subject to citations, fines and penalties pursuant to federal and state laws.

We are a holding company with no operations and rely upon our multiple independent operating subsidiaries to provide us with the funds necessary to meet our financial obligations. Liabilities of any one or more of our subsidiaries could be imposed upon us or our other subsidiaries.

We are a holding company with no direct operating assets, employees or ~~revenues.~~revenue. Each of our affiliated facilities is operated through a separate, ~~wholly-owned,~~wholly owned, independent subsidiary, which has its own management, employees and assets. Our principal assets are the equity interests we directly or indirectly hold in our multiple operating and real estate holding subsidiaries. As a result, we are dependent upon distributions from our subsidiaries to generate the funds necessary to meet our financial obligations and pay dividends. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us. The ability of our subsidiaries to make distributions to us will depend substantially on their respective operating results and will be subject

to restrictions under, among other things, the laws of their jurisdiction of organization, which may limit the amount of funds available for distribution to investors or ~~shareholders,~~stockholders, agreements of those subsidiaries, the terms of our financing arrangements and the terms of any future financing arrangements of our subsidiaries.

~~Changes~~We may incur operational difficulties or be exposed to claims and liabilities as a result of the separation of Pennant.

On October 1, 2019, we distributed all of the outstanding shares of The Pennant Group, Inc. or Pennant, common stock to stockholders in ~~federal~~connection with the separation of our home health and ~~state income~~hospice business and substantially all of our senior living operations into a separate publicly traded company, or the Spin-Off. In connection with the Spin-Off, we entered into a separation agreement and various other agreements, including a tax ~~laws~~matters agreement, an employee matters agreement and ~~regulations~~transition services agreements. These agreements govern the separation and distribution and the relationship between us and Pennant going forward, including with respect to potential tax-related losses associated with the separation and distribution. They also provide for the performance of services by each company for the benefit of the other for a period of time.

Table of Con tents

The separation agreement provides for indemnification obligations designed to make Pennant financially responsible for many liabilities that may exist relating to its business activities, whether incurred prior to or after the distribution, including any pending or future litigation, but we cannot guarantee that Pennant will be able to satisfy its indemnification obligations. It is also possible that a court would disregard the allocation agreed to between us and Pennant and require us to assume responsibility for obligations allocated to Pennant. Third parties could also seek to hold us responsible for any of these liabilities or obligations, and the indemnity rights we have under the separation agreement may not be sufficient to fully cover all of these liabilities and obligations. Even if we are successful in obtaining indemnification, we may have to bear costs temporarily. In addition, our indemnity obligations to Pennant, including those related to assets or liabilities allocated to us, may be significant. In addition, certain landlords required, in exchange for their consent to the Spin-Off, that our lease guarantees remain in place for a certain period of time following the Spin-Off. These guarantees could result in significant additional liabilities and obligations for us if Pennant were to default on their obligations under their leases with respect to these properties. These risks could negatively affect our business, financial condition or results of operations.

The separation of Pennant continues to involve a number of additional risks, including, among other things, the potential that management’s and our employees’ attention will be significantly diverted by the provision of transitional services or that we may incur other operational challenges or difficulties as a result of the separation. Certain of the agreements described above provide for the performance of services by each company for the benefit of the other for a period of time. If Pennant is unable to satisfy its obligations under these agreements, we could incur losses and may not have sufficient resources available for such services. These arrangements could also lead to disputes over rights to certain shared property and over the allocation of costs and revenues for products and operations. Our inability to effectively manage the transition activities and related events could adversely affect our ~~provision for income taxes and estimated income tax liabilities.~~

We are subject to both state and federal income taxes. Our effective tax rate could be adversely affected by changes in the mix of earnings in states with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations, changes in our interpretations of tax laws, including pending tax law changes. In addition, in certain cases more than one state in which we operate has indicated an intent to attempt to tax the same assets and activities, which could result in double taxation if successful. Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.

The Tax Cuts and Jobs Act of 2017 (the Tax Cut) was approved by Congress and signed into law in December 2017. This legislation makes significant changes to the U.S. Internal Revenue Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits, among other changes. Certain of these changes could have a negative impact on our business. Moreover, further legislative and regulatory changes may be more likely in the current political environment, particularly to the extent that Congress and the U.S. presidency are controlled by the same political party and significant reform of the tax code has been described publicly as a legislative priority. Significant further changes to the tax code could have an impact on our business, financial condition ~~and~~or results of operations.

~~We are subject to the continuous examination~~If either of our income tax returns by the Internal Revenue Service and other local, state and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our estimated income tax liabilities. The outcomes from these continuous examinations could adversely affect our provision for income taxes and estimated income tax liabilities.

~~If the Spin-Off were to~~two Spin-Offs fail to qualify as agenerally tax-free ~~transaction~~ for U.S. federal income tax purposes, we and our stockholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify CareTrust for material taxes pursuant to indemnification obligations under the Tax Matters Agreement that we entered into with CareTrust.liabilities.

~~We received a private letter ruling from the Internal Revenue Services (IRS), which provides substantially~~

In addition to the ~~effect~~Spin-Off, in June 2014, we completed the separation of our healthcare business and our real estate business into two separate and independent publicly traded companies through the distribution of all of the outstanding shares of common stock of CareTrust REIT, Inc. (CareTrust) to Ensign stockholders on a pro rata basis (the CareTrust Spin-Off). Both of these transactions were intended to qualify for tax-free treatment to us and our stockholders for U.S. federal income tax purposes. Accordingly, completion of the transactions were conditioned upon, among other things, our receipt of opinions from outside tax advisors that on the ~~basis of certain facts presented and representations and assumptions set forth in the request submitted to the IRS, the Spin-Off will~~distributions would qualify as a transaction that is intended to be tax-free to both us and our stockholders for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) ~~and 355~~ of the Internal Revenue ~~Code (the IRS Ruling).~~Code. The ~~IRS Ruling does not address certain requirements for tax-free treatment of the Spin-Off under Section 355 of the Code,~~opinions were based on and we received tax opinions from our tax advisor and counsel, substantially to the effect that, with respect to such requirements on which the IRS will not rule, such requirements have been satisfied. The IRS Ruling, and the tax opinions that we received from our tax advisor and counsel, relyrelied on, among other things, certain facts and assumptions, as well as certain representations, ~~assumptions~~statements and undertakings, including those relating to the past and future ~~conduct~~conduct. If any of ~~our and CareTrust’s businesses, and~~these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if any of the ~~IRS Ruling and~~parties breach any of their respective covenants relating to the transactions, the tax opinions ~~would~~may be invalid. Moreover, the opinions are not ~~be valid if such facts, representations, assumptions and undertakings were incorrect in any material respect. Notwithstanding~~binding on the IRS ~~Ruling and~~or any courts. Accordingly, notwithstanding receipt of the ~~tax opinions,~~opinion, the IRS could determine that the ~~Spin-Off~~distribution and certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes.

If either the Spin-Off or the CareTrust Spin-Off fails to qualify as a ~~taxable~~ transaction that is generally tax-free under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, in general, for U.S. federal income tax purposes, if it determines any of the facts, representations, assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the IRS Ruling.

~~If the Spin-Off ultimately is determined to be taxable,~~ we would recognize taxable gain with respect to the distributed securities and our stockholders who received securities in ~~an amount~~such distribution would be subject to tax as if they had received a taxable distribution equal to ~~the excess, if any, of~~ the fair market value of ~~the shares~~such shares.

We also have obligations to provide indemnification to a number of ~~CareTrust common stock held by us on the distribution date over our~~parties as a result of these two transactions. Any indemnity obligations for tax ~~basis in such shares. Such taxable gain and resulting tax liability would be substantial.~~

In addition, under the terms of the Tax Matters Agreement that we entered into with CareTrust in connection with the Spin-Off, we generally are responsible for any taxes imposed on CareTrust that arise from the failure of the Spin-Off to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Sections 368(a)(1)(D) and 355 of the Code,issues or other liabilities related to the extent such failure to qualify is attributable to certain actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or any covenants made by us in the Tax Matters Agreement, the materials submitted to the IRS in connection with the request for the IRS Ruling or the representation letter provided in connection with the tax opinion relating to the Spin-Off. Our indemnification obligations to CareTrust and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify CareTrust under the circumstance set forth in the Tax Matters Agreement, we may be subject to substantial tax liabilities.

In connection with the Spin-Off, CareTrust will indemnify us and we will indemnify CareTrust for certain liabilities. There can be no assurance that the indemnities from CareTrust will be sufficient to insure us against the full amount of such liabilities, or that CareTrust’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the Separation and Distribution Agreement that we entered into with CareTrust in connection with the Spin-Off, the Tax Matters Agreement and other agreements we entered into in connection with the Spin-Off, CareTrust agreed to indemnify us for certain liabilities, and we agreed to indemnify CareTrust for certain liabilities. However, third parties might seek to hold us responsible for liabilities that CareTrust agreed to retain under these agreements, and there can be no assurance that CareTrust will be able to fully satisfy its indemnification obligations under these agreements. Moreover, even if we ultimately succeed in recovering from CareTrust any amounts for which we are held liable to a third party, we may be temporarily required to bear these losses while seeking recovery from CareTrust. In addition, indemnities that we may be required to provide to CareTrustspin off, could be significant and could adversely impact our business.

Table of Con tents

Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.

Certain of our directors who serve on our Board of Directors also serve on the board of directors of Pennant. This may create, or appear to create, conflicts of interest when our, or Pennant's management and directors face decisions that could have different implications for us and Pennant, including the resolution of any dispute regarding the terms of the agreements governing the Spin-Off and the relationship between us and Pennant after the Spin-Off or any other commercial agreements entered into in the future between us and the spun-off business and the allocation of such directors’ time between us and Pennant.

All of our executive officers and some of our non-employee directors own shares of the common stock of Pennant. The continued ownership of such common stock by our directors and executive officers following the Spin-Off creates, or may create, the appearance of a conflict of interest when these directors and executive officers are faced with decisions that could have different implications for us and Pennant.

Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our ~~business.~~financial condition and results of operations.

Certain of our indebtedness is made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established, or alternative reference rates to be established. The potential consequences cannot be fully predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us. Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows. In addition, any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. This could materially and adversely affect our results of operations, cash flows, and liquidity. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.

Risks Related to Ownership of our Common Stock

We may not be able to pay or maintain dividends and the failure to do so would adversely affect our stock price.

Our ability to pay and maintain cash dividends is based on many factors, including our ability to make and finance acquisitions, our ability to negotiate favorable lease and other contractual terms, anticipated operating cost levels, the level of demand for our beds, the rates we charge and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any such factor could affect our ability to pay or maintain dividends. In addition, the revolving credit facility portion of the Credit Facility restricts our ability to pay dividends to stockholders if we receive notice that we are in default under this agreement. The failure to pay or maintain dividends could adversely affect our stock price.

~~The market price and trading volume~~

Table of ~~our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.~~Con tents

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. On some occasions in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us due to volatility in the market price of our common stock, we could incur substantial costs defending or settling the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

~~Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.~~

In February 2015, we completed a common stock offering, issuing approximately 5.5 million shares at approximately $20.50 per share and used a portion of the net proceeds of the offering to pay off outstanding amounts under our credit facility.

In the future, we may attempt to increase our capital resources by offering debt or additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes, preferred shares or shares of our common stock. Upon liquidation, holders of our debt securities and preferred shares, and lenders with respect to other borrowings, would receive a distribution of our available assets prior to any distribution to the holders of our common stock. Additional equity offerings may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock, or both. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their shareholdings in us. We also intend to continue to actively pursue acquisitions of facilities and may issue shares of stock in connection with these acquisitions.

~~Any shares issued in connection with our acquisitions, the exercise of outstanding stock options or otherwise would dilute the holdings of the investors who purchase our shares.~~

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price.

We produce our consolidated financial statements in accordance with the requirements of GAAP. Effective internal controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.

Testing and maintaining internal controls can divert our management's attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report if we conclude that our internal controls over financial reporting are not effective. If either we are unable to conclude that we have effective internal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404, investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that may enable our Board of Directors to resist a change in control. These provisions may discourage, delay or prevent a change in the ownership of our company or a change in our management, even if doing so might be beneficial to our stockholders. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Such provisions set forth in our amended and restated certificate of incorporation or our amended and restated bylaws include:

•our Board of Directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

•advance notice requirements for stockholders to nominate individuals to serve on our Board of Directors or to submit proposals that can be acted upon at stockholder meetings;

•our Board of Directors is classified so not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;

•stockholder action by written consent is limited;

•special meetings of the stockholders are permitted to be called only by the chairman of our Board of Directors, our chief executive officer or by a majority of our Board of Directors;

•stockholders are not permitted to cumulate their votes for the election of directors;

•newly created directorships resulting from an increase in the authorized number of directors or vacancies on our Board of Directors are filled only by majority vote of the remaining directors;

•our Board of Directors is expressly authorized to make, alter or repeal our bylaws; and

•stockholders are permitted to amend our bylaws only upon receiving the affirmative vote of at least a majority of our outstanding common stock.

We are also subject to the anti-takeover provisions of Section 203 of the General Corporation Law of the State of Delaware. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning more than 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could discourage acquisition proposals and make it more difficult or expensive for stockholders or potential acquirers

to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.

Item 1B. ~~Unresolved Staff Comments~~UNRESOLVED STAFF COMMENTS

None.

Item 2. ~~Properties~~PROPERTIES

Service Center. ~~We currently lease 29,829~~ Our Service Center is located in San Juan Capistrano, California. In June 2018, we acquired an office space for a purchase price of $31.0 million to accommodate our growing Service Center team. The property consists of approximately 108,058 square feet of usable office space. In addition, we lease a substantial portion of the space ~~in Mission Viejo, California for our Service Center pursuant~~within the campus to ~~a lease that expires in August 2019.~~ third-party tenants.

Operating Facilities. We have two options to extend our lease term at this location for an additional five-year term for each option. In 2015, we expanded our information technology department and entered into a lease of an office space of 4,972 square feet in Rancho Santa Margarita, California. The lease expires in July 31, 2019. We have two options to extend our lease term at this location for an additional five-year term for each option.

~~Facilities.~~ ~~As of December 31, 2017, we operated 230~~operate 228 affiliated facilities in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin, with the operational capacity to serve approximately ~~23,881 patients. As~~25,426 patients as of December 31, ~~2017,~~2020. Of the 228 facilities, we ~~owned 63 of its 230 affiliated~~operate 164 facilities ~~and leased an additional 167 facilities through~~under long-term lease arrangements and ~~had~~have options to purchase 11 of those ~~167~~164 facilities. ~~We currently do not manage any facilities for third parties, except on a short-term basis pending receipt~~The results of ~~new operating licenses by~~ our operating ~~subsidiaries.~~facilities are reflected in our transitional and skilled services segment for our skilled nursing operations and in "All Other" category for our senior living operations.

Table of Con tents

The following table provides summary information regarding the location of our facilities, operational beds and units by property type as of December 31, 2020:


	Operated Facilities
	Leased without a Purchase Option		Leased with a Purchase Option		Owned		Total
	Facilities	Beds/Units	Facilities	Beds/Units	Facilities	Beds/Units	Facilities	Beds/Units
California	42	4,157	—	—	6	691	48	4,848
Texas	41	5,051	5	714	17	2,278	63	8,043
Arizona	22	2,939	—	—	10	1,579	32	4,518
Wisconsin	—	—	—	—	2	100	2	100
Utah	12	1,313	2	159	7	633	21	2,105
Colorado	9	764	1	125	7	703	17	1,592
Washington	7	637	—	—	2	204	9	841
Idaho	6	471	—	—	5	470	11	941
Nebraska	5	364	—	—	2	350	7	714
Kansas	2	188	3	325	2	294	7	807
Iowa	6	399	—	—	—	—	6	399
South Carolina	—	—	—	—	4	426	4	426
Nevada	1	92	—	—	—	—	1	92
	153	16,375	11	1,323	64	7,728	228	25,426

The following table sets forth the location of our facilities and the number of operational beds and units located at our skilled nursing, senior living and ~~assisted and independent living~~campus facilities atas of December 31, ~~2017:~~2020:


	Facility Counts				Bed / Unit Counts
	Skilled Nursing Operations	Senior Living Communities	Campus Operations	Total	Skilled Nursing Beds	Senior Living Units	Total Beds / Units
California	47	—	1	48	4,783	65	4,848
Texas	57	1	5	63	7,529	514	8,043
Arizona	29	—	3	32	4,203	315	4,518
Wisconsin	2	—	—	2	100	—	100
Utah	18	2	1	21	1,940	165	2,105
Colorado	11	5	1	17	972	620	1,592
Washington	9	—	—	9	841	—	841
Idaho	9	—	2	11	904	37	941
Nebraska	4	1	2	7	413	301	714
Kansas	—	—	7	7	601	206	807
Iowa	4	—	2	6	368	31	399
South Carolina	4	—	—	4	426	—	426
Nevada	1	—	—	1	92	—	92
	195	9	24	228	23,172	2,254	25,426

TX CA AZ WI UT CO WA ID NE KS IA SC NV Total
Number of operational beds/units
Operational skilled nursing bed 5,634
4,163
3,180
138
1,763
766
841
544
413
542
368
426
92
18,870
Assisted and independent living units 387
735
1,250
758
106
618
98
274
301
142
31
—
311
5,011
Leased without a Purchase Agreement 4,978
4,043
3,845
—
1,248
570
735
453
367
188
399
—
403
17,229
Purchase Agreement or Leased with a Purchase Option 353
318
—
—
130
125
—
—
—
325
—
—
—
1,251
Owned 690
537
585
896
491
689
204
365
347
171
—
426
—
5,401

~~Home health and hospice agencies.~~Real Estate Properties. As of December 31, ~~2016,~~2020, we ~~had 46 home health, hospice and home care agencies~~owned 94 real estate properties in Arizona, California, Colorado, Idaho, ~~Iowa,~~Kansas, Nebraska, Nevada, ~~Oklahoma, Oregon,~~South Carolina, Texas, Utah, Washington and ~~Washington.~~Wisconsin, which include 64of the 228 facilities that we operate and manage. Of our 94 real estate properties, 31 senior living operations are leased to and operated by Pennant as part of the Spin-Off. Two of the senior living operations leased by Pennant are located on the same real estate properties as skilled nursing facilities that we own and operate. We further own the real estate property of our Service Center location and continue to lease a portion of the office space to third-party tenants. Our real estate segment reflects the results of operations for our owned real estate properties.

Table of Con tents

The following table provides summary information regarding the ~~locations~~location of our ~~home health, home care and hospice agencies at~~owned real estate properties as of December 31, ~~2017:~~2020:



	Owned and Operated by Ensign(1)	Owned and Leased to Pennant(1)	Service Center	Total Properties(1)
California(1)	6	2	1	8
Texas(1)	17	6	—	22
Arizona	10	1	—	11
Wisconsin	2	19	—	21
Utah	7	—	—	7
Colorado	7	—	—	7
Washington	2	—	—	2
Idaho	5	2	—	7
Nebraska	2	—	—	2
Kansas	2	—	—	2

South Carolina	4	—	—	4
Nevada	—	1	—	1
	64	31	1	94

(1) In connection with the Spin-off, one senior living operation in California and one senior living operation in Texas, which are owned by Ensign and leased to Pennant are located on the same real estate property as a skilled nursing facility which we own and operate. In each of these situations, the senior living operation is included in the total under "Owned and Leased to Pennant" and the skilled nursing operation is included in the total under "Owned and Operated by Ensign", however, the amount reflected under "Total Properties" only recognizes these operations as a single property.

State Home Health and Home Care Services Hospice Services
Arizona 2
4
California⁽¹⁾
5
3
Colorado 1
1
Idaho⁽¹⁾
3
3
Iowa 1
1
Nevada —
1
Oklahoma⁽¹⁾
2
1
Oregon 1
1
Texas 2
3
Utah⁽¹⁾
3
3
Washington⁽¹⁾
4
1
Total 24
22


~~(1)~~	~~Including a home health and a hospice agency that are located in the same location~~

Item 3. ~~Legal Proceedings~~LEGAL PROCEEDINGS

Regulatory Matters —Laws and regulations governing Medicare and Medicaid programs are complex and subject to

interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation, ~~and failure to comply can result in~~as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. Included in these laws and regulations is ~~the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),~~HIPAA, which requires healthcare providers (among other things) to safeguard the privacy and ~~keep confidential protected~~security of certain health information. In late December 2016, we learned of a potential issue at one of our independent operating entities in Arizona which involved the limited and inadvertent disclosure of certain confidential information. The issue has been fully investigated, addressed and disclosed as required under HIPAA. We believe that we are presently in compliance in all material respects with all applicable laws and regulations.

Cost-Containment Measures — Both government and private pay sources have instituted cost-containment measures designed to limit payments made to providers of healthcare services, and there can be no assurance that future measures designed to limit payments made to providers will not adversely affect us.

Indemnities — From time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which we may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from our use of the applicable premises, (ii) operations transfer agreements, in which we agree to indemnify past operators of facilities we acquire against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company's independent operating subsidiary, (iii) certain lending agreements, under which we may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with our officers, directors and employees, under which we may be required to indemnify such persons for liabilities arising out of their employment ~~relationships.~~relationships or relationship to the Company. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar ~~amount is not explicitly stated therein.~~amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for these obligations on our balance sheets for any of the periods presented.

In connection with the Spin-Off, certain landlords required, in exchange for their consent to the Spin-Off, that our lease guarantees remain in place for a certain period of time following the Spin-Off. These guarantees could result in significant additional liabilities and obligations for us if Pennant were to default on their obligations under their leases with respect to these properties.

Table of Contents

U.S. Department of Justice Civil Investigative Demand - On May 31, 2018, we received a CID from the U.S. Department of Justice stating that it was investigating to determine whether there had been a violation of the False Claims Act and/or the Anti-Kickback Statute with respect to the relationships between certain of our independently operated skilled nursing facilities and persons who serve or have served as medical directors, advisory board participants or other potential referral sources. The CID covered the period from October 3, 2013 through 2018, and was limited in scope to ten of our Southern California independent operating entities. In October 2018, the Department of Justice made an additional request for information covering the period of January 1, 2011 through 2018, relating to the same topic. As a general matter, our independent operating entities have established and maintain policies and procedures to promote compliance with the False Claims Act, the Anti-Kickback Statute, and other applicable regulatory requirements. We have fully cooperated with the U.S. Department of Justice and promptly responded to their requests for information, and have recently been advised that the U.S. Department of Justice has declined to intervene in any subsequent action filed by a relator in connection with the subject matter of this investigation.

Litigation — We and our independent operating entities are party to various legal actions and administrative proceedings, and are subject to various claims arising in the ordinary course of business, including claims that services provided to patients by our independent operating entities have resulted in injury or death, and claims related to employment and commercial matters. Although we intend to vigorously defend ~~ourselves in response to~~against these claims, there can be no assurance that the outcomes of these matters will not have a material adverse effect on ~~our~~operational results ~~of operations~~ and financial condition. In certain states in which we have or have had ~~operations,~~independent operating entities, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions. There can be no assurance that weour independent operating entities will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.

The skilled nursing and post-acute care industry is ~~extremely~~heavily regulated. As such, we are continuously subject to State and Federal regulatory scrutiny, supervision and control in the ordinary course of ~~business, we are continuously subject to state and federal regulatory scrutiny, supervision and control.~~business. Such regulatory scrutiny often includes

inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to direct regulatory oversight ~~of state~~from State and ~~federal regulatory~~Federal agencies, the skilled nursing and post-acute care industry is also subject to regulatory requirements which could subject us to civil, administrative or criminal fines, penalties or restitutionary relief, and ~~reimbursement~~reimbursement; authorities could also seek the suspension or exclusion of the provider or individual from participation in their ~~program.~~programs. We believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations, and cash flows.

Additionally, the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis launched a nation-wide investigation into the COVID-19 pandemic, which includes the impact of the coronavirus on residents and employees in nursing homes. In June 2020, the Company received a document and information request from the House Select Subcommittee. The Company is cooperating in responding to this inquiry. However, it is not possible to predict the ultimate outcome of any such investigation, or whether and what other investigations or regulatory responses may result from the investigation and could have a material adverse effect on our reputation, business, financial condition and results of operations.

In addition to the potential lawsuits and claims described above, we are also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payor. A violation may provide the basis for exclusion from ~~federally-funded~~Federally funded healthcare programs. Such exclusions could have a correlative negative impact on our financial performance. ~~Some~~Under the qui tam or "whistleblower" provisions of the False Claims Act, a private individual with knowledge of fraud may bring a claim on behalf of the Federal Government and receive a percentage of the Federal Government's recovery. Due to these whistleblower incentives, lawsuits have become more frequent. For example, and despite the decision of the U.S. Department of Justice to decline to participate in litigation based on the subject matter of its previously issued Civil Investigative Demand, the qui tam relator may continue on with the lawsuit and pursue claims that one or more of the Company's independent operating entities have allegedly violated the False Claims Act and/or the Anti-Kickback Statute.

In addition to the Federal False Claims Act, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. ~~In addition,~~Further, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the Federal False Claims Act. As such, we could face increased scrutiny, potential liability, and legal expenses and costs based on claims under state false claims acts in markets in which ~~it does~~our independent operating subsidiaries do business.

Table of Contents

In May 2009, Congress passed the ~~Fraud Enforcement and Recovery Act (FERA) of 2009~~FERA which made significant changes to the Federal False Claims Act (FCA)~~, expanding~~ and expanded the types of activities subject to prosecution and whistleblower liability. Following changes by FERA, health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved. Health care providers can now be liable for knowingly and improperly avoiding or decreasing an obligation to pay money or property to the government. This includes the retention of any government overpayment. The government can argue, therefore, that aan FCA violation can occur without any affirmative fraudulent action or statement, as long as itthe action or statement is knowingly improper. In addition, FERA extended protections against retaliation for whistleblowers, including protections not only for employees, but also contractors and agents. Thus, ~~there~~an employment relationship is generally ~~no need for an employment relationship~~not required in order to qualify for protection against retaliation for whistleblowing.

Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories, and weour independent operating entities are routinely subjected to varying types of claims. One particular type of suit arises from alleged violations of minimum staffing requirements for skilled nursing facilities in those states which have enacted such requirements. ~~Failure~~The alleged failure to meet these requirements can, among other things, jeopardize a facility's compliance with ~~conditions~~requirements of participation under certain ~~state~~State and ~~federal~~Federal healthcare programs; it may also subject the facility to a notice of deficiency, a citation, a civil ~~money~~monetary penalty, or litigation. These class-action “staffing” suits have the potential to result in large jury verdicts and settlements. We expect the plaintiffs' bar to continue to be aggressive in their pursuit of these staffing and similar claims.

~~Since 2011,~~We and our independent operating subsidiaries have been, and continue to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment (professional negligence claims) as well as employment related claims. In addition, we and our independent operating subsidiaries, and others in the industry, are subject to claims and lawsuits in connection with COVID-19 and facilities preparation for and/or response to the COVID-19 pandemic. While we have been ~~involved in a class action litigation claim alleging violations of state and federal wage and hour laws. In January 2017, we participated in an initial mediation session with plaintiffs' counsel.~~

In March 2017, we were invited to engage in further mediation discussions to determine whether settlement in advance of a decision on class certification was possible. In April 2017, we reached an agreement in principleable to settle ~~the subject class action litigation,~~or otherwise resolve these types of claims without ~~any admission of liability and subject to approval by the California Superior Court. Based upon the change in case status, we recorded~~ an accrual for estimated probable losses of $11.0 million, exclusive of legal fees, in the first quarter of 2017. In December 2017, we settled this class action lawsuit and the settlement was approved by the Court. We funded the settlement in December 2017 in the amount of $11.0 million, and it will be distributed to the class members in Q1 of 2018.

A class action staffing suit was previously filed against us and certain of our California affiliated facilities, alleging, among other things, violations of certain Health and Safety Code provisions and a violation of the Consumer Legal Remedies Act. In 2007, we settled this class action suit, and the settlement was approved by the affected class and the Court. A second such class action staffing suit was filed in Los Angeles in 2010 and was resolved in a settlement and Court approval in 2012. Neither of the referenced lawsuits or settlements had aongoing material ~~ongoing~~ adverse effect on our business, a significant increase in the number of these claims, or an increase in the amounts owing should plaintiffs be successful in their prosecution of future claims, could materially adversely affect the Company’s business, financial condition, or results of ~~operations.~~operations and cash flows.

~~Other claims~~Claims and suits, including class actions, continue to be filed against us and other companies in the post-acute care industry. ~~For example, we~~We and our independent operating entities have been subjected to, ~~and~~and/or are currently involved in, class action litigation alleging violations (alone or in combination) of ~~state~~State and ~~federal~~Federal wage and hour ~~law. If there were a significant increase in~~law as related to the ~~number~~alleged failure to pay wages, to timely provide and authorize meal and rest breaks, and other such similar causes of action. We do not believe that the ultimate resolution of these claims or an increase in amounts owing should plaintiffs be successful in their prosecution of these claims, this could materially adversely affect our business, financial condition, results of operations and cash flows.

Weactions will have ~~in the past been subject to class action litigation involving claims of violations of various regulatory requirements. While we have been able to settle these claims without~~ a material ~~ongoing~~ adverse effect on our business, future claims could be brought that may materially affect our business, financial condition and results of operations. Other claims and suits continue to be filed against us and other companies in the industry. By way of recent example, we defended a general/premise liability claim in San Luis Obispo, California, on behalf of an affiliated facility, involving an injury to a non-employee/contractor. Further, another one of the affiliated independent operating entities was sued on allegations of professional negligence, which claim was recently settled. We do not expect that there will be any material ongoing adverse effect on our business,cash flows, financial condition or results of ~~operations in connection with the resolution of these matters.~~operations.

Medicare Revenue Recoupments — We and our independent operating subsidiaries are subject to regulatory reviews relating to the provision of Medicare services, billings and potential overpayments resulting from reviews conducted via RAC, ~~ZPIC, PSC~~Program Safeguard Contractors, and ~~MIC.~~Medicaid Integrity Contractors (collectively referred to as Reviews). For several months during the COVID-19 pandemic, CMS suspended its Targeted Probe and Educate program. Beginning in August 2020, CMS resumed Targeted Probe and Educate program activity. As of December 31, ~~2017, seven~~2020, four of our independent operating subsidiaries had ~~probes~~Reviews scheduled, ~~and~~on appeal, or in ~~process, both pre- and post-payment.~~a dispute resolution process. We anticipate that these ~~probe reviews will~~Reviews could increase in frequency in the future. If ~~a facility~~an operation fails a ~~probe review and~~Review and/or subsequent ~~re-probes,~~Reviews, the ~~facility~~operation could then be subject to extended ~~pre-pay~~ review or an extrapolation of the identified error rate to ~~all billing~~billings in the same time period. ~~None~~As of December 31, 2020, our independent operating subsidiaries ~~are currently on extended prepayment review, although that may occur in the future.~~

~~U.S. Government Inquiry —~~ In late 2006, we learned that we might be the subject of an on-going criminal and civil investigation by the DOJ. This was confirmed in March 2007. The investigation was prompted by a whistleblower complaint and related primarily to claims submittedhave responded to the ~~Medicare program for rehabilitation services provided at certain skilled nursing facilities~~requests and the related claims currently under review, on appeal or in ~~Southern California. We resolved and settled the matter for $48.0 million in 2013. In October 2013, we executed~~ a ~~final settlement agreement with the Government and remitted full payment~~dispute resolution process.

Table of ~~$48.0 million. In addition, we executed a corporate integrity agreement with the Office of Inspector General HHS as part of the resolution.~~Contents

~~See additional description of our contingencies in Notes 15,~~ ~~Debt, 17,~~ ~~Leases~~ ~~and 19,~~ ~~Commitments and Contingencies~~ in

~~Notes to Consolidated Financial Statements.~~

Item 4. ~~Mine Safety Disclosures~~MINE SAFETY DISCLOSURES

None.

PART II.

Item 5. ~~Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~ MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been traded under the symbol “ENSG” on the NASDAQ Global Select Market since our initial public offering on November 8, 2007. Prior to that time, there was no public market for our common stock. ~~The following table shows the high and low sale prices for the common stock as reported by the NASDAQ Global Select Market for the periods indicated:~~

High Low
Fiscal 2016
First Quarter $ 23.20
$ 17.60
Second Quarter $ 23.86
$ 19.13
Third Quarter $ 22.10
$ 17.87
Fourth Quarter $ 23.18
$ 17.60
Fiscal 2017

First Quarter $ 22.66
$ 16.76
Second Quarter $ 22.24
$ 16.51
Third Quarter $ 23.35
$ 18.75
Fourth Quarter $ 24.78
$ 20.81

~~During fiscal 2017, we declared aggregate cash dividends of $0.1725 per share of common stock, for a total of approximately $8.9 million.~~ As of ~~February 5, 2018,~~January 29, 2021, there were approximately ~~240~~285 holders of record of our common stock.

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act or the Exchange Act that might incorporate future filings, including this Annual Report on Form 10-K, in whole or in part, the Stock Performance Graph and supporting data which follows shall not be deemed to be incorporated by reference into any such filings except to the extent that we specifically incorporate any such information into any such future filings.

The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on December 31, 2012 in (i) our common stock, (ii) the Skilled Nursing Facilities Peer Group 1 and (iii) the NASDAQ Market Index. Our stock price performance shown in the graph below is not indicative of future stock price performance.

COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN*

~~Among Ensign Group, the NASDAQ Composite Index~~

~~and a Peer Group~~

*$100 invested on 12/31/12 in stock in index, including reinvestment of dividends.

~~Fiscal year ending December 31.~~

December 31,
2012 2013 2014 2015 2016 2017
The Ensign Group, Inc. $ 100.00
$ 164.13
$ 287.36
$ 294.92
$ 291.62
$ 293.84
NASDAQ Market Index $ 100.00
$ 140.12
$ 160.78
$ 171.97
$ 187.22
$ 242.71
Peer Group $ 100.00
$ 124.32
$ 178.08
$ 160.68
$ 178.50
$ 132.03

~~The current composition of the Skilled Nursing Facilities Peer Group 1, SIC Code 8051 is as follows:~~

~~Diversicare Healthcare Services, Five Star Quality Care, Inc., National Healthcare Corporation, Genesis Healthcare, Inc., Regional Health Properties, and The Ensign Group, Inc.~~

Dividend Policy

~~The following table summarizes common stock dividends declared to shareholders during the two most recent fiscal years:~~

Dividend per Share Aggregate Dividend Declared
(in thousands)
2016

First Quarter $ 0.0400
$ 2,026
Second Quarter $ 0.0400
$ 2,034
Third Quarter $ 0.0400
$ 2,042
Fourth Quarter $ 0.0425
$ 2,180
2017

First Quarter $ 0.0425
$ 2,171
Second Quarter $ 0.0425
$ 2,178
Third Quarter $ 0.0425
$ 2,189
Fourth Quarter $ 0.0450
$ 2,329

We do not have a formal dividend policy, but we currently intend to continue to pay regular quarterly dividends to the holders of our common stock. ~~From~~We have been a dividend-paying company since 2002 ~~to 2017, we paid aggregate annual dividends equal to approximately 5% to 18% of~~and have increased our ~~net income, after adjusting~~dividend every year for the class action lawsuit of $11.0 million in December 31, 2017 and charge related to the U.S. Government inquiry settlement of $33.0 million and $15.0 million in fiscal years ended December 31, 2013 and 2012, respectively. However, future dividends will continue to be at the discretion of our board of directors, and we may or may not continue to pay dividends at such rate. We expect that the payment of dividends will depend on many factors, including our results of operations, financial condition and capital requirements, earnings, general business conditions, legal restrictions on the payment of dividends and other factors the Board of Directors deems relevant.last 18 years.

The Credit Facility restricts our subsidiaries' and our ability to pay dividends to stockholders in excess of 20% of consolidated net income, or at all if we receive notice that we are in default under the facility. In addition, we are a holding company with no direct operating assets, employees or revenues. As a result, we are dependent upon distributions from our independent operating subsidiaries to generate the funds necessary to meet our financial obligations and pay dividends. It is possible that in certain quarters, we may pay dividends that exceed our net income for such period as calculated in accordance with GAAP.

Issuer Repurchases of Equity Securities

Stock Repurchase Programs.~~On February 8, 2017, we announced that our~~As approved by the Board of Directors on March 4, 2020 and March 13, 2020, the Company entered into two stock repurchase programs pursuant to which the Company was authorized to repurchase up to $20.0 million and $5.0 million, respectively, of its common stock under the programs for a period of approximately 12 months. Under these programs, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. During the first quarter of 2020, the Company repurchased 0.5 million and 0.2 million shares of its common stock for $20.0 million and $5.0 million, respectively. These repurchase programs expired upon the repurchase of the full authorized amount under the two plans.

As approved by the Board of Directors on August 26, 2019, we entered into a stock repurchase program ~~under~~pursuant to which we may repurchase up to ~~$30.0~~$20.0 million of our common stock under the program for a period of approximately 12 months. Under this program, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. ~~The stock repurchase program expired on February 8, 2018.~~ During the year ended December 31, ~~2017,~~2020, we repurchased ~~approximately 0.4~~0.1 million shares of our common stock for a total of ~~$7.3~~$6.4 million.

~~On November 4, 2015 and February 9, 2016, we announced that our Board of Directors authorized two~~ The stock repurchase ~~programs, under which we may repurchase up to $15.0 million~~program expired on August 31, 2020.

A summary of ~~our common stock under each program for a period of 12 months. During the first quarter of 2016, we repurchased 1.5 million shares of our common stock for a total of $30.0 million and~~ the repurchase ~~programs expired upon~~activity for the ~~repurchase~~year ended December 31, 2020 is as follows (dollars in millions, except per share amounts):


Period	Total Number of Shares Repurchased	Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
March 4 - March 12, 2020 (1)	503,026	$	39.73	503,026	$	—
March 16 - March 17, 2020 (2)	188,951	$	26.43	188,951	$	—

(1) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on March 4, 2020.

(2) These purchases were effectuated through a Rule 10b5-1 trading plan adopted by the Company on March 13, 2020.

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Item 6. SELECTED FINANCIAL DATA

Upon the completion of the ~~full authorized amount under~~Spin-Off on October 1, 2019, Pennant's historical financial results for periods prior to the ~~plans.~~

~~Item 6.~~ ~~Selected Financial Data~~

~~All share and per share amounts presented reflect a two-for-one stock split effected~~Spin-Off were reflected in ~~December 2015.The~~our consolidated financial statements as discontinued operations. The following selected consolidated financial data ~~set forth below~~are qualified in their entirety, and should be read in ~~connection~~conjunction with ~~Part II, Item 7.~~ the consolidated financial statements and related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this Annual Report on Form 10-K.

We derived the selected consolidated statements of operations data for the years ended December 31, 2020, 2019 and ~~with~~2018 and the selected consolidated balance sheets data as of December 31, 2020 and 2019 from our audited consolidated financial statements contained in Item 15., Exhibits, Financial Statements and Schedules of this Annual Report on Form 10-K. We derived the selected consolidated statements of operations data for the years ended December 31, 2017 and 2016 and the selected consolidated balance sheets data as of December 31, 2018, 2017 and 2016 from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results to be expected for future periods.

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	Year Ended December 31,
	2020		2019(4)		2018(4)		2017(4)		2016(4)

	(In thousands, except per share data)
Revenue
Service revenue	$	2,387,439	$	2,031,266	$	1,752,991	$	1,598,159	$	1,437,489
Rental revenue	15,157		5,258		1,610		167		150
Total revenue(1)	$	2,402,596	$	2,036,524	$	1,754,601	$	1,598,326	$	1,437,639
Expense
Cost of services(1)	1,865,201		1,620,628		1,418,249		1,313,451		1,184,757
(Return of unclaimed class action settlement)/charges related to class action lawsuit	—		—		(1,664)		11,000		—
Losses/(gains) related to divestitures(2)	—		—		—		2,321		(11,225)
Rent—cost of services	129,926		124,789		117,676		111,980		106,134
General and administrative expense	129,743		110,873		90,563		74,120		64,087
Depreciation and amortization	54,571		51,054		44,864		42,268		36,069
Total expenses	2,179,441		1,907,344		1,669,688		1,555,140		1,379,822
Income from operations	223,155		129,180		84,913		43,186		57,817
Other income (expense):
Interest expense	(9,362)		(15,662)		(15,182)		(13,616)		(7,136)
Interest and other income	3,813		2,649		2,016		1,609		1,107
Other expense, net	(5,549)		(13,013)		(13,166)		(12,007)		(6,029)
Income before provision for income taxes	217,606		116,167		71,747		31,179		51,788
Provision for income taxes(3)	46,242		23,954		12,685		14,206		19,678
Net income from continuing operations	171,364		92,213		59,062		16,973		32,110
Net income from discontinued operations, net of tax	—		19,473		33,466		23,860		20,733
Net income	171,364		111,686		92,528		40,833		52,843
Less: Net income/(loss) attributable to noncontrolling interests in continuing operations	886		523		(431)		198		2,827
Net income attributable to noncontrolling interest in discontinued operations	—		629		595		160		26
Net income attributable to The Ensign Group, Inc.	$	170,478	$	110,534	$	92,364	$	40,475	$	49,990
Amounts attributable to the The Ensign Group, Inc.:
Income from continuing operations attributable to The Ensign Group, Inc.	$	170,478	$	91,690	$	59,493	$	16,775	$	29,283
Income from discontinued operations, net of income tax (4)	—		18,844		32,871		23,700		20,707
Net income attributable to The Ensign Group, Inc.	$	170,478	$	110,534	$	92,364	$	40,475	$	49,990
Net income per share attributable to The Ensign Group, Inc.:
Basic:
Continuing operations	$	3.19	$	1.72	$	1.14	$	0.33	$	0.58
Discontinued operations(4)	—		0.35		0.64		0.46		0.41
Basic income per share attributable to The Ensign Group, Inc.	$	3.19	$	2.07	$	1.78	$	0.79	$	0.99
Diluted:
Continuing operations	$	3.06	$	1.64	$	1.09	$	0.32	$	0.56
Discontinued operations(4)	—		0.33		0.61		0.45		0.40
Diluted income per share attributable to The Ensign Group, Inc.	$	3.06	$	1.97	$	1.70	$	0.77	$	0.96
Weighted average common shares outstanding:
Basic	53,434		53,452		52,016		50,932		50,555
Diluted	55,787		55,981		54,397		52,829		52,133

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	December 31,
	2020		2019(4)		2018(4)		2017(4)		2016(4)

	(In thousands, except per share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	236,562	$	59,175	$	31,083	$	42,337	$	57,706
Working capital	20,557		67,908		78,845		142,255		121,934
Total assets(5)	2,545,578		2,361,909		1,181,958		1,102,433		1,001,025
Long-term debt, less current maturities	112,544		325,217		233,135		302,990		275,486
Equity	818,227		656,144		602,340		500,059		460,495
Cash dividends declared per common share	$	0.2025	$	0.1925	$	0.1825	$	0.1725	$	0.1625

(1) As a result of the adoption of Accounting Standard Codification (ASC) 606 in 2018, the majority of what was previously presented as bad debt expense in cost of services has been incorporated as an implicit price concession factored into the calculation of net revenue for fiscal year 2018. The comparative information in prior years has not been restated and continues to be reported under the accounting standards in effect for the period presented.
(2) In 2016, we completed the sale of 17 urgent care centers for an aggregate sale price of $41,492. As a result of the sale, we recognized a pretax gain of $19,160, which is included in operating income. The sale transactions did not meet the criteria of a discontinued operation as they did not represent a strategic shift that has or will have a major effect on our operations and financial results.
(3) 2017 includes the significant impact of the enactment of the Tax Cuts and Job Act (the Tax Act) discussed further in Note 14, Income Taxes, to the Consolidated Financial Statements. 2018 reflects a lower effective tax rate than the years prior to the enactment of the Tax Act. The Tax Act reduced the U.S. federal statutory tax rate from 35% to 21%.
(4) The selected financial table has been adjusted to reflect the impact of the Spin-Off for fiscal years 2016 through 2019, including the presentation of continuing and discontinued operations basis. Refer to Note 21, Spin-Off Of Subsidiaries in our Notes to Consolidated Financial Statements for additional information.
(5) The adoption of ASC 842 resulted in the recognition of right-of-use assets of $1,016 million and lease liabilities of $1,007 million on the consolidated balance sheet as of January 1, 2019. The comparative information in prior years has not been restated and continues to be reported under the accounting standards in effect for the period presented.


	Year Ended December 31,
	2020		2019		2018

	(In thousands)
Segment Income(1)
Transitional and skilled services	$	327,812	$	225,910	$	175,552
Real estate(2)	$	31,323	$	17,479	$	11,853

Non-GAAP Financial Measures:
Performance Metrics
EBITDA from continuing operations	$	276,840	$	179,711	$	130,208
EBITDA total	$	276,840	$	206,594	$	175,668

Adjusted EBITDA from continuing operations	$	292,751	$	195,645	$	147,988
Adjusted EBITDA total	$	292,751	$	232,446	$	195,615
FFO for real estate segment	$	49,541	$	32,675	$	23,888

Valuation Metric
Adjusted EBITDAR	$	422,577

(1) Segment income represents operating results of the reportable segments excluding gain and loss on sale of assets, impairment charges and provision for income taxes. Segment income is reconciled to the Consolidated Statement of Income in Note 7, Business Segments in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

(2) Real estate segment income includes rental revenue from Ensign affiliated tenants and related ~~notes thereto:~~expenses.

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Year Ended December 31,
2017 2016 2015 2014 2013
(In thousands, except per share data)
Revenue $ 1,849,317
$ 1,654,864
$ 1,341,826
$ 1,027,406
$ 904,556
Expense:
Cost of services 1,497,703
1,341,814
1,067,694
822,669
725,989
Charge related to U.S. Government inquiry —
—
—
—
33,000
Charge related to class action lawsuit 11,000
—
—
—
—
(Gain)/losses related to divestitures ⁽²⁾
2,321
(11,225 ) —
—
—
Rent - cost of services 131,919
124,581
88,776
48,488
13,613
General and administrative expense 80,617
69,165
64,163
56,895
40,103
Depreciation and amortization 44,472
38,682
28,111
26,430
33,909
Total expenses 1,768,032
1,563,017
1,248,744
954,482
846,614
Income from operations 81,285
91,847
93,082
72,924
57,942
Other income (expense):

Interest expense (13,616 ) (7,136 ) (2,828 ) (12,976 ) (12,787 )
Interest income 1,609
1,107
845
594
506
Other expense, net (12,007 ) (6,029 ) (1,983 ) (12,382 ) (12,281 )
Income before provision for income taxes 69,278
85,818
91,099
60,542
45,661
Provision for income taxes 28,445
32,975
35,182
26,801
20,003
Income from continuing operations 40,833
52,843
55,917
33,741
25,658
Loss from discontinued operations —
—
—
—
(1,804 )
Net income $ 40,833
$ 52,843
$ 55,917
$ 33,741
$ 23,854
Less: net income (loss) attributable to noncontrolling interests 358
2,853
485
(2,209 ) (186 )
Net income attributable to The Ensign Group, Inc. $ 40,475
$ 49,990
$ 55,432
$ 35,950
$ 24,040
Amounts attributable to The Ensign Group, Inc.:
Income from continuing operations attributable to The Ensign Group, Inc. $ 40,475
$ 49,990
$ 55,432
$ 35,950
$ 25,844
Loss from discontinued operations, net of income tax —
—
—
—
(1,804 )
Net income attributable to The Ensign Group, Inc. $ 40,475
$ 49,990
$ 55,432
$ 35,950
$ 24,040
Net income per share^:

Basic:
Income from continuing operations attributable to The Ensign Group, Inc. $ 0.79
$ 0.99
$ 1.10
$ 0.80
$ 0.59
Loss from discontinued operations ⁽¹⁾
—
—
—
—
(0.04 )
Net income attributable to The Ensign Group, Inc. $ 0.79
$ 0.99
$ 1.10
$ 0.80
$ 0.55
Diluted:
Income from continuing operations attributable to The Ensign Group, Inc. $ 0.77
$ 0.96
$ 1.06
$ 0.78
$ 0.58
Loss from discontinued operations ⁽¹⁾
—
—
—
—
(0.04 )
Net income attributable to The Ensign Group, Inc. $ 0.77
$ 0.96
$ 1.06
$ 0.78
$ 0.54
Weighted average common shares outstanding

Basic 50,932
50,555
50,316
44,682
43,800
Diluted 52,829
52,133
52,210
46,190
44,728
⁽¹⁾ On March 25, 2013, we agreed to terms to sell DRX, a national urgent care franchise system for approximately $8,000, adjusted for certain assets and liabilities. The asset sale was effective on April 15, 2013. The sale resulted in a pre-tax loss of $2,837 for the year ended December 31, 2013. The assets acquired at the initial purchase of DRX, including noncontrolling interest, were recorded at fair value. The initial fair value was greater than total cash paid to acquire all interests in DRX and the subsequent sale price. The sale of DRX has been accounted for as discontinued operations.
⁽²⁾ In 2016, we completed the sale of seventeen urgent care centers for an aggregate sale price of $41,492. As a result of the sale, we recognized a pretax gain of $19,160, which is included in operating income. The sale transactions did not meet the criteria of a discontinued operation as they do not represent a strategic shift that has or will have a major effect on our operations and financial results.

December 31,
2017 2016 2015 2014 2013
(In thousands, except per share data)
Consolidated Balance Sheet Data:

Cash and cash equivalents $ 42,337
$ 57,706
$ 41,569
$ 50,408
$ 65,755
Working capital 142,255
121,934
115,104
83,209
98,540
Total assets 1,102,433
1,001,025
747,759
493,916
716,315
Long-term debt, less current maturities 302,990
275,486
99,051
68,279
251,895
Equity 500,059
460,495
426,985
257,803
357,257
Cash dividends declared per common share $ 0.1725
$ 0.1625
$ 0.1525
$ 0.1425
$ 0.1325

Year Ended December 31,
2017 2016 2015
(In thousands)
Non-GAAP Financial Measures:

Performance Metrics
EBITDA $ 125,399
$ 127,676
$ 120,708
Adjusted EBITDA 169,276
150,098
135,248
Valuation Metric
Adjusted EBITDAR 284,700
262,194
221,278

~~______________________~~

The following discussion includes references to EBITDA, Adjusted EBITDA, ~~and~~ Adjusted EBITDAR and Funds from Operations (FFO) which are non-GAAP financial measures (collectively, the Non-GAAP Financial Measures).Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the Exchange Act, define and prescribe the conditions for use of certain non-GAAP financial information. These ~~non-GAAP financial measures~~Non-GAAP Financial Measures are used in addition to and in conjunction with results presented in accordance with GAAP. These ~~non-GAAP financial measures~~Non-GAAP Financial Measures should not be relied upon to the exclusion of GAAP financial measures. These ~~non-GAAP financial measures~~Non-GAAP Financial Measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business.

We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

•they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest expense, net and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired; and

•they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.

We use the Non-GAAP Financial Measures:

•as measurements of our operating performance to assist us in comparing our operating performance on a consistent basis;

•to allocate resources to enhance the financial performance of our business;

•to assess the value of a potential acquisition;

•to assess the value of a transformed operation's performance;

•to evaluate the effectiveness of our operational strategies; and

•to compare our operating performance to that of our competitors.

We ~~typically~~ use certain Non-GAAP Financial Measures to compare the operating performance of each operation. These measures are useful in this regard because they do not include such costs as net interest expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Adjusted EBITDAR targets.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP. Therefore, certain of our Non-GAAP Financial Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. Some of these limitations are:

•they do not reflect our current or future cash requirements for capital expenditures or contractual commitments;

•they do not reflect changes in, or cash requirements for, our working capital needs;

•they do not reflect the net interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

•they do not reflect rent expenses, which are necessary to operate our leased operations, in the case of Adjusted EBITDAR;

•they do not reflect any income tax payments we may be required to make;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate these measures differently than we do, which may limit their usefulness as comparative measures.

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We compensate for these limitations by using them only to supplement net income on a basis prepared in accordance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business.

Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure. Because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures with other companies’ Non-GAAP ~~Financial Measures~~financial measures having the same or similar names. These Non-GAAP Financial Measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. We strongly urge you to review the reconciliation of income from operations to the Non-GAAP Financial Measures in the table below, along with our consolidated financial statements and related notes included elsewhere in this document.

We use the following Non-GAAP ~~Financial Measures~~financial measures that we believe are useful to investors as key valuation and operating performance measures:

PERFORMANCE MEASURES:

EBITDA

We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate EBITDA as net income, ~~from continuing operations,~~ adjusted for net losses attributable to noncontrolling interest, before (a) interest expense, net, (b) provision for income taxes, and (c) depreciation and amortization.

Adjusted EBITDA

We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case

of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income ~~(loss)~~ attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.

Adjusted EBITDA is EBITDA adjusted for non-core business items, which for the reported periods includes, to the extent applicable:

~~legal costs and charges related to the settlement of class action lawsuits, insurance claims and the U.S. Government inquiry;~~

~~share-based compensation expense;~~

•results related to closed operations and operations not at full ~~capacity, including continued obligations~~capacity;

•results related to start-up operations;

•return of unclaimed class action settlement funds and ~~closing expenses;~~charges related to the settlement of the class action lawsuit and insurance claims;

~~results at facilities currently being constructed~~•stock-based compensation expense;

•expenses incurred in connection with the completed Spin-Off;

•gain on sale and ~~other start-up operations;~~impairment charges on fixed assets;

•impairment of intangible assets and goodwill;

•acquisition related costs;

•business interruption recoveries and losses;

•bonus accrual as a result of the Tax ~~Cut and Jobs Act (the Tax Act);~~Act;

~~losses related to Hurricane Harvey and California fires on impacted operations;~~

•operating results and gain on sale of urgent care ~~centers (including the portion~~centers; and

•costs incurred related to ~~non-controlling interest);~~system implementation and professional service fee.

~~charges~~

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Funds from Operations

We consider FFO to be a useful supplemental measure of our real estate segment operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many real estate investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs which excludes historical cost depreciation from net income. We define (in accordance with the definition used by NAREIT) FFO to mean net income attributable to common stockholders (NICS), computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable real estate assets and adding depreciation and amortization related to ~~the Spin-Off;~~real estate to earnings.

~~transaction-related costs;~~

~~professional fees costs fees including costs incurred to recognize income tax credits, tax reform impacts, adoption of the new revenue recognition standard and new systems implementation;~~VALUATION MEASURE:

~~break-up fee received in connection with a public auction; and~~

~~impairment of goodwill.~~

Adjusted EBITDAR

We use Adjusted EBITDAR as one measure in determining the value of prospective acquisitions. It is also a commonly used measure by our management, research analysts and investors, to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures and leasing arrangements. 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~~.expense.

The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. We calculate Adjusted EBITDAR by excluding rent-cost of services from Adjusted EBITDA.

We believe the use of Adjusted EBITDAR allows the investor to compare operational results of companies who have operating and capital leases. A significant portion of capital lease expenditures are recorded in interest, whereas operating lease expenditures are recorded in rent expense.

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


	Year Ended December 31,
	2020		2019		2018		2017		2016

	(In thousands)
Consolidated statements of income data:
Net income	$	171,364	$	111,686	$	92,528	$	40,833	$	52,843
Less: net income (loss) attributable to noncontrolling interests in continuing operations	886		523		(431)		198		2,827
Less: net income from discontinued operations	—		19,473		33,466		23,860		20,733
Add: Interest expense, net	5,549		13,013		13,166		12,007		6,029
Provision for income taxes	46,242		23,954		12,685		14,206		19,678
Depreciation and amortization	54,571		51,054		44,864		42,268		36,069
EBITDA from continuing operations	276,840		179,711		130,208		85,256		91,059
EBITDA from discontinued operations(g)	—		26,883		45,460		40,143		36,617
EBITDA	$	276,840	$	206,594	$	175,668	$	125,399	$	127,676


Stock-based compensation expense	14,524		11,322		8,367		7,755		7,237
Results related to closed operations and operations not at full capacity(a)	1,183		1,680		601		3,906		8,705
Acquisition related costs(b)	104		277		322		717		1,102
Impairment of goodwill and intangible assets	—		941		3,177		—		—
Spin-Off transaction costs(c)	—		464		—		—		—
Impairment charges to fixed assets, net of gain on sale(d)	—		329		4,632		—		—
(Earnings)/losses related to operations in the start-up phase(e)	—		—		(11,628)		(3,739)		3,696
(Return of unclaimed class action settlement)/charges related to the settlement of the class action lawsuit and insurance claims	—		—		(1,664)		11,177		4,924
Business interruption (recoveries) and losses related to Hurricane Harvey and California fires	—		—		(675)		1,242		—
Bonus accrual as a result of the Tax Act	—		—		—		3,100		—
Operating results and gain on sale of urgent care centers	—		—		—		—		(18,893)
Costs incurred related to system implementation and professional service fee(f)	—		—		—		80		1,148




Rent related to items above	100		921		14,648		16,305		12,449
Adjusted EBITDA from continuing operations	292,751		195,645		147,988		125,799		111,427
Adjusted EBITDA from discontinued operations(g)	—		36,801		47,627		43,477		38,671
Adjusted EBITDA	$	292,751	$	232,446	$	195,615	$	169,276	$	150,098
Rent—cost of services	129,926		124,789		117,676		111,980		106,134
Less: rent related to items above	(100)		(921)		(14,648)		(16,305)		(12,449)
Adjusted rent from continuing operations	$	129,826	$	123,868	$	103,028	$	95,675	$	93,685
Adjusted rent included in discontinued operations	—		17,283		20,805		19,939		18,447

Adjusted EBITDAR from continuing operations	$	422,577

Year Ended December 31,
2017 2016 2015 2014 2013
(In thousands)
Consolidated statements of income data:
Net income $ 40,833
$ 52,843
$ 55,917
$ 33,741
$ 23,854
Less: net income attributable to noncontrolling interests 358
2,853
485
(2,209 ) (186 )
Loss from discontinued operations —
—
—
—
1,804
Interest expense, net 12,007
6,029
1,983
12,382
12,281
Provision for income taxes 28,445
32,975
35,182
26,801
20,003
Depreciation and amortization 44,472
38,682
28,111
26,430
33,909
EBITDA $ 125,399
$ 127,676
$ 120,708
$ 101,563
$ 92,037

Legal costs and charges related to the U.S. Government inquiry, class action lawsuits and settlement of insurance claims(a) 11,177
4,924
—
—
35,622
Share-based compensation expense(b) 9,695
9,101
6,677
—
—
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c) 4,632
8,705
—
—
—
(Earnings)/losses related to facilities currently being constructed and other start-up operations(d) (3,261 ) 3,850
3,054
—
1,256
Bonus accrual as a result of the Tax Act(e) 3,100
—
—
—
—
Losses related to Hurricane Harvey and California fires on impacted operations (f) 1,242
—
—
—
—
Operating results and gain on sale of urgent care centers(g) —
(18,893 ) (1,132 ) (389 ) 1,844
Spin-Off charges including results at three independent living facilities transferred to CareTrust(h) —
—
—
8,904
4,050
Transaction-related costs(i) 717
1,102
1,397
672
288
Costs incurred related to new systems implementation and professional service fee(j) 80
1,148
2,817
138
145
Breakup fee, net of costs, received in connection with a public auction(k) —
—
(1,019 ) —
—
Impairment of goodwill(l) —
—
—
—
490
Rent related to items(c),(d),(f),(g) and (h) above 16,495
12,485
2,746
1,941
1,009
Adjusted EBITDA $ 169,276
$ 150,098
$ 135,248
$ 112,829
$ 136,741
Rent—cost of services 131,919
124,581
88,776
48,488
13,613
Less: rent related to items(c),(d),(f),(g) and (h) above (16,495 ) (12,485 ) (2,746 ) (1,941 ) (1,009 )
Adjusted EBITDAR $ 284,700
$ 262,194
$ 221,278
$ 159,376
$ 149,345

~~______________________~~


~~(a)~~	Legal costs and charges incurred in connection with the settlement of the class action lawsuits, insurance claims in 2016 and investigation into the billing and reimbursement processes of some of our operating subsidiaries conducted by the DOJ in 2013.

~~(b) Share-based compensation expense incurred during~~(a) Represents results at closed operations and operations not at full capacity, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million and $7.9 million for the years ended December 31, 2017 and 2016, ~~and 2015. Adjusted EBITDA and EBITDAR for~~respectively. Included in the ~~years~~year ended December 31, ~~2014 and 2013 did not include a non-GAAP adjustment~~2017 results is the loss recovery of $1.3 million of certain losses related to ~~share-based compensation expense~~a closed facility in 2016.

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

(c) Costs incurred in connection with the completed Spin-Off Transaction costs incurred prior to Spin-Off date are included in discontinued operations as an adjustment.

(d) Impairment charges, net of ~~$5.2 million and $4.4 million, respectively. If adjusted for share-based compensation expense, Adjusted EBITDA~~gain on sale, to fixed assets includes a gain recognized for the ~~years~~sale of land of $2.9 million, offset by impairment charges to fixed assets at two of our senior living operations and one of our skilled nursing operation of $3.2 million during the year ended December 31, ~~2014~~2019.

(e) Represents results related to facilities currently in the start-up phase after construction was completed. This amount excludes rent, depreciation and 2013 would have been $118.0 million and $141.1 million, respectively, and Adjusted EBITDAR for the years ended December 31, 2014 and 2013 would have been $164.6 million and $153.7 million , respectively.interest expense.

~~(c)~~

Represent results at closed operations and operations not at full capacity during the years ended December 31, 2017 and 2016, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million and $7.9 million for the years ended December 31, 2017 and 2016, respectively. Included in the year ended December 31, 2017 and 2016 results is the loss recovery of $1.3 million of certain losses related to a closed facility in prior year.


~~(d)~~	~~Represents results related to facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest expense.~~

~~(e) Bonus accrual as a result~~

Table of ~~the Tax Act.~~Contents


(f)	~~Losses related to Hurricane Harvey and California fires on impacted operations.~~


~~(g)~~	Operating results and gain on sale of urgent care centers. This amount excludes rent, depreciation, interest expense and the net loss attributable to the variable interest entity associated with our urgent care business.


~~(h)~~	Spin-Off charges including results at three independent living facilities transferred to CareTrust in connection with the Spin-Off transaction. The Company completed the Spin-Off in 2014. In addition, the results during year ended December 31, 2013 did not include rent expense from CareTrust subsequent to the Spin-Off.


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

~~(j)~~ Costs incurred related to ~~new~~ systems implementation and professional fees associated with income tax credits, tax reform ~~impacts~~impact and adoption of the new revenue recognition ~~standard; and expenses incurred~~standard.

(g) All adjustments included in ~~connection with~~ the ~~stock-split effected in December 2015.~~


~~(k)~~	~~Break-up fee, net of costs, received in connection with a public auction in which we were the priority bidder.~~

~~(l) Impairment charges to goodwill~~table below are presented within net income from discontinued operations, net of tax within the consolidated statements of income for ~~a skilled nursing facility in Utah during~~ the ~~year ended December 31, 2013.~~periods presented.


	Year Ended December 31,
	2019		2018		2017		2016
Net income from discontinued operations, net of tax	$	19,473	$	33,466	$	23,860	$	20,733
Less: net income attributable to noncontrolling interests in discontinued operations	629		595		160		26
Add: Interest and other income, net	(26)		(47)		—		—
Provision for income taxes	5,663		10,156		14,239		13,297
Depreciation and amortization	2,402		2,480		2,204		2,613
EBITDA from discontinued operations	$	26,883	$	45,460	$	40,143	$	36,617

Results related to closed operations	—		—		726		—
Losses related to operations in the start-up phase	377		128		478		154
Stock-based compensation expense	1,018		1,970		1,940		1,864
Spin-Off transaction costs	7,909		—		—		—
Acquisition related costs	603		39		—		—
Rent related to items above	11		30		190		36
Adjusted EBITDA from discontinued operations	$	36,801	$	47,627	$	43,477	$	38,671

Item 7. ~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in this Annual ~~Report.~~Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual ~~Report.~~ Report on Form 10-K. See Part I. Item 1A. Risk Factors and Cautionary Note Regarding Forward-Looking Statements.

Overview

We are a provider of health care services across the post-acute care continuum, ~~as well as~~engaged in the ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare-related properties, and other ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, ~~Oklahoma, Oregon,~~ South Carolina, Texas, Utah, Washington and Wisconsin. Our operating subsidiaries, each of which strives to be the ~~service~~operation of choice in the community it serves, provide a broad spectrum of skilled nursing, ~~assisted~~senior living ~~home health and hospice~~ and other ancillary services. As of December 31, ~~2017,~~2020, we offered skilled nursing, ~~assisted~~senior living and rehabilitative care services through ~~230~~228 skilled nursing and ~~assisted~~senior living ~~facilities across 13 states.~~facilities. Of the ~~230~~228 facilities, we ~~owned 63 and~~ operated ~~an additional 167~~164 facilities under long-term lease arrangements, and ~~had~~have options to purchase 11 of those ~~167~~164 facilities. Our ~~home~~real estate portfolio includes 94 owned real estate properties, which included 64facilities operated and managed by us, 31 senior living operations leased to and operated by Pennant as part of the Spin-Off, and the Service Center location. Of the 31 real estate operations leased to Pennant, two senior living operations are located on the same real estate properties as skilled nursing facilities that the Company owns and operates.

Ensign is a holding company with no direct operating assets, employees or revenues. Our operating subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets. In addition, certain of our wholly owned subsidiaries, referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other operating subsidiaries through contractual relationships with such subsidiaries. We also have a wholly-owned captive insurance subsidiary (or the Captive) that provides some claims-made coverage to our operating subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities. References herein to the consolidated “Company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “our” and similar terms in this Annual Report on Form 10-K, are not meant to imply, nor should they be construed as meaning, that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group.

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Recent Activities

Coronavirus

The outbreak of COVID-19, which was declared a global pandemic by the World Health Organization (WHO) on March 11, 2020, and the related responses by public health and ~~hospice business provides home~~governmental authorities to contain and combat its outbreak and spread, continues to spread and disrupt healthcare operations across the United States, including the markets in which we operate. The rapid spread of COVID-19 has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocol within the healthcare system across the United States. The extent to which COVID-19 impacts our operations will depend on future developments which continue to remain highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, additional or modified government actions, new information which may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19 or treat its impact, among others. In response to the pandemic, federal and state agencies have been evolving and in some cases, relaxing enforcement requirements, trending toward granting healthcare providers with flexibility to prioritize resident care over stringent adherence to regulatory compliance.

Our primary focus throughout the COVID-19 pandemic has remained ensuring the health ~~hospice~~ and ~~home care services~~safety of our patients, residents, employees, and their respective families. We continue to implement measures necessary to provide the safest possible environment within our sites of service, taking into consideration the vulnerable nature of our patients and the unique exposure risks of our staff. The CDC has stated that older adults, such as our patients, are at a higher risk for serious illness and death from ~~46 agencies across eleven states.~~

COVID-19 due to the higher prevalence of chronic medical conditions. In addition, our employees are at higher risk of contracting or spreading the disease when caring for patients due to the nature of the work environment. Consistent with CDC guidelines and recommendations applicable to nursing facilities, we implemented new infection control policies and practices to prevent the introduction of COVID-19 into our facilities and to control the spread of COVID-19 within communities. These changing guidelines include visitor policies, screening and testing employees and others permitted to enter the building, restricted communal dining and reducing or restricting activities programming and optional therapies. Upon confirmation of a positive COVID-19 exposure at a facility, we follow CDC and local healthcare guidance to minimize further exposure, which could include implementing personal protection protocols, restricting new admissions and cohorting and isolating patients. Due to the vulnerable nature of our patients, we continue to adhere to CDC infection prevention guidelines at our facilities, even as federal, state, and local stay-at-home and social distancing orders and recommendations have relaxed. Notwithstanding these protocols and our other response efforts, the virus will likely continue to be introduced to and transmitted within certain facilities due to the highly transmissible nature of the virus.

The full financial impact of COVID-19 will depend upon numerous factors, including the nature and duration of the COVID-19 pandemic (such as geographic concentration of virus, rate of spread, and duration), access and costs of staffing, testing and supplies availability and use of effective vaccines, legal and regulatory matters and stimulus funding and other measures intended to mitigate the clinical and financial harm of the pandemic and the spread of it in the communities we serve. While the operating environment for healthcare providers is continuously changing during this pandemic, the safety and well-being of our patients and employees remains our top priority.

Although the ultimate impact of the COVID-19 pandemic remains uncertain, we can offer the following ~~table summarizes~~observations regarding the impact of COVID-19 on our ~~affiliated facilities~~operations, as well as significant regulatory and ~~operational~~legislative relief initiatives.

Occupancy

Prior to COVID-19, we were exhibiting consistent growth in our occupancy and skilled mix. However, following the widespread outbreak COVID-19 in the U.S., our operations have experienced declines in occupancy as a result of local government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel and substantial restrictions and changes to protocol within the healthcare system across the U.S., including temporary limitations on certain medical procedures, which limited the number of patients in the hospital that needed skilled nursing ~~assisted living~~services.

The introduction of COVID-19 into our operations is typically contemporaneous with COVID-19's impact in each community in which we operate. Our operations are located in 13 states and ~~independent living beds~~range from metropolitan, suburban and rural communities. The prevalence of the virus varies dramatically by ~~ownership status~~state, within the same state or within the same county. Accordingly, the impact on each of our operations has also varied widely.

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Our first location to have a confirmed positive COVID-19 patient and staff member was in the state of Washington, which was one of the first states to have confirmed COVID-19 cases in the United States. Accordingly, our Washington locations were impacted beginning in mid-February. As the weeks continued, and as reported and confirmed cases of COVID-19 infections in the United States increased, we also began experiencing an impact on our revenues and expenses throughout the organization. As of December 31, 2020, 142 affiliated skilled nursing operations across 13 states had 2,189 confirmed COVID-19 patients in-house. Also, as of December 31, ~~2017:~~2020, 39 operations had over 20 COVID-19 positive cases and 103 operations had less than 20 cases and 77 operations had no confirmed cases of COVID-19 in-house. The vast majority of COVID-19 positive patients at our operations have recovered. We have experienced increases in COVID-19 cases in our facilities in correlation with the trends occurring in the local community, that as the number of cases increases in the community overall, such as in parts of Texas, Arizona and California, those trends also impact skilled nursing operations in those areas. We have experienced and expect to continue to see new positive cases in our operations as the virus continues to impact each community, as testing mandates have been enacted and we enter into colder months in many of our markets. As the COVID-19 vaccines are available and administered throughout the country, we expect to see the decline in the spread of the virus.

Beginning in mid-February 2020 and continuing through the end of the year, we have seen a decrease in the number of patients due to a number of factors related to the spread of COVID-19, including lower overall patient flow into the acute-care setting. In response to the pandemic, manyacute care hospitals took affirmative steps to prepare for an increase of COVID-19 and critical care patients and imposed admission restrictions due to the need to preserve personal protective equipment and a heightened anxiety among patients and caregivers regarding the risk of exposure to COVID-19. Occupancy was also impacted by decisions of our operating subsidiaries to limit new admissions into their operations due to the risks and uncertainties surrounding the potential spread of the virus by individuals that had either tested positive for COVID-19, were symptomatic of COVID-19 but had not yet been tested positive due to a shortage of tests, or that were asymptomatic of COVID-19, but had an unknown status and were potentially positive and contagious.

On March 13, 2020, President Trump issued a national emergency declaration in connection with the COVID-19 pandemic. Following the State of Emergency declarations, California was the first state to have a shelter-in-place order, which was subsequently followed by similar orders in the remaining states.

Starting in June 2020, as states began lifting stay-at-home restrictions, many of the communities in which we operate experienced an overall increase in COVID-19 cases. As the prevalence of COVID-19 increased in the communities we serve, we experienced an increase in COVID-19 cases in our operations, particularly those operations in Texas, Arizona and California. The increase in COVID-19 cases also has a direct impact on skilled nursing operations in those communities during the year, resulting in a decrease in occupancy and, in many cases, a higher skilled mix. During the year, combined Same Facilities and Transitioning Facilities occupancy declined by 8.3% and skilled mix increased by 7.1% as the pandemic worsened in many of of key states. We experienced the sharpest decline from March to May and remained relatively flat during June. As the number of COVID-19 cases increased during the summer, our occupancy experienced a modest decline. Towards the end of the summer and into October as the number of elective care/non-urgent procedures and surgeries normalized and the number of COVID-19 cases in the communities stabilized, we experienced an increase in our occupancy and skilled mix days.

As we entered into the cold weather and holiday periods during the fourth quarter, our census volume declined while our skilled mix days increased. Our census has recovered subsequent to the holiday periods. Specifically, during the first half of January, combined Same Facilities and Transitioning Facilities occupancy increased by approximately 1.6% and skilled mix increased by 5.7%. The number of admissions continued to progressively increase throughout the quarter, demonstrating that the flow of patients has improved as certain markets have begun to loosen restrictions on admissions and as the sentiment towards high quality post-acute care providers has continued to improve.

As COVID-19 has progressed and spread throughout the communities we serve, our local operations and caregivers have been serving higher acuity patients who have, or have been suspected of having COVID-19. The surge of COVID-19 positive patients, or patients suspected to have been exposed to COVID-19, has resulted in an increase in the number of patients requiring skilled services, which we are able to serve through skilled-in-place precautions and procedures. In addition, patients that are not COVID-19 positive or suspected to be COVID-19 positive but require skilled services and qualify to be cared for under the skilled-in-place precautions and procedures, have remained in our facilities instead of moving to the hospitals first. This not only allows hospitals to maintain open acute care beds for COVID-19 patients and other highly acute patients, but it also limits the risks involved with moving patients back and forth from one care setting to another. Accordingly, our skilled mix days have substantially recovered, reaching levels similar to pre-COVID-19.

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Owned Leased (with a Purchase Option) Leased (without a Purchase Option) Total
Number of facilities 63
11
156
230
Percentage of total 27.4 % 4.8 % 67.8 % 100.0 %
Operational skilled nursing beds 3,443
1,067
14,360
18,870
Percentage of total 18.2 % 5.7 % 76.1 % 100.0 %
Assisted and independent living units 1,958
184
2,869
5,011
Percentage of total 39.1 % 3.7 % 57.2 % 100.0 %
Legislative and Regulatory Relief

~~Recent Activities~~In March 2020, the federal government began to undertake numerous legislative and regulatory initiatives designed to provide relief to the healthcare industry during the COVID-19 pandemic. These initiatives include:

•Temporary suspension of Medicare sequestration - The CARES Act temporarily suspended the automatic 2% reduction of Medicare claim reimbursements for the period of May 1, 2020 through March 31, 2021. The suspension of the Medicare sequestration increased our revenue by approximately $10.4 million during the year ended December 31, 2020. The magnitude of the positive impact will depend on the continued impact of the virus on our census and skilled mix through the remainder of the year.

•Relief funds for healthcare providers - The CARES Act also authorized the Department of Health and Human Services (HHS) to distribute relief fund grants to healthcare providers “to support healthcare-related expenses or lost revenue attributable to COVID-19”. HHS has made several rounds of automatic distributions to providers based upon a variety of factors. Providers have also been able to apply for additional funding. To keep the funds, HHS requires providers to submit an attestation accepting certain terms and conditions; providers who are unwilling to accept the terms must return the funds. Our operating subsidiaries began automatically receiving relief fund payments in April 2020.

In July 2020, HHS announced a new $5.0 billion Provider Relief Fund distribution to be used to protect residents of nursing homes and long-term care facilities from the impact of COVID-19. This funding will include four separate distributions. The two distributions which the Company has received funding under relate to (i) $2.5 billion of Nursing Home Infection Control Relief distributed to be used primarily for testing and (ii) distributions to skilled nursing facilities that pass two gateway qualification tests based upon a facility’s COVID-19 infection and mortality rates. To qualify, facilities must demonstrate COVID-19 infection rates below the rate of infection in the counties in which they are located and demonstrate mortality rates below nationally established performance thresholds for nursing home residents infected with COVID-19. Facilities that qualify during each of the monthly performance periods, running from September 2020 through December 2020, will be eligible for additional funds based upon their aggregate performance on these infection and mortality measures.

During the year, we received approximately $141.7 million in relief distributions from Provider Relief Funds. As of December 31, 2020, we have returned all such funds we received related to this distribution, however additional funding may continue to come. Subsequent to December 31, 2020, we received and returned another $5.1 million in funding.

For additional information, please see Note 3, COVID-19 Update in the Notes to Consolidated Financial Statements.

•Increase in State Funding - The Family First Coronavirus Response Act provides a 6.2% increase to Federal Medical Assistance Percentage (FMAP). The Act permits states to retroactively increase the Medicaid rates to January 1, 2020. Depending on the state, FMAP funding will terminate, either when the national emergency status is lifted, the end of the quarter when the national emergency status is lifted, or sometime between. In addition, increases in Medicaid rates can come from other areas of the state budgets outside of FMAP funding. During the year ended December 31, 2020, we recognized $45.4 million of state funding reimbursement relief. The temporary increase on the state relief funding and the timing of payments has and will continue to vary substantially dependent on the state.

•Temporary suspension of certain patient coverage criteria and documentation and care requirements - The CARES Act and a series of temporary waivers and guidance issued by CMS suspended various Medicare patient coverage criteria, as well as, certain documentation and care requirements. These accommodations are intended to ensure patients have adequate access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. These regulatory actions have and will continue to contribute to an increase in census volumes and skilled mix, that may not otherwise occur. These waivers are effective March 1, 2020 through the end of the emergency declaration.

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•Medicare Accelerated and Advance Payment Program - The CARES Act expands the Medicare Accelerated and Advance Payment Program to ensure providers and suppliers have the resources needed to combat the pandemic. Our operations began to receive advances in April 2020. We have retained $102.0 million through the Medicare Accelerated and Advance Payment Program through December 31, 2020. The repayment obligations associated with these payments begin one year from the date the accelerated or advance payment was issued, which is currently scheduled to start in April 2021. We also paid a portion of the funds back in July 2020. For further discussion, see Note3, COVID-19 Update in the Notes to Consolidated Financial Statements.

•Deferral of Taxes - The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due by December 31, 2021 and the remaining 50% due by December 31, 2022. The U.S. Treasury Department and Internal Revenue Service also allowed corporate taxpayers to defer their estimated federal income taxes for the first and second quarters of 2020 to July 15, 2020. We paid these estimated amounts in the third quarter.

Net revenue

Our net revenues for the year ended December 31, 2020 were impacted by COVID-19 as we experienced revenue loss due to a decline in occupancy, which was partially offset by our skilled mix changes and additional state funding. As part of the healthcare community, we have been actively participating in ensuring our patients receive necessary services. CMS has authorized these services through skilled-in-place programs. These programs are designed to allow skilled nursing operations to provide skilled services to higher acuity patients, while allowing hospitals to have increased capacity to care for critical care patients (including COVID-19 positive patients) and limiting the risks related to moving patients between care settings in the midst of a pandemic. In addition, the state relief funding has been designed to enhance the reimbursements to provide additional funding to cover COVID-19 related expenses in selected states. We recorded state relief revenue of $45.4 million for the year ended December 31, 2020, which correlates directly to the additional COVID-19 related expenses we incurred.

Operating Expenses

We have and continued to experience increased operating expenses during the period impacted by COVID-19 due to the higher utilization, cost and type of personal protective equipment, testing for COVID-19, as well as increased purchasing of other medical supplies and cleaning and sanitization materials. In addition, we have and expect to continue to have increases in labor costs on a per patient basis. In response, we have reduced spending on non-essential supplies, travel costs and all other discretionary items, slowing non-essential capital expenditure projects and temporarily instituted wage reductions and hiring freezes for non-clinical staff. The hiring freeze and wage reductions were lifted in June 2020.

Overall

The exact timing and pace of the recovery from the COVID-19 pandemic is uncertain given the impact of the pandemic on the overall U.S. and global economy. While we are uncertain as to the duration of our lower census due to the COVID-19 pandemic, we expect the adverse occupancy to recover as we see increases in hospital volumes and elective surgeries and as accessibility to the COVID-19 vaccines becomes more broad. Our forecasted metrics may be modified as the pace of the recovery in our volumes become clearer over the coming months.

We are focused on navigating the challenges presented by COVID-19 through utilizing the infrastructure of our local operational approach. Each location is partnering with its local leaders and community outreach to ensure the operations are well equipped to deliver quality care. Consistent with previous hurdles, our local leaders are adjusting their operation to meet the clinical and financial challenges, including utilizing the expertise of our Service Center resources to implement best practices.

Changes in Segments - In the fourth quarter of 2020, we began reporting the results of our real estate portfolio as a new segment due to our expanding real estate investment strategy. We now have two reportable segments: (i) transitional and skilled services and (ii) real estate. Corresponding items of segment information for prior periods have been recast to reflect the change of the Company’s segment structure.

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Common Stock Repurchase Program - ~~On February 8, 2017, we announced that our~~As approved by the Board of Directors ~~authorized a~~on March 4, 2020 and March 13, 2020, respectively, we entered into two separate stock repurchase ~~program, under~~programs pursuant to which we ~~may~~were authorized to repurchase up to ~~$30.0~~$20.0 million and $5.0 million, respectively, of our common stock under the ~~program~~programs for a period of approximately 12 ~~months.~~months each. During the ~~year~~three months ended ~~December~~March 31, ~~2017,~~2020, we repurchased ~~0.4~~0.5 million and 0.2 million shares of our common stock for a total of ~~$7.3 million.~~

~~Sale~~$20.0 million and ~~Lease Transaction -~~ In$5.0 million under the March ~~2017, we entered into definitive agreements to sell~~4, 2020 and March 13, 2020 repurchase programs, respectively. These repurchase programs expired upon the properties of two skilled nursing facilities and one assisted living community. Upon closing the transaction, we leased the properties under a triple-net master lease with an initial 20-year term, with three 5-year optional extensions, at CPI-based annual escalators. The transaction closed in the second quarter of 2017. We received $38.0 million in proceeds. We recognized a gain on the transaction of $13.2 million, which is deferred, and amortized over the liferepurchase of the ~~lease.~~

~~Lease Terminations~~ ~~- During~~full authorized amount under the ~~first quarter of 2017, we terminated~~two plans. The stock repurchases were supported with funds from our ~~lease obligations on four transitional care facilities that are currently under development~~ordinary operations and ~~one newly constructed stand-alone skilled nursing operation. We recorded $1.2 million in lease termination costs and long-lived asset impairment.~~

~~Class action lawsuit~~ ~~- In the first quarter of 2017, we recorded an estimated liability of $11.0 million related~~took place prior to the ~~pending settlement~~passage of ~~a class action lawsuit. We funded the settlement in the amount of $11.0 million in December 2017, and the settlement will be distributed to the class members in Q1 of 2018.~~

~~Closure of facility~~ - In March 2017, we voluntarily discontinued operations at one of our skilled nursing facilities after determining that the facility cannot competitively operate in the marketplace without substantial investment renovating the building.

After careful consideration, we determined that the costs to renovate the facility could outweigh the future returns from the operation. As part of this closure, we entered into an agreement with our landlord allowing for the closure of the property as well as other provisions to allow our landlord to transfer the property and the licenses free and clear of the applicable master lease. We recorded a continued obligation liability under the lease and related closing expenses of $2.8 million, including the present value of rental payments of approximately $2.7 million,The CARES Act, which was ~~recognized in the first quarter of 2017. Residents of the affected facility were transferred to local skilled nursing facilities.~~

~~In the second quarter of 2017, we recovered $1.3 million of certain losses that were recorded in 2016 related to the closure of an operation. The loss recovery was recorded as a gain in that period.~~

~~HUD Mortgage Loans -~~ ~~In December 2017, seventeen of our subsidiaries entered into mortgage loans in the amount of $112.0 million. The mortgage loans are insured with HUD, which subjects these subsidiaries to HUD oversight~~passed by Congress and ~~periodic inspections.~~

~~The Tax Act~~ ~~- On December 22, 2017, President Trump~~ signed into law ~~H.R. 1, “An Act~~by President Trump on March 27, 2020. Currently, we have no active repurchase plans and do not intend to ~~provide for reconciliation pursuant~~approve another repurchase plan. As we enter a period of economic uncertainty, we are taking steps to ~~titles II~~manage our expenses and ~~V of the concurrent resolution on the budget for fiscal year 2018” (the Tax Act). The Tax Act provides for significant changes~~preserve our cash. We believe our current cash management strategy is appropriate at this time and will consider approving stock repurchase programs in the ~~U.S. Internal Revenue Code of 1986, as amended. The Tax Act contains provisions with separate effective dates but is generally effective for taxable years beginning~~future after ~~December 31, 2017.~~

~~The Tax Act had the following effects on~~we gain additional visibility into our ~~income tax expense for the year ended December 31, 2017:~~

•~~Under Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes (ASC 740), we are required~~cash flows and how to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. The Tax Act lowers the corporate income tax rate from 35% to 21%. We have estimated the impact of the revaluation of our deferred tax assets and liabilities, which resulted in a decrease to our net deferred income tax asset by $3.9 million and is reflected as an increase in our income tax expense in our results for the year ended December 31, 2017.best utilize those funds.

•The Tax Act is generally effective for tax years beginning on January 1, 2018. As such, the reduction in the corporate income tax rate from 35% to 21% will be effective for the fiscal year ended December 31, 2018.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 23, 2017. SAB 118 provides a one-year measurement period from a registrant’s reporting period that includes the U.S. Tax Act’s enactment date to allow the registrant sufficient time to obtain, prepare and analyze information to complete the accounting required under ASC 740.

The ultimate impact of the Tax Act on our reported results may differ from the estimates provided herein, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and other actions we may take as a result of the Tax Act different from that presently contemplated.

Key Performance Indicators

We manage the fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. Revenue associated with these metrics is generated based on contractually agreed-upon amounts or rate, excluding the estimates of variable consideration under the revenue recognition standard, ASC 606. These indicators and their definitions include the following:

Transitional and Skilled Services

•Routine revenue. Routine revenue is generated by the contracted daily rate charged for all contractually inclusive skilled nursing services. The inclusion of therapy and other ancillary treatments varies by payor source and by contract. Services provided outside of the routine contractual agreement are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not included in the routine revenue definition.

•Skilled revenue. The amount of routine revenue generated from patients in the skilled nursing facilities who are receiving higher levels of care under Medicare, managed care, Medicaid, or other skilled reimbursement programs. The other skilled patients ~~that~~who are included in this population represent very high acuity patients who are receiving high levels of nursing and ancillary services which are reimbursed by payors other than Medicare or managed care. Skilled revenue excludes any revenue generated from our ~~assisted~~senior living services.

•Skilled ~~mix.~~mix. The amount of our skilled revenue as a percentage of our total skilled nursing routine revenue. Skilled mix (in days) represents the number of days our Medicare, managed care, or other skilled patients are receiving ~~services at the~~ skilled nursing facilities divided by the total number of days patients (less days from assisted living services) from all payor sources are receiving services at the skilled nursing facilities for any given period (less days from assisted living services).

~~Quality mix.~~ ~~The amount of routine non-Medicaid revenue as a percentage of our total routine revenue. Quality mix (in days) represents the number of days our non-Medicaid patients are receiving~~ services at the skilled nursing facilities divided by the total number of days patients from all payor sources are receiving skilled nursing services at the skilled nursing facilities for any given ~~period (less days from assisted living services).~~

period.

•Average daily rates.The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.

These rates exclude additional FMAP payments we recognized as part of The Family First Coronavirus Response Act.

•Occupancy percentage (operational beds). The total number of patients occupying a bed in a skilled nursing facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.

•Number of facilities and operational beds. The total number of skilled nursing facilities that we own or operate and the total number of operational beds associated with these facilities.

Skilled ~~and Quality~~ Mix. Like most skilled nursing providers, we measure both patient days and revenue by payor. Medicare, managed care and other skilled patients, whom we refer to as high acuity patients, typically require a higher level of skilled nursing and rehabilitative care. Accordingly, Medicare and managed care reimbursement rates are typically higher than from other payors. In most states, Medicaid reimbursement rates are generally the lowest of all payor types. Changes in the payor mix can significantly affect our revenue and profitability.

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The following table summarizes our overall skilled ~~mix and quality~~ mix from our skilled nursing services for the periods indicated as a percentage of our total skilled nursing routine revenue ~~(less revenue from assisted living services)~~ and as a percentage of total skilled nursing patient ~~days (less days from assisted living services):~~days:


	Year Ended December 31,
	2017		2016		2015			Year Ended December 31,
Skilled Mix:							Skilled Mix:		2020		2019		2018

Days	30.3	%	30.9	%	30.4	%	Days		31.7	%	29.0	%	29.5	%
Revenue	51.1	%	52.5	%	52.6	%	Revenue		53.1	%	48.8	%	49.6	%
Quality Mix:
Days	42.8	%	43.4	%	42.5	%
Revenue	59.7	%	61.0	%	60.8	%

~~Occupancy.~~Occupancy. We define occupancy derived from our transitional and skilled services as the ratio of actual patient days (one patient day equals one patient occupying one bed for one day) during any measurement period to the number of beds in facilities which are available for occupancy during the measurement period. The number of licensed beds in a skilled nursing facility that are actually operational and available for occupancy may be less than the total official licensed bed capacity. This sometimes occurs due to the permanent dedication of bed space to alternative purposes, such as enhanced therapy treatment space or other desirable uses calculated to improve service offerings and/or operational efficiencies in a facility. In some cases, three- and four-bed wards have been reduced to two-bed rooms for resident comfort, and larger wards have been reduced to conform to changes in Medicare requirements. These beds are seldom expected to be placed back into service. We believe that reporting occupancy based on operational beds is consistent with industry practices and provides a more useful measure of actual occupancy performance from period to period.

The following table summarizes our overall occupancy statistics for ~~the periods indicated:~~

Year Ended December 31,
2017 2016 2015
Occupancy for transitional and skilled services:
Operational beds at end of period 18,870
17,724
14,925
Available patient days 6,699,025
6,125,902
4,991,886
Actual patient days 5,050,140
4,620,735
3,873,409
Occupancy percentage (based on operational beds) 75.4 % 75.4 % 77.6 %

~~Assisted and Independent Living Services~~

~~• Occupancy.~~ We define occupancy derived from our assisted and independent living services as the ratio of actual number of days our units are occupied during any measurement period to the number of units in facilities which are available for occupancy during the measurement period.

• ~~Average monthly revenue per unit. The revenue for a period at an assisted and independent living facility divided by actual occupied units for that revenue source for that given period.~~

Year Ended December 31,
2017 2016 2015
Occupancy for assisted and independent living services:
Occupancy percentage (units) 76.4 % 76.0 % 75.3 %
Average monthly revenue per unit $ 2,800
$ 2,746
$ 2,644

~~Home Health and Hospice~~

~~Average Medicare revenue per completed episode.~~ ~~The average amount of revenue for each completed 60-day episode generated from patients who are receiving care under Medicare reimbursement programs.~~

~~Average daily census.~~ ~~The average number of patients who are receiving hospice care as a percentage of total number of patient days.~~

~~The following table summarizes our overall home health and hospice statistics~~skilled nursing operations for the periods indicated:

Year Ended December 31,
2017
2016 2015
Home health services:
Average Medicare Revenue per Completed Episode $ 3,028
$ 2,986
$ 2,929
Hospice services:

Average Daily Census 1,102
905
679


	Year Ended December 31,
Occupancy for transitional and skilled services:		2020		2019		2018
Operational beds at end of period		23,172		22,625		19,615
Available patient days		8,392,147		7,560,687		6,984,685
Actual patient days		6,171,198		5,987,027		5,405,952
Occupancy percentage (based on operational beds)		73.5	%	79.2	%	77.4	%

Segments

In the fourth quarter of fiscal year 2020, we began reporting the results of our real estate portfolio as a new segment as we continue to expand our real estate investment strategy. We now have ~~three~~two reportable segments: (1) transitional and skilled services, which includes the operation of skilled nursing ~~facilities;~~facilities and rehabilitation therapy services and (2) real estate, which is comprised of properties owned by us and leased to skilled nursing and assisted living operations, including our own operating subsidiaries and ~~independent~~third party operators, and are subject to triple-net long-term leases. Prior to this new segment structure, we had one reportable segment, transitional and skilled services.

We also reported an “all other” category that includes operating results from our senior living ~~services, which includes the operation of assisted~~operations, mobile diagnostics, transportation and ~~independent~~other ancillary operations. Our senior living, ~~facilities;~~mobile diagnostics, transportation and ~~(3) home health~~other ancillary operations businesses are neither significant individually nor in aggregate and ~~hospice services, which includes our home health, home care and hospice businesses.~~therefore do not constitute a reportable segment. Our Chief Executive Officer, who is our chief operating decision maker, or CODM, reviews financial information at the operating segment level. We have presented our segment results in this Annual Report on Form 10-K on a comparative basis to conform to the new segment structure.

We also report an “all other” category that includes revenue from our mobile diagnostics and other ancillary operations. Our mobile diagnostics and other ancillary operations businesses are neither significant individually nor in aggregate and therefore do not constitute a reportable segment. Our reporting segments are business units that offer different services and that are managed separately to provide greater visibility into those operations.

Revenue Sources

Transitional and Skilled Services

Within our skilled nursing operations, we generate ~~our~~ revenue from Medicaid, private pay, managed care and Medicare payors. We believe that our skilled mix, which we define as the number of days ~~our~~ Medicare, managed care and other skilled patients are receiving services at our skilled nursing operations divided by the total number of days patients are receiving services at our skilled nursing operations, from all payor sources (less days from ~~assisted living and independent~~senior living services) for any given period, is an important indicator of our success in attracting high-acuity patients because it represents the percentage of our patients who are reimbursed by Medicare, managed care and other skilled payors, for whom we receive higher reimbursement rates.

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We are participating in supplemental payment programs in various states that ~~provides~~provide supplemental Medicaid payments for skilled nursing facilities that are licensed to non-state government-owned entities such as city and county hospital districts. Several of our operating subsidiaries entered into transactions with several such hospital districts providing for the transfer of the licenses for

those skilled nursing facilities to the hospital districts. Each affected operating subsidiary agreement between the hospital district and our subsidiary is terminable by either party to fully restore the prior license status.

~~Assisted~~Real Estate

We generate rental revenue primarily by leasing post-acute care properties we acquired to healthcare operators under triple-net lease arrangements, whereby the tenant is solely responsible for the costs related to the property, including property taxes, insurance, and ~~Independent Living Services.~~maintenance and repair costs, subject to certain exceptions. As of December 31, 2020, our real estate portfolio was comprised of 94 real estate properties. Of these properties, 64 are leased to affiliated skilled nursing facilities wholly-owned and managed by us, 31 are leased to senior living operations wholly-owned and managed by Pennant, and our Service Center property, which is leased to our Service Center and numerous third parties for commercial office space. Of the 31 real estate operations leased to Pennant, two senior living operations are located on the same real estate properties as skilled nursing facilities that the Company owns and operates. During the year ended December 31, 2020, we generated rental revenues of $61.3 million, of which $46.1 million was derived from affiliated wholly-owned healthcare operators, and therefore eliminated in consolidation.

Other

Within our ~~assisted and independent~~senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid payors or through other state-specific programs.

~~Home Health and Hospice Services~~

~~Home Health.~~ We provided home health care in Arizona, California, Colorado, Idaho, Iowa, Oklahoma, Oregon, Texas, Utah and Washington as of December 31, 2017. We derive the majority of our revenue from our home health business from Medicare and managed care. The payment is adjusted for differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. The home health prospective payment system (PPS) provides home health agencies with payments for each 60-day episode of care for each beneficiary. If a beneficiary is still eligible for care after the end of the first episode, a second episode can begin. There are no limits to the number of episodes a beneficiary who remains eligible for the home health benefit can receive. While payment for each episode is adjusted to reflect the beneficiary’s health condition and needs, a special outlier provision exists to ensure appropriate payment for those beneficiaries that have the most expensive care needs. The payment under the Medicare program is also adjusted for certain variables including, but not limited to: (a) a low utilization payment adjustment if the number of visits was fewer than five; (b) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the episode; (c) a payment adjustment based upon the level of therapy services required; (d) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (e) changes in the base episode payments established by the Medicare program; (f) adjustments to the base episode payments for case mix and geographic wages; and (g) recoveries of overpayments.

~~Hospice~~. As of December 31, 2017, we provided hospice care in Arizona, California, Colorado, Idaho, Iowa, Nevada, Oklahoma, Oregon, Texas, Utah and Washington. We derive the majority of the revenue from our hospice business from Medicare reimbursement. The estimated payment rates are daily rates for each of the levels of care we deliver. The payment is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, we monitor our provider numbers and estimate amounts due back to Medicare if a cap has been exceeded.

~~Beginning January 1, 2016, the Centers for Medicare & Medicaid Services (CMS) provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days.~~ In addition, to the two routine rates, Medicare is also reimbursing for a service intensity add-on (SIA). The SIA is based on visits made in the last seven days of life by a registered nurse (RN) or medical social worker (MSW) for patients in a routine level of care.

~~Other~~

~~As of December 31, 2017~~,we ~~held~~hold majority membership interests in our other ancillary operations. Payment for these services varies and is based upon the service provided. The payment is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. We have historically operated urgent care clinics in Colorado and Washington. Our urgent care centers provided daily access to healthcare for minor injuries and illnesses, including x-ray and lab services, all from convenient neighborhood locations with no appointments. In 2016, we completed the sale of all our urgent care centers.

Primary Components of Expense

Cost of Services ~~(exclusive~~(exclusive of rent and depreciation and amortization shown separately). Our cost of services represents the costs of operating our operating subsidiaries, which primarily consists of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients. Cost of services also includes the cost of general and professional liability insurance, rent expenses related to leasing our operational facilities that are not included in facility rent - cost of services, and other general cost of services with respect to our operations.

Facility Rent - Cost of Services. Rent - cost of services consists solely of base minimum rent amounts payable under lease agreements to third-party ~~owners of the~~real estate owners. Our operating subsidiaries ~~that we~~lease and operate but do not own the underlying real estate and ~~does~~these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements. Expenses related to leasing our operations are included in cost of services.

General and Administrative Expense.General and administrative expense consists primarily of payroll and related benefits and travel expenses for our Service Center personnel, including training and other operational support. General and administrative expense also includes professional fees (including accounting and legal fees), costs relating to our information systems and stock-based compensation ~~and rent for~~related to our Service Center ~~offices.~~employees.

Depreciation and Amortization. Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. The following is a summary of the depreciable lives of our depreciable assets:



Buildings and improvements			Minimum of three years to a maximum of 57 years, generally 45 years
Leasehold improvements			Shorter of the lease term or estimated useful life, generally 5 to 15 years
Furniture and equipment			3 to 10 years

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The preparation of these financial statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review our judgments and estimates, including but not limited to those related to ~~doubtful accounts,~~the variable considerations to arrive at the transaction price for revenue recognition, income taxes, ~~stock compensation,~~ intangible assets and loss contingencies. We base our estimates and judgments upon our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty, and actual results could differ materially from the amounts reported. ~~The following summarizes~~While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. Refer to Note 2, Summary of Significant Accounting Policies, within the Notes to Consolidated Financial Statements for further information on our critical accounting estimates and policies, ~~defined~~which are as ~~those policies that we believe: (a) are~~follows:

•Revenue recognition - the ~~most important~~estimate of variable considerations to arrive at the ~~portrayal of our financial condition~~transaction price, including methods and ~~results of operations; and (b) require management's most subjective or complex judgments, often as a result of the need~~assumptions used to ~~make estimates about the effects of matters that are inherently uncertain.~~

~~Revenue Recognition~~

We recognize revenue when the following four conditions have been met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the price is fixed or determinable; and (iv) collection is reasonably assured. Our revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to the individual. For reimbursement arrangementsdetermine settlements with ~~third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts on a per patient basis.~~

~~Revenue from the~~ Medicare and Medicaid ~~programs accounted for 68.4%, 67.8%~~payors or retroactive adjustments due to audits and ~~69.1% of our consolidated total revenue for~~reviews;

•Self-insurance - the ~~years ended December 31, 2017, 2016~~valuation methods and 2015, respectively. We record revenue from these governmental and managed care programs as services are performed at their expected net realizable amounts under these programs. Our revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recordedassumptions used in the period the change or adjustment becomes known based on final settlement. We recorded adjustments to revenue which were not material to our consolidated revenue for the years ended December 31, 2017, 2016 and 2015.

~~Our service specific revenue recognition policies are as follows:~~

~~Skilled Nursing Revenue~~

Our revenue is derived primarily from providing long-term healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients. For patients under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts, rates on a per patient, daily basis, or as services are performed.

~~Assisted and Independent Living Revenue~~

Our revenue is recorded when services are rendered on the date services are provided at amounts billable to individual residents and consists of fees for basic housing and assisted living care. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded

based on contractually agreed-upon amounts or rate on a per resident, daily basis or as services are provided. Revenue for certain ancillary charges is recognized as services are provided, and such fees are billed monthly in arrears.

~~Home Health Revenue~~

~~Medicare Revenue~~

Net service revenue is recorded under the Medicare prospective payment system based on a 60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) an outlier payment if patient care was unusually costly; (b) a low utilization payment adjustment if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider or we received a patient from another provider before completing the episode; (d) a payment adjustment based upon the level of therapy services required; (e) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (f) changes in the base episode payments established by the Medicare program; (g) adjustments to the base episode payments for case mix and geographic wages; and (h) recoveries of overpayments.

We make adjustments to Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Therefore, we believe reported net service revenue and patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.

In addition to revenue recognized on completed episodes, we also recognize a portion of revenue associated with episodes in progress. Episodes in progress are 60-day episodes of care that begin during the reporting period, but were not completed as of the end of the period. As such, we estimate revenue and recognize it on a daily basis. The primary factors underlying this estimate are the number of episodes in progress at the end of the reporting period, expected Medicare revenue per episode and our estimate of the average percentage complete based on visits performed.

~~Non-Medicare Revenue~~

~~Episodic Based Revenue -~~ We recognize revenue in a similar manner as we recognize Medicare revenue for episodic-based rates that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms.

~~Non-episodic Based Revenue -~~ ~~Revenue is recorded on an accrual basis based upon the date of service at amounts equal to its established or estimated per-visit rates, as applicable.~~

~~Hospice Revenue~~

Revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are daily rates for each of the levels of care we deliver. We make adjustments to revenue for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, we monitor our provider numbers and estimate amounts due back to Medicare if a cap has been exceeded. We record these adjustments as a reduction to revenue and increases to other accrued liabilities.

~~Accounts Receivable and Allowance for Doubtful Accounts~~

Accounts receivable consist primarily of amounts due from Medicare and Medicaid programs, other government programs, managed care health plans and private payor sources. Estimated provisions for doubtful accounts are recorded to the extent it is probable that a portion or all of a particular account will not be collected.

In evaluating the collectability of accounts receivable, we consider a number of factors, including the age of the accounts, changes in collection patterns, the composition of patient accounts by payor type and the status of ongoing disputes with third-party payors. On an annual basis, the historical collection percentages are reviewed by payor and by state and are updated to reflect recent collection experience. In order to determine the appropriate reserve rate percentages which ultimately establish the allowance, we analyze historical cash collection patterns by payor and by state. The percentages applied to the aged receivable balances are based on our historical experience and time limits, if any, for managed care, Medicare, Medicaid and other payors. We periodically refine our estimates of the allowance for doubtful accounts based on experience with the estimation process and changes in circumstances.

~~Self-Insurance~~

We are partially self-insured for general and professional liability up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. Starting on January 1, 2017, the combined self-insured retention was $0.5 million per claim, subject to an additional one-time deductible of $0.8 million for California affiliated operations and a separate, one-time, deductible of $1.0 million for non-California operations. For all affiliated operations, except those located in Colorado, the third-party coverage above these limits was $1.0 million per claim, $3.0 million per operation, with a $5.0 million blanket aggregate limit and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits was $1.0 million per claim and $3.0 million per operation, which is independent of the aforementioned blanket aggregate limits that apply outside of Colorado.

The self-insured retention and deductible limits for general and professional liability and workers' compensation for all states (except Texas and Washington for workers' compensation) are self-insured through the Captive, the related assets and liabilities of which are included in the accompanying consolidated balance sheets. The Captive is subject to certain statutory requirements as an insurance provider. These requirements include, but are not limited to, maintaining statutory capital.

~~Our policy is to accrue amounts equal to the actuarially estimated~~estimating costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not ~~reported. We develop information about~~reported;

•Acquisition accounting - the ~~size of the ultimate claims based on historical experience, current industry information and actuarial analysis, and evaluates the estimates for claim loss exposure on a quarterly basis.~~

Our operating subsidiaries are self-insured for workers’ compensation in California. To protect itself against loss exposure in California with this policy, we have purchased individual specific excess insurance coverage that insures individual claims that exceed $0.5 million per occurrence. In Texas, the operating subsidiaries have elected non-subscriber status for workers’ compensation claims and, effective February 1, 2011, we have purchased individual stop-loss coverage that insures individual claims that exceed $0.8 million per occurrence. As of July 1, 2014, our operating subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $0.4 million per occurrence. In Washington, the operating subsidiaries' coverage is financed through premiums paid by the employers and employees. The claims and pay benefits are managed through a state insurance pool. Outside of California, Texas and Washington, we have purchased insurance coverage that insures individual claims that exceed $0.4 million per accident. In all states except Washington, we accrue amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. We use actuarial valuations to estimate the liability based on historical experience and industry information.

We self-fund medical (including prescription drugs) and dental healthcare benefits to the majority of our employees. We are fully liable for all financial and legal aspects of these benefit plans. To protect our company against loss exposure with this policy, we have purchased individual stop-loss insurance coverage that insures individual claims that exceed $0.3 million for each covered person with an additional one-time aggregate individual stop loss deductible of $0.1 million. Beginning 2016, our policy does not include the additional one-time aggregate individual stop loss deductible of $0.1 million.

We believe that adequate provision has been made in the Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date. The amount of our reserves was determined based on an estimation process that uses information obtained from both company-specific and industry data. This estimation process requires us to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and our assumptions about emerging trends, we, with the assistance of an independent actuary, develop information about the size of ultimate claims based on our historical experience and other available industry information. The most significant assumptions used ~~in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs~~ to settle or pay damage awards with respect to unpaid claims. The self-insured liabilities are based upon estimates, and while we believe that the estimates of loss are reasonable, the ultimate liability may be in excess of or less than the recorded amounts. Due to the inherent volatility of actuarially determined loss estimates, it is reasonably possible that we could experience changes in estimated losses that could be material to net income. If our actual liability exceeds its estimates of loss, our future earnings, cash flows and financial condition would be adversely affected.

~~Leases and Leasehold Improvements~~

At the inception of each lease, we perform an evaluation to determine whether the lease should be classified as an operating or capital lease. We record rent expense for operating leases that contain scheduled rent increases on a straight-line basis over the term of the lease. The lease term used for straight-line rent expense is calculated from the date we are given control of the leased premises through the end of the lease term. The lease term used for this evaluation also provides the basis for establishing depreciable lives for buildings subject to lease and leasehold improvements, as well as the period over which we record straight-line rent expense.

~~Business Combinations~~

Our acquisition strategy is to purchase or lease operating subsidiaries that are complementary to our current affiliated facilities, accretive to our business or otherwise advance our strategy. The results of all of our operating subsidiaries are included in the accompanying Financial Statements subsequent to the date of acquisition. Acquisitions are typically paid for in cash and are accounted for using the acquisition method of accounting. We account for business combinations using the purchase method of accounting and, accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date. Goodwill represents the excess ofallocate the purchase price ~~over the fair value of net~~paid for assets ~~including the amount assigned to identifiable intangible assets. Given the time it takes to obtain pertinent information to finalize the~~ acquired ~~company’s balance sheet, the initial fair value might not be finalized at the time of the reported period. Accordingly, it is not uncommon for the initial estimates to be subsequently revised.~~

~~In accounting for business combinations, we are required to record the assets~~ and liabilities ofassumed in connection with our acquisitions; and

•Income taxes - the ~~acquired business at fair value. In developing estimates~~estimation of fair values for long-lived assets, we utilize a variety of factors including market data, cash flows, growth rates, and replacement costs. Determining the fair value for specifically identified intangible assets involves significant judgment, estimates and projections related to the valuation to be applied to intangible assets such as favorable leases, customer relationships, Medicare licenses, and trade names. The subjective nature of management’s assumptions increases the risk associated with estimates surrounding the projected performance of the acquired entity. Additionally, as we amortize finite-lived acquired intangible assets over time, the purchase accounting allocation directly impacts the amortization expense recorded on the financial statements.

~~Income Taxes~~

Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates in effect when such temporary differences are expected to reverse. We generally expect to fully utilize our deferred tax assets; however, when necessary, we record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized.

~~In determining the need for a~~ valuation allowance or the need for and magnitude of liabilities for uncertain tax positions, we make certain estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with our estimates and assumptions, actual results could differ.position.

The Tax Act increased our income tax expense by $3.9 million for the year ended December 31, 2017. The Tax Act will decrease the corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018. We expect meaningful benefits from this reduction to continue from its enactment in future periods.

~~Recent Accounting Pronouncements~~

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the Financial Accounting Standards Board (FASB) ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to us. We have reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. For any new pronouncements announced, we consider whether the new pronouncements could alter previous generally accepted accounting principles and determine whether any new or modified principles will have a material impact on our reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

~~Recent Accounting Standards Adopted by the Company~~

In March 2016, the FASB issued a new standard to simplify several aspects the accounting for employee share-based payment transactions, which includes the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard was effective for us in the first quarter of fiscal year 2017. Under the previous guidance, excess tax benefits and deficiencies from share-based compensation arrangements were recorded in equity when the awards vested or were settled. The new guidance requires prospective recognition of excess tax benefits and deficiencies in the income statement, resulting in the recognition of excess tax benefits of income tax expense, rather than in paid-in-capital, net of tax, of $3.4 million, for the year ended December 31, 2017.

In addition, under the new guidance, excess income tax benefits from share-based compensation arrangements are classified as cash flow from operations, rather than as cash flow from financing activities. We have elected to apply the cash flow classification guidance prospectively, resulting in an increase to operating cash flow for the year ended December 31, 2017, and the prior year period has not been adjusted.

We have also elected to continue to estimate the expected forfeitures rather than electing to account for forfeitures as they occur. Finally, the adoption of the guidance requires excess tax benefits and deficiencies to be prospectively excluded from assumed future proceeds in the calculation of diluted shares, resulting in an increase in diluted weighted average shares outstanding.

~~Accounting Standards Recently Issued But Not Yet Adopted by the Company~~

In May 2017, the FASB issued amended authoritative guidance to provide guidance on types of changes to the terms or conditions of share-based payments awards to which an entity would be required to apply modification accounting under ASC 718. This guidance is effective for annual and interim periods beginning after December 15, 2017, which will be our fiscal year 2018, with early adoption permitted in certain cases. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued amended authoritative guidance to clarify the definition of a business and reduce diversity in practice related to the evaluation of whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new provisions provide the requirements needed for an integrated set of assets and activities (the set) to be a business and also establish a practical way to determine when a set is not a business. The ASU provides a screen to determine when an integrated set of assets and activities is not a business. The more robust framework helps entities to narrow the definition of outputs created by the set and align it with how outputs are described in the new revenue standard. This guidance is effective for annual and interim periods beginning after December 15, 2017, which will be our fiscal year 2018, with early adoption permitted in certain cases. The new guidance is required to be applied on a prospective basis. The effect of the implementation will depend upon the nature of our future acquisitions.

In January 2017, the FASB issued amended authoritative guidance to simplify and reduce the cost and complexity of the goodwill impairment test. The new provisions eliminate step 2 from the goodwill impairment test and shifts the concept of impairment from a measure of loss when comparing the implied fair value of goodwill to its carrying amount to comparing the fair value of a reporting unit with its carrying amount. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment or step 2 of the goodwill impairment test. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This guidance is effective for annual periods beginning after December 15, 2019, which will be our fiscal year 2020, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued amended authoritative guidance to require companies to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The amendments will be effective for our fiscal year beginning January 1, 2018. The new guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this standard is not expected to have a material impact on our consolidated financial statements based on our historical activity. Furthermore, the actual impact of implementation will largely depend on future intra-entity asset transfers, if any.

In August 2016, the FASB issued amended authoritative guidance to reduce the diversity in practice related to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The new provisions target cash flow issues related to (i) debt prepayment or debt extinguishment costs, (ii) settlement of debt instruments with coupon rates that are insignificant relative to effective interest rates, (iii) contingent consideration payments made after a business combination, (iv) proceeds from settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance and bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. This guidance will be effective for fiscal years beginning after December 15, 2017, which will be our fiscal year 2018, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued amended authoritative guidance on accounting for leases. The new provisions require that a lessee of operating leases recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments, with the right-of-use asset based upon the lease liability. The classification criteria for distinguishing between finance (or capital) leases and operating leases are substantially similar to the previous lease guidance, but with no explicit bright lines. As such, operating leases will result in straight-line rent expense similar to current practice. For short term leases

(term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities, which would generally result in lease expense being recognized on a straight-line basis over the lease term. This guidance applies to all entities and is effective for annual periods beginning after December 15, 2018, which will be our fiscal year 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements but expect this adoption will result in a significant increase in the assets and liabilities on our consolidated balance sheets.

In January 2016, the FASB issued amended authoritative guidance which makes targeted improvements for financial instruments. The new provisions impact certain aspects of recognition, measurement, presentation and disclosure requirements of financial instruments. Specifically, the guidance will (1) require equity investments to be measured at fair value with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose the method and assumptions used to estimate fair value for financial instruments measured at amortized cost, and (4) require separate presentation of financial assets and financial liabilities by measurement category. The guidance is effective for annual and interim periods beginning after December 15, 2017, which will be our fiscal year 2018. Early adoption is not permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued its standard to amend the principal-versus-agent implementation guidance and illustrations in the Board’s new revenue standard, which includes accounting implication related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. The guidance will be effective for fiscal years beginning after December 15, 2017, which will be our fiscal year 2018. The guidance has the same effective date as the new revenue standard and we are required to adopt the guidance by using the same transition method we would use to adopt the new revenue standard. Our evaluation of the adoption method and impact to the consolidated financial statements is performed concurrently with the new revenue standard below.

In May 2014, the FASB and International Accounting Standards Board issued their final standard on revenue from contracts with customers that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new standard supersedes most current revenue recognition guidance, including industry-specific guidance, and may be applied retrospectively to each period presented (full retrospective method) or retrospectively with the cumulative effect recognized in beginning retained earnings as of the date of adoption (modified retrospective method). In July 2015, the FASB formally deferred for one year the effective date of the new revenue standard and decided to permit entities to early adopt the standard. In December 2016, the FASB made certain technical corrections to further clarify the core revenue recognition principles, primarily in response to feedback from several sources, including the FASB/IASB Transition Resource Group. The guidance will be effective for fiscal years beginning after December 15, 2017, which will be our fiscal year 2018. We initiated an adoption plan in fiscal year 2015, beginning with preliminary evaluation of the standard, and subsequently performed additional analysis of revenue streams and transactions under the new standard. In particular, we performed analysis into the application of the portfolio approach as a practical expedient to group patient contracts with similar characteristics, such that revenue for a given portfolio would not be materially different than if it were evaluated on a contract-by-contract basis. The adoption plan has been completed and the impact to the consolidated financial statements for periods subsequent to adoption is not material. As part of the impact assessment, we evaluated any variable consideration, potential constraints on the estimate of variable consideration, and significant financing components, in particular as it related to third party settlements. We anticipate that for periods subsequent to adoption, the majority of what is currently classified as bad debt expense under operating expenses will be treated as an implicit price concession factored into net revenue, consistent with the intent of the standard. The new standard also requires enhanced disclosures related to the disaggregation of revenue, information about contract balances, and other disclosures about contracts with customers, including revenue recognition policies to identify performance obligations and significant judgments in measurement and recognition. We adopted the new revenue standard as of January 1, 2018 using the modified retrospective method and the adoption did not have a material impact.

Results of Operations

We believe we exist to dignify and transform post-acute care. We set out a strategy to achieve our goal of ensuring our patients are receiving the best possible care through our ability to acquire, integrate and improve our operations. Our results serve as a strong indicator that our strategy is working and our transformation is underway. Despite the sharp declines in our census beginning in late March 2020 as a result of the COVID-19 pandemic, we continued to experience healthy growth during fiscal year 2020, achieving record revenue and net income.

Our net revenue for the year ended December 31, 2020 continued to be impacted by COVID-19 as we experience revenue loss from a decline in occupancy which was offset by our skilled mix changes. To respond to the COVID-19 pandemic and ease the healthcare system burdens, CMS has waived existing regulatory requirements under the Emergency Waivers a series of temporary waivers and guidance issued by CMS, including a waiver of the requirement to have a three-day stay in a hospital to get Medicare coverage of a skilled nursing stay as well as the authorization of renewed skilled nursing facility coverage without having to start a new benefit period for certain beneficiaries who recently exhausted their skilled nursing facility benefits. As our communities experience surges of COVID-19 cases, our patients' needs have required the use of skilled care, resulting in an increase in Medicare Part A days. In addition, the state relief funding has been designed to enhance the reimbursements to provide additional funding to cover COVID-19 related expenses in selected states. For the year ended December 31, 2020, we recorded state relief revenue of $45.4 million, respectively, which directly offset against COVID-19 related expenses we incurred in those states. See Recent Activities for further information.

Since 2016, our total revenue increased $965.0 million, or 67.1%, representing a 13.7% compound annual growth rate (CAGR) while our diluted GAAP earning per share (EPS) from continued operations grew from $0.56 in the 2016 to $3.06, representing a 52.9% CAGR. Over the past year, we have continued to make progress on targeted initiatives, including our foundational structure of local operations that are the centers of excellence in the communities they serve. As part of this focus, we have been able to expand our relationships with doctors, hospitals and managed care plans. Revenue from our transitional and skilled services collectively increased by 18.3%. We have also strengthened our collection process and identified non-clinical areas where we can manage spending. These operational fundamentals coupled with the reduction of interest expense due to the deferral of payroll tax payments and cash generated from strong performance resulted in strong fiscal year performance.

Table of Contents

The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:


	Year Ended December 31,
		2020		2019		2018
Revenue:
Service revenue		99.4	%	99.7	%	99.9	%
Rental revenue		0.6		0.3		0.1
Total revenue		100.0	%	100.0	%	100.0	%


Expense:
Cost of services		77.6		79.6		80.8
Return of unclaimed class action settlement		—		—		(0.1)


Rent—cost of services		5.4		6.1		6.7
General and administrative expense		5.4		5.4		5.2
Depreciation and amortization		2.3		2.5		2.6
Total expenses		90.7		93.6		95.2
Income from operations		9.3		6.4		4.8
Other income (expense):
Interest expense		(0.4)		(0.8)		(0.9)
Interest and other income		0.2		0.1		0.1
Other expense, net		(0.2)		(0.7)		(0.8)
Income before provision for income taxes		9.1		5.7		4.0
Provision for income taxes		2.0		1.3		0.6
Net income from continuing operations		7.1		4.4		3.4
Net income from discontinued operations, net of tax		—		1.0		1.9
Net income		7.1		5.4		5.3
Less: net income attributable to noncontrolling interests in continuing operations		—		—		—
Net income attributable to noncontrolling interests in discontinued operations		—		—		—
Net income attributable to The Ensign Group, Inc.		7.1	%	5.4	%	5.3	%

The following table sets forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated:


	Year Ended December 31, 2020
	Transitional and skilled services		Real estate		All Other		Eliminations		Consolidated
Total revenue	$	2,288,182	$	61,275	$	99,257	$	(46,118)	$	2,402,596
Total expenses, including other expense, net	1,960,370		29,952		238,033		(46,118)		2,182,237
Segment income (loss)	327,812		31,323		(138,776)		—		220,359
Loss from sale of real estate and impairment charges									(2,753)
Income before provision for income taxes									$	217,606


	Year Ended December 31, 2019
	Transitional and skilled services		Real estate		All Other		Eliminations		Consolidated
Total revenue	$	1,934,243	$	49,868	$	97,023	$	(44,610)	$	2,036,524
Total expenses, including other expense, net	1,708,333		32,389		222,820		(44,610)		1,918,932
Segment income (loss)	225,910		17,479		(125,797)		—		117,592
Loss from sale of real estate and impairment charges									(1,425)
Income before provision for income taxes									$	116,167

Table of Contents

Year Ended December 31,
2017
2016 2015
Revenue 100.0 % 100.0 % 100.0 %
Expense:
Cost of services 81.0
81.1
79.6
Charge related to class action lawsuit (Note 19) 0.6
—
—
(Gains)/losses related to divestitures (Note 7 and 17) 0.1
(0.7 ) —
Rent—cost of services (Note 17) 7.1
7.5
6.6
General and administrative expense 4.4
4.2
4.8
Depreciation and amortization 2.4
2.3
2.1
Total expenses 95.6
94.4
93.1
Income from operations 4.4
5.6
6.9
Other income (expense):
Interest expense (0.7 ) (0.4 ) (0.2 )
Interest income 0.1
0.1
0.1
Other expense, net (0.6 ) (0.3 ) (0.1 )
Income before provision for income taxes 3.8
5.3
6.8
Provision for income taxes 1.5
2.0
2.6
Net income 2.3
3.3
4.2
Less: net income attributable to noncontrolling interests 0.1
0.2
—
Net income attributable to The Ensign Group, Inc. 2.2 % 3.1 % 4.2 %


	Year Ended December 31, 2018
	Transitional and skilled services		Real estate		All Other		Eliminations		Consolidated

Total revenue	$	1,678,849	$	40,177	$	74,142	$	(38,567)	$	1,754,601
Total expenses, including other expense, net	1,503,297		28,324		180,753		(38,567)		1,673,807
Segment income (loss)	175,552		11,853		(106,611)		—		80,794
Loss from sale of real estate and impairment charges									(9,047)
Income before provision for income taxes									$	71,747

Year EndedDecember 31, ~~2017~~2020 Compared to the Year Ended December 31, ~~2016~~2019

~~Revenue~~

Year Ended December 31,
2017 2016
Revenue Dollars Revenue Percentage Revenue Dollars Revenue Percentage
(Dollars in thousands)
Transitional and skilled services $ 1,545,210

83.6 %
$ 1,374,803

83.1 %
Assisted and independent living services 136,646

7.4

123,636

7.5
Home health and hospice services:

Home health 73,045

3.9

60,326

3.6
Hospice 69,358

3.8

55,487

3.4
Total home health and hospice services 142,403

7.7

115,813

7.0
All other (1) 25,058

1.3

40,612

2.4
Total revenue $ 1,849,317

100.0 %
$ 1,654,864

100.0 %

~~(1) Includes revenue from services generated in our other ancillary services for the year ended December 31, 2017 and 2016 and urgent care centers for the year ended December 31, 2016.~~

Our consolidated revenue increased $194.5 million, or 11.8% in fiscal year 2017. Our transitional and skilled services revenue increased by $170.4 million, or 12.4%, mainly attributable to the increase in patient days, revenue per patient day and the impact of acquisitions. Our assisted and independent living services increased by $13.0 million, or 10.5%, mainly due to the increase in average monthly revenue per unit and occupancy compared to the prior year period, coupled with the impact of

acquisitions. Our home health and hospice services revenue increased by $26.6 million, or 23.0%, mainly due to an increase in volume in existing agencies combined with new acquisitions. Revenue from operations acquired on or subsequent to January 1, 2016 increased our consolidated revenue by $156.4 million in 2017 when comparing to 2016. Consolidated revenue for the year ended December~~31, 2016 included $24.8 million of revenue related to urgent care centers that we sold in the third and fourth quarter of 2016.~~

Transitional and Skilled Services Segment

Revenue

The following table presents the transitional and skilled services revenue and key performance metrics by category ~~in fiscal 2017~~during the years ended December 31, 2020 and ~~2016:~~2019:


	Year Ended December 31,
	2020			2019		Change		% Change

Total Facility Results:	(Dollars in thousands)
Transitional and skilled revenue	$	2,288,182		1,934,243		$	353,939	18.3	%
Number of facilities at period end	195			190		5		2.6	%
Number of campuses at period end*	24			23		1		4.3	%
Actual patient days	6,171,198			5,987,027		184,171		3.1	%
Occupancy percentage — Operational beds	73.5		%	79.2	%			(5.7)	%
Skilled mix by nursing days	31.7		%	29.0	%			2.7	%
Skilled mix by nursing revenue	53.1		%	48.8	%			4.3	%


	Year Ended December 31,
	2020			2019			Change		% Change

Same Facility Results(1):	(Dollars in thousands)
Transitional and skilled revenue	$	1,787,138		$	1,650,515		$	136,623	8.3	%
Number of facilities at period end	152			152			—		—	%
Number of campuses at period end*	15			15			—		—	%
Actual patient days	4,711,983			5,036,697			(324,714)		(6.4)	%
Occupancy percentage — Operational beds	74.1		%	79.7		%			(5.6)	%
Skilled mix by nursing days	33.6		%	30.4		%			3.2	%
Skilled mix by nursing revenue	55.4		%	50.7		%			4.7	%

Table of Contents


												Year Ended December 31,
	Year Ended December 31,											2020			2019			Change		% Change
	2017			2016
	(Dollars in thousands)						Change		% Change
Total Facility Results:
Transitioning Facility Results(2):											Transitioning Facility Results(2):	(Dollars in thousands)
Transitional and skilled revenue	$	1,545,210		$	1,374,803		$	170,407	12.4	%	Transitional and skilled revenue	$	208,657		$	185,895		$	22,762	12.2	%
Number of facilities at period end	160			149			11		7.4	%	Number of facilities at period end	16			16			—		—	%
Number of campuses at period end*	21			21			—		—	%	Number of campuses at period end*	4			4			—		—	%
Actual patient days	5,050,140			4,620,735			429,405		9.3	%	Actual patient days	602,072			617,091			(15,019)		(2.4)	%
Occupancy percentage — Operational beds	75.4		%	75.4		%			—	%	Occupancy percentage — Operational beds	76.8		%	79.5		%			(2.7)	%
Skilled mix by nursing days	30.3		%	30.9		%			(0.6	)%	Skilled mix by nursing days	25.9		%	22.2		%			3.7	%
Skilled mix by nursing revenue	51.1		%	52.5		%			(1.4	)%	Skilled mix by nursing revenue	43.1		%	37.6		%			5.5	%


													Year Ended December 31,
	Year Ended December 31,												2020			2019			Change		% Change
	2017			2016
	(Dollars in thousands)						Change			% Change
Same Facility Results(1):
Recently Acquired Facility Results(3):												Recently Acquired Facility Results(3):	(Dollars in thousands)
Transitional and skilled revenue	$	975,203		$	942,854		$	32,349		3.4	%	Transitional and skilled revenue	$	292,387		$	88,818		$	203,569	NM
Number of facilities at period end	93			93			—			—	%	Number of facilities at period end	27			22			5		NM
Number of campuses at period end*	11			11			—			—	%	Number of campuses at period end*	5			4			1		NM
Actual patient days	3,083,292			3,099,764			(16,472		)	(0.5	)%	Actual patient days	857,143			303,700			553,443		NM
Occupancy percentage — Operational beds	78.4		%	78.1		%				0.3	%	Occupancy percentage — Operational beds	68.5		%	72.0		%			NM
Skilled mix by nursing days	30.0		%	29.8		%				0.2	%	Skilled mix by nursing days	25.0		%	21.4		%			NM
Skilled mix by nursing revenue	50.8		%	51.3		%				(0.5	)%	Skilled mix by nursing revenue	46.3		%	39.3		%			NM



Delaware			33-0861263
(State or Other Jurisdiction of			(I.R.S. Employer
Incorporation or Organization)			Identification No.)



Title of ~~Each Class~~each class	Trading Symbol(s)	Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered
Common Stock, par value $0.001 per share	ENSG	NASDAQ Global Select Market


		PART I
		Item 1.		Business		1
		Item 1A.		Risk Factors		26
		Item 1B.		Unresolved Staff Comments		51
		Item 2.		Properties		51
		Item 3.		Legal Proceedings		53
		Item 4.		Mine Safety Disclosures		55

		PART I.II.
		~~Item 1.~~		~~Business~~	1
~~Item 1A.~~	~~Risk Factors~~	24
~~Item 1B.~~	~~Unresolved Staff Comments~~	60
~~Item 2.~~	~~Properties~~	60
~~Item 3.~~	~~Legal Proceedings~~	61
~~Item 4.~~	~~Mine Safety Disclosures~~	63

~~PART II.~~
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		6356
		Item 6.		Selected Financial Data		6556
		Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations		7164
		Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		9987
		Item 8.		Financial Statements and Supplementary Data		~~100~~88
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		~~101~~89
		Item 9A.		Controls and Procedures		~~101~~89
		Item 9B.		Other Information		~~103~~91

		PART III.
		Item 10.		Directors, Executive Officers and Corporate Governance		~~103~~92
		Item 11.		Executive Compensation		~~103~~92
		Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related ~~Stockholder~~Stockholders Matters		~~103~~92
		Item 13.		Certain Relationships and Related Transactions and Director Independence		~~103~~92
		Item 14.		Principal Accountant Fees and Services		~~103~~92

		PART IV.
		Item 15.		Exhibits, Financial Statements and Schedules		~~103~~92
		Item 16.		Form 10-K Summary		~~111~~100

		Signatures				~~112~~101
		~~EX-10.87~~
		~~EX-10.88~~
		~~EX-21.1~~
		~~EX-23.1~~
		~~EX-31.1~~
		~~EX-31.2~~
		~~EX-32.1~~
		~~EX-32.2~~
~~EX-101~~



	Year Ended December 31, 2017
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health and Hospice Services				All Other
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health Services		Hospice Services		All Other			Total Revenue		Revenue %
Medicaid	$	603,104	$	30,469	$	4,398	$	6,832	$	—		$	644,803	34.9	%
Medicare	417,870		—		36,592		61,422		—			515,884		27.9
Medicaid-skilled	102,875		—		—		—		—			102,875		5.6
Subtotal	1,123,849		30,469		40,990		68,254		—			1,263,562		68.4
Managed care	281,563		—		21,058		765		—			303,386		16.4
Private and other	139,798		106,177		10,997		339		25,058		(1)	282,369		15.2
Total revenue	$	1,545,210	$	136,646	$	73,045	$	69,358	$	25,058		$	1,849,317	100.0	%
(1) Private and other payors in our "All Other" category includes revenue from all payors generated in our other ancillary operations.



	Year Ended December 31, 2016
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health and Hospice Services				All Other
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health Services		Hospice Services		All Other			Total Revenue		Revenue %
Medicaid	$	521,063	$	26,397	$	4,131	$	6,367	$	—		$	557,958	33.7	%
Medicare	396,519		—		32,376		48,124		—			477,019		28.8
Medicaid-skilled	87,517		—		—		—		—			87,517		5.3
Subtotal	1,005,099		26,397		36,507		54,491		—			1,122,494		67.8
Managed care	247,844		—		16,913		751		—			265,508		16.0
Private and other	121,860		97,239		6,906		245		40,612		(1)	266,862		16.2
Total revenue	$	1,374,803	$	123,636	$	60,326	$	55,487	$	40,612		$	1,654,864	100.0	%
(1) Private and other payors in our "All Other" category includes revenue from all payors generated in our urgent care centers and other ancillary operations.



x☑			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
			For the transition period from to .


	December 31,
	2010(2)	2016(1)(2)	2017(1)(2)	2018(2)	2019(1)(2)	2020
Cumulative number of skilled nursing and senior living operations	82	210	230	244	223	228
Cumulative number of operational skilled nursing beds	8,548	17,724	18,870	19,615	22,625	23,172
Cumulative number of senior living units	791	4,450	5,011	5,664	2,154	2,254



	December 31,
	2007	2008	2009	2010	2011	2012	2013		2014	2015		2016	2017
Cumulative number of skilled nursing, assisted and independent living operations	61	63	77	82	102	108	119	(1)	136	186	(2)	210	230
Cumulative number of operational skilled nursing beds	6,436	6,635	8,250	8,548	9,787	10,215	10,949		12,379	14,925		17,724	18,870
Cumulative number of assisted living and independent living units	578	578	578	791	1,509	1,677	1,968	(1)	2,285	4,298	(2)	4,450	5,011
Number of home health, hospice and home care agencies	—	—	1	3	7	10	16		25	32		39	46



	TX	CA	AZ	WI	UT	CO	WA	ID	NE	KS	IA	SC	NV	Total
Number of facilities
Skilled nursing operations	43	39	23	2	16	9	9	6	4	—	4	4	1	160
Assisted and independent living services	4	6	6	19	1	5	1	3	1	—	—	—	3	49
Campuses(1)	4	3	1	—	1	1	—	1	2	6	2	—	—	21
Number of operational beds/units
Operational skilled nursing beds	5,634	4,163	3,180	138	1,763	766	841	544	413	542	368	426	92	18,870
Assisted and independent living units	387	735	1,250	758	106	618	98	274	301	142	31	—	311	5,011



	As of December 31,
	2012		2013		2014		2015		2016		2017
Cumulative number of skilled nursing facilities(1)	98		106		121		146		170		181
4 and 5-Star Quality Rated skilled nursing facilities	45		60		77		72		86		100
Percentage of 4 and 5-Star Quality Rated skilled nursing facilities	45.9	%	56.6	%	63.6	%	49.3	%	50.6	%	55.2	%



	Year Ended December 31, 2015
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health and Hospice Services				All Other
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health Services		Hospice Services		All Other			Total Revenue		Revenue %
Medicaid	$	430,368	$	19,642	$	3,598	$	5,348	$	—		$	458,956	34.2	%
Medicare	332,429		—		26,828		36,246		—			395,503		29.5
Medicaid-skilled	71,905		—		—		—		—			71,905		5.4
Subtotal	834,702		19,642		30,426		41,594		—			926,364		69.1
Managed care	194,743		—		11,391		636		—			206,770		15.4
Private and other	96,943		68,487		6,138		171		36,953		(1)	208,692		15.5
Total revenue	$	1,126,388	$	88,129	$	47,955	$	42,401	$	36,953		$	1,341,826	100.0	%
(1) Private and other payors in our "All Other" category includes revenue from all payors generated in our urgent care centers and other ancillary operations.



	TX	CA	AZ	WI	UT	CO	WA	ID	NE	KS	IA	SC	NV	Total
Number of operational beds/units
Operational skilled nursing bed	5,634	4,163	3,180	138	1,763	766	841	544	413	542	368	426	92	18,870
Assisted and independent living units	387	735	1,250	758	106	618	98	274	301	142	31	—	311	5,011
Leased without a Purchase Agreement	4,978	4,043	3,845	—	1,248	570	735	453	367	188	399	—	403	17,229
Purchase Agreement or Leased with a Purchase Option	353	318	—	—	130	125	—	—	—	325	—	—	—	1,251
Owned	690	537	585	896	491	689	204	365	347	171	—	426	—	5,401



State	Home Health and Home Care Services	Hospice Services
Arizona	2	4
California⁽¹⁾	5	3
Colorado	1	1
Idaho⁽¹⁾	3	3
Iowa	1	1
Nevada	—	1
Oklahoma⁽¹⁾	2	1
Oregon	1	1
Texas	2	3
Utah⁽¹⁾	3	3
Washington⁽¹⁾	4	1
Total	24	22



	High		Low
Fiscal 2016
First Quarter	$	23.20	$	17.60
Second Quarter	$	23.86	$	19.13
Third Quarter	$	22.10	$	17.87
Fourth Quarter	$	23.18	$	17.60
Fiscal 2017
First Quarter	$	22.66	$	16.76
Second Quarter	$	22.24	$	16.51
Third Quarter	$	23.35	$	18.75
Fourth Quarter	$	24.78	$	20.81



	Dividend per Share		Aggregate Dividend Declared
			(in thousands)
2016
First Quarter	$	0.0400	$	2,026
Second Quarter	$	0.0400	$	2,034
Third Quarter	$	0.0400	$	2,042
Fourth Quarter	$	0.0425	$	2,180
2017
First Quarter	$	0.0425	$	2,171
Second Quarter	$	0.0425	$	2,178
Third Quarter	$	0.0425	$	2,189
Fourth Quarter	$	0.0450	$	2,329



	Owned		Leased (with a Purchase Option)		Leased (without a Purchase Option)		Total
Number of facilities	63		11		156		230
Percentage of total	27.4	%	4.8	%	67.8	%	100.0	%
Operational skilled nursing beds	3,443		1,067		14,360		18,870
Percentage of total	18.2	%	5.7	%	76.1	%	100.0	%
Assisted and independent living units	1,958		184		2,869		5,011
Percentage of total	39.1	%	3.7	%	57.2	%	100.0	%


~~(1)~~	~~Same Facility results represent all facilities purchased prior to January 1, 2014.~~


~~(2)~~	~~Transitioning Facility results represents all facilities purchased from January 1, 2014 to December 31, 2015.~~


~~(3)~~	~~Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2016.~~


~~(4)~~	~~Facility Closed results represents closed operations during 2017 and 2016, which were excluded from Recently Acquired results for the years ended December 31, 2017 and 2016, for comparison purposes.~~


	Year Ended December 31,
	Same Facility				Transitioning				Acquisitions				Total
	2020		2019		2020		2019		2020		2019		2020		2019
Skilled Nursing Average Daily Revenue Rates:
Medicare	$	669.76	$	612.60	$	594.20	$	543.30	$	649.45	$	631.27	$	660.78	$	607.24
Managed care	495.41		461.77		470.38		427.88		478.66		433.97		491.53		458.26
Other skilled	534.00		495.83		505.73		468.21		346.56		339.08		525.51		490.93
Total skilled revenue	584.60		528.36		536.37		489.17		578.94		523.86		580.14		525.41
Medicaid	240.05		225.57		248.99		234.52		224.75		222.20		238.62		226.43
Private and other payors	232.70		225.67		236.41		222.00		215.02		208.68		230.52		223.97
Total skilled nursing revenue	$	355.20	$	317.87	$	321.53	$	289.10	$	312.08	$	285.23	$	345.92	$	313.11


~~(4)~~	Facility Closed represents the result of one facility closed during the first quarter of 2016. These results were excluded from Same Facility results for the year ended December 31, 2015 for comparison purposes.


																2021		2022		2023		2024		2025		Thereafter		Total
	2018		2019		2020		2021		2022		Thereafter		Total
					(In thousands)											(In thousands)
Operating lease obligations	$	135,841	$	135,395	$	135,149	$	134,942	$	133,446	$	1,080,348	$	1,755,121	Operating lease obligations	$	128,251	$	128,107	$	126,371	$	125,400	$	125,301	$	1,040,860	$	1,674,290
Long-term debt obligations	$	9,939	$	10,106	$	10,203	$	170,926	$	2,904	$	111,941	$	316,019	Long-term debt obligations	2,802		2,906		3,016		3,128		3,245		102,551		117,648
Interest payments on long-term debt	$	9,397	$	9,159	$	8,783	$	4,328	$	3,837	$	59,982	$	95,486	Interest payments on long-term debt	3,940		3,837		3,725		3,613		3,499		49,212		67,826
Total	$	155,177	$	154,660	$	154,135	$	310,196	$	140,187	$	1,252,271	$	2,166,626	Total	$	134,993	$	134,850	$	133,112	$	132,141	$	132,045	$	1,192,623	$	1,859,764


																		Dec. 31,		Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,
	Dec. 31,		Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,			2020		2020		2020		2020		2019		2019		2019		2019
	2017		2017		2017		2017		2016		2016		2016		2016
	(In thousands, except per share data)																	(In thousands, except per share data)
Revenue	$	487,705	$	471,594	$	448,279	$	441,739	$	433,048	$	428,065	$	410,517	$	383,234	Revenue	$	629,029	$	599,255	$	584,699	$	589,613	$	560,191	$	512,109	$	492,916	$	471,308
Cost of services	393,727		381,544		366,946		355,486		355,997		348,971		330,538		306,308		Cost of services	493,823		465,108		451,749		454,521		443,382		410,516		394,741		371,989
Total expenses	461,562		446,035		426,248		434,187		397,365		408,025		390,708		366,919		Total expenses	573,170		544,186		529,265		532,820		520,498		481,310		464,177		441,359
Income from operations	26,143		25,559		22,031		7,552		35,683		20,040		19,809		16,315		Income from operations	55,859		55,069		55,434		56,793		39,693		30,799		28,739		29,949
Net income from continuing operations																	Net income from continuing operations	46,162		43,313		40,688		41,201		27,326		22,538		20,784		21,565
Net income from discontinued operations																	Net income from discontinued operations	—		—		—		—		—		5,290		8,141		6,042
Net income	$	11,222	$	14,275	$	12,380	$	2,956	$	21,006	$	11,184	$	11,363	$	9,290	Net income	46,162		43,313		40,688		41,201		27,326		27,828		28,925		27,607
Income attributable to noncontrolling interests	16		63		163		116		2,669		29		37		118
Net (loss)/income attributable to noncontrolling interests in continuing operations																	Net (loss)/income attributable to noncontrolling interests in continuing operations	(159)		253		440		352		(68)		390		116		85
Net income attributable to noncontrolling interests in discontinued operations																	Net income attributable to noncontrolling interests in discontinued operations	—		—		—		—		—		279		200		150
Net income attributable to The Ensign Group, Inc.	$	11,206	$	14,212	$	12,217	$	2,840	$	18,337	$	11,155	$	11,326	$	9,172	Net income attributable to The Ensign Group, Inc.	$	46,321	$	43,060	$	40,248	$	40,849	$	27,394	$	27,159	$	28,609	$	27,372
Net income from continuing operations attributable to the Ensign Group, Inc.																	Net income from continuing operations attributable to the Ensign Group, Inc.	$	46,321	$	43,060	$	40,248	$	40,849	$	27,394	$	22,148	$	20,668	$	21,480
Net income from discontinued operations																	Net income from discontinued operations	—		—		—		—		—		5,011		7,941		5,892
Net income per share attributable to The Ensign Group, Inc.																	Net income per share attributable to The Ensign Group, Inc.	$	46,321	$	43,060	$	40,248	$	40,849	$	27,394	$	27,159	$	28,609	$	27,372
Basic	$	0.22	$	0.28	$	0.24	$	0.06	$	0.36	$	0.22	$	0.23	$	0.18
Diluted	$	0.21	$	0.27	$	0.23	$	0.05	$	0.35	$	0.21	$	0.22	$	0.18
Basic:																	Basic:
Continuing operations																	Continuing operations	$	0.86	$	0.81	$	0.76	$	0.76	$	0.51	$	0.41	$	0.39	$	0.41
Discontinued operations																	Discontinued operations	—		—		—		—		—		0.09		0.15		0.11
Basic income per share attributable to The Ensign Group, Inc.																	Basic income per share attributable to The Ensign Group, Inc.	$	0.86	$	0.81	$	0.76	$	0.76	$	0.51	$	0.50	$	0.54	$	0.52
Diluted:																	Diluted:
Continuing operations																	Continuing operations	$	0.82	$	0.77	$	0.73	$	0.73	$	0.49	$	0.39	$	0.37	$	0.39
Discontinued operations																	Discontinued operations	—		—		—		—		—		0.09		0.14		0.10
Diluted income per share attributable to The Ensign Group, Inc.																	Diluted income per share attributable to The Ensign Group, Inc.	$	0.82	$	0.77	$	0.73	$	0.73	$	0.49	$	0.48	$	0.51	$	0.49
Weighted average common shares outstanding:																	Weighted average common shares outstanding:
Basic	51,250		50,911		50,705		50,767		50,724		50,541		50,274		50,679		Basic	53,835		53,328		53,094		53,475		53,397		53,941		53,408		53,081
Diluted	53,176		52,828		52,548		52,633		52,231		52,045		51,931		52,334		Diluted	56,307		55,713		55,181		55,796		55,760		56,364		56,078		55,698


The Financial Statements described in Part II. Item 8 and beginning on page 102 are filed as part of this Annual Report on Form 10-K.


Exhibit				File	Exhibit	Filing	Filed	Exhibit				File	Exhibit	Filing	Filed
No.		Exhibit Description*	Form	No.	No.	Date	Herewith	No.		Exhibit Description*	Form	No.	No.	Date	Herewith
2.1		Separation and Distribution Agreement, dated as of May 23, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc.	8-K	001-33757	2.1	6/5/2014
3.1		Fifth Amended and Restated Certificate of Incorporation of The Ensign Group, Inc., filed with the Delaware Secretary of State on November 15, 2007	10-Q	001-33757	3.1	12/21/2007		3.1		Fifth Amended and Restated Certificate of Incorporation of The Ensign Group, Inc., filed with the Delaware Secretary of State on November 15, 2007	10-Q	001-33757	3.1	12/21/2007
3.2		Amendment to the Amended and Restated Bylaws, dated August 5, 2014	8-K	001-33757	3.2	8/8/2014		3.2		Certificate of Amendment to the Fifth Amended and Restated Certificate of Incorporation of The Ensign Group, Inc., filed with the Delaware Secretary of State on February 4, 2020	10-K	001-33757	3.2	2/5/2020
3.3		Amended and Restated Bylaws of The Ensign Group, Inc.	10-Q	001-33757	3.2	12/21/2007		3.3		Amendment to the Amended and Restated Bylaws, dated August 5, 2014	8-K	001-33757	3.2	8/8/2014
3.4		Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 7, 2013	8-K	001-33757	3.1	11/7/2013		3.4		Amended and Restated Bylaws of The Ensign Group, Inc.	10-Q	001-33757	3.2	12/21/2007
3.5		Certificate of Elimination of Series A Junior Participating Preferred Stock	8-K	001-33757	3.1	6/5/2014		3.5		Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 7, 2013	8-K	001-33757	3.1	11/7/2013
3.6								3.6		Certificate of Elimination of Series A Junior Participating Preferred Stock	8-K	001-33757	3.1	6/5/2014
4.1		Specimen common stock certificate	S-1	333-142897	4.1	10/5/2007		4.1		Description of the Common stock of The Ensign Group, Inc.	10-K	001-33757	4.1	2/5/2020
4.2								4.2		Specimen common stock certificate	S-1	333-142897	4.1	10/5/2007
10.1	+	The Ensign Group, Inc. 2001 Stock Option, Deferred Stock and Restricted Stock Plan, form of Stock Option Grant Notice for Executive Officers and Directors, stock option agreement and form of restricted stock agreement for Executive Officers and Directors	S-1	333-142897	10.1	7/26/2007		10.1	+	The Ensign Group, Inc. 2001 Stock Option, Deferred Stock and Restricted Stock Plan, form of Stock Option Grant Notice for Executive Officers and Directors, stock option agreement and form of restricted stock agreement for Executive Officers and Directors	S-1	333-142897	10.1	7/26/2007
10.2	+	The Ensign Group, Inc. 2005 Stock Incentive Plan, form of Nonqualified Stock Option Award for Executive Officers and Directors, and form of restricted stock agreement for Executive Officers and Directors	S-1	333-142897	10.2	7/26/2007		10.2	+	The Ensign Group, Inc. 2005 Stock Incentive Plan, form of Nonqualified Stock Option Award for Executive Officers and Directors, and form of restricted stock agreement for Executive Officers and Directors	S-1	333-142897	10.2	7/26/2007
10.3	+	The Ensign Group, Inc. 2007 Omnibus Incentive Plan	S-1	333-142897	10.3	10/5/2007		10.3	+	The Ensign Group, Inc. 2007 Omnibus Incentive Plan	S-1	333-142897	10.3	10/5/2007
10.4	+	Amendment to The Ensign Group, Inc. 2007 Omnibus Incentive Plan	8-K	001-33757	99.2	7/28/2009		10.4	+	Amendment to The Ensign Group, Inc. 2007 Omnibus Incentive Plan	8-K	001-33757	99.2	7/28/2009
10.5	+	Form of 2007 Omnibus Incentive Plan Notice of Grant of Stock Options; and form of Non-Incentive Stock Option Award Terms and Conditions	S-1	333-142797	10.4	10/5/2007		10.5	+	Form of 2007 Omnibus Incentive Plan Notice of Grant of Stock Options; and form of Non-Incentive Stock Option Award Terms and Conditions	S-1	333-142797	10.4	10/5/2007
10.6	+	Form of 2007 Omnibus Incentive Plan Restricted Stock Agreement	S-1	333-142897	10.5	10/5/2007		10.6	+	Form of 2007 Omnibus Incentive Plan Restricted Stock Agreement	S-1	333-142897	10.5	10/5/2007
10.7	+	Form of Indemnification Agreement entered into between The Ensign Group, Inc. and its directors, officers and certain key employees	S-1	333-142897	10.6	10/5/2007		10.7	+	Form of Indemnification Agreement entered into between The Ensign Group, Inc. and its directors, officers and certain key employees	S-1	333-142897	10.6	10/5/2007
10.8		Fourth Amended and Restated Loan Agreement, dated as of November 10, 2009, by and among certain subsidiaries of The Ensign Group, Inc. as Borrowers, and General Electric Capital Corporation as Agent and Lender	8-K	001-33757	10.1	11/17/2009		10.8		Fourth Amended and Restated Loan Agreement, dated as of November 10, 2009, by and among certain subsidiaries of The Ensign Group, Inc. as Borrowers, and General Electric Capital Corporation as Agent and Lender	8-K	001-33757	10.1	11/17/2009
10.9		Consolidated, Amended and Restated Promissory Note, dated as of December 29, 2006, in the original principal amount of $64,692,111.67, by certain subsidiaries of The Ensign Group, Inc. in favor of General Electric Capital Corporation	S-1	333-142897	10.8	7/26/2007		10.9		Consolidated, Amended and Restated Promissory Note, dated as of December 29, 2006, in the original principal amount of $64,692,111.67, by certain subsidiaries of The Ensign Group, Inc. in favor of General Electric Capital Corporation	S-1	333-142897	10.8	7/26/2007
10.10		Third Amended and Restated Guaranty of Payment and Performance, dated as of December 29, 2006, by The Ensign Group, Inc. as Guarantor and General Electric Capital Corporation as Agent and Lender, under which Guarantor guarantees the payment and performance of the obligations of certain of Guarantor's subsidiaries under the Third Amended and Restated Loan Agreement	S-1	333-142897	10.9	7/26/2007		10.10		Third Amended and Restated Guaranty of Payment and Performance, dated as of December 29, 2006, by The Ensign Group, Inc. as Guarantor and General Electric Capital Corporation as Agent and Lender, under which Guarantor guarantees the payment and performance of the obligations of certain of Guarantor's subsidiaries under the Third Amended and Restated Loan Agreement	S-1	333-142897	10.9	7/26/2007


			THE ENSIGN GROUP, INC.

February 3, 2021			~~THE ENSIGN GROUP, INC.~~
BY:
~~February 8, 2018~~	~~BY:~~	/s/ SUZANNE D. SNAPPER
				Suzanne D. Snapper
				Chief Financial Officer and Executive Vice President (Principal Financial Officer and Accounting Officer and Duly Authorized Officer)



Report of Independent Registered Public Accounting Firm			~~114~~103

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016~~2019			~~115~~105

Consolidated Statements of Income for the Years Ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018			~~116~~106

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018			~~117~~107

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018			~~118~~108

Notes to Consolidated Financial Statements			~~120~~110



	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock					Non-Controlling Interest
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Shares		Amount			Non-Controlling Interest			Total
	(In thousands)
Balance - January 1, 2015	22,591		$	22	$	114,293		$	145,846		150		$	(1,310	)	$	(1,048	)	$	257,803
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards	255		—		2,443			—			(27	)	87			—			2,530
Issuance of restricted stock to employees	105		—		1,892			—			—		—			—			1,892
Issuance of common stock through public offering, net of issuance costs	2,734		3		106,117			—			—		—			—			106,120
Dividends declared	—		—					(7,858		)	—		—			—			(7,858		)
Employee stock award compensation	—		—		6,677			—			—		—			—			6,677
Excess tax benefit from share-based compensation	—		—		3,680			—			—		—			—			3,680
Stock issued to effect stock split	25,685		26		(26		)	—			—		—			—			—
Noncontrolling interest assumed related to acquisition	—		—		—			—			—		—			224			224
Net income attributable to noncontrolling interest	—		—		—			—			—		—			485			485
Net income attributable to the Ensign Group, Inc.	—		—		—			55,432			—		—			—			55,432
Balance - December 31, 2015	51,370		$	51	$	235,076		$	193,420		123		$	(1,223	)	$	(339	)	$	426,985
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards	668		1		4,045			—			(55	)	106			—			4,152
Issuance of restricted stock to employees	252		—		2,517			—			—		—			—			2,517
Repurchase of common stock (Note 3)	(1,452	)									1,452		(30,000		)	—			(30,000		)
Dividends declared	—		—		—			(8,282		)	—		—			—			(8,282		)
Employee stock award compensation	—		—		7,776			—			—		—			—			7,776
Excess tax benefit from share-based compensation	—		—		3,079			—			—		—			—			3,079
Noncontrolling interest attributable to subsidiary equity plan (Note 16)	—		—		—			(107		)	—		—			1,432			1,325
Noncontrolling interest assumed related to acquisition	—		—		—			—			—		—			100			100
Net income attributable to noncontrolling interest	—		—		—			—			—		—			2,853			2,853
Net income attributable to the Ensign Group, Inc.	—		—		—			49,990			—		—			—			49,990
Balance - December 31, 2016	50,838		$	52	$	252,493		$	235,021		1,520		$	(31,117	)	$	4,046		$	460,495
Issuance of common stock to employees and directors resulting from the exercise of stock options and grant of stock awards	807		1		5,127			—			—		—			—			5,128
Issuance of restricted stock to employees	127		—		146			—			—		—			—			146
Repurchase of common stock (Note 3)	(412	)	—		—			—			412		(7,288		)	—			(7,288		)
Dividends declared	—		—		—			(8,867		)	—		—			—			(8,867		)
Employee stock award compensation	—		—		8,331			—			—		—			—			8,331
Acquisition of noncontrolling interest, net of tax	—		—		(39		)	—			—		—			(44		)	(83		)
Noncontrolling interest attributable to subsidiary equity plan (Note 16)	—		—		—			(1,938		)	—		—			3,302			1,364
Net income attributable to noncontrolling interest	—		—		—			—			—		—			358			358
Net income attributable to the Ensign Group, Inc.	—		—		—			40,475			—		—			—			40,475
Balance - December 31, 2017	51,360		$	53	$	266,058		$	264,691		1,932		$	(38,405	)	$	7,662		$	500,059



	Year Ended December 31, 2017
	Transitional and Skilled Services(3)		Assisted and Independent Living Services(3)		Home Health and Hospice Services		All Other			Elimination			Total
Revenue from external customers	$	1,545,210	$	136,646	$	142,403	$	25,058		$	—		$	1,849,317
Intersegment revenue (1)	3,023		—		—		3,035			(6,058		)	—
Total revenue	$	1,548,233	$	136,646	$	142,403	$	28,093		$	(6,058	)	$	1,849,317
Segment income (loss) (2)	$	140,272	$	16,736	$	19,717	$	(95,440	)	$	—		$	81,285
Interest expense, net of interest income													$	(12,007	)
Income before provision for income taxes													$	69,278
Depreciation and amortization	$	29,928	$	6,334	$	945	$	7,265		$	—		$	44,472



	Weighted Average Life (Years)	December 31,
		2020						2019

		Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization
Intangible Assets						Net						Net
Lease acquisition costs	1.7	$	360	$	(360)	$	0	$	360	$	(349)	$	11
Favorable leases	2.1	534		(534)		0		534		(448)		86
Assembled occupancy	0.4	39		(26)		13		2,982		(2,818)		164
Facility trade name	30.0	733		(366)		367		733		(342)		391
Customer relationships	18.2	4,640		(2,121)		2,519		4,640		(1,910)		2,730
Total		$	6,306	$	(3,407)	$	2,899	$	9,249	$	(5,867)	$	3,382


Year	Amount

2021	247
2022	234
2023	234
2024	234
2025	234
Thereafter	1,716
	$	2,899



	Goodwill
	Transitional and Skilled Services		Assisted and Independent Living Services		Home Health and Hospice Services		All Other			Total
January 1, 2015	$	14,221	$	1,756	$	10,929	$	3,363		$	30,269
Additions	—		1,782		5,173		3,662			10,617
December 31, 2015	$	14,221	$	3,538	$	16,102	$	7,025		$	40,886
Less: Dispositions	—		—		—		(4,103		)	(4,103		)
Purchase price adjustment	—		—		—		(26		)	(26		)
Additions	26,415		—		1,799		2,129			30,343
December 31, 2016	$	40,636	$	3,538	$	17,901	$	5,025		$	67,100
Additions	4,850		420		6,421		2,271			13,962
December 31, 2017	$	45,486	$	3,958	$	24,322	$	7,296		$	81,062



	December 31, 2017		December 31, 2016
Trade name	$	1,181	$	1,146
Medicare and Medicaid licenses	24,068		18,440
	$	25,249	$	19,586