ENSG Ensign Group Inc

The Ensign Group, Inc. (Nasdaq:ENSG), the parent company of the Ensign™ group of skilled nursing, rehabilitative care services, assisted living, home health, home care and hospice care companies, today announced its operating results for the third quarter of 2017, reporting GAAP diluted earnings per share for the quarter of $0.27 and adjusted earnings per share for the quarter of $0.36 (1).

Quarter Highlights Include:

• GAAP earnings per share for the quarter was up 28.6% over the prior year quarter to $0.27 per diluted share, and adjusted earnings per share was up 12.5% to a record $0.36 per diluted share(1);
• Consolidated GAAP Net Income for the quarter was $14.2 million, an increase of 27.4% over the prior year quarter, and consolidated adjusted Net Income was $18.8 million, an increase of 13.8% over the prior year quarter(1);
• Total Transitional and Skilled Services segment income was $36.9 million for the quarter, an increase of 26.2% over the prior year quarter and an increase of 16.3% sequentially over the second quarter;
• Same store skilled nursing revenue grew by 4.5% over the prior year quarter to $238.0 million, and same store managed care revenue grew by 9.7% over the prior year quarter to $40.0 million; and
• Total Assisted and Independent Living Services segment revenue and income were up 13.5% to $35.5 million and 67.5% to $4.3 million, respectively, over the prior year quarter.

(1) See "Reconciliation of GAAP to Non-GAAP Financial Information".

Operating Results

Ensign’s President and Chief Executive Officer Christopher Christensen said, “We are very pleased to report that we experienced significant operational improvements across the organization during the quarter.  Our talented local leaders’ tireless efforts to integrate 46 recently acquired and 68 transitioning skilled nursing and assisted living operations into the organization are just beginning to bear fruit.”  He added, “We are seeing a positive shift in momentum in our core skilled nursing business and are now seeing the ramp in our performance that we have been expecting.”    

While emphasizing the positive trends in the total transitional and skilled services segment, Mr. Christensen noted an increase of 26.2% in segment income over the prior year quarter and an increase of 16.3% sequentially over the second quarter.  “We believe that each carefully-selected acquisition will continue the multi-year process of becoming like our most mature operations. Over the next several years, as the wave of baby boomers hits and networks continue to narrow, we are positioned to capitalize on the enormous organic growth potential inherent in our core skilled nursing business,” he said. 

 “While we understand that our skilled nursing business sometimes overshadows everything else, we have been quietly building significant value in our other lines of business,” Christensen stated.  “Under the direction of key operational leaders and their independent Service Center resources, these operations have achieved consistent clinical and financial results while simultaneously bolstering our core skilled nursing operations. We expect these businesses to continue to grow by acquiring underperforming assets and operations, and by applying proven Ensign principles, we believe this often forgotten underlying value will become increasingly more difficult to ignore,” he said. 

Christensen noted that Ensign’s assisted living and independent living portfolio company, which consists of 49 stand-alone operations and 21 campuses in 12 states, now represents 7.5% of Ensign’s total consolidated revenue, while representing only 4.8% of those measures just three years ago.  Similarly, he noted that Cornerstone Healthcare, Inc., Ensign’s home health and hospice portfolio company, now represents 7.6% of Ensign’s total consolidated revenue, while representing only 5.1% of those measures three years ago.  Collectively, these two business segments, along with other new healthcare businesses within the portfolio, are quickly approaching the size of Ensign when it completed its initial public offering in 2007.

Pointing to the underlying value being created in Ensign’s owned real estate, Mr. Christensen reminded investors that since Ensign spun out certain real estate assets to CareTrust REIT, Inc., in 2014, Ensign has added 138 operations and acquired 61 real estate assets. “Prior to the spin transaction, Ensign shareholders received little to no credit for an incredible amount of underlying value in those 96 assets now owned by CareTrust.  As we anticipated at the time of the spin, we have methodically built another attractive real estate portfolio that continues to create value; however, that value is again being overlooked.  As an operationally-driven organization, we will continue to focus on creating value through solid operational performance. But we also believe it’s important to recognize the growing underlying value in our owned real estate and that there are many options available to us to unlock this value for the benefit of our shareholders,” Christensen said.  

Mr. Christensen announced that management is reaffirming its 2017 revenue guidance of $1.76 billion to $1.80 billion and adjusting its 2017 annual earnings per share guidance to between $1.39 and $1.42 per diluted share.  Overall, this adjustment represents a 5% decrease, or $0.07 per share, in management’s annual earnings guidance. “As with last quarter, our operating results this quarter were impacted by an increase in healthcare insurance costs.  Had these expenses as a percentage of revenue remained at the same levels as in 2016, our year to date earnings per share would have been $0.09 higher. Our operational improvements have made up for $0.02 of that impact from the first three quarters, and while we expect to make up more of it in the fourth quarter, the impact will be too much for us to overcome this year. We continue to evaluate the cause for these increased costs and expect to find ways to improve the predictability going forward,” he said.

In order to provide additional clarity surrounding its expectations, management is giving 2018 revenue guidance of $2.0 billion to $2.06 billion and annual earnings per share guidance of $1.58 to $1.66 per diluted share for 2018.   “This guidance represents a significant improvement over 2017 results. We are very excited about the fourth quarter and the coming year and are confident that the near-term and long-term future of Ensign is very bright,” he said.

Commenting on the Company’s balance sheet, Chief Financial Officer Suzanne Snapper said, “We recently completed two fixed-rate HUD insured mortgages with a principal amount of $19.8 million, the proceeds of which were used to reduce the Company’s line of credit.”   She added, “We currently have $175 million of availability on Ensign’s $450 million credit facility, which also has a built-in expansion option, and 58 unlevered real estate assets that add additional liquidity.”  She also noted that the Company expects to complete additional HUD-insured loans during the fourth quarter which will add even more liquidity.  

Ensign’s lease-adjusted net-debt-to-EBITDAR ratio increased slightly over last quarter and was 4.24x as of the end of the quarter due to the acquisition of additional real estate assets during the quarter.  Commenting on Mr. Christensen’s statements about the Company’s investment in real estate since the spin-off, Ms. Snapper reported that Ensign’s debt levels have been driven by the $361.6 million in total dollars invested in real estate assets since June 2014.  She also said that she expects the lease-adjusted net-debt-to-EBITDAR ratio to return to historical levels as the number of real estate acquisitions normalizes and as the transitioning and newly acquired operations add EBITDAR to consolidated operating results. 

Reporting on the quarter, Ms. Snapper said that consolidated revenues were up 10.2% over the prior year quarter to a record $471.6 million, GAAP EBITDA for the quarter was $36.9 million and consolidated adjusted EBITDAR for the quarter was $72.6 million, an increase of 6.6% over the prior year quarter.  GAAP net income was $14.2 million and adjusted net income was $18.8 million. A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to adjusted EBITDAR and adjusted EBITDA, as well as a reconciliation of GAAP earnings per share and net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release.

More complete information is contained in the Company’s 10-Q, which was filed with the SEC today and can be viewed on the Company’s website at http://www.ensigngroup.net.

Quarter Highlights

During the quarter, the Company paid a quarterly cash dividend of $0.0425 per share of Ensign common stock. Ensign has been a dividend-paying company since 2002 and has increased its dividend every year for 14 years.

Also during the quarter and since, the Company announced the following acquisitions:

• On July 1, 2017, The Villas at Sunny Acres, a post-acute care and retirement community with 134 skilled nursing beds, 35 assisted living units and 198 independent living units set on 64 acres in Thornton, Colorado; and Medallion Post Acute Rehabilitation, a 60-bed skilled nursing operation, and Medallion Villas, a 44-unit assisted living and 64-unit independent living operation, both set on a single healthcare campus in Colorado Springs, Colorado;
• On August 1, 2017, Parkside Senior Living, a 20-unit assisted living facility in Neenah, Wisconsin;
• On August 16, 2017, a subsidiary of Cornerstone Healthcare, Inc., the Company's home health and hospice subsidiary, acquired Island Home Health, a home health agency serving Northern Washington;
• On September 1, 2017, Desert Blossom Health and Rehabilitation Center, an 88-bed skilled nursing facility located in Mesa, Arizona; and Pueblo Springs Rehabilitation Center, an 115-bed skilled nursing facility located in Tucson, Arizona; and
• On September 1, 2017, Cornerstone acquired Comfort Hospice Care, a hospice provider serving Las Vegas, Pahrump, and surrounding communities in Southern Nevada;
• On October 19, 2017,  Ensign affiliated operating companies opened Pointe Meadows Health and Rehabilitation, a 99-bed skilled nursing facility located in Lehi, Utah; and
• On November 1, 2017, Cornerstone acquired the assets of Excell Home Care and Hospice and Excell Private Care Services in Oklahoma City, Oklahoma.  

This brings Ensign's growing portfolio to 230 healthcare operations, sixty-three of which are owned, twenty two hospice agencies, twenty home health agencies and four home care businesses across fifteen states.  Mr. Christensen reaffirmed that Ensign continues to actively seek transactions to acquire real estate and to lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses in new and existing markets.

2017 Guidance

Management reaffirmed its 2017 annual revenue guidance of $1.76 billion to $1.80 billion and adjusted its 2017 annual earnings per share guidance to between $1.39 and $1.42 per diluted share.  Management’s guidance is based on diluted weighted average common shares outstanding of 53.0 million and a 35.5% tax rate, both of which reflect the impact of ASU 2016-09.  In addition, the guidance assumes, among other things, normalized health insurance costs, anticipated Medicare and Medicaid reimbursement rate increases net of provider taxes and acquisitions closed to date. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, share-based compensation, costs incurred from closed operations, costs incurred to recognize income tax credits and costs incurred for facilities currently being constructed and other start-up operations.

2018 Guidance

Management also provided guidance for 2018, with annual revenue guidance of $2.0 billion to $2.06 billion and annual earnings per share guidance of $1.58 to $1.66 per diluted share for 2018.  Management’s guidance is based on diluted weighted average common shares outstanding of 54.3 million and a 35.5% tax rate, both of which reflect the impact of ASU 2016-09.  In addition, the guidance assumes, among other things, normalized health insurance costs, anticipated Medicare and Medicaid reimbursement rate increases net of provider taxes and acquisitions closed to date. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, share-based compensation, costs incurred from closed operations, costs incurred to recognize income tax credits, costs incurred for facilities currently being constructed and other start-up operations and excludes the adoption of ASU 606.

Conference Call

A live webcast will be held Thursday, November 9, 2017 at 10:00 a.m. Pacific time (1:00 p.m. Eastern time) to discuss Ensign’s third quarter financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Ensign’s website at http://investor.ensigngroup.net. The webcast will be recorded, and will be available for replay via the website until 5:00 p.m. Pacific Time on Friday, December 1, 2017.

About Ensign™

The Ensign Group, Inc.'s independent operating subsidiaries provide a broad spectrum of skilled nursing and assisted living services, physical, occupational and speech therapies, home health and hospice services and other rehabilitative and healthcare services at 230 healthcare facilities, twenty-two hospice agencies, twenty home health agencies and four home care businesses in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska, Oregon, Wisconsin, Kansas, South Carolina and Oklahoma. Each of these operations is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated “company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “its” and similar terms, are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the operations, the home health, hospice and assisted living businesses, the Service Center or the captive insurance subsidiary are operated by the same entity. More information about Ensign is available at http://www.ensigngroup.net.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management’s current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

These risks and uncertainties relate to the company’s business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company’s periodic filings with the Securities and Exchange Commission, including its Form 10-Q, for a more complete discussion of the risks and other factors that could affect Ensign’s business, prospects and any forward-looking statements. Except as required by the federal securities laws, Ensign does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

Contact Information

Investor/Media Relations, The Ensign Group, Inc., (949) 487-9500, ir@ensigngroup.net.

 

THE ENSIGN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenue	$	471,594			$	428,065			$	1,361,612			$	1,221,816
Expense:
Cost of services		381,544				348,971				1,103,976				985,817
Charge related to class action lawsuit		—				—				11,000				—
(Gain)/losses related to divestitures		—				(2,505	)			2,731				5,430
Rent—cost of services		33,782				33,342				98,267				91,074
General and administrative expense		19,261				17,306				57,784				54,351
Depreciation and amortization		11,448				10,911				32,712				28,981
Total expenses		446,035				408,025				1,306,470				1,165,653
Income from operations		25,559				20,040				55,142				56,163
Other income (expense):
Interest expense		(3,519	)			(2,135	)			(10,017	)			(4,951	)
Interest income		395				236				973				749
Other expense, net		(3,124	)			(1,899	)			(9,044	)			(4,202	)
Income before provision for income taxes		22,435				18,141				46,098				51,961
Provision for income taxes		8,160				6,957				16,487				20,124
Net income		14,275				11,184				29,611				31,837
Less: net income attributable to noncontrolling interests		63				29				342				184
Net income attributable to The Ensign Group, Inc.	$	14,212			$	11,155			$	29,269			$	31,653
Net income per share
Basic:	$	0.28			$	0.22			$	0.58			$	0.63
Diluted:	$	0.27			$	0.21			$	0.56			$	0.61
Weighted average common shares outstanding:
Basic		50,911				50,541				50,795				50,498
Diluted		52,828				52,045				52,674				52,102
Dividends per share	$	0.0425			$	0.0400			$	0.1275			$	0.1200

 

THE ENSIGN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands) (Unaudited)
	September 30, 2017				December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	40,055			$	57,706
Accounts receivable—less allowance for doubtful accounts of $43,328 and $39,791 at September 30, 2017 and December 31, 2016, respectively		255,119				244,433
Investments—current		9,108				11,550
Prepaid income taxes		14,122				302
Prepaid expenses and other current assets		21,441				19,871
Total current assets		339,845				333,862
Property and equipment, net		531,079				484,498
Insurance subsidiary deposits and investments		26,245				23,634
Escrow deposits		849				1,582
Deferred tax asset		22,499				23,073
Restricted and other assets		14,447				12,614
Intangible assets, net		33,568				35,076
Goodwill		77,663				67,100
Other indefinite-lived intangibles		24,653				19,586
Total assets	$	1,070,848			$	1,001,025
Liabilities and equity
Current liabilities:
Accounts payable	$	39,443			$	38,991
Accrued charge related to class action lawsuit		11,000				—
Accrued wages and related liabilities		75,970				84,686
Accrued self-insurance liabilities—current		21,639				21,359
Other accrued liabilities		66,266				58,763
Current maturities of long-term debt		8,170				8,129
Total current liabilities		222,488				211,928
Long-term debt—less current maturities		287,456				275,486
Accrued self-insurance liabilities—less current portion		50,012				43,992
Deferred rent and other long-term liabilities		11,490				9,124
Deferred gain related to sale-leaseback		12,239				—
Total equity		487,163				460,495
Total liabilities and equity	$	1,070,848			$	1,001,025
THE ENSIGN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented:
	Nine Months Ended September 30,
		2017				2016
Net cash provided by operating activities		63,249				71,184
Net cash used in investing activities		(83,066	)			(112,424	)
Net cash provided by financing activities		2,166				40,085
Net decrease in cash and cash equivalents		(17,651	)			(1,155	)
Cash and cash equivalents at beginning of period		57,706				41,569
Cash and cash equivalents at end of period	$	40,055			$	40,414

 

THE ENSIGN GROUP, INC.
REVENUE BY SEGMENT
The following table sets forth our total revenue by segment and as a percentage of total revenue for the periods indicated:
		Three Months Ended September 30,												Nine Months Ended September 30,
			2017						2016						2017						2016
		$			%			$			%			$			%			$			%
		(Dollars in thousands)												(Dollars in thousands)
Transitional and skilled services		$	394,121		83.6	%		$	357,315		83.5	%		$	1,141,677		83.8	%		$	1,012,946		82.9	%
Assisted and independent living services			35,455		7.5	%			31,248		7.3	%			100,810		7.4	%			92,124		7.5	%
Home health and hospice services:
Home health			18,076		3.8	%			15,529		3.6	%			52,997		3.9	%			43,852		3.6	%
Hospice			17,889		3.8	%			13,991		3.3	%			49,722		3.7	%			40,827		3.4	%
Total home health and hospice services			35,965		7.6	%			29,520		6.9	%			102,719		7.6	%			84,679		7.0	%
All other (1)			6,053		1.3	%			9,982		2.3	%			16,406		1.2	%			32,067		2.6	%
Total revenue		$	471,594		100.0	%		$	428,065		100.0	%		$	1,361,612		100.0	%		$	1,221,816		100.0	%
(1) Includes revenue from services generated in our other services segment and ancillary services for both the three and nine months ended September 30, 2017 and 2016 and urgent care centers for three and nine months ended September 30, 2016.

 

THE ENSIGN GROUP, INC.
SELECT PERFORMANCE INDICATORS
(Unaudited)
The following tables summarize our selected performance indicators for our transitional and skilled services segment along with other statistics, for each of the dates or periods indicated:
	Three Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Total Facility Results:
Transitional and skilled revenue	$	394,121			$	357,315			$	36,806			10.3	%
Number of facilities at period end		159				148				11			7.4	%
Number of campuses at period end*		21				21				—			—	%
Actual patient days		1,292,787				1,214,059				78,728			6.5	%
Occupancy percentage — Operational beds		75.7	%			74.8	%						0.9	%
Skilled mix by nursing days		29.4	%			30.0	%						(0.6	)%
Skilled mix by nursing revenue		49.8	%			51.3	%						(1.5	)%
	Three Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Same Facility Results(1):
Transitional and skilled revenue	$	246,265			$	235,346			$	10,919			4.6	%
Number of facilities at period end		93				93				—			—	%
Number of campuses at period end*		11				11				—			—	%
Actual patient days		776,382				774,077				2,305			0.3	%
Occupancy percentage — Operational beds		78.4	%			77.5	%						0.9	%
Skilled mix by nursing days		29.5	%			29.2	%						0.3	%
Skilled mix by nursing revenue		50.0	%			50.1	%						(0.1	)%
	Three Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Transitioning Facility Results(2):
Transitional and skilled revenue	$	76,454			$	72,586			$	3,868			5.3	%
Number of facilities at period end		37				37				—			—	%
Number of campuses at period end*		3				3				—			—	%
Actual patient days		247,738				241,326				6,412			2.7	%
Occupancy percentage — Operational beds		73.8	%			71.2	%						2.6	%
Skilled mix by nursing days		33.8	%			35.4	%						(1.6	)%
Skilled mix by nursing revenue		52.6	%			55.3	%						(2.7	)%
	Three Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Recently Acquired Facility Results(3):
Transitional and skilled revenue	$	71,402			$	48,426			$	22,976			NM
Number of facilities at period end		29				18				11			NM
Number of campuses at period end*		7				6				1			NM
Actual patient days		268,667				194,450				74,217			NM
Occupancy percentage — Operational beds		70.2	%			72.5	%						NM
Skilled mix by nursing days		24.9	%			26.7	%						NM
Skilled mix by nursing revenue		45.9	%			51.1	%						NM
	Three Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Facility Closed Results(4):
Skilled nursing revenue	$	—			$	957			$	(957	)		NM
Actual patient days		—				4,206				(4,206	)		NM
Occupancy percentage — Operational beds		—	%			25.3	%						NM
Skilled mix by nursing days		—	%			19.5	%						NM
Skilled mix by nursing revenue		—	%			43.6	%						NM
*  Campus represents a facility that offers both skilled nursing assisted and/or independently living services. Revenue and expenses related to skilled nursing, assisted and independent living services have been allocated and recorded in the respective reportable segment.
(1) Same Facility results represent all facilities purchased prior to January 1, 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 represent results at closed operations during the third quarter of 2016, which were excluded from Same Facility results and Recently Acquired results for the three months ended September 30, 2016, for comparison purposes.
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Total Facility Results:
Transitional and skilled revenue	$	1,141,677			$	1,012,946			$	128,731			12.7	%
Number of facilities at period end		159				148				11			7.4	%
Number of campuses at period end*		21				21				—			—	%
Actual patient days		3,734,893				3,403,519				331,374			9.7	%
Occupancy percentage — Operational beds		75.1	%			75.7	%						(0.6	)%
Skilled mix by nursing days		30.7	%			31.2	%						(0.5	)%
Skilled mix by nursing revenue		51.7	%			52.8	%						(1.1	)%
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Same Facility Results(1):
Transitional and skilled revenue	$	726,807			$	706,961			$	19,846			2.8	%
Number of facilities at period end		93				93				—			—	%
Number of campuses at period end*		11				11				—			—	%
Actual patient days		2,305,961				2,327,014				(21,053	)		(0.9	)%
Occupancy percentage — Operational beds		78.4	%			78.2	%						0.2	%
Skilled mix by nursing days		30.2	%			30.1	%						0.1	%
Skilled mix by nursing revenue		51.2	%			51.5	%						(0.3	)%
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Transitioning Facility Results(2):
Transitional and skilled revenue	$	232,675			$	217,279			$	15,396			7.1	%
Number of facilities at period end		37				37				—			—	%
Number of campuses at period end*		3				3				—			—	%
Actual patient days		737,432				720,460				16,972			2.4	%
Occupancy percentage — Operational beds		74.1	%			71.3	%						2.8	%
Skilled mix by nursing days		36.0	%			36.6	%						(0.6	)%
Skilled mix by nursing revenue		54.9	%			57.0	%						(2.1	)%
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Recently Acquired Facility Results(3):
Transitional and skilled revenue	$	180,327			$	85,518			$	94,809			NM
Number of facilities at period end		29				18				11			NM
Number of campuses at period end*		7				6				1			NM
Actual patient days		685,925				340,406				345,519			NM
Occupancy percentage — Operational beds		67.3	%			72.1	%						NM
Skilled mix by nursing days		26.2	%			28.2	%						NM
Skilled mix by nursing revenue		49.2	%			53.1	%						NM
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change				% Change
Facility Closed Results(4):
Skilled nursing revenue	$	1,868			$	3,188			$	(1,320	)		NM
Actual patient days		5,575				15,639				(10,064	)		NM
Occupancy percentage — Operational beds		34.3	%			40.6	%						NM
Skilled mix by nursing days		46.7	%			13.1	%						NM
Skilled mix by nursing revenue		71.6	%			29.3	%						NM
*  Campus represents a facility that offers both skilled nursing, assisted and/or independent living services. Revenue and expenses related to skilled nursing, assisted and independent living services have been allocated and recorded in the respective reportable segment.
(1) Same Facility results represent all facilities purchased prior to January 1, 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 represents results at closed operations during the nine months ended September 2017 and 2016, which were excluded from Same Facility results and Recently Acquired results for the nine months ended September 30, 2017 and 2016, for comparison purposes.

 

THE ENSIGN GROUP, INC.
SKILLED NURSING AVERAGE DAILY REVENUE RATES AND
PERCENT OF SKILLED NURSING REVENUE AND DAYS BY PAYOR
The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate:
	Three Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
		2017			2016			2017			2016			2017			2016			2017			2016
Skilled Nursing Average Daily Revenue Rates:
Medicare	$	602.60		$	580.79		$	549.85		$	526.04		$	507.72		$	480.92		$	570.52		$	549.31
Managed care		445.85			428.60			448.23			429.99			407.46			403.37			439.53			425.91
Other skilled		491.43			474.04			375.13			375.85			488.27			—			457.72			449.50
Total skilled revenue		520.01			505.26			469.98			459.77			466.82			455.18			499.62			487.37
Medicaid		220.24			208.82			213.47			204.48			179.53			155.13			210.58			199.35
Private and other payors		195.61			202.60			225.92			194.12			187.29			169.16			197.46			193.87
Total skilled nursing revenue	$	305.13		$	294.58		$	301.08		$	293.83		$	252.24		$	237.61		$	293.38		$	285.00
	Nine Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
		2017			2016			2017			2016			2017			2016			2017			2016
Skilled Nursing Average Daily Revenue Rates:
Medicare	$	598.44		$	578.20		$	545.95		$	524.88		$	503.67		$	482.21		$	567.50		$	554.01
Managed care		444.10			427.16			446.37			435.12			414.85			397.10			440.15			427.06
Other skilled		482.39			469.29			367.76			370.87			490.50			—			450.38			442.83
Total skilled revenue		517.61			503.70			470.54			460.54			468.82			453.81			498.94			488.32
Medicaid		215.35			205.50			215.87			197.89			165.81			154.28			206.43			198.66
Private and other payors		198.84			202.88			226.31			217.22			190.38			166.63			200.55			199.84
Total skilled nursing revenue	$	304.33		$	295.20		$	308.53		$	295.76		$	249.64		$	240.76		$	295.15		$	289.37

 

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the three and nine months ended September 30, 2017 and 2016:
	Three Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
	2017			2016			2017			2016			2017			2016			2017			2016
Percentage of Skilled Nursing Revenue:
Medicare	24.2	%		26.1	%		22.8	%		25.0	%		28.9	%		36.0	%		24.8	%		27.2	%
Managed care	16.8	%		16.0	%		20.7	%		23.5	%		16.2	%		15.1	%		17.5	%		17.4	%
Other skilled	9.0	%		8.0	%		9.1	%		6.8	%		0.8	%		—	%		7.5	%		6.7	%
Skilled mix	50.0	%		50.1	%		52.6	%		55.3	%		45.9	%		51.1	%		49.8	%		51.3	%
Private and other payors	8.1	%		9.0	%		7.1	%		6.0	%		13.4	%		12.7	%		8.8	%		8.9	%
Quality mix	58.1	%		59.1	%		59.7	%		61.3	%		59.3	%		63.8	%		58.6	%		60.2	%
Medicaid	41.9	%		40.9	%		40.3	%		38.7	%		40.7	%		36.2	%		41.4	%		39.8	%
Total skilled nursing	100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
	Three Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
	2017			2016			2017			2016			2017			2016			2017			2016
Percentage of Skilled Nursing Days:
Medicare	12.3	%		13.2	%		12.5	%		14.0	%		14.4	%		17.8	%		12.8	%		14.1	%
Managed care	11.6	%		11.0	%		13.9	%		16.1	%		10.1	%		8.9	%		11.7	%		11.6	%
Other skilled	5.6	%		5.0	%		7.4	%		5.3	%		0.4	%		—	%		4.9	%		4.3	%
Skilled mix	29.5	%		29.2	%		33.8	%		35.4	%		24.9	%		26.7	%		29.4	%		30.0	%
Private and other payors	12.1	%		13.1	%		9.3	%		9.0	%		17.8	%		17.9	%		12.7	%		13.1	%
Quality mix	41.6	%		42.3	%		43.1	%		44.4	%		42.7	%		44.6	%		42.1	%		43.1	%
Medicaid	58.4	%		57.7	%		56.9	%		55.6	%		57.3	%		55.4	%		57.9	%		56.9	%
Total skilled nursing	100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
	Nine Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
	2017			2016			2017			2016			2017			2016			2017			2016
Percentage of Skilled Nursing Revenue:
Medicare	25.6	%		27.4	%		24.7	%		25.6	%		31.8	%		37.6	%		26.4	%		27.8	%
Managed care	17.1	%		16.5	%		22.4	%		24.2	%		17.1	%		15.5	%		18.2	%		18.0	%
Other skilled	8.5	%		7.6	%		7.8	%		7.2	%		0.3	%		—	%		7.1	%		7.0	%
Skilled mix	51.2	%		51.5	%		54.9	%		57.0	%		49.2	%		53.1	%		51.7	%		52.8	%
Private and other payors	8.0	%		8.5	%		6.7	%		6.6	%		13.6	%		12.1	%		8.6	%		8.4	%
Quality mix	59.2	%		60.0	%		61.6	%		63.6	%		62.8	%		65.2	%		60.3	%		61.2	%
Medicaid	40.8	%		40.0	%		38.4	%		36.4	%		37.2	%		34.8	%		39.7	%		38.8	%
Total skilled nursing	100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
	Nine Months Ended September 30,
	Same Facility						Transitioning						Acquisitions						Total
	2017			2016			2017			2016			2017			2016			2017			2016
Percentage of Skilled Nursing Days:
Medicare	13.1	%		13.9	%		14.0	%		14.4	%		15.8	%		18.8	%		13.8	%		14.5	%
Managed care	11.8	%		11.4	%		15.5	%		16.4	%		10.3	%		9.4	%		12.2	%		12.2	%
Other skilled	5.3	%		4.8	%		6.5	%		5.8	%		0.1	%		—	%		4.7	%		4.5	%
Skilled mix	30.2	%		30.1	%		36.0	%		36.6	%		26.2	%		28.2	%		30.7	%		31.2	%
Private and other payors	12.0	%		12.6	%		9.1	%		9.0	%		17.7	%		17.5	%		12.4	%		12.3	%
Quality mix	42.2	%		42.7	%		45.1	%		45.6	%		43.9	%		45.7	%		43.1	%		43.5	%
Medicaid	57.8	%		57.3	%		54.9	%		54.4	%		56.1	%		54.3	%		56.9	%		56.5	%
Total skilled nursing	100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

 

THE ENSIGN GROUP, INC.
SELECT PERFORMANCE INDICATORS
(Unaudited)
The following tables summarize our selected performance indicators for our assisted and independent living segment along with other statistics, for each of the date or periods indicated:
	Three Months Ended September 30,
		2017				2016			Change			% Change
	(Dollars in thousands)
Revenue	$	35,455			$	31,248			$	4,207		13.5	%
Number of facilities at period end		49				40				9		22.5	%
Number of campuses at period end		21				21				—		—	%
Occupancy percentage (units)		75.7	%			75.8	%					(0.1	)%
Average monthly revenue per unit	$	2,774			$	2,733			$	41		1.5	%
	Nine Months Ended September 30,
		2017				2016
	(Dollars in thousands)								Change			% Change
Revenue	$	100,810			$	92,124			$	8,686		9.4	%
Number of facilities at period end		49				40				9		22.5	%
Number of campuses at period end		21				21				—		—	%
Occupancy percentage (units)		76.6	%			75.8	%					0.8	%
Average monthly revenue per unit	$	2,803			$	2,746			$	57		2.1	%

 

THE ENSIGN GROUP, INC.
SELECT PERFORMANCE INDICATORS
(Unaudited)
The following tables summarize our selected performance indicators for our home health and hospice segment along with other statistics, for each of the date or periods indicated:
	Three Months Ended September 30,
		2017			2016		Change			% Change
	(Dollars in thousands)
Home health and hospice revenue:
Home health services	$	18,076		$	15,529		$	2,547		16.4	%
Hospice services		17,889			13,991			3,898		27.9	%
Total home health and hospice revenue	$	35,965		$	29,520		$	6,445		21.8	%
Home health services:
Average Medicare Revenue per Completed Episode	$	3,011		$	2,978		$	33		1.1	%
Hospice services:
Average Daily Census		1,158			907			251		27.7	%
	Nine Months Ended September 30,
		2017			2016		Change			% Change
	(Dollars in thousands)
Home health and hospice revenue
Home health services	$	52,997		$	43,852		$	9,145		20.9	%
Hospice services		49,722			40,827			8,895		21.8	%
Total home health and hospice revenue	$	102,719		$	84,679		$	18,040		21.3	%
Home health services:
Average Medicare Revenue per Completed Episode	$	3,043		$	2,955		$	88		3.0	%
Hospice services:
Average Daily Census		1,060			881			179		20.3	%

 

THE ENSIGN GROUP, INC.
REVENUE BY PAYOR SOURCE
The following table sets forth our total revenue by payor source and as a percentage of total revenue for the periods indicated:
		Three Months Ended September 30,												Nine Months Ended September 30,
			2017						2016						2017						2016
		$			%			$			%			$			%			$			%
		(Dollars in thousands)												(Dollars in thousands)
Revenue:
Medicaid		$	169,100		35.9	%		$	146,964		34.3	%		$	470,008		34.5	%		$	409,832		33.5	%
Medicare			127,348		27.0	%			122,292		28.6	%			385,419		28.3	%			352,013		28.8	%
Medicaid-skilled			27,737		5.9	%			22,172		5.2	%			75,667		5.6	%			64,499		5.3	%
Total			324,185		68.8	%			291,428		68.1	%			931,094		68.4	%			826,344		67.6	%
Managed Care			74,723		15.8	%			67,381		15.7	%			225,210		16.5	%			197,102		16.1	%
Private and Other(1)			72,686		15.4	%			69,256		16.2	%			205,308		15.1	%			198,370		16.3	%
Total revenue		$	471,594		100.0	%		$	428,065		100.0	%		$	1,361,612		100.0	%		$	1,221,816		100.0	%
(1) Private and other payors also includes revenue from all payor generated in other ancillary services for both the three and nine months ended September 30, 2017 and 2016 and urgent care centers for the three and nine months ended September 30, 2016.

 

THE ENSIGN GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands, except per share data)
(Unaudited)
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Net income attributable to The Ensign Group, Inc.	$	14,212			$	11,155			$	29,269			$	31,653
Non-GAAP adjustments
Results at urgent care centers, including noncontrolling interests(a)		—				123				—				(25	)
Costs incurred for facilities currently being constructed and other start-up operations(b)		3,097				4,753				11,004				10,345
Results related to closed operations and operations not at full capacity, including continued obligations and closing expense(c)		468				136				5,598				8,538
Losses related to Hurricane Harvey on impacted operations(d)		558				—				558				—
Share-based compensation expense(e)		2,156				2,242				6,755				6,907
Legal costs and charges related to the settlement of the class action lawsuit(f)		—				—				11,163				—
Cost of services - Insurance reserve in connection with the settlement of a general liability claim(g)		—				3,115				—				4,701
General and administrative - Acquisition related costs(h)		169				45				617				938
Gain on sale of urgent care centers (i)		—				(2,505	)			—				(2,505	)
General and administrative - Costs incurred related to new systems implementation and professional service fees(j)		—				126				—				1,073
Depreciation and amortization - Patient base(k)		402				669				553				1,660
Interest expense - Write off of deferred financing fees(l)		—				124				—				349
Provision for income taxes on Non-GAAP adjustments(m)		(2,236	)			(3,437	)			(12,744	)			(12,195	)
Non-GAAP Net Income	$	18,826			$	16,546			$	52,773			$	51,439
Diluted Earnings Per Share As Reported
Net Income	$	0.27			$	0.21			$	0.56			$	0.61
Average number of shares outstanding		52,828				52,045				52,674				52,102
Adjusted Diluted Earnings Per Share
Net Income		0.36				0.32				1.00				0.99
Average number of shares outstanding		52,828				52,045				52,674				52,102
Footnote:
(a) Represent operating results at urgent care centers, including noncontrolling interest.
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenue	$	—			$	(5,931	)		$	—			$	(20,573	)
Cost of services		—				5,326				—				18,077
Rent		—				499				—				1,615
Depreciation and amortization		—				257				—				860
Non-controlling interest		—				(28	)			—				(4	)
Total Non-GAAP adjustment	$	—			$	123			$	—			$	(25	)
(b) Represent operating results for facilities currently being constructed and other start-up operations.
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenue	$	(16,327	)		$	(10,908	)		$	(45,206	)		$	(21,561	)
Cost of services		15,045				12,247				43,698				24,711
Rent		4,098				3,185				11,694				6,673
Depreciation and amortization		281				229				818				522
Total Non-GAAP adjustment	$	3,097			$	4,753			$	11,004			$	10,345
(c) Represent results at closed operations and operations not at full capacity during the three and nine months ended September 30, 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 during the nine months ended September 30, 2017 and 2016, respectively. Included in the nine months ended September 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in prior year.
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenue	$	(261	)		$	—			$	(2,805	)		$	(105	)
Losses related to operational closures		—				—				2,731				7,243
Cost of services		617				131				4,794				1,324
Rent		96				5				792				62
Depreciation and amortization		16				—				86				14
Total Non-GAAP adjustment	$	468			$	136			$	5,598			$	8,538
(d) Losses related to Hurricane Harvey on impacted operations
	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue	$	(232	)		$	—			$	(232	)		$	—
Cost of services		733				—				733
Rent		50				—				50
Depreciation and amortization		7				—				7
Total Non-GAAP adjustment	$	558			$	—			$	558			$	—
(e)  Represent share-based compensation expense incurred.
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Cost of services	$	1,197			$	1,216			$	3,769			$	3,745
General and administrative		959				1,026				2,986				3,162
Total Non-GAAP adjustment	$	2,156			$	2,242			$	6,755			$	6,907
(f) Legal costs and charges incurred in connection with the settlement of the class action lawsuit.
(g) Included in cost of services are insurance reserves in connection with the settlement of a general liability claim.
(h) Included in general and administrative expense are costs incurred to acquire an operation which are not capitalizable.
(i) Included in (gain)/loss related to divestitures is gain on sale of urgent care centers.
(j) Included in general and administrative expense are costs incurred related to new systems implementation and income tax credits which contributed to a decrease in effective tax rate.
(k) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and assisted living facilities.
(l) Included in interest expense are write-offs of deferred financing fees associated with the amendment of credit facility for the three and nine months ended September 30, 2016.
(m) Represents an adjustment to provision for income tax to our historical year to date effective tax rate of 35.5%, resulting from adoption of ASU 2016-09, for the three and nine months ended September 30, 2017 and 38.5% for the three and nine months ended September 30, 2016.

 

THE ENSIGN GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands)
(Unaudited)
The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:
	Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Consolidated Statements of Income Data:
Net income	$	14,275			$	11,184			$	29,611			$	31,837
Less: net income attributable to noncontrolling interests		63				29				342				184
Interest expense, net		3,124				1,899				9,044				4,202
Provision for income taxes		8,160				6,957				16,487				20,124
Depreciation and amortization		11,448				10,911				32,712				28,981
EBITDA	$	36,944			$	30,922			$	87,512			$	84,960
Adjustments to EBITDA:
Gain on sale of urgent care centers(a)		—				(2,505	)			—				(2,505	)
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(b)		356				131				4,720				8,462
Results related to facilities currently being constructed and other start-up operations(c)		(1,282	)			1,338				(1,508	)			3,150
Losses related to Hurricane Harvey on impacted operations (d)		501				—				501				—
Urgent care center earnings(e)		—				(634	)			—				(2,501	)
Legal costs and charges related to the settlement of the class action lawsuit(f)		—				—				11,163				—
Share-based compensation expense(g)		2,156				2,242				6,755				6,907
Insurance reserve in connection with the settlement of claims(h)		—				3,115				—				4,701
Acquisition related costs(i)		169				45				617				938
Costs incurred related to new systems implementation and professional service fee(j)		—				126				—				1,073
Rent related to items(b),(c),(d) and (e) above		4,244				3,689				12,536				8,350
Adjusted EBITDA	$	43,088			$	38,469			$	122,296			$	113,535
Rent—cost of services		33,782				33,342				98,267				91,074
Less: rent related to items(b),(c),(d) and (e) above		(4,244	)			(3,689	)			(12,536	)			(8,350	)
Adjusted EBITDAR	$	72,626			$	68,122			$	208,027			$	196,259
(a)  Gain on the sale of urgent care centers.
(b)  Represent results at closed operations and operations not at full capacity during the three and nine months ended September 30, 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 nine months ended September 30, 2017 and 2016, respectively. Included in the nine months ended September 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in prior year.
(c)  Represents results related to facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest expense.
(d)  Losses related to Hurricane Harvey on impacted operations.
(e)  Operating results at urgent care centers for the three and nine months ended September 30, 2016. This amount excludes rent, depreciation, interest expense and the net loss attributable to the variable interest entity associated with our urgent care business.
(f)  Legal costs and charges incurred in connection with the settlement of the class action lawsuit.
(g)  Share-based compensation expense incurred.
(h)  Insurance reserves in connection with the settlement of a general liability claim.
(i)  Costs incurred to acquire operations which are not capitalizable.
(j)  Costs incurred related to new systems implementation and income tax credits which contributed to a decrease in effective tax rate.

 

THE ENSIGN GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands)
(Unaudited)
The table below reconciles net income from operations to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for each reportable segment for the periods presented:
		Three Months Ended September 30,																								Nine Months Ended September 30,
		Transitional and Skilled Services								Assisted and Independent Services								Home Health and Hospice								Transitional and Skilled Services								Assisted and Independent Services								Home Health and Hospice
			2017				2016				2017				2016				2017				2016				2017				2016				2017				2016				2017				2016
Statements of Income Data:
Income from operations, excluding general and administrative expense(a)		$	36,868			$	29,214			$	4,342			$	2,593			$	4,695			$	4,499			$	100,362			$	89,645			$	12,438			$	9,116			$	13,912			$	12,024
Less: net income attributable to noncontrolling interests			—				—				—				—				39				—				—				—				—				—				133				—
Depreciation and amortization			7,881				7,606				1,572				1,074				235				215				22,038				19,637				4,687				3,120				700				711
EBITDA		$	44,749			$	36,820			$	5,914			$	3,667			$	4,891			$	4,714			$	122,400			$	109,282			$	17,125			$	12,236			$	14,479			$	12,735
Adjustments to EBITDA:
Costs at facilities currently being constructed and other start-up operations(b)			(1,320	)			979				(42	)			320				80				39				(2,385	)			2,280				576				792				303				78
Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c)			141				131				—				—				215				—				3,888				8,462				2				—				728				—
Impact of Hurricane Harvey to operations (d)			501				—				—				—				—				—				501				—				—				—				—				—
Share-based compensation expense(e)			941				1,037				146				86				87				66				2,961				3,182				468				278				258				204
Insurance reserve in connection with the settlement of claims(f)			—				3,115				—				—				—								—				4,701				—				—				—				—
Less: rent related to item(b),(c) and (d) above			2,787				2,120				1,445				1,055				12				9				9,687				4,586				2,668				2,114				181				27
Adjusted EBITDA		$	47,799			$	44,202			$	7,463			$	5,128			$	5,285			$	4,828			$	137,052			$	132,493			$	20,839			$	15,420			$	15,949			$	13,044
Rent—cost of services			26,217				24,900				6,964				7,438				472				404				78,896				66,447				17,596				21,624				1,449				1,151
Less: rent related to items(b),(c) and(d) above			(2,787	)			(2,120	)			(1,445	)			(1,055	)			(12	)			(9	)			(9,687	)			(4,586	)			(2,668	)			(2,114	)			(181	)			(27	)
Adjusted EBITDAR		$	71,229			$	66,982			$	12,982			$	11,511			$	5,745			$	5,223			$	206,261			$	194,354			$	35,767			$	34,930			$	17,217			$	14,168
(a)  General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.
(b)  Costs incurred for facilities currently being constructed and other start-up operations.
(c)  Represent results at closed operations and operations not at full capacity during the three and nine months ended September 30, 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, respectively. Included in the nine months ended September 30, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in prior year.
(d)  Losses related to Hurricane Harvey on impacted operations.
(e)  Share-based compensation expense incurred.
(f)  Insurance reserve in connection with the settlement of claims.

Discussion of Non-GAAP Financial Measures

EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes and (c) depreciation and amortization. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) costs incurred for operations currently being constructed and other start-up operations, excluding depreciation, interest and income taxes, (e) results of closed operations and operations not at full capacity, excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) costs incurred related to new systems implementation, (h) legal costs and charges related to the settlement of the class action lawsuit, (i) professional service fees include costs incurred to recognize income tax credits which contributed to a decrease in effective tax rate, (j) costs incurred to acquire operations which are not capitalized, (k) operating results at urgent care centers,  excluding depreciation, interest and income taxes, (l) the impact of Hurricane Harvey on our Texas operations, (m) gain on sale of urgent care centers and (n) insurance reserves in connection with the settlement of claims.  Adjusted EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) costs incurred for facilities currently being constructed and other start-up operations, excluding rent, depreciation, interest and income taxes, (f) results of closed operations and operations not at full capacity, excluding depreciation, interest and income taxes, (g) share-based compensation expense, (h) costs incurred related to new systems implementation, (i) professional service fees include costs incurred to recognize income tax credits which contributed to a decrease in effective tax rate, (j) costs incurred to acquire operations which are not capitalized, (k) legal costs and charges related to the settlement of the class action lawsuit,  (l) operating results at urgent care centers,  excluding rent, depreciation, interest and income taxes, (m) the impact of Hurricane Harvey on our Texas operations, (n) gain on sale of urgent care centers and (o) insurance reserves in connection with the settlement of claims.

Adjusted EBITDA, adjusted net income and adjusted earnings per share are financial performance measures that are not calculated in accordance with U.S. generally accepted accounting principles. Adjusted EBITDAR is a financial valuation measure commonly used by our management, investors and research analysts to value companies.   The company believes that the presentation of EBITDA, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company's periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Ensign's website at http://www.ensigngroup.net.