November 2018 Investor Presentation
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Statements in this presentation concerning The Ensign Group s ( Ensign or the Company ) future prospects are forward-looking statements based on management s current expectations, assumptions and beliefs about our business, financial performance, operating results, the industry in which we operate and possible future events. These statements include, but are not limited to, statements regarding our growth prospects and future operating and financial performance. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to materially and adversely differ from those expressed in any forward-looking statement. Readers should not place undue reliance on any forward-looking statements and are encouraged to review our periodic filings with the Securities and Exchange Commission, including our recently filed Forms 10-K and 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. These documents are available on our website at www.. This information is provided as of today s date only, and except as required by federal securities law, Ensign does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or for any other reason after the date of this presentation. We supplement our GAAP reporting with EBITDA, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted EPS metrics, which are supplemental non-gaap financial measures. They reflect an additional way of looking at aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. They should not be relied upon to the exclusion of GAAP financial measures. A more ample discussion of these GAAP financial measures is available on the Investor Relations tab of our website and a reconciliation to GAAP is included as an appendix to this presentation. During this presentation we may reference operations in any or all of the 244 transitional, skilled and assisted living operations and other businesses operated by our subsidiaries. Each such business is operated as a separate, wholly-owned independent operating subsidiary that has its own management, employees and assets. References in the presentation to the consolidated Company and its assets and activities, as well as the use of the terms we, us, our, and similar verbiage are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the Operations, the Service Center or the captive insurance subsidiary are operated by the same entity. 3
TABLE OF CONTENTS Ensign Overview Organic Growth New Ventures Strategic Growth Financial Update Industry Overview Appendix 4
Ensign Overview Our mission is to become the standard of healthcare by transforming and dignifying post-acute care; for our patients, employees and communities.
Places We Serve 164 Skilled Nursing Facilities 56 Assisted Living Facilities 24 Campus Facilities 49 Home Health, Hospice & Home Care Operations 5 Mobile Diagnostic Operations 5 Medical Transport Companies 6
Ensign Overview Healthcare Market Map Denotes Ensign Business Acute Care Segment Revenue Q3 2018(1)(2) Patient Service Intensity Outpatient Rehab Inpatient Rehab Assisted Living LTAC Skilled Nursing Hospice Transitional & Skilled Services 82.2% 7.3% 8.5% Assisted Living Home Health & Hospice Home Health Other 2.0% Home Care HOME Patient Illness Intensity Source: Company filings, management. Other: Mobile Diagnostics and Medical Transport not shown. (1) Includes revenue from all private payors and revenue generated in our other ancillary operations (2) The results demonstrates the impact of adopting ASC 606 for Q3 2018 by presenting the percentages as of the previous accounting guidance was still in effect.. 7
Ensign Overview Revenue Payor Mix Q3 2018 Consolidated(1)(2) Skilled Nursing(2) 16.0% 9.2% 15.6% 42.6% 17.6% 48.8% 25.8% 24.3% Home Health & Hospice(2) Assisted Living 14.5% 9.7% 7.4% 24.4% 68.4% 75.6% Medicare Medicaid Mgd. Care Pvt. / Other(3) Source: Company filings, management. (1) Represents all business lines. (2) Includes revenue from all private payors and revenue generated in our other ancillary operations (3) The results demonstrates the impact of adopting ASC 606 for Q3 2018 by presenting the percentages as of the previous accounting guidance was still in effect.. 8
The Ensign Formula: Empower Local Leadership Local Leadership Superior Clinical Outcomes Local Market Operation of Choice 9
Ensign Investment Thesis: Superior Results Clinical Excellence Organic Growth Opportunities Strategic Growth Opportunities In-House Therapy Local Leadership & Accountability Unique Company Culture Ensign is Positioned to Deliver Superior Clinical Excellence that Will Generate Exceptional Financial and Operating Results 10
Organic Growth
Clinical Success = Financial Success Ensign CMS Star Rating Trend 200 Facility count by Star Rating 1-Star 2-Star 3-Star 4-Star 5-Star 150 100 50 0 14 21 38 45 60 77 72 86 100 93 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sep 18 Ensign 1-Star Facility % Trend Ensign Adjusted EBITDAR Trend $ in millions 41% 33% $221 $262 $285 $310 20% 14% 7% 3% 6% 10% 7% 8% $87 $107 $130 $144 $149 $159 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sep 18 2009 2010 2011 2012 2013 2014 2015 2016 2017 TTM Source: Company filings, management. 12
Established Track Record of Skilled Organic Top and Bottom-line growth Average Operational Improvement from 1 st quarter to 5 th quarter (1) Occupancy Skilled Mix Revenue Quality Mix Revenue EBITDAR Margin 352 bps 388 bps 261 bps 169 bps 13.9% 35.7% of Ensign s skilled nursing operations have been operated less than three full years 64.3% Same Facility Recently Acquired 26.5% 9.2% Transitioning Recently acquired skilled nursing operations are primed for organic growth 12.2% 170 bps Ensign s Untapped Organic Growth is the Largest in History Source: Management. (1) Acquisition track record based on an average for all SNF acquisitions from 2001 to July 1, 2017 measuring 5 quarters of operating performance. (2) Recently acquired skilled nursing Operations were acquired on or after January 1, 2017. (3) Average 1st Q EBITDAR Margin % for Recently Acquired Skilled Nursing Operations 13
Q3 2018 Summary Metrics Skilled Mix Revenue Consolidated 47.9% Medicare Rates Consolidated $577 49.8% 46.7% $ 610 $ 517 $ 528 Medicaid $220 36.7% Same Store Transitioning Recently Acquired Occupancy Same Store Transitioning Recently Acquired Skilled Mix Days Consolidated 77.3% Consolidated 28.3% 78.6% 29.7% 75.0% 75.6% 27.4% 21.1% Same Store Transitioning Recently Acquired Same Store Transitioning Recently Acquired Source: Company filings, management. At the end of Q3, there were 185 skilled nursing facilities in operation. Same Store represents all skilling nursing operations purchased prior to January 1, 2015 totaling 119 facilities. Transitioning represents all skilled nursing operations purchased from January 1, 2015 to December 31, 2016 totaling 49 facilities. Recently Acquired represents all skilled nursing operations purchased on or subsequent to January 1, 2017 totaling 17 facilities. 14
New Ventures
Home Health and Hospice Segment Revenue and Income Growth (2) $54,516 $9,701 $142,403 $115,813 $90,356 $13,584 $16,571 $19,717 $165,493 $25,428 2014 2015 2016 2017 TTM Avg Medicare Rev / Episode Revenue Segment Income Avg Daily Census $3,011 $3,001 1,158 1,379 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Source: Company filings (1) The results exclude the impact of adopting ASC 606 for Q3 2018 by presenting revenue as if the previous accounting guidance was in effect. (2) Segment income does not include G&A, interest, or income taxes 16
Assisted Living Segment Revenue and Income Growth (1) $88,129 $123,636 $136,646 $147,171 $48,848 $8,195 $11,463 $11,701 $16,736 $18,659 2014 2015 2016 2017 TTM Revenue Segment Income Occupancy Avg. Monthly Rev / Unit 75.7% 76.0% $2,774 $2,855 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Source: Company filings (1) Segment income does not include G&A, interest, or income taxes 17
Strategic Growth
Multifaceted Growth Opportunity Skilled Mix Occupancy Organic CREATING VALUE Disciplined Acquisitions Fundamentals Strategic Distressed Assets New Ventures 19
Entrepreneurial Growth New Geographic Markets New Ventures New Synergistic Enterprise 20
Proven Track Record of Successful Acquisitions Historical Unit Growth 222 258 288 296 61 63 78 84 108 119 138 165 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Skilled Nursing Assisted Living Campus New Business Ventures New Business Ventures Include: 28 Home Health / Home Care 21 Hospice Agencies 5 Mobile Diagnostic Operations 5 Medical Transport Companies Source: Company filings, management 21
Proven Track Record of Successful Acquisitions $ in millions Adjusted EBITDAR Growth Outpaces Revenue Growth $221 $285 $310 $60 $87 $411 $542 $130 $758 $149 $905 $1,342 $1,849 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 TTM Revenue EBITDAR 15.5% Revenue CAGR 16.1% EBITDAR CAGR $2,016 Source: Company filings (1) The results exclude the impact of adopting ASC 606 for Q3 2018 by presenting revenue as if the previous accounting guidance was in effect. 22
Well-Capitalized for Growth Capital Structure Sep. 30, 2018 Cash & Cash Equivalents $ 45.7 Conservative Leverage Profile Credit Facility 135.0 HUD and Other Debt 123.6 Total Debt $ 258.6 Ability to Add Incremental Debt Net Debt $ 212.9 Net Debt to Adjusted 3.8x EBITDAR (1) Active Acquisition Pipeline Closed $112M HUD Mortgage Loans in December 2017 Source: Company filings, management. (1) Includes all interest bearing debt, plus capitalized lease obligations at 8x minus cash and cash equivalents. 23
Ownership Status as of Nov. 2018 % of Total Facilites 244 Facilites Total Operational Skilled Nursing Beds: 19,566 20.4% 29.5% 73.4% 6.2% 65.6% 4.9% Total Assisted and Independent Units: 6,141 44.5% Leased (without a Purchase Option) Owned Leased (with a Purchase Option) 52.5% 3.0% 24
Financial Update
Q3 Quarter-Over-Quarter Highlights Q3 2018 Q3 2017 $ in millions Revenue (1) 10.7% $522.2 $471.6 Same Facility Revenue (1) 4.1% $290.6 $279.2 Consolidated Adjusted Net Income 46.8% $20.9 $14.2 Source: Company filings, management 1) The results exclude the impact of adopting ASC 606 for Q3 2018 by presenting the amounts as if the previous accounting guidance was still in effect. The GAAP revenue for Q3 2018 is $514.4M and SS facility revenue was $285.6M 26
EPS Guidance (1) 2018 Diluted Adjusted EPS $1.83 to $1.88 (1) See detailed statement on guidance in earnings release. 27
Industry Overview
Largest Beneficiary of Medicare Post-Acute Dollars with Lowest Cost Relative Costs of Treatment Across Post-Acute Destinations $115 Skilled Nursing IRF LTAC $67 $75 $45 $26 $31 $34 $18 $17 $26 $10 $9 $11 $6 $8 Tracheotomy with Vent Hip Fracture Joint Replacement Respiratory with Vent Stroke 44% Post-Acute Destinations - % of Medicare Dollars 30% 13% 9% 5% Skilled Nursing Home Health IRF LTAC Other Skilled Nursing is the Most Utilized and Lowest Cost Setting for Post-Acute Care Sources: Medpac and US HHS Department. 29
Growth in 65+ Population to Outpace Skilled Nursing Supply 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 SNF Covered Days based upon Medicare Enrollees (2016 Actual then Projected) '16 '17 '18 '19 '20 '21 '22 Discharges from Hospitals to SNFs Medicare enrollees expected to increase at a rate similar to the growth of the core SNF age group. 22% 20% 18% 16% 14% 12% 10% '9 '10 '11 '12 '13 '14 '15 '16 Referrals from hospitals to skilled nursing facilities have increased marginally since 2009. (1) US Bureau of Census (March 2018). (2) AHCA/NCAL data (March 2015). (3) CDC.Gov 30
Moving from baby bust to baby boom U.S. Birthrates, 1909 to 1980 4,500 4,000 3,500 3,000 2,500 Birth Rate 1928 to 1940 Avg. 2,476 1941 to 1964 Avg. 3,767 During the baby bust of 1928 to 1940 the U.S. averaged 1M births per year lower than during the baby boom. Someone born during this time period would be would be between the ages of 78 to 90 today. 2,000 1,500 '09 '15 '21 '27 '33 '39 '45 '51 '57 '63 '69 '75 Number of Individuals 65+ Will Grow 5x Faster Than Total Population (1) 100 75 50 25 0 Population over 65 years old People over 65 years old as a % of Total Population '10 '15 '20 '25 '30 '35 '40 '45 '50 '55 '60 25% 20% 15% 10% 5% Between 2010 and 2030, the number of individuals aged 65+ is projected to nearly double from 39M to 73M, a growth rate nearly 5x faster than the 17% increase expected for the total population. As a result, the percentage of Americans 65+ is estimated to grow from 13% to 21% of the population by 2030. (1) US Bureau of Census (March 2018). (2) AHCA/NCAL data (March 2015). (3) CDC.Gov 31
Growth Through Industry Headwinds $ in millions $2,000 2011 to 2014 Medicare 2% sequestration. Ensign embraces new payment and delivery models 400 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 5 1999 to 2002 Reimbursement transitions to Prospective Payment System ( PPS ) leading several larger operators to file for bankruptcy Ensign is Born in 1999 2003 to 2006 Large operators spin off less desirable assets Ensign grows 70% 46 63 2007 to 2010 Changes in RUG Classification Categories. Average price per bed hits new high. Ensign focuses on organic growth. Revenues grow 81% during this period 102 136 210 230 237 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Skilled Nursing and Assisted Living Revenue Ensign acquires 54 Operations and expands home health 350 300 250 200 150 100 50 0 32
Skilled Nursing Reimbursement Stable and Increasing Over Time Avg. SNF Medicaid Rate Per Day Avg. SNF Medicare Rate Per Day ENSG Same Facility Rate Per Day $451 $385 $287 $312 $325 $336 $349 $363 $301 $508 $408 $543 $574 $432 $454 $620 $505 $566 $579 $580 $565 $587 $604 $610 $469 $478 $484 $492 $519 $523 $521 $109 $118 $124 $129 $142 $145 $150 $156 $164 $172 $174 $177 $179 $183 $186 $196 $198 $201 $208 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 October 1, 2018: 2.4% net market basket increase for 2019 SNF payments Sources: Eljay LLC, Hansen, Hunter and Company for AHCA and composite of CMS, AHCA, AQNHC, OSCAR, Eljay LLC and Avalere Group Data; NIC Nuring Data, ENSG company filings. (1) Amounts represent the Medicare rates for all Operations acquired on or before 2014 in each year. 33
Appendix
Reconciliation of GAAP to Non-GAAP Financial Measures $ in thousands Three Months Ended Sep. 30 Nine Months Ended Sep. 30 2018 2017 2018 2017 Net Income $ 20,350 $ 14,275 $ 65,969 $ 29,611 Less: net (loss)/income attributable to noncontrolling interests (511) 63 (35) 342 Interest expense, net 3,522 3,124 9,994 9,044 Provision for income taxes 5,415 8,160 18,078 16,487 Depreciation and amortization 11,902 11,448 35,145 32,712 EBITDA $ 41,700 $ 36,944 $ 129,221 $ 87,512 Adjustments to EBITDA: Earnings related to facilities currently being constructed and other start-up operations(a) (3,339) (1,282) (8,133) (1,508) (Return of unclaimed class action settlement)/charges related to the settlement of the class action lawsuit (1,664) 11,163 Share-based compensation expense 2,811 2,156 7,639 6,755 Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(b) 139 356 464 4,720 Losses related to Hurricane Harvey on impacted operations (c) 501 501 Transaction-related costs(d) 228 169 338 617 Impairment of goodwill and intangibles assets(e) 3,177 3,177 Business interruption recoveries(f) (675) Rent related to items(a), (b) and (c) above 3,672 4,244 10,975 12,536 Adjusted EBITDA $ 48,388 $ 43,088 $ 141,342 $ 122,296 Rent cost of services 34,851 33,782 103,173 98,267 Less: rent related to items(a), (b) and (c) above (3,672) (4,244) (10,975) (12,536) Adjusted EBITDAR $ 79,567 $ 72,626 $ 233,540 $ 208,027 35
Reconciliation of GAAP to Non-GAAP Financial Measures Footnotes to Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR (a) Represents results related to facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest expense. (b) Represents results at closed operations and operations not at full capacity during the three and nine months ended September 30, 2018 and 2017, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the nine months ended September 30, 2017. 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 2016. (c) Losses related to Hurricane Harvey on impacted operations. (d) Costs incurred to acquire operations which are not capitalizable. (e) Impairment charges to goodwill and intangible assets for our other ancillary operations during the three and nine months ended September 30, 2018, excluding the impact of non-controlling interest. (f) Business interruption gains related to insurance claims of the California fires that occurred in the fourth quarter of 2017. 36
Reconciliation by Segment $ in thousands Three Months Ended September 30, Transitional and Skilled Services Assisted and Independent Services Home Health & Hospice 2018 2017 2018 2017 2018 2017 Income from operations, excluding general and administrative expense(a) $ 46,350 $ 36,868 $ 4,733 $ 4,342 $ 7,297 $ 4,695 Less: net income attributable to noncontrolling interests 42 39 Depreciation and amortization 8,061 7,881 1,902 1,572 263 235 EBITDA $ 54,411 $ 44,749 $ 6,635 $ 5,914 $ 7,518 $ 4,891 Adjustments to EBITDA: Results related to facilities currently being constructed and other start-up operations(b) (3,461) (1,320) 64 (42) 58 80 Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c) 139 141 215 Impact of Hurricane Harvey to operations (d) 501 Share-based compensation expense 1,197 941 182 146 124 87 Rent related to item(b),(c) and (d) above 2,777 2,787 886 1,445 9 12 Adjusted EBITDA $ 55,063 $ 47,799 $ 7,767 $ 7,463 $ 7,709 $ 5,285 Rent cost of services 28,088 26,217 6,015 6,964 583 472 Less: rent related to items(b), (c) and (d) above (2,777) (2,787) (886) (1,445) (9) (12) Adjusted EBITDAR $ 80,374 $ 71,229 $ 12,896 $ 12,982 $ 8,283 $ 5,745 37
Reconciliation by Segment $ in thousands Nine Months Ended September 30, Transitional and Skilled Services Assisted and Independent Services Home Health & Hospice 2018 2017 2018 2017 2018 2017 Income from operations, excluding general and administrative expense(a) $ 135,755 $ 100,362 $ 14,361 $ 12,438 $ 19,623 $ 13,912 Less: net income attributable to noncontrolling interests 413 133 Depreciation and amortization 23,571 22,038 5,362 4,687 789 700 EBITDA $ 159,326 $ 122,400 $ 19,723 $ 17,125 $ 19,999 $ 14,479 Adjustments to EBITDA: Results related to facilities currently being constructed and other start-up operations(b) (8,469) (2,385) 243 576 93 303 Results related to closed operations and operations not at full capacity, including continued obligations and closing expenses(c) 464 3,888 2 728 Impact of Hurricane Harvey to operations (d) 501 Share-based compensation expense 3,259 2,961 521 468 314 258 Business interruption recoveries(e) (675) Rent related to item(b),(c) and (d) above 8,303 9,687 2,649 2,668 23 181 Adjusted EBITDA $ 162,208 $ 137,052 $ 23,136 $ 20,839 $ 20,429 $ 15,949 Rent cost of services 82,698 78,896 18,324 17,596 1,671 1,449 Less: rent related to items(b), (c) and (d) above (8,303) (9,687) (2,649) (2,668) (23) (181) Adjusted EBITDAR $ 236,603 $ 206,261 $ 38,811 $ 35,767 $ 22,077 $ 17,217 38
Reconciliation by Segment Footnotes to Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR (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. This amount excludes rent, depreciation and interest expense. (c) Represent results at closed operations and operations not at full capacity during the three and nine months ended September 30, 2018 and 2017, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the nine months ended September 30, 2017. 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 2016. (d) Losses related to Hurricane Harvey on impacted operations. (a) Business interruption gains related to insurance claims of the California fires that occurred in the fourth quarter of 2017. 39