Ensign (ENSG) Q2 2025 Earnings Call Transcript

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Date

• Friday, July 25, 2025, at 5 p.m. ET

Call participants

• Chief Executive Officer — Barry Port
• Executive Vice President and Secretary — Chad Keetch
• Chief Financial Officer — Suzanne Snapper
• Chief Operating Officer — Spencer Burton

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Takeaways

• GAAP diluted earnings per share— $1.44 GAAP diluted earnings per share for Q2 2025.
• Adjusted diluted earnings per share— Adjusted diluted earnings per share was $1.59 for Q2 2025.
• Consolidated GAAP and adjusted revenue— Both GAAP and adjusted revenue were $1.2 billion for Q2 2025.
• GAAP net income— GAAP net income was $84.4 million for Q2 2025, up 18.9%.
• Adjusted net income— Adjusted net income was $93.3 million for Q2 2025.
• Cash and cash equivalents— Cash and cash equivalents totaled $364 million as of June 30, 2025.
• Cash flow from operations— Cash flow from operations was $228 million as of June 30, 2025.
• Strategic capital deployment— Over $210 million invested in the first half of 2025 for growth initiatives.
• Lease-adjusted net debt to EBITDA ratio— Lease-adjusted net debt to EBITDA ratio was 1.97 times, post-investment, as of Q2 2025.
• Liquidity position— $593 million of unused revolving credit as of June 30, 2025, providing over $1 billion in investment capacity with cash on hand.
• Increased 2025 earnings guidance— Range raised to $6.34-$6.46 per diluted share (adjusted, fiscal 2025 guidance) and a 34% increase over 2023 (based on the midpoint of annual 2025 earnings guidance).
• Increased 2025 revenue guidance— Range raised to $4.99 billion-$5.02 billion for annual 2025 revenue guidance, up from the prior guidance of $4.89 billion-$4.94 billion.
• Operational expansion— Eight new operations and three real estate assets were added during and since Q2 2025.
• Acquisition pipeline— 52 operations acquired since the start of 2024, with ongoing acquisition activity expected to continue at a similar pace.
• Occupancy and skilled mix trends— Higher than anticipated results due to organic growth, without reliance on agency or overtime labor for cost control.
• Performance of major portfolio acquisitions— In the 17-facility California portfolio, as of the time of the Q2 2025 earnings call, 12 operations hold four or five-star CMS ratings, occupancy exceeds 92% for the portfolio transitioned in 2023, skilled mix days reached 47% as of Q2 2025, and all properties contribute positively to EBIT.
• Standard Bear Health Care REIT holdings— Owns 140 assets; 106 leased to Ensign operators and 35 to third parties, with $31.5 million in rental revenue ($26.8 million from affiliates) for Q2 2025 and $18.4 million in FFO.
• Standard Bear EBITDAR to rent coverage ratio— 2.5 times.
• Dividend record— Paid a quarterly cash dividend of 6.25 cents per share for Q2 2025 and has increased the annual dividend for 22 consecutive years.
• Stock repurchase program— Remains in place.
• Transitioned operations example: Sedona Trace Health and Wellness— EBIT increased by 130% over the prior year quarter, overall occupancy up 6.8% over Q2 2024, with registry labor fully eliminated.
• Transitioned operations example: Valley of the Moon Post Acute— Achieved a census consistently above 95%, zero nursing registry usage, and a CMS five-star quality rating post-affiliation.
• California workforce and quality incentive program funding— Revenue recognition for this program is expected through 2026 based on current state guidance.

Summary

The Ensign Group(ENSG 1.74%) increased both earnings per share (EPS) and revenue guidance for 2025, citing stronger than expected organic growth, disciplined acquisition integration, and improved labor efficiency. Eight new operations and three real estate assets were added during the quarter and since, supported by a flexible balance sheet with over $1 billion in available liquidity. Newly acquired portfolios, such as the 17-facility California group transitioned in 2023, benefited from support in training, compliance, and integration with Ensign systems and culture, validating management’s decentralized cluster approach. Management is maintaining strict pricing discipline on new deals and expects the positive acquisition pace to continue. Standard Bear Health Care REIT expanded to 140 assets, with greater unaffiliated tenant diversification and stable rent coverage metrics. Dividend growth continued for the 22nd consecutive year, underscoring ongoing capital return priorities.

• CEO Barry Port said, “We are raising our annual 2025 earnings guidance to between $6.34 and $6.46 per diluted share, up from the previously raised guidance of $6.22 to $6.38 per diluted share.”
• Chad Keetch stated that Ensign’s acquisition pipeline “spans across many states and markets, leaving us with significant bandwidth to grow in almost all of our markets.”
• Suzanne Snapper reported the lease-adjusted net debt to EBITDA ratio as lease-adjusted net debt to EBITDA ratio of 1.97 times as of June 30, 2025, highlighting post-investment balance sheet strength.
• Portfolio management includes routing certain properties to third-party operators, aiming for “healthy coverages,” with a target of “one five or close to it” for rent coverage on third-party leases.
• The company’s upward earnings forecast includes acquisitions that have closed or are expected to close during 2025, as well as management’s expectations for reimbursement rates, and factors in ongoing operational initiatives to sustain cost controls.

Industry glossary

• Skilled mix: The proportion of facility patient days composed of higher-acuity, higher-reimbursement payers, such as Medicare, as opposed to lower-reimbursement custodial care.
• CMS star rating: A publicly reported Centers for Medicare & Medicaid Services measure (1-5 stars) of nursing facility quality, with higher ratings denoting superior performance.
• EBITDAR: Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent; assesses operational profitability before facility rent expense.
• Fund from operations (FFO): A REIT-specific performance measure representing net income plus depreciation and amortization, excluding gains on sales of properties.
• Managed care organization (MCO): An insurance provider offering plans and coordinated health services, often involved in value-based reimbursement contracts with care facilities.

Full Conference Call Transcript

Chad Keetch: Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the Investors Relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5 PM Pacific on Friday, August 29, 2025. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, July 25, 2025, and these statements have not been or will be updated subsequent to today’s call. Also, any forward-looking statements made today are based on management’s current expectations, assumptions, and beliefs about our business and the environment in which we operate.

These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today’s call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, The Ensign Group, Inc. and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements if changes arise as a result of new information, future events, changing circumstances, or for any other reason. In addition, The Ensign Group, Inc. is a holding company with no direct operating assets, employees, or revenues.

Certain of our independent subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims-made coverage to our operating companies for general and professional liability as well as for workers’ compensation insurance liability. Ensign also owns Standard Bear Health Care REIT Inc., which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign, as well as third-party tenants that are unaffiliated with The Ensign Group.

The words Ensign, company, we, our, and us refer to The Ensign Group, Inc. and its consolidated subsidiaries. All of our independent subsidiaries, the Service Center, Standard Bear Health Care REIT, and the insurance captive are operated by separate independent companies.

Barry Port: Our industry. We feel optimistic that state and federal governments will continue to recognize the importance of properly funding the health care needs of the senior population. Now more than ever, it is essential that we elevate the voices of our patients and frontline team members. Their stories reflect the heart of what we do. And we remain unwavering in our commitment to advocate for the resources and support needed to ensure they receive what they deserve. After such a strong first half of the year, we are raising our annual 2025 earnings guidance to between $6.34 and $6.46 per diluted share, up from the previously raised guidance of $6.22 to $6.38 per diluted share.

The new midpoint of this increased 2025 earnings guidance represents an increase of 16.4% over our 2024 results and is 34% higher than our 2023 results. We are also increasing our annual revenue guidance to $4.99 billion to $5.02 billion, up from $4.89 billion to $4.94 billion, to account for our current quarter performance and acquisitions we anticipate closing through the third quarter. This increased guidance is due to the continued execution of our growth model with organic growth stemming from stronger occupancy and skilled mix, which is more than expected for the second quarter. Other than during the pandemic, we typically experienced a slowdown in both occupancy and skilled mix during the second quarter.

However, due to the continued momentum and quality and the benefit from positive demographic trends, we were able to maintain stronger than expected performance in both occupancy and skilled mix, without the use of increased agency or overtime, which is also helping control our cost of services. In addition, many of our new acquisitions are performing well ahead of schedule, which highlights the continued improvement in our locally driven transition strategy, but also points towards solid underwriting and investment decisions. We are also excited about our performance so far this year and are confident that our partners will continue to manage and innovate while balancing the addition of newly acquired operations.

We are eager to continue to drive organic improvements and take advantage of the acquisition opportunities that we see on the horizon. The combination of improvements in occupancy and skilled mix in our more mature operations and the long-term upside in our newly acquired operations shows the enormous organic growth potential in our existing portfolio. Next, I’ll ask Chad to add some additional insights into our recent growth. Chad?

Chad Keetch: Thank you, Barry. We continued our steady pace of growth by adding eight new operations, including three real estate assets, during the quarter and since. These include four in California, three in Idaho, and one in Washington. In total, we added 710 new skilled nursing beds and 68 senior living units across these three states. This growth brings the number of operations acquired during 2024 and since to 52. We are always happy to expand our presence in some of our most mature markets, and each of these new acquisitions represents an opportunity to further deepen our commitment to the health care communities in some of our key states.

Our growth this quarter illustrates that we continue to prioritize adding beds in our established geographies, which allows our clusters to provide a comprehensive solution to the health care needs in those markets. We also point out that the distribution of our growth over the last several quarters spans across many states and markets, leaving us with significant bandwidth to grow in almost all of our markets. While we look to grow in some of our new states, we still see significant opportunity to continue to add meaningful density in the markets we know best. Our local leaders continue to recruit future CEOs for Ensign-affiliated operations.

We have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead. During the quarter, we reached an all-time high for our AITs in our pipeline. This high-quality influx of local leadership talent combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. As we look at the current pipeline, we see opportunities that include everything from small to mid-sized owner-operated portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets, and a steady flow of our traditional onesie-twosies.

We anticipate the current rate of acquisitions to continue this year and are expecting several to close or transition over the next few weeks and months. Given the growth on the near-term and long-term horizon, we wanted to provide an update on some of the larger portfolios we’ve acquired recently. In the past, Ensign has sometimes been painted with a brush that would suggest that larger deals are not consistent with our model. While most of our growth has been and will continue to be driven by the aggregation of Watson small deals, our approach to transitioning each operation as the complex health businesses they are also works on a larger scale.

This is particularly true when a larger deal spans several markets and geographies. For example, in 2023, we transitioned a portfolio of 17 in California, under a master lease with Sabra. To be clear, transitioning a large number of operations on the same day, especially if attempted in one big bite like would happen in a traditional centralized company, is definitely a huge undertaking. However, by applying lessons we had learned in years past, particularly from a large deal we did in Texas, our local leaders in California approached this deal as if it were six or seven small deals.

As our local market leaders in California prepared to transition these operations, they collectively took responsibility for two or three buildings, holding the new operation into an existing cluster of Ensign-operated facilities. In doing so, each of the 17 operations received the same amount of time, attention, and resources that a single acquisition would have received. This allowed the new operations and their teams to immediately benefit from their cluster partners for nearly all aspects of the transition, including training on new clinical systems and Ensign compliance standards, support in learning Ensign’s unique cultural expectations, and accessing the expertise of their new service center partners.

Rather than viewing the transaction as a merger of one company into a larger company, our teams approached it the same way as when we acquire a single asset from a small business owner or family. As we look to that portfolio now, which comprises the majority of our transitioning bucket, it’s clear to see the positive clinical and financial contribution that this larger portfolio is making to the organization. Of these 17 operations, 12 have achieved four or five-star ratings from CMS, occupancy is over 92%, skilled mixed days are 47%, and all are making substantial contributions to our overall EBIT. More recently, we completed a few larger portfolios, some of which span multiple states.

While each deal is unique, we are pleased with the progress we’ve achieved so far in these newly acquired operations. In the near future, we expect to announce the addition of a similar portfolio. And we expect that over the long term, we will continue to be presented with large and mid-sized portfolios. While we are continuously perfecting and improving the performance of our acquisitions in the portfolio setting, we are confident that our locally led approach is scalable in both new and existing geographies.

All that said, we must and will remain committed to staying disciplined and true to the principles that have contributed to our consistent success, including ensuring that we pay prices that will allow the operations to have enough of the necessary resources to invest in building the clinical systems in order to achieve the highest possible clinical outcomes. Lastly, we are also pleased with the continued growth of Standard Bear, which added five new assets during the quarter and since, and now is comprised of 140 owned properties. Of these assets, 106 are leased to an Ensign-affiliated operator and 35 are leased to third-party operators.

We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole as we continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry. Going forward, Standard Bear will continue to work together with our existing partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities that third parties are interested in operating under a lease. Collectively, Standard Bear generated rental revenue of $31.5 million for the quarter, of which $26.8 million was derived from Ensign-affiliated operations.

For the quarter, Standard Bear reported $18.4 million in FFO and as of the end of the quarter had an EBITDAR to rent coverage ratio of 2.5 times. With that, I’ll turn the call to Spencer, our COO, to add more color around operations. Spencer?

Spencer Burton: Thanks, Chad, and hello, everyone. As always, we’d like to share a few examples of how operations in various stages of their maturity are contributing to our outstanding results. It’s the aggregation of achievements like these that comprise Ensign’s story, and we believe that these examples are the best way to explain how we produce consistent results over time. The first operation I’ll highlight exemplifies what we hope to see in an operation as they transfer from our transitioning bucket into our same-store bucket. Sedona Trace Health and Wellness is a 119-bed skilled nursing facility located in Austin, Texas. It is led by Rachel Hurley, CEO, and Tiana Rowland, RN and COO.

Sedona was acquired as part of a multi-facility deal back in Q3 of 2021. Despite being constructed in 2017 and having a beautiful physical plant, the operation was consistently losing money and struggled with a poor clinical reputation. Compounding matters, the facility was in a staffing crisis, with a large percentage of nursing labor coming from the registry. Despite the challenges, the local team went to work. They focused on building a culture of high expectations and celebration, which started with hiring the right interdisciplinary leaders who, in turn, focused on getting and training high-caliber frontline staff. As a result, the team was able to completely eliminate registry labor, and they have stayed fully staffed since 2023.

As we consistently see with most transitioning operations, this formula methodically improved clinical results. CMS overall star ratings have jumped from two stars to four stars, and the facility currently has a five-star rating for quality measures. Sedona is now an attractive continuing partner for hospitals, and it has earned preferred provider status with Austin’s major hospital system, as well as managed care networks. The result has been steady growth in overall occupancy, which is up 6.8%, and skilled managed and Medicare days, which have increased 34.3% over the prior year quarter. For the same period, revenues grew by 21%, while the cost of services has remained stable.

As a result, EBIT increased by an impressive 130% in Q2 over the prior year quarter. We’re proud of the transformation that has occurred at Sedona Trace, but as their team would be quick to point out, there is still so much more work to be done. It will be exciting to see the growth continue for years to come as the facility continues to contribute as part of our same-store operations bucket. For the second facility example, I’d like to highlight an exciting niche where we have been able to apply our post-acute expertise to help a local acute hospital elevate the performance of their skilled nursing operation.

On a larger scale, we see a trend of hospitals choosing to focus on their core acute services, and we expect to have more and more opportunities to grow in a unique and important part of the continuum. Valley of the Moon Post Acute is a 27-bed, hospital-based skilled nursing facility located in Sonoma, California. It became an Ensign affiliate in 2019 when our Northern California company contracted with Sonoma Valley Hospital to take management and financial risk for the skilled nursing facility that they operated as part of their acute campus. Prior to this arrangement, this county-owned operation was underperforming clinically and was losing a significant amount of money.

The hospital leadership was faced with either closing the facility or looking for help. The hospital was under significant pressure to find a solution as the community did not want to lose the SNF services in their hospital. After many months of interviews and a public hearing, the hospital and county leadership selected our Northern California team to manage the SNF for them. Under this arrangement, our team maintains a close affiliation with the hospital management and board, including sharing certain services like nonclinical services such as laundry and housekeeping. The partnership has been an enormous success.

Valley of the Moon CEO Ryan Goldbard, COO Christina Ferrar, and their interdisciplinary team have established post-acute systems and elevated clinical outcomes while simultaneously bringing financial solvency to the operation. While running a small skilled nursing operation can be challenging, the Valley of the Moon team has embraced flexibility, teamwork, and an attitude of care without silos. And the results have been remarkable. Valley of the Moon uses zero nursing registry, has consistently low turnover, and maintains one of the lowest overtime wage percentages in all of California. They also produce incredible health care outcomes, including one of the lowest return-to-acute rates in the state and a CMS five-star rating for quality measures. The partnership has been beneficial for everyone.

The Sonoma community is benefiting from greater health care access. For example, on acquisition, the SNF was serving an average daily census of just 10 residents, whereas now census consistently runs over 95% or 25 plus patients. The hospital is benefiting from improved bed management and length of stay as they can now confidently discharge appropriate patients to a step-down level of care more easily. Payers benefit because more of their members can receive care in the most appropriate and cost-effective care setting. And residents, including some with challenging and complex medical cases, receive skilled nursing level care without having to transfer off the hospital campus while remaining under the care of the same physician providers.

We are excited about the impact Valley of the Moon Post Acute is having, and we look forward to continuing to find ways to help acute hospital partners throughout our footprint meet their communities’ full continuum of health care needs. With that, I’ll turn the time over to Suzanne to provide more detail on the company’s financial performance and our guidance. And then we’ll open up for questions. Suzanne?

Suzanne Snapper: Thank you, Spencer, and good morning, everyone. Detailed financial statements for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter include the following: GAAP diluted earnings per share was $1.44, an increase of 18%. Adjusted diluted earnings per share was $1.59, an increase of 20.5%. Consolidated GAAP revenue and adjusted revenue were both $1.2 billion, an increase of 18.5%. GAAP net income was $84.4 million, an increase of 18.9%. And adjusted net income was $93.3 million, an increase of 22.1%. Other key metrics as of June 30, 2025, include cash and cash equivalents of $364 million and cash flow from operations of $228 million.

During the first half of 2025, we spent more than $210 million to execute on our strategic growth plan, most of which have been in the works for months. We made this investment from a position of strength, as shown by our lease-adjusted net debt to EBITDA ratio of 1.97 times, which is after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant growth is particularly noteworthy and demonstrates our commitment to disciplined growth, as well as our belief that we can continue to achieve sustainable growth in the long run.

In addition, we have approximately $593 million of available capacity on our line of credit, which when combined with our cash on the balance sheet, gives us over a billion dollars in dry powder for future investments. We own 146 assets, of which 140 are held by Standard Bear. 122 are owned completely debt-free and have gained significant value over time, adding even more liquidity to help with future growth. The company paid a quarterly cash dividend of 6.25 cents per share. We have a long history of paying dividends and have increased the annual dividend for 22 consecutive years. In addition, we currently have a stock repurchase program in place.

As Barry mentioned, we are increasing our annual 2025 earnings guidance to between $6.34 to $6.46 per diluted share, and our annual revenue guidance between $4.99 billion and $5.02 billion. We have evaluated multiple scenarios, and based upon the strength in our performance and positive momentum we have seen in our occupancy and skilled mix, as well as our continued progress on labor, agency management, and other operational initiatives, we have confidence that we can achieve these results.

Our 2025 guidance is based on diluted weighted average common stock outstanding of approximately 59 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed during 2025, including a smaller portfolio that we expect to transition in the next few weeks. The inclusion of management’s expectations on Medicare and Medicaid reimbursement rates, net of provider checks, with the primary exclusion coming from stock-based compensation. Additionally, other factors that could impact our quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence of the general economy on census and staffing, short-term impact of our acquisition activities, variations in insurance accruals, and other factors.

And with that, I’ll turn it back over to Barry. Barry?

Barry Port: Thanks, Suzanne. As we wrap up, we are as positive as ever about this industry that we collectively love and are committed to. It’s hard not to be excited about our trends, our labor trends, and our growth opportunities. But I can’t emphasize enough how incredibly honored and grateful we all are to work alongside our operational leaders, field resources, clinical partners, and service center team. They are behind these record-setting results, and it’s their commitment that has blessed the lives of so many, including our own. We’re as excited about our future as ever because of them. And with that, we’ll turn it now over to the Q&A portion of our call.

Kate, will you please provide instructions for the Q&A?

Operator: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Tao Qiu with Macquarie Capital. Your line is open.

Tao Qiu: Hey. Good morning. Chad, I think you highlighted the success of the North American portfolio integration. Now we collect that deal with more of an opportunistic transaction. So based on the prepared comment, I get a sense that there’s a strategy shift as you are more open to those larger multistate portfolio deals. I’m curious if you could highlight any changes you made in your system, personnel, operating model, or lessons learned that give you more confidence in consistently executing those larger deals. And then what is the pipeline like for these larger transactions? And when you know, whether Ensign is more of a competitive advantage given your scale and balance sheet, you know, conditions. Thanks.

Chad Keetch: Yeah. Thanks for the question, Tao. So I wouldn’t say there’s necessarily been a strategy shift at all. I just I think it’s more we’re just trying to point out that we have done some of these, you know, more portfolio type deals, including the one in Tennessee that we closed recently, and then we did we did one in the Northwest. You know, with Providence Hospital Systems recently. So, yeah, I think we definitely see a pipeline for deals like that, you know.

And like I said in my prepared remarks, you know, large, midsize, and smaller portfolios are they’re all out there, and I think the you know, in terms of lessons learned and, you know, something that we’ve we’ve just experienced and that I highlighted again today was you know, for us, we look at a portfolio, and we try to see geographic how it fits into our existing structure. And when we take a larger deal split it up into a bunch of smaller pieces, and do that locally. Right? So we’re we’re talking about taking, like, a said in that example, those 17 buildings spread across six or seven of our markets.

So it was really only two to three acquisitions per market or cluster. That’s a lot more digestible than trying to just kind of, you know, assume something and do more of it like a merger style acquisition. So I think that’s probably the and we’ve we’ve done both. And certainly learned in that Texas example back in 2015 that just trying to take a big organization and just fold it in all at once was not successful, and that took us a long time to kind of you know, essentially transition that deal twice. To get to and now it’s obviously, doing great.

But that was probably the biggest lesson that we wanted to highlight today is that you know, we have experience now. We’ve done several of these portfolio deals. And they’re they’re, you know, going very well. And the key for us is to do it the way we’ve always done it. And, you know, each of these buildings are, as you know, highly complex businesses. That demand a lot of time and attention, you know, starting on the transition date. And that’s the part that we have to stay true to and disciplined about regardless of how big the deal is.

And to the extent we can do that, you know, if it crosses several markets, several clusters, several states, then we feel like that is a scalable approach to growth and one that we can we can handle. Great. And to on that topic, as you take on these larger deals, there may be assets that will fit a third party operator better. I know that you added a another third party operator this quarter. I’m just curious how large do you think you can ramp up the exposure there, you know, given what you consider qualified operator pool in your targeting markets?

And, also, you know, if you could talk about the rent coverage you are on the these assets at. Know, that would be much appreciated. Thank you.

Chad Keetch: Yeah. Another great question. So, yeah, the best example is this portfolio we closed on in the Northwest. It was eight buildings. And we took six of them, and we leased two to a third party. That’s a perfect example of one where, you know, it was and that was a real estate, you know, driven deal, of course. But that’s a perfect example of the types of acquisitions that we feel like Standard Bear helps us do and complete.

And so, yeah, I think, you know, the key there is making sure that the price that we pay is correct and that know, we’re not asking a third party tenant to take on a lease payment that we ourselves wouldn’t take on. Right? So when you’re talking about coverages, you know, we’re always trying to target very healthy coverages. And so, you know and, obviously, it will vary by market, but you know, I think we’re you know, we’re our goal is to be at a one five or close to it.

And even and maybe it’s not a one five on the first month, but we could see a clear path to getting there in a short period of time. And, you know, the key, though, is finding sellers that are willing to, you know, do deals at the at the right prices so that you can have some coverage after the after the fact. And that’s that’s where, you know, again, when we talk about our discipline, we’re we’re really hyper focused on that. And in terms of, you know, relationships with third party tenants, I mean, we’re we’re saving more and more interest.

Each time we kinda do one of these and announce it, we’re getting more folks that are reaching out to kinda understand what it is we’re doing and how we’re doing it and how we might work together. And so, yeah, as bigger portfolios come along, this certainly this pathway certainly gives us another way to do it and break it down into smaller bite-sized pieces.

Tao Qiu: Awesome. Thank you for the color.

Operator: Your next question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open.

Michael Murray: Hi. This is Michael Murray on for Ben. Thanks for taking my questions. The skilled nursing industry appears to have dodged direct impacts of the one big beautiful bill but there still seems to be some potential for potentially some indirect impacts related to smaller Medicaid budgets. So we’d love to hear your thoughts on the OBBB generally. And how are you sizing any indirect risks as a result of it?

Chad Keetch: Yeah. It’s a good question, and thanks for asking it. I think it’s important to point out that legislators were very overt about making sure that they carved skilled nursing out of any large direct impacts to Medicaid and instead focused their efforts around reform with workforce requirements, eligibility requirements, and large directed payments and other types of payments that weren’t necessarily in line with standard practice for the program.

That we’re giving large benefits where they ought not to be and having to carve out on the provider tax piece, I think, was a clear indication from legislators that they wanted to protect funding for seniors, and I think is a good bellwether for states now as yes, while they do will have, in a few years, maybe some more limited budget pool to pull from. I think it sets a standard for how states should act. And the good news for us is that we have really good working relationships in every state that we operate in. With our state legislators and governors’ offices.

And now have time as there’s, again, a couple of years before, some of these things start to get implemented, for us to work with them and make sure that, that we put ourselves in a position to remind them of how important funding for seniors is in the skilled nursing setting. I suspect that, you know, with more finite budgets that there will be some movement in terms of how they shift dollars around. But there is not a state we operate in where legislators have the sentiment that they feel like skilled nursing is overfunded.

In every state we operate in, there’s always a push to how do we find more money to get you better funded, not the opposite. So you know, if we remember back to why Medicaid was created, it was created to help the elderly, the disabled, and indigent children and I think we will be able to now have conversations around how to make sure that funding is directed to those recipients best. And I think skilled nursing senior funding will always be a priority for most of the states we operate in, and we feel confident that we’ll have the data and the ability to have those discussions at a state level over the next couple of years.

We don’t anticipate that there will be any other reconciliation bills and certainly no more discussion at least during this presidential term around big changes to Medicaid. So I feel like we feel like the worst is behind us, and now we can have productive conversations at a state level to make sure that we’re in good shape for the long term, which by the way, is nothing new. We have always had this dynamic at a state level where we’re advocating for proper funding for skilled nursing and this doesn’t really change that much.

Michael Murray: Okay. That’s helpful color. Just shifting to M&A, we’ve gotten some questions from investors recently on valuation of acquisitions over the past few years. It’s hard to parse out just because you’re doing more and more real estate transactions and geography also plays a big role in this. But to the extent you can normalize, for this, how are valuations trending generally, and do you continue to see attractive opportunities and valuations in your current markets. Thank you.

Chad Keetch: Yeah. Thanks for that question. I think we probably see valuations probably moderately increasing over time. Certainly, post-COVID, you know, with the rate environment being a little stronger and some of those things, I think, have gradually pushed pricing up a little bit. But, you know, I think the thing I just you know? And, obviously, when we’re leasing buildings, it’s a much different evaluation than if we’re buying a real estate and I know that can make it tricky to look from the outside to see how we’re viewing it. I think probably the key to how we evaluate deals is and, you know, not to always talk about this, but it’s locally driven.

And our local teams in the geography in which we’re looking to grow, they’re the ones that are helping us decide kinda what the appropriate price to pay would be, whether it’s a rent or a purchase. And the fundamentals of that decision are you know, we basically break down the target opportunity and, you know, kinda leave an opening around what their DAR is gonna be. And, obviously, rent is a function of the price that we pay. And so, you know, our operators are very focused on what the DAR is gonna be. And we sort of back into what price we feel like is appropriate based on what an appropriate DAR would be for that market.

And that’s sort of our driving factor into how we decide on whether to do a deal or not and what we’re willing to pay. And it’s such a smarter way to do it than trying to follow some kind of macro trend and you know? Because it because we’re forcing by doing it that way, the decision is driven on the fundamentals of at the facility level for each of these businesses. And that’s probably, I think, the thing I’d like to highlight most. You know, we’re not and certainly, we’re aware of the market trends and following those things closely.

But if pricing gets out of whack and people in the market are paying prices we don’t think are sustainable, then we just pass on those opportunities, and that’s where we stay disciplined. But when the pricing’s right and we feel like we can pay a fair price that will leave us with a DAR that’s sustainable over time. That’s when we move forward and close those deals. So you know, the environment’s been really positive. I think our growth track record over the last couple of years shows that there’s a lot of doable transactions out there. We still feel like the pipeline looks really strong and healthy. But we don’t set growth goals.

We don’t start out the year saying we’re gonna do x number of deals and so if pricing gets out of whack, like I said, we’ll slow down. And if pricing’s really good, that’s when you’ll see us be active. So hopefully, that’s helpful.

Michael Murray: Yeah. Yeah. It is. Thank you.

Operator: Your next question comes from the line of Raj Kumar with Stephens Inc. Your line is open.

Raj Kumar: Hey. Good morning. First question, just kinda thinking about Medicaid reimbursement and more particularly on the California workforce and quality incentive program, which is set to end by 2025. Can you can you speak to the current contribution Ensign receives from this program? And then maybe what are some of the conversations you the industry are kinda having at the state level in order to kinda maintain adequate funding in California?

Suzanne Snapper: To start off, just a point of clarity, how we actually have been recording that program for us. We’re actually expecting that funding to go through ’26 just to test how the state year works and how our revenue recognition works. And so it’ll actually be there for 2025 and 2026 based upon the recent change. And it’s something that would when we look at and this is not just you, to California, but this is for every statewide program. Now we work with the state and how they’re looking at their overall state budget.

And a lot of these quality programs come or originally came from the base rate and were really to incentivize providers to provide better quality care. And so as we work with them and we look with them about how their program will change over time, our goal would be for to help them remind them and see that the original amount came from the base rate. As we continue to work with them, that’s the talk that we’re here starting to hear that it might be getting back to the base rate. And so that’s something that we’re do we do in every state.

When there’s a quality program, making sure that we understand how the quality program works, but how that also interacts with the base rate.

Raj Kumar: Alright. Thank you. And then just as a follow-up you know, kind of speaking to, you know, you had strong skill mix in the quarter and just you know, thinking about as you guys kind of continue to add density in your market, and kinda just the dynamics of managed care reimbursement and the typical discount versus fee for service. Are kind of any of your cluster or at the cluster level kinda participating or having engagements with payers around participating in, like, value-based care oriented reimbursement models to maybe close that gap further?

Suzanne Snapper: Of course. I mean, that is a continued discussion that we’ve had. From the last couple of years. I think when you start to look at value-based care and value-based modeling, we’re all in for it with the managed care participants in that particular area. We love to do things that are value add both for us, and for the MCOs so that we can make sure that we’re giving great quality of care to our residents. I think when we talk about the volume, that there’s value that programs have encompassed over there, they’re relatively small.

But we’re definitely their part the MCO’s partners in every market and really kinda come up with unique programs based on what’s happening in that local market. That’s gonna benefit what the MCO is trying to overcome in that market.

Raj Kumar: Thanks for the color.

Operator: Your next question comes from the line of AJ Rice with UBS. Your line is open.

AJ Rice: Hi, everybody. Maybe a couple questions. First, you know, one of the things that I think the company talked about was potentially some of the more recent deals have been started at more challenging point as this jumping off point, how they performing before you acquired them. But it sounds like the deals in general are outperforming I’m just trying to understand. Are you realizing improvements quicker than maybe historically was the case or are you did you just take a more conservative approach in the way you assume those would impact your financials?

Chad Keetch: It’s a great question. I think there’s a couple of things at play. I think our assumptions haven’t really changed. We’re or our projections haven’t changed. We always try and break down the fairway of what we think is if we, you know, make aggressive changes as needed. And what we have seen is there’s there’s a slightly better environment that we’re seeing in some of the areas where we grown recently around agency labor. You know, a year or two back, we were seeing some of our acquisitions you know, where you’re 50%, 60% of their labor was agency.

And when you’re having to you know, completely rebuild a you know, a health care operation, from the line staff up, that takes a little bit more time. So that’s been an environmental thing that’s slightly better. I’d say the biggest thing, though, is we’ve we have higher density and we have stronger clusters working around these acquisitions, we’re just able to move things quicker. We’re able to, you know, backfill key staff positions from, you know, cluster partner buildings. We’ve got a better program of developing talent. So you know, one facility has redundant talent that can know, go be leaders in another facility.

And as you have higher density in your acquisition, you’re able to do that without asking those employees to move across the, you know, the country. So there’s a lot of things at play. I would say the final thing is just you know, we learn every acquisition we do. Well, they’re done locally. We have a great method for sharing and forum for sharing that. So we’re constantly learning from our mistakes and from what we do right. And the more we do that, you’d expect we get better and better over time. And I think we’re seeing a bit of that.

AJ Rice: Okay. Great. Let me just ask you on I know you asked earlier about the one big beautiful bill. I wondered about how it’s translating into market activity, particularly two areas Have you seen it impact the pipeline in any way? Are there more or sellers because of the chatter around that? Or people’s expectations around pricing adjusted in any way? And then also in your discussion with states on rate updates, are you seeing any impact at this point? I think it’s probably early, but I figured I’d ask. Is it having any impact on you know, composite rate expectations for this year or next year.

Chad Keetch: Yeah. So I’ll take the pipeline question. So I guess the short answer is, I guess, we’ve seen but, you know, the thing about it is that you know, last year, was the minimum staffing bill. Right? Like, there’s there’s the constant in our industry is there’s always something out there that is, you know, that you know, basically regulatory change, whether it’s you know, rates or, you know, some kinda staffing requirement or whatever it is. And I think so, you know, I can’t really say I’ve seen more deals come, but just it’s been really steady.

Maybe the reasons are of why are kind of always shifting, but it’s just a lot a lot more deals that we could ever do in a in a you know, are coming our way, and so that allows us to be really selective.

Suzanne Snapper: And on the right front, I mean, we’re always active in having these at a state level, like Barry mentioned and we mentioned in our prepared remarks. I mean, we don’t see anyone shifting that way yet, but it’s just part of who we are is to be actively involved in the discussions at the local level in each state talking about what may or may not be happening with that state rate. And then to you know, if we have a state where a rate does go down, that doesn’t necessarily mean that it’s gonna go to the bottom line for us.

And we’ve done that time and time again where our operational perform our operational reaction to a rate decrease, there’s so many different ways that we can pivot through that. And so even when we do have an have had it identified where the rate is going to go down, we are able to work through it by changing our operational performance.

AJ Rice: Okay. Thanks a lot.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.