Earnings call transcript: Ensign Group Q2 2025 shows robust growth

Ensign Group reported strong financial results for the second quarter of 2025, marked by significant increases in earnings per share (EPS) and revenue. The company’s adjusted diluted EPS rose by 20.5% to $1.59, while consolidated revenue increased by 18.5% to $1.2 billion. With a market capitalization of $10.24 billion, Ensign’s stock showed a modest increase, trading near its 52-week high of $179.11, reflecting investor confidence in its growth strategy and market position. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.08 out of 4, suggesting robust operational efficiency.

Key Takeaways

• Adjusted diluted EPS rose by 20.5% to $1.59.
• Consolidated revenue increased by 18.5% to $1.2 billion.
• Successful integration of large portfolio acquisitions.
• Same store occupancy rose to 82.1%, a 2% increase.
• Continued focus on organic growth and strategic acquisitions.

Company Performance

Ensign Group demonstrated robust performance in Q2 2025 with significant growth in both earnings and revenue. The company expanded its operations by adding eight new facilities, including three real estate assets, and acquired 710 new skilled nursing beds. This expansion contributed to a 7.4% increase in skilled census for same-store operations and a 13.5% increase for transitioning operations. With a sustained revenue growth rate of 16.31% and consistent dividend payments for 19 consecutive years, Ensign’s strategic acquisitions and operational improvements underscore its strong competitive position in the healthcare market. InvestingPro subscribers can access 12+ additional exclusive insights about Ensign’s growth strategy and market position through the comprehensive Pro Research Report.

Financial Highlights

• Revenue: $1.2 billion, up 18.5% year-over-year.
• Adjusted diluted EPS: $1.59, up 20.5% year-over-year.
• GAAP Net Income: $84.4 million, up 18.9%.
• Adjusted Net Income: $93.3 million, up 22.1%.
• Cash Flow from Operations: $228 million.

Outlook & Guidance

Looking forward, Ensign Group has set an earnings guidance for 2025 between $6.34 and $6.46 per diluted share, reflecting a 16.4% increase from 2024. The company also projects annual revenue between $4.99 billion and $5.02 billion. Trading at a P/E ratio of 32.44, and with analyst price targets ranging from $165 to $205, Ensign remains committed to organic growth and strategic acquisitions, maintaining a disciplined approach to pricing and integration. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value, though four analysts have recently revised their earnings estimates upward for the upcoming period.

Executive Commentary

Barry Port, CEO, expressed confidence in the company’s performance, stating, "Our local teams have achieved another outstanding quarter." He emphasized the company’s readiness to engage in discussions at the state level, highlighting the importance of data-driven decision-making. Spencer, COO, added, "We’re constantly learning from our mistakes and from what we do," indicating a commitment to continuous improvement.

Risks and Challenges

• Potential impacts from Medicaid budget changes.
• Integration challenges associated with large portfolio acquisitions.
• Market saturation in mature markets.
• Macroeconomic pressures affecting healthcare spending.
• Regulatory changes impacting healthcare operations.

Ensign Group’s Q2 2025 results reflect a strong operational and financial performance, driven by strategic acquisitions and operational efficiencies. The company’s forward-looking guidance and market positioning suggest continued growth, although challenges such as regulatory changes and market saturation remain.

Full transcript - The Ensign Group Inc (ENSG) Q2 2025:

Operator: Thank you. I would now like to turn the call over to Chad Keetch, Chief Investment Officer. Please go ahead.

Chad Keetch, Chief Investment Officer, Ensign Group: Thank you, operator, and welcome everyone. We filed our earnings press release yesterday, and it is available on the Investor Relations section of our website at ensigngroup.net.

Barry Port, CEO, Ensign Group: of this call will also be available.

Chad Keetch, Chief Investment Officer, Ensign Group: On our website until 5:00 P.M. 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, 2020, 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, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements where 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 liabilities.

Ensign also owns Standard Bearer Healthcare REIT, Inc., which is a captive real estate investment trust that invests in healthcare 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 Bearer Healthcare REIT, and the Insurance Captive, are operated by separate independent companies that have their own management, employees, and assets.

References herein to the consolidated company and its assets and activities, as well as the use of the words we, us, our, and similar terms, are not meant to imply, nor should it be construed as meaning, that The Ensign Group has direct operating assets, employees, or revenue, or that any of the subsidiaries are operated by The Ensign Group. We also supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday’s press release and is available in our Form 10-Q. With that, I’ll turn the call over to Barry Port, our CEO.

Barry Port, CEO, Ensign Group: Barry, thanks Chad, and thank you all.

Chad Keetch, Chief Investment Officer, Ensign Group: for joining us today.

Barry Port, CEO, Ensign Group: Our local teams have achieved another outstanding quarter, raising the bar again for what is possible even in a quarter where we historically have experienced more seasonality. The clinical results they achieved continue to be an important driver of our success as our teams work tirelessly to gain the trust of the communities they serve and deliver consistent outcomes. Our operations continue to earn the reputation as the facility of choice for thousands of patients. This trust is apparent from the strong upward trends in occupancy and skilled mix during the quarter, which we believe is only achievable through dependable clinical results delivered by dedicated local leaders, caregivers, and outstanding team members. As we dissect the numbers, we set second quarter records for same store and transitioning occupancy, which increased by 2% and 4.6% to 82.1% and 84% respectively.

Chad Keetch, Chief Investment Officer, Ensign Group: The prior year quarter.

Barry Port, CEO, Ensign Group: We also saw skilled census increase for both our same store and transitioning operations by 7.4% and 13.5%, respectively, over the prior year quarter. All these improvements are the result of many factors, but it could never have happened without the relentless efforts by these local teams that we mentioned earlier, who implement standard-setting practices that lead to better outcomes. We also continue to attract and develop caring and passionate partners into post acute care who are determined to join us as we pursue our mission to dignify post acute care. In addition, we continue to see improvements in turnover as well as lower staffing agency labor even in the face of increased occupancy. As we said before, our people are at the heart of our efforts, and seeing these metrics consistently improve is critical to maintaining our path of success and to achieve industry-leading results.

On the regulatory front, we were pleased that the skilled nursing population was carved out of provider tax reduction in the recently passed reconciliation bill, which was a big win for our industry. We feel optimistic that state and federal governments will continue to recognize the importance of properly funding the healthcare 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 result. We’re 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 experience a slowdown in both occupancy and skilled mix during the second quarter.

However, due to the continued momentum in quality outcomes 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.

Chad Keetch, Chief Investment Officer, Ensign Group: We’re also excited about our performance.

Barry Port, CEO, Ensign Group: 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, thank you Barry.

Chad Keetch, Chief Investment Officer, Ensign Group: 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 in Ensign 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 healthcare 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 healthcare 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, and 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.

Barry Port, CEO, Ensign Group: Time high for our AITs in our pipeline.

Chad Keetch, Chief Investment Officer, Ensign Group: 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 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 lots of small deals, our approach to transitioning each operation as the complex health business as 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 operations in California under a master lease with Sabra. To be clear, transitioning a large number of operations on the same day, especially.

Barry Port, CEO, Ensign Group: If attempted in one big bite, like.

Chad Keetch, Chief Investment Officer, Ensign Group: 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, folding 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 have the benefits of 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 mix days are 47%, and all are making substantial contributions to our overall EBITDA. 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 the building and the clinical systems in order to achieve the highest possible clinical outcomes. Lastly, we are also pleased with the continued growth of Standard Bearer, 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 and by working closely with like-minded operators that want to make a difference in this industry. Going forward, Standard Bearer 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 Bearer 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 Bearer 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, COO, Ensign Group: Spencer, 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 operations 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 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 2-star to 4-star and the facility currently has a 5-star rating for quality measures.

Sedona is now an attractive continuum 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 prior year quarter. For the same period, revenues grew by 21% while costs of services have 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 this 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 significant amounts 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 non-clinical services such as laundry and housekeeping. The partnership has been an enormous success. Valley of the Moon CEO Ryan Goldbarg, COO Christina Farrar 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 healthcare 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 healthcare 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 setting and cost effective care setting, and residents, including some with challenging and complex medical cases, can 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 community’s full continuum of healthcare 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, Financial Executive, Ensign Group: Suzanne, 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 $1 billion in dry powder for future investments.

We own 146 assets, of which 140 are held by Standard Bearer and 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 $0.0625 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 to 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 at approximately 59 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed during the third quarter of 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 tax, 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 and occupancy and skilled mix, the influence of the general economy on census and staffing, the short-term impact of our acquisition activities, variations in insurance accruals, and other factors. With that, I’ll turn it back over to Barry. Barry.

Barry Port, CEO, Ensign Group: 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 occupancy trends, our labor trends, and our growth opportunities. 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. With that, we’ll turn it now over to the Q and A portion of our call. Kate, will you please provide instructions for us.

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. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tauqu with Macquarie Capital. Your line is open.

Hey, good morning Chad. I think you highlighted the success of the North American portfolio integration. I recollect that deal was more of an opportunistic transaction. Based on the prepared comment, I.

Barry Port, CEO, Ensign Group: Get a sense that there’s a strategy.

As you are more open to those larger multi-state portfolio deals, I’m curious if you could highlight any changes you made in your system, personnel, operating model, lessons learned that give you more confidence in consistently executing those larger deals. What is the pipeline like for these larger transactions, and whether Ensign is more of a competitive advantage given your skill and balance sheet conditions. Thanks.

Chad Keetch, Chief Investment Officer, Ensign Group: Yeah, thanks for the question, Tao. I wouldn’t say there’s necessarily been a strategy shift at all.

Barry Port, CEO, Ensign Group: I think it’s more we’re just trying to point out that we have done some of these more portfolio type deals, including the one in Tennessee that we closed recently, and then we did one in the Northwest, you know, with.

Chad Keetch, Chief Investment Officer, Ensign Group: Providence Hospital Systems recently.

Barry Port, CEO, Ensign Group: I think we definitely see a pipeline for deals like that, and like I said in.

Chad Keetch, Chief Investment Officer, Ensign Group: My prepared remarks, you know, large, mid.

Barry Port, CEO, Ensign Group: Size and smaller portfolios are out there.

Chad Keetch, Chief Investment Officer, Ensign Group: I think, you know, in.

Barry Port, CEO, Ensign Group: terms of lessons learned and you know, something that 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 geographically how.

Chad Keetch, Chief Investment Officer, Ensign Group: It fits into our existing structure.

Barry Port, CEO, Ensign Group: When we take a larger deal.

Chad Keetch, Chief Investment Officer, Ensign Group: Split it up into a bunch of.

Barry Port, CEO, Ensign Group: Smaller pieces and do that locally.

Right.

We are talking about taking, like I said in that example, those 17 buildings.

Chad Keetch, Chief Investment Officer, Ensign Group: We’re spread across six or seven of our markets. It was really only two to three acquisitions per market or cluster.

Barry Port, CEO, Ensign Group: That’s a lot more digestible than trying to just kind of assume something and do more of it like a merger style acquisition. I think that’s probably the, and 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. It 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. That was probably the biggest lesson that we wanted to highlight today, is that we have experience. Now we’ve done several of these portfolio deals and they’re going very well. The key for us is to do it the way we’ve always done it. Each of these buildings are, as you know, highly complex businesses that demand a lot of time and.

Chad Keetch, Chief Investment Officer, Ensign Group: Attention, starting on the transition date.

Barry Port, CEO, Ensign Group: That is the part that we have to stay true to and disciplined about, regardless of how big the deal is.

Chad Keetch, Chief Investment Officer, Ensign Group: To the extent we can do.

Barry Port, CEO, Ensign Group: 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 handle.

Great. To follow up 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 another third party operator this quarter. I’m just curious how large you think you can ramp up the exposure there, given what you consider qualified operator pool in your targeting markets. Also, if you could talk about the rent coverage you are underwriting these assets at, that would be much appreciated. Thank you.

Chad Keetch, Chief Investment Officer, Ensign Group: Yeah, another great question.

Barry Port, CEO, Ensign Group: Yeah, the best example is this portfolio we closed on in the Northwest. It was eight buildings and we took.

Chad Keetch, Chief Investment Officer, Ensign Group: Six of them, and we leased two.

Barry Port, CEO, Ensign Group: To a third party. That’s a perfect example of one where, you know, that was a real estate driven deal, of course, but that’s a perfect example of the types of.

Chad Keetch, Chief Investment Officer, Ensign Group: Acquisitions that we feel like Standard Bearer.

Barry Port, CEO, Ensign Group: helps us do and complete. I think the key there is making sure that the price that we pay is correct and that we’re not asking a third party tenant to take on a lease payment that we ourselves wouldn’t take on.

Chad Keetch, Chief Investment Officer, Ensign Group: Right.

Barry Port, CEO, Ensign Group: When you’re talking about coverages, you know, we’re always trying to target very healthy coverages. Obviously, it will vary by market, but I think our goal is to be at a 1.5 or close to it. Maybe it’s not a 1.5 on the first month, but we could see a clear path to getting there.

Chad Keetch, Chief Investment Officer, Ensign Group: A short period of time.

Barry Port, CEO, Ensign Group: The key though is finding sellers that are willing to do deals at the right prices so that you can have some coverage after the fact. That’s where, again, when we talk about our discipline, we’re really hyper focused on that in terms of relationships with third party tenants.

Chad Keetch, Chief Investment Officer, Ensign Group: We’re receiving more and more interest each time we do one of these.

Barry Port, CEO, Ensign Group: We’re getting more folks that are reaching out to kind of understand what it is that we’re doing and how we’re doing it and how we might work together. As bigger portfolios come.

Along.

This pathway certainly gives us another way to do it and break it.

Chad Keetch, Chief Investment Officer, Ensign Group: Down into smaller bite-sized pieces.

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.

Hi, this is Michael Murray on for Ben Hendrix. Thanks for taking my questions.

Chad Keetch, Chief Investment Officer, Ensign Group: 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. We’d love to hear your thoughts on the OBBB generally and how are you sizing any indirect risks as a result.

Barry Port, CEO, Ensign Group: Yeah, that’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 focus their efforts around reform with workforce requirements, eligibility requirements, large directed payments, and other types of payments that weren’t necessarily in line with, you know, standard practice for the program that were giving large benefits where they ought not to be. 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, yes, while they will have in a few years maybe some more limited, more limited budget pull from, I think it sets a standard for how states should act.

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 governor’s 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 we put ourselves in a position to remind them of how important funding for seniors is in the skilled nursing setting. I suspect that with more finite budgets there will be some movement in terms of how they shift dollars around.

Chad Keetch, Chief Investment Officer, Ensign Group: But.

Barry Port, CEO, Ensign Group: 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.

Chad Keetch, Chief Investment Officer, Ensign Group: Always a push to how do we.

Barry Port, CEO, Ensign Group: If we remember back to why Medicaid was created, it was created to help the elderly, the disabled, and indigent children. I think we will be able to now have conversations around how to make sure that funding is directed to those recipients best. I think skilled nursing senior funding will always be a priority for most of the states we operate in. 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.

I don’t.

We don’t anticipate that there will be any other reconciliation bills and certainly no more discussion, at least in this, during this presidential term around big changes to Medicaid. 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. By the way, this 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.

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. Geography also plays a big role in this. To the extent you can normalize for this, how are valuations trending generally? You continue to see attractive opportunities and valuations in your current markets.

Spencer, COO, Ensign Group: Thank you.

Chad Keetch, Chief Investment Officer, Ensign Group: Yeah, thanks for that question.

Barry Port, CEO, Ensign Group: I think we probably see valuations probably moderately increasing over time, certainly post-Covid, with the rate environment being a little stronger.

Chad Keetch, Chief Investment Officer, Ensign Group: Some of those things, I think.

Barry Port, CEO, Ensign Group: Have gradually pushed pricing up a little bit.

Chad Keetch, Chief Investment Officer, Ensign Group: I think the thing.

Barry Port, CEO, Ensign Group: Obviously, when we’re leasing buildings, it’s a much different evaluation than if we’re buying the real estate. 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 not to always talk about this, but it’s locally driven. Our local teams, in the geography in which we’re looking to grow, they’re the ones that are helping us decide kind of what the appropriate price to.

Chad Keetch, Chief Investment Officer, Ensign Group: Pay would be, whether it’s a rent or a purchase.

Barry Port, CEO, Ensign Group: The fundamentals of that decision are we basically break down the target opportunity and kind of leave an opening around.

Chad Keetch, Chief Investment Officer, Ensign Group: What their DAR is going to be.

Barry Port, CEO, Ensign Group: Obviously, rent is a function of the price that we pay. Our operators are very focused on what the DAR is going to 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. That’s sort of our driving factor into how we decide as to whether to do a deal or not and what we’re willing to pay. It’s such a smarter way to do it than trying to follow some kind of macro trend, because by doing it that way, the decision is driven on the fundamentals at the facility level.

Chad Keetch, Chief Investment Officer, Ensign Group: Each of these businesses.

Barry Port, CEO, Ensign Group: That’s probably, I think, the thing I’d like to highlight most. We’re certainly aware of the market trends and following those things closely. If pricing gets out of whack and people in the market are paying.

Chad Keetch, Chief Investment Officer, Ensign Group: Prices we don’t think are sustainable.

Barry Port, CEO, Ensign Group: We just pass on those opportunities.

Chad Keetch, Chief Investment Officer, Ensign Group: That’s where we stay disciplined.

Barry Port, CEO, Ensign Group: 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. The environment’s been really positive. I think obviously, our growth track record over the last couple years shows that there’s a lot of doable transactions out there. We still feel like the pipeline looks really strong and healthy. We don’t set growth goals. We don’t start out the year saying we’re going to do X number of deals. If pricing gets out of whack, like I said, we’ll slow down. If pricing is really good, that’s when you’ll see us be active. Hopefully that’s helpful.

Chad Keetch, Chief Investment Officer, Ensign Group: Yeah.

Barry Port, CEO, Ensign Group: Yeah, it is.

Thank you.

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

Hey, good morning. First question, just kind of thinking about, you know, Medicaid reimbursement and, you know, more particularly on the California Workforce and Quality Incentive Program, which is set to end by 2025. Can you speak to the current contribution Ensign receives from this program? Maybe what are some of the conversations you or the industry are kind of having at the state level in order to kind of maintain adequate funding in California?

Suzanne, Financial Executive, Ensign Group: 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 2026. It just depends how the state year works and how our revenue recognition works. It’ll actually be there for 2025 and 2026 based upon the recent change. It’s something that when we look at, and this is not just unique to California, this is for every statewide program now. We work with the state and how they’re looking at their overall state budget. 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.

As we work with them and we look with them about how that program will change over time, our goal would be 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 starting to hear, that it might be getting back to the base rate. That’s something that 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.

All right, thank you. Just as a follow up, you know, kind of speaking to, you know, you had strong skilled mix in the quarter and just, you know, thinking about as you guys kind of continue to add density in your market and kind of just the dynamics of managed care reimbursement and the typical discount versus fee for service, are any of your clusters or at the cluster level kind of participating or having engagements with payers around participating in like value-based care oriented reimbursement models to maybe close that gap further.

Of course, that is a continued discussion that we’ve had from the last couple 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 those value-based programs have encompassed over the years, they’re relatively small. We’re definitely the MCO’s partners in every market and really kind of come up with unique programs based on what’s happening in that local market that’s going to benefit what the MCO is trying to overcome in that market.

Analyst: Awesome.

Thank you for the color.

Operator: Your next question comes from the line of A.J. Rice with UBS Securities LLC. Your line is open.

Analyst: 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 a more challenging point as a jumping off point, how they were performing before you acquired them. 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?

Barry Port, CEO, Ensign Group: Are you.

Analyst: Did you just take a more conservative approach in the way you assume those would impact your financials?

Spencer, COO, Ensign Group: It’s a great question. I think there’s a couple of things at play. I think our assumptions haven’t really changed or our projections haven’t changed. We always try and straight down the fairway of what we think is possible if we make aggressive changes as needed. What we have seen is there is a slightly better environment that we’re seeing. Some of the areas where we’ve grown recently around agency labor, a year or two back, we were seeing some of our acquisitions where 50%, 60% of their labor was agency. When you’re having to completely rebuild a healthcare operation from the line staff up, that takes a little bit more time. That’s been an environmental thing that’s slightly better. I’d say the biggest thing though is as 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 backfill key staff positions from cluster partner buildings. We’ve got a better program of developing talent, so one facility has redundant talent that can go be leaders in another facility. As you have higher density in your acquisition, you’re able to do that without asking those employees to move across the country. There’s a lot of things at play. I would say the final thing is just we learn every acquisition we do. While they’re done locally, we have a great method for sharing and forum for sharing that. We’re constantly learning from our mistakes and from what we do.

Right.

The more we do that, you’d expect more. We get better and better over time, and I think we’re seeing a bit of that.

Chad Keetch, Chief Investment Officer, Ensign Group: Okay, great.

Analyst: Let me just ask you, I know you were 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 less sellers because of the chatter around that, or have people’s expectations around pricing adjusted in any way? 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 composite rate expectations for this year or next year?

Chad Keetch, Chief Investment Officer, Ensign Group: Yeah, I’ll take the pipeline question.

Barry Port, CEO, Ensign Group: I guess the short.

Chad Keetch, Chief Investment Officer, Ensign Group: Answer is, I guess we’ve seen.

Barry Port, CEO, Ensign Group: The thing about it is, last year it was the minimum staffing bill, right.

Chad Keetch, Chief Investment Officer, Ensign Group: The constant in our industry is there’s.

Barry Port, CEO, Ensign Group: There is always something out there that is basically regulatory change, whether.

Chad Keetch, Chief Investment Officer, Ensign Group: It’s, you know, rates or, you know.

Barry Port, CEO, Ensign Group: Some kind of staffing requirement or whatever it is. I think so, you know, I.

Chad Keetch, Chief Investment Officer, Ensign Group: Can’t really say I’ve seen more deals.

Barry Port, CEO, Ensign Group: It’s been really steady. Maybe the reasons of why or kind.

Chad Keetch, Chief Investment Officer, Ensign Group: Of always shifting, but it’s just a.

Barry Port, CEO, Ensign Group: A lot more deals than we could ever do are coming our way. That allows us to be.

Suzanne, Financial Executive, Ensign Group: really selective and on the rates front, we’re always active and having these discussions at a state level, like Barry mentioned, and we mentioned in our prepared remarks. We don’t see anyone shifting that way yet. It’s just part of who we are 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. If we have a state where a rate does go down, that doesn’t necessarily mean that it’s going to go to the bottom line for us. We’ve done that time and time again where our operational performance, our operational reaction to a rate decrease, there are so many different ways that we can pivot through that.

Even when we do have it identified where the rate is going to go down, we are able to work through it by changing our operational performance.

Analyst: Okay, thanks a lot.

Chad Keetch, Chief Investment Officer, Ensign Group: Thank you.

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

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