The Ensign Group Q1 2025 Earnings Report

The Ensign Group EPS Results

• Actual EPS: $1.52
• Consensus EPS: $1.50
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $1.30

The Ensign Group Revenue Results

• Actual Revenue: $1.17 billion
• Expected Revenue: $1.17 billion
• Beat/Miss: Beat by +$741.00 thousand
• YoY Revenue Growth: +16.10%

The Ensign Group Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 1:00PM ET

The Ensign Group (NASDAQ:ENSG) provides skilled nursing, senior living, and rehabilitative services. It operates through two segments: Skilled Services and Standard Bearer. The company's Skilled Services segment engages in the operation of skilled nursing facilities and rehabilitation therapy services for patients with chronic conditions, prolonged illness, and the elderly; and offers nursing facilities including specialty care, such as on-site dialysis, ventilator care, cardiac, and pulmonary management, as well as standard services comprising room and board, special nutritional programs, social services, recreational activities, entertainment, and other services. Its Standard Bearer segment is comprised of selected real estate properties owned by Standard Bearer and leased to skilled nursing and senior living operators. In addition, the company provides ancillary services consisting of digital x-ray, ultrasound, electrocardiograms, sub-acute services, dialysis, respiratory, and long-term care pharmacy and patient transportation to people in their homes or at long-term care facilities, as well as mobile diagnostics. It operates in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. The company was incorporated in 1999 and is based in San Juan Capistrano, California.

The Ensign Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ensign Group Inc. First Quarter FY twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

[Operator]

After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Mr. Kich. Please go ahead.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The 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. A replay of this call will also be available on our website until five p. M. Pacific on Saturday, 05/31/2025.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, 04/30/2025, and these statements have not been nor 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 or changes arise as a result of new information, future events, changing circumstances or for any other reason.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

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 Bear Healthcare 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.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at 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, Standerberry 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 words we, us and our in similar terms are not meant to imply nor should it be construed as meaning that The Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign Group. Also, supplement our GAAP reporting with non GAAP metrics.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

When viewed together with 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 on our Form 10 Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry?

[Barry Port, Director & CEO at The Ensign Group]

Thanks, Chad, and thank you, everyone, for joining us today. We are thrilled to announce another record setting quarter achieved by our local teams. In spite of all the industry noise, our results this quarter demonstrate that we've never been stronger, showing yet again that sound fundamentals coupled with an incredible passion can forge consistency even in an ever changing environment. Our operators set several all time highs during the quarter, which are only made possible by strong clinical outcomes achieved by our dedicated team of caregivers and frontline staff. During the quarter, we saw substantial growth across all of our buckets and in almost every market we serve.

[Barry Port, Director & CEO at The Ensign Group]

More specifically, we achieved an all time high in same store and transitioning occupancy, which increased to 82.683.5% respectively over the prior year quarter. We also saw skilled census increase for both our same store and transitioning operations by 7.69.9% respectively over the prior year quarter. In addition, our managed care census grew by 8.915.6% for our same store and transitioning operations respectively over the prior year quarter. All these improvements are the result of many factors including the relentless efforts by our local leaders to share and implement best practices that lead to stronger outcomes and earn the confidence from our residents, acute care partners, ACOs, and managed care networks. While the quarter was strong, we're even more excited about our results because they were achieved while simultaneously adding 47 new operations since January of twenty twenty four across almost every market we serve, some of which are already performing at or above our expectations.

[Barry Port, Director & CEO at The Ensign Group]

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. We continue to attract and develop caregivers and leaders and are building a formidable bullpen of caring and passionate partners who are determined to live our mission to dignify post acute care. In addition, we continue to see improvements in turnover and limited use of agency staffing labor, all of which are critical to maintaining our cultural values and continuity of care. After such a strong first quarter, including some faster than expected contributions from some of our newly acquired operations, we are raising our annual 2025 earnings guidance to between $6.22 and $6.38 per diluted share, up from $6.16 to $6.34 per diluted share. The new midpoint of this increased 2025 earnings guidance represents an increase of 14.5% over our 2024 results and is 32% higher than our 2023 results.

[Barry Port, Director & CEO at The Ensign Group]

We're also increasing our annual revenue guidance to $4,890,000,000 to $4,940,000,000 up from $4,830,000,000 to $4,910,000,000 to account for our current quarter growth and acquisitions we anticipate closing during the first half of twenty twenty five. We are excited about our start to the 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. When we consider the current health of our organization combined with our culture and proven local leadership strategy, we are well positioned to continue executing our operational model. With all that said, we see so much more room for further improvement and we continue to optimize operational efficiencies, expand services, and create new partnerships, all of which will drive further improvements in occupancy and skilled mix.

[Barry Port, Director & CEO at The Ensign Group]

We look forward to continuing to build on the momentum from the first quarter into the rest of the year as we continue to successfully unlock value and opportunity in the dozens of recently acquired operations. This performance is not due to some large events or single transformative transaction, but instead is the result of steady and consistent growth and performance quarter after quarter, which comes from a collective belief and a commitment held by all of our partners to expand our mission in a methodical and thoughtful way. Next, I'll ask Chad to share some additional insights regarding our recent growth. Chad?

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

Thank you, Barry. We continued our steady pace of growth by adding 19 new operations, including eight real estate assets during the quarter and since. These include the following, one in Alabama, one in Oregon, one in Washington, one in Texas, two in Alaska, two in Arizona, three in California and eight in Tennessee. In total, we added nineteen oh six new skilled nursing beds and 200 senior living units across eight states. This growth brings the number of operations acquired during 2024 and Scents to 47.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

We are very excited to add density to one of our newest markets in Tennessee and to add our first operation in Alabama. When we enter into new states, we tend to see an uptick in opportunities in those geographies. We are seeing more opportunities to deepen our presence in the Southeast and expect to do so over time. We're also excited to grow in Oregon and Alaska for the first time. As with our other new states, our entrance into these new markets have been driven by proven enzyme leaders who are committed to and have a connection with the new geography.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

As we have seen and said before, when we go into a new state, we typically look to start with one or two buildings so we can establish a solid launching point for more growth. This has played out time and time again with our most recent example being Tennessee. These footholds eventually lead to growth into multiple clusters, which will eventually comprise a sizable market. We look forward to bolstering our presence in those markets over time. In the meantime, we continue to prioritize growth in our established geographies as it allows our clusters to provide a comprehensive solution to the health care needs in those markets.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

While we continue to evaluate new states that fit our criteria, we will prioritize growth in our established geographies. This not only allows us to deepen our commitment to those markets, but because our transitions don't rely on a centralized acquisition team, our growth is not limited by typical corporate bottlenecks. Instead, we look to the local cluster partners to implement the transition plans. So while our pace of growth remains strong, the distribution of our growth across many markets leaves us with significant bandwidth to grow in most of our markets. We still see significant opportunity to continue to add meaningful density in the markets we know best and are making progress on several additions that we expect to close in the next few months.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

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 an opportunity to lead. We still see evidence that many operators in this industry are struggling, and we expect the operating environment will translate into many near term and long term opportunities to both lease and acquire post acute care assets. However, we do not set arbitrary growth goals and will remain true to our disciplined acquisition strategy. We only grow when we have the right leaders in place and the pricing is right. The scalability of our growth model, our healthy balance sheet combined with numerous opportunities you see in our existing footprint give us enormous potential to continue to apply our proven acquisition and transition strategies in 2025.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

We anticipate the current rate of acquisitions to continue this year and remain committed to staying true to the proven deal criteria that has allowed us to grow in a healthy and sustainable way. We continue to see more opportunities to acquire new operations, and our focus is to carefully choose acquisitions that will be accretive to our shareholders both in the near and long term. We are also providing additional disclosure on Standard Bear, which added 13 new assets during the quarter and since and is now comprised of 137 owned properties. Of these assets, 104 are leased to an Ensign affiliated operator and 34 are leased to third party operators. Going forward, Standard Bear will continue to work together with its operating partners at Ensign to acquire portfolios comprised of operations that Ensign would operate and facilities that third parties are interested in operating under a lease.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

Collectively, Standard Bear generated rental revenue of $28,400,000 for the quarter, of which $23,900,000 was derived from Ensign affiliated operations. For the quarter, Standard Bear reported a $17,100,000 in FFO as of the end of the quarter and had an EBITDAR to rent coverage ratio of 2.6 times. And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. Spencer?

[Spencer Burton, President & COO at The Ensign Group]

Thanks, Chad, and hello, everyone. Today, I'm excited to share two facility examples that illustrate the consistent operational momentum that we are seeing as local teams continue to respond to stakeholders in their communities. I hope that these real life examples can help explain why we feel so encouraged by our Q1 results and confident in the ability of our model to continue to produce exceptional results going forward regardless of the external forces or challenges that may exist. The first example comes from our transitioning bucket. Vomita Post Acute Care Center located in the Los Angeles, California area and led by executive director Kyle Armstrong and director of nurses Carla Lemfueco.

[Spencer Burton, President & COO at The Ensign Group]

This 68 bed skilled nursing facility was acquired during Q1 of twenty twenty three. During the recently closed quarter, Lomita saw revenues increased by 17.7% and EBIT improved by an impressive 86.4% compared to Q1 of twenty twenty four. Over the same period, occupancy grew by 2%, but the bigger story was the facility's strategic growth in skilled mix. For example, Medicare days increased by 19.8% and managed care days grew by 85.7%. This growth in skilled census was made possible by the facility's commitment to quality, which is evident in it being the only skilled facility in its geography that carries a five star quality measures and five star overall rating from CMS.

[Spencer Burton, President & COO at The Ensign Group]

The five star ratings have given the Lomita team strong credibility with the health plans, the hospitals and discharging facilities in their area. Another major factor in Lomita's financial success has been their ability to improve the continuity of care and reduce labor costs through improved staff retention. During Q1, Lomita reduced its caregiver turnover by 36% compared to prior year quarter. This workforce stabilization directly decreased onboarding and overtime costs and in turn increased EBIT margin. But most importantly, it resulted in a healthy work environment where caregivers can trust their coworkers, build clinical competency, and achieve great health care outcomes for the residents they serve.

[Spencer Burton, President & COO at The Ensign Group]

The second facility highlight I want to share represents the exciting same store growth that continues to occur in facilities that have been part of the organization for a long time. Copperfield Healthcare and Rehabilitation in Houston, Texas is a 124 bed SNF that was acquired in 2016. During the period following transition, Copperfield made steady clinical and financial progress. However, during the past year, the facility has truly transformed into the community's facility of choice under the leadership of Rui Kapoor, CEO and Wanda Preston, director of nursing. For example, in Q1 Copperfield averaged 90.7% occupancy, an increase of 11% over prior year quarter.

[Spencer Burton, President & COO at The Ensign Group]

To give some context, the average occupancy for nonaffiliated SNFs in the state of Texas is under 64%. During that same period, skilled Medicare days grew by nearly 43%, while the already healthy managed care census improved by 14.8%. As you would expect, there's a clinical story behind the strong increases in skilled mix that Copperfield has achieved. In a medical hub like Houston, health plans and hospital systems demand quality from their post acute partners And Copperfield's ability to maintain CMS five star quality measures and overall ratings has provided the facility access to contracts that are closed to most providers. Notably,

[Spencer Burton, President & COO at The Ensign Group]

many

[Spencer Burton, President & COO at The Ensign Group]

of the Medicare lives in Houston are now being managed through ACOs, which means that the hospital systems can be at financial risk if the patients they discharge have poor health outcomes or have to return to acute hospitals. Similarly, managed care plans in the area have narrowed their networks and are guiding their members needing post acute care to providers like Copperfield that score high on quality outcomes. As acuity has increased, Copperfield's multidisciplinary clinical team has partnered with and even received training from their acute hospital partners, which has empowered Copperfield to confidently care for patients with medical conditions and equipment that would overwhelm most SNF level care teams. As demonstrated by both Lomita and Copperfield, it's a very exciting time to be in post acute care. There continues to be strong demand for quality care and as facilities like Lomita and Copperfield demonstrate clinical competency and willingness to partner with hospitals and health plans, they are rewarded with higher occupancy, improved payer mix and the ability to provide life changing outcomes for more and more patients and staff.

[Spencer Burton, President & COO at The Ensign Group]

And 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, CFO, EVP & Director at The Ensign Group]

Thank you, Spencer and good morning everyone. Detailed financials for the quarter are contained in our 10 Q and press release filed yesterday. Some additional highlights include the following: GAAP diluted earnings per share was $1.37 an increase of 15.1% Adjusted diluted earnings per share was $1.52 an increase of 16.9%. Consolidated GAAP revenue and adjusted revenues were both $1,200,000,000 an increase of 16.1%. GAAP net income was $80,300,000 an increase of 16.6%.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

Adjusted net income was $89,000,000 an increase of 18%. Other key metrics as of March 31 include cash and cash equivalents of 282,700,000 and cash flow from operations of $72,200,000 During the quarter, we spent more than $190,000,000 to execute on 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 2.13 times 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 currently have approximately 570,000,000 of available capacity under our line of credit, which when combined with cash and investments on our balance sheet, give us over a billion dollars in dry powder for future growth.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

We also own a 43 assets, of which a 37 are held by Standard Bear, and a 19 are owned completely debt free and are gaining significant value over time, adding even more liquidity to help with future growth. The company paid a quarterly cash dividend of $6.25 per common share. We have a long history of paying dividends and have increased the annual dividend for twenty two consecutive years. In addition, as one of our many ways to deploy capital, we recently completed a $20,000,000 stock repurchase program, we believe, at attractive prices. As we've done in the past, we'll always consider stock repurchases when we feel the market is undervaluing our shares.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

As Barry mentioned, we are increasing our annual twenty twenty five earnings guidance to between $6.22 to $6.38 per diluted share, and our annual revenue guidance to $4,890,000,000 to $4,940,000,000 We had evaluated multiple scenarios, based on the strength in our performance and positive momentum we have seen in occupancy and skilled mix as well as the continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these goals. Our 2025 guidance is based on diluted weighted average common shares outstanding of approximately 59,500,000.0 a tax rate of 25%, the inclusion of acquisitions closed or expected to be closed through the second quarter of twenty twenty five, 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 can impact the quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence on our general economy and census and staffing, the short term impact of our activities, variations in insurance and pros, and other factors. And with that, I'll turn it back to Barry. Barry?

[Barry Port, Director & CEO at The Ensign Group]

Thanks, Suzanne. As we wrap up, we we can't emphasize how, again, incredibly honored and grateful we are to work alongside our operational leaders, our field resources, our clinical partners, and our service center team that are behind these record setting results. We never cease to be amazed by their impressive resiliency, innovation and passion. Their commitment has blessed the lives of so many, including our own, and we're excited about our future because of these amazing partners. We have complete faith in them and in the culture that they have collectively built.

[Barry Port, Director & CEO at The Ensign Group]

Now we'll take some questions. Kate, can you instruct us on the Q and A procedure?

[Operator]

Your first question comes from the line of Ben Hendrix with RBC Capital Markets. Please go ahead.

[Ben Hendrix, Vice President at RBC Capital Markets]

Great. Thank you very much guys. And thank you for the color on Mamita and Copperfield. I wanted to follow-up on a couple of points there, specifically the comments you made around managed care contracting in the narrowing of networks. Just maybe you can give us an overview of what you're seeing broadly in terms of the appetite for value based and outcome based contracts and how that's helping you guys gain a little confidence in supporting this this guidance raise?

[Ben Hendrix, Vice President at RBC Capital Markets]

Thanks.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

Great question. We really have had a long history history of this. Know, managed care isn't new to us. I think a lot of others might have shied away from managed care, but we've been right there from the get go. And I think when you really try and strive to have partnerships with the NCOs and create a different level of relationship locally because we have a local leadership.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

It allows us to have a different connection to them. It allows us to actually drive and and, you know, create the ability to have success together with them. And so I think those examples that Spencer shared are really just what we're trying to do throughout the organization of having that partnership at a deeper level for us to make it a win win for both the MCO as well as our our local facilities. And and as we go through that, that's how it works. It's really that that discussion on a local level.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

How can we help each other really get their members, our patients in a better spot clinically. And and and that then when you go with that clinical focus, the financial return usually typically comes along with that. And so that's what we're we strive for and having those relationships continue to develop and enhance with our resources from the managed care team and the SDR team really pushing on that as well as that local partnership with the facility.

[Barry Port, Director & CEO at The Ensign Group]

And I think just just to add a tiny bit more color on that is that the you know, what's important is that, you combine all of that, the relationships, the drive, the the understanding of the market and the environment with a sophisticated back office that allows leaders to see real time metrics and share some of those metrics with their partners and work in collaboration with them to achieve the outcomes for the the members that they're they're driving and hoping for, it it creates an opportunity where you have a partnership between local leaders and those managed care plans that ultimately drives volume because of their ability to take a sicker patient profile and achieve what's expected.

[Ben Hendrix, Vice President at RBC Capital Markets]

Great. Thank you for that. And then, just, in in light of the the guidance raised, we just get lots and lots of questions on, your positioning against policy. So forgive me for the requisite policy question, but, you know, just how are you guys what are your latest thoughts on, you know, what could come out of Washington, how you're positioned, and, specifically around the, potential for supplemental Medicaid cuts? Thanks.

[Barry Port, Director & CEO at The Ensign Group]

Yeah. No problem. We're totally transparent and open about our thoughts on this. We are approaching this in very much the same way we did with the staffing minimum issue that we've dealt with over the last year or so, which is to say that we are actively involved in the advocacy process. I personally met with leadership in both the House and the Senate.

[Barry Port, Director & CEO at The Ensign Group]

Our association has been enormously efficient and effective at setting up meetings to educate members of Congress and help them understand the implications of of any potential changes or discussions around certain funding aspects, whether it be provider tax related or or directed payments to states. And they've been great meetings. There's been some light bulb moments where we've had members of Congress come into a new understanding of how some of these programs that have been around for thirty plus years that have been that are CMS approved every rate cycle, how they work and why they work the way they do. There's certainly opportunity for change in the Medicaid program. And and we know that and they know that.

[Barry Port, Director & CEO at The Ensign Group]

But our approach right now is to make sure they're they're fully educated and understanding of of of what what's what's good for funding to the industry and what what is potentially harmful because they they don't always necessarily see how everything trickles down and functions, and and they've been incredibly receptive. I'd highlight that, you know, president Trump has been very direct about his both view of the Medicaid program and his protection of it. I think members of congress are hearing that loud and clear. As we sit here today, you know, what what we feel like as far as the direction things are headed is that there's more of a focus on the expansion population. Even news you heard about yesterday on per capita caps and other ideas are all primarily targeted towards the expansion population and not who the original recipients of the Medicaid program were intended for.

[Barry Port, Director & CEO at The Ensign Group]

And that's what we see the trends, at least in the last week or two, are positive. This won't be done soon. The reconciliation process will probably continue through July, at least. And we'll continue to stay very active and involved in the process and make sure that we we continue to make sure our voices are heard on all all of these issues.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

And just as I add, we as you remember, we beneficiary of that expansion population. So that part of it bodes well for us if that's the continued focus.

[Ben Hendrix, Vice President at RBC Capital Markets]

Thanks, guys.

[Operator]

Your next question comes from the line of Tauke with Macquarie Capital. Please go ahead.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

Thank you. Good morning. First question, the $200,000,000 investment spend this quarter sets a record in company history. I think it was mainly from one health system seller. There was another $1,000,000,000 portfolio transaction in February.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

Are you seeing any changes in deal volume, market dynamics or any seller mentality changes? In other words, how sustainable do you think the current pace of investment is in the next twelve months? And then if you could comment on kind of the mix between real estate versus lease deals in your investment pipeline?

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

Yes. Thanks, Tal. So it certainly was a strong quarter from a perspective of putting capital to work for sure. In terms of the deal flow, I would say it's really just a continuation of what we've seen over the last year to eighteen months and that's just a lot of stuff for sale all the time. So there's more deals out there than we could ever do.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

And so we're as I said in my prepared remarks, we're sticking to our principles and our disciplined approach there and remain very selective in the deals that we underwrite and ultimately consummate. The $200,000,000 ish in investment in the quarter was mostly driven by the fact that a lot of our deals were real estate. And as you know and those that have been following us know well, if we have a wish list, our first desire would be to own the real estate and operate it with an Ensign affiliated operator. Our second priority would be to get a enter into a lease and and have an Ensign affiliated operator operate it. And then the third would be to buy the real estate and then have a third party enter into a lease with with our real estate entity.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

And I think the deal flow and as you look through our press release, you'll kind of see how those priorities lay out. This particular quarter, was more real estate than I would say as usual. But we're always trying to achieve that. So certainly, cash position and the amount of liquidity we have from and Suzanne mentioned our revolving line of credit, we have tons of dry powder to continue on that pace. I will say that the deals that we have for the remainder of the year, at least the ones that we have visibility into right now, are probably more lease focused than real estate.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

And again, we're just opportunistic about how that mix plays out. But certainly, excited about the opportunities that are in front of us. The real focus and the real question is making sure that we have a leadership pipeline that's ready to go to take on these operations. And that still remains kind of our most important, I guess, limiter on growth is talent, less so on capital.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

Appreciate the color. My second question is on staffing. You know, your portfolio occupancy is at a record high. I think it's 200 basis point above pre pandemic levels. Skill mix is also higher than twenty nineteen.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

But if we look at nursing facility jobs, you know, broadly, they haven't, you know, fully recovered and they're in intense competition with other health care settings, particularly particularly for skilled staff. I'm wondering if you could comment on, number one, whether there are still staffing constraints or pressure points that limit admissions, particularly around skilled patients? And second, where do you think occupancy would need to be, you know, when we will see accelerating operating leverage, assuming it is another linear relationship.

[Barry Port, Director & CEO at The Ensign Group]

Yeah. I it's a great question, Tal. And I you know, from a macro perspective, certainly, you know, when you look at the amount of workers that left our our sector during COVID, it's our sector itself is not fully recovered yet. And there are fewer workers in post acute care than there were in, specifically, skilled nursing care than there were prior to the pandemic, while all other sectors have recovered and then some. That said, I you know, we're probably an anomaly when it comes to that.

[Barry Port, Director & CEO at The Ensign Group]

Our recovery, while I would never say it's always, you know, completely, you know, finished, We're somewhere near pre pandemic levels in agency staffing. Our turnover is consistently improving. Our pace of wage inflation has moderated to pre pandemic levels. And we and I say we referring to our operators and leaders in the field have been very successful at staying ahead of the curve when it comes you know, finding talent and recovering enough to be able to do what they've been doing, which is to, you know, continue to see occupancy rise without any compromise in how they staff. They've been able to fill positions in order to do so.

[Barry Port, Director & CEO at The Ensign Group]

And I you know, we have a high level of confidence that they'll continue to be able to, you know, remain on that path without having to compromise in some way by adding agency staffing. And and we feel confident in that. It's just in seeing what the trends have been over the last many months, which is to say that agency staffing continues to decrease while our overall occupancy continues to increase. So you're right to point out that the demand is there. I wouldn't say we're limiting admissions because of staffing, because our leaders have found ways to fill positions and keep the flywheel moving.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

If I may just, you know, on the second part of my question, you know, I know that some senior living operator, they call 85% occupancy kind of imagine number, where they will see, increasing operating leverage. I mean, are you seeing is there a matching number in skilled nursing in your experience?

[Barry Port, Director & CEO at The Ensign Group]

No. No. We don't see some magic number. In fact, you know, I I think we see the organic, you know, upside as as something that has always been an opportunity that we've been deliberate in explaining to folks that even if we had to stop growing through acquisitions because of pricing or leadership concerns, we see facilities with all of that upside to take advantage of that could keep our growth moving for several years even. So no, we don't see a cap.

[Barry Port, Director & CEO at The Ensign Group]

We don't see a sweet spot. We see facilities that continuously move. If you were to take our same store operations and examine them closely, you would see a pathway or a movement kind of to higher and higher occupancy over many, many, many years. And, so so that that's why we have that confidence because we see we see how that's played out over the course of our history.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

Yeah. And on the leveraging question, I think we have and seen kind of, like, that stability. And I think during COVID, we were we were playing catch up. First, we're trying to add for agency. Second, we've been trying to right size where the the wages were at on an individual basis.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

And I think you saw that through last year, and all of our commentary through last year was, hey. We're still having to have and we're running after wages. This year, what we're saying is that we see stability now. And so I think stability after stability becomes the ability to leverage after on the on the leveraging points. And so I would say, right now, we're in stability phase, and then I think there's an ability for us to continue to leverage, especially if there's recession.

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

Right? One of the things that happens for us is when there's recession, we do definitely see more opportunity on the on the nursing front and other things where people come back into the workforce, which creates even more leverageability in that process service line.

[Tao Qiu, Equity Research Analyst at Macquarie Group]

That's super helpful. Thank you.

[Operator]

Your next question comes from the line of A. J. Rice with UBS. Please go ahead.

[A.J. Rice, Managing Director at UBS Group]

Thanks. Hi, everybody. Maybe just first to ask about a little further on your deal activity. It seemed like your enthusiasm level for the what you're seeing in the pipeline and all is even a little increased. I wonder two aspects to that.

[A.J. Rice, Managing Director at UBS Group]

Is the competitive landscape from your perspective, who you're seeing when you're looking at properties? Is it somehow easing? Are you seeing a little less competition for deals right now? And then you mentioned moving into some new markets, particularly, noted the Southeast. I know the payment rates are generally for Medicaid lower down there, but the labor rates are also lower.

[A.J. Rice, Managing Director at UBS Group]

Can you get the same economics in some of those newer markets that you've gotten historically in some of your more established markets?

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

Yeah. Great question. So in terms of the the competition for deals, I I would tell you that we haven't really seen that change. It's it's kind of the the same usual suspects that we keep bumping into, and most of that, would say, is probably private equity and other sort of family based funds and groups like that that are frequently looking to buy in our space. So this last deal that involved the eight buildings in the Northwest as an example, that was a process that the Providence Health System was very, very selective in choosing who the buyer would be.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

And of course, the economics were part of it, but they did several interviews and came to tour our buildings and met with our leadership team and, you know and they selected us as the buyer because of our operational history and reputation and, you know, our our our track record on closing successfully, you know, especially deals from nonprofit faith based sellers. So that's an example of one that we tend to win the deals that we want and that we think are fair. So yeah, competition is really kind of the same, I would say. In terms of kind of the Southwest or the Southeast, yeah, we're we're really excited about the the market there, and and certainly, labor dynamics are playing into that. And And that's where, as Barry was talking about earlier, having local operators boots on the ground in those markets, having their input and their heavy involvement in underwriting all these acquisitions is really a key to to, you know, how we evaluate these.

[Chad Keetch, Chief Investment Officer, Executive VP & Secretary at The Ensign Group]

Those dynamics of of the, you know, labor environment and, you know, the rate environment and, really, you know, all of it, which is so unique by market, We don't have to be the experts on that necessarily here because they are. They're the experts in in their particular market. And and so, you know, with those folks out in in you know, that that have kind of gone to the Southeast to help plant a flag there, you know, leading the way, I I fully expect that we can, you know, accomplish there what we have in in some of our most mature states.

[A.J. Rice, Managing Director at UBS Group]

Okay. And maybe just one follow-up. I appreciate your comments earlier about all the noise out of Washington and and how to think about that. I wondered in your discussions with states right now and what you're hearing with regard to rate updates, and so forth on the Medicaid side. Is any of that discussion, or overhang of what's going on in Washington seeping into those discussions?

[A.J. Rice, Managing Director at UBS Group]

Do you have a thought on what you're anticipating composite, Medicaid rate update, across your portfolio might look like? I know there's a lot of mid year updates. And, you know, how are they thinking about contingency planning for the discussion around all these variables, provider taxes, etcetera, that are under review in Washington?

[Barry Port, Director & CEO at The Ensign Group]

Well, it's a great question, and there's an assumption there that the states act proactively when it comes to, discussions around Medicaid funding. And I I think for the most part, you know, we have not heard any, you know, proactive discussions nor had an invitation to be involved in any. And I think most of that is justified. This environment around, you know, Medicaid discussions in Washington, it changes literally daily. And where their focus and attention is changes almost daily.

[Barry Port, Director & CEO at The Ensign Group]

And and because of that, I I I don't I think people are pretty slow to wanna overly anticipate or overly react to one narrative or another that may or may not be included in the reconciliation process. So to answer your question, generally, no. There there really hasn't been any meaningful discussion with the states, and and nor do I feel like many of them are doing a whole heck of a lot to make adjustments until they have more clarity on what what could be the potential changes for them. As for rate visibility, luckily, most of our rate cycles are kind of determined ahead of the year. And so throughout this year, we we've got really good visibility into where things are headed regardless of what happens.

[Barry Port, Director & CEO at The Ensign Group]

So and, Suzanne, anything you wanna add to that?

[Suzanne Snapper, CFO, EVP & Director at The Ensign Group]

Like, when you start targeting to talk about the stakes, we're always actively involved in talking to them about what's happening in the next rate setting year, continuously educating them of what's going on at our local facility and kind of the pressures that we have or don't have in particular markets. And so I think that's a continuous process that we're actively involved in at the state level, the state rates that come kind of in late q early q three and, like, q three. But so, like, those discussions are going overall very well. It's just helping to understand the environment.

[A.J. Rice, Managing Director at UBS Group]

Okay. Thanks a lot.

[Operator]

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

Participants

Executives

• Chad Keetch, Chief Investment Officer, Executive VP & Secretary
• Barry Port, Director & CEO
• Spencer Burton, President & COO
• Suzanne Snapper, CFO, EVP & Director

Analysts

• Ben Hendrix, Vice President at RBC Capital Markets
• Tao Qiu, Equity Research Analyst at Macquarie Group
• A.J. Rice, Managing Director at UBS Group