The Ensign Group, Inc. Q4 FY2025 earnings call

• Clinical outcomes: Same-store Ensign-related operations outperformed peers in CMS data, with 24% state-level and 33% county-level better performance. Ensign affiliated operations had 19% advantage in 4- and 5-star rated buildings. Same-store operations outperformed in 5-star quality measures.
• Occupancy and mix: Same-store and transitioning occupancy at all-time highs (83.8% and 84.9%). Skilled days increased, Medicare and managed care revenue grew.
• Acquisitions: Added 17 new operations, including 1,371 skilled nursing beds across 7 states. Recently acquired operations make up 21.7% of the portfolio.
• Construction projects: Completed 40-bed addition at Vista Knoll and replacement facility in La Mesa, California.
• Standard Bearer: Added 12 new assets, now has 154 owned properties, $34.5 million rental revenue in the quarter.

For the quarter, consolidated revenue was $1.4 billion, an increase of 20.2%. GAAP diluted earnings per share was $1.61, an increase of 18.4%. Adjusted diluted earnings per share was $1.82, an increase of 22.1%. Standard Bearer Healthcare REIT generated rental revenue of $34.5 million for the quarter, with $29.3 million derived from Ensign affiliated operations. As of December 31, 2025, cash and cash equivalents were $504 million and cash flow from operations was $564 million.

• 2026 earnings guidance: $7.41 to $7.61 per diluted share, annual revenue guidance $5.77 billion to $5.84 billion. Midpoint of earnings guidance represents 14.3% increase over 2025 results.
• Based on diluted weighted average common shares, tax rate, inclusion of acquisitions, and other factors. Confidence in achieving results due to performance momentum, occupancy, skilled mix, and operational initiatives.

Forward-looking statements subject to risks and uncertainties, including variations in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, influence of general economy on census and staffing, short-term impact of acquisition activities, variations in insurance accruals.

Q: Congrats on the quarter and the guide. Just wanted to start out on M&A. It sounds like you're perhaps seeing some more opportunities to come around with a more diverse group of sellers than you've talked about in the past. So can you guys just talk about what you're seeing in terms of the pipeline, valuations, et cetera? And has anything changed about how you guys are approaching opportunities? And then finally, just are there any markets or geographies in particular, where you're seeing opportunity?

A: Yes. I appreciate the question. So we certainly are seeing a pretty healthy pipeline. I would probably describe the market as seller-friendly in terms of values have risen. And I think because of that, a lot of people are bringing their stuff for sale. So we're seeing new deals frequently that are opportunities for us. So -- and yes, I would also say that pricing has definitely gone up. All that said, as I said in my prepared remarks, we are seeing tons of our traditional onesie-twosies and smaller portfolios in addition to that, some larger ones. I wouldn't say that the way we've looked at deals has changed. I would just kind of point out, though, is, again, as we talked about in the prepared remarks, when there are high-quality assets that newer construction, have higher occupancies and higher skilled mix, those sometimes deserve a premium. And we've recently shown that we would do that in the Utah acquisition that we closed during the quarter. And so -- and those are performing really well. So for us, when we talk about disciplined growth, we definitely are looking to make sure that there's a pathway both in the short run, medium range and the long term to create shareholder value. But the total cost of the acquisition, it means when you're buying an older asset, sometimes the amount you have to spend to bring it up to current standards and then maintain it over time, the CapEx spend can actually be quite heavy. And so buying newer assets can be something that we're looking to do. And so that's not necessarily new but I just wanted to highlight that as something we're seeing. But certainly excited about the opportunities that we have for 2026.

Q: Congrats on the quarter. Just wanted to ask a reimbursement question, specifically on Medicare fee-for-service, the Part A piece. We've gotten some questions over the new value-based purchasing program metrics and how those factor in. I would assume that you're pretty well positioned that given some of the nursing turnover and retention commentary you've provided. But then just looking at some of the other measures that have kind of rolled on to the program like the health care associated infections, just wondering kind of how you're faring there and what your outlook is given that you do have a higher acuity patient base versus the rest of the industry. Any comments or observations into the year?

A: It's a great question, Ben. I think when we kind of look across any time a new program is implemented, we get excited when the state or the federal government looks to quality and looks for us to be measured upon quality. And this is another one where when we can look at the quality metrics and it's clearly outlined, we have an opportunity to showcase how we can do it and have our clinical leaders really lead out on that. And so when we look at these quality metrics, we -- like we always do, have dashboards and other things that allow us then to ensure that we are measuring those outcomes and measuring them and giving that information to our frontline staff and then show that we can do it really, really well.

Q: Maybe just one on kind of clicking into the commentary around just further expansion and opportunity with same-store occupancy and that being able to sustain kind of the organic growth momentum you've seen over the past couple of years. Seeing how 2025 showcased 200 basis points of improvement. I'm just kind of curious on what the magnitude in terms of guidance is kind of baked into 2026. And then maybe just any color on seasonality expectations would be helpful as well.

A: Yes, it's a great question. I think that our expectation is that 2026 will, in many ways, mirror what we saw in 2025. We always kind of caution about seasonality, and it's somewhat of an unpredictable factor when it comes to what the summer months will look like in the end. But we're coming off of a couple of really strong years in those months that -- where seasonality has been much lighter. We'll always see skilled mix decline in the middle of the year. But I think the way we look at our -- we forecast our progress in the future, we kind of see overall occupancy headed in a similar direction to what we saw progress through last year.

Q: Maybe just kind of thinking about some of the incremental investments in 2026. I'm just curious on maybe any kind of utilization or integration of AI across different functions of the operations or any build-out of clinical capabilities? And then also maybe just on the one point around some of the construction projects, whether or not that's -- if there's kind of something in the future around that or these are just more opportunistic in nature that you highlighted today and how we should kind of think about that from the longer-term perspective?

A: Yes. Look, AI is kind of the buzzword of the day for sure. We have been highly involved in looking at opportunities where we can leverage mostly our existing partnerships with a lot of our enterprise providers for our different software systems, ERP, our clinical documentation systems and things like that to kind of leverage the data and information that we have in a more effective way. And we've already achieved a lot of great advances in some of those areas, both on the financial side and also now looking more into the clinical side. I think our inclination will be to kind of leverage what our enterprise partners are doing first but we have also undertaken several projects using more kind of off-the-shelf solutions that AI can provide us that are cost effective and allow us to be a little more nimble. We've got a lot of those projects underway. And we've got a great committee and thought leadership assembled that provides us steering and guidance to make sure that we're choosing the right projects in an effective and again, thoughtful and deliberate way that will be primarily helpful to those that have a lot of kind of mundane administrative things that can be solved with some of that technology. But looking more into the future, we're really excited about how we can leverage the data that we have about our patients and residents and use that information and leverage that information by our caregivers to make better and more nimble clinical decisions. So there's some exciting things that are kind of on the horizon in that area for us that we look forward to.

Q: This is James on for A.J. I just wanted to see if you can provide an update on the traction you're seeing in taking on managed care patients on the behavioral health side as some of these MCOs have had some trouble finding facilities to place these patients? And just any update on up there?

A: I mean I think a good example of what you're asking about is, again, we referred to this in our highlighted remarks, although we didn't give a lot of detail on what the purpose for the new addition was at Vista Knoll but that new unit we just constructed that's now essentially full after just a couple of months is entirely dedicated to behavioral patient use and highlights the growing need that you're mentioning, James. So there is a need out there, no question. I would say that it's a focus of ours to do it in a deliberate and thoughtful way in markets that make sense. We have -- and we've mentioned this in prior calls but we've got a strategy to do just that in some of our more mature markets like California, Arizona and Texas. With some others that are looking at it closely, too, and we do it certainly in careful partnership with the managed care plans that are having those needs. And so it's something that I think you'll probably hear more about as we go into the future. I wouldn't call it something that's a critical core strategy, rather, it's a strategy that certain markets are focused on implementing based on the needs that they're seeing.