The Ensign Group, Inc. Price & Performance (ENSG)

Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, it is available on the Investor Relations section of our website at enzymegroup.net. A replay of this call will also be available on our website until The Pacific on Friday, 02/28/2025. We want to remind anyone that might be listening to a replay of this call that all statements are made as of today, February 6, 2025, and these statements have not been or will be updated subsequent to today's call. Also, any forward looking statements made today are based on management's current expectations, assumptions The 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 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 The 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 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, Power and Us refer to the Ensign Group Inc. And its consolidated subsidiaries. All of our independent subsidiaries of Service Centers, Standardbury Healthcare REIT, and the Insurance Captive are operated by separate independent companies that have their own management employees and assets. References here into the consolidated company and its assets and activities as well as the use of the words we, us and our and similar terms are not meant to imply nor should be construed as meaning that The Ensign Group has direct operating or that any of the subsidiaries are operated by the Inzang Group.

Also, we supplement our GAAP reporting with non GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more 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 is available in our Form 10 ks And with that, I'll turn the call over to Barry Port, our CEO. Barry? Thanks, Chad, and thank you all for joining us today. Our leaders and their teams across the organization once again posted record and continue to build remarkable momentum in each market our portfolio. Our success is entirely due to the efforts and commitment of those leadership teams, caregivers, field resources and service center partners. One of our most important priorities is to support those that care for our patients every day. That core value of customer second is something our teams across the organization is [indiscernible] as we attract and develop caregivers and leaders. We are building a formidable bullpen of caring and passionate partners who are determined to live our mission to dictate post acute care. After another record year in the quarter, excited about the many opportunities to continue to grow this effort by capturing the enormous upside in our portfolios we relentlessly focus on fundamentals across the organization.

We are pleased to see same store and transitioning occupancy increased by 2.74.1% for the year and grew by 2.34.7% over the prior year quarter, respectively.

We also saw skill days increased by 3.8% for our same store and 10.9% for transitioning operations over the prior year quarter. In addition, our Managed Care Census grew by 6.827.7% for our same store and transitioning operations respectively, over the prior year quarter, These results demonstrate the exciting momentum even in our more mature operations. We are very pleased with these results, but even more excited about these outcomes because they were achieved while simultaneously adding 57 new operations across almost every market we serve. When we look at the combination of organic growth and new acquisitions, we see a very bright future. We are very humbled by what we were able to accomplish in 2024 and we're eager to continue to drive organic improvements and take advantage of the acquisition We're issuing our 2025 earnings guidance of $6.16 to $6.34 per diluted share and annual revenue guidance of $4,830,000,000 to $4,910,000,000 The midpoint of this 2025 earnings guidance represents an increase of 13.8% over our 2024 results and 31% higher than our 2023 results. We look forward to 2025 with confidence that our partners will continue to manage and innovate while balancing the addition of newly acquired operations.

This annual guidance comes on top of the extraordinary growth we experienced in the last few years. To put this performance in perspective, over the last five years, our total revenue increased by $2,200,000,000 or 109.2% representing a 15.9% compound annual growth rate while our diluted GAAP earnings per share grew by $3.48 in 2019 to $5.12 in 2024 representing a 25.6% compounded annual growth rate. In addition, since we spun out the Pennant Group in 2019 The, we have seen adjusted EPS grow by 209% with a CAGR of 25.3%.

This performance is not due to some large event or single [indiscernible] but instead is the result of steady and consistent growth and performance quarter after quarter which comes from a collective belief and commitment held by all of our partners to expand our mission in a methodical and thoughtful way. We look forward to the upcoming year and are confident that our partners can reach new heights in clinical and financial performance as they apply our proven locally driven model and as we evaluate our expanding portfolio, we are very and skilled mix that we experienced last year which is continuing so far into the first quarter of this year. There are so many opportunities in front of us to optimize operational efficiencies and drive occupancy and skilled mix. As we continue to successfully unlock value and offer Our leaders are poised to again showcase our ability to find acquire and transition performing underperforming operations by applying proven Ensign principles developed over twenty five years. Next, I'll ask Chad to add some additional insights regarding our growth. [indiscernible] Thank you, Barry. As we expected, we continue to add to our growing portfolio and our thrilled with the 12 new operations we added during the quarter and since.

These include the following, one in Alabama The, [indiscernible] one in Wisconsin, one in Texas and one in Nebraska. In total, we added eleven forty seven new skilled nursing beds and 16 senior living units across five states. Of these new operations, six of them included the real estate assets, which were acquired by Standard Bear and leased to an enzyme affiliated operator. This growth brings a number of operations acquired in 2023 and since to sixty four thirty eight of which were acquired since January 2024. We are excited to add density in one of our newest markets in Tennessee, and look forward to deepening our relationships in the healthcare community and building upon the foundation of our strong local leadership. Are also eager to see our first operation in Alabama gain strength and look forward to bolstering our presence in that state over time. As we have talked about before, entering new states is a significant undertaking that must be driven by a proven enzyme leader who is committed to and has a connection with the new geography. As most of you know, the foundational principle of our entire strategy is the recognition that post acute care is a locally driven business.

And the success or failure of any operation is largely determined by the quality of the leadership and the vision of the team leading each unique multimillion dollar business. In addition, having the support of local resources and experts from nearby states, has also proven to be a successful model when opening a new market. Lastly, 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. With Alabama, we were able to check all those box who was relocated to direct our efforts there in our first building. With the support of our talent in Tennessee and South Carolina. Over time, as we gain strength in our first operation, we will look to add additional facilities to establish our first Alabama cluster. As we have seen recently with Tennessee, eventually The will grow into multiple clusters, which will eventually comprise The a sizable market. We can't wait to watch Alabama become another reflection of the template of growth and development we've seen across our footprint over the last twenty five years. We remind you that we are now only in 15 states and have significant bandwidth to grow in the other 35 states.

Looking forward, we have already announced a new transaction which we expect to close in the next few months That includes two new states, Alaska and Oregon, As with Alabama, each of these new states is driven by an enzyme leader, and will represent a small investment with plans to build over time. With all that being said, during 2024 and since we added new operations in all but two of our existing 15 states. Spreading out the growth across many markets. While we will continue to evaluate new space that fit our criteria, we will prioritize growth in our established geographies. This not only allows us to deepen our commitment to these markets, but because our transitions do not rely on a centralized acquisition team, Our growth is not limited by typical corporate bottlenecks. Instead, we look to our local cluster partners to implement the transition plans. So while our rate of growth this year was strong, the distribution of our growth across many markets leads us with significant bandwidth to grow in most of our markets. We still see significant opportunity to continue to add meaningful density The the markets we know best are making progress on several additions that we expect to close in the next few months.

While we expect the current rate of acquisitions to continue this year, we remain committed to staying true to the proven deal criteria have allowed us to grow in a healthy and sustainable way. We continue to see more and more opportunities to acquire new operations and our focus is to carefully choose the acquisitions that will be accretive to shareholders. Our local leaders continue to recruit future CEOs for Ensign affiliated operations we have a deep bench of CEOs in training that are eagerly preparing for The opportunity to lead. We still see evidence that many operators in this industry are struggling we expect that the operating environment will translate into many near 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. Only grow when we have the right leaders in place and pricing is right. The scalability of our growth model, our healthy balance sheet combined with the numerous opportunities we see in our existing footprint us enormous potential to continue to apply our proven acquisition and in 2025. [indiscernible] We are also providing additional disclosure on Standard Bear, which added 13 new assets during the quarter and since is now comprised of 129 owned properties.

Of these assets, 97 are leased to an enzyme affiliated operator and 33 are leased to third party operators. 10 of these 13 new real estate assets are operated by an Ensign affiliated and three of these properties are senior living assets that are operated by a high quality third party tenant under triple net long term lease. Going forward, Standard Bear continues to work together with its operating partners at Ensign to acquire portfolios comprised of operations that Ensign would operate and facilities at third parties that are interested in operating under a lease. In addition, over the coming months, Standard Bear also [indiscernible] that will be operated by third party operators. Collectively, Standard Bear generated rental revenue of $25,100,000 for the of which $20,700,000 was derived from Ensign affiliated operations. For the quarter, Ensign reported $15,300,000 in FFO and as of the end of the quarter had an EBITDAR to rent coverage ratio of 2.5 times. And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. [indiscernible] Thank you, Chad, and hello, everyone. Incredible results that we experienced this past quarter and year were fueled by a combination of innovation and solid growth fundamentals in our more mature operations along with exciting improvements being made in our newer acquisitions.

First example comes from our same store category. Victoria Healthcare and Rehabilitation, a 79 bed skilled nursing facility located in Costa Mesa, California, became an Ensign affiliate back in 02/2003. And has been a consistent performer every year for the past two decades. The facility's consistency is driven in part by committed, stable leadership. CEO Michael Juhas has led the facility since completing his AIT program in 2015.

And Joyce Tamayo COO has been part of Victoria since joining as a frontline RN eighteen years ago. Since then, she has systematically worked through most clinical leadership roles at the facility. Including Director of Nursing. However, despite a legacy of excellence, 2024 was undeniably a breakout year for Victorian. The Victoria team grew overall occupancy from an already strong 93 in Q4 of twenty twenty three to 95.9% in Q4 of twenty twenty four. And skilled revenue mix increased to an astonishing 75.2% during that same period. An improvement of four twenty basis points This performance was fueled by strong growth both in Medicare and Managed Care Days, Costa Mesa is a highly complex and competitive environment. With deep saturation of managed care and hospital based health plans. So Victoria's census growth was only made possible by a consistent achievement of outstanding clinical outcomes. Victoria is currently rated five star by CMS for health inspections, quality measures and overall. Even more impressive, despite operating in a very rigorous state regulatory region, Victoria's state survey scores are 14x better than the California The. As you would expect, these clinical and occupancy results have led to growth in the business. Revenues increased 14% in Q4 over prior year quarter and EBIT skyrocketed during that same period.

Victoria is a prime example of the ongoing potential in legacy operations that can be tapped a strong experienced teams build clinical excellence. Our second example comes from our transitioning facilities group, Boulder Canyon Health and Rehabilitation is a 140 bed SNF was acquired in 2021. It demonstrates how a turnaround occurs as local leaders apply proven enzyme principles to their unique and often difficult circumstances. As of the transition date, Boulder Canyon was a one star facility. With occupancy below 60%. The facility was losing money and was deeply dependent on nursing agency just to meet basic patient needs. Despite these challenges, CEO Ray Lauritzen COO, Geralyn Lindsay and their team, went to work. They methodically established a culture of love and high achievement. And actively recruited the top clinical talent in their area. Build an impressive leadership team and focused on elevating the experience of the frontline employees. As a result, in 2024, the facility completely eliminated nurse agency use. Despite growing their workforce to care for increased acuity and occupancy. While quality transformations were happening inside the facility, the Colorado resource team worked alongside facility leaders and cluster partners to transform Boulder Canyon's external reputation. Including winning over local hospital systems and key managed care organizations.

Recently, one of Colorado's largest narrow network plans added Boulder Canyon as a preferred provider. Based on the changes in the facility's quality metrics, and the trust that they had built, working with The sister facility over the years. Today, Boulder Canyon enjoys a newly remodeled physical plant. Great quality metrics and an overall five star rating from CMS. Total occupancy for Q4 of twenty twenty four averaged 84.4%. With skilled Medicare days increasing by 70% and managed care days growing by over 200%. Compared to Q4 of twenty twenty three. [indiscernible] This stability in labor and growth in census has resulted in a 23% increase in net revenue. And a 131% growth in EBIT over the prior year quarter. And if you ask the team at Boulder Canyon, they are just scratching the facility's potential. With that, I'll turn the time over to Suzanne to provide more detail the company's financial performance and our guidance. And then we'll open up for questions. Suzanne?

Thank you, Victor, and good morning, everyone. Detailed financial for the year and the quarter are contained in our 10 ks press release filed yesterday. Some additional highlights include the following for the year. GAAP diluted earnings per share was $5.12 an increase of 40.3%. Adjusted diluted earnings per share was $5.5 an increase of 15.3%. Consolidated GAAP revenues and adjusted revenues were both 4,300,000,000.0 an increase of 14.2%. GAAP net income was $298,000,000,000 an increase of 42.3%. Adjusted net income was $320,500,000 an increase of 17.2%. For the quarter, GAAP diluted earnings per share was $1.36 an increase of 257.9%. Adjusted diluted earnings per share was 1.49 an increase of 16.4%. Consolidated GAAP revenue and adjusted revenues were both 1,100,000,000.0 an increase of 15.5%.

GAAP net income was 79,700,000.0 an increase of 267.4%. Adjusted net income was $87,600,000 an increase of 18.9%. Other key metrics as of December 31, 2024 include cash and cash equivalents, of $464,600,000 and cash flow from operations of $347,200,000.0 During the quarter, the company increased its dividend for the twenty second consecutive year and paid a quarterly cash dividend of $0.0625 per common share. We have a long history of paying dividends and as the company's liquidity remains strong, plan to continue its long history of paying dividends into the future. We also continue to delever our portfolio. Achieving a record low lease adjusted net debt to EBITDA ratio of 1.9 times. Our ability delevered 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 $572,000,000 of available capacity on our line of credit, which we provide with our cash on our balance sheet, gives us over $1,000,000,000 in dry powder for future investments. We also own 134 assets of which 129 are held by Standard Bear, and 110 The owned [indiscernible] even adding more liquidity to the health with future growth.

As Barry mentioned, we are providing our annual 2025 earnings guidance between $6.16 and $6.34 per diluted share. Our annual revenue guidance between $4,830,000,000 and $4,910,000,000 We have evaluated multiple scenarios and based on the strength of our performance, and the positive momentum we've seen in occupancy and skilled mix, as well as the continued progress on agency management and other operational initiatives they're confident that we can achieve these results. Our 2025 guidance is based on diluted weighted average common shares outstanding of 59,500,000.0 a tax rate of 25%, the inclusion of acquisitions closed and expected to close through the second quarter of twenty twenty five, the inclusion of management's expectations for Medicare and Medicaid reimbursement rates net of provider tax with the primary exclusion coming from stock based compensation. Additionally, other factors that could impact quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence of the general economy on census and staffing, the short term impact of our acquisition activities, variations in insurance accruals and other factors. And with that, I'll turn it back over to Barry. [indiscernible] Thanks, Suzanne. As we wrap up, I must reemphasize, as I always do, how incredibly honored and grateful that we all are to work alongside our operational leaders, field resources, clinical partners and service center team that are behind these record setting results.

We are completely amazed by their impressive resiliency as they focus on elevating and loving everyone around them.

Their collective commitment is truly a blessing.

Our future is bright and we're excited for a busy year ahead. And with that, we'll now turn it over to the Q and A portion of our call. Bella, can you please instruct the audience Q and A procedure?

At this time, I would like Your first question comes from the line of Hendrix from RBC Capital Markets.

I just wanted to get your latest thoughts on the Medicaid reimbursement back through the end of the public health emergency. But looking forward, are there any specific programs or aspects of programs, supplemental quality and incentive or otherwise that you're exposed to that might be at particularly high risk for cost savings cuts under the new administration versus others? Look, it's hard to know exactly where things are going to go during The kind of reconciliation process and what will actually become a priority with in terms of legislation. I can tell you that We are prepared through our industry association and our lobbyists The, to help educate members of Congress on any one of the scenarios that might be further explored. Our association has been really nimble and good at having language and and legislative options prepared and really just a robust kind of education effort around impacts to the Medicaid program as it relates to seniors. But for us, it's not clear as to what will become a priority.

All we can really do is just make sure that we're part of the education process in the meanwhile. The can also just kind of reiterate what we know about the Trump administration that they're they're committed to the Medicaid program. He saw that publicly. He said it as recently as Friday. As he's committed to The senior industry as well, senior care industry. So we prepare for the worst as always, but I think having Medicaid The impacted in a broad based way is going to be a pretty difficult task for Congress during the reconciliation process. So but as for now, no, none of our programs are really at risk that we [indiscernible] And I would just add, you typically and a Republican control, you definitely usually see lighter regulations The might be some things on the rate. And so like as you stated in the question, we really try to be nimble during these times and really utilize that. So if there's regulatory relief, there's some flexibility in our operating model with that. And then our involvement at the state level is very deep. From the legislative side as well as to all the associations that we have at each individual Thanks a lot.

And if I could just follow-up real quick, specifically on Tennessee, just given your M and A acquisition The, I just want to get your thoughts on kind of the overall backdrop, both from a Medicaid perspective but also just what you're seeing on the horizon in terms of opportunities for provider relationships, kind of like what you called out for Boulder Canyon? Thank you.

Yes. So just taking a step back and looking at the overall Tennessee market that we're new to, obviously, they have and I think there's a lot of noise in the press just because of all the hospitals and the larger reimbursement amounts that they received in Tennessee. Obviously, the amount of supplemental associated with our operations is substantially less than that. And really, it is carried all the way through and approved all the way through. July one of this year. And then they're looking to and working with a legislation there in Tennessee to actually continue that on for the later portion of the year as it relates to skilled nursing. But again, it's not the amount that you're seeing with other large hospitals. With regards to networking, obviously, we've been in that state. I think we talked about this when we end any time we enter a new state, we are doing a lot of preparation. The operator who is kind of had founded that state, has been there for a very long time and has established great relationships over this period of time. Not only that individual, but others that we have looked on from the acquisition and others that we actually had as resources in that to have great connections out there.

Great. Thank you.

Our next question comes from the line of Scott Ferreira from Stephens. Please go ahead.

Hi, this is Raj on for Scott. I had a couple of modeling questions. This first around quarterly EPS seasonality.

In relation to maybe 2024 even historically And what's kind of baked in guidance from an occupancy and skilled mix perspective Yes. It has gone 2024 seasonality first. Obviously, Q4 historically on the occupancy and skilled mix and Q1 has been our the best quarters that we've had typically higher skilled mix higher occupancy in both of those quarters. When we look at this year's Q4, obviously, we saw something flat to Q3. The reason why it was flat was because Q3 was so great. And I think you saw during our earnings call, and subsequent conversations after that, we had that heightened Q4 occupancy really retained that market share when we looked at hospital. Occupancy, we were able to keep all the market share and just really had a great Q3 then continued into Q4 and is continuing into Q1. Like I mentioned, Q1 historically has been our strongest occupancy and skilled mix seasonality and we see that same Thank you. And then just as a follow-up, just around cash flow from operations, kind of expectations there and anything you'd like to call out that'd be unique to 2025 other than the typical working capital seasonality?

Yes. I think one of the things that we need to keep in mind and this is just a every time we have very heavy acquisitions, specifically right now we're seeing as we go through that licensing process and The change of ownership process, there have been substantial delays. We've seen slowdown at the Medicaid offices and approval offices for licensing. And so kind of that cycle that we're typically seeing has it will probably draw out as we continue to do that this acquisition pathway And so we actually see a little bit stretching on that cash flow and the cash turnaround as The acquisitions continue to come in. The the flow down from the Medicaid offices and other offices out there. It's just a a temporary phenomenon while we're waiting to get that The Medicaid certifications and everything turned on. But it can impact the cash flow in the short run.

And then other than that, obviously Q4 saw a little bit of an unusual payment as we foreshadow during the Q3 call. We did have that payment of the settlement that happened a year ago. So that was a little bit, dip in the Q4 cash flow. Your next question comes from the line of A. J. Rice with UBS.

First question just to ask maybe a little bit about labor cost trends, what are you seeing The? I know it's been moving more favorable in the last year or so.

What do you see as you move into 2025? And is there anything specific around The workforce standards program in California that you're factoring into your outlook and how that might impact you? Just maybe starting with the general labor environment We're not seeing massive changes, but we're seeing very gradual improvements that continues quarter to quarter recently. We expect that to continue Some of that's just environmental The labor markets have stabilized more and more since COVID and of it is we're relentlessly working on new ways to attract labor, retain the best nurses, the best CNA, the best frontline workers And then also we're looking for leadership development opportunities because our business is very locally driven. And if you have a great local leadership That's really the key to having a healthy frontline workforce. And so as we continue to do those things, we think a combination of environmentally, the markets are are a little bit better and as we get better The bodes well for the 2025.

And the California The standard is all baked into the guidance for 2025. We've already included that. We all have this is going to be the second year that we're going to be going that program.

And so like we've got a good handle on expectations associated with that program based upon what the state has published.

Okay. And maybe just The follow-up question would be on The deal pipeline. What are you seeing or The terms on the deals The you're doing changing in any way? What is the competitive landscape around acquisitions look like right now?

Great question. As we kind of said in the prepared remarks, we're seeing a lot of deal flow and we actually we've acquired a lot just in the last eighteen months. And we expect to continue kind of on the same pace in 2025. So we've got a lot of deals lined up that will be closing over the next several months. As Suzanne mentioned earlier, we are seeing some delays that the change of ownership from the state and granting licenses and stuff like that that are really like the deals are locked up. We're just waiting to get those licenses. So you'll see us start announcing more closings over the next few months. In terms of competitive landscape, there are way more deals on our desks The we could ever dream of doing. So we are able to be very, very selective [indiscernible] And we often talk about this disciplined growth and [indiscernible] that's a lot of things, making sure we have leaders and the markets, leaders that are ready to go to assume the responsibility to transition these buildings That's obviously the first The, but also the terms of the acquisitions, really particular about making sure if it's a lease, that there's plenty of coverage and we're not stretching and looking at pro form a results and establishing the rents, we're we're pretty firm on using the trailing 12 and not paying for performance that we're going to create.

And when we're buying the real estate, we're really focused on price per bed and making sure it's in line with kind of what we see as sustainable prices that will allow us to have the balance sheet that we do. And you can't grow as quickly as we have over time. And have a healthy balance sheet if you overpay on things. So So that's all kind of how we look at it. But so with all that said, there's many opportunities for us as we're going through that disciplined analysis on deals we're we tend to win the deals that The we want and that we're ready to move forward with and expect that to continue.

Okay, great. Thanks.

The concludes our Q and A session. Ladies and gentlemen, thank you all for joining. You may now disconnect.