Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to The Ensign Group Q4 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Keetch. You may begin.

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 5:00 p.m. Pacific on Friday, February 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 nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions or 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 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…

Thanks, Chad, and thank you all for joining us today. Our leaders and their teams across the organization once again posted record clinical and financial results and continue to build remarkable momentum in each market across 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 [indiscernible] as we attract and develop [indiscernible] and leaders. We are building a formidable bull pen of caring and passionate partners who are determined to live our mission to dignify post-acute care. After other another record year [indiscernible], we're 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 2.7% and 4.1% for the year and grew by 2.3% and 4.7% over the prior year quarter, respectively. We also saw skilled 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 6.6% and 27.7% 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 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 ahead. We are very humbled by what we were able to accomplish in…

Thank you, Barry. As we expected, we continue to add to our growing portfolio and are thrilled with the 12 new operations we added during the quarter and since. These include the following: one in Alabama, 8 in Tennessee, one in Wisconsin, one in Texas and one in Nebraska. In total, we added 1,147 new skilled nursing beds and 16 senior living units across 5 states. Of these new operations, 6 of them included the real estate assets, which were acquired by Standard Bearer and leased to an Ensign affiliated operator. This growth brings a number of operations acquired in 2023 and since to 64, 38 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 health care community and building upon the foundation of our strong local leadership. We are also eager to see our first operation in Alabama gained 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 for us, must be driven by a proven Ensign 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 in opening a new market. Lastly, when we go into a new state, we typically look to…

Thank you, Chad, and hello, everyone. The 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. The 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 2003 and it 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 Yuhas has led the facility since completing his AIT program in 2015. And Joyce Camayo, the 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 Victoria. Victoria team grew overall occupancy from an already strong 93% in Q4 of 2023 to 95.9% in Q4 of 2024. And skilled revenue mix increased to an astonishing 75.2% during that same period, an improvement of 420 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. 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 fourteen times better than the California average. As you would expect, these clinical and occupancy results have led to…

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 $5.50, an increase of 15.3%. Consolidated GAAP revenues and adjusted revenues were both $4.3 billion, an increase of 14.2%. GAAP net income was $298 million, an increase of 42.3%. Adjusted net income was $320.5 million, 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 $1.1 billion, an increase of 15.5%. GAAP net income was $79.7 million, an increase of 267.4%. Adjusted net income was $87.6 million, an increase of 18.9%. Other key metrics as of December 31, 2024, include cash and cash equivalents of $464.6 million and cash flow from operations of $347.2 million. During the quarter, the company increased its dividend for the twenty-second consecutive year and paid a quarterly cash dividend of six and a quarter cent per common share. We have a long history of paying dividends. And as the company's liquidity remains strong, we plan to continue its long history of paying dividends due to 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 to delever 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 million of available capacity on our line…

Thanks, Suzanne Snapper. 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&A portion of our call. Bella, can you please instruct the audience on the Q&A procedure?

At this time, I would like to remind everyone in order to ask a question, press star. Then the number one on your telephone keypad. We will pause for just a moment. To compare the Q&A roster. Your first question comes from the line of Ben Hendrix from RBC Capital Markets. Your line is now open. Please go ahead.

Thank you very much, guys, and congratulations on the results. I just wanted to get your latest thoughts on the Medicaid reimbursement backdrop. Clearly, you guys have had great luck bridging from the COVID era FMAP payments 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? Thanks. Look, you know, it's hard to know exactly where things are gonna go during the reconciliation process and what will actually become a priority with in terms of legislation. I can tell you that you know, we are prepared through our industry association and our lobbyists there 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 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. We can also, you know, just kinda reiterate what we know about the Trump administration that they're committed to the Medicaid program. He said that publicly. He said it as recently as Friday. As he's committed to the senior industry as well. Senior care industry. So I think having Medicaid be impacted in a broad-based way is gonna be a pretty difficult task for congress during the reconciliation process. But as for now, no. None of our programs are really at risk that we are aware of.

And I would just add, you know, you typically and a Republican control, you definitely usually see lighter regulations. Well, there 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, you know, 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&A acquisition there. I just wanna 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 preferred provider relationships, kinda like what you called out for Boulder Canyon. Thank you.

Yeah. So just taking a step back and looking at the overall Tennessee market that we're new to, obviously, they have and there's a lot of noise in the press just because of all the hospitals. And the larger reimbursement amounts that they receive in Tennessee. Obviously, the amount of supplemental issue is 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 first of this year. And then they're looking to and working with the legislation there in Tennessee to actually continue that on with the letter portion there as it relates to skilled nursing. But, again, it's not the amount 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 any anytime 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 worked on from the acquisition and others that we actually had as resources in that have great connections out there.

Great. Thank you.

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

Hi. This is Raja on for Scott Fidel. I had a couple modeling questions. This first around you know, quarterly EPS seasonality, in relation to maybe 2024 even historically. And, you know, what's kinda baked in guidance from an occupancy and skilled make perspective.

Yeah. It has gone 2024 seasonality first, obviously, Q4 historically on the occupancy and skilled mix, and Q1 have been our the best quarters that we've had. Typically, higher skilled mix, higher occupancy in those 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 retain 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. Which then continued into Q4 and is continuing into Q1. Like I mentioned, Q1 historically has been our strongest occupancy and skills mix seasonality, and we see that same seasonality continuing in 2025.

Thank you. And then just for the follow-up, just around cash flow from operations and expectations there and anything you'd like to call out that'd be unique to 2025 other than the typical working capital seasonality.

Yeah. I think one of the things that we should 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 that change of ownership process, there have been substantial delays. We've seen slowdowns at the Medicaid office 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 those acquisitions to continue to come in and the slowdown from the Medicaid offices. And other offices out there. It's just a temporary phenomenon while we're waiting to get those Medicaid certifications and everything turned on. But it can impact the cash flow the short run.

And then other than that, obviously, Q4 saw a little bit of a unusual cash 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, dipped in the Q4 cash flow. Your next question comes from the line of AJ Rife with UBS.

Everybody. First question just to ask maybe a little bit about labor cost trends. What are you seeing there? 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 just the maybe starting with the general labor environment. We're not seeing massive changes but we're seeing very gradual improvements that continues you know, quarter to quarter recently. We expect that to continue. Some of that's just environmental. You know, the labor markets have stabilized more and more since COVID. And part of it is we're relentlessly working on new ways to attract labor, retain, you know, the best nurses, the best CNA, the best frontline workers, and then also we're looking for leadership development opportunities because there's you know, 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 you know, environmentally, you know, the markets are a little bit better. And as we get better, that bodes well for the 2025.

And the California workforce standard is all baked into the guidance for 2025. We've already included that. We also have is gonna be the second year that we're gonna be going through 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 a follow the follow-up question be on the deal pipeline. What are you seeing or the terms on the deals that you're doing changing in any way? What is the competitive landscape around acquisitions look like right now? A great question. You know, as we

kinda said in the prepared remarks, we're seeing a lot of deal flow and you know, we actually you know, we've acquired a lot this 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 Snapper mentioned earlier, you know, we are seeing some some you know, the ways that, you know, the change of ownership from the state and granting licenses and stuff like that that are you know, really, like, the deals are locked up. We're just waiting to get those licenses. So you'll see us start announcing, you know, more closings over the next few months. In terms of competitive landscape, there are way more deals on our desks than we could ever dream of doing. So we are able to be very, very selective and, you know, we often talk about this disciplined growth and you know, and then that that's a lot of things. You know, making sure we have leaders in the markets, leaders that are ready to go to assume, you know, the responsibility to transition these buildings. That's obviously the first thing, but also the terms of the acquisitions, we're really particular about making sure if it's a lease, that there's plenty of coverage and we're not, you know, stretching and looking at pro forma results and establishing the rents. We're pretty, you know, firm on using the trailing twelve and not paying for performance we're gonna create, and, you know, when we're buying the real estate, you know, we're really, you know, focused on, you know, 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, you know, the balance sheet that we do. And, you know, you can't grow as quickly as we have over time. And have a healthy balance sheet if you overpay on things. So you know, that's all kind of know, how we look at it. But with all that said, you know, there's many opportunities for us as we're going through that disciplined analysis on deals. You know, we tend to win the deals that we want and that we're ready to move forward with. And expect that to continue. Okay. Great. Thanks.

Again, if you would like to ask a question, press star one on your telephone keypad. That concludes our Q&A session. Ladies and gentlemen, thank you all for joining. You may now disconnect.