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 Quarter 2 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Chad Keetch, Chief Investment Officer. Please go ahead.

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 p.m. Pacific on Friday, August 29, 2025. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, July 25, 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 and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward- looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities. Ensign also owns Standard…

Thanks, Chad, and thank you all for joining us today. Our local teams have achieved another outstanding quarter, raising the bar again for what is possible even in a quarter where we historically have experienced more seasonality. The clinical results they achieved continue to be an important driver of our success. As our teams work tirelessly to gain the trust of the communities they serve and deliver consistent outcomes, our operations continue to earn the reputation as the facility of choice for thousands of patients. This trust is apparent from strong upward trends in occupancy and skilled mix during the quarter, which we believe is only achievable through dependable clinical results delivered by dedicated local leaders, caregivers and outstanding team members. As we dissect the numbers, we set second quarter records for same-store and transitioning occupancy, which increased by 2% and 4.6% to 82.1% and 84%, respectively, over the prior year quarter. We also saw skilled census increase for both our same-store and transitioning operations by 7.4% and 13.5%, respectively, over the prior year quarter. All these improvements are the result of many factors, but it could never have happened without the relentless efforts by these local teams that we mentioned earlier, who implement standard-setting practices that lead to better outcomes. We also continue to attract and develop caring and passionate partners into post-acute care who are determined to join us as we pursue our mission to dignify post-acute care. In addition, we continue to see improvements in turnover as well as lower staffing agency labor, even in the face of increased occupancy. As we've said before, our people are at the heart of our efforts and seeing these metrics consistently improve is critical to maintaining our path of success and to achieve industry-leading results. On the regulatory front, we…

Thank you, Barry. We continued our steady pace of growth by adding 8 new operations, including 3 real estate assets during the quarter and since. These include 4 in California, 3 in Idaho and 1 in Washington. In total, we added 710 new skilled nursing beds and 68 senior living units across these 3 states. This growth brings the number of operations acquired during 2024 and since to 52. We are always happy to expand our presence in some of our most mature markets, and each of these new acquisitions represents an opportunity to further deepen our commitment to the health care communities in some of our key states. Our growth this quarter illustrates that we continue to prioritize adding beds in our established geographies, which allows our clusters to provide a comprehensive solution to the health care needs in those markets. We also point out that the distribution of our growth over the last several quarters spans across many states and markets, leaving us with significant bandwidth to grow in almost all of our markets. While we look to grow in some of our new states, we still see significant opportunity to continue to add meaningful density in the markets we know best. Our local leaders continue to recruit future CEOs for Ensign affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead. During the quarter, we reached an all-time high for our AITs in our pipeline. This high-quality influx of local leadership talent combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. As we look at the…

Thanks, Chad, and hello, everyone. As always, we'd like to share a few examples of how operations in various stages of their maturity are contributing to our outstanding results. It's the aggregation of achievements like these that comprise the Ensign's story, and we believe that these examples are the best way to explain how we produce consistent results over time. The first operation I'll highlight exemplifies what we hope to see in operations as they transfer from our transitioning bucket into our same-store bucket. Sedona Trace Health & Wellness is a 119 bed skilled nursing facility located in Austin, Texas. It is led by Rachael Hurley, CEO; and [ Tiana Roland, RM ] and COO. Sedona was acquired as part of a multi-facility deal back in Q3 of 2021. Despite being constructed in 2017 and having a beautiful physical plant, the operation was consistently losing money and struggled with a poor clinical reputation. Compounding matters, the facility was in a staffing crisis with a large percentage of nursing labor coming from registry. Despite the challenges, the local team went to work. They focused on building a culture of high expectations and celebration, which started with hiring the right interdisciplinary leaders, who in turn focused on getting and training high-caliber frontline staff. As a result, the team was able to completely eliminate registry labor, and they have stayed fully staffed since 2023. As we consistently see with most transitioning operations, this formula methodically improved clinical results. CMS overall star ratings have jumped from 2 star to 4 star and the facility currently has a 5- star rating for quality measures. Sedona is now an attractive continuum partner for hospitals, and it has earned preferred provider status with Austin's major hospital system as well as managed care networks. The result has been…

Thank you, Spencer, and good morning, everyone. Detailed financial statements for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter include the following: GAAP diluted earnings per share was $1.44, an increase of 18%. Adjusted diluted earnings per share was $1.59, an increase of 20.5%. Consolidated GAAP revenue and adjusted revenue were both $1.2 billion, an increase of 18.5%. GAAP net income was $84.4 million, an increase of 18.9%. And adjusted net income was $93.3 million, an increase of 22.1%. Other key metrics as of June 30, 2025, include cash and cash equivalents of $364 million and cash flow from operations of $228 million. During the first half of 2025, we spent more than $210 million to execute on our strategic growth plan, most of which have been in the works for months. We made this investment from a position of strength as shown by our lease adjusted net debt-to- EBITDAR ratio of 1.97x, which is after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant growth is particularly noteworthy and demonstrates our commitment to disciplined growth as well as our belief that we can continue to achieve sustainable growth in the long run. In addition, we have approximately $593 million of available capacity on our line of credit, which when combined with our cash on the balance sheet gives us over $1 billion in dry powder for future investments. We own 146 assets, of which 140 are held by Standard Bearer and 122 are owned completely debt-free and have gained significant value over time, adding even more liquidity to help with future growth. Company paid a quarterly cash dividend of $0.0625 per share. We have a long history of paying dividends and…

Thanks, Suzanne. As we wrap up, we are as positive as ever about this industry that we collectively love and are committed to. It's hard not to be excited about, our occupancy trends, our labor trends and our growth opportunities. But I can't emphasize enough how incredibly honored and grateful we all are to work alongside our operational leaders, field resources, clinical partners, and Service Center team. They are behind these record-setting results, and it's their commitment that has blessed the lives of so many, including our own. And we're as excited about our future as ever because of them. And with that, we'll turn it now over to the Q&A portion of our call. Kate, will you please provide instructions for the Q&A.

[Operator Instructions] Your first question comes from the line of Tao Qiu with Macquarie Capital.

Chad, I think you highlighted the success of the North American portfolio integration. Now I recollect that deal with more of an opportunistic transaction. So based on the prepared comments, I get a sense that there is a strategy shift as you are more open to those larger multistate portfolio deals. I'm curious if you could highlight any changes you made in your system, personnel, operating model, lessons learned that give you more confidence in consistently executing those larger deals? And then what is the pipeline like for these larger transactions? And whether Ensign has more of a competitive advantage given your scale and balance sheet conditions?

Yes. Thanks for the question, Tao. So I wouldn't say there's necessarily been a strategy shift at all. I just -- I think it's more we're just trying to point out that we have done some of these more portfolio type deals including the one in Tennessee that we closed recently and then we did one in the Northwest with Providence Hospital systems recently. So yes, I think we definitely see a pipeline for deals like that. And like I said in my prepared remarks, large, midsized and smaller portfolios, they're all out there, and I think the -- in terms of lessons learned and something that we've just experienced and that I highlighted again today was, for us, we look at a portfolio and we try to see geographically how it fits into our existing structure. And when we take a larger deal and split it up into a bunch of smaller pieces, and do that locally, right? So we're talking about taking -- like I said in that example, those 17 buildings were spread across 6 or 7 of our markets. So it was really only 2 to 3 acquisitions per market or cluster. That's a lot more digestible than trying to just kind of assume something and do more of like a merger style acquisition. So I think that's probably the -- and we've done both and certainly learned in that Texas example back in 2015 just trying to take a big organization and just fold it in all at once was not successful, and it took us a long time to kind of essentially transition that deal twice to get to -- and now it's obviously doing great. But that was probably the biggest lesson that we wanted to highlight today is that we have experience now. We've done several of these portfolio deals, and they're going very well. And the key for us is to do it the way we've always done it. And each of these buildings are, as you know, highly complex businesses that demand a lot of time and attention starting on the transition date. And that's the part that we have to stay true to and disciplined about regardless of how big the deal is. And to the extent we can do that, if it crosses several markets, several clusters, several states then we feel like that is a scalable approach to growth and one that we can handle.

Great. And to follow up on that topic, as you take on these larger deals, there may be assets that would fit a third-party operator better. I know that you added another third-party operator this quarter. Just curious how large you think you can ramp up the exposure there, given what you consider qualified operator pool in your targeted markets? And also, if you could talk about the rent coverage you are underwriting these assets at, that would be much appreciated.

Yes. Another great question. So yes, the best example is this portfolio we closed in the Northwest. It was 8 buildings. And we took 6 of them, and we leased 2 to a third party. That's a perfect example of one where it was -- and that was a real estate-driven deal, of course. But that's a perfect example of the types of acquisitions that we feel like Standard Bearer helps us do and complete. And so yes, I think the key there is making sure that the price that we pay is correct and that we're not asking a third-party tenant to take on a lease payment that we ourselves wouldn't take on, right? So when you talk about coverages, we're always trying to target very healthy coverages. And so -- and obviously, it will vary by market, but I think our goal is to be at a 1.5 or close to it. And maybe it's not 1.5 on the first month, but we could see a clear path to getting there in a short period of time. And the key, though, is finding sellers that are willing to do deals at the right prices so that you can have some coverage after the fact. And that's where, again, when we talk about our discipline, we're really hyper-focused on that. And in terms of relationships with third-party tenants, I mean, we're receiving more and more interest. Each time we kind of do one of these and announce it, we're getting more folks that are reaching out to kind of understand what it is that we're doing and how we're doing it and how we might work together. And so yes, as bigger portfolios come along, that certainly -- this pathway certainly gives us another way to do it and break it down into smaller bite-sized pieces.

Your next question comes from the line of Ben Hendrix with RBC Capital Markets.

This is Michael Murray on for Ben. The skilled nursing industry appears to have dodged direct impacts of the One Big Beautiful Bill, but there still seems to be some potential for potentially some indirect impacts related to smaller Medicaid budgets. So we'd love to hear your thoughts on the OBBB generally. And how are you sizing any indirect risks as a result of it?

Yes, good question. Thanks for asking it. I think it's important to point out that legislators were very overt about making sure that they carved skilled nursing out of any large direct impacts to Medicaid and instead focus their efforts around reform with workforce requirements, eligibility requirements and large directed payments and other types of payments that weren't necessarily in line with standard practice for the program that were giving large benefits where they ought not to be. And having the carve out on the provider tax piece, I think, was a clear indication from legislators that they wanted to protect funding for seniors. And I think is a good bellwether for states now is, yes, while they do will have in a few years maybe some more limited budget to pull from, I think it sets a standard for how states should act. And the good news for us is that we have really good working relationships in every state that we operate in with our state legislators and governors offices. And now have time as there's, again, a couple of years before the -- some of these things start to get implemented. For us to work with them and make sure that we put ourselves in a position to remind them of how important funding for seniors is in the skilled nursing setting. I suspect that with more finite budgets, there will be some movement in terms of how they shift dollars around. But it is -- there is not a state we operate in, where legislators have the sentiment that they feel like skilled nursing is overfunded. In every state we operate in, there's always a push to how do we find more money to get you better funded, not the opposite. So if we remember back to why Medicaid was created, it was created to help the elderly, the disabled and indigent children. And I think we will be able to now have conversations around how to make sure the funding is directed to those recipients best. And I think skilled nursing, senior funding will always be a priority for most of the states we operate in, and we feel confident that we'll have the data and the ability to have those discussions at a state level over the next couple of years. I don't -- we don't anticipate that there will be any other reconciliation bills and certainly no more discussion, at least in this -- during this presidential term around big changes to Medicaid. So I feel like -- we feel like the worst is behind us, and now we can have productive conversations at a state level to make sure that we're in good shape for the long term, which, by the way, is nothing new. We have always had this dynamic at a state level where we're advocating for proper funding for skilled nursing, and this doesn't really change that much.

Okay. That's helpful color. Just shifting to M&A. We've gotten some questions from investors recently on valuation of acquisitions over the past few years. It's hard to parse out just because you're doing more and more real estate transactions and geography also plays a big role in this. But to the extent you can normalize for this, how are valuations trending generally? And do you continue to see attractive opportunities and valuations in your current markets?

Yes. Thanks for that question. I think we probably see valuations probably moderately increasing over time. Certainly post COVID with the rate environment being a little stronger and some of those things, I think, have gradually pushed pricing up a little bit. But I think the thing I just -- and obviously, when we're leasing buildings, it's a much different evaluation than if we're buying the real estate, and I know that can make it tricky to look from the outside to see how we're viewing it. I think probably the key to how we evaluate deals is -- and not to always talk about this, but it's locally driven. And our local teams in the geography in which we're looking to grow, they're the ones that are helping us decide kind of what the appropriate price to pay would be, whether it's a rent or a purchase. And the fundamentals of that decision are, we basically break down the target opportunity and kind of leave an opening around what their [ DAR ] is going to be. And obviously, rent is a function of the price that we pay. And so our operators are very focused on what the DAR is going to be. And we sort of back into what price we feel like is appropriate based on what an appropriate DAR would be for that market. And that's sort of our driving factor into how we decide as to whether to do a deal or not and what we're willing to pay. And it's such a smarter way to do it than trying to follow some kind of macro trend, because we're forcing by doing it that way. The decision is driven on the fundamentals of -- at the facility level for each of these businesses. And that's probably, I think, the thing I'd like to highlight most. We're not -- and certainly, we're aware of the market trends and following those things closely. But -- but if pricing gets out of whack and people in the market are paying prices we don't think are sustainable, then we just pass on those opportunities, and that's where we stay disciplined. But when the pricing is right, and we feel like we can pay a fair price that will leave us with a DAR that's sustainable over time. That's when we move forward and close those deals. So the environment has been really positive. I think we're -- obviously, our growth track record over the last couple of years shows that there's a lot of doable transactions out there. And we still feel like the pipeline looks really strong and healthy. And -- but we don't set growth goals. We don't start out the year saying we're going to do x number of deals. And so if pricing gets out of whack, like I said, we'll slow down. And if pricing is really good, that's when you'll see us be active. So hopefully, that's helpful.

Your next question comes from the line of Raj Kumar with Stephens Inc.

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

To start off, just a point of clarity, how we actually have been recording that program for us. We're actually expecting that funding to go through '26, just to test how the state year works and how our revenue recognition works. And so it will actually be there for 2025 and 2026 based upon the recent change. And it's something that when we look at -- and this is not just unique to California, but this is for every statewide program. Now we work with the state and how they're looking at their overall state budget. And a lot of these quality programs come -- originally came from the base rate, and we're really to incentivize providers to provide better quality care. And so as we work with them and we look with them about how that program will change over time, our goal would be for -- to help them remind them and see that the original amount came from the base rate. And as we continue to work with them, that's the talks that we're here starting to hear that it might be getting back to the base rate. And so that's something that we do in every state when there's a quality program, making sure that we understand how the quality program works, but how that also interacts with the base rate.

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

Of course. I mean that is a continued discussion that we've had from the last several years. I think when you start to look at value- based care and value-based modeling, we're all in for it with the managed care participants in that particular area. We love to do things that are value-add both for us and for the MCO so that we can make sure that we're giving great quality of care to our residents. I think when we talk about the volume that those value-based programs have encompassed over the years, they're relatively small. But we're definitely their -- the MCO's partners in every market and really kind of come up with unique programs based on what's happening in that local market that's going to benefit what the MCO is trying to overcome in that market.

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

Maybe a couple of questions. First, one of the things that I think the company talked about was potentially some of the more recent deals have been started at a more challenging point, as a jumping off point, how they were performing before you acquired them. But it sounds like the deals in general are outperforming. I'm just trying to understand, are you realizing improvements quicker than maybe historically was the case? Or are you -- did you just take a more conservative approach in the way you assume those would impact your financials?

It's a great question. I think there's a couple of things at play. I think our assumptions haven't really changed -- our projections haven't changed. We always try and straight down the fairway of what we think is possible if we make aggressive changes as needed. And what we have seen is there is a slightly better environment that we're seeing in some of the areas where we've grown recently around agency labor. A year or 2 back, we were seeing some of our acquisitions where you're -- 50%, 60% of their labor was agency. And when you're having to completely rebuild a health care operation from the line staff up, that takes a little bit more time. So that's been an environmental thing that's slightly better. I'd say the biggest thing though, is we've -- as we have higher density and we have stronger clusters working around these acquisitions, we're just able to move things quicker. We're able to backfill some staff positions from cluster partner buildings. We've got a better program of developing talent. So one facility has a redundant talent that can go be leaders in another facility. And as you have higher density in your acquisitions, you're able to do that without asking those employees to move across the country. So there's a lot of things at play. I would say the final thing is just we learn every acquisition we do. Well, they're done locally, we have a great method for sharing and forum for sharing that. So we're constantly learning from our mistakes and from what we do right. And the more we do that, you'd expect we get better and better over time. And I think we're seeing a bit of that.

Okay. Great. Let me just ask you on -- I know you were asked earlier about the One Big Beautiful Bill. I wondered about how it's translating into market activity, in particularly 2 areas? Have you seen it impact the pipeline in any way? Are there more or less sellers because of the chatter around that or people's expectations around pricing adjusted in any way? And then also in your discussion with states on rate updates, are you seeing any impact at this point? I think it's probably early, but I figured I'd ask, is it having any impact on composite rate expectations for this year or next year?

Yes. So I'll take the pipeline question. So I guess the short answer is, I guess, we've seen. But the thing about it is last year, it was the minimum staffing bill, right? Like there's -- the constant in our industry is there's always something out there that is basically regulatory change, whether it's rates or some kind of staffing requirement or whatever it is. And I think -- so I can't really say I've seen more deals come, but just -- it's been really steady. Maybe the reasons of why are kind of always shifting, but it's just a lot more deals than we could ever do are coming our way and so that allows us to be really selective.

And on the rate front, I mean, we're always active in having these discussions at a state level, like Barry mentioned, and we mentioned in our prepared remarks. I mean we don't see anyone shifting that way yet, but it's just part of who we are is to be actively involved in the discussions at the local level in each state, talking about what may or may not be happening with that state rate. And then two, if we have a state where a rate does go down, that doesn't necessarily mean that it's going to go to the bottom line for us. And we've done that time and time again where our operational performance -- our operational reaction to a rate decrease, there are so many different ways that we can pivot through that. And so even when we do have and have had identified where the rate is going to go down, we were able to work through it by changing our operational performance.

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