Ensign Group, Inc. Aktie

Ladies and gentlemen, thank you for joining us, and welcome to the Ensign Group, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Mr. Keetch. 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 May 29, 2026. We want to remind anyone that may be listening to a replay of this call that all the statements made are as of today, May 1, 2026, 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 or 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 REIT, which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group. The words Ensign, company, we, our and us refer to the Ensign Group, Inc. and its consolidated subsidiaries. All of our independent subsidiaries, the Service Center, Standard Bearer Healthcare REIT and the insurance captive are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign 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 complete understanding of our business, and they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our Form 10-Q.

And with that, I'll turn the call over to Barry Port, our CEO. Barry?

Our local leaders and their teams continue to be an example of excellence in health care services as they earn the trust of patients, families and their local health care communities through high-quality outcomes. As each operation solidifies its reputation in respective markets, they're not only seeing more patients, but they're also being entrusted to care for increasingly complex cases, including a larger share of Medicare, managed care and other skilled patients. This is only possible because of the extraordinary clinical outcomes achieved by our dedicated and talented caregivers. As we've said many times, our consistent financial performance is a direct reflection of a relentless patient-focused culture, one that empowers our frontline teams to deliver exceptional care in a family-like environment where people genuinely care about one another.

On the census front, our same-store and transitioning occupancy reached new record highs during the quarter of 84.3% and 85.1%, respectively. On the skilled mix front, our same-store and transitioning operations, skilled revenue and days increased by 9.6% and 5.1%, respectively, over the prior year quarter, and Medicare revenue increased by 9.8% and 9.2%, respectively. We also wanted to comment on some of the recent noise around managed care volumes. What we are seeing in inside affiliated operations does not support the concern of a broad-based slowdown in skilled nursing demand. While hospital and managed care volumes may ebb and flow as patients move through the system, that volatility tends to normalize for us, resulting in consistently strong occupancy and skilled mix trends as demonstrated by our current and recent quarter results.

In fact, between Q4 and Q1, we saw growth across all skilled payers. Our same-store and transitioning managed care and Medicare census increased sequentially by 6.2% and 8.3%, respectively. The primary driver of these improvements continues to be the expanding trust from the communities we serve earned through consistent high-quality outcomes. Likewise, regarding commentary around increased clinical reviews and heightened scrutiny of post-acute utilization, this is not new. Our experience over many years is that this dynamic refines demand rather than reduces it. Our admission trends have remained consistently strong. As patient acuity continues to rise and payers look to move patients efficiently to lower cost settings, we have not seen any meaningful system-wide reduction in admissions or skilled mix.

The patients who truly need skilled nursing are still coming. We're simply seeing a continued shift towards higher acuity admissions, which plays directly into our strengths. We have built our model around being the provider of choice in our local markets through strong clinical capabilities, deep hospital relationships and the ability to care for more complex patient types. As payers become more disciplined, that does not reduce our volume. In fact, in many cases, it shifts volumes more specifically higher acuity volume towards operators who can deliver outcomes. It is also important to remember that Ensign's model is highly diversified across many geographies, payers, referral sources and local community partners. We are not dependent on any single payer, region or utilization trend.

Even when one plan tightens in a specific market, we have consistently offset that through other market share gains, stronger referral relationships, higher acuity admissions and growth across other channels. Our clinical leaders also continue to drive outstanding outcomes, which is particularly impressive given our growth over the past several years. According to the most recently published CMS data, same-store affiliated facilities outperformed their peers in annual survey results by 22% at the state level and 31% at the county level. This is especially notable given that many of these facilities were 1 or 2 star at acquisition. Additionally, our same-store operations outperformed industry peers in 5-star quality measures by 24% nationally and 20% at a state level.

In fact, we ended the quarter with 85% of all of our operations at 4- or 5-star quality measures. These results reinforce our position as the provider of choice in our markets and demonstrate our ability to create long-term value through sustained clinical excellence. This clinical strength depends on attracting and retaining exceptional talent. We are encouraged by the depth of talent continuing to join our organization. On the retention side, we're seeing improvements in turnover, stable wage growth and reduced reliance on agency staffing even with increased occupancy. We are especially proud of the exceptionally low turnover among our directors of nursing, which has declined by 32% over the past 2 years. This level of leadership stability is a key driver of consistent high-quality care.

In addition, we continue to acquire new operations with significant long-term upside and expect to maintain a healthy pace of growth. Since 2024, we have successfully sourced, underwritten and closed and transitioned 99 new operations across several markets, many of which are already performing at or above expectations. We also continue to benefit from powerful demographic tailwinds, which we expect to further support census momentum that we are seeing across our portfolio. While we are pleased with our current record same-store occupancy, we are equally excited about the remaining organic growth opportunity.

At 84% occupancy, we still have meaningful runway with many of our most mature operations consistently achieving occupancy rates in the mid-90% range. This embedded growth remains one of the most compelling drivers of our long-term performance. Due to the strength of the first quarter and the acquisitions we announced yesterday, we are increasing our annual 2026 earnings guidance to $7.48 to $7.62 per diluted share, up from our original guidance of $7.41 to $7.61. We are also increasing our annual revenue guidance to $5.81 billion to $5.86 billion, up from $5.77 billion to $5.84 billion. The midpoint of our earnings guidance represents a 15% increase over 2025 and 37% growth over 2024.

We remain highly confident in 2026 and expect our local teams to continue executing, innovating and integrating new operations while delivering strong results.

Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?

Thank you, Barry. During the quarter and since, we accelerated our growth by adding 22 new operations, including 21 real estate assets, bringing the number of operations acquired during 2025 and since to 71. These recent additions include 20 in Texas, 1 in Arizona and 1 in Wisconsin. In total, we added 2,662 new skilled nursing beds, 100 senior living units and 55 independent living units across 3 states. This growth brings the number of operations in our recently acquired group of operations to 17.4% of our entire portfolio. We were thrilled to complete these acquisitions and to expand our presence in some key markets in each of these states, particularly in Texas.

Like in the recent Stonehenge acquisition we closed in Utah, this Texas portfolio is made up of very new, high-quality construction in populated and growing metro areas. As we've discussed in our recent past, in certain strategic situations, paying higher prices can be justified for performing assets that have newer physical plants. And while some of those deals may take a bit longer to generate the returns we expect, we've seen these deals pay off over time as our leaders implement the proper adjustments to key clinical and financial systems, along with establishing a culture of ownership and accountability.

We continue to learn from and improve our transition process and believe that those lessons are showing through in the performance of our recently acquired acquisitions. In particular, as we continue to scale, we have leadership spread across many mature markets, enhancing ability to make larger deals smaller by breaking them into bite-size pieces, transitioning in the traditional ensign way but with a local cluster-driven plan that gives each operation the time and attention they deserve. The performance of our newly acquired operations, particularly in the last few years, shows that our building-by-building approach to transitions works for single operations, small portfolios and larger portfolios, particularly when the larger deals span several markets and geographies.

While we will certainly continue to evaluate and consider any deal that's out there, we are also very comfortable growing the way we've grown over the last few quarters with lots of transactions across many states, including small deals to larger portfolios and where it makes sense, higher-priced strategic assets. As we look at the current pipeline, we continue to see opportunities that include everything from larger portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of traditional onesie-twosies. We have several new additions lining up for Q2 and Q3 of 2026 as our local leadership teams and their partners at the service center work together to source, underwrite and carefully select the right opportunities.

We continue to have a lot of success in closing deals with sellers who are not just interested in receiving top dollar, but care deeply about the quality and reputation of the company they select to inherit their legacy, and they choose us because they believe in our mission to dignify post-acute care. During the quarter, we were pleased to complete the construction of a replacement facility at one of our high-performing skilled nursing operations in San Diego County. Grossmont Post-acute in La Mesa, California, which is located next to Sharp Grossmont Hospital, which was housed in an aging building that the landlord decided to replace with the new medical office space.

After several years and lots of hard work, we successfully completed the construction and have moved all the patients and staff to a brand-new state-of-the-art building while also adding 15 beds to the original license for a total of 105 beds. In just a few months of operation, Grossmont has increased daily census of skilled patients from around 72 to 95. We will continue to look for opportunities to add beds to successful operations and where appropriate, to invest in newer construction in markets we know well. 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. This high-quality influx of leadership talent, combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks.

We also continue to store enough dry powder on our balance sheet to fund a significant amount of growth, including adding even more real estate assets to our portfolio. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. Lastly, we are also pleased with the continued growth of Standard Bearer, which added 21 new assets during the quarter and since. Standard Bearer is now comprised of 173 owned properties, of which 137 are leased to an Ensign affiliated operator and 37 are leased to third-party operators. We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole continue to advance our mission by working closely with like-minded operators that want to make a difference in the industry.

Going forward, Standard Bearer will work together with our existing operating partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities that high-quality third parties are interested in operating under a lease. Collectively, Standard Bearer generated rental revenue of $36.1 million for the quarter, of which $30.8 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $21.6 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.7x.

And with that, I will turn the call over to Spencer, our COO, to add more color around operations. Spencer?

Thanks, Chad, and hello, everyone. I wanted to share 2 outstanding operations that have achieved exceptional growth through clinical excellence, strong relationships with managed care organizations and proactive leadership development. The first operation is Sun West Choice Healthcare & Rehab, a 140-bed skilled nursing facility located in the Metro Phoenix area. Sun West illustrates the ongoing improvements that a strong same-store operation can achieve by recognizing its community niche and delivering high-quality outcomes with consistent customer service. When this operation was acquired in 2018, it faced serious clinical and staffing challenges as well as a poor reputation in its health care community.

However, the Sun West team led by CEO, Doug Bowen; and COO, Michelle Norton, have methodically transformed their operation into a CMS 5-star facility of choice. Like many of our most mature operations, Sun West consistently remains essentially full with occupancy increasing only slightly from 95% in the first quarter of 2025 to 96% this quarter. However, revenues grew 10% over prior year quarter, driven by improved acuity-based reimbursement and a higher skilled mix. During the same period, skilled mix days increased 21%, fueled in large part by 37% growth in managed care. The Phoenix health care market is heavily penetrated by managed care plans, all of which emphasize strong outcomes, shorter length of stay and reduced hospitalizations.

In this environment Sun West has focused on differentiating itself by building consistency in staffing with care staff turnover rates far better than the CMS average for Arizona. These managed care relationships, combined with sustained excellence in outcomes, particularly for high acuity patients, have allowed Sun West to develop specialty units for underserved and hard-to-place patient populations, including patients with severe dementia and behavioral needs. Today, these special units run at high occupancy and have strengthened the facility's clinical reputation, which in turn contributed to Sun West's 43% EBIT growth over prior year quarter.

Our second facility highlight, Mystic Park Rehabilitation and Healthcare in San Antonio, Texas, has made significant progress since acquisition in late 2022. At the time of transition, the facility was facing serious clinical challenges and scrutiny from state regulators. Under the leadership of CEO, Osiris White and COO, Selena Cervantes, the operation has been fundamentally transformed. It now achieves a 5-star rating in CMS quality measures with survey points scoring 70% better than the state average. Recently published CMS data places Mystic Park in the top 10% for expected discharge function scores from CMS, reflecting significantly stronger than industry patient outcomes in skilled rehabilitation. Also, nursing staff turnover has declined to well below the state and national averages.

Operational performance has followed these clinical gains. In Q1, skilled mix days increased 61% over prior year quarter, driving 19% revenue growth and a 163% increase in earnings during the same time frame. In addition to being an exceptional turnaround story, Mystic Park also illustrates how facility level excellence enables broader growth across our organization. For example, the leadership pipeline developed at the facility has supported the recently announced growth in Texas. Because of the stable team and strong systems at Mystic Park, Osiris, the CEO, was able to transfer to lead the newly formed North Houston market, which includes 4 of the 17 facilities acquired on May 1.

Selena and the remaining Mystic team have selected a San Antonio-based AIT to be the next leader. And because he completed his training in the San Antonio market, he's well prepared to lead the facility's continued progress while benefiting from the team's strong experience and established systems. This model, stabilize, improve quality, develop leaders and scale remains central to our ability to grow while maintaining cultural and clinical standards.

And with that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance.

Thank you, Spencer, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter compared to the prior year quarter include the following; GAAP diluted earnings per share was $1.67, an increase of 21.9%. Adjusted diluted earnings per share was $1.85, an increase of 21.7%. Consolidated GAAP revenue and adjusted revenues were both $1.4 billion, an increase of 18.4%. GAAP net income was $99.7 million, an increase of 24.2% and adjusted net income was $110.2 million, an increase of 23.9%.

Other key metrics as of March 31, 2026, include cash and cash equivalents of $539.5 million and cash flow from operations of $100.2 million. During the first 3 months of 2026, we spent more than $60 million to execute on our strategic growth plan. We made these investments from a position of strength as shown by our lease adjusted net debt-to-EBITDA ratio of 1.73x after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant acquisitions 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 early April, CMS released the proposed 2027 skilled nursing facility payment rule, which includes a net market basket increase of 2.4%. This increase provides reimbursement stability and is consistent with the expectations included in our guidance. In addition, we currently have more than $592 million of available capacity under our line of credit, which when combined with the cash on our balance sheet, gives us over $1 billion in dry powder for future investments. We also own 179 assets, 155 of which are owned completely debt-free. They continue to gain significant value over time, adding even more liquidity to help with future growth. The company paid quarterly cash dividends of $0.065 per share. We have a long history of paying dividends and have increased the annual dividend for 23 consecutive years.

As Barry mentioned, we are increasing our annual 2026 earnings guidance to between $7.48 and $7.62 per diluted share and our annual revenue guidance between $5.81 billion and $5.86 billion. We have evaluated multiple scenarios and based upon the strength in our performance and positive momentum we've seen in occupancy and skilled mix as well as continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results. Our 2026 guidance is based on diluted weighted average common shares outstanding of approximately 60 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed through the second quarter of 2026, the inclusion of management's expectations for reimbursement rates with the primary exclusion coming from stock-based compensation and system implementation costs.

Additionally, other factors that could impact quarterly performance include variation in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence of the general economy, census and staffing, the short-term impact of our acquisition activities, variations in insurance accruals and other factors.

And now I'll turn it back over to Barry. Barry?

Thanks, Suzanne. As we wrap up, I want to again express how honored and grateful we are to work alongside the incredible leaders, caregivers and support teams across our organization who make these results possible. What they do every day goes far beyond metrics. It changes lives. And as we see in very personal ways, I want to share a quick example. Recently, our CFO's father, Joe, underwent a complex bypass procedure that required extended recovery at our very own Victoria Healthcare and Rehabilitation Center. The caregivers and therapists there didn't just provide excellent care. They surrounded them with the kind of coordinated compassionate support that helps them regain his strength, walk again and ultimately return home strong and safe. That team represents the very best of what we do, but what they do is not unique.

Stories like Joe's are playing out every day for thousands of patients at hundreds of our affiliated campuses all over the country every single day. Patients like Joe may not choose to be in our care, but they absolutely need to be and increasingly so as acuity rises and recovery becomes more complex. The role of high-quality skilled nursing has never been more essential. The demand is real, it is growing, and it's happening in every market we serve. And that's what gives us so much confidence in our future. Our performance this quarter is not the result of short-term dynamics or simple luck. It's the result of a model built on clinical excellence, local leadership and a culture that puts patients first.

And when you combine that with the demographic tailwinds ahead of us and the continued trust that we are earning in our communities, we believe the opportunity in front of us is as strong as it's ever been. Thank you again for your continued interest and support.

And with that, we'll now turn to the Q&A portion of our call. Operator, can you please provide instructions for the Q&A.

[Operator Instructions] Your first question comes from the line of Ben Hendrix with RBC Capital Markets.

Great. Very glad to hear that Joe is making a strong recovery. And then I just wanted to touch on some of the clinical review commentary. I really appreciate all the commentary and definitely appreciate the -- and understand the ebb and flow of skilled intensity and that the clinical review is nothing new. But just wanted to get your comments on any broad trends you might be seeing in clinical review intensity, just given that so much of the Medicare Advantage population is in plans that are focused on retaining margin and rebuilding margin this year. And like on a related note, when managed care plans kind of see facilities like Sun West see such massive increases in skilled mix and managed care mix. Does that ever trigger higher clinical review? Any comments you have there?

Yes. I just think the comments around clinical review are being a bit overblown. It's really not a new phenomenon. It's something that's been embedded and in place for a long time, especially when, to your point, Ben, acuity is high. We're used to dealing with clinical review. We have an entire team that is dedicated to providing analysis and documentation to support the care that we're providing, both proactively and then also in response to any general inquiries. And that team has been in place for many, many years. And -- but we're just not seeing certainly, any of that -- at least of the recent comments translate into our business. We saw growth in our United business. We saw significant growth in several other payers in the quarter and across the year.

Our occupancy reached record levels this quarter, and our managed care and Medicare census both increased sequentially from Q4 to Q1. So what we think is happening is that some of the hospital softness not related to the managed care piece that you asked about was episodic, respiratory weather related. And that tends to normalize by the time patients move through the system. On the Optum side, we view this less as demand going away, more as demand being refined. The higher acuity patients who truly need skilled nursing are still coming. And in many cases, we're capturing a larger share of those patients.

And just a quick follow-up on the EPS guidance. We're getting some questions around the guidance raise, specifically against that sizable M&A activity that you've recently announced. Just wondering if you could help us bridge to the guidance revision, specifically how much is driven by organic growth versus M&A? I believe some concern that maybe if M&A is contributing to the growth, is there an implication that maybe the organic is getting a little softer? Or is it just some conservatism in the number? Any comments there?

Yes, I think it's a great question. I think when we look at this acquisition that we closed today, -- what we -- our commentary on it has been that the physical plants are really, really good shape, and Chad can add more color on that. But really the type of acquisition that we're taking is a turnaround acquisition. And so when we kind of embed turnaround acquisitions into our guidance like we have for years is that really you see that bump in revenue at a disproportionate rate to the bump in EPS. And that's exactly what we would expect. We're super excited about this acquisition, but we would expect most of it not just to hit the revenue line, not really to contribute to earnings at the same rate as our existing operations, and that's very consistent with what we've always seen when we're taking a turnaround operation.

Yes. I mean that's a comment that just relates to over the next several months, right? I think obviously, long term, we expect them to be very, very successful and accretive like you said, like we've done for years.

We're really excited about the guidance. The guidance raise. I mean, obviously reflects a strong Q1, but also that continued execution. Some seasonality in there for Q2 and Q3 because that's through the summer months. And we also usually have not as high as skilled mix during this month and then costs rise as a relative to the revenue that we do bring in because the acuity tends to slow down a little bit.

We base our guidance on what we expect these to do, although I think you can also look backwards and listen to our commentary about how other recent acquisitions have contributed ahead of schedule. And I wouldn't be surprised if that happened. If it does, we'll revise again. But it's not necessarily conservatism. We try to reflect an accurate picture of where we think these will contribute. But obviously, we've had to update and revise as time has gone on when things have gone faster than we're scheduled to.

Our next question comes from the line of David MacDonald with Truist.

Just a couple of questions. One, can you pull the deal pipeline apart for us a little bit? I mean if we look -- the average deal size feels like it's getting a bit bigger. Can you guys just make some -- just give us some sense of when you look at the pipeline of deals, has the average deal size relative to a handful of years ago gotten bigger? And then secondly, are you seeing opportunities to buy the real estate in more of those deals that are within the pipeline?

Yes. Thanks for the question. I think there definitely is a trend of more and more, call it, midsized regional portfolios are coming to market for sure. So that's -- I would say there's more supply of that type of deal. But the other thing, I mean, it's not that we haven't had those in the past. I would say we have, I guess, emphasized this a little bit in our calls over the last several quarters, too. But we have approached these larger portfolios a little bit differently. If you go way back to 2016 or so, we did a larger portfolio in Texas called the Legend deal. And it was, at the time, the biggest deal we've done, and we tried to kind of do it like a merger and just sort of have that group to sort of fold into our organization and left a lot of their structure in place and those types of things. And that took us years to kind of unwind.

Since then, we've been successful in several larger deals and doing what I kind of described in our prepared remarks by breaking it into bite-size pieces and using our cluster model and that local leadership structure to take a larger deal and make it 3 or 4 buildings per cluster market and not 20. And that's been something that I think has increased our appetite, I would say, for larger acquisitions. And so it's both things. It's -- we've seen more of those come to market, and I think we're more and more confident that we can do those successfully in our ensign way.

And then on the real estate question, I think, I would say it's probably not necessarily a trend that we're seeing more real estate opportunities. And it wouldn't surprise me if we have a big acquisition here or in the near future or in the sort of midterm future that would include a lot of lease buildings, too. I think our priorities remain the same. Our first priority would be to own it and operate it if we can. And then second would be to do really attractive long-term leases. We have a lot of great real estate partners that we love to work with and including our REIT partners and others that are private real estate holders. So we're actively looking at doing those deals, too. And then the third priority would be to own it and lease to a third party like we did in the Wisconsin senior living deal. So hopefully that helps.

And yes. And then just one quick follow-up. On -- some of the labor, I guess 2-part question. One, can you guys just spend a minute on what you guys are doing on recruiting and retention that's driving such success on the labor side? And if I could sneak one more in. Just on the ERP system implementation, is there 1 or 2 areas that you would call out where that has made your life meaningfully easier or improved efficiencies meaningfully?

On the labor question, I'll start with that one. And thanks for the question on it. We -- it's a focus for us as an organization, but really how it works is you've got more and more visibility, our data systems give us more real-time and more consistent ways to measure ourselves on labor metrics. And then you combine that with our model, which is CEO, COO caliber leaders in every operation that are then clustered into groups where there's consistent sharing of best practices and pure accountability. And then those are folded into markets where data is and practices are shared more widely.

We've really seen, for example, in our overtime management, our labor management, we've seen a really nice kind of synchronization of local efforts, improved data visibility, best practice sharing and then service center, providing more kind of macro tools that allow people to do it more effectively on a local level. It's been really fun to see overtime improve, agency spending improve, turnover improve, and it continues to be a major focus for us. We're not satisfied with where we are yet, but we're really grateful for the improvements.

And then on the second question, we actually just implemented our ERP system on January 1. So we're in that stage of working through the very first quarter and very first month closing everything out. So we're not to that efficiency stage. But obviously, the entire purpose of doing ERP system is to have more efficiency, have better data, have more information that we can actually, like Spencer just mentioned, pass to the field in a quicker, faster, more effective way at a more granular level.

So we're really excited about the implementation. We know that right now, we're at the beginning phases and it might feel like a little bit more work than less work, but the opportunity that we can have from what we'll have in the long run from a system implementation like we just went through will really be something that we'll be able to use for years and years to come and really have an opportunity to make information easier, more accessible and just change the entire process that we do on the back end.

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

Just maybe kind of thinking about the kind of overall philosophy and maybe the kind of evolution of the model when we think outside of SNF senior living and kind of all the other stuff that Ensign does within the post-acute continuum. I guess when we think about certain areas of interest, does kind of I-SNP come to mind? I know you guys partner with plans, but in terms of kind of expanding the quality of care and the control around that, has there ever been kind of an area of interest for you? Just kind of curious on your thoughts on that, just given kind of your footprint in the post-acute spectrum.

I'll start and Suzanne is much more knowledgeable about this. But the short answer is, yes, yes, it's something we're always looking at. It's obviously something we participate in, in several markets. It's something we watch closely. There are some pros and cons to the model, and we could get into that at another time. But we tend to, as you can tell, stick to what we know we are good at and then partner closely with our managed care providers who are probably more focused on this area than a pure-play operator could be. But that said, there are obvious opportunities there to kind of control certain aspects of payment and to kind of be more of a quasi-payer and convener when it comes to that model. Suzanne, anything you want to add to that?

I was just going to add exactly that. There's always -- we're always doing what we call pilot programs in different markets and different places. They all look a little bit different. None of them are really a large portion of our total operations, but I think that that's what keeps us nimble and keeps us quick in looking to see if we do want to do something at a larger scale one time, we'll have already tested out in a pilot and have a proven concept for them to kind of expand upon that. And so definitely lots of versions of IQIPS or quality improvement programs and a whole bunch of -- yes, there's a whole bunch of different specialty programs that we have or capitation programs that we have.

So we have a lot of those going on throughout the organization. I would characterize them as all small pilot programs that we continue to learn from. And then if one really pops, we start to expand. And again, it's not us expanding it. It's educating that how the program works and then the operations partners that we have in the field, really latching on to that because they can see the value that it creates service that it delivers to the patients.

Great. Yes. I appreciate the color there. And maybe just from a modeling perspective, kind of integrating these large portfolio of assets. And so as you kind of think about seasonality from a skill mix and occupancy perspective and then kind of the impact of the onboarded portfolio to the kind of consolidated metrics, how should we kind of be thinking about that as we think about the remainder of the year?

So I would say that our pattern would be typical to our normal pattern, right, that we've seen outside of the COVID years, where you really typically see a Q2, Q3 more seasonally light for skilled mix and then really a stronger Q4. Barry or Spencer, do you have any other color?

No, I think that's right.

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

First, maybe, obviously, the company and the sector came through the one big beautiful bill discussion pretty well. We are obviously hearing some states are a little challenged in their budgeting. Others are doing fine. Just wonder if you could maybe speak to what you're seeing in your discussions regarding Medicaid rates and the outlook. Is it sort of steady state from your perspective? And maybe just give some flavor on that.

This is Suzanne. Definitely steady state right now. I think what we're seeing is people looking beyond '26 and '27 where they're thinking about potentially how to navigate waters where it might be a little bit more, the funds might be not as fluid. And so I think one of the things that we're doing to make sure we're ahead of that is just being super active. We are meeting with the states, meeting with folks who are in our situations representing us and really taking an active role in where Medicaid could go for us and educating what we do for their residents -- our residents and obviously, the folks that are in the state. And so we feel really good about where it sits today on the Medicaid front because of people recognizing the services that we deliver and the need for those services.

Okay. You talked about the I-SNP opportunity. I know another area you were looking at sort of as a demo, it sounded like a few quarters ago was in the behavioral health area that that's obviously a place that there's some supply-demand constraints. I wondered if you could give us any update on what you're thinking about institutional behavioral health. And it sounds like there are some other demo areas that you're looking at. Is there anything else that looks particularly exciting that you would call out?

So on the behavioral health, there is continued innovation. And you see this as you visit different markets, there's constantly this drive from our operators to figure out what our hospital partners, what the communities and what the plans need. We've continued to see demand for specialized behavioral health be really strong, and we've continued to develop those and add those units, get contracts even with state Medicaid systems and other managed providers where they know that they need people in a lower cost setting like ours. They know that we have the capacity to do it, and they're contracting with us or in some cases, even asking us to expand to meet their needs. So that continues to be a really strong area, but it's very locally driven with service center support versus a service center kind of mandate or strategy.

As far as non-SNF-based behavioral health, we're not doing anything in that area to speak of. And then just to your question about other kind of innovative areas, absolutely. There's -- with almost 400 operations, there's so many ideas. Really, what we try and do is provide the framework to help people analyze, people understand the regulatory backdrop that they'd be operating against, understand true demand and supply and trends. And we're seeing a lot of cool, as Suzanne mentioned, these piloting type things that that's what allows us to grow, and that's what allows us to be so excited about the future is it's not us coming up with one strategy. It's almost 400 operators and their teams and their clinicians coming up with what the communities need and then we help them. And yes, absolutely, we expect to do more in the future.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Ensign Group, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call.

[Operator Instructions]

I will now hand the conference over to Mr. Keetch. 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 5:00 p.m. Pacific on February 27, 2026. We want to remind anyone that might be listening to a replay of this call that all the statements made are as of today, February 5, 2026, and these statements have not been nor will be updated subsequent to today's call.

Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to the 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 the 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 a 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 REIT, which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group. The words Ensign, company, we, our and us refer to the Ensign Group, Inc. and its consolidated subsidiaries. All of our independent subsidiaries, the Service Center, Standard Bearer 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 words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign 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 complete understanding of our business but they should not be relied upon in the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and available in our Form 10-K.

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.

We're excited to report another record year and record quarter in several key areas. To start, I want to highlight the extraordinary clinical outcomes achieved by our dedicated and talented caregivers. None of the results, which we will discuss today are possible without the outstanding work being done by these amazing nurses, therapists, dietitians, food service professionals, activities coordinators and the many others whose unwavering commitment shapes the daily care experience for thousands of patients across our portfolio.

It's difficult to convey in words how so many individuals work so hard to achieve such amazing outcomes through so many small moments of selfless service. Having a front row seat to these amazing people is humbling to say the least. And while the point of these quarterly calls is to provide investors a financial update, let there be no mistake that our consistent financial results would not be possible without a relentless patient-focused culture that drives our frontline partners to deliver the highest quality clinical outcomes supported by a family-like atmosphere where everyone genuinely cares about one another.

There are several measurements that showcase our clinical excellence. For example, according to the most recently published CMS data, same-store Ensign-related operations outperformed their peers in their annual survey results by an impressive 24% at the state level and 33% at the county level. This exceptional performance is only possible by achieving sustained clinical performance over time. In that same data set, Ensign affiliated operations also maintained a 19% advantage in overall 4- and 5-star rated buildings when compared to their peers. This is particularly noteworthy given that the majority of these communities were 1- and 2-star facilities at the time of acquisition.

In addition, our same-store operations continue to outperform their industry peers and 5-star quality measure results by delivering 22% better results on a national level and 17% above the state level. Together, these results underscore our ability to become the provider of choice in our communities by delivering consistently better quality of care, creating long-term value across our portfolio, and we'll expand on that more throughout this call. This clinical strength depends upon attracting and retaining top-notch talent in every operation. We are encouraged by the deep bench of incredible talent that continues to flow into our organization, and we look forward to working with them to continue to achieve our mission to dignify post-acute care.

On the retention side, we continue to experience improvements in turnover, stable wage growth and lower staffing agency usage even in the face of increased occupancy. We are especially proud of the exceptionally low turnover amongst our directors of nursing. Over the past few years, DON turnover has declined by 33%, placing us amongst the performers in the industry and reinforcing the stability and leadership consistency that drives high-quality care. 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.

Our clinical achievements are bearing fruit in many ways. On the census front, our same-store and transitioning occupancy increased to 83.8% and 84.9% during the quarter, which are both all-time highs. On the skilled mix front, we saw an increase across all payers. More specifically, skilled days increased for both our same-store and transitioning operations by 8.5% and 10%, respectively, over the prior year quarter. We also saw Medicare revenue increased for both our same-store and transitioning operations by 15.7% and 11.3%, respectively, and an increase in our same-store Medicare days of 11% over the prior year quarter.

In addition, we saw managed care revenue increase for both our same-store and transitioning operations by 8.9% and 15%, respectively. The primary reason for these improvements is expanding the trust of the communities our teams serve through the clinical outcomes that they have achieved that I described earlier. As each operation solidifies the reputation in their respective markets, they are not only seeing more patients but they are also being entrusted to care for more and more medically complex patients, which includes a larger share of Medicare, managed care and other skilled patients.

In addition, we believe we are just now starting to see increased demand for our services related to the strong demographic trends. These powerful tailwinds will only bolster our census momentum we're seeing across our portfolio, giving us confidence in the long-term growth opportunity ahead. While we are thrilled with our current record same-store occupancy, we are actually excited that it's as low as it is. At 83%, we have enough organic growth potential left in our organization to sustain our consistent earnings and revenue growth even if we stopped acquiring. As we point out during each of our earnings calls with specific facility examples, it's not uncommon to see some of our most mature operations consistently achieve and maintain occupancies in the high to mid-90s.

Although many of our acquisitions in 2025 are in states that have higher occupancy levels, including California, Alaska, Utah and Washington, their occupancy levels are far below the average levels that we see from our mature campuses in these states. The organic potential in our portfolio continues to remain one of compelling opportunities to continue to drive results. In addition, we continue to acquire new operations with massive long-term upside with many more in the works.

Since 2024, we have successfully sourced, underwritten, closed and transitioned 82 new operations across several markets, many of which are already performing at or above our expectations. We're very humbled by what we were able to accomplish in 2025, and we are eager to continue to drive organic improvements and take advantage of the acquisition opportunities that we see on the horizon.

We are issuing our annual 2026 earnings guidance of $7.41 to $7.61 per diluted share and annual revenue guidance of $5.77 billion to $5.84 billion. The midpoint of this 2026 earnings guidance represents an increase of 14.3% over our 2025 results and is 36.5% higher than our 2024 results. We look forward to 2026 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 5 years, our total adjusted revenue increased by $2.7 billion or 111%, representing a 16% compounded annual growth rate, while our diluted adjusted earnings per share grew by $3.44 from 2020 to 2025, representing a 16% compounded annual growth rate.

In addition, we have seen adjusted net income grow by 121% with a compounded annual growth rate of 17%. This performance is not due to some large event or a single transformative transaction but instead is the result of steady consistent growth and performance quarter after quarter, which comes from a collective belief and commitment that is held by all of our partners to expand our mission in a methodical and thoughtful way.

Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?

Thank you, Barry. We had another significant few months on the acquisition front, adding 17 new operations, which includes 12 real estate assets during the quarter and since. These include a 7-building portfolio in Utah, 3 in Texas, 2 in Arizona, 2 in Colorado and 1 in each of Alabama, Kansas and Wisconsin. In total, we added 1,371 new skilled nursing beds across 7 states. This growth brings the number of operations in our recently acquired group of operations to 21.7% of our entire portfolio. We were thrilled to complete these acquisitions that span across so many distinct health care markets. In each case, our local clusters are prepared to execute on their specialized building-by-building transition plans several months in advance.

Overall, our growth this quarter continues to demonstrate our ability to take on multi-facility portfolios as well as our traditional singles and doubles. We continue to learn from and perfect our transition process and believe that those lessons are showing through in the performance of our recently acquired operations. As we've shown during the quarter and the last few years, our building-by-building approach transition works for single operations, small portfolios and larger portfolios, particularly when a large deal spans several markets and geographies.

We've also shown that in certain strategic situations, paying higher prices can be justified for performing assets that have newer physical plants. And while some of those deals may take a bit longer to generate the returns we expect, we've seen these deals pay off over time as our operators implement the proper clinical systems and cultural changes.

In the Stonehenge acquisition, for example, the purchase price represented a premium over our historical acquisitions in Utah. However, the high quality of the assets, the strong clinical and financial performance as well as the synergies with our existing footprint in several markets justified a higher price while still leaving room for midterm and long-term upside. And yet just a few months after closing, these operations are performing well ahead of schedule and contributing to both the strength of our clusters in Utah and the company's overall performance.

While we certainly will continue to evaluate and consider any deal that's out there, we are also very comfortable growing the way we've grown this year with lots of transactions across many states, including small deals to larger portfolios and where it makes sense, higher-priced strategic assets. As we look at the current pipeline, we continue to see opportunities that include everything from larger portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of our traditional onesie-twosies.

We have several new additions lining up for Q1 of 2026, and our local leadership teams and their deal partners here at the service center are working together to source, underwrite and carefully select the right opportunities. We continue to have lots of success in closing deals with sellers who are not just interested in receiving top dollar but care deeply about the quality and reputation of the company they select to inherit their legacy and choose us because they believe in our mission to dignify post-acute care.

We are also pleased to announce a few unique new construction projects we recently completed both in California. The first project involved working together with Omega Healthcare REIT to take advantage of several acres of vacant land on one of our leased properties. With their support and the expertise of our team of health care construction experts, we completed a 40-bed addition at Vista Knoll Specialized Healthcare in Vista, California. The expansion added much needed capacity to our specialty care unit and significantly strengthened our ability to meet the community's growing needs. Only a few months after opening, the new wing has already achieved 98.3% occupancy.

We are also thrilled to have recently completed the construction and obtained the license to operate a replacement facility to one of our high-performing skilled nursing operations in San Diego County. Grossmont Post Acute in La Mesa, California, which is located next to Sharp Grossmont Hospital is a pillar of the local La Mesa healthcare community. But the operation was housed in an aging building and the landlord had determined to replace that aging building with new medical office space. Several years ago, we acquired land next door and endeavor to build a brand-new replacement building across the street from the original location.

After several years and lots of hard work, we successfully completed the construction and we'll be moving all the patients and staff to a brand-new state-of-the-art building that will replace the old building while also adding 15 beds to the original license. We are thrilled for the city of La Mesa that we were able to find a way to continue at considerable investment to provide these critical post-acute services to the community for decades to come.

We are also grateful for the support of our partners at Sharp Grossmont Hospital and look forward to finding ways to continue to provide service to their patients. Both cases illustrate that there are several ways that we can carefully and selectively invest our capital to enhance our service offerings to the communities we serve. We will continue to look for opportunities to add beds to successful operations and where appropriate, to invest in newer construction in markets we know well.

Our local leaders continue to recruit future CEOs for Ensign affiliated operations, and we have a deep bench of CEOs and training that are eagerly preparing for their opportunity to lead. During the quarter, we again reached an all-time high for AITs in our pipeline. This high-quality influx of leadership talent, combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks.

We also continue to store enough dry powder on our balance sheet to fund a significant amount of growth, including adding even more real estate assets to our portfolio. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way.

Lastly, we are also pleased with the continued growth of Standard Bearer, which added 12 new assets during the quarter and since. Standard Bearer is now comprised of 154 owned properties, of which 120 are leased to an Ensign affiliated operator and 35, which are leased to third-party operators. We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry.

Going forward, Standard Bearer will work together with our existing operating partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities that high-quality third parties are interested in operating under a lease. Collectively, Standard Bearer generated rental revenue of $34.5 million for the quarter, of which $29.3 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $20.4 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.6x.

And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. Spencer?

Thanks, Chad, and hello, everyone. I wanted to share 2 outstanding operations that have achieved sustained financial growth due to their consistent emphasis on clinical outcomes and staff development. South Bay Post Acute located near San Diego, California is a 98-bed skilled nursing operation that has been an Ensign affiliate since 2014. Like many of our same-store operations, the South Bay team, led by CEO, Lisa Simmons; and COO, [ Connie Narvaez, ] maintains a consistent focus on improving both clinical and financial performance year after year.

The facility has long been recognized for strong quality outcomes as reflected in its 5-star CMS ratings for quality measures, health inspections and overall performance. Over the past year, the team identified an opportunity to expand its community impact by developing specialized capabilities to care for bariatric patients, a growing but historically underserved population in post-acute care.

Successfully serving this population required a disciplined clinical and operational strategy. The facility leadership team started by visiting a highly successful Ensign affiliate that has become the top-performing bariatric operation in Arizona. Building on what they learned, South Bay remodeled rooms, invested in specialized equipment and engaged both external experts and its in-house therapy team to develop protocols and provide staff training to safely and effectively treat bariatric patients.

The team also expanded behavioral health support and implemented both group and individual therapies tailored to this population. By addressing the clinical and operational challenges that hospitals face when placing bariatric patients, South Bay positioned itself as a reliable solution for complex discharges. These efforts contributed to both improved patient outcomes and measurable reputational improvement. Health plans and referring acute partners have taken note, and South Bay has recently been awarded additional high reimbursement contracts. These clinical accomplishments have inevitably resulted in financial growth.

In the fourth quarter, earnings before income tax increased 127% compared to the prior year quarter. Notably, this growth occurred in an operation that transitioned more than a decade ago and entered the year with very high occupancy. While overall occupancy increased modestly from 96% to 97%, the more meaningful impact occurred in payer and acuity mix. Skilled revenue mix increased 25%, driven in part by an 86% increase in Medicare days, while managed care volume grew 22%. With a continued focus on staff well-being and comprehensive high-quality care, the South Bay team is demonstrating how clinical specialization can drive sustainable occupancy, skilled mix improvement and financial performance and allow a long-time affiliate to elevate year-over-year results a decade after acquisition.

The second highlight is Shoreline Health and Rehabilitation located in North Seattle, Washington. This is an example of an operation that recently moved from transitioning into our same-store category. Since acquisition, the 114-bed skilled nursing operation has been led by CEO, Clayton South; and COO, [ Ruby Cor. ] Shoreline is an excellent example of maintaining a disciplined focus on finding, developing and retaining exceptional care staff.

For example, in 2025, the facility's CMS nursing turnover rate was 60% lower than the state average and the tenure of frontline staff was over 7 years on average, remarkable in an industry that is challenged by high turnover. This resulted in significant decreases in overtime costs and allowed Shoreline to operate with 0 registry staffing for the second consecutive year. Having stable satisfied staff results in better care, fewer patients returning to acute hospitals and cost savings for health plans and hospital systems alike.

Throughout the year, Shoreline served as a preferred provider within the Providence Swedish and University of Washington Health Systems, which allowed facility leaders to meet monthly with acute providers and learn ways to become the solution to their challenges. A clear example of this partnership occurred when the hospitals expressed difficulty placing patients requiring TPN, a complex and resource-intensive service that is normally provided only in the acute care setting.

[ Ruby ] and her team evaluated the clinical requirements, implemented additional staff training and coordinated closely with their physician group and pharmacy partners. As a result, Shoreline is now the only facility in the North Seattle area accepting TPN patients. This capability has also driven admissions across a broader range of skilled diagnoses. By investing in its workforce and positioning itself as a solution to hospital discharge constraints, Shoreline continues to strengthen its standing as a high-performing clinically sophisticated provider of choice in its market. As a result of all those efforts, the Shoreline team achieved record financial performance for 4 consecutive quarters.

In Q4, Shoreline's revenues increased by 11% compared to the prior year quarter, while EBIT rose by nearly 33% over the same period, while overall occupancy growth was modest and occupancy remains below 74%. The team executed on their strategy to increase clinical capabilities and care for higher acuity skilled patients, which allowed skilled revenue mix to grow to 70%. Medicare days increased 24% and managed care improved 103% over prior year quarter. Because of this acuity strategy, Shoreline accomplished record results in 2025 and has significant opportunity to continue to increase occupancy and grow results long into the future.

With that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open it up for some questions. Suzanne?

Thank you, Spencer, and good morning, everyone. Detailed financials for the year and the quarter are contained in our 10-K and press release filed yesterday. Some additional highlights for the year and the quarter compared to the prior year include the following: for the year, GAAP diluted earnings per share was $5.84, an increase of 14.1%. Adjusted diluted earnings per share was $6.57, an increase of 19.5%. Consolidated revenue was $5.1 billion, an increase of 18.7%. GAAP net income was $344 million, an increase of 15.4% and adjusted net income was $386.6 million, an increase of 20.6%.

For the quarter, 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%. Consolidated revenue was $1.4 billion, an increase of 20.2%. GAAP net income was $95.5 million, an increase of 19.8%. Adjusted net income was $107.8 million, an increase of 23.2%.

Other key metrics as of December 31, 2025, include cash and cash equivalents of $504 million and cash flow from operations of $564 million. During 2025, we spent more than $500 million to execute on our strategic growth plan. We made these investments from a position of strength as shown by our record low lease adjusted net debt-to-EBITDA ratio of 1.77x after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant acquisition 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 more than $590 million available on our line of credit, which when combined with our cash on our balance sheet, gives us over $1 billion in dry powder for future investments. We also own 160 assets, 136 of which are completely debt-free. They are gaining significant value over time and adding even more liquidity to help with future growth.

During the quarter, the company increased its dividend for the 23rd consecutive year and paid a quarterly cash dividend of $0.065 per common share. We have a long history of paying dividends. And as the company's liquidity remains strong, we plan to continue our long history of paying dividends into the future.

As Barry mentioned, we provided our annual 2026 earnings guidance between $7.41 to $7.61 per diluted share and our annual revenue guidance between $5.77 billion and $5.84 billion. We have evaluated multiple scenarios and based upon our strength in our performance and positive momentum we have seen in occupancy and skilled mix as well as continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results.

Our 2026 guidance is based on diluted weighted average common shares outstanding of approximately 60 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed during the first quarter of 2026, the inclusion of management's expectation for reimbursement rates with the primary exclusions coming from stock-based compensation and amortization of system implementation costs. 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, short-term impact of our acquisition activities, variations in insurance accruals and other factors.

And now I'll turn it back over to Barry. Barry?

Thanks, Suzanne. As we wrap up, we can't emphasize how -- enough how incredibly honored and grateful we are to work alongside our operational leaders and our service center team here that are behind these record-setting results. We never cease to be amazed by their impressive resiliency as they focus on supporting one another in new and innovative ways. Their commitment has blessed the lives of so many, including our own, and we're excited about our future because of these amazing partners. We have complete faith in them and the culture that they've collectively built.

With that, we'll turn it over to our Q&A portion of the call. Operator, will you please provide instructions on the Q&A.

[Operator Instructions] Your first question comes from the line of Clarke Murphy with Truist Securities.

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?

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.

Okay. Great. And then just kind of shifting gears a little bit. Can you guys give us some color on things you're doing on the labor environment, specifically your agency labor continues to come down. You guys talked about the director of nurse and the CEOs and training where you continue to have success. Can you just kind of talk about some of the drivers there and how we should think about continued improvement going forward on the labor front?

Yes. Great question. A couple of things. I mean there's -- you've got your macro environmental factors, which can influence. But I'd say the way to think about it is health care, especially for us, is a very locally driven business. And as we do better at things like our initiative to decrease Director of Nursing turnover, what you've got is you've got this stability of leadership. You've got relationships that allow the frontline caregivers to feel like they found a home and they can produce great care outcomes. So we believe that focusing on leadership stability then allows those COO and CEO caliber leaders to create environments where people want to stay.

We're very optimistic about both our ability to continue to make progress and have good stability in our labor and also in our ability to, as we acquire facilities, have that same model, have the similar results where with time and with the right people, you're going to see labor numbers get better and better. And I would just say, I guess, the final thing is, with this, you've got agency but you've also got overtime, and we're excited to see that overtime is moving in the same direction.

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

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?

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.

Yes. And I'd just say with -- I echo what Suzanne said, and with these changes that they make in things like value-based purchasing, the nice thing is we have signals from them years in advance. We know for the most part, where they're going. And so this isn't something that caught us off guard. These are things we've been focused on building foundations to deal with and to be exceptional at for years. And so again, that starts with great quality, local leadership and then having the ability to kind of see around the corner of what's coming, which CMS signals. And so I'm very encouraged that we'll be able to continue to up our quality and do well in these programs.

And because we've got a world-class team of clinicians and data services folks that are able to analyze and package the data and create dashboards and tools that our clinicians on the front lines can use. Our ability to adapt to these changes is probably unlike any other post-acute provider. It's an amazing thing to see how our teams are able to kind of assimilate all these changes and get the information assembled in a really useful kind of ready-to-use way.

Appreciate that commentary. Just a quick follow-up. Is there a risk that these types of programs could steepen the ramp on some of these turnaround acquisition opportunities?

I mean, I think that's more a function of the changes we see in acuity that kind of steepen the ramp. When you take on acquisitions that are historically averse to acuity, that's the bigger kind of challenge that we see rather than these kind of unique nuances in how CMS measures things. So for us, our focus is on improving capabilities first and making sure clinical leadership and all the right tools are implemented so that there's an alignment of the direction we're headed. Our leaders are almost uniformly focused on bringing capabilities up to speed when we go into a building. And then as they do that, everything else kind of falls into place because all of the systems that they're able to lean on through our one clinical program align with kind of what they're already trying to do.

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

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.

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.

Got it. And then 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?

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.

Yes. On the construction question, we are really excited about the projects that we talked about today, and there's really kind of 2 categories there. One is adding beds to existing operations where there's clearly demand for extra beds but also land and capability to build. So that's something we're looking at doing. And the second was a replacement facility. Building a brand-new building is really time-consuming and expensive, especially when you're starting with an empty operation and going through the Medicare certification process is costly. So where you can do a replacement facility and essentially you start with a new building, but you've moved the staff and the patients over on day 1, it makes for a whole lot quicker return on that significant investment.

So those are 2 things we're looking at. We've recently beefed up our kind of construction capabilities, bringing in some experts that do this stuff. And it's always kind of -- anyone that's done any new construction understands that especially COVID and everything, having third parties that are not necessarily aligned with you on how to manage costs and all that can be challenging. And so we've kind of learned some lessons through doing this that having that capability in-house would be really helpful.

So we're assessing our portfolio and trying to pick a handful of projects like this that would be sort of the lowest hanging fruit. And it obviously won't ever kind of compare to kind of our overall acquisition strategy but it is an important tool that we have and one that we'll do more and more of, especially in our most mature markets.

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

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?

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.

Yes. And I would just add, it's not just behavioral health but really looking at the specialty programs where there's a need. So it's really partnership like we always have of working with the managed care organizations to see what their needs are and then developing with them solutions to meet those needs.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to The Ensign Group Q3 Earnings Call. [Operator Instructions].

At this time, I would like to turn the call over to Mr. Keetch. 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 5:00 p.m. Pacific on November 30, 2025. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, November 4, 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 Bearer Healthcare REIT, Inc., which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group. The words Ensign, company, we, our and us refer to The Ensign Group, Inc., and its consolidated subsidiaries. All our independent subsidiaries, the Service Center, Standard Bearer and the insurance captive are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign 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 complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q.

And with that, I'll turn the call over to Barry Port, our CEO. Barry?

Thanks, Chad, and thank you all for joining us today. We're pleased to report another record quarter in several key areas. Before we jump into some of the financial highlights, I do want to provide some more detail about the primary driver of our success, which is the extraordinary outcomes achieved by the dedicated and talented clinical teams.

While we are always trying to highlight our clinically driven culture, sometimes the financial outcomes take the forefront on calls like this. We do feel, however, it's important to point out again that our clinical performance continues to be the key differentiator for us. Simply put, our consistent financial results would not be possible without a relentless patient-focused culture that strives to deliver the highest quality clinical outcomes.

According to the most recently published CMS data, same-store Ensign affiliated facilities outperformed their peers in their annual survey results by an impressive 24% at the state level and 33% at the county level. This exceptional performance is not just a snapshot. It reflects the sustained clinical excellence of our local leadership teams and caregivers. In that same CMS data set, Ensign-affiliated operations also maintained a 10% advantage in overall 4- and 5-star rated buildings when compared to their peers. What makes this especially notable is that the majority of these communities were 1- and 2-star facilities at the time of acquisition. Together, these results demonstrate our consistent ability to elevate quality of care, strengthen operational execution and create long-term value across our portfolio.

We can't emphasize enough how hard our teams are working every day to give our patients and their families the best service possible while developing and sharing best practices with their peers in their own clusters and markets and beyond. These efforts are bearing fruit and showing through in several ways.

On the census front, our same-store and transitioning occupancy increased to 83% and 84.4% during the quarter, which were both all-time highs. The primary reason for this growth in occupancy is due to the fact that our teams are capturing more market share by earning the trust of the communities they serve through the clinical outcomes described earlier. As each operation earns and solidifies the reputation as the facility of choice in their respective markets, they're not only seeing more patients, but they're also being entrusted to care for more and more medically complex patients, which includes a larger share of Medicare, managed care and other skilled patients.

In addition, we believe we're just now starting to see the increased demand for our services related to the strong demographic trends. As we look ahead, these demographic trends are undeniable. The U.S. population aged 80 and older, our core population is projected to grow by more than 50% over the next decade from roughly 13 million today to over 20 million by 2035. At the same time, the ratio of seniors to middle-age family members is expected to decline by nearly 40%, creating sustained and growing demand for the kind of skilled nursing and rehabilitation services offered in our facilities every day. These powerful tailwinds will only bolster the census momentum we're seeing across our portfolio, giving us confidence in the long-term growth and opportunity ahead.

On the skilled mix front, we saw skilled days increase for both our same-store transitioning operations by 5.1% and 10.9%, respectively, over the prior year quarter. We also saw Medicare revenue increase for both our same-store and transitioning operations by 10% and 8.8%, respectively, and an increase in our same-store Medicare days by 4.2% over the prior year quarter. In addition, we saw managed care revenue increased for both our same-store and transitioning operations by 7.1% and 24.3%, respectively. These improvements in skilled mix in our same-store operations and the even larger improvements in our transitioning operations highlight our ability to capture a portion of the enormous upside inherent in our existing portfolio.

The combination of strong demand for our services and our efforts to be best-in-class in our markets creates a pathway to continue to produce long-term sustainable growth. At the same time, we continue to acquire new operations with massive long-term upside. Since 2024, we have successfully sourced, underwritten, closed and transitioned 73 new operations across several markets, many of which were already performing at or above our expectations. Our opportunity to continue adding new operations to our portfolio remains solid. However, as Chad will discuss in a minute, the deal market does fluctuate.

In our 26-year history, we've seen periods of time when capital seems to flood into the industry, which can temporarily raise prices to irrational levels. A close look at our history will show in an environment like that, we have remained disciplined and taken a slower pace to growth, avoiding the addition of what we believe to be overpriced deals. Instead, our local leaders spend fewer hours on transitioning newly acquired assets and shift their focus towards enhancing our capabilities within our same-store and transitioning portfolio.

Over time, we have experienced very consistent growth in revenue and earnings, even though the deal market has been and will continue to be choppy. While we're thrilled with our current record same-store occupancy, we're actually excited that it's as low as it is. At 83%, we have enough organic growth potential left in our organization to sustain our consistent earnings and revenue growth, even if we stopped acquiring during periods of irrational pricing.

To illustrate this opportunity, reaching a minimum of 85% occupancy in same-store would be like adding 8 new 100-bed operations and at a minimum of 88%, it would be the equivalent of adding 17. This kind of organic growth is even more powerful than acquisitions because it expands census without adding new fixed overhead, driving stronger and more efficient margin improvement. As we point out during each of our earnings calls each quarter with specific facility examples, it's not uncommon to see some of our most mature operations consistently achieve and maintain occupancies in mid- to high 90s.

As we grow, our local leaders are always on a lookout to attract and develop new partners into post-acute care, including administrators and training, nursing and therapy leaders and other key contributors. We are encouraged by the deep bench of incredible talent that continues to flow into our organization, and we look forward to working with them to continue to achieve our mission to dignify post-acute care.

On the labor front, we do continue to experience improvements in turnover, stable wage growth and lower staffing agency usage 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.

After another stronger-than-expected quarter, we are again raising our 2025 earnings guidance to between $6.48 to $6.54 per diluted share, up from our previously raised guidance of $6.34 to $6.46 per diluted share. The new midpoint of this increased 2025 earnings guidance represents an increase of 18.4% over our 2024 results and is 36.5% higher than our 2023 results. We are also increasing our annual revenue guidance to $5.05 billion to $5.07 billion, up from $4.99 billion to $5.02 billion to account for our current quarter performance and acquisitions we anticipate closing through the end of the year.

We're excited about the trajectory we are on for the year and look forward to continuing our consistent march towards great clinical and financial results. This increased guidance is due to the continued execution of our growth model with organic growth stemming from continued strength in occupancy and skilled mix as we head into the fourth quarter, which is typically one of our strongest quarters. In addition, many of our new acquisitions are performing well ahead of schedule, which highlights our continued commitment to our locally driven transition strategy and also points towards solid underwriting and investment decisions.

We are excited about our performance so far this year and are confident that our partners will continue to execute and innovate while balancing the addition of newly acquired operations. We are eager to continue to drive organic improvements and take advantage of the acquisition opportunities we see on the horizon. The combination of improvements in occupancy and skilled mix in our more mature operations and the long-term upside in our newly acquired operations highlights the enormous organic potential we see in our existing portfolio.

Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?

Thank you, Barry. We accelerated our growth by adding 22 new operations, including 10 real estate assets during the quarter and since. These include 2 larger deals, an 11-building portfolio in California and a 7-building portfolio in Utah. It also includes some single facility opportunities with one in Alabama, one in Wisconsin, one in Iowa and one in Idaho. In total, we added 1,857 new skilled nursing beds and 109 senior living units across 6 states. This growth brings a number of operations acquired during 2025 and since to 45.

We are thrilled to complete the 11-building portfolio in California during the quarter after many months of preparing to transition these operations. These new acquisitions allow us to serve areas of California that we've been looking to enter for years. Consistent with other similar regional portfolios we've acquired in the past, our local team is prepared to execute on their specialized building-by-building transition plans several months in advance. So far, we've been very pleased with the progress in these transitions.

As long-term operators, we've never sold a skilled nursing operation. When we agree to operate a new facility, we make a commitment to the staff, patients and the larger health care community that we are there for the long haul. Our company was founded in California, and these additions only serve to deepen our commitment to the growing populations of seniors in this great state that will benefit from our high-quality health care services over the coming decades.

We were also thrilled to close on the Stonehenge portfolio in Utah. We have admired these operations for many years and are honored to continue their legacy as one of the most reputable providers in the state of Utah. This strategic acquisition adds high-quality, newer constructed properties to our existing footprint and a very important state for us. The locations are a perfect fit with our existing clusters and introduce us into a few new markets. We are also thrilled to add these assets to Standard Bearer's growing real estate portfolio. This acquisition is a perfect example of how our locally driven acquisition strategy works best.

This off-market transaction was a multiyear process that would not have happened with a traditional centralized deal team. This opportunity came to our organization because of a very long-standing relationship between the sellers and our local leaders, who then worked together with our team at the service center to structure a win-win deal for us and the sellers.

We are excited to add our second facility in Alabama and look forward to watching that market grow as we add strength and experience to our local team there. Because our growth over the last several quarters spans across many states and markets, it leaves us with significant bandwidth to grow in almost all of our markets. We continue to prioritize markets that we know best, while simultaneously and meticulously expanding into new markets.

Overall, our growth this quarter continues to demonstrate our ability to take on multi-facility portfolios as well as our traditional singles and doubles, which when taken collectively, are equivalent to a large transformative acquisition. We've shown that our approach to transitioning each operation as a complex health care business works on single operations, small portfolios and on a larger scale, particularly when a larger deal spans several markets and geographies. While we certainly will continue to evaluate and consider any deal that's out there, we are also very comfortable growing the way we've grown this year with lots of transactions across many states, which are typically more reasonably priced and don't carry the complexities that sometimes accompany the acquisition of a large company.

As we look at the current pipeline, we continue to see opportunities that include everything from small to midsized owner-operated portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of traditional onesie-twosies. However, we've also seen some trends in the last few months that show that pricing in certain areas has become too rich to support the fundamentals of the operations. We must and will remain committed to staying disciplined and true to the principles that have contributed to our consistent success, including ensuring that we pay prices that will allow the operations to have enough of the necessary resources to invest in the building and the clinical systems in order to achieve the highest possible clinical outcomes.

With that said, we have several deals lining up for the first quarter of 2026 and our local leadership and their deal partners at the service center work together to source and underwrite reasonably priced deals with sellers who are not just interested in receiving top dollar, but care deeply about the quality and reputation of the company they select to inherit their legacy.

Our local leaders continue to recruit future CEOs for Ensign affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for an opportunity to lead. During the quarter, we reached an all-time high for AITs in our pipeline. This high-quality influx of local 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.

Lastly, we are pleased with the continued growth of Standard Bearer, which added 11 new assets during the quarter and since, including 1 skilled nursing asset that we acquired in Texas that will be operated by a high-quality third-party tenant pursuant to a triple net lease. Standard Bearer is now comprised of 149 owned properties, 115 are leased to an Ensign affiliated operator and 35 are leased to third-party operators. We were excited to add our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry.

Going forward, Standard Bearer will continue to work together with our existing operating partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities at third parties that are interested in operating under a lease.

Collectively, Standard Bearer generated rental revenue of $32.6 million for the quarter, of which $27.6 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $19.3 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.5x.

And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. Spencer?

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 story. And we believe these examples are the best way to explain how we produce consistent results over time.

As Barry and Chad both mentioned, one of the biggest drivers of Ensign's consistent growth that our same-store operations are continually pushing for quality and improvement year after year. A great example of that diligence is Beacon Harbor Healthcare & Rehabilitation located in Rockwall, Texas. Beacon is led by Executive Director, Cory Blomquist, and his clinical partner, COO, Don Thompson, who has guided a remarkably stable leadership team since the facility joined Ensign back in 2019. Beacon has long been a strong clinical and financial performer, and the team has been executing a thoughtful multiyear strategy to make the facility the clear provider of choice in their community.

First and foremost, they've focused on taking care of their caregivers. Despite operating in a tough labor market, Beacon enjoys turnover well below state averages, runs low overtime and hasn't used a single nursing agency shift all year. Because their staff feel valued and supported, that care naturally extends to their patients. Second, the team has maintained their 5-star CMS quality rating, while growing their reputation for clinical excellence. They've also expanded their medical partnerships, adding cardiology, pulmonology and nephrology specialists and strengthened relationships with local hospitals, which enabled them to participate successfully in multiple ACOs and expanded managed care partnerships.

The results speak for themselves. Occupancy has increased from 69.4% in Q3 of 2024 to 77.7% in Q3 of 2025, with Medicare days up 11% and managed care days up 21%. As the team has methodically executed their plan, earnings have followed. Q3 EBIT is up nearly 45% from the prior year quarter. Even more exciting is the fact that the operation still is less than 80% occupied and is primed to experience even more growth in coming years.

With a stable leadership team, strong labor practices and a culture that puts people first, Beacon Harbor stands as a powerful example of how sustained organic growth continues to drive Ensign forward.

The second example highlights the kind of transformational growth we often see in our newly acquired operations when they're led by strong local leaders with clear shared vision. River Park Post Acute in Chandler, Arizona, was acquired in May of 2024. Prior to transition, the facility primarily served long-term care residents and had limited visibility in the local health care community. It operated at 3 stars and struggled with census and referrals. That changed quickly under Executive Director, [ Arjun Purvis ] and Director of Nursing, Rhonda Gilbert. Together they united the team around a bold vision to become a beacon of quality in Chandler by caring for more complex skilled patients.

They went to work strengthening hospital partnerships, enhancing the facility's appearance and raising clinical standards. Rhonda and her team focused on the fundamentals, training frontline caregivers, setting high expectations and establishing 7-day a week on-site physician group coverage. Confidence grew, and with it, the facility's reputation. In just 15 months, River Park has achieved 2 successful CMS surveys, including one deficiency free, a rare feat even among established operations. They've also advanced from 3 stars to 5 stars overall and in quality measures.

Operationally, the turnaround has been just as impressive. Occupancy rose from 76.3% in Q3 of 2024 to 97.1% in Q3 of 2025. Skilled mix days increased from 40.7% to 67.5%, with Medicare days up 18.9% and managed care up 176%, adding more than 20 managed care patients per day compared to the prior year. Both clinical and operational gains have translated into extraordinary financial results. Revenues are up 54% and EBIT is up 376% year-over-year. River Park story is a vivid reminder that when clinical excellence comes first, results follow quickly. It also shows the potential that exists in so many of our new acquisitions when talented local leaders are empowered, supported by our resource teams and backed by a culture that believes in doing the right thing for every patient every time.

With that, I will turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open it up for questions. Suzanne?

Thank you, Spencer, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter include the following: GAAP diluted earnings per share was $1.42, an increase of 6%. Adjusted diluted earnings per share was $1.64, an increase of 18%. Consolidated GAAP revenue and adjusted revenues were both $1.3 billion, an increase of 19.8%. GAAP net income was $83.8 million, an increase of 6.9%. And adjusted net income was $96.5 million, an increase of 18.9%.

Other key metrics as of September 30, 2025, include cash and cash equivalents of $443.7 million and cash flows from operations of $381 million. During the 9 months ended September 30, 2025, we spent more than $240 million to execute on our strategic growth plan, most of which have been in the works for months. We made these investments from a position of strength as shown by the lease adjusted net debt-to-EBITDA ratio of 1.86x 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 growth in the long run.

In addition, we currently have approximately $593 million of available capacity under our line of credit, which, when combined with the cash on our balance sheet, gives us over $1 billion in dry powder for future investments. We also own 155 assets, of which 149 are held by Standard Bearer and 131 of which are owned completely debt-free and gaining significant value over time, adding even more liquidity to help with future growth.

The company paid a quarterly cash dividend of $0.0625 per share for common stock. We have a long history of paying dividends and have increased the annual dividend for 22 consecutive years. In addition, we currently have a stock repurchase plan in place.

Also on October 1, 2025, the annual Medicare market basket net rate increased by 3.2%. We continue to work with both state and federal levels to ensure that our seniors and the workforce that supports their daily needs have a voice in the ever-evolving health care landscape. We are pleased with the outcomes of the 2025 rate year and feel optimistic that state and federal governments will continue to recognize the importance of properly funding the health care needs of the ever-growing senior population.

As Barry mentioned, we are increasing our annual 2025 earnings guidance to between $6.48 to $6.54 per diluted share, and our annual revenue guidance between $5.05 billion and $5.07 billion. We have evaluated multiple scenarios and based on the strength of our performance and the positive momentum we have seen in occupancy and skilled mix as well as continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results.

Our 2025 guidance is based on diluted weighted average common shares outstanding of approximately 59 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed through the end of the year, the inclusion of management's expectations for reimbursement rates and with the primary exclusion coming from stock-based compensation.

Additionally, other factors that could impact quarterly performance include variations in reimbursements, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence on the general economy, census and staffing, the short-term impact of our acquisition activities, variation in insurance accruals and other factors. And with that, I'll turn it back over to Barry. Barry?

Thanks, Suzanne. As we wrap up, we just want to reemphasize how grateful we are for our operational leaders, our clinicians, our field resources, our service center partners and most importantly, our frontline staff. So much is being done every day to improve the lives of those we care for, and those stories inspire all of us. Their level of dedication in creating an amazing experience for our residents and one another is truly remarkable. They are on a mission to dignify post-acute care in the eyes of the world and they show it through their collective ownership, which has led to these results.

Looking ahead, we couldn't be more optimistic about our ability to continue our steady path forward as we build up the momentum from this quarter.

And with that, we'll now turn it over to the Q&A portion of our call. Operator, would you please provide the instructions for Q&A.

[Operator Instructions] Your first question comes from the line of Ben Hendrix with RBC Capital Markets.

I appreciate the commentary about the managed care growth. How should we think about the room to run on the skilled mix side, specifically in the same-store portfolio? And what have you guys seen as a sustainable like fully ramped skill mix in some of your higher-performing facilities? Maybe a Beacon would be a good example of that?

Yes, it's a great question. I mean, I guess I would point you back to just the growth we've seen over the past several years. It's a steady and consistent growth and one that we expect to see continue. I mean, certainly, when you look at it on a same-store basis, 5.1% growth is a big jump in days. But it's -- as you look backwards, it's not entirely abnormal when you look at different quarters. But we are pleased with how it's growing, and it's growing not just in managed care, it's growing in Medicare as well and other skills.

So look, I would tell you, just fundamentally, it's -- that's our business. We -- when we dive into these transitions and even look at how we continuously evolve on a same-store basis, the constant thought is how to add more services that meet the needs of our acute providers and our managed care partners. And so what you see is kind of a result of what we all work towards. Our operators are thoughtfully engaged in discussions with these partners to figure out what services are needed, how to add new skill sets, new programs, new capabilities that allow them not just to take the patients, but to achieve the outcomes that are being sought. Spencer or Suzanne, do you guys have any other comments you want to add to that?

I would just add, you referenced Beacon, the example that I shared earlier. I would say in a lot of these facilities, you don't see necessarily a cap happen even after 5 years. There is potential, for example, in Beacon for that skilled mix to continue to ramp up. There's still over occupancy potential as well. But I would say we have so many of our facilities that are more mature, but still have substantial upside on overall census, but especially on skilled. That really is, like Barry mentioned, when you increase your clinical capacities and you climb the acuity chain, you're going to see that skilled growth even faster than your overall growth. And that's what I hope and I expect we'll continue to see in coming years.

If you look at it from a days basis, that same store and the current quarter is saying that only 31.7% of our same-store days are from skilled. And so the opportunity that we have to grow skilled across the same-store portfolio is very large, and that's why we get super excited about the organic growth not just from the skilled mix, but also from the occupancy mix, as we said in our prepared remarks, sitting at only 83% and that opportunity to have basically tons of buildings actually added if we sold it up to the markets that Barry mentioned.

Appreciate that. Just a quick follow-up in some of your newer markets, like particularly I was saying about Alabama as you expand into that market. Can you talk about the managed care contracting environment that you see initially in those types of new markets? And how much you comment on how much of a lift it is to try to get those -- that contracting backdrop up to par with some of your more mature markets?

I'll start and others can add in. It's a process, right? I mean I think, we have relationships with a lot of the contractors because in some of these states like Tennessee, there is overlap with other states that we're already in, but it still takes time to get those contracts in place, and it takes time to make sure that we're ready for the patients, right? As we talked about in the prepared remarks, we're in a clinical business and growing our clinical care sets takes time. And then those partnerships to bond take up the time. And so again, you see acquisitions coming in at that lower skilled mix, you see them at lower rates. And then over time, we're able to grow it.

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

So on the -- just a question maybe on the deal activity that you've seen this year. It sounds like the California and the Utah deals, were things that you've been pursuing for -- or thinking about for quite a while. And I wondered if there is anything in the current environment, that's allowing some of this deal activity to come through, that seems like it's on a little bit of a heightened pace is our expectations between buyers and sellers as to pricing or whatever more in sync now. And you mentioned a couple of markets where you were seeing expectations elevated. I wondered are there are other buyers stepping in? Or are those deals just not getting done at this point?

Yes. Great question. So on the deals that we were able to close, I wouldn't say there's any special market conditions that made these happen when they did. I think it's just a matter of thinking of the Utah deal as an example, the seller there, I mean these could be pretty emotional decisions for these sellers that have built these businesses over many years. And for him, and there's a couple of owners. But I think it was just a long process of kind of preparing themselves to sort of sell their business and move on to something else. And so in a lot of these cases, it's very much driven by who they're choosing to inherit their legacy. And so yes, that's kind of that example.

California, obviously, that was unique because that was a portfolio that had about 30 buildings in it, and we were just taking a portion of it with the 11 buildings. So that was complicated just because there were so many moving parts with multiple operators, all trying to get their licenses, et cetera. So in terms of some of the other states, I mean, we definitely have seen pockets of pricing that we think is not supported by the fundamentals. Texas has been one of those where we've seen some financial buyers come in and start to cobble together portfolios at prices that just don't make any sense, long term.

And so our focus, A.J., is just we're going to stay disciplined. And as Barry mentioned, we can have a choppy deal environment. But because of our multiple levers we have to pull, we're not dependent on deals just to continue our path that we've been on. So really excited about the deals we were able to close this year. And we already have some lined up for -- we have some that will close yet this year. And then we have some that are lining up for Q1 of next year. Kind of hard to predict beyond that, what the pipeline for '26 will look like. But I think our approach will stay the same. And we're opportunistic in our approach and pricing is a major factor, and we'll just stay true to our principles.

Okay. Maybe one other area. We talked before, and it seemed like it's more in the early stages, demo stages. But with this tightness in capacity and behavioral health, it sounded like you had some managed care companies asking you whether you could potentially take some of those residents, they're having trouble finding places on an inpatient psych unit or a facility to place them. I wondered if there was any update in those discussions? And are you seeing any traction with that?

Yes, lots of traction, A.J. We continue to add behavior units in several of our facilities in states like Arizona and California. We've got long-standing relationships with county programs with managed care partners and we continue to build on those and add more capacity as they have demand for it. It is certainly an area that we've got a lot of experience and success with and one we hope to continue to look at growing.

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

Yes, I appreciate all the commentary on the clinical and quality performance differentiation for Ensign. Maybe just kind of wanted to focus on the higher acuity and the skill mix uptrend over the past few years. And overall, when you kind of look at your local markets, do you get a sense that your facilities are taking market share from other care settings, kind of thinking about inpatient rehab facilities that serve more higher acuity members. Do you get a sense that there's some market share gain from that? Or is it just predominantly being driven by just the demographic demand trends?

Yes. I wouldn't say that there's a major shift between care settings necessarily. I mean, remember, we operated as an acute LTAC and we -- while there are certain patients that we could take in a skilled nursing setting, I wouldn't say there's a massive shifting of settings necessarily.

I think it's more a function of just the increasing demand for higher acuity patients. We're seeing -- when you look at the demographics you're seeing certainly more patients in our target demographic, but we're also seeing more chronic illnesses and more comorbidities with our patients. And that's driven us to make sure that we adapt and can pivot and make sure that we've got the right training, the right personnel, the right ability to care for those patients and continue to add more and more of those complex services.

Got it. And then maybe just one more on kind of the organic growth potential ahead that you framed in your prepared remarks. Just maybe wondering if you could frame it from a market share perspective in terms of what the market share is in your mature markets? How much more room there is on that front? And then kind of maybe thinking about those transitioning and newly acquired facilities and the market share gain potential there?

Certainly, the organic opportunity is obviously something we pointed out and for good reason. There is massive upside in every one of our key markets for growth as we continue to develop and evolve. Suzanne mentioned establishing those managed care partnerships and how that takes some time. And as you kind of get through those hoops and establish those relationships, those gains happen over a long, long period of time. It's not something that happens in a year or even 2 years. It's something that happens over many years. Because even as you add new services, you've got to make sure that the results align with the addition of those services and that your partners, especially our managed care partners are satisfied with the outcomes that we're getting.

So it's a long-standing evolution, but there's a ton of upside. We try to point out in our examples, how even some of the most mature buildings continue to make those gains. That's why -- there's usually at least 1 or 2 examples of buildings that we've had for a long, long period of time like Beacon, that have continued to evolve over the course of almost 10 years now and see gains, not just in an overall occupancy standpoint, but growth -- continued growth in skilled mix as they refine and adjust and add new services. So I don't know, Spencer, anything you want to add to that?

I think that's great. And there really is -- there's also this tailwind that's been going for a long, long time that we're working hard to make sure that we position ourselves right for. And that's this desire of payers to find the lowest-paying setting where high acuity services can be offered. And whether it's the latest ACO models that come out from CMS or whether it's just managed care doing what they do, that's something that really positions us to continue to do what Beacon is starting to do. They're part of a couple of ACOs, by example.

As we continue to position ourselves as a high-quality, low-cost alternatives to some of these other settings, it really makes a difference and it gives us a lot of hope for the long run.

Your final question will come from the line of Clarke Murphy with Truist Securities.

So just wanted to come back to you guys continue to deliver really solid results and your newer facilities have been a particular area of strength. Can you just kind of give us a sense for if there are any common themes behind how quickly your new facilities are contributing to your overall results? And then I kind of wanted to just touch on your expansion a little bit in the Southeast. Anything you guys have noticed in that region that's meaningfully different than you thought or expected in terms of demand trends, labor availability, ability to attract clinical talent or just kind of anything else in the Southeast?

Maybe I can start a little bit and then Barry and Spencer can add in. I mean, I think when you look at that recently acquired bucket, we -- after the acquisitions that we just announced this week, we'll have 68 locations in that recently acquired bucket. And so when you were looking at the revenue contribution, it's quite significant compared to prior years with over mix. If you just look at through the quarter, we had about 15.5% of our revenue coming from that recently acquired bucket, and it will be even higher [indiscernible] in Q4. It's a large portion of what we're dealing [indiscernible] acquisitions been contributing.

Now we've always said when they first come on with us, it takes a while to turn. And I think the managed care comments that we've been talking about, and that process that we've been talking about, and those clinical systems that we've been talking about are all part of that. And so that contribution at the beginning is pretty light when you start to go down to the bottom line, but over time, it grows.

I mean I think if you zoom out and look at our margins, in spite of the fact that these new acquisitions, and there have been a lot of them aren't really contributing nearly what they should be or what they will, our margins have stayed steady, which speaks to how well they were transitioned because usually, we see somewhat of a drag when we acquired the pace that we have been over the last many months. So they're certainly ahead of schedule from that perspective, but I would tell you that they're nowhere near what their potential will be, obviously. But contributing in a way that is pretty exciting for us as they come in ahead of their pro forma expectations.

But as you look at the Southeast and our growing portfolio in that market, we're pretty excited about it. All of those transitions in Alabama and Tennessee have been really, really good transitions. They're not all contributing yet, but we see the potential. We have some amazing leaders out there, a couple of great market leaders and also some really great facility leaders who are really kind of moving the dial and showing some pretty significant signs of what we could be out there, which gives us a lot more confidence to keep growing out there. We continue to look for opportunities to strengthen that Southeast portfolio and add some more buildings.

Yes, I'd just add to your first question about, is there a process change? When you understand how we acquire, the process really is, you've got -- it's operations driven. You've got, in any given market, a large amount of operators and clinicians that are part of the acquisition, underwriting and transitioning process. And as you'd expect, as we have all those people doing it and as we've taken on deal over the last 4 or 5 years, we've learned a lot. And that gets shared. And our job is to make sure that there's a forum for best practice sharing. And we think what you see with some of these is that you see lessons learned that are being applied.

And so while we're not guaranteeing that all acquisitions will go ever more smoothly. On the aggregate, you're seeing good practices from operators that are shared widely and then put into practice, and we've been really pleased with what's come of that with the speed of our improvements.

Great. And then just another quick one for me. Just -- I appreciate some of the higher-level labor comments that you guys gave. But is there anything that you can tell us a little bit more specifically in terms of metrics around wage inflation, turnover? Are you guys still not using any contract labor to achieve continued solid results? And just anything that you guys are doing on the labor front to drive improvement?

Go ahead, Spencer. You can start, and I'll follow up.

Yes. I'll start maybe really granularly and then we can go up from there. We are using some contract labor. It's very, very minimal. It's less than 1/5 of what we used just a couple of years ago kind of in the staffing crisis. What we tend to see is our new acquisitions of the 3 buckets tend to use the most. It's still relatively less than it used to be. But our same-store is very, very, very minimal. I mean it's the small minority of our same store that has any contract labor right now.

Yes. And just to add, certainly, it's close to pre-COVID level. But I would add that wage inflation is back to normal levels, low to mid-single digits. And as we saw before, turnover is probably, I think, on its fourth year of decline for us and just really solid overall labor trends.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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 Bearer Healthcare REIT Inc., which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group.

The words Ensign, company, we, our and us refer to the Ensign Group, Inc. and its consolidated subsidiaries. All of our independent subsidiaries, the Service Center, Standard Healthcare REIT and the insurance captive are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign Group.

We also supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q.

And with that, I'll turn the call over to Barry Port, our CEO. Barry?

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 to 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 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 carrying and passionate partners into post-acute care who are determined to join us as we pursue our mission to signify postacute 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 were pleased that the skilled nursing population was carved out of provider tax reduction in the recently passed reconciliation bill, which was a big win for our industry. We feel optimistic that state and federal governments will continue to recognize the importance of properly funding the health care needs of the senior population.

Now more than ever, it is essential that we elevate the voices of our patients and frontline team members. Their stories reflect the heart of what we do and we remain unwavering in our commitment to advocate for the resources and support needed to ensure they receive what they deserve. After such a strong first half of the year, we are raising our annual 2025 earnings guidance to between $6.34 and $6.46 per diluted share from the previously raised guidance of $6.22 an to $6.38 per diluted share. The new midpoint of this increased 2025 earnings guidance represents an increase of 16.4% over our 2024 results and is 34% higher than our 2023 results.

We are also increasing our annual revenue guidance to $4.99 billion to $5.02 billion, up from $4.89 billion to $4.94 billion to account for our current quarter performance and acquisitions we anticipate closing through the third quarter. This increased guidance is due to the continued execution of our growth model with organic growth stemming from stronger occupancy and skilled mix, which is more than expected for the second quarter. Other than during the pandemic, we typically experienced a slowdown in both occupancy and skilled mix during the second quarter. However, due to the continued momentum and quality outcomes and the benefit from positive demographic trends, we were able to maintain stronger-than-expected performance in both occupancy and skilled mix without the use of increased agency or over time, which is also helping control our cost of services.

In addition, many of our new acquisitions are performing well ahead of schedule, which highlights the continued improvement in our locally driven transition strategy, but also points towards solid underwriting and investment decisions. We're also excited about our performance so far this year and are confident that our partners will continue to manage and innovate while balancing the addition of newly acquired operations. We are eager to continue to drive organic improvements and take advantage of the acquisition opportunities that we see on the horizon. The combination of improvements in occupancy and skilled mix in our more mature operations and the long-term upside in our newly acquired operations shows the enormous organic growth potential in our existing portfolio.

Next, I'll ask Chad to add some additional insights into our recent growth. Chad?

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 a 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 customers 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 and 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 current pipeline, we see opportunities that include everything from small to midsized owner-operated portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of our traditional onesie-twosies. We anticipate the current rate of acquisitions to continue this year and are expecting several to close our transition over the next few weeks and months.

Given the growth on the near term -- near and long-term horizon, we wanted to provide an update on some of the larger portfolios we've acquired recently. In the past, Ensign has sometimes been painted with a brush that would suggest that larger deals are not consistent with our model. While most of our growth has been and will continue to be driven by the aggregation of [indiscernible] small deals, our approach to transitioning each operation as the complex health businesses they are also works on a larger scale. This is particularly true when a larger deal spans several markets and geographies. For example, in 2023, we transitioned the portfolio of 17 operations in California under a master lease with Sabra. To be clear, transitioning a large number of operations on the same day especially if attempted in one big bite like would happen in the traditional centralized company is definitely a huge undertaking.

However, by applying lessons we had learned in years past, particularly from a large deal we did in Texas, our local leaders in California approached this deal as if it were 6 or 7 small deals. As our local market leaders in California prepared to transition these operations, it collectively took responsibility for 2 or 3 buildings holding the new operation into an existing cluster of Ensign operated facilities. In doing so, each of the 17 operations received the same amount of time, attention and resources that a single acquisition would have received. This allowed the new operations and their teams to immediately have the benefits of their cluster partners for nearly all aspects of the transition, including training on new clinical systems and enzyme compliance standards, support and learning Ensign's unique cultural expectations and accessing the expertise of their new service center partners.

Rather than viewing the transaction as a merger of one company into a larger company, our teams approached it the same way as when we acquire a single asset from a small business owner or family. As we look to that portfolio now, which comprises the majority of our transitioning budget, it's clear to see the positive clinical and financial contribution that this larger portfolio is making to the organization. Of the 17 operations, 12 have achieved 4- or 5-star rating from CMS, occupancy is over 92%, skilled mix days are 47% and all are making substantial contribution to our overall EBIT.

More recently, we completed a few larger portfolios, some of which span multiple states. While each deal is unique, we are pleased with the progress we've achieved so far in these newly acquired operations. In the near future, we expect to announce the addition of a similar portfolio, and we expect that over the long term, we will continue to be presented with large and midsized portfolios. While we are continuously perfecting and improving the performance of our acquisitions in the portfolio setting, we are confident that our locally-led approach is scalable in both new and existing geographies.

All that said, we must and will remain committed to staying disciplined and true to the principles that have contributed to our consistent success, including ensuring that we pay prices that will allow the operations to have enough of the necessary resources to invest in the building and the clinical systems in order to achieve the highest possible clinical outcomes.

Lastly, we are also pleased with the continued growth of Standard Bearer, which added 5 new assets during the quarter and since and now is comprised of 140 owned properties. Of these assets, 106 are leased to an Ensign affiliated operator and 35 are leased to third-party operators. We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole as we continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry.

Going forward, Standard Bearer will continue to work together with our existing partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities that third parties are interested in operating under lease. Collectively, Standard Bearer generated rental revenue of $31.5 million for the quarter of which $26.8 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $18.4 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.5x.

With that, I'll turn the call to Spencer, our COO, to add more color around operations. Spencer?

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 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. [indiscernible] Wellness is a 119 bed skilled nursing facility located in Austin, Texas. It is led by Rachel 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 transition in 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 continuing 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 steady growth in overall occupancy, which is up 6.8% and skilled managed and Medicare days, which have increased 34.3% over prior year quarter. For the same period, revenues grew by 21%, while cost of services have remained stable. As a result, EBIT increased by an impressive 130% in Q2 over the prior year quarter. We're proud of the transformation that has occurred at Sedona Trace. But as their team would be quick to point out, there is still so much more work to be done. It will be exciting to see the growth continue for years to come as the facility continues to contribute as part of our same-store operations bucket.

For the second facility example, I'd like to highlight an exciting niche where we have been able to apply our post-acute expertise to help a local acute hospital elevate the performance of their skilled nursing operation.

On a larger scale, we see a trend of hospitals choosing to focus on their core acute services, and we expect to have more and more opportunities to grow in this unique and important part of the continuum. Valley of the Moon post-acute is a 27 bed hospital-based skilled nursing facility located in Sonoma, California. It became an Ensign affiliate in 2019 when our Northern California company contracted with [indiscernible] Valley Hospital to take management and financial risk for the skilled nursing facility that they operated as part of their acute campus. Prior to this arrangement, this county-owned operation was underperforming clinically and was losing significant amounts of money. The hospital leadership was faced with either closing the facility or looking for help.

The hospital was under significant pressure to find a solution as the community did not want to lose the SNF services in their hospital. After many months of interviews, and the public hearing, the hospital and county leadership selected our Northern California team to manage the SNF for them. Under this arrangement, our team maintains a close affiliation with the hospital management and Board, including sharing certain services like nonclinical services such as laundry and housekeeping. The partnership has been an enormous success. [indiscernible] CEO, Ryan Goldbarg; COO, Christina Ferrar and their interdisciplinary team have established post-acute systems and elevated clinical outcomes while simultaneously bringing financial solvency to the operation.

While running a small skilled nursing operation can be challenging, the Valley of the Moon team has embraced flexibility, teamwork and an attitude of care without silos and the results have been remarkable. Valley of the Moon uses 0 Nursing registry, has consistently low turnover and maintains one of the lowest overtime wage percentages in all of California. They also produce incredible health care outcomes, including one of the lowest return to acute rates in the state and a CMS 5-star rating for quality measures.

The partnership has been beneficial for everyone. The Sonoma community is benefiting from greater health care access. For example, an acquisition, the SNF was serving an average daily census of just 10 residents, whereas now [indiscernible] consistently runs over 95% or 25-plus patients. The hospital is benefiting from improved bed management and length of stay as they can now confidently discharge appropriate patients to step down level of care more easily. Payers benefit because more of their members can receive care in the most appropriate setting and cost-effective care setting. And residents, including some with challenging and complex medical cases, can receive skilled nursing level care without having to transfer off the hospital campus, while remaining under the care of the same physician providers.

We are excited about the impact Valley of the Moon Post-Acute is having, and we look forward to continuing to find ways to help acute hospital partners throughout our footprint meet their communities full continuum of health care needs.

With that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open up for questions. Suzanne?

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-EBITDA 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 a build 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 turn, adding even more liquidity to help with future growth.

Company paid a quarterly cash dividend of [indiscernible] per share. We have a long history of paying dividends as an increased the annual dividend for 22 consecutive years. In addition, we currently have a stock repurchase program in place.

As Barry mentioned, we are increasing our annual 2025 earnings guidance to between $6.34 to $6.46 per diluted share. And our annual revenue guidance between $4.99 billion and $5.02 billion. We have evaluated multiple scenarios and based upon the strength in our performance and positive momentum, we have seen in our occupancy and skill mix as well as our continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results.

Our 2025 guidance is based on diluted weighted average common stock outstanding of approximately $59 million, a tax rate of 25%. The inclusion of acquisitions closed and expected to be closed during the third quarter of 2025, including a smaller portfolio that we expect to transition in the next few weeks. The inclusion of management's expectations on Medicare and Medicaid reimbursement rates net of provider tax, with the primary explosion coming from stock-based compensation. Additionally, other factors that could impact our 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. Barry?

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 we collect 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 when -- whether [indiscernible] 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 win. 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 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 do 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 will 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 -- 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 -- 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 -- but I think we -- 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 [indiscernible] 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 over 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 it 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 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 skills 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, will 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 and 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 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 would 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 work 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 freight. And as we continue to work with them, that's the talk that we're here starting to hear that they might be getting it 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 skill 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. Or 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 or into reimbursement as 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 [indiscernible] those programs have encompassed over the years, they're relatively small. But we're definitely -- their partner -- the MCO 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 is jumping off on 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 -- 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 break 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 some of the areas where we've grown recently around agency labor. A year or 2 back, we were seeing similar 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, 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 that last year, it was the minimum staffing bill, right? Like there's -- the content 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 or 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 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 to -- 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 -- have had to identify 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.