ENSIGN GROUP, INC

The Ensign Group, Inc. operates in the post-acute care industry, providing skilled nursing, senior living, and rehabilitative services, as well as other ancillary businesses including mobile diagnostics and medical transportation, in 17 states. The company also acquires, leases, and owns healthcare real estate to service the post-acute care continuum. The industry is characterized by an aging population, with the U.S. Census Bureau projecting that between 2022 and 2030, the number of individuals over 65 years old will grow from 17% to 21% of the population, increasing nearly 24% to 71 million, compared to a 3% increase in the total U.S. population. The industry is highly fragmented, dominated by numerous local and regional providers, and the number of skilled nursing facilities has declined modestly over the past several years, improving the supply and demand balance.

The post-acute care industry is highly competitive, with competition varying significantly by location based on factors such as the number of facilities, availability of services, and physical appearance. Primary competitors include other skilled nursing providers, inpatient rehabilitation facilities, long-term acute care hospitals, and increasingly, home health and community-based providers. The company believes its competitive strengths include experienced and dedicated employees, unique incentive programs, staff and leadership development through Ensign University, an innovative Service Center approach, a proven track record of successful acquisitions, a successful real estate investment strategy through Standard Bearer, a reputation for quality care, a community-focused approach, and investment in information technology. As of December 2025, the company's average score on the Overall Star Rating on the CMS Five-Star Quality Rating System for all of its facilities is 6.8% better than the national average, and its average quality measure (QM) rating is 18.2% better than the national average.

The company generates revenue primarily through the operation of skilled nursing facilities, senior living communities, and rehabilitative services, as well as through the leasing of healthcare real estate properties. For the year ended December 31, 2025, approximately 95.6% of revenue was generated from skilled nursing facilities, with the remainder from real estate properties, senior living services, and other ancillary services. Revenue is derived from Medicaid, Medicare, managed care, commercial insurance, and private pay sources. The company's business model is based on a localized approach, empowering local leadership to make their facility the 'operation of choice' in their community, supported by a Service Center that provides centralized services. The company also operates a captive real estate investment trust, Standard Bearer, which owns and manages a majority of its real estate portfolio.

The company's skilled services segment operates 357 skilled nursing operations with 37,911 operational beds as of December 31, 2025, providing short and long-term nursing care for patients with chronic conditions, prolonged illness, and the elderly. Many facilities are equipped to provide specialty care such as on-site dialysis, ventilator care, and cardiac and pulmonary management. During the year ended December 31, 2025, approximately 46.6% and 24.7% of skilled services revenue was derived from Medicaid and Medicare programs, respectively. The Standard Bearer segment owns 152 real estate properties as of December 31, 2025, generating rental revenue by leasing properties to healthcare operators under triple-net lease arrangements. During the year ended December 31, 2025, Standard Bearer generated rental revenues of $126.9 million ¹, of which $107.6 million ² was derived from the company's independent subsidiaries and eliminated in consolidation.

The company's 'All Other' category includes senior living operations, mobile diagnostics, transportation, other real estate, and other ancillary operations, comprising approximately 4.6% of annual revenue. As of December 31, 2025, the company had an aggregate of 3,402 senior living units across 47 operations, with senior living operations comprising approximately 2.2% of annual revenue. During the year ended December 31, 2025, approximately 55.5% of senior living revenue was derived from private pay sources. Ancillary services, including mobile diagnostics and patient transportation, are operated in Arizona, California, Colorado, Idaho, Texas, Utah, and Washington, and to date were not meaningful contributors to operating results.

During the year ended December 31, 2025, the company expanded its operations with the addition of 40 stand-alone skilled nursing operations, five stand-alone senior living operations, and one campus operation, adding a total of 4,175 operational skilled nursing beds and 313 operational senior living units. Subsequent to December 31, 2025, the company expanded with the addition of five stand-alone skilled nursing operations, adding 582 operational skilled nursing beds. Standard Bearer added $314.2 million ³ of real estate associated with 25 stand-alone skilled nursing operations, one stand-alone senior living operation, and two campus operations during the year. The company repurchased 157 shares ⁴ of its common stock for $20.0 million ⁵ under a stock repurchase program approved on February 21, 2025, and donated $10.0 million ⁶ to Insignia Pathway in November 2025. The company also agreed to settle wage and hour claims in California for $12.0 million ⁷, pending court approval.

Total revenue for the year ended December 31, 2025 was $5,057,841,000 ⁸, an increase of $797.4 million ⁹, or 18.7% ¹⁰, compared to $4,260,485,000 ¹¹ in 2024. Net income attributable to The Ensign Group, Inc. was $343,971,000 ¹² for 2025, compared to $297,973,000 ¹³ in 2024. Diluted earnings per share was $5.84 ¹⁴ in 2025, compared to $5.12 ¹⁵ in 2024. The increase in revenue was primarily driven by an increase in occupancy of 2.5% ¹⁶ and 4.2% ¹⁷ from skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing skilled mix and daily revenue rates.

A primary growth vector is the continued acquisition of new facilities and businesses. The company has an established track record, having acquired 145 facilities from January 1, 2021 through December 31, 2025, which added 14,739 operational skilled nursing beds and 1,148 senior living units. The company plans to continue growing by acquiring additional operations in existing and new markets, expanding and renovating existing operations, and strategically investing in and integrating other post-acute care healthcare businesses. The New Market CEO program, established in 2006, supports expansion into new markets by evaluating target markets and establishing operating platforms for future growth.

Another key growth vector is the expansion of the Standard Bearer real estate portfolio. The company views owning and expanding its real estate portfolio as a key component of its long-term strategy, aimed at driving sustained growth. As of December 31, 2025, the fair value of Standard Bearer's real estate portfolio is approximately $1.7 billion ¹⁸, as determined by a third-party independent valuation specialist. The REIT structure is expected to allow the company to expand its real estate footprint while bringing best operational practices to its own and other operators in the industry. Subsequent to December 31, 2025, Standard Bearer added approximately $18.1 million ¹⁹ of real estate associated with two stand-alone skilled nursing operations.

The company's cost of services as a percentage of revenue remained consistent at 79.5% ²⁰ for the year ended December 31, 2025, compared to the same period in 2024. The company seeks to manage labor costs by improving staff retention, improving operating efficiencies, maintaining competitive wage rates and benefits, and reducing reliance on overtime compensation and temporary nursing agency services. The company's rent-cost of services as a percentage of revenue decreased by 0.4% ²¹ to 4.7% ²², as expansions in its footprint have resulted from more real estate purchases than leased properties.

The company had approximately 46,000 full-time equivalent employees as of December 31, 2025. For the year ended December 31, 2025, approximately 60.0% ²³ of total expenses were payroll related. The company has a CEO-in-Training Program that generally has between 70 to 80 prospective administrators progressing through various stages. The company also has a Chief Operating Officer Program to recruit and train highly qualified Directors of Nursing. The company spent $193.6 million ²⁴ on purchases of property improvements and equipment for the year ended December 31, 2025, which included facility modernization initiatives.

The company currently has approximately $190.0 million ²⁵ budgeted for renovation projects in 2026. During the year ended December 31, 2025, the company repurchased 157 shares ²⁶ of its common stock for $20.0 million ²⁷ under a stock repurchase program approved on February 21, 2025. On May 15, 2025, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to $20.0 million ²⁸ of common stock for a period of approximately 12 months from June 16, 2025. The company has been a dividend-paying company since 2002 and has increased its dividend every year for the last 23 years. Dividends declared were $0.2525 per share ²⁹ for the year ended December 31, 2025.

A significant headwind is the potential for reductions in Medicare and Medicaid reimbursement rates. The company derived 23.7% ³⁰ and 24.9% ³¹ of its service revenue from Medicare programs for the years ended December 31, 2025 and 2024, respectively, and 45.8% ³² and 46.0% ³³ from Medicaid for the same periods. The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, implements federal reforms targeting Medicaid financing, eligibility, and payment structures, which could reduce overall state Medicaid financing flexibility and increase the risk of lower SNF reimbursement rates. The company also faces headwinds from increased competition for nurses and other skilled personnel, which could increase staffing and labor costs.

The company faces constraints from extensive and complex government regulations, including those related to licensure, quality of care, and billing. The company is subject to various government reviews, audits, and investigations, and as of December 31, 2025, 25 of its independent subsidiaries had multi-claim reviews scheduled or in process. The California Office of Health Care Affordability (OHCA) is conducting a Cost and Market Impact Review (CMIR) with respect to a proposed transaction involving three of the company's California operations, which has the potential to delay or prevent the transaction and requires disclosure of confidential information. The company has filed a Petition in the Superior Court of the State of California, County of Orange, seeking a declaration that the CMIR regulations are void and unenforceable as applied to the company.

The company's revenue is highly dependent on the Medicare and Medicaid programs, which accounted for 23.7% ³⁴ and 45.8% ³⁵ of service revenue, respectively, in 2025. Reductions in reimbursement rates, changes to spending requirements, or delays in payments from these programs could have a material adverse effect on revenues and results of operations. The company is subject to extensive and complex government regulations, and failure to comply could result in loss of licensure, exclusion from government programs, or significant fines. As of December 31, 2025, 25 ³⁶ of its independent subsidiaries had multi-claim reviews scheduled or in process. The company faces significant litigation risk, including a $48.0 million ³⁷ settlement paid in 2024 for a qui tam lawsuit and a $12.0 million ³⁸ settlement for wage and hour claims in California in 2025, pending court approval. The company's self-insurance programs for general and professional liability expose it to significant and unexpected costs, with reserves of $186.8 million ³⁹ as of December 31, 2025. The geographic concentration of operations in California, Texas, and Arizona makes the company vulnerable to economic downturns, regulatory changes, or natural disasters in those states.

Management's message emphasizes a strategy to dignify and transform post-acute care, with a focus on acquiring, integrating, and improving operations. The company's dedication to its cultural and operational fundamentals is cited as delivering strong results, with total revenue increasing by $2.7 billion, or 111%, over the last five years, representing a 16% compound annual growth rate (CAGR), while diluted GAAP earnings per share grew by $2.78 from 2020 to 2025, representing a 14% CAGR. Key strategic priorities emphasized for the period ahead include continuing to grow the talent base and develop future leaders, increasing the mix of higher acuity patients, focusing on organic growth and operating efficiencies, continuing to acquire additional operations in existing and new markets, expanding and renovating existing operations, and strategically investing in and integrating other post-acute care healthcare businesses. Management also highlights the importance of the Standard Bearer REIT structure for future growth and the New Market CEO program for entering new markets.