Hello, and thank you for being here. My name is Bella, and I will be your operator for the conference today. I would like to welcome everyone to The Ensign Group Q4 Earnings Call. I will now turn the conference over to Mr. Keetch. You may begin.

Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the Investor Relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific on Friday, February 28, 2025. We want to remind anyone that might be listening to a replay of this call that all statements are made as of today, February 6, 2025, and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, or beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. In addition, The Ensign Group, Inc. is a holding company with no direct operating assets, employees, or revenues. Certain of our independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities.

Thanks, Chad, and thank you all for joining us today. Our leaders and their teams across the organization once again posted record clinical and financial results and continue to build remarkable momentum in each market across our portfolio. Our success is entirely due to the efforts and commitment of those leadership teams, caregivers, field resources, and service center partners. One of our most important priorities is to support those that care for our patients every day. That core value of customer second is something our teams across the organization emphasize as we attract and develop strong teams and leaders. We are building a formidable pool of caring and passionate partners who are determined to live our mission to dignify post-acute care. After another record year of achievements, we're excited about the many opportunities to continue to grow this effort by capturing the enormous upside in our portfolios; we relentlessly focus on fundamentals across the organization. We are pleased to see same-store and transitioning occupancy increased by 2.7% and 4.1% for the year and grew by 2.3% and 4.7% over the prior year quarter, respectively. We also saw skilled days increased by 3.8% for our same-store and 10.9% for transitioning operations over the prior year quarter. In addition, our managed care census grew by 6.6% and 27.7% for our same-store and transitioning operations, respectively, over the prior year quarter. These results demonstrate the exciting momentum even in our more mature operations. We are very pleased with these results, but even more excited about these outcomes because they were achieved while simultaneously adding 57 operations across almost every market we serve. When we look at the combination of organic growth and new acquisitions, we see a very bright future ahead. We are very humbled by what we were able to accomplish in 2024, and we're eager to continue to drive organic improvements and take advantage of the acquisition opportunities that we see on the horizon. We're issuing our 2025 earnings guidance of $6.16 to $6.34 per diluted share and annual revenue guidance of $4.83 billion to $4.91 billion. The midpoint of this 2025 earnings guidance represents an increase of 13.8% over our 2024 results and is 31% higher than our 2023 results. We look forward to 2025 with confidence that our partners will continue to manage and innovate while balancing the addition of newly acquired operations. This annual guidance comes on top of the extraordinary growth we experienced in the last few years. To put this performance in perspective, over the last 5 years, our total revenue increased by $2.2 billion or 109.2%, representing a 15.9% compound annual growth rate, while our diluted GAAP earnings per share grew by $3.48 in 2019 to $5.12 in 2024, representing a 25.6% compounded annual growth rate.

Thank you, Barry. As we expected, we continue to add to our growing portfolio and are thrilled with the 12 new operations we added during the quarter and since. These include the following: one in Alabama, eight in Tennessee, one in Wisconsin, one in Texas, and one in Nebraska. In total, we added 1,147 new skilled nursing beds and 16 senior living units across five states. Of these new operations, six of them included the real estate assets, which were acquired by Standard Bearer and leased to an Ensign affiliated operator. This growth brings the number of operations acquired in 2023 and since to 64, 38 of which were acquired since January 2024. We are excited to add density in one of our newest markets in Tennessee and look forward to deepening our relationships in the healthcare community and building upon the foundation of our strong local leadership. We are also eager to see our first operation in Alabama gain strength and look forward to bolstering our presence in that state over time. As we have talked about before, entering new states is a significant undertaking that for us must be driven by a proven Ensign leader, who is committed to and has a connection with the new geography. As most of you know, the foundational principle of our entire strategy is the recognition that post-acute care is a locally driven business, and the success or failure of any operation is largely determined by the quality of the leadership and the vision of the team leading each unique multimillion dollar business. In addition, having the support of local resources and experts from nearby states has also proven to be a successful model in opening a new market. Lastly, when we go into a new state, we typically look to start with one or two buildings so we can establish a solid launching point for more growth. With Alabama, we were able to check all those boxes and have an outstanding Ensign leader, who has relocated to direct our efforts there in our first building, with the support of our talent in Tennessee and South Carolina. Over time, as we gain strength in our first operation, we will look to add additional facilities to establish our first Alabama cluster. As we have seen recently with Tennessee, eventually, this will grow into multiple clusters, eventually comprising a sizable market.

Thank you, Chad, and hello, everyone. The incredible results we experienced this past quarter and year were fueled by a combination of innovation and solid growth fundamentals in our more mature operations, along with exciting improvements being made in our newer acquisitions. The first example comes from our same-store category. Victoria Healthcare and Rehabilitation, a 79 bed skilled nursing facility located in Costa Mesa, California, became an Ensign affiliate back in 2003, and it has been a consistent performer every year for the past two decades. The facility’s consistency is driven in part by committed, stable leadership. CEO Michael Yuhas has led the facility since completing his AIT program in 2015, and Joyce Camayo, the COO, has been part of Victoria since joining as a frontline RN eighteen years ago. Since then, she has systematically worked through most clinical leadership roles at the facility, including director of nursing. However, despite a legacy of excellence, 2024 was undeniably a breakout year for Victoria. Victoria’s team grew overall occupancy from an already strong 93% in Q4 of 2023 to 95.9% in Q4 of 2024. Skilled revenue mix increased to an astonishing 75.2% during that same period, an improvement of 420 basis points. This performance was fueled by strong growth both in Medicare and managed care days. Costa Mesa is a highly complex and competitive environment with deep saturation of managed care and hospital-based health plans. Victoria's census growth was only made possible by consistently achieving outstanding clinical outcomes. Victoria is currently rated five-star by CMS for health inspections, quality measures, and overall performance. Even more impressive, despite operating in a very rigorous state regulatory region, Victoria's state survey scores are fourteen times better than the California average. As you would expect, these clinical and occupancy results have led to growth in the business. Revenues increased 14% in Q4 over the prior year quarter, and EBIT skyrocketed during that same period. Victoria is a prime example of the ongoing potential in legacy operations that can achieve strong results with experienced teams building clinical excellence.

Thank you, Barry, and good morning, everyone. Detailed financial results for the year and the quarter are contained in our 10-Ks press release filed yesterday. Some additional highlights include the following for the year: GAAP diluted earnings per share was $5.12, an increase of 40.3%. Adjusted diluted earnings per share was $5.50, an increase of 15.3%. Consolidated GAAP revenues and adjusted revenues were both $4.3 billion, an increase of 14.2%. GAAP net income was $298 million, an increase of 42.3%. Adjusted net income was $320.5 million, an increase of 17.2%. For the quarter, GAAP diluted earnings per share was $1.36, an increase of 257.9%. Adjusted diluted earnings per share was $1.49, an increase of 16.4%. Consolidated GAAP revenue and adjusted revenues were both $1.1 billion, an increase of 15.5%. GAAP net income was $79.7 million, an increase of 267.4%. Adjusted net income was $87.6 million, an increase of 18.9%. Other key metrics as of December 31, 2024, include cash and cash equivalents of $464.6 million and cash flow from operations of $347.2 million. During the quarter, the company increased its dividend for the twenty-second consecutive year and paid a quarterly cash dividend of 6.25 cents per common share. We have a long history of paying dividends, and as the company’s liquidity remains strong, we plan to continue this long history due to our future outlook. We also continue to deleverage our portfolio, achieving a record low lease adjusted net debt to EBITDA ratio of 1.9 times. Our ability to deleverage even during periods of significant growth is particularly noteworthy and demonstrates our commitment to disciplined growth, as well as our belief that we can continue to achieve sustainable growth in the long run. In addition, we currently have $572 million of available capacity on our line of credit. When combined with our cash on our balance sheet, this gives us over a billion dollars in dry powder for future investments.

Thanks, Suzanne. As we wrap up, I must reemphasize how incredibly honored and grateful we are to work alongside our operational leaders, field resources, clinical partners, and service center team that are behind these record-setting results. We are completely amazed by their impressive resiliency as they focus on elevating and supporting everyone around them. Their collective commitment is truly a blessing. Our future is bright, and we're excited for a busy year ahead.

Thank you very much, guys, and congratulations on the results. I just wanted to get your latest thoughts on the Medicaid reimbursement backdrop. Clearly, you have had great luck bridging from the COVID era FMAP payments through the end of the public health emergency. But looking forward, are there any specific programs or aspects of programs, supplemental quality and incentive or otherwise that you're exposed to that might be at particularly high risk for cost savings cuts under the new administration versus others?

It's hard to know exactly where things are going to go during the reconciliation process and what will actually become a priority in terms of legislation. I can tell you that we are prepared through our industry association and our lobbyists there to help educate members of Congress on any one of the scenarios that might be further explored. Our association has been really nimble and good at having language and legislative options prepared along with a robust education effort around impacts to the Medicaid program as it relates to seniors. But for us, it's not clear what will become a priority. All we can really do is ensure that we're part of the education process in the meanwhile. We can also reiterate what we know about the administration's commitment to the Medicaid program.

If I could just follow up real quick specifically on Tennessee, given your M&A acquisition there. I just want to get your thoughts on the overall backdrop, both from a Medicaid perspective and also what you're seeing on the horizon in terms of opportunities for preferred provider relationships.

Taking a step back and looking at the overall Tennessee market that we're new to, obviously, there is a lot of noise in the press just because of all the hospitals. The larger reimbursement amounts that they receive in Tennessee are substantially more than ours. And really, it is carried all the way through and approved all the way through July 1st of this year. They are looking to work with the legislation in Tennessee to continue that on for skilled nursing. However, the amounts are not substantial compared to large hospitals. Regarding networking, we've been in that state and have done a lot of preparation. The operator, who founded that state has been there for a very long time and has established great relationships over this period, alongside others we have worked on during our acquisitions.

Hi. This is Raja on for Scott Fidel. I had a couple of modeling questions, first regarding quarterly EPS seasonality in relation to 2024 historically. What kind of guidance do you have from an occupancy and skilled mix perspective?

Historically, Q4 and Q1 have been our best quarters concerning occupancy and skilled mix. In this year's Q4, we saw something flat to Q3. The reason why it was flat was that Q3 was so great. We had heightened Q4 occupancy and managed to retain our market share when we looked at hospital occupancy. This trend is continuing into Q1, as we have seen in the past.

First question just to ask a little bit about labor cost trends. What are you seeing there? I know it's been moving more favorable in the last year or so. What do you see as you move into 2025? And is there anything specific around the workforce standards program in California that you're factoring into your outlook?

We're not seeing massive changes in labor costs but rather very gradual improvements that continue quarter to quarter. We expect that to continue as we focus on attracting and retaining the best talent in the industry. Having great local leadership is the key to maintaining a healthy workforce, which is a priority for us.

And maybe just a follow-up question on the deal pipeline. What are you seeing or how have the terms changed on the deals that you're doing? What does the competitive landscape around acquisitions look like right now?

As we mentioned in the prepared remarks, we're seeing a lot of deal flow and have acquired significantly in the last eighteen months. We expect to continue at the same pace in 2025. We have many deals lined up that will be closing soon. The competitive landscape is favorable, providing us with opportunities while maintaining our strict criteria for acquisitions. We focus on ensuring we have the right leaders in place and fair pricing before proceeding with any deal.

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