Hello, everyone. Thank you for joining us, and welcome to the Enzyme Group Q2 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Mr. Keech. Please go ahead.

Thank you, Operator, and welcome, everyone. We filed our earnings press release on Monday, and it is available on the Investor Relations section of our website at EnzymeGroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on August 28, 2026. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, July 29, 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 materially different from those expressed or implied on today's call. Listeners should not place under-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, Enzyme and its independent subsidiaries do not undertake to publicly update or advise 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 Enzyme 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 professional liability as well as for workers compensation insurance liabilities and zine also owns standard bear health care reed 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 enzyme as well as third-party tenants that are unaffiliated with the enzyme group the words enzyme company we our and us refer to the enzyme group inc and its consolidated subsidiaries all of our independent subsidiaries the service center standard bearer health care reed 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 and our in similar terms are not meant to imply nor should it be construed as meaning that the enzyme group has direct operating assets employees or revenue or that any of the subsidiaries are operated by the enzyme group also we supplement our gap reporting with non-gap metrics when viewed together with our gap 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 gap reports. A gap to non-gap reconciliation is available on Monday's press release and is available in our Form 10-Q. With that, I'll turn the call over to Barry Port, our CEO. Barry? Hey, Chad.

Before we get into our record results for the quarter, we wanted to spend a little time discussing what drives all of this consistency, namely the mission that our organization was founded on and strives to achieve every day. At Ensign, we talk a lot about our mission, which is to dignify post-acute care in the eyes of the world through moments of truth. That mission is much more than a statement on a wall. It is the guiding principle behind nearly every decision that's made across our organization. We believe the best way to transform post-acute care is by consistently delivering exceptional outcomes and experiences that redefine what residents, families, and healthcare partners expect from skilled nursing. Our core values provide the foundation for that work, creating a shared culture that empowers nearly 60,000 partners to lead with compassion, accountability, ownership, and a relentless commitment to excellence. If you visit one of our operations, nearly every single employee knows the value acronym, CAPLICO, and what each letter stands for. While Capilco may have begun as a set of values, over time it has become an operating discipline that influences hiring decisions, leadership development, employee retention, clinical execution, and ultimately the experience of residents and families. Together our mission and values inspire local teams to strengthen each other and elevate care. We believe culture is not separate from performance. It is the foundation that makes sustainable clinical, operational, and financial performance possible. At the center of our clinical strategy is an integrated care model that empowers every healthcare discipline to participate fully in making our residents' lives better. We call this model one clinical. In this model, therapy isn't an ancillary department. It's one half of our clinical brain. As opposed to most of the industry that outsources therapy or treats therapy as a separate department to fulfill a singular purpose, our therapists work alongside nursing as equal clinical partners, bringing their expertise into every aspect of resident care. Together with our physician partners and our interdisciplinary teams, there is a continuous evaluation of emerging clinical evidence, sharing of best practices, and development of advanced clinical pathways that improve outcomes across our operations. Rather than treating diagnoses in isolation, they coordinate every discipline around a common set of goals, restoring function, improving quality of life, reducing avoidable complications, and helping residents achieve the best possible outcome. While it may sound like a program, it's much more than that. It is a clinical operating model that guides how our affiliated operations deliver care every day, and we believe it is one of the most important differentiators of our organization that has been developed over decades. This integrated approach influences everything from fall prevention and wound care to behavior management, functional recovery, hospital utilization, quality measures, and even has led to the development of specialized clinical programs. It creates a culture of shared accountability where nursing, therapy, physicians, and other clinicians continually learn from one another and refine care based on objective, measurable outcomes. We believe this clinical patient-centric model is a durable, competitive advantage that is uniquely perpetuated and refined through peer accountability in our cluster model. And the proof of all this expertise and efficiency is evidenced in the outcomes. According to the most recently published Centers for Medicare and Medicaid Services data for same-store facilities, we achieved quality measure ratings that were 23% above the average in the states that we operate in. Likewise, these operations achieved CMS Cycle 1 survey inspection results that outperformed the average of facilities in our operating states by 18% and exceeded county level averages by 26 percent. In addition, re-hospitalization rates and long stay emergency department visits were better than the national average by 15 percent and 24 percent respectively, supporting successful resident recovery and continuity of care. We also have zero CMS special focus facilities, having graduated several acquisitions that we acquired with that designation. We ended the quarter with over 80% of our skilled nursing operations earning a CMS quality measure rating of four or five stars, exceeding the national averages in every single one of the 15 quality measurement categories, including all five claim-based measurements. This is also especially notable given that many of our acquisitions were one and two-star when we took them over. Importantly, all these measures come from a variety of objective sources, including CMS measures, claims-based metrics, regulatory surveys, occupancy trends, and referral behavior. Whether viewed through quality ratings, survey performance, occupancy growth, referral trends, re-hospitalization rates, emergency department utilization, or managed care relationships, we believe the consistency of these outcomes provides compelling evidence that our operating model is delivering meaningful results for residents and healthcare partners alike. These results are not the product of any single initiative. They reflect the cumulative impact of our operating model, our one clinical approach, the integration of therapy and nursing, investments in technology and clinical tools, and the local leadership culture that drives accountability and execution at the bedside every day. The strength of our clinical model ultimately depends on the quality and stability of our people. One of our foundational Caplico core values is customer second, the belief that by taking extraordinary care of our employees, they in turn will provide exceptional care to our residents. We have long believed that outstanding resident outcomes begins with engaged, supported, and empowered caregivers who know they are loved and appreciated. We are especially proud of the continued improvement in employee and leadership stability. In particular, our director of nursing turnover continues to improve, and our overall RN retention rate is also 8% better than the average across our 17-state footprint using CMS reported data. Similarly, administrator turnover is an impressive 46% lower than the CMS measured state average. We believe this level of leadership stability is one of the key differentiators of our organization. It creates continuity for our caregivers and residents and reinforces accountability at the local level and allows the investments we make in our clinical programs, technology, and resources to translate into consistently superior quality outcomes, care efficiency, regulatory performance, and financial results. As we've said many times, the improvement in our operating metrics like occupancy and skilled mix and the corresponding financial results are a direct reflection of a relentless patient-focused culture. In today's healthcare environment, patient volumes and acuity levels are directly tied to objective and verifiable positive clinical outcomes. As each operation solidifies its reputation in its respective market, they are not only being chosen to care for more and more patients, but they are also being entrusted to care for increasingly complex cases, including a larger share of Medicare, managed care, and other skilled patients. Patients, families, hospital systems, physicians, and managed care organizations continue to choose Ensign-affiliated operations at increasing rates because of the outcomes our teams achieve. This cannot and will not happen, especially consistently over a long period of time, without consistently achieving these industry-leading, high-quality clinical outcomes. In healthcare, trust is ultimately expressed through patient choice and referral behavior. Hospitals, physicians, managed care organizations, patients, and families make decisions every day about where care will be delivered. Occupancy growth is, therefore, more than a financial metric. It's one of the clearest external validations that an operation is consistently delivering the outcomes and experience that stakeholders value. To highlight this point, on the census front, our same store and transitioning occupancy for the second quarter was 84.1% and 84.7% respectively. As for our ability to attract high acuity patients, our combined same facilities and transitioning facilities revenue and days increased by 10.7% and 6.7% respectively over the prior year quarter. Also managed care revenue increased by 6.1% and 16.2% respectively for same-story and transitioning operations over the prior year quarter, with skilled mix days up 6.2% and 9.4% respectively from the second quarter of 2025. The primary driver of these improvements continues to be the expanding trust from the communities we serve, earned through consistent clinical outcomes. In addition, we continue to acquire new operations with significant long-term upside and expect to maintain a healthy pace of growth as we expand our mission-driven approach to transform and dignify post-acute care. Since 2024, we have successfully sourced, underwritten, closed, and transitioned 102 new operations across several markets, many of which are already performing at or above expectations both clinically and financially. We also continue to benefit from powerful demographic tailwinds, which we expect will further support the census momentum we are seeing across our portfolio. While we are pleased with our current same-store occupancy, we are equally excited about the remaining organic growth opportunity as we clinically and culturally transform these operations. At 84% occupancy, we still have meaningful runway, with many of our most mature operations consistently achieving occupancy in the mid-90% range. This embedded growth remains one of the most compelling drivers of our long-term performance. performance. Reflecting the strength of our same store operations, continued operational momentum across our portfolio, and the ability of our local teams to deliver strong clinical outcomes that deepen referral relationships and support sustainable growth, along with the contribution from acquisitions, we are increasing our annual 2026 earnings guidance to $7.75 to $7.85 per diluted share, up from our previous guidance of $7.48 to $7.62, which we increased last quarter. We are also increasing our annual revenue guidance to $5.87 billion to $5.92 billion, up from $5.81 billion to $5.86 billion. The midpoint of our earnings guidance represents an 18.7% increase over 2025 and a 41.8% growth rate 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. While we are proud of these results, we also recognize there's always more to learn and more work to do. We remain focused on helping our local leaders find better ways to care for residents, support caregivers, and strengthen the operations they serve. Next, I'll ask Spencer to add some operational insights regarding our operations. Spencer?

Thanks, Barry, and hello, everyone. Today, I'm excited to share a facility highlight that illustrates how leadership stability and clinical excellence can fundamentally transform a struggling operation and dignify the healthcare experience for our patients, their families, and the frontline caregivers whose commitment and compassion make our mission possible. The Reserve, a 135-bed skilled nursing operation located in the Charleston, South Carolina metro area, is led by Licensed Nursing Facility Administrator Greg Hicks and RN Director of Nursing Amanda Bruno. When we acquired the Reserve in 2023, it was operating under state conservatorship, following multiple failed CMS surveys with immediate jeopardy findings. In fact, in this annual survey prior to transition, the Reserve experienced the worst inspection performance of any skilled nursing facility in South Carolina, with a cycle one score of 500 points. Now remember, with surveys, fewer points is better, so this 500-point survey was over 900% worse than the South Carolina state average. This and previous failures had led to the facility being designated as a CMS special focus facility, which is essentially a last-ditch attempt by federal and state survey agencies to improve a facility's clinical quality before forcing it to shut down. The clinical challenges were exacerbated by leadership turnover and frontline staffing shortages that resulted in heavy reliance on agency staffing and an inability to accept new admissions. Trust was low with local hospital and managed care providers, which meant that occupancy stayed chronically low. And the facility's clinical and staffing challenges were accompanied by major financial deficits. Where many saw the reserve as a problem facility, the local South Carolina cluster partners recognized an opportunity to live our organization's mission of dignifying care and transforming the experience of staff and residents alike. So after a lot of internal debate and discussions with state regulators, the decision was made to acquire the reserve and help it become what the community deserved. The first step in this turnaround was to find and empower the right leaders who not only had a vision for the facility, but could gain the trust and support of state regulators, hospital systems, and the local health care workforce. Those leaders included Greg Hicks, a seasoned administrator with a history of successful clinical turnarounds, and Amanda Bruneau, a nurse leader with decades of critical care experience, who had been working as a unit manager at a sister facility while being mentored for months in our Director of Nursing in Training program. With the support of market resources and cluster partners, this duo rallied the facility's interdisciplinary leadership team and quickly established a culture centered on quality, accountability, and clinical execution. Over the past few years, the results have been spectacular. Just six months after acquisition, the Reserve graduated from the Federal Special Focus Facility Program and has now achieved three consecutive deficiency-free health inspections, going from a one-star CMS inspection rating to a five-star rating. Today, the Reserve's Cycle 1 score ranks it as the number one operation in the entire state for survey performance. The Reserve's success mirrors an exciting trend of survey successes that we're having across Ensign affiliates. As Barry mentioned, our collective Cycle 1 surveys average 26% better than the counties in which they operate. And as of today, there's not a single special focus facility among the 398 Ensign affiliates. And the reserve success goes far beyond just survey performance. It currently enjoys a CMS five-star overall rating, as well as five stars for quality measures, including those that are claims-based. Some examples include significantly outperforming both state and national peers for lower use of antipsychotic medications, fewer emergency department visits, and lower rehab hospitalization rates for short-stay patients. These outcomes reflect disciplined clinical approaches, deeply rooted in the one clinical processes that Barry described earlier, where therapy and other care disciplines work hand in hand with nursing. And speaking of nursing, the Reserve has not only eliminated all contract nursing, but has become one of the state's leading facilities for RN retention, with an RN turnover rate 28% better than the state average. Stability in the clinical team has allowed the reserve to expand its ability to care for higher acuity patients and become a preferred provider for people who had previously had limited placement options in the Charleston area. In fact, earlier this year, the reserve was awarded a contract with the South Carolina Department of Health and Human Services to care for patients requiring ventilator and tracheostomy services, making them the only facility with this approval in their geographic area. Quality outcomes and improved staff retention have also naturally led to improved operational performance. For example, prior to transition, the facility struggled with low occupancy that hovered around 60%. As the facility rebuilt trust with hospitals, physicians, and residents, referral relationships have strengthened, and admissions accelerated. In fact, during Q2, the Reserve touched 100% occupancy for the first time ever, and averaged 92% occupancy for the quarter, up from 83% in quarter two of 2025. During the same period, skilled days increased 39%, while managed care revenues increased by 69%. As expected, financial results have followed. The Reserve's total revenue and EBIT have improved every year since transition. Most recently, in Q2, revenue increased by 18% and EBIT grew by 97% over prior year quarter. And we expect these financial results will continue because they are the natural result of years of investment in creating clinical excellence and building relationships of trust in their healthcare community. Consistent results like these cannot and will not happen without delivering high-quality clinical care. Success in referral patterns, payer relationships, occupancy growth, skilled mixed trends, and regulatory performance are all indicators of community trust. And especially in metro markets like Charleston, people have choices. And the fact that so many are choosing the reserve shows the trust and reputation that the team has fought so hard to earn. While there's still so much more work to be done at the Reserve, we're incredibly proud of the visionary leaders, the field resources, cluster partners, and of course, the compassionate caregivers who have driven this remarkable transformation. Their success reflects the power of the Ensign model at work, hiring and developing exceptional leaders, retaining and empowering strong clinical talent, leveraging the expertise and best practices available through transparency, and earning the trust of residents, families, referral partners, and regulators through consistently superior outcomes. While every operations path is unique, the principles behind this success are replicated throughout our organization and are foundational to the industry-leading clinical, regulatory, and operational results that our affiliated operations continue to achieve. With that, I'll turn it over to Chad to discuss more about our ongoing growth and acquisitions.

Thank you, Spencer. During the quarter and since, we accelerated our growth by adding 20 new operations, all of which included the real estate assets, bringing the number of operations acquired during 2025 and since to 71. These recent additions include 19 in Texas and one in Iowa. In total, we added 2,392 new skilled nursing beds, 100 senior living beds, and 55 independent living beds across two states. This growth brings a number of operations in our recently acquired group of operations to 18% of our entire portfolio. We were thrilled to compete these acquisitions and expand our presence in Texas. These assets are made up of newly constructed, high-quality facilities in populated and growing metro areas, justifying a higher purchase price. However, these operations are almost all lower than our average occupancies for these geographies and all present significant clinical and operational hurdles. While things have started to improve, we expect these, like most of our turnaround deals, will take more time to generate the returns we expect. Over time, however, as our leaders and clinicians focus relentlessly on improving the quality of care and establishing a culture of ownership and accountability, we are confident that these operations will become the facility of choice in the markets they serve. We continue to learn from and improve our transition process and believe that those lessons are showing through in the performance. As we continue to scale, we are able to lean on our talented resources that are spread across many geographies, enhancing our ability to digest larger deals by breaking them into bite-sized pieces, transitioning in the traditional enzyme way, but with a local cluster-driven plan that gives each operation the time and attention they deserve. In every single deal decision, the most important factor we consider is surrounding our plan for local leadership. Our mantra of first who, then what, is at the heart of every single deal decision we make. So far this year, we've been presented with over 350 acquisition opportunities within our geographies. Of those 350 operations, we've executed on 25 of them. There are many factors we consider when deciding whether to pursue a deal or not, but one of the most common reasons we pass on an acquisition is because we aren't satisfied with the question of who the leader will be. When we feel there is a cultural fit, we sometimes elect to leave the current administrator in place and leverage our training and cluster support model to help expose them to our culture teach them our systems and provide the right expectations for ownership and accountability in some recent portfolio deals for example we selected to keep several impressive administrators and because of this continuously refined process of onboarding they have been very successful leaders many of whom are now ceos of their respective operations in the instances where we've made a change, we've either replaced the outgoing administrator with an experienced licensed administrator from another building or a licensed administrator that recently completed their AIT training program. In either case, each operation is surrounded by their local cluster partners and service center resources to help implement the clinical and operational systems required to transform a struggling building into a strong clinical partner to their local health care community. The performance of our newly acquired operations, particularly over the last few years, shows that our local leadership-driven approach to transitions works for single operations, small portfolios, and larger portfolios. Our local leaders continue to recruit future CEOs for Enzyme-affiliated operations. We have a deep bench of CEOs in training that are eagerly preparing for the opportunity to lead. The type of leader we recruit is typically a person with significant experience leading people, very often in a different industry. These experienced leaders average 35 years old, and it's not uncommon that applicants that join us are looking to pivot towards a second or even a third career path. We're constantly refilling the AIT ranks. Over the last year, we've had an average of approximately 54 AITs at various stages of the program, actively training and obtaining the hours necessary to obtain their license. This number is particularly impressive when you consider we've added 71 operations in just the last year and a half. We see a high demand from qualified applicants and can be very selective. Our local clusters drive the recruiting efforts for AITs and are very selective on who they will admit into the program. 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 maintain enough cash and available capacity under our line of credit to fund a significant amount of growth, including adding even more real estate assets to our portfolio. Therefore, our unique leadership and acquisition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. Because our model is driven by local leaders who are supported by a cluster of their peers our model is truly scalable we are also very comfortable growing the way we have over the last few years with lots of transactions across many states including small deals and larger portfolios and where it makes sense even higher price strategic assets as we look at the current pipeline our local leadership teams and their partners at the service center are working together to source and underwrite and carefully select the right opportunities we have several new additions lining up for q3 and q4 and expect to be very busy for the remainder of the year including operations within our existing footprint and acquisitions in new states we continue to see opportunities that include everything from multi-facility portfolios landlords looking to replace current tenants non-profits looking to divest to their post-acute assets and a steady flow of traditional onesie twosies. In terms of priority, we are first looking to grow in our existing markets as this allows us to be better partners to the healthcare communities by offering complimentary services to hospitals, managed care organizations, and to their patients and families. We're also looking to enter into some new states and look forward to closing some opportunities in new states later this year. lastly we are also pleased with the continued growth with standard bearer which added 23 new assets during the quarter and since including two senior living communities in wisconsin and one memory care facility in california all of which will be operated by third party under triple net lease standard bearer is now comprised of 177 owned properties of which 140 are leased to an Enzyme-affiliated operator, and 38 of which are leased to third-party operators. We are excited to continue to add to the 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. Standard Bear will continue to work together with our existing operating partners and the new relationships we are developing in order to acquire portfolios comprised of operations that Enzyme will operate, and facilities with high-quality third parties are interested in operating under a lease. Collectively, Standard Bear generated rental revenue of $44.1 million for the quarter, of which $37.8 million was derived from Enzyme-affiliated operations. For the quarter, Standard Bear reported $24.7 million in FFO, and as of the end of the quarter, had an EBITDA to rent coverage ratio of 2.4 times. And with that, I'll turn the call over to Suzanne to add more color around our numbers and our guidance.

Thank you, Chad, and good morning, everyone. Detailed financials for the quarter are contained in our 10Q and press release filed on Monday. Some additional highlights for the quarter compared to the prior year quarter include the following. Gap diluted earnings per share was $1.68, an increase of 16.7%. Adjusted diluted earnings per share was $1.92, an increase of 20.8%. Consolidated gap revenue and adjusted revenues were both $1.4 billion, an increase of 17.3%. Gap net income was $99.7 million, an increase of 18.2%. And adjusted net income was $114.3 million, an increase of 22.5%. Other key metrics as of June 30th, 2026 include cash-in-cash equivalents of $262.3 million and cash flows from operations of $272.1 million. During the first half of 2026, we spent more than $460 million to execute our strategic growth plan. We made these investments from a position of strength, as shown by our least adjusted net debt to EBITDA ratio of two times 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 discipline growth, as well as our belief that we can continue to achieve sustainable growth in the long run. In addition, we currently have more than $592 million available under our line of credit, which when combined with the cash on our balance sheet, gives us more than $850 million in dry powder for future investments. We also own 183 assets, of which 159 are owned completely debt free. They have gained significant value over time, adding even more liquidity to help with future growth. The company paid a cash dividend of six and a half cents per common 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 $7.75 and $7.85 per diluted share, and our annual revenue guidance between $5.87 billion to $5.92 billion. We have evaluated multiple scenarios, and based upon the strength in performance and the positive momentum we've seen in occupancy and skilled mix, as well as the continued progress on labor, agency management, and other operational initiatives, we have confidence that we can achieved these results. Our 2026 guidance is based on diluted weighted average common shares outstanding of approximately 59.5 million, tax rate of 25%, the inclusion of acquisitions closed and expected to be closed during the third quarter of 2026, and the inclusion of management's expectations on reimbursement rates. With the primary exclusions coming from stock-based compensation, and amortization of system implementation costs. Additionally, other factors that could impact our quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality and 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 rules, and other factors. With that, I'll turn it back over to Barry. Barry?

Thanks, Suzanne. To wrap up, we again want to thank our exceptional team of caregivers, our local operational leaders, and our service center partners. Healthcare is ultimately a people business. While we need to discuss occupancy reimbursement, margins, and growth on these calls, those outcomes are the byproduct of something much more fundamental. Nearly 60,000 people who have chosen to care for others and who are united by a common set of values and purpose. Every day, thousands of caregivers, nurses, therapists, housekeepers, dietary staff, administrators, and countless others have opportunities to create moments that exceed expectations for co-workers, residents, and families during some of the most vulnerable times in their lives. That shared sense of purpose is difficult to quantify on a financial statement, but it is one of the greatest competitive advantages that we have. It strengthens our culture, attracts leaders who share our values, improves clinical outcomes, and builds trust with referral partners, and ultimately creates long-term value for our shareholders. This quarter's results are another reflection of that enduring connection between purpose and performance we believe exceptional outcomes ultimately create their own form of accountability because residents families referral partners regulators and payers all have the ability to independently validate whether an operation is truly delivering value we remain grateful for our local leaders and frontline teams whose commitment to our mission continues to set our affiliated operations apart. 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?

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press star, then one to raise your hand. Please stand by while we compile the Q&A roster. Your first question comes from the line of Raj Kumar with Stevens. Your line is now open. Go ahead.

Hey, I appreciate the focus on the quality metric that you provided in your investor deck and today's commentary, maybe kind of looking at some of the changes CMS has made behind the scenes. I believe the July 2026 cycle had some updated thresholds for the QM measure where Ensign particularly excels in. So I guess kind of maybe given, you know, maybe your internal testing, would be curious on if you see any changes or any initial indications around changes to your QM ratings from the underlying changes in CMS's methodology. And then maybe as a quick follow-up to that, on the specialty-focused facility, have you kind of seen any impacts to the kind of favorability side in terms of it being off of that list and, you know, attracting, you know, more of the patient base or referral base? Thank you.

Sure. Yeah. Great question. So yeah, CMS announced that there's some meaningful changes to how they're doing their five-star rating. Again, that's not a surprise. They talked about this two or three years ago. They said they were going to be doing this periodically to kind of continue to force a certain number of buildings to be in each of the the star categories um the american health care association did some analysis that talked about what could happen um you know with people moving out of you know losing a quality major five star rating um we are still doing preliminary analysis we're working on it hard with preliminary reports we're seeing that it will affect us it's going to affect everybody But we're actually pretty pleased with the way it's affecting us compared to what the American Health Care Association had expected. We're seeing a lot less impact. And in some cases, it's being counteracted by improvements in other areas in the five stars. So the overall net effect on overall five stars is actually looking to not be that much for us at all.

As far as the reserve goes, look, I think they've been gaining significant momentum over a long period of time. So we've seen a pretty big growth trajectory for them in terms of occupancy being off the designation list. I don't know that it dramatically changes things because that momentum has been built over the course of three years now. And they've seen tremendous momentum, despite the fact that they've technically been on that list. And that just speaks to what local leaders can do to change a facility's reputation with the acute providers and managed care organizations when they can see meaningful results happen.

Great. And then maybe just one on, you know, I think you, the board authorizes share repurchase program. I guess, you know, the company deploys capital through various means, you know, M&A and internal investments being priority. and then, you know, with the healthy dividend. But I guess as we kind of think about, you know, maybe that potential fourth pillar, do you kind of see share repurchase as being an ongoing type of investment or just more kind of near-term driven?

Well, look, we've had a share repurchase program for a while now. It's nothing new for us. I think, you know, we increase the amount a little bit just because we feel really confident about the direction we're headed and we feel like the pricing of our stock when our board approved the plan was undervalued.

Yeah, I would just echo what Barry said. This is part of our strategy, has always been part of our strategy. And as we continue to grow, you should have expected the number to go up. And so I think that just represents kind of our overall growth there. And then also all the liquidity that we still have. So this is not going to impact the acquisition strategy at all, and we're going to continue to grow like we always have.

Perfect. Thank you.

The next question comes from the line of Ben Hendricks with RBC Capital Markets. Your line is now open. Please go ahead.

Great. Thank you very much. I appreciate the commentary and the case study on the reserve in South Carolina. It seems like that was a pretty rapid turnaround in terms of the reduced contract labor and improved turnover there. As I think about this large bolus of newly acquired facilities on the platform currently, how should we realistically think about the timeline through the newly acquired phase into the transitioning phase and then into the same store bucket? But do you typically or would you typically target getting that contract labor level down to target levels and improving retention to kind of the – to a steady state level? Would we expect – and kind of by extension, would we expect some upside to guidance if we were to see a transition at the speed of the reserve within that portfolio?

Yeah, I'll start and I'll let my partner's comment. Yes, you know, these the recent acquisitions we've done, I would say, you know, I just point to the fact that they are much more representative of typical turnaround transitions that we've talked about for years and years. I think we've been fortunate to have some higher occupancy buildings with decent clinical reputations over the prior few years that have been, I would say, you know, more rapid turnaround just because of those two factors. but nevertheless all of these represent amazing opportunities for us they're all very low occupancy they're all very low skilled mix and and that gets us really excited because we know as we rebuild the clinical reputation that those things the other things will follow in dramatic fashion so you know I think you know we we show in our investor deck on slide 22 how how facilities improve over time and it shows five quarters then 15 quarters and then 45 quarters you kind of see that growth trajectory you know i i you know your question about would we raise would we revise guidance if they performed more ahead of schedule i i think our answer to that is consistently yes i mean we plan things out to be as accurate as we can we try to reflect accuracy in our guidance but sometimes things exceed our expectation or not and then we'll we'll revise accordingly if and when we need to but for now those Texas acquisitions they're not a creative they probably won't be for a while but but again that's all kind of you know performing according to what we have projected and expected.

And the continuous shift is baked into our guidance for Q3, Q4, so it would have to perform better than what we have baked in.

Thank you for that. Last one for me, a standard bearer, you know, three acquisitions of third-party managed facilities. Can you think about or give us some thoughts on how you're assessing third-party managers, that mix in the overall standard bearer portfolio? And do you guys have a lot of diversification among managers, or do you have certain groups that you like to work with in particular?

Yeah, great question. So, you know, in terms of priority, we always want to own it and operate it ourselves. So that's, you know, diversification being less of a priority, I would say, for Standard Bearer. Pretty confident that Enzyme-affiliated operators are amongst the best. And so we're leaning into that from a Standard Bearer point of view. And then our second priority is to do really attractive long-term leases and operate, right? We're leasing from someone else that owns a real estate, have tons of really valuable relationships with real estate partners and REITs and others out there that we continue to work with. And then, And of course, the third scenario would be the one you just mentioned where we own it and lease to a third party. You know, strategically, you know, in most cases, right, the scenario where we lease to a third party is it's a portfolio deal that for whatever reason, it's not a fit for all the buildings to be operated by enzyme. Maybe there's a geographic situation or some other kind of operational hurdle that makes us only want some of the portfolio. And that's where we kind of look to other third parties to say, OK, this is a state we're not in. You know, here's here's a few buildings that you could operate in, at least from Standard Bear. And that's that's worked out really well for us to, you know, frankly, to be able to successfully close deals that in the past maybe we wouldn't have. if we weren't looking to lease to third parties. So, you know, there are some situations, particularly with our former partners over at the Pennant Group, you know, where we'll see a standalone senior living, you know, operation that's, you know, not something that Ensign's looking to do, you know, at least broadly. And so we've worked with them where they've actually brought us some opportunities to say, hey, we want to grow. So here's a wonderful, you know, assisted living facility. Would you guys buy it and lease to us? So they're clearly our largest third party tenant is a tenant group. We have a few others that are on the skilled nursing side and continue to kind of expand that base of other parties. But I can tell you that we, you know, we get a lot of outreach from smaller operators out there. that really, you know, want to be part of kind of what we're doing together. And we're just, you know, excited about it. Again, probably the biggest challenge is to say, well, we want those for ourselves first, right? So, but definitely a lot of folks out there that we look forward to working with and, you know, developing those relationships more and more every quarter.

Thank you very much.

Your next question comes from the line of AJ Rice with UBS. Your line is now open. Please go ahead.

Hi, everybody. Maybe just to ask on a couple on the payer side, what are you seeing in terms of your discussion with states, anything changing there, kind of any updated rate outlook, and then also in managed care contracting, are you seeing any changes there and any comment on that end? yeah go ahead great well i was just going to say on the state budget side you know that's it's always dynamic and there's there's always you know the things that we're looking at and medicaid's a big pair for us but we're we're encouraged so far by what we're seeing we have active engagement in

all of our states and we have good i think visibility into the direction um at least for this year and even parts into some of our states into next year um so we we feel we feel good about our position um in terms of you know rate stability um certainly we're not going to see any major increases but to have stability and the line of sight into that is is something we're we're excited about and appreciate on the on the rate side with medicare you've seen that you know that obviously encouraged by that increase and then on the on the managed care side we continue to benefit from great relationships with our managed care partners again that's a very dynamic and kind of ever-changing relationship that we have on you know with both rates and networks and facilities that are included and not But we have a really great team and they collaborate well, both with our local leaders and the kind of local regionalized managed care offices to put ourselves in a really good position. We've seen some great growth also in VA, with the VA and our relationship with the Veterans Administration. we've become somewhat of a larger provider for them and have really kind of benefited from the relationship we've had with them putting their program into many of our facilities as well.

Okay, that's helpful. How about on the cost side, any comments on labor dynamics, what you're seeing there, average wage increases, turnover rates, Any update on that trend?

Yeah, so operationally what we're seeing is a couple of things. We're seeing a lot of good stability at low levels on our contract labor usage. That applies, you know, our biggest contract labor historically coming out of COVID was nursing registry, RNs and even CNAs. And that's been really flat for the last year at a low level, incrementally going down a little bit. But we're really happy with what that is. And then turnover, if you look industry-wide, the labor situation has gotten better for everybody, which we're excited about. That bodes well for all of us. We track our relative acceleration in our turnover trends going down versus what CMS provides for the industry as a whole. And we're excited because, you know, while the industry is getting better, we're getting better at a quicker pace. and we're starting to get some separation and how quickly our turnover is going down. So, you know, that's been a huge focus operation for us. Without people doing the frontline care, we really are nothing. And so we're super encouraged to see that. And then as far as overtime, overtime continues to be something that's going in a good direction for us. That's important because, you know, obviously there's a cost associated with that, but also just the quality that's given by people that are fresh and doing their best. is something that would really emphasize so we're happy to see over tech like that okay all right thanks so much your next question comes from the line of clark murphy with truest securities your line is now open please go ahead hey good afternoon everyone this is clark on for dave mcdonald just wanted to start the southeast is still a relatively new and under penetrated area

for you guys could you just talk about how results have been in that area of the country and you know when i think about the commentary that you guys gave about getting to you know mid 90 occupancy among your more mature facilities i mean those facilities are largely outside of that region so just wanted to see if there's anything kind of structurally different as far as you know how how what level those facilities could get to over time well we're really excited about the southeast I mean, obviously, it's a huge population center and really good kind of labor environment and historically, generally, a good regulatory environment as well, but also a huge health

care kind of magnet, too. I mean, our success in Tennessee has been tremendous as a new state. we've seen a really great growth in both quality outcomes and earnings that accompany that in the state of Tennessee and are constantly evaluating new opportunities to grow in that state. South Carolina has been a really strong state for us. We've had some good growth there. We highlighted a South Carolina building there on our call.

And, you know, albeit small, All Alabama, we are adding another building there and feel really good about how things are moving in Alabama as well.

But there are other adjacent states in the southeast that we get excited about, too. And I wouldn't be surprised if we grew into some of those states, either this year or next.

Got it. That's helpful. And then just as a follow up kind of on the M&A front. But, you know, when you guys acquire a facility, can you talk about when you're looking at the leadership team that's in place and you're making a decision to retain or not retain some of the key leadership positions, can you just talk about how your approach to thinking about that has changed? I mean, I understand it probably varies a little bit at the local facility and geographic level, but just kind of more broadly how you're thinking about those relationships and kind of putting in your own people versus leaving what's there would be helpful.

This is a great question, Clark. I'll start with that and others can add. The great thing is there is a lot of amazing talent out there. There's a lot of people who want to do the right things and a lot of skill that's not within our organization. We know that part of our mission to be what we want to be entails bringing people in from, call it the outside, if they fit certain attributes and criteria. We've improved our ability, I feel like, especially with some of the recent bigger deals, call it the last three years or so, to really make part of the underwriting process, you know, looking at the talent and making sure that it's part of our process to be able to get in there and get access. so we can identify people that can be great. A very recently highlighted Tennessee, that's just one example. That acquisition, the majority, the major majority of the leaders that are still operating those facilities were people who were already in Tennessee when we came into the state, and there's some really great leaders there. That's played out in some of our bigger deals in California and even the recent Texas one. And I think it comes from having better processes for our local leaders to get access and then also, you know, service center supportive processes for doing trainings before the fact and vetting processes where we can really find good talent. Now, look, our AITs are always going to be a major part of this, and that's not changing. We currently average around 50 AITs at any given time, people that are training with skilled leaders in existing operations and getting ready to take on this career. And Chad's highlighted in the past that these are mature, seasoned, 35-year-old, average-age people that they know what it's like to lead people. So that will never stop being a big part of what we do. But, you know, to grow like we want to grow in order to fulfill our mission, we've got to have outside people, too. And I think we recognize that. I think we're doing a better and better job of that.

Yeah, the only thing I'd just add to that is, you know, obviously, we're going through the process of underwriting and, you know, doing our due diligence. You know, we're, I guess this isn't necessarily new, but certainly something to highlight is, you know, getting access to those folks from the seller's point of view so we can kind of get to know them as we're doing the due diligence. And, you know, I think that's been something that's been really successful for us is, you know, we usually jointly announce the acquisition or we're present at the same time that the current owners are announcing the deal. And, you know, just showing to the facility this kind of joint effort. And anyway, so that's a really positive thing that we always try to get. You know, sometimes sellers can be a little protective of that, but, you know, most of the time, especially recently, you know, we've had a lot of early access, which really helps this process.

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