Executive Summary / Key Takeaways

• The Ensign Group (ENSG) delivered a record first quarter in 2025, showcasing robust growth driven by its decentralized, locally-empowered operating model and strategic acquisition strategy.
• Consolidated revenue increased by 16.1% year-over-year, fueled by strong occupancy gains in both mature and recently acquired facilities, coupled with favorable reimbursement trends across all payor types.
• The company raised its full-year 2025 earnings guidance to $6.22-$6.38 per diluted share and revenue guidance to $4.89-$4.94 billion, reflecting confidence in sustained operational momentum and contributions from recent acquisitions.
• ENSG maintains a strong balance sheet and liquidity position, with over $1 billion in available dry powder for future investments and a low lease-adjusted net debt-to-EBITDA ratio of 2.13x, enabling disciplined growth.
• While facing industry risks such as regulatory changes (including staffing mandates and reimbursement pressures), labor shortages, and litigation, ENSG's focus on clinical quality, talent development, and strategic real estate management through its Standard Bearer REIT provides a competitive moat.

Setting the Scene: A Decentralized Powerhouse in Post-Acute Care

The Ensign Group, Inc. (ENSG) operates as a holding company overseeing a diverse portfolio of healthcare services primarily focused on the post-acute care continuum. Through its network of independent subsidiaries, ENSG provides skilled nursing, senior living, and rehabilitative services across numerous states. This structure is not merely administrative; it is foundational to ENSG's core strategy: a decentralized, locally-driven model that empowers facility-level leadership to adapt to the unique needs of their communities and healthcare markets. This approach, honed over 25 years, is presented as the key to unlocking value, particularly in acquiring and turning around underperforming operations.

The post-acute care industry is characterized by fragmentation and intense competition, including large publicly traded rivals like Encompass Health Corporation (EHC) in rehabilitation services and major healthcare REITs such as Ventas Inc. (VTR) and Welltower Inc. (WELL) in property ownership and leasing. Brookdale Senior Living Inc. (BKD) represents a significant competitor in the senior living space. ENSG's competitive positioning is distinct; while EHC may lead in rehabilitation-specific clinical efficiency and REITs like VTR and WELL boast greater scale in real estate portfolios, ENSG leverages its local empowerment and integrated service/real estate model to foster stronger community relationships and potentially achieve higher operational efficiency at the facility level. This local focus, coupled with a disciplined acquisition strategy targeting distressed assets, allows ENSG to carve out market share and drive profitability in specific geographic clusters.

The industry landscape is also shaped by significant external forces, including complex and frequently changing government regulations (Medicare and Medicaid), persistent labor market pressures, and evolving demands from managed care organizations and hospital systems for higher acuity care and demonstrable quality outcomes. These dynamics present both challenges and opportunities for providers like ENSG.

ENSG's operational model is supported by a Service Center that provides centralized administrative functions, allowing local teams to focus on patient care and market strategy. A wholly-owned captive insurance subsidiary manages certain liability risks. The establishment of Standard Bearer Healthcare REIT in 2022 further solidified ENSG's integrated approach, providing an efficient vehicle for owning and managing real estate assets that can be leased to either Ensign-affiliated operators or third parties.

A key operational technology enabling ENSG's model is specialized care-delivery software. While not a standalone product sold externally, this internal tool is crucial for assisting caregivers in accurately capturing and recording services, including activities of daily living. The stated goal is to increase reimbursement to levels appropriate for the care delivered and enhance billing accuracy. This technology supports the operational efficiency and quality reporting necessary to maximize revenue and build credibility with payors and referral partners. While specific quantitative metrics for the software's impact are not detailed, its strategic intent is clear: to underpin the local teams' ability to deliver and accurately document care, thereby supporting financial performance and compliance in a complex regulatory environment. Ongoing industry trends like the Interoperability Final Rule and the Cures Act underscore the increasing importance of data sharing and accurate information capture, making ENSG's investment in this operational technology a relevant factor in its ability to adapt to evolving industry standards.

Performance Reflecting Strategy in Action

The first quarter of 2025 provided compelling evidence of ENSG's strategy translating into strong financial and operational performance. Total revenue surged by 16.1% year-over-year to $1.17 billion, a significant increase primarily attributed to robust growth in skilled services revenue, which rose by 15.9% to $1.12 billion. This growth was broad-based across all payor types, with notable increases in managed care revenue (+20.8%) and private revenue (+35.7%), alongside solid gains in Medicaid (+15.2%) and Medicare (+8.3%).

Operational metrics underscore the drivers of this top-line expansion. Consolidated occupancy increased by 2.2 percentage points to 81.9%. More impressively, same-store facilities, those owned prior to January 1, 2022, achieved an all-time high occupancy of 82.6%, a 2.9 percentage point increase, demonstrating the continued ability to gain market share in mature operations. Transitioning facilities, acquired between January 1, 2022, and December 31, 2023, saw occupancy climb by 4.0 percentage points to 83.5%, highlighting the successful turnaround efforts in these previously underperforming assets. Skilled census also increased significantly across both same-store (+7.6%) and transitioning (+9.9%) operations.

Average daily revenue rates also contributed positively. Medicare daily rates at same-store and transitioning facilities increased by 5.0% and 4.3%, respectively, benefiting from the 4.2% net market basket increase effective October 2024 and a shift towards higher acuity patients. Average Medicaid rates saw a 3.6% increase, driven by state reimbursement updates, participation in supplemental programs, and favorable changes in Medicaid mix.

The impact of recent acquisitions was substantial, with facilities acquired since January 1, 2024, contributing approximately $95.7 million in revenue compared to the prior year quarter. The company added 13 new operations in Q1 2025 and since, including expanding into new states like Alabama, Alaska, and Oregon, bringing the total acquired since January 2024 to 47. This rapid pace of expansion, particularly into underperforming facilities, typically introduces integration costs and can pressure margins initially.

Despite these integration costs and increased insurance expenses, the skilled services cost of services as a percentage of revenue saw only a slight increase to 79.4% from 79.2%. General and administrative expenses increased in absolute terms due to acquisition-related headcount but decreased as a percentage of revenue to 5.3%, reflecting operational leverage. Depreciation and amortization increased by 23.1% due to the growing asset base from acquisitions and capital expenditures.

Standard Bearer, the captive REIT, also demonstrated strong growth, with rental revenue increasing by 27.9% to $28.4 million, driven by real estate purchases and annual rent escalations. FFO for the segment grew by 21.1% to $17.1 million. This segment's growth provides an additional revenue stream and strategic flexibility.

ENSG's liquidity remains robust. As of March 31, 2025, the company held $282.7 million in cash and cash equivalents and $219.1 million in investments. Cash flow from operations increased significantly to $72.2 million, up $36.9 million year-over-year, reflecting improved operational performance and working capital management.

While cash used in investing activities increased substantially to $243.8 million, primarily for acquisitions ($194.2 million) and capital expenditures ($42.9 million), the company maintains a low lease-adjusted net debt-to-EBITDA ratio of 2.13x.

This strong balance sheet, combined with $570 million available under its $600 million credit facility, provides over $1 billion in dry powder for future growth. The company also continued its history of returning capital to shareholders, paying a quarterly dividend and completing a $20 million stock repurchase program.

Outlook and Risks

Building on the strong first quarter performance and positive operational momentum, ENSG raised its full-year 2025 guidance. The company now expects diluted earnings per share to be between $6.22 and $6.38, up from the previous range of $6.16 to $6.34. The new midpoint of $6.30 represents a 14.5% increase over 2024 results. Revenue guidance was also increased to $4.89 billion to $4.94 billion.

This elevated outlook is underpinned by several key assumptions: continued positive trends in occupancy and skilled mix across the portfolio, ongoing progress in managing labor costs and reducing reliance on agency staffing, and the expected contributions from acquisitions closed or anticipated to close through the second quarter of 2025. Management expressed confidence in their ability to achieve these goals, citing the inherent organic growth potential within their existing operations and the faster-than-expected integration and contribution from newly acquired facilities. The guidance assumes a diluted weighted average common share count of approximately 59.5 million and a tax rate of 25%.

Despite the optimistic outlook, ENSG operates within an industry subject to significant risks. Regulatory changes, particularly concerning Medicare and Medicaid reimbursement rates and rules, remain a primary concern. While the CMS FY 2025 SNF PPS Final Rule provided a net 4.2% increase in payments, ongoing discussions in Washington regarding Medicaid funding, potential sequestration of Medicare payments, and changes to Medicare Part B reimbursement could impact future revenue. The recent judicial decision vacating the federal minimum staffing mandate provides temporary relief, but the ongoing litigation and potential for future mandates or state-level requirements pose risks to labor costs and operational capacity.

The Ownership Transparency Final Rule and similar state laws requiring detailed disclosure of ownership and financial relationships could increase regulatory scrutiny and potentially deter future partners or investors. Litigation risks, including medical negligence claims, wage and hour class actions, and government investigations (such as the ongoing DOJ CID), can result in significant legal costs and potential liabilities. The company's partial self-insurance program exposes it to unexpected costs if claims exceed reserves or insurance limits.

Competition for both talent and acquisitions is expected to persist. While ENSG's local model and talent development pipeline are strengths, the broader labor market disequilibrium and wage pressures could still impact profitability. Competition for acquisitions from well-capitalized players like healthcare REITs and private equity firms may affect pricing and deal flow. The geographic concentration of facilities in states like California, Texas, and Arizona makes the company vulnerable to regional economic downturns, regulatory changes, or natural disasters. Risks associated with leased properties, including potential defaults and cross-defaults under master lease agreements, also remain pertinent.

Conclusion

The Ensign Group's first quarter 2025 results underscore the effectiveness of its differentiated, locally-empowered operating model and disciplined acquisition strategy in driving growth and creating value in the complex post-acute care landscape. Record occupancy levels in both mature and transitioning facilities, coupled with strong revenue growth across segments and payors, demonstrate the company's ability to execute operationally and capitalize on market demand.

The raised 2025 guidance reflects management's confidence in sustaining this momentum, leveraging the significant organic growth potential within the existing portfolio and successfully integrating new acquisitions. ENSG's strong balance sheet and liquidity provide the financial flexibility necessary to pursue further strategic expansion opportunities, including deepening its presence in established markets and carefully entering new geographies. While navigating inherent industry risks such as regulatory uncertainty, labor pressures, and litigation, ENSG's focus on clinical quality, talent development, and strategic real estate management positions it to continue its trajectory of consistent growth and profitability. For investors, the story of ENSG remains one of operational excellence and strategic expansion, underpinned by a proven model designed to unlock value in a vital and evolving healthcare sector.