The Ensign Group Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 6, 2025
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Operator

and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ensign Group Q4 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the conference over to Mr. Keesh. You may begin.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

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 5PM Pacific on Friday, 02/28/2025. We want to remind anyone that might be listening to a replay of this call that all statements are made as of today, 02/06/2025, 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 and beliefs about our business and the environment in which we operate.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

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.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

Certain of our independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal risk management and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities. Ensign also owns StandardBear Healthcare REIT, Inc, which is a captive real estate investment trust that invests in healthcare properties and intersented lease agreements with certain independent subsidiaries of Ensign as well as third party tenants that are unaffiliated with The Ensign Group. The words Ensign, company, we, our and us refer to The Ensign Group, Inc. And its consolidated subsidiaries.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

All of our independent subsidiaries, the Service Center, Standard Berry Healthcare REIT and the Insurance Captive are operated by separate independent companies that have their own management employees and assets. Reference inherent of the consolidated company and its assets and activities as well as the use of the words we, us and our and similar terms are not meant to imply nor should be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign Group. Also, we supplement our GAAP reporting with non GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non GAAP reconciliation is available in yesterday's press release and is available in our Form 10 K.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

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

Barry Port
Barry Port
Director & CEO at The Ensign Group

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 organizations embrace as we attract and develop caregivers and leaders.

Barry Port
Barry Port
Director & CEO at The Ensign Group

We are building a formidable bullpen of caring and passionate partners who are determined to live our mission to dignify post acute care. After another record year and quarter, 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 increase by 2.74.1% for the year and grow by 2.34.7% over the prior year quarter, respectively. We also saw skill days increase 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 6.827.7% for our same store and transitioning operations, respectively, over the prior year quarter.

Barry Port
Barry Port
Director & CEO at The Ensign Group

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 new 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 $4,830,000,000 to $4,910,000,000 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.

Barry Port
Barry Port
Director & CEO at The Ensign Group

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 five years, our total revenue increased by $2,200,000,000 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. In addition, since we spun out the Pennant Group in 2019, we have seen adjusted EPS grow by 209% with a CAGR of 25.3%. This performance is not due to some large event or single transformative transaction, but instead is the result of steady and consistent growth and performance quarter after quarter, which comes from a collective belief and commitment held by all of our partners to expand our mission in a methodical and thoughtful way.

Barry Port
Barry Port
Director & CEO at The Ensign Group

We look forward to the upcoming year and are confident that our partners can reach new heights in clinical and financial performance as they apply our proven locally driven model. And as we evaluate our expanding portfolio, we are very excited about the continued growth in occupancy and skilled mix that we experienced last year, which is continuing so far into the first quarter of this year. There are so many opportunities in front of us to optimize operational efficiencies and drive occupancy and skilled mix as we continue to successfully unlock value and opportunity in the dozens of recently acquired operations. Our leaders are poised to again showcase our ability to find, acquire and transition performing and underperforming operations by applying proven Ensign principles developed over twenty five years. Next, I'll ask Chad to add some additional insights regarding our growth.

Barry Port
Barry Port
Director & CEO at The Ensign Group

Chad?

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

Thank you, Barry.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

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 eleven forty seven 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 StandardBear and leased to an Ensign affiliated operator. This growth brings a number of operations acquired in 2023 and since to 64, 30 eight of which were acquired since January 2024.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

We are excited to add Density in one of our newest markets in Tennessee and look forward to deepening our relationships in the health care 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 when opening a new market.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

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 enzyme 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, which will eventually comprise a sizable market. We can't wait to watch Alabama become another reflection of the template of growth and development we've seen across our footprint over the last twenty five years.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

We remind you that we are now only in 15 states and have significant bandwidth to grow in the other 35 states. Looking forward, we have already announced a new transaction, which we expect to close in the next few months that includes two new states, Alaska and Oregon. As with Alabama, each of these new states is driven by an enzyme leader and will represent a small investment with plans to build over time. With all that being said, during 2024 and since, we added new operations in all but two of our existing 15 states, spreading out the growth across many markets. While we will continue to evaluate new states that fit our criteria, we will prioritize growth in our established geographies.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

This not only allows us to deepen our commitment to these markets, but because our transitions do not rely on a centralized acquisition team, our growth is not limited by typical corporate bottlenecks. Instead, we look to our local cluster partners to implement the transition plans. So while our rate of growth this year was strong, the distribution of our growth across many markets leaves us with significant bandwidth to grow in most of our markets. We still see significant opportunity to continue to add meaningful density in the markets we know best and are making progress on several additions that we expect to close in the next few months. While we expect the current rate of acquisitions to continue this year, we remain committed to staying true to the proven deal criteria that have allowed us to grow in a healthy and sustainable way.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

We continue to see more and more opportunities to acquire new operations, and our focus is to carefully choose the acquisitions that will be accretive to shareholders. Our local leaders continue to recruit future CEOs for enzyme affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead. We still see evidence that many operators in this industry are struggling, and we expect that the operating environment will translate into many near and long term opportunities to both lease and acquire post acute care assets. However, we do not set arbitrary growth goals and will remain true to our disciplined acquisition strategy. We only grow when we have the right leaders in place and the pricing is real.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

The scalability of our growth model, our healthy balance sheet combined with the numerous opportunities we see in our existing footprint give us enormous potential to continue to apply our proven acquisition and transition strategies in 2025. We are also providing additional disclosure on StandardBear, which added 13 new assets during the quarter and since and is now comprised of 129 owned properties. Of these assets, 97 are leased to an Ensign affiliated operator and 33 are leased to third party operators. Ten of these 13 new real estate assets are operated by an Ensign affiliated operator and three of these properties are senior living assets that are operated by a high quality third party tenant under triple net long term lease. Going forward, StandardBear continues to work together with its operating partners at Ensign to acquire portfolios comprised of operations that Ensign would operate and facilities that third parties that are interested in operating under a lease.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

In addition, over the coming months, StandardBear also anticipates announcing more acquisitions of real estate that will be operated by third party operators. Collectively, StandardBear generated rental revenue of $25,100,000 for the quarter, of which $20,700,000 was derived from Ensign affiliated operations. For the quarter, Ensign reported $15,300,000 in FFO and as of the end of the quarter had an EBITDAR to rent coverage ratio of 2.5 times. And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. Spencer?

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Thank you, Chad, and hello, everyone. The incredible results that 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 02/2003 and has been a consistent performer every year for the past two decades. The facility's consistency is driven in part by committed, stable leadership.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

CEO, Michael Juhas, has led the facility since completing his AIT program in 2015. And Joyce Tamayo, 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. The Victoria team grew overall occupancy from an already strong 93% in Q4 of twenty twenty three to 95.9% in Q4 of twenty twenty four.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

And skilled revenue mix increased to an astonishing 75.2% during that same period, an improvement of four twenty 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. So Victoria's census growth was only made possible by its consistent achievement of outstanding clinical outcomes. Victoria is currently rated five star by CMS for health inspections, quality measures and overall.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Even more impressive, despite operating in a very rigorous state regulatory region, Victoria's state survey scores are 14 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 prior year quarter and EBIT skyrocketed during that same period. Victoria is a prime example of the ongoing potential in legacy operations that can be kept as strong experienced teams build clinical excellence. Our second example comes from our transitioning facilities group.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Boulder Canyon Health and Rehabilitation in Boulder, Colorado is a 140 bed SNF that was acquired in 2021. It demonstrates how a turnaround occurs as local leaders apply proven enzyme principles to their unique and often difficult circumstances. Like many of our acquisitions, as of the transition date, Boulder Canyon was a one star facility with occupancy below 60%. The facility was losing money and was deeply dependent on nursing agency just to meet basic patient needs. Despite these challenges, CEO, Ray Lauritzen COO, Geralyn Lindsey and their team went to work.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

They methodically established a culture of love and high achievement and actively recruited the top clinical talent in their area. They built an impressive leadership team and focused on elevating the experience of their frontline employees. As a result, in 2024, the facility completely eliminated nursing agency use despite growing their workforce to care for increased acuity and occupancy. While quality transformations were happening inside the facility, the Colorado resource team worked alongside facility leaders and cluster partners to transform Boulder Canyon's external reputation, including winning over local hospital systems and key managed care organizations. Recently, one of Colorado's largest narrow network plans added Boulder Canyon as a preferred provider based on the changes in the facility's quality metrics and the trust that they had built working with a sister facility over the years.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Today, Boulder Canyon enjoys a newly remodeled physical plant, great quality metrics and an overall five star rating from CMS. Total occupancy for Q4 of twenty twenty four averaged 84.4% with skilled Medicare days increasing by 70% and managed care days growing by over 200% compared to Q4 of twenty twenty three. This stability in labor and growth in census has resulted in a 23% increase in net revenue and a 131% growth in EBIT over the prior year quarter. And if you ask the team at Boulder Canyon, they are just scratching the facility's potential. With that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open up for questions.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Suzanne?

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Thank you, Spitzer, and good morning, everyone. Detailed financials for the year and the quarter are contained in our 10 K and press release filed yesterday. Some additional highlights 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 $5.5 an increase of 15.3%. Consolidated GAAP revenues and adjusted revenues were both $4,300,000,000 an increase of 14.2%. GAAP net income was $298,000,000,000 an increase of 42.3%.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Adjusted net income was $320,500,000 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 $1,100,000,000 an increase of 15.5%. GAAP net income was $79,700,000 an increase of 267.4%.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Adjusted net income was $87,600,000 an increase of 18.9%. Other key metrics as of 12/31/2024, include cash and cash equivalents of $464,600,000 and cash flow from operations of $347,200,000 During the quarter, the company increased its dividend for the twenty second consecutive year and paid a quarterly cash dividend of $0.0625 per common share. We have a long history of paying dividends. And as the company's liquidity remains strong, we plan to continue its long history of paying dividends into the future. We also continue to delever our portfolio, achieving a record low lease adjusted net debt to EBITDA ratio of 1.9 times.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Our ability to delever 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 $572,000,000 of available capacity on our line of credit, and when combined with our cash on our balance sheet, gives us over $1,000,000,000 in dry powder for future investments. We also own 134 assets, of which 129 are held by Standard Bearers and 110 are owned completely debt free and are gaining significant value over time, even adding more liquidity to help with future growth. As Barry mentioned, we are providing our annual 2025 earnings guidance between $6.16 and $6.34 per diluted share. Our annual revenue guidance between $4,830,000,000 and $4,910,000,000 We have evaluated multiple scenarios and based on the streak of our performance and the positive momentum we've seen in occupancy and skilled mix as well as the continued progress on agency management and other operational initiatives, we're confident that we can achieve these results.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Our 2025 guidance is based on diluted weighted average common shares outstanding of $59,500,000 a tax rate of 25% the inclusion of acquisitions closed and expected to close for the second quarter of twenty twenty five the inclusion of management's expectations for Medicare and Medicaid reimbursement rate, net of provider tax, with the primary exclusion coming from stock based compensation. Additionally, other factors that could impact quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality, occupancy and skilled mix, the influence of the general economy on census and staffing, the short term impact of our acquisition activities, variations in insurance accruals and other factors. And with that, I'll turn it back over to Barry. Barry?

Barry Port
Barry Port
Director & CEO at The Ensign Group

Thanks, Suzanne. As we wrap up, I must reemphasize as I always do how incredibly honored and grateful that we all 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 loving everyone around them. Their collective commitment is truly a blessing. Our future is bright and

Barry Port
Barry Port
Director & CEO at The Ensign Group

we're excited for a busy year ahead.

Barry Port
Barry Port
Director & CEO at The Ensign Group

And with that, we'll now turn it over to the Q and A portion of our call. Bella, can you please instruct the audience on the Q and A procedure?

Operator

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

Ben Hendrix
Ben Hendrix
Equity Research - Healthcare Services and Managed Care at RBC Capital Markets

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 guys 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 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?

Barry Port
Barry Port
Director & CEO at The Ensign Group

Look, it's hard to know exactly where things are going to go during the kind of reconciliation process and what will actually become a priority with 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 and really just a robust kind of education effort around impacts to the Medicaid program as it relates to seniors. But for us, it's not clear as to what will become a priority. All we can really do is just make sure that we're part of the education process in the meanwhile.

Barry Port
Barry Port
Director & CEO at The Ensign Group

We can also just kind of reiterate what we know about the Trump administration that they're committed to the Medicaid program. He said that publicly. He said it as recently as Friday. And he's committed to the senior industry as well senior care industry. So we prepare for the worst as always, but I think having Medicaid be impacted in

Barry Port
Barry Port
Director & CEO at The Ensign Group

a broad based way is going to be

Barry Port
Barry Port
Director & CEO at The Ensign Group

a pretty difficult task for Congress during the reconciliation process. So but as for now, no, none of our programs are really at risk that we are aware of. Yes.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

And I would just add, you know, we typically in a Republican, control, you definitely usually see lighter regulations while there might be some things on the rate. And so, like as you stated in the question, we really try to be nimble during these times and really, utilize that. So, if there's regulatory relief, there's some flexibility in our operating model with that. And then our involvement at the state level is very deep, from the legislative side as well as to all the associations that we have at each individual state.

Ben Hendrix
Ben Hendrix
Equity Research - Healthcare Services and Managed Care at RBC Capital Markets

Thanks a lot. And if

Ben Hendrix
Ben Hendrix
Equity Research - Healthcare Services and Managed Care at RBC Capital Markets

I could just follow-up real quick specifically on Tennessee, just given your M and A acquisition there, just wanted to get your thoughts on kind of the overall backdrop, both from a Medicaid perspective, but also just what you're seeing on the horizon in terms of opportunities for preferred provider relationships, kind of like what you called out for Boulder Canyon? Thank you.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Yes. So just taking a step back and looking at the overall Tennessee market that we're new to, obviously, they have. And I think there's a lot of noise in the press just because of all the hospitals and the larger reimbursement amounts that they receive in Tennessee. Obviously, the amount of supplemental associated with our operations is substantially less than that. And really, it is carried all the way through and approved all the way through, July first of this year.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

And then they're looking to and working with, legislation there in Tennessee to actually continue that on through the later portion of the year as it relates to skilled nursing. But again, it's not the amount that you're seeing with other large hospitals. With regards to networking, obviously, we've been in that state. I think we talk about this. Anytime we enter a new state, we are doing a lot of preparation.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

The operator who is, kind of, had founded that state has been there for a very long time and has established great relationships over this period of time, not only that individual but others that we have left on from the acquisition and others that we actually had as resources in that state have great connections out there.

Ben Hendrix
Ben Hendrix
Equity Research - Healthcare Services and Managed Care at RBC Capital Markets

Great. Thank you.

Operator

Our next question comes from the line of Scott Ferde from Stephens. Please go ahead.

Raj Kumar
Senior Research Associate at Stephens Inc

Hi. This is Raj on for Scott. I had a couple of modeling questions, just first around quarterly EPS seasonality in relation to maybe 2024 even historically. And what's kind of baked in guidance from an occupancy and skilled mix perspective?

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Yes. Kind of going 2024 seasonality first. Obviously, Q4, historically on the occupancy and skilled mix And Q1 has been our, the best quarters that we've had, typically higher skilled mix, higher occupancy in those both of those quarters. When we look at this year's Q4, obviously, we saw something flat to Q3. The reason why it was flat was because Q3 was so great.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

And I think you saw during our earnings call and kind of subsequent conversations after that, we had that heightened Q4 occupancy, really retained that market share. When we looked at hospital occupancy, we were able to keep all the market share and just really had a great Q3, which then continued into Q4 and is continuing into Q1. Like I mentioned, Q1 historically has been our strongest occupancy and skilled mix seasonality and we see that same seasonality continuing in 2025.

Raj Kumar
Senior Research Associate at Stephens Inc

Thank you. And then just as a follow-up, just around cash flow from operations and expectations there and anything you'd like to call out that would be unique to 2025 other than the typical working capital seasonality?

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

Yes. I think one of the things that we need to keep in mind and this is just a every time we have very heavy acquisitions, specifically right now we're seeing, as we go through that licensing process and that change in ownership process, there have been substantial delays. We've seen slowdowns at the Medicaid offices and approval offices for licensing. And so kind of that cycle that we're typically seeing has it will probably draw out, as we continue to be at this acquisition pathway. And so we actually see a little bit stretching on that cash flow and the cash turnaround as those acquisitions to continue to come in and the slowdown from the Medicaid offices and other offices out there.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

It's just a temporary phenomenon while we're waiting to get that, those Medicaid certifications and everything turned on. So they can impact the cash flow in the short run.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

And then other than that, obviously, Q4 saw a little bit of an unusual cash payment as we foreshadowed during the Q3 call. We did have that payment of the settlement that happened a year ago. So that was a little bit dip in the Q4 cash flow.

Operator

Your next question comes from the line of A. J.

Operator

Rice with UBS.

A.J. Rice
A.J. Rice
Managing Director at UBS Group

Hi, everybody. First question just to ask maybe 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 and how that might impact you?

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

Maybe starting with the general labor environment. We're not seeing massive changes, but we're seeing very gradual improvements that continues quarter to quarter recently. We expect that to continue. Some of that's just environmental. The labor markets have stabilized more and more since COVID.

Spencer Burton
Spencer Burton
President & COO at The Ensign Group

And part of it is we're relentlessly working on new ways to attract labor, retain the best nurses, the best CNAs, the best frontline workers. And then also we're looking for leadership development opportunities because our business is very locally driven. And if you have a great local leadership team, that's really the key to having a healthy frontline workforce. And so as we continue to do those things, we think a combination of environmentally, the markets are a little bit better. And as we get better, that bodes well for 2025.

Suzanne Snapper
Suzanne Snapper
CFO, EVP & Director at The Ensign Group

And the California workforce standard is all baked into the guidance for 2025. We've already included that. We also have this is going to be the second year that we're going to be going through that program. And so like we've got a good handle on expectations associated with that program based upon what the state has published.

A.J. Rice
A.J. Rice
Managing Director at UBS Group

Okay. And maybe just the follow-up question beyond the deal pipeline, what are you seeing or the terms on the deals that you're doing changing in any way? What is the competitive landscape around acquisitions look like right now?

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

Great question. As we kind of said in the prepared remarks, we're seeing a lot of deal flow and we actually we've acquired a lot just in the last eighteen months and we expect to continue kind of on the same pace in 2025. So we've got a lot of deals lined up that we'll be closing over the next several months. As Suzanne mentioned earlier, we are seeing some delays that the change of ownership from the state and granting licenses and stuff like that that are really like the deals are locked up. We're just waiting to get those licenses.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

So you'll see us start announcing more closings over the next few months. In terms of competitive landscape, there are way more deals on our desk than we could ever dream of doing. So we are able to be very, very selective and we often talk about this disciplined growth and that's a lot of things, making sure we have leaders in the markets, leaders that are ready to go to assume the responsibility to transition these buildings. That's obviously the first thing. But also the terms of the acquisitions, We're really particular about making sure if it's a lease that there's plenty of coverage and we're not stretching and looking at pro form a results and establishing the rents.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

We're pretty firm on using the trailing 12 and not paying for performance that we're going to create. And when we're buying the real estate, we're really focused on price per bed and making sure it's in line with kind of what we see as sustainable prices that will allow us to have the balance sheet that we do. And you can't grow as quickly as we have over time and have a healthy balance sheet if you overpay on things. So that's all kind of how we look at it. But so with all that said, there's many opportunities for us as we're going through that disciplined analysis on deals.

Chad Keetch
Chad Keetch
Chief Investment Officer, Executive VP & Secretary at The Ensign Group

We tend to win the deals that we want and that we're ready to move forward with and expect that to continue.

A.J. Rice
A.J. Rice
Managing Director at UBS Group

Okay, great. Thanks.

Operator

That concludes our Q and A session. Ladies and gentlemen, thank you all for joining. You may now disconnect.

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Earnings Conference Call
The Ensign Group Q4 2024
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