The Ensign Group (Nasdaq: ENSG) expressed gratitude that the skilled nursing industry was largely protected from direct cuts to Medicaid in the One Big Beautiful Bill Act (OBBBA).

Mission Viejo, California-based Ensign plans to use its good working relationships with state legislators and governors’ offices to remind those in power of how important funding for seniors is in the skilled nursing setting, especially as states with more finite budgets shift dollars around, Ensign CEO Barry Port said during a second quarter earnings call on Friday. 

“Legislators were very overt about making sure that they carved skilled nursing out of any large direct impacts to Medicaid and instead focused their efforts around reform with workforce requirements, eligibility requirements,” Port said of Medicaid cuts in OBBBA. “We feel like the worst is behind us, and now we can have productive conversations at a state level to make sure that we’re in good shape for the long term.”

Macquarie Equity Research analyst Tao Qiu echoed these sentiments in a note posted several days ago, but warned that the phasing down of provider tax on managed care organizations could affect states that redirect MCO tax receipts to fund nursing homes.

Ensign CFO Suzanne Snapper said value-based care volume is “relatively small” in Ensign’s operating markets but that they will continue to be a partner to MCOs, working with these organizations to provide quality care.

Ensign reported skilled census for same store and transitioning operations increased by 7.4% and 13.5% respectively compared to Q2 2024. Improvements in turnover, lower staffing agency labor, and trusted partners all played a role in this improved statistic, Port said.

Ensign raised its earnings guidance to between $6.34 and $6.46 per diluted share, compared to $6.22 to $6.38 per diluted share previously, a 34% jump from 2023 results, Port noted. Organic growth stemming from stronger occupancy and skilled mix was more than expected for the quarter, leading to the update.

“In addition, many of our new acquisitions are performing well ahead of schedule, which highlights the continued improvement in our locally driven transition strategy, but also points towards solid underwriting and investment decisions,” Port said.

Total skilled services revenue was $1.17 billion for 2Q, an 18.5% increase compared to 2Q 2024. GAAP diluted earnings per share for 2Q was $1.44, an 18% increase compared to 2Q 2024, and GAAP net income was $84.4 million in 2Q, an 18.9% increase when compared to 2Q 2024.

On Friday, Ensign shares closed at $150.06, up $12.29, or 8.92%. Earnings per share beat analyst estimates by 4 cents for the quarter.

Asset update

In terms of M&A, Ensign executives said there’s greater comfort in larger, multi-state portfolio acquisitions compared to past remarks, thanks to improved internal processes over time. Success with these deals comes from breaking down large acquisitions into smaller, localized transitions to preserve operational quality and integration ease, said Chad Keetch, chief investment officer for Ensign.

He used the addition of 17 California skilled nursing facilities as part of a deal with Sabra Health Care REIT (Nasdaq: SBRA) to drive this point home.

“By applying lessons we had learned in years past, particularly from a large deal we did in Texas, our local leaders in California approached this deal as if it were six or seven smaller deals,” said Keetch.

Local market leaders in California took responsibility for buildings near existing building clusters, and in doing so these acquisitions received the same amount of time, attention and resources that a single acquisition would have received, Keetch noted.

“This allowed the new operations and their teams to immediately have the benefits of their cluster partners for nearly all aspects of the transition, including training on new clinical systems and Ensign compliance standards support, as well as learning Ensign’s unique cultural expectations,” said Keetch.

Of these 17 California operations, 12 are now four- to five-star facilities per the Five-Star Rating System monitored by the Centers for Medicare and Medicaid Services (CMS), occupancy for the properties is more than 92%, and mixed days are 47%.

But, the company is always prepared to pass on a deal that doesn’t meet sustainability metrics, especially when it comes to daily average rate targets, added Keetch.

In 2Q, Ensign added 8 properties, or 710 skilled nursing beds and 68 senior living units across California, Idaho and Washington. This brings the number of acquired operations in 2024 and so far this year to 52, said Keetch. The current rate of acquisitions is expected to continue.

“The distribution of our growth over the last several quarters spans across many states and markets, leaving us with significant bandwidth to grow in almost all of our markets,” said Keetch. “While we look to grow in some of our new states, we still see significant opportunity to continue to add meaningful density in the markets we know best.”

Ensign’s captive real estate investment trust (REIT) Standard Bearer added five properties during 2Q and since, now at 106 assets.

Ensign is selectively leasing some assets that are better suited for third-party operators, which falls in line with a growing interest from third-party operators in partnering, offering flexibility on future deals.

Meanwhile, local leaders continue to recruit future CEOs for Ensign-affiliated operations and the company has a “deep bench” of CEOs in training. An influx of local leadership and decentralized transition model allows growth minus the “typical corporate bottlenecks,” said Keetch.

Valuations for skilled nursing deals have increased post-Covid, as a result of the interest rate environment and market activity, he added.