Negative Points

• Newly acquired Texas operations are currently below average occupancy and present significant clinical and operational hurdles, with no immediate accretion expected.

• The company faces ongoing labor cost pressures, though contract labor usage has stabilized at low levels and turnover is improving faster than the industry average.

• Medicaid rate increases remain modest, with only stability expected rather than major uplifts, which could limit revenue growth from this payer source.

• CMS changes to the five-star quality measure rating methodology could impact some facilities, though preliminary analysis shows a smaller-than-expected effect.

• The company's growth strategy relies heavily on finding and retaining local leadership talent, which remains a challenge and a common reason for passing on acquisition opportunities.

• Seasonality in occupancy and skilled mix, along with potential delays in state budgets, could create quarterly volatility in financial performance.

• The large bolus of recently acquired facilities (71 operations since 2025) may take time to transition to same-store status and generate expected returns.

Q & A Highlights

Here are the key highlights from the Ensign Group Inc ( NASDAQ:ENSG ) Q2 2026 earnings call, focusing on the most significant Q&A exchanges.

Q: Regarding the recent large acquisition of facilities in Texas, what is the realistic timeline for these newly acquired operations to transition from the "recently acquired" phase into the "same-store" bucket, particularly in terms of reducing contract labor and improving retention? A: (Barry Port, CEO) These recent acquisitions are much more representative of our typical turnaround transitions, with low occupancy and low skilled mix, which presents a significant opportunity. Unlike some higher-occupancy acquisitions in prior years, these will take more time. We show the growth trajectory in our investor deck, illustrating improvement over 5, 15, and 45 quarters. (Suzanne Snapper, CFO) The current performance of these acquisitions is already baked into our guidance for Q3 and Q4. Any upside to guidance would require them to perform better than our current projections.

Q: Can you provide an update on the labor dynamics you are seeing, including wage increases, turnover rates, and contract labor usage? A: (Spencer Burton, COO) We are seeing good stability and low levels of contract labor usage, particularly for nursing registry (RNs and CNAs), which has been flat over the last year and is incrementally declining. While the industry-wide labor situation is improving, we are excited that our turnover rates are improving at a quicker pace than the industry average, creating a greater separation. Overtime is also trending in a positive direction, which is important for both cost and caregiver quality.

Q: With the recent changes to CMS's five-star quality measure (QM) rating methodology, what initial indications are you seeing on the impact to Ensign's QM ratings? A: (Spencer Burton, COO) We are still doing preliminary analysis, but we are actually pretty pleased with the results so far. The impact on us is significantly less than what the American Health Care Association had projected for the industry. In some cases, the impact is being counteracted by improvements in other areas of the five-star rating system, so the net effect on our overall five-star ratings is looking to be minimal.

Q: The Board authorized a share repurchase program. How should we think about this as a capital allocation priority compared to M&A and internal investments? A: (Barry Port, CEO) This is not a new program for us; we have had one for a while. The Board increased the authorization because we feel confident in our direction and believe the stock was undervalued at the time of approval. (Suzanne Snapper, CFO) This is a standard part of our capital allocation strategy. As we continue to grow, you should expect the authorization to increase. This will not impact our acquisition strategy at all, as we still have significant liquidity.

Q: Can you discuss the performance of your operations in the Southeast, a relatively new and underpenetrated area, and whether there are structural differences that might limit occupancy growth compared to more mature facilities in other regions? A: (Barry Port, CEO) We are really excited about the Southeast. Our success in Tennessee has been tremendous, with great growth in both quality outcomes and earnings. South Carolina has also been a very strong state, and we feel good about our progress in Alabama. We are constantly evaluating new opportunities in these states and adjacent ones, and I wouldn't be surprised if we grow into new states in the region this year or next.

Q: When you acquire a facility, how has your approach evolved regarding whether to retain the existing leadership team or replace them with your own people? A: (Spencer Burton, COO) We have improved our ability to identify and retain great external talent as part of our underwriting process. For example, in our Tennessee acquisition, the majority of leaders still in place were there before we arrived. This success comes from better processes for our local leaders to access and vet talent. While our internal AIT program remains a major source of leaders, we recognize that to grow as we want to, we must also successfully integrate outside leaders. (Chad Keetch, CIO) A key to this is gaining early access to the seller's team during due diligence, which allows us to get to know them and jointly announce the acquisition, creating a positive transition.

Q: Can you provide an update on your discussions with states regarding Medicaid rates and any changes you are seeing in managed care contracting? A: (Barry Port, CEO) On the state budget side, it is always dynamic, but we are encouraged by what we are seeing. We have active engagement in all our states and good visibility into the direction for this year and into next year in some states. We feel good about rate stability, though we are not expecting major increases. On the managed care side, we continue to benefit from great relationships with our partners. We have also seen great growth with the Veterans Administration (BA), becoming a larger provider for them.

Q: Regarding Standard Bearer's recent acquisitions of third-party managed facilities, how are you assessing these third-party managers and what is the strategy for the mix of the portfolio? A: (Chad Keetch, CIO) Our first priority is always to own and operate the facility ourselves. Our second priority is to do attractive long-term leases where we lease from someone else. The third scenario, where we own and lease to a third party, typically arises in portfolio deals where not all buildings are a fit for Ensign to operate, often due to geography. The Pennon Group is our largest third-party tenant, but we are expanding our base of other skilled nursing operators. We receive a lot of outreach from smaller operators wanting to be part of what we are doing, but the biggest challenge is that we often want those assets for ourselves first.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .