I will now pass the call over to Mr. Keetch. Please go ahead.
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 5:00 P.M. Pacific on November 27th, 2026. We want to remind anyone that might be listening to a replay of this call that all statements made are as of today, October 28th, 2026, 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. 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 more 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. 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 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 Standard Bearer Healthcare REIT, Inc, which is a captive real estate investment trust that invests in healthcare properties and enters into 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. All of our independent subsidiaries, the Service Center, Standard Bearer Healthcare REIT, 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, and similar terms, are not meant to imply, nor should it 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 Tuesday'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?
Thanks, Chad. We're thrilled to report another outstanding quarter. Our teams continue to demonstrate their unwavering commitment to dignify post-acute care in the eyes of the world through moments of truth. Our mission is not just a catchphrase. It's the guiding motivation behind nearly every decision made across our organization. As we've said before, we believe we achieve our mission by consistently delivering exceptional outcomes and experiences that redefine what residents, families, and healthcare partners expect from skilled nursing. Additionally, our core values, which our teams refer to using the acronym CAPLICO, creates a shared culture that empowers nearly 60,000 partners to lead with compassion, accountability, ownership, and a relentless commitment to excellence.
While CAPLICO may have begun as a simple set of shared beliefs, over time, it has become part of our operating DNA that determines hiring decisions, leadership development, employee retention, clinical execution, and ultimately, the experience of our residents and their 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 we call ONE CLINICAL that empowers every healthcare discipline, including nursing and therapy, to participate fully in making our residents' lives better. While most of the industry outsources therapy or treats therapy as a separate department to fulfill a singular purpose, our therapists work alongside nursing as equal partners, bringing their expertise into every aspect of resident care.
Together with our physician partners and our interdisciplinary team members, 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. It is the 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. We believe this clinical patient-centric model is a compounding competitive advantage that is uniquely perpetuated and refined through pure accountability in our cluster model. The proof of all this expertise and efficiency is evidenced in the outcomes.
According to the most recently published Centers for Medicare & Medicaid Services data for our same-store facilities, we achieved quality measure ratings that were 21% above the average of the states we operate in. Likewise, these operations achieved CMS Cycle 1 survey inspection results that outperformed the average of facilities in our operating states by 15% and exceeded county level averages by 28%. In addition, short- stay residents achieved functional improvement rates 30% better than industry peers in our operating states, and long -stay residents had antipsychotic medication rates 28% better than industry peers in our operating states, reflecting our focus on appropriate medication management and resident-centered care. We ended the quarter with over 80% of our skilled nursing operations earning a CMS quality measure rating of four or five stars, exceeding national averages in every single one of the 15 quality measurement categories, including all five claims-based measurements.
This is also especially notable given that many of our acquisitions were one- and two-star buildings when we took them over. In addition, 12% of all our eligible operations, comprised of 40 buildings in eight different states, earned the CMS High Performing Facility designation under its new risk-based survey program, placing them among a select group of facilities recognized by CMS for consistently strong performance. Importantly, all these measures are supported by 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, rehospitalization 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 our residents and healthcare partners alike, and the reason why we continue to enjoy census growth that is outpacing the industry.
These results are 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 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. We are especially proud of the continued improvement in employee and leadership stability. In particular, our Director of Nursing turnover continues to improve, and according to CMS-reported data, our overall RN retention rate is 11% better than the average across our 18-state footprint. Similarly, administrator turnover is an impressive 45% lower than the CMS-measured state average.
This level of leadership stability creates continuity for our caregivers and residents, 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. All of these clinical achievements directly impact our operating metrics, like occupancy and skilled mix, and the corresponding financial results are a direct reflection of a relentless patient-focused culture. 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. To highlight this point, on the census front, our same-store and transitioning occupancy for the third quarter is 84.1% and 86.1%, respectively.
Also, same-store facilities and transitioning facilities skilled mix revenue for the quarter increased by 10.7% and 10.5%, respectively, over the prior year quarter, and skilled days for the quarter increased by 7.2% and 7.9%, respectively, over the prior year quarter. Importantly, we experienced year-over-year growth across all skilled payer categories during the quarter. Medicare was particularly strong, with same-store days increasing 7.6% and transitioning days increased 6.3%, driving Medicare revenue growth of 11.1% and 7.8%, respectively. Likewise, managed care revenue increased by 9.1% and 7.2%, respectively, for same-store and transitioning operations over the prior year quarter. These operating statistics clearly demonstrate that patients, families, hospital systems, physicians, and managed care organizations continue to choose Ensign- affiliated operations because of the outcomes our teams achieve and the distinctive culture and experience our local teams create every day.
This cannot and will not happen, especially consistently and 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, therefore, is more than a financial metric. It is one of the clearest validations that an operation consistently delivers the outcomes and experience that stakeholders value. 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 story 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. Our organic growth remains one of the most compelling drivers of our long-term performance. 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 122 new operations across several markets, many of which are already performing at or above expectations, both clinically and financially. Due to our strong quarter and our confidence in what is ahead, we are increasing our annual 2026 earnings guidance to $7.94-$8.02 per diluted share, up from our previous guidance of $7.75-$7.85, which we increased last quarter.
We are also raising the lower end of our annual revenue guidance to $5.89 billion, while maintaining the upper end at $5.92 billion. The midpoint of our earnings guidance represents an impressive 21.5% increase over 2025, and 45.1% growth over 2024. Obviously, this pace of growth and execution makes us highly confident, not only in our 2026 performance, but into 2027. We fully 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 is always more to learn and much to improve. 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 will turn over to Chad to discuss more about our ongoing growth and acquisitions.
Thank you, Barry. 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. During the quarter and since, we added 22 new operations, including three real estate assets and 19 leased operations. These recent additions include nine in Florida, seven in Colorado, four in Washington, and two in Texas. In total, we added 2,373 new skilled nursing beds and 113 independent living beds across four states. This growth brings the number of operations in our recently acquired group of operations to 22% of our entire portfolio. Since 2024, we have successfully sourced, underwritten, closed, and transitioned 122 new operations across several markets, many of which are already performing at or above expectations, both clinically and financially.
We are thrilled to enter Florida and are very excited about the opportunity we have to bring our clinically focused operating model to the local communities there. Throughout our history, we have been thoughtful and deliberate when entering new states, seeking opportunities where exceptional local leadership, strong community ties, and long-term growth potential align with our operating philosophy. In this case, one of our most seasoned leaders presented a plan to plant the Ensign flag in Florida, ensured that he was leaving his previous role in outstanding hands, and moved to Florida to learn the dynamics in the state, recruit talent, and evaluate and select our first deal. After passing on several opportunities and finally landing on these recent additions, we are excited to make this investment into one of the largest and most dynamic healthcare markets in the country.
We believe these operations provide an outstanding first step into the state. These operations are almost all lower- than- average occupancies for these geographies, and all present substantial clinical and operational challenges. These campuses also possess tremendous long-term upside. We have been grateful for the warm welcome from the dedicated team of caregivers already serving the community. We are anxious to work together to improve the clinical quality of these turnaround operations and to live by proven clinical and operational principles that have transformed hundreds of operations over several decades. We are also excited to complete these acquisitions and to expand our presence in Colorado. Our Colorado-based subsidiary, Endura Healthcare, has served the communities across Colorado for many years, and these operations fit well within the existing footprint while expanding our presence on the Western Slope.
In addition, we are very excited to expand our existing footprint in Washington. These facilities serve vibrant communities throughout the Seattle area, and we have tremendous confidence in our local leadership teams and their abilities to support strong clinical programs while maintaining a resident-centered approach to care. Each of these turnaround operations present us with significant opportunities to strengthen clinical programs and quality outcomes, and we expect these operations to take some time to contribute to our overall performance. 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 spread across many geographies, enhancing our ability to digest larger deals by breaking them into bite-sized pieces, transitioning in the traditional Ensign way, but with a local cluster-driven plan that gives each operation the time and attention they deserve. We continue to see opportunities that include everything from larger portfolios, landlords looking to replace current tenants, nonprofits looking to divest to their post-acute assets, and a steady flow of traditional one-offs. We have several new additions lining up for next year as our local leadership teams and their partners at the Service Center work together to source, underwrite, and carefully select the right opportunities. Our local leaders continue to recruit future CEOs for Ensign- affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead.
Over the last year, we've had an average of approximately 52 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 94 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 carefully scrutinize who they will admit into the program. We are constantly refilling the AIT ranks. In addition, we have found success in retaining existing leadership in some of the higher- performing acquisitions. In some recent portfolio deals, for example, we identified several impressive administrators that had seen success at achieving consistent clinical and financial results at their respective operations and were a great fit for our culture.
We have become much better at onboarding existing talent into our local clusters and are continuously refining that process. As a result, many of the talented leaders we have kept not only have done well, but have earned the CEO designation from their peers. This high-quality influx of leadership talent, our continued focus on our onboarding existing leadership, and our decentralized transition model allow us to grow without being limited by typical corporate bottlenecks. In the face of all of this growth, we 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.
We believe the continued strength of our balance sheet, even after all this growth, demonstrates that our acquisition formula, which includes a locally driven underwriting and transition process, provides a scalable growth model that can carry us well into the future. We look forward to continuing to grow 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, higher-priced strategic assets. Lastly, we are also pleased with the continued growth of Standard Bearer, which added eight new assets during the quarter and since, including five previously leased facilities that have been and will continue to be operated by an Ensign affiliate. Standard Bearer is now comprised of 183 owned properties, of which 146 are leased to an Ensign-affiliated operator, and 38 which are leased to third-party operators.
Collectively, Standard Bearer generated rental revenue of $47.7 million for the quarter, of which $42.1 million was derived from Ensign-affiliated operations. For the quarter, Standard Bearer reported $27.3 million in FFO, as of the end of the quarter, had an EBITDA to rent coverage ratio of 2.6 x. I will turn the call to Spencer, our COO, to add more color around operations. Spencer?
Thanks, and hello, everyone. Today, I would like to highlight two examples that demonstrate the continued progress and momentum we are seeing across our entire portfolio. The first example is a recently acquired operation that shows how industry- experienced leaders can raise performance when they have strong resource support and are empowered to make decisions locally, both core elements of the Ensign operating model. Decatur County Healthcare, a 115-bed skilled nursing facility located in Parsons, Tennessee, was acquired in January of 2025, along with eight other Southeast operations. A key element of any successful transition is ensuring that the right leaders are in place. So during the due diligence period prior to transition, our Tennessee interdisciplinary team met with and evaluated the existing leadership at each operation. At Decatur, what they found were clinical and operational leaders with deep community ties and a commitment to excellence.
Executive Director Kyle Smith was born and raised in Parsons. As a boy, he volunteered at the facility. In college, he worked there as a CNA, and he has now led it for 19 years. Kyle understands that in rural Tennessee, healthcare is all about caring for people as family. In fact, all four of his grandparents have been residents of the facility at some point. His partner, Director of Nursing Kelly Watson, is a registered nurse who has served in the facility for 28 years and has worked in nearly every department. She knows what it takes to attract and retain clinical staff. The facility is the county's second-largest employer, and nearly every employee and resident is a neighbor, friend, or family member.
Because Kyle, Kelly, and the leadership team were stable and fully bought into the transition and integrating into their new cluster of Ensign- affiliated partners, they helped their frontline staff and caregivers to quickly implement the new systems, act on feedback, and use the tools and new direction to help their already- good facility quickly become even better. Therapy moved from being a contracted vendor to becoming an in-house partner at transition. Together, this ONE CLINICAL team has broken down silos and found synergies that have significantly improved outcomes for all of their residents alike. Today, as the facility nears the end of its second year as an Ensign affiliate, the results speak for themselves. Decatur holds a five-star overall CMS rating with five-star for quality measures.
For example, when looking at their claims-based quality measures, looking at both emergency department visits and long-stay hospitalizations, they outperform national averages by over 30%. For short-stay antipsychotic utilization, they come in at less than half the national rate. Financial metrics are also following suit, and compared to the same period last year, third quarter occupancy has risen from about 65% to 79%. Revenue is up 29%, and EBIT has improved by over 400%. Our second example, Bainbridge Island Health and Rehabilitation, shows what excellence looks like in our same-store operations. This 58-bed skilled nursing facility sits across Puget Sound from Seattle and has been part of Ensign since 2015. Its island location creates significant workforce and occupancy challenges. Bainbridge Island has a small labor pool and some of the Seattle area's highest living costs, so many caregivers commute more than an hour each way, often by ferry.
Unlike Decatur, Executive Director Paul Waddington and COO and Nursing Director Hanan Yahya are both homegrown leaders. Paul worked at an Ensign affiliate as a Department Head and later graduated from the Ensign AIT program. Hanan was an Assistant Director of Nursing and completed her DON training at a high-acuity operation with one of Ensign's most seasoned nurse mentors. This Ensign upbringing instilled in both a passion for establishing the highest standards for clinical quality and employee experience, and that obsession is demonstrated in the results their operation now consistently achieves. For example, Bainbridge recently received a zero-deficiency annual survey, doubly impressive given Washington State's status as one of the nation's most difficult survey environments. Bainbridge holds a five-star rating for health inspections, staffing, quality measures, and overall.
CMS claims-based data ranks the facility significantly better than both state and national averages for a wide spectrum of quality measures, including antipsychotics, ER visits, and short-stay rehospitalizations. Staffing is perhaps the most remarkable part of the story. RN hours per patient day at Bainbridge are nearly double the national average, and RN turnover is approximately one-third of the state and national average. Those results reflect a sustainable clinical culture built around developing and retaining exceptional nurses, not simply achieving strong metrics in the short term. As you would expect, these quality results have led Bainbridge to recently be designated as a CMS High Performing Facility. This designation is achieved by only about 12% of nursing homes nationwide. While Bainbridge is exceptional by national and state standards, its clinical excellence is reflected across the whole Washington market.
In fact, in September, when CMS released its initial High Performing Facilities list, 59% of eligible Ensign affiliates in Washington were awarded that designation. That's nearly 5 x more than the state average. That quality is carried through to Bainbridge's financial results. For example, occupancy and skilled mix continue to improve, with skilled days increasing by 35% over Q3 of 2025. While Bainbridge's year-to-date revenues have increased by 15%, and EBIT has increased by 21% during that same period. We are proud of the great culture of clinical excellence that Bainbridge and its sister facilities in Washington have established, and we're confident that with such a strong foundation of quality, we'll be able to integrate the new operations that we recently added in that state. We hope that both the Bainbridge Island example and the Decatur County example give you more insight into why we are so excited about the future.
With that, I will turn the time over to Suzanne, our CFO. Suzanne?
Thank you, Spencer, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter compared to the prior year quarter include the following. GAAP diluted earnings per share was $1.76, an increase of 23.9%. Adjusted diluted earnings per share was $2.03, an increase of 23.8%. Consolidated GAAP revenue and adjusted revenue were both $1.48 billion, an increase of 14.5%. GAAP net income was $104.3 million, an increase of 24.4%. Adjusted net income was $120.5 million, an increase of 24.9%. Other key metrics as of September 30th include cash and cash equivalents of $337.6 million and cash flow from operations of $512.3 million. During the nine months ended September 30th, 2026, we spent more than $675 million to execute on our strategic growth plan.
We made these investments from a position of strength, as shown by the lease-adjusted net debt- to- EBITDA ratio of approximately 2 x after taking into consideration these investments. Our continued ability to maintain low leverage, even during periods of significant acquisitions, 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 more than $730 million of available capacity under our line of credit, which when combined with our cash on our balance sheet, gives us more than $1 billion in dry powder for future investments. We also own 189 assets, 165 of which are owned completely debt-free. They are gaining significant value over time, adding even more liquidity to help with future growth. The company paid a quarterly cash dividend of $0.065 per share on common stock.
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 $7.94 - $8.02 per diluted share and are raising the lower end of annual revenue guidance to $5.89 billion while maintaining the upper end at $5.92 billion. We have evaluated multiple scenarios and based upon the strength in our performance and the positive momentum, we have seen an occupancy and skilled mix, as well as the continued progress on our newly acquired operations, agency management, and other operational initiatives. We have confidence that we can achieve these results.
Our 2026 guidance is based on diluted weighted average common shares outstanding of approximately 59.5 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed through the fourth quarter of 2026, and the inclusion of management's expectations for the reimbursement rates, with the primary exclusion coming from stock-based compensation and amortization of system implementation cost. Additionally, other factors that could impact the quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality and occupancy and skilled mix, the influence on the general economy and census, and staffing, the short-term impact of our acquisition activity, variations in insurance, accruals, and other factors. With that, I'll turn it back over to Barry. Barry?
As we wrap up, I want to take a moment to recognize the extraordinary leaders and caregivers across our organization who continue to make all of this possible. One of the things I've come to appreciate most about this organization is that our people have never needed ideal circumstances to accomplish exceptional things. They've faced enormous challenges, navigated uncertainty, and shoulder the responsibility of caring for an increasingly complex and vulnerable patient population. Through it all, they've remained focused on what matters most. There's something incredibly powerful about that kind of consistency. It's one thing to talk about your values, your culture, or commitment to excellence. It's quite another to demonstrate those things quarter after quarter across hundreds of operations in ways that can be independently measured and validated. That's exactly what our local leaders and their teams continue to do.
Their clinical outcomes, the trust they're earning in their communities, and the extraordinary momentum they're creating speak far more powerfully than anything we could ever say on a call like this. I hope our leaders and caregivers recognize just how remarkable that is. We're deeply grateful for them, incredibly proud of what they're accomplishing, and perhaps most exciting of all, confident that their very best work is still ahead of them. With that, we'll turn it over for questions. Operator, please provide the instructions for our 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 press star one to raise your hand. To withdraw your question, press star one again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is now open. Please go ahead.
Great. Thank you very much, and congratulations on the quarter and the expansion. Just wanted to ask a couple questions or one major question on Florida. It is clearly a dynamic market for providers, and just wanted to know, as you did your diligence on the region and on the platform, any unique challenges that could arise for this ramp-up and for this integration, given the new market, whether it be regarding the referral network, regulatory environment, labor market, payer backdrop, et cetera. Anything that you kind of flagged in your diligence as standing out as a particularly high risk or greater risk than what you normally see in acquisitions? Thanks.
Yeah. Thanks for the question, Ben. Florida is a state we have had our eye on for a long time. Obviously, we have been in the Southeast for a while now, and you have seen us expand there. Florida, given its demographics and just its sheer size and population, it is a natural state for us to enter into. I think our hesitancy up to this point has been the litigation environment is really busy. That makes it sort of a deterrent for operators to come into the state, and certainly one of the major red flags that we have looked at over time. But that all aside, it is a really great environment now. It is much more stable than it used to be. It is a good labor environment. From a regulatory standpoint, it is probably middle of the road. It is not easy. It is not incredibly, uniquely tough either.
But most importantly, it is a state where we have had one of our longtime leaders, Forrest Peterson, who has been with us for a very long time, who has prepared himself and a team to come with him into that state. He moved out earlier in the year and has been laying the groundwork for a successful transition there.
Just as a quick follow-up, I noticed you talk about your ability to disintermediate, in some cases, some higher- level acuity or higher- acuity settings. Given the capabilities that you put into your locations, anything different or any hurdles in that regard in terms of maybe bringing more SNF volume in Florida into your markets or into your new facilities? Thanks.
Yeah. Great question. One of the advantages we have because of our track record in other states, and particularly in the Southeast. We have, obviously, relationships with all the major healthcare plans that are in Florida, and we've been able to get their buy-in and attention. Normally, buildings like these, which are turnarounds, they're significantly challenged clinically and operationally. The road for being able to bring in that higher- acuity patient is much longer. I think because of our relationship, we're able to do some LOAs and some kind of one-off arrangements as we get started to prove ourselves. These days, outcomes matter more than anything when it comes to gaining the trust of hospitals and managed care plans. Our teams feel that pressure to perform quickly and make sure the clinical product is representative of who we are. They're doing that.
It'll take some time. Given the advantages we have with our relationships, we feel like we can take some of that time off.
Great. Thanks, guys.
Your next question comes from the line of David MacDonald with Truist. Your line is now open. Please go ahead.
Yeah. Good afternoon, guys, and congratulations. Would love to just start with a quick question on the updated guidance. If we look at the implied 4Q guide, it looks like a pretty strong quarter. Look, realize there's some seasonality. Given the pace of the recent M&A and Barry, just some of your comments about Florida, it sounds like a typical underperforming acquisition when you bring it on board. Can you just comment on the performance of the core business and whether some of the other deals that you've brought on are outperforming? Texas is one that comes to mind, but just any commentary there would be helpful.
Yeah, I think that's a great question, David. I think it plays into maybe some of the kind of misprojections on revenue from some of the analysts and others that are following us. Historically, we've been really, really successful with our transitions. We've also been fortunate that many of the mid-size portfolios we've taken in California and other states have not been as challenged as the ones we're used to taking and are currently taking now, which are more of our bread and butter, kind of our typical turnaround- type operations. The buildings in Texas are still not accretive, that we expect that they're going to come in way ahead of pro forma. Possibly in the fourth quarter, we'll see some contribution from those operations. Like those Texas operations, these Florida operations are very challenged in pretty much every aspect, clinically, financially, and physical plant.
They've not been operated well, and they will take some time to come around, certainly financially, but first and foremost, clinically. When you have situations like that, I think what is normal is that it takes a year or more for these operations to start being a contributor to our overall performance, both from a revenue and an earnings standpoint. Yeah, I would classify these recent acquisitions as ones that you kind of expect out of Ensign. Acquisitions that are turnaround in nature and will be slower to contribute.
When you flip to the core business, we really expect that—
Yeah.
—core business to continue to be strong. When we look at what Q4 historically has done, that is what we've built in. Really strong occupancy, strong skilled mix, continuing to have the growth that we're stepping off of a Q3, right? Stepping out at 84% on same -store and 86% occupancy on same- store with elevated skilled mix bodes well for our Q4. That's what you see built into our guidance with that good step- up.
Okay. Helpful. Just one other quick question. We get a lot of questions or we hear a lot about automation, AI, et cetera. One of the areas on the clinical side we hear a lot about is documentation and some efficiencies around there. I was wondering if you could just spend a minute on some of the initiatives that you guys have in place and how we should think about the timing in terms of clinical efficiency, in terms of some of the other areas that you guys are looking at and, I guess, just broadly speaking, how you're thinking about the timing of the rollout in a more meaningful way of some of those initiatives.
Yeah. We're fortunate to have a really good team that's a mix of newer people and people that have been with us for a long time that have stayed up on the advances in technology. Certainly, we have many projects underway that are leveraging efficiency that we can gain from that. Certainly, on an administrative side, on business processes and have Copilot and Cowork rolled out throughout most of our teams so that they can use that for things as simple as business reporting and automating some of their daily tasks.
I think the most exciting projects that we're working on and focused on revolve around clinical documentation support, coding and compliance support, and then with a particular focus on finding ways to use AI to help our clinicians gather all the information they need on patients, both current and historical, to help them in real time with clinical decision support. We're doing that in a number of ways. One, primarily in collaboration with our EMR provider. They have tools that they're developing that we have been embracing and trialing and helping them to develop into what we need them to be. Also, on top of that, developing our own tools that will be supportive and helpful for our clinicians to make better and more rapid and accurate decisions. So, a number of projects we're working on with a particular emphasis on the clinical side.
Okay. Thank you very much.
Your next question comes from the line of Raj Kumar with Stephens. Your line is now open. Please go ahead.
Hey, good morning. Maybe I want to piggyback off of Ben's question, just thinking about skilled mix, same- store skilled mix, firmly above 32% year- to- date. I guess last time we saw that metric in that ballpark area was during the COVID waiver era. So one would like to just love to hear what's supported the sustainability of that metric post-COVID operationally, whether bucketing it between broad-based demand, market share gains from other skilled nursing providers, or even thinking higher- acuity spectrum in terms of inpatient rehab. Just would be curious on the strength there.
Yeah, Raj. I think it's a little bit of all of the above. But I think one thing to point out is that we're doing this in the third quarter, which is typically one of our weaker quarters. So having that as a starting point as we go into two of our better quarters from a skilled mix standpoint is really exciting for us to see. Look, certainly, I think if you listen to our prepared remarks, I think you can surmise why this is the case. Our emphasis in the beginning of the call was to focus on the clinical outcomes that we're achieving because that's the reason behind the trust that we have from our managed care partners and our acute partners and physicians and families and residents choosing us and our setting.
The outcomes generate that kind of decision -making when it comes to where you go to handle your complex clinical needs. When you can have a setting where that's accomplished with consistency, you earn the trust of that care continuum. Yes, there are some tailwinds with demographics, and certainly that's helpful in terms of the overall volume of patients. But when it comes to generating the kind of gains we've seen in acuity, it all boils down to the consistency and outcomes that we're able to achieve.
I think the other thing that you see, and that proves out what Barry just said, is it's across all payers. We're not seeing it in one payer and not in the other payers, but we're seeing that growth across all the payers.
Got it. As my follow-up, maybe on the M&A component. Clearly, 2025 and 2026 have been accelerated. As I think about beyond 2026, and the kind of comfortability around the pacing, maybe just any commentary around that, and whether we should be thinking about an M&A baseline that is above the historic, maybe 20 facilities per annum. Just any kind of considerations that we should be thinking about as we think about the out years.
Yeah. Great question, Raj. First of all, we don't set growth goals. We're very opportunistic, and we take the deals that make sense. I start with that just because, in terms of looking forward, we're not in a spot right where we say, "Okay, well, we want to grow by 15%-20% in terms of bed count per year, and we're going to do that come hell or high water." Right? All of it depends on market conditions, pricing. Obviously, our leadership pipeline, we highlight that a lot to make sure. That's probably the biggest constraint we have is making sure we have leaders in place. As we mentioned in our prepared remarks, we've got 55 or so AITs that are currently in the program, and that's after all this growth that we've had. So we're constantly refilling that pipeline of leaders.
Plus, as we mentioned, we are also getting better and better at integrating really strong existing leaders that are in buildings we acquire. Certainly in more performing portfolios, that has been something we are succeeding at doing as well. But look, we are very comfortable growing at the pace we have been growing. 50- 60 acquisitions a year is totally doable, if not more. As we look forward, we certainly see the deal flow is strong enough to continue to support that kind of growth. I just caveat it with, we are also going to be smart about it. That said, we are really excited. The pathway that we have here, our balance sheet, we have so much dry powder and support of an amazing group of banks that are constantly encouraging us to continue to invest, and our investors feel the same.
We are excited about the future, and we already see a healthy pipeline for next year. Some deals that we are excited about, again, as I mentioned in the prepared remarks, larger portfolios. There is mid-size, and then there is the one-offs that we always have. Obviously, again, those deals have to line up and meet our criteria. But, we are excited about where we sit on several of those opportunities.
Thank you.
Your next question comes from the line of A.J. Rice with UBS. Your line is now open. Please go ahead.
Hi, everybody. Maybe just to follow up on the deal pipeline commentary. In the prepared remarks, you mentioned the sourcing of deals, that you have a number of different sources. I think you said nonprofit health systems, REITs looking to transition operators, deals that are sourced in the field. I wonder, is any of those pipelines, and maybe there's some others I didn't mention, becoming more plentiful supply for you? I know you're looking at a diversity of opportunities, premium properties versus turnaround properties, et cetera. Do those different sources tend to skew in one way or the other? I'd be curious.
Yeah, that's a great question. It's really all of it. It really is. I wouldn't say we're seeing more from nonprofits than REITs. It's just kind of coming from all places and more than we could ever gobble up, I'd say. That said, I do want to highlight, we've mentioned, again, a few times, a few quarters in a row that, we have had success in acquiring some higher- quality physical plant portfolios that cost a little bit more at the outset but require a whole lot less capital investment over time. I think we probably have seen more of that, I would say, lately. I don't know if that's because we've done some and so people are thinking, "Hey, Ensign will buy not just turnarounds, but some of these nicer assets." That's been encouraging, and that's still something that we're really interested in doing.
We often talk about, there's three ways that a facility can be challenged. The first one's a physical plant, and then obviously, clinical challenges, and then third are just financial challenges. If you can get a nicer- quality plant that you're not sort of swimming against the current on the physical plant side of things, then you can just focus on clinical and financial. It's definitely been a path that's worked for us. All that said, as Barry mentioned, a lot of the deals we just announced this quarter are turnarounds in all three phases, and we know how to do that really well, too. So hopefully that's helpful. But we're certainly encouraged by the frequent and constant stream of opportunities that come for us from all of those sources.
Okay. It was also mentioned in the prepared remarks that the strength of your capital structure and balance sheet allows you to look at a variety of opportunities, but one you mentioned was as the leases mature, the potential that you've created value in the property to be able to buy that property out. I wondered if you'd just comment on what that looks like over the next few years. Is there a bolus of deals that might come available to you that you could take in? Is it probably more of a steady stream over the next few years? How do we think about that?
It's a great question. This was maybe buried in there a little bit, but we just acquired a handful of facilities that we've been leasing from a large public REIT for nearly 20 years. The way that process plays out is, you're getting towards the end of the lease term, so both parties are trying to figure out, okay, do we renew the lease? What's the plan? In that case, our REIT partner there was interested in maybe redeploying the capital in senior living kind of shop type deals and aren't as interested maybe in just triple-net SNF stuff. So we were able to close on that during the quarter, so that's from a REIT. We also have a lot of private, small, family-owned operations that we lease, and those are frequent conversations, too.
In one recent deal we had, we took a lease portfolio that was family -owned, essentially, and when the parents died, several of the kids all got ownership in some of these various facilities. Over time, we've bought those buildings back kind of one and two at a time. I think we finally bought the last of one of these lease portfolios from one of the children that inherited the real estate. So, it's definitely an opportunity. It's something we talk about often, and certainly having two-thirds of our portfolio be leased, that presents an opportunity to us.
Look, the other thing, too, some of our real estate partners will reach out and say, "You guys have done so well in these buildings, and maybe there's some equity here for us that we could unlock by having you guys buy it." So, where it makes sense, we'll certainly look at doing that, and like you mentioned, we have the balance sheet to do it. We like ownership. It gives us a lot of flexibility and not just for financing and balance sheet stuff, but also operationally, when you own it's just one less thing you've got to deal with when you're wanting to do a major renovation or something like that. Not to mention, obviously, the enormous upside we create in the value of the real estate asset. So, something we'll always look at and value those opportunities.
Okay. Thanks so much.
There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.