雅虎香港財經 The Ensign Group, Inc. (NASDAQ:ENSG) Q1 2024 Earnings Call Transcript
The Ensign Group, Inc. (NASDAQ:ENSG) Q1 2024 Earnings Call Transcript May 2, 2024
The Ensign Group, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thanks for standing by. My name is Mandeep, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ensign Group, Inc., First Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Keetch. You may begin.
Chad Keetch: 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 PM Pacific on Friday, May 31, 2024. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, May 2, 2024, and these statements have not been or 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 the other independent subsidiaries through contractual relationships with such subsidiaries.
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 health care 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 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 use of the words we, us, 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, they should not be relied upon 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-Q. And with that, I'll turn the call over to Barry Port, our CEO.
Barry?
Barry Port: Thanks, Chad, and thank you, everyone, for joining us today. We're pleased with the continued and consistent performance that our local teams achieved again. After another record quarter, we're excited about the remarkable momentum our teams have created across our entire portfolio and look forward to seeing that continue throughout the year. As strong as our performance has been, we continue to see enormous opportunities inherent in our portfolio, both in existing operations and the growing number of new acquisitions. We were encouraged to see an increase in skilled mix during the quarter with an increase in same-store skilled mix days of 5.6%, and an increase in same-store skilled mix revenue of 1.9% sequentially over the fourth quarter.
This continued strength in our skilled mix demonstrates the ongoing trend of increasing demand for skilled post-acute services. We are also excited to see same-store occupancy for the quarter reached 81%, which grew by 2.7% over the prior year quarter and surpassed pre-pandemic same-store occupancies for the first time since first quarter of 2020. While we celebrate this milestone, our same-store portfolio still have an incredible amount of built-in upside as dozens of our most mature same-store operations operate in the 90%-plus occupancy range. As our operators continue to build on a solid foundation of strong clinical results, cultural excellence, and sustainable real estate costs, they will continue to realize the occupancy and skilled mix growth potential inherent in our same-store portfolio, which will allow us to continue achieving the consistent financial results that we have delivered over time without depending solely on acquiring new operations.
That said, as you saw in our press release yesterday, we have been busy acquiring new operations and our transitioning and newly acquired buckets now represent over 25% of our total operational beds. We have enormous organic growth potential within those growing buckets. To give some perspective, our occupancy and skilled mix days for the skilled nursing operations in the transitioning bucket were 74% and 22%, respectively, while our same-store occupancy and skilled mix days were 81% and 32%, respectively. As we've shown over two decades, we expect our teams to unlock significant upside in each of these new operations as they mature. As most of you know, CMS issued a final minimum staffing rule last week. As expected, the final rule is very much in line with the proposed rule they issued last year with a few minor differences despite the overwhelming amount of feedback CMS received from various stakeholders, including operators of all sizes and in all geographies.
While we are deeply committed to increasing access to quality care for our seniors, we strongly disagree with this rule and believe especially in light of the nationwide shortage of nursing labor that the rule only exacerbates an already precarious staffing problem and if it survives as is, would severely limit the ability of the skilled nursing industry to serve the growing long-term care population. We believe it would be much more constructive to focus policy on rewarding quality outcomes and assisting providers to increase the supply of caregivers. Unfortunately, this rule will have its largest impact on smaller and more thinly capitalized operators, many of which are quality providers and will ultimately result in limiting quality care options for the senior population.
However, we are optimistic that this rule will be either eliminated entirely or its effects will be mitigated long before the rule takes effect in two to three years. We're encouraged to see bipartisan support in the legislature that can result in this rule being overturned or significantly altered. In addition, our industry representatives and their legal experts have been preparing to challenge this rule in the courts on several grounds and believe this rule is highly likely to be overturned in federal court. Lastly, because this rule is being driven by political ideologies, its survival also depends on the outcome of several elections that will take place before the rule would be implemented. In the meantime, our locally driven operational model is built to respond to changes like these.
As we've shown over and over again, when change comes, our leaders respond. Whether you look back to seismic changes in reimbursement like RUGS IV in 2011 and 2012, or PDPM in 2019, or the frequent regulatory changes imposed on our business during the COVID pandemic, our local CEOs and COOs have been able to adjust their individual operation strategy and rapidly respond to any shift in market dynamics in a very thoughtful and specific way. In addition, when the industry is out of favor or regulatory uncertainty leads to less capital being invested in our space, our local acquisition approach has allowed us to continue to add new operations at attractive prices. As our local teams have done so, they have demonstrated their capabilities to their healthcare partners and have grown market share.
It's ultimately because of them that we have so much confidence that no matter what happens with minimum staffing or other unforeseeable regulatory changes in the future, we are built not only to survive, but to thrive and grow with change. Our focus over the coming months and years is to continue the strategy that has always been paramount to our success regardless of staffing mandates or any other change. Good care depends entirely on attracting and training great talent. Becoming the employer of choice in each of our markets has been and will be our relentless focus. We've seen evidence of the fruits of these efforts during the quarter and are encouraged by the reduction in the use of third-party nursing agencies which improved again for the fifth quarter in a row, representing a reduction in agency usage of 59% since its peak in December 2022.
We're also thrilled to continue to see lower turnover for the tenth quarter in a row which is a result of our local leaders focus on a customer second philosophy. Likewise, we continue to see the pace of wage inflation slowing while we simultaneously successfully recruit new talent. As of the end of the quarter, we saw net new hires increased yet again. We are confident that by being true to our cultural values, strong clinical results and proven operating principles, our ability to attract talent to our organization will shine through. We're affirming our annual 2024 earnings guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of $4.13 billion to $4.17 billion. The midpoint of this 2024 earnings guidance represents an increase of 13% over our 2023 results and is 30% higher than our 2022 results.
This annual guidance comes on top of the extraordinary growth we've experienced in the last few years. But this performance in perspective, since we've spun out the Pennant Group in 2019, the midpoint of our 2024 guidance represents growth in adjusted EPS of 201.1%, with a compound annual growth rate of 24.4%. This performance is not due to some large event or a single transformative transaction but instead as a result of consistent growth and performance quarter after quarter, which comes from following proven Ensign principles. All these achievements are entirely due to the efforts and commitment of our local leadership teams, caregivers, field resources, and service center partners. There are so many opportunities in front of us to improve and expense management and drive occupancy and skilled mix as we continue to successfully unlock value in all of our operations.
We remain poised to again showcase our ability to find, acquire, and transition performing and underperforming operations by applying proven Ensign principles developed over two decades. Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?
Chad Keetch: Thank you, Barry. As we expected, we continue to add to our growing portfolio, and we are very excited about the 13 new operations and six real estate assets we added during the quarter and since, bringing the number of operations acquired since January 2023 to 39. These acquisitions span eight of our 14 states and represent a significant opportunity to either strengthen our current clusters, or to establish new clusters and new markets. These new acquisitions include the following new operations: three in Tennessee, one in Iowa, two in Kansas, one in Texas, two in Colorado, two in Utah, one in Arizona, and one in Nevada, totaling 1,216 new skilled nursing beds, 202 senior living units, and 43 new LTACH beds. Of these 13 new operations, six of them included the real estate assets, which were acquired by Standard Bearer and will be leased to an Ensign-affiliated operator.
Each of these additions were all carefully selected amongst the many opportunities available to us and were chosen because of the huge clinical and financial potential. We continue to prioritize growth in our established geographies as it allows our clusters to work together with their acute care partners and to provide a comprehensive solution to their healthcare needs. However, we are also excited to build clusters in new states or in markets where we have significant room to add more density. In particular, we are very excited to grow Nevada and to add our second and third operations in Tennessee which, along with the acquisition we completed earlier this year creates our first Tennessee cluster. We are very optimistic about our ability to continue growing in Nevada, Tennessee, and the surrounding regions.
We are also pleased to see some growth in the Midwest with the additions in Iowa and Kansas, and we've already seen the benefits from our recent growth in Kansas and look forward to a similar boost in Iowa. We were also excited to add a dynamic health care campus in Northern Utah that includes a skilled nursing operation and a long-term acute care hospital or an LTACH. And those of you who have followed us over time will note we often make small investments in new lines of business. Once we've proven the model works, we expand from there. While the LTACH operation will remain a very small part of what we do in Utah, we are pleased to be adding another service offering to our acute care partners in Utah, all of which rely very heavily on us for a variety of post-acute services from some of their most complex patients.
We continue to see a very healthy pipeline of new acquisition opportunities and are lining up some exciting new additions that we expect to close in the second and third quarters. Our decentralized growth model is driven by leadership in each market who have a built-in incentive to attract talent, train them, and then acquire operations that will be accretive to their clusters and ultimately, the entire organization. As co-owners of the organization our team's bandwidth to acquire expands as they grow and the model is not dependent on a centralized team of deal experts. This scalable approach to growth has allowed us to continue to acquire or lease new operations at disciplined prices, which has led to a cost structure that has allowed us to drive consistent organic growth over time at healthy margins.
However, we don't grow just for the sake of growth or acquire revenue or buy earnings. We have and will continue to grow when we see deals that will be accretive to our shareholders in both the near term and over time. We continue to provide additional disclosure on Standard Bear, which is now comprised of 114 properties owned by the company and leased to 85 affiliated skilled nursing and senior living operations and 30 operations that are leased to third-party operators. Each of these properties are subject to triple-net long-term leases and together generated rental revenue of $22.2 million for the quarter, of which $18 million was derived from Ensign-affiliated operations. Also, for the quarter, we reported $14.1 million 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: Thank you, Chad, and hello, everyone. Today, I'd like to share two examples that demonstrate how frontline teams throughout the organization are continuing to grow earnings, improve culture, and elevate their clinical outcomes. The first facility is Olympia Transitional Care in Washington, currently led by Director of Nursing, , and Executive Director, Mindy Bradley. When it was acquired back in 2015, Olympia Transitional had low star ratings and a poor clinical reputation with state regulators and with the local health care community. As a result, occupancy especially skilled payers was low and the facility consistently lost money. Despite the enormous challenges, the local operators who make acquisition decisions recognize the latent potential that the facility had, especially given its discounted purchase price.
And over the course of the past nine years, the Olympia team has pushed relentlessly, transforming the culture of the facility, and methodically adding clinical capacity. Today, Olympia Transitional is completely transformed as evident in its CMS 5-star rating for quality measures and overall. The local hospital and health system have embraced the change, and today, the facility actively participates in their ACO and is a preferred provider for numerous managed care plans. As you'd expect, skilled mix has improved by 227% since acquisition, with a 37% increase since prior year quarter. Since acquisition, revenues have grown by 87%, and the facility has become one of the top EBIT producers in the state of Washington. The second facility example is Berthoud Care and Rehabilitation in Colorado.
This operation currently led by COO, Emily McDonough, and Executive Director, . It was acquired in 2021 and exemplifies what typically happens in our transitioning category. Notably, this acquisition occurred in the midst of the COVID pandemic and staffing crisis. Yet during the past three years, enormous strides have been made. For example, the Berthoud leadership team created and implemented a unique incentive system that rewarded existing staff for recruiting and retaining additional caregivers. And as a result, turnover among caregivers has been cut by over 50%, and contract staffing is now sold and use. The facility has developed a fund, yet results-driven culture where the whole team pushes for admissions and occupancy has grown from 70% at acquisition to 95% in Q1 of this year.
We have simultaneously expanded their ability to care for clinically complex patients. And as a result, rates for both long-term and short stay residents have increased substantially. As a result, revenues continue to rise, increasing by 24% in Q1 from prior year quarter and the EBIT has soared by 155% during that same period. And before I turn it over to Suzanne, I want to highlight one more principle that is essential to the ongoing health of our organization and that is illustrated perfectly by these two facilities. That principle is diligent succession planning. In the case of both Olympia and Berthoud, the CEOs who are instrumental in transforming the facilities post-acquisition, have both recently moved into new roles. In the case of Olympia, CEO, Vivian Currie, transferred to a recently acquired sister facility and is applying her skills and experience to elevate quality and results.
In the case of Berthoud, CEO, Joey Graham, recently took on the role of market leader and is helping accelerate quality and acquisition growth for the northern half of the state. We can't thank these leaders enough for their sacrifices made in order to continue to elevate their markets, while also honoring the teams for onboarding new leaders and continuing to drive exceptional results at both Olympia and Berthoud. 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 it up for questions. Suzanne?
Suzanne Snapper: 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 $1.19, an increase of 13.3%. Adjusted diluted earnings per share was $1.30, an increase of 15%. Consolidated GAAP revenue and adjusted revenues were both $1 billion, an increase of 13.9%. GAAP net income was $68.8 million, an increase of 15%, and adjusted net income was $75.4 million, an increase of 16.6%. Other key metrics as of March 31, 2024, include cash and cash equivalents of $512 million and cash flows from operations of $35.3 million.
We also continued to delever our portfolio achieving a lease-adjusted net debt-to-EBITDA ratio of 1.98 times. This deleverage in a period of growth is particularly noteworthy and demonstrates our commitment for disciplined growth as well as our belief that we can continue to achieve sustainable growth in the long run. In addition, we continue to have approximately $594 million of availability on our line of credit, which when combined with cash on hand on our balance sheet, give us over $1 billion in dry powder for future investments. We also own 119 assets, of which 114 are held by Standard Bearer and 95 of which are owned completely debt-free and are gaining significant value over time, adding even more liquidity to help with future growth.
In order to give you insight into our transformation of acquisitions, we have presented our skilled nursing operations into three buckets: same, transitioning, and recently acquired facilities. You heard Barry refer to these different buckets earlier. And I thought it would be helpful to further explain what we mean when we are referencing two buckets and how we treat them for comparison purposes. Same facility represents all facilities purchased more than three years ago. Transitioning includes all facilities acquired between two and three years. Recently acquired facilities represents facilities acquired within the last two years. For the same and transitioning facility bucket, we include the exact same facilities in the applicable bucket for the comparison time period, meaning the same operation and the same number of facilities are included in these buckets for an identical duration whether it's on a yearly or quarterly basis in the prior accounting period.
For comparison purposes, we show service revenue, billed revenue, occupancy, and skilled days. The purpose of doing it this way is twofold. First, to show the organic growth produced by the same group of facilities over a comparable period of time on an apples-to-apples basis rather than showing growth that would come from simply adding new acquisitions into a bucket that were included in the bucket in the prior period, making it impossible to see what true organic growth of that group of facilities. The second is to demonstrate that historically, our recently acquired and transitioning buckets have substantial organic growth potential. We hope that this extra disclosure is helpful and to show the progress that our operations make over time.
But we also want to make sure we emphasize that just because an operation is in the same store bucket, does not mean it fully mature and operating at maximum capacity as we continue to see enormous upside within our same facilities. As Barry mentioned, we are reaffirming our annual earnings guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of $4.13 billion to $4.17 billion. We have evaluated multiple scenarios and based upon the strength in our performance and positive momentum we've seen in occupancy and skilled mix as well as continued progress on agency management and other operational initiatives. We have confidence that we can achieve these results. Our 2024 guidance is based on diluted weighted average common shares outstanding of approximately 58.5 million, a tax rate of 25%, the inclusion of acquisitions closed in the first half of 2024, the inclusion of management's expectations for Medicare and Medicaid reimbursement 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 in occupancy and skilled mix, the influence of the general economy on census and staffing, the short-term impact of acquisition activities, variations in insurance calls, and other factors. Also, as Barry explained, CMS issued a final federal stacking rules last week. Given the rules phase in period, the rule will now have no material effect on us in 2024. And with that, I'll turn it back over to Barry. Barry?
Barry Port: Thanks, Suzanne. As we wrap up, I need to reiterate again how incredible we are to work alongside our facility leaders, field resources, clinical partners, and service center team that are behind these record-setting results. We're always impressed by their incredible resiliency as they focus on supporting this mission in new and innovative ways. This commitment has blessed the lives of so many, including our own, and we're excited about our future because of these amazing partners. We have complete faith in them and the culture they have collectively built and continue to improve. So thank you to all of our field leaders and service center partners. And with that, we'll now turn it over to our Q&A portion of the call.
See also
11 Best EV Charging Stocks To Invest In and
Jim Cramer is Recommending These 10 Stocks Heading Into May 2024.
To continue reading the Q&A session, please click here.
