Ensign Reveals Stats Behind Skilled Nursing Turnaround Success, Plots Aggressive Growth for 2020

Despite spinning off a significant chunk of its business lines into a separate company this year, executives at The Ensign Group (Nasdaq: ENSG) are confident that they can continue growing at the same rate as in the past.

The San Juan Capistrano, Calif.-based skilled nursing operator again turned in strong quarterly earnings stats, with increased occupancy and improved skilled mix carrying Ensign to a per-share earnings boost of 26.3% for the third quarter of 2019, as compared to the same span last year; the company’s skilled services segment logged income of $56.8 million for a gain of 22.6% from the third quarter of 2018.

Pointing to several successful turnaround projects, CEO Barry Port on Thursday emphasized that the company doesn’t plan to slow down its rapid expansion after parting ways with its home health, hospice, and senior living business, which Ensign spun off into a separate company — The Pennant Group (Nasdaq: PNTG) — effective October 1.

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“We are confident that this performance is sustainable over the long term,” CEO Barry Port said during Ensign’s third-quarter earnings call. “We believe we are on a path to make up for all of Pennant’s 2019 earnings by the end of 2020, and that we haven’t even come close to reaching our full potential.”

The company has staked its success on purchasing underperforming skilled nursing assets and boosting their financial and clinical health, primarily by installing new, local leaders — who receive wide latitude to make decisions on everything from care plans to vendor partnerships.

In the short term, that strategy has led to steady occupancy growth. Year over year, Ensign saw same-store occupancy climb 210 basis points to 80.0%, with transitioning properties reporting a 240-basis-point increase to 77.9%. Managed care revenue grew 11.2% and 19.9% for those two groups, respectively.

But Port also zoomed out on the company’s long-term success metrics. Between the first and the fifth quarters after Ensign acquires a given property, the facility sees average growth in occupancy of 390 basis points, improvement in skilled mix revenue of 440 basis points, and EBITDAR margin gains of 80 basis points, he said.

From the first to the 45th quarters post-acquisition, those average improvements are 1,300, 1,400, and 470 basis points, respectively.

“Because most of these operations are losing money at the time we acquire them, the value and growth we experience is all organic,” Port said. “When we talk about organic growth, we’re speaking about the turnaround that has to occur in nearly all of our acquisitions before they contribute to the bottom line.”

In particular, Port pointed the continued success of the Wayne CountryView Care and Rehabilitation facility in Wayne, Neb., which the operator acquired in 2011. This past quarter, the property logged 14.5% occupancy growth and a 41% revenue bump from the same time last year, which Port credited to the facility’s homegrown leadership team.

“Even in a period where occupancies across the industry may be down, and what is historically one of our slowest quarters, we’re able to consistently drive results across all payer types — including Medicaid, Medicare, managed care, and private pay,” Port said.

To that end, Port announced guidance of $2.3 billion to $2.35 billion for 2020, or an 18.3% gain over their 2019 guidance — which the company raised for the second time as part of Thursday’s release.

“We are very optimistic that with the continued upside that is inherent in our portfolio, and attractive acquisitions on the horizon, that we will be able to continue to meet or exceed our pre-spin growth rates,” he said.

Ensign executives were largely mum on the exact complexion of their acquisition plan going forward, other than to note that several deals are expected to close in the fourth quarter of 2019 and the first quarter of 2020 — and that the company plans to prioritize infill locations in its existing states over expanding into new markets.

Chad Keetch, the operator’s chief investment officer, also predicted “an increasingly more attractive buyers’ market” in 2020, pointing to long-anticipated sales related to the Patient-Driven Payment Model (PDPM), as well as a continued supply of distressed properties run by operators in or nearing bankruptcy.

As the first publicly traded skilled nursing operator to report earnings after the implementation of PDPM — which, having taken effect on October 1, fell just outside of the third quarter — Ensign remained cautious about ascribing too much upside or downside to the new payment model.

“We do contemplate PDPM in our guidance, but we can tell you that the impact is a net-neutral impact, as far as how we see things into 2020,” Port said. “We’re not giving ourselves a boost or any kind of negative impact from it as we look forward.”

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