Ensign Group Logs Record Quarter Despite Early COVID Impact, Sees Skilled Nursing Growth Ahead

The Ensign Group (Nasdaq: ENSG) has been on a roll for countless quarters, and not even the early effects of a world-historic pandemic were enough to prevent the skilled nursing heavyweight from logging another record quarter to start 2020.

The San Juan Capistrano, Calif.-based operator saw a 28.3% increase in its per-share earnings over the fourth quarter of 2019 — which itself represented another record — and announced its intention to maintain its 2020 guidance despite continued COVID-19 uncertainty in the industry and the markets at large.

That earnings figure was also a 92.5% increase over the same time last year.

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“We are confident that we can provide this guidance for several reasons, including our better-than-expected results for the first quarter — which, under normal circumstances, would have led to an increase in guidance,” CEO Barry Port said during a Tuesday earnings call with investors and analysts.

The factors that have led to the company’s expansive growth and solid earnings, namely its decentralized model that empowers local leaders to make decisions independently of executive leadership, put it in a better position to weather the coronavirus storm.

“Our optimism expressed today is based entirely on our confidence in our local teams and our proven model,” Port said.

As of May 8, the company reported 355 confirmed COVID-19 cases across its portfolio of 225 skilled nursing operations in 13 states. Seven operations logged 20 or more cases, according to Ensign, while 193 buildings had no confirmed cases.

“As testing continues to become more available, we expect the number of known cases to continue to rise during the second quarter,” Port said. “But we believe we are prepared to operate in the COVID environment for the foreseeable future.”

Occupancy at Ensign actually hit a record high in February, right before COVID-19 swept across the country, giving Ensign a cushion when occupancy and skilled mix slid 5.2% and 11.8%, respectively, from mid-March to mid-April.

Census fell again by 1.7% from mid-April to early May, according to Port, but skilled mix actually shot back up by 13.6% during that period — driven by a Centers for Medicare & Medicaid Services (CMS) move to waive the three-day hospital stay requirement for subsequent Medicare-funded post-acute care, as well as flexibilities granted by managed care plans, according to Port.

Ensign is also confident that a wave of patients who delayed elective surgeries amid the pandemic could blunt a typical summer slowdown in post-acute admissions.

“We see a lot of pent-up demand, especially for those that have been waiting for those vital elective procedures that are necessary,” Port said.

That said, Port cautioned that occupancy issues and other COVID-19 strains will likely continue into the second and third quarters. But while Ensign paused several acquisitions due to the coronavirus, according to chief investment officer Chad Keetch, the upheaval could actually fuel the company’s already aggressive growth.

The operator has always focused on taking over struggling buildings, then turning them around by bolstering clinical capabilities and implementing the bottom-up leadership model.

Turnaround opportunities could be in significant supply as the dust settles from COVID-19, Keetch noted, and while management will be even choosier than normal when evaluating deals, the company is preparing for it: Ensign’s portfolio includes 72 unlevered assets, some of which the operator could take to the Department of Housing and Urban Development (HUD) for financing.

“We anticipate that there will be a significant influx of older and newer deals that come out of this pandemic, as we slowly begin to return to our pre-COVID plans,” Keetch said.

Port also took time to thank the frontline workers, including nurses and its regional-level CEOs, for continuing to provide care and coming up with novel solutions to emerging problems — such as a Utah facility that secured a unique payment arrangement with state officials to transform into a COVID-only center while still covering expenses.

“Even though others might marginalize or even look past the contributions of post-acute care, all of them deserve our gratitude and recognition for showing up on the front line every day to give their very best to their patients,” Port said. “We love you, and we’re honored to be associated with each of you.”

The CEO also emphasized that this wasn’t the first time Ensign or the industry itself has gone through tough times, pointing to major operator bankruptcies, reimbursement cuts under the old Resource Utilization Group (RUG) system, and natural disasters.

“Ensign was born in times much like these, and our model is not only designed to survive, but to thrive and grow in the face of uncertainty,” Port said.

Ensign shares fell eight cents in Tuesday’s trading, closing the day at $38.35.

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