The Ensign Group’s (Nasdaq: ENSG) skilled nursing facilities, like many others across the U.S., have been hit by the COVID-19 pandemic, and received federal government assistance to help ease the financial strains caused by the emergency.
But the San Juan Capistrano, Calif.-based operator is doing well enough that it raised its 2020 annual earnings guidance to $3.00 to $3.10 per diluted share, up from previous guidance of $2.50 to $2.58 — and returned all of the $110 million it received from the Provider Relief Fund created by the CARES Act.
“These funds were meant to cover lost revenue and increased expenses tied to the COVID-19 pandemic,” CEO Barry Port said on the company’s second-quarter earnings call Thursday. “And we want to underline that our results do not include any benefits related to those distributions. As you all know, most of our revenue comes to us from sources that are funded by taxpayer money, and as stewards of those funds, we know that there’s a high degree of responsibility that accompanies government reimbursement.”
After assessing its balance sheet, liquidity, overall financial operations during the pandemic, Ensign decided “it was not in the best interests of our organization” to accept the funds from the CARES Act — though that might change depending on how costs change, particularly with new testing mandates set to take effect at some point in the future, Port said.
Ensign had also received about $100 million of Medicare advance payments from the Centers for Medicare and Medicaid Services (CMS), which must be repaid out of future reimbursements.
The operator had $201 million of cash on hand and $320 million of available capacity under its line-of-credit facility, which also has a built-in expansion option, as of June 30, CFO Suzanne Snapper noted in the earnings release. And the Federal Medical Assistance Percentage (FMAP) increase that was included as part of the CARES Act to temporarily boost Medicaid rates will last at least until October with the extension of the COVID-19 public health emergency, Snapper noted on the call.
“There’s some relief there for additional COVID expenses that we expect to incur during Q3 to be actually offset by the additional Medicaid funding,” Snapper said. “And we did get our overall rate increase for Medicare, the standard one that will kick in in Q4, and then all the state standard increases filter in at the end of Q3 and then fully in force in Q4.”
Ensign reported “record-breaking” results for the second quarter, Port said on the call. The company turned in net income of $40.24 million, or 73 cents per share, for the second quarter of 2020 compared with net income of $28.61 million, or 51 cents per share, in the year-ago period.
This came from quarter-over-quarter improvements in skilled mix, cost-saving initiatives, improved collections, the temporary suspension of a 2% Medicare sequestration cut, and improved Medicaid rates in some states, Port noted.
Ensign’s portfolio saw increases in COVID-19 cases in areas where community spread was rising, such as Texas, Arizona and California, he said, with 909 confirmed cases across its 226 operations as of August 3.
As of the same date, 19 operations had more than 20 COVID-19 cases, 46 had less than 20, and 161 operations had no confirmed in-house COVID-19 cases. Four operations had become dedicated COVID-19 facilities, and 20 sites had dedicated entire wings to COVID-19 patients.
In terms of occupancy, Ensign saw a slight increase in late May and June as COVID-19 cases dropped, following occupancy declines in the second half of March due to the suspension of elective surgeries. Skilled days, however, dropped slightly.
As the number of COVID-19 cases in Ensign’s communities increases, the number of high-acuity patients — including those with COVID-19 — increased Port said. And because of COVID-19 case spikes in some states, occupancy declined while skilled mix rose due to an increase in referrals of such patients to Ensign’s SNFs.
Specifically, combined same-store and transitioning occupancy fell approximately 1.5%, while skilled days actually increased by 7%, between mid-May and mid-July, according to the company’s press release.
“Overall, our company is not being overwhelmed by COVID-19,” Port said on the earnings call. “However, as you might expect, similar to what the country as a whole is experiencing, the impact has varied market to market and building by building.”
Ensign recently announced its first acquisition since the pandemic, a post-acute care campus in Tempe, Ariz., and chief investment officer Chad Keetch said on the call that even though some of the deals in Ensign’s pipeline are either still slated to close or need to be reassessed, deal flow is beginning to restart.
Ensign also started the process of taking some of its owned assets with significant equity value to the Department of Housing and Urban Development (HUD) for long-term, fixed-rate debt, he added.
“This process can take several months and will not be completed until next year, but we are preparing now for a wave of new acquisitions that we see on the horizon in 2021,” Keetch said.
ENSG shares surged nearly 15%, or $7.28, to close the day at $55.96.