Even as COVID-19 surges across the U.S. heading into fall, The Ensign Group (Nasdaq: ENSG) expressed confidence that its model of local leadership can weather the storm — and provide significant operational and financial returns.
Despite facing a surge of COVID-19 over the third quarter in some of its largest states — Texas, Arizona, and California included in that number — the company had a total of 207 confirmed COVID-19 positives across its portfolio of 217 facilities in 13 states, as of the middle of October, and Ensign CEO Barry Port specifically praised the company’s local teams for their capacity to respond to the shifting conditions and prioritize resident outcomes and care.
“They come to work each day in the most difficult circumstances to serve our nation’s most vulnerable on the true frontlines of this worldwide trial,” he said on the company’s third-quarter earnings call. “They deserve all the praise that we could possibly provide them for their courageous and selfless service. As a result of their heroic efforts, our local operators and caregivers have translated their passion into record-breaking results.”
Ensign recorded adjusted net income of $43.7 million in the third quarter of 2020, a 94.5% gain over the same period in 2019, and adjusted revenues for the quarter of $598.4 million, an increase of $88.8 million or 17.4% over the third quarter last year.
The company also increased its 2020 earnings guidance to a range of $3.04 to $3.12 per diluted share, while maintaining its annual revenue guidance.
Ensign also issued stronger 2021 guidance: annual earnings per share guidance of a range of $3.44 to $3.56 per diluted share, and annual revenue guidance of $2.62 billion to $2.69 billion. The midpoint of the guidance is an increase of about 14% over the midpoint of the new 2020 guidance, Port said.
“We are confident that we can provide this guidance for several reasons,” he said. “We are excited about the enormous upside that still exists in all of our newly acquired operations, which have seen delays in the transformation that we typically see in our newly acquired bucket, coupled with the solid acquisitions that we see on the horizon. In addition we are seeing marked improvement from some of our newer markets and struggling operations which represents significant additional upside.”
Ensign as a result returned $23 million in relief funds from the various rounds of federal funding that have gone out to health care providers from the federal government, after the company sent back $110 million it received from the Provider Relief Fund created by the CARES Act in the second quarter.
Two Ensign facilities have become COVID-19 units, dedicated entirely to caring for these patients, while 36 operations have set up special wings for COVID-19 patients, Port said on the call.
The company’s local leaders and caregivers “continue to methodically acquire sufficient levels of PPE [personal protective equipment] and other supplies and equipment,” in addition to making use of more readily available testing, Port said.
“While we have seen and continue to see a significant impact from the pandemic for the fourth quarter and beyond, we are confident that we can continue to perform well in the context of additional COVID-19 surges,” he said on the call.
Like many other SNF operators, Ensign has seen declines in occupancy: specifically combined same-store and transitioning census fell by 2.4%, though skilled mix rose 2.9% from the second quarter.
Most of those declines came in early July, and census stayed flat from mid-July to mid-September with a slight drop in skilled-mix days, Port said. However, there was a slight uptick in occupancy and skilled mix between mid-September and mid-October. The skilled day increase was driven by rising acuity, Port added.
“We’re also encouraged to report that admissions continued to progressively increase throughout the quarter, demonstrating that the flow of patients has improved as certain markets have begun to loosen restrictions on admissions and as the sentiment towards post-acute care has continued to improve,” he said on the call.
The company also saw an overall increase in managed care days by 7.3%, a sign of confidence in the ability of post-acute care for patients by the managed care payers, he noted.
Ensign has several deals in the works that it hopes close in the fourth quarter and in early 2021, though others will require a closer look, Chad Keetch, Ensign’s chief investment officer noted on the call.
“Everything is taking a little longer than usual, including the due diligence process, as access to buildings is still limited,” he explained. “But despite all of that our pipeline remains strong, and we continue to see new opportunities coming to us every week. In some cases, some of the deals we expect to see this year have been delayed, as CARES Act funding has provided additional capital to provide temporary assistance undercapitalized for struggling operations. However, we anticipate that there will be a significant influx of older and newer deals that come out of this pandemic.”