Deal opportunities continue to be abundant for the Ensign Group (Nasdaq: ENSG), and leaders for the nursing home giant also are more confident that the federal nursing home staffing mandate is doomed.

While announcing strong quarterly results and increased guidance, Ensign executives stated that the typical seasonal trends of depressed summertime occupancy and skilled mix are muted this year. The company reported a 210-basis point increase in consolidated occupancy and 220-basis point increase in same-store occupancy in the quarter.

“ENSG also corroborated commentary from Managed Medicaid plans regarding the acuity shift in the remaining Medicaid population post-redeterminations, and the company went on to highlight a broad-based increase in the acuity profile across all payer groups, further supporting the company’s outlook for SNF skilled mix demand,” analysts with Stephens noted in an earnings commentary issued Friday.

On the acquisition front, Ensign Chief Investment Officer Chad Keetch reiterated the company’s approach is founded on paying a price commensurate with historical operating performance, with an eye toward healthy long-term returns.

“We will sacrifice short term margins and metrics growth for the long term built in organic upside,” he said.

Ten new operations and six real estate assets across seven states brings Ensign’s portfolio to 312 health care operations across 14 states. That’s 1,326 skilled nursing beds added to the Ensign roster, said Keetch. This also brings the number of operations acquired during the year to 15, he said.

“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,” said Keetch.

Ensign CEO Barry Port spoke about the federal staffing mandate, and increased confidence it will be struck down in light of the Supreme Court’s Chevron ruling.

Ensign reported a Generally Accepted Accounting Principles (GAAP) net income of $71 million for the quarter, an 11% increase compared to Q2 2023. Adjusted net income was $76.4 million for Q2, a 15.3% increase compared to Q2 2023. Total skilled services revenue was $991.3 million for Q2, a 12.1% increase when compared to Q2 2023.

GAAP diluted earnings per share was $1.22 for Q2, an 8.9% increase compared to Q2 2023. Standard Bearer REIT revenue was $23.4 million for Q2, a 17.3% increase, also compared to Q2 2023.

Ensign properties are seeing a lower staff turnover for the 11th quarter in a row, Port added, and a decrease in staffing agency use for the 6th quarter in a row.

“All of this has occurred while our teams have simultaneously been assisting the newly acquired operations integrate into their local clusters and begin the process of improving clinically and financially,” he said.

Litigation updates improve confidence

In terms of recent litigation and regulatory updates, the Supreme Court’s Chevron ruling has improved Ensign’s confidence that the federal minimum staffing mandate will be struck down by the lawsuit filed by the American Health Care Association (AHCA), LeadingAge and a number of operators.

The SCOTUS decision will likely impinge on the powers wielded by federal agencies following the 1984 Chevron ruling involving the energy giant. The court at that time found that government agencies were best positioned to interpret the federal statutes, provided the interpretation was reasonable. This is no longer the case, meaning that CMS’ influence over reimbursement rates, staffing levels and other areas of regulation can now be more easily challenged.

“The same attorney that brought that case before the Supreme Court is the same attorney that’s representing AHCA and our industry lawsuit related to the minimum staffing rule,” said Port. “It does have a significant impact – our case was strong before that ruling and it’s even stronger because of that ruling. Our confidence has only increased.”

There are some good legislative options on the table as well, Port said, should the lawsuit fall through.

And, there’s a united front among AHCA, LeadingAge, and the rest of the industry that is working to ensure overreaching regulatory mandates aren’t implemented, while reminding Congress that such mandates don’t help to improve quality of care.

Room to grow

Ensign is prioritizing growth in its established geographies, Keetch said, since it allows clusters to work together with acute care partners in the area. Clusters refer to Ensign’s decentralized growth model, driven by local leadership. Additional growth in newer markets is expected in the next several months.

“In particular, we’re very excited to grow in Arizona, where we have a deep and long standing relationship with the largest hospital systems in the state,” said Keetch. “However, we are also excited to build clusters in new states or in markets where we have significant room to add more density.”

For the rest of the year, there’s always a push during Q3 and Q4 for operators to sell, to get the deal done in the current tax year, said Keetch. He expects deals later this year to be more regional portfolios rather than mom and pop operations.

During the second financial quarter, Ensign added four skilled nursing properties across seven of its 14-state footprint: 78-bed Creekview Health and Rehabilitation and 135-bed Foothills Transitional Care and Rehabilitation, both in Tennessee, 120-bed Midlothian Healthcare Center in Texas, and 58-bed The Springs at St. Andrews Village in Colorado.

Ensign’s captive REIT, Standard Bearer, also announced a slew of real estate acquisitions in the second quarter, including in Arizona, Iowa, Kansas and Utah.

Ensign has been acquiring lower occupancy operations at attractive prices for 25 years now, Port said – recently acquired buckets now represent 27% of total operational beds, he said.

“This represents massive organic growth potential within those existing growth buckets,” he said. “As we’ve shown over two decades, we expect our teams can unlock a significant upside in each of these new operations as they mature.”

To give shareholders an idea of growth from transitioning properties, Port said occupancy and skilled mix days for skilled nursing operations in the transitioning bucket were 75.7% and 21.7% for the quarter, respectively. Same store occupancy and skilled mix days were 80.8% and 31.5%, respectively.

Ensign shares were up about 4.87% at the close of regular trading on Friday.