In Beating Seasonal Slowdown, Ensign Cites Quicker Turnarounds of ‘Distressed’ Acquisitions as Key 

Ensign Group’s (Nasdaq: ENSG) strong quarterly earnings were fueled by solid operational performance at transitioned facilities. Encouraged by recent acquisition success, executives said they plan to expand into new states while prioritizing growth in existing markets.

“We’re particularly impressed with these results given that we’ve added 53 new operations across several markets in our recently acquired bucket, and yet, our leaders and resource teams have shown their strength by simultaneously integrating these new operations into their clusters while achieving outstanding results in our own operations,” Barry Port, CEO of Ensign, said during the company’s quarterly earnings call on Friday.

The acquisition strategy for the California-based real estate investment trust (REIT) focuses on guidance from its current partners.

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“Our model [relies] heavily on our local clusters and existing operations to take a lead on our decision making around acquisitions, as well as provide the transition support for these newly acquired operations as we continue to perfect and improve our deal, underwriting and transition process,” Port said, praising the company’s local leadership teams for successfully integrating new operations.

Empowering local leadership in the acquired properties has resulted in a faster turnaround of the distressed facilities that form a majority of Ensign’s acquisitions, with such acquisitions beginning to contribute earlier to its bottomline, he said.

The company reported an 81.7% occupancy rate for same-store operations, which amounts to a 2.8% increase from the previous year. The increase in occupancy comes at a time when seasonal declines are typical for Ensign, Port noted.

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During the quarter, Ensign reported Non-GAAP earnings per share of $1.39, beating Wall Street estimates by $0.01. It reported quarterly revenue of $1.08 billion, surpassing analyst estimates by $10 million.

Ensign saw 7.3% revenue growth in its same-store operations, fueled by a 6.1% increase in skilled days across all payer sources. The company also reported a significant boost in its managed care census, with a 9.1% rise in same-store operations and a 23.2% increase in transitioning operations.

Midday, Ensign shares traded up $4.45, or 2.98%, at $153.28.

Investments ahead

Chief Investment Officer Chad Keetch emphasized the company’s disciplined approach to acquisitions. Acquisitions were carefully selected for their clinical and financial potential, with a focus on distressed facilities that offer opportunities for transformation, he said.

In the third quarter alone, Ensign added 12 new operations and three real estate assets, bringing the total deals for the year to 27, with much of the growth occurring in Colorado and the Midwest. 

In total, Ensign added 1,279 new skilled nursing beds and 20 senior living units in four of the 14 states in which it operates.

Ensign has no plans of slowing down the investments, and expects to grow in markets that the REIT has an established presence, executives said.

“We continue to grow our portfolio,” Keetch said. “We continue to see a very healthy pipeline of new acquisition opportunities, and are making progress on several additions that we expect to close in the fourth quarter and into next year. We remain committed, especially in times when there are lots of opportunities in front of us to remain disciplined and grow in a healthy way.”

Successful turnaround based on staffing, leadership supports

As an example of a success story, Ensign executives noted the 80-skilled bed Rehabilitation and Nursing Center of the Rockies (RNCR), which the organization acquired last year in August.

After its transition, leaders, local partners and department heads collaborated to enhance the RNCR team’s capabilities through improved education, data access, and transparency in daily, weekly, and monthly reports, according to Spencer Burton, president and COO of Ensign.

“They went to work increasing occupancy and skilled mix while simultaneously right sizing labor and controlling other variable expenses. The results have been remarkable,” said Burton.

Occupancy rose to 90% after sitting at 63% at the time of the transition. Also, the managed care census has jumped by over 600%, while margins increased by 180%, executives noted. 

Moreover, RNCR also made clinical improvements through staffing supports.

“The facilities embraced additional training and education, and in turn, this has led to RNCR recently having one of the best health inspection scores in the state and achieving overall 5-star status from CMS on the employee front,” said Burton.

RNCR’s nursing turnover has also plummeted since the transition, with the facility recently opening its own certified nurse aide (CNA) certification program.

“Graduates are not only strengthening the staffing situation at RNCR, but are also helping improve staffing at the nearby facilities, which were recently acquired over the past few months,” Burton said. “While transforming acquisitions is an exciting part of Ensign’s story, equally important is the enormous potential that can be unlocked as mature teams continue to innovate the heightened clinical needs of their communities.”

And it’s not just development of frontline workers, but cultivation of leadership that is also a part of the story at the facilities that Ensign absorbs into its portfolio, executives said.

“We have a new market leader program, which effectively prepares leaders that are experienced and have a good track record with us in leading in other states,” said Port. “And we spent some time working with these leaders to look at preparation to enter new geographies, to align [their] interests and the interests of the organization.”

Currently, Ensign has more than 60 Administrators in Training (AITs) in the pipeline, which will help the organization to continue to grow – even in other states. 

“It’s not, not to say that we’ll, you know, rapidly jump in. We take a pretty methodical approach to that, but don’t be surprised if you see us entering some new geographies next year,” said Port.

As a result of its successful quarter, Ensign has raised its annual earnings guidance for 2024 to a range of $5.46 to $5.52 per diluted share, reflecting a 15.1% increase over 2023 results. The adjusted revenue guidance has also been raised to between $4.2 billion and $4.26 billion, indicating confidence in continued growth alongside acquisition activities.

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