The Ensign Group Inc. roared during the second quarter, registering year-over-year record diluted earnings of $0.51 per share, a 27.8% increase in adjusted net income and a 272-basis point rise in skilled nursing occupancy (to 80.1%).
In addition, company executives announced that plans were on pace to complete on Oct. 1 a previously announced spin-off of home health and hospice agencies and virtually all of the senior living business into a separate publicly traded company, the The Pennant Group.
Adjusted earnings per share were $0.54 and revenues were $575.6 million, beating expectations by a penny and more than $1.4 million, respectively.
Leaders delivered the cheery outlook at a wide-ranging second-quarter earnings call Friday afternoon.
Ensign reaffirmed its 2019 annual earnings per share guidance of between $2.22 and $2.30 per diluted share and annual revenue ranging between $2.34 billion and $2.4 billion. It marks a 20.2%, or $0.38 per share, increase over 2018 annual earnings.
“Our organic growth this quarter has again come from the steady improvement in the organization’s most mature operations, as well as an increasingly positive contribution from our transitioning and newly acquired operations,” said Ensign CEO Barry Port. “While we are pleased with our progress, we have only begun to approach our potential in about half of the states in which we operate, not to mention the tremendous opportunities from our disciplined acquisition strategies.”
He attributed the quarter’s strong results to high-quality healthcare outcomes, stronger occupancy, strong regulatory results and consistent collection efforts. Touting good relationships with managed care companies in particular, Port said the company has been able to “consistently drive results across all payor types, including Medicaid, Medicare, managed care and private pay,” even as occupancies across the industry are down.
“In particular, we are very excited about the extraordinary results in our skilled nursing operations and the impressive improvement in our occupancy by almost every measure,” he said.
Ensign paid a quarterly cash dividend of 4.75 cents per share, marking the 16th straight year the company has increased its dividend payout.
The second quarter continued a busy trend for the expanding company. Highlights included the acquisition of six new senior living, home health or hospice operations and 10 new skilled nursing or healthcare campus operations.
After announcing the acquisition of three more operations on Thursday, Ensign now has 200 skilled nursing facilities, 27 of which include senior living options; 57 stand-alone senior living communities; 28 hospice agencies; 26 home health agencies; and nine home care businesses. The holdings are in 16 states, 14 of them west of the Mississippi River.
“Our pipeline is as full as ever, but we have intentionally kept plenty of dry powder on hand for what we believe will be ain increasingly more attractive buyer’s market, said Chad Keetch, Ensign’s chief investment officer. He said any growth in the near future would likely be confined to states already represented in the portfolio.
“Dozens” of new acquisition targets are currently being explored, he said, with more deals expected to be announced over the next two quarters.
Leadership expects more acquisition opportunities from operators who couldn’t meet rent increases or escalators after being “too aggressive” with purchases.
“That’s led to several pretty notable bankruptcies that are out there amongst some larger regional operators. So that’s one factor, probably the biggest factor. And we think there’s a lot more of that coming,” Keetch said. Other opportunities could come from smaller operators who will become overwhelmed by an increasingly complex regulatory environment, he added.
Since the company spun out its real estate assets to CareTrust in 2015, it has added 194 operations and acquired 79 real estate assets, a trend executives said they plan to continue.