Lifted by its expansion in Texas and across the nation and expecting higher state revenues, Ensign Thursday reported a blockbuster third quarter and optimism for year’s end.
Ensign Group CEO Barry Port said he was particularly excited about the outlook for the company’s growing base in Texas, where the company’s density has increased significantly since the pandemic’s start..
“In Texas, a rate increase is on the horizon, a really healthy increase, much needed,” Port predicted on third-quarter earnings call Thursday. “Only question is when FMAP will go away and the rate increase will happen, toward the latter half of the year. That will become more clear in the next couple of months. We feel really good about the revenue picture for 2023.
“Fundamentals, like occupancy, feel very good this past quarter but also in the six preceding quarters, regardless of COVID challenges.”
Ensign added 17 sites totaling 2,276 beds last quarter and is eyeing more acquisitions, which wouldn’t likely close until the first quarter of next year, said Chad Keetch, Ensign’s Chief Investment Officer and executive vice president. Recent purchases included 12 skilled nursing facilities in Texas, two in South Carolina, one in Nevada, one in Arizona and another healthcare facility in Arizona.
Total skilled services revenue rose 15% over the prior year quarter, while total skilled services segment income went up 7.8% over the prior year quarter.
Keetch said Ensign has nearly $900 million combined credit and cash available to spend.
“Our bandwidth to grow varies by geography and the number of deals we’ve done in that geography,” Keetch said. “When we have a big surge of deals we want to be sure we can digest it. That said, four purchases in Austin don’t affect our ability in Houston or other states. We see plenty of opportunities.”
Despite the challenging post-pandemic environment of labor shortage and inflation, uncertainty about the continuation of the public health emergency and its related funding, and more stringent regulation, Port remained confident in the sector.
“The revenue pieces are not entirely clear, but there’s a lot of visibility where we’re headed,” he said. “CMS has been really thoughtful about the changes they’ve made within the confines they operate. [On the] state side, the overhang there would be the FMAP funding and whether the emergency funding continues…
“Whether the state of emergency sticks or not we’ve got good long term visibility into our rates for 2023 that will be stable regardless of the state of emergency and FMAP funding.”
Managing labor is hard work
Port said labor in the company’s properties had seen agency use drop steadily until an 80% surge of COVID in both residents and staff on the eve of the third quarter.
“When you have a situation like that you tend to go backwards a little bit on your progress with agency,” Port said. “All that said, because of the offset we saw in our really good skilled mix and the acuity level of the patients we were taking care of, we were able to mitigate a lot of that. We expect our progress to continue in decreasing agency utilization amongst our affiliated entities. Wage growth is stabilizing, lowest it’s been since last year in terms of quarter over quarter wage growth.
Port said it would probably take “several quarters” to reach true labor stability, but he expected progress outside of potential COVID waves.
When asked if the company could continue its 12.5% earnings before interest taxes depreciation and amortization, Suzanne Snapper, Ensign’s Chief Financial Officer, was upbeat.
“Whenever there’s high acquisition activity there’s pressure on margins, as we typically see higher expenses in the beginning,” she said. “The offset is we’ll see the full impact of Medicare increase, and states’ increase kick in more fully in quarter four. All in all that sets the stage for what we see as a pretty stable margin going from quarter three to quarter four.”