The Ensign Group, Inc., a leading provider of skilled nursing and senior living services, reported a record-breaking second quarter in 2024 with increased occupancy and revenue. CEO Barry Port highlighted the company’s strong performance, including a rise in same-store occupancy to 80.8%, new acquisitions, and raised annual earnings and revenue guidance. Ensign Group’s growth strategy focuses on decentralized expansion and organic growth within its acquisitions.
Key takeaways from the report include Ensign Group’s same-store occupancy reaching 80.8%, acquiring 10 new operations and six real estate assets, and raising annual earnings guidance. The company plans to expand in new states, focusing on growing clusters, particularly in Tennessee. Despite legal challenges against the minimum staffing rule, Ensign Group remains confident in its legal position and expects no changes in rate setting following the overturning of the Chevron doctrine.
Looking ahead, Ensign Group anticipates sustainable growth with a strong pipeline for potential acquisitions and relatively consistent EBITDA margin trends. While regulatory uncertainty remains a concern, strong demand and occupancy levels, improved operational metrics, and positive industry developments provide optimism for the company’s future success.
InvestingPro Insights highlight Ensign Group’s financial resilience and growth potential, with consistent dividend payments and profitability expected to continue. Despite trading at a high earnings multiple, the stock’s low price volatility and near 52-week high reflect investor confidence in the company’s performance. For investors seeking detailed analysis and tips, InvestingPro offers additional insights and guidance on Ensign Group’s investment prospects. Ensign Group Inc. also owns Standard Bearer Healthcare REIT, Inc., a captive real estate investment trust that invests in healthcare properties and leases them to certain independent subsidiaries of Ensign as well as third party tenants. The Ensign Group Inc. and its subsidiaries operate independently with their own management, employees, and assets. Non-GAAP metrics are used in addition to GAAP reporting to provide a more comprehensive understanding of the business. The company has reported record growth in occupancy and revenue, with a focus on operational excellence and customer satisfaction. The company’s annual earnings guidance has been increased, reflecting strong performance and growth potential. New operations and real estate assets continue to be added to the portfolio, further expanding the company’s reach and capabilities. We have recently acquired new operations in various states, including Colorado, Tennessee, Arizona, Kansas, Utah, Iowa, Nevada, and Texas, totaling 1,326 skilled nursing beds, 202 senior living units, and 43 LTACH beds. Seven of these acquisitions included real estate assets leased to an Ensign-affiliated operator by Standard Bearer. These additions were carefully chosen for their clinical and financial potential, with a focus on growth in established geographies to provide comprehensive healthcare solutions. We are particularly excited about expanding in Arizona and entering new markets to further enhance our presence.
Our decentralized growth model, driven by local leadership, ensures disciplined growth and long-term success. We prioritize deals that align with historical operational performance and offer organic growth opportunities. Our focus remains on acquisitions that will benefit shareholders in the long run. Standard Bearer, with 115 owned properties, generates rental revenue and reported $14.5 million in FFO for the quarter.
Our operational successes at transitioning facilities, such as Arrowhead Springs Healthcare in California, showcase the dedication of our teams in improving clinical outcomes and financial performance. Similarly, Rainier Rehabilitation in Washington continues to excel in clinical excellence and quality measures, earning a 5-star rating and preferred provider contracts. These examples highlight the ongoing progress and success of our affiliated operations, driving consistent results quarter-after-quarter. Occupancy and skilled mix at the facility have been steadily increasing, leading to the facility hitting its maximum operational capacity and having to start a waiting list for admissions. In the second quarter, revenues grew by 17% and EBIT by 34% over the prior year quarter. Rainier’s culture has also been a significant contribution, with low turnover rates and employees often leaving to take on increased responsibility at sister facilities or new acquisitions. The company’s financial performance for the quarter showed positive growth, with increases in diluted earnings per share, revenues, net income, and cash flow from operations. The company has also increased its annual dividend for 21 consecutive years and continued to delever its portfolio. The company’s guidance for 2024 has been raised, with increased earnings and revenue expectations. The leadership team is grateful for the support of their facility leaders, field resources, clinical partners, and service center team, who have been instrumental in achieving record-setting results. The company remains optimistic about the future and the continued growth potential in occupancy and skilled mix. Additionally, it should be noted that we have been experiencing less seasonality than expected in the past two summer seasons, with no significant decline in occupancy. This indicates to us that demand is strong and will continue to be strong throughout the rest of this year.
In terms of investments, our pipeline is very healthy with 15 acquisitions so far this year. We anticipate more announcements in the coming weeks and increased activity in Q3 and Q4. Our deals range from small mom-and-pop businesses to regional portfolios, with opportunities in multiple markets and states.
Regarding the Chevron doctrine, the recent Supreme Court ruling has increased our confidence in contesting regulations such as minimum staffing standards. We are united with industry partners in fighting against overreaching regulatory mandates that do not improve quality care.
On the demand side, we are seeing an increase in acuity across all payer groups, including Medicaid. We are focusing on enhancing services for higher acuity patients, such as behavioral health and subacute services. The trend towards more high acuity patients aligns with the growth of Medicare Advantage, which now has over 50% penetration in the market. We are confident that our growth will continue, especially with our strong relationships with Medicare Advantage and Managed Care payers. Our patient population and payer mix have seen significant growth as a result of our partnerships. Despite the challenges in labor, we have seen improvements in turnover and agency utilization, with wage trends moderating to more normal levels. While we are still working on managing agency challenges in newly acquired facilities, we have made significant progress on a same-store basis. The upgraded outlook suggests incremental margin improvement in the back half of the year, with relatively consistent EBITDA margin trends expected in the third and fourth quarters. In terms of acquisitions in new markets, a cluster size of three to four buildings is considered ideal for realizing synergies and efficiencies. The reason for ensuring that these groups are the right size is to have full access to each other’s performance. If the groups are too large, it becomes easier to go unnoticed. Therefore, finding the optimal size is crucial. As we explore new states and markets, clusters play a significant role. Additionally, having resources unique to each state and geography is part of our market strategy. By expanding in a state, we can justify additional resources to support these clusters and ensure they have the necessary tools to succeed. Tennessee, for example, is a promising market for us, and we aim to grow our presence there by acquiring more resources. The process involves taking steps, digesting information, and then progressing further. We have a strong leader in Tyler Albertson who is adept at building and leading teams. Deals in Tennessee are on our radar, and we anticipate making announcements throughout the year. The Chevron ruling may have implications beyond minimum staffing, potentially affecting rate setting. However, we do not foresee significant changes in how rates are determined, as CMS and state agencies operate independently. Despite the inflationary environment, we expect stability in rates at both federal and state levels. Thank you for joining today’s call.