The Ensign Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Ensign Group Incorporated Third Quarter 2024 Earnings Conference Call. At this time, I would like to turn the call over to Mr. Keetch.

Speaker 1

Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the Investor Relations section of our website at theenzinegroup.net. A replay of this call will also be available on our website until 5 pm Pacific on Friday, November 29, 2024. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, October 25, 2024, and these statements have not been or will be updated subsequent to today's call. Also, any forward looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate.

Speaker 1

These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, the Ensign Group, Inc. Is a holding company with no direct operating assets, employees or revenues.

Speaker 1

Certain of our independent subsidiaries collectively referred to as the Service Center provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other independent subsidiaries through contractual relationships with such subsidiaries. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities. Ensign also owns Standard Bearer Healthcare REIT, Inc, which is a captive real estate investment trust that invests in healthcare properties and enters into lease arrangement with certain independent subseries of Ensign as well as third party tenants that are unaffiliated with The Ensign Group. The words Ensign, company, we, our and us refer to The Ensign Group Inc. And its consolidated subsidiaries.

Speaker 1

All of our independent subsidiaries, the Service Center, the Standard Bureau Healthcare REIT and the Insurance Captive are operated by separate independent companies that have their own management employees and assets. References herein to the consolidated company and its assets and activities, as well as the use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign Group. Also, we supplement our GAAP reporting with non GAAP metrics. When reviewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business. They should not be relied upon to the exclusion of GAAP reports.

Speaker 1

A GAAP to non GAAP reconciliation is available in yesterday's press release and is available in our Form 10 Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry? Thanks,

Speaker 2

Chad, and thank you, everyone, for joining us today. Our local leaders continue to consistently drive outstanding clinical and financial performance, and we are happy to report another record quarter. 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 their own operations. As those that have been following us for years know well, our model leans 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.

Speaker 2

As we continue to perfect and improve our deal underwriting and transition process, our new acquisitions, almost all of which are distressed at the time we acquire them, are beginning to contribute earlier. This allows our leaders to return their focus to our transitioning and same store building sooner, leading to strong performance across all our operational buckets. More specifically during the quarter, we saw same store occupancies grow to 81.7%, a 2.8% increase over the prior year quarter, establishing a new high watermark for same store occupancy. This is especially noteworthy during a quarter where we historically have experienced seasonally softer occupancies. We also saw skilled days increase across all skilled payer sources in our same store operations, which increased by 6.1% over the prior year quarter, all of which translated to a 7.3% revenue growth for our same store operations.

Speaker 2

We simultaneously grew our managed care census by 9.1% and 23.2% for our same store and transitioning operations respectively over the prior year quarter. Managed care is a very important and growing part of our business and the consistent occupancy increases point to the trust our leaders are continuing to gain by achieving high quality outcomes. As we look ahead, we couldn't be more excited about the opportunities we have to unlock the enormous organic upside in our existing portfolio. One of the keys to our success over time has been to have multiple ways to achieve financial consistency that do not depend entirely on new acquisitions. In fact, even during a busy period of acquisitions, 46% of our increased revenue for the quarter was generated purely from organic growth.

Speaker 2

Also, if you look back over time, you will see a very steady growth rate in both revenue and EBITDAR growth even though our disciplined acquisition activity varies based on market conditions. This is made possible by our local CEOs and COOs who are relentlessly working to improve and adapt to the needs of their markets. As they do so, they continue to pull various levers to increase skilled mix and drive occupancies higher and closer to the occupancies achieved by dozens of our most mature same store operations, most of which are well above our same store average. At the same time and as we demonstrated this quarter, we are prepared for and will continue to acquire lower occupancy operations at very attractive prices, which provides a significant long term ramp with years of upside. Due to our solid skilled mix and occupancy growth in our existing operations as well as continued strength from our recent acquisitions, we are raising and narrowing our annual 2024 earnings guidance to between $5.46 to $5.52 per diluted share, up from $5.38 to $5.50 per diluted share.

Speaker 2

The new midpoint of our 2024 earnings guidance represents an increase of more than 15.1% of our 2023 results and is 32.6% higher than our 2022 results. We are also increasing our annual revenue guidance to between $4,250,000,000 $4,260,000,000 up from our previous guidance of $4,200,000,000 $4,220,000,000 to account for our current quarter growth and acquisitions we anticipate closing by the end of the year. We're excited about the upcoming year and are confident that our partners will continue to manage and innovate while balancing the addition of newly acquired operations. Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?

Speaker 1

Thank you, Barry. As we expected, we continue to grow our portfolio and are very excited about the 12 new operations and 3 real estate assets we added during the quarter and since, bringing the number of operations acquired during the year to 27. These new acquisitions include the following: 9 in Colorado, 1 in Kansas, 1 in Iowa and 1 in Nebraska. In total, we added 12 79 new skilled nursing beds and 20 senior living units in 4 of our 14 states. Of these new operations, 3 of them included the real estate assets that were acquired by StandardBear at least to an Ensign affiliated operator.

Speaker 1

These additions were all carefully selected amongst the many opportunities available to us and were chosen because of the huge clinical and financial potential. 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 Q4 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. Our scalable, decentralized growth model is not dependent on a few individuals in an office, but instead is driven by local leadership and supported by a dedicated team of resources. In times like these when deal opportunities are abundant, we rely on a proven set of deal criteria, including a deep local knowledge of their respective healthcare markets to ensure that those who are operationalizing the acquisitions have buy in and specific plans to help them become facilities of choice in their markets.

Speaker 1

1 of the foundational elements of our consistent performance has been to insist that the prices we pay are commensurate with the historical operational performance, which will result in a cost structure that allows us to achieve healthy returns over a long period of time. As we've shown again this quarter, we continue to prioritize growth in our established geographies as it allows our clusters to work together and with their acute care partners to provide comprehensive solution to their healthcare needs. We are also excited to build clusters in new states or in markets where we have significant room to add more density and expect additional growth in some of our newer markets in the next several months. We have and will continue to grow when we see deals that will be accretive to shareholders in both the near and long term. We continue to provide additional disclosure on StandardBear, which is currently comprised of 117 owned properties.

Speaker 1

Of these assets, 88 are leased to Ensign affiliated operator and 30 are leased to 3rd party operators. All of these properties are subject to triple net long term leases and generated rental revenue of $24,400,000 for the quarter, of which $20,200,000 was derived from Ensign affiliated operations. Also for the quarter, we reported $14,800,000 in FFO and as of the end of the quarter had an EBITDAR to rent coverage ratio of 2.4 times. And with that, I'll turn the call over to Spencer, our COO to add more color on operations. Spencer?

Speaker 3

Thanks, Chad, and hello, everyone. As Chad mentioned, we've continued to welcome acquisitions throughout the year with a large concentration of the growth occurring in Colorado and the Midwest. In fact, newly acquired facilities now account for over 14.4% of our total service revenue, up from 8.6% a year ago. Today, I'd like to give you some insights into the tremendous work and transformation that occurs during the Q1 following an acquisition. To do that, the first facility I've chosen to highlight today is a recent acquisition in the state of Colorado.

Speaker 3

Rehab and Nursing Center of the Rockies, RNCR, located in Fort Collins, Colorado is a 98 bed skilled nursing facility that was acquired August 1, 2023. Upon transition, Todd Truax, an experienced CEO, who was operating a successful enzyme affiliated building nearby, transferred to RNCR and became the licensed administrator. They joined a facility leadership team with many talented and compassionate professionals, including longtime DON Sarah Case. Sarah and her team were intelligent and committed, but lacked the information and tools needed to manage some basic operating fundamentals. Following the transition, Todd together with local cluster partners, including department leaders from nearby facilities, began to empower the RNCR team with increased education, data and transparent access to daily, weekly and monthly reporting.

Speaker 3

The team responded to the support beautifully. They went to work increasing occupancy and skilled mix, while simultaneously rightsizing labor and controlling other variable expenses. The results have been remarkable. Occupancy, which sat at 63% on transition, is now at 90%. During that same period, Managed Care Census has increased by over 600% and major health plans have invited RNCR to join their narrowed network.

Speaker 3

As occupancy and skilled mix have grown, the team has carefully managed expense growth and as a result EBIT margins have increased by nearly 180%. But the financial success is only a small part of the RNCR transition story. Clinically, the facility has embraced additional training and education, which in turn 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, nursing turnover has plummeted since transition. Further, the facility recently opened its own CNA certification program and 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.

Speaker 3

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 and meet the heightened clinical needs of their communities. Our second highlight comes from one of our more mature operations in the Phoenix, Arizona metro area. Peoria Post Acute and Rehabilitation is a large 179 bed skilled nursing facility and subacute campus that was acquired back in 2018. Over the past 6 years, CEO, Mark Glaser and COO, Catherine Elsor together with their team have consistently improved clinical and financial results and become their community's facility of choice. But despite the high bar already set, during the quarter, the team at Peoria grew revenues by 20% and EBIT by 29% compared to the prior year quarter.

Speaker 3

Their formula is simple to understand, but hard to execute. It starts with finding, developing and retaining incredible talent. This in turn allows the multidisciplinary team to commit to and relentlessly pursue quality, which is evident in Peoria's 5 star rating from CMS for health inspections, quality measures and overall excellence. The strong clinical foundation has allowed Peoria to climb the acuity ladder and meet the needs of community physicians, health plans and hospitals. In fact, in addition to traditional long term and skilled care, today Peoria provides subacute services for patients needing ventilator care, advanced wound care and bedside dialysis.

Speaker 3

This combination of high acuity and exceptional quality has made Peoria one of only a few facilities to attain preferred provider status with every major hospital system in Arizona. The result has been consistently strong demand for services, which is evidenced in skilled mix increases of 44% for Medicare days and 13% for Managed Care days from Q3 of last year. To address growing demand, a few years ago, the facility expanded its license count by 51 beds and opened a completely remodeled subacute wing and dialysis center. That new wing is now completely full and the overall campus averaged 96% occupancy over the course of quarter 3, up 12 percentage points from the prior year quarter. Today, there is a long waiting list for admission to Peoria.

Speaker 3

Facilities like Peoria demonstrate the enormous continued upside in same store operations that is being covered and accessed through the hard work, discipline and vision of empowered local leaders and the support and commitment of service center resource partners. And with that, I'll turn the time over to Suzanne Snapper, our CFO for more detail on our financial results. Suzanne?

Operator

Thank you, Spencer, and good morning, everyone. DeepHub's financials for the quarter are contained in our 10 Q and press release filed yesterday. Some additional highlights for the quarter compared to the prior year quarter include GAAP diluted earnings per share was $1.34 an increase of 20.7 percent. Adjusted diluted earnings per share was $1.39 an increase of 15.8 percent. Consolidated GAAP revenue and adjusted revenues were both $1,100,000,000 an increase of 15%.

Operator

GAAP net income was $78,400,000 an increase of 22.8%. Adjusted net income was $81,100,000 an increase of 17.7 percent. Other key metrics as of September 30, 2024 include cash and cash equivalents of 532,100,000 dollars and cash flow from operations of $246,700,000 The company paid a quarterly cash dividend of $0.06 per share. We have a long history of paying dividends and have increased the annual dividend for 21 consecutive years. We also continue to delever our portfolio, achieving a record low lease adjusted net debt to EBITDA ratio of 1.88 times.

Operator

Our ability to delever in even in periods of significant growth is particularly noteworthy and demonstrates our commitment to disciplined growth as well as our belief that we can continue to achieve sustainable growth in the long run. In addition, we have currently have approximately $572,000,000 of availability under our line of credit, which when combined with cash on our balance sheet gives us over $1,000,000,000 in dry powder for future investments. We also own 122 assets, of which 117 are held by StandardBear and 98 of which are owned completely debt free and are gaining significant value over time, adding even more liquidity to help with our future growth. As Barry mentioned, we are increasing and narrowing our annual 2024 earnings guidance to between $5.46 to $5.52 per diluted share. We are also raising our annual revenue guidance to between $4,250,000,000 to 4,260,000,000 We have evaluated multiple scenarios and based upon the strength in our performance, the positive momentum we've seen in occupancy and skilled mix as well as the continued progress on agency management and other operational initiatives, we feel confident that we can achieve these results.

Operator

Our updated 2024 guidance is based on diluted weighted average common shares outstanding of approximately 58,500,000, dollars a tax rate of 25 percent the inclusion of acquisitions closed and expected to close in 2024 the inclusion of management's expectations for Medicare and Medicaid reimbursement rates, net of provider tax and with the biggest exclusion coming from stock based compensation. Additionally, other factors that could impact quarterly performance include variation in reimbursement systems, delays in changes in state budgets, seasonality in occupancy and skilled mix, the influence of general economy and census and staffing the short term impact of acquisition activities variations in insurance accruals and other factors. With that, I'll turn it back over to Barry. Barry?

Speaker 2

Thanks, Suzanne. As we wrap up, we'll end as we normally do by reiterating how incredibly honored and grateful we are to work alongside our facility leaders, field resources, clinical partners and service center team that are behind these record setting results. We're in awe of their incredible industry leading leadership as they focus on supporting our collective mission to dignify post acute care in new and innovative ways for many generations to come. This commitment has blessed the lives of so many people including our own. We're excited about our future and the opportunity to build an enduring legacy in the industry because of these amazing partners.

Speaker 2

We work alongside people who truly care about one another first, which is why we have the confidence that our model has staying power and will have a long term impact for good. We have complete faith in them and the culture they have collectively built and continue to improve. And now we'll turn it over to the Q and A portion of our call. Ellie, can you please instruct the listeners on the Q and A procedure?

Operator

Thank you. We are now opening the floor for question and answer session. Our first question comes from Tao Krey from Macquarie. You may now ask your question.

Speaker 4

Thank you. Good morning. So the same store occupancy is already above pre pandemic levels. I think historically the high point in terms of same store occupancy was about 84%. Would you be able to, number 1, give us an idea of the distribution of occupancy across your same store portfolio?

Speaker 4

And second, could you quantify for us the potential upside from here given the strong demographic trend, your initiative to increase high acuity patient base and the managed care momentum you alluded to earlier? Thanks.

Speaker 2

Yes. I think our high watermark pre COVID was 80.1%. So yes, we are above that. As far as limits, it's why we are so excited about where our occupancy is today, albeit higher than where we've been. We just we know that there is so much potential for growth.

Speaker 2

As we look in our same store portfolio and look at even more mature operations in that bucket, you have operations that are well into the 90% range and that's happened over the course of many, many, many years quarters and there's continued improvement even amongst our most mature operations, which is why we try to point out some of those stories in our examples in the script. To speak to the skilled mix potential, Tau, yes, there's great opportunity for us to continue to drive acuity. It frankly is the basis of our model, which is to continue to deliver what our acute partners need, which is a sicker and sicker patient that needs care. And we're seeing that play out as time goes on and we've broken past the kind of post COVID norms into what is kind of a steady state of just ever increasing acuity. Our local leaders are tied in with our hospital partners and our managed care partners.

Speaker 2

They're in touch with what the needs are. And as Spencer pointed out in the example of Peoria, they continue to adapt by adding things like subacute services and bedside dialysis and other service lines to meet those ever changing needs. And so that's what they'll continue to do as we stay aligned. And what you can see over again the course of many quarters since COVID is that our skilled mix does continue to gradually move higher and higher.

Speaker 4

Got it. And Suzanne, could you give us update on the timing and the amount expected from some of the state supplemental payments, quality payment you're expecting in the next few months or quarters? And any information you could share in terms of the early discussion among your states on 2026 Medicaid rate?

Operator

Sure. I think one of the things to note for us of how we look at supplemental payments. As you guys know, we recognize the supplemental payment in our Medicaid rates. So every quarter we have supplemental payments embedded within the rates that we're disclosing. For every state that we're in, we estimate the amount of supplemental payment that we anticipate receiving for that particular quarter based upon the days and the programs and the quality of the performance of the programs that we have.

Operator

And so every quarter, every day we actually have supplemental rates embedded in the Medicaid rate that we're disclosing. As you kind of look through changes in supplemental rates, as we talked about last year, a lot of the F and F dollars went away. A lot of those were replaced by a combination of raise and base rates as well as supplemental rates. For the most part, all of those supplemental programs went into effect with the last one, really being gosh probably January of this year with California. And now it's just a matter of going through the normal course in the normal program.

Operator

So most states update their supplemental program consistent with their base rate program year. So for example in the current quarter we had Texas their program year is September 1st that rate just updated and so that went into effect in September. And yes really good overall performance in all those no real surprises. I think sometimes the timing of those true ups, of the estimate of the accrual changes. And when it changes, then we can take that in the current quarter.

Speaker 4

Great. That's very helpful. Thank you. Have a good weekend.

Operator

Thanks, Kyle. Your next question comes from Ben Hendricks from RBC Capital Markets. Your line is now open.

Speaker 5

Great. Thank you very much. A couple of M and A related questions. It seems like the pace of tuck ins has kind of picked up a little bit. First, I just wanted to know if there's anything kind of structurally that's kind of driving the acceleration?

Speaker 5

Is there a change in amongst sentiments, among sellers? Is there something anything structurally, whether it be minimum staffing or anything that's got is incenting more transaction fluidity in the market? Any comments you have there?

Speaker 1

I mean, yes to all of that. This is Chad. I think all those things are true. I mean, I think it's especially for smaller operators, it's much, much harder to keep up with all the constant changes. And that's the one thing that for sure we will have in this industry is constant change.

Speaker 1

And minimum staffing, we feel pretty confident that's not going to happen. But nonetheless, we definitely hear sentiment from sellers of just like just kind of exhaustion with some of that stuff that's always out there. So that's part of it. I'd say there's also maybe sort of post COVID, I think a lot of folks feeling like maybe we got through that and now is the time where conditions are a little more stable and maybe it's a good time. Maybe they were looking to sell before and then COVID came and they kind of had to push through it and now they're at a spot where they feel stable enough to see what they can get for their businesses.

Speaker 1

So we're seeing a lot of that. But it's always true too, Ben, that because of overaggressive real estate deals, there's definitely a large amount of distressed opportunities for us where someone overpaid and they're not paying the rent. The rent payments aren't coming through now, right? And they're distressed and looking to find a replacement. And so lots of those too.

Speaker 1

So it's kind of a lot of all those factors. And we're just in terms of our pace of acquisitions, because we have this local approach and lean heavily on our local teams and we now have 30 markets across the 14 states we're in. We can grow very comfortably leaning on those local teams as they transition these operations. And as we grow, right, our capacity to grow also grows with it, right? So in terms of a percentage of growth, we've actually stayed pretty steady.

Speaker 1

But do expect that as we get bigger that our capacity to grow will grow with it.

Speaker 5

Got you. And just to follow-up on that, is the profile of the acquisitions you're targeting changing at all? I know that you bought an LTACH a couple of quarters ago, and then you mentioned like dialysis capabilities in Peoria, which we typically associate with higher level care like LTACH. Is there and then also you're expanding in markets where you already have strong cluster presence. So I'm wondering if maybe you're kind of broadening the scope into higher acuity in terms of some of these opportunities?

Speaker 1

That's a great question. I would say not really. I think the LTACH thing was a really unique set of circumstances and so far that's going great. And maybe down the road if we prove that model can work that that's something we could look at. But for the most part our targets are very similar to what they've been.

Speaker 1

A lot of the efforts to move up the acuity chain happened sort of post acquisition. And so I wouldn't say that we're necessarily targeting a different type of acquisition opportunity. I will say though that while our first preference is to grow in states we're in, that's kind of the lowest hanging fruit and there's lots of room to continue to do that. We definitely have opportunities in lots of new markets. And I think I said this in my prepared remarks, but you'll see some growth in the near future in newer markets that are states that we haven't been in for too long and also even adding some new states.

Speaker 1

So that's also part of our kind of in terms of just the set of deals we're looking at it, we are expanding the geographical footprint.

Speaker 5

Great. Thank you very much.

Operator

Your next question comes from David MacDonald from Truist. Your line is now open.

Speaker 6

Good afternoon, everyone. A couple of questions. Just want to follow-up on Ben's question a little deeper on M and A and just ask, with regards to Colorado specifically, obviously, a fair amount of activity there. Is there anything specific to the state that you guys would call out or is that just kind of how those fell? And then, I guess to follow-up on the last answer that you gave, could you just provide an update on kind of Tennessee and how that's been going?

Speaker 6

Just any high level thoughts there?

Speaker 1

Yes. So as I said, our priority is always to grow in markets we know and that we know well and we have a really strong track record and Colorado is a perfect example of that. And so it's a state that we've just been in for a while and have just an amazing team of leaders, both clinical and otherwise. We've recently kind of as we've grown, we've divided it into 2 markets. So we and by that, that sort of gives our leadership more bandwidth and that's been an important sort of structural thing we've done there to prepare for some of that growth.

Speaker 1

And that's typical of how we've grown in California and Texas and Arizona and other places too. And so it's kind of combining the strength of our team, the strength of our reputation there with deal opportunities that just come up, right? Opportunistically, we're just prepared to take some larger, I guess, acquisitions in Colorado. So there's really nothing super unique about Colorado other than it's a state we love and there happened to be some great deals that have come up and that we are prepared to take. So in terms of Tennessee, obviously we're still new to the state.

Speaker 1

We have 3 buildings there, continue to prepare for future growth in that state and that's definitely one of the states I was alluding to earlier as one that we plan to grow in the near future. But we haven't gotten to a point to announce anything there yet, but you'll see something soon on that front. But really excited about the momentum we have in Tennessee. Our leadership team there again is just 1st class and having 3 buildings is obviously just a start. And as we continue to grow there that will allow us to build extra resources and extra strength in that market and also South Carolina and other parts of that part of the country that we're really excited about as well.

Speaker 2

One thing I'd add to that David is we've got 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 that have interest in other states. And we spent some time working with these leaders to look at preparation to enter new geographies that align with their interests and the interest of the organization. And that combined with 60 plus AITs in the pipeline, we are prepared for growth in other states. It's not to say that we'll rapidly jump in. We take a pretty methodical approach to that.

Speaker 2

But don't be surprised if you see us entering some new geographies next year.

Speaker 6

Okay. And just one other guys, look, I realize you obviously haven't put anything out for 2025, but I'm just curious any high level kind of early comments about just the growth opportunities you see in front of you, any potential 2025 headwinds and tailwinds that you would point to and layout? I guess just any preliminary high level conversations about 2025?

Speaker 2

I think my last comment kind of speaks to that. I mean, we certainly are excited about growth opportunities, acquisition opportunities. We so much so that we've tried to make sure that both from a support perspective here at the service center and building our bench of leadership talent in the field that we've got solid preparation to be able to handle what we see as a pretty attractive environment for growth. But that aside, we also can't overemphasize enough how pleased we are with the progress we're seeing in almost every market that we're in across the portfolio from a transitioning and same store perspective. There's really solid growth fundamentals in all three of our buckets, but our same store operations continue to improve nicely and which speaks to the fact that we're able to balance better than we ever have before having growth along with solid organic opportunity as well and having those two things kind of go hand in hand.

Speaker 2

So we feel good about where we're headed for 2025. We don't want to be overly confident. There's certainly a lot of things we need to do to improve always, but we feel pretty excited about the horizon.

Speaker 7

Okay. Thanks very much.

Operator

Question comes from Scott Fidel from Stephens. Your line is now open.

Speaker 7

Hi. Thanks, everyone. Hi. First question, just as we sort of round out the rest of the year, just interested on any call outs you'd want to make just around for modeling considerations for the Q4, either from the P and L perspective, obviously, up in the new Medicare rate coming in for FY 2025, but any other call outs? And then also from the cash flow perspective, any seasonal dynamics that you just want to highlight when modeling cash flows?

Operator

Yes, great question, Scott. As you mentioned, we have that Medicare rate coming in October 1st, it will be slightly above what the net market basket rate increases due to the states that we're in. When we kind of look at the Medicaid rates, I think we're pretty in a pretty steady state there based upon where we ended up with the Q3 rate going into Q4 just because not a lot of changes happening in Q4. And some of the supplementals that I talked to a little bit of supplemental payments, the ebbs and flows are about even between Q3 and Q4. So that's a pretty steady state there.

Operator

With regards to kind of margins and other things, we're looking really consistent as we model into Q4 as well. Obviously, we have a little bit seasonality coming into it with higher skilled mix usually and continued growth in occupancy is usually in there as well. And then just rounding out the quarter, we had a lot of acquisitions at the end of Q3. So those 12 acquisitions coming in for a full quarter in Q4. And then flipping to the cash flow, just a reminder that we do have a large payment going out for the settlement that we did earlier in the year.

Operator

We anticipate that going out towards the beginning of Q4. And then everything else is pretty steady state.

Speaker 7

Okay, great. And then just my follow-up question. Interested if you wanted to provide your thoughts on some of the discussion that's out in the marketplace just around the trends around levels of insurer claims denials, both in sort of commercial managed care and in Medicare Advantage. Most of the commentary has been from the acute hospital side and then the managed care companies have sort of been trading some barbs against the hospitals. So definitely would be interested just from your perspective more on the post acute and the skilled nursing side, how those trends have been in terms of engaging with the health insurers and sort of what you've been seeing in terms of prior authorization and claims denial type of interactions with

Speaker 2

them? Yes. Look, I think the commentary you're hearing and the congressional reporting on this topic is fairly indicative of what the provider community at large generally deals within that relationship. And not to say it's all entirely negative. There's a healthy back and forth when you're working with managed care providers on coding and length of stay and rate levels and authorizations.

Speaker 2

And that really frankly that there's nothing new there at least as far as how we work with our managed care partners. Our approach really has been to have a healthy embrace of that process and to make sure that we try to seek to understand what it is that they're looking for and how we kind of work within that structure and build trust so that when we are seeking changes to authorizations and levels and things like that that there's a trust that's built mostly with a foundation based in outcomes. And look, I will tell you sometimes it's really difficult to have those discussions because what they want and what we want for the patient are sometimes conflicting. But that said, I think the spotlight that's kind of put on this lately is probably healthy. There probably isn't quite as much accountability, for the managed care providers as there are for us as providers.

Speaker 2

It tends to be somewhat one-sided conversation sometimes and that shouldn't always be the case. So I think look the dialogue around this is healthy and helpful. I think there should be some checks and balances to how some of those inner workings play out in terms of the impact on the patient and the providers that are hands on with the care. So look at the end of the day, there's probably no meaningful impact to us because we feel confident about our relationships with managed care providers. But I think accountability in the space is always healthy and helpful.

Speaker 7

Okay. I appreciate the feedback there. That's it for me. Thanks.

Speaker 1

Thanks, Scott.

Operator

Thank you. That concludes our Q and A session. Thank you so much for attending today's call. You may now disconnect. Have a wonderful day.

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Key Takeaways

  • Record Q3 Performance: Same-store occupancy rose to 81.7% (a 2.8% year-over-year increase) while same-store revenue grew 7.3% on a 6.1% increase in skilled days and double-digit managed care census gains.
  • Seamless Acquisition Integration: Ensign added 53 new operations during Q3, successfully integrating distressed facilities and driving earlier contributions from almost all acquisitions through improved deal underwriting and transition processes.
  • Robust Organic Growth: Even amid heavy acquisition activity, 46% of Q3 revenue growth was organic, demonstrating consistent same-store revenue and EBITDAR growth powered by local leaders optimizing occupancy and acuity.
  • Upwardly Revised Guidance: Due to solid operational performance and acquisition strength, 2024 earnings guidance was raised to $5.46–$5.52 per diluted share (15.1% above 2023) and revenue guidance to $4.25–$4.26 billion.
  • Strong Financial Position: Q3 generated $246.7 million in operating cash flow, delivered record-low lease-adjusted net debt/EBITDA of 1.88×, maintained 21 consecutive annual dividend increases, and holds over $1 billion in liquidity for future investments.
A.I. generated. May contain errors.
Earnings Conference Call
The Ensign Group Q3 2024
00:00 / 00:00