The Ensign Group Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 2, 2024

There are 7 speakers on the call.

Operator

Thank you for standing by. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ensign Q4 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Followed by the number 1 on your telephone keypad. Thank you. I would now like to turn the call over to Mr. Keetch. Please go ahead.

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 enzigngroup.net. A replay of this call will also be available on our website until 5 P. M. Pacific on Friday, March 1, 2024.

Speaker 1

We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, February 2, 2024, and these statements have not been nor 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. 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.

Speaker 1

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. 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.

Speaker 1

Ensign also owns StandardBear Healthcare REIT, Inc, Which is a captive real estate investment trust that invests in healthcare properties and enters into lease arrangements with certain independent subsidiaries of Ensign as well as 3rd 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. All of our independent subsidiaries, the Service Center, StandardBear 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 words we, us and our in 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.

Speaker 1

Also, we supplement our GAAP reporting with non GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non GAAP reconciliation is available in yesterday's press release and is available in our Form 10 ks. And with that, I'll turn the call over to Barry Port, our CEO. Barry?

Speaker 2

Thank you, Chad, and thank you everyone for joining us today. Our local teams have once again posted impressive clinical and financial results and continue to build remarkable momentum in each market across our portfolio. Our success is entirely due to the efforts and commitment of those leadership teams, caregivers, field resources and service center partners. One of our most important priorities is to support those that care for our patients every day. After another record quarter, we're excited about the many opportunities Continue to capture the enormous potential inherent in our portfolio as we relentlessly focus on our operational fundamentals, both in existing operations and the growing number of new acquisitions.

Speaker 2

We are pleased to occupancy of 79.9 percent, which grew by 2 40 basis points over the prior year quarter. In addition, we saw an improvement in occupancy on sequential basis of 40 basis points over the 3rd quarter. We saw increased volume in our combined same store and transitioning managed care revenue and managed care census, which increased during the quarter by 12.3% and 3.5% respectively over the prior year quarter as a result of strength in relationships with our managed care partners and quality outcomes. As expected, we saw an increase in our skilled mix during the quarter as our same store days for the quarter increased by 110 basis point sequentially over the Q3. We are encouraged by the continued strength in our skilled mix as it demonstrates the continuously increasing demand for Skilled Post Acute Services.

Speaker 2

By applying proven cultural and operational principles, our local leaders continue to retain and recruit high caliber individuals, which then go on to achieve tremendous success across our growing footprint. We continue to be encouraged by the reduction in our use of 3rd Party Nursing Agencies, which improved again for the Q4 in a row, representing a reduction in agency usage of 58% since its peak in December 2022. We're also thrilled to see lower turnover for the 3rd year in a row, which is a result of our local leaders focus on our customer second philosophy, which has and will continue to result in better patient care and outcomes. Likewise, we are also encouraged to see the pace of wage inflation continue to slow along with improvement in our ability to successfully recruit new talent. As of the end of the quarter, we saw net new hires increase by approximately 6,000 employees over the course of the year, Which is particularly impressive given that from the start of the pandemic in 2020 until December 2023, There has been a 9% reduction in employment for the skilled nursing sector.

Speaker 2

We are confident that by being true to our cultural values, strong clinical results and proven operating principles that the near and long term future is bright. We are humbled by what we were able to accomplish in 2023, but we are eager to continue to drive improvements in our existing portfolio and take advantage of the acquisition opportunities that we see on the horizon. We are issuing our 2024 earnings guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of $4,130,000,000 to $4,170,000,000 The midpoint of this 2024 earnings guidance represents an increase of 13% over our 2023 results and is 30% higher than our 2022 results. The annual guidance comes on top of the extraordinary growth we experienced in the last few years. To put this performance in perspective, since we spun out Pennant Group in 2019.

Speaker 2

We have seen adjusted EPS grow by 168% with a compound annual growth rate of 28%. The performance is not due to some large event or single transformative transaction, but instead is a result of consistent growth and performance quarter after quarter, which comes from following the proven Ensign principles. We are excited about the upcoming year and confident that our partners will continue to apply our proven locally driven healthcare model. As we evaluate our expanding portfolio, we continue to see enormous organic growth potential within our existing portfolio and are very excited about the continued growth in occupancies that we experienced during the Q4 and that continued so far in the Q1 of this year. There are so many opportunities in front of us to improve in expense management and drive occupancy and skilled mix as we continue to successfully unlock value in the dozens of recently acquired operations.

Speaker 2

We are poised to again showcase our ability to find, acquire and transition performing and underperforming operations by applying proven Ensign principles developed over 2 decades. When we consider the health of our organization, combined with our culture and proven local leadership strategy, we are well positioned to have another standing year in 2024. Next, I'll ask Chad to provide some additional insights regarding our recent growth. Chad?

Speaker 1

Thank you, Barry. We are very excited about the 3 new operations and one real estate asset we added during the quarter and since, bringing the number of operations acquired since 2022 to 54. These new operations include a healthcare campus in Houston, Texas, which included the real estate assets that were acquired by StandardBear, one operation in Kansas, one operation in Nevada and our first campus in Tennessee, totaling an additional 528 new operational beds. These additions were all carefully selected amongst the many opportunities available to us and were chosen because of the huge clinical and financial potential. Following our recent SNF growth in 2023, occupancy and skilled mix days for the skilled nursing operations in the recently acquired bucket for 77.6% and 27.5% respectively for the quarter.

Speaker 1

When compared to our same store occupancy and skilled mix days of 79.9% and 30.9%, respectively. There is enormous upside in each of these new operations as they continue to transform into same store caliber operations. We also remind you that there is nothing about the designation of same store within our 3 buckets that should be seen as a cap on the occupancies that our more mature operations can achieve. Our leaders consistently drive remarkable improvement in our most mature assets, many of which achieve and maintain occupancies well into the 90 plus percent range as they seek and deliver on opportunities to expand their clinical capabilities into new functional areas and provide alternatives to long hospital stays. We are very optimistic about the organic growth potential within our existing portfolio, including our new acquisitions.

Speaker 1

Because Tennessee is our 1st new state in several years, I thought I would just briefly highlight our new market program. As most of you know, the foundational principle of our entire strategy is the recognition that post acute care is a locally driven business and the success or failure of any operation is largely determined by the quality of the leadership and division of the team leading each unique multimillion dollar business because we believe that so deeply we take entering into a new state very seriously. Long before we acquired our first asset in Tennessee, one of the most trusted and tenured leaders in our organization, Tyler Albertson identified that market as one with extraordinary potential. For years, Tyler successfully operated one of our flagship operations in California and later led one of our most dynamic markets in Southern California, developed a business plan for Ensign's growth in Tennessee and presented it to his partners. That business plan was debated and discussed and ultimately approved by his peers.

Speaker 1

Tyler carefully prepared to replace himself in his existing role as a market leader in Southern California and only after it was clear that he was leaving his old role in better hands than he found it, Tyler moved his family to Tennessee to begin the process of learning the dynamics of the market, meeting new talent and evaluating acquisition opportunities. After many months of preparation And after evaluating dozens of opportunities, Tyler and partners from other supporting geographies agreed to acquire our first building as of January 1. So far the transition has gone well and we fully expect all his hard work and preparation to pay off. Over the next several months as Tyler and his team of resources transition the initial acquisition, we anticipate that they will acquire additional operations to build a cluster of facilities over the next few quarters. As we have seen recently in South Carolina, eventually this will grow into multiple clusters, which will eventually comprise a sizable market.

Speaker 1

We can't wait to watch Tyler and his team of leaders and caregivers apply Ensign's operating principles in this new market and look forward to Tennessee becoming another reflection of the template of growth and development we've seen across our footprint over the last 25 years. We also remind you that we are now in 14 states and have significant bandwidth to grow in the other 36 states. The pipeline for new deals remains strong. We are lining up several exciting opportunities and expect to announce several deals over the coming months and we remain poised to grow with over $1,000,000,000 in dry powder for future investments. Our local leaders continue to recruit future CEOs of Ensign affiliated operations and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead.

Speaker 1

We continue to see evidence that many operators in this industry are struggling and we expect that the operating environment will translate into many near and long term opportunities to both lease and acquire post acute care assets. However, we do not set arbitrary growth goals and will remain true to our disciplined acquisition strategy, only growing when we have the right leaders in place and the pricing is right. We continue to provide additional disclosure on StandardBear, which is comprised of 108 properties owned by the company and leased to 79 affiliated skilled nursing and senior living operations and 30 operations that are leased to 3rd party operators. Each of these properties are subject to triple net long term leases and together generated rental revenue of $21,900,000 for the quarter, of which $17,700,000 was derived from Ensign affiliated operations. Also for the quarter, we reported $14,200,000 in FFO and as of the end of the quarter had an EBITDAR to rent coverage ratio of 2.2x.

Speaker 1

And with that, I'll turn the call over to Spencer, our COO to add more color around operations. Spencer?

Speaker 3

Thank you, Chad, and hello, everyone. As was mentioned earlier, the continued success we During the Q4 was a result of continued improvements in occupancy and staffing, combined with hundreds of small but Meaningful Innovations by Facility Leaders and Clusters.

Speaker 4

Today, I'd like

Speaker 3

to share 2 examples that demonstrate how diverse geographies and business lines are maturing and in turn providing more and more opportunities for growth and expansion as we enter 2024. The first facility highlight is the Healthcare Resort of Topeka, Kansas. This 94 bed skilled nursing and senior living campus has consistently grown since opening in 2016. While the facility has maintained a high census and been successful for many years, Going into 2023, CEO, Ben Leiker and Director of Nursing, Amanda Perron, together with their interdisciplinary team developed strategy to take performance to the next level by leveraging their reputation and the stability in nurse staffing to improve skilled mix in the SNF and improve revenue quality in their senior living. The strategy involved concerted efforts to develop clinical programs that met their local hospitals' discharge needs, as well as strengthening partnerships with key managed care plans and conveners.

Speaker 3

As a result, the senior living section of the campus maintained 100% occupancy for all of 2023, And the campus grew revenues by 13.4% over prior year quarter. During that same period, skilled Mixed days improved by 17%, driven specifically by an increase in managed care days of more than 40%. This growth in acuity was accompanied by an equal focus on recruiting and retention, which led to one of the lowest turnover rates in the market and 0 agency staffing during all of 2023. The stability in staffing resulted in great regulatory performance, including no survey deficiencies, and allow the facility to avoid much of the cost associated with orienting and training new staff. As a result, HCR Topeka accomplished its best ever EBIT performance for 2023, including 70% EBIT growth in Q4 over the prior year quarter.

Speaker 3

The second example comes from Riverside, California. The Grove Healthcare and Wellness Center is a thriving campus, which includes 38 skilled nursing beds and 90 senior living units. Led by Executive Director, Michelle Mora, the skilled nursing portion has Been operated as an Ensign affiliate since 2009. However, in April 2022, the Grove Senior Living portion was acquired from Pennant Group. And over the past 18 months, the Unified Campus has been enjoying exceptional growth.

Speaker 3

As they have operated more as a healthcare campus, DON Maria Manalo and her team are able to provide integrated and comprehensive care to more and more acute residents within the senior living. At the same time, the SNF portion of the campus has been able to utilize the senior living to safely discharge residents to lower levels of care, which has allowed for more skilled admissions and has increased the skilled mix by 14% and revenues by 23% in Q4 2023 compared to the same quarter for 2022. Over the past year, community partners, including managed care plans, have taken note, and occupancy has frequently hit 100%, In large part due to an 88% increase in Managed Care Census over prior year quarter. Perhaps the most important aspect of the Grove success story It's incredibly supportive culture that the team has developed. For example, 100% of The Grove's employees voluntarily contribute a portion of their paychecks to Elevate Charities, our charitable fund that provides emergency assistance for employees in crisis.

Speaker 3

These same employees have also bound together to eliminate agency staffing and reduce turnover, which in turn have contributed to a 103% increase in EBIT over prior year quarter at the Skilled Nursing and to an all time record EBIT for the campus as a whole. These examples demonstrate the strength of our operating model and how frontline leaders and their local teams are innovating and providing healthcare solutions to their communities and to the residents they serve. With that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open up for some questions. Suzanne?

Speaker 5

Thanks, Finster, and good morning, everyone. Detailed financials for the year and the quarter are contained in our 10 ks and press release filed yesterday. Some additional highlights for the year include consolidated GAAP revenues and adjusted revenues were both $3,730,000,000 an increase of 23%. GAAP diluted earnings per share was $3.65 and GAAP net income was $209,400,000 adjusted diluted earnings per share was $4.77 an increase of 15.2 percent and adjusted net income was $273,500,000 an increase of 16%. Highlights for the quarter include consolidated GAAP revenues and adjusted earnings were both $980,400,000 an increase of 21%.

Speaker 5

GAAP diluted earnings per share was $0.38 and GAAP net income was $21,700,000 Adjusted diluted earnings per share with $1.28 an increase of 16.4 percent and adjusted net income was 73,700,000 an increase of 17.5%. Other key metrics as of December 31, 2023 include cash and cash equivalents of $509,600,000 and cash flow from operations of $376,700,000 We continue to delever our portfolio, achieving a lease adjusted net debt to EBITDA ratio of 1.98 times, which is particularly noteworthy given the amount of growth we have taken on over this last year. In addition, we currently have over 5 $193,000,000 of available capacity on our line of credit, which when combined with our cash on our balance sheet give us over $1,000,000,000 of dry powder and feature investments. We also own 113 assets, of which 108 are held by StandardBear and 89 of which are owned completely debt free and continue to gain significant value over time, adding even more liquidity to help our future growth. During the quarter, we increased our quarterly cash dividend to $0.06 per share, marking the 21st consecutive annual dividend increase.

Speaker 5

Given our strength, we plan to continue our 22 year history of paying dividends in the future. CMS continues to review the thousands of comments they have received as they look to finalize a federal minimum staffing rule. However, if the rule is implemented, we do not expect the rule to impact us in 2024. Also, during the quarter, we settled a litigation matter that we previously disclosed. We are pleased to put this matter behind us and look forward to focusing solely on our mission of providing compassionate care to patients and achieving our goal of setting the standard for high quality healthcare services throughout the industry.

Speaker 5

As Barry mentioned, we are providing our annual guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of 4,130,000,000 to $4,170,000,000 We've evaluated multiple scenarios and based on the strength in our performance and positive momentum we've seen in occupancy and skilled mix as well as some additional strengths in Medicaid and managed care programs. We have confidence that we can achieve these results. Our 2024 guidance is based on diluted weighted average common shares outstanding of 58,500,000, a tax rate of 25%, the inclusion of acquisitions closed in the first half of twenty twenty four, the inclusion of management's expectations for Medicare and Medicaid reimbursement tax, with the primary exclusions coming from stock based compensation and certain expenses related to specific litigation matters arising outside the normal course of business. Additionally, other factors that could impact quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and scope mix, the influence of the general economy and census and staffing, the short term impact of our acquisition activities, Variations in Insurance Quotes and Other Factors. And with that, I'll turn it back over to Barry.

Speaker 5

Barry?

Speaker 2

Thanks, Suzanne. As we wrap up, I can't emphasize enough 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 never cease to be amazed by their impressive resiliency as they focus on supporting one another in new and innovative ways. Their commitment has blessed the lives of so many, including our own. We're excited about our future because of our amazing partners and we have We'll now turn over to the Q and A portion of our call.

Speaker 2

Operator, can you

Speaker 5

Our first question comes from the

Operator

line of Ben Hendricks with RBC Capital Markets. Ben, your line is now open.

Speaker 4

Thank you very much. Great quarter, guys. Suzanne, I was hoping you could follow-up on some of your comments On the top line guidance, really good revenue outlook there. And we're just wondering if we could kind of break down a little bit more of the drivers there. For example, what you're thinking about in terms of There, for example, what you're thinking about in terms of how occupancy phases through the year.

Speaker 4

Also you mentioned the rate backdrop and strong Medicaid reimbursement. Just want Kind of see what you're seeing there and how sustainable that is in the next couple of years? And then just any commentary on contribution from recent acquisitions that we could see ramp up this year. Thanks a lot.

Speaker 5

Yes. Thanks, Ben, for the great question. As we look at the guidance for this year, a couple of things that we take into consideration. As you know, we have historically given you guys some visibility into revenue by breaking it out into the 3 buckets, same store, transitioning and recently acquired. And as we kind of look at those 3 different buckets, What we're kind of projecting for great rate growth our overall growth in each one of the buckets is mid single digits kind of in that same store bucket and that transitioning bucket kind of high single digits and then in the recently acquired low double digits.

Speaker 5

As we stated in the remarks, acquisitions were including through the first half of the year. No, not a ton of acquisitions. And as we stated in previous years, when we bring those acquisitions in, we're really bringing in that revenue. And it's going to kind of hit on that margin line as we don't expect a lot from in those 1st years. For occupancy, continued growth is what we are anticipating in 2024 and with that seasonality all built into that.

Speaker 5

So overall, we're really excited about where we're positioned on rates. One of the strongest rate years that we've had was in 2023. As you know, a lot of that comes in the late Q3, early Q4. So most of that rate growth will then push into 2024 and then really looking at some continued Nice growth in the kind of late Q3, Q4 of 2024 as well. Not as probably strong as what we saw in late 2023, but relatively strong compared to historical.

Speaker 2

Yes. About contribution from acquisitions, obviously, the ones that We obviously have some visibility into some deals that we'll do this year, and we don't expect Much, if any, contribution from those. The ones that we acquired last year, overall are ahead of schedule, largely due to the North American transition. It went extremely well. So, some of our optimism in our guidance comes from The kind of accelerated growth that we saw from those buildings that will continue throughout this year as they mature.

Speaker 4

Thank you very much. And just one quickly, we are also getting questions. I know the legal settlement kind of has brought into the spotlight some of the typical kind of legal activity that happens in the healthcare industry, but Also, we're getting questions on, we noticed that there was another kind of DOJ CID issue that might have been raised earlier this month regarding Medicare and Texas Medicaid. Just wondering to see if that's kind of a similar situation, if that's something that's related to This issue that you just settled or if it's separate, just your take on that. Thank you.

Speaker 2

Yes. I mean, Sid, the settlement from earlier that we've been disclosing for years now It's resolution on a case from 2018 that began as a relator initiated DOJ inquiry. And when the DOJ declined to intervene, that turned into a civil case that just stretched and stretched over many years. We brought in a mediator earlier this year to find a suitable resolution. And we found 1 and this saves us from additional defense costs, which was significant time and distraction as well because there is a large breadth to the scope of it.

Speaker 2

And it allows us to move forward without any overpaying of liability. So, we just felt like The cost and the timing of distraction made it important for us to just get that one behind us. So that's that one. And like I said, we've disclosed that over the course of many years in our filings. This new one is unrelated.

Speaker 2

And while there's some references to Some Texas Medicaid issues. It's a fairly general inquiry. This is Healthcare. When you're dealing with government payers, there's always the chance that they're going ask questions and do audits. We don't know what kind of what's driving it necessarily.

Speaker 2

We don't have a whole lot of details on it. And we've retained really, really good outside counsel to help represent us on it and Get to the bottom of what they're asking for. But the yes, it is totally unrelated to the prior settlement.

Speaker 4

Thank you very much for that and I appreciate you

Speaker 6

taking the questions.

Speaker 2

Thanks Ben.

Operator

Your next question comes from the line of Scott Fidel with Stephens. Scott, your line is now open.

Speaker 6

Okay. Thank you. Actually just wanted to start just double click on Ben's question just on the Medicaid rates and one state and specifically, you had an important California re basing process that was underway for a while. And I think at this point, You should have pretty strong visibility into that. So maybe if you can give us an update on sort of how that is playing out and how you expect that to impact revenue, costs and margins in 2024.

Speaker 5

Great question, Scott. Obviously, California was one of the few states just to refresh everyone's memory that continue to pay out the additional 10% FMAP in 2023. What the state has done It's really gone and said, hey, how do we continue to make sure that we make operators in a great position. And so They went through a process of instituting a rebase program that starts January 1, 2024. At the same time as that, they also went and did a went and re upped their supplemental program that they haven't had in place for a couple of years now.

Speaker 5

And so really how we're looking at those and how the state is really looking at those is the combination of those 2 really make up the overall state rate. And so we'll have some folks that will enter into the rebasing program where their rates will be raised and based upon kind of the costs that are there and the increase in costs that we've seen. And then as a part of that program, they will also have to do some additional costs for benefits and other things, but overall really, really happy with that. On top of that, we'll also be having this supplemental program that allows us to earn additional funds for quality improvement. So all that goes into effect in January.

Speaker 5

So January 1, it went into effect. The state where it's at right now, it actually is with the CMS for their state approval, because every state has to get all of their Medicaid rates approved. And so overall, we're really excited about the combination of those two programs together. There might be a little bit of hit on margin because there is some cost associated with getting some of that revenue, but overall feel really great about the additional revenue that's going to come through and the cost that we have to pay for it.

Speaker 6

Okay, great. And then next question, just I want to ask you just on EBITDA margin and on cost of services. First in the Q4, I know that you have the deferred comp program that can affect that. I think your slide deck literally just came out, so we haven't had a chance to review that yet. But maybe just walk through the interplay for us of The deferred comp program on the 4Q margin and then talk about in your outlook for 2024, How you sort of see core EBITDA margins trending between the low and the high end of the ranges?

Speaker 5

Starting with the 2023, The best kind of clarity that we try to give to you is in like we mentioned like you mentioned in the investor deck, slides 4647. Actually, one slide gives you it on a quarterly basis and the other slide gives it to you on a year to date basis. Looking at Q4 specifically, when we go back and look at the if you take Q3 relative to Q4, 50 basis input increase in cost of services. When you break down that 50 basis points, 30 of those basis points are related to the DCP. And remember that the amount with those earnings really is just offset below the line.

Speaker 5

So This isn't it's like an accounting thing, not necessarily an earnings thing. And so when you look at it, it's neutralized below the line. So Those 30 basis points are in net income. Those are neutralized. So that's just a P and L placement.

Speaker 5

And then the other 20 basis points Really are what we've been talking about all year long. This recently acquired operations when they make up a more significant portion Of the overall cost, you're going to have the margin impacted by that. And you can see that our recently Operations continue to make up a significant portion of our costs. And again, quarter over quarter over quarter over quarter increased were a higher percentage of our overall revenue. A couple of other things with Q3 to Q4, you always have a little bit higher costs associated with benefits and GLP and we did have some COVID costs.

Speaker 5

So You've got some a little bit noise to make of that additional 20 basis points up there, but that kind of rounds out 2023. Pushing into 2024, What we try to get you guys to do is neutralize that deferred comp impact, kind of getting that out of there because again that It's below the line and above the line and so kind of making that all neutralized, really think that Overall, neutralize effect will have really consistent margins, what we saw in 2023 and before. And so, overall, consistent to slightly improved on the top end.

Speaker 6

Okay, great. Very helpful. Then just last question. In 2023, you had really significant growth in both operating cash flow and free cash flow as well. And Just trying to think about how to model off of that given again a very sort of sharp uplift in operating cash flow.

Speaker 6

So Any guidance you can give us on thinking about operating cash flow, any sort of working capital or other items that we should be contemplating as trying to trend out our cash flow forecast for 2024.

Speaker 5

Yes. As you kind of think through it, obviously in Q1, we always have a significant hit in cash And for a couple of different reasons, right? That's when you see the outflow of our incentives go out, all the year end incentives get paid out in Q1. So you'd anticipate that outflow going on in Q1. It will be a little bit different pattern that we saw in 2023.

Speaker 5

Remember in 2023, we were able to for a lot of our taxes all the way to Q4. And so you're going to see those taxes really be spread out throughout the year in 2024. Other than that, we just don't have as much lumpiness other than the timing of when we'll pay out the settlement of the litigation matter that we disclosed. There's a little unclarity there. So that will probably my best guess would be maybe late Q2, early Q3, but that will be in there.

Speaker 5

But other than that, I think we'll have nice more steady cash flow, but those are some of the things that will make it a little bumpy in Q1 and then kind of steadied out throughout the rest of the year.

Speaker 6

Got it. So overall, probably fair to think about operating cash flows trending generally consistent with our earnings in 2024?

Speaker 5

Correct, with the exception of Q1, that little bit of hit I talked about and then the other things being that the DOJ.

Speaker 6

Yes, absolutely, yes, I mean, for the overall year. Okay. All right, great. Well, thanks a lot.

Speaker 3

Appreciate it.

Speaker 1

Thanks, Scott.

Operator

Thank you. And that is currently all the questions that we have in our queue. At this point, I would like to hand the call back over to Barry for some closing remarks.

Speaker 2

Awesome. Thanks, operator, and thanks everyone for joining us today. We appreciate your support as always and look forward to an amazing 2024.

Speaker 5

Thank you. And ladies and gentlemen, that does conclude today's call. Thanks again for joining. You may now disconnect.

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Key Takeaways

  • Ensign reported a Q4 occupancy of 79.9% (up 240 bps YoY), with managed care revenue +12.3% and census +3.5%, a skilled mix increase of 110 bps sequentially, agency nursing usage down 58% since its peak, turnover at a three-year low and net hires up ~6,000 in 2023.
  • For FY 2023, Ensign delivered GAAP and adjusted revenues of $3.73 billion (+23%), GAAP diluted EPS of $3.65 and adjusted EPS of $4.77 (+15.2%); Q4 revenues were $980.4 million (+21%) with adjusted EPS of $1.28 (+16.4%).
  • The balance sheet remains strong with $509.6 million in cash, over $1 billion of “dry powder,” a lease-adjusted net debt/EBITDA ratio of 1.98× and the 21st consecutive annual dividend increase.
  • Ensign issued 2024 guidance of $5.29–$5.47 in EPS and revenues of $4.13–$4.17 billion, implying ~13% EPS growth on continued occupancy gains and rate momentum.
  • Since 2022 Ensign has added 54 operations (528 beds) across new and existing markets, including its first Tennessee campus, underpinned by a disciplined, locally driven acquisition model and deep pipeline.
A.I. generated. May contain errors.
Earnings Conference Call
The Ensign Group Q4 2023
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