The Ensign Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Unless otherwise noted, dollar amounts below are in millions. Ensign provides post-acute healthcare services and owns, leases and operates skilled nursing, senior living and related businesses. It reported 232 facilities and ancillary operations at quarter-end.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $627.3 | $589.6 | Up 6.4% |
| Income from operations | $63.7 | $56.8 | Up 12.1% |
| Operating margin | 10.2% | 9.6% | Up 0.6 percentage points |
| Net income attributable to Ensign | $49.2 | $40.8 | Up 20.5% |
| Diluted earnings per share | $0.86 | $0.73 | Up 17.8% |
| Cash from operating activities | $34.3 | $27.1 | Up $7.2 |
Service revenue was $623.3 million and rental revenue was $4.0 million. Net income was $49.8 million before $0.6 million attributable to noncontrolling interests. The effective tax rate was 20.6%, versus 23.5% a year earlier. EBITDA was $76.7 million and Adjusted EBITDA was $80.9 million; both are non-GAAP measures.
Cash and cash equivalents were $155.5 million at March 31, down from $236.6 million at December 31, 2020. Cash used in investing was $12.2 million, including $15.3 million of property and equipment purchases. Cash used in financing was $103.1 million, primarily reflecting repayment of the remaining $102.0 million of Medicare advance payments. The company also reported $48.3 million of deferred employer Social Security taxes, with half due by December 2021 and the balance by December 2022.
At quarter-end, total debt was $117.0 million, including $2.8 million of current maturities; there were no borrowings outstanding under the $350 million revolving credit facility. Approximately $7.6 million of facility capacity secured letters of credit. Current assets were $513.3 million and current liabilities were $443.0 million. Operating lease liabilities totaled $1.024 billion, including $973.7 million long term. Management said cash, expected operating cash flow and available financing should cover operating needs for at least the next 12 months.
Changes versus the prior comparable period
- Revenue growth reflected acquisitions, higher skilled mix and reimbursement per patient day, and $16.5 million of state relief revenue recognized for COVID-19-related expenses.
- Occupancy remained substantially below the prior-year quarter: 71.1% versus 79.4%; actual patient days declined 8.1%. Management reported a sequential occupancy improvement from Q4 2020, including a 0.4% rebound at same facilities and 1.6% at transitioning facilities.
- Skilled mix improved: skilled patients represented 34.4% of nursing days versus 29.3%, and 55.6% of nursing revenue versus 50.1%.
- Transitional and skilled services revenue rose 7.7% to $601.0 million. Real estate segment income increased to $8.8 million from $6.3 million. Other service revenue fell 19.6% to $22.2 million, which the company attributed to COVID-19 effects on ancillary services.
- Medicare and Medicaid accounted for 74.1% of service revenue, up from 71.0%. The allowance for doubtful accounts increased to $11.1 million from $8.7 million at year-end.
Outlook, commentary and material risks
The company reported four new skilled nursing operations added under long-term leases during the quarter, representing 447 beds; subsequent to quarter-end, it added three operations and 322 beds. It budgeted approximately $65 million for 2021 renovations. No specific company revenue or earnings guidance was provided. Management described occupancy as recovering from pandemic lows but said the pace and extent of COVID-19’s financial impact remained uncertain.
During Q1, Ensign received $9.1 million in federal Provider Relief Funds and had returned all of those funds by quarter-end. It repaid the remaining $102.0 million of Medicare accelerated and advance payments in March. State relief funding recognized as revenue was limited to qualifying COVID-19-related expenses. The company noted that relief and reimbursement programs, pandemic conditions and occupancy could affect future results.
Key risks include changes in Medicare and Medicaid rates and rules, labor availability and costs, occupancy and patient mix, COVID-19 impacts, regulatory surveys and billing reviews, litigation, and the adequacy of self-insurance reserves. The company disclosed that two subsidiaries had Medicare reviews scheduled, on appeal or in dispute as of March 31; one was resolved in April. A relator continued litigation alleging False Claims Act and Anti-Kickback Statute violations after the Department of Justice declined to intervene. The company was also responding to a House subcommittee inquiry concerning COVID-19 in nursing homes. Management said it could not predict the outcomes of these matters. It reported compliance with debt covenants and lease requirements at quarter-end.
Important facts for investors to verify
- Whether occupancy and patient days continue to recover, and whether improved skilled mix and rates offset lower census.
- How much reported revenue and earnings depend on state relief payments, reimbursement adjustments and acquisition contributions.
- Cash flow after repayment of government advances, upcoming deferred payroll-tax payments, renovation spending and lease obligations.
- Developments in Medicare and Medicaid policy, including proposed FY2022 SNF rate changes and potential PDPM adjustments noted in the filing.
- Updates on Medicare reviews, the False Claims Act/Anti-Kickback allegations, the COVID-19 inquiry and actuarial self-insurance reserves.