The Ensign Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided filing text does not give a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
Ensign is a holding company whose independent subsidiaries provide skilled nursing, senior living, rehabilitation and ancillary services, and own or lease healthcare real estate. Skilled nursing facilities generated approximately 96% of revenue. At year-end, the company operated 297 skilled nursing and senior living facilities in 13 states and owned 113 real estate properties.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $3.729 billion | $3.025 billion | +23.3% |
| Income from operations | $255.4 million | $296.8 million | -14.0% |
| Net income | $209.9 million | $224.7 million | -6.6% |
| Net income attributable to Ensign | $209.4 million | $224.7 million | -6.8% |
| Diluted EPS | $3.65 | $3.95 | -7.6% |
| Cash from operating activities | $376.7 million | $272.5 million | +$104.2 million |
Operating margin declined to 6.8% from 9.8%; net margin declined to 5.6% from 7.4%. Revenue growth reflected acquisitions, higher occupancy and daily rates. Expenses rose faster than revenue, including skilled-services costs (+24.9%) and general and administrative expense (+65.6%); litigation expense was a major contributor to the latter increase.
- Cash and liquidity: Year-end cash and cash equivalents were $509.6 million, versus $316.3 million a year earlier. Current assets were $1.047 billion and current liabilities were $734.7 million.
- Investment and capital spending: Capital expenditures were $106.2 million, up from $87.5 million. Management budgeted approximately $110 million for 2024 renovations. The filing separately reports approximately $109.9 million of investments at year-end.
- Debt and leases: Long-term debt was $152.4 million, principally fixed-rate HUD-insured mortgages; there were no borrowings under the $600 million revolving credit facility. Future operating lease payments totaled $2.676 billion; balance-sheet lease liabilities were $1.722 billion.
- Cash flow: Investing activities used $182.7 million and financing activities used $0.6 million. Operating cash flow included a $48 million litigation-related adjustment; the filing does not describe this as a cash payment during 2023.
- Payor exposure: Medicare and Medicaid together represented 72.6% of service revenue. Medicaid was the largest individual source at 39.4%; Medicare contributed 26.6%.
Changes versus 2022
- Skilled-services revenue increased 23.1% to $3.579 billion. Same-facility skilled-services revenue rose 7.9%; acquisitions contributed substantially to reported growth.
- Skilled nursing occupancy increased to 78.5% from 75.3%. However, skilled mix declined: skilled days were 30.4% of patient days versus 31.8%, and skilled revenue was 50.2% versus 52.0%.
- The company added 26 operations during 2023, comprising 25 stand-alone skilled nursing operations and one campus, adding 2,483 operational beds and 94 senior living units.
- State relief funding recognized as revenue declined to $64.8 million from $81.8 million as temporary pandemic-related funding phased down.
- Standard Bearer rental revenue increased 13.1% to $82.5 million, while segment income increased 4.3% to $29.1 million. Its year-end real estate portfolio fair value was approximately $1.1 billion.
- Litigation expense included in the company’s non-GAAP reconciliations was $60.8 million, versus $4.6 million in 2022. General and professional liability reserves increased to $117.7 million from $87.0 million.
Outlook, risks and unusual items
- Management said it expects occupancy and skilled mix seasonality to return toward historical patterns and cited continuing opportunities for organic growth, acquisitions, higher-acuity care and operating improvements. The filing provides no formal numerical earnings or revenue guidance.
- Management stated that cash, investments, projected operating cash flows and available financing should support normal operations for at least the next 12 months.
- CMS’s proposed minimum staffing standards could increase labor costs and constrain capacity; the rule’s final requirements and financial effect were not known at filing. Labor availability, wage inflation and staffing compliance remain material risks.
- Changes to Medicare and Medicaid reimbursement, Medicaid eligibility redeterminations, audits, survey enforcement and quality-rating measures could affect revenue, costs and facility operations.
- In January 2024, the company received a DOJ Civil Investigative Demand concerning claims to Medicare and Texas Medicaid for services allegedly unnecessary or inconsistent with reimbursement requirements. The investigation covers January 1, 2016 onward; the company said it would cooperate and could not predict the outcome.
- A separate qui tam civil case concerning medical-director relationships reached a proposed $48 million settlement on January 19, 2024, subject to DOJ and other government review. The company stated the settlement includes no admission of wrongdoing. A November 2023 Arizona medical-negligence jury verdict against a subsidiary is being appealed.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Self-insurance liabilities for general and professional liability claims were identified as a critical audit matter because of estimation uncertainty.
Important facts for investors to verify
- Whether the $48 million settlement receives required government approval, and how final settlement accounting and payment timing affect results and cash flow.
- Developments, potential exposure and any required disclosures arising from the DOJ investigation and the 40 subsidiaries with reviews scheduled or in process as of the filing period.
- Whether occupancy gains persist and skilled mix stabilizes, particularly as acquisition contributions and post-pandemic comparisons change.
- The impact of final federal or state staffing rules, wage changes and reimbursement adjustments on operating costs and facility capacity.
- The adequacy and future development of self-insurance reserves, lease commitments and other obligations, including the substantial long-term lease burden.