The Ensign Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 9, 2022. This is an annual report, not a standalone fourth-quarter results filing. Amounts below are in U.S. dollars.
Business context
Ensign is a holding company whose subsidiaries provide skilled nursing, rehabilitation, senior living and ancillary services, and own and lease healthcare real estate. At year-end, it operated 245 facilities in 13 states, including 214 skilled nursing operations and 22 campuses, with 25,032 operational skilled nursing beds. Skilled nursing facilities generated approximately 96% of annual revenue.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $2,627.5 million | $2,402.6 million |
| Income from operations | $260.5 million | $223.2 million |
| Net income attributable to Ensign | $194.7 million | $170.5 million |
| Diluted EPS | $3.42 | $3.06 |
| Operating margin | 9.9% | 9.3% |
| Net margin attributable to Ensign | 7.4% | 7.1% |
| Cash from operating activities | $275.7 million | $373.4 million |
| Cash and cash equivalents at year-end | $262.2 million | $236.6 million |
Revenue grew 9.4%; skilled services revenue rose 10.3% to $2,523.2 million. Growth reflected acquisitions, higher skilled-service rates and state relief funding. Medicaid and Medicare together represented 73.6% of service revenue. The company reported non-GAAP Adjusted EBITDA of $336.6 million, up from $292.8 million; this measure excludes specified items and should not be treated as a substitute for GAAP results.
Cash from operations declined $97.7 million, primarily from working-capital movements, including payment of deferred payroll taxes and timing of receivable collections, income taxes and expenses. Investing activities used $173.9 million, including $69.6 million of capital expenditures and approximately $104.2 million for acquisitions. Financing activities used $76.1 million.
Year-end long-term debt was $160.0 million, primarily HUD-insured mortgages and notes; there were no borrowings under the $350 million revolving credit facility, although $6.7 million of capacity secured letters of credit. Cash exceeded reported debt. Separately, future operating lease payments totaled $1.84 billion; recorded operating lease liabilities were $1.11 billion. Current assets were $639.7 million and current liabilities were $523.1 million.
Material changes versus FY2020
- Revenue increased $224.9 million and net income attributable to Ensign rose $24.2 million. Income from operations increased $37.3 million.
- Skilled nursing occupancy was 72.8%, down from 73.5%; skilled mix by patient days was unchanged at 31.7%. Acquisitions added 17 stand-alone skilled nursing operations and 1,832 beds during 2021.
- State relief revenue increased to $75.2 million from $45.4 million and was recognized in Medicaid revenue, subject to limits tied to COVID-related expenses. Other ancillary revenue declined amid pandemic effects.
- General and administrative expense rose 17.0% to $151.8 million, including $5.7 million of costs related to forming Standard Bearer REIT. The effective tax rate increased to 23.4% from 21.3%.
- Debt rose from $117.8 million to $160.0 million, while revolving-credit borrowings remained zero. The company repaid the remaining $102.0 million of Medicare accelerated payments in March 2021.
Outlook, risks and unusual items
Management expected sequential monthly occupancy to resume growing in the first quarter of 2022, at a more moderate pace. It cited strengthening hospital and other healthcare partnerships and continued emphasis on higher-acuity care. The company budgeted approximately $70 million for 2022 renovations. The filing provides no clear numerical earnings or revenue guidance.
COVID-19 variants continued to affect census, staffing, costs and operations. Other significant risks include labor shortages and wage inflation, reliance on government reimbursement, regulatory surveys and payment audits, litigation and self-insurance estimates, and compliance with federal and state vaccination requirements. Thirteen operating subsidiaries had Medicare-related reviews scheduled, on appeal or in dispute; one facility was in CMS’s Special Focus Facility program.
A DOJ investigation concerning referral-source arrangements remained a potential contingency: DOJ declined to intervene in a related relator action in 2020, but the relator continued pursuing claims. The company also disclosed a House subcommittee information request concerning nursing homes’ pandemic response. Ensign stated it could not predict the outcomes. Its $69.7 million general and professional liability reserve was identified as a critical audit matter because estimating claim reserves involves significant judgment.
Effective January 1, 2022, the company formed Standard Bearer REIT, covering 93 owned properties with an estimated fair value of approximately $1.0 billion. It intends for the REIT to elect REIT tax treatment beginning in 2022. This post-year-end structure, including new intercompany leases, may affect future segment reporting and economics.
The independent auditor issued unqualified opinions on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Investor verification priorities
- Assess how much revenue and earnings growth came from acquisitions, rate and acuity mix, versus temporary state relief funding.
- Monitor occupancy recovery, staffing availability and labor costs, particularly against the company’s 2022 outlook.
- Review Medicare and Medicaid reimbursement exposure, pending audits and the relator lawsuit related to the DOJ investigation.
- Evaluate lease commitments and cross-default exposure alongside mortgage debt, revolver availability and cash generation.
- Confirm the REIT’s tax election, valuation assumptions, lease terms and effects on consolidated results once subsequent-period disclosures are available.