Q1 2024 Earnings Summary
- Strong Occupancy Trends and Demand: ENSG is experiencing robust occupancy trends that surpass pre-pandemic levels, with strong demand continuing into the second quarter and beyond. They expect continued occupancy and skilled mix growth, indicating significant organic growth potential.
- Favorable Reimbursement Rates Support Revenue Growth: ENSG is benefiting from strong and solid current year's rates, with states rolling FMAP dollars into underlying rates. They are very pleased with the proposed Medicare rate increase coming into effect in Q4, supporting revenue and profitability growth.
- Effective Management of Potential Regulatory Impacts: ENSG is proactively preparing for potential minimum staffing ratios by focusing on controllable factors like being an employee-centric environment, eliminating reliance on third-party staffing agencies, and reducing turnover. This positions the company to handle changes and potentially outperform competitors who might be more affected by regulations.
- Expansion into new areas like Long-Term Acute Care (LTAC) facilities involves regulatory and billing complexities that are new to the company, such as differences in the regulatory environment and technical aspects of billing with the DRG coding system. This may pose operational challenges and financial risks as the company learns to navigate these new areas.
- Upcoming minimum staffing regulations may have a greater impact on the company than anticipated. While management believes they won't need to make significant operational changes in the next couple of years, the new staffing ratios for RNs and CNAs will take effect in 2025 and 2027, potentially leading to increased labor costs and operational challenges.
- Seasonal declines in occupancy and skilled mix during Q2 and Q3 could negatively affect revenues and earnings more than expected. Although management is optimistic about occupancy trends, they acknowledge that seasonality could lead to a drop-off, especially in skilled mix, which may impact financial results.
-
Medicare and Medicaid Rates
Q: What's the outlook for rates this year and next?
A: Management is pleased with the strong and solid rates for the current year, noting significant increases due to the inclusion of FMAP dollars into base rates. They are also pleased with the proposed FY '25 Medicare rate increase of a little over 4%, effective October 1. While it's early, they have positive visibility into FY '25 Medicaid rates as states have been integrating FMAP dollars into underlying rates, providing long-term stability. -
Occupancy Trends and Guidance
Q: How are occupancy and skilled mix trending, and what's the outlook?
A: Occupancy trends are strong, and demand remains high. Management is optimistic about a strong summer despite typical seasonality. They expect potential seasonality impacts in Q2 and Q3 but anticipate occupancy to pick up in late Q3 and into Q4. The low end of their guidance factors in higher seasonality, while less seasonality could bring results toward the high end of guidance. -
Staffing Ratios Impact
Q: How will upcoming staffing ratios affect operations?
A: The staffing ratios for RNs and CNAs won't take effect until 2027. Until then, management doesn't anticipate significant operational changes. They plan to focus on controllable factors like labor control, employee-centric initiatives, and reducing reliance on third-party staffing agencies to ensure they're well-prepared when the regulations come into play. -
Acquisition Strategy
Q: Are you expanding into non-SNF services due to recent acquisitions?
A: The recent acquisitions of IL, AL, and an LTAC were coincidental and part of healthcare campuses primarily focused on skilled nursing. Their strategy remains unchanged, focusing on SNF operations that may include other services on campus. They're excited about the LTAC acquisition of 43 beds, viewing it as a small investment opportunity to expand into related services while maintaining their primary focus on SNF.
Research analysts covering ENSIGN GROUP.