The Ensign Group announces record $542.0M total revenue for full-year 2009

Feb 18 2010

The Ensign Group, Inc. (Nasdaq: ENSG), the parent company of the Ensign™ group of skilled nursing, rehabilitative care services, hospice care and assisted living companies, today reported record results for the fourth quarter and full year 2009.

Financial Highlights Include:

• Total revenue was a record $542.0 million for the year and $146.6 million for the quarter, up 15.5% and 18.3% over the comparable periods in 2008;
• Same-store skilled mix by revenue increased to 50.8% for 2009 from 50.0% in the prior year;
• The company's same-store skilled revenue increased by 6.7% for the year, and by 9.3% for the quarter, all notwithstanding the negative impact of Medicare's 1.1% net market basket decrease, which took effect on October 1;
• Consolidated EBITDAR climbed 19.7% to $86.9 million for the year, with consolidated EBITDAR margins improving by 57 basis points to 16.0%;
• Consolidated net income for the year climbed 18.1% to $32.5 million; and
• Adjusted net income for the year was $33.4 million, or $1.60 per diluted share.

Operating Results

Ensign's President and Chief Executive Officer Christopher Christensen congratulated Ensign's facility leaders and their teams on the record performance. "Delivering on our earnings estimates in the face of 2009's reduced reimbursement rates was the result of an absolute team effort involving every member of the organization," he said.

Calling the achievement "a direct result of our locally-centered, one-facility-at-a-time business model," Mr. Christensen stated that, "With intelligent and empowered leaders at the head of every operation, we remain extremely nimble and ready to adjust to nearly any challenge, market by market and facility by facility, regardless of the uncertainties these markets may present."

He reminded shareholders that anticipated reimbursement reductions had prompted a reduction in revenue guidance midway through 2009, but Management nevertheless left earnings guidance for the year unchanged. With $542 million in revenues, and an adjusted $1.60 per fully diluted share, both targets were met.

He noted that the company achieved these results while actively acquiring additional assets, with 17 new facilities and one hospice business flying the Ensign banner since January 1, 2009. The majority of the acquisitions came in the second half of the year, and several were initially dilutive to earnings, as expected.

Executive Vice President Greg Stapley discussed Ensign's 2009 growth, saying, "In this down market, we remain largely contrarian in our investing approach," and noting that the company will likely "head for the sidelines again" if seniors housing starts shifting back to a seller's market. In the meantime, he reaffirmed that Management expects to continue the pattern of disciplined growth. He also observed that opportunities for organic growth and improvement across the company's expanding portfolio appear more compelling than ever, as local leaders continue to focus on business fundamentals, and recent acquisitions start to mature.

Mr. Christensen also referenced Ensign's balance sheet and its industry-low debt ratio, noting that, even after the completion of a $40 million mortgage financing in the quarter, the company's adjusted net-debt-to-EBITDAR ratio is less than 2.2x. He further noted that the company continues to generate strong cash flow, with net cash from operations of $46.3 million for the year.

In other results, consolidated EBITDA grew by 25.2% for the year to a record $72.2 million. Same-store EBITDA climbed 15.6%, and EBITDA in "transitional" facilities – currently those acquired in 2006 and 2007 – rose 26.0% over 2008. Consolidated net income for the year climbed 18.1% to $32.5 million, with year-over-year net margins increasing 13 basis points to 6.0% for the quarter.

The fourth quarter was impacted by retroactive California reimbursement rate changes and quality assurance fee expenses, some of which were attributable to the third quarter but recognized in the fourth quarter. Adjusting for the retroactive changes, same-store skilled mix by revenue for the fourth quarter increased to 52.0%, up from 49.4% in the prior year quarter, consolidated EBITDAR rose 22.1% to $23.6 million, with same-store EBITDAR margins improving 127 basis points to 17.6%, consolidated EBITDA grew by 28.1% to a record $20.1 million, and net income for the quarter rose 18.9% to $8.8 million.

Fully diluted GAAP earnings per share were $0.41 for the quarter, compared to $0.38 per share in the prior year. Excluding only acquisition expenses, amortization of patient bases and the effect on net income of the previously-reported third quarter lease expiration, adjusted net income was $9.0 million or $0.43 per diluted share for the quarter. Fully diluted net earnings per share were $1.55 for the year, compared to $1.33 per share in the prior year, and excluding only acquisition expenses, amortization of patient bases and the effect on net income of the lease expiration, adjusted net income for the year was $33.4 million, or $1.60 per diluted share.  

A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to EBITDAR and EBITDA, as well as a reconciliation of GAAP earnings per share and net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release.

More complete information is contained in the Company's 10-K, which was filed with the SEC today and can be viewed on the Company's website at http://www.ensigngroup.net.

2010 Guidance Issued

Management issued 2010 annual guidance, projecting revenues of $605 million to $615 million, and net income of $1.75 to $1.79 per diluted share for the year. The guidance is based on diluted weighted average common shares outstanding of 21.4 million and assumes, among other things, no additional acquisitions or dispositions beyond those made to date, and an aggregate 1.0% projected decline in overall reimbursement rates. It also assumes that tax rates do not materially increase, that the therapy cap exceptions are retroactively extended through the end of 2010, and no negative impact associated with the implementation of RUGs IV and MDS 3.0.

Quarter Highlights

During the quarter, the company's Board of Directors declared a quarterly cash dividend of $0.050 per share of Ensign common stock, an increase from the prior quarterly cash dividend of $0.045 per share. Ensign has been a dividend-paying company since 2002.

Also during the quarter, the company announced that it procured a $40 million, five-year secured term loan from GE Capital's Healthcare Financial Services business, which was mainly used to replenish the company's acquisition fund. The loan is secured by mortgages on six of the company's previously-unencumbered properties. Of the company's 49 owned properties, 28 remain unencumbered, and may be leveraged to fund further expansion in the future.

The company also announced the acquisitions of ten long-term care facilities and a hospice business in six separate transactions between October 1, 2009 and January 1, 2010. The facilities and business were purchased with cash except as noted, and include:

• In Texas, Golden Acres, a 22-acre skilled nursing and independent living campus in greater Dallas. The Golden Acres acquisition also included a Dallas-area hospice business, Custom Care Hospice.
• In Utah, Castle Country Care Center, an 80-bed skilled nursing facility in Price, South Valley Care Center, a 116-bed skilled nursing facility in metropolitan Salt Lake City, and Rock Canyon Rehab & Care Center, a 200-bed skilled nursing facility in Provo, which were acquired with a combination of cash and seller financing.
• In Arizona, SunView Care Center, a 127-bed skilled nursing facility in Youngtown, which is adjacent to the popular Sun City retirement community.
• Also in Texas, Grand Terrace Rehabilitation & Healthcare Center, a 93-bed skilled nursing facility in McAllen, Alta Vista Rehabilitation & Healthcare, a 100-bed skilled nursing facility in Brownsville, and Veranda Rehabilitation & Healthcare, a 95-bed skilled nursing facility in Harlingen.
• Also in Utah, Ensign purchased the underlying real estate and other operating assets of Paramount Health & Rehabilitation Center, an 85-bed skilled nursing facility in Salt Lake City, which an Ensign subsidiary has been operating since December of 2008 under a lease with a purchase option.
• And in Idaho, Emmett Care & Rehabilitation Center, a 72-bed skilled nursing facility in Emmett, and Parke View Rehabilitation & Care Center, an 86-bed skilled nursing facility in Burley.

The ten acquisitions brought Ensign's growing portfolio to 79 facilities, 49 of which are Ensign-owned, with Ensign affiliates holding purchase options on eight of Ensign's 30 leased facilities. Management reaffirmed that Ensign is actively seeking additional opportunities to acquire both well-performing and struggling long-term care operations across the Western United States.