By:
Dave Kingsley
A Business Success Story
Since its founding in 1999, The Ensign Group (Nasdaq: ENSG) has experienced remarkable financial success and growth. (See, e.g., Kingsley & Harrington (2021) *. That trend continues. The company reported a 3rd quarter 2022 revenue of $770 million – an increase of 15.2% over the same quarter in 2021 – and raised its expected 2022 revenue from $3.01 billion to $3.03 billion – an increase of 14% over 2021 and exceeding 2020 by 32%.
With a net quarterly income of $56,761,000 on a revenue $770,005,000 for the quarter, Ensign’s net was a positive 7.3%. The company reported Earnings Before Interest Taxes, Depreciation & Amortization or EBITDA (a far more important metric from a cash flow perspective) of 12.5%.
Across all industries and sectors, a net and EBITDA of 7.5% and 12.5% respectively reflect robust earnings. CEO Barry Port stated that, “Given the improvements we continue to see in occupancies, skilled mix and reimbursement, we are raising our annual 2022 earnings guidance again to $4.10 to $4.18 per share.” The company has 57 million shares outstanding.
Asset Management Firms/Institutional Investors are Bullish on Ensign Group Stock
On Friday, October 28, 2022, Ensign stock, which has been outperforming the DOW and S&P, closed at $89.96 per share. Since the beginning of a rapid decline in the market on November 29, 2021, the DOW has dropped from 35,135 to 32,861 and the S&P has declined from 4,655 to 3,901 (as of the closing bell on Friday, October 28, 2020) – declines of 6.5% and 16% respectively. Conversely, Ensign stock has increased from $77.20 per share to $89.96 in the same period – a 16.5% increase.
At the date of Ensign’s issuance of its 2021 proxy statement, beneficial owners included BlackRock (15.1%), Wasatch Advisors (11.1%), and Vanguard (11.0%). Hence, stock is concentrated in three asset management firms owning 37.2% of the company’s shares on behalf of pension, college endowment, insurance, sovereign wealth, 401K, and other pools of capital. Executives and board members own 4.7% of the 57 million shares. Ninety percent of Ensign stock is owned by asset management firms such as T. Rowe Price, State Street, PIMCO, etc. – in addition to the 40+ percent owned by BlackRock, Wasatch, Vanguard, and executives/BOD members (5% is required for beneficial ownership).
CEO Barry Port’s 2021 compensation package of $7,421,472 is approximately 209 times the typical CNA wage over one year of full-time work. CFO Suzanne Snapper’s compensation totaled $6.5 million, CIO Chad Keetch and COO Spencer Burton were awarded $4.3 million and $5.0 million respectively. Compensation of $23,259,112 for the four top executives in 2021 was an increase of 37% over the $16,961,920 they were awarded in 2020.
Ensign’s Path to Dominance in the Long-term & Skilled Nursing System
In the past quarter, Ensign added 20 facilities (mostly in Texas) to its portfolio of 268 healthcare operations, 26 of which also include senior living operations, across 13 states. But this doesn’t tell the whole story. At the end of 2021, the company’s skilled nursing facilities were embedded in a network of 400 subsidiaries (all LLCs incorporated in Nevada). These subsidiaries have been set up as property, insurance, management, and other ancillary service LLCs which appear as related parties on Ensign facility cost reports (examples of 5 facilities in the Kansas City area will be used as illustrations below).
During the past decade, Ensign has spun out a considerable amount of real estate (nursing homes and assisted living facilities) into two separate corporations: the CareTrust Real Estate Investment Trust (skilled nursing facilities) and the Pennant Group (assisted living properties). The company has an interlocking financial and management relationship with both spin off corporations, the details of which are beyond the scope of this post.
As referenced earlier, my colleague Charlene Harrington and I published a study we conducted last year of Ensign growth and development. Based on the board bios and the background of founder Roy Christensen, we noted a strong relationship between the company and the Marriott School of Business at Brigham Young University.
Ensign executives and board members are highly sophisticated finance and real estate professionals. Their astounding success stems from sophisticated real estate and financial structures that have been devised to maximize cash flow from Medicaid, Medicare, and generous tax advantages. As noted above, Ensign executives have been richly rewarded by their board for their financial performance.
*”The Financial & Quality Metrics of a Large Publicly Traded U.S. Nursing Home Chain in the Age of COVID-19,” International Journal of Health, 1-13, 2022. For a copy of the article, contact David E. Kingsley, dkingsley@new.tallgrasseconomics.org, 785 550 3576.