Proposed Ensign Spin-Off Won’t Slow Acquisitions Activity

The Ensign Group, Inc. (Nasdaq: ENSG), will not stop or slow its acquisition efforts while awaiting the finalization of their forthcoming hospice and home health spin-off, the Pennant Group.

Ensign, a rehabilitation and health care services company, announced that it would spin off its hospice, home health, and senior living operations into a publicly traded company, The Pennant Group Inc., with the split anticipated to complete by June 1. Ensign completed a previous spin off, of CareTrust REIT Inc. (Nasdaq:CTRE), in June 2014.

“Our guiding principle when we began this undertaking, just as it was when we spun off CareTrust, has been to ensure two healthy operations both of which are poised to grow,” said Ensign CEO Christopher Christensen,

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Pennant Group manages Cornerstone Healthcare, Ensign’s home health and hospice subsidiary, as well as two other subsidiaries. The company will include 60 home health and hospice operations as well as 51 senior living locations, as well as mobile diagnostic and laboratory services. Pennant earned $306 million in revenue during full-year 2018.

“We do not intend to slow down or stand still our acquisitions program,” said Ensign Executive Vice President Chad Keetch. “We continue to be very selective with each acquisition opportunity, and we have very carefully chosen each of these operations among the many available operations we elected not to pursue, because of the potential we see to enhance the clinical and financial outcomes.”

Ensign is focused on acquiring strategic and underperforming operations within certain target markets, the company indicated, noting that hospice was a fragmented industry with significant opportunity for consolidation.

Cornerstone Healthcare, Ensign’s home health and hospice portfolio company, completed two hospice acquisitions during the first quarter, including All County Home Care & Hospice and Resolutions Hospice, both located in Texas.

Revenues for Ensign’s hospice operations in the first quarter earned nearly $22.5 million in revenue during Q1. The company’s average daily hospice census rose 12.3 percent to 1,415, up from 1,260 in prior year quarter.

“We’ve emphasized over the past several quarters that our home health, hospice and senior living leaders have created significant value as they embraced and applied Ensigns innovative operating model,” Ensign CEO Christopher Christensen said. “As a result of consistently achieving outstanding clinical results, Pennant has become the partner of choice in the markets they serve, and it shows in their financial and clinical results.”

The company indicated that it expects factors such as the aging population, increased demand for home-based health care, industry fragmentation, and favorable industry dynamics such as shifts towards lower cost health care settings and value-based reimbursement to drive continued growth.

Ensign Group’s consolidated GAAP income for the first quarter was $27.4 million, an 18 percent increase from the prior year’s quarter. Adjusted net income was up 28 percent to $30.8 million. GAAP earnings per share for the quarter reached $0.49, an increase of 14.0% from the prior year quarter, and adjusted earnings per share hit $0.55, up 22.2% from the prior year quarter.

Total Home Health and Hospice Services segment revenue for the quarter was up 16 percent from the prior year quarter to $46.1 million; segment income for the quarter was up 13.4 percent from the prior year quarter to $6.9 million.

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