Q2 2021 Ensign Group Inc Earnings Call
[music].
Thank you for standing by and welcome to the Ensign group's second quarter fiscal year 2021earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need the press star 1 on your telephone.
Please be advised that today's conference may be recorded huge require any further assistance. Please press star zero I would now like to hand, the conference over to your host Chief Investment Officer, Chad Keetch. Mr. Keetch. Please go ahead.
Thank you good morning, everyone and thank you for joining us today.
We filed our earnings.
Earnings press release yesterday, and it is available on the Investor Relations section of our website at Ensign group Dot net.
A replay of this call will also be available on our website until 5 PM Pacific on Friday September 3.2021.
We want to remind any listeners that may be listening to a replay of this call that all statements made.
Or as of today July 29, 2021, and these statements have not been nor will be updated subsequent to today's call.
Also any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate.
These statements are.
Subject was enzyme and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
In addition, the Ensign group is a holding company with no direct operating assets employees.
Lawyers or revenues.
Certain of our wholly owned independent subsidiaries collectively referred to as the service center provide accounting payroll human resources information technology legal risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries.
Please refer to the Ensign group and at the consolidated subsidiaries.
All of our operating subsidiaries the service center and the captive are operated by separate wholly owned independent companies that have their own management employees and assets.
References herein to the consolidated company and its assets.
And activities as well as use of the terms, we us our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign group, Inc. Has direct operating assets employees or revenue or that any of the subsidiaries are operated by the enzyme group.
Also we supplement.
Our GAAP reporting with non-GAAP metrics when viewed together with our GAAP results. We believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to 2 of the exclusion of GAAP reports of GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our form 10-Q.
In fact from the low point of our pandemic period census, which we hit in December of 2020, our same store and transitioning operations have already improved by 52 percentage points.
We were particularly pleased that we achieved sequential growth in occupancies from the first to the second quarter, which is.
The spare history are what set ensign affiliates apart our operations of played a pivotal role in the preservation of the healthcare continuum. Despite the great challenges they have faced because of the adjusted and adapted to meet the acute needs of their markets.
We are pleased to see that those efforts.
Being enormous potential within our portfolio as we return to and exceed pre COVID-19 levels.
We saw continued sequential improvement in occupancy over the first quarter with same store and transitioning occupancy improving by 170 basis points and of 150 basis points respectively.
<unk>. In addition, our managed care census for the same for same store and transitioning portfolios increased by $33.9 and 27, 9% from the prior year quarter, respectively.
Our record results in the quarter came from a multifaceted approach that included efforts to improve.
Also we wanted to just briefly touch on the potential resurgence of Covid in some of our markets.
We're pleased to reported so far we've only seen a very minimal number of cases across our portfolio.
However, we remain vigilant and despite the worrisome COVID-19 trends, we remain confident that our local.
Operators first arrived on the scene, including access to the vaccine and many forms of testing.
In addition, we are grateful that the federal government has extended the state of emergency to October 18th 2021, which keeps in place many of the regulatory and other forms of assistance helpful to patient care.
Persist, including childcare issues created by school closures and temporary unemployment benefits that they have had a substantial impact on the labor markets. We've also seen some of these pressures being lifted and states that of ended certain unemployment benefits like in Arizona, where operators saw an almost.
Immediate increase in the labor pool.
We fully expect that some of these temporary pressures will continue to improve in the meantime, rather than taking of passive approach. We are highly focused on ensuring that our culture and our overall experience is the best it can be.
Our model encourages innovation in the face.
Of channel 2 of our nurses to a director of nursing roll.
We also continue to elevate our recruiting and have already seen success from these new efforts.
As we announced yesterday, we increased our 2021 annual earnings guidance to $3 of 55 to $3 of 67 per diluted share.
Operating results, which were 103% higher than our 2019 results.
Yesterdays increase comes from the strong results during the first half of the year continued positive trends in occupancy and the continuation of state funding of.
Our current health combined with our culture proven leadership.
<unk> the enormous sacrifice and ownership that we see from our local leaders caregivers and other frontline staff our confidence comes from our belief that we have the best and the brightest leaders and caregivers in post acute care, we again express our love of an appreciation for all of our amazing team members, especially those on the front lines for all.
All of it there.
Thank you Barry we made significant progress during the quarter and our effort to create a structure that will allow us to better demonstrate the growing value in our owned real estate.
As you are aware, we took the first step in the fourth quarter of 2020, and when we began reporting the results of our real estate portfolio as the new and independent.
The reported $12.1 million was derived from ensign affiliated operations.
Also for the second quarter of 2021.
We reported.
$13.7 million and <unk>, which represents an increase of 10, 5% over the prior year quarter of $12.4 million.
We're dotting all of the eyes and crossing all of the Ts in this important decision.
As we do so our focus is to implement strategies that will allow us to take advantage of our strengths to accelerate our growth and to enhance our purpose driven mission to transform post acute care.
We are very excited about the new opportunities embedded in this chapter of our.
Our growth story, and we expect to make a more detailed announcements regarding this real estate strategy next quarter.
We're also excited about our recent acquisition activity during the quarter, we ramped up our growth efforts with the addition of 8 skilled nursing operations.
After a brief pause in our acquisition efforts during the early months of the pandemic.
<unk> our teams have shown their commitment to 1 of the things that drives our organization, which is to consistently and methodically acquire not only in good times, but even when it would be easier to shut down growth while waiting out the storm.
The following skilled nursing operations were acquired during the quarter in cents.
Boulder Canyon, helping.
And rehabilitation.
<unk> care and rehabilitation and South Valley post acute rehabilitation all in Colorado, adding a total of 322 beds.
In that state.
We also include Windsor rehabilitation, and healthcare, which added 108 bed.
Beds in the state of Texas.
And Mira Vista Care Center shoreline health and rehabilitation the.
The Oaks at Lakewood, and the <unk> timber line, adding a total of 386 beds in the state of Washington.
We are also pleased to be expanding our continued and growing relationship with care Trust.
And are happy to announce that in connection with this transaction in Washington characteristic standard the least our lease term by 10 years on the first 2 expire master lease pool.
We are grateful for the strengthening of our long standing partnership with care Trust and look forward to working closer with them in the future including of transaction that we hope to.
Announce in the very near future.
With these latest additions we have added 17 properties to our organization since the pandemic began last year.
Given our first priority is always to make sure our existing operations are strong we have been extra diligent to ensure that each new addition had the full support of a healthy market a proven.
Proven leadership plan and a clear pathway to strong clinical and financial performance. Each of these new additions have been carefully selected and were acquired at attractive prices and terms. We are very excited to watch these operations become solid contributors to their clusters as they follow proven ensign principles.
Absolutely.
As we look ahead to the remainder of the year and into 2022 the pipeline for our typical turnaround opportunities remained strong.
That pipeline continues to be impacted however by the extension of certain COVID-19 related government programs that have and continue to help distress operations.
We anticipate an increase.
Crease in the number of opportunities once these programs wind down.
In the meantime, we have a handful of deals that we expect to close yet this year and also expect additional opportunities that come our way of this fall.
We have a lot of capacity to grow including from a leadership and capital perspective.
But we'll always make sure to stay.
True to our principles of disciplined disciplined growth.
As we mentioned in our release yesterday, we have over $340 million in available capital. In addition, we have 75 completely unlevered real estate assets.
We continue to work on unlocking some equity value and a handful of our owned and Unlevered real estate assets.
Through long term fixed rate HUD financing.
We expect to close this.
This process on 4 of those operations and hope to have announcement on that in the next few weeks.
And with that I'll turn the call back over to Barry Barry Thanks, Chad before Suzanne runs through the numbers, we'd like to share. An example that demonstrates.
We're dead result, even mature same store operations within our portfolio have tremendous potential for organic growth.
For example, Bella Vita Health and rehabilitation Center in Glendale, Arizona was acquired in 2002, and it's been a highly successful contributing part of the band area of band Dara portfolio for over a.
<unk> cluster partner facilities in the Phoenix area to learn and share best practices related to P. P M and billing and they scrubbed their contracts with vendors to ensure that the facility was receiving the best pricing and services.
Recognizing the need to re growth sensus as the Covid unit was closed the ability.
<unk> met with local managed care organizations physicians and other referral sources and sought feedback on how to better serve the needs of the Glendale community.
In response to the direct feedback they've received the team then parlayed the feedback into enhanced behavioral health capabilities and of quicker and more seamless admissions.
Process.
As a result in Q2 Bella Vita grew occupancy by 14% to 97%.
The skilled mix also skyrocketed from 28% to 50% for the quarter and as a result quarterly EBIT.
Proved 110% from the same quarter.
<unk> in 2020, all while maintaining Medicare 5 star quality ratings and successfully completing deficiency free infection control surveys.
We hope that this example is helpful in illustrating all of the different levers our local operators have to pull to quickly and responsibly adjusted.
Just and press release filed yesterday, some additional highlights for the quarter and GAAP diluted earnings per share of 87, representing.
Representing an increase of 19% over the prior year quarter adjusted diluted earnings per share of the 89 of them.
An increase of 14% over.
The program was $50.9 line, an increase of 18% over the prior year quarter.
Other key metrics as of June 30 of include cash and cash equivalents of $198.4 million cash flow from operations of $108.4 million.
And 340 million.
1 of them.
As I mentioned last quarter suspension of the 2% sequestration was extended through December 31.2021.
The suspension has and will continue to have a positive impact on the revenue depending upon how the pandemic effects of our Medicare census.
Last week, the federal health emergency with extended.
Kenneth.
We are raising our 2021 annual earnings guidance to $3.55 to $3.67.
Per diluted share and maintaining our annual revenue guidance of $2.61 billion to $2.6 9 billion the midpoint of this updated 2021.
Non inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax the recovery of COVID-19 pandemic with the primary exclusion coming from stock based compensation.
In addition, the other factors that could impact our quarterly performance include variations in reimbursement systems.
Suzanne.
We want to again, thank you for joining us today and express our appreciation to our shareholders for their confidence and support.
We recognize the heroic efforts of our nurses therapists and other frontline care providers, who of courageously phase of this pandemic and.
It provided of life enriching care to our.
Our resume portion of our call we'll be joined by Spencer Burton, Our Chief operating officer of the <unk> can you. Please instruct the audience on the Q&A procedure.
Yes.
As a reminder to ask a question you will need to press star 1 on your Touchtone telephone to withdraw your question press the pound key again Thats Star 1.
Yes, I guess, maybe starting at a high level I'm curious about any kind of update on.
The acquisition market opportunity I know you alluded to some sort of.
Federal dollars that may have killed the delayed.
The delayed some of these acquisition of recurring but.
Just curious.
Kind of any.
Thawing of a pretty steady flow of opportunities.
The most I would say are unrelated to kind of COVID-19 related items or just sort of.
The folks retiring and getting out of the business for various reasons and kind of the typical deal flow.
We still expect.
The an uptick kind of in the fourth quarter.
As folks are planning and wanted to get a deal done in the tax year of those kinds of things. So we do anticipate that and then really 2022.
It is probably where we're going to see most of that deal flow.
Gotcha and I know.
A plethora of that funding.
Yeah, Great question I think you know we've been talking about this every quarter since it started and really the key states that have been strongest for us, our California, and Texas and those are the 2 states that we re I referenced obviously those are our 2 largest states in K.
It is a pretty full meaningful portion of what we've been seeing for.
After that the last couple of quarters and there are other states that we feel like there is a very strong possibility that they're going to get in and do it and thats kind of is baked into Canada. The higher end of the guidance as we go through things like Arizona.
Donna and some of the other states.
Like yes. There is of just couple of other states that we do feel like there is the opportunity for us to give some additional funds just not the same magnitude as the California and the state of Texas.
Got you and those California, Texas those are baked into your updated guidance.
Correct.
Got you, Okay, and maybe 1 last high level I'm sorry go ahead.
That's correct.
Okay.
1 last high level question, you mentioned that you saw a fairly immediate impact.
In the labor pool, and some of the states and markets where the.
Unemployment extended benefit hit the ended.
Maybe talk about those states and are there any states at the top of the list that you think might also be getting close to.
Premature on early basis dropping those.
The benefits.
I don't I don't know that there are any.
Any others that we foresee foresee dropping out before kind of the September timeframe.
I will tell you 1 that we saw an immediate impact with and this is still very anecdotal because it was very recent.
In the state of Arizona.
It's been reported to us by.
Certainly need of.
More more folks in the labor pool of.
A lot of those that have been impacted by the extended unemployment benefits are.
Our.
Or folks that we can use immediately so.
Yes.
Yes.
Moving out of our states.
Have had an early into the.
<unk> benefit and we are seeing some gradual loosening, but we think there is many factors at play some of them are just.
The efforts that we've been making all year long, there's the schools going back into session. There is a lot of play, but it certainly isn't hurting to have that unemployment.
Go away to growth.
Yes, I mean.
I think our we.
We saw the dip in skilled mix that we expected to happen from the height of the pandemic back in December and that gradually kind of taper down to a more normal number which is what we've been seeing recently, it's still higher than.
Wherever we see.
Occupancy start to dip and thankfully, we hadn't seen that go into June and we still haven't seen that be the case. So we're hopeful that our trend of improvement continues in spite of the summer months.
And continues to get stronger as the fall comes near.
Got you.
1 last 1 maybe of Chad question on this potential new structure of that Youre, putting together.
Maybe if you could just talk about what would it have an effect on your balance sheet or your leverage level and.
Just.
In the way change your ability to.
I will give us access to different forms of borrowings in the future.
We'll always be careful to make sure that we.
We're watching our balance sheet and being very careful about that.
And obviously our leverage levels are really low.
So it just gives us a lot of that dry powder that we talked.
About a deal that isn't 1 that we would want to operate.
And in many cases.
We find ourselves not participating in those processes and I think what were thinking and hoping is it a structure like this would help us.
The potentially do those on our own and lease of third parties.
<unk> are.
Our next question comes from Torquay of Stifel. Your line is open.
Hey, good morning, and thank you for taking my questions. So the first question is to own investment for the full Washington State assets transitioned from the firewalls to US was a pretty interesting transaction I think you mentioned that you expect.
And in other client today, how much of that will be owned versus leased.
Yes, so I guess of.
I'll start with your the last part first.
We have done.
Quite a few lease deals over the last year, and we still think Thats a really.
Attractive way for us to.
To grow don't have much in terms of coverage or sometimes no coverage at all.
That might be a little bit more difficult to structure of 30 year lease around those of those are the times when it makes a lot of sense for us to buy the assets and then.
Obviously improve them to a point where the.
Per off.
Certain states or or other things like that and then of course, new opportunities as well so really.
Just.
Appreciate the relationship we have with care trust in all of our REIT partners.
That.
Understand us and in our our strategy to grow.
And.
We look forward of doing more and more with them in the future.
Yeah.
Got you. So just a follow up on the real estate platform I think 1 of the opportunities you have mentioned in the past is that you.
It could potentially take op income of assets that may not be operated by you.
The big.
The opportunity there you're starting to do the pipeline today.
Yeah, Great question.
It is something on our minds.
We are starting to think.
Along that path.
How big the opportunity could be as you know it.
It could be very significant.
But that said 1 of the reasons, we're doing it the way we're doing it is is we don't.
See ourselves as just the just a real estate company or just an operator, we're both.
So and with that the.
Our operations in <unk> and.
And.
Our.
The operational focus is our core of who we are and we're never going to lose that.
And with that I think we can we can use that point of view to really help.
Potentially other operators that are there.
And the states we're not in now.
We're currently in 13 states, there's a lot of states of the very attractive, but we just don't know much about it.
The.
This pathway that we're talking about potentially could help us.
Even get a look into new states and in the look into.
The future.
Good good contributors in our space.
Got you sounds good.
My second question is really about the the volume trends I think in the last 2 weeks. The puppy hospital operators have reported very strong patient volume in search of of volume this quarter I think that should be very positive.
<unk> on the post acute side towards the year end.
Yeah. It's a good question and really it's the it's a really nuance of the answer because every every state is tremendously different in and every hospital system is on kind of a different path even within similar markets.
Yeah.
Our optimism is representative of the states that we operate and the geographies that we know well the trends that we see locally.
But also understanding that there there were kind of in uncharted territory somewhat as well.
Well in <unk>.
And things can.
Can ebb and flow in.
And they might but but.
Again see seeing our strength through the summer months, which is something fairly uncharacteristic.
Our space.
It gives us a lot of confidence about where we're headed at the moment.
Yes excellent color there.
Just 1 more if I may the <unk>.
Managed care patient days had inc. I've seen very strong growth since the second half of last year and I think the census. This quarter was also very robust. So speaking of normalization to pre pandemic levels should we expect that you will be able to sustain kind of of higher.
<unk> my very in depth discussions about how we can partner take on more risk look for opportunities to enhance services that we offer to their members and then even just providing direct feedback and data that shows are our outcomes focused.
No.
Our expanding relationships with our different partners. So we are we expect that to continue.
Great. That's all my questions. Thank you and congrats nice job.
Thank you again to ask a question. Please press star 1 on your touch tone telephone.
And that's embedded in the outlook for the balance of the year.
Traditionally you tend to have 3 Q EPS looks pretty consistent with the second quarter and then you have a bit of the pickup.
In the fourth quarter from the <unk>.
The numbers just interested just given all of these different dynamics at play this.
Year.
As the third quarter is historically challenging similar to second quarter and so we expect the the 2 although second quarter wasn't as challenging force as we expected, but we we feel similarly about third quarter that we did about second quarter and expect that to be kind of.