Q3 2021 Ensign Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and books with the Ensign Group, Inc. Third quarter FY 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone if you require any further assistance. Please.
<unk> zero at this time I'd like to turn the call over to Mr. Keetch.
Welcome everyone and thank you for joining US today, we filed our earnings press release yesterday and as 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 five P. M Pacific on Friday November 26 2021.
We also want to remind any listeners that may be listening to a replay of this call that all statements made are as of today October 28, 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 to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.
Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.
As required by federal Securities laws, Ensign 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, Inc. Is a holding company with no direct operating assets employees 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 other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly owned captive insurance.
<unk>, which we referred to as the captive provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers' compensation insurance liabilities.
But the words enzyme company, we our and US refer to the Ensign Group, Inc. And its 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 the use of words, we us our and similar terms are not meant to imply nor should it be construed as meaning that the ns anchor being has direct operating assets employees or revenue or that any of the subsidiaries are operated by the Ensign group.
<unk>.
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 the exclusion of GAAP reports a GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our form.
10-Q, and with that I'll turn the call over to Barry Port Our CEO Barry.
We are pleased to announce another record quarter in spite of the continued challenges related to the pandemic and the disruption in the labor markets.
With the COVID-19 Delta variant hitting its peak our local teams to begin demonstrated incredible agility and responsiveness to the evolving landscape.
Remarkably during the quarter, we saw year over year improvement in occupancy as well as continued sequential improvement for the fourth consecutive quarter.
To put this in context 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 census by over 51%.
In addition, our managed care census for our same store and transitioning portfolio improved by 26% from the prior year quarter, and we saw sequential growth for the fifth consecutive quarter in a row.
Our record results in the quarter came from our leaders relentless focus on market specific occupancy growth strategies.
Long with a persistent effort around operational fundamentals. We also continue to benefit from sequestration suspension and improved Medicaid funding in certain states.
We are grateful that the federal government has extended the state of emergency to January 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care.
Like with most businesses right now staffing continues to be a challenge or.
Our teams have been proactive in using locally driven strategies to help recruit and retain the best and the brightest. We are pleased that our turnover has remained stable at a rate far below industry averages and even though recruiting has generally been tougher we are starting to see local hiring strategies bear fruit.
In addition, we continue to believe these particular staffing challenges have some unique transitory factors that we do not anticipate to persist such as temporary unemployment benefits that it had a substantial impact on the labor markets.
We've already seen some of these pressures being listed in this in states that have ended certain unemployment benefits.
While we are excited about our accomplishments this quarter. We know we can do so much better and we are excited about the enormous potential within our portfolio as we return to and exceed pre Covid census levels.
And we expect to see some continued improvement in the fourth quarter and are increasing our annual 2021 earnings guidance.
To between $3 60, and $3 68 per diluted share up from our previous guidance of $3 55 to $3 67 per diluted share.
And we are also affirming our annual revenue guidance of $2 six 2 billion to $2 69 billion. The new midpoint of this 2021 earnings guidance represents an increase of 16% from the company's 2020 results and is 105% higher than our 2019 results.
Our consistent operating performance combined with our culture proven local leadership strategy and healthy balance sheet and the enormous potential in our existing portfolio and the tremendous acquisition opportunities on the horizon.
Gives us the confidence that we are well positioned to not only rebound to our pre COVID-19 path, but to accelerate our growth.
Before I turn it over to Chad to discuss the captive REIT I want to emphasize again that our performance wouldn't be possible without the enormous sacrifice and ownership that we see from our local leaders caregivers and other team members.
We again express our 11 appreciation for all of our amazing team members, especially those on the front lines for all they're doing to serve their communities. We honor them and we are so grateful for them. While we certainly expect some challenges as we continue to deal with the effects of the pandemic. We are excited about the future and look.
Forward to continue to show our dedication to all those that have entrusted us with the care of their loved ones.
It was a fantastic quarter and there are many more operational highlights we will love to discuss but we wanted to turn the discussion towards our announcement yesterday in the formation of a captive REIT to do that I'm going to ask Chad to provide more details Chad.
Thank you Barry as Barry mentioned, we announced yesterday that on October 21, 2021, our board of directors approved the formation of a new captive REIT.
We couldnt be more excited to finally announce the creation of this new REIT strategy and to build upon our thriving real estate investment platform and our proven track record for growth.
After considering many different structures and alternatives, forming and growing our own REIT was by far the best solution to help us realize our goals in post acute care, while allowing us to build upon our established real estate investment platform with high quality assets.
Through the years enzymes entrepreneurial culture has generated enormous value for our stakeholders.
While our real estate strategy has always been an important part of our DNA. We believe that this new organizational structure allows us to take the next step with our already thriving real estate business opening up opportunities for growth that we have not previously pursued.
There are many benefits to our stakeholders in this new organizational structure, when compared to a sale leaseback or even a full spin off.
First a captive re provides us with a new pathway to growth that didn't exist before.
Giving us more flexibility in the use and access of capital and enables our collective acquisition team, which consists of hundreds of CEO caliber operational leaders in the field to strategically focus on value creation through real estate investing.
As many sellers that have worked with us in the past at a test is on operations focused organization, we occasionally miss out on really good real estate opportunities.
Sometimes deals we see are not a fit geographically operationally or culturally.
This new approach will allow us to consider larger deals that we can then breakup into smaller deals keeping the operations that fit.
All of our criteria and leasing out the rest of other quality operators.
We can't wait to combine our collective real estate investing experience that we have gained over decades of buying and leasing healthcare real estate to pursue investments that we haven't been set up for in the past expanding into new states partnering partnering with other real estate buyers and offering tax efficient structures to real estate sellers.
Next by keeping the Rittenhouse, we avoid triggering a significant tax event that would come along with the sale or a spin off as we've said before the tax free spin that we were able to do in the past is no longer available in this context. In addition, the REIT allows us to efficiently use the resource.
Of the team we currently have in place.
As real estate investors, we have a talented team of experienced professionals that are already performing much of the work that would be done by a separate real estate company, including due diligence valuation accounting tax and legal work.
Also with this structure.
Not only create additional opportunities for our leaders, but we are also able to do so without incurring all of the extra expense related to creating a separate public entity.
Another benefit of this structure is the additional flexibility it gives us to raise and deploy capital.
We are lucky to have an amazing group of lenders that have and continue to support our growth.
This new structure doesn't contemplate or even require any significant surgery with our capital structure.
However, this new structure does give us additional flexibility that we didn't have before and will allow us to strategically access capital markets with respect to our real estate business independent of operations, while also allowing us the ability to use ownership units as a potential form of tax advantage.
<unk> to sellers and new real estate acquisitions.
Also unlike a transaction that involves a onetime benefit to our stakeholders. The captive REIT in the accompanying third party valuations that we expect to include in our disclosure disclosures.
We will shine a brighter light on the enormous value that we've created and will continue to create and these and future assets.
As many of you that have been following us over the last few years have seen we have recently separated our real estate business and the earnings that generates and our financial disclosures.
This captive REIT in the strategy that accompanies it takes us one step further and will only help us demonstrate the contribution this portion of our story makes to our overall success.
With all that said with the help of our strategic advisors. This structure fully preserves the option to spin out this entity in the future without duplicating efforts.
We have been very careful to preserve full optionality and nothing we are doing now or foreclose or ability to follow any number of additional steps in the future.
We have no plans to do any of those things currently and are confident that this will benefit our shareholders the way it should but.
But the point is we have the flexibility to do so.
But most of all by keeping our real estate company in house, we can ensure that we will retain the cultural connection between the real estate business and the most important part of our business, which is the care and service that occur on a daily basis in each operation.
We are and always will be operators first and the health of each operation will be Paramount in every deal we consider.
As we seek to develop and consummate deals with other operators, we believe our unique position as operators and access to a world Class Service Center will be a significant differentiator from other real estate investors.
So to summarize this new structure gives us more flexibility to grow in new ways without triggering significant capital gains tax and other inefficiencies.
<unk> provides us with additional flexibility in the deployment of capital.
Give us full visibility into the growing value of our real estate plus we are not limiting ourselves in any way to pursue to pursue other structures in the future.
As with any REIT, there are many tax and other legal and accounting steps that we are working through but this process has been underway for many months and we are confident that we will be in a position to finalize the structure sometime in the first quarter of next year.
Until then we are and will continue to pursue acquisition opportunities and to deploy various strategies to grow our operational and real estate footprint.
Including our new acquisitions.
<unk> leased properties already operated by <unk>.
And exercising purchase options.
To be clear, we will obviously still continue to lease new operations and very much value our relationships with all of our existing and future landlords.
Leases have been and will continue to be an essential part of our growth story.
For example, during the quarter and since we have added five new operations, including four operations in Texas totaling 489 beds and one operation in Idaho with 80 beds and all of those are new long term triple net leases.
We look forward to seeing each of these additions contribute to the success of their clusters in their markets as they implement proven ensign operational and clinical principles.
With these acquisitions, we've now added 17 operations to our organization during the year.
This growth should illustrate our confidence in our ability to continue to perform both in the short run and it and most importantly over the long run.
We have been extra diligent to ensure that each new edition have the full support of a healthy market.
<unk> leadership plan, and a clear pathway to strong clinical and financial performance.
The pipeline for our typical turnaround opportunities, including real estate acquisitions and leases is strong and improving.
We have several deals that we expect to close yet this year and also expect some additional opportunities to close early next year.
As we mentioned in our release yesterday, we have significant capacity to grow with over $340 million in available capital. In addition, we have 72 completely unlevered real estate assets.
We also continue to work on unlocking some equity value in a handful of our owned and Unlevered real estate assets through long term fixed rate HUD debt.
And with that I'll turn the call back over to Barry Barry.
Thanks, Chad, we're very excited about the many new opportunities that this captive REIT will create for US. We're also very pleased to be able to introduce this from a position of great strength. Our service center team has already put a lot of work in the creation of this structure, but we are pleased that it has not caused any distraction to our operational performance.
Vince which speaks to the wisdom of our locally driven approach.
Next we'd like to highlight an example of the successes our local teams have had this quarter.
While external circumstances have been difficult or affiliated operations continue to defy the odds and produce remarkable outcomes clinically culturally and financially.
Somerset Subacute and care a five star facility located in the highly competitive alcohol area of San Diego, California.
Is an excellent example.
When the facility was acquired in 2015, it suffered from a poor reputation and struggled to maintain occupancy.
After establishing strong clinical system, CEO, Matt Oldroyd, and CFO Kristina by Alon met with providers and physicians and came to the consensus that summer set could be the best in the market, providing sub acute care to the communities most fragile and acute long term residents.
Team has never wavered and their vision and systematically built relationships with key acute in Pulmonology partners and added clinical enhancements such as 24 hour physician staffing and in onsite pharmacy.
As their clinical results improved so did the demand for their services in 2019. The facility began the process of converting to 100% sub acute beds.
But the results have been exceptional.
Despite carrying for a highly acute populations summer set as one of the few skilled nursing facilities in the entire nation to experienced zero COVID-19 outbreaks and zero COVID-19 related deaths.
Many of our affiliated facilities <unk> embraced the Covid vaccines as soon as they became available and as a result, when the California event vaccine mandate went into effect a few weeks ago. They had no staff terminations.
As is typical financial successes mirrored clinical excellence at Somerset.
Last year, the facility experienced record occupancy and financial results in spite of the pandemic.
Somerset continues to build on that already impressive performance for example in the recent quarter occupancy increased from 91% to 93% from the prior year and skilled mix reached 99%.
As a result, overall revenue and EBIT have improved 22% and 23% respectively compared to the third quarter of last year.
Despite being acquired nearly seven years ago Summer set continues to improve year. After year and is an excellent example of the incredible upside potential that exists even in mature same store operations.
We hope that this example is helpful in illustrating all the different levers our local operators have to pull in order to quickly adjust to the needs and the feedback of their health care partners.
With that I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance and then we'll open it up for questions Suzanne.
Thank you Barry and good morning, everyone detailed financials for the quarter are contained in our 10-Q and press release filed yesterday, some additional highlights for the quarter when compared to the prior quarter included.
GAAP diluted earnings per share was <unk> 83, representing.
Representing an increase of 8%.
Adjusted diluted earnings per share was <unk> 91.
An increase of 17%.
Consolidated GAAP revenue and adjusted revenues for both $668 5 million increasing 12%.
Total skilled service segment income increased 11, 4% to $94 4 million.
SSL for the real estate segment was $13 8 million, which represents an increase of six 5%.
GAAP net income was $47 3 million an increase of 10%.
And adjusted net income was $51 8 million an increase of 19%.
Other key metrics as of September 30th and cleared.
Cash and cash equivalents of $304 6 million cash flow from operations of $204 5 million.
$344 million of availability on our revolving line of credit.
We continued to Delever, our portfolio, achieving a lease adjusted net debt to EBITDA ratio of two point or three times.
We also own 95 assets.
Two of which are unlevered with significant equity value that provides us with even more liquidity.
Also in our 10-Q, we announced that we have established a share buyback program with a maximum repurchase amount of $20 million.
Given the stock's recent performance, our liquidity and our confidence in near and long term results. We believe this modest share buyback to be a very wise use of our capital.
As we said before share buybacks are one of the many levers we have to deploy capital to benefit our shareholders.
Last week, the public health emergency was extended for another 90 days to January 16th 2022.
With this extension the federal government will continue to provide various waivers and aetna funding, however, Medicaid reimbursement and the timing of payments vary substantially by state currently we anticipate key of the states in which we operate to continue to have a pre funding.
As we mentioned last quarter.
The 2% sequestration continues through December 31, 2021.
This suspension had and will continue to have a positive impact on our revenue depending upon how dependent are Medicare census.
We are raising our 2021 annual earnings guidance to $3 60 to $3 68 per diluted share and maintaining our revenue guidance of $2 60 billion to $2 69 billion and.
The midpoint of this updated 2021 earnings guidance represents an increase of 16% over our 2020 results.
Our increased 2021 guidance is based on diluted weighted average common shares outstanding of approximately $57 4 million.
The tax rate of 25%.
Inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax and the recovery of.
COVID-19 pandemic with the primary exclusion coming from stock based compensation.
Additionally, other factors that could impact quarterly performance include variations in reimbursement systems delays and changes in state budget.
Seasonality in occupancy and skilled mix the influence of a generally honey our census, and staffing short term impact of acquisition activity variations in insurance call. The surge of COVID-19, and other factors.
That I will turn the call back over to Barry Gary.
Thanks Suzanne.
And again, thank you for joining us today, and and again express our appreciation to our shareholders for their confidence and support.
And most importantly, we recognize the heroic efforts of our nurses and therapists and other frontline care providers who have.
<unk> face this pandemic.
Provided life enriching care to our residents and their family.
And we're also appreciative to our colleagues here at the service Center, who are working tirelessly to support our operations and enabling us to succeed.
In spite of the great challenges that we faced so thank you for making US better every day and with that we'll turn it over to the Q&A portion of our call can you. Please.
Instruct the audience on the Q&A procedure.
Kevin.
Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
Our first question comes from scratch by dealt with Stephens.
Hi, everyone. Good afternoon arent morning.
I wanted to start just with a question on some of the more recent occupancy trends.
Been seeing and in particular since the Delta.
<unk> started to peak out really in sort of early to mid cap September in our own skip tracker that we have we did see signs occupancy starting to the growth starting to reaccelerate in the back half of September. So just interested if you can talk to that and possibly give us an update on what you've been seeing on occupancy trends so far.
During October.
Yes, that's right I mean, I think at the height of the.
The Delta peak.
Certainly we saw occupancy slow a bit early in the quarter.
But our experience is consistent with what Youre tracking Scott and.
And frankly, if it werent for.
<unk>.
Some staffing challenges that we're facing our pace would be even quicker right now because the demand is certainly there.
Okay got it.
Just on the staffing side.
One question there.
Interested if you can maybe give us an update just on what <unk> been experiencing in some of your markets just as the vaccine mandates have been going into effect.
Some of your large states already did implement the backseat mandate.
Thank you bought some probably good sort of real time information on that and then maybe how youre expecting the mandates to continued tariff impacts.
Staffing in some of the markets that are not are still moving towards <unk>.
Implementation of that mandate.
Yes, we have.
We have three states Scott that they've implemented vaccine mandate, so far California.
Rado in Washington ahead of this federal mandate, that's still not quite finalized.
And.
We are.
Really excited to report that we've seen about.
Only only about a half a percent of our employees that we've had to part ways with.
Which is a really small handful of people.
And so.
Okay.
Certainly we don't expect that to be the case in every single state.
Because there are some states that are.
More vaccine hesitant for sure.
But I think it speaks to our culture and the care that our leadership.
Team in the field has for the staff and their ability to help to help those folks reason through and see the importance of getting that done.
We've seen.
Massive progress across our footprint.
With our employees in terms of our overall vaccination rate and that continues to.
To rise.
By the week.
And so we feel poised and pretty confident that.
That we'll manage through this pretty well.
Certainly I think we were a little more fearful in the beginning that it might have a bigger impact, but our experience so far indicates to us that.
We feel like we can mitigate that.
Some of the fear and concern that that comes with it.
Okay, maybe I'll ask one more and then get into Q.
Wanted to ask about the match.
Matt fundings that <unk> been able to recognize year to date.
2021, and and how Youre thinking about those those funding streams continuing into <unk>.
That's why 2022.
Just given obviously the PHH have been getting extended.
Interested also on just any conversations that.
New or you trade group, maybe having with policymakers around.
Discussing further extensions of those type of supplemental Medicaid rates also just given the backdrop here around wage inflation in the industry and some of the headwinds the industry has been dealing with around that thanks.
Yes, that's a great question.
I'll tackle the second part of that question first and I'll, let Suzanne comment on the first part.
We are working very closely with our with our.
Our health Care Association in Washington, D C and their team have lobbyists and.
Feel like we're making.
Really good progress in helping.
Both the folks at CMS, and then policymakers in Congress understand.
Both the impact of Covid and how it's ongoing and then also how that relates to.
The additional challenge with staffing that not just our industry, but every industry is dealing with right now.
And.
Thankfully I think theres a solid recognition.
By policymakers in D C and lawmakers.
On this front and there are ongoing.
<unk> talked I think seeing the extension of the public health emergency as a function of the of those ongoing discussions.
We certainly don't.
Rely on.
And are trying to make sure that as an organization we're in a position where we are.
Financially independent from.
Additional help from the government.
As you know we've we've returned all of the cares Act funds that had been provided to US we do only lean on those state Aetna funds to the extent that they they apply to actual COVID-19 related expense and the reality is as we still experienced a lot of COVID-19 related expenses, both in supplies and labor.
And.
So we certainly feel like it's appropriate for the government to continue those state based programs through F map.
And we feel pretty confident that there is a solid reception to that.
But weather, whether they're maintained or not it's either going to have some short term pressure or.
But it will create a tremendous buying opportunity for us because we know most of our competitors really can't.
Sustain.
Without some ongoing help even beyond <unk> map.
Anyway, I'll, let Suzanne talked about what we've recognized so far yes.
And we've disclosed that yes, Barry mentioned, it's really what we're doing is we're matching those expenses and the revenue together.
Our our catheter related expense at the state that have asked map.
Revenue then.
We're going to go ahead, and recognize that and Thats been about 16 and a half.
The most recent quarter.
Higher than that so about 19 for this most recent quarter, but on average between six and half of <unk> 19, a quarter and we'd expect that to continue through Q4, and then like we mentioned in the remarks, we have T think Texas and California are two largest states that had been very very active and very very supportive.
At ensuring that does not flow through to us.
Sure.
We definitely feel more confident about from continuing and then we have some other states that have.
Eric and I being one where it's a little bit more all in one lump sum that they do the funding, but they've also been very supportive and ensuring that the proportion of SME does come to us and so and those are some of our largest states and we feel really good.
With that they're supportive to the extent that they have the funding that we're going to continue to see some of that come down to us.
And that spike that Spike is obviously this last quarters core corresponds with really the peak in Delta.
A real impact on expenses.
In spite of not having as strong of an impact on census, as we would have maybe expected it to have.
We had.
Had more expenses related to to the actual.
And also just kind of speaks to the.
The nature of the public health emergency.
It hit a peak in this very recent quarter.
And we're not through it yet so we expect.
Some ongoing.
Expense with with Covid.
Okay. Thank you.
Our next question comes from <unk> <unk> with Stifel.
Thank you good morning, Ken and Barry I think you have to talk about some of the additional growth opportunities the copier made green.
Right now as we look at the business is growing.
In the mid to high single digit in terms of revenue.
No.
Now with this structure finalized could you give us an idea how fast you could see this business growing when an extra long should we expect it to be meaningfully factor given your comments about the larger deals you could do under this new structure.
Yes.
I'll take a shot at answering so first of all.
We are very opportunistic in our approach to acquisitions I think we've talked about that before but.
A lot of it depends on what happens in the marketplace in terms of pricing and valuations.
We're going to remain disciplined and as I talked about is making sure that the operations are very healthy that there's plenty of.
<unk>.
Cash flow there to support rents in all of those things are going to be Paramount.
And so so.
That's going to be the first thing that will determine how quickly we grow over the next sort of 12 months.
Some of those things will be impacted as Barry talked about by.
Some of this federal funding and other other.
Programs so.
To the extent.
There are.
Some of those things come to an end.
I think that will accelerate our growth opportunities.
The other thing I'll, just say about about our growth is we don't we.
We don't set kind of goals or targets.
We just we want to remain very disciplined and stick to that path now with all that said.
We have some visibility into into the next quarter or two.
And we are seeing an increased number of deal opportunities even just in the last eight weeks, we have seen more and more deals coming to our desk than than previously previously.
And so we are gearing up for what we hope to be.
Good growth year on the acquisition front next year, but it would be really hard to kind of give you a percentage or.
Any sort of specific targets.
Got you.
Maybe if you could talk about.
<unk> relationship with some of the health care REIT, obviously characterized in national health care investors Sabra was that if you just took over is it the intention to kind of use mostly your own internal reach will really to acquisitions going forward and also maybe talk about the opportunities to kind of uptake on more operational bumped the REIT on properties that may be.
Let me now.
Yes so.
As I said in the script portion.
Value of those relationships Haile and <unk>.
The Sabra one as you mentioned is a brand new one we've actually never.
Done.
With them before and hope that that deal will be the beginning of many more to come.
Characterize obviously, we've got a long history with them and two of the assets in.
And.
This this quarter were new leases with them.
Do you expect that.
Relationship to continue to grow as well.
Omega NHI.
LTC have all been great partners to us.
Leasing will always be a part of our strategy.
Sometimes leases.
Can represent a really good way for us to to finance our growth and they have access to deals that we don't.
And.
Again as long as.
The deals are in line with kind of our criteria, we will continue to do them.
But that said I think we've always been and they all know this but we'd like to own real estate and we prefer to own it if we can.
And particularly in some of the distressed assets I think youll see kind of a common theme there to the extent we acquire the real estate, it's often a situation where there is no coverage there is no EBITDA and sometimes even negative.
And those context, its really hard to kind of structure.
30 year leases.
And so in.
And in those instances it makes a lot of sense for us to buy by the real estate.
So we look forward to continuing to work with them and we've done deals with all of them were sometimes we we buy a portion in Liza portion.
We think that this new REIT strategy will actually.
And enhance our ability to work together.
And so.
I think again, so just to summarize we prefer to own where we can especially in a distress setting, but we will continue to lease and expect that.
Those relationships to remains strong.
Okay got you.
And just one last item for me, it's more of a clarifying clarification question on the balance sheet I think that long term borrowing increased by $29 million this quarter.
Notice that cash flow was quite strong this quarter and you had good availability on the revolver and the cash balances high where do you see that additional capital being deployed is that going to be acquisition.
Yes.
Great Great comment and then thanks for asking you obviously are cash.
Hi, Lee.
Those that have debt that we've been talking about for some time.
<unk>.
We have them.
Applegate opportunity for some acquisitions that we see on the immediate horizon as well.
And coming quarter isn't really reloaded at that that out there and then as I mentioned in the remarks.
Remarks that we do have our repurchase program stock repurchase program that goes into effect and so kind of those avenues, our real focus.
Great. Thank you congratulations.
Thank you.
Our next question comes from Frank Morgan with RBC capital markets.
Good afternoon.
Couple of questions here.
I guess first on the growth in the managed care business that Youre seeing.
Just wanted to.
Get clarification, Im assuming thats, mostly Medicare advantage.
And is is that mostly COVID-19 related business and therefore, a part of a shorter term strategy or is this something part of a longer term program. That's my first question.
No, yes, certainly not COVID-19 related in fact that usually.
When we see spikes in Covid.
We would normally expect managed care.
Growth to slow a little bit but.
I think it speaks to kind of our long term relationships that are continuing to flourish in.
And just.
The programs, we've put in place with them in and strengthening positions in different markets and we expect that to continue and the vast majority of Medicare advantage.
Youre right and having that assumption that those relationships have brands brands that Kevin.
Thank you Frank.
Got you and then.
I think you mentioned in some of the prepared remarks or maybe in some of the earlier Q&A that.
You were limited to some degree you see Occupancies were limited by availability of staff I'm. Just curious is there any way you can quantify that like the number of number of your facilities, where where occupancy growth was capped by.
Labor constraints.
It's a really hard thing to do.
Frank so that yet.
Answer your question no. We don't have a number but we just you hear enough anecdotal kind of comments out there in the field about hey, we cash we could have grown by more.
As we're trying to develop and find more staff were.
We're hoping to make sure that we don't turn down admissions in the future.
But.
The good news on the Labor front is.
We feel pretty strongly that our local strategies are working.
And.
And we're seeing an increase in the number of applicants.
And thats kind of been a more recent phenomenon.
We're also seeing a.
A larger number of student grads in our in our buildings due to some of our grassroots programs that we've put into place that have been.
Yielding yielding more more folks in.
So a lot of the a lot of the issues, we're seeing on the labor front, we do feel like are transitory in nature.
And things that will.
Resolve themselves over over the next hopefully couple of quarters, but.
But.
Yes.
The very short term at least in speaking about the quarter.
We saw some pretty significant challenges in the early part of the quarter that now seem to be easing somewhat and so we're excited about those recent changes.
Gotcha, and just one more and I'll hop when you when you look at your sort of major.
Three buckets of labor oriented <unk>.
Is it more.
Skewed toward any particular group theyre in.
Is it.
Is that.
Wherever you are seeing the most pressure is at the heart.
Oriented lpns thats more structural but.
Just any thoughts about how about how fixable. The problem is if it is in fact one of these three for example, if it's either Orient, our CNS or whatever it is that easier or harder to fix.
It's all three for sure, but obviously the bulk of our employees are <unk> right and those are the ones that are probably the easiest to fix because we can we can partner with or create our own CNA certification programs, depending on the states that we're in and we're doing that and those efforts are bearing.
<unk> fruit, we're spreading spreading the knowledge that we're gaining and successful programs across our footprint and making meaningful gains there.
Little bit harder.
The licensed nurses those are those are a little bit harder because they are either two year or four year program.
And.
And we're competing with the hospitals and other health care providers for those folks, but even even in those cases.
Look our feeling is it probably corresponds with the recent ending of.
At least in most geographies the federal unemployment the extended federal unemployment benefits.
We are seeing an increase in candidates and we hope that trend continues.
Okay. Thanks.
Thanks Frank.
And I'm not showing any further questions at this time I'd like to turn the call to Barry for any closing remarks.
Thank you, Kevin and thanks, everyone for joining us today.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
[music].
Okay.
Yes.
Okay.
[music].
[music].
[music].