Q4 2021 Ensign Group Inc Earnings Call

February 10, 2022

Good day, and thank you for standing by and welcome to the Ensign Group, Inc. Fourth quarter fiscal year 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Chad Keetch. Please go ahead.

Thank you welcome everyone and thank you for joining us today.

We filed our earnings press release yesterday and it is available on the Investor Relations section of our website at <unk> Dot net.

A replay of this call will also be available on our website until five PM Pacific on Friday March four 2022.

We want to remind any listeners that may be listening to a replay of this call that all statements made are as of today February 10th 2022, 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 list.

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.

Except 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 the other operating subsidiaries through contractual relationships with such subsidiaries.

In addition, our wholly owned captive insurance subsidiary, which we refer to as the insurance captive provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers' compensation insurance liabilities.

And Zane also own standard bearer health care REIT, Inc, which is a captive real estate investment trust and invest in health care properties and interest into lease agreements with certain independent subsidiaries of enzyme as well as third party tenants that are unaffiliated with the Ensign Group Inc.

The words enzyme company, we our and us refer to the Ensign group and its consolidated subsidiaries.

All of our operating subsidiaries the service Center standard Baird healthcare REIT and the insurance 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 used today 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 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-K.

That I will turn the call back over to Barry Port our CEO Barry.

Thanks, Chad and again, thank you for joining us today.

We are pleased to announce yesterday another record quarter. These results demonstrate yet again.

Co leaders and their teams continue to be the examples of post acute excellence as they wait to the evolving landscape in each of their markets.

They've done so we have again achieved record results in spite of the continued challenges related to the pandemic and the accompanying disruption in their labor markets.

Arguably despite the impact of the Delta surge in the early part of the quarter and omicron in the late part of the quarter. We saw continued improvement in occupancy skilled revenue and managed care revenues. We were particularly pleased that we achieved sequential growth in our overall occupancy for the fourth consecutive quarter.

And managed care census has grown sequentially six quarters in a row.

We were amazed by the commitment of our caregivers and their continued endurance and strength.

As evidence of the medical community's confidence in our local operators clinical capabilities. We saw March improvement in patient volumes, especially with higher acuity patients as we saw another sequential increase in Medicare and managed care census of five 5% and four 7% in our same store.

<unk> and transitioning portfolios respectively.

This continued improvement in our admissions trend not only gives us great confidence that we can continue to perform well as the pandemic stubbornly persists in many of our largest markets.

But it also shows that we are in an excellent position to see Occupancies continue to normalize to pre pandemic levels overtime, even while the pandemic continues to impact our operations, our staff and our patients.

In spite of the unprecedented challenges of the pandemic has forced us to become stronger and more agile, while allowing us to develop strategic local advantages that will continue to bear fruit, even when the pandemic eventually subsides.

We continue to work closely with our hospitals government agencies and managed care partners to care for patients with increasingly demanding medical needs.

In doing so our operations are solidifying their position as providers of choice and are increasingly seen as critical partners in the health care continuum as an essential cost effective setting for these complex patients.

Moreover, as the pandemic has continued to put pressure on the labor markets. Our operations have discovered new methods for attracting healthcare professionals into our workforce, while also strengthening their ability to retain and develop existing staff as we are focused on being the employer of choice in our communities while we.

Would never wanted this pandemic to occur it has revealed the strength of frontline professionals and caused us to become better clinically and operationally than ever before.

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 April 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care.

Based on recent Covid trends, we anticipate that this additional funding will continue into the second half of this year.

But to the extent that COVID-19 trends or political climate has changed throughout the year. We are confident in our ability to make operational adjustments take advantage of an attractive acquisition environment and lean on our overall health to continue our path of performance.

We are very proud of what we're able to accomplish in 2021, while dealing with so many unusual challenges, but we also know we can still do much better and are excited about the enormous potential within our portfolio as we continue to apply our proven locally driven health care model.

We are issuing our 2012 annual 2022 earnings guidance of $4 <unk> to $4 13 per diluted share and annual revenue guidance of $2 93 billion to $2 98 billion the.

The new midpoint of this 2022 earnings guidance represents an increase of 12% over 2021 results.

Is 30% higher than our 2020 results.

We are excited about the upcoming year and are confident that our teams will continue to manage.

And innovate through the lingering challenges on the laboring on the labor front.

When we consider the current health of our organization combined with our culture and proven local leadership strategy.

We are well positioned to have another outstanding year in 2022.

But before I turn it over to Chad to discuss our growth in real estate efforts.

Wanted to take a minute to recognize our incredible team members facility leaders field resources clinical partners and service Center support staff I can't emphasize enough how incredibly honored and grateful we are to work alongside them and witness their amazing sacrifice effort and outcomes. They have taken great care to.

Is the impact that these last few years have had on our residents and one another.

Focus.

<unk> on the safety and wellbeing of those they serve.

There are ownership and serving their communities has blessed the lives of so many.

Absolutely astounding to witness and an honor to be a part of that effort.

While we most certainly expect some challenges ahead, we are excited about our future and look forward to continuing to show our dedication of all of those that have entrusted us with the care of their loved ones.

Next I'll ask Chad to discuss our recent growth Chad.

Thank you Barry.

As we announced yesterday as of January three 2022, we completed the formation of a new captive REIT standard very health care REIT, Inc, or standard there.

This new real estate company will enable us to build upon our established real estate investment platform, which is comprised of high quality assets and very healthy operational fundamentals.

We carefully selected the name standard bear, which in military tradition is the person that has the honor of carrying the colors.

As you all know enzyme means that standard or a flag.

Enzymes mission is to raise a flag or to be assemble of a new higher standard in post acute care.

That mission drive each and every aspect of our organization and it's something we care about deeply.

Therefore, it is very important for us to ensure that everything the read is about is to support that mission.

We understand and we'll always recognize that the true value of our real estate is derived by the loving service provided by our local teams in each location they serve.

The real estate, while obviously an important element of the care, we provide only does well if the operations do well.

And so standard bearers mission will be to do its part in finding the right opportunities and acquiring those opportunities in a way that supports and sustains. The one hundreds of enzyme affiliates and other likeminded operators as they seek to provide exceptional post acute care into the markets. They serve.

While our real estate strategy has always been an important part of our DNA. We believe this new organizational structure allows us to take the next step with our already thriving real estate business.

We have already begun evaluating transactions, which include health care properties that will be operated by enzyme affiliates and other third party operators.

We look forward to establishing new partnerships with other outstanding operators and to working together to help further underlying the importance of post acute care providers within the continuum.

At the same time this new strategy will open up new doors to growth that we have pursued in the past.

Allowing us to accelerate enzymes strategy of acquiring and operating both performing and underperforming operations.

As a reminder, there are many benefits to our stakeholders in this new organizational structure. In addition to providing us with additional acquisition opportunities standard bearer will be able to leverage the knowledge and experience of our exceptional field leaders as they assist the REIT and its efforts to create additional value through real estate investing.

So unlike a transaction that involves a onetime benefit to our stakeholders. The captive REIT in the accompanying periodic valuations will show an ongoing an accurate look at the substantial value of our real estate assets.

We are happy to now disclose our real estate portfolios value as determined by a third party appraiser or in our 10-K.

With an initial valuation of approximately $1 billion.

When compared with the book value of approximately $720 million, which includes the purchase price that we paid at the time of acquisition plus all additional capital improvements. This represents an increase of approximately 40%.

Overtime, we expect that this continued disclosure will shine a brighter light on the value. We have created and we will continue to create in these and future assets.

In addition, this structure fully preserves the option to do a spin out or other transactions in the future without duplicating efforts.

Most of all by keeping our real estate strategy in house, if you will.

We retained the cultural connection between the real estate business and the most important part of our business to the obviously the care and service that occurs in these operations on a daily basis.

We're always happy to be operators first and the health of each operation will be Paramount in every deal we consider.

So just to summarize this new structure gives us more flexibility to grow in new ways without triggering significant capital gains tax and other inefficiencies provides us with additional flexibility in deployment of capital and gives us full visibility into the growing value of our real estate plus.

Plus we are not limiting ourselves in any way to pursue other structures in the future.

And just to be clear, we will obviously still continued to grow by leasing new operations.

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 we added six new operations, including two operations in Texas totaling 248 beds.

One operation in Idaho with 80 beds.

One operation in Arizona, with a 161 beds and two operations in California with 218 beds.

Five of which are new long term triple net leases and one real estate purchase.

Just a few months ago, we acquired the real estate for five skilled nursing and assisted living facilities in Arizona, California, and Kansas, which had previously been operated by enzyme and pennant group of affiliates for a number of years.

As this recent activity illustrates the ratio between leased and owned will vary depending on the circumstances. When it makes sense and pricing is right. We will opportunistically purchased the real estate.

When attractive leases come our way, we will do those two as we've shown over our 22 year history, there will be many opportunities to do both.

In total during the year end.

We've added 20 operations through our organization and we are very excited about this year.

The pipeline for our typical turnarounds, including real estate acquisitions and leases is very strong and improving.

We have done we have a dozen new additions that we are working towards closing in the coming months and are seeing a significant increase in the number of opportunities.

For both leased and owned portfolios.

As we mentioned in our release yesterday, we have significant capacity with over $340 million in available capital and very eager capital partners ready to help us grow.

And with that I'll turn the call back over to Barry Barry Thanks, Chad.

Next we'd like to highlight some examples of the success is our local teams have seen this quarter, while external circumstances have been difficult our partners continue to defy the odds and produce remarkable outcomes clinically culturally and financially.

Pandemic has added complexity to our operational landscape and in some ways. It has also reinforced the simple fundamentals that allow operations to be successful regardless of circumstances.

These fundamentals such as clinical confidence stable and consistent leadership in partnership with health care continuum providers have allowed many of our facilities, including legend West a skilled nursing facility in San Antonio, Texas to thrive in the midst of unprecedented clinical challenges reimbursement changes regulatory.

Tori oversight and staffing pressures.

Despite the constant pressures throughout 2021.

Robert Great and CLO Monica Sanford and the team at legend West, which has been together for many years have continued to strengthen clinical and financial results quarter after quarter.

Because of the stability and leadership the team continued to execute a very successful managed care strategy working together with local managed care plans to increase clinical capabilities through specialized trainings and streamline processes to meet the needs of both the plans and their patients and at the same time the <unk>.

Legend West team is relentlessly improved quality metrics and maintained an overall five star rating from CMS as well as preferred status for multiple managed care networks and the veterans administration.

As a result occupancy and revenues have consistently grown quarter after quarter and year after year.

For example, during the fourth quarter of 2021 skilled mix increased by 30% compared to the prior year quarter, while managed care patient days increased by 39% in 2021 over prior year. This has led to a 27% improvement in total managed care revenues and contributed to 2002.

'twenty, one being the highest EBIT year ever for this facility.

These continued improvements by legend less demonstrate that there will always be a strong demand for top quality skilled nursing and rehabilitation services.

As the pandemic continues staffing challenges have hit all sectors, but it has been particularly difficult for rural health care facilities.

However, many of our operations are finding ways to thrive despite the challenges.

One example of this is pinnacle nursing and rehabilitation and price, Utah, a small community in the eastern part of the state where CEO , Seth Anderson and CLO Lindsay Callahan has led their teams staffing efforts and some very innovative ways.

Recognizing that the easiest way to successfully staffa facility is to prevent employee turnover.

<unk> team has been obsessed with taking care of their existing staff and becoming the employer of choice in the community.

This positive culture has not only resulted in staff turnover rates that are less than a third of the national average.

But also has created a pipeline of referrals from employees encouraging their friends and family to join the technical team.

Political staffing success goes beyond just great culture.

Facilities also pioneered in in person and virtual CNA training programs and strategically partnering with the local community College nursing.

<unk> program to ensure consistent inflow of talented clinicians.

As expected the successful culture at Pinnacle continues to produce exceptional clinical outcomes, including a five star rating overall for quality measures.

Similarly, the facility increase revenues occupancy and skilled mix throughout 2021, which resulted in a 31% EBIT growth over 2000 Twenty's record financial performance.

Although pinnacle has been an ensign affiliate for over a decade. It continues to meaningfully improve year after year, demonstrating the incredible potential for growth latent in even established same store operations.

We hope that these examples are helpful in illustrating 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 will turn the time over to Suzanne to provide more detail on the Companys 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 year are contained in our 10-K and press release filed yesterday. Some additional highlights include the following for the year GAAP diluted earnings per share of $3 80.

Representing a 12% increase.

Adjusted diluted earnings per share $3 64, and.

An increase of 16%.

GAAP and adjusted revenues were $2 6 billion, an increase of 10% for the quarter GAAP diluted earnings per share with 86%.

Getting a 5% increase in adjusted diluted earnings per share with 97%.

An increase of 21%.

Transitioning in same store occupancy.

Increased by six 8% and 3%.

In addition sequential transitioning in same store occupancy increased by one, 7% and 40 basis points respectively.

Our key metrics.

Remember 31st included cash and cash equivalent to.

$262 million cash flow from operations of 276 million and $343 million of availability on our revolving line of credit.

We continued to Delever, our portfolio exceeding our lease adjusted net debt to EBITDA ratio at 213 times, a decrease of two nine times in last year.

101 asset 77 of which are unlevered with significant equity value that provide us with even more of a second lien.

As of the year ended December 31st 2021, as we repurchased 265000 shares of common stock for 20 million completing our covered 2021 stock repurchase program. We also announced yesterday the board approved a new stock repurchase program for 2002.

<unk> and <unk> added 29 given.

Given the stock's recent performance, our liquidity and confidence in near and long term results. We believe this additional share buyback could be a very wide use of our capital.

As we've said before share buybacks one of the many levers we have to deploy capital to benefit our shareholders.

And then January the public health emergency with extended for another 90 days to April 16 2022.

With this extension of the federal government will continue to provide various flavors and aetna funding.

Barry mentioned, we anticipate that this additional funding will continue into the second half of the year.

Additionally, it was announced that this is.

Of the 2% sequestration would continue through April 2022, and then would be 1% through June 32022, after which Paul Keith percent sequestration will be back in place.

As mentioned had and will continue to have positive impact on our revenue depending upon how the pandemic effects our Medicare fencing.

We are providing our 2020 Q annual earnings guidance of $4 <unk> to $4 13 per diluted share and annual revenue guidance at $2 93 billion to $2 98 billion. The midpoint of this 2020 earnings guidance represents an increase of approximately 12%.

Of our 2021 result, and 30% of our 2020 results.

Our 2020 guidance is based on diluted weighted average common shares outstanding of approximately $57 3 million.

Tax rate of 25%.

The inclusion of acquisitions closed in the first half of 2022.

Exclusion of losses associated with start up operations, which are not yet stabilized the inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax and 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 budgets.

Occupancy and skilled mix the influence of the general economy.

And staffing.

The short term impact of acquisition activities variations in insurance accruals.

And COVID-19, and other factors and with that I'll turn it back over to Barry Gary.

Thanks, Suzanne we want to again, thank you for joining us today and express our appreciation to our stakeholders for their confidence and support.

We know that this year will not be without some unique challenges. However, we are encouraged by our operational strength in our core business, but also this new growth lever that we have having standard bear to help accelerate our mission to change post acute care.

With Ensign operations as its primary tenants are perfect launching pad to create significant real estate value as we follow our proven model, while aligning with others in our industry.

As Chad pointed out earlier, we believe that little to no value is being assigned to a real estate by our investors. When in fact, the value is approximately $1 billion.

We are eager to grow that value and take advantage of opportunities that we have previously previously would've passed on and leverage our best in class field leadership team to help attract and partner with other great providers in our space.

Speaking of our talented field leaders, we recognize them for their heroic efforts along with those of our nurses therapists and other frontline care providers, who continue to provide industry. Leading example of life enriching service to our residents co workers and communities.

We're also appreciative to our colleagues here at the service Center, who are working tirelessly to support our operations, enabling us to succeed in spite of the challenges we faced thank you for making us better every day.

With that we'll turn the time over the Q&A portion of our cost Gigi can you instruct the audience on the Q&A procedure.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Tao to from Stifel. Your line is now open.

Hey, good morning.

Could you help me understand the building blocks of that 12 points.

5% of revenue guidance for 2022 at the midpoint in terms of occupancy outlook.

In skilled mix on the existing portfolio and the contribution from recent acquisitions in terms of space support I think you had recognized $75 million.

Match funding in 2021 and based on your comments do you expect half of that level for 2019.

Great questions.

Well I'll, let suzanne give into the kind of the revenue.

Piece of your question as far as state support goes through the <unk> program.

Our assumptions is that some and we don't have a crystal ball on this but sometime in the second half of 2022, we expect that that that support.

From the federal government through the states.

We'll likely end in.

Again, our best guesses.

Somewhere in the middle of the second half of the year.

And Thats based on the state of emergency potentially subsiding, obviously, what could change that is if COVID-19 continues to have different variance and outbreaks that support Mike might continue but we're we're taking a guess that it will likely end sometime this year.

As for occupancy and skilled mix.

Again.

What we've typically seen is that as we have.

Surges in the community that we kind of take a step sideways or backwards in overall occupancy in our skilled mix increases.

As we see sicker patients.

But but what we have seen in spite of those surgeons, both with Delta and omicron as that.

Is that our pace overall over especially over the long term when you look at.

The course of 2021 is that there is a kind of a steady return to our pre COVID-19 occupancy numbers and we expect that to continue.

Through 2022.

Susanna.

On that obviously, we don't have a crystal ball, but what we do and have done kind of similar to last year really modeling that sensus and <unk> way and one way of looking at it with regards to maybe add a little bit lighter COVID-19 impact here with heavier centers overall growth.

A strong skilled mix, but not as strong as we've seen over the last.

Last year, and then when we kind of go to the other part of it.

At what the overall cash if we had a lot of Covid and it had a high skilled mix, but maybe not as much census growth.

We are modeling both ways and get to that overall number both ways.

Looking kind of acquisition versus overall organic growth the vast majority.

Growth is focused on the organic growth.

Kind of historically looked at that bucket from our skilled nursing and at the same store transitioning and recently acquired and really taken a look back and have the opportunity to grow each one of those back into your same store really in that mid single digit to high single digit growth transitioning in the mid to high single digit growth and in acquisitions at a double digit growth in Seo.

With that huge portion of our revenue coming from that same store bucket, which is a very large we expect that to continue to enhance and grow.

Yes, that's very helpful. Just looking at the 2021 experience Colby.

We expect the impact on the revenue side relative to the initial guidance. While you guys were able to pull ahead on the earnings side in that context, how should we think about the 2022 guidance any lingering impact you are building into the guidance and what's the level of conservatism.

Clearinghouse.

2021 experience.

Yes, I mean, I think what you saw and we had this happened in Q4, where we had a really heavy calvert at the very beginning and at the very end you did see that overall revenue come down, but the margin gap and I think that that's kind of what we would anticipate again, we're really lucky cannot just focus on that revenue growth.

But really overall, we're concentrating on how we're earning Howard Crane overall earnings in our bottom line and so I think that's when you think back about our model and look at how we approach that really that is our focus is how we actually continue to grow we're not going to just try to make that revenue number in that new revenue.

I really look at the overall and so I think if we had a lot of surges again.

Maybe we wouldn't get to the revenue number per se, but we would have higher acuity higher skilled mix, which would result in that.

Stronger earnings margin.

Got you and one more question on the captive re side if I may.

I think in <unk>, you guys caught out.

Turning to revenue.

$54 million plus the $60 million.

$70 million in terms of year when revenue does that include a straight lining rent as well.

Yes.

Yes, it's not a straight line per se because all of our rents are CPI based and with the CPI based rent you actually got straight line that amount and so we continue to project that that CPI increase if youre looking how to look at that on a go forward basis had that CPI actually build up in there.

<unk> with cap, so any day or tip.

We have a cap on them to 2.5% to 3%.

Yes.

So it's the same as cash right now.

So just curious on the debt on the debt right.

I think the debt to assets is about 25% and you plan to leverage.

Ramp up investments.

I think your question is on the captive rate would we lever up the captive REIT overtime.

Right.

Yes, absolutely I mean, as we're looking at acquisitions, you would actually increase that elaborate on it.

Obviously, youre going to get additional rent stream, but as you do an acquisition through the rate than you'd have additional leverage that would occur.

Yes. Thank you if we always talk about third of our net debt.

The EBITDAR ratio.

We're obviously very cognizant of making sure we stay very healthy.

And have a lot of room, there and like I said in my prepared remarks, we are eager capital partners or <unk>.

Excited and anxious to help us through that.

Got you. Thank you guys taking my questions.

Thank you.

Thank you. Our next question comes from the line of Scott Fidel from Stephens. Your line is now open.

Hi, everyone. Thanks, and first of all I appreciate the additional disclosures now and in the 10-K on the valuation of the real estate assets.

Couple of questions for you.

First just interesting Chad, maybe if you want to talk about.

The conversations that are underway now around.

Deals and sort of the tempo of that and I know that you've already highlighted that you've got at least a dozen operation that look to be in the pipeline to close relative near term.

About the bigger picture and I know you've talked about really sort of during the pandemic that.

A lot of the sellers have had pretty elevated valuation expectations, just given all of the additional relief funding upfront from the pandemic and just interested in terms of how that sentiment is evolving at this point are you starting to see some softening in those expectations and more attractive opportunities start.

To open up or is it still relatively consistent with what you've been telling us about over the last 12 to 18 months or so.

Thanks Scott.

It's been interesting I think we're still seeing.

Some folks holding on to really high expectations, but that said I think just the supply and the number of acquisition opportunities.

Turning up are going to just have a natural impact on that.

We've seen an uptick just even in the last three weeks.

As we've entered into this new year and as Barry mentioned.

There is.

Not a whole lot of visibility in terms of.

Some of those programs at the federal government has had in place.

So I think theres certainly been a lot of a lot of additional deals that have been coming.

And we could definitely get the sense that prices of at least the ones we're doing of course.

Been a lot more realistic so we're excited about that.

Got it and.

Second question just following back up on the state relief funding and.

I guess how do.

For us to factor that into the model.

Last year, I think that you talked to around $75 million overall in that state relief funding and obviously I know, it's very difficult to forecast.

Exactly what would play out for 2022, just interested though directionally. How you are thinking about that would you think about that type of.

Revenue that you are booking to be relatively consistent in 2022, where do you think that they're doing.

A material relatively material drop off in that obviously with with.

What flex a bit more weighted to the first half.

Great question I think maybe just as a reminder of how we actually even look at those dollars coming in we really do reflect that as it does every half nap dollar against a COVID-19 related expenses, obviously that the heavier that COVID-19 is in a particular quarter, even with the funding you are probably going to get a little bit.

Covid revenue or if it's if COVID-19 experience in a particular quarter is lighter than that that COVID-19 revenue linked.

Come down so just remembering that that revenue isn't recognized license how we have a COVID-19 expense and then when we kind of look through the year. We know it's all the way through April like we said in the prepared remarks.

And what we're hearing in fill and had built into the guidance is that definitely we go through.

In July based upon everything Thats out there and then kind of catering off toward the second half.

2022, so not as strong but as we've seen every state has their own way of dealing with Aetna dollars. So it is not this consistent amount that we're getting from every state, but as every state goes through the analysis there actually.

Putting money out there maybe on a daily basis are putting money out there and lump sum and so kind of petering out through that second half of 2020.

Got to Suzanne point.

We we utilized the COVID-19 related deaths map funding heaviest in Q4 of this last year, we had two surges covet and Delta, sorry, Omicron and Delta in one quarter and so naturally those.

<unk> expenses are going to be higher.

So we see <unk> starting to taper, we see that in our numbers both in staff cases, and resident cases, and so our expectations, we're still going to have some higher expenses in the first quarter, but.

Again.

We're hopeful and optimistic that the things will start to taper throughout the year and as they do not only will <unk>. Eventually go away, which is it's bound to and it should.

But hopefully our dependence on that for Covid related expenses will also taper.

Understood that's helpful because I think.

There is a perception amongst some investors that leaked out there that shows those after map funds the enhanced funds.

Ben bolstering margins and if those go away you could see some compression in margin I think that's the point that you are trying to make it that that's more margin neutral because you're booking cost against those revenues by maybe just wanted to give you a chance to address that directly in terms of.

Those funds flow through margins and whether there would be any compression or not if those.

Yes go away and.

That's a great point, Scott and that's precisely why we're pointing out that we're using the funds only to the extent that we have COVID-19 related expenses.

So.

Again, our assumption is that.

As a lot of these expenses go away.

The need for F map will also go away.

And.

So.

We're we're predicting that.

The pandemic.

Pandemic will evolve this year, but but again, it's really hard to say certainly if it doesn't.

Our expectation is that the government program will continue.

Because I think the intent of the program is to help offset.

The higher COVID-19 related expenses, but certainly.

Yes.

We expect to reduce our dependency.

Regardless of whether or not the pandemic persists. Our focus this year is on on really kind of returning to fundamentals after having so much time and focus and energy.

The kind of the pandemic related issues.

Come up both with regulatory and staffing and all the other challenges that come.

Our focus is making sure that we really kind of return to.

Our efficient operating model and have some of the kind of the COVID-19 related distractions subside.

I understood and then just one last one for me if you could talk about what type of wage inflation, you're building into the 2022 budgeted and the how's that compared to 2021 and that's it for me. Thanks.

So we're not necessarily prepared with.

Exact numbers on how much wages have gone up we've indicated in the past that we certainly saw an acceleration of <unk>.

The need for some structural wage increases towards the.

The second half of last year, and we expect us to remain and we remain in place.

Certainly you can look at kind of a run rate from third and fourth quarter and.

But even there.

Our expectation is that we're going to we're going to be better at managing our overall labor.

In spite of.

Higher higher wages that we see in place.

We're seeing some success with that as we again like I mentioned returned to <unk>.

Focus on fundamentals, yes, and I would just remind you that there is some natural offsets that we have with regards to wage inflation.

I think we said.

Higher than historically has been usually we are in the very low <unk>.

<unk>, 3% and where we're at.

Ned.

I'll get on that for this year on the wage inflation, but there are offsets in other offsets include just our overall incentive plans that are tied to the overall profitability of each operation as well as all the markets as well as one of the biggest factors that we have out there and agency.

And that the agency and that was the highest we've ever experienced in Q4 and so we've got a continued push and focus with regards to getting that agency in that down and when you don't have huge surge in COVID-19 . We believe that's possible because of all the additional programs that we've introduced over the last year, including CNA schools and other things that we have.

Can you guys about.

<unk>.

And look we pointed out agency is a big issue for us and certainly we know compared to a lot of our peers. Because we are open about this we talk about it.

We're talking about agency usage that represents.

Maybe 5% of our overall nursing expense, which we know is much lower than most of our competitors.

But that said, it's still it's still.

It's a big expense, even though it's only maybe.

<unk> percentage of your overall labor cost is still significant for us and one that we're focused on reducing because.

Not only improves patient care, it's a it's a burden some expense that we don't expect will continue.

Evidence of that is seen in our acceleration in our ability to hire we've seen a massive increase in our in our hires over the past two quarters and we're seeing more evidence of that into the into the first quarter, which is really really good lead indicator that we're.

We're starting to see light at the end of the staffing tunnel.

Okay, all right very helpful. Thanks.

Thank you. Our next question comes from the line of Ben Hendrix from RBC capital markets. Your line is now open.

Hey, Thanks, guys just a real quick one from me anything when you were talking about the waiver programs.

And in Medicaid is there anything that we need to that you can call out regarding your assumptions around the Texas Medicaid waiver.

The district program.

Yes, I mean theres nothing unique that we haven't got it in there with regard to that that program I think for US we've really taken Texas and say that is going to continue to have the supplemental program that exists there.

For 2022 and in a format similar to how it exists today.

Okay do you are you.

We've noticed a lot of providers kind of taking it out of first quarter guidance.

<unk>. The latter three is that is that a right way to think about it or do you guys. Just have it have it and they are continuing.

Throughout the whole year.

I think when Youre I think that program that you're talking about it doesn't impact us as much the program that impacts us. The most is the quick program okay.

So I think that that's the one where a railroad that has the biggest impact on us.

And that we've really kept that flat year over year based upon what's going on in that program as a supplemental provider.

Okay. Thank you very much.

Thank you at this time I am showing no further questions I would like to turn the call back over to Bob for closing remarks.

Thanks <unk>.

Good wrap up our Q&A and we'd like to thank everyone for joining us today.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

[music] here.

[music].

Good day and thank you for standing by welcome to the Ensign Group, Inc. Fourth quarter fiscal year 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Chad Keetch. Please go ahead.

Yeah.

Okay.

Thank you welcome everyone and thank you for joining us today.

We filed our earnings press release yesterday and is available on the Investor Relations section of our website at <unk> Dot net.

A replay of this call will also be available on our website until five PM Pacific on Friday March four 2022.

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.

In addition, the Ensign Group, Inc. Is a holding company with no direct operating assets employees or revenues.

And Zane also own standard Baird Health care, REIT, Inc, which is a captive real estate investment trust and invest in healthcare properties and enters into lease agreements with certain independent subsidiaries of enzyme as well as third party tenants that are unaffiliated with the Ensign Group Inc.

The words enzyme company, we our and us refer to the Ensign group and its consolidated subsidiaries.

All of our operating subsidiaries the service Center standard Merit healthcare REIT and the insurance captive are operated by separate wholly owned independent companies that have their own management employees and assets.

10-K, and with that I'll turn the call back over to Barry Port Our CEO Barry.

Thanks, Chad and again, thank you for joining us today.

We are pleased to announce yesterday another record quarter. These results demonstrate yet again that our local leaders and their teams continue to be the examples of post acute excellence as they wait through the evolving landscape in each of their markets.

They've done so we have again achieved record results in spite of the continued challenges related to the pandemic and the accompanying disruption in their labor markets remarkably despite the impact of the Delta surge in the early part of the quarter and omicron in the late part of the quarter. We saw continued improvement in occupancy.

These skilled revenue and managed care revenues, we were particularly pleased that we achieved sequential growth in our overall occupancy for the fourth consecutive quarter and managed care census has grown sequentially six quarters in a row.

We were amazed by the commitment of our caregivers and their continued endurance and strength.

As evidenced in the medical community's confidence in our local operators clinical capabilities. We saw marked improvement in patient volumes, especially with higher acuity patients as we saw another sequential increase in Medicare and managed care census of five 5% and four 7% in our same store.

And transitioning portfolios respectively.

This continued improvement in our admissions trend not only gives us great confidence that we can continue to perform well as the pandemic stubbornly persists in many of our largest markets.

We continue to work closely with our hospitals government agencies and managed care partners to care for patients with increasingly demanding medical needs.

We would never wanted this pandemic to occur it has revealed the strength of frontline professionals and caused us to become better clinically and operationally than ever before.

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 April 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care.

Based on recent Covid trends, we anticipate that this additional funding will continue into the second half of this year.

But to the extent the COVID-19 trends or political climate has changed throughout the year. We are confident in our ability to make operational adjustments take advantage of an attractive acquisition environment and lean on our overall health to continue our path of performance.

We are very proud of what we were able to accomplish in 2021, while dealing with so many unusual challenges, but we also know we can still do much better and are excited about the enormous potential within our portfolio as we continue to apply our proven locally driven health care model.

We are issuing our 2012 annual 2022 earnings guidance of $4 <unk> Q4 dollars 13 per diluted share and annual revenue guidance of $2 93 billion to $2 98 billion the.

The new midpoint of this 2022 earnings guidance represents an increase of 12% over our 2021 results.

Is 30% higher than our 2020 results.

We are excited about the upcoming year and are confident that our teams will continue to manage and innovate through the lingering challenges on the laboring on the labor front.

When we consider the current health of our organization combined with our culture and proven local leadership strategy, we are well positioned to have another outstanding year in 2022.

But before I turn it over to Chad to discuss our growth in real estate efforts I just wanted to take a minute to recognize our incredible team members facility leaders field resources.

Clinical partners and service Center support staff I can't emphasize enough how incredibly honored and grateful we are to work alongside them and witness their amazing sacrifice effort and outcomes. They have taken great care to ease the impact that these last two years have had on our residents and one another.

They have focused relentlessly on the safety and wellbeing of those they serve their.

There are ownership and serving their communities has blessed the lives of so many.

Absolutely astounding to witness and an honor to be a part of that effort.

Next I'll ask Chad to discuss our recent growth Chad.

Thank you Barry.

As we announced yesterday as of January three 2022, we completed the formation of a new captive re standard bare healthcare rethink or standard there.

This new real estate company will enable us to build upon our established real estate investment platform.

Which is comprised of high quality assets and very healthy operational fundamentals.

We carefully selected the named standard bear, which in military tradition is the person that has the honor of carrying the colors.

As you all know enzyme means a standard or a flag.

Enzymes mission is to raise a flag or to be assemble of a new higher standard in post acute care.

That mission drives each and every aspect of our organization and is something we care about deeply.

Therefore, it is very important for us to ensure that everything the read is about is to support that mission.

We understand and we'll always recognize that the true value in our real estate is derived by the loving service provided by our local teams in each location they serve.

The real estate, while obviously an important element of the care, we provide only does well if the operations do well.

We have already begun evaluating transactions, which include health care properties that will be operated by enzyme affiliates and other third party operators.

We look forward to establishing new partnerships with other outstanding operators and to working together to help further underlying the importance of post acute care providers within the continuum.

At the same time this new strategy will open up new doors to growth that we have pursued in the past.

Allowing us to accelerate enzymes strategy of acquiring and operating both performing and underperforming operations.

Also unlike a transaction that involves a onetime benefit to our stakeholders. The captive REIT in the accompanying periodic valuations will show an ongoing an accurate look at the substantial value of our real estate assets.

We are happy to now disclose our real estate portfolios value as determined by a third party appraiser or in our 10-K with an initial valuation of approximately $1 billion.

Over time, we expect that this continued disclosure will shine a brighter light on the value. We have created and we will continue to create in these and future assets.

In addition, this structure fully preserves the option to do a spin out or other transactions in the future without duplicating efforts.

Most of all by keeping our real estate strategy in house.

<unk> retained the cultural connection between the real estate business and the most important part of our business is obviously the care and service that occurs in these operations on a daily basis.

We're always happy to be operators first and the health of each operation will be Paramount in every deal we consider.

Plus we are not limiting ourselves in any way to pursue other structures in the future.

And just to be clear, we will obviously still continued to grow by leasing new operations.

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 we added six new operations, including two operations in Texas totaling 248 beds.

One operation in Idaho with 80 beds.

One operation in Arizona, with the 161 beds and two operations in California with 218 beds.

Five of which are new long term triple net leases and one real estate purchase.

As we've shown over our 22 year history, there will be many opportunities to do both.

In total during the year end.

We've added 20 operations through our organization and we are very excited about this year.

The pipeline for our typical turnarounds, including real estate acquisitions and leases is very strong and improving.

We have done we have a dozen new additions that we are working towards closing in the coming months and are seeing a significant increase in the number of opportunities.

For both leased and owned portfolios.

As we mentioned in our release yesterday, we have significant capacity with over $340 million in available capital and very ear capital partners ready to help us grow.

And with that I'll turn the call back over to Barry Barry Thanks, Chad.

Next we'd like to highlight some examples of the successes of our local teams have seen this quarter, while external circumstances have been difficult our partners continue to defy the odds and produce remarkable outcomes clinically culturally and financially.

Pandemic has added complexity to our operational landscape and in some ways. It has also reinforced the simple fundamentals that allow operations to be successful regardless of circumstances.

Tori oversight and staffing pressures.

Despite the constant pressures throughout 2021.

Robert Gray and CLO Monica Sanford and the team at legend West, which has been together for many years have continued to strengthen clinical and financial results quarter after quarter.

Because of the stability and leadership the team continued to execute a very successful managed care strategy working together with local managed care plans and increased clinical capabilities through specialized training and streamline processes to meet the needs of both the plans and their patients and at the same time the <unk>.

As a result occupancy and revenues have consistently grown quarter after quarter and year. After year. For example, during the fourth quarter of 2021 skilled mix increased by 30% compared to the prior year quarter, while managed care patient days increased by 39% in 2021 over prior year. This.

Is led to a 27% improvement in total managed care revenues and contributed to 2021 being the highest EBIT year ever for this facility.

These continued improvements by legend Wes demonstrate that there will always be a strong demand for top quality skilled nursing and rehab rehabilitation services.

As the pandemic continues.

<unk> challenges has hit all sectors, but it has been particularly difficult for rural health care facilities.

However, many of our operations are finding ways to thrive despite the challenges.

Recognizing that the easiest way to successfully staffa facility is to prevent employee turnover pins.

Pinnacle team has been obsessed with taking care of their existing staff and becoming the employer of choice in the community.

This positive culture has not only resulted in staff turnover rates that are less than a third of the national average.

But also has created a pipeline of referrals from employees encouraging their friends and family to join the technical team.

Political staffing success goes beyond just great culture.

Facilities also pioneered in in person and virtual CNA training programs and strategically partnering with a local community College.

Nursing program to ensure consistent inflow of talented clinicians.

As expected the successful culture at Pinnacle continues to produce exceptional clinical outcomes, including a five star rating overall for quality measures.

Similarly, the facility increase revenues occupancy and skilled mix throughout 2021, which resulted in a 31% EBIT growth over 2000 Twenty's record financial performance.

We hope that these examples are helpful in illustrating 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 Companys financial performance and our guidance and then we'll open it up for questions.

Dan.

Thank you Barry and good morning, everyone detailed financials for the year are contained in our tank Hall, our press release filed yesterday. Some additional highlights include the following for the year GAAP diluted earnings per share of $3 <unk>.

Representing a 12% increase.

Adjusted diluted earnings per share $3 64, and.

An increase of 16%.

On a GAAP and adjusted revenues were $2 6 billion, an increase of 10% for the quarter GAAP diluted earnings per share with 86.

Getting a 5% increase in adjusted diluted earnings per share was <unk> 97.

An increase of 21%.

Transitioning in same store occupancy.

Increased by six 8% and 3% respectively.

Sequential transitioning in same store occupancy increased by one, 7% and 40 basis points respectively.

Our key metrics as of December 31st include cash and cash equivalents of $262 million cash flow from operations of 276, nine and $343 million of availability on our revolving line of credit.

We continued to Delever our portfolio, achieving our lease adjusted net debt to EBITDA ratio at 213 times, a decrease of two nine times in last year.

We also earn a 101 asset 77 of which are unlevered with significant equity value that provide us with even more quickly.

As of the year ended December 31st 2021, as we repurchased 265000 shares of common stock for $20 million completing our October 2021 stock repurchase program. We also announced yesterday the board approved a new stock repurchase program for <unk>.

In 'twenty, two and beyond 2019.

The stock's recent performance, our liquidity and confidence in near and long term results. We believe this additional share buyback could be a very wide use of our capital as.

As we've said before share buybacks are one of the many levers we have to deploy capital to benefit our shareholders.

And then January the public health emergency with extended for another 90 days to April 16 2022.

With this extension of the federal government will continue to provide various flavors and aetna funding at <unk>.

Mary mentioned, we anticipate that this additional funding will continue into the second half of the year.

Additionally, it was announced that the suspension of the 2% sequestration would continue through April 2022, and then with the 1% through June 32022, after which Paul 2% sequestration will be back in place. This is pension had and will continue.

To have a positive impact on our revenue depending upon how the pandemic effects, our Medicare census.

We are providing our 2020 Q annual earnings guidance of $4 <unk> to $4 13 per diluted share and annual revenue guidance at $2 93 billion to $2 98 billion. The midpoint of the 2022 earnings guidance represents an increase of approximately 12%.

Of our 2021 result, and 30% of our 2020 results.

Our 2020 guidance is based on diluted weighted average common shares outstanding of approximately $57 3 million.

A tax rate of 25%.

The inclusion of acquisitions closed in the first half of 2022.

The exclusion of losses associated with start up operations, which are not yet stabilized the inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax and 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 budgets seasonality in occupancy and skilled mix.

Fluids or the general economy census, and staffing.

The short term impact of acquisition activities variations in insurance accruals surge in COVID-19, and other factors and with that I'll turn it back over to Barry Gary.

Thanks, Suzanne we want to again, thank you for joining us today and express our appreciation to our stakeholders for their confidence and support.

This year will not be without some unique challenges. However, we are encouraged by our operational strength in our core business, but also this new growth lever that we have having standard bear to help accelerate our mission to change post acute care.

With Ensign operations as its primary tenant to perfect launching pad to create significant real estate value as we follow our proven model, while aligning with others in our industry.

As Chad pointed out earlier, we believe that little to no value is being assigned to a real estate by our investors. When in fact, the value is approximately $1 billion Riga to grow that value and take advantage of opportunities that we have previously previously would've passed on and leverage our best in class field leadership team to help us.

Tract and partner with other great providers in our space.

Speaking of our talented field leaders, we recognize them for their heroic efforts along with those of our nurses therapists and other frontline.

Sure providers, who continue to provide industry, leading example of life enriching service to our residents co workers and communities.

With that we'll turn the time over the Q&A portion of our cost Gigi can you instruct the audience on the Q&A procedure.

As a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key.

These standby, while we compile the Q&A roster.

Our first question comes from the line of Tao to from Stifel. Your line is now open.

Hey, good morning.

Could you help me understand the building blocks of that 12, 5% of revenue guidance for 2022 at the midpoint in terms of occupancy outlook right in skilled mix on the existing portfolio no contribution from our recent acquisitions in terms of space support I think you had recognized $75 million.

Match funding in 2021 and based on your comments do you expect half of that level for 2019. Thanks.

Great questions.

Well I'll, let suzanne give into the kind of the revenue.

The piece of your question as far as state support goes through the <unk> program.

Our assumptions is that we don't have a crystal ball on this but sometime in the second half of 2022, we expect that that that support.

From the federal government through the states.

We will likely end and again, our best guesses.

Somewhere in the middle of the second half of the year.

We're taking a guess that it will likely end sometime this year.

As for occupancy and skilled mix.

Again, what we've typically seen is that as we have.

Surges in the community that we kind of take a step sideways or backwards in overall occupancy in our skilled mix increases as we see sicker patients.

But what we have seen in spite of those surgeons, both with Delta and omicron as that.

Is that our pace overall over especially over the long term when you look at.

The course of 2021 is that there is a kind of a steady return to our pre COVID-19 occupancy numbers and we expect that to continue.

Through 2022.

Yes.

On that obviously, we don't have a crystal ball about what we do.

Thank you and have done.

Similar to last year really modeling that census, and skilled mix, Greg two ways, one way of looking at it with regards to maybe a little bit lighter COVID-19 impact here with heavier centers overall growth.

A strong skilled mix, but not as strong as we've seen over the last year and then when we kind of go to the other part of it.

We look at what the overall cash if we had a lot of Covid and it had a high skilled mix, but maybe not as much that this growth.

We've modeled it both ways and get to the overall number of both ways.

Looking kind of acquisition versus overall organic growth the vast majority of the group.

<unk> is focused on the organic growth.

Kind of historically look at the buckets from our skilled nursing them at the same store transitioning and recently acquired and we're really taking a look back and have the opportunity to grow each one of those back into your same store really in that mid single digit to high single digit growth transitioning in the mid to high single digit growth and in acquisitions at a double digit growth in so.

With that huge portion of our revenue coming from that same store bucket, which is a very large we expect that to continue to enhance and grow.

Yes, that's very helpful. Just looking at the 2021 experience Colby certainly had an unexpected impact on the revenue side relative to the initial guidance. While you guys waited we could pull ahead on the earnings side in that context, how should we think about the 2022 guidance any lingering impact you are building.

Into the guidance and what's the level of conservatism and particularly at the end of the 20th.

2021 experience.

Yes.

What you saw and we had this happened in Q4.

We had a really heavy COVID-19 at the very beginning and at the very end you did see that overall revenue come down, but the margins stay up and I think that that's kind of what we would anticipate again, we're really lucky to not just focus on that revenue growth.

But really overall, we're concentrating on how we're earning Howard Craig overall earnings and the bottom line and so I think that's when you think back about our model.

How we project really that is our focus is how we actually continue to grow we're not going to just try to make that revenue number in that in your revenue target, but really look at the overall and so I think if we had a lot of surges again as Kevin here, maybe we wouldn't get to the revenue number per se, but we would have high.

Acuity higher skilled mix, which would result in that.

Stronger earnings margin.

Got you and one more question on the captive resize if I may.

Thank you you guys caught out the enzyme rental revenue.

$84 million plus.

Plus the $16 million.

$70 million in terms of year, one revenue does that include a straight lining rent as well.

Yes.

Yes, it's not a straight line per se because all of our rents are CPI based and with the CPI based rank you actually got straight line that are now and so we continue to project that CPI increase if youre looking how to look at that on a go forward basis had that CPI actually buildup in their seats.

<unk> with cap. So any they are typically have a cap on the two 2.5% to 3% theoretically yep.

Yes.

So it's the same as cash right now.

So just curious on the debt on the debt balance right.

On day, one I think the debt to assets is about 25% any planned de levering up as you ramp up investments.

I think your question is on the captive rate would we lever up captive REIT overtime.

That's right.

Yes, absolutely I mean, as we're looking at acquisitions, you would actually increase that leverage on it.

Youre going to get additional rent stream, but as you do an acquisition through the rate than you would have additional leverage that would occur.

Yes.

We always talk about third of our net debt.

The EBITDAR ratio.

We're obviously very cognizant of making sure we stay very healthy.

And have a lot of room, there and like I said in my prepared remarks, we are eager capital partners.

Or <unk>.

Excited and anxious to help us through that.

Got you. Thank you guys my questions.

Thank you.

Thank you. Our next question comes from the line of Scott Fidel from Stephens. Your line is now open.

Hi, everyone. Thanks, and first of all I appreciate the additional disclosures now and in the 10-K on the valuation of the real estate assets.

Couple of questions for you.

First just stop interesting Chad maybe if you wanted to talk about.

The conversations that are underway now around.

Deals and sort of the tempo of bad.

Know that you already highlighted that you've got at least a dozen operations outlook to be in the pipeline to close relative of the near term.

Just think about the bigger picture and I know you've talked about really sort of during the pandemic that.

Going to open up or is it still relatively consistent with what you.

<unk> been telling us about over the last 12 to 18 months or so.

Yes, Thanks Scott.

It's been interesting I think we're still seeing.

Some folks holding onto the really high expectations, but that said I think just the.

The supply and the number of acquisition opportunities.

Opening up.

We're going to just have it.

Natural impact on that.

We've seen an uptick just even in the last three weeks.

As we've entered into this new year and as Barry mentioned.

There is not.

Not a whole lot of visibility in terms of.

Some of those programs at the federal government has had in place.

So I think theres certainly been a lot of a lot of additional deals that have been coming.

And we could definitely get the sense that the prices of.

The ones, we're doing of course.

Been a lot more realistic so we're excited about that.

Got it and.

Second question just following back up on the state relief funding and.

I guess.

Now for us to factor that into the model.

Last year, I think that you talked to around $75 million overall in that state relief funding and obviously I know, it's very difficult to forecast.

Exactly what would play out for 2022, just interested though directionally. How you are thinking about that would you think about.

That type of.

Revenue that you are booking to be relatively consistent in 2022, where do you think that.

There will probably a material relatively material drop off in that obviously with what's.

What's lacking a bit more weighted to the first half.

Great question I think maybe just as a reminder of how we actually even look at there is dollars coming and we really do reflect that as it does every half nap dollar against our COVID-19 related expense and so obviously that the heavier at that Covid is in a particular quarter, even with the funding you are probably going to get a little bit.

Covid revenue or if it if COVID-19 experience in a particular quarter is lighter than that that COVID-19 revenue.

Come down so just remembering that that revenue isn't recognized license how we have a COVID-19 expense and then when we kind of look through the year. We know it all the way through April like we said in the prepared remarks.

And while we are hearing in fill and had built into the guidance is that definitely we go through.

In July based upon everything Thats out there and then kind of catering off towards the second half.

2020, so not as strong, but because as we've seen every state has their own way of dealing with have not dollars. So it's not as consistent amount that we're getting from every state, but as every state goes through the analysis there actually.

Putting money out there maybe on a daily basis are putting money out there and lump sum and so kind of petering out to that second half of 2022.

Got to Suzanne point, I mean, we we utilized the COVID-19 related deaths map funding heaviest in Q4 of this last year, we had two surges COVID-19 and delta or sorry, Amie crime and Delta in one quarter and so naturally.

Those expenses are going to be higher.

So and we see omicron starting to taper, we see that in our numbers both in staff cases, and resident cases, and so our expectations, we're still going to have some higher expenses in the first quarter, but.

Again.

We're hopeful and optimistic that the things will start to taper throughout the year and as they do not only will less map eventually go away, which.

It's bound to and it should.

But hopefully our dependence on that for Covid related expenses will also taper.

Understood. That's helpful. Yes, because I think.

There is a perception amongst some investors that will be out there that those those have map funds the enhanced funds.

And bolstering margins and if those go away you could see some compression in margin I think that's the point that you are trying to make it that that's more margin neutral because youre booking costs against those revenues by maybe just wanted to give you a chance to address that directly in terms of.

How those funds flow through margins and whether there would be any compression or not if those.

Fine, Yes go away.

That's a great point, Scott and that's precisely why we're pointing out that we're using the funds only to the extent that we have COVID-19 related expenses.

So.

Again, our assumption is that.

As a lot of these expenses go away.

The need for EFT map will also go away and.

So.

We're we're predicting that.

The pandemic will evolve this year, but but again, it's really hard to say certainly if it doesn't.

Our expectation is that the government program will continue.

Because I think the intent of the program is to help offset the higher COVID-19 related expenses, but certainly.

We expect to reduce our dependency regardless of whether or not the pandemic persists. Our focus this year is on.

Really kind of returning to fundamentals after having so much time and focus and energy on.

On the kind of the pandemic related issues that come up both with regulatory and staffing and all the other challenges that come.

Our focus is making sure that we really kind of return to.

Our efficient operating model and have some of the kind of the COVID-19 related distractions subside.

I understood and then just one last one for me if you could talk about what type of wage inflation, you're building into the 2022 budgeted in the outback compared to 2021 and that's it for me. Thanks.

So we're not.

Necessarily prepared with.

Exact numbers on how much wages have gone up we've indicated in the past that we certainly saw an acceleration of <unk>.

The need for some structural wage increases.

Towards this.

Second half of last year, and we expect those to remain and we remain in place.

Certainly you can look at kind of our run rate from third and fourth quarter and.

But even there.

Our expectation is that we're going to we're going to be better at managing our overall labor.

In spite of.

Higher wages that we see in place.

We're seeing some success with that as we again like I mentioned return to a focus on fundamentals and I would just remind you that there is some natural offsets that we have with regards to wage inflation.

I think we said that's it.

Higher than historically has been usually we are in the very low <unk>.

<unk> to 3% and where we're at.

Ned.

Ill digits on that for this year on the wage inflation, but there are offsets and as other offsets include just our overall incentive plans that are tied to the overall profitability of each operation as well as all the markets as well as one of the biggest factors that we have out there and agency.

And that the agency and that was the highest we've ever experienced in Q4 and so we've got a continued push and focus with regards to getting that agency in that Gannon and when you don't have huge surges of Covid. We believe that's possible because of all the additional programs that we've introduced over the last year, including CMA schools and other things that we have.

Can you guys about.

Yes.

And look we point out agency is a big issue for US is certainly we know compared to a lot of our peers. Because we were open about this we talk about it.

We're talking about agency usage that represents.

Maybe 5% of our overall nursing expense, which we know is much lower than most of our competitors.

But that said, it's still it's still.

It's a big expense, even though it's only maybe a small percentage of your overall labor cost is still significant for us and one that we're focused on reducing because.

Not only improves patient care, it's a it's a burdensome expense that we don't expect will continue.

Evidence of that is seen in our acceleration in our ability to hire we've seen a massive increase in our in our hires over the past two quarters and we're seeing more evidence of that into the end of the first quarter, which is really really good lead indicator that we're.

We're starting to see light at the end of the staffing tunnel.

Okay, all right very helpful. Thanks.

Thank you. Our next question comes from the line of Ben Hendrix from RBC capital markets. Your line is now open.

Hey, Thanks, guys just a real quick one from me anything when you were talking about the waiver programs.

And in Medicaid is there anything that we need to that you can call out regarding your assumptions around the Texas Medicaid waiver.

The district program.

Yes, I mean theres nothing unique that we haven't got it in there with regard to that program I think just for US we've really taken Texas and say that it's going to continue to have the supplemental program that exists there.

For 2022 and in a format similar to how it exists today.

Okay do you are you.

We've noticed a lot of providers kind of taking it out of first quarter guidance within including.

Including it in the latter three is that is that the right way to think about it or are you guys. Just have it have it and they're continuing.

Throughout the whole year.

I think when you I think that program that you're talking about it doesn't impact us as much the program that impacts us. The most is the quick program.

So I think that Thats, the one where a rollout that has the biggest impact on us.

And that we've really kept that flat.

Year over year based upon what's going on in that program as a supplemental provider.

Okay. Thank you very much.

Thank you at this time I am showing no further questions I would like to turn the call back over to Bob for closing remarks.

Thanks, <unk>, we'll go and wrap up our Q&A and we'd like to thank everyone for joining us today.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Ensign Group Inc Earnings Call

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