Q1 2022 Ensign Group Inc Earnings Call
Good day, and thank you for sending by welcome to the Ensign Group, Inc. First quarter fiscal year 2022 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker presentation there'll be a question answer session.
Ask a question during our session press star one on your telephone.
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I'll now like to turn the conference over to your speaker today.
Keith <unk> Chief Investment Officer. Please go ahead.
Thank you operator, 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 Ensign group Dot net.
A replay of this call will also be available on our website until five P. M. On Friday May 27 2022.
I want to remind any listeners that may be listening to a replay of this call that all statements made are as of today.
April 29, 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.
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, including our captive real estate investment Trust standard.
Bear, which owns and manages our real estate business.
In addition, our wholly owned captive insurance subsidiary, which provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as workers' compensation insurance liabilities.
The words Ensign company, we our and US refer to the Ensign Group, Inc. And its consolidated subsidiaries all of our operating subsidiaries. The service Center standard bear and our captive insurance subsidiary 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 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 in our Form 10-Q .
And with that I'll turn the call back over to Barry our CEO Barry.
Thanks, Chad and thank you all for joining us today, our local leaders and their teams continue to be the examples of excellence in health care services as they navigate through the constant changes in each of their markets. The record results. They achieved this quarter are particularly impressive given the continued disruption in the labor markets Andy.
The impact of Ami Kron early in the quarter.
Despite all of that our locally driven strategy led to continued improvement in occupancies skilled revenue and managed care revenue, we were particularly pleased that our operational leaders achieved sequential growth in overall occupancy for the fifth consecutive quarter and managed care census has now grown sequentially.
<unk> seven quarters in a row, we are inspired by the commitment of our caregivers and their continued endurance and strength.
During the quarter, our operators drove impressive growth in skilled mix with same store and transitioning operations combining for a skilled mix of 34, 3% and same store, reaching a skilled mix of 35, 2%. We also saw continued momentum in occupancy during the quarter.
With same store and transitioning occupancy increasing by two 9% and six 2% respectively over the prior year quarter.
This growth in occupancy is particularly impressive given it occurred in the face of a surge of the omicron variant, which typically results in lower patient volumes.
This simultaneous progress in skilled mix and occupancy gives us tremendous confidence that we are in excellent position to continue to return to pre pandemic levels over time.
As we get closer to what we hope will soon be the end of the pandemic. Our leaders focus has shifted to sound operating fundamentals. Each operation is looking ahead and developing comprehensive strategies to thrive in spite of an evolving reimbursement environment staffing challenges and inflationary pressures.
General economic conditions have continued to put pressure on labor markets. Our operators have discovered new methods for attracting health care 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 each of our communities.
This gives us assurance that we are in very good position to continue on this path of strong clinical and financial performance.
We continue to benefit from improved Medicaid funding in several states.
We are grateful that the federal government has extended the state of emergency to July 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care.
While we certainly don't know for sure what the Covid future looks like it's very possible that this additional funding will not be extended past July .
But regardless of Covid trends government waivers or political climates, 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 long term path of performance.
As those that have been following us for a long time know ensign was born at a time when the post acute care industry was undergoing a complete transformation moving from a cost plus reimbursement system to a fee for service model. We went public in 2007 at a time when the U S economy is entering a recession in 2000.
11 rugs four was introduced and a major correction was made the following year.
Even now we emerged from perhaps the most challenging time in our industry's history with the COVID-19 pandemic yet.
Yet in spite of these industry altering events since our IPO in 2007, we have achieved an adjusted EBITDAR CAGR of 21% and a revenue CAGR of 14% for that same period. We've also formed multiple new businesses spun off two public companies and most recently establish a win.
Billion real estate company, all the while we've been acquiring both struggling and performing skilled nursing assets and have grown from 58 buildings. When we went public in 2007 to 251 operations today.
Once again, we are reaffirming our annual 2022 earnings guidance to $4 <unk> to $4 13 per diluted share and annual revenue guidance of $2 93 billion to $2 98 billion as a reminder, the new midpoint of this 2022.
Earnings guidance represents an increase of 12% over our 2021 results and is 30% higher than our 2020 results.
Our organization is extremely healthy and our local operational and clinical leadership has never been stronger.
Our culture and our local approach gives us confidence that we can and will continue to innovate and grow this year, while change could lead to some near term quarterly fluctuations. We remind you that our model is built for times like these we have seen and fully expect to see continued that continued throughout.
2022 and beyond.
I just wanted to take a minute to thank 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 witnessed theyre amazing sacrifice effort and outcomes.
Many of them that picked up extra workloads in the face of staffing challenges and it made us have made other sacrifices for the benefit of their coworkers.
<unk> and their operations.
Their commitment in serving their communities has blessed the lives of so many it's absolutely astounding to witness and an honor to be a part of that effort.
Just as we've seen in the past we most certainly expect some challenges ahead.
And we will lean on the lessons that we've learned and we'll continue to build on our foundational strength.
We're excited about our future and look forward to continuing to show our dedication to all those that have entrusted us with the care of their loved ones next I'll ask Chad to discuss our recent growth chat.
Thank you Barry to start I wanted to provide a brief update on standard bear our captive REIT as we've discussed before this new real estate company will enable us to build upon our established real estate investment platform of high quality assets.
We couldnt be more excited about this new organizational structure, which allows us to take the next step with our already thriving real estate business, which generated $11 9 million in <unk> during the quarter and sits in an EBITDAR to rent coverage ratio of 231 times as of the end of the quarter.
We were also pleased to add two assets towards the bulk to the portfolio during the quarter both of which are operated by enzyme affiliates, bringing the asset value of our portfolio of 95 assets to approximately 1.02 billion.
We have already begun about waiting several transactions, which include health care properties that will be operated by inside affiliates and other third party operators we.
We have also had very productive strategy sessions with several likeminded operators and look forward to establishing new partnerships with them as.
As we've always said, we will remain disciplined and we will not compromise the health of an operation in order to win a deal we have already passed on several opportunities where the pricing became unrealistic.
However, we are finding plenty of deals to execute on and are excited about the additions to our real estate portfolio during the quarter and the many more additions that we expect to add this spring and summer.
As we said last quarter standard-bearer adds an additional pathway to growth and does not alter our proven method of acquiring both struggling and strong performing skilled nursing assets, which will often be the subject of long term leases with other real estate partners.
During the quarter and since we've added nine new operations and some of our most mature markets, including one skilled nursing operation in Arizona, two skilled nursing operations in California, one skilled nursing operation in Texas, One senior living operation in Washington to senior living operations in California.
And two senior living operations in Arizona.
Several of these acquisitions involve senior living operations that were once part of the spin out of certain assets to the pennant group.
After several years of operating independent of enzyme we together with the pennant team determined that due to the nature of these buildings most of which are part of a health care campus that already includes an enzyme affiliated skilled nursing operation the operational efficiencies and other strategic advantages justified returning these.
<unk> to enzyme.
In total these additions include two new real estate operations acquired by standard bear, which will be leased to an ensign affiliated tenant and six long term leases with third party landlords.
As this recent activity illustrates the ratio between leased and owned will vary depending on the circumstances. We are first and foremost focused on the operational health of acquisitions. So when it makes sense and the pricing is right, we will opportunistically purchase of real estate.
At the same time unattractive leases come our way, we'll sign those two as we've shown over our 22 year history, there will be many many opportunities to do both.
We are very excited about the nine new operations, we added during the quarter in cents.
And look forward to seeing them contribute to the success of their clusters in their markets as they implement proven ensign operational clinical principles.
This growth should illustrate our confidence in our ability to continue to perform in the short run and most importantly over the long run.
Extra diligent to ensure that each new addition had the full support of a healthy market proven leadership plan and a clear pathway to strong clinical and financial performance.
Looking forward, we have another busy spring and summer ahead of us the pipeline for our typical turnaround opportunities, including real estate acquisitions and leases continues to be strong.
We have a dozen or more new additions that we are working towards closing in the coming months and are working through the transaction documents and rated related due diligence on several more.
Lastly, during the quarter, we paid a quarterly cash dividend of $5 five per share.
Given our strength, we plan to continue our 20 year history of paying dividends into the future.
We also continue to Delever, our portfolio, achieving our lease adjusted net debt to EBITDA ratio of two one times a decrease of two one times from the prior year quarter.
Currently we have $593 3 million of available capacity under our like our line of credit, which was recently increased by $250 million to $600 million in April which when combined with the cash on our balance sheet gives us nearly $800 million and dry powder for future investments.
We also own 102 assets of which 95 are held by standard bearer and 78 of which are owned completely debt free and are gaining significant value over time.
Adding even more liquidity to help us with our future growth.
And with that I'll turn the call back over to Barry Barry Thanks, Chad over the past two years, our nation and industry have grappled with the Covid pandemic and associated staffing shortages and our affiliated facilities have not been immune to these challenges, but it has been inspiring to see how our high caliber local leaders of her.
Piddley used these challenges as opportunities to refine their systems refocus their efforts and improve their clinical outcomes and financial performance today I would like to share two examples one from a large suburban operation and another from a small rural facility that highlight how our model continues to thrive.
Regardless of circumstances.
The first highlight comes from Willow Bend nursing and rehabilitation located in the Dallas Metro area. This 162 bed facility led by CEO , Kevin Reese and COO Valerie Kosanovich has achieved five star ratings and quality measures health inspections, and overall excellence and <unk>.
And a reputation for being the provider of choice that can meet the changing needs of health plans and hospital systems.
For years, we will abandon its been one of our strongest performing affiliates in Texas, but in the first quarter. They managed to grow overall occupancy by more than 8% and managed care occupancy by more than 17% compared to the prior year quarter and as a result of our pretax earnings increased by 28%.
These incredible results were made possible because of the team that will <unk> relentless focus on hiring and retaining high caliber staff in fact during the first quarter. The teams recruiting efforts resulted in a growth of their care staff by more than 8% in spite of one of the most competitive hiring environments.
We've seen in decades in the Dallas Fort worth area.
The second example, we'd like to highlight is the Wahid health and rehab and award winning 58 bed facility in home Dale Idaho, a town with a population of 2600 in Western Idaho.
While hiring is difficult everywhere it has become nearly impossible in small rural communities. Nonetheless, CEO Melissa Truesdale in CLO, Georgia Nelson has found a way to thrive by creating a family environment, where staff feel valued and where resulted turnover rates are less than a fourth of the industry.
Fridge.
Retaining quality staff has allowed to wahid and meet their communities growing demand and increase occupancy to 92% in the first quarter, which represents a 9% improvement from the prior year quarter.
As you would expect Medicare skilled census, also skyrocketed and EBIT improved by 47%.
In the same way that COVID-19 required our facilities to improve their infection control and clinical systems early in the pandemic. The staffing shortage has pushed our facilities to innovate and improve their systems around recruiting and retaining staff.
The progress demonstrated by will abandon Hawaii is reflective of progress that we're seeing globally across our organization.
In the first quarter alone while the industry was experiencing unprecedented staffing challenges, we grew our frontline workforce by 3%.
This incredible progress is the culmination of hundreds of local leaders relentlessly focused on recruiting and retention. We are confident that our model of peer to peer best practice sharing will only accelerate this improvement in coming months we.
We hope that these examples are helpful. In illustrating some of the many different levels levers our local operators are pulling in order to meet the needs of their health care continuum partners with that I'll turn the time over to Suzanne to provide some more detail on the company's financial performance and our guidance and then we'll open it up for questions Suzanne. Thank you.
And good morning, everyone detailed financials for the quarter are contained in our 10-Q and press release filed yesterday.
Additional highlights for the quarter include GAAP diluted earnings per share was <unk> 89.
Adjusted diluted earnings per share was <unk> 99, an increase of 13, 8%.
Consolidated GAAP revenue and adjusted revenues were $713 4 million an increase of over 13%.
Total skilled service segment income increased 10, 5% to $98 3 million.
GAAP net income was $50 3 million an increase of two 3% and adjusted net income was $56 4 million an increase of 13, 7%.
Other key metrics as of March 31st include cash and cash equivalents of $248 5 million in cash flow from operations at $25 9 million.
As of March 31st 2020, we repeat purchase hydrogen 33000 shares of our common stock for approximately 10 million.
<unk> October 2021 stock repurchase program.
Given the stock's recent performance, our liquidity and our confidence in near and long term results. We have established an additional share buyback program of $20 million and we believe it to be a very wise use of our capital.
As we said before our share buybacks are one of the many levers we have to deploy capital to benefit our shareholders.
We also wanted to address the current status as a state of emergency in reimbursement matters.
We recently.
The public health emergency for another 90 days.
With this extension of the federal government will continue to provide various waivers and enhanced funding to July 14th 2022.
Additionally, as a reminder, this suspension of the 2% sequestration continued through April 2022.
<unk>, Okay and that was adjusted to 1% at June 30.
Starting July 1st the four 2% sequestration will be back in place.
The suspension has and will continue to have a positive impact on our revenue depending upon how the pandemic effects on Medicare.
As you all know our new billing system was implemented in October 2019 called PD PM when finalizing PDP in CNS, David but the new case mixed model will be implemented in a budget neutral manner, meaning that the transition from <unk> to <unk> should not result in a payment reduction or increase.
Subsequently COVID-19 hit the industry, resulting in higher acuity patients I'm, how did direct impact on the PDP and rate.
When evaluating PDP in last year.
Covid affected our P. D. P M analysis and decided to take a step back to further study the impact.
CMS recently issued a proposed rule regarding Medicare rates and PDP EM under.
Under the proposal, which ashford commentary from providers.
CMS will make a parity adjustments that we've reduced Medicare rates downward by four 6% with the goal of making PDP in Nashville.
Yeah from a timing and the amount of the proposed adjustment will be subject of much discussion in the next several months before the rules finalized.
Additionally, CMS announced a larger than normal payment rate increase of three 9%, which includes adjustments for the enrollment.
Market basket, a positive forecast error and productivity.
Depending upon CMS parity adjustment for P. P M. The net rate in the final rule could either be a negative <unk>, 7% or it could be less or even could be a net positive change depending upon the timing and the amount of the final adjustment.
Despite these announcements by CNS, we are reaffirming our 2020 annual earnings guidance at $4 <unk> to $4 13 per diluted share and annual revenue guidance at $2 93 billion to $2 98 billion.
Evaluated multiple scenarios and based upon our solid performance and positive momentum, we've seen occupancy and skilled mix.
As well as some additional strength from Medicaid programs, we remain confident that we can achieve our earnings and revenue projections within these ranges.
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 2020 to the exclusion of losses associated with start up operations, which are not yet stabilized.
The inclusion of managements expectations of Medicare and Medicaid reimbursement rates net of provider tax and with the primary exclusions coming from a onetime legal fees and stock based compensation.
Additionally, other factors that can impact quarterly performance include variations in reimbursement systems delays and changes in state budget seasonality in occupancy and skilled mix the influence of the general economy in census, and staffing the start kind of impact of our acquisition activities variations in insurance accruals.
COVID-19, and other factors and with that I'll turn the call back over to Barry Barry.
Thanks Suzanne.
We again want to thank you for joining us today and express our appreciation to our shareholders for their confidence and support.
We know that this year will continue to be.
Present with us.
Several unique challenges, but we're encouraged by our operational strength in our core business.
We're also thrilled to have an additional growth lever and standard bear, which will help us accelerate our mission to change post acute care.
With Ensign affiliated operations as its primary tenant to perfect launching pad to create significant real estate value as we follow our proven model, while we align with others in our industry.
As Jeff pointed out earlier, we believe little to no value is being assigned to our real estate by investors when in fact, the values more than a $1 billion.
We're eager to grow that value and take advantage of opportunities. We 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 talented field leaders, we want to 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 their communities.
We're also appreciative of our colleagues here at the service Center, who are working tirelessly to support our operations, enabling us us to succeed in spite of the challenges we faced.
Thank you for making us better every single day.
We will now turn the Q&A portion over to our call Victor can you. Please instruct the audience on the Q&A procedure.
As a reminder to ask a question do we need to press star one on your telephone.
To withdraw your question press the pound key.
Lease and by lower component the Q&A roster.
Our first question will come from the line.
Oh Q from Stifel you may begin.
Thank you good morning, everyone.
Barry and really appreciate the details you provided on the labor management initiatives to improve recruiting and reduce turnover and certainly your performance has surpassed many of your peers wanting to ask about another scacchi matters that can pass the lunch and the implications of industry.
I think the federal government is trying to move into.
And then a minimum staffing requirements that could be implemented by next spring. We know that CMS is engaging the industry took preliminary guidelines obviously some of the states already pushed out.
Could you maybe talk about the staffing level today in your facilities and the mix up.
CA <unk> et.
Et cetera.
Where do you think that side of the room may shake out to be to give us an idea on the E.
Thank you.
Yes, it's a good question Tao and the answer could be a lengthy one but I'll try to summarize it in a in a pretty straightforward way I mean.
First and foremost we know very little right.
There has been.
Just an overall kind of impetus to look at this.
It will begin with a long term study that will take a full year to do as Dave as Dave outlined it.
There are certainly.
Asking for a lot of feedback from the operator community, which is positive and we are involved with that at our.
Federal Association level, and we will continue to be but one important distinction.
In the face of a potential federal staffing mandate.
As you pointed out we see ourselves a bit differently and frankly, we are different than I would say most of the post acute world in the skilled nursing space in that we already take a higher acuity type patient that necessitates.
A higher than what I would call average staffing level. So.
When you when you think about just the just the kind of the overall.
The drive for a federal statute mandate has to contemplate all types of providers and <unk>.
And the vast majority have a.
Lower acuity level than what we typically see.
That being the case.
Federal staffing minimum that takes into account kind of what the average operator does.
It would mean that we're probably.
Much higher than the average thresholds just given our acuity levels that we already see so we don't worry too much about it we don't we try not to focus too much on the what ifs, especially when there is very little details given around it.
But we feel okay. I mean, it's it's certainly not.
Our model, we necessarily agree with that's not the way to drive quality in our opinion.
But regardless of what the federal government does with with a regulatory mandate around staffing we were not too worried about it just given our model and the types of patients that we see.
Mhm Clarksville.
My second question is what Chad outstanding there.
The prepared remarks, I think you mentioned you are in active discussion with like minded operators could you talk about any quality or chase or youre looking for an operating partner.
Are these going to be much smaller regional operators or would you consider partnering with larger and lobbies the obligation as well and in terms of the opportunities you're looking at what is the current breakdown.
The mature versus turnaround opportunities are there any new markets, you're contemplating getting into thank you.
Yes. Thanks, Great question, so yeah I mean.
I wouldn't say that size is.
The operators necessarily.
Factor I mean for us it's going to be.
Yes.
Kind of as Barry was saying I mean, I think it's operators that that.
See the post acute space much like we do.
And.
Think cultural alignment will be important as well.
Just in terms of just again generally how we see.
Efforts towards quality and.
Making sure that we're we're solution to whatever the hospital.
And managed care partners need us to be in those kinds of things so.
All that said.
There's lots of ways to be a really good operator.
We don't presume to have all the answers.
You know we have our model, but there is other ways of doing things and so we're very cognizant of that as well and we will look to learn from others as well.
And so.
In terms of the criteria I think.
Obviously, our first priority our first.
Desire would be if there is an opportunity to operate it ourselves.
But there are many opportunities that come our way that for various reasons theyre not a fit for US one of the things that we look to first as you know who the leadership is going to be in any particular market.
And so oftentimes we were approached with a set of.
Facilities that that present, new markets or new new new areas, where we don't currently have a presence.
And in many cases, we've kind of washed out on opportunities because we were.
Saying, we would only do the deals that are in our markets already and oftentimes seller sellers like to work with a single buyer. So so.
That's not even necessarily always a new state sometimes there can be markets within a state that we're not in.
So there are things like that that I think we'll certainly open up the opportunities.
And to your second question on so our first priority will be.
Operated ourselves in markets. We're in and then the second one would be operate ourselves and maybe a new market, but then the third would be to look to.
These other partnerships, where it's not a fit for us operationally and that could include new states we've been very.
Deliberate in our effort to enter into new states. It has a lot of work to get to know an entire new regulatory environment, New managed care partners New hospital systems. It just takes a long time in many years to really develop you related to your reputation and a new state.
And so yes, aligning with with Likeminded operators in New States I think is certainly a.
Some of these initial discussions I referenced.
Are in states or enzyme currently has an operating.
So.
<unk>.
Kind of going to provide a lot of a lot of options for us as well.
But yes, we're really excited about it the feedback we've gotten from from.
Many folks has been really positive and I think theres a lot of excitement and working together.
Not just as sort of a source of financing or <unk>.
Someone that owns the real estate, but.
Other sort of partnerships that we can we can offer as well as fellow operators that get pretty exciting and I think the other thing we're looking for people who want to be in it for the long haul you know you want to have very successful operations.
<unk> off about every dollar into that real estate and look at it as a one time transaction for them, but someone here really is excited about being.
And the best in class operator themselves and so that we can have that great partnership that Chad talked about.
Great. Thanks, a lot you can color.
That's it for me.
Thanks, Tom.
The next question will come from the line of Scott Fidel from.
Stephens you may begin.
Hi, Thanks, Hi, everybody.
Wanted to maybe just start first question just going back to their proposed.
CMS Medicare rule for FY 'twenty, three and just interested in how you're handicapping. What you think ultimately probably ends up to be the likely outcome.
I would assume maybe we end up with like a two year phase in of the PDP recalibration could be one scenario.
And how how you balance the.
The opportunities and the risks from that with opportunities clearly being potentially more opportunity on the M&A front and the rest being just needing to manage margin against maybe a bit tighter pricing. So interested in all your thoughts around that topic.
Yeah, Scott and I and.
Just a reminder, I think its sometimes confusing when you talk about the year that starts. This is that right. Starting October 1st at 2022, obviously the key components that we're really looking at that positive.
Look at that in prepared remarks that three 9% increase and then the parity proposed parity adjustment of that four 6% cap for the Avalon Mega anti hero seven.
I think were received at the positive is really guide you now having all of those components in it.
Obviously, there's a component that's always missing because of the inflation that incurred in the current year really isn't reflected for you know it hasn't been a year lag period until we.
We believe you know if this is what we'll get this year and that there is another opportunity for that to have that another forecasting error adjustment next year, where we might have another big positive comment.
So that's on the kind of net market basket rate that we would normally see and then with regards to the parity of Jasmine kind of looking at that.
And as we've been talking about and again in the prepared remarks is that and we've included the whole thing going into our <unk>.
<unk> guidance, but were really helpful. When we see a lot of pathway forward to having that cat maybe ever at <unk> potentially even a three year period, but more likely over a two year period and really cut in half and so that really then if that gets cut in half that really puts us kind of exactly where we had initially.
And had our guidance and the assumptions that we had in our initial guidance that we released in Q4.
It was around one and half one 6% increase over all of that I'll, let Barry give some additional color on that.
Yes, I mean, we look at.
The reality is.
Whether whether it happens this year in full or not.
It's.
Inc.
On the one hand, if it does happen we see it.
It happens all in one year, we see an opportunity for growth, which is which is.
Which is.
<unk> for us on the other hand, if it happens over a two year span, we still we still we certainly see a pathway and no need to.
Adjusted EBITDA.
Guidance and have any concern for us.
On the path that we.
Predicted that we would be on for the year.
So long story short on that either way, we feel like it's can I be within that range of guidance that we put out and I think the other thing that we've been talking about is that there is an opportunity for us to.
We continue to see acquisitions out there and maybe Jack can give some color on that yes. It is.
Kind of an interesting period here, because we see a lot of deals.
Obviously, we did nine this this this last quarter so finding.
Deals in there that are priced appropriately, but but we've also.
Ben.
Sort of outbid I would say by by others that are we think paying prices that just don't make sense.
And we continue to see some some sellers coming to market with with really high expectations.
With all of this on the horizon.
We just we're going to stay disciplined in.
I think that at some point.
That's going to have to correct.
And so.
So, yes, I mean.
Again, the pipeline is still strong and we still like I said in our prepared remarks, we've got a dozen or so deals we're working on now.
But.
This all happened in 111 fell swoop in the fall.
We did just might accelerate.
Some of that.
Adjustments in pricing expectations.
And that's why we've.
Updated our revolver and have all of that dry powder.
Understood and then maybe just as my follow up question could be helpful. If just on the staffing dynamics youre able to give us any insight on how the sequencing of hires and turnover sort of played out over the course of the quarter and any early observations you can do.
Give us on the staffing dynamics that youre seeing so far in the second quarter through April .
Yes, great Great question. So we obviously, we track we track it very closely and we're looking at it for a number of from a number of different angles. Both in terms of agency usage and.
We call it kind of net hires.
And so we certainly that the.
The winter was has kind of been the toughest that Pete.
For us and kind of January .
And since then we have seen really really positive momentum in terms of our net hires.
And when you look at it in terms of full time equivalents grew.
Grown our workforce by 3%.
We've seen our agency usage finally start to come down.
And we expect that trend to continue as we as we track things through.
Where we are currently and so on.
All very encouraging trends as we kind of break that down and see all of those indicators pointing towards.
A real positive direction for Us Scott.
Great and if I could just sneak one more and just interested on your current thinking around.
Occupancy and maybe how your your model.
Donnelley and in your outlook in terms of would you should we expect that absent another new severe variant coming.
The picture that that generally we will just see sort of progressive improvement in occupancy sort of play out throughout the course of the year or do you think that will have some of the traditional seasonality play out when thinking about the various quarters and that's <unk>.
Great. Thanks, Scott Great question.
It's a good question seasonality, we expected last year to see some of that happened. It didnt necessarily we saw steady improvement even through the summer, which was very unusual for us.
We're on our fifth quarter in a row of consecutive improvement in occupancy.
More than that when you look at managed care.
Look we're pretty we're pretty positive about the direction we're going.
Be surprised I mean normally at this point in time, we see some slowdown.
As we head into the summer months, we haven't seen that yet knock on wood.
So overall, we feel pretty positive that we will continue to improve I mean, it makes sense for us because we're still in a recovery mode from from where we used to be from a from an occupancy standpoint, we know that the we know that the demand is there we see volume and.
We're only we've only been limited by some some kind of artificial things that have happened or one time things that have happened both in terms of.
Surges in variance in status some staffing challenges, but even in spite of those we've seen improvement in occupancy which gives us some.
Some confidence that that trend will keep continuing at the pace that we've seen it.
Okay. Thank you.
Once again Thats star one for questions. One our next question comes from the line of Ben Hendrix from RBC capital markets. Your line is open.
Hey, Thanks, guys.
On your managed care.
Revenue growing and that's becoming a larger piece of the <unk>.
Skilled mix can you talk a little bit about your managed care contracting.
How thats progressing and the willingness of your managed care payers to acknowledge the higher staffing costs you are seeing.
Okay.
Yeah, maybe I'll start and then Barry can add some color I mean I think this is something that we as you recall, we've been working on a really long time.
Those relationships are both.
If I were at a national level, but the strong strong part of that relationship at that local level that local operator that local clinician that that.
Local managed care resource really working with the managed care team that at their local level and really create an atmosphere, where they can make something soon can solve problems there.
That's really what we've seen really take off I think what we saw.
During the pandemic.
Lot of discussion about the acuity of the patient and how they can use a patient played into getting carried a skilled nursing facility versus potentially getting care in other locations during that period of time and I think it created some additional trust.
With us in our managed care partners that we have seen continuing to happen after the pandemic and I think early on we were helpful. For this but it sounds like it's really.
Paul <unk> question I would say on the.
The increase station I think at managed care is always looking to make sure. They capture as much dollars as they can and we are as well and so with that as you can imagine a healthy discussion and debate about what.
People should get and how much people shake it and so we're always in discussion with them and at <unk>.
Various levels again locally as well as nationally to try to make sure that people recognize the additional cost associated with that direct labor component that we are obviously occurring right now and Chilean does and from that information in those numbers and trying to get them some additional insight and Cao.
That labor market that is a challenge right now and say it's a discussion.
All I can say, it's a one and done.
Ongoing discussion thats going to take because we don't have three or four contracts in that organization. We have hundreds of contracts that happens daily with our team as well as in managed care providers.
Thank you for that and then separately just too with the expectations for rising interest rates or any changes at all or any any impact on the way youre thinking about your growth strategy, whether it would be changes in your triple net lease term rates or your capacity to even though you have very strong liquidity any capacity to.
Lever your unencumbered real estate assets.
Yes, it's a great question Ben.
Certainly keep a close eye on it.
I would just say.
We're going to just make sure that were in line with with where the market is.
Especially from kind of the real estate side of things, but.
Really happy with the terms of our new credit agreement.
Yes, there is a kind of it.
<unk>.
Yes.
Floating kind of sulfur based element to that but but.
We're so healthy in our debt levels are so attractive.
Our banking partners gave us a really good terms. So we're really excited about that we obviously have a bunch of unlevered real estate assets that we could get some fixed financing if we want to do that too.
All of it though at the end of the day it comes down to the prices that you're paying.
And so long as you're doing that in everything we do we make sure. There is a forward looking element to how we think we can perform in an obviously.
Real estate expenses are a big part of that but.
As long as you can.
Sure you are paying.
Proper price and that there is enough cushion there to give the operators room.
It doesn't impact our sort of growth path.
Is it just kind of effects.
The terms of the deal so to speak.
I'll just add one thing to band it is youre talking about the triple net leases I mean, Chad and his team have been very diligent over the years to ensure that all of our leases have kind of a cap on inflation is.
As far as the.
The rate increases go the escalators, so we really.
Our average escalator increased cap is right at around two 5% for all of our Triple net leases, which has been a really good hedge against what we're seeing ahead. So we've got.
Good safety net there that that will keep our leases in line yes.
Great. Thank you guys.
Thanks, Dan I appreciate it.
Thank you.
I'm not showing any further questions in the queue I'd like to turn the call back over to Barry for any closing remarks.
Thank you. Thank you Victor and thank you everyone for joining us today.
And this concludes today's conference call. Thank you for participating you may all disconnect everyone have a great.
Thank you.
Okay.