Q2 2023 Ensign Group Inc Earnings Call

July 28, 2023

Okay.

Good day, and thank you for standing by and welcome to the Ensign Group incorporated second quarter fiscal year 2023 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'll need to press star one on your telephone.

You will then hear an automated message advising your hand is race to remove yourself from the queue. Please press star one again, please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to Chad Keetch, Chief Investment Officer. Please go ahead.

Thank you operator, and welcome everyone. 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 Pacific on Friday August 25 2023.

We want to remind any listeners that may be listening to a replay of this call that all statements made are as of today July 28, 2023, and these statements have not been nor will be updated subsequent to today's call.

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.

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 is a holding company with no direct operating assets employees or revenues.

One 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 were.

We referred to as the insurance captive provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities enzyme also on standard bare healthcare REIT, Inc, which is a captive real estate investment trust that invest in health care properties in pairs into lease agreements.

Certain independent subsidiaries of enzyme as well as third party tenants that are unaffiliated with the <unk>.

The words enzyme company, we our and US refer to the Ensign Group, Inc. And its consolidated subsidiaries all of our operating subsidiaries. The service Center Standard-bearer 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 words, we us our and similar terms. We may use today are not meant to imply nor should it be construed as meaning that the ensign group has direct operating assets employees or revenue or that any of this subsidiary.

Areas are operated by the Ensign 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-Q and with that I will.

Turn the call over to Barry Port our CEO Barry <unk>.

Thanks, Shannon and thank you everyone for joining us today.

We're very happy with the record results, we reported this quarter as our local leaders and their teams achieved excellent clinical and financial results, even when the operating environment continues to present challenges during.

During the quarter, we saw continued improvement in occupancy skilled revenue skilled days in managed care revenues, which is particularly impressive given persistent labor market pressures and a return to more typical seasonality.

As we anticipated in our last report we saw fewer admissions in the second quarter, which is typical in the summer months as seasonal factors impacted patient flow.

However, our occupancy performance remained strong with same store occupancy of 78, 5% as of the end of the quarter, which was an increase of 397% over the prior year quarter. We are confident that we're on a path to reach and eventually exceed our pre COVID-19 same store occupancy of 81%.

As you move into the higher admission months of fall and winter.

In addition, we may never have seen as much potential to drive organic growth across our portfolio than we do right. Now there are so many opportunities in front of us to improve labor and drive occupancy and skilled mix as we continue to successfully transition 45 recently acquired operations.

We are very excited to see our local field and service center partners share and apply best practices as they respond to the significant labor market challenges.

As they instill our customers second culture into each operation, we have seen and will continue to see lower turnover and less usage of third party nursing agencies, which again improved for the six months in a row as of June 30.

We also see the enormous growth opportunities in same store occupancy and enhancing our ability to care for skilled patients in a way that best serves each unique healthcare market during.

During the quarter, our same store operations grew skilled mix revenue and skilled mix days by eight 8% and five 6% respectively over the prior year quarter.

We also continue to build stronger relationships with our managed care partners due to the better coordination of care increased capabilities and strong clinical outcomes. As a result, we saw increased volume in our same store and transitioning combined managed care census, and managed care revenue, which increased during the quarter by eight.

2% and 12, 2% respectively over the prior year.

As we indicated last quarter, we continue to see that our skilled mix for both revenue and census remained elevated when compared to pre COVID-19 levels, showing just how important high quality post acute services are within the continuum of care.

We continue to demonstrate our ability to find transition and improve our recently acquired operations. We're encouraged to see our ability to transition new operations continue to improve with each and every acquisition both in larger and smaller deals.

Because we've demonstrated a track record for successfully transitioning operations throughout our history, we sometimes worry that we enter emphasize how truly remarkable these transformations are.

The process each operation goes through to achieve the clinical and financial results. We expect is so complex. It varies so much building by building, it's difficult to describe unless you've seen it close up.

But this is where our local approach really shines with the support of local cluster and service center experts. Each leadership team is empowered to implement the changes that are operation demands down to every aspect of clinical offer offerings and expense management.

So when we see these results in many of these operations across diverse set of locations all in a relatively short period of time. It shows that we are learning and improving each time, we grow.

We expect some of these operations to face some transitional growth pains during the year, including some pressures on occupancy that are typical.

During the summer months, but we can't wait to see how these operations continue to contribute to our results as they mature and we look forward to many many more like them in the near and long term future.

Due to our solid skilled mix and occupancy growth as well as continued strength from our recent acquisitions, we are increasing and narrowing our annual 2023 earnings guidance to between $4 70.

And $4 78 per diluted share up from $4 64 to $4 77 per diluted share.

This new mid point of our 2023 earnings guidance represents an increase of 14, 5% over our 2022 results and is 32% higher than our 2021 results.

We're also raising our annual revenue guidance to between $3 69 billion and $3 73 billion up from our previous guidance of $3 six 8 billion to $3 73 billion.

This increased guidance comes on top of the enormous growth we experienced in the last few years to put this performance in perspective since we spun out the pennant group in 2019, we have seen adjusted EPS grow by 166% with a compound annual growth rate of 27, 7%.

This performance is not due to some large event or a single transformative transaction, but instead is the result of consistent growth and performance quarter after quarter that comes from following proven ensign principles.

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

All of these results we have talked about today are only made possible by the relentless efforts of our leaders caregivers and their continued endurance and strength all while many of them or we're helping transitioned 45 recently acquired operations, we look forward to even more clinical and financial success during the remainder of the year as our.

<unk> is following in protecting the operational principles that got US here now I'll ask Chad to provide some additional insights regarding our recent growth Chad.

Thank you Barry after adding 19 operations last quarter, we took some much needed time to continue to work together with our new teams in all 45 of our newly acquired operations as they continue to adopt enzymes cultural principles, we couldnt be more excited about the organic growth potential within our existing portfolio as our new.

<unk> are already contributing to our results in many cases ahead of schedule.

As a result of skilled services expansions in the first half of 2023 occupancy and skilled mix days for the skilled nursing operations in the recently acquired bucket was 77, 2% and 28% respectively for the quarter.

For those who have been following us for years will note. This is a very impressive starting point from which to build however, when compared to our same store occupancy and skilled mix days of 78, 5% and 32, 3% respectively. There is enormous upside in each of these operations as they continue to transform into the same store.

Caliber operations.

As we evaluate the horizon for new deals, we are well down the road on several opportunities and assuming everything goes as planned we expect to announce a handful of new acquisitions in the very near future.

The pipeline has been steady over the summer and we expect more opportunities to arise in the fall as we approach the end of the year.

The past few years have been very difficult for skilled nursing operators and we see evidence of that in the low occupancy and high utilization of third party nursing agencies, and the poor clinical and financial health of health of the facilities. We have recently acquired as a result, we still expect that there will be lots of opportunities that will arise. However, as we always remind you.

We do not set arbitrary growth growth goals and will remain true to our disciplined acquisition strategy only growing when we have the right leaders in place and the pricing is right.

We continue to look at opportunities in new states, but as we've said before entering new states is challenging and can often take time to gain the trust of the local health care community with.

With the <unk>.

Success, we continue to enjoy in South Carolina, we hope that we will be able to continue to build and enzymes footprint and nearby southern states.

That said, we will always place the highest priority on growth opportunities within our existing footprint as.

As we carefully select our acquisition targets, we prioritize those that give us exposure to new markets and states. We already operate in or then enhance our service offerings and markets we've been in for years.

Our real estate investment Trust standard-bearer continues to evaluate a steady flow of deal opportunities that would potentially include leases with several unaffiliated tenants. In addition to providing opportunities for ensign affiliated operations.

In fact, we expect to announce just such a transaction in the coming weeks. However.

However, we also want to remind you that we are being very careful not to dilute the health of our current portfolio and the name of diversification as.

As potential transactions across our desks, where first focus on the fundamental principles that have led to enzyme success, including ensuring that the operator has a fantastic leadership team and that the purchase price will result in a rent payment that will ensure a healthy operation over both the near and long term.

We are committed to those principles and are in no hurry to diversify our $1 billion portfolio that we've spent years building just for the sake of growth.

As of the end of the quarter Standard-bearer, which is comprised of 103 owned assets generated rental revenue of $19 9 million for the quarter of which $16 1 million was derived from Ensign affiliated operations also for the quarter standard bearer produced $13 3 million in SFO and had on EBIT.

Or to rent coverage ratio of two four times.

And with that I will turn the call to Spencer, our COO to add more color around our operations Spencer.

Thank you Chad and Hello, everyone.

And Chad just noted acquisitions represent an extremely important part of our operational strategy.

This is particularly true right now as we are absorbing 45 facilities that were acquired over the last 12 months.

While many of these new facilities are following the typical multi year turnaround process to reach their potential we've been pleased to see a quicker than average contributions that some of our recent acquisitions are making clinically and financially.

One Great example of this is fair amount rehab hospital located in Lodi, California.

This 59 bed skilled nursing and rehab center had a good reputation in the community prior to transition. Thanks in part to the leadership of longtime executive director, Randy too and director of nursing <unk>. Despite.

Despite their prior history of success, Randy and <unk> truly embraced the cluster model as well as the sophisticated tools and data that our organization provides to help affiliated operations succeed at the day to day fundamentals.

As a result over the past five months the fair amount team has already made a meaningful EBIT contribution.

In addition, they have successfully eliminated third party nursing agencies and reduced overall nursing labor expenses, while simultaneously growing revenues occupancy and skilled mix.

All of this while maintaining a CMS five star overall ratings as well as a five star rating for health inspections and quality measures.

However, with the focus and excitement that surrounds new transitions, it's important that we don't overlook the greatest contributor to our ongoing success.

Consistent year over year improvement in our same store operations.

One exceptional example of this is Beacon Hill rehabilitation located in Longview, Washington.

This CMS five star rated 67 bed skilled operation is led by CEO , Steve Ross and COO Amanda Ogden it.

It was acquired in 2014 and after transitioning has been able to achieve five straight years of financial improvement, while serving as long views facility of choice.

Despite.

Years of high performance Beacon Hill grew revenues by 13% in the second quarter compared to the prior year quarter, even more impressive year to date EBIT is trending 47% ahead of last year through the first half of the year.

More than just focusing on their own success, though the leadership team at Beacon Hill has led to the cluster model and found ways to improve the results at the other 12 facilities in the Washington market.

One, particularly impressive example of this is how beacon eliminated their own reliance on third party nursing agencies late in 2022, and then reached out to share ideas and pushed the other facilities in their market to do the same.

The result is that since April one of this year, none of the 13 affiliated facilities in the state of Washington is used even a single shift of agency nursing labor.

While there are more incredible success stories than can possibly be shared we hope that these two examples demonstrate the synergistic mix of newly acquired and same store contributions that have allowed us to continue to achieve record results even in today's challenging environment.

And with that I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance and then we'll open up for some questions Suzanne.

Thank you Spencer and good morning, everyone detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter include the following GAAP diluted earnings per share was $1 12, an increase of 10, 9%.

Adjusted diluted earnings per share was $1 16, an increase of 14, 9%.

<unk> had GAAP revenues and adjusted Draglines are both $921 3 million an increase of 25, 8%.

GAAP net income was $64 million, an increase of 10, 9% and adjusted net income was $66 3 million an increase of 15, 4%.

Other key metrics as of June 32023 include cash and cash equivalents of $420 million.

Cash flow from operations of $168 1 million and.

$593 million of availability on our revolving line of credit.

During the quarter, we paid a quarterly cash dividend of five and three quarter cent per share.

We also de Levered, our portfolio achieving lease adjusted net debt to EBITDA ratio of two times, which is a decrease from last year of key point out of three times and is particularly impressive given the amount of growth we have taken on over the last year.

As of today, we have no updates from the federal government on the anticipated federal minimum staffing grill. However.

However.

Since our last quarter, we have continued to receive good news on reimbursement that has provided some extra clarity about the remainder of the year.

Starting in October of this year, we expect the federal net Medicare rate to increase by a healthy three 5%.

At the state level most of the states, we operate and have already adjusted their reimbursement to offset some of the reimbursement linked to the public health emergency that entered the name for <unk>.

Example, key states like Texas announced an encouraging changes to their rate the combination of a positive rate environment and a sign of inflation in some of our biggest costs, including labor will add to the operational momentum we continue to generate as we focus relentlessly on fundamentals.

As Barry mentioned, we are increasing and narrowing our annual 2023 earnings guidance to between $4 70 to $4 78 per diluted share up from $4 64 to $4 77 per diluted share.

We are also raising our annual revenue guidance to between $3 69 billion and $3 73 billion.

We have evaluated multiple scenarios and based on the strength in our performance and positive momentum leasing and operations and strong skilled mix as we as well as some additional strength in Medicaid and managed care programs. We are confident that we can meet this guidance.

Our 2023 guidance is based on diluted weighted average common shares outstanding of approximately $57 7 million a tax rate of 25%. The inclusion of acquisitions closed in 2023, the inclusion of management's expectations for Medicare and Medicaid reimbursement rates 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. The return of seasonality in occupancy and skilled mix. The influence of January economy census, and staffing the short term impact of acquisition activities.

<unk> and reinsurance accruals and other factors and with that I'll turn it back over to Barry Barry.

Thanks, Suzanne as we wrap up it's always important for us to acknowledge our incredible team members facility leaders field resources clinical partners and service center team that are behind these record setting results.

As we reflect on the challenges our partners continue to face from almost every direction, we never cease to be amazed by their impressive resiliency as they focus on supporting one another in new and innovative ways.

I can't we can't emphasize enough how incredibly honored and grateful we are to work alongside each of them.

Their commitment is really blessed the lives of so many including our own were excited about our future because of these amazing partners.

We have complete faith in them and the culture. They have collectively built I will now turn to.

Turnover to the Q&A portion of our call and operator can you. Please 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. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.

One moment for your first question. Please.

Our first question comes from the line of Scott Fidel with Stephens. Your line is now open.

Great. Thanks.

Thanks, everyone. Good afternoon.

First question just given the.

The unusual size.

The acquisition with the North American portfolio.

Thought it would be helpful. If you maybe you can walk us through.

How the integration has been proceeding on that portfolio and how the margins in particular have been trending there relative to your expectation.

The second half and then how you see that as well for continued performance in the back half of the year.

Yes.

I appreciate the question it's been.

It's obviously been.

An important focus of ours to make sure that we number one get this culturally right.

Anytime we take a larger portfolio of facilities.

We.

We certainly worry first and foremost about the cultural integration and making sure that no.

Not only do these new partners feels like they're an important part of our organization, but they learn and understand our.

Operational principles and core values.

They see and feel the vision of what we hope to become together and we've done some unique things with this transition that had been I think really helpful to that end our leaders were able to have early access to the North American partners and really get them in.

Early and spend time again ahead of the transition to help help them learn these things and kind of appreciate the nuances and changes.

We're needing to expect.

That combined with some kind of new tools and operational kind of.

Transitional things that we've put in place.

I'll prove to be really helpful in helping.

This transition go much much better and go a lot more efficiently than I think any of us really expected.

So while there were some.

Some bigger.

Bigger obstacles upfront with some high nursing agency in some some other operational adjustments that needed to happen.

And lower occupancy, especially when compared to our other California operations that certainly had an impact on on their existing margins and how they were doing operationally.

There are a lot of those hurdles were overcome really quickly we're not anywhere where we need to be yet with these operations, but but the transition has been really effective we've seen.

Of.

Our path towards viability of that's been in profitability that's been much quicker at each operation than we expected to the point, where theyre all contributing now.

But the good news is they all have a tremendous amount of upside still in there is there is a lot more to be done to continue to improve.

The vast majority of the leaders that were already in those buildings in the first place, including a really great.

Really great cohort of amazing clinical leaders at each one of these buildings that have many many years of experience.

So when you have great operational leaders and great clinical leaders combined with great clusters Ensign partners around them.

It's a good formula for success in one of our California is one of our stronger states.

And.

That experience of leadership around these north American buildings has proved has been proved to be really effective and helping these leaders come along and feel like they are an important part of our organization.

Okay, Great I appreciate that.

My second question just wanted to just drill into the EBITDA margins a bit.

And so if we look at the first half of the year you came in at 11, 3% in the first quarter and 11, 2% in the second quarter on an adjusted basis.

A lot of different moving pieces within that in terms of the back starting to wind down a bit.

Integrating the North American property as.

As we look out through the back half of the year, obviously, we're still waiting on the minimum staffing rollout that that would be in effect until later on in <unk>.

Highlighted some of these rate increases you're getting.

How would you sort of I guess sort of without I know you don't provide quarterly guidance, but thinking about the slope on margins from here.

When we think about the third quarter and the fourth quarter and then also how you've talked about some of the normal seasonality seeming to have returned.

The business as well.

Yes, I'll start and then Barry Ken Phil.

The gaps there.

Looking at our history and looking at where seasonality is historically right Q4 is our strongest quarter.

Q2, and Q3 tend to be a weaker.

During <unk>, we didn't experience on seasonality as the same effect, we do see some seasonality coming in.

Towards the end.

Amazon coming in towards the end of June but.

And expect that to have a little bit of seasonality. This year as we're ramping back and kind of post Covid times.

And so always.

We've always had better margins in the fourth quarter relative to Q3.

With regards to a couple of other things that are happening in the dynamics of the numbers. We did have that North American acquisition that very just got done talking about and so I think we're looking at an EBIT.

Number versus an EBITDAR number I think just making sure that we're taking in that full rent calculation associated with some of those newer acquisitions a lot of the newer acquisitions have been leases and so I think looking at the EBITDA you can see that we're in.

Pretty pretty consistent quarter over quarter and going from there so I think that that.

Yes.

I think some things that probably.

Support our optimism for for maybe some margin expansion towards the end of the year as we continue to make great progress on the agency front.

We've seen as we said in our stated remarks, we've seen.

Those numbers continue to go down for about six months in a row two full quarters in a row.

And then.

Obviously.

Our skilled mix is much stronger than it was pre COVID-19 and we see that we see that as a continued opportunity. We just we have really great relationships with our managed care partners or our field leaders have become more and more adaptive ensuring that they have.

High quality and high acuity services service offerings to be able to attract those kinds of patients.

Continue to kind of rise up the acuity scale.

And so obviously towards the end of the years when we see.

Growth with more growth in skilled mix in sicker patients and so I think those two factors combined will kind of prove to you.

Lead towards.

Little bit higher margins towards the end of the year.

Okay understood and if I could just ask one more question.

Just on the minimum staffing rule, which obviously everyone has sort of been waiting on for for quite a period of time here.

Finally see that the content of that.

I had two sort of things I was just wondering about with that I guess, the first is there anything proactively that.

You are looking to do.

From the operations perspective ahead of this or is it really something where you just wanted to see what the final proposal.

Then adjust as <unk>.

Necessary and then from the M&A.

Backdrop in the discussions there.

How much I guess of the gating factor has back and either for you guys or for potential sellers in terms of wanting to have visibility into that rule or or is that that not not that significant as you look at M&A discussions and then.

That's it for me Thanks, a lot.

Addressing the last part of that question first.

It's interesting how sellers tend to ignore any potentiality of of any factor.

It has.

Kind of a headwind effect, so that's always funny to us that.

Are you seeing something were not so.

That said.

Yes, there's a lot we're doing I would say on the government relations front, we're very active with our association. We have spent time visiting.

D C.

Our request and with folks they want us to meet with them and also providing comments and feedback.

And we will we will engage with our association on a pretty aggressive letter writing campaign to.

Both ahead of and behind any release of Av.

The proposed rule around federal staffing, we know that.

<unk> proposed staffing rule.

We will be coming.

There is there.

We don't think it will probably be out for another month or so.

But.

What I can tell you that we're doing organizationally is really not reacting much to that.

What we don't know.

What we have been focused on.

Is making sure that we continue to be the best employer, we can be.

We have had an intense focus for the last year and a half on being the employer of choice.

To make sure our our retention efforts are.

Exceptional that we're sharing best practices around how to two to improve on our culture and our principles that we believe deeply in.

That that we hope make us the place, where where health care workers want to be.

And so a lot of discussion around turnover and best practices around orientation, and attracting talent and developing.

Yes.

New employees by having schools.

And other programs to attract talent.

Those have been in place.

Absent a federal staffing minimum rule, we will continue to be in place.

<unk>.

Just just in line with what our cultural principles lead us to and the labor challenges really put all these things in a bigger spotlight for US has really been a help for us to want to continue on this path.

Just being better.

Whenever the federal staffing minimum rule is.

We will address it and we will deal with it as we have with any other headwind.

Headwind or challenge that has been put in our way before.

We're not we're not necessarily looking forward to it but that's the nature of our industry and we're I think and.

<unk> was built for times like that and I think if there is an organization that can and will adapt.

We will be able to do it so the last comment I'll make about that Scott is that.

Even when the rule comes out there is going to be a pretty long comment period.

Around what that rule looks like before it becomes final that'll take many many months.

So it'll certainly lead us into the next year and I think.

The one thing that we've been given some a little bit of clarity now that could change is that there is probably going to be a longer lead time as far as the implementation of the federal staffing rule as you can imagine so.

Again this is all <unk>.

Conjecture, we try not to spend too much time on it but.

That's what we know.

Just add to the second part of your question there Scott certainly.

He was saying I mean.

The deals that we're seeing now.

Sellers and brokers are saying, hey, let's build than the minimum staffing into our pro forma this for sure but.

But all that said I certainly think.

That will create some disruption in the market that will generate an enormous amount of opportunity for us.

Our strategy will remain the same however, which is to pay prices that are reflective of reality.

And as we do that confident that.

The growth engine that we have we will continue to run and then we will have lots of opportunity to do that.

Okay, Great I appreciate all the color. Thanks.

Thank you one moment for our next question. Please.

And our next question comes from the line of Ben Hendrix with RBC capital markets. Your line is now open.

Hey, Thanks, guys.

A quick question on the on the guidance I appreciate the commentary about watching EBITDAR. So im wondering if you could give us a little idea on the ramp in lease expense you expect through the back half of the year and then where you would expect lease expense two in the year on a run rate basis.

Okay.

Yes, so for the most part right for acquisitions to date or that we didn't have any additional acquisitions in Q3.

Our Q2, and say that that lease amount it has kind of that base in it.

Most of our leases have caps.

That's at a higher than 3% and so kind of having about half of it kind of it already with them to still come in second half.

Good way to look at that lease expense number.

Okay. Thank you if I if I may one we've seen more headlines from that health systems about adoption of skilled care in the home and I was just wondering if you see kind of how you're seeing that trend across your markets and if you I think you were in discussions with one health care or health system in particular about our potential.

Our home strategy in home strategy I was wanted to get an idea of how that's trending and where that is.

Yes.

I think.

One major comment or what kind of one principal comment I would make about that is that.

I think any shift of patients that we might have from kind of their current setting to a home setting as is a really really tiny.

Percentage.

Most of our focus is on getting our patients out of our setting into the home setting to the extent that they are.

Eligible for that transition, we're capable of it as quickly as possible.

So.

That said there are some things that I think we are looking at that that.

That can be done to make that transition better and even look at.

Different strategies and partnerships with physician groups in <unk> and.

And have a strategy around that successful transition.

Recently partnered with <unk> and.

And invested in our group.

That is focused on this for us kind of a high risk high need population and the San Diego market and we're exploring that partnership and the synergies we can have with that group and seeing how we can expand it.

But again I think.

We're still talking about a really really tiny part of R. R.

Our current and future business.

And while there is a lot of discussion around this I think any any major shifts.

Have taken place have already.

I have already happened.

<unk> and <unk>.

Remember, we started our home health and hospice company and spun it out eventually and we know that business really well, we know the home setting well.

But.

I don't think we see any massive dynamics that.

Would drastically change our business model in the future more just kind of nuanced market by market strategies for maybe high risk patient populations.

Thank you.

I'm currently showing no further questions at this time I'd like to turn the call back over to Mr. Barry Port for closing remarks.

Thank you and we look forward to a great year in.

Appreciate everyone's support and for being on the call today.

Concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

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Good day, and thank you for standing by and welcome to enzyme group incorporated second quarter fiscal year 2023 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 you will then hear an automated message advising your hand is race to remove yourself from the queue. Please press star one again, please be advised today's conference is being recorded.

I would now like to hand, the conference over to Chad Keetch, Chief Investment Officer. Please go ahead.

Thank you operator, and welcome everyone. 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 Pacific on Friday August 25 2023.

Want to remind any listeners that may be listening to a replay of this call that all statements made are as of today July 28, 2023, 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 offer.

Right.

In addition, the Ensign group is a holding company with no direct operating assets employees or revenues.

Referred to as the insurance captive provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities enzyme also own standard bare healthcare REIT, Inc, which is a captive real estate investment trust that invest in health care properties and enters into lease agreements with.

Certain independent subsidiaries of enzyme as well as third party tenants that are unaffiliated with the enzyme <unk>.

And assets.

References herein to the consolidated company and its assets and activities as well as use of the words, we us our and similar terms. We may use today are not meant to imply nor should it be construed as meaning that the ensign group has direct operating assets employees or revenue or that any of the subsidiaries are operated by the <unk>.

Ankur.

GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our Form 10-Q, and with that I'll turn the call over to Barry Port Our CEO Barry.

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

As we anticipated in our last report we saw fewer admissions in the second quarter, which is typical in the summer months as seasonal factors impact patient flow. However, our occupancy performance remained strong with same store occupancy of 78, 5% as of the end of the quarter, which was an increase of three 9%.

7% over the prior year quarter, we are confident that we're on a path to reach and eventually exceed our pre COVID-19 same store occupancy of 81% as you move into the higher admission months of fall and winter.

We're very excited to see our local field and service center partners share and apply best practices as they respond to this.

<unk> labor market challenges.

We also see the enormous growth opportunities in same store occupancy and enhancing our ability to care for skilled patients in a way that best serves each unique healthcare market during.

During the quarter, our same store operations grew skilled mix revenue and skilled mix days by eight 8% and five 6% respectively over the prior year quarter.

2% and 12, 2% respectively over the prior year.

Because we have demonstrated a track record for successfully transitioning operations throughout our history, we sometimes worry that we enter emphasize how truly remarkable these transformations are.

So when we see these results in many of these operations across diverse set of locations all in a relatively short period of time. It shows that we are learning and improving each time, we grow.

We expect some of these operations to face some transitional growth pains during the year, including some pressures on occupancy that are typical.

Due to our solid skilled mix and occupancy growth as well as continued strength from our recent acquisitions, we are increasing and narrowing our annual 2023 earnings guidance to between $4 70.

And $4 78 per diluted share up from $4 64 to $4 77 per diluted share.

This new mid point of our 2023 earnings guidance represents an increase of 14, 5% over our 2022 results and is 32% higher than our 2021 results.

We're also raising our annual revenue guidance to between $3 69 billion and $3 73 billion up from our previous guidance of $3 six 8 billion to $3 73 billion.

This performance is not due to some large event or a single transformative transaction, but instead is the result of consistent growth and performance quarter after quarter that comes.

From following proven Ensign principles.

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

<unk> is following and protecting the operational principles that got US here now I'll ask Chad to provide some additional insights regarding our recent growth Chad.

<unk> are already contributing to our results in many cases ahead of schedule.

For those who have been following us for years will note. This has been very impressive starting point from which to build however, when compared to our same store occupancy and skilled mix days of 78, 5% and 32, 3% respectively. There is enormous upside in each of these operations as they continue to transform into same store.

Caliber operations.

The pipeline has been steady over the summer and we expect more opportunities to arise in the fall as we approach the end of the year.

We do not set arbitrary growth growth goals, and we will remain true to our disciplined acquisition strategy only growing when we have the right leaders in place and the pricing is right.

We continue to look at opportunities in new states, but as we've said before entering new states is challenging and can often take time to gain the trust of the local health care community.

With the success, we continue to enjoy in South Carolina, We hope that we will be able to continue to build an enzyme footprint and nearby southern states.

Third we will always place the highest priority on growth opportunities within our existing footprint.

Our real estate investment Trust standard bear continues to evaluate a steady flow of deal opportunities that would potentially include leases with several unaffiliated tenants. In addition to providing opportunities for ensign affiliated operations.

In fact, we expect to announce just such a transaction in the coming weeks.

However, we also want to remind you that we are being very careful not to dilute the health of our current portfolio and the name of diversification as.

We are committed to those principles and are in no hurry to diversify our $1 billion portfolio that we've spent years building just for the sake of growth.

As of the end of the quarter standard bear, which is comprised of 103 owned assets generated rental revenue of $19 9 million for the quarter of which $16 1 million was derived from Ensign affiliated operations also for the quarter standard bearer produced $13 3 million in SFO and had an EBIT.

Dark rent coverage ratio of two four times.

And with that I will turn the call to Spencer, our COO to add more color around our operations Spencer.

Thank you Chad and Hello, everyone.

And Chad just noted acquisitions represent an extremely important part of our operational strategy.

This is particularly true right now as we are absorbing 45 facilities that were acquired over the last 12 months.

One Great example of this is Fairmont rehab hospital located in Lodi, California.