Q4 2023 Ensign Group Inc Earnings Call
Operator: Thank you for standing by. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ensign Q4 2023 Earnings Call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Jessica and I will be your conference operator today.
Jessica: At this time I would like to welcome everyone to the enzyme Q4 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your tell us.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Keetch. Please go ahead.
Jessica: Keypad, if you would like to withdraw your question Press Star one again, thank you.
Jessica: I would now like to turn the call over to Mr. Keetch. Please go ahead.
Chad A. Keetch: Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available in the investor relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on Friday, March 1st, 2024.
Thank you operator and welcome everyone.
Jessica: Our earnings press release yesterday, and it is available on the Investor Relations section of our website at Ensign group Dot net.
Keetch: Replay of this call will also be available on our website until five P. M Pacific on Friday March one 2024.
Chad A. Keetch: We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, February 2nd, 2024. And these statements have not been or will not be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statement where change arrives as a result of new information, future events, changing circumstances, or for any other reason. In addition, Ensign Group Inc. is a holding company with no direct operating assets, employees, or revenue.
Keetch: I want to remind anyone that may be listening to a replay of this call that all statements made are as of today February <unk> 2024, 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 bill.
Keetch: <unk> 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.
Keetch: 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.
Sept as required by federal Securities laws, Ensign and its independent subsidiaries 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 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 independent subsidiary.
Chad A. Keetch: Certain of our independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to other independent subsidiaries through contractual relationships with such subsidiaries. In addition, our captive insurance subsidiary, which we refer 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 liability. Ensign also owns Standard Bear Healthcare REIT, Inc., which is a captive real estate investment trust that invests in healthcare properties and enters into lease arrangements with certain independent subsidiaries of Ensign, as well as third-party tenants that are unaffiliated with the Ensign Group.
Keetch: These through contractual relationships with such subsidiaries.
Keetch: In addition, our captive insurance subsidiary, which we refer 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.
Keetch: Zane also own standard bare healthcare REIT, Inc, which is a captive real estate investment trust that invest in healthcare properties and enters into lease arrangements with certain independent subsidiaries of enzyme as well as third party tenants that are unaffiliated with the Ensign group.
Chad A. Keetch: The words Ensign, Company, We, Our, and Us refer to the Ensign Group Inc. and its consolidated subsidiary. All of our independent subsidiaries, the Service Center, Standard Bearer Healthcare REIT, and the Insurance Captive, are operated by separate independent companies that have their own management, employees, and assets. References herein to the consolidated company and its assets and activities, as well as the use of words we, us, and our, in similar terms, are not meant to imply, nor should they 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 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 Gap to Non-Gap Reconciliation is available in yesterday's press release and is available in our Form 10-K. And with that, I'll turn the call over to Barry Port, our CGO. Barry?
Keetch: The words enzyme company, we our and US refer to the Ensign Group, Inc. And its consolidated subsidiaries all of our independent subsidiaries. The service Center Standard-bearer healthcare REIT and the insurance captive are operated by a separate independent companies that have their own management employees.
And assets references herein to the consolidated company and its assets and activities as well as the use of words, we us and our and similar terms 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 end.
Keetch: Andrew.
Keetch: 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 and with that I'll turn the call over to Barry Port our CEO Barry Thank.
Barry R. Port: Thank you, Chad. And thank you everyone for joining us today. Our local teams have once again posted impressive clinical and financial results and continue to build remarkable momentum in each market across our portfolio. Our success is entirely due to the efforts and commitment of these leadership teams, caregivers, field resources, and service center partners. One of our most important priorities is to support those that care for our patients every day.
Barry R. Port: Thank you Chad and thank you everyone for joining us today, our local teams have once again posted impressive clinical and financial results and continue to build remarkable momentum in each market across our portfolio.
Our success is entirely due to the efforts and commitment of those leadership teams caregivers field resources and service Center partners.
One of our most important priority is to support those that care for our patients every day.
Barry R. Port: After another record quarter, we're excited about the many opportunities to continue to capture the enormous potential inherent in our portfolio as we relentlessly focus on our operational fundamentals, both in existing operations and the growing number of new acquisitions. We are pleased to see same store occupancy of 79.9%, which grew by 240 basis points over the prior year quarter. In addition, we saw an improvement in occupancy on a sequential basis of 40 basis points over the third quarter. Additionally, we saw increased volume in our combined same store and transitioning managed care revenue and managed care census, which increased during the quarter by 12.3% and 3.5%, respectively, over the prior year quarter as a result of strengthened relationships with our managed care partners and quality outcomes. As expected, we saw an increase in our skilled mix during the quarter, as our same-store days for the quarter increased by 110 basis points sequentially over the third quarter.
Barry R. Port: After another record quarter, we're excited about the many opportunities to continue to capture the enormous potential inherent in our portfolio as we relentlessly focus on our operational fundamentals both in the existing operations and the growing number of new acquisitions.
Barry R. Port: We are pleased to see same store occupancy of 79, 9%, which grew by 240 basis points over the prior year quarter. In addition, we saw an improvement in occupancy on a sequential basis of 40 basis points over the third quarter we.
Barry R. Port: We saw increased volume in our combined same store and transitioning managed care revenue and managed care census, which increased during the quarter by 12, 3% and three 5% respectively over the prior year quarter as a result of strengthening relationships with our managed care partners and quality outcomes.
Barry R. Port: As expected we saw an increase in our skilled mix during the quarter as our same store days for the quarter increased by 110 basis points sequentially over the third quarter. We are encouraged by the continued strength in our skilled mix as it demonstrates the continuously increasing demand for skilled post acute services.
Barry R. Port: We are encouraged by the continued strength in our skilled mix, as it demonstrates the continuously increasing demand for skilled post-acute services. By applying proven cultural and operational principles, our local leaders continue to retain and recruit high-caliber individuals, who then go on to achieve tremendous success across our growing footprint. We continue to be encouraged by the reduction in our use of third-party nursing agencies, which improved again for the fourth quarter in a row, representing a reduction in agency usage of 58% since its peak in December 2022. We're also thrilled to see lower turnover for the third year in a row, which is a result of our local leaders' focus on our customer-second philosophy, which has and will continue to result in better patient care and outcomes. Likewise, we are also encouraged to see the pace of wage inflation continue to slow, along with improvement in our ability to successfully recruit new talent.
Barry R. Port: By applying proven cultural and operational principles, our local leaders continue to retain and recruit high caliber individuals which single onto achieved tremendous success across our growing footprint. We continue to be encouraged by the reduction in our use of third party nursing agencies, which improved again for the fourth quarter in <unk>.
Barry R. Port: A row, representing a reduction in agency usage of 58% since its peak in December 2022.
We're also thrilled to see lower turnover for the third year in a row, which is a result of our local leaders focus on our customers second philosophy, which has and will continue to result in better patient care and outcomes.
Likewise, we are also encouraged to see the pace of wage inflation continue to slow along with improvement in our ability to successfully recruit new talent.
Barry R. Port: As of the end of the quarter, we saw net new hires increase by approximately 6,000 employees over the course of the year, which is particularly impressive, given that from the start of the pandemic in 2020 until December 2023, there's been a 9% reduction in employment for the skilled nursing sector. We are confident that by being true to our cultural values, strong clinical results, and proven operating principles, our near and long-term future is bright. We are humbled by what we were able to accomplish in 2023, but we are eager to continue to drive improvements in our existing portfolio and take advantage of the acquisition opportunities that we see on the horizon. We are issuing our 2024 earnings guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of $4.13 billion to $4.17 billion.
Barry R. Port: As of the end of the quarter, we saw net new hires increased by approximately 6000 employees over the course of the year, which is particularly impressive given that from the start of the pandemic in 2020 until December 2023.
Barry R. Port: There has been a 9% reduction in unemployment for the skilled nursing sector.
Barry R. Port: We are confident that by being true to our cultural values strong clinical results and proven operating principles that the near and long term future is bright.
Barry R. Port: We are humbled by what we were able to accomplish in 2023, but we are eager to continue to drive improvements in our existing portfolio and take advantage of the acquisition opportunities that we see on the horizon.
Barry R. Port: We are issuing our 2024 earnings guidance of $5 29 to $5 47 per diluted share and annual revenue guidance of $4 3 billion to $4 $1 7 billion.
Barry R. Port: The midpoint of this 2024 earnings guidance represents an increase of 13% over our 2023 results and is 30% higher than our 2022 results. This annual guidance comes on top of the extraordinary growth we have 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 168% with a compound annual growth rate of 28%. The performance is not due to some large event or single transformative transaction but instead is the result of consistent growth and performance quarter after quarter, which comes from following the proven ensign principle.
Barry R. Port: The midpoint of this 2024 earnings guidance represents an increase of 13% over our 2023 results and is 30% higher than our 2022 results.
Barry R. Port: The annual guidance comes on top of the extraordinary growth we experienced in the last few years to put this performance in perspective since we spun out the pennant group in 2019.
Barry R. Port: We have seen adjusted EPS grow by 168% with a compound annual growth rate of 28% the.
The performance is not due to some large event our single transformative transaction, but instead is the result of consistent growth and performance quarter after quarter, which comes from following the proven ensign principles.
Barry R. Port: We are excited about the upcoming year and confident that our partners will continue to apply our proven locally driven healthcare model. As we evaluate our expanding portfolio, we continue to see enormous organic growth potential within our existing portfolio and are very excited about the continued growth in occupancies that we experienced during the fourth quarter and that has continued so far in the first quarter of this year. There are so many opportunities in front of us to improve expense management and drive occupancy and skilled mix as we continue to successfully unlock value in the dozens of recently acquired operations. We are poised to again showcase our ability to find, acquire, and transition performing and underperforming operations by applying proven leasing principles developed over two decades.
Barry R. Port: We are excited about the upcoming year and confident that our partners will continue to apply our proven locally driven health care model as.
As we evaluate our expanding portfolio, we continue to see enormous organic growth potential within our existing portfolio and are very excited about the continued growth in occupancies that we experienced during the fourth quarter and that continues so far in the first quarter of this year.
Barry R. Port: There are so many opportunities in front of us to improve and expense management and drive occupancy and skilled mix as we continue to successfully unlock value in the dozens of recently acquired operations. We are poised to again showcase our ability to find acquire and transitioned performing and underperforming operations.
Barry R. Port: Applying proven ensign principles developed over two decades when.
Chad A. Keetch: When we consider the health of our organization, combined with our culture and proven local leadership strategy, we are well positioned to have another outstanding year in 2024. Next, I'll ask Chad to provide some additional insights regarding our recent growth.
Barry R. Port: When we consider the health of our organization combined with our culture, improving local leadership strategy, we are well positioned to have another outstanding year in 2020 for.
Barry R. Port: Next I'll ask Chad to provide some additional insights regarding our recent growth Chad.
Chad A. Keetch: Thank you, Barry. We are very excited about the three new operations and one real estate asset we added during the quarter and since, bringing the number of operations acquired since 2022 to 54. These new operations include a healthcare campus in Houston, Texas, which includes the real estate assets that were acquired by Standard Bearer, one operation in Kansas, one operation in Nevada, and our first campus in Tennessee, totaling an additional 528 new operational beds. These additions were all carefully selected amongst the many opportunities available to us and were chosen because of their huge clinical and financial potential.
Chad: Thank you Barry we are very excited about the three new operations in one real estate asset we added during the quarter and.
Chad: Bringing the number of operations acquired since 2022 to <unk> 54.
Chad: These new operations include a health care campus in Houston, Texas.
Chad: Which included the real estate assets are required by standard-bearer, one operation in Kansas, One operation in Nevada, and our first campus in Tennessee totaling an additional 528, new operational beds. These.
Chad: These additions were all carefully selected amongst the many opportunities available to us and were chosen because of the huge clinical and financial potential.
Chad A. Keetch: Following recent SNF growth in 2023, occupancy and skilled mixed days for the skilled nursing operations in the recently acquired bucket were 77.6% and 27.5%, respectively for the quarter. When compared to our same-store occupancy and skilled mixed days of 79.9% and 30.9%, respectively, there is enormous upside in each of these new operations as they continue to transform into same-store caliber operations. We also remind you that there is nothing about the designation of the same store within our three buckets that should be seen as a cap on the occupancy rates that our more mature operations can achieve; our leaders consistently drive remarkable improvement in our most mature assets, many of which achieve and maintain occupancies well into the 90 plus percent range as they seek and deliver on opportunities to expand their clinical capabilities into new functional areas and provide alternatives to long hospital stays. We are very optimistic about the organic Because Tennessee is our first new state in several years, I thought I would just briefly highlight our new market program.
Chad: Following our recent sniff growth in 2023 occupancy and skilled mix days for the skilled nursing operations in the recently acquired bucket, where 77, 6% and 27, 5% respectively for the quarter when.
Chad: When compared to our same store occupancy and skilled mix days of 79, 9% and 39% respectively.
Chad: Enormous upside in each of these new operations as we continue to transform into same store caliber operations.
We also remind you that there is nothing about the designation of same store within our three buckets that should be seen as a cap on the occupancies.
Chad: That are more mature operations can achieve.
Chad: Our leaders consistently drive remarkable improvement in our most mature assets, many of which achieve and maintain occupancy as well under the 90 plus percent range as they seek and deliver on opportunities to expand our clinical capabilities and a new functional areas and provide alternatives to long hospital stays.
We are very optimistic about the organic growth potential within our existing portfolio, including our new acquisitions.
Chad: Because Tennessee is our first new state in several years I thought I would just briefly highlight our new market program.
Chad A. Keetch: As most of you know, the foundational principle of our entire strategy is the recognition that post-acute care is a locally driven business, and the success or failure of any operation is largely determined by the quality of the leadership and division of the team leading each unique multi-million dollar business. Because we believe that so deeply, we take entering into a new state very seriously. Long before we acquired our first asset in Tennessee, one of the most trusted and tenured leaders in our organization, Tyler Albertson, identified that market as one with extraordinary potential. For years, Tyler successfully operated one of our flagship operations in California and later led one of our most dynamic markets in Southern California. He developed a business plan for Ensign's growth in Tennessee and presented it to his partners. That business plan was debated and discussed and ultimately approved by his peers. Tyler carefully prepared to replace himself in his existing role as a market leader in Southern California, but only after it was clear that he was leaving his old role in better hands than he found it.
Chad: As most of you know the foundational principle of our entire strategy is the recognition that post acute care as a locally driven business and the success or failure of any operation is largely determined by the quality of the leadership and division of the team leading each unique multibillion dollar business.
Chad: Because we believe that so deeply we take entering into a new state very seriously.
Chad: Long before we acquired our first asset in Tennessee.
Chad: The most trusted and tenured leaders in our organization Tyler Albertson identified that market as one with extraordinary potential.
Chad: For years, Tyler successfully operated one of our flagship operations in California, and later led one of our most dynamic markets in Southern California developed a business plan for enzymes growth in Tennessee and presented it to as partners that.
Chad: That business plan was debated and discussed and ultimately approved by his peers tied.
Chad: Tyler carefully prepared to replace himself and his existing role as a market leader in southern California, and only after it was clear that he was leaving his old role in better hands and he found it.
Chad A. Keetch: Tyler moved his family to Tennessee to begin the process of learning the dynamics of the market, meeting new talent, and evaluating acquisition opportunities. After many months of preparation and after evaluating dozens of opportunities, Tyler, along with partners from other supporting geographies, agreed to acquire our first building as of January 1. So far, the transition has gone well, and we fully expect all his hard work and preparation to pay off. Over the next several months, as Tyler and his team of resources transition the initial acquisition, we anticipate that they will acquire additional operations to build a cluster of facilities over the next few quarters. As we have seen recently in South Carolina, eventually, this will grow into multiple clusters, which will eventually comprise a sizable market.
Chad: Tyler moved his family to Tennessee to begin the process of learning the dynamics of the market meeting new talent and evaluating acquisition opportunities.
After many months of preparation and after evaluating dozens of opportunities.
Chad: Tyler and partners from other supporting geographies agreed to acquire our first building as of January one.
So far the transition has gone well and we fully expect all his hard work and preparation to pay off over.
Chad: Over the next several months as Tyler and his team of resources transitioning. The initial acquisition, we anticipate that they will acquire additional operations to build a cluster of facilities over the next few quarters.
Chad: As we have seen recently in South Carolina. Eventually this will grow into multiple clusters, which will eventually comprise a sizeable market.
Chad A. Keetch: We can't wait to watch Tyler and his team of leaders and caregivers apply Ensign's operating principles in this new market and look forward to Tennessee becoming another reflection of the template of growth and development we've seen across our footprint over the last 25 years. We also remind you that we are now in 14 states and have significant bandwidth to grow in the other 36 states. The pipeline for new deals remains strong.
Chad: We can't wait to watch Tyler and his team of leaders and caregivers apply enzymes operating principles in this new market and look forward to Tennessee, becoming another reflection of the template of growth and development, we've seen across our footprint over the last 25 years.
Chad: I also remind you that we are now in 14 states and have significant bandwidth to grow and the other 36 states.
Chad: The pipeline for new deals remains strong we are aligning up several exciting opportunities and expect to announce several deals over the coming months and we remain poised to grow with over $1 billion in dry powder for future investments.
Chad A. Keetch: We are lining up several exciting opportunities and expect to announce several deals over the coming months. And we remain poised to grow with over a billion dollars in dry powder for future investment. Our local leaders continue to recruit future CEOs of Ensign-affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead.
Chad: Our local leaders continue to recruit future Ceos of Ensign affiliated operations and we have a deep bench of Ceos in training that are eagerly preparing for their opportunity to lead.
Chad A. Keetch: We continue to see evidence that many operators in this industry are struggling, and we expect that the operating environment will translate into many near and long-term opportunities to both lease and acquire post-acute care assets. However, we do not set arbitrary 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 provide additional disclosure on Standard Bearer, which is comprised of 108 properties owned by the company and leased to 79 affiliated skilled nursing and senior living operations and 30 operations that are leased to third-party operators. Each of these properties is subject to triple net long-term leases and together generated rental revenue of $21.9 million for the quarter, of which $17.7 million was derived from Ensign Affiliated Operations.
Chad: We continue to see evidence that many operators in this industry are struggling and we expect that the operating environment will translate into many near and long term opportunities to both lease and acquire a post acute care assets.
Chad: However, we do not set arbitrary 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.
Chad: We continue to provide additional disclosure on standard bear, which is comprised of 108 properties owned by the company and leased to 79 affiliated skilled nursing and senior living operations and 30 operations that are leased to third party operators.
Chad: Each of these properties are subject to triple net long term leases and together generated rental revenue of $21 9 million for the quarter of which $17 7 million was derived from ensign affiliated operations.
Spencer: Also for the quarter, we reported $14.2 million in FFO and, as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.2 times. And with that, I'll turn the call over to Spencer, our COO, to add more color around operations.
Chad: Also for the quarter, we reported $14 2 million in <unk> and as of the end of the quarter had an EBITDAR to rent coverage ratio of two two times.
Chad: And with that I'll turn the call over to Spencer, our COO to add more color around operations Spencer. Thank you, Chad and Hello, everyone.
Spencer: Thank you, Chad, and hello, everyone. As I mentioned earlier, the continued success we experienced during the fourth quarter was the result of continued improvements in occupancy and staffing, combined with hundreds of small but meaningful innovations by facility leaders and plus. Today, I'd like to share two examples that demonstrate how diverse geographies and business lines are maturing and, in turn, providing more and more opportunities for growth and expansion as we enter 2024. The first facility to highlight is the health care resort in Topeka, Kansas. This 94-bed, skilled nursing and senior living campus has consistently grown since opening in 2006. While the facility has maintained a high census and been successful for many years, going into 2023, CEO Ben Leiker and Director of Nursing Amanda Perrin, together with their interdisciplinary team, developed a strategy to take performance to the next level by leveraging their reputation and the stability of nurse staff to improve the skilled mix in the SNF and improve revenue quality in their senior living.
Spencer: As was mentioned earlier the continued success we experienced during the fourth quarter was the result of continued improvements in occupancy and staffing.
Spencer: And bind with hundreds of small but meaningful innovations by facility leaders in clusters.
Spencer: Today I'd like to share two examples that demonstrate how diverse geographies and business lines are maturing and in turn providing more and more opportunities for growth and expansion as we enter 2024.
Spencer: The first facility highlight is the healthcare resort of Topeka, Kansas. This 94 bed skilled nursing and senior living campus has consistently grown since opening in 2016.
Spencer: The facility has maintained a high census, and been successful for many years going into 2023, CEO, Ben Reicher and director of nursing Amanda parent together with their inter disciplinary team developed a strategy to take performance to the next level by leveraging their reputation and the stability and nurse staffing.
Spencer: Two improved skilled mix in this niche and improve revenue quality in their senior living.
Spencer: The strategy involved concerted efforts to develop clinical programs that met their local hospitals' discharge requirements, as well as strengthening partnerships with key managed care plans. As a result, the senior living section of the campus maintained 100% occupancy for all of 2020, and the campus grew revenues by 13.4% over the prior year quarter. During that same period, skilled mix days improved by 17%, driven specifically by an increase in managed care days of more than 40%. This growth in acuity was accompanied by an equal focus on recruiting and retention, which led to one of the lowest turnover rates in the market and zero agency staffing during all of 2020. The stability and staffing resulted in great regulatory performance, including no survey deficiencies, and allowed the facility to avoid much of the cost associated with orienting and training new staff. As a result, HCR Topeka achieved its best-ever EBIT performance for 2023, including 70% EBIT growth in Q4 over the prior year quarter. The second example comes from Riverside, California.
Spencer: The strategy involves concerted efforts to develop clinical programs that met their local hospitals discharged needs as well as strengthening partnerships with key managed care plans and convenience.
Spencer: As a result, the senior living section of the campus maintained 100% occupancy for all of 2023.
Spencer: And the campus grew revenues by 13, 4% over prior year quarter.
Spencer: During that same period skilled mix days improved by 17% driven specifically by an increase in managed care days of more than 40%.
Spencer: This growth in acuity was accompanied by an equal focus on recruiting and retention, which led to one of the lowest turnover rates in the market and zero agency staffing during all of 2023.
Spencer: This stability and staffing resulted in great regulatory performance, including no survey deficiencies.
Spencer: And allows the facility to avoid much of the cost associated with orienting and training new staff.
Spencer: As a result, HCR Topeka accomplished its best ever EBIT performance for 2023, including 70% EBIT growth in Q4 over the prior year quarter. The second example comes from Riverside, California, the growth healthcare and Wellness Center is a thriving campus, which includes 38 skilled nurse.
Spencer: The Grove Healthcare and Wellness Center is a thriving campus, which includes 38 skilled nursing beds and 90 senior living units, led by Executive Director Michelle Mora. The skilled nursing portion has been operated as an Ensign Affiliate since 2000. However, in April 2022, the Grove Senior Living portion was acquired from Pennant Group, and over the past 18 months, the Unified Campus has been enjoying exceptional growth. As they have operated more as a health care campus, D.O.N. Maria Manalo and her team are able to provide integrated and comprehensive care to more and more residents within the senior living community.
Spencer: <unk> beds and 90 senior living units led by Executive Director Michel Mora. The skilled nursing portion has been operated as an ensign affiliate since 2009.
Spencer: However in April 2022, the growth senior living portion was acquired from pennant group and over the past 18 months. The unified campus has been enjoying exceptional growth.
Spencer: As they have operated more as a health care campus.
Spencer: Maria Manila, and our team are able to provide integrated and comprehensive care to more and more acute residents within the senior living.
Spencer: At the same time, the SNF portion of the campus has been able to utilize the senior living to safely discharge residents to lower levels of care, which has allowed for more skilled admissions and has increased the skilled mix by fourteen percent and revenues by twenty three percent in Q4, twenty twenty three compared to the same quarter in twenty twenty two. Over the past year, community partners, including managed care plans, have taken note, and occupancy has frequently hit one hundred percent, in large part due to an 88% increase in managed care census over the prior year quarter. Perhaps the most important aspect of the Grove success story is the incredibly supportive culture that the team has developed. For example, 100% of the Grove's employees voluntarily contribute a portion of their paychecks to charity.
Spencer: At the same time, the sniff portion of the campus has been able to utilize the senior living to safely discharge residents to lower levels of care, which is allowed for more skilled admissions and has increased the skilled mix by 14% and revenues by 23% in Q4 2023 compared to the same quarter for 2022.
Spencer: Over the past year community partners, including managed care plans have taken note and occupancy is frequently hit 100% in large part due to an 88% increase in managed care census over prior year quarter.
Spencer: Perhaps the most important aspect of the growth success story.
Spencer: Credibly supportive culture that the team has developed.
Spencer: For example, 100% of the groves employees voluntarily contribute a portion of their paychecks to elevate charities, our charitable fund that provides emergency assistance for employees and crisis.
Suzanne D. Snapper: Our charitable fund that provides emergency assistance for employees in crisis. The same employees have also bound together to eliminate agency staffing and reduce turnover, which in turn has contributed to a one hundred and three percent increase in EBIT over the prior year quarter at the skilled nursing facility and to an all-time record event for the campus as a whole. These examples demonstrate the strength of our operating model and how frontline leaders and their local teams are innovating and providing healthcare solutions to their communities and to the residents they serve. 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?
Spencer: These same employees have also bound together to eliminate agency staffing and reduced turnover, which in turn have contributed to a 103% increase in EBIT over prior year quarter at the skilled nursing.
Spencer: And to an all time record EBIT for the campus as a whole.
These examples demonstrate the strength of our operating model and how frontline leaders and their local teams are innovating and providing healthcare solutions to their communities and to the residents they serve.
Spencer: 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 Thanks, Vince and good morning, everyone detailed financials for the year in the quarter are contained in our 10-K and press release filed yesterday.
Suzanne D. Snapper: Thanks, Spencer, and good morning, everyone. Detailed financials for the year and the quarter are contained in our 10-K and press release filed yesterday. Some additional highlights for the year include consolidated GAAP revenues and adjusted revenues were both $3.73 billion, an increase of 23 percent. Gap Diluted Earnings Per Share was $3.65, and Gap Net Income was $209.4 million; adjusted diluted earnings per share were $4.77, an increase of 15.2%, and adjusted net income was $273.5 million, an increase of 16%. Highlights for the quarter include consolidated GAAP revenues and adjusted revenues of both $980.4 million, an increase of 21%. Gap's diluted earnings per share was $0.38, and Gap's net income was $21.7 million.
Suzanne: Additional highlights for the year include consolidated GAAP revenues and adjusted revenues were both $3 seven 3 billion an increase of 23%.
GAAP diluted earnings per share was $3 65, and GAAP net income was $209 4 million.
Suzanne: Adjusted diluted earnings per share $4 77.
Suzanne: An increase of 15, 2% and adjusted net income was 273 5 million an increase of 16%.
Suzanne: Highlights for the quarter include consolidated GAAP revenue and adjusted EBITDA.
Suzanne: $980 4 million an increase of 21%.
Suzanne: GAAP diluted earnings per share was 38.
Suzanne: GAAP net income was $21 7 million.
Suzanne D. Snapper: Adjusted Diluted Earnings Per Share was $1.28, an increase of 16.4%, and Adjusted Net Income was $73.7 million, an increase of 17.5%. Other key metrics as of December 31st, 2023 include cash and cash equivalents of $509.6, and cash flow from operations of $376.7 million. We continue to deliver our portfolio, achieving a least adjusted net debt to EBR ratio of 1.98 times, which is particularly noteworthy given the amount of growth we have taken on over this last year. In addition, we currently have over $593 million of available capacity on our line of credit, which when combined with our cash on our balance sheet, gives us over $1 billion of dry powder for future investment. We also own 113 assets, of which 108 are held by Standard Bear and 89 of which are owned completely debt-free and continue to gain significant value over time, adding even more liquidity to help our future growth. During the quarter, we increased our quarterly cash dividend to $0.06 per share, marking the 21st consecutive annual dividend increase. Given our strength, we plan to continue our 22-year history of paying dividends in the future. CMS continues to review the thousands of comments they have received, as they look to finalize a federal minimum staffing rule.
Suzanne: Adjusted diluted earnings per share was $1 28, an increase of 16, 4% and adjusted net income was $73 7 million an increase of 17, 5%.
Suzanne: Other key metrics as of December 31, 2023.
Suzanne: Cash and cash equivalents.
$509 6 million in cash flow from operations of $376 7 million.
We continued to Delever our portfolio, achieving our lease adjusted net debt to EBITDA ratio of 198 times, which is particularly noteworthy given the amount of growth. We have taken are no further question.
Suzanne: In addition, we currently have over $593 million of available capacity on our line of credit, which when combined with our cash on our balance sheet give us over a $1 billion of dry powder and future investments.
Suzanne: Also on 113 assets of which 108 are held by scanner Baird and 89 of which are completely debt free and continue to gain significant value over time.
Suzanne: Even more liquidity to help our future growth.
Suzanne: During the quarter, we increased our cash quarterly cash dividend to six cents per share, marking the 20 <unk> consecutive annual dividend increase.
Suzanne: Given our strength, we plan to continue our 22 year history of paying dividends in the future.
Suzanne: CMS continues to review the thousands of comments they have received and then work to finalize a federal minimum staffing well. However, if the rule is implemented we do not expect the relative impact of in 2024.
Suzanne D. Snapper: However, if the rule is implemented, we do not expect the rule to impact us in 2024. Also, during the quarter, we settled a litigation matter that we previously disclosed. We are pleased to put this matter behind us and look forward to focusing solely on our mission of providing compassionate care to patients and achieving our goal of setting the standard for high-quality health care services throughout the industry. As Barry mentioned, we are providing our annual guidance of $5.29 to $5.47 per diluted share and annual revenue guidance of $4.13 billion to $4.17 billion. We've evaluated multiple scenarios, and based on the decline in our performance and positive momentum we've seen in occupancy and skilled mix, as well as some additional strengths in Medicaid and managed care programs, we have confidence that we can achieve these results. Our 2024 guidance is based on diluted weighted average common shares outstanding of $58.5 million, and a tax rate of 25%.
Suzanne: Also during the quarter, we settled litigation matter that we previously disclosed we are pleased to put this matter behind us and look forward to focusing solely on our mission provide of providing compassionate care to patients and achieving our goal of setting the standard for high quality healthcare services throughout the industry.
Suzanne: As Barry mentioned, we are providing our annual guidance of $5 and Queen license to $5 47 per diluted share and annual revenue guidance of $4. One 3 billion to <unk>, one 7 billion.
Suzanne: Evaluated multiple scenarios and based on the strength in our performance and positive momentum we've seen in occupancy and skilled mix as well as some additional strength in Medicaid and managed care programs, we have confidence that we can achieve these results.
Suzanne: Our 2024 guidance is based on diluted weighted average common shares outstanding of $58 5 million a tax rate of 25%.
Barry R. Port: The inclusion of acquisitions closed in the first half of 2024, and the inclusion of management's expectations for Medicare and Medicaid reimbursement, not as a provider, with the primary exclusions coming from stock-based compensation and certain expenses related to specific litigation matters arising outside the normal course of business. Additionally, other factors that can impact quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality and occupancy and scope mix, the influence of the general economy on census and staffing, the short-term impact of our acquisition activities, variations in insurance rules, and other factors. And with that, I'll turn it back over to Barry. Barry?
Suzanne: The inclusion of acquisitions closed in the first half of 2020 for the inclusion of management's expectations for Medicare and Medicaid reimbursement net of provider tax.
Suzanne: With the primary exclusion coming from stock based compensation and certain expenses related to specific litigation matters arising outside the normal course of business.
Suzanne: 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.
Suzanne: Of the general economy on census, and staffing the structure impact of our acquisition activities variations in insurance costs and other factors and with that I'll turn it back over to Barry Gary.
Barry R. Port: Thanks, Suzanne. As we wrap up, I can't emphasize enough how incredibly honored and grateful we are to work alongside our facility leaders, field resources, clinical partners, and service center team that are behind these record-setting results. We never cease to be amazed by their impressive resiliency as they focus on supporting one another in new and innovative ways. Their commitment has blessed the lives of so many, including our own.
Barry R. Port: Thanks, Suzanne as we wrap up I can't emphasize enough how incredibly honored and grateful we are to work alongside our facility leaders field resources clinical partners and service center team that are behind these record setting results, we never cease to be amazed by their impressive resiliency as they focus on supporting one another.
Barry R. Port: In new and innovative ways their commitment has blessed the lives of so many including our own were excited about our future because of our amazing partners and we have complete faith in them and the culture that they have collectively built we'll now turn it over to the Q&A portion of our call. Operator can you. Please instruct the audience on the Q&A procedure.
Operator: We're excited about our future because of our amazing partners, and we have complete faith in them and the culture that they have collectively built. Now, we turn over to the Q&A portion of our call. Operator, can you please instruct the audience on the Q&A procedure? As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad to get your question into queue. And just press star 1 again to remove your question.
Barry R. Port: Okay.
Okay.
Speaker Change: Just as a reminder, if you would like to ask a question. Please press star one on your telephone keypad. If you go to your question and Thank you and just press Star one again to limit of your question. Our first question comes from the line of Ben Hendrix with RBC capital markets.
Ben Hendricks: Our first question comes from the line of Ben Hendricks with RBC Capital Markets. Ben, your line is now open. Thank you very much. Great quarter, guys. Suzanne, I was hoping you could follow up on some of your comments on the top-line guidance, the really good revenue outlook there. And we're just wondering if we could kind of break down a little bit more of the drivers there. For example, what you're thinking about in terms of how optimistic you are phases through the year.
Your line is now open.
Okay. Thank you very much great quarter, guys. Suzanne I was hoping you could follow up on some of your comments on the.
Ben Hendrix: Topline guidance really good revenue outlook, there and was just wondering if we could kind of break down a little bit more of the drivers. There for example.
Suzanne: Youre thinking about in terms of how awkward occupancy phases through the.
Suzanne D. Snapper: Also, you mentioned the rate backdrop and strong Medicaid reimbursement. Just want to kind of see what you're seeing there and how sustainable that is in the next couple of years. And then just any commentary on contribution from recent acquisitions that we could see ramp up this year. Thanks a lot.
Suzanne: Through the year also you mentioned the rate backdrop in strong Medicaid reimbursement just pointed out.
Suzanne: See what youre seeing there and how that how sustainable that is.
Suzanne: In the next couple of years and then just any commentary on contribution from recent acquisitions that we can see ramp up this year. Thanks a lot.
Suzanne D. Snapper: Yeah, thanks, Ben, for the great question. As we looked at the guidance for this year, there were a couple things that we took in consideration. As you know, we have historically given you guys some visibility into revenue by breaking it out into the three buckets, same store, transitioning, and recently acquired. And as we kind of look at those three different buckets, you know, what we're kind of projecting for overall growth in each one of the buckets is mid-single digits in the same store bucket. In that transitioning bucket, kind of high single digits.
Speaker Change: Yes, Thanks, Ben for that Great question, and as you look at the guidance for this year a couple of things that were taking consideration as you know.
Speaker Change: Have historically, given you guys some visibility into our revenue by breaking it out into three buckets same store transitioning and recently acquired and as we kind of look at there is three different buckets and what were kind of projecting far great rate growth overall growth in each one of the buckets is mid single digits kind of in that same store.
Suzanne: And that transitioning back yet.
Suzanne: High single digits, and then in the recently acquired low double digits.
Suzanne D. Snapper: And then in the recently acquired, low double digits. You know, as we stated in the remarks, acquisitions were included through the first half of the year. So, you know, not a ton of acquisitions. And as we stated in previous years, when we bring those acquisitions in, we're really bringing in that revenue. And it's going to kind of hit on that margin line as we don't expect a lot from it in those first years. For occupancy, continued growth is what we are anticipating in 2024 with that seasonality all built into that. So, overall, we're really excited about where we're positioned on rates. One of the strongest rate years that we've had was in 2023. As you know, a lot of that comes in the late third quarter and early fourth quarter.
Suzanne: We stated in the.
Suzanne: Remarks acquisitions work.
Suzanne: Through the first half of the year, so not a ton of acquisitions and as we stated in our previous years when we bring those acquisitions then.
Suzanne: We're really bringing that revenue and that's going to kind of hit on that margin line as we don't expect a lot from Aetna and those first years for occupancy continued growth and is what we are anticipating in 2024 and with that seasonality Bill all built into that so overall, we're really excited about well positioned on rate.
Suzanne: <unk>.
Suzanne: One of the strongest rate years that we've had was in 2023 as you know a lot of that comes in the late third quarter early fourth quarter. So most of that rent growth will then pushed into 2024, and then really looking at some continued nice growth and that kind of late Q3 Q4 of 2024 as well.
Suzanne D. Snapper: So, most of that rate growth will then push into 2024. And then, really, looking at some continued nice growth in the kind of late Q3, Q4 of 2024 as well. Not probably as strong as what we saw in late Q2023, but, you know, relatively strong compared to historical.
Suzanne: Not as probably as strong as what we saw in late Q2 thousand 23.
Suzanne: Relatively strong compared to historical.
Suzanne D. Snapper: You asked about contribution from acquisitions. Obviously, you know, the ones that we obviously have some visibility into some deals that we'll do this year, and we don't expect much, if any, contribution from those. The ones that we acquired last year, you know, overall are ahead of schedule, largely due to the North American transition that went extremely well. So, some of our optimism and our guidance comes from the kind of accelerated growth that we saw from those buildings that will continue throughout this year as they mature. Thank you very much.
Suzanne: He asked about contribution from acquisitions obviously.
<unk>.
Suzanne: We obviously have some visibility and some deals that will do.
This this year and we don't expect much if any contribution from those the ones that we acquired last year.
Suzanne: Overall are ahead of schedule largely due to the North American transition went extremely well.
Suzanne: So some of our optimism in our guidance comes from.
The kind of accelerated growth that we saw from from those buildings that will continue throughout this year as they mature.
Suzanne D. Snapper: And just one quickly, we are also getting questions. I know that the legal settlement kind of has brought into the spotlight some of the typical kind of legal activity that happens in the healthcare industry, but we're also getting questions on. We noticed that there was another kind of DOJ or DOJ CID issue that might have been raised earlier this month regarding Medicare and Texas Medicaid. Just wondering to see if that's kind of a similar situation, if that's something that's related to this issue that you just settled, or if it's separate. Just your take on that. Thank you. Yeah, I mean, the settlement from earlier that we've been disclosing for years now was related to its resolution in a case from 2018 that began as a related, DOJ-initiated inquiry, and when the DOJ declined to intervene, that turned into a civil case that just stretched and stretched over many years.
Speaker Change: Thank you very much and just one quickly we are also getting questions on it.
Speaker Change: The legal settlement kind of has is brought into the spotlight some of the.
Speaker Change: Typical kind of.
Speaker Change: Legal activity that happens in the healthcare industry. We are also getting questions on we noticed that there was another kind of.
Speaker Change: G R. A doj ACI D issue that might have been raised earlier this month regarding Medicare and Texas Medicaid just wondering to see if thats kind of a similar situation if thats something thats related to this issue that you just settled or if it's separate and just your take on that thank you.
Speaker Change: Yes, I mean so.
Speaker Change: The settlement from.
Speaker Change: From from earlier that we've been disclosing for years now.
Speaker Change: It was related to its resolution on that on a case from 2018 that began as it relates to initiated Doj inquiry.
And when the Doj declined to intervene that turned into a civil case.
Speaker Change: That just stretched and stretched over many years and we brought in a mediator earlier this year to find a suitable resolution.
Suzanne D. Snapper: And we brought in a mediator earlier this year to find a suitable resolution, and we found one, and this saves us from additional defense costs, which were significant, time, and distraction as well because there was a large breadth to the scope of it. And it allows us to move forward without any overpayment of liability. So we just felt like the cost, the timing, and distraction made it important for us to just get that one behind us. So that's that one, and like I said, we've disclosed that over the course of many years in our filings. This new one is unrelated.
Speaker Change: And we found one and this saves us from additional <unk>.
Speaker Change: Hence costs, which was significant time and distraction as well because there is a large breadth to the scope of it and then it allows us to move forward without any over hang of liability.
Speaker Change: So we just felt like the.
Speaker Change: And the timing of distraction.
Speaker Change: Good.
Speaker Change: Important for us to just get that that one behind us.
Speaker Change: So that's that one and we like I said, we've disclosed that over the course of many years in our filings.
Speaker Change: This new and it is a.
Speaker Change: As unrelated.
Suzanne D. Snapper: And while there are some references to some Texas Medicaid issues, it's a fairly general inquiry. This is healthcare. When you're dealing with government payers, there's always the chance that they're going to ask questions and do audits. We don't know what's driving it, necessarily.
Yes.
And while there are some references to.
Speaker Change: Some Texas Medicaid issues there.
It's a fairly general inquiry. This is this is health care when youre dealing with government payers.
Speaker Change: There is always the chance that they're going to.
Speaker Change: Last questions and do audits, we don't know what kind of.
Speaker Change: What's driving it necessarily we don't have a whole lot of details on it.
Suzanne D. Snapper: We don't have a whole lot of details on it, but we've retained really good outside counsel to help represent us on it and get to the bottom of what they're asking for. But yeah, it is totally unrelated to the prior settlement. Thank you very much for that, and I appreciate you taking the time. Your next question comes from the line of Scott Fidel with Stephen. Scott, your line is now open.
Speaker Change: And we've retained.
Speaker Change: Really really good outside counsel to help represent us on it and get to the bottom of what they're asking for but.
But yes, it is totally unrelated to the prior settlement.
Speaker Change: Thank you very much for that and I appreciate you taking the questions.
Speaker Change: Thank you Ben.
Speaker Change: Your next question comes from the line of Scott Fidel with Stephens.
Scott J. Fidel: Your line is now open.
Scott J. Fidel: Okay, thank you. Actually, I just wanted to start double-clicking on Ben's question just on the Medicaid rates and one state, and specifically, you had an important California rebasing process that had been underway for a while. And I think at this point, you should have pretty strong visibility into that, so maybe you can give us an update on sort of how that is playing out and how you expect that to impact revenue costs and margins in 2020. Yeah, a great question, Scott.
Scott J. Fidel: Okay. Thank you.
Scott J. Fidel: Actually I just wanted to start with Doubleclick.
Scott J. Fidel: Question, just on the Medicaid rates and one state.
Scott J. Fidel: Specifically, we had an important California re basing process that was underway for a while and I think at this point you should have pretty pretty strong visibility into that so maybe if you could give us an update on sort of how that is playing out and how you expect that to impact <unk>.
Scott J. Fidel: Revenue caution in margins in 'twenty four.
Suzanne D. Snapper: Obviously, California was one of the few states, just to refresh everyone's memory, that will continue to pay out the additional 10% FMAP in 2023. What the state has done is really gone in and said, hey, how do we continue to make sure that we put operators in a great position? And so they went through a process of instituting a rebase program that starts January 1st of 2024. At the same time as that, they also went and did a re-upped their supplemental program that they haven't had in place for a couple years now. And so really, how we're looking at those and how the state is really looking at this, the combination of those two really makes up the overall state rate.
Speaker Change: Yes, Great question, Scott, Obviously, California was one of the few days just to refresh everyone's memory that continue to pay out the additional 10% in 2023.
Speaker Change: The state has done.
Speaker Change: It really gone in and said Hey, how do we continue to make sure that we make operator in a great position and sue.
Speaker Change: Went through a process of integrating a rebate program that starts January one 2024 at the same time is that they also win and get and.
Speaker Change: <unk> went and re upped their supplemental program that they haven't had in place for a couple of years now and so really how we're looking at there and how the state is really looking at this as a combination of those two really make up the overall state rate and so we'll have some folks that enter.
Suzanne D. Snapper: And so we'll have some folks that will enter into the rebasing program where their rates will be raised and based upon kind of the costs that are there and the increase in costs that we've seen. And then, as a part of that program, they will also have to pay for some additional costs for benefits and other things. But overall, really, really happy with that.
Speaker Change: Enter into the Rebating program, where the rates will be raised and based upon kind of that costs that are there and the increase in costs that we've seen and then as a part of that program. They will also have to do some additional costs for benefits and other things, but overall really really happy with that on top of that we'll also be.
Suzanne D. Snapper: On top of that, we'll also be having this supplemental program that allows us to earn additional funds for quality improvement. So all that goes into effect in January. So January 1st, it went into effect. The state where it's at right now is actually waiting for their state approval because every state has to get all of their Medicaid rates approved.
Have a nice supplemental program that allows us to earn additional funds for quality improvement. So all of that goes into effect in January. So January 1st that went into effect the state where it's at right now is it actually is less.
CMS for their state approval because that.
Suzanne D. Snapper: And so overall, we're really excited about the combination of those two programs together. There might be a little bit of a hit on margin because there is some cost associated with getting some of that revenue, but overall, we feel really great about the additional revenue that's going to come through and the cost that we have to pay for it. Okay, great. And then the next question, just one question, is just on the EBITDA margin and on the cost of services. First, in the fourth quarter, I know that you have the Deferred Comp Program that can affect that. I think your slide deck literally just came out, so we haven't had a chance to review that yet.
Speaker Change: Every state has to get all of our Medicaid rates approved and so overall, we're really excited about the combination of those two programs together and there might be a little bit of hit on margin. Because there is some cost associated with getting some of that revenue, but overall feel really great about the additional revenue that is going to come through and the cost.
Speaker Change: Let's go for it.
Speaker Change: Okay, Great and then next question just wanted.
Speaker Change: I wanted to ask you just on EBITDA margin and on cost of services first.
Speaker Change: First in the fourth quarter I know that you have the deferred comp program that can affect that I think your slide deck literally just came out. So we haven't had a chance to review that yet, but maybe just walk through the interplay for Russia.
Suzanne D. Snapper: But maybe just walk through the interplay for us of the Deferred Comp Program on the 4Q margin. And then talk about in your outlook for 2024, how you sort of see core EBITDA margins trending between the low and the high end of the range. Starting with 2023, the best kind of clarity that we try to give to you is, like we mentioned, in that, as you mentioned, in the investor deck, slides 46 and 47. Actually, one slide gives you it on a quarterly basis, and the other slide gives it to you on a year-to-date basis. Looking at Q4 specifically, when we go back and look at the, if you take Q3 relative to Q4, we had a 50-basis increase in the cost of services. When you break down that 50 basis points, 30 of those basis points are related to the DCP.
Speaker Change: <unk> comp program.
Speaker Change: On the <unk> margin and then talked about in your outlook for 2020 for how you sort of see core EBITDA margins trending between the low and the high end of the ranges.
Starting with the 2023.
Speaker Change: Thus kind of clarity that we try to give to you is in like we mentioned is not like you mentioned in the Investor deck Slide 46, and 47 actually one slide gives you that on a quarterly basis and the other slide gives it to you on a year to date basis looking at Q4, specifically when we go back and look at that.
Speaker Change: If you take Q3 relative to Q4, we had a 50 basis point increase in cost of services when.
Speaker Change: When you break down that 50 basis points.
Suzanne D. Snapper: And remember that the amount of those earnings really is just offset below the line. So this isn't, it's an accounting thing, not necessarily an earnings thing. And so when you look at it, it's neutralized below the line. So those 30 basis points are in net income. Those are neutralized.
Speaker Change: 30 of those basis points are related to that the DCP and remember that that they have now with them does earnings really is this offset below the line. So this isn't an accounting.
Speaker Change: And the accounting thing not necessarily an earnings thing and so when you look at it it's neutralized below the line. So that's 30 basis points are and net income those are neutralized. So that's just that's just the P&L placemat.
Suzanne D. Snapper: So that's just a P&L placement. And then the other 20 basis points really are what we've been talking about all year long. This, you know, recently acquired operations, when they make up a more significant portion of the overall cost, you're going to have the margin impacted by that. And you can see that our recently acquired operations continue to make up a significant portion of our cost.
Speaker Change: And then the other 20 basis points really are what we've been talking about all year long. This recently acquired operations when they make up a more significant portion of the overall cost youre going to have the margin impacted by that and you can see that our recently acquired operations continue.
Speaker Change: To make up a significant portion of our costs and again quarter over quarter over quarter over quarter increase were a higher percentage of our overall revenue a couple of other things with Q3 to Q4, you always have a little bit higher cost associated with benefits in <unk> and we did have some COVID-19 costs, you've got some a little bit noise to make of that.
Suzanne D. Snapper: And again, quarter over quarter over quarter over quarter increased, or a higher percentage of our overall revenue. A couple other things with Q3 to Q4, you know, you always have a little bit higher cost associated with benefits and GLPL. And we did have some COVID costs.
Suzanne D. Snapper: So you've got some, a little bit of noise to make up that additional 20 basis points up there. But that kind of rounds out 2023. Pushing into 2024, what we try to get you guys to do is neutralize that deferred comp impact, kind of getting that out of there. Because again, that's below the line and above the line.
Speaker Change: Additional 20 basis points out there, but that kind of rounds out 2023 pushing into 2024.
Speaker Change: What we tried to get you guys to do is neutralize that that deferred comp impact kind of getting that out of there because again that.
Speaker Change: It's below the line and above the line and so kind of making that all neutralized really think that the.
Suzanne D. Snapper: And so kind of making that all neutralized, I really think that the overall neutralized effect will have really consistent margins, what we saw in 2023 and before. And so overall, consistent to slightly improved on the top end. Okay, great. Very helpful. Then just last question. In 2023, you had really significant growth in both operating cash flow and free cash flow as well. And we're just trying to think about how to model off of that, you know, given, again, a very sort of sharp uplift in operating cash flow.
Speaker Change: Over neutralized effect will have really consistent margins, what we saw in 2023 and before him. So.
Speaker Change: Consistent to slightly improved on the top end.
Speaker Change: Okay, great very helpful <unk>.
Speaker Change: Then just last question.
Speaker Change: 2020, you had really significant growth in both operating cash flow and free cash flow as well and we're just trying to think about how to model off of that.
Speaker Change: Given.
Speaker Change: Again, a very sort of sharp uplift.
Speaker Change: And operating cash flow. So any guidance you can give us on thinking about operating cash flow.
Suzanne D. Snapper: So any guidance you can give us on thinking about operating cash flow, you know, any sort of, you know, working capital or other items that we should be contemplating, you know, as we're trying to trend out our cash flow forecast for 2024. Yeah, as you kind of think through it, obviously, in Q1, we always have a significant hit in cash for a couple different reasons, right? That's when you see that the outflow of our incentives goes out; all the year-end incentives get paid out in Q1. So you'd anticipate that outflow going out in Q1. It'll be a little bit different pattern than we saw in 2023. Remember, in 2023, we were able to defer a lot of our taxes all the way till Q4. And so you're going to see those taxes really be spread out throughout the year in 2024. Other than that, we just don't have as much lumpiness other than the timing of when we'll pay out the settlement of the litigation matter that we disclosed.
Any sort of working capital or other items that we should be contemplating as we're trying to trend out our cash flow forecast for 2024.
Speaker Change: As you kind of think through obviously in Q1, we always have a significant head and cash and for a couple of different reasons right. That's when you see that the outflow of our incentives go out all the year end incentives get paid out in Q1, So you would anticipate.
Speaker Change: That outflow going on in Q1, and it will be a little bit different pattern that we saw that in Q. In 2023 remember in 2023, we were able to defer a lot of our taxes all the way till Q4, and so youre going to see those taxes really spread out throughout the year and 2024.
Speaker Change: Other than that we just don't have as much lumpiness other than the timing of when we will pay out the settlement of the.
Speaker Change: Litigation matter that we disclosed that there is a little unclear there so that one might get best guess would be maybe late Q2 early Q3, but that will be in there, but other than that I think we'll have nice more steady steady cash flow and that does have some of the things that will make it a little bumpy in.
Suzanne D. Snapper: That's, there's a little unclarity there. So that will probably, my best guess would be, you know, maybe late Q2, early Q3, but that'll be in there. But other than that, I think we'll have a nice, more steady, steady cash flow. But those are some of the things that'll make it a little bumpy in Q1, and then kind of steadyed out throughout the rest of the year. Got it. So, overall, probably fair to think about operating cash flows, trending generally consistent with earnings in 2024.
Speaker Change: Q1, and then kind of steadied out throughout the rest of the year.
Speaker Change: Got it so so overall probably fair to think about operating cash flows just trying to generally consistent with our earnings in 2024.
Suzanne D. Snapper: Correct, with the exception of Q1, that little bit of a hit I talked about, and then the other thing being that the DOJ. Yeah, absolutely. Yeah. I mean, for the overall year.
Speaker Change: Correct with the exception of Q1 that that little bit of head I talked about and then.
Speaker Change: The other games being that the Doj.
Speaker Change: Yes, absolutely Adam for the overall year, Okay, alright, great well, thanks, a lot I appreciate it thanks.
Suzanne D. Snapper: Okay. All right. Great. Well, thanks a lot, Scott. Thank you. And that is currently all the questions that we have in our queue.
Speaker Change: Thanks Scott.
Speaker Change: Thank you and that is currently all the questions that we have in our queue. At this point I would like to hand, the call back over to Barry for some closing remarks.
Operator: At this point, I would like to hand the call back over to Barry for some closing remarks. Awesome. Thanks. Thanks, Operator. And thanks, everyone, for joining us today. We appreciate your support, as always, and look forward to an amazing 2024. Thank you. And, ladies and gentlemen, that does conclude today's call. Thanks again for joining us. You may now disconnect.
Barry R. Port: Awesome. Thanks, Thanks, operator.
Barry R. Port: Thanks, everyone for joining us today we.
Barry R. Port: I appreciate your support as always look forward to an amazing 2024.
Speaker Change: Thank you and ladies and gentlemen that does conclude today's call. Thanks again for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.