The Ensign Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Enzyme Group Inc. Q3 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touchstone telephone. As a reminder, this conference call is being recorded. I will now turn the conference over to your host, Mr. Keech, so you may begin.

Welcome, everyone, and thank you for joining us today. As always, before we begin, I have just a few housekeeping matters. We filed our earnings pressure lease and 10-Q yesterday. This announcement is available on the investor relations section of our website at www.enzymegroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on Friday, December 4, 2020. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, October 29, 2020, and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Enzyme 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 Enzyme Group, Inc. is a holding company with no direct operating assets, employees, or revenues. Certain of our wholly owned independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly owned captive insurance subsidiary, which we refer to as the captive, provides certain claims made coverage to our operating subsidiaries for general and professional liability, as well as for workers' compensation insurance liabilities. All of our operating subsidiaries, including the service center and the captive, are operated by separate, wholly owned, independent companies that have their own management employees and assets. References herein to Enzyme or the consolidated company and its assets and activities, as well as the use of the terms we, us, our, and similar terms used today, are not meant to imply nor should it be construed as meaning that the Enzyme Group, Inc. has direct operating assets, employees, or revenue associated or that any of the subsidiaries are operated by the Enzyme Group. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our TANQ. And with that, I'll turn the call over to Barry Port, our CEO. Barry?

Good morning, everyone. We're pleased to announce another record quarter despite the continued challenges arising from the global pandemic. With the surge of COVID-19 that occurred during the third quarter in some of our largest states, including Texas, Arizona, and California, our local teams were faced with an unprecedented challenge and have again demonstrated incredible agility and responsiveness to the evolving landscape. True to form, They remain as committed as ever to the cause of quality outcomes and excellent patient care. They come to work each day in the most difficult circumstances to serve our nation's most vulnerable on the true front lines of this worldwide trial. They deserve all the praise that we could possibly provide them for their courageous and selfless service. As a result of their heroic efforts, Our local operators and caregivers have translated their passion into record-breaking results. For the third quarter in a row, we achieved record earnings, which came in at 78 cents per share, an increase of 95 percent over the prior year quarter. We also reported a 95 percent increase in our adjusted debt income of $44 million. The strong results came from quarter-over-quarter improvements in skilled mix across the portfolio improved admission trends, availability of more frequent and broader COVID testing, increased managed care revenues, cost-saving initiatives, improved collections, sequestration, suspension, and improved Medicaid rates. Our local leadership teams continue to make clinical and operational improvements that are tailored to conditions they face in their local markets. Our operations have continued to see an increase in the number of higher acuity patients, including some COVID-19 positive patients and an increasing number of managed care patients. With the surge in COVID-19 patients in many of the surrounding communities we serve, we continue to see state and county health leaders and local hospital systems turn to Ensign-affiliated operations to care for all varieties of high acuity patients that can be safely admitted to or remain under our care. As we expected, when positivity rates for COVID-19 increase in the surrounding community, we see occupancy decline, and skilled mix increase. In July, we saw overall occupancy decline, particularly in areas of high COVID positivity rates like Texas, Arizona, and California, while skilled census remained strong. Then, when COVID-19 cases began to stabilize during the quarter, occupancy began to recover, and that trend has continued in October. After living in the COVID environment now for two and a half quarters, we are encouraged by the recent strength in occupancies, If there is another surge in COVID during fourth quarter or in 2021, we are confident that lower occupancies will be offset by higher skilled mix. In early July, we returned all of the CARES Act provider relief funds we received from the government, and our results do not include any benefit related to these relief funds. In doing so, we joined other well-capitalized healthcare providers by returning approximately $109 million in provider grants and announced yesterday that we will also be returning approximately $23 million in the latest round of relief funds. Accordingly, we either have returned or plan to return all provider relief funding under the CARES Act rounds one through four. As we said last quarter, we take the responsibility that comes from receiving revenues which are largely funded by American taxpayers very seriously. In addition, as a for-profit healthcare company, our organization pays tens of millions of dollars a year in taxes. When we consider our healthy balance sheet and liquidity, which we have taken great care to protect, and when we reflect on the financial performance during the pandemic, we decided not to accept any CARES Act funds. If there are additional future grants, We will reevaluate the purpose and needs of those grants, specifically considering potential costly testing requirements or other newly mandated regulations, and the terms and conditions that accompany those funds. The third quarter presented continued challenges as we experienced a significant surge in cases in some of our largest states. We are grateful that we were able to apply many of the lessons learned in the second quarter to prevent and treat COVID in our operations in these geographies. As of October 14, 2020, the company's 217 affiliated skilled nursing operations across 13 states had 207 confirmed COVID-19 patients in-house. Also, as of October 14, 2020, eight operations had over 20 COVID-19 positive cases, 48 operations had less than 20 cases, and 161 operations had no confirmed cases of COVID-19 in-house. To add some additional context, two of our operations have, at the request of the local healthcare community, proactively and intentionally dedicated their entire campus to the care of COVID-positive patients and another 36 operations have dedicated entire wings to COVID-positive patients. Our local leaders and caregivers, with the assistance of their service center resources, continue to methodically acquire sufficient levels of PPE and other supplies and equipment and are providing the latest best practices in both clinical protocols and safety measures at a significant expense, including taking advantage of more readily available testing. We continue to learn a great deal through this process, and our local leaders are proactively preparing for and executing on plans to provide care for all patient types, whether COVID positive, negative, or unknown. We are pleased to report that these efforts are going very well, and we have seen improved clinical outcomes and infection control practices amongst our patients and caregivers. We reported yesterday that during the quarter, combined same-store and transitioning occupancy declined by 2.4%, and skilled mix increased by 2.9% from second quarter, as the pandemic worsened in many key states. The vast majority of these declines in occupancy occurred in early July. However, from mid-July to mid-September, our census remained flat, with a slight decrease in skilled mix days. Towards the end of the quarter and end of October, as elective care procedures picked up and the number of COVID-19 cases in the community stabilized, we experienced an increase in our occupancy in skilled mix days. Between mid-September to mid-October, combined same-store and transitioning occupancy increased by approximately 1% and skilled mix increased by 4%. This increase in skilled days was driven by an increase in overall facility acuity, which includes complex nursing services for COVID-19 patients and other skilled patients. We are also encouraged to report that admissions continue to progressively increase throughout the quarter, demonstrating that the flow of patients has improved as certain markets have begun to loosen restrictions on admissions and as the sentiment towards post-acute care has continued to improve. We've been watching our admissions trend very closely and are encouraged to see those numbers trending up as healthcare communities move away from a hunker down approach to one of operating more carefully and effectively within the context of the pandemic. Another trend we've been watching closely relates to our managed care census. We are pleased that our managed care census has also begun to make some meaningful improvement, with our overall managed care days increasing by 7.3% in combined same-store and transitioning operations during the quarter. These managed care increases are being driven by increasing confidence by managed care payers that their patients can be safely cared for in the post-acute setting and in a cost-effective way and that it is not always necessary to hospitalize COVID-positive patients. It is also a reflection that certain elective procedures that have been put on hold are beginning to occur even in the context of the pandemic. While occupancies are lower than they were a year ago at this time, our results this quarter demonstrate again the resilience of our model and the local leaders' ability to adapt to changing circumstances in their local healthcare markets. While the future of this pandemic remains unclear, we are confident that our local leaders, caregivers, and other frontline staff will continue to provide amazing service to their patients, families, and our society as a whole. Their endurance and strength is truly inspiring, and we can't thank them enough for their selfless service as they continue to earn the trust of acute care providers, physicians, managed care payers, and most importantly, their patients and families. They truly are heroes in doing some of the hardest work during one of the most challenging times in our industry's history. We hope our communities will join us in recognizing and thanking them for all that they do. We are increasing our 2020 annual earnings guidance to $3.04 to $3.12 per diluted share and maintaining annual revenue guidance of $2.42 billion to $2.45 billion. While we have seen and expect to continue to see a significant impact from the pandemic on the fourth quarter and beyond, we are confident that we can continue to perform well in the context of additional COVID-19 surges. We are also providing guidance for 2021 with annual earnings per share guidance of $3.44 to $3.56 per diluted share and annual revenue guidance of $2.62 billion to $2.69 billion. The midpoint of this 2021 guidance represents an increase of approximately 14% over the midpoint of our newly increased 2020 guidance. We are confident that we can provide this guidance for several reasons. We are excited about the enormous upside that still exists in all of our newly acquired operations, which have seen delays in the transformation that we typically see in our newly acquired bucket, coupled with the solid acquisitions that we see on the horizon. In addition, we are seeing marked improvement from some of our newer markets and struggling operations, which represents significant additional upside. But more importantly, we believe when this pandemic is behind us that our operations are primed to rebuild occupancies and gain additional market share as a result of the deepened relationships with acute providers and other healthcare partners that have developed because of our response to the pandemic. With this year, the road to achieve these results could vary dramatically based on how the pandemic plays out in the coming months, but we see several pathways to reaching this guidance. And with that, I'll ask Chad to give us an update on our recent investment activity. Chad?