The Ensign Group, Inc.

Thank you for standing by and welcome to the Ensign Group's second quarter fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Chief Investment Officer, Chad Keech. Mr. Keech, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. We filed our earnings press release yesterday, and it is available on the investor relations section of our website at enzymegroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on Friday, September 3, 2021. 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 29, 2021, 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 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 or 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. 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. The words Enzyme, Company, We, Our, and Us refer to the Enzyme Group and its consolidated subsidiaries. All of our operating subsidiaries, 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 the consolidated company and its assets and activities, as well as use of the terms we, us, our, and similar terms, are not meant to imply, nor should it be construed as meaning, that the Enzyme Group Inc. has direct operating assets, employees, or revenue, or that any of the subsidiaries are operated by the Enzyme Group. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our Form 10-Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry?

We're very happy to report another record quarter. As the healthcare system continued its march towards normalcy, we continue to see patient flows trending toward more traditional patterns. And the momentum we saw in the first quarter occupancies continued into the second. In fact, from the low point of our pandemic period census, which we hit in December of 2020, our seeing storm transitioning operations have already improved by 52 percentage points. We were particularly pleased that we achieved sequential growth in occupancies from the first to the second quarter, which is especially impressive given that we always expect a seasonal decrease in occupancies in the summer months. The solid results were achieved by our local leadership teams who have remained an absolutely integral part of the healthcare continuum during the pandemic. These sustained results during what continues to be one of the largest global healthcare challenges in our history are what set Ensign affiliates apart. Our operations have played a pivotal role in the preservation of the healthcare continuum, despite the great challenges they have faced because they adjusted and adapted to meet the acute needs of their markets. We are pleased to see that those efforts are being rewarded by their hospital and managed care partners who have and continue to entrust our operations with the care of their patients. While we are excited about our accomplishments for the quarter, we know that we can do so much better in so many ways. And we look forward to seeing our operations achieve even more as they continue to make evident the enormous potential within our portfolio as we return to and exceed pre-COVID levels. We saw continued sequential improvement in occupancy over the first quarter with same store and transitioning occupancy improving by 170 basis points and 150 basis points, respectively. In addition, our managed care census for same-store and transitioning portfolios increased by 33.9 and 27.9 percent from the prior year quarter, respectively. Our record results in the quarter came from a multifaceted approach that included efforts to improve occupancies, but also involves a renewed focus on operational fundamentals, including operational expense management and improved cash collections. We also continue to benefit from sequestration suspension and improved Medicaid funding in certain states. As the pent-up demand for healthcare services in our markets has continued to increase, our managed care skilled mixed days and managed care average daily census improved again, for an impressive fourth consecutive quarter. Also, our combined same-store and transitioning managed care revenues for the quarter were up sequentially for the fourth quarter in a row. At the same time, our skilled mix has remained higher than pre-COVID levels, with a combined same-store and transitioning skilled mix of 31.5% during the second quarter as compared to the first quarter of 2020, which is 29.3%. We're also very encouraged to see that some of our more mature markets, like most of Arizona and Colorado, have already returned to pre-COVID occupancy levels. We expect a positive trend in occupancy to continue throughout the year, subject to some seasonality, as volumes in higher acute settings and managed care utilization continue to increase. Also, we want to just briefly touch on the potential resurgence of COVID in some of our markets. We're pleased to report that so far we've only seen a very minimal number of cases across our portfolio. However, we remain vigilant, and despite the worrisome COVID trends, we remain confident that our local operators and their clinically focused teams will rise to any challenge ahead. If the new variant of the COVID virus persists, we have the ability to rely on the many, many lessons learned during the pandemic, including infection control procedures and treatment protocols. We also have many more tools at our disposal than we did when the pandemic first arrived on the scene, including access to the vaccine and many forms of testing. In addition, we are grateful that the federal government has extended the state of emergency to October 18, 2021, which keeps in place many of the regulatory and other forms of assistance helpful to patient care. Throughout our history, staffing has been a challenge when the economy is performing well and unemployment is low. So, while this challenge is real, it's something we have seen and managed through many different times before. In addition, these particular staffing challenges have some unique transitory factors that we do not anticipate to persist, including childcare issues created by school closures and temporary unemployment benefits that have had a substantial impact on the labor markets. We've also seen some of these pressures being lifted in states that have ended certain unemployment benefits like in Arizona, where our operators saw an almost immediate increase in the labor pool. We fully expect that some of these temporary pressures will continue to improve. In the meantime, rather than taking a passive approach, we are highly focused on ensuring that our culture and our overall experience is the best it can be. Our model encourages innovation in the face of challenges. For example, in one market, we've developed an in-house nurse aid training program that's generated over 150 CNAs in the last five months. We've also seen tremendous success in our nursing leadership development programs. In fact, over the course of the last few years, our clinical leadership were able to train and promote 22 of our nurses to a director of nursing role. We also continue to elevate our recruiting and have already seen success from these new efforts. As we announced yesterday, we increased our 2021 annual earnings guidance to $3.55 to $3.67 per diluted share, up from the previous guidance of $3.54 to $3.66 per diluted share, and affirmed our previous annual revenue guidance of $2.62 billion to $2.69 billion. The new midpoint of this 2021 earnings guidance represents an increase of over 15 percent from our 2020 results which were 103 percent higher than our 2019 results. Yesterday's increase comes from the strong results during the first half of the year, continued positive trends in occupancy, and the continuation of state funding. Our current health combined with our culture, proven leadership strategy, healthy balance sheet, the enormous potential in our existing portfolio, and the tremendous acquisition opportunities on the horizon gives us confidence that we are well positioned to not only rebound to our pre-COVID path, but to accelerate our growth. Obviously, our performance wouldn't be possible without the enormous sacrifice and ownership that we see from our local leaders, caregivers, and other frontline staff. Our confidence comes from our belief that we have the best and the brightest leaders and caregivers in post-acute care. We again express our love and appreciation for all of our amazing team members, especially those on the front lines, for all that they're doing to serve their communities. We honor them and are so grateful for them. We certainly expect some challenges ahead, but we're excited about the year ahead of us and look forward to showing our dedication to all those that have entrusted us with the care of their loved ones. And with that, I'll ask Chad to give us an update on our recent investment activity. Chad?