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spk01: Good day and thank you for standing by. Welcome to the Ensign Group Inc. Fourth Quarter Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Chad Keech. Please go ahead.
spk00: Thank you.
spk05: Welcome, everyone, and thank you for joining us today. We filed our earnings press release yesterday, and it is available on the investor relations section of our website at EnzymeGroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on Friday, March 4, 2022. We want to remind any listeners that may be listening to a replay of this call that all statements made are as of today, February 10, 2022, and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. In addition, the Ensign Group, Inc. is a holding company with no direct operating assets, employees, or revenues. Certain of our wholly owned independent subsidiaries, collectively referred to as a 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 insurance captive, provides certain claims made coverage to our operating subsidiaries for general professional liability as well as for workers' compensation insurance liabilities. 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 agreements with certain independent subsidiaries of Enzyme, as well as third-party tenants that are unaffiliated with the Enzyme Group, Inc. 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, Standard Bear Healthcare REIT, and the Insurance Captive are operated by separate, wholly-owned, independent companies that have their own management employees and assets. References herein to the consolidated company and its assets and activities, as well as use of the 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, 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-K. And with that, I'll turn the call back over to Barry Port, our CEO. Barry?
spk04: Thanks, Chad. And again, thank you for joining us today. We were pleased to announce yesterday another record quarter. These results demonstrate yet again that our local leaders and their teams continue to be the examples of post-acute excellence as they wade through the evolving landscape in each of their markets. As they've done so, they have again achieved record results in spite of the continued challenges related to the pandemic and the accompanying disruption in their labor markets. Remarkably, despite the impact of the Delta surge in the early part of the quarter, and Omicron in the late part of the quarter, we saw continued improvement in occupancy, skilled revenue, and managed care revenues. We were particularly pleased that we achieved sequential growth in overall occupancy for the fourth consecutive quarter, and managed care census has grown sequentially six quarters in a row. We were amazed by the commitment of our caregivers and their continued endurance and strength. As evidence of the medical community's confidence in our local operators' clinical capabilities, we saw marked improvement in patient volumes, especially with higher acuity patients, as we saw another sequential increase in Medicare and managed care census of 5.5% and 4.7% in our same store and transitioning portfolios, respectively. This continued improvement in our admissions trend not only gives us great confidence, that we can continue to perform well as the pandemic stubbornly persists in many of our largest markets, but it also shows that we are in an excellent position to see occupancies continue to normalize to pre-pandemic levels over time, even while the pandemic continues to impact our operations, our staff, and our patients. In spite of the unprecedented challenges, the pandemic has forced us to become stronger and more agile. while allowing us to develop strategic local advantages that will continue to bear fruit even when the pandemic eventually subsides. We continue to work closely with our hospitals, government agencies, and managed care partners to care for patients with increasingly demanding medical needs. In doing so, our operations are solidifying their position as providers of choice and are increasingly seen as critical partners in the healthcare continuum as an essential cost-effective setting for these complex patients. Moreover, as the pandemic has continued to put pressure on the labor markets, our operations have discovered new methods for attracting healthcare professionals into our workforce, while also strengthening their ability to retain and develop existing staff as we have focused on being the employer of choice in our communities. While we would never have wanted this pandemic to occur, It has revealed the strength of frontline professionals and caused us to become better clinically and operationally than ever before. We also continue to benefit from sequestration, suspension, and improved Medicaid funding in certain states. We are grateful that the federal government has extended the state of emergency to April 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care. Based on recent COVID trends, we anticipate that this additional funding will continue into the second half of this year. But to the extent that COVID trends or political climates change throughout the year, we are confident in our ability to make operational adjustments, take advantage of an attractive acquisition environment, and lean on our overall health to continue our path of performance. We are very proud of what we're able to accomplish in 2021, while dealing with so many unusual challenges. But we also know we can still do much better and are excited about the enormous potential within our portfolio as we continue to apply our proven locally driven healthcare model. We are issuing our annual 2022 earnings guidance of $4.01 to $4.13 for diluted share and annual revenue guidance of $2.93 billion to $2.98 billion. The new midpoint of this 2022 earnings guidance represents an increase of 12 percent over our 2021 results and is 30 percent higher than our 2020 results. We are excited about the upcoming year and are confident that our teams will continue to manage and innovate through the lingering challenges on the labor front. When we consider the current health of our organization, Combined with our culture and proven local leadership strategy, we are well positioned to have another outstanding year in 2022. But before I turn it over to Chad to discuss our growth and real estate efforts, I just want to take a minute to recognize our incredible team members, facility leaders, field resources, clinical partners, and service center support staff. I can't emphasize enough how incredibly honored and grateful we are to work alongside them and witnessed their amazing sacrifice, effort, and outcomes. They have taken great care to ease the impact that these last two years have had on our residents and one another. They have focused relentlessly on the safety and well-being of those they serve. Their ownership in serving their communities has blessed the lives of so many. It's absolutely astounding to witness and an honor to be a part of that effort. While we most certainly expect some challenges ahead, we are excited about our future and look forward to continuing to show our dedication to all those that have entrusted us with the care of their loved ones. Next, I'll ask Chad to discuss our recent growth. Chad?
spk05: Thank you, Barry. As we announced yesterday, as of January 3, 2022, we completed the formation of a new captive REIT, Standard Bearer Healthcare REIT, Inc., or Standard Bearer. This new real estate company will enable us to build upon our established real estate investment platform, which is comprised of high quality assets and very healthy operational fundamentals. We carefully selected the name standard bearer, which in military tradition is the person that has the honor of carrying the colors. As you all know, Ensign means a standard or a flag. Ensign's mission is to raise a flag or to be a symbol of a new, higher standard in post-acute care. That mission drives each and every aspect of our organization and is something we care about deeply. Therefore, it is very important for us to ensure that everything the REIT is about is to support that mission. We understand and will always recognize that the true value in our real estate is derived by the loving service provided by our local teams in each location they serve. The real estate, while obviously an important element of the care we provide, only does well if the operations do well. And so Standard Bearer's mission will be to do its part in finding the right opportunities and acquiring those opportunities in a way that supports and sustains the hundreds of enzyme affiliates and other like-minded operators as they seek to provide exceptional post-acute care into the markets they serve. While our real estate strategy has always been an important part of our DNA, we believe this new organizational structure allows us to take the next step with our already thriving real estate business. We have already begun evaluating transactions, which include healthcare properties that will be operated by Enzyme Affiliates and other third-party operators. We look forward to establishing new partnerships with other outstanding operators and to working together to help further underline the importance of post-acute care providers within the continuum. At the same time, this new strategy will open up new doors to growth that we haven't pursued in the past, allowing us to accelerate Enzyme's strategy of acquiring and operating both performing and underperforming operations. As a reminder, there are many benefits to our stakeholders in this new organizational structure. In addition to providing us with additional acquisition opportunities, Standard Bear will be able to leverage the knowledge and experience of our exceptional field leaders as they assist the REIT in its efforts to create additional value through real estate investing. Also, unlike a transaction that involves a one-time benefit to our stakeholders, the captive REIT and the accompanying periodic valuations will show an ongoing and accurate look at the substantial value of our real estate assets. we are happy to now disclose our real estate portfolio's value as determined by a third-party appraiser in our 10-K, with an initial valuation of approximately $1 billion. When compared with the book value of approximately $720 million, which includes the purchase price that we paid at the time of acquisition, plus all additional capital improvements, this represents an increase of approximately 40%. Over time, we expect that this continued disclosure will shine a brighter light on the value we have created and will continue to create in these and future assets. In addition, this structure fully preserves the option to do a spin-out or other transactions in the future without duplicating efforts. Most of all, by keeping our real estate strategy in-house, we will retain the cultural connection between the real estate business and the most important part of our business, which is obviously the care and service that occurs in these operations on a daily basis. We are always happy to be operators first, and the health of each operation will be paramount in every deal we consider. So just to summarize, this new structure gives us more flexibility to grow in new ways without triggering significant capital gains tax and other inefficiencies, provides us with additional flexibility in the employment of capital, and gives us full visibility into the growing value of our real estate. Plus, we are not limiting ourselves in any way to pursue other structures in the future. And just to be clear, we will obviously still continue to grow by leasing new operations. We very much value our relationships with all of our existing and future landlords. Leases have been and will continue to be an essential part of our growth story. For example, during the quarter and since, we added six new operations, including two operations in Texas totaling 248 beds, one operation in Idaho with 80 beds, one operation in Arizona with 161 beds, and two operations in California with 218 beds, five of which are new long-term triple net leases and one real estate purchase. Just a few months ago, we acquired the real estate for five skilled nursing and assisted living facilities in Arizona, California, and Kansas, which had previously been operated by Enzyme and tenant group affiliates for a number of years. As this recent activity illustrates, the ratio between leased and owned will vary depending on the circumstances. When it makes sense and pricing is right, we will opportunistically purchase the real estate. When attractive leases come our way, we'll do those too. As we've shown over our 22-year history, there will be many opportunities to do both. In total, during the year and since, We've added 20 operations to our organization, and we are very excited about this year. The pipeline for our typical turnarounds, including real estate acquisitions and leases, is very strong and improving. We have a dozen new additions that we are working towards closing in the coming months and are seeing a significant increase in the number of opportunities for both leased and owned portfolios. As we mentioned in our release yesterday, we have significant capacity with over $340 million in available capital and very eager capital partners ready to help us grow. And with that, I'll turn the call back over to Barry.
spk04: Barry? Thanks, Chad. Next, we'd like to highlight some examples of the successes our local teams have seen this quarter. While external circumstances have been difficult, our partners continue to defy the odds and produce remarkable outcomes clinically, culturally, and financially. Pandemic has added complexity to our operational landscape and in some ways it has also reinforced the simple fundamentals that allow operations to be successful regardless of circumstances. These fundamentals such as clinical competence, stable and consistent leadership, and partnership with healthcare continuum providers have allowed many of our facilities including Legend West, a skilled nursing facility in San Antonio, Texas, to thrive in the midst of unprecedented clinical challenges, reimbursement changes, regulatory oversight, and staffing pressures. Despite the constant pressures throughout 2021, CEO Robert Gray and COO Monica Sanford and the team at Legend West, which has been together for many years, have continued to strengthen clinical and financial results quarter after quarter. Because of this stability and leadership, the team continued to execute a very successful managed care strategy. Working together with local managed care plans, they increased clinical capabilities through specialized trainings and streamlined processes to meet the needs of both the plans and their patients. And at the same time, the Legend West team has relentlessly improved quality metrics and maintained an overall five-star rating from CMS. as well as preferred status from multiple managed care networks and the Veterans Administration. As a result, occupancy and revenues have consistently grown quarter after quarter and year after year. For example, during the fourth quarter of 2021, skilled mix increased by 30% compared to the prior year quarter, while managed care patient days increased by 39% in 2021 over prior year. This has led to a 27% improvement in total managed care revenues and contributed to 2021 being the highest EBIT year ever for the facility. These continued improvements by Legend West demonstrate that there will always be a strong demand for top quality skilled nursing and rehabilitation services. As the pandemic continues, staffing challenges have hit all sectors, but it has been particularly difficult for rural healthcare facilities. However, many of our operations are finding ways to thrive despite the challenges. One example of this is Pinnacle Nursing and Rehabilitation in Price, Utah, a small community in the eastern part of the state where CEO Seth Anderson and COO Lindsey Callahan have led their team's staffing efforts in some very innovative ways. Recognizing that the easiest way to successfully staff a facility is to prevent employee turnover, The Pinnacle team has been obsessed with taking care of their existing staff and becoming the employer of choice in the community. This positive culture has not only resulted in staff turnover rates that are less than a third of the national average, but also has created a pipeline of referrals from employees encouraging their friends and family to join the Pinnacle team. Pinnacle staffing success goes beyond just great culture. The facility has also pioneered an in-person and virtual CNA training programs and strategically partnered with the local community college nursing program to ensure a consistent inflow of talented clinicians. As expected, the successful culture at Pinnacle continues to produce exceptional clinical outcomes, including a five-star rating overall for quality measures. Similarly, the facility increased revenues, occupancy, and skilled mix throughout 2021, which resulted in a 31% EBIT growth over 2020's record financial performance. Although Pinnacle has been an inside affiliate for over a decade, it continues to meaningfully improve year after year, demonstrating the incredible potential for growth latent in even established same-store operations. We hope that these examples are helpful in illustrating the different levers our local operators have to pull in order to quickly adjust to the needs and the feedback of their healthcare partners. 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 it up for questions. Suzanne?
spk02: Thank you, Barry, and good morning, everyone. Detailed financials for the year are contained in our 10-K and press release filed yesterday. Some additional highlights include the following for the year. Gap diluted earnings per share was $3.42, representing a 12% increase. An adjusted diluted earnings per share was $3.64, an increase of 16%. Consolidated gap and adjusted revenues were both $2.6 billion, an increase of 10%. For the quarter, gap diluted earnings per share was $0.86, representing a 5% increase. and adjusted diluted earnings per share was 97 cents, an increase of 21%. Transitioning and same-store occupancy increased by 6.8% and 3%, respectively. In addition, sequential transitioning and same-store occupancy increased by 1.7% and 40 basis points, respectively. Other key metrics as of December 31st include cash and cash equivalents, of $262 million, cash flow from operations of $276 million, and $343 million of availability on a revolving line of credit. We continue to delever our portfolio, achieving a lease adjusted net debt to EBITDA ratio of 2.13 times, a decrease of 0.29 times from last year. We also own 101 assets, 77 of which are unlevered with significant equity values that provide us with even more liquidity. As of the year ended December 31, 2021 and since, we repurchased 265,000 shares of common stock for $20 million, completing our October 2021 stock repurchase program. We also announced yesterday that the Board approved a new stock repurchase program for 2022 in the amount of $20 million. Given the stock's recent performance, our liquidity, and confidence in near and long-term results, we believe this additional share buyback to be a very wise use of our capital. As we've said before, share buybacks are one of the many levers we have to deploy capital to benefit our shareholders. In mid-January, the public health emergency was extended for another 90 days to April 16, 2022. With this extension, the federal government will continue to provide various waivers and FMAP funding. As Barry mentioned, we anticipate that this additional funding will continue into the second half of the year. Additionally, it was announced that the suspension of the 2% sequestration would continue through April 1, 2022, and then would be 1% through June 30, 2022, after which the full 2% sequestration will be back in place. The suspension has and will continue to have a positive impact on our revenue, depending upon how the pandemic affects our Medicare census. We are providing our 2022 annual earnings guidance of $4.01 to $4.13 per deleted share, and annual revenue guidance of $2.93 billion to $2.98 billion. The midpoint of this 2022 earnings guidance represents an increase of approximately 12% over our 2021 results and 30% over our 2020 results. Our 2022 guidance is based on diluted weighted average common shares outstanding of approximately 57.3 million, a tax rate of 25%, the inclusion of acquisitions closed in the first half of 2022, the exclusion of losses associated with startup operations which are not yet stabilized, the inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax, and with a primary exclusion coming from stock-based compensation. Additionally, other factors that could impact quarterly performance include variations in reimbursement systems, delays and changes in state budgets, seasonality, occupancy, and skilled mix, the influence of the general economy, census and staffing, the short-term impact of acquisition activities, variations in insurance accruals, surge in COVID-19, and other factors. And with that, I'll turn it back over to Barry. Barry?
spk04: Thanks, Suzanne. We want to again thank you for joining us today and express our appreciation to our stakeholders for their confidence and support. We know that this year will not be without some unique challenges. However, we are encouraged by our operational strength in our core business. but also this new growth lever that we have in standard bearer to help accelerate our mission to change post-acute care. Within sign operations as its primary tenant, it's a perfect launching pad to create significant real estate value as we follow our proven model while aligning with others in our industry. As Chad pointed out earlier, we believe that little to no value is being assigned to our real estate, by our investors when, in fact, the value is approximately $1 billion. We're eager to grow that value and take advantage of opportunities that we previously would have passed on and leverage our best-in-class field leadership team to help attract and partner with other great providers in our space. Speaking of our talented field leaders, we recognize them for their heroic efforts along with those of our nurses, therapists, and other frontline care providers who continue to provide an industry-leading example of life-enriching service to our residents, coworkers, and communities. We're also appreciative to our colleagues here at the service center who are working tirelessly to support our operations, enabling us to succeed in spite of the challenges we faced. Thank you for making us better every day. With that, we'll turn the time over to the Q&A portion of our call. Gigi, can you instruct the audience on the Q&A procedure?
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tao Tu from Stifel. Your line is now open.
spk07: Hey, good morning. Could you help me understand the building blocks of the 12.5% revenue guidance for 2022 at the midpoint, you know, in terms of occupancy outlook rate and skill mix on the existing portfolio, you know, contribution from recent acquisitions? In terms of state support, I think you have recognized $75 million of the FMAP funding in 2021. And based on your comments, do you expect half of that level for 2022? Thanks.
spk04: Great questions. Tal, I'll let Suzanne get into the kind of the revenue piece of your question. As far as state support goes through the FMAP program, You know, our assumptions is that, and we don't have a crystal ball on this, but sometime in the second half of 2022, we expect that that support from the federal government through the states will likely end. And, you know, again, our best guess is, you know, somewhere in the middle of the second half of the year. And that's based on the state of emergency, you know, potentially subsiding. Obviously, what could change that is if we, you know, COVID continues to you know, have different variants and outbreaks, that support might continue. But we're taking a guess that it will likely end sometime this year. As for occupancy and skilled mix, you know, again, you know, what we've typically seen is that as we have, you know, surges in the community that we kind of take a step sideways or backwards in overall occupancy and our skilled mix increases. as we see sicker patients. But what we have seen in spite of those surges, both with Delta and Omicron, is that our pace overall, especially over the long term, when you look at, you know, the course of 2021, is that there's a kind of a steady return to our pre-COVID occupancy numbers, and we expect that to continue through 2022. Suzanne, do you have that?
spk02: Yeah, and I would just like to On that, obviously, we don't have a crystal ball, but what we did do and have done kind of similar to last year, really modeling that census and skilled mix growth two ways. One way looking at it with regards to, gosh, maybe a little bit lighter COVID impact year with heavier census overall growth and a strong skilled mix, but not as strong as we've seen over the last year. And then when we kind of go to the other part of it, And we look at what the overall, gosh, if we had a lot of COVID and had a high skilled mix, but maybe not as much census growth. So we model it both ways and get to the overall number both ways. Looking kind of acquisition versus overall organic growth, the vast majority of the growth is focused on the organic growth. kind of historically looked at the buckets from our skilled nursing at the same-store transitioning and recently acquired, and really taken a look back and had that opportunity to grow each one of those buckets, same-store really in that mid-single-digit to high-single-digit growth, transitioning in the mid- to high-single-digit growth, and then the acquisitions at a double-digit growth. And so with that huge portion of our revenue coming from that same-store bucket, which is very large, we expect that to continue to enhance and grow.
spk07: Yeah, that's very helpful. Just looking at the 2021 experience, COVID certainly had an unexpected impact on the revenue side relative to the initial guidance while you guys were able to pull ahead on the earnings side. In that context, how should we think about the 2022 guidance and any lingering impact you are building to the guidance and what's the level of conservatism in particular of the 2021 experience?
spk02: Yeah, I mean, I think what you saw, and we had this happen in Q4, you know, where we had a really heavy COVID at the very beginning and at the very end, you did see the overall revenue come down, but the margins stay up. And I think that that's kind of what we would anticipate. You know, again, we're really looking to not just focus on that revenue growth, but really overall we're concentrating on how we're earning, how we're creating overall earnings and the bottom line. And so I think that's when you think back about our model, and look at how we project, really that is our focus, is how we actually continue to grow. We're not going to just try to make that revenue number and that revenue target, but really look at the overall. And so I think, you know, if we had a lot of surges again of COVID, you know, maybe we wouldn't get to the revenue number per se, but we would have higher acuity, higher skilled mix, which would result in a, you know, stronger earnings margin.
spk07: Got you. And one more question on the captive-free side, if I may. I think in Tanki, you guys called out the enzyme rental revenue at $54 million plus the $60 million, that's $70 million in terms of year one rental revenue. Does that include a straight-line rent as well?
spk02: Yes. So, yeah, it's not straight-line per se because all of our rents are CPI-based. And with the CPI-based rent, you actually don't straight-line that amount. And so we would continue to project that that CPI increase, if you're looking at how to look at that on a go-for basis, had that CPI actually build up in there.
spk05: CPI would cap. They typically have a cap on them, too, 2.5% to 3%, typically.
spk07: Gotcha. So it's the same as cash right now. So just curious on the debt balance, right? On day one, I think the debt to assets is about 25%. Any plan to lever it up as you ramp up investments?
spk02: I think your question is on the captive rate. Would we lever up the captive rate over time?
spk07: That's right.
spk02: Yes, absolutely. I mean, as we're looking at acquisitions, you would actually increase that leverage on it. obviously you're going to get additional rent stream, but as you do an acquisition through the REIT, then you would have additional leverage that would occur.
spk05: We always talk about our net debt to the EBITDA ratio. We're obviously very cognizant of making sure we stay very healthy and have a lot of room there. Like I said in the prepared remarks, we have eager capital partners that are excited and anxious to help us do that.
spk07: Got you. Thank you for answering my questions.
spk01: Thank you. Thank you. Our next question comes in the line of Scott Fidel from Stevens. Your line is now open.
spk03: Hi, everyone. Thanks. And first of all, appreciate the additional disclosures now in the 10K on the valuation of the real estate assets. A couple of questions for you. And first, just, you know, interested, Chad, maybe if you want to talk about the conversations that are underway now around, you know, deals and sort of the temple of that and I know that you already highlighted that you've got, you know, at least a dozen operations that look to be in the pipeline to close relative in your term. I'm just thinking, you know, about the bigger picture. I know you've talked about, you know, really sort of during the pandemic that, you know, a lot of the sellers have had, you know, pretty elevated valuation expectations just given the all of the additional, you know, relief funding from the pandemic. And just interested in terms of how that sentiment is evolving at this point. Are you starting to see, you know, some softening of those expectations and more attractive opportunities starting to open up? Or is it still relatively consistent with what you've been telling us about, you know, over the last 12, 18 months or so?
spk05: Yeah. Thanks, Scott. So it's been interesting. I think we're still seeing Some folks holding on to really high expectations, but that said, I think just the supply and the number of acquisition opportunities opening up are going to just have a natural impact on that. We've seen an uptick just even in the last three weeks as we've entered into this new year. As Barry mentioned, there's not a whole lot of visibility in terms of some of those programs that the federal government has had in place. And so I think there's certainly been a lot of additional deals that have been coming. And we definitely get the sense that prices have, at least in the ones we're doing, of course, have been a lot more realistic. So we're excited about that.
spk03: Got it. And a second question, just following back up on the state relief funding and, you know, I guess how for us to, you know, factor that into the modeling. You know, for last year, I think that you booked around $75 million overall in that state relief funding. And obviously, I know it's very difficult to forecast, you know, exactly what would play out for 2020. Just interested, though, you know, directionally how you're thinking about that. You know, would you think about that type of, you know, revenue that you're booking to be relatively consistent in 2022, or do you think that there will probably be a material, relatively material drop-off in that, obviously, with what's left of it more weighted to the first half?
spk02: Great question. I think maybe just as a reminder of how we actually even started look at those dollars coming in. We really do reflect that every FMAF dollar against a COVID-related expense. And so obviously the heavier the COVID is in a particular quarter, even with the funding, you're probably going to get a little bit heavier COVID revenue or if COVID experience in a particular quarter is lighter than that COVID revenue would trim down. So just remembering that the revenue isn't recognized until we have a COVID expense. And then when we kind of look through the year, we know it's all the way through April, like we said in the prepared remarks. And what we are hearing and feel and had built into the guidance is that definitely we go through July based upon everything that's out there. And then kind of teetering off towards the second half of 2022. So not as strong, but because as we've seen, every state has their own way of dealing with FMAP dollars. So it's not this consistent amount that we're getting from every state. But as every state goes through the analysis, they're actually, you know, putting money out there maybe on a daily basis or putting money out there in lump sum. And so kind of teetering out through that second half of 2022.
spk04: Yeah, I mean, Scott, to Suzanne's point, I mean, we utilized the COVID-related FMAP funding heaviest in Q4 of this last year. we had two surges, COVID and Delta, or sorry, Omicron and Delta in one quarter. And so naturally, you know, those expenses are going to be higher. So, and we see Omicron starting to taper. We see that in our numbers, both in staff cases and resident cases. And so our expectation is we're still going to have some higher expenses in the first quarter. But, you know, again, we're hopeful and optimistic that, that things will start to taper throughout the year, and as they do, not only will FMAP eventually go away, which it's bound to and it should, but hopefully our dependence on that for COVID-related expenses will also taper.
spk03: Understood. That's helpful. Yeah, because I think, you know, there's a perception amongst some investors, at least out there, that those FMAP funds, the enhanced funds, you know, have been bolstering margins, and if those go away, you could see some compression in margin. I think it sounds like the point that you're trying to make is that that's more margin neutral because you're booking costs against those revenues, but maybe just want to give you a chance to, you know, address that directly in terms of, you know, how those FMAP funds flow through margins and whether there would be any compression or not if those, you know, funds were to go away.
spk04: And that's a great point, Scott, and that's precisely why we're pointing out that we're using the funds only to the extent that we have COVID-related expenses. And so, you know, again, you know, our assumption is that, you know, as a lot of these expenses go away, that, you know, the need for FMAP will also go away. And so, you know, we're predicting that the, you know, the pandemic will evolve this year, but But again, it's really hard to say. Certainly, if it doesn't, our expectation is that the government program will continue because I think the intent of the program is to help offset the higher COVID-related expenses. But certainly, we expect to reduce our dependency regardless of whether or not the pandemic persists. Our focus this year is on on really kind of returning to fundamentals after having so much time and focus and energy on the kind of the pandemic-related issues that come up, both with regulatory and staffing and all the other challenges that come. Our focus is making sure that we really kind of return to our efficient operating model and have some of the kind of the COVID-related distractions subside
spk03: I understand. And then just one last one for me. Um, if you can talk about what type of wage inflation you're building into the 2022 budget and how's that compared to 2021. And that's it for me. Thanks.
spk04: Um, you know, I, so, you know, we're not necessarily prepared with, you know, you know, exact numbers on how much wages, you know, have gone up. We've indicated in the past that we certainly saw an acceleration of, of, um, the need for some structural wage increases, you know, towards the, you know, the second half of last year, and we expect those to remain in place. You know, certainly you can look at kind of our run rate from third and fourth quarter, but even there, you know, our expectation is that we're going to be better at managing our overall labor in spite of, you know, higher wages that we see in place. we're seeing some success with that as we, again, like I mentioned, return to a focus on fundamentals.
spk02: Yeah, and I would just remind you, there's some natural offsets that we have with regards to wage inflation. So I think we've said it's higher than it historically has been. Usually we're in the very low 2% to 3%, and we're at the mid-single digits on that for this year on the wage inflation. But there are offsets, and those other offsets include... just our overall incentive plans that are tied to the overall probability of each operation, as well as all the markets, as well as one of the biggest factors that we have out there is agency, and that the agency amount was the highest we've ever experienced in Q4. And so we've got to continue to push and focus with regards to getting that agency amount down. And when you don't have huge surges of COVID-19, We believe that's possible because of all the additional programs that we've introduced over the last year, including CNA schools and other things that we've talked to you guys about.
spk04: And look, we point out agency as a big issue for us, and certainly we know compared to a lot of our peers, because we're open about this, we talk about it. We're talking about agency usage that represents maybe five, percent of our overall nursing expense, which we know is much lower than most of our competitors. But that said, it's still a big expense, even though it's only maybe a small percentage of your overall labor costs. It's still significant for us and one that we're focused on reducing because it not only improves patient care, it's a it's a burdensome expense that we don't expect will continue. And, you know, evidence of that is seen in our acceleration and our ability to hire. We've seen a massive increase in our hires over the past two quarters, and we're seeing more evidence of that into the first quarter, which is a really good lead indicator that we're starting to, you know, see light at the end of the staffing tunnel.
spk03: Okay, very helpful. Thanks.
spk01: Thank you. Our next question comes from the line of Ben Hendricks from RBC Capital Markets. Your line is now open.
spk06: Hey, thanks, guys. Just a real quick one for me. You were talking about the waiver programs and Medicaid. Is there anything that you can call out regarding your assumptions around the Texas Medicaid waiver and the DSRIP program?
spk02: Yeah, I mean, there's nothing unique that we have guided in there with regards to that program. I think just for us, we've really taken Texas and said that it's going to continue to have the supplemental program that exists there for 2022 in a form that's similar to how it exists today.
spk06: Okay. We've noticed a lot of providers kind of taking it out of first quarter guidance but then including it in the latter three. Is that Is that a right way to think about it, or do you guys just have it in there continuing just throughout the whole year?
spk02: I think the program that you're talking about, it doesn't impact us as much. The program that impacts us the most is the QUIP program. So I think that that's the one that has the biggest impact on us and that we've really kept that flat year-over-year based upon what's going on in that program as a supplemental provider.
spk06: Okay. Thank you very much.
spk01: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Bob Port for closing remarks.
spk04: Thanks, Gigi. And we'll go ahead and wrap up our Q&A, and we'd like to thank everyone for joining us today.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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