The Ensign Group, Inc.

Good day and thank you for standing by. Welcome to the Inside Group, Inc. Q1 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Mr. Keech, please go ahead.

Thank you, Gigi, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the investor relations section of our website at theenzymegroup.net. A replay of this call will also be available on our website at 5 p.m. Pacific on Friday, May 26, 2023. We want to remind any listeners that may be listening to a replay of this call that all statements made are as of today, April 27, 2023, and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or applied 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 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 insurance captive, provides certain claims-made coverage to our operating companies for general and 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 arrangements with certain independent subsidiaries of Ensign, as well as third-party tenants that are unaffiliated with the Ensign Group. The words Enzyme, Company, We, Our, and Us refer to the Enzyme Group, Inc., and its consolidated subsidiaries. All of our operating subsidiaries, the Service Center, Standard Bear Healthcare REIT, Inc., 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 the use of terms We, Us, Our, and similar words we may use 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-Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry?

Thanks, Chad, and thank you, everyone, for joining us today. Our local leaders and their teams continue to be examples of excellence in healthcare services as they navigate through constant changes in each of their markets. Yet again, our locally driven strategy led to continued improvement in occupancies, skilled revenue, and skilled census. We were particularly pleased that we achieved sequential growth in overall occupancy for the ninth consecutive quarter, with same store and transitioning operations increasing by 4.2 and 5.4% respectively over the prior year quarter. As of the end of the quarter, our same store occupancy reached 78.8%, and we continue to get closer to our pre-COVID occupancy level which was at 80.1% in March of 2020. The record results our leaders achieved this quarter are particularly impressive given the ongoing disruption in the labor market. Although we still have headwinds from these labor market challenges, our turnover is improving significantly year over year over year, and our utilization of agency labor is trending down for the fourth month in a row. We also continue to build stronger relationships with our managed care partners due to better coordination of care, increased clinical capabilities, and strong clinical outcomes. As a result, during the quarter, our same store operations grew skilled mix revenue and skilled mix days by 5.4% and 3.5%, respectively, over the prior year quarter. In addition, we saw increased volume in our same store managed care census and managed care revenue. which increased during the quarter by 9% and 11.9% respectively. As we evaluate our expanding portfolio, we see more organic growth potential within our existing operations than ever before. As we relentlessly follow and protect the cultural fundamentals that got us here, we are confident that we will continue to consistently achieve outstanding clinical and financial performance. As we indicated last quarter, we continue to see that our skilled NICs for both revenue and census remains elevated when compared to pre-COVID levels, showing just how important high-quality post-acute services are within the continuum of care. We are pleased to see this continuous growth in skilled NICs as it demonstrates the increasing and sustainable demand for skilled post-acute services. Throughout our history, we've demonstrated the ability to find, transition, and improve our newly acquired operations. This ability, combined with a strong balance sheet, allows us to increase the number of acquisitions we close in times of market turmoil, when many operators are either choosing or being forced to exit the industry. Most of the operations we acquire are struggling clinically and financially at the time we acquire them, and they can often take many quarters to become a facility of choice in their community and it contributes to the organization's results. In some cases, however, if the foundation for solid clinical performance is in place at the time of acquisition, the performance can sometimes happen more quickly. During the quarter, we transitioned 17 California operations that were previously operated by North American Healthcare. When we announced the deal that last year, we indicated that we were going to inherit operations that, for the most part, came to us with a strong clinical reputation. an outstanding team of clinical leaders. We also noted that like most of our recent deals, we expected some challenges related to higher than normal agency staffing prior to the acquisition, as well as some additional opportunities on the expense management front. We are pleased to report that with just two months of operations under our belts, this large acquisition is performing ahead of schedule and is already contributing to our results. While these operations will face some continued challenges during the year, including some potential pressures on occupancy that are typical during summer months, we are really excited to have the opportunity to work together with our new partners to drive more efficiency. We look forward to the contribution they will continue to make to this organization over the next 20 to 30 years. In our new business ventures, we've seen greater improvement and better momentum. This entrepreneurial incubator program is one of the elements of our culture that helps us attract and retain outstanding leaders, which allows our proven leaders to explore new post-acute care businesses and gives Ensign great investment opportunities, all while keeping the opportunities within the Ensign family. While currently these new ventures collectively represent a very small percentage of our overall business, as we've shown in the past with our home health and hospice business, These opportunities have the potential to become significant. Due to our solid skilled mix and very strong sequential occupancy growth, as well as stronger than expected results from our recent acquisitions, we are increasing our annual 2023 earnings guidance to between $4.64 and $4.77 per diluted share, up from $4.60 to $4.74 per diluted share. This new midpoint of our 2023 earnings guidance represents an increase of 14% over our 2022 results and is 29% higher than our 2021 results. We are also raising our annual revenue guidance to between 3.68 billion and 3.73 billion, up from our previous guidance of 3.55 billion to 3.62 billion. We are excited about the upcoming year and confident that our partners will continue to manage and innovate through all the lingering challenges on the labor front. Our organization is extremely healthy, and our local operations and clinical leadership has never been stronger. Our culture and local approach that we've practiced since 1999 gives us confidence that we can and will continue to innovate and grow. While market dynamics can lead to some near-term quarterly fluctuations we remind you that our model is built for times like these. We have seen and fully expect to see that continue throughout 2023 and beyond. Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad?