The Ensign Group - Earnings Call - Q3 2021

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by and book for The Ensign Group Inc. Third Quarter FY twenty twenty one Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. At this time, I'd like to turn the call over to Mr.

Kietzsche.

Speaker 1

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 ensigngroup.net. A replay of this call will also be available on our website until 5PM Pacific on Friday, 11/26/2021. We also want to remind any listeners that may be listening to a replay of this call that all statements made are as of today, 10/28/2021, 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 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 or 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 other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly owned captive insurance subsidiary, which we refer to as a 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 Ensign, company, we, our and us refer to the Ensign Group Inc. 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 the use of words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that The Ensign Group Inc. 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 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?

Speaker 2

We are pleased to announce another record quarter in spite of the continued challenges related to the pandemic and the disruption in the labor markets. With the COVID-nineteen Delta variant hitting its peak, our local teams have again demonstrated incredible agility and responsiveness to the evolving landscape. Remarkably, during the quarter, we saw year over year improvement in occupancy as well as continued sequential improvement for the fourth consecutive quarter. To put this in context from the low point of our pandemic period census, which we hit in December, our same store and transitioning operations have already improved census by over 51%. In addition, our managed care census for our same store and transitioning portfolio improved by 26% from the prior year quarter, and we saw sequential growth for the fifth consecutive quarter in a row.

Our record results in the quarter came from our leaders' relentless focus on market specific occupancy growth strategies along with a persistent effort around operational fundamentals. 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 January 2022, which keeps in place many of the regulatory and other forms of assistance helpful to patient care. Like with most businesses right now, staffing continues to be a challenge. Our teams have been proactive in using locally driven strategies to help recruit and retain the best and the brightest.

We are pleased that our turnover has remained stable at a rate far below industry averages. And even though recruiting has generally been tougher, we are starting to see local hiring strategies bear fruit. In addition, we continue to believe these particular staffing challenges have some unique transitory factors that we do not anticipate to persist, such as temporary unemployment benefits that have had a substantial impact on the labor markets. We've already seen some of these pressures being lifted in states that have ended certain unemployment benefits. While we are excited about our accomplishments this quarter, we know we can do so much better and we are excited about the enormous potential within our portfolios we've returned to and exceed pre COVID census levels.

To that end, we expect to see some continued improvement in the fourth quarter and are increasing our annual 2021 earnings guidance to between $3.6 and $3.68 per diluted share, up from our previous guidance of $3.55 to $3.67 per diluted share. And we are also affirming our annual revenue guidance of $2,620,000,000 to $2,690,000,000 The new midpoint of this 2021 earnings guidance represents an increase of 16% from the company's 2020 results and is 105% higher than our 2019 results. Our consistent operating performance combined with our culture, proven local leadership strategy and healthy balance sheet and the enormous potential in our existing portfolio and the tremendous acquisition opportunities on the horizon gives us the confidence that we are well positioned to not only rebound to our pre COVID path, but to accelerate our growth. But before I turn it over to Chad to discuss the captive REIT, I want to emphasize again that our performance wouldn't be possible without the enormous sacrifice and ownership that we see from our local leaders, caregivers and other team members. We again express our love and appreciation for all of our amazing team members, especially those on the front lines for all they are doing to serve their communities.

We honor them and we are so grateful for them. While we certainly expect some challenges as we continue to deal with the effects of the pandemic, we are excited about the future and look forward to continue to show our dedication to all those that have entrusted us with the care of their loved ones. It was a fantastic quarter and there

Speaker 1

are many more operational highlights we would love to discuss, but we wanted to turn the discussion towards our announcement yesterday in the formation of a captive REIT. To do that, I'm going to ask Chad to provide more details. Chad? Thank you, Barry. As Barry mentioned, we announced yesterday that on 10/21/2021, our Board of Directors approved the formation of a new captive REIT.

We couldn't be more excited to finally announce the creation of this new REIT strategy and to build upon our thriving real estate investment platform and our proven track record for growth. After considering many different structures and alternatives, forming and growing our own REIT was by far the best solution to help us realize our goals in post acute care, while allowing us to build upon our established real estate investment platform with high quality assets. Through the years, Ensign's entrepreneurial culture has generated enormous value for our stakeholders. While our real estate strategy has always been an important part of our DNA, we believe that this new organizational structure allows us to take the next step with our already thriving real estate business, opening up opportunities for growth that we have not previously pursued. There are many benefits to our stakeholders in this new organizational structure when compared to a sale leaseback or even a full spin off.

First, a captive REIT provides us with a new pathway to growth that didn't exist before, giving us more flexibility in the use and access of capital and enables our collective acquisition team, which consists of hundreds of CEO caliber operational leaders in the field to strategically focus on value creation through real estate investing. As many sellers that have worked with us in the past could attest, as an operations focused organization, we occasionally miss out on really good real estate opportunities. Sometimes deals we see are not a fit geographically, operationally or culturally. This new approach will allow us to consider larger deals that we can then break up into smaller deals, keeping the operations that fit all of our criteria and leasing out the rest to other quality operators. We can't wait to combine our collective real estate investing experience that we have gained over decades of buying and leasing healthcare real estate to pursue investments that we haven't been set up for in the past, expanding into new states, partnering with other real estate buyers and offering tax efficient structures to real estate sellers.

Next, by keeping the REIT in house, we avoid triggering a significant tax event that would come along with a sale or a spin off. As we've said before, the tax free spin that we were able to do in the past is no longer available in this context. In addition, the REIT allows us to efficiently use the resources of the team we currently have in place. As real estate investors, we have a talented team of experienced professionals that are already performing much of the work that would be done by a separate real estate company, including due diligence, valuation, accounting, tax and legal work. Also with this structure, we not only create additional opportunities for our leaders, but we are also able to do so without incurring all of the extra expense related to creating a separate public entity.

Another benefit to this structure is the additional flexibility it gives us to raise and deploy capital. We are lucky to have an amazing group of lenders that have and continue to support our growth. This new structure doesn't contemplate or even require any significant surgery with our capital structure. However, this new structure does give us additional flexibility that we didn't have before and will allow us to strategically access capital markets with respect to our real estate business, independent of operations, while also allowing us the ability to use ownership units as a potential form of tax advantage consideration to sellers and new real estate acquisitions. Also unlike a transaction that involves a one time benefit to our stakeholders, the captive REIT and the accompanying third party valuations that we expect to include in our disclosures what will shine a brighter light on the enormous value that we have created and will continue to create in these and future assets.

As many of you that have been following us over the last few years have seen, we have recently separated our real estate business and the earnings it generates in our financial disclosures. This captive REIT and the strategy that accompanies it takes us one step further and will only help us demonstrate the contribution this portion of our story makes to our overall success. With all that said, with the help of our strategic advisors, this structure fully preserves the option to spin out this entity in the future without duplicating efforts. We have been very careful to preserve full optionality and nothing we are doing now will foreclose our ability to follow any number of additional steps in the future. We have no plan to do any of those things currently and are confident that this will benefit our shareholders the way it should.

But the point is we have the flexibility to do so. But most of all, by keeping our real estate company in house, we can ensure that we will retain the cultural connection between the real estate business and the most important part of our business, which is the care and service that occur on a daily basis in each operation. We are and always will be operators first and the health of each operation will be paramount in every deal we consider. As we seek to develop and consummate deals with other operators, we believe our unique position as operators and access to a world class service center will be a significant differentiator from other real estate investors. So 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 deployment of capital, 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.

As with any REIT, there are many tax and other legal and accounting steps that we are working through. But this process has been underway for many months and we are confident that we will be in a position to finalize the structure sometime in the first quarter of next year. Until then, we are and will continue to pursue acquisition opportunities and to deploy various strategies to grow our operational and real estate footprint, including new acquisitions, acquiring leased properties already operated by Ensign and exercising purchase options. To be clear, we will obviously still continue to lease new operations and 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 have added five new operations, including four operations in Texas, totaling four eighty nine beds and one operation in Idaho with 80 beds. And all of those are new long term triple net leases. We look forward to seeing each of these additions contribute to the success of their clusters and their markets as they implement proven Ensign operational and clinical principles. With these acquisitions, we've now added 17 operations to our organization during the year. This growth should illustrate our confidence and our ability to continue to perform both in the short run and most importantly over the long run.

We have been extra diligent to ensure that each new addition have the full support of a healthy market, a proven leadership plan and a clear pathway to strong clinical and financial performance. The pipeline for our typical turnaround opportunities, including real estate acquisitions and leases is strong and improving. We have several deals that we expect to close yet this year and also expect some additional opportunities to close early next year. As we mentioned in our release yesterday, we have significant capacity to grow with over $340,000,000 in available capital. In addition, we have 72 completely unlevered real estate assets.

We also continue to work on unlocking some equity value in a handful of our owned and unlevered real estate assets through long term fixed rate HUD debt. And with that, I'll turn the call back over to Barry. Barry?

Speaker 2

Thanks, Chad. We're very excited about the many new opportunities that this captive REIT will create for us. We're also very pleased to be able to introduce this from a position of great strength. Our service center team has already put a lot of work into the creation of this structure, but we are pleased that it has not caused any distraction to our operational performance, which speaks to the wisdom of our locally driven approach. Next, we'd like to highlight an example of the successes our local teams have had this quarter.

While external circumstances have been difficult, our affiliated operations continue to defy the odds and produce remarkable outcomes clinically, culturally and financially. Somerset Subacute and Care, a five star facility located in the highly competitive El Cajon area of San Diego, California is an excellent example. When the facility was acquired in 2015, it suffered from a poor reputation and struggled to maintain occupancy. After establishing strong clinical systems, CEO, Matt Uldroyd and COO, Christina Bailon met with providers and physicians and came to the consensus that Somerset could be the best in the market, providing subacute care to the community's most fragile and acute long term residents. Team has never wavered in their vision and systematically built relationships with key acute and pulmonology partners and added clinical enhancements such as twenty four hour physician staffing and an on-site pharmacy.

As their clinical results improved, so did the demand for their services. In 2019, the facility began the process of converting to 100% subacute beds. The results have been exceptional. Despite caring for a highly acute population, Somerset is one of the few skilled nursing facilities in the entire nation to experience zero COVID outbreaks and zero COVID related deaths. Like many of our affiliated facilities, Somerset embraced the COVID vaccines as soon as they became available.

And as a result, when the California vaccine mandate went into effect a few weeks ago, they had no staff terminations. As is typical, financial successes mirrored clinical excellence at Somerset. Last year, the facility experienced record occupancy and financial results in spite of the pandemic. Somerset continues to build on that already impressive performance. For example, in the recent quarter, occupancy increased from 91% to 93% from the prior year and skilled mix reached 99%.

As a result, overall revenue and EBIT have improved 2223% respectively compared to the third quarter of last year. Despite being acquired nearly seven years ago, Somerset continues to improve year after year and is an excellent example of the incredible upside potential that exists even in mature same store operations. We hope that this example is helpful in illustrating all 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?

Speaker 3

Thank you, Barry, good morning, everyone. Detailed financials for the quarter are contained in our 10 Q and press release filed yesterday. Some additional highlights for the quarter when compared to the prior quarter include: GAAP diluted earnings per share was $0.83 representing an increase of 8%. Adjusted diluted earnings per share was $0.91 an increase of 17%. Consolidated GAAP revenue and adjusted revenues were both $668,500,000 both increasing 12%.

Total Skilled Service segment income increased 11.4% to $94,400,000 FFO for the Real Estate segment was $13,800,000 which represents an increase of 6.5%. GAAP net income was $47,300,000 an increase of 10%. And adjusted net income was $51,800,000 an increase of 19%. Other key metrics as of September 30 include cash and cash equivalents of $304,600,000 cash flow from operations of $204,500,000 and $344,000,000 of availability on our revolving line of credit. We continue to delever our portfolio, achieving a lease adjusted net debt to EBITDAR ratio of 2.03 times.

We also own 95 assets, 72 of which are unlevered with significant equity value that provides us with even more liquidity. Also in our 10 Q, we announced that we have established a share buyback program with a maximum repurchase amount of $20,000,000 Given the stock's recent performance, our liquidity and our confidence in near and long term results, we believe this modest 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. Last week, the public health emergency was extended for another ninety days to 01/16/2022. With this extension, the federal government will continue to provide various waivers and FMAP funding.

However, Medicaid reimbursement and the timing of payments vary substantially by state. Currently, we anticipate two of the states in which we operate to continue to have approved funding. As we mentioned last quarter, suspension of the 2% sequestration continues through 12/31/2021. The suspension had and will continue to have a positive impact on our revenue depending upon how the pandemic affects our Medicare Census. We are raising our 2021 annual earnings guidance to $3.6 to $3.68 per diluted share and maintaining our revenue guidance of 2,620,000,000.00 to $2,690,000,000 The midpoint of this updated 2021 earnings guidance represents an increase of 16% over our 2020 results.

Our increased 2021 guidance is based on diluted weighted average common shares outstanding of approximately $57,400,000 a tax rate of 25%, inclusion of anticipated Medicare and Medicaid reimbursement rate increases net of provider tax and the recovery of the COVID-nineteen pandemic, with the primary exclusion coming from stock based compensation. Additionally, factors that could impact quarterly performance include variations in reimbursement systems, delays in changes in state budgets, seasonality in occupancy and skilled mix, the influence of the general economy on our census and staffing, short term impact of acquisition activities, variations in insurance accruals, the surge of COVID-nineteen and other factors. And with that, I'll turn the call back over to Barry. Barry?

Speaker 2

Thanks, Suzanne. I want to again thank you for joining us today and again express our appreciation to our shareholders for their confidence and support. And most importantly, we recognize the heroic efforts of our nurses and therapists and other frontline care providers who have courageously faced this pandemic and provided life enriching care to our residents and their family. And we're also appreciative to our colleagues here at the service center who are working tirelessly to support our operations and enabling us to succeed in spite of the great challenges that we faced. So thank you for making us better every day.

And with that, we'll turn it over to the Q and A portion of our call. Can you please instruct the audience on the Q and A procedure? Kevin?

Speaker 0

Our first question comes from Scott Fidel with Stephens.

Speaker 4

Hi, everyone. Good afternoon or morning. Wanted to start just with a question on some of the more recent occupancy trends that you've been seeing and in particular since the delta impact started to peak out really in sort of early to mid September. In our own sniff tracker that we have, we did see Ensign's occupancy starting to the growth starting to reaccelerate in the September. So just interested if you can talk to that and possibly give us an update on what you've been seeing on occupancy trends so far during October?

Speaker 2

Yes, that's right. I mean, I think at the height of

Speaker 1

the delta

Speaker 2

peak, certainly, we saw occupancy slow a little bit early in the quarter. But our experience is consistent with what you're tracking, Scott. And frankly, it weren't for some staffing challenges that we're facing, our pace would be even quicker right now because the demand is certainly there.

Speaker 4

Okay. Got it. And just on the staffing side, have one question there. Interested if you can maybe give us an update just on what you've been experiencing in some of your markets just as the vaccine mandates have been going into effect. Some of your large states already did implement the vaccine mandates.

So I think you've got some probably good sort of real time information on that. And then maybe how you're expecting the mandates to continue to impact staffing in some of the markets that have not are still moving towards implementation of the mandates?

Speaker 2

Yes. We have three states, Scott, that have implemented vaccine mandates so far: California, Colorado and Washington ahead of this federal mandate that's still not quite finalized. And we're really excited to report that we've seen about only about 0.5% of our employees that we've had to part ways with, which is a really small handful of people. And so look, we certainly, we don't expect that to be the case in every single state because there are some states that are more vaccine hesitant for sure. But I think it speaks to our culture and the care that our leadership team in the field has for the staff and their ability to help those folks reason through and see the importance of getting that done.

We've seen massive progress across our footprint with our employees in terms of our overall vaccination rate and that continues to rise by the week. And so we feel poised and pretty confident that we'll manage through this pretty well. And we certainly, I think we were a little more fearful in the beginning that it might have a bigger impact, but our experience so far indicates to us that we feel like we can mitigate that, some of the fear and concern that comes with it.

Speaker 4

Okay. Maybe I'll ask one more and then get in the queue. Just wanted to ask about the FMAP fundings that you've been able to recognize year to date in 2021 and how you're thinking about those funding streams continuing into FY 2022, just given obviously the PHEs have been getting extended. But interested also in just any conversations that you or your trade group may be having with policymakers around discussing further extensions of those type of supplemental Medicaid rates also just given the backdrop here around wage inflation in the industry and some of the headwinds the industry has been dealing with around that? Thanks.

Speaker 2

Yes, it's a great question. We I'll tackle the second part of that question first and I'll let Suzanne comment on the first part. We are working very closely with our healthcare association in Washington DC and their team of lobbyists and have feel like we're making really good progress in helping both the folks at CMS and then policymakers in Congress understand both the impact of COVID and how it's ongoing and then also how that relates to the additional challenge with staffing that not just our industry, but every industry is dealing with right now. And thankfully, I think there's a solid recognition by policymakers in DC and lawmakers on this front. And there are ongoing talks.

Think seeing the extension of the public health emergency is a function of those ongoing discussions. We certainly don't rely on and are trying to make sure that as an organization we're in a position where we're financially independent from additional help from the government. As you know, we've returned all of the CARES Act funds that have been provided to us. We do only lean on those state FMAP funds to the extent that they apply to actual COVID related expense. And the reality is, is we still experience a lot of COVID related expenses, both in supplies and labor.

And so we certainly feel like it's appropriate for the government to continue those state based programs through FMAP. And we feel pretty confident that there's a solid reception to that. But whether they're maintained or not, it's either going to have some short term pressure or but it will create a tremendous buying opportunity for us because we know most of our competitors really can't sustain without some ongoing help, even beyond FMAP. But anyway, I'll let Suzanne talk about what we've recognized so far.

Speaker 3

Yes. And we've disclosed that. As Barry mentioned, it's really what we're doing is we're matching those expenses and the revenue together. So for a COVID related expense, if the state does have FMAP revenues and funding, we're going to go ahead and recognize that. And so it's been about 16.5% to in this most recent quarter, a little bit higher than that, so about 19% for this most recent quarter, but on average between 16.519% a quarter.

And we'd expect that to continue to Q4. And then like we mentioned in the remarks, we have two states, Texas and California, our two largest states that have been very, very active and very, very supportive of ensuring that those FMAP dollars flow through to us. And so those two states, we definitely feel more confident about them continuing. And then we have some other states that have Arizona being one where it's a little bit more all in one lump sum that they do the funding, but they've also been very supportive in ensuring that a portion of the funding does come to us. And so those are some of our largest states, and we feel really good by our discussions with them that they're supportive to the extent that they have the funding that we're going to continue to see some of that come down to us.

Speaker 2

And that spike is obviously this last quarter corresponds with that really the peak in delta. I mean, it had a real impact on expenses in spite of not having as strong of an impact on censuses, we would have maybe expected it to have the had more expenses related to the actual. And also that just kind of speaks to the nature of the public health emergency. I mean, it hit a peak in this very recent quarter and we're not through it yet. So we expect some ongoing expense with COVID.

Speaker 5

Okay. Thank you.

Speaker 0

Our next question comes from Tayo Q with Stifel.

Speaker 5

Thank you. Good morning. Chad and Barry, I think you have talked about some of the additional growth opportunities the captive REIT may bring. Right now, as we look at the business, it's growing in the mid to high single digit in terms of revenue and FFO. Now with the structure finalized, could you give us an idea of how fast you could see this business growing in the next twelve months?

Should we expect it to be meaningfully faster given your comment about the larger deals you could do under this new structure?

Speaker 1

Tal, I'll take a shot at answering. So first of all, we are very opportunistic in our approach to acquisitions. I think we've talked about that before, but a lot of it depends on what happens the marketplace in terms of pricing and valuations. We're going to remain disciplined. And as I talked about making sure that the operations are very healthy, that there's plenty of cash flow there to support rents and all of those things are going to be paramount.

And so that's going to be the first thing that will determine how quickly we grow over the next sort of twelve months. And some of those things will be impacted, as Barry talked about, by some of this federal funding and other programs. So to the extent there are some of those things come to an end, I think that will accelerate our growth opportunities. The other thing I'll just say about our growth is we set kind of goals or targets. We just we want to remain very disciplined and stick to that path.

Now with all that said, we have some visibility into the next sort of quarter or two and we are seeing an increased number of deal opportunities. Even just in the last eight weeks, we've seen more deals coming to our desk than previously. And so we are gearing up for what we hope to be a good growth year on the acquisition front next year. But it would be really hard to kind of give you a percentage or any sort of specific targets.

Speaker 5

Got you. And maybe, if you could talk about your real estate relationship with some of the healthcare REITs, CareTrust and National Healthcare Investors and Sabra, who's that you just took over. Is it intention to kind of use mostly your own internal REIT for real estate acquisitions going forward? And also maybe talk about the opportunities to kind of take on more operations from the REIT owned properties that may be struggling now?

Speaker 1

Yes. So as I said in the script portion, we value those relationships highly. And the Sabra one, as you mentioned, is a brand new one. We've actually never done a lease with them before and hope that that deal will be the beginning of many more to come. And CareTrust, obviously, we've got a long history with them and two of the assets in this quarter were new leases with them.

So expect that relationship to continue to grow as well. Omega, NHI, LTC have all been great partners to us. Leasing will always be a part of our strategy. Sometimes leases can represent a really good way for us to finance our growth. And they have access to deals that we don't.

And again, as long as the deals are in line with kind of our criteria, we'll continue to do them. But that said, I think we've always been and they all know this, but we like to own real estate and we prefer to own it if we can. And particularly in some of the distressed assets, I think you'll see kind of a common theme there. To the extent we acquire the real estate, it's often a situation where there is no coverage, there is no EBITDA, it's sometimes even negative. And in those contexts, it's really hard to kind of structure thirty year leases.

And so in those instances, it makes a lot of sense for us to buy the real estate. So we look forward to continuing to work with them and we've done deals with all of them where sometimes we buy a portion and lease a portion and we think that this new REIT strategy will actually enhance our ability to work together. And so I think again, so just to summarize, we prefer to own where we can, especially in a distressed setting, but we'll continue to lease and expect that those relationships to remain strong.

Speaker 5

Okay, got you. And just one last item from me, it's more of a clarification question. On the balance sheet, I think that your long term borrowing increased by $29,000,000 this quarter. And I noticed that cash flow was quite strong this quarter and you had good availability on your revolver and the cash balance is high. Where do you see that additional capital being deployed?

Is that going to be acquisitions? Thanks.

Speaker 3

Yes. I mean, it's a great, great comment and thanks for asking. Obviously, cash is really high and we did close that HUD debt that we've been talking about for some time. As Chad mentioned, we have some really good opportunity for some acquisitions that we see on the immediate horizon as well as in coming quarters. And so really reloaded that out there.

And then as I mentioned in the remarks that we do have our repurchase program, stock repurchase program that goes into effect. And so kind of those avenues are our real focus.

Speaker 5

Great. Thank you. Congratulations.

Speaker 3

Thank you. Thanks.

Speaker 2

Thanks, Tal.

Speaker 0

Our next question comes from Frank Morgan with RBC Capital Markets.

Speaker 6

Good afternoon. A couple of questions here. I guess first on the growth in the managed care business that you're seeing. I just wanted to get clarification. I'm assuming that's mostly Medicare Advantage.

And is that mostly COVID related business and therefore part of a shorter term strategy? Or is this something part of a longer term program? That's my first question.

Speaker 2

No. Yes, certainly not COVID related. In fact, usually, when we see spikes in COVID, we would normally expect managed care growth to slow a little bit. But that it's I think it speaks to kind of our long term relationships that are continuing to flourish and just on programs we put in place with them and strengthening physicians in different markets, and we expect that to continue.

Speaker 3

And the vast majority is Medicare Advantage. So yes, you're right in having that assumption of where those relationships have grown through pandemic.

Speaker 6

Got you. And then, I think you mentioned in some of the prepared remarks or maybe in some of the earlier Q and A that you were limited to some degrees, occupancies were limited just by availability of staff. I'm just curious, is there any way you could quantify that like the number of your facilities where occupancy growth was capped by labor constraints?

Speaker 2

It's a really hard thing to do, Frank. So So to answer your question, no, we don't have a number. Mean, but we just you hear enough anecdotal kind of comments out there in the field about, hey, we gosh, we could have grown by more if we and as we're trying to develop and find more staff, we're hoping to make sure that we don't turn down admissions in the future. But the good news on the labor front is that we feel pretty strongly that our local strategies are working. And we're seeing an increase in the number of applicants, and that's kind of been a more recent phenomenon.

We're also seeing a larger number of student grads in our buildings due to some of our grassroot programs that we put into place that have been yielding more folks. And so a lot of the issues we're seeing on the labor front, we do feel like are transitory in nature and things that will resolve themselves over the next hopefully couple of quarters. But yes, in the very short term, at least in speaking about the quarter, we saw some pretty significant challenges in the early part of the quarter that now seem to be easing somewhat. And so we're excited about those recent changes.

Speaker 6

Got you. And just one more and I'll hop. When you look at your sort of major three buckets of labor RNs, LPNs and CNAs, Is it more skewed toward any particular group there? Is it that a wherever you're seeing the most pressure is that the hard I mean, you think of RNs and LPNs as more structural, but just any thoughts about how fixable the problem is if it is in fact one of these three, for example, if it's either RNs or CNAs or whatever, is that easier or harder to fix?

Speaker 2

It's all three for sure. But obviously, the bulk of our employees are CNAs, right? And those are the ones that are probably the easiest to fix because we can partner with or create our own CNA certification programs depending on the states that we're in. And we're doing that. And those efforts are bearing fruit.

We're spreading the knowledge that we're gaining in successful programs across our footprint and making meaningful gains there. But a little bit harder, licensed nurses, those are a little bit harder because they're either a two year or four year program. And we're competing with the hospitals and other health care providers for those folks. But even in those cases, look, our feeling is it probably corresponds with the recent ending of, at least in most geographies the federal unemployment the extended federal unemployment benefits. We are seeing an increase in candidates and we hope that trend continues.

Speaker 6

Okay. Thanks.

Speaker 2

Thanks, Frank. Thanks, And

Speaker 0

I'm not showing any further questions at this time. I'd like to turn the call to Barry for any closing remarks.

Speaker 2

Thank you, Kevin, and thanks, everyone, for joining us today.

Speaker 0

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.