Ensign Group, Inc Q1 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to The Ensign Group, Inc. First Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference to your speaker today, Mr. Keetch.

Thank you, operator. Welcome everyone and thank you for joining us today. As always, before we begin, I have just a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investors Relations section of our website at www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 P.M. Pacific on Friday, June 5th, 2020. We want to remind anyone that may be listening to a replay of this call that all the statements are made as of today, May 12th, 2020 and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, 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 the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management, and other services to the other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly-owned captive insurance subsidiary, which we refer to as the Captive, provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers' compensation insurance liabilities. All of our operating subsidiaries, including the Service Center and the Captive are operated by separate wholly-owned independent companies that have their own management, employees and assets. References herein to Ensign or the consolidated company and its assets and activities as well as the use of terms we, us, our and similar terms used today 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 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 10-Q. And with that, I will turn the call over to Barry Port, our CEO.

Good morning everyone. Before I outline some of our operational metrics on behalf of all of our shareholders, patients and their families, I want to publicly thank our front-line teams for their heroism and dedication over the last several weeks. As an organization, the past few months have proven to be some of the most challenging times we faced, both clinically and operationally. During this unprecedented period, our ability to learn, collaborate, and adapt has been put to the test. Each of our leaders have spent day and night doing all they can to protect, treat, and comfort their patients and employees. We are in awe, as we witnessed them doing extraordinary things to go beyond the call to fulfill their duty in an incredibly compassionate and thoughtful way. We live in a time of 24-hour news cycles and social media, and at times, it can be hard to understand why more praise and admiration isn't heaped upon these leaders and caregivers that are on the front lines in post-acute and long-term care. Nevertheless, even though others might marginalize or even overlook the contributions of post-acute care, all of them deserve our gratitude and recognition for showing up on the front line every day to give their very best to their patients. We love you and are honored to be associated with each of you. Now, we want to provide you some details on the first quarter performance before we provide an update on the impact of COVID-19. As we stated in our release yesterday, the tremendous operational momentum we generated in 2019 continued into the first quarter of 2020. For the second quarter in a row, we achieved our highest earnings per share in our history of $0.77, an increase of 92.5% over the prior year quarter and an increase of 28.3% sequentially over a very strong fourth quarter. Our results in the first quarter came from an impressive quarter-over-quarter improvement in occupancy and skilled mix days across the same-store transitioning and newly acquired operations. Prior to COVID, we continued to see strength in occupancy, as the company hit its all-time high in consolidated occupancy in February. Starting in the last few weeks of March, we began to see a decline in occupancy and an increase in costs caused by COVID-19 and the resulting slowdown of normal patient traffic and the need for unprecedented use of personal protective equipment. While these occupancy declines and increased expenses are included in our results, we still substantially exceeded our own expectations for the quarter. We also want to make it clear that our results in the first quarter were not boosted by any stimulus funds or other positives on the reimbursement front. I'm sure you all agree that our quarterly results are something to celebrate. Given these unique circumstances, our focus this quarter will be to provide an update on the impact of COVID-19. We feel it's important to underline that this pandemic arrived at our doorsteps at a time when our organization has never been stronger clinically and financially. As we told you last quarter, we saw significant bottom-line improvement in all 21 of our markets at the end of the fourth quarter of last year, including some of our newer markets and yet we achieved 28.3% sequential improvement over that record-breaking fourth quarter. Let us remind you that Ensign was born in times much like these and our model is not only designed to survive, but to thrive and grow in the face of uncertainty. Our current health combined with our culture, proven local leadership strategy, healthy balance sheet and the enormous potential in our newly acquired transitioning and same-store operations gives us confidence that we are well-positioned to manage through these unusual times and to rebound to our pre-COVID health. Each of our local leaders have been actively adapting to the rapidly evolving COVID-19 environment, as they continue to provide the highest level of care to their patients. As you might expect, similar to what the whole country is experiencing, the impact is varied by market and building by building. Overall, our portfolio is not being overwhelmed by COVID-19. As we mentioned in our release yesterday, as of May 8th, 2020, the Company's 225 affiliated operations across 13 states have 355 confirmed COVID-19 patients in-house. Also, as of May 8th, seven operations had over 20 COVID-19 positive cases, 25 operations had less than 20 cases and 193 operations had no confirmed cases of COVID-19. As testing continues to become more available, we expect the number of known cases to continue to rise during the second quarter, but we believe we are prepared to operate in the COVID environment for the foreseeable future. We started to see occupancies decline in the latter half of March, due to governmental stay-at-home orders, a pause on vital procedures and overall lower hospital occupancies, all of which directly impact patient referrals coming into the post-acute setting. More specifically, between mid-March and mid-April, combined same-store and transitioning occupancy was down 5.2% and skilled mix was down by 11.8%. Between mid-April and early May, combined same-store and transitioning occupancy was down by an additional 1.7% and skilled mix actually improved by 13.6%, respectively, as these numbers demonstrate the rate of decline in occupancy slowed by approximately 40% over the last several weeks. Also, a recent boost in skilled mix was partially due to CMS' waiver of the three-day qualifying stay and special arrangements with our Managed Care partners. This recovery in skilled mix over the last few weeks, together with the flattening of the occupancy declines, demonstrates continued partnership with the healthcare community. And as those that have been following us through our history know, when we experience an increase in skilled mix, it is invariably followed by an increase in overall occupancy. The organization has taken numerous actions over the course of the past several weeks to provide the safest possible environment for its employees, affiliated physicians and patients and have been preparing for the potential and in a few cases, an actual surge of COVID patients. With the assistance of the Service Center, they've also been successful in acquiring PPE, acquiring testing solutions, and other supplies and equipment. They have implemented staff retention initiatives tailored to the unique environment of the various markets and the Service Center and field resources are providing training and helping to establish clinical protocols and safety measures in an ever-changing regulatory environment. To mitigate the impact of volume reductions in our operations, we have also taken steps to enhance our operational and financial flexibility and redirect resources to critical operations. Simultaneously, we took actions to increase liquidity and deferred capital spend and other costs that could be delayed without impacting our delivery of care. The organization has implemented certain cost reduction initiatives, which included the voluntary reduction in base salaries by the Board of Directors, the executive team and other key organizational leaders. The Company's response plan has multiple facets and continues to evolve as the pandemic unfolds. As we've said today, we've seen and expect to continue to see a significant impact from the pandemic on the second quarter and carrying into the third quarter, but we are seeing signs of stabilization in occupancy in many of our markets and we are optimistic that occupancies will continue to recover in the second half of the year, as hospitals reopen and vital elective procedures that have been delayed begin to take place. We are maintaining our 2020 annual earnings guidance of $2.50 to $2.58 per diluted share and annual revenue guidance of $2.42 billion to $2.45 billion. We are confident that we can provide this guidance for several reasons, including our better than expected results for the first quarter which under normal circumstances would have led to an increase in guidance. The implementation of certain cost reduction initiatives and the positive news on both reimbursement stimulus funding are also other factors. While the pathway to achieving these results will differ significantly from what we originally planned and the quarterly cadence has changed, we are confident that we are well-positioned to regain much of our pre-COVID momentum, as the flow of patients continues to normalize over time. As the year progresses, we will continue to evaluate the impact of COVID-19 across the portfolio and we will readjust if necessary.

Thank you, Barry. The company paid a quarterly cash dividend of $0.05 per share of Ensign common stock. Due to our strong liquidity, we were pleased to continue our long-standing practice of paying a dividend to shareholders. Ensign has been a dividend-paying company since 2002 and there are no current plans to suspend future dividends. Also during the quarter, we announced four acquisitions, including one skilled nursing operation and one independent living operation that are part of a healthcare campus both in San Antonio, Texas, and two skilled nursing operations in Colorado. We were very pleased that we were able to add these four operations to the portfolio well in advance of the COVID-related access restrictions, allowing us to successfully complete our multifaceted transitions. We are happy to report that all four of these operations are doing well. We have several deals in the pipeline that we halted temporarily, as we responded to the COVID threat. A few of these deals are slated to close sometime this summer, while others will require a fresh look when the dust from the pandemic settles. With these additions, our growing portfolio is now comprised of 225 skilled nursing operations, 23 of which include senior living operations and other ancillary businesses across 14 states. And Ensign now owns 92 real estate assets, 62 of which we operate. This portfolio of owned assets took less than five years to build as compared to the 15 years it took to acquire the 94 assets we spun out to CTRE when it was founded in 2014. Through all the changes that are happening, we continue to evaluate many opportunities. We anticipate that there will be a significant influx of older and newer deals that come out of this pandemic as we slowly begin to return to our pre-COVID plans. While we are always very selective with each potential acquisition opportunity and pass on the majority of the opportunities that are presented to us, we will be even more selective over the next few quarters. That is because not only is it extremely tricky to underwrite ideal at this time, but we also believe that there will be some very, very attractive turnarounds on the horizon and we want to be sure we are choosing the best available opportunities. As an aside, we want to remind you that our disciplined approach to acquisitions is not just focused on maximizing the return on our investments, but it's also an excellent buffer when there are pressures on occupancies. Our approach to underwriting all of our opportunities is to pay fair and reasonable prices that are based on historical performance, not on a pro forma or future results that we will create through our performance. And as most of you know, the operations we acquire tend to start out with lower occupancies and the price we pay reflects that lower occupancy. So, when occupancies go down like they did in March, we have plenty of cushion built into our model. Similarly, our insistence on entering into leases with healthy coverage is hugely important, as we are able to weather these storms without looming coverage problems that we expect many other operators are experiencing. Lastly, we continue to methodically add value to our real estate portfolio. Suzanne will give more details around our liquidity, but we currently own 72 real estate assets that are completely unlevered. Many of these assets have been operated by an Ensign affiliate for long enough that they have built up significant equity value that we can unlock to fund the upcoming wave of very attractive acquisitions. We are constantly evaluating our options, which include taking a small handful of those properties to HUD for mortgage financing.

Thanks, Chad. We have learned a great deal through this process and our local leaders are now shifting their focus to a comprehensive recovery effort in each of their markets. This includes proactively preparing for and executing on plans to provide care for all patient types, whether COVID positive, negative or unknown. These efforts vary building-to-building and market-to-market and are being done in partnership with local and state public health officials to ensure compliance with infection control protocols and the comprehensive recommendations provided by the CDC and other public health authorities. Some of these efforts have involved an entire building. In other situations, it's a dedicated unit or floor of the facility. In one example, City Creek Post Acute led by Executive Director, Jared MacDonald and Director of Nursing, Ana Moakley entered into a unique agreement with the State of Utah. At the urging of local hospitals that were seeking to prepare for a wave of COVID patients, the state sought out our support in Salt Lake County to dedicate an operation to the care of COVID-positive patients. Jared and Ana, along with market leadership and market resources, began to build a clinical and operational plan that would allow City Creek to become a solution for the surrounding hospitals. This detailed plan required extensive preparation to ensure that there was adequate PPE on hand for the staff, a detailed staffing plan, and proper infection control protocols along with many other operational details. Through the entire process, the operation worked hand-in-hand with local health officials and the hospitals to ensure the proper transfer and care and safety of both patients and employees. The state entered into a unique payment agreement with us, allowing City Creek to cover their expenses during this temporary arrangement and function as a vital resource for the community. To-date, this operation has accepted dozens of patients and has already successfully transitioned many of them to home. In another example, Desert Blossom Health and Rehabilitation signed an initial wave of COVID positive cases in early April. However, CEO, Scott Petty and Director of Nursing, Andrew Francis were prepared. After confirmation of these positive cases, leadership quickly put admissions on hold to help ensure safety and allow for control of the spread of the infection. The team also implemented a communication plan for families, so that they would have daily updates on the status of their family member. They utilized technology to allow patients to connect virtually with loved ones. The team executed a thoughtfully prepared plan to establish their dedicated COVID unit that includes physical barriers, staff and patient separation, unit-specific transmission based precautions, enhanced clinical oversight, and effective disinfection protocols, all the while working in lockstep with their county health department to implement these procedures to actively manage the infection in their COVID unit and the rest of their facility. After the initial execution of their plan, they were able to pivot and become an important resource to the surrounding area, partnering with their strategic Managed Care partners and hospital community to accept the recovering COVID-positive patients. Even though the onset of the outbreak caused a sharp decline in occupancy, because they were able to successfully carry out their comprehensive plan, occupancies quickly returned to pre-COVID levels and they were not only able to successfully treat COVID-positive patients in the recovery unit, but help many of them to heal and in many cases, return home. And they continue to actively treat COVID-positive patients with great success. In each of these examples, the operations have reinforced their position in the market as an operation with the team of caregivers that are second to none. The patients and families they served are forever grateful for their willingness to take care of them at a time when it would have been easy to simply pass them along to someone else to handle. These, of course, are just a few examples of the heroism that is occurring in our organization every day and there are many more just like this. Our teams have shown tremendous flexibility in adapting to this new environment and continue to lead with solutions in each of their respective markets. It really is in times like these that Ensign's unique operating model really shines. Our leadership and our operational model are the reasons why we have adapted and will continue to adapt during this unprecedented time. Rather than attempting to roll out a one-size-fits-all approach across many markets with varying local restrictions, our CEO-caliber leaders and their clinical partners with the support of a world-class service center are very carefully working with local governments, hospitals and their Managed Care partners to be a solution to this pandemic. As hospitals begin to methodically resume vital procedures and to reopen, our teams will be ready to admit the many, many patients that have been waiting in the wings and are in need of post-acute care, all while working within the framework of COVID-19 protocols.

Thank you, Barry and 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 include, consolidated GAAP net income was $41 million, an increase of 90% over the prior year quarter. Adjusted net income was $43 million, an increase of 93% from the prior year quarter. Consolidated GAAP revenues were $590 million, an increase of 25% over the prior year quarter. Same-store occupancy was 80.1%, an increase of 28 basis points over the prior year, and same-store skilled Managed Care and Medicare revenue was up 11% and 13% respectively. Transitioning occupancy was 82.7%, an increase of 496 basis points over the prior year, and transitioning skilled and Managed Care and Medicare revenue was up 32% and 14%, respectively. Cash generated from operations was $27 million and free cash flow was $11 million. The company's liquidity remains strong. And as of May 1st, we have cash and cash equivalents of approximately $50 million and $235 million of available capacity on our revolving credit facility. As Chad mentioned, we also have 72 unlevered real estate assets and have identified a handful of properties with significant equity value that will allow us to add even more liquidity. In March 2020, the federal government began to undertake numerous legislative and regulatory initiatives designed to provide relief to healthcare providers during the COVID pandemic, including waiving the three-day qualifying stay, the CARES Act, special relief funding and an Accelerated and Advanced Payment Program for Medicare. Through May 1st, 2020, the company has received approximately $40 million of grant aid under the CARES Act. In addition, we received a loan of approximately $100 million from the Medicare Accelerated Payment Program, which will have to be repaid in August of 2020. In addition, the CARES Act temporarily suspends the automatic 2% reduction of the Medicare claims reimbursement, otherwise known as sequestration, for the period of May 1st, 2020 through December 31st, 2020. The suspension of sequestration will have a positive impact on our revenue, but the magnitude of the positive impact will depend upon the continued impact of the virus on our Medicare centers through the remainder of the year. The federal government has also increased the Federal Medical Assistance Percentage known as FMAP by 6.2%. The FMAP increase will terminate at the end of the quarter when the national emergency status is lifted. The temporary increase in FMAP will have a varied impact on our Medicaid rates by state, but for the states in which we operate have already approved increases and we expect several others to do so as well. As Barry mentioned, we maintained our previously announced 2020 annual guidance of between $2.50 and $2.58 per diluted share and revenue between $2.42 billion and $2.45 billion. In addition, this 2020 guidance represents an increase of 30.3% of our 2019 spin adjusted results. Our 2020 guidance is based on diluted weighted average common shares outstanding of approximately 57.6 million, a tax rate of approximately 25%, the inclusion of acquisitions expected to close in the first half of the year, the exclusion of losses associated with start-up costs and other operations that are not yet stabilized, and the inclusion of anticipated Medicare and Medicaid reimbursement rates, net of provider tax, with the 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 in occupancy and skilled mix, the influence of the general economy on census and staffing, the short-term impact of our acquisition activities, variations in insurance accruals, the resurgence of COVID pandemic, and other factors.

Thanks Suzanne. Before we move on to questions, we just want to remind you again that this isn't the first time we faced adversity like we have in front of us. Whether it was in the changes in the early days of our formation when some of the most experienced and respected names in the industry were filing for bankruptcy, the aftermath of RUGs IV reimbursement reductions, the increased costs and decrease in revenues resulting from the two public company spin off with CTRE or the devastation left in the wake of hurricanes, floods or fires, our Ensign leaders have proven over and over again that our model uniquely positions us to take clear and swift strategic action in each market they serve. Our optimism expressed today is based entirely on our confidence in our local teams and our proven model. Our success has and will always be due to their daily commitment and sacrifice and their ownership of our culture and organizational mission. We're grateful to our shareholders and your confidence and support. We can't adequately express our appreciation to our colleagues in the field and the Service Center, especially our front-line staff, our nurses, CNAs, and housekeepers, and all of those who are showing up every day to do remarkable work. Thank you for making us better. And with that, we'll turn the call over to the Q&A portion of our call. Joelle, can you please instruct the audience on the Q&A procedure.

Good afternoon. Let's begin with the guidance. Could you provide more detail on the timing? It seems like the second and third quarters may be a bit uneven and you mentioned it wouldn't follow the usual pattern. Does this include the potential deals you mentioned? Also, will the $40 million be recognized as a mechanical item or just a direct revenue flow? Let's start there, and I have a few more questions.

Thanks, Frank. I'll let Suzanne discuss the CARES funding. Regarding the cadence, you're asking about expectations for census and recovery, which are challenging to predict. Based on our observations in the second quarter, we experienced steady declines up until about three to four weeks ago. Currently, our census has remained relatively stable throughout the week, although we still see declines on the weekends. This last weekend marked the first time we maintained flat occupancy both during the week and the weekend. While I'm focusing on a specific point in time, the pace of decline has significantly decreased in recent weeks. Compared to some of our peers, we have been fortunate to see a substantial decrease in that pace. Our skilled mix has increased significantly during this time, partly due to the three-day stay waiver with Medicare, agreements with our Managed Care partners, and the resumption of vital elective procedures in various markets. This gives us confidence that we may continue to experience some decline into the second quarter, which could extend into the third quarter as well. However, we perceive strong pent-up demand, particularly for patients awaiting essential elective procedures. I anticipate that our typical summer slowdown may not be as pronounced this year. There is some uncertainty in these projections, but we believe that the pent-up demand will help us return to a more normal pace, even if the slowdown persists into the third quarter. It's important to emphasize that our focus remains on adapting to the COVID environment. We are making significant adjustments in how patients transition from acute to post-acute settings, including changes in testing and how we manage and place patients in observation units until they are confirmed to be infection-free. These adjustments are all part of a comprehensive plan our team has been working on for many weeks and months to ensure we are prepared for any nuances that may arise and to minimize the risk of resurgence. You inquired about deals and whether they are included in our guidance. Currently, we have no pending deals that would affect the guidance provided. Suzanne, would you like to discuss the CARES Act funding?

Yes, certainly. Regarding the CARES Act funding, it will serve as an offset for either lost revenues or additional expenses. The timing of when we recognize that revenue will depend on when those lost revenues and expenses occur. They are closely linked, and if we do not experience lost revenues or expenses, we will not have the funding, so it balances out when we conduct the analysis.

Okay. Conceptually, it seems that your third quarter is typically your lowest quarter for earnings. Given the situation in the second quarter, it appears that this year, the second quarter may end up being the lowest. If we are fortunate enough to see a continued recovery, we might expect an improvement in the third quarter and then further gains in the fourth quarter. Is that an accurate way to view the situation?

Yes, I think so, Frank. I think that's how we're thinking about it.

Okay. Regarding the sequester, I know you didn't provide a specific number, but many have estimated it based on historical levels. Can you share any numbers from a historical perspective regarding what that would represent in Medicare revenue and the potential benefits?

Yes. Obviously, Frank, it depends on how many Medicare patients we have in-house. I think between $4 million and $5 million is what we're estimating.

Got you. And then on the cash benefits from the CARES Act, you didn't mention the payroll tax deferral. Is that a big item? I mean that one, we get the pay back over a longer period of time than the advanced payment. So, is that another possibility of the liquidity?

On the liquidity front, there are several components. We have an advance payment of approximately $100 million scheduled for repayment in August. Additionally, we are deferring two types of taxes: the payroll tax deferral, which amounts to around $40 million, will be deferred 50% until December 2021 and the remaining 50% until December 2022. There's also a federal tax deferral of about $25 million that will be deferred until July. Overall, we are looking at around $165 million in total deferrals.

Got you. You mentioned the FMAP and expressed hope for some rate increases to come through. Are there specific states you would highlight in terms of significance? Do these states represent areas where you have substantial exposure, and what kind of impact are we looking at?

Yes, definitely. Right now, obviously, this is a process that will continue over time. People are pretty early in the finalization of the FMAP. Currently we had Arizona, Utah, Washington and South Carolina who have their first, what I would call, the first round of what we think will be final for us, but this could continue to change. Those are the four states where we feel pretty confident about what we're going to be able to get.

Okay. For my last question, Barry, you mentioned the improvement in skilled mix with the return of elective procedures. I've noticed Texas has clearly made progress. Have you observed a significant impact in that state, or are there other states you would like to highlight? Thank you.

Yes, no. Thanks, Frank, good questions. Yes, it's really sporadic. Texas is certainly one of those where we're starting to see the electives start again, but there are other states that have kind of informally loosened their ability for folks to go in and do vital procedures, but Texas is probably the main one. I think others will follow soon.

Hi, thanks and good afternoon everyone. First question, just wanted to attack on the CARES and just interested if you're getting any additional visibility in terms of some of the additional grant funds that are still to be allotted and then specifically, just given your Medicaid exposure, whether you're hearing anything from CMS in terms of allocating funds more directly to Medicaid providers? I know that CMS has been surveying for Medicaid building information, etc., from providers. So, interested if you'd be getting any feedback there.

Yes, there is certainly a lot of additional information being shared about extra funding for providers who need it. As you mentioned regarding Medicaid-only, our facilities are gathering data. Additionally, those facilities that have been impacted more severely are also exploring the possibility of receiving extra funding. Furthermore, there is the CARES Round 3 Act, which involves grant funding that we may participate in. However, we need some more clarity before we can finalize those applications for Round 1 and 2 of the CARES Act. There is also the possibility of additional funding, as we noted for the states we have for FMAP. Right now, we only have clarity on about four states, while several others are still working on their plans and additional funding strategies.

Got it. I understand there are many factors affecting the second quarter and I appreciate the insights you've shared regarding census and volume trends. I'm curious if you could provide any information on the additional costs you're facing, whether due to PPE or the new protocols established at your facilities. I know that all these costs were included in your reported adjusted results in the first quarter, so I would also like to know if you were able to estimate the incremental COVID-related costs you incurred during that period.

Yes, I believe as expected, the largest increases in costs were related to wages and supplies. Specifically, when I refer to supplies, I'm talking about nursing patient supplies, which usually account for about 1.3% of our revenue. There's an increase of about one percentage point in revenue when spread over the quarter, which means it rose from 1.3% to 2.3%. Regarding wages, we saw an increase of about 1.5% of revenue, leading to a total increase of approximately 2.5% in revenue. This will fluctuate based on the performance of individual locations, but that's the average we observed during the first quarter and into April.

Got it, that's helpful. Thanks Suzanne. I have one last question for you. Do you have any insights on why the transitioning portfolio had higher occupancy than usual in the first quarter, even surpassing the same-store portfolio? I'm just looking for any details on that, and that's all from me.

Thank you, Scott. I can address that. We refresh those categories annually, which reflects the quality of the transitions we've implemented. The process of transitioning these operations is complex, and over the past couple of years, we experienced some inefficiencies that didn't meet our standards. However, we've significantly improved our transition processes. The increased effectiveness you're observing in the transitioning category stems from selecting the right deals and acquiring buildings with higher occupancy rates than usual, as well as excelling in the transition itself. This success is linked to our strong performance across all 21 markets, driven by local leaders who know how to prioritize clinical issues, which ultimately leads to improved occupancy rates. That's the essence of what we're seeing in that area.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Barry Port for closing remarks.

Thanks again Joelle and thanks all of you who joined us in the call today. We're grateful for your support and have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.