Ensign Group, Inc Q3 FY2021 Earnings Call

Thank you for joining us for The Ensign Group, Inc. Third Quarter FY 2021 Earnings Conference Call. I will now hand the call over to Mr. Keetch.

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 5:00 p.m. Pacific on Friday, November 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, October 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 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. 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?

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-19 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 of 2020, 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 portfolio as we return 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 $3.60 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 $2.62 billion to $2.69 billion. 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. 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 continuing 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 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 October 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 health care 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 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 onetime benefit to our stakeholders, the captive REIT and the accompanying third-party valuations that we expect to include in our disclosures 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 advisers, 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 this 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 in 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 5 new operations, including 4 operations in Texas totaling 489 beds and 1 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 in 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 had 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 million 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?

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 does not cause any distractions 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 5-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 Oldroyd and COO Christina Bilon met with providers and physicians and came to a consensus that Somerset could be the best in the market, providing subacute care to the community's most fragile and acute long-term residents. The team has never wavered in their vision and systematically built relationships with key acute and pulmonology partners and added clinical enhancements such as 24-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% sub-acute 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 0 COVID outbreaks and 0 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 success has 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 22% and 23%, respectively compared to the third quarter of last year. Despite being acquired nearly 7 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 has helped when 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.

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 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 $668.5 million, both increasing 12%; total skilled services segment income increased 11.4% to $94.4 million; FFO for the real estate segment was $13.8 million, which represents an increase of 6.5%; GAAP net income was $47.3 million, an increase of 10%; and adjusted net income was $51.8 million, an increase of 19%. Other key metrics as of September 30 include: cash and cash equivalents of $304.6 million; cash flow from operations of $204.5 million; and $344 million of availability on our revolving line of credit. We continue to delever our portfolio, achieving a lease-adjusted net debt-to-EBITDA ratio of 2.03x. 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 million. 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 90 days to January 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 2 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 December 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 $3.60 to $3.68 per diluted share and maintaining our revenue guidance of $2.62 billion to $2.69 billion. 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 57.4 million; a tax rate of 25%; inclusion of anticipated Medicare and Medicaid reimbursement rate increases, net of provider tax; and the recovery of the COVID-19 pandemic, 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 and occupancy in 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-19 and other factors. And with that, I'll turn the call back over to Barry. Barry?

Thanks, Suzanne. We want again to 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&A portion of our call. Can you please instruct the audience on the Q&A procedure, Kevin?

Our first question comes from Scott Fidel of Stephens.

I wanted to start with a question about the recent occupancy trends you’ve been observing, particularly since the Delta impact began to decline in early to mid-September. According to our SNF tracker, we noticed that Ensign's occupancy growth began to pick up again in the latter half of September. Could you share your insights on that and provide an update on the occupancy trends you've seen so far in October?

Yes, that's correct. I believe that during the peak of Delta, we did notice occupancy slowing early in the quarter. However, our experience aligns with what you're observing, Scott. Honestly, if we weren't dealing with some staffing challenges, our rate of progress would be even faster right now, as the demand is definitely present.

Okay. I have a question about staffing. Can you provide an update on what you are experiencing in some of your markets as vaccine mandates are implemented? Some large states have already put these mandates into effect, so you likely have useful real-time information on this. Additionally, how do you anticipate these mandates will continue to affect staffing in markets that are still working towards implementation?

Yes, we have three states that have implemented vaccine mandates so far: California, Colorado, and Washington, ahead of the federal mandate, which is still not finalized. We are pleased to report that we've had to part ways with only about 0.5% of our employees, which is a very small number. We do not expect this to be the case in every state, as some states are more vaccine-hesitant. However, it reflects our culture and the commitment of our leadership team and staff to help employees understand the importance of vaccination. We've seen significant progress across our organization regarding our overall vaccination rate, which continues to increase each week. We feel prepared and confident that we will navigate this situation effectively. Initially, we were concerned that the impact might be greater, but our experience so far suggests we can alleviate some of the fear and concern around this issue.

Okay. Maybe I'll ask one more and then get in the queue. Just wanted to ask about the FMAP funding 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 PHCs have been getting extended. But interested also in just any conversations that you or your trade group may have 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.

Yes, that's a great question. I'll address the second part first, and then I'll let Suzanne discuss the first part. We are closely collaborating with our healthcare association in Washington, D.C., along with their lobbyists, and we believe we're making good progress in helping both CMS and Congress understand the ongoing impact of COVID and its relation to the staffing challenges faced by our industry, as well as others. Thankfully, policymakers in D.C. recognize this issue, and discussions are ongoing. The extension of the public health emergency seems to stem from these discussions. We aim to ensure that our organization remains financially independent from government assistance. We returned all the CARES Act funds we received and only utilize state FMAP funds as they pertain to COVID-related expenses. We are still incurring many COVID-related costs, including for supplies and labor. Therefore, we believe it's appropriate for the government to continue state-based programs through FMAP, and we feel confident that this will be well received. Whether or not these programs continue, it will create short-term pressure but also present significant opportunities for us, as many of our competitors may struggle without ongoing support beyond FMAP. Anyway, I'll let Suzanne share what we've learned so far.

Yes, we have disclosed that information. As Barry mentioned, we are aligning those expenses with the corresponding revenue. For expenses related to COVID, if the state has FMAP revenues and funding, we will recognize those. It has been approximately 16.5%, and in this recent quarter, it's a bit higher at around 19%, but generally averages between 16.5% and 19% each quarter. We anticipate this trend will continue into Q4. As noted in our remarks, Texas and California, our two largest states, have been very active and supportive in ensuring that FMAP dollars flow to us. We feel confident about their continued support. Additionally, while Arizona has a different funding model, they have also been supportive in allocating a portion of their funds to us. We are optimistic about our discussions with these key states regarding their commitment to provide us with this funding.

And that spike in expenses this last quarter corresponds with the peak in Delta. It significantly affected our costs, even though it didn't impact our census as strongly as we might have expected. We incurred more actual expenses, which reflects the nature of the public health emergency. We reached a peak in this recent quarter, and we are still dealing with it. Therefore, we anticipate ongoing expenses related to COVID.

Our next question comes from Tao Qiu with Stifel.

Chad and Barry, I think you have talked about some of the additional growth opportunities that 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 for the next 12 months? Should we expect it to be meaningfully faster given your comments about the larger deals you could do under this new structure?

Yes. I'll attempt to answer. First, we take a very opportunistic approach to acquisitions, as we've mentioned before. Much of this depends on the marketplace regarding pricing and valuations. We will remain disciplined, ensuring operations are healthy and that there is sufficient cash flow to support rents and other essential aspects. This will play a crucial role in determining our growth over the next 12 months. Factors like federal funding and other programs, as Barry mentioned, may influence some of these elements, and if certain initiatives conclude, it could enhance our growth opportunities. Regarding our growth strategy, we don't set specific goals or targets; we prefer to stay disciplined and on our established path. That being said, we do have some visibility into the coming quarter or two, and we are noticing an uptick in deal opportunities. In fact, over the past eight weeks, we've seen more deals than before. We are preparing for what we hope will be a strong growth year for acquisitions next year, but it's difficult to provide a precise percentage or specific targets at this time.

Got you. And maybe if you could talk about your real estate relationship with some of the healthcare REITs. Obviously, CareTrust and National Health Care Investors and Sabra, guys that you just took over, is it the 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 operation from the REIT-owned properties that are maybe struggling now?

We highly value our relationships with healthcare REITs. The partnership with Sabra is new for us, and we hope it marks the start of many more collaborations. We have a long-standing relationship with CareTrust, and two new leases were established with them this quarter, which indicates that we expect that partnership to grow. Omega, NHI, and LTC have also been excellent partners. Leasing will continue to be part of our strategy and can be an effective way for us to finance growth since they have access to deals that may not be available to us. As long as the deals meet our criteria, we will pursue them. However, we prefer to own real estate whenever possible, especially in situations involving distressed assets where there may be little to no coverage or negative EBITDA. In such cases, structuring long-term leases can be challenging, making it more sensible for us to acquire the real estate. We look forward to continuing our collaboration with these partners and have engaged in deals where we purchase a portion and lease another. We believe that our new REIT strategy will enhance these partnerships. To summarize, while we prefer ownership in distressed settings, we will continue to lease and maintain strong relationships with these REITs.

Okay. Got you. And just one last item from me. It's more of a clarification question. So on the balance sheet, I think that your long-term borrowing increased by $29 million 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?

Yes. I mean it's a great comment, and thanks for asking it. Obviously, our 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.

Congratulations.

Thank you.

Thanks, Tao.

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

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.

No, it is certainly not related to COVID. In fact, when we typically see increases in COVID cases, we wouldn't expect the growth in managed care to slow down. This situation reflects the strength of our long-term relationships which are thriving. Additionally, the programs we have implemented and our efforts to strengthen our positions in various markets will continue to drive this growth.

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

Got you. And then I think you mentioned in some of the prepared remarks or maybe in some of the earlier Q&A that you were limited to some degree, occupancies were limited just by the 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?

It's quite challenging, Frank. To answer your question, we don't have a specific number. We often hear anecdotal comments in the field suggesting that we could have grown more if we could develop and find more staff. Our goal is to ensure that we don't have to turn down admissions in the future. The good news on the labor front is that we believe our local strategies are effective, and we are seeing an increase in applicants, which is a recent trend. Additionally, we have more student graduates in our facilities due to some grassroots programs we've implemented that are yielding positive results. We think many of the labor issues we're experiencing are temporary and should resolve themselves over the next couple of quarters. However, in the short term, especially in the early part of this quarter, we faced significant challenges that now appear to be easing. We're optimistic about these recent changes.

Got you. And just one more and I'll hop. When you look at your major groups of labor, RNs, LPNs, and CNAs, is there a particular group that is more affected? Wherever you're seeing the most pressure, do you consider RNs and LPNs to be more of a structural issue? I would like to hear your thoughts on how fixable the problem is if it is indeed one of these three; for example, if it's RNs or CNAs, is it easier or harder to address?

It's all three, definitely. However, the majority of our employees are CNAs, which are likely the easiest to address since we can partner with or establish our own CNA certification programs based on the states we operate in. We are actively pursuing this, and our initiatives are yielding positive results. We're disseminating the knowledge gained from successful programs across our locations and making significant progress. The situation is somewhat more challenging for licensed nurses, as their training requires either a two-year or four-year program. We're also competing with hospitals and other healthcare providers for these individuals. Nevertheless, we believe this correlates with the recent conclusion of federal unemployment benefits in most areas. We are observing an uptick in candidates, and we are hopeful that this trend will persist.

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

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

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