Good day, ladies and gentlemen, and welcome to the Ensign Group, Inc. First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Greg Stapley, Executive Vice President and Secretary. Sir, you may begin.

Thanks, Tammy. Welcome, everybody, and thank you for joining us on the call today. Our 10-Q and press release resulting -- are highlighting key financial results and other developments for the quarter are both available on the Investor Relations section of our website at www.ensigngroup.net. A replay of this call will also be available there until 5:00 p.m. Pacific Time on Friday, May 25, 2012. Just a couple of housekeeping items as we start. 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 the call. Participants should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for more complete discussions of factors that could impact our results. Except as required by federal securities laws, Ensign does 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, any Ensign facility or business we may mention today is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References to the consolidated company and its assets and activities, as well as the use of terms like we, us, our and similar verbiage are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue or that any of the operations, the Service Center, the Home Health and Hospice businesses, the Urgent Care business or Captive Insurance Subsidiary are operated by the same entity. Finally, we supplement our GAAP reporting with non-GAAP metrics such as EBITDA, EBITDAR, adjusted net…

Thanks, Greg. Good morning, everyone. We hope our shareholders are as pleased and grateful as we are with the way our local operators have performed overall in what has probably been the most challenging operating environment for skilled nursing operators in at least a decade. Consolidated revenue in the first quarter was up 10.5% to an all-time high of $202 million. Consolidated skilled revenue grew more than 3% over last year and 9% sequentially to a record $92 million. Same-store occupancy grew by 44 basis points quarter-over-quarter and 169 basis points sequentially, to 83.6%, with same-store Medicare census up by 363 basis points over the prior-year quarter. And adjusted net income for the quarter was actually up 230 basis points over the same quarter last year, despite the October Medicare cuts and therapy rule changes, to $13.2 million, and we posted adjusted earnings of $0.61 per share, exceeding last year's performance and only falling $0.01 short of the all-time high set in the third quarter of 2011, the last quarter before those cuts and changes took effect. We are especially pleased to be reporting that adjusted earnings per share this quarter climbed 27% over the fourth quarter of 2011, providing tangible evidence of the tremendous focus our operational leaders and their teams have brought to bear in this challenging environment as they work through the process of mitigating the Medicare cuts and therapy rule changes. These operating results were not the product of any one major change or program, rather they were produced by empowered and competent local leaders changing a hundred little things over time in each of their individual operations to make a huge difference in the overall outcome. I'll talk more about some of those things in a moment. Even though we're pleased with the overall results,…

Sure. Thanks, Christopher. Briefly, we continued our steady growth on multiple fronts during the first quarter. We acquired the second skilled nursing facility in our successful Pocatello, Idaho market, with a very nice assisted living facility in Reno, Nevada, to complement our recent skilled nursing acquisition in that market. Our Home Health and Hospice business was busy as well, acquiring a small home health agency in the Portland, Oregon market, our first foray into Oregon, and a thriving Home Health and Hospice business with multiple agencies in Southern Utah and Northern Arizona. And our new urgent care joint venture, Immediate Clinic, announced the acquisition of Maryland-based Doctors Express, a national franchise of the urgent care industry, with 51 franchised locations to date and many more in the pipeline. These transactions brought our total portfolio to 104 facilities, 6 home healths and 4 hospice businesses in 11 states with 10,047 skilled beds, 1,776 assisted and independent living units and over 1,800 home health, hospice and private duty patients being served. Of the 104 facilities we operate, 79 are Ensign-owned and 58 of those are owned free of mortgage debt. We continue to seek compelling opportunities to spread the Ensign operating philosophy across the country, and we remain busy with additional acquisition growth and diversification prospects in the pipeline. We continue to carefully deploy our capital, and funds for growth do remain readily available. We expect to continue growing by acquisition in what promises to be an interesting year for our core industry. And with the substantial organic upside still excellent, not only in our newly acquired and transitioning buckets, but also in our same-store portfolio, we believe we can continue to grow our operating results regardless of what the acquisition pipeline might produce throughout the year. And with that, I'll hand it back to you, Christopher.

Thanks, Greg. It's not been easy to mitigate and neutralize the approximately $78 per day drop in our average daily same-store Medicare rate, initially produced by the October 1 changes, or the significant expense increased caused by the therapy changes that went into effect at the same time. Our same-store skilled revenue was still off by 5.1% in the quarter, but this, of course, is less than 1/2 the amount of the Medicare cut, at a real tribute to the same-store operators who contributed to those mitigation efforts. It was also offset by significant increases in skilled revenue at transitioning and recently acquired facilities, resulting in an increase in consolidated skilled revenue of 3.3%. We believe this demonstrates the strength inherent in our core business model of acquiring underperforming facilities at advantageous prices, building their skilled mix and turning them around. We've always placed tremendous value on the enormous organic upside that consistently exists in Ensign's transitioning and recently acquired portfolios, which typically average approximately 40% less skilled revenue mix than Ensign same-store facilities, especially following strong acquisition years like 2011. It's one reason why we are able to consistently perform year-after-year in spite of the broader marketplace. I would also mention, that notwithstanding the quarter-over-quarter decline in same-store skilled revenue, the same-store operations have shown March progress in mitigating the 11.1% cut to Medicare rate that took effect in October of 2011, with a skilled mix revenue increase of 6.8% sequentially over the last quarter of 2011, even with the decrease in Medicare lengths of stay during that quarter. It's also why we are able to report the consolidated adjusted net income for the quarter was actually up 230 basis points over the same quarter last year, before the cuts, to $13.2 million. In effect, our outstanding operators across…

Thank you, Christopher, and good morning, everyone. In August 2011, you may recall us indicating that the collective impact of the October 1, 2011 changes will be approximately $32 million on an annual basis, of which $28 million would be on loss revenue and approximately $4 million would be increased therapy costs. We also estimated that in our unique financial and operating structure, approximately 15% to 25% of those cuts and cost increases would actually drop to the bottom line. We are pleased to be reporting that the actual impact of adjusted consolidated net income for the first quarter was completely negated. The diluted adjusted earnings per share for the first quarter of 2012 were $0.61, compared to $0.60 in the prior year quarter and $0.48 in the immediately preceding quarter. These numbers incorporate the exclusion of expenses associated with our response to the DOJ matter, as well as normalized rent at cost recorded in connection with one operating lease, a facility that is not yet open and operating, but for which GAAP purposes require us to record this expense. We have dozens of operating facilities, which are undergoing substantial renovation activities, for which we fully incorporate all costs. We also excluded the net benefit of the lower-than-normal consolidated tax rates, which we normalize by increasing it to approximately 39%. And as always, we excluded acquisition-related costs and amortization costs related to intangible assets acquired. In other key metrics for the quarter, we are pleased to be recording consolidated net revenues for approximately $202.2 million, up 10.5%. Consolidated EBITDAR for the quarter climbed to a record $33.6 million, which is an increase of 3.9% compared to Q1 2011. In spite of the unprecedented Medicare cuts and changes in therapy regulations, which were increased therapy costs on October 1, it has…

Thanks, Suzanne, and thanks to everyone who has been on the call. We hope the discussion's helpful. We want you to know that we all remain very optimistic that Ensign will continue to perform, both clinically and financially, during this time of extraordinary change and opportunity. As always, I want to conclude by thanking our outstanding coworkers for their continued effort to make Ensign the best company in the health care industry. More importantly, we want to acknowledge again, the outstanding love and care they give daily to our residents. I'd also like to thank our dedicated service center team, who work tirelessly to support the field and help Ensign force ahead. I'd like to thank our shareholders again for your support and confidence. Tanya, if you would instruct the audience on the question-and-answer procedure.

[Operator Instructions] At this time, I'm not showing any questions from the phone lines, sir.

Okay. Well, again thank you very much for being on the call and we -- I think there is one question. Isn't there, Tammy?

Yes. I do see a question now. We have a question from Jim Bellessa of D.A. Davidson.

First of all, I heard that you may have a storm damage there in the narrative. What can you tell us about that? How many facilities were even damaged?

Well, seriously damaged, there were 2 and they're doing fine. Nobody was injured. Nobody was hurt, and they're recovering fine. But it -- those were 2 extraordinary facilities for us. They really dominated that market, and so it does have an impact on the second quarter. And Suzanne said, Jim, we will most likely recover essentially all of our costs, and we do have proper coverage there for business interruption and things. So we're confident that we'll be fine across the year. We just don't know what quarter that will all get resolved.

And what part of Texas and kind of weather damage was it? Was it a tornado?

No. It was just a very strong rainstorm flood. It's down in South Texas, down in the valley. And it was just very, very severe flooding. But there were no tornadoes or hurricanes or anything.

And then in the balance sheet, I see where the -- I can't get to my model at the moment because I've had a connection disruption. But given jump in shares after you reported this March 31 results, I saw in your proxy that the share count went up about 200,000 shares in 4 days. What causes it to jump into this 4-day period?

It wouldn't be a jump in 4 days. Maybe we can talk offline, Jim, like at what numbers are you looking at?

Actual shares outstanding 331 '12 versus what was reported in the proxy?

Let's just look at it offline, Jim.

[Operator Instructions]

Okay, Tammy, I appreciate the time, and thanks, everybody, for being on the call. And thanks for your time.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.