Good day, ladies and gentlemen, and welcome to The Ensign Group Third Quarter Fiscal Year 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. Sir, you may begin.

Thanks, Sam. And welcome, everybody, and thank you for being on the call today. We filed our 10-Q and accompanying press release for the quarter yesterday. Both are available on the Investor Relations portion of our website at www.ensigngroup.net. A replay of this call will also be available at that location on the web until 5:00 p.m. Pacific on Friday, November 23. We always start our call with a few housekeeping matters. First, 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. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for more complete discussion 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 our captive insurance subsidiary are operated by the same entity. Also, we supplement our GAAP reporting with non-GAAP metrics, such as EBITDA, EBITDAR, adjusted net income and so forth. When viewed together with our GAAP results, these measures can provide a more complete understanding of our business. They should not be relied upon to the exclusion of GAAP financial measures. A reconciliation of these measures to GAAP is available in yesterday's press release. Finally, we customarily take a moment to update you on the DOJ civil investigation that has been ongoing since 2006. We continue to interact with government representatives to advance the matter toward resolution, but have no material change in status to report at this time. As always, we cannot predict the possible outcome of the investigation, the resolution process, or any litigation that might yet follow. But we look hopefully toward the prospect of additional progress in the months ahead. And with that, I will turn it over to Christopher Christensen, our President and CEO, to get the call started. Christopher?

Thanks, Greg. Good morning, everyone. The third quarter is traditionally our softest and least predicable quarter, so we were pleased to be able to complete our first full year since the 2011 Medicare cuts with increases in earnings occupancy and other key areas for the quarter and especially, to have fought our way back to where we were 1 year ago, with adjusted earnings of $0.62 per share. Much more importantly, we're gratified by the efforts of everyone in the organization, who really dug in to make up the ground lost with the cuts and therapy rule changes that took effect in the fourth quarter of 2011. In addition, we saw encouraging performance in our growing home health and hospice agencies, significant leads in our small but promising subacute operations and dozens of other improvements that all came together to produce another solid quarter, with consolidated net income up 14.6% to a record $13.3 million, same-store occupancy up 35 basis points to 82.2% and consolidated EBITDAR up to a record $34.4 million. Perhaps more importantly, even though we only saw modest increases in skilled nursing occupancy, both same-store and consolidated, we believe that in doing so, we have captured a larger share of recently shrinking market and are well positioned to continue our gains. Our operators and their teams have fully internalized the ideal that the future will belong to sophisticated and dedicated operators, who consistently produce superior clinical outcomes and help their doctors, hospitals and other providers along the continuum of care to be successful as well. We also believe that with the technology, the tools and the systems we've developed, we can lead the industry in clinical performance market by market. We see multiple opportunities to extend and diversify our service offerings and have done so with our Home Health, Hospice and subacute businesses, all of which are performing well. But in the end, we know that the one factor that will always be the key to success is having the very best people possible in each facility and agency, and we do. We extend our heartfelt thanks and give full credit to our local operators and clinical leaders, who have performed spectacularly well in a very rough operating environment this past year. With that, I'll have Greg briefly discuss our recent and planned growth. Greg?

Thanks, Christopher. On the acquisition front, we spent Q3 solidifying our asset base with the acquisition of a well-regarded skilled nursing facility and another very nice skilled and assisted campus, both in Idaho, which together were mildly profitable acquisition. We also exercised long-held fixed price purchase options on 3 of our existing leased facilities in Southern California. Buying these assets not only effectively freezes most of our occupancy costs in those properties, but it also allows us to capture the equity value that we've steadily built in those properties over the past 10 years, which we can use to finance future growth and improvements. Together, these transactions brought our total portfolio to 107 facilities, 6 home health and 4 hospice companies in 11 states, with 10,291 skilled beds, 1,799 assisted and independent living units, and a daily average of around 600 home health and 200 hospice patients. Of the 100 facilities we operate, 85 are now Ensign-owned, and 64 of those are owned free of any mortgage debt. And just by way of update on the urgent care business, we did open our first 2 urgent care locations in the Seattle market in September, and we have several more now in the pipeline. While we expect these early locations to dilute our earnings slightly this year, we anticipate that these private locations will be accretive during the course of 2013. We do continue to see compelling opportunities to spread the Ensign operating philosophy across the country, and we have additional acquisition growth and diversification prospects in the pipeline. We continue to generate strong free cash flow. We have tremendous untapped equity on our real estate portfolio that we can use to access inexpensive growth capital, and we have maintained a very strong balance sheet that leaves the growth landscape wide open for us if, as and when we see compelling acquisition opportunities. And with that I will hand it back to Christopher.

Thanks, Greg. As we mentioned before, operating against the constant headwinds imposed by the constant changes in the regulatory and reimbursement landscape requires constant effort and constant adjustment. The kinds of acquisitions -- excuse me, the kind of adjustments needed are seldom uniform or easy, but instead are as numerous and varied as the facilities and markets in which we operate. For this reason our operating structure relies heavily on having superior local leaders at each operation in each market, who are both equipped and empowered to assemble the best teams available and to quickly make the changes and innovations that our unique markets and situations require. The value of this local-leadership-centric structure has never been more evident than in the past 4 quarters, as we have fought our way back while the broader industry has struggled to recover from the October 2011 Medicare cuts and therapy rule changes. Reimbursement cuts were not the whole story. With pressure on the number of available Medicare patients and days coming from Medicare Advantage and changes in the way hospitals manage patient flow, it has become increasingly important for our local leaders to gain market share and increase skilled volumes. To do this, they've had to find additional ways to connect with their hospitals, local physicians and other referral sources in their local medical communities. But, and this is important, not all of these talented leaders get there through the same path. For example, at River's Edge health and rehab in Emmett, Idaho, Executive Director, Doug Bodily; along with Director of Nursing, Margaret Williams; and Director of Rehab, Steve Balle; reached out to their community in a way we've never seen before. As they look for ways to foster improved relationships in the medical community, they realized that they had an enormous resource…

Thank you, Christopher, and good morning, everyone. Our mitigation efforts with respect to last year's Medicare cuts and therapy rule changes came full circle this quarter. We are pleased to be reporting adjusted non-GAAP earnings of $0.62, which matches the third quarter of 2011 despite the 11% Medicare cut that took effect in the fourth quarter of last year. As always, we provide a reconciliation of GAAP to non-GAAP results in yesterday's press release, and there were no new or different adjustments than what you've seen in previous quarters. In reviewing the strength of our financial position for the 9 months ended September 30, cash and cash equivalents at the quarter end were $32 million. The company generated net cash from operations of $51.6 million. Free cash flow for the 12 months ended September 30 was $32.6 million. This number was impacted by aggressive CapEx and renovation projects to update our real estate portfolio, implement new technologies and other factors. Overall, we are pleased with how our operations have performed now through 4 full quarters since the Medicare cuts and therapy changes. The discipline we have developed on the cost side has served us well. In addition, we appear to be growing market share in key areas. We also note that we still have a sizable portion of portfolio, about 40%, in the recently acquired and transition bucket, meaning not only that consolidated results were achieved despite the downward pull of these still-maturing operations, but also that we have substantial organic upside built into our portfolio, even if we should elect to take a break from acquisitions for a while. Looking forward, we believe that our unique operating structure positions us well to be -- positions us well to successfully navigate the ever-shifting landscape that is the post-acute care industry.…

Thanks, Suzanne. Thanks to everyone who's been on the call. We hope the discussion is helpful. As always, I want to conclude by thanking our outstanding partners in the field, at the service center and across the entire organization for their continued efforts to make Ensign the best company in the health care industry. We'd like to thank as well our shareholders, again, for your support, confidence and trust. Sam, can you instruct the audience on the question-and-answer procedure?

[Operator Instructions] And our first question comes from Rob Mains of Stifel, Nicolaus.

One question on the current quarter. In past quarters, you've been able to rack up some nice increases in skilled mix on a same-store basis. It was flat this quarter. Anything that I should be reading into that?

Anything you should be reading into that? That's a good question. I don't think so. I mean I think that -- I think we addressed a little bit of that in the script, but I -- while there have been -- hospitals are trying to adjust and trying to figure out what they need to do in order to decrease, obviously, the readmission rate, and I'm sure that, that has changed the skilled mix in a few areas. But the interesting thing is, as we've come closer to working with some of those hospitals, we've already seen a reversal of that trend as hospitals understand that actually, in most cases, the skilled nursing operation is one of the best solutions to that problem, not part of the cause. But I -- we don't feel like there has been a substantial change, even though our skilled mix didn't climb at the same rate that it generally does. We feel like it's more of a "this quarter" thing, a 1 quarter thing versus a trend that will continue.

Okay. So in the commentary, you talked about third quarter being kind of noisy. You'd rack it up more to that than any specific factor that you saw either occur exclusively in the quarter or emerging in the quarter?

Yes. I think it's -- I think, again, it's -- if there is one overarching short-term influence that we see, it is what the hospitals are trying to figure out as they increase their observations days and try to figure out the best way to combat that the challenge that is there is on the readmission side. I don't think it's anything more than that.

Okay. And then I had a question about the guidance. If I look at where you are through 9 months, on the revenue side, you're looking at kind of a nice pickup in the fourth quarter. Is there anything you're expecting to occur in the fourth quarter, other than normal seasonality, that would support revenue growth sequentially?

No. That's a good question, Rob. We don't -- I know we've said this probably a long time ago but haven't said it recently: revenue is not that important to us. But since we do give guidance, we have almost always seen a fairly significant increase in our fourth quarter revenues, because you do see a pickup in skilled mix, you generally see a pickup in occupancy. We do have some maturing operations that we've already seen -- where we've already seen revenues climbing towards the latter part of third quarter. So I hope I'm answering your question. We feel pretty comfortable with our revenue guidance. It isn't something that we pay as much attention to because revenue -- increase in revenue is not really what we've ever been about, even though we've done it fairly consistently for the last 10 or 12 years.

Great. And then 2 other ones, kind of short. First one, you mentioned the Part B therapy caps. Any impact on that in the third quarter? I know it wasn't implemented until 10/1, but some of the companies we talked about some kind of disarray among their residents when CMS sent out their letter to beneficiaries.

Certainly mild, mild, mild influence. We will see some influence in the fourth quarter. We don't have the exposure -- look, we don't compare ourselves to others, but we don't have the exposure that I thought we might have. But I probably would be overstating the problem if I said it had a big influence on the third quarter.

Okay. And then last one, the acquisition pipeline, sort of how things look, how -- any kind of idea what the pace might be going forward?

This is Greg, Rob. The acquisition pipeline is a little murky right now. There's certainly opportunities out there. But pricing is probably getting a little higher than we generally like to see. You know that we typically look for assets that are more "beaten down" than a lot of the competition does. And so -- and those assets are still around. So I would expect that there'll still be a reasonable flow of acquisition opportunities. But we certainly want everybody to know that we have in the past and we might in the future just head for the sidelines and wait things out if pricing gets overheated.

Let me just add to that, Rob, it's frankly -- to be incredibly candid, it's a little perplexing. It doesn't make sense how the -- there is -- there are a lot of acquisitions available out there. We're having to show restraint and having to remain disciplined. But the pricing's a little surprising given the volume that's out there.

I was just going to ask that very question. What in the world could be driving pricing in this environment? But I guess you're as much at a loss as we are.

Well, I mean, we would probably make the same guess as you would, Rob. It's the availability of capital primarily through the [indiscernible] of getting extremely low cost capital right now, which bully for them. That's terrific. And if they want to back some operators who want to go out and buy stuff for more money than we would pay, that's the market. But other than that, we don't see anything that should be driving high pricing.

We're ready when the pricing is what it ought to be.

And then a corollary to that, last call, you talked about potentially assuming leases. Any thoughts there?

Assuming leases?

As a way to grow the base rather than through outright acquisitions or lease assumption of assets.

We've done it before, and we're open to doing it again if the numbers are right.

[Operator Instructions] Our next question comes from Peter Sicher.

Question, what approximate percentage of your overall footprint is currently covered by the Home Health and Hospice business lines? And then, is the plan to expand those lines primarily through acquisitions?

So we are between 2.5% and 3%, still a very small part of our overall business, and we absolutely have plans to grow that. Again, sort of the same answer I gave to Rob. But when the pricing is right, we'll be making acquisitions, and we're seeing some well-priced opportunities.

Okay. And I guess my question is, is there any ability to expand the existing Home Health and businesses that you have? Or in order to grow that business across your entire footprint, do you need to make acquisitions of those?

No. It's great question. Most of our growth has come organically over the last year. I mean, obviously, initially we made some acquisitions, and we still made some small acquisitions, but organic growth has comprised at least 50% of our growth.

And that's the way we'll do it. It's the way we've build our skilled nursing portfolio and assisted living portfolios, primarily, Peter, is finding stuff that had a lot of organic upside and then building it into -- it's even more marked in the Home Health and Hospice businesses because we can -- the licenses for these agencies do cover discrete geographical areas, and we can go into a market, buy a very, very small agency to get the license and then grow it almost entirely organically in that market. So the answer to your dual question is sort of yes and yes. Yes, we have a ton of organic upside in the markets where we have already put down -- planted a flag, and yes, to grow in other areas where we already have existing skilled nursing and assisted living operation, but not have a home health agency yet, we will need to go and buy one of those small agencies or licenses.

And at this time, I'm not showing any further questions on the phone lines.

All right. Well, thank you, Sam. We appreciate your help and your time. And thanks to everyone else for joining us for this call. Appreciate it.

. 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.