Good day, ladies and gentlemen and welcome to The Ensign Group Incorporated First Quarter Fiscal Year ‘14 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s conference is being recorded. I’d now like to turn the conference over to your host for today, Mr. Chad Keetch, Executive Vice President. Thank you, sir. You may begin.

Thank you, Ben and welcome everyone and thank you for joining us today. We filed our 10-Q and accompanying press release yesterday. In addition, CareTrust REIT, Inc. filed an amended Form 10 addressing our plan to separate our healthcare business and our real estate business into two distinct publicly traded companies, which we will discuss in more detail today. All of these disclosures are 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 on Friday, May 30, 2014. As you know, we always open 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 a more complete discussion of the 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, any Ensign operation we may mention today is operated by a separate independent operating subsidiary that has its own management, employees and assets, references to our consolidated company and its assets and activities, as well as the use of terms such as 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 various operations, the service center, the real estate subsidiaries or our captive insurance subsidiaries are operated by the same entity. 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 in the 10-Q. On our call today, we will be discussing Ensign’s first quarter 2014 operational results, as well as the previously disclosed spin-off transaction. And with that, I will turn over the call to Christopher Christensen, our President and CEO. Christopher?

Thanks, Chad. Good morning, everyone. We are pleased to report that operating results improved yet we believe we can do much better and we expect to take the additional momentum generated late in the first quarter and to the rest of the year. Together with the improvements we made at the end of 2013, we continue to head in the right direction and we expect to ramp our growth across key operating and quality metrics through 2014. Our operating results are running on schedule and we are reaffirming our 2014 annual guidance. As we noted in the past, our results are not symmetrical on a quarter-by-quarter basis and we continue to focus on the fundamentals of our business and driving improvements and performance throughout the year and over the long-term. To that end, our talented local leaders have focused relentlessly on building exceptional clinical systems to continue to attract higher acuity patients, growing occupancy and rightsizing expenses one market at a time. Highlights for the quarter included same-store skilled revenue grew by 300 basis points resulting in a skilled mix of 52.7%. Same-store occupancy was 81.5%, an increase of 98 basis points over the prior year quarter. Adjusted consolidated EBITDAR was $38.9 million, an increase of 5.2% over the prior year quarter. Consolidated revenues were up 9.8% to a record $239.7 million in the quarter. And transitioning facility occupancy grew for the fifth consecutive quarter to a 70.9% representing an increase of 148 basis points over that period. I am grateful to our many leaders and key members for their tireless efforts to become great both clinically and financially. These efforts not only produced solid results for the quarter, but they laid a solid foundation for continued growth in the months and years to come. We continue to make great…

Thank you, Christopher. Briefly we continued our steady growth on multiple fronts during the first quarter. In March, we acquired an outstanding skilled nursing facility in Glendale, Arizona. In May we acquired our second facility in Arizona this year a large skilled nursing operation in Tucson, Arizona bringing our total number of facilities in Arizona to 15 skilled nursing and assisted living facilities. Also in May we announced the acquisition of all the assets of a continuing care campus in Rosemead California, the skilled nursing component, which we had been operating under a lease for several years. And just a few days ago we acquired a skilled nursing facility we had been operating under a sublease arrangement with the ground lessee since 2006. As Christopher mentioned Ensign will retain ownership of the real estate it acquired in all of these acquisitions and any future acquisitions of real estate that it plans to acquire and it plans to complete. Our home health and hospice business also grew this quarter acquiring an established home health and hospice agency and a homecare business in Boise, Idaho adding a nice compliment to our existing operations in that market. Our urgent care business acquired its second existing urgent care operation with the purchase of a clinic in North Kitsap, Washington. This acquisition also included a primary care business that we expect to add to our existing urgent care and occupational medicine businesses. Our urgent care business also opened three startup clinics in the Seattle area bringing the total number of operating urgent care clinics to 11. As we indicated last quarter following the spin-off, Ensign will continue executing our existing business model and growth strategy, which will still include the purchase of real estate and selectively continuing to enter into long-term leases. As those of…

Thanks, Chad. Those of you who have followed our history know that Ensign was born in the aftermath of the post-PPS shakeout. Using the benefit of that perspective, Ensign has been built on fundamental business principles that emphasize low overhead, high service levels and talented local leaderships that are empowered to respond quickly and accurately to changing market conditions. At the risk of oversimplifying what can be a very complicated business, these leaders while developing brilliant community focused strategies have focused relentlessly on three fundamental things: first, building exceptional clinical systems to care for higher acuity patients; second, growing occupancy; and third, rightsizing expenses. By doing these things, our local leaders have been steadily converting their resident basis from a traditional long-term convalescent population to a short stay skilled population also known as growing skilled mix. This model has consistently produced growth in key operating metrics year-after-year even in years when we have had very few acquisitions. We are pleased to report continued improvements in compliance and quality of care across the organization. And as we always remind you, compliance and quality outcomes are precursors to outstanding financial performance. In the first quarter alone, eight more of our skilled nursing facilities achieved 4-star and 5-star CMS ratings during the quarter and with those additions, 64% of our facilities carry that designation at quarter end. And this is particularly a large accomplishment for us, because nearly all of these facilities were 1-star and 2-star operations at the time of acquisition. As we discussed the last quarter, we have substantial organic upside within the company’s existing portfolio. Many of the improvements we began to see last year continued in this quarter as we experienced growth in occupancy for the fifth consecutive quarter in our transitioning facilities to 70.9% for the quarter, representing…

Thank you, Christopher and good morning everyone. Detailed financials for the first quarter are contained in Q1 press release filed yesterday. Highlights for the quarter ended March 31, 2014 as compared to the quarter ended March 31, 2013 included record quarterly revenue of $239.7 million on a GAAP basis or 9.8% increase. Same store facility overall revenues increased $5.5 million or 2.8%. Same store skilled mix days increased 89 basis points to 29.7%. Same-store occupancy increased 89 basis points to 81.5%, which resulted in overall earnings per share on a non-GAAP basis of $0.65. As for other key data points at March 31, cash and cash equivalents were $57.5 million and net cash from operations was $21.4 million. And looking at our GAAP results, the DoJ settlement impacted several other expense items that were affected comparisons of earnings for the first quarter of last year. These includes increased wages and benefits, enhancement in them made to its internal compliance team and the absence of other related negative adjustments that were made in the first quarter of 2013. As always, we provide a reconciliation of GAAP to non-GAAP results in yesterday’s release. We are reaffirming our annual guidance of $1.01 billion to $1.025 billion in revenues with $2.74 and $2.81 in diluted adjusted earnings per share. These projections are based on diluted weighted average common shares outstanding of approximately 22.7 million. Acquisitions anticipated to be closed by the end of the second quarter. Exclusion of acquisition-related costs and amortization costs related to intangible assets acquired the exclusion of startup losses at newly acquired or created operations. The exclusion of expenses related to the separation of the healthcare and real estate businesses, a tax rate at a historical average of approximately 38.5%, and including anticipated Medicare and Medicaid rate reimbursement increases, net of provider tax. We also anticipate that we will update our earnings per share guidance following the spin transaction, but revenue will not be materially affected. And given these numbers, I would like to remind you again that our business is not symmetrical from quarter-to-quarter. This is largely attributable to variations in reimbursement system, delays and changes in state budgets, seasonality in occupancy and skilled mix, the incidents of our general accounting on census and staffing, the short-term impact of our acquisition activities and other factors. We would be happy to answer any specific questions you might have later in the call. And now, I will turn it back over to Christopher. Christopher?

Thanks, Suzanne. We’ll spend an additional few minutes to give you an update on our plan to separate our healthcare business and our real estate business into two separate publicly traded companies. As we have said many times before, we want to be very clear that our first and most pressing priority from the beginning of our discussions has been to ensure that when the dust settles, the separation will result in two very healthy companies that will generate long-term value to our shareholders. We are grateful to have the help of many trusted advisors and a very supportive group of lenders, who have been true to that principles. I’d like to turn the time over to Greg Stapley who will serve as the CEO for CareTrust REIT to discuss some of the details of this transaction from the real estate company’s perspective. Greg?

Thanks, Christopher and hi, everyone. During our last call in February, we were hopeful that we would be down to the spin by now. Obviously, we haven’t quite crossed that finish line yet, but we are pleased with our progress to-date and certainly have plenty to show for our efforts and the efforts of all those who are helping us. We can confirm the spin still looks very good for Q2 and we can also tell you that we are working very hard to make sure that CareTrust will be ready to hit the ground running when the smoke clears. With that, we would like to give you a brief update on the process to-date. First, as we noted in February, we do have our private letter ruling in hand from the IRS. Second, we are pleased to report that since February we have filed amendments to our Form 10 registration statement with the SEC responding to each of their comments. At the last amendment, the SEC had no material comments but only have to see our Q1 financials dropped in before issuing their final approval. We filed our fourth amendment containing those Q1 financials yesterday and we expect to receive final approval shortly. We are also pleased to announce the addition of John Cline as the final member of our Board of Directors. John joins David Lindahl and Gary Sabin rounding out the independent membership of our board. Mr. Cline is a former CEO and CFO of Sunstone Hotels, a publicly traded hospitality REIT based here in Northern County. And he currently serves as a CEO of Clearview Hotel Capital, a private real estate investment company focused in the hotel space. You can read more about Mr. Cline in our updated Form 10 that we filed yesterday. Also, both…

(Operator Instructions) Our first question comes from the line of Rob Mains of Stifel. Your line is open. Please go ahead.

Yes. Thanks. Suzanne I have a number of questions, there are some expenses I think migrated from the cost of services line to the G&A line, can you discuss that a little bit?

So when you say migrated I think you are just talking about the cost of service was down and the G&A was up?

Yes.

Yes, and maybe Christopher can also chime in on this. With regards to G&A what we saw is that last year we had a couple of different segments that we didn’t have in this year, so one of the items that we had hit in G&A last year is that we have the DoJ charge, which impacted obviously how our plans are set up are impacted the incentive that the company have. And then other things that also related to that increase was the complaints team enhancements that we had during the quarter, quarter-over-quarter as well as the marketing service enhancements that we have had during the quarter and then additional other facility growth items that we had during the quarter.

Rob, in essence, this is Christopher, it’s a combination of one we took a pretty big hit amongst our large group of leaders for the DoJ settlement on reimbursement last year. So comparable apples-to-apples that’s going to make last year’s costs look a lot lower. We also geared up, we beefed up our managed care team and also our compliance team, not just for our existing portfolio, but also in preparation for what we think is going to be a meaningful growth here throughout the remainder of the year. And those are probably the two largest pieces of that increase on G&A.

Okay. So and I would look forward the G&A run rate that we saw, there is not very much any unusual that I should be pulling out and modeling for similarly the improvements in costs and services should be pretty durable?

Yes, we hope you will see that decline as we grow.

Okay, great. And then I had a question about sort of the line of demarcation between Ensign and CareTrust and that if there is a operator that you are looking at or facility that you are looking at where the operator wants to leave wants to get out, how is the determination going to be made between whether it’s a facility that Ensign would buy or one that CareTrust would buy and lease to Ensign, is there a sort of a blueprint of which type of facility would fall into which category?

Rob, this is Greg. For the first quarter we have an agreement between us that we will serve each other, most of our acquisition opportunities. And Ensign will have the opportunity if it’s a small acquisition to the market therein to go in and kind of have in essence a first refusal right on that operation, which is okay with us, because we are going to be able to look nationwide for opportunities, while Ensign will be more constrained by its sort of business model that focused on its cluster concepts. At the same time, there is some of the things that they see and I think the best opportunities for us to work together going forward will be in those cases where we see large portfolios, where an operator wants to exit we have to divide them up amongst multiple operators and we will be able to come to Ensign and have them look at the portions of those portfolios that fit within their target geographies. So, I think there is an opportunity to work together. After that year is over, we really are transitioned in truly separate independent in all respects, but I don’t anticipate any real overlap attributing over each other in the short run.

Okay, great. In the situation that you described first, where you CareTrust sees something and it’s shown to Ensign, is it shown to Ensign and then Ensign has the opportunity to buy it or that Ensign has the opportunity to be the operator?

They have the opportunity to buy it. And by the same token, if they see something that they want to finance and they didn’t really have a chance to look at that and offer them financing. I doubt that they will do any of that, because their cost of capital is good, but we do have an agreement to that effect.

And Rob, just a follow-up to that, remember that we are in a – we are larger, but we are in a limited geography and chances are that CareTrust is going to span their footprint a whole lot faster than we are in terms of geography. And we won’t be interested in growing all over the place, whereas if CareTrust finds five, six, seven, eight great operators, 10, 12 whatever in those geographies, I just don’t think there will be as Greg said much tripping over one another. It may happen on one or two deals, but our charts that each of those have is quite different from one another.

Rob, one other thing I would add, Chris is right, but also remember that we tend to kind of look at different kinds of deals that were more Ensign, it looks largely not exclusively, but largely at distressed asset and turnaround opportunities and more opportunistic acquirer. CareTrust is going to be looking for more stabilized opportunities. And it’s going to be willing to pay stabilized prices for those assets, which is not something Ensign historically has done very much of.

Right, okay. And then I actually have one question related to the geography, am I correct in surmising that given where Ensign is located, you didn’t see as much of a weather impact in the winter as some of your peers on the other side of the Mississippi did?

Yes. We didn’t talk about that much. There was some impact, but it – I think we are not that this (indiscernible), that we probably wouldn’t use it as an excuse. I think it happened to us in Texas. It happened to us in Iowa, Nebraska. That represents 20% of our portfolio.

Okay, that’s about all I need. Thanks.

Thank you. (Operator Instructions) Our next question comes from the line of Dana Hambly of Stephens. Your line is open.

Thank you. Greg, this is a naive question. I am sure, but just looking at the pro formas in the most recent Form 10, there is a $5.2 million or so property tax item I am just wondering why the REIT would be paying the property taxes, I thought that would be borne by the operator?

Thanks, Dana. That’s a great question. And I appreciate you highlighting it for us. It was one of the strangest things that sort of the (indiscernible) came out and made us do. We have always historically just shown. We were trying to show these just as net leases. And since there is apparently some – there is some possibility, remote though it maybe that CareTrust as the owner of the properties could end up paying property taxes if a tenant did not under the triple net lease, we have to show that as a liability, but we also show revenues.

If you look at the line items, you will see that there is a tenant reimbursement from parent, which is mirrored by on the expense side, the property expense. And so it’s really just growth coming up of P&L and the net impact of that is zero, so it doesn’t impact our financial statements per se it’s just grossing up revenue and grossing up expenses.

Okay. Alright. Thank you. I mean someone else fed me the question, I can’t take credit for it. And then on the dividend policy for (indiscernible) going forward Christopher where actually and that goes away?

Don’t worry we will remain the same.

You will, okay.

Yes, we expect to continue to be what it’s been across the last I think 11 years or so.

Okay. And then on the acquisition front for Ensign going forward you have talked in the past about you are looking at these portfolio transactions and then you never really do them and you just go back to the very successful one-off building, so anything changed with those comments or kind of what you are seeing?

I think you and Chad can correct me here, but I think you have heard us talk a little more about that on this call than we have in the past and I think it’s because we have seen some portfolios that fit well into our existing organization and they seem to be fairly priced and it’s more than one of them. And so we feel like our chances of getting one or two of these are pretty good and obviously we don’t have as much control over this part as we do our operations. But we have good confidence that we will close them one or two of these.

Okay. I know last year you did a bunch of acquisitions in the beginning of the year, you called that out as being a bit disruptive on operations having closed a handful, so far this year should we not be worried about that in the second half of the year?

You should not be. We if I wasn’t clear about that I think there were some things we didn’t do as well last year in transitions as we have done in the past. And I think we have learned some things and maybe even relearned some things to be candid and I feel confident that that was a 2013 thing.

Okay, very good. And then just last one can you talk a little bit more about the new Main Street relationship, how that evolved what you are expecting and just the structure of the partnership where that will show up in the financials?

Yes, so this Chad. Thanks for the question. I think Main Street is an organization based out of Indiana. And they have a really nice product it’s essentially they are acquiring the sites and completing the development of the sites and the relationship between us and them is really a lease arrangement where we will – we have entered into leases that will sort of commence once the construction is completed and they hand us the keys to operate the facility. The relationship there is a strong one. We continued to look at various sites that we have identified certain sites that they have identified. It is something new for the organization. We have done a few of these similar type projects in the past namely the Sloan’s Lake facility and Colorado. So we have signed six leases and expect to start opening those in 2015.

Okay. Thanks very much.

Thank you. Our next question comes from the line of Ryan Halsted of Wells Fargo. Your line is open. Please go ahead.

Thanks. Good morning. It’s just a question on your core business, it looks like if I looked at the transitioning facilities bucket over the past couple of quarters, it looks like skilled mix has not necessarily been increasing at the rate you guys have been able to in past in fact it looks it was kind of declining, was there anything different about these facilities or any changes in your operations or anything you would call out?

No, I think it’s frankly along the lines I mentioned when I answered Dana’s call or a question, I think that we had some transitional issues, not just with the transitioning facilities, but with the new acquisitions, both of those buckets. And I feel like we have corrected our course and are back to the same path that we were on for the prior 13 years. So, I don’t think that one year a trend makes, I think that there were some things that we actually don’t talk about a month at a time here, but in that particular bucket, we had a tremendous March. And we think that, that trend will continue into the second quarter. And so we feel confident that, that pattern will end.

Okay. As far as guidance, you seem to express some visibility into your M&A pipeline. Just wanted to be clear, so do you see decent – some sizable transactions that’s going to help get you to your revenue guidance or it sounds like you are alluding to sticking with the one at a time?

No, listen some of the onesies and twosies that we have done will help us get to that guidance. The sizable ones will take us beyond that guidance. So that we are not acquiring them to hit our guidance, although as we – I think we have said in the past, some of our new – our early acquisitions are counted in our guidance, but the bigger transactions that we are hoping will happen are not, are accretive to that guidance.

Yes. I think what we have said is the guidance is only through acquisitions for the end of the second quarter, so…

Okay. Any sort of expectations on the new home health hospice business you acquired, anyway to just size out what that might contribute?

Yes. I mean, that’s the business that we acquired is relatively small. So, it’s not going to be a huge impact on the overall projections that was included in the original guidance.

You are talking about just the brand new acquisitions?

Yes.

Yes, it’s very small.

Okay. Then this might be kind of a random question, but given you guys – you did highlight sort of the quality ratings. I am just curious if there is any way to put that into context of value-based reimbursement, how do you think that achieving 64% of your facilities with greater than or equal to four stars? How does that sort of put Ensign as a whole on the value-based purchasing scale? Would you be receiving sort of bonus payments or would it be kind of net neutral, I don’t know anything sort of along those lines might be useful?

So, it’s more of – again at this point in time it’s more of a marketing plus, but there are some alignments being made between reimbursement in certain states and items, it’s not necessarily the 4-star and 5-star rating, but items that are similar to that are being used to determine, whether there are extra add-ons to payments. That’s beginning in a few states. Very soon, it already started other criteria, but in California and so yes, there are some add-ons that we think will be given to the better clinical or qualitative operators in the future, but for now, it helps us on the marketing front more than it does on the reimbursement front.

Sure, I can appreciate that. How about, I mean, do you feel then that the remaining 36% of your facilities might have sort of penalties assessed to them or do you think you are getting close to maybe bringing them up to par?

Well, remember that roughly 25% of our facilities have only been in the portfolio for a year and a half, so maybe two years, but so a lot of those, not all of them, but a lot of that percentage that you mentioned that came we said 36%, 38% is – are newer operations. And I don’t think, look I don’t know what they might decide to do with new acquisitions, but obviously, if there are penalties we will just build that into the price when we go to make acquisitions that have 1 and 2-star ratings by the time we take them.

Okay.

Yes, that’s a good comment though. We should look at what percentage we have in same-store that are more mature versus the newer acquisitions and we will try to do something like that one more statistic I am sure Suzanne is happy to provide.

You are welcome Suzanne, so.

Thanks Ryan.

The two real estate acquisitions were they based on exercising the purchase option or do you still own the purchase option on two leases?

So the two in Arizona were not leased facilities and then the one in Utah was not actually one of our lease facilities that we would include in sort of our, it is…

Yes, so we had two purchase options left and that was one of the two purchase options.

Okay. That’s all I got. Thanks.

Thank you. And with no further questions in queue I would like to turn the conference back over to management for any closing remarks.

Thanks Ben. Appreciate it. Again we want to thank all of our colleagues throughout the organization for what they give and what they do every single day it’s an honor to work with them. And we thank our shareholders as well and those that have taken time to participate in this call.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. And you may all disconnect. Have a great rest of your day.