Good day, ladies and gentlemen, and welcome to The Ensign Group, Inc., Second Quarter Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host for today, Mr. Chad Keetch, Executive Vice President. 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. All of these announcements are available on the Investor Relations section of our website at www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific on Friday, August 29, 2014. Before we begin, I have 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 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 operation 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, 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, 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. And with that, I'll turn the call over to Christopher Christensen, our President and CEO. Christopher?

Thanks, Chad, and good morning, everyone. The second quarter saw our performance improving in every aspect of the organization. Skilled nursing, assisted living, home health, hospice, urgent care and our relatively young ancillary businesses all gained strength as each operation continued a relentless focus on the fundamentals. Although these improvements have been somewhat diluted by the noise surrounding our recently completed spinoff of CareTrust REIT, we're very pleased with our operational results year-to-date and are confident that we can continue our upward trend. These are just a few highlights from the quarter. Same-store skilled revenue grew by 10.1% over the prior year quarter, resulting in a skilled revenue mix of 53% and an increase of 156 basis points. Same-store occupancy was 81.9%, an increase of 217 basis points over the prior year quarter. Adjusted consolidated EBITDAR was $37.6 million, an increase of 296 basis points over the prior year quarter and consolidated revenues were up 13.6% over the prior year quarter to a record $250 million. And same-store skilled days were up 8.4% over the prior year quarter. Our local operators and clinical leaders have performed spectacularly well in a challenging operating environment. The most successful of these are the ones who have built very solid clinical programs, who deliver the highest quality care and who do it all in a spirit of close cooperation with local physicians, hospitals and other participants in their local health care community. Yet even with these results, there remains tremendous organic upside across the portfolio and throughout all of our various service offerings. As is evidenced by the spectacular organic growth over the past quarter, we continue to adjust to the dynamic local environments that we serve and expect to see similar growth in the future. As we announced this week, we reaffirmed our 2014 revenue guidance and issued guidance for 2015 to reflect the impact of our recently completed spinoff transaction. But I'll Suzanne talk more about that a little later. First, I'd like to have Chad briefly discuss our recent growth and the acquisition landscape currently. Chad?

Thank you, Christopher. We continued our steady growth on multiple fronts during the second quarter and since. In May, we acquired Casas Adobes Post-Acute Rehabilitation Center, a 230-bed skilled nursing operation in Tucson, Arizona; California Mission Inn, a 143-unit assisted living and independent living operation in Rosemead, California; and Mission Care Center, a 59-bed skilled nursing operation that has been operated by an Ensign subsidiary under a lease arrangement since 2005; and Mount Ogden Health & Rehabilitation Center, a 108-bed skilled nursing operation in Ogden, Utah, which also had been operated by an Ensign subsidiary since July 2006. In June, we acquired Englewood Post-Acute and Rehabilitation, an 82-bed skilled nursing operation in Englewood, Colorado, under a long-term lease arrangement; we acquired Rainier Rehabilitation, a 117-bed skilled nursing operation in Puyallup, Washington, also under a long-term lease; and 2 skilled nursing operations located in Clintonville, Wisconsin, Pine Manor Healthcare Center and Greentree Health & Rehabilitation Center, our first in the state of Wisconsin. And in July, we acquired Beacon Hill Rehabilitation, a 67-bed skilled nursing operation in Longview, Washington, and that was also under a long-term lease. So far this year, we have acquired 11 new skilled nursing and assisted living operations, 7 of which included real estate that Ensign will retain. And just to clarify again, while there may be certain opportunities to expand our relationship with CareTrust in the future, the spinoff has not altered and will not change Ensign's business model and growth strategy going forward. Ensign will continue to acquire and retain the real estate assets for both well-performing and struggling skilled nursing operations across the United States. As of today, we currently own the real estate in 8 of our operations or over 6%, which is a dramatic increase compared to the 1% ownership we held…

Thanks, Chad. With many of the challenges we faced in 2013 and the spinoff transaction behind us, we were able to build on many of the improvements we began to see last quarter into this quarter. As evidenced by our second quarter results, we continue to have substantial organic upside within the company's existing portfolio, including growth in same-store occupancy, skilled revenue and skilled days. In addition, we also saw growth in occupancy for the sixth consecutive quarter in our transitioning operations to 71% for the quarter, representing an increase of 164 basis points over that period. We did experience a few nonoperational setbacks that diluted some of our operational improvements this quarter, namely our self-insurance accruals spiked quite significantly in the quarter, increasing by more than $3.3 million over the first quarter. That spike was not expected, and we continue to experience challenges in structuring our employee health care programs in a way to provide more predictability. These lumpy insurance accruals are yet another example for why our results are not symmetrical on a quarter-by-quarter basis and another reason why we do not provide quarterly guidance. With that understanding, our focus is on the fundamentals of our business and on driving improvements in performance throughout the year and over the long-term. Overall, despite the noise created in the insurance accruals, due to the strength of operations, this was an excellent quarter. We're pleased with how our operations have performed thus far, especially given that the second quarter has historically been one of our toughest quarters. We also note that we continue to see many positive developments and opportunities on the horizon, including improving Medicaid reimbursement in key states on the recently announced 2% net market basket uptake to Medicare reimbursements that will go into effect later this year. We're…

Thanks, Christopher, and good morning, everyone. Detailed financials for the second quarter are contained in our 10-Q and press release filed yesterday. Highlights for the quarter ended June 30, 2014, as compared to the quarter ended June 30, 2013, included record quarterly revenues of $250 million on a GAAP basis, a 13.6% increase. Same-store skilled revenues increased $8.5 million or 10.1%. Same-store skilled days increased 169 basis points to 29.4%. Same-store occupancy increased 217 basis points to 81.9%, which resulted in overall diluted earnings per share on a non-GAAP basis of $0.54. As for other key data points at June 30, cash and cash equivalents were $22.4 million and net cash from operations for the 6 months was $37.1 million. We are reaffirming our annual 2014 revenue guidance of $1.01 billion to $1.025 billion and are updating our 2014 annual earnings guidance, projecting adjusted net income of $50.1 million to $51.2 million and $2.16 to $2.21 per diluted share. These projections are based on: the exclusion of startup losses at newly created operation; include anticipated Medicare and Medicaid reimbursement rate increases net of the provider taxes; tax rates at a historical average approximately 38.5%; the exclusion of acquisition-related cost and amortization cost related to intangible assets acquired; and acquisitions closed to date. The following items are additional adjustments that are the result of the spinoff, which took effect on June 1 of this year and are incorporated into our 2014 updated guidance: the exclusion of transaction costs; increased shares outstanding to approximately 23.2 million; the number of diluted shares outstanding increased due to the equity adjustment, which was acquired in our stock incentive plans; an increase in rent expense of approximately $32.7 million; a reduction in interest expense of approximately $7 million; and a reduction in net depreciation expense of…

Thanks, Suzanne. And thanks to all of you that joined us today. We hope this discussion is helpful. As always, I want to conclude by thanking our outstanding partners in the field of the service center and across the organization for their continued efforts to make Ensign the best company in the health care industry. They are the reason for our improvements and they are the reason that Ensign has progressed as it has progressed. They're the reason that CareTrust REIT exists, and they are the reason that we are able to report results like this. We'd also like to thank our shareholders again for your support and confidence and would like to open it up for questions. Ben, do you want to instruct us on how to do that?

[Operator Instructions] Our first question comes from the line of Ryan Halsted of Wells Fargo.

So some good results on the managed care days and managed care revenue. I guess, it looked like it was both in your same-store and transitioning. I'd love to hear, I guess, more color around what's happening, especially in the same-store bucket, where you're seeing such remarkable improvements.

It really is attributable mostly to our field leaders. But I do have to tell you, we took a risk -- and I think I mentioned this 2 calls ago. We brought in some experts on the managed care front, some extraordinary human beings that kind of reflect our culture, and on the marketing front. And those 3 or 4 people have been very helpful at providing help that our people need. They don't know how to approach large organizations the way that these individuals do. And it has definitely borne fruit. And it feels like it's continuing to bear fruit. Obviously, you have to have the underlying quality and you have to have the underlying healthy relationships in those communities or you can't enhance the relationships or add to relationships. But still these people came in and showed to folks how to do it and in some cases, did it for them. So they've done a lot for that. And there's no reason that we don't think that, that will continue. They helped us both in terms of volume as well as in terms of rates.

Yes. Okay, that's great. Then moving to -- you've been highly acquisitive. I was hoping you could put into context, I guess, your 2015 guidance and just all the activity that you've been able to close or that you're expecting the close this year and any sense of just how to size that for your 2015 guidance.

So Chad can correct whatever I don't say right. But I think -- obviously, Keiro was in there, and we expect that to close in the fourth quarter. There are a few other smaller deals and another meaningful substantial deal that we're not far off along on to comment. But we feel confident that they will happen. And we expect them all to happen in the very latter part of this year. There really -- in our guidance, there really are no acquisitions in 2015 in that guidance. So it's just the stuff. For 2014 guidance, it only includes what we've already acquired. For 2015 guidance, it includes what we're fairly confident we will acquire before the end of this year and nothing beyond that.

Okay. And I guess, just along those lines, is there a point where you may need to pause a bit on the pace of your deals and sort of just digest all the activity you've been able to close on to date? Or is it sort of just continue to go about it at the pace you have been?

We made -- I think I was open -- we were open last year about some mistakes we probably made in some transitions in 2013. But I feel like that we've improved upon that dramatically and maybe better than we've ever been. So we don't really feel like there's a need to pause. A lot of our new acquisitions, I mentioned one on this call in detail, some detail. And we feel like we're doing much better with the transitioning facilities right now. So we don't really feel a need to pause. And frankly, some of these acquisitions, like the Keiro acquisition, are performing assets. And that really we hope that we can help them with some of our resources. But they've done a marvelous job on the qualitative side and on the cultural front, and so they will be, we believe, easier transitions for us.

And I'll just add to that, Ryan. I think one factor that helps us sort of sustain this kind of growth is the transitions of these operations really happen at a local level and are supported by the facilities, folks with boots on the ground in that market. And so it's not as though doing a deal in Texas would necessarily limit our ability to do a deal in Idaho, for example, just to use that as an example. So that factor, I think, is something that is sometimes confusing to folks, but that helps us maintain that pace of growth.

Okay, that's helpful. And then my last question, so you did enter a new market during the quarter. I'd be curious just to hear any commentary on how you approached it and how you're looking at potentially expanding into new geographies going forward.

So yes, I think we -- Wisconsin is a new state, as you mentioned. I think in the past, we learned the hard way that to enter into a new market, it's important that we acquire facilities or operations that have a strong clinical reputation. And so the acquisition opportunity that we took in Wisconsin was exactly that. It was 2 facilities that geographically were very close together and clinically have a really strong reputation. And I think you'll see us approach new markets in that way, where we're looking for a small handful of facilities that are clustered together geographically that have a strong clinical reputation from which we can build. And so the approach in Wisconsin is to start with these 2. And now that we've got a foothold there, we'll continue to see other acquisition opportunities, and then we'll build from there.

And while it might cost us a little bit more on the front end, we've learned that, until we have a reputation, every state is unique. We knew that. But we can't just go in and say, "Well, here's what we've done elsewhere, so count on us doing the same thing here." It takes us a few years to overcome the history of these operations. And so we found it to be a little easier to pay a little bit more for qualitatively stronger buildings or at least facilities that are not incredibly weak, and then show them what we can do without dealing with a headache of a reputation for a few years before we really get them to forget about the past. And I think you'll see us do that across many states across a long period of time. We won't do a ton of states at once, but we'll continue to march from state-to-state.

Our next question comes from the line of Rob Mains of Stifel. Robert M. Mains - Stifel, Nicolaus & Company, Incorporated, Research Division: A question about the managed care business that you've added. Some of your peers have talked about the pressures that managed care entails both length of stay and rate. And it almost sounds like for some of them, it's kind of a push. Can you comment on, from Ensign's point of view, what the profitability of that new business is?

Yes. So I think being consistent with what I've said before, we like the business. It's the way the business is going. Certainly, there is more pressure on length of stay with certain managed care organizations. Certainly, their rates overall are less than Medicare rates. But in lots of cases, there are carve-outs that don't exist in the Medicare world. And so sometimes, the margins are actually a little bit better in the managed care world than they are in the Medicare world, not always and then probably not in most cases at this stage. But I will tell you that -- and I'm sure this is the case with all of them. But as you earn the respect with your qualitative performance, the rates do get better and better. And we have found, for instance, over the last -- comparing the second quarter of 2013 to second quarter of 2014 -- Suzanne will correct me here. But I think our average managed care rates went up by 6-point-something percent, just over 6%. And hopefully, we'll see that continue into the future as we earn the right to ask for higher rates. Robert M. Mains - Stifel, Nicolaus & Company, Incorporated, Research Division: Are you seeing a mix of patients? Or is it primarily orthopedic?

A mix of patients, yes. Yes, it's not primarily orthopedic. I mean, I would say that it represents about the same mix as our Medicare does in terms of orthopedic versus non-orthopedic. Robert M. Mains - Stifel, Nicolaus & Company, Incorporated, Research Division: Got it. And then a question on acquisitions. Some of the REITs have talked about pretty elevated prices that are being asked for some skilled nursing facilities. And obviously, you're not fishing in that same pond, but I'm wondering if you're seeing any kind of ripple effect on pricing for some of the types of assets that Ensign would be interested in.

Yes. Look, there are -- we're actually a little surprised how much is available right now. There definitely has been upward price movement in the highly performing assets. The ones that are performing well qualitatively and financially, they probably are at all-time highs or close to all-time highs. I remember in '07 or '06 or sometime in that timeframe them being about this high. But we haven't seen that same price movement in mediocre-performing or poor-performing assets. We still feel like there's some good pricing out there on those assets. I hope I'm not hurting our business plans.

And I'm showing no further questions on the phone lines. I'd like to turn the conference back over to management for any final remarks.

Well, thank you, Ben. I appreciate your help on this call. And again we appreciate the support of our shareholders and all of you that've taken time to be on this call. Thanks very much.

And thank you for your participation in today's conference. This does conclude this program, and you may all this connect. Have a great rest of your day.