Good day, ladies and gentlemen, and welcome to The Ensign Group Third Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Chad Keetch, Executive Vice President. Sir, you may begin.

Thank you, Shannon. 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 p.m. Pacific on Friday, November 28, 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 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, 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, 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 on -- 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.

Thanks, Chad, and good morning, everyone. We're pleased to report that our operational leaders achieved another solid quarter with same-store skilled revenue up 7.2% over the prior year's quarter. Our consolidated revenue was up 13.8% over the prior year quarter, part of which was attributable to an increase in our transitional skilled revenue of 6.4% in the quarter. As those of you who have followed us closely well know, we break out our operating results into 3 categories: same-store, consisting of our most mature operations; transitional, comprised of operations we've owned for less than 3 years, but are still early on in the operational maturation process; and recently acquired operations. We do this to provide greater transparency into our business, particularly during periods of higher growth, like we have experienced recently. We're also pleased to report that same-store skilled occupancy grew by 156 basis points over the prior year quarter to 81.9%, demonstrating our continued execution of our higher acuity business strategy. And while we are pleased with the growth in occupancy and skilled mix within our same-store group, we want to be very clear that there is still a significant amount of room to grow both occupancy and skilled mix in our same-store operations. At the same time, our transitioning skilled occupancy grew by 103 basis points over the prior year quarter to 71.3%, showing increased strength in some of our transitions that have been slower to turn. Our consolidated adjusted EBITDAR increased by 10.4% over the prior year quarter to $38.8 million. In addition, our 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. We've been especially grateful to our home health and hospice operators, Cornerstone Healthcare, which grew revenues by…

Thank you, Christopher. We continued our steady growth on multiple fronts during the quarter. In July, we acquired Beacon Hill Rehabilitation, a 67-bed skilled nursing operation located in Longview, Washington, under a long-term lease agreement; and Namaste Hospice, located in Denver, Colorado, adding to our home health subsidiary already operating in that market. In August, we acquired Angeles Home Health Care, a home health agency within Los Angeles, California, adding to a hospice subsidiary already operating in that market. In September, we acquired Sherwood Village Assisted Living and Memory Care, a 135-bed assisted living operation in Tucson, Arizona. And our urgent care operating subsidiary, Immediate Clinic Healthcare, opened 2 new clinics in the Seattle, Washington, area. These openings bring the total number of our clinics in that market to 14, making us one of the largest consolidated urgent care clinic operators in Seattle. These acquisitions brought Ensign's growing portfolio to 127 health care operations, 10 hospice companies, 11 home health agencies and 14 urgent care clinics across 12 states. We also disclosed during the quarter that our previously announced agreement to purchase 4 California-based operations from Keiro Senior HealthCare was not approved by California's Attorney General, which, under California law, must give consent to the acquisition of a nonprofit business by a for-profit business. Although both parties continue to believe that Ensign is the best operator for that portfolio, we recently came to an agreement with Keiro to terminate our purchase agreement. We wish our friends at Keiro well in their pursuit for another operating partner as we move forward in our pursuit of many other very attractive opportunities on the horizon. We continue to see a very healthy pipeline for growth, and we expect to complete additional operation and real estate acquisitions before the end of this year and…

Thanks, Chad. Before Suzanne runs through the numbers, I want to offer a few examples of how our front-line leaders and their teams continue to produce record results in a dynamic operating environment. As I've often noted, even more than our strong balance sheet and solid operating history, it's our talented local leaders who make such results possible quarter after quarter. By pushing to constantly provide outstanding clinical outcomes and mind the bottom line and all of the other moving parts of these complex operations at the same time, these leaders and their teams strive daily to make their operations the community of choice in the market they serve. For instance, at the Grove Care and Wellness Center, a health care campus in Riverside, California, the Executive Director, Trevor Weed, and Director of Nursing, Julie Martinez, have taken their 5-star community to a leading position in one of the most competitive markets in Southern California, leveraging their unique offering of post-acute services that include skilled nursing, assisted and independent living services, they have driven unprecedented demand, taking clinical and financial performance to new heights. Their team has partnered with local hospitals and physicians to better manage the continuum of care across these service lines, which has lead to better patient satisfaction and better outcomes. While achieving high standards clinically, third quarter skilled mix was up 18.8% to an impressive 89.6%, which is amazing. Because I remember when we took over this operation, we were in the single-digit skilled mix. An impressive 89.6%. Total revenues grew by over 21% and EBITDAR margins increased by 858 basis points, all compared to the same quarter last year. Zion's Way, another example, a home health and hospice in St. George, Utah, has been emblematic of our Cornerstone's strong 2014 performance. Led by CEO Brent…

Thank you, Christopher, and good morning, everyone. Detailed financials for the third quarter are contained in our 10-Q and press release filed yesterday. Highlights for the quarter ended September 30, 2014, as compared to the quarter ended September 30, 2013, included record quarterly revenues of $260.8 million on a GAAP basis, or a 13.8% increase. Same-store skilled revenues increased $6.1 million or 7.2%. Same-store skilled days increased 125 basis points to 28.7%. Same-store occupancy increased 156 basis points to 81.9%, which resulted in overall diluted earnings per share on a non-GAAP basis of $0.44. As for other key data points at September 30, cash and cash equivalents were $39.2 million. And net cash from operations for the 9 months was $66.7 million. We are reaffirming our annual 2014 revenue guidance of $1.01 billion to $1.025 billion. We're 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: exclusion of startup losses at the newly created operations; included anticipated Medicare and Medicaid reimbursement rate increases, net of provider tax; a tax rate of approximately 38%; the inclusion of acquisition-related costs -- excuse me, the exclusion of acquisition-related costs and amortization costs related to intangible assets acquired; acquisitions announced to date; the impact of a spinoff transaction; the exclusion of transaction-related costs; and diluted weighted average common shares outstanding of approximately 23.2 million. We are also increasing our 2015 revenue guidance to $1.2 billion to $1.25 billion, and maintained our 2005 (sic) [ 2015 ] annual earnings guidance with net income of $58.1 million to $60.2 million, and $2.44 to $2.53 per diluted share. The 2015 guidance is based on: diluted weighted average common shares outstanding of approximately 23.8 million; the exclusion of acquisition-related costs and amortization costs related to…

Thanks, Suzanne, and thanks to all of you who joined us today. We hope this discussion is helpful. As always, we want to conclude by thanking our outstanding partners in the field, at the Service Center and across the organization for their continued efforts to make Ensign the best company in the health care industry. We'd also like to thank our shareholders again for your support and confidence. Shannon, maybe you can instruct us on how to run the Q&A. I'm -- I hope you're not all hearing this heavy echo that's on our side, it's a little bit distracting, but hopefully you've been able to hear us. But I'll turn this over to you, Shannon.

[Operator Instructions] Our first question is from Ryan Halsted of Wells Fargo.

I wanted to go back to the reimbursement increase timing issue. I was hoping you can maybe just sort of revisit that and just explain exactly what's happening with that?

Sure. I mean, if you kind of look when we get most of our reimbursement increases, the vast majority of it occurs in Q4. So Medicare is effective October 1. Some of our larger states, for example, Texas, is effective September 1. So the vast majority of the Medicaid reimbursed -- Medicaid and Medicare reimbursement increases really impact us beginning in the Q4, so later part of Q3. And then all the new rates really roll in Q4.

So yes. Just to -- in your model, we -- all of our big states give us an increase in reimbursement at the very end of the third quarter. And then, obviously, Medicare isn't until the fourth quarter. So that's why we get almost all of this at the same time, and we don't see as much of an impact in the third quarter.

Okay. But I guess on the nongovernment portion of your business, was there any timing issues on reimbursement?

No.

Okay. All right. And then I was hoping maybe you could give some details on the Shea transaction, just curious on the size? And would also be interested to hear other deals that you have in your pipeline that -- of a comparable size and just how those deals -- how you're approaching the closure of those deals?

Yes. So thanks, Ryan. So the Shea transaction consists of 8 skilled nursing facilities. It has 1 assisted living facility and 2 home health businesses, 1 is a home health agency and the other is a private duty business. And as we mentioned, those are all scheduled to close in the fourth quarter. We are on pace to do that. In terms of sort of our other acquisitions, we have several that are still in the negotiation process. But many of those we initially had thought were going to close in 2014, but just for kind of standard transactional reasons, it's looking like most of those are going to move to the first quarter of 2015. We haven't disclosed in detail what those transactions are yet. And I guess I will just also note, we don't typically disclose in advance of closing our transactions. We did that in the Shea context and the Keiro context, but for the most part, we don't disclose the acquisitions until they're closed.

Ryan, maybe to give you a little more color, it's not going to -- it probably won't satisfy you. But the difference is that many other transactions we're hoping to close are smaller, but there are many of them and they're spread across many of our states.

Okay. And then I guess big picture question. Just I'd be interested in your thoughts on the competitive landscape on these deals. Given that there seems to be a decent amount of visibility on reimbursement, I'm just curious if you're seeing more or less competition? And I'll just leave it at that.

Yes. So I think we're seeing increased competition on performing assets and pricing on those is creeping upward. But with respect to facilities that are more transitioning and need to be turned around, we still see a lot of those opportunities and much less competition in that context.

Okay. But you -- so you guys will keep your focus on those types of turnaround deals rather than try to sort of compete on more of the performing assets?

Yes and no. This is Christopher again. We have seen some opportunities, like the Shea opportunity, that are not the typical turnarounds that we deal with in the past. And maybe, there are some financial challenges and other, but they're not the clinical physical plan, cultural and financial big challenges that we have often taken. So while they're not highly performing assets, because there is a lot of competition on the highly performing assets, we are seeing stuff that's sort of in between. It's not what has made up most of our portfolio, the heavy, heavy turnarounds that have very, very low occupancy. But yes, we're still doing both. We're still taking the turnarounds, but we are finding stuff in between that's reasonably priced, and you'll see some of those assets in the next few months.

Our next question is from Dana Hambly of Stephens.

Just following up on that, the acquisition environment, you filed the S-3 earlier this year. Are you seeing, on some of the larger deals, has something changed in the environment that's going to -- you see will just force bigger -- more consolidation among some of the bigger players? Obviously, there's the pending transaction out there right now. Just anything you're seeing with some of the bigger portfolios?

Yes. I mean, that's a great question. There's a lot of talk out there about a lot of things. I'd -- I guess relative to us, the way we benefit from that, we think, is in some of this consolidation. Usually, these bigger players take certain sections of these companies that they buy and sell them off and parcel them off because they're markets that they don't want to be in. And that's really where we benefit. I don't know how to -- I understand what you're asking, Dana, I just don't know how to answer what might happen with the rest of the industry. We are liking, though, what's happening with some of the big mergers that have been announced and some of the big mergers that have been completed. Because we have -- as you'll see and as you've seen, we are getting some acquisitions as a result of those transactions.

Okay. No, that's fair. And you did mention, Christopher, I think, and correct me if I'm wrong, on the cost in the quarter for increase of staffing for unprecedented acquisition growth. Is that for deals that you've recently announced and the Shea or...

It's for that and for beyond. There are other deals. I mean, we are under certain -- we can't discuss certain things, unfortunately. Hopefully, we can soon. But yes, there's -- it's not just Shea, there's substantially more behind that.

Okay. I understand [ph].

And Dana, just add to that, I mean, I think -- to the extent we're talking about larger deals, I think the Shea opportunity is sort of what we're referring to there. I mean, we see a lot of regional operators that have more than just a handful of facilities. And then -- but outside of that, most of our opportunities kind of still remain sort of the 1 or 2 facility at a time approach across several states.

And Dana, one other thing I want to mention to you, because I don't think I was very clear about this in our earlier discussion. Because a lot of this is happening in the first quarter, the guidance we gave on revenue for 2015, it's probably more heavily weighted to second, third, fourth quarter than it is first quarter.

Okay. That's good to know. And I'll ask, too, on the big REIT transaction announced recently. Do you see that as having any impact on, I'm guessing not so much your ability to buy some of the underperforming assets, but anything in general that might signal something different for you guys?

Again, in some of these larger private and public REIT transactions, we have seen opportunities presented to us in the midst of these transactions. So we're hopeful that it will create more opportunities for us as the transaction closes. It's happened with us in almost every transaction so far.

Okay. Last one for me, it's a small piece of the business, but it looks like the Medicaid skilled business picked up 100 basis points or so. And I think it had picked up in the second quarter a little bit. Again, it's only about 5% of the business, but is anything happening in there with either dual-eligible projects in California or something we'd expect the Medicaid skilled to push up?

Yes. We're benefiting from all of that. So some of -- we've had some uptick in California. We've had some uptick with some of our other subacute units that we have in other states. So it's been a really good business model that has been continuing to grow.

[Operator Instructions] And I'm showing no further questions at this time. I'd like to turn the conference back over to Christopher Christensen for closing remarks.

Thank you, Shannon, and thanks to everyone else for joining us on this call and for your interest and trust and confidence. We appreciate it and look forward to talking to you again soon.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.