Good day, ladies and gentlemen and welcome to The Ensign Group Incorporated Third Quarter Fiscal Year 2015 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 follow at that time. [Operator Instructions] As a reminder, this conference may be being recorded. I would now like to turn the conference over to our host for today’s call, Mr. Chad Keetch, Executive Vice President. You may begin.

Thank you, Latanya. 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 Investor Relations section of our Web site at www.ensigngroup.net. A replay of this call will also be available on our Web site until 05:00 PM Pacific on Friday, November 27, 2015. 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 the 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 on upon the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available on 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. We’re pleased to report another strong quarter and congratulate all of our local leaders and their teams for again achieving outstanding clinical and financial results. In the midst of unprecedented growth, our team of expert operators and clinicians across the organization have been relentless to driving record improvements in our same-store operation, while successfully transitioning dozens of new operations. It's important to emphasize that while our newly acquired operations almost always create a short-term drag on earnings, we were able to offset that impact by achieving solid results in our same-store and transitioning operations. Our balance sheet remains strong in spite our record acquisition activity with its conservative adjusted net debt to EBITDA ratio of 3.27 times at quarter end. It's remarkable that we transitioned so many acquisitions while protecting our balance sheet and simultaneously driving record setting same-store growth. And as our results from this quarter show, our ability to transition new operations and to drive organic improvement within our existing portfolio, even in the midst of significant growth is as strong as ever. We also remind you that our disciplined approach to acquisitions remains consistent and as a percentage of our organization our recent growth falls right in line with what we've accomplished historically. And even though we've been and will continue to remain disciplined as our footprint continues to grow so does our ability to expand. We now have more highly qualified Ensign leaders and more specialized service center resources than we've ever had. This bodes well for our future expansion. As a result of our ever improving discipline, we continue to have flexibility under our revolving line of credit giving us plenty of dry powder to fund additional growth in 2016 and beyond as these recently acquired and transitioning operations…

Thank you, Christopher. As Christopher just mentioned, we have seen record growth so far this year in the third quarter in cents we’ve acquired 11 skilled nursing operations, 20 assisted and independent living operations, one home health business and one hospice agency. Those include the following. In Arizona, seven skilled nursing operations with the total of 864 skilled nursing beds and three independent and assisted living operations with the total of 770 units, all under a new long-term master lease which makes our Arizona based subsidiary Bandera Healthcare Inc. one of the largest providers of the complete continuum of post acute healthcare services in the state. In Olympia, Washington, Olympia Transitional Care and Rehabilitation, 125-bed skilled nursing operation; in Westlake Village, California, Buena Vista Hospice, a Medicare and Medi-Cal certified hospice agency serving the Ventura County area. In Wisconsin 15-assisted living operations with the total of 761 units under a long-term master lease and this lease includes an option to purchase a real estate; in Orange and Whittier, California, two assisted living operations with the total of 188 units under a long-term lease. In Arizona a Medicare and Medi-Cal certified home health agency serving Western Arizona and Eastern California. In Kansas, the healthcare resort of Kansas City featuring a 70 bed licensed transitional care operation and 30 private assisted living suites under a long-term lease. In Chandler and Scottsdale, Arizona, Chandler post acute and rehabilitation 120 bed skilled nursing operation and Shea Post Acute Rehabilitation Center, 105 bed skilled nursing operation both under long-term leases. In West Columbia South Carolina the operations and real estate of Millennium Post Acute Rehabilitation, 125-bed skilled nursing operation, and lastly in El Cajon, California, the underlying real estate of Somerset Subacute and Rehabilitation, a 46-bed skilled nursing operation that has been operated under a…

Thanks Chad. Before Suzanne run through the numbers, I would like to offer a few examples of how our most crucial frontline leaders and their teams continue to produce record results in a changing operating environment. As many of you know there are many proposed changes in post acute payment models that are in various stages of development and implementation. We are actively investing significant resources in order to remain on the cutting edge of all of value-based payment initiatives and programs. We have a dedicated team of clinicians and business leaders that are focused on working with hospital systems, physician groups and managed care organizations that are participating in value-based payment arrangements. While we expect these programs to evolve, we are constantly looking for ways to improve and refine our service offerings as we customize these approaches with the demands of the local healthcare communities we serve. Our primary objective is to share information and to drive the highest possible outcomes for patients as we continue to take on higher acuity patients in a low cost skilled nursing and home health setting. As we do so, we are confident that we will remain the operator of choice in each and every market that we serve. Most of all it is our talented local leaders who make such results possible quarter-after-quarter. By pushing they constantly provide outstanding clinical outcomes in all of the other moving parts of these complex operations at the same time, these leaders and their teams strive daily to make their operation the operation of choice in the market that they serve. And as always I would like to share a few examples. In Grossmont post acute care which is in La Mesa, California it is an example of the tremendous growth potential that exists in a…

Thanks, 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, 2015 as compared to the quarter ended September 30, 2014 include, record quarterly revenues of 351.1 million on a GAAP basis, or a 34.6% increase. Same-store skilled revenues increased 12.5 million or 6.4%. Same-store skilled revenue mix increased 161 basis points to 52.8%. Same-store managed care days increased 12.5%, which resulted in an overall diluted adjusted earnings per share of $0.50. Other key metrics include cash and cash equivalents of 40.1 million at September 30th, and 93 million of availability on our 150 million revolving line of credit as of our filing. As Christopher mentioned we are increasing our annual guidance for 2015 with revenue with the range of 1.31 billion to 1.33 billion and our projected adjusted net income guidance to a range of 66.2 million to 67.6 million. We are also increasing our annual diluted earnings per share guidance to $2.53 to $2.58. These projections are based on diluted weighted average common shares outstanding of approximately 26.2 million. Exclusion of acquisition related costs and amortization related to intangible assets acquired, the exclusion of losses associated with the development of new operations which are not yet established, the exclusion of cost related to a new HR and payroll system implementation. The exclusion of breakout fees, net of cost received in connection with the public auction; the inclusion of anticipated Medicare and Medicaid reimbursement rates net of provider tax, a tax rate of 38.5%, the exclusion of stock-based compensation and the inclusion of acquisitions closed to-date. We are also issuing for 2016, our guidance, in order to give the investors a better visibility into our future earnings, we are projecting revenues…

Thanks, Suzanne. And just to clarify, because I think we should see different things even though it’s in the announcement already. Our revenue guidance next year is between 1.53 billion and 1.58 billion. We again want to thank everyone for joining us today, and express our appreciation to our shareholders for their confidence and support. We’re also appreciative to our colleagues in the field and the service center for making us better every single day. We really are grateful for what’s being achieved by all of the folks that make Ensign what it is. We now I guess turn over this portion of the call for Q&A to Latanya, but before I do that, let me introduce Barry Port, the Chief Operating Officer who will join Suzanne and Chad and I, any question you have for any of the four of us, we welcome. Latanya, do you mind instructing the audience.

Certainly. [Operator Instructions] And our first question comes from Frank Morgan of RBC Capital Markets. Your line is open.

I was just curious obviously a big year of acquisition so far and I am wondering can you characterize any kind of change in either the operating financial profile of what you’re seeing today, or what you’ve done more recently? Or would you say that there has been any change on that front? That’s my first question.

You mean that has resulted in net increase in acquisitions, is that what you’re asking?

Yes, yes just with the heavy slate of acquisitions you’ve done this year, you obviously are looking at a lot more deals and you’ve done a lot more deals. But is there anything that you think that’s changed overtime over the past couple of years in the profile either operating or financial. I mean are they -- are you seeing the assets are performing worse or about the same or any kind of color on what the characteristics might look like?

I think the -- I don’t know if this is going to answer your question, Frank. But I think the thing that we’ve seen lately is we have a lot more extraordinary leaders spread throughout the Company that actually have had the air to the ground. And a lot of the acquisitions we took this year actually we’re not -- there weren’t in the marketplace. These were acquisitions that our leaders found either through building relationships with landlords or building relationships with other operators. And we were able to help them see that getting these assets into our hands would be healthier for them and would be something that would be more stable. And that really was a commonality amongst a lot of the acquisitions we did in the second and third quarter. So I don’t know because I am hearing prices are actually higher in the general marketplace and those aren’t really the assets that we’re participating and buying at least not recently.

Yes and Frank, this is Chad I’d just add to that I think that one thing definitely a pattern that we’re seeing is especially and this applies to larger and smaller operators. But having scale in a particular market is making a difference and to the extent these smaller operators don’t have the systems or the size to really compete we’ve seen that kind of driving a lot of deal opportunities. And as well as larger operators that might be in a situation where they have some outliers or their presence in a particular state doesn’t justify they’re being there. So, those are definitely things we’ve seen as well.

And then one other question I think that Suzanne was alluding to this. When you look at your guidance for the balance of the year based on the nine month actual amount you have a nice of the implied step up in the fourth quarter. Is that mostly just the impact of rate increases that are coming online like on the Medicare side is there anything else that you would point us to that will drive a nice step up that you’ll see from the third quarter to the fourth quarter? And I guess if it is right maybe talk a little bit more about any particular states as well? Thanks.

Yes Frank I know you asked Suzanne she can clean up after me. This is Christopher again. I think we will get a benefit from that for sure but that’s not the majority of it. The fact is fourth quarter is generally always better for our industry there is a lot of seasonality in our business and we now have I guess this is our 16th or 17th fourth quarter and we’ve learned what happens in the fourth quarter. Part of it’s because of the momentum that we’ve seen part of it’s because of some of these newer acquisitions that didn’t produce anything in the third quarter and we believe will produce descent earnings in the fourth quarter. And then a part of it is rate. But I would tell you that I think the majority of the step up is well I don’t know if there is a majority I think it’s because of all four of those things. I think part of it’s rate, part of it’s the other three things that I mentioned. And if you force us to say how much is rate based in the step up, it would be small I don’t dare say a number.

And my comment was really when we look out for ’16 you know that we would expect as it is just a -- on the later part of the year we do see a higher step up on the rate on the later part of the year here for ’16.

And our next question comes from Ryan Halsted of Wells Fargo. Your line is open Ryan.

First off I just wanted to clarify did you say that you do expect to potentially close some deals before the end of the year in addition to those that you’ve announced so far?

So you know Ryan that’s a good question. As always transactions are subject to the lots of different factors and we have several deals we are looking at that are early stage that we hope to transact this year, but it depends on a lot of things like state licensing processes and those sorts of factors.

And Ryan I think we can say with confidence if we do close in this year, it will be the very-very end of the year. So they won’t really have an impact on this year.

Sure. Okay, I get that, just definitely very active which is good here. I did want to ask a question about one of the more recent deals, the new geographies in South Carolina. I’d just be curious to hear your evaluation of the competitive environment in South Carolina, what has led you to kind of take a plunge and really branching out into a fairly significantly new geography for you? I will stop there.

No it’s a good question, and it is a question that we’d probably answer differently than most. This really goes back to our belief in local leadership and getting into the markets where our leaders are excited assuming it makes sense, we don’t just jump to somebody is excited. Obviously the regulatory environment has to make sense, the reimbursement environment has to make sense. But we have a leader in our organization that’s from the Carolinas and has spent most of his life in the Carolinas and has wanted to get back there. He is not the only one, we actually have two or three others, but he was the one that made the effort. And once we found the right deal, this was actually run by Manor Care and we felt like it was a good platform on which to build and he was confident in it. So after going through what we go through internally as an organization, we felt comfortable jumping over a few states into that state because of the local presence and his -- he really is a local he is a native. And so, that really is what guides us. Obviously there are a lot of criteria, I mean the deal has to make sense and the state has to make sense, and the facility itself has to make sense. But we do better when we have somebody that does has a local passion for the market that is also part of Ensign than we do otherwise.

Maybe switching gears, looked like there was some decent growth in the other skilled bucket. I know you guys have commented in the past about the duals program. I’d just be curious for one, how many markets that you are in are participating in a duals integrated care model? And secondly, can you provide any color on some of the underlying trends you are seeing in that other skilled just in terms of admissions growth, any trends on length of stay, anything just to sort of get some more color on that revenue growth and EBITDAR growth? Thanks.

So, Ryan this is Barry. One of the first states that went that direction was Arizona about 10 years ago. We are lucky and fortunate to have some of the experience, some long-term experience with that program. But that program has been in full swing here in California now for almost a year and is underway in Texas as well and some parts of Washington. There is an interesting phenomenon that takes place when that happens, everyone starts running around freaking out a little bit luckily because of our experience we know how to deal with that transition and we embrace it. It’s not something we’d run from. It’s just -- it’s something we’re used to. So you tend to see some volume fluctuations in the beginning and there is also some reimbursement lags when it comes to AR because some of the plans that are designated to manage the state Medicaid programs are not used to the volume they get. But because of our relationships we feel pretty confident that we will wait our way through some of the AR lag that takes place specifically here in California and Texas. But it’s not something that really we tend to see a negative impact from if any we tend to see because of the relationships a benefit on the managed or the skilled side of that equation.

Yes, and I would just add that as you can see from the numbers we are actually capturing a higher percentage there, overall is strong benefit for us and what a strong player in that.

Ryan you asked a second question, what was the second part of your question?

No that was good it was all just part of the same general idea, so maybe my last question. You did provide some initial results or initial color on the BPCIs, sounds pretty promising. I would be just -- I would be curious to hear so far is this a program you can see yourself getting more involved with are -- overall it looks like there is definitely some very early positive results?

Yes, absolutely, again, we’ve got 17 facilities participating in the Model 3 portion of the BPCI demonstration in California, Arizona and Washington, Utah and Texas. We also have about 20% of our facilities participating in Model 2, which is the non-risk sharing portion but more of the relationship driven and it's going very well so far I mean everything that we've seen and our measuring so far it’s working well. There's obviously some differences in how we manage things and it is not something you just go head along into without any kind of bumps or challenges but it's going as planned and we feel pretty confident about expanding our participation as things change and as the government changes how they administer these programs.

Our next question comes from Chad Vanacore of Stifel. Your line is open.

I'm going to surf on Ryan’s question on bundled payment and so what do you see as some of the opportunities and pitfalls of participating in the bundled payment program?

I mean it's just a change in structure altogether I mean you're going from a daily rate to a capitated type program and so there's obviously a lot more risk shifting towards us but again with the right technology, the right types of measurement, the right indicators that we're looking at constantly and coupling that with development of more sophisticated care pathways so we're managing the patients better from the beginning. It's something that it takes quite a bit of effort to do, but frankly it's some form of value-based reimbursement is ultimately better for the patient and something that I think we feel comfortable in managing because when this is a business you care as deeply about as we do it's -- you want innovation that drives you that even reimbursement based innovation that drives you to care for the patient better, manage their disease states more efficiently and get them to the home environment quicker. So, there will be challenges and we expect that the program will change. It does in different times before it is fully implemented and then change several times after that. But just the core system of how we manage as an organization and measure we feel really comfortable that the advancements we're making and how we manage through this.

And I think it also allows us to have stronger relationships with our upstream and downstream partners because of the systems that we're building and the information that we're measuring and communicating to make sure that we have the clinical pathways developed, kind of from what they're doing in the hospital down to what we're doing in then following that through to the home health it's really opened the doors of communication as we've gone across and talked to the hospitals and the home health agencies about how do we have the best practice for this particular disease state which then we hope overtime will allow us to have stronger relationships and then hopefully will also give us more patients from them.

And Chad to that end, we have a whole team of folks that are dedicated to this, this isn't marketing, this is really finding out what the hospital -- what's important to the hospitals, matching up our capabilities with their capabilities and then doing the same downstream from us even and so far so good.

So, on the acquisition front, you did a great job in the past couple of quarters in acquisitions, can you give us some color on what the pipeline looks like now compared to the past couple of quarters which have been robust?

Pipeline is still very strong, we continue to see a lot of acquisition opportunities from larger providers like I said earlier we may have some outliers, smaller regional operators there are a lot of those, very fragmented as you know and then we continue to be approached by a lot of REITs and other real estate owners that look at our balance sheet and would love to have Ensign as a tenant. So, all those things add up to a lot of the deal opportunities and we'll remain as picky as ever. We passed obviously on most of the things we see, but looks for 2016 we'll -- looks to be a year with a lot of opportunity.

Now, amongst all the activity this quarter seems like the urgent care facilities have kind of gotten lost in the mix, how are they doing as far as stabilization and when are they going to contribute to earnings?

That is good question. So, actually they, on one hand they're actually contributing their earnings but we actually just switched and went in house in our -- in the way that we build and so there's been -- when you do that just as any change any significant change in reimbursement there's a bit of a delay, but – and that's something you probably didn’t want to know, but setting that aside, we actually have done very well in all of them except the brand new ones, the ones that we just opened over the course of the last six to nine months are, they struggle in the beginning and -- but overall we have a meaningful positive EBITDA coming out of our urgent care operations. But the fact is though they are still a small-small part of the organization and so we haven’t broken them out yet and really there is no need to break them out because they are a very positive EBITDA at this moment.

And our last question comes from Dana Hambly of Stephens. Your line is open.

I had the question on -- there is a notion I am not sure how widespread it is but at least in the investment community it seems to be fairly accepted notion with all the changes in reimbursements coming for post acute that inevitably margins are going to decline for the skilled nursing industry. I just wanted to get - when you look at your mature portfolio how are you thinking about that, is that an accepted reality or is it just -- how do you plan for maintaining margins or increasing margins in this environment?

Look I don’t really understand the logic there I mean I -- everything that we see points to a positive reimbursement environment both on a state Medicaid level. But I think there is a little too much that’s played into the changes in the value based reimbursement and the drive to head down that path. At the end of the day, there might be some shrinking length of stay but the providers that are most prepared will see an increase in volume because they know how to manage the patients effectively. And likewise if you’re effective in managing the patients today you have the opportunity for even potentially better margins. So yes I think with any change there is the potential for short-term swings but long-term again we have said it before it’s right for the patient, it’s a good idea for more value-based reimbursement. But because there is not a lot of certainty surrounding the program itself, I think it’s a bit of a lead to make the assumption that margins are going to be affected negatively.

And I would add that it’s similar to how we look at Managed Care margins. But if you look at it just on a top revenue basis on a per patient day you’re going to see that the number as well but you also need to dig in and see that the cost to provide those services are lower and so I think when you look at it as a whole Managed Care patient is someone else is actually managing that episode we’re participating in that episode just like these new payment to health plans are going to be -- it is just that different person is controlling the episode. And so I think with our highest percentage of Managed Care patients we feel really ready to -- and prepared for the new environment had it come.

Yes and just to piggy back on that Dana there are a lot of costs we absorb in a fee for service environment that we wouldn’t absorb anymore, not any patient related cost. Nothing to do with therapy or clinical or anything like that but a lot of back office things that we have to do in a fee for service environment that we wouldn’t do in a bundled payment environment. So, while there could be a revenue change we don’t know yet while there could be a revenue change there should also be a cost of services change as well.

Just last from me the new healthcare resorts which sounds lovely by the way. This is the economic model I assume that’s mostly Medicare short stay on the skilled nursing side and are you getting a lot of -- and I know it’s early it just opened. But is the idea that they transfer over into the private pay assisted living for six months. I am just curious how this all works?

Yes I think potentially I mean look they are really two separate businesses in one I think one is a good complement of the other for sure but this is really a it is really a dedicated transitional care model with a higher end assisted living service offering. Certainly for those that have the unfortunate circumstance of not being able to kind of recover back into the home environment which is the vast majority of our patients we have a very nice high end assisted living option for them to have there as a back stop. But that’s not necessarily the design, not necessarily a seamless transition to assisted living. Most of these folks that we’re taking care of have pretty short-term high acuity needs that we can be resolved and then we can transition them to the home environment quickly.

Dana it’s really a way for us to enter markets where we’d like to be that don’t have the right kind of product available to us for the population that lives there. And so that’s why this isn’t going to be the majority of our growth. It will be another lever that we pull or another small part of our growth strategy. But -- because there are other markets like this but it’s not the majority of our markets, it’s not something we’re going to do everywhere. But we like doing it where it makes sense to do it.

And as I am showing no further questions at this time, I would now like to turn the call back over to Christopher Christensen.

Thank you, Latanya. We appreciate your help with this call. And thanks for everybody’s time today we’re grateful for your trust, confidence and your listening here.

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