Good day, ladies and gentlemen and welcome to The Ensign Group Incorporated First Quarter Fiscal Year 2016 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, this call is being recorded. I would now like to turn the conference over to Chad Keetch, Executive Vice President. Please go ahead.

Thank you, Sabrina. Welcome everyone and thank you for joining us today. We filed our earnings press release yesterday which can be found on the Investor Relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5:00 PM Pacific on Friday, May 27, 2016. Before we begin, I have a few formalities to cover. 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 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 to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q. And with that, I’ll turn the call over to Christopher Christensen, our President and CEO. Christopher?

Thanks, Chad. Good morning everyone. We’re pleased to report that we just finished another great quarter with an adjusted earnings per share of $0.34, which met consensus estimates. We are grateful to our operational leaders for their exceptional performance both clinical and financial who continue to work tirelessly on the transition of our newly acquired operations across the organization including 18 new operations in Texas while simultaneously driving improvements in our same-store operations. It's because of each of them that we were able to achieve these results. As we have explained before, the talent, culture, vision and hard work of our incredible local leaders, their teams and their helpful support of the Service Centre has served us well in all kinds of environments including during the periods of extraordinary growth. And as our results from this quarter demonstrate yet again, we continue to have significant growth potential across all of our operations. With the addition of 18 new operations in Texas a few weeks ago, we now have 69 recently acquired operations which is by far the largest number of operations in that grouping in our organization's history. This gives us greatest organic growth potentially we've ever had. While we are pleased with the first quarter contribution of some of our recently acquired operations, the majority of our newer operations still have significant potential upside. For example, after removing the boost that we received from the performing assets, we recently acquired 75% of our operations in the recently acquired bucket. Our traditional turned around opportunities with an average occupancy of 65% and an average skilled revenue mix of 45.7%, which is substantially below the average occupancy of 80.1% and 53.6% skilled revenue mix respectively in our same-store operations. Even with mild operational improvements, we expect most of our recently acquired…

Thank you, Christopher. During the quarter and since, the company announced the acquisition of 18 skilled nursing operations, one healthcare resort, two hospice agencies and one home health business. All of the skilled nursing operations were previously operated by affiliates of Legend Healthcare which is providing high quality rehabilitation and care services across several markets in Texas since 2001. With the addition of Legend Healthcare operations, we added 2,177 skilled nursing beds across 18 operations which had an average occupancy of 77% as of May 1, 2016. The operations in the real estate assets acquired were purchased with cash with cash proceeds from Ensign's revolving line of credit and will be operated by Ensign’s Texas based subsidiaries. We were able to work collaboratively with the sellers and our new partner, National Health Investors or NHI, in an off market transaction. We have been admiring the Legend team for many years and found their value system and their culture to be a very close fit with ours. This transaction has been in the works for quite some time and we were grateful to Legend's founders and NHI for providing us with an unusual amount of access to the operations and the operational leadership before the transition date. With an acquisition of this size, this access was critical to allow us and our experienced teams of local leaders in Texas to begin collaborating with Legend on the transition several weeks before the closing date. As a result, at midnight on May 1, we reported to integrate each of these new operations on the day of transition. In addition because these operations fit so nicely into the geographies currently served by the 27 operations we had in Texas before this transaction, we were able to integrate these operations into our operating cluster model…

Thanks Chad. Before Suzanne runs through the numbers, I’d like to offer a few examples of how our key field leaders and their teams were able to drive improvements in recently acquired operations including acquisitions where we had performing teams already. In December of 2014, we made a strategic acquisition in San Diego County including The Cove in La Jolla, California. In its first full quarter of operation following the acquisition, the co-census was 65%, but the skilled mix revenue of the sniff was 87% and its EBITDAR was a healthy 12.5%. Led by Executive Director Jenna Ramesh and Director of Nursing Arvie Mora, these leaders methodically and relentlessly improved their operations reputation of quality in the Greater San Diego medical community. With long term success as their goal, Jenna and Arvie have retained and recruited the best talent in the community and have empowered their team to take ownership for achieving high quality outcomes. As a result of their focus, they have improved the reputation in a highly competitive market and have seen skilled mix revenue still increased by another 358 basis points to 91% of revenue as compared to the first quarter of 2015. This has led to a 61% increase in EBITDAR quarter-over-quarter. In April of last year, we acquired Coral Desert Healthcare in St. George, Utah, a newer constructed facility near the campus of the Intermountain Healthcare's major hospitals in Southern Utah. At the time of acquisition, the operation provided services to skilled patients only and had a 99% skilled mix at the time we acquired it. CEO and new market leader Tyler Hoopes, and Director of Nursing, Carrol Andersen began using their reputation and trusted relationships with the local health care community to drive significant improvements in occupancy from 68% at the time of acquisition…

Thank you, Christopher and good morning everyone. Detailed financials for the first quarter are contained in the 10-Q and press release filed yesterday. Highlights for the quarter ended March 31, 2016, as compared to the quarter ended March 31, 2015 included record, GAAP, quarterly revenues of $383.2 million or 25% increase. Same-store TSA revenues increased $8.2 million or 3.7%. Same-store managed care days increased by 15.7% over the prior year quarter. Transition in revenue grew by 9.7%. All of which resulted in GAAP diluted earnings per share of $0.18 and a diluted adjusted earnings per share of $0.34 for the quarter. Other key metrics as of March 1, 2016 included cash and cash equivalents of $51.4 million, and $180 million of availability on our $250 million revolving line of credit with an accordion of $150 million and 32 unlevered real estate assets. As we discussed last quarter after we had acquired a skilled nursing facility, we experienced a temporary delay in our ability to collect our receivables. More specifically following the transfer of ownership, we undergo a process with Medicare, Medicaid, and Managed Care Agencies to transfer the contract and billing codes to an Ensign-affiliated account. This process results in delays in the receipt of payments for services provided at our recently acquired acquisitions. As a result, we experienced temporary spikes in accounts receivable following acquisitions but we wait for the paperwork to be complete. This temporary delay in collections results in an increase and our account receivable can negatively impact free cash flow which is consistent with what we would expect during periods of significant growth. As Christopher mentioned, we are increasing our guidance for 2016. We are projecting $1.625 billion to $1.66 billion in revenue and $1.45 to $1.52 per diluted share. The increased 2016 guidance is based on diluted weighted average common shares outstanding of approximately $52.6 million. The exclusion of acquisition related costs and amortization costs related to patients based intangibles, the exclusion of losses associated with the development of new operations and startup operations which are not yet stabilized, the exclusion of costs related to system implementation, the exclusion of results at a single closed facility, the inclusion of anticipated Medicare and Medicaid reimbursement rates increases net of provider tax, a tax rate of approximately 38.5%, the exclusion of stock based compensation and the inclusion of acquisitions closed today. Based upon the magnitude of acquisitions last year and so far into 2016, our expectations will be that much of this growth will be provided in the second half of 2016. Additionally, other factors contributing to our asymmetrical quarters include variations in reimbursement systems, delays and changes in state budgets, the seasonality and occupancy in skilled mix, the influence of the general economy on our census and staffing, the short-term impact of our acquisition activities, variations and insurance accruals related to our self-insurance programs and other factors. With that, I'll turn it back over to Christopher. Christopher?

Thanks Suzanne. We want to thank again - thank you for joining us today and express our appreciation to our shareholders for their confidence and support. I also need to express appreciation to our colleagues in the field and the service center. Frankly their tireless effort and the sacrifices that they've made and the results from the sacrifices have been absolutely inspiring to watch. It's been a challenging time for the organization and I'm very grateful for all that have pushed and pulled along with us. I guess I'll now turn to Q&A portion of our call over to Sabrina if you would instruct the audience please.

[Operator Instructions] And our first question comes from the line of Chad Vanacore of Stifel. Your line is now open.

Good morning. This is [Seth Cohn] [ph] on for Chad. First question, just looking at, you guys reported higher skill mix and overall EPS in line with estimates, but your margins looked weaker than expected. Anything, in particular, pressuring margins. Is that from new operations that still have upside, or if you could provide more color there?

Yes, I have to look at what you're looking at Seth, but I'm guessing that it's probably because of the influence of new acquisitions it's - we haven't - they haven't had as big of an impact. Are you're looking at same store overall?

Same-store.

Okay. So it's not the new acquisitions. When we look at our margins have been pretty consistent, what are you looking at?

I don't think you guys provided any same-store margins, so I'm just trying to get a sense of how much they've moved over the year?

Yes, that's good. I'm sure it's probably hard to see from what's provided just in the same-store. But our margins have been pretty consistent over the last many quarters. I think one of the - so that I know that doesn't answer your question. But it's probably hard to see that the pressure that the new acquisitions are having on the margins I mean if you look at the enormous revenue representation of the new acquisitions and those margins are probably many, many points lower than the same store there's no probably about it. There are many, many points lower than same-store. But our margins have been very consistent over the last many, many quarters.

Yes and even overall if you look at the non-GAAP revenue to non-GAAP EBITDAR, that actually we did improve over on a consolidated basis even over what we did in 2015. So I think just kind of looking at overall the margins are actually going up if you look at non-GAAP revenue to non-GAAP EBITDAR.

Okay great.

But Seth I do want to make sure, we're hearing you and we're going to look at some going to see what we can do to make it more obvious without doing something we're not supposed to do.

Yes, that's fine. And then my next question, circling back to the conversation last quarter on the California Medicaid impact. I know you guys had mentioned that year-end bonus that you got, and I was just curious to see if there was any trickle into 1Q 2016 from last year? I think it was up 1.3% year-over-year.

Yes, we had a small trickle into the current quarter of about $1.5 million coming into Q1.

Okay. All right. Great. And then as we get closer to the implementation of the CJR and BPCI, does it get more difficult to manage the newly acquired operations in the sense that you have less time to prepare them for the reimbursement changes?

That's a good comment, I think in certain markets it could take a little bit more time to turn them around to become a trusted partner because you are being excluded from certain relationships that maybe you weren’t excluded from in the old days, in quotation marks. But I think that, I still think the efforts worth it and while it might take an extra few quarters when you learn that reputation and you build those relationships and your quality is what it ought to be I think that it would be more long lasting even though it might take a little longer.

I'll just add to that that certainly as we evaluate acquisition opportunities, we look at that and underwrite their inclusion or exclusion from those relationships as part of the evaluation.

All right, great. Thanks very much for the answers.

Thanks for your questions.

[Operator Instructions] Our next question comes from the line of Ryan Halsted of Wells Fargo. Your line is now open.

Thanks, good morning. Wanted to go back to your comments at the opening where you talked about the shift you're seeing into more managed care. I was hoping maybe you could dive a little deeper into that and call out some trends that maybe you're seeing that are contributing to that. Are you seeing a very direct shift from fee-for-service into managed care, or are you also taking market share within the payer networks that you're in. Or are you expanding it to new networks. Any more color around that trend, I think would be very helpful.

Yes, I think surprisingly it is more the latter than the former. I was actually a little surprised to see in the quarter that our Medicare percentages dropped up very slightly. And so I think it is more of a shift in taking market share. Our length of stay is starting to level off on the managed care front more than we've seen in the past. And I think that that's partially result of the relationships and understanding one another between managed care hospitals, doctors and us. But yes, as I think I said somewhere in the script there was - our volume increased by a fairly steady amount and I don't think we - I think in one of the charts that we gave, we show what's happened with our Medicare and I think it only dropped up by like 20 basis points or something like that. So I think it's more a shift of market share than it is shifting from - we’re not seeing as bigger shift from Medicare to managed care as we've seen in the past surprisingly. And I would say that loudly it is surprising.

Okay. That is very helpful. You did - you mentioned length of stay leveling which is, certainly, very encouraging directionally when you look across the industry and some of the comments that some of your competitors are making. Can you talk about what your length of stay is on your managed care business relative to the Medicare book?

Yes, I'm going to let Suzanne give those numbers, but I do want to - I think one of the reasons is because we have been active participants in managed care relationships for a long time, it's represented a large percentage of our business for many, many years. And so I think everyone will see it level off as they get more and more experienced in it. I don't think it's just unique to Ensign, I just think it's where we are in our - the length of history we have but Suzanne can give you more data.

So, we've seen it drop from 17.7 last year to 17.5 this year. So very small drop quarter-over-quarter on the managed care skilled business.

Okay. Thank you for that. Maybe one last one on this topic. You also called out some of the exceptions you're trying to get in place to control costs to potentially offset any reduction in length of stay or any managing of the care. Can you give a sense of the percent of costs you think - your percent of per diem cost you think you could potentially strip out with some of these exceptions?

I mean if there's a cost there are a number of them. I mean it's - there's especially medications you got excess therapy you've got certain DME, you’ve got specialty beds, there are all kinds of things that when you come - and it's not a matter of removing them from the equation, the resident still gets them and hopefully gets them better because there are more parties are involved in the decision making, but there's more of a shared cost. So unfortunately too many of us pay attention to the revenue reduction and we don't look at the reduction in underlying costs, because with a highly skilled resident that's a huge portion of the overall costs, anything related to ancillary services is enormous, and if there's sharing of that, the reduction in revenue actually can result - I think I’ve said this a few quarters ago, but your margins can actually be a little bit better even if your revenues are less.

That's really helpful. Final question from me. Just any update on your deal pipeline? The broader M&A environment? Are you seeing any changes in the environment. Is it becoming any more competitive? Especially as you're seeing some new REIT players enter the market.

So this is Chad. It's interesting - I think the deal flow continues to be strong, we have not noticed an increase in competition. The deal we did in Texas was an off market transaction and we continue to get a lot of deal flow that way. And then on the onesies, twosies again we just haven't seen a lot of competition but the opportunities are definitely there, I think it's given all of our recent growth, we will continue to be selective and have the ability to do that, but yes it's actually not that different from last quarter.

All right. That's great. Thanks for all the color.

Thank you. And our final question comes from the line of Dana Hambly of Stephens. Your line is now open.

Thanks. Just a follow-up on that last one Christopher or Chad. We've seen cap rates for the industry start to - have been trickling down for several years now. You've seen some pretty big numbers on a per-unit basis paid for beds, that includes the Legends acquisition in there. So just trying to figure out, is it a buyers or sellers market? And there seems to be plenty of activity on the private side. Yet public equity seems to be fleeing from the skilled nursing space. So wondering if you could kind of piece any of that together?

I'm going to let Chad clean up what I say, but I have to clarify something that you said Dana, I'm sure you knew I would do this, but so Legend if you look at the performance of it, I wouldn't say that was a higher price or lower cap rate at all, but it is higher than we normally paid for sure and that's fair to say. I think that - I will admit that I'm a little surprised at the inconsistency of cap rates assigned to these deals. I'm a little surprised at how much some people are paying for deals relative to performance, but on "normal deals" I don't think that we're seeing prices rise, but as always on a highly performing deals that are widely marketed, I think you're right I think cap rates probably are continuing to fall. It appears that it is a tougher environment for those that are - that everybody is chasing.

Yes, I agree with that, I just sort of add, I think that it tends to be more of these kind of performing assets coming to market, I don't know that you would pay more today for performing assets than you would last year. But there are just more of those deals that make it look like the overall cap rates are coming down that's my view, but with respect to the distressed properties and the ones that are struggling I think it's similar as to how it's been in the past.

Okay. That is helpful. And then when we look at the growth in patient days on the same-store bucket, you address Medicare and managed care. The other skilled have been growing over 20% for a few quarters now, it looks like. I think Christopher, you talked last quarter about getting some of the ER admits and the respiratory and wound care. Is that what's driving the growth there? And is there anything changed in the market where we would expect to see a pretty exceptional growth in that bucket?

It's a little more complicated in this but simplified it's really Medicaid, it's sub-acute Medicaid that is growing. We're seeing the need and as we build our capabilities we're filing that need and we've seen a grow quite substantially in California, Arizona, a little bit in Utah. But primarily in those two states.

Okay. And then just a few for Suzanne. The construction costs in the quarter. Is that - that's related to the project's opening second and third quarter this year?

On a non-GAAP when you look at on the non-GAAP adjustment of the newly.

Yes, I think it's 2.7 -

Yes that's for the - it’s not just a construction cost per se, but it's just the cost of having everything set up and ready to go for those operations so that when they go through their certification costs, our time - they have to actually increase in cost and we're paying rents and everything on them so.

Okay. All right. And then what is the non-GAAP revenue for the quarter?

The non-GAAP revenue for the quarter is $371.8 million.

$371.8 million. Okay. You talk about your leverage comfort level in the past on - it's debt to EBITDAR. Is that correct?

Correct.

That you target. And what multiplier or cap rate do you use on the leases?

Great question, it's 8%.

8%. Okay, great. Thanks very much

Thank you. And I’m showing no further questions at this time. I'd now like to turn the conference back to Christopher Christiansen, President and CEO for closing remarks.

Thank you Sabrina and thanks everyone for joining us today. We appreciate your time.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.