Good day, ladies and gentlemen, and thank you for your patience. You've joined The Ensign Group's Third 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 conference may be recorded. I would now like to turn the call over to your host, Mr. Chad Keetch from The Ensign Group. Sir, you may begin.

Thank you, Latif. 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 www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific on Friday, December 2, 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 on 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 terms we, our or us are not been 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 subsidiary 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 is available on our Form 10-Q. And with that, I will turn the call over to Christopher Christensen, our President and CEO. Christopher?

Thanks, Chad. Good morning, everyone. Thanks for joining us today. Yesterday, we reported GAAP earnings per share of $0.21 and adjusted earnings per share of $0.32 which was consistent with our expectations. While we expect to do much, much better, we're also very pleased that we have increased revenue and earnings and are optimistic that we remain on track to achieve our 2016 annual guidance. As we anticipated the sheer number of transitions including the Legend acquisition and related collection challenges along with pressures on occupancy and skilled mix in a few of our markets, all combined to impact our results. And to be clear, when we revised our guidance last quarter, we expected to see the LION's share of our remaining 2016 performance to come in the fourth quarter. This fourth quarter surge is typical for us as we always see our best occupancy and skilled mix increases as well as the effective rate increases in the last three months of the year. We continue to integrate a significant number of new operations across our organization and as we've done so, we've been particularly careful in taking the necessary steps to set these operations up for success over the long-term. Our talented local leaders are building exceptional clinical systems to attract higher acuity patients, growing occupancy and rightsizing expenses one operation at a time. All of these efforts obviously impact our short-term performance in our newly acquired and transitioning operations, but it also impacts our same-store results. Given our very field driven approach to transitions, the leaders of our same-store operations have been working tirelessly on the fundamentals in our same-store operations while simultaneously integrating 74 recently acquired and 29 transitioning skilled nursing and assisted-living operations into our organizations. We're excited as ever about each of our acquisitions and…

Thank you, Christopher. During the quarter, the company announced the acquisition of the operations and real estate of Riverbend Post Acute Rehabilitation, a 152-bed skilled nursing facility located in Kansas City, Kansas. Riverbend which had been previously operated by non-profit organization adds to our growing presence in a market where we have a strong cluster of healthcare resorts and adds Medicaid beds to our short-term transitional care operations. Ensign also announced that Cornerstone Healthcare, Ensign's Home Health and Hospice portfolio subsidiary acquired the assets of Kinder Hearts Home Health and Hospice in Abilene, Texas, effective September 1. This strategic addition to our home health and hospice operations combines with our three skilled nursing, assisted-living, and independent operations in Abilene and allows us to offer a full continuum of post-acute care to our patients and referral sources in that area. In addition during the quarter, Ensign's affiliated operating companies opened two healthcare resorts including the Healthcare Resort of Waco with a 70-bed licensed transitional care operation and 30 private assisted-living suites; and the Healthcare Resort of Topeka, Kansas, with 70-bed licensed transitional care operation and 35 private assisted-living suites. These new constructive healthcare campuses add an important strategic service offering and will complement our growing number of healthcare operations in several markets. This brings our total number of Healthcare Resorts to seven with four in the Kansas City market, two in Texas, and one in Colorado. We also recently announced that our urgent care subsidiary, Immediate Clinic Seattle, Inc., agreed to sell substantially all of its assets related to its 14 urgent care operations in the Greater Seattle market. The asset sale includes 14 clinics and together with the Integrity Urgent Care transaction in Colorado, which was sold in the third quarter represents all of the remaining Ensign unaffiliated urgent care…

Thanks, Chad. As we have said before our performance is selling the product of any one thing but rather reflects the aggregate effect of dozens of factors across the many various geographies we serve. This quarter is another example that illustrates that our results are often impacted by a number of small things rather than anyone big headwind. As we anticipated many of the same challenges we mentioned last quarter carryover into the third quarter, including a slower than usual transition of the Legend operations in several of our newly acquired operations, typically higher bad debt on newly acquired operations, which was exacerbated by the sheer volume of transitions, and softness in same-store occupancy which was partially offset by a solid tick upward in managed care days. And as those of you, who have been following us know the Legend acquisition is the largest single transition we have completed to-date. And that acquisition was on the heels of our largest growth here in our history in 2015. As we said last quarter, due to the sheer number of newly acquired operations in certain pockets of the organization, the transition of Legend is expected to take longer than it usually takes us. As I mentioned earlier, this has not only impacted the results of these newly acquired operations but it's also impacted our same-store results in Texas, as the integration has taken the full focus of our best and brightest in the field and from our service center. We are encouraged by the improvements that we started to see in these operations even if the financial outcomes have yet to fully materialize, we're confident that these operations are on the right track and will strengthen us in Texas because of how they've been transitioned with a relentless focus on the fundamentals…

Thank you, Christopher, and good morning everyone. Detailed financials for the quarter are contained in the 10-Q and press release filed yesterday. Here are a few highlights for the quarter when compared to the third quarter of 2015. Consolidated GAAP EBITDAR for the quarter was $64.3 an increase of 19.7% and consolidated adjusted EBITDAR was $68.1 million, an increase of 19.4%. Same-store revenue for all segments grew by 4% to $251 million and same store TSA revenue grew by 3.3% to $233.6 million. Transitioning revenue for all segments grew by 4.6% to $62.4 million and transitioning TSA revenues grew by 5.6%. Cornerstone Healthcare, our Home Health and Hospice subsidiary, grew its segment income by 10.6% and revenue by $4.3 million to $29.5 million for the quarter, an increase of 16.9%. And consolidated GAAP revenue for the quarter was up $77 million to 21.9% over the prior year quarter to $428.1 million and consolidated adjusted revenue for the quarter was up $66.5 million to 19.3% over the prior year quarter to $402 million. All of which resulted in a GAAP diluted earnings per share of $0.21 and adjusted earnings per share of $0.32. Other key metrics as of September 30 were cash and cash equivalents of $40.4 million and $290 million of availability on our $450 credit facility with an according of $150 million and 32 unlevered real estate properties. Operating margins were impacted by a number of factors including a 196 basis decline in same-store occupancy which was partially offset by a 126 basis point increase in managed care days. In addition, we continue to see growth in our other skilled days and assisted living patient days with an increase of 750 basis points and 67 basis points respectively. As we discussed last quarter after we acquired our skilled nursing…

Thanks, Suzanne. We want to again thank you for joining us today and express our appreciation to our shareholders for your confidence, trust, and support. We also want to express our appreciation to our colleagues in the field, in the service center for making us better every day and for all the work that they've been building us to improve. I guess before we close, we can turn the Q&A portion of our call over to Latif, if you remind instructing everyone on that, Latif.

It would be pleasure, sir. [Operator Instructions]. Our first question comes from the line of Seth Canetto of Stifel. Your question please.

Can we just drill down a little deeper into the low occupancy and limited geographies, I mean can you guys attribute that to anything specific and may be talk about exactly what geographies those are?

Yes. I think that frankly the majority of that was in Texas and it was related to some of the things that we said in the script the transition of the enormous number of facilities not just the Legend facilities but also smarter acquisitions that we have taken over the last year-and-a-half. And it's just been a bit of a strain, I think on the resource that we have and as a result you might imagine we've adjusted some things and increased some things and put in some additional resources. So that that's not the strain that it has been and I think we feel pretty confident that we'll see a good strengthening of occupancy in Texas, in the fourth quarter.

All right. So you wouldn’t attribute any of the I guess low occupancy or underperformance to distractions really it's not like, efforts are in Texas or other geographies are underperforming nothing like that right?

I think most of other markets saw an increase. We did -- we did see for different reasons that I won't get into because they are not material in a market in Washington, in a market in Utah, and a market in but you know select markets but the vast majority of that was in Texas.

Okay, great. And then just switching to pricing last quarter it sounded like there was different views where sellers who want to anticipate a high takeout and buyers more looking to take advantage of the fragment in market, it sounds like we've reached a turning point, did I get that right in the opening remarks?

Yes I think that that's I will let Chad correct what I say here but from I think -- from our perspective, I think that's more of an intermediate term. But I think it will happen some X member was talking it was not me -- but I think it will -- I think over the next several quarters, we're going to see that opportunity but Chad, you can correct what I said?

Yes look I think a lot of the transactions that are out there are sort of larger portfolios and several dozens of assets that have been out there and typically those larger portfolios tend to attract more competition and more aggressive multiples. And so but I think with the lot of the smaller sellers, there has been some expectation to receive a premium that may be the larger portfolios are getting and while we see some of that persisting, we do see some of that changing as well but we're just at the beginning stages of that.

We definitely think Seth that as this the value-based payment takes greater hold in more markets and those that didn't prepare for it begin to realize that if you're to stay there definitely will be an opportunity for consolidation.

Okay, great. And then touching on the guidance that reaffirms so that's good to see, the large ramp I know if you look at like 2014 and 2015 you can see that large ramp in 4Q, is it mostly seasonality or are you guys expecting improvement from Legend portfolio and it just sounds like a number of factors from Medicaid reimbursement as well is that correct?

Well since you brought 2014 and 2015, I think historically it is partially seasonality and usually that's when there are any rate increases that's when we see them although they haven't been tremendous before this year in recent memory but part of it is what you said as well, I mean part of it is the expected improvement in Texas and the expected improvement in a couple of other markets that are still doing well but can do much better. But the fourth quarter as you said correctly it's always been better than the second and third quarter historically and that is partially due to seasonality.

Thank you. [Operator Instructions]. Our next question comes from Frank Morgan of RBC capital Markets. Your question please.

Good morning. I was hoping to get a little more color on some of the markets where you are expecting to see the benefits of this narrowing of network you obviously called out that I think it was the Horizon and the Banner example. But I guess what gives you confidence that you will get this patient flow hopefully starting sometime in the fourth quarter and build into next year but may be just a little color there to start with?

Yes for certain reasons I won't tell you all the details but some of them are formal contracts signed and that have been delayed, some of them are narrowing of networks and formal arrangements that are just starting now. And then some of them are more informal, just a group of one hospital system selecting a few dozen facilities where they used 10 or 12 dozen in the past but we've already seen that, you mentioned Horizon, we've already seen that in places like Arizona and California where there I guess depends on how you look at it, but they are ahead of the game in terms of value-based payment and in terms of some of the hospital systems. But the places that we haven't seen as much of it that we expect to see in the future are places like Texas and Utah and some in Idaho, and then we have some smaller markets that are less matured but those are some of our bigger states. And we will obviously, I mean Frank even though we have seen it in California, Arizona that will continue to expand and grow to other hospital systems and so we will see the impact in California and Arizona as well. The places we've not seeing a lot of it in the near future are some of the Mid-Western states.

Got it. And certainly Suzanne alluded to the rate growth, it looks like the rate growth was really very strong actually in the most recent quarter and I'm just curious if there is anything in there that we should call out and then how might we think about it, obviously you mentioned the market basket rate increases for Medicare. But may be sort of a survey around some of the States where you're expecting to see increases?

So one thing I will tell you, it's not a call out, we are trying to figure out a way, I don't know if you remember a couple of quarters ago, when we talked about this quality bonus, if you will, that that we received in one state in particular California. We're trying to figure out a way to spread that out over several quarters and make it a little bit more equal across time. So that is in there but you should see that in there now every quarter. So I hope this is sort of a new norm than what you saw about the quarter's right in the second quarter or the first quarter?

During the first quarter and then --

What you saw in the first quarter was a little bit abnormal and we didn't want to keep doing that every year, so we're trying to conservatively spread it across time and hopefully that's sort of a new norm.

It's the clarity that we are getting from the state unable to project it and so as we gotten more and more clarity and better tools in order to incorporate then we can actually project it over the year instead of having it hit all of one given quarter. And so there is a little extra in their Q3. But as Christopher mentioned, in Q4 we will also be able to take some of them out because now we are going to be able to spread it over the entire year.

Okay. So you just approve it now versus waiting on cash receipts, is that a way to think about it?

Okay.

We are taking conservative amount, we are not accruing all of it but we are trying to make it so it's not this crazy amount in the first or second quarter every year. Frank there was also --we also did receive some increases in California that's in there, that is not a one-time thing but it and that happened in August versus most of the states that happened in the fourth quarter.

Okay. And what about other states where rate increases will be helping you in the fourth quarter on the Medicaid side?

Yes, so Arizona is also going to help us in the fourth quarter, so we will have that and then California and like Christopher mentioned those two months in the third quarter but we will have a full three months in the fourth quarter, so that actually helps quarter-over-quarter. And then the big one that's out there is the Medicare increase which is the market basket is 3.4% we will be a little bit higher than that market basket increase just to see how our rugs have just fallen out. So that will help us as well in the fourth quarter.

Okay. And just any updates certainly I remember last quarter you re-called out some of the impact disruption from the IT conversion I think to the workday payroll system related to the whole payroll base, where we own that and are we there yet in terms of instability to help us manage labor?

We are not there yet but we are much, much better than we were. And I feel confident that by the end of this quarter we will be in good. But it's not nearly in the third quarter what it was in the second quarter and the fourth quarter will be substantially better and I don't foresee any abnormal challenges by the end of this quarter.

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

Just a question back to the managed care narrow networks, I was wondering if there's anything in place either contractually or even just informally regarding some of the listeners that are one to two star ratings that you recently acquired I mean, what their payers reaction or approach to those facilities?

If we get them in markets where we have a great reputation and where they know we will move rapidly through that three, four, five star they may allow us to incorporate those but most of the time they are rejected for the first little while and we have to improve those up to a much higher star rating to be included which on one hand is more difficult in transitioning these facilities from a managed care standpoint. But on the other hand it ensures as you have higher quality, it sort of gives you more of an exclusive right to these patients in the future. So I still think it's something we embrace, it may take us a little bit longer to, I won't say it takes us longer to turnaround these challenged operations. It just makes us analyze these things differently because sometimes we might be the only facility in a market that is, let's say we're on the outskirts of Tucson or something and we got a great reputation throughout Phoenix and they'll have anybody that they feel comfortable within Tucson. Often times, they will allow, they'll give us what you call I guess it --

Holiday.

Past time.

Holiday, what I'm looking at board --they give us a time period to say hey look let's gets a grace period. Thank you. A grace period to get us to three, four, five star and that's what we've seen happen in a few markets. But most of the time, if you don't have that relationship and you don't have the proof in your quality; it's very difficult to be included with the lower star rating.

Yes, I will just add I mean Horizon was the building we highlighted today was one that we actually were able to include even though not didn't meet those star rating requirements at the time we acquired it. And then obviously when we are underwriting an acquisition, we certainly take that into effect.

Okay. Any sense of how many you bought within the last couple of years that you have been able to raise their star ratings up to the above the threshold?

We could probably get that for you but I don't know that off the top of my head. I mean it's -- remember that, I would say that in the first couple of years we're generally able to increase the star rating by -- but it takes somebody putting us on hold or it takes three years to meaningfully change the star rating, that you can't go from one to five in a shorter period of time but I don't know that number off the top of my head, it's several dozen.

Okay. And just a last one on this point, you've mentioned in the past potentially looking at altering may be your care plan designs, how much flexibility do you think you may have within some of these networks to try to change may be your care design and lower your cost per day?

When you say care design.

I guess I'm talking about, I thought you said in the past that you looked at may be ways of ultimately reducing your cost per day within a managed care environment that could potentially maintain your margins.

Well one of the things we mentioned in the past is there, sometimes your revenues are smaller but you carve-outs are better so that there are some expenses that some of these managed care organizations pickup and so your margins going to expand that way because under Medicare obviously that doesn't happen. There aren't really except a couple of rare things, there aren't any carve-outs at all. So that that's one of the ways that that there is a lowering of cost. There are other things too there are requirements that some of the Medicare advantage plans have that are sometimes less stringent I guess not on the care side but in terms of documentation requirements and other things but there are a number of small things. The biggest one is that ancillary piece though, I'm sure that's probably what I was referring to Ryan when I talked about that.

Okay, that's helpful. And then may be big picture talking about value-based care. I know there's a lot of attention being paid to it. And seems more recently some of the other post-acute operators or some home health operators are talking about a greater degree of care coordination especially I guess including the joint patients and are citing a reduction in net discharges by 400 basis points. I would appreciate your thoughts on, that's something is that consistent with what you're seeing in some of your markets and if so what are the things you're doing to manage through that?

Well in almost every market that we're in, not everyone but almost certainly every major market we have both home health hospice and I said both we have home health hospice, assisted living and skilled nursing who and they work closely together to manage through these expectations and we do have a few markets as you mentioned that are discharging more of certain diagnoses but it's only certain diagnoses that somehow in certain circles it's been expanded to all diagnoses and it is just a couple where they are choosing the home health route instead of the skilled nursing route. I can think of one market in particular in our organization where that's the case but one of the things that we're doing collectively with our home health on the skilled nursing front is presenting evidence that the re-hospitalization rate is smaller in the case of the skilled nursing as it relates to our skilled nursing facilities not the overall industry. And so there is a joint effort between skilled nursing and home health to show the hospitals, that there are times where certain diagnoses were they are better off in a skilled nursing and there are times where they are better often in home health. And it's up to us to show them what that data really is for Ensign, not for the industry a large but just for our Ensign operations in each individual market. And I think it's working to our advantage, it's something that would probably be more difficult for us to do it if we didn't have the home health operation that operates very independent from our skilled nursing but they still are interested in helping each other to become better. That answers your question sort of.

Yes, yes and I appreciate that. May be last question from me, you mentioned on the past just the nurse staffing pressures, any change in that trend or have you made any progress I guess in recruiting and retaining nurses?

Yes, we have made progress on many fronts that I won't share on this call but from different sources but it's still a challenge, I mean the unemployment rate in many of our markets is very, very low. The Texas market, the Utah market, the Arizona market it's I don't know that it's at historical lows but its close. And so that brings up some challenges for us that we have to address and we're finding ways to recruit locally and outside of our markets and also finding ways to train and build stronger relationships with some of the nursing schools around us, some of the universities around us, and that’s helped us in a big way and we think it'll help us in a bigger way over the course of the next 12 months.

Thank you. Our next question comes from Dana Hambly of Stephens. Your line is open.

Chris just on the same-store occupancy, can you tell if the bigger impact is coming from kind of this disruption in Texas or is that the lumpiness in the narrow networks?

I think it's probably the former not the latter, the latter is just an additional thing that's -- it's certainly that's not related to Texas. That's more related to a few other markets where we've seen a bit of softness. I feel like we did the right thing but maybe we were premature and I think that the volumes are only going to increase in those other markets but Texas is by far the biggest contributor and that is not related to the narrowing of networks or the delay in narrowing of networks. So I just wanted to add that because it has impacted our senses in a few other markets.

Okay, that's helpful. And I know last quarter you called out I think it was three new states that you had entered of kind of waiting on results was that less disruptive in the third quarter or not really.

Yes, but still -- they're still not doing what they should be doing and we're very hopeful that those three new states will contribute in the fourth quarter. In fact I feel somewhat confident that that all three of them will which is a better position than we had. We generally have a difficult time as we're building higher quality outcomes and building relationships that we don't have and finding the right leaders in those new markets where we don't have a reputation. And so it's we often almost always frankly, Dana, our cash negative in new markets. But I am see that [indiscernible] but I think we will be, self-sustaining in every one of those states in the fourth quarter.

Okay. And then Suzanne on the cash flow the operating cash one of the stronger quarters we've see didn't look like there was much in the way of tax payment in the quarter was there anything else that that would be unusual in that number?

It's stronger collections I think that we had prepaid that we're able to use for taxes and then just stronger collections for the quarter.

Okay. And then last one on the adjustment schedule there is like $3.7 million adjustments for rent, I think that's related to new development fee. Can you just tell me how many new developments are out there, what stage you would expect them to open?

So we have currently seven healthcare resorts that are in different stages and that one other, one that's not a non-healthcare resort that are in development work. We are going to bring some of those in actually three of them in, in the fourth quarter. So a portion of that will come in because they've been open for a year and so as they hit that year mark, we start to bring them in.

Okay. And are they profitable as they come in?

We expect in the fourth quarter that they will be, yes. In the third quarter, no, they were not, not third quarter.

As there are no more questions in queue, I would like to turn the call back over to Christopher Christensen for closing remarks.

Thank you, Latif and thank you for your help. And I just want to thank everyone again, I'm so grateful for the people that are helping us through this time where we are taking on more than we have think on the past and I'm really pleased with how we're progressing and thank you again for your trust and thanks everyone on this call for your attention. Have a great day.

Thank you sir and thank you ladies and gentlemen for your participation. That does conclude your program. You may disconnect your lines at this time. Have a wonderful day.