Good day, ladies and gentlemen, and welcome to The Ensign Group First Quarter 2017 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 call is being recorded. I would now like to introduce your host for today's conference Mr. Chad Keetch, Executive Vice President. Sir, you may begin.

Thank you, Terran, and welcome, everyone. We filed our earnings press release earlier this morning and can be found on the Investor Relations section of our website at www.ensign.net. A replay of this call will also be available on our website until 5 PM Pacific on Friday, March 26, 2017. 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 the 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, The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. In addition, certain of our wholly-owned independent subsidiaries, collectively referred to as a Service Center, provide centralized accounting, payroll, human resources, information technology, legal risk management, and other centralized services, to the other operating subsidiaries, through contractual relationships with such subsidiaries. In addition, our wholly-owned captive insurance subsidiary, which we refer to as The Captive, provides some claims made coverage to our operating subsidiaries, for general and professional liability, as well as for certain worker's compensation insurance liabilities. The words Ensign, company, we, our and us, refer to The Ensign Group, Inc. and its consolidated subsidiaries. All of our operating subsidiaries, the Service Center, and our wholly-owned captive insurance subsidiary, are operated by separate wholly-owned independent subsidiaries that have their own management, employees, and assets. References herein to the consolidated company and its assets and activities, as well as of the use of the terms we, us, our, and similar terms are not meant to imply nor should it be construed as meaning, that The Ensign Group, Inc. has direct operating assets, employees, or revenue, or that any of their subsidiaries are operated by The Ensign Group. 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; that 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 in our Form 10-K. And with that, I'll turn the call over Christopher Christensen, our President and CEO. Christopher?

Thanks Chad. Good morning, everyone. Thanks for joining us today. We're pleased to report that we completed a solid quarter and then we are beginning to see an upward trend in our same store transitioning and newly acquired skilled nursing operations. We're encouraged by the improvements in occupancy and skilled mix we experienced since several key markets including Utah and Texas, even though we believe we are in the very early stages of returning to the performance we expect. With many of the challenges from 2016 behind us, we expect our newly acquired and transitioning operations including the Legend portfolio, to continue the momentum created during the quarter and that each will make a meaningful contribution to our results in the latter half of 2017 and beyond. We also expect to see sequential improvements in each quarter during 2017 as the ramp of organic we experienced this quarter continues throughout the year. We are also very encouraged by the continued success of our new ventures, our home health, hospice, assisted living and other new business leaders have helped us to enhance our post-acute care services and have strength in the organization both clinically and financially. As you can tell, we believe strongly in our outstanding leaders are grateful for the personal commitment and the personal risk these leaders take as they strived, did make their organization the best providers in the markets they sever thereby extending Ensign's growing influence in the healthcare world. It's through them and/or other local leaders that we continue to relies, our mission of bringing a new level of quality and dignity to the post-acute care industry doing it one operation at a time. Our performance is due to the superior competency, continuous management and hard work of our incredible local leaders and their teams. Our…

Thank you, Christopher. During the quarter, we announced the acquisition be operations in real estate in Parklane West Healthcare Center, a 124-bed skilled nursing and 9-unit assisted living facility in San Antonio, Texas. This operation which is subject to a 40-year long-term ground lease represents an ideal turnaround opportunity, because it combines an outstanding physical facilities with a solid core providers that truly care about the residents and their families. Our Keystone team is planning on offering a wide selection of high-quality post-acute and assisted living services to residents of the 400-unit independent living operation already located on the campus and to the healthcare community at large. On March 1st, 2017 a subsidiary of Cornerstone Healthcare, Inc., Ensign's home health and hospice portfolio compared acquired Hospice of the Pines, a provider serving Prescott, Sedona, Cottonwood, Dewey and other communities across Yavapai County and Arizona. Hospice of the Pines continues the growth of our Cornerstone operations across Arizona, offers the opportunity to provide an outstanding continued care with our existing nursing and assisted living operations and press kit and reflects Cornerstone's commitments to meeting the expanding need for hospice service in strategic locations. With this acquisition, Cornerstone subsidiaries now operate 20 hospice operations, 17 home health operations and 3 homecare operations in 9 western states. On March 17, 2017, we acquired Desert View Senior Living, a 100-unit assisted living and memory care facility in Las Vegas, Nevada. This asset which is subject to a long term lease, within a very tough situation when we acquired it and we were able to work very closely with the owner of the property to quickly enter the building and to begin stabilizing the operations. This operation has a very nice physical plant and then there is an excellent complement to our existing assisted living…

Thanks Chad. Before Suzanne discuss of the financials, I'd be remised if I didn't take a moment to explain more about how our frontline leaders and their teams produce these record results in such a difficult operating environment. As I've often noted, even more than our strong balance sheet and solid operating history, it's a strength of our talented leaders of the local level which makes such results possible quarter after quarter. These leaders who immerse themselves in their individual markets and push daily they make their operation the operation of choice in the market they serve makes Ensign unique. As you know, the Ensign operation model afford these impressive local leaders the latitude they need to be nimble and responds to the demands of their unique markets. Ensign simultaneously supports them with world-class systems, technologies and specialists, while we certainly share best practices across the organization and monitor both financial and clinical performance in these distinct operations, we do not attempt to impose the single setup top down one size fits all operating methodologies across each market. The discipline inherent in this model continues to produce superior operating results in spite of general market conditions. The remarkable results produced by these leaders build up overtime as they and their operations mature and grow to excel in their markets. We firmly believe that financial performance follows clinical quality and each of the following examples illustrates that point. In Brookfield Healthcare Center located in Downey, California as an example of the improvement we have seen amongst one of our same store operations. Under the leadership of CEO, David Howell, and Director of Nursing, Ana Lou d'alo Centos [ph] Brookfield continues to achieve outstanding clinical and financial performance. Despite the fact that there are other facilities in this market that have better…

Thank you Christopher and good morning everyone. Before I go into numbers I want to clarify a few points on our quarterly results and disclosures in the press release earlier today. In an effort to provide additional insight in the progress we have started to make in our skilled nursing segment we have added additional disclosures with respect to our first quarter 2017 as compared to the fourth quarter 2016. The sequential results can be found in the financial tables fell together with our press release. Well we didn't undertake to provide sequential quarter disclosures in every quarter, we believe that this disclosure will demonstrates the improving trends we are seeing in several areas. I also wanted to point out that our GAAP results for the quarter were significantly impacted by certain unique expenses that were incurred during the quarter. Including the losses related to certain facility closures and a wage and hour class action settlement. Our press release saw today contains the detail summary of these adjustments. Detailed financial for the quarter are contained in our 10-K and press release. Highlights for the quarter ended March 31, 2017 as compared to December 31, 2016 included same store skilled revenue mix grew by 5.1% to $120.9 million and same store skills makes a percentage of revenue grew by 154 basis points to 52%. Same store managed care revenue grew by 11% to $42.1 million driven by census growth of 11.8%. Transitioning skills at mix revenue grew by 6.4% to $43.8 million, as a result of the growth in our skilled revenue mix of 97 basis points to 57%. And transitioning managed care census grew by 10.3% and transitioning Medicare census grew by 10.9%. For the quarter ended March 31, 2017 consolidated GAAP net income was $2.8 million and consolidated adjusted…

Thanks, Suzanne. Before I turn the call over to Terence for questions, we want to respond to some recent news from CMS as some of you may have read about last week. We typically don't like to comment too much on the many iterations of what CMS put out there, really focused on driving clinical outcomes, but we feel if there is some misinformation out there that deserves a few moments. Last Thursday CMS issued his proposed annual payment rubbed a regulation establishing a net market basket increase of 1% for fiscal year 2018, which starts on October 1st of this year. The update as a result of last year's permanent doc fix, which required all post-acute care providers to receive the maximum market basket updated of 1% in fiscal year 2018 to offset part of the cost of the bill. The fiscal year 2018 update would have otherwise been a net increase of 2.3%, but this was expected. Included in this announcement a proposal to revise and rebase the market basket base year from federal fiscal year 2010 to 2014 this is consistent with historical practice of note CMS is taking a more granular approach to developing the cost category waits for the 2014 base sniff market basket with that we expect to see the typical back and forth on each cost category, which could actually benefit us in some areas including therapy rates. Additionally, CMS released a separate release in the form of an advance notice of proposed rulemaking or pre rule which asks for comments and feedback on potential revisions to the sniff payment system. To pre-rule is based on research conducted under the sniff payment models research project. This is essentially just a preview of the research conducted and what a new reimbursement system could look…

Thank you. [Operator Instructions] And our first question comes from Chad Vanacore from Stifel. Your line is open.

Good morning. You don't have to apologize for covering the CMS rule that was actually very helpful.

Oh, good.

So, I have a few questions just based on your opening commentary, did I hear that Chad said that you're going to be closing some facilities and reallocating those beds. And if I did hear that right, can you give us some more details on where and why?

Yeah. So there's a couple both in Texas and essentially as I said there they are - facilities they were having some significant physical challenges and the CapEx investment that they would require just didn't makes sense. And so the plan there is to reserve the beds in one case so that we can move them to a facility in the same community actual way to use some of those beds to add to the existing facility. But these are decisions that are not driven by anything other than the physical plan.

And Chad, just so you know in one case we knew this was going to be a challenge at some point in time and it got to the point where we realize, look either are going to have to put millions into this facility that still might have problems after we put it in or we can just use the bed somewhere else and probably more wisely deploy capital. Then we already have a facility not too far away in this town. And so we thought that we would we would find a better site and use those beds elsewhere versus really wasting CapEx money in this particular case. It's hard for us to do this because that team is important to us. We were able to take some of them and move them elsewhere, but it just didn't make any sense for them or for us.

In this case, would you be able to move all those beds over to the new facility or all those licenses?

No, not all of them, some of them, which means we'd have to - we'd probably have to do something else with the rest of the beds. But a big portion of them we can move over to the other facility as we add to it but some of them will have to deploy elsewhere not in that particular town.

And Chad, the state does give you several years to kind of hold those debs and then evaluate exactly what you're going to do with them. So you have some time to look through that and decide what the best use of those beds would be.

And I should also add because we didn't, in that particular case Chad that the real estate related cost was very small, this was this was not a high price facility or one that we spent a lot of money on.

Okay. And just thinking about, you also mentioned this quarter and last quarter expecting a ramp up in operating improvement through 2017, what do you take as or what's driving that improvement, is it occupancy, is it rate, is it expense control?

Yeah. I think it as it's all of those levers and more. I mean again we probably - I am probably tired of talking about this, but it's important that you know this. I think we probably had so many things going at once that it was very difficult to contain a do the things that we've done so well across time and we feel like we finally wrap their arms around those things towards the end of last year and we're able to begin to do the things that we've done for essentially decades I guess for 18 years. And so we're pulling those levers again and we're doing much better in the Legend portfolio. We're doing much better in many of the new acquisitions that we took between 2015 and 2016. And as those do better, they become sources of help instead of sources of dilution. And the momentum has swung and we're pretty excited about what we're seeing in most of those markets.

All right, well, speaking about Legend portfolio and then going over to Utah, those last quarter were drag on earnings but you say you addressed most of the issues, have you gone about that?

You have a couple hours?

I will offline, but probably not on this call.

I mean that's a large discuss. I wish it were just some secret sauce or some small lever that we polled or some great speech somebody gave, but it isn't like that, there were just a lot of different things that were done. And most of it was returning to the fundamentals we know so well. But having sufficient resources in performing, it's a momentum thing. As we start to do well in certain facilities and in certain areas, we just look some of these things were new to us. Opening up new buildings was new to us. Taking on a large portfolio was new to us. And it saddens me that the conclusion is that we can't do that it's just that we need to learn how to do it. And it's not something we're going to do, we still love we still love the small portfolios, we still love the turnaround. But I want to remind people that we did take a nice facility deal to have years ago in Southern California that's performed beautifully, nobody's heard anything about it because it's been going great. And so there were just some mistakes that we made as an organization, I talked about the decline that occurred prior to taking that over that that probably should have been different decisions made on my part and delaying that transaction. But it's exciting to see how everybody's rallied and what's happened with discipline on costs and occupancy and skilled mix and just be overall culture in these areas.

Okay, well. Thanks for taking the questions. I'll off back in the queue.

Thanks for your question, Chad, appreciated.

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

Hey, thanks, this is Jacob Johnson on for Dana. Can you walk through the sequential change in the recently acquired bucket, it looks like occupancy was down maybe 400 bps of skilled mix increased this an effort to drive higher skilled mix or just maybe to new buildings entering into that count?

Yeah, so what that is as remember and that's the only bucker that's not apples-to-apples. And so when you're working at the recently acquired you really can't compare the number and that's how we have that symbols are not meaningful symbol on there, because it really happens to be legal facilities entering those numbers down, because it's not a comparable on number of quarter-over-quarter.

So some of the - so for instance, some of the acquisitions that Chad mentioned, we took on the - some of those were as low as 35% occupancy, and so when you add a couple of operations actually two of them were under 45% occupancy, so when you add a couple of those into that mix and then a few others that are much lower than our average in the newer acquisition bucket, it's going to alter that number significantly. So it isn't - I don't - we don't know how to change that, because you would have to have all kinds of categories, you would have to have the less than recently acquired, but recently acquired and brand new acquisitions, and it's just - it's a difficult number to track, but obviously it all normalizes out as it moves into the transition in bucket.

Now that makes complete sense. Then last quarter you've talked about narrowing networks sort of start beginning to start in Utah given it's been a couple of months, any update on progress there?

Yeah I'd love to say it's been fully implemented, it's been partially implemented. We're still - that's exciting, I mean exciting thing is we made movement without the full implementation of it, but it's still happening and I'm afraid, I'm going to be called the boy who cried wolf at some point, but I it's it is happening had many discussions with them in other states about your time, and also we have some folks in Utah that have great relationship with the two key areas one in particular is the dominant player. But the good news is, we move by a significant amount without full and lamentation, so when that is fully implemented we hope any day that we're going to see some massive movement we think in Utah.

Okay. And then last one from me, on the cash flow front looks like DSOs sit down slightly during the quarter. Just where are you on working through the collections of accounts receivable of all these recently acquired facilities?

Yeah, like we talked about in the last call as they continuous process, so every quarter more and more of the location start to turn on as fully quadruple and then asked we get the managed care provider on board as well after we get the state and sets on board then those questions start to turn on get better and better. And so we're making continued progress every single quarter.

You'll also see that accelerate as we slow in opening up new builds that's a significant drag on our cash flow, and so as that slows as Chad said, our cash position will improve as well, because you just, you don't do well out of the gate in these new builds.

Great, that's it from me. Thanks for taking the questions.

And at this time I'm showing no further questions.

Terrance, we appreciate your help with the call and thanks to everyone who took the time to join us you know it's kind of awkward to you on Monday morning, and the way we did this, but we appreciate your comment in and as it was important that we get this information in your hand. So have a great rest the week.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.