Chad Keetch - EVP Christopher Christensen - President & CEO Suzanne Snapper - CFO

Ryan Halsted - Wells Fargo Frank Morgan - RBC Capital Markets Chad Vanacore - Stifel Nicolaus Dana Hanbly - Stephens

Good day, ladies and gentlemen, and welcome to The Ensign Group Incorporated First 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 be given at that time. [Operator Instructions]. As a reminder, this conference call may be recorded. At this time, I would like to hand the conference over to Mr. Chad Keetch, Executive Vice President. Sir, you may begin.

Thank you, Saeed. Welcome everyone and thank you for joining us today. We filed our 10-Q and accompanying Press Release yesterday. All of these announcements are available on the Investor Relation section of our website at www.ensigngroup.net. A reply of this call will also be available on our website until 05:00 p.m. Pacific on Friday, May 29, 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 arises 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, has direct operating assets, employees, or revenue, or that any of the various operations, the service center, our real estate subsidiaries, or the captive insurance subsidiaries are operated by the same entity. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business. But they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available on yesterday's Press Release and in the 10-Q. And with that, I'll turn the call over to Christopher Christensen, our President and CEO.

Thanks, Chad. Good morning everyone. We are pleased to report that we just finished another record quarter. We thank the operational leaders for their exceptional performance both clinically and financially. It's because of each of them that we were able to achieve these results. As we've explained before, the talent, culture, vision, and hard work of our incredible local leaders, their teams, and the helpful support of the service center has served us well in all kinds of environments. In an ever-changing regulatory landscape, it's remarkable what was achieved in the midst of a spinoff transaction and equity raise and a period of extraordinary growth. As this quarter demonstrates again, Ensign's bottom up, first to then what strategy continues to translate into excellent results. During the quarter, and in substantially all of our geographies, the organization moved in a positive direction on nearly every financial metric. But the exception performance of our operators goes beyond just skilled nursing. We are very excited to see the strong momentum, culturally, and operationally, in our interdependent portfolio companies, namely Assisted Living, Hospice, Home Health, Urgent Care, and others. More importantly and certainly as part of a clear cause and effect relationship, we continue to achieve outstanding clinical performance as an organization in the quarter. It's been truly gratifying to see the continued focus on quality across the organization result in a positive market response in occupancy, skilled mixed gross, star ratings, and state survey results. We are also pleased to report that despite the recent changes in the CMS star rating system that make it more difficult to achieve four and five star ratings, the number of operations carrying that designation has remained steady. In fact, during the quarter, three more of our skilled nursing operations achieved four and five star ratings and with those additions 70 of our operations carry that designation at quarter-end. We welcome a newer and higher standard CMS has put in place and will continue to work very hard to improve the clinical performance of our newer operations, most of which were one or two star operations at the time we acquired them. We have increased in 2015 annual revenue guidance to a range of $1.275 billion to $1.3 billion and our net income guidance to a range of $64.8 million to $67.3 million. At the same time, we are maintaining our previous guidance on earnings per diluted share of $2.44 to $2.53 for the year even after including the otherwise dilutive effect of the spinoff completed in June of last year, and the issuance of 2.7 million additional shares of common stock we completed a few months ago. This represents an increase in our diluted shares of 12.3%, compared to the first quarter of last year. Other key quarter-over-quarter number include, consolidated EBITDAR was $50.7 million, an astounding increase of 36.2% over the prior-year quarter. Transitioning skilled mix revenue for the quarter grew by 286 basis points over the prior-year quarter to 42.6%, and transitioning occupancy was 69.9%, an increase of 459 basis points over the prior-year quarter. Same-store skilled mix revenue grew by 167 basis points over the prior-year quarter to 53.7% for the quarter. And same-store occupancy grew by 75 basis points over the prior-year quarter. And finally, consolidated revenues in the quarter were up 27.9% over the prior-year quarter to a record $306.5 million. As we stated last quarter, 2014 was the largest acquisition year in the company's history. And as Chad will discuss in a moment, we've already acquired 18 new operations so far in 2015. In addition, as of May 1, 2015, we had 32 operations in our recently acquired bucket, which is the highest number of operations in that bucket in our history. Even though we have experienced significant growth recently, the strength of the quarter's results is evident from our ability to offset the otherwise dilutive impact of two very significant transactions, primarily by improving skilled mix and occupancy within our same-store bucket. Remember, because most of the operations we acquire will take time to transition clinically and financially, it takes several quarters for those new operations to be meaningfully accretive. Therefore, our recent results are almost entirely due to the performance in our more mature facilities, which makes this quarter's results even more remarkable. Looking forward, our recently completed acquisition set the stage for significant organic growth potential across the company's expanding portfolio. In addition, most of our new acquisitions have occurred in states with higher occupancy. We're excited about the opportunity our recent growth affords us and expect to reap the benefits, as local leaders continue to focus on business fundamentals, skilled mix and occupancy continue to climb, and recent acquisitions start to mature through 2015, 2016, and beyond. As a result, we have more organic growth potential on our portfolio today then we have ever had before. We also want to thank our many new and existing shareholders for the investment they made in Ensign in February of this year. As those of you that have been following us know, we were able to raise approximately $106 million net of fees and expenses in what was our only public offering since our IPO in 2007. We take the issuance of equity very seriously and were pleased to ever see the ultimate photo conference from so many of you. As anticipated, we use the proceeds of the offering to reload the company's revolving line of credit. As of today, we have approximately $125 million of availability on our $150 million revolving line of credit, which also has a built and expansion option. We also remain very pleased with the support of our lenders. And given our conservative leverage levels, we have even more capacity to borrow additional capital. As a result, thanks to all our capital partners. We continue to have ample liquidity to facilitate additional growth anticipated in the second and third quarters of 2015. Our pipeline remains very robust. And we continue to be very selective in our evaluation of the many opportunities we are seeing in skilled nursing, assisted living and our other business units. Although, there are many things that we can and must improve and remembering that our results are not symmetrical quarter-over-quarter, we believe that it raise our shape focus on clinical outcomes for our residents who bode well across the span of the year and across all of our markets. Remember, we only give annual guidance. Our focus is long-term. Suzanne will discuss the numbers in more detail in a moment. But first, I'd like to have Chad discuss our growth. Chad?

Thank you, Christopher. 2014 was one of our largest acquisition years in our history and we continued that trend in 2015. During the first quarter and since, we acquired nine skilled nursing operations, five assisted living and independent living operations, one home health business, one home care business, and two urgent care businesses. They include the following. Riverwalk Post-Acute and Rehabilitation, a 60-bed skilled nursing operation; Rock Canyon Respiratory and Rehabilitation Center, an 81-bed skilled nursing operation with a subacute unit, and the Villas at Rock Canyon, a 17-bed independent living and assisted living operation all located in Pueblo, Colorado. Mildred and Shirley L. Garrison Geriatric Education and Care Center, a 103-bed skilled nursing operation located in Lubbock, Texas. Alarys Home Health, a Medicare and Medicaid certified home health agency located in Scottsdale, Arizona. Integrity Urgent Care, which consists of two urgent care clinics and was our first op acquisition of an urgent care clinic in the state of Colorado. Also, includes Mesa Springs Healthcare, a 44-acre post-acute care campus comprised of a 75-bed skilled nursing operation, and 60 unit independent living homes located in Abilene, Texas. Skyline Nursing and Rehabilitation, a 100-bed skilled nursing operation, and Skyline Assisted and Independent Living, an independent living, assisted living, and senior's apartment operation with 209 units all located in Omaha, Nebraska. Coral Desert Rehabilitation and Care, a 60-bed all-private Medicare skilled nursing facility located in Saint George, Utah. The underlying real estate of Panorama Gardens Nursing and Rehabilitation Center, which is a 143-bed skilled nursing facility located in Panorama City, California that had been operated by an Ensign subsidiary since September 2000 under a lease. Heritage Assisted Living of Boise, a 100-unit assisted living operation located in Boise, Idaho; Heritage Assisted Living of Twin Falls, a 78-unit assisted living operation; and Woodstone Assisted Living, an 85-unit assisted living facility both located in Twin Falls, Idaho. We have also acquired Wasatch Healthcare and Rehabilitation, a 63-bed skilled nursing facility located in Ogden, Utah; and St. George Rehabilitation, a 130-bed skilled nursing facility also located in Saint George, Utah. Bainbridge Island Health and Rehabilitation, which is a 69-bed skilled nursing facility located in Bainbridge Island, Washington; and finally, Gentle Touch home care, a private home care business serving Southern Utah. These acquisitions bring Ensign's growing portfolio to 150 healthcare facilities, 25 of which are owned, 12 hospice agencies, 13 home health agencies, three home care businesses, and 16 urgent cares across 12 states for a total of 197 independent healthcare operations. We continue to see a very healthy pipeline for growth across all the states in which we operate. We are also considering additional opportunities in a few new markets. We are still considered to be a preferred buyer for small owner operators, regional operators with small-to-midsize portfolios, REITs, and larger national operations that are looking to divest of a handful of facilities that are geographical or operational outliers. While the market continues to be very frothy, we also are beginning to see the increase in supply favoring buyers, allowing us to be very selective in our evaluation of the many deal opportunities that are presented to us. In the near-term, we are making progress on several opportunities to acquire both real estate and operations that we expect to complete in the second quarter after certain closing conditions are satisfied. We are also actively negotiating several other transactions to acquire real estate or to lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses that we expect to complete in the summer months. As I've mentioned many times before, we do not have a traditional acquisition department that is tasked with executing annual growth goals determined by corporate office. Now, more than ever, our operational leaders are our acquisition team. They not only are heavily involved in sourcing acquisition opportunities but they are the key in using their knowledge of local market to carefully sit through the many opportunities we see and ultimately selecting the most attractive opportunities. Lastly, and most importantly, the local leaders and their clusters are responsible for transitioning each of these new operations into our existing operations. As a result, as our leadership and our footprint continues to expand, so does our ability to grow without overburdening any particular corner of the organization, which demonstrates a scalability of Ensign's unique approach to grow. And with that, I'll hand it back to Christopher.

Thanks, Chad. Before I turn the time over the Suzanne to discuss the financials, I think it's important to highlight our numbers with a brief discussion of some of the people and events behind them. After all, these results don't generate themselves. As I've often noted, even more than our strong balance sheet and sold operating history, it's the strength of our talented leaders at the local level which make such results possible quarter after quarter. Our operating model depends on a different kind of leader than is typically found in the industry and it affords our local leaders the latitude they need to be nimble and respond to the demands of their unique markets. Our service center and field base resources simultaneously support them with world-class systems, technologies, and the expertise of some of the best resources in the industry. 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 or set a top down one size fits all operating methodologies across each market. The discipline inherent in our model continues to produce superior operating results. The results these leaders produce buildup up over time, as they and their operations mature and grow to dominate their markets. Let me share just a few examples. Northeast Rehab Center, one of our very first skilled nursing operations located in San Antonio, Texas is still seeing remarkable growth under long-term CEO Mike Conrad; and Director of Nursing, Trashawn [indiscernible]. Together with their compassionate department heads, physicians, nurses, and therapists Mike and Trashawn have continued to transform Northeast Rehab into one of the most dependable facilities in the greater San Antonio healthcare market. These extraordinary therapists are fixtures in the local healthcare community. And they've earned the respect of hospitals and physicians by providing state-of-the-art therapy programs that consistently produce high quality outcomes, lower readmission rates, and increased home placement. As a result, Northeast has become a preferred post-acute partner, which is evidenced by increases in Medicare days of 66% over the prior year quarter. Additionally, their skilled mix revenue percentage was up an impressive 330 basis points with total revenues increasing by nearly 28% over the prior-year quarter. All of these clinical achievements have led to an impressive 246% increase in EBITDAR quarter-over-quarter. And remember, Northeast Rehab Center have been part of the organization for over 15 years. Similarly, we also saw some inspiring performance from the team at the CMS five star rated Brookside Care Center in Monarch, California. Excuse me; Brookside is actually in Redlands, California. Executive Director Matthew Stevenson, and COO Evangeline Bravo, have work closely with local providers to become the primary solution for post-acute therapy and nursing services for the managed care population in the market they serve. They have developed a focus on care delivery systems and processes and have empowered the right people to make a true difference in the lives of their residents. In a coordinated effort with their physician team, therapists, nurses, aides, and many others carefully coordinate a world-class experience that effectively prepares the residents for a quick return to home. In addition, they have effectively reduced the unnecessary bounce backs to acute hospitals and achieve superior customer and employee satisfaction ratings. It's no surprise that this outcomes based approach has led them do outstanding clinical and financial results. Accordingly, managed care days for the quarter have improved by an incredible 30% and total occupancy grew by 236 basis points to 95% compared to the first quarter of last year. In addition, managed care rates grew by 7.7% and total EBITDAR grew by 15% compared to the first quarter of last year. The Brookside team also achieved our organizations highest honor, the 'Ensign Flag', which recognizes outstanding results in nearly every area clinical, cultural, and financial performance. And again, Brookside has been with us for almost a dozen years. Led by Executive Director, Richard Jenik, and Director of Patient Care Services, Tanya Ferguson, Vesper Hospice has quickly risen from a startup Hospice to provider of choice for many referral sources in Los Angeles and Ventura Counties. Through Vesper's deep commitment to clinical excellence and its strong culture, the team has distinguished itself in the hypercompetitive Los Angeles market. The team at Vesper grew its average daily Hospice census for the first quarter by 364% compared to the first quarter of 2014. As a result of this impressive growth, Vesper saw top-line revenues for the first quarter of 2015, grow by 167%, and EBIT performance multiply over 10 times compared to the first quarter of 2014. There are many other stories like these across the organization and we have many, many more operations and leadership teams, which are merely in their infancy, especially following the extraordinary growth we have just had. We see many great things for them in the future. Again, with so many recently acquired operations in the mix, we believe that the opportunities for organic growth across the company's expanding portfolio are more compelling than ever. With that, I'll turn the time over to Suzanne, to provide more detail on the company's financial performance and our updated guidance. And then we'll open it up for questions. Suzanne?

Thank you, Christopher, and good morning everyone. Detailed financials for the first quarter are contained in our 10-Q and Press Release filed yesterday. Highlights for the quarter ended March 31, 2015, as compared to the quarter ended March 31, 2014, included record quarterly revenues of $306.5 million on a GAAP basis or 27.9% increase. Same-store skilled revenues increased $11 million or 11.1%. Same-store skilled days increased 209 basis points to 30.8%. Same-store occupancy increased 75 basis points to 81.1%, which resulted in overall diluted adjusted earnings per share on a non-GAAP basis of $0.64. Other key data points include cash and cash equivalents of $62.6 million at March 31, and $125 million of availability on our $150 million revolving line of credit as of the filing. We are increasing our annual 2015 revenue guidance to a range of $1.275 billion to $1.3 billion, and our projected adjusted net earnings guidance to a range of $64.8 million to $67.3 million. We are also reaffirming our annual diluted earnings per share guidance of $2.44 to $2.53, which includes the issuance of 2.7 million additional shares in February of this year. These projections are based on diluted weighted average common shares outstanding of approximately $26.6 million. The exclusion of acquisition-related cost and amortization cost related to intangible assets acquired; the exclusion of development and operational losses associated with developing operations, which have not yet stabilized; the exclusion of cost incurred related to a new HR and payroll system in acute patient; the exclusion of a breakup fee, net of cost received in connection with the public auction; the inclusion of anticipated Medicare and Medicaid reimbursement rates increases net or provider taxes, tax rate is approximately 38.5%, the exclusion of stock-based compensation and the inclusion of acquisitions anticipated to be closed in the second quarter and early third quarter of 2015. And giving these numbers, I'd like to remind you gain that our business is not symmetrical from quarter-to-quarter. This is largely attributable to variation in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix with Q1 and Q4 traditionally resulting in stronger skilled mix and occupancy, the influence of the general economy on our census and staffing, the short-term impact of our acquisition activity, variations in insurance accruals related to our self-insurance program and other factors. We'll be happy to answer any specific questions you may have later in the call, and now, I'll turn it back.

Thanks, Suzanne. And thanks to all of you who have joined us today. We hope this discussion is helpful. As always, I want to conclude by thanking our outstanding partners in the field of service center and across the organization for their continued efforts to make Ensign the best company in the healthcare field. We'd also like to thank our shareholders again for your support and confidence. While we want to celebrate an extraordinary quarter, we are even more excited about the organic growth potential we see in our existing portfolio and the unprecedented acquisition pipeline over the course of the next two quarters. Saeed, can you please instruction everyone on the Q&A procedure.

Thank you, sir. [Operator Instructions]. Your first question comes from Ryan Halsted from Wells Fargo. Your line is open. Please go ahead.

So, you guys had a great quarter with core operations and growing the skill mix at same-store and transitioning facilities. My first question is with the guidance raise, how much of that can you sort of attribute to may be some better-than-expected results operationally?

In terms of earnings?

Revenue growth.

So revenue growth, it's -- a lot of the revenue increase that you see from our original guidance is related to new acquisitions. In terms of earnings, almost none of it is.

Okay. Okay, so -- and then since your last -- since you last issued guidance, you did close on a couple of facilities. Any sense for how much in revenue those assets are contributing? I mean basically, how much is kind of already been completed versus how much do you see in the pipeline that you expect to close over the next two quarters, is sort of what I'm getting at?

Are you asking relative to the original pipeline, how much is already been completed and how much is remaining?

Yes. We could sort of approach it that way.

Well, ask it again because I'm not sure I understand.

Well, the point I'm getting at is just obviously a great raise in revenue guidance. I'm just trying to get a better understanding of kind of how much are you baking in that you are in discussions with versus how much you are sort of already completed or nearing completion?

Yes. So we trend at the big-end stuff that we're just in discussions with. We just don't do that. We don't ever want to feel the pressure to close the deal because we told we were going to. We -- or actually, if it turns out it's not the great deal we thought it was. We don't want to do something just because we said we would. So the stuff that we're talking about is already almost completed. However, I'm not sure how, if I can answer that without -- we have -- I guess, what I'll say is what I -- what we said in the script, there is more remaining in the pipeline than what has been completed.

Sure. That's helpful. So with your acquisition pipeline, I can appreciate in your comments you talk about sort of the local approach that you've taken up to this point. I'm just curious though, as some of the multi-facility assets are coming to market, are you approaching some of these sort of -- with more than one, are you approaching sort of some of these assets in bulk? Or are you negotiating? Or is there any sort of benefit to negotiating each of these on a local market basis?

I'll let Chad correct what I don't say. But I do want to say most of the deals we're getting are not the widely advertised deals. We find that we're very -- we are fair but we are also conservative about what we pay. And so we are not participating in most of the widely advertised deals that you hear. But it doesn't mean we are not participating in any of them, but most of them we are not.

Yes. I would just add Ryan, that to the extent we're looking at a portfolio that spans across several states or several markets, we still look at it as if it's separate deals in those markets. So very -- we very much follow our typical, locally driven approach even in a deal that is bigger. It's just -- it's how we look at it. And for looking in Nebraska and California, we want the leaders in each of those markets to be very much involved in the evaluation of the facility and the opportunity and ultimately, on the transition should we be successful in negotiation.

That answer your question?

Yes, that's very helpful. Then maybe last one for me. You guys had mentioned sort of post the spin that you might or you would consider looking to expand into new markets. And that may be even some opportunities might come about through the relationship you have had with your REIT partner. I'm just curious, what -- are you still seeing those opportunities or contemplating those opportunities?

Yes, definitely, Ryan. I think what you're referring to is may be some of the justification for the spinoff. And certainly, I think CareTrust and their deal opportunities are in many ways different than ours. But I think what has resulted from the spinoff is we're seeing a lot more from may be the REIT community than we saw before. And so we are being approached by all of the large REITs and they all kind of hoping to establish a long-term and deeper relationship with us. And so certainly, have seen kind of an expanded scope of opportunities even in states that we are not currently in.

And we have expanded as you know into Wisconsin. You'll see us expand in at least on other major new market this year and hopefully one or two others in addition to that but one for sure. And we've mentioned it actually before. But there are actually a lot of benefits that have come from having that spinoff, not necessarily directly from CTRE only because there -- they need to go and diversify their tenant base right now, which has to be their focus. But we think over time there will be many benefits directly with them, but right now there are many indirect benefits as Chad mentioned.

Okay. That's great. Thanks for taking my questions.

Thank you. Our next question comes from Frank Morgan from RBC Capital Markets. Your line is open. Please go ahead.

Good morning. I think you partially answered my question in that last -- in your last answer. But in terms of these either recently closed or these pending acquisitions that are incorporated into your guidance, how many of those would be sort of in existing markets where you already operate that you can get a little more leverage out of, versus absolute new virgin markets?

Almost all of them earning '15 markets, where we have other operations nearby.

Got you. You made a comment about the stars, some of the changes there. I'm curious, if you could kind of elaborate a little bit more on that. And will that have any kind of impact on the competitive landscape in the markets that you operate? And how might that affect your business?

Well, Frank, you probably know about as much as I do. But there is -- I don't think we know yet. We like some of the changes, we think that they were necessary and we hope that it distinguishes where we perform well and where we have turned around the clinical performance and quality metrics. We think it's going to help us more than the prior metrics did. But as we become more and more managed care driven that measurement is going to become more -- a more significant part of landing contracts and key relationships. No, no I'm stumble with my words. We -- it's -- we are finding that even over the last 12 months that that star rating is very important, not only for the consumer, the direct consumer, but also for these ACO relationships for the small other named groups that are being formed in different communities. And then again, as I said, for managed care contract that we're trying to setup exclusively with Ensign.

Got you. Well, I know your portfolio, at least as of last quarter, something like 55%, 60%, were at four or five-stars. How does that -- just as a generalization, how does that compare to your competitors out there in the marketplace? Are you typically higher ranked in those local markets?

It's really hard to compare us to a company that is not growing much. If you were to remove our newer acquisitions from -- you know these numbers can't change faster than two or three years, because of the way the calculation works. But you were to remove our newer acquisitions from the number we would be much higher than that. But frankly, I don't know what other companies are, I don't know what percentage they have but I am fairly confident that in our same-store bucket we are higher than most. It's just that the new acquisition drags that number down.

No, that's fair. Finally, just, if you wouldn't mind, now that all the proposed rules are out on the table, could you may be just hit highlights across your service lines? Are there any particular areas where the reimbursement proposed rules looked incrementally better or worse or about the same for you? And that'll do it. Thanks.

Yes. Sir, I mean I think we're overall relatively pleased with them. I think what we saw is increases across the border and what's out there so far; we're still waiting on one. With regards to the Hospice, well that just came out this week, so we are still digesting that. But overall everything, we're relatively pleased with that. And on top of that relative pleased well, with what we're starting to see come out of the states or so they know that, they know that we're starting to hear all the states, we're pleased with that as well.

Thank you. Our next question comes from Chad Vanacore from Stifel Nicolaus. Your line is open, please go ahead.

So we see a marked improvement in your skilled mix. Can you -- and most of that seems like it's due to managed-care relationships. Can you give us an idea what you're doing to improve your managed-care relationships?

Well, that's a pretty long list. Yes, I mean I think the first thing is improving the quality just so that your thought of as a valuable partner to them obviously making sure that you're tracking and communicating the readmission rates that are very important to a lot of our hospital partners that are often part of these managed care relationships. We also -- just making sure that we are conversing at both the local and national level, it's -- we have to combine many of our local relationships and our community-based strategy into a more nationally based conversation, which is a little unusual for us, but we're happy to do it. And just making sure that none of the relationships we have out in the community damage the -- what we've created with so many of these managed care organizations. But there are -- the list would be 100 items long, if we talked about. Setting up a financial relationship that's beneficial to them and to us, one that says we can care for this person and provide that services we want to provide, get them back home quickly for a fair amount of money and also, fall within the limits that you have as a managed care organization. And it's -- I think that -- I actually think our local focus even though a lot of them want to talk as they should on a national level. The fact that we know our markets locally and are able to adjust those rates in each market, for each of those markets I think helps us with the -- those relationship. But again, a length of stay tracking that is an important part of this. I could go on and on --

This is because of the facility that counts with them.

A lot of these -- a lot of the better managed care organizations have nurse practitioners, and physicians that spend a lot of time in our facilitates and just having the relationships with them, which first and foremost comes from quality of care. But secondarily, making sure that we understand their needs and we meet those needs at the local level, because no matter how much you develop a short-term relationship on a national level, if they're hearing negative stuff from their key clinicians in the local market that relationship will be 6 months to 12 months instead of 10 years to 20 years, which is what we need.

All right, thanks. And so just touching on the acquisition pipeline again, can you compare it to what the pipeline looked like last year?

Yes. I mean I would say it's probably -- well it is more robust this year than it was last year. And as I mentioned in the script, I think while it's still pretty frothy, I think the number of deals coming to -- becoming available in our minds and sort of shifted thinks a little bit more in the favor of buyers just because the increased supply is allowing us to be a lot more selective. So it's definitely stronger this year than it was last year.

All right. Then last question for me. So when should we think about the -- some of the urgent care facilities coming online and stabilizing, and starting to contribute to margins?

Yes. I mean I -- I think well we look at that everything all quarter. But I look that point where we actually have a few of the ones that opened up February beginning rolling into the actual results, and so very quickly.

Thank you. Our next question comes from Dana Hanbly from Stephens. Your line is open, please go ahead.

Chad, on the last comment on the market favoring buyers, I'd just be curious if you have any thoughts as to may be what changed there? Is it market specific? Or is there something industry-specific that's scaring away some of those other buyers?

No, I mean it's really the supply and demand concept. I think the increase of supply relative to the number of deals available affects your ability to be selective. So --

Okay. More sellers than -- so the buyers haven't changed; it's just more sellers now?

That's right.

Dana, I also think that there is a cynical thing that happens in or profession or industry where you have -- this is Christopher by the way.

Yes.

You have -- there is a period of time where the market gets really hot, people start overpaying for real estate. They can't cover that rent for very long. You get escalators on top of that rent and at some point they get choked and we try not to participate in that. And my point in that is I think some of that is coming back to market now. I think some stuff that was where the rents were too high or somebody paid too much money for an acquisition and that's where our patience is important. That -- as we've discussed across the years, we've got to the patient when pricing gets crazy and just focus on our organic growth potential and back off the market. But then when it comes, we've got to be prepared organizationally and with our talent to take advantage of those opportunities as they come forward. But we are being very selective. And in spite of what you'll see us take and what we've already taken, we're being very selective.

Okay. That's helpful. And Christopher, you mentioned the new market this year, you said the word major. And I wasn't sure if that meant you were going into a new market in a major way? Or it's a major new market in a small way. I think I know the answer, but --

I have to remember the context too. And I said that there are probably a few new markets that we will go into, but I don't remember saying major, Dana, but if you said, I said it, I said it.

I may have made that up too.

Well -- and actually there is a new market that we're going into and I think we've already mentioned as we've talked about some of the new builds that we're doing. We'll be going into a major -- into the Kansas City market. And actually, we're going into it in a pretty big way. So you're right on both counts.

Okay. All right.

Dana, this is Chad. I mean I'll just add, we -- this is kind of our general methodology. When we're looking at a new market, Kansas is a little bit unique as those are new constructions. But we like to be go in with maybe two or three facilities into a new state. And we're very careful in doing so to choose facilities or operations that have a strong clinical reputation even if they don't -- are performing financially and there some -- may be some physical plan challenges. But it would be unusual to see us kind of make a huge move into state where we're currently not operating.

Okay. No, that makes sense. And then on the transitioning and the acquired, and even the home health pieces, Suzanne, are they contributing to EBITDAR in any kind of meaningful way?

Definitely all those are contributing to EBITDAR.

I don't suppose you would consider giving a margin for those, no?

No. I mean as you know we typically don't give out the percentages to that detail, but I mean, that's one of the reasons. If you think about, we historically hadn't broken out our Home Health and Hospice and so during -- while we went to -- at the process of breaking that out. So that kind of tells you a little bit how we can get a lot more significant than historically have been.

And you probably already know this Dana, but I think it's safe to say that they are represented in an increasing percentage of our overall performance.

Sure. Last one from me, there's been a fair amount of talk in some of these physician provider groups about the BPCI, this new payment initiative and the potential cost savings. And I think when they talk about the cost savings, it's mostly they talk about it coming from the postacute world, and probably even more specifically from the skilled nursing. So I just wonder kind of what your thoughts are on that? Are you participating at all in any these initiatives?

We are.

Okay.

We are in several markets. And thanks to some of our key team members. We're well prepared in many markets to do so. And the same is actually, is not what folks may think. It's not on the backs of -- at least in our relationships it's not on the backs of us. They're other savings that can be had for instance in quicker admission into a skilled nursing environment and also quicker discharge, which saves a lot on the acute side. And there are several others I probably shouldn't go into detail here. But it -- we embraced those relationships and are having great success in the few markets where we're active participants in it.

Thank you. I'm showing no further questions at this time.

Well, thank you, Saeed, for your help and for coordinating this. And thanks everyone for giving us your time. We appreciate it very much.

You're welcome, sir. And ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect.