Chad Keetch - Executive Vice President Christopher Christensen - President and Chief Executive Officer Suzanne Snapper - Chief Financial Officer

Chad Vanacore - Stifel Dana Hambly - Stephens

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 relentless effort do implement Ensign's bottom up first two then what leadership paradigm in all of our new operations is the key achieving what we set out to become. We'll continue to recruit, train and support the best local leaders in the business and more confident that they will continue to deliver industry-leading performance and returns both clinical and financial for our patients, our communities and our shareholders. Earnings for the quarter were up over 13.3% at an adjusted $0.34 per fully diluted share right on track with our annual guidance of $1.46 to $1.53 for adjusted diluted share for 2017. Revenues were a record $441.7 million, an increase of 15.3% over the prior quarter and in line with our annual guidance of $1.76 billion to $1.8 billion. We're reaffirming both our EPS and revenue guidance for the year today. More importantly and certainly as part of a clear causing effect relationship, we continued 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 resulting in positive market responses and occupancy stilled mix growth, star ratings and state survey results. With the focus on strengthening outcomes, lower readmission rates and extending our capabilities to care for more complex patients across the post-acute continuum, we continued to invest in the best care pathways and new clinical programs in post-acute care. As a result, we are seeing significant improvements in key indicators related to outcomes and satisfaction which helps drive occupancy and skilled mix. We're pleased to report despite the recent changes in the CMS star rating system that have made it more difficult to achieve four and five star ratings, the number of operations carrying that designation improved dramatically during the quarter. In fact eight more of our skilled nursing operations achieved four and five start ratings during the quarter. And with those additions, 94 of our skilled nursing operations carry that designation at quarter end. We continue to work very hard to improve the clinical performance of our newer operations most of which were one and two star operations the time that we acquired them. We again paid a cash dividend of $0.0425 per share during the quarter which was an increase of 6.3% over the prior year. This is the 14th consecutive year we have increased our dividend. We also continue to remain vigilant and responsive as changes occur around us. In the meantime, we remained financial sound with one of the lowest debt rations and strongest balance sheet in the industry, a slide cash position and very manageable real estate related costs. We've remained committed to keeping our cash flow strong and our debt relatively low and we continue to commit capital to our ongoing acquisition and renovation programs as we look to the future. And with that I'll ask Chad to give us an update on our recent investment activity and growth. Chad?

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 operation in Las Vegas and demonstrates our unique ability to step in the challenging circumstances on very short notice. Our team of local leaders are amongst the most experienced operators in the senior living industry and much like our skilled nursing operators have demonstrated over and over again that they know how to transition poor performing assisted living operations under difficult circumstances. The response from the community so far has been amazing and in a matter of few weeks, they have improved census by 10%. On April 1st, 2017, we acquired Rehabilitation Center of Des Moines, a 74-bed skilled nursing operation in Des Moines, Iowa. The facility is also subject to a long term lease and is our six operations in the state of Iowa. We are especially pleased to be joining Des Moines vibrant and well regarded healthcare community for the first time as we seek to become the operation of choice in the largest metropolitan market in Iowa. This morning, we acquired Meadow View Nursing and Rehabilitation, a 112-bed skilled nursing facility in Nampa, Idaho and Utah Valley Healthcare and Rehabilitation, a 99-bed skilled nursing facility in Provo. Both operations will strengthen our existing operations in those markets and will add to our ownership of real estate. Also during the quarter, we began operating two newly-constructed skilled nursing facilities both of which were under development at the time of the Legend acquisition which closed last year and was part of that Legend acquisition. We currency subleased these facilities from Legend and expect that both will purchased by National Health Investors Inc. or NHI approximately one year following the completion of construction. And they will be added to our master lease with NHI at that time. These two operations are the last of the newly constructed Legend buildings that we have committed to operating. We also announced during the quarter that we entered into definitive agreements to simultaneously sell and lease two skilled nursing facilities and one assisted living community to Mainstreet Health Investments Inc. or MHI which is a publically traded healthcare REIT in Canada. Upon closing the transaction, we will lease the properties from MHI under a triple-net master lease with an initial 20 year term and CPI-based annual escalators. The properties are located within high-density neighborhoods of the Los Angeles and Phoenix metro markets and have been owned and operated by our affiliates for many years. Our real estate ownership gives a significant flexibility with many of our operations. Because almost all of the real estate assets we acquire are underperforming at the time we acquire them. Each owned asset provides us with the significant opportunity to create value and to use that value to help maintain a healthy balance sheet and to prepare for future growth opportunities. This transaction is one of many ways we have to capture some of the value we've created in our real estate assets, while simultaneously strengthening our already healthy balance sheet and ensuring that we will continue serving each of these communities for decades to come. As with the spin-off transaction that we completed in June 2014, we took a very conservative approach to both the sale price and the lease structure with an anticipated lease to EBITDA ratio that will exceed two times as of the commencement date. The proposed transaction is subject to certain closing conditions and it is anticipated that will close before the end of the second quarter. Simultaneously, MHI has agreed to release our operating subsidiaries from their lease obligations on three transitional care facilities in Kansas and Texas that are currently under development. Upon closing the transaction, the number of healthcare resorts that will be operated by an Ensign subsidiary and that were developed my Mainstreet Property Group, will include five in Kansas, one in Texas and one in Colorado. With the completion of the last two Legend new builds and the terminations of the only remaining Mainstreet developments, we will be left with one more outstanding commitment to operate a new development. This project is located in Utah and as separate in a part from the Mainstreet developments or the Legend new builds. We expect the constructions to be completed in the second or early third quarter of 2017. While, we are very excited about each of the healthcare resorts the Legend new builds and our other newly constructed properties, we do not anticipate any more new developments during the year or in 2018. Finally, we also disclose that we incurred that expenses related to certain facility closures. In each case, the physical plants that appointed they required significant capital expenditures to keep the operations going. We determine that rather that rather than incurring those expenses that it was better exit that operations and to reserve many of those beds and to reuse them at our other locations. The state allows us similar way in making a final decision on what to do with those beds helping to reserve and we are in the early stage of that process. As of today, we now own the real estate of 53 of the 215 healthcare faculties within the portfolio with 20 hospice agencies, 17 home health agencies and 3 homecare businesses in 14 states. As we mentioned last quarter, we are making progress on taking some of our own assets to HUD for financing. As with any HUD financing, the process is long and complex but we expect to complete this HUD-based mortgage transaction during the third quarter. This will allow us to pay down most of our revolving line of credit and to establish long-term fixed financing at very favorable rates. As we do so, we add to our liquidity and our ability to acquire well-performing and struggling skilled nursing operations, assisted living operations and startup or early stage hospice and home health agencies. We are evaluating a collection of several smaller attractive acquisition opportunities and believe that more favorable pricing is on horizon. As we've seen many times before, potential changes to reimbursement have and continue to generate a lot of buying opportunities at very attractive prices. We expect to acquire some of those operations later in the second quarter and in the third quarter and we continue to be very picky buyers and will remain through to our locally driven approach to each and every acquisition. And with that I'll hand it back to Christopher.

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 locations and newer physical plants in response to the demands in the local healthcare community, Brookfield developed a cutting-edge stroke and diabetes rehabilitation program. They've also managed to maintain a CMS five star rating for the fifth year in a row even when the CMS standards have become more and more difficult. As a result of their efforts Brookfield increased its EBIT by 149% with a 68% increase in Medicare centers over the prior year quarter. Brookfield was also recently chosen to participate in a National Quality Pilot Program due to its consistent clinical outcomes, low readmission rates and length of stay and high patient safety satisfaction. Chandler Post Acute & Rehabilitation located in Chandler, Arizona is an excellent example of the improvements we're seeing our transitioning bucket under the leadership of Executive Director, Chandler Monks, and Director of Nursing, Jamie Jerdy this operation has improved in almost every metric. As a result of their relentless focus on quality measures and too strong surveys, Chandler Post Acute has improved from a CMS one star facility at the time we acquired it to three stars in just a short period of time. By systematically controlling ancillary costs eliminating nurse registry stepping in improving culture this operation has improved occupancy by 270 basis points in skilled census by fourteen percentage points resulting in an increase in EBIT of 208% over last quarter. We're also encouraged by the progress we're making in many of our newly acquired operations including in the Legend portfolio. For example, Legend Oaks Healthcare and Rehab, located in West Houston has seen remarkable growth over its first three quarters under the leadership of CEO, Trevor Carden; and COO, Elizabeth Gutierrez. They've consistently delivered high quality outcomes transitioning patients back to home quickly and safely without be unnecessary bounce back to the acute setting. With exceptional physical occupational and speech therapy services along with expert clinical care, Legend Oaks has garnered the trust of the market, which has shown in their remarkable growth in occupancy over their first three sequential quarters overall occupancy has grown to 94% an improvement of 340 basis points. Additionally because they have developed a tremendous reputation for short term rehab outcomes, lower length of stay in a very low hospital readmission rate they seem their - their skilled census grow by 44% from our first quarter following acquisition to our most recent quarter resulting in skilled mix revenue at 55%. Because of their discipline growth they've also seen remarkable EBITDAR expansion of 92% since acquisition all while improving clinical results and patient outcomes. There are many, many other stories like these across the organization. We'd also like to remind you that we have 99 recently acquired and transitioning operations as of May 1st which is the largest number of operations in those buckets in the organization's history. These opportunities together with the momentum we've seen will result in much better performance we believe in the coming quarters. With that I'll turn the time over to Suzanne to provide more detail on our financial performance and our guidance, and then we'll open it up to questions after a few last comments. Suzanne?

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 net income was $17.9 million, an increase of $14.7 from the fourth quarter. GAAP diluted earnings per share were $0.05 and diluted adjusted earnings per share were $0.34. In addition Bridgestone Healthcare Inc., our assisted living and independent living subsidiary grew at segment revenue by $2.2 million or 7.2%, segment income by $1.2 million or 36.2% and EBITDA by $1.74 million or 40.2% all over the prior year quarter. Cornerstone Healthcare, Inc., our home health and hospice subsidiary, grew its net income by 35.2% to$4.3 million and revenue by 20.5% to $32.1 million all over the prior year quarter. Other key metrics include cash and cash equivalents of $31.5 million as of March 31. And $193 million of availability on our $300 million revolving line of credit as of the quarter end. As Christopher mentioned, we are reaffirming our guidance for 2017. We are projecting revenues of $1.76 billion to $1.8 billion and adjusted earnings of $1.46 to $1.53 per dilutive share. The 2017 guidance is based on diluted weighted average common shares outstanding $93.7 million. The exclusion of acquisition-related costs and amortization costs related to patient-based intangibles. The exclusion of losses associated with the development of new operations, and startup loses, which are not yet stabilized. The exclusion of legal cost and charges associated with the class action - the exclusion of cost associated the closed operation the inclusion and anticipated Medicare and Medicaid reimbursement rate increases net of provider tax, a tax rate of 35.5%, the exclusion of stock based compensation and the inclusion of acquisitions closed and anticipated to be closed in the first half of 2017. Additionally other factors contribute to our asymmetrical quarters including variations and reimbursement system delays and changes in safe state budget, the seasonality in occupancy and scope mix, the influence of the general economy on a census and stocking, the short term impact of our acquisition activity, variations and inserts growth and other factors. As we indicated last quarter, we want to remind you that we anticipate the momentum to build overtime and that we do not anticipate that our performance of the spread evenly between each quarter. As we said before, we expect to return to our typical pattern and stronger performance in the latter half of 2017. And with that I'll turn it back over to Christopher. Christopher ?

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 like. As with any pre rules, CMS may or may not take action on the proposal discussed in the pre-rule and we fully expect a very robust common process on this particular CMS pre-rule. We certainly do not expect the pre-rule to be implemented before 2019 at the soonest and definitely not in its current forum. Historical experience, experience is important is that these pre-rules always look very different upon implementation as compared to the original language. And we expect this one to go through many, many, many iterations before it is finalized. Our industry experts and network of healthcare associations have been and will continue to be very involved in commenting, shaping and possibly coming up with an entirely different approach to the changes proposed by this pre-rule. The pre-rule would movie industry from drugs calculation based on services delivered to one based on patient characteristics. Accordingly, the focus of payment would be based on resident characteristics and care needs. As a result of the change in focus, this pre-rule states that CMS would also expect a significant reduction in regulatory burdens or costs. In this regard, the pre-rule highlights potential changes to MDS assessment and therapy delivery that could actually lower the cost of services. Any changes to the reimbursement system would come with enough lead time that would allow each local operation to take steps to mitigate any financial impact of a final rule, if it is actually finalized. As Ensign has demonstrated over and over again throughout our history, our unique facility centric operating model has allowed us to make significant progress in managing through many varieties of reimbursement changes while planning for others that may come. As we've said before, we're actually encouraged by the path that CMS is driving towards alignment with excellent patient centric care. To the extent, the payment system incentivizes clinical performance we welcome it. In fact, over the last 18 to 24 months, we have benefited from various value-based payment models including BPCI, capitated rate models with our managed care providers. Quality based state Medicaid incentive programs and similar value based programs, it makes sense that CMS is driving this direction and we're excited to help shape a new model that encourages and compensates higher quality standards but they are not the first to do so. Excuse me, despite the efforts some of made to calculate the financial impact - my goodness, sorry, despite the effort some of made to calculate the financial impact of this pre-rule on our results, we believe that is way too early to know what the impact of this pre-rule could be. And attempting to calculate those changes based on simulation modeling a projected resident classification not only would be misleading but would also ignore the significant reduction in regulatory burden mentioned in the pre-rule all as well as the many, many levers we would have at our disposal to impact those results. In fact, we view the CMS as nothing but positive. We apologize for taking so much time today to discuss this but we felt it was important to give our perspective. We also feel that it's important to remind ourselves and you that we are firmly committed to taking a long view and the decision making processes that affect this company. Our operational philosophy emphasizes sustainable results and is in the best sense of our patients our company and our shareholders. We want to again thank you for joining us today and express our appreciation to our shareholders for their confidence and support. We are also appreciative of your colleagues in the field and the service center for making us better every day. Terran, I'll turn the time over to you for Q&A, if you would instruct the audience on how to proceed.

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.