Chad Keetch - EVP & Secretary Christopher Christensen - President, CEO & Director Suzanne Snapper - CFO Barry Port - COO, Ensign Services, Inc.

Frank Morgan - RBC Capital Markets Dana Hambly - Stephens Inc.

Good day, ladies and gentlemen, and welcome to The Ensign Group, Inc. Second Quarter and Fiscal Year 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Chad Keetch, Executive Vice President. Sir, you may begin.

Thank you, Heather, and welcome, everyone. Thank you for joining us today. We filed our earnings press release yesterday. This announcement is available on the Investor Relations section of our website at www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific on Friday, August 31, 2018. We want to remind any listeners that may be listening to a replay of this call that all the statements made are as of today, August 3, 2018, and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our wholly-owned subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to 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 certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers' compensation and other insurance liabilities. The words Ensign, company, we, our and us refer to The Ensign Group and its consolidated subsidiaries. All our operating subsidiaries, the Service Center and the captive are owned by separate, wholly-owned, independent companies and have their own management, employees and assets. References herein to the company and its assets and activities as well as the terms we, us and our and similar terms used today are not meant to imply nor should it be construed as meaning that The Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign Group. As we supplement our -- also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q. And with that, I will turn the call over to Christopher Christensen, our President and CEO. Christopher?

Thanks, Chad. Good morning, everyone. We're pleased to report strong second quarter results as the improvements we experienced in the first quarter, particularly in our same-store operations continued into the second quarter. We're excited about the positive momentum in same-store skilled nursing revenue and same-store skilled mix revenue, which increased by 4.2% and 3.1%, respectively, over the prior year quarter. While we expected to experience some typical second quarter seasonality, we saw a significant quarter-over-quarter improvement in adjusted earnings per share and consolidated adjusted net income, which increased by 41.9% and 47.3%, respectively, over the prior year quarter. We're reaffirming our 2018 annual earnings per share guidance of $1.80 to $1.87 per diluted share, which represents a 31.1% increase over our annual earnings for 2017. And even without the company's lower effective income tax rate, which was reduced from 35.5% in 2017 to an estimated 25% for 2018, the midpoint of our guidance represents an almost 16% increase over 2017 results. During the quarter, we experienced a dramatic improvement in our transitional and skilled services segment income of 36.3% over the prior year quarter. We also experienced positive trends in occupancy with an increase of 274 basis points in our transitioning operations and 30 basis points in our same-store operations, both over the prior year quarter. We're excited to announce that our GAAP earnings per share for the quarter were up 78.3% to $0.41 per diluted share and adjusted earnings per share were up 41.9% over the prior year quarter to $0.44 per diluted share. In addition, our consolidated GAAP net income for the quarter was $22 million and consolidated adjusted net income was $23.7 million, an increase of 47.3% over the prior year quarter. We often remind you of the enormous organic growth potential within our portfolio, and we'd like to underline that again today. As those of you that follow us know, we've been steadily acquiring underperforming assets since our inception. Our approach to growth is very opportunistic, as we do not set out to achieve artificial or arbitrary growth goals. Instead, our local leaders carefully sift through the many acquisition opportunities that come our way, and we only consummate the opportunities to show a pathway to success. In our nearly 20 years, we've learned many, many lessons about what it takes to make a poorly performing operation a facility of choice in it's health care community. Certainly, no 2 acquisitions are alike and the time line to become a healthy operation differs widely based on a multitude of factors, including geography, market conditions, labor markets, renovation requirements, demographics and reputation. But even with those differences, we've learned that there are tried-and-true principles that if followed will accelerate true and lasting change in any operation. As we've discussed before, we had some struggles in some of our transitions in 2015 and 2016. But as we evaluated some of the factors that contributed to some of those struggles, our local operators have renewed their focus on applying proven best practices in every transition. As a result of these efforts, during the quarter, our 2017 and 2018 acquisitions collectively achieved an EBIT margin that is 760 basis points higher than our 2015 and 2016 acquisitions. These results not only show a shift towards healthier transitions, but they also demonstrate the enormous potential that remains in our overall portfolio as we apply the same principles to those acquisitions. We've great confidence that the combination of our locally driven operating model along with the backing of our world-class Service Center will continue to create enormous organic growth in our newly acquired transitioning of the same-store buckets. Again, let me reiterate that our performance is only made possible by the superior competency, leadership and hard work of our incredible local leaders and their teams. Our relentless effort to implement Ensign's bottom-up first who, then what leadership paradigm in all of our new operations is the key to achieving what we set out to become. We believe that we have the cleanest balance sheet in the industry. Even after purchasing $79.8 million in new assets during the first half of the year, our lease adjusted net debt-to-EBITDAR ratio went down again to 4.0x as of the end of the year -- excuse me, as of the end of the quarter. While this debt ratio is higher than our historical averages, the ratio continues to improve even as the EBITDAR from recently acquired properties grows. We continue to methodically add value to our real estate portfolio by improving the operating results in our own operations and by acquiring additional real estate assets. We now own 69 real estate assets, including the new Service Center location we purchased this quarter. We believe that our shareholders have received little to no credit in the past for the incredible amounts of underlying value in our real estate and that its value is again being overlooked. We'll always be an operationally driven organization first. But we believe it's important to recognize the growing value in our own real estate and the flexibility that ownership gives us in the future. We're also pleased to report that we continue to build significant value in our other lines of business, including home health and hospice care, assisted living, nonemergency medical transportation and other post-acute services. Each of these profitable business lines under the direction of key leaders and their dedicated service center resources achieved consistent clinical and financial results, while simultaneously bolstering our core skilled nursing operations. During the quarter, Bridgestone Living LLC, our assisted living and independent living portfolio company, which consists of 51 stand-alone operations and 22 campuses in 12 states, grew its segment revenue and income by 12.6% and 35.8%, respectively, over the prior year quarter. Also during the quarter, Cornerstone Healthcare, our home, health and hospice portfolio subsidiary, grew its segment revenue and income by 20.7% and 27.3%, respectively, over the prior year quarter. We expect to see each of these segments continue to grow by acquiring underperforming operations and driving organic growth. Each segment's leadership team has independently driven their respective businesses to achieve outstanding results. As they do so, we continue to evaluate ways in which we can enhance operational synergies, while also ensuring that all of our affiliated operations will continue to create long-term shareholder value. And as a quick reminder, just a few short years ago, we were often faced with questions about how to unlock the inherent value in our own real estate assets. As we evaluated our options, we met with dozens of experts on how to structure a transaction. Many suggested that we assign very aggressive lease rates and low lease coverage ratios in our operations in order to push as much value as possible into the real estate company as a way to maximize a higher multiples that real estate companies enjoy. However, we refused to take any steps that would leave a crippled operating company at the mercy of relentless escalators, all with the sole purpose of producing a onetime gain. While many encouraged us to do what others had done, we never wavered in our balanced approach. And as a result, both companies where set up to achieve long-term success. Just over four years later, we now have two healthy public companies that are both doing. More specifically, on a combined basis, Ensign and CareTrust adjusting for dividends and stock splits have returned 3.1x for every invested shareholder dollar since May 2014. And our original shareholders have received 7.1x for every invested shareholder dollar since November of 2007. This remarkable outcome is, of course, the result of many, many individuals, most notably, the blood, sweat and tears of our local operators across the organization. But the structure of the spin-off transaction was a critical element in allowing their greatness to shine through. Looking forward, you can expect that we will take a very similar long-term strategic approach to any transactions involved -- involving our new business centers. Just as with our real estate transactions in 2014, one of our many goals has been and will be to ensure that these businesses will benefit our shareholders over the long run. And with that, I'll ask Chad to give us an update on our recent investment activity. Chad?

Thank you, Christopher. In April, we announced that Bandera Healthcare, Inc., our Arizona-based portfolio company, acquired the real estate and operations of Peoria Post Acute and Rehabilitation, a 128-bed skilled nursing facility located in Peoria, Arizona. The facility also included an adjacent 50-bed long-term acute care hospital that is currently being operated by a third-party under a lease arrangement. This operation stood out to us as one that shows significant long-term potential, while adding strength to our growing footprint in Arizona. In May, Keystone Care LLC, our Texas-based portfolio company, acquired the real estate and operations of Grace Presbyterian Village, a 26-acre post-acute care and retirement campus, located in Dallas, Texas. We continue to see very attractive opportunities to work with nonprofit organizations, like the Grace Presbyterian, that are not just interested in the terms of the transaction, but that also place equal value on who the buyer is and how they will honor their legacy. In June, Bandera also acquired the operations of Sun West Choice Healthcare and Rehabilitation, a 140-bed skilled nursing facility, in Sun City West, Arizona, and entered into a new long-term lease. As we explained before, our local operators play a central role in each and every acquisition we make, and Sun West Choice is a perfect example of an off-market acquisition that resulted from relationships built by our local leaders over many years. In July, we announced that Pennant Healthcare, Inc., our Northwest-based portfolio subsidiary, acquired the real estate and operations of McCall Rehabilitation and Care Center, a 40-bed skilled nursing facility located in McCall, Idaho. While this is a smaller acquisition, the track record of successful acquisitions by our talented leaders in Idaho makes us very excited about the potential opportunity here, both -- in Idaho, both large and small. These additions bring our growing portfolio to 185 skilled nursing operations, 22 of which also include assisted living operations, 51 assisted and independent living operations, 22 hospice agencies, 21 home health agencies and 5 home care businesses across 15 states. And we now own the real estate in 68 of our 236 health care facilities. We continue to be very selective with each of the potential acquisition opportunity, and we have carefully chosen each of these operations because of the potential we see to enhance clinical and financial outcomes. We also continue to see a steady flow of new operations across all our business segments. The pipeline for our typical turnaround opportunities remain strong, and we remain confident that there are and will be many opportunities we had at the right prices. We are currently working on a handful of transactions that we expect to close throughout the remainder of the year. Lastly, one of Ensign's wholly-owned subsidiaries acquired an office building located in San Juan Capistrano, California, to accommodate our growing Service Center team. With our existing lease in Mission Viejo set to expire in 2019, we diligently reviewed current market conditions as well as the Service Center's short- and long-term real estate needs. After considering dozens of possibilities over the last 1.5 years, we determined that owning the Service Center made the most sense financially and operationally. The property consist of approximately 115,000 square feet of usable office space, and the building was 92% occupied by third-party tenants at the time of acquisition. We expect Ensign services to occupy a portion of the space upon termination of its existing office lease in 2019. Ensign also expects to continue market rate third-party leasing arrangements for any space not occupied by Ensign services. With this ownership, we expect to save millions of dollars in future rental increases for decades to come. Next, I will turn the call back over to Christopher. Christopher?

Thanks, Chad. Before I turn the call over to Suzanne to provide more information on the quarterly results, let me just share a couple of examples of individual operations that help explain our recent performance. I'll start by highlighting one of our mature operations in Northern California, Park View Post Acute, a CMS-rated 5-star operation consisting of 116 beds, which is located in Santa Rosa and led by Brent Thatcher, CEO; and Kiran Sahota, COO, with stable and consistent financial performances this -- sorry, year-over-year. This operation has been a bedrock in the community as a result of market-leading clinical outcomes. This truly is and has been the operation of choice in Sonoma County for years. When Brent and Kiran assumed their leadership positions several years ago, they were not satisfied with just being consistently good. They quickly maneuvered to enhance partnerships with key hospitals and major health plans. They worked with the physician groups within these organizations to determine what was missing in the community and quickly pinpointed ways that they would be able to fill market needs with specialized services. They added critical team members and trained staff members to bolster their ability to accept a wider array of patients. They also expanded their cardiac program to ensure they continue to evolve and grow with their changing needs. These changes strengthened key partnerships with groups, such as Cedar, Kaiser and Memorial in ways we'd never seen before, leading to a positive shift in skilled mix in an already flagship operation. Since last year, managed care revenue and managed care days have grown by 34% and 14%, respectively, over prior year quarter with total occupancy consistently near capacity. Even more impressively, they have improved their corresponding net income by 79% compared to the same quarter last year. Likewise, we've also continued to see impressive growth in one of our more mature but rural operations in Pocatello, Idaho. Monte Vista Hills Healthcare Center, a 113-bed, 5-star-rated operation led by Executive Director, Andy Sievers; and COO, Kathy Richmond, has historically lagged in this smaller market surrounded by newer, more extravagant competitor facilities. Historical success was found largely in offering quality care and superior customer service to underserved patients across Southeastern Idaho. Kathy was in assisted facility for over 20 years. She rose through the ranks to become a Director of Nursing and eventually moved to Monte Vista with a vision of turning that operation into something great. Along with the enthusiasm of her new operational partner, Andy, who graduated from our CEO and training program, the two partnered to build their service offerings and expand their influence in the community with more acutely ill patient populations. Over the past year, they've enhanced their therapy and clinical capabilities allowing them to become a more universal resource, while still providing world-class service. Accordingly, Monte Vista recently achieved an impressive 5-star survey from their State Health Department, a difficult achievement in the State of Idaho. They've truly transformed from being an obscure and largely unknown operation to become a premier skilled nursing leader in their marketplace. Additionally, their efforts have translated into a 15.3% total occupancy growth and a 47.2% increase in EBIT. Led by CEO, Courtney Matthews; and CCO, Trevor Rowland, Zion's Way Home Health and Hospice in St. George, Utah, exemplified the strong performance of our home health and hospice business during the quarter. Zion's Way's 4.5-star home health rating and strong quality metrics in hospice make this the provider of choice across Southern Utah and Northern Arizona. During the quarter, Zion's Way saw revenues increase by 28% and EBIT increase by 42% over the same period in 2017. Zion's Way's growth was driven by the strong performance of its home health operations, which saw patients visits increase by 29% over the prior year quarter. We appreciate you allowing us to share these important examples today. Our hope is that this will give you some insight into the quality of the extraordinary leaders that are found in every corner of the organization and why we are so optimistic about our near- and long-term organic growth potential. I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open it up for questions. And Suzanne is slightly under the weather. You'll hear a difference in her voice that's why. But I'm sure she'll do great.

Thanks, Christopher, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Highlights for the quarter and quarter-over-quarter comparisons include: GAAP earnings per diluted share was $0.41 and adjusted earnings per share was up 41.9% to $0.44. Consolidated GAAP net income was $22 million, and consolidated adjusted net income was $23.7 million, an increase of 47.3%. Same-store skilled nursing revenue was $286.3 million, an increase of 4.2%. And same-store skilled mix revenue was $143.8 million, an increase of 3%. Transitioning skilled occupancy was 73.4%, an increase of 274 basis points. And transitioning skilled nursing revenue was $98.7 million, an increase of 6.3%. Transitioning skilled managed care revenue and managed care days were up 7.1% and 8.8%, respectively. Total assisted living segment revenue was up 12.6% to $37.2 million and segment income was up 35.8% to $5 million. And total home health and hospice service segment revenue was up 20.7% to $41.8 million and segment income was up 27.3% to $6.3 million. Other key metrics for the quarter included cash and cash equivalents of $27.2 million at June 30, and cash generated from operations was $101.2 million for the 6 months ended June 30, 2018. And we had approximately 250 -- $235 million of availability on our revolving line of credit. We expect that our lease adjusted net debt-to-EBITDAR ratio, which was 4x at quarter-end, to decrease in 2018 as the EBITDAR from transitioning and newly acquired operations continue to grow. But as a reminder, this number could be impacted by the pace and magnitude of future acquisitions. We also wanted to note that many of the items that impacted our GAAP results in 2017, including the cross action lawsuit and the adoption of the new tax law did not affect us this quarter. Accordingly, we anticipate that there will be fewer non-GAAP adjustments in '18 as compared to '17. As Christopher mentioned, we are reaffirming our guidance for 2018. We are projecting revenues of $2 billion to $2.06 billion and adjusted earnings per share of $1.80 to $1.87 per diluted share. The 2018 guidance is based on diluted weighted average common shares outstanding of approximately $54.3 million; the exclusion of transaction-related cost and amortization cost related to the patient-based intangibles; the exclusion of losses associated with start-up operations, which are not yet stabilized; the inclusion of anticipated Medicare and Medicaid reimbursement rate increases, net of provider tax; the tax rate of approximately 25%; and the exclusion of stock-based compensation. Additional factors contributing to our asymmetrical quarter performance include variations in reimbursement systems; delays and changes in state budgets; seasonality in occupancy and skilled mix; the influence of the general economy and our census and staffing; the short-term impact of our acquisition activity; variations in insurance accruals and other factors. I also wanted to say a few words about Tuesday's announcement made by CMS. We continue to be encouraged by CMS' newest payment reform proposal called Patient-Driven Payment Model, or PDPM. While there is much to learn about this new proposed system, we are confident that our relentless focus on the quality and efficient outcomes will serve as well in a number of new reimbursement systems, including this latest reiteration. As of today, PDPM is expected to go into effect on October 1, 2019, but we expect continued refinements of the implementation process over the next 18 months. We are also very pleased with the net market basket increase at 2.4% starting on October 1 of this year. And with that, I'll turn it over to Christopher. Christopher?

Thanks, Suzanne. We want to, again, thank you for joining us today and express our appreciation to our shareholders for their confidence and support. We're appreciative of our colleagues in the field and the Service Center for making us better every day. We'll turn to the Q&A portion of our call. Before we do that, let me introduce Barry Port, Chief Operating Officer for Ensign Services, who is with us as well. Heather, can you instruct the audience on the Q&A procedure please.

[Operator Instructions]. Your first question comes from Frank Morgan with RBC Capital Markets.

Appreciate the comments around guidance and reaffirming that. But just any -- and I know you don't really guide quarterly, but just thinking about normal seasonality and any other issues with some of these recent acquisitions, is there anything that we should be mindful of when we sort of weigh there, look at our cadence over the last part of the year -- for the last 2 quarters?

You mean, in the third and fourth quarter?

Yes.

Yes, I mean, I don't think we were super clear about this, Frank, but we -- I think we do expect a lot of our '15 and '16 acquisitions to continue to improve at a healthier pace and that was a significant number of acquisitions. So that is probably where we'll see a lot of our continued improvement which we anticipate for the remainder of the year. I don't know -- what else you might be referring to?

Just I mean, like seasonality maybe a little softer in the third and normal maybe or because of some acquisitions recently, but -- and I know there is a normal pretty good strong kick from the third quarter to the fourth and I think this year with...

Look, it's always dangerous to say this, but historically, I think the second quarter has always been the most challenging. The third quarter is not as good as the fourth quarter. But from the momentum that we see, we expect it to be. And I know this is dangerous to say, but we expect it to be better than the second quarter, and we expect to move on into the fourth quarter, which is almost always our best quarter.

Got you. Okay. Just also any -- thanks for the comments on the Patient-Driven Payment Model, but any initial thoughts on the other acronym of the day, the Patient-Driven Groupings Model for home health care, any initial thoughts that you see on that, how that might work? And what kind of opportunity that presents or challenges?

Yes, I mean, it's just out there, Frank, so we're still getting our arms around all of it. I mean, I think we're active just like we are on the SNF side, providing guidance and feedback on that one as well.

I think with both of them, Frank, our initial reaction is, darn it, they didn't put everything in there that we'd hoped that they'd put in there, and they didn't account for everything. But the overall underlying principle that governs both of them, we're encouraged by the movement.

Got you. And then I guess, I always have to ask about this, this move towards the narrowing of networks and opportunity to grow the managed care side of the business. So any updates or progress there? I know you called out -- talked about Utah in the past, but just any color on any of those markets and any opportunities that presents? And are you starting to see that in your volumes?

Yes. And I'm glad you asked because we haven't talked about it for a little while, but it's still playing out the way we hoped it would. As I said a while ago, too many times, it was delayed, but it's still playing out well. And we hope to learn from the example that we had in those 2 states, and we're -- we feel like we're going to have it happen in another 5 states, but I'm going to be a little more careful about stating when this time. But we're excited about taking the model and what it did for us even though it was delayed in those 2 states and applying it to 5 other states that we think are ready for the same sort of -- and it works really well for them too. I mean, for -- Optum has really, I think, appreciated the experience, and they've had great outcomes, and they've had a good experience with us. And so they're anxious to help us go to these other states, and Optum is not the only one. I only pointed to them because they're probably the largest, but that's part of United Healthcare. But yes, it's something we are doing actively in many states right now, and it's playing out even better, I think, than we thought even though it was delayed in Utah and in Texas.

[Operator Instructions]. Your next question comes from Dana Hambly with Stephens.

Christopher, you mentioned something in your prepared comments about acquisitions you did in '15 and '16 compared to '17 and '18, I wasn't -- there was something that -- the margin improvement. I didn't catch all of that. Would you mind repeating that?

Yes. It was probably a lot. So look, the point was I think we tried some different things in '15 and '16 that were not part of the proven principles. And some people tend to think, well, that was just a volume. It wasn't the volume. It was some things we did where we left a lot of the people in place and tried to teach them culture and tried to leave the actual leadership folks there. And it's not that they were bad. It's just that it's hard to do that as a [indiscernible]. The transition is very difficult, especially with a lot of underperforming assets. And trying to learn our culture, trying to learn the fundamentals that we practice like and we talk about daily, it's hard to learn all that while also dealing with the difficulties of a transition. When you go in and you already understand those principles, you understand the culture and you understand core values and things like that, and all you're dealing with and I say "all" is that the challenges of a transition, it's a little bit easier. And it's a little easier to know how to use the Service Center resources and how to use the field resources. And it's easier to know how to reach out to the many different other operations in the organization that are performing well. But when that's not happening, we just don't have the same outcomes. And we made a mistake thinking that we could make it work, and it didn't work. And so we kind of had to start all over again in those acquisitions in late '17 and early '18. And my point in that whole piece of my prepared remarks was to say we're going to get there. We're going to do the same thing in those acquisitions that we've done in the more recent acquisitions, but we're a year or 2 behind where we should be.

All right. I appreciate the candor. And just with the transitioning bucket being at it's largest point in the company's history, I just wanted to try to better frame the financial improvement opportunity. So I think you've said in the past or I've seen in the presentation that there is about a 130 basis points difference between the same-store and the transitioning facilities. Does that sound right? Or have I just made something up?

Say that again, Danny? You think that the...

The margin difference between your same facility or your more mature facilities versus the transitioning and the recently acquired facilities. I thought I had seen maybe in the past a slide in your investor presentation that was about 130 basis points?

That's right.

Yes, that's referring -- this is Barry, Dana. That's referring to kind of our first 5 quarters of improvement. We typically see about 130 basis point improvement just over our first five quarters following transition, basically, our first month compared to our 50 a month . So I think as far as getting to same-store levels, there is a whole lead beyond that, right. We see steady improvement not only over the first 5 quarters but really over the course of years. I mean, we highlighted today in the prepared remarks how even a lot of these same-store operations continue to improve, and sometimes, really remarkable ways. But the path from transitioning to same-store is a much bigger leap than 130 basis points, it's -- you're talking.

And the GAAP between those buckets is substantial. I'm sorry, we don't have that here with us right now. It would be easy for us to get, but it's substantial.

That's incredibly helpful. I appreciate the detail there and the clarification. And then on the final SNF rule, I haven't gone through it, and to be honest, I probably won't.

400 pages, it's fun, though, come on.

So maybe I'll just get the cliff note from you guys. I think the industry had commented some of the concerns were around MDS reconfiguration, the use of ICD-10 and the 5-day assessment. Did those find their way into the final rule? And are those issues that you're comfortable, you'll be able to easily adapt to?

Yes, I mean, they changed some of those and some of them stayed. So there is some utilization of the MDS and some of the ICD-10 coding did stay, though. So we're okay with that part of it. Some other things that we commented on with regards to the amount of group and concurrent therapy, we were hoping that it would be up to 50%, the final rule came in back at 25%. But overall, Dana, when we look through that, we're excited. I mean, I think one of the things that you've seen in our numbers is that we've continued to shift kind of into that other skilled category, which is really a focus on nursing and clinical complexity. And so when we look at the new rule that is going to continue to highlight that clinical complexity aspect of it with the 25 different categories that we get to choose from, we think that there is an opportunity for us to really leverage off those things that we've been moving to on the subacute and [indiscernible] bedside over the last 3 to 5 years. And so we think that there is just a significant opportunity for us to capture this new rule, even though it's different than what we're used to.

And Dana, we're not just looking at this at a high level, really. I mean, if you look at the administrative burden alone, we expect to really offset the revenue difference by almost half, just on that aspect alone. But then you have your real opportunities in therapy. And we consider, right now, for a Medicare patient population, we only do -- we do less than 2% in group therapy. And we're now able to go up to 25% in group therapy. That's a tremendous opportunity for us financially on a cost savings front to be able to do that at that level, even getting to 25%. 50% would have been even greater, but 25% represents just a giant opportunity for more than offsetting, we think, what the potential revenue decline would be.

Okay. All right. That's good. And just last one for me. On the tax rate for the year, 25% would imply that it takes up pretty substantially in the second half of the year. And what caused the rate to be a lot lower in the first half? Or what's driving it in the second half?

It's a great question. So we're in the 21% right now. And really, that's driven by the incredible amount of exercises that we had. And so as that share-based compensation pushes through to directly in the current quarter, it impacts that current quarter's tax rate. So it's something that we're going to have to look at in Q3 and Q4 and offset of that as it also impacts the share count. So if we continue to have the amount of exercising in share activities, it's possible that the tax rate will be lower, but the share count will be higher. So those move in inverse direction, but that's what's really going on. It's that significant number of exercises that occurred in the first part of the year reducing that share count -- increasing the share count, reducing the tax rate. And so we'll continue to look at that, but those are offsetting factors when you look at our guidance. And so those will both move in the inverse direction impacting each other. Does that makes sense?

And I am showing no further questions at this time. I'd like to turn the call back over to Christopher Christensen, CEO, for closing remarks.

Thank you, Heather. I just want to thank everyone for joining us today, and thank you for your help.

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