Advocat Announces 2012 Third Quarter Results Adjusted EPS Triples Year-Over-Year to $0.09 BRENTWOOD, Tenn., Nov. 7, 2012 (GLOBE NEWSWIRE) -- Advocat Inc. (Nasdaq:AVCA) a premier provider of long term care services primarily in the Southeast and Southwest, today announced its results for the third quarter ended September 30, 2012. The Company earned $530,000 or $0.09 per diluted common share excluding separation costs and start-up losses, compared to $193,000 or $0.03 per diluted share in the year-ago period on the same basis. On November 5, 2012, the Company declared a quarterly dividend of 5.5 cents per common share. The dividend will be paid January 11, 2013, to shareholders of record on December 31, 2012. Third Quarter 2012 Highlights *Adjusted EBITDA improved to $2.5 million compared to $2.3 million in the third quarter of 2011, an 8.5% increase. Adjusted EBITDA adds back the negative EBITDA from the startup of recently opened skilled nursing centers of $0.6 million in the third quarter of 2012 and $0.1 million during the third quarter of 2011. Adjusted EBITDA also excludes separation costs of $0.1 million in the third quarter of 2012 and $1.1 million during the third quarter of 2011. Adjusted EBITDA for the third quarter of 2011 also excludes non-recurring Electronic Medical Record implementation costs of $0.3 million. *Operating income improved to $0.2 million compared to an operating loss of $0.8 million in the third quarter of 2011. *Medicaid rates have continued to increase as we saw a 0.5% increase from the second quarter of 2012 and a 3.3% increase compared to last year's third quarter. We have experienced increased patient acuity levels and benefited from rate increases in certain states. *Managed Care census increased 12.2% compared to the third quarter 2011. CEO Remarks Commenting on the results, Kelly Gill, Advocat's CEO, stated, "Just over one year ago I was entrusted with the leadership of this Company. At that time we faced significant headwinds, marked by an 11.1% Medicare rate reduction coinciding with the costs of investments in our strategic plan. Today, I am very pleased to report that we have faced this challenge by lowering costs, focusing on growing acuity and realizing the benefits of those strategic investments. This is most evident by our Adjusted EBITDA, which takes into consideration our significant investment in start-up costs for our new nursing centers in Kentucky and West Virginia as well as certain separation costs. For the September quarter, Adjusted EBITDA was $2.5 million compared to $1.3 million in the quarter ended December 31, 2011, the first reporting period after the Medicare rate reduction. For the third quarter, our Adjusted EBITDA also increased on a year-over-year basis from $2.3 million, due in large part to operational improvements and despite the significant reduction in our Medicare rates between the two periods." Mr. Gill continued, "From a development standpoint, I am very pleased to announce the successful reopening of our newly acquired nursing center in Clinton, Kentucky. This center had been closed for over 12 months prior to our acquisition and has now initiated operations after successfully completing the initial Medicare and Medicaid certification survey. Furthermore, our recently opened Rose Terrace facility in West Virginia has completed all of its opening activities, has now achieved over 60% occupancy and continues to admit additional patients. As expected, this brand new, state-of-the-art nursing center has attracted a large percentage of Medicare patients and we expect it to continue on its path toward generating monthly positive pre-tax income before the end of 2012. Finally, during the last week of the third quarter we assumed the lease of Highlands Nursing and Rehabilitation Center in Louisville, Kentucky. This facility is occupied and is expected to contribute positively to earnings beginning in the fourth quarter." Mr. Gill concluded, "We believe that our third quarter activities of developing these new properties demonstrate our ability to add nursing centers to the Company's portfolio, increase revenue, and generate favorable leverage against our related overhead expense. We intend to continue pursuing growth opportunities through targeted acquisitions and relationships with REIT partners." Other Highlights for the Third Quarter 2012 The following table summarizes key revenue and census statistics for continuing operations for each period: Three Months Ended September 30, 2012 2011 Skilled nursing occupancy 77.5%^(1) 78.1% As a percent of total census: Medicare census 13.2% 13.7% Managed care census 2.3% 2.0% As a percent of total revenues: Medicare revenues 30.1% 34.7% Medicaid revenues 52.8% 49.5% Managed care revenues 4.6% 4.1% Average rate per day: Medicare $416.42 $476.68 Medicaid $158.66 $153.53 Managed care $373.72 $406.02 ^(1)Skilled nursing occupancy excludes our recently opened and leased West Virginia and Kentucky nursing centers. The two newly opened nursing centers are licensed to operate and are in the process of growing their occupancy as a percentage of licensed beds.The center we leased effective September 24, 2012 is also excluded from skilled nursing occupancy. Patient Revenues Patient revenues were $77.3 million in 2012 and $79.2 million in 2011. This decrease in revenue is primarily attributable to the 11.1% cut to Medicare rates implemented by CMS on October 1, 2011. Our newly opened West Virginia nursing center has received its license to operate, and more recently obtained its Medicare and Medicaid certification. The new nursing center contributed $0.9 million in revenue as it continues to develop its total census and Medicare and managed care census.The recently leased 154-bed skilled nursing center in Louisville, Kentucky contributed $0.2 million in revenue in the partial month we operated it. The average Medicaid rate per patient day for 2012 increased 3.3% compared to 2011, resulting in an increase in revenue of $1.3 million. This average rate per day for Medicaid patients is the result of rate increases in certain states and increasing patient acuity levels. The average Medicare rate per patient day for 2012 decreased 12.6% compared to 2011, resulting in a net decrease in revenue of $3.0 million. This decrease is primarily attributable to the October1, 2011 CMS implemented Medicare rate decrease of 11.1%. Expenses We have experienced a significant amount of non-recurring start-up losses during 2012 at our two newly opened centers. We expect both of these centers to be accretive to earnings in 2013. Our newly opened West Virginia nursing center contributed $0.8 million in start-up and additional operating expenses over the $0.1 million we experienced in 2011. Our newly leased Kentucky nursing center in the reopening phase contributed $0.4 million in additional operating costs. The recently leased 154-bed skilled nursing center in Louisville, Kentucky contributed $0.1 million in additional operating costs in the partial month we operated it. Operating expense increased slightly to $60.8 million in 2012 from$60.7 million in 2011, driven primarily by the $1.3 million increase in operating costs at the three recently added nursing centers, but offset by reductions in wage costs. Operating expense increased to 78.6% of revenue in 2012, compared to 76.7% of revenue in 2011 due significantly to the decrease in Medicare rates. The largest component of operating expenses is wages, which even with the addition of the new centers described above, decreased to $37.5 million in 2012 from $38.5million in 2011, a decrease of $1.0million, or 2.7%. We continued to see improvements in our labor costs as we adjust to lower Medicare rates and lower Medicare average daily census. Employee health insurance costs were approximately $0.2 million higher in 2012 compared to 2011. The Company is self-insured for the first $175,000 in claims per employee each year, and we experienced a higher level of claims costs during 2012. Employee health insurance costs can vary significantly from year to year, and we continually evaluate the provisions of these plans. Bad debt expense increased approximately $0.2 million in 2012 compared to 2011, driven significantly by the growth in Medicaid patients undergoing the initial qualification process. Provider taxes increased $0.4 million primarily as a result of Alabama's temporary provider tax increase. Professional liability expense was $2.6 million in 2012 compared to $4.4 million in 2011, a decrease of $1.6 million. Our cash expenditures for professional liability costs of continuing operations were $1.6 million and $4.4 million for 2012 and 2011, respectively. Professional liability expense and cash expenditures fluctuate from year to year based respectively on the results of our third-party professional liability actuarial studies and on the costs incurred in defending and settling existing claims. General and administrative expenses were approximately $6.1 million in 2012 compared to $7.2 million in 2011, an improvement of$1.1 million.The significant improvement relates to a decrease in separation costs of$1.1 million compared to 2011. We experienced a $0.2 million decrease in implementation costs of Electronic Medical Records, our travel costs were $0.1 million lower and we saw a decrease in legal costs of $0.1 million in 2012. These decreases were offset by a $0.3 million increase in consulting and legal expenses related to our acquisition efforts. Facility Renovations As of September 30, 2012, the Company has completed renovations at eighteen facilities. We are developing plans for additional renovation projects. A total of $27.0 million has been spent on the renovation program to date, with $19.1 million financed through Omega Healthcare Investors Inc. ("Omega"), $6.1 million financed with internally generated cash, and $1.8 million financed with long-term debt. Conference Call Information A conference call has been scheduled for Thursday, November 8, 2012 at 9:00 A.M. Central time (10:00 A.M. Eastern time) to discuss third quarter 2012 results. The conference call information is as follows: Date: Thursday, November 8, 2012 Time: 9:00 A.M. Central, 10:00 A.M. Eastern Webcast Links: www.advocat-inc.com Dial in numbers: 877.674.2413 (domestic) or 708.290.1366 (International) The Operator will connect you to Advocat Inc.'s Conference Call A replay of the conference call will be accessible two hours after its completion through November 15, 2012 by dialing 855.859.2056 (domestic) or 404.537.3406 (international) and entering Conference ID 53029844. FORWARD-LOOKING STATEMENTS The "forward-looking statements" contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictive in nature and are frequently identified by the use of terms such as "may," "will," "should," "expect," "believe," "estimate," "intend," and similar words indicating possible future expectations, events or actions. These forward-looking statements reflect our current views with respect to future events and present our estimates and assumptions only as of the date of this release. Actual results could differ materially from those contemplated by the forward-looking statements made in this release. In addition to any assumptions and other factors referred to specifically in connection with such statements, other factors, many of which are beyond our ability to control or predict, could cause our actual results to differ materially from the results expressed or implied in any forward-looking statements including, but not limited to, our ability to successfully operate the new nursing center in West Virginia, our ability to successfully license, certify and operate the new nursing center in Kentucky, our ability to increase census at our renovated facilities, changes in governmental reimbursement, including the impact of the CMS final rule that has resulted in a reduction in Medicare reimbursement as of October 2011 and our ability to mitigate the impact of the revenue reduction, government regulation, the impact of the recently adopted federal health care reform or any future health care reform, any increases in the cost of borrowing under our credit agreements, our ability to comply with covenants contained in those credit agreements, the outcome of professional liability lawsuits and claims, our ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of proceedings alleging violations of laws and regulations governing quality of care or violations of other laws and regulations applicable to our business, impacts associated with the implementation of our electronic medical records plan, the costs of investing in our business initiatives and development, our ability to control costs, changes to our valuation of deferred tax assets, changes in occupancy rates in our facilities, changing economic and competitive conditions, changes in anticipated revenue and cost growth, changes in the anticipated results of operations, the effect of changes in accounting policies as well as other risk factors detailed in the Company's Securities and Exchange Commission filings. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December31, 2011, as well as in its other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors. These assumptions may not materialize to the extent assumed, and risks and uncertainties may cause actual results to be different from anticipated results. These risks and uncertainties also may result in changes to the Company's business plans and prospects. Advocat Inc. is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services. Advocat provides long-term care services to patients in 48 skilled nursing centers containing 5,538 licensed nursing beds, primarily in the Southeast and Southwest.For additional information about the Company, visit Advocat's web site: www.advocatinc.com. -Financial Tables to Follow- ADVOCAT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September30, December31, 2012 2011 (Unaudited) ASSETS: Current Assets Cash and cash equivalents $7,357 $6,692 Receivables, net 26,896 25,787 Deferred income taxes 5,819 6,041 Other current assets 8,536 6,800 Total current assets 48,608 45,320 Property and equipment, net 42,539 47,078 Deferred income taxes 10,929 10,352 Acquired leasehold interest, net 8,708 8,996 Other assets, net 4,880 4,998 TOTAL ASSETS $115,664 $116,744 LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities Current portion of long-term debt and capitalized $1,435 $1,131 lease obligations Trade accounts payable 4,810 3,871 Accrued expenses: Payroll and employee benefits 11,249 13,475 Current portion of self-insurance reserves 8,478 8,470 Other current liabilities 4,476 2,938 Total current liabilities 30,448 29,885 Noncurrent Liabilities Long-term debt and capitalized lease obligations, 28,380 28,768 less current portion Self-insurance reserves, less current portion 13,857 12,049 Other noncurrent liabilities 17,895 18,155 Total noncurrent liabilities 60,132 58,972 PREFERRED STOCK 4,918 4,918 SHAREHOLDERS' EQUITY 20,166 22,969 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $115,664 $116,744 ADVOCAT INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 PATIENT REVENUES, net $77,335 $79,198 $228,938 $233,051 EXPENSES: Operating 60,750 60,744 180,925 179,310 Lease and rent expense 5,931 5,737 17,694 17,178 Professional liability 2,643 4,389 7,065 7,053 General and administrative 6,055 7,186 18,953 19,364 Depreciation and amortization 1,776 1,577 5,308 4,589 Asset impairment — 344 — 344 Total expenses 77,155 79,977 229,945 227,838 OPERATING INCOME (LOSS) 180 (779) (1,007) 5,213 OTHER INCOME (EXPENSE): Equity in net losses of investee (95) — (127) — Interest expense, net (695) (683) (2,098) (1,716) Debt retirement costs — — — (112) (790) (683) (2,225) (1,828) INCOME (LOSS) FROM CONTINUING (610) (1,462) (3,232) 3,385 OPERATIONS BEFORE INCOME TAXES BENEFIT (PROVISION) FOR INCOME TAXES 368 559 1,266 (1,048) NET INCOME (LOSS) FROM CONTINUING (242) (903) (1,966) 2,337 OPERATIONS NET INCOME FROM DISCONTINUED OPERATIONS: Operating income, net of taxes 92 30 7 165 Gain on disposal, net of taxes 170 — 170 — DISCONTINUED OPERATIONS 262 30 177 165 NET INCOME (LOSS) 20 (873) (1,789) 2,502 Less: income attributable to (16) — (109) — noncontrolling interests NET INCOME (LOSS) ATTRIBUTABLE TO 4 (873) (1,898) 2,502 ADVOCAT INC. PREFERRED STOCK DIVIDENDS (86) (86) (258) (258) NET INCOME (LOSS) FOR ADVOCAT INC. $(82) $(959) $(2,156) $2,244 COMMON SHAREHOLDERS NET INCOME (LOSS) PER COMMON SHARE FOR ADVOCAT INC. SHAREHOLDERS: Per common share – basic Continuing operations $(0.06) $(0.17) $(0.40) $0.36 Discontinued operations 0.05 — 0.03 0.03 $(0.01) $(0.17) $(0.37) $0.39 Per common share – diluted Continuing operations $(0.06) $(0.17) $(0.40) $0.35 Discontinued operations 0.05 — 0.03 0.03 $(0.01) $(0.17) $(0.37) $0.38 COMMON STOCK DIVIDENDS DECLARED PER $0.055 $0.055 $0.165 $0.165 SHARE OF COMMON STOCK WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 5,828 5,779 5,816 5,770 Diluted 5,828 5,779 5,816 5,915 ADVOCAT INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (In thousands) For the Three Months Ended September March 31, December September 30, June 30, 2012 31, 30, 2012 2012 2011 2011 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income $20 $(433) $(1,375) $(1,135) $(873) (loss) Loss (income) from (262) (8) 92 (16) (30) discontinued operations Income tax (368) (170) (728) (611) (559) benefit Interest 705 704 702 640 686 expense Depreciation and 1,776 1,770 1,762 1,777 1,577 amortization EBITDA 1,871 1,863 453 655 801 EBITDA adjustments: Separation and related 57 102 484 67 1,159 costs (a) Electronic medical 0 0 0 332 300 records costs(b) New facility start-up 606 648 376 214 76 negative EBITDA(c) Adjusted $2,534 $2,613 $1,313 $1,268 $2,336 EBITDA (a) Represents the separation and related costs of Advocat Inc. (b) Represents non-recurring costs for implementation of our Electronic Medical Records in our skilled nursing centers (c) Represents the negative EBITDA associated with the new facility and venture start-ups of Advocat Inc. related primarily to the start-up of our Rose Terrace nursing center in West Virginia, our new nursing center in Clinton, Kentucky and Advocat Inc.'s pharmacy joint venture partnership. ADVOCAT INC. RECONCILIATION OF NET INCOME (LOSS) FOR ADVOCAT INC. COMMON SHAREHOLDERS TO ADJUSTED NET INCOME (LOSS) FOR ADVOCAT INC. COMMON SHAREHOLDERS (In thousands, except per share data) For the Three Months Ended September30, June30, March31, December31, September30, 2012 2012 2012 2011 2011 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income (loss) for Advocat Inc. $(82) $(534) $(1,461) $(1,221) $(959) Common shareholders Adjustments: Separation and related 57 102 484 67 1,159 costs (a) Electronic medical 0 0 0 332 300 records costs(b) New facility start-up 870 895 552 282 187 losses(c) Tax impact of above (315) (349) (363) (204) (494) adjustments (d) Adjusted Net income (loss) for $530 $114 $(788) $(744) $193 Advocat Inc. common shareholders Adjusted Net income (loss) for AdvocatInc. common shareholders Basic $0.09 $0.02 $(0.14) $(0.13) $0.03 Diluted $0.09 $0.02 $(0.14) $(0.13) $0.03 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING : Basic 5,828 5,825 5,795 5,787 5,779 Diluted 5,946 5,915 5,795 5,787 5,931 (a) Represents the separation and related costs of Advocat Inc. (b) Represents non-recurring costs for implementation of our Electronic Medical Records in our skilled nursing centers (c) Represents new facility and venture start-up losses incurred by Advocat Inc. related primarily to the start-up of our Rose Terrace nursing center in West Virginia, our new nursing center in Clinton, Kentucky and Advocat Inc.'s pharmacy joint venture partnership. (d) Represents tax provision for the cumulative adjustments for each period. ADVOCAT INC. FUNDS PROVIDED BY OPERATIONS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 NET INCOME (LOSS) $20 $(873) $(1,789) $2,502 Discontinued operations 262 29 177 165 Net income (loss) from continuing (242) (902) (1,966) 2,337 operations Adjustments to reconcile net income (loss) from continuing operations to funds provided by operations: Depreciation and amortization 1,776 1,578 5,308 4,589 Provision for doubtful accounts 695 470 2,377 1,607 Deferred income tax provision 563 865 (435) 1,938 (benefit) Provision for self-insured professional liability, net of cash 890 (270) 2,066 (342) payments Other 286 636 725 1,427 FUNDS PROVIDED BY OPERATIONS $3,968 $2,377 $8,075 $11,556 FUNDS PROVIDED BY OPERATIONS PER COMMON SHARE: Basic $0.68 $0.41 $1.39 $2.00 Diluted $0.67 $0.40 $1.36 $1.95 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING : Basic 5,828 5,779 5,816 5,770 Diluted 5,946 5,931 5,917 5,915 We have included certain financial measures in this press release, including EBITDA, Adjusted EBITDA, Adjusted Net income (loss) for Advocat Inc. common shareholders and Funds Provided by Operations which are "non-GAAP financial measures" using accounting principles generally accepted in the United States (GAAP) and using adjustments to GAAP (non-GAAP). These non-GAAP measures are not measurements under GAAP. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We define EBITDA as net income (loss) adjusted for loss (income) from discontinued operations, net interest expense, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for separation and related costs and negative EBITDA of start-up facilities and business ventures. We define Adjusted Net income (loss) for Advocat Inc. common shareholders as Net income (loss) for Advocat Inc. common shareholders adjusted for separation and related costs and start-up losses associated with our new facilities and business ventures. Our measurements of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) for Advocat Inc. common shareholders and Funds Provided by Operations may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted EBITDA, Adjusted Net income (loss) for Advocat Inc. common shareholders and Funds Provided by Operations in this press release because we believe that such information is used by certain investors as measures of a company's historical performance. Management believes that Adjusted EBITDA and Adjusted Net income (loss) for Advocat Inc. common shareholders are important performance measurements because they eliminate certain nonrecurring start-up losses and separation costs. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of deferred taxes and other non-cash items. Our presentation of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) for Advocat Inc. common shareholders and Funds Provided by Operations should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. ADVOCAT INC. SELECTED OPERATING STATISTICS September 30, 2012 (Unaudited) For the Three Months Ended September 30, 2012 As of September Occupancy (Note 2) 30, 2012 Medicaid Skilled Medicare Room Region Nursing Roomand and (Note 1) Weighted 2012 Board Board Licensed Available Average Licensed Available Q3 Revenue Revenue Nursing Nursing Daily Nursing Nursing Medicare Revenue PPD PPD Beds Beds Census Beds Beds Utilization ($inmillions) (Note 3) (Note 3) Alabama 790 783 720 91.1% 92.0% 15.8% 15.3 $424.2 $178.6 Arkansas 1,181 1,053 825 69.9% 78.3% 14.9% 15.5 387.0 164.1 Kentucky 759 745 740 97.5% 99.3% 13.3% 16.1 427.1 187.6 Tennessee 617 576 491 79.6% 85.2% 16.8% 9.2 403.3 140.8 Texas 1,859 1,669 1,304 70.1% 78.1% 9.4% 21.2 438.9 134.5 Total 5,206 4,826 4,080 78.4% 84.5% 13.2% 77.3 $416.4 $158.7 Note1: The Alabama region includes nursing centers in Alabama and Florida.The Kentucky region includes nursing centers in Ohio and West Virginia. The Tennessee region includes one nursing center in Kentucky. Note2: The number of Licensed Nursing Beds is based on the licensed capacity of the facility.The Company has historically reported its occupancy based on licensed nursing beds.The number of Available Nursing Beds represents licensed nursing beds less beds removed from service.Available nursing beds is subject to change based upon the needs of the facilities, including configuration of patient rooms, common usage areas and offices, status of beds (private, semi-private, ward, etc.) and renovations.Occupancy is measured on a weighted average basis.Licensed Nursing Beds, Available Nursing Beds, Skilled Nursing Weighted Average Daily Census and Occupancy excludes our recently opened West Virginia and Kentucky nursing centers.The new nursing centers are licensed to operate by the state of West Virginia and Kentucky and during the third quarter limited its number of patients while we completed the Medicare and Medicaid certification process. Note3: These Medicare and Medicaid revenue rates include room and board revenues but do not include any ancillary revenues related to these patients. CONTACT: Company Contact: Kelly J. Gill Chief Executive Officer 615-771-7575 Investor Relations: Charles Lynch Westwicke Partners 443-213-0504
Advocat Announces 2012 Third Quarter Results
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