Diversicare Announces 2018 First Quarter Results

BRENTWOOD, Tenn., May 03, 2018 (GLOBE NEWSWIRE) -- Diversicare Healthcare Services, Inc. (NASDAQ:DVCR), a premier provider of long-term care services, today announced its results for the first quarter ended March 31, 2018.

On April 26, 2018, the Board of Directors declared a quarterly dividend of $0.055 per common share payable to shareholders of record as of June 30, 2018, to be paid on July 16, 2018.

First Quarter 2018 Highlights

• Under the new Accounting Standard Codification ("ASC") 606, net revenue was $141.3 million in the first quarter of 2018. In accordance with ASC 606, revenue for the first quarter of 2017 was not restated.  The first quarter of 2018 under legacy GAAP was $144.5 million, compared to $141.5 million in the first quarter of 2017, an increase of $3.0 million or 2.1%.
  
  
• Net loss from continuing operations was $(0.1) million, or $(0.01) per share, in the first quarter of 2018, compared to net income from continuing operations of $1.3 million, or $0.22 per share, in the first quarter of 2017.
  
  
• The first quarter of 2017 included a non-recurring favorable outcome of $2.2 million related to an appeal of provider taxes.  Absent that adjustment, EBITDA improved by $0.5 million and facility-level operating income improved by $0.4 million to $29.0 million, or 20.5% of revenue.

See below for a reconciliation of all GAAP and non-GAAP financial results.

CEO Remarks

Commenting on the results, Kelly Gill, Diversicare’s CEO, stated, “I am pleased with our first quarter 2018 results. Our skilled mix experienced positive tailwinds, increasing considerably to 16.1% from 14.7% in the fourth quarter of 2017. The center we acquired in the latter half of 2017 in Selma, Alabama has been fully integrated onto our platform and I am proud to report that it contributed $2.3 million of revenue during the quarter.

Mr. Gill continued, "We continue to put an emphasis on our focus towards improving the care we provide and achieving industry-leading quality metrics and believe it is the best possible route to long-term success. I am extremely thankful for our dedicated team members leading the focus towards high quality results, which leads to the solid operational and financial results.”

First Quarter 2018 Results

The following table summarizes key revenue and census statistics for continuing operations for each period:

Patient Revenues

Patient revenues were $141.3 million and $141.5 million for the three months ended March 31, 2018 and 2017, respectively, a decrease of $(0.2) million.  The following summarizes the revenue fluctuations attributable to our portfolio growth (in thousands):

The difference between patient revenues for the first quarter of 2018 is due to the implementation of ASC 606. Refer to Note 4 "Revenue Recognition" to the interim consolidated financial statements.

The overall increase in revenues as adjusted to legacy GAAP of $3.0 million is primarily attributable to revenue contributions from the acquisition of the Park Place operations during the first quarter of 2018 of $2.3 million.

On a same-store center basis, the average Medicare and Medicaid rate per patient day for the first quarter of 2018 increased compared to the first quarter of 2017, resulting in increases in revenue of $0.3 million and $1.1 million, respectively, or 0.9% and 1.5%, respectively.  Our same-store Medicare, Medicaid and Private average daily census for the first quarter of 2018 decreased $0.5 million, $0.8 million and $0.4 million, or 1.7%, 1.1% and 3.4%, respectively. Conversely our Managed Care average daily census for the first quarter of 2018 increased $0.9 million or 9.9%.

Operating Expense

Operating expense increased in the first quarter of 2018 to $112.3 million as compared to $110.7 million in the first quarter of 2017.  Operating expense increased as a percentage of revenue at 79.5% for the first quarter of 2018 as compared to 78.2% for the first quarter of 2017.  The following table summarizes the expense increases attributable to our portfolio growth (in thousands):

The overall increase in operating expense of $5.1 million is partially attributable to the acquisition of the Park Place operations during the first quarter of 2018 of $1.6 million.

On a same-store center basis, operating expenses slightly increased by $3.5 million, which is attributable to unfavorable variances in provider taxes and salaries and related taxes of $2.3 million and $2.1 million, respectively, in first quarter of 2018 compared to the first quarter of 2017. The change in provider taxes is due to the $2.2 million refund from the state of Kentucky during the first quarter of 2017. Conversely our same-store health insurance costs decreased by $0.9 million in first quarter of 2018 compared to the first quarter of 2017.

One of the largest components of operating expenses is wages, which increased to $67.1 million during the first quarter of 2018 as compared to $65.0 million in the first quarter of 2017, which, consistent with above, is due primarily to acquisition activity.

Lease expense in the first quarter of 2018 remained consisted with the first quarter of 2017 at $13.7 million.

Professional liability expense was $2.8 million and $2.7 million in the first quarters of 2018 and 2017, respectively. Our cash expenditures for professional liability costs of continuing operations were $1.1 million and $2.1 million for the first quarters of 2018 and 2017, 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. See “Liquidity and Capital Resources” for further discussion of the accrual for professional liability.

General and administrative expense was $8.1 million in the first quarter of 2018 as compared to $9.0 million in the first quarter of 2017. General and administrative expense decreased as a percentage of revenue from 6.3% in 2017 to 5.8% in 2018.  The decrease in general and administrative expense is attributable to a decrease in corporate wages and payroll taxes by $0.9 million.  The acquisition of 22 centers in the fourth quarter of 2016 resulted in an increase in salary expenses during the first quarter of 2017.

Depreciation and amortization expense was approximately $2.9 million in the first quarter of 2018 as compared to $2.5 million in 2017. The increase in depreciation expense relates to the fixed asset acquisition of a center located in Selma, Alabama during the third quarter of 2017.

Interest expense was $1.7 million in the first quarter of 2018 and $1.5 million in the first quarter of 2017, an increase of $0.2 million.  The increase was primarily attributable to the amendment of the term loan facility that occurred in June 2017.

As a result of the above, continuing operations reported a loss of $0.1 million before income taxes for the first quarter of 2018 as compared to income of $2.2 million for the first quarter of 2017. The benefit for income taxes was $0.1 million for the first quarter of 2018, and the provision for income taxes was $0.9 million for the first quarter of 2017. Both basic and diluted loss per common share from continuing operations were $0.01 for the first quarter of 2018 as compared to basic and diluted income per common share from continuing operations of $0.22 and $0.21, respectively, in the first quarter of 2017.

Receivables

Our net receivables balance decreased $2.7 million to $62.2 million as of March 31, 2018, from $64.9 million as of December 31, 2017.

Conference Call Information

A conference call has been scheduled for Thursday, May 3, 2018 at 4:00 P.M. Central time (5:00 P.M. Eastern time) to discuss first quarter 2018 results.  The conference call information is as follows:

A replay of the conference call will be accessible two hours after its completion through May 10, 2018, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering Conference ID 8729479.

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 integrate the operations of our new nursing centers in Alabama and Mississippi, as well as successfully operate all of our centers, our ability to increase census at our renovated centers, changes in governmental reimbursement, 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, our ability to renew or extend our leases at or prior to the end of the existing lease terms, 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 state or Federal False Claims Acts, laws and regulations governing quality of care or other laws and regulations applicable to our business including HIPAA and laws governing reimbursement from government payors, 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 centers, 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 others. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, 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. Diversicare Healthcare Services, 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.

Diversicare provides long-term care services to patients in 76 nursing centers and 8,456 skilled nursings beds. For additional information about the Company, visit Diversicare's web site: www.DVCR.com.

Company Contact:
Kelly J. Gill
Chief Executive Officer
615-771-7575         

Investor Relations:
James R. McKnight, Jr.
Chief Financial Officer
615-771-7575

-Financial Tables to Follow-

DIVERSICARE HEALTHCARE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

DIVERSICARE HEALTHCARE SERVICES, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)

DIVERSICARE HEALTHCARE SERVICES, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(In thousands)

DIVERSICARE HEALTHCARE SERVICES, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME (LOSS)
(In thousands, except per share data)

DIVERSICARE HEALTHCARE SERVICES, INC.
FUNDS PROVIDED BY OPERATIONS
(In thousands, except per share data, unaudited)

We have included certain financial measures in this press release, including EBITDA, Adjusted EBITDA, Adjusted Net income (loss) 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, interest expense, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for acquisition and disposition related costs, hurricane costs, lease termination receipts, gain on sale of unconsolidated center, and gain on bargain purchase. We define Adjusted Net income (loss) as Net income (loss) adjusted for acquisition and disposition related costs, hurricane costs, lease termination receipts, gain on sale of unconsolidated center, gain on bargain purchase, tax impact related to those adjustments, and discontinued operations, net of tax. Funds Provided by Operations is defined as net income from operating activities adjusted for the cash effect of professional liability and other non-cash charges.  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 tax benefit and other non-cash charges.

Our measurements of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) 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) 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) 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) and Funds Provided by Operations should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.