Advocat Inc. (Nasdaq:AVCA) a premier provider of long term care
services primarily in the Southeast and Southwest, today announced
its results for the second quarter ended June 30, 2011. On August
9, 2011, the Company declared a third quarter dividend of 5.5 cents
per common share. The dividend will be paid October 14, 2011 to
shareholders of record on September 30, 2011.
For the second quarter of 2011 compared to the second quarter of
2010, key highlights include the following:
- Revenue increased 10.7%, to $79.2 million, compared to $71.5
million.
- Skilled census, representing total Medicare and managed care
patients, increased 10.7% to an average of 685 patients per day, a
record high for the Company. Skilled census was 16.5% of total
census in the second quarter of 2011 compared to 14.8% in
2010.
- Medicare revenues increased 29% compared to the second quarter
of 2010, as a result of increased patient census, changes in
patient acuity levels, and the effects of the skilled nursing rate
adjustments in October 2010.
- The Company is incurring expenses that are expected to benefit
future periods. Results for the second quarter of 2011 included
investments totaling approximately $1.7 million for expenses
related to our strategic growth initiatives. While the Company is
already experiencing an increase in skilled mix and operating
results, we expect results from these investments will fully
develop in future periods.
- Net income from continuing operations was $2.9 million compared
to $987,000, or $0.48 per diluted common share compared to $0.15
per diluted common share in 2010.
- Funds provided by operations were $6.4 million versus $3.1
million or $1.08 compared to $0.53 per diluted common share in
2010.
Funds provided by operations is a non-GAAP performance
measurement. A reconciliation of funds provided by operations
to net income is included in the financial tables accompanying this
press release.
CEO Remarks
William R. Council, President and Chief Executive Officer,
remarked, "Our operating results for 2011 are off to a strong start
with growth in skilled mix average daily census of over 10%. The
sharp increase in this metric indicates that the strategic
investments to improve skilled mix and occupancy are providing the
benefits that we expect. Our investment in technology,
personnel and training is not only improving our performance but
also building the foundation to support higher census and skilled
mix in future periods. Despite the upfront investment these
initiatives required this period, we saw a strong second quarter,
with funds provided by operations of $6.4 million or $1.08 per
diluted common share."
Commenting on the recently announced Medicare rate cut, Mr.
Council continued, "We are very disappointed in the recent CMS
decision to reduce Medicare rates by 11.1%. Our profession
proposed a reasonable alternative that would have provided for a
stabilized adjustment period. We are reviewing our operations
to determine how we might potentially mitigate the negative impact
of the CMS rate reductions. We will continue to analyze the
rate changes and make appropriate operational changes."
Other Highlights for the Quarter Ended 2011
The following table summarizes key revenue and census statistics
for the quarter:
|
Quarter Ended |
|
June 30, |
|
2011 |
2010 |
|
|
|
Total occupancy |
77.3% |
78.2% |
As a percent of total census: |
|
|
Medicare census |
14.6% |
13.5% |
Managed care census |
1.9% |
1.3% |
As a percent of total revenues: |
|
|
Medicare revenues |
35.9% |
30.8% |
Medicaid revenues |
47.7% |
53.6% |
Managed care revenues |
3.9% |
2.7% |
Average rate per day: |
|
|
Medicare |
$464.71 |
$389.13 |
Medicaid |
$150.66 |
$145.32 |
Managed care |
$403.50 |
$389.14 |
Patient Revenues
Medicare revenues increased $6.4 million in the second quarter
of 2011 compared to the same period in 2010, as a result of serving
a greater number of Medicare patients, changes in patient acuity
levels, and rate adjustments implemented by CMS in October
2010. The increase in the total Medicare census and the acuity
of our patient mix is primarily attributable to the investments we
have made to improve our skilled care offerings. These
investments and the costs of caring for these patients resulted in
cost increases as discussed below.
Medicaid average daily census was 4.4% lower in 2011, decreasing
revenue by $1.7 million in the second quarter of 2011. The
average Medicaid rate per patient day for 2011 increased 3.7%
compared to 2010 resulting in a revenue increase of $1.3 million in
2011. This increase is the result of rate increases in certain
states, partially funded by increased provider taxes, and
increasing patient acuity levels. The decrease in Medicaid
census reflects our focus on improving our skilled mix.
Managed care rates and census contributed approximately $1.0
million of the total revenue increase. The average
managed care rate per patient day for 2011 increased 3.7% compared
to 2010 and managed care average daily census increased 44.4%.
Expenses
Expenses for 2011 include approximately $1.7 million for
investment spending in operating initiatives to improve skilled mix
and occupancy. The $1.7 million consists of approximately $0.7
million in nursing center staffing costs to improve our ability to
market to and care for high acuity patients, $0.4 million for costs
of additional wages that resulted from the transition to the new
MDS 3.0 patient assessment tool, and additional administrative
costs of $0.6 million for oversight and execution of these
initiatives. In addition, we increased therapy staffing costs
by $1.2 million to support the current skilled census and provide
the support for additional increases in skilled census over the
long term. While the Company is already experiencing an increase in
skilled mix and operating results, there is typically a time delay
between incurring such expenses and fully attaining the revenues
and cash flows expected from these initiatives and
developments.
Operating expense increased to $59.7 million in 2011 from
$56.4 million in 2010, an increase of $3.3 million, or
5.9%. The increase in operating expense is primarily
attributable to cost increases associated with our increased
revenue as well as investment in operating initiatives focused on
improving our skilled mix and occupancy. Operating expense
decreased to 75.5% of revenue in 2011, compared to 78.9% of revenue
in 2010.
The largest component of operating expense is wages, which
increased to $37.4 million in 2011 from $34.5 million in 2010,
an increase of $2.9 million, or 8.6%. The increase in
wages was primarily due to labor costs associated with the 10.7%
increase in Medicare and managed care patients, competitive labor
markets in most of the areas in which we operate and regular merit
and inflationary raises for personnel (increase of approximately
3.1% for the quarter). As discussed above, we also increased
facility staffing as part of our initiatives to further improve
occupancy and skilled mix.
General and administrative expenses were approximately $6.1
million in 2011, compared to $5.1 million in 2010, an increase of
$1.0 million, or 21.0%. Costs of our strategic initiatives
accounted for approximately $0.6 million, including compensation
costs related to new positions of approximately $0.4 million, costs
related to the implementation of electronic medical records of
approximately $0.1 million, and travel expenses of $0.1
million. Performance-based incentive expense was $0.2 million
higher in 2011.
Highlights for the Six Months Ended June 30,
2011:
- Revenue for the period increased to $156.3 million from $141.6
million or approximately 10.3%.
- Net income from continuing operations rose to $3.4 million from
$1.7 million or approximately 100%.
- Net income from continuing operations per diluted share
increased to $0.54 from $0.26 or approximately 108%.
- Funds provided by operations increased to $9.6 million from
$6.4 million, an increase of approximately 50%.
Facility Renovations
As of June 30, 2011, the Company has completed renovations at
fifteen facilities. The Company is developing plans for
additional renovation projects. A total of $22.4 million has
been spent on the renovation program to date, with $15.2 million
financed through Omega, $6.1 million financed with internally
generated cash, and $1.1 million financed with long-term
debt. A table is included with this press release summarizing
operating results at renovated nursing centers.
As part of the Company's plans to develop additional renovation
projects, the Company entered into an amendment to the Master lease
with Omega in April 2011 under which Omega agreed to provide an
additional $5.0 million to fund renovations to four nursing centers
located in Arkansas, Kentucky, Ohio and Texas that are leased from
Omega. The Company has four projects under way at this time,
with completion dates late this year or early next
year.
Electronic Medical Records
During the second half of 2010, the Company developed a plan to
introduce EMR to all its facilities. The Company expects to
complete its EMR implementation plan during the remainder of
2011. It is anticipated that our investment in EMR will
provide operational improvements through automation of record
keeping and improvement in clinical records quality. During
the six months ended June 30, 2011, we capitalized $0.6 million
related to the EMR initiative and expensed $0.5 million in training
costs. The Company expects to have total expenses during 2010 and
2011 related to implementing its electronic medical record system
of between $1.8 million and $2.0 million and total capital
expenditures during this period of approximately $3.6 million.
Conference Call Information
A conference call has been scheduled for Wednesday, August 10,
2011 at 9:00 A.M. Central time (10:00 A.M. Eastern time) to discuss
second quarter 2011 results.
The conference call information is as follows:
Date: |
|
Wednesday, August 10, 2011 |
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 |
The call will consist of remarks from management as well as a
question and answer session. In addition to the questions
posed during the live call, management will also be addressing
questions submitted by email. If you would like to submit a
question please email it to InvestorRelations@advocat-inc.com
before the start of the call.
A replay of the conference call will be accessible two hours
after its completion through August 17, 2011 by dialing
955-859-2056(domestic) or 404-537-3406(International)and entering
passcode 83718509.
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 construct and operate the new nursing
center in West Virginia, our ability to increase census at our
renovated facilities, changes in governmental reimbursement,
including the impact of a recently announced final rule that is
expected to result in a 11.1% reduction in Medicare reimbursement
as of October 2011, government regulation, the impact of 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, costs and 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 December 31, 2010, as well as in its Quarterly Reports
on Form 10-Q and 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 46
skilled nursing centers containing 5,364 licensed nursing beds,
primarily in the Southeast and Southwest. For additional
information about the Company, visit Advocat's web site:
www.advocat-inc.com.
-Financial Tables to Follow-
ADVOCAT
INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(In thousands) |
|
|
|
|
June 30, |
December 31 |
|
2011 |
2010 |
ASSETS: |
(Unaudited) |
|
Current Assets |
|
|
Cash and cash equivalents |
$8,786 |
$8,862 |
Receivables, net |
27,584 |
23,801 |
Deferred income taxes |
4,723 |
4,207 |
Other current assets |
6,152 |
5,965 |
Total current assets |
47,245 |
42,835 |
|
|
|
Property and equipment, net |
42,326 |
38,180 |
Deferred income taxes |
11,131 |
12,408 |
Acquired leasehold interest, net |
9,188 |
9,380 |
Other assets, net |
5,675 |
3,153 |
TOTAL ASSETS |
$115,565 |
$105,956 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY: |
|
|
Current Liabilities |
|
|
Current portion of long-term debt and
capitalized lease obligations |
$527 |
$582 |
Trade accounts payable |
5,103 |
3,120 |
Accrued expenses: |
|
|
Payroll and employee
benefits |
11,696 |
11,047 |
Current portion of
self-insurance reserves |
8,278 |
7,379 |
Other current liabilities |
3,860 |
4,479 |
Total current liabilities |
29,464 |
26,607 |
Noncurrent Liabilities |
|
|
Long-term debt and capitalized lease
obligations, less current portion |
25,946 |
23,819 |
Self-insurance reserves, less current
portion |
11,418 |
11,659 |
Other noncurrent liabilities |
17,531 |
16,748 |
Total noncurrent
liabilities |
54,895 |
52,226 |
|
|
|
PREFERRED STOCK |
4,918 |
4,918 |
|
|
|
SHAREHOLDERS' EQUITY |
26,288 |
22,205 |
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY |
$115,565 |
$105,956 |
ADVOCAT
INC. |
CONSOLIDATED INCOME
STATEMENTS |
(In thousands, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months |
For the Six
Months |
|
Ended June
30, |
Ended June
30, |
|
2011 |
2010 |
2011 |
2010 |
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
PATIENT REVENUES,
NET |
$79,172 |
$71,492 |
$156,302 |
$141,644 |
EXPENSES: |
|
|
|
|
Operating |
59,742 |
56,388 |
120,599 |
111,790 |
Lease |
5,727 |
5,636 |
11,441 |
11,238 |
Professional liability |
1,081 |
997 |
2,772 |
2,411 |
General and
administrative |
6,124 |
5,063 |
12,178 |
9,765 |
Depreciation and
amortization |
1,565 |
1,432 |
3,121 |
2,848 |
|
74,239 |
69,516 |
150,111 |
138,052 |
OPERATING INCOME |
4,933 |
1,976 |
6,191 |
3,592 |
OTHER INCOME (EXPENSE): |
|
|
|
|
Interest expense, net |
(582) |
(415) |
(1,033) |
(811) |
Debt retirement costs |
― |
― |
(112) |
(127) |
|
(582) |
(415) |
(1,145) |
(938) |
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
|
|
|
|
4,351 |
1,561 |
5,046 |
2,654 |
PROVISION FOR INCOME
TAXES |
(1,412) |
(574) |
(1,661) |
(960) |
NET INCOME FROM CONTINUING
OPERATIONS |
2,939 |
987 |
3,385 |
1,694 |
DISCONTINUED OPERATIONS |
(2) |
(10) |
(10) |
191 |
NET INCOME |
2,937 |
977 |
3,375 |
1,885 |
PREFERRED STOCK
DIVIDENDS |
(86) |
(86) |
(172) |
(172) |
|
|
|
|
|
NET INCOME FOR COMMON
STOCK |
$2,851 |
$891 |
$3,203 |
$1,713 |
|
|
|
|
|
NET INCOME PER COMMON
SHARE: |
|
|
|
|
Per common share –
basic |
|
|
|
|
Income from continuing
operations |
$0.49 |
$0.16 |
$0.56 |
$0.27 |
Income from discontinued
operations |
― |
― |
― |
0.03 |
|
$0.49 |
$0.16 |
$0.56 |
$0.30 |
Per common share –
diluted |
|
|
|
|
Income from continuing
operations |
$0.48 |
$0.15 |
$0.54 |
$0.26 |
Income from discontinued
operations |
― |
― |
― |
0.03 |
|
$0.48 |
$0.15 |
$0.54 |
$0.29 |
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
|
|
Basic |
5,778 |
5,726 |
5,765 |
5,722 |
Diluted |
5,934 |
5,874 |
5,906 |
5,894 |
ADVOCAT
INC. |
FUNDS PROVIDED BY
OPERATIONS |
(In
thousands, except per share data) |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June 30, |
June 30, |
|
2011 |
2010 |
2011 |
2010 |
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
NET INCOME |
$2,937 |
$977 |
$3,375 |
$1,885 |
Income (loss) from discontinued
operations |
(2) |
(10) |
(10) |
191 |
Net income from continuing operations |
2,939 |
987 |
3,385 |
1,694 |
Adjustments to reconcile net
income from continuing operations to funds provided
by operations: |
|
|
|
|
Depreciation and
amortization |
1,565 |
1,432 |
3,121 |
2,848 |
Provision for doubtful
accounts |
625 |
452 |
1,194 |
940 |
Deferred income tax
provision |
964 |
118 |
1,073 |
64 |
Provision for self-insured
professional liability, net of cash payments |
(60) |
(264) |
6 |
(193) |
Stock-based compensation |
202 |
137 |
403 |
333 |
Amortization of deferred
balances |
38 |
45 |
84 |
121 |
Provision for leases in excess
of cash payments |
112 |
222 |
225 |
447 |
Other |
― |
― |
79 |
127 |
FUNDS PROVIDED BY
OPERATIONS |
$6,385 |
$3,129 |
$9,570 |
$6,381 |
|
|
|
|
|
FUNDS PROVIDED BY OPERATIONS PER
SHARE: |
|
|
|
|
Basic |
$1.11 |
$0.55 |
$1.66 |
$1.12 |
Diluted |
$1.08 |
$0.53 |
$1.62 |
$1.08 |
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
|
|
Basic |
5,778 |
5,726 |
5,765 |
5,722 |
Diluted |
5,934 |
5,874 |
5,906 |
5,894 |
|
|
|
|
|
|
|
|
|
|
Advocat provides 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. Funds
Provided by Operations is defined as net income from continuing
operations adjusted for the cash effect of professional liability
and other non-cash charges and is measured before the effects of
capital additions, debt payments or dividends to preferred or
common shareholders. Funds Provided by Operations per share is
defined as Funds Provided by Operations divided by the weighted
average common shares outstanding. 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 other non-cash charges. Since the definition of Funds
Provided by Operations may vary among companies and industries, it
should not be used as a measure of performance among
companies. |
ADVOCAT
INC. |
SELECTED OPERATING
STATISTICS |
June 30,
2011 |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled |
|
|
|
|
Medicare |
Medicaid |
|
|
|
Nursing |
|
|
|
|
Room and |
Room and |
|
As of |
Weighted |
Occupancy |
|
2011 |
Board |
Board |
|
June 30,
2011 |
Average |
(Note
1) |
|
Q2 |
Revenue |
Revenue |
|
Licensed |
Available |
Daily |
Licensed |
Available |
Medicare |
Revenue |
PPD |
PPD |
Region |
Nursing |
Nursing |
Census |
Nursing |
Nursing |
Utilization |
($ in millions) |
(Note 2) |
(Note 2) |
|
Beds |
Beds |
|
Beds |
Beds |
|
|
|
|
Alabama (Note 3) |
790 |
783 |
705 |
89.30% |
90.10% |
16.60% |
$15.50 |
$493.84 |
$170.59 |
Arkansas |
1,311 |
1,183 |
929 |
70.80% |
78.50% |
18.00% |
17.5 |
423.87 |
149.43 |
Kentucky (Note 4) |
778 |
757 |
683 |
87.80% |
90.30% |
13.50% |
14.1 |
464.78 |
173.04 |
Tennessee |
617 |
586 |
512 |
83.00% |
87.40% |
17.00% |
10.3 |
449.07 |
147.54 |
Texas |
1,868 |
1,676 |
1,318 |
70.60% |
78.60% |
10.90% |
21.8 |
497.92 |
128.95 |
Total |
5,364 |
4,985 |
4,147 |
77.30% |
83.20% |
14.60% |
$79.20 |
$464.71 |
$150.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1: |
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. |
Note 2: |
These Medicare and Medicaid
revenue rates include room and board revenues but do not include
any ancillary revenues related to these patients. |
Note 3: |
The Alabama region includes
nursing centers in Alabama and Florida. |
Note 4: |
The Kentucky region includes
nursing centers in Kentucky, West Virginia and Ohio. |
ADVOCAT
INC. |
SELECTED OPERATING
STATISTICS OF RENOVATED FACILITIES |
June 30,
2011 |
(Unaudited) |
|
|
|
|
|
|
|
|
Medicare Average
Daily |
|
Occupancy(1) |
Census |
|
Q2 |
LTM(2) |
Q2 |
LTM(2) |
Renovation – Completion
Date |
2011 |
Prior |
2011 |
Prior |
1st renovation – January 2006 |
84.3% |
64.9% |
16 |
8 |
2nd renovation – July 2006 |
60.1% |
71.2% |
10 |
12 |
3rd renovation – August 2006 |
78.3% |
45.1% |
9 |
5 |
4th renovation – October 2006 |
81.6% |
71.9% |
11 |
9 |
5th renovation – February 2007 |
66.5% |
56.2% |
11 |
8 |
6th renovation – April 2007 |
57.0% |
47.5% |
15 |
13 |
7th renovation – July 2007 |
73.3% |
85.0% |
11 |
17 |
8th renovation – January 2008 |
70.5% |
50.9% |
13 |
9 |
9th renovation – October 2008 |
86.7% |
83.0% |
15 |
17 |
10th renovation – November 2008 |
87.9% |
80.8% |
15 |
12 |
11th renovation – March 2009 |
76.2% |
62.5% |
12 |
7 |
12th renovation – November
2009 |
92.0% |
86.7% |
24 |
24 |
13th renovation – January 2010 |
96.6% |
95.6% |
8 |
5 |
14th renovation – July 2010 |
95.5% |
77.6% |
32 |
12 |
15th renovation – August 2010 |
73.3% |
68.8% |
25 |
19 |
Total |
77.9% |
69.8% |
227 |
177 |
|
|
|
|
|
|
|
|
|
|
(1) Occupancy based on licensed
beds. |
|
|
|
|
(2) Last Twelve Months prior to
commencement of construction. |
|
|
|
|
CONTACT: Company Contact:
William R. Council, III
President and CEO
(615) 771-7575
Investor Relations:
Cameron Associates
Rodney O'Connor
(212) 554-5470
Diversicare Healthcare Services, Inc. (MM) (NASDAQ:AVCA)
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