In a press release issued earlier today by Advocat Inc.
(Nasdaq:AVCA) with the same headline, please note that the previous
version was incomplete. The full, corrected version follows:
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, 2011. On
November 4, 2011, the Company declared a fourth quarter dividend of
5.5 cents per common share. The dividend will be paid January 13,
2012 to shareholders of record on December 31, 2011.
The Company also announced that Kelly Gill has been promoted to
Chief Executive Officer and appointed to the Board of Directors.
Wallace Olson, Chairman of the Board, said "Kelly's extensive
experience and success at Advocat and in the nursing home
profession will be an asset to the Company and the Board in both
these roles."
For the third quarter of 2011 compared to the third quarter of
2010, key highlights include the following:
- Revenue increased 10.5%, to $80.6 million, compared to $73.0
million.
- Skilled census, representing total Medicare and managed care
patients, increased 12.2% to an average of 660 patients per day.
Skilled census was 15.9% of total census in the third quarter of
2011 compared to 13.9% in 2010.
- Medicare revenues increased 29% compared to the third 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 third quarter of 2011
included expense increases totaling approximately $1.4 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.
- The Company recorded $4.6 million in professional liability
expense, $1.3 million in severance expense for the former Chief
Executive Officer and a $0.3 million asset impairment charge during
the quarter which contributed significantly to the quarterly
operating loss.
- Net loss from continuing operations was $0.9 million compared
to net income from continuing operations of $0.2 million, or a loss
of $0.17 per diluted common share compared to income of $0.02 per
diluted common share in 2010.
- Funds provided by operations were $2.5 million versus $3.3
million or $0.43 compared to $0.57 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
Kelly Gill, CEO, remarked, "We continue to see strong revenue
and skilled mix growth as a result of our strategic
investments. As a direct result of enhancing our registered
nurse coverage and expanding our specialized clinical care
offerings, combined with our growth in referral and managed care
relationships in certain markets, we have witnessed skilled mix
average daily census grow over 10%. Professional liability
expense and expenses associated with the departure of the Company's
former CEO caused lower earnings for the quarter, but our strategic
investment plan continues to provide returns now as well as
tremendous upside opportunities for future growth and
profitability."
Other Highlights for the Quarter Ended 2011
The following table summarizes key revenue and census statistics
for the quarter:
|
Quarter Ended |
|
September 30, |
|
2011 |
2010 |
Total occupancy |
77.6% |
78.7% |
As a percent of total census: |
|
|
Medicare census |
13.9% |
12.8% |
Managed care census |
2.0% |
1.1% |
As a percent of total revenues: |
|
|
Medicare revenues |
34.8% |
29.9% |
Medicaid revenues |
49.4% |
54.3% |
Managed care
revenues |
4.0% |
2.5% |
Average rate per day: |
|
|
Medicare |
$473.98 |
$388.37 |
Medicaid |
$153.55 |
$148.21 |
Managed care |
$405.14 |
$394.11 |
Patient Revenues
Medicare revenues increased $6.3 million in the third 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 2.5% lower in 2011, decreasing
revenue by $1.0 million in the third quarter of 2011. The
average Medicaid rate per patient day for 2011 increased 3.6%
compared to 2010 resulting in a revenue increase of $1.4 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 $1.4
million of the total revenue increase. The average managed care
rate per patient day for 2011 increased 2.8% compared to 2010 and
managed care average daily census increased 77%.
Expenses
Expenses for 2011 include approximately $1.4 million for
investment spending in operating initiatives to improve skilled mix
and occupancy. The $1.4 million consists of approximately $0.6
million in nursing center staffing costs to improve our ability to
market to and care for high acuity patients and additional
administrative costs of $0.8 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 $61.9 million in 2011 from
$58.5 million in 2010, an increase of $3.3 million, or
5.7%. 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 76.7% of revenue in 2011, compared to 80.2% of revenue
in 2010.
The largest component of operating expense is wages, which
increased to $39.2 million in 2011 from $36.3 million in 2010,
an increase of $2.9 million, or 8.0%. The increase in
wages was primarily due to labor costs associated with the 12.2%
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
3.5% for the quarter). As discussed above, we also increased
facility staffing as part of our initiatives to further improve
occupancy and skilled mix.
Professional liability expense was $4.6 million in the third
quarter of 2011 compared to $1.7 million in the third quarter of
2010, an increase of $2.9 million. The Company recorded an
expense of $4.6 million after an evaluation of its accrual for
professional liability claims, giving consideration to several
factors, including settlements of claims since June 30, 2011 and
other factors affecting our remaining professional and general
liability claims, including new lawsuits filed, lawsuits resolved,
and the expected frequency and severity of claims during 2011 and
prior periods. Cash expenditures for professional liability
costs of continuing operations were $4.5 million and $1.3 million
for the third quarters of 2011 and 2010,
respectively. Professional liability cash expenditures can
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 $7.2
million in 2011, compared to $5.0 million in 2010, an increase of
$2.2 million, or 45.0%, and included a charge of $1.3 million in
separation costs. Costs of our strategic initiatives accounted
for approximately $0.8 million, including compensation costs
related to new positions of approximately $0.5 million, costs
related to the implementation of electronic medical records of
approximately $0.2 million, and travel expenses of $0.1
million. Performance-based incentive expense was $0.2 million
lower in 2011.
During the third quarter of 2011, the Company determined that
the carrying value of the long-lived assets of one of our leased
nursing centers exceeded the fair value. As a result, we
recorded a fixed asset impairment charge as of and for the period
ended September 30, 2011 of $0.3 million to reduce the carrying
value of these assets.
Highlights for the Nine Months Ended September 30,
2011:
- Revenue for the period increased to $236.9 million from $214.6
million or approximately 10.4%.
- Net income from continuing operations rose to $2.5 million from
$1.9 million or approximately 30.6%.
- Net income from continuing operations per diluted share
increased to $0.38 from $0.28 or approximately 35%.
- Funds provided by operations increased to $12.1 million from
$9.7 million, an increase of approximately 25%.
Facility Renovations
As of September 30, 2011, the Company has completed renovations
at fifteen facilities. The Company is developing plans for
additional renovation projects. A total of $23.2 million has
been spent on the renovation program to date, with $15.9 million
financed through Omega, $6.1 million financed with internally
generated cash, and $1.2 million financed with long-term
debt. The Company has four projects under way at this time,
with completion dates late this year or early next year.
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.
Electronic Medical Records
We have fully implemented EMR in 31 of our nursing centers and
implemented at least one of three phases of EMR in all but two of
our 46 nursing centers as of September 30, 2011. Completion of
the full EMR implementation plan is expected in December 2011, with
training expenses during 2010 and 2011 related to this
implementation expected to be between $1.6 million and $1.7
million, and capital expenditures for the implementation expected
to be approximately $3.5 million. We have already experienced
operational improvements through automation of record keeping and
improvement in clinical records quality.
Rose Terrace – West Virginia Nursing
Center
The construction of the 90 bed skilled nursing center in
Culloden, West Virginia, is nearing completion, with opening
scheduled in December 2011. Marketing activities and
preparations for opening are underway. We will initially lease
the nursing center but have an option to purchase the center
beginning at the end of the first year of the initial term of the
lease and continuing through the fifth year for a purchase price
ranging from 110% to 120% of the total project
cost.
Conference Call Information
A conference call has been scheduled for Tuesday, November 8,
2011 at 9:00 A.M. Central time (10:00 A.M. Eastern time) to discuss
third quarter 2011 results.
The conference call information is as follows:
Date: |
Tuesday, November 8, 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 November 16, 2011 by dialing
855.859.2056 (domestic) or 404.537.3406 (International) and
entering passcode 23303835.
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 the CMS final rule that is expected to
result in an 11.1% reduction in Medicare reimbursement as of
October 2011 and our ability to mitigate the impact of the
reduction, 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.
ADVOCAT
INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(In thousands) |
|
|
|
|
September 30,
2011 |
December 31,
2010 |
ASSETS: |
(Unaudited) |
|
Current Assets |
|
|
Cash and cash equivalents |
$7,748 |
$8,862 |
Receivables, net |
25,573 |
23,801 |
Deferred income
taxes |
5,141 |
4,207 |
Other current assets |
6,775 |
5,965 |
Total current assets |
45,237 |
42,835 |
|
|
|
Property and equipment, net |
44,655 |
38,180 |
Deferred income taxes |
10,118 |
12,408 |
Acquired leasehold interest, net |
9,092 |
9,380 |
Other assets, net |
5,606 |
3,153 |
TOTAL ASSETS |
$114,708 |
$105,956 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY: |
|
|
Current Liabilities |
|
|
Current portion of long-term
debt and capitalized lease obligations |
$677 |
$582 |
Trade accounts payable |
4,556 |
3,120 |
Accrued expenses: |
|
|
Payroll and employee
benefits |
12,688 |
11,047 |
Current portion of
self-insurance reserves |
8,093 |
7,379 |
Other current liabilities |
4,624 |
4,479 |
Total current liabilities |
30,638 |
26,607 |
Noncurrent Liabilities |
|
|
Long-term debt and capitalized
lease obligations, less current portion |
25,874 |
23,819 |
Self-insurance reserves, less
current portion |
10,476 |
11,659 |
Other noncurrent
liabilities |
18,240 |
16,748 |
Total noncurrent
liabilities |
54,590 |
52,226 |
|
|
|
PREFERRED STOCK |
4,918 |
4,918 |
|
|
|
SHAREHOLDERS' EQUITY |
24,562 |
22,205 |
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY |
$114,708 |
$105,956 |
|
|
|
ADVOCAT
INC. |
CONSOLIDATED INCOME
STATEMENTS |
(In thousands, except per share
data) |
|
|
|
|
|
|
For the Three
Months |
For the Nine
Months |
|
Ended September
30, |
Ended September
30, |
|
2011 |
2010 |
2011 |
2010 |
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
PATIENT REVENUES,
NET |
$80,644 |
$72,996 |
$236,946 |
$214,640 |
EXPENSES: |
|
|
|
|
Operating |
61,871 |
58,534 |
182,470 |
170,324 |
Lease |
5,737 |
5,661 |
17,178 |
16,899 |
Professional liability |
4,610 |
1,684 |
7,382 |
4,095 |
General and
administrative |
7,185 |
4,954 |
19,363 |
14,719 |
Depreciation and
amortization |
1,636 |
1,453 |
4,757 |
4,301 |
Asset impairment |
344 |
— |
344 |
— |
|
81,383 |
72,286 |
231,494 |
210,338 |
OPERATING INCOME (LOSS) |
(739) |
710 |
5,452 |
4,302 |
OTHER INCOME (EXPENSE): |
|
|
|
|
Interest expense, net |
(683) |
(413) |
(1,716) |
(1,224) |
Debt retirement costs |
— |
— |
(112) |
(127) |
|
(683) |
(413) |
(1,828) |
(1,351) |
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES |
(1,422) |
297 |
3,624 |
2,951 |
(PROVISION) BENEFIT FOR INCOME
TAXES |
549 |
(68) |
(1,112) |
(1,028) |
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS |
(873) |
229 |
2,512 |
1,923 |
DISCONTINUED OPERATIONS |
— |
(9) |
(10) |
182 |
NET INCOME (LOSS) |
(873) |
220 |
2,502 |
2,105 |
PREFERRED STOCK
DIVIDENDS |
(86) |
(86) |
(258) |
(258) |
|
|
|
|
|
NET INCOME (LOSS) FOR COMMON
STOCK |
($959) |
$134 |
$2,244 |
$1,847 |
|
|
|
|
|
NET INCOME (LOSS) PER COMMON
SHARE: |
|
|
|
|
Per common share –
basic |
|
|
|
|
Continuing operations |
($0.17) |
$0.02 |
$0.39 |
$0.29 |
Discontinued operations |
— |
— |
— |
0.03 |
|
($0.17) |
$0.02 |
$0.39 |
$0.32 |
Per common share –
diluted |
|
|
|
|
Continuing operations |
($0.17) |
$0.02 |
$0.38 |
$0.28 |
Discontinued operations |
— |
— |
— |
0.03 |
|
($0.17) |
$0.02 |
$0.38 |
$0.31 |
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
|
|
Basic |
5,779 |
5,742 |
5,770 |
5,729 |
Diluted |
5,779 |
5,813 |
5,915 |
5,868 |
|
ADVOCAT
INC. |
FUNDS PROVIDED BY
OPERATIONS |
(In thousands, except per share
data) |
|
|
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|
2011 |
2010 |
2011
|
2010 |
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
NET INCOME (LOSS) |
$ (873) |
$ 220 |
$ 2,502 |
$ 2,105 |
Income (loss) from discontinued
operations |
— |
(9) |
(10) |
182 |
Net income (loss) from continuing
operations |
(873) |
229 |
2,512 |
1,923 |
Adjustments to reconcile net income from
continuing operations to funds provided by
operations: |
|
|
|
|
Depreciation and amortization |
1,636 |
1,453 |
4,757 |
4,301 |
Provision for doubtful
accounts |
508 |
677 |
1,702 |
1,617 |
Deferred income tax provision |
865 |
424 |
1,938 |
488 |
Provision for self-insured professional
liability, net of cash payments |
(226) |
112 |
(220) |
(81) |
Stock-based compensation |
143 |
154 |
546 |
487 |
Amortization of deferred balances |
38 |
46 |
122 |
167 |
Provision for leases in excess of cash
payments |
111 |
222 |
336 |
669 |
Other |
344 |
— |
423 |
127 |
FUNDS PROVIDED BY
OPERATIONS |
$ 2,546 |
$ 3,317 |
$ 12,116 |
$ 9,698 |
|
|
|
|
|
FUNDS PROVIDED BY OPERATIONS PER
SHARE: |
|
|
|
|
Basic |
$ 0.44 |
$ 0.58 |
$ 2.10 |
$ 1.69 |
Diluted |
$ 0.43 |
$ 0.57 |
$ 2.05 |
$ 1.65 |
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|
|
|
|
Basic |
5,779 |
5,742 |
5,770 |
5,729 |
Diluted |
5,931 |
5,813 |
5,915 |
5,868 |
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 |
SEPTEMBER 30,
2011 |
(Unaudited) |
|
|
|
|
|
For the Three Months Ended September 30,
2011 |
|
As of
September 30, 2011 |
|
Occupancy (Note 1) |
|
|
|
|
Region |
Licensed Nursing
Beds |
Available Nursing
Beds |
Skilled Nursing
Weighted Average Daily
Census |
Licensed Nursing
Beds |
Available Nursing
Beds |
Medicare
Utilization |
2011 Q3
Revenue ($ in
millions) |
Medicare Room and
Board Revenue
PPD (Note 2) |
Medicaid Room and
Board Revenue
PPD (Note 2) |
Alabama (Note 3) |
790 |
783 |
718 |
90.9% |
91.7% |
15.0% |
$ 15.4 |
$497.07 |
$171.55 |
Arkansas |
1,311 |
1,157 |
931 |
71.0% |
80.4% |
15.6% |
17.7 |
431.65 |
156.49 |
Kentucky (Note 4) |
778 |
745 |
680 |
87.5% |
91.4% |
13.6% |
14.6 |
483.01 |
176.09 |
Tennessee |
617 |
576 |
500 |
81.0% |
86.8% |
17.3% |
10.2 |
464.75 |
147.95 |
Texas |
1,868 |
1,673 |
1,332 |
71.3% |
79.6% |
10.9% |
22.7 |
499.02 |
131.47 |
Total |
5,364 |
4,934 |
4,161 |
77.6% |
84.3% |
13.9% |
$ 80.6 |
$473.98 |
$153.55 |
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.
CONTACT: Company Contact:
Glynn Riddle
EVP and Chief Financial Officer
(615) 771-7575
Investor Relations:
Cameron Associates
Rodney O'Connor
(212) 554-5470
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