DVCR - Diversicare Announces 2019 First Quarter Results

BRENTWOOD, Tenn., May 02, 2019 (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, 2019.

First Quarter 2019 Highlights

• Net loss from continuing operations was $(3.3) million, or $(0.52) per share, in the first quarter of 2019, compared to net loss from continuing operations of $(0.1) million, or $(0.01) per share, in the first quarter of 2018.
• Our adjusted EBITDAR for the quarter was $15.5 million, compared to $18.2 million in the first quarter of 2018.
• Under the new Accounting Standard Codification ("ASC") 842, the Company recorded net leased assets and liabilities of $384 million and $389 million, respectively, as of January 1, 2019.

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

CEO Remarks

Commenting on the quarter, Jay McKnight, President and Chief Executive Officer, said, "Our operational and financial performance during the first quarter of 2019 continued to reflect the challenges we have been experiencing in our industry, but we do have some opportunities for improvement on the horizon.  Our Medicare, Medicaid, and Managed Care rates all increased during the quarter.  The increases are a combination of cost reimbursement along with acuity factors for our centers.  We have enrolled the majority of our Texas centers in the state’s Quality Incentive Payment Program, which we expect to be effective for these centers in September of this year.  This program rewards operators who maintain high quality measures with enhanced Medicaid reimbursements.  We are implementing cost reductions to align our overhead cost structure with the current environment.  CMS has proposed a net 2.5% market basket increase for this coming October. Year over year, our skilled mix patients decreased from 16.1% in the first quarter of 2018 to 14.9% in the first quarter of 2019.  It should be noted though that this quarter was the highest skilled mix we have seen since the first quarter of 2018."

Mr. McKnight concluded, "I am extremely grateful for and proud of our team members as they continue to be devoted to our mission, which is improving every life we touch by providing exceptional healthcare and exceeding expectations."

First Quarter 2019 Results

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

Patient Revenues

Patient revenues were $134.4 million and $141.3 million for the three months ended March 31, 2019 and 2018, respectively, a decrease of $6.9 million. The following summarizes the revenue fluctuations attributable to changes in our portfolio (in thousands):

The three Kentucky centers we sold in December 2018 contributed $4.7 million of the $6.9 million patient revenues decrease. Our same-store patient revenues decreased by $2.2 million. Our average Medicaid and Medicare rates per patient day for the first quarter of 2019 increased compared to the first quarter of 2018, resulting in increases in revenue of $1.7 million and $0.1 million, respectively, or 2.5% and 0.3%, respectively.  Our Hospice average daily census for the first quarter of 2019 increased 15.8%, resulting in $1.0 million in additional revenue. Conversely, our Medicare, Medicaid and Private average daily census for the first quarter of 2019 decreased 13.4%, 0.1% and 10.1%, respectively, resulting in revenue losses of $4.1 million, $0.1 million and $1.1 million, respectively. Our ancillary revenue for the first quarter of 2019 increased $0.3 million.

Operating Expense

Operating expense decreased in the first quarter of 2019 to $108.1 million as compared to $112.3 million in the first quarter of 2018.  Operating expense increased as a percentage of revenue at 80.5% for the first quarter of 2019 as compared to 79.5% for the first quarter of 2018.  The following table summarizes the expense increases attributable to changes in our portfolio (in thousands):

The three Kentucky centers we sold in December 2018 contributed $3.2 million of the $4.2 million operating expense decrease. Our same-store operating expenses decreased by $1.0 million, which is mostly attributable to favorable variances in nursing and ancillary costs and salaries and related taxes of $0.6 million and $0.6 million, respectively, in first quarter of 2019 compared to the first quarter of 2018. This was partially offset by unfavorable variances in dietary costs and maintenance and utilities expense of $0.2 million and $0.1 million, respectively, in first quarter of 2019 compared to the first quarter of 2018.

One of the largest components of operating expenses is wages, which decreased from $67.1 million in the first quarter of 2018 to $65.1 million during the first quarter of 2019.

Lease expense in the first quarter of 2019 increased to $15.8 million as compared to $13.7 million in the first quarter of 2018.  The increase in lease expense was due to rent increases resulting from the new master lease agreement with Omega Healthcare Investors and the $1.7 million impact of non-cash straight-line expense.

Professional liability expense was $3.4 million and $2.8 million in the first quarters of 2019 and 2018, respectively. Our cash expenditures for professional liability costs of continuing operations were $1.9 million and $1.1 million for the first quarters of 2019 and 2018, respectively. Professional liability expense fluctuates based on the results of our third-party professional liability actuarial studies and cash expenditures are incurred to defend and settle existing claims. See “Liquidity and Capital Resources” for further discussion of the accrual for professional liability.

General and administrative expense was $7.5 million in the first quarter of 2019 as compared to $8.1 million in the first quarter of 2018. General and administrative expense decreased as a percentage of revenue to 5.6% in the first quarter of 2019 from 5.8% in the first quarter of 2018. The change in general and administrative expense is attributable to a decrease in salaries and related taxes of $0.8 million in the first quarter of 2019 as compared to the first quarter of 2018.

Depreciation and amortization expense was $2.5 million in the first quarter of 2019 as compared to $2.9 million in the first quarter of 2018. The decrease in depreciation expense relates to the dispositions of Fulton, Clinton and Glasgow in the fourth quarter of 2018.

Interest expense was $1.5 million in the first quarter of 2019 and $1.7 million first quarter of 2018. The decrease of $0.2 million is due to a decrease in the outstanding borrowings on our loan facilities.

As a result of the above, continuing operations reported a loss of $4.3 million before income taxes for the first quarter of 2019 as compared to a loss of $0.1 million for the first quarter of 2018. The benefit for income taxes was $1.0 million for the first quarter of 2019, and the benefit for income taxes was $0.1 million for the first quarter of 2018. Both basic and diluted loss per common share from continuing operations were $0.52 for the first quarter of 2019 as compared to both basic and diluted loss per common share from continuing operations of $0.01 in the first quarter of 2018.

Receivables

Our net receivables balance decreased $2.4 million to $63.9 million as of March 31, 2019, from $66.3 million as of December 31, 2018.

Conference Call Information

A conference call has been scheduled for Thursday, May 2, 2019 at 4:00 P.M. Central time (5:00 P.M. Eastern time) to discuss first quarter 2019 results.  The conference call information is as follows:

A replay of the conference call will be accessible two hours after its completion through May 9, 2019, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering Conference ID 2691374.

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, as well as successfully operate all of our centers, our ability to increase census and occupancy rates at our 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 comply with the terms of our master lease 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, our ability to attract and retain qualified healthcare professionals, changes to our valuation of deferred tax assets, changing economic and competitive conditions, changes in anticipated revenue and cost growth, our ability to regain compliance with the Nasdaq continued listing requirements, 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, 2018, 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 72 nursing centers and 8,214 skilled nursing beds. For additional information about the Company, visit Diversicare's web site: www.DVCR.com.

-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 EBITDA, EBITDAR AND ADJUSTED EBITDAR
(In thousands)

DIVERSICARE HEALTHCARE SERVICES, INC.
RECONCILIATION OF NET INCOME (LOSS) FOR DIVERSICARE HEALTHCARE
SERVICES, INC. COMMON SHAREHOLDERS TO ADJUSTED NET INCOME (LOSS)
FOR DIVERSICARE HEALTHCARE SERVICES, INC. COMMON SHAREHOLDERS

(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 EBITDAR, 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, debt retirement costs, income tax and depreciation and amortization. We define EBITDAR as EBITDA adjusted for rent expense. We define Adjusted EBITDAR as EBITDAR adjusted for acquisition and disposition related costs, gain on sale of unconsolidated center, gain on sale of assets, severance expense and litigation contingency expense. We define Adjusted Net income (loss) as Net income (loss) adjusted for acquisition and disposition related costs, gain on sale of unconsolidated center, gain on sale of assets, severance expense, litigation contingency expense, 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, EBITDAR, Adjusted EBITDAR, 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, EBITDAR, Adjusted EBITDAR, 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 EBITDAR and Adjusted Net income (loss) are important performance measurements because they eliminate certain nonrecurring start-up losses, separation costs and other items. 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, EBITDAR, Adjusted EBITDAR, 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.