8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported)

(May 7, 2020)

Diversicare Healthcare Services, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	001-12996	62-1559667
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1621 Galleria Boulevard, Brentwood, TN 37027

(Address of Principal Executive Offices) (Zip Code)

(615) 771-7575

(Registrant's telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	DVCR	OTCQX

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

	Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.		¨

Item 2.02 Results of Operation and Financial Condition.

May 7, 2020, the Registrant announced its results of operation for the three-month period ended March 31, 2020. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety. The information furnished pursuant to Item 2.02 herein, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 7.01. Regulation FD Disclosure.

The Registrant is furnishing its earnings release script for the period ended March 31, 2020. See Exhibit 99.2 to this Current Report on Form 8-K. The information furnished pursuant to Item 7.01 herein, including Exhibit 99.2, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

NumberExhibit

99.1Press release dated May 7, 2020

99.2Earnings Release Script

104        Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Diversicare Healthcare Services, Inc.

By: /s/ Kerry D. Massey

Kerry D. Massey

Chief Financial Officer

Date:    May 7, 2020

EX-99.1

Company Contact: James R. McKnight, Jr. Chief Executive Officer 615-771-7575    Investor Relations:       Kerry D. Massey       Chief Financial Officer       615-771-7575

Diversicare Announces 2020 First Quarter Results

BRENTWOOD, TN, (May 7, 2020) –Diversicare Healthcare Services, Inc. (OTCQX: DVCR), a premier provider of long-term care services, today announced its results for the first quarter ended March 31, 2020.

First Quarter 2020 Highlights

• Net loss from continuing operations was $0.5 million, or $0.08 per share, in the first quarter of 2020, compared to net loss from continuing operations of $1.6 million, or $0.24 per share, in the first quarter of 2019.

• EBITDA for the quarter was $3.1 million, which was $2.0 million higher than the first quarter of 2019 and $0.5 million higher than the preceding quarter.

• EBITDAR for the quarter was $16.6 million.

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, "The first quarter started off well for Diversicare. January 2020 was one of the best months we have had in years. Unfortunately, we started seeing a decline in total patients served in the middle of February and that decline continued through the rest of the quarter and even through April. Despite the impact of the COVID-19 crisis that grew during the quarter, our results for the quarter are the best that we have reported for some time.”

Mr. McKnight continued, “The impact of COVID-19 began to be felt in the first quarter and continues to be a historic challenge for our company and our industry. Our team has worked non-stop to review the enormous amount of information, regulations, and requirements affecting our industry and to distill it into a usable set of requirements and practices that we can disseminate to our team. Our hands on caregivers are true heroes. They have worked tirelessly to care for the most vulnerable members of our society while taking the personal risk of exposing themselves and their families to COVID-19. Many of our team members have traveled to other centers or even other states to assist with hot spots at our affected centers. It is an absolute privilege to be able to lead this team and I am so proud of their response to this unprecedented challenge we are facing.”

COVID-19 Update

The seniors in our care and in the care of companies like ours are most at risk of serious illness and mortality as a result of the COVID-19 virus. In fact, skilled nursing facilities have become the epicenter of the fight against the virus. We as an industry have seen significant increases in the cost of our personal protective equipment, have been given a low priority for COVID-19 tests, and have experienced significant increases in labor costs required to properly care for these most vulnerable patients. We experienced a decrease in total patients served, or occupancy, beginning in early February that extended through the end of the quarter, through April and continues today.

We have received federal support by way of stimulus grants subsequent to the end of the first quarter totaling $9 million that must be used to offset lost revenue or excess expenses incurred to fight COVID-19. As for our states, the state of Alabama has temporarily increased its Medicaid rate by $20 per patient day retroactive to March 1, 2020 and continuing through the end of the nationally declared emergency or May 30, 2020, whichever occurs first. This increase accounted for approximately $0.9 million of revenue for us in the quarter while we also incurred $0.5 million of costs related to the COVID-19 pandemic in the quarter. We anticipate that we will incur significant expense in the second quarter and beyond related to fighting this disease.

As noted above, the long term care industry has not been prioritized to receive COVID-19 tests. As such, only recently have we been able to test as needed in some of our affected markets, and in many of our markets we do not have tests broadly available.

By partnering with local departments of health, universities, hospitals, physicians, laboratory companies, and others, we have been able to obtain a limited number of tests, but well short of the number that we need. We have made the decision as a company to test as many team members and patients as possible in our centers with identifiable COVID-19 exposure and continue to work to do so. This is a time consuming process that often takes days, if not weeks, to complete due to the limited availability of tests. We believe that broad testing is important to be able to identify our positive and negative patients so that they may be cohorted separately, and also to identify our asymptomatic patients and team members who may be infectious. To date, more than 50% of our patients and team members who have tested positive for COVID-19 are asymptomatic, meaning they do not demonstrate any symptoms of their infection. The inability to test the entire population of a center severely inhibits the center’s ability to care for its patients and best protect its team members. We are optimistic that we will be prioritized for future testing availability.

The Centers for Disease Control and Prevention (“CDC”) has instructed physicians to report deaths of those who are COVID-19 positive or presumed positive as a ‘COVID-19 death’. Our patients are elderly, frail, and often have co-morbidities. Many of these patients may also be receiving end of life palliative care. It is very difficult if not impossible in many cases to accurately determine that COVID-19 was the cause of death for many of our patients who passed away after testing positive. To date we have had 72 patients pass away who tested positive for COVID-19. We are unable to say how many of those deaths were primarily related to the effects of COVID-19.

The CDC and Centers for Medicare and Medicaid Services (“CMS”) have recently implemented new reporting guidelines for our centers to follow. This reporting guidance requires reporting new cases to CDC, CMS, and our patients’ emergency contacts as well as regular reporting to the CDC and CMS regarding the number of COVID-19 cases in our centers, patient deaths, and other information. We will continue to communicate directly with our patients’ families through their designated emergency contact or other responsible party and will also continue to report aggregated COVID-19 data for the company on our website at https://dvcr.com/our-response-to-covid-19/ . We will continue to provide center specific information on each of our center’s websites.

First Quarter 2020 Results

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

	Three Months Ended March 31,
	2020			2019
Skilled nursing occupancy	76.4		%	77.6		%
As a percent of total census:
Medicare census	9.0		%	10.0		%
Medicaid census	68.2		%	68.2		%
Managed Care census	4.7		%	5.0		%
As a percent of total revenues:
Medicare revenues	17.2		%	17.3		%
Medicaid revenues	45.3		%	45.8		%
Managed Care revenues	10.5		%	11.1		%
Average rate per day:
Medicare	$	487.01		$	453.63
Medicaid	$	181.31		$	179.37
Managed Care	$	391.34		$	393.09

Patient revenues were $120.0 millionand$117.6 millionfor the three months endedMarch 31, 2020and2019, respectively, an increase of $2.4 million.

Our Medicaid rate for the first quarter of 2020 increased 1.1% resulting in a revenue increase of $1.5 million, and we recognized a Medicaid related stimulus of $0.9 million. Our Medicare rate for the first quarter of 2020 increased 7.4% resulting in a revenue increase of $1.5 million. Our Hospice average daily census for the first quarter of 2020 increased 27.2% resulting in $2.0 million in additional revenue. Conversely, our Medicare, Private, and Medicaid average daily census for the first quarter of 2020 decreased 12.0%, 12.8%, and 1.5%, respectively, resulting in revenue losses of $2.8 million, $1.1 million, and $1.0 million, respectively. The decline in census for the first quarter of 2020 was due in large part to the impact of the COVID-19 pandemic. The Quality Incentive Payment Program resulted in $1.3 million in additional revenues for the first quarter of 2020 compared to the first quarter of 2019. An additional day of revenue for the first quarter of 2020 compared to the first quarter of 2019 resulted in $1.3 million in additional revenue.

Operating expense increased in the first quarter of 2020 to $94.9 million from $94.4 million in the first quarter of 2019, an increase of $0.5 million. Operating expense decreased as a percentage of revenue to 79.1% for the first quarter of 2020 as compared to 80.3% for the first quarter of 2019.

One of the largest components of operating expenses is wages, which increased to $57.3 million in the first quarter of 2020 from $56.6 million in the first quarter of 2019. The Company incurred an additional $0.4 million of salaries expense and $0.1 million of supplies expense related to the COVID-19 pandemic during the first quarter of 2020.

Lease expense in the first quarter of 2020 increased to $13.5 million as compared to $13.1 million in the first quarter of 2019. The increase in lease expense was due to rent increases resulting from the amendment to the lease with Omega Healthcare Investors in conjunction with our exit from the State of Kentucky.

Professional liability expense was $1.8 million and $1.9 million in the first quarters of 2020 and 2019, respectively. Our cash expenditures for professional liability costs, including the State of Kentucky, were $1.8 million and $1.9 million for the first quarters of 2020 and 2019, respectively. Professional liability expense fluctuates based on the results of our third-party professional liability actuarial studies, premiums and cash expenditures are incurred to defend and settle existing claims.

General and administrative expense was $6.8 million for the first quarter of 2020 compared to $7.2 million for the first quarter of 2019, a decrease of $0.4 million or 6.3%. The decrease in general and administrative expenses is mainly attributable to a decrease in legal fees of $0.6 million.

Depreciation and amortization expense remained consistent at $2.3 million in the first quarters of 2019 and 2020 .

Interest expense was $1.5 million in the first quarter of 2020 and $1.4 million in the first quarter of 2019. The increase of $0.1 million is due to an increase in the outstanding borrowings on our loan facilities.

The Company recorded an income tax benefit of $0.1 million during the first quarter of 2020 and an income tax benefit of $1.0 million during the first quarter of 2019.

As a result of the above, continuing operations reported a loss of $0.6 million before income taxes for the first quarter of 2020 as compared to a loss of $2.6 million for the first quarter of 2019. Both basic and diluted loss per common share from continuing operations were $0.08 for the first quarter of 2020 as compared to both basic and diluted loss per common share from continuing operations of $0.24 in the first quarter of 2019.

Receivables

Our net receivables balance decreased $1.0 million to $59.5 million as of March 31, 2020, from $60.5 million as of December 31, 2019.

Conference Call Information

A conference call has been scheduled for Thursday, May 7, 2020 at 4:00 P.M. Central time (5:00 P.M. Eastern time) to discuss first quarter 2020 results. The conference call information is as follows:

Date:	Thursday, May 7, 2020
Time:	4:00 P.M. Central, 5:00 P.M. Eastern
Webcast Links:	www.DVCR.com
Dial in numbers:	877.340.2552 (domestic) or 253.237.1159 (International) Conference ID: 5684639 The Operator will connect you to Diversicare’s Conference Call

A replay of the conference call will be accessible two hours after its completion through May 14, 2020, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering Conference ID 5684639.

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, the impact of COVID-19 on our centers, the economy and society as a whole; 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, changes in the anticipated results of operations, the effect of changes in accounting policies as well as others.

Concerns are rapidly growing about the global outbreak of COVID-19. The disease has spread rapidly across the globe, including the U.S. The pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the economy, our patients and residents and supply chain.

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's patients and residents, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, changes in the occupancy of our centers, increased operation costs in addressing COVID-19, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its patients served, as well as changes to the skilled mix of our centers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, 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 62 nursing centers and 7,329 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. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS:
Current Assets
Cash and cash equivalents	$	4,163		$	2,710
Receivables	59,455			60,521
Self-insurance receivables, current portion	1,831			1,011
Other current assets	6,967			8,074
Total current assets	72,416			72,316
Property and equipment, net	46,527			47,755
Acquired leasehold interest, net	5,603			5,736
Operating lease assets	303,754			310,238
Other assets	2,896			4,323
TOTAL ASSETS	$	431,196		$	440,368
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current Liabilities
Current portion of long-term debt and finance lease obligations	$	3,467		$	3,498
Trade accounts payable	13,651			14,641
Current portion of operating lease liabilities	24,529			23,736
Accrued expenses:
Payroll and employee benefits	17,111			16,780
Current portion of self-insurance reserves	14,254			13,829
Other current liabilities	11,158			11,545
Total current liabilities	84,170			84,029
Noncurrent Liabilities
Long-term debt and finance lease obligations, less current portion and deferred financing costs, net	70,944			70,637
Operating lease liabilities, less current portion	289,187			295,636
Self-insurance reserves, less current portion	14,722			16,291
Accrued litigation contingency, less current portion	8,000			9,000
Other noncurrent liabilities	1,779			1,691
Total noncurrent liabilities	384,632			393,255
SHAREHOLDERS’ DEFICIT	(37,606		)	(36,916		)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	431,196		$	440,368

DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

	Three Months Ended March 31,
	2020			2019
PATIENT REVENUES, net	$	119,987		$	117,550
Operating expense	94,859			94,422
Facility-level operating income	25,128			23,128
EXPENSES:
Lease and rent expense	13,512			13,115
Professional liability	1,839			1,851
General and administrative	6,758			7,213
Depreciation and amortization	2,288			2,317
Total expenses less operating	24,397			24,496
OPERATING INCOME (LOSS)	731			(1,368		)
OTHER INCOME (EXPENSE):
Interest expense, net	(1,460		)	(1,394		)
Other income	115			160
Total other expense	(1,345		)	(1,234		)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(614		)	(2,602		)
BENEFIT FOR INCOME TAXES	104			1,028
LOSS FROM CONTINUING OPERATIONS	(510		)	(1,574		)
LOSS FROM DISCONTINUED OPERATIONS	(243		)	(1,772		)
NET LOSS	$	(753	)	$	(3,346	)
NET LOSS PER COMMON SHARE:
Per common share – basic
Continuing operations	$	(0.08	)	$	(0.24	)
Discontinued operations	(0.04		)	(0.28		)
	$	(0.12	)	$	(0.52	)
Per common share – diluted
Continuing operations	$	(0.08	)	$	(0.24	)
Discontinued operations	(0.04		)	(0.28		)
	$	(0.12	)	$	(0.52	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,506			6,424
Diluted	6,506			6,424

DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended March 31,
	2020			2019
NET LOSS	$	(753	)	$	(3,346	)
Discontinued operations	(243		)	(1,772		)
Net loss from continuing operations	(510		)	(1,574		)
Adjustments to reconcile net loss from continuing operations to cash provided by (used in) operating activities:
Depreciation and amortization	2,288			2,317
Deferred income tax benefit	—			(1,090		)
Provision for self-insured professional liability, net of cash payments	173			1,444
Amortization of right-of-use assets	5,663			5,125
Stock based and deferred compensation	338			156
Provision for leases in excess of cash payments	821			1,280
Other	517			335
Changes in other assets and liabilities	(6,639		)	(6,045		)
Cash provided by operating activities from continuing operations	2,651			1,948
Cash used in operating activities from discontinued operations	(243		)	(1,609		)
Cash provided by operating activities	2,408			339
Cash used in investing activities from continuing operations	(927		)	(1,186		)
Cash used in investing activities from discontinued operations	—			(312		)
Cash used in investing activities	(927		)	(1,498		)
Cash provided by (used in) financing activities	(28		)	939
Net increase (decrease) in cash	1,453			(220		)
Cash beginning of period	2,710			2,685
Cash end of period	$	4,163		$	2,465

DIVERSICARE HEALTHCARE SERVICES, INC.

RECONCILIATION OF NET LOSS TO EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDAR

(In thousands)

	For Three Months Ended
	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net loss	$	(753	)	$	(3,247	)	$	(4,874	)	$	(24,596	)	$	(3,346	)
Loss from discontinued operations, net of tax	243			1,879			2,958			1,980			1,772
Income tax provision (benefit)	(104		)	150			(741		)	17,313			(1,028		)
Interest expense	1,460			1,570			1,554			1,476			1,394
Depreciation and amortization	2,288			2,310			2,279			2,217			2,317
EBITDA	3,134			2,662			1,176			(1,610		)	1,109
EBITDA adjustments:
Litigation contingency expense (a)	—			—			—			3,100			—
Severance expense (b)	—			—			—			87			—
Adjusted EBITDA	$	3,134		$	2,662		$	1,176		$	1,577		$	1,109
Lease expense (c)	$	13,512		$	13,510		$	13,251		$	13,114		$	13,115

(a)	Represents non-recurring expected costs associated with the DOJ investigation.
(b)	Represents non-recurring costs associated with severance expenses.
(c)	As management, we evaluate Adjusted EBITDA exclusive of lease expense, or Adjusted EBITDAR, as a financial valuation metric. For the three month period ended March 31, 2020, Adjusted EBITDAR is calculated below.

Adjusted EBITDA	$	3,134
Lease expense	13,512
Adjusted EBITDAR	$	16,646

DIVERSICARE HEALTHCARE SERVICES, INC.

RECONCILIATION OF NET LOSS FOR DIVERSICARE HEALTHCARE

SERVICES, INC. COMMON SHAREHOLDERS TO ADJUSTED NET LOSS

FOR DIVERSICARE HEALTHCARE SERVICES, INC. COMMON SHAREHOLDERS

(In thousands, except per share data)

	For Three Months Ended
	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net loss	$	(753	)	$	(3,247	)	$	(4,874	)	$	(24,596	)	$	(3,346	)
Adjustments:
Litigation contingency expense (a)	—			—			—			3,100			—
Severance expense (b)	—			—			—			87			—
Tax impact of above adjustments (c)	—			—			—			(40		)	—
Discontinued operations, net of tax	243			1,879			2,958			1,980			1,772
Adjusted net loss	$	(510	)	$	(1,368	)	$	(1,916	)	$	(19,469	)	$	(1,574	)
Adjusted net loss per common share
Basic	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(3.01	)	$	(0.24	)
Diluted	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(3.01	)	$	(0.24	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,506			6,471			6,470			6,472			6,424
Diluted	6,506			6,471			6,470			6,472			6,424

(a)	Represents non-recurring expected costs associated with the DOJ investigation.
(b)	Represents non-recurring costs associated with severance expenses.
(c)	Represents tax provision for the cumulative adjustments for each period.

We have included certain financial performance and valuation measures in this press release, including EBITDA, Adjusted EBITDA, Adjusted EBITDAR, and Adjusted Net loss, 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 loss adjusted for loss from discontinued operations, interest expense, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for litigation contingency expense and severance expense. We define Adjusted EBITDAR as Adjusted EBITDA adjusted for rent expense. We define Adjusted Net loss as Net loss adjusted for litigation contingency expense, severance expense and loss from discontinued operations. 

Our measurements of EBITDA, Adjusted EBITDA, Adjusted EBITDAR, and Adjusted Net loss may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted EBITDA, and Adjusted Net loss in this press release because we believe that such information is used by certain investors as measures of the Company’s historical performance. Management believes that Adjusted EBITDA, and Adjusted Net loss are important financial performance measurements because they eliminate certain nonrecurring start-up losses and separation costs. Our presentation of EBITDA, Adjusted EBITDA, and Adjusted Net loss should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

We have included Adjusted EBITDAR in this press release because we believe that such information is used by certain investors as measures of the Company’s valuation. We believe that Adjusted EBITDAR is an important financial valuation measure that is commonly used by our management, research analysts, investors, lenders and financial institutions, to compare the enterprise value of different companies in the healthcare industry, without regard to differences in capital structures and leasing arrangements. Adjusted EBITDAR is a financial valuation measure and is not displayed as a performance measure as it excludes rent expense, which is a normal and recurring operating expense. As such, our presentation of Adjusted EBITDAR, should not be construed as a financial performance measure.

DIVERSICARE HEALTHCARE SERVICES, INC. SELECTED OPERATING STATISTICS (Unaudited)
Three Months Ended March 31, 2020
			As of March 31, 2020			Occupancy (Note 2)
Region (Note 1)			Licensed Nursing Beds Note (4)	Available Nursing Beds Note (4)	Skilled Nursing Weighted Average Daily Census	Licensed Nursing Beds		Available  Nursing  Beds		Medicare  Utilization		2020 Q1  Revenue ($ in millions)		Medicare Room and Board Revenue PPD  (Note 3)		Medicaid Room and Board Revenue PPD  (Note 3)
Alabama			2,464	2,397	2,121	86.1	%	88.5	%	8.2	%	$	45.4	$	461.08	$	188.07
Kansas			464	464	363	78.3	%	78.3	%	9.3	%	7.4		504.90		177.34
Mississippi			1,039	1,004	888	85.4	%	88.4	%	12.7	%	19.8		471.58		197.29
Missouri			339	339	227	66.9	%	66.9	%	8.0	%	4.1		538.53		148.13
Ohio			561	551	452	80.7	%	82.1	%	11.1	%	12.2		300.46		148.88
Tennessee			617	551	425	68.9	%	77.1	%	12.3	%	9.8		687.20		249.80
Texas			1,845	1,662	1,126	61.0	%	67.8	%	5.6	%	21.3		544.69		152.12
Total			7,329	6,968	5,602	76.4	%	80.4	%	9.0	%	$	120.0	$	487.01	$	181.31
	Note 1:	The Alabama region includes nursing centers in Alabama and Florida. The Tennessee region includes one nursing center in Indiana.
	Note 2:	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, and excludes a limited number of assisted living, independent living, and personal care 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 3:	These Medicare and Medicaid revenue rates include room and board revenues, but do not include any ancillary revenues related to these patients nor the Medicaid related stimulus of $0.9 million recognized during 2020 Q1.
	Note 4:	The Licensed and Available Nursing Bed counts above include only licensed and available SNF beds.

###

EX-99.2

Operator

Good afternoon and welcome to the Diversicare Healthcare Services 2020 first quarter conference call. Today’s call is being recorded.

I would like to remind everyone that in addition to historical information, certain comments made during this conference will be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and these statements involve risks and uncertainties, may cause actual events, results and/or performance to differ materially from those indicated by such statements.

You are encouraged to review the risk factors and forward-looking statement disclosures the company has provided in its annual report on Form 10-K for the year ended December 31, 2019 and in its quarterly report on Form10-Q for the quarter ended March 31, 2020, as well as its other public filings with the Securities and Exchange Commission.

During today’s call, references may be made to non-GAAP financial measures. Investors are encouraged to review those non-GAAP financial measures and the reconciliation of those measures to the comparable GAAP results in our press release furnished under Form 8-K.

I would now like to turn the call over to Jay McKnight, the President and Chief Executive Officer.

Jay McKnight

Thank you ___________.

Good afternoon and thank you for joining Diversicare’s 2020 1^st quarter earnings call.

As we have shared before, we have had and continue to have a substantial exposure in certain jurisdictions that have some of the highest professional liability costs per bed in the country. Also, we cannot predict the impact of the COVID-19 pandemic on our future professional liability costs. These factors and other challenges facing our industry have been taken into consideration in developing our operating and strategic direction.

I am going to spend some time discussing the first quarter’s results with a specific focus on the impact of COVID-19 on our company and industry. Kerry Massey, our Chief Financial Officer, will provide some more in depth financial information for the quarter, and we will conclude with some time for questions.

I want to start our prepared remarks by bragging on our team. Our direct caregivers, regional teams, and support staff have worked tirelessly to care for our patients and residents as well as each another. This is undoubtedly the toughest population health challenge the long term care industry has faced, and our company is made up of thousands of healthcare heroes. They are an inspiration to me and deserve to be celebrated for all they have done and are doing. We have countless examples of them going the extra mile to help families stay informed of how their loved ones in our care are doing, looking after one another in times of illness or disaster, and many other acts of living the Diversicare Service Standards. Our regional teams have been present in our centers to provide additional support, and our team here at the company’s headquarters, or as we call it the Brentwood Support Center, have been phenomenal as well. Kerry and his purchasing team have gone above and beyond in procuring hard to get personal protective equipment for our centers. It really is a privilege to lead this team and seeing the massive effort to pull together to care for our patients, residents and team members is incredibly motivating.

We enjoyed a great start to the first quarter. With our major portfolio pruning and right-sizing efforts behind us with our exit from Kentucky in 2019 and finalizing our settlement with the government in February, we were really well positioned heading into the year. We do not usually discuss specific month’s results, instead we focus on the quarters; however, the month of January was very good for us. Our top line revenue was solid and expenses were extremely well controlled. February was also a good month, but the early impact of COVID-19 began in the middle of the month. In March we really began to be able to identify the impact of the virus on our company with reduced patients served and increases in expense. Since the quarter end we have seen those pressures continue. Our patients served decreased by 1.7% by the end of March from the January baseline average. In April we saw that decline increase to almost 7%. It is difficult to get a firm number for the industry as a whole, but anecdotal information is indicating an 11% decline in census across skilled nursing facilities from the end of January through April. We expect to see a slow rebuilding of our census as the spread of the virus stabilizes, but it is not possible for us to predict when our patients served will return to the levels we have previously experienced.

For the 1^st quarter, we realized a net loss from continuing operations of $0.5 million, compared to a net loss of $1.6 million for the year ago quarter. Adjusted EBITDAR for the quarter was $16.6 million. EBITDA of $3.1 million compares very favorably to $1.1 million for the first quarter of 2019. Our same store revenue for the quarter was $120 million compared to $117.6 million for the year ago quarter. Revenue increased primarily as a result of an extra operating day in February, increased reimbursement rates and $900 thousand of additional revenue from the state of Alabama. Kerry will provide more details about the quarter’s results in his comments.

As of today we have dealt with or are dealing with COVID-19 directly in 15 of our 62 centers. That means that we have had patients, residents, or team members test positive for the virus. We maintain a COVID-19 update page on our company’s website that includes certain information about our experience. We encourage you to review that website for our most recent updates.

Until very recently, our industry has been designated a lower priority for supplies of PPE and testing. We are now starting to see some improvement in those areas. A primary difference between skilled nursing facilities and other healthcare environments, like hospitals, is that we are not clearing out our facilities and halting elective procedures to make room for infected patients to come to us for treatment. Instead, we are doing everything we can to protect our long term patients and residents from the community at large as the virus spreads. The need for widespread testing in skilled facilities is critical to fighting this virus. We have tested over 2,000 of our patients and team members with a little over 25% of them testing positive. Of those positive cases, roughly half have been asymptomatic. The ability to test everyone at our centers we believe will be key to properly cohorting, or grouping, our positive and negative patients and staff to minimize the spread. Without tests to identify our asymptomatic carriers, even the best infection control procedures are fighting a losing battle to stop the spread. We are just now starting to see increased availability of tests, but that does not yet extend to all of our markets. We are optimistic that access to tests will continue to improve in the very near future.

Our reimbursement has increased through a few means that we described in detail in today’s 10Q. First, the CARES Act provided stimulus funds to long term care providers in two tranches. In April we received $9 million in those two tranches that must be used to offset lost revenue or increased expense incurred to fight the virus. With the significant increases to expense we are experiencing for PPE, labor, food, and other costs, we are going to need this money as we do our best to stay on course. Effective May 1^st, sequestration for our Medicare rates has been suspended through the end of this calendar year, which will increase our Medicare rates by 2%.

Some of our states are working to assist providers through additional Medicaid funds. Notable for us is the state of Alabama, our biggest operating state, which has temporarily increased Medicaid rates for SNFs by $20 per patient day. That resulted in almost $900 thousand of additional revenue for us in March.

I have shared already about the pressure on occupancy our industry continues to experience, and I would like to share specifics. Our total occupancy for available beds was down from 81.4% to 80.4%, with skilled mix also down slightly from 15% to 13.7%. Our quarterly Medicare and Medicaid rates increased year over year by $33.38 and $1.94, respectively. Please note that the Medicaid rate does not include the impact of the temporary increase in Alabama. Our Managed Care rate was down by $1.75 for the quarter year over year.

With that, I will turn the call over to Kerry for some specific remarks on our financial statements.

Kerry Massey

Thank you Jay.

As a reminder, the financial results of our former Kentucky operations are presented as discontinued operations for both the current and prior year periods given our exit from the state during the third quarter of 2019.

As Jay noted in his comments, we were off to a strong start to the quarter before we began to experience a decline in our patients served around mid-February due to COVID-19. Even though we lost revenue from the decline in patients served, we still ended the quarter with revenue of $120 million from our continuing operations, representing an increase of $2.4 million over the prior year quarter. The net increase was driven by an additional day of revenue from the extra leap year day, in addition to an improvement in our Medicare and Medicaid rates. We also benefited from $1.3 million of incremental revenue from our participation in the Texas QIPP program as we continue to perform well against the quality benchmarks for that program. We also received approximately $900,000 of increased Medicaid reimbursement from the state of Alabama in connection with a temporary increase in the federal matching rate under the Families First Coronavirus Response Act. Alabama has communicated to providers that the temporary increase will continue through the end of the nationally declared emergency or May 30^th, whichever occurs first. A few of the other states in which we operate have recently announced similar Medicaid stimulus packages although final details are still pending. We do not expect that all of our states will ultimately elect to pass on a portion of the increased Federal match to providers.

The Federal stimulus support that was provided under the CARES Act, of which $9 million has already been received in April, is not reflected in our first quarter operating results as the receipt of the stimulus funds represents a second quarter event. As Jay referenced, the stimulus funds must be used to offset the lost revenue and increased operating expenses that we experience as a result of the COVID-19 pandemic. Therefore, we expect to recognize the benefit of the stimulus funds over future periods in relation to those anticipated unfavorable impacts.

Our operating expenses for the quarter of $94.9 million, at 79.1% of revenue, were down as a percentage of revenue from the prior year quarter of $94.4 million, or 80.3% of revenue. In the early portion of the quarter prior to the impact of the COVID-19 pandemic, we benefited from effective labor control and the improvements that we have made in our operational cost structure. However, as the virus began to impact our markets, we began to see pressure on our cost structure. Ultimately, we incurred an additional $0.4M of salaries expense and $0.1M of supplies expense for the quarter in providing care to the patients and residents in our centers that were affected by COVID-19 and preparing our centers our centers for potential outbreaks. As the pandemic started to impact the supply chain in late February, the limited supply and high demand for PPE, infection control supplies and food led to substantially increased prices for these items. We anticipate that these increases in our operating expenses will continue in future periods as we continue our fight against the virus.

General and administrative expenses for the current quarter of $6.8 million, or 5.6% of revenue, decreased $0.4 million, compared to the prior year quarter of $7.2 million, or 6.1% of revenue. The reduction in G&A expenses resulted from our initiatives to drive efficiencies through the functions that support the operations of our centers and the right sizing of our non-center based team members in 2019.

Our professional liability expense for the current quarter of $1.8 million, or 1.5% of revenue, was in line with the prior year quarter.

Lease expense for the quarter of $13.5 million was up $0.4 million from the prior year quarter. The increase resulted from the amendment to our master lease with Omega in connection with our exit from Kentucky during the third quarter of 2019. As we have stated in previous quarters, we are in the early years of our master lease agreements with Omega and Golden Living. As a result, our GAAP rent expense for those operating leases is more than the actual cash rent that we pay. Our lease expense for the first quarter includes a little over eight hundred thousand dollars of non-cash straight-line rent associated with these master lease agreements.

In conclusion, the first quarter was one of the best that we have reported in some time, even with the early impact of the COVID-19 pandemic on our operations. The positive momentum that we established early in the quarter from increased Medicare and Medicaid rates and improvements to our operational cost structure, coupled with increased Medicaid reimbursement that we received from the state of Alabama, was enough to make up for the unfavorable impacts that we experienced from COVID-19. Our EBITDA for the first quarter was $3.1M, an improvement of $2.0 million from the prior year quarter. Adjusting for lease expense, Adjusted EBITDAR for the quarter was $16.6 million.

That concludes our discussion of the Q1 financial results. I will now turn the call back over to Jay for some closing remarks.

Jay McKnight

We do have an early view of our annual Medicare increase slated to be effective October 1^st of this year. The proposed rule would provide for a market basket Medicare increase of 2.3%. As it stands, the payment methodology that CMS uses to reimburse us, PDPM, would not be changed in this update.

I would like to take a minute to publicly thank our national association, the American Health Care Association, and our state associations for their leadership and assistance in this fight. They work to tell the operators’ story to our state and federal governments. It is safe to say that without them we would not have received the relief that we have so far. We appreciate all they do for our industry and for representing us so well. The importance of skilled nursing facilities and the effort required to care for the most vulnerable members of our society is starting to get the attention deserved. We will continue as a company to work to improve our long term care industry and in pursuit of our goal to be a recognized industry leader.

As is our custom, we would like to conclude this call by reminding you of our Mission Statement, To Improve Every Life We touch By Providing Exceptional Healthcare And Exceeding Expectations.

This concludes our prepared remarks today. We will now open the call for questions.

[Operator leads Q&A]

Jay McKnight

Thank you for joining our call today. We appreciate your interest in Diversicare Healthcare Services and look forward to sharing our results with you in future quarters.

1