EX-99.1 2 g24313exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(ADVOCAT LOGO)
     
Company Contact:
  Investor Relations:
William R. Council, III
  Cameron Associates
President and CEO
  Rodney O’Connor
(615) 771-7575
  (212) 554-5470
 
Advocat Announces 2010 Second Quarter Results
 
Net income from Continuing Operations Increased
BRENTWOOD, TN, (August 9, 2010) — Advocat Inc. (NASDAQ: AVCA) today announced its results for the second quarter and six months ended June 30, 2010. On August 5, 2010 the Company declared a third quarter dividend of 5.5 cents per common share. The dividend will be paid October 14, 2010 to shareholders of record on September 30, 2010.
Highlights for Second Quarter 2010
Key highlights of continuing operations for the second quarter of 2010 compared to the second quarter of 2009 include the following:
    Diluted net income per common share from continuing operations was $0.15 in 2010 and $0.10 in 2009.
 
    Occupancy increased to 78.2% in 2010 compared to 76.4% in 2009, and total average daily census increased to 4,196 in 2010 from 4,090 in 2009, an increase of 2.6%.
 
    Medicare average daily census increased to 565 in 2010 compared to 553 in 2009, an increase of 2.2%. Medicare and managed care census combined increased 2.8%.
 
    Revenue increased 3.2%, to $71.5 million in 2010, compared to $69.3 million in 2009.
 
    Medicare rates decreased 2.9% compared to 2009 as a result of CMS reducing Medicare rates effective October 1, 2009.
 
    Medicaid rates increased 2.0% in 2010 compared to 2009 due to patient acuity levels and rate increases in certain states. These rate increases were partially funded by increased provider taxes.
 
    General and administrative expenses increased $0.4 million primarily due to non-recurring costs totaling $0.4 million for executive severance for the Company’s Senior Vice President of Nursing Home Operations and hiring and relocation costs related to the new Chief Operating Officer and other regional management positions.
CEO Remarks
William R. Council, III, noted, “Second quarter results reflect our continued trend of steady improvements to our business. Revenue, occupancy and net income from continuing operations were higher again this quarter. We saw a combined increase of 2.8% in our skilled Medicare and managed care average daily census compared to the second quarter of 2009, and a 2.6% increase in total census. This is the seventh consecutive quarter where our results have shown sequential improvement in at least one of our three critical measurements: average daily census, Medicare census, and funds from operations.”

 


 

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Other Highlights for the Second Quarter 2010
Revenue increased to $71.5 million in 2010 from $69.3 million in 2009, an increase of $2.2 million, or 3.2%. This increase is primarily due to higher patient census and increased Medicaid rates in certain states, partially offset by the effects of lower Medicare rates following a reduction effective October 1, 2009.
The following table summarizes key revenue and census statistics for continuing operations for each period:
                 
    Three Months Ended
    June 30,
    2010   2009
Skilled nursing occupancy
    78.2 %     76.4 %
Medicare census as percent of total
    13.5 %     13.5 %
Managed care census as percent of total
    1.3 %     1.2 %
Medicare revenues as percent of total
    30.8 %     32.0 %
Medicaid revenues as percent of total
    53.6 %     53.3 %
Managed care revenues as percent of total
    2.7 %     2.5 %
Medicare average rate per day
  $ 389.13     $ 400.57  
Medicaid average rate per day
  $ 145.32     $ 142.44  
Managed care average rate per day
  $ 389.14     $ 374.18  
The Company’s average rate per day for Medicare Part A patients decreased 2.9% in 2010 compared to 2009 primarily as a result of a CMS reduction in Medicare rates effective October 1, 2009. The Company’s average rate per day for Medicaid patients increased 2.0% in 2010 compared to 2009 as a result of rate increases in certain states, partially funded by increased provider taxes, and increasing patient acuity levels. Taking higher provider taxes into consideration, the net increase in average rate per day for Medicaid patients was 1.5%.
    Operating expense increased to $56.4 million in 2010 from $54.1 million in 2009, an increase of $2.3 million, or 4.3%. Operating expense increased to 78.9% of revenue in 2010, compared to 78.0% of revenue in 2009. The increase in operating expense as a percent of revenue is due to the effects of the Medicare rate cut imposed in 2009 together with lower Medicaid rate increases.
 
    The largest component of operating expenses is wages, which increased to $34.5 million in 2010 from $33.1 million in 2009, an increase of $1.4 million, or 4.2%. Average merit increases for operating personnel were approximately 2.8% for the period, and census increases accounted for the remaining increase.
 
    Cash expenditures for professional liability costs of continuing operations were $0.4 million higher in 2010 compared to 2009.
 
    General and administrative expenses were $5.1 million in 2010, compared to $4.7 million in 2009, an increase of $0.4 million. The increase was primarily due to non-recurring costs totaling $0.4 million for executive severance for the Company’s Senior Vice President of Nursing Home Operations and hiring and relocation costs related to the new Chief Operating Officer and other regional management positions. Excluding these nonrecurring costs, general and administrative expenses were 6.5% of revenue in 2010, compared to 6.7% in 2009.

 


 

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Funds Provided by Operations
Funds provided by operations were $3.1 million in the second quarter of 2010 compared to $4.1 million in 2009. The decrease is primarily due to the effects of Medicare rate cuts that reduced revenue by approximately $0.7 million in 2010, cash payments for professional liability costs, which were approximately $0.4 million higher in 2010 compared to 2009, and non-recurring costs for executive severance, hiring and relocation costs discussed above.
Revenue and Income Highlights for Six Months
Revenues increased to $141.6 million in 2010 from $137.0 million in 2009, an increase of $4.6 million, or 3.4%. This increase is primarily due to higher patient census and increased Medicaid rates in certain states, partially offset by the effects of lower Medicare rates following a reduction effective October 1, 2009.
Net income from continuing operations was $1.7 million for six months ended June 30, 2010 compared to $899,000 for the same period in 2009. Diluted net income from continuing operations per common share was $0.26 and $0.13 for 2010 and 2009, respectively.
Facility Renovations
As of June 30, 2010, the Company has completed renovations at thirteen facilities and its fourteenth and fifteenth projects were completed July 2010. The Company is developing plans for additional renovation projects. A total of $21.2 million has been spent on the renovation program to date, with $14.1 million financed through Omega, $6.0 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.
Lease agreement — West Virginia Nursing Center
On July 14, 2010, the Company entered into an agreement with a real estate developer that will construct, furnish, and equip a 90 bed skilled nursing facility in Milton, West Virginia which we will then lease. The facility will utilize a Certificate of Need the Company initially obtained in the June 2009 acquisition of certain assets of a skilled nursing facility in Milton, West Virginia. The initial lease term is 20 years from the date the facility is completed and fit for occupancy as a skilled nursing facility. The Company has the option to renew the lease for two additional five-year periods. The lease is conditioned upon the Company obtaining the approval of the West Virginia Health Care Authority and the developer obtaining a commitment for a loan to finance the facility’s construction cost. The agreement also provides the Company the right to purchase the facility beginning on the twelfth month of the initial term of the lease and ending after the sixtieth month of the Lease 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, August 10, 2010 at 9:00 A.M. Central time (10:00 A.M. Eastern time) to discuss second quarter 2010 results.
The conference call information is as follows:
     
          Date:
  Tuesday, August 10, 2010
          Time:
  9:00 A.M. Central, 10:00 A.M. Eastern

 


 

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          Webcast Links:
  www.advocatinc.com
 
  www.streetevents.com
 
  www.earnings.com
 
   
          Dial in numbers:
  888-680-0879 (domestic) or 617-213-4856 (international)
          Passcode:
  92331959 
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@advocatinc.com before the start of the call.
Please use the following link to pre-register and view important information about this conference call. Pre-registering is not mandatory, but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the call. Pre-registration takes only a few minutes and you may pre-register at any time, including up to and after the call start time. To pre-register, please go to:
https://www.theconferencingservice.com/prereg/key.process?key=PUWBBVJNH
A replay of the conference call will be accessible two hours after its completion through August 17, 2010 by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and entering passcode 18572331.
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 the Company’s current views with respect to future events and present its 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 herein. 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 arrange appropriate financing and successfully construct and operate the replacement facility in West Virginia, our ability to increase census at our renovated facilities, 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, 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 regulatory proceedings alleging violations of laws and regulations governing quality of care or violations of other laws and regulations applicable to our business, 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, 2009, 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 LOGO)
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: http://www.advocatinc.com.
-Financial Tables to Follow-

 


 

(ADVOCAT LOGO)
ADVOCAT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
                 
    June 30,     December 31,  
    2010     2009  
    (Unaudited)          
ASSETS:
               
Current Assets
               
Cash and cash equivalents
  $ 12,904     $ 8,609  
Receivables, net
    22,145       21,559  
Deferred income taxes
    4,694       4,792  
Other current assets
    4,555       6,774  
 
           
Total current assets
    44,298       41,734  
 
               
Property and equipment, net
    36,687       37,362  
Deferred income taxes
    13,853       13,804  
Acquired leasehold interest, net
    9,572       9,764  
Other assets, net
    2,703       2,602  
 
           
TOTAL ASSETS
  $ 107,113     $ 105,266  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY:
               
Current Liabilities
               
Current portion of long-term debt
  $ 633     $ 2,278  
Trade accounts payable
    5,423       4,537  
Accrued expenses:
               
Payroll and employee benefits
    11,310       9,314  
Current portion of self-insurance reserves
    7,578       7,860  
Other current liabilities
    3,737       5,411  
 
           
Total current liabilities
    28,681       29,400  
Noncurrent Liabilities
               
Long-term debt, less current portion
    23,697       22,551  
Self-insurance reserves, less current portion
    12,095       12,235  
Other noncurrent liabilities
    16,304       15,195  
 
           
Total noncurrent liabilities
    52,096       49,981  
 
               
PREFERRED STOCK
    5,343       6,192  
 
               
SHAREHOLDERS’ EQUITY
    20,993       19,693  
 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 107,113     $ 105,266  
 
           

 


 

(ADVOCAT LOGO)
ADVOCAT INC.
CONSOLIDATED INCOME STATEMENTS

(Unaudited)
(In thousands, except per share data)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2010     2009     2010     2009  
PATIENT REVENUES, NET
  $ 71,492     $ 69,305     $ 141,644     $ 137,040  
 
                       
EXPENSES:
                               
Operating
    56,388       54,068       111,790       107,405  
Lease
    5,636       5,377       11,238       10,745  
Professional liability
    997       2,670       2,411       5,575  
General and administrative
    5,063       4,678       9,765       9,131  
Depreciation and amortization
    1,432       1,351       2,848       2,671  
 
                       
 
    69,516       68,144       138,052       135,527  
 
                       
OPERATING INCOME
    1,976       1,161       3,592       1,513  
 
                       
OTHER INCOME (EXPENSE):
                               
Foreign currency transaction gain
          276             191  
Other income
                      549  
Interest income
          79             154  
Interest expense
    (415 )     (485 )     (811 )     (967 )
Debt retirement costs
                (127 )      
 
                       
 
    (415 )     (130 )     (938 )     (73 )
 
                       
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    1,561       1,031       2,654       1,440  
PROVISION FOR INCOME TAXES
    (574 )     (387 )     (960 )     (541 )
 
                       
NET INCOME FROM CONTINUING OPERATIONS
    987       644       1,694       899  
DISCONTINUED OPERATIONS
    (10 )     286       191       394  
 
                       
NET INCOME
    977       930       1,885       1,293  
PREFERRED STOCK DIVIDENDS
    (86 )     (86 )     (172 )     (172 )
 
                       
 
                               
NET INCOME FOR COMMON STOCK
  $ 891     $ 844     $ 1,713     $ 1,121  
 
                       
 
                               
NET INCOME PER COMMON SHARE:
                               
Per common share — basic
                               
Income from continuing operations
  $ 0.16     $ 0.10     $ 0.27     $ 0.13  
Discontinued operations
          0.05       0.03       0.07  
 
                       
 
  $ 0.16     $ 0.15     $ 0.30     $ 0.20  
 
                       
Per common share — diluted
                               
Income from continuing operations
  $ 0.15     $ 0.10     $ 0.26     $ 0.13  
Discontinued operations
          0.05       0.03       0.07  
 
                       
 
  $ 0.15     $ 0.15     $ 0.29     $ 0.20  
 
                       
WEIGHTED AVERAGE COMMON SHARES:
                               
Basic
    5,726       5,676       5,722       5,674  
 
                       
Diluted
    5,874       5,746       5,894       5,738  
 
                       

 


 

(ADVOCAT LOGO)
ADVOCAT INC.
FUNDS PROVIDED BY OPERATIONS

(Unaudited)
(In thousands)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
NET INCOME
  $ 977     $ 930     $ 1,885     $ 1,293  
Net income (loss) from discontinued operations
    (10 )     286       191       394  
 
                       
Net income from continuing operations
    987       644       1,694       899  
Adjustments to reconcile net income from continuing operations to funds provided by operations:
                               
Depreciation and amortization
    1,432       1,352       2,848       2,672  
Provision for doubtful accounts
    452       547       940       1,274  
Deferred income tax provision (benefit)
    118       (584 )     64       (411 )
Provision (benefit) for self-insured professional liability, net of cash payments
    (264 )     1,848       (193 )     2,558  
Stock-based compensation
    137       170       333       394  
Amortization of deferred balances
    45       95       121       190  
Provision for leases in excess of cash payments
    222       343       447       688  
Noncash gain on settlement of contingent liability
                      (549 )
Other
          (293 )     127       (232 )
 
                       
 
                               
FUNDS PROVIDED BY OPERATIONS
  $ 3,129     $ 4,122     $ 6,381     $ 7,483  
 
                       
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 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. 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 LOGO)
ADVOCAT INC.
SELECTED OPERATING STATISTICS
JUNE 30, 2010

(Unaudited)
                                                                         
                    For the Three Months Ended June 30, 2010  
                                                            Medicare     Medicaid  
                    Skilled                                     Room and     Room and  
                    Nursing                                     Board     Board  
    As of     Weighted     Occupancy             2010     Revenue     Revenue  
    June 30, 2010     Average     (Note 1)             Q2     PPD     PPD  
    Licensed     Available     Daily     Licensed     Available     Medicare     Revenue     2010     2010  
Region   Beds     Beds     Census     Beds     Beds     Utilization     ($ in millions)     (Note 2)     (Note 2)  
Alabama (Note 3)
    790       783       682       86.3 %     87.1 %     12.7 %   $ 12.9     $ 415.90     $ 164.24  
Arkansas
    1,311       1,183       965       73.6 %     81.6 %     14.7 %     16.1       373.07       145.28  
Kentucky (Note4)
    778       757       670       86.1 %     88.5 %     11.7 %     12.8       384.15       172.22  
Tennessee
    617       586       493       80.0 %     84.2 %     18.2 %     8.6       378.00       137.53  
Texas
    1,868       1,676       1,386       74.2 %     82.7 %     12.2 %     21.1       397.08       123.14  
 
                                                     
Total
    5,364       4,985       4,196       78.2 %     84.2 %     13.5 %   $ 71.5     $ 389.13     $ 145.32  
 
                                                     
 
Note 1:   The number of “Licensed beds” is based on the licensed capacity of the facility. The number of “Available Beds” represents “licensed beds” less beds removed from service. “Available beds” is subject to change based upon the needs of the facilities, including configuration of patient rooms and offices, status of beds (private, semi-private, ward, etc.) and renovations.
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 LOGO)
ADVOCAT INC.
SELECTED OPERATING STATISTICS OF RENOVATED FACILITIES
JUNE 30, 2010

(Unaudited)
                                 
                    Medicare Average Daily
    Occupancy(1)   Census
    Q2   LTM(2)   Q2   LTM(2)
Renovation — Completion Date   2010   Prior   2010   Prior
  1st renovation — January 2006
    88.6 %     64.9 %     10.5       8.1  
  2nd renovation — July 2006
    67.3 %     71.2 %     10.9       12.3  
  3rd renovation — August 2006
    74.4 %     45.1 %     9.9       5.3  
  4th renovation — October 2006
    80.3 %     71.9 %     10.6       8.6  
  5th renovation — February 2007
    66.4 %     56.2 %     11.6       8.0  
  6th renovation — April 2007
    48.0 %     47.5 %     11.3       12.7  
  7th renovation — July 2007
    85.1 %     85.0 %     17.4       17.4  
  8th renovation — January 2008
    75.3 %     50.9 %     15.2       8.9  
  9th renovation — October 2008
    85.4 %     83.0 %     12.0       17.2  
10th renovation — November 2008
    86.8 %     80.8 %     14.1       12.2  
11th renovation — March 2009
    67.9 %     62.5 %     12.7       7.0  
12th renovation — November 2009
    86.0 %     86.7 %     24.4       24.2  
13th renovation — January 2010
    91.0 %     95.6 %     4.5       4.5  
 
                               
Total
    76.5 %     69.2 %     164.9       146.4  
 
                               
 
(1)   Occupancy based on licensed beds.
 
(2)   Last Twelve Months prior to commencement of construction.
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