SOURCE: AdCare

AdCare

November 16, 2010 08:30 ET

AdCare Health Systems Reports Record Third Quarter 2010 Results

SPRINGFIELD, OH--(Marketwire - November 16, 2010) - AdCare Health Systems, Inc. (NYSE Amex: ADK), an Ohio-based long-term care, home care and management company, reported financial results for the third quarter ended September 30, 2010.

Q3 2010 Financial Results
Revenue in the third quarter of 2010 increased 113% to a record $13.3 million from $6.2 million in the previous quarter and up 92% from $6.9 million in the same quarter a year ago. The increase in revenue was primarily due to acquisitions by the company's new Southeast Division completed during the quarter. A more detailed discussion and analysis of the company's results is available in the company's Form 10Q filing with the Securities and Exchange Commission.

Loss from operations in the third quarter of 2010 was $760,000, as compared to loss from operations of $270,000 in the previous quarter and income from operations of $498,000 in the same year-ago period. The loss is primarily due to increases in operating expenses, particularly related to increases in payroll expense from recent acquisitions and non-cash stock compensation, and lower revenue in the Midwest Division due to lower occupancy. Non-cash compensation expense comprised of warrants and restricted stock totaled $216,000 in both the third quarter and previous quarter, as compared to $102,000 in the third quarter of 2009.

For earnings attributable to the company and its shareholders, net loss in the third quarter of 2010 totaled $1.5 million or $(0.19) per share, as compared to net loss of $610,000 or $(0.11) per share in the previous quarter and net income of $200,000 or $0.05 per share in the same year-ago period. The third quarter 2010 net loss included acquisition costs of approximately $450,000.

EBITDAR in the third quarter of 2010 totaled a loss of $39,900, as compared to a positive EBITDAR of $877,000 in the previous quarter and a positive EBITDAR of $915,000 in the same year-ago period. The company defines EBITDAR as net income before interest income, interest expense, income tax expense, depreciation, amortization, and rent cost (see the important discussion about the presentation of EBITDAR, a non-GAAP term, below).

Cash at September 30, 2010 totaled $5.5 million, as compared to $2.8 million in the previous quarter. The increase in cash was primarily from financing activity.

Q3 2010 Operational Highlights

  • In two transactions, AdCare acquired the leases of eight privately-held nursing homes in Georgia, which have an aggregate of 895 beds that generate approximately $50.5 million in annualized revenue (see table "Summary of Closed and Pending Transactions in 2010," below).

  • By the end of the third quarter, the company owned or leased 11 skilled nursing facilities with 1,078 beds and six assisted living facilities with 196 units. Facilities managed by the company for third parties totaled five skilled nursing homes with 403 beds, two assisted living facilities with 139 units, and an 83-unit independent living campus. Subsequent to the end of the quarter, the company acquired or leased four additional skilled nursing facilities with an aggregate of 606 beds.

  • AdCare established two divisions during the quarter, the Midwest Division, which currently oversees the company's Ohio operations, and a Southeast Division, to manage the company's new acquisition in Georgia and Alabama. New staff was hired for the Southeast Division, including Butch Shelton as vice president overseeing the division. Shelton was formerly division president of Sava Senior Care, and brings to AdCare extensive experience in strategic planning and implementation.

  • AdCare completed a public offering of common stock initiated in the second quarter, which resulted in aggregate net proceeds to the company of approximately $6.1 million upon closing of the underwriter's overallotment at the beginning of August. AdCare has used the net proceeds of the offering for acquisition purposes, working capital and general corporate purposes.

Management Commentary
"In the third quarter of 2010, we continued to advance our growth strategy of targeting choice M&A opportunities, and completed our first two major transactions involving eight nursing facilities," said David A. Tenwick, AdCare's chairman. "Although only partly reflected in the third quarter revenue, these acquisitions have already dramatically increased our revenue run-rate."

"Our new VP of the Southeast Division, Butch Shelton, is a very experienced manager who has been effectively integrating these new units into our business processes, along with four additional nursing facilities we added in Q4," said Tenwick. "During the quarter we also introduced several proactive initiatives to increase our census in our Midwest Division facilities, including advertising campaigns, a sales incentive system, and multiple public events at our facilities to increase community interaction and facility visibility. We have also added a new sales and marketing manager in our Midwest Division to work with facility-level sales staff on business development. We believe we are currently on track to reporting approximately $52 million in revenues for the full year of 2010, representing an increase of more than 95% over 2009."

Chris Brogdon, AdCare's chief acquisition officer, commented: "Our M&A pipeline will continue to be a major focus as we complete the year and begin 2011. Our recently announced agreement to purchase the Mountain Trace nursing facility was the fourteenth facility we've put under contract since we began our M&A campaign at the end of last year. While Mountain Trace represents our first entrance into North Carolina and is in line with our expansion into the Southeast, we are also evaluating opportunities for our Midwest Division. Our M&A plans have been supported by the recent completion of the $11.8 million convertible note offering."

"We expect our new facilities to be significant cash generators for AdCare, especially as they come under our capable management and benefit from our larger economy of scale," added Brogdon. "With the closing of Mountain Trace as planned in Q4, we expect to end the year with an estimated annualized revenue run-rate from our combined operations exceeding $124 million. This would represent an increase of more than 364% over revenues of $26.7 million in 2009."

Conference Call and Webcast
The company will hold a conference call to discuss its third quarter 2010 results later today, November 16, 2010, at 10:30 a.m. Eastern time. Members of AdCare's executive management team will host the presentation, followed by a question and answer period.

Date: Tuesday, November 16, 2010
Time: 10:30 a.m. Eastern time (7:30 a.m. Pacific time)
Dial-In Number: 1-800-894-5910
International: 1-785-424-1052
Conference ID#: 7ADCARE

The conference call will be broadcast simultaneously at http://viavid.net/dce.aspx?sid=00007CC4 and available for replay via the investor section of the company's Web site at www.adcarehealth.com.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization and ask you to wait until the call begins. If you have any difficulty connecting with the conference call, please contact the Liolios Group at 949-574-3860.

A replay of the call will be available after 1:30 p.m. Eastern time on the same day and until December 16, 2010:

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay pin number: 12521

Summary of Closed and Pending Transactions in 2010

---------------------------------------------------------------------------
                                                                   Closing
Description Size   Location  Type          ARR*        Term        Status
---------------------------------------------------------------------------
Assisted    105    Hoover,   Consolidated  Currently   1 yr        Closed
Living      Units  AL        variable      $2 million  purchase    June 25,
Facility                     interest      at 59%      option,     2010
                             entity        occupancy   expiring
                                                       June 2011
---------------------------------------------------------------------------
Five        615    Georgia   Lease         $35         10-yr       Closed
Nursing     beds                           million     lease       July 30,
Homes                                                              2010
---------------------------------------------------------------------------
Three       280    Georgia   Lease         $15.5       10-yr       Closed
Nursing     beds                           million     lease       Sept. 2,
Homes                                                  (combined   2010
                                                       with the
                                                       above)
---------------------------------------------------------------------------
Two         306    Gadsden,  Purchase      $18         Long-term   Closed
Nursing     beds   AL                      million     fixed rate  Oct. 1,
Homes                                                  loan, USDA  2010
                                                       guaranteed
---------------------------------------------------------------------------
Two         300    Atlanta,  Lease         $21         12-yr       Closed
Nursing     beds   GA                      million     lease with  Nov. 2,
Homes                                                  renewal     2010
                                                       option
---------------------------------------------------------------------------
Nursing     106    Sylva,    Purchase      $7.8        Long-term   Closing
Facility    beds   NC                      million     fixed rate  expected
                                                       loan, USDA  in
                                                       guaranteed  Q4 2010
---------------------------------------------------------------------------
Total       1,712                          $99.3
                                           million
---------------------------------------------------------------------------
*AAR = Annualized Revenue Run-rate, estimated


About AdCare Health Systems
AdCare Health Systems, Inc. (NYSE Amex: ADK) is a recognized innovator in senior living and health care facility management. AdCare develops, owns and manages assisted living facilities, nursing homes and retirement communities, as well as provides home health care services. Since its inception in 1988, AdCare's mission has been to provide the highest quality of healthcare services to the elderly. For more information about AdCare, visit www.adcarehealth.com.

Important Cautions Regarding Forward-Looking Statements
Statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of federal law. Such statement can be identified by the use of forward-looking terminology, such as "believes," "expects," "plans," "intends," "anticipates" and variations of such words or similar expressions, but their absence does not mean that the statement is not forward-looking. Statements in this announcement that are forward-looking include, but are not limited to, the contents of the table titled, "Summary Closed and Pending Transactions in 2010," and statements made by Mr. Tenwick that the company is on track to reporting approximately $52 million in revenues for the full year of 2010, representing an increase of more than 95% over Q4 2009, as well as comments by Mr. Brogdon that the company's new facilities are expected to be significant cash generators for AdCare, especially as they come under its capable management and benefit from its larger economy of scale, and with the closing of Mountain Trace as planned in Q4, the company expects to end the year with an estimated annualized revenue run-rate from our combined operations exceeding $124 million, and that this would represent an increase of more than 364% over revenues of $26.7 million in 2009.

Such forward-looking statements reflect management's beliefs and assumptions and are based on information currently available to management. The forward-looking statements involve known and unknown risks, results, performance or achievements of the Company to differ materially from those expressed or implied in such statements. Such factors are identified in the public filings made by the Company with the Securities and Exchange Commission and include the Company's ability to secure lines of credit and/or an acquisition credit facility, find suitable acquisition properties at favorable terms, changes in the health care industry because of political and economic influences, changes in regulations governing the industry, changes in reimbursement levels including those under the Medicare and Medicaid programs and changes in the competitive marketplace. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

Use of Non-GAAP Financial Information
Beginning with the reporting of results for the third quarter of 2010, the company has transitioned from reporting EBITDA (a term representing net income (loss) before interest income, interest expense, income tax expense, depreciation and amortization) to reporting EBITDAR, both of which are measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The company defines EBITDAR as net income (loss) before interest income, interest expense, income tax expense, depreciation, amortization and rent cost. EBITDAR should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. EBITDAR is a key measure of AdCare Health Systems' operating performance used by management to focus on operating performance and management without mixing in items of income and expense that relate to the financing and capitalization of the business, as well as fixed rent or lease payments of facilities.

The company believes EBITDAR is useful to investors in evaluating their performance, results of operations and financial position for the following reasons:

  • It is helpful in identifying trends in the company's day-to-day performance because the items excluded have little or no significance to the company's day-to-day operations;

  • It provides an assessment of controllable expenses and affords management the ability to make decisions, which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and

  • It is an indication to determine if adjustments to current spending decisions are needed.

AdCare believes that the use of EBITDAR provides a meaningful and consistent comparison of the company's underlying business between periods by eliminating certain items required by GAAP, which have little or no significance in the company's day-to-day operations.



                AdCare Health Systems, Inc and Subsidiaries
          Reconciliation of Net Income (Loss) to EBITDAR (Loss)
                                (Unaudited)

                                          Three
                                          Months
                    Three Months Ended    Ended       Nine-Months Ended
                      September 30,      June 30,       September 30,
                  ---------------------  --------  -----------------------
                      2010       2009      2010        2010        2009
                  -----------  --------  --------  -----------  ----------
Net Income (Loss) $(1,643,663) $193,818  $194,817  $(1,034,641) $  461,728
  Interest income      (6,860)     (520)   (1,635)     (14,220)     (2,926)
  Interest
   expense, others    427,308   292,853   299,875    1,020,128     888,028
  Income tax
   expense             10,641    10,641    10,642       31,925      31,925
  Depreciation and
   amortization       303,190   231,773   233,410      779,164     682,959
  Rent expense        869,443   187,331   140,000    1,158,933     485,836
                  -----------  --------  --------  -----------  ----------
EBITDAR  (Loss)   $   (39,941) $915,896  $877,109  $ 1,941,289  $2,547,550
                  ===========  ========  ========  ===========  ==========





               ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEET

                                             September 30,    December 31,
                                                 2010            2009
                                             -------------   -------------
                   ASSETS                     (Unaudited)
Current Assets:
Cash                                         $   5,454,714   $   4,481,100
Accounts receivable:
  Long-term care resident receivables, net       5,886,193       1,838,560
  Management, consulting and development
   receivables, net                                396,564         124,761
  Advances and receivables from affiliates          20,855          16,407
  Other receivables                                438,978               -
Prepaid expenses and other                         663,263         541,958
                                             -------------   -------------
      Total current assets                      12,860,567       7,002,786

Restricted cash                                  1,898,017       1,430,674
Property and equipment, net                     23,646,931      16,445,028
Intangibles, net                                 2,277,796       1,189,307
Goodwill                                         2,679,482       2,679,482
Escrow deposits on acquisitions                  2,735,301               -
Lease deposits                                     958,633               -
Other assets                                     2,131,043       1,357,160
                                             -------------   -------------
      Total assets                           $  49,187,770   $  30,104,437
                                             =============   =============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable and
 other debt                                  $     744,101   $     698,504
Current portion of notes payable to
 stockholder                                        16,847           9,432
Accounts payable                                 2,151,990       1,039,422
Accrued expenses                                 5,339,474       2,597,151
                                             -------------   -------------
      Total current liabilities                  8,252,412       4,344,509

Notes payable and other debt, net of current
 portion                                        25,831,340      16,701,028
Notes payable to stockholder, net of current
 portion                                                 -          24,444
Other liabilities                                  650,571         746,074
Deferred tax liability                             244,499         212,574
                                             -------------   -------------
    Total liabilities                           34,978,822      22,028,629
                                             -------------   -------------

Stockholders' equity:
  Preferred stock, no par value; 1,000,000
   shares authorized; no shares issued or
   outstanding                                           -               -
  Common stock and additional paid-in
   capital, no par value; 29,000,000 shares
   authorized; 7,959,233 and 5,628,007
   shares issued and outstanding                25,050,918      17,571,801
  Accumulated deficit                          (11,505,553)     (9,805,249)
                                             -------------   -------------
    Total stockholders' equity                  13,545,365       7,766,552
  Noncontrolling interest in subsidiaries          663,583         309,256
                                             -------------   -------------
    Total equity                                14,208,948       8,075,808
                                             -------------   -------------
    Total liabilities and stockholders'
     equity                                  $  49,187,770   $  30,104,437
                                             =============   =============





               ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Unaudited)

                          Three-Months Ended         Nine-Months Ended
                             September 30,             September 30,
                        ------------------------  ------------------------
                           2010         2009         2010         2009
                        -----------  -----------  -----------  -----------
Revenues:
  Patient care
   revenues             $12,741,701  $ 6,434,186  $24,308,760  $18,513,767
  Management,
   consulting and
   development fee
   revenue                  532,985      475,313    1,564,657    1,393,748
                        -----------  -----------  -----------  -----------
     Total revenue       13,274,686    6,909,499   25,873,417   19,907,515
                        -----------  -----------  -----------  -----------

Expenses:
  Payroll and related
   payroll costs          8,243,065    3,929,280   16,269,039   11,376,737
  Other operating
   expenses               5,488,360    2,250,032    9,969,524    6,418,118
  Depreciation and
   amortization             303,190      231,773      779,164      682,959
                        -----------  -----------  -----------  -----------
     Total expenses      14,034,615    6,411,085   27,017,727   18,477,814
                        -----------  -----------  -----------  -----------

(Loss) Income from
 Operations                (759,929)     498,414   (1,144,310)   1,429,701
                        -----------  -----------  -----------  -----------
Other Income (Expense):
  Interest income             6,860          520       14,220        2,926
  Interest expense         (427,308)    (292,853)  (1,020,128)    (888,028)
  Other expense            (452,645)      (1,622)    (658,239)     (50,946)
                        -----------  -----------  -----------  -----------
                           (873,093)    (293,955)  (1,664,147)    (936,048)

Gain on Acquisitions              -            -    1,805,741            -
                        -----------  -----------  -----------  -----------

(Loss) Income Before
 Income Taxes            (1,633,022)     204,459   (1,002,716)     493,653
Income Tax Expense          (10,641)     (10,641)     (31,925)     (31,925)
                        -----------  -----------  -----------  -----------
Net (Loss) Income        (1,643,663)     193,818   (1,034,641)     461,728
Net Loss (Income)
 Attributable to
 Noncontrolling
 Interests                  143,899        6,199     (665,663)     (18,796)
                        -----------  -----------  -----------  -----------
Net (Loss) Income
 Attributable to AdCare
 Health Systems         $(1,499,764) $   200,017  $(1,700,304) $   442,932
                        ===========  ===========  ===========  ===========

Net (Loss) Income Per
 Share, Basic:          $     (0.19) $      0.05  $     (0.26) $      0.11
                        ===========  ===========  ===========  ===========
Net (Loss) Income Per
 Share, Diluted:        $     (0.19) $      0.05  $     (0.26) $      0.10
                        ===========  ===========  ===========  ===========

Weighted Average Common
 Shares Outstanding,
  Basic                   7,925,493    3,975,435    6,433,129    3,975,435
                        ===========  ===========  ===========  ===========
  Diluted                 7,925,493    4,198,728    6,433,129    4,198,728
                        ===========  ===========  ===========  ===========

Contact Information

  • Company Contact
    Chris Brogdon
    Vice Chairman & CAO
    AdCare Health Systems, Inc.
    Tel (937) 964-8974
    Email Contact

    Investor Relations
    Ron Both or Geoffrey Plank
    Liolios Group, Inc.
    Tel (949) 574-3860
    Email Contact