SOURCE: AdCare Health Systems, Inc.

AdCare Health Systems, Inc.

November 09, 2011 16:28 ET

AdCare Health Systems Reports Third Quarter 2011 Results

Total Revenues up 208% From a Year Ago to Record $40.9 Million, Driving Record Adjusted EBITDAR of $4.7 Million

SPRINGFIELD, OH--(Marketwire - Nov 9, 2011) - AdCare Health Systems, Inc. (NYSE Amex: ADK), a leading skilled nursing and assisted living provider, reported unaudited financial results for the third quarter ended September 30, 2011.

Q3 2011 Financial Highlights

  • Record revenues of $40.9 million, up 17% sequentially from Q2 2011 and up 208% from Q3 2010.
  • Income from operations was a record $1.7 million up 133% or $978,000 sequentially and vs. a loss of $760,000 in Q3 2010.
  • Adjusted EBITDAR was a record $4.7 million, up 13% or $530,000 sequentially and compared to $579,000 in Q3 2010.
  • Received $6.9 million in gross proceeds from the exercise of 99% of warrants sold in the company's initial public offering in November 2006 and those sold in a private placement in December 2009.

Q3 2011 Summary of Financial Results
Revenues in the third quarter of 2011 increased 208% to a record $40.9 million from $13.3 million in the same quarter a year ago. The increase in revenue was primarily due to acquisitions completed since September 30, 2010 as part of the company's M&A program. The company's skilled nursing facilities that existed prior to October 2010 also contributed to the improvement in revenue, driven primarily by an increase in occupancy. A more detailed discussion and analysis of the company's performance will be available in AdCare's Form 10-Q for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission.

Income from operations in the third quarter of 2011 was a record $1.7 million, an improvement over a loss from operations of $0.8 million in the same year-ago period. The increase in income from operations was primarily due to acquisitions and revenue improvement in acquired facilities.

For earnings attributable to AdCare and its shareholders, the company recorded a net income in the third quarter of 2011 of a record $3.5 million or $0.29 per diluted share, versus a net loss of $1.5 million or $(0.18) per share in the same year-ago period. The third quarter 2011 net income included acquisition expenses of approximately $1.1 million, compared to $403,000 in the same year-ago-quarter, and a non-cash derivative gain of $4.7 million, with none occurring in the same year-ago quarter. Total non-cash stock-based compensation in the third quarter of 2011 was $112,000 compared to $213,000 in the same year-ago quarter.

Adjusted EBITDAR in the third quarter of 2011 totaled a record $4.7 million, up $4.1 million from adjusted EBITDAR of $0.6 million in the third quarter of 2010 (see the definition and an important discussion about the presentation of adjusted EBITDAR, a non-GAAP term, below).

Combined cash, current restricted cash and cash equivalents at September 30, 2011 totaled $13.4 million, compared to $5.0 million at December 31, 2011.

As of the third quarter of 2011, the company is reporting beds/units in service rather than licensed beds/units.

Q3 2011 Operational Highlights

  • Completed the acquisition of four skilled nursing facilities in Arkansas. The facilities have an aggregate 402 beds in service that generated revenues of more than $25 million in 2010, and their addition was immediately accretive to the company's earnings.
  • AdCare began to provide back office and administrative services to five skilled nursing facilities in Oklahoma, which have an aggregate 314 beds in service that generate an estimated $12.7 million in annualized revenues. In Q3 2011, AdCare was required to consolidate this group of five Oklahoma facilities under GAAP accounting rules.
  • Signed agreement to purchase a skilled nursing and assisted living community in Ohio. The community has 179 beds in service, and generates an estimated $12 million in gross annualized revenues according to its most recent financials. They are expected to be accretive to the company's earnings after the transaction closes as planned late in Q4 2011.
  • Signed agreement to purchase a skilled nursing and assisted living community in Mountain View, Arkansas. The facilities have an aggregate of 129 beds in service that generated an estimated $8.0 million in gross annualized revenues according to its most recent financials. The transaction is expected to be immediately accretive to AdCare's earnings when it closes as planned late in the fourth quarter of 2011.
  • At the end of the third quarter, the company operated 40 facilities, comprised of 32 skilled nursing centers, seven assisted living residences and one independent living/senior housing facility, totaling approximately 3,600 units in service. The company's facility breakdown is 18 owned, six consolidated variable interest entities, 11 leased and five managed for third parties, and located in Alabama, Arkansas, Georgia, North Carolina, Ohio and Oklahoma.

Management Commentary
"Our record third quarter results reflect successful execution on our M&A program, resulting in tripling our quarterly revenues over last year and record bottom-line growth," said Boyd P. Gentry, AdCare's president and chief executive officer. "Our ability to acquire and optimize nursing properties that have not traditionally concentrated on providing Medicare and post-acute services is beginning to be reflected in our core performance. In fact, our optimization strategy has increased Medicare Census 37.5% across facilities acquired in our M&A campaign."

"Our operational team has improved quality mix for facilities operated for more than one month to 12.7% from 9.3% at time of individual facility acquisition. Going forward, we expect better results as we continue to leverage operational improvements in our recently acquired facilities."

Chris Brogdon, AdCare's chief acquisition officer, commented: "AdCare has put under contract 51 facilities since we began this M&A campaign in the fall of 2009 and 29 since the beginning of the year. During the quarter, our M&A program expanded our operations into the Southwest with the establishment of our first facilities in Arkansas and Oklahoma, as well as put additional facilities under contract in Arkansas and our home base in Ohio. We continue to expect our new facilities and these pending acquisitions to improve our overall EBITDAR margin."

The company plans to continue pursuing an aggressive M&A program. Combining its current annualized run-rate with transactions currently in the process of closing, AdCare's estimated annualized revenue run-rate is expected to exceed $300 million. This would represent an increase of more than 460% over the company's revenues in 2010, and an increase of more than 1,000% over revenues in 2009 when it initiated its M&A campaign.

"We are currently evaluating several attractive acquisition opportunities in the Midwest and Southern regions of the U.S.," added Brogdon, "with our M&A program continuing to be a major focus as we complete the remainder of 2011."

Conference Call and Webcast
AdCare will hold a conference call to discuss its 2011 financial results later today, November 9, 2011 at 5:00 p.m. Eastern time. Management will host the presentation, followed by a question and answer period.

Date: Wednesday, November 9, 2011
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Dial-In Number: 1-877-941-4774
International: 1-480-629-9760
Conference ID#: 4481635

The conference call will be broadcast simultaneously at http://viavid.net/dce.aspx?sid=00008E64 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. 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 8:00 p.m. Eastern time on the same day and until December 9, 2011:

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay pin number: 4481635

Summary of Closed and Pending Transactions Since Start of M&A Program

Description Beds/Units Location Type ARR* Terms Closing Status
Three Assisted Living Facilities 72 beds Ohio Purchase (Remaining 50%) $ 3.2 million Cash Closed 3-31-10
Assisted Living Facility 104 Units Hoover, AL Consolidated Variable Interest Entity (CVIE) $ 1.4 million 1 yr purchase option, expiring June 2012 Signed Option 6-25-10. Currently a CVIE
Five Nursing Homes 600 beds Georgia Lease $ 38.8 million 10-yr lease Closed 7-30-10
Three Nursing Homes 269 beds Georgia Lease $ 18.4 million 10-yr lease (combined with the above) Closed 9-2-10
Two Nursing Homes 304 beds Alabama Purchase $ 19.5 million Long-term fixed rate loan, USDA guaranteed Closed 10-1-10
Two Nursing Homes 299 beds Atlanta, GA Lease $ 20.8 million 12-yr lease with renewal option Closed 11-2-10
Nursing Facility 106 beds Sylva, NC Purchase $ 8.0 million Long-term fixed rate loan, USDA guaranteed Closed 12-31-10
Three Nursing Homes 329 beds Atlanta, GA & Dublin, GA Purchase $ 18.0 million Long-term fixed rate loan (USDA guaranteed and bank loans) Closed Two 5-2-2011; Closed third on 5-31-2011
Five Nursing Facilities 314 beds Oklahoma CVIE $ 12.7 million Long-term loan (SBA guaranteed) Currently a CVIE (since 8-1-11)
Five Nursing Homes (One Lease Pending) 482 beds Arkansas & Missouri Purchase (four) and Lease (one) $ 27.5 million Long-term fixed rate loan (USDA guaranteed and bank loans), one 10-year lease Closed Four 9-8-11; Closing (Lease) Expected in Q4-11
15 Nursing Homes
(Pending)
1,991 beds NC, SC, TN & VA Purchase (two), Lease (nine), and Manage (four) $90.0 million Cash, shares of AdCare stock & seller notes Closing Expected in Q1-12
Assisted Living Facility & Nursing Home (Pending) 179 beds Ohio Purchase $ 11.5 million 30-year, fixed-rated, tax-exempt bond issuance, and traditional bank loan Closing Expected in Q4-11
Assisted Living Facility & Nursing Home (Pending) 129 beds Mountain View, AR Purchase $ 8.8 million Long-term loan (USDA guaranteed bank loan) Closing Expected in Q4-11
Five Nursing Facilities
(Pending)
456 beds Oklahoma Purchase $13.2 million Long-term loan (SBA guaranteed) Closing Expected in Q1-12
Total 5,634 $291.8 million

*ARR= Annualized Revenue Run-rate at the time of purchase/lease or signing, estimated

Stock Dividend
On October 14, 2011, AdCare issued a 5% stock dividend to all AdCare shareholders of record on September 30, 2010.

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. 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 statements 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, statements made by Mr. Gentry that the company expects better results, and statements by Mr. Brogdon that the company continues to expect its new facilities and those pending acquisitions to improve the company's overall EBITDAR margin, as well as other statements regarding the signing and closing of expected acquisitions, and the company's expected annualized run-rate. Such forward-looking statements reflect management's beliefs and assumptions and are based on information currently available to management, and involve known and unknown risks, results, performance or achievements of AdCare, which may differ materially from those expressed or implied in such statements. Such factors are identified in the public filings made by AdCare with the Securities and Exchange Commission and include, among others, AdCare'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. Except where required by law, AdCare undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this press release.

In addition, facilities mentioned in this press release are operated by a separate, wholly owned, independent operating subsidiary that has its own management, employees and assets.
References to the consolidated company and its assets and activities, as well as the use of the terms such as "we", "us", "our", and similar verbiage, is not meant to imply that AdCare Health Systems, Inc. has direct operating assets, employees or revenue or that any of the facilities, the home health business or other related businesses, or are operated by the same entity.

Use of Non-GAAP Financial Information
Beginning with the reporting of results for the first quarter of 2011, the company began to report the measures of Adjusted EBITDA and Adjusted EBITDAR. These are measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The company defines adjusted EBITDAR as net income (loss) before interest expense; income tax expense; depreciation and amortization (including amortization of non-cash stock-based compensation); acquisition costs (net of gains); loss on extinguishment of debt; derivative loss; other income from recovery of receivable; retirement and salary continuation costs; and rent cost.

Adjusted EBITDA and Adjusted 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. The metrics are key measures 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, fixed rent or lease payments of facilities, derivative loss and certain gains on acquisitions.

The company believes these measures are useful to investors in evaluating the company's performance, results of operations and financial position for the following reasons:

  • They are 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;
  • They provide 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
  • They are an indication to determine if adjustments to current spending decisions are needed.

AdCare believes that the use of the measures 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 (Loss) Income to Adjusted EBITDA and Adjusted EBITDAR
(Unaudited)
See Note
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30,
2011 2010 2011 2010 2011
Net Income (loss) $ 2,780,384 $ (1,643,663 ) $ (2,723,625 ) $ (1,034,641 ) $ (4,562,377 )
Interest expense, net 2,230,211 420,448 5,524,682 1,005,908 1,854,281
Income tax expense 214,424 10,641 446,060 31,925 135,265
Amortization of stock based compensation 183,983 215,760 741,464 647,330 167,487
Depreciation and amortization 840,116 303,190 2,201,083 779,164 709,774
Acquisition costs, net of gains 1,146,651 402,850 789,432 (1,226,854 ) 622,120
Loss on extinguishment of debt 58,440 - 135,840 - 77,400
Derivative (gain) loss (4,744,694 ) - (806,657 ) - 2,588,171
Other income from recovery of receivables - - (632,001 ) - -
Salary retirement and continuation costs - - 621,605 - 621,605
Adjusted EBITDA $ 2,709,515 $ (290,774 ) $ 6,297,883 $ 202,832 $ 2,213,726
Rent expense 1,981,332 869,400 5,830,923 1,158,933 1,946,868
Adjusted EBITDAR $ 4,690,847 $ 578,626 $ 12,128,806 $ 1,361,765 $ 4,160,594
Note: The Adjusted EBITDA and Adjusted EBITDAR calculations for the three months ended June 30, 2011 have been adjusted downward $206,394 from that originally reported, as a result of a correction of the amortization of stock based compensation for the second quarter.
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2011 2010 2011 2010
Revenues:
Patient care revenues $ 40,543,732 $ 12,741,701 $ 105,879,393 $ 24,308,760
Management revenues 328,731 532,985 1,312,254 1,564,657
Total revenues 40,872,463 13,274,686 107,191,647 25,873,417
Expenses:
Payroll and related payroll costs 21,963,988 8,243,065 59,182,571 16,269,039
Other operating expenses 14,372,765 4,618,960 36,547,834 8,810,591
Lease expense 1,981,332 869,400 5,830,923 1,158,933
Depreciation and amortization 840,116 303,190 2,201,083 779,164
Salary retirement and continuation costs - - 621,605 -
Total expenses 39,158,201 14,034,615 104,384,016 27,017,727
Income (Loss) from Operations 1,714,262 (759,929 ) 2,807,631 (1,144,310 )
Other Income (Expense):
Interest expense, net (2,230,211 ) (420,448 ) (5,524,682 ) (1,005,908 )
Acquisition costs, net of gains (1,146,651 ) (402,850 ) (789,432 ) 1,226,854
Derivative gain 4,744,694 - 806,657 -
Loss on extinguishment of debt (58,440 ) - (135,840 ) -
Other income (expense) (28,846 ) (49,795 ) 558,101 (79,352 )
Total other income (expense) 1,280,546 (873,093 ) (5,085,196 ) 141,594
Income (Loss) Before Income Taxes 2,994,808 (1,633,022 ) (2,277,565 ) (1,002,716 )
Income Tax Expense (214,424 ) (10,641 ) (446,060 ) (31,925 )
Net Income (Loss) 2,780,384 (1,643,663 ) (2,723,625 ) (1,034,641 )
Net Loss (Income) Attributable to Noncontrolling Interests 747,605 143,899 1,089,448 (665,663 )
Net Income (Loss) Attributable to AdCare Health Systems $ 3,527,989 $ (1,499,764 ) $ (1,634,177 ) $ (1,700,304 )
Net Income (Loss) Per Share, Basic $ 0.33 $ (0.18 ) $ (0.17 ) $ (0.25 )
Net Income (Loss) Per Share, Diluted $ 0.29 $ (0.18 ) $ (0.17 ) $ (0.25 )
Weighted Average Common Shares Outstanding,
Basic 10,738,093 8,321,768 9,450,507 6,754,786
Diluted 12,689,231 8,321,768 9,450,507 6,754,786
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2011 2010
Current Assets: (Unaudited)
Cash and cash equivalents $ 10,049,883 $ 3,911,140
Restricted cash and cash equivalents 3,313,000 1,047,454
Accounts receivable:
Long-term care resident receivables, net 18,708,063 10,943,963
Management receivables, net 189,534 271,224
Prepaid expenses and other 1,312,394 1,243,663
Total current assets 33,572,874 17,417,444
Restricted cash and investments 4,455,568 3,099,936
Property and equipment, net 83,802,347 37,606,301
Intangibles, net 26,336,253 16,159,845
Goodwill 2,679,482 2,679,482
Escrow deposits for acquisitions 700,000 1,725,086
Lease deposits 2,193,442 1,670,282
Other assets 4,545,571 2,600,530
Total assets $ 158,285,537 $ 82,958,906
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable and other debt $ 11,078,424 $ 3,633,401
Accounts payable 10,094,939 3,411,772
Accrued expenses 11,798,044 9,664,325
Total current liabilities 32,971,407 16,709,498
Notes payable and other debt, net of current portion 101,148,162 47,210,995
Derivative liability 2,057,152 2,905,750
Other liabilities 1,641,269 1,267,429
Deferred tax liability 491,294 255,141
Total liabilities 138,309,284 68,348,813
Commitments and contingencies - -
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; 12,169,852 and 8,766,657 shares issued and outstanding 34,701,655 26,611,870
Accumulated deficit (14,183,047 ) (12,548,870 )
Total stockholders' equity 20,518,608 14,063,000
Noncontrolling interest in subsidiaries (542,355 ) 547,093
Total equity 19,976,253 14,610,093
Total liabilities and stockholders' equity $ 158,285,537 $ 82,958,906

Contact Information

  • Company Contacts
    Boyd Gentry
    CEO
    Chris Brogdon
    Vice Chairman & CAO
    David A. Tenwick
    Chairman of Board
    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