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ADVOCAT ANNOUNCES THIRD QUARTER RESULTS AND SALE OF MEDICAL SUPPLY BUSINESS
FRANKLIN, Tenn. - (November 10, 2004) - Advocat Inc. (NASDAQ OTC: AVCA) today announced its results for the third quarter ended September 30, 2004.
For the third quarter of
2004, Advocat reported a net loss from continuing operations of $291,000, or $0.06 per diluted common share, compared with a net loss from continuing operations of $3.4 million, or $0.62 per diluted common share, in
2003.
Third Quarter Results
Advocat’s net revenues from continuing operations increased 8.1% to $55.1 million compared with $50.9 million in the third quarter of 2003. The
increase in third quarter net revenues was primarily due to patient revenues that increased 7.3% to $51.5 million compared with $48.0 million in the third quarter of 2003. Higher patient revenues benefited from
increased Medicare utilization, Medicare rate increases that were effective October 1, 2003, and increased Medicaid rates in certain states, partially offset by a 2.0% decline in census in 2004 compared with
2003. As a percentage of total census, Medicare days increased to 12.6% in 2004 from 10.9% in 2003. Resident revenues increased to $3.1 million in 2004 from $2.9 million in the third quarter of
2003. The increase in resident revenues is primarily attributable to increased rates. Ancillary service revenues, prior to contractual allowances, increased 6.2% to $9.3 million in 2004 from $8.8
million in 2003. The increase in ancillary revenues was primarily attributable to increased Medicare census.
Total expenses of continuing operations increased to $55.3 million compared with $54.3
million in the third quarter of 2003. The increase in total expenses was primarily due to cost increases related to wages and benefits. Operating expenses increased to $43.2 million and represented 79.1%
of patient and resident revenues for the third quarter of 2004 compared with $41.7 million, or 81.9% of such revenues in the third quarter of 2003. Expenses for professional liability were $2.9 million in the
third quarter of 2004 compared to $3.7 million in the third quarter of 2003.
Nine Months Results
Net income from continuing operations for the
first nine months of 2004 was $6.3 million, or $0.98 per diluted common share, compared with a net loss from continuing operations of $15.2 million, or $2.80 per share, in the first nine months of
2003. The results for the first nine months of 2004 include a non-cash expense reduction of $14.8 million resulting from a downward adjustment in the Company’s accrual for self-insured risks associated
with professional liability claims.
Advocat’s self-insurance reserves are assessed on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of operations in
the period identified. Any increase in the accrual decreases income in the period, and any reduction in the accrual increases income during the period. Although the Company retains a third-party actuarial
firm to assist management in estimating the appropriate accrual for these claims, professional liability claims are inherently uncertain, and the liability associated with anticipated claims is very difficult to
estimate. As a result, the Company’s actual liabilities may vary significantly from the accrual, and the amount of the accrual may fluctuate by a material amount in any given quarter. Each change in
the amount of this accrual will directly affect the Company’s reported earnings for the period in which the change in accrual is made.
In the first nine months of 2004, the Company made downward
adjustments totaling $14.8 million in the self-insurance reserves that was primarily the result of settlements of claims for amounts less than previously estimated. This downward adjustment was partially offset
by expenses of $13.7 million recorded for the estimated costs of claims incurred in the first nine months of 2004, resulting in a net benefit of $1.1 million for the nine months ended September 30, 2004. This
compares with a professional liability expense of $16.5 million for the same period in 2003. As of September 30, 2004, the Company reported a liability of $43.4 million, including reported professional
liability claims and estimates for incurred but unreported claims. The Company does not have cash or available resources to pay these accrued professional liability claims or any significant portion thereof.
Net revenues increased 10.9% to $158.8 million for the first nine months of 2004 compared with $143.2 million in 2003. Patient revenues were up 11.5% to $148.9 million in 2004 compared with $133.5
million in the first nine months of 2003. Resident revenues were $9.2 million in 2004 compared with $9.5 million in 2003. Ancillary service revenues, prior to contractual allowances, increased 16.5% to
$28.7 million in 2004 from $24.7 million in 2003.
Total expenses of continuing operations were $152.3 million in 2004 compared with $158.4 million in 2003. The decrease in total expenses was primarily attributable to a decrease in professional liability expenses of $17.6 million in 2004, partially offset by an increase in operating expenses. Operating expenses represented 79.4% of patient and resident revenues for 2004 compared with 80.8% of such revenues in 2003.
Sale of Medical Supply Business
On November 4, 2004, Advocat completed the sale of certain assets of its medical supply business, Advocat Distribution Services. The initial purchase price was
$225,000, with additional consideration based on the results of operations of the business over the two years following the sale. The sale of Advocat Distribution Services will allow management to focus its
attention on the Company’s core business. No material gain or loss is expected from the initial proceeds. Any additional consideration received in the future under the terms of the
agreement will be recorded when determined.
Forward-looking statements made in this release involve a number of risks and uncertainties, including but not limited to, uncertainty regarding the
Company’s ability to restructure or refinance its debt, the impact of under-insured professional liability claims, factors affecting the long-term care industry in general, governmental reimbursement,
government regulation, health care reforms, the impact of future licensing surveys, changing economic and market conditions and other risk factors detailed in the Company’s Securities and Exchange Commission
filings. 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 Inc. provides long-term care services to nursing home patients and residents of assisted living facilities in nine states, primarily in the Southeast.
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