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ADVOCAT ANNOUNCES RESULTS FOR THIRD QUARTER
BRENTWOOD, Tenn. - (November 9, 2005) - Advocat Inc. (NASDAQ OTC: AVCA) today announced its results for the third quarter ended September 30, 2005.
Advocat reported net income from
continuing operations of $1.8 million, or $0.27 per diluted common share, for the third quarter of 2005 compared with a net income from continuing operations of $182,000, or $0.02 per diluted common share, in
2004. Net income for common stock for the third quarter was $1.7 million, or $0.27 per diluted share, compared with a net loss for common stock of $289,000, or $0.05 per diluted share, in the third quarter
of 2004.
“Advocat reported higher revenues, operating income and net income in the third quarter, and continued to generate strong cash flows from operations,” stated William R. Council, III,
president and CEO of Advocat. “We continue to focus on strengthening our operations and are pleased with our improved results.”
“During the third quarter, we acquired the Briarcliff
Health Care Center, a 120-bed skilled nursing facility in Oak Ridge, Tennessee. We have operated the Briarcliff facility under a lease agreement since 1990. We purchased the nursing home for approximately $6.7
million and financed the transaction with a commercial finance company. We believe our ability to secure this credit underscores the solid progress we have made in improving our financial condition.”
Third Quarter Results
Advocat’s net revenues from continuing operations increased 5.3% to $54.5 million compared with $51.7 million in the third quarter of 2004. The increase in third
quarter net revenues was primarily due to patient revenues that increased 5.4% to $51.3 million compared with $48.6 million in the third quarter of 2004. Patient revenues benefited from Medicare rate increases
that were effective October 1, 2004, increased Medicare utilization, increased Medicaid rates in certain states and a 0.7% increase in census in 2005 compared with 2004. Medicare revenues increased to 29.5% of
patient revenues in 2005, up from 28.5% in 2004. Resident revenues increased to $3.2 million in 2005 from $3.1 million in the third quarter of 2004. Ancillary service revenues, prior to contractual
allowances, increased 22.3% to $10.9 million in 2005 from $8.9 million in the third quarter of 2004.
Operating expenses increased to $42.8 million and represented 78.5% of patient and resident revenues
for the third quarter of 2005 compared with $40.3 million, or 77.9% of such revenues, in the third quarter of 2004. The increase in operating expenses was primarily due to higher wage and benefit costs.
The Company’s results of continuing operations for the third quarter of 2005 included professional liability costs that declined to $1.0 million compared with $2.5 million in 2004. The provision for
current liability claims recorded during the three months ended September 30, 2005, was partially offset by downward adjustments in the liability primarily resulting from the quarterly actuarial valuations,
resulting in a net expense of $1.0 million in the period. These reductions from the quarterly actuarial valuation were primarily the result of the effects of settlements of certain claims for amounts less than
had been reserved in prior periods and the resulting effect of these settlements on the assumptions inherent to the actuarial estimate. The 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. Professional liability costs include cash and non-cash charges recorded based on current actuarial
reviews. The actuarial reviews include estimates of known claims and an estimate of claims that may have occurred, but have not yet been reported to the Company.
As of September 30, 2005, the Company has
recorded total liabilities for reported professional liability claims and estimates for incurred but unreported claims of $34.4 million, and has current debt obligations of $48.3 million. The Company does not
have cash or available resources to pay in full this current debt, the accrued professional liability claims or any significant portion of either and has limited resources available to meet its anticipated
operating, capital expenditure and debt service requirements during 2005.
Nine Months Results
Net revenues increased to $159.0 million in the first nine months of 2005 compared with $149.2 million
in 2004. Patient revenues increased to $149.4 million in 2005 compared with $140.1 million in the first nine months of 2004. Resident revenues were $9.5 million compared with $9.2 million. Ancillary
service revenues, prior to contractual allowances, increased to $31.1 million in 2005 from $27.4 million in 2004.
Operating expenses were $123.6 million in 2005 and represented 77.8% of patient and
resident revenues compared with $116.9 million, or 78.4% of such revenues, in 2004. The increase in operating expenses was primarily due to higher wage and benefit costs.
Professional liability expense
for the first nine months of 2005 resulted in a net benefit of $4.8 million compared with a net benefit of $2.2 million in the same period of 2004. During the nine months ended September 30, 2005, the Company
reduced its total recorded liabilities for self-insured professional liability risks to $34.4 million, down from $42.9 million at December 31, 2004. Downward adjustments in the liability primarily resulting
from the quarterly actuarial valuations were partially offset by the provision for current liability claims recorded during the nine months ended September 30, 2005, resulting in a net benefit of $4.8 million in the
period.
Net income from continuing operations for the first nine months of 2005 was $12.2 million, or $1.87 per diluted common share, compared with $8.3 million, or $1.29 per share, in the first nine
months of 2004. Net income for common stock for the first nine months of 2005 was $12.1 million, or $1.90 per diluted share, compared with $6.7 million, or $1.08 per diluted share, in the same period of 2004. The
2005 results include income of $141,000 from discontinued operations compared with a loss of $1.4 million in the same period of 2004.
Third Quarter Conference Call
Advocat will conduct a conference
call to discuss its third quarter 2005 earnings release on November 10, 2005, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). To participate in the Company’s call, dial 866-800-8651 or
617-614-2704 and enter passcode 25570245. A live broadcast of the conference call will also be available on the Internet at the Company's web site, www.irinfo.com/avc, as well as www.earnings.com and www.streetevents.com. A replay of the broadcast will be available until November 24, 2005, at the same web
sites.
Forward-Looking Statements
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, the accuracy of the Company’s estimate of its anticipated professional liability
expense, 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. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2004, as well as in other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors that could cause actual results
to differ materially from those indicated in the forward-looking statements. 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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