Revenues up 52% to Record $61.8 Million, Driving Record Adjusted EBITDA From Continuing Operations of $6.5 Million
ATLANTA, GA -- (Marketwire - November 13, 2012) - AdCare Health Systems, Inc. (NYSE MKT: ADK), a leading long-term care provider, reported results for the third quarter ended September 30, 2012.
Q3 2012 Financial Highlights
- Record revenues of $61.8 million, up 12% sequentially and up 52% from Q3 2011.
- Income from operations was a record $4.0 million, up $2.2 million from Q3 2011.
- Net income attributable to AdCare in the third quarter of 2012, before a $2.1 million non-cash derivative charge, increased to $403,000, or $0.03 per share, versus $326,000, or $0.02 per share, in the second quarter of 2012.
- Including the non-cash derivative charge, net loss attributable to AdCare in the third quarter of 2012 totaled $1.7 million or $(0.11) per share. This compares to net income of $679,000, or $0.05 per share, in the second quarter of 2012 which included a non-cash derivative gain of $353,000 (see, "About the Derivative Liability," below for more information.)
- Adjusted EBITDA from continuing operations was a record $6.5 million, up 8% sequentially and 127% versus Q3 2011.
- Acquisitions completed during the quarter added $16.7 million in estimated annualized revenue run-rate.
"Our skilled nursing acquisition and optimization strategy once again drove strong quarterly results," said AdCare's president and chief executive officer, Boyd P. Gentry. "In fact, Q3 produced records in total revenues, income from operations and Adjusted EBITDA from continuing operations, and without the non-cash derivative charge, net income would have increased over the same year-ago quarter. Our optimization strategy involves improving the level of care, occupancy and Medicare payer mix of newly acquired facilities. We expect this strategy to continue to drive strong overall Adjusted EBITDA from continuing operations, which has generated year-over-year increases since we began our M&A program in the summer of 2010."
Q3 2012 Operational Highlights
- Acquired three skilled nursing facilities: One in Georgia with 134 beds in service and an estimated $6.4 million in gross annualized revenues, and two in Oklahoma, with an aggregate of 230 beds in service and an estimated $10.3 million in gross annualized revenues.
- Signed purchase agreements for two skilled nursing facilities: One in Arkansas with a projected 70 beds in service and a projected estimated $8.5 million in gross annualized revenues (based on management expectations), and one in South Carolina with 84 beds in service and an estimated $3.8 million in gross annualized revenues.
The stated gross annualized revenues of facilities acquired or put under contract are according to their most recent financial statements, unless otherwise indicated.
Q3 2012 Summary of Financial Results
Revenues in the third quarter of 2012 increased 52% to a record $61.8 million from $40.5 million in the same year-ago quarter. The increase in revenue was primarily due to acquisitions completed since September 1, 2011 as part of AdCare's M&A program. The company's skilled nursing facilities existing prior to that date also contributed to the improvement in revenue due to cost savings measures and Medicaid rate improvement. 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, 2012 as filed with the Securities and Exchange Commission.
Income from operations in the third quarter of 2012 was a record $4.0 million, increasing 119% from $1.8 million in the third quarter of 2011. The increase in income from operations was due to revenue optimization and expense controls, as well as from newly acquired facilities. The company's cost of services as a percentage of patient care revenues decreased to 80.1% in the third quarter of 2012 from 81.2% in the same year-ago quarter.
Including a non-cash derivative loss of $2.1 million, net loss attributable to AdCare in the third quarter of 2012 totaled $1.7 million or $(0.11) per basic and diluted share. This compares to a net gain of $3.5 million, or $0.27 per diluted share, in the same year-ago quarter, which included a non-cash derivative gain of $4.7 million.
Adjusted EBITDA from continuing operations in the third quarter of 2012 totaled a record $6.5 million, up 8% from $6.0 million in the second quarter of 2012 (see "Use of Non-GAAP Financial Information," below for the definition of Adjusted EBITDA from continuing operations, a non-GAAP financial metric, as well as an important discussion about the use of this metric and its reconciliation to GAAP net income, the most directly comparable GAAP financial measure.)
Combined cash, current restricted cash and cash equivalents at September 30, 2012 totaled $12.7 million, as compared to $9.2 million at December 31, 2011.
Q3 Total Facility Count
At the end of the third quarter of 2012, the company, through its subsidiaries, operated or managed 51 facilities comprised of 41 skilled nursing centers, nine assisted living residences and one independent living/senior housing facility, with a total of 4,791 beds/units in service. Of these 51 facilities, 29 are owned, 12 are leased, six are consolidated variable interest entities, and four are managed for third parties. The facilities are located in Georgia, Arkansas, Ohio, Oklahoma, Alabama, North Carolina and Missouri.
Subsequent to the end of the third quarter, AdCare signed a definitive agreement to sell six assisted living facilities in Ohio for $22.3 million. The six facilities have an aggregate of 196 units in service. The transaction is expected to be complete before the end of the year. The company estimates that cash consideration received at closing will be approximately $6.7 million.
Chris Brogdon, AdCare's vice chairman, commented: "Excluding the facilities we're divesting, AdCare has put under contract 45 facilities since we began our M&A campaign and 14 since the beginning of 2012. Selling the six assisted living facilities in Ohio allows us to focus on our core skilled nursing competencies, strengthen our balance sheet, and provide capital to advance our very fruitful acquisition program."
Before the end of the year, AdCare plans to complete the acquisition of two facilities in South Carolina and one facility in Arkansas that it has already placed under contract.
Combining the company's current annualized run-rate with transactions in the process of closing, AdCare's estimated annualized revenue run-rate is expected to exceed $300 million. This would represent an increase of nearly 100% over the company's revenues in 2011, and an increase of more than 11 times revenues since initiating its M&A campaign.
Conference Call and Webcast
AdCare will hold a conference call to discuss its third quarter 2012 financial results tomorrow, Wednesday, November 14, 2012 at 8:30 a.m. Eastern time. Management will host the presentation, followed by a question and answer period.
Date: Wednesday, November 14, 2012
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1-877-941-1427
International: 1-480-629-9664
Conference ID#: 4567193
Webcast: http://edge.media-server.com/m/p/7jw73smf/lan/en
The conference call will be webcast live and available for replay via the investors section of the company's website 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 Liolios Group at 949-574-3860.
A replay of the call will be available after 11:30 a.m. Eastern time on the same day and until December 14, 2012.
Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay pin number: 4567193
Summary of Closed and Pending Transactions Since Start of M&A Program
ALF = Assisted Living Facility SNF = Skilled Nursing Facility ARR= Annualize Revenue Run-rate(1)
---------------------------------------------------------------------------- Facility Beds/ Transaction Finance Completion Type Count Units Location Type ARR (1) Terms Status ---------------------------------------------------------------------------- Purchase ALF 3 72 Ohio (Remaining $3.2M Cash Closed 3- beds 50%) 31-10 ---------------------------------------------------------------------------- Signed Consol. 1-yr option to Variable purchase purchase. ALF 1 104 Hoover, AL Interest $1.4M option, Currently Units Entity expiring a CVIE (CVIE) June 2013 (Since 7/1/10) ---------------------------------------------------------------------------- 600 Closed 7- SNF 5 beds Georgia Lease $38.8M 10-yr lease 30-10 ---------------------------------------------------------------------------- 10-yr lease 269 (combined Closed 9- SNF 3 beds Georgia Lease $18.4M with the 2-10 above) ---------------------------------------------------------------------------- Long-term 304 fixed rate Closed 10- SNF 2 beds Alabama Purchase $19.5M loan, USDA- 1-10 backed ---------------------------------------------------------------------------- 12-yr lease 299 with Closed 11- SNF 2 beds Atlanta, GA Lease $20.8M renewal 2-10 option ---------------------------------------------------------------------------- Long-term 106 fixed rate Closed 12- SNF 1 beds Sylva, NC Purchase $8.0M loan (USDA- 31-10 backed) ---------------------------------------------------------------------------- Long-term fixed rate Closed two 329 Atlanta & loan 5-1-2011; SNF 3 beds Dublin, GA Purchase $18.0M (USDA,SBA- Closed backed and third on bank loans) 6-1-2011 ---------------------------------------------------------------------------- Currently 314 Long-term a CVIE SNF 5 beds Oklahoma CVIE $12.7M loan (SBA- (since 8- backed) 1-11) ---------------------------------------------------------------------------- Long-term fixed rate Closed loan (USDA- purchases 482 Arkansas & Purchase backed and 9-8-11; SNF 5 beds Missouri (four) and $27.5M bank closed Lease (one) loans), one lease 11- 36 month 1-11 lease ---------------------------------------------------------------------------- Long-term 128 Mountain loan (USDA- Closed 12- ALF & SNF 2 beds View, AR Purchase $5.4M backed bank 2-11 loan) ---------------------------------------------------------------------------- 30-year, fixed- rated, tax- ALF & SNF 2 179 Springfield, Purchase $12.0M exempt bond Closed 12- beds OH issuance, 30-11 and bank loan ---------------------------------------------------------------------------- 434 Closed 3- SNF 3 beds Arkansas Purchase $15.9M Bank loan 30-12 ---------------------------------------------------------------------------- 77 Closed 4- SNF 1 beds Arkansas Purchase $3.3M Bank loan 30-12 ---------------------------------------------------------------------------- Long-term 134 Glennville, bank loan Closed 7- SNF 1 beds GA Purchase $6.4M (USDA- 2-12 backed) ---------------------------------------------------------------------------- Long-term 109 Oklahoma bank loan Closed 7- SNF 1 beds City, OK Purchase $4.1M (SBA- 3-12 backed) ---------------------------------------------------------------------------- 121 Closed 8- SNF 1 beds Tulsa, OK Purchase $6.2M Bank loan 17-12 ---------------------------------------------------------------------------- Closing SNF 1 96 Sumter, SC Purchase $6.7M SBA regular Expected (Pending) beds bank loan Q4-12 ---------------------------------------------------------------------------- Closing SNF 1 70 Cabot, Purchase $8.5M Traditional Expected (Pending) beds Arkansas bank loan Q4-12 ---------------------------------------------------------------------------- Closing SNF 1 84 Georgetown, Purchase $3.8M Traditional Expected (Pending) beds SC bank loan Q4-12 ---------------------------------------------------------------------------- Long-term SNF 350 bank loan Closing (Pending) 4 beds Oklahoma Purchase $10.5M (SBA- Expected backed) Q1-13 ---------------------------------------------------------------------------- Total Closed 41 4,061 $221.6M --------------------- -------- Total Pending 7 600 $29.5M --------------------- -------- Grand Total 48 4,661 $251.1M --------------------- --------
(1)Annualized Revenue Run-rate (ARR) is estimated based on the most recent financial statement provided at the time of signing the purchase or lease agreement. ARR for facilities held at least 12 months is based on most recent quarter. Actual results may vary considerably.
Stock Dividend
On October 22, 2012, AdCare issued a 5% stock dividend to all AdCare shareholders of record on October 8, 2012.
About the Derivative Liability
The derivative liability is the result of the Company issuing subordinated convertible notes in 2010 that include an anti-dilution provision referred to as a "ratchet" provision. The derivative liability is a non-cash item. The notes are convertible into shares of common stock of the Company at a current conversion price of $3.73 (adjusted for various stock dividends) that is subject to future reductions if the Company issues equity instruments at a lower price (the "ratchet" provision). Because there is no minimum conversion price, an indeterminate number of shares may be issued in the future. Accordingly, the Company determined an embedded derivative existed that was required to be bifurcated from the subordinate convertible notes and accounted for separately as a derivative liability recorded at fair value. Pursuant to GAAP, the Company estimates the fair value of the derivative liability using the Black-Scholes Merton option-pricing model with changes in fair value being reported in the condensed consolidated statement of operations.
The Company currently has no plans to issue equity instruments at a price lower than the conversion price of $3.73, which would trigger the ratchet provision. These notes mature in October 2013 at which time the Company will be required to redeem them for cash (unless they are earlier converted into common stock at the option of the holder). Upon conversion to common stock, the debt and derivative liability will be extinguished, the current fair market value of the common stock will be reflected as common stock and additional paid-in capital, and there may be a resulting gain or loss on the debt extinguishment. If not converted to stock, upon settlement at the date of maturity, the debt and derivative liability will result in a gain on debt extinguishment for the remaining fair value of the derivative.
About AdCare Health Systems
AdCare Health Systems, Inc. (NYSE MKT: ADK) is a recognized provider of senior living and health care facility management. AdCare owns and manages, long-term care facilities and retirement communities, and since the company's inception in 1988, its mission has been to provide the highest quality of healthcare services to the elderly through its operating subsidiaries, including a broad range of skilled nursing and sub-acute care services. 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: (i) statements that the company expects its optimization strategy to continue to drive strong overall Adjusted EBITDA from continuing operations; (ii) statements regarding the sale of six facilities; (iii) statements regarding the company's current plans to issue equity instruments; (iv) statements regarding the signing and closing of expected acquisitions; and (v) statements regarding the company's expected annualized run-rate. Such forward-looking statements reflect management's beliefs and assumptions and are based upon 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 health care 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, each facility mentioned in this press release is 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 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 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 from continuing operations and Adjusted EBITDAR from continuing operations. These are measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company defines: (i) "Adjusted EBITDA from continuing operations " as net income (loss) from continuing operations 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 or gain, other non-routine adjustments (primarily a recovery of a receivable and a non-cash settlement gain), and retirement and salary continuation costs; and (ii) "Adjusted EBITDAR from continuing operations" as net income (loss) from continuing operations 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 non-routine adjustments (primarily a recovery of a receivable and a non-cash settlement gain), retirement and salary continuation costs and rent cost.
Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations 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. Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations are 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 or gain, and certain acquisition related charges.
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 afford 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 whether or not 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in 000s, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2012 2011 2012 2011 --------- --------- --------- --------- Revenues: Patient care revenues $ 61,342 $ 40,192 $ 165,793 $ 104,596 Management revenues 428 330 1,154 1,312 --------- --------- --------- --------- Total revenues 61,770 40,522 166,947 105,908 --------- --------- --------- --------- Expenses: Cost of services (exclusive of facility rent, depreciation and amortization) 49,164 32,637 131,514 84,916 General and administrative 4,328 3,267 13,188 9,358 Facility rent expense 2,080 1,937 6,196 5,787 Depreciation and amortization 2,112 836 5,370 2,188 Salary retirement and continuation costs 38 -- 38 622 --------- --------- --------- --------- Total expenses 57,722 38,677 156,306 102,871 --------- --------- --------- --------- Income from Operations 4,048 1,845 10,641 3,037 --------- --------- --------- --------- Other Income (Expense): Interest expense, net (3,992) (2,223) (10,312) (5,511) Acquisition costs, net of gains (342) (1,147) (1,160) (789) Derivative gain (loss) (2,105) 4,745 (1,342) 807 Loss on extinguishment of debt -- (58) -- (136) Other income (expense) 271 (20) 242 567 --------- --------- --------- --------- Total other income (expense), net (6,168) 1,297 (12,572) (5,062) --------- --------- --------- --------- Income (Loss) from Continuing Operations Before Income Taxes (2,120) 3,142 (1,931) (2,025) Income Tax Expense (118) (204) (217) (414) --------- --------- --------- --------- Income (Loss) from Continuing Operations (2,238) 2,938 (2,148) (2,439) Loss from discontinued operations (202) (158) (472) (285) --------- --------- --------- --------- Net Income (Loss) (2,440) 2,780 (2,620) (2,724) Net Loss Attributable to Noncontrolling Interests 738 748 1,390 1,090 --------- --------- --------- --------- Net Income (Loss) Attributable to AdCare Health Systems $ (1,702) $ 3,528 $ (1,230) $ (1,634) ========= ========= ========= ========= Net Income (Loss) per Common Share -- Basic: Continuing Operations $ (0.10) $ 0.33 $ (0.05) $ (0.14) Discontinued Operations (0.01) (0.01) (0.03) (0.03) --------- --------- --------- --------- $ (0.11) $ 0.32 $ (0.08) $ (0.17) ========= ========= ========= ========= Net Income (Loss) per Common Share -- Diluted: Continuing Operations $ (0.10) $ 0.28 $ (0.05) $ (0.14) Discontinued Operations (0.01) (0.01) (0.03) (0.03) --------- --------- --------- --------- $ (0.11) $ 0.27 $ (0.08) $ (0.17) ========= ========= ========= ========= ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in 000s) September 30, December 31, 2012 2011 ------------- ------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 9,884 $ 7,364 Restricted cash and cash equivalents 2,825 1,883 Accounts receivable, net of allowance of $3,099 and $1,346 30,397 18,759 Prepaid expenses and other 892 663 Assets of disposal group held for sale -- 47 ------------- ------------- Total current assets 43,998 28,716 Restricted cash and investments 5,748 4,870 Property and equipment, net 166,708 105,143 Intangible assets -- bed licenses, net 2,558 1,189 Intangible assets -- lease rights, net 7,658 8,460 Goodwill 906 906 Escrow deposits for acquisitions 812 3,172 Lease deposits 1,704 1,685 Deferred loan costs, net 6,630 4,818 Other assets 169 122 ------------- ------------- Total assets $ 236,891 $ 159,081 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of notes payable and other debt $ 11,991 $ 4,567 Revolving credit facilities and lines of credit 1,363 7,343 Accounts payable 20,324 12,075 Accrued expenses 12,615 9,858 Liabilities of disposal group held for sale -- 240 ------------- ------------- Total current liabilities 46,293 34,083 Notes payable and other debt, net of current portion: Senior debt, net of discounts 134,003 87,771 Convertible debt, net of discounts 22,746 14,614 Revolving credit facilities 9,076 1,308 Other debt 887 1,400 Derivative liability 3,231 1,889 Other liabilities 1,728 2,437 Deferred tax liability 99 86 ------------- ------------- Total liabilities 218,063 143,588 ------------- ------------- -- -- Stockholders' equity: Preferred stock, no par value; 1,000 shares authorized; no shares issued or outstanding -- -- Common stock and additional paid-in capital, no par value; 29,000 shares authorized; 14,657 and 12,802 shares issued and outstanding 41,002 35,047 Accumulated deficit (19,943) (18,713) ------------- ------------- Total stockholders' equity 21,059 16,334 Noncontrolling interest in subsidiaries (2,231) (841) ------------- ------------- Total equity 18,828 15,493 ------------- ------------- Total liabilities and stockholders' equity $ 236,891 $ 159,081 ============= =============
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS TRAILING FIVE QUARTERS (Amounts in 000s) (UNAUDITED) For the Three Months Ended 9/30/2011 12/31/2011 3/31/2012 6/30/2012 9/30/2012 --------- ---------- --------- --------- --------- Revenues: Patient care revenues $ 40,192 $ 45,137 $ 49,808 $ 54,642 $ 61,342 Management revenue 330 307 363 363 428 --------- ---------- --------- --------- --------- Total revenues 40,522 45,444 50,171 55,005 61,770 --------- ---------- --------- --------- --------- Expenses: Cost of services 32,637 37,303 40,123 42,227 49,164 General and administrative 3,267 3,922 3,931 4,929 4,328 Facility rent expense 1,937 2,008 2,065 2,050 2,080 Depreciation and amortization 836 1,749 1,497 1,761 2,112 Salary retirement and continuation costs - 830 - - 38 --------- ---------- --------- --------- --------- Total expenses 38,677 45,812 47,616 50,967 57,722 --------- ---------- --------- --------- --------- Income (Loss) from Operations 1,845 (368) 2,555 4,038 4,048 --------- ---------- --------- --------- --------- Other Income (Expense): Interest expense, net (2,223) (2,688) (2,954) (3,366) (3,992) Loss on extinguishment of debt (58) (5) - - - Derivative gain (loss) 4,745 151 410 353 (2,105) Acquisition costs, net of gains (1,147) (373) (293) (524) (342) Other income (expense) (20) (17) (16) (13) 271 --------- ---------- --------- --------- --------- Total other income (expense), net 1,297 (2,932) (2,853) (3,550) (6,168) --------- ---------- --------- --------- --------- Income (Loss) from Continuing Operations Before Income Taxes 3,142 (3,300) (298) 488 (2,120) Income tax benefit (expense) (204) 151 (54) (45) (118) --------- ---------- --------- --------- --------- Income (Loss) from Continuing Operations 2,938 (3,149) (352) 443 (2,238) Loss from discontinued operations, net of tax (158) (1,679) (109) (160) (202) --------- ---------- --------- --------- --------- Net Income (Loss) 2,780 (4,828) (461) 283 (2,440) Net Loss Attributable to Noncontrolling Interest 748 298 255 396 738 --------- ---------- --------- --------- --------- Net Income (Loss) Attributable to AdCare Health Systems, Inc. $ 3,528 $ (4,530) $ (206) $ 679 $ (1,702) ========= ========== ========= ========= ========= ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA FROM CONTINUING OPERATIONS AND ADJUSTED EBITDAR FROM CONTINUING OPERATIONS (Amounts in 000s) (Unaudited) For the Three Months Ended 9/30/2011 12/31/2011 3/31/2012 6/30/2012 9/30/2012 --------- ---------- --------- --------- --------- Net Income (Loss) $ 2,780 $ (4,828) $ (461) $ 283 $ (2,440) Impact of discontinued operations 158 1,679 109 160 202 --------- ---------- --------- --------- --------- Net Income (Loss) from continuing operations 2,938 (3,149) (352) 443 (2,238) Interest expense, net 2,223 2,688 2,954 3,366 3,992 Income tax (benefit) expense 204 (151) 54 45 118 Amortization of stock based compensation 184 277 165 182 269 Depreciation and amortization 836 1,749 1,497 1,761 2,112 Acquisition costs, net of gains 1,147 373 293 524 342 Loss on extinguishment of debt 58 5 - - - Derivative (gain) loss (4,745) (151) (410) (353) 2,105 Other non-routine Adjustments - - - - (282) Salary retirement and continuation costs - 830 - - 38 --------- ---------- --------- --------- --------- Adjusted EBITDA from continuing operations 2,845 2,471 4,201 5,968 6,456 Facility rent expense 1,937 2,008 2,065 2,050 2,080 --------- ---------- --------- --------- --------- Adjusted EBITDAR from continuing operations $ 4,782 $ 4,479 $ 6,266 $ 8,018 $ 8,536 ========= ========== ========= ========= ========= ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULES (Unaudited) 2011 2012 Nine Months YTD ----------------- -------------------------- ----------------- End of Period Data Q3 Q4 Q1 Q2 Q3 9/30/11 9/30/12 -------- -------- -------- -------- -------- -------- -------- Number of Facilities SNF Owned 12 13 14 18 21 Leased 11 12 12 12 12 VIE 5 5 5 5 5 Managed 3 3 3 3 3 ALF Owned 6 7 8 8 8 VIE 1 1 1 1 1 Managed 0 0 0 0 0 IL Managed 1 1 1 1 1 -------- -------- -------- -------- -------- -------- -------- Total 39 42 44 48 51 Number of Operational Beds SNF Owned 1,241 1,337 1,436 1,947 2,311 Leased 1,262 1,342 1,342 1,342 1,342 VIE 314 314 314 314 314 Managed 379 329 329 329 329 ALF Owned 196 228 308 308 308 VIE 104 104 104 104 104 Managed 0 0 0 0 0 IL Managed 83 83 83 83 83 -------- -------- -------- -------- -------- -------- -------- Total 3,579 3,737 3,916 4,427 4,791 SNF + ALF % Owned 59.5% 59.6% 61.7% 66.6% 69.4% SNF + ALF % Leased 40.5% 40.4% 38.3% 33.4% 30.6% Revenue Mix (a) Skilled (c) 30.8% 29.9% 31.0% 29.4% 26.8% 32.0% 28.9% Medicaid 56.7% 56.9% 54.8% 55.6% 58.4% 56.0% 56.4% Private + Other 12.5% 13.2% 14.2% 15.0% 14.8% 12.0% 14.7% -------- -------- -------- -------- -------- -------- -------- Patient Days (a) Skilled (c) 24,723 29,543 32,633 34,005 35,463 68,607 102,101 Medicaid 146,203 164,723 167,486 182,087 206,034 369,394 555,607 Private + Other 20,782 25,807 28,075 31,264 36,026 46,845 95,365 -------- -------- -------- -------- -------- -------- -------- Total 191,708 220,073 228,194 247,356 277,523 484,846 753,073 Patient Day Mix (a) Skilled (c) 12.9% 13.4% 14.3% 13.7% 12.8% 14.2% 13.6% Medicaid 76.3% 74.8% 73.4% 73.5% 74.2% 76.2% 73.8% Private + Other 10.8% 11.8% 12.3% 12.8% 13.0% 9.6% 12.6% -------- -------- -------- -------- -------- -------- -------- Revenue Rates Per Patient Days (a) Skilled (c) $ 469.60 $ 430.64 $ 442.03 $ 443.46 $ 437.54 $ 453.59 $ 440.95 Medicaid $ 146.44 $ 146.99 $ 152.21 $ 156.33 $ 164.42 $ 147.65 $ 158.09 Private + Other $ 172.90 $ 167.20 $ 171.85 $ 170.56 $ 165.82 $ 189.81 $ 169.15 -------- -------- -------- -------- -------- -------- -------- Weighted Average Total $ 196.80 $ 193.34 $ 203.97 $ 207.11 $ 208.91 $ 200.85 $ 206.82 Average Daily Census (a) Skilled (c) 304 330 359 378 390 313 412 Medicaid 1,798 1,839 1,841 2,020 2,264 1,688 2,240 Private + Other 255 290 308 350 396 214 385 -------- -------- -------- -------- -------- -------- -------- Total Average Daily Census 2,357 2,459 2,508 2,748 3,050 2,215 3,037 Occupancy (a) 85.4% 82.5% 81.1% 76.5% 77.2% 86.2% 78.1% (000s) Total Revenues (b) $ 40,522 $ 45,444 $ 50,171 $ 55,005 $ 61,770 $105,908 $166,947 Adjusted EBITDAR (b) $ 4,782 $ 4,479 $ 6,266 $ 8,018 $ 8,536 $ 12,311 $ 22,822 Adjusted EBITDA (b) $ 2,845 $ 2,471 $ 4,201 $ 5,968 $ 6,456 $ 6,524 $ 16,626
(a) Skilled nursing only - excludes managed facilities
(b) AdCare consolidated incorporating discontinued operation
(c) Skilled is defined as Medicare change + managed Care RUGs
Company Contacts Boyd Gentry, CEO Chris Brogdon, Vice Chairman David A. Tenwick, Chairman of Board AdCare Health Systems, Inc. Tel (678) 869-5116 info@adcarehealth.com Investor Relations Ron Both or Geoffrey Plank Liolios Group, Inc. Tel (949) 574-3860 ADK@liolios.com