AdCare Health Systems, Inc., 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

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