AdCare Health Systems, Inc., a leading skilled nursing and assisted living provider, reported unaudited financial results for the first quarter ended March 31, 2011.

Financial Highlights: Q1 2011 vs. Q1 2010

• Record quarter revenues, up 394% to $31.5 million
• Income from operations totaled $357,000 versus loss from operations
• Adjusted EBITDAR up 689% to a record $3.9 million

Q1 2011 Summary of Financial Results

Revenue in the first quarter of 2011 increased 394% to a record $31.5 million from $6.4 million in the same quarter a year ago. The increase in revenue was primarily due to acquisitions completed since August 2010 as part of the company’s M&A program. An increase in revenue from company’s skilled nursing and assisted living facilities that existed before August 2010 also contributed to the improvement in revenue. A more detailed discussion and analysis of the company’s performance will be available in AdCare’s Form 10-Q to be filed with the Security and Exchange Commission.

Income from operations in the first quarter of 2011 was $357,000, which compares to a loss from operations of $114,000 in the same year-ago period. The increase in income from operations was primarily due to acquisitions that substantially increased patient care revenue.

For earnings attributable to the company and its shareholders, the company recorded a net loss in the first quarter of 2011 of $765,000 or $(0.09) per share, versus net income of $410,000 or $0.05 per diluted share in the same year-ago period. The first quarter 2011 net loss included acquisition expense of approximately $148,000 and a derivative loss of $1.3 million, compared to neither occurring in the same year-ago quarter. This was offset by a gain on acquisition, net of acquisition cost of $979,000 in the first quarter of 2011. The company also experienced an increase in cash-based corporate payroll overhead costs of approximately $354,000 in Q1 2011 versus Q1 2010, as the company ramps up operations and facility integration activity related to its acquisition strategy. Total stock-based compensation in the first quarter of 2011 was $390,000, as compared to $216,000 in the same year-ago quarter.

Adjusted EBITDAR in the first quarter of 2011 totaled $3.9 million, up 689% from an adjusted EBITDAR of $496,000 in the first quarter of 2010 (see the definition and an important discussion about the presentation of adjusted EBITDAR, a non-GAAP term, below.)

Cash at March 31, 2011 totaled $9.7 million, with deposits on pending acquisitions of $1.2 million. This compares to cash of $3.9 million at December 31, 2010, with the increase of cash in the first quarter primarily due to financings and the collection of certain receivables purchased as part of an acquisition completed in 2010.

Q1 2011 Operational Highlights

AdCare assumed control effective January 1, 2011 of Mountain Trace Nursing Center, a 106-bed nursing facility in North Carolina. Mountain Trace was generating an estimated $7.8 million in annualized revenues when AdCare closed the acquisition at the end of December 2010. (See table “Summary of Closed and Pending Transactions Since Start of M&A Program,” below).

In January, AdCare appointed Boyd P. Gentry as Co-CEO. Gentry is sharing the new co-CEO position with Gary Wade, AdCares’s co-founder, president and chief executive officer, who is planning to retire from his management roles in June 2011. Upon Wade’s retirement, Gentry will become president and chief executive officer, and Wade will continue as a member of the company’s board of directors.

In March, AdCare signed a definitive agreement for the asset purchase of four skilled nursing facilities in Arkansas and the acquisition of a 10-year lease for one skilled nursing facility in Missouri. The five facilities have 506 beds in total, which generated revenues of more than $25 million in 2010. The transaction is anticipated to be immediately accretive to AdCare’s earnings when it closes, as expected, early in the third quarter.

In May, AdCare acquired two new skilled nursing centers in Georgia. The facilities have a total of 235 beds that were generating at the time of the acquisition approximately $16 million in annualized revenue.

By the end of the first quarter, the company owned or leased 16 skilled nursing facilities with 1,790 beds and six assisted living facilities with 196 units. Facilities managed by the company for third parties totaled five skilled nursing homes with 403 beds, two assisted living facilities with 139 units, and an 83-unit independent living campus.

Management Commentary

“Our record revenues in the first quarter of 2011 reflect the major contribution of our successful, ongoing M&A program,” said Boyd P. Gentry, AdCare’s co-CEO. “We also realized organic growth from our previously existing skilled nursing and assisted living facilities, which operate in market segments that increasingly represent our core business focus and greatest opportunity for revenue growth. These results reflect the gains we expect to realize across all of our facilities as we continue to leverage operational improvements, as well as maintain the aggressive pace of our acquisition efforts.”

Chris Brogdon, AdCare’s chief acquisition officer, commented: “We’ve now purchased or acquired under lease some 19 facilities since we introduced our M&A program at the end of 2009. Including the transactions we have announced and are in the process of closing, we expect our annualized revenue run-rate to exceed an estimated $175 million. This would represent an increase of more than 555% over annual revenues in 2009 when this all began. We continue to expect an EBITDAR margin with these facilities — exclusive of acquisition-related costs — to be at least 10% going forward.”

“We are currently evaluating several attractive acquisition opportunities in the southern region of the U.S., as well as around our home base in the Midwest,” added Brogdon. “We expect to announce signing a number of them over the next few months.”

Conference Call and Webcast

The company will hold a conference call to discuss its 2011 financial results later today, May 10, 2011 at 4:30 p.m. Eastern time. Management will host the presentation, followed by a question and answer period.

Date: Tuesday, May 10, 2011
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Dial-In Number: 1-877-941-8602
International: 1-480-629-9811
Conference ID#: 4439538

The conference call will be broadcast simultaneously at http://viavid.net/dce.aspx?sid=00008600 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 and ask you to wait until the call begins. 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 7:30 p.m. Eastern time on the same day and until June 10, 2011:

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay pin number: 4439538

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