Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported)
March 1, 2018 (March 1, 2018)

Diversicare Healthcare Services, Inc.
(Exact Name of Registrant as Specified in Charter)


Delaware

001-12996

62-1559667
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)


1621 Galleria Boulevard, Brentwood, TN 37027
(Address of Principal Executive Offices) (Zip Code)

(615) 771-7575
(Registrant's telephone number, including area code)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
 
 
Emerging growth company
 
¨

 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 
¨











Item 2.02 Results of Operation and Financial Condition.
March 1, 2018, the Registrant announced its results of operation for the three-month and twelve-month periods ended December 31, 2017. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety. The information furnished pursuant to Item 2.02 herein, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(b) Wallace E. Olson, a director of the Company since 2002, passed away in November 2017. Mr. Olson formerly served as Chairman of the Board of Directors and was a member of the Audit Committee, Compensation Committee and the Governance and Nominating Committee.
William C. O’Neil, Jr., a director of the Company since its inception, has notified the Company that he will not stand for re-election at the 2018 annual meeting and will retire from the Board effective immediately after the annual meeting.  Mr. O’Neil is currently the chairman of the Compensation Committee and a member of both the Audit Committee and the Governance and Nominating Committee. The decision by Mr. O’Neil to retire is not based on any disagreement with the Company.
(d) Effective March 2, 2018, the Board of Directors increased the size of the Board from seven to eight directors, which coupled with Mr. Olson's death created two vacancies. The Board appointed Ben R. Leedle, Jr. and Leslie K. Morgan as new Directors, effective March 2, 2018, filling the vacancies.  Neither Mr. Leedle nor Ms. Morgan has any related party transactions with the Company.  Both Mr. Leedle and Ms. Morgan, along with the other directors except for Mr. O'Neil, will be presented to the shareholders for election as directors at the 2018 annual meeting of shareholders.
Ms. Morgan, age 40, is the general partner of the Olson Family Partnership, is Wallace Olson's daughter, and is the co-founder of CareAssist, Inc., a licensed personal support services agency that provides non-medical home care in Chattanooga, Tennessee.  She and her husband founded the company in 2008. Prior to joining CareAssist, Ms. Morgan was a benefits consultant with Unum and a securities associate with A.G. Edwards, both in Chattanooga Tennessee.  Ms. Morgan earned her B.S. from University of Tennessee at Chattanooga in 2002.
Mr. Leedle, age 57, is currently the CEO of Blue Zones, LLC, a health innovation company dedicated to creating healthy communities across the United States. Mr. Leedle served as Chief Executive Officer of Healthways, Inc. (now Tivity Health, Inc.) from September 2003 until May 2015. He is also engaged as strategic advisor, director, and investor for several companies including BeHealth Solutions, a digital therapeutics company, Equality Health, a health plan for disparate populations, and Health Velocity Capital, a health technology and services innovation partner to entrepreneurs and investors.
(e)    Compensatory Arrangements of Certain Officers    
2017 Bonuses
On February 27, 2018, the Compensation Committee recommended and the Board approved the payment of bonuses for the Named Executive Officers based upon the Company’s and their individual performance in 2017, as follows:
Named Executive Officer                     2017 Bonus    
Kelly J. Gill                                $ 412,080
Leslie D. Campbell                        $ 271,973
James R. McKnight, Jr.                    $ 264,420
Restricted Stock Grants
In connection with the Company’s 2017 performance, on February 27, 2018, the Compensation Committee approved the grant of restricted shares of common stock of the Company to be granted on March 13, 2018, to certain executive officers, which shares of restricted stock will vest 1/3 on the first, second and third anniversary of the date of grant.
Named Executive Officer                 Number of Shares    
Kelly J. Gill                                    25,000    
Leslie D. Campbell                           12,500
James R. McKnight, Jr.                        12,500






Item 7.01. Regulation FD Disclosure.
The Registrant is furnishing its Investor presentation update for the period ended December 31, 2017, which is also contained on its website, DVCR.com. See Exhibit 99.2 to this Current Report of Form 8-K.
Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Number        Exhibit

99.1Press release dated March 1, 2018.
99.2Investor presentation
    
    







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Diversicare Healthcare Services, Inc.


By: /s/ James R. McKnight, Jr.
James R. McKnight, Jr.
Chief Financial Officer


Date:    March 1, 2018




Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12098815&doc=4
 

   Company Contact:
      Kelly J. Gill
      Chief Executive Officer
      615-771-7575
 
         Investor Relations:
            James R. McKnight, Jr.
            Chief Financial Officer
            615-771-7575
Diversicare Announces 2017 Fourth Quarter Results

BRENTWOOD, TN, (March 1, 2018) – Diversicare Healthcare Services, Inc. (NASDAQ: DVCR), a premier provider of long-term care services, today announced its results for the fourth quarter ended December 31, 2017. The Company's revenue grew to $144.4 million, an increase of 6.9% year-over-year.
On February 22, 2018, the Board of Directors declared a quarterly dividend of $0.055 per share per common share payable to shareholders of record as of March 31, 2018, to be paid on April 13, 2018.
Fourth Quarter 2017 Highlights
Net Revenue increased 6.9% to $144.4 million in the fourth quarter of 2017 from $135.0 million in the fourth quarter of 2016, primarily due to the 22 centers acquired during the fourth quarter of 2016.
Net loss increased to $5.9 million in the fourth quarter of 2017 compared to net income of $1.4 million in the fourth quarter of 2016.
The Tax Cuts and Jobs Act enacted on December 22, 2017 resulted in a non-cash Income Tax expense of $5.5 million in the fourth quarter of 2017 to reflect the reevaluation of the Company's net deferred tax assets based on the U.S. Federal Tax Rate of 21.0%.
See below for a reconciliation of all GAAP and non-GAAP financial results.
Changes to the Board of Directors
The Company is sad to announce the unexpected passing of Wallace E. Olson, a director of the Company since 2002. Mr. Olson formerly served as Chairman of the Board of Directors and was a member of the Audit Committee, Compensation Committee and the Governance and Nominating Committee.
William C. O’Neil, Jr., a director of the Company since its inception, has notified the Company that he will not stand for re-election at the 2018 annual meeting and will retire from the Board effective immediately after the annual meeting.  Mr. O’Neil is currently the chairman of the Compensation Committee and a member of both the Audit Committee and the Governance and Nominating Committee. The decision by Mr. O’Neil to retire is not based on any disagreement with the Company.
Effective March 2, 2018, the Board of Directors increased the size of the Board from seven to eight directors, which coupled with Mr. Olson's death created two vacancies. The Board appointed Ben R. Leedle, Jr. and Leslie K. Morgan as new Directors, effective March 2, 2018, filling the vacancies.  Neither Mr. Leedle nor Ms. Morgan has any related party transactions with the Company.  Both Mr. Leedle and Ms. Morgan, along with the other directors except for Mr. O'Neil, will be presented to the shareholders for election as directors at the 2018 annual meeting of shareholders.
Ms. Morgan, age 40, is the general partner of the Olson Family Partnership, is Wallace Olson's daughter, and is the co-founder of CareAssist, Inc., a licensed personal support services agency that provides non-medical home care in Chattanooga, Tennessee.  She and her husband founded the company in 2008. Prior to joining CareAssist, Ms. Morgan was a benefits consultant with Unum and a securities associate with A.G. Edwards, both in Chattanooga Tennessee.  Ms. Morgan earned her B.S. from University of Tennessee at Chattanooga in 2002.
Mr. Leedle, age 57, is currently the CEO of Blue Zones, LLC, a health innovation company dedicated to creating healthy communities across the United States. Mr. Leedle served as Chief Executive Officer of Healthways, Inc. (now Tivity Health, Inc.) from September 2003 until May 2015. He is also engaged as strategic advisor, director, and investor for several companies including BeHealth Solutions, a digital therapeutics company, Equality Health, a health plan for disparate populations, and Health Velocity Capital, a health technology and services innovation partner to entrepreneurs and investors.






CEO Remarks
Commenting on changes to the Board of Directors, Kelly Gill, Diversicare's CEO, stated “We are deeply saddened to announce the unexpected passing of our dear friend Wally, who has been a long-time supporter of the Company and an active Board Member. Additionally, we thank Bill for his many years of service to the Company. He has been a great advocate of the Company since its inception in 1994 and we will miss his contributions to the Board. We are excited to have Leslie and Ben join the Board and are confident that their experiences and backgrounds will make both of them strong additions to our Board at this critical time for our company. We believe they will provide valuable insight as we continue to grow as a company."
Commenting on the results, Kelly Gill stated, "For the quarter we faced challenges widely seen in the industry related to skilled mix and occupancy; however, we made strides to limit the impact of these headwinds on our financial and operational performance."
Mr. Gill noted,"Our reported results for the fourth quarter of 2017 reflect a significant one-time non-cash income tax expense of $5.5 million related to the estimated impact of the Tax Cuts and Job Act on our deferred tax assets and liabilities. We anticipate the new legislation to be beneficial, and future tax savings will be invested back into the Company to strengthen current operational and financial results, as well as fund our growth."
Mr. Gill continued, "We continue to make overall progress across the Company with our quality of care outcomes measured under the 5 Star Rating System. I am particularly pleased to see an improvement in quality for the centers we acquired in 2016. As a key focus of our investment strategy, we continue to make ongoing investments in our newly acquired centers, which demonstrates our repeated ability to drive value into underperforming properties."
Mr. Gill highlighted, "Our acquisitions from 2017 and 2016 have proved to be accretive, contributing $188.2 million of revenue during 2017, and EBITDA grew by 86.2% to $19.2 million compared to 2016."
Mr. Gill concluded, "Once again I am very thankful for our dedicated and hardworking team members, who are the driving force behind the seamless transitions of newly acquired centers and the success of overall portfolio."






Other Highlights for the Fourth Quarter 2017
The following table summarizes key revenue and census statistics for continuing operations for each period:
 
Three Months Ended
December 31,
 
2017
 
 
 
2016
Skilled nursing occupancy
79.7
%
 
 
 
80.3
%
As a percent of total census:
 
 
 
 
 
Medicare census
10.6
%
 
 
 
11.4
%
Managed Care census
4.1
%
 
 
 
3.2
%
As a percent of total revenues:
 
 
 
 
 
Medicare revenues
24.7
%
 
 
 
26.9
%
Medicaid revenues
53.7
%
 
 
 
52.4
%
Managed Care revenues
7.6
%
 
 
 
6.2
%
Average rate per day:
 
 
 
 
 
Medicare
$
457.02

 
  
 
$
458.47

Medicaid
$
178.29

 
  
 
$
173.05

Managed Care
$
374.25

 
  
 
$
373.98

 
Patient Revenues
Patient revenues were $144.4 million in the fourth quarter of 2017 and $135.0 million in the fourth quarter of 2016. This increase is primarily attributable to the acquisition of Golden Living operations in Alabama and Mississippi during the fourth quarter of 2016 and Park Place during the third quarter of 2017. The following table summarizes the revenue increases attributable to our portfolio growth (in thousands):
 
Three Months Ended
December 31,
 
2017
 
2016
 
Change
Same-store revenue
$
97,294

 
$
97,827

 
$
(533
)
2016 acquisition revenue
44,764

 
37,173

 
7,591

2017 acquisition revenue
2,309

 

 
2,309

Total revenue
$
144,367

 
$
135,000

 
$
9,367

The overall increase in revenue of $9.4 million is primarily attributable to the incremental increase in revenues from the 2016 acquisitions of $7.6 million. Additionally, the Park Place acquisition in the third quarter of 2017 contributed $2.3 million in revenues. The increase from the acquisition activity was partially offset by a decrease in same-store revenue of $0.5 million which is explained in more detail below.
The average Medicaid rate per patient day for same-store nursing centers in 2017 increased 3.8% compared to 2016, resulting in an increase in revenue of $1.8 million. This average rate per day for Medicaid patients is the result of rate increases in certain states and increasing patient acuity levels. The average Medicare rate per patient day for same-store nursing centers in 2017 decreased 1.1% compared to 2016, resulting in a decrease in revenue of $0.3 million.
Our total average daily census increased by approximately 5.3% for the full portfolio compared to 2016 on a consolidated basis, but was primarily attributable to the aforementioned acquisition activity. On a same-store basis, our Medicare and Private Pay average daily census for 2017 decreased compared to 2016, resulting in decreases in revenue of $1.9 million, or 8.4%, and $1.3 million, or 13.9%, respectively. The decrease was partially offset by an increase in Medicaid average daily census resulting in increased in revenue of $0.4 million, or 0.9%.






Expenses
Operating expense increased to $116.2 million in 2017 from $106.5 million in 2016, driven by the $35.1 million in operating costs at the Golden Living nursing centers added in the fourth quarter of 2016 and $1.8 million in operating costs at Park Place added in the third quarter of 2017. Operating expense increased to 80.5% of revenue in 2017, compared to 78.9% of revenue in 2016.
 
Three Months Ended
December 31,
 
2017
 
2016
 
Change
Same-store operating expenses
$
79,312

 
$
78,500

 
$
812

2016 acquisition operating expenses
35,096

 
27,988

 
7,108

2017 acquisition operating expenses
1,777

 

 
1,777

Total operating expenses
$
116,185

 
$
106,488

 
$
9,697

The largest component of operating expenses is wages, which increased to $68.3 million in 2017 from $63.2 million in 2016, an increase of $5.1 million, or 8.0%. While wages increased overall, wages as a percentage of revenue decreased in the fourth quarter of 2017 to 47.3% as compared to 46.8% in the fourth quarter of 2016, a decrease of 0.5%.
On a same-store center basis, operating expenses slightly increased by $0.8 million, which is attributable to an increase in bad debt expense of $1.0 million, which was slightly offset by a decrease of $0.2 million in health insurance costs.
Lease expense increased to $13.7 million in 2017 from $12.4 million in 2016, an increase of $1.3 million, or 10.5%. The increase in lease expense was driven by $1.2 million from the assumption of the Golden Living centers in the fourth quarter of 2016 as a result of having a full year of operations in 2017.
Professional liability expense was $2.8 million in 2017 compared to $2.5 million in 2016, an increase of $0.3 million, or 11.1%. As centers have been acquired in 2016 and 2017, the Company has accessed commercial insurance markets, which accounts for a significant portion of the growth in professional liability expense in the current year. We were engaged in 72 professional liability lawsuits as of December 31, 2017, compared to 67 as of December 31, 2016. Our cash expenditures for professional liability costs of continuing operations were $0.5 million and $1.7 million for 2017 and 2016, respectively. Professional liability expense and cash expenditures fluctuate from year to year based respectively on the results of our third-party professional liability actuarial studies, the premium costs of purchased insurance, and on the costs incurred in defending and settling existing claims. See “Liquidity and Capital Resources” for further discussion of the accrual for professional liability.
General and administrative expenses were approximately $8.0 million in 2017 compared to $9.2 million in 2016, a decrease of $1.2 million, or 13.0%. The overall decrease in general and administrative expenses were attributable to corporate wages and payroll taxes, accounting fees and acquisition costs of $0.2 million, $0.3 million and $0.6 million, respectively.
Depreciation and amortization expense was approximately $2.8 million in 2017 and $2.2 million in 2016. The increase in 2017 is primarily due to $0.4 million in depreciation and amortization expenses related to the assumed Golden Living operations in the fourth quarter of 2016.
Gain on bargain purchase of $0.9 million was recognized in the fourth quarter of 2017 as a result of the Park Place acquisition in July 2016.
Interest expense has increased to $1.7 million in 2017 compared to $1.4 million in 2016, an increase of $0.3 million. The increase was primarily attributable to higher debt balances in 2017 as a result of additional borrowings made during the change in ownership processes for the newly acquired centers in Alabama and Mississippi, and the amendment of the term loan facility that occurred in June 2017.
As a result of the above, continuing operations reported income before taxes of $0.1 million in 2017, as compared to income of $2.2 million in 2016. The provision for income taxes was $6.1 million in 2017 and $0.8 million in 2016. The basic and diluted loss per common share from continuing operations were $0.94 and $0.94 in 2017, respectively, compared to a basic and diluted income per common share from continuing operations of $0.23 and $0.22 in 2016, respectively.
Receivables
Our net receivables balance increased $2.7 million to $64.9 million as of December 31, 2017 from $62.2 million as of December 31, 2016. The increase is attributable to the twenty-two newly leased Golden Living centers in Alabama and Mississippi.






Conference Call Information
A conference call has been scheduled for Thursday, March 1, 2018 at 4:00 P.M. Central time (5:00 P.M. Eastern time) to discuss fourth quarter 2017 results. The conference call information is as follows:
Date:
 
Thursday, March 1, 2018
Time:
 
4:00 P.M. Central, 5:00 P.M. Eastern
Webcast Links:
 
www.DVCR.com
Dial in numbers:
 
877.340.2552 (domestic) or 253.237.1159 (International)
Conference ID: 4584579
The Operator will connect you to Diversicare’s Conference Call

A replay of the conference call will be accessible two hours after its completion through March 8, 2018, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering Conference ID 4584579.
FORWARD-LOOKING STATEMENTS
The “forward-looking statements” contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictive in nature and are frequently identified by the use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. These forward-looking statements reflect our current views with respect to future events and present our estimates and assumptions only as of the date of this release. Actual results could differ materially from those contemplated by the forward-looking statements made in this release. In addition to any assumptions and other factors referred to specifically in connection with such statements, other factors, many of which are beyond our ability to control or predict, could cause our actual results to differ materially from the results expressed or implied in any forward-looking statements including, but not limited to, our ability to successfully integrate the operations of our new nursing centers in Alabama and Mississippi, as well as successfully operate all of our centers, our ability to increase census at our renovated centers, changes in governmental reimbursement, government regulation, the impact of the recently adopted federal health care reform or any future health care reform, any increases in the cost of borrowing under our credit agreements, our ability to comply with covenants contained in those credit agreements, our ability to renew or extend our leases at or prior to the end of the existing lease terms, the outcome of professional liability lawsuits and claims, our ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of proceedings alleging violations of state or Federal False Claims Acts, laws and regulations governing quality of care or other laws and regulations applicable to our business including HIPAA and laws governing reimbursement from government payors, the costs of investing in our business initiatives and development, our ability to control costs, changes to our valuation of deferred tax assets, changes in occupancy rates in our centers, changing economic and competitive conditions, changes in anticipated revenue and cost growth, changes in the anticipated results of operations, the effect of changes in accounting policies as well as others. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as in its other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors. These assumptions may not materialize to the extent assumed, and risks and uncertainties may cause actual results to be different from anticipated results. These risks and uncertainties also may result in changes to the Company’s business plans and prospects. Diversicare Healthcare Services, 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.

Diversicare provides long-term care services to patients in 76 skilled nursing and centers containing 8,945 licensed nursing beds. For additional information about the Company, visit Diversicare's web site: www.DVCR.com.
-Financial Tables to Follow-







DIVERSICARE HEALTHCARE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 
December 31, 2017
 
December 31, 2016
ASSETS:
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
3,524

 
$
4,263

Receivables, net
 
64,929

 
62,152

Current assets of discontinued operations
 
45

 
28

Other current assets
 
4,160

 
5,247

Total current assets
 
72,658

 
71,690

 
 
 
 
 
Property and equipment, net
 
69,204

 
59,800

Deferred income taxes
 
15,154

 
21,185

Acquired leasehold interest, net
 
6,691

 
7,075

Other assets, net
 
3,862

 
3,301

TOTAL ASSETS
 
$
167,569

 
$
163,051

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
 
Current Liabilities
 
 
 
 
Current portion of long-term debt and capitalized lease obligations
 
$
13,065

 
$
7,715

Trade accounts payable
 
14,080

 
12,972

Current liabilities of discontinued operations
 
461

 
427

Accrued expenses:
 
 
 
 
Payroll and employee benefits
 
20,013

 
20,108

Current portion of self-insurance reserves
 
8,792

 
9,401

Provider taxes
 
3,090

 
3,114

Other current liabilities
 
4,766

 
4,432

Total current liabilities
 
64,267

 
58,169

Noncurrent Liabilities
 
 
 
 
Long-term debt and capitalized lease obligations, less current portion
 
74,603

 
72,145

Self-insurance reserves, less current portion
 
13,458

 
11,766

Other noncurrent liabilities
 
8,779

 
9,551

Total noncurrent liabilities
 
96,840

 
93,462

 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
6,462

 
11,420

 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
167,569

 
$
163,051

 
 
 
 
 







DIVERSICARE HEALTHCARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
Three Months Ended
December 31,
 
2017
 
2016
PATIENT REVENUES, net
$
144,367

 
$
135,000

Operating expense
116,185

 
106,488

Facility-level operating income
28,182

 
28,512

 
 
 
 
EXPENSES:
 
 
 
Lease and rent expense
13,691

 
12,393

Professional liability
2,753

 
2,479

General and administrative
8,034

 
9,236

Depreciation and amortization
2,807

 
2,237

Total expenses less operating
27,285

 
26,345

OPERATING INCOME
897

 
2,167

OTHER INCOME (EXPENSE):
 
 
 
Equity in net loss of unconsolidated affiliate

 
82

Gain on sale of bargain purchase
925

 

Gain on sale of unconsolidated affiliate

 
1,366

Interest expense, net
(1,677
)
 
(1,373
)
 
(752
)
 
75

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
145

 
2,242

PROVISION FOR INCOME TAXES
(6,092
)
 
(804
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
(5,947
)
 
1,438

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
 
 
 
Operating income (loss), net of taxes
14

 
(13
)
DISCONTINUED OPERATIONS
14

 
(13
)
NET INCOME (LOSS)
$
(5,933
)
 
$
1,425

 
 
 
 
NET INCOME (LOSS) PER COMMON SHARE FOR DIVERSICARE HEALTHCARE SERVICES, INC. SHAREHOLDERS:
 
 
 
Per common share – basic
 
 
 
Continuing operations
$
(0.94
)
 
$
0.23

Discontinued operations

 

 
$
(0.94
)
 
$
0.23

Per common share – diluted
 
 
 
Continuing operations
$
(0.94
)
 
$
0.22

Discontinued operations
$

 
$

 
$
(0.94
)
 
$
0.22

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
$
0.055

 
$
0.055

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
Basic
6,295

 
6,213

Diluted
6,295

 
6,421








DIVERSICARE HEALTHCARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
Twelve Months Ended
December 31,
 
2017
 
2016
PATIENT REVENUES, net
$
574,794

 
$
426,063

Operating expense
458,122

 
342,932

Facility-level operating income
116,672

 
83,131

 
 
 
 
EXPENSES:
 
 
 
Lease and rent expense
54,988

 
33,364

Professional liability
10,764

 
8,456

General and administrative
33,311

 
30,271

Depreciation and amortization
10,902

 
8,292

Lease termination costs (receipts)
(180
)
 
2,008

Total expenses less operating
109,785

 
82,391

OPERATING INCOME
6,887

 
740

OTHER INCOME (EXPENSE):
 
 
 
Equity in net losses of unconsolidated affiliate

 
273

Gain on bargain purchase
925

 

Gain on sale of unconsolidated affiliate
733

 
1,366

Hurricane costs
(232
)
 

Interest expense, net
(6,369
)
 
(4,802
)
Debt retirement costs

 
(351
)
 
(4,943
)
 
(3,514
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
1,944

 
(2,774
)
BENEFIT (PROVISION) FOR INCOME TAXES
(6,743
)
 
1,030

NET LOSS FROM CONTINUING OPERATIONS
(4,799
)
 
(1,744
)
NET LOSS FROM DISCONTINUED OPERATIONS:
 
 
 
Operating loss, net of taxes
(28
)
 
(67
)
DISCONTINUED OPERATIONS
(28
)
 
(67
)
NET LOSS
$
(4,827
)
 
$
(1,811
)
 
 
 
 
NET LOSS PER COMMON SHARE FOR DIVERSICARE HEALTHCARE SERVICES, INC. SHAREHOLDERS:
 
 
 
Per common share – basic
 
 
 
Continuing operations
$
(0.76
)
 
$
(0.28
)
Discontinued operations
(0.01
)
 
(0.01
)
 
$
(0.77
)
 
$
(0.29
)
Per common share – diluted
 
 
 
Continuing operations
$
(0.76
)
 
$
(0.28
)
Discontinued operations
(0.01
)
 
(0.01
)
 
$
(0.77
)
 
$
(0.29
)
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
$
0.22

 
$
0.22

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
Basic
6,279

 
6,199

Diluted
6,279

 
6,199








DIVERSICARE HEALTHCARE SERVICES, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(In thousands)

 
 
December 31, 2017
 
September 30,
2017
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Net income (loss)
 
$
(5,933
)
 
$
(580
)
 
$
353

 
$
1,333

 
$
1,425

Loss (income) from discontinued operations, net of tax
 
(14
)
 
(1
)
 
28

 
15

 
13

Income tax provision (benefit)
 
6,092

 
(345
)
 
134

 
862

 
804

Interest expense
 
1,677

 
1,668

 
1,541

 
1,483

 
1,373

Depreciation and amortization
 
2,807

 
2,988

 
2,620

 
2,487

 
2,237

EBITDA
 
4,629

 
3,730

 
4,676

 
6,180

 
5,852

 
 
 
 
 
 
 
 
 
 
 
EBITDA adjustments:
 
 
 
 
 
 
 
 
 
 
Acquisition related costs (a)
 
2

 
72

 
133

 
85

 
1,492

Lease termination costs (b)
 

 
(180
)
 

 

 

Hurricane costs (c)
 

 
232

 

 

 

Gain on sale of unconsolidated affiliate (d)
 

 

 

 
(733
)
 
(1,366
)
Gain on bargain purchase (e)
 
(925
)
 

 

 

 

Adjusted EBITDA
 
$
3,706

 
$
3,854

 
$
4,809

 
$
5,532

 
$
5,978

 

(a)
Represents non-recurring costs associated with acquisition-related transactions.
(b)
Represents non-recurring lease termination receipts, net of expenses, related to the termination of Carthage, Mississippi operating lease in September 2017.
(c)
Represents non-recurring hurricane costs related to Hurricanes Harvey and Irma during the third quarter 2017.
(d)
Represents non-recurring gain on the sale of an unconsolidated affiliate in November 2016.
(e)
Represents non-recurring gain on bargain purchase related to the Selma acquisition in July 2017.
 




 






DIVERSICARE HEALTHCARE SERVICES, INC.
RECONCILIATION OF NET INCOME (LOSS) FOR DIVERSICARE HEALTHCARE
SERVICES, INC. COMMON SHAREHOLDERS TO ADJUSTED NET INCOME (LOSS)
FOR DIVERSICARE HEALTHCARE SERVICES, INC. COMMON SHAREHOLDERS
(In thousands, except per share data)
 

 
 
For Three Months Ended
 
 
December 31, 2017
 
September 30,
2017
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) for Diversicare Healthcare Services, Inc. Common shareholders
 
$
(5,933
)
 
$
(580
)
 
$
353

 
$
1,333

 
$
1,425

Adjustments:
 
 
 
 
 
 
 
 
 
 
Acquisition related costs (a)
 
2

 
72

 
133

 
85

 
1,492

Lease termination costs (b)
 

 
(180
)
 

 

 

Gain on sale of unconsolidated affiliate (c)

 

 

 

 
(733
)
 
(1,366
)
Gain on bargain purchase (d)

 
(925
)
 

 

 

 

Hurricane costs (e)
 

 
232

 

 

 

Tax impact of above adjustments (f)
 
600

 
(43
)
 
(53
)
 
(283
)
 
(1,000
)
Discontinued operations, net of tax
 
(14
)
 
(1
)
 
28

 
15

 
13

Adjusted net income (loss) for Diversicare Healthcare Services, Inc. common shareholders
 
$
(6,270
)
 
$
(500
)
 
$
461

 
$
417

 
$
564

 
 
 
 
 
 
 
 
 
 
 
Adjusted net income (loss) for Diversicare Healthcare Services, Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(1.00
)
 
$
(0.08
)
 
$
0.07

 
$
0.07

 
$
0.09

Diluted
 
$
(1.00
)
 
$
(0.08
)
 
$
0.07

 
$
0.06

 
$
0.09

 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
 
 
 
 
 
 
 
 
 
 
Basic
 
6,295

 
6,294

 
6,294

 
6,233

 
6,213

Diluted
 
6,295

 
6,294

 
6,472

 
6,440

 
6,421



(a)
Represents non-recurring costs associated with acquisition-related transactions.
(b)
Represents non-recurring lease termination receipts, net of expenses, related to the termination of Carthage, Mississippi operating lease in September 2017.
(c)
Represents non-recurring gain on the sale of an unconsolidated affiliate in November 2016.
(d)
Represents non-recurring gain on bargain purchase related to the Selma acquisition in July 2017.
(e)
Represents non-recurring hurricane costs related to Hurricanes Harvey and Irma during the third quarter 2017.
(f)
Represents tax provision for the cumulative adjustments for each period.
 





DIVERSICARE HEALTHCARE SERVICES, INC.
FUNDS PROVIDED BY OPERATIONS
(In thousands, except per share data)
 
 
Twelve Months Ended
December 31,
 
 
 
2017
 
2016
 
NET LOSS
 
$
(4,827
)
 
$
(1,811
)
 
Discontinued operations
 
(28
)
 
(67
)
 
Net loss from continuing operations
 
(4,799
)
 
(1,744
)
 
Adjustments to reconcile net income (loss) from continuing operations to funds provided by operations:
 
 
 
 
 
Depreciation and amortization
 
10,902

 
8,292

 
Provision for doubtful accounts
 
8,958

 
7,163

 
Deferred income tax provision (benefit)
 
5,997

 
(1,569
)
 
Provision for self-insured professional liability, net of cash payments
 
1,342

 
1,968

 
Stock based compensation
 
1,027

 
1,012

 
Equity in net income of unconsolidated affiliate
 

 
(271
)
 
Gain on sale of unconsolidated affiliate
 
(733
)
 
(1,366
)
 
Debt retirement costs
 

 
351

 
Provision for leases, net of cash payments
 
(936
)
 
(1,773
)
 
Lease termination costs, net of cash payments
 

 
1,863

 
Gain on bargain purchase
 
(925
)
 

 
Deferred bonus
 
761

 
350

 
Other
 
523

 
576

 
FUNDS PROVIDED BY OPERATIONS
 
$
22,117

 
$
14,852

 
 
 
 
 
 
 
FUNDS PROVIDED BY OPERATIONS PER COMMON SHARE:
 
 
 
 
 
Basic
 
$
3.52

 
$
2.40

 
Diluted
 
$
3.41

 
$
2.33

 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
 
 
 
 
 
Basic
 
6,279

 
6,199

 
Diluted
 
6,480

 
6,370

 
We have included certain financial measures in this press release, including EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations which are “non-GAAP financial measures” using accounting principles generally accepted in the United States (GAAP) and using adjustments to GAAP (non-GAAP). These non-GAAP measures are not measurements under GAAP. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We define EBITDA as net income (loss) adjusted for loss (income) from discontinued operations, interest expense, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for acquisition-related, debt retirement, lease termination and lease deferral costs. We define Adjusted Net income (loss) as Net income (loss) adjusted for acquisition-related costs, lease termination costs, lease deferral costs, debt retirement costs and income (loss) from discontinued operations. Funds Provided by Operations is defined as net income from operating activities adjusted for the cash effect of professional liability and other non-cash charges. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of deferred tax benefit and other non-cash charges.
Our measurements of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations in this press release because we believe that such information is used by certain investors as measures of a company’s historical performance. Management believes that Adjusted EBITDA and Adjusted Net income (loss) are important performance measurements because they eliminate certain nonrecurring start-up losses and separation costs. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of deferred taxes and other non-cash items. Our presentation of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

DIVERSICARE HEALTHCARE SERVICES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
Three Months Ended December 31, 2017
 
 
 




As of December 31, 2017
 
 




Occupancy (Note 2)
 
 
 
 
 
 
 
 
Region
(Note 1)
 
Licensed Nursing Beds (4)
 
Available Nursing Beds (4)
 
Skilled Nursing Weighted Average Daily Census
 
Licensed Nursing Beds
 
Available
 Nursing
 Beds
 
Medicare
 Utilization
2017 Q4
 Revenue
($ in millions)
 
Medicare
 Room  and
 Board
 Revenue
 PPD
 (Note 3)
 
Medicaid
 Room
 and
 Board
 Revenue
 PPD
 (Note 3)
 
Alabama
 
2,464

 
2,397

 
2,112

 
85.7
%
 
88.1
%
 
9.8
%
 
$
45.4

 
$
428.08

 
$
188.23

 
Kansas
 
464

 
464

 
405

 
87.3
%
 
87.3
%
 
11.6
%
 
8.0

 
439.55

 
166.82

 
Kentucky
 
1,285

 
1,281

 
1,112

 
86.6
%
 
86.8
%
 
13.8
%
 
26.8

 
472.49

 
191.22

 
Mississippi
 
1,039

 
1,004

 
895

 
86.2
%
 
89.1
%
 
12.7
%
 
19.1

 
436.77

 
184.17

 
Missouri
 
339

 
339

 
229

 
67.6
%
 
67.6
%
 
7.8
%
 
4.0

 
499.61

 
135.63

 
Ohio
 
403

 
393

 
347

 
86.0
%
 
88.3
%
 
10.7
%
 
9.5

 
498.15

 
193.18

 
Tennessee
 
617

 
551

 
440

 
71.2
%
 
79.9
%
 
11.2
%
 
9.5

 
448.08

 
181.21

 
Texas
 
1,845

 
1,662

 
1,200

 
65.1
%
 
72.2
%
 
7.4
%
 
22.1

 
511.77

 
151.75

 
Total
 
8,456

 
8,091

 
6,740

 
79.7
%
 
83.3
%
 
10.6
%
 
$
144.4

 
$
457.02

 
$
178.29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 1:
The Alabama region includes nursing centers in Alabama and Florida. The Kentucky region includes one nursing center in Indiana.
 
Note 2:
The number of Licensed Nursing Beds is based on the licensed capacity of the facility. The Company has historically reported its occupancy based on licensed nursing beds, and excludes a limited number of assisted living, independent living, and personal care beds. The number of Available Nursing Beds represents licensed nursing beds less beds removed from service. Available nursing beds is subject to change based upon the needs of the facilities, including configuration of patient rooms, common usage areas and offices, status of beds (private, semi-private, ward, etc.) and renovations. Occupancy is measured on a weighted average basis.
 
Note 3:
These Medicare and Medicaid revenue rates include room and board revenues, but do not include any ancillary revenues related to these patients.
 
Note 4:
The Licensed and Available Nursing Bed counts above include only licensed and available SNF beds.

###
 



investorslidesfy17q4
Nasdaq: DVCR Investor Update As of December 31, 2017


 
Nasdaq: DVCR Forward-looking statements made in this presentation involve a number of risks and uncertainties, but not limited to: as well as 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, 2017, 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. Forward-Looking Statements 2  the outcome of proceedings alleging violations of state or Federal False Claims Acts  our ability to increase patients served at our renovated centers  our ability to successfully integrate the operations of our new nursing centers in Alabama and Mississippi, as well as successfully operate all of our centers  laws and regulations governing quality of care or other laws and regulations applicable to our business including laws governing reimbursement from government payers  changes in governmental reimbursement  changes in occupancy rates in our centers  the impact of the recently adopted federal health care reform or any future healthcare reform  changes in anticipated revenue and cost growth and the anticipated results of operations  any increases in the cost of borrowing under our credit agreements  our ability to comply with covenants contained in those credit agreements  our ability to renew real estate investment trust leases under reasonable terms  the accuracy of our estimate of our anticipated professional liability expense  the outcome of professional liability lawsuits and claims  our ability to control ultimate professional liability costs  the costs of investing in our business initiatives and development  Our ability to control costs  the impact of future licensing surveys  the effect of changes in accounting policies  changing economic and competitive conditions  changes to our valuation of deferred tax assets


 
Nasdaq: DVCR Non-GAAP Information This presentation contains certain non-GAAP financial measures, including, EBITDA, Adjusted EBITDA and Adjusted EBITDAR. EBITDA is a non-GAAP financial measure which consists of net (loss) income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to add back non-recurring items such as (i) acquisition related costs, (ii) lease termination costs and (iii) gain on the sale of an unconsolidated affiliate. Adjusted EBITDAR is Adjusted EBITDA adjusted to add back lease expense. Our presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items. The presentation of the non-GAAP financial information is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Because non-GAAP financial measures presented in this presentation are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies. Diversicare believes that these non-GAAP financial measures facilitate making period-to-period comparisons and are meaningful indications of its operating performance. We have also presented Adjusted EBITDA in this presentation because we believe it is useful to provide investors and other users of our financial statements this performance measure to align with how management assesses our results of operations. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in the attached Appendix A to this presentation. 3


 
Nasdaq: DVCR Leading Skilled Nursing Provider Compelling Demographic Trends Management’s Strategic Vision Yielding Results Improving Patient Quality Measures, Census And Skilled Mix Demonstrated Ability To Grow And Enhance Portfolio Positively Trending Financial Results Investment Highlights 4


 
Nasdaq: DVCR • Joined Diversicare in 2012 • 20+ years of experience in the LTC industry • Previous senior leadership positions at: ‒ Golden Living • Licensed Physical Therapist • Licensed Nursing Home Administrator Executive Leadership • Joined Diversicare in 2012 • 10+ Years of senior finance positions in the healthcare industry • Previous senior leadership positions at: ‒ NuscriptRX ‒ Take Care Health Systems ‒ I-TRAX, Inc. (CHD Meridian) • Joined Diversicare in 2010 • 25 Years+ of experience in the LTC industry • Previous senior leadership positions at: ‒ Beverly ‒ Living Centers of America ‒ Skilled Healthcare • SNF – Rehab - Hospice Jay McKnight Chief Financial Officer Kelly Gill CEO, President & Director Leslie Campbell Chief Operating Officer 5


 
Nasdaq: DVCR NE CO OK LA FL (1) IA IL KS (6) OH (5)IN (1) MO (3) AR KY (13) TN (5) PA MS (9) AL (20) SC NC GA VA WV TX (13) 6 Diversicare at a Glance FY16 Revenue $426M – FY17 Revenue $575M; 34.9% Growth Currently – 76 SNFs, 1 ALF – 8,456 Licensed Skilled Nursing Beds – 10 States Headquartered in Brentwood, TN


 
Nasdaq: DVCR 7 Company Profile  Public Company since 1994  NASDAQ Listed Company Symbol: DVCR  Added to Russell Microcap Index in 2014  52 week range $8.40 – $12.25  Historically paid $0.22 annual dividend  Headquartered in Brentwood, TN


 
Nasdaq: DVCR 8 Long Term Care Industry Overview • Compelling Demographic Trends • High Quality Clinical Outcomes • Relative Low Cost of Care • Risks to the Industry and the Company


 
Nasdaq: DVCR 9 Compelling Industry Demographics Risi n g Deman d St able Su p pl y Sources: AHCA, CMS OSCAR Data and US Census Bureau, US Administration on Aging 15,000 15,500 16,000 16,500 17,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 Number of Skilled Nursing Facilities 0 20 40 60 80 100 1990 2000 2010 2020E 2030E 2040E 2050E 2060E Age 65+ Population (in millions)


 
Nasdaq: DVCR 10 • Long term care spending continues to increase ‒ Medicare and Medicaid expenditures for SNFs expected to grow 65% from 2015 to 2025 ‒ Annual spending on older adults is expected to increase 250% by 2040 Sources: Medpac and US HHS Department Compelling Industry Demographics 20.0 30.0 40.0 50.0 60.0 70.0 80.0 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Medicare and Medicaid SNF Spending (in billions) Medicare Medicaid


 
Nasdaq: DVCR 11 Relative Cost Per Case of Treatment Across Post-Acute Care Providers Sources: Medpac and US HHS Department $0 $20 $40 $60 $80 $100 $120 Stroke Hip Fracture Joint Replacement Respiratory w/ Vent Tracheotomy w/ Vent $9 $9 $11 $6 $10 $34 $34 $18 $17 $26 $31 $31 $45 $67 $115 SNF IRF LTAC SNFs are recognized as high quality, low cost provider of institutional post-acute care


 
Nasdaq: DVCR Risks to the Industry and the Company A number of risks may impact the Industry in general and the Company in particular, including litigation risks and Government reimbursement/regulation risks. Litigation Risks include: • The provision of health care services results in numerous professional liability claims. As of December 31, 2017, the Company had 72 professional liability lawsuits pending against it, many of which are substantially self-insured; thus, the Company has significant potential professional liability exposure. • The Industry is subject to extensive regulatory scrutiny and lawsuits alleging violations of the False Claims Act. The Company is currently defending an investigation relating to its therapy services arising from a false claims lawsuit and an investigation related to the completion of preadmission evaluation forms required by the Tennessee Medicaid Program. • The Company is the subject of a purported class action lawsuit against one of its former Arkansas facilities seeking damages for alleged chronic understaffing. 12


 
Nasdaq: DVCR Risks to the Industry and the Company Government Reimbursement Risks include: • In recent years, there have been initiatives on the federal and state levels for comprehensive reforms affecting the availability, payment and reimbursement of healthcare services in the United States. The Industry is subject to ongoing health care reform which is likely to continue to affect the provision of healthcare services and may require changes in the way the Company conducts its business. • The Industry, as well as the Company, is primarily dependent upon reimbursement from third-party payors, including the Medicare and Medicaid programs. Significant reductions in the reimbursements provided by these programs and other changes have been proposed that would, if implemented, negatively impact the Company’s net revenues, net income and cash flows. • The health care industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, protection of patient health information, reimbursement for patient services, quality of patient care and Medicare and Medicaid fraud and abuse. The Company must comply with these increased regulations in order to qualify for reimbursement under Medicare and Medicaid Programs. 13


 
Nasdaq: DVCR 14 Company Overview • Mature Company • Provides a full spectrum of post-acute healthcare services • Robust operating platform capable of significant growth expansion


 
Nasdaq: DVCR Investments made in internal improvements and scalability position Diversicare for external growth Launched Q3 2010 Today Expanded Focus Now On Portfolio Growth Retooling: Areas of Focus Platform Development Operational Improvement Facility Renovations Key Strategic Accomplishments 15


 
Nasdaq: DVCR Implement an Electronic Medical Record (EMR) Solution Centralization of Key Processes People – Processes – Resources Completed – Company repositioned for rapid growth Platform Development and Operational Improvements 16


 
Nasdaq: DVCR 17 Key Results and Outcomes • Improved Quality Measures • Improved patient mix and reimbursement rates • Improved operating and G&A leverage • Demonstrated growth through acquisitions


 
Nasdaq: DVCR Results for All Centers: 5 Star Quality Measures Relative to For-Profit Peer Group 18 3.95 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.0 Overall QM Rating DVCR Industry For-Profit Not-For-Profit Diversicare is an industry leader in 5 Star Quality Measures outcomes.


 
Nasdaq: DVCR A – Resulting from a 2% decrease in rates as a result of sequestration beginning April 1, 2013. Results: Rate Increases Driven By Higher Acuity • Medicare rate growth driven by acuity • 17.7% Increase from FY10 Q3 to FY17 Q4 • 4.2% CAGR 19 $380 $430 $480 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 $388 $457 Medicare Rate Per Day Medicare Rate Per Day RUGS IV Final Rule Impact A


 
Nasdaq: DVCR • Medicaid rates driven by acuity • 20.1% Increase from FY10 Q3 to FY17 Q4 • 4.7% CAGR Results: Rate Increases Driven By Higher Acuity 20 $145 $150 $155 $160 $165 $170 $175 $180 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 $148 $178 Medicaid Rate Per Day Medicaid Rate Per Day


 
Nasdaq: DVCR Results: Growth in Operated Facilities • Our ability to integrate facilities onto our platform is proven by our growth and early accretion of new facilities. • We acquired 22 facilities in the fourth quarter of 2016. • On July 1, 2017, we acquired a facility located in Selma, Alabama. 21 45 30 40 50 60 70 80 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 76


 
Nasdaq: DVCR Acquisitions are Accretive to earnings within a quarter of acquisitions date – the exceptions being development opportunities like new construction, major renovations, etc. Demonstrated Platform Scalability by successful integration of new facilities New Facility Integration, including EMR, implemented during the first quarter of operations at new facilities Results: Impact Of New Centers 22


 
Nasdaq: DVCR Results: Revenue Impact of Acquisitions 23 * For the purposes of this chart, the “same-store group” represents all centers operated by the Company prior to January 1, 2015. $- $20 $40 $60 $80 $100 $120 $140 $160 Q1 ’14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Quarterly Revenue Same-store group* 2015 Acquisitions (3) 2016 Acquisitions (22) 2017 Acquisitions (1)


 
Nasdaq: DVCR *Same-Store group represents all nursing centers acquired by the Company prior to January 1, 2016. Results: New Centers and Same-Store 24


 
Nasdaq: DVCR Results: Revenue Growth and Operating Leverage • Continued Company-wide cost reduction efforts in place o Diligent vendor management and product selection criteria o Centralized purchasing functions drive consistency through all facilities o Revenue and operating expenses increased in the fourth quarter due to the acquisition of 22 new centers 25 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% $30.0 $50.0 $70.0 $90.0 $110.0 $130.0 $150.0 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Revenue and Facility-Level Operating Profit Revenue Operating Profit (%)


 
Nasdaq: DVCR • Continued G&A reduction efforts in place o Right-sized overhead structure for new portfolio o Centralized core functions to leverage skilled teams • Savings from G&A reductions funded strategic investments Results: G&A Leverage 26 A –G&A expenses increased in the third quarter of 2016 due to preparation for our acquisition activity of 22 centers in the fourth quarter. A 5.6% 5.0% 6.0% 7.0% 8.0% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 G&A Expense as a % of Revenue


 
Nasdaq: DVCR 27 Current Areas of Focus • Continuous quality improvement • Enhancing existing portfolio • Growth through accretive acquisitions


 
Nasdaq: DVCR Continuous improvement of Quality Measures Continue to drive volume of patients served Improve skilled mix / provide high-acuity services Ongoing renovations of existing facilities Continue to Enhance Existing Portfolio 28


 
Nasdaq: DVCR Achieved goal of doubling the size of the Company in 3 years Target: 5-10 new facilities per year Active acquisition pipeline Expanded operating infrastructure = Scalability Structure flexibility = Several sources of financial capacity Portfolio Growth 29


 
Nasdaq: DVCR • Full Ownership Of Assets • Participate In Value Appreciation • Enhance Facility Ownership Fee-Simple Acquisitions • Minimal Capital Required • Leverage Turnaround Capabilities • Leverage Strong REIT Relationships Assumption of Long-Term Operating Leases 2010 Today 20% 24% 80% 76% Flexible Structure Broadens Pipeline 30 Acquisition Types


 
Nasdaq: DVCR 31 Summary • Improved operational and financial results • Attractive investment dynamics • Repositioned for the future


 
Nasdaq: DVCR Key Financial and Operating Statistics 32 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Average Daily Census 6,740 6,854 6,749 6,770 6,402 Total Average Daily Census – Medicare & Managed Care 988 994 1,053 1,065 938 Skilled Mix % 14.7% 14.5% 15.6% 15.7% 14.6% Occupancy (Available Beds) 83.3% 84.7% 83.5% 85.5% 85.9% Medicare Rate Per Day $457.02 $455.95 $453.02 $451.26 $458.47 Medicaid Rate Per Day $178.29 $176.26 $173.92 $173.75 $173.05 Revenue (Millions) $144.4 $146.4 $142.6 $141.5 $135.0 Facility Level Operating Profit $28.2 $28.3 $29.4 $30.8 $28.5 G&A % of Revenue 5.6% 5.5% 5.8% 6.3% 6.8% Net Income (Loss) $(5.9) $(0.6) $0.4 $1.3 $1.4 Adjusted EBITDAR $17.4 $17.6 $18.6 $19.3 $18.4 Adjusted EBITDA $3.7 $3.9 $4.8 $5.5 $6.0


 
Nasdaq: DVCR Leading Skilled Nursing Provider Compelling Demographic Trends Management’s Strategic Vision Yielding Results Improving Patient Quality Measures, Census And Skilled Mix Demonstrated Ability To Grow And Enhance Portfolio Positively Trending Financial Results Investment Highlights 33


 
Nasdaq: DVCR Appendix A: Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR 34 (a) Represents non-recurring costs associated with acquisition-related transactions. (b) Represents non-recurring lease termination receipts, net of expenses, related to the termination of the Carthage, Mississippi operating lease in September 2017. (c) Represents non-recurring hurricane costs related to Hurricanes Harvey and Irma during the third quarter 2017. (d) Represents non-recurring gain on bargain purchase related to the Selma acquisition in July 2017. (e) Represents non-recurring gain on the sale of an unconsolidated affiliate sold in November 2016.