Kelly Gill - President & CEO James McKnight - CFO

Brooks O'Neil - Dougherty & Company

Thank you, operator. Good morning and thank you all for joining our call today.

Also with me is our Chief Financial Officer, James McKnight who will provide some financial details later in the call. At this time last year I reviewed our results for 2013 which was a challenging but transformative year for the company.

However I also expressed my belief that we had positioned ourselves for profitable growth as a result of the number of significant changes we made throughout the organization. Now on this call today I'm pleased to report not only on our fourth quarter earnings but also the results of our 2014 activities as a whole.

First starting with our fourth quarter results, at the top line we reported revenues of 94 million, an increase of 24% year-over-year while this increase was largely driven by our portfolio growth we also had organic growth within our same store group resulting from favorable rates and census and mix compared to the prior year. Growth in revenue from the same store group accounted for 4.2 million, an increase of over 7% from the same period in the prior year.

We continue to see positive results in our facility level contribution as a percent of revenue which improved to 19.9% from 19.3% of revenue in the fourth quarter of last year. This demonstrates our ability to integrate a significant number of new facilities while remaining focused on improving the results of our same store group of facilities.

So overall the combination of our profitable revenue growth at newly added facilities and our same store group generated meaningful year-over-year improvements in our earnings. In 2014 our operating profit was 1.9 million versus the loss of 300,000 last year and our earnings per share from continuing operations improved to $0.11 compared to a loss of $0.18 last year.

Now quickly I want to mention the two newest additions to our portfolio. On February 1st, we purchased a facility in Glasgow Glasgow, Kentucky and assumed operations of another facility in Hutchinson, Kansas.

The new Kansas facility is a lease with an option to purchase after the first year of operations. We expect these facilities to contribute revenues in excess of 9 million annually and to be accretive to earnings in 2015.

We now open 14 of our 54 facilities or 26% and have purchased options on two of the remaining leased facilities. With the addition of these two facilities we’re already off to a great start in 2015.

With that I turn the call over to Jay.

Thank you, Kelly. At the top line our reported revenue increased by 18.1 million or 23.9% to 93.7 million for the fourth quarter.

Off this increase our facilities acquired during 2014 contributed 11.8 million. The 10 facilities we acquired during 2013 also contributed 2 million in incremental revenue over last year's fourth quarter.

Revenue at our same store facilities increased 4.2 million or 7.2% on favorable skilled mix, increased census and general rate increases. Our operating expenses improved as a percentage of revenue to 80.1% for 20.14 compared to 80.7% for 2013.

The total operating expenses increased 14 million or 23% compared to last year. This increase was commensurate with our overall revenue growth as demonstrated through our expanded operating leverage.

Our professional liability expense for the quarter was 1.9 million, an increase of 400,000 from 2013. While we experienced a slight increase year-over-year in this historically volatile expense item we continue to believe that our facility portfolio has an improved risk profile as a result of our extensive portfolio restructuring including the strategic exits from West Virginia and Arkansas as well as the entry into new and more favorable states.

It's important to remember that a portion of this increase is from the premiums paid for commercially purchased professional liability insurance. General and administrative expenses decreased as a percentage of revenue from 6.8% for Q4, 2013 to 6.5% for Q4, 2014.

Total G&A increased from last year about 885,000 to 6.1 million on an $18.1 million revenue improvement demonstrating the continued operating leverage we’re generating against our corporate infrastructure. While there was an overall increase in lease expense as a percentage of revenue lease expense decreased from 7.9% to 7.5%.

In absolute terms, lease expense increased by 21% to 7.1 million reflecting the additional lease cost associated with newly added facilities in Kentucky, the three facilities added in Missouri, two facilities added in Ohio and a facility added Alabama. EBITDA for the quarter was 3.8 million compared to 1.5 million in the fourth quarter of 2013.

For the quarter, the net income attributable to shareholders was $505,000 or $0.08 per share compared to a loss of $678,000 or $0.11 per share last year. While the focus of today's call is on our quarter's results, I would like to discuss a few comparisons for the full year 2014 compared to 2013.

Revenue grew 32% or 84 million year-over-year. EBITDA for 2014 was 13.1 million, an improvement of 14.6 million over 2013.

Earnings per share from continuing operations improved from a loss of a $1.26 to $0.21 for the year. All-in earnings per share for 2014 was $0.75 compared to a loss of a $1.51 for 2013.

Finally I would like to make a couple of brief comments on our balance sheet before Kelly's closing remarks. Receivables have grown 8.6 million to 41.3 million at the end of the year compared to 32.7 million at the end of 2013.

The increase is largely the result of the change of ownership process for six of the buildings for which we assumed operations during the year. While all of the required information is being submitted to the regulatory authorities, by the end of the year we have not received our approvals and therefore we are unable to bill for our Medicare and Medicaid services for these six facilities.

However, over the past several weeks we have received some of our approvals and will likely begin billing for all these services very soon. Accordingly we had 4.5 million outstanding on our revolver at year-end compared to 5.5 million of outstanding CHOW receivables.

As we continue to grow the acquisitions we expect to continue to have unbilled CHOW receivables and outstanding revolver balances. That concludes my review of our fourth quarter financial results.

I will now turn the call back over to Kelly for some concluding remarks.

Thanks, Jay. As I reflect back on 2014 this has been a rewarding year for the entire Diversicare team and for me personally and I would like to take a moment to walk you through the significant highlights over the past couple of years.

Since beginning our acquisitions in development phase of our strategic plan we have added 23 new facilities to our portfolio, while at the same time divesting 15 facilities in Arkansas and West Virginia. This combination of acquisitions and divestures has significantly changed the profile of our portfolio and is the primary driver of our return to profitability.

Of particular importance we completed the sale of our Rose Terrace facility as part of our strategic exit from West Virginia. We realized the gain of 7.5 million on the sale of this facility; accordingly we were able to favorably respond to Omega's right to redeem the preferred stock for $5 million thus saving the company $350,000 in annual preferred dividends going forward.

The execution of these strategic transactions are more examples of our momentum and our ability to grow and improve in all facets of the business. While we continue to see the growth and evolution of our portfolio we are also pleased to see organic growth within our same-store growth through improved census, rates and earnings and taking a high level review of our performance overall I believe we have made tremendous strides towards the strategic goals we communicated early in my tenure as CEO.

This year is tangible evidence of the outcomes results of those efforts. Likewise the improvement in our G&A leverage is particularly meaningful and I like to highlight the significant year-over-year decline in G&A as a percent of revenue from 8% to 6.4%.

Jay and I have discussed our revenue growth detail and I want to reiterate that we are encouraged by the success we have experienced specifically over the previous day quarters. Since the first quarter of 2013 we have seen an increase in revenues of more than 60% compared to the fourth quarter of 2014 with each quarter showing sequential improvement.

Finally we take great pride in the quality of care we deliver and the outcomes of these efforts are reflected in our quality measures under the Five Star program. As of December 2014 92% of our centers were rated 4 or 5 stars in quality measures compared to just 79% of the for profit peer group.

Of course none of this would be possible without the hard work and dedication of our Diversicare team members who live out our mission each and every day. So with that this concludes our comments this morning and I want to thank you for your time and we will now open the call to questions.

Could you just talk a little bit about the rate outlook for 2015 and sort of what you -- if you’ve any longer term expectations for rates that will be very helpful as well.

The good news is that a lot of our rate adjustments have already come in from prior quarters in 2014. So we will see a fair amount of stability through the early part of this year.

Like every other year it's very difficult to predict. We’re in a number of states, so on the Medicaid side there are obviously each state is dealing with their own budgets but what I take comfort in is just the long term view of our industry and I think over the long term we feel comfortable that rates will generally keep pace with our expenses.

We see that over the long haul, but in the short term it's just very difficult to predict what rates will be in any specific year or quarter and I would apply that same comment to the Medicare side. However what a fundamental aspect of our industry is that so many of our rates acuity based as well.

And so fundamental component of our plan has to been to ensure that we are delivering the highest quality care possible and continuing invest back into the high quality services such as 24 hour RN and our therapy services etcetera in order to attract higher acuity patients and from that that continues to be a driver of some component of our rates.

I noticed that you had a very -- what appeared to be a favorable trend in terms of increasing Medicare and managed care and a slight decrease in Medicaid. Do you think that can continue in 2015?

So that’s a lot of -- if you look at our rate trend I believe that that outpaces just the straight cost of living adjustments that we have seen both for Medicare and managed care and Medicaid. So within that we believe those improvements in rates do reflect the increase in the acuity profile overall of our patients and residents and so with that being said we continue to focus on attracting increasing numbers of higher acuity patients and as we’re successful with that then we expect to see the rate reflect that component of it.

I don’t know if you’re willing to talk at all about your pipeline or your expectations for adding additional facilities, obviously you’re off to a great start so far this year with the two facilities you’ve had. But could you just tell us a little bit about your sort of thoughts or expectations for '15 with regard to facility additions this year?

Sure. Again as we have commented on being able to increase the number of facilities that we have actually been able to attract and integrate on to our platform of over 60% growth in our portfolio and that comes from our ability to cultivate an active pipeline.

Now with that being said we are obviously having good success and we’re seeing accretive contributions from overall from the facilities that we have added. And what I’ve said all along is that we are certainly growth minded but we also want to reiterate that we only intend to do so responsibly and so we’re fairly selective and we’re pleased with the growth that we have seen so far not only in the number of facilities but on the accretive nature of it and so we will continue that same game plan and we don’t feel compelled to have to do deals just to do deals and where we feel like that we can continue to add and follow the same recipe if you will.

We think that there should be a sufficient supply out there to continue our growth.

Just last question and then I'm guessing a lot of the people on the call already have a good feel for this, but you mentioned in your press release that you feel you have built a scalable operating platform that can drive continued growth and improvements in quality of care. Could you just talk a little bit about where you think the platform is today and what the key elements of it are?

Absolutely, again thank you for that, because this is -- maybe it is certainly a strong capability of our company and maybe one that’s not fully understood by our investor and listening audience. But what we have really assembled here is what I believe or at least arguably is the best in class operating platform for a company of our size.

The hallmarks of our operating platform are IT systems which I will talk about but also the quality of people and the depth of skillset that we have and then the remarkable processes that have been put in place across our platform largely led by Leslie Campbell, our Chief Operating Officer. He is just doing a terrific job.

As far as the IT platform goes, what we have done is we have attracted, we have assembled best in class operating software, main significant operating domain within the company and then with that they are all based out of our Central IT platform here in the Brentwood office. The uniqueness of that is that we then have the ability to tie all of those datasets together for much broader dashboard reporting.

The significance of that is we have significant access, robust access to data which is imperative in today's operating world that we live in but also we have such uniformity in how we support each and every facility from a technology standpoint, from a process standpoint that what has now allowed us to achieve is just incredible ability for facility integration. We literally once we have installed our systems we can literally bring the facility on-board within a day and a week within large macro-system integration.

And then what that does is allow us to focus immediately on supporting our staff to deliver the best possible care and certainly and most importantly to focus directly on patient care as opposed to protracted implementation process.

Okay. Thank you, operator.

I want to thank all of you for your time today on joining us on our call. We appreciate it very much and we look forward to continuing to share our results with you in future quarters.

Thank you.