Kelly Gill - President and CEO Jay McKnight - Chief Financial Officer

Good morning. Thank you, Operator.

And thanks to all of you for joining our call today. Also with me is our Chief Financial Officer, Jay McKnight, who will provide some financial details later in the call.

I’d like to begin today by saying that 2015 is off to a strong start. Our solid first quarter results, build upon a progress we’ve made last year and were largely driven by continued revenue growth, improved facility margins and consistent management of our overhead expenses.

In addition to our solid financial results, we also made further progress on our commitment to expanding our portfolio with the addition of two newly acquired centers. As per the financial highlights of the quarter, our revenue grew 22% to $95 million and was fueled by a combination of portfolio additions and organic growth within our same-store group.

We generally experienced favorable improvements in our activity driven reimbursement rates, as well as in our occupancy and skilled mix, which contributed to organic growth of our same-store revenues of over 6%. We also continue to see positive results in our facility level contribution, which improved to 19.9% over 19.3% of revenue in the fourth quarter last year.

I believe this notably demonstrates our ability to integrate a significant number of new facilities, while remaining focused on improving results of our same-store group of facilities. In terms of our overhead costs, we continued to demonstrate our ability to manage these expenses to keep them in line with our revenue as we add and integrate new facilities into our portfolio.

Our G&A as a percent of revenue in the first quarter was 6.4%, which compares favorably to 6.6% a year ago. This represents our fifth consecutive quarter where we’ve held these expenses in the mid to low 6% range, which we consider normalized.

In terms of EBITDA, we generated $2.8 million in the quarter, an increase of 55% compared to EBITDA of $1.8 million a year ago. We recorded adjusted earnings per share of $0.02 this quarter compared to a loss of $0.07 a share, a year ago.

On the fourth quarter call, I mentioned the addition of two additional facilities we added to our portfolio on February 1st. As a recap, we purchased the facility in Glasgow, Kentucky and assumed operations of another facility in Hutchinson, Kansas.

The new campus 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.

Both facilities will be integrated into our existing operating footprint thereby further leveraging our existing regional operating infrastructure. We now own 14 of our 54 facilities or 26% and have purchase options on the two -- on two of the remaining leased facilities.

Finally, I want to take a moment to provide some commentary on recent legislative and regulatory matters which we view as favorable for the industry. First, CMS, recently announced the new calculation methodology and ranking structure for the five-star quality rating system which is a national and universal quality measurement system for the skilled nursing facility -- industries.

While this new rating system is viewed positively by the industry, the short-term impact is that the new rating scale demonstrably changes the scoring outcomes. Therefore historical scoring and publish trended data are no long comparable to current scoring.

Having said this, however, even under the new methodology, Diversicare continues to demonstrate industry industry-leading quality measures outcomes. Under the new system our composite score is 3.72 compared to our industry peer group of 3.27.

Likewise under the new system, 63% of our facilities are either or five stars in quality measures compared to our peer group of 48%. Secondly, last month Congress passed the so-called permanent SGR fix, which has also been referred to as the doc fix.

The good news with the passing of this legislation is that this permanent fix is expected to remove substantial risk of payment reductions for the foreseeable future and provide additional clarity to reimbursement methodologies going forward. Accordingly, this new legislation is viewed positively throughout the industry.

Lastly, the SGR fix legislation also extends the significant therapy cap exceptions process through December 31, 2017. With this new piece of legislation in place, skilled nursing providers will continue to have the ability to deliver therapy services as they have in the past.

As an additional benefit, the legislation also replaces the burdensome review methodology for claims that exceed the cap with an improved and more streamlined process. When viewed in total, these changes are expected to substantially limit the regulatory burden on skilled nursing facilities in the provision of Medicare Part B therapy services.

With that, I'll turn the call over to Jay.

Thank you, Kelly. In the first quarter, our revenue increased by $17.4 million or 22.4% to $95.2 million.

The facilities we added during 2014 and 2015 contributed $12.5 million to this increase. Revenue at our same-store facilities increased $4.9 million or 6.4% on favorable skilled mix, increased census and general rate increases.

At the operating expense line, our operating margins as a percentage of revenue of 81% in the quarter were essentially flat for the first quarter of 2014. Total operating expense increased $14.3 million or 22.8% compared to last year.

This increase was commensurate with our overall revenue growth. Our professional liability expense for the quarter was $2.2 million, an increase of $94,000 or 4% compared to revenue growth of 22% from the first quarter of 2014.

General administrative expenses decreased as a percentage of revenue from 6.6% to 6.4%. Total G&A increased from last year by $937,000 on a $17.4 million revenue improvement to $6.1 million, demonstrating the continued operating leverage we are generating against our corporate infrastructure.

Likewise, our lease expense decreased as a percentage of revenue from 7.7% 7.5%. In absolute terms, lease expense increased $1.2 million to $7.1 million, reflecting the additional lease costs associated with the newly added facilities in 2014 and 2015.

EBITDA for the quarter was $2.8 million compared to $1.8 million in the first quarter of 2014. For the quarter, net income attributable to shareholders was a loss of $258,000 or $0.04 per share, compared to a loss of $1.1 million or $0.08 per share last year.

Adjusted earnings-per-share accounting for acquisition-related costs and discontinued operations were $0.02 per share in the first quarter compared to a loss of $0.07 per share a year ago. Finally, I’d like to make a couple of brief comments on our balance sheet before Kelly’s closing remarks.

Receivables have grown $2.2 million to $43.5 million at the end of the first quarter compared to $41.3 million at the end of 2014. The increase is largely a result of the change of ownership process for the six buildings, for which we assumed operations during 2014 year and the two buildings we’ve added so far in 2015.

Accordingly, we have $7 million outstanding in our revolver at the end of quarter end, compared to $6.4 million of outstanding CHOW receivables. We added a $5 million 18-month term loan at the purchase of the facility in Glasgow, Kentucky, which is discussed in more detail in yesterday’s 10-Q filing.

That concludes my review of the quarter’s financial results. I will now turn the call back over to Kelly for some concluding remarks.

Thanks, Jay. The momentum for the company continues to build.

We are proving out our strategic model of sustained growth through acquisitions. We are also pleased that the systems and processes we’ve developed over the last several years are serving us well.

And as a result, we are seeing much more consistent financial outcomes quarter-to-quarter. All of this gives us confidence and the belief we have the right game plan to follow in order to deliver sustain shareholder value over the long-term.

However, as I stated in the past, we don’t believe in growth just for growth sake. We believe in taking a methodical approach to our growth through selective acquisitions and financing alternatives available to us.

Finally, I am reminded that the success we are seeing is a direct result of a hard work and professionalism of our incredible Diversicare team. Therefore, I would like to once again thank all of our over 6500 team members for their passion and commitment to improving the lives of those we serve.

And while I am discussing quality outcomes, another highlight that I am proud to share with you is that during the quarter 10 of our centers were named to the U.S. News and World Report's Best Nursing Homes list for 2015.

We are proud of our facilities and respected staff members that were honored with this recognition. So with that, I want to thank you for your time this morning.

We are looking forward to meeting with those of you who can attend our annual shareholders meeting on June 4th at 9 AM Central at our headquarters in Brentwood, Tennessee. With that, I will conclude and we will now open the call to questions.

Thanks, again, operator. And thanks once more to all of you for joining our call this morning.

We appreciate it very much. And we look forward to sharing our results with you of future quarters and the quarters ahead.

Thanks so much. Bye, bye.