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 from the quarter later in our call. To begin my comments this morning, I am pleased to report another very good quarter that built upon our historical performance.

This marks our fifth straight quarter of positive net income from continuing operations. The second quarter of 2014 was strong compared to the trend over the past several years and this quarter matches up well with it.

In a broader sense, this quarter’s results continue our momentum of improved profitability, resulting from accretive growth and consistent operational leadership over the past couple of years. These periods represent the two best quarters of financial performance for the company since 2011.

And we are pleased to report that the results of our strategic activity show many favorable outcomes which are contributing to our performance. Our acquisitions are performing well, contributions from our same-store centers remain steady and even have improved slightly.

We’ve managed to scale our G&A expenses well with our growth and this metric has stabilized as a percent of revenue. And we continue to deliver industry leading quality metrics.

These results are a testament to our operations team who did an outstanding job of delivering solid financial results despite a slight softening of occupancy and skilled mix. As a result, our facility level operating income for this quarter is at an all-time high.

As I mentioned, Diversicare continues to demonstrate industry leading quality measures outcomes. Our most recent QM composite score is 3.87, compared to our industry peer group of 3.39.

Likewise under this ranking system, 64% of our facilities are either four or five stars in quality measures compared to our peer group of 51%. Now, to provide additional detail on our financial performance.

Revenue grew in the quarter to $96.3 million, which represents a 17% increase year-over-year. This includes revenue growth in both our same-store and newly acquired centers including the first full quarter for our two most recent acquisitions that came on board February 1st.

These two facilities contributed $3.1 million of revenue in the quarter and we look forward to their positive contribution for the remainder of the year. As I mentioned, our occupancy and skilled mix were down slightly from prior years, however, we continue to see improvement in our rates, both from our same-store group as well as our acquisitions.

This is a reflection of our success in attracting higher acuity patients which is something we have emphasized as a significant component of our strategic focus. Our facility level operating margin for the second quarter continued to improve and was 20.4%.

It’s worth noting that this is now the second time our facility margin has been above 20% in the last three and a half years, which is a reflection of the strength of the portfolio as a whole. Operating expenses as a percent of revenue are 79.6% and the stability of this trended metric is very good.

Therefore, this provides us with a good sense that our improved earnings are coming from the top-line as opposed to further expense reductions. We’re gratified that the execution of our strategic plan has played out well over the past couple of years.

And as we have matured as a company, two things have become apparent. The first is that the success that we are seeing gives us confidence that our strategic plan remains viable and relevant.

The second is that the discipline we have displayed, in selection of our newly acquired centers, has resulted in meaningful benefit to the company in many ways. In addition to our improved financial position, we are now more geographically diverse which lends itself well to support expansion into new markets and in approved risk profile.

Therefore we feel rewarded for the careful and prudent selection process we have followed so far and we remain committed to growing our portfolio in a similar and thoughtful manner. I want to spend a moment talking about our industry and the pricing for potential acquisitions.

It has become fairly common knowledge that the current low interest rates are fueling an increased buying demand that has resulted in unusually high acquisition multiples, not seen in the industry in memorable history. From our perspective, however, the increasing complexity of the reimbursement and regulatory environment will likely continue to be a catalyst to drive increasing numbers of motivated sellers.

While valuations have generally risen, we remain committed to our thoughtful approach to potential acquisitions and continue to focus our efforts on developing new and improved prospecting strategies that we believe will lead us to quality deals. Internally, we have a team dedicated to identifying attractive acquisition opportunities that meet our investment criteria.

This is the same team who contributed to our acquisition success so far. Now with that, I’ll turn the call over to Jay.

Thank you, Kelly. In the second quarter, our revenue increased by $14 million or 17% to $96.3 million.

The facilities we added during 2014 and 2015 contributed $11.5 million of this increase. Revenue at our same-store facilities increased $2.5 million or 3.2%, primarily driven by favorable rates.

At the operating expense line, our facility level operating margins as a percentage of revenue were 20.4% compared to 21.4% in the second quarter of 2014. As Kelly mentioned, this is one of the best overall quarters we’ve seen in the past few years.

Total operating expense increased by $12 million or 18.5% compared to last year. This increase was commensurate with our overall revenue growth.

Our professional liability expense for the quarter was $1.9 million, an increase of $370,000 compared to the second quarter of 2014. While we experienced a slight increase year-over-year in this historically volatile expense item, we continue to believe our facility portfolio has an improved risk profile as a result of the extensive portfolio restructuring.

General and administrative expenses were essentially flat as a percentage of revenue. Total G&A increased from last year by $960,000 on a $14 million revenue improvement to $6.3 million.

Our lease expense continued to decrease as a percentage of revenue from 7.6% 7.4%. In absolute terms though, lease expense increased $935,000 million to $7.2 million, reflecting the additional lease costs associated with the newly added facilities in 2014 and 2015.

EBITDA for the quarter was $4.3 million compared to $4.4 million in the second quarter of 2014. While EBITDA was down slightly year-over-year, these two quarters represent the highest level of quarterly EBITDA that we generated in this company since we launched our strategic initiatives.

For the quarter, net income attributable to shareholders was $508,000 or $0.08 per share, compared to $1 million or $0.16 per share last year. Adjusted EPS accounting for acquisition-related costs and discontinued operations was $0.14 per share in the second quarter compared to $0.17 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 to $6.2 million -- have grown $6.2 million to $47.5 million at the end of the second quarter compared to $41.3 million at the end of 2014.

The increase is largely a result of the change in ownership process for the buildings we assumed operations for during 2014 and the two buildings we’ve added so far in 2015. Accordingly, we had $11 million outstanding on our revolver at the end of quarter, compared to $8.4 million of outstanding CHOW receivables.

Not included in the CHOW receivables is in excess of $2.5 million due from the State of Kentucky that as a result of their delaying Medicaid payments for the month of June, which is consistent with the state-wide cash management program at the end of its fiscal year. Subsequent to the end of the quarter, these payments were received.

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

Thanks, Jay. I’m very proud of our results and firmly believe our strategic initiatives have helped us create a company that will continue to deliver solid performance.

Before we conclude the call today, I’d like to reflect on some year-to-date results. Our revenue has grown by $31.4 million or 20% over the first half of 2014; EBITDA of $7.1 million compares favorably to $6.2 million for the prior year; and G&A expense as a percent of revenue dropped to under 6.5%.

I’m also pleased to announce that we will be presenting at the Sidoti Micro-Cp Equity Conference on September 2nd. The culmination of our strategic initiatives has laid the foundation for Diversicare and this is yet another opportunity to share our story with the investing public.

As always, none of our success would be possible without the hard work and dedication of our over 6,000 members of the Diversicare family. With that that concludes our call today.

Now open the call for questions.

Thank you, operator. I just want to once again thank all of you for joining our call today.

We appreciate your interest and we look forward to sharing our results with you in the future. Thanks so much.