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

Thank you, Sabrina. Good afternoon.

And thank you, for joining Diversicare’s 2017 third quarter earnings call. Also with me is, Jay McKnight, our Chief Financial Officer, who’ll provide the financial details later in the call.

We have a few important developments to discuss this afternoon before diving into the quarter’s financial results. First, I would like to start off by discussing the impact of hurricane Harvey in Texas, and hurricane Irma in Florida, and Jay will provide information on the financial impact of the storms later in the call.

In the Houston area we have four skilled nursing centers, three of which were directly impacted by the torrential rains of hurricane Harvey. I'm pleased to report that our extensive preparation activities helped to prevent the need to evacuate these centers.

As a result, the centers had the ability to shelter in place allowing our team to remain - maintain care for our patients and residents in the center throughout the duration of the storm, which lasted several days. To provide a broader context so as to fully appreciate the magnitude of the storm, ultimately more than 90 assisted living and skilled nursing centers in the Houston area were forced to evacuate.

In Florida, where the eye of the hurricane Irma passed directly over our Wauchula center, we saw equally dramatic events and successful outcomes. Once again our advance preparation for necessary supplies and provisions, including placement of redundant emergency power and air-conditioning systems, coupled with the unwavering dedication of our team members allowed our center to shelter in place and avoid the need to evacuate.

To be fair, under severe enough conditions no amount of preparation can prevent evacuations. However, we are grateful that both these storms our proactive situations and real-time situational management allowed our residents and patients to continue to receive care in our centers.

I also cannot say enough good things about the dedication of our team members who were affected in both these incredible storms. Despite personal peril and hardships, they remained steadfast in their care of our patients and residents through incredibly trying circumstances, and in my eyes were exemplary professionals, who displayed unselfish acts of heroism throughout the duration of the storms.

Many of our dedicated team members lost their homes and all their personal possessions, and others were impacted in other significant ways. Once the storm cleared and we could assess the damage we knew that we had to take significant steps to help our team members affected by the storm to rebuild their lives.

You may have seen the joint press release by Diversicare and the Diversicare Disaster and Relief Foundation, which stated that the foundation received over $100,000 in donations to provide assistance to affected team members. Ultimately these funds were distributed to over 400 individuals in Texas and Florida, and I'm incredibly proud of the Diversicare family and how well we have demonstrated one of our most important service standards, which is we take care of one another.

Now moving on to other positive news in the quarter. You may remember from our last call that we acquired Park Place in Selma, Alabama on July 1.

I'm pleased to say that this center has been successfully integrated onto the Diversicare platform and is performing to our expectations at this stage of operations. For the quarter, revenue for this center was slightly in excess of $2.2 million, with less than $1.9 million of operating expense contributing approximately $380,000 of facility level operating income in the quarter, which is right on track with our estimates.

At the end of the third quarter, we also completed a cooperative exit of a single center in [Mississippi]. We initially assumed the operations of this center with our Golden Living portfolio, with only two years remaining on a third-party lease.

The property owner operates other skilled nursing centers as well, and had a desire to include this center in his operating portfolio. With roughly a year remaining on the lease, the owner offered a $250,000 payment to Diversicare to accelerate termination of the lease.

Therefore we recorded a payment of $180,000 net of expenses in the quarter. With the exit of this center and the acquisition of Selma we now own 18 of the centers we operate, and lease 58 for a total of 76 centers in our operational portfolio.

At the end of the quarter, we also announced that we have entered into a binding term sheet with Omega for the renewal of the facilities in our Master Lease, including the consolidation of our former Aviv leases into the new Master Lease. You may recall that Omega completed its acquisition of Aviv in April 2015.

This new lease will commence on October 1, 2018 and provides for an initial term of 12 years with two 10-year renewal options after the initial term. Other key terms also include a fixed escalator of 2.15%, and also capital support from Omega for renovations and related needs.

The initial base rent at the beginning of the lease is a continuation of the rent in the final year of each of the respective leases in existence today. Additionally, the term sheet calls for a prescribed method to be finalized in the lease that will allow us to work with Omega on the exit of certain centers over time as needs arise.

As you know, having the ability to exit certain facilities as situations change is an important part of our portfolio management strategy. Now I’d like to discuss the results of the quarter.

Total net revenue for the quarter was $146.4 million and operating expenses, as a percent of revenue, was 80.7%. Overall, our combined occupancy of available beds for the quarter increased to 84.7%, with the skilled mix of 14.5%, compared to 80.4% and 14.9%, respectively, for the same period last year.

Total weighted average rates per day were slightly soft, but still well within historical ranges. Our average Medicare room and board rate increased slightly year-over-year to just under $456, and our average Medicaid room and board rate increased $6.75 over the prior period to $176.26.

The revenue growth of $49.1 million was primarily the result of the new centers. Revenue of our same-store group of 54 canters was down slightly by $424,000 as compared to last year as a result of softer skilled mix.

On the expense side, our operating expenses as a percent of revenue decreased by 90 basis points to 80.7%. The result is that our quarterly net loss improved from a loss of $975,000 a year ago to a loss of $580,000 this year.

Finally, in a broader context, our adjusted EBITDA for the quarter, increased by 77%, and was $3.9 million compared to $2.2 million last year net of the adjusting items of acquisition and hurricane cost and the lease termination receipt. On the quality side, we continue to excel in our delivery of quality care and service to those patients and residents entrusted to us.

Our aggregate third quarter Quality Measures domain was 3.78, which was an increase from the second quarter measure of 3.57. We take pride in providing quality care and it will continue to be the top of our most important strategic priorities.

Equally important is our patients’ perception of the care and services they receive. We are proud that our results from the Patient Resident Satisfaction surveys recently conducted by the National Research Corporation, that reveal we exceed the industry average in both patient and resident satisfaction.

In fact, we score in the 90th percentile of all providers for short stay patient satisfaction over the last 12 months. With that, I’ll turn the call over to Jay.

Thank you, Kelly. Revenue increased significantly over 2016 from $97.3 million to $146.4 million, or about 50.4%.

The centers we added in 2016 contributed $47.2 million more revenue than the year-ago quarter, and our facility in Selma, Alabama contributed $2.2 million of revenue in the quarter. At the operating expense line, our facility level operating margins as a percentage of revenue improved from 18.4% to 19.3%.

Total operating expense increased by $38.7 million or 48.7% compared to last year’s third quarter. The centers we acquired in 2016 and 2017 contributed $39.2 million to this group, while the same-store group operating expense decreased by approximately $555,000.

General and administrative expenses increased by $663,000 compared to the third quarter of 2016. However, total G&A, as a percentage of revenue decreased to 5.5% in the third quarter, compared to 7.6% last year.

Our professional liability expense for the quarter of $2.6 million represents a decrease from 2% of the quarterly revenue in the prior year to 1.8% of revenue for the current quarter. Our lease expense in the quarter increased by $6.9 million from the third quarter in 2016 to $13.8 million, or 9.4% of revenue for the quarter, compared to 7.1% during the third quarter of 2016, the increase resulting from the Golden Living acquisition completed in Q4 of last year.

You will know, we had direct costs from the hurricane of $232,000. These are inclusive of our expenses to prepare for and weather the storms.

We incurred additional negative financial impact from the lost revenue that cannot be specifically measured. EBITDA of $3.7 million compared favorably to EBITDA of $1.7 million in the third quarter of 2016.

For the quarter, net loss attributable to shareholders was $580,000 or $0.09 per share compared to a loss of $975,000 or $0.16 per share last year. Finally, I’d like to make a couple of brief comments on our balance sheet before Kelly’s closing remarks.

Receivables increased $1.7 million to $63.9 million at the end of the quarter, compared to $62.2 million at the end of 2016. As you likely remember from our past deals, we go through a complicated change of ownership process for each of the centers we acquire.

For the Alabama and Mississippi centers, we are at various phases of this process with each. To date, we have not experienced any unusual or unexpected delays to this process, although it should be noted that the process is not a fast one.

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

Thank you, Jay. I’m pleased with how we held our own in a very busy and particularly challenging quarter.

As we look across the landscape of our industry, we are seeing many challenges and Diversicare continues to move forward setting a tone of leadership in our space. Our year-over-year third quarter performance has improved considerably with a 50.4% increase in revenue growth and EBITDA improvement of $2 million.

Occupancy improved considerably from 80.4% to 84.7% of available beds year-over-year, representing a positive trend. Year-to-date, our revenue has increased from $291.1 million to $430.4 million or by 47.9%.

Meanwhile, our operating expense as a percent of revenue has decreased from 81.2% to 79.4% and our year-to-date G&A expense has declined from 7.2% to 5.9%, showing good leverage of our operating base. Both of these metrics and our successful management of new center integrations demonstrate the scalability of our platform.

Lastly, our year-to-date net income of $1.1 million compares favorably to a loss of $3.2 million last year. Our mission statement is to improve every life we touch, by providing exceptional healthcare and exceeding expectations.

Through the CMS 5 Star metrics and the results of an independent satisfaction survey, it is tremendously gratifying to have objective validation of our success in performing to our mission. And once again, this is a tremendous testament to the professionalism of our staff and their commitment to providing industry-leading quality of care outcomes in a manner, which meets or exceeds our patients’ expectations for customer service.

With this perspective in mind, I’m gratified that our performance over this quarter constitutes good momentum as we progress to 2017 and look forward to the New Year ahead. I’d like to conclude by recognizing all of the Diversicare Healthcare professionals for their hard work towards demonstration of our mission statement and achievement of our goals to be a recognized industry leader.

This concludes our prepared remarks today. With that, I will call for questions.

I just want to once again thank all of you for joining our call today. We appreciate your interest in Diversicare Healthcare Services, and we look forward to sharing our results with you in the future quarters.

Thank you so much.