Stock to Target: Diversicare Healthcare Services, Inc.’s (NASDAQ: DVCR)

Shares of Diversicare Healthcare Services, Inc.’s (NASDAQ: DVCR) closed the trading at a price of $3.99 with the positive/negative change of 7.84%. In the past session approximately 2,116 shares were exchanged against the average daily trading volume of 5,747 shares. The stock touched to the maximum level of $4.3700, and it reached the lower level of $3.7300 in past session. The stock’s market capitalization has now valued at $26.007M.

Diversicare Healthcare Services, Inc. (DVCR) recently reported its results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

  • Net loss from continuing operations was $(7.4)M, or $(1.15) per share, in the third quarter of 2018, contrast to net loss from continuing operations of $(0.6)M, or $(0.09) per share, in the third quarter of 2017. The loss in the third quarter of 2018 was mainly attributable to a litigation contingency expense of $6.4M related to an ongoing Department of Justice (“DOJ”) investigation.
  • Our adjusted EBITDA for the quarter was $3.4M, contrast to $3.9M in the third quarter of 2017.
  • Under the new Accounting Standard Codification (“ASC”) 606, net revenue was $141.4M in the third quarter of 2018. In accordance with ASC 606, revenue for the third quarter of 2017 was not restated.  Revenue for the third quarter of 2018 under legacy GAAP was $145.1M, contrast to $146.4M in the third quarter of 2017, a decrease of $1.3M or 1.0%. However, on a same store basis quarterly Revenue under legacy GAAP raised by $0.4M.
  • The Company did not declare a quarterly dividend for the quarter ending December 31, 2018.

Third Quarter 2018 Results

The following table summarizes key revenue and census statistics for continuing operations for each period:

Our average Medicaid rate per patient day for the third quarter of 2018 raised contrast to the third quarter of 2017, resulting in raises in revenue of $1.9M or 2.5%. Conversely, the average Medicare rate per patient day for the third quarter of 2018 reduced contrast to the third quarter of 2017, resulting in decreases in revenue of $0.2M or 0.8%.  Our Hospice average daily census for the third quarter of 2018 raised $1.3M or 20.6%. Conversely, our Medicare, Managed Care, Medicaid and Private average daily census for the third quarter of 2018 reduced $1.6M, $0.6M, $0.7M and $2.2M, respectively, or 5.3%, 6.2%, 0.9% and 17.9%, respectively. Our ancillary revenue for the third quarter of 2018 raised $0.6M.

Operating Expense

Operating expense reduced in the third quarter of 2018 to $113.8M as contrast to $118.1M in the third quarter of 2017.  Operating expense reduced as a percentage of revenue at 80.5% for the third quarter of 2018 as contrast to 80.7% for the third quarter of 2017.  The following table summarizes the expense fluctuations attributable to changes in our portfolio (in thousands):

Our operating expenses reduced by $0.4M, which is attributable to favorable variances in nursing and ancillary costs and dietary expenses of $0.4M and $0.6M, respectively, in third quarter of 2018 contrast to the third quarter of 2017. This was partially offset by unfavorable variances in salaries and related taxes and health insurance costs of $0.3M and $0.2M, respectively, in third quarter of 2018 contrast to the third quarter of 2017.

One of the largest components of operating expenses is wages, which raised to $69.9M during the third quarter of 2018 as contrast to $69.4M in the third quarter of 2017.

Lease expense in the third quarter of 2018 remained consistent with the third quarter of 2017 at $13.8M.

Professional liability expense was $2.9M and $2.6M in the third quarters of 2018 and 2017, respectively. Our cash expenditures for professional liability costs of continuing operations stayed consistent at $1.7M for the third quarters of 2018 and 2017, respectively. Professional liability expense fluctuates based on the results of our third-party professional liability actuarial studies and cash expenditures are incurred to defend and settle existing claims. See “Liquidity and Capital Resources” in our 2018 third quarter 10-Q for further discussion of the accrual for professional liability.

The Company recorded a contingent liability related to the DOJ investigation for $6.4M in the third quarter of 2018. The Company denies any wrong doing and is prepared to vigorously defend its actions. The Company’s ultimate ability to settle this investigation will depend on several factors, including whether the amount and terms of an acceptable settlement can be reached with the DOJ. Refer to Note 6 to the interim consolidated financial statements for further discussion.

Receivables

Our net receivables balance raised $1.0M to $65.9M as of September 30, 2018, from $64.9M as of December 31, 2017.

Net profit margin of the firm was recorded at -2.40% and operating profit margin was calculated at -0.50% while gross profit margin was measured as 20.10%. Beta factor, which measures the riskiness of the security, was registered at 0.50.

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