Alerislife Inc (ALR) 2017 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Five Star first quarter 2017 Financial Results Conference Call. (Operator Instructions) Please also note that today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Brad Shepherd, Director of Investor Relations. Sir, please go ahead.

Thank you. Welcome to Five Star Senior Living's Call covering the First Quarter 2017 Results. The agenda for today's call includes: the presentation by Bruce MacKey, President and CEO; Rick Doyle, CFO and Treasurer; and Scott Herzig, Chief Operating Officer. Following this presentation, the management team will open the floor to a question-and-answer session. I would like to note that transcription, recording and retransmission of today's conference call is strictly prohibited without the prior written consent of Five Star.

Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on Five Star's present beliefs and expectations as of today, Friday, May 5, 2017. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period. Actual results may differ from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

I will now turn the call over to Bruce.

Thanks, Brad. And thanks, everyone, for joining us on our First Quarter Earnings Call. The first quarter results were very similar to those we reported for the fourth quarter of 2016, as EBITDA grew slightly from the fourth quarter by 2.4%. While overall occupancy was down by 30 basis points sequentially, which was consistent with the industry trend, we were able to increase overall revenue by the same percentage.

Overall, Senior Living room and board revenues were down approximately $500,000 or just under 20 basis points compared to last year. Swift revenue was down 50 basis points, while assisted living, and independent living and continuing care retirement community revenue was nearly flat compared to the prior year. These decreases are direct results of the 150 basis points decrease in our owned and leased community occupancy, which is magnified by a harsh of flu season compared to last year as well as new supply coming online in many of our markets. Our rate increases, however, we're largely able to offset the revenue lost to occupancy.

Our initiative that aims to add ancillary services that complement our existing Senior Living operation, such as rehabilitation and wellness and home health services, showed good growth this quarter, approximately $850,000 in incremental ancillary service revenue, or a 6% increase compared to the first quarter of last year.

The result of this was total consolidated senior living revenue being up slightly this quarter by approximately $400,000 or 10 basis points compared to the same quarter last year.

In the third quarter of 2016, I introduced a list of 6 initiatives, design of improve occupancy in cash flow from our senior living communities. Each of these initiatives is progressing as we'd hoped. Including the revenue-generating ancillary business I just mentioned. You will have updates on some of the others from Rick, Scott and I throughout this call.

Moving to our capital deployment activity in the first quarter. We spent about $18 million in capital expenditure this quarter, which is about 25% more from the prior quarter. 56% of what we spent on our lease communities was sold back to senior housing.

Our largest investment in the quarter was in our least CCRCs, where we spent over $8 million. The last 2 quarters, we've shown a significant increase in dollar invested into our CCRCs. We will continue to invest capital into our communities to ensure that they will be able to compete with all the new supply that is coming online into our market.

One of the larger initiative, and thus a large piece of the capital investment at our CCRCs is the Rehab to Home program that we introduced last year and continue to talk about.

This initiative accounts for roughly 1/3 of the entire CapEx, we're investing into our CCRCs. We have 3 projects currently under construction in Indiana, Ohio and Arizona that we expect to open in the second quarter.

Since the launch of this initiative, we have opened 125 units in 5 communities.

We continue to evaluate expansion projects for take advantage of the opportunities in certain markets and find growth internally. And the remainder of 2017, we'll be breaking ground on expansion projects at communities in Delaware and Tennessee, where we'll be adding independent living and memory care units. We're also looking at other expansion projects in California, which should add memory care units at 2 communities.

I would now like to turn the call over to Scott Herzig, Five Star's Chief Operating Officer to talk about operations.

Thank you, Bruce. Total occupancy for the first quarter at our owned and leased Senior Living communities was 83.6%, down from 83.9% sequentially and 85.1% year-over-year. Occupancy at our managed committees was 86.0% in the first quarter. Our marketing efforts including focusing on driving people to our own website and ensuring our sales teams are able to articulate the benefits of living in a Five Star senior living community showed promise during the first quarter.

Total move-ins to the first quarter were robust and we actually had our largest number of move-ins ever as a company during March of this year, where total move-ins were up 5% this quarter compared to the first quarter of last year. Unfortunately, the effects of an earlier than normal onset of the flu season, which was more severe and lasted longer than the years passed, caused move-outs to the outpaced move-ins during the quarter, led by a 3% larger number of death this year than last. And although, move-in numbers were relatively strong for the quarter, we continue to see about 1/3 of our units impacted from new units and new competition coming online within 5 miles of our communities, according to the NIC data. We are, however, confident that our approaches to resident programming, continued investment in our communities and selling our experience and reputation as Premier Senior Living providers will pay dividends over the long-term.

Turning now to our rehab and wellness division. Our rehab and wellness division, although a small part of Five Star story, produced $5.6 million in ancillary revenue for the first quarter. During the first quarter, we opened 4 outpatient rehab clinics, bringing our total number of outpatient clinics to 81. As we mentioned on our last call, we are on-track to expand our outpatient clinic operations to non-Five Star communities in 2017. And in fact, we anticipate having our first non-Five Star affiliated customers online by the end of Q2.

And one final update on our electronic medical records initiative. We are on scheduled for the continue rollout and adoption of the PointClickCare product in our skilled nursing communities.

As a reminder, being electronic with our medical records, allows us to more easily share our outcomes with referral sources, improves communications with physicians, reduces medication and transcription errors and is key to participation in all of the organized health care programs. Our plan is to be fully electronic with all medical records in all 70 of our skilled CCRC units and our free-standing skilled communities by the end of 2017. I will keep you updated on our progress on subsequent earnings calls.

I will now turn the call over to Rick Doyle, our Chief Financial Officer.

Thank you, Scott, and good morning, everyone. For the first quarter 2017, our Senior Living revenues increased approximately $400,000 to $280.1 million compared to the same period in 2016. The increase relates to an increase in average monthly rates and increase in our ancillary services revenue, such as rehabilitation and wellness. And from the 2 additional communities, we began leasing in the fourth quarter of 2016. These positive impacts were largely offset by the decrease in occupancy year-over-year.

Our management fee revenues were at $3.6 million for the first quarter, an increase of 27% compared to the same period last year. This increase is due to the renegotiation of management fees with SNH for 17 managed committees in June 2016, and the addition of 8 new managed committees in 2016. Senior Living wages and benefits for the quarter were $136 million or 48.6% of Senior Living revenues, this represents only 10 basis point increase compared to the same period in 2016.

It demonstrates that our wages and benefits are well controlled. We continue to see wage pressures in some of our markets, while Senior Living employees are not typically minimum-wage workers, they mandated minimum wage increases affect labor cost overall. Combine this with the added challenge of keeping quality talent in-house and away from new competitors, we feel our team has done a tremendous job at keeping these expenses in check.

Five Star has long-standing processes and systems in place to monitor labor and over time, and our team will continue to use these to help control labor cost. Other Senior Living operating expenses for the quarter were $73 million or 26% of Senior Living revenues, this is an increase of approximately $3.5 million or 5.1% compared to the same period in 2016 and an increase of $1.3 million or 1.8% sequentially.

Insurance expense was up approximately $1 million both year-over-year and sequentially, due to a true-up in our liability insurance reserve. The reserve was increased due to larger than expected claims experience.

Another 1/3 of the increase in operating expenses from the prior year relates to increased repairs and maintenance and turnover cost at our communities. The first quarter of 2016 was abnormally low than the average of these costs. Cost such as, weather-related expenses in unit, turnover expenses can be unpredictable. Other expenses that contribute to the year-over-year increase, where expenses related to consulting contracts, as we begin to implement the electronic medical records in our communities with skilled nursing units and an increase in property taxes due to higher assessment at certain properties.

We are still progressing on our strategy to control operating cost across the entire portfolio. In 2017, our goal is to continue to consolidate some of national contracts partnerships and continue to leverage our scale. General and administrative expenses were at $19.5 million for the quarter, and were 5.2% of total revenues under management, including all revenue for communities we own, lease, and manage. The increase in G&A is primarily due to increases in certain purchased services and professional fees.

Rent expense for the quarter was $51 million, an increase of 2.3% compared to the same period last year, and 18% of Senior Living revenues. The increase primarily relates to an increase in the number of lease communities due to the 2016 sale-leaseback transaction. Our leasing of 2 additional communities in the fourth quarter 2016 as well as the additional rent related to capital improvements we sold to SNH since January 2016.

Interest expense for the first quarter was $978,000, a decrease of 35% compared to the same period last year. The decrease is a result of the repayment of our outstanding borrowings under our credit facility. We reported a loss from continuing operations of $0.14 per share, compared to a loss from continuing operations of $0.05 per share for the same period in 2016. Adjusted EBITDA for the first quarter 2017 was $3.8 million.

Turning now to our liquidity, cash flows and selected balance sheet items. At March 31, we had $13.7 million of cash and cash equivalents and no borrowings outstanding on our $100 million secured revolving credit facility.

The credit facility is secured by 10 of our own senior living communities. At quarter end, we had $353 million of net property and equipment, which includes 26 communities directly owned by Five Star, 6 of which are unencumbered by mortgage debt. The carrying value of these mortgages are approximately $50 million, with the weighted average annual interest rate of 6.3% at a weighted average term of 6 years. We have no maturities prior to June 2018. Our leverage was 27.5% of total book capital and 11.9% of total assets. We believe, that we are on compliance with all material terms of our credit facility and mortgage agreements.

With that, I'll turn the call back to Bruce for closing remarks.

Thanks, Rick. The first quarter of 2017 was once again, a challenge quarter for us and for our industry. Competition will continue to be fierce from new communities throughout the rest of 2017.

However, I'm confident that we have built an excellent foundation, which to grow over the coming years. Our balance sheet remains strong and will be a source of growth for us. We continue to invest in our communities, and I'm confident that our people and customer programming will give us a competitive edge in the coming years.

I will now turn it back over to the operator for questions.

(Operator Instructions) And our first question today, comes from Brian Tanquilut from Jefferies.

Jason Plagman on for Brian. First question, the occupancy in the owned communities looked a little weaker than the other segments. Anything you'd call out as driving that performance?

Nothing I tell overall. I mean, we do have and we talk about on future -- our own tasks calls rather, our Indiana communities that were converting from independent living to assisted living. I can't think of anything overall that drove that down more than the other communities, other than the normal stuff we saw in the industry.

Okay, and as far as the M&A opportunities, you have mentioned that on a couple -- in the last few calls, I think. What do you see in there? And your interest level and capacity for M&A over the course of the next year or 2?

Sure, great question. We definitely have capacity. I think we built a really good platform from a corporate and regional perspective to take on new acquisitions. The additional management opportunities, leaseholds or communities on our balance sheet, so we have the appetite for it. What we're seeing right now, it's been slow in the M&A fronts, there's nothing really in the pipeline right now. We do look at a lot of deals, but most don't fit our criteria of being private pay, well-run communities in markets that we operate in. So we're pretty selective of what we take on. But you know, we've had close start to the year, last year was the slow start and we ended up taking on 10 additional communities. So it's really tough to play out how to 2017 will look.

And then on the rehab and wellness business. How many communities in your portfolio would you say are candidates for that offering? And how quickly could you continue to add locations in that business?

Great question. This is Scott here. So we've got 81 communities currently with the clinics inside them at this point, we're on pace for our plan to add 15 more this year. So we think we've got the ability to do more, we probably have another 20 in our own portfolio that makes sense at this time to look at, and we'll continue down that road to see if it make sense to add them. The key on that whole thing is the staffing component. Are they in areas where we have the ability to staff it properly? And that's currently what we accessed laid out the gate, but we think we have the ability to add more and will probably look to do that.

I think, another interesting thing about that is with our acquisition program that we had going over the years. Communities that today in the Five Star portfolio that might not be a candidate for rehab and wellness, become a candidate as we acquire additional communities in that area. So I think that's going to be a great thing for us.

And one more thing, and as I mentioned earlier in the comments. We're looking outside the Five Star family of buildings to grow that business too. And we are online and ready to go with our first business outside of Five Star and we hope to have that completed by the end of the second quarter.

Great. And is there any incremental G&A or overhead to grow that business? Or that's just at the community level? It looks like it offers pretty attractive margins based on what the cost that you disclosed for that business.

Yes, it's not much and we already have a presence in most of the areas, where we would look to add buildings on, so it would be very minimal. You're just talking, at that point just adding rehab staff to cover, and to treat the residents that are existing. So it very minimal and the margins are decent.

(Operator Instructions) And ladies and gentlemen, at this time, I'm showing no additional question. I'd like to turn the conference go back over to management for any closing remarks.

Great, thank you, Jemmy. I want to thank you all for joining us on our first quarter earnings call. And we look forward to updating you on our progress on our future calls. Thank you.

And ladies and gentlemen, with that we will conclude today's conference call. We do thank you for attending. You may now disconnect your lines.