Alerislife Inc (ALR) 2020 Q1 法說會逐字稿

Good day, and welcome to the Five Star First Quarter 2020 Financial Results Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Michael Kodesch. Please go ahead.

Thank you. Welcome to Five Star Senior Living's call covering the first quarter 2020 results. The agenda for today's call includes a presentation by Katie Potter, President and CEO; Jeff Leer, Executive Vice President, CFO and Treasurer; and Margaret Wigglesworth, Senior Vice President and COO.

Following this presentation, the management team will open the floor to a question-and-answer session with research analysts. I would like to note that the transcription, recording or 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, Thursday, May 7, 2020.

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.

In addition, this call may contain non-GAAP numbers, including EBITDA, adjusted EBITDA and pro forma EBITDA. Reconciliations of net income attributable to common shareholders to these non-GAAP figures and the components to calculate EBITDA, adjusted EBITDA and pro forma EBITDA are in our quarterly news release available on our website at www.fivestarseniorliving.com.

Actual results may differ materially 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 Katie.

Thanks, Michael, and thanks, everyone, for joining us on our first quarter 2020 earnings call. The first quarter marked the beginning of an unprecedented period of uncertainty for both the economy and the world at large. I'd like to start off today's call by expressing my overwhelming appreciation for those health care workers and first responders, including our own team members, that are on the front lines of this global pandemic.

I'm so grateful for the courage and commitment of our team members and wish them well as they continue to come to work each and every day and provide care to those who need it most. As soon as the spread of COVID-19 was confirmed in the United States, Five Star teams moved swiftly to implement numerous protocols and precautionary measures throughout our communities and clinics to safeguard the health and well-being of residents, clients and team members.

Recognizing the seriousness of the threat posed by the virus, we quickly established a cross-functional, interdisciplinary COVID-19 task force to monitor developments and facilitate ongoing dialogue between our community leaders and health care professionals across the country.

Initially, our COVID-19 task force was instrumental in ensuring that our team members called on their extensive preparation and training in infection prevention and control practices to respond to this national health crisis before it began in earnest.

Among other responsibilities, the task force continues to facilitate open and direct lines of communication between all levels of community leadership and frontline health care practitioners and caregivers as well as act as a conduit between our communities and our strategic sourcing function to ensure availability of supplies and products at our communities, including personal protective equipment or PPE.

We continue to closely follow recommendations provided by the CDC in addition to federal, state and local regulatory authorities and incorporate them into our already comprehensive policies, procedures and protocols.

All nonessential visitors continue to be restricted from entering our communities and essential visitors must adhere to strict visitation and screening protocols. We have postponed or canceled nonmedical resident outings and other social events and implemented dining restrictions. In addition, all of our communities are screening all team members before entering, enforcing social distancing and monitoring the health of everyone living and working in our communities.

As businesses began to reopen in various states, we will continue to practice vigilance with regards to our visitation, screening and social distancing protocol as well as requirements related to hand washing or sanitizing and PPE. Our COVID-19 task force is focusing on a multipronged mitigation strategy, rooted in proactive testing and contact tracing as well as robust infection control, including intensive housekeeping protocols and consistent PPE usage to enhance virus detection and reduce transmission.

In acknowledgment of the isolation being experienced by our residents as a result of these restrictions and protocols, we have developed innovative social, educational and entertainment activities for our residents to enjoy in their apartments. In addition, to support residents who may be experiencing anxiety or depression, we have made counseling available by phone or videoconference to all assisted living and independent living residents free of charge. We have also invested in technology to enable videoconferencing so that our residents may communicate more effectively with their families and loved ones.

Our management team has also benefited from this investment. While we would normally visit communities in person throughout the year, we have been conducting virtual community visits, which have allowed us to engage with community leadership and frontline team members to better understand the resident and team member experience during this difficult time.

Moving on to our results. As a reminder, the restructuring of our business arrangements with Diversified Healthcare Trust, or DHC, which occurred at the beginning of this year, principally included terminating the leases and management agreements for all senior living communities we leased from and manage for the account of DHC as of December 31, 2019, and replacing those leases and management agreements with new management agreements.

Under these new contracts, we earn a base fee of 5% of community-level revenue, a construction management fee of 3% of DHC's investment in capital projects we manage on their behalf, and the opportunity to earn an incentive fee on 2021 calendar year performance and beyond.

As of March 31, our portfolio included over 31,000 units in 268 communities, and we had 244 Ageility inpatient and outpatient rehabilitation clinics in our Rehabilitation and Wellness Services division. With our new agreements in place for the first quarter of 2020, our adjusted EBITDA was $12.4 million, an increase of $10 million compared to adjusted EBITDA of $2.4 million in the first quarter last year.

Before I turn the call over to Margaret to discuss senior living operational results, I'd like to give a brief update on our key initiatives. First, an update on our team members. As we have discussed in prior calls, Five Star's most important asset is its team members. As evidenced by the challenges of COVID-19, this is true now more than ever. The brave and selfless commitment of Five Star's team members exemplifies that recruiting and retaining the best talent benefits all levels of the organization. It is critical that we continue to provide our team members with the tools necessary to successfully navigate this challenging time, including enhanced training and development programs as well as a vast platform of readily available resources. In return, our team members are reframing challenges as opportunities, executing with excellence and growing and fostering a culture of accountability, transparency and innovation.

Furthermore, as part of our initiative to bolster our current labor force, we continue to make strategic new hires, both in our communities and at the corporate level. Our team member-focused initiatives continue to build traction and have resulted in further improvements to company-wide team member turnover. We do expect turnover to increase as a result of the nature of this pandemic. However, we are encouraged by the level of interest of prospective team members who wish to serve our residents and clients and pursue exciting and rewarding career opportunities at Five Star.

We remain focused on providing an exceptional resident experience in our communities through our internal operational excellence framework. Founded on the operational best practices outlined in the J.D. Power Senior Living Community Certification Program, our operating standards continue to evolve with the intention of providing our community leadership with a framework for decision-making that enables a focus on what is most important: their residents and team members.

Ageility, our rehabilitation and wellness services division, continues to be a focal point of growth as it not only diversifies our revenue streams, but also acts as a critical touch point to source new residents in our communities. While the opening of new clinics slowed in the quarter due to the restrictions put in place to mitigate the spread of COVID-19, Ageility successfully opened an additional 13 net new clinics. In addition, Ageility remains focused on expanding its fitness offerings, which are grounded in its innovative and clinically proven rehabilitation services. Ageility is also proud to sponsor the 2020 National Senior Games as well as support various state-level games events.

Finally, we continue to foster our strategic partnerships. Five Star has joined the ranks of Aging 2.0's National Sponsors for 2020. And we continue to identify opportunities for collaboration with other organizations that are committed to changing the perception of aging. In February, we were proud to host MIT AgeLab's First National OMEGA Summit for high school students at our communities in the Greater Nashville, Tennessee area. OMEGA, which stands for Opportunities for Multigenerational Exchange Growth and Action, is an initiative designed by the AgeLab to support the development and growth of programs and clubs connecting high school students with older adults. We expect this program not only to inspire innovative and differentiated programming in our communities, but also introduce career opportunities in the senior living industry to the students involved.

Now I'd like to turn the call over to Margaret, who will address our senior living operational performance for the quarter.

Thanks, Katie. I'd like to begin by echoing your sentiment. We could not be prouder of our team members company-wide for their diligence and demeanor during these unprecedented times. I have personally spoken with many of you on the front lines and the challenges that we face today are completely unique to those that the company has faced in its roughly 2 decades of operation. I strongly believe that our efforts can meet and conquer these challenges with continued teamwork, trust and perseverance.

As of May 3, we have 345 confirmed resident cases of COVID-19, representing approximately 1.4% of our total resident population. Of the 43 communities impacted by confirmed cases as of May 3, the vast majority are in 11 communities, which are located in geographic regions that have experienced significant COVID-19 cases. We have seen concentrations of cases similar to those, which the CDC has highlighted in mapping the areas significantly impacted by the virus in the New York City metropolitan region as well as the Mid-Atlantic, Florida and certain areas in the Midwest.

During the first quarter of 2020, revenues across our senior living communities were down largely as a result of the effects of COVID-19. As a result, comparable community RevPAR for the owned and leased portfolio was down 0.7% from the same period last year. Similarly, comparable community RevPAR for the managed portfolio was down 2.5% for the same period last year. That said, we successfully focused on expense management, resulting in same-store margins at our owned and leased senior living communities improving 850 basis points.

While the pandemic has significantly impacted our leads, our conversion rate has held relatively stable. This is due in part to the way COVID-19 is concentrated in certain geographic areas, as I mentioned earlier. The effect of the pandemic in general on senior living has meant that our average sales leads per week in April were roughly half of what we typically see. Given that the effects of COVID-19 began in earnest in late March, we expect continued deterioration in the near term.

I'll now turn the call over to Jeff for a discussion on the financial results.

Thank you, Margaret. Before diving into the financial results, I would like to highlight the redesign of our reporting and disclosures to better align with the changes to our structure as a result of the transaction with DHC. These changes include re-segmenting our business into 2 divisions: our Senior Living division, which is subdivided into our owned and leased portfolio, and the management fees we earn from managing communities on behalf of DHC; and our Rehabilitation and Wellness Services division, which principally includes our Ageility inpatient and outpatient clinics.

Additionally, in the press release published this morning, we provided a pro forma view of the first quarter of 2019 as if the transaction had closed on January 1, 2019, to better represent a comparison of this quarter's results.

Earlier this morning, we reported a net loss of $17.2 million or $0.55 per share for the first quarter of 2020 compared to the $33.2 million or $6.64 per share loss recorded in the same period last year. This quarter's results included a $22.9 million loss on termination of leases with DHC, which represents the difference between the fair value of shares issued to DHC as part of the restructuring transaction, and $75 million of working capital liabilities assumed and cash consideration received for those shares.

As Katie mentioned previously, adjusted EBITDA this quarter was $12.4 million, which is an increase of approximately $2.9 million from the pro forma adjusted EBITDA of $9.5 million recorded in the first quarter of 2019. We reported total revenues of $297.4 million. On a comparable community basis, management and operating revenues were up $7.8 million or 22.1%, primarily due to growth in our Rehabilitation and Wellness Services revenues. Isolating just our comparable community senior living component, which includes those communities that Five Star has owned, leased or managed continuously since January 1, 2019, revenues were up $1.3 million or 5.5% over the prior year quarter.

Ageility reported revenues of $21 million, which is a $3.7 million or 21.7% increase compared to $17.3 million on a pro forma basis as if the transaction with DHC had closed on January 1, 2019.

Now turning to expenses. Other senior living operating expenses for the owned and leased portfolio was $3.3 million, which as compared to the Q1 2019 pro forma results was a decline of $3.5 million or a 52% decline, primarily due to reduced repair and maintenance costs and certain consulting fees attributable to nonrecurring investments made throughout 2019 to enhance our long-term strategic sourcing efficiencies.

General and administrative expenses were $22.9 million for the quarter and included $1.1 million of transaction costs related to the restructuring transaction with DHC. Excluding these costs, general and administrative expenses were approximately $21.8 million, of which roughly $6 million is reimbursed by DHC and represents certain centralized functions that directly support community-level operations. Excluding reimbursed costs of $6 million and $1.1 million of transaction costs, general and administrative expenses were $15.8 million as compared to $15.4 million pro forma March 31, 2019 results.

Interest expense for the first quarter was roughly $400,000, a decrease of 58% compared to the same period last year due to lower borrowings on our credit facility.

Moving to our balance sheet. As I discussed earlier, DHC provided $75 million of consideration in exchange for the shares issued as part of the restructuring transaction, of which $51.5 million was settled as of March 31, and $23.5 million was settled subsequent to quarter end. This consideration was provided in the form of the combination of the assumption of working capital liabilities, which were accounted for in the first quarter 2020, and cash.

At March 31, we had approximately $36.6 million of cash and cash equivalents and $7.4 million of outstanding debt obligations. As of today, we do not have any borrowings outstanding on our credit facility.

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

Thanks, Jeff. The health and well-being of our residents, clients and team members remains our #1 priority. We have faced many challenges in the past, and while the challenges associated with COVID-19 are unique and unprecedented, I am confident in our ability to persevere and grow to be an even stronger organization that continues to make great progress toward the ongoing transformation of Five Star. As we continue to make strategic investments across our platform, we believe Five Star will maintain financial stability for the future and be well positioned to maximize value for shareholders.

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

(Operator Instructions)

There are no questions. So this will conclude our question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect.