Q1 2020 Earnings Call

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In the five Star Conference will begin shortly please stay on the line.

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Good day and welcome to the five Star first quarter 2020 financial results Conference call.

All participants will be in listen only mode. Shouldnt, we should you need assistance. Please signal a conference specialist Christmas stocky followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question May Press Star then one on your Touchtone phone.

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Please note this event is being recorded.

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

Thank you.

Our senior livings call covering the first quarter 2020 result.

The agenda for today's call. It was a presentation by key Potter president and the.

Lastly, our executive Vice President CFO, and Treasurer, and Margaret <unk>, Senior Vice President and COO.

This presentation the management team will open the floor to a question answer session with research analyst.

No the transcription recording retransmission of today's conference call, it's true strictly prohibited without prior written consent.

They call contains forward looking statements within the meaning of the private Securities Litigation Reform Act 1995, and other securities laws.

These forward looking statements are based on five stars present beliefs and expectations as of today Thursday may seven 2020.

The company undertakes no obligation to revise or publicly released the results of any revisions to forward looking statements made in today's conference call other than through filings with the Securities Exchange Commission, we're FTC regarding this reporting period.

In addition, this call may contain non-GAAP numbers, including EBITDA, adjusted EBITDA and pro forma.

Reconciliations of net income attributable to common shareholders to these non-GAAP figures components to calculate EBITDA adjusted EBITDA and pro forma EBITDA, our in our quarterly news release available on our website at Www Dot sorry senior living dotcom.

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 ITC.

So those are cautioned not to place undue reliance upon any forward looking statements.

I will now turn 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 March.

To start off today's call by expressing my overwhelming appreciation for those healthcare workers at first responders, including our own team members that are on the front lines at this school the 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 a spread of Kobin 19 was confirmed in the United States Five star teams move swiftly to implement numerous protocols and precautionary measures throughout our communities in clinics to pay for safeguard the health and wellbeing of residents clients and team members.

Recognizing a serious it's a threat posed by the virus. We quickly established a cross functional interdisciplinary covert 19 task force to monitor developments and facilitate ongoing dialogue between our community leaders and health care professionals across the country.

Initially our carbon 19 task force was instrumental in ensuring that our team members called on their extensive preparation and training and 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 in frontline healthcare 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 community.

Are you, including personal protective equipment or P D.

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.

Oh, not a central visitors continued to be restricted from entering our communities and essential visitors must adhere to strict visitation and screening protocol.

We have postponed or canceled nonmedical resident outings and other social events.

And implemented dining restriction.

In addition, all of our communities are screening all team members before entering enforcing social destined thing 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 P. P.

Our cobot 19 taskforce, it's focusing on a multi pronged mitigation strategy rooted in proactive testing and contact tracing as well as robust infection control, including intensive housekeeping protocol and consistent p. usage to enhance virus detection and reduce transmission.

[noise], an acknowledgment of the isolation being experienced by our residents as a result of these restrictions in protocols, we have developed innovative social educational and entertainment activities for our residents to enjoy in their apartment.

In addition to support revenue into may be experiencing anxiety or depression.

We have made counseling available by phone or video conference to all assisted living and independent living residents free of charge.

We've also invested in technology to enable video conferencing and our residents they 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've been conducting virtual community visit which have allowed us to engage with community leadership and frontline team members to better understand the president and team member experience during this difficult time.

Moving onto our resolve.

As a reminder, the restructuring of our business arrangements with diversified healthcare trust or D. H C, which occurred at the beginning of this year principally included terminating the leases and magically agreements for all senior living communities, we leased from and manage for the account of D.A.H.C. as of December 31st 2019 and replaced.

Those leases and management agreements with new management agreement.

Under these new contracts, we are to be fee of 5% of community level revenue.

It construction management fee of 3% of DHC is investment and capital projects, we manage on their behalf.

And the opportunities into earn incentive fee on 2021 calendar year performance and beyond.

As of March 31st our portfolio included over 31000 units in 268 communities and we had 244 agility inpatient and outpatient rehabilitation clinics in our rehabilitation and wellness services Division.

Well there are 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 and 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 her team members.

As discussed in prior calls factors most important asset is its team members.

As evidenced by the challenges of covert 19. This is true now more than ever.

The breakeven selfless commitment of five stars 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 the challenging time.

Including enhanced training and development programs as well as the vast platform of readily available resources.

And return our team members are re framing challenges is 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 at the corporate level.

Our team member focused initiatives continue to build traction and have resulted in further improvements to companywide the team member turnover.

We do expect turned over to increase as a result of the nature of the pandemic. However, we are encouraged by the level of interest a perspective team members, who wish to serve our residents and client.

Pursue exciting and rewarding career opportunities faster.

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 JD power senior living community certification program, our operating standards continue to evolve with the intention of providing our community leadership with the framework for decision, making that enable a focus on what is most important there residents and team members.

[laughter] agility, 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 community.

Well the opening of new clinics slowed in the quarter due to the restrictions put in place to mitigate the spread of carbon 19 agility successfully opened an additional 13 that nucleic.

In addition, agility remains focused on expanding its fitness offerings, which are grounded in its innovative and clinically proven rehabilitation services.

Agility is also proud to sponsor the 2020 national senior game as well support various state level game for that.

Finally, we continue to foster our strategic partnerships.

Pfizer has joined the ranks of aging 2.0 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 age labs first National Omega Summit for high school students at our communities in the greater Nashville, Tennessee area.

Omega, which stands for opportunities for multi generational exchange growth and action is an initiative designed by the age lab to support the development and growth of programs in clubs conducting high school students with older adult.

We expect this program not only to inspire innovative and differentiated programming at 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, Katy I'd like to begin by echoing your phentermine.

We could not be prouder of our team members companywide for their diligence and demeanor during these unprecedented times.

I have personally spoken with many of you on the front line and the challenges that we face today are completely you need to those that the company has faced in its roughly two decades of operation.

I strongly believe that our efforts can meet and conquer these challenges with continued teamwork trust and perseverance.

As of May Threerd, we have 345 confirmed resident cases of Cogan 19, representing approximately 1.4% of our total rather that population.

After 43 communities impacted by confirmed cases as of May Threerd. The vast majority are in 11 communities, which are located in geographic regions that have experienced significant cobot 19 cases.

We have seen concentration of cases similar to those switch 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 coded 19.

As a result comparable community Revpar for the owned and leased portfolio was down <unk>, 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 lead our conversion rate has held relatively stable.

This is due in part to the way Cobot 19 is concentrated in certain geographic areas as I mentioned earlier.

The effective 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 covered 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'd like to highlight the redesign of our reporting and disclosures to better align with the changes to our structure as a result at the transaction with DHC.

These changes include re segmenting our business into two divisions.

Our senior living division, which is subdivided into our owned and leased portfolio and the management fees, we earn for managing communities on behalf of THC, and our rehabilitation and wellness services Division, which principally includes our agility 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 that closed on January Onest 2019 to better represent a comparison of this quarter's results.

Earlier. This morning, we reported net loss of $17.2 million or 55 cents per share for the first quarter of 2020.

Paired to the $33.2 million or $6, a 64 cents per share loss recorded in the same period last year.

This quarter's results included a 22.9 million dollar 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 in $75 million, a working capital liabilities assumed in 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 a 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 manage continuously since January Onest 2019 revenues were up $1.3 million were 5.5% over the prior year quarter.

Agility reported revenues of $21 million, which is a 3.7 million dollar or 21.7% increase compared to $17.3 million on a pro forma basis as if the transaction with THC had closed on January Onest 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 40, 52% declined 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 included $1.1 million of transaction costs related to restructuring transaction with THC.

Excluding these costs general and administrative expenses were approximately $21.8 million of which roughly $6 million is reimbursed by DHC and represent 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 30, Onest 2019 results.

Interest expense for the first quarter was roughly $400000 a decrease of 50% compared to the same period last year due to low borrowings on our credit facility.

Moving to our balance sheet as I discussed earlier do you see 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 31st and $23.5 million was settled subsequent to quarter rent.

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 31st we had approximately $36.6 million of cash and cash equivalents and $7.4 million of outstanding debt obligations as of today, we don't have any borrowings outstanding on our credit facility.

With that I will turn the call back to Kt for closing remarks.

Thanks, Jeff.

The health and wellbeing of our residents clients and team members remains our number one priority we have face many challenges in the past and while the challenges associated with covered 19 are unique and unprecedented I'm confident in our ability to persevere and grow to be an even stronger organization that continues to make great progress toward the ongoing transformation.

One 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.

Thank you we will now begin the question and answer session.

To ask a question you May proceed Star then one on your Touchtone phone.

We're using a speakerphone please pick up your handset before person the keys to withdraw your question. Please press Star then to.

This time, we will pause momentarily to assemble a roster.

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.

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