Q2 2020 Five Star Senior Living Inc Earnings Call
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I would now like turn the conference coverage, Michael Kodesch Director of Investor Relations. Please go ahead.
Thank you.
I started you're living call covering the second quarter 2020 result.
The agenda for today's call include the presentation by keep our president and CEO, Jeff, We're executive Vice President CFO, and Treasurer and market with footwear senior Vice President and COO.
Following the presentation the management team will open the floor to Washington after session with restart camera.
I would like to note that the transcription recording retransmission of today's conference call is strictly prohibited without prior written consent five star.
Today's conference call contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 95, another securities laws.
Forward looking statements are based on five stars present beliefs and expectations as of today Thursday August <unk> 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. Although the through filings with the Securities Exchange Commission or SBC, regardless 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 or in our quarterly news release available on our website at Www dot.
Starting or 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 FCC.
After the call should not place undue reliance upon any forward looking statement.
I'll now turn call over the Kate.
Thanks, Michael and thanks, everyone for joining us on our second quarter 2020 earnings call.
Following the completion of our restructuring transaction with the H.C.
Five star has made great progress in both driving comprehensive change across the organization as well is providing a path to sustainable long term growth.
But the second quarter 2020, our adjusted EBITDA was $7.1 million. We had net income of 10 cents per diluted share and we had over $76 million unrestricted cash and limited that our balance sheet as of June thirtyth.
The strong financial position, a quick thoughts with greater flexibility as we navigate the challenges presented by Cobot 19 helps us to continue optimizing senior living operation.
<unk> capital for investment within our owned and leased portfolio and allows us to pursue external growth opportunities through complementary service offerings like or rehabilitation and while this purposes.
Throughout this remarkably challenging pandemic I reminded daily of how resilience and goal oriented organization has become.
Since the start of the crisis I have seen our team members driving everyday to do the right thing for other I want to thank them for their dedication to safeguarding the health and wellbeing of not only are rapidly and quiet, but I've each other and their families as well.
And I'm sure periods, such as the one we find ourselves and now we must invoke our mission statement and values to help us navigate through these adverse conditions and delivering exceptional rather than quiet and team member experience [laughter] as our understanding of the pandemic develop five star continues to refine and supplement our operation.
And with enhanced protocols and procedures and precautionary measures throughout our communities in clinic.
Initially Ur Cobot 19 task force instrumental and ensuring that our team members calls on their extensive preparation and training infection prevention and control practices to respond to tell cried crisis before it began in earnest.
As of today. This task force continues to facilitate open indirect lines of communication between all levels of community leadership and front line health care practitioners and caregivers.
In addition, it serves as a conduit between our community and our corporate support function to ensure availability of resources and supply to our communities, including the availability of personal protective equipment or P. P.
We continue to closely follow recommendations provided by the CDC. An addition to federal state and local regulatory authority.
And incorporate them into our already comprehensive policies procedures and protocols.
Proactive testing and contract tracing have become paramount to ongoing operation as these modern techniques to help advised critical decision, making when it comes to move in activity of programming dining and many other aspects of the resonant quiet and team member experience.
Over the past two and a half month five star has conducted community why do you find testing at every assisted living memory care and skilled nursing community five to our own operates and manager.
Five star has proactively partnered with other healthcare service providers to support our proactive testing program.
As part of this program every community with it confirms case of covert 19 conduct weekly testing until there are no new cases of cobot for a minimum of 14 days.
This approach supports our ability to identify new cases, particularly in circumstances, where those new cases, where asymptomatic conduct contract racing and isolate positive cases significantly mitigate any further spread out the virus.
Five star will continue to monitor new advancements in testing the efficacy of new protocol and potentially pilot new approaches that show promise and improving our ability to proactively detect and Purbeck Kogan 19 in our communities in clinic.
[laughter], they've gotta continues to impact our country as well as our communities in clinic.
We have recognized the importance of adjusting the way, we operate and adapting to life under a new normal.
As Mark will discuss when the economy began reopening in various states five started to buy thoughtful phased approach for easing a restriction where appropriate and certain of our communities have begun the reopening crop that.
Now I'd like to provide an update on our team member initiative, and our rehabilitation and wellness services Division.
As evidenced by the challenges of Cowen 19, the focus on our team members. Our most important asset it's critical to our mission as an organization.
As such it is vital that we continue to provide our team members with the resources necessary to succeed and the current environment.
This includes regular companywide Townhall, a kobin 19 resource website as well as periodic news Digest weekly Webinars online forums for collaboration and discussion and regular virtual meetings with and tours of the communities to allow community clinic and corporate teams to ensure.
Good.
Mostly employee recognition in rewards programs have continued it and then he asked for those members of our team that continue to go above and beyond.
[laughter] our team member focus initiatives continue to build traction and have resulted in further improvements to companywide team member turnover.
Overall annualized turnover is approximately 55% for the six month ended June Thirtyth 2020.
Which represents a decline of roughly 600 basis points from 61% annual turnover experienced in 2019.
This year, we have hired 6620, new team members, including 35, New executive director and five new regional director.
Well I initiative to bolster our labor force has been complicated by the pandemic, we continue to make strategic new hires both in our communities in clinic and in our corporate team.
We do expect turnover to increase as a result of the nature of this pandemic.
However, we are encouraged by the level of interest a perspective team members, who wish to serve our residents and clients and also pursue exciting and rewarding career opportunities the five chart.
[laughter] agility, a part of our rehabilitation and division continues to be a focal point of growth.
As it not only provides diversification to our revenue stream in such a challenging environment, but also acts as a critical touch point to improve the experience of our current residents and clients as well as well as help us source new residents to our community.
Despite the restrictions put in place to mitigate the spread of carbon 19 was significantly impacted our ability to open new rehabilitation and wellness clinics in the quarter.
Agility successfully opened two net new clinic, bringing our total inpatient and outpatient clinics to 246.
In addition, many of our residents have experienced a decline in mobility and overall physical de conditioning due to isolation and quarantined necessary.
As a result of covert 19 and associated restriction.
In response, our agility team are finding new and innovative ways to treat our president and clients, who need therapy and physical fitness services now more than ever.
Total agility therapy outpatient visits were up 8.8% sequentially and honest visits per clinic basis, we showed slight improvement over the previous quarter.
Now I'd like to turn call over to Margaret Cool address our senior living operations in the quarter.
Thanks, Kate I'd like to begin with an update on the Cobiz 19 environment.
As of August for approximately 4.6% of our resident population has tested positive for cobot 19.
Well these confirmed resident cases, roughly 43% of the residents petsense recovered from the virus as defined by the CDC guidelines.
Generally we have seen concentrations of cases someone to those which the CDC has highlighted as areas significantly impacted by the virus.
As of August 1st seven states represent more than half of our cases and include Florida, New Jersey, Maryland, South Carolina, Illinois, Georgia and Texas.
Before I review, the senior living operating results I'd like to take a moment to walk through our approach to reopening.
Five star has implemented a phased approach to reopening communities utilizing three levels that slowly east restrictions when appropriate.
The levels of reopening our design thinking is internal restrictions for.
That's a certain external restriction and finally bleed into a new normal operating environment.
The whole wasn't allowed communities to slowly either internal restriction, allowing resident limited movement around the community with appropriate reconfiguration of physical space is more regulated activity and use a certain amenities on a limited and highway pre schedules basis.
We have developed programming that serve to educate team members and residents on the importance of continuing to wear masks.
Social distance properly disinfect and limits the size of gathering.
Family business May also there's been a lot of limited basis with restriction in outdoor area.
At level, two communities, making some extra restrictions such as the while certain non essential visitors into the communities on the limited basis subject to screening and continuing to reinforce the behavior is related to infection control.
Well the free focus is all the stable long term approach to the normal which includes a resumption of most activity, but in a way that incorporate all of the new behaviors and levels one or two.
Level three also requires the continuation of the screening infection control testing and contact tracing measures that have been put into place to mitigate the risk of infection.
To be sure. That's surveillance re testing process is an important component of the five star reopening criteria as well as the impact of the virus, although local area within which our communities located.
We used the information and other gaming criteria to determine eligibility for community to move for the next level.
We have implemented a planning and approval process that each community must meet so that a consistent and measured approach is executed across all five stars portfolio.
Sure and that each community received the support and resources required to successfully a ball as Cobiz 19 continues to present challenges.
These guidelines have been tailored to the specific needs, but each line of business, but allow flexibility within each level of reopening so that communities can tailor their reopening plan to local needs and preferences.
During the second quarter of 2020 occupancy and rate across our senior living communities decline due to the effect of Cobbett 19.
Average occupancy in our comparable community and leased portfolio dropped 300 basis points from both the sequential and prior year quarter, while comparable community average occupancy in our managed communities decreased 600 basis points year over here and roughly.
380 basis points from the last quarter's results.
Our revenue management team analyzes pricing on a case by case basis to optimize rate.
We are seeing rate pressure as a result of the pandemic with competitors offering concessions and your various more impacted by public 19 to attract new residents were moving or feasible.
As a result of the current environment comparable community Revpar for the owned and leased portfolio was down 6% processing period last year, well comparable community Revpar in our managed portfolio was down 5.7%.
While the pandemic has significantly impacted our ability to pursue leave and convert moving there is evidence of pent up demand.
Given that community move in a restricted by active confirmed cases in Cobiz 19, we began tracking many of our delayed sales lead and maintain constant contact with these prospective residents.
We are evaluating a process to thoughtfully facilitate move in where the risk is low and all constituents in the process remains say.
Well, we are optimistic about slowing the occupancy decline through these measures as the pandemic runs. Its course, we continue to expect deterioration in our occupancy in the near term.
I'll now turn the call over to Jeff for a discussion on the financial result, Thank you Margaret before diving into the financial results I would like to highlight continued efforts to enhance our disclosures to provide additional transparency of our business. Following the completion of the transaction with the H.C.
These changes include an assortment of rehabilitation and wellness services metrics further detail regarding covert 19 reopening phases, the inclusion of five quarters, a pro forma EBITDA and adjusted EBITDA.
Detail regarding our recurring investment in Capex and more disclosure surrounding adjusted cash flows all which can be found within our investor presentation, which will be furnished to the car report on form 8-K filed with the FCC following today's call.
Additionally, in the press release published this morning, we provided a pro forma view of the second quarter of 2019 as if the transaction with the H.C. had closed on January Onest 2019 to better represent a comparison of this quarter's results.
Earlier. This morning reported net income of $3 million for 10 cents per diluted share for the second quarter of 2020 compared to $4.2 million or 81 cents per diluted share recording the same period last year as Katie mentioned previously adjusted EBITDA. This quarter was 7.1 million.
In dollars, which is a 1.6 million dollar decline from the $8.7 million report in the prior year quarter.
In addition, this represents a decrease of approximately $2.7 million from the pro forma adjusted EBITDA of $9.8 million report into second quarter of 2019.
We reported total revenues and other operating income of $286.6 million in the second quarter 2020, which represents a 7.8% decrease from the pro forma prior year quarter, largely due to the effects of dispositions that occurred throughout 2019 in April 2020 compete.
Pounded by the impacts of Coven 19.
On a comparable community basis management operating revenues increased $4.5 million or 12.7% driven by growth in our rehabilitation and wellness services segment revenues, primarily attributable to growth and agility.
Our rehabilitation wellness services segment reported revenues of $92.3 million of which agility comprised of $18.9 million, which is a 1.1 million dollar or 5.6% increase compared to $18.2 million on a pro forma basis.
As a reminder, under our new management contracts, we Ernie construction management fee of 3% Odcs investment capital projects, we manage on their behalf.
Construction management fees were approximately $444000, which was flat to last quarter due to construction progress that were delayed or canceled as a result of restrictions placed our communities. In addition to more closely managing liquidity needs in response to the financial impacts of Coven 19.
We expect the impact of restrictions will continue to affect our ability to execute our capital as a program throughout the remainder of the year.
Now turning to expenses.
We incurred $285.2 million of total expenses in the quarter, which was down 6.3% from the second quarter 2019 results on a pro forma basis.
During the second quarter, we were able to effectively manage expenses, including balancing our liberties, but the deterioration of our occupancy in addition to reductions in both food and repair and maintenance costs.
Certain states. These restrictions, we anticipate incurring costs associated with certain necessary repairs and maintenance projects, which will impact the savings benefits, we had been able to achieve.
General and administrative expenses were $23.6 million for the second quarter included $6.4 million DNA reimbursed by DHC that represents certain centralized functions the directly support manage community operations.
Excluding reimbursed costs of $6.4 million general and administrative expenses were $17.2 million as compared to $16.2 million pro forma June thirtyth.
2019 results.
Gina includes approximately $460000 of nonrecurring expenses attributable to licensing and regulatory matters in connection with the transaction with the H.C. as well as cost attributable to our corporate team realignment to support our senior living communities a strategic initiatives.
Interest expense for the second quarter was $409000 due to the costs associated the unused capacity on a revolving credit facility.
Year to date, we've spent approximately $36.4 million of capital expenditures at our managed senior living communities. Our partner DHC has announced the plan to continue to invest an essential capital, but certain projects have been delayed and may continue to be delayed in the future due to community axis restrictions and.
Other state and local ordinances related to covert 19.
As a result, we're now budgeting roughly $100 million of Capex spend and the communities we manage on behalf of DHC for the full year 2020.
Additionally, in the second quarter, we invested $1.1 billion of capital comprised of $600000 invested capital.
Our owned and leased portfolio $35000, an hour rehabilitation and wellness services segment and $483000 an investment in our corporate support functions to better support our long term strategy.
Moving to our balance sheet.
Do you see pay the remaining portion of the $75 million of consideration in exchange for the shares issued as part of the restructuring transaction of which $51.5 million was so because of March 31 in the form of an assumption of certain working capital liabilities.
And $23.5 million was settled during the second quarter in cash.
Additionally, approximately $13 million of Dhcr remaining transaction related liabilities were reimbursed the five star in the form of cash.
As a result as of June Thirtyth, we had approximately $76.1 million of cash and cash equivalents and $7.4 million of outstanding debt obligations. Our cash balance includes approximately $4.7 million in cares accurately funds primarily related to facilities the previous at least.
By us from DHC during 2018 in 2019 for which we are evaluating our eligibility to retain these funds.
In the event, we determine where not eligible to retain the funds received who we will remit the funds to department of health and human services.
Adjusting for this call a pro forma cash balances closer to $71.4 million.
As of today, we do not have any borrowings outstanding on our credit facility.
With that I'll turn the call back the KD for closing remarks.
Thanks, Jeff the health and wellbeing of our residents clients and team members remains our number one priority.
As we continue to learn more about over 19, I'm confident in our ability to adapt to the risks posed by the pandemic and enact the necessary protocols to maintain an exceptional resident client and team member experience.
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.
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