Q4 2020 Five Star Senior Living Inc Earnings Call
Good day and welcome to the five Star senior living fourth quarter, 'twenty 'twenty financial results Conference call.
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Now I'd like to turn the conference over to Olivia Snyder manager of Investor Relations. Please go ahead.
Thank you welcome to five Star Senior Livings fourth quarter of 2020 earnings call. The agenda for today's call includes the presentation by President and CEO of Katie Potter Executive Vice President and C. O L. Margaret Wigglesworth, and executive Vice President CFO and Treasurer, Jeff Leer, followed by a question and answer session with me here.
Research analyst.
I would like to note that the transcription recording of retransmission of today's conference call is strictly prohibited without the prior written consent of the company today.
Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 to 95 and other securities laws.
These forward looking statements are based on five stars present beliefs and expectations as of today Thursday February 25 2021.
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 materially from those projected in any forward looking statements.
Information concerning factors that could cause those differences income.
And in our filings with the SEC investors are cautioned not to place undue reliance upon any forward looking statements.
In addition, this call may contain non-GAAP numbers, including EBITDA, adjusted EBITDA and pro forma EBITDA reckon.
Reconciliations of net income to these non-GAAP figures and the components to calculate that are available in our quarterly results news release available on our website at five star Senior Living's Dot Com I will now turn the call over to Katy.
Thanks, Olivia and thanks, everyone for joining us on our earnings call for the fourth quarter of 2020.
2020 was a year, we will likely never forget I'm truly proud of what five star has been able to accomplish despite the challenges of the pandemic and of the resilience of the industry has shown as a whole.
Above all I am truly grateful for the courage of spirit that our team members of shown through this time and their unending dedication to our residents clients and each other.
2020 was also a year that marked an important turnaround with five star business.
On January 1st we completed the restructuring of our business arrangements with diversified healthcare trust of.
The transaction that had an immediate positive impact on our financial stability allowed us to focus on optimizing our senior living operations and provided us with the liquidity to make strategic investments in our business to support new initiatives and future growth.
Now more than ever before attracting inspiring and retaining top talent remains the biggest challenge and opportunity in the senior living industry.
Our team members are and have always been on most of course and half of that.
And the work environment presented by the COVID-19 pandemic their commitment to our shared mission has been integral to the safety and wellbeing of our residents and clients.
Sustaining the resident experience through the pandemic has been no easy task, but it does remain central to our strategy throughout our COVID-19 response.
It is technology for virtual programming and family connection outdoor of programming and events resourceful, yes see opportunities for social connection and socially distant signing our unwavering focus on our customer will support the recovery of our business as the impacts of the pandemic subsides.
Investments in our shared services platform have allowed us to continue leveraging our scale to improve cost structure drive revenue and achieve maximum operational efficiency. Despite the challenges of the pandemic.
This has been especially important during the period of declining occupancy in 2020.
In addition to targeted cost controls implemented to align with unexpected lower occupancy levels are centralized sourcing programs have resulted in $2 $4 million of annualized cost savings over the last year.
And we anticipate that upon of complete implementation of these initiatives, we will achieve $46 million of cost savings annually in our senior living segment.
Our revenue management program for G lives of dynamic pricing models to drive rate optimization of also helps support our steamboat revpar performance throughout the year.
We will focus on continued growth, we are always seeking and evaluating opportunities to grow our senior management business as well as expand our offering into other areas to meet the changing demands of older adults.
Our commitment to our rehabilitation of them.
The segment continues to serve us well.
And now represents 38% of our total management net operating revenue of 5% from a year ago.
Consistent revenue growth in this segment has provided stability to our financial results and the challenging operating environment.
The Testament to the benefit of all of our revenue diversification strategy.
Demand for rehabilitation services remains high and we are continuing to open new clinics, where we can given the restrictions across senior living communities that have persisted through the fourth quarter and into the first quarter of 2021.
As restrictions are lifted alongside of widespread availability of the COVID-19 vaccines. We are confident in the expansion of our agility footprint within the current networks and with new partnerships.
Turning to the fourth quarter.
The near term impacts of the COVID-19 pandemic remained challenging across the senior living industry. The second wave of Covid cases across the country.
Fall and winter holidays has been severe and our industry at large of seeing the effect of continuing continued occupancy of deterioration.
Revenue pressure and operational headwinds as a result the.
The health and wellness of our residents clients of team members remains our highest priority and adherence to our safety and testing protocols unchanged. However, we are encouraged by our new staff in our ever evolving response.
On December 19th we began hosting vaccination clinics for our residents and team members of our community.
Margaret will provide more detail on our activity to date, but we are making strong progress and anticipate the vaccination clinics will be substantially complete cross all of our eligible community by the end of the first quarter.
Adoption of the vaccine is an important step towards the industry returning to pre pandemic fundamental aki.
Occupancy recovery will take some time, but the increase in sales leads that is already starting to build across our portfolio of shows positive momentum and we are hopeful to see the pace of moving begin to accelerate.
As the latest Nic data showed senior living inventory growth continued throughout 2020 as the results of investment that was made 18 to 24 months ago. However.
However, construction starts of flows so inventory growth should taper off in 2021.
Increasingly positive demographic trends also reinforce our confidence in the enduring demand for senior living.
The U S 80, plus population is projected to grow by 18% from 2020 to 2025.
More than five times the rate for the overall population.
As a result, we expect to see favorable supply demand dynamics to support our business as we look out past the impact of COVID-19 into a more stabilized environment.
Despite the industry wide challenges I discussed our financial position in the fourth quarter has remained profitable we.
We have continued to generate net income reinforcing our focus on revenue diversification and expense management.
For the fourth quarter of 2020, we reported adjusted EBITDA of $5 2 million net income of nine cents per diluted share and of 9% increase in our rehabilitation and wellness services segment revenue over the prior year pro forma results.
Our balance sheet and liquidity remain healthy and provide a foundation for continued profitability as well of future growth, including investment in our owned and leased senior living portfolio to remain a strong competitor in the market.
And the agility and other ancillary services to differentiate our service offering and diversify our revenue.
And in the people and technologies that support our shared services platform.
We believe our operating model and financial resources will allow five star to endure the continuing effects of the pandemic and position as well as the vaccination program is completed and the underlying drivers of our business stabilized.
As always our success centers around our talented and committed team members, who every day are delivering a safe and fulfilling experience in our communities in the clinic.
Now I'd like to turn the call over to Margaret to review, our senior living operations for the quarter.
Thanks, Katie and good afternoon, everyone. As we begin 2021, we're encouraged by the outlook for our vaccination program and inspired by the commitment we see across our team member and resident populations to stand together and make this coming year better than our last.
As Katie noted we began hosting COVID-19 vaccination of clinics at our communities on December 19th.
As of February 20th of more than 25000 residents and team members have received the first dose of the vaccine of which more than 15000 residents and team members have also received the second dose averaging more than 630 vaccinations of day.
We have conducted 672 vaccination of clinics across 249 of our 251 eligible communities.
Our COVID-19 task force has moved seamlessly to coordinate the logistics of our clinics and.
And as Katie mentioned, we anticipate that all clinics will be substantially complete by the end of the first quarter.
We expect the host three clinics at each eligible community scheduled according to the requirements for the two doses of the vaccine.
This ensures that any resident per team member who missed their communities first clinic would still be able to receive the full dosage.
We're heartened to see how our residents and team members have responded with optimism and are very hopeful outlook for a sense of normalcy to return.
Gaining momentum with the program took patients and a consideration of logistic challenges as we've seen across the industry and beyond.
Without a federal mandate, we're working with the individual states each of which has adopted its own protocol her vaccine distribution, which include different timelines and prioritization by age group or type of senior living community residents.
Another challenge we've seen industry wide is addressing concerns of my team members and our communities who are evaluating whether to receive of vaccine.
Various strategies have been used across the industry to motivate and gain widespread acceptance by employees.
At five star, we've focused on education, including regular communication from our Chief Medical officer about the benefits and risks so that each team member has the ability to make an informed decision.
We're happy to see that vaccine adoption has improved as concerns are alleviated.
We believe widespread acceptance of the vaccine because what is best for our company, our residents and clients and our team members.
As was the case with our initial pandemic response, and the implementation of an effective infection control protocols.
It is an evolutionary process and we're gaining ground every day.
Now an update on our community response to COVID-19.
As of February 20th 98 per cent of our communities are accepting new residents and at least one line of business, which we attribute to our thoughtful and comprehensive COVID-19 response strategy.
We have maintained our strict testing and screening protocols.
<unk> routine surveillance testing and our communities have seen a steady decline in infection rates.
Over the course of the pandemic we of administered more than 290000 residents and team member test, which have resulted in a low confirmed case rate of only three 1%.
Resident cases on a trailing two week basis rose during the fourth quarter to above prior peak levels from July but our most recent numbers show of 72% decline from the fourth quarter average our current resident infection levels are the lowest we've seen in our communities since early October.
We believe that our regimented protocols have helped to mitigate widespread exposure with the <unk>.
<unk> continued to put pressure on our senior living segment with further occupancy declined in the fourth quarter.
Average occupancy in our comparable community owned and leased portfolio decreased three 2% from last quarter and nine 9% from the prior year.
Comparable community average occupancy in our managed communities decreased 3% from last quarter and 10, 8% from the prior year.
We expect to see continued deterioration through the first quarter of this year, but are hopeful that completion of our vaccination program will support our effort to drive new admissions and recover lost occupancy.
We have remained focused on our sales and marketing efforts and are encouraged to see positive trends emerging.
Rolling four week sales leads as of February 20th were up 83% from the start of the fourth quarter and as a historic leading indicator of future moving activity. This significant increase in leads is a key step in our recovery.
We remain focused on evaluating lead quality and driving our conversion rate.
Revpar continues to be challenged because of occupancy declines with comparable community revpar for the owned and leased portfolio down 11, 7% from the same period last year and comparable community Revpar in our managed portfolio down 12, 3%.
We are seeing competitors offering deep concessions to attract new residents and have considered targeted concessions at price dark in certain markets or community types, where demand dynamics are less favorable.
On a risk poor basis, the fourth quarter showed slight increases over the prior year and sequentially in both of our owned and leased and managed portfolios.
In conjunction with our focus on optimize revenue management programs. The Katie mentioned earlier, we believe that our commitment to preserving great in most cases, despite pressure on near term occupancy in the Covid environment.
Avoids long term revenue deterioration and better positions, our senior living operations for recovery.
Most importantly for US today, the implementation of our vaccination plan is of significant step in debt recovery.
We're making great progress toward our goal thanks to the dedication and determination of our residents and team members.
We will use the knowledge, we have gained along with rigorous safety protocols and unwavering focus on the resident experience to drive a thoughtful and measured approach to recovering occupancy and advancing five star business.
I will now turn the call over to Jeff for a discussion of the financial results.
Thank you Margaret JD highlighted the restructuring of all of our agreements with the HC at the start of 2020 immediately improved our financial position and liquidity and provides us with a strong foundation as our country the Dara.
The industry in particular entered a period of on price.
Economic uncertainty while.
While the events of 2020 disruptive the cadence of many of our strategic initiatives.
The priority shifted to address safety labor expense control and supportive of the rest of experience of new works.
We believe that our results throughout the year of proven the strength and resilience of our business model and we are confident that we are well positioned to sustain our strategic initiatives in 2021 of them.
Moving to our quarterly results last night, we reported net income of $2 9 million.
The nine cents per diluted share for the fourth quarter of 2020.
<unk> to net income of $16 1 million.
The $3 15 per diluted share for the fourth quarter of 2019.
Which included the benefit of $14 $9 million related to the restructuring transaction.
Well the more comparative illustration.
All of the financial presentation will compare the fourth quarter of 2020 with the <unk>.
Pro forma fourth quarter of 2019, because of the transaction with THC of closed on January one 2019 to better evaluate this quarter's results.
On the pro forma basis, our net income of $2 9 million of <unk> <unk> per diluted share for the fourth quarter of 2020 represents a 50% decrease compared to net income of $5 8 million.
The <unk> 18 per diluted share for the same period last year due to the ongoing impact of COVID-19, pandemic kind of occupancy Rob.
And the expenses.
The fourth quarter of 2020 includes $1 9 million of income recognized under the cares Act the provider relief fund.
Adjusted EBITDA for the fourth quarter was $5 2 million a day.
Decrease of $5 1 million or 49% from $10 $3 million of the prior year period.
Fourth quarter management, and the operating revenues of approximately $53 million.
<unk> of $3 5 million or.
The six 1% from the prior year largely due to the impact of the sales of nine senior living communities throughout 2020 and the <unk>.
Closure of seven additional communities during the end of Q3 of into Q4.
Coupled with declines in occupancy of our senior living segment as a result of COVID-19.
While our senior living segment experienced challenges related to the ongoing effects of the pandemic.
Our rehabilitation of Wellness services segment reported revenues of $2 3 billion.
The increase of $107 million of nine 2% as compared to the prior year period.
This is primarily attributable to the ongoing <unk>.
<unk> of 30 net new clinics since October one 2019.
The agility relocation of fitness continues to make up the majority of these revenues.
Our senior living segment reported total revenues of $265 6 million.
The $17 9 million was derived from the community very vulnerable from third parties <unk> for $8 million was attributable to the management fees earned from convenience, we manage on behalf of <unk>.
$232 9 million was reimbursed community level costs. The other expenses incurred on behalf of managed communities and the total represented eight 1% decline compared to the prior year period of three 1% decline on the sequential basis.
On the $14 $8 million of management fees earned $1 million was attributable to the construction management fees of represent 3% of capital projects managed on behalf of DHT.
Construction projects managed on behalf of <unk> totaled $32 9 billion.
It represents a 72, 3% increase in capital spend on a sequential basis.
We expect the estimated restrictions continue to ease we will likely experiencing consistent capital spend.
In 2020, DHT spend of approximately $89 $9 billion of capital of our managed senior living communities.
Now I'll turn to operating expenses we.
We incurred $285 $5 million of total operating expenses in the fourth quarter.
The decrease of four 5% from the prior year period, and a two 1% from last quarter.
We have continued to focus on managing expenses, including labor costs in response to decrease the occupancy across our communities and benefited from reductions in self insured health insurance costs of $820000 due to reduction of high cost claims partially offset by an increase in expense related to COVID-19 testing and care.
Since the pandemic, we have secured approximately $15 $3 million of PPE to protect our residents and team members during the pandemic.
Of this amount $5 $6 million has been deployed to our communities free use.
And the remaining amounts related to pre funding PBT reserves set aside to combat potential increased needs throughout 2021.
As a reminder, the majority of the pre funded PPE will be reimbursed by the agency.
The delivered to the communities we manage.
Fourth quarter COVID-19 related expenses were approximately $6 7 million.
Including $2 $4 million spent of PPE and medical supplies.
$6 $1 million of this total related to our managed communities that was absorbed by the PUC.
These costs represent a six 7% decline on the sequential basis.
We believe that took the endemic will likely continue to put pressure of our self insured health insurance program throughout the first half of 2021.
However, as we see Covid infection rates declined we are hopeful the testing of treatment costs will follow.
General and administrative expense for the fourth quarter was $28 million, which.
Which included $6 $6 million reimbursed by the HC.
Excluding these reimbursed costs G&A expense was $14 2 million.
We expect G&A expense will continue to be elevated throughout 2021, as we make further investments in our shared services and technology infrastructure.
Moving to our balance sheet as of the.
December 31, we had approximately $84 $4 million of <unk>.
Restricted cash and cash equivalents.
We have only $7 $2 million of outstanding debt obligations in the form of one mortgage note maturing in 2032 and as of today, we do not have any borrowings outstanding of our credit facility.
We believe our strong financial position, along with our stable and growing the rehabilitation of mobile services revenues not only support our businesses. Goldman 19 continues to have an adverse effects our senior living segment.
But also will help drive our rebound is becoming impacts subside and our path to future growth.
That concludes our prepared remarks, operator, we are ready to open the lines of questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Bryan Maher with B Riley FBR.
Please go ahead.
Good afternoon, and thanks for all that detail.
I'm not sure. If this question is more for Kt or Margaret, but as it relates to the 87 per cent of the residents that have received at least the first dose of the vaccine.
What percentage of the population of the community.
Do you think will end up getting the the vaccine and I guess asked a different way is 87% all of it of ask for it or do you expect everybody to eventually get it and what do you do with the communities if individuals or too many individuals don't get the VAT.
Jim.
Hey, Brian.
We've had a really high.
Positivity rates in terms of our residents wanting to take the vaccine I think thats why youre seeing such a high percentage.
As we roll through the clinics, we go through the second and third clinics I think we'll continue to see that number rise and so I expect it will remain pretty high as as we move through the clinics and then I'm going to let Margaret answer. Your second question in terms of communities that don't reach as high as we might expect we.
Yes, we are.
Great.
We're working diligently on the education aspect of.
Bringing team members, especially along.
The journey and we've seen an increase adoption rate of as second clinics get underway.
We've used the services of our Chief Medical Officer.
In holding office hours for conversations and we started a program.
Peer to peer counseling NR.
In our communities too.
Encouraging support team members, who might be on the offense.
Okay and do you think you might be headed in the direction, where you require all of the team members to get it or is that just off the table.
Well we are.
Evaluating the pros and cons of that and have.
<unk> seen our some of our competitors do it and are supportive of that.
The initiatives, we ultimately think that most if not all health care settings will require it and so.
We're looking at moving along that path.
Okay, great and kind of shifting gears to <unk>.
Our liquidity and maybe growth and deploying some of your liquidity into growth.
Do you think about allocating that money to.
Either new agility clinics or maybe buying some senior housing facilities.
That you think are in good condition, maybe even ones from D. H C. Can you give us some thoughts about how you look at 2021 for deploying capital.
Sure.
2021 is going to be primarily focused on stabilizing our senior living business, but in terms of looking at our capital. We're always looking for the best uses for capital to support our current business and future growth and that certainly could include acquiring new communities to grow our own portfolio.
But we continue to be focused on growth in the agility line of business and expect I think as we noted last quarter.
To that for that to grow at approximately two to four clinics of quarter throughout 2021.
Okay, and as we talked about on the DHT call earlier today.
When they opt to sell a property that you guys manage.
How do you deal with that and look to replace that loss of income and maybe how much lead time do you get to prepare for that.
I think it's out of its an ongoing dialogue with D. H C.
We meet regularly to review the communities and discuss opportunities for those that are underperforming.
So I think we regularly our connection and understand things that may be considered for disposition or for closure.
Okay and can you talk a little bit about the conversion rate of sales leads I know you guys have talked about.
The increase in leads.
You know what what pushback are you getting from potential residents and what are the prospects of overcoming that and getting them to moving in the next couple of quarters.
I think our prospects are pretty good we our conversion rate.
Is down from last year, but we've seen.
We've seen an increase in tours.
Our lead generation is way up and we think that there is a we think that there is pent up demand out there.
And can you point to.
The things that you're looking at because I get that question a lot of like okay.
We get that theoretically, but can you kind of point to anything about this pent up demand and when does that damn break when do they yes.
There's one thing to have pent up demand nothing to kind of pull the trigger and actually moving right right Yeah, Brian.
Brian I think that.
We often see we're seeing the pent up demand materialize the little in the more needs baseline of business I think in particular memory care as you might imagine if fewer of family caregiver carrying four day met someone with dementia through the pandemic. That's been it's probably a significant challenge. In addition is where office space to start to read.
<unk> opened and people go back to work, where we've noticed that family caregivers are looking for solutions for that so I think we're going to see that pent up demand be more in line with the needs based lines of business as opposed to the choice baseline of business of independent living.
Got it that's helpful and not looking for guidance here more just kind of where your hedge of that but as you look at the lay of the land.
Here in February with the vaccines and the pent up demand.
With where occupancies are currently.
We're talking a year from now on the fourth quarter 21 call do you suspect that Occupancies have stabilized continue to go down more of our turned nicely positive from where we are now.
Well I think Brian if there's any.
The thing we've learned from this pandemic hits that we cannot predict the future.
Obviously things are very challenged at the end of December and into January we have seen some positive momentum.
True in February.
It's very difficult to say, we certainly hope we will be back to more normal levels of occupancy, but I think as we said in our remarks or I said in our remarks, it's kind of probably take some time to rebuild that back to where it was pre pandemic.
Alright, great. Thanks for all of the comments I appreciate it thank.
Thank you thanks for joining.
This concludes our question and answer session I would now like to turn the conference back over to Katie Potter for any closing remarks.
Thank you for joining us today the cause.
Over the 19 pandemic has continued to impact our lives and our business in unforeseen ways and the leadership team and I continue to be proud and impressed by the consistent dedication of our entire team here at five star and encouraged as we embark on this next step in our response.
We look forward to updating you on our progress in the coming months, we wish collective health and wellness to all operator that concludes our call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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