Q4 2021 Alerislife Inc Earnings Call

Hello, and welcome to the Alere slight fourth quarter 2021 earnings call.

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I'd now like to turn the conference over to Michael Kurdish Director of Investor Relations. Please go ahead.

Thank you welcome to <unk> fourth quarter 2021 conference call. The agenda for today's call includes a presentation by President and CEO , Katie Potter and executive Vice President CFO and Treasurer, Jeff Leer, followed by 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 the company.

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 <unk> present beliefs and expectations as of today Thursday February 24 2022.

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.

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 on any forward looking statements.

In addition, this call may contain non-GAAP numbers, including EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share reconcile.

Reconciliations of net income to these non-GAAP figures and the components to calculate them are available in our quarterly results news release or Investor presentation available on our website at <unk> Dot Com I will now turn the call over to Katy.

Thanks, Michael Good afternoon, everyone and thank you for joining our fourth quarter 2021 conference call.

We are pleased to ring in the new year with a new name <unk> place now trading under the ticker ALR on the NASDAQ the.

The name change reflects the significant organizational restructuring we've executed over the past two years and our strategic decision to continue delivering an exceptional and enhance resident experience to senior living an active adult residents, while also offering lifestyle services to choice based customer.

Well moving to a more before moving to a more thorough review of our fourth quarter results I wanted to spend some time detailing what this rebrand means for our company.

Going forward substantially all of our business will be conducted by our Chief segment first the residential segment, formerly known as senior living which is operated primarily through our five star senior living brand and <unk>.

Second the lifestyle services segment, formerly known as rehabilitation and wellness services, which is operated primarily through our agility brand.

As we grow and expand these segments, we expect to add additional lines of business operated through new and existing brands, representing a diverse offering of services to support older adults as they age.

We remain committed to operating a sizeable residential portfolio that delivers an exceptional resident experience to older adults.

Following the successful transition of 107 smaller higher acuity communities to third party operators, which was completed in the fourth quarter. Our residential segment is now comprised of 21 communities and 120 managed communities of which the majority of our units are weighted towards lower acuity choice based.

Tumors.

Looking at this Newport, new focused portfolio of properties, we are making the necessary investments to attract and retain our targeted customer base.

These investments are intended to make us more competitive with others offering similar services.

In addition, we entered into two strategic collaborations with third party service providers in.

In December we announced a collaboration with campus community living a division of Compass Group, a global leader in food and support services, whereby Congress will assume management of tiny services operation for all of our senior living communities.

Based on feedback from our current residents and data regarding our changing customer we thought to work with a partner that would transform the resident dining experience through chef inspired menus and farm to table ingredients. We also expect this collaboration to result in lower food costs through efficiencies of scale.

At the end of the year, we announced a collaboration with dispatch Hauck <unk> <unk>.

Leading provider of in home medical services that can provide on demand acute care to our residents and certain market.

Adding these services to our existing clinical services offering is expected to reduce unnecessary inexpensive trips to the emergency room, where our residents could also be exposed to more serious illnesses such as COVID-19.

Continued focus on adding enhancing our service offerings through partnerships, such as with Compass and dispatch Hell drive differentiation in our residential product offering, which we expect will lead to longer and stronger relationships with our customers.

As we've previously noted customer demands have dynamically shifted over the last decade and require us to evolve with them.

The average age of older adults moving into senior living communities continues to inch higher and even before the pandemic our residential portfolio experienced a subtle but consistent shift toward an older incoming residents.

Meanwhile, the sales cycle has lengthened putting pressure on lead conversion time, and consequently, requiring significant investment and nurturing prospective residents.

As such over the last several years, we have been focused on meeting evolving customer demands and capturing both residential and lifestyle needs earlier in the customer lifecycle.

Our name change to Alere slides, it's indirect response to these changing needs and represents our continued expansion into the growing lifestyle services segment.

Agility rehabilitation services represents a great example of our lifestyle services segment strategy.

Our outpatient rehabilitation clinic openings have grown at a five year CAGR of 22%.

Over the past few years, we have seen that after adding an outpatient clinic towards senior living community the rate of resident falls with reduced by 36% and more critically the average length of stay at these communities increased 31%.

With minimal investment required in opening new clinics and the market share of under 1% of the estimated market opportunity for this service.

We believe there is significant potential to continue growing this business.

Similarly in 2019, we launched an agility fitness offerings that complement both our residential and lifestyle services segments and added a new revenue streams for our company.

During the fourth quarter fitness revenues increased over 30% year over year and were up over 4% sequentially.

Furthermore, this service has been pandemic tested and continues to generate steady growth even through the recent emergence of COVID-19 barriers.

We are optimistic that we will continue to see robust growth in the fitness service line over the near and long term.

On a consolidated basis, our lifestyle services segment's revenues increased one 6% from the third quarter with sequential quarter increase was recorded across each of our service offerings in this segment.

On a consolidated basis total outpatient rehabilitation visits in the fourth quarter increased to approximately 148000, which represented a slight increase of third quarter figures and an increase of approximately 4% compared to a pandemic world.

We will remain nimble and endeavor to anticipate the changing needs of our customer base in order to attract and retain residents within the communities, we own and manage as a result, we remain focused on sourcing opportunities that meet the needs of the choice based customer and diversify our revenue stream, but also drive performance in our residential segment.

Well, we have nothing new to announce at this time, we are actively pursuing expansion of our lifestyle services and hope to announce new partnerships and our strategic investments this year.

Turning to our residential operating results for the quarter.

Overall, we were pleased to demonstrate an average occupancy growth across our residential segment and a seasonally weak fourth quarter. Despite the emergence of the <unk> variant of COVID-19 labor challenges in a highly competitive market.

Average occupancy in our own residential portfolio was 72% an increase of 210 basis points from the third quarter our.

Average occupancy in our managed residential portfolio increased 150 basis points sequentially.

On a comparable community basis average occupancy in the managed residential portfolio was 74, 1% an increase of 70 basis points from the third quarter, which was roughly in line with the industry average for portfolio is more weighted in independent living.

In January the comparable community portfolio average occupancy increased 20 basis points to 74, 1%.

While we are encouraged by these results we remain focused on improving our sales processes and maximizing revpar.

In light of strong competition in our markets Revpar this quarter decreased approximately two 3% sequentially across our comparable community residential segment as concessions remained elevated during the holiday months.

Looking ahead, we believe the peak of concessions are now behind us and given you did construction starts that we expect will continue to suppress the extensive new supply we experienced over the last decade. We are excited to begin increasing rates in 2022.

Asking rents in January increased 5% to 10% depending on the community in market and.

And we have seen positive reception to these rate increases given wage inflation and the premium level of service that we provide.

Finally, subsequent to quarter end I am excited to welcome Lauren Cody, our new Chief customer Officer, and Michael Lopez, Our new Chief people officer to newly created positions within our leadership team.

The most important asset of our business is our people our team and their service to our customers as we expand our services and customer base, Lauren and Michael's decades of experience at large successful brand name organizations will be invaluable to us.

We look forward to leveraging our knowledge and expertise as we enter this new chapter of our company.

Before I turn the call over to Jeff I wanted to show my gratitude and appreciation for our team's dedication leadership and resilience. During this period of transition as well as their continued exceptional service to our customers.

The level of excitement as we transition into 2020 twos tangible across our team as we continue to lay the foundation to grow the quality and size of our business.

With much of the reorganization behind US we continue to invest in our corporate infrastructure and optimize our team and are eager to push <unk> forward.

I will now turn the call over to Jeff for a discussion of the financial results. Thank you Judy.

Fourth quarter management, and operating revenues were approximately $40 million decrease of $2 $9 million from the sequential quarter.

Merrily due to the completion of the transition of 107 communities throughout the year, which impacted our management revenues for the year by approximately $9 million.

On a run rate basis, we expect a further reduction of management fee revenues by approximately $316000 due to the communities that transition during the quarter.

Our residential segment reported total management operating revenues of $24 4 million.

Of the $9 $5 million of management fees earned.

$1 $4 million were attributable to construction management fees.

As a reminder, we will continue to receive a 3% capital management fee on all recurring capital.

We expect to deploy approximately $100 million.

Of capital on behalf of the managed communities throughout 2022.

Our lifestyle services segment reported revenues of $15 6 million.

Slight increase compared to the third quarter.

Looking ahead to the first quarter within our lifestyle services segment.

While clinic in daily visitation levels are expected to be largely consistent on a comparable clinic basis with the fourth quarter, we anticipate first quarter revenues to be slightly below fourth quarter revenues as agility is impacted by Medicare reimbursement rate cuts that took effect on January one 2022.

General and administrative expense for the fourth quarter was $18 8 million.

Which included $2 $9 million reimbursed by <unk>.

Our net G&A expense was approximately $15 9 million, which represents a decrease of $1 1 million or six 4% from the third quarter.

Since the second quarter of 2021, we have reduced our gross general administrative costs by almost $4 million or $16 million on an annualized basis.

Which is above our original target of $12 million previously mentioned.

We expect that while we continue to evaluate opportunities to optimize our general and administrative costs, we are committed to streamlining our processes and making the necessary investments in our people.

For the fourth quarter, we reported net loss of $10 7 million or 34 per share our net loss for the quarter included $2 3 million of restructuring costs related to our strategic plan of which $1 million was reimbursed by GAC.

Adjusted EBITDA for the quarter was negative $6 4 million.

Moving to our balance sheet at.

At year end 2021, we had approximately $67 million of unrestricted cash and cash equivalents and only $6 $8 million about extending debt obligations in the form of one mortgage note maturing in 2032.

Our fourth quarter unrestricted cash position represented a $13 $2 million decline from the third quarter $45 $8 million was reinvested in our owned communities and include certain nonrecurring investments.

Throughout 2022, we expect to invest almost $12 million in our own portfolio to ensure our physical product as competitive as each community's marketplace.

Side of operations, we expect to incur $2 million to $4 million of technology investments in 2022.

Subsequent to quarter end.

Those the $95 million senior secured term loan.

$63 million less closing costs of $3 2 million was immediately available.

In connection with entering this new term loan we also terminated our existing secured revolving credit facility, which had no borrowings outstanding and was scheduled to mature in June 2022.

Following quarter end due to timing of funding working capital obligations in conjunction with capital deployment at our owned communities our cash balance as of today remains slightly below $100 million.

That concludes our prepared remarks, operator, please open the line for questions.

We will now begin the question and answer session to ask any question you May Press Star then one on your telephone keypad.

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At this time, we will pause momentarily to assemble our roster.

The first question comes from Kyle Mendez with B Riley FBR.

Please go ahead.

Hi, This is Kyle on for Brian .

I was hoping if you could just talk a little bit more about the the rate increases that you've been able to push through.

And it sounded like in your prepared remarks, you had done 5% to 10% in January and then 8% in February .

Right.

Hey, Kyle.

Actually we think it's an average based on community and market is anywhere between five and 10% and those were implemented in January .

Okay.

And do you think that that pretty much covers the increase in labor costs, and just kind of as you look out.

Through the remainder of the year.

We're still in a tight labor market do you think that you.

You'd have to raise rates again throughout the year.

I agree I the labor market continues to be pretty challenged and we are evaluating right again based on community and market as we move through the year end and we're evaluating cost will be evaluating right at the same time, so I think fluid as we move through the as you move through the year.

Okay.

Has there been much pushback from either.

The existing or new tenants.

Or.

Or is this kind of just the standard for the markets that you're in and competitors are pushing through the same rage.

I would say generally it's pretty standard and most of our residents know that a lot of this is being passed through to the team members that they live and work with every day and so they appreciate that investment we're making in the people that are closest to you at the community level. So I would say generally speaking we have not had any negative feedback from the residence.

I'd say on the prospective resident side I think it may be delaying some decision to if you have more choice based resident might be delaying your decision given that the rates across the entire industry are increasing.

Okay. Thanks, and then turning to Capex it looks like you've spent $11 7 million so far in the first quarter could.

Could you talk a little bit more just about the capex outlook for 2022, both for the owned communities and then also within the lifestyle segment.

Hi, Kyle so for Capex I think what we had in our prepared remarks was we anticipate about $12 million of capital investment in our owned portfolio throughout the year with an additional $2 million to $4 million of it investments.

And then for.

The lifestyle services segment.

I still think it's about 20 to 30000 per clinic openings. However, I think we are working opportunities to become more efficient and drive that that initial.

Cost down from that from our target from a range that we've historically had.

Okay. Thanks.

And then kind of piggybacking off of that could you guys talk a little bit about <unk>.

Some of the growth opportunities that you think are out there within lifestyle kind of that you're most excited about.

But you think you could capitalize on this year.

Sure as we've talked about in the past.

We are looking at opportunities to grow service offerings that we do internally organically.

Both within our communities and outside of our communities that leverage our expertise, but also going outside and looking at things like home care as an example, which we've talked about on prior calls as opportunities to continue to grow the lifestyle services segment again, I think fitness is another. Good example of that which was an extension of our rehab products. So that I hope that gives you a good idea.

The types of things we're looking at.

Yes. It does thank you and then just one last question for me.

So you still have 10 inpatient clinics it looks like you signed new agreements that expire in August .

Should we assume that those clinics and closed upon exploration.

How should we think about that.

Yes, those were short term arrangements to support new operators and as well as making sure. Our residents had continuity of rehab services.

So yes, you can expect that those those inpatient clinics will close as of August of this year.

Okay. Thanks, that's all for me.

Thanks very much.

This concludes our question and answer session I would like to turn the conference back over to Katie Potter for any closing remarks.

Thank you all for joining us this afternoon, operator that concludes our call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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