Q3 2022 Alerislife Inc Earnings Call

Good day and welcome to the Alere is life.

Third quarter 2022 conference call.

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I would like now to turn the conference over to Michael Qetesh Director of Investor Relations.

Please go ahead.

Thank you welcome to <unk> third quarter 2022 conference call.

Jennifer Today's conference call includes a presentation by Jeff Lee, our President and Chief Executive Officer, and Heather Pereira, Chief Financial Officer, and Treasurer, followed by a question and answer session with research analysts.

Like to note that the transcription reporting our 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 Alere slides present beliefs and expectations as of today Thursday November three 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 upon any forward looking statements and.

In addition, this call may contain non-GAAP numbers, including EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share 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 Jeff Thanks, Michael and good afternoon, everyone and thank you for joining our third quarter conference call.

In the third quarter occupancy increased 180 basis points sequentially across our residential segment, which included a 290 basis point increase in our own portfolio and a 160 basis point increase in our managed communities.

The growth in the third quarter was our largest occupancy increase in recent years.

Further we were pleased to outpace the senior housing industry as reported by Nic, which showed third quarter sequential occupancy growth of 100 basis points in primary and secondary markets.

In addition to the strong occupancy growth Revpar also experienced a quarter over quarter increase resulting in revpar growth of nine 4% and our own portfolio and 4% in our managed communities.

These results are directly attributable to our short term focus on operational improvement and occupancy growth across our residential segment, primarily through enhanced investments within our sales and marketing programs.

This includes an overhaul of our sales incentive program, which better aligns our goals with those key personnel and mission critical sales functions.

Additionally, based on algorithm ourselves now conclude the review of our operations.

We have begun retooling, our marketing strategy and established a centralized sales function to support the focus on sales and marketing efforts.

These investments in sales and marketing delivered observable benefit as we increased occupancy by accelerating move ins improved toward to moving conversion ratios and shortened the closing process.

Lead volume accelerated nine 3% this quarter from the sequential quarter and our conversion rate improved by 200 basis points over second quarter results.

We appreciate the commitment and performance of our regional and corporate teams this quarter and expect continued execution on this front, which will position our company for long term success.

Over the past few months, we've made two key leadership hires to bolster these strategies and continue delivering improvement across our portfolio.

In September we hired head of Pereira, as Chief Financial Officer and Treasurer.

Heather brings a wide array of accounting and management experience to <unk> life.

And I expect tethered to be instrumental in leading organizational transformation by optimizing the corporate infrastructure and maximizing efficiency.

More recently, we significantly enhanced our depth of senior living industry expertise with the hiring of Bill Benjamin as Chief operating officer, who will oversee the execution of our operational recovery strategy would.

With these two hires we now have fully assembled our leadership team.

Turning to operating expenses.

We expect that third quarter expenses would be higher mainly driven by widely reported inflation that effects every facet of our own community portfolio and corporate functions.

In our own community level operating expenses increased 12, 9% largely driven by wage utilities and food cost inflation.

The near term downside of increasing occupancy at our current pace often requires short term contract labor to backfill care requirements.

We remain intensely focused on driving a decrease in employee turnover and reducing open positions to reduce this need.

The moderation of contract labor will ultimately help offset the pace of wage inflation, we are seeing across our business.

This quarter across our entire residential portfolio employee turnover decreased slightly to 17, 6% and open positions fell by over 200 basis points to just over 11% by quarter end.

As we focus on operational efficiencies and stabilize workforce to meet growth demands, we expect to see contract labor moderate in the fourth quarter and declined more substantially in 2023.

Algorithm ourselves review helped identify other key opportunities for reducing not only labor costs, but also other key areas to produce expense efficiencies.

For the next couple of quarters.

<unk> recommendations will continue to be rolled out including incremental alignment of sales marketing clinical and resident programming under a national operations support functions implementing labor opportunities both at the corporate level and within key functional areas of the communities, we own and manage and driving efficiencies in our foodservice as we <unk>.

Bye.

Finally, I wanted to touch on our lifestyle services business.

Which gained one net new outpatient location in the quarter.

Despite increasing case loads as a percentage of occupancy recent policy regarding government assistant programs, such as the reduction of Medicare and Medicaid reimbursement have put pressure on our ability to drive results at our legacy rehabilitation clinics.

As we have mentioned in the past quarter conference calls, we are retooling, our business to drive efficiencies and increase the profitability of the services we provide this.

This includes introducing a more scaled approach to the therapist and labor, providing these services by utilizing our geographical network of communities and maximizing output from each therapist, we employ.

As a result, we expect the new structure will help reduce overall startup costs and drive increased utilization and shortened the location stabilization period.

To date, we have rolled out 11 of these networks and expect to continue growing our agility business in this regard.

I will now turn it over to Heather Pereira, who will provide a review our financial results for the quarter.

Thanks, Jeff.

The third quarter management, and operating revenues or approximately $41 $5 million.

An increase of $1.8 million.

6% sequential quarter, our residential segment reported total management and operating revenue of $27 million, an increase of approximately $2 million kind of the second quarter.

Revenue at <unk>.

And managed communities increased in the quarter as we grew revpar across these portfolio sequentially.

Additionally.

During the quarter construction management fees were approximately $900000.

This represented a slight increase from our second question and we deployed $29 $3 million of capital on behalf of the managed portfolio during the quarter for routine any capital increase.

We expect to deploy approximately $33 million of capital on behalf of the managed communities in the final quarter of 2022.

As we look ahead.

While we expect occupancy and Revpar to continue prowling and the communities, we manage on behalf of the HD wave.

That sounds good ground beef, partially offset by the impact of hurricanes yet.

While the vast majority of our Florida communities fared well through the Hurricane at 380 unit managed independent and assisted living community in Fort Myers, Taco to mitigate damage, which we expect to temporarily impact the property and the management revenues will be seen from the <unk>.

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The occupancy loss at this community. However was partially absorbed by community and proximity to this location, which should help offset this short term headwind.

Turning to lifestyle services.

Jeff discussed in his prepared remarks location and daily visitation levels continued to trend upward and we added one net new location this quarter.

Despite no Manhattan lifestyle services revenues were $14 $5 million.

Practically flat to the sequential quarter as efficiency losses due to investment in process improvement offset the growth from new clinics and increased utilization.

Looking ahead to next quarter, we expect the continued rollout MP agility go to market structure to continue increasing net locations over the next few acquired.

General and administrative expense for the third quarter was $17 million.

Which included $3 $4 million reimbursed by <unk>.

Okay.

As a result, excluding these reimbursements.

G&A expense was approximately $13 $7 million.

Which represents a decrease of $900000 or 6% on a comparable second quarter net G&A expense.

We expect to incur additional restructuring cost in the fourth quarter.

As Jeff mentioned, we expect to continue evaluating opportunities in our corporate structure and have begun implementing the recommendations made by Alvarez and marsal to streamline our processes and we anticipate a reduction in general and administrative costs going forward.

For the third quarter, we reported a net loss of $8 $5 million or 27 cents per share compared to a loss of $8 8 million or 28 cents per share reported in the second quarter.

Adjusted EBITDA for the quarter was negative $5 million, an approximate $800000 improvement compared to the previous quarter.

At quarter end, we had approximately 70 $921 million in restricted cash on our balance sheet.

Excluding capex.

Nonrecurring impacts such as severance and consulting fees.

Cash flow from operations was approximately flat during the third quarter.

Additionally throughout the remainder of 2022, we expect to invest up to $5 million in our own portfolio and $500000 for investments in technology.

That concludes our prepared remarks.

Greater please open the line for questions.

Okay.

And this will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

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

Our first question comes from Andrew <unk> from B Riley Financial's Andrew. Please go ahead.

Hi, This is Andrew I'm in for Brian .

My first question is it seems that al ours owned communities run a higher occupancy than the managed properties why is that.

Hey, Andrew this is Jeff.

So.

The reason why we're seeing a faster improvement in occupancy at our owned portfolio as we continue to see demand.

For more needs based care and if you look at our mix of communities and units our level of service is more weighted to 60% of our portfolio's weighted to assisted living versus independent living and when you compare that to the manage the manage portfolio has.

36% of its.

Into the assisted living and 55% is in the independent living we're more choice based product.

Okay. Thank you a couple more from me what can be done to drive down expenses more over the near to intermediate term.

Yes.

As I stated on the call I think what we have to really focus on is on our labor efficiency.

In filling key positions.

Reducing our contract labor.

And that will really help significantly bring down our labor cost.

Okay can.

Can you give us a little more color on your current sales strategies and conversion and success.

Sure So we've implemented.

Our revamped.

Investment in our marketing and our national operations footprint by creating centers of excellence within our sales strategy as well as marketing focused predominantly on digital marketing campaign.

Expanding relationships with paid referral sources and also reassessing, our resident and team member referral programs.

To increase our lead volume into into the communities and then from a conversion strategy with the implementation of our center of excellence with sales one of the main support structures, where we've invested in the strategy of conversion and how do we make sure that we maximize our tour the sales conversion rates.

Okay.

Okay and the last one for me is is the recent trajectory of occupancy growth sustainable over the next several quarters, even with the potentially weakening weakening economy.

Yes, I think what we are seeing at least through October and early November as we're still seeing tour volume and lead volume very consistent with what we've seen over the last couple of months I would say.

The demographics.

Really play in our favor with if you look at the 80 plus demographic is a growth rate of just over three 5%, whereas in the prior five years. It was about 2%. So we're seeing aging aging population that will likely need our services.

And in addition, I still think you'll see it more in the need based on the short term versus the choice based products and so.

I think that's where you'll continue to see demand demand.

Okay.

Thank you that's all from me.

Yeah.

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It appears we do not have any further questions. So the conference concludes here. Thank you very much for attending today's presentation. You may now disconnect.