AlerisLife Inc.
Q4 2021 Earnings Call Transcript

Published: 24 Feb 2022

[Operator:]

Hello, and welcome to the AlerisfLife Fourth Quarter 2021 Earnings Call. . Please note, this event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.

[Michael Kodesch:]

Thank you. Welcome to AlerisfLife's Fourth Quarter 2021 Conference Call. The agenda for today's call includes 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. We'd 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 AlerisfLife's 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 into 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 components to calculate them are available in our quarterly results news release or investor presentation available on our website at alerislife.com. I will now turn the call over to Katie.

[Katherine Potter:]

Thanks, Michael. Good afternoon, everyone, and thank you for joining our fourth quarter 2021 conference call. We are pleased to bring in the new year with a new name, AlerisfLife, now trading under the ticker ALR on the NASDAQ. The name change puts the significant organizational restructuring we've executed over the past 2 years, and our strategic decision to continue delivering an exceptional and enhanced resident experience to Senior Living and active adult residence, while also offering lifestyle services to choice-based customers. 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 2 segments

[Jeffrey Leer:]

Thank you, Katie. Fourth quarter management and operating revenues were approximately $40 million, a decrease of $2.9 million from the sequential quarter, primarily 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 $316,000 due to communities that transitioned during the quarter. Our Residential segment reported total management and operating revenues of $24.4 million. Of the $9.5 million in management fees earned, approximately $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, a slight increase compared to the third quarter. Looking ahead to the first quarter, within our Lifestyle Services segment, while clinic and 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 Ageility is impacted by Medicare reimbursement rate cuts that took effect on January 1, 2022. General and administrative expense for the fourth quarter was $18.8 million, which included $2.9 million reimbursed by DHC. Our net G&A expense was approximately $15.9 million, which represents a decrease of $1.1 million or 6.4% from the third quarter. Since the second quarter of 2021, we have reduced our gross general and 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 streamline our processes and making the necessary investments in our people. For the fourth quarter, we reported a net loss of $10.7 million or $0.34 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 DHC. Adjusted EBITDA for the quarter was negative $6.4 million. Moving to our balance sheet. At year-end 2021, we had approximately $67 million of unrestricted cash and cash equivalents and only $6.8 million of outstanding debt obligations in the form of 1 mortgage note maturing in 2032. Our fourth quarter unrestricted cash position represented a $13.2 million decline from the third quarter, for which $5.8 million was reinvested in our owned communities and include certain nonrecurring investments. Throughout 2022, we expect to invest almost $12 million in our owned portfolio to ensure our physical product is competitive in each community's marketplace. Outside of operations, we expect to incur $2 million to $4 million of technology investments in 2022. Subsequent to quarter end, we closed a $95 million senior secured term loan, of which $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 deployments at our own communities, our cash balance as of today remains slightly below $100 million. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator:]

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

[Kyle Menges:]

This is Kyle on for Brian. I was hoping if you could just talk a little bit more about 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, is that right?

[Katherine Potter:]

Kyle, actually, we think it's -- an average based on community and market, it's anywhere between 5% and 10%, and those were implemented in January.

[Kyle Menges:]

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 the tight labor market. Do you think that you'd have to raise rates again throughout the year?

[Katherine Potter:]

I agree. The labor market continues to be pretty challenged. And we are evaluating rate, again, based on community and market as we move through the year, and we're evaluating costs. We'll be evaluating rate at the same time. So it's, I think, fluid as we move through the year.

[Kyle Menges:]

Okay. And has there been much pushback from either the existing or new tenants? Or is this kind of just a standard for the markets that you're in and competitors are pushing through the same rates?

[Katherine Potter:]

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 and the people that they're closest to at the community level. So I would say, generally speaking, we have not had any negative feedback from the residents. I would say on the perspective resident side, I think it may be delaying some decision to -- if you're a more choice-based resident, might be delaying your decision given that the rates across the entire industry are increasing.

[Kyle Menges:]

Okay. And then turning to CapEx, it looks like you spent $11.7 million so far in the first quarter. Could you talk a little bit more about the CapEx outlook for 2022, both for the owned communities and then also within Lifestyle segment?

[Jeffrey Leer:]

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 $20,000 to $30,000 per clinic opening. However, I think we are working opportunities to become more efficient and drive that initial cost down from that -- from our target -- from a range that we've historically had.

[Kyle Menges:]

Okay. And then kind of piggybacking off of that, could you guys talk a little bit about some of the growth opportunities that you think are out there within lifestyle kind of that you're most excited about that you think you could capitalize on this year?

[Katherine Potter:]

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 product. So that -- I hope that gives you a good idea of the types of things we're looking at.

[Kyle Menges:]

Yes, that does. And then just 1 last question from 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 then close upon expiration? How should we think about that?

[Katherine Potter:]

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 inpatient clinics will close as of August of this year.

[Operator:]

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

[Katherine Potter:]

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

[Operator:]

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