Diversicare Healthcare Services, Inc.
Q2 2021 Earnings Call Transcript
Published:
- Operator:
- Good afternoon, and welcome to the Diversicare Healthcare Services 2021 Second Quarter Conference Call. Today's call is being recorded. I would like to remind everyone that in addition to historical information, certain comments made during this conference will be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. And these statements involve risks and uncertainties that may cause actual events, results and/or performance to differ materially from those indicated by such statements. You are encouraged to review the risk factors and forward-looking statement disclosures the company has provided in its annual report on Form 10-K for the year ended December 31, 2020, and in its quarterly report on Form 10-Q as well as its other public filings with the Securities and Exchange Commission. During today's call, references may be made to non-GAAP financial measures. Investors are encouraged to review those non-GAAP financial measures and a reconciliation of those measures to the comparable GAAP results in our press release furnished under Form 8-K. I would now like to turn the call over to Jay McKnight, the President and Chief Executive Officer.
- Jay McKnight:
- Thank you, Matt. Good afternoon and thank you for joining Diversicare's 2021 second quarter earnings call. As we've shared before, we have had and continue to have substantial exposure in certain jurisdictions that have some of the highest professional liability cost per bed in the country. Although the COVID-19 pandemic’s impact on our census and on our skilled nursing patients and residents is clear. At this point, the industry cannot predict the impact of the COVID-19 pandemic on our future professional liability costs. These factors and other challenges facing our industry have been taken into consideration in developing our operating and strategic direction. We've received numerous questions lately about how the delta variant of COVID-19 is affecting our centers. As we shared on the first quarter call, we have gone to a point of virtually no COVID-19 cases in our centers. As of today, we've COVID cases and just over half of our centers. We do not have a methodology to test for the delta variant, but given the information widely available in our markets, we feel safe in assuming our increases are due to the delta variant. At this point, anecdotally, it appears that the severity of these cases has lessened, meaning that are vaccinated patients, residents and team members who were COVID positive so far are not getting a sick. Those who have been vaccinated are having fewer incidences of hospitalizations and are generally recovering quicker than those who have not been vaccinated. Our vaccination rates for our team and for our patients and residents is in line with geographic industry averages for the majority of our centers, but we would like for it to be higher. Our first priority continues to be protecting our patients residents and team members to the end of the pandemic. With that priority in mind, we continue to advocate for vaccinations in our communities and our organizing many vaccination clinics for patients and residents, team members, and families or others in our communities, who are interested in the vaccine. The vaccine is definitely save the lives of our patients and residents, who have received it. We strongly recommend vaccine compliance in our Diversicare centers. Our industries have seen some return to normalcy as cases of COVID in the skilled nursing environment declined. State and federal surveyors are returning to complete annual surveys and we're seeing other routine activities resuming in our centers, which is good for our patients residents and team members. We hope that the outbreaks are largely behind us and continue to follow CDC guidelines in our centers as we welcome our patient residents families into visit. We know that the emotional health of our patients and residents as much improved by time with their loved ones. And we're doing all we can to facilitate in person visits. As we mentioned on the first quarter call, our average daily census hit the lowest point, we've seen during the pandemic and the first quarter of this year. Our team continues to work to increase patient surge in all of our centers, but the recovery in our industry has been a slow one. We did see some improvement during the second quarter before the increases in cases due to the delta variant. Our entire industry continues to struggle to predict when we will see a return to pre-pandemic occupancy. All of our lost revenue and COVID related expense from the beginning of the pandemic to-date have been offset by stimulus dollars under the most recent guidance from HHS. We have $10.5 million of deferred stimulus to be utilized for the remainder of 2021 and into the first half of 2022. A portion of our federal stimulus had to be used by as early as June 30 of this year, all of which was utilized. Without additional stimulus grants, the second half of our year could be financially challenging. We are working with our national and state organizations to highlight the need for additional stimulus dollars and qualifications for the use of existing grants. A significant portion of our stimulus funds usage has been for COVID related staffing, meaning that we've paid special pay, hero bonuses over time and significant agency fees. During the quarter, we incurred $6.4 million of COVID related expenses for staffing, testing and PPE, while recognizing $8.5 million of federal stimulus and 100,000 of state grants as other income during the quarter, with another $5.8 million of state Medicaid rate add-ons. Now that the fast our program is resumed and we have some updated results, I'd like to speak to our quality measures. As you will likely remember from our presentations before the pandemic, we usually provide an update as to how we're doing compared to the industry and the quality measures domain. We are proud to share that our combined Diversicare quality rating 3.74 exceeds the overall quality measures score for our industry and that for our profit peer group. Our second quarter had net income of $2.9 million from continuing operations and EBITDA of $6.7 million. EBITDAR for the quarter was $19.9 million, this quarter compares favorably to the second quarter of 2020. Year-over-year, our total occupancy for available beds was down from 74.9% to 69.9% with skilled mix decreasing from 15% to 14.2%. The pandemic drove a 5% decrease in occupancy from the prior year quarter, which resulted in fewer Medicaid, private Medicare and hospice patients and a $10.8 million decrease to patient revenues. Our quarterly Medicaid rates increased year-over-year by $2.99, which provided $1.4 million of additional revenues. Please note that the Medicaid rate does not include the impact of the temporary rate at all in several of our operating states. With that, I'll turn the call over to our CFO, Kerry Massey for some specific remarks on our financial statements.
- Kerry Massey:
- Thank you, Jay. As Jay mentioned in his comments, the pandemic continued to be impactful to our operations during the second quarter. We continue to experience reduced occupancy at many of our centers and incurred increased expenses preparing for and responding to the pandemic. In addition to decrease patient services revenue, we incurred $6.4 million of COVID related expenses, most of which related to increased staffing costs. The cost of clinical hands on labor has remained high in recent quarters due to increased demand stemming from the pandemic and the limited availability of nurses and aids. The additional health care-related expenses for the quarter also included COVID-19 testing and the increased cost of personal protective equipment and infection control suppliers. During the second quarter, we recognized federal and state stimulus an amount sufficient to fully offset the impact of the increased operating cost and lost revenue. Of the $51.6 million of federal provider relief funds that we have received to date. We have recognized $38.8 million of the funds to offset increased health care related expenses and the lost revenue. Of which $8.5 million was recognized during the second quarter. We have also utilized to-date, $2.3 million of the funds to finance capital improvements and equipment purchases in our centers to improve our infection control environment. We ended the second quarter with $10.5 million of remaining provider federally funds, which are reflected as deferred income on our balance sheet. Patient revenues from our continuing operations for the second quarter were $111.3 million, representing a $7 million decrease from the prior year quarter. The decrease resulted largely from the impact of the pandemic on our average daily census, favorable rate variances for Medicaid and veterans' mitigated that impact and contributed approximately $1.8 million. During the quarter, we recognized $5.8 million of additional patient revenues from temporary Medicaid rate add-ons designated to help us manage through the pandemic. We also benefited from approximately $600,000 of increased revenue from the suspension of Medicare sequestration under the provision of the CARES Act and other stimulus legislation. Our operating expenses for the quarter increased as a percentage of revenue to 82.3% or $91.6 million from the prior year quarter of 81% or $95.8 million. The largest driver of the year-over-year increase was COVID-19 related expenses, which primarily related to the increased staffing costs that we previously mentioned. General and administrative expenses for the current quarter of $7 million were 6.3% of revenue were up slightly from the prior year quarter of $6.9 million or 5.8% of revenue. Our professional liability expense for the current quarter of $1.5 million or 1.3% of revenue decreased by more than $600,000 from the prior year quarter of $2.1 million or 1.8% of revenue. Our professional liability expense often fluctuates from period-to-period, based on the results of third-party actuarial studies, the premium cost of purchased insurance and the cost incurred to defend and settle existing claims. Our EBITDA for the second quarter was $6.7 million, which represented a $1.2 million improvement over the prior year quarter. Adjusted EBITDAR for the quarter was $19.9 million. That concludes our discussion of the second quarter financial results. I'll now turn the call back over to Jay for some closing remarks.
- Jay McKnight:
- Thank you, Carrie. We continue to face the challenges of returning to pre pandemic occupancy levels and staffing in our centers while improved the pandemic is still affecting long-term care in very material ways and there is some continuing uncertainty. Our team of caregivers center and regional leadership and the support team here in our headquarters continue providing high quality care and the most challenging time our industry has ever seen. I could not be more proud of how they all care for our patients and residents and support one another. We encourage you to review our investor deck on our investor website and file today with the SEC, with our press release under 48-K. As is our custom we'd like to conclude this call by reminding you of our mission statement to improve every life we touch by providing exceptional healthcare and exceeding expectations. This concludes our prepared remarks today. We'll now open the call for questions.
- Operator:
- Jay McKnight:
- Thank you for joining our call today. We appreciate your interest in Diversicare Healthcare Services' and look forward to sharing our results with you in future quarters.
- Operator:
- The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.