Diversicare Healthcare Services, Inc.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Good afternoon, and welcome to the Diversicare Healthcare Services 2021 First Quarter Conference Call. Today's call is being recorded. During this presentation, all participants will be in a listen-only mode. After which, we’ll conduct a question-and-answer session. 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, as well as other public filings with the Securities and Exchange Commission.

[Jay McKnight:]

Thank you, Sam. Good afternoon and thank you for joining Diversicare's 2021 first 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. Our first priority continues to be protecting our patients, residents and team members through the end of the pandemic. We have held three vaccination clinics at each of our centers and have achieved a level of herd immunity. We have seen a continuous decline in the COVID-19 positive patients and team members since the vaccination clinics. And as of today, we have very, very few cases. In fact, our only COVID positive patients are those we admitted or who are already COVID positive. We continue to see small numbers of team members test positive, but we have no outbreaks in any of our centers. Our industry is seeing some return to normalcy as the cases of COVID-19 and the skilled nursing environment have declined. State and federal surveyors are returning to complete annual surveyors – or annual surveys, and we are seeing other routine activities resuming in our centers, which is good for our patients, residents and team members. We are very fortunate to have the outbreaks largely behind us and continue to follow CDC guidelines in our centers as we welcome our patients and residents families into visit. We know that the emotional health of our patients and residents is much improved by time with their loved ones. And we are doing all we can to facilitate in-person visits. Our average daily census hit the lowest point we've seen during the pandemic in the first quarter. We have seen small increases in the total patient served trend line since then. Our entire industry has struggled to predict when we will see a return to pre-pandemic occupancy but the recent trend of small incremental improvement is an encouraging sign. We continue to focus on our basic fundamentals as a skilled nursing provider, knowing that efficiency and quality must be maintained as we work to recover.

[Kerry Massey:]

Thanks, Jay. As Jay highlighted in his comments, the COVID-19 pandemic continued to impact our operations during the first quarter of 2021. During the first quarter, we incurred $12 million of increased health care-related expenses, most of which were represented by increased labor costs. The cost of clinical hands-on labor has increased considerably in recent periods 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 costs of personal protective equipment, nursing supplies and food. During the first quarter, we recognized federal and state stimulus an amount sufficient to fully offset the impact of the increased operating cost and lost revenue. To-date, we have received $51.6 million of federal Provider Relief Funds. We have recognized $30.3 million of the funds to offset the increased health care-related expenses and lost revenue that were caused by the pandemic, of which $10.5 million was recognized during the first quarter. We have also utilized $1.8 million of the funds to finance capital improvements and equipment purchases at our centers to improve our infection control environment. We ended the quarter with $19.5 million of remaining Provider Relief Funds, which was reflected as deferred income on our balance sheet. Patient revenues from our continuing operations for the first quarter were $113.4 million, representing a $6.6 million decrease from the prior year quarter. As Jay mentioned, we recognized $4.1 million of additional patient revenues during Q1 from temporary coronavirus Medicaid rate add-ons. We also had approximately $800,000 of increased revenue from the suspension, a sequestration of the provision of the CARES Act and other stimulus legislation. Our operating expenses for the quarter increased to $96.8 million or 85.4% of patient revenues from the prior year quarter of $94.9 million or 79.1% of patient revenues. We incurred $12 million of COVID-related expenses, which included $8.1 million of additional labor costs and $3.9 million for testing and the increased cost of PPE, infection control supplies, food, and dietary supplies. G&A expenses for the first quarter of $6.8 million were consistent with the prior year quarter. Our professional liability expense for the current quarter of $2.1 million or 1.8% of revenue, increased by approximately $300,000 from the prior year quarter of $1.8 million or 1.5% of revenue.

[Jay McKnight:]

Thank you, Kerry. We continue to be excited about how Diversicare has evolved. Our expense structure and risk profile are much improved and our regional and center teams have handled the challenge of the pandemic very well. As we said earlier, the biggest challenges facing us now are the return to pre-pandemic occupancy levels and the uncertainty concerning the impact of COVID-19 litigation. We look forward to getting back on track with our growth and improvement plans as we emerge from the pandemic. Our industry is still in need of support from the federal and state governments, and we are appreciative of the support we've received so far. We encourage you to review our investor deck on our investor website and file today with the SEC with our press release under Form 8-K. Our frontline team, center and regional leadership and the support team here in our headquarters continue to impress by providing high quality care in 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 how they support one another. 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. We'll now open the call for questions.

[Operator:]

Thank you. And we do have a question from Tom McDonald. Please go ahead, your line is now open.

[Unidentified Analyst:]

Thank you. Question I have is regarding occupancy rates. Obviously, the entire industry has seen a pretty significant drop from low-80s to about 71%. And it appears when you look at on a state-by-state basis that a number of your States are in line with where the industry has been. But the real glaring exception is Texas at 50% – I think 57%. I'm just curious as to what your thoughts are about Texas and the odds of that rebounding to pre-pandemic levels. And if not, or there is concerns, is there any thought about selling any facilities that you have in Texas?

[Jay McKnight:]

Yes. Tom, that's a great question. I appreciate you jumping on and asking us about that. Yes, so the occupancy rate for our available beds across our entire portfolio is very much in line with what we've seen in the specific States. Whenever you go through and you look state-by-state, we're largely right on track with everybody else is. Texas is a bit of an outlier. And one thing to remember there is, we have some of the largest physical plants in Texas. In fact, I believe we have the two largest nursing homes in the entire state of Texas. So that definitely affects the bed count a little bit from an available beds perspective. I don't have the data right in front of me to see what that number was in all the quarters prior. But yes, we were at 57% of available beds. Now the return 57.3% and that's from the table in the last page of our press release. The return to pre-pandemic levels is hard to forecast. In some of our markets in Texas, we believe that we're going to be able to move the needle a little faster. We're working specifically on some complimentary services in some of those centers that were not ready to go mainstream with talking about yet. But some things that we think are going to give us a little bit of an advantage that we look forward to getting rolled out some by the end of this year, some in next year. Obviously, that's been slowed down by the pandemic. But it's really, really hard to forecast whether or not we're going to be able to get all the way back to pre-pandemic levels and when that'll happen. It really is a market-by-market answer. And it's hard for us to say when that's going to happen.

[Unidentified Analyst:]

Okay, well, I appreciate that. A quick follow-up to that then would be, I know that there is a number of organizations that are getting out of the skilled nursing business and focusing on AL and Hospice, you got a bunch of their facilities. Have you guys looked at possibly acquiring any of the facilities for sale from some of these organizations that are leaving the industry right now?

[Jay McKnight:]

Yes. We look at acquisitions all the time. And when we have acquisitions in our footprint, that makes sense that we can afford and they are complimentary to what we're doing, we have a history of doing those. Obviously, we went through a bit of a lull as we were working through our – settling our matter with the OIG. And that matter was settled in February 14 of 2020 and three weeks later pandemic. So it's kind of been hard for Diversicare for the last couple of years to do much on the acquisition front. But we are actively looking at every deal we can look at.

[Operator:]

And there are no further questions at this time. I'll turn the call back to Jay McKnight. Thank you.

[Jay McKnight:]

All right. Thank you, everyone, 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:]

That does conclude the call for today. We thank you for your participation and ask that you please disconnect your line.