Regional Health Properties, Inc.
Q4 2014 Earnings Call Transcript

Published: 31 Mar 2015

[Operator:]

Good day, and welcome to the AdCare Health Systems Inc. Fourth Quarter 2014 Earnings Call. Today's conference is being recorded. At this time I would like to turn the conference over to Jeff Stanlis of Hayden IR. Please go ahead sir.

[Jeff Stanlis:]

Thank you, Jessica and good day. Joining me on the call today are Bill McBride, AdCare's Chairman of the Board and Chief Executive Officer; Allan Rimland, AdCare's incoming President and Chief Financial Officer, as well as Sheryl Wolf, AdCare's Senior Vice President, Controller and Chief Accounting Officer. I would like to mention this call is being simulcast on the Company's website at www.adcarehealth.com. Also like to point out that any forward-looking statements made today’s call are based on management’s current expectations, assumptions and beliefs about AdCare's business and the environment in which the company operates. These statements are subject to risks and uncertainties that could cause AdCare's actual results to differ materially from those expressed or implied on this call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review AdCare's SEC filings for a more complete discussion of the factors that could impact AdCare's actual results. Except as required by federal securities law, AdCare does not undertake to publicly update or revise any forward-looking statements, which changes arise as a result of new information, future events, changing circumstances or for any other reason. Also AdCare’s supplemented GAAP reporting with non-GAAP metrics such as adjusted EBITDA and EBITDAR When reviewed together with AdCare's GAAP results, these measures can provide a more complete understanding of AdCare's businesses. This should not be relied upon to the exclusion of GAAP financial measures. A reconciliation of these measures to GAAP is available in today's press release. After management concludes their remarks, they will respond to questions regarding the presentation. Now I would like turn the call over to the Chairman of the Board and Chief Executive Officer of AdCare, Bill McBride. Bill, please go ahead.

[William McBride:]

Thanks, Jeff. Good afternoon, and thanks to everyone for joining us today. We are very pleased to come to you today with a good news that we’ve made significant progress in executing our strategic transition. And as a result, at the end of the first quarter, the Board has declared a $0.05 cash dividend on our common stock to be paid in April. In addition, I am pleased to welcome Allan Rimland, who will join our executive team as President and Chief Financial Officer effective tomorrow. There is a lot to cover this afternoon. So let’s get started. It’s truly an important moment in our company’s history. Just six short months ago, our Board proposed a significant change to our business model to transition our company from an owner and operator of healthcare facilities to a property holding and leasing company. The primary objective in this change of direction was to increase value for our shareholders. Following the approval by our shareholders last October, we began to execute a plan to fulfill that vision. The new plan set us on a course to improve cash flow, reduce the risk of earnings and cash flow volatility and position the company for the payment of regular cash dividend. Central to the plan was the negotiation and execution of leased and sub-leased agreements with healthcare operators for the 37 properties that we owned and operated. Prior to that transition, we had already sub-leased three properties. And as we come to you today, we’ve entered into agreements to lease or sub-lease 35 of our 40 total healthcare facilities with only five pending final disposition. This includes the three facilities that we sub-leased before we began the transition. Our team has worked and will continue to work diligently and expeditiously to effect these agreements and complete the transfer of operations. As you may recall, the process of executing fully effective leases includes not only the initial steps of identifying leases for each of our properties, negotiating and executing the agreements, but also includes all other required regulatory approvals, financing and leasing approvals among others. A direct result of transitioning the properties is the reduction of overhead expenses, which in turn is expected to continue to improve our profitability and generate increased cash flow. The process we have made thus far has provided the Board with the reassurance needed to return cash dividends to our shareholders in the form of a $0.05 dividend per common share payable on April 30, 2015 to shareholders of record on April 15, 2015. The Board remains committed to continue to return to shareholders through a substantial quarterly dividend policy. In addition, at this point in our transition, the Board has decided it was an important time to make changes to the Board. I am proud and excited to transition to Chairman and CEO and I will be relinquishing my title of President. Let me take just a minute to introduce Allan who will join AdCare tomorrow as President and Chief Financial Officer. He brings more than 25 years of financial and industry experience to the job with 20 of those years spent directly in investment banking for the healthcare services and related real estate sectors with several large and mid-sized investment banks. Most recently, he served as Managing Director of the Healthcare Group at Stephens Inc. Today, Allan has worked on more than $100 billion in M&A and capital raising transactions. I have known Allan for more than two decades. We’ve worked together – directly together on capital raising transactions that involve each of my prior public companies. His experience in raising capital and advising on M&A transactions will be a key resource for us as we seek to grow our portfolio of properties. Moving forward, we will be looking for value creating opportunities to selectively grow our portfolio of properties. I’d like to take a minute to thank David Tenwick, our previous Chairman and Founder, who has agreed to remain on our Board as a director. Peter Hackett has resigned from the Board as part of this reorganization and we’d like to thank him for his many years of service. Michael Fox will now serve as our lead Independent Director going forward. Although Allan will be named an officer of AdCare effective tomorrow, we wanted to take this opportunity to introduce him to shareholders and we’ve asked him to join today’s call for that purpose. Before we turn to the financial results, I wanted to give him a chance to share a few words. Allan?

[Allan Rimland:]

Thanks, Bill. I am excited about joining the AdCare’s team at this important point in the company’s evolution and look forward to starting tomorrow. As Bill mentioned, I have spent over two decades in investment banking primarily focused on the healthcare services industry particularly in the senior care related sectors and hope to use my expertise and experiences at working closely with sales and the AdCare team in growing the company and creating sustainable shareholder value.

[William McBride:]

Thanks, Allan. Turning next to our financial results. For the fourth quarter and full year our financial results again reflect the company in transition with certain properties still being managed under the operator model and others being managed under our new leasing and holding company model. I'd like now to turn the call over to Sheryl Wolf, our Senior Vice President, Controller and Chief Accounting Officer for a detailed review of the numbers.

[Sheryl Wolf:]

Thank you, Bill, and good afternoon, everyone. The financial results I will briefly report today reflect to our legacy business where we operate the facilities. Since over the last six months, we’ve been transitioning away from this model. The year-over-year comparisons are impacted by the facility management operations which we no longer do. Briefly, for the fourth quarter, revenue was up 3.9% to $48.7 million, compared to the fourth quarter of 2013 of $46.8 million. Operating income was approximately $8000in the fourth quarter 2014, compared to an operating loss of approximately $296,000 in the fourth quarter of 2013. The fourth quarter of 2014 includes the adjustment to non-reoccurring charges relating to salary continuation and separation costs of approximately $135,000. Within our operating expenses, general and administrative expenses decreased approximately $1.8 million or nearly 36% year-over-year as the result of the decreases in salaries and wages, employee benefits, contract services, travel expenses and accounting and auditing fees. As a percentage of total revenue, General and Administrative expenses decreased from 10.7% for the fourth quarter of 2013 to 6.6% for the fourth quarter of 2014. Adjusted EBITDAR was $4.5 million, compared to the prior year period of $4.6 million. The adjusted EBITDAR margin for the fourth quarter 2014 was 9.3%, compared to 9.7% in the fourth quarter of 2013. A reconciliation of this metric to our GAAP numbers is available in the press release we distributed today. For the full year, total revenues were up 4% to $193.3 million compared to $185.8 million for the full year 2013. Operating income for the full year was approximately $1.3 million compared to an operating loss of approximately $1.6 million in 2013. 2014 includes the non-reoccurring charge of approximately $2.6 million relating to continuation and separation costs with continuing approximately $0.9 million relating to a separation agreement with an officer of the company since the strategic transition was announced. The non-reoccurring charge was partially offset by a reduction in fixed cost. Within our operating expenses, general and administrative expenses decreased approximately $3.5 million year-over-year as the result of decrease in salaries and wages and employee benefits, contract services, travel expenses and accounting and auditing fees. As a percentage of total revenue, general and administrative expenses decreased from 10.2% for the full year of 2013 to 8% for the full year of 2014. We have removed a significant amount of fixed cost from our cost structure as a result of the strategic transition. Adjusted EBITDAR was up 27.5% to $19.5 million for the full year 2014, compared to $15.3 million in 2013. The adjusted EBITDAR margin for 2014 was 10.1%, compared to 8.3% in 2013. Moving now to review our balance sheet. Cash and cash equivalents at December 31, 2014, totaled $10.7 million, as compared to $19.4 million at December 31, 2013. Total restricted cash and investments at December 31, 2014 totaled $8.8 million as compared to $15.4 million at December 31, 2013. Total debt at the end of the 2014 was $151.4 million, compared to $160.3 million at December 31, 2013. Earlier today, we announced that the company accepted subscriptions for a private placement of $8.5 million aggregate principal amount of 10% convertible subordinating notes and issued approximately $1.7 million in principal amount of such notes. The convertible subordinated notes mature on April 30, 2017 with interest payable on a quarterly basis at an annual rate of 10% and are convertible at $4.25 per share of common stock. The net proceeds from the offering will be used primarily for repayment of the company’s $6.5 million subordinated convertible notes which mature on April 30. 2015 and provide additional working capital for the company. I will now turn the call back over to Bill.

[William McBride:]

Thanks, Sheryl. In summary, 2014 was a pivotal year for AdCare highlighted by first and foremost, making significant progress in our strategic transition from an owner and operator of healthcare facilities to a property holding and leasing company with a leasing portion of this transition now largely complete. Second, our Board declared and authorized payment of a quarterly dividend in accordance with our transition plan. And finally, I am pleased to welcome Allan Rimland as our President and Chief Financial Officer, which will help provide the company, the management resources to begin growing the company’s portfolio of properties. We look forward to providing you with additional updates as our progress continues. And at this time, I’d like to ask our operator to open the call up for your questions.

[Operator:]

[Operator Instructions] And there are no questions. I apologize; we do have a question from Gentry Klein with Cetus Capital.

[Gentry Klein:]

Hey guys. Thanks very much for the call.

[William McBride:]

Hi, Gentry.

[Gentry Klein:]

One quick question on the go forward, how does the business look to the extent you could provide any color or direction whatsoever, just in terms of pro forma revenue and progress you’ve made. Is it fairly in line with the numbers that have been provided when we first embarked on this path?

[William McBride:]

Yes, I would say, as I said on the last call and I would continue to reiterate, the leases that we’ve got in place are consistent with the lease pricing that the company established when it filed its 8-K last summer. We are not seeing any material differences in those amounts. So, we are very pleased to be able to have executed those along the lines of what those projections were at that time.

[Gentry Klein:]

Got it. Okay, thanks very much. I don’t have any other further questions. Just congratulations on a good quarter and the progress you guys have made thus far and we look forward to progress in the future. Thanks.

[William McBride:]

Thanks Gentry.

[Operator:]

Go next to Donald Egan [Ph] with Don Egan DMD [Ph].

[Unidentified Analyst:]

Hi, I got a question for you, just speculated once. With this quarterly dividend, would this kind of help ensure the raising of the stock price from where it is now and where would you – fellas like to see it, what range we’d like to see it in?

[William McBride:]

Well, I am not going to comment on the stock price. That’s not, sort of my area. But I will say that, it’s very typical in the REIT, healthcare REIT world and other REIT worlds in order to establish a dividend that the company feels it’s reasonably – a reasonable amount consistent with what expects its FFO expectations to be for the company and we’ve done that based on where we are in the leases that we’ve got signed and we feel comfortable with that level of dividend. I mean, how the stock reacts to that is really up to the market to decide.

[Unidentified Analyst:]

I guess, when I am saying that, how many $4.38 stocks have a quarterly dividends of a nickel, it seems pretty good dividend to our stock price around – under $5.

[William McBride:]

I would just say that, I mean, my comment would be, I think really the way most people in the industry, the healthcare industry REIT world would look at it is more of a yield sort of analysis and at the $0.05 if one was to assume that that was to continue for the year, that would be $0.20, which would put us, put the yield at something just around 5% slightly under. That ranks reasonably consistent with the other healthcare REITs out there.

[Unidentified Analyst:]

Okay.

[William McBride:]

Our REIT is obviously younger, smaller, potentially easier to grow, because it’s got a much smaller share base. So, transactions that we do going forward are likely to be accretive to us on a per share basis since the other large healthcare REITs. So, however, if one would look at it and say, whilst the risk is a little bit higher, it is a smaller REIT, somewhat highly leveraged. So, I think that the yield is reasonably consistent depending on which way you look at taking all things into account.

[Unidentified Analyst:]

Going forward, would you be in the business of buying more properties or just shrinking?

[William McBride:]

Absolutely, absolutely, I mean, the Board brought me on board, I think, based on my experience in founding and growing LTC from a start-up healthcare REIT to 700 plus million of properties in over four, five years. The Board brought me and I have suggested and recommended to the Board that we bring on Allan primarily to grow this REIT.

[Unidentified Analyst:]

I see.

[William McBride:]

We are not here just to kind of sort of lease out the remaining properties, transfer operations and then sit there and pay a dividend. That’s not what our objective is at all. We want to grow the REITs. We want to look for opportunities to grow the REITs. And based on our – my experience in doing that in the industry, and Allan’s experience in financing that growth, I think the company put together a good management team to be able to do that.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

[Operator Instructions] There are no further questions. I will turn the conference back over to management for closing remarks.

[Jeff Stanlis:]

Well thanks all of you for joining us today. We look forward to updating you on our progress during our next conference call and good day to everyone. Thanks.

[Operator:]

This does conclude today’s conference. Thank you for your participation.