AlerisLife Inc. (ALR) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day, and welcome to the AlerisLife Second Quarter 2022 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 AlerisLife's second quarter 2022 conference call. The agenda for today's call includes a presentation by Jeff Leer, President and Chief Executive Officer and Chief Financial Officer and Treasurer; followed by a question-and-answer session with research analysts. I would 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 AlerisLife's present beliefs and expectations as of today, Thursday, August 4, 2022. 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. 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 alerislife.com. I will now turn the call over to Jeff.
Jeff Leer: Thanks, Michael. Good afternoon, everyone, and thank you for joining our second quarter conference call. In my prepared remarks today, I will discuss our plan to adopt and execute the recommendations made by the health care consulting group of Alvarez & Marsal, inclusive of the investments we are making in our operational support functions, combined with driving cost efficiencies, insights into the improvement of our operational and financial results for the quarter as well as provide an additional detailed commentary surrounding our strategic initiatives to continue driving revenue opportunities in our communities and clinics. First, utilizing the recommendations made by Alvarez & Marsal, we will continue to drive efficiencies in standardized processes that will enable us to better serve our residents and customers and stabilize our financial performance. This includes adjustments to the structure of operational support, meaningful reorganization of our sales and marketing programs, and continued investment in streamlining processes that will eliminate cost redundancies and enhance margins. Many of these augmented targeting strategies and enhanced sales techniques were deployed within our own portfolio as a pilot program during the quarter, and we expect to expand these new sales strategies to the broader portfolio this quarter. In our Residential segment, we experienced solid momentum as we progress through the quarter. At the end of the quarter, occupancy in our owned portfolio was 75.5%, an increase of 340 basis points compared to the end of the first quarter. As a result of this occupancy increase, in addition to a slight increase in rates, RevPAR in our owned portfolio grew 4.8% sequentially. In the 120-community portfolio managed on behalf of DHC, occupancy at the end of the quarter was 75.4%, which represents an increase of 80 basis points from the end of the first quarter. RevPAR in our managed portfolio grew 1.7% as a result. While we are encouraged by the quarterly improvement, we believe the June performance will carry into Q3, and we are making further investments in sales and marketing to ensure the momentum will continue. Average occupancy in our owned portfolio increased 120 basis points from May to June, while July average occupancy increased an additional 160 basis points compared to June. Similarly, average occupancy in the managed portfolio increased 50 basis points from May to June and increased an additional 40 basis points in July. We note that our RevPOR results include the impact of concessions, which were utilized more significantly at the end of 2021 and the beginning of 2022 and still impacted Q2 results. We expect the impact of these concessions to lessen as we move into the back half of the year, which we believe will support additional top-line revenue growth. Today, we are only utilizing concessions in certain markets on a case-by-case basis rather than as a programmatic strategy to attract prospective residents. Our leading indicators and execution improved in the quarter as well. Sales lead volume increased 6% compared to the first quarter, largely driven by continued focus on marketing through our digital leads platform. We conducted over 6,334 tours throughout the quarter, of which 1,759 were repeat tours. In addition to the improved tour volume growth this quarter, our tour to sales conversion rate was 27.3% in the quarter, which is an increase of 450 basis points sequentially and highlights our immense focus on enhancing our sales tactics to improve occupancy. On a consolidated basis, our Lifestyle Services revenue increased $500,000 compared to the first quarter due to increased outpatient utilization. Looking ahead, we are planning to roll out a new structure within our agility rehabilitation offering, which includes introducing a more scaled approach to therapists and labor providing these services. As a result, we expect the new structure will help reduce our overall start-up costs, drive increased utilization, and shorten the location stabilization period. Moving to expenses. Wages and benefits as a percentage of revenues were 50.3% in the second quarter, a decrease of 210 basis points from the sequential quarter. Annualized employee turnover also moved lower from the first quarter, decreasing over 1,000 basis points to 63.2%. We will continue to make investments in our labor force to attract and retain top-tier talent within our Residential segment, which in turn will reduce turnover, the need for costly agency labor and ultimately lower the expense level needed to operate our owned and managed communities. Despite U.S. inflation at record levels, operating expenses decreased approximately $3.7 million or 2.1% from the sequential quarter. Base wages were up just 6% from the first quarter, while other residential expenses excluding the $1.7 million decrease related to self-insurance reserves decreased approximately $700,000. Notably, contract labor costs decreased by almost $500,000 or 12% from the sequential quarter, resulting from our focus on hiring of key positions. Shifting to our financial results for the quarter. In the second quarter, management and operating revenues were approximately $39.7 million, an increase of $1.3 million from the sequential quarter, primarily driven by the residential improvement I discussed earlier. Our Residential segment reported total management and operating revenues of $25.1 million, an increase of approximately $750,000 from the first quarter. Of the $9 million of management fees earned, approximately $700,000 were attributable to construction management fees as we deployed $24 million of capital on behalf of the managed portfolio this quarter for routine community capital improvements. As a reminder, AlerisLife will continue to receive a 3% capital management fee on all routine capital. We expect to deploy approximately $54 million of capital on behalf of the managed communities for the remainder of 2022. Within our Lifestyle Services segment, clinic and daily visitation levels continue to trend upward, and we had one net location opening in the second quarter. Looking ahead to next quarter, we expect the implementation of the new Ageility go-to-market structure to be rolled out modestly over time. And as such, we expect the measured increase in net locations over the next few quarters. General and administrative expense for the second quarter was $17.8 million, which included $3.3 million reimbursed by DHC. This G&A figure also included approximately $2 million related to non-recurring severance and consulting costs. As a result, excluding these two items, our net G&A expense was approximately $12.5 million, which represents a decrease of $1.9 million or 13.2% from the first quarter. And since the second quarter of 2021, we have reduced our quarterly net general and administrative costs by $5.2 million or approximately $21 million on an annualized basis. We expect that while we continue to evaluate opportunities to reduce our general and administrative costs, we are committed to streamlining our processes and making the necessary investments in our people. For the second quarter, we reported a net loss of $8.8 million or $0.28 per share compared to $9.7 million or a $0.31 per share loss in the first quarter of 2022. Adjusted EBITDA for the quarter was negative $1.3 million, a $4 million improvement compared to a loss of $5.3 million reported for the previous quarter. At quarter end, we had approximately $83.5 million of unrestricted cash on our balance sheet. Excluding CapEx and non-recurring impacts such as severance and consulting fees, cash loss from operations was about $2.5 million during the second quarter. Additionally, throughout the remainder of 2022, we expect to invest up to $10 million in our own portfolio and $1 million to $2 million for investments in technology. That concludes our prepared remarks. Operator, please open the line for questions.
Operator:
