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AlerisLife Inc. Announces Second Quarter 2022 Results

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Occupancy Growth of 110 Basis Points Over Prior Sequential Quarter

Net Loss Reduction of 10% Over Prior Sequential Quarter

Adjusted EBITDA Improvement of $4.1 Million Over Prior Sequential Quarter

Restructuring Plan is Underway to Improve Operating Results

NEWTON, Mass., August 03, 2022--(BUSINESS WIRE)--AlerisLife Inc. (Nasdaq: ALR) today announced its financial results for the three months ended June 30, 2022.

"Our second quarter results reflect progress in critical performance areas," said Jeff Leer, President, Chief Executive Officer and Chief Financial Officer. "Occupancy increased in both the owned and managed senior living communities as we focus on and implement cost reductions. Our second quarter results significantly reduce operating losses on a sequential and year over year basis. During the coming months, we hope to build on this quarter's progress to eventually generate meaningful operating income. To this end, earlier today we began executing on a restructuring plan which includes reducing operating expenses by eliminating certain corporate overhead positions. We plan to complete this restructuring plan by mid-2023. We also ended the quarter with sufficient liquidity to execute on our restructuring plan, with $83.5 million of cash and no debt maturities until 2025."

Second Quarter Summary of Financial Results:

  • Quarter-end occupancy in our owned senior living communities grew 340 basis points, or bps, relative to the end of the first quarter.

  • Quarter-end occupancy in the managed portfolio increased 80 bps relative to the end of the first quarter.

  • Net loss for the second quarter of 2022 was $8.8 million, or $0.28 per diluted share, compared to a net loss of $9.7 million, or $0.31 per diluted share, for the first quarter of 2022, and a net loss of $12.3 million, or $0.39 per diluted share, for the second quarter of 2021, which included $15.4 million of restructuring expenses, partially offset by $11.5 million which was reimbursed by Diversified Healthcare Trust, or DHC.

  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of 2022 was $(4.4) million compared to $(5.5) million for the first quarter of 2022 and $(8.8) million for the second quarter of 2021. Adjusted EBITDA, as described further below, was $(1.3) million for the second quarter of 2022 compared to $(5.3) million for the first quarter of 2022 and $(4.5) million for the second quarter of 2021. EBITDA and Adjusted EBITDA are non-GAAP financial measures. Reconciliations of net loss determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA and Adjusted EBITDA for the second quarter of 2022 and 2021 are presented later in this press release. The reconciliation of net loss to EBITDA and Adjusted EBITDA for the first quarter of 2022 is presented in the Form 8-K that we filed on May 3, 2022.

  • RevPAR (resident fee revenues for the corresponding portfolio for the period divided by the average number of available units for the period, divided by the number of months in the period) for the comparable managed communities for the second quarter of 2022 was $3,077 compared to $3,027 for the first quarter of 2022 and $2,961 for the second quarter of 2021, an increase of 1.7% and 3.9%, respectively.

  • RevPAR for the comparable owned communities for the second quarter of 2022 was $2,560 compared to $2,443 for the first quarter of 2022 and $2,357 for the second quarter of 2021, an increase of 4.8% and 8.6%, respectively.

Substantially all of ALR's business is conducted by its two segments: (i) its residential segment through its Five Star Senior Living, or Five Star, brand and (ii) its lifestyle services segment primarily through its brands Ageility Physical Therapy Solutions and Ageility Fitness, or collectively Ageility, and Windsong Home Health. The following tables present data on the owned and leased and managed senior living communities that ALR operates through its Five Star brand, including comparable community data, as well as data on the rehabilitation locations that ALR operates through its Ageility brand, including comparable outpatient location data.

Summary of Operational Results

As of and for the Three Months Ended

June 30, 2022

March 31, 2022

June 30, 2021

Residential Segment:

Five Star:

Number of living units (end of period)

Independent living

10,460

10,423

10,979

Assisted living

7,696

7,715

12,023

Memory care

1,817

1,861

3,247

Skilled nursing

1,484

Total living units

19,973

19,999

27,733

RevPAR

Owned and Leased (1)

$

2,560

$

2,443

$

2,425

Managed

$

3,077

$

3,027

$

3,086

Quarter End Occupancy

Owned and Leased (1)

75.5

%

72.1

%

69.7

%

Managed

75.4

%

74.6

%

71.3

%

Comparable Communities (2):

RevPAR

Owned

$

2,560

$

2,443

$

2,357

Managed

$

3,077

$

3,027

$

2,961

Quarter End Occupancy

Owned

75.5

%

72.1

%

70.1

%

Managed

75.4

%

74.6

%

73.3

%

Operating Margin (3):

Owned

(20.1

)%

(24.2

)%

(16.0

)%

Managed

8.4

%

6.4

%

10.1

%

As of and for the Three Months Ended

June 30, 2022

March 31, 2022

June 30, 2021

Lifestyle Services Segment:

Ageility:

Number of Clinics and Locations

Inpatient clinics

10

10

10

Outpatient locations (4)

202

201

218

Number of Visits (in thousands)

Inpatient clinics (5)

23

22

36

Outpatient locations

153

144

156

Comparable Outpatient Locations (6):

Caseload as a % of occupancy (7)

24.8

%

24.3

%

28.2

%

Operating margin (3)

(0.4

)%

3.0

%

12.5

%

___________________________

(1)

The three months ended June 30, 2021 includes four leased communities with approximately 200 living units previously leased from HealthPeak Properties, Inc., or HealthPeak. The lease with HealthPeak was terminated on September 30, 2021.

(2)

Comparable communities includes financial data for 20 owned senior living communities and 120 managed senior living communities that ALR continuously owned or managed and operated through its Five Star brand since April 1, 2021, exclusive of 1,532 skilled nursing facility, or SNF, living units that have been closed in 27 Continuing Care Retirement Communities, or CCRCs.

(3)

Operating margin is defined as operating revenue less operating expenses divided by operating revenue in each case for the business segment. For the Residential segment, it is inclusive of 1,532 SNF living units, which have been closed in 27 former CCRCs (of which 1,473 living units were closed during the three months ended June 30, 2021). It is exclusive of Provider Relief Funds from the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and other government grants recognized as other operating income. In addition, it excludes restructuring expenses for the three months ended June 30, 2021 of $10.2 million for the comparable managed communities.

(4)

During the three months ended June 30, 2022, ALR opened four locations and closed three locations.

(5)

During the three months ended June 30, 2021, ALR closed 27 inpatient rehabilitation clinics.

(6)

Comparable outpatient locations includes financial data for 187 outpatient rehabilitation locations that ALR continuously operated since April 1, 2021.

(7)

Represents the average number of Ageility customers divided by average total occupancy at each of the senior living communities where we operate Ageility rehabilitation locations. Occupancy is defined as the average total number of residents residing at the senior living communities.

Operational Review

During the quarter ended June 30, 2022, ALR engaged the healthcare consulting arm of Alvarez & Marsal, or A&M, to provide a comprehensive operational review of ALR's business and make recommendations to our Board of Directors. The recommendations made by A&M include general and administrative cost reductions, a corporate reorganization that is designed to enhance accountability and certain operational changes to support team members to ensure the delivery of high-quality experiences to residents and customers and to increase occupancy at ALR's senior living communities, as further described below:

  • Reduce costs annually by a target of approximately $14.0 million, net of investments to be made of approximately $4.0 million as described below, by:

    • Streamlining redundant business processes and reducing investments in non-core functions,

    • rationalizing information technology systems to those that directly support core business functions, and ensuring their optimal utilization, and

    • continually assessing general and administrative expenses to identify cost savings opportunities.

  • Invest approximately $4.0 million to refocus on ALR's core business and invest strategically in projects, processes and systems that will enhance our ability to successfully operate our residential and lifestyle services businesses, including:

    • Re-defining executive leadership team, inclusive of hiring a Chief Operating Officer to oversee field and national operations and a Chief Financial Officer,

    • investing in a scalable and agile national operations infrastructure to drive operational excellence and results, and

    • establishing a centralized sales function with reinstituted regional sales support to focus on both sales and marketing efforts.

Based on A&M's operational review, on August 3, 2022, ALR is executing a restructuring plan in which it intends to eliminate certain positions in its corporate team. ALR expects to complete this restructuring by the middle of 2023. In connection with implementing this restructuring plan, ALR expects to incur non-recurring cash expenses of up to $6.1 million. These expenses are expected to include up to $0.2 million of retention payments, up to $2.6 million of severance, benefits and transition expenses and up to $3.3 million of restructuring expenses. ALR recognized costs of $0.7 million related to the A&M operational review for the three months ended June 30, 2022, which are recorded in general and administrative expenses in our condensed consolidated statements of operations.

Summary of Senior Living Communities and Outpatient Rehabilitation Locations

Presented below is a summary of the communities, units, average occupancy, quarter end occupancy, revenues and residential management fees for the Five Star senior living communities ALR manages for DHC, as of and for the three months ended June 30, 2022 (dollars in thousands):

Total

Communities

Units

Average
Occupancy

Quarter End
Occupancy

Community
Revenues (1)

Management
Fees

Independent and assisted living communities

120

17,886

74.1%

75.4%

$

165,179

$

8,971

_______________________________________

(1)

Managed senior living communities' revenues do not represent ALR's revenues, and are included to provide supplemental information regarding the operating results of the Five Star senior living communities from which ALR earns residential management fees.

Presented below is a summary of the Ageility outpatient rehabilitation locations ALR operated as of and for the three months ended June 30, 2022 (dollars in thousands):

As of and for the
Three Months Ended June 30, 2022

Number of
Locations

Total
Revenue (1)(2)

Caseload as a
% of
occupancy (3)

EBITDA
Margin (4)

Outpatient Locations in DHC Owned Communities Managed by Five Star

93

$

7,572

25.6%

—%

Outpatient Locations at ALR Owned Communities

15

783

27.3%

(2.0)%

Outpatient Locations at Other Communities (5)

94

4,339

23.0%

(2.2)%

Total Outpatient Locations

202

$

12,694

24.5%

(0.9)%

_______________________________________

(1)

Excludes revenue of $1,736 earned during the three months ended June 30, 2022 for ten Ageility inpatient rehabilitation clinics.

(2)

Total Ageility revenue includes fitness revenue. Total Ageility revenue excludes home health care services, which is part of the lifestyle services segment.

(3)

Represents the average number of Ageility customers divided by average total occupancy at each of the senior living communities where we operate Ageility rehabilitation locations. Occupancy is defined as the average total number of residents residing at the senior living communities.

(4)

EBITDA Margin is a non-GAAP financial measure and represents rehabilitation locations that are in service as of June 30, 2022. A reconciliation of EBITDA Margin is presented later in this press release.

(5)

Other communities includes outpatient rehabilitation locations at senior living communities not owned or managed by ALR.

Conference Call Information:

At 1:00 p.m. Eastern Time on August 4, 2022, ALR's President, Chief Executive Officer, Chief Financial Officer and Treasurer, Jeffrey Leer, will host a conference call to discuss ALR's second quarter 2022 financial results.

The conference call telephone number is (877) 329-4332. Participants calling from outside the United States and Canada should dial (412) 317-5436. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on August 11, 2022. To hear the replay, dial (412) 317-0088. The replay pass code is 5024418.

A live audio webcast of the conference call will also be available in a listen-only mode on ALR’s website, www.alerislife.com. Participants wanting to access the webcast should visit ALR’s website about five minutes before the call. The archived webcast will be available for replay on ALR’s website following the call for about a week. The transcription, recording and retransmission in any way of ALR's second quarter ended June 30, 2022 financial results conference call are strictly prohibited without the prior written consent of ALR. ALR’s website is not incorporated as part of this press release.

About AlerisLife:

AlerisLife enriches and inspires the lives of its older adult customers across the United States by delivering an exceptional and enhanced resident experience to senior living and active adult residents, while also offering lifestyle services to the younger choice-based consumer. The Company is headquartered in Newton, Massachusetts. For more information, visit www.alerislife.com.

AlerisLife Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share amounts)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

REVENUES

Lifestyle services

$

14,645

$

17,453

$

28,784

$

37,006

Residential

16,094

16,378

31,480

33,435

Residential management fees

8,971

12,927

17,903

26,777

Total management and operating revenues

39,710

46,758

78,167

97,218

Reimbursed community-level costs incurred on behalf of managed communities

127,648

195,271

258,584

408,431

Other reimbursed expenses

3,765

16,592

7,515

22,072

Total revenues

171,123

258,621

344,266

527,721

Other operating income

2

42

7,795

OPERATING EXPENSES

Lifestyle services expenses

14,329

15,668

27,550

31,878

Residential wages and benefits

9,159

9,896

17,786

21,909

Other residential operating expenses

4,973

8,968

12,322

15,234

Community-level costs incurred on behalf of managed communities

127,648

195,271

258,584

408,431

General and administrative

17,844

22,748

36,190

45,139

Restructuring expenses

528

15,389

374

15,639

Depreciation and amortization

3,284

2,989

6,447

5,929

Total operating expenses

177,765

270,929

359,253

544,159

Operating loss

(6,642

)

(12,306

)

(14,945

)

(8,643

)

Interest, dividend and other income

129

76

209

160

Interest and other expense

(1,251

)

(409

)

(2,283

)

(872

)

Unrealized (loss) gain on equity investments

(1,050

)

398

(1,682

)

...