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Edited Transcript of DVCR.PK earnings conference call or presentation 5-Nov-20 10:00pm GMT

·12 min read

Q3 2020 Diversicare Healthcare Services Inc Earnings Call BRENTWOOD Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Diversicare Healthcare Services Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Alexa Karpinski Diversicare Healthcare Services, Inc. - VP of Financial Reporting * James Reed McKnight Diversicare Healthcare Services, Inc. - President, CEO & Director * Kerry D. Massey Diversicare Healthcare Services, Inc. - Executive VP & CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the Diversicare's 3Q '20 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Thursday, November 5, 2020. I now have the pleasure of turning the call over to Alexa Karpinski, Vice President of Diversicare. Please go ahead. -------------------------------------------------------------------------------- Alexa Karpinski, Diversicare Healthcare Services, Inc. - VP of Financial Reporting [2] -------------------------------------------------------------------------------- Thank you, Jennifer. Good afternoon, and welcome to the Diversicare Healthcare Services' 2020 Third 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 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, 2019, and in its quarterly report on Form 10-Q for the quarter ended September 30, 2020, as well as all of 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 the 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. -------------------------------------------------------------------------------- James Reed McKnight, Diversicare Healthcare Services, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Alexa. Good afternoon, and thank you for joining our third quarter earnings call. As we've shared before, we have had and continue to have a substantial presence exposure in certain jurisdictions that have some of the highest professional liability cost per bed in the country. Also, we 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. I'm going to spend some time discussing the third quarter's results with a specific focus on the impact of COVID-19 on our company and industry. Kerry Massey, our Chief Financial Officer, will provide some more in-depth financial information for the quarter, and we will conclude with some time for questions. I could not be more proud of the Diversicare team that continue to impress by providing high-quality care in the most challenging time our industry has ever seen. The frontline team, the center and regional leadership and the support team here in our headquarters are all going above and beyond to care for our patients and residents and to support one another. We announced earlier this week that we have partnered with Reliant Rehabilitation to be our therapy partner in all of our centers. We believe that this partnership will help keep us on the cutting-edge of innovation in our processes, and will provide the best care for our patients and residents. This is also a positive move for our therapy team members. Reliant offers career ladders, expert training and many other benefits to their team members that we were not in a position to offer. Additionally, we expect a significant cost savings from this partnership as we gain efficiencies in our centers. This is an exciting transition for us, and we look forward to sharing more about the outcomes in future quarters. Turning to the quarter's results. The third quarter followed the theme of improving results that began in 2019 after our exit from Kentucky. For continuing operations, we ended the quarter with net income of $3.2 million, bringing our year-to-date net income of $4.5 million. I shared last quarter that our financial results were largely where we thought they would be but by different means than expected. That notion continued in the third quarter as well. We recognized $9.6 million of federal stimulus during the quarter with another $6.6 million of state Medicaid add-ons. We also incurred $12.7 million of additional COVID-related expenses for staffing, testing and PPE. The stimulus money has enabled us to absorb these extra expenses at a time when patients served census has decreased materially. In the quarter, we saw a 14% decrease in patients served from the prior year, while our skilled mix improved from 13.3% for the year ago quarter to 16.5% this year. Our census decline in our respective operating states is similar to what others in our industry have experienced. Several of our states have been key in their support for us and other operators by temporarily increasing reimbursement through the emergency period. The federal stimulus money we have received, which has been significant for us, is the primary support that our industry is relying on to survive this pandemic. The federal stimulus dollars can only be used for lost revenue or COVID-19-related expenses. We have dealt with or are dealing with COVID-19 directly in all of our 62 centers, meaning that we have had patients, residents or team members test positive for the virus. Roughly half of our centers have recovered and have no suspected cases as of today. We maintain a COVID-19 update page on our company's website that includes certain information about our experience. We encourage you to review that website for our most recent updates. We've had approximately 2,000 patients in residence test positive and approximately 1,700 team members test positive. Between 50% and 60% of each of these groups have been asymptomatic positives, which highlights the importance of testing in the long-term care setting. We shared last quarter that CMS will be providing rapid-testing machines to all qualifying skilled nursing facilities in the country. We now have the ability to perform antigen tests for COVID as a screening tool for all of our patients and residents in each of our centers. The entire process of testing, cohorting and reporting has been a major initiative for us. We are testing our team members, patients and residents anywhere from once a month to as frequently as twice a week, depending on the CMS positivity ratings of our local markets. We have certain circumstances when we need to utilize PCR tests and a lab partner. Our lab partners have been very good to prioritize testing availability for us and to report the results to us as quick as possible. We are glad to share that the testing situation has significantly improved since our last earnings call. Focusing on the financial results for the third quarter, we realized net income from continuing operations of $3.2 million compared to a net loss of $1.9 million for the year ago quarter. EBITDAR for the quarter was $20.2 million. EBITDA of $6.7 million compares very favorably to EBITDA of $1.2 million for the third quarter of 2019 for a $5.5 million improvement. Our patient revenue for the quarter was $118 million compared to $118.6 million for the year ago quarter. Our total occupancy for available beds was down from 81.6% to 70.2%, with skilled mix increasing from 13.3% to 16.5%. Our quarterly Medicare, and Medicaid and Managed Care rates increased year-over-year by $49.23, $4.92 and $41.19, respectively. Please note that the Medicaid rate does not include the temporary increases in Alabama, Tennessee and Texas. With that, I'll turn the call over to Kerry for some specific remarks on our financial statements. -------------------------------------------------------------------------------- Kerry D. Massey, Diversicare Healthcare Services, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Jay. As Jay highlighted in his comments, our financial results continue on a favorable trend with year-over-year and sequential improvement in both EBITDA and net income from continuing operations. We are continuing to benefit from our increased focus on quality initiatives and our push to drive savings through our operational cost structure. At the same time, the COVID-19 pandemic continues to impact our patient census, labor cost, and other operating expenses. However, the federal and state stimulus money that we have received has helped to mitigate those unfavorable impacts. Patient revenues for the third quarter were $118 million from our continuing operations, representing a decrease of approximately $600,000 from the prior year quarter. The pandemic continues to drive a significant year-over-year decline in patients served, amounting to a 14% decline from the prior year quarter and over $14 million of quarter-over-quarter lost revenue. The impact of this decline in our revenue was mitigated by the recognition of $6.6 million of state stimulus that we received in several of our markets, in connection with the temporary rate increase in the regular federal matching rate under the Families First Coronavirus Response Act. At the same time, our skilled mix has remained stable, due in part to the Medicare skill-in-place labor, and is actually up 3.2% from the prior year quarter. And we continue to benefit from increased rates. Medicare, Medicaid and Managed Care rates all showed an improvement over the prior year quarter, resulting in more than $4 million of revenue improvement. Through the end of the quarter, we have received $42.3 million of federal stimulus support, also known as the Provider Relief Fund payments. Under the CARES Act and PPPHCE Act, of which we recognized $9.6 million as other operating income during the third quarter and about $14.7 million year-to-date. At the end of the third quarter, we had a little over $27 million of remaining unrecognized federal stimulus funds, which we reflected as deferred income on our balance sheet. We expect to utilize these federal stimulus funds in upcoming quarters to offset additional loss revenue and increased health care-related expenses that we expect to incur as a result of COVID-19. Our operating expenses for the quarter of $98.7 million, or 83.7% of patient revenue, were up as a percentage of revenue from the prior year quarter of $95.6 million or 80.6% of revenue. The increase in operating expenses was driven by the impact of the pandemic on our operations, which included $6.6 million of increased labor expenses and $5.8 million of increases in other operating expenses, represented primarily by the cost of PPE, nursing supplies, testing, deep cleaning and other infection control activities. We continue to experience a significant increase in operational spend to provide care to patients and residents in our centers that have been affected by COVID-19 and also to prepare our centers for potential outbreaks. Setting aside the impact of COVID-19 on our operating expenses, we are benefiting from improvements that we made to our operational cost structure in 2019, and which have continued in 2020, primarily in relation to labor management, pharmacy and nursing supplies. G&A expenses for the current quarter of $6.5 million or 5.5% of patient revenue, decreased over $400,000 from the prior year quarter of $6.9 million. The reduction in G&A expenses was driven by decreased legal fees as well as our initiatives to drive efficiencies through the functions that support the operations of our centers. Our professional liability expense for the current quarter was $2.2 million or 1.9% of revenue increased by $0.5 million compared to the prior year quarter. Professional liability expenses have increased over the prior year primarily due to an increase in premiums from third-party insurers, consistent with market trends. Also, our professional liability expense often fluctuates from period-to-period due to the results of third-party actuarial studies and costs incurred to defend and settle existing claims. In conclusion, our EBITDA for the third quarter was $6.6 million, which represents an improvement of $5.4 million over the prior year quarter. Adjusting for lease expense, EBITDAR for the quarter was $20.2 million. That concludes our discussion of the Q3 financial results. I will now turn the call back over to Jay for some closing remarks. Thank you. -------------------------------------------------------------------------------- James Reed McKnight, Diversicare Healthcare Services, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- As we shared last quarter, we started the new federal government fiscal year on October 1. The Medicare reimbursement methodology was not changed, and we did receive a 2.2% gross market basket increase. The official national emergency period has extended through roughly the end of January 2021. At this time, the skill-in-place waivers that allow us to provide skilled care to our patients without a 3-day hospital stay will extend through January. The emergency period also extends the FMAP federal funds that are sent to the states to fight the pandemic. We are optimistic that our states will continue to support our industry with Medicaid add-ons and/or expense reimbursement for the COVID-related costs. Diversicare continues to make good progress as a company. And we think our most recent strategic moves better prepare us to weather the pandemic and be positioned to succeed after its end. Again, we want to recognize our amazing team here at Diversicare. They're doing heroic work in our centers and have been absolutely outstanding through an unprecedented time for our industry. 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 health care and exceeding expectations. This concludes our prepared remarks today. Jennifer, we will now open the call for questions. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- (Operator Instructions) And we are showing no questions on the audio lines at this time. Mr. McKnight, I will turn the conference back over to you. -------------------------------------------------------------------------------- James Reed McKnight, Diversicare Healthcare Services, Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- Thank you, Jennifer, and thank you all 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 [8] -------------------------------------------------------------------------------- This does conclude today's presentation. We thank you so much for your participation, and ask that you kindly disconnect your lines. Have a good day, everyone.