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spk00: 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 it will conduct a question and answer session. At that time if you have a question please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator please press star zero. 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, 2020, as well as 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. Please go ahead.
spk03: 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 costs 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 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 in the skilled nursing environment have declined. State and federal surveyors are returning to complete 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 in to 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 patients 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. We cannot predict when our occupancy will return to our previous levels, but our teams are continuing to extend all efforts to grow our patients and residents census. All of our lost revenue and COVID-19 related expense from the beginning of the pandemic to date have been offset by stimulus dollars under the most recent guidance from HHS. We have $19.5 million of deferred stimulus to be utilized for the remainder of 2021. A portion of our federal stimulus is supposed to be used by as early as June 30th of this year. Without an extension of the time period for utilization or additional stimulus grants, the second half of our year could be financially challenging. We are working with our state and national organizations to highlight the need for additional stimulus dollars and qualifications for the use of existing grants. In April, we submitted the first annual report as required under our corporate integrity agreement. The team did a fantastic job preparing for the CIA and independent review organization process. And we have complied with the terms of our agreements, including the payment of a million dollars that was due in February, 2021. Reviewing our financial performance. Our first quarter had net income of $2.1 million from continuing operations and EBITDA of $5.8 million. EBITDA for the quarter was $19 million. This quarter compares favorably to the first quarter of 2020. During the quarter, we incurred $12 million of COVID-related expenses for staffing, testing, and PPE, while recognizing $10.5 million of federal stimulus and $800,000 of state grants as other income during the quarter, with another $4.1 million of state Medicaid rate add-ons. Year over year, our total occupancy for available beds was down from 80.4% to 69.6%, with skilled mix increasing from 13.7% to 18.9%. The pandemic drove the decrease in occupancy from the prior year quarter, which resulted in fewer Medicaid, private, and hospice patients, and a $14.8 million decrease to patient revenues. That unfavorable impact was partially mitigated by $6.2 million from the increase in our skilled census related to the Medicare skill-in-place waivers. Our quarterly Medicare, Medicaid, and managed care rates increased year-over-year by $15.47, 59 cents, and $24.38, respectively. The increased rates provided 1.3 million of additional revenues. Please note that the Medicaid rate does not include the impact of the temporary rate add-on in several of our operating states. With that, I'll turn the call over to our CFO, Kerry Massey, for some specific remarks on our financial statements.
spk02: 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 healthcare 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 aides. The additional healthcare-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 in amounts 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 healthcare-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 of sequestration under 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 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. Our professional liability expense fluctuates from period to period based on the results of third party actuarial studies, the premium cost of purchased insurance, and the cost incurred to defend and settle existing claims. Our EBITDA for the first quarter was $5.8 million, which represents a $2.7 million improvement over the prior year quarter. Adjusted EBITDA for the quarter was $19 million. That concludes our discussion of the Q1 financial results. I will now turn the call back over to Jay for some closing remarks. Thank you, Kerry.
spk03: 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 8K. 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 health care and exceeding expectations. This concludes our prepared remarks. We'll now open the call for questions.
spk00: Thank you. If you'd like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, that's 1-4 to register for a question. One brief moment for the first question. Once again, as a reminder, just to press 1-4 to register for a question. We do have a question from Tom McDonald. Please go ahead. Your line is now open.
spk01: Thank you. The 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, you know, 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, I think, 57%. I'm just curious as to, you know, what your thoughts are about Texas and the odds of that rebounding to pre-pandemic levels. And if not, or there's concerns, is there any thought about selling any facilities that you have in Texas?
spk03: Tom, that's a great question. I appreciate you jumping on and asking us about that. The occupancy rate for our available beds across our entire portfolio is very much in line with what we've seen in these specific states. Whenever you go through and you look state by state, we're largely right on track with where everybody else is. Texas is a bit of an outlier. 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 we're 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.
spk01: Okay. Well, I appreciate that. A quick follow-up to that, Dan, would be know that there's a number of organizations that are getting out of the skilled nursing business and focusing on AL and hospice, got rid of a bunch of their facilities. Have you guys looked at possibly acquiring any of the facilities for sale from some of the organizations that are leading the industry right now?
spk03: Yeah, we look at acquisitions all the time, and when we have acquisitions in our footprint that make sense that we can afford and they are complementary 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 settling our matter with the OIG, and that matter was settled on February 14th of 2020, and three weeks later, 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.
spk00: And there are no further questions at this time. I'll turn the call back to Jay McKnight. Thank you.
spk03: 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.
spk00: That does conclude the call for today. We thank you for your participation and I ask that you please disconnect your line.
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