Diversicare Healthcare Services, Inc. (DVCR) CEO Jay McKnight on Q4 2019 Results - Earnings Call Transcript

Diversicare Healthcare Services, Inc. (OTCQX:DVCR) Q4 2019 Earnings Conference Call March 5, 2020 5:00 PM ET

Company Participants

Alexa Karpinski - Vice President of Financial

Jay McKnight - President & Chief Executive Officer

Kerry Massey - Chief Financial Officer

Operator

Good afternoon everyone. My name is Jeff and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter Fiscal 2019 Results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would like to turn the call over to Alexa. Alexa, you may begin your conference.

Alexa Karpinski

Thank you, Jeff. Good afternoon and welcome to the Diversicare Healthcare Services 2019 fourth 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 meeting of the Safe Harbor provisions of the private securities litigation Reform Act of 1995. And these statements, involvements and uncertainties may cause actual events, results and or performance to differ materially from those indicated by such statement.

You are encouraged to reviews the risk factors and forward-looking statements disclosures the Company has provided an annual report on Form 10-K for the fiscal year ended December 31, 2019, as well as other public filings within the Securities and Exchange Commission. During today's call, some 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 and 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.

Jay McKnight

Thank you, Alexa. Good afternoon and thank you for joining Diversicare's 2019 fourth quarter and year-end earnings call. As you saw on our press release and filings a couple of weeks ago, we've finalized our government investigation and are happy to be moving forward.

Also, as we shared before, we have had and continued to have a substantial presence in certain jurisdictions that have some of the highest professional liability costs per bed in the country. These factors and other challenges facing our industry have been taken into consideration and developing our operating and strategic direction.

Our exit from the state of Kentucky was completed in the third quarter. We did have costs related to those centers in the fourth quarter of approximately $1.9 million, all of which are classified as discontinuing operations. We anticipate that the majority of the costs related to Kentucky have incurred and now behind us.

The fourth quarter began with the implementation of the PDPM payment methodology for our Medicare patients. Our team did a fantastic job of preparing for the changeover, educating all those affected by the change, and working through hiccups that came from the change. We shared in the past and we believe the new methodology aligns well with our provision of care.

In Q4, we begin the rollout of a redesign of our care methodology called Care Coordination redesign. In every Diversicare center, we now have a director of Care Coordination, who is working with our administrators, directors of nursing, medical directors, therapists, social services and other department leaders to provide full case management for our skilled and medically complex patients and residents on a proactive basis.

This redesign has been well received by our clinical referral partners, payers, families and most importantly our patients and residents. This innovative approach aligns well with the PDPM payment methodology and positions us at the forefront in our markets as a thought leader and innovator in providing quality care. I'm incredibly proud of our team for their creativity to design this approach to care, the thoughtfulness and working through the details and their diligence and implementation.

Turning to our financial results. For the fourth quarter, we realized the net loss from continuing operations of $1.4 million, compared to a net loss of $2.7 million for the year ago quarter. Adjusted EBITDAR for the quarter was $16.2 million and was the highest we've seen in any quarters. EBITDA up $2.7 million compares very favorably to $0.5 million in the fourth quarter of 2018.

Our same-store revenue for the quarter was $120.9 million, compared to $118.7 million for the year ago quarter. Revenue increased primarily as a result of increased reimbursement rates. Kerry will provide more details about the quarter results in his comments. The Texas QIPP program which stands for quality incentive payment plan has been a good program for us.

We share last quarter that we expected in excess of 2 million of annual revenue increase as a results of this program and thanks for the dedication of our team members in Texas and focus on the quality measures there we're doing better than we originally thought. We think that the annual increase in this program will be in excess of $2.5 million. And the state with low rates where we care for a significant Medicaid population, this program has been a stabilizer for us.

Our industry continues to see pressure unlike the state for our skilled patients and we're no exception. Year-over-year, total occupancy for available beds was down from 80.5% to 81.2% with skilled makes also down from 14.2% to 13.2%. Our quarterly Medicare, Managed Care, and Medicaid rates increase year-over-year by $37.39, $6.07, and $2.24 respectively.

With that, I'll turn the call over to Kerry for some specific remarks on our financial statements.

Kerry Massey

Thank you, Jay. As Jay referenced earlier, our complete exit from the state of Kentucky during the third quarter 2019, result of the presentation of those operations is discontinued operations. Accordingly, the operating results of the Kentucky centers are reported as discontinued operations for both the current and prior periods as presented in our 10-K and our press release that were both filed earlier today. The amounts reported for the discontinued operations of Kentucky were materially consistent with a pro forma financial statements that we field this part of an 8-K shortly after closing the transaction last year.

Now for some additional details about our quarterly results, revenue from our continuing operations for the quarter was $120.9 million, representing a $2.2 million increase over the prior quarter. The increase was primarily driven by increase rates, most notably an increase in Medicare rates, resulting from the annual CMS market basket increase and PDPM, which combined led to a $1.7 million year-over-year favorable Medicare rate impact.

As Jay described earlier, our team was well prepared to address the transition to PDPM to our Care Coordination model and effective utilization of our technology. Increased Medicaid rates also added another $0.8 million of year-over-year revenue. Another positive for us was an increase in hospice utilization, which results in overall better care for our Medicaid patients with those needs.

As Jay mentioned earlier, our enrollment in Texas QIPP program resulted in $0.6 million of additional revenue. These positive impacts drove the overall improvement in revenue, even considering the unfavorable impact of our decreased Medicare census, there is resulted from the industry pressure on length of stay for our skill patients.

Our operating expenses for the quarter of $96.2 million at 79.6% of revenue we're down from the prior quarter of $96.4 million or 81.2% of revenue. Our team has remained diligent in its pursuit of operational cost savings opportunities. In these efforts coupled with effective labor management have resulted in continued improvement to our operational cost structure.

General and administrative expenses for Q4 also improve year-over-year. G&A expenses were $6.7 million or 5.6% of revenue, representing a $0.5 million decrease from the prior quarter $7.2 million or 6.1% of revenue. The reduction reflects our efforts to drive efficiencies through the functions that support the operations of our centers.

Our professional liability expense for Q4 of $1.8 million or 1.5% of revenue was up just slightly from the prior quarter of $1.6 million or 1.4% of revenue. Lease expense for the quarter of $13.5 million was up $0.4 million from the prior quarter. The increase resulted from the amendment to our master lease agreements with Omega in connection with our exit from Kentucky.

As we've stated in previous quarters, we are in the earlier years of our master lease agreements with Omega and Golden Living. As a result, our GAAP rent expense for these operating leases is more than the actual cash rent that we paid. Our lease expense for the fourth quarter includes almost $900,000 of non-cash straight-line rent associated with these master lease agreements.

During the fourth quarter, we began to see the favorable impacts of our teams focus on operational efficiencies. Our EBITDA for the fourth quarter was $2.7 million, which was $2.2 million higher than the prior quarter and $1.5 million higher than the preceding quarter. Adjusting for lease expense, adjusted EBITDAR for the quarter was $16.2 million.

That concludes our discussion of the Q4 financial results. I will now turn the call back over to Jay for some closing remarks.

Jay McKnight

I'd like to take a few minutes to discuss an annual comparison of 2019 to 2018. The year-over-year revenue was down $1.1 million, but our operating leverage improved throughout 2019 and ended with the best quarter of the year and then a good point heading into 2020.

Operating expense year-over-year was up very slightly from 80.1% of revenues to 80.2% which represents a small amount of annual improvement opportunity. However, it's important to note that fourth quarter was our most efficient quarter of the year for facility level contribution.

Our G&A expensive, as a percentage of revenue is down from 6.1% of revenue to 5.9%, but the most recent quarter at 5.6% of revenue. We believe our cost savings efforts there will continue into 2020.

In 2019, we accident Kentucky, our Muslim just state settled our government matter with turns as previously shared, implemented the new PDPM payment method of -- payment model for Medicare, expanded our participation in the Texas QIPP program, and improved our provision of care and financial profile. All of these items were shared with you in advance and we're proud of the continuous improvement made by the team for 2019.

Going into 2020, we're focused on improving all of our measured outcomes, implementing the corporate integrity agreement that was part of our government settlement, exploring creative opportunities to better use our physical plants, and continuing to enhance our provision of care. We look forward to sharing our progress in 2020.

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. We'd also like to recognize all of our Diversicare healthcare team members for their passion and relentless pursuit of our mission and achievement of our goal to be a recognized industry leader.

This concludes our prepared remarks today. We will now open the call for questions.

Question-and-Answer Session

Operator