Form 10-Q for ASSISTED LIVING CONCEPTS INC 8-May-2008
Quarterly Report
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Forward-looking statements are subject to risks, uncertainties and assumptions which could cause actual results to differ materially from those projected, including those risks, uncertainties and assumptions described or referred to in Item 1A - Risk Factors in Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, and in Part II, Item 5 - Other Information - Forward-Looking Statements and Cautionary Factors in this report. The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes to the condensed consolidated financial statements in Part I, Item 1 of this report. Executive Overview In the first quarter of 2008 we increased our average private pay occupancy by 412 units over the first quarter of 2007. The increase in occupied private pay units resulted from acquiring 481 occupied private pay units in the January 1, 2008 acquisition of the operations of BBLRG, LLC doing business as Cara Vita (the "Cara Vita Acquisition") and 85 occupied private pay units from the July 20, 2007 acquisition of a newly built residence in Dubuque, Iowa (the "Dubuque Acquisition" and together with the Cara Vita Acquisition, the "Acquisitions"), partially offset by a reduction in our same residence portfolio of 154 occupied private pay units. Compared to the fourth quarter of 2007, our private pay occupancy increased by 315 units of which 481 were attributable to the Cara Vita Acquisition, partially offset by a reduction in our same residence portfolio of 166 private pay units. In the first quarter of 2008, we continued to reduce the number of units available to Medicaid residents. As compared to the first quarter of 2007 we reduced our occupied Medicaid units by 868 units. We exited Medicaid contracts at an accelerated pace in 2007, primarily in response to actions by the State of Texas to initiate a managed Medicaid system. Had the State of Texas not initiated managed Medicaid service agreements through third parties, we would not have allowed our traditional Medicaid contracts to lapse during the first half of 2007. Although the accelerated phase of our exit from Medicaid contracts in Texas is complete, our Medicaid census continues to decline because we no longer accept new Medicaid residents and only allow private pay residents to rollover into the Medicaid program in a very limited number of residences. Compared to the fourth quarter of 2007, our number of units occupied by Medicaid residents was reduced by 159 units. We believe our strategy to reduce the number of units available to Medicaid residents has also impacted our private pay population. As discussed above, in the first quarter of 2008 we had a reduction of 154 private pay occupied units on a same residence basis. We believe this reduction largely represents private pay residents who resided in our residences with the intention of rolling into Medicaid programs. We believe our strategy to no longer allow Medicaid rollovers resulted in their accelerated move out as they relocated into residences that accept rollovers to Medicaid programs. Comparing the first quarter of 2008 to the first quarter of 2007, 186 of the reduction in private pay units occurred at residences with Medicaid contracts or where we recently ended Medicaid contracts. Over that same time period, our private pay occupancy at residences that do not accept Medicaid increased by 32 units. The reduction from these circumstances is referred to in this report as the "Private Pay Impact". Looking at the 166 private pay unit reduction in the first quarter of 2008 as compared to the fourth quarter of 2007, the Private Pay Impact moderated with 97 of the reduction in private pay units occurring at residences with Medicaid contracts or residences where we recently ended Medicaid contracts. Over that same time period, our private pay occupancy at residences that do not accept Medicaid decreased by 69 units. During this period we continued to experience a high level of private pay resident move outs without the corresponding expected number of move-ins. To the extent we have not been able to immediately fill vacancies with private pay residents, reducing the Medicaid population has resulted in reductions to our overall occupancy. We believe it is a necessary part of our long-term strategy to improve the overall revenue base. In the first quarters of 2008 and 2007, the average occupancy rate for all of our residences was 71.7% and 83.7%, respectively, and private pay revenues as a percent of total revenues were 90.6% and 81.4%, respectively. Business Strategies We plan to grow our revenue and operating income by: † increasing the overall size of our portfolio through additions to existing residences and acquisitions;
† increasing our occupancy rate and the percentage of revenue derived from private pay sources; and
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