AlerisLife Inc. (ALR) is a leading provider of senior living and lifestyle services, operating a diverse portfolio of communities and offering a comprehensive suite of rehabilitation, wellness, and home-based solutions. As the population of older adults continues to grow, the company is strategically positioning itself to capitalize on the increasing demand for high-quality senior care and lifestyle services.

Business Overview

AlerisLife operates in two primary segments: residential and lifestyle services. The residential segment manages and operates independent living, assisted living, and memory care communities, catering to the evolving needs of older adults. The lifestyle services segment provides a comprehensive suite of rehabilitation, wellness, and home-based services, further enhancing the quality of life for the company's residents and clients.

As of September 30, 2022, AlerisLife owned and operated or managed 140 senior living communities located in 28 states, with a total of 19,973 living units. The company's residential segment manages 120 of these communities, comprising 17,889 living units, on behalf of Diversified Healthcare Trust (DHC). The remaining 20 communities, with 2,084 living units, are owned and operated by AlerisLife.

In addition to its senior living operations, AlerisLife's lifestyle services segment provides a range of services, including physical, occupational, and speech therapy, as well as fitness and home health offerings. As of September 30, 2022, the company operated 203 outpatient rehabilitation locations, of which 109 were located at AlerisLife-operated senior living communities and 94 were located within senior living communities not operated by the company.

Financial Performance

For the fiscal year ended December 31, 2022, AlerisLife reported annual revenue of $934,593,000, a decrease from the previous year's revenue of $1,003,383,000. The company's net income for the year was -$29,748,000, compared to -$26,941,000 in the prior year. The decrease in revenue was primarily driven by the repositioning of the company's residential management business, which involved the transition of 107 senior living communities with approximately 7,400 living units to new operators and the closure of one community with 100 living units.

AlerisLife's operating cash flow for the fiscal year 2022 was -$7,573,000, compared to $2,400,000 in the previous year. The company's free cash flow for the year was -$17,012,000, a decline from the prior year's -$12,896,000. The negative operating and free cash flows were largely due to the repositioning of the residential management business and increased costs associated with the company's ongoing strategic initiatives.

Quarterly Performance

In the third quarter of 2022, AlerisLife reported revenues of $182,659,000, a decrease of 19.1% compared to the same period in the prior year. The company's net loss for the quarter was $8,508,000, compared to a net loss of $10,201,000 in the third quarter of 2021. The decrease in revenue was primarily attributable to the transition of senior living communities to new operators and the closure of certain communities as part of the residential management business repositioning.

AlerisLife's operating cash flow for the third quarter of 2022 was -$44,643,000, compared to $1,800,000 in the same period of the previous year. The company's free cash flow for the quarter was -$6,711,000, compared to -$5,546,000 in the third quarter of 2021. The negative operating and free cash flows were largely due to the repositioning of the residential management business and increased costs associated with the company's ongoing strategic initiatives.

Occupancy and Operational Trends

AlerisLife has experienced a gradual recovery in occupancy levels at its owned and managed senior living communities, with average occupancy increasing from 68.8% in the first nine months of 2021 to 73.2% in the same period of 2022. The company's owned communities achieved an average occupancy of 76.0% in the third quarter of 2022, up from 69.9% in the same period of the prior year. The managed communities, which represent the majority of AlerisLife's portfolio, saw their average occupancy increase from 72.2% in the third quarter of 2021 to 75.3% in the same period of 2022.

The company's lifestyle services segment has also experienced mixed results, with a decrease in inpatient rehabilitation clinic revenues due to the closure of 27 clinics in 2021 as part of the residential management business repositioning. However, the outpatient rehabilitation locations have seen a decrease in visits, with the average caseload as a percentage of occupancy falling from 24.7% in the third quarter of 2021 to 24.3% in the same period of 2022.

Strategic Initiatives and Outlook

In 2022, AlerisLife engaged Alvarez & Marsal (A&M) to conduct a comprehensive operational review of the business. Based on A&M's recommendations, the company announced a restructuring plan aimed at reducing costs, enhancing accountability, and improving operational efficiency. The plan includes the elimination of certain corporate positions, investments in sales and marketing, and the appointment of a Chief Operating Officer and Chief Financial Officer to strengthen the company's leadership team.

AlerisLife expects the restructuring plan to generate annual cost savings of approximately $2.0 million, net of $3.3 million in investments. The company is also focused on diversifying its revenue streams through the growth of its lifestyle services offerings, including the expansion of outpatient rehabilitation locations and the development of new home-based services.

Liquidity and Capital Resources

As of September 30, 2022, AlerisLife had $79.1 million in unrestricted cash and cash equivalents, as well as $21.3 million in restricted cash and cash equivalents. The company's current assets totaled $199.3 million, while current liabilities were $126.1 million, resulting in a current ratio of 1.33.

In January 2022, AlerisLife entered into a $95.0 million senior secured term loan, of which $63.0 million was initially funded. The company used the proceeds to replace its previous $65.0 million secured revolving credit facility. As of September 30, 2022, the company had $67.6 million in total debt, including the term loan and a mortgage note.

Risks and Challenges

AlerisLife faces several risks and challenges in the evolving senior living industry, including:

Competitive Pressures

: The company operates in a highly competitive market, with increasing supply of new senior living communities in certain geographic areas, which may impact occupancy and pricing.

Labor Shortages

: The senior living industry, like many others, is experiencing labor shortages, leading to increased costs for wages and temporary staffing.

Regulatory Changes

: The company's operations are subject to extensive government regulations, which could change and impact the company's ability to operate profitably.

Economic Conditions

: Adverse economic conditions, such as a potential recession, could affect the ability of older adults and their families to afford the company's services.

Pandemic Risks

: The ongoing COVID-19 pandemic and the potential for future public health crises could disrupt the company's operations and impact occupancy levels.

Conclusion

AlerisLife is navigating the evolving senior living landscape with a focus on operational efficiency, strategic growth, and diversification of its service offerings. The company's recent restructuring initiatives, coupled with its investments in sales, marketing, and leadership, position it to capitalize on the increasing demand for high-quality senior care and lifestyle services. While the company faces various risks and challenges, its resilience and innovative approach to the industry suggest that it is well-equipped to adapt and thrive in the years to come.