New sales and cost-reduction initiatives should help future performance, Capital says
Capital Senior Living saw occupancy dip in the first quarter, but new sales and marketing initiatives, as well as efforts to reduce costs through the centralization of several operating functions, should translate to improved performance in future quarters, company executives said in an after-hours earnings call Tuesday.
Occupancy was 86.1% in the first quarter, a decrease of 100 basis points from the fourth quarter of 2017 and a decrease of 130 basis points from the first quarter of 2017.
Move-ins for the quarter, however, were the highest of any first quarter in the history of the company, despite a severe flu season and bad weather in parts of the country, CEO Larry Cohen said. The quarter ended with the lowest amount of first-quarter occupancy loss over the past three years, he added.
“We lost occupancy because our attrition was higher,” Cohen said.
The net quarterly loss of 84 units during the quarter was “better than we projected and considerably better than the quarterly occupancy loss of 216 units during the first quarter of 2017,” he said.
Occupancy should stabilize in the second quarter and then begin to grow in the third quarter, Senior Vice President and Chief Financial Officer Carey Hendrickson predicted.
Capital's multi-pronged strategy to increase occupancy, Executive Vice President and Chief Operating Officer Brett Lee said, includes the hiring of a new vice president of sales and business development and a new organizational structure for the sales and marketing functions.
The company has rolled out a new training platform for salespeople, he said, and has hired “secret shoppers” to glean information about where the sales process can be improved.
On the marketing side, Lee added, Capital has increased its use of social media to drive leads.
“We're also doing some innovative things in terms of our utilization of a centralized call center, having leads go directly from our third-party aggregators, such as A Place for Mom, into the call center, so that we have more rapid turnaround,” he said.
Centralization applies to more than call center operations, in what Lee described as a “fundamental shift in our operating platform.”
The company introduced a new national procurement platform, starting with food, in the first quarter. The system will enable some accounts payable functions to be centralized. The company also introduced a new national menu system in April, he said. Food costs decreased 4.4% in the first quarter, Hendrickson said.
Capital also has renegotiated its contracts for elevator maintenance, pest control and waste management, changing local agreements to regional or national ones, and now is finalizing contracts for telecommunications, internet, cable and utilities, Lee said.
Continued use of standard staffing grids that were implemented late last year, he said, has “greatly assisted the local operators in effectively flexing their staff to a level that is commensurate with current occupancy, and our contract labor reduction has also been maintained.”
Capital finalized an agreement with a national staffing supplier in the first quarter for when the company needs short-term contract staffing, Lee said.
“Contract labor costs, which were higher than usual in the first three quarters of 2017 before returning to more historical normalized levels in the fourth quarter, actually decreased 16.1% year-over-year in the first quarter of 2018,” Hendrickson said.
Same-community net operating income increased approximately 1% in the first quarter as compared to the first quarter of 2017 thanks to the management of expenses, Hendrickson said.
The company's cost initiatives, most notably the procurement system and the nationalization of contracts, should reduce expenses by approximately $250,000 in the second quarter and by as much as $500,000 to $750,000 in both the third and fourth quarters, Hendrickson said.
Capital also has implemented a lean daily management program across the company “to drive continuous improvement in core quality metrics,” Lee said. “This process is a foundational element to the new Capital operating system and involves a daily safety ‘huddle' held every morning in each of our communities to discuss leading indicators of resident safety, such as staffing levels; perform an in-depth review on any recent safety events; and focus the entire leadership team on their role in implementing process changes to enhance the overall safety and wellbeing of our residents.”
As part of the process, community leaders have daily management goals based on internal quality assurance audits, Lee said.