There are a ton of amazing people at Brookdale that I respect and admire. I am not happy about writing a story that is hurtful to them.
By Steve Moran
It pains me to write this story in more ways than one.
I actually have some Brookdale shares (100) and when I bought them a couple of years ago I paid around $31.00 a share. As of the end of the day on November 2, 2016, they are now worth less than $12 per share. This is right around a two-thirds loss in value.
I am, without apology, a senior living shill. I love the industry. I believe in it. I know we are positively impacting millions of lives.
YET IT WOULD BE IRRESPONSIBLE FOR ME NOT TO WRITE THIS STORY
Remember Brookdale . . . I do love you guys, but love means truth. The one other thing I need to add is that I do know there are tens of thousands of hard working and committed Brookdale team members pouring their heart and soul into caring for residents every day. This is not in any way meant to diminish what they are doing.
It’s Not Their Fault . . . The Other Guy I Mean — Emeritus
Over the last few years as Brookdale has issued one not so good quarterly earnings report after another, there has been one commonality in those reports. It is always someone else’s fault that the financial performance missed the mark.
I would also note that this pattern has continued through the earnings call dated February 9, 2016. Even though the last three (inclusive of the one this past week) calls have not blamed Emeritus, it has been, at least for me, harder and harder to swallow.
While maybe not a direct impact to those who have moved on to other positions, it is not so great to have former team members who are wounded.
It’s Not Their Fault . . . The Other Guy I Mean — Competitors and Ex-Employees
This current earnings report (November 2016) brings to light two new “other guys”.
- Former Employees – Earlier this year a group of around 20 individuals left Brookdale’s community-based home health business and started a competing company. This is from the earnings transcript:
(Note: This is likely an automated transcript so the language will be less than perfect) Another reason for the decline in our Ancillary Services business is that earlier this year, our Florida community-based home health business, former Nurse on Call, suffered what we considered to be an impressive and egregious corporate rate in Southern Florida. Over 20 associates left Nurse on Call to join a new company, which complete direct business on call.
We believe certain of these former associates on behalf of their new employer have been directly soliciting our patient, referral sources, association, associates in violation of non-solicitation agreements and are engaging in other behaviors that violates Florida State law to our financial determent. We’ve filed legal actions against several former associates and their new employer.
While we do not generally comment on ongoing litigation, we can state that we’ve already succeeded in securing a temporary injunction against one of the former associates. We’re aggressively pursuing all available legal remedies in connection with the situation while we’ve replaced staff and recovered our lost business. This revenue decline has affected our operating margin. It was 12.5% for the third quarter of 2016 compared to 15.4% in the second quarter of 2016 as expenses down as rapidly.
While I have no way to assess the validity of the legal action, I am going to assume for the moment they are 100% correct about the egregious nature of the these employees jumping ship.
It is still critically important to ask why they jumped ship. Maybe it was pure greed, but I find myself thinking, if I were in management shoes, I would be having serious internal heart-to-heart discussions about why they left and how it could have been prevented.
New Competition — Well . . . okay . . . except here is the truth. Every single senior living community has competition. They are all attempting to pull from the same pool of residents. What seems curious is that one of the things Brookdale has highlighted is that their size gives them competitive advantage.
And yet . . . they seem to be suggesting that their competition is kicking their butt.
A Cautionary Tale
I must close with this. We should not see this as just an “oh that is them”. One of the hardest things in the world to avoid is self delusion.
Every time we have a fail in our senior communities, at the end of the day it is our problem and ours alone. Until we take that massively, crazy painful position, we will NEVER be able to really get better.
I know it will never happen, but this is exactly why they need me or someone like me on their board. I am an industry guy. I talk to thousands of industry people a year — from CEOs to cooks, dishwashers, and care aides — in hundreds of companies. Most importantly, I am willing to call it like I see it.
Here is the thing . . . They need someone who can say, “This is not the right way to look at it” and be willing to be unseated from the board. I am not sure they have that today.
THE FINAL TEASE: Even though I have written some tough stuff about Brookdale I believe they have a huge opportunity to turn themselves into an amazing organization. I have relations with a bunch of senior people there and, as is my customary practice, I sent them a copy of this article in advance. As a result I made some tweaks, like noting that the earnings calls after Feburary 9, 2016 did not contain any blame of the merger.
Tomorrow I publish a second article where I will outline where they think I got it wrong and what I am missing.