Q2 2022 Sonida Senior Living Inc Earnings Call
Good day and welcome to the Sunny to senior living second quarter 2022 earnings conference call.
Today's conference is being recorded.
All statements today, which are not historical facts may be deemed to forward looking statements within the meaning of the federal securities laws.
These statements are made as of today's date and the company expressly disclaims any obligation to update these statements in the future.
Actual results and performance may differ materially from forward looking statements.
Certain of these factors that could cause actual results to differ are detailed in the earnings release the company issued earlier today as well as in our reports the company files with the SEC from time to time, including the risk factors contained in the annual report on Form 10-K, and quarterly reports on Form 10-Q, one moment. Please see today's press.
Release for the full Safe Harbor statement, which may be found at Www Dot Sydney to senior living Dotcom Slash Investor Relations.
And was furnished in an 8-K filing this morning.
Also please note that during this call the company will present non-GAAP financial measures.
For reconciliations of each non-GAAP measure from the most comparable GAAP measure. Please also see today's press release.
At this time I would like to turn the call over to Samir to Sunita senior living President and CEO Ms Kimberly loading.
Thank you Alex good afternoon, everyone and welcome to still need of senior living second quarter 2022 earnings call I Hope you and your families are well and we appreciate your joining US today, we're very pleased to report another quarter of good news driven by strong occupancy gains double dip.
Revenue growth and continued discipline in managing community operating expenses, all of which resulted in a sequential sequential margin expansion and EBITDA growth clearly our growth and margin expansion strategies are succeeding as we have now delivered five consecutive quarters of occupancy and revenue growth.
And two consecutive quarters of margin expansion.
On a same store basis, which excludes the two Indiana assets. We purchased earlier. This year. We are just 50 basis points from our pre pandemic occupancy reporting 83.2% occupancy for the second quarter of 2020 to 510 basis points compared to the prior year quarter and 90 basis point.
Higher than the first quarter of this year, we continue to outperform the industry in occupancy recovery from the pandemic.
With this strong occupancy gain and corresponding rate growth. We've increased same store revpar 11, 3% and Rev. Poor four 4% sequentially, we improved revpar of 200 basis points and reservoir 80 basis points from the first quarter of this year.
Rate growth has been a positive driver for our business starting at a lower level earlier in the year and gaining momentum each month with market rate increases and in place renewals. We believe there is still opportunity to push rates higher in 2022, given positive supply and demand dynamics as well as the tangible value provided by our care teams and red.
And programs.
Most importantly, we have now reported two consecutive quarters of margin expansion with a sequential increase of 40 basis points compared to the first quarter of 2022 and 240 basis points of improvement from the margin low point in the fourth quarter of 2021 EBITDAR also grew meaningfully 13, 7%.
Sequentially from the first quarter due to continued improvement in operations are.
Our community teams have done an excellent job managing operating expenses in a very difficult labor and inflationary environment. One of the many notable achievements in the quarter is our 41% reduction in contract labor expenses compared to the first quarter of this year. Our teams have stayed diligent and focused on our goal of completely eliminating.
Contract labor in our communities by the end of 2020 two.
Another achievement is our continued strong trend of net positive hires in each of the past three quarters. Our people centric culture attracts talented employees, who want to be part of our winning still need a teens, reducing the use of agency staffing, while adding to our dedicated Sidney your workforce enables our community is to have stable consistent.
Killed and caring individuals to provide excellent care and services to our residents and their families. We have expanded our community workforce by about 6% since the beginning of the year.
So neither success is based on three fundamental pillars first prioritizing the health wellness and engagement of our residents and team members.
Second a strong collaborative people centric culture and third unique experiences for residents and their families through differentiated resident programming.
Our unwavering focus on these three pillars will enable us to achieve pre pandemic occupancy in our portfolio by the end of 2022, while also continuing to expand NOI emergence of sequentially throughout the year.
Focusing on demand for a moment, our leading indicators continued to trend positively as evidenced by our strong occupancy growth comparing these indicators to where they were for the same store portfolio in the second quarter of 2019, so prior to the pandemic in 2020 and the subsequent started the recovery during 2020 one.
Every leading indicator is substantially higher than the second quarter 2019 baseline for the same set of communities.
These are 18% higher tours or 32% higher and move ins are 33% higher the marketing and sales strategies developed and executed by our teams represent a significant and sustainable core competency for the business.
And clothing to consider the company's future trajectory.
It is important to reflect on the path for a brief moment nearly four years ago I accepted the position as CEO of Sony Yeah, with a mandate to effect a transformation of the company's operations and balance sheet and we have done just that by eliminating expensive and underperforming triple net leases and reducing our debt we pruned the portfolio.
Leo to a core set of high performing assets from which the company can grow.
We completely overhauled the company's sales and marketing activities, which are now driving sustainable growth. We fought through a horrendous prep pandemic, while also developing differentiated resident programming and enhancing the experience we provide to our residents and their families. We raised nearly $155 million in new capital to invest.
In our business and we rebranded the company to communicate our value proposition more effectively to those we serve.
With that work essentially complete our operations on a clear and positive trajectory or.
Our balance sheet significantly improved and solid leadership teams in place across the company I've decided that the time is right for me to transition the CEO role I'm delighted that our current chief operating officer, Brandon Ribar has been promoted to CEO effective September 2nd Brandon.
Brandon and I have celebrated the achievements and persevered through the troughs, while working shoulder to shoulder. These last three years on many key operational and financial items that have transformed the company and set the foundation for future growth.
Under his leadership skills operational expertise and business acumen will serve the company and the industry very well in the future I care deeply about so need a senior living its residents employees and investors and I remain confident about the neatest continued success.
I'll now turn the call over to Brandon to discuss some key operational areas for the second quarter as well as his thoughts for the future.
Thank you so much Tim and good afternoon.
As Tim referenced the business continues to show solid improvement for a fifth consecutive quarter, our initial occupancy and rate goals for 2022 continue on an achievable trend line with opportunity just to perhaps surpass those goals with a strong second half of the year.
With consistent occupancy improvement and in place rate increases exceeding 5% our local leadership teams continued to deliver on their top line operating commitments.
Additionally rates for new residents have exceeded those of the previous residents on a same unit basis by more than 5% realizing higher market rates across the board.
The year over year and sequential rate improvement Kim referenced remained consistent with our ongoing commitment to achieve responsible and sustainable rate growth.
As we enter the second half of the year nearly two thirds of our own portfolio is currently operating above the 85% occupancy and additional opportunity to increase rates in these communities will be a primary focus.
Key indicators related to demand remain encouraging as lead volume in Q2 increased 14% sequentially and 28% over the same period in 2021.
Continued improvement in the stability of our local care and service providers remains the highest priority from an operations perspective further NOI expansion in 2022 can be accelerated with ongoing reduction in our premium labor costs or.
A 41% reduction in contract labor sequentially in Q2 represents material progress, but we are not yet to our goal of contract elimination across the portfolio.
Other premium pay including ship premiums and over time also improved in Q2. However, these metrics remain elevated from pre pandemic results in late 2019, and early 2020 net hires in Q2 were nearly two five times Q1, net hires and support further improvement expectations in Q3 Turner.
Our trends in Q2 show a favorable reduction in year over year turnover of more than five percentage points.
Overall, we are pleased that total labor costs remained flat sequentially, while revenue and occupancy grew.
Additionally, total labor costs were up $2 $7 million year over year in Q2 versus the $3 $2 million year over year increase we reported in Q1.
On the resident and customer experience front, we were pleased with the results of our portfolio wide resident satisfaction surveys and encouraged that so many of our communities achieved the U S News and World report best in senior living recognition. The survey also provided a roadmap for creating additional value around our resident experience ongoing capital and systems.
Investments focused on the physical environment technology infrastructure and resident dining experience will deliver even greater value to our residents.
The operating environment in Q2 remained turbulence on both the Covid and cost front. However, our team is pleased with margin expansion and total dollar NOI growth, both sequentially and year over year.
And finally, I want to thank Tim and the <unk> team for all their support as we move forward with the next chapter in our transformation Tim's leadership over the last eight years nearly four as CEO have positioned the company to grow and expand in the years ahead.
Unfortunate to work every day with talented compassionate and highly motivated teams at our local regional and central locations.
And I firmly believe the continued development of our people centered culture and delivering high value services and experiences for our residents and their families will drive results that continue to exceed industry performance trends.
In the near term, we will provide additional detail around our go forward strategic objectives and look forward to sharing our vision for growing this will need a platform.
Speaking of talented team members I will now turn the call over to Kevin to provide a financial update.
Thank you Kim and thank you Brandon.
Picking up where kaman branded left off our Covid recovery strategy was to focus heavily on occupancy and revenue growth knowing that NOI growth would follow as Kim mentioned earlier, we've now delivered five consecutive quarters of occupancy and revenue growth.
We believe that our performance in the second quarter of 2022, despite the continued and increasing wage pressure bodes well for further incremental NOI expansion as we grow occupancy and rate.
We believe our quarter over quarter, NOI, and adjusted EBITDAR growth of 4% and 13, 7% respectively supports the sentiment.
Please note that adjusted EBITDA is a non-GAAP measure is further defined in our investor presentation as filed in todays 8-K.
Finally, with a spot occupancy of 80, 484% on the last day of the quarter, we continue to be encouraged by the company's occupancy recovery trend.
On the right side, we've seen a direct correlation in rate increases to where we've recently invested and product improvement and look forward to how our in flight projects will continue to penetrate the market on rate.
Brendan discussed our community teams efforts that reduce contract labor, 41% from the previous quarter.
Sure.
Decrease of $1 million was nearly offset by the increase in direct labor as we build back our community teams amidst historically high wage pressures.
We believe we are quickly approaching pre pandemic levels of direct labor staffing however, the.
Reporting a contract a permanent labor bodes well for future quarters as our community teams achieve operating stability and leverage while continuing to rely less on premium labor.
As Brendan pointed out we are particularly proud of the quality of recent net new hires in what is an extremely competitive job market.
On just the salary wage component.
Beyond the success on the community personnel front. We're also very excited to announce that we have taken significant steps to build a best in class accounting and finance functions to that end, we've recently announced the appointment of our new Chief Accounting Officer, Tim Kocher joined.
Joining him on the finance leadership team our team in Newbury, and Michelle Almeida controller and treasurer, respectively.
Tina and Michelle have all worked together in similar roles with real estate based operators.
We've also short of other key open accounting positions, including director of SEC reporting.
Beyond the leadership expertise and stability of this team brings to the table. They are largest contributions to the company will undoubtedly be the support of the community based teams and the related to streamlining of processes with a greater reliance on the DSC or Dallas support centers, we refer to it.
One thing to note on G&A this quarter, we changed our presentation to include stock comp expense within G&A.
Backing this out as well as some true up credits related to our IP and our and transaction related accruals G&A decreased approximately 50 bps quarter over quarter, pushing down G&A will continue to be a significant focus for the company in subsequent quarters.
On the non labor side of the business, we have secured new partnerships with the GPO or group purchasing organization and related wholesale food vendor. This in addition to the new food menu implemented in Q1.
During the quarter, we also implemented a spend toward that and provide our community leaders with real time visibility to expenses that are anchored in the latest forecast.
From a balance sheet perspective, the company accepted $9 $1 billion of cash for grants from the cares Act in April we believe we have met all qualifications to retain and recognize these monies in accordance with the applicable GAAP guidance. The company did not have any impairments of its real estate based communities during the quarter.
Finally, we were compliance with all financial covenants required under our mortgages as more fully described in the 10-Q to be filed later today.
As a reminder, all of our terminal maturities occur in 2024 or later with only scheduled principal payments required before that.
Finally, the company continues to pay its series a preferred dividend coupon current on a quarterly basis, we ended the quarter with $32 $7 million unrestricted cash on hand in addition to $13 7 million and restricted cash.
As we head into the second half of the year. The company will be acutely focused on continuing our success on occupancy growth, while aggressively but responsibly elevating rates in this hyper inflationary environment.
Ken a rolling calendar of resident agreement expertise allows us the opportunity to remain flexible to macroeconomic volatility.
Finally, we will look to continue to decrease reliance on premium labor, including contract labor, while we lean into the recently stabilized community teams to push further operating efficiencies.
Alex can you. Please open the lineup for Q&A.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
For me some tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Steven Valiquette with Barclays. Please proceed with your question.
Oh, great. Thanks, Hello, everyone. Thanks for taking the questions.
Hum.
Hi, Hey, everybody just to start off here.
Just in relation to your goal of eliminating.
Eliminating all the remaining premium <unk> contract waiver by the end of 2022.
From this current jump off point or the end of the quarter can you just help us.
A little bit on how much that would translate into savings on an absolute dollar basis run rate going forward or were talking about you know roughly $5 million of annualized savings or something greater than $5 million less than 5 million just trying to.
Just get a better sense of what that translates into as far as dollar savings.
Yes, I think right now if you look at our Q2 run rate we were just right around the $1 $5 billion Mark for contract labor of $6 million on an annualized basis and as Kevin referenced we feel really good about where we are in terms of.
Having almost a fully completed workforce and so we would expect that a significant amount of those dollars.
Would be available and would fall into our EBITDAR or net operating income moving forward. So while I probably wouldn't give you an exact percentage of the $6 million. There is a material amount of that dollars. We expect will fall to the bottom line as we received the reduction.
Okay got it.
Okay, and then just jumping around here a little bit.
Is there any preliminary color on your planned pricing strategy for 2023.
Yeah in particular for our in place residents and I think at least on a preliminary basis should we expect your revpar growth in 'twenty two 'twenty three to be you know hopefully pretty similar to the 4% to 5% growth that you're capturing in 2022, but just wanted to get your sense for that from you guys. It seems like a lot of the other peers are talking about.
The pricing power in twenty-three being just as strong as what it has been in 'twenty. Two I just wanted to get your thoughts on that as well.
Yeah, Steve we agree with that and we are just like many in the industry. We're very optimistic about the pricing power in senior living and not only through the rest of this year, but into 2023.
And you know the reason for that is multiple items. One is just the ongoing supply demand and supply it seems to be still new supply is still a bit limited. So demand is strong we mentioned, our leading indicators earlier earlier and with that.
At strong demand as well as the value proposition that we're providing we believe that we will see I would say at least similar rate growth in 2023 as we've seen this year.
Yes, the only piece that I would just add to that Steve as well is if you think about where we are occupancy wise versus where we were last year with nearly 800 basis points higher occupancy than the early part of 2021.
Two thirds of our communities above the 85% Mark.
That gives us additional pricing power when we've got higher occupancy and so many of our communities.
And then just to close the loop on that the the last thing that I think will benefit us is that it's not one bite at the Apple per annum, but we are putting in rate increases now ultimately on a rolling 12 months that will help.
Intimately feed into 'twenty three to be part of our budget assumptions too. So we've started that process already.
Okay, Alright, that's great.
You guys mentioned that new G. P. A relationship is that something also you were able to.
Translate into how much you know annualized savings on a dollar basis that could translate into just to give us an approximation around that.
I would say that we should be in a better position to provide that information and in Q3 as we get our results and as we see the implementation take hold right now it's a bit of a balancing with the changing dynamic in the inflationary environment.
That's going to be significantly offset by both improved purchasing practices as well as just the better pricing, we're going to receive as part of the GPO. So we should have again more tangible numbers that we'd be happy and excited to share as we get into the later part of the year around what the actual dollar savings that were experiencing look like and then.
How we expect that to translate into the quarters to come from there.
Okay.
Alright, and then final question for me. This is kind of more of a check the box type question, but.
You know there has been a trend this quarter of a skilled nursing our sniff operators talking about some lost occupancy due to skilled labor shortages hasn't really been talked about as much in senior housing, whether it's an assisted living or memory care you know some of the areas, where there's a little bit higher acuity, but I guess just to check the box on that dynamic with the with you guys.
I guess can you confirm whether or not that dynamic has been prevalent within the company as far as you know, losing some occupancy gains just because of labor shortages I just want to check the box on that one way or the other.
No Steve we havent experienced that at all.
I think with the community teams very diligently managing the premium labor as well as our net hires during the quarter and that strong trend in those net hires we have not experienced any lost opportunities in occupancy due to labor.
Shortages.
Okay got it okay.
Okay.
So let me just say congrats on some of the new rules for some of the people on the call here and best of luck in his new endeavors as well, it's when they mentioned that as well so thanks.
Thanks, Steve Thanks, so much Steve really appreciate it.
Thank you, ladies and gentlemen, I'm showing no further questions in the queue I will now turn the call back over to Kimberly <unk> for closing remarks.
Okay, great. Thank you Alex and thank you everyone for joining us today.
This concludes our conference call. Thanks, and we'll see you again next quarter.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Okay.
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