Q4 2022 Brookdale Senior Living Inc Earnings Call
Okay.
Hello, and welcome to the Brookdale senior living fourth quarter and full year 'twenty two earnings release and conference call.
I think that's and I'll be coordinating your cold stacked.
If you would like to register a question during the presentation you may do so by pressing star one on your telephone keypad.
I would now like to hand over to Jessica Hazel Vice President of Investor Relations Floor's Yours. Please go ahead.
Thank you and good morning.
Like to welcome you to the fourth quarter 2022 earnings call for Brookdale senior living.
Joining us today are Cindy Baier, our president and Chief Executive Officer, and Don <unk>, our incoming executive Vice President and Chief Financial Officer.
All statements today, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal securities laws.
These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future actual results and performance may differ materially from forward looking statements certain of the factors that could cause actual results to differ are detailed in the earth.
<unk> release, we issued yesterday as well as in the reports we filed with the SEC from time to time, including the risk factors contained in our annual report on Form 10-K, and quarterly reports on Form 10-Q, I direct you to the release for the full Safe Harbor statement.
Also please note that during this call we will present non-GAAP financial measures for reconciliations of each non-GAAP measure from the most comparable GAAP measure I direct you to the release and supplemental information, which may be found at Brookdale investors Dotcom and <unk>.
Was furnished on an 8-K yesterday.
Now I will turn the call over to Cindy. Thank you Jessica we're pleased to have you join our Brookdale team.
Good morning to all of our shareholders analysts and other call participants I hope you and your loved ones are well.
Welcome to our fourth quarter and year end earnings call.
Dan will speak to some of the fourth quarter performance drivers, but given our January release, which included an outlook revision I believe our reported result should be largely in line with any updated street expectations.
Reflecting on the past year I believe 2022 was a year of growth and continued recovery for brookdale in several areas of the business.
Even so we have remaining opportunities to improve.
At the beginning of 2022 I outlined three strategic priorities that would guide us over the course of the year.
If you recall I have consistently spoken about beef and our communications. They include attract engage develop and retain the best associates.
Every available room in service at the best profitable rate and earn resident and family Trust and satisfaction by providing valued high quality care and personalized service, while the health and wellbeing of residents and associates is always our overarching goal. These priorities have been our compass as we have navigated.
Precedented macroeconomic challenges and highly competitive labor markets within Brookdale, we have aligned our 2023 plans in support of the same key strategic priorities, but with an even tighter focus on all three areas.
You think this is a guide I'll summarize 2022 highlights and 2023 plants, beginning first with our priority to get every available room in surface at the best profitable rate during 2022, the number of seniors moving into our communities accelerated significantly resulting in same community move in volume that exceeded the three.
The year pre pandemic average by 7%. Additionally, we continued positive occupancy growth momentum and Brookdale sports quarter weighted average occupancy was up 770 basis points from the start of the recovery in March of 2021, when compared to N I see quarterly reporting brookdale.
Living occupancy increased 570 basis points versus and I see 360 basis point increase since our 2021 low over the same period Brookdale assisted living occupancy increased 740 basis points versus Nics 670 basis point increase.
We believe this performance is evidence of both increasingly strong demand and the strength of Brookdale execution and brand 2022, revpar or rate was four 5% higher than the prior year. We are pleased with the progress we made on occupancy and rate while expense management was also a priority.
The challenging labor market is disrupted our efforts in 2022 that said in 2023, we have the opportunity to significantly improved expense management and we have dedicated teams in place to help us best pinpoint areas of opportunity. During 2022, we focused intently on reducing contract labor.
Or by increasing the number of shifts filled by Brookdale associates from its peak in December 2021 to December 2022, we dramatically decreased contract labor by 80%, while maintaining focus on resident satisfaction and providing high quality care, we had meaningful sequential reduction in contract labor spend each.
Quarter in 2022 but unfortunately, the continuation of an intensely competitive labor market caused our progress to be slower than we expected as we look to 2023. We believe there are three sizable opportunities to deliver more occupied rooms at the best profitable rate.
Brookdale biggest opportunity to drive profitability through occupancy growth at an attractive rate. In addition to recent pricing actions, we're evolving the executive director role to emphasize our stronger growth mindset underscoring strong sales acumen for the incumbents and future community leaders during the <unk>.
Demick, the day to day care and safety of our residents and associates required extra ordinary efforts from our executive directors as they lead their teams heroic efforts to help protect those living and working in our communities from COVID-19.
As we emerge from the pandemic, we believe that targeting and developing successful leaders with both operational and financial acumen is another way we can deliver further occupancy increases within our communities.
Second we realigned operational support functions, including financial planning and analysis to further support our community leaders. This realignment will assist communities and their continued efforts to recover from the impact of COVID-19, and to return to pre pandemic labor productivity levels, where appropriate much of the anticipated pro.
The activity improvements will come from the growth in occupancy that I, just spoke to and as associate turnover stabilizes and new team members become more established inefficient.
Well, we are focused on labor expense improvements we are clear that we must continue to meet our residents' needs offer high quality care and services and remain in compliance with applicable regulations. The third opportunity community leaders are focused on is further reducing premium labor spend.
As I shared we made significant progress in 2022 but premium labor spend remains too high.
Contract Labor is the highest premium labor cost and we have made progress in reducing labor costs by replacing contract labor shifts with overtime hours communities are dedicated to increasing the number of shifts that are filled by Brookdale associates working on regular time as opposed to contract labor overtime, which leads me to.
The second strategic priority to attract engage develop and retain the best associates. This is vital to brookdale because our business is about people serving people and because we built our business one relationship at a time it is important to recruit and retain full and part time associates.
It's to minimize dependence on premium labor and to preserve and improve upon our resident satisfaction through consistency of associates and in operations. During 2022, we increased our internal workforce by approximately 15% with nearly 5000 net hires which.
<unk> more shifts being filled by our own Brookdale associates.
So we've begun to see the pace of net hiring slow as more communities have the right number and mix of associates, we continue to confront elevated turnover, resulting in lower labor productivity as we diligently work to successfully onboard new associates looking to 2023, our focus is on reducing turnover and.
Meaning the link of service of our associates and community leaders. We are building upon the actions we took in 2022 and expanding some of our successful pilot programs, including educational and career development opportunities for our associates diversification of recruiting programs to attract and engage Boe rate people and <unk>.
Proved training and Onboarding. We believe these are the right plans to ensure we are attracting and retaining the best talent, while improving our labor productivity I look forward to sharing some of the details of these plans with U S. A year progresses, our third and final priority is to earn resident and family trust and satisfaction by providing value.
<unk> high quality care and personalized service in 2022. This priority was reflected in our strong survey engagement, which allowed us to gain meaningful insights from residents and their families through multiple internal and external studies. For example, we received more than 22.
It wasn't responses to the U S News and World Report survey and we were honored for having the most communities recognized an independent living assisted living and memory care.
Recently, J D power and associates announced that Brookdale ranked highest in customer satisfaction for assisted living memory care communities as highlighted in the investor presentation, well, we believe our customer focus is strong and that belief is reinforced by the recognition. We received in 2022, we are learning.
Organization and in 2023, we seek to raise the bar even higher every positive encounter with our resident family member or community leader can lead to future referrals and high resident satisfaction helps drive sustainable occupancy growth. Therefore, we remain.
Focus on continuous improvement for our residents and associates turning to our 2023 financial expectations. We received a good deal of valuable shareholder feedback in 2022, including on the tangible equity units offering I know that we need to improve shareholder confidence.
And we plan to do so quarter by quarter, given this and the continued volatility in the macroeconomic environment. We have decided that for 'twenty. Two 'twenty three we will move to quarterly guidance to provide more transparency over the short term while continuing to also have a longer.
<unk> focus on growth opportunities. Additionally, we believe this approach appropriately balances the continued uncertainty in the macro environment and the resulting difficulty that causes or predicting what's ahead, Don will speak to first quarter guidance, but first I would like to provide some context for how we are.
Thinking about full year expectations, we believe our 2022 efforts and the plans I just outlined for each of our strategic priorities set the foundation for Brookdale to deliver meaningful growth in 2023, we anticipate our positive occupancy growth momentum will continue and we were pleased to report.
The January marked the 15th consecutive month of year over year occupancy growth January move ins were strong.
We believe this will support our first quarter sequential occupancy change that is better than our normal pre pandemic seasonal trend. We believe 2023 reservoir will be higher than 2022, driven largely by the annual in place resident rate increase which was effective for most residents.
On January 1st well this was larger than historical increases it incorporated the significant labor and inflationary cost pressures. We faced it will continue to support our strong standards of service and our ability to continue to provide high quality care to residents we have seen a favorable impact.
January Revpar, which increased approximately 13% on a year over year basis appropriate labor expense management remains a critical focus area for 2023 to improve margin and we expect the initiatives I outlined will deliver meaningful progress on this front. Moreover, as.
Our permanent workforce stabilizes and we improve occupancy we anticipate further reductions in premium labor and improved productivity. Lastly, we are constantly evaluating how to match our organizational structure with our business priorities. We anticipate the organizational changes we made in January .
Particularly through Brookdale leadership team will better streamline our decision, making and drive improved financial performance and operational efficiency in 2023.
While the underlying decision for these organizational changes was not driven by a G&A reduction target. We do expect they will contribute approximately $10 million in favorable adjusted EBITDA This fiscal year.
The majority of which is in G&A, which will partially offset the impact of a normalized incentive compensation expense in 2023, I am grateful for Steve's support and partnership over the last four years and believe Don will successfully step into the CFO role with new and unique insights to drive financial planning processes forward.
I also believe been Ritchie and Laura Fischer will lead efforts to deliver accelerated operations performance improvement in the communities and Rick Wigginton will build upon the significant progress. He has made on sales transformation through additional process improvements across the organization.
I will now turn the call over to Dawn and welcome her to her first earnings call.
Thank you Cindy and pleased to be here today, and appreciate everyone, taking the time to join the call and Cindy shared brookdale accomplished a lot in 2022 particularly on the topline, but there were areas of the business, where we didn't meet expectations, which caused 2022 adjusted EBITDA results too.
Fall below guidance as reported in our January press release.
Cindy you spoke in detail about plans for 2023, including the actions, we're taking to support significant adjusted EBITDA growth this fiscal year.
I'll provide additional color on fourth quarter results and then I'll speak to the first quarter guidance we provided.
Beginning with fourth quarter performance, specifically total revenue and other operating income.
On a same community basis fourth quarter, Revpar grew 10% versus the prior year fourth quarter, which included strong move in results at increased rates that began for new residents in October .
The forward rates helped to drive a trend change in Rev. Poor from sequential quarterly declines through the third quarter in 2022 to a modest positive uptick in the fourth quarter.
On a year over year basis, Revpar increased four 5%.
Weighted average occupancy increased by 370 basis points versus the prior year quarter and December represented our 14th consecutive month of year over year occupancy gains.
So thanks to the diligence of our teams we recognized approximately $5 million of grants and other operating income.
For the full year, Revpar increased 10% achieving guidance and total revenue and other operating income exceeded expectations.
Turning to fourth quarter expenses.
Our reported basis facility operating expense increased 1% sequentially. We were disappointed with this result, as we had anticipated a sequential reduction in reported facility operating expense versus the third quarter.
The variance to expectation was driven by two things.
First labor expense improvement below what we had anticipated and second the unforeseen expense impact from winter storm Elliot first labor hours, including overtime, where more than expected due in part to continued overlapping costs driven by ongoing elevated new associate turnover.
Many of the pandemic related challenges our communities have faced have eased.
But labor has remained the most persistent headwind for the entire health care industry.
We've been diligent and attracting the best associates and have delivered growth in our workforce.
We've actively adjusted wages to remain competitive in the market and we've made positive strides to reduce premium labor costs.
Spite these accomplishments in a very challenging labor market, where the unemployment rate reached a half a century low we did not deliver the level of progress we expected in the fourth quarter, which had been assumed in our previous guidance.
Second the impact of Winter Storm Elliott was widespread.
Over half of Brookdale 41 state footprint. This storm was unique because it brought subzero temperatures to regions that traditionally don't experience such cold weather.
And spend multiple days during the Christmas holiday weekend.
The company estimates the impact of Winter storm Elliot was nearly $4 million.
Including repair costs below our insurance deductible and indirect costs, such as utilities and grounds maintenance on a same community basis adjusting for grant income and normalizing for natural disaster expense.
Adjusted operating income increased seven 7% or almost $10 million sequentially from the third quarter.
As shown on slide eight in the supplemental deck. This sequential performance was the largest operating income step up in the past six quarters.
Turning to adjusted EBITDA and adjusted free cash flow.
Fourth quarter, adjusted EBITDA was $47 million, which represents a 30% increase compared to the prior year fourth quarter.
And for the full year 2022, total adjusted EBITDA was $241 million, an increase of 74% year over year.
Excluding federal and state grants reported as other operating income the increase was approximately 25% over the prior year fourth quarter adjusted free cash flow included two unique uses of cash first we made our final cares act government repayment of approximately $32 million and second.
We hedged the October refinancing with an interest rate swap, which had a one time impact of $6 million.
Other drivers of fourth quarter, adjusted free cash flow, where interest expense of $56 million and non development capital expenditures of $39 million non development Capex for 2022 of approximately $170 million met our full year expectations turning to liquidity as of.
At December 31st total liquidity was $453 million compared to $396 million at the end of the third quarter, an increase of $57 million, which included net proceeds from the November tangible equity units offering as of December 31st our GAAP net worth.
<unk> reported a stockholders equity or equity was $583 million compared to $491 million at the end of the third quarter, an increase of $92 million.
The tangible equity units offering increased equity by $113 million.
As did our one time $74 million noncash gain as a result of an amended lease agreement.
So as unique items offset the reduction in equity due to operations, including impairment charges related to natural disasters as mentioned during the third quarter call. We refinanced all 2023 debt maturities in October with the exception of one highly covered loan secured by an asset plan for sale.
The next agency debt maturity is September of 'twenty 'twenty four.
We believe the actions we took in 2022, coupled with recent price increases and the 2023 strategies for driving further operational growth that Sidney you spoke to will result in ongoing compliance with the financial covenants in our debt and long term lease agreements.
Additionally over the short term, we expect stockholders' equity to benefit from the closing of an asset planned for sale.
Turning to guidance.
In 'twenty to 'twenty, three we will offer quarterly guidance to support increased visibility into our forecasts and expectations.
In addition to providing our first quarter outlook. This quarter I will share specific details of the demonstrable results already achieved in January including the impact of our annual rate increase.
The seasonality table in the appendix of our Investor presentation provides detail regarding normal seasonal drivers of anticipated variances and quarterly financial results.
In the press release, you will see that we guided to first quarter year over year Revpar growth of 11% to 12% in first quarter adjusted EBITDA in the range of $70 million to $75 million.
And Cindy shared the January 1st in place resident rate increases, which were higher than in prior years are expected to address higher labor costs.
Which is the most significant portion of community operating expense as well as inflationary increases and food supplies and utilities as well as rising interest rates.
We've already seen the benefit of these rate increases in our January revpar results.
<unk> weighted average occupancy was 76, 6% a seasonal decrease of 40 basis points compared to December weighted average occupancy as a reminder, pre pandemic. The first quarter generally declined sequentially by approximately 80 basis points.
Regarding labor January contract labor as well as other premium labor modestly declined versus December .
We are diligently working to decrease turnover, which will reduce the amount of overlapping costs.
Primarily due to the rate increase.
Same community adjusted operating income increased to mid 20% in January from 21% in the fourth quarter.
This rate represents the best actual operating income performance since the pandemic started three years ago. As a reminder, we generally increase in place resident rent rates annually effective January 1st well cost inflation occurs throughout the year.
The first quarter adjusted EBITDA guidance of $70 million to $75 million that we provided contemplates all of the performance considerations I. Just provided this guidance does not consider the potential impact of a significant increase in flu and COVID-19 cases compared to our year to date trend nor any severe weather.
Events that may occur lastly, as I mentioned earlier, we amended an existing lease in the fourth quarter, which resulted in a noncash gain.
The amendment triggered an accounting change, which reclassified the leaves from financing to operating treatment. This change will impact adjusted EBITDA in the future specifically on the adjusted EBITDA and adjusted free cash flow slide in the supplemental deck beginning in the first quarter of 2023.
Cash facility operating lease payments will increase approximately five $5 million quarterly lowering adjusted EBITDA with an equal and offsetting quarterly interest expense net decrease these.
These two financial impacts will offset one another and will result in no impact to adjusted free cash flow.
This lease accounting change will decrease adjusted EBITDA. It is important to note. It will have no impact on adjusted EBITDAR, a standard and widely used valuation metric.
In closing I'd like to say that I am proud to be part of the already strong Brookdale executive team.
I believe we are off to a very good start in 2023, which gives me confidence that when we execute the company plans Cindy and I shared.
We will drive sustained growth and end of year, even stronger than we started supporting long term shareholder value creation I'll now turn the call back to Sydney.
There is a significant amount of change happening at Brookdale and health care and with the global economy.
And while it takes time to process change I am confident the plans we are executing will improve brookdale outcomes and position us to further grow revpar appropriately control expenses, while continuing to provide high quality care and personalized service and earn residents trust.
Satisfaction I remain completely dedicated to our mission and optimistic about our future and with that operator, we will now open up the call for questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If you would like to withdraw your question. Please press thoughtful about it.
<unk> offshore question. Please ensure your device is on mute.
Our first question today comes from Ben Hendrix from RBC capital markets. Your line is open.
Thank you and welcome Don and Jessica and others I'm just.
I had a question on guidance the first quarter guidance seems to suggest that in one queue you might realize that some of that sequential improvement in facility operating expenses that you had previously been expecting for Forcier 22, I was wondering if you could talk about the elements, giving you confidence in that improvement.
In prior years.
And you touched on.
Having to incur both to residual contract labor and new higher on boarding costs in the wake of turnover.
And to what extent do you see that or how much visibility do you have into that improving through the through the balance of this quarter. Thanks.
And that sounds like a question. Thank you so much for asking and I'll start with the answer and then I might provide some color commentary.
This is Don Thanks for the question I think what we would expect at our facility operating expenses is that we would have improvement from continued labor productivity reductions in the premium labor I think in my prepared remarks, we talked about that already moderating in January and then from favorable flow.
From a pricing and so in general I'd say, we would expect our facility operating expense as a percentage of our senior housing revenue to improve significantly from Q4, and there's still a couple of things that I would add for context contract labor is something that we talk a lot about all through 2022, and if you look at January .
And you look at the contract labor there it is down 25% from the average of the fourth quarter. That's one thing that gives me confidence and the other thing that I'm really proud of is our 15% increase in our community workforce. During 2022, that's almost 5000 people and if you think about that work.
Better positioned to staff more of our shifts with workers working regular wages as opposed to overtime and when you hire people.
The highest turnover is and sort of the first 90 days.
Given that we have to hire fewer people in 2023 that should really help us with our overlapping labor cost.
And then the third point that I would make is a little over half of our hourly community associates have been with us less than a year. So as they continue to extend their length of service with Brookdale.
The residence trust and know their preferences more and they want improved their productivity and serving the residents.
Thank you and Oh pardon me, if I missed it but did you provide a turnover rate and can you kind of talk about how that's gone from <unk> and that'll be all thank you.
We haven't provided exact turnover rate, but our turnover rate has improved between the fourth quarter and the first quarter and we would expect to see continued improvement.
<unk> because of the initiatives that we had around retention as well as the fact that we are slowing the growth of our net hiring initiative because more of our communities have the right balance of workers to meet our residents' needs.
Our next question comes from Tal King from Stifel. Your line is open.
Good morning, Thank you and good morning, everyone.
Hi, Thank you.
I really appreciate that remark, a winning shareholder call quarter by quarter. So I think I heard this 13% Revpar growth in January I think you guided 11%, 12% for the first quarter. So for the rest of the year I assume we will see an offsetting trend continued occupancy gains and the sequential attrition of reservoir.
Do you think that revpar to accelerate from the guided range for the first quarter, where do you think it should drift lower throughout the year very similar to 2022.
Dawn.
So as I think about the Revpar guidance that we gave and the 13% in January generally what we see is really a step down in the rate month over month in the first quarter as you mentioned due to discounting and then also the number of days in February because we have revenue streams that we build by day and so.
That will also impact our revpar in the first quarter and then typically we will see in quarter monthly decline in our occupancy with just attrition and then the flu season as well in the first quarter and so that's how we've done talking about through the first quarter, that's really because of sort of our city centres, which we get paid on a per day basis.
At our Medicaid census, but as we look for the rest of the full year. So I'm wondering if you give a few comments on just our full year guidance overall.
Sure.
If I think about our full year guidance and I'll point, you to the Investor presentation, Slide 19, where we've tried to lay out our normal seasonality trends.
If I think about our full year guidance I'll start with revenue.
And pricing increase is expected to support Rev. Core growth in 2023 that is really about the 2022 growth rate regarding occupancy for the full year, we expect to return to a more seasonality.
Which is outlined on slide 19 of the Investor presentation, and then Theres a couple of things I would add to that.
We have a higher than normal rate increase in Q1, and then second we expect overall performance for the year to be above our seasonal trends. So you'll see a majority of the occupancy growth that we have is in the third quarter during our summer selling season.
So remember our census is growing over the past couple of years. The number of move outs has naturally increased even at the same attrition rates.
So if I look at the full year 2023, it's probably not unreasonable to assume a slightly less year over year occupancy growth compared to 2020 twos performance of 390 basis points.
So second I'll touch on labor and 2022 we had a staffing as a persistent headwind as Cindy had been talking about we did deliver growth in the workforce Cindy just mentioned and we made positive strides reducing our premium labor costs, but as we said in our prepared remarks, we still saw more labor.
Or is that we expected and that was due in part to overlapping costs from elevated new associate turnover.
So if we look at 'twenty two 'twenty three we will be looking at reducing our premium labor and our turnover rate and that'll reduce those overlapping costs as well as positive positively impact.
And costs and resident satisfaction.
And finally, I'll look at our seasonality from quarter to quarter. We expect typical seasonal items. Yeah. We have merit the number of workdays holidays in the quarter and then the of course seasonal fluctuations on our utility costs all of which we've outlined in slide 19 for you to look at.
So I believe yeah in my prepared remarks with our January results that we are off to a very good start in 2023, which gives me confidence that you know when we execute these company plans, we are going to drive sustained growth and end the year, even stronger than we started and.
And when I think about 2022 overall, we're going to continue our focus on appropriately.
Having the right mix of labor in the communities for our associates labor market pressures have been intense and we do expect that it will have incremental labor associated with increased occupancy, but I think that the cost of the.
The ships will come down as we.
Reduce our premium labor by contract labor and overtime, but of course, we'll have normal merit and market wage increases.
Got you great color there was three co over years, we almost have a godfather seasonal nature up in long term care business. So really appreciate it that's a lot of explanations.
My follow up question is on the LTE.
I think the new windows.
At the end of February I think you extended by one year last year, what's your plan for that portfolio and if you don't renew what's in what's the impact on EBITDA.
So what I'll say.
LTC, we're always looking for sort of a win win scenario as it relates to our leases, but it's also fair to say that.
Regardless of what happens with the lease it will improve the Phoenician for Brookdale and so.
Always prepared to walk away from lease if we can't get something that makes sense for us, but we do like the assets and we value the long term relationship with LTC and so I'm hopeful that we'll get to a win win.
Thank you.
Thanks, Tom.
We now turn to Brian Tranquility from Jefferies. Your line is open.
Hey, good morning.
Cindy My question for you you obviously your rep for or is it the right outlook for this year is pretty good. So maybe any color you can share in terms of what youre seeing or how you view the elasticity of demand for your business.
Obviously pretty significant rate growth here, so just what youre seeing in terms of.
New residents and existing residents reaction to the rates.
Yeah, Brian it's a good question.
I will say is that we began selling sort of the new market rate on October one of last year and if you look at our investor deck on page six you can see that our year over year movements for November December and January were higher than they were in the prior year and for the full year of 2022, we had more.
<unk>, 7% more move ins than our three year pre pandemic average so we're seeing just strong demand.
From that large resilient and growing 80, plus population and with regard to in place resident increases it's fair to say that the most important thing for our resident is to know that we are providing them affordable.
Our care and services and so we talked to our residents about the pressure in the labor market rising interest rates, we explain the rationale for the rate increases and we've been pleased with the reaction. So far I do think that we've had a little bit of an elevation in financial move outs to be expected we modeled it in.
When we created our our budget, but as you think about the results that we achieved in January of 13% year over year growth in Revpar is something that we're quite proud of and we believe that that will be a key driver and our post pandemic recovery.
Got it and then in your prepared remarks, you talked about changing the role or enhancing the role that E. D. At the community level. Just curious maybe if you can share a little more details on that and any changes to the incentive package for those Cds.
Also if there was anything related to employee retention.
Is there some new responsibilities or new goals for those Cds.
Absolutely.
One of the things that we have done is we have.
I have tried to make sure that our team is focused on growth and having a growth mindset and that's something that I really credit Rick wigginton for sort of bringing to the table and that he has done phenomenally well with our sales associates and you've heard me talk about the eight days being the CEO .
Their community and needing to make sure they've got the growth mindset. The first thing that we really did is help them clearly understand the value of the apartments that are not in service.
Opportunity that create we've piloted some specific special compensation programs and some of our communities for 2023 and if those are all.
All those out more broadly as we go into the future and then we've also green.
Redone the job description, so that it's clear that our executive directors understand exactly what is most important to success in that.
As an executive director and we're working on developing training program and cohorts that allow us to learn and grow as leaders to help support that with regard to retention.
It's gonna be.
Helpful not to be trying to grow our workforce as aggressively as we tried to grow and successfully grew in 2022, because when you're recruiting new people. It takes some time for them to get embedded in the culture and to truly understand what makes brookdale special as an employer, so having a more normalized higher.
<unk> process will be helpful. But we're also doing a lot to make sure that we can demonstrate how people can grow.
Created some amazing programs last year for caregivers to become med taxed or CNA, which gives them a path to a significant increase in compensation and the ability to provide a better life for their family and so building on those initiatives. It's helpful. We've also created later.
Development programs for our departmental managers, so that they can grow into executive director roles, and we believe that by focusing on an appropriate associate value proposition by making sure that people see the value of the work they do by giving them a path to a better.
Life through the things and skills they've learned at Brookdale will help us with retention that we couldnt be more excited about that because our business is all about people serving people.
No that makes sense. Thank you.
Thanks, Brian .
Our next question comes from Josh Raskin from Nephron Research Your line is open.
Hi, Thanks, I want to increase the Jan one hi, how are you.
I just wanted to talk kind of stay on that rate increase and I think you've made a mention about move outs being a little bit elevated could you just give us a sense of you know.
Resident actions and specifically on the move out sort of what that data shows you relative to pre pandemic trends and then should we assume a pretty significant slowdown in move outs.
The rates are in place.
Yeah, the guidance that we're giving our formal guidance is sort of an occupancy change in the first quarter, that's consistent with our pre pandemic levels in a range now of course, we're hoping that it's going to be better than that what we normally see after a rate increase is we give the rate increased 30 60 90 days ahead of time.
And so certainly in the month of December residents, new with the rate increase with with coming in so we saw a tiny increase in financial move ins. There in January we expect that we would have seen the bulk of the increases we do expect a slowing as the first quarter progressive and that is something that's truly normal but as you can.
Imagine it is important to us to make sure that each resident understand the rationale for the rate increase and have discussions with him about the rate that makes sense and that's something that does continue.
Got you and are you seeing competitors Im talking about you know competitors within say a couple of miles of these facilities.
Where are you seeing rates were you seeing pretty consistent rate increases from the competition in your local markets.
Now you guys can sort of track that better than we can.
Yeah, 95% of our competitors operate five or fewer communities. So it's fair to say with the almost 700 communities. We have we see just about everything but what has been consistent and a constant theme is that.
Senior living operators recognize the need to charge higher rates for the services that we provide because of macroeconomic conditions, including.
Historically low unemployment.
Significant increases in compensation at that lower hourly.
Wage worker pressures on nurses in the workforce and raising interest rates. So I think that everybody sees the need to.
Factor that into their pricing so we have seen less.
Less discounting and higher price increases pretty much across the industry.
Got you and then just last one for me.
I think that you mentioned this the tangible equity unit issuance took a few people by surprise and.
So how are you thinking about leverage not necessarily short term debt needs, but just your leverage up all your capital position.
Any anticipation of additional equity type instruments being issued and then would you consider asset sales I don't know, if thats instead or as well.
Well the first thing I'll say and then Don will provide a little bit of additional color on it. If you think about the debt that we have it's not an issue that we have too much debt. It's an issue that our adjusted EBITDA has been impacted by the pandemic and you can see that we are in the first quarter.
Sure.
Expecting a very material increase in adjusted EBITDA, and then that will have a positive impact on leverage Don do you want give just a little more color. Yeah. Thank you Cindy I think as I think about leverage as Sandy said, it's really a an adjusted EBITDA issue and you know even if I just look at our guidance and take the <unk>.
Point and annualize the midpoint I'm I'm seeing are almost 30% improvement in our leverage ratio year over year.
And so that's that's how we think about what we think about our leverage.
Yeah, I just meant more sustainably long term, but you're probably not looking at double digit leverage ratios and you know you guys don't give annual guidance, Matt. So I'm just trying to figure out I understand do you think it's more of an EBITDA issue, but you know, it's either denominator and numerator right and so like what's the timeframe to think about.
Something sub eight sub seven.
Well I think that our leverage will materially improve in 2023 and continue to improve in 2024, and I think that we will get back to a leverage ratio that makes sense.
And our window, that's not all that far away.
Okay perfect.
Yeah.
Our next question comes from Joanna.
From Bank of America. Your line is open.
Alright, thanks, guys good morning.
Thanks, So much we're taking that question. So a couple of follow ups.
So on the contract Labor you talk about you know reducing and you.
You told US you reduced by 80%.
You know in December to December and and.
January .
And reductions there too so that's good but can.
Can you give us a sense of the magnitude of those things are we talking about like what is the what does this contract labor at the Santos revenues or a percent of your facility costs and also do you expect us to completely go to zero or you expect this to kind of normalize at a higher level given how you know labor market is very competitive.
Hey, Joanna this is Don.
I would say in the context of our contract labor really it's low single digits as a percentage of our revenue and as Cindy mentioned it came down almost 25%. If you look at the average of the fourth quarter monthly contract labor in over January now what I'll say is we continue to focus on that.
We continue to try to reduce our premium labor.
And I would expect that we would more normalized towards the end of 2023.
And I think that it's low single digits as a percent of comp I think is what you meant to say Don.
Instead of revenue.
Yes, that's correct and what I would say is it's important to know that the.
The vast majority of our communities are not using contract labor right. The vast majority are not using contract labor and where our contact flavor is concentrated right now within skilled nursing and so we're working on getting that down because we didn't use a significant amount of contract labor in our communities and we're in.
We will get back to there even given the very difficult labor markets. We've made such great progress with increasing the size of our workforce and and will focus on stabilizing that worked for for 2023.
Yes, because that was my other follow up so it sounds like with.
With the labor costs are improving but at a slower and you mentioned the turnover vice it sounds like that's where I guess things are slowing to improve this new associate turnover was higher so what is the cause for that and then what exactly are you doing to lower just turnover.
For the new hires.
Yeah. So if you think about it Joanna the cost of.
A new hire is not just the recruiting cost the pre employment costs, but also the training of our new associates and while the new associated training someone has to take care of the residents. So you've got a little bit the overlapping costs that doubles up and as you would expect sort of some big changes job.
The turnover is highest in terms of the first 90 days. So the most important thing that we can do is to make sure that that onboarding experience in the first 90 days is.
As seamless as possible so they understand how our culture works they are getting.
Getting embedded into relationships at work with our residents and associates. So they've got friends at work and they are they just become part of the culture and so as I said the biggest thing that is going to make a difference in our turnover rate is the fact that we're not trying to grow our workforce by 15% because you just have to hire so many people.
Do that but also for those people, we hire being selective in who we do hire and then being careful and creating a red carpet experience when we onboard new associates.
Thank you Ethan and they are not a topic I guess.
Well I can pull it up.
<unk> four I belief with Capex. So in the slides you talk about non development Capex was $2 million for the full year.
So and it's higher than I guess, what you did this year. So do you expect to continue to ramp up capex over the next couple of years.
And you know what kind of level are we thinking about you know, let's say you know a couple of years out and outside of non development Capex what are your expectations for growth Capex.
This year and going forward and how are you funding these needs.
So as you might imagine, we're not giving guidance for capex in out years, but we have had years in our history, where we have temporarily increased capex and then we brought it back down. It's also important to note that our landlord reimbursements for Capex.
Down between 2022, and what we're expecting for 2023. So we're kind of constantly evaluate what is the right decision for our communities. We do have capex. That's required for unit turns into replace end of life systems, but we look at every dollar that we spend whether it's a capex dollar or <unk>.
Expense dollar and make sure that we're spending our residents dollars wisely and we'll continue to do that.
I will say that we're not expecting any material development capex in 2023, we may have some tiny.
So that sort of spillover from 2022, but nothing at all big.
Alright. Thank you thanks for the question.
Thanks Joanna.
As a reminder to ask any further questions. Please press star one on your telephone keep up now.
Our next question comes from Steven Valiquette from Barclays.
Right.
Great. Thanks, Good morning, everybody Hey, good morning.
So just a question around the <unk> 23 guidance for occupancy you just talked about a little bit on this call. So far obviously, but you in the slide deck you alluded to that 123, maybe returning to that three year pandemic average of minus 80 bps on a sequential basis versus <unk>.
Cindy in your prepared remarks, you talked about the strong January move ins that you believe will support Brookdale first quarter sequential occupancy change that is better than the normal pre pandemic seasonal trend. So I want to make sure that we understand kind of the full messaging today, but thinking about those two data points.
And then outside of a follow up.
Okay. I'll go ahead, and then I'll have to follow up afterwards.
Let me start with that look we're expecting a range right and at the end of the day. When we look at guidance. We're trying to make sure that we have guidance that we can meet or exceed when youre talking about my prepared remarks, we're talking about the full range and that's the.
As a way to reconcile sort of those two statements.
Okay got it and then just a follow up kind of on the same subject, but I was just curious to hear a little more color on with this much earlier peak of the flu prevalence. This season versus historical trends I was just curious how that may have impacted occupancy in the fourth quarter.
If at all and then also how youre thinking about the flu impact.
Within the <unk> to 'twenty three guidance you know just given the pretty dramatic falloff in prevalence so far this quarter. Thanks.
Yeah, I'm really proud of our strong infection control protocols, we did not have a significant flu impact in the fourth quarter, nor have we had one in the first quarter. We haven't had a single flu related closure of this year.
So that that's very good now as you know flu can impact senior housing later than it does the general population. So we will remain vigilant through April which is kind of the latest that we've really seen flu impact on the community. So it's too early to say that we're past the flu season, but it is one of the things that we.
We do.
Maintain vigilance on we had flu clinics vaccination clinics in 100% of our communities and we do focus on infection prevention and control.
Okay, all right appreciate the extra color. Thanks.
Thank you.
This concludes our Q&A I'll now hand back to Sandeep <unk> seen young for any closing remarks.
I want to thank everyone for joining our call today, we are looking forward to 2023 being a strong year of execution for us and look forward to reporting on our progress as the year progresses. This concludes our call.
This call is now concluded. Thank you for your participation you may now disconnect your lines.
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