Sonida Senior Living, Inc. (NYSE:SNDA) Q3 2023 Earnings Call Transcript

Sonida Senior Living, Inc. (NYSE:SNDA) Q3 2023 Earnings Call Transcript November 14, 2023

Sonida Senior Living, Inc. misses on earnings expectations. Reported EPS is $-2.79092 EPS, expectations were $-2.01.

Operator: Good day, and welcome to the Sonida Senior Living Q3 2023 Earnings Conference Call. Today’s conference is being recorded. 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 the company expressly disclaims any obligation to updates 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 the 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.

Please see today’s press release for the full safe harbor statement, which may be found at www.sonidaseniorliving.com/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 Sonida Senior Living CEO, Brandon Ribar.

Brandon Ribar: Thank you, Camilla. Good afternoon, and welcome to our 2023 third quarter earnings call. I’m joined today by Kevin Detz, our Chief Financial Officer. Earlier today, we posted our Q3 earnings investor presentation, which will be referenced throughout this call as we discuss our strategic priorities and operating results for the quarter. You can find our latest presentation at sonidaseniorliving.com in the Investor Relations section if you would like to follow along. In addition, we have included supplemental earnings within our investor presentation, consistent with the prior quarter release. We are approaching the end of an exceptional year for the Sonida recovery story. I’m incredibly thankful for the contributions from the entire leadership team locally, regionally and in our central support teams.

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The end of Q3 marked our first full year together as a leadership team. I’m so pleased with the level of collaboration and accomplishments from this group in just 1 short year. Since our last update, our portfolio has experienced accelerated increases in both occupancy and rate that when coupled with stable operating expenses, has delivered margin improvement year-over-year of nearly 600 basis points with September margin exceeding 25%. Portfolio occupancy for Q3 improved 100 basis points sequentially and 150 basis points year-over-year to 84.9%. I’m most encouraged by the strong growth experienced in the back half of the quarter and our continued trend through October. Occupancy averaged 86.2% for the month of October and closed the month with spot occupancy of 87.4%, our highest level in more than 4 years.

Our leadership team remains focused on 3 primary drivers of value creation as we close out 2023 and prepare for 2024. First, we continue to focus on maximizing the performance of our portfolio and aiming to approach the key target of 30% NOI margins. We believe operational improvement to deliver all-in cash generation in 2024 is critical to establishing an attractive investment profile for Sonida. Second, we are committed to further strengthening our balance sheet through ongoing efforts to reduce our key leverage metrics, enhance our current cash flow and create incremental value for our shareholders. We continue to proactively work through remaining opportunities to enhance our debt profile. Finally, growing our business through accretive acquisitions and strategic third-party management opportunities provide the third major lever for creating value.

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Q&A Session

Market volatility continues with owners, operators and capital providers reaching key decision points related to investing, financing and operating performance. Sonida continues to engage in discussions with investors, lenders and other stakeholders to identify potential near-term opportunities. Our most recent acquisition of 2 independent living assets in Indianapolis completed last year have grown from 52% occupancy at close to nearly 90% currently, highlighting our ability to quickly integrate and improved performance of communities we take over and introduce our systems operating model. I’ll briefly provide commentary on a few key drivers behind operating performance, and Kevin will go into further detail around specific financial and operating metrics.

We are still seeing the benefits from our rate growth initiative with both in-place rate increases and positive market rate adjustments contributing to overall rate elevation. We believe the sustainability of our rate profile, combined with an ongoing increase in occupancy demonstrates the value we are providing to our residents. The combination of tenured, high-performing local leadership and high occupancy levels will allow for further rate growth in 2024. To complement revenue expansion, we continue to identify expense management opportunities and efficiencies. Investments and utilization of technology supporting more informed labor management practices at the local level, combined with continued rollout of our market-specific talent sharing program remain paramount to controlling total cost of labor.

As referenced in Q2, the expansion of dynamic staffing pools in dense markets and the implementation of monitoring technology to staff based on resident needs has contributed to an 80% year-over-year decline in contract labor, while limiting direct labor increases to approximately 3.5%. Our team is not only focused on addressing lower-performing communities but also enabling our strongest performing communities to reach their full potential. During the quarter, nearly half of our owned communities averaged occupancy of 90% or greater, with these communities consistently achieving the highest mark in customer experience and employee engagement. The company delivered cash flow from operations exceeding $10 million for the first 9 months of the year, a $7.8 million improvement from the same period in 2022.

The resulting improvement in run rate cash flows from operations, coupled with the comprehensive restructuring of our mortgage loans, position the company to generate positive cash flow in 2024. I’ll quickly touch on 2 exciting internal investments in our people and product that will further enhance our resident experience and clinical capabilities for the long term. In 2022, we designed and launched a comprehensive memory care program, Magnolia Trails. Over the course of the past year, we have seen exceptional outcomes for our residents and their family members through this program, which has translated to improved operations and memory care occupancy of approximately 88% at the end of October, as compared to an average of 83% in 2022. Beginning in Q1 2024, we will launch Joyful Living, our enhanced independent living offering in 14 communities with each of our independent living communities offering the product by midyear.

Joyful Living encapsulates Sonida’s person-centric approach to wellness in life enrichment, emphasizing well-rounded programming that supports physical and emotional health, intellectual stimulation, individual purpose, social engagement and spirituality. Our goal is to provide residents with a variety of opportunities to achieve their desired potential and enjoy full meaningful lives. On the quality front, we continue to invest in our clinical leadership team as reflected in the recent hiring of a Chief Clinical Officer, Tabitha Obenour. The addition of a talented experienced leader will further expand our clinical offerings and tailor our services to the needs of our residents. From a clinical outcome perspective, our average monthly move-out volume has remained consistent with 2022 as has our average length of stay.

Each of our communities will complete the offering of both COVID and flu vaccine clinics with our national pharmacy partners in Q4 with the goal of encouraging safe and social living environments throughout the higher-risk winter months. Turning to the overall market. Stability on the labor front and increases in average occupancy nationally bode well for the ongoing industry recovery. We also support the thesis shared by other leaders in the industry, the demand continues to rise and both supply coming online and planned new construction metrics remain quite favorable. As previously referenced, we are diligently working towards identifying accretive growth opportunities for Sonida that when coupled with our strong operating trajectory have the potential to create significant value for our investors.

The uncertainty and volatility in the current capital markets driven by the reduction of capital available and the rapid rise in its cost should yield opportunities for those with a creative approach to investing across the capital structure. In summarizing Q3, our teams across the business continue to deliver on our 2023 operating plan. The results this year have shown significant progress each quarter with Q3 delivering the highest level of occupancy, revenue and operating margins since 2019. The ongoing retention and development of our leadership teams and the effective rollout of new resident programming and technology remain paramount to continuing the growth trends achieved in 2023. Our team is excited to continue building a best-in-class operating platform to achieve the full potential in each of our 71 communities.

I’ll now turn it over to Kevin for a discussion of the financial results.

Kevin Detz: Thanks, Brandon. I will drill down into some of the quarterly highlights that you touched upon, picking up with Slide 6 and 7. I am happy to report that we have executed on the second and final step to formally modify all Fannie Mae loan agreements with terms provided for the forbearance agreement executed this summer. As previously discussed, this modification significantly improves the company’s long-term debt structure and run rate liquidity. Specific terms of the debt modification on all 37 Fannie Mae loans include extending loan maturities to December 2026 or beyond, deferring required principal payments for a minimum 3 years and permanently abating a portion of interest for the 12-month period ending in June 2024.