Sonida Senior Living, Inc. (NYSE:SNDA) Q4 2023 Earnings Call Transcript

Sonida Senior Living, Inc. (NYSE:SNDA) Q4 2023 Earnings Call Transcript March 27, 2024

Sonida Senior Living, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the Sonida Senior Living Fourth Quarter and Full Year 2023 Earnings Conference Call. Today’s conference is being recorded. All statements today, which are not historical facts may be deemed forward-looking statements within the meeting of the federal security 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 could cause actual results to differ are detailed in the earnings release the company issued earlier today, as well as the reports in 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/invest-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 the reconciliations of each non-GAAP measure, from the most comparable GAAP measure, please also see today’s press release. At this time, I’d like to turn the call over to Sonida Senior Living CEO, Brandon Ribar. Thank you. You may begin.

Brandon Ribar: Thank you, Rob. Hello and welcome to our 2023 fourth quarter and full year earnings call. I’m joined today by Kevin Detz, our Chief Financial Officer. Earlier today, we posted our 2023 earnings and investor presentation, which will be referenced throughout this call, as we discuss our strategic priorities and operating results, for the year as well as our focus on growth in 2024. You can find our latest presentation at sonidaseniorliving.com in the Investor Relations section, if you would like to follow along. In addition, we’ve included supplemental earnings information within our investor presentation, consistent with the prior quarter release. Our results in 2023, not only paved the way for growth in 2024 and beyond, they reinforced the strength of our Sonida culture and our collective leadership teams.

Our strategic focus on building exceptional teams, across each operating and support discipline, delivering value to our residents and our local team members, and translating those efforts into real margin improvement, through operational excellence resulted in the strongest year-over-year performance improvement in the company’s recent history. I could not be prouder of each team member across the Sonida family. We achieved more than 10% revenue growth on a same-store basis, and even more importantly, doubled our adjusted EBITDA year-over-year from $17 million in 2022 to $34 million in 2023, while delivering outstanding care and services, to our residents across the country. Additionally, the company delivered cash flow from operations exceeding $10 million in 2023, a $13 million improvement from 2022.

I’m incredibly thankful for the contributions from the entire local, regional, and central support teams. The balance required to increase the recovery trajectory on revenue and margin, complete significant restructuring of the balance sheet, raise additional growth capital, and position the platform for long-term expansion, is reflective of a high-performing management team ready, to continue building something special. We emerged today free from going concern language in our financials, with capital available to invest in our portfolio, and pursue external growth opportunities. I’ll focus my comments today on a few of our 2023 company accomplishments and provide further detail on Sonida’s goals for an exciting growth phase over the next 18 to 24 months.

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Q&A Session

Kevin will provide greater detail on our operating results and key financial achievements in 2023. Most important to our strategic plan, we continue to invest and develop leadership, across each of our disciplines. Over the past year and a half, we’ve changed the culture of the organization, by empowering key regional and local leaders. This cultural transformation has resulted in 100% retention of our regional operations and sales leaders and improved our community leadership retention, by nearly 10% year-over-year. Our business only thrives with, first and foremost, the support and buy-in of our team. We completed significant investments in our real estate portfolio and expanded the number of units to meet an increasing demand for memory care services in two key markets.

Additionally, we invested in multiple technology solutions to support ongoing improvement in resident safety and experience, while enhancing our operational efficiency, to manage the cost of operations moving forward. All of these efforts, are foundational to our plan, to build a differentiated operating platform that delivers value through operations, real estate ownership, and meaningful investment opportunities in the senior living space. Let’s now look at the various levers for Sonida’s organic and inorganic growth in 2024 and beyond, detailed on Pages 19 through 22, of the investor presentation. Within our existing portfolio, which remains our primary focus, further margin expansion through rate and occupancy growth stand at the forefront.

Our rate increases on existing rental contracts were effective, for nearly 80% of our private pay residents on March 1 of 2024, and thus far, attrition rates related to affordability, remain in line with expectations. One of our 2024 goals centers, around driving occupancy improvement in a handful of underperforming assets that account for 40% of all vacant units. A combination of shifting sales focus, further capital investment where appropriate, and heightened outbound marketing are being deployed to accelerate the recovery of these communities. 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 fourth quarter, more than half of our portfolio averaged occupancy of 90% or greater, with these communities consistently achieving the highest marks in customer experience and employee engagement.

We believe that over time we can drive portfolio-wide occupancy in excess of 90%. These expectations align well with current industry trends, new supply at a 10-year low, high construction costs, and the constrained availability of affordable financing. Continued investment on our clinical and resident programming, will further support these growth efforts. Our clinical teams and residents, have recognized immediate benefit with the arrival of our Chief Clinical Officer in Q4. The addition of a talented, experienced leader, will further expand our clinical offerings and tailor our services, to the needs of our residents. Our clinical focus in 2024, is highlighted by retention and further development, of our local clinical leadership and ensuring, the effectiveness and consistency of our local processes, to proactively identify changes in resident health requiring action.

We expect further margin expansion, driven by continued operational improvements, specifically additional rate and occupancy growth, combined with utilization of our labor management technology, and protocols to contain cost inflation. Additional capital investments in the $3 million to $4 million range, will fund conversion or opening of approximately 100 additional units in 2024. We anticipate a 12 to 18 month payback on these investments based on our experience with similar capital projects over the last two years. Shifting to external growth opportunities on Slides 20 to 22 of our investor presentation, we highlight the profile of communities targeted for acquisition. The various sourcing channels currently offering accretive investment opportunities, and the versatility we bring as a balance sheet investor, JV partner, and premier operator.

We continue to focus on the Midwest, Southeast, and the South as primary markets, to further densify our existing footprint, targeting newer construction, multi-product communities serving the upper middle, and high-income resident base. Our programming created, to bring joyful living to our independent and assisted living residents and our trademark Magnolia Trails memory care program, will support operational improvement in newly acquired communities. In the current environment, we see opportunistic investments as most compelling, and are focusing largely on underperforming, but quality assets at significant discounts to replacement costs. While these assets may be cash flow neutral, or negative up front, Sonida identifies situations where our systems and processes can structurally improve margin, as well as quality of care and resident experience, and we anticipate stabilizing at double-digit NOI yields on costs.

We believe that the financial success of a community, is first and foremost dependent on having a strong local leadership team, and key to our success is the hiring and retention of great talent that together with Sonida’s tools and programs, are able to stabilize challenged assets. We expect to capitalize on three primary avenues of inorganic growth, acquisitions, joint ventures, and third-party management. We will enter into third-party management agreements selectively and strategically, and on acquisitions and joint ventures are focused on disciplined deployment of balance sheet capital, at high rates of return and in assets that have strategic, or qualitative benefits to our portfolio. We see a growing opportunity set to partner with lenders and existing asset owners who are seeking fresh capital and new operators to enhance recovery value on their portfolios.