Good day, and welcome to the Sonida Senior Living Fourth Quarter and Full Year 2021 Earnings Release 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 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 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's President and CEO, Ms. Kimberly Lody..

number one, the health and wellness of our residents and team members. This priority is and always will be paramount to our success; two, occupancy recovery to pre-pandemic levels and beyond. Our goal is to return to pre-pandemic occupancy on a run rate basis by the end of 2022.

As I mentioned earlier, based on preliminary Q1 occupancy numbers, we are about 140 basis points away from that goal, and we're confident that we're on track to achieve it; and then three is NOI expansion.

We expect the NOI to improve sequentially throughout the year due to our continued focus on increasing rates responsibly, deploying innovative staffing solutions and diligently managing expenses. Lastly, we are thrilled that on May 1, Kevin Detz will join our organization as Chief Financial Officer.

Kevin will bring deep accounting and finance leadership to our team, and we expect his technical expertise along with his strong real estate and hospitality background, will enable him to add value to the Company immediately.

We continue to believe in the promising future of this industry and more specifically, in the future growth prospects for Sonida Senior Living. I'll now turn the call over to Brandon for some more insight into our operations..

Thank you, Kim, and good afternoon. As you mentioned, the fourth quarter of 2021 brought to conclusion in operational and financial transformation nearly three years in the making. We are so proud of the achievements of each of our communities throughout the most challenging operating period in recent memory.

The positive energy and tireless dedication to our residents and staff that each one of our leadership teams bring to bear on a daily basis drives the optimism across Sonida for continued improvement in operating results in 2022.

While plenty of work remains to continue occupancy and margin recovery across all of our communities, many of our local teams have already exceeded their pre-pandemic operating metrics.

On a portfolio level, increased pressure in the operating environment related to cost and availability of labor and general inflation prevented margin expansion in Q4. However, the continued occupancy and revenue growth positions our communities well for a 2022 recovery.

Further development of labor management and staffing capabilities throughout 2021 in combination with adjustments to our local wage scale have shown promising results in the early months of 2022 with positive net hires of 259 team members in Q4 2021 and Q1 2022 combined.

Revenue growth continued by -- driven by continued occupancy improvement and ongoing RevPOR increase, coupled with gains on the labor front remain the priority for delivering margin improvement in 2022.

The early stage of significant capital investment across many of our key communities has already provided an occupancy boost in a traditionally challenging quarter for senior living. As Kim mentioned, occupancy gains in each of the first three months of 2022, coupled with achievement of continued rate improvement support our NOI growth expectations.

In our previous discussions, we referenced the opportunity to improve margin by maintaining existing labor levels while increasing occupancy. The labor market remained extremely challenging in late 2021 and the early months of 2022.

Use of contract labor increased rapidly across the industry in November and December with the spike in COVID cases related to the Omicron variant. Compared with Q4 of 2020, total labor costs increased by approximately $2.6 million, primarily due to a $1.7 million increase in contract labor.

We remain confident the requirement for contract labor was limited to markets most significantly impacted by COVID cases and market-wide labor pressures, which have begun to ease here at the end of Q1.

As previously mentioned, the positive net hire figures over the last two quarters continued to drive down use of premium labor as March contract labor utilization declined from January and February. Throughout 2021, we introduced staffing and scheduling technology to support a more flexible and employee-friendly work environment.

The stability of our labor model in 2022 moving forward has been influenced by a number of key factors. Our internal recruiting and retention strategies have successfully accelerated candidate flow and increased retention of existing employees in early 2022.

Adoption of our staffing and scheduling technology continues to increase each month and has reduced the number of open ships requiring higher cost overtime or agency labor.

Finally, wage increases in wage scale adjustments, coupled with an increase in qualified candidates returning to the workforce continues to reduce the number of open positions across our portfolio.

Turning to revenue and specifically rate, we delivered sequential improvement from $3,578 to $3,594, rent concessions for new residents decreased for the third quarter in a row, further strengthening opportunity for near-term rate improvement.

For 2022, we believe that residents and families understand the increase in costs of providing great service will mean higher rate growth.

Specific to Sonida, the investments we have made and will continue to make in resident programming and experience community technology infrastructure and wages for our community teams provide direct support for the rent increases at or above the 5% we referenced previously for 2022.

Despite the increase in national COVID cases in Q4 due to the Omicron variant, our leading indicators related to occupancy remains strong.

Lead and tour volume for Q4 increased 57% over the same period in 2020 and 15% versus 2019 pre-pandemic numbers, thanks to the ongoing outreach and digital marketing efforts conducted by our local and regional leadership. Occupancy opportunity in 2022 remains focused on accelerated recovery of those communities with occupancy under 80%.

Highlighting the ongoing recovery in key states and markets, two of our largest states by unit count, Indiana and Wisconsin are currently operating at an average occupancy of 90% with many of the communities exceeding pre-pandemic occupancy.

Further detailing the positive impact of our Q4 2021 capital infusion, capital projects of approximately $10 million are underway or completed in 15 of our owned communities and for the first time in five years, Sonida completed the acquisition of two communities in Q1 within our Indianapolis market and also added three Ventas owned communities to our management portfolio.

While still early, we are pleased with the integration time line and early operating trends in these five communities.

Finally, non-labor-related expenses consisting primarily of food, marketing, facility maintenance and supply-related items decreased 1% sequentially, with a 4% increase in food costs, offset by a significant reduction in third-party referral fees of more than $300,000 in Q4.

In early 2022, we completed implementation of an updated menu management and meal costing technology to further advance our resident experience platform and expense management processes.

While pressure on net operating income continued in the fourth quarter due to the challenging labor environment and significant increase in COVID cases across the country continued improvement in rate, occupancy and the success of many Sonida communities in returning to pre-pandemic margins all provide support for our optimism in 2022.

Early results from Q1 this year show further improvement in occupancy, in-place rent increases occurring across the portfolio and positive movement in key hiring and retention metrics.

Our operations leadership team remains confident that more than three years of investment in developing and retaining strong local and regional leadership and advancing resident-focused programming will deliver consistent improvement in operating results moving forward. We will now move to the question-and-answer portion of the call.

Operator, please open the line for questions at this time..

Thank you. We will now be conducting our question-and-answer session [Operator Instructions]. Our first question comes from Steven Valiquette with Barclays. Please proceed with your question..

So a couple of questions here. First, I guess it's good to see that you're doing some acquisition activity kind of in the middle of the balance sheet cleanup, I guess, for lack of a better phrase. Maybe just spend a minute talking about the strategic rationale for acquiring the two properties in Indiana.

Then I've got a couple of follow-ups after that..

Sure. One of the core components of our strategy with respect to the development of the portfolio is to tuck-in acquisitions into our footprint in markets that we would consider strategic.

So where we already have a high level of density, but maybe have additional opportunity to add more communities, help support and just sort of leverage the platform of the organization or possibly even going into additional new markets where we don't have quite as much density.

In all cases, what we're looking for in those acquisitions is the opportunity to take a community that may be underperforming maybe had some difficulty during the pandemic and is struggling to recover from that and be able to layer into that community, the operating platform that we've worked to develop here over the last three years, and by doing that really see the improvement in those operating metrics for those acquired communities pretty quickly..

Okay. That's helpful..

I just might add to quickly, just specific to those two Indiana, the Indiana opportunity. I think just the attractive kind of purchase metrics also aligned with where we're looking going forward just on a cost per unit basis.

And then also, as we think about looking at a stabilized yield on cost of the investment and the near-term benefit on a free cash flow basis, those are some of the other key components of that acquisition that were attractive to us..

Okay. Got it. Okay. And then just jumping around here a little bit. The -- obviously, it's encouraging to see the going concern risk language removed.

I guess I was curious whether there was a specific quantitative threshold that was reached that allows the Company to remove that language? Or is it more of just a broad qualitative and quantitative assessment instead of those rigid benchmarks, just kind of more of a question of curiosity, I guess?.

Yes. It's really both quantitative and qualitative. On the quantitative side, certainly, the cash infusion and the capital raise helped boost our liquidity, the ability for us to refinance all of the near-term maturities through all of 2022 and 2023 maturities.

So, we don't have any mortgage debt maturities coming due until the middle of 2024 that helped quite a bit. We also received $9.1 million in Phase IV CARES funds.

And of course, the environment itself is becoming a much -- I won't say it's an easy environment to operate in, but it is becoming easier as time goes on and we put more distance between the worst part of the pandemic and the current operating environment. So, all of those things, together really allowed us to remove that going concern.

And actually I'll add one -- actually, I will add one more thing to that, Steve, not only that, those were sort of the financial metrics, but also the operational performance of the Company has improved significantly, as we've seen RevPAR improve and RevPOR, the occupancy growth, all of those things really contribute to feeling good about the trajectory that the Company is on and the momentum that's behind us..

Okay. Great. Okay. And then final question for me. I think at one point, you expressed previously that you would start giving some more detailed guidance in 2022. It looks like you obviously gave a few metrics here around some occupancy goals by the end of the year, and you also talked about the NOI and NOI margin progression throughout the year.

You also talked about some of those strategic priorities on Page 7 in the slide deck.

I guess I'm curious whether or not you might give additional details on guidance or just kind of what you're providing today is what we should just generally expect for this year as far as just targets and things to help us kind of just model things out et cetera?.

Yes. For the time being, I would say, utilize the indicators of the framework that we provided around the goals. So just to reiterate those, our goal is to be at pre-pandemic occupancy at or before the end of 2021 or 2022, sorry, and we feel really good about the momentum that we have to get there.

Our healthy growth expectations based on rate and being able to achieve the rates that we are putting out there in the marketplace, both in-place rent increases as well as market rates, but being responsible with that to make sure that we continue to hold on to our residents.

And then as Brandon mentioned, a big part of our focus this year is around the labor piece, just like I think everyone in our industry and making sure that we eliminate contract labor or get it as close to being as eliminated as we possibly can. We did that back in 2019. We're at zero contract labor at the end of 2019. So we've done that one.

We can do it again. Managing wage increases and so that when you think about all of those things in and the out, so contract labor coming down, over time coming down. Managing wage increases to ensure that we've got good staff and then deploying some of the labor technology that we put in place here in recent months to help us manage labor hours.

We feel like we should begin to see NOI improve here over the course of the year. Again, sort of the trajectory of that, not quite ready to put that out there yet, but we do think that it will improve incrementally throughout the year..

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Kimberly Lody for any closing comments..

All right, very good. Well, this concludes today's conference. I want to thank everyone for attending and have a great day..

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..