Good afternoon. And welcome to the Sonida Senior Living Fourth Quarter and Full Year 2022 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 update these statements in the future. Actual results and performance may differ materially from forward-looking statements.

Certain of these facts 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 https://www.sonidaseniorliving.com/investor- relations and was furnished in an 8-K filing this morning. Also, please note that during the call, the company will present non-GAAP financial measures.

For reconciliations of each non-GAAP measure for 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. Thank you. You may begin..

Thank you, Doug. Good afternoon and welcome to our 2022 year-end earnings call. I am joined this afternoon by Kevin Detz, our Chief Financial Officer.

Consistent with our approach for the Q3 call, we will be referencing our publicly available year-end investor presentation as we discuss our strategic priorities, operating results for the year and initial comments on Q1 2023 trends.

You can find our latest presentation at sonidaseniorliving.com in the Investor Relations section if you would like to follow along. While today’s results primarily reference 2022, we have nearly reached the end of Q1, a first quarter that for the first time since 2019 feels upbeat from an overall senior living landscape relative to recent years.

COVID-19 and influenza cases across our Sonida communities were materially reduced and far less severe on the whole compared to recent winters.

The health of our residents, the stability of our leadership and care teams and the continued delivery of high quality care and wellness services all contributed to occupancy and rate improvement in Q4 and stable occupancy through the first two months of Q1.

We are pleased with the revenue increase exceeding 10% for the full year 2022, with occupancy returning to pre-pandemic levels by Q4 and resident rates increasing 3.6% year-over-year with additional rate initiatives underway.

With the new management team in place, we have accelerated our commitment to pricing our units based on the value our services support. Overall, rate improvement efforts are -- in Q1 are materially ahead of the 2022 average on both lease renewals and re-leasing spreads.

These increases and further occupancy expansion will support another year of strong revenue growth in 2023. Additionally, investment in labor management capabilities and proprietary tools, combined with a heightened focus on managing discretionary spend are foundational to delivering accelerated near-term margin expansion.

Q1 is shaping up to be consistent with Q4 on the occupancy front, with January and February in line with the Q4 average. We are pleased to avoided -- have avoided the typical seasonal weakness.

Just as important is the strength of in-place resident rate increases and re-leasing spreads, which exceeded 8% in December, January and February and support margin improvement expectations in the early part of the year.

Related to the overall stability of occupancy across our portfolio, nearly half of our owned communities were at or above 90% occupied for February and half of those were 95% occupied or more.

In Q4, our leadership team intensified oversight of our communities that are lower occupancy and experiencing a slower NOI recovery and we have seen consistent improvement throughout Q1 in many of those assets. Substantial occupancy and margin opportunity remains in these assets as they continue to improve throughout 2023.

Lead and tour volume throughout the winter months remained strong with year-over-year growth in leads exceeding 40% from December to February. I would like to spend a few minutes on the topic of utmost importance in this operating and capital environment, capital allocation.

Over the past year and a half, the company has invested in the restructuring and long-term stability of our balance sheet, funded significant capital into our communities to drive performance recovery and reduce the working capital deficit created as the company managed liquidity throughout the pandemic.

Our dollars were invested in a deliberate manner with long-term value creation for our shareholders and delivery of a sustainable high value offering to our residents at the forefront. In Q4 of 2022, following our leadership transition, we intensified efforts to price our product to reflect these investments.

Leveraging the strength and stability of our local leadership teams, we aggressively reduced contract labor utilization and have reduced the quarter-over-quarter growth in total labor cost. Kevin will provide more analysis in these areas.

Since bringing Kevin on Board, we have top graded our accounting and finance talent and invested in an integrated ERP, which provided the foundation to accelerate centralization of key financial processes.

In previous years, these processes were disparately managed by the local community leadership, limiting scalability and bandwidth to better serve our residents. On slide four of the presentation, we have highlighted key accomplishments in 2022, beginning with our people.

Leadership retention remains consistently strong with 17 open positions across more than 330 local and regional leadership roles at year-end and a total of six currently open as we close out March. We believe this key metric reflects our commitment to maintaining an open, transparent and supportive organizational culture across all of Sonida.

I am also pleased with ongoing returns on capital investments within our portfolio this year. These projects have delivered significant occupancy and margin recovery in recent months and represent a key component of 2023 growth. The performance of our memory care product, Magnolia Trails, also deserves recognition.

The rollout of Magnolia Trails programming across 31 communities contributed to 13% memory care revenue growth year-over-year driven by occupancy improvement of nearly 700 basis points and rate increases exceeding 5% in these communities.

In conclusion, significant rate growth in early 2023, coupled with ongoing occupancy improvement and a differentiated approach to managing labor costs are expected to be the drivers for accelerated margin and cash flow improvement.

Our primary goal as a leadership team in 2023 is to accelerate the timeline for producing positive cash flow net of all recurring capital expenditures and debt service. As Kevin will discuss, we are intensely focused on several balance sheet initiatives that when combined with our ongoing operational improvement will allow us to achieve that goal.

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

Thanks, Brandon. I will be picking up on slide five for those following along in the deck. Despite a continued challenging operating environment, the company realized a seventh straight quarter of both occupancy and revenue growth, as seen on slides five through eight of the investor presentation.

Please note that these slides are presented on both a consolidated and same-store basis. The 2022 acquisition of two smaller independent living communities in Indiana accounts for the difference in rate KPIs between these two presentations. We have now seen portfolio occupancy attain pre-pandemic levels with more room for expansion in 2023.

With the foundation of occupancy recovery firmly in place, we are targeting meaningful but responsible in-place and market rate increases. Based on our recent investments in programming and physical plant, we believe these increases are sustainable and will significantly contribute towards the recapture of historical margins.

Specifically, RevPAR increased 1.7% from the previous quarter or 6.8% on an annualized basis as the company utilizes a rolling anniversary convention. In addition to strong occupancy, the increase is primarily a result of management’s recent organizational realignment and refocus on rate.

Part of this refocus includes enhanced communication and transparency with our community leaders, which in turn, assist in individual rate conversations with our residents and love ones.

Amongst other revenue initiatives more fully described on page nine, we continue to push on our recently implemented resident rate review cadence, which again expands transparency and market awareness for each of our community and sales leaders.

During the quarter, we invested in an internally developed resident rate cube that incorporates multiple attributes into an overall rate -- resident rate assessment. Moving on to slide 10 in the investor presentation. Last quarter, we discussed the dilutive impact contract labor was having on our margin recovery.

For the quarter, we are pleased to report that contract labor decreased $525,000 or approximately $175,000 per month on a run rate basis. In comparison, our direct labor increased $474,000 for the quarter, which is nearly a one-for-one swap of temporary labor for permanent hires.

However, excluding the month of December, which is seasonally the highest payroll month of the year, and in this instance, unfavorably impacted by winter storm Elliot, the monthly run rate increase quarter-over-quarter was $125,000 a month. Again, this compares to a comparable decrease in contract labor of $175,000.

What this analysis indicates is that both permanent staffing levels and wage composition have largely stabilized out of a hyperinflationary period with opportunities to further reduce contract labor to frame more normalized wage increases in 2023.

Staying on the same slide, our food costs per unit are programmatically moving down as our Q3 implementation of the GPO continues to take root with monthly compliance percentages steadily increasing. On to slide 11, where I’d like to identify a few important takeaways regarding our debt.

First, in connection with the December financing of the two Indiana communities purchased earlier in the year, the company acquired an interest rate cap on the full notional amount of the 12 communities secured by our loan with Ally Bank.

Second, we are happy to report that all of our debt is now either fixed or variable with a full hedge in place, greatly limiting the company’s exposure to further and/or prolonged elevated interest rates.

Finally, the company was in compliance with all financial covenants required under our mortgages as more fully described in the 10-K to be filed later today. Finally, I’d like to spend a bit of time on our 12th and final slide of the investor deck.

As a result of the company’s current liquidity profile and monthly all-in cash burn, the company developed various cash preservation initiatives to immediately assist in reducing the run rate cash burn and shorten the bridge to run rate cash generation.

A good number of these initiatives are already in flight as part of the new management team operational playbook refresh and referenced on today’s call. Additionally, the company is committed to reducing its corporate G&A to 10% of revenues by the end of the year with significant and permanent changes already taking place.

With the implementation of a new ERP on January 1st, the company is able to leverage its technology and related workflow to more closely manage its recurring capital spend, resulting in overall spending reductions and more ROI pointed spend.

Finally, the company is engaged in meaningful and collaborative discussions with its lending groups to explore the modification of its debt with the intention to create both short-term liquidity and long-term value for its investors. Back to you, Brandon..

Thank you, Kevin. I will conclude today’s presentation by revisiting our strategic pillars, team, value and operational excellence. We believe best-in-class execution in these areas is key to delivering continued improvement in the business.

The investment we have made in developing best-in-class leadership teams at the community level has proven essential to creating a valued experience for our residents as we increase rates on both existing and newly leased units.

Emphasizing these three pillars creates a differentiated experience for our residents, families and team members, and will deliver strong operating results within current and future Sonida communities. Doug, if you could please open the line for questions at this time..

Thank you. [Operator Instructions] Our first question comes from the line of Steve Valiquette with Barclays. Please proceed with your question..

Hi. This is Amin Zezeiri [ph] on for Steve Valiquette. Thanks for taking my question. So could you….

Hey, Amin..

Hi, there. Can you just add any more color on the defaults that were mentioned in the press release, is there any timeline as to any potential resolution here? And could you also give us a sense of kind of the advance of any more or the likelihood of any more defaults in the imminent future? Thank you..

Sure. I will take that one, Amin. This is Kevin speaking. And so the defaults that you referenced that we disclosed in our earnings release and then later in the 10-K are due to the non-payment of our mortgages in February and March on four of our communities that are secured by loans with Protective Life.

So at this point, we have gotten the reservation of rights letter, but we are not in a formal event of default and we believe that we are having productive conversations with the lending group to address this and the broader debt composition profile overall..

Okay.

Then -- and you think then, could you also just quickly confirm your next significant maturity kind of beyond these loans, when would you say that is for the company given?.

Yeah. July 1st of next year, there are 12 loans that are due under Fannie Mae..

Okay. Great. And just one or two more questions if I may..

Okay..

Is it possible for you to also just elaborate on the going concern that you also disclosed in your earnings release today.

Can you give us a little bit of sense about how you think this is going to affect performance for the rest of the year? And then also -- and I know this has not historically been done, would you be able to add any more color or guidance for either EBITDA or any acquisition disposition activity going forward? Thank you..

Yeah. Yeah. So I think I will take that and then kick it over to Brandon to see if he has concluding thoughts. But the going concern is simply related to our current cash balance and the operating performance and the cash profile of the company right now.

But relative to the discussions we are having and the cash preservation initiatives that we disclosed, we do feel strongly that we are going to be able to move past this. And when we do, which we hope will be in short order, we feel like our operational -- all of our operational indicators and trends are pointing in the right direction.

But I think Brandon will want to talk to that a little bit more..

Yeah. I think really important to your question is, what is going to be -- how will that going concern language impact the way we run the company.

And I think the short answer is that we feel very confident about the way we are running the company today and the investments that we have made in our portfolio over the last year and a half and we believe those investments and the ongoing operations are continuing to improve.

I referenced the strength that we are seeing on the rate front in terms of our re-leasing spreads and our in-place rent increases in December, January and February at 8%, which if you kind of go back and look at our 3.6% increase in 2022, we really are pleased with where we are running in the beginning part of the year and that carries forward, as you know.

So we are going to be very focused on really delivering the value for our residents, because we believe that supports the higher priced product. And then on the kind of the expense management side, continued benefit and improvement and stability on the workforce labor cost front will also benefit us.

And so, I’d say that, we are very focused on continuing with the plans that we have in place to deliver incremental and accelerated improvement on the margin front and I think our teams are excited about 2023 and especially coming out of a winter where we were able to hold occupancy and not see the impact of the traditional seasonal impact on senior leaving.

So we feel like we have got a good jumping off point for where we need to be for the rest of the year..

Okay. Great. That’s very helpful. Thank you again..

Thank you..

There are no further questions in the queue. I’d like to hand the call back to Brandon Ribar for closing remarks..

This concludes today’s conference call. Thank you all for participating and we will speak with you all again soon. Take care..

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..