Brookdale Senior Living Inc.

Good day. My name is Jay, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Brookdale Earnings Conference call. All lines have been placed in mute to prevent any background noise. And at the end of today's presentation, we'll have a question and answer session. And if you would like to ask a question, simply press star, then the number one on your telephone keypad. And if you would like to withdraw a question, press the pound key. Thank you. It is now my pleasure to turn to this program over to Ms. Kathy McDonald. The floor is yours.

Thank you, and good morning, everyone. I'd like to welcome you to the second quarter 2019 earnings call for Brookdale Senior Living. Joining us today are Cindy Beyer, our President and Chief Executive Officer, and Steve Swain, our 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 these factors that could cause actual results to differ are detailed in the earnings release we issued yesterday, as well as in the reports we file 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.com forward slash investor. and was furnished on an 8K yesterday. With that, I would like to turn the call over to Cindy.

Thank you, Kathy. Good morning to all of our shareholders, analysts, and other participants. This morning, I'll provide an update on our strategy, the industry outlook, and our second quarter results. I'll start with our strategy. Our second quarter results continue to demonstrate that our turnaround strategy is working. We are laser-focused on improving our top-line growth. Revenue grew for all three of our senior housing segments on a same-store basis and also for our healthcare services. We accomplished this by making significant strides on our operational leading indicators. Same-community move-ins showed positive year-over-year growth for the first time since third quarter of 2017. In addition, our same community occupancy grew in May seasonally one to two months earlier than in the past several years and continued to trend upward in June and July, setting us up for expected sequential occupancy growth in the third quarter. At Brookdale, there is simply no substitute for great people who genuinely care, do the right thing, and serve our residents and patients with high-quality care. Our associates do extraordinary things every single day. That is why the foundation of our strategy is to win locally, which relies on having a talented team of associates dedicated to providing high-quality care and services to our residents and patients. We're pleased that we continue to see positive associate metrics showing our strategy is working as we focus first on retaining our high-quality group of associates. Trailing 12-month retention rates have remained around 70% for eight consecutive quarters for our executive directors, who are the CEOs of our local communities, and for our health and wellness directors, who lead our clinical efforts and oversee all aspects of our residents' care. Also, the retention rate for sales professionals improved for the second sequential quarter. Retention of our sales professionals is central to continuing the positive sales cycle momentum we are now experiencing. Year to date, over 2,100 former associates have returned to work at Brookdale, highlighting our reputation within the industry as an organization that empowers its community leaders to implement a personalized, win locally, culture. It also speaks to what a great place Brookdale is for associates. To that end, our total associate turnover has improved 5% in the second quarter 2019, compared to a year ago. We view this very positively given the current tight labor market. The organization's leaders at all levels are focused on associate engagement, development, retention, and hiring ahead, and these associate-focused initiatives are clearly taking hold. Not only do our leaders and associates feel the momentum of positive change within Brookdale, validated by our retention and rehire rates, but our residents also have recognized the improvements we've made. The changes we've made have not happened overnight, but rather they have been the result of a clear focus on operations and understanding our residents' needs on a deeper level. As such, one of our top priorities has been to take actions that enhance the resident and family experience. To do so in the most transparent fashion, we measure our success at enhancing our customer experience through the Net Promoter Score, or NPS, an objective scoring system. With over 50,000 surveys completed this year by residents and their families, our NPS has increased over 20% since our last survey. These efforts across the business have resulted in significantly less same-community controllable move-outs over the past two years and have had a direct, positive impact on occupancy. We recognize in this business that resident and family experience is everything, and while we're pleased with our progress to date, we will remain focused on continuing to drive incremental and long-term improvement. Next, I'll provide the industry backdrop and summarize Brookdale's financial results. While headwinds remain in the senior housing industry with elevated openings and occupancy pressure, the construction pipeline and starts continue to shrink. NIC continues to show a supply-demand equilibrium in late 2019. Even with the recent new supply coming into the market, industry supply and demand appear to stay balanced for the rest of 2019 into 2020. According to NIC, second quarter occupancy for the industry dropped 30 basis points on a sequential basis and assisted living occupancy declined 40 basis points. For Brookdale, on a same community basis, independent living occupancy remained around 90% for the fourth consecutive quarter. On a year-over-year basis, occupancy grew 50 basis points for the second quarter and 100 basis points year-to-date. Assisted living occupancy declined 10 basis points on a sequential basis, yet outperformed the industry. With our assisted living segment being proportionately larger than NIC, we are excited to be close to turning occupancy positive. Senior housing occupancy declined 40 basis points sequentially, just slightly more than the industry. Lastly, we grew our move-in rate higher and welcomed more new residents into our communities than the industry. For the second quarter, our same-community REVPAR increased 3.3% on a year-over-year basis. Driving rate is a key part of our strategy. To wrap up on senior housing revenue, same-community REVPAR improved 1.9% on a year-over-year basis, and every product line delivered revenue growth. I'm pleased that we're improving execution and demonstrating success against our strategic plan. Turning to our healthcare services segment, in the second quarter, our revenue improved 4.2% on a year-over-year basis and 2.6% on a sequential basis. In addition, the segment operating margin improved for the second consecutive quarter. The team, under new leadership, is developing a plan to continue improving our financial results by focusing on patient care excellence, accountability, recruiting high-quality leaders, and expanding our services. As announced in July, we are pleased that the second new hospice agency we opened this year is fully operational, and we look forward to announcing another agency opening later this year. This quarter, we had wins in associate retention, market improvement and resident satisfaction, positive move-in growth, and health care services revenue and margin growth. The efforts of over 60,000 associates are paying off. As you know, we've recently welcomed several passionate, dedicated leaders with industry expertise and proven operational track records to our leadership team. Diane Johnson-May, our head of human resources, Rick Wiginton, our head of sales, and Anna Jean O'Neill, our head of hospice business, are off to a great start and are ready to take us to even a higher level of performance. And speaking of Anna Jean, soon after she joined Brookdale as our hospice leader, she agreed to lead our entire healthcare services group on an interim basis and now reports directly to me. Today, approximately 40% of my direct reports are women. And as you know, half of our board members are women. Gender diversity in leadership is important in any industry, but it's even more critical in healthcare. Approximately 65% of care recipients are female, 75% of caregivers are female, and 80% of health care decisions are made by women. Today, our leadership better reflects our mix of associates, residents, patients, and their families, and we will strive to continue to improve the overall diversity of the entire Brookdale team. Today, I'm excited to announce another new member of our C-suite. Chris Baham joined Brookdale as our Chief Information Officer, reporting to Steve Swain. Chris has over 20 years of experience in IT leadership, specializing in the healthcare industry. He will lead our great IT organization, which has continued to drive innovation, such as the implementation of a proprietary sales and marketing system, electronic residency agreements, and improvements in services provided to residents. We are pleased that our third-party monitor scored our programs in the top 10% of the healthcare and wellness industry. We believe strongly in the foundation of our culture and are optimistic that we will continue to attract top talent to Brookdale in the months and years ahead. As I wrap up my comments about the second quarter results, I'd like to emphasize that not only are we a leading senior living and healthcare operator, but an integral and value-generating component of our business is the autonomy and ownership we have over our real estate assets. In regard to our real estate strategy, since the first quarter of 2018, our total net proceeds from community sales is over $230 million, bringing us close to our goal. We have intentionally built a diversified portfolio that has tremendous opportunity and operating leverage. We are well positioned to benefit from the positive demographic trends ahead, especially with the dramatically increasing number of seniors who need our services every day to live the best life possible. In fact, the oldest baby boomers are within a couple years of the typical age when seniors consider improving their lives through senior housing. This is important because over 30% of our move-ins occur at age 80 or younger. Equally important, the silver wave is quickly approaching with baby boomers aging into senior housing, which will accelerate for the foreseeable future. We are delivering on our commitment to turn around Brookdale so that we can deliver an attractive return to our shareholders, and we reiterate our 2019 annual guidance. I'll turn the call over to Steve.