Brookdale Senior Living Inc.

Welcome to the Brookdale Senior Living third quarter 2022 earnings call. My name is Harry and I'll be coordinating your call today. If you would like to ask a question during the Q&A, you may do so by pressing star 1 on your telephone keypad. I'll now like to hand over to Cathy McDonald to begin. Cathy, please go ahead.

Thank you and good morning. I'd like to welcome you to the third quarter 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 the 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 report 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. Now I will turn the call over to Cindy. Thank you, Kathy.

Good morning to all of our shareholders, analysts, and other participants. I hope you and your loved ones are healthy and happy. Welcome to our third quarter 2022 earnings call. We appreciate you joining us today. We are pleased to report that we saw a number of operational improvements during the third quarter despite numerous challenges from Hurricane Ian. Our senior housing revenue growth was strong for the third quarter, as RevPAR increased 10% for the quarter and year-to-date compared to the prior year periods. Weighted average occupancy grew at nearly the same sequential rate as last year, even with Hurricane Ian impacting the last week of the quarter. Year-to-date, RevPAR was 4.5% better than last year, which helped mitigate the continuing impacts of inflation and the challenging labor markets. Adjusted EBITDA, excluding government grants, increased 16% compared to the prior year quarter. In addition, we recognized Phase IV provider relief funds in the third quarter. Sequentially, the other operating income increase of $58 million helped deliver a 111% increase to adjusted EBITDA, and the grants resulted in positive adjusted free cash flow. We are pleased that the contract labor declined more than 40% from the second to third quarter and offset nearly all of the sequential incremental costs, most notably the extra calendar day, which was also a holiday. That said, with the impacts from the extended labor recovery, Hurricane Ian expenses, and higher general repair and maintenance costs, we find it necessary to revise and tighten our adjusted EBITDA guidance for the year. Let me turn to our third quarter financial highlights. REVPAR increased 10% compared to the prior year quarter, and we continued on the strong path of occupancy recovery. The third quarter's weighted average occupancy increased 390 basis points compared to the prior year period, and September marked the 11th consecutive month of year-over-year growth. Move-ins were 7% higher than in the third quarter of 2021. In fact, On a same community basis, the third quarter saw the most quarterly move-ins in the company's history. As reported by Nick, the industry's third quarter senior housing occupancy increased 110 basis points on a sequential basis. We are delighted that Brookdale again exceeded industry growth by increasing sequential occupancy by 180 basis points. Our strong top line execution plus the benefit of both supply and demand tailwinds is reflected in our higher move-in volume. Turning to labor, our third quarter total labor costs were nearly flat on a sequential basis. The contract labor reduction mitigated the incremental sequential cost, most notably the extra calendar day, which was also a holiday. As we continue to increase net hires to resolve contract labor, we saw an increase in training hours for the new associates, which resulted in some overlapping hours. Quarter by quarter, we worked hard to dramatically reduce contract labor from the peak in December 2021 by filling more shifts with dedicated Brookdale associates while maintaining strong standards of service and providing high quality care. Sequentially, contract labor declined more than 40% for the third quarter. As mentioned earlier, we are continuing our successful program of increasing net hires and decreasing our reliance on contract labor. Despite ongoing challenges in the U.S. labor market, we achieved 11 consecutive months of positive net hires through September. Year to date, our net hires exceeded 4,500, increasing our employed workforce by 14% since year end. A large and consistent Brookdale workforce is good for our residents because the culture of caring and relationships between residents and our associates are part of the many benefits of senior living. While we continue to make steady progress, we are not where we want to be with labor. Contract labor usage is declining, but our progress is slower than expected. Associate turnover remains elevated, and we are working to reduce it, which will decrease training costs and improve workforce productivity. Competition for community associates remains fierce and wage pressure continues as a result of the highly competitive labor market. Although other industries are reporting some stabilization in the labor market, the senior living industry has yet to experience stabilization. With the steady progress we've made and the U.S. job openings shrinking, we do expect less labor pressure in 2023. Our pricing actions for 2023 will incorporate expected labor and inflationary costs. As we ended the quarter, Hurricane Ian, the fifth most powerful storm ever to make landfall in the US, impacted our operations. It was a slow-moving storm, which caused widespread destruction. Given that Brookdale had 77 communities within the projected path of the storm, I am grateful that we were able to help protect our residents and associates as well as our communities. It's important to take a moment to thank our many dedicated associates who cared passionately and acted courageously to help protect our residents and each other during and after Hurricane Ian. We evacuated nine communities and 85% of the residents who chose to relocate with us were welcomed by other Brookdale communities within Florida. I want to express deep appreciation for our associates from evacuated communities who traveled with our residents during the evacuation and stayed to care for them. I also want to say a special thank you to our associates at host communities who worked hard to make sure that evacuated residents would continue to feel a sense of normalcy during the evacuation. With Brookdale's size and scale, I'm also grateful for our corporate and field teams who mobilized to help make sure that our residents would have beds to sleep in and nutritious food to eat. Our associates worked hard to make a difficult time easier for residents by assisting with obtaining medication and personal items, as well as helping care for residents' pets. Planning and execution are critical to success. Our asset management teams pre-staged supplies and worked closely with fuel and water vendors. Where appropriate, maintenance teams stayed in our communities to accelerate the recovery. We know residents want to return home as quickly as possible after the storm passes. At the same time, we have a robust process to ensure the community is safe and comfortable so we can provide a positive resident welcome home experience. I'm happy to share that residents have returned home to all nine previously evacuated communities. Turning to our 2022 annual guidance, in our press release, you will see that we have updated and tightened our guidance range. We expect double-digit REVPAR growth for the full year as we continue to make occupancy gains combined with the existing strong annual rate increase. We incorporated third quarter operating results and updated our fourth quarter expectations due to an extended labor recovery as well as Hurricane Ian costs. We are taking many steps to manage labor costs appropriately. In the fourth quarter, barring a significant disruptive COVID-19 variant surge, we expect to continue reducing premium labor, have a larger Brookdale workforce, and as occupancy continues to increase, expect to see more efficiencies in our operations. As interest rates increase and the overheated labor market cools, we expect less wage pressure. Reflecting on the aftermath of Hurricane Ian, most of the communities in the past had some level of damage, and we, along with our trusted partners, are working tirelessly to complete repairs. We bear hurricane expenses below the deductible limits. In summary, Even though we reduced guidance, the middle of our range will deliver a sizable year-over-year adjusted EBITDA increase. We are still in the early stages of what we expect to be a long and prosperous tailwind. We have strong occupancy momentum, and our 2023 pricing will incorporate inflationary impacts. The demographic demand and need for our services are indisputable, And with tight capital markets, the current benefit from low news supply will extend for several years. I will now turn the call over to Steve.