Brookdale Senior Living Inc.

Hello and welcome to the Brookdale Senior Living fourth quarter and full year 2022 earnings release and conference call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star one on your telephone keypad. I would now like to hand over to Jessica Hazel, Vice President of Investor Relations. The floor is yours. Please go ahead.

Thank you and good morning. I'd like to welcome you to the fourth quarter 2022 earnings call for Brookdale Senior Living. Joining us today are Cindy Beyer, our President and Chief Executive Officer, and Don Cusso, our incoming 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 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 brookdaleinvestors.com and was furnished on an 8K yesterday. Now, I will turn the call over to Cindy.

Thank you, Jessica. We're pleased to have you join our Brookdale team. Good morning to all of our shareholders, analysts, and other call participants. I hope you and your loved ones are well. Welcome to our fourth quarter and year-end earnings call. Dawn will speak to some of the fourth quarter performance drivers, but given our January release, which included an outlook revision, I believe our reported results should be largely in line with any updated street expectations. Reflecting on the past year, I believe 2022 was a year of growth and continued recovery for Brookdale in several areas of the business. Even so, we have remaining opportunities to improve. At the beginning of 2022, I outlined three strategic priorities that would guide us over the course of the year. As you recall, I have consistently spoken about these in our communications. They include attract, engage, develop, and retain the best associates, get every available room and service at the best profitable rate, and earn resident and family trust and satisfaction by providing valued, high-quality care and personalized service. While the health and well-being of residents and associates is always our overarching goal, these priorities have been our compass as we have navigated unprecedented macroeconomic challenges and highly competitive labor markets. Within Brookdale, we have aligned our 2023 plans in support of the same key strategic priorities, but with an even tighter focus on all three areas. Using this as a guide, I'll summarize 2022 highlights and 2023 plans, beginning first with our priority to get every available room in service at the best profitable rate. During 2022, the number of seniors moving into our communities accelerated significantly, resulting in same community move-in volume that exceeded the three-year pre-pandemic average by 7%. Additionally, we continued positive occupancy growth momentum and Brookdale's fourth quarter weighted average occupancy was up 770 basis points, from the start of the recovery in March of 2021. When compared to NIC quarterly reporting, Brookdale's independent living occupancy increased 570 basis points versus NIC's 360 basis point increase since their 2021 low. Over the same period, Brookdale assisted living occupancy increased 740 basis points versus NIC's 670 basis point increase. We believe this performance is evidence of both increasingly strong demand and the strength of Brookdale's execution and brand. 2022 rev pour, or rate, was 4.5% higher than the prior year. We are pleased with the progress we made on occupancy and rate. While expense management was also a priority, the challenging labor markets disrupted our efforts in 2022. That said, In 2023, we had the opportunity to significantly improve expense management, and we have dedicated teams in place to help us best pinpoint areas of opportunity. During 2022, we focused intently on reducing contract labor by increasing the number of shifts filled by Brookdale Associates. From its peak in December 2021 to December 2022, we dramatically decreased contract labor by 80%. while maintaining focus on resident satisfaction and providing high-quality care. We had meaningful sequential reduction in contract labor spend each quarter in 2022. But unfortunately, the continuation of an intensely competitive labor market caused our progress to be slower than we expected. As we look to 2023, we believe there are three sizable opportunities to deliver more occupied rooms at the best profitable rate. Brookdale's biggest opportunity to drive profitability is through occupancy growth at an attractive rate. In addition to recent pricing actions, we are evolving the executive director role to emphasize a stronger growth mindset, underscoring strong sales acumen for the incumbents and future community leaders. During the pandemic, the day-to-day care and safety of our residents and associates required extraordinary efforts from our executive directors as they led their team's heroic efforts to help protect those living and working in our communities from COVID-19. As we emerge from the pandemic, we believe that targeting and developing successful leaders with both operational and financial acumen is another way we can deliver further occupancy increases within our communities. Second, we've realigned operational support functions, including financial planning and analysis, to further support our community leaders. This realignment will assist communities in their continued efforts to recover from the impact of COVID-19 and to return to pre-pandemic labor productivity levels where appropriate. Much of the anticipated productivity improvements will come from the growth in occupancy that I just spoke to. And as associate turnover stabilizes and new team members become more established and efficient, While we are focused on labor expense improvements, we are clear that we must continue to meet our residents' needs, offer high-quality care and services, and remain in compliance with applicable regulations. The third opportunity community leaders are focused on is further reducing premium labor spend. As I shared, we made significant progress in 2022, but premium labor spend remains too high. Contract labor is the highest premium labor cost and we have made progress in reducing labor costs by replacing contract labor shifts with overtime hours. Communities are dedicated to increasing the number of shifts that are filled by Brookdale associates working on regular time as opposed to contract labor or overtime, which leads me to the second strategic priority, to attract, engage, develop, and retain the best associates. This is vital to Brookdale because our business is about people serving people, And because we build our business one relationship at a time, it is important to recruit and retain full and part-time associates to minimize dependence on premium labor and to preserve and improve upon our resident satisfaction through consistency of associates and in operations. During 2022, we increased our internal workforce by approximately 15% with nearly 5,000 net hires. which supported more shifts being filled by our own Brookdale associates. Though we've begun to see the pace of net hiring slow as more communities have the right number and mix of associates, we continue to confront elevated turnover, resulting in lower labor productivity as we diligently work to successfully onboard new associates. Looking to 2023, our focus is on reducing turnover and extending the length of service of our associates and community leaders. We are building upon the actions we took in 2022 and expanding some of our successful pilot programs, including educational and career development opportunities for associates, diversification of recruiting programs to attract and engage the right people, and improved training and onboarding. We believe these are the right plans to ensure we are attracting and retaining the best talent while improving our labor productivity. I look forward to sharing some of the details of these plans with you as the year progresses. Our third and final priority is to earn resident and family trust and satisfaction by providing valued, high-quality care and personalized service. In 2022, this priority was reflected in our strong survey engagement, which allowed us to gain meaningful insights from residents and their families through multiple internal and external studies. For example, We received more than 22,000 responses to the U.S. News and World Report survey, and we were honored for having the most communities recognized in independent living, assisted living, and memory care. Then recently, J.D. Power & Associates announced that Brookdale ranked highest in customer satisfaction for assisted living, memory care communities, as highlighted in the investor presentation. While we believe our customer focus is strong, and that belief is reinforced by the recognition we received in 2022, we are a learning organization, and in 2023, we seek to raise the bar even higher. Every positive encounter with a resident, family member, or community leader can lead to future referrals, and high resident satisfaction helps drive sustainable occupancy growth. Therefore, we remain focused on continuous improvement for our residents and associates. Turning to our 2023 financial expectations, we received a good deal of valuable shareholder feedback in 2022, including on the tangible equity units offering. I know that we need to improve shareholder confidence, and we plan to do so quarter by quarter. Given this, and the continued volatility in the macroeconomic environment, we have decided that for 2023, we will move to quarterly guidance to provide more transparency over the short term while continuing to also have a longer-term focus on growth opportunities. Additionally, we believe this approach appropriately balances the continued uncertainty in the macro environment and the resulting difficulty that causes for predicting what's ahead. Dawn will speak to first quarter guidance, but first I would like to provide some context for how we are thinking about full year expectations. We believe our 2022 efforts and the plans I just outlined for each of our strategic priorities set the foundation for Brookdale to deliver meaningful growth in 2023. We anticipate our positive occupancy growth momentum will continue. And we were pleased to report that January marked the 15th consecutive month of year-over-year occupancy growth. January move-ins were strong. We believe this will support a first-quarter sequential occupancy change that is better than our normal pre-pandemic seasonal trend. We believe 2023 REV4 will be higher than 2022, driven largely by the annual in-place resident rate increase. which was effective for most residents on January 1st. While this was larger than historical increases, it incorporated the significant labor and inflationary cost pressures we faced. It will continue to support our strong standards of service and our ability to continue to provide high-quality care to residents. We have seen a favorable impact to January REVPAR, which increased approximately 13% on a year-over-year basis. Appropriate labor expense management remains a critical focus area for 2023 to improve margin, and we expect the initiatives I outlined will deliver meaningful progress on this front. Moreover, as our permanent workforce stabilizes and we improve occupancy, we anticipate further reductions in premium labor and improved productivity. Lastly, we are constantly evaluating how to match our organizational structure with our business priorities. We anticipate the organizational changes we made in January, particularly through Brookdale's leadership team, will better streamline our decision-making and drive improved financial performance and operational efficiency in 2023. While the underlying decision for these organizational changes was not driven by a G&A reduction target, we do expect they will contribute approximately $10 million in favorable adjusted EBITDA this fiscal year, the majority of which is in G&A. which will partially offset the impact of a normalized incentive compensation expense in 2023. I am grateful for Steve's support and partnership over the last four years and believe Dawn will successfully step into the CFO role with new and unique insights to drive financial planning processes forward. I also believe Ben Ritchie and Laura Fisher will lead efforts to deliver accelerated operations performance improvement in the communities and Rick Wiginton will build upon the significant progress he's made on sales transformation through additional process improvements across the organization. I will now turn the call over to Dawn and welcome her to her first earnings call.