Brookdale Senior Living Inc.

Good morning. Thank you for attending today's Brookdale Q1 2023 earnings call. My name is Cole, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Jessica Hazel. Please go ahead.

Thank you and good morning. I'd like to welcome you to the first quarter 2023 earnings call for Brookdale Senior Living. Joining us today are Cindy Beyer, our President and Chief Executive Officer, and Don Cusseau, 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 reports on Form 10-Q. I direct you to the release for the full Safe Harbor Statement. 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.

Good morning to all of our shareholders, analysts, and other call participants. I hope that you and your loved ones are well. Welcome to our first quarter 2023 earnings call. At Brookdale, our overarching priority is the health and well-being of our residents and associates. For this reason, I want to start with an update on an overnight tornado that hit our Shawnee, Oklahoma community a few weeks ago. causing significant damage to the building. Let me say that I am immensely proud of our team who acted with incredible bravery, remaining calm in the face of danger and executing the community's crisis and evacuation plans flawlessly. As a result, I am grateful to report that none of our residents or associates were severely injured. We have experienced prior natural disasters and every time our on-site associates have quickly and appropriately responded. With Brookdale's size and scale, we were able to mobilize teams across the organization quickly to help ensure the safety and security of our residents. I'd like to take a moment to express my heartfelt gratitude to our dedicated associates who tirelessly worked to care for our residents, both those who helped ensure their safety during the tornado, who stepped in to care for them following the destruction or who worked hard to make them feel at home in our sister communities in Oklahoma. Our team's resilience and commitment to our residents demonstrate the true spirit of Brookdale, and I am honored to work alongside such compassionate and courageous individuals. At present, we are still gathering reconstruction estimates and information regarding insurance reimbursement. Recognizing this uncertainty, we have incorporated our best possible estimate into our second quarter guidance range. We have begun reconstruction and look forward to reopening our Shawnee community in the coming months. Like all years, 2023 is an important year for Brookdale, and I am incredibly grateful for all of the hard work and leadership I have seen our teams exhibit. In February, I spoke of several 2023 plans and our key strategic priorities, including get every available room in service at the best profitable rate, attract, engage, develop, and retain the best associates, and earn resident and family trust and satisfaction by providing valued, high-quality care and personalized service. These strategic priorities not only pave the way for a strong start to the year, as evidenced by first quarter results surpassing expectations, but they also support the health and well-being of our residents and associates. It is with this overarching priority in mind that I'd like to provide an update on the progress of a long-term strategic program we have been working on and are very passionate about here at Brookdale. In early 2020, we launched a community-based, technology-enabled, proactive care coordination pilot program called Brookdale Health+. HealthPlus is designed to help improve residents' quality of life through evidence-based preventive care coordination. It works by providing each HealthPlus community with access to a registered nurse care manager who helps promote residents' health and wellness. These care managers use the latest technology and communication tools to enable responsive, effective care coordination with residents' primary care providers, other specialists, and family members. Throughout the pandemic, we continued to focus on this innovative new program, refining our efforts and measuring success. During the pilot, to ensure we were delivering value-based outcomes, we engaged an independent third party to assess this program's results. The results of the pilot were extremely promising. The data revealed that residents in Health Plus communities had fewer urgent care or emergency room visits, and fewer hospitalizations than similar residents in private housing. Importantly, the data also showed higher resident retention as health spans are improving, which results in favorable occupancy rate increases. Health Plus communities also have more move-ins and higher associate retention, meeting two of our operational focus areas. We expect this program will further improve our resident satisfaction and quality of life. while reducing costs to residents, their families, and the overall healthcare system. Now, it is time to build on this success. In April, we expanded HealthPlus from 16 communities to 31, and we will be integrating this proactive and innovative program into 18 additional communities before the end of the second quarter. I see tremendous opportunity from Brookdale HealthPlus, and I'm optimistic that we will produce favorable outcomes for our residents, associates, and shareholders. As we demonstrate continued success, we expect to roll out this differentiating program to additional communities in 2024 and beyond. The introduction of Brookdale Health Plus not only creates an integrated benefit for our residents, it creates value for many stakeholders and further establishes Brookdale's position as the market leader and industry innovator. Pivoting now to first quarter results. When I consider our first priority to get every room in service at the best profitable rate, one of the most critically important considerations in the first quarter is the January 1st in-place resident rate increase. From an overall business standpoint, just like any other service provider, it's important to ensure that we are charging a fair rate for the services that we provide. The rate must balance affordability for residents with the costs that are necessary to provide high quality services, including providing a return on the capital needed to operate our communities. The rate setting process becomes even more challenging in an inflationary period when the macroeconomic environment is rapidly changing. We entered the first quarter with both optimism for the plans we laid out and uncertainty following this historic rate increase. I couldn't be more grateful to our executive directors and field teams for their leadership throughout this process. An increase in controllable move outs was expected, as is typical for any rate increase. But we have never been in an environment like this and didn't have the data to predict the net result of the rate increase with as much certainty as historically has been the case. Importantly, first quarter move in volume remained very strong. outperforming both last year and our pre-pandemic history, which I believe is evidence of the outstanding work of our sales, marketing, operations, and clinical teams, combined with the benefit of compelling supply and demand conditions. Stepping back and looking at our decisions with the benefit of hindsight, I believe the pricing action was appropriate and translated into strong first quarter results. During the first quarter, we also successfully executed our strategic and operational plans to increase the number of shifts that are filled by Brookdale associates working on regular time as opposed to contract labor or overtime. When it is necessary to fill shifts with premium labor, it significantly increases the cost of service. With dedicated cross-functional support providing insights and analysis, Our community leaders identified areas of opportunity where we could improve premium labor expense while ensuring that we continue to meet residents' needs, offer high-quality care and services, and remain in compliance with applicable regulations. Coupled with the successful execution of our January 1st rate increase, the continued diligence of our cross-functional teams supported our year-over-year adjusted EBITDA growth. Looking ahead, we are emphasizing a growth mindset with our executive directors and field leaders while providing opportunities for them to learn and strengthen important competencies and grow in their careers. We are committed to winning locally and leveraging the benefits of scale to drive revenue growth and improved financial performance. Our local teams, which include executive directors, Health and wellness directors and district leaders are essential to this mission as they are closest to their local markets. In particular, our executive directors and district leaders are responsible for positioning their communities appropriately and managing our service offerings effectively. We will continue to support them in growing their business and will provide appropriate rewards for their success as they aim to achieve consistent operational excellence and enrich the lives of more seniors in the quarters and years to come. I am incredibly grateful to those who have embraced capturing the significant opportunity that lies ahead for top-line growth and margin expansion through providing valued, high-quality care and personalized services. Reflecting on the start to our year, we are firmly on the path to continued recovery and have gained momentum. With each quarter of successful execution, we are building confidence in our course to achieving long-term success. Our strategic plans, sales forward posture, and operational execution are translating into sustainable growth, and we believe this growth will return us to positive adjusted free cash flow in the near future. In her remarks, Dawn will provide additional color on both the first quarter financials and our second quarter expectations. And I'll now turn to recent decisions we have made about our portfolio and leases. In February, we provided LTC Properties a notice of non-renewal for a 35 community lease representing less than 3% of our total unit count. While we have had a long and productive relationship with LTC, We do not believe extending this lease under the terms of the renewal option would be to the long-term benefit of Brookdale and our shareholders. We will operate these communities through the lease term date of December 31, 2023, and we'll work with LTC on the smooth transition of these communities. No material impact to our 2023 financials is expected as a result of this non-renewal. Another asset disposition we have spoken about is the sale of our last entry fee community. Last week, we successfully completed the transaction. It will result in the second quarter gain on sale of assets, strengthening our liquidity position. Since I joined Brookdale, we have been very diligent in the management of our portfolio, and this transaction further simplifies our business and operations. Lastly, we completed a beneficial transaction with Welltower to amend our triple net lease agreements. We believe this transaction is favorable to Brookdale and our shareholders by improving our long-term position in several ways. The amended leases eliminate a unique net worth covenant. As part of this transaction, we extended a lease containing 39 communities that was due to mature in 2026, and Welltower has agreed to make available a pool of $17 million for additional landlord-funded CapEx investments across two of its leased portfolios. The portfolio of communities within the lease that was extended had positive lease coverage when annualizing the first quarter results and has additional opportunity from the continued occupancy recovery. By extending the lease With negotiated additional CapEx funding, we can improve the near-term cash flow of these portfolios and bolster our liquidity over the next few years. We are pleased to have reached a mutually beneficial transaction. Our corporate development team, led by Teddy Hillard and Todd Kessner, has done an excellent job in navigating these transactions to support a portfolio of communities that provide the best recovery and earnings potential, and I am proud of their work. While we are always opportunistic about the possibility to engage in transactions that create value for our shareholders, we have no additional near-term lease amendments or transactions planned. In summary, Brookdale has had a remarkable start to the year, with first quarter results exceeding guidance and plans to deliver continued year-over-year adjusted EBITDA growth in the second quarter and for the full year. I am filled with gratitude for our Brookdale associates and their unwavering commitment to deliver our strategic priorities while providing high quality care and personalized services to the seniors we serve. This has been a key factor in our success. We are grateful for the opportunity to serve our residents and their families and remain steadfast in our dedication to enriching their lives and look forward to serving an even larger number of seniors from the rapidly aging population in the future. With a strong leadership team and a passionate community of associates, we are confident that our company will thrive, end the year even stronger than we started, and achieve long-term success in the years to come. I will now turn the call over to Dawn.