Good day, and welcome to the Sonida Senior Living Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. All statements today, which are not historical facts, may be deemed to 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 factors 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 www.sonidaseniorliving.com/invest-relations and was furnished in an 8-K filing this morning. Also, please note that during this call, the company will present non-GAAP financial measures. For reconciliations of each non-GAAP measure from 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 President and CEO, Ms. Kimberly Lody.

Thank you, Alex. Good afternoon, everyone, and welcome to Sonida Senior Living's Second Quarter 2022 Earnings Call. I hope you and your families are well, and we appreciate your joining us today. We're very pleased to report another quarter of good news driven by strong occupancy gains, double-digit revenue growth and continued discipline in managing community operating expenses, all of which resulted in sequential margin expansion and EBITDAR growth. Clearly, our growth and margin expansion strategies are succeeding as we have now delivered 5 consecutive quarters of occupancy and revenue growth and 2 consecutive quarters of margin expansion. On a same-store basis, which excludes the 2 Indiana assets we purchased earlier this year, we are just 50 basis points from our pre-pandemic occupancy, reporting 83.2% occupancy for the second quarter of 2022, up 510 basis points compared to the prior year quarter and 90 basis points higher than the first quarter of this year. We continue to outperform the industry in occupancy recovery from the pandemic. With this strong occupancy gain and corresponding rate growth, we have increased same-store REVPAR 11.3% and REVPOR 4.4%. Sequentially, we improved REVPAR 200 basis points and REVPOR 80 basis points from the first quarter of this year. Rate growth has been a positive driver for our business, starting at a lower level earlier in the year and gaining momentum each month with market rate increases and in-place renewals. We believe there is still opportunity to push rates higher in 2022 given positive supply and demand dynamics as well as the tangible value provided by our care teams and resident programs. Most importantly, we have now reported 2 consecutive quarters of margin expansion with a sequential increase of 40 basis points compared to the first quarter of 2022 and 240 basis points of improvement from…

Thank you so much, Kim, and good afternoon. As Kim referenced, the business continues to show solid improvement for a fifth consecutive quarter. Our initial occupancy and rate goals for 2022 continue on an achievable trend line with opportunity to surpass those goals with a strong second half of the year. With consistent occupancy improvement and in-place rate increases exceeding 5%, our local leadership teams continue to deliver on their top line operating commitments. Additionally, rates for new residents have exceeded those of the previous residents on a same-unit basis by more than 5%, realizing higher market rates across the board. The year-over-year and sequential rate improvement Kim referenced remained consistent with our ongoing commitment to achieve responsible and sustainable rate growth. As we enter the second half of the year, nearly 2/3 of our owned portfolio is currently operating above 85% occupancy and additional opportunity to increase rate in these communities will be a primary focus. Key indicators related to demand remain encouraging as lead volume in Q2 increased 14% sequentially and 28% over the same period in 2021. Continued improvement in the stability of our local care and service providers remains the highest priority from an operations perspective. Further NOI expansion in 2022 can be accelerated with ongoing reduction in our premium labor costs. A 41% reduction in contract labor sequentially in Q2 represents material progress, but we are not yet to our goal of contract elimination across the portfolio. Other premium pay, including ship premiums and overtime also improved in Q2. However, these metrics remain elevated from pre-pandemic results in late 2019 and early 2020. Net hires in Q2 were nearly 2.5x Q1 net hires and support further improvement expectations in Q3. Turnover trends in Q2 show a favorable reduction in year-over-year turnover of more than 5…

Thank you, Kim, and thank you, Brandon. Picking up where Kim and Brandon left off, our COVID recovery strategy was to focus heavily on occupancy and revenue growth, knowing that NOI growth would follow. As Kim mentioned earlier, we've now delivered 5 consecutive quarters of occupancy and revenue growth. We believe that our performance in the second quarter of 2022, despite the continued and increasing wage pressure bodes well for further incremental NOI expansion as we grow occupancy and rate. We believe our quarter-over-quarter NOI and adjusted EBITDAR growth of 4% and 13.7%, respectively, supports this sentiment. Please note that adjusted EBITDAR is a non-GAAP measure as further defined in our investor presentation as filed in today's 8-K. Finally, with a spot occupancy of 84% on the last day of the quarter, we continue to be encouraged by the company's occupancy recovery trend. On the rate side, we've seen a direct correlation and rate increases to where we have recently invested in product improvement and look forward to how our in-flight projects will continue to penetrate the market on rate. Brandon discussed our community team's efforts that reduced contract labor 41% from the previous quarter. of $1 million was nearly offset by the increase in direct labor as we build back our community teams amidst historically high wage pressures. We believe we are quickly approaching pre-pandemic levels of direct labor staffing, however. The porting of contract of permanent labor bodes well for future quarters as our community teams achieve operating stability and leverage while continuing to rely less on premium labor. As Brandon pointed out, we are particularly proud of the quality of recent net new hires in what is an extremely competitive job market, beyond just the salary and wage component. Beyond the success on the community personnel front,…

[Operator Instructions]. Our first question comes from the line of Steven Valiquette with Barclays.

I guess -- just to start off here. Just in relation to your goal of eliminating all the remaining premium and/or contract labor by the end of 2022, I guess from this current jump-off point or at the end of the quarter, can you just help us a little bit on how much that will translate into savings on an absolute dollar basis run rate going forward? Are we talking about roughly $5 million of annualized savings or something greater than $5 million or less than $5 million? Just trying to get a better sense of what that translates into as far as dollar savings.

Yes. I think right now, if you look at our Q2 run rate, we were just right around the $1.5 million mark for contract labor, so $6 million on an annualized basis. And as Kevin referenced, we feel really good about where we are in terms of having almost a fully completed workforce. And so we would expect that a significant amount of those dollars would be available and would fall into our EBITDAR or net operating income moving forward. So while I probably wouldn't give you an exact percentage of the $6 million, there is a material amount of that dollars we expect will fall to the bottom line as we achieve the reduction.

Okay. Got it. Okay. And then just jumping around here a little bit. Is there any preliminary color on your planned pricing strategy for 2023, particular for in-place residents? And I think at least on a preliminary basis, should we expect your growth in 2023 to be hopefully pretty similar to the 4% to 5% growth that you're capturing in 2022. But just want to get you a sense for that, you guys -- it seems like a lot of the other peers are talking about pricing power in '23 being just as strong as what it has been in '22, but I just want to get your thoughts on that as well.

Yes, Steve, we agree with that. We are -- just like many in the industry, we're very optimistic about the pricing power in senior living not only through the rest of this year but into 2023. And the reason for that is multiple items. One is just the ongoing supply-demand. Supply seems to be still -- new supply is still a bit limited. So demand is strong. We mentioned our leading indicators earlier. And with that strong demand as well as the value proposition that we're providing, we believe that we'll see, I would say, at least similar rate growth in 2023 as we've seen this year.

Yes. And the only piece that I would just add to that, Steve, as well is if you think about where we are occupancy-wise versus where we were last year with occupancy season in the early part of 2021 and 2/3 of our communities above the 85% mark, that gives us additional pricing power when we've got higher occupancy in so many of our communities.

And then just to close the loop on that. The last thing that I think will benefit us is that it's not one bite of the apple per annum, but we are putting in rate increases now ultimately on a rolling 12 months that will ultimately feed into '23 and be part of our budget assumptions, too. So we've started that process already.

Okay. All right. That's great. You guys mentioned that new GPO relationship. Is that something else you're able to translate into how much annualized savings on a dollar basis that could translate into just to give us an approximation around that.

I'd say that we should be in a better position to provide that information in Q3 as we get our results in. And as we see the implementation take hold. Right now, it's a bit of a balancing with the changing dynamic in the inflationary environment and that's going to be significantly offset by both improved purchasing practices as well as just the better pricing we're going to receive as part of the GPO. So we should have, again, more tangible numbers that we'd be happy and excited to share as we get into the later part of the year around what the actual dollar savings that we're experiencing look like and then how we expect that to translate into the quarters to come from there.

Okay. All right. And then final question for me. This is kind of more of a check-the-box type question, but there has been a trend this quarter of skilled nursing or SNF operators talking about some lost occupancy due to skilled labor shortages, hasn't really been talked about as much in senior housing, whether it's in assisted living or memory care, some of the areas where there's a little bit higher acuity. But I guess, just to check the box on that dynamic with you guys. Can you confirm whether or not that dynamic has been prevalent within the company as far as losing some occupancy gains just because of labor shortages? I just want to check the box on that one way or the other.

No, Steve, we haven't experienced that at all. I think with the community teams very diligently managing the premium labor as well as our net hires during the quarter and that strong trend in those new hires, we have not experienced any lost opportunities in occupancy due to labor shortages.

Okay. Got it. Okay. So let me just say congrats on some of the new roles for some of the people on the call here and best of luck in new endeavors as well. I just want to mention that as well.

Thanks, Steve.

Thanks so much, Steve. Really appreciate it.

Ladies and gentlemen, I'm showing no further questions in the queue. I will now turn the call back over to Kimberly Lody for closing remarks.

Okay. Great. Thank you, Alex, and thank you, everyone, for joining us today. This concludes our conference call. Thanks, and we'll see you again next quarter.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.