Earnings Transcript for SNDA - Q1 Fiscal Year 2023

Operator: Good day, and welcome to the Sonida Senior Living Q1 2023 Earnings Conference Call. Today's conference is being recorded. 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 the company expressively 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 filed 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 sonidaseniorliving.com/investor-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 reconciliation 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 CEO, Brandon Ribar.

Brandon Ribar : Thank you, Alicia. Good morning, and welcome to our 2023 first quarter earnings call. I'm joined today by Kevin Detz, our Chief Financial Officer. Earlier today, we posted our Q1 investor presentation, which will be referenced throughout this call as we discuss our strategic priorities and operating results for the quarter. You can find our latest presentation at sonidaseniorliving.com in the Investor Relations section if you would like to follow along. I continue to believe success for Sonida in 2023 will be defined across 3 fundamental efforts

Kevin Detz: Thanks, Brandon. I'm equally excited to share the results from this quarter, which are starting to reflect all the amazing contributions and tireless efforts from the team over the past 6 to 8 months. Starting with top line on Slides 5 and 6, it bears repeating that the company realized an 8th straight quarter of both occupancy and revenue growth. The slight increase in occupancy is particularly noteworthy for 2 reasons

Brandon Ribar : I'll conclude today's presentation by once again recognizing and thanking our leadership team throughout Sonida. I have the utmost confidence in this group of leaders to continue delivering high-quality servicing care to our residents while running a sound business. It's my privilege and honor to share the success they are achieving as we rebuild Sonida as an industry-leading company. I look forward to further updates in the future related to our growth trajectory and ongoing commitment to creating a differentiated resident experience. Alicia, please open the line for questions.

Operator: [Operator Instructions] Our first question is from Steve Valiquette with Barclays.

Steve Valiquette : It's Steve Valiquette from Barclays. Just a couple of bigger picture financial questions today, maybe separate from the quarterly results. So just taking maybe a step back and let's say, a couple of years down the road, you get occupancy back to peak levels in the high 80% range that you achieved, pre-pandemic. The company was generating roughly $50 million of annualized operating cash flow in the middle of last decade, when you were achieving that high 80% occupancy. But that was also when the company had twice as many facilities as you have now. So I'm just trying to think, big picture, once we get to steady state or just back to full recovery of occupancy, is there just a range of what operating cash flow generation might be, true operating cash flow generation, not just EBITDA from the existing facility footprint? And let's say if that $25 million -- because half of the many facilities that you had back then versus $50 million of operating cash flow back then, in the context of $640 million of debt outstanding, just trying to frame the kind of the cash flow to debt outstanding ratio that we might see once you kind of get full recovery on the facilities? And then I have a follow-up, kind of just based on how you address the first one, I guess.

Brandon Ribar: Sure. I'll go ahead and start, Steve, and then Kevin can jump in. So I think your question in terms of a range is something that we'd like to be able to provide, hopefully, in the near future. I don't think we're quite there yet, but I can tell you what is really important about getting there. And that is really seeing the ongoing improvement on the rate front that we reported. And looking at kind of that March baseline that we've got in the deck on Page 6, I think, is important because from there, continued improvement that you referenced. And I think we don't see the high 80s as necessarily the cap to it. And we also want to continue to improve ourselves on the operating expense level. So margin recovery and getting much closer around that 30% mark that, I think, these communities collectively have been able to achieve historically, is obviously really important to that. I think the other factor is just the ultimate outcome from the discussions that we're having with each of our material lenders and how that will impact our belief and our kind of thoughts around where the, call it, stabilized, fully baked cash flow of the portfolio is. As you probably recall, we had 45 communities that were leased in the past. And so the kind of escalating lease costs were also factored into the portfolio's ability to generate cash flow, and we don't have that anymore. So being fully owned and managed, we think is beneficial. And we'd be happy to kind of try and share some additional color on where we think that ultimate cash generation goal looks, especially as we're able to provide additional detail around the discussions related to our overall loan portfolio, and then just how we see the ongoing improvement not only in rate, but occupancy developed along with our operating expense profile. So I'd say that we really look forward to being able to provide more guidance around the range of what the portfolio can do for the long term. But we want to get some of those other variables finalized before going down that path.

Steve Valiquette : Okay. Yes, that's definitely helpful. And somewhat kind of tied into that then, I mean, obviously, on this call, you guys alluded to the potential restructuring of some of the debt or loan modification discussions. I understand you're probably handcuffed on being able to go into any sort of specifics around that. But I guess I'm just curious, at a high level, just conceptually, could this involve any sort of just reduction of the total amount of the principal outstanding, or is it more just about either change in the interest burden associated with the existing debt and/or pushing out maturities? So just wondering, is there any relief valve on just the amount of principal outstanding as part of the discussions, if you're able to discuss that at all without giving away any specific numbers, obviously.

Kevin Detz: Yes. Unfortunately -- and this is Kevin, Steve, we can't give any ranges of what that might look like. But I think what we can share is that, based on our scripts and the release today is that what we're ultimately going for is something that is going to be meaningful enough to prove out the investment thesis and to ultimately not be bound by or confined by the cash flow or some of the margins historically. But really set the stage for what we think is a lot of value to our shareholders relative to operational improvement and overall value through management acquisition and real estate acquisitions. So without those numbers in hand, we wouldn't feel comfortable sharing specifics. But I can tell you that what we're going for is something meaningful.

Steve Valiquette : Okay. I appreciate that. And then maybe just a final question tied into all this is, roughly 18 months ago, 24 months ago, forgot the exact timing, but you had another source of financing that involved a lot of different variables, stuff that could be potentially dilutive on the equity piece as well, with all the different moving parts within that. But I don't want to call that investor an activist per se, I'm just curious how much investment investors has any role in the ongoing discussions you're having around loan and debt modifications? Or is that party just totally independent, not really involved? Are they active or passive as far as their involvement in kind of the investment profile of the company and the way it stands right now?

Brandon Ribar: Yes. What I'd say is that we have representatives on our Board of Directors from our -- two of our largest shareholders. And so in our ongoing discussions, we always keep the Board up to speed with the things that we're working on. And they provide insights based on their areas of expertise. And so we've had a really productive set of discussions and contributions from our various board members. They've been very supportive of us. And so that's the kind of stage on which we talk about the discussions and where we're going as a business.

Steve Valiquette : Got it. Okay. All right. Notwithstanding all that, it was good to see some of the progress done in the quarter, kind of consistent with the industry trends as well. So congrats on that, and I look forward to future developments on the -- kind of the balance sheet picture, so thanks again.

Brandon Ribar: Yes. Thank you, Steve. I think we're very encouraged by what we saw towards the end of the first quarter and want to just continue to push everything forward in an accelerated fashion, and then provide further details on the discussions that we're having on the balance sheet. So thank you, and I appreciate your time.

Operator: Thank you. There are no further questions at this time.

Brandon Ribar : Thank you, all, for joining. This will conclude our call for this morning. Take care.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.