Sonida Senior Living, Inc. Q2 FY2025 earnings call

• Entering the year, outlined a plan to deliver year-over-year net operating income growth in line with the high end of peers. Second quarter 2025 continued to deliver growth on both sequential and year-over-year basis. - Resident deaths were unusually high, but clinical teams implemented enhanced response process. Resident length of stay increased, same-store move-ins increased 4% year-over-year. - Completion of significant technology investments created cost drag but expected return moving forward. - Completed changes to operating and sales support overhead structure, reduced operating structure from 3 to 2 divisions. - 2024 acquisition portfolio reached above 82% occupied at share. Completed 2 acquisitions in Q2 and announced third to close in Q3. - On sales front, invested in marketing, sales training, lead volume in July exceeded average for first half of 2025 by 16%, digital leads through non-aggregator channels increased by 48%. - Team development: Material reductions in employee and leadership turnover, result of investments in wages, benefits and culture.

1. Same-store: Adjusted EBITDA grew 26.1% year-over-year in the second quarter. Same-store net operating income grew 1.8% year-over-year and nearly 4% sequentially. On a total portfolio at share basis, NOI improved 5% sequentially. 2. Acquisition: The portfolio of 19 operating communities acquired in 2024 reached above 82% occupied at share for the first time at the end of July. 3. Total portfolio at share: The company grew its year-over-year total portfolio NOI at share by 20% or $14 million on an annualized basis. Year-over-year occupancy and margin percentage for the total portfolio share is attributed to the inclusion of acquisition communities at lower average occupancy and margin levels starting in late Q2 2024.

• Remain disciplined deploying capital where see accretive opportunities. - Believe have significant pipeline of opportunities, especially among nonstabilized assets. - 2024s pro forma in-place NOI of $78 million, assume growth through community stabilization of $22 million. Continue to believe $100 million of NOI is an achievable near-term target with meaningful upside thereafter.

• Actual results or performance may differ materially from forward-looking statements due to certain factors detailed in earnings release and SEC reports. - Inclusion of acquisition communities at lower average occupancy and margin levels starting in late Q2 2024 impacts total portfolio occupancy and margin percentage.

Q: Just can we dig in a little bit deeper in some of the move-out and specifically move-in activity looks like a nice pickup in July? So you mentioned some personnel changes, just a little bit more detail of what changed, what you did differently to be able to drive that moving activity in July would be helpful.

A: Into what we saw as the drivers for July. So one, just kind of as we looked at the move-out activity that you referenced for Q2, we did see April on a year-over-year basis. Last year's April move-outs were significantly lower. And this year, we did see a bit of an uptick in deaths, just in that specific month. But clinical teams responded and saw those numbers coming down towards the second half of the quarter and then also saw a nice movement in July. So on the sales and marketing front, we've really invested heavily in our digital marketing capabilities, been very focused on generation of leads and traffic through our own web channels and through our own kind of search -- Google searches that are not related to the third-party aggregators. And that's where we've seen a ton of success. So to see our move-ins in July, really exceed any point previously, but also to see that those move-ins were generated from nonpaid sources gives us a lot of confidence in where we're going for the second half of the year because the move-ins are not coming with additional cost. So it was really what we were able to convert through our own web traffic and leads that were generated by our own community teams and not from the third parties that we saw a really strong uptick in July and continuing to monitor that in August. So the folks that we brought on board with the sales and marketing expertise, they came from other industries, and I think they've brought a really sophisticated approach to how to generate the interest from new potential residents and their family members and look for that to continue.

Q: Just a quick question on your labor environment. I think your press release said $2.2 million increase in labor cost. It seems like that may have outpaced same-store RevPOR growth of 4.4% by 35 or 40 basis, though that might not be an apples-to-apples comparison. Just first of all, is that an accurate read? And then as you talked about some of these incentive and retention investments, as those pan out, how do you think about RevPOR versus [indiscernible] spread going forward over the second half and into next year?

A: So on the labor front, we've talked about in the past and continue to kind of highlight that we want to make sure that we're paying for good stability in our strong leadership, especially on leadership roles and nursing roles. And over the last year and also as evidenced in Q2, we have increased wages on the nursing front. And so we did a targeted effort on that, making sure that we're at or on the high end of market where appropriate. We don't expect kind of that ongoing consistent increases on a quarterly basis because we did do that on a relatively targeted basis. And what we're really pleased at is that we're seeing a large downturn in overall turnover of our employees. So that stability is going to lead to consistency on the outcomes as well as being able to drive rate to a higher level. So I think what's important from an offsetting of the expense pressure from a wage perspective is that we have gotten our rates to the highest level for any quarter kind of in the company's history. And so being able to have that high rate level continue to push on that, especially in the same-store where occupancy has exceeded 88% at the end of July, we could continue to move on rate to offset what we've invested in the nursing and in the labor structure over the last year. So it's a high point of emphasis for our team. I think it's important for us to note that the increase on the wage front was really wage related and not hours related. So we've been able to add residents without having to add a number of labor hours. So our whole thesis is to continue to invest in really strong talent that will stay with us so that we don't need to add additional FTE as occupancy grows, especially in our higher occupied communities. So our expectation and our internal goals are to see the rate and the top line increases continue to surpass any sort of the inflationary pressures from an expense per occupied day perspective. So it's an area where we see opportunity to expand margin in the second half of the year and beyond.