• Adjusted Free Cash Flow: $14 million in Q3, a significant improvement over the prior year.
• Adjusted EBITDA: $92.2 million in Q3, a 15% increase year over year.
• RevPAR Growth: 5.9% increase over the prior year.
• Same Community RevPAR Growth: 5.6% increase over the prior year.
• Occupancy Growth: 80 basis points sequential increase in Q3.
• Same Community Adjusted Operating Income Margin: 100 basis points expansion over the prior year.
• Revenue Growth: 3.7% increase in residency revenue over the prior year.
• Convertible Senior Notes: Issued $150 million of new notes due 2029.
• Community Acquisitions: Agreements to acquire 41 communities, expected to increase adjusted EBITDA by $33 million annually.
• Debt Refinancing: Cleared all debt maturities without extension options through 2025.
• Fourth Quarter Guidance: RevPAR growth of 5% to 5.5% and adjusted EBITDA range of $93 to $98 million.

• Warning! GuruFocus has detected 5 Warning Signs with BKD.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Brookdale Senior Living Inc (NYSE:BKD) achieved 80 basis points of sequential quarterly occupancy growth, surpassing the broader industry average.
• The company generated $14 million of adjusted free cash flow in the third quarter, marking a significant improvement over the prior year.
• Brookdale more than doubled the number of communities operating with its Brookdale Health Plus Program, receiving third-party validation for improved clinical outcomes.
• The company executed purchase agreements for accretive acquisitions of 41 currently leased communities, expected to increase adjusted EBITDA by approximately $33 million annually.
• Brookdale successfully refinanced the majority of its debt maturities without extension options through 2026, enhancing financial stability.

Negative Points

• Third quarter occupancy growth, while better than historical seasonal trends, was not as robust as desired, with move-ins remaining below the prior year.
• Continued softness from two large paid third-party referral sources impacted move-ins, despite efforts to redeploy marketing spend to internal channels.
• The company faced approximately $3 million in hurricane-related expenses in the fourth quarter, impacting financial results.
• Sequential revpar declined moderately due to newer residents moving in with lower acuity and therefore lower care rates than existing residents.
• Brookdale experienced higher estimated insurance expenses and outsourced data center costs, impacting operating expenses.

Q & A Highlights

Q: Could you walk us through the income statement regarding the recent transactions and their impact on EBITDA and interest expense? A: Dawn Kussow, CFO, explained that in Q4, there is an $8 million timing benefit to adjusted EBITDA due to lease reclassifications, with a corresponding increase in interest expense. For 2025, they expect a $33 million increase in adjusted EBITDA and a $15 million increase in adjusted free cash flow due to the acquisition of currently leased assets and subsequent financing.

Q: Can you discuss the competitive dynamics for third-party referral sources that were pressured? A: Lucinda Baier, CEO, clarified that the issue is not cost-related. The softness in move-ins from two large third-party referral sources was identified, leading to increased internal marketing efforts. While move-ins were down year-over-year, there was sequential improvement, and October move-ins were flat compared to the previous year.

Q: How should we think about the strategy with third-party referral sources and marketing spend? A: Baier stated that the strategy is to get every room in service at the best profitable rate. The shift to internal marketing is not a cash increase but a timing difference in accounting. The goal is to recover from the lower volume seen from third-party sources.

Q: What are your expectations for occupancy growth and rate increases in 2025? A: Kussow mentioned they expect sequential occupancy growth in Q4 and are not providing 2025 guidance yet. However, they anticipate steady and sustainable occupancy growth while balancing affordability and costs.

Q: Can you explain the impact of the Google algorithm change on third-party marketing firms? A: Baier noted that a Google algorithm change deprioritized third-party content, reducing leads for one of the major aggregators. The other aggregator has reduced its marketing spend, affecting referral volumes.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.