SONIDA SENIOR LIVING, INC. quarterly report, Q3 FY2013

Business context and reporting period

This is Capital Senior Living Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The filing identifies the registrant as Capital Senior Living, not Sonida Senior Living. It operated 106 communities in 24 states, with capacity for approximately 14,100 residents, and one home care agency. After quarter-end, it discontinued skilled nursing services.

Key financial metrics

• Nine-month revenue rose 15.0% year over year; resident and healthcare revenue accounted for 98.1% of total revenue. Same-store average monthly rental rates increased 1.4% over the nine-month period.
• Nine-month operating cash flow declined from $37.2 million in 2012. Investing used $63.5 million, including $53.7 million for acquisitions; financing provided $35.2 million. Cash increased just $28,000 to $18.8 million.
• At September 30, cash was $18.8 million and restricted cash $11.4 million. Current assets of $59.0 million exceeded current liabilities of $54.4 million by $4.5 million.
• Notes payable totaled $399.0 million, up from $362.6 million at year-end 2012; capital lease and financing obligations totaled $42.4 million. Future lease obligations were $530.6 million. The company reported compliance with debt and lease covenants.

Material changes versus prior comparable periods

• Q3 revenue grew 12.8%, while expenses rose 13.5%; operating income decreased to $2.9 million from $3.0 million. Nine-month expenses increased 16.7%, faster than revenue growth of 15.0%.
• Net loss widened to $10.0 million in Q3 from $0.9 million, and to $14.1 million for nine months from $1.5 million. Interest expense increased $4.6 million for nine months, primarily reflecting acquisition-related debt.
• Growth was substantially acquisition-driven: the company attributed $30.4 million of nine-month resident and healthcare revenue growth to communities acquired in 2012 and 2013. Five communities were acquired in 2013 for a combined purchase price of approximately $53.8 million.
• Property and equipment, net, increased to $565.9 million from $527.2 million; shareholders’ equity declined to $159.0 million from $168.6 million.

Outlook, commentary, risks, and unusual items

• Management expected available cash and operating cash flows, along with potential joint-venture distributions, supplemental financing, or asset-sale proceeds, to cover short-term working capital needs. Long-term capital needs may depend on access to debt or equity markets and joint-venture funding; the filing gives no numerical earnings or revenue guidance.
• A $7.5 million deferred-tax valuation allowance was recorded in 2013, reducing recognized deferred tax assets to approximately $5.3 million. The tax provision was $5.7 million for nine months despite a pretax loss; Texas Margin Tax and the valuation allowance were cited factors.
• Subsequent acquisitions: Fitchburg, Wisconsin, for approximately $16.0 million and Milford, Massachusetts, for approximately $15.8 million, financed in part with fixed-rate Fannie Mae loans.
• Risks cited include acquisition availability and financing, economic and credit-market conditions, licensing and closing conditions, insurance costs, lease performance requirements, and interest-rate exposure. Management stated ordinary-course claims were not expected to materially affect the financial statements. It reported effective disclosure controls and no material change in internal control over financial reporting.

Important facts for investors to verify

• Confirm the issuer’s identity: the supplied filing is for Capital Senior Living Corporation, notwithstanding the Sonida Senior Living request metadata.
• Reconcile reported loss per share: the statements show $0.09 loss per share for Q3 and $0.23 for nine months, while the EPS note shows $0.35 and $0.49, respectively. The filing text does not provide a clear consistent value.
• Reconcile comprehensive loss: the statements report comprehensive loss of $9.663 million for Q3, whereas MD&A describes approximately $10.5 million; the filing text does not explain the difference.
• Assess acquisition-driven growth against higher debt, interest expense, depreciation, and the decline in operating cash flow; also review lease obligations and the assumptions supporting deferred-tax-asset realization.