Business context and reporting period
Filing identity: The supplied filing is Capital Senior Living Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2019; it does not identify the registrant as Sonida Senior Living, Inc. The company operated 129 senior housing communities in 23 states, with capacity for approximately 16,500 residents.
Financial results and liquidity
- Revenue: $114.2 million, down 0.4% from $114.6 million in Q1 2018.
- Profitability: Operating income was $2.0 million versus $5.4 million; operating margin was 1.7% versus 4.7%. Net loss widened to $13.0 million from $7.2 million; loss per share was $0.43 versus $0.24.
- Costs and interest: Total expenses rose 2.7% to $112.2 million. Interest expense was $12.6 million. Operating expenses increased with wages, benefits, staffing and other costs; G&A rose partly due to executive transition costs.
- Cash flow: Cash used in operations was $1.1 million, compared with $4.4 million provided in Q1 2018. Capital expenditures were $3.4 million; cash used in financing was $4.6 million. Cash and cash equivalents declined $9.1 million during the quarter.
- Liquidity: At March 31, unrestricted cash was $22.2 million and restricted cash was $13.0 million. Current assets were $62.9 million versus current liabilities of $110.7 million.
- Debt and leases: Notes payable, excluding deferred loan costs, totaled $978.9 million, including $130.0 million of variable-rate debt. Operating lease liabilities were $279.9 million; undiscounted future lease payments were $352.4 million. The company reported compliance with debt and lease covenants.
Material changes versus the prior comparable period
- Occupancy weakness offset revenue recovery at two communities affected by Hurricane Harvey: those communities added about $1.0 million in revenue, while revenue at other communities fell $1.4 million. Excluding the Harvey-affected communities, average financial occupancy declined to 84.1% from 85.9%; average monthly rental rates increased 0.7%.
- Operating expenses increased $3.7 million and G&A increased $1.5 million; depreciation and amortization increased $0.6 million. Stock-based compensation shifted from $1.9 million of expense to a $1.0 million credit, largely from award cancellations and reversals.
- Operating cash flow moved from positive $4.4 million to negative $1.1 million, while investing and financing cash outflows were lower than a year earlier.
Outlook, commentary, risks and unusual items
- Management said available cash and expected operating cash flow, financing and asset-sale proceeds should cover short-term working-capital needs, but long-term capital needs may depend on access to joint ventures and debt or equity markets. It cautioned that future cash generation and access to capital are not assured. No numerical earnings or revenue guidance was provided.
- The company recorded a $2.34 million write-down after classifying a Kokomo, Indiana community as held for sale. On May 1, 2019, it sold the community for $5.0 million and reported approximately $1.4 million of net proceeds after debt retirement and transaction costs.
- ASC 842 adoption on January 1, 2019 added $255.4 million of right-of-use assets and $289.5 million of lease liabilities at adoption. The adoption also included impairment adjustments and a retained-earnings adjustment; management said it did not materially affect earnings or cash flows or affect covenant compliance.
- Interest-rate exposure is material: management estimated that a one-percentage-point increase in rates would raise annual interest expense by approximately $1.3 million on variable-rate debt. Other stated risks include refinancing and covenant risks, occupancy and labor pressures, competition, and insurance availability. Management reported disclosure controls were effective and no material change in risk factors from the 2018 Form 10-K.
- Hurricane Harvey insurance reimbursements totaled $12.9 million through March 31, 2019, including $8.6 million for business interruption. The company recognized $1.2 million of business-interruption recovery in Q1 2019, compared with $1.6 million in Q1 2018.
Important facts for investors to verify
- Confirm the issuer and ticker: this filing names Capital Senior Living Corporation (CSU), while the request identifies Sonida Senior Living, Inc.
- Review occupancy trends, labor and operating-cost changes, and whether revenue improves beyond the quarter’s reported results.
- Assess near-term debt maturities, refinancing needs, covenant headroom, and the company’s ability to fund lease obligations and capital needs.
- Check realized proceeds from the Kokomo sale and the status of remaining asset-sale or financing plans.
- Monitor cash generation, unrestricted liquidity, and the potential effect of higher variable interest rates.