Capital Senior Living(SNDA) - 2021 Q1 - Quarterly Report

Part I. Financial Information Financial Statements The company's Q1 2021 net income of $38.8 million was driven by non-operating gains, masking a significant revenue decline Consolidated Balance Sheets Total assets and liabilities decreased, while the shareholders' deficit improved to $240.3 million due to quarterly net income Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,766 | $17,885 | | Total current assets | $35,246 | $43,428 | | Total assets | $686,898 | $702,833 | | Total current liabilities | $320,759 | $373,122 | | Total liabilities | $927,153 | $982,098 | | Total shareholders' deficit | ($240,255) | ($279,265) | Consolidated Statements of Operations A $38.8 million net income was achieved due to a gain on debt extinguishment, despite a significant drop in resident revenue Q1 2021 vs. Q1 2020 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total revenues | $61,648 | $106,129 | | Total expenses | $68,654 | $145,347 | | Gain on extinguishment of debt | $46,999 | $0 | | Other income | $8,705 | $1 | | Net income (loss) | $38,844 | ($47,181) | | Basic net income (loss) per share | $18.87 | ($23.28) | | Diluted net income (loss) per share | $18.80 | ($23.28) | Consolidated Statements of Cash Flows Net cash from operations turned positive to $3.3 million, though overall cash decreased by $1.1 million for the quarter Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,264 | ($5,001) | | Net cash provided by (used in) investing activities | ($2,108) | $1,045 | | Net cash used in financing activities | ($2,275) | ($5,235) | | Decrease in cash and cash equivalents | ($1,119) | ($9,191) | Notes to Financial Statements The notes reveal substantial doubt about the company's going concern status due to losses, debt issues, and covenant noncompliance - The company has concluded that substantial doubt exists about its ability to continue as a going concern due to the impact of COVID-19, $72.5 million of debt maturing in 2021, recurring operating losses, and noncompliance with loan covenants[25][28] - In Q1 2021, the company transferred legal ownership of three properties to Fannie Mae, resulting in the recognition of a $47.0 million gain on the extinguishment of related debt[33][80] - The company received $8.7 million in CARES Act Provider Relief Funds in January 2021, which was recorded as other income for the quarter[27] - The company was not in compliance with financial covenants on loans with Fifth Third Bank ($31.5 million) and BBVA ($41.0 million), resulting in defaults that make the loans callable[85][86] - By December 31, 2020, the company had exited all of its master lease agreements, a major strategic shift from its previous operating model[63][105] Management's Discussion and Analysis (MD&A) Management discusses the going concern uncertainty, the impact of COVID-19, and strategic shifts driving operational results COVID-19 Pandemic Impact The pandemic decreased occupancy and increased costs, with financial impacts partially offset by CARES Act funds - The company incurred $1.0 million in costs related to the COVID-19 pandemic during the three months ended March 31, 2021[117] - In January 2021, the company accepted an additional $8.7 million in CARES Act Provider Relief Funds, which was recorded as other income[119] - As of March 31, 2021, the company had deferred $7.4 million in payroll taxes under the CARES Act program[120] Going Concern and Management's Plan Management acknowledges substantial doubt about going concern due to debt maturities and covenant breaches, outlining an unassured remediation plan - Conditions raising substantial doubt include $72.5 million of debt maturing or callable, recurring operating losses, and non-compliance with loan covenants[125] - Management's strategic initiatives include resolving debt noncompliance, transferring underperforming assets to Fannie Mae, and seeking new capital, but the success of these plans is not assured[127][128][129] Results of Operations Q1 2021 revenue fell 42% due to property dispositions, but net income became positive from non-operating gains Q1 2021 vs. Q1 2020 Key Metrics (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Resident revenue | $45,202 | $105,616 | | Total revenues | $61,648 | $106,129 | | Total expenses | $68,654 | $145,347 | | Long-lived asset impairment | $0 | $35,954 | | Gain on extinguishment of debt | $46,999 | $0 | | Net income (loss) | $38,844 | ($47,181) | - The 57% decrease in resident revenue was driven by the sale of two owned properties, the transition of 39 leased communities, and the process of transferring 18 communities to Fannie Mae[145] Liquidity and Capital Resources The company has limited liquidity with $16.8 million in cash and faces callable debt due to loan covenant defaults - The company held approximately $16.8 million of unrestricted cash as of March 31, 2021[152] - The company was not in compliance with financial covenants for its loan agreements with Fifth Third Bank ($31.5M) and BBVA ($41.0M), constituting defaults[166][167] - During Q1 2021, the company completed the transfer of three communities back to Fannie Mae, recognizing a $47.0 million gain on debt extinguishment[162] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as permitted for smaller reporting companies - The company has indicated that this section is not applicable[169] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a previously identified material weakness - The CEO and PFO have concluded that the company's disclosure controls and procedures are ineffective as of the end of the reporting period[172] - A remediation plan for the identified material weakness is in progress, with expected completion by the end of Q4 2021[174] Part II. Other Information Legal Proceedings The company faces various claims in the normal course of business that are not expected to have a material adverse effect - The company faces claims in the normal course of business but does not expect them to have a material adverse effect on its financial statements[175] Risk Factors Key risks include substantial doubt about the company's going concern status and defaults on debt covenants - A primary risk factor is the substantial doubt about the company's ability to continue as a going concern, which could render its common stock worthless if it becomes insolvent[177] - The company is in default on loan agreements with Fifth Third Bank and BBVA, making the debt callable and posing a risk of acceleration[180] Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased during the quarter, and none are anticipated in the near term - No shares of the company's common stock were repurchased during the three months ended March 31, 2021[182] - The company does not expect to repurchase any shares in the near term, despite having approximately $6.6 million available under its authorized program[182] Other Items (3, 4, 5, 6) Several standard disclosure items are reported as not applicable, while exhibits for the filing are listed - Items 3, 4, and 5 are reported as 'Not applicable'[183][184][186]