Capital Senior Living(SNDA) - 2021 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements. This section presents the unaudited consolidated financial statements and comprehensive notes, detailing financial position, performance, cash flows, and critical accounting policies, alongside recent events and going concern assessments Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets and a significant reduction in total current liabilities from December 31, 2020, to September 30, 2021, leading to a substantial improvement in shareholders' deficit | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total assets | $674,180 | $702,833 | $(28,653) | | Total current liabilities | $221,916 | $373,122 | $(151,206) | | Total liabilities | $827,744 | $982,098 | $(154,354) | | Total shareholders' deficit | $(153,564) | $(279,265) | $125,701 | Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a significant turnaround from a net loss in 2020 to net income in 2021 for both the three and nine months ended September 30, primarily driven by a substantial gain on extinguishment of debt | Metric (in thousands, except per share) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $57,924 | $96,053 | $177,114 | $303,659 | | Total expenses | $65,571 | $107,982 | $200,304 | $356,304 | | Gain on extinguishment of debt | $54,080 | — | $168,292 | — | | Net income (loss) | $36,510 | $(214,964) | $124,432 | $(274,898) | | Basic net income (loss) per share | $17.71 | $(104.91) | $60.37 | $(134.82) | | Diluted net income (loss) per share | $17.48 | $(104.91) | $59.59 | $(134.82) | Consolidated Statements of Shareholders' Equity (Deficit) Shareholders' deficit significantly improved from December 31, 2020, to September 30, 2021, primarily due to net income generated during the period, despite a reverse stock split in December 2020 | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Common Stock Amount | $22 | $21 | | Additional Paid-In Capital | $190,246 | $188,978 | | Retained Deficit | $(343,832) | $(468,264) | | Total Shareholders' Deficit | $(153,564) | $(279,265) | - The company's net income contributed to a significant reduction in retained deficit, improving from $(468,264) thousand at December 31, 2020, to $(343,832) thousand at September 30, 2021[12] Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, the company experienced net cash used in operating and investing activities, partially offset by net cash provided by financing activities, resulting in an overall decrease in cash and cash equivalents | Activity (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------- | :----------------------------- | :----------------------------- | | Operating Activities | $(5,801) | $(5,370) | | Investing Activities | $(7,096) | $(4,815) | | Financing Activities | $6,581 | $(8,603) | | Decrease in cash and cash equivalents | $(6,316) | $(18,788) | | Cash and cash equivalents and restricted cash at end of period | $16,551 | $18,275 | Notes to Unaudited Consolidated Financial Statements These notes provide critical context and detailed information supporting the financial statements, covering the company's operations, recent strategic transactions, the ongoing impact of the COVID-19 pandemic, and the company's efforts to address going concern uncertainties through capital raising and debt management 1. BASIS OF PRESENTATION The company is a leading owner-operator of senior housing communities, operating 72 communities in 18 states with approximately 7,000 residents as of September 30, 2021, including 60 owned and 12 managed properties - As of September 30, 2021, the Company operated 72 senior housing communities in 18 states with an aggregate capacity of approximately 7,000 residents, including 60 owned and 12 managed communities[19] 2. RECENT EVENTS AND TRANSACTIONS The company entered into an Investment Agreement with Conversant Capital LLC, involving a private placement of Series A Convertible Preferred Stock and a rights offering, aiming to raise significant capital, with a secured promissory note also issued for interim financing, later amended and repaid post-quarter end - On July 22, 2021, the Company entered into an Investment Agreement with Conversant Dallas Parkway (A) LP and Conversant Dallas Parkway (B) LP, affiliates of Conversant Capital LLC, for a private placement of 82,500 shares of Series A Convertible Preferred Stock at $1,000 per share[22] - The Company intends to initiate a rights offering to common stockholders to purchase shares at $32 per share, aiming for approximately $70 million in gross cash proceeds, with Investors agreeing to backstop up to $42.5 million[22] - A $17.3 million secured promissory note was entered into simultaneously for interim debt financing, maturing in July 2022, which was later amended to $16.0 million in October 2021 and repaid on November 3, 2021, upon closing of the transaction[24] 3. COVID-19 PANDEMIC The COVID-19 pandemic significantly impacted the company's operations, leading to declining occupancy, increased operating costs for infection control, and the receipt of government relief funds from the Provider Relief Fund and CARES Act payroll tax deferrals - COVID-19 caused a decline in occupancy levels, negatively impacting revenues and operating results[26] | COVID-19 Direct Costs (in millions) | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Direct Costs | $0.4 | $1.7 | $1.4 | $4.6 | - The Company accepted $8.1 million and $8.7 million in grants from the Provider Relief Fund's Phase 2 and 3 General Distribution in November 2020 and January 2021, respectively, with the $8.7 million recorded as other income in the nine months ended September 30, 2021[28] - As of September 30, 2021, the Company had $7.4 million in deferred payroll taxes under the CARES Act, with $3.7 million due by December 31, 2021, and the remainder by December 31, 2022[29] 4. GOING CONCERN UNCERTAINTY The company identified substantial doubt about its ability to continue as a going concern due to COVID-19 impacts, significant debt maturities, working capital deficiency, and non-compliance with financial covenants, with management's remediation plan, including a new investment agreement and debt refinancings, expected to mitigate this uncertainty - Conditions raising substantial doubt about going concern include: (1) continued impact of COVID-19, (2) $99.3 million of debt maturing in the next 12 months (including $31.5 million due in December 2021, $36.7 million in Q2 2022, $16.0 million Promissory Note in July 2022, and $15.1 million debt service payments), (3) working capital deficiency, and (4) non-compliance with financial covenants with Fifth Third Bank[31] - The Amended Investment Agreement, which closed on November 3, 2021, raised gross proceeds of $154.8 million, providing $128.5 million in net proceeds after repaying the $16.0 million Promissory Note and covering transaction costs, intended to repay debt and fund working capital and growth projects[33] - The company executed a one-year extension for its $40.5 million BBVA loan, extending maturity to December 10, 2022, and is in discussions to refinance other maturing debt and resolve non-compliance with Fifth Third Bank covenants, with an intention to repay the $31.5 million Fifth Third bridge loan in November 2021[33] - Fannie Mae completed the transition of legal ownership for four and thirteen properties during the three and nine months ended September 30, 2021, respectively, resulting in gains on extinguishment of debt of $54.1 million and $168.3 million[34] 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the company's accounting policies for cash and restricted cash, long-lived assets and impairment, revenue recognition (resident, management, and community reimbursement fees), lease accounting, credit risk and allowance for doubtful accounts, self-insurance liabilities, and income taxes | Cash and Restricted Cash (in thousands) | Sep 30, 2021 | Sep 30, 2020 | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $10,669 | $14,293 | | Restricted cash | $5,882 | $3,982 | | Total | $16,551 | $18,275 | - Resident revenue, primarily from basic housing and support services, decreased from approximately $84.7 million (Q3 2020) to $48.2 million (Q3 2021) and from $286.1 million (9M 2020) to $138.7 million (9M 2021)[43] - Management fees increased from $0.6 million (Q3 2020) to $1.0 million (Q3 2021) and from $0.8 million (9M 2020) to $3.0 million (9M 2021)[47] - The allowance for doubtful accounts was $5.1 million at September 30, 2021, down from $6.1 million at December 31, 2020[54] 6. IMPAIRMENT OF LONG-LIVED ASSETS No impairment charges were recorded for long-lived assets during the three and nine months ended September 30, 2021, though significant non-cash impairment charges were recognized in 2020 due to lease modifications and adverse COVID-19 impacts on operating results - No impairments of long-lived assets occurred during the three and nine months ended September 30, 2021[66] | Impairment Charges (in millions) | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :------------------------------- | :------------------------------ | :----------------------------- | | Operating lease right-of-use assets, net | $1.3 | $7.5 | | Property and equipment, net | $1.9 | $31.7 | | Total Non-Cash Impairment Charges | $3.2 | $39.2 | 7. DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS The company completed several dispositions and early terminations of master lease agreements in 2020, including the sale of communities and conversion of leased properties to management agreements with Ventas, Welltower, and Healthpeak, effectively exiting all master lease agreements by December 31, 2020 - The company exited all master lease agreements by December 31, 2020, and was not subject to any during the nine months ended September 30, 2021[72][73] - Early termination of the Ventas Master Lease Agreement resulted in a net gain of approximately $8.4 million for the nine months ended September 30, 2020, and the company now manages seven communities for Ventas[75] - Early termination of Welltower Master Lease Agreements resulted in a gain of approximately $8.0 million for the nine months ended September 30, 2020, and the company manages four communities for Welltower as of September 30, 2021[77] - The Healthpeak Master Lease Agreement was terminated and converted to a management agreement, resulting in a net loss of $7.0 million for the nine months ended September 30, 2020, with all agreements with Healthpeak terminated by September 30, 2021, as properties were sold[78][81] 8. NOTES PAYABLE Notes payable decreased significantly from December 31, 2020, to September 30, 2021, primarily due to the extinguishment of debt from Fannie Mae property transfers, with the company also managing various loan agreements, including extensions, deferrals, and covenant non-compliance with Fifth Third Bank | Notes Payable (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------- | :----------- | :----------- | | Fixed mortgage notes payable | $625,545 | $787,029 | | Variable mortgage notes | $121,660 | $122,742 | | Notes payable - other | $18,141 | $2,121 | | Total long-term debt | $761,794 | $908,893 | | Less current portion | $159,977 | $304,164 | | Total long-term debt, less current portion | $601,817 | $604,729 | - A $17.3 million secured Promissory Note was issued in August 2021, later amended to $16.0 million and repaid on November 3, 2021[84][85] - Fannie Mae completed legal ownership transition of four and thirteen properties during the three and nine months ended September 30, 2021, respectively, resulting in $54.1 million and $168.3 million gains on extinguishment of debt[94] - The company was not in compliance with a financial covenant under its loan agreement with Fifth Third Bank for $31.5 million debt, leading to a notice of default, and the company intends to repay this loan in November 2021[101] 9. EQUITY The company effected a 15-for-1 reverse stock split in December 2020, reducing outstanding common shares and authorized shares proportionally, and retired all treasury stock in conjunction with this event - On December 9, 2020, the Company's Board of Directors approved and effected a Reverse Stock Split of the Company's common stock at a ratio of 15-for-1[103] - The Reverse Stock Split reduced outstanding common shares from approximately 31.3 million to 2.1 million and authorized shares from 65 million to 4.3 million[103] - All treasury stock was retired to available for issuance in the fourth quarter of fiscal 2020, resulting in a $3.4 million reduction to additional paid-in capital[105] 10. STOCK-BASED COMPENSATION The company grants stock options and restricted stock awards to employees and directors, with stock-based compensation expense of $1.3 million for the nine months ended September 30, 2021, and $3.7 million in unrecognized expense remaining | Stock Option Activity (9M Ended Sep 30, 2021) | Shares | | :-------------------------------------------- | :----- | | Outstanding at Beginning of Period | 9,816 | | Granted | — | | Exercised | — | | Cancelled | — | | Outstanding at End of Period | 9,816 | | Restricted Stock Activity (9M Ended Sep 30, 2021) | Shares | | :------------------------------------------------ | :------- | | Outstanding at Beginning of Period | 33,504 | | Granted | 114,041 | | Vested | (6,659) | | Cancelled | (4,862) | | Outstanding at End of Period | 136,024 | | Stock-Based Compensation Expense (in millions) | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :--------------------------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Expense | $0.6 | $1.3 | $0.4 | $1.5 | - Unrecognized stock-based compensation expense was $3.7 million as of September 30, 2021, expected to be recognized over one to three years[112] 11. CONTINGENCIES The company faces claims in the normal course of business, which management believes are mostly covered by insurance and are not expected to have a material detrimental impact on the consolidated financial statements - Management believes that claims incurred in the normal course of business, whether or not covered by insurance, should not have a material detrimental impact on the consolidated financial statements[113] 12. FAIR VALUE MEASUREMENTS The fair values of financial instruments like cash, restricted cash, and notes payable are disclosed, along with the fair values of impaired operating lease right-of-use assets and property and equipment from 2020, which were estimated using Level 3 inputs | Financial Instrument (in thousands) | Sep 30, 2021 Carrying Amount | Sep 30, 2021 Fair Value | Dec 31, 2020 Carrying Amount | Dec 31, 2020 Fair Value | | :-------------------------------- | :--------------------------- | :---------------------- | :--------------------------- | :---------------------- | | Cash and cash equivalents | $10,669 | $10,669 | $17,885 | $17,885 | | Restricted cash | $5,882 | $5,882 | $4,982 | $4,982 | | Notes payable, excluding deferred loan costs | $766,564 | $694,237 | $915,779 | $846,134 | - Fair values for notes payable are estimated using discounted cash flow analysis based on current incremental borrowing rates (Level 2 inputs)[115] - Impaired operating lease right-of-use assets and property and equipment in 2020 were valued using Level 3 inputs, including discounted cash flow and sales comparison approaches[116][117] 13. LEASES The company exited all master lease agreements by December 31, 2020, with operating lease costs significantly decreasing in the nine months ended September 30, 2021, compared to 2020, and remaining future minimum lease payments for operating and financing leases detailed - The Company exited all master lease agreements by December 31, 2020[120] | Lease Costs (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------- | :----------------------------- | :----------------------------- | | Total operating lease costs | $183 | $28,489 | | Total financing lease costs | $88 | $135 | | Future Minimum Lease Payments (in thousands) | Operating Leases | Financing Leases | | :------------------------------------------- | :--------------- | :--------------- | | Remainder 2021 | $23 | $30 | | 2022 | $68 | $121 | | 2023 | $43 | $116 | | 2024 | $30 | $37 | | 2025 | $2 | $34 | | Thereafter | — | $11 | | Total | $166 | $349 | 14. SUBSEQUENT EVENTS Subsequent to quarter-end, the company finalized an Amended Investment Agreement, raising $154.8 million in gross proceeds, repaid a $16.0 million promissory note, reconstituted its Board, and initiated a corporate name change to "Sonida Senior Living, Inc." effective November 15, 2021, with a new ticker symbol "SNDA" - On October 1, 2021, the Company entered into an Amended and Restated Investment Agreement, which closed on November 3, 2021, raising gross proceeds of $154.8 million and resulting in net proceeds of $128.5 million after repaying the $16.0 million Promissory Note and transaction costs[123][125] - The Board of Directors was reconstituted with six new and three continuing Directors at closing[126] - On November 9, 2021, the Company filed to change its name to "Sonida Senior Living, Inc." effective November 15, 2021, with the new ticker symbol "SNDA" on the NYSE[129][130] - In the fourth quarter of 2021, Fannie Mae completed the transfer of ownership on one additional property, leading to the de-recognition of related debt and liabilities[128] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion of the company's financial condition and results of operations, highlighting the impact of recent strategic transactions, the COVID-19 pandemic, and management's plans to address going concern uncertainties, while also analyzing revenue and expense trends and discussing liquidity and capital resources Overview The company is a leading owner-operator of senior housing communities, providing independent living, assisted living, and memory care services, operating 72 communities with approximately 7,000 residents as of September 30, 2021 - The Company operates 72 senior housing communities in 18 states with an aggregate capacity of approximately 7,000 residents, including 60 owned and 12 managed communities, as of September 30, 2021[136] - The operating strategy focuses on providing quality senior living services at reasonable prices, aiming for a strong competitive position and enhanced operational performance[135] RECENT EVENTS AND TRANSACTIONS This section reiterates the details of the Investment Agreement with Conversant Capital, the associated promissory note, and the subsequent corporate name change to Sonida Senior Living, Inc., which are crucial for the company's financial restructuring and future operations - The Company entered into an Investment Agreement with Conversant Capital LLC, involving a private placement of Series A Convertible Preferred Stock and a rights offering, with a partial backstop commitment from investors[137] - A $17.3 million secured promissory note was issued for interim debt financing, later amended to $16.0 million and repaid on November 3, 2021[140] - The company established a $4.2 million cash retention pool and plans to grant 257,000 performance shares to employees[141] - The company changed its name to "Sonida Senior Living, Inc." effective November 15, 2021, with a new NYSE ticker symbol "SNDA"[142][143] COVID-19 Pandemic The COVID-19 pandemic continued to negatively impact the company's occupancy and increased operating costs due to enhanced infection control, with the company receiving significant government relief funds and utilizing payroll tax deferrals to mitigate financial strain - COVID-19 caused a decline in occupancy levels and increased operating costs for enhanced infection control, testing, labor, and cleaning services[143][144] | COVID-19 Direct Costs (in millions) | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Direct Costs | $0.4 | $1.7 | $1.4 | $4.6 | - The company received $8.1 million and $8.7 million from the Provider Relief Fund's Phase 2 and 3 General Distribution, with the $8.7 million recorded as other income in the nine months ended September 30, 2021[145][146] - The company deferred $7.4 million in payroll taxes under the CARES Act, with half due by December 31, 2021, and the remainder by December 31, 2022[147] Going Concern and Management's Plan The company acknowledged substantial doubt about its ability to continue as a going concern due to COVID-19 impacts, significant debt maturities, working capital deficiency, and covenant non-compliance, with management's plan, including the Amended Investment Agreement and debt refinancings, deemed probable to mitigate these risks for at least the next 12 months - Substantial doubt about the company's ability to continue as a going concern for the next 12 months was raised due to COVID-19 impacts, $99.3 million in debt maturities, working capital deficiency, and non-compliance with Fifth Third Bank financial covenants[151] - Management's strategic and cash preservation initiatives include the Amended Investment Agreement (gross proceeds of $154.8 million, net proceeds of $128.5 million), a one-year extension of the $40.5 million BBVA loan, ongoing discussions for refinancing other debt, and the intention to repay the $31.5 million Fifth Third Bank bridge loan[155] - Management concluded that its remediation plan is probable to provide adequate liquidity and mitigate going concern risks for at least the 12-month period following the financial statements' issuance date[154] Significant Financial and Operational Highlights The company experienced a recovery in consolidated average financial occupancy and an increase in average monthly rental rates in Q3 2021 compared to Q3 2020, while workforce challenges related to COVID-19 led to increased contract labor expenses, and the company completed the transition of four communities to Fannie Mae | Metric | Q3 2021 | Q3 2020 | Change | | :-------------------------------- | :------ | :------ | :----- | | Consolidated average financial occupancy | 81.0% | 76.1% | +4.9% | | Consolidated average monthly rental rate | Higher | Lower | +330 bps | - Increased expenses for contract labor were incurred in Q3 2021 due to COVID-19 pandemic-related workforce challenges and enhanced unemployment benefits[158] - During Q3 2021, the company completed the transition of legal ownership of four communities to Fannie Mae, recognizing a $54.1 million gain on extinguishment of debt[159] Early Termination of Master Lease Agreements By December 31, 2020, the company had exited all master lease agreements, transitioning 46 senior housing communities from REITs to either different operators or management agreements, a process involving significant lease modifications and resulting in gains or losses on lease termination - The company exited all master lease agreements by December 31, 2020, and was not subject to any during the nine months ended September 30, 2021[160][161] - Early termination of the Ventas Master Lease Agreement resulted in a net gain of approximately $8.4 million for the nine months ended September 30, 2020, and the company now manages seven communities for Ventas[163][164] - Early termination of Welltower Master Lease Agreements resulted in a gain of approximately $8.0 million for the nine months ended September 30, 2020, and the company manages four communities for Welltower as of September 30, 2021[166] - The Healthpeak Master Lease Agreement was terminated and converted to a management agreement, resulting in a net loss of $7.0 million for the nine months ended September 30, 2020, with all agreements with Healthpeak terminated by September 30, 2021, as properties were sold[167][170] Website The company's investor relations website, www.capitalsenior.com, provides free access to its SEC filings, including annual, quarterly, and current reports - The company's investor relations website, www.capitalsenior.com, offers free access to its annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), proxy statements, and Section 16 filings[171] Results of Operations The company's results of operations show a significant decrease in total revenues and expenses for both the three and nine months ended September 30, 2021, compared to 2020, primarily due to property dispositions, with a substantial gain on extinguishment of debt leading to a net income turnaround | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $57,924 | $96,053 | $177,114 | $303,659 | | Total expenses | $65,571 | $107,982 | $200,304 | $356,304 | | Net income (loss) | $36,510 | $(214,964) | $124,432 | $(274,898) | Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020 For the third quarter, resident revenue decreased by 43% due to significant property dispositions, total expenses decreased by 39% due to lower operating, facility lease, and depreciation expenses, and a $54.1 million gain on extinguishment of debt led to a net income of $36.5 million, a substantial improvement from the prior year's loss - Resident revenue decreased by $36.9 million (43%) to $49.0 million, primarily due to significant property dispositions in 2020[175] - Management fee revenue increased by $0.4 million due to managing more communities[176] - Total expenses decreased by $42.4 million (39%) to $65.6 million, driven by decreases in operating expenses ($24.5 million), facility lease expenses ($5.9 million), depreciation ($6.0 million), and impairment charges ($3.2 million)[177] - A $54.1 million gain on extinguishment of debt was recognized from the transition of four properties to Fannie Mae[179] - Net income was $36.5 million, a significant improvement from a $215.0 million net loss in the prior year quarter[181] Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020 For the nine-month period, resident revenue decreased by 52% due to property dispositions and lower occupancies, total expenses decreased by 44% from property dispositions and reduced impairment charges, and a $168.3 million gain on extinguishment of debt and $8.7 million in CARES Act funds contributed to a net income of $124.4 million, reversing the prior year's substantial loss - Resident revenue decreased by $150.1 million (52%) to $140.8 million, primarily due to property dispositions and reduced occupancies[182] - Management fees and community reimbursement revenue increased by $2.2 million and $21.4 million, respectively[183] - Total expenses decreased by $156.0 million (44%) to $200.3 million, mainly from decreases in operating expenses ($96.9 million), facility lease expenses ($23.2 million), depreciation ($19.8 million), and impairment charges ($39.2 million)[184] - A $168.3 million gain on extinguishment of debt was recognized from the transition of thirteen properties to Fannie Mae[186] - Other income of $8.7 million was recognized from Phase 3 CARES Act Provider Relief Funds[189] - Net income was $124.4 million, a significant improvement from a $274.9 million net loss in the prior year period[188] Liquidity and Capital Resources The company's liquidity is supported by cash balances and expected net proceeds from the Amended Investment Agreement, with cash flows for the nine months ended September 30, 2021, showing net cash used in operating and investing activities, offset by financing activities, and debt management including Fannie Mae loan transfers, BBVA loan extensions, and addressing Fifth Third Bank covenant non-compliance - As of September 30, 2021, the company had $10.7 million in unrestricted cash and expects $128.5 million in net proceeds from the Amended Investment Agreement in November 2021[189] | Cash Flow Activities (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(5,801) | $(5,370) | | Net cash used in investing activities | $(7,096) | $(4,815) | | Net cash provided by (used in) financing activities | $6,581 | $(8,603) | | Net decrease in cash and cash equivalents | $(6,316) | $(18,788) | - Fannie Mae completed legal ownership transfers for four and thirteen properties during the three and nine months ended September 30, 2021, respectively, leading to gains on extinguishment of debt[201] - The $40.5 million BBVA loan was extended for one year to December 10, 2022, with an option for an additional six months, and included a waiver for prior covenant non-compliance[203] - The company was in default on a $31.5 million loan with Fifth Third Bank due to covenant non-compliance and intends to repay it in November 2021[210] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for this reporting period - The company states that quantitative and qualitative disclosures about market risk are not applicable[212] Item 4. Controls and Procedures The company's management, including the CEO and PFO, concluded that disclosure controls and procedures were ineffective as of September 30, 2021, due to a material weakness identified in the prior annual report, with a remediation plan in place and expected to be completed by the end of Q4 2021 - The company's CEO and PFO concluded that disclosure controls and procedures were ineffective as of September 30, 2021, based on a material weakness described in the Annual Report on Form 10-K[215] - A remediation plan has been developed, including appropriate management review and process level controls, with expected completion by the end of the fourth quarter of 2021[217] Part II. Other Information Item 1. Legal Proceedings The company is involved in claims in the normal course of business, which management believes are mostly covered by insurance and are not expected to materially affect the consolidated financial statements - Management believes that claims incurred in the normal course of business are mostly covered by insurance and should not have a material effect on the consolidated financial statements[218] Item 1A. Risk Factors Additional risk factors include the potential inability to successfully implement business plans and strategies, which could negatively impact financial results and liquidity, and the risk of debt acceleration or other remedies due to failure to comply with financial covenants - Failure to successfully implement business plans and strategies could negatively affect consolidated results, financial position, liquidity, and the ability to continue as a going concern[220] - Non-compliance with financial covenants in debt instruments could lead to acceleration of debt or exercise of other remedies by lenders[221] - The company was not in compliance with a financial covenant under its loan agreement with Fifth Third Bank as of September 30, 2021, which constituted a default and made the $31.5 million bridge loan callable[224] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program approved in 2009 for up to $10.0 million, which was continued in 2016, with no shares repurchased during the three months ended September 30, 2021, and no repurchases expected in the near term | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | | :----------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------- | :--------------------------------------------------------------------------- | | Total at June 30, 2021 | 32,941 | $199.45 | 32,941 | $6,570,222 | | July 1 – July 31, 2021 | — | — | — | $6,570,222 | | August 1 – August 31, 2021 | — | — | — | $6,570,222 | | September 1 – September 30, 2021 | — | — | — | $6,570,222 | | Total at September 30, 2021 | 32,941 | $199.45 | 32,941 | $6,570,222 | - The company does not expect to repurchase any shares of its common stock in the near term[226] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - The company states that this item is not applicable[227] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures applicable to the company - The company states that this item is not applicable[228] Item 5. Other Information This section states that there is no other information to report - The company states that this item is not applicable[229] Item 6. Exhibits This section lists all documents filed as exhibits to the report, including corporate governance documents, investment agreements, and certifications - Key exhibits include the Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Investment Agreement (July 22, 2021), Secured Promissory Note (July 22, 2021), Amended and Restated Investment Agreement (October 1, 2021), and Rights Offering Backstop and Participation Agreement (October 1, 2021)[232] Signature The report is duly signed on behalf of Capital Senior Living Corporation by Tiffany L. Dutton, Senior Vice President-Accounting and Finance and Principal Accounting Officer, on November 12, 2021 - The report was signed by Tiffany L. Dutton, Senior Vice President-Accounting and Finance and Principal Accounting Officer, on November 12, 2021[234]