Good day and welcome to the Capital Senior Living 2020 Q1 Earnings Conference Call. Today's conference is being recorded. All statements today, which are not historical facts may be deemed to be forward-looking statements within the meaning of the federal security laws. These statements are made of today's date, and the company expressly disclaims any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ are detailed in the earnings release the company issued earlier today as well as in reports the company files with the SEC from time to time, including the risk factors contained in the report on Form 10-K and quarterly reports on Form 10-Q. Please see today's press release for the full safe harbor statement, which may be found at capitalsenior.com/investor-relations and was furnished in an 8-K filing this morning. Please also note that during this call, the company will present non-GAAP financial measures. For reconciliation on each non-GAAP measure from the most comparable GAAP measure, please also see today's press release. At this time, I would like to turn the call over to Capital Senior Living's President and CEO, Ms. Kimberly Lody.

Thank you, and good morning to our shareholders, analysts, employees and other participants. Welcome to Capital Senior Living's First Quarter 2020 Earnings Call. Joining me for today's call is Carey Hendrickson, our Chief Financial Officer; and Brandon Ribar, our Chief Operating Officer. I appreciate you joining us today, particularly during this uncertain time, and I hope that you and your families remain safe and healthy. Before getting into the quarter, let me begin by saying that I am so very proud of our 6,000-plus employees who have diligently cared for our residents' physical, cognitive and emotional well-being during the COVID-19 pandemic. While much of the world shut down in recent months, and we have faced escalating challenges and changes to our operating model on a 24/7 basis, our staff have been heroic in their response providing personalized care and comfort to the population most vulnerable to this highly contagious infection. I want to thank the entire Capital Senior Living team for their relentless passion and commitment to our business, our residents and to one another during this unprecedented time. At the onset of the pandemic, we swiftly expanded our existing comprehensive disease prevention protocols to include real-time best practices and guidance from federal, state and local authorities. We established a multidisciplinary task force that continues to serve as an around-the-clock emergency response team to support our communities and to help them understand and operationalize the various federal, state and local guidance on addressing COVID-19. The task force developed, delivered and reinforced training on COVID-19 prevention and mitigation protocols. They established innovative compensation and scheduling programs to address the unique staffing challenges presented by the pandemic. They developed and implemented checklists, protocols and 24/7 communications platforms to provide our communities easy access to operational and clinical support day and night. They…

Thank you, Kim, and good morning. While much has changed and evolved across the nation in the 7 weeks since we last provided an update on our business, the fundamental building blocks of our company remain the same. The strength, compassion and confidence of our local leadership teams and the frontline caregivers and employees across each of our communities continue as the foundation of CSL. While the impacts of COVID-19 on the country and senior living as a whole remain uncertain, I am confident in our ability to navigate this challenging time. Our Q1 operating results and ongoing leadership and employee retention metrics continue to support that confidence. I will briefly provide an overview of key operating metrics before providing updated information on COVID specific to our portfolio. Total employee turnover continues to trend favorably in the first 4 months of 2020, with a more than 10 percentage point decline year-over-year. Given the national employment landscape and the significant increase in candidate flow our communities have experienced, we are optimistic this trend will continue and also allow CSL to recruit talent from adjacent industries. Leadership stability continues to be strong with 91% of our executive directors retained through the first 4 months of the year and combined turnover of our key leadership roles in our communities, decreasing nearly 8 percentage points year-over-year through April. We continue to monitor the number of communities showing sequential quarterly improvement as an indicator of progress on our SING strategy, which began 1 year ago. Our results in Q1, as referenced by Kim, show significant progress across much of our portfolio in both revenue growth and an even stronger improvement in net operating income. Nearly half of our communities grew revenue quarter-over-quarter, and our occupancy numbers at the end of April remains stable. 90 of…

Thank you, Brandon. While COVID-19 will certainly impact our results in the coming weeks and months, we do not want to lose sight of the hard work put in by our operations team in the first quarter that resulted in improvements in our key metrics or the significant actions we took in the first quarter of 2020 to improve our financial position and provide us with a path to growth and long-term value creation. As Kim noted, many of our key metrics improved in the first quarter on a sequential basis. Our net operating income increased $2.7 million in the first quarter of 2020 over the fourth quarter of 2019. Our adjusted EBITDAR, excluding approximately $300,000 of COVID-19 expenses, increased $900,000 sequentially over the fourth quarter of 2019. And adjusted CFFO, excluding those COVID-19 expenses, increased $1.8 million in the first quarter of 2020 over the fourth quarter of 2019. Very importantly, we reached agreements with all 3 of our REIT partners for the early termination of all of our leases by December 31, 2020, at the latest, through the release of our existing security deposits and our letters of credit with the respective REITs. And we'll see meaningful reductions in our rent payments until that time. When all of the lease terminations are complete, our cash flow will improve by approximately $22 million on an annual basis. The related lease liabilities on our balance sheet which were approximately $253 million at December 31, 2019, were reduced to $38.8 million at March 31 and will be eliminated by December 31, 2020. This is a major step forward in the transformation of Capital Senior Living. We recorded a noncash gain of $15.6 million in the lease transactions due in part to the release of a lending lease obligation related to a…

Thank you, Carey. As states reopen, we too will welcome families, friends and visitors back to our communities as soon as we are confident that it is safe and responsible to do so. In the meantime, we remain steadfastly committed to providing high-quality care and services to our beloved seniors. And we know that our services are needed now more than ever as many senior citizens have had to face the pandemic alone from their homes. The foundation we put in place during 2019 has served us well during these difficult times. And we continue to believe our strategy of stabilize, invest, nurture and grow will drive long-term value for all of our stakeholders. I'll now open the lines for questions. Operator, if you would please open the line?

[Operator Instructions] We will now take our first question from Steven Valiquette from Barclays.

Just want to unpack a little bit some of the operating expense trends. You mentioned that the same-store expenses increased 2.4% year-over-year, but that there were some material improvements sequentially versus the fourth quarter. And I guess, I'm curious to hear more about the operating expense growth trends for the rest of 2020. I guess, excluding COVID-19 expenses and just in light of that exclusion of $0.3 million of expenses in 1Q '20, is there any range you're able to provide for the full year on the amount of COVID-19 expenses that you may potentially exclude in relation to the adjusted EBITDAR?

Kim, I'll start with this and then if you and Brandon want to add something, you can. Steve, as you know, we did not provide guidance. So I can't really speak about what we think our full year expenses are going to look like from an operating perspective. I will say that we do expect to continue to have very solid cost management through the rest of the year. COVID-19, it's really -- in talking about how much that will be that we would adjust out of EBITDAR, it's so difficult to predict that because we just don't know the extent or duration of COVID-19, how long it's going to last and where it's going to be. And so it's really -- I'm really unable to project at this point. And then as part of that uncertainty is part of what feeds into our projection for the rest of the year overall. Brandon, Kim, anything you'd add?

Yes, I'll add. The operations team has done a fantastic job of really controlling and maintaining the operating costs during this period. And that's why we were able to really offset most of the incremental COVID-19 expenses incurred during the first quarter by some of the actions that the operations team made in becoming more efficient in the communities. As we look forward, like Carey said, the duration and the severity of the pandemic certainly creates uncertainty about what we may need to do on the cost side of things. I think the things that are in our favor are, we are very solid in our supplies on PPE and all of the other sterilization and gloves and so on -- masks and gowns, et cetera. We are solidly stocked there. So we don't expect to have tremendous incremental expense on those items. And one of the headwinds of the overall industry coming into the pandemic was the labor market. It's very difficult to find people to work in senior living because they had so many other options out there. And we've seen a tremendous change in that as well. We have many more people available to us. And we have, I think, done a great job in the operations area of making sure people know about the opportunities to work with us and to do that at a reasonable rate. We have implemented some hero pay type programs across the portfolio, where we've needed to do that to address some unique staffing challenges. But overall, we feel good about our ability to maintain reasonable labor costs as well as the overall supply cost. Brandon, anything you would add to that?

Just a couple things that I would add quickly would be the continued sequential decrease in the use of -- in the cost of contract labor. In the portfolio, we did see contract go down again in Q1 versus Q4. So we're managing that very closely. And then I would just say is that related to the additional purchases and supply requirement in preparation for COVID, we were able with very good partners to purchase those at a consistent level price-wise as we had previously. So we did not experience having to overpay for any additional supplies that we were purchasing. And we did have in place good par and stock levels in our communities to start with. So I think those both contributed as well.

Okay. Great. One other quick one just on the short-term debt forbearance agreements that you entered into. I'm not sure if you gave the total dollar amount of payment that will be impacted by the agreements that you entered into, if you have that number. And also, do you think what you've entered into will be sufficient that there won't be any additional agreements? Or is there still opportunity or optionality for additional agreements going forward?

Steve, this is Carey. I'll start and Kim I'll let you add in, if you'd like to. But it's difficult to really say exactly how much the debt forbearance is going to be. There are some of them -- some of the debt forbearance agreements have cash remittance provisions in them that are related to -- if a community produces cash after -- since they didn't make the debt payment, then some of that cash is remitted back to the lender. So it's difficult to predict because it's going to depend on, again, how -- what the extent and duration is of COVID-19 on the particular communities on which we're receiving debt forbearance. But that said, it's significant and it's sufficient enough from that and the other actions we've taken that we are able to produce positive cash flow in the second quarter. As far as additional agreements, we are -- we do expect to continue to have conversations with our lenders about additional relief as needed. Kim, anything you would add to that?

No, I think you covered it all, Carey. Thanks.

[Operator Instructions] We will now take our next question from Jack Bronchick from Cove Street Capital.

And I would just like to say which I've never said on a call. I'd like to thank you guys, the management team for your service because what a freaking mess. And this makes a hard job even harder. So that said, a quick question, Carey. So is the COVID adjustment for the press release or is that actually the norm for what's being incorporated into the new lending agreements in forbearance?

I'm not sure I understand the distinction there.

In other words, we have COVID expenses and you put it in the press release and adjust numbers, but are the banks -- is that part of a bank agreement that they too are amending any sort of covenants or things they have for that expense?

No, no, it's not related to that. That's just, we wanted to break it out so that investors could see how much those COVID expenses are. And so we'll do that going forward through this pandemic.

So the -- hold it. The bank won't accept it, but you're putting it in the press release so that everyone else accepts it? Exactly. I don't think you should do that. I'm just saying. And my next question really would be -- and this is for Kimberly. And again, pardon my first statement. I didn't see anything in the press release or anything about the Board of Directors waiving their cash fees. And I'd like to understand why not given that this Board -- and I'm sorry you were part of this, but this Board has mangled every strategic opportunity over years that enabled us to be in a lousy position for lousy things like this. And I don't -- I'd like you to comment, as a member of the Board of -- why they don't have any -- or there's no sense that they should too should be waiving their cash fees in -- at a crucial time for the company.

Yes. Great question, Jeff. Thank you for that. And the Board is waiving their fees. Our Board has actually been deferring their compensation since late last year. I believe that began in November. And they continue that. They are taking no cash compensation nor were there any stock award grants this year to the Board.

I missed that. My apologies.

We will now take our next question from Ben Mackovak from Cavalier Capital. Ben Mackovak;Cavalier Capital;Analyst: I can only imagine how stressful the last few months have been. So I do appreciate all that you've been through. Can you just remind us on the debt maturities that are coming up? It was a little unclear from the press release. And then my second question is, was there anything unique about the Merrillville community? I guess the sale price was lower than I thought it would have been.

Sure. This is Carey. From a debt maturity standpoint, the first debt that we have coming due is in the fourth quarter of 2021. That's some of the bridge loans that we have that are smaller in amounts. And then we have -- the first fixed rate debt we have coming is in 2022. So it's a little ways out. We have time for the recovery to -- U.S. economy to recover and for our operations to recover from there. And remind me the second question, I'm sorry. Ben Mackovak;Cavalier Capital;Analyst: The Merrillville community, was there anything unique to it?

Merrillville, Indiana? Ben Mackovak;Cavalier Capital;Analyst: Yes, in Indiana, yes. Was there anything unique to it that resulted in that purchase price?

Yes. Well, that's a community in Merrillville, Indiana that has been struggling for some time -- just the market itself. The overall economy there is not good. It's -- and so it's a market that has -- it's not -- it's one that we looked at and thought, we don't want to be in that market long term, that the growth prospects are not good, the demographics are not what we are looking for. And so we look to exit that community. And the price is really indicative of kind of what others also perceive the market to be and the cash flow that, that particular community has been able to generate over the past year or so.

It appears there are no further questions at this time, Ms. Lody. I would like to turn the conference back to you for any additional or closing remarks.

Great. Thank you, Sandra. Thank you to our shareholders, vendors, residents and employees for your trust in Capital Senior Living. This concludes today's conference. Thank you, everyone. Stay safe, and have a great day.

This concludes today's call. Thank you for your participation. You may disconnect.