Early today, Capital Senior Living announced revisions to its second quarter earnings report, most likely as a result of our reporting last Friday of the very misleading error, as well as management’s denial of any reporting issue during the earnings call. No one else caught the mistake, and it was not an insignificant one.
In today’s release, they called it an “inconsistency” in the preparation of the supplemental information with regard to operating expenses and operating margin. As a result, the operating margin for the second quarter was 21.5% and not 28.7% as was originally reported. The originally reported 860-basis point sequential increase in operating margin should have been a red flag to anyone preparing the report because, as we reported, that would have been impossible in normal times, let alone during a pandemic.
What is difficult to understand is that management had the opportunity to correct the mistake prior to the earnings call and right after it, but had to wait for the weekend to pass to let shareholders know that they were not close to getting back to a 30% margin? Had there been pressure to try to boost stated operating margins because of the recapitalization currently going on? Who knows? Did management actually believe there had been a huge increase in margin in one quarter? It is hard even for us to think that could be true.
Unfortunately, with a market cap of just $65 million, no one really cares anymore, and just one equity analyst follows the company (for now). But as one of the few remaining publicly traded seniors housing companies (for now), people should care, and it is one of the few open windows to watch for key industry trends. That is why it is important to get the numbers right. But the real troubling news was the slowing increase in census following the major gains in April and May. With leads and move-ins at pre-pandemic levels, we hope that slowing trend reverses course in August and September.
