Market Overview

Genesis HealthCare Reports First Quarter 2018 Results

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KENNETT SQUARE, Pa., May 10, 2018 (GLOBE NEWSWIRE) -- Genesis Healthcare, Inc. (Genesis, or the Company) (NYSE:GEN), one of the largest post-acute care providers in the United States, today announced operating results for the first quarter ended March 31, 2018. 

First Quarter 2018 Results

  • US GAAP revenue in the first quarter of 2018 was $1.30 billion compared to $1.39 billion in the first quarter of 2017; 
     
  • US GAAP net loss attributable to Genesis Healthcare, Inc. in the first quarter of 2018 was $68.5 million compared to $50.8 million in the first quarter of 2017; 
     
  • Adjusted EBITDAR in the first quarter of 2018 was $150.6 million compared to $165.7 million in the first quarter of 2017; and

  • Adjusted EBITDA in the first quarter of 2018 was $117.5 million compared to $129.6 million in the first quarter of 2017.

"Adjusted EBITDAR in the current year quarter was reduced by $4.0 million associated with 38 under-performing, non-core facilities that were divested since the prior year quarter," noted George V. Hager, Jr., Chief Executive Officer of Genesis.  "In the current year quarter, there were two additional factors that served to reduce year-over-year Adjusted EBITDAR by approximately $10.0 million.  First, in the current year quarter, we experienced more adverse winter weather patterns in Northeast and Mid-Atlantic states than in the prior year quarter, resulting in $4.0 million of incremental utility and ground maintenance costs.   Second, 16 of our skilled nursing facilities during the current year quarter were subject to admission restrictions associated with influenza, staffing or other regulatory imposed restrictions.  As a result, these 16 centers generated approximately $6.0 million less Adjusted EBITDAR in the current year quarter as compared to the prior year quarter."

"Despite these unusual and unanticipated challenges this quarter, our Adjusted EBITDAR of $150.6 million met our expectations as our business leaders continue to demonstrate great diligence by effectively managing our operating cost structure, executing on dozens of performance improvement initiatives and reducing year-over-year general and  administrative costs by over 11%," continued Mr. Hager.

Portfolio Optimization
Genesis has made significant progress with its strategy to exit challenging facilities and certain low density markets in order to focus on investment and growth in core, strategic markets. During 2018, Genesis has completed or is in the process of divesting or exiting the operations of 43 buildings as follows:

  1. Genesis closed one leased facility in the first quarter of 2018, and exited the operations of five additional leased facilities on April 1, 2018.  These six facilities had annual net revenue of $37.5 million, Adjusted EBITDA of ($2.1) million and a pre-tax net loss of ($5.6) million. Genesis estimates these transactions will result in the reduction of approximately $0.8 million of annual cash lease expense.
     
  2. On April 11, 2018, Genesis announced that it had signed a definitive agreement to sell 23 Texas skilled nursing facilities (22 buildings owned by Genesis and one leased) to Regency REIT, LLC and exit the operations of one additional leased skilled nursing facility.  Aggregate annual revenue and EBITDA of all 24 Texas facilities totaled approximately $173.7 million and $7.5 million, respectively. Genesis estimates these transactions will result in the reduction of approximately $97 million of indebtedness and $1.8 million of annual cash lease expense.  The closing of these transactions is subject to further due diligence and other customary closing conditions.
     
  3. Genesis also expects to exit the operations of 13 additional leased facilities by July 1, 2018.  The 13 facilities generated annual net revenue of $155.6 million, Adjusted EBITDA of $5.8 million and a pre-tax net loss of ($16.4) million. Genesis estimates these transactions will result in the reduction of approximately $12.2 million of annual cash lease expense.

"We remain encouraged by the initiatives underway to improve margins, reduce leverage and strengthen the overall quality of our portfolio by exiting these non-strategic markets and underperforming assets," commented Mr. Hager.

Other Updates
New Real Estate Loan
On March 30, 2018, Genesis entered into two real estate loans with combined available proceeds of $75.0 million, $73.0 million of which was drawn as of March 31, 2018.  These five year loans, which are secured by the real estate loan of 18 skilled nursing facilities, are subject to an annual interest rate equal to LIBOR plus an applicable margin of 5.85%.  Net proceeds from the loans of $69.7 million were used to repay partially the Welltower Real Estate Loans.

China
In April 2018, Genesis announced that its subsidiary in China, referred to as GRS-HS, signed a definitive agreement to sell 51% of its investment in China, to Riswein Health Industry Investment Co., Ltd (Riswein) for $30.0 million.  The transaction is expected to close in the first quarter of 2019 and is subject to regulatory and licensing approvals, and other customary conditions. Riswein and GRS-HS will use the $30.0 million to further fund expansion in China.

Adoption and Impact of Revenue Recognition Accounting Standards
On January 1, 2018, Genesis adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).  Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The impact of applying ASC 606 to the quarter ended March 31, 2018 was a $24.8 million implicit price concession, directly reducing net revenues, which previously would have been recorded as a provision for losses on accounts receivable.

If the provisions of ASC 606 were applied on a pro forma basis to the quarter ended March 31, 2017, reported revenue would have been $1,365.6 million, with no impact to net loss attributed to Genesis Healthcare, Inc.

Genesis to Present at the Bank of America Merrill Lynch 2018 Health Care Conference
George V. Hager, Jr., Chief Executive Officer of Genesis, is scheduled to host a fireside chat at the Bank of America Merrill Lynch 2018 Health Care Conference on Thursday, May 17, 2018 at 10:00 a.m. Pacific Time.  The conference is being held at the Encore Hotel in Las Vegas, NV. A live webcast and replay of the Company's fireside chat will be available on the Company's website at www.genesishcc.com/investor-relations.

Conference Call
Genesis Healthcare, Inc. will hold a conference call at 8:30 a.m. Eastern Time on Thursday, May 10, 2018.  Investors can access the conference call by calling (855) 849-2198 or live via a listen-only webcast through the Genesis website at http://www.genesishcc.com/investor-relations/, where a replay of the call will also be posted for one year. 

About Genesis Healthcare, Inc.
Genesis Healthcare, Inc. (NYSE:GEN) is a holding company with subsidiaries that, on a combined basis, comprise one of the nation's largest post-acute care providers with more than 450 skilled nursing facilities and assisted/senior living communities in 30 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to more than 1,600 healthcare providers in 46 states, the District of Columbia and China.  References made in this release to "Genesis," "the Company," "we," "us" and "our" refer to Genesis Healthcare, Inc. and each of its wholly-owned companies. Visit our website at www.genesishcc.com.

Forward-Looking Statements
This release includes "forward-looking statements" within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "continue," "pursue," "plans," or "prospect," or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about Genesis' expectations and beliefs regarding its future financial performance, anticipated cost management, anticipated business development, anticipated financing activities and anticipated demographic and supply-demand trends facing the industry. These forward-looking statements are based on current expectations and projections about future events, including the assumptions stated in this release, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of Genesis may differ materially from that expressed or implied by such forward-looking statements.

These risks and uncertainties include, but are not limited to, the following:

  • reductions and/or delays in Medicare or Medicaid reimbursement rates, or changes in the rules governing the Medicare or Medicaid programs could have a material adverse effect on our revenues, financial condition and results of operations;
  • reforms to the U.S. healthcare system that have imposed new requirements on us and uncertainties regarding potential material changes to such reforms;
  • revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;
  • our success being dependent upon retaining key executives and personnel;
  • it can be difficult to attract and retain qualified nurses, therapists, healthcare professionals and other key personnel, which, along with a growing number of minimum wage and compensation related regulations, can increase our costs related to these employees;
  • recently enacted changes in Medicare reimbursements for physician and non-physician services could impact reimbursement for medical professionals;
  • we are subject to extensive and complex laws and government regulations. If we are not operating in compliance with these laws and regulations or if these laws and regulations change, we could be required to make significant expenditures or change our operations in order to bring our facilities and operations into compliance;
  • our physician services operations are subject to corporate practice of medicine laws and regulations. Our failure to comply with these laws and regulations could have a material adverse effect on our business and operations;
  • we face inspections, reviews, audits and investigations under federal and state government programs, such as the Department of Justice. These investigations and audits could result in adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition, and reputation;
  • significant legal actions, which are commonplace in our industry, could subject us to increased operating costs, which could materially and adversely affect our results of operations, liquidity, financial condition, and reputation;
  • insurance coverages, including professional liability coverage, may become increasingly expensive and difficult to obtain for health care companies, and our self-insurance may expose us to significant losses;
  • failure to maintain effective internal control over financial reporting could have an adverse effect on our ability to report on our financial results on a timely and accurate basis;
  • we may be unable to reduce costs to offset decreases in our patient census levels or other expenses timely and completely;
  • completed and future acquisitions may consume significant resources, may be unsuccessful and could expose us to unforeseen liabilities and integration risks;
  • we lease a significant number of our facilities and may experience risks relating to lease termination, lease expense escalators, lease extensions, special charges and leases that are not economically efficient in the current business environment;
  • our substantial indebtedness, scheduled maturities and disruptions in the financial markets could affect our ability to obtain financing or to extend or refinance debt as it matures, which could negatively impact our results of operations, liquidity, financial condition and the market price of our common stock;
  • the holders of a majority of the voting power of Genesis' common stock have entered into a voting agreement, and the voting group's interests may conflict with the interests of other stockholders;
  • exposure to the credit and non-payment risk of our contracted customer relationships, including as a result from bankruptcy, receivership, liquidation, reorganization or insolvency, especially during times of systemic industry pressures, economic conditions, regulatory uncertainty and tight credit markets, which could result in material losses;
  • some of our directors are significant stockholders or representatives of significant stockholders, which may present issues regarding diversion of corporate opportunities and other potential conflicts; and
  • we are a "controlled company" within the meaning of New York Stock Exchange (NYSE) rules and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.

The Company's Annual Report on Form 10-K for the year ended December 31, 2017, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the U.S. Securities and Exchange Commission, discuss the foregoing risks as well as other important risks and uncertainties of which investors should be aware. Any forward-looking statements contained herein are made only as of the date of this release. Genesis disclaims any obligation to update its forward-looking statements or any of the information contained in this release. Investors are cautioned not to place undue reliance on these forward-looking statements.

           
GENESIS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

             
    Three months ended March 31, 
    2018     2017  
Net revenues   $ 1,301,072     $ 1,389,132  
Salaries, wages and benefits     735,770       824,494  
Other operating expenses     384,160       365,821  
General and administrative costs     39,875       45,086  
Lease expense     33,071       36,100  
Depreciation and amortization expense     51,503       64,369  
Interest expense     115,037       124,754  
Loss on early extinguishment of debt     10,286        
Investment income     (1,047 )     (1,109 )
Other loss     68       9,034  
Transaction costs     12,095       3,025  
Long-lived asset impairments     28,360        
Equity in net loss (income) of unconsolidated affiliates     220       (134 )
Loss before income tax expense     (108,326 )     (82,308 )
Income tax expense     347       1,284  
Loss from continuing operations     (108,673 )     (83,592 )
Loss from discontinued operations, net of taxes           (21 )
Net loss     (108,673 )     (83,613 )
Less net loss attributable to noncontrolling interests     40,135       32,852  
Net loss attributable to Genesis Healthcare, Inc.   $ (68,538 )   $ (50,761 )
Loss per common share:            
Basic and Diluted:            
Weighted-average shares outstanding for loss from continuing operations per share
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