Market Overview

Genesis Healthcare Reports Strong Second Quarter 2018 Results

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KENNETT SQUARE, Pa., Aug. 07, 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 second quarter ended June 30, 2018. 

Second Quarter 2018 Results

  • US GAAP revenue in the second quarter of 2018 was $1.27 billion compared to $1.34 billion in the second quarter of 2017; 
     
  • US GAAP net loss attributable to Genesis Healthcare, Inc. in the second quarter of 2018 was $39.6 million compared to $65.2 million in the second quarter of 2017; and
     
  • Adjusted EBITDA in the second quarter of 2018 was $131.2 million compared to $137.1 million in the second quarter of 2017.

"I am extremely pleased with our second quarter results as our Adjusted EBITDAR less cash lease payments exceeded Wall Street estimates and recorded year-over-year growth for the first time since 2015," noted George V. Hager, Jr., Chief Executive Officer of Genesis.  "Although we continue to face pressure on occupancy and nursing wage inflation, I am encouraged by a number of favorable trends, including a flattening of skilled patient lengths of stay and greatly improved performance by our Rehabilitation Therapy segment."

"These trends, coupled with continued success aggressively managing our cost structure, divesting underperforming and non-core assets, reducing lease costs and focusing our day-to-day efforts on key operational performance improvement initiatives served to more than offset lingering headwinds," continued Hager.  "Looking ahead, we are well positioned to build on this momentum as we head into the second half of 2018."

"I am also pleased to report that the recent changes to the CMS 5-Star Quality Rating System, meant to better reflect the quality of care in a facility, resulted in a significant improvement for Genesis.  As it relates to overall Staffing, when CMS made their changes, Genesis' overall Staffing star rating improved from 2.7 to 3.3 stars; and our overall Quality star rating improved to more than 4 stars."

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 63 facilities as follows:

  1. During the second quarter, Genesis divested, exited or closed the operations of 18 facilities.  Including an additional facility divested in the first quarter of 2018, Genesis exited the operations on a total of 19 facilities since the start of the year, with approximate annual net revenue of $194.8 million, Adjusted EBITDA loss of $0.1 million and a pre-tax net loss of $25.2 million. Genesis estimates these transactions resulted in the reduction of approximately $13.8 million of annual cash lease payments.
     
  2. Genesis expects it will continue to exit the operations of challenging facilities and markets in the second half of the year.  Specifically, the Company expects to exit the operations of at least another 20 facilities, in addition to the 24 Texas facilities already announced.  In total, these 44 facilities generated approximate annual net revenue of $341.2 million, Adjusted EBITDA of $8.8 million and a pre-tax net loss of $24.8 million. Genesis estimates these transactions will result in the reduction of an additional $11.4 million of annual cash lease payments.
     
  3. In August 2018, Genesis expects to open its 12th PowerBack Rehabilitation location in a brand new state-of-the-art rehabilitation facility in Exton, PA.  PowerBack Rehabilitation offers 100% all short stay rehabilitation so patients can return home as soon as possible.

Other Updates
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 three and six months ended June 30, 2018 was a $22.0 million and $46.8 million implicit price concession, respectively, 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 three and six months ended June 30, 2017, reported net revenue would have been $1,317.3 million and $2,682.9 million, respectively, with no impact to net loss attributed to Genesis Healthcare, Inc.

Conference Call
Genesis Healthcare, Inc. will hold a conference call at 8:30 a.m. Eastern Time on Wednesday, August 8, 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 440 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 Contact:  
Investor Relations                                           
610-925-2000


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

                         
    Three months ended June 30,    Six months ended June 30, 
    2018   2017   2018   2017
Net revenues   $  1,272,360     $  1,341,276     $  2,573,432     $  2,730,408  
Salaries, wages and benefits      705,754        739,402        1,441,524        1,563,896  
Other operating expenses      370,555        396,316        754,715        762,137  
General and administrative costs      39,046        41,151        78,921        86,237  
Lease expense      32,111        38,234        65,182        74,334  
Depreciation and amortization expense      63,495        60,227        114,998        124,596  
Interest expense      117,955        124,288        232,992        249,042  
(Gain) loss on early extinguishment of debt      (501 )      2,301        9,785        2,301  
Investment income      (1,631 )      (1,392 )      (2,678 )      (2,501 )
Other (income) loss      (22,220 )      4,190        (22,152 )      13,224  
Transaction costs      3,112        3,781        15,207        6,806  
Customer receivership and other related charges      —        35,566        —        35,566  
Long-lived asset impairments      27,257        —        55,617
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