Market Overview

Genesis HealthCare Reports Solid Third Quarter 2018 Results

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KENNETT SQUARE, Pa., Nov. 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 third quarter ended September 30, 2018. 

Third Quarter 2018 Results

  • US GAAP revenue in the third quarter of 2018 was $1.22 billion compared to $1.32 billion in the third quarter of 2017; 
     
  • US GAAP net loss attributable to Genesis Healthcare, Inc. in the third quarter of 2018 was $58.1 million compared to $373.8 million in the third quarter of 2017; and
     
  • Adjusted EBITDA in the third quarter of 2018 was $113.5 million compared to $109.1 million in the third quarter of 2017.

"We are very pleased to report solid results for the third consecutive quarter, as we continued to build on our first half momentum," noted George V. Hager, Jr., Chief Executive Officer of Genesis.  "Adjusted EBITDAR on a same store basis in the third quarter of 2018 grew 2.6% from the third quarter of 2017, marking the first time we will report same store Adjusted EBITDAR growth since 2015.  Third quarter 2018 Adjusted EBITDAR less cash lease payments also beat FactSet consensus estimates for the third consecutive quarter and more importantly showed year-over-year growth of $16.2 million or 68%."

"Focused efforts and execution to reduce our cost of service and overhead structure across both our skilled nursing and rehabilitation services business segments along with the divestiture of underperforming facilities continues to produce value resulting in over 50 basis points of Adjusted EBITDAR margin expansion in the third quarter of 2018 as compared to the same period last year," continued Hager.

Portfolio Optimization
Genesis continues to 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 the third quarter, Genesis divested, exited or closed the operations of seven facilities.  Including the facilities divested in the first half of 2018, Genesis exited the operations of a total of 26 facilities since the start of the year, with approximate annual net revenue of $266.4 million, Adjusted EBITDA of $0.2 million and a pre-tax net loss of $35.7 million. Genesis estimates these transactions resulted in the reduction of approximately $20.5 million of annual cash lease payments.
             
Genesis expects it will continue to exit the operations of challenging facilities and markets in the fourth quarter of 2018. The Company expects to exit the operations of an additional 29 facilities by the end of the year.  In total, these 29 facilities generated approximate annual net revenue of $212.3 million, Adjusted EBITDA of $7.8 million and a pre-tax net loss of $3.2 million. These divestitures will result in nearly $100 million of debt repayment and the reduction of $0.3 million of annual cash lease payments.

Portfolio Expansion
The Company is excited to report expansion of the services it provides to patients and residents in the following core, strategic markets.   

  • On November 1, 2018, Genesis acquired the operations of eight skilled nursing facilities and one assisted living facility in New Mexico and Arizona, increasing our presence in markets we view as favorable.  The nine new facilities have approximately 1,000 beds and generate approximate annual net revenue of $60 million.  The facilities are leased from one of the Company's major REIT partners. Genesis expects no material impact to EBITDA in the next 12 months.
     
  • In August 2018, Genesis opened its 10th stand-alone PowerBack Rehabilitation location in a new 120-bed 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 Standard
On January 1, 2018, Genesis adopted FASB 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 nine months ended September 30, 2018 was a $20.6 million and $67.4 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 nine months ended September 30, 2017, reported net revenue would have been $1,290.3 million and $3,973.2 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 Thursday, November 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. 

Stifel 2018 Healthcare Conference
Genesis also announced today that George V. Hager, Jr., Chief Executive Officer, and Tom DiVittorio, Chief Financial Officer, are scheduled to conduct a "fireside chat" at the Stifel 2018 Healthcare Conference on Tuesday, November 13, 2018 at 11:45 a.m. Eastern Time.  A live webcast and replay will also be available on the Company's website at www.genesishcc.com/investor-relations.

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 400 skilled nursing facilities and assisted/senior living communities in 29 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to approximately 1,500 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;
  • 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; and
  • 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.

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 September 30,    Nine months ended September 30, 
    2018   2017   2018   2017
Net revenues   $  1,217,271     $  1,315,452     $  3,790,703     $  4,045,860  
Salaries, wages and benefits      680,604        739,404        2,122,128        2,303,300  
Other operating expenses      371,064        400,086        1,125,779        1,162,223  
General and administrative costs      35,482        41,420        114,404        127,657  
Lease expense      32,366        38,670        97,548        113,004  
Depreciation and amortization expense      53,038        59,390        168,036        183,986  
Interest expense      115,695        124,431        348,687        373,473  
Loss on early extinguishment of debt      —        —        9,785        2,301  
Investment income      (2,178 )      (1,596 )      (4,856 )      (4,097 )
Other (income) loss      (20,207 )      2,379        (42,360 )     ?
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