Market Overview

Genesis HealthCare Reports Solid Fourth Quarter 2018 Results

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KENNETT SQUARE, Pa., March 18, 2019 (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 fourth quarter ended December 31, 2018. 

Fourth Quarter and Fiscal Year End 2018 Results

  • US GAAP revenue in the fourth quarter of 2018 was $1.2 billion compared to $1.3 billion in the fourth quarter of 2017;  US GAAP revenue in the year ended 2018 was $5.0 billion compared to $5.4 billion in the year ended 2017;
     
  • US GAAP net loss attributable to Genesis Healthcare, Inc. in the fourth quarter of 2018 was $69.0 million compared to $89.2 million in the fourth quarter of 2017;  US GAAP net loss attributable to Genesis Healthcare, Inc in the year ended 2018 was $235.2 million compared to $579.0  million in the year ended 2017;
     
  • Adjusted EBITDAR in the fourth quarter of 2018 was $144.1 million compared to $143.6 million in the fourth quarter of 2017;  Adjusted EBITDAR in the year ended 2018 was $603.9 million compared to $632.4 million in the year ended 2017;  and
     
  • Adjusted EBITDA in the fourth quarter of 2018 was $111.8 million compared to $109.0 million in the fourth quarter of 2017.  Adjusted EBITDA in the year ended 2018 was $474.1 million compared to $484.9 million in the year ended 2017.

"This was another solid quarter for Genesis as we reached two new and important milestones," noted George V. Hager, Jr., Chief Executive Officer of Genesis.  "First, despite having 46 fewer facilities under our operation in the fourth quarter of 2018 as compared to 2017, Adjusted EBITDAR grew about 40 basis points on an absolute basis and 6.5% on a "same-store" basis.  Second, "same-store" occupancy grew this quarter over the same quarter last year by 30 basis points, marking the first period of year over year occupancy growth since 2014."

"Reflecting on 2018, I am pleased with the many milestones reached and accomplishments made by our dedicated team," continued Hager.   "Last year we strengthened Genesis by successfully restructuring leases and loans, divesting underperforming or non-strategic assets, reducing overhead costs and driving solid and consistent operating results while enhancing our clinical outcomes.  We are excited to build on these accomplishments and our momentum in 2019."

Portfolio Optimization
Genesis continues to progress 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 fourth quarter, Genesis divested, exited or closed the operations of 29 facilities.  Including the facilities divested in the first nine months 2018, Genesis exited the operations of 55 facilities in total for the year, with approximate annual net revenue of $487.8 million, Adjusted EBITDA of $10.7 million and a pre-tax net loss of $36.2 million. Genesis estimates these transactions resulted in the reduction of approximately $20.7 million of annual cash lease payments.
             
Genesis will continue to exit operations of challenging facilities and markets in 2019. The Company exited operations of an additional 10 facilities thus far during the first quarter of 2019.  In total, these 10 facilities generated approximate annual net revenue of $98.0 million, Adjusted EBITDA of ($1.2) million and a pre-tax net loss of $7.3 million. These divestitures will result in the reduction of $3.4 million of annual cash lease payments.

Portfolio Expansion
In the fourth quarter of 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 $60.0 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 as a consequence of these acquisitions.

As announced earlier, on January 31, 2019, Genesis also entered into a new real estate partnership (Partnership) with Next Healthcare Capital (Next) involving 15 skilled nursing facilities previously leased from Welltower Inc. (Welltower).  Welltower sold the real estate of 15 facilities to the new Partnership, of which Genesis acquired a 46% ownership interest.  Genesis also acquired a fixed price purchase option to acquire the real estate beginning in 2026 at a 10% premium above the original acquisition cost. Genesis will continue to operate these facilities pursuant to a new lease with the Partnership.   The remaining interest is held by Next, a privately owned healthcare real estate investment firm. The 15 facilities had been included in the Company's master lease with Welltower and were subject to 2.0% annual rent escalators. Under the new lease, there are no rent escalators for the first five years.
             
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 twelve months ended December 31, 2018 was a $28.4 million and $95.8 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 twelve months ended December 31, 2017, reported net revenue would have been $1,304.1 million and $5,277.3 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 Monday, March 18, 2019.  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 400 skilled nursing facilities and assisted/senior living communities in 29 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to approximately 1,400 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 December 31,    Twelve months ended December 31,
  2018     2017     2018     2017  
Net revenues $  1,185,947     $  1,327,880     $  4,976,650     $  5,373,740  
Salaries, wages and benefits    664,780        733,568        2,786,908        3,036,868  
Other operating expenses    354,101        420,891        1,479,880        1,583,114  
General and administrative costs    34,777        40,061        149,182        167,718  
Lease expense    32,311        34,521        129,859        147,525  
Depreciation and amortization expense    52,860        71,800        220,896        255,786  
Interest expense    115,051        125,909        463,738        499,382  
(Gain) loss on early extinguishment of debt    (9,394 )      (8,866 )      391        (6,566 )
Investment income    (1,976 )      (1,231 )      (6,832 )      (5,328 )
Other loss (income)    29,441        (7,130 )      (12,920 )      8,473  
Transaction costs    5,386        6,462        31,953        14,325  
Customer receivership and other related charges    —        55,000  
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