Market Overview

Genesis Healthcare Reports Solid Second Quarter 2019 Results

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KENNETT SQUARE, Pa., Aug. 08, 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 second quarter ended June 30, 2019. 

Second Quarter 2019 Results

  • US GAAP revenue in the second quarter of 2019 was $1.15 billion compared to $1.27 billion in the second quarter of 2018; 
     
  • US GAAP net loss attributable to Genesis Healthcare, Inc. in the second quarter of 2019 was $4.8 million compared to a net loss of $39.6 million in the second quarter of 2018; and
     
  • Adjusted EBITDAR in the second quarter of 2019 was $156.0 million compared to $163.3 million in the second quarter of 2018.

"We are pleased to announce another consecutive strong quarter for Genesis," noted George V. Hager, Jr., Chief Executive Officer of Genesis.  "Current quarter "same-store" Adjusted EBITDAR grew 4.1% and the related margin expanded by 80 basis points, as compared to the prior year quarter.  "Our inpatient segment continues the steady and improving performance experienced over the past few quarters led by "same-store" occupancy growth of 80 basis points and effective expense management."

"Our team of dedicated professionals remains focused on providing quality outcomes to our patients, optimizing our portfolio of assets, improving operating performance and making final preparations for the October 1, 2019 transition to the new Medicare Patient Driven Payment Model, which we expect will be good for our patients and accretive for Genesis," continued Hager.

Portfolio Optimization
Genesis continues to exit underperforming facilities and certain low density markets in order to focus on investment and growth in core, strategic markets. During the second quarter of 2019, Genesis divested, exited or closed the operations of nine facilities.  During the first and second quarter of 2019, Genesis exited a total of 19 facilities with approximate annual net revenue of $179.0 million, a pre-tax net loss of $9.1 million and Adjusted EBITDA of $4.4 million. These transactions resulted in the reduction of approximately $4.3 million of annual cash lease payments.
             
Subsequent to June 30, 2019, Genesis divested 11 leased facilities and one owned assisted living facility.  As a result of these divestitures, Genesis completed its exit from the inpatient business in Ohio.  The 12 divested facilities resulted in a reduction of $1.9 million of annual cash lease payments.  In aggregate, these 12 facilities generate approximate annual net revenue of $73.5 million, a pre-tax net loss of $4.7 million and Adjusted EBITDA of $2.4 million.

"In addition to divestitures, we are prioritizing future transactions that will lessen the burden of lease escalators, allow us to participate in future real estate appreciation, reduce our overall cost of capital and set the stage for greater facility ownership in the future," commented Hager.

Adoption of New Lease Accounting Standard
On January 1, 2019, Genesis adopted FASB Accounting Standards Codification Topic 842, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet.  Therefore, comparative information for periods prior to January 1, 2019 has not been adjusted.

Topic 842 had a material effect on Genesis's consolidated financial statements.  The most significant effects of adoption relate to (1) the recognition of new right-of-use (ROU) assets and lease liabilities on its consolidated balance sheet for real estate operating leases; (2) the derecognition of existing assets and liabilities for sale-leaseback transactions that previously did not qualify for sale accounting; and (3) providing significant new disclosures about its leasing activities.  In addition, for the three and six months ended June 30, 2019, adoption of Topic 842 is the primary driver of the increase to lease expense and the decrease to interest expense, when compared to the same periods in the prior year, since the prior year has not been adjusted. 

Conference Call
Genesis Healthcare, Inc. will hold a conference call at 8:30 a.m. Eastern Time on Thursday, August 8, 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 approximately 400 skilled nursing facilities and assisted/senior living communities in 27 states nationwide. Genesis subsidiaries also supply rehabilitation therapy to approximately 1,200 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, 2018, 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, 
    2019
  2018    2019
  2018
Net revenues   $  1,145,052     $  1,272,360     $  2,306,692     $  2,573,432  
Salaries, wages and benefits      626,159        705,754        1,268,569        1,441,524  
Other operating expenses      332,528        370,555        675,066        754,715  
General and administrative costs      35,562        39,046        71,094        78,921  
Lease expense      94,586        32,111        188,647        65,182  
Depreciation and amortization expense      28,268        63,495        66,463        114,998  
Interest expense      52,975        117,955        104,491        232,992  
(Gain) loss on early extinguishment of debt      (24 )      (501 )      (24 )      9,785  
Investment income      (2,143 )      (1,631 )      (4,007 )      (2,678 )
Other income      (23,413 )      (22,220 )      (40,330 )      (22,152 )
Transaction costs      8,823        3,112        10,084        15,207  
Long-lived asset impairments      900        27,257        900        55,617  
Goodwill and identifiable intangible asset impairments      —        1,132        —        1,132  
Equity in net (income) loss of unconsolidated affiliates      (24 )      38
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